2019half year report - snam · rita rolli rita rolli alessandro tonetti yunpeng he audit firm (***)...

2019 Half Year Report

Snam Company profile

Snam is Europe’s leading gas utility. Founded in 1941 as “Società Nazionale

Metanodotti”, it has been building and managing sustainable and

technologically advanced infrastructure guaranteeing energy security for over

75 years. Snam operates in Italy and, through subsidiaries, in Albania (AGSCo),

Austria (TAG and GCA), France (Terēga), Greece (DESFA) and the United

Kingdom (Interconnector UK). It is one of the main shareholders of TAP (Trans

Adriatic Pipeline) and is the company most involved in projects for the creation

of the Energy Union.

First in Europe by transport network size (about 32,600 km in Italy, more than

41,000 with international subsidiaries) and natural gas storage capacity (16.9

billion cubic meters in Italy, more than 20 billion with international subsidiaries),

Snam manages the first liquefied natural gas (LNG) plant built in Italy and is

a shareholder of Adriatic LNG, the country’s main terminal and one of the

most strategic in the Mediterranean, and - via DESFA - the Greek terminal in

Revithoussa, with a total pro rata regasification capacity of around 6 billion

cubic metres per year.

Snam’s business model is based on sustainable growth, transparency,

nurturing talent, and development of local areas by constantly listening to

and exchanging dialogues with local communities, also thanks to the social

initiatives of the Snam Foundation. Through the “Snamtec” project, launched

under the scope of the 2018-2022 business plan, Snam has given a great

boost to investments for energy transition, focused on technology initiatives,

innovation and R&D supporting large national and international networks and

green economy businesses, like sustainable mobility, renewable gas, hydrogen

and energy efficiency.

www.snam.it

2019 Half Year Report

This report has been translated into English from the Italian original solely for the

convenience of international readers.

4 2019 Half Year Report

Corporate bodies

BOARD OF DIRECTORS (*) BOARD OF STATUTORY AUDITORS (*)

Chairman Chairman

Luca Dal Fabbro (1) (2) Stefano Gnocchi (5)

Chief Executive Officer Principal statutory auditors

Marco Alverà (1) Gianfranco Chinellato (4)

Directors Donata Paola Patrini (4)

Laura Cavatorta (2) (3) Alternate statutory auditors

Francesco Gori (2) (3) Federica Albizzati (5)

Yunpeng He (1) Maria Gimigliano (4)

Antonio Marano (1) (2)

Francesca Pace (1) (2)

Rita Rolli (2) (3)

Alessandro Tonetti (1)

CONTROL, RISK AND RELATED-PARTY TRANSACTIONS COMMITTEE APPOINTMENTS COMMITTEE

Francesco Gori - Chairman Antonio Marano - Chairman

Francesca Pace Laura Cavatorta

Antonio Marano Alessandro Tonetti

COMPENSATION COMMITTEE ENVIRONMENTAL, SOCIAL & GOVERNANCE COMMITTEE (**)

Francesca Pace - Chairman Laura Cavatorta - Chairman

Rita Rolli Rita Rolli

Alessandro Tonetti Yunpeng He

AUDIT FIRM (***)

PricewaterhouseCoopers S.p.A.

(*) Appointed by the Shareholders’ Meeting on 02 April 2019 and in office until the date of the Shareholders’ Meeting that shall be called in 2022 to

approve the financial statements at 31 December 2021.

(**) Established by the Board of Directors on 14 May 2019 in place of the Sustainability Committee.

(***) Engaged by the shareholders’ meeting on 24 April 2018 for the period 2018-2026.

(1) Candidate directors on the list presented by shareholder CDP Reti S.p.A.

(2) Independent directors pursuant to the TUF and the Code of Corporate Governance.

(3) Directors that were candidates on a list submitted jointly by Institutional Investors.

(4) Candidate standing auditors on the list presented by shareholder CDP Reti S.p.A.

(5) Directors that were candidates on a list submitted jointly by Institutional Investors.

Group structure at 30 June 2019 5

1

Further information can be found in the annex “Snam S.p.A. equity investments at 30 June 2019” to the Notes to the condensed interim consolidated financial statements.

2 It is specified that the company Asset Company 5 S.r.l., established by the sole shareholder Snam S.p.A. in June 2018, was renamed Enura S.p.A. starting 01 April 2019, when the shareholder Società Gasdotti Italia (SGI) joined the ownership structure, with 45% of the company’s share capital.

3 In compliance with IFRS 8 “Operating segments”, the “Corporate and other activities” segment is not an operating business segment, which is defined

on the basis of the internal reporting used by the Company’s management for allocating resources to the different segments and for analysing the respective performances.

Group Structure at 30 June 2019 Changes in the scope of consolidation of the Snam Group at 30 June 20191

with respect to that in place as at 31 December 2018 regarded the inclusion

in the consolidation scope of the following companies: (i) Enura S.p.A.

(former Asset company 5), held 55% by Snam S.p.A. for the development of

the transport infrastructure in Sardinia2; (ii) Snam Gas & Energy Services

(Beijing) Co. Ltd., with registered office in China, established in April 2019 and

held 100% by Snam International B.V., to support the development of the gas

market in China, through Snam's distinctive expertise in the sector.

The aforementioned companies were consolidated, respectively, under the

"Natural gas transportation” and "Corporate and other activities" segments3.

The changes to the consolidation area as at 30 June 2019 with respect to

that in place as at 30 June 2018 regarded, in addition to the above, the

joining of the following companies: (i) IES Biogas, operating in the design,

development and management of biogas and biomethane production plants

(July 2018); (ii) Cubogas S.r.l. operating in the segment of technological

solutions for natural gas vehicle refuelling stations (July 2018); (iii) Enersi

Sicilia S.r.l., company that holds the authorization to build a plant for the

production of biomethane from the organic fraction of municipal solid waste

(FORSU) in Sicily (November 2018).

GASRULE

SNAM RETE GAS

ASSET COMPANY 2

INFRA-STRUTTURE

TRASPORTOGAS

GNLENURA STOGITSNAM

4 MOBILITY

IES BIOGAS

ENERSI SICILIA

CUBOGAS

ASSET COMPANY 4

TEP ENERGY SOLUTION

100% 100%

100%

100% 70% 82%

100%55% 100%

100%

100%

100% 100%

PRISMA

Italian investments

Overseas investments

Scope of consolidation

2019 new entry

Corporate & other activities

Transportation Transportation

Transportation

Regasification Storage Corporate & other activities

Biomethane

Biomethane

SustainableMobility


Energy efficiency

14.66%

TransportationMarch 2019

Group structure as at 30 June 2019

6 Half Year Report 2019

ADRIATIC LNG

ITALGAS

TERĒGAHOLDING

TERĒGA SAS

AS GASINFRA-STRUKTUR

GMBH DESFA

TERĒGA SA GCA

TAG

TAP

AS GASINFRA-STRUKTUR

BETEILIGUNG GMBH

SENFLUGA

ALBANIANGAS SERVICE

COMPANY

SNAM INTERNATIONAL

100%

SNAM GAS & ENERGY SERVICES CO. (Beijing) LTD.

100%

20%

40% 60%

25%

100% 100% 66%

100% 49%

INTERCONNECTORUK

IZT

25%

7.3%

13.5%



April 2019

40.5% 84.47%

23.68%

Struttura del Gruppo al 30 giugno 2019 7Struttura del Gruppo al 30 giugno 2019 7

3Group structure at 0 giugno 2019 7


General contents

General contents 9

General contents

Disclaimer This Report includes forward-looking statements, particularly in the “Outlook” section,

relating to: natural gas demand, investment plans, future operating performance and

project execution. Such statements are, by their very nature, subject to risk and uncertainty as they

depend on whether future events and developments take place. The actual results may therefore differ from those forecast as a result of several

factors: trends in natural gas demand, supply and price, actual operating performance,

general macroeconomic conditions, geopolitical factors such as international conflicts,

the effect of new energy and environmental legislation, the successful development

and implementation of new technologies, changes in stakeholders' expectations and

other changes in business conditions. Snam, the Snam Group or the Group means Snam S.p.A. and the companies within its

scope of consolidation.

For the glossary, please refer to the website www.snam.it/en/utilities/glossary/.

10 INTERIM DIRECTORS' REPORT

61 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS


Interim Directors’ report

General contents 11

Contents of the Interim directors' report

12 SUMMARY DATA AND INFORMATION

13 Results

15 Main events

18 Key figures

21 Snam share performance

22

BUSINESS SEGMENT OPERATING PERFORMANCE

23 Natural gas transportation

28 Liquefied Natural Gas (LNG) regasification

29 Natural gas storage

32

FINANCIAL REVIEW AND OTHER INFORMATION INFORMATION

33 Financial review

50 Other information

52 ELEMENTS OF RISK AND UNCERTAINTY

59 OUTLOOK


Summary data and information

Interim directors' report - Summary data and information 13

Results

4

EBIT was analysed by isolating only the elements that determined a change therein. To this end, applying gas segment tariff regulations generates revenue components that are offset in costs.

5 An analysis of EBIT by business segment is provided in the “Business segment operating performance” section. In conformity with IFRS 8 “Operating

segments”, the operating business segments were defined on the basis of the internal reporting used by the Company’s management for allocating resources to the different segments and for analysing the respective performances. To this end, it is noted that the “Corporate and other activities” segment, not operating under the terms of IFRS 8, includes the new companies acquired in 2018, which head activities relating to the energy transition. The operating business segment of Natural gas transportation includes the values of the companies Snam Rete Gas, Infrastrutture Trasport and Enura (newco).

Total revenue in the first half of 2019 amounted to Euro 1,332 million, up by

Euro 61 million (4.8%) compared with the first half of 2018. Net of

components offset in costs, total revenue in the first half of 2019 amounted

to Euro 1,303 million, up by Euro 61 million, or 4.9%. The increase is due to

the higher regulated revenue (Euro +40 million; +3.3%), essentially due to the

transportation segment, as well as to the increase of non-regulated revenue

(Euro +21 million; +70.0%), mainly following the contribution made by the

companies entered in the consolidation scope.

EBIT4 stood at Euro 756 million in the first half of 2019, up Euro 27 million, or

3.7%, compared with the first half 2018. Higher revenue (Euro +61 million;

+4.9%) was partly offset in part by higher period amortisation and

depreciation (Euro -20 million; 6.0%), due primarily to the entry into service

of new assets and greater operating costs (-14 million; equal to 7.9%, mainly

due to the entry and integration of companies included in the scope of

consolidation.

As regards the main operating business segments5, the increase in EBIT

essentially reflects the positive performance recorded by the transportation

segment (Euro +38 million; +6.7%). EBIT for the first half 2019 of the storage

(Euro 169 million) and regasification (Euro 2 million) segments is unchanged

on the corresponding values recorded in the same period of the previous

year.

Net profit in the first half of 2019 amounted to Euro 581 million, an increase

of Euro 58 million or 11.1% compared with the net profit achieved in the first

half of 2018 (Euro 523 million). The greater EBIT (Euro +27 million; +3.7%)

together with the lesser net financial expense (Euro +13 million; 13.3%) that

benefit from the optimisation of the financial structure and the positive

market conditions, as well as the greater income from equity investments

valued using the equity method (Euro +33 million; +38.8%) were partly offset

by the greater income tax (Euro -15 million; 7.8%), primarily due to the

greater pre-tax profit.

EBIT

+27 million euro; +3.7%

Total revenue

+61 million euro; +4.9%


Net financial debt was Euro 11,523 million as at 30 June 2019, compared

with Euro 11,548 million as at 31 December 2018. The positive net cash flow

from operating activities (Euro 1,221 million) allowed us to fully cover the

financial requirements associated with net investments for the period (Euro

427 million) and to generate a free cash flow of Euro 794 million. Net

financial debt, after equity cash flow (Euro 743 million) deriving essentially

from the payment to the shareholders of the 2018 dividend (Euro 746

million) records a reduction of Euro 25 million on 31 December 2018, despite

the increase generated by non-monetary components related to financial

debt (Euro 26 million)6.

Technical investments in the first half of 2019, totalling Euro 408 million

(Euro 349 million in the first half of 2018), related mainly to the

transportation (Euro 340 million; Euro 314 million in the first half 2018) and

storage (Euro 60 million; Euro 31 million in the first half 2018) segments.

Accident indices of the first half 2019, referring to employees and contract

workers, both in terms of frequency and severity, record substantial stability

on first half 2018 (+0.06 with reference to the frequency index; +0.03 with

reference to the severity index), despite the extension of the group scope

and, with reference to the frequency index, the reduction in hours worked by

contractor companies. During the first half 2019, in total 3 accidents

occurred, of which 1 involve employees and 2 contractor workers (same

dynamics recorded in the first half 2018), as further evidence of the constant

commitment of Snam to developing and promoting the protection of health

and safety in the workplace, not only within the company but also in regard

to suppliers.

6

These components are mainly related to the effects of the coming into force, starting 01 January 2019, of the provisions of IFRS 16 “Leasing” (Euro 24 million). Further information is provided in Note 1 “Basis of presentation and measurement criteria” of the notes to the condensed interim consolidated financial statements.

Free cash flow

+794 million euro


Main events

Financing

Climate Action Bond

On 28 February 2019, Snam S.p.A. concluded issue of its

first Climate Action Bond for an amount of Euro 500

million, with annual coupon of 1.25% and maturity on

28 August 2025.

Through the issue of the first Climate Action Bond in

Europe, Snam aims to consolidate its role in the energy

transition underway in Europe, to promote investors’

awareness of the company’s ESG (“Environment, Social,

Governance”) investments and initiatives and to

diversify its investor base.

Euro Commercial Paper Programme

On 19 March 2019, Snam’s Board of Directors resolved

to increase the amount of the Euro Commercial Paper

programme (the “ECP Programme”) approved on 02

October 2018, from Euro 1 billion to Euro 2 billion.

The issue of Euro Commercial Papers may take place

within 2 years of 02 October 2018, for a total maximum

equivalent value of Euro 2 billion, increased by the

amount corresponding to the Euro Commercial Papers

redeemed each time during the same period, to be

placed with institutional investors, as per the terms and

conditions of the ECP Programme. The total nominal

value of the Euro Commercial Papers issued under the

ECP Programme may not exceed the maximum limit of

Euro 2 billion.

The increase in the amount of the ECP Programme

enables Snam to diversify the short-term financial

instruments with a view to ever greater flexibility in the

process of optimising the treasury.

As at 30 June 2019, the Euro Commercial Papers

totalled Euro 1,431 million.

At the date of this Report, the Euro Commercial Paper

programme had been used for the entire amount of

Euro 2 billion.

EIB financing for transport and storage infrastructure projects

On 28 January 2019, Snam signed a loan agreement

with the European Investment Bank (EIB) for a loan of

EUR 135 million for the construction of infrastructure

projects in the natural gas transport and storage

business segment, with a fixed rate of 1.372%, to be

repaid through an amortisation plan expiring in 2038.

On 31 July 2019, Snam also signed a EUR 105 million

loan agreement with the EIB for the construction of

infrastructure projects in the natural gas transmission

business segment, with a duration of 20 years (maturity

30 June 2039) and a fixed rate of circa 0.64%.

Sustainable mobility

Tamoil and Snam: contract for 5 new natural gas service stations

On 20 March 2019, through the subsidiary

Snam4Mobility, Tamoil and Snam signed a contract for

the development of a first lot of 5 natural gas refuelling

stations on national territory, promoting the

development of sustainable mobility for cars and lorries

in Italy.

The agreement envisages the collaboration of Tamoil

and Snam4Mobility for the design, development,

maintenance and operation of 4 new CNG (compressed

natural gas) plants and a new L-CNG (liquefied

compressed natural gas) plant within the national

network of Tamoil distributors.

FS Italiane, Snam and Hitachi rail: Memorandum of Understanding (MoU) on methane-powered trains

On 28 March 2019, FS Italiane, Snam and Hitachi rail

signed a Memorandum of Understanding (MoU) with FS

Italiane and Hitachi Rail, aiming to convert part of the

current fleet of trains of the FS Italiane Foundation

from diesel to methane, under the scope of the

promotion of sustainable mobility in public transport in

Italy. The Memorandum envisages the start-up of a pilot

project transforming one or more diesel engines of FS

Italiane Foundation to more advanced liquefied (LNG)

or compressed (CNG) natural gas models. Following a

feasibility study, the companies will identify a larger

number of trains over which to extend the trial.

EIB financing for sustainable mobility projects

In support of the sustainable mobility initiatives, on 6

June 2019, Snam stipulated its first loan with the

European Investment Bank (EIB) in support of the

investments promoted by the subscribers

Snam4Mobility for a nominal value of Euro 25 million.

The investments concerned by the loan contract regard

the development on national territory of 101 CNG

(compressed natural gas) and 9 L-CNG (liquefied and

compressed gas) refuelling stations, for a total of

around Euro 50 million. The loan, which as per EIB

standard practice, will be up to a maximum of 50% of

the cost of the investments, has an amortising structure


falling due in December 2031 and a fixed rate of 0.55%.

The loan complements the contribution disbursed by

the European Union under the CEF (Connecting Europe

Facility) programme for Euro 1.3 million, which last

December approved the project to build the 9

Snam4Mobility L-CNG stations.

Snam and IP: agreement for 26 new natural gas refuelling plants in Italy

On 26 July 2019, Snam and IP have agreed to construct

an initial 26 new natural gas refueling plants, which will

open across IP’s distribution network in Italy in 2020.

The new openings comprise the first phase of the 2018

framework agreement between IP and Snam to build

up to 200 new methane stations in Italy. The initiative is

part of the companies’ commitment to promoting

sustainable mobility. Snam and IP have jointly identified

the fueling stations with IP branded fuel, at which they

will install methane supply for cars (CNG, compressed

natural gas), two of which will also supply LNG

(liquefied natural gas) for heavy vehicles.

The initiatives described above come under the scope

of Snam’s commitment to foster sustainable mobility

with natural gas in Italy, in rail and road and sea

transport. The company is therefore investing to boost

growth of the CNG and L-CNG distribution network in

Italy, through direct investments and agreements with

other sector operators and to promote development of

a biomethane chain (renewable gas with zero CO2) in

Italy. Snam's commitment in this segment is part of the

Snamtec project, launched under the scope of the

2018-2022 strategic plan. In Italy, through

Snam4Mobility, Snam has to date launched 6 new

distributors, can count around 60 under development

and expects to construct a total of 300 over the next

few years.

Energy efficiency

Agreements for the energy requalification of condominiums

On 10 April 2019, through the subsidiary TEP Energy

Solution, operating in the energy efficiency segment,

Snam and UniCredit stipulated an agreement to

facilitate the energy requalification of residential

buildings on Italian territory, making them more

sustainable and secure. The understanding allows the

bank to provide the condominiums with credit facilities

on projects proposed by TEP in energy efficiency and

anti-seismic improvements, such as, for example, the

development of “thermal cladding”, the replacement of

fixtures and the requalification of thermal plants.

The collaboration agreement followed, under this

scope, signed on 5June 2019 by the same TEP with

Intesa Sanpaolo, to promote energy requalification

interventions on buildings for accommodation and

tertiary use.

said agreements envisage the proposal of a complete

service, which ranges from financial and technical

consultancy to the disbursement of the contribution

through to project development, at dedicated

conditions and in a reduced period of time.

In particular, the condominiums can benefit from bank

loans to cover the portion not included in the Ecobonus

or Sismabonus and, more generally, between 75% and

85% of the cost of the works.

TEP Energy Solution will instead propose the product

CasaMia, to date offered to more than 500

condominiums throughout Italy, which aims to ensure

the energy requalification of buildings, financing the

works through savings on consumption and the

transfer of the tax credit linked to the Ecobonus and

Sismabonus mechanism.

Other

New share buyback plan and cancellation of treasury shares with no share capital reduction

On 02 April 2019, Snam's Ordinary Shareholders’

Meeting authorised, after revoking the part that had

not been executed of the resolution to authorise the

acquisition of treasury shares passed by the

Shareholders' Meeting on 24 April 2018, the acquisition

of treasury shares on one or more occasions, for the

maximum duration of 18 months starting from the date

of the Shareholders’ Meeting of 02 April 2019, with a

maximum outlay of Euro 500 million and in any case up

to a maximum of 126,664,660 shares, without

exceeding 6.50% of the share capital subscribed and

freed up (regarding own shares already held by the

Company). The meeting resolution establishes the

terms and conditions of the price of purchases of

treasury shares, as well as authorising the disposal, on

one or more occasions, with no time limits and even

before having completed all acquisitions, of all or part

of the Company’s treasury shares acquired on the basis

of this resolution as well as those already held.

The Extraordinary Shareholder’s Meeting held on the

same date also approved the cancellation of 74,197,663

treasury shares with no nominal value with no


reduction in the share capital and the resulting

amendment of art. 5.1 of the Articles of Association.

The shares were cancelled on 17 April 2019 after the

amended Articles of Association were filed with the

Register of Companies.

As a result of this transaction, the share capital consists

of 3,394,840,916 shares with no nominal value for a

total value of Euro 2,736 million (as at 31 December

2018). As at the date of this report, Snam holds

94,000,000 shares in its portfolio.

The main events relating directly to the operating

segments are described in the “Business segment

operating performance” section of this Report.


Key figures

To improve the economic and financial review, in addition to convention al IAS/IFRS

indicators and financial statements, the interim directors’ report also contains

reclassified financial statements and several alternative performance indicators

(non-GAAP measures) such as EBITDA, EBIT and net financial debt.

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), it is specified that the main alternative performance

indicators used in this document are directly deducible from reclassifications or

algebraic sums of conventional indicators and compliant with international

accounting standards7.

Main income statement data

(€ million) 2018 2019 change % change

Total revenue 1,271 1,332 61 4.8

Total revenue net of pass- through items 1,242 1,303 61 4.9

Operating costs 207 221 14 6.8

Operating costs net of pass- through items 178 192 14 7.9

EBITDA 1,064 1,111 47 4.4

Operating profit (EBIT) 729 756 27 3.7

Net profit 523 581 58 11.1

- Held by Snam’s shareholders 523 581 58 11.1

- Minority interests

First half

Key balance sheet and cash flow figures


Technical investments 349 408 59 16.9

Net invested capital at period end 17,517 17,588 71 0.4

Shareholders' equity at end of period (including minority interests) 6,096 6,065 (31) (0.5)

Shareholders’ equity attributable to Snam at period end 6,096 6,062 (34) (0.6)

Net financial debt at period end 11,421 11,523 102 0.9

Free cash flow 1,037 794 (243) (23.4)

First half

7 According to the CESR/05-178b recommendation of October 2005, all the data included in the financial statements audited in accordance with IFRS or

in the balance sheet, the income statement, the statement of changes in shareholders’ equity and the statement of cash flows are conventional indicators or in the commentary notes. The tables below, their explanatory notes and the reclassified financial statements describe how these amounts were determined. For a definition of the terms used, unless otherwise specified, reference is made to the glossary available on Snam’s website (www.snam.it/it/utilita/glossario/ ).


Key share and income figures

2018 2019 change % change

Number of shares of share capital (million) 3,469.0 3,394.8 (74.2) (2.1)

Number of shares outstanding at year end (million) 3,366.4 3,300.8 (65.6) (1.9)

Average number of shares outstanding during the period (million) 3,385.3 3,300.8 (84.5) (2.5)

Period end official share price (€) 3.58 4.39 0.8 22.6

EBIT per share (*) (€) 0.215 0.229 0.014 6.5

Net profit per share held by Snam shareholders (*) (€) 0.154 0.176 0.022 14.3

First half

(*) Calculated considering the average number of shares outstanding during the period. Key operating figures

2018 2019 change % change

Natural gas transportation (a)

Natural gas injected into the National Gas Transportation Network (billions of

cubic metres) (b)37.93 39.81

1.88 5.0

Gas transportation network (kilometres in use) 32,609 32,640 31 0.1

Installed power in the compression stations (MW) 922 961 39 4.2

Liquefied Natural Gas (LNG) regasification (a)

LNG regasification (billions of cubic metres) 0.356 1.390 1.034

Natural gas storage (a)

Concessions 10 10

- of which operational (c) 9 9

Total available storage capacity (billions of cubic metres) (d) 12.4 12.5 0.1 0.8

Natural gas moved through the storage system (billions of cubic metres) (e) 12.71 11.76 (0.95) (7.5)

Employees in service at end of period (number) (f) 2,884 3,014 130 4.5

of which business segment:

- Transportation 1,914 1,894 (20) (1.0)

- Regasification 63 64 1 1.6

- Storage 60 63 3 5.0

- Corporate and other activities (g) 847 993 146 17.2

Employees and contract w orkers accident indices

Total number of injuries 3 3

Frequency index (h) 0.48 0.54 0.06 12.5

Severity index (i) 0.01 0.04 0.03

First half

(a) With regard to the first half of 2019, gas volumes are expressed in standard cubic metres (SCM) with an average

higher heating value (HHV) of 38.1 MJ/SCM (10.575 kWh/SCM) for transportation and regasification activities and

39.23 MJ/SCM (10.895 kWh/SCM) natural gas storage for the 2019- 2020 thermal year.

(b) The figure for the first half of 2019 are current as at 04 July 2019. The corresponding figure for 2018 has been

updated definitively and is consistent with that published by the Ministry of Economic Development.

(c) Working gas capacity for modulation services.

(d) Working gas capacity for modulation, mining and balancing services. The available capacity at 30 June 2019 is that

declared to the Electricity, Gas and Water Authority at the start of the 2018- 2019 thermal year, almost entirely

conferred as at 30 June 2019 (98.8%).

(e) The value for the first half 2018 has been definitively updated.

(f) Fully consolidated companies.

(g) The figures for the first half 2019 include the resources obtained from the acquisitions of IES Biogas (46 resources)

and the business unit Cubogas (64 resources).

(h) Frequency index: number of accidents at work resulting in absence of at least one day, per million hours worked.

(i) Severity index: number of working days lost (calendar days) due to accidents at work resulting in absence of at least

one day per thousand hours worked. These data have been calculated taking fatal accidents into consideration.


8

By circular letter of 08 January 2019, the Ministry of Economic Development confirmed for storage thermal year 2019-2020 (01 April 2019-31 March 2020), the strategic gas storage volume of 4.62 billions of standard cubic metres, of which 4.5 billions of cubic metres are the competence of Stogit.

Natural gas transportation

During the first half 2019, 39.81 billions of cubic metres of natural gas were

released to the National transportation grid, an increase of 1.88 billions of

cubic metres or 5.0% on the first half 2018 (37.93 billions of cubic metres),

mainly due to the rise in the demand for natural gas in Italy (40.51 billions of

cubic metres (+1.72 billions of cubic metres on the first half 2018; +4.4%),

together with the net balance of storage (+0.19 billions of cubic metres). The

trend in the demand for gas is mainly due to the greater consumption

recorded in the thermoelectric sector (+1.84 billions of cubic metres;

+16.9%), which benefits from the reduction in import flows of electricity, the

lesser production from renewable sources, hydroelectric in particular, and

the greater use of natural gas in electricity generation.

