Italgas Spa · MIL:IG
Italgas Spa — Investor Day (October 2020)
55 slides from Italgas Spa's investor day presentation, Oct 30, 2020
Slide 1: Strategic Plan 2020-26
Strategic Plan 2020-26 Milan 30.10.2020
Slide 2: Agenda
AGENDA MAIN I ACHIEVEMENTS II SCENARIO III STRATEGY 2020-26 IV FINANCIALS 2020-26 SHAREHOLDERS’ RETURN V APPENDIX 2
Slide 3: Material growth delivered since 2016
MAIN Material growth delivered since 2016 ACHIEVEMENTS Since the spin off >1.3bn 530-550 1,078 358.8 2020e EBIT 2020e Revenues >+20% >+50% 2016 2016 € mn € mn >750 221.1 378 2020e 2020e NET >+50% Capex >+100% 2016 2016 PROFIT € mn € mn 3
Slide 4: Energy transition at the core of EU policies
SCENARIO Energy transition at Cooperation of all energy resources is the most immediate the core of EU and cost-effective way to reach decarbonization goals policies 40% Electricity EU yearly energy consumption (~ 7,500 TWh) 60% Gas 1,400TWh NUKE AND COAL ELECTRICITY BINDING CLOSURES Alternative way
Slide 5: Role of gas systems
SCENARIO Role of gas systems Schematic annual profile of PV generation TODAY Monthly guarantee average gas energy supply load security & flexibility Gas winter TOMORROW summer demand sustain Gas infrastructures fluctuations(1) the ✓ Already available decarbonisation ✓ Widespread everywhere in EU ✓ D
Slide 6: Biomethane: the closer viable green option
2020-30 BIOMETHANE Technology development and regulatory support are The closer viable fostering biomethane green option Biomethane network connections jumped in 2019-2020. Over 20 injection points are connected to the Italian gas grid Expected biomethane (transport or distribution) production(1) up
Slide 7: Green hydrogen: answering the need of storage
2030-40 GREEN Power to Gas (PTG) shows higher technical performance, HYDROGEN better environmental impact and diversification of Answering to the applications, compared to other storage systems need of storage Overview of storage systems and % of spread(1) h Efficiency 80% Power to Gas (Methane) 0.5
Slide 8: Green hydrogen expected to become competitive
2030-40 GREEN HYDROGEN Green hydrogen expected to become competitive Cost issue will need But this will require ~ 10 years for prices to fall to be addressed Green Hydrogen production costs LCOH (€/MWh) 180 TODAY 2030-40 120 ~ 95 60 ~ 65 ~ 35 0 2020 2025 2030 2035 2040 2045 2050 Electrolyser cost El
Slide 9: EU28 demand and supply outlook
DEMAND Volumes to remain European gas demand remains supported till 2030 with relatively flat green gases progressively increasing their market share in Europe EU28 demand and supply outlook (Bcm) 600 483 480 ~480 ~490 500 465 467 419 436 ~450 400 ~450 ~420 300 200 100 0 2014 2015 2016 2017 2018 201
Slide 10: Italian gas demand
DEMAND As well as in Italy A similar trend is forecasted for Italy 100 90 86 84 85 85 83 78 78 80 80 75 75 73 74 76 70 71 74 Italian gas demand (Bcm) 68 70 62 74 69 60 50 Estimated Covid-19 impact 40 30 20 34 30 33 31 31 29 30 31 10 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 11: DSOs need to adapt to the new world
DSOs Need to adapt to the new world … ENVIRONMENTAL POLICIES CHALLENGES FOR GAS DSOs • Decarbonization • Energy efficiency • Sustainable Mobility • Methane emissions control and • Power to Gas and reduction Green gas • Infrastructure development and upgrade TECHNOLOGICAL • Digitization, AI and smart
Slide 12: Supported by a fair and innovative regulation
REGULATION … supported by a 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 fair and «innovative» 0 regulation V Regulatory Period (parameter set: beta, xfactor, reference opex) I WACC Period II WACC Period (parameters set: risk free rate, country risk (parameters set: risk fre
Slide 13: 4 Strategic Pillars
4 STRATEGIC PILLARS Enabling a more sustainable path for gas Core Business Development Maintenance and upgrade of existing network, new areas methanisation including Sardinia, selective M&A, tenders and foreign opportunities Digital Transformation Key for energy transition. Leadership in asset, proc
Slide 14: Sustainability
