3 Measurement criteria

Recording and elimination of financial assets

Financial assets are recorded on the balance sheet when the Company becomes a party to agreements related to such assets. Financial assets sold are eliminated from balance sheet assets when the right to receive cash flows is transferred together with all risks and benefits associated with ownership.

Cash and cash equivalents

Cash and cash equivalents include the values of cash, on demand deposits, as well as other short-term financial investments with a term of under three months, which are readily convertible into cash and are subject to a negligible risk of variance of their value.

If denominated in euros, these entries are recorded at nominal value, corresponding to fair value, and if in other currencies, they are recorded at the exchange rate in effect at the end of the period.

Trade and other receivables

Trade and other receivables are valued when the comprehensive fair value of the costs of the transaction (e.g. commission, consultancy fees, etc.) are first recognised. The initial book value is then adjusted to account for repayments of principal, any impairment losses and the amortisation of the difference between the repayment amount and the initial recorded amount. Amortisation is carried out using the effective internal interest rate which represents the rate which would make the present value of projected cash flows and the amount recorded initially equal at the time of the initial recording (“amortised cost method”). Where there is actual evidence of impairment, the impairment loss is calculated by comparing the book value with the current value of anticipated cash flows discounted at the effective interest rate defined at the time of the initial recognition, or at the time of its updating to reflect the contractually defined repricing. There is objective evidence of impairment when, inter alia, there are significant breaches of contract, major financial difficulties or the risk of the counterparty’s insolvency. Receivables are shown net of provisions for impairment losses; this provision, which is previously created, may be used if there is an assessed reduction in the asset’s value or due to a surplus. If the reasons for a previous write-down cease to be valid, the value of the asset is restored up to the value of applying the amortised cost if the write-down had not been made. The economic effects of measuring at amortised cost are recorded in the “Financial income (expense)” item.

Trade receivables can be transferred through factoring operations. The transfers can be with or without recourse. Transfers without recourse entail neither risk of recourse nor liquidity risk and therefore involve the write-off of receivables on transfer to the factoring company. Transfers with recourse do not transfer the credit risk or liquidity risk; therefore the receivables remain entered in the balance sheet until payment of the due amount. In such case, any advanced payments made by the factoring company are entered under payables to other lenders.

Inventories

Inventories, including compulsory inventories, are recorded at the lower of purchase or production cost and the net realisation value, which is the amount that the Company expects to receive from their sale in the normal course of business. The cost of natural gas inventories is determined using the weighted average cost method. The sale and purchase of strategic gas do not involve the effective transfer of risks and benefits associated with ownership, and thus do not result in a change in inventories.

Other current assets

Other current assets are measured at the time of first recognition at fair value and later on at amortised cost (see “Trade and other receivables” above).

Property, plant and equipment

Property, plant and equipment is recognised at cost and recorded at the purchase or production cost including directly allocable ancillary costs needed to make the assets available for use. When a significant period of time is needed to make the asset ready for use, the purchase or production cost includes the financial expense which theoretically would have been saved during the period needed to make the asset ready for use, if the investment had not been made.

If there are current obligations to dismantle and remove the assets and restore the sites, the book value includes the estimated (discounted) costs to be incurred at the time that the structures are abandoned, recognised as a counter-entry to a specific provision. The accounting treatment for revisions in these cost estimates, the passage of time and the discount rate are indicated in the paragraph “Provisions for risks and charges”.

Property, plant and equipment may not be revalued, even through the application of specific laws.

The costs of incremental improvements, upgrades and transformations to/of property, plant and equipment are posted to assets when it is likely that they will increase the future economic benefits expected from the asset.

Starting at the time that utilisation of the asset begins, or should have begun, property, plant and equipment is regularly depreciated on a straight-line basis over its useful life defined as an estimate of the period for which the asset will be used by the Company. When the tangible asset consists of several major components, each with a different useful life, each component is depreciated separately. The amount to be depreciated is the book value reduced by the projected net sales value at the end of the asset’s useful life if this is significant and can be reasonably determined. Land is not depreciated, even if purchased in conjunction with a building; neither is property, plant and equipment held for sale (see the section below, “Assets held for sale and discontinued operations”.

Any changes to the depreciation plan, arising from revision of the useful life of an asset, its residual value or ways of obtaining economic benefit from it, are recognised prospectively.

Depreciation rates are reviewed each year and are altered if the current estimated useful life of an asset differs from the previous estimate. The effects of these changes are recognised prospectively in the income statement.

