Share buyback programme
On 11 April 2017, subject to revocation of the previous resolution of the Ordinary Shareholders’ Meeting of 1 August 2016, the Shareholders’ Meeting authorised the purchase of treasury shares, in one or more transactions, for a maximum duration of 18 months8, and for a maximum disbursement corresponding to the remaining unrealised portion of € 196 million, resulting from the difference between the maximum outlay (€500 million) and that incurred by the Company for purchases made up to the date of the Shareholders’ Meeting resolution (€304 million), all however up to the maximum limit of 3.5% of the Company’s share capital, having regard to the treasury shares already held by the Company.
The essential acquisition-related contents are substantially unchanged compared to those already provided for in the previous authorisation, with the addition of the resolution concerning the authorisation to the Board of Directors for the sale of both own shares already held in portfolio and those that they may be repurchased under the share buyback plan.
As part of the aforementioned plan, on 31 December 2017, Snam purchased 84,788,3669 of its own shares (equal to a 2.42% stake), for a total value of € 313 million and, on the same date, holds 85,915,616 of its own shares, equal to a 2.45% stake.
With effect from 12 January 2018, Snam has also stipulated an enhanced buyback agreement with a top-level intermediary with a duration of not more than three months. Snam has subsequently renewed the mandate of the same intermediary through an “enhanced buyback agreement” not exceeding two months starting from 20 February 2018.
The appointed intermediary will perform independent purchases, in compliance with the contractually predefined parameters and criteria, as well as the constraints of the applicable legislation and of the Shareholders’ resolution. Any purchases shall be made on the MTA in accordance with Article 144-bis, paragraph 1, section b) of Consob Regulation 11971/1999 and with other applicable provisions, in order to ensure compliance with the fair treatment of shareholders pursuant to Article 132 of the TUF, as well as according to the operating procedures established in the organisation and management regulations of Borsa Italiana S.p.A.
Long-term stock incentive plan
On 11 April 2017, the Shareholders’ Meeting approved the 2017-2019 long-term stock incentive plan, conferring to the Board of Directors, and for it to the CEO, with express faculty to sub-delegate, every necessary power for the complete implementation of the aforementioned Plan. The adoption of a long-term stock incentive plan (performance share) aims to align Snam with market practices and strengthen the link between the creation of value for shareholders and management remuneration. This plan is envisaged for the Chief Executive Officer and a maximum of 20 other management executives who hold positions with the greatest impact on the creation of value or with strategic importance for the achievement of the multi-year objectives of Snam. In implementation of the aforementioned delegation, on 20 June 2017 the Board of Directors resolved:(i) the annual allocation of the incentive in favour of the Chief Executive Officer; (ii) approval of the Regulations for each annual award; (iii) identification of the Beneficiaries on the basis of the defined criteria; (iv) the conditions for implementation. Further information on the characteristics of the Plan is provided in the section “”.
Exit incentive agreement
On 17 November 2017, Snam and a series of the most representative trade unions signed the implementation agreement (hereafter the “Plan”), relating to the pension advance instrument for its employees, regulated by Art. 4 paragraphs 1-7 of the Italian Law No 92/2012 (the so-called “Fornero Law”). This agreement follows the preliminary agreement signed by the parties on 26 July 2017.
The Plan intends to create, by 31 March 2018, the conditions for the companies of the Snam Group that favour the early exit of beneficiary employees in order to achieve a generational turnover.
The personnel concerned who have completed the pension requirements set out in the Plan, subject to approval of the same by INPS, and currently amounts to 100 individuals.
As far as the application of this implementing agreement is concerned, Snam has committed itself to pay the beneficiary employees, in addition to the amounts set out in the Plan, a further amount as a retirement incentive.
In relation to the aforementioned Plan, in the fourth quarter of 2017 the income statement recorded expenses of € 15 million, including personnel costs and the costs for early retirement incentives granted to employees participating in the Plan (€ 2 million).
Optimisation of the Group’s financial structure
Convertible bond loan
On 14 March 2017, an equity-linked bond loan was successfully placed for a nominal amount of € 400 million with five-year bonds issued at par and with no monetary interest. The Regulation and closing of the bonds took place on 20 March 2017.The initial conversion price of the bonds was set at € 48.453, which represents a premium of 26% above the volume weighted average price (VWAP) of the Company’s ordinary shares, as shown in the price list of Borsa Italiana S.p.A. between the launch of the offer and the determination of the price of the bonds, both of which occurred on 14 March 2017.
On 11 April 2017, the Shareholders’ Meeting approved, among other things, an authorisation of the Board of Directors for the disposal of treasury shares. On 12 April 2017, Snam sent the bond holders the Physical Settlement Notice, from 13 April 2017 assigning the right to convert the bonds into ordinary shares of the Company.