SUSTAINABILITY 47 New strategy embeds Sustainability 5 sustainability Plan 2019-25 81% ENVIRONMENT SOCIAL GOVERNANCE • Emission reduction • New policies on Corporate • Integrated annual report • Energy efficiency Citizenship, Human Rights, Diversity commitment (2020 FY results) • Digitization to enh
Slide 15: 4 Strategic Pillars
4 STRATEGIC PILLARS Enabling a more sustainable path for gas Core Business Development Maintenance and upgrade of existing network, new areas methanisation including Sardinia, selective M&A, tenders and foreign opportunities Digital Transformation Key for energy transition. Leadership in asset, proc
Slide 16: Capex: +50% in years
CAPEX +50% in 4 years Increase in spending related to core assets €7.5bn 2017-23 2018-24 2019-25 2020-26 Distribution New opportunities Tenders 16
Slide 17: Capex: core business to drive the growth
CAPEX Core business to drive the growth €0.42bn €0.36bn SARDINIA CENTRALISED €3.06bn €0.37bn ADD. GAS NETWORK €7.5bn DISTRIBUTION PERIMETER €1.09bn €2.0bn DIGITIZATION TENDERS €0.24bn NEW OPPORTUNITIES 17
Slide 18: Capex: core business to drive the growth
CAPEX Core business to • Replacement and upgrade • GPL conversions drive the growth NETWORK • Network extension & new grid • Technical Innovation and energy €3.06bn efficiency • Investments induced by tenders • Distribution grid development SARDINIA • LPG grid conversion to natural gas €0.42bn • Mai
Slide 19: Network: maintenance and growth capex
NETWORK Maintenance and Network spending, well balanced between maintenance growth capex and growth €3.06bn CAPEX Maintenance Extensions Investments GPL Technical of existing and new induced conversions Innovation and network grids by tenders energy efficiency 19
Slide 20: Network: growth opportunity induced by tenders
NETWORK Growth opportunity Tenders completed prove that capex deployment in induced by tenders ATEMs post tender is material 1.3x RAB Total Capex Total RAB €0.9bn €0.7bn BELLUNO TORINO 1 TORINO 2 AOSTA RAB Capex 2020-26 20
Slide 21: Sardinia
SARDINIA Key targets TODAY TOMORROW # clients 45.000 ~200.000 Potential market Alghero* Network ~1.100 ~2.000 7 operating concessions 10 under construction km Fully digitized Concessions in operation ~800 Km LPG / GNL / Natural gas LPG air completed Fuel as of today Under construction GNL / Natural
Slide 22: 4 Strategic Pillars
4 STRATEGIC PILLARS Enabling a more sustainable path for gas Core Business Development Maintenance and upgrade of existing network, new areas methanisation including Sardinia, selective M&A, tenders and foreign opportunities Digital Transformation Key for energy transition. Leadership in asset, proc
Slide 23: Digital Transformation
DIGITAL TRANSFORMATION ASSETS PROCESSES WORKFORCE Cloud IoT platform / Data Lake Digital Factory Data & Auto- Fault Information regulation prediction Combining IoT, Big exchange Data/AA, Digital and blockchain Self- Simulation diagnosis 23
Slide 24: Digitization: assets, some numbers
DIGITIZATION Assets, some Targeting digitization of the whole network by early 2022 numbers >8,000 Digital GRF ~4,000 ~2,000 >8,000 550 2019 2020 2021 2022 # of installations Smart meters 7.9 8.0 8.1 Network end 6.7 >6,000 points >8 ~3,000 mln >6,000 ~1,000 2019 2020 2021 2022 # of installations (ml
Slide 25: Digital Factory: a unique asset
DIGITAL FACTORY a unique asset Accelerator of Italgas’ transformation Optimization, simplification and digitization of the main INNOVATION business processes and support functions, increasing their efficiency and effectiveness, through the adoption of new technologies Daily involvement of cross-func
Slide 26: Digital Factory: firing on all cylinders
DIGITAL FACTORY Firing on all cylinders 9 business processes since digital factory kick-off 2018 2019 2020 … 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 …. Scheduling optimization and customer experience Control Room evolution Smart construction site supervision
Slide 27: Digitization: major technical innovations underway
DIGITIZATION Major technical innovations underway ✓ Gas pre-heating Optimization & Saving Energy ✓ Leak survey with CRDS technology (Picarro) ✓ Highest technological and safety standards in odorization control and pressure management • A new management and control system to optimise and adjust the g
