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A review of facts, figures and results
FACT BOOK 2016
Snam Fact Book 2016
Introduction 1
The Fact Book is a communications tool for those who want to fully
understand Snam, in particular with the objective of evaluating the
investment opportunities in its equity and debt securities.
The publication outlines the Group’s structural features, analyses its
financial performance, and presents its Strategic Plan guidelines and targets.
The historical data as well as the future prospects are illustrated in relation
to the challenges and opportunities of the framework within which Snam
operates.
The Fact Book 2016, the second edition of the document, has the same
structure as the 2015 publication. It is divided into three sections,
respectively covering the Group Profile, Business Focus and Performance.
This year’s Fact Book also includes a few introductory pages dedicated to
the separation of Italgas from Snam; the transaction was presented on
29 June 2016 and completed in the following month of November, with
significant modifications in the Group’s structure.
This publication provides in-depth information about Snam that is
complementary to that included in both the Annual Report and the Report
on Corporate Social Responsibility.
Snam Fact Book 2016
2 Index
Snam Fact Book 2016
Index 3
Group Profile
12. Snam, the transformation from a Group to a Company13. An integrated infrastructure system14. Management team15. Shareholders16. The first asset: the integrated network of infrastructure17. The evolution of the European gas market18. Moving towards a single European energy market19. Snam: at the heart of the European gas flows20. International development – Assets21. The model of value creation22. Stakeholder relations23. Materiality of objectives24. Governance in action25. The culture of legality
26. Enterprise Risk Management27. Remuneration policy28. The value of Corporate Social Responsibility29. Inclusion in SRI indices30. Main elements of the tariff framework in Italy31. Structure of reference revenues32. Regulation in Italy33. Rate of return on capital34. The new Snam: strategic priorities35. Investment plan36. Operating efficiency37. Financial strategy38. Debt management39. Debt management post-demerger40. Shareholder remuneration
4. Vision5. New structure of the Snam Group6. Strategy behind the demerger7. New structure after the demerger
8. Two businesses with different profiles9. Snam and Italgas: new opportunities10. Italgas post-demerger: key figures and investments
Business Focus
42. Transport – Overview43. Transport and LNG – Investments 44. Transport – Projects45. New technologies that facilitate operations46. Storage – Overview47. Storage – Investments 48. Storage – Projects49. Initiatives in storage
50. Innovation in storage51. LNG - Overview52. Innovations in the LNG business53. Snam in Europe54. Transparency and quality55. Safety56. Initiatives for the environment
Performance
58. Operational metrics59. Income Statement figures60. Balance Sheet figures61. Cash flow62. Investments in joint ventures63. Financial-statement indicators64. Transport – Performance65. Storage – Performance66. Distribution – Performance67. Regasification – Performance
68. Indicators by business segment69. Environmental performance70. Snam and the Stock Exchange71. Translating financial results into shareholder returns72. Remuneration through dividends73. Total Shareholder Return74. Understanding Snam for investing in the shares75. Glossary76. Disclaimer
Snam Fact Book 2016
4
Vision
Snam is Europe’s leading operator in the creation and integrated management of natural gas infrastructure. It facilitates the conditions for fair-priced energy by efficiently managing the gas system, developing infrastructure, and offering integrated services for the
market. It promotes the integration of European networks, including through strategic partnerships with major operators in the sector along the continent’s main energy corridors. Snam is active in natural gas transportation, storage and regasification.
Snam Fact Book 2016
5
The separation of Italgas from Snam
New structure of the Snam group
Snam Fact Book 2016
6
Strategy behind the demergerA transaction planned to offer advantages to both Companies
With a view toward maximising the value of the Group’s positioning in different operating areas, in the second part of 2016 Snam has completed the separation of Italgas, company operating in the gas distribution business as country’s market leader, with a share of more than 30%. Distribution is a business that differs in many respects from the rest of the Group’s activities (transport, LNG and storage on a European scale). The differences regard not only the structural characteristics, but also the challenges and opportunities currently presented by the distribution sector in Italy. The separation project provides advantages to both
Companies, thanks to better equipments to pursue their respective objectives independently, dedicated management teams and appropriate capital structure.On the one hand, Snam will be completely focused on the execution of its capex programme, aimed to strengthen its leadership as an integrated gas infrastructure operator on the European scene. On the other hand, Italgas will be able to focus entirely on the opportunities provided by the consolidation process of the distribution sector in Italy, which is taking shape through competitive tenders for the renewal of concessions.
Demerger perimeter
Regasification100%
Storage100%
Distribution99.69%
Distribution100%
Distribution100%
Transport100%
GroupinsuranceServices100%
GASRULE INSURANCE
LIMITED
INTERNATIONALASSOCIATES
TAG:84.47%
TIGF:40.5%
TOSCANA ENERGIA:
49%
IUK: 31.6%JV con Fluxys
OTHERDISTRIBUTION
TAP:20%
PRISMA:14.7%
Transport / Storage
Transport Transport Transport
Distribution Distribution
Snam Fact Book 2016
7
New structure after the demergerSnam retains a strategic minority stake in Italgas to benefit from the value generated by the new entity
The separation of Italgas occured by means of a partial and proportional demerger, which has been approved at the Snam Shareholders’ Meeting held on 1 August 2016. The transaction resulted, on 7 November 2016, in the listing of Italgas SpA, the new company that controls 100% of Italgas Reti SpA, the operating company. The Italgas shares have been assigned to Snam shareholders on the ratio of: 1 Italgas share for every 5 Snam shares.
Snam retains a 13.5% stake of the share capital of Italgas, as part of a three-year shareholder agreement with CDP. Snam will thus be able to benefit from the attractive investment prospects from both a financial and strategic perspective. The transaction will not change Snam’s debt rating.
Italgas has direct access to the capital market: Fitch has assigned a BBB+ rating to its debt, while Moody’s rating is Baa1.
SNAM EX-ITALGAS
REGASIFICATIONTRANSPORT AND DISPATCHING
100%
STORAGE
CDP RETI & CDP GAS30.1% 69.9%
Free float
INDEPENDENT ITALGAS
CDP RETI & CDP GAS26% 60.5%
Free float
100%
ITALGAS SPA
13.5%
Italgas Reti SpA
Snam Fact Book 2016
8
Distribution is a local business that absorbs both capital and human resources to a different extent with respect to the other activities of the current Snam Group
Two businesses with different profiles
RAB* 19.2 € bn 5.7 € bn
InfrastructureHigh-pressure network, storage sites
and LNG terminalLow-pressure network, 6.5 million
redelivery points
PositioningOwnership of 94% of the entire gas
transport infrastructure in ItalyHolder of 1,472 concessions
Market scope European business Presence across the entire national
territory, with local operations
Scale of investmentsComplex, large-scale and long-term
projectsLarge number of small scale investments,
to be executed in a short time span
Institutional counterpartsRelationship with the European
Commission and Regulatory BodiesDaily interactions with local government
institutions and communities
Competitive framework Few large operators in EuropeFragmented Italian market
* Year-end 2015 estimated RAB, excluding associates
TransportationStorageRegasification
Distribution
Snam Fact Book 2016
9
Focus on the respective businesses, financial flexibility and growth
Snam and Italgas: new opportunities
TARVISIO
GORIZIA
PANIGAGLIA (LNG)
LIVORNO OLT(REGASIFICATION
TERMINAL)
CAVARZERE(REGASIFICATION TERMINAL)
PASSO GRIES
MAZARA DEL VALLO
GELA
Storage sites
Compression stations
National pipeline network
Import points
Regasification terminal
ITALGASMunicipal concessions
SNAM
Italgas presently enjoys a strong market position, thanks to more than 6.5 million active meters and a presence in 113 territorial areas for gas distribution, compared with the total of 177 Minimum Territorial Areas (“ATEMs”) defined overall. The process for the assignment of concessions, which will begin at the end of 2016 and is expected to run for approximately five years, will pave the way toward consolidation of the currently fragmented competitive framework, which is witnessing the presence of more than 200 companies (most of which are small) operating in the Italian market.
Italgas can leverage its leadership in terms of market share (30.3% as Italgas plus a 3.6% through its associate Toscana Energia), its financial solidity, and its proven operational capacities in successfully achieving new growth profitable opportunities and optimising the existing concessions portfolio.
In managing the competitive tender process, Italgas will aim at procuring contiguous concessions, with the objective of pursuing maximum operating efficiency, which is a critical factor for profitability in the distribution business. In view of the premises on which Italgas can rely in the new structure, the Company’s Italian market share (excluding associates) is expected to increase from 30% to approximately 40% by the end of the tender process. As an independent company, Italgas will also have the opportunity to increase its leverage to fund future growth.Expectations for strong cash generation while maintaining a solid debt profile, even in the growth stage, will enhance Italgas shareholders’ returns. In turn, Snam will be able to increase focus on its own growth, leveraging additional financial flexibility to support the investments that can bolster the Company’s European leadership in the transport, storage and regasification activities. With the new framework, Snam will also be positioned to enhance the sustainable growth of shareholder remuneration.
Snam Fact Book 2016
10
Italgas post-demerger: key figures and investments
(POST-DEMERGER) 2015 PRO-FORMA FIGURES
RAB - € bn 19.2* 5.7
Revenues - € mln 2,576 1,095**
EBITDA - € mln 2,052 735
EBIT - € mln 1,476 462
Income from associates - € mln 142 29
Net profit - € mln 971 269
Capex - € mln(gross of subsides)
879 393
Net financial debt - € mln 10,317 3,482
Net Financial Debt / RAB + Associates*** 49% 59%
* Excluding associates** Net of revenues entered in accordance with IFRIC 12 (321 € mln)*** Associates valued at equity RAB
The Italgas Investment Plan for the next five years will embrace two key lines:1. Organic growth, supported
by projects for maintaining and developing the network as well as by investments in smart metering.
2. The renewal of concessions, which will require financial investments for the competitive tender process and capital spending for development of new concessions.
Over the 2016-2020 period Italgas will invest approximately 2 billion euro, of which ca. 400 million euro in 2016. Approximately 1.2 billion euro will be dedicated to the replacement of existing pipelines and the development of new pipelines. More than 800 million euro will be invested in the smart-metering project.
CURRENT PERIMETER
Italgas investments (€ bn)
2016 2017 - 2020
~0.4 ~1.6
NEW TENDERS IN GAS DISTRIBUTION
2015(pro-forma)
After concessions renewal (post 2020)
>8 mln6.5 mln
Redelivery points*
2015(pro-forma)
After concessions renewal (post 2020)
>7 bn5.7 bn
RAB*
* Excluding associates
Group profile 11
Snam Fact Book 2016
Group profile
12 Group profile
Snam Fact Book 2016
Today Snam is a company that can rely on solid competitive advantages that it has developed and cultivated over time.
The changeover from a Group of Companies operating in different types of businesses to an integrated operator in transport, storage and LNG will enhance Snam’s potential for leveraging the aforementioned strengths in order to pursue the profitable growth outlined by the Strategic Plan.
Snam leverages its strengths to build an excellent value proposition on the marketplace
Snam, the transformation from a Group to a Company
EUROPEAN LEADERSHIP Snam’s primary strength is its leadership position. Snam’s integrated network infrastructure is the most extensive in Europe, while it is also interconnected with the largest number of diversified supply sources.
EFFICIENT CAPITAL ALLOCATIONSnam has demonstrated the capacity to allocate capital efficiently, by accurately identifying investments that generate profitable returns, while sticking to operational and financial discipline in carrying them out. This rigorous approach has characterised organic growth, which has absorbed 8 billion euro of investments since 2010. As a result, Snam has been able to take advantage of the incentivising aspects provided by the regulatory system, and has achieved significant growth in the RAB of Italian operations. The same approach has been used in international business development, which has absorbed 1.4 billion euro since 2012, generating returns in excess of 10%.
EXCELLENCE IN PROJECT EXECUTIONAnother strength is the Company’s proven capacity to deliver large-scale, complex projects, by handling all project phases, from planning to management, all the way to the building of the infrastructure. This strength also reflects Snam’s capacity to complete projects on schedule and in accordance with the budgeted expenditure.
From a Group of Companies… …to a Company operating in an integrated manner
HoldingStaff
100% 100% 100% 100% Integrated operations
TRANSPORT AND DISPATCHING
STORAGE LNG REGASIFICATION
Group profile 13
Snam Fact Book 2016
An integrated infrastructure system
International assetsNational pipelines LNG terminal
32,534 Km Transport network
235 Km Interconnector UK transport network
5.7 bcm TIGF total storage capacity
870 Km TAP transport network
1,140 Km TAG transport network
5,064 Km TIGF transport network
2015
11 Compression stations
TARVISIO
GORIZIA
PANIGAGLIA (LNG)
LIVORNO OLT(REGASIFICATION
TERMINAL)
CAVARZERE(REGASIFICATION TERMINAL)
PASSO GRIES
MAZARA DEL VALLO
GELA
Storage sites
Compression stations
National pipeline network
Import points
Regasification terminal
SNAM
16.0 bcm Total storage capacity
67.2 bcm Gas injected into the transport network
1 Regasification terminal
6,303 Employees*
* The figure also includes Italgas employees
14 Group profile
Snam Fact Book 2016
Management teamConsisting of highly qualified, experienced professionals, the Snam senior management team focuses its leadership on creating value over the medium/long term
* According to Snam S.p.A Board of Directors guidelines concerning Internal Audit activities: “The Head of Internal Audit, framed in the organizational structure that depends on the CEO, performs audits in full independence in accordance with the instructions of the Board of Directors”.
The 11 top executives who report to the CEO have the responsibility of delineating specific objectives within the Strategic Plan, and implementing concrete actions to achieve those objectives. The Snam compensation system recognises the responsibilities vested with senior
management, the results achieved over time, and the quality of the professional contribution. The growth of Snam and of its financials is therefore accompanied by an effective incentive system, which contributes to aligning management’s actions with stakeholder interests.
Alessandra Pasini
Chief Financial Officer
Sergio Busato
Chief Corporate Services Officer and
EVP Human Resources & Organization
Marco Reggiani
General Counsel
Gaetano Mazzitelli
EVP Regulatory Affairs
Patrizia Rutigliano
EVP Government Affairs, Corporate
Social Responsibility and Communication
Camilla Palladino
EVP Corporate Strategy and Investor
Relations
Silvio Bianchi
SVP Internal Audit*
Carlo Malacarne
Chairman
Marco Alverà
Chief Executive Officer
Paolo Mosa
Chief Commercial, Regulation &
Development Officer
Luca Schieppati
Chief Industrial Assets Officer
Federico Ermoli
Chief International Assets Officer
Group profile 15
Snam Fact Book 2016
(September 2016 update)
Shareholders
SHAREHOLDERS' STRUCTURE
GEOGRAPHICAL DISTRIBUTION OF INSTITUTIONAL INVESTORS
n Institutional investors n Treasury shares n CDP Retin CDP Gas n Retail investors n Bank of Italyn Romano Minozzi
n USA and Canada n Italy n UK and Irelandn Continental Europe n Rest of the World
SHAREHOLDING GEOGRAPHICAL BREAKDOWN
n Italy - Strategic holders n Italy - Retailsn Italy - Institutionals n Rest of the World n USA and Canada n UK and Ireland n Continental Europe
29%
34%
Italy-Strategic holders includes Bank of Italy, CDP Reti and CDP Gas.Italy-Retails includes the participation of Romano Minozzi equal to 4.37%.
