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2019 Half Year Report
Snam Company profile
Snam is Europe’s leading gas utility. Founded in 1941 as “Società Nazionale
Metanodotti”, it has been building and managing sustainable and
technologically advanced infrastructure guaranteeing energy security for over
75 years. Snam operates in Italy and, through subsidiaries, in Albania (AGSCo),
Austria (TAG and GCA), France (Terēga), Greece (DESFA) and the United
Kingdom (Interconnector UK). It is one of the main shareholders of TAP (Trans
Adriatic Pipeline) and is the company most involved in projects for the creation
of the Energy Union.
First in Europe by transport network size (about 32,600 km in Italy, more than
41,000 with international subsidiaries) and natural gas storage capacity (16.9
billion cubic meters in Italy, more than 20 billion with international subsidiaries),
Snam manages the first liquefied natural gas (LNG) plant built in Italy and is
a shareholder of Adriatic LNG, the country’s main terminal and one of the
most strategic in the Mediterranean, and - via DESFA - the Greek terminal in
Revithoussa, with a total pro rata regasification capacity of around 6 billion
cubic metres per year.
Snam’s business model is based on sustainable growth, transparency,
nurturing talent, and development of local areas by constantly listening to
and exchanging dialogues with local communities, also thanks to the social
initiatives of the Snam Foundation. Through the “Snamtec” project, launched
under the scope of the 2018-2022 business plan, Snam has given a great
boost to investments for energy transition, focused on technology initiatives,
innovation and R&D supporting large national and international networks and
green economy businesses, like sustainable mobility, renewable gas, hydrogen
and energy efficiency.
www.snam.it
2019 Half Year Report
This report has been translated into English from the Italian original solely for the
convenience of international readers.
4 2019 Half Year Report
Corporate bodies
BOARD OF DIRECTORS (*) BOARD OF STATUTORY AUDITORS (*)
Chairman Chairman
Luca Dal Fabbro (1) (2) Stefano Gnocchi (5)
Chief Executive Officer Principal statutory auditors
Marco Alverà (1) Gianfranco Chinellato (4)
Directors Donata Paola Patrini (4)
Laura Cavatorta (2) (3) Alternate statutory auditors
Francesco Gori (2) (3) Federica Albizzati (5)
Yunpeng He (1) Maria Gimigliano (4)
Antonio Marano (1) (2)
Francesca Pace (1) (2)
Rita Rolli (2) (3)
Alessandro Tonetti (1)
CONTROL, RISK AND RELATED-PARTY TRANSACTIONS COMMITTEE APPOINTMENTS COMMITTEE
Francesco Gori - Chairman Antonio Marano - Chairman
Francesca Pace Laura Cavatorta
Antonio Marano Alessandro Tonetti
COMPENSATION COMMITTEE ENVIRONMENTAL, SOCIAL & GOVERNANCE COMMITTEE (**)
Francesca Pace - Chairman Laura Cavatorta - Chairman
Rita Rolli Rita Rolli
Alessandro Tonetti Yunpeng He
AUDIT FIRM (***)
PricewaterhouseCoopers S.p.A.
(*) Appointed by the Shareholders’ Meeting on 02 April 2019 and in office until the date of the Shareholders’ Meeting that shall be called in 2022 to
approve the financial statements at 31 December 2021.
(**) Established by the Board of Directors on 14 May 2019 in place of the Sustainability Committee.
(***) Engaged by the shareholders’ meeting on 24 April 2018 for the period 2018-2026.
(1) Candidate directors on the list presented by shareholder CDP Reti S.p.A.
(2) Independent directors pursuant to the TUF and the Code of Corporate Governance.
(3) Directors that were candidates on a list submitted jointly by Institutional Investors.
(4) Candidate standing auditors on the list presented by shareholder CDP Reti S.p.A.
(5) Directors that were candidates on a list submitted jointly by Institutional Investors.
Group structure at 30 June 2019 5
1
Further information can be found in the annex “Snam S.p.A. equity investments at 30 June 2019” to the Notes to the condensed interim consolidated financial statements.
2 It is specified that the company Asset Company 5 S.r.l., established by the sole shareholder Snam S.p.A. in June 2018, was renamed Enura S.p.A. starting 01 April 2019, when the shareholder Società Gasdotti Italia (SGI) joined the ownership structure, with 45% of the company’s share capital.
3 In compliance with IFRS 8 “Operating segments”, the “Corporate and other activities” segment is not an operating business segment, which is defined
on the basis of the internal reporting used by the Company’s management for allocating resources to the different segments and for analysing the respective performances.
Group Structure at 30 June 2019 Changes in the scope of consolidation of the Snam Group at 30 June 20191
with respect to that in place as at 31 December 2018 regarded the inclusion
in the consolidation scope of the following companies: (i) Enura S.p.A.
(former Asset company 5), held 55% by Snam S.p.A. for the development of
the transport infrastructure in Sardinia2; (ii) Snam Gas & Energy Services
(Beijing) Co. Ltd., with registered office in China, established in April 2019 and
held 100% by Snam International B.V., to support the development of the gas
market in China, through Snam's distinctive expertise in the sector.
The aforementioned companies were consolidated, respectively, under the
"Natural gas transportation” and "Corporate and other activities" segments3.
The changes to the consolidation area as at 30 June 2019 with respect to
that in place as at 30 June 2018 regarded, in addition to the above, the
joining of the following companies: (i) IES Biogas, operating in the design,
development and management of biogas and biomethane production plants
(July 2018); (ii) Cubogas S.r.l. operating in the segment of technological
solutions for natural gas vehicle refuelling stations (July 2018); (iii) Enersi
Sicilia S.r.l., company that holds the authorization to build a plant for the
production of biomethane from the organic fraction of municipal solid waste
(FORSU) in Sicily (November 2018).
GASRULE
SNAM RETE GAS
ASSET COMPANY 2
INFRA-STRUTTURE
TRASPORTOGAS
GNLENURA STOGITSNAM
4 MOBILITY
IES BIOGAS
ENERSI SICILIA
CUBOGAS
ASSET COMPANY 4
TEP ENERGY SOLUTION
100% 100%
100%
100% 70% 82%
100%55% 100%
100%
100%
100% 100%
PRISMA
Italian investments
Overseas investments
Scope of consolidation
2019 new entry
Corporate & other activities
Transportation Transportation
Transportation
Regasification Storage Corporate & other activities
Biomethane
Biomethane
SustainableMobility
Corporate & other activities
Energy efficiency
14.66%
TransportationMarch 2019
Group structure as at 30 June 2019
6 Half Year Report 2019
ADRIATIC LNG
ITALGAS
TERĒGAHOLDING
TERĒGA SAS
AS GASINFRA-STRUKTUR
GMBH DESFA
TERĒGA SA GCA
TAG
TAP
AS GASINFRA-STRUKTUR
BETEILIGUNG GMBH
SENFLUGA
ALBANIANGAS SERVICE
COMPANY
SNAM INTERNATIONAL
100%
SNAM GAS & ENERGY SERVICES CO. (Beijing) LTD.
100%
20%
40% 60%
25%
100% 100% 66%
100% 49%
INTERCONNECTORUK
IZT
25%
7.3%
13.5%
Corporate & other activities
Corporate & other activities
April 2019
40.5% 84.47%
23.68%
Struttura del Gruppo al 30 giugno 2019 7Struttura del Gruppo al 30 giugno 2019 7
3Group structure at 0 giugno 2019 7
8 2019 Half Year Report
General contents
General contents 9
General contents
Disclaimer This Report includes forward-looking statements, particularly in the “Outlook” section,
relating to: natural gas demand, investment plans, future operating performance and
project execution. Such statements are, by their very nature, subject to risk and uncertainty as they
depend on whether future events and developments take place. The actual results may therefore differ from those forecast as a result of several
factors: trends in natural gas demand, supply and price, actual operating performance,
general macroeconomic conditions, geopolitical factors such as international conflicts,
the effect of new energy and environmental legislation, the successful development
and implementation of new technologies, changes in stakeholders' expectations and
other changes in business conditions. Snam, the Snam Group or the Group means Snam S.p.A. and the companies within its
scope of consolidation.
For the glossary, please refer to the website www.snam.it/en/utilities/glossary/.
10 INTERIM DIRECTORS' REPORT
61 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
10 2019 Half Year Report
Interim Directors’ report
General contents 11
Contents of the Interim directors' report
12 SUMMARY DATA AND INFORMATION
13 Results
15 Main events
18 Key figures
21 Snam share performance
22
BUSINESS SEGMENT OPERATING PERFORMANCE
23 Natural gas transportation
28 Liquefied Natural Gas (LNG) regasification
29 Natural gas storage
32
FINANCIAL REVIEW AND OTHER INFORMATION INFORMATION
33 Financial review
50 Other information
52 ELEMENTS OF RISK AND UNCERTAINTY
59 OUTLOOK
12 2019 Half Year Report
Summary data and information
Interim directors' report - Summary data and information 13
Results
4
EBIT was analysed by isolating only the elements that determined a change therein. To this end, applying gas segment tariff regulations generates revenue components that are offset in costs.
5 An analysis of EBIT by business segment is provided in the “Business segment operating performance” section. In conformity with IFRS 8 “Operating
segments”, the operating business segments were defined on the basis of the internal reporting used by the Company’s management for allocating resources to the different segments and for analysing the respective performances. To this end, it is noted that the “Corporate and other activities” segment, not operating under the terms of IFRS 8, includes the new companies acquired in 2018, which head activities relating to the energy transition. The operating business segment of Natural gas transportation includes the values of the companies Snam Rete Gas, Infrastrutture Trasport and Enura (newco).
Total revenue in the first half of 2019 amounted to Euro 1,332 million, up by
Euro 61 million (4.8%) compared with the first half of 2018. Net of
components offset in costs, total revenue in the first half of 2019 amounted
to Euro 1,303 million, up by Euro 61 million, or 4.9%. The increase is due to
the higher regulated revenue (Euro +40 million; +3.3%), essentially due to the
transportation segment, as well as to the increase of non-regulated revenue
(Euro +21 million; +70.0%), mainly following the contribution made by the
companies entered in the consolidation scope.
EBIT4 stood at Euro 756 million in the first half of 2019, up Euro 27 million, or
3.7%, compared with the first half 2018. Higher revenue (Euro +61 million;
+4.9%) was partly offset in part by higher period amortisation and
depreciation (Euro -20 million; 6.0%), due primarily to the entry into service
of new assets and greater operating costs (-14 million; equal to 7.9%, mainly
due to the entry and integration of companies included in the scope of
consolidation.
As regards the main operating business segments5, the increase in EBIT
essentially reflects the positive performance recorded by the transportation
segment (Euro +38 million; +6.7%). EBIT for the first half 2019 of the storage
(Euro 169 million) and regasification (Euro 2 million) segments is unchanged
on the corresponding values recorded in the same period of the previous
year.
Net profit in the first half of 2019 amounted to Euro 581 million, an increase
of Euro 58 million or 11.1% compared with the net profit achieved in the first
half of 2018 (Euro 523 million). The greater EBIT (Euro +27 million; +3.7%)
together with the lesser net financial expense (Euro +13 million; 13.3%) that
benefit from the optimisation of the financial structure and the positive
market conditions, as well as the greater income from equity investments
valued using the equity method (Euro +33 million; +38.8%) were partly offset
by the greater income tax (Euro -15 million; 7.8%), primarily due to the
greater pre-tax profit.
EBIT
+27 million euro; +3.7%
Total revenue
+61 million euro; +4.9%
14 2019 Half Year Report
Net financial debt was Euro 11,523 million as at 30 June 2019, compared
with Euro 11,548 million as at 31 December 2018. The positive net cash flow
from operating activities (Euro 1,221 million) allowed us to fully cover the
financial requirements associated with net investments for the period (Euro
427 million) and to generate a free cash flow of Euro 794 million. Net
financial debt, after equity cash flow (Euro 743 million) deriving essentially
from the payment to the shareholders of the 2018 dividend (Euro 746
million) records a reduction of Euro 25 million on 31 December 2018, despite
the increase generated by non-monetary components related to financial
debt (Euro 26 million)6.
Technical investments in the first half of 2019, totalling Euro 408 million
(Euro 349 million in the first half of 2018), related mainly to the
transportation (Euro 340 million; Euro 314 million in the first half 2018) and
storage (Euro 60 million; Euro 31 million in the first half 2018) segments.
Accident indices of the first half 2019, referring to employees and contract
workers, both in terms of frequency and severity, record substantial stability
on first half 2018 (+0.06 with reference to the frequency index; +0.03 with
reference to the severity index), despite the extension of the group scope
and, with reference to the frequency index, the reduction in hours worked by
contractor companies. During the first half 2019, in total 3 accidents
occurred, of which 1 involve employees and 2 contractor workers (same
dynamics recorded in the first half 2018), as further evidence of the constant
commitment of Snam to developing and promoting the protection of health
and safety in the workplace, not only within the company but also in regard
to suppliers.
6
These components are mainly related to the effects of the coming into force, starting 01 January 2019, of the provisions of IFRS 16 “Leasing” (Euro 24 million). Further information is provided in Note 1 “Basis of presentation and measurement criteria” of the notes to the condensed interim consolidated financial statements.
Free cash flow
+794 million euro
Interim directors' report - Summary data and information 15
Main events
Financing
Climate Action Bond
On 28 February 2019, Snam S.p.A. concluded issue of its
first Climate Action Bond for an amount of Euro 500
million, with annual coupon of 1.25% and maturity on
28 August 2025.
Through the issue of the first Climate Action Bond in
Europe, Snam aims to consolidate its role in the energy
transition underway in Europe, to promote investors’
awareness of the company’s ESG (“Environment, Social,
Governance”) investments and initiatives and to
diversify its investor base.
Euro Commercial Paper Programme
On 19 March 2019, Snam’s Board of Directors resolved
to increase the amount of the Euro Commercial Paper
programme (the “ECP Programme”) approved on 02
October 2018, from Euro 1 billion to Euro 2 billion.
The issue of Euro Commercial Papers may take place
within 2 years of 02 October 2018, for a total maximum
equivalent value of Euro 2 billion, increased by the
amount corresponding to the Euro Commercial Papers
redeemed each time during the same period, to be
placed with institutional investors, as per the terms and
conditions of the ECP Programme. The total nominal
value of the Euro Commercial Papers issued under the
ECP Programme may not exceed the maximum limit of
Euro 2 billion.
The increase in the amount of the ECP Programme
enables Snam to diversify the short-term financial
instruments with a view to ever greater flexibility in the
process of optimising the treasury.
As at 30 June 2019, the Euro Commercial Papers
totalled Euro 1,431 million.
At the date of this Report, the Euro Commercial Paper
programme had been used for the entire amount of
Euro 2 billion.
EIB financing for transport and storage infrastructure projects
On 28 January 2019, Snam signed a loan agreement
with the European Investment Bank (EIB) for a loan of
EUR 135 million for the construction of infrastructure
projects in the natural gas transport and storage
business segment, with a fixed rate of 1.372%, to be
repaid through an amortisation plan expiring in 2038.
On 31 July 2019, Snam also signed a EUR 105 million
loan agreement with the EIB for the construction of
infrastructure projects in the natural gas transmission
business segment, with a duration of 20 years (maturity
30 June 2039) and a fixed rate of circa 0.64%.
Sustainable mobility
Tamoil and Snam: contract for 5 new natural gas service stations
On 20 March 2019, through the subsidiary
Snam4Mobility, Tamoil and Snam signed a contract for
the development of a first lot of 5 natural gas refuelling
stations on national territory, promoting the
development of sustainable mobility for cars and lorries
in Italy.
The agreement envisages the collaboration of Tamoil
and Snam4Mobility for the design, development,
maintenance and operation of 4 new CNG (compressed
natural gas) plants and a new L-CNG (liquefied
compressed natural gas) plant within the national
network of Tamoil distributors.
FS Italiane, Snam and Hitachi rail: Memorandum of Understanding (MoU) on methane-powered trains
On 28 March 2019, FS Italiane, Snam and Hitachi rail
signed a Memorandum of Understanding (MoU) with FS
Italiane and Hitachi Rail, aiming to convert part of the
current fleet of trains of the FS Italiane Foundation
from diesel to methane, under the scope of the
promotion of sustainable mobility in public transport in
Italy. The Memorandum envisages the start-up of a pilot
project transforming one or more diesel engines of FS
Italiane Foundation to more advanced liquefied (LNG)
or compressed (CNG) natural gas models. Following a
feasibility study, the companies will identify a larger
number of trains over which to extend the trial.
EIB financing for sustainable mobility projects
In support of the sustainable mobility initiatives, on 6
June 2019, Snam stipulated its first loan with the
European Investment Bank (EIB) in support of the
investments promoted by the subscribers
Snam4Mobility for a nominal value of Euro 25 million.
The investments concerned by the loan contract regard
the development on national territory of 101 CNG
(compressed natural gas) and 9 L-CNG (liquefied and
compressed gas) refuelling stations, for a total of
around Euro 50 million. The loan, which as per EIB
standard practice, will be up to a maximum of 50% of
the cost of the investments, has an amortising structure
16 2019 Half Year Report
falling due in December 2031 and a fixed rate of 0.55%.
The loan complements the contribution disbursed by
the European Union under the CEF (Connecting Europe
Facility) programme for Euro 1.3 million, which last
December approved the project to build the 9
Snam4Mobility L-CNG stations.
Snam and IP: agreement for 26 new natural gas refuelling plants in Italy
On 26 July 2019, Snam and IP have agreed to construct
an initial 26 new natural gas refueling plants, which will
open across IP’s distribution network in Italy in 2020.
The new openings comprise the first phase of the 2018
framework agreement between IP and Snam to build
up to 200 new methane stations in Italy. The initiative is
part of the companies’ commitment to promoting
sustainable mobility. Snam and IP have jointly identified
the fueling stations with IP branded fuel, at which they
will install methane supply for cars (CNG, compressed
natural gas), two of which will also supply LNG
(liquefied natural gas) for heavy vehicles.
The initiatives described above come under the scope
of Snam’s commitment to foster sustainable mobility
with natural gas in Italy, in rail and road and sea
transport. The company is therefore investing to boost
growth of the CNG and L-CNG distribution network in
Italy, through direct investments and agreements with
other sector operators and to promote development of
a biomethane chain (renewable gas with zero CO2) in
Italy. Snam's commitment in this segment is part of the
Snamtec project, launched under the scope of the
2018-2022 strategic plan. In Italy, through
Snam4Mobility, Snam has to date launched 6 new
distributors, can count around 60 under development
and expects to construct a total of 300 over the next
few years.
Energy efficiency
Agreements for the energy requalification of condominiums
On 10 April 2019, through the subsidiary TEP Energy
Solution, operating in the energy efficiency segment,
Snam and UniCredit stipulated an agreement to
facilitate the energy requalification of residential
buildings on Italian territory, making them more
sustainable and secure. The understanding allows the
bank to provide the condominiums with credit facilities
on projects proposed by TEP in energy efficiency and
anti-seismic improvements, such as, for example, the
development of “thermal cladding”, the replacement of
fixtures and the requalification of thermal plants.
The collaboration agreement followed, under this
scope, signed on 5June 2019 by the same TEP with
Intesa Sanpaolo, to promote energy requalification
interventions on buildings for accommodation and
tertiary use.
said agreements envisage the proposal of a complete
service, which ranges from financial and technical
consultancy to the disbursement of the contribution
through to project development, at dedicated
conditions and in a reduced period of time.
In particular, the condominiums can benefit from bank
loans to cover the portion not included in the Ecobonus
or Sismabonus and, more generally, between 75% and
85% of the cost of the works.
TEP Energy Solution will instead propose the product
CasaMia, to date offered to more than 500
condominiums throughout Italy, which aims to ensure
the energy requalification of buildings, financing the
works through savings on consumption and the
transfer of the tax credit linked to the Ecobonus and
Sismabonus mechanism.
Other
New share buyback plan and cancellation of treasury shares with no share capital reduction
On 02 April 2019, Snam's Ordinary Shareholders’
Meeting authorised, after revoking the part that had
not been executed of the resolution to authorise the
acquisition of treasury shares passed by the
Shareholders' Meeting on 24 April 2018, the acquisition
of treasury shares on one or more occasions, for the
maximum duration of 18 months starting from the date
of the Shareholders’ Meeting of 02 April 2019, with a
maximum outlay of Euro 500 million and in any case up
to a maximum of 126,664,660 shares, without
exceeding 6.50% of the share capital subscribed and
freed up (regarding own shares already held by the
Company). The meeting resolution establishes the
terms and conditions of the price of purchases of
treasury shares, as well as authorising the disposal, on
one or more occasions, with no time limits and even
before having completed all acquisitions, of all or part
of the Company’s treasury shares acquired on the basis
of this resolution as well as those already held.
The Extraordinary Shareholder’s Meeting held on the
same date also approved the cancellation of 74,197,663
treasury shares with no nominal value with no
Interim directors' report - Summary data and information 17
reduction in the share capital and the resulting
amendment of art. 5.1 of the Articles of Association.
The shares were cancelled on 17 April 2019 after the
amended Articles of Association were filed with the
Register of Companies.
As a result of this transaction, the share capital consists
of 3,394,840,916 shares with no nominal value for a
total value of Euro 2,736 million (as at 31 December
2018). As at the date of this report, Snam holds
94,000,000 shares in its portfolio.
The main events relating directly to the operating
segments are described in the “Business segment
operating performance” section of this Report.
18 2019 Half Year Report
Key figures
To improve the economic and financial review, in addition to convention al IAS/IFRS
indicators and financial statements, the interim directors’ report also contains
reclassified financial statements and several alternative performance indicators
(non-GAAP measures) such as EBITDA, EBIT and net financial debt.
Non-GAAP financial information must be considered as complementary and does
not replace the information prepared in accordance with IFRS.
In accordance with the Consob Communication DEM/6064293 of 28 July 2006 and
subsequent amendments and additions (Consob Communications no. 0092543 of 3
December 2015 which incorporates the ESMA/2015/1415 guidelines on alternative
performance indicators), it is specified that the main alternative performance
indicators used in this document are directly deducible from reclassifications or
algebraic sums of conventional indicators and compliant with international
accounting standards7.
Main income statement data
(€ million) 2018 2019 change % change
Total revenue 1,271 1,332 61 4.8
Total revenue net of pass- through items 1,242 1,303 61 4.9
Operating costs 207 221 14 6.8
Operating costs net of pass- through items 178 192 14 7.9
EBITDA 1,064 1,111 47 4.4
Operating profit (EBIT) 729 756 27 3.7
Net profit 523 581 58 11.1
- Held by Snam’s shareholders 523 581 58 11.1
- Minority interests
First half
Key balance sheet and cash flow figures
(€ million) 2018 2019 change % change
Technical investments 349 408 59 16.9
Net invested capital at period end 17,517 17,588 71 0.4
Shareholders' equity at end of period (including minority interests) 6,096 6,065 (31) (0.5)
Shareholders’ equity attributable to Snam at period end 6,096 6,062 (34) (0.6)
Net financial debt at period end 11,421 11,523 102 0.9
Free cash flow 1,037 794 (243) (23.4)
First half
7 According to the CESR/05-178b recommendation of October 2005, all the data included in the financial statements audited in accordance with IFRS or
in the balance sheet, the income statement, the statement of changes in shareholders’ equity and the statement of cash flows are conventional indicators or in the commentary notes. The tables below, their explanatory notes and the reclassified financial statements describe how these amounts were determined. For a definition of the terms used, unless otherwise specified, reference is made to the glossary available on Snam’s website (www.snam.it/it/utilita/glossario/ ).
Interim directors' report - Summary data and information 19
Key share and income figures
2018 2019 change % change
Number of shares of share capital (million) 3,469.0 3,394.8 (74.2) (2.1)
Number of shares outstanding at year end (million) 3,366.4 3,300.8 (65.6) (1.9)
Average number of shares outstanding during the period (million) 3,385.3 3,300.8 (84.5) (2.5)
Period end official share price (€) 3.58 4.39 0.8 22.6
EBIT per share (*) (€) 0.215 0.229 0.014 6.5
Net profit per share held by Snam shareholders (*) (€) 0.154 0.176 0.022 14.3
First half
(*) Calculated considering the average number of shares outstanding during the period. Key operating figures
2018 2019 change % change
Natural gas transportation (a)
Natural gas injected into the National Gas Transportation Network (billions of
cubic metres) (b)37.93 39.81
1.88 5.0
Gas transportation network (kilometres in use) 32,609 32,640 31 0.1
Installed power in the compression stations (MW) 922 961 39 4.2
Liquefied Natural Gas (LNG) regasification (a)
LNG regasification (billions of cubic metres) 0.356 1.390 1.034
Natural gas storage (a)
Concessions 10 10
- of which operational (c) 9 9
Total available storage capacity (billions of cubic metres) (d) 12.4 12.5 0.1 0.8
Natural gas moved through the storage system (billions of cubic metres) (e) 12.71 11.76 (0.95) (7.5)
Employees in service at end of period (number) (f) 2,884 3,014 130 4.5
of which business segment:
- Transportation 1,914 1,894 (20) (1.0)
- Regasification 63 64 1 1.6
- Storage 60 63 3 5.0
- Corporate and other activities (g) 847 993 146 17.2
Employees and contract w orkers accident indices
Total number of injuries 3 3
Frequency index (h) 0.48 0.54 0.06 12.5
Severity index (i) 0.01 0.04 0.03
First half
(a) With regard to the first half of 2019, gas volumes are expressed in standard cubic metres (SCM) with an average
higher heating value (HHV) of 38.1 MJ/SCM (10.575 kWh/SCM) for transportation and regasification activities and
39.23 MJ/SCM (10.895 kWh/SCM) natural gas storage for the 2019- 2020 thermal year.
(b) The figure for the first half of 2019 are current as at 04 July 2019. The corresponding figure for 2018 has been
updated definitively and is consistent with that published by the Ministry of Economic Development.
(c) Working gas capacity for modulation services.
(d) Working gas capacity for modulation, mining and balancing services. The available capacity at 30 June 2019 is that
declared to the Electricity, Gas and Water Authority at the start of the 2018- 2019 thermal year, almost entirely
conferred as at 30 June 2019 (98.8%).
(e) The value for the first half 2018 has been definitively updated.
(f) Fully consolidated companies.
(g) The figures for the first half 2019 include the resources obtained from the acquisitions of IES Biogas (46 resources)
and the business unit Cubogas (64 resources).
(h) Frequency index: number of accidents at work resulting in absence of at least one day, per million hours worked.
(i) Severity index: number of working days lost (calendar days) due to accidents at work resulting in absence of at least
one day per thousand hours worked. These data have been calculated taking fatal accidents into consideration.
20 2019 Half Year Report
8
By circular letter of 08 January 2019, the Ministry of Economic Development confirmed for storage thermal year 2019-2020 (01 April 2019-31 March 2020), the strategic gas storage volume of 4.62 billions of standard cubic metres, of which 4.5 billions of cubic metres are the competence of Stogit.
Natural gas transportation
During the first half 2019, 39.81 billions of cubic metres of natural gas were
released to the National transportation grid, an increase of 1.88 billions of
cubic metres or 5.0% on the first half 2018 (37.93 billions of cubic metres),
mainly due to the rise in the demand for natural gas in Italy (40.51 billions of
cubic metres (+1.72 billions of cubic metres on the first half 2018; +4.4%),
together with the net balance of storage (+0.19 billions of cubic metres). The
trend in the demand for gas is mainly due to the greater consumption
recorded in the thermoelectric sector (+1.84 billions of cubic metres;
+16.9%), which benefits from the reduction in import flows of electricity, the
lesser production from renewable sources, hydroelectric in particular, and
the greater use of natural gas in electricity generation.
Adjusted for the weather effect, gas demand was estimated at 39.67 billions
of cubic metres, up by 1.49 billions of cubic metres (3.9%) compared with the
first half of 2018 (38.18 billions of cubic metres).
