Summary data and information - Snam · Revalued historical cost Revalued historical cost Revalued historical cost Deduction of replacement costs Computation of Net Invested Capital

Summary data and information

Transport 4years January2014 December2017

Regasification 4years January2014 December2017

Storage 4years January2015 December2018

FOURTH REGULATORY PERIOD

APPLICABLE RATE FRAMEWORK AND PRINCIPAL DEVELOPMENTS

BymeansofResolutions514/2013/R/gas,438/2013/R/gasand531/2014/R/gas,theAuthoritydefined

thetariffcriteriaforthefourthregulatoryperiod,inforcefrom1January2014,fortransportationand

regasificationactivities,andfrom1January2015forstorageactivities.

Thefollowinggraphicshowsthemaintariffcomponentsforeachoftheregulatedactivitiescarriedout

bySnam,basedontheregulatoryframeworkinforceasat31December2016.Furtherinformation

regardingmajornewratedevelopmentsthatoccurredin2016,withrespecttoeachbusinesssector,is

providedinthechapter“Businesssegmentoperatingperformance–Tariffregulations”ofthisReport.

TRANSPORT REGASIFICATION STORAGE

31 December 2017 31 December 2017 31 December 2018

2.4% - on operating costs

0% 1.4% - on operating costs (**)

End of Regulatory Period (TARIFFS)

Revalued historical cost Revalued historical cost Revalued historical costDeduction of replacement costs

Computation of Net Invested Capital Recognized for Regulatory Purposes (RAB)

6.0% Year 20156.5% Years 2016-2018 (*)

7.3% Year 20156.6% Years 2016-2017 (*)

6.3% Year 20155.4% Years 2016-2017 (*)

Return on net invested capitalrecognized for regulatorypurposes (pre-tax WACC)

Efficiency Factor (X FACTOR)

+1% for 7 years (regional system expansion investments)+1% for 10 years (national system expansion investments)+2% per 10 years (expansion investments at points of entry)

WACC +1% on new investmentsmade after 31 December 2013 as regulatory time-lag compensation

+2% per 16 years(new terminals or expansion of the capacity of existing terminals >30%)

WACC +1% on new investmentsmade after 31 December 2013 as regulatory time-lag compensation

20% withholding for 8 years on earnings higher than recognized earnings generated by tender procedures

Return on Investmentst-1 as regulatory time-lagcompensation (since 2014)

Incentives on new investments

(*)Therateofreturnonnetinvestedcapital(WACC)inforcefortheyear2016wassetbytheAuthoritybymeansofResolution583/2015/R/comof2December2015,“Rateofreturnoninvestedcapitalforinfrastructuralservicesintheelectricityandgassectors:calculationandupdatingcriteria”.ThedurationoftheWACCregulatoryperiodforinfrastructureregulationsinthegassectorissetatsixyears(2016-2021),andamechanismisprovidedforupdatingtherateatmid-periodaccordingtotheprevailingsituation.(**)ApprovedbyResolution27/2016/R/gas,publishedon29January2016,inwhichtheAuthoritygavefinalapprovaltotheapplicablerevenuefromstorageactivitiesfortheyear2015.

Summarydataandinformation

45

RESULTS

For purposes of the 2016 consolidated financial statements, the separation from Snam of the natural

gas distribution business, as a “separate major line of business of operations”, resulted in a separate

representation, as discontinued operations, of financial results and cash flows in the natural gas

distribution sector for the period 1 January - 6 November 2016, in accordance with IFRS 5 “Non-Current

Assets Held for Sale and Discontinued Operations”. The financial years used for comparison were

reclassified in a consistent manner. Consequently, this Report mainly shows and explains the results from

continuing operations.

The2016financialyearendedwithaGroup net profit,whichincludesthecontributionfrom

discontinuedoperations,of€861million,areductionof€377million,representinga30.5%reduction

fromthe2015financialyear.Inconsiderationofthediscontinuityfactorsthatcharacterisedthe2016

financialyear,Snam’smanagementdecidedthattherepresentationofresultsonanadjustedbasis

enablesabetterassessmentoftheperformanceofcontinuingoperationsandagreatercomparability

ofdataandinformation.

Adjusted results for continuing operations10

Duetothesoundnessofoperationalmanagementandrigorousfinancialdiscipline,

in2016Snamachievedresultsthatwereinlinewithexpectations,giventhe

revisionoftherateofreturnoninvestedcapitalforregulatorypurposes(WACC)

tobeappliedto2016.Adjusted EBIT11totalled€1,336million,areduction

of€145million,representinga9.8%reductionfromthe2015financialyear.

Thereductionmainlyreflectstheimpactsonrevenuefromtherevisionofthe

WACC(-€114millionintotal,-€134millionofwhichwasthereductionposted

inthetransportationsectorthatwaspartlyabsorbedbytheincreasepostedin

thestoragesector)andhigheramortisation,depreciationandimpairmentlosses

(-€75million,representing13.0%)duemainlytotheentryintoserviceofnew

infrastructureandgreaterimpairmentlossesoftangibleassets.

Intheinstanceofbusinesssectors,thereductioninadjustedEBITreflects

transportationsectorresults(-12.4%;-€144million),whichwerepartlyoffsetby

thepositiveperformancepostedbythestoragesector(+8.5%;+€27million).

10 TheEBITandnetprofitonanadjustedbasisarenotresultmeasuresrequiredbytheIFRS.Thoseperformancemeasures(Non-GAAPmeasures)weredeterminedbyexcludingspecialitemsand,inordertoremovethedistortingeffectsgeneratedbytheapplicationofIFRS5,restoringintheresultsfromcontinuingoperationsintercompanytransactionsvis-à-visdiscontinuedoperations,inordertoachievearepresentationoftheresultsfromcontinuingoperationsasifdiscontinuedoperationshadbeenremovedfromtheconsolidationarea.InordertodeterminetheEBITandadjustednetprofitandforreconciliationwiththerespectivereportedresults,seetheChapter“Financialreview-ReconciliationofEBITandnetprofitwithadjustedEBITandadjustednetprofit”onpage95ofthisReport.

