Italgas 2019 Financial Report VALUES AND MISSION Every day, for more than 180 years, the work of the men and women at Italgas has allowed millions of Italians to use a sustainable, lasting and reliable source of energy. A commitment that has never faltered, always based on expertise, efficiency, innovation, reliability and safety and drawing inspiration from the transparency of everyday business, the integrity of conduct and responsibility towards the communities served. These principles, with which we have accompanied and fostered Italy’s economic and social development, still today guide our action towards a fossil fuel-free economy, with the aim of helping to preserve the environment in which we live and promoting the use of energy that is efficient and sustainable for all. Italgas, two centuries of history projected into the future. The names Italgas, Italgas Group or Group refer to Italgas S.p.A. and the companies included in the scope of consolidation. Corporate bodies BOARD OF DIRECTORS(a) BOARD OF STATUTORY AUDITORS(a) Chairman Chairman Alberto Dell’Acqua Pierluigi Pace CEO and General Manager Standing auditors Paolo Gallo Maurizio Di Marcotullio Marilena Cederna Directors Yunpeng He Alternate auditors Paola Annamaria Petrone Stefano Fiorini Maurizio Dainelli Giuseppina Manzo Giandomenico Magliano Veronica Vecchi Andrea Mascetti Silvia Stefini CONTROL AND RISKS AND RELATED-PARTY TRANSACTIONS APPOINTMENTS AND REMUNERATION COMMITTEE (b) COMMITTEE (c) Paola Annamaria Petrone (Chairman) Andrea Mascetti (Chairman) Giandomenico Magliano Maurizio Dainelli Silvia Stefini Silvia Stefini SUSTAINABILITY COMMITEE(d) Giandomenico Magliano (Chairman) Yunpeng He Veronica Vecchi Finance and Service General Manager (e) SUPERVISORY BODY (f) Antonio Paccioretti Carlo Piergallini (Chairman) Marcella Caradonna Francesco Profumo INDEPENDENT AUDITORS (g) PricewaterhouseCoopers S.p.A. (a) Appointed by the Shareholders’ Meeting of 4 April 2019. In office until the date of the Shareholders’ Meeting called to approve the financial statements for the year ending 31 December 2021. (b) Committee established by the Board of Directors on 4 August 2016. Members appointed by the Board of Directors on 13 May 2019. (b) Committee established by the Board of Directors on 23 October 2017. Members appointed by the Board of Directors on 13 May 2019. (d) Committee established by the Board of Directors on 4 August 2016. Members appointed by the Board of Directors on 13 May 2019. (e) Appointed by the Board of Directors on 26 September 2016 with effect from 7 November 2016. (f) The Supervisory Body was appointed by the Board of Directors on 23 September 2019. (g) Engagement assigned by the Shareholders’ Meeting of 28 April 2017 for the period 2017-2025. page 4 Italgas Group structure as at 31 December 2019 Metano S. Angelo Lodigiano Italgas 50% EQUITY METHOD Umbria Distribuzione 45% FULLY CONSOLIDATION METHOD Italgas Reti 100% 100% Italgas Acqua 50.66% 100% Seaside Toscana Energia 51.85% Gaxa 51.85% 100% Toscana Energia Green Medea The scope of consolidation at the end of 2019 had changed compared to that as at 31 December 2018 due to: (i) the merger on 12 March 2019, with statutory effects from 1 April 2019, of Fontenergia S.r.l, Fontenergia 4 S.r.l., Fontenergia 6 S.r.l., Fontenergia 7 S.r.l., Fontenergia 9 S.r.l., Fontenergia 10 S.r.l., Fontenergia 11 S.r.l., Fontenergia 15 S.r.l., Fontenergia 19 S.r.l., Fontenergia 26 S.r.l., Fontenergia 27 S.r.l., Fontenergia 35 S.r.l. and Fontenergia 37 S.r.l. into Medea S.p.A., and of Naturgas S.r.l., Grecanica Gas S.r.l., Progas Metano S.r.l., Baranogas Reti S.r.l., Favaragas Reti S.r.l., Siculianagas Reti S.r.l. and Ischia Reti Gas S.r.l. into Italgas Reti, (ii) the acquisition by CPL Concordia Soc. Coop., on 17 April 2019, of the remaining 40% of EGN S.r.l. share capital, (iii) the acquisition by Conscoop Soc. Coop., on 30 April 2019, of 100% of Mediterranea S.r.l. share capital from Italgas Reti S.p.A., the Aquamet and Isgas Energit Multiutilities business units held respectively by Italgas Reti S.p.A. and Medea S.p.A. and 10% of Isgastrentatrè S.p.A. share capital from Medea S.p.A.; page 5 (iv) the establishment on 7 May 2019 of Medea NewCo S.r.l. to sell natural gas, LPG and propane air (the company later changed its name to Gaxa and became a joint stock company), (v) the merger on 29 July 2019, with statutory effects from 1 August 2019, of EGN and its subsidiaries into Italgas Reti S.p.A., (vi) the acquisition on 25 September of the natural gas distribution business unit of Sienergas Distribuzione S.r.l. by Italgas Reti S.p.A., (vii) the acquisition of control of Toscana Energia S.p.A. following the purchase of 0.58% of the share capital held by Banca Monte Paschi di Siena S.p.A. and 1.98% held by five Tuscan municipal authorities that exercised the right of withdrawal, respectively finalised on 20 May 2019 and 1 October 2019. In turn, Toscana Energia S.p.A. owns 100% of Toscana Energia Green S.p.A.; (viii) the merger on 1 November 2019 of Mediterranea S.r.l. into Italgas Reti S.p.A., (ix) the acquisition on 12 December 2019 of 10% of Enerpaper share capital by Seaside S.r.l. and (x) the finalisation on 18 December of the disposal to Fondo Marguerite II (specifically to Marguerite Gas III S.