Natural gas storage
During the first half of 2019, 11.76 billions of cubic metres of natural gas was
moved through the storage system, a reduction of 0.95 billions of cubic
metres (7.5%) compared with the first half of 2018 (12.71 billions of cubic
metres). The reduction was mainly attributable to lower withdrawals from
storage (-0.56 billions of cubic metres; -8.4%), primarily due to weather
conditions, together with lesser injections (-0.39 billions of cubic metres; -
6.5%).
Total storage capacity at 30 June 2019, including strategic storage, was 17.0
billions of cubic metres (16.9 billions of cubic metres at 30 June 2018; +0.1
billions of cubic metres). Total capacity includes 12.5 billions of cubic metres
relative to available storage capacity, almost entirely conferred as at 30 June
2019 (98.8% of the available capacity for the thermal year 2019-2020) and
4.5 billions of cubic metres in capacity relative to strategic storage8
(unchanged on the thermal year 2018-2019).
Liquefied Natural Gas (LNG) regasification
During the first half 2019, 1.390 billions of cubic metres of LNG (0.356 billions
of cubic metres in the first half 2018; +1.034 billions of cubic metres) were
regasified and 33 methane tankers were unloaded (9 in the first half 2018),
also thanks to the new auction-based capacity allocation mechanisms.
Interim directors' report - Summary data and information 21
Snam share performance The Snam share price ended the first half 2019 at an official price of Euro 4.39, up 15% from the Euro 3.82 recorded at
the end of 2018 (+22.6% on 30 June 2018).
The average value of shares during the first six months of the year was Euro 4.40, reaching the minimum of Euro 3.89 at
the start of January.
The share continued to benefit both from the Strategic Plan presented in November 2018, which offers greater visibility
on the growth prospects of all economic-financial indicators, and a clear, defined regulatory framework for the next 4
years. A lesser degree of uncertainty connected with the Italian political situation, with an average spread at 259 basis
points in the first half of the year, coupled with the announcement made by the ECB on possible cuts of rates, where the
European economy fails to show any signs of improvement, helped assure good performance by the share.
(1 January 2019 - 30 June 2019)
SNAM - Comparison of prices of Snam, FTSE MIB and STOXX Europe 600 Utilities
22 2019 Half Year Report
Business segments operating performance
Interim directors' report - Business segments operating performance 23
Natural gas transportation
(a) Before consolidation adjustments.
(b) At an actual basic pre- tax WACC respectively of 5.4% for 2018 and 5.7% for 2019.
(d) The figure for the first half of 2019 is current as at 04 July 2019. The figures for the first half of 2018 are definitively up to
date and consistent with those published by the Ministry of Economic Development.
Results
Total revenue amounted to Euro 1,094 million, up by
Euro 35 million, or 3.3%, compared with the first half of
2018 (Euro 1,059 million). Net of components offset in
costs9, total revenue amounted to Euro 1,025 million,
up by Euro 33 million, or 3.3%, compared with the
corresponding period of the previous year, mainly in
view of the higher regulated revenue.
Regulated revenue amounted to Euro 1,061 million,
and related mainly to fees for the natural gas
transportation service (Euro 1,051 million) and to
incentives paid to the Balancing Manager (RdB) (Euro 8
million). Regulated revenue, net of components that
are offset in costs, amounted to Euro 992 million, up by
Euro 40 million (or 4.2%) on the first half of 2018. With
reference to transportation revenues, the increase of
Euro 37 million, or 3.9%, with respect to the first half
2018, is mainly due to the tariff update mechanisms
(Euro +33 million), which refer in particular to the
increase in WACC, which goes from 5.4% in 2018 to
5.7% in 2019.
9
The main revenue items offset in costs relate to modulation and interconnection.
Non-regulated revenue (Euro 33 million) is down Euro 7
million on the first half 2018, primarily due to the lesser
charge-backs for technical services provided to other
group companies (Euro -8 million). The reduction is
matched by the lesser costs incurred for the supply of
the related services.
EBIT stood at Euro 607 million, up Euro 38 million, or
6.7%, compared with the first half 2018. The increase is
due to the higher regulated revenue (Euro +66 million),
partly offset by the greater amortisation mainly due to
the commissioning of new assets (Euro -16 million;
5.7%). The trend of the operating results was also
affected by the lesser operating costs (Euro +21 million
or 14.6%, net of components offset in revenues; Euro +
13 million net of the lesser costs for technical services
charged back to other group companies). The reduction
in operating costs is mainly due to the dynamics of the
provisions for risks and charges and to the recognition
by the Authority of certain charges for gas consumption
for the year 2018. In consideration of an increasing
trend in gas consumption, the company is currently
Key performance indicators
(€ million) 2018 2019 change % change
Total revenue (a) 1,059 1,094 35 3.3
- of which regulated revenue (a) 1,019 1,061 42 4.1
Total revenue net of pass- through items (a) 992 1,025 33 3.3
Operating costs (a) 211 192 (19) (9.0)
Operating costs net of pass- through items (a) 144 123 (21) (14.6)
EBIT 569 607 38 6.7
Investments 314 340 26 8.3
- of which with a greater return 132 105 (27) (20.5)
- of which with a basic return (b) 182 235 53 29.1
Natural gas injected into the national gas transportation network (billions of
cubic metres) (c) 37.93 39.81 1.88 5.0
Gas transportation network (kilometres in use) 32,609 32,640 31 0.1
- of which national network 9,705 9,613 (92) (0.9)
- of which regional network 22,904 23,027 123 0.5
Installed power in the compression stations (MW) 922 961 39 4.2
Employees in service at year end (number) 1,914 1,894 (20) (1.0)
First half
24 2019 Half Year Report
engaged in a constructive dialogue with the Authority
in order to identify solutions that make it possible to
reduce the variability of this size, as well as on possible
mechanisms for recognising incremental costs.
Technical investments
2018 2019
Type of investmentGreater
return (%) (*)€ million € million
Development 1.0% 132 105
Replacement and other 182 235
314 340
First half
(*) Compared with an actual basic pre- tax WACC respectively of 5.4% for 2018 and 5.7% for 2019.
Technical investments amounted to Euro 340 million in
the first half of 2019, up by Euro 26 million (+8.3%)
compared with the corresponding period of the
previous year (Euro 314 million). Investments have been
classified consistently with resolution 575/2017/R/gas
whereby the Autorità di Regolazione per Energia, Reti e
Ambiente (“ARERA” or the “Authority”) identified
different categories of projects with which a different
level of remuneration is associated.
The main investments made in developing new
transportation capacity, for which a greater
remuneration of 1% is envisaged (Euro 105 million),
concern:
investments in developing new transportation
capacity on the national network functional to
import and export capacity (Euro 60 million) as part
of the initiative to support the market in the
country’s north-east, and to allow for the reversal of
physical transportation flows at the interconnection
points with northern Europe in the area of the Po
Valley, projects to upgrade the transportation
network in southern Italy, including the
interconnection with the Trans Adriatic Pipeline;
investments in developing new transportation
capacity on the regional and national networks
(Euro 45 million), including: (i) the continuation of
works relating to the Cornegliano Laudense Italgas
Storage S.r.l. connection; (ii) the continuation of
construction works and connections relating to the
methanisation of the region of Calabria, including
the S. Andrea Apostolo methane pipeline of Ionio-
Caulonia and (iii) the Pietravairano - Pignataro
Maggiore connection.
Investments in replacement and other investments
with basic remuneration (Euro 235 million) mainly
concern: (i) works aimed at maintaining plant safety
levels, also in terms of function and quality (Euro 128
million), including, in particular, the adjustment of the
Istrana plant, the maintenance works in accordance
with Italian Presidential Decree no. 151, adjustments
and improvements to plants; (ii) the replacement of
methane pipelines (Euro 49 million); (iii) projects
relating to the development of information systems
and the implementation of existing ones (Euro 39
million); (iv) redelivery plant upgrading projects (Euro 5
million); and (v) real estate projects (Euro 3 million).
Interim directors' report - Business segments operating performance 25
Operating review
Injections and withdrawals of gas in the transportation network
Gas volumes are expressed in standard cubic metres (Smc)
with a traditional higher heating value (HHV) of 38.1
Mj/Smc (10.575 Kwh/Smc). The basic figure is measured in
energy (MJ) and obtained by multiplying the physical cubic
metres actually measured by the relative heating value.
The volumes of gas injected to the network in the first
half 2019 totalled 39.81 billions of cubic metres, an
increase of 1.88 billions of cubic metres on the first half
2018 (5.0%) mainly due to the rise in the demand for
natural gas in Italy (40.51 billions of cubic metres (+1.72
billions of cubic metres on the first half 2018; +4.4%),
together with the net balance of storage (+0.19 billions
of cubic metres). The trend in the demand for gas is
mainly due to the greater consumption recorded in the
thermoelectric sector (+1.84 billions of cubic metres;
+16.9%), which benefits from the reduction in import
flows of electricity, the lesser production from
renewable sources, attributable to the reduction in
hydroelectric power, despite the growth of wind and
photovoltaic, and the greater use of natural gas in
electricity generation. These effects were partly offset
by consumption in the residential and tertiary sector (-
0.20 billions of cubic metres; -1.2%) following a warmer
climate in February and March 2019 as compared with
the same period of 2018, the latter which was instead
characterised by exceptionally cold weather (the
“Burian”).
Adjusted for the weather effect, gas demand was
estimated at 39.67 billions of cubic metres, up by 1.49
billions of cubic metres (3.9%) compared with the first
half 2018 (38.18 billions of cubic metres), also following
the greater use of energy efficiency enhancing
measures by the residential and tertiary sector.
Injections into the network from domestic production
fields or their collection and treatment centres totalled
2.35 billions of cubic metres, down by 0.26 billions of
cubic metres (-10.0%) compared with the first half of
2018.
Volumes of gas injected into the network for entry
points interconnected with foreign countries or with
LNG regasification terminals amounted to 37.46 billions
of cubic metres, up 2.14 billions of cubic metres or 6.1%
on the first half of 2018. The greater volumes injected
by the LNG regasification terminals (+3.22 billions of
cubic metres; +85.0%), also thanks to the new capacity
allocation mechanisms by auction, as well as the entry
points of Passo Gries (+1.43 billions of cubic metres;
+30.8%) and Gela (+1.04 billions of cubic metres;
+58.8%) were partly offset by the lesser volumes
injected by the entry point Mazara del Vallo (-3.65
billions of cubic metres; -39.3%).
Gas injected into the network (*)
(billions of m3) 2018 2019 change % change (**)Domestic output 2.61 2.35 (0.26) (10.0)
Entry points (***) 35.32 37.46 2.14 6.1
Tarvisio 15.80 15.92 0.12 0.8
GriesPass 4.65 6.08 1.43 30.8
Mazara del Vallo 9.29 5.64 (3.65) (39.3)
Cavarzere (LNG) 3.23 3.84 0.61 18.9
Gela 1.77 2.81 1.04 58.8
Livorno (LNG) 0.19 1.77 1.58
Panigaglia (LNG) 0.37 1.40 1.03
Gorizia 0.02 (0.02) (100.0)
37.93 39.81 1.88 5.0
First half
(*) The figure for the first half of 2019 is current as at 04 July 2019. The figures for the first half of 2018 are definitively up to
date and consistent with those published by the Ministry of Economic Development.
(**) (**)The percentage change is calculated with reference to the figures in cubic metres.
(***) Entry points connected with other countries or with LNG regasification plants.
26 2019 Half Year Report
Regulation
Settlement and balancing
Approval of the Snam Rete Gas S.p.A. proposal relative to the objectives of improvement and efficiency-enhancing subject to incentive, in accordance with point 5 of Authority Resolution 480/2018/R/gas
By resolution 57/2019/R/gas published on 22 February
2019, the Authority has approved the proposal for
additional objectives of improvement and efficiency
enhancing in settlement and balancing presented by
Snam Rete Gas, in accordance with Resolution
480/2018/R/gas, point 5, functional to the recognition
of the incentive of approximately Euro 2.5 million
envisaged by said same resolution. More specifically,
the objectives consist of the commitment to: (i) bring
forward the timing for completion of the verification of
new dynamic profiling mechanisms functional to the
launch of the settlement reform pursuant to Authority
Resolution 72/2018/R/gas; (ii) ensure greater
transparency of such methods by disclosing and sharing
with operators concerned; and (iii) launch a trial phase
in the period June-December 2019, to limit use of the
storage capacity by the Balancing Manager, functional
to the implementation of the reform outlined by the
Authority during previous consultations. The incentive
is split equally into the objectives proposed by Snam
Rete Gas and the related recognition will be modulated
according to the activities completed.
Tariff regulations
Tariff adjustment criteria for the natural gas transportation and metering service for the fifth regulatory period (2020-2023)
By resolution 114/2019/R/gas, published on 29 March
2019, the Authority defined the regulation criteria for
natural gas transportation tariffs for the fifth
regulatory period (01 January 2020-31 December
2023).
The valuation of the net capital invested (RAB) is based
on the revalued historical cost method. The Beta
parameter of the rate of remuneration of the net
invested capital (WACC) remains set at 0.364, thereby
keeping the WACC unchanged at a real, pre-tax 5.7%
for the years 2020-2021, in line with the regulation of
the TIWACC. Work in progress is included in the
calculation of the RAB, envisaging remuneration of a
real pre-tax 5.3%. The inclusion in RAB of investments
made in the year t-1 for the purpose of remuneration
and compensation of the regulatory time-lag, is also
confirmed.
Limited to investments included in the Development
Plan, which will come into operation in the years 2020-
2021-2022, with a costs/benefits ratio of more than 1.5,
an increase is applied in the WACC of +1.5% for 10
years.
The revenue component relating to the return and
amortisation and depreciation is updated on the basis
of an annual recalculation of net invested capital (RAB)
and additional revenue from the higher rate of return
for investments realised in prior regulatory periods.
Amortisation and depreciation are calculated based on
the useful economic and technical life of the
transportation infrastructure.
The operating costs recognised for 2020 are
determined on the basis of the effective recurring costs
of 2017, increased by the greater efficiencies achieved
in the current period (profit-sharing 50%), with the
possibility of including any recurring costs of 2018, if
suitably justified. Application is confirmed of the price-
cap method, in order to update operating costs,
envisaging an x-factor sized to return the greater
efficiencies realised in the fourth regulatory period,
back to users, in 4 years.
It is expected that the major transport company will
procure quantities of gas to cover its own consumption,
leaks and non-counted gas (CNG), under the scope of
the centralised market. The quantities of gas
recognised are noted at the weighted average price
average price of the product at term with delivery to
the PSV in the reference tariff year. The resolution
envisages recognition of the difference between the
price recognised for said volumes and the effective
price of procurement, deferring to a subsequent
provision for a detailed definition of the mechanism.
Recognition of costs relating to the Emissions Trading
System (ETS) is also envisaged.
With regard to tariff structure, the current
methodology for determining the capacity/commodity
split was confirmed, providing for capacity revenue to
cover capital costs (return and amortisation and
depreciation) and commodity revenue to cover
recognised operating costs. The current corrective
factor of revenues applied to the component capacity
(100% guaranteed) is confirmed, as well as the
component correlated to volumes transported (excess
±4%). With reference to the metering service, a
mechanism is introduced to cover revenues in a similar
fashion to that in place in the transportation service
(100% guaranteed).
Interim directors' report - Business segments operating performance 27
The tariff structure based on the entry/exit model is
confirmed, including, in addition to the national
network, also the regional network in the reference
price methodology. The prices for entry and exit
capacity are determined using the capacity weighted
distance (CWD) method, with a splitting of revenues
between entry and exit points of 28/72. A variable price
is introduced, applied to volumes carried intended to
cover recognised operating costs, costs relating to the
Emission Trading system and costs for the procurement
of quantities to cover self-consumption, losses and
CNG. This price is applied to the exit points from the
transportation network and is sized annually according
to the volumes effectively withdrawn in the year t-2.
Finally, it is established that the definition will be
deferred of the regulation criteria regarding quality of
the natural gas transportation service for the fifth
regulatory period, promoting experimental innovative
uses of the transportation networks, as well as in
respect of the restructuring of the metering services, as
a result of specific consultation to be carried out in
2019.
Approval of approved revenues and determination of prices for the transportation and metering service of natural gas for the year 2020
By means of Resolution 201/2019/R/gas, published on
28 May 2019, the Authority approved the revenue
recognised and prices for the natural gas
transportation, dispatching and metering service for
2020. Revenue recognised for the natural gas storage
service for 2020 amounted to Euro 2,096 million. The
RAB used to calculate 2020 revenues for transport,
dispatching and measurement activities was Euro 16.4
billion, and included the investments estimated for
2019.
Regulation of previous corrective factors
By letter dated 26 June 2019, the Regulatory authority
notified Snam Rete Gas of the amount of corrective
factors relative to previous years, to be paid to CSEA by
31 July 2019, against the “Transportation expenses
account”, as established by Art. 4.3 of resolution
114/2019/R/gas of the same Authority.
The amount equal to Euro 180 million (Euro 154 million,
net of offset activities), determined on the basis of
certificates of revenues relative to 2018, sent to the
Authority in accordance with the same Art. 4 of
resolution 114/2019/R/gas, refers to the corrective
factors applicable to 2018, net of the price differences
and the residual corrective factors pertaining to
previous years (2016-2017). Snam Rete Gas organised
the payment for 30 July 2019.
28 2019 Half Year Report
Liquefied Natural Gas (LNG) regasification
Key performance indicators
(€ million) 2018 2019 change % change
Total revenue (*) 11 19 8 72.7
- of which regulated revenue (*) 11 15 4 36.4
Total revenue net of pass- through items (*) 9 13 4 44.4
Operating costs (*) 7 15 8
Operating costs net of pass- through items (*) 5 9 4 80.0
EBIT 2 2
Technical investments (**) 2 5 3
Volumes of LNG regasified (billions of cubic metres) (***) 0.356 1.390 1.034
Tanker loads (number) 9 33 24
Employees in service at period end (number) 63 64 1 1.6
First half
(*) Before consolidation adjustments.
(**) Investments remunerated at an actual basic pre- tax WACC respectively of 6.6% for 2018 and 6.8% for 2019.
(***) The regasified volumes are shown gross of self- consumption and losses (QCP component), equal to 1.7% for the Panigaglia
terminal. Gas volumes are expressed in standard cubic metres (Scm) with an average higher heating value (HHV) of 38.1
Mj/Scm (10.575 KWh/Scm).
Results
Total revenue amounted to Euro 19 million, an increase
of Euro 8 million, or 72.7%, compared with the first half
2018. Total revenue, net of components offset in
costs10, record a rise of Euro 4 million or 44.4% with
respect to the same period of the previous year, against
mainly greater revenues for gas sales on the balancing
platform.
Regulated revenue, amounting to Euro 9 million net of
components with a counter-item in costs (unchanged
on the first half 2018) mainly relates to the applicable
portion of the guarantee factor for the year 2018,
established in Article 18 of Annex A to Resolution
438/2013/R/gas11.
EBIT amounted to Euro 2 million, unchanged compared
with regard to the first half 2018. The greater revenue
(Euro +4 million) was offset by the greater operating
costs (Euro -4 million, net of components with a
counter-entry in revenue; 80%), mainly due to greater
withdrawal from the warehouse for gas sales made on
the balancing platform.
Investments
Technical investments in the first half totalled Euro 5
million (Euro 2 million in the first half 2018) and
concerned maintenance investments aimed at
guaranteeing plant system safety, with specific
reference to tank revamping interventions.
Operating review
During the first half 2019, at the LNG terminal of
Panigaglia (SP), 1.390 billions of cubic metres of LNG
were regasified (0.356 during the first half 2018) and 33
discharges from methane tanker loads, an increase on
the first half 2018 (9 discharges), also thanks to the new
auction-based capacity allocation mechanisms.
10
Revenue offset in costs regards the recharging to customers of expenses relating to natural gas transportation services provided by Snam Rete Gas S.p.A. (Euro 6 million and Euro 2 million, respectively in the first half 2019 and 2018). For the purposes of the consolidated financial statements, this revenue is eliminated, together with transportation costs, within GNL Italia S.p.A. in order to represent the substance of the operation.
11 The guarantee factors assure the regasification company coverage of a share of revenue determined according to a parameter applied to the reference revenue. By resolution 653/2017/R/gas of the Regulatory authority, this parameter was confirmed as 64% for the transition period 01 January 2018-31 December 2019.
Interim directors' report - Business segments operating performance 29
Natural gas storage Key performance indicators
(€ million) 2018 2019 change % changeTotal revenue (a) 296 298 2 0.7
- of which regulated revenue (a) 295 297 2 0.7
Total revenue net of pass- through items (a) 252 252
Operating costs (a) 77 79 2 2.6
Operating costs net of pass- through items (a) 33 33
EBIT 169 169
Technical investments (b) 31 60 29 93.5
Concessions (number) 10 10
- of which operational (c) 9 9
Natural gas moved through the storage system(billions of cubic metres) (d) 12.71 11.76 (0.95) (7.5)
- of which injected 6.03 5.64 (0.39) (6.5)
- of which withdrawn 6.68 6.12 (0.56) (8.4)
Total storage capacity (billions of cubic metres) 16.9 17.0 0.1 0.6
- of which available (e) 12.4 12.5 0.1 0.8
- of which strategic 4.5 4.5
Employees in service at year end (number) 60 63 3 5.0
First half
(a) Before consolidation adjustments.
(b) Investments remunerated at the basic pre- tax WACC of 6.5% for 2018 and 6.7% for 2019.
(d) Working gas capacity for modulation services.
(d) The volumes of gas are expressed in Standard cubic metres (SCM) with an average higher heating value (HHV) equal
to 39.23 MJ/Scm (10.895 KWh/SCM) for the thermal year 2019- 2020 (39.29 MJ/SCM, 10.914 KWh/SCM, for the
thermal year 2018- 2019). The values for the first half 2018 have been definitively updated.
(e) Working gas capacity for modulation, mining and balancing services. The figure indicated represents the maximum
available capacity and may not be in line with the maximum filling.
Results
Total revenue came to Euro 298 million, slightly up on
the first half 2018 (Euro +2 million; 0.7%). Total
revenue, net of components offset in costs12,
amounted to Euro 252 million, showing no change on
the corresponding period of the previous year.
Regulated revenue (Euro 297 million), slightly up on the
first half 2018 (Euro +2 million; 0.7%), comprised fees
for the natural gas storage service (Euro 253 million)
and the fees charged back to users relating to the
natural gas transportation service provided by Snam
Rete Gas S.p.A. (Euro 43 million and Euro 40 million, in
the first half 2018)13. Regulated revenue, net of items
12
These components refer mainly to revenue from the chargeback to storage users of charges relating to the natural gas transportation service provided by Snam Rete Gas S.p.A., pursuant to Resolution 297/2012/R/gas of the Authority. For the purposes of the consolidated financial statements, this revenue is eliminated in relation to Stogit S.p.A., together with transportation costs, in order to represent the substance of the operation.
13 Resolution 64/2017/R/gas of 16 February 2017 established that almost all expenses relating to the natural gas transportation service, starting 01 April 2017, shall no longer be debited to storage service users, but rather settled directly by the CSEA.
14 By consultation document 288/2019/R/gas, published on 02 July 2019, on the criteria used to determine recognised revenue, tariffs and quality for the natural gas storage service for the fifth regulatory period, the Regulatory authority proposed the recognition of costs relating to the Emission Trading System (ETS), sanctioning the principle of the neutrality of the business with respect to the price risk and encouraging virtuous behaviour aimed at reducing CO2 emissions. For further information on the approaches proposed, see the “Regulation” paragraph below.
offset in costs, are unchanged on the first half 2018.
The higher revenue due to the increase in the WACC,
which goes from 6.5% in 2018 to 6.7% in 2019, was
absorbed by the tariff update mechanisms.
EBIT amounted to Euro 169 million, unchanged
compared with regard to the first half 2018, thanks to
the stability of revenue and the control of operating
costs (unchanged on the first half 2018, net of
components offset in revenue). The higher costs for
CO214 emission rights to be purchased, through
certificates, on the European market of quotas to cover
the demand for the first half 2019, were absorbed by
lesser costs for services.
30 2019 Half Year Report
Technical investments
First half (€ million) 2018 2019 change % change
Type of investment
Development of new fields and upgrading of capacity 8 28 20
Maintenance and other 23 32 9 39.1
31 60 29 93.5
Technical investments of the first half 2019 totalled
Euro 60 million, up Euro 29 million (+93.5%) on the first
half 2018 (Euro 31 million), mainly following a different
distribution of investment activities between the first
and second half of 2018, against a more linear approach
taken in 2019.
The main investments made in the development of new
fields and upgrading of capacity (Euro 28 million)
regarded constructions connected with the installation
and commissioning of the new TC7 compression unit of
Minerbio (Euro 10 million) and the continuation of
drilling of wells 158 and 159 of the Cortemaggiore
plant (Euro 16 million).
Maintenance and other investment (Euro 32 million)
mainly relate to: (i) engineering, the supply of materials
and works on the Cortemaggiore plant for the
installation of fire detection and automatic
depressurisation systems (Euro 7 million); (ii) IT projects
(Euro 4 million); (iii) real estate projects (Euro 2 million).
Operating review
Gas moved through the storage system
During the first half of 2019, 11.76 billions of cubic
metres of natural gas was moved through the storage
system, a reduction of 0.95 billions of cubic metres
(7.5%) compared with the first half of 2018 (12.71
billions of cubic metres). The reduction was mainly
attributable to lower withdrawals from storage (-0.56
billions of cubic metres; -8.4%), primarily due to
weather conditions, together with lesser injections (-
0.39 billions of cubic metres; -6.5%).
Total storage capacity at 30 June 2019, including
strategic storage, was 17.0 billions of cubic metres
(16.9 billions of cubic metres at 30 June 2018; +0.1
billions of cubic metres). Total capacity includes 12.5
billions of cubic metres relative to available storage
capacity, almost entirely transferred as at 30 June 2019
(98.8%15 of the available capacity for the thermal year
2019-2020), up 0.1 billions of cubic metres on 30 June
2018, thanks to the gradual increase in working gas
associated with the commissioning of the Bordolano
plant. Total capacity also includes 4.5 billions of cubic
metres relative to strategic storage (unchanged on
thermal year 2018-2019).
15 As at the date of this Report, the available capacity transferred stood at 99.4%.
Regulation
Resolution 67/2019/R/gas - Regulation of access to storage services and their supply. Capacity allocation arrangements for the storage service for the 2019/2020 thermal year
With said resolution, published on 27 February 2019,
the Authority rationalised and integrated into a
Consolidated Act (RAST) the provisions on the access to
and supply of Storage Services. With specific reference
to the method by which regulated prices are
determined, the RAST establishes the sterilisation of
the effects deriving from the conferral of capacity with
market mechanisms at prices below tariff and incentive
criteria to maximise the offer of storage services. In
particular, the resolution calls for compensation
through the Energy and Environmental Services Fund
(CSEA) of the price difference between the storage
tariff and the auction assignment price applied to the
transferred capacity, as well as the compensation of
costs for the acquisition of transportation capacity
incurred by storage companies.
Interim directors' report - Business segments operating performance 31
Consultation no. 288/2019/R/gas - Criteria for the tariff regulation for the natural gas storage service for the fifth regulatory period (5PRS)
By this document, published on 02 July 2019, which
comes under the scope of the consultation proceedings
started by resolution no. 68/2018/R/gas of 08 February
2018, the Authority explained the approaches taken in
forming provisions on tariffs and quality of natural gas
storage services for the fifth regulatory period (starting
2020).