Adjusted for the weather effect, gas demand was estimated at 39.67 billions

of cubic metres, up by 1.49 billions of cubic metres (3.9%) compared with the

first half of 2018 (38.18 billions of cubic metres).

Natural gas storage

During the first half of 2019, 11.76 billions of cubic metres of natural gas was

moved through the storage system, a reduction of 0.95 billions of cubic

metres (7.5%) compared with the first half of 2018 (12.71 billions of cubic

metres). The reduction was mainly attributable to lower withdrawals from

storage (-0.56 billions of cubic metres; -8.4%), primarily due to weather

conditions, together with lesser injections (-0.39 billions of cubic metres; -

6.5%).

Total storage capacity at 30 June 2019, including strategic storage, was 17.0

billions of cubic metres (16.9 billions of cubic metres at 30 June 2018; +0.1

billions of cubic metres). Total capacity includes 12.5 billions of cubic metres

relative to available storage capacity, almost entirely conferred as at 30 June

2019 (98.8% of the available capacity for the thermal year 2019-2020) and

4.5 billions of cubic metres in capacity relative to strategic storage8

(unchanged on the thermal year 2018-2019).

Liquefied Natural Gas (LNG) regasification

During the first half 2019, 1.390 billions of cubic metres of LNG (0.356 billions

of cubic metres in the first half 2018; +1.034 billions of cubic metres) were

regasified and 33 methane tankers were unloaded (9 in the first half 2018),

also thanks to the new auction-based capacity allocation mechanisms.


Snam share performance The Snam share price ended the first half 2019 at an official price of Euro 4.39, up 15% from the Euro 3.82 recorded at

the end of 2018 (+22.6% on 30 June 2018).

The average value of shares during the first six months of the year was Euro 4.40, reaching the minimum of Euro 3.89 at

the start of January.

The share continued to benefit both from the Strategic Plan presented in November 2018, which offers greater visibility

on the growth prospects of all economic-financial indicators, and a clear, defined regulatory framework for the next 4

years. A lesser degree of uncertainty connected with the Italian political situation, with an average spread at 259 basis

points in the first half of the year, coupled with the announcement made by the ECB on possible cuts of rates, where the

European economy fails to show any signs of improvement, helped assure good performance by the share.

(1 January 2019 - 30 June 2019)

SNAM - Comparison of prices of Snam, FTSE MIB and STOXX Europe 600 Utilities


Business segments operating performance

Interim directors' report - Business segments operating performance 23

Natural gas transportation

(a) Before consolidation adjustments.

(b) At an actual basic pre- tax WACC respectively of 5.4% for 2018 and 5.7% for 2019.

(d) The figure for the first half of 2019 is current as at 04 July 2019. The figures for the first half of 2018 are definitively up to

date and consistent with those published by the Ministry of Economic Development.

Results

Total revenue amounted to Euro 1,094 million, up by

Euro 35 million, or 3.3%, compared with the first half of

2018 (Euro 1,059 million). Net of components offset in

costs9, total revenue amounted to Euro 1,025 million,

up by Euro 33 million, or 3.3%, compared with the

corresponding period of the previous year, mainly in

view of the higher regulated revenue.

Regulated revenue amounted to Euro 1,061 million,

and related mainly to fees for the natural gas

transportation service (Euro 1,051 million) and to

incentives paid to the Balancing Manager (RdB) (Euro 8

million). Regulated revenue, net of components that

are offset in costs, amounted to Euro 992 million, up by

Euro 40 million (or 4.2%) on the first half of 2018. With

reference to transportation revenues, the increase of

Euro 37 million, or 3.9%, with respect to the first half

2018, is mainly due to the tariff update mechanisms

(Euro +33 million), which refer in particular to the

increase in WACC, which goes from 5.4% in 2018 to

5.7% in 2019.

9

The main revenue items offset in costs relate to modulation and interconnection.

Non-regulated revenue (Euro 33 million) is down Euro 7

million on the first half 2018, primarily due to the lesser

charge-backs for technical services provided to other

group companies (Euro -8 million). The reduction is

matched by the lesser costs incurred for the supply of

the related services.

EBIT stood at Euro 607 million, up Euro 38 million, or

6.7%, compared with the first half 2018. The increase is

due to the higher regulated revenue (Euro +66 million),

partly offset by the greater amortisation mainly due to

the commissioning of new assets (Euro -16 million;

5.7%). The trend of the operating results was also

affected by the lesser operating costs (Euro +21 million

or 14.6%, net of components offset in revenues; Euro +

13 million net of the lesser costs for technical services

charged back to other group companies). The reduction

in operating costs is mainly due to the dynamics of the

provisions for risks and charges and to the recognition

by the Authority of certain charges for gas consumption

for the year 2018. In consideration of an increasing

trend in gas consumption, the company is currently

Key performance indicators


Total revenue (a) 1,059 1,094 35 3.3

- of which regulated revenue (a) 1,019 1,061 42 4.1

Total revenue net of pass- through items (a) 992 1,025 33 3.3

Operating costs (a) 211 192 (19) (9.0)

Operating costs net of pass- through items (a) 144 123 (21) (14.6)

EBIT 569 607 38 6.7

Investments 314 340 26 8.3

- of which with a greater return 132 105 (27) (20.5)

- of which with a basic return (b) 182 235 53 29.1

Natural gas injected into the national gas transportation network (billions of

cubic metres) (c) 37.93 39.81 1.88 5.0

Gas transportation network (kilometres in use) 32,609 32,640 31 0.1

- of which national network 9,705 9,613 (92) (0.9)

- of which regional network 22,904 23,027 123 0.5

Installed power in the compression stations (MW) 922 961 39 4.2

Employees in service at year end (number) 1,914 1,894 (20) (1.0)

First half


engaged in a constructive dialogue with the Authority

in order to identify solutions that make it possible to

reduce the variability of this size, as well as on possible

mechanisms for recognising incremental costs.

Technical investments

2018 2019

Type of investmentGreater

return (%) (*)€ million € million

Development 1.0% 132 105

Replacement and other 182 235

314 340

First half

(*) Compared with an actual basic pre- tax WACC respectively of 5.4% for 2018 and 5.7% for 2019.

Technical investments amounted to Euro 340 million in

the first half of 2019, up by Euro 26 million (+8.3%)

compared with the corresponding period of the

previous year (Euro 314 million). Investments have been

classified consistently with resolution 575/2017/R/gas

whereby the Autorità di Regolazione per Energia, Reti e

Ambiente (“ARERA” or the “Authority”) identified

different categories of projects with which a different

level of remuneration is associated.

The main investments made in developing new

transportation capacity, for which a greater

remuneration of 1% is envisaged (Euro 105 million),

concern:

investments in developing new transportation

capacity on the national network functional to

import and export capacity (Euro 60 million) as part

of the initiative to support the market in the

country’s north-east, and to allow for the reversal of

physical transportation flows at the interconnection

points with northern Europe in the area of the Po

Valley, projects to upgrade the transportation

network in southern Italy, including the

interconnection with the Trans Adriatic Pipeline;

investments in developing new transportation

capacity on the regional and national networks

(Euro 45 million), including: (i) the continuation of

works relating to the Cornegliano Laudense Italgas

Storage S.r.l. connection; (ii) the continuation of

construction works and connections relating to the

methanisation of the region of Calabria, including

the S. Andrea Apostolo methane pipeline of Ionio-

Caulonia and (iii) the Pietravairano - Pignataro

Maggiore connection.

Investments in replacement and other investments

with basic remuneration (Euro 235 million) mainly

concern: (i) works aimed at maintaining plant safety

levels, also in terms of function and quality (Euro 128

million), including, in particular, the adjustment of the

Istrana plant, the maintenance works in accordance

with Italian Presidential Decree no. 151, adjustments

and improvements to plants; (ii) the replacement of

methane pipelines (Euro 49 million); (iii) projects

relating to the development of information systems

and the implementation of existing ones (Euro 39

million); (iv) redelivery plant upgrading projects (Euro 5

million); and (v) real estate projects (Euro 3 million).


Operating review

Injections and withdrawals of gas in the transportation network

Gas volumes are expressed in standard cubic metres (Smc)

with a traditional higher heating value (HHV) of 38.1

Mj/Smc (10.575 Kwh/Smc). The basic figure is measured in

energy (MJ) and obtained by multiplying the physical cubic

metres actually measured by the relative heating value.

The volumes of gas injected to the network in the first

half 2019 totalled 39.81 billions of cubic metres, an

increase of 1.88 billions of cubic metres on the first half

2018 (5.0%) mainly due to the rise in the demand for

natural gas in Italy (40.51 billions of cubic metres (+1.72

billions of cubic metres on the first half 2018; +4.4%),

together with the net balance of storage (+0.19 billions

of cubic metres). The trend in the demand for gas is

mainly due to the greater consumption recorded in the

thermoelectric sector (+1.84 billions of cubic metres;

+16.9%), which benefits from the reduction in import

flows of electricity, the lesser production from

renewable sources, attributable to the reduction in

hydroelectric power, despite the growth of wind and

photovoltaic, and the greater use of natural gas in

electricity generation. These effects were partly offset

by consumption in the residential and tertiary sector (-

0.20 billions of cubic metres; -1.2%) following a warmer

climate in February and March 2019 as compared with

the same period of 2018, the latter which was instead

characterised by exceptionally cold weather (the

“Burian”).

Adjusted for the weather effect, gas demand was

estimated at 39.67 billions of cubic metres, up by 1.49

billions of cubic metres (3.9%) compared with the first

half 2018 (38.18 billions of cubic metres), also following

the greater use of energy efficiency enhancing

measures by the residential and tertiary sector.

Injections into the network from domestic production

fields or their collection and treatment centres totalled

2.35 billions of cubic metres, down by 0.26 billions of

cubic metres (-10.0%) compared with the first half of

2018.

Volumes of gas injected into the network for entry

points interconnected with foreign countries or with

LNG regasification terminals amounted to 37.46 billions

of cubic metres, up 2.14 billions of cubic metres or 6.1%

on the first half of 2018. The greater volumes injected

by the LNG regasification terminals (+3.22 billions of

cubic metres; +85.0%), also thanks to the new capacity

allocation mechanisms by auction, as well as the entry

points of Passo Gries (+1.43 billions of cubic metres;

+30.8%) and Gela (+1.04 billions of cubic metres;

+58.8%) were partly offset by the lesser volumes

injected by the entry point Mazara del Vallo (-3.65

billions of cubic metres; -39.3%).

Gas injected into the network (*)

(billions of m3) 2018 2019 change % change (**)Domestic output 2.61 2.35 (0.26) (10.0)

Entry points (***) 35.32 37.46 2.14 6.1

Tarvisio 15.80 15.92 0.12 0.8

GriesPass 4.65 6.08 1.43 30.8

Mazara del Vallo 9.29 5.64 (3.65) (39.3)

Cavarzere (LNG) 3.23 3.84 0.61 18.9

Gela 1.77 2.81 1.04 58.8

Livorno (LNG) 0.19 1.77 1.58

Panigaglia (LNG) 0.37 1.40 1.03

Gorizia 0.02 (0.02) (100.0)

37.93 39.81 1.88 5.0

First half

(*) The figure for the first half of 2019 is current as at 04 July 2019. The figures for the first half of 2018 are definitively up to

date and consistent with those published by the Ministry of Economic Development.

(**) (**)The percentage change is calculated with reference to the figures in cubic metres.

(***) Entry points connected with other countries or with LNG regasification plants.


Regulation

Settlement and balancing

Approval of the Snam Rete Gas S.p.A. proposal relative to the objectives of improvement and efficiency-enhancing subject to incentive, in accordance with point 5 of Authority Resolution 480/2018/R/gas

By resolution 57/2019/R/gas published on 22 February

2019, the Authority has approved the proposal for

additional objectives of improvement and efficiency

enhancing in settlement and balancing presented by

Snam Rete Gas, in accordance with Resolution

480/2018/R/gas, point 5, functional to the recognition

of the incentive of approximately Euro 2.5 million

envisaged by said same resolution. More specifically,

the objectives consist of the commitment to: (i) bring

forward the timing for completion of the verification of

new dynamic profiling mechanisms functional to the

launch of the settlement reform pursuant to Authority

Resolution 72/2018/R/gas; (ii) ensure greater

transparency of such methods by disclosing and sharing

with operators concerned; and (iii) launch a trial phase

in the period June-December 2019, to limit use of the

storage capacity by the Balancing Manager, functional

to the implementation of the reform outlined by the

Authority during previous consultations. The incentive

is split equally into the objectives proposed by Snam

Rete Gas and the related recognition will be modulated

according to the activities completed.

Tariff regulations

Tariff adjustment criteria for the natural gas transportation and metering service for the fifth regulatory period (2020-2023)

By resolution 114/2019/R/gas, published on 29 March

2019, the Authority defined the regulation criteria for

natural gas transportation tariffs for the fifth

regulatory period (01 January 2020-31 December

2023).

The valuation of the net capital invested (RAB) is based

on the revalued historical cost method. The Beta

parameter of the rate of remuneration of the net

invested capital (WACC) remains set at 0.364, thereby

keeping the WACC unchanged at a real, pre-tax 5.7%

for the years 2020-2021, in line with the regulation of

the TIWACC. Work in progress is included in the

calculation of the RAB, envisaging remuneration of a

real pre-tax 5.3%. The inclusion in RAB of investments

made in the year t-1 for the purpose of remuneration

and compensation of the regulatory time-lag, is also

confirmed.

Limited to investments included in the Development

Plan, which will come into operation in the years 2020-

2021-2022, with a costs/benefits ratio of more than 1.5,

an increase is applied in the WACC of +1.5% for 10

years.

The revenue component relating to the return and

amortisation and depreciation is updated on the basis

of an annual recalculation of net invested capital (RAB)

and additional revenue from the higher rate of return

for investments realised in prior regulatory periods.

Amortisation and depreciation are calculated based on

the useful economic and technical life of the

transportation infrastructure.

The operating costs recognised for 2020 are

determined on the basis of the effective recurring costs

of 2017, increased by the greater efficiencies achieved

in the current period (profit-sharing 50%), with the

possibility of including any recurring costs of 2018, if

suitably justified. Application is confirmed of the price-

cap method, in order to update operating costs,

envisaging an x-factor sized to return the greater

efficiencies realised in the fourth regulatory period,

back to users, in 4 years.

It is expected that the major transport company will

procure quantities of gas to cover its own consumption,

leaks and non-counted gas (CNG), under the scope of

the centralised market. The quantities of gas

recognised are noted at the weighted average price

average price of the product at term with delivery to

the PSV in the reference tariff year. The resolution

envisages recognition of the difference between the

price recognised for said volumes and the effective

price of procurement, deferring to a subsequent

provision for a detailed definition of the mechanism.

Recognition of costs relating to the Emissions Trading

System (ETS) is also envisaged.

With regard to tariff structure, the current

methodology for determining the capacity/commodity

split was confirmed, providing for capacity revenue to

cover capital costs (return and amortisation and

depreciation) and commodity revenue to cover

recognised operating costs. The current corrective

factor of revenues applied to the component capacity

(100% guaranteed) is confirmed, as well as the

component correlated to volumes transported (excess

±4%). With reference to the metering service, a

mechanism is introduced to cover revenues in a similar

fashion to that in place in the transportation service

(100% guaranteed).


The tariff structure based on the entry/exit model is

confirmed, including, in addition to the national

network, also the regional network in the reference

price methodology. The prices for entry and exit

capacity are determined using the capacity weighted

distance (CWD) method, with a splitting of revenues

between entry and exit points of 28/72. A variable price

is introduced, applied to volumes carried intended to

cover recognised operating costs, costs relating to the

Emission Trading system and costs for the procurement

of quantities to cover self-consumption, losses and

CNG. This price is applied to the exit points from the

transportation network and is sized annually according

to the volumes effectively withdrawn in the year t-2.

Finally, it is established that the definition will be

deferred of the regulation criteria regarding quality of

the natural gas transportation service for the fifth

regulatory period, promoting experimental innovative

uses of the transportation networks, as well as in

respect of the restructuring of the metering services, as

a result of specific consultation to be carried out in

2019.

Approval of approved revenues and determination of prices for the transportation and metering service of natural gas for the year 2020

By means of Resolution 201/2019/R/gas, published on

28 May 2019, the Authority approved the revenue

recognised and prices for the natural gas

transportation, dispatching and metering service for

2020. Revenue recognised for the natural gas storage

service for 2020 amounted to Euro 2,096 million. The

RAB used to calculate 2020 revenues for transport,

dispatching and measurement activities was Euro 16.4

billion, and included the investments estimated for

2019.

Regulation of previous corrective factors

By letter dated 26 June 2019, the Regulatory authority

notified Snam Rete Gas of the amount of corrective

factors relative to previous years, to be paid to CSEA by

31 July 2019, against the “Transportation expenses

account”, as established by Art. 4.3 of resolution

114/2019/R/gas of the same Authority.

The amount equal to Euro 180 million (Euro 154 million,

net of offset activities), determined on the basis of

certificates of revenues relative to 2018, sent to the

Authority in accordance with the same Art. 4 of

resolution 114/2019/R/gas, refers to the corrective

factors applicable to 2018, net of the price differences

and the residual corrective factors pertaining to

previous years (2016-2017). Snam Rete Gas organised

the payment for 30 July 2019.


Liquefied Natural Gas (LNG) regasification

Key performance indicators


Total revenue (*) 11 19 8 72.7

- of which regulated revenue (*) 11 15 4 36.4

Total revenue net of pass- through items (*) 9 13 4 44.4

Operating costs (*) 7 15 8

Operating costs net of pass- through items (*) 5 9 4 80.0

EBIT 2 2

Technical investments (**) 2 5 3

Volumes of LNG regasified (billions of cubic metres) (***) 0.356 1.390 1.034

Tanker loads (number) 9 33 24

Employees in service at period end (number) 63 64 1 1.6

First half

(*) Before consolidation adjustments.

(**) Investments remunerated at an actual basic pre- tax WACC respectively of 6.6% for 2018 and 6.8% for 2019.

(***) The regasified volumes are shown gross of self- consumption and losses (QCP component), equal to 1.7% for the Panigaglia

terminal. Gas volumes are expressed in standard cubic metres (Scm) with an average higher heating value (HHV) of 38.1

Mj/Scm (10.575 KWh/Scm).

Results

Total revenue amounted to Euro 19 million, an increase

of Euro 8 million, or 72.7%, compared with the first half

2018. Total revenue, net of components offset in

costs10, record a rise of Euro 4 million or 44.4% with

respect to the same period of the previous year, against

mainly greater revenues for gas sales on the balancing

platform.

Regulated revenue, amounting to Euro 9 million net of

components with a counter-item in costs (unchanged

on the first half 2018) mainly relates to the applicable

portion of the guarantee factor for the year 2018,

established in Article 18 of Annex A to Resolution

438/2013/R/gas11.

EBIT amounted to Euro 2 million, unchanged compared

with regard to the first half 2018. The greater revenue

(Euro +4 million) was offset by the greater operating

costs (Euro -4 million, net of components with a

counter-entry in revenue; 80%), mainly due to greater

withdrawal from the warehouse for gas sales made on

the balancing platform.

Investments

Technical investments in the first half totalled Euro 5

million (Euro 2 million in the first half 2018) and

concerned maintenance investments aimed at

guaranteeing plant system safety, with specific

reference to tank revamping interventions.

Operating review

During the first half 2019, at the LNG terminal of

Panigaglia (SP), 1.390 billions of cubic metres of LNG

were regasified (0.356 during the first half 2018) and 33

discharges from methane tanker loads, an increase on

the first half 2018 (9 discharges), also thanks to the new

auction-based capacity allocation mechanisms.

10

Revenue offset in costs regards the recharging to customers of expenses relating to natural gas transportation services provided by Snam Rete Gas S.p.A. (Euro 6 million and Euro 2 million, respectively in the first half 2019 and 2018). For the purposes of the consolidated financial statements, this revenue is eliminated, together with transportation costs, within GNL Italia S.p.A. in order to represent the substance of the operation.

11 The guarantee factors assure the regasification company coverage of a share of revenue determined according to a parameter applied to the reference revenue. By resolution 653/2017/R/gas of the Regulatory authority, this parameter was confirmed as 64% for the transition period 01 January 2018-31 December 2019.


Natural gas storage Key performance indicators

(€ million) 2018 2019 change % changeTotal revenue (a) 296 298 2 0.7

- of which regulated revenue (a) 295 297 2 0.7

Total revenue net of pass- through items (a) 252 252

Operating costs (a) 77 79 2 2.6

Operating costs net of pass- through items (a) 33 33

EBIT 169 169

Technical investments (b) 31 60 29 93.5

Concessions (number) 10 10

- of which operational (c) 9 9

Natural gas moved through the storage system(billions of cubic metres) (d) 12.71 11.76 (0.95) (7.5)

- of which injected 6.03 5.64 (0.39) (6.5)

- of which withdrawn 6.68 6.12 (0.56) (8.4)

Total storage capacity (billions of cubic metres) 16.9 17.0 0.1 0.6

- of which available (e) 12.4 12.5 0.1 0.8

- of which strategic 4.5 4.5

Employees in service at year end (number) 60 63 3 5.0

First half

(a) Before consolidation adjustments.

(b) Investments remunerated at the basic pre- tax WACC of 6.5% for 2018 and 6.7% for 2019.

(d) Working gas capacity for modulation services.

(d) The volumes of gas are expressed in Standard cubic metres (SCM) with an average higher heating value (HHV) equal

to 39.23 MJ/Scm (10.895 KWh/SCM) for the thermal year 2019- 2020 (39.29 MJ/SCM, 10.914 KWh/SCM, for the

thermal year 2018- 2019). The values for the first half 2018 have been definitively updated.

(e) Working gas capacity for modulation, mining and balancing services. The figure indicated represents the maximum

available capacity and may not be in line with the maximum filling.

Results

Total revenue came to Euro 298 million, slightly up on

the first half 2018 (Euro +2 million; 0.7%). Total

revenue, net of components offset in costs12,

amounted to Euro 252 million, showing no change on

the corresponding period of the previous year.

Regulated revenue (Euro 297 million), slightly up on the

first half 2018 (Euro +2 million; 0.7%), comprised fees

for the natural gas storage service (Euro 253 million)

and the fees charged back to users relating to the

natural gas transportation service provided by Snam

Rete Gas S.p.A. (Euro 43 million and Euro 40 million, in

the first half 2018)13. Regulated revenue, net of items

12

These components refer mainly to revenue from the chargeback to storage users of charges relating to the natural gas transportation service provided by Snam Rete Gas S.p.A., pursuant to Resolution 297/2012/R/gas of the Authority. For the purposes of the consolidated financial statements, this revenue is eliminated in relation to Stogit S.p.A., together with transportation costs, in order to represent the substance of the operation.

13 Resolution 64/2017/R/gas of 16 February 2017 established that almost all expenses relating to the natural gas transportation service, starting 01 April 2017, shall no longer be debited to storage service users, but rather settled directly by the CSEA.

14 By consultation document 288/2019/R/gas, published on 02 July 2019, on the criteria used to determine recognised revenue, tariffs and quality for the natural gas storage service for the fifth regulatory period, the Regulatory authority proposed the recognition of costs relating to the Emission Trading System (ETS), sanctioning the principle of the neutrality of the business with respect to the price risk and encouraging virtuous behaviour aimed at reducing CO2 emissions. For further information on the approaches proposed, see the “Regulation” paragraph below.

offset in costs, are unchanged on the first half 2018.

The higher revenue due to the increase in the WACC,

which goes from 6.5% in 2018 to 6.7% in 2019, was

absorbed by the tariff update mechanisms.

EBIT amounted to Euro 169 million, unchanged

compared with regard to the first half 2018, thanks to

the stability of revenue and the control of operating

costs (unchanged on the first half 2018, net of

components offset in revenue). The higher costs for

CO214 emission rights to be purchased, through

certificates, on the European market of quotas to cover

the demand for the first half 2019, were absorbed by

lesser costs for services.


Technical investments

First half (€ million) 2018 2019 change % change

Type of investment

Development of new fields and upgrading of capacity 8 28 20

Maintenance and other 23 32 9 39.1

31 60 29 93.5

Technical investments of the first half 2019 totalled

Euro 60 million, up Euro 29 million (+93.5%) on the first

half 2018 (Euro 31 million), mainly following a different

distribution of investment activities between the first

and second half of 2018, against a more linear approach

taken in 2019.

The main investments made in the development of new

fields and upgrading of capacity (Euro 28 million)

regarded constructions connected with the installation

and commissioning of the new TC7 compression unit of

Minerbio (Euro 10 million) and the continuation of

drilling of wells 158 and 159 of the Cortemaggiore

plant (Euro 16 million).

Maintenance and other investment (Euro 32 million)

mainly relate to: (i) engineering, the supply of materials

and works on the Cortemaggiore plant for the

installation of fire detection and automatic

depressurisation systems (Euro 7 million); (ii) IT projects

(Euro 4 million); (iii) real estate projects (Euro 2 million).

Operating review

Gas moved through the storage system

During the first half of 2019, 11.76 billions of cubic

metres of natural gas was moved through the storage

system, a reduction of 0.95 billions of cubic metres

(7.5%) compared with the first half of 2018 (12.71

billions of cubic metres). The reduction was mainly

attributable to lower withdrawals from storage (-0.56

billions of cubic metres; -8.4%), primarily due to

weather conditions, together with lesser injections (-

0.39 billions of cubic metres; -6.5%).

Total storage capacity at 30 June 2019, including

strategic storage, was 17.0 billions of cubic metres

(16.9 billions of cubic metres at 30 June 2018; +0.1

billions of cubic metres). Total capacity includes 12.5

billions of cubic metres relative to available storage

capacity, almost entirely transferred as at 30 June 2019

(98.8%15 of the available capacity for the thermal year

2019-2020), up 0.1 billions of cubic metres on 30 June

2018, thanks to the gradual increase in working gas

associated with the commissioning of the Bordolano

plant. Total capacity also includes 4.5 billions of cubic

metres relative to strategic storage (unchanged on

thermal year 2018-2019).

15 As at the date of this Report, the available capacity transferred stood at 99.4%.

Regulation

Resolution 67/2019/R/gas - Regulation of access to storage services and their supply. Capacity allocation arrangements for the storage service for the 2019/2020 thermal year

With said resolution, published on 27 February 2019,

the Authority rationalised and integrated into a

Consolidated Act (RAST) the provisions on the access to

and supply of Storage Services. With specific reference

to the method by which regulated prices are

determined, the RAST establishes the sterilisation of

the effects deriving from the conferral of capacity with

market mechanisms at prices below tariff and incentive

criteria to maximise the offer of storage services. In

particular, the resolution calls for compensation

through the Energy and Environmental Services Fund

(CSEA) of the price difference between the storage

tariff and the auction assignment price applied to the

transferred capacity, as well as the compensation of

costs for the acquisition of transportation capacity

incurred by storage companies.


