Italgas — Investor Presentation 2021

Jun 15, 2021

STRATEGIC PLAN 2021-27 EMPOWERING OUR FUTURE

Rome 15.06.2021

ENERGY TRANSITION OUR FUTURE

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"I want Europe to become the first climate neutral continent in the world by 2050"

U. Von Der Leyen EU Commission, President December 2019

"While we continue to battle the pandemic, we must also focus on our long-term challenges: this is why the Green Deal, as a growth strategy, remains our compass throughout the recovery"

F. Timmermans EU Commission, Executive VP December 2020

ENERGY TRANSITION KEY MILESTONES

EU committed to a carbon neutral economy by 2050 both politically and economically

ENERGY TRANSITION AT THE CORE OF EU POLICIES

€175-290bn a year of incremental investments necessary to reach decarbonization goals

Contribution of all sectors is paramount

CO2 emissions cut vs 1990

The EU is preparing a package of initiatives to reduce CO2. A general revision of gas market legislation is also targeted

Biomethane consumption

The revision of the gas market legislation includes how to facilitate the uptake of renewable gases

Hydrogen in EU energy mix ~ 500 GW electrolysis capacity by 2050

Hydrogen may be transported via repurposed natural gas pipelines and / or newly built pipelines

ITALIAN PNRR RESOURCES AVAILABLE

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Energy transition is a tool to support economic recovery Italian PNRR to make new resources available

of which: Hydrogen €3.6bn < Biomethane €1.9bn < Energy efficiency €15.4bn < Water €4.4bn <

of which:

Transition 4.0 €13.4bn

High tech content investments €0.3bn

~€191bn*

FUNDS

IMPLICATIONS FOR GAS SECTOR OF EU ACTIONS

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ENERGY TRANSITION

Gas to account for 20% of 2050 European energy consumption

Gas mix to include green hydrogen (33%) and biomethane/ blue hydrogen / e-gases (67%)

Gas infrastructures strategic to ensure efficiency of the energy system

Investments needed to guarantee flexibility, through gas and electric systems integration

Green gases production should rapidly increase to meet decarbonization target

Gas infrastructures should be able to manage dynamic changes of gas blending

Entire gas value chain including both T&D and storage needs to evolve

Gas and electric infrastructures should be able to cooperate effectively ("sector coupling")

GAS DEMAND EXPECTATIONS REAFFIRMED

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Gas to provide the needed energy supply flexibility

EU Gas demand – ENTSOG high demand cases analysis

Gas demand to become more dependent from RES performance at peaks

Cold spells coupled with low RES to require high gas peaking capacity also in 2040

Source: ENTSOG, Scenarios BE – Best estimate, NT – National Trends, GA – Global Ambition, DE – Distribution Energy

The "2-week demand" refers to a two-week period during a cold spell resulting in high heating demand.

"Dunkelflaute" expresses a climate case, where in addition to a 2-week cold spell, variable RES electricity generation is low due to the lack of wind and sunlight.

GAS NETWORKS KEY ROLE IN ENERGY TRANSITION

Enable a cost-effective decarbonisation, balancing short-term and long-term needs of energy markets

ALREADY DEVELOPED, STABLE AND WIDE-SPREAD INFRASTRUCTURE

~2mln km of pipelines 2,000 gas DSOs and 45 gas TSOs

ACCELERATOR IN THE DEVELOPMENT OF RENEWABLE AND LOW CARBON GASES

STRATEGIC ROLE FOR FLEXIBILITY AND SECURITY OF SUPPLY OVER TIME AND SPACE

Schematic annual profile of PV production vs gas load

2020-30 BIOMETHANE THE CLOSER VIABLE GREEN OPTION

483

2018 2020

Biomethane accounts for 5% of EU gas demand, It is the most significant green gas source but still below its potential

IN EUROPE CAPACITY KEEPS GROWING +51% number of biomethane

plants in 2

years*

729

AND PROSPECTS ARE ALSO STRONG IN ITALY

• Over 30 operative biomethane injection points on the Italian gas network

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• ∼90% biomethane plants produce methane from organic waste and agri-food waste sources
• Significant economic incentive framework (certificates guaranteed for 10 years)

* EBA, ** Italgas' estimates based on the biomethane total volume production from 81 plants, either in operation (31) or in progress (50)

2030-40 HYDROGEN MOMENTUM BUILDING

EU leading the race also on the legislative side

Production costs could fall quicker than anticipated

but

Green hydrogen is not expected to be competitive before 2030

More than 200 projects for >\$80bn announced globally

Source: Italgas elaboration on IRENA data

GAS DSOs NEW CHALLENGES AND OPPORTUNITIES

DSOs need to adapt their strategies Networks upgrade necessary to distribute new gases, to support energy efficiency and cut methane emissions

