Strategy

To invest and grow not only to consolidate our market positioning, but also to help transform the gas infrastructures in Italy, make our company increasingly efficient, invest in innovation to play our part in Italy’s digitisation: these are the priorities in our 2018-2024 Strategic Plan.

Investments of 4 billion to sustain growth and M&A operations, 5.6 billion considering gas tenders

Over the course of the 2018-2024 Strategic Plan, we will dedicate €4 billion to our growth (including the acquisitions, but without taking into account gas tenders). This will allow the regulatory asset base (RAB) to grow by 3.2% per year on average (CAGR) over the period of the plan compared to 5.8 billion euros at the end of 2017, with an expected growth of over 5.3% if the expected evolution of the tenders is considered.

Development, renewal and improvement of the network: by the end of 2024 we will have dedicated €2 billion to grid replacement and modernization operations (in particular for the replacement of cast iron sections), as well as the extension of our network with new connections and the development of energy efficiency.

• Digitisation: we will invest around €800 million in digital innovation initiatives. In this context, 500 million will be dedicated to the traditional meter replacement program with smart meters for the Mass Market segment, which will be completed by the first half of 2020. We are also transforming our network, that will be gradually digitized with an investment of over €300 million. This will allow us manage our network according to innovative methods, criteria and algorithms that will make it unique in Europe. In November 2018, we completed the migration of our applications systems on the cloud and also launched the Digital Factory, the real engine for the digitalization of our business processes. Finally, we will invest an additional €300 million in initiatives instrumental to the remunerated distribution activity in the centralized RAB, especially for the cloud strategy.

• Sardinia metanisation: we have become the main operator of the island, acquiring the management of about a third of the 38 pools of users defined by regional subdivisions. Over the period of the plan, the investments planned for the methanisation of Sardinia are about 450 million euros, and we will simultaneously develop technological innovation programs in order to serve these areas with most advanced networks and services.

• Growth through M&A transactions: the 2018-2024 strategic plan expects to allocate approximately €420 million to new M&A initiatives to accelerate the growth and improvement of our competitive positioning. The acquisitions and related planned investments will allow us to bring the number of meters handled to about 7.1 million in 2024. Our M&A policy is driven by the desire to consolidate our presence in interesting ATEM and invest in areas of the country that do not benefit from natural gas infrastructure yet. This is the rational at the base of the acquisitions already realised in 2017 and over the course of 2018 in the North East, in Campania, Basilicata, Calabria and Sicily.

See the box dedicated to new technologies for more information about our innovation initiatives.

New efficiencies in operational and financial areas

• Operational efficiency: the plan launched at the beginning of 2017 has already reached a year earlier, with a year in advance, the objective of a reduction in operating costs of 15% compared to 2016. Within the 2018-2024 plan, we will continue focusing on operating costs optimization, with the aim of improving the efficiency targets set by the regulator. Our efficiency path will be supported by a continuous improvement program, which concerns in particular the review of purchasing strategies but also the adoption of new technologies for energy efficiency: in this way, we expect to improve the quality of services offered and the environmental impact. By the beginning of 2019, we will also provide for the complete replacement of the company fleet with vehicles powered by natural gas.

• Financial efficiency and capital structure: we have launched a medium-term and long-term issues programme and this has allowed us to make our financial structure even more solid and efficient. As part of the 2018-2024 plan, we will continue the actions aimed at optimizing our financial structure. We intend to preserve a cost of debt (currently just above 1%) at excellent level and the financial flexibility necessary for our development. Strong cash generation will allow us to maintain our credit rating at and cover the investment plan and shareholder remuneration.

Increase the market share through tenders

• A decisive role in the industry consolidation: tenders represent a further way to growth. Over the period of the plan, we will invest 1.6 billion euros to participate in the tenders that will be announced, of which 1.1 billion for the acquisition of third party networks in the areas where we will obtain the concessions, and 500 million dedicated to development, maintenance and efficiency of the networks acquired through the tender. Our goal is to increase our market share in terms of redelivery points from the current 30% to a share close to 40% at the end of the plan, moving from 6.6 million at the end of 2017 to around 8.5 million in 2024. Our strategy is supported and supported by the sustainability plan, which has defined 5 strategic pillars and 14 objectives to be achieved. Attention to our people, to the areas where we operate and to our customers permeates our actions, as well as the awareness of the key role of natural gas in the process of decarbonization.