The bonds will be redeemed at their face value on 20 March 2022, unless there is an early repayment or the bonds are previously converted or repurchased by the Company.
This transaction represents a step forward in the optimisation of the debt structure, allowing the creation of further value through the share buyback program and obtaining funding at competitive costs, with a positive impact on cash flows. The success of the transaction confirms investor confidence in Snam’s equity story.
Renewal of the EMTN programme
On 6 October 2017, the Board of Directors of Snam resolved to renew the EMTN programme for a maximum value of € 10 billion.
As a result, the Board has decided to issue one or more additional bonds to be executed by 6 October 2018, for a maximum amount of approximately € 1.8 billion, increased by the amount corresponding to the bonds repaid during the same period, to be placed with institutional investors. The total nominal value of issued bonds in circulation in each instance may not exceed the maximum limit of € 10 billion. The securities issued may be listed on one or more regulated markets. At 31 December 2017 there are outstanding bonds for a nominal value of approximately € 8.2 billion10 issued under the EMTN Programme.
The EMTN programme represents an effective instrument to raise funding on the market in a flexible manner and at competitive costs, in a way consistent with Group requirements in terms of changes in the financial structure.
On 25 October 2017, Snam successfully completed a buyback on the market of bonds with a total nominal value of € 607 million, with an average coupon of approximately 2.5% and a remaining maturity of approximately 4.4 years. The repurchase price totaling € 656 million was largely financed through a new fixed rate bond issue, expiring on 25 October 2027, for a total amount of € 650 million, with a coupon equal to 1.375% and a duration of ten years.
The effects of this transaction on the 2017 income statement (€ 56 million gross of the tax effect) are essentially represented by the charges deriving from the difference between the outlay deriving from the repurchase of part of the bonds on the market and the amortised cost valuation of the bonds themselves.
By means of this transaction, Snam continued the process to optimise its debt structure, which was undertaken with the objective of continuous improvement in the cost of capital, extending the average term of debt and reducing the refinancing risk.
Private placement in January 2018
As part of the € Medium Term Notes (EMTN) programme approved by the Board of Directors on 6 October 2017, on 22 January 2018 Snam S.p.A. completed a private placement with primary institutional investors for a total amount of € 350 million, a two-year duration and variable yield equal to three-month Euribor plus 0.15%.
With the aforementioned issue, Snam continues to optimise its debt structure and continuously improve the cost of capital, in line with its objectives.
Infrastrutture Trasporto Gas S.p.A.(ITG) and Terminale GNL Adriatico S.r.l. (Adriatic LNG)
On 25 July 2017, Snam signed a definitive agreement with Edison for the acquisition of 100% of the share capital of Infrastrutture Trasporto Gas S.p.A.(ITG), the third-largest Italian operator in the transport of natural gas that manages the 83.3 km pipeline between Cavarzere (Veneto) and Minerbio (Emilia Romagna), connecting the Adriatic LNG regasification terminal to the national transport network at the height of Minerbio, and a 7.3% stake in Terminale GNL Adriatico S.r.l. (Adriatic LNG), the largest offshore infrastructure for the unloading, storage and regasification of LNG and the largest LNG terminal in Italy.
On 13 October 2017, following the occurrence of the conditions precedent to the completion of the transaction, Snam S.p.A. concluded the acquisition against a consideration, net of the price adjustment, totaling € 217 million.
Relevant contractual agreements also envisage that if Adriatic LNG signs new contracts to use terminal capacity, Snam will grant Edison a potential additional consideration in the form of an earn-out.
The investment allows Snam to strengthen its infrastructures in Italy and to exploit further synergies in the integrated management of the entire gas system, connecting a strategic entry point for the Italian natural gas market to the national transportation network.
Main partnership agreements
CNG – Framework agreement for the development of methane stations
On 25 May 2017, Snam and Eni signed a framework agreement for the development of methane filling stations in Italy. The partnership aims to create new compressed natural gas (CNG) and liquefied natural gas (LNG) plants within the national network of Eni distributors, favouring the supply of low-emission alternative fuels such as natural gas. Natural gas eliminates particulate matter, the main substance responsible for the pollution of urban areas, as well as ensuring significant economic benefits for consumers. The framework agreement is one of Snam’s initiatives to promote sustainable mobility for the construction of new distributors, in order to support the development of plants for the supply of natural gas and their more balanced dissemination in the various regions of the country, also improving the quality of the service provided to users.
With a consolidated and cutting-edge technology, Italy is the leading European market for methane fuel consumption, with over 1 billion cubic metres consumed in 2015 and around 1 million vehicles currently in circulation. The framework agreement and subsequent contracts for its application will provide additional impetus to the natural gas business segment in the transport sector, which represents technological and environmental excellence that is recognised worldwide and can further leverage Europe’s more extensive and accessible network of methane pipelines, which are more than 32,000 kilometres in length.