Freely transferable assets are depreciated during the period of the concession or of the useful life of the asset if lower.

The costs of replacing identifiable components of complex assets are allocated to balance sheet assets and depreciated over their useful life. The remaining book value of the component being replaced is allocated to the income statement. Ordinary maintenance and repair expenses are posted to the income statement in the period when they incurred.

When events occur leading to the assumption of impairment of property, plant and equipment, its recoverability is tested by comparing the book value with the related recoverable value, which is the fair value adjusted for disposal costs (see “Measurement at fair value” below) or the value in use, whichever is greater.

Value in use is determined by discounting projected cash flows resulting from the use of the asset, and if they are significant and can be reasonably determined, from its sale at the end of its useful life, net of any disposal costs. Cash flows are determined based on reasonable, documentable assumptions representing the best estimate of future economic conditions which will occur during the remaining useful life of the asset, with a greater emphasis on outside information. Discounting is done at a rate reflecting current market conditions for the time value of money and specific risks of the asset not reflected in the estimated cash flows. The valuation is done for single assets, or for the smallest identifiable aggregate of assets which generates independent incoming cash flow resulting from ongoing use (“cash-generating unit”). If the reasons for write-downs no longer apply, the assets are revalued and the adjustment is posted to the income statement as a revaluation (recovery of value). The revaluation is applied to the lower of the recoverable value and book value before any write-downs previously carried out, and reduced by depreciation provisions which would have been allocated if the write-down had not taken place.

Compulsory inventories are included under non-current assets in the item “Compulsory inventories”.

Assets under finance leases, or under agreements which may not take the specific form of a finance lease, but call for the essential transfer of the benefits and risks of ownership, are recorded at the lower of fair value less fees payable by the lessee or the present value of minimum lease payments, including any sum payable to exercise a call option, under property, plant and equipment as a counter-entry to the financial debt to the lessor. The assets are depreciated using the criteria and rates used for property, plant and equipment. When there is no reasonable certainty that the right of redemption can be exercised, the depreciation is made in the shortest period between the term of the lease and the useful life of the asset.

Leases under which the lessee maintains nearly all of the risks and benefits associated with ownership of the assets are classified at operating leases..

Intangible assets

Intangible assets are those assets without identifiable physical form which are controlled by the Company and capable of producing future economic benefits, as well as goodwill when purchased for consideration. The ability to identify these assets rests in the ability to distinguish intangible assets purchased from goodwill. Normally this requirement is satisfied when: (i) the intangible assets are related to a legal or contractual right, or (ii) the asset is separable, i.e. it can be sold, transferred, leased or exchanged independently, or as an integral part of other assets. The Company’s control consists of the power to utilise future economic benefits deriving from the asset and the ability to limit others’ access to the asset.

Intangible assets are recorded at cost, which is determined using the criteria indicated for property, plant and equipment. They may not be revalued, even through the application of specific laws.

Intangible assets with a finite useful life are regularly amortised over their useful life, meaning the estimate of the period during which the assets will be used by the Company. The recoverability of their book value is tested by using the criteria indicated in the section “Property, plant and equipment”.

Goodwill and other intangible assets with an indefinite useful life are not amortised. The recoverability of their book value is tested at least annually, and whenever events occur leading to an assumption of impairment. Goodwill is tested at the level of the smallest aggregate, on the basis of which the Company’s management directly or indirectly assesses the return on investment including goodwill. When the book value of the cash-generating unit, including the goodwill attributed to it, exceeds the recoverable value, the difference is subject to impairment, which is attributed by priority to the goodwill up to its amount; any surplus in the impairment with respect to the goodwill is attributed pro rata to the book value of the assets which constitute the cash-generating unit. Goodwill write-downs cannot be reversed.

Technical development costs are allocated to the balance sheet assets when: (i) the cost attributable to the intangible asset can be reliably determined; (ii) there is the intent, availability of financial resources and technical capability to make the asset available for use or sale; and (iii) it can be shown that the asset is capable of producing future economic benefits.

Intangible assets include service concession agreements between the public and private sectors for the development, financing, management and maintenance of infrastructures under concession in which: (i) the grantor controls or regulates the services provided by the operator through the infrastructure and the related price to be applied; (ii) the grantor controls any significant remaining interest in the infrastructure at the end of the concession by owning or holding benefits, or in some other way.

Based on the terms of the agreements, the operator holds the right to use the infrastructure, which is controlled by the grantor, for the purposes of providing the public service⁵.

