Snam — Investor Presentation 2016

Oct 24, 2016

Italgas Capital Markets Day

Italgas Capital Markets Day /

24th October 2016, London

Speakers

PAOLO GALLO ANTONIO PACCIORETTI

Italgas Capital Markets Day / 2

New Italgas brand

Key dates for demerger and listing

Last 3 months

Management structure

• Banking financing commitments granted to Italgas

Shareholder's and Noteholders' approval

Today

roadshow

Start management

Before listing

Execution of demerger legal documentations

\$

Banking financial agreements signed

November

• Admission to listing by Borsa Italiana & publication of the Prospectus
• Demerger and Listing

Italgas at a glance

Italgas Capital Markets Day / 6

The leading Italian natural gas distributor…

Italgas is the leading natural gas distribution operator in Italy, with a widespread and geographically diversified network of concessions

	OPERATING METRICS (TOTAL)	OF WHICH AFFILIATES
Network length	~65,000 km	~8,000 km
Concessions	1,578	106
Redelivery points	~7.4 m	~0.9 m
Market share*	33.9%	3.6%
Gas distributed**	~8.0 bcm	~1.0 bcm
Employees	~3,700	~400

* Calculated by redelivery points ** Annual Volume Source: Companies reports at Year End 2015

… with distinctive core competencies

Stable shareholder structure & best practice Corporate Governance

SHAREHOLDERS STRUCTURE

• 3-years Shareholder Agreement between Snam, CDP Reti & CDP Gas
• Significant free float and liquidity

SHAREHOLDERS Meeting Board of Statutory Auditors Board of Directors: 9 members Independent members: 4 out of 9 Gender representation: 3 women out of 9 Compensation Committee Control and risk Committee Sustainability Committee Appointments Committee

CORPORATE GOVERNANCE

Corporate structure

2016 key change: new regulatory WACC (6.1% from 6.9%)

* Source: Company reports, adjusted consolidated reported data referring to Italgas Reti (100% owned by Italgas). Revenues net of IFRIC 12

2016 key change: net debt increase* following demerger

Source: Company reports, consolidated reported data

Data referring to Italgas Reti (100% owned by Italgas )

* Increase in net debt refers to Italgas. Following the separation, Italgas consolidated net debt FY2015 pro-forma is € 3.5 billion.

High quality client base

Italgas major clients are investment grade

Italgas investment case

Highly visible returns and attractive dividend, Coupled with significant accretive growth opportunities

Market Overview

Natural gas distribution operator

DISTRIBUTION VALUE CHAIN

Leader in the European natural gas distribution market

RANKING BY REDELIVERY POINTS (# redelivery points, thousands, YE 2015)

MARKET SHARE IN ITALY BY REDELIVERY POINTS (market share, YE 2015)

Italgas consolidated Affiliates

European natural gas distribution market

Italgas Capital Markets Day / 18 Italian market evolving towards European average concentration

Market evolution

STREAMLINING OF ITALIAN OPERATORS

SCALE IS KEY IN THE ONGOING CONSOLIDATION PROCESS

The market is still fragmented, with further consolidation expected as transition towards the ATEM regime takes place

Italgas network

• Strong geographical presence: 7 districts & 50 operating centers
• Concessions concentrated in contiguous areas drive clear efficiency advantages
• Rome concession, representing 1.3m redelivery points (or 20% of total), will expire in 2024

Regulation

Current regulatory period

Regulatory Authority (AEGGSI) in Italy:

• Defines the criteria for revenue calculations and evaluates tariff proposals
• Guarantees third-party access to infrastructure
• Sets the quality standards of the service
• Current regulatory period to end-2019
• The regulatory period for the allowed rate of return, (lasting 6 years) in place until end-2021 with the mid-review effective in 2019

3 year updates of CAPM parameters

Clear and stable criteria driving visibility of returns over the period

Revenues composition

FY 2015

• 98% of revenues are regulated

• Performance sustained by additional regulated revenue streams

* Activation, suspension and deactivation of the supply, safety checks to final customers, incentives and other technical services

** Water and heating distribution activities, services to affiliates & real estate rentals

The regulatory framework: revenues calculation

YEARLY REVENUES FROM INVESTED CAPITAL (YEAR T) RAB 2015: 5.4bn€*

Weight on revenues	RAB (RAB of year t-2 + capex year t-1)
(2015)	x		Number of redelivery points
~40%	Rate of return (network 6.1%, metering 6.6%)		x
	=	+	Parametric cost recognition based on
	Allowed return on RAB		sector average
	+		=
~31%	Depreciation		Revenues from central assets
	+
	Opex (based on a parametric approach)
~29%	Metering, Distribution Commercial metering reading
		Distribution allowed revenues

