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SNAM RETE GAS ANNOUNCES RESULTS FOR THE FIRST NINE MONTHS AND THE THIRD QUARTER OF 2010

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SNAM RETE GAS ANNOUNCES RESULTS FOR THE FIRST NINE MONTHS AND THE THIRD QUARTER OF 2010
 
San Donato Milanese, 27 October 2010 - The Snam Rete Gas Board of Directors has today approved the consolidated results for the first nine months and the third quarter of 2010 (unaudited) 1.
Financial highlights 2
  • Core business revenue 3 : €2,289 million (+40.4%); +4.1% compared with the combined first nine months of 2009; €754 million in the third quarter (+5.8%)
  • EBIT: €1,386 million (+64.4%); +19.5% compared with the combined first nine months of 2009; €456 million in the third quarter (+14.3%)
  • Net profit: €827 million (+76.7%); +24.5% compared with the combined first nine months of 2009; €280 million in the third quarter (+19.7%)
  • Investments: €991 million
Operating highlights
  • Gas injected into the transportation network: 60.32 billion cubic metres (+9.0%); 17.26 billion cubic metres in the third quarter
  • Number of active meters: 5.82 million (+1.4%)
Carlo Malacarne, CEO of Snam Rete Gas,made the following comments on the results:

“The robust results of the first nine months of the year at aggregate level, which show an EBIT increase of 19.5% and a Net Income growth of 24.5% compared to the same period last year, confirm the sound operating performance and the efficient financial management of Snam Rete Gas. The continuous attention to the operating efficiency allows us to achieve our operating cost reduction target and represents a key lever for value creation. The recently defined regulatory framework for the third period of the storage activity provides further stability and visibility to the results of the Group over coming years".
1This press release constitutes the quarterly report pursuant to article 154-ter of the Testo Unico della Finanza (TUF).
2Following the acquisition from Eni of Italgas and Stogit, completed on 30 June 2009, the comparative results from the first nine months of 2009 include the impact of consolidating Italgas and Stogit from the third quarter of 2009. In order to meaningfully compare the results of the two periods, these figures also show the percentage change in the financial highlights compared with the combined first nine months of 2009, which were obtained by combining the consolidated data of Snam Rete Gas, GNL Italia, Italgas and Stogit. The combined consolidated income statement and the notes to the main items can be found in “Summary of the results for the first nine months and the third quarter of 2010�?.
3Net of revenue from building and upgrading distribution infrastructures, which was recognised after the application from 1 January 2010 of IFRIC 12, “Service Concession Arrangements�?. Core business revenue, including the impact of applying IFRIC 12, totalled €2,507 million in the first nine months (+53.8%; +14% compared with the combined first nine months of 2009) and €831 million in the third quarter of 2010 (+16.5%). More information on the accounting effects of this interpretation can be found in the “Basis of presentation and accounting principles�? section of the half-year report at 30 June 2010.
Financial highlights
(€ million)
Third quarter
   
First nine months
Change
Change %
2009
2010
 
 
2009
2010
 
 
713
831
Core business revenue
 
1,630
2,507
877
53.8
713
754
Core business revenue net of effects of IFRIC 12
1,630
2,289
659
40.4
148
214
Operating costs
 
375
644
269
71.7
148
137
Operating costs net of effects of IFRIC 12
375
426
51
13.6
399
456
EBIT
 
843
1,386
543
64.4
234
280
Net profit (*)
 
468
827
359
76.7
0.07
0.08
Net profit per share (**)
(�)
0.20
0.24
0.04
20.0
0.12
0.14
EBIT per share (**)
(�)
0.36
0.41
0.05
13.9
343
359
Investments
 
781
991
210
26.9
3,375.4
3,376.2
Number of shares outstanding at the end of the period
(millions)
3,375.4
3,376.2
0.8
 
3,375.4
3,376.2
Average number of shares outstanding during the period
(millions)
2,311.0
3,376.1
1,065.1
46.1



 

* Net profit is attributable to Snam Rete Gas.
** Calculated considering the average number of shares outstanding during the period.
 
