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: 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.

The reclassified balance sheet format is used by management to calculate the key leverage and profitability ratios (ROI and ROE).

Fixed capital (€20,746 million) increased by €163 million compared with 31 December 2013, due mainly to the increase in property, plant and equipment and intangible assets (+€143 million) and lower net debt relating to investment (+€38 million).

Changes in property, plant and equipment (+€118 million) and intangible assets (+€25 million) are analysed below:

Other changes (+€6 million) relate essentially to: effects arising from the adjustment of the present value of disbursements for the dismantlement and restoration of storage sites (+€21 million), mainly due to a reduction in the expected discounting rates, partly offset by the recognition of contributions for the period (-€29 million) and the change in inventories of pipes and related accessory materials purchased for investment activities and no longer used to construct the plants (+€14 million).

Equity investments

Equity investments (€1,008 million) include the valuation of equity investments using the equity method and refer in particular to TIGF Holding SAS (€562 million), Toscana Energia S.p.A. (€153 million), Azienda Energia e Servizi Torino S.p.A. (€111 million), and Gasbridge 1 B.V. and Gasbridge 2 B.V. (€125 million in total).

Net working capital (-€850 million) increased by €305 million compared with 31 December 2013, owing mainly to: (i) lower trade payables (+€420 million), mainly relating to the transportation segment (+€368 million), due to lower payables from the balancing service; (ii) a decrease in other liabilities (+€171 million), mainly reflecting the effects of accessory tariff components for the natural gas transportation (+€121 million) and distribution service (+€50 million); and (iii) an increase in other assets (+€116 million) due mainly to increased receivables from the Electricity Equalisation Fund related to the energy efficiency certificates (+€71 million) and accessory tariff components for the distribution segment (+€17 million).

These factors were partly offset by lower trade receivables (-€502 million), mainly relating to the transportation segment (-€342 million), due to lower receivables from the balancing service, and to the natural gas distribution segment (-€188 million), due mainly to the seasonal trend in volumes transmitted.

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 ongoing¹⁷.

Other changes (+€7 million) relate to the exercise of 545,600 stock options by Snam executives.

At 30 June 2014, Snam held 1,127,250 treasury shares (1,672,850 at 31 December 2013), equal to 0.03% of its share capital, with a book value of €5 million. Their market value at 30 June 2014 was around €5 million¹⁸. At this date, all stock options had been exercised. There are therefore no remaining treasury shares committed to these plans.

Net financial debt was €13,730 million at 30 June 2014, compared with €13,326 million at 31 December 2013.

The net cash flow from operating activities (+€647 million) allowed us to fully cover the financial requirements associated with net investments for the period (€543 million) and to generate a free cash flow of €104 million. The net financial debt of €13,730 million, after the payment to shareholders of the balance of the 2013 dividend of €507 million, increased by €404 million compared with 31 December 2013.

Financial and bond debt, which totalled €13,732 million at 30 June 2014 (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 through a cross currency swap.

Financial liabilities at 30 June 2014 relate mainly to bonds (€10.0 billion, equal to 72.8%), bank loans (€2.4 billion, equivalent to 17.5%) and loan agreements concerning European Investment Bank (EIB) funding (€1.3 billion, equal to 9.5%)¹⁹.

Long-term financial liabilities of €12,047 million make up approximately 88% of financial debt (around 83% at 31 December 2013) and have an average duration of five years (unchanged from 31 December 2013).

The breakdown of debt by type of interest rate at 30 June 2014 is as follows:

Fixed-rate debt (€9,622 million) increased by €1,063 million, due mainly to two new bond issues with a total par value of €1,100 million.

Floating-rate debt (€4,110 million) fell by €659 million compared with 31 December 2013, owing essentially to the repayment of two term loans that had reached their natural maturity (-€701 million overall) and to the net repayment of revolving credit lines (-€165 million). These effects were partly offset by the private placement of a bond loan with a par value of €150 million.

At 30 June 2014, Snam had unused committed long-term credit lines worth €4.7 billion.

At 30 June 2014, bond loans maturing in the following 18 months had a par value of €750 million²⁰.

Covenants

The main bilateral and syndicated loans in place with banks and other financial institutions as at 30 June 2014 included covenants, in line with international practice. These concern, inter alia, compliance with financial covenants and pari passu, negative pledge and change of control clauses. Some covenants are also provided for the bonds issued by Snam under the EMTN programme. During the first half of 2014 all tests concerning the contractual financial covenants confirmed compliance with the same as of 30 June 2014.

More details on the covenants can be found in Note 17 of the notes to the condensed interim consolidated financial statements, “Long-term financial liabilities and short-term portions of long-term liabilities”.

Specific information concerning the potential effects arising from the pre-emptive measure for asset protection by court-appointed administration served on Italgas on 11 July 2014 are provided in the following section “Risk Factors and Uncertainty for the Rest of the Fiscal Year.”