2014-2017 Strategy & Targets
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Transcript of 2014-2017 Strategy & Targets
snam.it
2014 – 2017 Strategy & Targets
March 19th, 2014
2
Sustainable and profitable Growth through disciplined and selective Investments
Carlo Malacarne Chief Executive Officer
Agenda
3
Business Environment
Snam Business Development
4
Key Pillars of Snam’s Growth Strategy
Delivering sustainable and profitable growth
Stra
tegy
con
sist
ent w
ith S
nam
’s lo
w-r
isk
prof
ile
Exploiting high-quality investment opportunities in Italy Focusing on two main European gas corridors
to integrate our diversified and valuable asset portfolio
Maintaining cost control in the context of a growing asset base
Driving value creation for all stakeholders
Preserving a solid and efficient capital structure
Selective investments
Operational efficiency
Financial discipline
Attractive returns
Snam Business Development
Business Environment
Agenda
5
Key Themes in the European Gas Market
6 Increasing dependence on imports and need for flexibility Source: OECD/IEA, “World Energy Outlook 2013” – New Policies Scenario 1 Snam “elaboration”; data including Italy, France, Spain, UK and Germany
Gas supply trends Gas demand trends
0
200
400
600
2011 2015E 2020E 2025E 2030E
Domestic production
Net import
[bcm] CAGR 11 – 30
~ 0.5%
Peak demand1
Gas demand in EU
CAGR 11 – 30 ~ 2.0%
1,5
1,6
1,7
1,8
1,9
2010 2011 2012280
320
360
400
2010 2011 2012
Total demand1
[bcm/day] [bcm/year]
Germany 21%
UK 15%
France 15%
Spain 13%
Italy 22%
Austria 9%
Belgium 6%
Northern Europe 65% of import needs
in 2020
Southern Europe 35% of import needs
in 2020 North Africa
Common Goals and Provisions of the EU and Italian Energy Policies
7 Enhance competitiveness and security of supply
Source: European Commission, Regulatory Proposal: ‘Strategic guidelines for trans-European energy infrastructure’, October 2011
Unbundling
• Ownership unbundling (OU) • Independent transmission operator
(ITO) • Independent system operator (ISO)
• Adoption and certification of Ownership
Unbundling for regulated activities • Implementation of 3rd Gas Directive
Harmonisation & Cooperation
• ACER and ENTSOG establishment • Coordination of network development
plans • EU network codes
• Active participation in ENTSOG for
rules harmonization and network code development
• Coordination of development plans (TYNDP)
Infrastructure development
• Diversification of supply sources • Bi-directional flows • Interconnection between national
markets • Infrastructure flexibility (N-1)
• Enhancement of storage capacity • Incentive for new investments
Market liquidity
• Cooperation with exchange operators • Entry-exit system • Market-based balancing regime • Gas exchanges
• Entry-exit system since 2001 • New balancing regime • Storage services also for industrial
and power customers
A visible and stable Regulatory Framework
8
2012 RAB breakdown
Storage
• 4 year regulatory period started in January 2011
• 6.7% real pre-tax WACC • 4% higher remuneration
on new investments
Transport
• 4 year regulatory period started in January 2014 • 6.3% real pre-tax WACC on RAB at 31/12/2013 • 7.3% real pre-tax WACC on new investments • 1% - 2% higher remuneration on new investments
Regasification
• 4 year regulatory period started in January 2014 • 7.3% real pre-tax WACC on RAB at 31/12/2013 • 8.3% real pre tax WACC on new investments • 2% higher remuneration on new investments
Regulatory period 2014 2015 2016 2017 2018 2019 2020
Distribution • 6 year regulatory period started in January 2014 • 6.9% real pre-tax WACC for distribution (reference RAB t-1) • 7.2% real pre-tax WACC for metering
Clarity and stability
Attractive incentives
Long term visibility
Low risk profile
Diversification of regulatory
regimes
85% of RAB has regulatory criteria set for 4/6 years
~63%
~0.4%
~20%
~16%
KEY FEATURES:
Revision of risk-free rate
Italy is situated at the Heart of the EU Energy Corridors…
9
... positioning Snam to benefit from favourable European gas market dynamics and regulation
South – North gas interconnections (South Western Europe)
1
South – North gas interconnection (Central Eastern and South Eastern Europe)
2
Southern Gas Corridor (Caspian region)
3
Interconnection plan of Baltic energy market 4
1
4
2 3
Snam Business Development
Business Environment
Agenda
10
• Selective Investments • Capex in Italy • European Developments
• Operational Efficiency • Financial Discipline • Attractive Returns
11
Snam’s Assets Portfolio to provide Diverse Investment Options
Distribution Storage
Transport
Regasification
International assets
A well balanced and diversified portfolio of
investment options granting profitable
growth opportunities in the context of a solid and efficient capital
structure
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
Strengthen security, liquidity, flexibility and service quality of the gas system
Snam Investment Priorities in Italy
• Increase capacity for: • Modulation services and peak demand
control • New services for industrial customers • Supporting gas swaps in Europe