11 EBITwasanalysedbyisolatingonlytheelementsthatresultedinachangetothatfigure.Tothisend,applyinggassectortariffregulationsgeneratesrevenuecomponentsthatareoffsetincosts.Thosecomponentsmainlypertainedtonaturalgasinterconnectionsandtransferscarriedoutforpurposesofbalancingthegassystem

ADJUSTEDOPERATINGPROFIT-CONTINUINGOPERATIONS

(millionsof€)

ADJUSTEDOPERATINGPROFIT

(millionsof€)

2014 2015 2016

1,496 1,481-9.8%-1% 1,336

723

863-4.3%+19.4%

826

2014 2015 2016 2014 2015 2016

1,496 1,481-9.8%-1% 1,336

723

863-4.3%+19.4%

826

2014 2015 2016

SnamAnnualReport2016

46

Adjusted net profit from continuing operations was €826 million, a reduction of €37 million

(-4.3%) compared with the 2015 financial year. The reduction in the adjusted EBIT (-€145 million;

-9.8%) was only partly offset by the significant improvement in financial management (+€69 million,

representing 20.8%), which was mainly attributable to the reduction in average debt costs, as well as

lower income taxes (+€29 million; representing 7.4%) due mainly to a lower pre-tax profit.

The pro-forma adjusted net income of the continuing operations, obtained by applying Snam’s

share, amounting to 13.5%, to the estimated net income of Italgas Group for the whole of 2016,

adjusted by excluding the effects resulting from the adjustment to market value of the existing

financial debts towards Snam Group and eliminating the effects of non-recurring items from the

valuation of foreign subsidiaries, amounts to €845 million.

Net financial debt was €11,056 million as at 31 December 2016, compared

with €13,779 million as at 31 December 2015. Cash flow from operating

activities (€1,627 million), together with cash flow from divestments, mainly

attributable to the consideration received for the transfer of the 38.87% equity

investment in Italgas Reti S.p.A. (€1,502 million, net after transferred cash and

cash equivalents), made it possible to fully finance requirements connected to

technical investments, equity investments and financial assets instrumental to

operating activities (€1,426 million in total) and to generate a free cash flow of

€1,707 million. After outlays connected to equity cash flow (€978 million) and

the effects of financial receivables with the Italgas Group, which resulted in a

total reduction of €2,009 million in the financial position, net financial debt was

reduced by €2,723, and was posted in the amount of €11,056.

Dividends

Thanks to its healthy results and solid business fundamentals, the Company will

propose a dividend of €0.21 per share to the Shareholders’ Meeting, to be

paid from 24 May 2017, confirming Snam’s commitment to an attractive and

sustainable remuneration to its shareholders.

Free cash flow

€ +1,707 million

Reduction of net

financial debt

-€2,723 million

2016 dividend

€0.21 per share

861

671

826 845+210 +19-190 -55

ReportedNet Profit

2016

DiscontinuedOperation

ReportedNet Profit 2016

ContinuingOperation

SpecialItem

Special Item Tax effect

Adj. Net Profit Continuing Operation

Adj. Pro-forma

2016

ProformaNet Profit

2016

ADJUSTED AND PRO-FORMA RESULTS (millions of €)


47

Key financial figures

Toimprovetheeconomicandfinancialreview,inadditiontoconventionalIAS/IFRSindicatorsand

financialstatements,theDirectors’Reportalsocontainsreclassifiedfinancialstatementsandseveral

alternativeperformanceindicatorssuchasEBITDA,EBIT,adjustedEBIT,adjustednetprofitandnet

financialdebt.Thetablesbelow,theirexplanatorynotesandthereclassifiedfinancialstatements

describehowtheseamountsweredetermined.Unlessotherwisespecified,definitionsofthetermsused

canbefoundintheglossary.

(€ million) 2014 2015 2016

Continuing operations (a)

Totalrevenue(b) 2,578 2,627 2,560

-ofwhich from regulated activities 2,480 2,502 2,444

Operatingcosts(b) 524 570 573

AdjustedEBIT(c) 1,496 1,481 1,336

Adjustednetprofit-continuingoperations(c)(d) 723 863 826

Adjustednetprofit-discontinuedoperations(c)(d) 355 346 190

Adjustednetprofit(c)(d) 1,078 1,209 1,016

Netprofit-continuingoperations(d)(e) 692 796 591

Netprofit-discontinuedoperations(d)(e) 506 442 270

Netprofit(d)(e) 1,198 1,238 861

(a)Theresultsofthenaturalgasdistributionsegment,thebusinessseparatedfromSnam,werereportedseparatelyasdiscontinuedoperationsonasinglelineintheincomesta-tementinaccordancewiththeprovisionsofIFRS5“Non-currentAssetsHeldforSaleandDiscontinuedOperations”.Consistently,thecomparisonperiodswererestatedexcludingthecontributionofthediscontinuedoperationssegment.(b)Theitemincludesthereinstatementofeliminationsfromintercompanytransactionsfordiscontinuedoperations.(c)Non-GAAPmeasuresdeterminedexcludingspecialitemsand,forthepurposeofremovingthedistortiveeffectsgeneratedbytheapplicationofIFRS5,allocatingtheelimi-nationofthecostsoriginatingfromdiscontinuedoperationstocontinuingoperations.ForthedefinitionofEBITandadjustednetprofit,aswellasthereconciliationwiththerespectivereportedresults,seethechapter“Financialreview-ReconciliationofEBITandnetreportedprofitwithadjustedEBITandadjustednetprofit”.(d)EntirelyattributabletoSnamshareholders.(e)Fromtheincomestatementinthelegallyrequiredformat.Seethesection“FinancialStatements”intheNotestotheconsolidatedfinancialstatements.


