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 additional information for investors as it allows identification of the sources of financing (equity and third-party funds) and the application of such funds for fixed and working capital.

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Reclassified statement of financial position (*)

(€ million)

31.12.2017

31.12.2018

Change

(*)

For the reconciliation of the reclassified balance sheets with the compulsory format, please see the paragraph “Reconciliation of the reclassified financial statements with the compulsory formats” below.

Fixed capital

18,875

18,856

(19)

Property, plant and equipment

16,033

16,153

120

Compulsory inventories

363

363

 

Intangible assets

850

907

57

Equity investments

1,591

1,750

159

Long-term financial receivables

373

11

(362)

Net payables for investments

(335)

(328)

7

Net working capital

(1,079)

(1,259)

(180)

Provisions for employee benefits

(58)

(64)

(6)

NET INVESTED CAPITAL

17,738

17,533

(205)

Shareholders’ equity

6,188

5,985

(203)

- entirely attributable to Snam’s shareholders

6,188

5,985

(203)

Net financial debt

11,550

11,548

(2)

Coverage

17,738

17,533

(205)

Fixed capital (18,856 million euro) was down by 19 million euro on 31 December 2017. The reduction is mainly due to the lesser long-term financial receivables (-362 million euro) mainly in view of the repayment, by TAP, of the shareholders’ loan, to a large extent absorbed by the increase in tangible and intangible fixed assets (+177 million euro) and the increase in equity investments (+159 million euro), mainly due to the purchase of DESFA.

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

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(€ million)

Property, plant and equipment

Activity assets

Total

Balance at 31 December 2017

16,033

850

16,883

Technical investments

805

77

882

Amortisation, depreciation and impairment

(630)

(60)

(690)

Transfers, eliminations and divestments

(14)

 

(14)

Change in scope of consolidation

1

30

31

Other changes

(42)

10

(32)

Balance at 31 December 2018

16,153

907

17,060

The technical investments of 2018 of the continuing operations total 882 million euro25 (1,034 million euro in 2017) and principally refer to the sectors of transmission (764 million euro) and storage (99 million euro).

The change in the consolidation area (+31 million euro) refers to the assets recorded in view of acquisitions of 82% of the capital of TEP Energy Solution (24 million euro) and 70% of the share capital of IES Biogas (4 million euro)26.

Other changes (-32 million euro) relate essentially to: (i) contributions on works for interference with third parties (so-called recalls; -22 million euro); (ii) the change in inventory of piping and related accessory materials used in plant construction (-11 million euro); and (iii) the effects of adjusting the current value of expenditure relating to the charges for storage site dismantling and restoration (-8 million euro)27.

Compulsory inventories

The fixed warehouse stock – compulsory inventories – equal to 363 million euro (equal as at 31 December 2017), comprise a minimum degree of natural gas that the storage company is required to withhold in accordance with Italian Presidential Decree no. 22 of 31 January 2001. The quantities of natural gas in stock, equal to around 4.5 billion standard cubic metres, are determined annually by the Ministry of Economic Development28.

Equity investments

The equity investments item (1,750 million euro) included: (i) the valuation of equity investments using the equity method and referred mainly to Trans Austria Gasleitung GmbH - TAG (509 million euro), Terēga Holding S.A.S. (466 million euro), Trans Adriatic Pipeline AG – TAP (258 million euro), Italgas S.p.A. (180 million euro), AS Gasinfrastruktur Beteiligung GmbH (124 million euro), and Senfluga (117 million euro); (ii) the fair value measurement of the minority stake held in the company Terminale GNL Adriatico S.r.l. (40 million euro).

Long-term financial receivables

Long-term financial receivables (11 million euro) show a reduction of 362 million euro. The reduction is mainly due to the repayment by TAP, through a true-up mechanism, of the shareholders’ loan (519 million euro, in view of the 373 million euro relative to outstanding receivables as at 31 December 2017 and 156 million euro relative to receivables accrued in 2018), following the completion, on the banking market, of the project financing for the gas pipeline development project29.

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Net working capital

(€ million)

31.12.2017

31.12.2018

Change

Trade receivables

1,274

1,247

(27)

- of which balancing

251

223

(28)

Inventories

86

109

23

Tax receivables

46

26

(20)

Other assets

50

105

55

Provisions for risks and charges

(677)

(665)

12

Trade payables

(406)

(491)

(85)

- of which balancing

(207)

(230)

(23)

Accruals and deferrals from regulated activities

(231)

(362)

(131)

Tax liabilities

(11)

(23)

(12)

Deferred tax liabilities

(165)

(134)

31

Derivative liabilities/(assets)

(12)

(29)

(17)

Other liabilities

(1,033)

(1,042)

(9)

 

(1,079)

(1,259)

(180)

Net working capital (1,259 million euro) was down by 180 million euro on 31 December 2017. The reduction is mainly due to: (i) the increase in accruals and deferrals from regulated activities (-131 million euro) mainly due to penalties and greater volumes billed to users of the transmission service, with respect to the restriction of revenues established by the Regulatory Authority; (ii) the performance of commercial operations (-112 million euro), which recorded lesser receivables for 27 million euro, mainly following the lesser volumes of gas traded under the scope of balancing and greater trade payables (-85 million euro), primarily due to the transmission sector gas settlement, introduced by the Regulatory Authority by resolutions 670/2017/R/gas and 782/2017/R/gas30. These effects were partially offset by the rise in other net assets (+46 million euro, net of other liabilities), mainly due to the greater receivables of the transmission segment towards the CSEA in reference to the gas settlement.

