Non-GAAP measures

Snam presents in the management report, in addition to the financial results envisaged by the IFRS, certain variables deriving from the latter, even if not envisaged by the IFRS or by other standard setters (Non-GAAP measures).

Snam’s management believes that these measures facilitate the analysis of the Group’s performance and of the business sectors, ensuring better comparability of results over time.

Non-GAAP financial information must be considered as complementary and does not replace the information prepared in accordance with IFRS.

In accordance with the Consob Communication DEM/6064293 of 28 July 2006 and subsequent amendments and additions (Consob Communications no. 0092543 of 3 December 2015 which incorporates the ESMA/2015/1415 guidelines on alternative performance indicators), the following paragraphs provide indications relating to the composition of the main alternative performance indicators used in this document, not directly deducible from reclassifications or algebraic sums of conventional indicators²⁵ and compliant with international accounting standards.²⁶

Operating profit and adjusted net profit

The operating profit and the adjusted net profit are obtained by excluding the special items (respectively gross and net of the related taxes) from the operating profit and the reported net profit, as per the legal scheme of the Income Statement.

Income entries classified as special items for 2017 refer to:(i) the financial charges deriving from the repurchase on the bond market, carried out as part of the Liability management operation (€56 million, €43 million net of the related tax effect) implemented by Snam in October 2017; (ii) the charges recognised under the item “personnel costs” in application of the pension anticipation instrument regulated by Art. 4 paragraphs 1-7 of Italian Law no. 92/2012, so-called “Fornero Law” (€15 million included exit incentive costs, €11 million net of the related tax effect); (iii) income from the one-off adjustment of deferred tax liabilities of the investee TIGF (€11 million).

With reference to 2016, in order to remove the distorting effects deriving from the application of IFRS 5 “Non-current assets held for sale and discontinued operations”, the adjusted result measures, in addition to excluding special items, restore the eliminations originating from transactions with the Italgas Group, (represented as discontinued operations) on continuing operations.

Pro-forma adjusted net income

In consideration of the elements of discontinuity that characterized the 2016 financial year, the Non-GAAP Measures referring to this period are also represented by the adjusted pro-forma net profit which includes the contribution of the distribution sector by applying the related shareholding, equal to 13.5%, to the net interim income of the Italgas Group, taking ownership of the connection of Snam in Italgas, starting from 1 January 2016.

Special items

The income components are classified under special items, if significant, when:(i) they result from non-recurring events or transactions or from transactions or events which do not occur frequently in the ordinary course of business; or (ii) they result from events or transactions which are not representative of the normal course of business.

The tax rate applied to the items excluded from the calculation of adjusted net profit is determined on the basis of the nature of each revenue item subject to exclusion.

Any income components deriving from non-recurring transactions in accordance with Consob Resolution no. 15519 of 27 July 2006 are also shown separately in the IFRS financial report.

Free cash flow

Free cash flow is the measure that allows the connection between the obligatory financial statement, which expresses the change in liquidity between the beginning and end of the period, and the change in net financial debt between the beginning and end of the reclassified cash flow statement."Free cash flow" represents the surplus or cash deficit remaining after the investment financing and closes alternatively:(i) on the cash change for the period, after the cash flows related to the financial payables/assets (credit/debit repayments/financial payables) have been added/subtracted, to the equity capital (payment of dividends/net acquisition of own shares/capital injections), as well as the effects on cash and cash equivalents of changes in the scope of consolidation and exchange differences arising from conversion; (ii) on the change in net financial debt for the period, after the flows relating to own capital have been added/subtracted, as well as the effects on net financial debt of changes in the scope of consolidation and exchange differences arising on conversion.

Net financial debt

Net financial debt is calculated as financial debt, net of cash and cash equivalents, held for trading securities and other non-operating securities, as well as short-term financial receivables not used for operating activities. The long-term financial assets functional to the operations are considered to be instrumental to operational activity.

The tables below show the reconciliation between the reported Income Statement and the adjusted and pro-forma adjusted Income Statements, as well as a table summarizing the special items: