Reclassified balance sheet

The reclassified 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 information for investors as it allows for the identification of sources of financing (equity and third-party funds) and the investment of financial resources in fixed and working capital.

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

Fixed capital (€21,970 million) rose by €157 million compared with 31 December 2014, mainly due to the reduction in net payables for investments (+€133 million).

Changes in property, plant and equipment (+€52 million) and intangible assets (+€104 million) are analysed below:

Equity investments

Equity investments (€1,270 million)²⁰ include the valuation of equity investments using the equity method and refer to TIGF Holding S.A.S. (€503 million), Trans Austria Gasleitung GmbH, or TAG (€462 million), Toscana Energia S.p.A. (€174 million), and Gasbridge 1 B.V. and Gasbridge 2 B.V. (€129 million in total).

Net working capital fell by €94 million compared with 31 December 2014 to €958 million, owing mainly to: (i) a decrease in trade receivables (-€339 million) relating mainly to the natural gas transportation sector (-€184 million), due to lower receivables arising from the balancing service (-€107 million) and the natural gas distribution sector (-€133 million) due essentially to the seasonal trend in distributed volumes; and (ii) an increase in tax payables (-€74 million) due to a change in payments on account.

These factors were partly offset by the reduction in trade payables (+€199 million), relating mainly to the natural gas transportation segment (+€153 million), as a result mainly of lower payables arising from the balancing service (+€108 million), and the reduction of other liabilities (+€91 million) due to lower payables to the Electricity Equalisation Fund (+€96 million), chiefly relating to the natural gas transportation and distribution segments.

At 30 June 2015, Snam held 1,127,250 treasury shares (the same number as at 31 December 2014), equal to 0.03% of its share capital, with a book value of €5 million. Their market value at 30 June 2015 was approximately €5 million²¹.

Net financial debt was €13,936 million at 30 June 2015, compared with €13,652 million at 31 December 2014.

The net cash flow from operating activities (€1,146 million) allowed us to fully cover the financial requirements associated with net investments for the period (€559 million) and to generate a free cash flow of €587 million. The net financial debt of €13,936 million, after the payment to shareholders of the 2014 dividend of €875 million, increased by €284 million compared with 31 December 2014.

Financial debt and bonds payable at 30 June 2015, amounting to €14,181 million (€13,942 million at 31 December 2014), are denominated in euro²², and relate mainly to bonds (€10.8 billion, equal to 76.3%), bank loans (€2.2 billion, equivalent to 15.5%) and loan agreements in respect of European Investment Bank (EIB) funding (€1.1 billion, equal to 8.0%).

As part of measures aimed at improving the group’s financial structure, on 16 February 2015 the European Investment Bank (EIB) granted a new loan of €200 million. In March 2015, Snam made provision for the early repayment of two loans from the EIB totalling €300 million.

Short-term financial debt (€3,152 million) was €1,095 million higher than at 31 December 2014. The increase includes the effects of the reclassification (€848 million) from long-term financial debt to short-term financial debt of some loans outstanding with the EIB, which took place after the provision by the Palermo Court to Italgas of the information flows required under Article 34, paragraph 8 of Legislative Decree 159/2011 (judicial control) relating to the revocation of the judicial administration order imposed on this subsidiary. Specifically, with respect to these obligations and only for certain loans granted by the EIB for a total principal amount of €848 million at 30 June 2015, the bank has the power to request early repayment from Snam, making use of and in compliance with contractual provisions relating to early voluntary repayment within 60 days of any request.

Financial receivables not held for operations (€221 million) relate to receivables from jointly controlled company TAG²³.

Cash and cash equivalents (€24 million) mainly relate to cash held by Gasrule Ltd to exercise the group’s insurance business (€19 million).

The breakdown of debt by type of interest rate at 30 June 2015 is as follows:

Fixed-rate financial liabilities (€9,884 million) increased by €203 million, due mainly to a new bond issue with a nominal value of €250 million, partly offset by lower accrued interest at 30 June 2015 (€57 million).

Floating-rate financial liabilities (€4,297 million) increased by €36 million compared with 31 December 2014, due essentially to the assumption of a new loan of €200 million granted by the EIB, and larger net utilisations of bank credit lines (+€158 million). These effects were partly offset by the early repayment of two loans contracted with the EIB (-€300 million).

At 30 June 2015, Snam had unused committed long-term credit lines worth €3.9 billion.

Covenants

As at 30 June 2015, Snam has unsecured bilateral and syndicated loan agreements in place with banks and other financial institutions. Some of these agreements are subject, inter alia, to the usual covenants imposed in international market practice, e.g. negative pledge, pari passu and change of control clauses. Information on financial covenants and contractual provisions can be found in Note 11 “Short-term financial liabilities, long-term financial liabilities and short-term portions of long-term liabilities” in the notes to the condensed interim consolidated financial statements.