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Statement of comprehensive income

(€ million)

2017

2018

(*)

Entirely held by Snam shareholders.

(**)

The amount refers to the change in fair value of the minority share in Adriatic LNG, allocated to shareholders’ equity in compliance with IFRS 9. For more information, see Note 16 “Other equity investments” of the Notes to the consolidated financial statements.

Net profit (*)

897

960

Other components of comprehensive income

 

 

Components that can be reclassified to the income statement:

 

 

Change in fair value of cash flow hedging derivatives (effective share)

(8)

(26)

Portion of equity investments valued using the equity method pertaining to “other components of comprehensive income”

(3)

(1)

Tax effect

2

6

 

(9)

(21)

Components that cannot be reclassified to the income statement:

 

 

Actuarial gains (losses) on remeasurement of defined-benefit plans for employees

(1)

 

Share of remeasurements of defined benefit plans for employees of investments accounted for using the equity method

1

 

Change in fair value of minority share measured at fair value through other comprehensive income - FVTOCI (**)

 

1

Tax effect

 

 

 

 

1

Total other components of comprehensive income, net of tax effect

(9)

(20)

Total comprehensive income (*)

888

940

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Shareholders’ equity

(€ million)

 

 

(*)

Entirely held by Snam shareholders.

(**)

Net of tax effect. Further information is provided in Note 1 “Basis of presentation” of the Notes to the consolidated financial statements.

(***)

Amount paid on 23 January 2019.

Shareholders’ equity at 31 December 2017 (*)

 

6,188

Effect of the first time adoption of the provisions of IFRS 9 (**)

8

 

Shareholders’ equity at 01 January 2018 (*)

 

6,196

Increases owing to:

 

 

- Comprehensive income for 2018

940

 

- Other changes

10

 

 

 

950

Decreases owing to:

 

 

- 2017 dividend balance

(437)

 

- 2018 interim dividend (***)

(298)

 

Acquisition of treasury shares

(426)

 

 

 

(1,161)

Shareholders’ equity at 31 December 2018 (*)

 

5,985

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Reconciliation between the separate and consolidated net income and shareholders’ equity of Snam S.p.A.

 

Net income

Shareholders’ equity

(€ million)

2017

2018

31.12.2017

31.12.2018

Financial statements of Snam S.p.A.

677

721

4,861

4,402

Net income of companies included in the scope of consolidation

799

874

 

 

Difference between book value of equity investments in consolidated companies and shareholders’ equity reported in financial statements including net income for the period

 

 

1,382

1,618

Consolidation adjustments for:

 

 

 

 

- Dividends

(604)

(641)

 

 

- Income from the measurement of equity investments using the equity method and other income from equity investments

25

6

(55)

(21)

 

(579)

(635)

(55)

(21)

Minority interests

 

 

 

 

Consolidated Financial Statements

897

960

6,188

5,985

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Net financial debt

(€ million)

31.12.2017

31.12.2018

Change

(*)

Includes the short-term portion of long-term financial debt.

Financial and bond debt

12,619

13,420

801

Short-term financial debt (*)

2,443

3,633

1,190

Long-term financial debt

10,176

9,787

(389)

Financial receivables and cash and cash equivalents

(1,069)

(1,872)

(803)

Cash and cash equivalents

(719)

(1,872)

(1,153)

Short-term financial receivables

(350)

 

350

 

11,550

11,548

(2)

Net financial debt was 11,548 million euro as at 31 December 2018, compared with 11,550 million euro as at 31 December 2017.

The net cash flow from operations (1,826 million euro) allowed us to entirely finance net investments (1,036 million euro, including equity investments of 176 million euro). This flow and the collection deriving from the repayment by TAP of the shareholders’ loan (519 million euro; 371 million euro, net of the portions disbursed by Snam during the year), have made it possible to generate free cash flow of 1,161 million euro. Net financial debt, after the payment to shareholders of the 2017 dividend (731 million euro, of which 294 million euro by way of interim dividend and 437 million euro for the balance) and the cash flow deriving from the purchase of treasury shares (426 million euro), shows a reduction of 2 million euro compared with 31 December 2017, including non-monetary components relating to net financial debt (2 million euro).

Financial debts and bonds as at 31 December 2018 of 13,420 million euro (12,619 million euro as at 31 December 2017) are as follows:

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(€ million)

31.12.2017

31.12.2018

Change

(*)

Includes the short-term portion of long-term financial debt.

