Reclassified balance sheet

The reclassified consolidated balance sheet combines the assets and liabilities of the compulsory format included in the annual report and the half-year report in accordance with their function, usually split into the three basic functions: investment, operations and financing.

Management believes this format is useful for investors as it allows identification of the sources of financing (own and third-party funds) and the application of such funds for fixed and working capital.

The reclassified consolidated balance sheet format is used by management to calculate the key leverage and profitability (ROI and ROE) ratios.

RECLASSIFIED BALANCE SHEET (*)

(€ millions) 31.12.2008 31.12.2009 Change
Fixed capital 10,302 17,077 6,775
Property, plant and equipment 10,549 16,025 5,476
Compulsory inventories 405 405
Intangible assets 39 741 702
Equity investments 301 301
Financial receivables held for operations 2 2
Net payables for investments (286) (397) (111)
Net working capital (464) (1,332) (868)
Provisions for employee benefits (29) (107) (78)
Assets held for sale and directly related liabilities 14 14
NET INVESTED CAPITAL 9,809 15,652 5,843
Equity (including minority interests)
- attributable to Snam Rete Gas 3,573 5,702 2,129
- attributable to minority shareholders 1 1
3,573 5,703 2,130
Net financial debt 6,236 9,949 3,713
COVERAGE 9,809 15,652 5,843

(*) Reference should be made to the paragraph on the reconciliation of the reclassified consolidated balance sheet with the legally required consolidated balance sheet.

Fixed capital (€17,077 million) increased by €6,775 million compared with 31 December 2008, due essentially to the change in consolidation scope on 30 June 2009 (+€6,110 million).

Changes in property, plant and equipment and intangible assets (+€6,178 million) are analysed below:

(€ millions) Property, plant
and equipment
Intangible
assets
Total
Balance at 31 December 2008 10,549 39 10,588
Investments 1,218 36 1,254
Change in consolidation scope 4,811 700 5,511
Amortisation, depreciation and impairment (579) (34) (613)
Transfers, eliminations and divestments (24) (24)
Other changes 50 50
Balance at 31 December 2009 16,025 741 16,766

Investments in 2009 amounted to €1,254 million, of which €172 million and €149 million respectively related to the natural gas distribution and storage business segments25. The change in consolidation scope of €5,511 million comprises the carrying amount at 30 June 2009 of property, plant and equipment and intangible assets from the acquisition of Italgas and Stogit - equal to €3,566 million and €1,945 million respectively.

Other changes (+€50 million) relate essentially to: (i) the transfer, from the item “Inventories”, of gas for use in the transportation network (+€59 million)26; (ii) the transfer from the warehouse of goods (essentially pipes and their accessories) destined for investment activities and not yet used for constructing plants (+€34 million, net of goods used for investment activities); (iii) the revision of estimates for the abandonment and restoration of sites (+€21 million). These factors were partly offset by grants for the period (-€67 million).

Net working capital

(€ millions) 31.12.2008 31.12.2009 Change
Trade receivables 417 738 321
Inventories 128 411 283
Tax receivables (*) 6 21 15
Other assets (*) 25 145 120
Deferred tax liabilities (487) (934) (447)
Provisions for risks and charges (52) (669) (617)
Trade payables (161) (471) (310)
Accrued and deferred income from regulated business revenue (190) (235) (45)
Derivative instruments (39) (78) (39)
Tax payables (48) (67) (19)
Other liabilities (*) (63) (193) (130)
(464) (1,332) (868)

(*) Tax receivables of €2 million have been reclassified from “Other assets” (at 31 December 2008) to “Tax receivables”.