Consultation no. 288/2019/R/gas - Criteria for the tariff regulation for the natural gas storage service for the fifth regulatory period (5PRS)

By this document, published on 02 July 2019, which

comes under the scope of the consultation proceedings

started by resolution no. 68/2018/R/gas of 08 February

2018, the Authority explained the approaches taken in

forming provisions on tariffs and quality of natural gas

storage services for the fifth regulatory period (starting

2020).

More specifically, the Authority proposes:

the extension of the duration of the regulatory

period from 4 to 5/6 years;

confirmation of the value of the β asset parameter

(0.506) in order to determine the rate of

remuneration (WACC);

confirmation of the revalued historic cost method

to determine the RAB and the use of the gross fixed

investments deflater recorded by ISTAT for value

adjustment;

confirmation of the recognition of flat net working

capital and the current value of 0.8%;

confirmation of the calculation of the RAB with the

exclusion of work in progress (LIC) and

acknowledgement of financing costs (IPCO);

confirmation of the useful lives of assets of the

current regulatory period, together with the

introduction of a new class of asset for tangible

fixed assets with a useful life of 5 years;

determination of operating costs recognised on the

basis of the recurring effective costs of the last year

available (2018), increased by the greater

efficiencies achieved in the current period (profit

sharing 50%), with the efficiency factor (X-factor),

sized so as to return to users in the fifth regulatory

period the greater efficiencies achieved in the

fourth period;

confirmation of the mechanism for covering

reference revenue, also establishing that the

storage companies shall ask, if they so wish, to

access an enhanced incentive system where there is

a remodulation of the share of revenue recognised

subject to cover factor;

confirmation of recognition of the restoration costs;

recognition of costs relating to the Emission Trading

System (ETS), sanctioning the principle of neutrality

of the business with respect to the price risk and

encouraging virtuous behaviour aimed at reducing

CO2 emissions.

The submission of observations is envisaged by 05

August 2019.

Resolution 297/2019/R/gas - Definitive resolution of company storage service revenue for 2019

With this resolution, published on 10 July 2019, the

Authority approved the revenue definitively recognised

for the storage service for 2019. The recognised

revenues amounted to Euro 499 million. The RAB for

storage activities was Euro 4.0 billion.


Financial review and other information

Interim directors' report – Financial review and other information 33

Financial review

INCOME STATEMENT

First half (€ million) 2018 2019 change % change

Regulated revenues 1,241 1,281 40 3.2

Non-regulated revenue 30 51 21 70.0

Total revenue 1,271 1,332 61 4.8

- Total revenue net of pass-through items 1,242 1,303 61 4.9

Operating costs (207) (221) (14) 6.8

- Operating costs net of pass-through items (178) (192) (14) 7.9

EBITDA 1,064 1,111 47 4.4

Amortisation, depreciation and impairment (335) (355) (20) 6.0

EBIT 729 756 27 3.7

Net financial expenses (98) (85) 13 (13.3)

Net income from equity investments 85 118 33 38.8

Profit before taxes 716 789 73 10.2

Income taxes (193) (208) (15) 7.8

Net profit 523 581 58 11.1

- Held by Snam’s shareholders 523 581 58 11.1


Net profit in the first half of 2019 amounted to Euro 581 million, an increase

of Euro 58 million or 11.1% compared with the net profit achieved in the first

half of 2018 (Euro 523 million). The increase is mainly due to the rise in EBIT

(Euro +27 million; +3.7%), mainly due to the positive performance of the

transportation segment (Euro +38 million; +6.7%) and the improvement of

financial management and shareholders (Euro +46 million), which

respectively reflects the optimisation of the financial structure and the

positive contribution made by the companies Teréga and Senfluga. These

factors were partly absorbed by greater income taxes (Euro -15 million;

7.8%), due mainly to the rise in pre-tax profit.


Analysis of income statement items

The companies acquired in 2018, which are responsible for assets linked to the

Energy transition, are included in the segment “Corporate and other assets”. 16

Total revenue


Regulated revenues 1,241 1,281 40 3.2

Business segments

Transportation 1,019 1,061 42 4.1

Regasification 11 15 4 36.4

Storage 295 297 2 0.7

Corporate and other activities

Consolidation eliminations (84) (92) (8) 9.5

Non-regulated revenue 30 51 21 70.0

1,271 1,332 61 4.8

First half

16 In compliance with IFRS 8 “Operating segments”, the operating business segments were defined on the basis of the internal reporting used by the

Company’s management for allocating resources to the different segments and for analysing the respective performances. To this end, it is noted that the “Corporate and other activities” segment, not operating under the terms of IFRS 8, includes the new companies acquired in 2018, which head activities relating to the energy transition. An analysis of EBIT by business segment is provided in the “Business segment operating performance” section.

Total revenues for the first half of 2019 amounted to Euro 1,332 million, up

Euro 61 million or 4.8% over the first half of 2018. Net of items offset by

costs, total revenues for the first half of 2019 amounted to Euro 1,303

million, up Euro 61 million or 4.9%.

Regulated revenue (Euro 1,281 million, net of consolidation eliminations)

rose by Euro 40 million in respect to the first half 2018 (+3.2%). Regulated

revenue, net of components offset in costs, totalled Euro 1,252 million, up

Euro 40 million or 3.3% thanks to the contribution made by the

transportation segment, which benefits, in particular, from the increase in

WACC, from 5.4% in 2018 to 5.7% in 2019.

Non-regulated revenue (Euro 51 million, net of consolidation eliminations)

rose by Euro 21 million in respect to the first half 2018 (+70.0%) thanks to the

contribution made by the companies that joined the consolidation scope.

Non-regulated revenue mainly regards: (i) technical-specialised provisions to

foreign companies and energy efficiency projects (Euro 22 million); (ii) prices

for the development of biogas and biomethane plants and for the sale of

compressors for vehicles - CNG (Euro 13 million).


Operating costs


Business segments

Transportation 211 192 (19) (9.0)

Regasification 7 15 8

Storage 77 79 2 2.6

Corporate and other activities 108 146 38 35.2

Consolidation eliminations (196) (211) (15) 7.7

207 221 14 6.8

First half

Operating costs - Regulated and non-regulated activities


Costs of regulated activities 175 161 (14) (8.0)

Controllable fixed costs 129 124 (5) (3.9)

Variable costs 3 8 5

Other costs 14 (14) (100.0)

Cost items offset in revenue (*) 29 29

Costs of non-regulated activities 32 60 28 87.5

207 221 14 6.8

First half

(*) The main cost items offset in revenue relate to interconnection. Regulated business operating costs

The operating costs for regulated activities total Euro

161 million, a Euro 14 million reduction, equal to 8.0%

in respect to the first half 2018. Net of components

offset in revenues, operating costs from regulated

activities came to Euro 132 million, down by Euro 14

million, or 9.6%, compared with the first half of 2018

(Euro 146 million).

The change is due to the reduction in other costs (-

Euro14 million) mainly relating to lower costs for gas

used in transport activities, also following recognition

by the Authority of certain charges for gas consumption

for 2018, and to the effects of the efficiency plan

actions implemented. These factors were partly

absorbed by the costs resulting from the new activities

and business initiatives.

Non-regulated business operating costs

Operating costs of non-regulated activities (Euro 60

million) rose by Euro 28 million, or 87.5% compared to

the same period of 2018.

The increase is mainly due to the costs arising from the

entry and integration of companies entering the

consolidation area, and mainly relating to the

construction of biomethane plants and automotive

turbochargers, partly offset by lower costs for services

provided to the Italgas Group, against the closure of

the related contracts at December 31, 2018.

Net of the items offset in revenue, operating costs total

Euro 192 million, up Euro 14 million on the equivalent

value of the first half 2018 (Euro 178 million; +7.9%).


The number of employees as at 30 June 2019 (3,014 people) is analysed below by professional status:

2018 2019 change % changeProfessional status

Executives 95 103 8 8.4

Managers 461 489 28 6.1

Office workers 1,618 1,691 73 4.5

Manual workers 710 731 21 3.0

2,884 3,014 130 4.5

First half

The increase of 130 units on the first half 2018 is mainly due to the resources obtained from the acquisitions of IES

Biogas (46 resources) and the business unit Cubogas (64 resources).

Amortisation, depreciation and impairment losses


Total amortisation and depreciation 335 355 20 6.0

Business segments

Transportation 279 295 16 5.7

Regasification 2 2

Storage 50 50

Corporate and other activities 4 8 4 100.0

Impairment losses (Recovery of value)

335 355 20 6.0

First half

Amortisation, depreciation and impairment losses (Euro 355 million) rose by

Euro 20 million or 6.0% on the first half 2018, mainly due to the natural gas

transportation segment, following, essentially, the commissioning of new

assets and the new businesses that joined the consolidation scope.

EBIT


Business segments

Transportation 569 607 38 6.7

Regasification 2 2

Storage 169 169

Corporate and other activities (11) (22) (11) 100.0

729 756 27 3.7

First half


Net financial expenses


Financial expense related to net financial debt 102 81 (21) (20.6)

- Interest and other expense on short- and long- term financial debt 103 85 (18) (17.5)

- Bank interest income (1) (4) (3)

Other net financial expense (income) 2 8 6

- Accretion discount 5 4

- Other net financial expense (income) (3) 4 7

Losses on derivatives – ineffective portion 1 1

Financial expense capitalised (6) (5) 1 (16.7)

98 85 (13) (13.3)

First half

Net financial expense (Euro 85 million) record a Euro 13 million reduction,

equal to 13.3%, in respect to the first half 2018. The reduction is essentially

due to lower financial expense correlated to the net financial debt (Euro -21

million; -20.6%) principally connected to the lower average cost of the debt,

also thanks to benefits deriving from optimisation interventions put into

effect, in particular liability management operations and the positive market

conditions.

The financial expense capitalised in the fiscal year 2018 total Euro 5 million,

basically in line with the previous half-year (Euro -1 million).

Income from equity investments


Equity method valuation effect 83 116 33 39.8

Dividends 2 2

85 118 33 38.8

First half

The net income from equity investments (Euro 118 million) concern the net

results for the period of investments valued using the equity method (Euro

116 million), in particular the joint ventures TAG (Euro 39 million; same in the

first half 2018)), Teréga (Euro 29 million; Euro +14 million) and the associates

Italgas (Euro 23 million; Euro +3 million) and Senfluga (Euro 15 million).

The rise of Euro 33 million on the first half 2018 is mainly due to the

contribution made by the company Teréga, following the release of a

provision for tax disputes, and Senfluga, a company that on 20 December

2018 acquired control of DESFA - natural gas transportation system operator

in Greece, with an investment of 66% in the share capital.


Income taxes


Current taxes 207 223 16 7.7

(Prepaid) deferred taxes

Deferred taxes (8) (30) (22)

Prepaid taxes (6) 15 21

(14) (15)

193 208 15 7.8

Tax rate (%) 27.0 26.3 (0.7)

First half

Income tax for the first half 2019 (Euro 208 million) rose by Euro 15 million or

7.8% on the same period of the previous year, mainly due to the greater pre-

tax profit and the lesser ACE - Aid to Economic Growth benefit17.

The tax rate was 26.3% (27.0% in the first half 2018).

17

This measure, introduced by Decree Law no. 201 of 06 December 2011, converted by Italian Law no. 214 of 22 December 2011 as subsequently amended and supplemented, was abrogated by the 2019 Budget Law, starting from the tax period after that in progress as at 31 December 2018.


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.

Management uses the reclassified balance sheet to calculate the key

profitability ratios (ROI and ROE).

RECLASSIFIED STATEMENT OF FINANCIAL POSITION (*)

(€ million) 31.12.2018 30.06.2019 Change

Fixed capital 18,856 19,062 206

Property, plant and equipment 16,153 16,300 147

- of which rights of use of leased assets 21 21

Compulsory inventories 363 363

Intangible assets 907 912 5

Equity investments 1,750 1,783 33

Long- term financial receivables 11 1 (10)

Net payables for investments (328) (297) 31

Net w orking capital (1,259) (1,414) (155)

Provisions for employee benefits (64) (60) 4

NET INVESTED CAPITAL 17,533 17,588 55

Shareholders' equity 5,985 6,065 80

- Held by Snam’s shareholders 5,985 6,062 77

- Minority interests 3 3

Net financial debt 11,548 11,523 (25)

- of which financial payables for leased assets 21 21

COVERAGE 17,533 17,588 55

(*) 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 (Euro 19,062 million) rose by Euro 206 million on 31 December

2018, mainly due to the increase in property, plant and equipment (Euro 147

million), including following the recording of assets representing the right-of-

use of leased assets, in application of the new standard IFRS 16 “Leasing”, in

force from 01 January 2019 (Euro 21 million), and the equity investments

(Euro +33 million) against the profits booked in the first half 2019, partly

absorbed by the dividends collected applicable to FY 2018. The increase in

equity investments was also impacted by the February 2019 conversion into

equity of the residual portion of the shareholders’ loan to TAP (Euro 10

million). The increase in the equity investment in TAP is therefore matched by

the related reduction in long-term financial receivables.


The change in property, plant and equipment and in intangible fixed assets

can be broken down as follows:

Property, plant Assets

(€ million) and equipment assets

Balance at 31 December 2018 16,153 907 17,060

Technical investments 371 37 408

Amortisation, depreciation and impairment losses (323) (32) (355)

Transfers, write- offs and divestments (3) (3)

Other changes 102 102

Balance at 30 June 2019 16,300 912 17,212

Total

Technical investments in the first half of 2019, totalling Euro 408 million18

(Euro 349 million in the first half of 2018), related mainly to the

transportation (Euro 340 million) and storage (Euro 60 million) business

segments.

Other changes (+Euro 102 million) relate essentially to: (i) the effects deriving

from the adjustment of the current value of outlays for the decommissioning

and restoration of sites (Euro +85 million) following a reduction in the

expected discounting rate; (ii) the recording of assets representing the rights

of use of leased goods in accordance with accounting standard IFRS 16 (Euro

+24 million); and (iii) contributions on works for interference with third

parties (Euro -10 million).

18

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

Equity investments

The item equity investments (1,783 million) includes: (i) the valuation of

equity investments using the net equity method and referred to Trans

Austria Gasleitung GmbH - TAG (Euro 519 million), Teréga Holding S.A.S. (Euro

488 million), Trans Adriatic Pipeline AG – TAP (Euro 252 million), Italgas S.p.A.

(Euro 177 million), Senfluga Energy Infrastructure Holdings (Euro 130

million), AS Gasinfrastruktur Beteiligung GmbH (Euro 120 million) and

Interconnector UK (Euro 59 million); (ii) measurement of the minority interest

in the company Terminale GNL Adriatico S.r.l. (Adriatic LNG) (Euro 38 million).


Net working capital

(€ million) 31.12.2018 30.06.2019 Change

Trade receivables 1,247 947 (300)

- of which balancing 223 128 (95)

Inventories 109 97 (12)

Other assets 105 61 (44)

Tax receivables 26 29 3

Provisions for risks and charges (665) (761) (96)

Trade payables (491) (338) 153

- of which balancing (230) (125) 105

Assets and liabilities from regulated activities (362) (121) 241

Liabilities for deferred taxes (134) (107) 27

Tax liabilities (23) (75) (52)

Derivative liabilities/(assets) (29) (62) (33)

Other liabilities (1,042) (1,084) (42)

(1,259) (1,414) (155)

Net working capital (Euro -1,414 million) reduced by Euro 155 million in

respect to 31 December 2018. The reduction is mainly due to the following

phenomena: (i) lesser credits in the natural gas transportation segment for

additional tariff components invoiced to users (-175 million) against the

suspension of the CVOs price19, application of which is suspended for the

months running from April to September; (ii) the greater liability towards

CSEA for additional tariff components relative to the transportation service

(Euro -120 million) reabsorbed during the year and greater amounts invoiced

during the first half 2019 with respect to the restriction specified by the

Regulatory authority (Euro -22 million); (iii) the increase in the provisions for

risks and charges (Euro -96 million) mainly due to the adjustment of the

current value of decommissioning and site restoration costs following a

reduction in the forecast discounting rates; and (iv) the increase in tax

liabilities (Euro -52 million), mainly as a result of the trend of tax deposits paid

in respect of the period tax burden.

These factors were partly offset by the reduction of the amount payable to

Snam shareholders against the payment made on 23 January 2019 of the

2018 interim dividend of Euro 0.0905 per share (Euro +298 million) and the

lesser net liabilities for gas settlement of the transportation segment (Euro

+23 million), introduced by the Regulatory authority with resolutions

670/2017/R/gas and 782/2017/R/gas against the gradual redistribution to

the system of the items collected20.

19 The variable unitary price CVOS expressed in euro/SCM is an increase of the variable price aimed at covering the costs deriving from the application of

the revenue guarantee factor for the storage service, pursuant to Art. 10 bis of Resolution no. 29/2011 and expenses incurred by the Energy Service Provider for the disbursement of measures pursuant to Articles 9 and 10 of Italian Legislative Decree no. 130/10.

20 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 transport company.


Statement of comprehensive income

(€ million) 2018 2019

Net profit (*) 523 581

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) (10) (52)

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

comprehensive income” (**) (22)

Tax effect 2 12

(8) (62)

Total other components of comprehensive income, net of tax effect (8) (62)

Total comprehensive income 515 519

- Held by Snam’s shareholders 515 519


515 519

First half

(*) Entirely held by Snam shareholders

(**) The figure relating to the first half 2019 mainly refers to the change in the fair value of derivative financial instruments

hedging equity investments in associates.

Shareholders' equity(€ million)

Shareholders’ equity at 31 December 2018 (*) 5,985

Increases owing to:

- Comprehensive income for first half 2019 519

- Other changes 9

528

Decreases owing to:

- 2018 dividend balance (448)

(448)

Shareholders’ equity at 30 June 2019 6,065

- Held by Snam’s shareholders 6,062

- Minority interests 3

(*) Entirely held by Snam shareholders

Note 18 "Shareholders’ Equity" of the Notes to the condensed interim

consolidated financial statements gives information about the individual

equity items and changes therein compared with 31 December 2018.

As at 30 June 2019, Snam held 94,000,000 treasury shares (168,197,663 as at

31 December 2018), equal to 2.77% of its share capital, with a total book

value of Euro 349 million. The market value of the treasury shares at 30 June

2019 was around Euro 413 million21. For further information about treasury

shares, please refer to the next section entitled “Other information - Treasury

shares”.

21 Calculated by multiplying the number of treasury shares by the period-end official price of Euro 4.3884 per share.


Net financial debt(€ million) 31.12.2018 30.06.2019 Change

Financial and bond debt 13,420 14,020 600

Short- term financial debt (*) 3,633 4,200 567

Long- term financial payables 9,787 9,799 12

Financial payables for leased assets (**) 21 21

Financial receivables and cash and cash equivalents (1,872) (2,497) (625)

Cash and cash equivalents (1,872) (2,497) (625)

11,548 11,523 (25)

(*) Includes the short- term portion of long- term financial payables.

(**) Of which Euro 15 million long- term and Euro 6 million short- term portions of long- term financial payables.

The positive net cash flow from operating activities (Euro 1,221 million)

allowed us to fully cover the financial requirements associated with net

investments for the period (Euro 427 million) and to generate a free cash

flow of Euro 794 million. Net financial debt, after equity cash flow (Euro 743

million) deriving essentially from the payment to the shareholders of the

2018 dividend (Euro 746 million, of which Euro 298 million by way of deposit

and Euro 448 million as balance) records a reduction of Euro 25 million on 31

December 2018, despite the increase generated by non-monetary

components related to financial indebtedness (Euro 26 million), mainly

referring to financial payables recorded in application of IFRS 16 “Leasing”.

Financial and bond debts at 30 June 2019 equal to Euro 14,020 million (Euro

13,420 million at 31 December 2018) comprise the following:

Total at Total at

(€ million) 31.12.2018 30.06.2019 Change

Bonds 8,446 8,435 (11)

- of which short-term (*) 913 1,028 115

Bank loans 4,749 4,133 (616)

- of which short-term (*) 2,495 3,172 677

Euro Commercial Paper - ECP (**) 225 1,431 1,206

Financial payables for leased assets 21 21

13,420 14,020 600

(*) Includes the short- term portion of long- term financial payables.

(**) Entirely short- term.

Financial and bond debts are denominated in euros and refer mainly to bond

loans (Euro 8,435 million, or 60.2%) and bank loans (Euro 4,133 million, or

29.5%, including Euro 1,589 million provided by the European Investment

Bank- EIB) and Euro Commercial Papers (Euro 1,431 million, 10.2%)22.

Bonds (Euro 8,435 million) declined by Euro 11 million compared with 31

December 2018, specifically: (i) the reimbursement of a fixed-rate bond

maturing on 18 January 2019 of a nominal value of Euro 519 million; (ii) the

reimbursement of a fixed-rate bond maturing on 24 April 2019 worth a

nominal Euro 225 million; and (iii) the trend of interest accruals (Euro -19

million). These changes were offset by the issue of: (i) the Climate Action

Bond, worth a nominal Euro 500 million, at fixed rate and maturing on 28

22

At the date of this Report, the Euro Commercial Paper programme had been used for the entire amount of 2 billion euro.


August 2025; (ii) a Private Placement worth a nominal Euro 250 million, at

fixed rate and maturing on 07 January 2030.

Bank loans (Euro 4,133 million) decreased by Euro 616 million mainly

following the reimbursement of a Term Loan for a nominal value of Euro 500

million, and a lesser net use of uncommitted lines of credit (Euro -258 million).

This effect was partially offset by the stipulation with the EIB of: (i) a loan on

28 January 2019 for projects promoted by Snam Rete Gas and Stogit, worth a

nominal Euro 135 million, at fixed rate and to be repaid through an

amortisation plan ending in 2038; (ii) a loan, on 6 June 2019, in support of

investments promoted by the subsidiary Snam4Mobility, for the development

of CNG and l-CNG refuelling stations for a nominal Euro 25 million, at fixed

rate, to be repaid through an amortisation plan ending in 2031.

The Euro Commercial Papers (Euro 1,431 million) regard unsecured short-

term securities issued on the money market and placed with institutional

investors; they rise by Euro 1,206 million.

Cash and cash equivalents (Euro 2,497 million) refer mainly to a short-term

use of liquid funds, maturing within three months, with the counterparty

being a bank of high credit standing (Euro 750 million), an on-call bank deposit

(Euro 1,700 million) and cash held at the company Gasrule Insurance DAC

(Euro 22 million) and Snam International B.V. (Euro 16 million).

At 30 June 2019, Snam had unused committed long-term lines of credit worth

Euro 3.2 billion.

Information on financial covenants can be found in Note 13 “Short-term

financial liabilities, long-term financial liabilities and short-term portions of

long-term liabilities” of the Notes to the condensed interim consolidated

financial statements.


Reclassified statement of cash flows

The reclassified statement of cash flows below summarises the legally required financial reporting format. The

reclassified statement of cash flows shows the connection between opening and closing cash and cash equivalents and

the change in net financial debt during the period. The two statements are reconciled through the free cash flow, i.e. the

cash surplus or deficit left over after servicing capital expenditure. The free cash flow closes either: (i) with the change in

cash for the period, after adding/deducting all cash flows related to financial liabilities/assets (taking out/repaying

financial receivables/payables) and equity (payment of dividends/capital injections); or (ii) with the change in net financial

debt for the period, after adding/deducting the debt flows related to equity (payment of dividends/capital injections).

RECLASSIFIED STATEMENT OF CASH FLOWS (*)

(€ million) 2018 2019

Net profit 523 581

Adjusted for:

- Amortisation, depreciation and other non-monetary components 254 237

- Net capital losses (capital gains) on asset sales and write-offs 5 3

- Dividends, interest and income taxes 277 279

Change in working capital due to operating activities 443 285

Dividends, interest and income taxes collected (paid) (a) 23 (164)

Net cash flow from operating activities 1,525 1,221

Technical investments (340) (402)

Technical disinvestments 2

Companies (entering) leaving the area of consolidation (13)

Equity investments 13 6

Change in long-term financial receivables (106)

Other changes relating to investment activities (44) (31)

Free cash flow 1,037 794

Change in short-term financial receivables 350 577

Repayment of financial payables for leased assets (3)

Change in short- and long-term financial payables 151

Equity cash flow (b) (914) (743)

Net cash flow for the period 624 625

First half


CHANGE IN NET FINANCIAL DEBT

(€ million) 2018 2019


Effect of first- time adoption of IFRS 9 10

Financial payables and receivables from companies entering the area of consolidation (1)

Exchange rate differences on financial debt (3) (2)

Change in financial payables for leased assets (24)

Equity cash flow (b) (914) (743)

Change in net financial debt 129 25

First half

(*) 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.

(a) Cash flow relative to the first half of 2018 considers different timing for the payment of the 2017 balance and first

deposit for 2018 on income tax (IRES and IRAP) liquidated on 02 July 2018 for a total amount of approximately Euro 142

million.

(b) Includes cash flow and payment to shareholders of the dividend.