YEARLY REVENUES FROM ANCILLARY ASSETS** (YEAR T) RAB 2015: 0.3bn€*

Italgas Capital Markets Day / 24

* Company estimate

** Central assets: ICT, Building, automotives, ect

The regulatory framework: RAB calculation

RAB CALCULATION (YEAR T)

Excluding ancillaries assets

RAB at the beginning of the year

+

Maintenance & Development capex

+

Inflation

–

Depreciation, Disposals and Subsidies

=

RAB at the end of the year*

* Includes a parametric calculation of the working capital

Operating costs: price cap methodology

REFERENCE OPEX CALCULATION

Updated at the beginning of each regulatory period by the Regulator

• Parametric value (€/redelivery point) depending on company size and client density
• Market divided in small, medium and large companies, and low, medium and high client density
• Recognized costs based on sector average costs of previous regulatory period
• From the 2nd to the 6th year of the regulatory period reference opex is calculated starting from the values of the previous year increased by inflation and decreased by Xfactor

REFERENCE OPEX UPDATE DURING THE REGULATORY PERIOD

Reference Opex Year 1

= calculated by the Authority (€/redelivery point)

Reference Opex Year 2 to 6

• Reference Opex
• = Previous year

x (1 + inflation – Xfactor)

Main elements of the regulatory framework

BENEFITS OVERVIEW

Incentives to	 Parametric approach used by the regulator in setting:  The allowed opex	RAB methodology	 RAB based allowed returns  Re-valued historical cost  Parametric method for central assets
efficiency 	Capex for metering installation	WACC (real pre-tax)	 6.1% (distribution)  6.6% (metering)  WACC calculation updated every 3 years
Low risk profile	 Asset return on a real basis  No gas volume exposure	Efficiency X-factor (real)	 Distribution: 1.7% on opex currently (until 2016¹)  Metering: 0% on opex currently (until 2016¹)
Clear, transparent and stable	 Long regulatory period: 6 years  Clear methodology for determination of allowed	Assumed useful life of the network	 50 years for pipelines  40 years for connections  20 years for stations  15 years for meters
framework	revenue, allowed regulatory return and RAB	Regulatory period	 Current period: 2014-2019

Historical concession legislation

BEFORE GAS MARKET LIBERALIZATION

GAS MARKET LIBERALIZATION (Letta decree 2000)

TEMPORARY PERIOD

MINISTERIAL DECREE 226/2011

• Vertically integrated companies (sales and distribution)
• Concessions at single municipality level
• Award of concessions mainly by private tenders
• Long term duration (30 years) with further extensions

• Right to redemption

• Mandatory corporate separation between distribution and sales activities

• Award of concession only through tender process and with a maximum duration of 12 years

• Early expiry of existing concessions

• Ordinary management of existing concessions until new awards

• Exception for the Southern Areas

• Concessions tender at single municipality level with a duration of 12 years

• New ATEM and calendar defined

• Concession length set at 12 years
• Standard criteria to evaluate the tenders
• Employment safeguard clause

New concession tenders

Consolidation

Form 6,800 municipalities to 177 larger ATEM concession areas Opportunity to increase the operating efficiency for the benefit of all the stakeholders

Timing

Protective termination compensation after 12 years* The 177 tenders to take place over the next 4 -5years. Most of the 'old-regime' concessions have expired

Infrastructure owned by the operator

Concession length

12 years with clear rules

Reimbursement value is clearly defined (based on the reconstruction value = VIR and considering the investments in the period)

Tender process

Standard criteria for awarding of the tenders: development of the distribution system, security and quality of the service and economics

Operational continuity

The new operator is obliged to employ the current staff (with a cap of 1 employee per 1,500 redelivery points)

Operating requirements are part of the conditions for admission to the tender

* Current redemption value based on reconstruction value net of grants, and considering specific contractual agreements defined with single municipalities in the expiring concession

ESTIMATED NUMBER OF TENDER PER YEAR OF PUBLICATION

FINANCIAL CRITERIA

TECHNICAL CRITERIA

Average historical revenues > 50% of ATEM yearly revenues

OR

• Banks financial guarantees for > 50% of ATEM yearly revenues + financial investment to repay the outgoing operator
• Experience in managing natural gas networks with at least 50% of the clients of the ATEM

