Snam.it

30 Operating costs

The key items under operating costs are described below. The reasons for the most significant changes are given in the “Financial review and other information” section of the Directors’ report.

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(€ million)

2010

2011

Purchases, services and other costs

623

659

Personnel expense

345

334

 

968

993

Operating costs include the costs arising from the construction and upgrading of the natural gas distribution infrastructure linked to concession agreements (€360 million; €349 million in 2010), of which €70 million relates to the costs of raw materials, consumables and supplies, €192 million to service costs and €93 million to personnel expense.

Purchases, services and other costs

Purchases, services and other costs (€659 million) break down as follows:

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(€ million)

2010

2011

Costs incurred for raw materials, consumables, supplies and goods

156

222

Costs for services

482

473

Costs for the use of third-party assets

54

52

Change in raw materials, consumables, supplies and goods

30

(44)

Net accrual to provisions for risks and charges

6

27

Other operating expenses

42

71

 

770

801

Less:

 

 

Raw materials, consumables, supplies and goods:

 

 

Increase on internal work - purchases

(120)

(106)

 

(120)

(106)

Services:

 

 

Increase on internal work - services

(27)

(36)

 

(27)

(36)

 

623

659

Costs for services amount to €437 million and comprise the following:

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(€ million)

2010

2011

Construction, planning and coordination of work

183

175

Purchase of transportation capacity (interconnection)

46

47

Technical, legal, administrative and professional services

42

45

Maintenance

46

42

IT (information technology) services

32

37

Personnel-related services

27

28

Utilities

21

21

Telecommunications services

17

21

Insurance

17

16

Other services

51

41

 

482

473

Less:

 

 

Increase on internal work capitalised in non-current assets - services

(27)

(36)

 

(27)

(36)

 

455

437

Development costs which do not satisfy the conditions for recognition under assets in the balance sheet amount to less than €1 million.

Costs for the use of third-party assets (€52 million) break down as follows:

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(€ million)

2010

2011

Fees, patents and licences

38

40

Leases and rentals

16

12

 

54

52

Fees, patents and licences (€40 million) mainly concern fees for the operation of natural gas distribution concessions and easement concessions relating to the transportation activity.

Leases and rentals (€12 million) mainly relate to charges for operating leases of office buildings and occupancy of public land.

Future minimum payments due for non-cancellable operating leases break down as follows:

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(€ million)

 2010

 2011

Payable in

 

 

1 year

1

2

from 2 to 5 years

2

5

more than 5 years

 

 

 

3

7

The positive change in raw materials, consumables, supplies and goods (€44 million) is mainly due to: (i) the gas used for the provision of the natural gas transportation service (€21 million); and (ii) the increase in materials inventory (€29 million) mainly relating to spare parts for the natural gas transportation network.

The net accrual to provisions for risks and charges (€27 million, net of surplus utilisation) concerns the provision for risks and charges for litigation (€17 million) and the provision for environmental charges (€10 million). Information on provisions for risks and charges can be found in Note 23 “Provisions for risks and charges”.

Other operating expenses (€71 million) break down as follows:

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(€ million)

2010

2011

Capital losses on the cancellation of property, plant and equipment and intangible assets

12

27

Indirect taxes and duties

11

14

Accrual to the provision for impairment losses on receivables

6

4

Methane gas consumption tax

4

2

Other expenses

9

24

 

42

71

Other expenses (€24 million) mainly concern charges arising on litigation cases concluded during the period (€21 million)36.

Personnel expense

The personnel expense of €334 million breaks down as follows:

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(€ million)

2010

2011

Wages and salaries

266

271

Social security contributions (pensions and healthcare assistance)

83

86

Other employee benefits

9

10

Other expenses

39

20

Less:

 

 

Increase on internal work - personnel expense

(52)

(53)

 

345

334

The average number of payroll employees included in the scope of consolidation, broken down by status, is as follows:

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Professional status

31.12.2010

31.12.2011

Executives

120

119

Managers

502

516

Office workers

3,279

3,227

Manual workers

2,226

2,207

 

6,127

6,069

The average number of employees is calculated on the basis of the monthly number of employees for each category.

Incentive plans for executives with Snam shares

At 31 December 2011 there were 3,151,851 options outstanding for the purchase of 3,151,851 Snam ordinary shares with a nominal value of €1. The options relate to the 2004 allocation of 148,500 shares with a strike price of €3.53, the 2005 allocation of 538,000 shares with a strike price of €4.399, the 2006 allocation of 96,801 shares with a strike price of €2.905, the 2007 allocation of 637,350 shares with a strike price of €3.545, and the 2008 allocation of 1,731,200 shares with a strike price of €3.463. No new stock option plans have been issued since 2009.

