Snam S.p.A. (SRG.MI), an Italian energy infrastructure company, reported strong financial results for the entire year 2023, exceeding its adjusted net income guidance with €1,168 million and achieving an 8% increase in adjusted EBITDA, which exceeded €2.4 billion.

The firm’s strategic investments in energy transition and infrastructure growth, totaling €2.2 billion, reflect a 14% rise from the prior year, despite a 10% decrease in gas demand and a 4% decline in average gas prices. Snam’s dedication to sustainability and shareholder returns is emphasized by a dividend increase to €0.2820 per share.

Key Highlights

• Snam’s adjusted EBITDA rose by 8%, reaching over €2.4 billion.
• Adjusted net income outperformed guidance, totaling €1,168 million.
• Investments surged by 14% year-over-year to €2.2 billion, including the acquisition of Ravenna FSRU.
• Gas demand decreased by 10%, with average prices 4% lower compared to the previous year.
• Dividend per share increased by 2.5% to €0.2820.
• Snam continues to progress towards becoming a premier multi-molecule operator across Europe.

Company Perspective

• Snam reaffirmed its outlook for 2024, anticipating CapEx, EBITDA, adjusted net income, and net debt.
• The company’s strategy aligns with European policies, supporting financial robustness and potential for future M&A activities.
• Commitment to sustainability and technological innovation remains a priority, in accordance with the Paris Agreement.

Bearish Highlights

• The decrease in gas demand and lower average prices may pose challenges.
• The write-down on biogas assets was attributed to supply-demand imbalances, lower quality feedstock, and technical issues at a facility.

Bullish Highlights

• Growth in RAB and higher-than-expected adjusted net income signal financial strength.
• Strong balance sheet and financial flexibility support shareholder value and strategic growth.
• Progress in digitalization and open innovation keep Snam at the forefront of technological advancements.

Misses

• No specific misses were highlighted in the provided context.

Q&A Highlights

• Snam is in exclusive negotiations with Edison for Edison Stoccaggio, aiming to finalize by the end of June.
• The company focuses on converting biogas plants into biomethane, primarily in the South due to favorable market conditions.
• Discussions in Germany regarding accelerated depreciation for gas networks are contrasted with Italy’s potential for hydrogen transportation and biomethane production infrastructure.

In the earnings call, Snam emphasized its strategic focus on becoming a pan-European multi-molecule operator, with significant progress in gas infrastructure and energy transition activities. The company’s solid financial performance, even in a challenging environment, demonstrates its resilience and commitment to both growth and sustainability.

Snam’s approach to maintaining a strong balance sheet and financial flexibility while offering attractive shareholder remuneration aligns with European policies and positions the company favorably for future opportunities. Despite a decrease in gas demand and average prices, Snam’s strategic investments and focus on digitalization and innovation indicate a forward-looking stance. The company’s discussions on the potential for infrastructure conversion to hydrogen transportation in Italy, as well as the development of biomethane production, further highlight its commitment to a sustainable energy future.

Full transcript – None (SNMRF) Q1 2023:

Operator: Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the Snam Full Year 2023 Consolidated Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [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.

Francesca Pezzoli: Good morning, ladies and gentlemen, and welcome to Snam Full Year 2023 consolidated results. Today, 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 key highlights and achievements of the period; Luca will walk you through the financial performance; then back to Stefano for closing remarks; and finally, the Q&A session. And now I will hand over to Stefano.

