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32 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)

2012

2013

Purchases, services and other costs

786

672

Personnel expense

343

373

 

1,129

1,045

Operating costs include costs from the construction and upgrading of natural gas distribution infrastructure linked to concession agreements under IFRIC 12 (€319 million; €325 million in financial year 2012).

The costs from the application of IFRIC 12 are analysed below:

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(€ million)

2012

2013

Costs for raw materials, consumables and supplies

21

26

Costs for services

199

189

Costs for the use of third-party assets

12

12

Personnel expense

93

92

 

325

319

Purchases, services and other costs

Purchases, services and other costs (€672 million) break down as follows:

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(€ million)

2012

2013

Costs for raw materials, consumables, supplies and goods

233

147

Costs for services

497

503

Costs for the use of third-party assets

62

88

Change in raw materials, consumables, supplies and goods

80

34

Net accrual to provisions for risks and charges

54

4

Other operating expenses

80

60

 

1,006

836

Less:

 

 

Raw materials, consumables, supplies and goods:

 

 

Increase on internal work – purchases

(144)

(90)

 

(144)

(90)

Services:

 

 

Increase on internal work – services

(76)

(74)

 

(76)

(74)

 

786

672

Costs for services amount to €429 million and comprise the following:

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(€ million)

2012

2013

Construction, planning and coordination of work

170

171

IT (Information Technology) services

47

65

Purchase of transportation capacity (interconnection)

46

53

Maintenance

38

37

Technical, legal, administrative and professional services

36

35

Personnel-related services

26

28

Telecommunications services

21

24

Utilities

20

23

Insurance

21

22

Other services

72

45

 

497

503

Less:

 

 

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

(76)

(74)

 

(76)

(74)

 

421

429

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 (€88 million) break down as follows:

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(€ million)

2012

2013

Fees, patents and licences

44

59

Leases and rentals

18

29

 

62

88

Fees, patents and licences (€59 million) mainly concern fees paid to concessionary bodies for the operation of natural gas distribution concessions (€49 million).

Leases and rentals (€29 million) mainly relate to charges for operating leases of office buildings and the occupancy of public land.

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

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Payable in

2012

2013

1 year

3

4

2 to 5 years

4

4

 

7

8

The negative change in raw materials, consumables, supplies and goods (€34 million) is mainly due to the reduction in stock materials (€30 million) connected mainly with the development of natural gas transport networks.

Net allocations to the provisions for risks and charges (€4 million, net of surplus use) relate to: (i) charges related to the difference between the value recognised by the Electricity Equalisation Fund for the cancellation of Energy Efficiency Certificates (TEE)32 and the estimated cost of acquisition of the certificates on the market, in the context of the natural gas distribution service (€9 million); (ii) the provision for environmental liabilities (€6 million), in accordance with Law 471/99, and further activities mainly relating to waste disposal and asbestos removal. These effects were partly offset by net use of the provisions for litigation risks (-€13 million). Information on provisions for risks and charges can be found in Note 25 “Provisions for risks and charges”.

Other operating expenses (€60 million) break down as follows:

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(€ million)

2012

2013

Direct and indirect taxes

18

22

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

33

15

Negative difference from cancellation of Energy Efficiency Certificates (TEE)

 

9

Accrual to the provision for impairment losses on receivables

14

5

Methane consumption tax

2

2

Other expenses

13

7

 

80

60

Personnel expense

Personnel expense of €373 million breaks down as follows:

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(€ million)

2012

2013

Wages and salaries

276

282

Social security contributions (pensions and healthcare assistance)

86

88

Employee benefits

11

10

Other expenses

23

53

Less:

 

 

Increase on internal work – personnel expense

(53)

(60)

 

343

373

The personnel expense, at €373 million, increased by €30 million. The increase is essentially due to expenses for providing incentives for the departure of employees within the scope of the efficiency measures implemented. The costs borne by Snam are relate to the redundancy programme started during the financial year in accordance with Law 223/91, and referring to the year 2014 (€27 million).