OR

Experience in running similar concessions and availability of facilities, transport and staff to manage the network and possible emergency situations

Selective competition in the new concession tenders

Legal tender criteria for awarding concessions

Awarding system focused on technical criteria favor experienced players

Operational excellence

Operational track-record

OPERATIONAL COMPLEXITY (2015 data)

• 23,000 km of network inspected
• 8,000 measurements of the level of odorization
• 77,000 Emergency calls
• Proven track record in managing local networks, in particular in metropolitan areas
• Network inspected and steel network cathodic protection outperforming Authority standard

Outstanding performance in managing complexity Best practice and economy of scale, solid platform for growth

Distinctive competencies in capex execution

>1500 yearly small projects managed (worth ~90% of the total capex), mainly related to substitutions and connections:

• Average size: ~200k€
• Average duration: < 1 year

~50 on-going projects for networks extension

• Average size: ~3 m€
• Average duration: > 2 years

Deep knowledge of the territory and proven execution capabilities

Consistently delivering on budget

MARKET SHARE/MARGIN CORRELATION (top 5 players)

Italgas benefits from its operational practices and economies of scale

Strategy for value creation

• Uniquely positioned to drive further efficiencies leveraging on our competitive cost base
• Clear strategy to implement financial efficiencies
• Capital deployed at RAB value
• Concession tenders opportunity to reach ~40% market share
• Active portfolio management

Main areas of efficiency (opex and capex)

1

Workforce and operations

• Increasing productivity through the improvement of working practices
• Leveraging on «make or buy» mix
• Optimizing metering management (traditional and smart)

ICT

• Exploiting all economies of scale
• Contract renegotiations
• Improving continuously technology innovation (ICT and telecom)

Facility

• Utilities cost reduction
• Facility management optimization (i.a. real estate, transport)

Smart meters

• Optimizing smart meters supply cost, levereging on volumes
• Technology innovation

Asset management

• Exploiting all economies of scale
• Restructuring contracts of network maintenance and expansion

Opportunity to further outperform parametric opex, at least recovering spin-off emerging costs in the plan period

Efficient capital deployment

Efficiency actions: some examples 1

Increase workers productivity through the:

• Re-definition of the standard hours required for each technical activity
• Optimization of transfer timing to site
• More efficient planning of activities required by final customers at redelivery points
• Optimization of traditional meters reading

Improving infrastructural and telecom service contractual structure

New tender for facility contracts

Reducing telecoms cost associated to smart meter reading through awarding new contracts

Upgrade procurement strategy related to:

• Smart meters supply separeted from installation
• Network maintenance and extension contract dedicated to planned activities

€ ~4 m € ~2 m € ~3 m € ~8 m

Significant organic investment plan 2016-2020 2

2.0 bn€ CAPEX (>35% of 2015 RAB)

(over the plan period, capital deployed at RAB value)

Smart metering

• Large size (>G6): ~40,000 meters in the 2016-2019 period
• Mass market (G4-G6): ~4.7m of meters installed in the 2016-19 period, 50% smart meters installed by 2018

Network development

• Expansion/Development of networks: ~520km of new pipelines
• New networks: completion by 2018 of the natural gasconnection program for the South (~120km of new pipelines)

Network maintenance

• Completion of the replacement of the cast iron pipelines with lead joints (~34 km of new pipelines)
• Replacement of ~250 km of cast iron pipelines and spheroidal cast iron
• Metering Replacement/revamping of ~435km of other pipes

€ 2 bn organic investment at RAB remuneration >6%*

Organic RAB evolution not considering tender process 2

IMPROVING RAB REMUNERATION MIX

RAB steadily growing above inflation

(1) Average inflation considered 1 %, under current regulatory framework

Italgas Capital Markets Day / 42 (2) Grants of the period; continuity of regulatory treatment assumed for grants cumulated at 2015 year end

Legal tender criteria for awarding concessions 3

AWARDED ITALGAS COMPETITIVE ADVANTAGES

• The large, incumbent operators are expected to have a competitive advantage on the qualitative and operational factors
• The incumbent operators are expected to have competitive advantage related to their knowledge of the assets
• Limited weight of economical criteria
• Favours the largest players, enabling them to optimise the concession portfolio

Italgas uniquely positioned for the new tenders and ready for market opportunities