More specifically, the Authority proposes:
the extension of the duration of the regulatory
period from 4 to 5/6 years;
confirmation of the value of the β asset parameter
(0.506) in order to determine the rate of
remuneration (WACC);
confirmation of the revalued historic cost method
to determine the RAB and the use of the gross fixed
investments deflater recorded by ISTAT for value
adjustment;
confirmation of the recognition of flat net working
capital and the current value of 0.8%;
confirmation of the calculation of the RAB with the
exclusion of work in progress (LIC) and
acknowledgement of financing costs (IPCO);
confirmation of the useful lives of assets of the
current regulatory period, together with the
introduction of a new class of asset for tangible
fixed assets with a useful life of 5 years;
determination of operating costs recognised on the
basis of the recurring effective costs of the last year
available (2018), increased by the greater
efficiencies achieved in the current period (profit
sharing 50%), with the efficiency factor (X-factor),
sized so as to return to users in the fifth regulatory
period the greater efficiencies achieved in the
fourth period;
confirmation of the mechanism for covering
reference revenue, also establishing that the
storage companies shall ask, if they so wish, to
access an enhanced incentive system where there is
a remodulation of the share of revenue recognised
subject to cover factor;
confirmation of recognition of the restoration costs;
recognition of costs relating to the Emission Trading
System (ETS), sanctioning the principle of neutrality
of the business with respect to the price risk and
encouraging virtuous behaviour aimed at reducing
CO2 emissions.
The submission of observations is envisaged by 05
August 2019.
Resolution 297/2019/R/gas - Definitive resolution of company storage service revenue for 2019
With this resolution, published on 10 July 2019, the
Authority approved the revenue definitively recognised
for the storage service for 2019. The recognised
revenues amounted to Euro 499 million. The RAB for
storage activities was Euro 4.0 billion.
32 2019 Half Year Report
Financial review and other information
Interim directors' report – Financial review and other information 33
Financial review
INCOME STATEMENT
First half (€ million) 2018 2019 change % change
Regulated revenues 1,241 1,281 40 3.2
Non-regulated revenue 30 51 21 70.0
Total revenue 1,271 1,332 61 4.8
- Total revenue net of pass-through items 1,242 1,303 61 4.9
Operating costs (207) (221) (14) 6.8
- Operating costs net of pass-through items (178) (192) (14) 7.9
EBITDA 1,064 1,111 47 4.4
Amortisation, depreciation and impairment (335) (355) (20) 6.0
EBIT 729 756 27 3.7
Net financial expenses (98) (85) 13 (13.3)
Net income from equity investments 85 118 33 38.8
Profit before taxes 716 789 73 10.2
Income taxes (193) (208) (15) 7.8
Net profit 523 581 58 11.1
- Held by Snam’s shareholders 523 581 58 11.1
- Minority interests
Net profit in the first half of 2019 amounted to Euro 581 million, an increase
of Euro 58 million or 11.1% compared with the net profit achieved in the first
half of 2018 (Euro 523 million). The increase is mainly due to the rise in EBIT
(Euro +27 million; +3.7%), mainly due to the positive performance of the
transportation segment (Euro +38 million; +6.7%) and the improvement of
financial management and shareholders (Euro +46 million), which
respectively reflects the optimisation of the financial structure and the
positive contribution made by the companies Teréga and Senfluga. These
factors were partly absorbed by greater income taxes (Euro -15 million;
7.8%), due mainly to the rise in pre-tax profit.
34 2019 Half Year Report
Analysis of income statement items
The companies acquired in 2018, which are responsible for assets linked to the
Energy transition, are included in the segment “Corporate and other assets”. 16
Total revenue
(€ million) 2018 2019 change % change
Regulated revenues 1,241 1,281 40 3.2
Business segments
Transportation 1,019 1,061 42 4.1
Regasification 11 15 4 36.4
Storage 295 297 2 0.7
Corporate and other activities
Consolidation eliminations (84) (92) (8) 9.5
Non-regulated revenue 30 51 21 70.0
1,271 1,332 61 4.8
First half
16 In compliance with IFRS 8 “Operating segments”, the operating business segments were defined on the basis of the internal reporting used by the
Company’s management for allocating resources to the different segments and for analysing the respective performances. To this end, it is noted that the “Corporate and other activities” segment, not operating under the terms of IFRS 8, includes the new companies acquired in 2018, which head activities relating to the energy transition. An analysis of EBIT by business segment is provided in the “Business segment operating performance” section.
Total revenues for the first half of 2019 amounted to Euro 1,332 million, up
Euro 61 million or 4.8% over the first half of 2018. Net of items offset by
costs, total revenues for the first half of 2019 amounted to Euro 1,303
million, up Euro 61 million or 4.9%.
Regulated revenue (Euro 1,281 million, net of consolidation eliminations)
rose by Euro 40 million in respect to the first half 2018 (+3.2%). Regulated
revenue, net of components offset in costs, totalled Euro 1,252 million, up
Euro 40 million or 3.3% thanks to the contribution made by the
transportation segment, which benefits, in particular, from the increase in
WACC, from 5.4% in 2018 to 5.7% in 2019.
Non-regulated revenue (Euro 51 million, net of consolidation eliminations)
rose by Euro 21 million in respect to the first half 2018 (+70.0%) thanks to the
contribution made by the companies that joined the consolidation scope.
Non-regulated revenue mainly regards: (i) technical-specialised provisions to
foreign companies and energy efficiency projects (Euro 22 million); (ii) prices
for the development of biogas and biomethane plants and for the sale of
compressors for vehicles - CNG (Euro 13 million).
Interim directors' report – Financial review and other information 35
Operating costs
(€ million) 2018 2019 change % change
Business segments
Transportation 211 192 (19) (9.0)
Regasification 7 15 8
Storage 77 79 2 2.6
Corporate and other activities 108 146 38 35.2
Consolidation eliminations (196) (211) (15) 7.7
207 221 14 6.8
First half
Operating costs - Regulated and non-regulated activities
(€ million) 2018 2019 change % change
Costs of regulated activities 175 161 (14) (8.0)
Controllable fixed costs 129 124 (5) (3.9)
Variable costs 3 8 5
Other costs 14 (14) (100.0)
Cost items offset in revenue (*) 29 29
Costs of non-regulated activities 32 60 28 87.5
207 221 14 6.8
First half
(*) The main cost items offset in revenue relate to interconnection. Regulated business operating costs
The operating costs for regulated activities total Euro
161 million, a Euro 14 million reduction, equal to 8.0%
in respect to the first half 2018. Net of components
offset in revenues, operating costs from regulated
activities came to Euro 132 million, down by Euro 14
million, or 9.6%, compared with the first half of 2018
(Euro 146 million).
The change is due to the reduction in other costs (-
Euro14 million) mainly relating to lower costs for gas
used in transport activities, also following recognition
by the Authority of certain charges for gas consumption
for 2018, and to the effects of the efficiency plan
actions implemented. These factors were partly
absorbed by the costs resulting from the new activities
and business initiatives.
Non-regulated business operating costs
Operating costs of non-regulated activities (Euro 60
million) rose by Euro 28 million, or 87.5% compared to
the same period of 2018.
The increase is mainly due to the costs arising from the
entry and integration of companies entering the
consolidation area, and mainly relating to the
construction of biomethane plants and automotive
turbochargers, partly offset by lower costs for services
provided to the Italgas Group, against the closure of
the related contracts at December 31, 2018.
Net of the items offset in revenue, operating costs total
Euro 192 million, up Euro 14 million on the equivalent
value of the first half 2018 (Euro 178 million; +7.9%).
36 2019 Half Year Report
The number of employees as at 30 June 2019 (3,014 people) is analysed below by professional status:
2018 2019 change % changeProfessional status
Executives 95 103 8 8.4
Managers 461 489 28 6.1
Office workers 1,618 1,691 73 4.5
Manual workers 710 731 21 3.0
2,884 3,014 130 4.5
First half
The increase of 130 units on the first half 2018 is mainly due to the resources obtained from the acquisitions of IES
Biogas (46 resources) and the business unit Cubogas (64 resources).
Amortisation, depreciation and impairment losses
(€ million) 2018 2019 change % change
Total amortisation and depreciation 335 355 20 6.0
Business segments
Transportation 279 295 16 5.7
Regasification 2 2
Storage 50 50
Corporate and other activities 4 8 4 100.0
Impairment losses (Recovery of value)
335 355 20 6.0
First half
Amortisation, depreciation and impairment losses (Euro 355 million) rose by
Euro 20 million or 6.0% on the first half 2018, mainly due to the natural gas
transportation segment, following, essentially, the commissioning of new
assets and the new businesses that joined the consolidation scope.
EBIT
(€ million) 2018 2019 change % change
Business segments
Transportation 569 607 38 6.7
Regasification 2 2
Storage 169 169
Corporate and other activities (11) (22) (11) 100.0
729 756 27 3.7
First half
Interim directors' report – Financial review and other information 37
Net financial expenses
(€ million) 2018 2019 change % change
Financial expense related to net financial debt 102 81 (21) (20.6)
- Interest and other expense on short- and long- term financial debt 103 85 (18) (17.5)
- Bank interest income (1) (4) (3)
Other net financial expense (income) 2 8 6
- Accretion discount 5 4
- Other net financial expense (income) (3) 4 7
Losses on derivatives – ineffective portion 1 1
Financial expense capitalised (6) (5) 1 (16.7)
98 85 (13) (13.3)
First half
Net financial expense (Euro 85 million) record a Euro 13 million reduction,
equal to 13.3%, in respect to the first half 2018. The reduction is essentially
due to lower financial expense correlated to the net financial debt (Euro -21
million; -20.6%) principally connected to the lower average cost of the debt,
also thanks to benefits deriving from optimisation interventions put into
effect, in particular liability management operations and the positive market
conditions.
The financial expense capitalised in the fiscal year 2018 total Euro 5 million,
basically in line with the previous half-year (Euro -1 million).
Income from equity investments
(€ million) 2018 2019 change % change
Equity method valuation effect 83 116 33 39.8
Dividends 2 2
85 118 33 38.8
First half
The net income from equity investments (Euro 118 million) concern the net
results for the period of investments valued using the equity method (Euro
116 million), in particular the joint ventures TAG (Euro 39 million; same in the
first half 2018)), Teréga (Euro 29 million; Euro +14 million) and the associates
Italgas (Euro 23 million; Euro +3 million) and Senfluga (Euro 15 million).
The rise of Euro 33 million on the first half 2018 is mainly due to the
contribution made by the company Teréga, following the release of a
provision for tax disputes, and Senfluga, a company that on 20 December
2018 acquired control of DESFA - natural gas transportation system operator
in Greece, with an investment of 66% in the share capital.
38 2019 Half Year Report
Income taxes
(€ million) 2018 2019 change % change
Current taxes 207 223 16 7.7
(Prepaid) deferred taxes
Deferred taxes (8) (30) (22)
Prepaid taxes (6) 15 21
(14) (15)
193 208 15 7.8
Tax rate (%) 27.0 26.3 (0.7)
First half
Income tax for the first half 2019 (Euro 208 million) rose by Euro 15 million or
7.8% on the same period of the previous year, mainly due to the greater pre-
tax profit and the lesser ACE - Aid to Economic Growth benefit17.
The tax rate was 26.3% (27.0% in the first half 2018).
17
This measure, introduced by Decree Law no. 201 of 06 December 2011, converted by Italian Law no. 214 of 22 December 2011 as subsequently amended and supplemented, was abrogated by the 2019 Budget Law, starting from the tax period after that in progress as at 31 December 2018.
Interim directors' report – Financial review and other information 39
Reclassified statement of financial position
The reclassified balance sheet combines the assets and liabilities of the
compulsory format included in the Annual Report and the Half-Year Report
based on how the business operates, usually split into the three basic
functions of investment, operations and financing.
Management believes that this format presents useful additional information
for investors as it allows identification of the sources of financing (equity and
third-party funds) and the application of such funds for fixed and working
capital.
Management uses the reclassified balance sheet to calculate the key
profitability ratios (ROI and ROE).
RECLASSIFIED STATEMENT OF FINANCIAL POSITION (*)
(€ million) 31.12.2018 30.06.2019 Change
Fixed capital 18,856 19,062 206
Property, plant and equipment 16,153 16,300 147
- of which rights of use of leased assets 21 21
Compulsory inventories 363 363
Intangible assets 907 912 5
Equity investments 1,750 1,783 33
Long- term financial receivables 11 1 (10)
Net payables for investments (328) (297) 31
Net w orking capital (1,259) (1,414) (155)
Provisions for employee benefits (64) (60) 4
NET INVESTED CAPITAL 17,533 17,588 55
Shareholders' equity 5,985 6,065 80
- Held by Snam’s shareholders 5,985 6,062 77
- Minority interests 3 3
Net financial debt 11,548 11,523 (25)
- of which financial payables for leased assets 21 21
COVERAGE 17,533 17,588 55
(*) For the reconciliation of the reclassified balance sheets with the compulsory format, please see the paragraph
“Reconciliation of the reclassified financial statements with the compulsory formats” below.
Fixed capital (Euro 19,062 million) rose by Euro 206 million on 31 December
2018, mainly due to the increase in property, plant and equipment (Euro 147
million), including following the recording of assets representing the right-of-
use of leased assets, in application of the new standard IFRS 16 “Leasing”, in
force from 01 January 2019 (Euro 21 million), and the equity investments
(Euro +33 million) against the profits booked in the first half 2019, partly
absorbed by the dividends collected applicable to FY 2018. The increase in
equity investments was also impacted by the February 2019 conversion into
equity of the residual portion of the shareholders’ loan to TAP (Euro 10
million). The increase in the equity investment in TAP is therefore matched by
the related reduction in long-term financial receivables.
40 2019 Half Year Report
The change in property, plant and equipment and in intangible fixed assets
can be broken down as follows:
Property, plant Assets
(€ million) and equipment assets
Balance at 31 December 2018 16,153 907 17,060
Technical investments 371 37 408
Amortisation, depreciation and impairment losses (323) (32) (355)
Transfers, write- offs and divestments (3) (3)
Other changes 102 102
Balance at 30 June 2019 16,300 912 17,212
Total
Technical investments in the first half of 2019, totalling Euro 408 million18
(Euro 349 million in the first half of 2018), related mainly to the
transportation (Euro 340 million) and storage (Euro 60 million) business
segments.
Other changes (+Euro 102 million) relate essentially to: (i) the effects deriving
from the adjustment of the current value of outlays for the decommissioning
and restoration of sites (Euro +85 million) following a reduction in the
expected discounting rate; (ii) the recording of assets representing the rights
of use of leased goods in accordance with accounting standard IFRS 16 (Euro
+24 million); and (iii) contributions on works for interference with third
parties (Euro -10 million).
18
An analysis of the investments made by each business segment is provided in the “Business segment operating performance” section of this Report.
Equity investments
The item equity investments (1,783 million) includes: (i) the valuation of
equity investments using the net equity method and referred to Trans
Austria Gasleitung GmbH - TAG (Euro 519 million), Teréga Holding S.A.S. (Euro
488 million), Trans Adriatic Pipeline AG – TAP (Euro 252 million), Italgas S.p.A.
(Euro 177 million), Senfluga Energy Infrastructure Holdings (Euro 130
million), AS Gasinfrastruktur Beteiligung GmbH (Euro 120 million) and
Interconnector UK (Euro 59 million); (ii) measurement of the minority interest
in the company Terminale GNL Adriatico S.r.l. (Adriatic LNG) (Euro 38 million).
Interim directors' report – Financial review and other information 41
Net working capital
(€ million) 31.12.2018 30.06.2019 Change
Trade receivables 1,247 947 (300)
- of which balancing 223 128 (95)
Inventories 109 97 (12)
Other assets 105 61 (44)
Tax receivables 26 29 3
Provisions for risks and charges (665) (761) (96)
Trade payables (491) (338) 153
- of which balancing (230) (125) 105
Assets and liabilities from regulated activities (362) (121) 241
Liabilities for deferred taxes (134) (107) 27
Tax liabilities (23) (75) (52)
Derivative liabilities/(assets) (29) (62) (33)
Other liabilities (1,042) (1,084) (42)
(1,259) (1,414) (155)
Net working capital (Euro -1,414 million) reduced by Euro 155 million in
respect to 31 December 2018. The reduction is mainly due to the following
phenomena: (i) lesser credits in the natural gas transportation segment for
additional tariff components invoiced to users (-175 million) against the
suspension of the CVOs price19, application of which is suspended for the
months running from April to September; (ii) the greater liability towards
CSEA for additional tariff components relative to the transportation service
(Euro -120 million) reabsorbed during the year and greater amounts invoiced
during the first half 2019 with respect to the restriction specified by the
Regulatory authority (Euro -22 million); (iii) the increase in the provisions for
risks and charges (Euro -96 million) mainly due to the adjustment of the
current value of decommissioning and site restoration costs following a
reduction in the forecast discounting rates; and (iv) the increase in tax
liabilities (Euro -52 million), mainly as a result of the trend of tax deposits paid
in respect of the period tax burden.
These factors were partly offset by the reduction of the amount payable to
Snam shareholders against the payment made on 23 January 2019 of the
2018 interim dividend of Euro 0.0905 per share (Euro +298 million) and the
lesser net liabilities for gas settlement of the transportation segment (Euro
+23 million), introduced by the Regulatory authority with resolutions
670/2017/R/gas and 782/2017/R/gas against the gradual redistribution to
the system of the items collected20.
19 The variable unitary price CVOS expressed in euro/SCM is an increase of the variable price aimed at covering the costs deriving from the application of
the revenue guarantee factor for the storage service, pursuant to Art. 10 bis of Resolution no. 29/2011 and expenses incurred by the Energy Service Provider for the disbursement of measures pursuant to Articles 9 and 10 of Italian Legislative Decree no. 130/10.
20 By this resolution, the Authority approved the provisions on gas settlement for the determination of physical and economic items of adjustment for the
previous period (years 2013-2017). The regulation also envisages that any imbalance in items receivable and payable from and to users, shall be regulated by the CSEA in order to guarantee the neutrality of Snam Rete Gas as major transport company.
42 2019 Half Year Report
Statement of comprehensive income
(€ million) 2018 2019
Net profit (*) 523 581
Other components of comprehensive income
Components that can be reclassified to the income statement:
Change in fair value of cash flow hedging derivatives (effective share) (10) (52)
Portion of equity investments valued using the equity method pertaining to “other components of
comprehensive income” (**) (22)
Tax effect 2 12
(8) (62)
Total other components of comprehensive income, net of tax effect (8) (62)
Total comprehensive income 515 519
- Held by Snam’s shareholders 515 519
- Minority interests
515 519
First half
(*) Entirely held by Snam shareholders
(**) The figure relating to the first half 2019 mainly refers to the change in the fair value of derivative financial instruments
hedging equity investments in associates.
Shareholders' equity(€ million)
Shareholders’ equity at 31 December 2018 (*) 5,985
Increases owing to:
- Comprehensive income for first half 2019 519
- Other changes 9
528
Decreases owing to:
- 2018 dividend balance (448)
(448)
Shareholders’ equity at 30 June 2019 6,065
- Held by Snam’s shareholders 6,062
- Minority interests 3
(*) Entirely held by Snam shareholders
Note 18 "Shareholders’ Equity" of the Notes to the condensed interim
consolidated financial statements gives information about the individual
equity items and changes therein compared with 31 December 2018.
As at 30 June 2019, Snam held 94,000,000 treasury shares (168,197,663 as at
31 December 2018), equal to 2.77% of its share capital, with a total book
value of Euro 349 million. The market value of the treasury shares at 30 June
2019 was around Euro 413 million21. For further information about treasury
shares, please refer to the next section entitled “Other information - Treasury
shares”.
21 Calculated by multiplying the number of treasury shares by the period-end official price of Euro 4.3884 per share.
Interim directors' report – Financial review and other information 43
Net financial debt(€ million) 31.12.2018 30.06.2019 Change
Financial and bond debt 13,420 14,020 600
Short- term financial debt (*) 3,633 4,200 567
Long- term financial payables 9,787 9,799 12
Financial payables for leased assets (**) 21 21
Financial receivables and cash and cash equivalents (1,872) (2,497) (625)
Cash and cash equivalents (1,872) (2,497) (625)
11,548 11,523 (25)
(*) Includes the short- term portion of long- term financial payables.
(**) Of which Euro 15 million long- term and Euro 6 million short- term portions of long- term financial payables.
The positive net cash flow from operating activities (Euro 1,221 million)
allowed us to fully cover the financial requirements associated with net
investments for the period (Euro 427 million) and to generate a free cash
flow of Euro 794 million. Net financial debt, after equity cash flow (Euro 743
million) deriving essentially from the payment to the shareholders of the
2018 dividend (Euro 746 million, of which Euro 298 million by way of deposit
and Euro 448 million as balance) records a reduction of Euro 25 million on 31
December 2018, despite the increase generated by non-monetary
components related to financial indebtedness (Euro 26 million), mainly
referring to financial payables recorded in application of IFRS 16 “Leasing”.
Financial and bond debts at 30 June 2019 equal to Euro 14,020 million (Euro
13,420 million at 31 December 2018) comprise the following:
Total at Total at
(€ million) 31.12.2018 30.06.2019 Change
Bonds 8,446 8,435 (11)
- of which short-term (*) 913 1,028 115
Bank loans 4,749 4,133 (616)
- of which short-term (*) 2,495 3,172 677
Euro Commercial Paper - ECP (**) 225 1,431 1,206
Financial payables for leased assets 21 21
13,420 14,020 600
(*) Includes the short- term portion of long- term financial payables.
(**) Entirely short- term.
Financial and bond debts are denominated in euros and refer mainly to bond
loans (Euro 8,435 million, or 60.2%) and bank loans (Euro 4,133 million, or
29.5%, including Euro 1,589 million provided by the European Investment
Bank- EIB) and Euro Commercial Papers (Euro 1,431 million, 10.2%)22.
Bonds (Euro 8,435 million) declined by Euro 11 million compared with 31
December 2018, specifically: (i) the reimbursement of a fixed-rate bond
maturing on 18 January 2019 of a nominal value of Euro 519 million; (ii) the
reimbursement of a fixed-rate bond maturing on 24 April 2019 worth a
nominal Euro 225 million; and (iii) the trend of interest accruals (Euro -19
million). These changes were offset by the issue of: (i) the Climate Action
Bond, worth a nominal Euro 500 million, at fixed rate and maturing on 28
22
At the date of this Report, the Euro Commercial Paper programme had been used for the entire amount of 2 billion euro.
44 2019 Half Year Report
August 2025; (ii) a Private Placement worth a nominal Euro 250 million, at
fixed rate and maturing on 07 January 2030.
Bank loans (Euro 4,133 million) decreased by Euro 616 million mainly
following the reimbursement of a Term Loan for a nominal value of Euro 500
million, and a lesser net use of uncommitted lines of credit (Euro -258 million).
This effect was partially offset by the stipulation with the EIB of: (i) a loan on
28 January 2019 for projects promoted by Snam Rete Gas and Stogit, worth a
nominal Euro 135 million, at fixed rate and to be repaid through an
amortisation plan ending in 2038; (ii) a loan, on 6 June 2019, in support of
investments promoted by the subsidiary Snam4Mobility, for the development
of CNG and l-CNG refuelling stations for a nominal Euro 25 million, at fixed
rate, to be repaid through an amortisation plan ending in 2031.
The Euro Commercial Papers (Euro 1,431 million) regard unsecured short-
term securities issued on the money market and placed with institutional
investors; they rise by Euro 1,206 million.
Cash and cash equivalents (Euro 2,497 million) refer mainly to a short-term
use of liquid funds, maturing within three months, with the counterparty
being a bank of high credit standing (Euro 750 million), an on-call bank deposit
(Euro 1,700 million) and cash held at the company Gasrule Insurance DAC
(Euro 22 million) and Snam International B.V. (Euro 16 million).
At 30 June 2019, Snam had unused committed long-term lines of credit worth
Euro 3.2 billion.
Information on financial covenants can be found in Note 13 “Short-term
financial liabilities, long-term financial liabilities and short-term portions of
long-term liabilities” of the Notes to the condensed interim consolidated
financial statements.
Interim directors' report – Financial review and other information 45
Reclassified statement of cash flows
The reclassified statement of cash flows below summarises the legally required financial reporting format. The
reclassified statement of cash flows shows the connection between opening and closing cash and cash equivalents and
the change in net financial debt during the period. The two statements are reconciled through the free cash flow, i.e. the
cash surplus or deficit left over after servicing capital expenditure. The free cash flow closes either: (i) with the change in
cash for the period, after adding/deducting all cash flows related to financial liabilities/assets (taking out/repaying
financial receivables/payables) and equity (payment of dividends/capital injections); or (ii) with the change in net financial
debt for the period, after adding/deducting the debt flows related to equity (payment of dividends/capital injections).
RECLASSIFIED STATEMENT OF CASH FLOWS (*)
(€ million) 2018 2019
Net profit 523 581
Adjusted for:
- Amortisation, depreciation and other non-monetary components 254 237
- Net capital losses (capital gains) on asset sales and write-offs 5 3
- Dividends, interest and income taxes 277 279
Change in working capital due to operating activities 443 285
Dividends, interest and income taxes collected (paid) (a) 23 (164)
Net cash flow from operating activities 1,525 1,221
Technical investments (340) (402)
Technical disinvestments 2
Companies (entering) leaving the area of consolidation (13)
Equity investments 13 6
Change in long-term financial receivables (106)
Other changes relating to investment activities (44) (31)
Free cash flow 1,037 794
Change in short-term financial receivables 350 577
Repayment of financial payables for leased assets (3)
Change in short- and long-term financial payables 151
Equity cash flow (b) (914) (743)
Net cash flow for the period 624 625
First half
46 2019 Half Year Report
CHANGE IN NET FINANCIAL DEBT
(€ million) 2018 2019
Free cash flow 1,037 794
Effect of first- time adoption of IFRS 9 10
Financial payables and receivables from companies entering the area of consolidation (1)
Exchange rate differences on financial debt (3) (2)
Change in financial payables for leased assets (24)
Equity cash flow (b) (914) (743)
Change in net financial debt 129 25
First half
(*) For the reconciliation of the reclassified balance sheets with the compulsory format, please see the paragraph
“Reconciliation of the reclassified financial statements with the compulsory formats” below.
(a) Cash flow relative to the first half of 2018 considers different timing for the payment of the 2017 balance and first
deposit for 2018 on income tax (IRES and IRAP) liquidated on 02 July 2018 for a total amount of approximately Euro 142
million.
(b) Includes cash flow and payment to shareholders of the dividend.
