Here is Snam’s plan on gas, hydrogen, digital and dividends
Numbers, objectives and scenarios of Snam's 2020-2024 plan
In Snam's future there will be more and more green hydrogen, decarbonisation but also return of value for shareholders thanks to the company's excellent position as an enabler of the energy transition. In short, "a new phase in Snam's history is opening up", as the CEO Marco Alverà said . The target? Achieving net zero emissions by 2040. And this thanks to Snam's 2020-2024 Plan of around € 7.4 billion (compared to the 6.5 billion in the 2019-2023 plan) presented today.
Here are all the main chapters of the plan.
THE COMMITMENT TO DECARBONIZATION
From an environmental point of view, Snam has set itself the 'Net Zero Carbon' target of 2040 and a growing commitment in the ESG field. In addition, Snam has raised the reduction target of Scope 1 and Scope 2 equivalent CO target emissions (direct and indirect energy) to 50% by 2030 (on a 2018 basis), compared to the previous target of -40% on a 2016 basis. New projects were then decided with subsidiaries and suppliers to reduce “Scope 3” emissions and the “scorecard” was launched to measure performance in 13 ESG areas. In this way it is expected that over 600 thousand t of CO₂ eq will be avoided. in 2024.
INVESTMENTS OF € 7.4 BILLION FOR THE DEVELOPMENT OF THE SYSTEM AND THE ENERGY TRANSITION
Snam has forecast an increase in investments of almost 1 billion euros compared to the 6.5 billion in the 2019-2023 plan, bringing them to around 7.4 billion in the 2020-2024 period. Compared to the previous plan, the growth is attributable to both the core business of regulated infrastructures (6.7 billion investments) and the new energy transition activities (over 0.7 billion investments, almost doubled compared to the previous plan).
50% of the planned investments is dedicated to the “hydrogen ready” infrastructure (replacement and development of assets with “hydrogen ready” standards for almost 1,200 km). Most of the investments envisaged in the plan are aimed at decarbonisation to reach the carbon neutrality goal by 2040 and seize the opportunities offered by the energy transition. About 40% of these uses are aligned with the criteria of the European taxonomy, which is in the process of being finalized.
“The share of investments under the Recovery Fund is any upside outside the plan”, said the CEO of Snam in a conference call with journalists. “We have proposed a series of projects that we find to be at a good level of evaluation, even if the total quantum is not defined. In 2021, we expect that it will be clarified in a more exhaustive way by Brussels together with the tools that will be used to achieve the ambitious goals we have set ourselves ”.
NEW ENERGY TRANSITION BUSINESSES: INVESTMENTS ALMOST DOUBLED TO 720 MILLION
But how will the planned investments be distributed? In recent years, Snam has created a wide and diversified platform of activities (energy efficiency, biomethane production and infrastructure, sustainable mobility, hydrogen along the entire value chain) to be a 'system integrator' able to offer green solutions and contribute to development of renewable gases. On hydrogen, during the call, the manager recalled that he is already working with Enel and Eni for important joint projects. But also with Terna where there are important strategies on the gas-electricity and sector coupling scenarios.
For the period 2020-2024, Snam's investments in energy transition activities will amount to approximately 720 million euros, almost doubled compared to the previous plan, with a contribution to annual EBITDA of 150 million euros by 2024.
For the rest, 220 million will go to biomethane infrastructures to reach a capacity of at least 64 MW, 200 million in energy efficiency to consolidate the position of national player and 150 million in hydrogen for the start of projects for the conversion of railway sections. and the installation of fuel cells on the Snam network. Finally 150 mln in mobility to increase the distribution infrastructure with a focus on LNG, and launch the first hydrogen distributors
DIGITIZATION
The plan also provides that around 500 million euros of investments will go into digitization – from remote control of activities to the adoption of IoT, cloud and edge computing – to allow Snam to become the most technologically advanced gas transmission company in the world and guaranteeing ever greater safety and sustainability of operating activities.
THE FINANCIAL TARGETS OF THE PLAN
Over the course of the plan, Snam expects to maintain a ratio of net debt to RAB below the 60% expected for a company with a rating of Baa1 for Moody's; an adjusted Funds From Operation ratio on net debt (FFO / Net Debt) higher than 14% on average over the plan horizon and therefore than S&P forecast (12%) for a Stand Alone Credit Profile (SACP) of a-, a notch higher than the current Snam rating (BBB +); the maintenance of a mix of 3/4 fixed and variable debt, consistent with the previous plan; 3.2 billion syndicated credit lines, not used as at 30 September 2020, and expiring between 2023 and 2024 and for which an extension request is in progress.
In addition, with the aim of aligning the financing strategy with its sustainability targets and expanding the investor base, Snam has the ambition to increase the weight of sustainable finance from the current 40% to over 60% of the funding available over the course of the plan, thanks to the issue of new sustainable bonds and ESG-labeled Commercial Paper. It also issued its first Transition bond for € 500 million in June, and maintained in May 2020 the reduction in the margin of its € 3.2 billion sustainable loan, already obtained in April of the previous year. Finally, it renewed its Euro Commercial Paper program, increased from € 2 to 2.5 billion, linking it to environmental and social sustainability objectives in line with the sustainable loan and obtaining an ESG rating for the instrument equal to EE assigned by the company ESG rating Standard Ethics.
