The 2019-2023 Strategic Plan
In a progressive scenario of decarbonisation for the country in which natural gas will play an increasingly more central role, Snam is reinforcing its position as a partner for Italian energy transition, striving for efficiency, innovation and the total integration of environmental, social and governance factors in the management of its activities.
At the end of November 2019, Snam published its 2019-2023 strategic plan which, through the definition of economic-financial and sustainability targets, is pursuing a model of sustainable growth, focusing on the creation of value through the following levers: the continuous improvement of the core business, a solid financial structure, the commitment to energy transition, the development of an internationalisation strategy.
Improvement of the core business
The continuous improvement of results, active participation in the regulatory context, increasing new initiatives relating to energy transition, expansion of international operations, a focus on technological innovation and strong oversight of the optimisation of the financial structure will enable the company to achieve sustainable growth for the key indicators, confirming or improving the targets in the previous plan. Specifically, there is a projected increase in EBITDA of more than 3% for the period, net profits by more than 4% per year and net earnings per share (EPS) of 5.5% per year on average.
For these reasons, in the new Plan Snam plans an increase in investments taking them to a total of €6.5 billion, approximately 14% more than the figure of €5.7 billion in the previous plan. Specifically, €5.3 billion of investments will involve the transportation network, €0.8 billion storage and regasification and €0.4 billion the new businesses linked to energy transition. A significant portion of investments for the transportation sector will be dedicated to network development initiatives such as the completion of infrastructures to connect the TAP to the national network, the completion of connections in the north-west to the local market service and cross-border flows, the network in Sardinia and the launch of the conversion of the six compression and storage plants into hybrid gas-electricity facilities.
The solid financial structure
The optimisation of the financial structure has made it possible to reduce the cost of borrowing by 1.8% in the previous plan to 1.4% and it is expected it will remain at this figure for the entire duration of the plan. For Snam’s financial structure (composed of ¾ debt with an average life of more than 5 years, four financial years of liability management of €4.5 billion, placement of a dual tranche bond issue maturing in 5 and 15 years time, €3.2 billion in unused syndicated lines of credit due at the end of the plan), there are plans to buy back treasury shares with the launch of a further tranche of €150 million, expecting the debt/RAB ratio to be stable by 2023 at 53% including partners.
Snam has also defined financing for activities relating to sustainability both from banks and the capital markets, aligning them to the strategy and diversifying the investor base. The increasing commitment to sustainable finance has led Snam to have funding of more than €5 billion. In addition, in February 2019 it issued the first Climate Action Bond, used to finance projects relating to the reduction in CO2 emissions, the development of renewables, energy efficiency and the development of green projects based on environmental criteria. Lastly, in April 2019 the Company reduced the margin of its sustainable loan from €3.2 billion, after reaching the targets related to social and environmental sustainability parameters.
Snam’s efficiency plan surpassed expectations with projected savings for 2023 of €65 million (compared with the figure of €60 million in the previous plan and €25 million in 2016) representing an important source of value. This reduction in costs and improvement in the quality of the time to market, is due to the new technologies, simplification of the organisation processes, maintenance activities and initiatives to reduce external costs accompanied by a revision of make-or-buy decisions and supply contracts.
Investment in energy transition
Under the scope of the investment plan, the initiatives of the SnamTec project (Tomorrow’s Energy Company), the objective of which is to accelerate Snam’s innovative capacity and its assets to take advantage of the new opportunities offered by the development of the energy system, will grow by 65% making a total of more than €1.4 billion. The SnamTec project will focus, specifically, on three areas:
- Environmental sustainability of the core business: with around €700 million of investments to reduce methane emissions by 40% by 2025 (compared with the previous target of 25%) and total Scope 1 and Scope 2 CO2 equivalent emissions by 40% by 2030 through the launch of the first six electricity-gas hybrid plants (€250 million of investments), an emissions measuring and elimination campaign, the technological adaptation of several gas turbines, the large-scale replacement of network components with a view to reducing methane emissions, the greater use of electricity from renewable sources and the energy efficiency of company buildings;
- Initiatives for technological innovation and digitalisation: with investments of around €350 million dedicated partly to the smart gas project which involves plant maintenance with new technologies, the remote inspection of 85% of assets by 2023, the use of drones and satellites for monitoring infrastructures, the development of new commercial services and gas demand forecasts through neural networking;
- Investment in energy transition Investments in energy transition of €400 million (double the figure of €200 million in the previous plan) dedicated to the development of biomethane infrastructures, sustainable mobility and energy efficiency and Small-scale LNG decisive the launch of the related sectors.
Snam’s internationalisation strategy has allowed the company to strengthen its leadership position in European energy infrastructures and focuses on supporting, also courtesy of its know-how, the development of the infrastructures of European countries and emerging countries such as China and India. This expansion has made it possible to achieve an annual return of 10% that the company expects to maintain for the entire period of the plan. The contribution to the net profit of international associate companies (TAG and GCA in Austria, Terēga in France, Interconnector UK, DESFA and TAP) will be around €160 million in 2022. As far as TAP, which Snam has a 20% stake in, is concerned, the progress of the works is at around 90% and are expected to be completed by 2020.