Interim directors' report – Financial review and other information 47
Reconciliation of the reclassified financial statements with the compulsory formats
Reclassified statement of financial position(€ million)
Item of reclassified statement of financial position(Where not expressly stated, the component is taken directly from the legally required format)
Reference to notes to
consolidated financial
statements
Partial amount from legally
required format
Amount from reclassified
format
Partial amount from
legally required format
Amount from reclassified
format
Fixed capital
Property, plant and equipment 16,153 16,300
Compulsory inventories 363 363
Intangible fixed assets 907 912
Equity investments comprising: 1,750 1,783
- Equity investments measured using the equity method 1,710 1,745
- Other equity investments 40 38
Long-term financial receivables (Note 5) 11 1
Net payables for investments, consisting of: (328) (297)
- Payables for investment activities (Note 14) (337) (304)
- Receivables from investment/divestment activities (Note 5) 9 7
Total fixed capital 18,856 19,062
Net working capital
Trade receivables (Note 5) 1,247 947
Inventories 109 97
Tax receivables, consisting of: 26 29
- Current income tax assets and other current tax assets 17 20
- IRES receivables for national tax consolidation scheme (Note 5) 9 9
Trade payables (Note 14) (491) (338)
Tax payables, consisting of: (23) (75)
- Current income tax liabilities and other current tax liabilities (23) (75)
Deferred tax liabilities (134) (107)
Provisions for risks and charges (665) (761)
Derivative hedging instruments (Notes 8 and 15) (29) (62)
Other assets, consisting of: 105 61
- Other receivables (Note 5) 72 27
- Other current and non-current assets (Note 8) 33 34
Assets and liabilities from regulated activities, consisting of: (362) (121)
- Regulated assets (Note 8) 26 10
- Regulated liabilities (Note 15) (388) (131)
Other liabilities, consisting of: (1,042) (1,084)
- Other payables (Note 14) (940) (980)
- Other current and non-current liabilities (Note 15) (102) (104)
Total net working capital (1,259) (1,414)Provisions for employee benefits (64) (60)NET INVESTED CAPITAL 17,533 17,588
31.12.2018 30.06.2019
48 2019 Half Year Report
(€ million)
Items of the reclassified statement of financial position
(Where not expressly stated, the component is taken directly from
the legally required format)
Reference to
notes to
consolidated
financial
statements
Partial
amount from
legally
required
format
Amount from
reclassified
format
Partial
amount from
legally
required
format
Amount from
reclassified
format
NET INVESTED CAPITAL 17,533 17,588
Shareholders’ equity (entirely held by Snam’s shareholders) 5,985 6,062
Minority interests 3
Net financial debt
Financial liabilities, consisting of: 13,420 14,020
- Long- term financial liabilities 9,787 9,814
- Short- term portion of long- term financial liabilities 1,657 1,281
- Short- term financial liabilities 1,976 2,925
Financial receivables and cash and cash equivalents, consisting of: (1,872) (2,497)
- Short- term financial receivables
- Cash and cash equivalents (Note 4) (1,872) (2,497)
Total net financial debt 11,548 11,523
COVERAGE 17,533 17,588
31.12.2018 30.06.2019
Interim directors' report – Financial review and other information 49
Reclassified statement of cash flows
(€ million)
Items from the reclassified statement of cash flows and reconciliation with the legally required format
Partial amount from legally
required format
Amount from reclassified
format
Partial amount from legally
required format
Amount from reclassified
format
Net profit 523 581
Adjusted for:
Amortisation, depreciation and other non-monetary components: 254 237
- Amortisation and depreciation 335 355
- Equity method valuation effect (83) (116)
- Change in provisions for employee benefits 2 (4)
- Other changes 2
Net capital losses (capital gains) on asset sales and write-offs 5 3
Dividend, interest and income taxes: 277 279
- Dividends (2) (2)
- Interest income (6) (4)
- Interest expense 92 77
- Income taxes 193 208
Change in working capital due to operating activities: 443 285
- Inventories (2) 14
- Trade receivables 289 300
- Trade payables 189 (153)
- Change in provisions for risks and charges 8
- Other assets and liabilities (33) 116
Dividends, interest and income taxes collected (paid): 23 (164)
- Dividends collected 114 71
- Interest collected 1 4
- Interest paid (92) (72)
- Income taxes (paid) received (167)
Net cash flow from operating activities 1,525 1,221
Investments: (340) (402)
Property, plant and equipment (312) (365)
- Intangible fixed assets (28) (37)
Technical disinvestments: 2 0
Property, plant and equipment 2
Companies (entering) leaving the area of consolidation (13) 0
- Companies entering the scope of consolidation (18)
- Change in net payables relating to investments 5
Equity investments 13 6
- Investments in shares (13) (5)
- Disinvestments in shares 18 11
- Change in net payables relating to investments 8
Long-term financial receivables (106) 0
- Stipulation of long-term financial receivables (106)
Other changes relating to investment activities: (44) (31)
- Change in net payables relating to technical investments (44) (31)
Free cash flow 1,037 794
First half
20192018
50 2019 Half Year Report
(€ million)
Items from the reclassified statement of cash flows and
reconciliation w ith the legally required format
Partial amount
from legally
required format
Amount from
reclassified format
Partial
amount from
legally
Amount from
reclassified
format
Free cash flow 1,037 794
Change in short- term financial receivables 350
Change in financial payables: 151 574
- Taking on long- term financial debt 431 968
- Repaying long- term financial debt (973) (1,340)
- Increase (decrease) in short- term financial debt 693 949
- Repayment of financial payables for leased assets (3)
Equity cash flow (914) (743)
- Dividends paid (731) (746)
- Acquisition of treasury shares (183)
- Capital contributions by minority interests 3
Net cash flow for the period 624 625
First half
2018 2019
Other information Relationships with related parties
Considering the de facto control of CDP S.p.A. over
Snam S.p.A., pursuant to the international accounting
standard IFRS 10 - Consolidated Financial Statements,
based on the current Group ownership structure the
related parties of Snam are represented by Snam's
associates and joint ventures as well as by the parent
company CDP S.p.A. and its subsidiaries, associates and
companies under joint control (whether directly or
indirectly) by the Ministry of Economy and Finance.
Members of the Board of Directors, Statutory Auditors
and managers with strategic responsibilities, and their
relatives, are also regarded as related parties of Snam
Group and CDP. Snam's related-party transactions are
part of ordinary business operations and are generally
settled under market conditions, i.e. the conditions that
would be applied between two independent parties.
The main operations with these parties involve the
exchange of goods and the provision of regulated
services in the gas sector. All the transactions carried
out were in the interest of the companies of the Snam
Group.
Pursuant to the provisions of the relevant legislation,
the company has adopted internal procedures to
ensure that transactions carried out by Snam or its
subsidiaries with related parties are transparent and
correct in their substance and procedure.
Directors and auditors declare their interests affecting
the Company and the Group every six months, and/or
when changes in said interests occur; they also inform
the Chief Executive Officer (or the Chairman, in the
case of the Chief Executive Officer), who in turns
informs the other directors and the Board of Statutory
Auditors, of individual transactions that the Company
intends to carry out and in which they have an interest.
No management or coordination activity of CDP S.p.A.
has been formalised or exercised. Snam manages and
coordinates its subsidiaries, pursuant to Article 2497 et
seq. of the Italian Civil Code.
The amounts involved in commercial, miscellaneous and
financial relations with related parties, descriptions of
the key transactions and the impact of these on the
balance sheet, economic results and cash flows, are
provided in Note 28 “Related-party transactions” of the
Notes to the condensed interim consolidated financial
statements.
Interim directors' report – Financial review and other information 51
Treasury shares
Per
iod
No
of
shar
es
Ave
rag
e co
st (
€)(*
)
To
tal
cost
(€
mil
lio
ns)
Shar
e ca
pit
al (
%)
(**)
Repurchases
Year 2005 800,000 4.399 3 0.04
Year 2006 121,731,297 3.738 455 6.22
Year 2007 73,006,653 4.607 336 3.73
Year 2016 28,777,930 3.583 103 0.82
Year 2017 56,010,436 3.748 210 1.60
Year 2018 113,881,762 3.743 426 3.28
394,208,078 3.889 1,533
Less treasury shares granted/sold/cancelled:
. granted under the 2005 stock grant plans (39,100)
. sold under the 2005 stock option plans (69,000)
. sold under the 2006 stock option plans (1,872,050)
. sold under the 2007 stock option plans (1,366,850)
. sold under the 2008 stock option plans (1,514,000)
cancelled in 2012 following the resolution by the Extraordinary Shareholders’ Meeting of Snam S.p.A. (189,549,700)
. cancelled in first half 2018 following the resolution by the Extraordinary Shareholders’ Meeting of Snam S.p.A. (31,599,715)
. cancelled in first half 2019 following the resolution by the Extraordinary Shareholders’ Meeting of Snam S.p.A. (74,197,663)
Treasury shares held by the Company at 30 June 2019 94,000,000
The Snam Shareholders' Meeting of 02 April 2019 approved, after revoking said programme resolved previously, the
new 18-month share buyback programme to run from the date of the meeting resolution23. Under the scope of the
share buyback programme, during the first half 2019, no treasury shares were acquired.
The same Shareholder’s Meeting held on 02 April 2019 also approved the cancellation of 74,197,663 treasury shares
with no nominal value with no reduction in the share capital, and the resulting amendment of art. 5.1 of the Articles of
Association.
As at 30 June 2019, Snam therefore held 94,000,000 treasury shares, equal to 2.77% of the share capital (168,197,663 as
at 31 December 2018, equal to 4.85% of its share capital), with a book value of Euro 350 million (Euro 625 million as at
31 December 2018) recorded on shareholders’ equity. The market value of the treasury shares at 30 June 2019 was
around Euro 413 million24. The share capital as at 30 June 2019 consisted of 3,394,840,916 shares with no nominal value, with a total value of Euro
2,736 million.
23 For further information, refer to the chapter “Summary data and information - Main events" of this Report. 24 Calculated by multiplying the number of treasury shares by the period-end official price of Euro 4.3884 per share.
(*) Calculated on the basis of historic prices.
(**) Refers to the share capital in existence at the date of the last purchase of the
52 2019 Half Year Report
Elements of risk and uncertainty
Interim directors' report - Elements of risk and uncertainty 53
Introduction This chapter presents the main elements of uncertainty characterising Snam’s core business.
The risks identified by Snam are divided up into financial and non-financial risks. The latter are then further classified as
follows:
strategic
legal and non-compliance
operating
Financial risks are described in Note 19, “Guarantees, commitments and risks – financial risk management”, of the Notes
to the condensed interim consolidated financial statements.
STRATEGIC RISKS
Regulatory and legislative risk
Regulatory risk and legislative risk for Snam is closely
linked to the regulation of activities in the gas sector.
The decisions made by the Autorità di Regolazione per
Energia Reti e Ambiente (ARERA) and National
Regulatory Authority in the countries in which the
foreign affiliates operate, the directives and regulatory
provisions issued on the matter by the European Union
and the Italian Government and, more generally, a
change to the reference regulatory framework, may
significant impact the Company’s operations, economic
results and financial balance. It is not possible to
foresee the effect that future changes in legislative and
fiscal policies could have on Snam's business and on the
industrial sector in which it operates. Considering the
specific nature of its business and the context in which
Snam operates, changes to the regulatory context with
regard to criteria for determining reference tariffs are
particularly significant.
Macroeconomic and geo-political risk
Because of the specific nature of the business in which
Snam operates, there are also risks associated with
political, social and economic instability in natural gas
supplier countries, mainly related to the gas
transportation segment. A large part of the natural gas
transported in the Italian national transport network is
imported from or passes through countries included in
the MENA area (Middle East and North Africa, in
particular Algeria, Tunisia, Libya and, in TANAP-TAP
perspective, Turkey together with States bordering the
Eastern Mediterranean) and in the former Soviet bloc
(Russian Federation, Ukraine, and in the future,
Azerbaijan and Georgia), national situations which are
subject to political, social and economic instability and
which could constitute potential future crisis scenarios.
In particular, the importation and transit of natural gas
from/through these countries are subject to a wide
range of risks, including: terrorism and common crime,
alteration of the political-institutional balance; armed
conflicts, socio-economic and ethno-sectarian tensions;
unrest and disturbances; deficient legislation on
insolvency and protection of creditors; limits on
investment and on the import and export of goods and
services; introduction of and increases in taxes and
excise duties; forced imposition of contract
renegotiations; nationalisation of assets; changes in
trade policies and monetary restrictions.
If a Shipper using the transportation service via Snam’s
networks cannot procure or transport natural gas
from/through the aforementioned countries because
of said adverse conditions, or in any way suffers from
said adverse conditions, or to an extent so as to make it
impossible or discourage the fulfilment of contractual
obligations towards Snam, this could have negative
effects on the Snam Group’s operations, results,
balance sheet and cash flow.
Commodity risk associated with changes in the price of gas
With reference to the risk associated with changes in
the price of natural gas, however, pursuant to the
regulatory framework currently in force, changes in the
price of natural gas to cover self-consumption and
network leakages do not represent a significant risk
factor for Snam, since all gas for its core activities is
provided by Shippers in kind. Similar hedges of risks are
guaranteed by the regulations of countries where the
foreign affiliates operate or by the related
transportation contracts. However, in relation to
transportation activities, the Authority has defined,
starting with the third regulatory period (2010-2013),
procedures for payment in kind, by service users to the
leading transportation company, of quantities of gas to
54 2019 Half Year Report
cover unaccounted-for gas (GNC), due as a percentage
of the quantities respectively injected into and
withdrawn from the transportation network.
Specifically, the Authority, by means of Resolution
514/2013/R/gas, defined the permitted level of the
GNC given the average value registered over the last
two years, and decided to keep this amount fixed for
the entire regulatory period in order to provide
incentive to the main transport system operator to
deliver further efficiency improvements. For the
relevant regulatory period, amounts of GNC higher
than the permitted level would not be compensated.
This criterion also was subsequently confirmed for the
years 2018 and 2019 of the transition tariff period.
As part of the process of reviewing the criteria for
determining the revenues recognised for the natural
gas transportation and metering service for the fifth
regulatory period (2020-2023), criteria will also be
defined for the recognition of GNC, by resolution no.
114/2019/R/gas25. On the basis of these criteria,
starting 2020, acknowledgement of the quantities of
gas required for self-consumption, network losses and
GNC will take place in monetary terms in lieu of the
recognition in kind by shippers. However, the change in
natural gas prices will continue not to be a significant
risk factor for Snam, as a mechanism will be envisaged
to hedge the risk associated with the differences
between the price recognised for the volumes of gas
required for self-consumption, network losses and GNC
and the effective price of procurement. With reference
to the quantities recognised, resolution
114/2019/R/gas confirmed the current criterion relative
to gas for self-consumption and losses, whilst for GNC,
the level admitted will be updated once a year and will
equal the average of the quantities effectively recorded
in the last four years available.
In view of the aforementioned mechanism for the
payment of GNC, at the moment, there is still
uncertainty about the quantities of GNC withdrawn
over and above the quantities recognised.
In this regard, it should be noted that, as part of the
dialogue established with ARERA, in 2019 ARERA
acknowledged the higher costs incurred in 2018.In
general, the change in the regulatory framework on the
recognition of quantities of natural gas to cover self-
consumption, network losses and GNC could have
negative effects on the Snam Group’s operations,
results, balance sheet and cash flow.
25 These criteria are explained in the chapter “Business segment operating performance - “Natural gas transportation” of this Report. 26
These criteria are explained in the chapter “Business segment operating performance - “Natural gas storage” of this Report.
Market risk
With reference to the risk associated with demand for
gas, based on the tariff system currently applied by the
Authority to natural gas transportation activities,
Snam’s revenue, via the directly controlled transport
companies, is partly correlated to volumes transported.
ARERA, however, introduced a guarantee mechanism
with respect to the share of revenues related to the
volumes transported. This mechanism provides for the
reconciliation of major or minor revenues, exceeding ±
4% of the reference revenues related to the volumes
transported. Under this mechanism, approximately
99.5% of total revenues from transportation activities
are guaranteed. This mechanism has also been
confirmed for the fifth regulatory period, by resolution
114/2019/R/gas.
Based on the tariff system currently applied by the
Authority to natural gas storage activities, Snam’s
revenue, via Stogit, correlates to infrastructure usage.
However, the Authority has introduced a mechanism to
guarantee reference revenue that allows companies to
cover a significant portion of revenues recorded. For
2018 and 2019, the minimum guaranteed level of
revenues recorded was approximately 97%. ARERA is
reviewing an integration of such mechanisms which, for
subsequent years, will result in reliance on the
guaranteed minimum level of revenue, as well as the
storage company’s efficiency in terms of managing
capacity allocation procedures and service provision
procedures, following a procedure launched by ARERA.
More specifically, by consultation document no.
288/2019/R/gas relative to the review of criteria used
to determine the recognised revenue, tariffs and
quality for the natural gas storage service for the fifth
regulatory period26 (starting 2020), the ARERA has
proposed confirming the mechanism of coverage of
reference revenue and its possible remodulation
according to the strengthening of the incentive system.
The resolution to approve the new regulatory criteria is
expected for the last quarter of 2019.
In general, the change to the regulatory framework in
force could have negative effects on the Snam Group’s
operations, results, balance sheet and cash flow.
Abroad, market risk protection is afforded by French
and Greek regulation, long-term Tap contracts and
Austria (different scheduling for TAG and Gas Connect
as from 2023). In Austria and the United Kingdom (in
Interim directors' report - Elements of risk and uncertainty 55
relation to Interconnector UK), the regulation does not
guarantee cover of the volume risk.
Risk of climate change
Compliance with greenhouse gas regulations in the
future may require Snam to adjust its facilities, and to
control or limit its greenhouse gas emissions or
undertake other actions that could increase the costs of
complying with applicable law, and therefore have
negative effects on the Snam Group’s operations,
results, balance sheet and cash flow.
The risks associated with the emissions market fall
within the scope of the European Union Directives on
the sale of permits relating to carbon dioxide emissions
and the rules on controlling emissions of certain
atmospheric pollutants. With the start of the third
period of the European Emissions Trading System (EU -
ETS) and of regulation (2013-2020), the updating of the
sector regulations has had as its main objective the
authorisations for emitting greenhouse gases and a
constant reduction of the quotas on emissions released
free of charge. The allowances will be assigned to each
plant on a gradually decreasing basis, and will no longer
be constant, and will also depend on the actual
functionality of the plants. The allowances assigned
free of charge to Group plants no longer suffice to
comply with the regulatory conformity obligations
relative to ETS mechanisms, hence Snam will procure
the additional allowances required on the market. The
additional evolution in progress of European
regulations may result in the identification of new
methods by which to manage the necessary allowances.
By resolution 114/209/R/gas of 28 March 2019, the
ARERA defined the regulatory criteria for the fifth
regulatory period (2020-23) of the natural gas
transportation and metering service. In particular, this
resolution envisages the recognition of costs relating to
the Emissions Trading System (ETS). Additionally, by
consultation document no. 288/2019/R/gas relative to
the review of criteria used to determine the recognised
revenue, tariffs and quality for the natural gas storage
service for the fifth regulatory period (starting 2020),
the ARERA has proposed recognising the costs relative
to the Emission Trading System (ETS) for the storage
service too. The resolution to approve the new
regulatory criteria is expected for the last quarter of
2019.
Climate change scenarios could lead to a change in
population behaviour and could have an impact on
natural gas demand and transport volumes, just as they
could affect the development of alternative uses of gas
and the promotion of new business.
Climate change could also increase the severity of
extreme weather events (floods, droughts, extreme
temperature fluctuations) causing worsening of the
natural and hydrogeological conditions of the territory
with a possible impact both on the quality and
continuity of the service provided by Snam, and on the
demand for Italian and European gas. With reference to
the effects of the change in the gas demand on the
balance sheet, income statement and financial position
of the Snam Group, see the previous paragraph "Market
risk".
In relation to the new global climate agreements
(COP21 in Paris 2015, COP22 in Marrakesh in 2017),
aimed at encouraging the transition towards a more
sustainable economy that favours zero emission energy
sources, it may envisage regulatory and legislative risk
related to the possible implementation of increasingly
stringent regulations at European and national level.
Matters connected with climate change may also
heighten the awareness of public opinion and the
various stakeholders, altering the perception of Snam
with possible impacts on Group results and investor
behaviour.
LEGAL AND NON-COMPLIANCE RISK
Legal and non-compliance risk concerns the failure to
comply, in full or in part, with the European, national,
regional and local rules and regulations with which
Snam must comply in relation to the activities it carries
out. The violation of the rules and regulations may
result in criminal, civil, tax and/or administrative
sanctions, as well as damage to Snam’s balance sheet,
financial position and/or reputation. With reference to
specific cases, inter alia, violation of the regulations
protecting the health and safety of workers and the
environment, and violation of the rules established for
the fight against corruption, may also lead to sanctions,
even substantial, against the company based on the
administrative liability of the entities (Legislative
Decree no. 231 of 08 June 2001). With regard to the
Risk of Fraud and Corruption, Snam believes it is of vital
importance to ensure a climate of fairness and
transparency in corporate operations and repudiates
corruption in all its forms in the widest context of its
commitment to abiding by ethical principles. Snam's
top management is strongly committed to pursuing an
anti-corruption policy, trying to identify possible areas
56 2019 Half Year Report
of vulnerability and eliminating them, strengthening its
controls and constantly working to increase employees'
awareness of how to identify and prevent corruption in
various business situations.
Reputational verification and acceptance and
stipulation of the Integrity Ethical Pact are the pillars of
the system of controls aimed at preventing the risks
associated with illegal behaviour and criminal
infiltrations concerning our suppliers and
subcontractors, with the aim of ensuring transparent
relations and professional morality requirements in the
whole chain of enterprises and for the whole duration
of the relationship.
Snam has been working since 2014 in partnership with
Transparency International Italia and joined the
Business Integrity Forum (BIF) and, in 2016, became the
first Italian company to join the "Global Corporate
Supporter Partnership".
As part of this collaboration, in October 2018, Snam
renewed its partnership with Transparency
International, the Secretary General of Berlin, during
the eighteenth International Anti-Corruption
Conference of Transparency International held in
Copenhagen. On this occasion, Snam took part in a
restricted round table that saw, for the first time, the
participation of 4 private companies too, including
Snam as the only Italian representative.
In 2018, in collaboration with Transparency
International Italy and the OECD, Snam also took part in
a series of events on transparency International and
integrity as well as best practices in good governance
and the prevention of corruption on a global level, such
as the 27th Session of the Commission on Crime
Prevention and Criminal Justice of the United Nations”,
organised by MAECI at the United Nations office of
Vienna and the seminars organised by the OECD in St
Petersburg and Moscow, intervening in matters of
integrity and the fight against corruption.
Additionally, following the 2018 International Anti-
Corruption Day held in Farnesina, Snam was asked by
the Ministry of Foreign Affairs and International
Cooperation to take part in the assessment and review
of the first draft of the G20 High-Level Principles, on
the prevention of corruption and promotion of
integrity in public companies or SOEs, draft circulated
27 The Stogit concessions issued before the coming into force of Italian Legislative Decree no. 164/2000 can be extended by the Ministry of Economic
Development up to twice for a term of ten years each time, in accordance with Art. 1, paragraph 61 of Italian Law no. 239/2004. Pursuant to Article 34, paragraph 18 of Italian Decree Law no. 179/2012, converted by Italian Law no. 221/2012, the duration of the only Stogit concession issued after the coming into force of Italian Legislative Decree no. 164/2000 (Bordolano) is thirty years with the possibility of an extension for another ten years.
by the Argentinian presidency and which should be
finalised in 2019, during Japan’s term.
Finally, thanks to the commitment shown on the matter
of “Ethics and Anti-corruption”, Snam has recently also
been mentioned in the document prepared by the
Japanese Presidency of the B20 and presented during
the “Tokyo Summit” as a “Tangible Example” of a
company that, with concrete action, has stood out in
the fight against corruption.
OPERATING RISKS
Ownership of storage concessions
The risk linked to maintenance of the ownership of the
storage concessions is attributable by Snam to the
business in which the subsidiary Stogit operates on the
basis of concessions issued by the Ministry of Economic
Development. Eight of the ten concessions (Alfonsine,
Brugherio, Cortemaggiore, Minerbio, Ripalta,
Sabbioncello, Sergnano and Settala) expired on 31
December 2016 and can be renewed no more than
twice for a duration of ten years each time. With regard
to these concessions, Stogit submitted – within the
statutory terms -– the extension request to the Ministry
of Economic Development and the proceedings are
currently pending before the Ministry. Pending said
proceedings the Company’s activities, as provided for
by the reference regulations, will continue until the
completion of the authorisation procedures in progress
envisaged by the original authorisation, which will be
extended automatically on expiry until said completion.
One concession (Fiume Treste) will expire in June 2022
and has already been renewed for the first ten-year
extension period in 2011, and another concession
(Bordolano) will expire in November 2031 and can be
extended for a further ten years27.
If Snam is unable to retain ownership of one or more of
its concessions or if, at the time of the renewal, the
concessions are awarded under terms less favourable
than the current ones, there may be negative effects on
the Company’s operations, results, balance sheet and
cash flow.
Malfunction and unexpected service interruption
Operating risks consist mainly of the malfunctioning
and unforeseen interruption of the service determined
by accidental events, including accidents, breakdowns
Interim directors' report - Elements of risk and uncertainty 57
or malfunctions of equipment or control systems,
reduced output of plants, and extraordinary events
such as explosions, fires, earthquakes, landslides or
other similar events outside of Snam’s control. Such
events could result in a reduction in revenue and could
also cause significant damage to people, with potential
compensation obligations. Although Snam has taken
out specific insurance policies to cover some of these
risks, the related insurance cover could be insufficient
to meet all the losses incurred, compensation
obligations or cost increases.
Delays in the progress of infrastructure implementation programs
There is also the concrete possibility that Snam could
incur delays in the progress of infrastructure
construction programmes as a result of several
unknowns linked to operating, economic, regulatory,
authorisation and competition factors, regardless of its
intentions. Snam is therefore unable to guarantee that
the projects to upgrade and extend its network will be
started, be completed or lead to the expected benefits
in terms of tariffs. Additionally, the development
projects may require greater investments or longer
time frames than those originally planned, affecting
Snam’s financial position and economic results.
Investment projects may be stopped or delayed due to
difficulties in obtaining environmental and/or
administrative authorisations or to opposition from
political forces or other organisations, or may be
influenced by changes in the price of equipment,
materials and workforce, by changes in the political or
regulatory framework during construction, or by the
inability to obtain financing at an acceptable interest
rate. Such delays could have negative effects on the
Snam Group’s operations, results, balance sheet and
cash flow. In addition, changes in the prices of goods,
equipment, materials and workforce could have an
impact on Snam’s financial results.
Environmental risks
Snam and the sites in which it operates are subject to
laws and regulations relating to pollution,
environmental protection, and the use and disposal of
hazardous substances and waste. These laws and
regulations expose Snam to potential costs and
liabilities related to the operation and its assets. The
costs of possible environmental remediation
obligations are subject to uncertainty regarding the
extent of contamination, appropriate corrective actions
and shared responsibility and are therefore difficult to
estimate.
Snam cannot predict if and how environmental
regulations and laws may over time become more
binding and cannot provide assurance that future costs
to ensure compliance with environmental legislation
will not increase or that these costs can be recovered
within the mechanisms tariffs or the applicable
regulation. Substantial increases in costs related to
environmental compliance and other aspects related to
it and the costs of possible sanctions could negatively
impact the business, operating results and financial and
reputational aspects.
Employees and staff in key roles
Snam's ability to operate its business effectively
depends on the skills and performance of its personnel.
Loss of "key" personnel or inability to attract, train or
retain qualified personnel (in particular for technical
positions where the availability of appropriately
qualified personnel may be limited), or situations in
which the ability to implement long-term business
strategy is negatively influenced due to significant
disputes with employees, could have an adverse effect
on the business, financial conditions and operating
results.
Risk linked to foreign holdings
The foreign investee companies owned by Snam may
be subject to regulatory/legislative risk, under
conditions of social and economic political instability, to
a market risk, cyber security, credit and financial risk
and other risks typical of the business of the
transportation and storage of natural gas highlighted
for Snam, such as to adversely affect their activities,
economic results and the equity and financial situation.
This can have negative impacts for Snam on the
contribution towards the profits generated by such
investments.
Risks connected with future acquisitions/equity investments
Each investment made as part of joint ventures and
each future investment in Italian or foreign companies
may entail an increase in the complexity of Snam Group
operations and there can be no guarantee that such
investments will correctly integrate in terms of quality
standards, policies and procedures, consistently with
the rest of Snam’s operations. The integration process
can be costly and require additional investment. Failure
to integrate the investment made can have a negative
58 2019 Half Year Report
impact on business, operating results and financial
aspects.
Cyber security
Snam carries out its activities through a complex
technological architecture relying on an integrated
model of processes and solutions capable of promoting
the efficient management of the entire country's gas
system. The development of the business and recourse
to innovative solutions capable of continuous
improvement, however, requires increasing attention
to be focused on aspects of cybersecurity. For this
reason, Snam has developed its own cybersecurity
strategy based on a framework defined in agreement
with standard principles on the subject and focusing
constant attention on Italian and European regulatory
developments, especially as far as the world of critical
infrastructures and essential services is concerned. First
and foremost, this strategy involves adapting one's own
processes to the provisions of standards ISO/IEC 27001
(Information Security Management Systems) and
ISO22301 (Business Continuity Management Systems)
and the formal certification of conformity to the listed
standards. Alongside this and in accordance with
technological developments, solutions aimed at
protecting the Company from cyber threats and
malware are assessed and, where deemed appropriate,
implemented.