NUMBERS AND OBJECTIVES TO 2024: NET PROFIT OF 2.5%
Thanks to this series of interventions, in the period 2020-2024, Snam should achieve sustainable growth of the main indicators. In particular, an average annual increase is expected (based on 2019): in the net profit of 2.5%; net earnings per share of 3.2%; EBITDA of 3.3%; dividend per share (DPS) of 5% until 2022, with a further 2.5% minimum growth in 2023-2024.
The value of regulated assets (RAB) will grow by more than 2.5% on average per year in the period 2020-2024. The need for grid replacement implies growth at least in line with this trend between 2024 and 2040.
The 2021 net profit guidance is around 3% growth compared to the 2020 guidance.
For 2021, Snam expects a debt level at the end of the year of approximately € 13.5 billion, taking into account the investments planned for the year of € 1.4 billion. The RAB will reach 21 billion euros in 2021.
“These objectives lay the foundations for further acceleration of growth in the long term thanks to the need for replacements for the modernization of the grid and the further development of energy transition platforms”, highlighted the company.
STRENGTHENING THE EFFICIENCY PLAN: 70 MILLION EXPECTED SAVINGS
Snam expects to strengthen the efficiency plan launched in the second half of 2016, with over 70 million euros of savings expected by 2022. Since its launch in 2016, the efficiency program has resulted in a cost cut relating to the core perimeter of approximately 20%, allowing the start of activities in the energy transition without penalizing the performance of the group.
OPTIMIZATION OF THE DEBT STRUCTURE AND FOCUS ON SUSTAINABLE FINANCE
The optimization of the financial structure carried out in the last five years has led to a reduction in the average cost of gross debt from 2.4% in 2016 to an average value of 1.2% over the plan horizon (compared to 1.4% of the previous plan), thanks to the actions taken to crystallize the current favorable market conditions as much as possible and the improvement in the interest rate and credit spread scenario compared to the previous plan. Possible further savings could arise from treasury optimizations, as well as further diversification of sources and an increase in sustainable finance tools.
DIVIDEND POLICY: POSSIBLE INCREASE IN THE ARCH OF THE PLAN
Snam confirms its commitment to guarantee shareholders an attractive and sustainable remuneration and the payment of an interim dividend. The growth of the dividend per share of 5% until 2022 is confirmed, with a further minimum growth of 2.5% in the period 2023-2024. Snam expects that for the 2020 financial year a total dividend of € 0.2495 per share may be distributed in 2021 (of which 40% as an advance payment in January 2021 as resolved by the Board of Directors on 4 November , while the remaining 60% in balance with payment in June, to be submitted to the Shareholders' Meeting which will approve the 2020 financial statements). Snam foresees the “possibility of increasing dividends if things out of plan linked to greater hydrogen subsidies and greater subsidies on Rab can be accelerated,” Alverà said at a press conference. The values “are our minimum does not include water, renewables, M&A. After that the incentives will be of various types, for production in line with what Patuanelli said about the green hydrogen incentive, then I expect incentives to support electrolysers and I also expect incentives to convert those who consume coal in steel mills ".
STRATEGY OF INTERNATIONALIZATION AND AFFILIATES
Snam further strengthened its position as a leader in energy infrastructure at an international level during 2020, thanks to the acquisition of the stake in ADNOC Gas Pipelines in 2020, the consolidation of its presence in China and the entry into India and Israel. The average annual cash return on the initial investment from the acquisition to 2024 is expected to be around 10% for operating assets.
BUT
On M&A “I am convinced that there are no great synergies in the world of utilities, the world of Oil & Gas is characterized by a much higher level of partnership. If we look at the world of utilities the projects are either of one or the other, if I look at Tap it is a project with six partners, a successful model that we will also see moving to the world of utilities that will have a less domestic and less regional approach . Those who do great M&A in the past have destroyed value. We really like this model that we are pursuing in which we have bought shares of companies that are giving us significant growth and values for our shareholders in Italy and abroad. This is the kind of growth we like: small acquisitions where synergies exist, ”admitted Alverà during the call.
ALVERÀ: WITH THIS STRATEGY WE OFFER INTERESTING RETURNS FOR OUR SHAREHOLDERS
In short, Alverà concluded, “we are becoming an international operator, with a focus on the areas of the world that are most relevant for the development of natural gas to replace the most polluting fuels and for the energy transition. With this strategy, combined with our financial flexibility and access to markets at competitive costs, we offer attractive returns for our shareholders ", admitted Alverà who confirmed that he was satisfied with how things are going on the Al-Zour regasification plant in Kuwait
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/ecco-il-piano-di-snam-su-gas-idrogeno-digitale-e-dividendi/ on Wed, 25 Nov 2020 12:01:18 +0000.