Italgas tender selection

3

Criteria		Strengths
Italgas presence in the ATEM	Weight of Italgas' Redelivery Points (RDPs) on total RPDs in the relevant ATEM	Flexibility in tender selection	Conservative win-rate target considered in the plan
Type of operators & Fragmentation	Market share of major operators in the ATEM, number and type of operators	Competitiveness	Cost base lower than peers. Best practice applied in the new concessions Competitive cost of capital
Geographical Proximity	Italgas' presence in nearby ATEMs	Bidding process	Dedicated skilled staff to manage the bidding process Deep knowledge of legislative framework

Well positioned to increase market share and underpin profitability in the medium term

Italgas position in the new ATEMs

3

Solid platform to increase market share

Tenders clusters 3

Out of the 40 very attractive ATEMS, ~30 are expected to be awarded within 2019

Very attractive tenders In ~40 ATEMs Italgas is the leading operator

Medium attractive

tenders

In ~50 ATEMs Italgas has a relevant market share and will concentrate on those where it can achieve its target returns

Low to zero attractive tenders Redemption value

2016 TO COMPLETION OF CONCESSION RENEWALS

Financial structure

Key drivers of financial strategy

Cash flow	 Strong visible and resilient cash flow generation to cover both organic capex and dividend  Significant investment opportunities driven by the tender process calendar
Solid balance sheet and rating	 Firm commitment to solid investment grade rating (expected BBB+ by Fitch, provisional Baa1 by Moody's)  Committed financing package to maintain a safe liquidity profile over medium term  Leverage expected to increase as a result of new concession awards within the boundaries of a solid investment grade rating
Debt structure	 Debt structure target (tenor and fixed/floating rates) consistent with the regulatory profile and limiting exposure to interest rate while protecting financial outperformance  Appropriate mix of funding sources  Flexible debt capital structure to manage financial needs related to tender opportunities

Solid and efficient financial structure preserving low risk profile and supporting value for shareholders

RESILIENT CASH FLOW GENERATION AND STRONG CREDIT METRICS

Net Debt/RAB*

• Business growth supported by financial flexibility
• ND/RAB is expected to peak beyond 2020 (up to 70%) well within the solid investment grade area

• Rapid deleveraging after tender process completion, with a pace of >1% per year

• Sound and resilient cash flow

• Well positioned within rating boundary over the plan horizon

Expected debt structure after demerger

€bn, consolidated figures

• Conservative buffer consistent with an adequate liquidity profile
• Flexible structure to manage cash flow swings
• 5-years plan pre-funded
• New EIB financing of €300m (closing expected within 2016)

Cost based on current market conditions

• Ready to repay the bridge to bond relying on favourable debt capital markets in the current low rate scenario
• Fix/Floating breakdown: 2/3 after the Bridge-to-Bond repayment

Competitive cost of debt at demerger Average spread ~0.5%

Self financing of investments and shareholders remuneration, flexibility for the growth

<70% Net Debt/RAB

• Operating cash flow covers dividend distributions and organic capex over business plan
• Financial flexibility allows to participate in market opportunities and enhance shareholder remuneration
• Net Debt/RAB at completion of the tender process based on our business plan: <70%

Closing Remarks

2016 Guidance and mid term evolution

2016 PRO-FORMA CONSOLIDATED RESULTS

MID-TERM

• Expected to grow in line with capital deployment following organic capex, new tender process and market opportunities
• Opportunities for further cost reduction

Room to outperform cost of capital

• Sustainable over the medium term
• FY2017 – FY2018: low single-digit yearly increase

Value drivers for profitable and sustainable mid-term growth

Sustainable and attractive dividend policy Coupled with significant accretive growth opportunity

Italgas Capital Markets Day / 59

Corporate structure

Toscana Energia

Toscana Energia: a strategic industrial partnership

• Governance agreement grants the right to Italgas to appoint the CEO
• 104 concessions in Tuscany
• Consolidated with equity method
• Contributing >7% to Italgas 2015 pro-forma net income

AVERAGE SECTOR COSTS BY SIZE AND DENSITY (2016)

G
N RI	t (dis) E opex,t T E M	t(ins)opex	t(rac)opex	t(cot)
		2,26	3,20	1,20

• Reference costs per redelivery point

• Covering the distribution costs

• Reference costs per meter

• Covering the installation and maintenance of meters (ins), remote reading (rac) and commercialization costs (cot)