Reconciliation of the reclassified financial statements with the compulsory formats

Reclassified statement of financial position(€ million)

Item of reclassified statement of financial position(Where not expressly stated, the component is taken directly from the legally required format)

Reference to notes to

consolidated financial

statements

Partial amount from legally

required format

Amount from reclassified

format

Partial amount from

legally required format


format

Fixed capital

Property, plant and equipment 16,153 16,300


Intangible fixed assets 907 912

Equity investments comprising: 1,750 1,783

- Equity investments measured using the equity method 1,710 1,745

- Other equity investments 40 38

Long-term financial receivables (Note 5) 11 1

Net payables for investments, consisting of: (328) (297)

- Payables for investment activities (Note 14) (337) (304)

- Receivables from investment/divestment activities (Note 5) 9 7

Total fixed capital 18,856 19,062

Net working capital

Trade receivables (Note 5) 1,247 947

Inventories 109 97

Tax receivables, consisting of: 26 29

- Current income tax assets and other current tax assets 17 20

- IRES receivables for national tax consolidation scheme (Note 5) 9 9

Trade payables (Note 14) (491) (338)

Tax payables, consisting of: (23) (75)

- Current income tax liabilities and other current tax liabilities (23) (75)

Deferred tax liabilities (134) (107)

Provisions for risks and charges (665) (761)

Derivative hedging instruments (Notes 8 and 15) (29) (62)

Other assets, consisting of: 105 61

- Other receivables (Note 5) 72 27

- Other current and non-current assets (Note 8) 33 34

Assets and liabilities from regulated activities, consisting of: (362) (121)

- Regulated assets (Note 8) 26 10

- Regulated liabilities (Note 15) (388) (131)

Other liabilities, consisting of: (1,042) (1,084)

- Other payables (Note 14) (940) (980)

- Other current and non-current liabilities (Note 15) (102) (104)

Total net working capital (1,259) (1,414)Provisions for employee benefits (64) (60)NET INVESTED CAPITAL 17,533 17,588

31.12.2018 30.06.2019


(€ million)

Items of the reclassified statement of financial position

(Where not expressly stated, the component is taken directly from

the legally required format)

Reference to

notes to

consolidated

financial

statements

Partial

amount from

legally

required

format

Amount from

reclassified

format

Partial

amount from

legally

required

format

Amount from

reclassified

format

NET INVESTED CAPITAL 17,533 17,588

Shareholders’ equity (entirely held by Snam’s shareholders) 5,985 6,062

Minority interests 3

Net financial debt

Financial liabilities, consisting of: 13,420 14,020

- Long- term financial liabilities 9,787 9,814

- Short- term portion of long- term financial liabilities 1,657 1,281

- Short- term financial liabilities 1,976 2,925

Financial receivables and cash and cash equivalents, consisting of: (1,872) (2,497)

- Short- term financial receivables

- Cash and cash equivalents (Note 4) (1,872) (2,497)

Total net financial debt 11,548 11,523

COVERAGE 17,533 17,588

31.12.2018 30.06.2019


Reclassified statement of cash flows

(€ million)

Items from the reclassified statement of cash flows and reconciliation with the legally required format


required format


format


required format


format

Net profit 523 581

Adjusted for:

Amortisation, depreciation and other non-monetary components: 254 237

- Amortisation and depreciation 335 355

- Equity method valuation effect (83) (116)

- Change in provisions for employee benefits 2 (4)

- Other changes 2

Net capital losses (capital gains) on asset sales and write-offs 5 3

Dividend, interest and income taxes: 277 279

- Dividends (2) (2)

- Interest income (6) (4)

- Interest expense 92 77

- Income taxes 193 208

Change in working capital due to operating activities: 443 285

- Inventories (2) 14

- Trade receivables 289 300

- Trade payables 189 (153)

- Change in provisions for risks and charges 8

- Other assets and liabilities (33) 116

Dividends, interest and income taxes collected (paid): 23 (164)

- Dividends collected 114 71

- Interest collected 1 4

- Interest paid (92) (72)

- Income taxes (paid) received (167)


Investments: (340) (402)

Property, plant and equipment (312) (365)

- Intangible fixed assets (28) (37)

Technical disinvestments: 2 0

Property, plant and equipment 2

Companies (entering) leaving the area of consolidation (13) 0

- Companies entering the scope of consolidation (18)

- Change in net payables relating to investments 5

Equity investments 13 6

- Investments in shares (13) (5)

- Disinvestments in shares 18 11

- Change in net payables relating to investments 8

Long-term financial receivables (106) 0

- Stipulation of long-term financial receivables (106)

Other changes relating to investment activities: (44) (31)

- Change in net payables relating to technical investments (44) (31)


First half

20192018


(€ million)

Items from the reclassified statement of cash flows and

reconciliation w ith the legally required format

Partial amount

from legally

required format

Amount from

reclassified format

Partial

amount from

legally

Amount from

reclassified

format


Change in short- term financial receivables 350

Change in financial payables: 151 574

- Taking on long- term financial debt 431 968

- Repaying long- term financial debt (973) (1,340)

- Increase (decrease) in short- term financial debt 693 949

- Repayment of financial payables for leased assets (3)

Equity cash flow (914) (743)

- Dividends paid (731) (746)

- Acquisition of treasury shares (183)

- Capital contributions by minority interests 3


First half

2018 2019

Other information Relationships with related parties

Considering the de facto control of CDP S.p.A. over

Snam S.p.A., pursuant to the international accounting

standard IFRS 10 - Consolidated Financial Statements,

based on the current Group ownership structure the

related parties of Snam are represented by Snam's

associates and joint ventures as well as by the parent

company CDP S.p.A. and its subsidiaries, associates and

companies under joint control (whether directly or

indirectly) by the Ministry of Economy and Finance.

Members of the Board of Directors, Statutory Auditors

and managers with strategic responsibilities, and their

relatives, are also regarded as related parties of Snam

Group and CDP. Snam's related-party transactions are

part of ordinary business operations and are generally

settled under market conditions, i.e. the conditions that

would be applied between two independent parties.

The main operations with these parties involve the

exchange of goods and the provision of regulated

services in the gas sector. All the transactions carried

out were in the interest of the companies of the Snam

Group.

Pursuant to the provisions of the relevant legislation,

the company has adopted internal procedures to

ensure that transactions carried out by Snam or its

subsidiaries with related parties are transparent and

correct in their substance and procedure.

Directors and auditors declare their interests affecting

the Company and the Group every six months, and/or

when changes in said interests occur; they also inform

the Chief Executive Officer (or the Chairman, in the

case of the Chief Executive Officer), who in turns

informs the other directors and the Board of Statutory

Auditors, of individual transactions that the Company

intends to carry out and in which they have an interest.

No management or coordination activity of CDP S.p.A.

has been formalised or exercised. Snam manages and

coordinates its subsidiaries, pursuant to Article 2497 et

seq. of the Italian Civil Code.

The amounts involved in commercial, miscellaneous and

financial relations with related parties, descriptions of

the key transactions and the impact of these on the

balance sheet, economic results and cash flows, are

provided in Note 28 “Related-party transactions” of the

Notes to the condensed interim consolidated financial

statements.


Treasury shares

Per

iod

No

of

shar

es

Ave

rag

e co

st (

€)(*

)

To

tal

cost

(€

mil

lio

ns)

Shar

e ca

pit

al (

%)

(**)

Repurchases

Year 2005 800,000 4.399 3 0.04

Year 2006 121,731,297 3.738 455 6.22

Year 2007 73,006,653 4.607 336 3.73

Year 2016 28,777,930 3.583 103 0.82

Year 2017 56,010,436 3.748 210 1.60

Year 2018 113,881,762 3.743 426 3.28

394,208,078 3.889 1,533

Less treasury shares granted/sold/cancelled:

. granted under the 2005 stock grant plans (39,100)

. sold under the 2005 stock option plans (69,000)

. sold under the 2006 stock option plans (1,872,050)



cancelled in 2012 following the resolution by the Extraordinary Shareholders’ Meeting of Snam S.p.A. (189,549,700)

. cancelled in first half 2018 following the resolution by the Extraordinary Shareholders’ Meeting of Snam S.p.A. (31,599,715)

. cancelled in first half 2019 following the resolution by the Extraordinary Shareholders’ Meeting of Snam S.p.A. (74,197,663)

Treasury shares held by the Company at 30 June 2019 94,000,000

The Snam Shareholders' Meeting of 02 April 2019 approved, after revoking said programme resolved previously, the

new 18-month share buyback programme to run from the date of the meeting resolution23. Under the scope of the

share buyback programme, during the first half 2019, no treasury shares were acquired.

The same Shareholder’s Meeting held on 02 April 2019 also approved the cancellation of 74,197,663 treasury shares

with no nominal value with no reduction in the share capital, and the resulting amendment of art. 5.1 of the Articles of

Association.

As at 30 June 2019, Snam therefore held 94,000,000 treasury shares, equal to 2.77% of the share capital (168,197,663 as

at 31 December 2018, equal to 4.85% of its share capital), with a book value of Euro 350 million (Euro 625 million as at

31 December 2018) recorded on shareholders’ equity. The market value of the treasury shares at 30 June 2019 was

around Euro 413 million24. The share capital as at 30 June 2019 consisted of 3,394,840,916 shares with no nominal value, with a total value of Euro

2,736 million.

23 For further information, refer to the chapter “Summary data and information - Main events" of this Report. 24 Calculated by multiplying the number of treasury shares by the period-end official price of Euro 4.3884 per share.

(*) Calculated on the basis of historic prices.

(**) Refers to the share capital in existence at the date of the last purchase of the


Elements of risk and uncertainty

Interim directors' report - Elements of risk and uncertainty 53

Introduction This chapter presents the main elements of uncertainty characterising Snam’s core business.

The risks identified by Snam are divided up into financial and non-financial risks. The latter are then further classified as

follows:

strategic

legal and non-compliance

operating

Financial risks are described in Note 19, “Guarantees, commitments and risks – financial risk management”, of the Notes

to the condensed interim consolidated financial statements.

STRATEGIC RISKS

Regulatory and legislative risk

Regulatory risk and legislative risk for Snam is closely

linked to the regulation of activities in the gas sector.

The decisions made by the Autorità di Regolazione per

Energia Reti e Ambiente (ARERA) and National

Regulatory Authority in the countries in which the

foreign affiliates operate, the directives and regulatory

provisions issued on the matter by the European Union

and the Italian Government and, more generally, a

change to the reference regulatory framework, may

significant impact the Company’s operations, economic

results and financial balance. It is not possible to

foresee the effect that future changes in legislative and

fiscal policies could have on Snam's business and on the

industrial sector in which it operates. Considering the

specific nature of its business and the context in which

Snam operates, changes to the regulatory context with

regard to criteria for determining reference tariffs are

particularly significant.

Macroeconomic and geo-political risk

Because of the specific nature of the business in which

Snam operates, there are also risks associated with

political, social and economic instability in natural gas

supplier countries, mainly related to the gas

transportation segment. A large part of the natural gas

transported in the Italian national transport network is

imported from or passes through countries included in

the MENA area (Middle East and North Africa, in

particular Algeria, Tunisia, Libya and, in TANAP-TAP

perspective, Turkey together with States bordering the

Eastern Mediterranean) and in the former Soviet bloc

(Russian Federation, Ukraine, and in the future,

Azerbaijan and Georgia), national situations which are

subject to political, social and economic instability and

which could constitute potential future crisis scenarios.

In particular, the importation and transit of natural gas

from/through these countries are subject to a wide

range of risks, including: terrorism and common crime,

alteration of the political-institutional balance; armed

conflicts, socio-economic and ethno-sectarian tensions;

unrest and disturbances; deficient legislation on

insolvency and protection of creditors; limits on

investment and on the import and export of goods and

services; introduction of and increases in taxes and

excise duties; forced imposition of contract

renegotiations; nationalisation of assets; changes in

trade policies and monetary restrictions.

If a Shipper using the transportation service via Snam’s

networks cannot procure or transport natural gas

from/through the aforementioned countries because

of said adverse conditions, or in any way suffers from

said adverse conditions, or to an extent so as to make it

impossible or discourage the fulfilment of contractual

obligations towards Snam, this could have negative

effects on the Snam Group’s operations, results,

balance sheet and cash flow.

Commodity risk associated with changes in the price of gas

With reference to the risk associated with changes in

the price of natural gas, however, pursuant to the

regulatory framework currently in force, changes in the

price of natural gas to cover self-consumption and

network leakages do not represent a significant risk

factor for Snam, since all gas for its core activities is

provided by Shippers in kind. Similar hedges of risks are

guaranteed by the regulations of countries where the

foreign affiliates operate or by the related

transportation contracts. However, in relation to

transportation activities, the Authority has defined,

starting with the third regulatory period (2010-2013),

procedures for payment in kind, by service users to the

leading transportation company, of quantities of gas to


cover unaccounted-for gas (GNC), due as a percentage

of the quantities respectively injected into and

withdrawn from the transportation network.

Specifically, the Authority, by means of Resolution

514/2013/R/gas, defined the permitted level of the

GNC given the average value registered over the last

two years, and decided to keep this amount fixed for

the entire regulatory period in order to provide

incentive to the main transport system operator to

deliver further efficiency improvements. For the

relevant regulatory period, amounts of GNC higher

than the permitted level would not be compensated.

This criterion also was subsequently confirmed for the

years 2018 and 2019 of the transition tariff period.

As part of the process of reviewing the criteria for

determining the revenues recognised for the natural

gas transportation and metering service for the fifth

regulatory period (2020-2023), criteria will also be

defined for the recognition of GNC, by resolution no.

114/2019/R/gas25. On the basis of these criteria,

starting 2020, acknowledgement of the quantities of

gas required for self-consumption, network losses and

GNC will take place in monetary terms in lieu of the

recognition in kind by shippers. However, the change in

natural gas prices will continue not to be a significant

risk factor for Snam, as a mechanism will be envisaged

to hedge the risk associated with the differences

between the price recognised for the volumes of gas

required for self-consumption, network losses and GNC

and the effective price of procurement. With reference

to the quantities recognised, resolution

114/2019/R/gas confirmed the current criterion relative

to gas for self-consumption and losses, whilst for GNC,

the level admitted will be updated once a year and will

equal the average of the quantities effectively recorded

in the last four years available.

In view of the aforementioned mechanism for the

payment of GNC, at the moment, there is still

uncertainty about the quantities of GNC withdrawn

over and above the quantities recognised.

In this regard, it should be noted that, as part of the

dialogue established with ARERA, in 2019 ARERA

acknowledged the higher costs incurred in 2018.In

general, the change in the regulatory framework on the

recognition of quantities of natural gas to cover self-

consumption, network losses and GNC could have

negative effects on the Snam Group’s operations,

results, balance sheet and cash flow.

25 These criteria are explained in the chapter “Business segment operating performance - “Natural gas transportation” of this Report. 26

These criteria are explained in the chapter “Business segment operating performance - “Natural gas storage” of this Report.

Market risk

With reference to the risk associated with demand for

gas, based on the tariff system currently applied by the

Authority to natural gas transportation activities,

Snam’s revenue, via the directly controlled transport

companies, is partly correlated to volumes transported.

ARERA, however, introduced a guarantee mechanism

with respect to the share of revenues related to the

volumes transported. This mechanism provides for the

reconciliation of major or minor revenues, exceeding ±

4% of the reference revenues related to the volumes

transported. Under this mechanism, approximately

99.5% of total revenues from transportation activities

are guaranteed. This mechanism has also been

confirmed for the fifth regulatory period, by resolution

114/2019/R/gas.

Based on the tariff system currently applied by the

Authority to natural gas storage activities, Snam’s

revenue, via Stogit, correlates to infrastructure usage.

However, the Authority has introduced a mechanism to

guarantee reference revenue that allows companies to

cover a significant portion of revenues recorded. For

2018 and 2019, the minimum guaranteed level of

revenues recorded was approximately 97%. ARERA is

reviewing an integration of such mechanisms which, for

subsequent years, will result in reliance on the

guaranteed minimum level of revenue, as well as the

storage company’s efficiency in terms of managing

capacity allocation procedures and service provision

procedures, following a procedure launched by ARERA.

More specifically, by consultation document no.

288/2019/R/gas relative to the review of criteria used

to determine the recognised revenue, tariffs and

quality for the natural gas storage service for the fifth

regulatory period26 (starting 2020), the ARERA has

proposed confirming the mechanism of coverage of

reference revenue and its possible remodulation

according to the strengthening of the incentive system.

The resolution to approve the new regulatory criteria is

expected for the last quarter of 2019.

In general, the change to the regulatory framework in

force could have negative effects on the Snam Group’s

operations, results, balance sheet and cash flow.

Abroad, market risk protection is afforded by French

and Greek regulation, long-term Tap contracts and

Austria (different scheduling for TAG and Gas Connect

as from 2023). In Austria and the United Kingdom (in


relation to Interconnector UK), the regulation does not

guarantee cover of the volume risk.

Risk of climate change

Compliance with greenhouse gas regulations in the

future may require Snam to adjust its facilities, and to

control or limit its greenhouse gas emissions or

undertake other actions that could increase the costs of

complying with applicable law, and therefore have

negative effects on the Snam Group’s operations,

results, balance sheet and cash flow.

The risks associated with the emissions market fall

within the scope of the European Union Directives on

the sale of permits relating to carbon dioxide emissions

and the rules on controlling emissions of certain

atmospheric pollutants. With the start of the third

period of the European Emissions Trading System (EU -

ETS) and of regulation (2013-2020), the updating of the

sector regulations has had as its main objective the

authorisations for emitting greenhouse gases and a

constant reduction of the quotas on emissions released

free of charge. The allowances will be assigned to each

plant on a gradually decreasing basis, and will no longer

be constant, and will also depend on the actual

functionality of the plants. The allowances assigned

free of charge to Group plants no longer suffice to

comply with the regulatory conformity obligations

relative to ETS mechanisms, hence Snam will procure

the additional allowances required on the market. The

additional evolution in progress of European

regulations may result in the identification of new

methods by which to manage the necessary allowances.

By resolution 114/209/R/gas of 28 March 2019, the

ARERA defined the regulatory criteria for the fifth

regulatory period (2020-23) of the natural gas

transportation and metering service. In particular, this

resolution envisages the recognition of costs relating to

the Emissions Trading System (ETS). Additionally, by

consultation document no. 288/2019/R/gas relative to

the review of criteria used to determine the recognised

revenue, tariffs and quality for the natural gas storage

service for the fifth regulatory period (starting 2020),

the ARERA has proposed recognising the costs relative

to the Emission Trading System (ETS) for the storage

service too. The resolution to approve the new

regulatory criteria is expected for the last quarter of

2019.

Climate change scenarios could lead to a change in

population behaviour and could have an impact on

natural gas demand and transport volumes, just as they

could affect the development of alternative uses of gas

and the promotion of new business.

Climate change could also increase the severity of

extreme weather events (floods, droughts, extreme

temperature fluctuations) causing worsening of the

natural and hydrogeological conditions of the territory

with a possible impact both on the quality and

continuity of the service provided by Snam, and on the

demand for Italian and European gas. With reference to

the effects of the change in the gas demand on the

balance sheet, income statement and financial position

of the Snam Group, see the previous paragraph "Market

risk".

In relation to the new global climate agreements

(COP21 in Paris 2015, COP22 in Marrakesh in 2017),

aimed at encouraging the transition towards a more

sustainable economy that favours zero emission energy

sources, it may envisage regulatory and legislative risk

related to the possible implementation of increasingly

stringent regulations at European and national level.

Matters connected with climate change may also

heighten the awareness of public opinion and the

various stakeholders, altering the perception of Snam

with possible impacts on Group results and investor

behaviour.

LEGAL AND NON-COMPLIANCE RISK

Legal and non-compliance risk concerns the failure to

comply, in full or in part, with the European, national,

regional and local rules and regulations with which

Snam must comply in relation to the activities it carries

out. The violation of the rules and regulations may

result in criminal, civil, tax and/or administrative

sanctions, as well as damage to Snam’s balance sheet,

financial position and/or reputation. With reference to

specific cases, inter alia, violation of the regulations

protecting the health and safety of workers and the

environment, and violation of the rules established for

the fight against corruption, may also lead to sanctions,

even substantial, against the company based on the

administrative liability of the entities (Legislative

Decree no. 231 of 08 June 2001). With regard to the

Risk of Fraud and Corruption, Snam believes it is of vital

importance to ensure a climate of fairness and

transparency in corporate operations and repudiates

corruption in all its forms in the widest context of its

commitment to abiding by ethical principles. Snam's

top management is strongly committed to pursuing an

anti-corruption policy, trying to identify possible areas


of vulnerability and eliminating them, strengthening its

controls and constantly working to increase employees'

awareness of how to identify and prevent corruption in

various business situations.

Reputational verification and acceptance and

stipulation of the Integrity Ethical Pact are the pillars of

the system of controls aimed at preventing the risks

associated with illegal behaviour and criminal

infiltrations concerning our suppliers and

subcontractors, with the aim of ensuring transparent

relations and professional morality requirements in the

whole chain of enterprises and for the whole duration

of the relationship.

Snam has been working since 2014 in partnership with

Transparency International Italia and joined the

Business Integrity Forum (BIF) and, in 2016, became the

first Italian company to join the "Global Corporate

Supporter Partnership".

As part of this collaboration, in October 2018, Snam

renewed its partnership with Transparency

International, the Secretary General of Berlin, during

the eighteenth International Anti-Corruption

Conference of Transparency International held in

Copenhagen. On this occasion, Snam took part in a

restricted round table that saw, for the first time, the

participation of 4 private companies too, including

Snam as the only Italian representative.

In 2018, in collaboration with Transparency

International Italy and the OECD, Snam also took part in

a series of events on transparency International and

integrity as well as best practices in good governance

and the prevention of corruption on a global level, such

as the 27th Session of the Commission on Crime

Prevention and Criminal Justice of the United Nations”,

organised by MAECI at the United Nations office of

Vienna and the seminars organised by the OECD in St

Petersburg and Moscow, intervening in matters of

integrity and the fight against corruption.

Additionally, following the 2018 International Anti-

Corruption Day held in Farnesina, Snam was asked by

the Ministry of Foreign Affairs and International

Cooperation to take part in the assessment and review

of the first draft of the G20 High-Level Principles, on

the prevention of corruption and promotion of

integrity in public companies or SOEs, draft circulated

27 The Stogit concessions issued before the coming into force of Italian Legislative Decree no. 164/2000 can be extended by the Ministry of Economic

Development up to twice for a term of ten years each time, in accordance with Art. 1, paragraph 61 of Italian Law no. 239/2004. Pursuant to Article 34, paragraph 18 of Italian Decree Law no. 179/2012, converted by Italian Law no. 221/2012, the duration of the only Stogit concession issued after the coming into force of Italian Legislative Decree no. 164/2000 (Bordolano) is thirty years with the possibility of an extension for another ten years.

by the Argentinian presidency and which should be

finalised in 2019, during Japan’s term.

Finally, thanks to the commitment shown on the matter

of “Ethics and Anti-corruption”, Snam has recently also

been mentioned in the document prepared by the

Japanese Presidency of the B20 and presented during

the “Tokyo Summit” as a “Tangible Example” of a

company that, with concrete action, has stood out in

the fight against corruption.

OPERATING RISKS

Ownership of storage concessions

The risk linked to maintenance of the ownership of the

storage concessions is attributable by Snam to the

business in which the subsidiary Stogit operates on the

basis of concessions issued by the Ministry of Economic

Development. Eight of the ten concessions (Alfonsine,

Brugherio, Cortemaggiore, Minerbio, Ripalta,

Sabbioncello, Sergnano and Settala) expired on 31

December 2016 and can be renewed no more than

twice for a duration of ten years each time. With regard

to these concessions, Stogit submitted – within the

statutory terms -– the extension request to the Ministry

of Economic Development and the proceedings are

currently pending before the Ministry. Pending said

proceedings the Company’s activities, as provided for

by the reference regulations, will continue until the

completion of the authorisation procedures in progress

envisaged by the original authorisation, which will be

extended automatically on expiry until said completion.

One concession (Fiume Treste) will expire in June 2022

and has already been renewed for the first ten-year

extension period in 2011, and another concession

(Bordolano) will expire in November 2031 and can be

extended for a further ten years27.

If Snam is unable to retain ownership of one or more of

its concessions or if, at the time of the renewal, the

concessions are awarded under terms less favourable

than the current ones, there may be negative effects on

the Company’s operations, results, balance sheet and

cash flow.

Malfunction and unexpected service interruption

Operating risks consist mainly of the malfunctioning

and unforeseen interruption of the service determined

by accidental events, including accidents, breakdowns


or malfunctions of equipment or control systems,

reduced output of plants, and extraordinary events

such as explosions, fires, earthquakes, landslides or

other similar events outside of Snam’s control. Such

events could result in a reduction in revenue and could

also cause significant damage to people, with potential

compensation obligations. Although Snam has taken

out specific insurance policies to cover some of these

risks, the related insurance cover could be insufficient

to meet all the losses incurred, compensation

obligations or cost increases.

Delays in the progress of infrastructure implementation programs

There is also the concrete possibility that Snam could

incur delays in the progress of infrastructure

construction programmes as a result of several

unknowns linked to operating, economic, regulatory,

authorisation and competition factors, regardless of its

intentions. Snam is therefore unable to guarantee that

the projects to upgrade and extend its network will be

started, be completed or lead to the expected benefits

in terms of tariffs. Additionally, the development

projects may require greater investments or longer

time frames than those originally planned, affecting

Snam’s financial position and economic results.

Investment projects may be stopped or delayed due to

difficulties in obtaining environmental and/or

administrative authorisations or to opposition from

political forces or other organisations, or may be

influenced by changes in the price of equipment,

materials and workforce, by changes in the political or

regulatory framework during construction, or by the

inability to obtain financing at an acceptable interest

rate. Such delays could have negative effects on the

Snam Group’s operations, results, balance sheet and

cash flow. In addition, changes in the prices of goods,

equipment, materials and workforce could have an

impact on Snam’s financial results.

Environmental risks

Snam and the sites in which it operates are subject to

laws and regulations relating to pollution,

environmental protection, and the use and disposal of

hazardous substances and waste. These laws and

regulations expose Snam to potential costs and

liabilities related to the operation and its assets. The

costs of possible environmental remediation

obligations are subject to uncertainty regarding the

extent of contamination, appropriate corrective actions

and shared responsibility and are therefore difficult to

estimate.

Snam cannot predict if and how environmental

regulations and laws may over time become more

binding and cannot provide assurance that future costs

to ensure compliance with environmental legislation

will not increase or that these costs can be recovered

within the mechanisms tariffs or the applicable

regulation. Substantial increases in costs related to

environmental compliance and other aspects related to

it and the costs of possible sanctions could negatively

impact the business, operating results and financial and

reputational aspects.

Employees and staff in key roles

Snam's ability to operate its business effectively

depends on the skills and performance of its personnel.

Loss of "key" personnel or inability to attract, train or

retain qualified personnel (in particular for technical

positions where the availability of appropriately

qualified personnel may be limited), or situations in

which the ability to implement long-term business

strategy is negatively influenced due to significant

disputes with employees, could have an adverse effect

on the business, financial conditions and operating

results.

Risk linked to foreign holdings

The foreign investee companies owned by Snam may

be subject to regulatory/legislative risk, under

conditions of social and economic political instability, to

a market risk, cyber security, credit and financial risk

and other risks typical of the business of the

transportation and storage of natural gas highlighted

for Snam, such as to adversely affect their activities,

economic results and the equity and financial situation.

This can have negative impacts for Snam on the

contribution towards the profits generated by such

investments.

Risks connected with future acquisitions/equity investments

Each investment made as part of joint ventures and

each future investment in Italian or foreign companies

may entail an increase in the complexity of Snam Group

operations and there can be no guarantee that such

investments will correctly integrate in terms of quality

standards, policies and procedures, consistently with

the rest of Snam’s operations. The integration process

can be costly and require additional investment. Failure

to integrate the investment made can have a negative


impact on business, operating results and financial

aspects.

Cyber security

Snam carries out its activities through a complex

technological architecture relying on an integrated

model of processes and solutions capable of promoting

the efficient management of the entire country's gas

system. The development of the business and recourse

to innovative solutions capable of continuous

improvement, however, requires increasing attention

to be focused on aspects of cybersecurity. For this

reason, Snam has developed its own cybersecurity

strategy based on a framework defined in agreement

with standard principles on the subject and focusing

constant attention on Italian and European regulatory

developments, especially as far as the world of critical

infrastructures and essential services is concerned. First

and foremost, this strategy involves adapting one's own

processes to the provisions of standards ISO/IEC 27001

(Information Security Management Systems) and

ISO22301 (Business Continuity Management Systems)

and the formal certification of conformity to the listed

standards. Alongside this and in accordance with

technological developments, solutions aimed at

protecting the Company from cyber threats and

malware are assessed and, where deemed appropriate,

implemented.

More specifically, Snam has defined a model of

cybersecurity incident management aimed at

preventing and, when necessary, ensuring timely

remediation in the event of events that could damage

the confidentiality and integrity of the information

processed and the IT systems used. At the base of the

activity is a Security Incident Response Team which,

using technologies that allow collecting and correlating

all the security events recorded on the entire perimeter

of the company's IT infrastructure, has the task of

monitoring all the anomalous situations from which

negative impacts may result for the company and to

activate, where necessary, escalation plans suitable to

guarantee the involvement of the various operating

structures.

