2014-2017 Strategy & Targets

snam.it

2014 – 2017 Strategy & Targets

March 19th, 2014

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Sustainable and profitable Growth through disciplined and selective Investments

Carlo Malacarne Chief Executive Officer

Agenda

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Business Environment

Snam Business Development

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Key Pillars of Snam’s Growth Strategy

Delivering sustainable and profitable growth

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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



Agenda

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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

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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…

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... 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



Agenda

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• Selective Investments • Capex in Italy • European Developments

• Operational Efficiency • Financial Discipline • Attractive Returns

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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

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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



• EUROPE


1.3

4.7

2014 2015-2017

3.6 0.9 1.5


Consolidated Capex Plan in Italy 2014 – 2017

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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



• EUROPE


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%

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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


• EUROPE


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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



• EUROPE


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



• EUROPE


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

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• 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



• EUROPE


Distribution: selected investments to increase profitability in a mature business

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• 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



• EUROPE


• Competitive cost structure

• Strong cash flow generation

• Substantial returns

Italgas: a clear strategy in the distribution business

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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



• EUROPE


Focus on North-South and East-West Corridors

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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



• EUROPE


http://www.tigf.fr/en/home.html

Optimal Utilization of existing Assets Base

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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

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PEG South

PEG North

PEG TIGF

Well on track with the acquisition plan targets



• EUROPE


United Kingdom

Netherlands

Belgium

France

Bacton

Zeebrugge

http://www.tigf.fr/en/home.html

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



• EUROPE


Austrian/Italian Border OP Border

Slovakian/Austrian Border IP Border

AUSTRIA

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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

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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


A solid Balance Sheet to support a sustainable and low risk Growth Path

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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


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


• 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

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Confirming Profitable Growth….

• Operating cash flow to finance asset growth

• Leverage (D/RAB+associates) expected at around 55% in plan period

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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


…and robust Shareholder Returns

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• 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


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Q & A S e s s i o n

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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

Economy & Finance

2014-2017 Strategy & Targets