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” 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 (€325 million; €360 million in 2011), of which €21 million relates to the costs of raw materials, consumables and supplies, €199 million to service costs, €93 million for personnel expense and €12 million for the use of third-party assets and other costs.

Purchases, services and other costs

Purchases, services and other costs (€786 million) break down as follows:

Costs for services amount to €421 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 (€62 million) break down as follows:

Fees, patents and licences (€44 million) mainly concern fees for the operation of natural gas distribution concessions and easement concessions relating to transportation.

Leases and rentals (€18 million) mainly relate to expenses 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 negative change in raw materials, consumables, supplies and goods (€80 million) is mainly due to: (i) the gas used to carry out the natural gas transportation service (€46 million); (ii) the gas used to develop natural gas storage plants (€28 million); and (iii) the decrease in materials in stock (€8 million) mainly relating to the development of natural gas distribution networks.

The net accrual to provisions for risks and charges (€54 million, excluding uses for excess) relate to: (i) probable expenses arising from commercial balancing due to counterparty risk relating to the entry of new operators into the natural gas market (€40 million); (ii) expenses relating to the difference between the value recognised by the Electricity Equalisation Fund for cancellation of energy efficiency certificates and the estimated cost of purchasing the certificates on the market, in the natural gas distribution service (€8 million); and (iii) the provision for environmental expenses (€5 million). Information on provisions for risks and charges can be found in Note 23 “Provisions for risks and charges”.

Other operating expenses (€80 million) break down as follows:

Personnel expense

Personnel expense of €343 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 2012 there were 2,521,350 options outstanding for the purchase of 2,521,350 Snam ordinary shares with a par value of €1. The options break down as follows: 538,000 shares with a strike price of €4.399 for the 2005 allocation; 469,350 shares with a strike price of €3.545 for the 2007 allocation; and 1,514,000 shares with a strike price of €3.463 for the 2008 allocation. No new stock option plans have been issued since 2009.

Changes in the stock option plans at 31 December 2012 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 2012, the average remaining life of the options was 0.6 years for the 2005 plan, 0.6 years for the 2007 plan and 1.6 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, amounted to €7 million and €5 million respectively in 2011 and 2012, and breaks down as follows:

Remuneration due to directors and statutory auditors

The remuneration payable to directors was €3 million in both 2012 and 2011. Remuneration payable to the statutory auditors was €0.2 million in both 2012 and 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.

Amortisation, depreciation and impairment losses

Amortisation, depreciation and impairment losses amount to €706 million and break down as follows:

Depreciation of property, plant and equipment (€512 million) relates to natural gas transportation (€430 million), storage (€58 million), distribution (€19 million) and regasification (€5 million) activities.

Amortisation of intangible assets (€190 million) relates to natural gas distribution (€164 million), transportation (€19 million) and storage (€5 million) activities.

A more thorough analysis of amortisation, depreciation and impairment losses can be found in Note 11 “Property, plant and equipment” and Note 13 “Intangible assets”.