Build new infrastructure, network repurposing & retrofitting to dispatch green gases

Digitization of operations and smart tools implementation

Prominent role in circular economy thanks to proximity to end customers and distributed production units of green gases

Environmental responsibility through methane emissions management, considering an upcoming stricter regulation

NETWORKS A TANGIBLE CHANGE IN PARADIGM

Upgrade and repurposing combined with digitization to allow distribution/injection of green gases as well as reduce costs, increase efficiency and reliability

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DIGITIZATION CAPEX ASSETS NUMBERS ~€1.4bn CAPEX

Smart meters replacement plan near completion

Step-up in digitization deployment

+5,000 digital assets, including gas analysers segmentation valves and odorization plants

DIGITIZATION CORNERSTONE OF OUR CAPEX PLAN

Digitization to benefit the gas distribution system in several ways

Safer operations

Safer operations foster service continuity

Consumption data

More accurate and updated consumption data enable proactive behaviors and predictive maintenance

Efficiency gains both on opex and capex resulting in savings for the system

Efficiency

gains

Strict emission control

Crucial for reaching EU ambitious decarbonization targets

Green gases

Enabler for injection of renewable and low carbon gases

DIGITIZATION IoT, BIG DATA AND DIGITAL FOR GAS SMART NETWORKS

Smart gas networks enable an evolution in infrastructure management towards realtime, optimized and seamless operations

2030-40 HYDROGEN ITALGAS H² PROJECT

Basic design completed; permitting & procurement ongoing expected to be in operation in 2022

Refuelling station 200 kg/d

H2 P2G project aimed at testing the entire green hydrogen value chain, including implications on equipment

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Shortlisted by MISE as eligible for European funds (IPCEI)

R&D DESIGN NEW DIGITAL SMART METERS

Development of a new hydrogen ready smart meter to improve performance, guarantee security and benefit from standardisation

NETWORK, REPURPOSING & UPGRADE

Network spending, well balanced between repurposing and extensions

~€3.4bn CAPEX

Extensions and new grids

Maintenance

of existing

network

Sardinia

new grids

Technical Innovation and energy efficiency

NETWORK DEVELOPMENT TO ALLOW GAS TO REACH NEW CUSTOMERS

New fully digital native network

900km built starting from 2018 out of 1,100km of new grid planned

45k active meters* potential market 200.000**

~€0.3bn

CAPEX

TORINO, VALLE D'AOSTA, BELLUNO

Network development of won tenders

~€1bn CAPEX

EXISTING NETWORK

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* LPG / GNL to be converted to GNL / Natural gas ** GNL / natural gas

TENDERS THE TIMELINE

2017-23 Plan 2018-24 Plan 2019-25 Plan 2020-26 Plan 2021-27 Plan

ESCO STRONG ENERGY SAVINGS MARKET OUTLOOK

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Outlook for the Italian energy efficiency market is very strong Efficiency in residential buildings is core to achieve EU targets Highly fragmented market

Target of energy savings by 2030 per sector* (TWh)

ESCO FROM NEW OPPORTUNITY TO REALITY

Delivering on announced strategy

NOW 1 COMPANY

• Seaside and Toscana Energia Green completed the merger
• High potential thanks to complementary businesses (geography, customer base)
• Focus on Buildings energy renovation and Digital Services

INTERNAL EFFORT

• Support Italgas energy transition, providing services within the Group
• Key asset for tenders

EXTERNAL OPPORTUNTIES

• M&A initiatives to expand the scale of services offered and to consolidate a fragmented sector gaining economies of scale
• Ceresa acquisition

ESCO FROM NEW OPPORTUNITY TO REALITY

Growing EBITDA contribution

0

5.000 10.000 15.000 20.000 25.000 30.000 35.000 40.000 45.000

M&A: CERESA (14/06/21)

• Operates in buildings energy efficiency with a focus on heat management
• Founded in 1921
• Mainly operates in the Northwest Italy with 27 employees.
• Serves a large customer portfolio (3,651 customers, mainly in individuals and condominiums).

REVENUES

>€700mn

TOTAL CUMULATED POTENTIAL*

~€100mn

CAPEX*

POTENTIAL GROWTH OUTSIDE ITALY MONITORING OPPORTUNITIES

Italgas has been shortlisted for DEPA privatization in Greece Offer due date July 15, closing expected before year end

FITS WITH INVESTMENT CRITERIA

• Comparable sovereign risk
• Ability to exercise an industrial role significant network development digital transformation
• Visible and established regulatory framework
• Similar-risk adjusted returns to Italy

WATER CONFIRMING TARGETS

Total water distribution market in Italy 27bcm, of which 20% for civil uses

* For civil uses only, Source: Istat, Utilitas Blue Book 2019, MIP Energy Strategy Group Water Management Report 2018.

