32 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 costs from the construction and upgrading of natural gas distribution infrastructure linked to concession agreements under IFRIC 12 (€319 million; €325 million in financial year 2012).

The costs from the application of IFRIC 12 are analysed below:

Purchases, services and other costs

Purchases, services and other costs (€672 million) break down as follows:

Costs for services amount to €429 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 (€88 million) break down as follows:

Fees, patents and licences (€59 million) mainly concern fees paid to concessionary bodies for the operation of natural gas distribution concessions (€49 million).

Leases and rentals (€29 million) mainly relate to charges for operating leases of office buildings and the 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 (€34 million) is mainly due to the reduction in stock materials (€30 million) connected mainly with the development of natural gas transport networks.

Net allocations to the provisions for risks and charges (€4 million, net of surplus use) relate to: (i) charges related to the difference between the value recognised by the Electricity Equalisation Fund for the cancellation of Energy Efficiency Certificates (TEE)³² and the estimated cost of acquisition of the certificates on the market, in the context of the natural gas distribution service (€9 million); (ii) the provision for environmental liabilities (€6 million), in accordance with Law 471/99, and further activities mainly relating to waste disposal and asbestos removal. These effects were partly offset by net use of the provisions for litigation risks (-€13 million). Information on provisions for risks and charges can be found in Note 25 “Provisions for risks and charges”.

Other operating expenses (€60 million) break down as follows:

Personnel expense

Personnel expense of €373 million breaks down as follows:

The personnel expense, at €373 million, increased by €30 million. The increase is essentially due to expenses for providing incentives for the departure of employees within the scope of the efficiency measures implemented. The costs borne by Snam are relate to the redundancy programme started during the financial year in accordance with Law 223/91, and referring to the year 2014 (€27 million).

The expenses of employee benefits (€10 million) include: (i) expenses for post-employment benefits (€4 million, of which €3 million relate to defined-contribution plans and €1 million relate to defined-benefit plans); and (ii) expenses for other long-term benefits (€6 million) relating to long-term cash incentive plans³³.

The expenses for defined contribution plans amounted to approximately €19 million.

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 2013 there were 545,600 options outstanding to purchase 545,600 ordinary shares of Snam. The options relate to the 2008 allocation, 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 2013 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 2013, the average remaining life of the options was 0.6 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 €5 million and €6 million, respectively, in financial years 2012 and 2013, and breaks down as follows:

Remuneration due to directors and statutory auditors

The remuneration paid to directors amounted to €4 million and €3 million, respectively, in financial years 2013 and 2012. Remuneration to auditors amounted to €0.2 million both in financial years 2013 and 2012.

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

Depreciation, amortisation and impairment losses amount to €769 million and break down as follows:

Depreciation of property, plant and equipment (€528 million) relates to natural gas transportation (€449 million), storage (€59 million), distribution (€15 million) and regasification (€5 million) activities.

Tangible asset impairment losses (€10 million) refer to plants no longer usable for the natural gas transportation segment.

Amortisation of intangible assets (€231 million) essentially relates to natural gas distribution (€199 million), transportation (€24 million) and storage (€5 million) activities.

A more thorough analysis of depreciation, amortisation and impairment losses can be found in Note 13, “Property, plant and equipment” and Note 15, “Intangible assets”.