Market risk

Interest rate risk

Fluctuations in interest rates affect the market value of the Company’s financial assets and liabilities and its net financial expense. Snam aims to optimise interest rate risk while pursuing the objectives defined and approved in the financial plan. The Snam Group has adopted a centralised organisational model. In accordance with this model, Snam’s various departments access the financial markets (capital markets and banking channels) and use funds to cover financial requirements, in compliance with approved objectives, ensuring that the risk profile stays within the defined limits.

At 31 December 2014, 69% of financial debt was fixed-rate (64% at year-end 2013) and the remaining 31% was floating-rate (36% at year-end 2013).

At 31 December 2014, the Snam Group used external financial resources in the form of bonds and bilateral and syndicated loans with banks and other financial institutions, in the form of medium- to long-term loans and bank credit lines at interest rates indexed to benchmark market rates, in particular the Europe Interbank Offered Rate (Euribor), and at fixed rates.

Exchange rate risk

Snam’s exposure to exchange rate risk relates to both transaction risk and translation risk. Transaction risk is generated by the conversion of commercial or financial receivables (payables) into currencies other than the functional currency and is caused by the impact of unfavourable exchange rate fluctuations between the time that the transaction is carried out and the time it is settled (collection/payment). Translation risk relates to fluctuations in the exchange rates of currencies other than the consolidation currency (the euro) which can result in changes to consolidated shareholders’ equity. Snam’s risk management system aims to minimise transaction risk through measures such as the use of financial derivatives.

At 31 December 2014, Snam’s foreign currency items consisted essentially of a bond worth ¥10 billion, maturing in 2019, which was worth around €75 million at the issue date and was fully converted into euros through a cross-currency swap. Snam does not have any cross-currency swaps in place for speculative purposes.

Natural gas price risk

Since 1 January 2010, the AEEGSI has defined the method of payment in kind, by users of the service to the leading transportation firm, of the quantities of gas covering fuel gas, network losses and gas not accounted for (GNC). Consequently, the change in the price of natural gas covering fuel gas and network losses is no longer a risk factor for Snam.

Since 1 January 2014, at the start of the fourth regulatory period (1 January 2014 – 31 December 2014), the AEEGSI has changed the procedure for payment in kind, by users of the service to the leading transportation firm, of the quantities of gas covering GNC. Specifically, with Resolution 514/2013/R/gas, the AEEGSI defined the permitted level of GNC based on a fixed amount for the entire regulatory period, with a view to encouraging the leading transportation company to deliver further efficiency improvements. In view of the aforementioned mechanism for the payment in kind of GNC, there is still uncertainty about the quantities of GNC withdrawn over and above the quantities paid in kind by the users of the service.