WATER CONFIRMING TARGETS

ITALGAS ACQUA

Serving 5 municipalities in the province of Caserta 100% of the network remotely controlled

Best practices in gas network management applied to water networks

>€250mn CUMULATED POTENTIAL 2021-27

REVENUES

ADVANTAGES

• ★ Deep understanding of the regulation and knowledge of the business
• ★ Expertise in managing pipeline networks
• ★ Opportunity to digitise new grids replicating what already done by Italgas
• ★ Solid expertise in water leakages management and reduction, also thanks to Takadu partnership
• ★ Sustainability focus

2019 Network Assessment 2020 Network Design

Plan Period

CEM technology implementation NB-IoT smart meters deployment

NEWCO ICT ACCELERATOR OF INNOVATION

Competence centre for the entire group, unlocking value of proprietary solutions in the market

Rationalisation of all ICT activities previously run by different group entities into a NewCo fully owned by Italgas

• ✓ Unique reference for companies of the Group
• ✓ Clearer focus on economics

✓ Agile vehicle

ASSETS €100mn ~100 RESOURCES

ADVANTAGES

NEWCO ICT INTERNAL AND EXTERNAL OPPORTUNITIES

Potential to sell technological solutions developed and tested by Italgas to third Parties

• Test and learn
• Customization and development of proprietary solutions
• Piloting

Innovate Go to market Run and improve

• Roll-out at scale to capture operational efficiencies
• Monitoring for continuous improvements and
• Evolved operating model

DESIGNED FOR ITALGAS OFFERED TO THIRD PARTIES

Productization of selected solutions for third parties such as:

• SaaS solutions supporting client's needs
• Turn-key services offered by Italgas
• Opportunity to leverage the Italgas agile delivery model in the Digital Factory

(1) €0.4bn is M&A in the No Tenders scenario, while in the Tender scenario is reduced to €0.3bn

CAPEX PLAN 2021-27 +58% IN 5 YEARS

Increase in spending related to core assets and digitization

+58% in 2021-27 vs 2017-23

(*) Including metering (**) Including centralised capex, Sardinia, expansion of gas distribution perimeter

GROWTH SUPERIOR RAB GROWTH

Growth in RAB and redelivery points driven by organic investments, M&A and tenders

RAB referred to the year end T - revenues in the year T+1, gas distribution only Average deflator over the plan period assumed at 1.8%, starting from 1.2% in 2021

TJ

(1) Unchanged perimeter, ie excluding M&A and tenders

reduction

HRO STRATEGY TO SUPPORT GROWTH

3 pillars HRO based strategy designed to sustain people development and industrial growth

EFFICIENCIES ENGAGEMENT & CHANGE MANAGEMENT

Strengthen engagement and facilitate change management

SUSTAINABILITY & INCLUSION

Improve business

• Smart working, start from home & office transformation
• Safety focus
• Listening (Inclusion Manager),
• Welfare upgrade
• Ambassadors & contamination
• Employee as a stakeholder

OPERATIONAL

sustainability and inclusion Operational efficiencies leveraging on digitization

INSOURCING OF STRATEGIC ACTIVITIES

Insourcing of core activities previously managed by 3rd Parties New activities created by digitization People reskilling and upskilling to empower strategic know-how and deliver excellence

ACTIVITIES ALREADY INSOURCED

• Leak detection and repair ✓

• Metrological inspections ✓
• Quote issuing activity ✓
• On-site inspections ✓
• Smart meters batteries replacement ✓
• Risers ✓

• Construction engineering

2021 TO BE INSOURCED OVER PLAN PERIOD

Currently externalized

• Digitized assets maintenance

• New, driven by digitization
• • New activities yet to be identified

Leveraging on people growth and HR

PEOPLE KEY TARGETS

100 digital 50 sustainability 30 inclusivity

Increase in Smart Office & Smart working

Top 10 Talent attraction brand awareness

Development of Italgas Academy

Gender equality new hires	50%	Women in responsibility roles	25%
Total hours to training in 2021-27	600k hours	Employees in welfare	>75%
… of which digital learning	250k hours	Learning hours/employee/yr	38 hours
Engagement in Net Promoter Score (NPS)	>80%	New hires under 30 years old	60% 4 3

