Italgas — Earnings Release 2018

Feb 22, 2019

2018 FY Consolidated Results

22nd February 2019, Milan

Italgas in Italy The leading Italian natural gas distributor

Note: (1) Calculated by redelivery points (2) Annual Volume

Source: Data updated December 2018

2 /

2018 … another step forward

RESULTS AHEAD OF TARGETS SUCCESSFUL M&A CONTINUES EFFICIENT FINANCIAL STRUCTURE Capex over € 500 mln for the 2nd consecutive year Margins growth thanks to Investments, New Acquisitions and Cost Efficiency Impressive Cash generation Lowest cost of debt among peers with limited exposure to interest rate volatility 7 transactions completed and 1 announced 275€ mn deployed at RAB for 160k RdP INNOVATION 5 mln Smart Meters in operation Innovation to boost Service Quality and Network Management

SHAREHOLDER REMUNERATION DPS 2018 proposal: 0.234 € ( +12.5% vs DPS 2017)

2018: strong performance delivery

* Excluding 49.9 mln for operating leases (IFRS 16) and 21 mln related to EGN (shareholder loan)

** Calculated as Net Debt /RAB including affiliates

Operating cash €718.7 flow

Capex €522.7

Consolidated Net Debt* €3,814.3

vs 2017

%

Leverage** 59.6%

Bolt on acquisition fueling RAB growth

5 /

2018: Consistent and significant capex delivery

€ mn

521.9

522.7

8%

2017 2018 ~1,660,000 smart meters installed

Others

Driven by M&A

Metering 51% 13% 2% 34%

~1,650,000 smart meters installed*

* Of which ~1, 505,000 units related to the replacement of traditional meters

TARGET CAPEX 2018

> €0.5bn

Digital program deployment Digital program deployment

Digital Factory: First Outcomes

Room 1: Scheduling, dispatching and consumer experience

INTERVENTIONS ON TIME

• Automatically suggested ideal slots (Smart Booking)
• Integration of Priority Activities currently not in Agenda (eg. Meters replacement)
• Automatic Activities proposal "saturating" technicians capacity

SERVICE QUALITY

Consumer

/ContactCenter

Sales Companies Technician

• Activities flexibile allocation and accounting process simplification
• Technical teams Geolocalization

Scheduler

notifications Visibility on Request Status and possibility to update remotely information

Automatic and ad hoc consumers

CONSUMER «CARE»

intervention Consumers satisfaction monitoring

about the

• Non-relevant calls reduction (~62%)
• Emergency calls management optimization (~5min) Call and dispatching partial automation

• Control Room performance management (compliant to SLA 92%) Visual Management tools

• Data visualization Cabins and Grid status and activities

• New Use Cases and evolution from 'Pronto Intervento' to Control Room
• Alerts and Notifications

Corporate Structure

Consolidated perimeter – structure as of 31/12/2018 Further optimization

opportunities

• Put/call agreement for 40% of EGN
• Simplification of affiliates' structure
• Fontenergia S.r.l. and Fontenergia SPVs to be merged into Medea
• New Grids and Naturgas to be merged in Italgas Reti

To further improve efficiency and business value

* Gas distribution companies acquired from CPL Concordia, located in Campania, Calabria and Sicily (Barano Gas Reti, Ischia Reti, Progas Metano, Grecanica Gas, Favaragas Reti e Siculianagas Reti)

** 12 SPV located in Sardinia

Consolidated Income Statement

	2017	2018	Change 2018 vs 2017
€mn
Revenues	1,124.2	1,176.2	52.0
Operating expenses	- 348.0	- 336.7	11.3
EBITDA	776.2	839.5	63.3
EBITDA adjusted	781.2	842.0	60.8
Depreciation & amortisation	- 358.3	- 386.0	- 27.7
EBIT	417.9	453.5	35.6
EBIT adjusted	422.9	456.0	33.1
Net interest income (expenses)	- 36.2	- 47.0	- 10.8
Net income from associates	23.0	20.0	- 3.0
EBT	404.7	426.5	21.8
Income taxes	- 111.9	- 112.8	- 0.9
NET PROFIT	292.8	313.7	20.9
Net Profit Adjusted	296.4	315.5	19.1

Revenues Consolidated Revenues: +4.6% vs 2017

€mn	2017	2018	Change 2018 vs 2017
Regulated revenues	1,096.8	1,143.1	46.3
Distribution	996.9	1,007.3	10.4
Tariff contribution for meters replacement	47.9	71.5	23.6
Other distribution revenues	52.0	64.3	12.3
Other revenues	27.4	33.1	5.7
TOTAL REVENUES	1,124.2	1,176.2	52.0