9%
8%20%
INSTITUTIONAL INVESTORSBY INVESTMENT STYLE
n Value n Growth n GARP n Index n Hedge Fund n Other
16%
26%
2%
15%
9%
32%
16.5%
30.7%
11.4%
19.7%
11.5%
5.4% 4.8%
28.98%
1.12%
57.95%
0.03%
7.02%0.53% 4.37%
16 Group profile
Snam Fact Book 2016
Snam is the leader of the regulated gas sector in Europe, thanks to the excellent infrastructure on which it can count in its different businesses
The first asset: the integrated network of infrastructure
APPROVVIGIONAMENTO
PRODUZIONE
IMPORTAZIONE
VENDITA
CENTRALI TERMOELETTRICHE
IMPIANTI INDUSTRIALI
CLIENTI RESIDENZIALIE INDUSTRIALI
LE ATTIVITÀ DI SNAM
SHIPPER
PROCUREMENT
PRODUCTION
IMPORTING
SELLING
THERMOELECTRICPOWER STATIONS
RESIDENTIAL AND BUSINESSCUSTOMERS
MANUFACTORING PLANTS
SNAM’S ACTIVITIES
SHIPPER
LNGREGASIFICATION
TRANSPORTATION STORAGEAND DISPATCHING
2015
Snam provides a regasification service, tanks to the LNG terminal in Panigaglia (La Spezia).
17,500 m3
Maximum daily regasification capacity of the Panigaglia terminal
3.5 bcm
Maximum annual quantity of gas that can be injected into the transport network
Snam is the leader in transport and dispatching in Italy. Gas, either imported and produced in Italy, is injected into the national network via 8 entry points.
67.25 bcm
Gas injected into the national network
32,534 km
Pipeline network in operation
Snam is the leading storage operator in Europe, with 9 operating concessions.
16.0 bcm
Total storage capacity
19.6 bcm
Gas moved in the storage system
700
600
500
400
300
200
100
02014 2015 2020E 2025E 2030E 2035E
~320~450
Current Policies
New Policies
Group profile 17
Snam Fact Book 2016
Snam has embraced the IEA (International Energy Agency) baseline scenario, which is illustrated through the evolution pattern of gas demand named as “New Policies”. Such scenario is based on the
assumption of the implementation of the environmental and energy policies outlined as part of the European Commission’s 2020-2030 framework. More specifically, in this scenario, the IEA forecasts the achievement by 2030 of
the official target for emissions reduction (-40%) compared to 1990. Instead, the “Current Policies” scenario assumes an inertial attitude, as it considers that only the environmental policies will be implemented by 2020.
The evolution of the European gas marketNatural gas can play a strategic role in the European energy mix, also as a result of the Paris Agreement on climate change
The United Nations Conference that took place in Paris in December 2015 affirmed the future increasingly important role of natural gas within the mix of energy sources. Given its limited environmental impact, gas has been identified as the energy source most suited for facilitating the transition from energy generated from fossil fuels to energy generated from renewable sources and, therefore, for facilitating the achievement of the objectives set out in the Global Climate Agreement (21st Conference of the Parties).The most reliable forecasts agree on moderate growth of gas demand in Europe over the next 15 years: demand is expected to go from 486 billion cubic metres of 2015 (EU28 + Turkey) to 520-530 billion cubic metres in 2030, and then to stabilise in the years thereafter. In view of this expected development, it will be essential
to adopt strategic decisions that can drive the medium and long term trend of gas demand, including decisions that can favour “non-conventional” uses of gas.A first option is biogas, a renewable source potentially capable of adding further value to the existing pipelines that could be used for its transport. Within a framework in which biogas should become increasingly important, the gas transport network could indeed become a carrier of renewable energy, with a significant contribution to the decarbonisation of the energy system.Another impetus to new uses of gas could be seen in maritime and road transport, also in line with the provisions of the EU DAFI (Deployment of Alternative Fuel Infrastructure) Directive, with the objective of reducing dependence on oil in the transport sector.
DEMAND, PRODUCTION AND IMPORTS OF GAS IN EUROPE (BCM)
Production
Demand
Source: IEA - World Oil & Gas Review 2015 – Data for EU28 and Turkey
Imports
18 Group profile
Snam Fact Book 2016
Security and diversification of gas imports require appropriate infrastructure
Moving towards a single European energy market
Gas demand in Europe is currently met by internal production (34%) and imports (66%). Imported gas mainly comes from Russia (28%), Norway (23%), and Algeria (5%). National gas production is set to decline rapidly in the coming years; by 2040, it will likely satisfy only 15% of demand. Gas import requirements in Europe can thus be expected to grow significantly. The future scenarios also indicate that not only will gas imports increase in the years ahead, but that imports are likely to come from sources other than those currently available and through different routes into Europe. Among the various factors potentially influencing the adequacy of gas flows to Europe in the years ahead are:
• the downsizing of the supply coming from traditional supply sources, including Norway and the Netherlands (due to depletion of gas reserves), as well as Algeria and Libya (due to geopolitical tensions);
• the potential concentration of Russian flows on a single route (North Stream), which would exclude the countries of Eastern Europe from the supplies;
• market liquidity arising from a massive use of spot contracts to the detriment of take-or-pay contracts.
These factors suggest the need to find import alternatives for a new balance in the European gas supply. In this scenario LNG is expected to have a greater weight of LNG as part of the increasing reliance on gas imported from outside of the European Union. After years of continuous decline (party due to peaks in demand from Asia – Japan, in particular), European imports of liquefied natural gas are forecast to recover. By 2020, they should be at 2014 levels (approximately 90 billion cubic metres), thereby providing a further guarantee to the security of supply. Aware of the critical issues related to the energy environment, the European Union has outlined a series of Projects of Common Interest (PCI) that rank as a priority in terms of their execution, since they are considered necessary for the development of an integrated and sustainable European energy market. Some of Snam’s international projects are classified as PCI.
PRESENT FLOWS EXPECTED FLOWS
NORTHSEA
NORTHSEA
NORTH AFRICA
NORTH AFRICA CASPIAN SEA
& MIDDLE EAST
Single market opportunity: - Greater number of interconnections - Higher flexibility - Security of supply - Lower prices
LNG GNL
RUSSIA RUSSIA
Projects of Common Interest (PCI) for the integration of the European market
=
+
+
-=
Group profile 19
Snam Fact Book 2016
Snam: at the heart of European gas flowsSnam is ideally placed to exploit the potential of new investments in Europe
The development of the South-North and East-West corridors and the creation of a gas hub in the Mediterranean are key objectives for greater security of supply. Italy, in view of its geographic position, can play an important role in this scenario as a country for the transit of natural gas, and for connections between extra-European import areas and the areas presenting the highest consumption of gas (Northern European countries) or the greatest dependence on Russian gas (Eastern Europe).Snam can benefit from a unique situation since it owns infrastructure located at the centre of the gas transit lines. Moreover, it has the advantage of being connected to five
different points of supply (the highest number in the world of connections to a single transport network). Snam thus has all of the characteristics, in terms of the positioning of its domestic and international assets, to take part in the investment projects that will be needed in the next 20-30 years in Europe, the value of which can be estimated at around 70 billion euro.Infrastructure operators will be engaged not only in creating new transport capacity for importing gas to Europe, but they will also be involved in integrating the network with storage services and LNG terminals, in order to ensure both stability and security of supply and proper operation of the market.
NBP TTF
TANAP
Reverseflow
Mediterranean LNG
TransMed
Green Stream
Potential Russian
Southern Route
20 Group profile
Snam Fact Book 2016
Income from international associates is expected to grow significantly over the plan’s period, also thanks to the contribution of TAP starting from 2020
International development – Assets
Technical features5,064 km of network, with 6 compression stations (101 MW), equal to 13% of the total volume of transported gas in France. 5.7 bcm of storage capacity (2.8 bcm of working gas), equal to around 25% of national capacity.
Investment profileAcquisition in 2013. Current stake of 40.5% of share capital (GIC 31.5%, EDF 18% e Crédit Agricole Assurances10%)Investment: 597 million euro.
Strategic valueTIGF represents a strategic piece of infrastructure for the integration of the European gas markets as well as for the interconnection of French and Spanish markets with those of Central and North Europe.
Technical features235 km undersea bi-directional pipeline between UK and Continental Europe, composed of 1 terminal and 1 compression station both at Bacton (UK) and at Zeebrugge (Belgium).
Investment profileAcquisition in 2012 in jv with Fluxys. Stake of 31.5% of Interconnector UK, 51% of Interconnector Zeebrugge and 10% of Huberator.Investment: 131 million euro.
Strategic valueThis infrastructure, representing the last part of the South-North corridor, links one of the largest European gas markets to the Continental network. Thanks to two-way flows, it allows for flexibility and diversification of sources.
Technical featuresAsset in development, as part of a wider project aiming at taking gas from Azerbaijan to Europe. 870 km long, it passes through Greece, Albania and Adriatic Sea then reaching the Italian territory (765 km on-shore and 105 km off-shore). Initial capacity of 10 bcm/year, scalable to 20 bcm/year. Entry into operation expected in 2020.
Investment profileAcquisition in 2015. Stake of 20% of share capital.Investment: 208 million euro, including 78 million euro as part of the shareholders’ loan.
Strategic valueThe new infrastructure will allow for the connection between Greece and Italy through Albania. Import of gas coming from Azerbaijan will diversify the sources for European countries and will contribute to the creation of the gas hub in Italy.
Technical featuresAsset linking the Slovakian/Austrian border with the Tarvisio Italian entry point: 3 parallel lines of pipelines of around 380 km each, and 5 compression stations.
Investment profileAcquisition in 2014. Stake of 84.47% of share capital (89.22% of economic rights).Investment: 505 million euro.
Strategic valueTag network is strategic for the integration of the East-West gas corridor. It provides the opportunity to create reverse flow capacity towards Southern Germany and Eastern Europe.
Group profile 21
Snam Fact Book 2016
Capitals that create value over time
The model of value creation
Snam’s business model aims at creating value overthe medium and long term for the shareholders andfor all categories of stakeholders, by operatingand financial efficiency, a solid investment plan, and the selective quest for new opportunities of profitable growth, with a view to well-balanced and sustainable development.Within this framework, the continuous dialogue and listening with stakeholders represents a crucial moment that needs to be managed on a foundation of trust, within an open and transparent relationship as well as through constructive dialogue. Stakeholders are indeed part of the reference environment and they can influence the conditions that
determine the availability of the different capitals (financial, infrastructural, human, relational, intellectual and natural) through which the Company creates value, for itself, for its stakeholders and for the social environment in which it operates. In order to present, in addition to operating results, the value creation and the business sustainability in a transparent way, during 2015 Snam has developed an integrated reporting model including financial and non-financial data and information, in accordance with the Framework proposed by the International Integrated Reporting Council (IIRC). As a result of this model, the Board Directors’ Report has been included into the Annual Report.
Principlesand values
Business strategies
Orientation and coordination
Internalcontrol system
Energy and market environment
Hum
an ca
pital
Intellectual capital
Manufactured capital
Natural capita
lFin
ancial capital
Social and relationship capital
BUSINESS PROCESS
Stak
ehol
ders
External context in which the Company operates, including the energy environment, the economic situation of the industry, and economic and social dynamics
The Company’s stakeholders(gas system operators, financial markets, regulatory authorities, shareholders, local communities, suppliers etc.) can influence the conditions in which the Company operates and are the beneficiaries of its value creation
The Company operates using input capital (such as resources)
which is transformed by business activities
The Company oversees a value chain
consisting mainly of regulated activities
The Company carries outsits activities and creates valueby means of business and business support processes
The Company operates within a governance
system that establishes principles and values,
strategic direction and control systems
22 Group profile
Snam Fact Book 2016
Stakeholder, as recipients of the shared value created by the Company’s activities, are central to Snam
Stakeholder Relations
Snam is a European leader in the construction and integrated management of natural gas infrastructure. The role that the Company plays internationally, besides the continuous development achieved
at national level, results into an ever growing presence on the Italian and European territory and, therefore, into an increase of stakeholders impacted by the Company’s activities. In such a framework, dialoguing and listening to
stakeholders is of crucial importance.Only an open and transparent relationship, through a constructive and continual dialogue, allows Snam to create and cultivate over time a climate of trust in the Company itself.
During 2015 Snam updated its stakeholder map, also in light of the changed environment and operational conditions. The new mapping provided Snam with the opportunity to conduct a listening exercise, which proved to be helpful to gauge the level and quality of stakeholder relations as well as to get their perceptions on the relevance of material issues. Snam has submitted dedicated questionnaires to more than
1,000 stakeholders; a total of 305 people took part in the survey, broken down into 132 clients and 74 suppliers. The respondents provided a fairly consistent and clear view of the overall priorities in the energy sector and of the specific contribution that Snam can offer in terms of value creation. The questionnaire responses resulted to be in line with the commitments that Snam has made with regards to material sustainability issues.
Once identified the different categories of stakeholders with which the Company interacts, the process from their engagement, formalised through the policy issued in March 2016, is structured around three distinct moments:
1. Analyse and understand their profile and the position of Snam in relation to them.
2. Study the interests and issues relevant to each category of stakeholder by periodically updating the materiality analysis.
3. Periodically share the operating results relating to material issues of mutual interest by the way of communication tools developed by the Company, starting from the Sustainability Report.
STAKEHOLDERS’ ENGAGEMENT POLICIES
STAKEHOLDERS’ MAPPING
Other operators
Investors and lenders
SuppliersAuthorities
and institutions
Customers
Local and regional
communities
Media People
Group profile 23
Snam Fact Book 2016
The materiality analysis make it possible to focus the Company’s commitment on the issues that contribute to create value
Materiality of objectives
The materiality matrix brings together the point of view of the Company and that of the stakeholders, setting the most relevant topics. By focusing its efforts on these specific issues, and measuring the related performance over time, Snam makes sure that it allocates proper resources to the most important issues.
The evaluation process of material topics undergoes continuous updating. Snam mapped material issues for the first time in 2013 and confirmed them in 2014; the analysis conducted in 2015, based on the findings of a listening exercise of external stakeholder, has allowed a broader and more precise record of
their viewpoints. Material issues help to set sustainability targets, which Snam pursues by way of dedicated investments and projects with varying time frames. These projects feature in the operating plans of each business function within the boundaries of its areas of activity.