The value of storage concessions, which is determined as indicated by the Decree of the Ministry of Production Activities of 3 November 2005, is allocated to the item “Concessions, licences, trademarks and similar rights”, and is not amortised.

Grants

Capital grants are recognised when there is reasonable certainty that the conditions imposed by the granting government agencies for their allocation will be met, and they are recognised as a reduction to the purchase price or production cost of their related assets. Operating grants are recognised in the income statement on an accruals basis, consistent with the relative costs incurred.

Equity investments

Investments in subsidiaries not included in the scope of consolidation, in subsidiaries controlled jointly with other shareholders and in associates are accounted for using the equity method.

In the case of assumption of an association (joint control) in successive phases, the cost of the equity investment is measured as the sum of the fair value of the interests previously held and the fair value of the consideration transferred on the date on which the investment is classed as associated. The effect of revaluing the book value of the investments previously held at assumption of association is posted to the income statement, including any components recognised under other components of comprehensive income.

In applying the equity method, investments are initially recognised at cost and subsequently adjusted to take into account: (i) the participant’s share of the results of operations of the investee after the date of acquisition, and (ii) the share of the other components of comprehensive income of the investee. Dividends paid out by the investee are recognised net of the book value of the equity investment. For the purposes of applying the equity method, the adjustments provided for the consolidation process are taken into account (also see the “Principles of consolidation” section). If there is objective evidence of impairment, recoverability is tested by comparing the book value with the related recoverable value determined using the criteria indicated in the section “Property, plant and equipment”.

When there is no significant impact on the balance sheet, financial position and income statement, subsidiaries not included in the scope of consolidation, subsidiaries controlled jointly with other shareholders and associates are accounted for at cost adjusted for impairment. When the reasons for the write-downs carried out no longer apply, equity investments are revalued up to the amount of the write-downs applied with the effect posted to the income statement under “Other income (expense) from equity investments”.

Other equity investments entered under non-current assets are measured at fair value with allocation of the impact to the shareholders’ equity reserve for “Other components of comprehensive income”; changes in fair value which are recognised in shareholders’ equity are posted to the income statement at the time of write-down or sale. When equity investments are not listed in a regulated market, and fair value cannot be reliably determined, such investments are accounted for at cost adjusted for impairment. This impairment cannot be reversed⁶.

The parent company’s share of any losses of the investee company, greater than the investment’s book value, is recognised in a special provision to the extent that the parent company is committed to fulfilling its legal or implied obligations to the subsidiary/associate, or, in any event, to covering its losses.

Assets held for sale and discontinued operations

Non-current assets, and current and non-current assets of disposal groups are classified as held for sale if the relative book value will be recovered through sale rather than through continued use. This condition is regarded as fulfilled when the sale is highly probable and the asset or discontinued operations are available for immediate sale in their current condition. Non-current assets held for sale, current and non-current assets related to disposal groups and directly related liabilities are recognised in the balance sheet separately from the Company’s other assets and liabilities.

Non-current assets held for sale are not depreciated, and are accounted for at the lower of book value and the related fair value, less any sales costs (see “Measurement at fair value” below). The classification as “held for sale” of equity investments valued using the equity method implies suspended application of this valuation criterion. Therefore, in this case, the book value is made equal to the value resulting from the application of the equity method at the date of reclassification.

Any difference between the book value and fair value less sales costs is posted to the income statement as an impairment loss; any subsequent recoveries in value are recognised up to the amount of the previously recognised impairment losses, including those recognised prior to the asset being classified as held for sale. Non-current assets and current and non-current assets of disposal groups, classified as held for sale, constitute discontinued operations if, alternatively: (i) they represent an autonomous line of business or geographical area of significant activity; (ii) they are part of a programme to dispose of a major autonomous line of business or geographical area of significant activity; or (iii) they are a subsidiary acquired exclusively for the purpose of resale. The results of discontinued operations, as well as any capital gains/losses realised on the disposal, are disclosed separately in the income statement as a separate item, net of related tax effects.

In the presence of a programme for the sale of a subsidiary that results in loss of control, all assets and liabilities of that subsidiary are classified as held for sale, regardless of the whether it maintains an investment after the sale.

Other non-current assets

Other non-current assets are measured at the time of first recognition at fair value and later on at amortised cost (see “Trade and other receivables” above).

Financial liabilities, trade and other payables and other liabilities are initially recorded at fair value less any transaction-related costs; they are subsequently recognised at amortised cost using the effective interest rate for discounting (see “Trade and other payables” above).