Opex Consolidated Opex: -3.2% vs 2017

€mn	2017	2018	Change 2018 vs 2017
Gas Distribution activities	337.8	316.8	- 21.0
Fixed costs	267.2	244.8	- 22.4
Net labour cost	139.1	140.9	1.8
Net external cost	128.1	103.9	- 24.2
Variable costs	3.4	4.8	1.4
Other costs	13.9	10.2	- 3.7
Tee	0.1	2.3	2.2
Concessions fees	53.2	54.7	1.5
Other activities	10.2	19.9	9.7
Net labour cost	1.6	3.7	2.1
Net external cost	8.6	16.2	7.6
TOTAL COSTS	348.0	336.7	- 11.3
Special Items	5.0	2.5	- 2.5
TOTAL COSTS adjusted	343.0	334.2	- 8.8

Ebit Analysis Ebit: +8.5% vs 2017

€ mn

Consolidated Net Income Net Income: + 7.1% vs 2017

Consolidated Cash Flow Consolidated Cash Flow

A solid, efficient and resilient debt structure

Debt Structure year end 2018

Balance sheet

€mn	2017 Dec, 31st	2018 Dec, 31st	Change
Net invested capital	4.905.9	5.193.5	287.6
Fixed capital	4.950.9	5.284.1	333.2
Tangible fixed assets	224.6	259.2	34.6
Net intangible fixed assets	4.676.6	4.982.8	306.2
Net payables investments	- 135.3	- 133.1	2.2
Equity-accounted and other investments	185.0	175.2	- 9.8
Net working capital	71.1	5.7	- 65.4
Receivables	749.9	737.1	- 12.8
* Liabilities	- 678.8	- 731.4	- 52.7
Provisions for employee benefits	- 116.1	- 107.9	8.2
Assets held for sale and directly related liabilities	-	11.6	11.6
Net financial debt *	3.720.3	3.814.3	94.0
Financial debt for operating leases (IFRS 16)	-	49.9	49.9
Shareholders' equity	1.185.6	1.329.3	143.7

* 21 mln related to EGN (shareholder loan) are included in net working capital liabilities

...delivers additional value to shareholders

* Payable on May 22nd 2019

From 2016 to 2018 (1) From 2016 to 2018: impressive performances (1/2)

€mn

• Revenues
• Operating expenses
• EBITDA(*)
• EBIT (*)
• NET PROFIT (*)

(*) Adjusted

From 2016 to 2018: impressive performances (2/2)

€mn

• Capex
• Operating Cash Flow
• Net debt
• Leverage (2)
• Dividends FY

Income statement

€mn	2018 1 st Quarter	2018 2 nd Quarter*	2018 rd 3 Quarter	2018 4 th Quarter
Revenues	281.0	311.4	288.3	295.5
Operating expenses	- 82.6	- 85.6	- 83.3	- 85.2
EBITDA	198.4	225.8	205.0	210.3
Depreciation & amortisation	- 86.0	- 115.2	- 94.1	- 90.7
EBIT	112.4	110.6	110.9	119.6
Net interest income (expenses)	- 12.0	- 11.7	- 11.9	- 11.4
Net income from associates	4.8	4.9	5.6	4.7
EBT	105.2	103.8	104.6	112.9
Income taxes	- 30.5	- 27.8	- 28.9	- 25.6
NET PROFIT	74.7	76.0	75.7	87.4

* Q2 Seaside TEE margin (1.1 mln) had been reclassified from operating expenses to revenues.

Income statement

€mn	2017 4 th Quarter	2018 th 4 Quarter	Change
Revenues	289.2	295.5	6.3
Operating expenses	- 91.0	- 85.2	5.8
EBITDA	198.2	210.3	12.1
Depreciation & amortisation	- 87.2	- 90.7	- 3.5
EBIT	111.0	119.6	8.6
Net interest income (expenses)	- 9.3	- 11.4	- 2.1
Net income from associates	7.1	- 2.4	- 9.5
EBT	108.8	112.9	4.1
Income taxes	- 29.7	- 25.6	4.1
NET PROFIT	79.2	87.4	8.2

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 company's evidence and accounting books and entries.

This presentation contains forward-looking statements regarding future events and the future results of Italgas that are based on current expectations, estimates, forecasts, and projections about the industries in which Italgas operates and the beliefs and assumptions of the management of Italgas.

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, Italgas'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 Italgas speak only as of the date they are made. Italgas does not undertake to update forwardlooking statements to reflect any changes in Italgas'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 Italgas may make in documents it files with the Italian Securities and Exchange Commission and with the Italian Stock Exchange.

2018 FY Consolidated Results

22nd February 2019, Milan