Snam S.p.A. ($SRG)

Hello, everyone. Welcome to the Q1 2026 Results Presentation Conference Call. My name is Gara, and I will be the operator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to Francesca Pezzoli, Executive Director, Investor Relations, Sustainability, P&C and Ratings, to begin the conference. Please go ahead.

Good afternoon, ladies and gentlemen. Welcome to the presentation of Snam's consolidated results for first quarter of 2026, which were approved by the Board earlier today. I am here with Luca Passa, Snam's Chief Financial Sustainability and International Asset Management Officer. Luca will walk you through the most recent market trends and updates, the latest regulatory developments and the main industrial financial achievements over the period. He will then provide a detailed review of our financial results, and then we will open the floor for your questions. With that, I'm pleased to hand over to Luca.

Thank you, Francesca, and good afternoon, everyone. I'm on Page #2. Italian gas demand was around 0.5% in the first quarter '26 with exports stable at 0.5 bcm. Physical flows were unaffected by almost developments, while geopolitical uncertainty drove price volatility. 2026 WACC is stable across all our businesses, providing visibility on returns. In parallel, the recent energy law-decree, as mandated ARERA, our regulator, to define the regulatory framework and key principle for CCS, representing an important step towards greater clarity on the development of this segment. We delivered sound first quarter 2026 results. Adjusted EBITDA of EUR 775 million is up 9% year-on-year when adjusted for first quarter 2025 one-off related to the 2024 deflator update recovery driven by organic growth and larger perimeter. Adjusted net income at EUR 375 million is up 2% year-on-year, net of above-mentioned one-off, thanks to higher EBITDA, partially counterbalanced by depreciation and financial charges. Investment at approximately EUR 1 billion includes the acquisition control over OLT. The transaction is strategic to expand our LNG footprint, which is essential for national security of supply. Net debt stood at EUR 18.5 billion versus EUR 17.5 billion at the end of 2025. After the investment activity carry out during the period, the payment of the interim dividend, OLT control acquisition and the cash out for the Italgas Exchangeable refinancing. The average cost of debt remained broadly stable at 2.6%. Moving to M&A and financing. In March, we completed the acquisition of the control of OLT and promptly refinance is exiting the achieving more favorable terms and optimizing the capital structure. In addition, we have extended an increase to EUR 5.1 billion, our sustainability linked revolving credit facility. Following the presentation of our business plan, Moody's upgraded our rating to Baa1 with stable outlook, while S&P Global Ratings revised us from negative to stable this morning, confirming the A- rating. At the same time, equity analysts have revised upwards their estimates and target prices, confirming the positive market reception of the plan in terms of value creation and strengthening of our credit profile. Moving to Slide #3. Adriatic Line Phase 1 is 80% completed. It was 68% at December 2025 with total grants cash in for around EUR 291 million including EUR 57 million received in the quarter. Storage levels already reached around 50% at the end of April, and they are at 53% as of today, with 90% filling target before the next winter already secured to the latest actions. LNG continues to provide significant volumes and flexibility, accounting for around 33% of total gas imports with 52 cargoes delivered to Italy versus 45% last year. We have successfully completed Phase 1 of the competitive auction process for the disposal of our biomethane business which attracted a very significant market interest. We are now moving into the second phase with the objective of signing by year-end with the business to be classified as for sale and the closing at the beginning of next year. We also made important progress on sustainability. Sustainable Finance reached 86%, up 1% versus December 2025. We maintained extensive gains with shareholders, reflecting in an average approval rate of around 98% across all AGM items. On ESG ratings, MSCI AA was confirmed, and we are included also this year in the Dow Jones Sustainability best-in-class index. Moving to Page #4. In the January-March period, Italian gas demand amounted to 21.8 bcm. The 0.5% increase year-on-year was mainly driven by the thermoelectric sector, 0.1 bcm or plus 2%, partially offsetting lower hydroelectric generation. Demand from the industrial and civil sectors remain broadly in line with the first quarter 2005 levels. In the early months of the year, residential consumption was primarily influenced by the weather conditions. Export was stable at approximately 0.5 bcm, mainly through Tarvisio. Looking at the supply flows, we have seen a further increase