Income statement

Net profit

Net profit in 2015 was €1,238 million, an increase of €40 million, or 3.3%, compared with 2014. The increase is due to the improvement of financial management and equity investments (+€21 million), with the reduction of the average cost of debt and contribution of assets falling under the business development strategy, and to the reduction of income tax (+€42 million), essentially due to the adjustment in deferred tax as a result of the reduction in IRES from 27.5% to 24% as of 1 January 2017. These effects were partly absorbed by the lower EBIT (-€23 million), reflecting the costs of abolishing the Gas Fund (-€40 million), registered in accordance with Law 125 of 6 August 2015.

Reconciliation of EBIT and the reported net profit with adjusted EBIT and adjusted net profit

Snam’s management assesses Group performance on the basis of adjusted EBIT and adjusted net profit, which exclude special items from EBIT and net profit respectively.

Income entries are classified as special items, if material, when: (i) they result from non-recurring events or transactions or from transactions or events which do not occur frequently in the ordinary course of business; or (ii) they result from events or transactions which are not representative of the normal course of business.

The tax rate applied to the items excluded from the calculation of adjusted net profit is determined on the basis of the nature of each revenue item subject to exclusion. Adjusted EBIT and adjusted net profit are not provided for by either IFRS or other standard setters. Management considers that these performance metrics allow for analysis of the business trends, making it easier to compare results.

Income entries classified as special items for 2015 refer to: (i) the actuarial assumption of costs for the employer resulting from the abolishment of the Gas Fund as of 1 December 2015 pursuant to Law 125 of 6 August 2015 (€40 million, €28 million net of the tax effect)²⁴. The total estimated cost is related to work previously carried out, and therefore is posted in full in the income statement at the time of valuation; (ii) the income resulting from the adjustment in deferred tax as a result of the reduction in IRES from 27.5% to 24% (€57 million) as of 1 January 2017 pursuant to Law 208/2015 (2016 Financial Stability Law) implementing the “Provisions for preparation of the annual and multi-annual financial statements of the State”, published in the Official Gazette of 30 December 2015 and in force as of 1 January 2016.

For 2014, income components classified as special items related exclusively to the effects of adjusting differed taxes (€120 million) for natural gas transportation and distribution companies after the application of additional IRES (“Robin Hood Tax”) was declared unconstitutional with effect from 12 February 2015.

The table below shows the reconciliation of reported net profit with adjusted net profit.

Adjusted net profit in 2015, which excludes special items, amounted to €1,209 million, an increase of €131 million, or 12.2%, compared with 2014. The increase is due to: (ii) the reduction of net financial expenses (+€17 million), mainly due to lower borrowing costs partly as a result of the measures implemented by Snam to improve the Group’s financial structure; (ii) higher income from equity-accounted investments (+€47 million); (iii) lower income tax (+€93 million), related essentially to the elimination of additional IRES as of 1 January 2015; and (iv) the increase in adjusted EBIT (+€17 million). These effects were partially offset by the lower income from equity investments (-€51 million) related to the 2014 remeasurement of the stake (49%) previously held in AES Torino.

ANALYSIS OF INCOME STATEMENT ITEMS

Regulated revenue (€3,573 million, net of consolidation adjustments) relates to transportation (€2,085 million), distribution (€1,071 million, of which €47 million pertains to the change in the scope of consolidation), storage (€399 million) and regasification (€18 million). Regulated revenue, net of components that are offset in costs, amounted to €3,447 million, up by €58 million, or 1.7%, compared with 2014.

Revenue from non-regulated activities (€76 million, net of consolidation adjustments) mainly comprises: (i) income from the sale of natural gas (€27 million); (ii) income from leasing and maintenance of optic-fibre telecommunication cables (€12 million); and (iii) lease revenue (€5 million).

Operating costs of regulated activities

Controllable fixed costs (€482 million), which comprise the sum of personnel expenses and recurring external costs, rose by €11 million, or 2.3%, compared with 2014 (€471 million). The increase was mainly due to the change in the scope of consolidation (+€12 million).

Variable costs (€71 million) mainly reflect withdrawals from storage for gas sales carried out for balancing purposes.

