Letter to the shareholders and stakeholders
To our Shareholders and Stakeholders,
In 2015, Snam took another significant step in the international growth strategy it began in 2012, with the aim of guaranteeing secure and diversified sources of natural gas. In December last year, we bought a 20% stake in Trans Adriatic Pipeline AG (TAP), the company responsible for developing the project to transport gas from Azerbaijan to European markets. Together with both our acquisitions of stakes in TAG in Austria and TIGF in France, made in 2014 and 2013 respectively with the aim of strengthening our position along the East-West route, and the investments we have made in Italian pipelines to increase our export potential to northern Europe, the investment in TAP is in keeping with our strategy of transforming Italy from a market that only consumes gas into one that transports it too, capitalising on the strategic location of our country in the Mediterranean region. This latest acquisition, which involved a total outlay of around €0.2 billion, gives both Snam and Italy a greater role in Europe and a more crucial position in the geopolitics of European energy as a new gas supply corridor is built.
We also continued to optimise our debt structure in 2015 in line with our objectives. In November, Snam successfully concluded a complex liability management transaction involving the €1.0 billion buyback of outstanding bonds maturing in less than two years on average and the simultaneous issue of a new eight-year, fixed-rate bond worth €0.7 billion. This transaction, which we achieved in a favourable market in terms of yield, optimised our medium- and long-term debt maturities by extending their average duration and creating the conditions for us to reduce our average cost of borrowing.
Lorenzo Bini Smaghi
As further evidence of our commitment to integrated sustainability in our business development model, something that in recent years has seen the Snam stock feature in a growing number of specialist indices based on financial, social and environmental performance criteria, as of 2015, Snam is presenting its operating performance in an Integrated Report. This Report, prepared in compliance with the IIRC Framework, combines financial information with sustainability content and highlights the existing connections between the environment outside the Group, the Group’s strategy, the business model, the allocation of financial and non-financial resources, integrated risk management and the adoption of a rigorous governance system.
The start of the fourth storage regulatory period on 1 January 2015 marked the completion of the updating of tariff criteria for all the Group’s regulated activities. In addition, the Electricity and Gas Authority’s recent resolution on the return on investments for regulated energy networks, published in December and applicable as of 1 January 2016, set out returns on capital that are consistent with our investment programme over the next three to four years.
In an environment where gas demand in Italy remained low, albeit increasing, at 67.4 billion cubic metres, we achieved excellent results in 2015. Adjusted EBIT was up by +0.9% on the previous year to €2 billion. Adjusted net profit climbed by 12.2% compared with the previous year, to €1.2 billion. The improved performance was due to better financial management, a growing contribution from subsidiaries and associates and lower taxes brought about by the elimination of the additional IRES charge. The operating cash flow of €2.1 billion – a five-year high – fully covered €1.3 billion of technical and financial investments and enabled us to reward Snam shareholders with a dividend of €0.9 billion.
Based on these results, the Board of Directors intends to propose to the Shareholders’ Meeting a dividend of €0.25 per share, offering an attractive level of return, despite a more difficult environment than in previous years.
The Snam share price ended 2015 at an official price of €4.848, up 17.8% from the €4.114 recorded at the end of the previous year. In an environment of general and sustained growth on the stock markets, with the Stoxx Europe 600 ending 2015 up 6.8% and the FTSE MIB up 12.7% in anticipation of an economic recovery in Italy after the years of crisis, the Snam share price grew almost continually throughout the year, boosted initially by a general hike on the equity markets and a fall in sovereign bond yields. Prices were then sustained by a more optimistic forecast for the revision of returns on capital invested for regulatory purposes, as well as by attractive dividend yields and the business’s defensive profile. Our shares hit a record high of €4.93 on 3 December 2015.
The challenges that lie ahead for Snam concern major objectives, both in the short term, with the imminent tenders for natural gas distribution concessions in Italy, and in the longer term, with our efforts to make the European gas system more connected and flexible and turn Snam into a market facilitator that can provide a more standout and innovative range of services to shippers and end users with ever-changing demands, all in keeping with the evolution of the European gas market.
16 March 2016
for the Board of Directors