48

KEY BALANCE SHEET AND CASH FLOW FIGURES

(€ million) 2014 2015 2016

Technicalinvestments 1,313 1,272 1,199

- continuing operations 954 879 906

- discontinued operations (*) 359 393 293

Netinvestedcapitalat31December 20,824 21,365 17,553

Shareholders’equityincludingminorityinterestsat31December

7,172 7,586 6,497

Groupshareholders’equityat31December 7,171 7,585 6,497

Netfinancialdebtat31December 13,652 13,779 11,056

Freecashflow 297 771 1,707

(*)Thevaluesrefertotheperiod1January-6November2016.

KEY PROFIT AND FINANCIAL INDICATORS

2014 2015 2016

Netprofitpershare-continuingoperations(a) (€) 0.204 0.227 0.169

Adjustednetprofitpershare-continuingoperations(a) (€) 0.214 0.247 0.236

Netprofitpershare(a) (€) 0.354 0.354 0.246

Adjustednetprofitpershare(a) (€) 0.318 0.345 0.291

Groupshareholders'equitypershare(a) (€) 2.12 2.17 1.86

Pay-out(Dividendsfortheperiod/Groupnetprofit)(b)(c) % 73.0 70.7 83.86

Adjustedpay-out(Dividendsfortheperiod/Groupadjustednetprofit)(b)(c)

% 81.2 72.4 71.06

Dividendyield(Dividendfortheperiod/year-endofficialshareprice)(b)(c)

% 6.1 5.2 5.4

Price/Bookvalue(Averageofficialpricepershare/Groupshareholders’equitypershare)(d)

(€) 2.00 2.08 2.21

(a)Calculatedconsideringtheaveragenumberofsharesoutstandingduringtheyear.(b)The2016amount(relatingtothedividends)isestimatedbasedontheoutstandingnumberofsharesasat2March2017.(c)Thevaluesforyears2014and2015relatetoSnamGroup’sdata,withreferencetothescopeofconsolidationintheeventofaseparationtransactionbyItalgas.(d)Theofficialaveragepricespersharefor2014and2015refertothehistoricalofficialaveragepricesanddonottakeintoaccountthepriceadjustmentmadefollowingthedemergeroperation.


49

KEY SHARE FIGURES

2014 2015 2016

Number of shares of share capital (million) 3,500.60 3,500.60 3,500.6

Number of shares outstanding at 31 December (million) 3,499.50 3,499.50 3,470.7

Average number of shares outstanding during the year (million) 3,384.70 3,499.50 3,496.8

Year-end official share price (a) (€) 3,396 4,002 3,923

Average official share price during the period (a) (€) 3,488 3.721 4.101

Market capitalisation (b) (million) 14,383 16,973 13,612

Dividend per share (€ per share) 0.25 0.25 0.21

Dividends per period (c) (million) 875 875 722

Dividends paid in the period (d) (million) 507 875 875

(a) According to the definitions in Borsa Italiana S.p.A.’s “Corporate action manual” following the extraordinary transactions, in order to restore the continuity and comparability of stock prices, an appropriate coefficient to adjust the historical series must be applied. Therefore, the official prices of Snam stock for the financial years presented were adjusted using the “K adjustment factor”, established by Borsa Italiana at a value of 0.82538045. (b) The product of the number of shares outstanding (exact number) multiplied by the year-end official share price. The values for the years 2014 and 2015 were calculated on the basis of the historical official prices recorded at the end of the year (€4.11 and €4.85, respectively at the end of 2014 and 2015) and do not take into account the price adjustments made following the demerger operation.(c) The amount for 2016 was estimated on the basis of the number of shares outstanding at 2 March 2017.(d) The dividend paid in 2014 refers to the balance of the 2013 dividend. Snam did not pay out any interim dividends in 2015 or 2016. The dividend paid in 2016 refers to the pre-spin-off Snam Group.

Breakdown of added value

At Snam, sustainability and the creation of value are strongly connected concepts. Sustainability

creates value for the Company and stakeholders, and establishes a connection between the business

and corporate social responsibility. The Company produces wealth by contributing to the economic

growth of the society and environment in which it operates, and it measures this wealth in terms of

added value produced and distributed to its key stakeholders.

Snam calculates the added value taking inspiration from the standard prepared by the Gruppo di Studio

per il Bilancio Sociale (GBS) and the GRI - G4 guidelines.

The table below is useful for understanding the Group’s economic impact and makes it possible to read

the consolidated financial statements from the standpoint of stakeholders.

For this purpose, note that the calculation of the added value in 2016 was made restoring the

eliminations that originated from transactions involving discontinued operations to continuing

operations for each single income statement item. The values for the comparison years have been

recalculated accordingly.

In 2016, the gross global added value produced by Snam was equal to €2,518 million, an increase

of €89 million compared with 2015 (€2,429 million), in spite of the reduction in the net invested

capital remuneration rate - WACC provided by the Authority for 2016 which affected the operational

profitability of natural gas transportation activities.

Snam Annual Report 2016

50

A total of 23.9% of the gross global added value produced by Snam was reinvested within the Group

(in line compared with 2015: -0.7%), and intended essentially for the amortisation and depreciation of

the intangible and tangible fixed assets used in the production process. With regard to the main reference

stakeholders, in 2016 the percentage of added value distributed to employees was stable (10.3%; +0.5%

compared with 2015), through direct remuneration composed of wages, salaries and severance pay and

indirect remuneration composed of social security contributions and staff-related service costs (canteen

services, reimbursement of travel expenses), while there was a reduction in the value destined for the Public

Administration through the payment of direct and indirect taxes (12.8%; -2.4% compared with 2015), due

to the reduction in the pre-tax result in 2016, as well as a reduction in the value distributed to shareholders

through the dividends distributed (28.7%; -7.3% compared with 2015) in consideration of the Italgas

separation transaction and by way of the lower number of outstanding shares following the buyback of

treasury shares by Snam under the share buyback programme launched in November 2016. With reference

to the value distributed to funders, equal to 24.2%, there was an increase of 9.9% compared with 2015 as

a result of the bond buyback operation implemented by Snam in 2016. Lastly, an amount of approximately

€2 million was designated for local communities (0.1% of the value generated) through donations and

sponsorship initiatives (€0.8 million) and environmental compensation pursuant to the law (€1.2 million).

