Consolidated income statement (*)

The adjusted²⁴ operating profit for the financial year 2017, which excludes special items represented by chargesconnected to the application of advance instrument for pensions, regulated by Art. 4 paragraphs 1-7 of Italian Law No. 92/2012, the so-called “Fornero Law” (€ 15 million, including exit incentives) amounted to 1,363, an increase of 27 million euros, equal to 2.0%, compared to the 2016 pro-forma adjusted operating profit. The higher revenues (+€ 26 million, 1.1%), mainly attributable to the natural gas transportation and storage sectors, and lower operating costs (+€ 9 million, or 2.1%), were partially offset by the increase in amortisations and depreciations for the period (-€ 8 million, or 1.2%), mainly due to the amortisation deriving from the entry into service of new infrastructure, which was partly absorbed by lower impairment of tangible assets.

In particular, the reduction in operating costs was mainly due to the impact of the efficiency plan (+ € 19 million) and lower capital losses from assets (+ € 15 million), partly offset byhigher net provisions for risks and charges (- € 12 million), which was mainly attributableto tax disputes for indirect taxes, as well as greater provisions for adjustments to asset items (- € 10 million).

The adjusted net profit that, in addition to the aforementioned charges for Isopensione (€11 million net of the tax effect), excludes special items represented by the charges connected to the repurchase of bonds in the last quarter of 2017 (€ 43 million net of the tax effect) and income related to the one-off adjustment of deferred tax liabilities of the investee TIGF (€ 11 million), it atteststo €940 million, up by €95 million (+ 11.2%;) compared to the adjusted pro-forma net profit for the financial year 2016.

The increase, in addition to the greater operating profit, was due to:(i) lower net financial expenses (+36 million euros, or 13.7%), which benefitted from a reduction in the average cost of debt, as well as benefits deriving from optimisation actions carried out during the period 2016 and 2017, in particular the liability management operation completed in October 2016 and the financing operations carried out during the year, as well as the reduction in average debt for the period; (ii) higher net income from investments (+ € 15 million, +11.1%); (iii) lower income taxes (+ € 17 million, or 4.7%) mainly attributable to the reduction from 1 January 2017 of the IRES rate from 27.5 to 24.0%, partially offset by the higher pre-tax profits.

Analysis of the entries on the adjusted financial statement

Regulated Revenue (€2,434 million) declined by €10 million in respect to the fiscal year 2016 (-0.4%).Net the components that have a counterpart in costs, the regulated revenue total €2,342 million, an increase of €43 million, equal to 1.9%, thanks to the continuous investment and greater volumes of injected gas, and relate to transport (€1,889 million), storage (€435 million) and re-gasification (€18 million).

The non-regulated revenues (€99 million euros, net of consolidation adjustments) decreased by €17 million compared to 2016, equal to 14.7%, and mainly refer to revenues from services rendered to the Italgas Group (€ 60 million), technical and specialist services to unconsolidated foreign companies (€ 11 million) and income from the rental and maintenance of fibre optic telecommunications cables (€13 million).The reduction was mainly due to lower revenues from services provided to the Italgas Group, settled through several contracts concluded as of 31 December 2017.

Operating costs

Operating costs of regulated activities

Operating costs of regulated activities (€404 million) decreased by €52 million, or 11.4% compared to 2016.Net of the components that are offset by revenue, the operating costs of the regulated activities are substantially in line with the year 2016 (+€1 million).

The fixed controllable costs (€267 million) represented by the total of the cost of personnel and external costs of a recurrent nature, record a decrease of €4 million, equal to 1.5% compared to the fiscal year 2016 (€271 million), partly due to the implementation of efficiency measures.

Variable costs (€7 million) decreased by €2 million, or 22.6%, compared to 2016.

Other costs (€ 38 million, net of the special items represented by the provisions of the former Fornero law early retirement plan) increased by € 7 million, or 22.6% compared to 2016.The increase is due essentially to the higher net provisions for risks and charges (-€8 million), mainly attributable to tax disputes for indirect taxes, as well as higher provisions for bad debt provisions (-€2 million).

Operating costs of non-regulated activities

Operating costs of non-regulated assets (€107 million) decreased by €10 million, or 8.5% compared to 2016, mainly as a result of lowerlabour costs, the loss of charges directly related to the division operations completed in November 2016, and lower charges relating to compensation for termination of employment relationships paid in 2016 (€5 million). These effects were partly offset by the higher net provisions for risks and charges and the allowance for bad debt provisions (€12 million overall).

Service personnel

The number of employees as of 31 December 2017 (2,919 people) is analysed below according to professional status.

The change of 36 units compared to 2016 is mainly due to the entry of 27 resources deriving from the entry of Infrastrutture Trasporto Gas into the consolidation area.

Depreciation and Devaluation (€659 million) increased by €8 million, equal to 1.2% compared to the fiscal year 2016.The increase was principally due to higher depreciation (+€30 million; +4.9%) recorded in all sectors of activities, essentially as a result of the effective date of new infrastructure and higher devaluation (€22 million; -62.9%) relating to the transport and regasification sectors.

Adjusted EBIT

Below is a breakdown of adjusted EBIT by business segment:

The net financial charges (€227 million, net of the special items related to the liability management operation implemented in October 2017) show a reduction of €36 million, or 13.7%, compared to 2016.The reduction is due to lower finance charges correlated to the net financial debt (-€46 million; -16.4%) principally connected to the lower average cost of the debt, also thanks to optimisation interventions in the group’s financial structure put into effect by Snam.

The finance charges capitalized in the fiscal year 2017 total €13 million, a €10 million reduction in respect to the fiscal year 2016.

The net proceeds on investments (€150 million) refer to the relative contributions pertaining to the interim net results of the companies valued using the equity method. In particular, to the jointly-controlled companies TAG (€ 84 million), TIGF (€ 30 million, net of a one-off adjustment of deferred taxes) and AS Gasinfrastruktur Beteiligung GmbH (€ 11 million) and the associated company Italgas (€ 39 million), as well as the share attributable to the loss for this period by GasBridge 1 BV and Gasbridge 2 BV (-€ 10 million in total), which includes the effects of the write-down on investments of the latter held in Interconnector UK (€18 million).

The income taxes total €346 million, a €17 million reduction, equal to 4.7%, in respect to the fiscal year 2016. The decrease is essentially attributable to the reduction from 1 January 2017 of the IRES rate from 27.5 to 24.0%, partly offset by the higher pre-tax profit and lower ACE – Economic Growth Aid benefit, introduced by Italian Legislative Decree of 6 December 2011 no. 201 converted by the Law of 22 December 2011, no. 214 and subsequent additions and modifications.