Consolidated income statement

Adjusted operating profit¹⁹ for FY 2018, which excludes special items (21 million euro), comes to 1,405 million euro, up 42 million euro (or 3.1%) on the adjusted operating profit of 2017. The greater revenues (+87 million euro; 3.6%), mainly due to the contribution made by the transmission segment and the change in the consolidation scope, deriving from company mergers regarding the new businesses of CNG and biomethane, were partially offset by the increase in period amortisation, depreciation and impairment (-31 million euro; 4.7%), mainly due to the amortisation deriving from the commissioning of new infrastructures and the greater operating costs (-14 million euro; 3.3%).

In particular, the rise in operating costs is mainly due to: (i) the change in the consolidation scope (34 million euro); (ii) expenses deriving from the greater use of Unaccounted-For-Gas (UFG) with respect to the quantities conferred in kind by the users (22 million euro, net of uses of the provision made during previous years); (iii) costs incurred by the Global Solution Business Unit in exchange for services provided (3 million euro), in addition to impacts of employment policies. These factors were partly offset by: (i) the trend of the provisions for risks and charges and the provision for doubtful debt (totalling 25 million euro); (ii) the effects of efficiency drives implemented starting 2016, which in 2018 made it possible to cut costs by around 17 million euro (36 million euro cumulatively for the period 2016-2018).

The net adjusted profit for FY 2018, which excludes special items (50 million euro, net of the related tax effect), comes to 1,010 million euro, up 70 million euro (or +7.4%) on the adjusted net profit of FY 2017.

The increase, in addition to greater operating profit (+42 million euro; +3.1%) is due: (i) to the lesser net financial expenses (+32 million euro; 14.1%) that benefit from a reduction in the average cost of debt, also in view of the benefits deriving from the optimisation action taken in 2016 and 2017; (ii) the greater net income from equity investments (+9 million euro; +6.0%). These effects were partly absorbed by greater income taxes (+13 million euro; 3.8%), due mainly to the rise in pre-tax profit.

Analysis of the entries on the adjusted financial statement

The “Corporate and other activities” sector includes the new companies acquired in 2018, responsible for activities related to the Energy Transition.

Regulated revenues (2,485 million euro) rose by 51 million euro in respect to the fiscal year 2017 (+2.1%). Net the components that have a counterpart in costs, the regulated revenue totals 2,427 million euro, an increase of 85 million euro or 3.6%, thanks to the continuous investment and greater volumes of ITG (the whole year 2018 vs the 3 months in 2017; +15 million euro). Regulated revenues relate to transmission (1,975 million euro), storage (435 million euro) and regasification (17 million euro).

Non-regulated revenues (101 million euro, net of consolidation eliminations) are basically in line with FY 2017 (+2 million euro or 2.0%). The greater revenues deriving from the contribution made by companies that joined the consolidation scope (+34 million euro) and services provided by the Global Solution Business Unit (+5 million euro) were to a large extent absorbed by the lesser revenues from services provided to the Italgas Group, regulated by means of various contracts stipulated as at 31 December 2017²⁰ (-46 million euro).

Non-regulated revenues mainly regard: (i) prices for the development of biogas and biomethane plants (23 million euro); (ii) technical-specialised services for foreign companies not consolidated (16 million euro); (iii) proceeds deriving from the rental and maintenance of optic fibre telecommunication cables (13 million euro); (iv) revenues for provisions of services to the Italgas Group (14 million euro)²¹; (v) sale of compressors for vehicles - CNG (7 million euro).

Operating costs of regulated activities

Operating costs of regulated activities (397 million euro) decreased by 7 million euro, or 1.7% compared to FY 2017. Net of components offset in revenues, operating costs for regulated activities rose by 27 million euro or 8.7% on FY 2017.

Controllable fixed costs (274 million euro), which comprise the sum of personnel expenses and recurring external costs, rose by 7 million euro, or 2.6%, compared with 2017 (267 million euro). The increase is due to emerging costs ²² in ICT, mainly deriving from the separation of Italgas, and the greater contribution of ITG, the effects of which have been partially absorbed by the efficiency drives implemented.

Other costs (59 million euro, net of the special items) increased by 21 million euro, or 55.3% compared to FY 2017. The increase is essentially due to expenses deriving from the greater use of Unaccounted-For-Gas (UFG) with respect to the quantities conferred in kind by the transmission users, in accordance with resolution 514/2013/R/Gas of the Regulatory Authority (22 million euro, net of uses of the provision made during previous years) and greater capital losses from the elimination of assets (+8 million euro). These effects have been partially offset by net uses of the provisions for risks and charges (-7 million euro) in view of net provisions made in 2017, mainly for tax litigation.

Operating costs of non-regulated activities

Operating costs of non-regulated activities (94 million euro) are down by 13 million euro or 12.1% on FY 2017, mainly due to the lesser costs for services, mainly ICT in nature, charged back to the Italgas Group (-43 million euro), settled by means of contracts concluded as at 31 December 2017 and net uses of provisions for risks and charges and the provision for doubtful debt (-18 million euro in total). These effects were partly offset by the greater costs deriving from the new businesses that joined the consolidation scope (34 million euro), relating essentially to the development of biomethane plants and turbo compressors for vehicles, as well as greater costs connected with the development of new businesses and specific projects (6 million euro).

The number of employees as at 31 December 2018 (3,016 resources) is analysed below by professional status.

The increase of 97 resources with respect to FY 2017 is mainly due to the inclusion of new companies in the consolidation scope (117 resources). Personnel who left the Group, mainly exploiting the instrument of Isopensione (99 resources) were replaced by new employees hired from the market, in line with the Group’s employment policies.

Amortisation and Depreciation (690 million euro) increased by 31 million euro, equal to 4.7%, in respect to the fiscal year 2017. The increase was principally due to higher depreciation (+36 million euro; +5.6%) recorded in all sectors of activities, essentially as a result of the effective date of new infrastructure, partly offset by lower devaluation (-5 million euro; -38.5%).

Below is a breakdown of adjusted EBIT by business segment:

The net financial charges (195 million euro, net of the special items related to the liability management operation implemented in December 2018) show a reduction of 32 million euro, or 14.1%, compared to 2017. The reduction is due to lower finance charges correlated to the net financial debt (-34 million euro; -14.4%) principally connected to the lower average cost of the debt, also thanks to benefits deriving from optimisation interventions in the group’s financial structure put into effect by Snam in 2016 and 2017, in particular liability management operations.

The finance charges capitalised in the fiscal year 2018 total 12 million euro, basically in line with the previous year.

The net income from equity investments (159 million euro) concern the shares in the net results for the period of companies evaluated with the equity method, in particular the joint ventures TAG (74 million euro), Terēga (28 million euro) and AS Gasinfrastruktur Beteiligung GmbH (11 million euro) and the associate Italgas (43 million euro).

Income taxes total 359 million euro, a 13 million euro rise, equal to 3.8%, in respect to the fiscal year 2017. The increase was attributable mainly to greater pre-tax profit, the effects of which were partly absorbed by the benefits deriving from the Super Amortisation (years 2015, 2016 and 2017) and Hyper Amortisation (year 2018) introduced by the 2016 and 2017 Stability Law.