Other costs (€239 million) relate essentially to: (i) interconnection costs (€59 million); (ii) licence fees for natural gas distribution concessions (€55 million); (iii) the estimate of expenses related to the abolishment of the Gas Fund (€40 million); (iv) capital losses (€35 million); and (v) net contributions to the provision for impairment losses on receivables (€31 million), related essentially to the write-down recorded for the partial recognition by the Authority of uncollected receivables arising from balancing activities between 1 December 2011 – 23 October 2012. Net of expenses arising from the abolishment of the Gas Fund, other costs amount to €199 million, a decrease of €26 million. The reduction is attributable mainly to lower provisions for risks.

Operating costs of non-regulated activities

Operating costs of non-regulated activities amounted to €58 million, €18 million or 45.0% more than in 2014. The increase is due to higher withdrawals for sales of natural gas.

Net of components that are offset by revenue and expenses related to the abolishment of the Gas Fund, the total operating costs for 2015 amount to €684 million, essentially in line (-1.6%) with 2014.

The number of employees at 31 December 2015 (6,303 people) is broken down below by professional status.

Amortisation, depreciation and impairment losses (€849 million) increased by €46 million, or 5.7%, compared with 2014. The increase is due mainly to higher amortisation and depreciation (+€49 million) recorded in all business segments, essentially as a result of the entry of new infrastructure and the change in the scope of consolidation (+€21 million). These factors were partially offset by the higher amortisation and depreciation posted in 2014 in view of the change in useful life (from 20 to 15 years) of some metering equipment of the natural gas distribution segment (-€11 million), subject to revision for tariff purposes by the Authority.

Adjusted EBIT

Below is a breakdown of adjusted EBIT by business segment:

Adjusted EBIT obtained in 2015, which excludes special items related to costs as a result of the abolishment of the Gas Fund (€40 million), amounts to €1,990 million, €17 million or 0.9% more than in 2014. With reference to operating segments, the improvement of performance of the distribution segment (+€32 million; +6.7%), which benefited from the contribution of companies entering the scope of consolidation and the reduction of operating costs (€28 million with the same scope), was absorbed by the reduction recorded in the transportation segment (-€31 million; -2.6%). For this segment, the higher revenue (+€46 million) was more than offset by the increase in operating costs (-€71 million), resulting essentially from the change in natural gas inventories due to higher withdrawals and transfers (a total of -€42 million).

Net financial expenses (€380 million) dropped by €17 million, or 4.3%, compared with 2014. The reduction is due to lower net expense on financial debt (-€43 million) following the reduction of the average cost of debt partly as a result of the measures implemented by Snam to improve the Group’s financial structure. The increase in other net financial expenses (+€19 million) is due mainly to the effects related to deferred interest receivables resulting from commercial balancing activities, subject to the write-down recorded for the partial recognition by the Authority of uncollected receivables for the period from 11 December 2011 – 23 October 2012²⁵.

Financial expense of €30 million was capitalised in 2015 (€37 million in 2014).

Net income from equity investments (€135 million) refers essentially to amounts pertaining to net results of companies valued using the equity method during the period (€126 million; +€47 million), referring in particular to Trans Austria Gasleitung GmbH – TAG²⁶ (€73 million), TIGF Holding S.A.S. (€23 million; -€1 million), Toscana Energia S.p.A. (€20 million; -€3 million), Gasbridge 1 B.V. and Gasbridge 2 B.V (a total of €10 million; +€1 million). The higher income was absorbed by the effects of the 2014 remeasurement of the stake previously held in AES (49%) at the respective fair value as of the date of acquisition of control (€51 million).

Income tax (€467 million) decreased by €42 million, or 8.3%, compared with the previous year. The reduction is mainly due to: (i) The elimination of additional IRES (“Robin Hood Tax”) as of 1 January 2015, as a result of the declaration of illegality by the Constitutional Court by means of ruling 10/2015 of 9 February 2015 (-€87 million); (ii) the adjustment to deferred tax as a result of the reduction of IRES from 27.5% to 24% as of 1 January 2017 (-€57 million), as stipulated by the 2016 Financial Stability Law; (iii) deductibility of the labour cost for IRAP purposes as of the 2015 tax period, as stipulated by the 2015 Financial Stability Law (-€16 million); and (iv) increase of the ACE (help for economic growth) benefit for companies strengthening their ownership structure, introduced by Decree-Law 201 of 6 December 2011, converted by Law 214 of 22 December 2011, as amended (-€7 million). These factors were partly offset by the effects of the deferred tax adjustment implemented in 2014 as a result of the above-mentioned declaration of illegality of the Robin Hood Tax (+€120 million).

The tax rate was 27.4% (29.8% in 2014). The change is due mainly to the aforementioned tax effects²⁷.