Italgas — Management Reports 2022

Jun 15, 2022

Strategic Plan 2022 -2028

CRAFTING THE ENERGY ( R)EVOLUTION

Turin 15.06.2022

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Italgas a Player of the Energy Transition

Source: IEA – Gas Market and Russian Supply, Eurostat 2020 data, Snam gas balance 2021, MiTE Gas Balance 2021, Eurostat 2020 data, IEA - Reliance on Russian Fossil Fuels Data Explorer Note: (1) Gross available energy; (2) Data include UK

REPowerEU a tipping point

REPowerEU MULTI-YEAR

PATH

The REPowerEU plan sets a new multi-year path, accelerates the energy transition, creates the basis for a proper Energy Union, increases security of supply and reduces dependence on Russia

Short-term

Biomethane growing appreciation

Biomethane accounts for 5% of EU gas demand. Offers significant advantages in terms of assets readiness. Still below potential, but part of REPowerEU plan.

Benefits of Biomethane

• Carbon neutral as CO2 emitted equals that previously captured
• Potential for becoming Carbon Negative if production integrated with CCS-CCUS units
• High combustion quality
• Technological readiness
• Flexible and programmable resource (plan production and storage of energy)
• Promotion of circular economy models

Biomethane under-exploited opportunity

Italy is the world's fourth largest biogas producer1 Biomethane production is expected to accelerate in the coming years supported by regulation

Source: elaboration on Eurostat 2020, Snam, GSE, Italian National Plan for Recovery and Resilience (PNRR)

Note: (1) After Germany, China and US. (2) OFMSW – Organic Fraction Municipal Solid Waste (3) % based on the total number of plants (4) 2021, 54 plants in operation and additional ~50 to be connected to the network

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Hydrogen momentum building, with Europe playing a leading role

Retrofitting/repurposing existing infrastructure

Integrated H2 project (production, transport, use)

H2 at end-user level

H2 production

84

81

72

Projects

60

34

6

H2 storage

New built H2 infrastructure

REPowerEU and ITALGAS' STRATEGY

Foster energy transition & contribute to security of supply Development, injection, widespread usage of green-gases in networks.

Repurposing of Italian gas network into a smart one Upgrade and repurposing to increase efficiencies and resilience, enable green-gases distribution, via digital transformation.

Already aligned with REPowerEU new targets and guidelines

Since 2017

Contribution to Italian and Greek energy transition and energy security over the long term

Emission reduction and energy efficiency, also via ESCo business Decarbonization of operations and full deployment of energy efficiency initiatives.

External growth/ New opportunities Acquisition, network development, tenders; growth in water and digital services.

Greece Depa Infrastructure acquisition and development.

Setting the Network Of Tomorrow

1 3

Assets Digitization

SMART METERS1

Working to develop new in-house hydrogen ready smart meter. Progressive substitution of GPRS based meters also due to technology phase out by TELCOs

Assets Digitization

• City gates upgrade, including remote control systems 1
• 2 Biomethane connections & reverse flow connections at IPRM

3 District governors GRFD/GMPV replacement and upgrade

4 Gas distribution network upgrade, including THT and gas quality monitoring

5 Central Control Room (Dana)

>€0.2bn

CAPEX 2022-28 Innovation driven by a combination of internal R&D, open innovation and venture capital investing Leverage on internal and external capabilities

Digital factory the first accelerator of the digital transformation

Italgas lab revamping and new renewable gases testing centre in Sardinia

Design new Italgas smart meter

Power to gas project and biomethane connections

International «open innovation» scouting in main ecosystems, leading to adoption and industrialization of new cutting edge technologies

Open Innovation

Participation in corporate venture capital initiatives to get in contact with high potential SME / start-ups with positive impact for gas distribution sector

Venture Capital

Investing

MAIN FOCUS

+ Other countries

DANA a comprehensive output of innovation

DANA, our command-and-control system revolutionising network supervision

3 MAJOR BENEFITS:

• Monitoring of a distributed system where physical variables are interdependent
• Remote management with commands on main network processes and plants and increased governed processes efficiency and flexibility
• Enabler of renewable gases management