EBIT
EBIT for the first nine months of 2010 was €1,386 million, an increase of €543 million, or 64.4%, compared with the first nine months of 2009. The increase was due essentially to higher EBIT from the natural gas distribution and storage business segments (+€235 million and +€131 million respectively), which, at constant consolidation scope, benefited in the first nine months of 2010 from the impact of consolidating Italgas and Stogit, against a contribution recorded in the same period of last year for three months from 30 June 2009, the date on which the acquisition of the two companies was completed, and the significant improvement in the performance of the transportation business segment (+€174 million, or 25.1%). EBIT in this segment rose primarily as a result of reduced operating costs owing to payment in kind of gas used in the transportation business, as well as lower amortisation and depreciation.
In the third quarter of 2010, EBIT amounted to €456 million, an increase of €57 million, or 14.3%, compared with the third quarter of 2009, owing mainly to the improved performance of the natural gas transportation (+€34 million, or 13.6%) and distribution (+€18 million, or 16.4%) business segments. The natural gas regasification and storage segments generated EBIT of €2 million and €42 million respectively, an increase of €1 million (+100%) and €4 million (+10.5%) on the same period in the previous year.
 
Net profit
Net profit for the first nine months of 2010 totalled €827 million, an increase of €359 million, or 76.7%, compared with the first nine months of 2009. This rise was due to higher EBIT (+€543 million) and increased income from equity investments (+€24 million), relating mainly to the portion attributable to the net profit for the period of equity-accounted investments. These factors were partially offset by an increase in income taxes (-€172 million), due mainly to higher pre-tax profits, and an increase in net financial expense (-€36 million), owing essentially to the impact of consolidating Italgas and Stogit and to financing the acquisition of the two companies, partially mitigated by a reduction in the average cost of borrowing.
Net profit for the third quarter of 2010 was €280 million, an increase of €46 million, or 19.7%, compared with the third quarter of 2009. The increase was due primarily to higher EBIT (+€57 million), partially offset by an increase in income taxes (-€14 million) owing to higher pre-tax profits. Income taxes were reduced by €6 million as a result of the so-called Tremonti-ter rules, which grant tax breaks to investments in certain categories of machinery and equipment.
Investments
Investments in the first nine months of 2010 amounted to €991 million (€359 million in the third quarter of 2010) and related to the natural gas transportation and regasification (€593 million), distribution (€232 million) and storage (€166 million) business segments.
Net financial debt
Net financial debt 4 amounted to €9,894 million, a reduction of €55 million compared with 31 December 2009 and €143 million compared with 30 June 2010.
Leverage
The leverage ratio (net financial debt/net invested capital) is 63.5% (63.6% at 31 December 2009).
 
Operating highlights
Third quarter
 
First nine months
Change
Change %
2009
2010
 
2009
2010
 
 
 
 
Natural gas transportation (a)
 
 
 
 
17.24
17.26
Natural gas injected into the national gas transportation network
(billions of cubic metres) (b)
55.34
60.32
4.98
9.0
31,557
31,577
Transportation Network (kilometres in use)
31,557
31,577
20
0.1
   
Liquefied Natural Gas (LNG) regasification (a)
       
0.19
0.42
LNG regasification (billions of cubic metres)
0.83
1.53
0.70
84.3
 
 
Natural gas distribution (a)
 
 
 
 
5.74
5.82
Active meters (millions)
5.74
5.82
0,08
1.4
1,441
1,449
Distribution concessions (number)
1,441
1,449
8
0.6
49,625
50,115
Distribution network (kilometres)
49,625
50,115
490
1.0
 
 
Natural gas storage (a)
 
 
 
 
8.90
9.20
Available storage capacity (billions of cubic metres) (c)
8.90
9.20
0.30
3.4
3.00
3.03
Natural gas moved through the storage system (billions of cubic metres)
13.35
11.68
(1.67)
(12.5)
6,231
6,078
Employees in service at end of period (number)
6,231
6,078
(153)
(2.5)
   
by business segment:
       
2,215
2,629
- Transportation
2,215
2,629
414
18.7
89
69
- Regasification
89
69
(20)
(22.5)
3,621
3,150
- Distribution
3,621
3,150
(471)
(13.0)
306
230
- Storage
306
230
(76)
(24.8)



 

(a) Gas volumes are expressed in standard cubic metres (SCM) with an average higher heating value (HHV) of 38.1, 38.9 and 39.4 MJ/SCM respectively for the businesses of natural gas transportation and regasification, distribution and storage.
(b) The figures for the first nine months of 2010 are current as of 11 October 2010.
(c) Working gas capacity for modulation, mining and balancing services.
 
4Information on the breakdown of the group’s net financial debt can be found on page 25.
 
