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.

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:

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

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:

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:

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:

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:

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

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:

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

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:

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:

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:

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”.