Italgas and Hydrogen pulling several levers

Ongoing assessment, upgrade and digitization of the network to allow distribution of green gases as well as to increase efficiency and reliability Design of new H2 ready smart meter

H2 Several initiatives ongoing to ensure network readiness for hydrogen distribution and blending

Development and construction of a P2G pilot project in Sardinia to test the entire green hydrogen value chain, including implications on equipment

Hydrogen Lab to be located next to ITG P2G plant in Sardinia to test boilers/ water heaters, gas metering and odorization, gas quality check equipment, piping and gas meters aging

MOU with Buzzi Unicem for the development of a feasibility study relating to the construction of P2G plants in combination with Carbon Capture Systems in Buzzi Unicem's production sites

International partnerships for knowledge sharing, like those with Jemena (Australia) and Marubeni (Japan)

Hydrogen Readiness equipment testing

Preliminary results of Italgas' network technical assessment has showed high levels of compatibility with hydrogen blends up to 10%

Distribution network compatibility to H2 under test

Ongoing evaluation of Italgas network compatibility in order to identify the investments necessary to upgrade the network

Phase 1

Analysis and preliminary assessment of suitability to distribute a natural gas / hydrogen blends in networks and pressure reduction stations.

Phase 2

Identification of sample networks to test materials and equipment on site and in collaboration with internal R&D laboratories

Completed

Hydrogen Readiness Italgas P2G project

Electrolyser 0.5 MW

Owned RES Plant 1 MW

Sestu

Refuelling station 300 kg/d

Storage & blending 300 kg

An example of sector coupling. Basic design completed; permitting & procurement ongoing. Expected to be in operation in 2023

Electrical and control cabinet

Control

+ Equipment testing

Tier 1 Player in Energy Efficiency

Energy Efficiency a EU priority

REPowerEU enhanced energy efficiency targets at EU wide levels Existing Italian targets already require additional efforts to 2030

Source: Final energy consumption Eurostat; target consumption from PNIEC

Note: (1) PNIEC defines savings expected over the period 2021-2030 based on the ~40% target vs PRIMES 2007 scenario

Energy Efficiency strong market outlook for ESCos

Meeting the targets implies a strong market outlook, while awareness of benefits increases Consolidation opportunity, given overly fragmented market

Source: McKinsey elaboration based on Digital Energy Efficiency Report 2021, Politecnico di Milano; Smart Building Report 2021, Politecnico di Milano;

ESCos

Revenues

Greece

2 6

DEPA Infrastructure in a nutshell

DEPA Infrastructure is the holding company which owns the three gas distribution operators EDA Thess1, EDA Attikis2 and DEDA3 in Greece

The three distribution network operators have exclusive rights in their respective regions. Combined, they cover the quasi-entirety of the Greek market.

Penetration rate is set to increase sharply to let Greece reach its decarbonization goals

(1) Thessaloniki – Thessalia Gas Distribution S.A. (2) Attiki Natural Gas Distribution Single Member Company S.A. (3) Public Gas Distribution Networks S.A.

• ► RAE approval pending for closing. Antitrust approval granted in March 2022
• ► Italgas to acquire DEPA Infrastructure through an Italian BidCo
• ► Consideration of €7331 mn for 100% of the equity of DEPA Infrastructure2

DEPA Infrastructure key plan assumptions

Pending closing the plan incorporates preliminary projections provided by the targets

REDELIVERY POINTS

Other Opportunities

3 0 3 0

Water committed to scale up our presence

Best practices in gas network management applied to water networks to make water distribution more sustainable and reduce losses Targeting selective acquisition

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

Plan Period, digitization continues CEM technology1 implementation NB-IoT smart meters roll-out