Natural gas injected into the national transportation network
The volumes of natural gas injected into the national transportation network (60.32 billion cubic metres in the first nine months of 2010 and 17.26 billion cubic metres in the third quarter of 2010) rose by 4.98 billion cubic metres (+9.0%) and 0.02 billion cubic metres respectively in the first nine months and the third quarter. The increase was due essentially to a recovery in natural gas demand in Italy in the first nine months of the year (+7.6% compared with the same period in 2009) and the positive balance between injections into (+) and withdrawals from (-) the gas storage system.
Liquefied Natural Gas (LNG) regasification
The volumes of LNG regasified totalled 1.53 billion cubic metres in the first nine months of 2010 (+0.70 billion cubic metres, or 84.3%, compared with the first nine months of 2009) and 0.42 billion cubic metres in the third quarter of 2010 (+0.23 billion cubic metres compared with the third quarter of 2009).
Natural gas distribution
At 30 September 2010, there were 5.82 million active meters at end-customer gas redelivery points, an increase of 1.4% on 30 September 2009 and 0.87% on 31 December 2009.
Natural gas storage
The volume of natural gas moved through the group's storage system in the first nine months of 2010 totalled 11.68 billion cubic metres, down by 1.67 billion cubic metres, or 12.5%, compared with the same period in the previous year. The reduction was due to the significant withdrawal of gas from storage following the Russian supply crisis of January 2009, and to the resulting increase in injection to compensate for the volumes supplied in the first few months of last year. In the third quarter of 2010, a total of 3.03 billion cubic metres of gas was moved through the storage system, an increase of 0.03 billion cubic metres compared with the third quarter of 2009.

The available storage capacity at 30 September 2010 was around 9.2 billion cubic metres, an increase of 3.4% compared with 30 September 2009.
 
Outlook
Transportation and regasification
Gas demand in Italy
Taking into account consumption trends in the first nine months of 2010, and on the basis of information currently available, the demand for natural gas by the end of 2010 is expected to be slightly above 80 billion cubic metres (78 billion cubic metres in 2009).
Investments
The 2010-2013 infrastructure development and maintenance investment programme, for which expenditure in 2010 is expected to be in line with the previous year (€933 million), is continuing as scheduled.
Distribution
Based on the development action taken, the number of active redelivery points at the end of 2010 is expected to increase slightly compared with the previous year (5.8 million users in 2009).
Storage
The total capacity for natural gas storage services at the end of 2010 is expected to be in line with the capacity made available in the first nine months of the year.
 
***
 
This press release detailing the group's consolidated results for the first nine months and the third quarter of 2010 (unaudited) constitutes the quarterly report pursuant to article 154-ter of the Testo Unico della Finanza (TUF).

The income statement information provided relates to the first nine months and the third quarter of 2010 and to the first nine months and the third quarter of 2009, while the balance sheet information supplied refers to 30 September 2010, 30 June 2010 and 31 December 2009. The accounting statements are presented in the same format as those included in the directors' report in the consolidated half-year report and the directors' report in the annual report.

The financial statements were compiled in accordance with the recognition and measurement criteria established by the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and adopted by the European Commission under article 6 of Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002.

The recognition and measurement criteria adopted to prepare the interim directors’ report at 30 September 2010 are the same as those used to compile the 2009 annual report, which should be referred to for their description, except for the international accounting standards that entered into force on 1 January 2010, which are illustrated in the "Accounting standards and interpretations issued by the IASB/IFRIC�? section of the 2009 annual report. In particular, with regard to the activities carried out by the group, the provisions of IFRIC 12, “Service Concession Arrangements�?, are applied as of 2010. This interpretation defines the recognition and measurement criteria which should be adopted for arrangements between the public and private sectors relating to the concession development, financing, management and maintenance of infrastructures. Further information on the application of this interpretation, which did not have an impact on the income statement, can be found in the "Measurement criteria and accounting standards�? section of the half-year report at 30 June 2010.
Pursuant to paragraph 2, article 154-bis of the TUF, the CFO, Antonio Paccioretti, states that the accounting information included in this press release corresponds to documents, accounting ledgers and other records.
Disclaimer
This press release includes forward-looking statements, especially in the “Outlook�? section, relating to: natural gas demand, investment plans, future operating performance and project execution. Such statements are, by their very nature, subject to risk and uncertainty as they depend on the fact that certain events and developments will take place. The actual results can therefore differ from those forecast, as a result of several factors, including: foreseeable trends in the demand, supply and price of natural gas; actual operating performance; general macro-economic conditions; the effect of new energy and environmental legislation; the successful development and implementation of new technologies; changes in stakeholders' expectations; and other changes in business conditions.
 
