Reclassified consolidated 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 based on how the business management operates, usually split into the three basic functions: 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.

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

Reclassified Consolidated Balance Sheet(*)

(€ million) 31.12.2009 31.12.2010 Change
Non-current assets 17,077 17,678 601
Property, plant and equipment (**) 12,684 13,239 555
Compulsory inventories 405 405
Intangible assets (**) 4,082 4,262 180
Equity investments 301 319 18
Financial receivables held for operations 2 2
Net payables for investments (397) (549) (152)
Net working capital (1,332) (1,331) 1
Provisions for employee benefits (107) (105) 2
Assets held for sale and directly related liabilities 14 15 1
NET INVESTED CAPITAL 15,652 16,257 605
Shareholders’ equity (including minority interests)
- attributable to Snam Rete Gas 5,702 5,915 213
- attributable to minority shareholders 1 1
5,703 5,916 213
Net financial debt 9,949 10,341 392
COVERAGE 15,652 16,257 605

(*) Please see reconciliation of reclassified consolidated balance sheets with the legally-required formats.
(**) Includes the reclassification from “property, plant and equipment” to “intangible assets” of the net book value of infrastructure used for distribution services of natural gas (€3,341 million) following the application of IFRIC 12 from 1 January 2010.

Fixed capital (€17,678 million) rose by €601 million compared with 31 December 2009, due essentially to changes in property, plant and equipment (+€555 million) and intangible assets (+€180 million), partially offset by the increase in net payables for investments (-€152 million) deriving mainly from the estimated effects of price adjustments in connection with agreements signed as part of the acquisition of Italgas and Stogit20.

Changes in property, plant and equipment and intangible assets (+€735 million) are analysed below:

(€ million) Property, plant and equipment Intangible assets Total
Balance at 31 December 2009 12,684 4,082 16,766
Investments 1,117 423 1,540
Depreciation, amortisation and impairment losses (495) (183) (678)
Transfers, eliminations and divestments (9) (13) (22)
Other changes (58) (47) (105)
Balance at 31 December 2010 13,239 4,262 17,501

Investments

(€ million) 2008 2009 (*) 2010
Business segments
Transportation 1,038 926 902
Regasification 6 7 3
Storage 149 252
Distribution 172 386
Elimination of internal profit (**) (3)
Investments 1,044 1,254 1,540

(*) Investments made by the natural gas distribution and storage business segments refer to the period between 1 July and 31 December 2009.
(**) Profit relates to capital gains from the cross-segment transfer of property, property, plant and equipment.

Investments in 2010, totalling €1,540 million (against €1,254 million in 2009), relate to the transportation (€902 million), regasification (€3 million), storage (€252 million) and distribution (€386 million) business segments21.

Other changes (-€105 million) relate essentially to grants for the period (-€80 million) and the change in surplus pipes purchased for investment purposes and not yet used in production at the plants (-€38 million). These factors were partially offset by the acquisition of the CNEA business unit (+€9 million).

Compulsory inventories

Compulsory inventories, at €405 million (same as at 31 December 2009), consist of the minimum quantities of natural gas that the storage companies are obliged to hold pursuant to Presidential Decree no. 22 of 31 January 2001. The inventories correspond to approximately 5 billion standard cubic metres of natural gas, and the total quantity is determined annually by the Ministry of Economic Development.

Equity investments

The heading equity investments (€319 million) includes the valuation of equity investments using the equity method and refers in particular to the companies Toscana Energia S.p.A. (€151 million), Azienda Energia e Servizi Torino S.p.A. (€109 million) and ACAM Gas S.p.A. (€48 million).