Slide 28: Digitization: methane emissions
DIGITIZATION Methane emissions 2019 As of 08/2020 PLAN PERIOD • Length of inspected gas • Length of inspected gas • Progressive reduction of network: network: LISA1 emissions • 16,111 km for Italgas • 35,303 Km for Italgas (LISA/km) Reti Reti • 4,070 km for Toscana • 4,394 Km for Toscana • Increased
Slide 29: Digitization: value creation
DIGITIZATION Value creation Getting ready for a future scenario of standard capex / ~ €210m opex based regulation ~ €50m capex ~ €160m P&L impact impact ✓ ICT: cloud adoption and reduction of ✓ ICT: cloud adoption to drive opex software development requests reduction ✓ Operation: savings from activi
Slide 30: 4 Strategic Pillars
4 STRATEGIC PILLARS Enabling a more sustainable path for gas Core Business Development Maintenance and upgrade of existing network, new areas methanisation including Sardinia, selective M&A, tenders and foreign opportunities Digital Transformation Key for energy transition. Leadership in asset, proc
Slide 31: New opportunities: leveraging on internal capabilities
NEW OPPORTUNITIES Leveraging on internal capabilities CURRENT FOOTPRINT WATER • Italgas Acqua €0.12bn ENERGY EFFICIENCIES • Seaside and Toscana Energia Green €0.24bn €0.10bn CAPEX PILOT PROJECTS • Smart meters and digitization expertise AND R&D €0.02bn 31
Slide 32: Water
WATER Leveraging on internal capabilities Best practices in gas network management applied to water networks >€200mn Acquisition of new concessions ITALGAS ACQUA ADVANTAGES • Serving 5 municipalities in the province ✓ Deep understanding of the regulation and knowledge of the of Caserta business ✓ Ex
Slide 33: ESCO
ESCO Leveraging on internal capabilities Strong potential from growing focus on energy efficiency, boosted by >€450mn Italian State support schemes 2 ESCOs 1 Company COMBINED GROWTH EXTERNAL GROWTH • Seaside and Toscana • High potential thanks to Scouting for new opportunities Energia Green offer a
Slide 34: Power to Gas
POWER TO GAS Preparing for the PILOT PROJECT ADVANTAGES future • Realisation of a pilot power-to-gas ✓ Small scale initial investment with project using excess renewables potential for ramp up energy in collaboration with ✓ Exposure to the whole value chain of green industrial partners, the Polytech
Slide 35: Tenders: new calendar
TENDERS New assumed 2023 peak year in terms of awarded tenders calendar Completion by 2025 2017 2018 2019 2020 2021 2022 2023 2024 2025 2017-23 Plan 2018-24 Plan 2019-25 Plan 2020-26 Plan 35
Slide 36: Tenders: growth opportunity
TENDERS Growth opportunity We have kept a conservative approach on capex induced by the ATEMs awarded Redelivery points(2) Tenders Capital deployment 3.8% CAGR 2019-26 NET CAPITAL DEPLOYED IN • Award of 74 ATEMs TENDERS(1) TENDERS ORGANIC €1.2bn AND M&A 9.8 7.6 8.2 CAPEX INDUCED BY TENDERS • Technic
Slide 37: RAB Growth
RAB GROWTH Superior RAB growth 6.2% CAGR 2019-26 4.0% CAGR 2019-26 11.3 9.8 7.4 2019* Capex Inflation Depreciation Grants, Net M&A 2026* Tenders 2026 disposals, with €bn etc tenders* * RAB referred to the year end T - revenues in the year T+1, gas distribution only 37 Average deflator over the plan
Slide 38: Potential growth outside Italy
POTENTIAL GROWTH Italgas has been shortlisted OUTSIDE ITALY for DEPA privatization in Greece. Monitoring Fits with our investment criteria opportunities INVESTMENT CRITERIA DEPA infrastructure • Comparable sovereign risk 1 EDA Thess assets • Ability to exercise an industrial role • Visible and estab
Slide 39: 4 Strategic Pillars
4 STRATEGIC PILLARS Enabling a more sustainable path for gas Core Business Development Maintenance and upgrade of existing network, new areas methanisation including Sardinia, selective M&A, tenders and foreign opportunities Digital Transformation Key for energy transition. Leadership in asset, proc
Slide 40: Guidance
GUIDANCE €mn 2020 2023 2026 Revenues ~1.3bn Revenues ~1.7bn ~2.0bn EBITDA 960-980 EBITDA margin ~72% ~73% EBIT 530-550 EBIT / RAB ~7.5% 8-8.5% Capex >750 Consolidated RAB ~10 €bn 11.3€bn Net Debt* ~4.6bn OCF / RAB ~10% ~10% Leverage** ~60% Leverage** ~62% ~61% 40 (*) ex IFRS 16, expected in line wit
