2010 2013 Strategy Presentation Milan, March 11 th, 2010 www.snamretegas.it
Disclaimer Snam Rete Gas s Chief Financial Officer, Antonio Paccioretti, 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 company s evidence and accounting books and entries. This presentation contains forward-looking statements regarding future events and the future results of Snam Rete Gas that are based on current expectations, estimates, forecasts, and projections about the industries in which Snam Rete Gas operates and the beliefs and assumptions of the management of Snam Rete Gas. In particular, among other statements, certain statements with regard to management objectives, trends in results of operations, margins, costs, return on equity, risk management are forward-looking in nature. Words such as expects, anticipates, targets, goals, projects, intends, plans, believes, seeks, estimates, variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Therefore, Snam Rete Gas s actual results may differ materially and adversely from those expressed or implied in any forwardlooking statements. Factors that might cause or contribute to such differences include, but are not limited to, economic conditions globally, political, economic and regulatory developments in Italy and internationally. Any forward-looking statements made by or on behalf of Snam Rete Gas speak only as of the date they are made. Snam Rete Gas does not undertake to update forward-looking statements to reflect any changes in Snam Rete Gas s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any further disclosures Snam Rete Gas may make in documents it files with the Italian Securities and Exchange Commission and with the Italian Stock Exchange. 2
Focused on Delivering Value along the Regulated Gas Chain Carlo Malacarne Chief Executive Officer 3
A Leader in the Regulated Gas Business Supply Infrastructure Sales to end users CAPITAL EXPENDITURE Driving profitable long term growth EFFICIENCY Exploit value through operational synergies and financial structure LOW RISK PROFILE Focus on regulated gas business and solid balance sheet SHAREHOLDERS RETURN Attractive and sustainable return policy A CLEAR AND SOLID VALUE CREATING STRATEGY 4
Agenda Business Environment Capex Plan Operational Efficiency Associates & Financial Management Final Remarks 5
Agenda Business Environment Capex Plan Operational Efficiency Associates & Financial Management Final Remarks 6
A Clear and Stable Regulatory Framework along the Integrated Gas Chain TRANSPORT DISTRIBUTION STORAGE* REGASIFICATION RAB methodology Re-valued historical cost Re-valued historical cost Parametric method for central assets Re-valued historical cost Re-valued historical cost WACC real pre-tax 6.4% (transport) 6.9% (metering) 7.6% (distribution) 8.0% (metering) 7.1% 7.6% INCENTIVES on new investments 1% for 5 years (on security capex) 2% for 7/10 years (on capacity development capex) 3% for 10/15 years (on entry capacity development capex) +2% for 8 years (on substitution of cast iron pipelines and the renewal of odorization systems) +4% for 8 years (on development of existing sites) +4% for 16 years (on new sites) +2% for 8 years (on development of existing terminals <30%) +3% for 16 years (on new terminals or development >30%) EFFICIENCY X-factor 2.1% on opex (only on commodity component) 3.2% on distribution opex 3.6% on metering opex 2.0% on opex 1.5% on depreciation 0.5% on opex * Current Regulatory framework extended until December 2010 7
A Very Low Risk Business Factor Exposure Note Regulation Demand Low Low Clear and stable: ~ 85% of the overall business (*) with regulatory rules set for 3 to 4 years Well placed to leverage best regulatory practices No exposure in distribution and storage business Limited exposure in transport business: revenues 15% commodity linked Commodity (energy) Low Fuel gas pass-through from January 1 st, 2010 Capex Low Remunerated on the spending Proved track record in obtaining authorization and investment execution Interest Rate Low Regulatory real cost of debt reset at the beginning of each regulatory period Debt: ~60% fixed rate (duration of ~ 3 years, in line with regulatory periods) Inflation Low RAB Revenues Annually inflation linked Currency Zero 100% revenues, cost and debt denominated in euro Re-financing Low Solid balance sheet: debt ~50% of RAB 80% M/L term * In terms of RAB (Transport & Distribution) 8