Impo
rtan
ce t
o st
akeh
olde
rs
Importance to the Company
MATERIAL ASPECTSRELEVANT ASPECTS
Financial/Governance Social Environmental
Protection of soil, subsoil and stratum
Protecting the local area and biodiversity
Protecting the atmosphere
Noise emissions
Climate change and energy efficiency
Water management Reputation
and brand
Relations with regulatory authorities
Stakeholder engagement
Corporate governance
management
Transparent management
Anti-corruption
Creation of sustainablevalue
Risk and crisis management
Human rights
Technologicalinnovation
Work/life balanceEmployment and safeugarding jobs
Supply chain management
Developing and promoting human capital
Quality and development of services
Health and safety
Diversity and equalopportunities
Waste management
The 14 “material” topics emerging from the analysis have been grouped into three main categories: among these, six fall within the financial/governance area, five within the social area and three within the environmental one.
24 Group profile
Snam Fact Book 2016
Governance in actionIntegrity, transparency and reliability are the principles that not only drive Snam’s business management, but also the continuous improvement of its governance system, in order to satisfy the expectations of all stakeholders
Snam has a continuous commitment to maintaining the highest standards within its Governance System. At the annual meeting on 27 April 2016, the shareholders appointed a new Board of Directors consisting of nine members, including five independent directors (55.6%). Three of the nine new board directors were elected from a list presented jointly by institutional investors.The number of female directors (four out of nine) is greater than the minimum provided by applicable regulations (one-third of the members). With respect to the previous board, the presence of female directors increased from 33.3% to 44.4%. The average age of the current directors is 56. The directors with a ‘business’ background account for 67% of the board, while those with a “tax, legal and financial” background account for the remaining 33%.
On 11 May 2016, the Board of Directors appointed members to the corporate committees and set up a new Sustainability Committee, which will provide recommendations and advice to the Board on Corporate Social Responsibility issues.
During 2015, the previously appointed Board of Directors held 11 meetings (10 in 2014), with 97.5% of the directors attending the meetings on average (93.3% in 2014).
M: Majority (presented by insider shareholders); m: Minority (presented by institutional investors); RC: Remuneration Committee; AC: Appointments Committee; SC: Sustainability Committee; CR&RPC: Control and Risks and Transactions with Related Parties Committee; C: Chairman.
For more information about Snam’s Governance, please see the Report on Corporate Governanceand Ownership Structure 2015.
Directors (M/m) RC AC SC CR&RPC
Carlo MalacarneChairman M
Marco AlveràChief Executive Officer M
Sabrina BrunoIndependent Director m C x
Francesco GoriIndependent Director m C
Monica De VirgiliisIndependent Director M C x
Yunpeng HeNon-Executive Director M x
Lucia MorselliIndependent Director M x x
Elisabetta OliveriIndependent Director m x C
Alessandro TonettiNon-Executive Director M x x
SHAREHOLDERS’ MEETING
BOARD OF STATUTORY AUDITORS
BOARD OF DIRECTORS
INDEPENDENT AUDITORS
REMUNERATION COMMITTEE
APPOINTMENTS COMMITTEE
SUSTAINABILITY COMMITTEE
CONTROL AND RISK AND
TRANSACTIONS WITH RELATED
PARTIES COMMITTEE
Group profile 25
Snam Fact Book 2016
The culture of legalitySnam works against any form of corruption as part of its broader business ethics control system, with the objectives of protecting its reputation and avoiding sanctions and business disruption
*In 2014 the Legal Anti-Corruption Unit was replaced by the Internal Control and Anti-Corruption Legal System (“LESCAC”).
In 2010, Snam adopted an Anti-Corruption Procedure in accordance with the tenth principle of the Global Compact of the United Nations, to which Snam is a signatory. The Procedure, which prohibits any form of corruption, drew inspiration from the rules of conduct provided in the Code of Ethics.
Back in 2010, Snam established a Legal Anti-Corruption Unit* within its Legal and Corporate Affairs and Compliance Department. The unit provides specialist legal assistance, monitors developments of laws, evaluates the risks of corruption crimes, updates the anti-corruption policies, and oversees personnel training on the subject.During 2015, Snam continued its Monitoring of the Anti-Corruption “Compliance Programme”, which also entails self-assessment questionnaires sent to key officers of Snam and its subsidiary companies that are aimed at gathering and analysing information about the perception of the risk of corruption by each respondent, with respect to his/her responsibilities. Analysis confirmed the suitability and effectiveness of the Group’s Anti-Corruption “Compliance Programme”, and verified the programme’s alignment with the most sophisticated compliance initiatives adopted at the international level. With a view towards continuous improvement, an external advisor was again appointed in 2016 to support the Monitoring activity. During 2015, Snam took action to strengthen corruption prevention with specific regard to its suppliers, by asking all of its counterparties to sign the Ethics and Integrity Pact, and accurately verifying the reputation of suppliers and subcontractors. In the first half of 2016, the specific training activities were focused on executives and other staff whose activity is deemed more sensitive to the risk of corruption.
In addition, Snam provided around 3,400 hours of training dedicated to the Code of Ethics, the Model 231 and Anti-Corruption issues, with the involvement of more than 2,000 employees.Snam’s annual supply chain event in 2015 was entitled “Quality and transparency in the relationship between the company and suppliers”, and it focused on the issues of transparency and the fight against corruption. The workshop involved more than 420 people, including Snam personnel and suppliers.
In 2014, the Transparency International awarded Snam the maximum rating for the pro-active and transparent management and communications in anti-corruption programmes and activities, after the Company submitted to the Assessment on Transparency in Reporting on AntiCorruption (“TRAC”). Snam’s “Anti-Corruption” Procedure was indicated by Transparency International as an example of “absolute excellence.” In addition, in the first half of 2016, Snam became a participant in the Business Integrity Forum, an initiative undertaken by Transparency International with the objective of creating a network for exchanging ideas and views about the impact that the issues of Integrity and Compliance can have on business activity. Moreover, a partnership with the international network of Transparency and Snam’s involvement in international projects are taking shape. As of the date of this publication, Snam is the only Italian company that is a partner of Transparency International.
26 Group profile
Snam Fact Book 2016
Enterprise Risk ManagementSnam applies a structured and systemic approach to identify, assess, manage and control risks that could affect value creation
The Snam’s risk management system has three different levels and applies to all the companies across the Group.
The Board of Directors charges the CEO with giving structure to and maintaining the entire system.
Snam uses a dynamic, integrated and group-wide method of assessing risk that evaluates the existing management systems in the individual corporate processes: such an approach allows that the controls form an integral part of the managerial processes. Moreover, it requires that management foster an environment that encourages controls and execute «line controls», consisting of all the control activities that individual operating units or companies perform over their own processes (first level of control).Through its Enterprise Risk Management (ERM) and the new Risk Management Policy issued in 2015, Snam has introduced a structured and consistent method for controlling the risks of the whole Group (second level of control). During 2015, within the ERM framework, four risk assessment cycles were
performed on the entire Snam Group. As at the end of 2015, 360 enterprise risks had been mapped and deployed at all corporate processes. In addition to the ordinary activities of checking and monitoring the risks mapped, other measures were carried out with a view to continually improving the model adopted and supporting the risk managers.
Lastly, the third level of control is performed by the Internal Audit function, in charge for the verification of the operating effectiveness and adequacy of the system.
Snam identified four main types of risks to be controlled:
• regulatory risk and legal and non-compliance risk;
• operating risks;
• specific risks associated in particular with market risk and competition in various sectors in which the Group operates;
• financial and liquidity risks, arising from exposure to interest rate fluctuations, medium and long term debt rating downgrades, and bad debts.
Impatti operativi
Impatti specialistici
Impatto Industriale/Business
ImpattoEconomico
ImpattoStrategico
ImpattoAsset
ImpattoFinanziario
ImpattoMercato
ImpattoCapitaleUmano
ImpattoReputazionale
ImpattoHSE
ImpattoLegale
RISCHIO
Maintenance& evolution
of ERM model
Identification& measurement
Enterpriseevaluation& priorization
Definitionof managementstrategy
Monitoring & reporting
The ERM model adopted by Snam is characterised by the wide-ranging measurement of impacts, with assessment conducted by a team. Any risk event may have 10 different types of impact, some determined by the risk owners (operational impacts) and others by specialist departments (e.g. legal impacts as well as reputational, HSE, human capital, market and financial impacts). The most common operational impact is industrial impact, consistent with the fact that risk identification begins with process analysis.The most prevalent specialist impacts include reputational and legal impacts.
Group profile 27
Snam Fact Book 2016
Remuneration policySnam’s remuneration system is transparent and incentivising. Shareholders proved to appreciate its structure with high percentages of votes in favour at the Annual General Meeting
The remuneration policy of Snam is designed in: fixed remuneration, variable short-term incentives (annual monetary incentives), variable medium and long-term incentives (deferred monetary incentive and long-term monetary incentive) as well as pension and welfare benefits. In 2015, considering the pay mix used, the weight of the variable component was 58% for the CEO and 47% for the executives with strategic responsibilities.
During the 2012-2015 four-year period, concerning the first section of the Remuneration Report, votes in favour at the Shareholders’ Meeting were 97.40%, with 94.15% of minorities in favour.The «say on pay» figure puts Snam in first place among the FTSEMIB companies with market capitalisation over 3 billion euro and voting minorities exceeding 15% (source Georgeson).
For 2016, as regards the short-term variable component of the incentive system and in line with the suggestions coming from stakeholders, Snam first introduced in the Company’s performance plan an objective connected to sustainability, i.e. the confirmation of Snam in the Dow Jones and the FTSE4GOOD Sustainability Indices, as well as the improvement of the scores in absolute terms.The document explaining the process related to
implementation of the claw-back clause has moreover been prepared, to be distributed to the assignees of the incentive plans at the time future incentive awards or promises are made. Claw-back mechanism allow the Company to come back into possession of the variable part of compensation, which is no longer payable if it is determined that objectives were achieved following malicious or heavily negligent conduct or data later found patently false.
For more in-depth information about the remuneration policies of Snam, please see the Remuneration Report 2016.
2016 - TARGET PAY MIX TARGET
n Fixed Remuneration n Variable short-term (IMA) n Variable long-term (IMD+IMLT)
Chairman
CEO
Managers with Strategic Responsibilities
The pay mix target involves a greater weighting for the variable component, compared to that fixed, for positions typically having greater impact on corporate results.
100%
43% 21% 36%
50% 18% 32%
28 Group profile
Snam Fact Book 2016
CSR represents a strategic asset and a tool for competitive development
The value of Corporate Social Responsibility
For Snam, sustainability represents a clear commitment, aimed at creating an economic and entrepreneurial development model that integrates, into its business activities, respect for people, for stakeholders, for the environment, and for Society as a whole. Social responsibility, corporate citizenship, and sustainability are integral parts of Snam’s corporate culture and governance; they represent the cornerstones of the model for business development and value creation over time. The sustainable development model is integrated into all corporate business processes (Planning, Operations, Control and Reporting, Communications and Stakeholder Engagement).
This occurs through the organisational structuring of the functions of strategic planning and business coordination, and the system of management control. These activities specifically contribute to creating the conditions for proper and appropriate interaction between the company and its framework of reference, ensuring the governance of the issues having the greatest impact in terms of materiality and the respect of the external and internal rules that the Company has established.Corporate social responsibility is also a tool for managing risks and opportunities over the medium-to-long term, in the economic, social and environmental fields.
In 2015, Snam distributed to stakeholders an overall value of 2,242 million euro, against a generated added value of 2,605 million euro.
DISTRIBUTION OF VALUE ADDED
n Snam Group n Shareholders n Employeesn Lenders n Public Administration
13.9%
18.8%
15.2%
33.6%
18.5%
Group profile 29
Snam Fact Book 2016
Inclusion in SRI indicesActual commitment to sustainability issues allows Snam to be included on an ongoing basis into the indices that represents benchmarks for Socially Responsible Investors
Snam has long integrated sustainability policies into the business management, generating visible improvement in issues concerning Governance, Social and Environment (GSE). Thanks to such performance and by successfully undergoing thorough assessment processes, the Company succeeded in being included into a wide series of indices adopted as benchmarks by Socially Responsible Investors (SRI): presently Snam is the company, in its sector, boasting the membership in the highest number of SRI indices.Since in the medium to long-term good performances in GSE issues translates into positive financial performance, the membership in sustainability indices plays a beneficial role in the evaluations of the whole community of institutional investors, including those focused on debt. Membership also paves the way to a significant presence in the Snam shareholding of asset managers focused on Responsible Investing. Funds with an investment process including SRI criteria were owners of approximately 4.7% of Snam share capital at 31 December 2015, vs. 4.4% in 2014 and 3% in 2013.In September 2016 the Snam shares have been confirmed
for the eighth year in a row in the Dow Jones Sustainability World Index; earlier this year, the Company has also been awarded with the Silver Class of the «Sustainability Yearbook 2016», thanks to the high score achieved among utilities. Since 2002 Snam moreover retained its presence in the series of FTSE4Good indices and, for the last consecutive four years, it has been confirmed among the top scorers of the assessment model of CDP (formerly “Carbon Disclosure Project”). CDP is a non-profit organisation addressing the climate change issue. Snam collaboration with CDP dates back to 2007. Snam shares were confirmed, for the second consecutive year, in the MSCI World ESG and MSCI ACWI ESC indices, which include the companies with high sustainability rating in the reference sector. Snam is also listed in the ECPI, Stoxx Global ESG Leaders and Ethibel indices.Last but not least, Snam is present in the United Nations Global Compact 100 ( “GC 100”) global index, developed by the Global Compact of the United Nations; this index includes the top 100 companies that stand out at a global level for their focus on ESG issues.
30 Group profile
Snam Fact Book 2016
Main elements of the tariff frameworkClear and stable criteria are the premise for visible returns over time
Gas infrastructure in Italy is subject to regulation by the Authority for Electricity Gas and Water, an independent governmental body with regulatory and control powers.The Authority generally promotes the proper functioning of the market and competitiveness in energy prices to the benefit of final consumers. In infrastructure management, the Authority’s efforts are focused on three main areas of regulation:
Since its establishment, Snam has set up a constructive relationship with the Regulator, which it has cultivated over time, leveraging a solid base of mutual respect. The dialogue is continuous and goes beyond the occasions implied by the tariff review process, with the aim of contributing to providing information useful to the definition of a clear and effective regulatory environment.In Italy the regulatory framework is based on well established principles that are uniformly applied to all of Snam’s activities, notwithstanding some differences due to the peculiarities of the individual business.
For all the Snam’s operating businesses - transport, regasification and storage – the new WACC regulatory period began on 1 January 2016 and will be in place until the end of 2021. Snam can therefore count on a clear framework, which provides visibility to the future cash flows up to 2021.