Recording and elimination of financial liabilities

Financial liabilities are recorded under balance sheet liabilities when the Company becomes a party to agreements related to such liabilities. Financial liabilities sold are eliminated from balance sheet liabilities when the right to disburse cash flows is transferred together with all risks and benefits associated with ownership.

Provisions for risks and charges concern costs and charges of a certain nature which are certain or likely to be incurred, but for which the amount or date of occurrence cannot be determined at the end of the year. Provisions are recognised when: (i) the existence of a current legal or implied obligation deriving from a past event is probable; (ii) it is probable that the fulfilment of the obligation will involve a cost; and (iii) the amount of the obligation can be reliably determined. Provisions are recorded at the value representing the best estimate of the amount that the Company would reasonably pay to fulfil the obligation or to transfer it to third parties at the end of the reporting period. Provisions related to contracts with valuable consideration are recorded at the lower of the cost necessary to fulfil the obligation, less the expected economic benefits deriving from the contract, and the cost to terminate the contract.

When the financial impact of time is significant, and the payment dates of the obligations can be reliably estimated, the provision is calculated by discounting the anticipated cash flows in consideration of the risks associated with the obligation at the Company’s average debt rate; the increase in the provision due to the passing of time is posted to the income statement under “Financial income (expense)”.

When the liability relates to property, plant and equipment (such as dismantling and site restoration), changes in the estimate of the provision are recognised as a counter-entry to the asset to which they relate, up to the book values; any excess is recognised in the income statement. It is charged to the income statement through amortisation.

The costs that the Company expects to incur to initiate restructuring programmes are recorded in the period in which the programme is formally defined, and the parties concerned have a valid expectation that the restructuring will take place.

Provisions are periodically updated to reflect changes in cost estimates, selling periods and the discount rate; revisions in provision estimates are allocated to the same item of the income statement where the provision was previously reported or, when the liability is related to property, plant and equipment (e.g. site dismantlement and restoration), as a counter-entry to the related asset, up to the book value; any surplus is posted to the income statement.

Note 30 of the notes to the financial statements describe contingent liabilities represented by: (i) possible (but not probable) obligations resulting from past events, the existence of which will be confirmed only if one or more future uncertain events occur which are partially or fully outside the Company’s control; and (ii) current obligations resulting from past events, the amount of which cannot be reliably estimated, or the fulfilment of which is not likely to involve costs.

Benefits following termination of employment are defined according to plans, including non-formalised plans, which, depending on their characteristics, are classed as “defined-contribution” or “defined-benefit” plans. In defined-contribution plans the Company’s obligation is calculated, limited to the payment of state contributions or to equity or a legally separate entity (fund), based on contributions due.

The liability for defined-benefit plans is determined based on actuarial assumptions and is recognised on an accruals basis consistent with the employment period necessary to obtain the benefits.

Actuarial gains and losses relating to defined-benefit plans arising from changes in actuarial assumptions or experience adjustments are recognised in other comprehensive income in the period in which they occur, and are not subsequently recognised in the income statement. When a plan is changed, reduced or extinguished, the relative effects are recognised in the income statement.

Net interest represents the change that the net liability undergoes during the period due to the passing of time. Net interest is determined by applying to the liabilities, net of any assets serving the plan, the discount rate defined for the liabilities; the net interest of defined-benefit plans is recognised under cost of labour in “Employee benefits”.

The obligations relating to long-term benefits are calculated using actuarial assumptions; the effects deriving from the amendments to the actuarial assumptions or the characteristics of the benefits are recognised entirely in the income statement.

Treasury shares are recognised at cost and entered as a reduction of shareholders’ equity. The economic effect deriving from any subsequent sales are recognised in shareholders’ equity.

Revenue from sales and the provision of services is recognised upon the effective transfer of the risks and benefits typically relating to ownership or on the fulfilment of the service when it is likely that the financial benefits deriving from the transaction will be realised by the vendor or the provider of the service.

As regards the activities carried out by Snam, the moment of recognition of the revenue coincides with the provision of the service.

The allocations of revenue relating to services partially rendered are recognised by the fee accrued, as long as it is possible to reliably determine the stage of completion and there are no significant uncertainties over the amount and the existence of the revenue and the relative costs; otherwise they are recognised within the limits of the actual recoverable costs.