with LNG volumes up 17% versus first quarter 2025 mainly driven by the good availability of the Ravenna terminal, which has been fully operational since May 2025. The additional LNG capacity is significantly enhancing the country's energy security by diversifying supply sources, which is particularly important in the current geopolitical environment. So far in Italy, we have not observed any physical disruption to the gas flows, we don't expected cargoes in March deliver as planned. In April, Qatari volumes affected by the first majeure were effectively replaced by cargos from alternative geographies. More broadly, Europe has experienced limited physical tightness so far, supported by weaker weather-driven demand in March and April as well as the reduced competition from Asia. Storage refilling remains as a key European team looking ahead. And in this context, we have proactively accelerated the injection into our storage facilities, securing the volumes required for the next winter season. In fact, moving to the Slide #5, through a proactive approach and cross coordination with institution and the regulator, Snam ensures the condition for a timely and efficient storage refill ahead of the winter. Following the distraction, sufficient capacity has been allocated to achieve the target of filling Italian gas storage facilities to at least 90%. In total, around 17.5 bcm have been allocated out of our domestic storage capacity of just over 19 billion cubic meters, taking into account both the gas ready store and the volumes contractually secured. As a result, by the end of April, storage levels reached around 50% of available capacity today at 53% compared with a European average of approximately 33%, which includes also Italy. This represents a critical factor in the current context of supply uncertainty supporting system security while helping to mitigate price volatility and reduce market speculation. Moving to Slide #6. On investments, out of the total investments around 54% refers to the OLT transaction. Considering only technical investments, over 50% are related to development. 90% of the investment growth of OLT enterprise value acquisitions are in European taxonomy line and include H2 ready replacement, dual well compressor stations, biomethane plants connection, H2 and CCS investments and large part of biomethane CapEx and energy efficiency, excluding cogeneration. SDG alignment is calculated only on technical investment, excluding the OLT business combination and is 56% of which majority goes towards SDG 9, 13 and 7, respectively, industry innovation and infrastructure, climate action and affordable and clean energy. Let's now move to the EBITDA analysis on Slide #7. Adjusted EBITDA for the period was EUR 775 million, plus 2% compared to last year and plus 9%, netting the EUR 52 million deflator one-off recognized in the first quarter of 2025. The growth is mainly attribute to Regulatory revenues increased from about EUR 33 million mainly related to tariff RAB and AutoBase growth. Perimeter effects are related to Stogiadriatica growth for EUR 8 million that in 2025 entered into perimeter from March. Ravenna FSRU for EUR 10 million that started operating from May 2025 and OLT consolidation from March 2026. The slight increase in related costs is mainly attributable to lower cost and new hires. With regards to the Market Solutions businesses, the plus EUR 7 million EBITDA contribution is mainly driven by biomethane following higher business volumes and to energy efficiency and energy performance contracts in public administration segment. As for the full year 2016 guidance, we confirm adjusted EBITDA to reach around EUR 3.1 billion driven by rate growth, wealthy consolidation and the full year contribution of Stogic-Adriatica, Moving to Slide #8. During the first quarter, our associate portfolio confirmed its resilience against a backdrop of hate geopolitical and macroeconomic volatility. delivered a strong quarter, supported by the capacity expansion by 1.2 bcm a year, reinforcing a strategic role in the diversification of Italy's gas imports. DESFA benefited from lower net financial expenses, although this effect is expected to reverse over the year. SeaCorridor's performance was mainly driven by higher operating costs and depreciation, also reflecting feeling effects related to carryover activities that we partially absorbed during the year. Terega was impacted by lower cross-border bookings and the Spanish interconnection, and effect expected to be recovered over time through standard regulatory mechanisms. The recent agreement by Enagas acquired 31.5% stake in Terega in which we own a 40.5% interest clearly highlights the underlying value of the assets which benefits from a stable and visible regulated return profile supported by an integrated gas infrastructure platform made by pipelines and storage with upside potential from the development of H2 and CCS infrastructure. EMG was the only group asset directly affected by