WACC is calculated using the CAPM method

Decree 583/2015/R/COM	0.5% floor offers protection	WACC –	WACC –
	against further real interest	Distribution	Metering
Real risk free rate	rate fall	0.5%	0.5%
Country risk premium		1.0%	1.0%
Beta unlevered		0.44	0.50
Beta levered		0.63	0.72
Market risk premium		5.5%	5.5%
Real cost of equity		5.0%	5.5%
Real risk free rate		0.5%	0.5%
Country risk premium		1.0%	1.0%
Debt risk premium		0.5%	0.5%
Cost of debt (pre-tax)		2.0%	2.0%
Tax shield		27.5%	27.5%
Real cost of debt		1.5%	1.5%
D/E		60.0%	60.0%
D/(D+E)		37.5%	37.5%
Tax rate		34.4%	34.4%
Inflation rate		1.5%	1.5%
F factor		0.5%	0.5%
WACC for regulatory purposes		6.1%	6.6%
			2016-2018

Italgas consolidated income statement

Consolidated income statement (€m)	2013	2014	2015
Revenues (*)	1,038	1,053	1,098
- of which regulated (*)	1,008	1,026	1,071
EBITDA	719	722	742
EBITDA adjusted	730	722	782
Amortisation/depreciation	(214)	(245)	(273)
EBIT	505	477	469
EBIT adjusted	516	477	509
Net financial expences	(70)	(60)	(53)
Net income form equity investments	60	98	29
taxes	(194)	(115)	(110)
NET INCOME	301	406	340
NET INCOME adjusted	308	355	346

* Net of revenue from the construction and upgrading of natural gas distribution infrastructure, entered according to IFRIC 12 and posted in an amount equal to the related costs incurred (€319 million, €316 million, €321 million respectively in 2013, 2014 and 2015) The data relating to 2015 include Acam Gas S.p.A. wholly consolidated from 1 April 2015, Metano Arcore S.p.A. incorporated into Italgas S.p.A. with effect from 1 January 2015 and previously valued at the shareholders' equity, SETEAP S.p.A., the subject of a merger by incorporation into Napoletanagas S.p.A. with effect from 1 January 2015, previously valued at the shareholders' equity. With regard to the full consolidation of AES Torino S.p.A. from 1 July 2014, the economic effects were recognised, respectively in the whole of 2015 and in six months of 2014.

Consolidated income statement (€m)	31.12.2013	31.12.2014	31.12. 2015
Fixed capital	4.385	4.650	4.761
Net working capital	(306)	(211)	(90)
Net Invested Capital	4.019	4.368	4.572
Net Debt	(1.664)	(1.772)	(1.848)
Shareholder equity	2,355	2,596	2,724

The data for 2015 include Acam Gas S.p.A. fully consolidated from 1 April 2015, Metano Arcore S.p.A. incorporated into Italgas S.p.A. with effect from 1 January 2015 and previously valued at the shareholders' equity, SETEAP S.p.A., the subject of a merger by incorporation into Napoletanagas S.p.A., with effect from 1 January 2015, previously valued at the shareholders' equity. With reference to the full consolidation of AES Torino S.p.A. from 1 July 2014, the economic effects are observed, respectively in all of 2015 and in six months in 2014.

This presentation (the "Presentation") is for information purposes only. The contents of this Presentation may not be copied, distributed, published or reproduced in whole or in part. The document is to be used by the intended recipients only and the document may not be forwarded to a third party.

Neither this Presentation nor any part or copy of it may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States. Any failure to comply with this restriction may constitute a violation of U.S. securities laws.

This Presentation does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe or sell for, or any offer to underwrite or otherwise acquire any shares in Italgas S.p.A. ("Italgas") or Snam S.p.A. ("Snam") any other securities, nor shall the Presentation form the basis of or be relied on in connection with any contract or investment decision relating thereto, or constitute a recommendation regarding the securities of Italgas or Snam or any other company or a proposal or an undertaking to enter into an agreement or a commitment to any kind of obligation.

This Presentation does not purport to be comprehensive. Anyone reviewing this Presentation and considering an investment decision regarding the securities of Italgas or Snam or having any doubt about the contents of this Presentation, should obtain independent professional advice.

No representation or warranty, express or implied, is given by or on behalf of and no liability whatsoever is accepted by Italgas or Snam or any of their directors, officers, advisers, agents or employees, nor any other person as to the accuracy, truthfulness, fairness, materiality or completeness of the information or opinions contained in this Presentation.

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. Italgas' actual results may differ materially and adversely from those expressed or implied in any forward-looking statements.

This Presentation speaks as of its date and will not be updated. Recipients should not treat the contents of this Presentation as advice relating to legal, taxation or investment matters, and are to make their own assessments concerning these and the other consequences of the various investments, including the merits of any investment and the relevant risks.

Italgas Capital Markets Day

Italgas Capital Markets Day / 67

24th October 2016, London