RAB, calculated at the beginning of each regulatory period and updated annually.
WACC, i.e. the return on RAB, fixed for the whole regulatory period with an interim update of the risk-free rate to incorporate changes occurring in market conditions.
Allowed depreciation, reflecting the economic life of the assets.
Allowed operating expenses.
Lastly, the regulatory framework also sets reference revenues, which take into account the above mentioned elements, during the regulatory periods lasting 6 years.
it defines the criteria and evaluates tariff proposals
Revenues and tariffs
it approves contractual provisions included in the network and service codes
Third-party access to infrastructure
it sets the standards and controls performance
Service quality
REGULATORY ITEMS
Group profile 31
Snam Fact Book 2016
Structure of reference revenuesRevenues and tariffs have the most relevant impact on earnings
1. The allowed REMUNERATION, calculated by multiplying the weighted average cost of capital (WACC) by the Regulatory Asset Base (RAB);
2. The allowed DEPRECIATION, calculated on the basis of the economic-technical life of assets, set for regulatory purposes;
3. The allowed OPERATING EXPENSES, as reported in the financial statements, increased by the opportunity of retaining a part of the efficiency achieved in excess of that required during the regulatory period.
Reference revenues are calculated at the beginning of each regulatory period as sum of three main aggregates:
Each year, the RAB remuneration and depreciation are updated according to the evolution of the RAB itself, while operating expenses are updated according to the price-cap methodology, as reflected in the «RPI – X» formula, i.e. Retail Price Index less the X factor, which expresses expected savings due to efficiency.
REFERENCE REVENUES
REMUNERATION (RAB * WACC) DEPRECIATION OPERATING EXPENSES
RAB based on the revalued historical
cost methodologyStraight-line depreciation
Actual operating expensesas reported in the financial
statements in the reference year
Pre-tax WACCin real terms, calculatedaccording to the CAPM
methodology
Reference to the technical-economic life
of the asset
Sharing 50% of earnings achieved for
higher-than-required efficiency
Higher-than-baseline returns for new investments
Gas used in the compression stations recognised
as a pass-through cost
+ +( ( (( ( (( ( (( ( (
( ( (( ( (
( (( (
32 Group profile
Snam Fact Book 2016
TRANSPORTATION REGASIFICATION STORAGE
End of regulatoryperiod (TARIFFS)
31 December 2017 31 December 2017 31 December 2018
Calculation of net investedcapital recognised for regulatorypurposes (RAB)
Revalued historical cost
Revalued historical cost
Revalued historical cost
Deduction of restoration costs
Return of net invested capitalrecognised for regulatorypurposes (pre-tax WACC)
6.3% 20155.4% 2016-2017
7.3% 20156.6% 2016-2017
6.0% 2 0156.5% 2016 -2018
Incentives on new investments +1% for 7 years(regional network
development investments)+1% for 10 years(national network
development investments)+2% for 10 years
(entry point developmentinvestments)
Wacc +1% on newinvestments made
after 31 December 2013to offset regulatory time lag
+2% for 16 years(new terminals
or expanding existingterminal capacity >30%)
Wacc +1% on newinvestments made
after 31 December 2013to offset regulatory
20% withholdingfor 8 years for revenues
in excess of revenuerecognised resulting from
insolvency procedures
Return on investments t-1 to offset
the regulatorytime lag (from 2014)
Efficiency factor(X FACTOR)
2.4% - on operating costs 0% To be definedby the next provisionfrom the Authority
Regulation in ItalyNew criteria set by the Regulator in December 2015 confirm the stability, visibility and transparency of the regulatory framework for infrastructural gas services
The tariff systems for each of the activities - transport, regasification and storage - are based on common principles; in particular they envisage that reference revenue are calculated so that operating costs are covered and fair remuneration of invested capital is allowed. The AEEGSI has regulated the tariff system in each business, defining the criteria for setting the tariffs in different regulatory
periods. The rate of return on regulatory invested capital (WACC) has been in force since 1 January 2016. For the regulations of the infrastructural gas services, the Authority has established a regulatory period lasting six years (2016-2021); moreover, a mechanism of infra-period WACC update has been envisaged, based on the trend of the macroeconomic scenario.
Group profile 33
Snam Fact Book 2016
Rate of return on capitalThe WACC calculation structure has been stable over time and it is also able to reflect changes in the conditions of the external scenario
The returns allowed by the Authority, which the table details according to the main underlying parameters, are calculated on the base of the CAPM (Capital Asset Pricing Model), which is the most widely used methodology for valuing the
expected return of a business according to its risk profile.Since the RAB is calculated by applying current cost accounting, the rate of return is stated in real terms on a pre-tax basis.
TRANSPORT* STORAGE* REGASIFICATION
Beta levered 0.58 0.80 0.83
Market risk premium 5.5% 5.5% 5.5%
Cost of Equity 4.66% 5.90% 6.05%
Risk-free rate 1.5% 1.5% 1.5%
Spread 0.5% 0.5% 0.5%
Cost of debt 2% 2% 2%
Tax shield 27.5% 27.5% 27.5%
Net cost of Debt 1.45% 1.45% 1.45%
Leverage (Debt/Debt+Equity) 44.4% 44.4% 44.4%
WACC nominal post-tax 3.2% 3.9% 4.0%
Inflation 1.5% 1.5% 1.5%
Tax rate 34.4% 34.4% 34.4%
WACC real pre-tax* 5.4% 6.5% 6.6%
* Excluding extra-remuneration and time-lag compensation
34 Group profile
Snam Fact Book 2016
The new Snam: strategic prioritiesSnam will further enhance its leadership by focusing on five areas that provide the foundations for the growth strategy
EXCELLENCE IN PROJECT EXECUTION AND OPERATIONAL EFFICIENCYFirst and foremost, Snam is committed to strengthening its excellence in the delivery of infrastructure projects. The reorganisation currently in process is aimed at making it possible for Snam to increasingly leverage its unique execution capacity across the sector and to extract new operating efficiencies, while maintaining the maximum attention on the issues of Sustainability, Safety, and Governance.
STABLE AND VISIBLE REGULATIONEffective and constructive dialogue with regulatory bodies remains a fundamental pillar of the growth strategy. A regulatory framework that is stable over time and geared towards supporting investment is key to business profitability.
SOLID INVESTMENT PLAN IN EXISTING PORTFOLIOSnam has numerous development projects in its portfolio, including: the completion of the reverse-flow programme, the connection of the South Corridor, and the development of storage capacity. At the same time, it will continue to invest in the maintenance and security of the infrastructure. Finally, international subsidiaries will be subject to initiatives aimed to increase their value.
ADDITIONAL GROWTHSnam will be ready at any time to exploit new growth opportunities that may arise within the sector of regulated services or may entail new investments, not currently included in the Plan, which offer the prospect of generating additional value.
SOUND FINANCIAL POLICYThe entire Strategic Plan is underpinned by a very solid capital structure, featuring a financial discipline aimed to create value and the continuous search for efficiency in optimising the structure of financing sources, minimising the cost of debt, and prudently managing the risk profile.
Group profile 35
Snam Fact Book 2016
Investment planThe 2016-2020 investment plan consists of projects aimed to underpin market development, in both Italy and Europe
In the Plan’s 2016-2020 period Snam will invest 4.3 billion euro, gross of subsides, of which 900 million euro in 2016. As a result of the execution of such investment plan, RAB is expected to grow at an average annual rate of 1% over the 2016-2020 period, having as a reference starting point an estimated value of 19.2 billion euro in 2015.
Over the five-year period, 88% of total capital expenditure (ca. 3.8 billion euro) will be dedicated to transport and regasification, whereas the remaining 12% will be invested into storage (ca. 0.5 billion euro).
TRANSPORT Investment projects in the transport sector are aimed at improving network security and reliability. More specifically, Snam will invest 600 million euro in the development of the Po Valley transport infrastructure; the project, which also includes construction of two new compression stations and upgrade to the existing station, will allow for completing the reverse-flow programme, in order to provide new capacity for exporting gas from Italy to Northern Europe.The most significant project for supporting new imports regards the development of the South-North corridor. Snam has planned the building of a gas pipeline of more than 50 kilometres in Apulia, for interconnection with the Trans Adriatic Pipeline (TAP), which will entail an investment of approximately 150 million euro.
STORAGEIn the storage business, investments are aimed at increasing both modulation and peak capacity. Mainly thanks to the progressive completion of the new Bordolano storage field, the availability of working gas and the peak capacity will increase over the coming years, to reach the full availability in 2019.
3.4
0.9
4.3 € bn
INVESTMENTS OVER TIME (€ BN)
n 2016 (pro-forma) n 2017-2020
n Storage n Trasport & LNG
25
20
15
10
5
02015E 2020E
RAB* (€ BN)
* Regulatory Asset Base: evolution calculated assuming an average annual inflation rate of ~ 1% in 2016 − 2020 and according to current regulatory framework
CAGR +1%
36 Group profile
Snam Fact Book 2016
Operating efficiencySnam is an efficient operator. Nonetheless, the new Plan envisages additional cost savings
Operating efficiency has long been a priority for Snam, which, over the years, has managed to achieve considerable cuts in expenses for personnel, supplies and services, while significantly developing its asset base.Over the next five years, Snam intends to further consolidate its operational performance through two distinct initiatives.The first project, which is already under way, regards the transformation of Snam as the parent of four operating companies (Snam Rete Gas, Stogit, LNG Italia and Italgas), each of them being fully functional, into a single, integrated player in transport, storage and regasification services (post-separation of the distribution activity), with centralisation of operations, engineering and staff functions.The advantages of the new organisational structure are evident: shortened reporting lines, reduced duplication
of certain activities, and enhanced exploitation of competences. Concerning the second initiative, the programme of operating cost reduction has been drawn up with regard to what is already an efficient operator. Snam will therefore carefully monitor fixed and maintenance costs, in order to execute the Plan strategy without incurring additional costs. The programme has been outlined with a significant level of granularity, as it addresses more than 40 different areas of intervention, including: ICT for infrastructure and application management, facilities management, energy efficiency, and the costs for fuel and utilities. With the planned savings, Snam expects to offset the trend increase in overhead costs due to the demerger of Italgas and to the inflation impact. Controllable fixed costs are forecast to remain essentially stable in real terms over the Plan’s period, on a like-for-like basis.
2016E 2020
+10%
Trend costs
Expected costs
Controllable fixed costsCAGR 2016-2020
-1% nominal values
Group profile 37
Snam Fact Book 2016
Financial strategyThe financial strategy contributes to the maintenance of a limited risk profile, while also providing flexibility for capturing new opportunities to create value
Snam’s financial strategy is based on an initial, important premise, namely, that cash flow generated by operations during the 2016-2020 period will fully cover both a significant investment plan and dividends.This fact, together with the positive impact of the Italgas separation on the leverage of Snam, will allow the Company for fulfil the commitment to maintain a solid «investment grade» rating. The Company also plans to
pursue the maintenance of an adequate liquidity profile during the 2016-2020 period. Finally, from the standpoint of optimising the debt structure and cost, Snam has set the objective of maintaining 2/3 of its debt at fixed-rate and 1/3 at variable-rate, respectively, with an average medium to long-term debt maturity of 5 years. Such approach is aligned with the structure of regulation and consistent with the goal to protect financial outperformance.
Credit metrics monitored by rating agencies suggest that Snam will have a certain degree of financial flexibility available in order to capture new investment opportunities, which would allow for an increase in shareholder returns.
Additional investment projects will be evaluated by using the following criteria
• accretive returns;
• preserve current risk profile;
• fitness for the portfolio;
• contribution to enhancing the strategic value of existing infrastructure.
CASH FLOW GENERATION
Capex and dividends comfortably covered by cash flow from operations.
BALANCE SHEET SOLIDITY
• Solid investment grade credit rating.
• Strengthening of balance sheet following demerger.
• Commitment to maintain a safe liquidity profile.
STRUTTURA E COSTO DEL DEBITO OTTIMALI
• 2/3 of debt at fixed rate.• Dynamic management of debt
structure to further optimise its cost and maturity (long-term debt with an average maturity of 5 years).
38 Group profile
Snam Fact Book 2016
Debt managementSnam has achieved a balanced debt structure that it intends to maintain
In line with the features of the operating businesses and with the reference regulatory context, Snam aims to achieve and maintain a well-balanced debt structure, in terms of loan maturity and interest rate exposure.As at 31 December 2015, against total financial debt of 13,796 million euro, available cash amounts to 17 million euro; net financial debt is therefore equal to 13,779 million euro.
Financial and bond debts (13,796 million euro) are entirely euro denominated, with the exception of a fixed-rate bond worth 10 billion Japanese Yen, which was fully euro converted through a hedging derivative Cross Currency Swap (CCS).Long-term financial debts (11,067 million euro) represent around 80% of financial debt. Fixed rate debts represent 64% of the entire debt. At the end of 2015 net financial debt is mainly represented by bonds, for 9,811 million euro (71.1%), while bank loans amount to 3,950 million euro, including 1,627 million euro represented by loans agreements concerning European Investment Bank (EIB) funding.As at 31 December 2015 Snam has unused long-termcommitted credit lines totalling around 3.95 billion euro, inaddition to the amount available (2.3 billion million) in terms of bondissues under the Euro Medium Term Note programme (EMTN).
FINANCIAL DEBT BY MATURITY
80%
20%
13.8 € bn
n Short-term debt*
n Medium to long-term debt
(*) Short-term financial debt includes the short-term share of the long-term debt
DEBT BY TYPE OF RATE
64%
36%
n Variable rate
n Fixed rate
FINANCIAL DEBT BY TYPE
n Bank loans
n Loans concerning EIB funding
n Bonds
13.8 € bn
12%
17%
71%
13.8 € bn
Data in the three charts are as at 31 December 2015
Group profile 39
Snam Fact Book 2016
Debt management post- demergerProactive approach to debt cost and maintenance of «investment grade» rating
Snam will employ a proactive management approach in order to further reduce debt cost compared to the 2015 levels. A significant contribution in this regard is expected from the liability management policy (the last operation was completed in October 2016) and from the roll-over of fixed- rate bonds during the Plan’s period, thanks to the savings that should be achievable in a financial market scenario, such as
the present one, which is favourable in terms of interest rates’ level and spreads. Snam also plans to exploit the leverage of treasury management optimisation and to take advantage of the opportunities for renegotiation of bank credit lines. Finally, management will regularly evaluate financing opportunities presented by institutional investors, who may be interested in supplying funding to back specific infrastructure projects.