the conflict in Iran with a temporary reduction in gas flows in March, resulting in a limited impact of EUR 2 million on the first quarter results which flows back at regime from April 3. Finally, Italian associates benefited from a one-off effect linked to the OLT transaction closing. Overall, first quarter performance is in line with our full year expectation of around EUR 360 million contribution. The year-on-year decline is mainly driven by the one-off and perimeter effects, including the ADNOC divestment in the early 2025 and the deconsolidation of OLT from associates following its full consolidation on a line-by-line basis from March. Let's now move to the first quarter 2026 net income analysis on Slide #9. Adjusted net income for the period was EUR 375 million, minus 8% compared to the first quarter of 2025 and plus 2% considering that the flat one-off recorded in the first quarter of 2025 net of the fiscal effect. The trend is attributable to higher EBITDA, partially counterbalanced by higher D&A, EUR 434 million following new area, Ravenna FSRU and the auto consolidation, all of which waits for about EUR 14 million, higher net financial expenses due to higher average net debt with an average net cost of debt stable at approximately 2.6%, slightly negative contribution from associates for EUR 4 million as a result of higher Italian associate contribution for 7 counterbalanced by a decrease of EUR 11 million in the international associates. First quarter 2026 taxes included -- includes the ERP increase and a benefit on the OLT from recovery of deductible financial expenses related to the previous years. As for the full year 2026 guidance, we confirm an adjusted net income above EUR 1.45 billion, which reflects the EBITDA performance, partially contributed by higher D&A and higher net rents around EUR 40 million of IRF increase related to the energy decree mentioned before. Turning now to the cash flow on Slide #10. Cash flow from operations for the period amount to around EUR 860 million and was the result of $626 million of funds from operations and EUR 234 million of positive working capital. The change in working capital was mainly driven by about EUR 400 million of tariff-related items and EUR 100 million of super bonds fiscal credit decrease, partially counterbalanced by around minus EUR 180 million of temporary commercial net working capital and minus EUR 100 million related to the full service. Net investment for the period amounted to EUR 574 million, including the cash out related to the OLT transaction, net of cash acquired. Other outflows were mainly related to the payment of the interim dividend for EUR 404 million and to the impact of the Italgas bond exchangeable refinancing for EUR 432 million while other items are largely attributable to the OLT debt consolidation, resulting in a change in net debt of about EUR 992 million. Moving to Slide 11. Net debt amounted to around EUR 18.5 billion at the end of March 2026 with net cost of debt substantially stable at 2.6%, while the fixed to floating mix stands at 75%, 25%. Sustainable Finance reached approximately 86% of committed financing, up 1% versus December 2025. During the first part of 2026, we successfully issued an exchangeable bond in Italgas shares for EUR 500 million as refinancing of the existing bond. We secured bilateral banking facilities totaling EUR 600 million as well as drawn down EUR 140 million from the European Investment Bank signed in 2025 for the connection of biomethane production plants into national gas networks. In addition, we have extended and increased to EUR 5.1 billion our sustainability revolving credit facility. As for credit agencies, Moody's upgraded Snam to Baa1 stable outlook in April on the back of the 2025 results and stronger forward metrics compliant with a 12% threshold on debt for the higher position. Fitch affirmed the BBB+ rating with stable outlook, flagging the metrics are very well positioned for the current trading and close to the A- positioning. And finally, today, Standard & Poor's affirmed the menstruating, improving the outlook from negative to stable, confirming the solid investment grade profile of Snam. As for the full year 2026 guidance, we confirm a net debt at around EUR 19 billion, including the OLT acquisition and its consolidation. To conclude, we are delivering across all fronts, security of supply, strategy execution and financial performance. I'm on Slide #12. We are supporting security of supply, the 90% storage filling target hydro winter has already been contracted, strengthened the resilience and flexibility of the national energy system. At the same time, we are making solid progress in executing our strategy with key projects advancing as planned. This is translating into a solid financial performance, underpinned by the strength and full visibility on our regulated business. Overall, we remain fully on track to deliver our full year 2026 guidance. We are now ready to take your questions.