• Optimize utilization of regasification plant offering integrated services
• Develop new balancing services to enhance flexibility
• Selected projects to meet capacity requirements and supply source diversification
• Facilitate technical and commercial swap among different supply sources
• Development of reverse flow capacity to create conditions for the gas transit to European markets
Transport & LNG Storage
12
Distribution
• Development of new distribution network or new connections
• Further improvement of service quality also through smart metering project
• Portfolio optimization
Consistent with the EU and Italian legislative framework and market trends
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
1.3
4.7
2014 2015-2017
3.6 0.9 1.5
Transport Storage Distribution
Consolidated Capex Plan in Italy 2014 – 2017
13
1 RAB evolution calculated assuming annual inflation rate in 2014 − 2017 of 2% and on the basis of the current approved regulatory frameworks 2 On the basis of the current approved regulatory frameworks
2013E 2014E 2015E 2016E 2017E
RAB with higher remunerationRAB with base remuneration
CAGR 3.3%
31% 37%
[€bn]
2014 – 2017: € 6.0 billion
∼75%
Consolidated RAB1 Capex breakdown2
~20% ~80%
Base remuneration Higher remuneration
Organic Capex in Italy
[€bn]
Strong programme to fuel sound and profitable growth in our asset base
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
2014 – 2017 Capex in Italy and Remuneration Scheme1
Expansion of existing fields + 4% for 8 yrs
Development of new fields + 4% for 16 yrs
Others 6.7%
Metering 7.2% remuneration
Distribution 6.9% remuneration
74%
26%
44%
13%
43%
40%
39%
21%
14
2014 2015 – 2017
€ ~2.9 bn € ~0.7 bn
Transport
2014 2015 – 2017
€ ~0.6 bn € ~0.3 bn
Storage
2014 2015 – 2017
€ ~1.2 bn € ~0.3 bn
Distribution
1 Based on the current regulatory framework and gross of subsidies
Remuneration for new investments 7.3%
Remuneration for new investments 6.7%
Regional & national develop. + 1% for 7 – 10 yrs
Import & export capacity develop. + 2% for 10 yrs
Others 7.3% SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
15
Main projects • Po Valley Infrastructure (~450 km )
• Empowerment/construction of compressor stations (~100 MW)
Main projects • Length: ~420 km
• Installed power capacity: ~30 MW
Capacity at entry points from South • +8 Bcm
New pipelines New compressor stations
Main Projects in the Transport Business
South – North developments
North gas market and reverse flow capacity developments
Passo Gries Tarvisio
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
Gas Flow Trends in Italy
Snam’s network set to start playing a transit role 16
Gas Demand CAGR 13 – 25
~1.0%
Import CAGR 13 – 25
~2.0%
5
18
Passo Gries -Connection with North
Europe
Tarvisio - Connectionwith North East
Europe
40*
18*
Passo Gries -Connection with North
Europe
Tarvisio - Connectionwith North East
Europe
* Maximum daily export capacity is 40Mscm/d
>2017
[Mscm/d] ~380
Italian gas flows
Expected to be fully operational by the end of 2015
[Mscm/d]
Import transport capacity under construction
Expected export capacity beyond 2017
Target capacity development
Import transport capacity to accommodate more diversified gas flows
Italian export capacity
Source: Italian Ministry of Economic Development and Snam estimates
[bcm]
335
2013
Graph TBU
0
10
20
30
40
50
60
70
80
90
2013A 2015E 2020E 2025E
Transit
Domestic production
Net import
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
281
316
2013 2017E
8.8 9.5
2.6 4.0
2013 2017E
Industrial users
Residential/regasification
New Storage Capacity to facilitate Gas System Liquidity
[Mscm/d]
+ 18% + 12% Minerbio
Fiume Treste
Settala Sabbioncello Ripalta
Sergnano
Alfonsine
Bordolano
2014 – 2017 developments
[bcm]
11.4 13.5
Gas storage locations
17
• Strengthen European interconnection projects offering more flexibility to the system• Support development of new services via an integrated management of transport and storage
capacities
Peak capacity Modulation capacity
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
Distribution: selected investments to increase profitability in a mature business
18
• New connections on existing distribution network
• Development of new distribution network
• Smart metering project
2013 2017E
Consolidated redelivery points (millions)
5.9 ~6.6
+ 12%
Italgas associates Italgas investments
• 2013 EBITDA pro rata: € 127 mln*
• 2013 Contribution to income from associates: € 59 mln
Italgas & Napoletana Gas Italgas associates Others
* Preliminary results
Growing activities
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
• Competitive cost structure
• Strong cash flow generation
• Substantial returns
Italgas: a clear strategy in the distribution business
19
Italgas to unlock further value through tender process:
New legislative framework pushes concessions renewal and industry concentration, protecting asset value
Italgas, through its leading position in the Italian distribution sector, grants: • Optimization of concession
portfolio
• Economies of scale leading to further operational cost efficiencies
