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 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.

Management uses the reclassified consolidated balance sheet to calculate the key profitability ratios (ROI and ROE).

RECLASSIFIED CONSOLIDATED BALANCE SHEET (*)

Fixed capital (€18,778 million) rose by €806 million compared with 31 December 2010, owing essentially to the change in property, plant and equipment (+€520 million) and intangible assets (+€182 million), as well as to the reduction in net debt from investment activities (+€104 million).

As of 2011, “Property, plant and equipment” includes pseudo-working gas²⁰ which, following technical studies conducted together with the Ministry for Economic Development (MSE), can no longer be supplied and reinjected in an annual storage cycle without incurring stability risks for the plants, with an equivalent value of €294 million, corresponding to 3,632 million cubic metres.

Changes in property, plant and equipment and intangible assets (+€702 million) are analysed below:

Other changes (-€174 million) relate essentially to: (i) the impact of adjusting the timing of expenditure relating to estimated charges for storage site dismantling and restoration in line with the maximum duration of the concessions (-€135 million); and (ii) grants for the period (-€70 million). The effects of these changes have partly been offset by the change in stock of pipes and related accessory materials purchased for investment purposes and not yet used in the construction of facilities (+€21 million).

INVESTMENTS

Investments in 2011, totalling €1,585 million²¹ (€1,540 million in 2010), relate to the natural gas transportation (€892 million), distribution (€394 million), storage (€296 million) and regasification (€3 million) business segments.

Compulsory inventories

Compulsory inventories, at €405 million (unchanged from 31 December 2010), 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 item 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. (€155 million), Azienda Energia e Servizi Torino S.p.A. (€108 million) and ACAM Gas S.p.A. (€48 million).

NET WORKING CAPITAL

Net working capital (-€1,698 million) decreased by €73 million compared with 2010, owing mainly to: (i) the increase in other liabilities (-€468 million), due mainly to the effects of the failed reintegration, under the terms established by the storage code, of the strategic gas used by shippers²² (-€296 million), to the higher charges from the Electricity Equalisation Fund relating essentially to the repayment of accessory tariffs for the transportation segment (-€107 million), and to the effects of returning to users of the transportation service the gas granted by them in kind (-€53 million)²³ ; (ii) the reduction in the fair value of the derivative financial instruments (-€192 million), due essentially to the expected reduction in market interest rates; and (iii) the increase in tax liabilities (-€115 million), owing mainly to the application of the additional IRES (Robin Hood Tax) for companies operating in the natural gas transportation and distribution business segments (-€169 million).

These factors were partly offset by: (i) the increase in trade receivables (+€590 million) relating to the natural gas storage business segment (+€470 million), owing mainly to receivables from the use by shippers of the strategic gas not replenished under the terms established by the storage code, and to the natural gas transportation segment (+€113 million), owing essentially to receivables from the balancing service²⁴ ; and (ii) the reduction in the provisions for risks and charges (+€102 million), due mainly to a decrease in provisions for dismantling and restoring storage sites (+€125 million).

Asset held for sale and directly related liabilities

Assets held for sale and directly related liabilities relate to property 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 ongoing²⁵.

STATEMENT OF COMPREHENSIVE INCOME

SHAREHOLDERS’ EQUITY

Other changes (+€18 million) relate essentially to: (i) the equity adjustment to Snam as a result of the purchase agreements with Eni for Italgas and Stogit (+€12 million); and (ii) the exercise of 1,986,600 stock option plans by Snam managers (+€7 million).

At 31 December 2011, Snam Rete Gas had 192,553,051 treasury shares²⁶ (compared with 194,184,651 at 31 December 2010), equal to 5.39% of the share capital. Their market value at 31 December 2011 was €653 million²⁷.

Information about the individual equity items and changes therein compared with 31 December 2010 is given in Note 27 to the consolidated financial statements, “Shareholders’ Equity”.

RECONCILIATION BETWEEN THE SEPARATE NET INCOME AND SHAREHOLDERS’ EQUITY OF SNAM RETE GAS S.P.A. AND CONSOLIDATED NET INCOME AND SHAREHOLDERS’ EQUITY

NET FINANCIAL DEBT

Net financial debt was €11,197 million, compared with €10,341 million at 31 December 2010. The cash flow from operating activities (+€1,537 million) and the income from the exercise of 1,986,600 stock options (+€7 million) enabled Snam to cover almost all its net investment expense (-€1,589 million). The increase in net financial debt, after payment of the dividend balance for the year 2010 of €0.14 per share, paid from 26 May 2011 onwards (-€473 million), and of the interim dividend for the year 2011 of €0.10 per share, paid from 27 October 2011 onwards (-€338 million), came to €856 million.

Long-term financial liabilities of €6,800 million made up approximately 61% of financial debt (compared with 69% at 31 December 2010) and had an average duration of slightly over four years (compared with approximately four years at 31 December 2010).

All financial liabilities are owing to Eni²⁸ and denominated in Euros.

Decree Law no. 1 of 20 January 2012 was published in the Gazzetta Ufficiale of 24 January 2012 authorising “Urgent arrangements for competition, development of infrastructure and competitiveness”. Specifically, Article 15 “Arrangements on ownership unbundling” established that the Prime-Ministerial Decree pursuant to Article 1, paragraph 905 of Law no. 296 of 27 December 2006, relating to the implementation of ownership unbundling between Eni and Snam, shall be issued within six months of the above-mentioned Decree Law coming into force.

In the case of a change of control at Snam by Eni S.p.A., existing agreements between the companies give Eni S.p.A. the right to extinguish the credit lines granted early. At present, Snam believes that cash flows from operations and its current financial and capital structure can reasonably allow access to a wide range of financing from the capital markets and banks. However, there are no guarantees that Snam would be capable of obtaining loans and financing from other sources under the same conditions as current ones.

The breakdown of debt by type of interest rate at 31 December 2011 is as follows:

Floating-rate financial liabilities (€2,587 million) increased by €443 million compared with 31 December 2010 as a result of higher short-term floating rate debt.

Fixed-rate financial liabilities were €8,612 million, up by €406 million compared with 31 December 2010, essentially as a result of the balance between loans taken out (+€1,700 million) and repayments (-€1,300 million) in the period. Specifically, the loans taken out refer to: (i) two fixed-rate loans of €400 million and €300 million; and (ii) three floating-rate loans of €200 million, €300 million and €500 million, converted into fixed-rate loans by three interest rate swaps (IRS) derivative contracts.

Fixed-rate financial liabilities at 31 December 2011 included 19 floating-rate loans converted into fixed rate loans through interest rate swaps for an overall notional amount of €6,435 million.

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

Covenants

Snam has entered into a €300 million loan agreement with Eni funded by the European Investment Bank (EIB), which is based on Eni maintaining a minimum rating. This condition has been met.