[Operator Instructions] The next question comes from the line of James Brand of Deutsche Bank.

I have two questions. The first is on the new CCS regulation that you mentioned. In the strategic plan, I think there was EUR 0.8 billion of investment in the plan related to new CCS pipeline. I was just wondering, is the regulation kind of shaping up the early discussions around it, how you expected? Could that provide kind of upside to the plan? Or do you still see that level of investment as being reasonable? That's the first question. And then the second question is just on the kind of trigger. Obviously, there's been some pretty big movements in bond yields and inflation as a kind of debate around whether France gets taken out of the measurement of the risk-free rates? Where do you see those debates going? And do you think of market prime stay where they are at the moment, you'd get to trigger later this year?

Okay. Thanks, James. You're right. It's EUR 800 million investment during the plan. Regarding the regulation, what I can say at the moment is that the decree provides for basically ARERA to start drafting the guideline of the regulation, the decree has not been translated into law. Once it's done, ARERA will have 120 days to draft these guidelines. We don't have, let me say, further visibility vis-a-vis what we already assumed in our business plan. Our business plan for EUR 800 million of investment, which I remind are divided between EUR 400 million on transport and EUR 400 million on the equity injection in the JV for the storage part, which is a juncture with -- We are assuming an average return, which is 100 basis points higher than the one we are using for gas in transport and gas in storage. Now we will have more visibility during basically the course of this year, I suppose. And to the questions whether with this more visibility, we might decide to accelerate or increase investment, I think we will know a few months before we take FID, which at the moment is expected to be taken, I would say, the beginning first quarter next year. And that's what we can say at the moment on this topic. Regarding the second question, so the movements, yes, we saw the movement from monitor inflation, I can tell you that our mark-to-market for the 2027 trigger taking out France, and I will come back on that, is current below 30 basis points. Therefore, it doesn't trigger for the 3 businesses. The assumption is that France will be taken out because as you probably remember, they've been downgraded before the start of the servation period. Therefore, we will have a discussion with the regulator on this calculation because technically is in within the regulation, the fact that France is still in notwithstanding, they are not anymore a AA country. As far as the other impacts, clearly, what might drive some upside to our numbers is inflation. We are seeing inflation higher than our business plan in the next 2 years, 2027 and 2028, that clearly, if that materialize, you will have a higher revaluation of the RAB. Overall, also in the longer year, we can say that the increase in inflation is in the region of 0.1%, 0.2% vis-a-vis an average that was 1.9% across the years of the plan.

The next question comes from the line of Javier Suarez of Mediobanca.

I wanted to focus on the asset contribution. I think that during the presentation, the company has highlighted limited impact on the Middle East crisis or gas disruption in the gas market, et cetera, et cetera. So I just wanted to elaborate with you on the possible disruption in the contribution from associate -- the situation in the Middle East continues to stay as a complicated one. Do you perceive that as a risk in any of the subsidiaries? And are you calibrate on that, that would be helpful. Also on the associate interested on the -- by the entrance of a structure of Terega that you mentioned during the presentation. Do you see that as an accelerator in the business plan of the company or the strategic relevance of that asset to better different relevant European countries on the gas side as well? And the third question is on the taxation. This quarter taxation is relatively low and stable versus last year. I understand that there is a one-off this quarter. So can you elaborate with us which is your expectation for a normalized taxation by the year-end?

Thanks, Javier. Regarding asset contribution, contribution around this geopolitical context, we do not, let's say, foresee any other impact on our associate. The only impact, and I mentioned that during the presentation was on the EMG pipeline, which is the pipeline connecting Egypt to Israel where flows for just 4 months were lower than usual. They become, I would say, normal back at the beginning of April. The impact of EMG being all low flows is in a region of EUR 1 million per month, to give you basically a sensitivity. But since the third of April is running without basically any problem. Regarding the other subsidiary, we do not see any potential impact from the current geopolitical tensions. Whether on the second question on Terega, first of all, what we can comment is clearly the valuation that Terega signed for the transaction, which they're call under antitrust and older approval in France is revaluating the sum of the parts or some of the analysts for our stake because according to the evaluation that Terega is paying, basically, our stake should be in the region of EUR 750 million more or less of value, while the sum of the parts is in the tune of EUR 600 million. So there is, let me say, a value crystallization there that to be extracted. Terega is a very mature, very efficient asset in terms of strategy is very similar to the Snam strategy because they are very much involved in transport as well as in storage. One of the few assets that is involved in storage. And they are developing both hydrogen, as you know, to the Bama project as well as CCS. So the Enagas, I would say, acquisition is welcomed by us. They are a partner to us in other assets, and we welcome an industrial operator vis-a-vis financial investors in these assets also going forward. Regarding taxation, yes, you are right. We have a positive impact of EUR 4 million around the OLT acquisition, which is basically lowering our tax rate. Tax rate for the first quarter is 24.5%. Normalized tax rate, we are expecting for the full year guidance is in the region of 26.5%, which assumes 2% ERP increase that I have mentioned before.

The next question comes from the line of Bartek Kubicki of Bernstein.