Net working capital

(€ million) 31.12.2009 31.12.2010 Change
Trade receivables 738 777 39
Inventories 411 441 30
Tax receivables 21 18 (3)
Other assets 145 98 (47)
Deferred tax liabilities (934) (853) 81
Provisions for risks and charges (*) (576) (629) (53)
Trade payables (471) (468) 3
Prepaid income from regulated activities (*) (328) (352) (24)
Tax payables (67) (115) (48)
Derivatives (78) (74) 4
Other liabilities (193) (174) 19
(1,332) (1,331) 1

(*) In order to make the accounting treatment used consistent with that applied to other regulated activities carried out by the group, payments for balancing and stock replenishment charged off against revenues because they are payable to service users are offset under “Prepaid income from regulated activities”. Likewise, the corresponding value at 31 December 2009 (€93 million) was reclassified from “Provisions for risks and charges” to “Prepaid income from regulated activities”. For more information about the reasons for the reclassification, refer to Note 17 to the consolidated financial statements, “Provisions for risks and charges”.

Net working capital (-€1,331 million) remained unchanged (from -€1,332 million at 31 December 2009), owing mainly to: (i) higher provisions for risks and charges (-€53 million)22, related essentially to the distribution (-€19 million) and transportation (-€16 million) business segments and to increased provisions for abandonment (-€14 million), due mainly to revised estimates for the cost of removal and restoration of natural gas storage sites; (ii) higher tax payables (-€48 million), due mainly to the increase in pre-tax profit; (iii) the reduction in other activities (-€47 million), due essentially to the repayment by the Cassa Conguaglio per il Settore Elettrico (Electricity Equalisation Fund) of energy efficiency certificates (-€62 million), which was partially offset by lower VAT payments on account to the ultimate parent, Eni (+€28 million). These factors were offset by: (i) lower deferred tax liabilities (+€81 million) owing essentially to the transfer of deferred taxes, relating to amortisation and depreciation carried out purely for tax purposes in previous periods, and to the increase in prepaid taxes; (ii) higher trade receivables (+€39 million); (iii) an increase in inventories (+€30 million) attributable mainly to the natural gas used in transportation activities.

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 (€15 million, net of environmental provisions for charges relating to restoration work on the property) for which negotiations for a sale to Eni are ongoing23.

Statement of comprehensive income

(€ million) 2009 2010
Net profit 732 1,106
Other components of comprehensive income
Change in fair value of cash flow hedge derivatives (effective share) (29) 4
Tax effects of the other components of comprehensive income 8 (1)
Total other components of comprehensive income, net of tax effect (21) 3
Total comprehensive income 711 1,109
. attributable to:
- Snam Rete Gas 711 1,109
- Minority shareholders
711 1,109

Shareholders’ equity

(€ million)
Shareholders’ equity at 31 December 2009 5,703
Increases owing to:
- Comprehensive income for 2010 1.109
- Other changes 7
1,116
Decreases owing to:
- Distribution of balance of 2009 dividend (472)
- Distribution of interim 2010 dividend (304)
- Other changes (*) (127)
(903)
Shareholders’ equity including minority interests at 31 December 2010 5,916
attributable to:
- Snam Rete Gas 5.915
- Minority shareholders 1
5,916

(*) Relates to the estimated effects of price adjustments in connection with agreements signed as part of the acquisition of Italgas and Stogit. For more information, refer to “Guarantees, commitments and risks - Commitments deriving from the acquisition of Italgas and Stogit from Eni”.

At 31 December 2010, Snam Rete Gas had 194,184,651 treasury shares24 (compared with 194,886,225 at 31 December 2009), equal to 5.44% of the share capital. Their market value at 31 December 2010 was €724 million25.

Information about the individual equity items and changes therein compared with 31 December 2009 is given in Note 21 to the consolidated financial statements, “Shareholders’ Equity”.

Connection between the separate net income and net assets of Snam Rete Gas S.p.A. and consolidated net income and net assets

(€ million) Profit for the period Shareholders’ equity
2009 2010 31.12.2009 31.12.2010
Financial statements for Snam Rete Gas S.p.A. 530 902 7,068 7,204
Profit for the period of companies included in consolidation scope 181 476
Difference between book value of equity investments in consolidated companies and shareholders’ equity reported in financial statements including net income for the period (1,342) (1,282)
Consolidation adjustments made for:
- Equity-accounted investments 21 13 (14) 5
- Elimination of internal intra-group profits and other minor adjustments net of tax effects (285) (10) (12)
21 (272) (24) (7)
Minority interests 1 1
Consolidated financial statements 732 1,106 5,703 5,916

Net financial debt and leverage

Leverage measures the level of debt of a company and is calculated as the ratio of net financial debt to net invested capital. It is one of the key indicators of the soundness and efficiency of a company’s financial structure.