Italgas Acqua Strategic Positioning

• ★ Deep understanding of the regulation and knowledge of the business
• ★ Expertise in managing pipeline networks, improving their performance & solid partnerships with technical experts
• ★ Opportunity to digitise new grids replicating what Italgas' model
• ★ Sustainability focus

Scouting for M&A opportunities

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

Bludigit Objectives

Spun-off in July 2021

Brings together all the Information Technology (IT) activities and the Digital Factory

Fully owned by Italgas

Business Goal Enablement: develop digital services available to the business, improving resiliency and scalability

Commercial service development: open sales channels and new partnerships

Bludigit pushing capex effectiveness with Capexforce

Capexforce is the further step in capex management effectiveness. Integrated with proprietary solutions, tailored for our core business.

Advantages

Increase capital productivity: roadblocks and downtimes removal through improved end-to-end visibility

Push digital transformation: simplification and automation of internal processes involved, i.e. Planning, Engineering, Permitting, Procurement, Deployment, Operations

New business opportunities: proprietary solutions offered as license to energy and infrastructure operators

CAPEXFORCE

End-to-end digital solution, for the optimization of the capital investment cycle

Leverages on Salesforce technology and on an ecosystem of proprietary solutions (e.g. WorkOnSite, ShareView) to ensure on-quality and on-time deployment of capex

ESG environmental targets enhanced

Net Energy Consumption1 TJ FY 2020 FY 2021 FY 2027 FY 2028 FY 2030 -27% 2020-28 -33% 2020-30

Actions identified and reflected into capex plan

Efficiency measures for industrial consumption: preheating processes, onsite renewable energy production and auto-consumption, digitalization of monitoring and control systems of the plants

Office management and buildings renovation effort together with constant process of optimisation, renewal, digitalization of monitoring and control systems of the buildings

Optimisation and renewal of the car fleet

Note: (1) unchanged perimeter, ie excluding M&A, DEPA Infrastructure and tenders (market based scope 2), targets aligned with SBTi in terms of linear annual reduction and in absence of SBTI methodology for gas distribution; (2) baseline recalculated taking into account specific suppliers' emission factors; (3) post 2030;

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ESG social targets prove the change is ongoing

Note: of which Sardina Capex €0.2bn, does not include Centralised capex for €0.3bn

Assets Digitization

Assets Digitization

• City gates upgrade, including remote control
• 2 Biomethane connections & reverse flow connections
• 3 District governors GRFD/GMPV replacement and

4 Gas distribution network upgrade, including THT and

Tenders new timeline reflects more cautious approach

Visibility on timing is low, peak moved to 2026 and tenders to complete beyond plan period Capex opportunity laying outside plan horizon growing

2017-23 Plan 2018-24 Plan 2019-25 Plan 2020-26 Plan 2021-27 Plan 2022-28 Plan

Investments still growing

Investment plan reflects Greek acquisition and repositioning of capex to maximise returns as well as selective disposals

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

Average deflator over the plan period assumed at 2.5%, starting from 0.7%

Balanced Financial Structure through plan period

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

credit rating preserved

DEBT STRUCTURE a key source of value creation

No major refinancing needs until 2024

Liquidity currently >1.2bn to cover short term outflows and to keep an adequate buffer going forward

Current debt structure allows to keep an average cost of debt <1.2% over plan period

Recourse to sustainable finance sources

31/03/2022 Gross Debt Structure¹

0%

5%

50%

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	2022		2025	2028
€ mn
Revenues adjusted	>1.4bn	Revenues	~2.0bn	>2.6bn
EBITDA adjusted	1.00-1.03bn	EBITDA	~1.45bn	>1.8bn
EBIT adjusted	570-590	EBIT/RAB2	~7.9%	~8.8%
Technical Capex	700-750	Consolidated RAB	11.0bn	12.6bn
Net Debt with IFRS 161	~5.9bn	FFO / RAB	10%	11%
Leverage1	64.9%	Leverage	<64%	~61%

Current Dividend Policy to 2023

Solid and visible return, while allowing investors to benefit from growth

DPS equal to

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

Dividend per share (€)