The expenses of employee benefits (€10 million) include: (i) expenses for post-employment benefits (€4 million, of which €3 million relate to defined-contribution plans and €1 million relate to defined-benefit plans); and (ii) expenses for other long-term benefits (€6 million) relating to long-term cash incentive plans33.

The expenses for defined contribution plans amounted to approximately €19 million.

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

31.12.2012

31.12.2013

Executives

119

117

Managers

554

573

Office workers

3,258

3,255

Manual workers

2,136

2,089

 

6,067

6,034

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 2013 there were 545,600 options outstanding to purchase 545,600 ordinary shares of Snam. The options relate to the 2008 allocation, 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 2013 are as follows:

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2012

2013

 

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 period 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 nonexercise under the terms of the Board of Directors’ allocation resolution; and (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 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

3,151,851

3.63

3.39

2,521,350

3.68

3.52

Options exercised during the period

(96,801)

3.51

3.40

(1,233,700)

3.48

3.71

Options expired during the period (b)

(533,700)

3.68

3.42

(742,050)

4.16

3.50

Options existing at period end

2,521,350

3.68

3.52

545,600

3.46

4.04

of which exercisable

2,521,350

3.68

 

545,600

3.46

 

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

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Year of allocation

Options allocated

Options expired

Options exercised

Options outstanding at 31 December 2013

2002

608,500

(21,000)

(587,500)

 

2003

640,500

 

(640,500)

 

2004

677,000

(178,500)

(498,500)

 

2005

658,000

(589,000)

(69,000)

 

2006

2,933,575

(1,061,525)

(1,872,050)

 

2007

2,782,800

(1,415,950)

(1,366,850)

 

2008

2,726,000

(1,212,000)

(968,400)

545,600

 

11,026,375

(4,477,975)

(6,002,800)

545,600

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 2013, the average remaining life of the options was 0.6 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)

(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 €5 million and €6 million, respectively, in financial years 2012 and 2013, and breaks down as follows:

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(€ million)

2012

2013

Current benefits (wages and salaries)

4

4

Other long-term benefits

1

2

 

5

6

Remuneration due to directors and statutory auditors

The remuneration paid to directors amounted to €4 million and €3 million, respectively, in financial years 2013 and 2012. Remuneration to auditors amounted to €0.2 million both in financial years 2013 and 2012.

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.

Amortisation, depreciation and impairment losses

Depreciation, amortisation and impairment losses amount to €769 million and break down as follows:

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(€ million)

2012

2013

Amortisation and depreciation

 

 

Property, plant and equipment

512

528

Intangible assets

190

231

 

702

759

Impairment losses

 

 

Tangible assets

4

10

 

4

10

 

706

769

Depreciation of property, plant and equipment (€528 million) relates to natural gas transportation (€449 million), storage (€59 million), distribution (€15 million) and regasification (€5 million) activities.

Tangible asset impairment losses (€10 million) refer to plants no longer usable for the natural gas transportation segment.

Amortisation of intangible assets (€231 million) essentially relates to natural gas distribution (€199 million), transportation (€24 million) and storage (€5 million) activities.

A more thorough analysis of depreciation, amortisation and impairment losses can be found in Note 13, “Property, plant and equipment” and Note 15, “Intangible assets”.

32 Pursuant to the Decree of the Ministry of Economic Development of 20 July 2004, updated and modified from the Decree of 28 December 2012, from 2008 all distributors of electricity and natural gas with at least 50,000 end users connected to the distribution network thereof are entities required to achieve energy savings targets. In order to fulfil the requirements, distributors can implement projects, whether directly, through subsidiaries, or through companies operating in the energy services segments, benefiting the end users who improve the energy efficiency of the technologies installed or of the pertinent practices of usage or even acquire the Energy Efficiency Certificates (TEE), also referred to as “white certificates”, from third parties, certifying the achievement of energy savings. Once the energy efficiency target is met, cancelling the excess certificates triggers repayment by the Electricity Equalisation Fund on the basis of dedicated funds built up through distribution tariff increases.

33 Further information is available in Note 26, “Employee benefit provisions”.

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