Stefano Venier: Thank you. Thank you, Francesca, and good morning also on my side. On full year 2023, we think we deliver solid results in a complex environment characterized by geopolitical instability, cyclical gas demand, volatile gas prices, and rising interest rates. The acuteness of the energy crisis eased in 2023, but energy markets, geopolitical and global economy, remain unsettled, highlighting the importance to continue developing on an infrastructure to secure reliable, affordable, and in the future, decarbonized energy supply. Over the past 18 months, we have made significant progress along the key pillars of our strategy, strengthening the security of supply while laying the foundations of our long term growth. These significant progresses were achieved delivering financial results above guidance and sound and consistent sustainability performance. We continue to offer an attractive and sustainable shareholder’s remuneration by proposing a dividend of €0.2820 per share that is up 2.5% versus previous year, in line with the guidance. We already paid €0.1128 interim dividend in January, while the balance of €0.1692 per share will be paid on the 26th of June. Now, let’s move on Page 3. In the full year 2023, we have delivered an adjusted EBITDA in excess of €2.4 billion, that is up 8% year-on-year, mainly thanks to the rapid growth, output based incentives, and the contribution of the energy transition activities. The adjusted net income at €1,168 million is above the upgraded guidance of €1,140 million given during the Strategic Plan Presentation on 25th of January. Investments €2.2 billion are accelerating and up by 14% versus 2022. While financial ratios remain well below the threshold set by the credit agencies that all three confirmed their view, rating, and outlook. Full year gas demand declined by 10%, with average gas prices 4% below full year 2022, characterized by consistent volatility, showing the fragility of the energy system. While in the first two months of 2024, we had stable volumes at 14 bcm, the gas flows continued to be impacted by the geopolitical situation. The volumes declined from North, was offset by the increase of LNG imports that reached 16 bcm or 26% of total demand, and the lower demand. Many developments happened on the regulatory front. The annual weighted average cost of capital update triggered an uplift of 80 basis points on transport and 60 basis points on storage and LNG for 2024. The regulator also approved the introduction of the base ROSS, so from 2024 on transport. While positive changes such as the recognition of CapEx and OpEx capitalization rates based on the average of historical and forecast data up to 2025 and updated deflator recognition, a better work-in-progress remuneration, and a shorter time lag for D&A only from 2025. All-in-all, it means a faster cash conversion. Let’s now move to the associates. We have started an active portfolio management strategy to extract and maximize value by, first, successfully placing along with the other core shareholders a 5.7% De Nora shares to promote the stock liquidity. Second, issuing an exchangeable bond into Italgas shares, minimizing our cost of debt while keeping voting rights and expected dividend flows. As far as the international associates, they enjoy better visibility as Terega and Desfa positively completed the regulatory review. On Page 4, 2023 has been a year of progress and delivery on our strategy to become a pan-European multi-molecule operator leveraging on a modular, flexible, and repurposable infrastructure to secure the energy supply. Starting with gas infrastructure, the Adriatic Line, the backbone to strengthen the South-North input, was fully approved, defined strategic, and will receive €375 million of RePower EU funds. Site works will start next May. We reached record storage level at 99% before the winter and offer new services such as the reverse flow. They continue in the first two months of 2024 with more than 2.5 bcm of injection that contribute to keep storage facilities quite full. We expect storage to remain well above 50% full at the end of the winter, thus helping to reduce the gas price’s volatility and making the infilling season smoother. We booked and streamed the first FSRU in Piombino that so far received 19 ships for a total of 1.7 bcm while we progress the works for the Ravenna that will be completed by the year-end. Let’s now move to the energy transition platform. Our energy efficiency B Corp Renovit has contributed to the group EBITDA, thanks to the delivery of deep renovation project pipeline while repositioning the business toward long-term performance energy contracts. At the end of 2023, the backlog reached €1.2 billion and the order intake of the year was higher than €500 million. On biomethane, we are progressing on our two-fold role, on one side, optimizing the interconnections of plants to the network with more than 320 requests standing as of the end of 2023, second, acting as industrial developer with about 41 megawatt of biomethane or biogas plants in operation. During the year, we refocused our portfolio capacity by deconsolidating 8 megawatt that were called Iniziative Biometano and acquiring 7.4 megawatt of agri plants and 4 megawatt of waste plants as part of the former agreement. While 2 megawatt of biogas are under upgrade to biomethane and we submitted additional 6 plants on February 2024 in the tariff auctions launched by the GEC. The third pillar of the energy transition platform that is based on hydrogen and CCS, both projects, as you know, have been qualified as PCI. We have recently launched the in co-operation with the Italian Industry Association and market sound to assess, how to abate industry’s appetite. The pilot phase on Ravenna CCS project is on track. Injection will start by summer. On Page 5, on sustainability, our all-round approach enabled us to make progress along the key KPI included in our sustainability scorecard that you can find in the Appendix. In 2023, CapEx aligned to EU taxonomy and SDGs represent respectively 29% and 61% of the total, and sustainable finance reached the 80%, three years ahead of schedule. Let me now highlight some updates and new commitments. Snam is the first TSO globally to join SBTN’s Corporate Engagement program and to commit to positive impact on biodiversity by 2027 and will be neutral by 2024. We have performed a thorough climate change risk assessment confirming the resilience of our assets with reference to physical and transition risks under different scenarios aligned with the IPCC. We established a new document which states our commitment to fulfill our mission in accordance with the Paris Agreement. And finally, we have been first globally to be assessed by Moody’s (NYSE:) under their Net Zero Assessment for our decarbonization ambition to be well below two degrees and in line with Paris Agreement goals. Our ambitious target, firm commitments and consistently improving performance are reflected in our leading position across all different ESG ratings. Let me now move for a while to the CO2 emission performance. Scope 1 and 2 are down 10% versus 2022 which is our baseline and down by 17% versus 2018 regulated activities. This is driven by the remarkable performance on methane leakage detection that are down by more than 20% year-on-year and by 57% versus 2015, that is the baseline assumed by the United Nations. On scope 3 emissions, we are down 4% using as a reference 2022 regulated perimeter adjusted to include the SeaCorridor acquisition that was performed from the beginning of 2023. Let’s now move on gas flow and demand. With regard to the gas market context, the Italian full year 2023 demand posted almost 62 bcm that is, as I said, down 10% or 8.7% on the weather adjusted basis. That was due to thermoelectric sector down 13.6% year-on-year or about 4 bcm driven by raising hydroelectric production that is equivalent to 1.9 bcm, strong increase in net imports that is equivalent to 1.5 bcm and electricity demand decline. The industrial sector was down 0.6 bcm, mainly driven by energy intensive sectors. It’s worth mentioning that in Q4 2023 the industrial gas demand experienced a recovery, plus 7.3% versus the same period in 2022, mainly driven by chemical industry and transport sector. The third sector that is the civil sector was characterized by around 2.1 bcm due to milder weather that is about 0.8 bcm, demand containment actions for 0.4 bcm and the increase in the energy efficiency while, as I said, in the first two months of 2024 we had a stable volumes at 14 bcm. Let’s move into gas flows in 2023 that they were impacted by the geopolitical scenario with a 56% reduction in volume from North that were compensated primarily by an increase of LNG volume by 15%. And finally we exported 2.6 bcm to Austria and marginally to Switzerland into the full year. Let me turn to Luca for the financial results.