Net working capital (-€1,332 million) decreased by €868 million compared with 31 December 2008, mainly as a result of the change in consolidation scope on 30 June 2009, which led to the recognition of net liabilities of €948 million, and of operating changes in the period (+€80 million)27. These changes are due mainly to: (i) higher trade receivables (+€160 million), relating essentially to the natural gas distribution segment; (ii) smaller deferred tax liabilities (+€71 million), particularly following the return of deferred taxes relating to amortisation and depreciation carried out - purely for tax purposes - in previous financial years; (iii) the increase in other assets (+€39 million) owing mainly to higher receivables from the Electricity Equalisation Fund for the redemption of energy efficiency certificates in the distribution business segment, as well as a higher December VAT advance to ultimate parent Eni S.p.A. These positive changes were partly offset by: (i) higher provisions for risks and charges (-€74 million), owing particularly to the fund for dismantling and restoring sites in the storage business segment, as well as to the recognition of provisions for environmental funds and disputes; (ii) a reduction in the fair value of derivative instruments (-€39 million) as a result of lower market interest rates.

The reduction of inventories (-€84 million), owing mainly to the factors shown in the previous item “Property, plant and equipment”, also contributed to lower net working capital.

Assets held for sale and directly related liabilities

Assets held for sale and directly related liabilities relate to a real-estate complex owned by Italgas (€14 million, net of environmental provisions for charges relating to restoration work on the property)28.

Statement of comprehensive income

(€ millions) 2008 2009
Net profit 530 732
Other components of comprehensive income
Change in fair value of cash flow hedge derivatives (effective share) (108) (29)
Tax effect of the other components of comprehensive income 30 8
Total other components of comprehensive income, net of tax effect (78) (21)
Total comprehensive income 452 711
attributable to:
- Snam Rete Gas 452 711
- Minority shareholders
452 711

Equity

(€ millions) 31.12.2009 Change
Equity at 31 December 2008 3,573
Increases owing to:
- Share capital increase (*) 3,474
- Comprehensive income for 2009 711
- Other changes 3
4,188
Decreases owing to:
- Difference between acquisition cost of equity investments and book equity of Italgas e Stogit (**) (1,585)
- Additional expense for the share capital increase (***) (23)
- Distribution of balance of 2008 dividend (247)
- Distribution of interim 2009 dividend (203)
(2,058)
Equity including minority interests at 31 December 2009 5,703
attributable to:
- Snam Rete Gas 5,702
- Minority shareholders 1
5,703

(*) Includes the share premium of €1,860 million, of which €3 million relates to collecting unexercised options.
(**) Includes the price adjustment effect (€1 million), recognised following the agreements signed during the acquisition of Stogit. For more information, see note 23 “Commitments, risks and guarantees – Commitments arising from the acquisition of Italgas and Stogit from Eni” of the notes to the consolidated financial statements.
(***) Net of the tax effect.

At 31 December 2009, Snam Rete Gas had 194,886,225 treasury shares29 (compared with 195,429,850 at 31 December 2008), equal to 5.46% of the share capital. Their market value at 31 December 2009 was €674 million30. Note 21 “Equity” to the consolidated financial statements gives information about the individual equity items and changes therein compared with 31 December 2008.

Reconciliation of the profit for the year and equity of Snam Rete Gas S.p.A with their consolidated equivalents

Profit for the year Equity
(€ millions) 2008 2009 31.12.2008 31.12.2009
Separate financial statements for Snam Rete Gas S.p.A 528 530 3,557 7,068
Profit for the year of companies included in the consolidation scope 2 181
Excess equity in separate financial statements, including profit or loss for the year, compared with the carrying amount of equity investments in consolidated companies 16 (1,387)
Consolidation adjustments for:
- Valuation of equity investments using equity method 21 21
Minority interests 1
Consolidated financial statements 530 732 3,573 5,703

Net financial debt and leverage

Leverage shows a company’s degree of indebtedness and is the ratio of net financial debt to net invested capital. It is one of the key ratios used to gauge the soundness and efficiency of a company’s financial position.