With reference to the management of information in

support of the business processes, it is considered

appropriate to stress that the company owns the asset

(fibre) used for the transportation of data to and from

the territory; this results in intrinsically greater security

thanks to the lack of dependency on the service

provided by third parties and the possibility of making

exclusive use of the communication channel. Lastly, as

part of cyber incident management (preventive and

reactive), information-sharing with national and

European institutions and peers is used in order to

improve the capacity and speed of response following

various possible negative events. A great deal of

attention is also paid to increasing awareness and

specialist training of personnel, in order to facilitate the

identification of weak signals and raising consciousness

about risks of a cyber nature that could occur during

the course of normal work activities.


Outlook


Outlook

At end 2019, the Italian gas market will be

characterised by a demand that is expected to

be basically stable on 2018 values, adjusted for

temperature. 2019 investments are expected to

be around Euro 1.0 billion, with a confirmed

focus on replacements and maintenance, so as

to continue to guarantee maximum resilience,

flexibility and efficiency of the existing

infrastructures. Moreover, more than one

quarter of the investments will regard

development initiatives, including the north-

west connections, the local service and cross-

border flows and the strengthening of the

network in the south.

Snam will continue to focus on operating

efficiency in 2019, through initiatives that will

enable it to keep the level of controllable costs

more or less stable in real terms, on a constant-

size basis. As regards the financial structure, the

optimisation carried out in the last three years

has led to a significant reduction in the average

cost of debt. The Company’s management will

continue to guarantee an appealing, sustainable

remuneration of its shareholders, whilst

maintaining a balanced financial structure.

Condensed interim consolidated financial statements


Table of Contents

63 FINANCIAL STATEMENTS

68 NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

111 MANAGEMENT CERTIFICATION

112 INDEPENDENT AUDITORS’ REPORT

Condensed interim consolidated financial statements - Financial statements 63

Financial statements

Statement of financial position

(€ million) Notes Total

of which with related parties Total

of which with related parties

ASSETS

Current assets

Cash and cash equivalents (4) 1,872 2,497

Trade receivables and other receivables (5) 1,347 420 990 332

Inventories (6) 109 97

Current income tax assets (7) 10 11

Other current tax assets (7) 7 9

Other current assets (8) 27 26

3,372 3,630

Non-current Assets

Property, plant and equipment (9) 16,153 16,300


Intangible assets (10) 907 912Investments valued using the equity method (11) 1,710 1,745

Other investments (12) 40 38

Other receivables (5) 1 1

Other non-current assets (8) 36 1 24 1

19,210 19,383

TOTAL ASSETS 22,582 23,013

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Short-term financial liabilities (13) 1,976 2,925

Short-term portion of long-term financial liabilities (13) 1,657 1,281

Trade payables and other payables (14) 1,768 274 1,622 70

Current income tax liabilities (7) 14 69

Other current tax liabilities (7) 9 6

Other current liabilities (15) 86 27 69 25

5,510 5,972

Non-current liabilities

Long-term financial liabilities (13) 9,787 9,814 1

Provisions for risks and charges (16) 665 761

Provisions for employee benefits 64 60

Liabilities for deferred taxes (17) 134 107

Other non-current liabilities (15) 437 234

11,087 10,976

TOTAL LIABILITIES 16,597 16,948

SHAREHOLDERS’ EQUITY (18)

Share capital 2,736 2,736

Reserves 3,212 3,095

Net profit 960 581

Negative reserve for treasury shares held in the portfolio (625) (350)

Interim dividend (298)

SNAM Shareholders' equity 5,985 6,062


TOTAL SHAREHOLDERS’ EQUITY 5,985 6,065

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 22,582 23,013

31.12.2018 30.06.2019


Income Statement

(€ million) Notes Total

of which with

related parties Total

of which with

related parties

REVENUE (20)

Core business revenue 1,258 836 1,318 856

Other revenue and income 13 14

1,271 1,332

OPERATING COSTS (21)

Purchases, services and other costs (130) (12) (135) (13)

Personnel cost (77) (86)

(207) (221)

AMORTISATION, DEPRECIATION AND IMPAIRMENT (22) (335) (355)

EBIT 729 756

FINANCIAL INCOME (EXPENSES) (23)

Financial expense (104) (89)

Financial income 6 4 5

Derivative financial instruments (1)

(98) (85)

INCOME FROM EQUITY INVESTMENTS (24)

Equity method valuation effect 83 116

Other income (expense) from equity investments 2 2

85 118

PRE-TAX PROFIT 716 789

Income taxes (25) (193) (208)

NET PROFIT 523 581

- Held by Snam’s shareholders


Earnings per share held by Snam shareholders (€ per

share) (26)

- basic 0.154 0.176

- diluted 0.151 0.172

First half 2018 First half 2019

Statement of comprehensive income

(€ million) 2018 2019

Net profit 523 581

Other components of comprehensive income


Change in fair value of cash flow hedging derivatives (effective portion) (10) (52)

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

of comprehensive income” (22)

Tax effect 2 12

(8) (62)

Total other components of comprehensive income, net of tax effect (8) (62)

Total comprehensive income 515 519

- Held by Snam’s shareholders 515 519


515 519

First half

Condensed interim consolidated financial statements - Financial statements 65

Statement of changes in shareholders’ equity

(€ million) Shar

e ca

pita

l

Neg

ativ

e re

serv

e fo

r tr

easu

ry s

hare

s he

ld in

the

port

folio

Shar

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m r

eser

ve

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l res

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for

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f CF

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ativ

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ncia

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net

of

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ct

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bene

fit

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t of

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eff

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Fair

val

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gh o

ther

com

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ve

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me

(FV

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)

Cons

olid

atio

n re

serv

e

Oth

er r

eser

ves

Reta

ined

ear

ning

s

Net

pro

fit

Inte

rim

div

iden

d

Tota

l

Min

orit

y in

tere

sts

Tota

l sha

reho

lder

s’ e

quit

y

Balance at 31 December 2017 2,736 (318) 1,140 547 (8) (8) (674) 58 2,112 897 (294) 6,188 6,188

Effect of first- time adoption of IFRS 9 8 8 8

Balance at 01 January 2018 2,736 (318) 1,140 547 (8) (8) (674) 58 2,120 897 (294) 6,196 6,196

Net profit for first half 2018 523 523 523

Other components of comprehensive income:


- Change in fair value of cash flow hedge derivatives (8) (8) (8)

Total comprehensive income for first half 2018 (8) 523 515 515

- Interim dividend for 2017 (€0.0862 per share) (294) 294

- Balance of 2017 dividend (€ 0.1293 per share as the balance of the 2017 interim dividend

of € 0.0862 per share) The dividend (interim and final) totals € 0.2155 per share. (437) (437) (437)

- Allocation of 2017 residual net profit 166 (166)

- 2017- 2019 share- based incentive plan 1 1 1

Acquisition of treasury shares (183) (183) (183)

Total transactions w ith shareholders (183) 1 166 (897) 294 (619) (619)

Other changes in shareholders' equity:

- Cancellation of treasury shares 119 (119)

- Other changes 4 4 4

Total other changes in shareholders' equity 119 (119) 4 4 4

Balance at 30 June 2018 2,736 (382) 1,021 547 (16) (8) (674) 63 2,286 523 6,096 6,096

Net profit for second half 2018 437 437 437



Portion of investments pertaining to “other components of comprehensive income” valued

using the net equity method (1) (1) (1)


Components that cannot be reclassified to the income statement:

- Change in fair value of equity investments measured at fair value with effect on OCI 1 1 1

Total comprehensive net income for second half 2017 (12) 1 (1) (12) (12)

Transactions w ith shareholders

- 2017- 2019 share- based incentive plan 2 2 2

Acquisition of treasury shares (243) (243) (243)

- Interim dividend for 2018 (€ 0.0905 per share) (298) (298) (298)

Total transactions w ith shareholders (243) 2 (298) (539) (539)

Other changes in shareholders' equity


Total other changes in shareholders' equity 3 3 3

Balance at 31 December 2018 2,736 (625) 1,021 547 (28) (8) 1 (674) 67 2,286 960 (298) 5,985 5,985

Snam shareholders’ equity


Statement of changes in shareholders’ equity

(€ million) Sh

are

cap

ital

Ne

gat

ive

re

serv

e f

or

tre

asu

ry s

har

es

he

ld in

th

e

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lio

Sh

are

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ese

rve

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gal

re

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Re

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or

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of

CF

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inan

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et

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Fai

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th

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oth

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Balance at 31 December 2018 Note (18) 2,736 (625) 1,021 547 (28) (8) 1 (674) 67 2,286 960 (298) 5,985 5,985

Net profit for first half 2019 581 581 581


Components that can be reclassified to the income statement:- Portion of equity-accounted investments pertaining to “other components of comprehensive income”valued using the net equity method

(22) (22) (22)


Total comprehensive income for first half 2019 (b) (40) (22) 581 519 519- Interim dividend for 2018 (€ 0.0905 per share) (298) 298

- Balance of 2018 dividend (€ 0.1358 per share as the balance of the 2018 interim dividend of € 0.0905 per share) The dividend (interim and final) totals € 0.2263 per share.

(448) (448) (448)

- Allocation of 2018 residual net profit 214 (214)

- 2017-2019 share-based incentive plan 2 2 2

Acquisition of treasury shares

Total transactions with shareholders (c) 2 214 (960) 298 (446) (446)

Other changes in shareholders' equity:

- Cancellation of treasury shares 275 (275)

- Capital contributions by minority interests 3 3


Total other changes in shareholders' equity (d) 275 (275) 4 4 3 7

Balance at 30 June 2019 (e=a+b+c+d) Note (18) 2,736 (350) 746 547 (68) (8) 1 (674) 51 2,500 581 6,062 3 6,065

Snam shareholders’ equity

Condensed interim consolidated financial statements - Notes to the consolidated financial statements 67

Cash flow statement(€ million) Notes First half 2018 First half 2019

Net profit 523 581

Adjustments for reconciling net profit with cash flows from operating activities:

Total amortisation and depreciation (22) 335 355

Effect of valuation using the equity method (11) (83) (116)

Net capital losses (capital gains) on asset sales, write- offs and eliminations 5 3

Dividends (2) (2)

Interest income (6) (4)

Interest payable 92 77

Income taxes (25) 193 208

Other changes 2

Changes in working capital:

- Inventories (2) 14

- Trade receivables 289 300

- Trade payables 189 (153)

- Provisions for risks and charges 8

- Other assets and liabilities (33) 116

Working capital cash flow 443 285

Change in provisions for employee benefits 2 (4)

Dividends collected 114 71

Interest collected 1 4

Interest paid (92) (72)

Income taxes paid net of reimbursed tax credits (167)


- of which with related parties (28) 1,178 813

Investments:

- Property, plant and equipment (*) (9) (312) (365)

- Intangible assets (10) (28) (37)

- Companies entering the scope of consolidation (18)

- Long- term financial receivables (106)

- Equity investments (13) (5)

- Change in payables and receivables relating to investments (31) (31)

Cash flow from investments (508) (438)

Divestments:

- Property, plant and equipment 2

- Equity investments 18 11

Cash flow from divestments 20 11

Net cash flow from investment activities (488) (427)

- of which with related parties (28) (115) (16)

Assumption of long- term financial payables 431 968

Repayment of long- term financial debt (973) (1,340)

Increase (decrease) in short- term financial debt 693 949

Change in short- term financial receivables 350

Repayment of financial payables for leased assets (3)

501 574

Acquisition of treasury shares (183)

Dividends paid to Snam shareholders (731) (746)

Net capital contributions by minority interests 3

Net cash flow from financial assets (413) (169)

- of which with related parties (28) (14)


Cash and cash equivalents at start of period (4) 719 1,872

Cash and cash equivalents at end of period (4) 1,343 2,497

(*) Purely for the purpose of the Statement of Cash Flows, the flow includes the change to inventories of pipes and the

related accessory materials used in plan development, in reference to the natural gas transportation segment

(respectively Euro 3 million and Euro 4 million for the first half 2018 and 2019); (iii) the contributions on works for

interference with third parties referred to as “compensation” (respectively Euro 12 million and Euro 10 million for the first

half 2018 and 2019).


Notes to the condensed interim consolidated financial statements COMPANY INFORMATION

The Snam Group, consisting of Snam S.p.A., the

consolidating company, and its subsidiaries (hereafter

referred to as “Snam”, the “Snam Group” or the

“Group”), is an integrated group at the forefront of the

regulated gas sector and a major player in terms of its

invested capital regulatory asset base (RAB) in the

sector.

In Italy, Snam operates in the regulated business of the

transportation and dispatching of natural gas,

regasification of liquefied natural gas and storage of

natural gas; it is also present in the sectors of

sustainable mobility and energy efficiency. It operates in

Europe's major energy corridors through agreements

with and equity investments in the leading industry

players. Through its investee companies, it operates in

Austria (TAG and GCA), France (Teréga), Greece (DESFA)

and the United Kingdom (Interconnector UK) and is

amongst the main shareholders of TAP (Trans Adriatic

Pipeline). Snam S.p.A. is a joint-stock company incorporated under

Italian law and listed on the Milan Stock Exchange, with

registered offices at 7, Piazza Santa Barbara, San

Donato Milanese (MI).

Shareholder CDP S.p.A. declared, with effect from the

financial statements as at 31 December 2014, that it

had de facto control over Snam S.p.A. pursuant to IFRS

10 “Consolidated Financial Statements”. No

management or coordination activity of CDP S.p.A. has

been formalised or exercised.

As at 30 June 2019, CDP S.p.A. holds, through CDP Reti

S.p.A.1 31.04% of the share capital of Snam S.p.A.

1) Criteria for preparation and measurement

The condensed interim consolidated financial

statements as at 30 June 2019 have been prepared on

the assumption of the business operating as a going

concern and in compliance with the International

Financial Reporting Standards (IFRS) issued by the

International Accounting Standards Board (IASB) and

approved by the European Union (hereinafter the

1

CDP S.p.A. holds 59.10%. 2 For accounting standards in force starting 01 January 2019, approved after approval of the 2018 Annual Financial Report, reference is made to Note 3 “Recently issued IFRS” of these Notes.

“IFRS”) as well as the legislative and regulatory

provisions in force in Italy.


statements as at 30 June 2019 have been prepared in

accordance with the provisions of IAS 34 “Interim

Financial Reporting”. Pursuant to this standard, the

condensed interim consolidated financial statements do

not include all the information required in annual

consolidated financial statements and, as such, they

should be read in conjunction with the Snam Group's

consolidated financial statements for the year ended 31

December 2018.

The financial statements are the same as those adopted

for the Annual Financial Report. In the condensed

interim consolidated financial statements, the same

consolidation principles and measurement criteria have

been used as those used to prepare the Annual

Financial Report, which should be referred to, except

for the international financial reporting standards which

have entered into force since 01 January 2019,

described in Note 7 “Recently issued IFRS” in the 2018

Annual Financial Report2.

The impacts deriving from the application of such

provisions on the consolidated results of the Snam

Group essentially regard the effects of the application

of IFRS 16 “Leasing”, hence the considerations given in

the 2018 Annual Financial Report under the paragraph

on IFRS 16 “Leasing” of Note 7 “Recently issued IFRS”.

The impacts of the implementation of the new standard

resulted in an increase of Euro 20 million in financial

liabilities, representing the obligation to make the

payments envisaged by the contracts in place, and an

increase of Euro 20 million in assets for Property, plant

and equipment, representing the related right of use.

The impact on the Group’s shareholders’ equity at 01

January 2019, net of the related tax effect, is

consequently null.

The notes to the financial statements are in condensed

form. Current income taxes are calculated based on

taxable income at the reporting date. Tax receivables

and payables for current income taxes are recognised

based on the amount which is expected to be

paid/recovered to/from the tax authorities under the

applicable tax law or those essentially approved at the


reporting date and the rates estimated on an annual

basis.

Consolidated companies, non-consolidated subsidiaries,

companies under joint control, associates and other

significant equity investments, reporting for which is

covered by Article 126 of Consob Resolution 11971 of

14 May 1999, as subsequently amended, are indicated

separately in the annex “Equity investments of Snam

S.p.A. at 30 June 2019”, which is an integral part of

these notes.


statements as at 30 June 2019, approved by the Board

of Directors of in its meeting of 31 July 2019, are

subjected to a limited audit by PricewaterhouseCoopers

S.p.A. The limited audit entails a significantly smaller

scope of work than that of a complete audit of the

accounts carried out in accordance with the established

auditing standards.

The condensed interim financial statements are

presented in euro. Given their size, amounts in the

financial statements and respective notes are expressed

in millions of euros.

2) Use of accounting estimates For a description of the use of accounting estimates,

please see the 2018 Annual Financial Report.

3) Recently issued IFRS In addition to that indicated in the last Annual Financial

Report, to which reference is made, below is a list of the

IFRS recently issued by the IASB.

Accounting standards and interpretations issued by the IASB/IFRIC and approved by the European Commission, in force starting 01 January 2019

Regulation 2019/402 issued by the European

Commission on 13 March 2019 adopts the regulatory

provisions contained in the document “Change,

reduction or extinguishing of the plan - Amendments to

IAS 19 Employee Benefits”, issued by the IASB on 07

February 2018. The document specifies how pension

costs are determined if an existing defined benefits

plan is changed, reduced or extinguished.

More specifically, the document requires the use of

updated actuarial hypotheses to determine the current

personnel cost and net financial expenses for the period

after the event. These provisions will take effect from

financial years starting on or after 01 January 2019.

Regulation 2019/412 issued by the European

Commission on 14 March 2019 approved the regulatory

provisions contained in the “Annual Improvements to

International Financial Reporting Standards 2015-2017

Cycle”, issued by the IASB on 12 December 2017. The

document contains amendments to the following

standards: (i) IFRS 3 “Business Combinations” defining

that when an entity obtains control of a business that

can be classified as a joint operation, the interest

previously held in said business must be remeasured,

insofar as the transaction constitutes a business

combination carried out in several stages; (ii) IFRS 11

“Joint Arrangements”, clarifying that when an entity

acquires joint control of a business that meets the

definition of a joint operation, it shall not remeasure its

interests previously held in that business; (iii) IAS 12

“Income tax”, clarifying that, regardless of whether

dividends are recognized in shareholders' equity, an

entity must recognize the tax effects of the dividends in

profit and loss in terms of income tax when the liability

is noted relative to the dividend to be paid; (iv) IAS 23

“Financial Expenses”, clarifying that the specific

borrowings required for construction and/or acquisition

of an asset that remain in existence even when the

asset is available and ready for use or sale are no longer

considered specific and therefore shall be included in

the general borrowings for the purpose of defining the

capitalization rate. Additionally, the document specifies

how the amount of financial expense an entity can

capitalise during a financial year, must not exceed the

amount of financial expense incurred during that year.

These provisions will take effect from financial years

starting on or after 01 January 2019.

No impact has been identified which arises from

implementation of said standards.


4) Cash and cash equivalents Cash and cash equivalents, of Euro 2,497 million (Euro 1,872 million as at 31

December 2018) refer mainly to a short-term use of liquid funds, maturing

within three months, with the counterparty being a bank of high credit

standing (Euro 750 million), an on-call bank deposit (Euro 1,700 million) and

cash held at the company Gasrule Insurance DAC (Euro 22 million) and Snam

International B.V. (Euro 16 million).

The book value of cash and cash equivalents approximates to their fair value.

They are not subject to any usage restrictions.

A comprehensive analysis of the financial situation and major cash

commitments during the period can be found in the statement of cash flows.

5) Trade receivables and other current and non-current receivables

Trade receivables and other current receivables equal to Euro 990 million (Euro

1,347 million at 31 December 2018) and other non-current receivables equal to

Euro 1 million (unchanged from 31 December 2018) break down as follows:

(€ million) Current Non-current Total Current Non-current Total

Trade receivables 1,247 1,247 947 947

Financial receivables 10 1 11 1 1

- short term

- long term 10 1 11 1 1

Receivables from investment/divestment activities 9 9 7 7

Other receivables 81 81 36 36

1,347 1 1,348 990 1 991

31.12.2018 30.06.2019

3 The variable unitary charge CVOS expressed in euro/Scm is an increase of the variable price aimed at covering the costs deriving from the application of the

revenue guarantee factor for the storage service, pursuant to Art. 10 bis of Resolution no. 29/2011 and expenses incurred by the Energy Service Provider for the disbursement of measures pursuant to Articles 9 and 10 of Italian Legislative Decree no. 130/10.

Receivables are reported net of the provision for impairment losses of Euro

136 million (Euro 137 million at 31 December 2018).

Trade receivables of Euro 947 million (Euro 1,247 million at 31 December

2018) relate mainly to the natural gas transportation (Euro 686 million,

including Euro 128 million relating to gas balancing activities) and storage

(Euro 170 million) business operating segments. The reduction compared to

31 December 2018 is mainly attributable to lower receivables in the transport

sector: (i) for additional tariff components invoiced to users, against

suspension of the CVOS charge3, the application of which is suspended for the

months from April to September; (ii) for the balancing service, against lower

volumes of gas traded as a result of climate change.


Long-term financial receivables (Euro 1 million; Euro 11 million at 31

December 2018) record a downturn of Euro 10 million against the conversion

into equity, in February 2019, of the residual portion of the shareholders’ loan

to TAP. The reduction in financial receivables therefore coincides with the

related increase in the equity investment held in TAP.

Receivables from investment/divestment activities (Euro 7 million; Euro 9

million at 31 December 2018) concern receivables for investment activities for

contributions towards connections and compensation works.

Other receivables of Euro 36 million (Euro 81 million at 31 December 2018)

comprise:

(€ million) 31.12.2018 30.06.2019

IRES receivables for the national tax consolidation scheme 9 9

Other receivables: 72 27

- Energy and Environmental Services Fund (CSEA) 63 13

- Advances to suppliers 4 3

- Other 5 11

81 36

The fair value measurement of trade and other receivables has no material

impact considering the short period of time from when the receivable arises

and its due date and the remuneration conditions.

All receivables are in Euros.

Receivables from related parties are described in Note 28, “Related-party

transactions”.

6) Inventories Inventories, which amount to Euro 460 million (Euro 472 million at 31

December 2018) are analysed in the table below:

(€ million)

Gross

amount

Provision for

impairment

losses

Net

value

Gross

amount

Provision for

impairment

losses

Net

value

Inventories (current assets) 155 (46) 109 143 (46) 97

- Raw materials, consumables and supplies 103 (14) 89 91 (14) 77

- Finished products and merchandise 52 (32) 20 52 (32) 20

Compulsory inventories (non- current assets) 363 363 363 363

518 (46) 472 506 (46) 460

31.12.2018 30.06.2019

Inventories are reported net of the provision for impairment losses of Euro 46

million (the same as at 31 December 2018). The provision essentially involves

the impairment loss (Euro 30 million) recorded in 2014 for 0.4 billions of cubic

metres of natural gas used under the scope of storage activities of strategic

gas unduly withdrawn by some service users in 2010 and 20114.

4 For further information regarding the progress of the lawsuits underway, see Note 25 “Guarantees, commitments and risks - Disputes and other measures - Recovering receivables from users of the storage system” of the 2018 Annual Financial Report.


7) Current income tax assets/liabilities and other current tax assets/liabilities

Current income tax assets/liabilities and other current tax assets/liabilities

break down as follows:

(€ million) 31.12.2018 30.06.2019

Current income tax assets 10 11

IRES 9 10

IRAP 1

- Other assets 1

Other current tax assets 7 9

- VAT 4 7

- Other taxes 3 2

17 20

Current income tax liabilities (14) (69)

IRES (13) (60)

IRAP (1) (9)

Other current tax liabilities (9) (6)

- IRPEF withholdings for employees (7)

- VAT (1)

- Other taxes (1) (6)

(23) (75)

Taxes pertaining to the period under review are shown in Note 25 “Income

taxes”.

8) Other current and non-current assets Other current assets, which amount to Euro 26 million (Euro 27 million at 31

December 2018) and other non-current assets of Euro 24 million (Euro 36

million at 31 December 2018) break down as follows:

(€ million) Current

Non-

current Total Current

Non-

current Total

Regulated activities 16 10 26 10 10

Market value of derivative financial instruments 4 4 6 6

Other assets: 7 26 33 10 24 34

- Prepayments 6 13 19 6 11 17

- Security deposits 13 13 13 13

- Other 1 1 4 4

27 36 63 26 24 50

31.12.2018 30.06.2019

5 For further information, see Note 14 “Trade and other payables” of these notes.

Regulated activities (Euro 10 million; Euro 26 million at 31 December 2018)

relate to the natural gas transportation service and regard the lesser amounts

invoiced, to be recovered through tariff adjustments in 2019. The reduction

of Euro 16 million on 31 December 2019 is a result of the reclassification, to

reduce other payables due to CSEA, of the sub-billing relative to previous

years (Euro 9 million), no longer subject to return by means of future tariff

adjustments, in accordance with ARERA resolution 114/2019/R/gas5.


The market value of derivative financial instruments outstanding at 30 June

2019 is as follows:


Non-


Non-

current Total

Other assets 4 4 6 6

Cash flow hedging derivatives:

- Fair value exchange rate hedging derivatives 4 4 6 6

Other liabilities (7) (26) (33) (8) (60) (68)

Cash flow hedging derivatives:

- Fair value interest rate hedging derivatives (6) (26) (32) (7) (60) (67)

- Accrued expenses on derivatives (1) (1) (1) (1)

30.06.201931.12.2018

Assets deriving from the market value of financial cash flow hedge derivative

financial instruments (Euro 6 million) refer to a cross currency swap (CCS)

stipulated in FY 2013. The CCS is used to hedge against fluctuations in the

exchange rate of a ¥\10 billion (JPY) long-term bond issue. The six-year bond

has a maturity of 25 October 2019 and a half-yearly coupon with an annual

fixed rate of 1.115%. The CCS has converted the fixed-rate, foreign-currency

liability into an equivalent liability in Euro with a fixed annual rate of 2.717%.

In relation to this contract, Snam agrees with its counterparties on the

exchange of two capital flows (at the time of entering into the contract and

upon the maturity of the underlying financial instrument) and periodic

interest flows (on the same dates stipulated for the hedged item)

denominated in different currencies at a predetermined exchange rate.

The main characteristics of the derivative in question are summarised in the

tables below:

Cross-currency swap

(€ million)

Type of derivative

Contract

start date

Maturity

date

Residual term

(years)

JPY /EUR

exchange rate

Paid

JPY /EUR

exchange rate

Received

Nominal

value(*)

31.12.2018

Nominal

value(*)

30.06.2019

Market value

31.12.2018

Market

value

30.06.2019

Cross- currency swap 25/10/2013 25/10/2019 0.3 133.98 Spot 75 75 4 6 (*) Equal to a value of 10 billion Yen at an exchange rate of 133.98 JPY/€.