European Gas Market Gas Demand in Europe* bcm Net Import in Europe* 700 600 CAGR 09 09-20 20 ~ 1.0% ~425 500 400 Net import CAGR 09 09-20 20 ~ 3.0% 339 97 ~86 300 Norway 200 Africa & Middle East 118 100 0 Domestic production Russia 124 2008 2009E 2015E 2020E 2008 Additional import 2020E * Countries: EU 27 Source: Eurogas, Annual Report 2008 2009; IEA, World Energy Outlook 2009 (Nov. 2009) 9
Italian Gas Market 2009-2020 Cagr + 1.9% bcm Other Sectors 77.6* 1.3 86 88 ~96 ~2 Thermoelectric 28.7 Cagr + 3.3% ~41 Industrial** 16.5 ~21 Residential & Commercial* 31.1 ~32 2009 2013E 2015E 2020E * Weather adjusted ** Include: NGV, Agriculture and Non-Energy Use Demand growth driven by thermoelectric sector Source: Italian Ministry of Economic Development and SRG estimates 10
Agenda Business Environment Capex Plan Operational Efficiency Associates & Financial Management Final Remarks 11
Investment Priorities to tackle Current and Future Challenges Strengthen security, flexibility and service quality of the gas system Create conditions for developing a Southern European gas hub Transport & LNG Selected projects to meet capacity requirements Facilitate swap among different supply sources for the domestic market Create conditions for the gas transit to European markets Storage Increasing capacity for modulation services and peak demand control Optimize balancing of the system Facilitate gas system liquidity Distribution Support gas demand growth Consolidate asset base increasing re-delivery points and profitability Proactive and selective portfolio management Increase quality of service 12
New Investments to strengthen Italian System Security and Flexibility Italian Transport and Storage System Peak capacity vs Peak Demand* European Main Transport System Load factor** 600 500 Mscm/d ~12% ~15% 2005-2009 Average ~3% 400 47% 300 200 2009 2013 2015 Peak Capacity Peak Demand Safety buffer 52% 52% 70% * SRG estimates on the basis of : an interruption of the main gas supply importation a peak day demand considering cold weather conditions ** Source: SRG estimates based on Ocse, GRTgaz, Enagas, Saggas, Gas Natural and National Grid 13
Gas Hub and Reverse Flow Opportunities PASSO GRIES TARVISIO GORIZIA NEGP ROVIGO LNG (CAVARZERE) PANIGAGLIA LNG NABUCCO SOUTH STREAM GALSI IGI GME MEDGAZ TRANSMED Gas hubs Existing import pipelines Existing LNG terminals Planned import pipelines Planned LNG terminals MAZARA DEL VALLO GELA 14
Consolidated Capex Plan 2010-2013 6.4 billion Spending* Consolidated RAB** bn RAB Breakdown % 1.4 bn 5 bn 30 25 20 15 CAGR 4.5% 100% 80% 60% 14 22 16 20 2010 2011-2013 10 5 40% 20% 64 64 0 2009E 2010E 2011E 2012E 2013E RAB incentivized RAB with base remuneration 0% 2009 2013 Transport Distribution Storage Strong programme to fuel profitable growth in our asset base * Net of subsidies ** 2010-2013 RAB evolution calculated assuming annual inflation rate of 2% and on the basis of the current approved regulatory frameworks 15
Consolidated Capex Plan Details Spending (*) 2010 2013 Incentive scheme % Expansion & New entry points 3% premium for 10 15 yrs Transport ~0.9bn ~3.4bn 2010 2011-2013 10 8 54 28 Regional & National Develop. 2% premium for 7 10 yrs Safety 1% premium for 5 yrs Maintenance Base return: 6.4% Spending (*) 2010 2013 Incentive scheme % Development of new fields 4% premium for 16 yrs Storage ~0.2bn ~0.8bn 2010 2011-2013 13 11 24 76 Expansion of existing fields 4% premium for 8 yrs Maintenance Base return: 7.1% Spending (*) 2010 2013 Incentive scheme % Substitution of cast iron pipes 2% premium for 8 yrs Distribution ~0.3bn ~0.8bn 50 Metering 8% allowed return 2010 2011-2013 37 13 Other investments Base return: 7.6% 16 * Net of subsidies