LAST UPDATE
29 June 2016*( (RATING
FOR LONG-TERM DEBTBaa1( (
RATING FOR SHORT-TERM DEBT
Not assigned( (OUTLOOK
Stable( (
LAST UPDATE
29 June 2016*( (RATING
FOR LONG-TERM DEBTBBB( (
RATING FOR SHORT-TERM DEBT
A-2( (OUTLOOK
Stable( (
LAST UPDATE
29 June 2016*( (RATING
FOR LONG-TERM DEBTBBB+( (
RATING FOR SHORT-TERM DEBT
F2( (OUTLOOK
Stable( (
SNAM PRO-FORMA 2015 DEBT STRUCTURE (€ BN)
Finally, one of the financial strategy priorities is to maintain a credit rating from Moody’s, Standard & Poor’s and Fitch at the “investment-grade” level, as a result of Snam’s solid capital structure and as precondition for opportunistic access to capital markets. The long-term rating assigned to Snam by Moody’s and Standard & Poor’s is one notch above that for the Republic of Italy.
1614121086420
Net Debt 2015(pro-forma)
Committed credit facilities and bonds (pro-forma)
* On such date, as a follow-up to the announcement to the market of the Italgas separation and considering the effects thereof, the rating agencies confirmed Snam’s ratings.
14.7 € bn
1.8
1.2
8.53.2
n Bonds (net of 2016 maturities)
n Pool banking facilities
n Bilateral banking facilities
n EIB financing
(net of the financing transferred to Italgas)
10.3
14.7
40 Group profile
Snam Fact Book 2016
Shareholder remunerationThe separation of Italgas allows for increasing earnings’ distribution
Increasing shareholder returns over time is a priority to Snam. The attractive yield levels provided by Snam, with a
limited risk profile, are underpinned by very visible drivers that lead value generation.
On these grounds, Snam’s Plan sets the guidance of a dividend per share of 0.21 euro for FY2016. In the following 2017-2018 two-year period, a 2.5% annual increase is expected.The Italgas’ Board of Directors will approve the distribution policy for earnings following the demerger. Italgas’ capital structure and risk profile will enable it to pay a 2016 dividend that, added to what is expected by Snam, will allow current Snam’s shareholders to receive dividends at least in line with that of 0.25 euro received for the 2015 fiscal year.
Lastly, to support shareholder remuneration, as well as optimise the Company’s capital structure, a buy-back plan of Snam’s shares is envisaged. It will reach a maximum of 3.5% of post-demerger share capital, for a maximum amount of 500 million euro over an 18-month period.The execution of the buyback programme will be eventually carried out upon evaluation of financial markets’ dynamics, as well as alternative investment opportunities that may arise over time.
Stable regulation and
operational efficiency
Opportunities from the evolving market
Benefits from the separation of distribution
activities
Capex delivering
steady and attractive returns
SOUND FINANCIAL POLICY
DIVIDEND PER SHARE 2016: 0.21 euro
2017 and 2018: +2.5% yearly
Business Focus
42 Business Focus
Snam Fact Book 2016
2015 - IMPORTS BY ENTRY POINTS (BCM)
Transport - OverviewIn 2015 transport capacity fully satisfied demand
Tarvisio
Passo Gries
Mazara Del Vallo
Gela
Cavarzere
Panigaglia
Gorizia
Livorno
0 5 10 15 20 25 30
29.92
10.63
7.24
7.11
5.8
0.05
0.04
0.03
SNAM’S PRESENCE IN ITALY - 2015
Compression stations
Entry points
National pipeline network
TARVISIO
GORIZIA
PANIGAGLIA (GNL)
LIVORNO OLT(REGASIFICATION TERMINAL)
CAVARZERE(REGASIFICATION TERMINAL)
PASSO GRIES
MAZARA DEL VALLO
GELA
The gas sourced from abroad is injected into the network at the eight entry points, where the network connects with the gas import pipelines and at the LNG regasification terminals. Once imported, produced and regasified, gas is transported to the local distribution networks, to the regional network's redelivery points or to large final customers (thermoelectric power plants or industrial plants).
Snam Rete Gas confers transport capacity to the shippers requesting it. As a result, the shippers acquire the right, in the role of users, to input or to withdraw, during any day of the thermal year, a quantity of gas not greater than the daily capacity conferred. The conditions for accessing the service are contained in the Network Code. The shippers may also make sales and trades of gas on the national network, through the Virtual Trading Point, using a dedicated IT platform. In 2015 the transport capacity supplied in relation to the entry points interconnected with foreign sources and with the LNG terminals was an average of 371.6 million cubic metres per day; in addition to such capacity, Snam made available transport capacity at the entry points interconnected with national production for a total of 29.6 million cubic metres per day on average. The number of customers increased from 134 in 2014 to 139 in 2015, while the number of connection contracts for the construction of new delivery/redelivery points or upgrading of existing points went from 45 to 65 (approximately +44%).
32,534 km
Transportation network
9,630 km
National network
2,904 km
Regional network
67.25 bcm
Gas injected into the national network
60.82 bcm
Imported gas
6.43 bcm
Gas from national production
11Compression
stations
53Entry points from
national production
Business Focus 43
Snam Fact Book 2016
Transport and LNG - InvestmentsApproximately 90% of the 2016-2020 investment plan is concentrated in the transport and LNG businesses
The 3.8 billion euro of investments planned by Snam for the transport and LNG businesses in Italy represent approximately 90% of the total 4.3 billion euro of investments for the 2016-2020 period.The investments are aimed:
• at ensuring network security and reliability;
• at responding to the needs for capacity and diversification of the supply sources, to the advantage of the shippers and final users.
Beyond the end of the investment plan horizon (2020), Snam will allocate further investments to the “tails” of several development projects, including, in particular, those dedicated to: expanding entry capacity from the South; the replacement of completely depreciated pipelines; a high qualitative standard maintenance of the infrastructure.
2016-2020 INVESTMENT PLAN (€ BN)
n In transport and LNG n In storage
0.5
3.8
4.3 € bn
TRANSPORT AND LNG INVESTMENTS (€ BN)
2016 2017 - 2020
~0.8 ~3.0
TRANSPORT AND LNG BREAKDOWN OF 2016-2020 INVESTMENTS
n Development
n Maintenance
n Pipeline replacement
n Redelivery points upgrading
n Other
37%
40%
7%
9%
7%
3.8 € bn
44 Business Focus
Snam Fact Book 2016
Transport - ProjectsThe investments will facilitate the development of Italy’s gas market and will make the transit of new import flows possible
Snam has focused a significant part of the investment projects in transport infrastructure upgrading so as to facilitate imports and exports and to make bi-directional flows of gas possible.In the Northwestern area of the Country, the Company is committed to finalising projects aimed at ensuring security and flexibility of supply, including the completion of new capacity at the entry points of Passo Gries and Tarvisio, part of which is already available.
The projects aimed at facilitating new imports regard the construction of pipelines along the South-North corridor, in order to increase the capacity for transporting gas coming from the entry points situated in the Southern areas of the country. The most significant part of the new imports will come from the interconnection with the Trans-Adriatic Pipeline (TAP).
Such projects will lead to a 290 km increase in the network length, from 32,556 km estimated in 2016 up to 32,846 km in 2020. Over the same period, they will produce a 6% increase in compression capacity, from 922 MW up to 978
MW. The planned investments provide that import capacity will remain almost stable at 347 million standard cubic metres per day, while a sizeable 92% increase in export capacity is expected.
Infrastructure aimed at supporting the North West markets and bidirectional cross border flows with Northern Europe
Transportation capacity at new Southern entry points
Interconnection withTAP
TARVISIO
GORIZIA
PANIGAGLIA
LIVORNO
CAVARZERE
PASSO GRIES
MAZARA DEL VALLO
GELA
EXPORT CAPACITY (MSCM/D)
2016E 2020E
24
46+92%
IMPORT CAPACITY (MSCM/D)
2016E 2020E
347 347
stable
Business Focus 45
Snam Fact Book 2016
Snam uses technology that combines the Phased Array (PA) and the Time-of-Flight Diffraction (ToFD) techniques in testing pipeline welds, and, in particular, for those with a thickness equal to or greater than 8 mm. The combined PA - ToFD technology is one of most advanced ultrasonic “non-destructive testing” methods provided by European regulations.In particular, the main feature of the PA technology is the use of probes consisting of a variable number of single crystals that are electrically excited for the purpose of producing beams of ultrasonic waves. Each crystal or group of crystals produces a wave front that can be deferred over time and whose phase and amplitude can be synchronised. An ultrasonic beam is formed, with its opening governable in relation to the geometry of the single weld being tested. Optimised control of the electronics allows for obtaining dynamic management of the angles of the ultrasonic beam.
The ToFD technique applied in ultrasonic testing is based on the diffraction of the waves, caused by the apexes of a discontinuity and by the reprocessing of the radio-frequency signals.Compared with radiography, the combined Phased Array - ToFD technology presents several significant advantages:
• absence of ionising radiation;
• sizing of the flaw, including height and depth;
• very high accuracy of sizing;
• possibility of identifying flaws oriented in all positions;
• greater probability of identifying flaws.
The results of ultrasonic testing with the PA-ToFD technique can be immediately evaluated, therefore they may also be used as a process control during normal activity of line welding as well as for tie-ins and repairs.
Employing the combination of the Phased Array (PA) and Time-of-Flight Diffraction (ToFD) techniques in controlling welds
New technologies that facilitate operations
46 Business Focus
Snam Fact Book 2016
As the largest storage operator in Italy, with a 95% share of total storage capacity available, and a leader in Europe, Stogit carries out its activity through an integrated infrastructure system consisting of fields, gas treatment plants, compression stations and operational dispatching station. The storage system makes it possible to offset different requirements between gas supply and consumption, because the supply flow is almost constant during the year, whereas demand is generally concentrated in the winter months. The storage activity also ensures the availability of quantities of strategic gas, with the objective of overcoming possible interruptions or reductions of non-EU supply, or getting beyond any temporary crises within the gas system.In 2015, a part of the new Bordolano site entered into
operations. Thanks to the investments made in developing new fields and enhancing existing fields, in 2015 Stogit exceeded the previous high level record of gas in storage. At the end of 2015, the total storage capacity, including strategic storage, had reached 16.0 billion cubic metres (+0.1 billion cubic metres over 2014). In 2015 the natural gas moved into the storage system amounted to 19.6 billion cubic metres (+3.9 billion cubic metres over the volumes registered in 2014). The increase is attributable, on the one hand, to higher withdrawals from storage (+2.17 billion cubic metres) due to the sizeable use by operators in the first months of 2015 resulting from weather conditions and, on the other hand, to higher injections for reconstituting stocks (+1.71 billion cubic metres).
Italy can take advantage of the more extensive storage capacity at a European level: 16 billion cubic metres
Storage - Overview
16.0 bcm
Total storage capacity
4.5 bcm
Strategic storage capacity
9.8 bcm
Gas injected into the fields
9Operating
concessions
19.6 bcm
Gas moved through the storage system
11.5 bcm
Available storage capacity
9.7 bcm
Gas withdrawn
1 Concession
not currently in use
STOGIT PRESENCE - 2015
Storage fields
TARVISIO
GORIZIA
PANIGAGLIA (GNL)
LIVORNO OLT(REGASIFICATION TERMINAL)
CAVARZERE(REGASIFICATION TERMINAL)
PASSO GRIES
MAZARA DEL VALLO
GELA
Business Focus 47
Snam Fact Book 2016
In the 2016-2020 period, Snam plans to dedicate 0.5 billion of euro (approximately 12% of total investments of 4.3 billion of euro) to reinforcing the storage infrastructure, increasing modulation and peak capacity. This effort will allow for:
• improving the gas system’s overall liquidity and flexibility, including through greater interconnection at a European level and the supply of new modulation services to operators;
• facilitating new gas-swap opportunities on the European market.
The development of new fields and the strengthening of capacity are expected to account for approximately 38% of the total investments dedicated to storage. Approximately one-half of the investments will be directed toward maintaining high levels of quality and security of the infrastructure.
Storage - Investments Greater storage capacity will improve the liquidity and flexibility of the entire gas system
2016-2020 INVESTMENT PLAN (€ BN)
INVESTMENTS IN STORAGE (€ BN)
2017 - 2020
~0.2 ~0.3
2016
0.5
n In storage n In transport and LNG
4.3 € bn
3.8
INVESTMENT BREAKDOWNSTORAGE 2016-2020
n Development
n Maintenance
n Other
38%
50%
12%
0.5 € bn
48 Business Focus
Snam Fact Book 2016
With a spending of 0.5 billion of euro provided under the investment plan, Snam intends to increase its modulation capacity by approximately 5% to 12.6 billion cubic metres, compared with the
estimated 2016 level of 12.0 billion cubic metres (excluding strategic storage of 4.5 billion cubic metres).Thanks to the planned investments, the peak capacity is expected to increase by 3%.
The planned increases in modulation and peak capacity will be developed in relation to the new storage facility at Bordolano (Cremona), progressively coming into full operation.
Storage - ProjectsStrengthening storage capacity is essential for achieving interconnection at a European level
WORKING GAS (BCM)
2016E 2020E
12.6
+5%
12.0
PEAK CAPACITY (MSCM/D)
2016E
238
2020E
246
+3%
Business Focus 49
Snam Fact Book 2016
The Bordolano site is also being built with the application of the Best Available Technologies (BAT), the most significant of which include:
• the isolating valves (high-integrity pressure protection system, HIPPS), that allow for shutting down the plant in only two seconds, notwithstanding significant size (24-inch diameter for 5 tons of weight);
• the system for monitoring the dual chambered underground liquid storage tanks, with a cavity under nitrogen pressure;
• the system for monitoring the safety valves (PSV), which allows to detect even small leaks;
• the clamp-on system for detection of the integrity of the pipeline buried below ground, mounted directly on the pipelines.
The works for the construction of the new storage facility at Bordolano (Cremona), which started in 2014, advanced significantly in 2015.In addition to the turbo-compressor, the new facility features a Low Temperature Separation (LTS) treatment System, a cluster and services for the withdrawal/injection of natural gas from/to the reservoir. A Continuous Global Positioning System (CGPS) has also been installed for continuous monitoring of altimetric variations of the ground. The site development has also included works directed toward caring for the environment, namely, the planting of dozens of plants as the first stage of a multi-phase project to create a park that will extend over approximately eight hectares around the storage facility.
Progresses in the construction of the Bordolano storage site
Initiatives in storage
50 Business Focus
Snam Fact Book 2016
Experimental monitoring of the seismicity in the Minerbio site
Innovation in storage
In May 2016, Stogit signed an operational protocol with the General Directorate for Security of Mining and Energy Activity of the Italian Ministry of Economic Development and the Region of Emilia Romagna, for the start-up of experimental monitoring of the seismicity of the Stogit storage site at Minerbio, on the outskirts of Bologna.The experimentation envisions the application, for at least one year, of the
ground- and underground-monitoring guidelines developed by experts from different scientific fields, who are part of a group set up at the Ministry of Economic Development. The initiative is a follow-up to the recommendations of the ICHESE Commission, which call for gaining a better technical and scientific understanding of micro-seismic phenomena within the framework of mining activity, and to do so through the use of high-
technology monitoring networks. From this standpoint, the experimentation is aimed at supplying an important contribution about the issue, while also helping to supply the information needed for a possible updating of the guidelines. The Minerbio site has been already equipped with advanced technological systems for monitoring micro-seismicity, including a network of sensors that is to be further expanded.