Methanisation of Sardinia
Snam, Società Gasdotti Italia (SGI) and its shareholders Macquarie European Infrastructure Fund 4 and Swiss Life Holding have identified a shared project for the construction of the natural gas transport infrastructure in Sardinia, which can be powered by a multiplicity of entry points currently identified in Cagliari, Oristano and Porto Torres. The project is able to bring about lower utilities costs for households and businesses, as well as new development and competitiveness opportunities for the local economy. This includes new employment prospects, in particular in the manufacturing and maritime transport sectors.
The joint Snam-SGI implementation and management of the project and of the natural gas transport network may be entrusted to a company controlled by Snam. The construction and commissioning of the first section of the network is estimated for 2020, after obtaining the necessary authorisations.
Snam Global Solutions
Memorandum of Understanding with Eustream, Naftogaz and Ukrtransgaz
On 10 April 2017 Snam, the Slovakian company Eustream, and the Ukrainian companies Naftogaz and Ukrtransgaz signed a Memorandum of Understanding aimed at jointly evaluating opportunities for collaboration in the management and modernisation of the Ukrainian gas network. The Memorandum is also aimed at supporting the reliability of natural gas transportation in Ukraine, in line with European market standards, ensuring the safe and efficient management of the Ukrainian gas transport system and making it accessible to third parties in a transparent and non-discriminatory manner, consistent with the legislation in force.
Memorandum of Understanding with EDA THESS
On 24 July 2017, Snam and EDA THESS, one of Greece’s leading gas infrastructure operators, signed a Memorandum of Understanding aimed at developing areas of collaboration to support the management and development of the infrastructure system managed by the Greek company, in view of the final phase of the opening of the Greek domestic market to third parties.
Memorandum of Understanding with Albgaz
On 31 July 2017, Snam and Albgaz, the infrastructure operator of the Albanian gas market, signed a Memorandum of Understanding aimed at developing areas of collaboration to support the start-up and development of the infrastructural system that will be managed by the Albanian company, in connection to methanisation expected with the arrival of the TAP pipeline in the country.
Memorandum of Understanding with Baker Hughes
Snam and Baker Hughes, world leader in digital services and solutions to support the industry in the energy field, signed a Memorandum of Understanding on 26 September 2017, aimed at starting a collaboration for the development of integrated and technologically advanced solutions in the gas infrastructure supply chain.
Post-balance sheet events
Agreement for the acquisition of a controlling stake in tep energy solution (TEP)
On 23 February 2018, Snam signed an agreement for the acquisition of a controlling stake, equal to 82% of the capital, of TEP Energy Solution (TEP), one of the leading Italian energy service companies (Esco) active in the energy efficiency sector. The agreement was concluded on the basis of an enterprise value referred to 100% of TEP, equal to € 21 million. Price adjustments are planned based on the results for the next three years and, moreover, put and call options exercisable by 2020.
The initiative is part of the company’s strategic plans to promote decarbonisation and better use of energy in the areas in which it operates.
With its offices in Rome, Milan and Udine, TEP is among the first independent industrial Esco’s in Italy, with over 200 customers from among the leading national and multinational companies, 950 thousand energy efficiency certificates, and a 2017 EBITDA of approximately € 6 million. TEP’s mission is to make its customers more competitive by reducing energy costs by optimising the quantities used. TEP does not and will not deal with the production or sale of electricity and gas: it intervenes to enhance its customers’ investments through the production of energy efficiency certificates, and acts as an investor for the implementation of energy efficiency measures.
The transaction closing is expected by September 2018 and is subject to obtaining the authorisation by the Italian Competition Authority.
Joint acquisition between Snam and Fluxys of a 33.5% stake in Interconnector UK
On 12 March 2018, Snam and Fluxys successfully acquired a 33.5% stake in Interconnector UK, formerly held by Caisse de dépôt et placement du Québec (CDPQ). Interconnector UK owns the two-way gas pipeline that connects the United Kingdom to Belgium and the rest of Europe.
Through the joint ventures Gasbridge 1 BV and Gasbridge 2 BV, Fluxys and Snam decided to exercise their right of pre-emption in proportion to the share held by CDPQ. The total value of the transaction amounts to approximately GBP 75 million.
Following the finalisation of the share transfer, Fluxys and Snam became the sole shareholders of Interconnector UK, passing respectively to 76.32% and 23.68% of the capital, confirming their full support for the company in a new phase of development.
At 31 December 2017, the book value of Snam’s holdings in Gasbridge 1 BV and Gasbridge 2 BV was aligned on the basis of the fair value of the transaction price.
8 The 18-month period starts on the date of execution of the Shareholders’ resolution.
9 Of which 56,010,436 shares purchased in 2017 for a total cost of € 210 million.
10 The convertible bond loan with a nominal value of € 400 million is not part of the EMTN Programme.