Local comunities0.1%

Shareholders28.7%

Public administration

12.8%Lenders24.2%

Employees10.3%

Snam Group23.9%

DISTRIBUTION OF ADDED VALUE (GRI: G4-EC1)

OPERATING PERFORMANCE

Technical investments

Technical investments for the period totalled €1,199 million (€1,272 million in 2015).

With reference to continuing operations, technical investments for the period totalled €906 million

(€879 million in 2015) referred mainly to the natural gas transportation (€776 million) and storage

(€117 million) business segments.

Infrastructure development and integration

The main investments for the development of new infrastructure mainly involved work for the reversal

of physical transportation flows at interconnection points with northern Europe (€181 million),

the upgrade of the transportation network from entry points in southern Italy (€40 million)

and the upgrade of the network and connection of new regional and national redelivery points (€119


51

million).Atotalof€73millionwasinvestedin2016forthedevelopment of new storage fieldsand

upgrading capacity.

Asaresultoftheworkcompletedanddisposals,the pipeline network in operationremained

essentiallyunchangedintermsofnetworkkm(-0.1%comparedwith31December2015),while

installed capacity in compression stations increased by 45.7 MW(+5.2%).Availablestorage

capacityroseby0.5billioncubicmetres,madeavailablebythenewBordolanodeposit,toalevelof

12.0billioncubicmetres.

Maintenance of plant security and quality

Investmentsinprojectsaimedatmaintainingplantsecurityandqualitytotalled€336millionfor

transportationand€33millionforstorage.

In2016,pipelineswereregularlyinspectedbyfoot,vehicleandhelicoptertodetecthazardous

situationsthatcouldhavehadanimpactontheintegrityoftheinfrastructure,andaninspectionwas

carriedoutonthepipelineconditionsbyinsertingsmartdevicesinthemtodetectanydefects.

CONTROL AND INSPECTION OF TRANSPORTATION ACTIVITIES

2014 2015 2016

Networkinspectedusingsmartpigs(km) 1,950 1,315 1,660

Networkinspectedbyhelicopter(km) 15,700 16,330 16,218

Intheareaofstorage,specialattentionwaspaidtothesafetyofsystemsandpeople.Inadditiontothe

plantmaintenanceandimprovements,whichareconstantlybeingmadeandareaimedatintroducing

thebesttechnologiesavailable,specificsoftwarehasbeenimplementedfortheoptimumuseof

depositsandwells,whichthankstotheextensiveexperienceanddataacquired,enablethesystem

toachievemaximumperformancewhileincompliancewiththestrictsafetyrulesthecompanyhas

imposedonitself.

Interconnected transportation-storage capacity and network utilisation

Theaveragetransportationcapacityprovidedin2016was367.0millioncubicmetres/dayonaverage,

whichwasinlinewith2015(-1.24%),whiletransferredcapacitytotalled266.4millioncubicmetres/

dayonaverage.Networksaturation12was72.6%,adecreasecomparedwith2015(79.1%).

Thenumberofactivetransportationusersfellfrom139in2015to136(-2.2%).Duringtheyear,45

connectionagreementswereenteredintoforthecreationofnewdelivery/redeliverypoints.

Overallstoragecapacity,includingstrategicstorage,was16.5billioncubicmetresat31December

2016,anincreaseof0.5billioncubicmetresover2015,ofwhich12.0wasavailablecapacitythatwas

fullytransferredforthe2016-2017thermalyear,andtheremaining4.5billioncubicmetreswasfor

strategicstorage.

Therewere91activestoragecustomers(118in2015;-22.9%).

12 Ratioofcapacitytransferredtoavailablecapacity


52

Business volume

Theamountofgasintroducedintothetransportationsystemstoodat70.63

billioncubicmetres,representinganincreaseof3.38billioncubicmetres(+5.0%)

comparedwith2015.Theincreaseismainlyduetotheriseindemandfor

naturalgasinItaly(+3.36billioncubicmetrescomparedwith2015;+5.0%),due

essentiallytothegreaterconsumptioninthethermoelectricsector(+13.1%)

partlyabsorbedbytheslightreductioninconsumptionintheresidentialand

tertiarysector(-0.4%)dueessentiallytoweatherconditions.

Volumesofgasmovedthroughthestoragesystemin2016amountedto20.0

billioncubicmetres,anincreaseof0.42billioncubicmetres,or2.1%,compared

with2015.Theincreasewasmainlyattributabletohigherwithdrawalsfrom

storage(+0.30billioncubicmetres;+3.1%)duetothesubstantialuseof

stocksbytheoperatorsduringthelastmonthsof2016,duemainlytoweather

conditionsandtohigherinjectionstoreplenishstocks(+0.12billioncubic

metres;+1.2%).

In2016,0.21billioncubicmetresofLNGwereregasifiedatthePanigaglia

(SP)LNGterminal(0.03billioncubicmetresin2015entirelyregasifiedunder

thescopeofthepeakshavingservice;+0.18billioncubicmetres),ofwhich

0.043billioncubicmetreswasunderthescopeofthenaturalgasintegrated

regasificationandstorageservice13.

+3.38 billion

cubic metres of

gas injected into

the network

+0.42 billion

cubic metres

of gas moved

through the

storage system

+0.18 billion

cubic metres of

LNG regasified

13 Theintegratedstorageandregasificationservice,introducedbyArticle14,paragraph1ofDecree-Law1of24January2012andlatergovernedbytheMinisterialDecreeof25February2016,makesprovisionthattheleadingstoragecompanymakesdeliveredquantitiesofgasequivalenttoLNGavailabletotheuserfortheuniformstorageservice,minusconsumptionandleaks,bytheendofthemonthafterunloading.Thephysicalmanagementofgasflowsforredeliveryofgasinstoragetakesplacebycoordinatingtheregasificationandstoragecompaniesinvolved.Formoreinformationaboutthisservice,pleaserefertothesection“Operatingperformancebybusinesssegment-RegasificationofLiquefiedNaturalGas(LNG)”ofthisReport.