Illustrative chart, DPS paid in the following year

ESG people to support the growth

3 pillars HRO strategy defined in 2021 confirmed and improved. Strategy designed to sustain people development and well-being as a tool to achieve industrial growth

ENGAGEMENT & CHANGE MANAGEMENT

Change passes through people, their engagement. Integration between core and new businesses, safeguarding the unique Italgas' culture

SUSTAINABILITY, DIVERSITY & INCLUSION

Improve business sustainability, diversity, inclusion and gender equality

Launch and set up of a number of new initiatives to support well-being, safety, working instruments and patterns, inclusion and diversity, learning opportunities.

OPERATIONAL EFFICIENCIES

Operational excellence leveraging on digitization

Energy Policy REPower EU and national policies	EUROPE	ITALY	GREECE
GREEN GASES	Accelerated green gases development vs Fitx55 (biomethane & hydrogen)	Development of biomethane to reach 2.5 Bcm by 2026
NATIONAL ENERGY PRODUCTION	Nuclear and coal potential phase-out delay	Increase of national gas production to 5 Bcm (+50%)	Lignite power plants phase out delay to 2028, +50% increase in lignite mining
INFRASTRUCTURES DEVELOPMENT	Increase supply from non-Russian routes, new interconnections and maximisation of LNG import capacity	New agreements with exporting countries (Algeria, Azerbaijan, Egypt, Qatar, USA) + new FSRU/LNG	New pipeline (IGB) + TAP expansion + new FSRU units
STORAGE	Set up of minimum storage requirement targets by end of summer		Strategic storage– exploring option of strategic storage in Italy
GAS and ENERGY PRICES	Allow actions to mitigate commodity prices impact on end users – discussion on European gas price	Actions to mitigate commodity prices impact on end users
ENERGY EFFICIENCY	Push for energy efficiency to 13% vs 2020 (from 9%)	Incentives for buildings renovations (superbonus, ecobonus) and temperatures control
FER ACCELERATION	Renewables acceleration to 45% (from 40%) of final energy consumption led by solar

New regulatory period for allowed return started in January 2022

Key features of Italian regulation

• RAB-based framework set and regulated by ARERA
• Tariffs ensure return on assets
• No volume risks, temporary tariffs mismatch impact working capital
• Different regulatory period for WACC and other tariff components
• Majority of capex recognized at cost
• 5.6% real allowed return for 2022, trigger mechanism for 2023-24 and rest in 2025 with pre-established rules
• Inflation protection

Italy regulated reveneus scheme

Unitary tariffs are set for the regulatory period for each distribution area: Achieved revenues reflect return on asset base. Working capital temporarily impacted by volumes fluctuations.

Greece regulation

Transparent regulatory framework

with numerous similarities to the Italian system

Long concession duration

allowing to implement Italgas' long-term strategic vision

through compensation mechanism for under-recoveries

Downside protection

Key features of Greek regulation

• RAB-based framework regulated by the Regulatory Authority for Energy
• Tariffs reflect business plans presented by the company, including investments agreed with RAE
• Regulatory periods last 4 years
• 7.03% nominal return in 2021-22E, with an implied tax rate of 24%
• 1.5% additional return for investments meeting certain criteria
• Mechanism in place to compensate of any under / over recovery of required revenues

Greece regulated revenues scheme

¹Actual revenues are the revenues collected by the company based on the application of the distribution tariffs to the redelivery points served

Key features

Unitary tariffs are set for the regulatory period for each distribution area:

• Based on the approved business plans and allowed returns, and inflated annually: the DSO is entitled to collect (required) revenues based on all investments and operational costs
• Taking into consideration estimated growth in redelivery points and volumes distributed

Achieved revenues are based on actual bills collection but there is a recoverable difference mechanism in place

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Strategic Plan 2022 -2028

Investor.relations@italgas.it Anna Maria Scaglia Armando Iobbi