More specifically, Snam has defined a model of
cybersecurity incident management aimed at
preventing and, when necessary, ensuring timely
remediation in the event of events that could damage
the confidentiality and integrity of the information
processed and the IT systems used. At the base of the
activity is a Security Incident Response Team which,
using technologies that allow collecting and correlating
all the security events recorded on the entire perimeter
of the company's IT infrastructure, has the task of
monitoring all the anomalous situations from which
negative impacts may result for the company and to
activate, where necessary, escalation plans suitable to
guarantee the involvement of the various operating
structures.
With reference to the management of information in
support of the business processes, it is considered
appropriate to stress that the company owns the asset
(fibre) used for the transportation of data to and from
the territory; this results in intrinsically greater security
thanks to the lack of dependency on the service
provided by third parties and the possibility of making
exclusive use of the communication channel. Lastly, as
part of cyber incident management (preventive and
reactive), information-sharing with national and
European institutions and peers is used in order to
improve the capacity and speed of response following
various possible negative events. A great deal of
attention is also paid to increasing awareness and
specialist training of personnel, in order to facilitate the
identification of weak signals and raising consciousness
about risks of a cyber nature that could occur during
the course of normal work activities.
Interim directors' report - Elements of risk and uncertainty 59
Outlook
60 2019 Half Year Report
Outlook
At end 2019, the Italian gas market will be
characterised by a demand that is expected to
be basically stable on 2018 values, adjusted for
temperature. 2019 investments are expected to
be around Euro 1.0 billion, with a confirmed
focus on replacements and maintenance, so as
to continue to guarantee maximum resilience,
flexibility and efficiency of the existing
infrastructures. Moreover, more than one
quarter of the investments will regard
development initiatives, including the north-
west connections, the local service and cross-
border flows and the strengthening of the
network in the south.
Snam will continue to focus on operating
efficiency in 2019, through initiatives that will
enable it to keep the level of controllable costs
more or less stable in real terms, on a constant-
size basis. As regards the financial structure, the
optimisation carried out in the last three years
has led to a significant reduction in the average
cost of debt. The Company’s management will
continue to guarantee an appealing, sustainable
remuneration of its shareholders, whilst
maintaining a balanced financial structure.
Condensed interim consolidated financial statements
62 2019 Half Year Report
Table of Contents
63 FINANCIAL STATEMENTS
68 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
111 MANAGEMENT CERTIFICATION
112 INDEPENDENT AUDITORS’ REPORT
Condensed interim consolidated financial statements - Financial statements 63
Financial statements
Statement of financial position
(€ million) Notes Total
of which with related parties Total
of which with related parties
ASSETS
Current assets
Cash and cash equivalents (4) 1,872 2,497
Trade receivables and other receivables (5) 1,347 420 990 332
Inventories (6) 109 97
Current income tax assets (7) 10 11
Other current tax assets (7) 7 9
Other current assets (8) 27 26
3,372 3,630
Non-current Assets
Property, plant and equipment (9) 16,153 16,300
Compulsory inventories 363 363
Intangible assets (10) 907 912Investments valued using the equity method (11) 1,710 1,745
Other investments (12) 40 38
Other receivables (5) 1 1
Other non-current assets (8) 36 1 24 1
19,210 19,383
TOTAL ASSETS 22,582 23,013
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term financial liabilities (13) 1,976 2,925
Short-term portion of long-term financial liabilities (13) 1,657 1,281
Trade payables and other payables (14) 1,768 274 1,622 70
Current income tax liabilities (7) 14 69
Other current tax liabilities (7) 9 6
Other current liabilities (15) 86 27 69 25
5,510 5,972
Non-current liabilities
Long-term financial liabilities (13) 9,787 9,814 1
Provisions for risks and charges (16) 665 761
Provisions for employee benefits 64 60
Liabilities for deferred taxes (17) 134 107
Other non-current liabilities (15) 437 234
11,087 10,976
TOTAL LIABILITIES 16,597 16,948
SHAREHOLDERS’ EQUITY (18)
Share capital 2,736 2,736
Reserves 3,212 3,095
Net profit 960 581
Negative reserve for treasury shares held in the portfolio (625) (350)
Interim dividend (298)
SNAM Shareholders' equity 5,985 6,062
Minority interests 3
TOTAL SHAREHOLDERS’ EQUITY 5,985 6,065
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 22,582 23,013
31.12.2018 30.06.2019
64 2019 Half Year Report
Income Statement
(€ million) Notes Total
of which with
related parties Total
of which with
related parties
REVENUE (20)
Core business revenue 1,258 836 1,318 856
Other revenue and income 13 14
1,271 1,332
OPERATING COSTS (21)
Purchases, services and other costs (130) (12) (135) (13)
Personnel cost (77) (86)
(207) (221)
AMORTISATION, DEPRECIATION AND IMPAIRMENT (22) (335) (355)
EBIT 729 756
FINANCIAL INCOME (EXPENSES) (23)
Financial expense (104) (89)
Financial income 6 4 5
Derivative financial instruments (1)
(98) (85)
INCOME FROM EQUITY INVESTMENTS (24)
Equity method valuation effect 83 116
Other income (expense) from equity investments 2 2
85 118
PRE-TAX PROFIT 716 789
Income taxes (25) (193) (208)
NET PROFIT 523 581
- Held by Snam’s shareholders
- Minority interests
Earnings per share held by Snam shareholders (€ per
share) (26)
- basic 0.154 0.176
- diluted 0.151 0.172
First half 2018 First half 2019
Statement of comprehensive income
(€ million) 2018 2019
Net profit 523 581
Other components of comprehensive income
Components that can be reclassified to the income statement:
Change in fair value of cash flow hedging derivatives (effective portion) (10) (52)
Portion of equity investments valued using the equity method pertaining to “other components
of comprehensive income” (22)
Tax effect 2 12
(8) (62)
Total other components of comprehensive income, net of tax effect (8) (62)
Total comprehensive income 515 519
- Held by Snam’s shareholders 515 519
- Minority interests
515 519
First half
Condensed interim consolidated financial statements - Financial statements 65
Statement of changes in shareholders’ equity
(€ million) Shar
e ca
pita
l
Neg
ativ
e re
serv
e fo
r tr
easu
ry s
hare
s he
ld in
the
port
folio
Shar
e pr
emiu
m r
eser
ve
Lega
l res
erve
Rese
rve
for
fair
val
ue o
f CF
H d
eriv
ativ
e
fina
ncia
l ins
trum
ents
net
of
tax
effe
ct
Rese
rve
for
defi
ned-
bene
fit
plan
s fo
r
empl
oyee
s ne
t of
tax
eff
ect
Fair
val
ue t
hrou
gh o
ther
com
preh
ensi
ve
inco
me
(FV
TOCI
)
Cons
olid
atio
n re
serv
e
Oth
er r
eser
ves
Reta
ined
ear
ning
s
Net
pro
fit
Inte
rim
div
iden
d
Tota
l
Min
orit
y in
tere
sts
Tota
l sha
reho
lder
s’ e
quit
y
Balance at 31 December 2017 2,736 (318) 1,140 547 (8) (8) (674) 58 2,112 897 (294) 6,188 6,188
Effect of first- time adoption of IFRS 9 8 8 8
Balance at 01 January 2018 2,736 (318) 1,140 547 (8) (8) (674) 58 2,120 897 (294) 6,196 6,196
Net profit for first half 2018 523 523 523
Other components of comprehensive income:
Components that can be reclassified to the income statement:
- Change in fair value of cash flow hedge derivatives (8) (8) (8)
Total comprehensive income for first half 2018 (8) 523 515 515
- Interim dividend for 2017 (€0.0862 per share) (294) 294
- Balance of 2017 dividend (€ 0.1293 per share as the balance of the 2017 interim dividend
of € 0.0862 per share) The dividend (interim and final) totals € 0.2155 per share. (437) (437) (437)
- Allocation of 2017 residual net profit 166 (166)
- 2017- 2019 share- based incentive plan 1 1 1
Acquisition of treasury shares (183) (183) (183)
Total transactions w ith shareholders (183) 1 166 (897) 294 (619) (619)
Other changes in shareholders' equity:
- Cancellation of treasury shares 119 (119)
- Other changes 4 4 4
Total other changes in shareholders' equity 119 (119) 4 4 4
Balance at 30 June 2018 2,736 (382) 1,021 547 (16) (8) (674) 63 2,286 523 6,096 6,096
Net profit for second half 2018 437 437 437
Other components of comprehensive income:
Components that can be reclassified to the income statement:
Portion of investments pertaining to “other components of comprehensive income” valued
using the net equity method (1) (1) (1)
- Change in fair value of cash flow hedge derivatives (12) (12) (12)
Components that cannot be reclassified to the income statement:
- Change in fair value of equity investments measured at fair value with effect on OCI 1 1 1
Total comprehensive net income for second half 2017 (12) 1 (1) (12) (12)
Transactions w ith shareholders
- 2017- 2019 share- based incentive plan 2 2 2
Acquisition of treasury shares (243) (243) (243)
- Interim dividend for 2018 (€ 0.0905 per share) (298) (298) (298)
Total transactions w ith shareholders (243) 2 (298) (539) (539)
Other changes in shareholders' equity
- Other changes 3 3 3
Total other changes in shareholders' equity 3 3 3
Balance at 31 December 2018 2,736 (625) 1,021 547 (28) (8) 1 (674) 67 2,286 960 (298) 5,985 5,985
Snam shareholders’ equity
66 2019 Half Year Report
Statement of changes in shareholders’ equity
(€ million) Sh
are
cap
ital
Ne
gat
ive
re
serv
e f
or
tre
asu
ry s
har
es
he
ld in
th
e
po
rtfo
lio
Sh
are
pre
miu
m r
ese
rve
Le
gal
re
serv
e
Re
serv
e f
or
fair
val
ue
of
CF
H d
eri
vati
ve f
inan
cial
in
stru
me
nts
ne
t o
f ta
x e
ffe
ct
Re
serv
e f
or
de
fin
ed
-be
ne
fit
pla
ns
for
em
plo
yee
s n
et
of
tax
eff
ect
Fai
r va
lue
th
rou
gh
oth
er
com
pre
he
nsi
ve in
com
e
(FV
TO
CI)
Co
nso
lid
atio
n r
ese
rve
Oth
er
rese
rve
s
Re
tain
ed
ear
nin
gs
Ne
t p
rofi
t
Inte
rim
div
ide
nd
To
tal
Min
ori
ty in
tere
sts
To
tal s
har
eh
old
ers
’ eq
uit
y
Balance at 31 December 2018 Note (18) 2,736 (625) 1,021 547 (28) (8) 1 (674) 67 2,286 960 (298) 5,985 5,985
Net profit for first half 2019 581 581 581
Other components of comprehensive income:
Components that can be reclassified to the income statement:- Portion of equity-accounted investments pertaining to “other components of comprehensive income”valued using the net equity method
(22) (22) (22)
- Change in fair value of cash flow hedge derivatives (40) (40) (40)
Total comprehensive income for first half 2019 (b) (40) (22) 581 519 519- Interim dividend for 2018 (€ 0.0905 per share) (298) 298
- Balance of 2018 dividend (€ 0.1358 per share as the balance of the 2018 interim dividend of € 0.0905 per share) The dividend (interim and final) totals € 0.2263 per share.
(448) (448) (448)
- Allocation of 2018 residual net profit 214 (214)
- 2017-2019 share-based incentive plan 2 2 2
Acquisition of treasury shares
Total transactions with shareholders (c) 2 214 (960) 298 (446) (446)
Other changes in shareholders' equity:
- Cancellation of treasury shares 275 (275)
- Capital contributions by minority interests 3 3
- Other changes 4 4 4
Total other changes in shareholders' equity (d) 275 (275) 4 4 3 7
Balance at 30 June 2019 (e=a+b+c+d) Note (18) 2,736 (350) 746 547 (68) (8) 1 (674) 51 2,500 581 6,062 3 6,065
Snam shareholders’ equity
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 67
Cash flow statement(€ million) Notes First half 2018 First half 2019
Net profit 523 581
Adjustments for reconciling net profit with cash flows from operating activities:
Total amortisation and depreciation (22) 335 355
Effect of valuation using the equity method (11) (83) (116)
Net capital losses (capital gains) on asset sales, write- offs and eliminations 5 3
Dividends (2) (2)
Interest income (6) (4)
Interest payable 92 77
Income taxes (25) 193 208
Other changes 2
Changes in working capital:
- Inventories (2) 14
- Trade receivables 289 300
- Trade payables 189 (153)
- Provisions for risks and charges 8
- Other assets and liabilities (33) 116
Working capital cash flow 443 285
Change in provisions for employee benefits 2 (4)
Dividends collected 114 71
Interest collected 1 4
Interest paid (92) (72)
Income taxes paid net of reimbursed tax credits (167)
Net cash flow from operating activities 1,525 1,221
- of which with related parties (28) 1,178 813
Investments:
- Property, plant and equipment (*) (9) (312) (365)
- Intangible assets (10) (28) (37)
- Companies entering the scope of consolidation (18)
- Long- term financial receivables (106)
- Equity investments (13) (5)
- Change in payables and receivables relating to investments (31) (31)
Cash flow from investments (508) (438)
Divestments:
- Property, plant and equipment 2
- Equity investments 18 11
Cash flow from divestments 20 11
Net cash flow from investment activities (488) (427)
- of which with related parties (28) (115) (16)
Assumption of long- term financial payables 431 968
Repayment of long- term financial debt (973) (1,340)
Increase (decrease) in short- term financial debt 693 949
Change in short- term financial receivables 350
Repayment of financial payables for leased assets (3)
501 574
Acquisition of treasury shares (183)
Dividends paid to Snam shareholders (731) (746)
Net capital contributions by minority interests 3
Net cash flow from financial assets (413) (169)
- of which with related parties (28) (14)
Net cash flow for the period 624 625
Cash and cash equivalents at start of period (4) 719 1,872
Cash and cash equivalents at end of period (4) 1,343 2,497
(*) Purely for the purpose of the Statement of Cash Flows, the flow includes the change to inventories of pipes and the
related accessory materials used in plan development, in reference to the natural gas transportation segment
(respectively Euro 3 million and Euro 4 million for the first half 2018 and 2019); (iii) the contributions on works for
interference with third parties referred to as “compensation” (respectively Euro 12 million and Euro 10 million for the first
half 2018 and 2019).
68 2019 Half Year Report
Notes to the condensed interim consolidated financial statements COMPANY INFORMATION
The Snam Group, consisting of Snam S.p.A., the
consolidating company, and its subsidiaries (hereafter
referred to as “Snam”, the “Snam Group” or the
“Group”), is an integrated group at the forefront of the
regulated gas sector and a major player in terms of its
invested capital regulatory asset base (RAB) in the
sector.
In Italy, Snam operates in the regulated business of the
transportation and dispatching of natural gas,
regasification of liquefied natural gas and storage of
natural gas; it is also present in the sectors of
sustainable mobility and energy efficiency. It operates in
Europe's major energy corridors through agreements
with and equity investments in the leading industry
players. Through its investee companies, it operates in
Austria (TAG and GCA), France (Teréga), Greece (DESFA)
and the United Kingdom (Interconnector UK) and is
amongst the main shareholders of TAP (Trans Adriatic
Pipeline). Snam S.p.A. is a joint-stock company incorporated under
Italian law and listed on the Milan Stock Exchange, with
registered offices at 7, Piazza Santa Barbara, San
Donato Milanese (MI).
Shareholder CDP S.p.A. declared, with effect from the
financial statements as at 31 December 2014, that it
had de facto control over Snam S.p.A. pursuant to IFRS
10 “Consolidated Financial Statements”. No
management or coordination activity of CDP S.p.A. has
been formalised or exercised.
As at 30 June 2019, CDP S.p.A. holds, through CDP Reti
S.p.A.1 31.04% of the share capital of Snam S.p.A.
1) Criteria for preparation and measurement
The condensed interim consolidated financial
statements as at 30 June 2019 have been prepared on
the assumption of the business operating as a going
concern and in compliance with the International
Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB) and
approved by the European Union (hereinafter the
1
CDP S.p.A. holds 59.10%. 2 For accounting standards in force starting 01 January 2019, approved after approval of the 2018 Annual Financial Report, reference is made to Note 3 “Recently issued IFRS” of these Notes.
“IFRS”) as well as the legislative and regulatory
provisions in force in Italy.
The condensed interim consolidated financial
statements as at 30 June 2019 have been prepared in
accordance with the provisions of IAS 34 “Interim
Financial Reporting”. Pursuant to this standard, the
condensed interim consolidated financial statements do
not include all the information required in annual
consolidated financial statements and, as such, they
should be read in conjunction with the Snam Group's
consolidated financial statements for the year ended 31
December 2018.
The financial statements are the same as those adopted
for the Annual Financial Report. In the condensed
interim consolidated financial statements, the same
consolidation principles and measurement criteria have
been used as those used to prepare the Annual
Financial Report, which should be referred to, except
for the international financial reporting standards which
have entered into force since 01 January 2019,
described in Note 7 “Recently issued IFRS” in the 2018
Annual Financial Report2.
The impacts deriving from the application of such
provisions on the consolidated results of the Snam
Group essentially regard the effects of the application
of IFRS 16 “Leasing”, hence the considerations given in
the 2018 Annual Financial Report under the paragraph
on IFRS 16 “Leasing” of Note 7 “Recently issued IFRS”.
The impacts of the implementation of the new standard
resulted in an increase of Euro 20 million in financial
liabilities, representing the obligation to make the
payments envisaged by the contracts in place, and an
increase of Euro 20 million in assets for Property, plant
and equipment, representing the related right of use.
The impact on the Group’s shareholders’ equity at 01
January 2019, net of the related tax effect, is
consequently null.
The notes to the financial statements are in condensed
form. Current income taxes are calculated based on
taxable income at the reporting date. Tax receivables
and payables for current income taxes are recognised
based on the amount which is expected to be
paid/recovered to/from the tax authorities under the
applicable tax law or those essentially approved at the
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 69
reporting date and the rates estimated on an annual
basis.
Consolidated companies, non-consolidated subsidiaries,
companies under joint control, associates and other
significant equity investments, reporting for which is
covered by Article 126 of Consob Resolution 11971 of
14 May 1999, as subsequently amended, are indicated
separately in the annex “Equity investments of Snam
S.p.A. at 30 June 2019”, which is an integral part of
these notes.
The condensed interim consolidated financial
statements as at 30 June 2019, approved by the Board
of Directors of in its meeting of 31 July 2019, are
subjected to a limited audit by PricewaterhouseCoopers
S.p.A. The limited audit entails a significantly smaller
scope of work than that of a complete audit of the
accounts carried out in accordance with the established
auditing standards.
The condensed interim financial statements are
presented in euro. Given their size, amounts in the
financial statements and respective notes are expressed
in millions of euros.
2) Use of accounting estimates For a description of the use of accounting estimates,
please see the 2018 Annual Financial Report.
3) Recently issued IFRS In addition to that indicated in the last Annual Financial
Report, to which reference is made, below is a list of the
IFRS recently issued by the IASB.
Accounting standards and interpretations issued by the IASB/IFRIC and approved by the European Commission, in force starting 01 January 2019
Regulation 2019/402 issued by the European
Commission on 13 March 2019 adopts the regulatory
provisions contained in the document “Change,
reduction or extinguishing of the plan - Amendments to
IAS 19 Employee Benefits”, issued by the IASB on 07
February 2018. The document specifies how pension
costs are determined if an existing defined benefits
plan is changed, reduced or extinguished.
More specifically, the document requires the use of
updated actuarial hypotheses to determine the current
personnel cost and net financial expenses for the period
after the event. These provisions will take effect from
financial years starting on or after 01 January 2019.
Regulation 2019/412 issued by the European
Commission on 14 March 2019 approved the regulatory
provisions contained in the “Annual Improvements to
International Financial Reporting Standards 2015-2017
Cycle”, issued by the IASB on 12 December 2017. The
document contains amendments to the following
standards: (i) IFRS 3 “Business Combinations” defining
that when an entity obtains control of a business that
can be classified as a joint operation, the interest
previously held in said business must be remeasured,
insofar as the transaction constitutes a business
combination carried out in several stages; (ii) IFRS 11
“Joint Arrangements”, clarifying that when an entity
acquires joint control of a business that meets the
definition of a joint operation, it shall not remeasure its
interests previously held in that business; (iii) IAS 12
“Income tax”, clarifying that, regardless of whether
dividends are recognized in shareholders' equity, an
entity must recognize the tax effects of the dividends in
profit and loss in terms of income tax when the liability
is noted relative to the dividend to be paid; (iv) IAS 23
“Financial Expenses”, clarifying that the specific
borrowings required for construction and/or acquisition
of an asset that remain in existence even when the
asset is available and ready for use or sale are no longer
considered specific and therefore shall be included in
the general borrowings for the purpose of defining the
capitalization rate. Additionally, the document specifies
how the amount of financial expense an entity can
capitalise during a financial year, must not exceed the
amount of financial expense incurred during that year.
These provisions will take effect from financial years
starting on or after 01 January 2019.
No impact has been identified which arises from
implementation of said standards.
70 2019 Half Year Report
4) Cash and cash equivalents Cash and cash equivalents, of Euro 2,497 million (Euro 1,872 million as at 31
December 2018) refer mainly to a short-term use of liquid funds, maturing
within three months, with the counterparty being a bank of high credit
standing (Euro 750 million), an on-call bank deposit (Euro 1,700 million) and
cash held at the company Gasrule Insurance DAC (Euro 22 million) and Snam
International B.V. (Euro 16 million).
The book value of cash and cash equivalents approximates to their fair value.
They are not subject to any usage restrictions.
A comprehensive analysis of the financial situation and major cash
commitments during the period can be found in the statement of cash flows.
5) Trade receivables and other current and non-current receivables
Trade receivables and other current receivables equal to Euro 990 million (Euro
1,347 million at 31 December 2018) and other non-current receivables equal to
Euro 1 million (unchanged from 31 December 2018) break down as follows:
(€ million) Current Non-current Total Current Non-current Total
Trade receivables 1,247 1,247 947 947
Financial receivables 10 1 11 1 1
- short term
- long term 10 1 11 1 1
Receivables from investment/divestment activities 9 9 7 7
Other receivables 81 81 36 36
1,347 1 1,348 990 1 991
31.12.2018 30.06.2019
3 The variable unitary charge CVOS expressed in euro/Scm is an increase of the variable price aimed at covering the costs deriving from the application of the
revenue guarantee factor for the storage service, pursuant to Art. 10 bis of Resolution no. 29/2011 and expenses incurred by the Energy Service Provider for the disbursement of measures pursuant to Articles 9 and 10 of Italian Legislative Decree no. 130/10.
Receivables are reported net of the provision for impairment losses of Euro
136 million (Euro 137 million at 31 December 2018).
Trade receivables of Euro 947 million (Euro 1,247 million at 31 December
2018) relate mainly to the natural gas transportation (Euro 686 million,
including Euro 128 million relating to gas balancing activities) and storage
(Euro 170 million) business operating segments. The reduction compared to
31 December 2018 is mainly attributable to lower receivables in the transport
sector: (i) for additional tariff components invoiced to users, against
suspension of the CVOS charge3, the application of which is suspended for the
months from April to September; (ii) for the balancing service, against lower
volumes of gas traded as a result of climate change.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 71
Long-term financial receivables (Euro 1 million; Euro 11 million at 31
December 2018) record a downturn of Euro 10 million against the conversion
into equity, in February 2019, of the residual portion of the shareholders’ loan
to TAP. The reduction in financial receivables therefore coincides with the
related increase in the equity investment held in TAP.
Receivables from investment/divestment activities (Euro 7 million; Euro 9
million at 31 December 2018) concern receivables for investment activities for
contributions towards connections and compensation works.
Other receivables of Euro 36 million (Euro 81 million at 31 December 2018)
comprise:
(€ million) 31.12.2018 30.06.2019
IRES receivables for the national tax consolidation scheme 9 9
Other receivables: 72 27
- Energy and Environmental Services Fund (CSEA) 63 13
- Advances to suppliers 4 3
- Other 5 11
81 36
The fair value measurement of trade and other receivables has no material
impact considering the short period of time from when the receivable arises
and its due date and the remuneration conditions.
All receivables are in Euros.
Receivables from related parties are described in Note 28, “Related-party
transactions”.
6) Inventories Inventories, which amount to Euro 460 million (Euro 472 million at 31
December 2018) are analysed in the table below:
(€ million)
Gross
amount
Provision for
impairment
losses
Net
value
Gross
amount
Provision for
impairment
losses
Net
value
Inventories (current assets) 155 (46) 109 143 (46) 97
- Raw materials, consumables and supplies 103 (14) 89 91 (14) 77
- Finished products and merchandise 52 (32) 20 52 (32) 20
Compulsory inventories (non- current assets) 363 363 363 363
518 (46) 472 506 (46) 460
31.12.2018 30.06.2019
Inventories are reported net of the provision for impairment losses of Euro 46
million (the same as at 31 December 2018). The provision essentially involves
the impairment loss (Euro 30 million) recorded in 2014 for 0.4 billions of cubic
metres of natural gas used under the scope of storage activities of strategic
gas unduly withdrawn by some service users in 2010 and 20114.
4 For further information regarding the progress of the lawsuits underway, see Note 25 “Guarantees, commitments and risks - Disputes and other measures - Recovering receivables from users of the storage system” of the 2018 Annual Financial Report.
72 2019 Half Year Report
7) Current income tax assets/liabilities and other current tax assets/liabilities
Current income tax assets/liabilities and other current tax assets/liabilities
break down as follows:
(€ million) 31.12.2018 30.06.2019
Current income tax assets 10 11
IRES 9 10
IRAP 1
- Other assets 1
Other current tax assets 7 9
- VAT 4 7
- Other taxes 3 2
17 20
Current income tax liabilities (14) (69)
IRES (13) (60)
IRAP (1) (9)
Other current tax liabilities (9) (6)
- IRPEF withholdings for employees (7)
- VAT (1)
- Other taxes (1) (6)
(23) (75)
Taxes pertaining to the period under review are shown in Note 25 “Income
taxes”.
8) Other current and non-current assets Other current assets, which amount to Euro 26 million (Euro 27 million at 31
December 2018) and other non-current assets of Euro 24 million (Euro 36
million at 31 December 2018) break down as follows:
(€ million) Current
Non-
current Total Current
Non-
current Total
Regulated activities 16 10 26 10 10
Market value of derivative financial instruments 4 4 6 6
Other assets: 7 26 33 10 24 34
- Prepayments 6 13 19 6 11 17
- Security deposits 13 13 13 13
- Other 1 1 4 4
27 36 63 26 24 50
31.12.2018 30.06.2019
5 For further information, see Note 14 “Trade and other payables” of these notes.
Regulated activities (Euro 10 million; Euro 26 million at 31 December 2018)
relate to the natural gas transportation service and regard the lesser amounts
invoiced, to be recovered through tariff adjustments in 2019. The reduction
of Euro 16 million on 31 December 2019 is a result of the reclassification, to
reduce other payables due to CSEA, of the sub-billing relative to previous
years (Euro 9 million), no longer subject to return by means of future tariff
adjustments, in accordance with ARERA resolution 114/2019/R/gas5.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 73
The market value of derivative financial instruments outstanding at 30 June
2019 is as follows:
(€ million) Current
Non-
current Total Current
Non-
current Total
Other assets 4 4 6 6
Cash flow hedging derivatives:
- Fair value exchange rate hedging derivatives 4 4 6 6
Other liabilities (7) (26) (33) (8) (60) (68)
Cash flow hedging derivatives:
- Fair value interest rate hedging derivatives (6) (26) (32) (7) (60) (67)
- Accrued expenses on derivatives (1) (1) (1) (1)
30.06.201931.12.2018
Assets deriving from the market value of financial cash flow hedge derivative
financial instruments (Euro 6 million) refer to a cross currency swap (CCS)
stipulated in FY 2013. The CCS is used to hedge against fluctuations in the
exchange rate of a ¥\10 billion (JPY) long-term bond issue. The six-year bond
has a maturity of 25 October 2019 and a half-yearly coupon with an annual
fixed rate of 1.115%. The CCS has converted the fixed-rate, foreign-currency
liability into an equivalent liability in Euro with a fixed annual rate of 2.717%.