Property, plant and equipment not used in concession services, transferred from customers (or realised with the assets transferred from customers) and functional to their connection to a network for the provision of a supply are recognised at fair value as a counter-entry to the revenue in the income statement. When the agreement stipulates the provision of multiple services (e.g. connection and supply of goods), the service for which the asset was transferred from the customer is checked and, accordingly, the disclosure of the revenue is recognised on connection or for the shorter of the term of the supply and the useful life of the asset.

Revenue is recorded net of returns, discounts, allowances and bonuses, as well as directly related taxes.

Since they do not represent sales transactions, exchanges between goods or services of a similar nature and value are not recognised in revenue and costs.

The costs are recognised when they relate to goods and services sold or consumed during the period or by systematic allocation, or when it is not possible to identify their future use.

Costs relating to emissions shares, calculated based on market prices, are disclosed in the amount of the carbon dioxide emission share in excess of the quotas assigned; the costs of the purchase of the emission rights are capitalised and disclosed as intangible assets net of any negative balance between emissions made and quotas assigned. Earnings relating to emissions quotas are disclosed at the point of realising the earnings by the transfer. In the case of transfers, if applicable, the emission rights purchased are considered sold first. The monetary receivables assigned in place of the free assignment of emissions quotas are disclosed as a counter-entry to the “Other income” item in the income statement.

Fees relating to operating leases are charged to the income statement for the duration of the contract.

Costs for the acquisition of new knowledge or discoveries, investigations into products or alternative processes, new techniques or models, the design and construction of prototypes, or incurred for other scientific research or technological developments, which do not meet the conditions for disclosure under balance sheet assets, are considered current costs and charged to the income statement for the period that they are incurred.

Costs sustained for share capital increases are recorded as a reduction of shareholders’ equity, net of taxes.

Personnel expenses include, consistent with the substantial nature of the remuneration that they comprise, stock options assigned to executives. The cost is determined with reference to the fair value of the option assigned to the executive at the time of making the commitment and is not subject to any subsequent adjustment; the portion due for the year is determined pro rata temporis over the period to which the incentive refers (the “vesting period”)⁷. The fair value is represented by the value of the option determined by applying appropriate valuation techniques which take account of the conditions of exercise of the option, the current share value, the expected volatility and the risk-free interest rate, and is recorded with a counter-entry in the “Other reserves” item.

The assets and liabilities included in the balance sheet are represented in the currency of the main economic environment in which the Company operates. The consolidated data are represented in euros, which is the working currency of the Company and the Group.

Revenue and costs relating to transactions in currencies other than the working currency are recognised at the exchange rate in effect on the day when the transaction was carried out.

Monetary assets and liabilities in currencies other than the working currency are converted into euros by applying the exchange rate in effect on the reporting date, with attribution of the effect to the income statement. Non-monetary assets and liabilities in currencies other than the working currency and valued at cost are recognised at the initially recorded exchange rate; when the measurement is made at fair value or recoverable or realisable value, the exchange rate used is the one in effect on the date of determination of the value.

Dividends are recognised at the date of the resolution passed by the Shareholders’ Meeting, unless it is not reasonably certain that the shares will be sold before the ex-dividend date.

The distribution of dividends to the Company’s shareholders entails the recording of a payable in the financial statements for the period in which distribution was approved by the Company’s shareholders or, in the case of interim dividends, by the Board of Directors.

Current income taxes are calculated by estimating the taxable income. Regarding corporate income tax (IRES), Snam has exercised the option to join the national tax consolidation scheme for the Group companies, in which all the consolidated companies are officially included. The projected payable is recognised under “Current income tax liabilities”. Receivables and payables for current income taxes are recognised based on the amount which is expected to be paid/recovered to/from the tax authorities under the prevailing tax regulations and rates or those essentially approved at the reporting date.

Regional production tax (IRAP), net of payments made on account, is recognised under the item “Current income tax liabilities”/“Current income tax assets”.

Deferred and prepaid income taxes are calculated on the timing differences between the values of the assets and liabilities entered in the balance sheet and the corresponding values recognised for tax purposes, based on the prevailing tax regulations and rates or those essentially approved for future years. Prepaid tax assets are recognised when their recovery is considered probable; specifically, the recoverability of prepaid tax assets is considered probable when taxable income is expected to be available in the period in which the temporary difference is cancelled, allowing the activation of the tax deduction.

Prepaid tax assets and deferred tax liabilities are classified under non-current assets and liabilities and are offset at individual company level if they refer to taxes which can be offset. The balance of the offsetting, if it results in an asset, is recognised under the item “Prepaid tax assets”; if it results in a liability, it is recognised under the item “Deferred tax liabilities”. When the results of transactions are recognised directly in equity, prepaid and deferred current taxes are also posted to equity.