The liabilities arising from measurement at market value of the derivative

financial instruments used as cash flow hedges (Euro 68 million) refer to:

two derivative Interest Rate Swap “Forward Start” contracts with

Mandatory Early Termination, stipulated in July 2017 and August 2018

to cover the risk of interest rate fluctuations of long-term bond issues

scheduled for 2020 and 2021, of nominal total value of Euro 500 million

and a total market value of Euro 42 million;

an Interest Rate Swap derivative, stipulated in August 2017, with a

market value of Euro 14 million. The IRS is used to hedge against the

risk of interest rate fluctuation for a floating-rate bond of Euro 350

million. The 7-year bond has a maturity of 2 August 2024 and floating

rate linked to 3-month Euribor + 40 bps. Through the derivative

contract, the floating rate liability is converted into an equivalent fixed

rate liability with a benchmark rate of 0.436%;

an Interest Rate Swap derivative, stipulated in February 2017, with a

market value of Euro 4 million. The IRS is used to hedge against the risk

of interest rate fluctuation resulting from a long-term bond issue of

Euro 300 million. The loan, which has a duration of five years and

matures on 21 February 2022, pays a floating rate linked to 3-month

Euribor plus 60 bps. The IRS has converted the floating-rate liability into

an equivalent fixed-rate liability with reference rate of + 0.0408%;

an Interest Rate Swap derivative, stipulated in July 2018, with a market

value of Euro 3 million. The IRS is used to hedge against the risk of

interest rate fluctuation resulting from a 50% portion of the long-term

floating rate loan of Euro 500 million. The 3-year term loan has a

maturity of 31 October 2021 and floating rate linked to 3-month

Euribor + 45 bps. Through the derivative contract, the floating rate

liability is converted into an equivalent fixed rate liability with a

benchmark rate of 0.0570%;

an Interest Rate Swap derivative, stipulated in July 2018, with a market

value of Euro 2 million. The IRS is used to hedge against the risk of

interest rate fluctuation on a floating rate term loan of Euro 150

million. The 5-year term loan has a maturity of 31 July 2022 and floating

rate linked to 3-month Euribor + 58 bps. Through the derivative

contract, for four years, the floating rate liability is converted into an

equivalent fixed rate liability with a benchmark rate of 0.1250%;

an Interest Rate Swap derivative, stipulated in December 2018, with a


of interest rate fluctuation resulting from the remaining 50% portion of

the long-term floating rate loan of Euro 500 million. The 3-year term

loan has a maturity of 31 October 2021 and floating rate linked to 3-

month Euribor + 45 bps. Through the derivative contract, the floating

rate liability is converted into an equivalent fixed rate liability with a

benchmark rate of -0.0440%;

an Interest Rate Swap derivative, stipulated in January 2018, with a


of interest rate fluctuation for a floating-rate bond of Euro 350 million.

The 2-year bond has a maturity of 29 January 2020 and floating rate

linked to 3-month Euribor + 40 bps. Through the derivative contract,


the floating rate liability is converted into an equivalent fixed rate

liability with a benchmark rate of -0.1878%.

The main characteristics of the derivatives in question are summarised in the

tables below:

Interest Rate Swap - Forward Start

(€ million)

Type of derivative

Contract

start date

Maturity

date

Early

extinguishment

date

Residual term

(years)

Snam pays Snam receivesNominal

value

31.12.2018

Nominal value

30.06.2019

Market

value

31.12.2018

Market

value

30.06.2019

IRS - Forward start (*) 30/10/2019 30/10/2026 30/01/2020 1.1805% Euribor 6 m 250 (9)

IRS - Forward start 29/10/2020 29/10/2027 29/01/2021 8.3 1.4225% Euribor 6 m 250 250 (8) (19)

IRS - Forward start 15/04/2021 15/04/2028 15/07/2021 8.8 1.3130% Euribor 6 m 250 250 (5) (23)

(*) Derivative closed on 24 May 2019. Interest rate swap

(€ million)

Type of derivative

Contract

start date

Maturity

date

Residual term

(years)

Snam pays Snam receives Nominal value

31.12.2018

Nominal

value

30.06.2019

Market value

31.12.2018

Market

value

30.06.2019

Interest rate swap 02/08/2017 02/08/2024 5.1 0.4360% 3 month Euribor 350 350 (5) (14)




Interest rate swap 31/10/2018 31/10/2021 2.3 - 0.0440% 3 month Euribor 250 250 (1) (2)

Interest rate swap 29/01/2018 29/01/2020 0.6 - 0.1878% 3 month Euribor 350 350 (1)

The fair value of hedging derivatives and their classification as a current or

non-current asset/liability have been determined using generally accepted

financial measurement models and market parameters at the end of the year.

Information on the risks being hedged by the derivative financial instruments

and on hedging policies adopted by the Company against these risks is

provided in Note 19 “Guarantees, commitments and risks - Management of

financial risks”.

The item “Other assets” (Euro 34 million; Euro 33 million at 31 December

2018) essentially comprises:

security deposits (Euro 13 million), relating to the transportation

segment;

prepayments (Euro 17 million) mainly relating to insurance premiums

(Euro 6 million and the up-front fees and substitute tax on revolving

lines of credit6 (Euro 4 million). The current and non-current portions

amount to Euro 6 million and Euro 11 million respectively (Euro 6

million and Euro 13 million at 31 December 2018).

6

Upfront fees and the substitute tax are to be regarded as “transaction costs”. The relevant charges are spread over the expected lifetime of the financial instrument.


9) Property, plant and equipment Property, plant and equipment, which amounts to Euro 16,300 million (Euro

16,153 million at 31 December 2018) breaks down as follows:

(€ million) Property, plant and equipment

Cost at 31.12.2018 25,006

Investments 371

Disposals (10)

Other changes 102

Cost at 30.06.2019 25,469

Provisions for amortisation and depreciation at 31.12.2018 (8,783)

Total amortisation and depreciation (323)

Disposals 7

Other changes (2)

Provisions for amortisation and depreciation at 30.06.2019 (9,101)

Provision for impairment losses at 31.12.2018 (70)

Other changes 2

Provision for impairment losses at 30.06.2019 (68)

Net balance at 31.12.2018 16,153

Net balance at 30.06.2019 16,300

7 Investments by business segment are shown in the “Business segment operating performance” section of the Interim Directors’ Report.

8 As established by the standard IFRS 16, against the recording of assets representing the rights of use of leased assets, Snam has noted the related financial liabilities representing the obligation to make the payments established in lease contracts in force.

Investments7 (Euro 371 million) refer mainly to the transportation (Euro 308

million) and storage (Euro 57 million) segments.

Divestments (Euro 3 million, net of the related provisions for depreciation and

amortisation) mainly relate to assets of the transportation segment.

Other changes (+Euro 102 million) relate essentially to: (i) the effects deriving

from the adjustment of the current value of outlays for the decommissioning

and restoration of sites (Euro +85 million) following a reduction in the

expected discounting rate; (ii) the recording of assets representing the rights

of use of leased goods in accordance with accounting standard IFRS 16 (Euro

+24 million)8; and (iii) contributions on works for interference with third

parties (Euro -10 million).


For lack of impairment indicators recorded during the half-year, there is no

need for any checks as to the potential recovery of the value booked for

Property, plant and equipment. The considerations given in the 2018 Annual

Financial Report are therefore confirmed and reference is made thereto.

Contractual commitments to purchase property, plant and equipment, and to

provide services related to the construction thereof, are reported in Note 19

“Guarantees, commitments and risks”.

10) Intangible assets Intangible assets, which amount to Euro 912 million (Euro 907 million at 31

December 2018) break down as follows:

(€ million)

With a

finite

useful life

With an

indefinite

useful life Total

Cost at 31.12.2018 1,634 42 1,676

Investments 37 37

Cost at 30.06.2019 1,671 42 1,713

Provisions for amortisation and depreciation at 31.12.2018 (769) (769)

Total amortisation and depreciation (32) (32)

Provisions for amortisation and depreciation at 30.06.2019 (801) (801)

Net balance at 31.12.2018 865 42 907

Net balance at 30.06.2019 870 42 912

9

Investments by business segment are shown in the “Business segment operating performance” section of the Interim Directors’ Report.

Intangible assets with a definite useful life (Euro 870 million) mainly concern:

(i) concessions for the year of the natural gas storage business (Euro 656

million); (ii) industrial patent rights and intellectual property rights (Euro 139

million).

Investments9 (Euro 37 million) refer mainly to the natural gas transportation

(Euro 31 million) segment.

Intangible fixed assets with an indefinite useful life (Euro 42 million) mainly

refer to goodwill noted at acquisition: (i) from Edison of 100% of the share

capital of Infrastrutture Trasporto Gas (Euro 27 million) on 13 October 2017;

(ii) of the Cubogas business unit on 25 July 2018 (Euro 7 million); (iii) of 70% of

IES Biogas on 05 July 2018 (Euro 4 million); (iv) 82% of Tep Energy Solution on

30 May 2018 (Euro 3 million). This goodwill was allocated to the CGUs

identified by the same legal entities, as described below:

for Infrastrutture Trasporto Gas to the business of regulated

transportation activities;

for Cubogas to the CNG business comprising the refuelling stations

and compressors;

for IES Biogas to the biomethane business;

for TEP Energy Solutions to the energy efficiency business.


During the first half, no impairment indicators were noted. Therefore, as

regards the potential recovery of the value booked for intangible fixed assets,

including goodwill, the considerations given in the 2018 Annual Financial

Report are confirmed and reference is made thereto.

11) Investments valued using the equity method

Investments valued using the equity method, amounting to Euro 1,745 million

(Euro 1,710 million at 31 December 2018) break down as follows:

(€ million)

Value as at 31.12.2018 1,710

Acquisitions and subscriptions 5

Income (losses) from equity method valuation 116

Decrease owing to dividends (69)

Sales and repayments (9)

Other changes (8)

Value as at 30.06.2019 1,745

Acquisitions and subscriptions (Euro 5 million) relate to the future share

capital increase of TAP, which Snam is obliged to invest in, in proportion to

the shareholding owned, by virtue of the agreements signed during the

acquisition of the equity investment.

Income (losses) from equity method valuation (Euro 116 million) refer mainly

to the companies TAG (Euro 39 million), Teréga (Euro 29 million) and Senfluga

(Euro 15 million).

The decrease in the dividend (Euro 69 million) essentially concerns the

companies TAG (Euro 29 million) and Italgas (Euro 26 million).

Sales and reimbursements (Euro 9 million) refer to the reduction in the cost of

recording the equity investment in AS Gasinfrastruktur Beteiligung GmbH for

the distribution of part of the share premium reserve.

Other changes (Euro -8 million) refer to the associates TAP (Euro -19 million)

and Senfluga (Euro -2 million) in view of the change in the fair value of the

hedging derivative financial instruments, the effects of which were partially

offset by the February 2019 conversion into equity of the residual share of

the Shareholders Loan to TAP (Euro +10 million).

There is no collateral established over equity investments with the exception

of that reported in Note 19 “Guarantees, commitments and risks -

Commitments, guarantees and pledges - TAP” of these notes.

Consolidated companies, non-consolidated subsidiaries, joint ventures,

associates and other significant equity investments are indicated separately in

the annex “Equity investments of Snam S.p.A. at 30 June 2019”, which is an

integral part of these notes.


For lack of impairment indicators recorded during the half-year, there is no

need for any checks as to the potential recovery of the value booked for the

equity investment valued using the equity method. The considerations given

in the 2018 Annual Financial Report are therefore confirmed and reference is

made thereto.

12) Other investments Other investments total Euro 38 million (Euro 40 million at 31 December 2018)

and regard only the minority share of 7.3% held by Snam S.p.A. in the capital

of Terminale GNL Adriatico S.r.l. (Adriatic LNG) valued at “Fair Value Through

Other Comprehensive Income – FVTOCI”10 in consideration of the fact that

the Group intends to hold the equity investment in the portfolio in the near

future.

13) Short-term financial liabilities, long-term financial liabilities and short-term portions of long-term financial liabilities

Short-term financial liabilities, amounting to Euro 2,925 million (Euro 1,976

million at 31 December 2018), and long-term financial liabilities, including the

short-term portion of long-term liabilities, totalling Euro 11,095 million (Euro

11,444 million at 31 December 2018), break down as follows:

(€ million)

Short-term liabilities

Short-term portion

Long-term portion

maturing within 5

years

Long-term portion

maturing in more

than 5 years

Total long-term

portion

Short-term liabilities

Short-term

portion

Long-term portion

maturing within 5

years

Long-term portion

maturing in more

than 5 years

Total long-term

portion

Bonds 913 4,408 3,125 7,533 1,028 3,928 3,479 7,407

Bank loans 1,751 744 1,175 1,079 2,254 1,494 247 1,248 1,144 2,392

Euro Commercial Paper - ECP 225 1,431

Financial payables for leased assets 6 11 4 15

1,976 1,657 5,583 4,204 9,787 2,925 1,281 5,187 4,627 9,814

Long-term liabilities

31.12.2018 30.06.2019

Long-term liabilities

10 On the basis of this measurement criterion, changes to the related fair value are entered in a specific shareholders' equity reserve, which cannot be

reclassified as profit and loss. Dividends are recorded on the income statement when they represent the return on the investment and not the recovery of part of the cost of the investment, in which case the dividend is also noted under Other Comprehensive Income.


Short-term financial liabilities

Short-term financial liabilities, amounting to Euro 2,925 million (Euro 1,976

million at 31 December 2018), relate mainly to uncommitted floating rate

lines of bank credit (Euro 1,494 million) and Euro Commercial Papers (Euro

1,431 million)11.

Long-term financial liabilities and short-term portions of long-term financial liabilities

Long-term financial liabilities, including the short-term portion of long-term

liabilities, amounted to Euro 11,095 million (Euro 11,444 million at 31

December 2018), of which Euro 1,281 million relative to the short-term share

and Euro 9,814 million relative to the long-term share.

Financial liabilities for leased assets (Euro 21 million) refer to the financial

liabilities entered in compliance with the accounting standard IFRS 16

“Leasing” in force since 01 January 201912. These liabilities represent the

obligation to make the payments envisaged by the contract, for all leases with

a term in excess of 12 months, of significant value.

11 At the date of this Report, the Euro Commercial Paper programme had been used for the entire amount of Euro 2 billion. 12 For more details on the choices made by Snam in respect of the application of the transitional provisions envisaged by IFRS 16, reference is made to Note

7 “Recently issued accounting standards” of the 2018 Annual Financial Report.


The breakdown of bond loans (Euro 8,435 million), indicating the issuing

company, the year of issue, the currency, the average interest rate and the

maturity, is provided in the following table:

(€ million)

Issuing company Issued (year) CurrencyNominal amount

Adjustments (a)

Balance at 30.06.2019 Rate (%)

Maturity (year)

Euro Medium Term Notes (EMTN)

SNAM S.p.A. (b) (c) (d) 2012 € 609 22 631 5.25 2022

SNAM S.p.A. (b) (c) (d) (e) 2012 € 526 7 533 3.5 2020

SNAM S.p.A. (c) (d) 2013 € 267 3 270 3.375 2021SNAM S.p.A. (g) 2013 ¥ 82 82 2.717 2019

SNAM S.p.A. (c) (d) 2014 € 394 3 397 3.25 2024

SNAM S.p.A. (c) (d) (h) 2014 € 344 4 348 1.5 2023

SNAM S.p.A. (c) (d) (f) 2015 € 263 (23) 240 1.375 2023

SNAM S.p.A. 2016 € 1,250 1,250 0.875 2026

SNAM S.p.A. 2016 € 500 (1) 499 2020SNAM S.p.A. 2017 € 500 500 1.25 2025

SNAM S.p.A. (i) 2017 € 300 (1) 299 0.641 2022

SNAM S.p.A. (i) 2017 € 350 (1) 349 0.836 2024

SNAM S.p.A. 2017 € 650 2 652 1.375 2027

SNAM S.p.A. (i) 2018 € 350 1 351 0.212 2020

SNAM S.p.A. (l) 2018 € 900 (1) 899 1 2023

SNAM S.p.A. 2019 € 500 (2) 498 1.25 2025

SNAM S.p.A. (i) 2019 € 250 (3) 247 1.625 2030

8,035 10 8,045

Convertible bondsSNAM S.p.A. 2017 € 400 (10) 390 2022

8,435 8,435

(a) Includes: (i) issue premium/discount; (ii) accrued interest; (iii) adjustment to the fair value of the bond loan of Euro 500

million, maturing in 2023, originally converted to floating rate through an interest rate swap (IRS) hedging derivative

which was extinguished early on 27 January 2017.

(b) Bond loans subject to the 2016 liability management operation.

(d) Bond loans subject to the 2017 liability management operation.

(d) Bond loans subject to the 2018 liability management operation.

(e) Bond tapped for an incremental amount of Euro 500 million, with the same interest rate and maturity as the original

placement.

(f) Bond loans subject to the 2015 liability management operation.

(g) Bond with a nominal value of ¥10 billion, converted into euros through a cross- currency swap (CCS).

The indicated nominal value is obtained by converting into euros at the year- end spot exchange rate.

(h) Bond tapped for an incremental amount of Euro 250 million, with the same interest rate and maturity as the original

placement.

(i) Floating- rate bond, converted into fixed- rate through an interest rate swap (IRS) hedging derivative.

(l) Bond tapped for an incremental amount of Euro 300 million, with the same interest rate and maturity as the original

placement.


Payables for bank loans (Euro 4,133 million) relate to maturing loans (term

loans), of which Euro 1,589 million concern European Investment Bank (EIB)

funding.

There are no other long-term bank loans denominated in currencies other

than the euro.

The weighted average interest rate on bank loans used (excluding loan

contracts with the EIB) was 0.52%.

There were no breaches of loan agreements as at the reporting date.

Snam has unused committed and uncommitted lines of credit of Euro 3.2

billion and Euro 2 billion, respectively.

Financial covenants and negative pledge commitments

As at 30 June 2019, Snam has unsecured bilateral and syndicated loan

agreements in place with banks and other financial institutions. Part of such

contracts envisages, inter alia, compliance with commitments typical of

international practice, of which some are subject to specific materiality

thresholds, such as: (i) negative pledge commitments pursuant to which Snam

and its subsidiaries are subject to limitations concerning the pledging of real

property rights or other restrictions on all or part of the respective assets,

shares or merchandise; (ii) pari passu and change-of-control clauses; (iii)

limitations on certain extraordinary transactions that the Company and its

subsidiaries may carry out; and (iv) limits on the debt of subsidiaries.

Failure to comply with these covenants, and the occurrence of other events,

such as cross-default events could trigger the early repayment of the related

loan. Exclusively for the EIB loans, the lender has the option to request

additional guarantees, if Snam’s rating is lower than BBB (Standard &

Poor’s/Fitch Ratings Limited) or lower than Baa2 (Moody’s) with at least two

of the three rating agencies.

The occurrence of one or more of the aforementioned scenarios could have

negative effects on Snam Group’s operations, results, balance sheet and cash

flow, resulting in additional costs and/or liquidity issues.

At 30 June 2019, the financial liabilities subject to these restrictive clauses

amounted to approximately Euro 2.6 billion.

Bonds, issued by Snam as at 30 June 2019, with a nominal value of Euro 8.4

billion, refer mainly to securities issued under the Euro Medium Term Notes

programme. The covenants set for the programme’s securities reflect

international market practices and relate, inter alia, to negative pledge and

pari passu clauses. Specifically, under the negative pledge clause, Snam and its

significant subsidiaries are subject to limitations in relation to the creation or

maintenance of restrictions on all or part of their own assets or inflows to

guarantee present or future debt, unless this is explicitly permitted.

Failure to comply with these covenants – in some cases only when this non-

compliance is not remedied within a set time period – and the occurrence of

other events, such as cross-default events, some of which are subject to

specific threshold values, may result in Snam’s failure to comply and could

trigger the early repayment of the relative loan.


In confirmation of Snam's credit standing, the loan agreements do not

contain covenants which require compliance with an economic and/or

financial ratio.

Breakdown of net financial debt

The breakdown of net financial debt, showing any related-party transactions,

is provided in the following table:


Non-


Non-

current Total

A. Cash and cash equivalents 1,872 1,872 2,497 2,497

B. Securities available for sale and held to maturity

C. Cash (A+B) 1,872 1,872 2,497 2,497

D. Short-term financial receivables

E. Short- term financial liabilities to banks 1,751 1,751 1,494 1,494

F. Long- term financial liabilities to banks 744 2,254 2,998 247 2,392 2,639

G. Bonds 913 7,533 8,446 1,028 7,407 8,435

H. Short- term financial liabilities to related parties

I. Long- term financial liabilities to related parties 1 1

L. Other short- term financial liabilities 225 225 1,431 1,431

M. Other long- term financial liabilities (*) 6 15 20

N. Gross financial debt (E+F+G+H+I+L+M) 3,633 9,787 13,420 4,206 9,815 14,020

O. Net financial debt (N-C-D) 1,761 9,787 11,548 1,709 9,815 11,523

31.12.2018 30.06.2019

(*) Il valore include i debiti finanziari per beni in leasing iscritti ai sensi dell'IFRS 16 "Leasing".

14) Trade payables and other payables Trade payables and other payables, which amount to Euro 1,622 million (Euro

1,768 million at 31 December 2018) comprise the following:

(€ million) 31.12.2018 30.06.2019

Trade payables 491 338

Payables for investments 337 304

Other payables 940 980

1,768 1,622

Trade payables of Euro 338 million (Euro 491 million at 31 December 2018)

relate mainly to the natural gas transportation segment (Euro 235 million,

including Euro 125 million relating to system balancing activities). The

decrease compared to 31 December 2018 is mainly attributable to the lower

payables relating to the balancing activity of the gas system against the lower

volumes of gas exchanged as a result of the climate trend.

Payables for investment activities of Euro 304 million (Euro 337 million at 31

December 2018) relate mainly to the natural gas transportation (Euro 237

million) and storage (Euro 53 million) business segments.


Other payables of Euro 980 million (Euro 940 million at 31 December 2018)

break down as follows:

(€ million) 31.12.2018 30.06.2019

Other payables

- Payables to the Electricity Equalisation Fund (CSEA) 570 913

- Interim dividend 298

- Payables to employees 32 19

- Payables to pension and social security institutions 19 17

- Consultants and professionals 8 7

- Other 13 24

940 980

The amounts due to CSEA (Euro 913 million) mainly refer to accessory tariff

components relative to the transportation segment and the greater amounts

invoiced in the first half 2019 to transportation service users with respect to

the restriction laid down by the Regulator. The item also includes the previous

corrective factors of the natural gas transportation segment relative to over-

invoicing and penalties (Euro 209 million, net of assets offsetted), entered

under other non-current assets/liabilities as at 31 December 2018. In

accordance with ARERA resolution 114/2019/R/gas, these amounts, no longer

to be returned through future tariff adjustments, must be settled starting 31

July 2019 against the “Transportation expenses account”13.

Note 28 “Related-party transactions” contains information about payables

due to related parties.

The book value of trade and other payables is close to the relative fair value

measurement, given the short period of time between when the payable

arises and its due date.

13 By letter dated 26 June 2019, the Regulatory authority notified Snam Rete Gas of the amount of corrective factors relative to previous years, to be paid to

CSEA by 31 July 2019, as established by Art. 4.3 of resolution 114/2019/R/gas of the same Authority. The amount equal to Euro 180 million, determined on the basis of certificates of revenues relative to 2018, sent to the Authority in accordance with the same Art. 4 of resolution 114/2019/R/gas, refers to the corrective factors applicable to 2018, net of the price differences and the residual corrective factors pertaining to previous years (2015-2017). Snam Rete Gas organised the payment for 30 July 2019.


15) Other current and non-current liabilities

Other current liabilities, amounting to Euro 69 million (Euro 86 million at 31

December 2018), and other non-current liabilities, amounting to Euro 234

million (Euro 437 million at 31 December 2018), break down as follows:


Non-


Non-

current Total

Liabilities from regulated activities 37 351 388 18 113 131

Market value of derivative financial instruments 7 26 33 8 60 68

Other liabilities 42 60 102 43 61 104

- Security deposits 46 46 47 47

- Prepaid revenue and income 29 6 35 29 5 34

- Prepaid contributions for connecting to the transportation network 6 6 6 6

- Other 13 2 15 14 3 17

86 437 523 69 234 303

31.12.2018 30.06.2019

Regulated liabilities, amounting to Euro 131 million (Euro 388 million at 31

December 2018), relate to:

the transportation segment (Euro 102 million) of penalties charged

to users that have exceeded the capacity committed. The current

and non-current portions amount to Euro 18 million and Euro 85

million respectively (Euro 37 million and Euro 322 million at 31

December 2018). The corrective factors for over-invoicing and

penalties relative to the previous years 2015-2018 (Euro 239 million)

no longer to be returned through future tariff adjustments, but to

be settled to CSEA against the “Transportation expense account”, in

accordance with ARERA resolution 114/2019/R/gas, have been

reclassified to other payables to CSEA;

the storage segment (Euro 28 million) due to payments for balancing

and stock replenishment, to be returned to service users pursuant to

Resolution No. 50/06 of the Electricity and Gas Authority,

corresponding entirely to the non-current share (Euro 29 million,

fully attributable to the non-current portion at 31 December 2018).

The market value of the derivative financial instruments outstanding at 30

June 2019 is broken down in Note 8 “Other current and non-current assets”.

Other liabilities of Euro 104 million (Euro 102 million at 31 December 2018)

include mainly: (i) security deposits paid by way of guarantee by balancing

service users in accordance with the resolution ARG/gas 45/11 (Euro 47

million; Euro 46 million as at 31 December 2018 corresponding entirely to the

non-current share); (ii) liabilities for revenues and prepaid income (Euro 34

million), essentially regarding revenues anticipated to TAP for the provision of

the design services (Euro 25 million corresponding entirely to the current

portion) and the prepaid charges for the concession to use fibre-optic cable to

a telecommunications operator (6 million, of which Euro 1 million current

portion and Euro 5 million non-current portion).


16) Provisions for risks and charges Provisions for risks and charges, which amount to Euro 761 million (Euro 665

million at 31 December 2018) are analysed in the table below:

(€ million)

against

charges for excess

Provision for site dismantlement and

restoration 607 4 (1) 85 695

Provision for litigation 19 3 (2) 20

Provision for tax litigation 6 4 (1) 3 12

Other provisions 33 2 (1) 34

665 9 4 (2) (3) 88 761

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The provision for site dismantling and restoration (Euro 695 million) includes

the discounted estimate of costs expected to be incurred for the removal of

facilities and the restoration of sites in the natural gas storage (Euro 548

million) and transportation (Euro 142 million) business operating segments.

Other changes (Euro 85 million) refer to the change in estimate as a result of

the reduction in expected discounting rates.

17) Liabilities for deferred taxes Deferred tax liabilities of Euro 511 million (Euro 541 million at 31 December

2018) are stated net of offsettable prepaid tax assets of Euro 404 million

(Euro 407 million at 31 December 2018).

There are no prepaid tax assets which cannot be offset.

