Reclassified statement of financial position

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 of 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.

Management uses the reclassified balance sheet to calculate the key profitability ratios (ROI and ROE).

Fixed capital (€18,296 million) increased by €216 million compared with 31 December 2016 essentially as a result of the increase in financial receivables held for operations (+€96 million), the reduction in net financial payables relating to investment activities (+€77 million) and the increase in property, plant and equipment (+€60 million). This increase was partly offset by the reduction in equity investments (-€16 million).

The change in property, plant and equipment and in intangible assets can be broken down as follows:

Other changes (-€43 million) mainly involve the effects of the adaptation of the current value of expenditure relating to site dismantling and restoration charges (-€41 million) essentially due to an increase in anticipated discount rates.

Equity investments

The item equity investments (€1,483 million) includes the equity method valuation and refers mainly to TIGF Holding S.A.S. (€472 million), Trans Austria Gasleitung GmbH – TAG (€468 million), Trans Adriatic Pipeline AG – TAP (€193 million)¹⁸ and AS Gasinfrastruktur Beteiligung GmbH (€140 million).

Financial receivables held for operations

Financial receivables held for operations (€309 million) relate to Snam’s share of the shareholders’ loan granted to the associate company Trans Adriatic Pipeline AG (TAP). Financial receivables rose by €96 million compared with 31 December 2016¹⁹.

Net working capital (€974 million) decreased by €491 million compared with 31 December 2016 due primarily to: (i) the reduction in trade receivables (-€330 million) essentially attributable to the natural gas transportation segment (-€325 million), including -€158 million relating to the balancing service; (ii) the increase in other liabilities (-€151 million) following the higher payables to the CSEA relating to the transportation segment, attributable mainly to the different timing of the payment of the additional tariff items, which involved the deferral of the settlement of the March-April two-month period²⁰; (iii) higher accruals and deferrals from regulated activities (-€104 million).

These factors were partly offset by the reduction in trade payables (+€104 million) resulting essentially from the balancing service (+€75 million).

Information about the individual shareholders’ equity items and changes therein compared with 31 December 2016 is provided in Note 17 “Shareholders’ equity” in the Notes to the condensed consolidated interim financial statements.

The net cash flow from operating activities (€1,401 million) allowed us to fully cover the financial requirements associated with net investments for the period (€608 million) and to generate a free cash flow of €793 million. Net financial debt, after paying shareholders the 2016 dividend (€718 million) and the cash flow resulting from the purchase of treasury shares (€202 million) rose by €120 million compared with the figure as at 31 December 2016, including the non-monetary components related to the financial debt.

Financial and bond debts at 30 June 2017, amounting to €11,204 million (€11,090 million at 31 December 2016), break down as follows:

Financial and bond debts are denominated in euros²¹ and refer mainly to bond loans (€8,246 million, or 73.6%) and bank loans (€2,949 million, or 26.3%, including €1,171 million provided by the European Investment Bank – EIB).

Bond loans (€8,246 million) rose by €636 million compared with 31 December 2016. The increase is mainly attributable to the issuing of: (i) a fixed rate bond loan, issued on 25 January 2017, for a nominal value of €500 million; (ii) a floating rate²² bond loan issued on 21 February 2017, for a nominal value of €300 million; (iii) a convertible bond loan²³ with no interest accrual, issued on 20 March 2017, for a nominal value of €400 million. These effects were partly offset by the repayment of a bond loan due on 30 June 2017 for a nominal amount of €506 million.

Long-term financial debt (€9,054 million) represented around 81% of gross financial debt (around 79% at 31 December 2016). Fixed-rate financial debts amounted to around 77% of gross financial debt (approximately 64% at 31 December 2016).

Cash and cash equivalents (€28 million) mainly refer to the bank deposits of Gasrule Insurance DAC for the Group’s insurance activities (€26 million).

At 30 June 2017, Snam had unused committed long-term credit lines worth €3.2 billion.

Covenants

At 30 June 2017, Snam had medium and long-term loans from a pool of national and international banks. Some bilateral loan agreements were also entered into with these banks. These medium/long-term loans are subject, inter alia, to the usual covenants imposed in international market practice, e.g. negative pledge, pari passu and change of control clauses.

In particular, the syndicated loans and bilateral loans are subject, inter alia, to a negative pledge covenant pursuant to which Snam and the Group subsidiaries are subject to limitations in terms of pledging real property rights or other restrictions on all or part of the respective assets, shares or merchandise, and/or documents representing merchandise; this covenant is subject to set expiry dates and to exceptions on restrictions for which the creation and/or existence is explicitly permitted.

At 30 June 2017, Snam also had medium/long-term loans taken out with the European Investment Bank (EIB), the contractual clauses of which are broadly in line with those described above. Exclusively for the EIB loans, the lender has the option to request additional guarantees if Snam’s credit rating is downgraded below BBB (Standard & Poor’s/Fitch Ratings Limited) or below Baa2 (Moody’s) for at least two of the three ratings agencies.

The banking financial liabilities subject to these restrictive clauses amounted to approximately €1.8 billion.

As at 30 June 2017, there were no identified events resulting in failure to comply with the aforementioned commitments and covenants.

Information on financial covenants can be found in Note 12 “Short-term financial liabilities, long-term financial liabilities and short-term portions of long-term liabilities” of the Notes to the condensed consolidated interim financial statements.