à.r.l. and Marguerite Gas IV S.à.r.l.) of a 48.15% minority interest in the share capital, respectively, of Medea S.p.A. and Gaxa S.r.l. page 6 Table of Contents Report and Consolidated Financial Statements Letter to Shareholders and Stakeholders 9 2019 Highlights 11 Italgas and the financial markets 12 Shareholders 13 The Italgas Group 15 Summary figures and information 16 Main events 16 Key figures 21 Operating performance 22 Legislative and regulatory framework 31 Comment on the economic and financial results 46 Reclassified Income Statement 46 Reconciliation of EBIT and the reported net profit with adjusted EBIT and adjusted 47 net profit Analysis of the reclassified Income Statement items 48 Reclassified Statement of Financial Position 52 Reclassified Statement of Cash Flows 57 Comment on the economic and financial results of Italgas S.p.A. 59 Reclassified Income Statement 59 Analysis of the reclassified Income Statement items 59 Reclassified Statement of Financial Position 61 Reclassified Statement of Cash Flows 64 Non-GAAP Measures 65 Reconciliation of the Income Statement, Statement of Financial Position and 67 Statement of Cash Flows Other information 73 Information on corporate governance and ownership structure 78 Elements of risk and uncertainty 88 Financial risks 88 Operating risks 91 Business Outlook 96 Sustainability and corporate responsibility 97 Glossary 110 Consolidated Financial Statements Financial Statements 114 Notes to the consolidated financial statements 120 Statements from Management 190 Independent Auditors' Report 191 page 7 Disclaimer The Annual Report contains forward-looking statements, specifically in the “Business outlook” section, relating to: investment plans, future operating performance and project execution. The forward-looking statements, by their nature, involve risks and uncertainties as they depend on the occurrence of future events and developments. The actual results could therefore differ from those announced in relation to various factors, including: actual operating performance, general macro- economic conditions, geopolitical factors such as international tensions, the impact of energy and environmental regulations, the successful development and application of new technologies, changes in stakeholder expectations and other changes in business conditions. page 8 Letter to Shareholders and Stakeholders Dear Shareholders and Stakeholders, 2019 concluded the third financial year since the return to the stock market on 7 November 2016: three intense years that have seen your Company regain its leadership of the natural gas industry in Italy and capture a major role at European level. Investments to increase network safety, modernize and digitize it, numerous M&A transactions, entry into areas of the country not yet reached by natural gas, entry into new business areas and, especially, the digital transformation undertaken by the entire company, are what have characterised these three years, proving that your Company has recovered that positive innovative spirit, that vision and that DNA that have set it above the rest since 1837. The digital transformation - at the heart of the 2019-2025 Business Plan - is the toughest challenge that Italgas has to face and in the next few years will see it committed to: digitization of assets and processes, introduction of new technological tools to support the day-to-day work, development of digital skills for staff that will lead Italgas into the “fourth industrial revolution”. The Digital Factory - launched at the end of 2018 - has come to symbolize our capacity to innovate and digitally transform the company. Multifunctional teams of the Factory work on 4.0 projects and solutions that will profoundly change the way we manage the network and services, allowing us to improve process efficiency and speed and the quality of services provided to our customers. Through this technology transformation model, which has forced such a major change in the speed of the gas distribution business, and the results already achieved, Italgas has become a global benchmark, and not only for operators in the sector. In the last year, in fact, Memoranda of Understanding have been signed with international companies, such as the State Grid Corporation of China, Picarro in the United States, the French GRDF and the Greek EDA THESS, and yet more pending finalisation, with the aim of simplifying the exchange of skills and experience in network management, as well as strengthening partnerships for the development of common activities.