Key operating figures

In conformity with IFRS 8 “Operating segments”, the operating 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. With reference to the natural gas distribution segment, on 7

November 2016 the separation of the natural gas distribution activities from Snam

took place, which involved the transfer of Snam S.p.A.’s entire equity investment

(100%) in Italgas Reti S.p.A. to Italgas S.p.A. (formerly ITG Holding S.p.A.). For the

purpose of Snam’s 2016 consolidated financial statements, the distribution segment

is no longer represented as an operating segment. Therefore, the operating figures

listed below relate to continuing operations (transportation, regasification and

storage, as well as data referring to corporate services).


53

2014 2015 2016 Change % change

Natural gas transportation (a)

Natural gas injected into the National Gas Transportation Network (billions of cubic metres) (b)

62.25 67.25 70.63 3.38 5.0

Transportation network (kilometres in use) 32,339 32,534 32,508 (26) (0.1)

Installed power in the compression stations (MW) 893.9 876.5 922.2 45.7 5.2

Liquefied natural gas (LNG) regasification (a)

LNG regasification (billions of cubic metres) 0.01 0.03 0.21 0.18

Natural gas storage (a)

Available storage capacity (billions of cubic metres) (c) 11.4 11.5 12.0 0.5 4.3

Natural gas moved through the storage system (billions of cubic metres)

15.70 19.58 20.00 0.42 2.1

Employees in service at period end (number) (d) (e) 2,948 3,005 2,883 (122) (4.1)

by business segment:

- Transportation 1,874 1,918 1,726 (192) (10.0)

- Regasification 77 73 71 (2) (2.7)

- Storage 291 299 301 2 0.7

- Corporate and other activities 706 715 785 70 9.8

(a) With regard to 2016, gas volumes are expressed in standard cubic metres (SCM) with an average higher heating value (HHV) of 38.1 MJ/SCM (10.572 kWh/SCM) and 39.1 MJ/SCM (10.805 kWh/SCM) respectively for natural gas transportation, regasification and storage activities. (b) The data for 2016 was updated at 12 January 2017. The update of 2015 figures has been finalised, and figures are consistent with those published by the Ministry of Economic Development. (c) Working gas capacity for modulation, mining and balancing services, allocated in full as at 31 December 2016. (d) Fully consolidated companies.(e) The figures for 2015 include the staff transferred in 2016 to Italgas Group (207 people) following the separation transaction.

Number of employees

The number of employees in service at 31 December 2016 was 2,883 (3,005 at 31 December 2015), a

decrease of 122 (-4.1%) over the previous year. The average number of payroll employees for entities

included in the scope of consolidation at 31 December 2016 was 2,804 (2,808 in 2015).

On the one side 2016 featured significant organisational changes also related to the demerger of the

distribution business segment and, on the other side, the development of the employment mix, which

recorded the following dynamics over the course of the year:

n 177 employees joining, of which 141 were recruited from the market, and 36 others joining,

including 32 from non-consolidated companies and 4 returning from leave;

n 299 employees left the company, including 37 as a result of the termination of employment, 16

were terminated unilaterally, 241 transfers to non-consolidated companies and 5 other departures.


54

WithrespecttotheGroup’snationaldistribution,2,169peopleareemployedinthenorthernregions

ofItaly,204inthecentralregionsand506inthesouth.Furthermore,4individualsarepermanently

employedabroad.

In2016,notethatfromtheperspectiveofindustrialrelations,continuedrelationswiththeunions,

nationallyandlocally,includedaround105meetingstoanalysethebusinessdevelopmentprojectsand

sharetheeffectsonpeopleresultingfortheorganisationalchangesmadebythegroupandexamine

theminmoredetail.

n Asfarasstorageisconcerned,accordingtotheprovisionsoftheEURegulation,Resolutions

193/2016/R/gasand312/2016/R/gaswereapplied,launchingthenewbalancingregimeasaresult

ofwhichstoragecompaniesalsohadtocontinuouslymanage24-hourrenominationcycles.Snam

ReteGasalsolaunchedthenewbalancingschemeasaresultofwhichitscommercialdispatching

servicewilloperatehourlyrenominationcyclescontinuously24hoursadayknownas“AsteWithin

Day”.

n Asfarasthetransportationbusinesssegmentisconcerned,meetingsoftheSmartGasproject

technicalcommittee,madeupinequalmeasureofcompanyandunionrepresentatives,continued

withtheaimofanalysingthetechnicalaspectsoftheprojectandsolvinganyproblems.

n In2016,GNLandthetradeunions,nationallyandlocally,heldvariousmeetingsaimedatsharing

andcomparingsubjectsintrinsictotheregasificationbusiness

InJanuary2017,therenewaloftheNationalLabourAgreementappliedtothegroupforthethree-year

period2016-2018,wassigned.

Supply chain management (GRI: G4-12)

In2016,throughtheneworganisationalmodel,thesupplychainfunctioncameundertheChief

CorporateServicesOfficer,whohasthetaskofapplyingstrategicsourcingmethods,achievingsavings

targetsinlinewithbusinessactivitiesandmaintaininganadequategroupofsuppliers.

Strategicsourcingplaysakeyroleinidentifyingfuturepurchasingpoliciesandhasadirectimpact

oncuttingcosts.Startingwiththegatheringofprocurementrequirementsoverafive-yearperiod,

anticipatedspendingisanalysedandqualifiedinordertoguidethepurchaseprocessandidentifythe

categoriesof“strategic”goodsonwhichtofocusattention.

In2016Snamdirectlyprovidedworkforaround660companies,388ofwhichbelongtothesmall-

mediumbusinesssector(SME),concludingover1,000procurementcontracts(inlinewith2015),worth

atotalofapproximately€1.36billion(+7.1%comparedwith2015).Amongthegoodspurchasedthe

mostimportantmaterialissteel(piping,connectors,etc.)which,in2016,amountedtoasupplyof

approximately15,200tonnes.

