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Glossary

A glossary of financial, commercial and technical terms, as well as units of measurement, is available online at www.snam.it. The most common terms are described below.

ECONOMIC AND FINANCIAL TERMS

Amortisation and depreciation

Process by which the cost of fixed assets is spread over a certain period to the advantage of the Company, usually the useful life of the asset.

Cash flow

Net cash flow from operating activities is represented by the cash generated by a company over a certain period of time. Specifically, the difference between current inflows (mainly cash revenue) and current cash outflows (costs in the period that generated cash outflows).

Comprehensive income

Includes both net income for the period and changes in equity, which are recognised in equity in accordance with international accounting standards (Other components of comprehensive income).

Controllable fixed costs

Fixed operating costs of regulated activities, represented by the sum of “Total recurring personnel expense” and “Recurring external operating costs”.

Core business revenue

Income from selling goods and/or providing services that are integral to the core business, including all recurring economic values linked to a company’s typical field of business.

Derivative instruments

A financial instrument is defined as a derivative when its price/yield profile derives from the price/yield parameters of other major instruments – known as “underlying” – such as commodities, currencies, interest rates, securities, and share indices.

Dividend

Payment to shareholders voted for by the Shareholders’ Meeting and proposed by the Board of Directors.

Dividend payout

Ratio between the dividend and net profit for the period, and equal to the percentage of profits paid out to shareholders in the form of dividends.

EBIT

Difference in a given period between sales and services revenues, other revenue, operating costs, amortisation, depreciation and impairment losses. It is therefore the operating profit before financial income and expenses and taxes.

EBITDA

Used by Snam in its internal (business plan) and external (to analysts and investors) presentations. Unit of measurement to assess the Group’s operating performance, as a whole and in the individual business segments, in addition to EBIT. Determined by the difference between revenue and operating costs.

Excise duty

Indirect tax for immediate payment, applied to the production or consumption of certain industrial goods (including oil products and natural gas).

Investments

Costs incurred for the acquisition of long-term assets where the useful life does not expire over one reporting period.

Net financial debt

A valid indicator of the ability to meet financial obligations. Net financial debt is represented by gross financial debt minus cash and cash equivalents, as well as other financial receivables not held for operating activities.

Net financial expenses

Net cost incurred for using third-party capital. Includes other net expenses related to financial operations.

Net invested capital

Net investments of an operational nature, represented by the sum of net working capital and fixed assets, provisions for employee benefits and assets and liabilities held for sale.

Net profit

EBIT minus the result from financial operations and income taxes.

Net working capital

Capital which is invested in short-term assets and is an indicator of a company’s short-term financial position. Calculated using all short-term, non-financial assets and liabilities.

Non-current Assets

Balance sheet item which shows long-lasting assets, net of amortisation, depreciation and impairment losses. These are divided into the following categories: “Property, plant and equipment”, “Compulsory inventories”, “Intangible assets”, “Equity investments”, “Financial assets” and “Other non-current assets”.

Operating costs

Costs incurred in carrying out a company’s core business. These include purchases, services, energy, consumables, maintenance and personnel expense.

Shareholders’ equity

Total resources contributed by shareholders, plus retained profits and minus losses.

Natural gas transportation and regasification

COMMERCIAL TERMS

Network Code

Document governing the rights and obligations of the parties involved in providing the transportation service.

Network entry point

Each point or a localised group of physical points on the national gas transportation network at which gas is delivered from the user to the transporter.

Redelivery point

The physical network point, or local combination of physical points, at which the transporter redelivers gas transported to the user, and where such gas is metered.

Regasification Code

Document which sets out the rules and processes characteristic of the natural gas regasification service.

Regasification Tariffs

Unit prices applied for regasification. These include capacity and commodity tariffs, related to the required regasification capacity and to the volumes of gas actually unloaded from tankers, respectively. With regard to the tariff structure, as of 1 January 2014, 100% of total revenue is allocated to the capacity component.

Regulatory period

Period of time (usually four years) for which criteria are defined for setting tariffs for natural gas transportation and dispatching and liquefied natural gas regasification. We are currently in the fourth regulatory period, which runs from 1 January 2014 to 31 December 2017.

Regulatory time lag

The delay of tariff remuneration with respect to the investments made and started during the year.

Thermal year

Period of time, from 1 October to 30 September of the following year, into which the regulatory period is divided.

Transportation capacity

Transportation capacity is the maximum quantity of gas which can be injected into the system (or withdrawn from it) during the course of a gas day, at a specific location, in compliance with the technical and operating restrictions established for each section of pipeline and the maximum performance of plants located along such pipelines.

These capacities are assessed using hydraulic network simulations carried out in appropriate transportation scenarios and in accordance with recognised technical standards.

Transportation Tariffs

Unit prices applied for transporting and dispatching natural gas. These include capacity and commodity tariffs, related to the required transportation capacity and to the volume of gas actually injected into the network, respectively.

User

The user of the gas system, which, by confirming the capacity granted, acquires transportation capacity for its own use or for assignment to others.

Virtual exchange point (VEP)

A virtual point located between the entry and exit points of the national gas transportation network where users and other authorised parties may, on a daily basis, exchange and sell gas injected into the network.

TECHNICAL TERMS

Liquefied natural gas (LNG)

Natural gas essentially comprising methane liquefied by cooling at around -160°C, at atmospheric pressure, to make it suitable for methane tanker transportation or reservoir storage. In order to be injected into the transportation network, the liquid must be reconverted into a gas at regasification plants and brought to the operating pressure of the pipelines.