In relation to this contract, Snam agrees with its counterparties on the
exchange of two capital flows (at the time of entering into the contract and
upon the maturity of the underlying financial instrument) and periodic
interest flows (on the same dates stipulated for the hedged item)
denominated in different currencies at a predetermined exchange rate.
The main characteristics of the derivative in question are summarised in the
tables below:
Cross-currency swap
(€ million)
Type of derivative
Contract
start date
Maturity
date
Residual term
(years)
JPY /EUR
exchange rate
Paid
JPY /EUR
exchange rate
Received
Nominal
value(*)
31.12.2018
Nominal
value(*)
30.06.2019
Market value
31.12.2018
Market
value
30.06.2019
Cross- currency swap 25/10/2013 25/10/2019 0.3 133.98 Spot 75 75 4 6 (*) Equal to a value of 10 billion Yen at an exchange rate of 133.98 JPY/€.
74 2019 Half Year Report
The liabilities arising from measurement at market value of the derivative
financial instruments used as cash flow hedges (Euro 68 million) refer to:
two derivative Interest Rate Swap “Forward Start” contracts with
Mandatory Early Termination, stipulated in July 2017 and August 2018
to cover the risk of interest rate fluctuations of long-term bond issues
scheduled for 2020 and 2021, of nominal total value of Euro 500 million
and a total market value of Euro 42 million;
an Interest Rate Swap derivative, stipulated in August 2017, with a
market value of Euro 14 million. The IRS is used to hedge against the
risk of interest rate fluctuation for a floating-rate bond of Euro 350
million. The 7-year bond has a maturity of 2 August 2024 and floating
rate linked to 3-month Euribor + 40 bps. Through the derivative
contract, the floating rate liability is converted into an equivalent fixed
rate liability with a benchmark rate of 0.436%;
an Interest Rate Swap derivative, stipulated in February 2017, with a
market value of Euro 4 million. The IRS is used to hedge against the risk
of interest rate fluctuation resulting from a long-term bond issue of
Euro 300 million. The loan, which has a duration of five years and
matures on 21 February 2022, pays a floating rate linked to 3-month
Euribor plus 60 bps. The IRS has converted the floating-rate liability into
an equivalent fixed-rate liability with reference rate of + 0.0408%;
an Interest Rate Swap derivative, stipulated in July 2018, with a market
value of Euro 3 million. The IRS is used to hedge against the risk of
interest rate fluctuation resulting from a 50% portion of the long-term
floating rate loan of Euro 500 million. The 3-year term loan has a
maturity of 31 October 2021 and floating rate linked to 3-month
Euribor + 45 bps. Through the derivative contract, the floating rate
liability is converted into an equivalent fixed rate liability with a
benchmark rate of 0.0570%;
an Interest Rate Swap derivative, stipulated in July 2018, with a market
value of Euro 2 million. The IRS is used to hedge against the risk of
interest rate fluctuation on a floating rate term loan of Euro 150
million. The 5-year term loan has a maturity of 31 July 2022 and floating
rate linked to 3-month Euribor + 58 bps. Through the derivative
contract, for four years, the floating rate liability is converted into an
equivalent fixed rate liability with a benchmark rate of 0.1250%;
an Interest Rate Swap derivative, stipulated in December 2018, with a
market value of Euro 2 million. The IRS is used to hedge against the risk
of interest rate fluctuation resulting from the remaining 50% portion of
the long-term floating rate loan of Euro 500 million. The 3-year term
loan has a maturity of 31 October 2021 and floating rate linked to 3-
month Euribor + 45 bps. Through the derivative contract, the floating
rate liability is converted into an equivalent fixed rate liability with a
benchmark rate of -0.0440%;
an Interest Rate Swap derivative, stipulated in January 2018, with a
market value of Euro 1 million. The IRS is used to hedge against the risk
of interest rate fluctuation for a floating-rate bond of Euro 350 million.
The 2-year bond has a maturity of 29 January 2020 and floating rate
linked to 3-month Euribor + 40 bps. Through the derivative contract,
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 75
the floating rate liability is converted into an equivalent fixed rate
liability with a benchmark rate of -0.1878%.
The main characteristics of the derivatives in question are summarised in the
tables below:
Interest Rate Swap - Forward Start
(€ million)
Type of derivative
Contract
start date
Maturity
date
Early
extinguishment
date
Residual term
(years)
Snam pays Snam receivesNominal
value
31.12.2018
Nominal value
30.06.2019
Market
value
31.12.2018
Market
value
30.06.2019
IRS - Forward start (*) 30/10/2019 30/10/2026 30/01/2020 1.1805% Euribor 6 m 250 (9)
IRS - Forward start 29/10/2020 29/10/2027 29/01/2021 8.3 1.4225% Euribor 6 m 250 250 (8) (19)
IRS - Forward start 15/04/2021 15/04/2028 15/07/2021 8.8 1.3130% Euribor 6 m 250 250 (5) (23)
(*) Derivative closed on 24 May 2019. Interest rate swap
(€ million)
Type of derivative
Contract
start date
Maturity
date
Residual term
(years)
Snam pays Snam receives Nominal value
31.12.2018
Nominal
value
30.06.2019
Market value
31.12.2018
Market
value
30.06.2019
Interest rate swap 02/08/2017 02/08/2024 5.1 0.4360% 3 month Euribor 350 350 (5) (14)
Interest rate swap 21/02/2017 21/02/2022 2.6 0.0408% 3 month Euribor 300 300 (2) (4)
Interest rate swap 30/07/2018 31/10/2021 2.3 0.0570% 3 month Euribor 250 250 (2) (3)
Interest rate swap 31/07/2018 31/07/2022 3.1 0.1250% 3 month Euribor 150 150 (1) (2)
Interest rate swap 31/10/2018 31/10/2021 2.3 - 0.0440% 3 month Euribor 250 250 (1) (2)
Interest rate swap 29/01/2018 29/01/2020 0.6 - 0.1878% 3 month Euribor 350 350 (1)
The fair value of hedging derivatives and their classification as a current or
non-current asset/liability have been determined using generally accepted
financial measurement models and market parameters at the end of the year.
Information on the risks being hedged by the derivative financial instruments
and on hedging policies adopted by the Company against these risks is
provided in Note 19 “Guarantees, commitments and risks - Management of
financial risks”.
The item “Other assets” (Euro 34 million; Euro 33 million at 31 December
2018) essentially comprises:
security deposits (Euro 13 million), relating to the transportation
segment;
prepayments (Euro 17 million) mainly relating to insurance premiums
(Euro 6 million and the up-front fees and substitute tax on revolving
lines of credit6 (Euro 4 million). The current and non-current portions
amount to Euro 6 million and Euro 11 million respectively (Euro 6
million and Euro 13 million at 31 December 2018).
6
Upfront fees and the substitute tax are to be regarded as “transaction costs”. The relevant charges are spread over the expected lifetime of the financial instrument.
76 2019 Half Year Report
9) Property, plant and equipment Property, plant and equipment, which amounts to Euro 16,300 million (Euro
16,153 million at 31 December 2018) breaks down as follows:
(€ million) Property, plant and equipment
Cost at 31.12.2018 25,006
Investments 371
Disposals (10)
Other changes 102
Cost at 30.06.2019 25,469
Provisions for amortisation and depreciation at 31.12.2018 (8,783)
Total amortisation and depreciation (323)
Disposals 7
Other changes (2)
Provisions for amortisation and depreciation at 30.06.2019 (9,101)
Provision for impairment losses at 31.12.2018 (70)
Other changes 2
Provision for impairment losses at 30.06.2019 (68)
Net balance at 31.12.2018 16,153
Net balance at 30.06.2019 16,300
7 Investments by business segment are shown in the “Business segment operating performance” section of the Interim Directors’ Report.
8 As established by the standard IFRS 16, against the recording of assets representing the rights of use of leased assets, Snam has noted the related financial liabilities representing the obligation to make the payments established in lease contracts in force.
Investments7 (Euro 371 million) refer mainly to the transportation (Euro 308
million) and storage (Euro 57 million) segments.
Divestments (Euro 3 million, net of the related provisions for depreciation and
amortisation) mainly relate to assets of the transportation segment.
Other changes (+Euro 102 million) relate essentially to: (i) the effects deriving
from the adjustment of the current value of outlays for the decommissioning
and restoration of sites (Euro +85 million) following a reduction in the
expected discounting rate; (ii) the recording of assets representing the rights
of use of leased goods in accordance with accounting standard IFRS 16 (Euro
+24 million)8; and (iii) contributions on works for interference with third
parties (Euro -10 million).
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 77
For lack of impairment indicators recorded during the half-year, there is no
need for any checks as to the potential recovery of the value booked for
Property, plant and equipment. The considerations given in the 2018 Annual
Financial Report are therefore confirmed and reference is made thereto.
Contractual commitments to purchase property, plant and equipment, and to
provide services related to the construction thereof, are reported in Note 19
“Guarantees, commitments and risks”.
10) Intangible assets Intangible assets, which amount to Euro 912 million (Euro 907 million at 31
December 2018) break down as follows:
(€ million)
With a
finite
useful life
With an
indefinite
useful life Total
Cost at 31.12.2018 1,634 42 1,676
Investments 37 37
Cost at 30.06.2019 1,671 42 1,713
Provisions for amortisation and depreciation at 31.12.2018 (769) (769)
Total amortisation and depreciation (32) (32)
Provisions for amortisation and depreciation at 30.06.2019 (801) (801)
Net balance at 31.12.2018 865 42 907
Net balance at 30.06.2019 870 42 912
9
Investments by business segment are shown in the “Business segment operating performance” section of the Interim Directors’ Report.
Intangible assets with a definite useful life (Euro 870 million) mainly concern:
(i) concessions for the year of the natural gas storage business (Euro 656
million); (ii) industrial patent rights and intellectual property rights (Euro 139
million).
Investments9 (Euro 37 million) refer mainly to the natural gas transportation
(Euro 31 million) segment.
Intangible fixed assets with an indefinite useful life (Euro 42 million) mainly
refer to goodwill noted at acquisition: (i) from Edison of 100% of the share
capital of Infrastrutture Trasporto Gas (Euro 27 million) on 13 October 2017;
(ii) of the Cubogas business unit on 25 July 2018 (Euro 7 million); (iii) of 70% of
IES Biogas on 05 July 2018 (Euro 4 million); (iv) 82% of Tep Energy Solution on
30 May 2018 (Euro 3 million). This goodwill was allocated to the CGUs
identified by the same legal entities, as described below:
for Infrastrutture Trasporto Gas to the business of regulated
transportation activities;
for Cubogas to the CNG business comprising the refuelling stations
and compressors;
for IES Biogas to the biomethane business;
for TEP Energy Solutions to the energy efficiency business.
78 2019 Half Year Report
During the first half, no impairment indicators were noted. Therefore, as
regards the potential recovery of the value booked for intangible fixed assets,
including goodwill, the considerations given in the 2018 Annual Financial
Report are confirmed and reference is made thereto.
11) Investments valued using the equity method
Investments valued using the equity method, amounting to Euro 1,745 million
(Euro 1,710 million at 31 December 2018) break down as follows:
(€ million)
Value as at 31.12.2018 1,710
Acquisitions and subscriptions 5
Income (losses) from equity method valuation 116
Decrease owing to dividends (69)
Sales and repayments (9)
Other changes (8)
Value as at 30.06.2019 1,745
Acquisitions and subscriptions (Euro 5 million) relate to the future share
capital increase of TAP, which Snam is obliged to invest in, in proportion to
the shareholding owned, by virtue of the agreements signed during the
acquisition of the equity investment.
Income (losses) from equity method valuation (Euro 116 million) refer mainly
to the companies TAG (Euro 39 million), Teréga (Euro 29 million) and Senfluga
(Euro 15 million).
The decrease in the dividend (Euro 69 million) essentially concerns the
companies TAG (Euro 29 million) and Italgas (Euro 26 million).
Sales and reimbursements (Euro 9 million) refer to the reduction in the cost of
recording the equity investment in AS Gasinfrastruktur Beteiligung GmbH for
the distribution of part of the share premium reserve.
Other changes (Euro -8 million) refer to the associates TAP (Euro -19 million)
and Senfluga (Euro -2 million) in view of the change in the fair value of the
hedging derivative financial instruments, the effects of which were partially
offset by the February 2019 conversion into equity of the residual share of
the Shareholders Loan to TAP (Euro +10 million).
There is no collateral established over equity investments with the exception
of that reported in Note 19 “Guarantees, commitments and risks -
Commitments, guarantees and pledges - TAP” of these notes.
Consolidated companies, non-consolidated subsidiaries, joint ventures,
associates and other significant equity investments are indicated separately in
the annex “Equity investments of Snam S.p.A. at 30 June 2019”, which is an
integral part of these notes.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 79
For lack of impairment indicators recorded during the half-year, there is no
need for any checks as to the potential recovery of the value booked for the
equity investment valued using the equity method. The considerations given
in the 2018 Annual Financial Report are therefore confirmed and reference is
made thereto.
12) Other investments Other investments total Euro 38 million (Euro 40 million at 31 December 2018)
and regard only the minority share of 7.3% held by Snam S.p.A. in the capital
of Terminale GNL Adriatico S.r.l. (Adriatic LNG) valued at “Fair Value Through
Other Comprehensive Income – FVTOCI”10 in consideration of the fact that
the Group intends to hold the equity investment in the portfolio in the near
future.
13) Short-term financial liabilities, long-term financial liabilities and short-term portions of long-term financial liabilities
Short-term financial liabilities, amounting to Euro 2,925 million (Euro 1,976
million at 31 December 2018), and long-term financial liabilities, including the
short-term portion of long-term liabilities, totalling Euro 11,095 million (Euro
11,444 million at 31 December 2018), break down as follows:
(€ million)
Short-term liabilities
Short-term portion
Long-term portion
maturing within 5
years
Long-term portion
maturing in more
than 5 years
Total long-term
portion
Short-term liabilities
Short-term
portion
Long-term portion
maturing within 5
years
Long-term portion
maturing in more
than 5 years
Total long-term
portion
Bonds 913 4,408 3,125 7,533 1,028 3,928 3,479 7,407
Bank loans 1,751 744 1,175 1,079 2,254 1,494 247 1,248 1,144 2,392
Euro Commercial Paper - ECP 225 1,431
Financial payables for leased assets 6 11 4 15
1,976 1,657 5,583 4,204 9,787 2,925 1,281 5,187 4,627 9,814
Long-term liabilities
31.12.2018 30.06.2019
Long-term liabilities
10 On the basis of this measurement criterion, changes to the related fair value are entered in a specific shareholders' equity reserve, which cannot be
reclassified as profit and loss. Dividends are recorded on the income statement when they represent the return on the investment and not the recovery of part of the cost of the investment, in which case the dividend is also noted under Other Comprehensive Income.
80 2019 Half Year Report
Short-term financial liabilities
Short-term financial liabilities, amounting to Euro 2,925 million (Euro 1,976
million at 31 December 2018), relate mainly to uncommitted floating rate
lines of bank credit (Euro 1,494 million) and Euro Commercial Papers (Euro
1,431 million)11.
Long-term financial liabilities and short-term portions of long-term financial liabilities
Long-term financial liabilities, including the short-term portion of long-term
liabilities, amounted to Euro 11,095 million (Euro 11,444 million at 31
December 2018), of which Euro 1,281 million relative to the short-term share
and Euro 9,814 million relative to the long-term share.
Financial liabilities for leased assets (Euro 21 million) refer to the financial
liabilities entered in compliance with the accounting standard IFRS 16
“Leasing” in force since 01 January 201912. These liabilities represent the
obligation to make the payments envisaged by the contract, for all leases with
a term in excess of 12 months, of significant value.
11 At the date of this Report, the Euro Commercial Paper programme had been used for the entire amount of Euro 2 billion. 12 For more details on the choices made by Snam in respect of the application of the transitional provisions envisaged by IFRS 16, reference is made to Note
7 “Recently issued accounting standards” of the 2018 Annual Financial Report.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 81
The breakdown of bond loans (Euro 8,435 million), indicating the issuing
company, the year of issue, the currency, the average interest rate and the
maturity, is provided in the following table:
(€ million)
Issuing company Issued (year) CurrencyNominal amount
Adjustments (a)
Balance at 30.06.2019 Rate (%)
Maturity (year)
Euro Medium Term Notes (EMTN)
SNAM S.p.A. (b) (c) (d) 2012 € 609 22 631 5.25 2022
SNAM S.p.A. (b) (c) (d) (e) 2012 € 526 7 533 3.5 2020
SNAM S.p.A. (c) (d) 2013 € 267 3 270 3.375 2021SNAM S.p.A. (g) 2013 ¥ 82 82 2.717 2019
SNAM S.p.A. (c) (d) 2014 € 394 3 397 3.25 2024
SNAM S.p.A. (c) (d) (h) 2014 € 344 4 348 1.5 2023
SNAM S.p.A. (c) (d) (f) 2015 € 263 (23) 240 1.375 2023
SNAM S.p.A. 2016 € 1,250 1,250 0.875 2026
SNAM S.p.A. 2016 € 500 (1) 499 2020SNAM S.p.A. 2017 € 500 500 1.25 2025
SNAM S.p.A. (i) 2017 € 300 (1) 299 0.641 2022
SNAM S.p.A. (i) 2017 € 350 (1) 349 0.836 2024
SNAM S.p.A. 2017 € 650 2 652 1.375 2027
SNAM S.p.A. (i) 2018 € 350 1 351 0.212 2020
SNAM S.p.A. (l) 2018 € 900 (1) 899 1 2023
SNAM S.p.A. 2019 € 500 (2) 498 1.25 2025
SNAM S.p.A. (i) 2019 € 250 (3) 247 1.625 2030
8,035 10 8,045
Convertible bondsSNAM S.p.A. 2017 € 400 (10) 390 2022
8,435 8,435
(a) Includes: (i) issue premium/discount; (ii) accrued interest; (iii) adjustment to the fair value of the bond loan of Euro 500
million, maturing in 2023, originally converted to floating rate through an interest rate swap (IRS) hedging derivative
which was extinguished early on 27 January 2017.
(b) Bond loans subject to the 2016 liability management operation.
(d) Bond loans subject to the 2017 liability management operation.
(d) Bond loans subject to the 2018 liability management operation.
(e) Bond tapped for an incremental amount of Euro 500 million, with the same interest rate and maturity as the original
placement.
(f) Bond loans subject to the 2015 liability management operation.
(g) Bond with a nominal value of ¥10 billion, converted into euros through a cross- currency swap (CCS).
The indicated nominal value is obtained by converting into euros at the year- end spot exchange rate.
(h) Bond tapped for an incremental amount of Euro 250 million, with the same interest rate and maturity as the original
placement.
(i) Floating- rate bond, converted into fixed- rate through an interest rate swap (IRS) hedging derivative.
(l) Bond tapped for an incremental amount of Euro 300 million, with the same interest rate and maturity as the original
placement.
82 2019 Half Year Report
Payables for bank loans (Euro 4,133 million) relate to maturing loans (term
loans), of which Euro 1,589 million concern European Investment Bank (EIB)
funding.
There are no other long-term bank loans denominated in currencies other
than the euro.
The weighted average interest rate on bank loans used (excluding loan
contracts with the EIB) was 0.52%.
There were no breaches of loan agreements as at the reporting date.
Snam has unused committed and uncommitted lines of credit of Euro 3.2
billion and Euro 2 billion, respectively.
Financial covenants and negative pledge commitments
As at 30 June 2019, Snam has unsecured bilateral and syndicated loan
agreements in place with banks and other financial institutions. Part of such
contracts envisages, inter alia, compliance with commitments typical of
international practice, of which some are subject to specific materiality
thresholds, such as: (i) negative pledge commitments pursuant to which Snam
and its subsidiaries are subject to limitations concerning the pledging of real
property rights or other restrictions on all or part of the respective assets,
shares or merchandise; (ii) pari passu and change-of-control clauses; (iii)
limitations on certain extraordinary transactions that the Company and its
subsidiaries may carry out; and (iv) limits on the debt of subsidiaries.
Failure to comply with these covenants, and the occurrence of other events,
such as cross-default events could trigger the early repayment of the related
loan. Exclusively for the EIB loans, the lender has the option to request
additional guarantees, if Snam’s rating is lower than BBB (Standard &
Poor’s/Fitch Ratings Limited) or lower than Baa2 (Moody’s) with at least two
of the three rating agencies.
The occurrence of one or more of the aforementioned scenarios could have
negative effects on Snam Group’s operations, results, balance sheet and cash
flow, resulting in additional costs and/or liquidity issues.
At 30 June 2019, the financial liabilities subject to these restrictive clauses
amounted to approximately Euro 2.6 billion.
Bonds, issued by Snam as at 30 June 2019, with a nominal value of Euro 8.4
billion, refer mainly to securities issued under the Euro Medium Term Notes
programme. The covenants set for the programme’s securities reflect
international market practices and relate, inter alia, to negative pledge and
pari passu clauses. Specifically, under the negative pledge clause, Snam and its
significant subsidiaries are subject to limitations in relation to the creation or
maintenance of restrictions on all or part of their own assets or inflows to
guarantee present or future debt, unless this is explicitly permitted.
Failure to comply with these covenants – in some cases only when this non-
compliance is not remedied within a set time period – and the occurrence of
other events, such as cross-default events, some of which are subject to
specific threshold values, may result in Snam’s failure to comply and could
trigger the early repayment of the relative loan.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 83
In confirmation of Snam's credit standing, the loan agreements do not
contain covenants which require compliance with an economic and/or
financial ratio.
Breakdown of net financial debt
The breakdown of net financial debt, showing any related-party transactions,
is provided in the following table:
(€ million) Current
Non-
current Total Current
Non-
current Total
A. Cash and cash equivalents 1,872 1,872 2,497 2,497
B. Securities available for sale and held to maturity
C. Cash (A+B) 1,872 1,872 2,497 2,497
D. Short-term financial receivables
E. Short- term financial liabilities to banks 1,751 1,751 1,494 1,494
F. Long- term financial liabilities to banks 744 2,254 2,998 247 2,392 2,639
G. Bonds 913 7,533 8,446 1,028 7,407 8,435
H. Short- term financial liabilities to related parties
I. Long- term financial liabilities to related parties 1 1
L. Other short- term financial liabilities 225 225 1,431 1,431
M. Other long- term financial liabilities (*) 6 15 20
N. Gross financial debt (E+F+G+H+I+L+M) 3,633 9,787 13,420 4,206 9,815 14,020
O. Net financial debt (N-C-D) 1,761 9,787 11,548 1,709 9,815 11,523
31.12.2018 30.06.2019
(*) Il valore include i debiti finanziari per beni in leasing iscritti ai sensi dell'IFRS 16 "Leasing".
14) Trade payables and other payables Trade payables and other payables, which amount to Euro 1,622 million (Euro
1,768 million at 31 December 2018) comprise the following:
(€ million) 31.12.2018 30.06.2019
Trade payables 491 338
Payables for investments 337 304
Other payables 940 980
1,768 1,622
Trade payables of Euro 338 million (Euro 491 million at 31 December 2018)
relate mainly to the natural gas transportation segment (Euro 235 million,
including Euro 125 million relating to system balancing activities). The
decrease compared to 31 December 2018 is mainly attributable to the lower
payables relating to the balancing activity of the gas system against the lower
volumes of gas exchanged as a result of the climate trend.
Payables for investment activities of Euro 304 million (Euro 337 million at 31
December 2018) relate mainly to the natural gas transportation (Euro 237
million) and storage (Euro 53 million) business segments.
84 2019 Half Year Report
Other payables of Euro 980 million (Euro 940 million at 31 December 2018)
break down as follows:
(€ million) 31.12.2018 30.06.2019
Other payables
- Payables to the Electricity Equalisation Fund (CSEA) 570 913
- Interim dividend 298
- Payables to employees 32 19
- Payables to pension and social security institutions 19 17
- Consultants and professionals 8 7
- Other 13 24
940 980
The amounts due to CSEA (Euro 913 million) mainly refer to accessory tariff
components relative to the transportation segment and the greater amounts
invoiced in the first half 2019 to transportation service users with respect to
the restriction laid down by the Regulator. The item also includes the previous
corrective factors of the natural gas transportation segment relative to over-
invoicing and penalties (Euro 209 million, net of assets offsetted), entered
under other non-current assets/liabilities as at 31 December 2018. In
accordance with ARERA resolution 114/2019/R/gas, these amounts, no longer
to be returned through future tariff adjustments, must be settled starting 31
July 2019 against the “Transportation expenses account”13.
Note 28 “Related-party transactions” contains information about payables
due to related parties.
The book value of trade and other payables is close to the relative fair value
measurement, given the short period of time between when the payable
arises and its due date.
13 By letter dated 26 June 2019, the Regulatory authority notified Snam Rete Gas of the amount of corrective factors relative to previous years, to be paid to
CSEA by 31 July 2019, as established by Art. 4.3 of resolution 114/2019/R/gas of the same Authority. The amount equal to Euro 180 million, determined on the basis of certificates of revenues relative to 2018, sent to the Authority in accordance with the same Art. 4 of resolution 114/2019/R/gas, refers to the corrective factors applicable to 2018, net of the price differences and the residual corrective factors pertaining to previous years (2015-2017). Snam Rete Gas organised the payment for 30 July 2019.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 85
15) Other current and non-current liabilities
Other current liabilities, amounting to Euro 69 million (Euro 86 million at 31
December 2018), and other non-current liabilities, amounting to Euro 234
million (Euro 437 million at 31 December 2018), break down as follows:
(€ million) Current
Non-
current Total Current
Non-
current Total
Liabilities from regulated activities 37 351 388 18 113 131
Market value of derivative financial instruments 7 26 33 8 60 68
Other liabilities 42 60 102 43 61 104
- Security deposits 46 46 47 47
- Prepaid revenue and income 29 6 35 29 5 34
- Prepaid contributions for connecting to the transportation network 6 6 6 6
- Other 13 2 15 14 3 17
86 437 523 69 234 303
31.12.2018 30.06.2019
Regulated liabilities, amounting to Euro 131 million (Euro 388 million at 31
December 2018), relate to:
the transportation segment (Euro 102 million) of penalties charged
to users that have exceeded the capacity committed. The current
and non-current portions amount to Euro 18 million and Euro 85
million respectively (Euro 37 million and Euro 322 million at 31
December 2018). The corrective factors for over-invoicing and
penalties relative to the previous years 2015-2018 (Euro 239 million)
no longer to be returned through future tariff adjustments, but to
be settled to CSEA against the “Transportation expense account”, in
accordance with ARERA resolution 114/2019/R/gas, have been
reclassified to other payables to CSEA;
the storage segment (Euro 28 million) due to payments for balancing
and stock replenishment, to be returned to service users pursuant to
Resolution No. 50/06 of the Electricity and Gas Authority,
corresponding entirely to the non-current share (Euro 29 million,
fully attributable to the non-current portion at 31 December 2018).
The market value of the derivative financial instruments outstanding at 30
June 2019 is broken down in Note 8 “Other current and non-current assets”.
Other liabilities of Euro 104 million (Euro 102 million at 31 December 2018)
include mainly: (i) security deposits paid by way of guarantee by balancing
service users in accordance with the resolution ARG/gas 45/11 (Euro 47
million; Euro 46 million as at 31 December 2018 corresponding entirely to the
non-current share); (ii) liabilities for revenues and prepaid income (Euro 34
million), essentially regarding revenues anticipated to TAP for the provision of
the design services (Euro 25 million corresponding entirely to the current
portion) and the prepaid charges for the concession to use fibre-optic cable to
a telecommunications operator (6 million, of which Euro 1 million current
portion and Euro 5 million non-current portion).
