2021 Nine months results (Transcript)

Nine Months 2021 Results - Conference call

Thursday, November 04, 2021, 15:30

Investor Relations Snam T [phone] [e-mail]

MODERATORS: ALESSANDRA PASINI, CHIEF FINANCIAL OFFICER

OPERATOR:	Good afternoon. This is the Chorus Call conference operator. Welcome
	and thank you for joining the Snam Nine Months 2021 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. Should
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	At this time, I would like to turn the conference over to Ms. Alessandra Pasini,
	CFO of Snam. Please go ahead, madam.

ALESSANDRA PASINI: Thank you. Ladies and gentlemen, good afternoon and welcome to Snam 2021 9 months results presentation. Looking at the first highlight, CAPEX reached €866 million, while our regulated investments are going as planned, as mentioned before, we are…have experienced some delays in the deployment of investment in new businesses. For this reason, full year CAPEX will be circa €1.3 billion.

Following the publication of the first consultation document on the WACC form in July, we sent our comments to ARERA by the deadline of the 12th of September, and we expect soon the second consultation document. We continue to see recovering gas demand, which rose by 6% in the first 9 months of the year, thanks to a rebound in industrial production and power generation, and colder than usual weather.

In the context of current energy market volatility, Snam infrastructure is supporting the resilience of the Italian market. The TAP pipeline increases, supply diversification and has contributed to reducing the traditional

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premium of the Italian gas market versus Northern Europe, with a significant saving on energy cost for the country. Our storage facilities are 90%, full, well above other European countries.

Sustainability remains core to our strategy. Snam was included in the FTSE MIB ESG Index, the new index dedicated to Italian companies with the most effective sustainability practices at the end of September…and at the end of September, sustainable finance reached 60%. We are also providing [ph] our target on methane emission reduction by 2025.

In fact, in line with our ongoing commitment to cut CO2 emission, and reaching net-zero by 2040, we have upgraded our target on methane emission to minus 55% by 2025 versus the base of 2015, compared to the previous target of minus 45%. This target is more ambitious than the one set by the all oil and gas Methane Partnership 2.0 unit protocol.

This is mainly achievable, thanks to the acceleration of the leak detection and repair program, that implies the monitoring of the emitting components in our facilities, to identify methane leaks and the planning of maintenance work to repair those.

Snam tech [ph] initiatives aimed at digitalizing operations management of Snam asset is also a relevant driver to tackle methane emission. Other actions to reduce emissions are in line, recompression and replacement of valves and pneumatic devices. Thanks to effort already implemented, we have cut methane emission by 20% circa over the last 3 years, and we have a target to reduce them by 43% by 2030 versus 2020, which is a more ambition than the global methane pledge target of minus 30%.

Our financial result in the first 9 months of 2021 are strong. EBITDA benefited from the contribution of higher tariff RAB, thanks to the investment our infrastructure and higher allowed DNA. Financial charges are down by €24 million…24%, despite the average debt. Thanks to the lower cost of

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debt, that was again below 1%. Higher capitalized financial charges related to our investment activity and a different phasing of the OLT shareholder loan.

Income from associate is up by €49 million compared to last year, benefiting from a perimeter effect with the inclusion of the entire period of ADNOC and the entry into the consolidation to Industrie De Nora. The full year contribution of TAP and this effect are partially offset by the expected decrease of our Austrian associate, mainly due to the new regulation in place from January of this year, non-recurring items and the compensation that occur in the 9 months of last year, due to the end of the prior regulatory period.

DESFA has performed slightly below last year, due to the lower unitary tariff, therefore lower RAB and lower tariff RAB, and the reversal of the extraordinary strong performance achieved in the prior year. Net profit was up €65 million, thanks to the operational result, the lower financial charges and the contribution from our associates. The strong result achieved to-date mean that we are comfortably on track to deliver our full year net profit guidance of €1,170 billion.

Let's now look more closely to our 9 months result. Net profit for the period was €934 million, up €65 million versus last year. This was driven by our core EBITDA up by €48 million, due to higher regulated revenues thanks to continuous growth in the transport business due to ongoing investment activities and the commodity effect, only partially offset by the reduction of input base incentives. The release of past balance sheet items referring to the storage business.

Core business costs rose due to higher fixed cost, driven by some phasing effect, higher operational cost also deriving by a progressing comeback to offices and travel, and higher labor cost due to the National Labor Contract inflation. Cost also rose due to the support to business expansion, also

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through internalization of skills and capabilities and the development of our international presence. These are only partially offset by higher capitalized cost and progress on our efficiency program.

Increasing our items is linked to the release of past provisions, partially offset by higher cost for business development and higher capital losses. The contribution of new businesses was marginal, and energy efficiency performed well, thanks to the residential business in particular the kickoff of the Ecobonus and despite the negligible contribution of the public administration sector, that is still facing a slowdown of permitting due to COVID, as well as the perimeter effect related to the consolidation of [indiscernible].

This was offset by delays in biomethane, driven by the expected developments related to the bio methane decree under discussions since the second quarter of this year, and not finalized yet. This, together with the lengthening of the authorization process due to the pandemic situation on the public sector, is slowing down Greenfield development, as well as, our third party EPC activity, but on the positive should bring significant capital rent opportunities for bio methane operators when approved.

In the meantime, we continue to push bio-methane business being devoted to reinforcing our pipeline. The continuous investment in our energy transition platform with a particular focus on hydrogen, and lower contribution from Snam global inclusion over the 9 months that will be more evident in the last quarter due to the contribution that we had last year from a significant contract related to TAP.

The delays in the new business ramp up will impact also 2022, whilst we continue to invest in in-sourcing competences and capabilities supporting our platform in an hydrogen and energy transition.

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