Derivatives are assets and liabilities recognised at fair value using the criteria set out under “Valuations at fair value”. If there is objective evidence of impairment, the derivatives are disclosed net of the allocation made to the relative provision for impairment losses. The fair value of derivative liabilities is adjusted to take into account the issuer’s non-performance risk (see “Valuations at fair value” below).

Derivatives are classified as hedging instruments when the relationship between the derivative and the hedged item is formally documented and the effectiveness of the hedge, verified periodically, is high. When hedging derivatives hedge the risk of changes in the fair value of the hedged instruments (“fair value hedge”; e.g. hedge of the risk of fluctuations in the fair value of fixed-rate assets/liabilities), the derivatives are recognised at fair value with attribution of the effects on the income statement; by the same token, the hedged instruments are adjusted to reflect in the income statement the changes in fair value associated with the hedged risk, regardless of the provision of a different valuation criterion generally applicable to the instrument type. When derivatives hedge the risk of changes in cash flows from the hedged instruments (“cash flow hedge”; e.g. hedge of changes in cash flows from assets/liabilities due to fluctuations in interest rates or exchange rates), the changes in the fair value of the derivatives are initially recognised in the shareholders’ equity reserve for other components of comprehensive income and subsequently attributed to the income statement in the same way as the economic effects produced by the hedged operation. Changes in the fair value of derivatives which do not satisfy the requirements to be classed as hedging instruments are recognised in the income statement. Specifically, changes in the fair value of non-hedging interest rate and currency derivatives are recognised in the income statement item “Financial income (expense)”.

Valuations at fair value

Fair value is the price that would be obtained by selling an asset or the price that would be paid to transfer a liability in a regular market transaction (i.e. not in a forced liquidation or an underpriced sale) as at the valuation date (the exit price).

The fair value of an asset or liability is determined by adopting the valuations that market operators would use to determine the price of the asset or liability. A fair value valuation also assumes that the asset or liability would be traded on the main market or, failing that, on the most advantageous market to which the Company has access.

The fair value of a non-financial asset is determined by considering the capacity of market operators to generate economic benefits by using the asset to its maximum or best use or by selling it to another market participant capable of using it in such a way as to maximise its value.

The fair value valuation of a financial or non-financial liability, or of an equity instrument, takes into account the quoted price for the transfer of an identical or similar liability or equity instrument; if this quoted price is not available, the valuation of the corresponding asset held by a market operator as at the valuation date is taken into account. The determination of the fair value of a liability takes into account the risk that the Company may not be able to honour its obligations (“non-performance risk”).

When determining fair value, a hierarchy is set out consisting of criteria based on the origin, type and quality of the information used in the calculation. This classification aims to establish a hierarchy in terms of reliability of the fair value, giving precedence to the use of parameters that can be observed on the market and reflect the assumptions that market participants would use when valuing the asset/liability. The fair value hierarchy includes the following levels: (i) Level 1: inputs represented by (unmodified) quoted prices on active markets for assets or liabilities identical to those that can be accessed as at the valuation date; (ii) Level 2: inputs, other than the quoted prices included in Level 1, that can be directly or indirectly observed for the assets or liabilities to be valued; (iii) Level 3: inputs that cannot be observed for the asset or liability.

In the absence of available market quotations, the fair value is determined by using valuation techniques suitable for each individual case that maximise the use of significant observable inputs, whilst minimising the use of non-observable inputs.

The information about business segments has been prepared in accordance with the provisions of IFRS 8 “Operating segments”, which requires the information to be presented in a manner consistent with the procedures adopted by the Company’s management when taking operational decisions. Consequently, the identification of the operating segments and the information presented are defined on the basis of the internal reporting used by the Company’s management for allocating resources to the different segments and for analysing the respective performances.

An operating segment is defined by IFRS 8 as a component of an entity: (i) that engages in business activities from which it may earn revenue and incur expenses (including revenue and expenses relating to transactions with other components of the same entity); (ii) for which the operating results are regularly reviewed by the entity’s most senior decision-makers for purposes of making decisions about resources to be allocated to the segment and assessing its performance; and (iii) for which separate financial information is available.

The declared operating segments are as follows: (i) natural gas transportation; (ii) liquefied natural gas (LNG) regasification; (iii) natural gas storage; and (iv) natural gas distribution. They relate to activities carried out predominantly by Snam Rete Gas, GNL Italia, Stogit and Italgas, respectively.