86 2019 Half Year Report
16) Provisions for risks and charges Provisions for risks and charges, which amount to Euro 761 million (Euro 665
million at 31 December 2018) are analysed in the table below:
(€ million)
against
charges for excess
Provision for site dismantlement and
restoration 607 4 (1) 85 695
Provision for litigation 19 3 (2) 20
Provision for tax litigation 6 4 (1) 3 12
Other provisions 33 2 (1) 34
665 9 4 (2) (3) 88 761
30.06.2019
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The provision for site dismantling and restoration (Euro 695 million) includes
the discounted estimate of costs expected to be incurred for the removal of
facilities and the restoration of sites in the natural gas storage (Euro 548
million) and transportation (Euro 142 million) business operating segments.
Other changes (Euro 85 million) refer to the change in estimate as a result of
the reduction in expected discounting rates.
17) Liabilities for deferred taxes Deferred tax liabilities of Euro 511 million (Euro 541 million at 31 December
2018) are stated net of offsettable prepaid tax assets of Euro 404 million
(Euro 407 million at 31 December 2018).
There are no prepaid tax assets which cannot be offset.
(€ million) 31.12.2018 Provisions Utilisations Other changes 30.06.2019
Liabilities for deferred taxes 541 (30) 511
Prepaid tax assets (407) 15 (12) (404)
134 (15) (12) 107
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 87
18) Shareholders' equity Shareholders' equity held by Snam’s shareholders of Euro 6,065 million (Euro
5,985 million at 31 December 2018) breaks down as follows:
(€ million) 31.12.2018 30.06.2019
Share capital 2,736 2,736
Legal reserve 547 547
Share premium reserve 1,021 746
Reserve for fair value of cash flow hedging derivatives net of tax effect (28) (68)
Reserve for defined-benefit plans for employees net of tax effect (8) (8)
Reserve for fair value of minority equity investments 1 1
Retained earnings 2,286 2,500
Consolidation reserves (674) (674)
Net profit for the year 960 581
Other reserves 67 51
Less:
- Negative reserve for treasury shares held in the portfolio (625) (350)
- Interim dividend (298)
Snam Shareholders' equity 5,985 6,062
Minority interests 3
Total shareholders’ equity 6,065
Below is a breakdown of the main shareholders' equity of Snam at 30 June
2019.
Share capital
The share capital at 30 June 2019 consisted of 3,394,840,916 shares without
nominal value (3,469,038,579 shares without nominal value unchanged from
31 December 2018), with a total value of Euro 2,735,670,475.56 (unchanged
from 31 December 2018). The change in the breakdown of the share capital
follows the cancellation of 74,197,663 treasury shares in the portfolio,
without reducing the share capital, resolved by the Ordinary Shareholders’
Meeting of 02 April 2019.
Legal reserve
The legal reserve stood at Euro 547 million at 30 June 2019 (unchanged from
31 December 2018).
Share premium reserve
The share premium reserve stood at Euro 746 million at 30 June 2019 (1, 021
as at 31 December 2018). The reduction of Euro 275 million is due to the use
of part of the reserve in view of the cancellation of 74,197,663 treasury
shares in the portfolio.
Reserve for fair value of cash flow hedging derivative financial instruments net of tax effect
The cash flow hedge reserve, negative for Euro 68 million (Euro -28 million at
31 December 2018) includes the fair-value measurement of cash flow
hedging derivatives, net of the tax effect. This valuation is related to a Cross
Currency Swap (CCS), six Interest Rate Swaps (IRSs) and two “Forward Start”
88 2019 Half Year Report
Interest Rate Swaps described in Note 8 “Other current and non-current
assets”.
Reserve for defined-benefit plans for employees net of tax effect
At 30 June 2019, the reserve for remeasurement of employee benefit plans
(negative for Euro 8 million; unchanged at 31 December 2018) included
actuarial losses, net of the relative tax effect, recognised under other
components of comprehensive income pursuant to IAS 19.
Retained earnings
Retained earnings totalled Euro 2,500 million (Euro 2,286 million at 31
December 2018). The increase of Euro 214 million was mainly due to the
allocation of 2018 residual profit.
Consolidation reserve
The negative consolidation reserve of Euro 674 million (unchanged from 31
December 2018) includes the value derived from the difference between the
acquisition cost of the Italgas and Stogit equity investments (Euro 1,597
million, including the additional transaction expenses and price adjustment
following the agreements reached at transaction closing) and the relative
shareholders’ equity attributable to the Group on the transaction completion
date (Euro 923 million).
Other reserves
Other reserves of Euro 51 million (Euro 67 million as at 31 December 2018)
mainly refer to the effects deriving from the measurement of equity
investments using the net equity method. The reduction is due to the
negative change in the fair value of derivative financial instruments hedging
owned by equity investments valued using the equity method.
Negative reserve for treasury shares held in the portfolio
Negative reserve holds a purchase cost of no. 94,000,000 treasury shares as at
30 June 2019 (168,197,663 as at 31 December 2018), as a total amount of
Euro 350 million (Euro 625 million at 31 December 2018). The reduction of
Euro 275 million is due to the cancellation of 74,197,663 treasury shares in
the portfolio,a pproved by the Snam Shareholders' Meeting of 2 April 2019.
Dividends
The Ordinary Shareholders' Meeting of Snam S.p.A. resolved on 02 April 2019
to distribute a dividend of Euro 0.2263 per share, of which Euro 0.0905 per
share, for an amount of Euro 298 million, already distributed by way of
interim dividend. The balancing dividend of Euro 0.1358 per share, for an
amount of Euro 448 million, will be paid from 26 June 2019, with an ex-
dividend date of 24 June 2019 and a record date of 25 June 2019.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 89
19) Guarantees, commitments and risks Guarantees, commitments and risks, amounting to Euro 5,407 million (Euro
5,950 million at 31 December 2018) comprise:
(€ million) 31.12.2018 30.06.2019
Guarantees given in the interest of: 1,262 1,230
- subsidiaries 69 101
- associates 1,193 1,129
- of which Trans Adriatic Pipeline 1,129 1,129
Financial commitments and risks:
Commitments 2,021 2,244
Commitments for the purchase of goods and services 1,691 1,969
Commitments in associates (*) 324 275
- of which Trans Adriatic Pipeline 324 275
Other 6
Risks 2,667 1,929
- third- party assets on deposit 2,609 1,915
- compensation and litigation 58 14
5,950 5,403
Guarantees
Guarantees given in the interests of subsidiaries (Euro
101 million; Euro 69 million at 31 December 2018)
essentially relate to: (i) guarantees given in the favour
of the Revenue Agency in the interests of the
subsidiaries Stogit and Gnl (Euro 43 million) for the
reimbursement of VAT credits pursuant to Presidential
Decree 633/1972; (ii) waivers issued in the favour of
third parties as a performance guarantee (Euro 39
million); (iii) bank surety in the favour of INPS as a
guarantee of the fulfilment of obligations accepted
with regards to the same institute under the scope of
the provisions connected with early retirement,
regulated by Art. 4, paragraph 1-7 of Italian Law
92/2012 - the Fornero Law (Euro 19 million).
Other personal guarantees given in the interests of
associates (Euro 1,129 million; Euro 1,193 million at 31
December 2018) refer to the guarantee given in the
interest of TAP in connection with the project loan for
the development of the gas pipeline (for further
information see the paragraph below on
“Commitments, guarantees and pledges - TAP”).
Commitments
The commitments for the purchase of goods and
services (Euro 1,969 million; Euro 1,691 million as at 31
December 2018) regard the commitments made with
suppliers for the purchase of tangible fixed assets and
the supply of services relative to the investments being
made.
Commitments in associates (Euro 275 million; Euro 324
million as at 31 December 2018) refer to the
commitment made by Snam S.p.A. to the company TAP
by virtue of the share held (for further information, see
the paragraph “Commitments, guarantees and pledges -
TAP” below).
Commitments, guarantees and pledges - TAP
Commitments in associates (Euro 275 million) refer to
the residual commitment of Snam S.p.A., as shareholder
and in connection with the project finance for the
development of the gas pipeline by virtue of the share
held, of 20%, with regards to the company Trans
Adriatic Pipeline AG (TAP). The commitment relates to
the total project costs, including the financial expenses
envisaged during the development of the work deriving
from the loan agreement stipulated by TAP in
December 2018. It is specified that, following the
finalisation of the TAP Project Financing, the cost of the
project will be financed for approximately 75% by the
lenders. On the basis of the project financing
concluded, Snam S.p.A.’s commitment toward TAP will
progressively decline due to the disbursement to TAP of
the financing by the lenders. During the construction
and commissioning of the plant, the loan contract of
(*) The value shown in the table refers to the residual commitment.
90 2019 Half Year Report
the associate TAP will be, amongst others, accompanied
by a first-demand guarantee (the “Debt Service
Guarantee”) up to a maximum pro-quota amount of
Snam of Euro 1,129 million. As at 30 June 2019, the
effective value of the guarantee relating to the above
loan is approximately Euro 632 million. The guarantee
will be released when certain requirements are met, as
agreed with the lenders, including, in particular, the
completion and commissioning of the plant. Once the
project has been developed, during operation, a
mechanism is instead envisaged in support of the
repayment of the financial debt issued by shareholders
(the “Debt Payment Undertaking”), which will activate
where certain, specific conditions should arise. The
project financing structure stipulated for TAP envisages
some limits for shareholders typical of transactions of
this type, including: (i) the restriction of the possibility
of freely disposing of the shares in TAP according to
certain timing; (ii) the establishment in pledge of the
shares held by Snam in TAP in the favour of the lenders
for the entire duration of the loan.
Risks
Risks related to third-party assets on deposit, equal to
Euro 1,915 million (Euro 2,609 million at 31 December
2018) relate to approximately 8 billions of cubic metres
of natural gas deposited in the storage plants by
customers of the service. This amount was determined
by valuing the estimated unit repurchase cost14 of
approximately Euro 0.25 per standard cubic metre to
the quantities of gas deposited (0.32 at 31 December
2018).
Risks concerning compensation and litigation of Euro 14
million (Euro 58 million at 31 December 2018) relate to
possible (but not probable) claims for compensation
arising from ongoing litigation, with a low probability
that the pertinent economic risk will arise.
FINANCIAL RISK MANAGEMENT
Introduction
The main corporate financial risks identified, monitored
and, where specified below, managed by Snam are as
follows:
risk arising from exposure to exchange rate
fluctuations;
credit risk deriving from the possibility of
counterparty default;
liquidity risk arising from not having sufficient funds
to meet short-term financial commitments;
rating risk;
debt covenant and default risk.
There follows a description of Snam's policies and
principles for the management and control of the risks
arising from the financial instruments listed above. In
agreement with IFRS 7 “Financial instruments:
additional information”, there are also descriptions of
the nature and size of the risks resulting from such
instruments.
Information on other risks affecting the company’s
business (natural gas price risk, operational risk and risks
specific to the segment in which Snam operates) can be
found in the
14
The value is calculated based on the CCI tariff, i.e. the wholesale price established every quarter by ARERA.
Interim directors' report at the chapter “Elements of
risk and uncertainty”.
Interest rate risk
Interest rate risk is associated with fluctuations in
interest rates affecting the market value of the
Company's financial assets and liabilities and its net
financial expense. Snam aims to optimise interest rate
risk while pursuing its financial objectives. The Snam
Group has adopted a centralised organisational model.
In accordance with this model, Snam’s various
departments access the financial markets and use funds
to cover financial requirements, in compliance with
approved objectives, ensuring that the risk profile stays
within defined limits. At 30 June 2019, the Snam Group
used external financial resources in the form of bonds
and bilateral and syndicated funding with banks and
other financial institutions, in the form of medium- to
long-term financial payables and bank lines of credit at
interest rates indexed to the reference market rates, in
particular the Europe Interbank Offered Rate (Euribor),
and at fixed rates.
The exposure to interest rate risk at 30 June 2019 is
about 29% of the total exposure of the Group (22% at
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 91
31 December 2018). As at 30 June 2019, Snam has
interest rate swaps (IRSs) in place for a total amount of
Euro 1,650 million, referring to the hedge of the entire
notional amount of three floating-rate bonds for a total
value of Euro 1,000 million, maturing in 2020, 2022 and
2024 and two forms of bilateral floating-rate funding
for a total value of 650 million, maturing in 2021 and
2023. The IRS derivative contracts are used to convert
floating rate loans to fixed rate loans.
Moreover, as at 30 June 2019, Snam has forward-
starting IRS derivatives in place of a notional amount
totalling Euro 500 million, maturing in the medium to
long-term, for highly probable future financial liabilities
to be undertaken up to 2021, for coverage of financial
requirements.
Though the Snam Group has an active risk management
policy, the rise in interest rates relating to floating-rate
debt not hedged against interest rate risk could have
negative effects on Snam Group’s operations, balance
sheet and cash flow.
Exchange rate risk
Snam’s exposure to exchange rate risk relates to both
transaction risk and translation risk. Transaction
exchange rate risk is generated by the conversion of
trade or financial receivables (payables) into currencies
other than the functional currency and is caused by the
impact of unfavourable exchange rate fluctuations
between the time that the transaction is carried out and
the time it is settled (collection/payment). Translation
exchange rate risk relates to rate fluctuations in the
exchange rates of currencies other than the
consolidation currency (the Euro), which can result in
changes to consolidated shareholders’ equity. Snam’s
risk management system aims to minimise transaction
exchange rate risk through measures such as the use of
derivative financial instruments. It cannot be ruled out
that significant future changes in exchange rates may
generate negative effects on Snam Group’s operations,
balance sheet and cash flow, irrespective of the hedging
policies for the risk resulting from exchange rate
fluctuations through the financial instruments on the
market put in place by Snam.
As at 30 June 2019, Snam’s foreign-currency items
essentially refer to a Yen 10 billion bond maturing in
2019 and with an issue-date value of approximately
Euro 75 million. The bond has been fully converted into
euros by a cross currency swap, with the same notional
amount and maturity as the hedged component. This
swap is considered to be a cash flow hedge derivative.
Snam does not take out currency derivatives for
speculative purposes.
The effects on shareholders’ equity and net profit at 30
June 2019 of a hypothetical change of +/-10% in
euro/Japanese yen exchange rates actually applied over
the course of the year is insignificant. The exchange
rate change has no effect on the profit for the period
since the effects of such a change are offset by the
effects of the hedging derivative.
As regards Snam’s investment in the associate
Interconnector UK, there is a euro/sterling exchange
rate risk. Snam believes, however, that this risk should
be considered limited, given the low historic volatility of
the euro/sterling exchange rate, also considering the
recent increase in volatility following the Brexit. With
reference to Snam’s investment in the associate TAP,
there is a euro/CHF exchange rate risk on the equity
cash call on the basis of the contractual commitments
made by shareholders with the company, moreover the
latter are limited in amount following the positive
conclusion of the project financing. This risk is suitably
hedged through the use of derivative financial
instruments (e.g. forward contracts).
Credit Risk
Credit risk is the Company’s exposure to potential losses
arising from counterparties failing to fulfil their
obligations. Default or delayed payment of fees may
have a negative impact on the financial balance and
results of Snam. For the risk of non-compliance by the
counterparty concerning contracts of a commercial
nature, the credit management for credit recovery and
any possible disputes is handled by the business units
and the centralised Snam departments. Snam provides
its business services to approximately 200 operators in
the gas sector, with 10 operators representing
approximately 70% of the entire market (Eni, Edison
and Enel Global Trading hold the top three spots). The
rules for client access to the services offered are
established by the Authorities and set out in the
Network Codes. For each type of service, these
documents explain the rules regulating the rights and
obligations of the parties involved in selling and
providing said services and contain contractual
conditions, which significantly reduce the risk of non-
compliance by the clients. The Codes require
guarantees in coverage of the commitments assumed.
In specific cases, if the customer has a credit rating
issued by major international organizations, the issue of
these guarantees may be mitigated. The regulations
92 2019 Half Year Report
also contain specific clauses which guarantee the
neutrality of the entity in charge of balancing, an
activity carried out from 1 December 2011 by Snam
Rete Gas as the major transportation company. In
particular, the current balancing discipline requires that
based on financial merit criteria, Snam shall make its
purchases and sales on the GME balancing platform to
ensure availability of the resources required for secure
and efficient movement of the gas from the entry
points to the withdrawal points and therefore constant
balancing of the network. The aforementioned
discipline also requires additional usage by Snam of the
storage resources of the users to cover system
imbalances and ensure the relative financial settlement.
Snam’s maximum exposure to credit risk as at 30 June
2019 is represented by the book value of the financial
assets recorded in the consolidated financial
statements of the Snam Group as at 30 June 2019.
Snam may, however, incur liabilities and/or losses from
the failure of its clients to comply with payment
obligations, partly because of the current economic and
financial situation, which makes the collection of
receivables more difficult and more important. Snam’s
maximum exposure to credit risk at 30 June 2019 is the
book value of the financial assets on its balance sheet.
Liquidity risk
Liquidity risk is the risk that new financial resources may
not be available (funding liquidity risk) or that the
Company may be unable to convert assets into cash on
the market (asset liquidity risk), meaning that it cannot
meet its payment commitments. This may affect
economic results should the Company be obliged to
incur extra costs to meet its commitments or, in
extreme cases, lead to insolvency and threaten the
Company’s future as a going concern.
Under the financial plan, Snam’s risk management
system aims to establish a financial structure that, in
line with the business objectives, ensures sufficient
liquidity for the Group, minimising the relative
opportunity cost and maintaining a balance in terms of
the duration and composition of the debt.
As shown in the “Interest rate risk” section, the
Company had access to a wide range of funding sources
through the credit system and the capital markets
(bilateral contracts, pool financing with major domestic
and international banks, loan contracts with the
15
It should be noted that the convertible bond issued in March 2017, for a value of Euro 400 million, is not part of the EMTN programme.
European Investments Bank (EIB) bonds and
Commercial Papers).
Snam’s objective is to maintain a debt structure that is
balanced in composition between bonds and bank
credit, and the availability of usable committed bank
credit lines, in line with its business profile and the
regulatory environment in which Snam operates.
At 30 June 2019, Snam had unused committed long-
term lines of credit worth around Euro 3.2 billion. In
addition, as at the same date, Snam has a Euro Medium
Term Notes (EMTN) programme in place for a maximum
total nominal value of Euro 10 billion, used for
approximately Euro 8.0 billion15 and a Euro Commercial
Paper Programme (ECP) for a maximum total nominal
value of Euro 2 billion, used for Euro 1.4 billion as at 30
June 2019.
Snam cash and cash equivalents essentially refer to
short-term liquidity facilities, with a maturity of less
than three months, with a bank with a high credit
standing and to bank deposits.
Although the Snam Group entertains relations with
diversified counterparties of high credit standing, on
the basis of a policy for the active management and
continuous monitoring of its credit risk, the default of
an active counterparty or difficulty in liquidating assets
on the market may have negative effects on the assets
and balance sheet situation of the Snam Group.
Rating risk
With reference to the rating risk, Snam’s long-term
rating is: (i) Baa2 with stable outlook, confirmed on 26
April 2019 by Moody’s Investors Services Ltd
(“Moody’s”); (ii) BBB+ with negative outlook, confirmed
on 27 November 2018 by Standard & Poor’s Rating
Services (“S&P”); (iii) BBB+ with stable outlook,
confirmed on 12 December 2018 by Fitch Ratings
(“Fitch”). Snam’s long-term rating by Moody’s, Standard
& Poor’s and Fitch is a notch higher than that of Italian
sovereign debt. Based on the methodology adopted by
Moody's and S&P, the downgrade of one notch from
the current rating of the Republic of Italy would lead to
a corresponding reduction of Snam’s current rating.
The company’s short-term rating, used under the scope
of the Snam Commercial Paper programme, is P-2 for
Moody’s, A-2 for S&P and F-2 for Fitch.
Any downgrades in the rating assigned to the Snam
Group, could limit the possibility of accessing the capital
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 93
markets and increase the cost of raising funds and/or
refinancing existing debt, with negative effects on
Snam Group’s operations, results, balance sheet and
cash flow.
Risk of default and the debt covenant
Default risk is the possibility that when certain
circumstances occur, the lender may enact contractual
protections that may result in the early repayment of
the loan, thus generating a potential liquidity risk.
As at 30 June 2019, Snam has unsecured bilateral and
syndicated loan agreements in place with banks and
other financial institutions. Part of such contracts
envisages, inter alia, compliance with commitments
typical of international practice, of which some are
subject to specific materiality thresholds, such as: (i)
negative pledge commitments pursuant to which Snam
and its subsidiaries are subject to limitations concerning
the pledging of real property rights or other restrictions
on all or part of the respective assets, shares or
merchandise; (ii) pari passu and change-of-control
clauses; (iii) limitations on certain extraordinary
transactions that the Company and its subsidiaries may
carry out; and (iv) limits on the debt of subsidiaries.
The bonds issued by Snam as at 30 June 2019 provide
for compliance with covenants that reflect international
market practices regarding, inter alia, negative pledge
and pari passu clauses.
Failure to comply with these covenants, and the
occurrence of other events, such as cross-default events
could trigger the early repayment of the related loan.
Exclusively for the EIB loans, the lender has the option
to request additional guarantees, if Snam’s rating is
lower than BBB (Standard & Poor’s/Fitch Ratings
Limited) or lower than Baa2 (Moody’s) with at least two
of the three rating agencies.
The occurrence of one or more of the aforementioned
scenarios could have negative effects on Snam Group’s
operations, results, balance sheet and cash flow,
resulting in additional costs and/or liquidity issues.
These commitments do not carry any comments that
provide for compliance with ratios of an economic
and/or financial nature.
Market value of financial instruments
Below is the classification of financial assets and
liabilities measured at fair value in the statement of
financial position in accordance with the fair value
hierarchy defined on the basis of the significance of the
inputs used in the measurement process. More
specifically, in accordance with the characteristics of the
inputs used for measurement, the fair value hierarchy
comprises the following levels:
level 1: prices quoted (and not amended) on active
markets for the same financial assets or liabilities;
level 2: measurements made on the basis of inputs
differing from the quoted prices referred to in the
previous point, which, for the assets/liabilities
submitted for measurement, are directly (prices) or
indirectly (price derivatives) observable;
level 3: inputs not based on observable market data.
In relation to the foregoing, the classification of the
assets and liabilities measured at fair value in the
statement of financial position, according to the fair
value hierarchy, regarded: (i) derivative financial
instruments as at 30 June 2019, classified at level 2 and
entered under Note 8 “Other current and non-current
assets” (Euro 6 million) and Note 15 “Other current and
non-current liabilities” (Euro 68 million); (ii) the minority
share in Adriatic LNG, measured at FVTOCI, classified as
level 3 and explained at Note 12 “Other equity
investments” (Euro 38 million).
94 2019 Half Year Report
Disputes and other measures Snam is involved in civil, administrative and criminal
cases and legal actions related to its normal business
activities. According to the information currently
available and considering the existing risks, Snam
believes that these proceedings and actions will not
have material adverse effects on its consolidated
financial statements. The following is a summary of the
most important proceedings for which significant
changes to the situation reported in the 2018 Annual
Financial Report occurred, including the new
proceedings and closed proceedings. Unless indicated
otherwise, no allocation has been made for the litigation
described below because the Company believes it
improbable that these proceedings will have an
unfavourable outcome or because the amount of the
allocation cannot be reliably estimated.
Criminal disputes
Snam Rete Gas – Sestino (AR) incident
The public prosecutor at the Court of Arezzo initiated
criminal proceedings in relation to the incident that took
place on 19 November 2015 in the town of Sestino (AR),
involving a gas leak on a section of piping. On 26
November 2015, a one-time notice of technical
investigation was served which indicated that certain
directors and managers, including those who served in
the past, are included in the list of parties under
investigation. The Public Prosecutor has appointed its
own technical consultants. Following a request made by
the Public Prosecutor, the Investigating Judge
definitively ordered the archiving of the proceedings.
Snam Rete Gas S.p.A. - Tresana incident
The public prosecutor at the Massa district court
initiated criminal proceedings in relation to an incident
that occurred on 18 January 2012 in the Municipality of
Tresana regarding an explosion that took place during
maintenance work carried out by a subcontractor. After
committal to trial was ordered by the preliminary
hearing judge, the trial began on 23 June 2015. At the
hearing of 15 September 2017, the district court of
Massa acquitted all the defendants of the offences
charged against them due to lack of evidence. On 12
January 2018, the Public Prosecutor filed an appeal. On
17 April 2019, the Court of Appeal of Genoa confirmed
by judgement the outcome of the first instance
proceedings. Therefore, the complete acquittal was
declared from the charges of manslaughter insofar as
there is no case to answer and there is no need to
proceed for the alleged violations of accident
prevention rules as the statutory terms have expired.
Italian Regulatory Authority for Energy, Networks and the Environment – ARERA
Snam Rete Gas S.p.A. - Resolution 250/2015/R/gas, published on 01 June 2015, concerning: “Adoption of measures on the odorisation of gas for domestic and similar uses of end customers directly connected to the natural gas transportation network”
Through Resolution 250/2015/R/gas, following the
ruling of the Milan regional administrative court, ARERA
amended Article 5 of Resolution 602/2013/R/gas dealing
with the obligation of transportation companies to
odorise gas for end users connected directly to the
transportation network, which, taking into account the
categories of use indicated in the TISG, do not use the
gas delivered for merely technological purposes. In this
regard, ARERA ordered that the transportation
companies shall complete the implementation of the
adaptation plans by 31 January 2017, after carrying out
a survey of the redelivery points involved (by 31 July
2015) and sending ARERA the adaptation plan (by 30
November 2015), to be updated every six months, with
the description of the technical solution identified. Snam
Rete Gas has appealed against the above resolution
believing that the deadline for implementing the plan
can only be decided after the survey. Having carried out
the survey, when sending the plan and the subsequent
updates Snam Rete Gas once again found that the
deadline set by ARERA with its Resolution
484/2016/E/gas was unreasonable. Consequently, in the
appeal with which Snam Rete Gas challenged Resolution
250/2015/R/gas, it also included an appeal for further
grounds against Resolution 484/2016/E/gas asking for
the resolutions challenged to be suspended. The
request for suspension has been accepted by the
Council of State. During the proceedings to discuss the
merits, following the hearing held on 16 January 2019,
with judgement no. 869 of 17 April 2019, the Milan
Regional Administrative Court upheld the petition
submitted by Snam Rete Gas, declaring that the terms
set by the Authority were indeed unlawful insofar as
clearly unreasonable as they failed to take into account
the complexity of the activities to be carried out by the
transportation operator and the need for the
collaboration of end customers responsible for
guaranteeing safe use of the gas for the workers
concerned. Please note that by Ministerial Decree of 18
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 95
May 2018, the Ministry for Economic Development
assigned the task of guaranteeing safe use of gas to end
customers directly connected to the natural gas
transportation network, where they should fully or even
only partly make domestic or similar use of gas, even if
combined with technological uses. Following the
activities functional to the implementation of the
Decree, the end customers have certified that they
guarantee safe use of the gas as per the Decree. Under
the scope of the Consultation document (DCO
203/2019/R/Gas) prior to the review of the regulation on
the quality of the transportation service, ARERA
expressed its intention: (i) of confirming the regulatory
framework pursuant to said Resolution 250/2015/R/Gas
without envisaging a deadline by which the Plan is to be
implemented; and (ii) of promoting a regulatory change
aimed at coordinating the regulation with the above
Ministerial Decree.
Tax disputes
GNL Italia S.p.A. - Local duties
The Council of Porto Venere served notices of
assessment for TARSU/TARI relative to the years from
2012 to 2017, and for IMU relative to 2013, for a total
amount of Euro 578 thousand.
GNL Italia S.p.A. settled the dispute with the council by
paying approximately Euro 184 thousand.
TEP Energy Solution
On 14 December 2018, TEP Energy Solution S.r.l. was
served a Formal Report of Findings limited to the tax
period 01 January 2013/31 December 2013. The Formal
Report of Findings is the result of a tax audit launched
with regards to the company on 27 September 2018, in
order to control compliance with the provisions of
legislation governing income tax, VAT and other tax.