LNG regasification

Industrial process whereby natural gas is converted from a liquid to a gaseous state.

Natural gas

Hydrocarbon mixture consisting mainly of methane, and to a lesser degree, ethane, propane and higher hydrocarbons. Natural gas injected into the methane pipeline network must comply with a single quality specification to ensure that the gas in transit is interchangeable.

National gas transportation network

This consists of the gas pipelines indicated in Article 2 of the Ministerial Decree of 22 December 2000, as updated annually. It is the aggregate of methane pipelines and plants that have been assessed and checked taking into account restrictions imposed by imports, exports, key national production and storage facilities, and is used to transfer significant quantities of gas from these network injection points to major areas of consumption. Several inter-regional methane pipelines as well as smaller pipelines which serve to close network links formed by the above pipelines are also included for the same purpose. The national gas transportation network also includes compression stations and plants connected to the pipelines described above.

Natural gas transportation network

The aggregate of gas pipelines, line plants, compression stations and infrastructure, which, at the national and regional level, provide the transportation of gas by interconnecting with international transportation networks, production and storage points and redelivery points for the purposes of distribution and use.

Regional transportation network

This consists of gas pipelines not included in the list in Article 2 of the Ministerial Decree of 22 December 2000, as updated annually, and its main function is to move and distribute gas in demarcated local areas which are typically regional in scale.

Regulatory Asset Base (RAB)

The term RAB (Regulatory Asset Base) refers to the value of net invested capital for regulatory purposes, calculated on the basis of the rules defined by the Electricity, Gas and Water Authority (the Authority) for determining base revenues for the regulated businesses.

Natural gas storage

COMMERCIAL TERMS

Injection phase

Period from 1 April to 31 October of the same year.

Regulatory period

Period of time (usually four years) for which criteria are defined for setting tariffs for the natural gas storage service. We are currently in the third regulatory period, which began on 1 January 2015 and will end on 31 December 2018.

Regulatory time lag

The delay of tariff remuneration with respect to the investments made and started during the year.

Thermal year

Period of time, from 1 April to 31 March of the following year, into which the regulatory period is divided.

Withdrawal phase

Period from 1 November of one year to 31 March of the following year.

TECHNICAL TERMS

Mining storage

Mining storage is necessary for technical and economic reasons in order to enable optimum cultivation of Italy’s gas natural reservoirs.

Modulation storage

Aims to respond to changing hourly, daily and seasonal demands.

Regulatory Asset Base (RAB)

The term RAB (Regulatory Asset Base) refers to the value of net invested capital for regulatory purposes, calculated on the basis of the rules defined by the Electricity, Gas and Water Authority (the Authority) for determining base revenues for the regulated businesses.

Strategic storage

Strategic storage aims to compensate for a lack of or reduction in imported supplies, or for crises in the gas system.

Natural gas distribution

COMMERCIAL TERMS

Concession

The deed by which a local authority entrusts to a company the management of a service which falls within the remit of said authority, and for which said company assumes the operational risk.

Distribution Code

The document governing the rights and obligations of the parties involved in providing the gas distribution service.

End user

The consumer who buys gas for their own use.

Gas distribution service

Service of transporting natural gas through networks of local methane pipelines from one or more delivery points to redelivery points, generally at low pressure and in urban areas, for delivery to end users.

Redelivery point

This is the point of demarcation between the gas distribution plant and the plant owned or managed by the end user at which the distribution company redelivers gas transported for supply to the end user, and at which metering occurs.

Regulatory period

Period of time (usually four years) for which criteria are defined for setting tariffs for the gas distribution service. We are currently in the fourth regulatory period, which runs from 1 January 2014 to 31 December 2019.

Retail Company

Company which, by way of a contract giving it access to the networks managed by a distributor, sells the gas.

Tariff area

The tariff area is the area used to determine distribution tariffs and consists of all communities served by the same distribution plant. If several local authorities collectively designate an operator to perform the distribution service, or declare themselves a single tariff area, the tariff area coincides with the group of municipalities served through several distribution plants by one or more operators.

Thermal year

Period of time into which the regulatory period is divided. Starting from the third regulatory period, the thermal year coincides with the calendar year.

TECHNICAL TERMS

Equalisation

Difference between revenue for the period (annual TRL) and those invoiced to retail companies on the basis of volumes distributed. The net position with the Electricity Equalisation Fund is established at the end of the thermal year and settled over the course of the year on the basis of advance payments.

Gas distributed

Amount of gas redelivered to users of the distribution network at the redelivery points.

Regulatory Asset Base (RAB)

The term RAB (Regulatory Asset Base) refers to the value of net invested capital for regulatory purposes, calculated on the basis of the rules defined by the Electricity, Gas and Water Authority (the Authority) for determining base revenues for the regulated businesses.

RIV (Residual Industrial Value)

The residual industrial value of the part of the plant owned by the outgoing operator is equal to the cost that should be incurred for its reconstruction as new reduced by the value of the physical degradation and also including non-current assets under construction from the accounting records (Article 5, paragraph 5 Ministerial Decree 226/2011).

TRL (Total Revenue Limit)

Total revenue allowed for distribution companies by the regulatory body to cover costs for providing distribution and metering services.

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