FINANCIAL STRATEGY A KEY SOURCE OF VALUE CREATION

Sustainable finance sources

Support capex growth maintaining flexibility

Preserve a solid investment grade profile

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FINANCIAL STRATEGY A KEY SOURCE OF VALUE

Limited refinancing needs and ample liquidity buffer

Low exposure to interest rates volatility and long debt tenor

Best in class cost of debt of ~1% over plan period

1Q 2021 Gross Debt Structure*

Debt Maturities

EIB

4 5

Institutional

CREDIT METRICS MOODY'S Baa2 FITCH BBB+

Credit metrics remain within range throughout the plan

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4 7

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(*) Cumulated over 2021-27 compared with a scenario of no digitization investments, more than €260mn since 2019

DISTRIBUTION COSTS FURTHER EFFICIENCIES WITH TENDERS

4 8

Distribution operating expenses without tenders*

Unit cost per redelivery point**

30,0

Efficiencies driven by technological innovation and digitization

Offset X-factor impact

Tenders will drive higher economies of scale and optimised geographical footprint

(*) without M&A and other activities, (**) net of pass though

GUIDANCE
		2021		2024	2027
	€ mn
	Revenues	>1.35bn	Revenues	~1.9bn	~2.1bn
	EBITDA	~1.0bn	EBITDA	~1.37bn	~1.6bn
	EBIT	560-580	EBIT/RAB*	~7.5%	~8.2%
	Capex	850-900	Consolidated RAB	10.5bn	11.9bn
	Net Debt with IFRS 16	~5bn	FFO / RAB	10%	10%
	Leverage	~61%	Leverage	~62%	~60%
					4 9

* Gas distribution only

DIVIDEND POLICY CONFIRMED

Dividend policy allows shareholders to benefit from growth potential

Higher between

• ✓ DPS equal to 65% payout on
  • Adjusted Net Income
• ✓ DPS 2019 +4% per annum

Dividend per share (€)

EMPOWERING OUR FUTURE

Foster Energy Transition

Foster the development, injection and at scale usage of green gases.

Smart Gas Networks

Network upgrade and repurposing to reduce costs, increase efficiencies and resilience, enable green gases distribution, via digital transformation.

Emission reduction and energy efficiency

Decarbonization of operations and full deployment of energy efficiency initiatives within the Group and versus the external market

External growth / New opportunities

M&A initiatives (in Italy and abroad), tenders to grow in the gas distribution, leverage on existing internal capabilities to grow further (Water, ICT)

Financial Structure & Shareholders' Returns

To ensure value creation, support growth opportunities and guarantee a robust shareholder's return 5 1

MAIN NUMBERS
	OPERATING HIGHLIGHTS (TOTAL)	OF WHICH AFFILIATES
Network length	73,319 km	1,877 km
Municipalities	1,888	61
Redelivery Points	7.750 mn	0.153 mn
Market Share(1)	35%	0.1%

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ITALY GAS DEMAND EXPECTATIONS REAFFIRMED

Networks to accommodate new green gases

Source: Italgas elaboration on Snam 2020 TCFD, PNIEC 2019 and ENEA

SUSTAINABILITY AT THE CORE OF OUR ACTIONS

Committed to performance improvement and ESG culture. New targets set integrating Sustainability Plan pillars

• Decarbonization of operations and reduction of energy consumption Network digitization to accommodate green gases
• Ongoing Sardinia methanization
• Scale-up of the Power to Gas project

SOCIAL

• People empowerment and safety, also considering impact from COVID-19
• Diversity and equal opportunities promotion
• Improvement of the relation with final customers, sales companies and suppliers

• Promotion of social innovation through education (digital divide, cultural projects)

• ESG KPIs in top management remuneration

• Integrated Annual Report
• 67% Independence of the board
• Improved focus on ESG and climate change issues in Enterprise Risk Management
• Valorisation of sustainability and gas advocacy on national and international round tables (e.g. GD4S and OGMP)

2020-30 BIOMETHANE THE CLOSER VIABLE GREEN OPTION

14

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1

10

5

3

4

2

1

3

7

4

1

1

5

1

1

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1

1

6

2

1

3

1

4

4

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Connections requests keep raising. Italgas received 38 preliminary requests for connections since 2017. Need to consider "reverse flow ops"

Italy request for connections

In progress biomethane injection points (∼290 Mln Sm³/y)

In operation biomethane injection points (∼350 Mln Sm³/y)

Of which on Italgas' network

7

2

7

2

1

1

5

33 Preliminary feasibility requests on ITG network

Formal requests quotation for connections on ITG network

* criteria set by Italgas, ** economic contribution from the biomethane supplier

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 identi1Q 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.