95.6%oftheprocuredconcernsnationalbusinesses,andwasdistributedthroughouttheItalianregions

inlinewiththeCompany’srootsinthecountry.

At31December,thevendorlistincluded2,245qualifiedsuppliers,andaround400supplierswereinthe

processofbeingrenewedorobtainingnewqualifications.Thesupplychainwascheckedandmonitored

with15auditsduringthequalificationphaseofcriticalsuppliers,and634feedbackreportscollected

onservicesrenderedby185suppliers.Additionally,1,502suppliersandsub-contractorswerechecked

withregardtotheregularityofcontributions,through3,089inspectionswhichledto87irregularities

intercepted(2.8%).Therewere40provisionsissuedfornon-compliance,includingwarnings,suspensions

andwithdrawalofqualification.


55

Intheprocurementofwork,whichisthemostimportantcategorybecauseitisrelatedtocoreactivities,

thesuppliersconsideredcritical(criticallevelsAandB)wereallinpossessionofqualityandenvironment

managementsystemscertifiedwithISO9001andISO14001standards.In2016,thetargetofhavingall

(100%)ofthesesuppliersinpossessionofOHSAS18001certification(occupationalhealthandsafety)

improvedcomparedwith2015whenthefigurealreadystoodat90%.

PROCUREMENT BY REGION AND MERCHANDISE CATEGORY

Goods18.3%

Campania2.9%

Transportation73%

Lazio8.5%

Friuli V.G.11.9%

Emilia Romagna17.5%

Labour43%

Regasification1%

Services38.7%

Corporate15%

Piemonte2.6%

Sicily2.2%

Tuscany2.5%

Veneto3.2%

Storage11%

Lombardy33.3%

Marches9.0%

Abruzzo2.1%

Other region4.3%

PROCUREMENT BY BUSINESS SEGMENT

Goods18.3%

Campania2.9%

Transportation73%

Lazio8.5%

Friuli V.G.11.9%

Emilia Romagna17.5%

Labour43%

Regasification1%

Services38.7%

Corporate15%

Piemonte2.6%

Sicily2.2%

Tuscany2.5%

Veneto3.2%

Storage11%

Lombardy33.3%

Marches9.0%

Abruzzo2.1%

Other region4.3%

GEOGRAPHICALBREAKDOWNPROCUREMENTINITALY(*) PROCUREMENTBYPRODUCTCATEGORY

(*)Figuresongeographicalbreakdownarebasedontheadministrativeheadquartersofthesuppliers.


56

Accidents (GRI: G4-LA6)

Snamhasmanaged,overtime,toreduceaccidents,bothasfarasemployeesareconcernedand

contractor’spersonnel,asevidencedbytheaccidentfrequencyandseverityindex.Theentirecompany,

startingfromthetop,isfocusedonworkplacesafety,tothepointofitbeingacorporateobjectivefor

executivesandmanagers,onwhichpartofthevariableremunerationisbased.Therewere9accidents

in2016,noneofthemfatal.

ACCIDENTS AT WORK (No.)

2014 2015 2016

Totalemployeeaccidents(*) 9 3 4

Totalcontractworkeraccidents 15 8 5

ACCIDENT INDICES

2014 2015 2016

Employees and contract workers

Frequencyindex(*) 2.01 0.89 0.75

Severityindex 0.1 0.06 0.05

Employees

Frequencyindex(*) 1.84 0.62 0.81


Contract workers

Frequencyindex 2.13 1.07 0.71


(*)Thefigurefor2015wasrestatedtotakeintoaccountanaccidentthatoccurredduringtheyearlaterdeclassifiedin2016.Frequency index: numberofaccidentsatworkresultinginabsenceofatleastoneday,permillionhoursworked.Severity index:numberofworkingdayslost(calendardays)duetoaccidentsatworkresultinginabsenceofatleastonedayperthousandhoursworked.Datadonotreflectfatalaccidents.


57

EMPLOYEE AND CONTRACT WORKER ACCIDENT GRAPHS

2.01

0.89(*) 0.75

2014 2015 2016 2014 2015 2016

0.10

0.06 0.05

(*) The figure for 2015 was restated to take into account an accident that occurred during the year later declassified in 2016.

Energy consumption

In 2016, Snam energy consumption totalled around 10,957 Tera joules (TJ), an increase of +20.6%

over 2015.

The increase is partly attributable to the greater quantity of gas transported (+5% compared with

2015), but above all to the different transportation conditions that have seen an increase in quantities

of gas from North Africa (+65% compared with 2015) and a simultaneous reduction in quantities from

Northern Europe (-37%) and Russia (-5.6%).

The most heavily used energy source was natural gas, which covered 96.2% of total energy needs.

Other sources used are electricity (2.9%) and other fuels (diesel fuel, gasoline, LPG and heat), which

together are equivalent to 0.9%.

ENERGY CONSUMPTION DATA (GRI: G4-EN3)

EMPLOYEE AND CONTRACTOR ACCIDENTS

AT WORK - FREQUENCY INDEX

EMPLOYEE AND CONTRACTOR ACCIDENTS

AT WORK - SEVERITY INDEX

ENERGY CONSUMPTION BY ACTIVITY ENERGY CONSUMPTION (TJ)

8,3319,087

10,957

2014 2015 2016

Transportation53.1%

Corporate0.2%

Regasification1.2%

Storage45.5%


58

Greenhouse gas emissions (GRI: G4-EN15)

DIRECT EMISSIONS OF CO2EQ

– SCOPE 1 (103 T) (*)

(*)CO2eq

emissionswerecalculatedbasedonamethaneGWPof28,asindicatedinthescientificstudycarriedoutbytheIntergovernmentalPanelonClimateChange(IPCC),“FifthAssessmentReportIPCC”.