Luca Passa: Thanks, Stefano, and good morning, ladies and gentlemen. Let me now move to Slide 7 for a brief overview of the full year 2023 financial results. Adjusted EBITDA is up 8% versus 2022, thanks to Tariff RAB growth, the increase in output based incentives as well as energy transition EBITDA growth. Adjusted net income stands at €1,168 million, above guidance, mostly thanks to a better than expected associates contribution. Total investments including the Ravenna FSRU acquisitions are up 14% versus the previous year and higher than our guidance. As a result the 2023 tariff regulated asset base reached €22.4 billion up by around 5% versus 2022. Finally net debt is at €15.3 billion lower than our guidance of €15.5 billion. The increase versus 2022 is mainly attributable to the expected reversal of the 2022 working capital effect. Moving to Slide 8 on CapEx, out of the total €2.2 billion for the full year 2023 investments, 29% EU Taxonomy align and includes. As far as transport is concern, H2-ready replacements, investments to reduce methane leakage and emissions which comprise electric compressor replacing gas fire compressors, new valves with better fugitive standards and biomethane plants connections. With regard to the energy transition businesses, 100% of H2 and CCS part of biomethane depending on the technical standards of the plants and energy efficiency excluding co-generation. The 29% alignment is below fully at 2022 mainly due to the increase in FSRU investments. SDG alignments is instead 61% of which the majority goes towards SDG 7, SDG 9 and SDG 13 respectively, affordable and clean energy, industry innovation, and infrastructure and climate action. These investments related to FSRU are considered aligned to the SDG #7 as promoting affordable energy and security of supply in the current volatile scenario. Let’s now move to a full year ’23 EBITDA analysis on Slide #9. EBITDA for the period was €2,417 million, plus 8% versus last year or €180 million. The growth is mainly attributable to €171 million growth in regulated revenues related to transport, storage and LNG revenues increased by around €130 million. The incentives related to the fully depreciated assets for around €45 million recognized starting from 2023, higher contribution from storage flexibility services around €40 million mainly related to the short-term auctions provided in 2022 and booked in the third quarter of 2023. These effects were partially counterbalanced by a negative volume effect due to the already commented lower gas demand and the usual phase out of input-based incentives. A further €36 million increase in the energy transition business mainly attributable to the energy efficiency, thanks to the maximization of the delivery of our backlog on residential business and the growth of public administration deep renovation. With regards to biomethane, the positive performance of the agri plants was partially counterbalanced by a decrease in waste due to the volumes and price effect. The increase in regulated fixed cost €90 million is mainly attributable to the Piombino FSRU cost. The difference of items, others, is mainly due to the one-off contribution in first quarter 2022 from the sale of the gas excess inventory €33 million impact positive and the expiry at the end of 2022 of the fees related to a TLC contract for €50 million partially offset by the positive contribution of other non-regulated businesses and lower capital losses. Moving to net income, I’m on Slide #10. Adjusted net income for the period was €1,168 million, plus 0.4% compared to full year 2022. Due to higher D&A by €67 million following rising investments; net financial expenses higher by €98 million mainly as a result of higher gross cost of debt which moved from 1.1% in full year 2022 to approximately 2% in full year 2023 due to the increase in interest rates; a slightly higher contribution from associates for €7 million which was the result of lower international associates contribution mainly driven by TAG and partially offset by the contribution of SeaCorridor; a positive contribution of Italian associates, higher taxes and minorities tax rate was 25%, broadly in line with full year 2022. Reported net income for the period was €1,135 million. The delta is mainly attributable to capital gain on the De Nora stake disposal and from Nucera IPO for €76 million and €28 million respectively, ADNOC discount rate effect for €65 million counterbalanced by a write down on the biomethane related to the waste business for €186 million. As anticipated last year and in accordance with the international market practice, we have defined a policy on adjustments, all write downs and write backs resulting