Solid Transport Projects to develop Capacity Requirements Reverse flow Mscm/d PASSO GRIES Po Valley infrastructure PANIGAGLIA LNG TARVISIO GORIZIA ROVIGO LNG (CAVARZERE) North- East Reinforcement South-North Developments 500 450 400 350 300 250 200 150 100 50 0 2001 2009 2013E 2015E >2015E Import from Algeria (GALSI) MAZARA DEL VALLO GELA Transport capacity needed in Italy Existing capacity Capacity under construction Additional required capacity Engineering & Construction Feasibility study 17
New Storage Capacity to facilitate Gas System Development PASSO GRIES TARVISIO SETTALA GORIZIA BORDOLANO MINERBIO ROVIGO LNG (CAVARZERE) Mscm/d bcm PANIGAGLIA LNG 400 300 200 270 + ~13% 8.9 305 + ~35% ~12 20 15 10 100 5 FIUME TRESTE 0 2009 2013E 0 Peak Capacity Modulation Capacity MAZARA DEL VALLO GELA 18
Selected Investments to increase Profitability in the Distribution Business Main projects Substitution of: ~500 km mainly of cast iron pipes 1.5 mln of old metering devices 7 6 5 5.8 + ~8% ~6.3 New connections on existing distribution network and development of new distribution network (~ 2,000 km) Start up of remote meter reading 4 2009 2013E Redelivery points (millions) 19
Agenda Business Environment Capex Plan Operational Efficiency Associates & Financial Management Final Remarks 20
Operating Costs: a solid baseline to value creation 2008 2009 Controllable fixed costs m Controllable fixed costs Opex outperformance ~110 Allowed opex 500 ~590 480 Outperformance: Fully retained for 3-4 years Mainly due to transport and distribution business 21
Savings from Integration: further cost efficiency and synergies Controllable fixed costs (in real terms) FY 2008 Total amount*: m 500 % Annual Savings* m ~ 80 Labour cost 52 48 27 ~ 40 Launching already selected projects to exploit additional efficiency * Pro-forma figure External costs 2009 2010E 2012E >2012E *Based on 2008 controllable fixed costs m 27 of savings in 2009 and well on track to achieve efficiency targets Annual savings fully retained up to 2013 22
Agenda Business Environment Capex Plan Operational Efficiency Associates & Financial Management Final Remarks 23
Italgas Associates: a profitable asset base Others Operational Data 2009 AES Torino 1.3 million redelivery points 147 Local Municipalities served 1 District Heating in Turin (AES Torino) Acam Gas Umbria Distribuzione Gas 2009 Preliminary Results (pro-quota) ( m) Toscana Energia Total AES Toscana Other Torino Energia companies EBITDA 79 49 (*) 23 7 EBIT 58 38 15 5 NET PROFIT 37 24 10 3 Net Financial Debt 150 100 50 -- (*) of which District Heating EBITDA = m 26 Size: EBITDA based 24
Solid and Efficient Capital Structure STRONG BALANCE SHEET Confirming leverage targets in the medium/long term 2010-2013 Average (D/RAB) ~ 50% LIMITED EXPOSURE TO INTEREST RATES Benefiting current low interest rate scenario Active control of P&L results volatility in the medium term 2010-2013 Fixed-rate debt ~60% of the total Average duration~ 3 years EFFICIENT CAPITAL STRUCTURE Maintaining and strengthening control of our financial efficiency FY09 2010-2013 Average cost of debt 2.9% Cost of debt at competitive level m 1500 1.585 1.500 1.301 LIMITED REFINANCING RISK M/L term debt: ~ 80% of the total Average M/L maturity: ~ 4 years 1250 1000 750 500 250 900 750 700 1.000 350 300 0 2010 2011 2012 2013 2014 2015 2016 2017 2022 M/L Term Debt Maturity Profile at Dec.2009 25
Agenda Business environment Capex plan Operational efficiency Associates & Financial management Final Remarks 26
Confirming Attractive Shareholders Returns Yearly growth +4% 0.20 /share 2009 2010E 2011E 2012E Dividend policy based on DPS Semi-annual payment Dividend sustainable 27
A Clear Strategy to drive Performance and Value Creation CAPITAL EXPENDITURE 6.4 bln capex program for 2010 2013 50% investments financed by cash flow generation RAB: estimated 4.5% yearly increase in 2010-2013 Incentivized RAB from ~20% to ~40% of the total EFFICIENCY Current operational efficiency outperformance: ~110 mln Additional efficiency from integration: 80 mln in 2012 Maintaining current financial efficiency LOW RISK PROFILE Fully regulated company with long term visibility Solid capital structure ATTRACTIVE & SUSTAINABLE RETURNS TO SHAREHOLDERS DPS FY2009: 0.20 DPS 2010-2012: expected +4% yearly increase CONTINUING TO DELIVER 28
Q & A Session 29
2010 2013 Strategy Presentation Milan, March 11 th, 2010 www.snamretegas.it