Changes in the stock option plans at 31 December 2011 are as follows:

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2010

2011

 

No. of shares

Average strike price (€)

Market price 
(€) (a)

No. of shares

Average strike price (€)

Market price 
(€) (a)

(a)

The market price of shares relating to options assigned, exercised or expired in the year corresponds to the weighted average for the number of shares, their market value (average official price on the Mercato Telematico Azionario in the previous month: (i) the date of the Board of Directors’ allocation resolution; (ii) the date of issue into the beneficiary’s securities account for the issue/transfer of shares; (iii) the unilateral termination date of employment for expired options; (iv) the date of expiry due to non-exercise under the terms of the Board of Directors’ allocation resolution; (v) the date on which the Board of Directors determines the TSR positioning at the end of the vesting period). The market price of shares relating to options existing at the start and end of the period is correct at period end.

(b)

Figures relate to the new options assigned during 2009 following the modification of the 2006-2008 stock option plan, approved by the board of directors on 29 July 2009.

(c)

Figures include options expired due to the TSR positioning at the end of the vesting period and options expired due to termination of employment.

Options existing at 1 January

7,510,700

3.46

3.46

5,949,951

3.49

3.73

New options assigned (b)

 

 

 

 

 

 

Options exercised during the period

(766,074)

3.13

3.61

(1,986,600)

3.28

3.98

Options expired during the period (c)

(794,675)

3.54

3.47

(811,500)

3.46

3.82

Options existing at period end

5,949,951

3.49

3.73

3,151,851

3.63

3.39

of which exercisable

3,407,251

3.50

 

3,151,851

3.63

 

The breakdown of options by year of allocation is as follows:

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Year of assignment

Options
assigned

Options
expired

Options
exercised

Existing options at 31 December 2011

2002

608,500

(21,000)

(587,500)

 

2003

640,500

 

(640,500)

 

2004

677,000

(30,000)

(498,500)

148,500

2005

658,000

(51,000)

(69,000)

538,000

2006

2,933,575

(1,061,525)

(1,775,249)

96,801

2007

2,782,800

(1,043,900)

(1,101,550)

637,350

2008

2,726,000

(994,800)

 

1,731,200

 

11,026,375

(3,202,225)

(4,672,299)

3,151,851

More information about the incentive plans for executives with Snam shares can be found in the “Other information” section of the Directors’ report.

At 31 December 2011, the average residual life of the options was 0.6 years for the 2004 plan, 1.6 years for the 2005 plan, 0.6 years for the 2006 plan, 1.6 years for the 2007 plan and 2.6 years for the 2008 plan.

The unit fair value of the options allocated in 2003, 2004 and 2005 was €0.4206, €0.174 and €0.382 per share, respectively. Following the modifications made to the 2006-2008 stock option plan, approved by the Board of Directors on 29 July 2009, the unit fair value of the options allocated in 2006, 2007 and 2008 is €0.3973, €0.2127 and €0.2535 per share, respectively.

The assumptions used to determine the fair value of the options are given below:

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2003

2004

2005

2006

2007

2008

Risk-free interest rate

(%)

3.54

4.20

3.15

2.16

2.52

2.78

Duration

(years)

8

8

8

6

6

6

Implicit volatility

(%)

20.02

11.27

14.88

20.94

20.94

20.94

Estimated dividends

(%)

4.80

5.64

4.55

5.72

5.65

5.54

Remuneration due to key management personnel

The remuneration due to persons with powers and responsibilities for the planning, management and control of the company, i.e. executive and non-executive directors, general managers and managers with strategic responsibilities (“key management personnel”), in office at 31 December of each financial year, amounts to€7 million (€6 million in 2010) and breaks down as follows:

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(€ million)

2010

2011

Short-term benefits (wages and salaries)

4

4

Post-employment benefits

1

1

Other long-term benefits

1

1

Employment termination pay

 

1

 

6

7

Remuneration due to Directors and Statutory auditors

The remuneration due to directors totalled €3 million for both the 2011 and 2010 financial years. The remuneration due to statutory auditors came to €0.2 million both in 2010 and in 2011.

The remuneration includes emoluments and any other amounts relating to pay, pensions and healthcare due for the performance of duties as a director or statutory auditor in Snam and in other companies included in the scope of consolidation, giving rise to a cost for Snam, even if not subject to personal income tax.

Depreciation, amortisation and impairment losses

Depreciation, amortisation and impairment losses amount to €654 million and break down as follows:

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(€ million)

2010

2011

Depreciation and amortisation

 

 

Property, plant and equipment

495

487

Intangible assets

173

176

 

668

663

Impairment losses

 

 

Intangible assets

10

 

 

10

 

Less:

 

 

Recovery of value

 

(9)

 

678

654

Depreciation of property, plant and equipment (€487 million) relates to natural gas transportation (€415 million), storage (€51 million), distribution (€16 million) and regasification (€5 million) activities.

Amortisation of intangible assets (€176 million) relates to natural gas distribution (€151 million), transportation (€20 million) and storage (€5 million) activities.

Recovery of value (€9 million) relate to assets in the natural gas distribution segment, on which impairment losses were recognised in 2010 (€10 million), due to the reduced cost of adapting plants for normal use.

A more thorough analysis of depreciation, amortisation and impairment losses can be found in Note 11 “Property, plant and equipment” and Note 13 “Intangible assets”.

36 A summary of the key proceedings can be found in Note 28 “Guarantees, commitments and risk – Litigation”.

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