Business Focus 51
Snam Fact Book 2016
LNG - OverviewGNL Italia plays a key role in ensuring appropriate diversification and flexibility of supply to the gas system
Regasification represents the final activity in the liquefied natural gas (LNG) chain. In the exporting country, the natural gas extracted from the fields is liquefied at a temperature of -160°C in order to allow for its transport via tanker to the regasification terminal. Once offloaded from the tanker, the LNG is heated and returned to the gaseous state in order to be injected into the transport network. The regasification service therefore also includes the off-loading of the LNG from the tanker, operational storage (i.e. storage for the time needed to vaporise the LNG), regasification and injection into the national network. The Panigaglia terminal, which was built in 1971 and is
owned by GNL Italia, is able to regasify 17,500 cubic metres of LNG per day; with optimal operational conditions, it can annually inject more than 3.5 billion cubic metres of natural gas into the transport network. In 2015, one LNG tanker docked at Panigaglia for a total of regasified gas amounting to 0.03 billion cubic metres (an increase of 0.02 billion cubic metres over 2014). The LNG regasification was done as part of the peak-shaving service.During 2015, GNL Italia had four active customers, compared with the three ones active in 2014.The development of the LNG market in recent years has been mainly driven by higher consumption in the Asian markets,
which, due to their distance from the more important production centres, are difficult to be reached through gas pipelines.Given the need for diversification of supplier countries and the growing availability of LNG, a gradual increase can be expected in the LNG flows to Italy and the rest of Europe, where significant reception capacity is already available. From this standpoint, Snam has already taken action to create the conditions so that the traditional market outlet for LNG (the transport networks after regasification) can be rounded out by other market outlets in line with the European directives for sustainable mobility.
17,500 m3
Maximum daily LNG regasification capacity of the Panigaglia terminal
3.5 bcm
Maximum annual quantity of natural gas injectable into the transport network
GNL ITALIA PRESENCE - 2015
Panigaglia
GNL ITALIARegasification terminal
52 Business Focus
Snam Fact Book 2016
In recent years, the European Union has intervened on several occasions in order to increasingly tighten regulation of environmental and emissions limitations with respect to road and ship transport. In Italy, Legislative Decree No. 112/2014 provides that the sulphur content of marine fuels used in the Adriatic and Ionian Sea is to be limited to 0.1% as of 1 January 2018, thereby establishing a deadline in advance of that of 1 January 2020 as provided by Directive 2012/33/EU. In addition, Directive 2014/94/EU requires
each Member State to adopt a National Strategic Plan for development of fuels as alternatives to those traditionally used in the transport sector, ensuring that an adequate number of LNG stations will be planned and built along the road networks and at maritime ports. The use of the LNG as fuel produces significant advantageous environmental effects, given the lower emissions when compared with traditional fuels. In the transport sector, when compared with diesel fuel, the use of LNG allows for reductions of
carbon dioxide CO2 (-30%), nitrogen oxides NOx (-35%), particulate (-95%) and sulfur oxides SOx (-100%), as well as a 50%-75% reduction in noise pollution. The development of services that allow for the use of LNG (“Small Scale LNG Services”) has been underway for some years in various European countries, including Norway, Netherlands, Spain, UK and France, whereas in Italy it has only recently started to be introduced (up to now there is only one station, built by Eni in 2014 and located at Piacenza).
Snam is working to allow for development of a new line of business that will encourage the use of LNG in innovative forms
Innovations in the LNG business
DIRECTIVE 2014/94/EU Provisions for the development of alternative fuels’ infrastructure
2020CNG (Compressed
Natural Gas) refueling stations
2025LNG motorway
refueling stations and bunkering in main ports
2030LNG bunkering
in all ports
In this contest, Snam has launched a feasibility study aimed at assessing the technical-economic impacts of a refurbishment of the Panigaglia plant that allows the development of the new sustainable mobility services.The LNG terminal site is actually in a strategic location for its proximity to points of consumption and to the port areas of interest for businesses already working in the gas industry, who are currently forced to obtain their LNG supply from other terminals outside of Italy.In addition, Snam’s terminal is the only on-shore regasification terminal in the country, which offers the advantage of allowing direct loading on tankers and facilitating the loading of barges and feeder ships.
Business Focus 53
Snam Fact Book 2016
With the positioning achieved in the two principal gas corridors, Snam has assumed a leading role in the process of European infrastructure integration
Snam in Europe
With its international development since 2012, Snam has achieved solid positioning in Europe’s two main energy corridors (South-North and East-West) that are connected to the Italian infrastructure network. The international presence through shareholdings in four strategically
positioned assets (Interconnector and TAP on the South-North corridor, TIGF and TAG on the East-West corridor) proves the consolidation of Snam’s leadership in the process of integrating the European gas system.
International assets
National networks
LNG terminal
Interconnector ensures the security of supply in North-West Europe. It represents the last section of the South-North corridor, linking one of the biggest gas markets in Europe to the continental network. With its bi-directional flows, this infrastructure also makes it possible to boost the flexibility and diversification of the system.
TIGF interconnects the French and Spanish markets with Central and Northern Europe; it thus represents a strategic infrastructure for achieving greater integration at a European level.
TAG integrates the East-West gas corridor, also creating
reverse-flow capacity to Southern Germany and
Eastern Europe.
TAP contributes to the full-scale development of the South-North corridor
in Italy. It will furthermore allow for diversification of supply, through the
importation of gas from Azerbaijan.
54 Business Focus
Snam Fact Book 2016
In 2015, Snam provided work to 910 companies, signing 1,386 supply contracts for a total value of 1.89 billion euro, with a significant increase over the 1.17 billion euro of contracts in 2014.Considering the importance of procurement, candidates to supply goods, works and services to companies of the Snam Group must not only satisfy quality, price and reliability requisites, but they must also share the attention to process innovation and the commitment to reduce the environmental and social impacts and risks inherent to the supply chain. Snam furthermore expects its suppliers to abide by the Ethics and Integrity Agreement, which is aimed at ensuring transparent relationships and professional ethics requirements for the entire term of the contract.The agreement provides for powers of intervention in cases of non-compliance or violations ascertained and reported.
In 2015, Snam conducted reputation checks with respect to more than 2,000 suppliers, subcontractors and potential suppliers of the Group, with the process yielding 461 reputational alerts. In 2015, Snam’s focused its annual supplier’s workshop on the issues of transparency and fight against corruption; the event was entitled “Quality and transparency in the relationship between the company and suppliers”. The workshop, which included the participation of Snam’s senior management, involved more than 420 people. In order to favour a transparent and responsible relationship with its partners, in 2015, Snam further developed the contents and functions of the Supplier Portal, the web-based platform that has supported the operations of the supply chain since 2013. In 2015, the registered users reached a level of 1,500, for an increase of 50% over 2014.
In 2015, Snam signed 65 contracts for the creation of new delivery/redelivery points or upgrading of existing points, and it made available an average of more than 370 million cubic metres of daily transport capacity at the network entry points, thereby guaranteeing access to service to 100% of operators that requested it.Since November 2015, operators have been able to do business on PRISMA, Europe’s leading gas transport capacity trading platform, of which Snam is a partner. The trades may be infra-day, daily, monthly, quarterly, annual and multi-annual (maximum of 15 years). Trading on the platform is conducted through auctions, according to the calendar published by the European Network of Transmission System Operators for Gas (ENTSOG). For the 2015/2016 thermal year, the storage capacity offered was completely taken up as of the June 2015 auctions. Over the years, Snam has developed information systems and web portals that are continuously updated: in 2015,
in particular, Snam upgraded the ServiRe Portal, a single channel of communications and real-time monitoring of operators’ request statuses.Every year, Snam reports the level of satisfaction of its counterparties. The results of the most recent customer satisfaction survey were illustrated and discussed with Shippers and Traders at a dedicated conference, which involved almost 200 participants coming from approximately 90 companies. Some 126 of 139 operators responded to the transport questionnaire, with 90% of the respondents expressing considerable satisfaction with quality of the services offered. For the storage business, the survey involved 73 customers, with 50 providing responses indicating improvement with respect to 2014.The process of defining all transport capacities has been certified since 2011, according to the ISO 9001 standard. A project is now underway to secure ISO 9001 certification for all processes related to Snam Rete Gas’ transport activity.
Relationship with the supply chain
Strengthening services to the benefit of the market
Transparency and quality
Business Focus 55
Snam Fact Book 2016
Snam has always put infrastructure safety first, by encouraging the ongoing development of technical and operational skills that will ensure safety, quality and service continuity. For this reason, plants and pipelines regularly undergo inspections and maintenance operations. In 2015, 1,315 kilometres of
the transport network were inspected using smart pigs, while 16,330 kilometres were monitored with helicopter flyovers. The monitoring of the distribution network in 2015 was guaranteed through 9,100 remote readings, while inspection activity regarded 27,000 kilometres of pipeline.
Snam is continuously committed to promoting the protection of health and safety in the workplace, with the objective of preventing accidents. The “Objective Safety” project is a programme designed to reduce accidents and injuries at work. Inaugurated in 2010, the project has already produced significant improvements, partly due to the greater accountability of employees. Aside from specific and systematic training initiatives, the project provides for development of activities designed to raise staff awareness and involvement, with a particular focus
on operational personnel. Snam has also implemented other specific initiatives, such as the “Zero Accidents” award programme, whereby the employees of the sites commit to achieving 365 consecutive days without accidents at work. A special emphasis is also placed on suppliers, who undergo an initial safety assessment, which is subsequently and regularly checked; suppliers are also involved in periodic workshops. During 2015, Snam delivered 20,722 hours of health and safety training, involving a total of 3,629 employees.
In 2015, a significant decrease in the rate of accidents involving contractors was countered by an increase of the rate of employee accidents, mainly attributable to distribution activity and partly due to new companies joining the corporate scope. The health of Snam’s personnel is safeguarded through continuous control of risk factors within business processes, and thanks to adequate protection and prevention measures. During 2015, there were 2,766 doctor visits, 2,190 periodical medical check-ups, and 245 environmental investigations.
Infrastructure safety: an absolute and shared value
“Objective Safety” project in the workplace
Safety
2013 2014 2015
1.51
2.63
1.91 2.14
1.49 1.38
3.5
3
2.5
2
1.5
1
0.5
0
n Employees
n Contractors
WORKPLACE ACCIDENT FREQUENCY INDEX* *Number of non-commuting accidents, resulting in at least one day off work, per one million hours worked.
56 Business Focus
Snam Fact Book 2016
Snam is very focused on developments of possible alternative uses of natural gas, including in particular biomethane, as a renewable resource that has the advantage of being programmable and fully sustainable. In addition, through biomethane, the gas network can become a transporter of renewable energy as part of the gradual decarbonisation path of the energy sector. Working with the Consorzio italiano biogas and Confagricoltura (one of the leading farming
industry associations in Italy), Snam has prepared a position paper to share with national and European institutions, aimed at promoting the achievement of a target for biogas equal to 10% of Italy’s total gas supply.The consolidation of biogas production targets and the presence of a stable regulatory framework are key to a solid development of the sector, in which Snam may play a role as a transport infrastructure operator.
Snam's operating activities entail the emission of greenhouse gases (GHG) into the atmosphere, in the form of carbon dioxide (CO
2) and methane (CH4). Snam has chosen gas as
its main fuel (accounting for approximately 94% of its total energy consumption) since the combustion of gas produces a quantity of CO
2 that is about 25%-35% lower than
petroleum products and 40%-60% lower than coal. Aside from its preference for the use of natural gas, the Company has long launched a series of Energy Management initiatives aimed to minimise GHG emissions in its operating activities by employing specific containment programmes: as a result the Company was able to avoid the emission of 141,000 tons of CO
2eq in 2015. Moreover, in order to
contain natural gas emissions from the transportation network, activities were continued which involve gas recovery through in line and compression plant gas recompression interventions (3.6 million cubic metres of natural gas were recovered, representing approximately 63,600 tonnes of CO
2eq), as well as the replacement of pneumatic equipment in
plants in the transportation network and storage facilities.Finally, within the distribution network, the Company continued to replace cast-iron piping with higher-performance piping, involving about 29 km of networks.
Snam's renewable energy plants include 1 wind generator, 1 thermal solar plant, and 1,043 photovoltaic plants (of which 999 are back up plants). In 2015, total energy produced from
renewable sources rose by 58% compared with 2014, going from 477,213 kWh in 2014 to 740,000 kWh. This increase was due to the new plants installed in 2015 as well as the connection of plants installed in previous years. In addition, the number of Snam facilities sourcing electricity from renewable sources has been increased: the Messina and Terranuova Bracciolini compression plants, the Brugherio storage site, and the Panigaglia regasification plant. With this initiative and the growing production of electricity with photovoltaic plants, it was possible to avoid the atmospheric emission of approximately 7,560 tons of CO
2eq,
which represented approximately 25% of the Snam Group’s total indirect emissions (scope 2).
Energy Management initiatives
Options provided by biogas
Initiatives for the environment
2015 Changevs. 2014
Total GHG emissions (direct Scope 1, indirect Scope 2 and Scope 3)
2.37 mln t +1.3%
Direct CO2eq
emissions(Scope 1) 1.91 mln t -3.6%
Direct emissions of natural gas 78.5 mln m3 -17.4%
Energyconsumption 9,658 TJ +9.0%
Performance
58 Performance
Snam Fact Book 2016
Operational metricsKey operating figures
a. With regard to 2015, gas volumes are expressed in standard cubic metres (SCM) with an average higher heating value (HHV) of 38.1 and 39.1 MJ/SCM respectively for the businesses of natural gas transportation, regasification and storage.
b. Figures for 2015 were updated to 14 January 2016. The update of 2014 figures has been finalised, and figures are consistent with those published by the Ministry of Economic Development.
c. Working gas capacity for modulation, mining and balancing services, allocated in full as at 31 December 2015.
d. The data relating to 2015 include the company Acam Gas S.p.A., which has been fully consolidated since 1 April 2015, and the companies Metano Arcore S.p.A. and SETEAP S.p.A., which merged with Italgas S.p.A. and Napoletanagas S.p.A., respectively, effective as of 1 January 2015.
e. This figure refers to the kilometres of network operated by Italgas.
f. Fully consolidated companies.