(€ million) 31.12.2018 Provisions Utilisations Other changes 30.06.2019

Liabilities for deferred taxes 541 (30) 511

Prepaid tax assets (407) 15 (12) (404)

134 (15) (12) 107


18) Shareholders' equity Shareholders' equity held by Snam’s shareholders of Euro 6,065 million (Euro

5,985 million at 31 December 2018) breaks down as follows:

(€ million) 31.12.2018 30.06.2019

Share capital 2,736 2,736

Legal reserve 547 547

Share premium reserve 1,021 746

Reserve for fair value of cash flow hedging derivatives net of tax effect (28) (68)

Reserve for defined-benefit plans for employees net of tax effect (8) (8)

Reserve for fair value of minority equity investments 1 1

Retained earnings 2,286 2,500

Consolidation reserves (674) (674)

Net profit for the year 960 581

Other reserves 67 51

Less:

- Negative reserve for treasury shares held in the portfolio (625) (350)

- Interim dividend (298)

Snam Shareholders' equity 5,985 6,062


Total shareholders’ equity 6,065

Below is a breakdown of the main shareholders' equity of Snam at 30 June

2019.

Share capital

The share capital at 30 June 2019 consisted of 3,394,840,916 shares without

nominal value (3,469,038,579 shares without nominal value unchanged from

31 December 2018), with a total value of Euro 2,735,670,475.56 (unchanged

from 31 December 2018). The change in the breakdown of the share capital

follows the cancellation of 74,197,663 treasury shares in the portfolio,

without reducing the share capital, resolved by the Ordinary Shareholders’

Meeting of 02 April 2019.

Legal reserve

The legal reserve stood at Euro 547 million at 30 June 2019 (unchanged from

31 December 2018).

Share premium reserve

The share premium reserve stood at Euro 746 million at 30 June 2019 (1, 021

as at 31 December 2018). The reduction of Euro 275 million is due to the use

of part of the reserve in view of the cancellation of 74,197,663 treasury

shares in the portfolio.

Reserve for fair value of cash flow hedging derivative financial instruments net of tax effect

The cash flow hedge reserve, negative for Euro 68 million (Euro -28 million at

31 December 2018) includes the fair-value measurement of cash flow

hedging derivatives, net of the tax effect. This valuation is related to a Cross

Currency Swap (CCS), six Interest Rate Swaps (IRSs) and two “Forward Start”


Interest Rate Swaps described in Note 8 “Other current and non-current

assets”.

Reserve for defined-benefit plans for employees net of tax effect

At 30 June 2019, the reserve for remeasurement of employee benefit plans

(negative for Euro 8 million; unchanged at 31 December 2018) included

actuarial losses, net of the relative tax effect, recognised under other

components of comprehensive income pursuant to IAS 19.

Retained earnings

Retained earnings totalled Euro 2,500 million (Euro 2,286 million at 31

December 2018). The increase of Euro 214 million was mainly due to the

allocation of 2018 residual profit.

Consolidation reserve

The negative consolidation reserve of Euro 674 million (unchanged from 31

December 2018) includes the value derived from the difference between the

acquisition cost of the Italgas and Stogit equity investments (Euro 1,597

million, including the additional transaction expenses and price adjustment

following the agreements reached at transaction closing) and the relative

shareholders’ equity attributable to the Group on the transaction completion

date (Euro 923 million).

Other reserves

Other reserves of Euro 51 million (Euro 67 million as at 31 December 2018)

mainly refer to the effects deriving from the measurement of equity

investments using the net equity method. The reduction is due to the

negative change in the fair value of derivative financial instruments hedging

owned by equity investments valued using the equity method.

Negative reserve for treasury shares held in the portfolio

Negative reserve holds a purchase cost of no. 94,000,000 treasury shares as at

30 June 2019 (168,197,663 as at 31 December 2018), as a total amount of

Euro 350 million (Euro 625 million at 31 December 2018). The reduction of

Euro 275 million is due to the cancellation of 74,197,663 treasury shares in

the portfolio,a pproved by the Snam Shareholders' Meeting of 2 April 2019.

Dividends

The Ordinary Shareholders' Meeting of Snam S.p.A. resolved on 02 April 2019

to distribute a dividend of Euro 0.2263 per share, of which Euro 0.0905 per

share, for an amount of Euro 298 million, already distributed by way of

interim dividend. The balancing dividend of Euro 0.1358 per share, for an

amount of Euro 448 million, will be paid from 26 June 2019, with an ex-

dividend date of 24 June 2019 and a record date of 25 June 2019.


19) Guarantees, commitments and risks Guarantees, commitments and risks, amounting to Euro 5,407 million (Euro

5,950 million at 31 December 2018) comprise:

(€ million) 31.12.2018 30.06.2019

Guarantees given in the interest of: 1,262 1,230

- subsidiaries 69 101

- associates 1,193 1,129

- of which Trans Adriatic Pipeline 1,129 1,129

Financial commitments and risks:

Commitments 2,021 2,244

Commitments for the purchase of goods and services 1,691 1,969

Commitments in associates (*) 324 275

- of which Trans Adriatic Pipeline 324 275

Other 6

Risks 2,667 1,929

- third- party assets on deposit 2,609 1,915

- compensation and litigation 58 14

5,950 5,403

Guarantees

Guarantees given in the interests of subsidiaries (Euro

101 million; Euro 69 million at 31 December 2018)

essentially relate to: (i) guarantees given in the favour

of the Revenue Agency in the interests of the

subsidiaries Stogit and Gnl (Euro 43 million) for the

reimbursement of VAT credits pursuant to Presidential

Decree 633/1972; (ii) waivers issued in the favour of

third parties as a performance guarantee (Euro 39

million); (iii) bank surety in the favour of INPS as a

guarantee of the fulfilment of obligations accepted

with regards to the same institute under the scope of

the provisions connected with early retirement,

regulated by Art. 4, paragraph 1-7 of Italian Law

92/2012 - the Fornero Law (Euro 19 million).

Other personal guarantees given in the interests of

associates (Euro 1,129 million; Euro 1,193 million at 31

December 2018) refer to the guarantee given in the

interest of TAP in connection with the project loan for

the development of the gas pipeline (for further

information see the paragraph below on

“Commitments, guarantees and pledges - TAP”).

Commitments

The commitments for the purchase of goods and

services (Euro 1,969 million; Euro 1,691 million as at 31

December 2018) regard the commitments made with

suppliers for the purchase of tangible fixed assets and

the supply of services relative to the investments being

made.

Commitments in associates (Euro 275 million; Euro 324

million as at 31 December 2018) refer to the

commitment made by Snam S.p.A. to the company TAP

by virtue of the share held (for further information, see

the paragraph “Commitments, guarantees and pledges -

TAP” below).

Commitments, guarantees and pledges - TAP

Commitments in associates (Euro 275 million) refer to

the residual commitment of Snam S.p.A., as shareholder

and in connection with the project finance for the

development of the gas pipeline by virtue of the share

held, of 20%, with regards to the company Trans

Adriatic Pipeline AG (TAP). The commitment relates to

the total project costs, including the financial expenses

envisaged during the development of the work deriving

from the loan agreement stipulated by TAP in

December 2018. It is specified that, following the

finalisation of the TAP Project Financing, the cost of the

project will be financed for approximately 75% by the

lenders. On the basis of the project financing

concluded, Snam S.p.A.’s commitment toward TAP will

progressively decline due to the disbursement to TAP of

the financing by the lenders. During the construction

and commissioning of the plant, the loan contract of

(*) The value shown in the table refers to the residual commitment.


the associate TAP will be, amongst others, accompanied

by a first-demand guarantee (the “Debt Service

Guarantee”) up to a maximum pro-quota amount of

Snam of Euro 1,129 million. As at 30 June 2019, the

effective value of the guarantee relating to the above

loan is approximately Euro 632 million. The guarantee

will be released when certain requirements are met, as

agreed with the lenders, including, in particular, the

completion and commissioning of the plant. Once the

project has been developed, during operation, a

mechanism is instead envisaged in support of the

repayment of the financial debt issued by shareholders

(the “Debt Payment Undertaking”), which will activate

where certain, specific conditions should arise. The

project financing structure stipulated for TAP envisages

some limits for shareholders typical of transactions of

this type, including: (i) the restriction of the possibility

of freely disposing of the shares in TAP according to

certain timing; (ii) the establishment in pledge of the

shares held by Snam in TAP in the favour of the lenders

for the entire duration of the loan.

Risks

Risks related to third-party assets on deposit, equal to

Euro 1,915 million (Euro 2,609 million at 31 December

2018) relate to approximately 8 billions of cubic metres

of natural gas deposited in the storage plants by

customers of the service. This amount was determined

by valuing the estimated unit repurchase cost14 of

approximately Euro 0.25 per standard cubic metre to

the quantities of gas deposited (0.32 at 31 December

2018).

Risks concerning compensation and litigation of Euro 14

million (Euro 58 million at 31 December 2018) relate to

possible (but not probable) claims for compensation

arising from ongoing litigation, with a low probability

that the pertinent economic risk will arise.

FINANCIAL RISK MANAGEMENT

Introduction

The main corporate financial risks identified, monitored

and, where specified below, managed by Snam are as

follows:

risk arising from exposure to exchange rate

fluctuations;

credit risk deriving from the possibility of

counterparty default;

liquidity risk arising from not having sufficient funds

to meet short-term financial commitments;

rating risk;

debt covenant and default risk.

There follows a description of Snam's policies and

principles for the management and control of the risks

arising from the financial instruments listed above. In

agreement with IFRS 7 “Financial instruments:

additional information”, there are also descriptions of

the nature and size of the risks resulting from such

instruments.

Information on other risks affecting the company’s

business (natural gas price risk, operational risk and risks

specific to the segment in which Snam operates) can be

found in the

14

The value is calculated based on the CCI tariff, i.e. the wholesale price established every quarter by ARERA.

Interim directors' report at the chapter “Elements of

risk and uncertainty”.

Interest rate risk

Interest rate risk is associated with fluctuations in

interest rates affecting the market value of the

Company's financial assets and liabilities and its net

financial expense. Snam aims to optimise interest rate

risk while pursuing its financial objectives. The Snam

Group has adopted a centralised organisational model.

In accordance with this model, Snam’s various

departments access the financial markets and use funds

to cover financial requirements, in compliance with

approved objectives, ensuring that the risk profile stays

within defined limits. At 30 June 2019, the Snam Group

used external financial resources in the form of bonds

and bilateral and syndicated funding with banks and

other financial institutions, in the form of medium- to

long-term financial payables and bank lines of credit at

interest rates indexed to the reference market rates, in

particular the Europe Interbank Offered Rate (Euribor),

and at fixed rates.

The exposure to interest rate risk at 30 June 2019 is

about 29% of the total exposure of the Group (22% at


31 December 2018). As at 30 June 2019, Snam has

interest rate swaps (IRSs) in place for a total amount of

Euro 1,650 million, referring to the hedge of the entire

notional amount of three floating-rate bonds for a total

value of Euro 1,000 million, maturing in 2020, 2022 and

2024 and two forms of bilateral floating-rate funding

for a total value of 650 million, maturing in 2021 and

2023. The IRS derivative contracts are used to convert

floating rate loans to fixed rate loans.

Moreover, as at 30 June 2019, Snam has forward-

starting IRS derivatives in place of a notional amount

totalling Euro 500 million, maturing in the medium to

long-term, for highly probable future financial liabilities

to be undertaken up to 2021, for coverage of financial

requirements.

Though the Snam Group has an active risk management

policy, the rise in interest rates relating to floating-rate

debt not hedged against interest rate risk could have

negative effects on Snam Group’s operations, balance

sheet and cash flow.

Exchange rate risk

Snam’s exposure to exchange rate risk relates to both

transaction risk and translation risk. Transaction

exchange rate risk is generated by the conversion of

trade or financial receivables (payables) into currencies

other than the functional currency and is caused by the

impact of unfavourable exchange rate fluctuations

between the time that the transaction is carried out and

the time it is settled (collection/payment). Translation

exchange rate risk relates to rate fluctuations in the

exchange rates of currencies other than the

consolidation currency (the Euro), which can result in

changes to consolidated shareholders’ equity. Snam’s

risk management system aims to minimise transaction

exchange rate risk through measures such as the use of

derivative financial instruments. It cannot be ruled out

that significant future changes in exchange rates may

generate negative effects on Snam Group’s operations,

balance sheet and cash flow, irrespective of the hedging

policies for the risk resulting from exchange rate

fluctuations through the financial instruments on the

market put in place by Snam.

As at 30 June 2019, Snam’s foreign-currency items

essentially refer to a Yen 10 billion bond maturing in

2019 and with an issue-date value of approximately

Euro 75 million. The bond has been fully converted into

euros by a cross currency swap, with the same notional

amount and maturity as the hedged component. This

swap is considered to be a cash flow hedge derivative.

Snam does not take out currency derivatives for

speculative purposes.

The effects on shareholders’ equity and net profit at 30

June 2019 of a hypothetical change of +/-10% in

euro/Japanese yen exchange rates actually applied over

the course of the year is insignificant. The exchange

rate change has no effect on the profit for the period

since the effects of such a change are offset by the

effects of the hedging derivative.

As regards Snam’s investment in the associate

Interconnector UK, there is a euro/sterling exchange

rate risk. Snam believes, however, that this risk should

be considered limited, given the low historic volatility of

the euro/sterling exchange rate, also considering the

recent increase in volatility following the Brexit. With

reference to Snam’s investment in the associate TAP,

there is a euro/CHF exchange rate risk on the equity

cash call on the basis of the contractual commitments

made by shareholders with the company, moreover the

latter are limited in amount following the positive

conclusion of the project financing. This risk is suitably

hedged through the use of derivative financial

instruments (e.g. forward contracts).

Credit Risk

Credit risk is the Company’s exposure to potential losses

arising from counterparties failing to fulfil their

obligations. Default or delayed payment of fees may

have a negative impact on the financial balance and

results of Snam. For the risk of non-compliance by the

counterparty concerning contracts of a commercial

nature, the credit management for credit recovery and

any possible disputes is handled by the business units

and the centralised Snam departments. Snam provides

its business services to approximately 200 operators in

the gas sector, with 10 operators representing

approximately 70% of the entire market (Eni, Edison

and Enel Global Trading hold the top three spots). The

rules for client access to the services offered are

established by the Authorities and set out in the

Network Codes. For each type of service, these

documents explain the rules regulating the rights and

obligations of the parties involved in selling and

providing said services and contain contractual

conditions, which significantly reduce the risk of non-

compliance by the clients. The Codes require

guarantees in coverage of the commitments assumed.

In specific cases, if the customer has a credit rating

issued by major international organizations, the issue of

these guarantees may be mitigated. The regulations


also contain specific clauses which guarantee the

neutrality of the entity in charge of balancing, an

activity carried out from 1 December 2011 by Snam

Rete Gas as the major transportation company. In

particular, the current balancing discipline requires that

based on financial merit criteria, Snam shall make its

purchases and sales on the GME balancing platform to

ensure availability of the resources required for secure

and efficient movement of the gas from the entry

points to the withdrawal points and therefore constant

balancing of the network. The aforementioned

discipline also requires additional usage by Snam of the

storage resources of the users to cover system

imbalances and ensure the relative financial settlement.

Snam’s maximum exposure to credit risk as at 30 June

2019 is represented by the book value of the financial

assets recorded in the consolidated financial

statements of the Snam Group as at 30 June 2019.

Snam may, however, incur liabilities and/or losses from

the failure of its clients to comply with payment

obligations, partly because of the current economic and

financial situation, which makes the collection of

receivables more difficult and more important. Snam’s

maximum exposure to credit risk at 30 June 2019 is the

book value of the financial assets on its balance sheet.

Liquidity risk

Liquidity risk is the risk that new financial resources may

not be available (funding liquidity risk) or that the

Company may be unable to convert assets into cash on

the market (asset liquidity risk), meaning that it cannot

meet its payment commitments. This may affect

economic results should the Company be obliged to

incur extra costs to meet its commitments or, in

extreme cases, lead to insolvency and threaten the

Company’s future as a going concern.

Under the financial plan, Snam’s risk management

system aims to establish a financial structure that, in

line with the business objectives, ensures sufficient

liquidity for the Group, minimising the relative

opportunity cost and maintaining a balance in terms of

the duration and composition of the debt.

As shown in the “Interest rate risk” section, the

Company had access to a wide range of funding sources

through the credit system and the capital markets

(bilateral contracts, pool financing with major domestic

and international banks, loan contracts with the

15

It should be noted that the convertible bond issued in March 2017, for a value of Euro 400 million, is not part of the EMTN programme.

European Investments Bank (EIB) bonds and

Commercial Papers).

Snam’s objective is to maintain a debt structure that is

balanced in composition between bonds and bank

credit, and the availability of usable committed bank

credit lines, in line with its business profile and the

regulatory environment in which Snam operates.

At 30 June 2019, Snam had unused committed long-

term lines of credit worth around Euro 3.2 billion. In

addition, as at the same date, Snam has a Euro Medium

Term Notes (EMTN) programme in place for a maximum

total nominal value of Euro 10 billion, used for

approximately Euro 8.0 billion15 and a Euro Commercial

Paper Programme (ECP) for a maximum total nominal

value of Euro 2 billion, used for Euro 1.4 billion as at 30

June 2019.

Snam cash and cash equivalents essentially refer to

short-term liquidity facilities, with a maturity of less

than three months, with a bank with a high credit

standing and to bank deposits.

Although the Snam Group entertains relations with

diversified counterparties of high credit standing, on

the basis of a policy for the active management and

continuous monitoring of its credit risk, the default of

an active counterparty or difficulty in liquidating assets

on the market may have negative effects on the assets

and balance sheet situation of the Snam Group.

Rating risk

With reference to the rating risk, Snam’s long-term

rating is: (i) Baa2 with stable outlook, confirmed on 26

April 2019 by Moody’s Investors Services Ltd

(“Moody’s”); (ii) BBB+ with negative outlook, confirmed

on 27 November 2018 by Standard & Poor’s Rating

Services (“S&P”); (iii) BBB+ with stable outlook,

confirmed on 12 December 2018 by Fitch Ratings

(“Fitch”). Snam’s long-term rating by Moody’s, Standard

& Poor’s and Fitch is a notch higher than that of Italian

sovereign debt. Based on the methodology adopted by

Moody's and S&P, the downgrade of one notch from

the current rating of the Republic of Italy would lead to

a corresponding reduction of Snam’s current rating.

The company’s short-term rating, used under the scope

of the Snam Commercial Paper programme, is P-2 for

Moody’s, A-2 for S&P and F-2 for Fitch.

Any downgrades in the rating assigned to the Snam

Group, could limit the possibility of accessing the capital


markets and increase the cost of raising funds and/or

refinancing existing debt, with negative effects on

Snam Group’s operations, results, balance sheet and

cash flow.

Risk of default and the debt covenant

Default risk is the possibility that when certain

circumstances occur, the lender may enact contractual

protections that may result in the early repayment of

the loan, thus generating a potential liquidity risk.

As at 30 June 2019, Snam has unsecured bilateral and

syndicated loan agreements in place with banks and

other financial institutions. Part of such contracts

envisages, inter alia, compliance with commitments

typical of international practice, of which some are

subject to specific materiality thresholds, such as: (i)

negative pledge commitments pursuant to which Snam

and its subsidiaries are subject to limitations concerning

the pledging of real property rights or other restrictions

on all or part of the respective assets, shares or

merchandise; (ii) pari passu and change-of-control

clauses; (iii) limitations on certain extraordinary

transactions that the Company and its subsidiaries may

carry out; and (iv) limits on the debt of subsidiaries.

The bonds issued by Snam as at 30 June 2019 provide

for compliance with covenants that reflect international

market practices regarding, inter alia, negative pledge

and pari passu clauses.

Failure to comply with these covenants, and the

occurrence of other events, such as cross-default events

could trigger the early repayment of the related loan.

Exclusively for the EIB loans, the lender has the option

to request additional guarantees, if Snam’s rating is

lower than BBB (Standard & Poor’s/Fitch Ratings

Limited) or lower than Baa2 (Moody’s) with at least two

of the three rating agencies.

The occurrence of one or more of the aforementioned

scenarios could have negative effects on Snam Group’s

operations, results, balance sheet and cash flow,

resulting in additional costs and/or liquidity issues.

These commitments do not carry any comments that

provide for compliance with ratios of an economic

and/or financial nature.

Market value of financial instruments

Below is the classification of financial assets and

liabilities measured at fair value in the statement of

financial position in accordance with the fair value

hierarchy defined on the basis of the significance of the

inputs used in the measurement process. More

specifically, in accordance with the characteristics of the

inputs used for measurement, the fair value hierarchy

comprises the following levels:

level 1: prices quoted (and not amended) on active

markets for the same financial assets or liabilities;

level 2: measurements made on the basis of inputs

differing from the quoted prices referred to in the

previous point, which, for the assets/liabilities

submitted for measurement, are directly (prices) or

indirectly (price derivatives) observable;

level 3: inputs not based on observable market data.

In relation to the foregoing, the classification of the

assets and liabilities measured at fair value in the

statement of financial position, according to the fair

value hierarchy, regarded: (i) derivative financial

instruments as at 30 June 2019, classified at level 2 and

entered under Note 8 “Other current and non-current

assets” (Euro 6 million) and Note 15 “Other current and

non-current liabilities” (Euro 68 million); (ii) the minority

share in Adriatic LNG, measured at FVTOCI, classified as

level 3 and explained at Note 12 “Other equity

investments” (Euro 38 million).


Disputes and other measures Snam is involved in civil, administrative and criminal

cases and legal actions related to its normal business

activities. According to the information currently

available and considering the existing risks, Snam

believes that these proceedings and actions will not

have material adverse effects on its consolidated

financial statements. The following is a summary of the

most important proceedings for which significant

changes to the situation reported in the 2018 Annual

Financial Report occurred, including the new

proceedings and closed proceedings. Unless indicated

otherwise, no allocation has been made for the litigation

described below because the Company believes it

improbable that these proceedings will have an

unfavourable outcome or because the amount of the

allocation cannot be reliably estimated.

Criminal disputes

Snam Rete Gas – Sestino (AR) incident

The public prosecutor at the Court of Arezzo initiated

criminal proceedings in relation to the incident that took

place on 19 November 2015 in the town of Sestino (AR),

involving a gas leak on a section of piping. On 26

November 2015, a one-time notice of technical

investigation was served which indicated that certain

directors and managers, including those who served in

the past, are included in the list of parties under

investigation. The Public Prosecutor has appointed its

own technical consultants. Following a request made by

the Public Prosecutor, the Investigating Judge

definitively ordered the archiving of the proceedings.

Snam Rete Gas S.p.A. - Tresana incident

The public prosecutor at the Massa district court

initiated criminal proceedings in relation to an incident

that occurred on 18 January 2012 in the Municipality of

Tresana regarding an explosion that took place during

maintenance work carried out by a subcontractor. After

committal to trial was ordered by the preliminary

hearing judge, the trial began on 23 June 2015. At the

hearing of 15 September 2017, the district court of

Massa acquitted all the defendants of the offences

charged against them due to lack of evidence. On 12

January 2018, the Public Prosecutor filed an appeal. On

17 April 2019, the Court of Appeal of Genoa confirmed

by judgement the outcome of the first instance

proceedings. Therefore, the complete acquittal was

declared from the charges of manslaughter insofar as

there is no case to answer and there is no need to

proceed for the alleged violations of accident

prevention rules as the statutory terms have expired.

Italian Regulatory Authority for Energy, Networks and the Environment – ARERA

Snam Rete Gas S.p.A. - Resolution 250/2015/R/gas, published on 01 June 2015, concerning: “Adoption of measures on the odorisation of gas for domestic and similar uses of end customers directly connected to the natural gas transportation network”

Through Resolution 250/2015/R/gas, following the

ruling of the Milan regional administrative court, ARERA

amended Article 5 of Resolution 602/2013/R/gas dealing

with the obligation of transportation companies to

odorise gas for end users connected directly to the

transportation network, which, taking into account the

categories of use indicated in the TISG, do not use the

gas delivered for merely technological purposes. In this

regard, ARERA ordered that the transportation

companies shall complete the implementation of the

adaptation plans by 31 January 2017, after carrying out

a survey of the redelivery points involved (by 31 July

2015) and sending ARERA the adaptation plan (by 30

November 2015), to be updated every six months, with

the description of the technical solution identified. Snam

Rete Gas has appealed against the above resolution

believing that the deadline for implementing the plan

can only be decided after the survey. Having carried out

the survey, when sending the plan and the subsequent

updates Snam Rete Gas once again found that the

deadline set by ARERA with its Resolution

484/2016/E/gas was unreasonable. Consequently, in the

appeal with which Snam Rete Gas challenged Resolution

250/2015/R/gas, it also included an appeal for further

grounds against Resolution 484/2016/E/gas asking for

the resolutions challenged to be suspended. The

request for suspension has been accepted by the

Council of State. During the proceedings to discuss the

merits, following the hearing held on 16 January 2019,

with judgement no. 869 of 17 April 2019, the Milan

Regional Administrative Court upheld the petition

submitted by Snam Rete Gas, declaring that the terms

set by the Authority were indeed unlawful insofar as

clearly unreasonable as they failed to take into account

the complexity of the activities to be carried out by the

transportation operator and the need for the

collaboration of end customers responsible for

guaranteeing safe use of the gas for the workers

concerned. Please note that by Ministerial Decree of 18


May 2018, the Ministry for Economic Development

assigned the task of guaranteeing safe use of gas to end

customers directly connected to the natural gas

transportation network, where they should fully or even

only partly make domestic or similar use of gas, even if

combined with technological uses. Following the

activities functional to the implementation of the

Decree, the end customers have certified that they

guarantee safe use of the gas as per the Decree. Under

the scope of the Consultation document (DCO

203/2019/R/Gas) prior to the review of the regulation on

the quality of the transportation service, ARERA

expressed its intention: (i) of confirming the regulatory

framework pursuant to said Resolution 250/2015/R/Gas

without envisaging a deadline by which the Plan is to be

implemented; and (ii) of promoting a regulatory change

aimed at coordinating the regulation with the above

Ministerial Decree.

Tax disputes

GNL Italia S.p.A. - Local duties

The Council of Porto Venere served notices of

assessment for TARSU/TARI relative to the years from

2012 to 2017, and for IMU relative to 2013, for a total

amount of Euro 578 thousand.

GNL Italia S.p.A. settled the dispute with the council by

paying approximately Euro 184 thousand.

TEP Energy Solution

On 14 December 2018, TEP Energy Solution S.r.l. was

served a Formal Report of Findings limited to the tax

period 01 January 2013/31 December 2013. The Formal

Report of Findings is the result of a tax audit launched

with regards to the company on 27 September 2018, in

order to control compliance with the provisions of

legislation governing income tax, VAT and other tax.

This investigation was sparked by another, more

extensive one launched by the Milan Public Prosecution

regarding a tax fraud system based on the issue and use

of invoices for transactions that were objectively and

subjectively non-existent, under the scope of the

purchase and sale of energy certificates. After

completion of the tax audit, on 21 January 2019, TEP

Energy Solution was served the Formal Report of

Findings relative to the tax period 01 January 2014 and

31 December 2014 and TEP REALE ESTATE, the Formal

Report of Findings relative to the years 2013 and 2014.