Contacts
Snam Rete Gas Investor Relations
Tel.: +39 02.520.67272 - Fax: +39 02.520.67803
E-mail: investor.relations@snamretegas.it
Snam Rete Gas External Relations
Tel.: +39 02.520.67691 - Fax: +39 02.520.69227
E-mail: relazioni.esterne@snamretegas.it
Eni Press Office
Tel.: +39 02.520.31875 - +39 06.5982398
E-mail: ufficio.stampa@eni.it

  

Summary of the results for the first nine months and the third quarter of 2010
INCOME STATEMENT
(€ million)
Third quarter
 
 
First nine months
   
2009
2010
 
2009
2010
Change
Change %
713
831
Core business revenue (*)
  1,630
2,507
877
53.8
8
6
Other revenues and income
10
17
7
70.0
721
837
Total revenue
1,640
2,524
884
53.9
(148)
(214)
Operating costs (*)
(375)
(644)
(269)
71.7
573
623
EBITDA
1,265
1,880
615
48.6
(174)
(167)
Depreciation, amortisation and impairment losses
(422)
(494)
(72)
17.1
399
456
EBIT
843
1,386
543
64.4
(70)
(68)
Net financial expense
(161)
(197)
(36)
22.4
14
15
Income (expense) from equity investments
14
38
24
 
343
403
Pre-tax profit
696
1,227
531
76.3
(109)
(123)
Income tax
(228)
(400)
(172)
75.4
234
280
Net profit (**)
468
827
359
76.7



 

(*) The items for 2010 include the effects of applying international accounting standard IFRIC 12, “Service Concession Arrangements�?. Applying this interpretation had no effect on the group's results, except for the equal recognition of revenue and costs relating to building and upgrading distribution infrastructures (€218 million and €77 million in the first nine months and the third quarter of 2010 respectively).
 
(**) Net profit is attributable to Snam Rete Gas.
 
EBIT
EBIT in the first nine months of 2010 totalled €1,386 million, an increase of €543 million, or 64.4%, compared with the first nine months of 2009. The increase was due essentially to: (i) higher EBIT from the natural gas distribution and storage business segments (+€235 million and +€131 million respectively), which benefited in the first nine months of 2010 from the impact of consolidating Italgas and Stogit, with a combined contribution of €514 million, against a contribution of €148 million recorded in the same period of last year for the three months from 30 June 2009, the date on which the acquisition of the two companies was completed; (ii) the significant improvement in the performance of the transportation business segment (+€174 million, or 25.1%). The increase in EBIT from this segment was attributable mainly to 5 : (i) lower operating costs (+€104 million, net of components offset in revenue 6), essentially due to the payment in kind by transportation service users of natural gas used to provide the service, and to the use of provisions for risks and charges in relation to a provision made in the first nine months of 2009 (+€27 million); (ii) lower amortisation and depreciation (+€59 million) connected mainly to the extension of the useful life of pipelines (from 40 to 50 years), which were reviewed recently by the Electricity and Gas Authority for tariff purposes.

EBIT for the third quarter of 2010 amounted to €456 million, up by €57 million, or 14.3%, compared with the third quarter of 2009. The increase was a result of the improved performance of the following business segments:
 
- Transportation (+€34 million; +13.6%). The increase was attributable mainly to: (i) lower amortisation and depreciation (+€15 million) due essentially to the extension of the useful life of pipelines; (ii) reduced operating costs (+€9 million, net of components offset in revenue) owing to a reduction in variable costs of natural gas used to power compressor stations and lower fixed costs;
- Distribution (+€18 million, or 16.4%). The increase was due to: (i) a rise in revenue from natural gas distribution (+€25 million, net of the impact of IFRIC 12); (ii) higher amortisation and depreciation (-€7 million).
 
5EBIT is analysed by considering only those elements which have led to a change therein, as application of the gas sector tariff regulations generates cost and revenue items which offset each other.
6Including the recharging of services provided to subsidiaries by the parent company, Snam Rete Gas S.p.A.
 
Net profit
Net profit for the first nine months of 2010 totalled €827 million, an increase of €359 million, or 76.7%, compared with the first nine months of 2009. This increase was due to: (i) higher EBIT (+€543 million); (ii) increased income from equity investments (+€24 million), relating essentially to the portion attributable to the net profit for the period of equity-accounted investments, particularly associates Azienda Energia e Servizi Torino S.p.A. (+€14 million) and Toscana Energia S.p.A. (+€11 million). These factors were partly offset by: (i) an increase in income taxes (-€172 million), due mainly to higher pre-tax profits; (ii) an increase in net financial expense (-€36 million), owing essentially to the impact of consolidating Italgas and Stogit and to financing the acquisition of the two companies, partially mitigated by a reduction in the average cost of borrowing.
 
The average cost of borrowing in the first nine months of 2010 was 2.83% (3.04% in the first nine months of 2009).