2013 2014 2015 Change % change
Natural gas transportation (a)
Natural gas injected into the national gas transportation network (billions of cubic metres) (b)
69.00 62.25 67.25 5.00 8.0
Transportation network (kilometres in use) 32,306 32,339 32,534 195 0.6
Installed power in the compression stations (MW) 866.9 893.9 876.5 (17.4) (1.9)
Liquefied natural gas (LNG) regasification (a)
LNG regasification (billions of cubic metres) 0.05 0.01 0.03 0.02
Natural gas storage (a)
Available storage capacity (billions of cubic metres) (c) 11.4 11.4 11.5 0.1 0.9
Natural gas moved through the storage system (billions of cubic metres)
18.42 15.70 19.58 3.88 24.7
Natural gas distribution (d)
Active meters (millions) 5.928 6.408 6.526 0.118 1.8
Gas distribution concessions (number) 1,435 1,437 1,472 35 2.4
Distribution network (kilometres) (e) 52,993 55,278 56,717 1,439 2.6
Employees in service at period end
Employees in service at period end (number) (f) 6,045 6,072 6,303 231 3.8
by business segment:
- Transportation 1,952 1,874 1,918 44 2.3
- Regasification 79 77 73 (4) (5.2)
- Storage 303 291 299 8 2.7
- Distribution (d) 3,008 3,124 3,298 174 5.6
- Corporate and other activities 703 706 715 9 1.3
Performance 59
Snam Fact Book 2016
Income Statement FiguresSnam Group: Consolidated Income Statement for 2014, 2015 and 2015 pro-forma post Italgas separation
2014 Consolidated Income Statement
Snam Group
2015 Consolidated Income Statement
Snam Group
2015 Consolidated Pro-forma
Income Statement Snam Group
(€ million)
Revenue
Core business revenue 3,784 3,856 2,470
Other revenue and income 98 114 106
3,882 ,970 2,576
Operating costs
Purchases, services and other costs (763) (782) (395)
Personnel costs (343) (389) (129)
Amortisation, depreciation and impairment losses (803) (849) (576)
EBIT 1,973 1,950 1,476
Financial income (expenses)
Financial expense (416) (392) (390)
Financial income 19 12 123
(397) (380) (267)
Income (expense) on equity investments
Equity method valuation effect 79 126 147
Other income from equity investments 52 9 -
131 135 147
Pre-tax profit 1,707 1,705 1,356
Income taxes (509) (467) (382)
Net profit 1,198 1,238 974
Attributable to
- Snam 1,198 1,238 974
- Minority interests
Net profit per share (€ per share) 0.354 0.354 0.332
60 Performance
Snam Fact Book 2016
Balance Sheet FiguresSnam Group: Consolidated Statement of Financial Position for 2014, 2015 and 2015 pro-forma post Italgas separation
2014 Consolidated Statement of
Financial Position Snam Group
2015 Consolidated Statement of
Financial Position Snam Group
2015 Consolidated Pro-forma
Statement of Financial Position
Snam Group
(€ million)
Assets
Current assets 2,476 2,153 3,271
Non-current assets 22,407 22,703 17,998
Non-current assets held for sale 23 24 0
Total assets 24,906 24,880 21,269
Liabilities and shareholders' equity
Current liabilities 3,898 4,597 2,894
Non-current liabilities 13,829 12,690 11,769
Liabilities directly associated with assets held for sale 7 7 0
Total liabilities 17,734 17,294 14,663
Snam shareholders' equity 7,171 7,585 6,606
Minority interests 1 1 0
Total shareholders' equity 7,172 7,586 6,606
Total liabilities and shareholders' equity 24,906 24,880 21,269
RAB (€ BILLION)
2013 2014 2015E 2015PRO FORMA
30
25
20
15
10
5
0
24.0 24.7 24.921.0
NET FINANCIAL DEBT (€ BILLION)
2013 2014 2015 2015PRO FORMA
16.014.012.010.08.06.04.02.0
0
13.3 13.6 13.8
10.3
Performance 61
Snam Fact Book 2016
Snam Group: Cash Flow Statement for 2014, 2015 and 2015 pro-forma post Italgas separation
Cash flow
2014 Consolidated Cash Flow Statement
Snam Group
2015 Consolidated Cash Flow Statement
Snam Group
2015 Consolidated Pro-forma Cash Flow
Statement Snam Group
(€ million)
Net cash flow from operating activities 1,529 2,054 1,514
Cash flow from investments (1,244) (1,436) (1,173)
Cash flow from divestments 12 153 2,788
Net cash flow from invesment activities (1,232) (1,283) 1,615
Net cash flow from financing activities (231) (828) (1,675)
Net cash flow for the period 72 (57) 1,454
Cash and cash equivalents at the beginning of the period 2 74 27
Cash and cash equivalents at the end of the period 74 17 1,481
2013 2014 2015 2015PRO FORMA
1,400
1,200
1,000
800
600
400
200
0
1,1871,283
1,186
879
TECHNICAL INVESTMENTS (€ MILLION)
FREE CASH FLOW(€ MILLION)
2013 2014 2015 2015PRO FORMA
900
800
700
600
500
400
300
200
100
0
-100
-200-92
297
771
-101
62 Performance
Snam Fact Book 2016
The contribution from equity investments
Investments in joint ventures
31.12.2015
TIGF Holding S.A.S.
Trans Austria Gasleitung GmbH
Toscana Energia S.p.A.
GasBridge 1 e 2 B.V.
Current assets 130 119 79 38- of which cash and cash equivalents 47 82 4 Non-current assets 2,824 1,018 794 224Total assets 2,954 1,137 873 262Current liabilities -101 -47 -248 - of which current financial liabilities -16 -153 Non-current liabilities -1,751 -535 -243 - of which non-current financial liabilities -1,446 -439 -206 Total liabilities -1,852 -582 -491 Shareholders' equity 1,102 555 382 262Equity interest held by the Group (%) 40.50% 89.22% 48.08% 50%Share attributable to the Group 446 496 184 131Other adjustments -17 Book value of the equity investment 446 496 167 131Revenue 441 283 128 Operating costs -159 -117 -39 Amortisation, depreciation and impairment -131 -52 -28 EBIT 151 114 61 Financial income Financial expense -47 -6 -5 Income (expense) from equity investments 1 20Income taxes -46 -27 -17 Net profit 58 81 40 20Other components of comprehensive income 10 14Total comprehensive income 68 81 40 34
(€ million)
Investments in joint ventures 1,919 159 1,067 1,072 5
TIGF Holding S.A.S. 40.50% 1,102 58 452 446 -6
Trans Austria Gasleitung GmbH (TAG) 84.47% 555 81 500 495
GasBridge 1 B.V. e GasBridge 2 B.V. 50% 262 20 115 131 16
Ow
ners
hip
stak
e
Net
equ
ity(la
st fi
scal
yea
r)
Net
pro
fit (l
oss)
(la
st fi
scal
yea
r)
Fina
l bal
ance
at
31.1
2.20
15 (A
)
Shar
e of
Boo
k Va
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attr
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able
to th
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roup
at 3
1.12
.201
5 (B
)
Diff
eren
ce v
s. th
e eq
uity
val
ue (B
)-(A
)
Performance 63
Snam Fact Book 2016
The performance of the key financial-statement indicators reflects the combination of a sound level of profitability and a solid capital structure
Financial-statement indicators
The Return On Equity (ROE) has been calculated as the ratio of net profit and the average of net equity at the start and at the end of the period considered.
NET FINANCIAL DEBT/EBITDA
4.75 4.92 4.92
2013 2014 2015
6.0
5.0
4.0
3.0
2.0
1.0
0
The Return On Investment (ROI) is the ratio of EBIT and the average of net invested capital at the start and at the end of the period considered.
ROI
10.8%9.8%
9.2%
2013 2014 2015
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0
ROE
2013 2014 2015
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0
18.2%
15.4%16.8%
NET FINANCIAL DEBT/NET EQUITY
2013 2014 2015
2.50
2.00
1.50
1.00
0.50
0
2.221.90 1.82
64 Performance
Snam Fact Book 2016
(€ million) 2013 2014 2015 Change % change
Total revenue (*) 2,075 2,087 2,145 58 2.8
- of which from regulated activities 2,066 2,065 2,094 29 1.4
Operating costs (*) 375 402 485 83 20.6
EBIT 1,217 1,196 1,165 -31 -2.6
Technical investments 672 700 693 -7 -1
- of which with a greater return (**) 516 370 328 -42 -11.4
- of which with a basic rate of return 156 330 365 35 10.6
Net invested capital at 31 December 11,370 11,877 12,011 134 1.1
Natural gas injected in the national gas transportation network(billions of cubic metres) (***)
69 62.25 67.25 5 8
Transportation network (kilometres in use) 32,306 32,339 32,534 195 0.6
- of which national network 9,475 9,559 9,630 71 0.7
- of which regional network 22,831 22,780 22,904 124 0.5
Installed capacity in the compression stations (MW) 866.9 893.9 876.5 -17.4 -1.9
Employees in service at 31 December (number) 1,952 1,874 1,918 44 2.3
(*) Before consolidation adjustments.(**) Investments in 2014 and 2015 include a flat-rate increase in WACC to offset the regulatory lag (+1% compared with the base WACC of 6.3%).(***) Figures for 2015 were updated to 14 January 2016. The update of 2014 figures has been finalised, and figures are consistent with those published by the Ministry of Economic Development.
Transport - PerformanceKey indicators
Performance 65
Snam Fact Book 2016
Storage - Performance
(€ million) 2013 2014 2015 Change % change
Total revenue (a) (b) 489 541 535 -6 -1.1
- of which from regulated activities 486 526 534 8 1.5
Operating costs (a) (b) 110 163 145 -18 -11
EBIT 315 318 319 1 0.3
Technical investments 251 240 170 -70 -29.2
Net invested capital at 31 December 3,071 3,286 3,365 79 2.4
Concessions (number) 10 10 10
- of which operational (c) 8 8 9 1 12.5
Natural gas moved through the storage system(billions of cubic metres) (d)
18.42 15.7 19.58 3.88 24.7
- of which injected 8.92 8.13 9.84 1.71 21
- of which withdrawn 9.50 7.57 9.74 2.17 28.7
Total storage capacity (billions of cubic metres) 15.9 15.9 16.0 0.1 0.6
- of which available (e) 11.4 11.4 11.5 0.1 0.9
- of which strategic 4.5 4.5 4.5
Employees in service at 31 December (number) 303 291 299 8 2.7
a. Regulated revenue includes the chargeback to storage users of the costs relating to the natural gas transportation service provided by Snam Rete Gas S.p.A., recorded pursuant to Resolution 297/2012/R/gas as of 1 April 2013. For the purposes of the consolidated financial statements, this revenue is derecognised, together with transportation costs, within Stogit S.p.A. in order to represent the substance of the operation.
b. Before consolidation adjustments.
c. Working gas capacity for modulation services. The 2015 figure includes the Bordolano concession, which has been operational since
the end of 2015, with regard only to a portion of assets forming part of the overall plant, such as to guarantee the performance of storage activities.
d. Gas volumes are expressed in standard cubic metres (SCM) with an average higher heating value (HHV) of 39.2 and 39.1 MJ/SCM respectively for 2014 and 2015.
e. W orking gas capacity for modulation, mining and balancing services. The figure indicated represents the maximum available capacity, which was allocated in full as at 31 December 2015.
Key indicators
66 Performance
Snam Fact Book 2016
Distribution - Performance
(€ million) 2013 2014 2015 Var. ass. Var. %
Total revenue (*) (**) 1,038 1,053 1,098 45 4.3
- of which from regulated activities 1,008 1,026 1,071 45 4.4
Operating costs (*) (**) 319 331 356 25 7.6
EBIT 505 477 469 -8 -1.7
- of which special items 11 40 40
Adjusted EBIT 516 477 509 32 6.7
Technical investments 358 359 393 34 9.5
Net invested capital at 31 December 4,019 4,368 4,572 204 4.7
Gas distribution (millions of cubic metres) 7,352 6,500 7,599 1,099 16.9
Distribution concessions (number) 1,435 1,437 1,472 35 2.4
Distribution network (kilometres) (***) 52,993 55,278 56,717 1,439 2.6
Active meters (millions) 5.928 6.408 6.526 0.118 1.8
Employees in service at 31 December (number) 3,008 3,124 3,298 174 5.6
(*) Purely for the purposes of the reclassified income statement, revenue relating to building and upgrading distribution infrastructure, recorded pursuant to IFRIC 12 and recorded in equal measure alongside the relevant costs incurred, is stated as a direct reduction in the respective cost item.
(**) Before consolidation adjustments.(***) This figure refers to the kilometres of network managed by Italgas.
Key indicators
Performance 67
Snam Fact Book 2016
(€ million) 2013 2014 2015 Var. ass. Var. %
Total revenue (*) 31 28 25 -3 -10.7
- of which from regulated activities 31 25 19 -6 -24
Operating costs (**) 21 23 19 -4 -17.4
EBIT 5 1 1
Net invested capital at 31 December 75 84 89 5 6
Technical investments (***) 5 7 7
Volumes of LNG regasified (billions of cubic metres) 0.05 0.01 0.03 0.02
Tanker loads (number) 1 1 1
Employees in service at 31 December (number) 79 77 73 -4 -5.2
(*) Revenue from regulated activities includes the chargeback to customers of costs related to the natural gas transportation service provided by Snam Rete Gas S.p.A. 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.
(**) Before consolidation adjustments.(***) Investments in 2014 and 2015 include a flat-rate increase in WA CC to offset the regulatory lag (+1% compared with the base WA CC of 7.3%).
Regasification - PerformanceKey indicators
68 Performance
Snam Fact Book 2016
Indicators by business segment
RAB - 2015E
EMPLOYEES - 31.12.2015
n Transport & LNG n Distribution n Storage
n Transport & LNG n Distributionn Storage n Corporate and other activities
TECHNICAL INVESTMENTS - 2015
n Transport & LNG n Distributionn Storage n Corporate and other activities
22.9% 61.0%
16.1%
24.9 € bn
52%
32%
11%
30.9%
55.0%
1.27€ bn
13.4%
EBIT - 2015
n Transport & LNG n Distribution n Storage
16%60%
24%
0.7%
6,303(total number of employees)
1.95€ bn
5%
All of the data reported on this page refer to the Snam Group as configured at 31 December 2015. The separation of Italgas will be effective as of November 2016.