(€ millions) 31.12.2008 31.12.2009 Change
Financial liabilities 6,237 9,986 3,749
Short-term financial liabilities 1,023 1,585 562
Current share of long-term financial liabilities 14 915 901
Long-term financial liabilities 5,200 7,486 2,286
Financial receivables and cash and cash equivalents (1) (37) (36)
Financial receivables not held for operations (1) (1)
Cash and cash equivalents (36) (36)
6,236 9,949 3,713

Net financial debt amounted to €9,949 million, an increase of €3,713 million compared with 31 December 2008, due to financial requirements relating to: (i) investments in the newly consolidated companies (-€6,693 million, including €4,474 million of outlays31, net of cash acquired, and financial liabilities of €2,219 million acquired on the transaction completion date: €1,151 million and €1,068 million for Italgas and Stogit respectively); (ii) net investments for the period (-€1,179 million); (iii) settlement of the 2008 dividend of €0.14 per share, paid from 21 May 2009 (-€247 million) and of the interim 2009 dividend of €0.06 per share, paid from 22 October 2009 (-€203 million). These factors were partly offset by: (i) net cash flows of equity related to the share capital increase (+€3,443 million, including the share premium and net of outlays to cover additional transaction costs); (ii) cash inflows from operating activities (+€1,164 million).

Long-term financial liabilities of €7,486 million make up 75% of financial debt (83% at 31 December 2008). The average duration of the long-term loans is approximately four years (it was just over four years at 31 December 2008).

A breakdown of the liabilities by type of interest rate at 31 December 2009 is as follows:

(€ millions) 31.12.2008 % 31.12.2009 % Change
Floating rate 2,524 40 4,270 43 1,746
Fixed rate 3,713 60 5,716 57 2,003
6,237 100 9,986 100 3,749

All the financial liabilities are due to Eni and they are all in euros.

The floating-rate financial liabilities (€4,270 million) increased by €1,746 million compared with 31 December 2008, owing primarily to the change in consolidation scope on 30 June 2009 (€1,461 million) and to taking out two new loans with ultimate parent Eni S.p.A (€600 million in total, of which €300 million is supplied by the European Investment Bank). At 31 December 2009, floating-rate financial liabilities from acquired companies amounted to €1,090 million.

Fixed-rate financial liabilities (€5,716 million) increased by €2,003 million, due mainly to taking out three new floating-rate loans with ultimate parent Eni S.p.A (a total of €1,250 million), converted into fixed-rate loans by interest rate swaps, and to consolidating debts from the acquired companies on completion of the transaction (€758 million). At 31 December 2009, fixed-rate financial liabilities from acquired companies amounted to €1,310 million.

Fixed-rate financial liabilities include floating-rate loans converted into fixed-rate loans by interest rate swaps for a total notional amount of €4,050 million. Information on financial debt owing to ultimate parent Eni S.p.A can be found in note 16 to the consolidated financial statements.

Leverage - the ratio of net financial debt to net invested capital - was 63.6% (unchanged from 31 December 2008). There are no financial liabilities subject to covenants. There were no breaches of loan agreements at the reporting date.

(25) Investments made by the acquired companies refer to the period 1 July-31 December 2009. Investments made by these companies before the acquisition completion date are included in the item “Change in consolidation scope”.
(26) Gas used for the functioning of a pipeline is divided into the Initial Line Pack (IL), which is the quantity of gas injected into the network when a pipeline comes into service (this is not economically recoverable), and the Operating Line Pack, which is the difference between the total quantity of gas used for the functioning of the pipeline and the IL.
(27) Changes for the distribution and storage business segments relate to the second half of the year.
(28) Note 23 “Guarantees, commitments and risks - Commitments arising from the acquisition of Italgas and Stogit from Eni” of the notes to the consolidated financial statements provides information on the parties’ commitments.
(29) Treasury stock transactions carried out in financial year 2009 are shown in the section “Other information – Stock option plans” of the directors’ report.
(30) Calculated by multiplying the number of treasury shares by the year-end official price of €3.46 per share.
(31) Equal to the acquisition price determined when the transaction was completed (€4,512 million), net of acquired cash and cash equivalents (€38 million).

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