This investigation was sparked by another, more
extensive one launched by the Milan Public Prosecution
regarding a tax fraud system based on the issue and use
of invoices for transactions that were objectively and
subjectively non-existent, under the scope of the
purchase and sale of energy certificates. After
completion of the tax audit, on 21 January 2019, TEP
Energy Solution was served the Formal Report of
Findings relative to the tax period 01 January 2014 and
31 December 2014 and TEP REALE ESTATE, the Formal
Report of Findings relative to the years 2013 and 2014.
The findings mainly regarded the alleged non-
deductibility of the VAT.
The company has submitted a request for tax
settlement, also on the basis of the opinions given by
authoritative independent experts. A provision has
been made for risks, at the same time, the contractual
guarantees issued by the sellers in favour of Snam were
activated in connection with the latter's acquisition of
control of the company.
Other commitments and risks
The other unevaluated commitments and risks are:
Commitments arising from the contract for the acquisition of Stogit from Eni
As at 30 June 2019, the residual commitments resulting
from said agreements concern hedging mechanisms
aimed at keeping within Eni the risks and/or benefits
that may derive from: (i) an eventual valuation of the
gas owned by Stogit at the time of the transfer of the
shares which differs from the valuation currently
recognised by Autorità di Regolazione per Energia Reti
e Ambiente (ARERA) in the event of an even partial
transfer thereof when given quantities may no longer
be instrumental to the regulated concessions and thus
become available for sale; (ii) transfer of storage
capacity that may eventually become freely available on
a negotiated basis and no longer a regulated basis, or
else from a transfer of concessions including those
pertaining to Stogit at the time of the transfer of the
shares which may eventually be dedicated
predominantly to storage business no longer subject to
regulation.
Commitments arising from the contract through which Edison acquired Terminale GNL Adriatico S.r.l.
The price determined for the acquisition of Terminale
GNL Adriatico S.r.l. is subject to adjustment mechanisms
based on commitments made when the transaction was
completed, which were also intended to apply after the
date of execution.
As at 30 June 2019, the commitment arising from the
aforementioned agreement refers to the hedging
mechanisms established to maintain the risks and/or
benefits arising from conclusion of new contracts for
usage of the terminal capacity under Edison.
96 2019 Half Year Report
Commitments arising from the purchase contract of TEP Energy Solutions S.r.l.
The price determined for the acquisition of TEP Energy
Solutions S.r.l. is subject to adjustment mechanisms
based on contractual commitments made, which were
also intended to apply after the date of execution.
As at 30 June 2019, the commitment resulting from the
agreement regards hedging mechanisms based on the
economic results achieved by TEP in the financial years
2018-2020, to be regulated contractually for cash, for
an amount that cannot in any case exceed Euro 2.5
million.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 97
20) Revenue The breakdown of revenue for the first half 2019, which totalled Euro 1,332
million (Euro 1,271 million in 2018), is shown in the following table.
(€ million) 2018 2019
Core business revenue 1,258 1,318
Other revenue and income 13 14
1,271 1,332
First half
The reasons for the most significant changes are described in the “Financial
review and other information” chapter of the Interim directors' report.
Below are details of revenue from contracts with customers, unbundled
according to existing operating business segments16:
(€ million) 2018 2019
Natural gas transportation 1,014 1,062
Liquefied Natural Gas (LNG) regasification 9 11
Natural gas storage 225 216
Corporate and other activities 23 43
1,271 1,332
First half
The Group generates most of its revenue in Italy. An analysis of revenue by
business segment, highlighting consolidation eliminations and adjustments,
can be found in Note no. 27 - “Information by business segment”.
Snam’s business is not affected by seasonal factors which would have a
significant impact on its annual or interim economic-financial results.
Core business revenue
Core business revenue of Euro 1,318 million mainly consists of regulated
revenue from the transportation segment (Euro 1,050 million), natural gas
storage (Euro 216 million) and LNG regasification (Euro 9 million).
Core business revenue is reported net of the tariff components, relating to
the transportation sector, additional to the tariff, and tariff surcharges
applied to cover expenses of a general nature of the gas system (Euro 647
million, Euro 586 million in the first half 2018). Amounts received from Snam
are paid in full to the Energy and Environmental Services Fund (CSEA).
16 In accordance with the accounting standard IFRS 15 “Revenue from contracts with customers”, paragraph 114, Snam has chosen to unbundle revenue
according to existing operating business segment. This representation takes into account information subject to regular review at the highest operative decision-making level, in order to assess the financial performance of the operating segments and information used by the entity or users of the entity’s financial statements to assess the entity's financial performance.
98 2019 Half Year Report
Other revenue and income
Other revenue and income, totalling Euro 14 million (Euro 13 million in the first
half of 2018) refers mainly to income for the incentives of the Balancing
Manager (RdB) in accordance with ARERA resolution 554/2016/R/gas (Euro 8
million; Euro 6 million in the first half 2018) and gas sales (Euro 2 million).
21) Operating costs The breakdown of operating costs for the period, which totalled Euro 221
million (Euro 207 million in first half 2018), is shown in the following table:
(€ million) 2018 2019
Purchases, services and other costs 130 135
Personnel cost 77 86
207 221
First half
The reasons for the most significant changes are described in the “Financial
review and other information” section of the Interim directors’ report.
Purchases, services and other costs
Purchases, services and other costs, which amounted to Euro 135 million (Euro
130 million in the first half 2018), can be broken down as follows:
(€ million) 2018 2019
Costs for purchase of raw materials, consumables, supplies and goods 23 83
Costs for services 132 138
Costs for the use of third- party assets 12 15
Changes in raw materials, consumables, supplies and goods (5) (18)
Net accrual to (utilisation of) provisions for risks and charges 3 2
Other operating expenses 17 18
182 238
Less:
Increase on internal w ork - property, plant and equipment (52) (103)
- of which costs for purchase of raw materials, consumables, supplies and goods (10) (50)
- of which costs for services (42) (53)
130 135
First half
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 99
Personnel cost
Personnel cost, which amounted to Euro 86 million (Euro 77 million in the first
half 2018), can be broken down as follows:
(€ million) 2018 2019
Wages and salaries 73 78
Social security contributions (pensions and healthcare assistance) 21 22
Employee benefits 3 5
Other expenses 8 4
105 109
Less:
Increase on internal w ork (28) (23)
77 86
First half
Average number of employees
The average number of employees included in the scope of consolidation,
broken down by status, is as follows:
Professional status 30.06.2018 31.12.2018 30.06.2019
Executives 100 104 111
Managers 457 464 495
Office workers 1,622 1,650 1,707
Manual workers 716 731 731
2,895 2,949 3,044
The average number of employees is calculated on the basis of the monthly
number of employees for each category.
Personnel in service as at 30 June 2019 numbered 3,014 resources (2,884
and 3,016 resources respectively at 30 June 2018 and 31 December 2018)
with an increase of 130 resources on 30 June 2018, mainly due to resources
obtained from the acquisitions of IES Biogas (46 resources) and a Cubogas
business unit (64 resources) and a reduction of 3 resources with respect to 31
December 2018.
22) Amortisation, depreciation and impairment losses
Amortisation, depreciation and impairment losses, which amounted to Euro
355 million (Euro 335 million in the first half 2018), can be broken down as
follows:
(€ million) 2018 2019
Total amortisation and depreciation 335 355
- Property, plant and equipment 306 323
- Intangible assets 29 32
Impairment losses
335 355
First half
100 2019 Half Year Report
For more details about amortisation, depreciation and impairment losses
relating to tangible and intangible fixed assets, please see Note no. 9
“Property, plant and equipment”, and Note no. 10 “Intangible fixed assets”.
An analysis of amortisation, depreciation and impairment by business
segment can be found in Note 27 “Information by business segment”.
23) Financial expense (income) Financial expense (income), which amounted to Euro 85 million (Euro 98
million in the first half 2018), can be broken down as follows:
(€ million) 2018 2019
Financial expense (income) 96 76
Financial expense 97 80
Financial income (1) (4)
Other financial expense (income) 2 8
Other financial expense 7 9
Other financial income (5) (1)
Losses (Gains) on hedging derivatives – ineffective portion 1
Losses from derivative contracts 1
98 85
First half
(€ million) 2018 2019
Financial expense (income) 96 76
Expense on financial debt: 103 85
- Interest and other expenses on bond loans 94 75
- Fees on loans and bank credit lines 4 4
- Interest expense on credit lines and loans due to banks and other lenders 5 6
Financial expense capitalised (6) (5)
Income from financial receivables (1) (4)
- Bank interest income (1) (4)
Other financial expense (income): 2 8
- Accretion discount (*) 5 4
- Other expenses 2 5
- Interest income on financial receivables held for operating activities (4)
- Other income (1) (1)
Losses (Gains) on hedging derivatives – ineffective portion 1
98 85
First half
(*) This item refers to the increase in provisions for risks and charges, which are reported at discounted value under Note 16 “Provisions for risks and charges”.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 101
Expense on financial payables (Euro 85 million) related to: (i) interest and
other expense on bonds (Euro 75 million), referring essentially to interest on
18 bonds; (ii) the portion attributable to the period of upfront fees on
revolving lines of credit (Euro 2 million) and credit line non-usage fees (Euro 2
million); and (iii) interest due to banks on revolving lines of credit and
maturing loans (Euro 6 million in total).
Financial expense capitalised (Euro 5 million) related to the portion of
financial expense capitalised pursuant to investment activities.
Other financial expense/income (Euro 8 million) mainly regard the financial
expense connected with the passing of time relative to the provisions for the
abandonment and restoration of sites of storage and transportation
segments (Euro 4 million).
24) Income from equity investments Income on equity investments, which amounted to Euro 118 million (Euro 85
million in the first half 2018), can be broken down as follows:
(€ million) 2018 2019
Effect of valuation using the equity method 85 118
- Net income from valuation using the equity method 83 116
- Dividends 2 2
85 118
First half
Details of capital gains and capital losses from the valuation of equity
investments using the net equity method can be found in Note 11 “Equity-
accounted investments”. Dividends (Euro 2 million) relate to the minority
share held in the company Terminale GNL Adriatico S.r.l., measured at fair
value with equivalent entry under shareholders’ equity “Fair Value Through
Other Comprehensive Income - FVTOCI”.
102 2019 Half Year Report
25) Income taxes Income taxes for the period, which amounted to Euro 208 million (Euro 193
million in the first half 2018), can be broken down as follows:
(€ million) 2019
IRES IRAP Total IRES IRAP Total
Current taxes 175 32 207 191 32 223
Current taxes for the period 174 32 206 189 32 221
Adjustments for current taxes relating to previous years 1 1 2 2
Deferred and prepaid taxes (14) (14) (15) (15)
Deferred taxes (8) (8) (27) (3) (30)
Deferred tax assets (prepaid taxes) (6) (6) 12 3 15
161 32 193 176 32 208
First half
2018
The impact of taxes on pre-tax profit for the period (tax rate) is 26.35%
(27.0% in the first half of 2018) in view of the theoretical tax rate of 27.76%
(28.09% in the first half of 2018), which is obtained by applying the statutory
tax rate of 24.0% (IRES) to pre-tax profit and 3.9% (IRAP) to the net value of
production. The reduction in the tax rate with respect to the theoretical rate
is mainly due to the valuation of the equity investments using the equity
method, the effects of which were partly offset by the tax on the dividend.
26) Earnings per share Basic earnings per share, at Euro 0.176 per share (Euro 0.154 per share in the
first half 2018), are calculated by dividing the net profit held by Snam (Euro
581 million; Euro 523 million in the first half 2018) by the weighted average
number of Snam shares outstanding during the period, excluding treasury
shares.
Diluted earnings per share are calculated by dividing net profit by the
weighted average number of outstanding shares during the period,
excluding treasury shares, increased by the number of shares which could
potentially be added to the outstanding shares. For the first half 2019, the
diluted earnings per share takes into account the potential effects from
assignment of treasury shares in portfolio against the issuing of the bond
convertible into ordinary Snam shares and those from the long-term share-
based incentive plan, with reference to 2017 and 2018 assignments.
The weighted average number of outstanding shares used to calculate
diluted earnings per share is 3,385,643,532 and 3,468,355,207 respectively
for the first half of 2019 and the first half of 2018.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 103
The reconciliation of the weighted average number of outstanding shares
used to determine basic and diluted earnings per share is set out below:
2018 2019
Weighted average number of outstanding shares used to calculate basic earnings per share 3,385,300,141 3,300,840,916
Number of shares with potential dilution effect 83,055,066 84,802,616
Weighted average number of outstanding shares used to calculate diluted earnings per share 3,468,355,207 3,385,643,532
Net profit is attributable to Snam (€ million) 523 581
Dilution effect of the convertible bond (€ million) 2 2
Net profit for diluted earnings (€ million) 525 583
Basic earnings per share (€ per share) (amounts in € per share) 0.154 0.176
Diluted earnings per share (€ per share) (amounts in € per share) 0.151 0.172
First half
27) Information by business segment The information by business segments has been prepared in accordance with
the provisions of IFRS 8 “Operating segments”, which requires the
information to be presented in a manner consistent with the procedures
adopted by the Company’s management when taking operational decisions.
Consequently, the identification of the operating business segments and the
information presented are defined on the basis of the internal reporting used
by the Company’s management for allocating resources to the different
segments and for analysing the respective performances.
In the first half 2019, the business segments for which information is
provided coincide with those in place as at 31 December 2018, namely
natural gas transportation (“Transportation”), LNG regasification
(“Regasification”) and natural gas storage (“Storage”). They relate to activities
carried out predominantly by Snam Rete Gas and ITG, GNL Italia and Stogit
respectively.
104 2019 Half Year Report
(€ million) Co
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First half 2018
Net core business revenue (a) 101 1,044 294 11 1,450
less: inter- segment revenues (78) (42) (70) (2) (192)
Revenue from third parties 23 1,002 224 9 1,258
Other revenue and income 12 1 13
Net accrual to provisions for risks and charges (2) (1) (3)
Amortisation, depreciation and impairment losses (4) (279) (50) (2) (335)
EBIT (11) 569 169 2 729
Effect of valuation using the equity method 83 83
Total assets 3,671 14,186 4,081 102 22,040
- of which investments with valuation using the equity method 1,519 1,519
Total liabilities 13,150 9,947 2,732 40 (9,925) 15,944
Investments in tangible and intangible fixed assets 2 314 31 2 349
First half 2019
Net core business revenue (a) 132 1,080 297 15 1,524
less: inter- segment revenue (89) (30) (81) (6) (206)
Revenue from third parties 43 1,050 216 9 1,318
Other revenue and income 12 2 14
Net accrual to provisions for risks and charges (5) 3 (2)
Amortisation, depreciation and impairment losses (8) (295) (50) (2) (355)
EBIT (22) 607 169 2 756
Effect of valuation using the equity method 116 116
Total assets 4,656 14,112 4,119 126 23,013
- of which investments with valuation using the equity method 1,745 1,745
Total liabilities 14,286 9,792 2,750 64 (9,944) 16,948
Investments in tangible and intangible fixed assets 3 340 60 5 408
(a) Balances before elimination of intra-segment rev enue.
Revenue is generated by applying regulated tariffs or market conditions. The
revenue was generated mainly in Italy; costs were incurred almost entirely in
Italy.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 105
28) Related-party transactions Considering the de facto control of CDP S.p.A. over Snam S.p.A., pursuant to
the international accounting standard IFRS 10 - Consolidated Financial
Statements, based on the current Group ownership structure the related
parties of Snam are represented by Snam's associates and joint ventures as
well as by the parent company CDP S.p.A. and its subsidiaries, associates and
companies under joint control (whether directly or indirectly) by the Ministry
of Economy and Finance. Members of the Board of Directors, Statutory
Auditors and managers with strategic responsibilities, and their relatives, are
also regarded as related parties of Snam Group and CDP.
As explained in detail below, related-party transactions mainly concern the
exchange of goods and the provision of regulated services in the gas sector.
Transactions between Snam and related parties are part of ordinary business
operations and are generally settled under market conditions, i.e. the
conditions that would be applied between two independent parties. All the
transactions carried out were in the interest of the companies of the Snam
Group.
Pursuant to the provisions of the applicable legislation, the Company has
adopted internal guidelines to ensure that transactions carried out by Snam
or its subsidiaries with related parties are transparent and correct in their
substance and procedure.
Directors and auditors declare their interests affecting the Company and the
Group every six months, and/or when changes in said interests occur; they
also inform the Chief Executive Officer (or the Chairman, in the case of the
Chief Executive Officer), who in turns informs the other directors and the
Board of Statutory Auditors, of individual transactions that the Company
intends to carry out and in which they have an interest.
Snam is not subject to management and coordination. Snam manages and
coordinates its subsidiaries, pursuant to Article 2497 et seq. of the Italian Civil
Code.
With regard to related-party transactions, pursuant to the disclosure
obligations required by Consob Regulation No. 17221 of 12 March 2010, we
note the stipulation between Snam Rete Gas S.p.A. and Eni S.p.A. of the
transport contract for natural gas for the Thermal Year 2018 - 2019. On 04
February 2019, the value of the transport contract exceeded the significance
threshold of 140 million as defined in the Snam Guideline “Procedure for
transactions in which directors and auditors have an interest and related-
party transactions”.
The contract is defined in accordance with the procedures defined in the
Snam Rete Gas S.p.A. Network Code approved by the Regulatory Authority
for Energy Networks and the Environment (ARERA) pursuant to Resolution
75/2003, as amended.
The calculation of a fee for services rendered take place through application
of the natural gas transportation and dispatching tariffs approved by
Resolution of the Authority.
This contract constitutes an ordinary transaction concluded at arm’s length or
equivalent conditions insofar as, in accordance with paragraph 2 of the
Guidelines (published on the website www.snam.it): (i) it is part of the core
106 2019 Half Year Report
business and related financial assets; (ii) the conditions applied are based on
regulated tariffs.
The amounts involved in commercial, financial and other transactions with
the above-mentioned related parties are shown below. The nature of the
most significant transactions is also stated.
Commercial and other transactions
Commercial and other transactions can be broken down as follows:
(€ million) ReceivablesOther assets Payables
Other liabilities
Guarantees and commitments Goods Services Other Services Other
Unconsolidated subsidiaries, associates and companies under joint control
- Interconnector (UK) Ltd 1
- Senfluga Energy Infrastructure Holding S.A. 18
- TAG GmbH 12 11 1 1
- Teréga S.A.S. 1
- Trans Adriatic Pipeline AG (TAP) 2 8 19 4
15 19 20 18 6
Companies controlled by the parent company Cassa Depositi e Presiti
- Italgas Group 15 6 8
15 6 8
Companies under joint control by the parent company Cassa Depositi e Presiti
- Saipem Group 21 7
- Valvitalia Finanziaria S.p.A. 1 1
22 1 7
Companies owned or controlled by the State
- Gestore dei mercati energetici S.p.A. 3 19 1
- Anas group 1 1 3
- Enel Group (c) 37 32 192
- Eni Group (c) 89 39 1 9 630
- Ferrovie dello Stato group 1 2
131 1 95 2 9 822
Total 161 1 142 20 18 3 16 836
30 June 2018 First half 2018
Costs (a) Revenue (b)
(a) Includes costs for goods and services to be used in investment activities.
(b) Before tariff components which are offset in costs.
(c) Inclusive of amounts on the balance sheet relating to balancing activities.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 107
(€ million) ReceivablesOther assets Payables
Other liabilities
Guarantees and commitments Goods Services Other Services Other
Unconsolidated subsidiaries, associates and companies under joint control
- Interconnector (UK) Ltd 2
- Senfluga Energy Infrastructure Holding S.A. 3
- TAG GmbH 1 1
- Teréga S.A.S. 1
- Trans Adriatic Pipeline AG (TAP) 1 25 275 8
- Snam Foundation 1
7 25 275 11
Companies controlled by the parent company Cassa Depositi e Presiti
- Italgas Group 1 1 1
- Cassa Depositi e Presiti 1
1 2 1
Companies under joint control by the parent company Cassa Depositi e Presiti
- Saipem Group 17 9
- Valvitalia Finanziaria S.p.A. 1 1 2
18 1 11
Companies owned or controlled by the State
- Gestore dei mercati energetici S.p.A. 4 6 3
- Anas group 1 1 3 1
- Enel Group (c) 70 21 192
- Eni Group (c) 248 19 10 650
- Ferrovie dello Stato group 1 1 2
- Finmeccanica group 1
324 1 50 3 11 845
Total 332 1 70 25 275 4 22 1 856
Costs (a) Revenue (b)
30 June 2019 First half 2019
(a) Includes costs for goods and services to be used in investment activities.
(b) Before tariff components which are offset in costs.
(c) Inclusive of amounts on the balance sheet relating to balancing activities.
Companies under joint control and associates
The main commercial relations with companies under joint control and
associates refer to:
the provision of services to TAG (Trans Austria Gas Pipeline) for the
realisation of the transport infrastructures governed by the Engineering,
Procurement and Construction Management (EPCM) Agreement;
the provision to TAP (Trans Adriatic Pipeline) of services for the
construction of transport infrastructures governed by the Engineering
and Project Management (EPMS) Agreement;
108 2019 Half Year Report
the residual commitment of Snam S.p.A. as shareholder and in connection
with the project financing for the development of the gas line in respect
of the share held, equal to 20%, in regard to TAP17.
Companies under joint control of the parent company Cassa Depositi e Presiti (Italian investment bank)
Among the main commercial relations with companies under joint control by
Cassa Depositi e Presiti (Italian investment bank) we note the purchase from
Saipem of design and supervision services for the realisation of natural gas
transport and storage infrastructures, regulated by contracts concluded at
arm’s length.
Companies owned or controlled by the State
The key transactions with State-owned or controlled companies relate to:
the provision to the Eni Group and the Enel Group of natural gas
transport, regasification and storage services, which are settled on the
basis of tariffs set by the Authority;
purchase from the Eni Group of electricity used for operations.
Additionally, as at 30 June 2019, there were assets resulting from
transactions with Eni as part of the national tax consolidation scheme in force
until 31 July 2012.
Financial transactions
Financial transactions can be broken down as follows:
First half 2018
(€ million) Receivables Payables Income
Jointly controlled companies and associates
- Trans Adriatic Pipeline AG (TAP) 483 4
483 4
First half 2019
(€ million) Receivables Payables Guarantees Income
Jointly controlled companies and associates
- Trans Adriatic Pipeline AG (TAP) 1 1,129
1 1,129
30 June 2018
30 June 2019
17 Further information is available in note 19 “Guarantees, commitments and risks - Commitments, guarantees and pledges - TAP”.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 109
Companies under joint control and associates
Financial transactions with companies under joint control and associates
regard the first demand guarantee (the “Debt Service Guarantee”) on the
loan contract of the associate TAP18, in the phase relative to the construction
and commissioning of the plant.
Impact of related-party transactions or positions on the balance sheet, income statement and statement of cash flows
The impact of related-party transactions or positions on the balance sheet
and income statement is summarised in the following table:
(€ million)Total Related % Share Total Related % Share
Statement of financial position
Trade receivables and other current receivables 1,347 420 31.2 990 332 33.5
Other non- current assets 36 1 2.8 24 1 4.2
Short- term financial liabilities 1,976 2,925
Trade payables and other payables 1,768 274 15.5 1,622 70 4.3
Other current liabilities 86 27 31.4 69 25 36.2
31.12.2018 30.06.2019
(€ million) Total Related % Share Total Related % Share
Income statement
Core business revenue 1,258 836 66.5 1,318 856 64.9
Purchases, services and other costs 130 12 9.2 135 13 9.6
Financial income 6 4 66.7 5
2018 2019
First half First half
18 Further information is available in note 19 “Guarantees, commitments and risks - Commitments, guarantees and pledges - TAP”.
Related-party transactions are generally governed on the basis of market
conditions, i.e. the conditions which would be applied between two
independent parties.
110 2019 Half Year Report
The principal cash flows with related parties are shown in the following table.
(€ million) 2018 2019
Revenue and income 836 856
Cost and expense (12) (13)
Change in trade receivables and other receivables 314 79
Change in trade payables and other payables 34 (106)
Change in other current and non- current liabilities 6 (2)
Net cash flow from operating activities 1,178 813
Investments:
- Tangible and intangible fixed assets (7) (14)
- Financial receivables (106)
- Change in payables and receivables relating to investments (2) (2)
Cash flow from investments (115) (16)
Net cash flow from investment activities (115) (16)
Increase (decrease) in short- term financial payables (14)
Net cash flow from financial assets (14)
First half
The effect of cash flows with related parties is shown in the following table:
(€ million) Total Related % Share Total Related % Share
Cash flow from operating activities 1,525 1,178 77.2 1,221 813 66.6
Cash flow from investment activities (488) (115) 23.6 (427) (16) 3.7
Cash flow from financing activities (413) (14) 3.4 (169)
First half First half
2018 2019
29) Post-balance sheet events There were no post-balance sheet events after the end of the period.
Condensed interim consolidated financial statements - Notes to the consolidated financial statements 111
Certification of the condensed interim financial statements pursuant to Article 154-bis, paragraph 5 of Legislative Decree No. 58/1998 (Consolidated Finance Act)
1. The undersigned Marco Alverà and Franco Pruzzi, as Chief Executive Officer and the Manager charged with
preparing the Company’s financial reports of Snam S.p.A. respectively, certify, taking into account Article 154-
bis, paragraphs 3 and 4 of Legislative Decree No. 58 of 24 February 1998:
the adequacy, considering the Company’s characteristics, and
the effective implementation of the administrative and accounting procedures for the preparation of
the condensed interim financial statements at 30 June 2019, during the first half of 2019.
2. The administrative and accounting procedures for the preparation of the condensed interim financial
statements at 30 June 2019 and the assessment of their adequacy were carried out using the rules and
methods set out in line with the Internal Control - Integrated Framework model issued by the Committee of
Sponsoring Organisations of the Treadway Commission, a benchmark framework for the internal control system
generally accepted internationally.
3. It is also certified that:
3.1 The condensed interim financial statements at 30 June 2019:
a) were prepared in accordance with the applicable international accounting standards recognised in the
EU pursuant to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19
July 2002;
b) are consistent with the accounting records and ledgers;
c) are able to provide a true and fair view of the financial position, results of operations and cash flows
of the issuer and of the companies included in the scope of consolidation.
3.2 The Interim directors’ report includes a fair review of the references to important events which occurred
during the first six months of the year and their impact on the condensed interim financial statements,
together with a description of the main risks and uncertainties for the remaining six months of the year.
The Interim directors’ report also includes a fair review of the information about key transactions with
related parties.
31 July 2019
/Signature/ Marco Alverà /Signature/ Franco Pruzzi
Marco Alverà Franco Pruzzi
Chief Executive Officer Manager charged with preparing
the Company’s financial reports
112 2019 Half Year Report
Independent auditors’ report
REVIEW REPORT ON CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders of Snam SpA
Foreword
We have reviewed the accompanying condensed interim consolidated financial statements of Snam SpA and its subsidiaries (the Snam Group) as of 30 June 2019, comprising the statement of financial position, income statement, statement of comprehensive income, statement of changes in shareholders’ equity, cash flows statement and related notes. The directors of Snam SpA are responsible for the preparation of the condensed interim consolidated financial statements in accordance with International Accounting Standard 34 applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these condensed interim consolidated financial statementsbased on our review.
Scope of review
We conducted our work in accordance with the criteria for a review recommended by Consob in Resolution No.10867 of 31 July 1997. A review of condensed consolidated semiannual financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than a full-scope audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the condensed consolidated semiannual financial statements.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim consolidated financial statements of the Snam Group as of 30 June 2019 are not prepared, in all material respects, in accordance with International Accounting Standard34 applicable to interim financial reporting (IAS 34) as adopted by the European Union.
Milan, 1 August 2019
PricewaterhouseCoopers SpA
Signed by
Giulio Grandi(Partner)
This report has been translated into English from the Italian original solely for the convenience of international readers
snam.it
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