• Proactive approach to tender process also leveraging on potential partnership
A profitable asset base offering attractive investment options to create further value
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
Focus on North-South and East-West Corridors
20
Key pillars
• Optimize the return on current asset base in a broader European context
• Integrated management of the North-South corridor, coordinating capex and commercial initiatives in the framework of Snam-Fluxys Strategic Alliance
• Completion of the East-West corridor
Snam’s geographic footprint
Selective approach to exploit further value
International assets
Domestic pipelines LNG Terminals
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
Optimal Utilization of existing Assets Base
21
TIGF IUK
• EPS contribution 20131: ~1%
• Cash payback till Dec 20132: ~19%
• Represents last section of the South-North corridor connecting to the continental grid one of the major European gas markets
• Bi-directional flow capacity provides flexibility and diversification of supply sources to UK and Continental Europe
1 Including the JV acquisition of 51% stake in Interconnector Zeebrugge Terminal SCRL and of 10% stake in Huberator SA 2 Calculated on purchase price
• Represents a leg of the East-West corridor • Strategic opportunities
• Exploit French gas area unification through strong competitive position of storage business
• De-bottlenecking of Spanish LNG import capacity • Provides diversification of regulatory risk
• EPS contribution: ~1% in 2014, ~2% in medium term
• Expected low double digit return on financial investment
Stra
tegi
c ra
tiona
le
Fina
ncia
l ra
tiona
le
PEG South
PEG North
PEG TIGF
Well on track with the acquisition plan targets
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
United Kingdom
Netherlands
Belgium
France
Bacton
Zeebrugge
TAG: a perfect fit in Snam strategy to integrate the East-West gas corridor
• TAG is the pipeline bringing Russian gas from Austrian/Slovak border (Baumgarten) to Italy (Arnoldstein-Tarvisio)
• 3 lines of 380 km (1,140 km overall length) and 5 compression stations
• 47.5 bcm/year transport capacity
• Acquisition of the entire stake held by CDP in TAG GmbH (currently 89%) • Negotiation: started
€m 2012
Revenues 286.0
Net profit 77.2
Total Shareholders’ Equity 203.4 Total assets 688.9
Key financials
Technical features
Memorandum of Understanding main contents
Source: CDP 2012 Annual Report
• Due diligence: activities in progress • Equity method consolidation of TAG (joint control with the local Austrian partner)
Update on the potential transaction
SELECTIVE INVESTMENTS • ITALY
Transport Storage Distribution
• EUROPE
OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
Austrian/Italian Border OP Border
Slovakian/Austrian Border IP Border
AUSTRIA
22
Day ahead "bundled" services
Harmonized capacity services from EU network codes
Capacity in "oversubscription"
"Short-cycle" storage services
CAPACITY BALANCING
Intensive cooperation with GME
Launch of spot and futures markets
European Capacity Platform
GAS EXCHANGES
Extension to new flexibilty resources (import and LNG)
Introduction of a new day-ahead balancing session
Incentive mechanisms on demand forecasts and information provision
Development of new services
2014 2017
4° regulatory period
New potential Services to enhance Snam’s Role as System Operator and Market Facilitator
SELECTIVE INVESTMENTS OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
23
24
2013 – 2017 CONTROLLABLE FIXED COSTS FLAT IN REAL TERMS
KPI 2013- 2017 CAGR*
TRANSPORT Controllable fixed costs/
network Km
- 1%
DISTRIBUTION Controllable fixed costs/
n. redelivery points
Flat
STORAGE Controllable fixed costs/
m3 working gas
- 2%
Operational Efficiency: a solid baseline to value creation
* Real terms with inflation rate assumption of 2% in 2014-2017
SELECTIVE INVESTMENTS OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
A solid Balance Sheet to support a sustainable and low risk Growth Path
25
Snam Ratings Rating Outlook
Moody’s Baa1 stable S&P’s BBB+ negative
Snam’s key credit metrics 2012 2013
Net Debt/(RAB+associates) 51.7% 53.3%
FFO1 / Net Debt 11.4% 12.3%
2012 2013
Available committed funding ca. 3 bn € in excess of 4 bn €2
• A solid Investment grade profile
• Firm commitment to current credit rating metrics
• Confirmation of Debt/ Fixed Assets guideline of 55% over 2014-2017
• Sound, visible and resilient cash flow generation
• Focused capital allocation policy
• Disciplined investment attitude supported by a wide portfolio of investment opportunities
• Efficient working capital management
• Fair and stable regulatory framework
• Commitment to strong liquidity profile:
• To adequately cover debt repayment schedule
• To support a convenient approach in DCM
• To provide comfortable financial flexibility
1 Based on reported figures before change in working capital. If the non recurring cost of the unwinding of IRS is not taken into account, the 2012 ratio would improve to 13.2%. 2 As at 31 Dec. 2013. Net of the outstanding debt of around 1 billion euro of uncommitted facilities.