Slide 41: Distribution costs
DISTRIBUTION COSTS Distribution operating expenses without tenders* Reduction aligned with ARERA Opex 2020 Efficiencies Inflation Redelivery Points Opex 2026 Technological innovation and digitization to drive efficiencies Unitary cost per redelivery point** Operating costs drop to offset the negativ
Slide 42: Distribution costs
DISTRIBUTION COSTS Distribution operating expenses* Further efficiencies with tenders Opex without Opex without Additional Additional opex Opex tenders 2020 tenders 2026 concessions new perimeter with tenders Most of the operating cost fees with tenders 2026 increase related to higher concession fee
Slide 43: Financial strategy
FINANCIAL STRATEGY A key source of value creation Organic Capex OCF Support capex growth maintaining flexibility for Dividends tenders, new opportunities and dividends through ▪ Tenders cash-flow generation Preserve Financial ▪ M&A and new current flexibility opportunities Preserve a solid credit ra
Slide 44: Financial strategy: debt maturities and structure
FINANCIAL 9M 2020 Debt Maturities STRATEGY EIB Bond A key source of 900 value creation 600 300 0 Limited refinancing and liquidity needs 9M 2020 Debt Structure Long tenor Low exposure to interest rates Floating Institutional 3% Lenders (EIB) volatility 18 % Explore green and sustainable finance opti
Slide 45: Credit metrics
CREDIT METRICS Moody’s Baa2 Credit metrics remain within range through the plan Fitch BBB+ Net Debt / RAB FFO / Net Debt 80% 20% 70% 15% 60% 10% 50% 5% 40% 0% 2020 2021 2022 2023 2024 2025 2026 2020 2021 2022 2023 2024 2025 2026 45
Slide 46: Shareholder remuneration
SHAREHOLDER REMUNERATION New 2020-23 Dividend Policy designed to allow New DPS policy to investors to keep benefitting from underlying business 2023 growth Higher between 0.256 ✓ DPS equal to 65% payout on Adjusted Net Income ✓ DPS 2019 +4% per annum FY2019 FY2020 FY2021 FY2022 FY2023 DPS (€) 46 Ill
Slide 47: Closing remarks
CLOSING REMARKS Digital Transformation is our core focus … to transform our assets, processes and people Support energy transition and decarbonization path Leverage our core competences to expand our business Improved our dividend policy Create value for our stakeholders 47
Slide 48: Appendix
APPENDIX 48
Slide 49: Sustainability Plan
SUSTAINABILITY PLAN Our goals DEVELOP THE • Strengthen and enhance the sustainability positioning; 1 SUSTAINABILITY CULTURE • Promote the sustainability culture along the value chain • Protect and optimise know-how and harmonise operational processes; 2 • Develop skills; PUT PEOPLE AT THE CENTRE • E
Slide 50: Focus: developing a sustainability culture
FOCUS Developing a sustainability culture Our effort to integrate sustainability in the corporate culture and industrial processes is getting recognised 50
Slide 51: Allowed return
ALLOWED RETURN post resolution 570 €mn 2019 2020-21 Distribution Metering Distribution Metering Risk Free rf 0,5% 0,5% 0,5% 0,5% Total Market return TMR 6,0% 6,0% 6,0% 6,0% Country Risk premium CRP 1,4% 1,4% 1,4% 1,4% βeta unlevered β unlevered 0,439 0,502 0,439 0,439 βeta levered β levered 0,706 0,
Slide 52: The leading gas distributor in Italy
THE LEADING GAS DISTRIBUTOR in ITALY OPERATING OF WHICH HIGHLIGHTS Consolidated companies AFFILIATES (TOTAL) Subsidiaries Network length 72,719 km 1.873 km Municipalities 1,886 61 Redelivery Points 7.738 mn 0.153 mn Market Share(1) 35% 0,1% 52
Slide 53: Group structure
GROUP STRUCTURE WG Italgas COMPANY 50% VALUED USING THE EQUITY METHOD 1G Metano S.Angelo Lodigiano aa 457. CONSOLIDATION AREA 1G A 100% | 100% a 1G Italgas ( ) ( ) Italgas Reti ‘Acqua seg S| te ©) seosive 51.85% a ) caxa toscana Aly ea «WG x 2 a in 100%
Slide 54: Disclaimer
Disclaimer Italgas’s Manager, Giovanni Mercante, in his position as manager responsible for the preparation of financial reports, certifies pursuant to paragraph 2, article 154-bis of the Legislative Decree n. 58/1998, that data and information disclosures herewith set forth correspond to the compan
Slide 55: IR contacts
IR contacts Anna Maria Scaglia Armando Iobbi Investor.relations@Italgas.it