Performance 69
Snam Fact Book 2016
Environmental performance
2013 2014 2015
Energy consumption (TJ) 11,467 8,858 9,658Natural gas emissions (106 m3) 98.8 95.0 78.5GHG emissions scope 1-2-3 (103 t CO2eq) 2,574 2,341 2,371GHG emissions scope 1 (103 t CO2eq) 2,181 1,978 1,907GHG emissions scope 2 (103 t CO2eq) 32.2 31.4 31.1GHG emissions scope 3 (103 t CO2eq) 361 333 433NOx emissions (t) 837 497 433CO emissions (t) 327 265 292CO2 emissions/energy used (kg/GJ) 54.3 54.0 53.9NOx emissions/energy used (kg/GJ) 0.073 0.056 0.045Total waste production (t) 61,217 57,819 36,288Non-hazardous waste production (t) 58,039 54,144 33,176Hazardous waste production (t) 3,178 3,676 3,112Waste recovered from production activities (%) 96 54 56Freshwater procurement (103 m3) 281 339 322Freshwater discharged (103 m3) 188 258 254Sea water procurement (103 m3) 4,000 4,000 4,000Sea water discharged (103 m3) 4,000 4,000 4,000Natural gas transportEnergy consumption/energy compressed (%) 0.25 0.23 0.23CO2 emissions/gas compressed (kg/106 m3) 5,834 5,941 5,805Natural gas emissions/km of network (m3/km) 1,238 1,151 1,138NOx emissions/gas compressed (kg/106 m3) 7.5 6.3 5.7Average rated turbine NOx emissions/total installed capacity ([mg/Nm3]/MW) 5.7 5.4 4.6DLE turbine hours of operation/total turbine hours of operation (%) 76 87 88Liquefied natural gas regassificationEnergy consumption/LNG injected into the network (*) (*) (*)CO2eq emissions/LNG injected into the network – (kg/106 m3) (*) (*) (*)Natural gas storageNatural gas emissions for storage/gas stored (%) 0.061 0.067 0.051NOx emissions/gas stored (kg/106 m3) 39.1 28.0 17.8Average rated turbine NOx emissions/total installed capacity ([mg/Nm3]/MW) 9.60 6.20 5.60Natural gas distributionNatural gas emissions/km of network (m3/km) 828 813 511CO2eq emissions/gas distributed - scope 1 (kg/106 m3) 97,712 111,475 70,298
(*) Data not significant due to reduced regasification activity.
KPI description KPI date Pre-set target Target achieved in 2015 Sector
Natural gas recovered out of total potential emissions from maintenance activities (*) 2015 Recover 30% every year
(2015-2018 period) 35% Transportation
Contain natural gas emissions in the transportation network 2014 Keep natural gas emissions per year
below 1,240 m3/km until 2017 1,138 m3/km Transportation
Replacement of cast-iron networks (Km) (**) 2010 Replace the entire grey cast-iron network by 2017 327 km DistributionContain natural gas emissions in the distribution network (***) 2014 Reach natural gas emissions
of 790 m3/km by 2017 501 m3/km Distribution
(*) KPI renewed for the 2015-2018 period as well.(**) KPI postponed to 2017.(***) Italgas and Napoletanagas Network.
70 Performance
Snam Fact Book 2016
Snam and the Stock Exchange
CODES
ISIN: IT0003153415Alphanumeric: SRG
Reuters SRG.MIBloomberg SRG.IM
SNAM’S INDEX MEMBERSHIP
Key share figures 2013 2014 2015
Number of shares of share capital (millions) 3,381.6 3,500.6 3,500.6
Number of shares outstanding at 31 December (millions) 3,380.0 3,499.5 3,499.5
Average number of shares outstanding during the year (millions) 3,379.5 3,384.7 3,499.5
Year-end official share price (€) 4.04 4.11 4.85
Average official share price during the period (€) 3.66 4.23 4.51
Market capitalisation (a) (millions) 13,655 14,383 16,973
Dividend per share (€ per share) 0.25 0.25 0.25
Dividends for the period (b) (millions) 845 875 875
Dividends paid in the period (c) (millions) 845 507 875
a. The product of the number of shares outstanding (exact number) multiplied by the year-end official share price.
b. The amount for 2015 was estimated on the basis of the number of shares outstanding at 31 December 2015.
c. The dividend paid in 2014 refers to the balance of the 2013 dividend. Snam did not pay out an interim dividend in 2014 and 2015.
GROUP BOOK VALUE PER SHARE (€)
1.772.12 2.17
2013 2014 2015
2.5
2.0
1.5
1.0
0.5
0
PRICE/BOOK VALUE
2.06 2.00 2.08
2013 2014 2015
2.5
2.0
1.5
1.0
0.5
0
STOXXEurope 600 Utilities
Performance 71
Snam Fact Book 2016
Translating financial returnsinto shareholder returnsThe potential for remunerating shareholders is based on the capacity to generate profits
Despite the challenging operating environment of recent years, Snam has made significant investments, while also maintaining high levels of profitability.With sizeable cash generation from operating activities
and optimisation of financial management, the high levels of earnings achieved have allowed for providing attractive returns to shareholders, in line with the dividend distribution policy outlined in the Strategic Plan.
EBIT (€ MILLION)
1,476
1,950
2013 2014 2015 2015PRO FORMA
2013 2014 2015 2015PRO FORMA
2,500
2,000
1,500
1,000
500
0
2,034 1,973
AVERAGE NUMBER OF OUTSTANDING SHARES IN THE YEAR (MILLION)
3,499.5
2013 2014 2015
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
3,379.5 3,384.7
Earnings per share are based on the average number of shares outstanding in each year.
NET PROFIT PER SHARE (€)
0.277
0.3540.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0
0.271
0.354
Earnings per share are based on the average number of shares outstanding in each year.
ADJUSTED NET PROFIT PER SHARE (€)
2013 2014 2015
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0
0.345
0.2760.318
72 Performance
Snam Fact Book 2016
Remuneration through dividendsDividend yield at 5.2% in 2015
The Snam shares present an attractive dividend yield in absolute terms. This yield is even more impressive if compared with the average dividend yield for European peers, or when considering the strong contraction in bond
yields for issues with a rating similar to Snam’s. For the year 2015, Snam distributed dividends that imply a pay-out ratio of 70.7%. The ratio is slightly higher – at 72.4% - when considering adjusted net profit as the denominator.
Dividends for the period/Net profit
PAYOUT (%)
92.1
70.773.0
2013 2014 2015
120
100
80
60
40
20
0
Dividends for the period/Adjusted net profit
PAYOUT ADJUSTED (%)
72.4
2013 2014 2015
100
90
80
70
60
50
40
30
20
10
0
90.581.2
DIVIDEND YIELD (%)
Dividend for the period/Year-end official share price
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
3.2
4.9 4.9 4.8
5.8 5.86.2 6.2 6.1
7.1 7.1
4.4
5.9
4.75.2
Performance 73
Snam Fact Book 2016
Considered as a whole, Snam distributed dividends of 10.4 billion euro to its shareholders for the 2001-2016 period. Market capitalisation is more than tripled between 6 December
2001, the first trading day after the IPO, and 31 August 2016, moving from 5.5 to 17.4 billion euro. The Total Shareholder Return over the same period was 519%.
Total Shareholder Return
NUMBER OF SHARES IN SHARE CAPITAL
After buy back After capital increase for
Italgas and Stogit acquisition
After cancellation of treasury shares
After capital increase for TAG
acquisition
2001
|
2009
|
2007
|
2012
|
2011
|2014
|
1,955,000,000 1,956,318,100 3,570,768,494 3,381,638,294
3,571,187,994
3,500,638,294
DIVIDEND PER SHARE (€)
0.09
0.160.20 0.20
0.170.19 0.21
0.23 0.23 0.24 0.25 0.25 0.25 0.25
0.20
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0.30
0.25
0.20
0.15
0.10
0.05
0
*Product of the number of outstanding shares multiplied by the official share price.
SNAM MARKET CAP* (€ BILLION)
5.5 5.8 6.3 6.6 6.8
8.4 7.9 7.7 7.0
11.712.6
11.4 11.9
13.714.4
17.0
06.122001
31.122001
31.122002
31.122003
31.122004
31.122005
31.122006
31.122007
31.122008
31.122009
31.122010
31.122011
31.122012
31.122013
31.122014
31.122015
31.082016
19
18
17
16
14
12
10
8
6
4
2
0
17.4
74 Performance
Snam Fact Book 2016
Understanding Snam for investing in the sharesA valid business model and consistent execution of financial and operating strategy provide visibility to the dividend policy
The commitment to maintaining an attractive and sustainable return to shareholders over time is a key aspect of Snam’s strategy. As demonstrated by the track record of the past 15 years, an effective business model and the accurate execution of strategy, both at a financial and
operational level, have allowed for implementing a dividend policy consistent with the commitments assumed. Also in the years ahead, the remuneration of Snam shareholders will be able to leverage some clearly identifiable strengths:
• Efficient and solid capital structure
• Strong cash generation from operations
• Significant contribution of income from international subsidiaries
• Commitment to operational excellence
• Exploitation of the opportunities emerging from new services
Snam Fact Book 2016
Glossario 75
Economic-financial terms
TREASURY SHARES Shares owned by the Company, which it has repurchased for a variety of objectives. CAGRCompound Average Growth RateCORPORATE GOVERNANCESet of rules that monitor and guide the companies’ management and control. The corporate governance systems establish the segregation of duties and rights amongst the corporate roles by assigning tasks, responsibilities and decision-making powers. MARKET CAPITALIZATIONValue of a listed company that is obtained by multiplying the share price by the number of
outstanding shares.ORDINARY AND EXTRAORDINARY DIVIDEND The ordinary dividend stems from earnings. In the case of an extraordinary dividend, however, shareholders receive, rather than a share of net profit, a part of the Company’s distributable reserves. This amount may come from provisions made in prior years, from the disposal of Company assets or from other corporate strategies.DIVIDEND YIELDIt measures the yield of an equity investment linked to the dividend distribution, in terms of percentage ratio of dividend for the fiscal year to the share price at the end of the year.
CAPITAL GAINIt measures the return of an equity investment linked to price changes, in terms of the percentage ratio share price at the beginning of the period to share price at the end of the period.TOTAL SHAREHOLDER RETURN (TSR)It measures the overall percentage return of an equity investment, calculated on an annual basis, considering both the price change, measured in terms of capital gain, and the dividend yield, assuming that the distributed dividend is re-invested in the stock at the ex-dividend date.WACCWeighted Average Cost of Capital.
Regulatory terms
THERMAL YEARPeriod of time into which the regulatory period is divided for the businesses of natural gas transport, storage and distribution as well as for LNG regasification.REGULATED ACTIVITIESActivities subject to regulation by the Regulatory Authority for Electricity, Gas and Water. In the gas
business transportation, distribution, storage and regasification are regulated activities.NETWORK CODEDocument governing the rights and obligations of the parties involved in providing the transportation service.REGULATORY PERIODPeriod of time for which the regulation is defined
by the Authority for each different sector.REGULATORY ASSET BASE (RAB)Value of net invested capital calculated as per the criteria established by the Regulatory Authority for Electricity, Gas and Water for companies operating in the transportation and dispatch of natural gas, LNG regasification, storage and distribution in order to set the reference revenue.
Technical terms
COMPRESSION STATIONSFacilities that increase the pressure of gas in the pipelines to bring it to the necessary level to ensure the required gas flows or facilities that lower the gas pressure to allow the injection into storage fields. The Compression Stations are positioned along the National Pipeline Network and generally comprise several compression units.DISPATCHING CENTREOperating centre continuously controlled, which is responsible for monitoring, overseeing and remote control of the transport network. The dispatching centre receives telecommunication information about the gas pressure, capacity and temperature as well as about the state of the valves at the interception of the pipelines and of the Compression Stations. On the back of the information received and according to transport programs, the Dispatching Centre regulates gas flows, remotely controlling valves and compression units.NATURAL GASMixture of hydrocarbons, composed mainly of methane and with some small amounts of ethane, propane and higher hydrocarbons. The natural gas injected into the pipeline network must respect a set quality to guarantee its compatibility with the
gas already in the pipelines. LIQUEFIED NATURAL GAS (LNG) Natural gas, which has been liquefied by cooling at - 161°C under normal atmospheric pressure in order to make it suitable for transportation by special ships (tankers) or for storage in tanks. In order to be injected into the transportation network, the liquid product must first be reconverted into its gas state in regasification plants and brought up to the pressure in the pipelines. REDELIVERY POINTThe physical point or local group of physical points on the network where the Transporter redelivers the transported gas to the Shipper and where it is measured.NATURAL GAS TRANSPORTATION NETWORK The network consists of pipelines, compression stations and infrastructure, which work both at national and regional levels, to ensure the transportation of gas by interconnections to the international networks, to production and storage facilities, to the redelivery points (for gas distribution and consumption). NATIONAL GAS PIPELINE NETWORK The network comprises pipelines and plants that are sized and checked to meet the requirements for imports, exports and the main national production
and storage facilities; the pipelines transfer large quantities of gas from entry points to large areas of consumption. REGIONAL TRANSPORTATION NETWORK The network consists of a pipeline that allows natural gas to be transported across geographic areas, typically at a regional level.SHIPPER OR USERUser of the gas system. Shippers purchase natural gas from producers, importers or other Shippers and sell it to other Shippers or to final users, including electricity producers and industrial plants, which are usually connected to the Transport Network, or to the residential and commercial clients, which are connected to the local distribution network, or to other Shippers.MODULATION STORAGE Modulation storage aims to respond to changing hourly, daily and seasonal demands.MINING STORAGE Mining storage is necessary for technical and economic reasons in order to enable the optimum cultivation of Italy’s natural gas fields. STRATEGIC STORAGE Strategic storage aims to compensate for a lack of or reduction in supplies, either from import or for crises in the gas system.
Glossary
Snam Fact Book 2016
76 Disclaimer
The Snam Fact Book is a supplement of the Annual Report and provides financial
and operating information integrating the Report itself. The Fact Book contains
forward-looking statements, especially regarding: evolution of natural gas demand,
investment plans, future management performance, projects’ execution, dividend
policy. These forward-looking statements present, by their very nature, a certain
degree of risk and uncertainty, as they depend on events and developments that
will occur in the future. Therefore, Snam’s actual results may differ from those
expressed due to several factors. Among them: predictable evolution of demand, offer
and prices of natural gas, actual operating performances, general macroeconomic
conditions, geopolitical factors, such as International tensions, impact of energy
and environmental regulations, success in the development and application of new
technologies, changes in the expectations of stakeholders and other changes in
business conditions.
Disclaimer
The Fact Book is a publication managed by the Investor Relations Department.
Concept, editorial support and layout: Blue Arrow, Milano
Graphic project: Inarea
Printing AG Printing
Printed on ecological paper: Fedrigoni Symbol Freelife
Contacts:Investor Relations Department
Piazza Santa Barbara, 7
20097 San Donato Milanese (MI)
Switchboard + 39 02.3703.1
investor.relations@snam.it - www.snam.it
Snam S.p.A.Headquarters: S. Donato Milanese (MI), P.zza S.Barbara 7
Share capital 3,696,851,994.00 Euro
Fiscal code and Milan Company Register number
13271390158 - R.E.A. Milan number 1633443
VAT Number 13271390158
2nd editionSeptember 2016
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