-100 -80 -60 -40 -20 0 20 40 60 80 100
4 July 2012 (4y)
12 July 2012 (6,5y)
10 September 2012 (5,5y)
10 September 2012 (10y)
13 November 2012 (3y)
13 November 2012 (7,2y)
3 April 2013 (4,2y)
3 April 2013 (7,8y)
2 September 2013 TAP 2017
3 September 2013 TAP 2020
14 January 2014 (10y)
Issue premium/discount vs BTPs at pricing date
SELECTIVE INVESTMENTS OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
A Debt Structure consistent with Snam’s Business and Regulatory Profile
2011 2012 2013 Fixed-floating rate debt 77%-23% 49%-51% 64%-36% Average M/L term debt over 4 years 5 years 5 years
• Significant fixed rate debt portion
• Limited exposure to interest rates
• Consistency with Snam’s business and regulatory profile
• Locking in today’s debt cost levels without renouncing to
future flexibility
• Focused management of maturities
• No major refinancing exercises until 2015
• New actions to be completed in the short term to pre-fund
our 4-year investment plan
• Maturities well distributed over time
• Average life of our M/L term debt 5 years
• Appropriate mix of funding sources to achieve
diversification benefits and adequate balance between:
• Competitive costs and long tenors mainly via institutional
lenders and DCM and
• Flexibility via the banking system
8.750%7.4
42%
1.38%
Dec. 2013 - Committed funding (17.4 bn € )
Bond Banking financing Institutional lenders financing
8.765%
3.325%
1.310%
Dec. 2013 - Outstanding debt (13.3 bn € )
Bond Banking financing Institutional lenders financing
SELECTIVE INVESTMENTS OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
• Fixed rate debt: 2/3 of total outstanding debt • M/L term debt maturity: 5 years for outstanding debt • Breakdown by source of outstanding debt:
• ~ 10% institutional lenders • ~ 70% DCM • ~ 20% banking facilities
• Cost of debt: further improvement vs. 2013 based on current market conditions
2014-2017 guidelines
26
Confirming Profitable Growth….
• Operating cash flow to finance asset growth
• Leverage (D/RAB+associates) expected at around 55% in plan period
27
Equity RAB
expected to grow
in line with RAB
2013E 2014E 2015E 2016E 2017E
RAB with higher remunerationRAB with base remuneration
CAGR 3.3%
31% 37%
• RAB with higher remuneration up to 37% in 2017
• Exploit further operational and financial efficiency
• Increasing contribution of associates
Further increase
of profitability
Preserving our solid balance sheet
SELECTIVE INVESTMENTS OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
…and robust Shareholder Returns
28
• Well diversified portfolio of investment options
• Selective investments execution
• Financial results supported by increasing return on assets
• Sustainable and attractive level
• Single payment in May
Growth Dividend
• Preserve credit rating metrics in order to maintain a solid investment grade profile
Financial discipline
Annual DPS of € 0.25 in 2014 and in 2015
Snam’s equity story is underpinned by growth and dividend to drive a top ranking TSR
SELECTIVE INVESTMENTS OPERATIONAL EFFICIENCY FINANCIAL DISCIPLINE ATTRACTIVE RETURNS
29
Q & A S e s s i o n
30
Snam’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 that are based on current expectations, estimates, forecasts, and projections about the industries in which Snam operates and the beliefs and assumptions of the management of Snam. 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’s actual results may differ materially and adversely from those expressed or implied in any forward-looking 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 speak only as of the date they are made. Snam does not undertake to update forward-looking statements to reflect any changes in Snam’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 may make in documents it files with the Italian Securities and Exchange Commission and with the Italian Stock Exchange.
Disclaimer
snam.it
2014 – 2017 Strategy & Targets
March 19th, 2014