I would like to touch base on two aspects. First of all, on the gas market, Perse and the regulation, meaning you mentioned first quarter was okay in terms of gas demand, but I would like to know whether you are seeing any gas demand distraction in April and May so far in Italy, but also in neighboring countries where you are exporting gas? And where you think the government may or more specifically the Italian government may do something to limit gas consumption in the country? And also on the gas market, I would like to ask you about your kind of first impressions, conversations with the new regulatory body or the regulatory report. And what is your view on their view and opinion on the gas market Whatever is something different versus the previous regulator? And just a clarification on the biomethane, if you can just update us on the book value of those assets at the end of first quarter '26?

Thanks, Bartek. On the first question, gas market, I would say, evolution, as I said, first up until the end of March is up basically 0.5%. We are estimating gas consumption for the full year at 64 bcm, which is higher than last year. April is a little bit less in terms of demand. It's minus 2% vis-a-vis April basically the 2025, and that is most linked to weather. Now the increase in gas demand we are seeing is coming from the thermoelectric sector being power generation with gas. Therefore we are not seeing any, I would say, effect from the current crisis around gas consumption. And on the second part of your question, whether the government is thinking about measures to limit gas consumption, we are not aware of any of this basically potential interventions. Clearly, what the government is focused on is in lower the energy bills for both industrial as well as residential customers, but that is part of the energy decree that they have actually approved at the end of February. But there are no design or no potential intervention at least for the moment, around basically gas consumption. On the second question, what I can tell you is we had, as all the other operators, the first public auction with new basically Board of ARERA including clearly the Chairman, I think what I can comment there is that they are very receptive of our views on the current situation with regards to gas and in particular, infrastructure supporting basic gas flows. So if I can comment, you asked what is the difference between them and the previous, I think they have been very pragmatic on what is the current situation, realizing that what we have done in terms of also the actions we took through the auctions in order to secure basically the file storage target 90% is clearly a sign that this regulator is supportive of infrastructure that is supporting clearly the gas as an energy vector in the country. As far as the book value of our biomethane platform at the end of the first quarter, you can call it at EUR 635 million, more or less, which is EUR 20 million more of what we had basically at the end of 2025.

The next question comes from the line of Mafalda Pombeiro of Goldman Sachs.

I only have one. Luca, is there any update or on the progress or maybe even on timing that you could give us on -- with respect to your asset rotation program announced at your recent CMD. I think there's been a few press in something could happen? And just interested to hear any comments you can give.

To be honest, Mafalda, we presented the asset rotation as a part of a combination of disposals for EUR 1.6 billion, a combination of potential acquisition of EUR 1.2 billion. We generally do not comment on M&A unless there is, let's say, a formal process of going like the one that we are currently doing for the biomethane platform. I already said on that particular process, we just entered Phase 1, we are entering Phase 2 with expectation to basically receive binding offers basically before the summer and potentially signing before year-end. Regarding the other assets around the asset tradition, again, I cannot comment. Once we have something to comment, we will tell you what we have signed in terms of disposal or in terms of acquisition. But I cannot comment -- I can tell you that there are ongoing discussions on both sides of the asset rotation, both on acquisition as well as asset disposals.

[Operator Instructions] The next question comes from the line of Emanuele Oggioni of Kepler.

The first one is only clarification on the guidance. The net profit guidance, I suppose it's adjusted net profit, so does not include the -- the additional year for EUR 40 million a year, in '26? The second question is on an update on the because the overall capacity is around 10 billion cubic meter, it was in '25. But in '26, this capacity should increase by 1.2 billion cubic meter. So you can update on this considering that Q1 was basically flat, plus 3% flows year-on-year.

Thanks, Emanuele. Regarding the guidance, yes, it's adjusted net income for EUR 1.450 million. It includes this guidance of EUR 40 million of additional taxation for the increase. So I repeat, it includes the EUR 40 million of the increase. Regarding basically -- yes, you are right, 2026, since January, we started to operate the pipe with 11.2 bcm of capacity, which has been, as you know, through basically market testing agreed with the shippers that are using this pipe. Therefore, the improvements that you see in the first quarter are derived basically from that kind of additional contribution. I can tell you that we are foreseeing TAP contributing above EUR 85 million for the full year of 2026.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So thank you very much for listening. I mean we are available for any follow-up questions. Good afternoon. Thank you.