In2016directCO2eq

emissionswereequaltoapproximately1.44milliontonnes.DirectCO2emissions

fromcombustionwereequaltoapproximately0.6milliontonnes,whileCO2eq

emissionsfrommethane

stoodatapproximately0.84milliontonnes.In2016naturalgasemissionsfellby-3%comparedwith

2015,goingfrom49.7Mm3to48.2Mm3.Thisdecreaseispartlyduetotheloweremissionsrecorded

in2016andpartlytotheemissionreductioninitiativesconductedundergastransportationactivities,

inwhichmeasuresthatinvolvetherecoveryofgasthroughrecompressiononlineandincompression

stationswereimplemented(4.5millioncubicmetresofnaturalgasrecovered,equalto77,780tonnes

ofCO2eq

,+25%comparedwiththefigureof3.3millioncubicmetresin2015).

Atthestartofthethirdregulatoryperiod(2013-2020),thegreenhousegasemissionauthorisation

system,previouslygovernedbyLegislativeDecree216/2006,wasupdatedandmodifiedbyLegislative

Decree30of13March2013,effectivefrom5April2013.Accordingtothenewprovisions,themain

aimofthedecreewastoupdatelawsongreenhousegasemissionauthorisationsandtocontinually

reducefreeemissionallowances.Theallowanceswillbeassignedtoeachplantonagradually

decreasingbasis,andwillnolongerbeconstant(asinthesecondregulatoryperiod),andwillalso

dependontheactualfunctionalityoftheplants.

In2016,theSnamGroup’stotalCO2emissions,certifiedbyanaccreditedbodyaccordingtothe

provisionsofthecompetentnationalauthority,amountedtoapproximately0.550milliontonnes,out

oftotalannualallowancesofapproximately0.207millionissuedbytheMinistryfortheEnvironment,

LandandSea(negativebalanceof0.343millionallowances).Thisdeficitisoffsetbytheallowances

alreadypresentintheregistersforSnamGroupplants,accumulatedthankstothesurplusfrom

previousyears.

2014 2015 2016

1,350 1,373 1,439

TOTALDIRECTGHGEMISSIONS-SCOPE1(KTCO2EQ

)


59

PLANTS SUBJECT TO ETS DIRECTIVE

Activities Number of plants Name of plants

Transportation 11 GascompressionstationsinEnna,Gallese,Istrana,Malborghetto,Masera,Melizzano,Messina,Montesano,PoggioRenatico,Tarsia,TerranuovaBracciolini

Storage 8 StoragegascompressionstationsinCortemaggiore,FiumeTreste,Minerbio,Ripalta,Sabbioncello,Sergnano,SettalaandBordolano

Regasification 1 LiquefiednaturalgasplantinPanigaglia

CO2 EMISSIONS FROM ETS PLANTS (GRI: G4-EC2)

0.40

0.33

0.240.21

0.55

0.44

2014

Certified emissions Shares

2015 2016

CO2EMISSIONSETSPLANTS(106t)


60

SNAM AND THE FINANCIAL MARKETS

Europeanstockmarkettrendsweremainlydownwardsin2016.Inthefirst

half-yearasharpfallwasrecorded,penalisedbythedeteriorationofeconomic

prospectsandoilpricesattheirlowestfor10years,aswellasfearsgeneratedby

theresultoftheBrexitreferendum.

Inthesecondpartoftheyearshareindicespartlyrecoveredbothonaccountof

therecoveryinoilprices,supportedbythepossibilityofanagreementbetween

themajorglobalproducersforafreezeonproductionlevels,andtheconfirmation

ofaccommodatingmonetarypoliciesbycentralbanks.Inthelastpartoftheyear

thepoliticaluncertaintiesgeneratedbytheAmericanelectionsincreasedmarket

volatility.

TheSTOXXEurope600indexended2016down1.2%comparedwiththeendof

2015,whilethenationalFTSEMIBindexrecordedoneoftheworstperformances

atEuropeanlevel(-10.2%),burdenedparticularlybytheunder-performanceof

bankstockasaresultofthedifficultiesencounteredinsolvingtheoutstanding

receivablesproblem.TheSTOXXEurope600utilitiesindexended2016down

8.9%,adverselyaffectedbytheprospectofinterestrateincreases;internally,the

performanceofregulatedcompanieswasaboveaverage(-4.6%).

Snam share performance

Snamsharesclosed2016atanofficialpriceof€3.923,down1.97%fromthe

priceof€4.002recordedattheendofthepreviousyear14.

Thestockincreasedinthefirsthalf-year,reachingitshistoricalmaximumon

30March(€4.56,adjustedprice),supportedbyaclearandstableregulatory

framework,theproductoftheregulatoryrevisionwhichconcludedinDecember

2015,solidcompanyfundamentals,confirmedbythe2015annualresultsand

bythepresentationon29June2016oftheItalgasdemergertransactionandthe

2016-2020StrategicPlan,bothwellreceivedbythefinancialcommunity.

Thetrendwasreversedinthesecondhalfoftheyear,causedbythedowngrading

oftheItalianeconomicgrowthestimatesandarecoveryininterestratesfrom

September.Overthecourseoftheyearthestock,however,over-performedboth

initsreferencesectorandontheItalianmarket,asevidenceofthewayinvestors

welcomethesoundbusinessmodeloftheCompanyandastrategythatenvisages

sustainablereturnsinthelongterm.14 Thepricewasadjustedfollowingtheoperation

separatingItalgasfromSnamaccordingtothede-finitioninthe“Corporateactionmanual”ofBorsaItalianaS.p.A.,whichprovidesthat,inthecaseofextraordinarytransactions,inordertorestorethecontinuityandcomparabilityofstockprices,anappropriatecoefficienttoadjustthehistoricalseriesmustbeapplied.Therefore,alltheofficialpricesofSnamstockforthefinancialyearsbeforetheeffectivedateoftheseparationoperation(7November2016)wereadjustedusingthe“Kadjustmentfactor”,establishedbyBorsaItalianaatavalueof0.82538045.


61

SNAM - COMPARISON OF PRICES OF SNAM, FTSE MIB AND STOXX EUROPE 600 UTILITIES (1 JANUARY 2016 - 31 DECEMBER 2016)

Relations with the financial community and investor relations policy

Snam’s communications policy has always focused on an ongoing dialogue with the entire financial

community. The Company’s goal is to establish a relationship of trust with shareholders, investors,

analysts and all financial market operators, and to provide them with regular, complete and prompt

information to ensure an excellent understanding of the Group’s performance and strategy.

