Snam S p A : Acquisition of a strategic stake in De Nora (Transcript)

Snam Announces Partnership with De Nora Conference

Call

Thursday, November 19, 2020, 10:00 CET

Investor Relations Snam

T [phone]

MODERATORS:MARCO ALVERA, CHIEF EXECUTIVE OFFICER ALESSANDRA PASINI, CHIEF FINANCIAL OFFICEROPERATOR:MARCO ALVERA:Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the SNAM Announces Partnership with De Nora Conference Call. After the presentation, there will be an opportunity to ask questions.

At this time, I would like to turn the conference over to Mr. Marco Alvera, CEO of SNAM. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to our conference call on the acquisition of a strategic stake in De Nora, the global innovator of sustainable clean energy and water treatment technologies.

This transaction is complementary to Snam's broader strategy on hydrogen, as you know, and as we will detail further in our strategy presentation next week. We have been a leading proponent of the importance of clean hydrogen and de-carbonization. We are very committed to this because we believe that hydrogen is the only option to decarbonize hard to abate sectors.

Also hydrogen will provide a cost competitive way to transport and store renewable energy, and because the cost of green hydrogen are coming down rapidly. Governments worldwide have also come to this view, and the race is on to introduce hydrogen strategies in many countries, not only in Europe.

In Italy, over the weekend, hydrogen guidelines were announced including €10 billion of investments for 5 gigawatts of electrolyzer capacity by 2030.

This policy support will enable significant investments in the hydrogen value chain with the EU estimating investments up to €0.5 trillion by 2050 and BNF looking at €11 trillion for hydrogen worldwide by 2050.

In this context, Snam is ahead of the curve, with a strategy that is focused on ensuring the readiness of our assets, to deliver hydrogen and low carbon gases, and at the same time fostering the development of the overall value chain. The De Nora investment supports this ambition because its technology is strategically positioned in nodal points of the value chain both upstream and downstream of our infrastructure. We believe that this will enhance the value of our key infrastructure assets as well as offering our shareholders exposure to an attractive world market.

We pursue this opportunity in a highly competitive environment for 3 reasons. First, we acquired a strategic stake in a one-of-a-kind asset that has significant growth potential and upside at a compelling valuation.

Second, we formed a partnership with a global leader in key hydrogen technology. Third, we see an opportunity to transfer a stake in the De Nora investment as a seed asset for a new energy transition platform.

The growth comes from De Nora's leading position in 2 key sustainability trends, water treatment and green hydrogen. While our key strategic focus is on green hydrogen, the water segment itself is fast growing and very attractive, and also has some synergies with Snam's business. De Nora's edge in green hydrogen technologies will enhance Snam's industrial

strategy on hydrogen development. It is not just an equity investment, but a partnership to enhance opportunities for both companies along the value chain. For instance, we could even consider establishing operating ventures with De Nora on specific projects.

I will now handover to Alessandra, who will take us through some more details of the transaction and on the company itself.

ALESSANDRA PASINI: Thank you, Marco, and good morning, everybody. The transaction involves the acquisition of around 33% of De Nora from Blackstone, which is exiting the investment after more than 3 years, owning to its investment horizon and the mandate of this specific tactical opportunities fund. Snam will have 3 seats on De Nora's Board, 2 of which will be filled by Marco and myself and will be represented on the newly established strategic and technical scientific committees on hydrogen.

Snam investment will be approximately €0.4 billion valuing the whole group at €1.2 billion, implying an easy EBITDA multiple on 2020 expected EBITDA

or slightly more than 13 times which is at the low end of the valuation of comparable companies, and especially compelling given the company's rapid growth trajectory with an EBITDA CAGR of over 8% over the last 3 years.

The De Nora family third generation on from Oronzio, the company legendary founder is the other key shareholder and owns the remaining 67% of the Group. The company is managed by a well respected team that we know well, and that we've been having business discussion with even prior to this opportunity arising. Indeed, part of the reason why we were keen to acquire the stake and De Nora keen to have us in their shoulder base was because we have a common vision on the importance of hydrogen, the role the company should play in this mega trend, and of the potential for De Nora to express its full value in the public market at the appropriate time.

As customary, we have discussed this transaction with the agencies, who appreciate the sensible and disciplined approach on technology related to the energy transition and de-carbonization that a transaction like this offer.

Whilst rating metrics remain comfortably within our self imposed threshold, rating agencies appreciate the fact that De Nora still represents a seed asset