Reclassified balance sheet

The reclassified balance sheet combines the assets and liabilities of the compulsory format included in the Annual Report and the Half-Year Report based on how the business operates, usually split into the three basic functions of investment, operations and financing.

Management believes that this format presents useful information for investors as it allows the identification of the sources of financing (equity and third-party funds) and the investment of financial resources in fixed and working capital.

Management uses the reclassified balance sheet to calculate the key profitability ratios (ROI and ROE).

Fixed capital (€21,813 million) rose by €1,230 million compared with 31 December 2013, due essentially to an increase in property, plant and equipment and intangible assets (+€914 million) and in equity investments (+€378 million).

Changes in property, plant and equipment and intangible assets (+€914 million) are analysed below:

Other changes (€137 million) relate essentially to: (i) the effects of adjusting the present value of disbursements for the dismantling and restoration of sites (+€157 million), mainly due to a reduction in the expected discounting rates; (ii) the change in inventories of pipes and related accessory materials purchased for investment activities and not yet used to construct the plants (+€35 million); and (iii) grants for the period (−€65 million).

The change in the scope of consolidation (€290 million) refers to the acquisition of control of A.E.S. Torino S.p.A., with effect from 1 July 2014, following the spin-off that involved the corporate unbundling of natural gas distribution activities from heating and district heating activities. As of this date, Italgas holds 100% of the share capital of the spun-off company, A.E.S. Torino S.p.A., which exclusively provides the natural gas distribution service in the Turin area.

Technical investments in 2014, totalling €1,313 million⁵⁰ (€1,290 million in 2013), related mainly to the transportation (€700 million), distribution (€359 million) and storage (€240 million) segments.

Compulsory inventories

Compulsory inventories, at €363 million (the same as at 31 December 2013), consist of the minimum quantities of natural gas that the storage companies are obliged to hold pursuant to Presidential Decree No. 22 of 31 January 2001. The quantities of gas in stock, corresponding to approximately 4.5 billion standard cubic metres of natural gas, are determined annually by the Ministry of Economic Development⁵¹.

Equity investments

Equity investments (€1,402 million) include the valuation of equity investments using the equity method and refer in particular to TIGF Holding S.A.S. (€565 million), Trans Austria Gasleitung GmbH, or TAG (€486 million)⁵², Toscana Energia S.p.A. (€163 million), and Gasbridge 1 B.V. and Gasbridge 2 B.V. (€127 million in total).

Net working capital (€864 million) increased by €291 million compared with 31 December 2013, owing mainly to: (i) the reduction in other liabilities (+€250 million) and in accruals and deferrals from regulated activities (+€167 million), relating mainly to the storage segment and due primarily to the recording of “Trade and other receivables” net of the related liabilities (€420 million in total) associated with strategic gas withdrawals made by some users in 2010 and 2011, in connection with which the fees set by the Authority⁵³ have not been paid and the quantities withdrawn have not been replenished within the timeframes set forth in the Storage Code; (ii) the reduction in trade payables (+€231 million), relating mainly to the transportation segment (+€183 million), as a result of lower payables arising from the balancing service (+€163 million); (iii) the reduction in deferred tax liabilities (+€214 million), attributable mainly to the effects of adjustments to deferred taxes following the declaration of the unconstitutionality of the additional corporation tax (+€120 million); and (iv) lower tax payables (+€121 million) due to the reduction in the rate of additional corporation tax from 10.5% to 6.5% as of 2014, and to higher advance tax payments.

These factors were partly offset by: (i) the decrease in trade receivables (−€540 million), relating mainly to the storage segment (−€493 million), due primarily to the aforementioned method of recording liabilities relating to withdrawals of strategic gas (−€420 million); (ii) the increase in provisions for risks and charges (−€177 million), due essentially to the revised estimate of the provisions for site dismantling and restoration in the storage (−€103 million) and transportation (−€54 million) segments due to the reduction in projected interest rates.

Assets held for sale and directly related liabilities

Assets held for sale and directly related liabilities relate to a property complex owned by Italgas (€16 million, net of environmental provisions for charges relating to restoration work on the property) for which negotiations for a sale are ongoing⁵⁴.

Information about the individual shareholders’ equity items and changes therein compared with 31 December 2013 is provided in Note 22 – “Shareholders’ equity” in the Notes to the consolidated financial statements.

Net financial debt was €13,652 million at 31 December 2014, compared with €13,326 million at 31 December 2013.

The positive net cash flow from operations (€1,529 million) allowed the Company to cover all of the financial requirements associated with technical investments and to generate free cash flow of €297 million. Following the payment to shareholders of €507 million as the balance of the 2013 dividend, net financial debt amounted to €13,652 million, an increase of €326 million compared with 31 December 2013, of which €112 million related to the change in the scope of consolidation following the acquisition of control of A.E.S., with effect from 1 July 2014.

Financial and bond debt, which totalled €13,942 million (compared with €13,328 million at 31 December 2013), was denominated entirely in euros, with the exception of a fixed-rate bond worth ¥10 billion, which was fully converted into euros using a hedging derivative cross-currency swap (CCS).

Financial receivables and cash and cash equivalents, which totalled €290 million, include financial receivables not held for operations from companies under joint control (€216 million)⁵⁵.

The change in cash and cash equivalents (€72 million) is due to the creation of a deposit account (€47 million) at a leading credit institution for portfolio transactions in the natural gas distribution segment, and to cash held by Gasrule Ltd for the performance of the group’s insurance activities (€25 million).

Financial debt at 31 December 2014 related mainly to bonds (€10.6 billion; 76.3%), bank loans (€2 billion; 14.7%) and loan agreements concerning European Investment Bank (EIB) funding (€1.3 billion; 9%)⁵⁶.

Long-term financial debt (€11,885 million) represents around 85% of financial debt (around 83% at 31 December 2013).

The following table shows long-term financial debt broken down by maturity date:

The breakdown of debt by type of interest rate at 31 December 2014 is as follows:

Fixed-rate financial liabilities (€9,681 million) rose by €1,122 million after new bonds were issued.

Floating-rate debt (€4,261 million) fell by €508 million compared with 31 December 2013, owing essentially to the early repayment of bilateral revolving credit lines (−€1,370 million) and the repayment of two term loans that had reached their natural maturity (−€701 million). These effects were partly offset by new bank loans taken out (+€1,000 million) and new bond issues (+€645 million⁵⁷).

At 31 December 2014, Snam had unused committed long-term credit lines worth €3.9 billion.

Information on financial covenants can be found in Note 16 – “Short-term financial liabilities, long-term financial liabilities and short-term portions of long-term liabilities” of the Notes to the consolidated financial statements.