(€ million) 31.12.2009 31.12.2010 Change
Financial liabilities 9,986 10,350 364
Short-term financial liabilities 1,585 1,844 259
Current share of long-term financial liabilities 915 1,320 405
Long-term financial liabilities 7,486 7,186 (300)
Financial receivables and cash and cash equivalents (37) (9) 28
Financial receivables not held for operations (1) (1)
Cash and cash equivalents (36) (8) 28
9,949 10,341 392

The group’s net financial debt totalled €10,341 million at 31 December 2010, an increase of €392 million compared with a year earlier, owing mainly to financial requirements related to: (i) the payment of the dividend balance for 2009 of €0.14 per share, paid from 27 May 2010 (-€472 million), and of the interim dividend for 2010 of €0.09 per share, paid from 21 October 2010 (-€304 million); (ii) net capital expenditure (-€1,393 million). These factors were partially offset by cash flow from operations (+€1,775 million).

Long-term financial liabilities of €7,186 million make up 69% of net financial debt (compared with 75% at 31 December 2009) and have an average duration of slightly over four years (compared with approximately four years at 31 December 2009).

The breakdown of debt by type of interest rate at 31 December 2010 is as follows:

(€ million) 31.12.2009 % 31.12.2010 % Change
Floating-rate 4,270 43 2,144 21 (2,126)
Fixed-rate 5,716 57 8,206 79 2,490
9,986 100 10,350 100 364

All the financial liabilities are due to Eni26 and are all in euros.

Floating-rate financial liabilities (€2,144 million) decreased by €2,126 million compared with 31 December 2009, owing to the stipulation of eight interest rate swaps (IRSs) with a duration of around two years, which convert existing floating-rate loans (for a total of €2,185 million) into fixed-rate loans. This was partially offset by an increase in short-term debt.

Fixed-rate financial liabilities (€8,206 million) increased by €2,490 million compared with 31 December 2009. This increase was due to the stipulation of the aforementioned eight IRSs (€2,185 million) and the taking out of three floating-rate loans (€1,000 million in total, converted into fixed-rate loans by three more IRSs, and was partially offset by the repayment (€700 million) of a matured loan.

On 23 December 2010, an agreement was signed with Eni for a medium-to-long-term loan of €400 million. The loan, which carries a fixed rate of around 2.9%, will be issued on 21 March 2011 and repaid in a single instalment on 20 December 2013. It will be used to refinance a €300 million loan due to mature on 20 March 2011.

At 31 December 2010, Snam Rete Gas had a total of 19 IRSs in place, with a notional value of €6,535 million (compared with €4,050 million at 31 December 2009).

Leverage - the ratio of net financial debt to net invested capital - is 63.6% (unchanged from 31 December 2009).

There were no breaches of loan agreements at the reporting date.

(20) For more information, refer to Note 22 to the consolidated financial statements, “Guarantees, commitments and risks - Commitments deriving from the acquisition of Italgas and Stogit from Eni”.
(21) The analysis of the investments made by each business segment is given in “Business segment operating performance” of this report.
(22) The analysis of the changes in “Provisions for risks and charges” is given in “Provisions for risks and charges” Note to the consolidated financial statements.
(23) For information about the parties’ commitments, refer to “Guarantees, commitments and risks - Commitments deriving from the acquisition of Italgas and Stogit from Eni” Note to the consolidated financial statements.”
(24) Information about treasury shares in the portfolio at 31 December 2010 pursuant to Article 40 of Legislative Decree no. 127/91 and Article 2428 of the Italian Civil Code is provided in the chapter “Other information - Treasury shares held by the Company and by subsidiaries” of this report.
(25) Calculated by multiplying the number of treasury shares by the year-end Official price of €3.73 per share.
(26) Information about financial debt to the parent company Eni S.p.A. is given in “Long-term financial liabilities and short-term portion of long-term liabilities” Note to the consolidated financial statements.

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