An active policy of engaging investors, supported by clear and transparent communications, contributes

to the enhancement of the Company’s reputation, and Snam considers this a strategic factor in

creating value in terms of shareholder satisfaction, understanding their expectations concerning

corporate governance and enhancing the knowledge of all stakeholders who are called upon to make

decisions that impact the Company.

This communications policy takes the form of many economic and financial publications concerning

business performance and sustainability developments, in addition to ongoing meetings and events,

which throughout 2016 included the following:

n 17 roadshows to meet shareholders and institutional investors in the major financial centres of

Europe and North America;

n 3 industry conferences allowing investors specialising in the utilities and infrastructure sectors to

meet the Company’s senior management;

n 77 one-to-one meetings between management and investors, in addition to numerous group

meetings (20);

n conference calls upon the publication of the Company’s results (annual, semi-annual and quarterly)

and the presentation of the Business Plan.

60

70

80

90

100

110

120

130

140

Jan-16 Feb-16 Mar-16 Apr-16 May-16 June-16 July-16 Aug-16 Sept-16 Oct-16 Nov-16 Dec-16

Snam volume Snam FTSE MIB Stoxx Europe 600 Utilities

0

20

40

60

80

100

Mln


62

Inclusion of Snam stock in sustainability indices

In2016,fortheeighthconsecutiveyear,SnamstockwasagainincludedbyRobecoSAM(oneofthe

mostimportantsustainabilityratingagenciesatgloballevel)intheDow Jones Sustainability World

Index,themaininternationalequityindexformedonthebasisoftheperformanceofcompaniesinthe

areaofeconomic,socialandenvironmentalsustainability.InJanuary2017,forthethirdconsecutive

year,RobecoSAMplacedSnamintheSilver ClassoftheSustainabilityYearbook2017,adistinguished

groupofcompanies,whichintheindustrialsectorconcernedincludescompanieswithahighscorein

termsofsustainability.

ReconfirmationalsotooktheformofinclusionintheprestigiousFTSE4Goodindex,whichthe

Companyhasbeeninsince2002.Snamwasalsoincludedforthefourthconsecutiveyearamongthe

highestscorersofCDP.TheCompanywasalsoincludedintheAList,thehighestscoreoftheCDP

evaluationmodel,whichin2016wasonlyawardedto193companiesglobally.

Lastly,SnamstockisincludedinthetwoMSCI World ESG and MSCI ACWI ESGindices.

Snamstockisalsoincludedinthefollowingsustainabilityindices:


63

Debt management and credit rating

At31December2016,theGroup’snetfinancialpositionwas€11,056million,resultingfromafinancial

debtof€11,090millionandliquidassetsof€34million.Snam’sgoalistoachieveadebtstructure

consistentwithbusinessrequirementsintermsofloantermandinterestrateexposure.

Onthedebtside,theseparationofItalgas,effectivefrom7November2016,ledtoareductionin

Snam’sdebtofapproximately€3.6billionandacash-infortheCompanyofapproximately€3.2billion,

netofapproximately€0.4billioninEIBfundingrelatingtoItalgasprojectstransferredtothelatter.

Followingthistransaction,Snamrecalibratedandredesigneditsliabilitiesstructure.

Inthiscontext,theCompanysuccessfullyconcludedaliabilitymanagementtransaction,thelargest

todateinEurope,throughthebuybackonthebondmarketforatotalvalueofapproximately€2.75

billion,withanaveragecouponofapproximately3.3%andaremainingtermofaround3years,and

thesimultaneousissueoftwonewbondloansforatotalof€1.75billion,withanaveragecouponof

0.625%andanaveragematurityofaround8.3years.

Additionally,in2016Snamextendedbyoneyearthetermsofthesyndicatedloanof€3.2billionat

thesamecostconditions.Thetwosyndicatedbanklines,amountingto€2.0billionand€1.2billion,

shallexpirein2019and2021,respectively.InadditionSnamreducedtheamountofbilateralbank

loanscomparedwith31December2015byaround€1billion;andrenegotiatedthetermsofexisting

agreementsextendingthetermbytwoyearsandimprovingthecostconditionsapplied.

Thesetransactionsonboththebankingandbondmarketmadeitpossibletooptimisemedium-and

long-termdebtmaturitiesbyextendingtheiraveragetermandcreatingconditionsforareductionin

averageborrowingcosts.

Short term21%

Bonds69%

Floating rate36%

Fix rate64%

Long term79%

Bank Loans20%

EIB Loans11%


64

15 Considering,also,theadditionalbondissuesmadeinJanuaryandFebruary2017,foratotalnominalvalueof€800million,theProgrammeallowsfortheissuanceofbondsforamaximumamountofapproximately€1.7billion.

At31December2016,Snamhadunusedlong-termcommittedcreditlinestotallingaround€3.2

billion.Inaddition,Snamasat31December2016enteredintoaEuroMediumTermNotes(EMTN)

Programmewhichallowsfortheissuance,by30September2017,ofbondsforamaximumamountof

€2.5billion15.

TheseparationofItalgasdidnotchangetheCompany’screditrating,whichremainsatinvestmentgrade,

witharatingofBBBfromStandard&Poor’s,Baa1fromMoody’sandBBB+fromFitch.Snam’slong-term

ratingbyMoody’sandStandard&Poor’sisanotchhigherthanthatofItaliansovereigndebt.

LONG-TERMDEBT RATING

LATEST UPDATE

SHORT-TERMDEBT R ATING

OUTLOOK

Negative

Unassigned

Baa1

19 December 2016


LATEST UPDATE


OUTLOOK

Stable

A- 2

BBB

29 November 2016


LATEST UPDATE


OUTLOOK

Stable

F2

BBB+

29 July 2016


65

Summary data and information - Snam · Revalued historical cost Revalued historical cost Revalued historical cost Deduction of replacement costs Computation of Net Invested Capital

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