(**)

Entirely short-term.

Bonds

8,672

8,446

(226)

- of which short-term (*)

1,042

913

(129)

Bank loans

3,931

4,749

818

- of which short-term (*)

1,385

2,495

1,110

Euro Commercial Paper - ECP (**)

 

225

225

Other financing (**)

16

 

(16)

 

12,619

13,420

801

Financial and bond debts are denominated in euros 31 and refer mainly to bond loans (8,446 million euro, or 62.9%) and bank loans (4,749 million euro, or 35.4%, including 1,448 million euro provided by the European Investment Bank - EIB).

The bonds decreased by 226 million euro (8,446 million euro) compared to 31 December 2017. The reduction is mainly due to: (i) the repayment of a fixed-rate bond loan maturing on 19 March 2018, for a nominal amount of 851 million euro; (ii) the repayment of a fixed-rate bond maturing on 10 September 2018, for a nominal amount of 70 million euro; (iii) the repurchase on the market of fixed-rate bonds for a total nominal value of 538 million euro with an average coupon of 2.6% and a residual duration of approximately 3.7 years. These effects were partially offset by the issue of: (i) a variable-rate bond32, on 22 January 2018, for a nominal value of 350 million euro; (ii) a fixed-rate bond, on 11 September 2018, for a nominal value of 600 million euro; (iii) a fixed-rate equity linked bond, on 27 November 2018, for a nominal value of 300 million euro.

Funding for bank loans (4,749 million euro) increased by 818 million euro mainly following the underwriting of three bank term loans for a total nominal value of 700 million euro, and of a greater net use of uncommitted credit facilities for a value of approximately 393 million euro. This effect is partially offset by the early repayment of a bank term loan for a nominal value of 250 million euro.

Long-term financial liabilities (9.787 million euros) made up approximately 73% of gross financial debt (around 81% as at 31 December 2017). Fixed-rate financial debts amounted to around 78% of gross financial debt.

The Euro Commercial Papers (225 million euro) regard unsecured short-term securities issued on the money market and placed with institutional investors.

Cash and cash equivalents (1,872 million euro) refer mainly to a short-term use of liquid funds, maturing within three months, with the counterparty being a bank of high credit standing (1,000 million euro), an on-call bank deposit (810 million euro) and cash held at the company Gasrule Insurance DAC (17 million euro) and Snam International BV (14 million euro).

As at 31 December 2018, Snam had unused committed long-term credit facilities worth 3.2 billion euro. In terms of sustainable finance, November 2018 saw the completion of the transformation of these pooled credit facilities into a sustainable loan with 19 national and international banks of primary standing, with a bonus/malus mechanism on the margins paid connected with the achievement of specific ESG (Environment, Social and Governance) KPIs: this is the third largest sustainable loan stipulated in the world and the absolute largest by a gas utility company.

Information on financial covenants can be found in Note 17 “Short-term financial liabilities, long-term financial liabilities and short-term portions of long-term liabilities” of the Notes to the consolidated financial statements.

25 An analysis of the technical investments made by each business segment is provided in the “Business segment operating performance” section of this Report.

26 For both company mergers, crossover contractual put and call options are envisaged over the interests of minority shareholders, respectively 18% and 30% for TEP and IES Biogas. As at the date of acquisition, in accordance with the terms of the contract regulating the exercise of options, the transactions were booked as though Snam had acquired control over 100% of the companies, without, therefore, noting the interests of minority shareholders. The main company mergers performed in 2018 are described under note 24 “Business combinations” of the consolidated financial statements, to which reference is made.

27 Further information is provided in Note 20 “Provision for risks and charges” of the Notes to the consolidated financial statements.

28 On 06 February 2018, the Ministry confirmed the total volume of strategic storage for the contractual year 2018-2019 (01 April 2018-31 March 2019) at 4.62 billion cubic metres, unchanged on thermal year 2017-2018 (01 April 2017-31 March 2018). The Stogit share was unchanged at 4.5 billion cubic metres.

29 For more information, see Note 25, “Guarantees, commitments and risks”, of the consolidated financial statements.

30 By this resolution, the Authority approved the provisions on gas settlement for the determination of physical and economic items of adjustment for the previous period (years 2013-2017). The regulation also envisages that any imbalance in items receivable and payable from and to users, shall be regulated by the CSEA in order to guarantee the neutrality of Snam Rete Gas as major transmission company. In this regard, it is noted that in exchange for the settlement, net working capital as at 31 December 2018 recorded a drop of 25 million euro following the greater collections of items receivable, not yet re-distributed to the system as at that date.

31 Except for a fixed-rate bond loan for ¥10 billion, fully converted into euros through a cross-currency swap (CCS) financial derivative.

32 The above-mentioned interest bond is converted at a fixed rate through a derivative Interest Rate Swap (IRS).

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