The findings mainly regarded the alleged non-

deductibility of the VAT.

The company has submitted a request for tax

settlement, also on the basis of the opinions given by

authoritative independent experts. A provision has

been made for risks, at the same time, the contractual

guarantees issued by the sellers in favour of Snam were

activated in connection with the latter's acquisition of

control of the company.

Other commitments and risks

The other unevaluated commitments and risks are:

Commitments arising from the contract for the acquisition of Stogit from Eni

As at 30 June 2019, the residual commitments resulting

from said agreements concern hedging mechanisms

aimed at keeping within Eni the risks and/or benefits

that may derive from: (i) an eventual valuation of the

gas owned by Stogit at the time of the transfer of the

shares which differs from the valuation currently

recognised by Autorità di Regolazione per Energia Reti

e Ambiente (ARERA) in the event of an even partial

transfer thereof when given quantities may no longer

be instrumental to the regulated concessions and thus

become available for sale; (ii) transfer of storage

capacity that may eventually become freely available on

a negotiated basis and no longer a regulated basis, or

else from a transfer of concessions including those

pertaining to Stogit at the time of the transfer of the

shares which may eventually be dedicated

predominantly to storage business no longer subject to

regulation.

Commitments arising from the contract through which Edison acquired Terminale GNL Adriatico S.r.l.

The price determined for the acquisition of Terminale

GNL Adriatico S.r.l. is subject to adjustment mechanisms

based on commitments made when the transaction was

completed, which were also intended to apply after the

date of execution.

As at 30 June 2019, the commitment arising from the

aforementioned agreement refers to the hedging

mechanisms established to maintain the risks and/or

benefits arising from conclusion of new contracts for

usage of the terminal capacity under Edison.


Commitments arising from the purchase contract of TEP Energy Solutions S.r.l.

The price determined for the acquisition of TEP Energy

Solutions S.r.l. is subject to adjustment mechanisms

based on contractual commitments made, which were

also intended to apply after the date of execution.

As at 30 June 2019, the commitment resulting from the

agreement regards hedging mechanisms based on the

economic results achieved by TEP in the financial years

2018-2020, to be regulated contractually for cash, for

an amount that cannot in any case exceed Euro 2.5

million.


20) Revenue The breakdown of revenue for the first half 2019, which totalled Euro 1,332

million (Euro 1,271 million in 2018), is shown in the following table.

(€ million) 2018 2019

Core business revenue 1,258 1,318

Other revenue and income 13 14

1,271 1,332

First half

The reasons for the most significant changes are described in the “Financial

review and other information” chapter of the Interim directors' report.

Below are details of revenue from contracts with customers, unbundled

according to existing operating business segments16:

(€ million) 2018 2019

Natural gas transportation 1,014 1,062

Liquefied Natural Gas (LNG) regasification 9 11

Natural gas storage 225 216

Corporate and other activities 23 43

1,271 1,332

First half

The Group generates most of its revenue in Italy. An analysis of revenue by

business segment, highlighting consolidation eliminations and adjustments,

can be found in Note no. 27 - “Information by business segment”.

Snam’s business is not affected by seasonal factors which would have a

significant impact on its annual or interim economic-financial results.

Core business revenue

Core business revenue of Euro 1,318 million mainly consists of regulated

revenue from the transportation segment (Euro 1,050 million), natural gas

storage (Euro 216 million) and LNG regasification (Euro 9 million).

Core business revenue is reported net of the tariff components, relating to

the transportation sector, additional to the tariff, and tariff surcharges

applied to cover expenses of a general nature of the gas system (Euro 647

million, Euro 586 million in the first half 2018). Amounts received from Snam

are paid in full to the Energy and Environmental Services Fund (CSEA).

16 In accordance with the accounting standard IFRS 15 “Revenue from contracts with customers”, paragraph 114, Snam has chosen to unbundle revenue

according to existing operating business segment. This representation takes into account information subject to regular review at the highest operative decision-making level, in order to assess the financial performance of the operating segments and information used by the entity or users of the entity’s financial statements to assess the entity's financial performance.


Other revenue and income

Other revenue and income, totalling Euro 14 million (Euro 13 million in the first

half of 2018) refers mainly to income for the incentives of the Balancing

Manager (RdB) in accordance with ARERA resolution 554/2016/R/gas (Euro 8

million; Euro 6 million in the first half 2018) and gas sales (Euro 2 million).

21) Operating costs The breakdown of operating costs for the period, which totalled Euro 221

million (Euro 207 million in first half 2018), is shown in the following table:

(€ million) 2018 2019

Purchases, services and other costs 130 135

Personnel cost 77 86

207 221

First half

The reasons for the most significant changes are described in the “Financial

review and other information” section of the Interim directors’ report.

Purchases, services and other costs

Purchases, services and other costs, which amounted to Euro 135 million (Euro

130 million in the first half 2018), can be broken down as follows:

(€ million) 2018 2019

Costs for purchase of raw materials, consumables, supplies and goods 23 83

Costs for services 132 138

Costs for the use of third- party assets 12 15

Changes in raw materials, consumables, supplies and goods (5) (18)

Net accrual to (utilisation of) provisions for risks and charges 3 2

Other operating expenses 17 18

182 238

Less:

Increase on internal w ork - property, plant and equipment (52) (103)

- of which costs for purchase of raw materials, consumables, supplies and goods (10) (50)

- of which costs for services (42) (53)

130 135

First half


Personnel cost

Personnel cost, which amounted to Euro 86 million (Euro 77 million in the first

half 2018), can be broken down as follows:

(€ million) 2018 2019

Wages and salaries 73 78

Social security contributions (pensions and healthcare assistance) 21 22

Employee benefits 3 5

Other expenses 8 4

105 109

Less:

Increase on internal w ork (28) (23)

77 86

First half

Average number of employees

The average number of employees included in the scope of consolidation,

broken down by status, is as follows:

Professional status 30.06.2018 31.12.2018 30.06.2019

Executives 100 104 111

Managers 457 464 495

Office workers 1,622 1,650 1,707

Manual workers 716 731 731

2,895 2,949 3,044

The average number of employees is calculated on the basis of the monthly

number of employees for each category.

Personnel in service as at 30 June 2019 numbered 3,014 resources (2,884

and 3,016 resources respectively at 30 June 2018 and 31 December 2018)

with an increase of 130 resources on 30 June 2018, mainly due to resources

obtained from the acquisitions of IES Biogas (46 resources) and a Cubogas

business unit (64 resources) and a reduction of 3 resources with respect to 31

December 2018.

22) Amortisation, depreciation and impairment losses

Amortisation, depreciation and impairment losses, which amounted to Euro

355 million (Euro 335 million in the first half 2018), can be broken down as

follows:

(€ million) 2018 2019

Total amortisation and depreciation 335 355

- Property, plant and equipment 306 323

- Intangible assets 29 32

Impairment losses

335 355

First half


For more details about amortisation, depreciation and impairment losses

relating to tangible and intangible fixed assets, please see Note no. 9

“Property, plant and equipment”, and Note no. 10 “Intangible fixed assets”.

An analysis of amortisation, depreciation and impairment by business

segment can be found in Note 27 “Information by business segment”.

23) Financial expense (income) Financial expense (income), which amounted to Euro 85 million (Euro 98

million in the first half 2018), can be broken down as follows:

(€ million) 2018 2019

Financial expense (income) 96 76

Financial expense 97 80

Financial income (1) (4)

Other financial expense (income) 2 8

Other financial expense 7 9

Other financial income (5) (1)

Losses (Gains) on hedging derivatives – ineffective portion 1

Losses from derivative contracts 1

98 85

First half

(€ million) 2018 2019

Financial expense (income) 96 76

Expense on financial debt: 103 85

- Interest and other expenses on bond loans 94 75

- Fees on loans and bank credit lines 4 4

- Interest expense on credit lines and loans due to banks and other lenders 5 6

Financial expense capitalised (6) (5)

Income from financial receivables (1) (4)

- Bank interest income (1) (4)

Other financial expense (income): 2 8

- Accretion discount (*) 5 4

- Other expenses 2 5

- Interest income on financial receivables held for operating activities (4)

- Other income (1) (1)

Losses (Gains) on hedging derivatives – ineffective portion 1

98 85

First half

(*) This item refers to the increase in provisions for risks and charges, which are reported at discounted value under Note 16 “Provisions for risks and charges”.


Expense on financial payables (Euro 85 million) related to: (i) interest and

other expense on bonds (Euro 75 million), referring essentially to interest on

18 bonds; (ii) the portion attributable to the period of upfront fees on

revolving lines of credit (Euro 2 million) and credit line non-usage fees (Euro 2

million); and (iii) interest due to banks on revolving lines of credit and

maturing loans (Euro 6 million in total).

Financial expense capitalised (Euro 5 million) related to the portion of

financial expense capitalised pursuant to investment activities.

Other financial expense/income (Euro 8 million) mainly regard the financial

expense connected with the passing of time relative to the provisions for the

abandonment and restoration of sites of storage and transportation

segments (Euro 4 million).

24) Income from equity investments Income on equity investments, which amounted to Euro 118 million (Euro 85


(€ million) 2018 2019

Effect of valuation using the equity method 85 118

- Net income from valuation using the equity method 83 116

- Dividends 2 2

85 118

First half

Details of capital gains and capital losses from the valuation of equity

investments using the net equity method can be found in Note 11 “Equity-

accounted investments”. Dividends (Euro 2 million) relate to the minority

share held in the company Terminale GNL Adriatico S.r.l., measured at fair

value with equivalent entry under shareholders’ equity “Fair Value Through

Other Comprehensive Income - FVTOCI”.


25) Income taxes Income taxes for the period, which amounted to Euro 208 million (Euro 193


(€ million) 2019

IRES IRAP Total IRES IRAP Total

Current taxes 175 32 207 191 32 223

Current taxes for the period 174 32 206 189 32 221

Adjustments for current taxes relating to previous years 1 1 2 2

Deferred and prepaid taxes (14) (14) (15) (15)

Deferred taxes (8) (8) (27) (3) (30)

Deferred tax assets (prepaid taxes) (6) (6) 12 3 15

161 32 193 176 32 208

First half

2018

The impact of taxes on pre-tax profit for the period (tax rate) is 26.35%

(27.0% in the first half of 2018) in view of the theoretical tax rate of 27.76%

(28.09% in the first half of 2018), which is obtained by applying the statutory

tax rate of 24.0% (IRES) to pre-tax profit and 3.9% (IRAP) to the net value of

production. The reduction in the tax rate with respect to the theoretical rate

is mainly due to the valuation of the equity investments using the equity

method, the effects of which were partly offset by the tax on the dividend.

26) Earnings per share Basic earnings per share, at Euro 0.176 per share (Euro 0.154 per share in the

first half 2018), are calculated by dividing the net profit held by Snam (Euro

581 million; Euro 523 million in the first half 2018) by the weighted average

number of Snam shares outstanding during the period, excluding treasury

shares.

Diluted earnings per share are calculated by dividing net profit by the

weighted average number of outstanding shares during the period,

excluding treasury shares, increased by the number of shares which could

potentially be added to the outstanding shares. For the first half 2019, the

diluted earnings per share takes into account the potential effects from

assignment of treasury shares in portfolio against the issuing of the bond

convertible into ordinary Snam shares and those from the long-term share-

based incentive plan, with reference to 2017 and 2018 assignments.

The weighted average number of outstanding shares used to calculate

diluted earnings per share is 3,385,643,532 and 3,468,355,207 respectively

for the first half of 2019 and the first half of 2018.


The reconciliation of the weighted average number of outstanding shares

used to determine basic and diluted earnings per share is set out below:

2018 2019

Weighted average number of outstanding shares used to calculate basic earnings per share 3,385,300,141 3,300,840,916

Number of shares with potential dilution effect 83,055,066 84,802,616

Weighted average number of outstanding shares used to calculate diluted earnings per share 3,468,355,207 3,385,643,532

Net profit is attributable to Snam (€ million) 523 581

Dilution effect of the convertible bond (€ million) 2 2

Net profit for diluted earnings (€ million) 525 583

Basic earnings per share (€ per share) (amounts in € per share) 0.154 0.176

Diluted earnings per share (€ per share) (amounts in € per share) 0.151 0.172

First half

27) Information by business segment The information by business segments has been prepared in accordance with

the provisions of IFRS 8 “Operating segments”, which requires the

information to be presented in a manner consistent with the procedures

adopted by the Company’s management when taking operational decisions.

Consequently, the identification of the operating business segments and the

information presented are defined on the basis of the internal reporting used

by the Company’s management for allocating resources to the different

segments and for analysing the respective performances.

In the first half 2019, the business segments for which information is

provided coincide with those in place as at 31 December 2018, namely

natural gas transportation (“Transportation”), LNG regasification

(“Regasification”) and natural gas storage (“Storage”). They relate to activities

carried out predominantly by Snam Rete Gas and ITG, GNL Italia and Stogit

respectively.


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First half 2018

Net core business revenue (a) 101 1,044 294 11 1,450

less: inter- segment revenues (78) (42) (70) (2) (192)

Revenue from third parties 23 1,002 224 9 1,258

Other revenue and income 12 1 13

Net accrual to provisions for risks and charges (2) (1) (3)

Amortisation, depreciation and impairment losses (4) (279) (50) (2) (335)

EBIT (11) 569 169 2 729


Total assets 3,671 14,186 4,081 102 22,040

- of which investments with valuation using the equity method 1,519 1,519

Total liabilities 13,150 9,947 2,732 40 (9,925) 15,944

Investments in tangible and intangible fixed assets 2 314 31 2 349

First half 2019

Net core business revenue (a) 132 1,080 297 15 1,524

less: inter- segment revenue (89) (30) (81) (6) (206)

Revenue from third parties 43 1,050 216 9 1,318

Other revenue and income 12 2 14

Net accrual to provisions for risks and charges (5) 3 (2)

Amortisation, depreciation and impairment losses (8) (295) (50) (2) (355)

EBIT (22) 607 169 2 756


Total assets 4,656 14,112 4,119 126 23,013

- of which investments with valuation using the equity method 1,745 1,745

Total liabilities 14,286 9,792 2,750 64 (9,944) 16,948

Investments in tangible and intangible fixed assets 3 340 60 5 408

(a) Balances before elimination of intra-segment rev enue.

Revenue is generated by applying regulated tariffs or market conditions. The

revenue was generated mainly in Italy; costs were incurred almost entirely in

Italy.


28) Related-party transactions Considering the de facto control of CDP S.p.A. over Snam S.p.A., pursuant to

the international accounting standard IFRS 10 - Consolidated Financial

Statements, based on the current Group ownership structure the related

parties of Snam are represented by Snam's associates and joint ventures as

well as by the parent company CDP S.p.A. and its subsidiaries, associates and

companies under joint control (whether directly or indirectly) by the Ministry

of Economy and Finance. Members of the Board of Directors, Statutory

Auditors and managers with strategic responsibilities, and their relatives, are

also regarded as related parties of Snam Group and CDP.

As explained in detail below, related-party transactions mainly concern the

exchange of goods and the provision of regulated services in the gas sector.

Transactions between Snam and related parties are part of ordinary business

operations and are generally settled under market conditions, i.e. the

conditions that would be applied between two independent parties. All the

transactions carried out were in the interest of the companies of the Snam

Group.

Pursuant to the provisions of the applicable legislation, the Company has

adopted internal guidelines to ensure that transactions carried out by Snam

or its subsidiaries with related parties are transparent and correct in their

substance and procedure.

Directors and auditors declare their interests affecting the Company and the

Group every six months, and/or when changes in said interests occur; they

also inform the Chief Executive Officer (or the Chairman, in the case of the

Chief Executive Officer), who in turns informs the other directors and the

Board of Statutory Auditors, of individual transactions that the Company

intends to carry out and in which they have an interest.

Snam is not subject to management and coordination. Snam manages and

coordinates its subsidiaries, pursuant to Article 2497 et seq. of the Italian Civil

Code.

With regard to related-party transactions, pursuant to the disclosure

obligations required by Consob Regulation No. 17221 of 12 March 2010, we

note the stipulation between Snam Rete Gas S.p.A. and Eni S.p.A. of the

transport contract for natural gas for the Thermal Year 2018 - 2019. On 04

February 2019, the value of the transport contract exceeded the significance

threshold of 140 million as defined in the Snam Guideline “Procedure for

transactions in which directors and auditors have an interest and related-

party transactions”.

The contract is defined in accordance with the procedures defined in the

Snam Rete Gas S.p.A. Network Code approved by the Regulatory Authority

for Energy Networks and the Environment (ARERA) pursuant to Resolution

75/2003, as amended.

The calculation of a fee for services rendered take place through application

of the natural gas transportation and dispatching tariffs approved by

Resolution of the Authority.

This contract constitutes an ordinary transaction concluded at arm’s length or

equivalent conditions insofar as, in accordance with paragraph 2 of the

Guidelines (published on the website www.snam.it): (i) it is part of the core


business and related financial assets; (ii) the conditions applied are based on

regulated tariffs.

The amounts involved in commercial, financial and other transactions with

the above-mentioned related parties are shown below. The nature of the

most significant transactions is also stated.

Commercial and other transactions

Commercial and other transactions can be broken down as follows:

(€ million) ReceivablesOther assets Payables

Other liabilities

Guarantees and commitments Goods Services Other Services Other

Unconsolidated subsidiaries, associates and companies under joint control

- Interconnector (UK) Ltd 1

- Senfluga Energy Infrastructure Holding S.A. 18

- TAG GmbH 12 11 1 1

- Teréga S.A.S. 1

- Trans Adriatic Pipeline AG (TAP) 2 8 19 4

15 19 20 18 6

Companies controlled by the parent company Cassa Depositi e Presiti

- Italgas Group 15 6 8

15 6 8

Companies under joint control by the parent company Cassa Depositi e Presiti

- Saipem Group 21 7

- Valvitalia Finanziaria S.p.A. 1 1

22 1 7

Companies owned or controlled by the State

- Gestore dei mercati energetici S.p.A. 3 19 1

- Anas group 1 1 3

- Enel Group (c) 37 32 192

- Eni Group (c) 89 39 1 9 630

- Ferrovie dello Stato group 1 2

131 1 95 2 9 822

Total 161 1 142 20 18 3 16 836

30 June 2018 First half 2018

Costs (a) Revenue (b)

(a) Includes costs for goods and services to be used in investment activities.

(b) Before tariff components which are offset in costs.

(c) Inclusive of amounts on the balance sheet relating to balancing activities.


(€ million) ReceivablesOther assets Payables

Other liabilities

Guarantees and commitments Goods Services Other Services Other

Unconsolidated subsidiaries, associates and companies under joint control

- Interconnector (UK) Ltd 2

- Senfluga Energy Infrastructure Holding S.A. 3

- TAG GmbH 1 1

- Teréga S.A.S. 1

- Trans Adriatic Pipeline AG (TAP) 1 25 275 8

- Snam Foundation 1

7 25 275 11

Companies controlled by the parent company Cassa Depositi e Presiti

- Italgas Group 1 1 1

- Cassa Depositi e Presiti 1

1 2 1

Companies under joint control by the parent company Cassa Depositi e Presiti

- Saipem Group 17 9

- Valvitalia Finanziaria S.p.A. 1 1 2

18 1 11


- Gestore dei mercati energetici S.p.A. 4 6 3

- Anas group 1 1 3 1

- Enel Group (c) 70 21 192

- Eni Group (c) 248 19 10 650

- Ferrovie dello Stato group 1 1 2

- Finmeccanica group 1

324 1 50 3 11 845

Total 332 1 70 25 275 4 22 1 856

Costs (a) Revenue (b)

30 June 2019 First half 2019

(a) Includes costs for goods and services to be used in investment activities.

(b) Before tariff components which are offset in costs.

(c) Inclusive of amounts on the balance sheet relating to balancing activities.

Companies under joint control and associates

The main commercial relations with companies under joint control and

associates refer to:

the provision of services to TAG (Trans Austria Gas Pipeline) for the

realisation of the transport infrastructures governed by the Engineering,

Procurement and Construction Management (EPCM) Agreement;

the provision to TAP (Trans Adriatic Pipeline) of services for the

construction of transport infrastructures governed by the Engineering

and Project Management (EPMS) Agreement;


the residual commitment of Snam S.p.A. as shareholder and in connection

with the project financing for the development of the gas line in respect

of the share held, equal to 20%, in regard to TAP17.

Companies under joint control of the parent company Cassa Depositi e Presiti (Italian investment bank)

Among the main commercial relations with companies under joint control by

Cassa Depositi e Presiti (Italian investment bank) we note the purchase from

Saipem of design and supervision services for the realisation of natural gas

transport and storage infrastructures, regulated by contracts concluded at

arm’s length.


The key transactions with State-owned or controlled companies relate to:

the provision to the Eni Group and the Enel Group of natural gas

transport, regasification and storage services, which are settled on the

basis of tariffs set by the Authority;

purchase from the Eni Group of electricity used for operations.

Additionally, as at 30 June 2019, there were assets resulting from

transactions with Eni as part of the national tax consolidation scheme in force

until 31 July 2012.

Financial transactions

Financial transactions can be broken down as follows:

First half 2018

(€ million) Receivables Payables Income

Jointly controlled companies and associates

- Trans Adriatic Pipeline AG (TAP) 483 4

483 4

First half 2019

(€ million) Receivables Payables Guarantees Income

Jointly controlled companies and associates

- Trans Adriatic Pipeline AG (TAP) 1 1,129

1 1,129

30 June 2018

30 June 2019

17 Further information is available in note 19 “Guarantees, commitments and risks - Commitments, guarantees and pledges - TAP”.


Companies under joint control and associates

Financial transactions with companies under joint control and associates

regard the first demand guarantee (the “Debt Service Guarantee”) on the

loan contract of the associate TAP18, in the phase relative to the construction

and commissioning of the plant.

Impact of related-party transactions or positions on the balance sheet, income statement and statement of cash flows

The impact of related-party transactions or positions on the balance sheet

and income statement is summarised in the following table:

(€ million)Total Related % Share Total Related % Share

Statement of financial position

Trade receivables and other current receivables 1,347 420 31.2 990 332 33.5

Other non- current assets 36 1 2.8 24 1 4.2

Short- term financial liabilities 1,976 2,925

Trade payables and other payables 1,768 274 15.5 1,622 70 4.3

Other current liabilities 86 27 31.4 69 25 36.2

31.12.2018 30.06.2019

(€ million) Total Related % Share Total Related % Share

Income statement

Core business revenue 1,258 836 66.5 1,318 856 64.9

Purchases, services and other costs 130 12 9.2 135 13 9.6

Financial income 6 4 66.7 5

2018 2019

First half First half

18 Further information is available in note 19 “Guarantees, commitments and risks - Commitments, guarantees and pledges - TAP”.

Related-party transactions are generally governed on the basis of market

conditions, i.e. the conditions which would be applied between two

independent parties.


The principal cash flows with related parties are shown in the following table.

(€ million) 2018 2019

Revenue and income 836 856

Cost and expense (12) (13)

Change in trade receivables and other receivables 314 79

Change in trade payables and other payables 34 (106)

Change in other current and non- current liabilities 6 (2)

Net cash flow from operating activities 1,178 813

Investments:

- Tangible and intangible fixed assets (7) (14)

- Financial receivables (106)

- Change in payables and receivables relating to investments (2) (2)

Cash flow from investments (115) (16)

Net cash flow from investment activities (115) (16)

Increase (decrease) in short- term financial payables (14)

Net cash flow from financial assets (14)

First half

The effect of cash flows with related parties is shown in the following table:

(€ million) Total Related % Share Total Related % Share

Cash flow from operating activities 1,525 1,178 77.2 1,221 813 66.6

Cash flow from investment activities (488) (115) 23.6 (427) (16) 3.7

Cash flow from financing activities (413) (14) 3.4 (169)

First half First half

2018 2019

29) Post-balance sheet events There were no post-balance sheet events after the end of the period.


Certification of the condensed interim financial statements pursuant to Article 154-bis, paragraph 5 of Legislative Decree No. 58/1998 (Consolidated Finance Act)

1. The undersigned Marco Alverà and Franco Pruzzi, as Chief Executive Officer and the Manager charged with

preparing the Company’s financial reports of Snam S.p.A. respectively, certify, taking into account Article 154-

bis, paragraphs 3 and 4 of Legislative Decree No. 58 of 24 February 1998:

the adequacy, considering the Company’s characteristics, and

the effective implementation of the administrative and accounting procedures for the preparation of

the condensed interim financial statements at 30 June 2019, during the first half of 2019.

2. The administrative and accounting procedures for the preparation of the condensed interim financial

statements at 30 June 2019 and the assessment of their adequacy were carried out using the rules and

methods set out in line with the Internal Control - Integrated Framework model issued by the Committee of

Sponsoring Organisations of the Treadway Commission, a benchmark framework for the internal control system

generally accepted internationally.

3. It is also certified that:

3.1 The condensed interim financial statements at 30 June 2019:

a) were prepared in accordance with the applicable international accounting standards recognised in the

EU pursuant to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19

July 2002;

b) are consistent with the accounting records and ledgers;

c) are able to provide a true and fair view of the financial position, results of operations and cash flows

of the issuer and of the companies included in the scope of consolidation.

3.2 The Interim directors’ report includes a fair review of the references to important events which occurred

during the first six months of the year and their impact on the condensed interim financial statements,

together with a description of the main risks and uncertainties for the remaining six months of the year.

The Interim directors’ report also includes a fair review of the information about key transactions with

related parties.

31 July 2019

/Signature/ Marco Alverà /Signature/ Franco Pruzzi

Marco Alverà Franco Pruzzi

Chief Executive Officer Manager charged with preparing

the Company’s financial reports


Independent auditors’ report

REVIEW REPORT ON CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

To the Shareholders of Snam SpA

Foreword

We have reviewed the accompanying condensed interim consolidated financial statements of Snam SpA and its subsidiaries (the Snam Group) as of 30 June 2019, comprising the statement of financial position, income statement, statement of comprehensive income, statement of changes in shareholders’ equity, cash flows statement and related notes. The directors of Snam SpA are responsible for the preparation of the condensed interim consolidated financial statements in accordance with International Accounting Standard 34 applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these condensed interim consolidated financial statementsbased on our review.

Scope of review

We conducted our work in accordance with the criteria for a review recommended by Consob in Resolution No.10867 of 31 July 1997. A review of condensed consolidated semiannual financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than a full-scope audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the condensed consolidated semiannual financial statements.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim consolidated financial statements of the Snam Group as of 30 June 2019 are not prepared, in all material respects, in accordance with International Accounting Standard34 applicable to interim financial reporting (IAS 34) as adopted by the European Union.

Milan, 1 August 2019

PricewaterhouseCoopers SpA

Signed by

Giulio Grandi(Partner)

This report has been translated into English from the Italian original solely for the convenience of international readers

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