Net profit for the third quarter of 2010 amounted to €280 million, up by €46 million, or 19.7%, compared with the third quarter of 2009. The increase was mainly a result of the following factors: (i) higher EBIT (+€57 million), particularly from the natural gas transportation and distribution business segments (+€34 million and +€18 million respectively); (ii) lower net financial expense (+€2 million), owing mainly to the reduction in the average cost of borrowing; (iii) increased income taxes (-€14 million) due to higher pre-tax profits, though this was partially offset by the impact (+€6 million) of the so-called Tremonti-ter rules 7 , which grant tax breaks to investments in certain categories of machinery and equipment pursuant to article 5 of Legislative Decree no. 78 of 1 July 2009, converted by Law no. 102 of 3 August 2009.
 
Combined consolidated income statement
In order to meaningfully compare the results of the first nine months of 2010 with those of the same period of 2009 (which include the impact of consolidating Italgas and Stogit as of the third quarter of 2009), the consolidated data of Snam Rete Gas, GNL Italia, Italgas and Stogit for the first nine months of 2009 were combined. As a result, transactions between Snam Rete Gas and the companies, and between the companies themselves, were eliminated. The following statements therefore refer to changes in the main income statement data for the first nine months of 2010 compared with the combined data for the first nine months of 2009.
 
7 This amount refers to the tax breaks granted on investments made in the second half of 2009.
 
COMBINED CONSOLIDATED INCOME STATEMENT
(€ million)
 
First nine months
 
 
 
2009
Combined 2009
2010
Change
Change %
Core business revenue
  1,630
2,199
2,507
308
14.0
- of which building and upgrading distribution infrastructures
   
218
218
 
Other revenues and income
10
22
17
(5)
(22.7)
Total revenue
1,640
2,221
2,524
303
13.6
Operating costs
(375)
(534)
(644)
(110)
20.6
- of which construction and upgrade of distribution infrastructures
   
(218)
(218)
 
EBITDA
1,265
1,687
1,880
193
11.4
Depreciation, amortisation and impairment losses
(422)
(527)
(494)
33
(6.3)
EBIT
843
1,160
1,386
226
19.5
Net financial expense
(161)
(195)
(197)
(2)
1.0
Income (expense) from equity investments
14
34
38
4
11.8
Pre-tax profit
696
999
1,227
228
22.8
Income tax
(228)
(335)
(400)
(65)
19.4
Net profit (*)
468
664
827
163
24.5
           



 

(*) Net profit is attributable to Snam Rete Gas.
 
EBIT for the first nine months of 2010 amounted to €1,386 million, an increase of €226 million, or 19.5%, compared with the combined first nine months of 2009. This increase was attributable mainly to the growth in core business revenue (+€90 million, net of the impact of IFRIC 12) recorded in all business segments, and to the reduction in operating costs (+€108 million, net of the impact of IFRIC 12) even after the implementation of efficiency measures, which helped to contain controllable fixed costs (€329 million in the first nine months of 2010). The operating performance of the group’s various business segments is analysed below:
 
- Transportation (+€174 million; +25.1%). The increase was due mainly to: (i) lower operating costs (+€104 million, net of components offset in revenue), owing essentially to the payment in kind of natural gas and the change in provisions for risks and charges for legal disputes (+€27 million); (ii) lower amortisation and depreciation (+€59 million), connected to the extension of the useful life of pipelines (from 40 to 50 years);
- Distribution (+€40 million; +13.1%). The increase was essentially attributable to increased core business revenue (+€61 million, net of the impact of IFRIC 12), due to higher revenue from the natural gas distribution service (+€54 million) as a result of the graduality mechanism introduced by the Electricity and Gas Authority through Resolution no. 79/09. This factor was partially offset by higher amortisation, depreciation and impairment losses (-€22 million) owing to increased amortisation and depreciation (-€12 million) and the impairment losses on certain assets (-€10 million);
- Storage (+€9 million; +5.6%). The increase was due to higher storage revenue (+€10 million) attributable in particular to modulation storage, and to income from the sale of natural gas no longer needed for storage services (+€5 million). These factors were partially offset by higher amortisation and depreciation (-€4 million) and increased operating costs (-€3 million), relating mainly to the change in gas inventories due to the aforementioned sale of natural gas.
- Regasification (+€3 million; +100%). This increase was due to higher revenue from LNG regasification activity.
 
Net profit was €827 million, an increase of €163 million, or 24.5%, compared with the combined first nine months of 2009. This increase was due essentially to higher EBIT (+€226 million), the effects of which were partially offset by an increase in income taxes (-€65 million) due to higher pre-tax profits.
 
The following information concerns the operating and financial performance of the Snam Rete Gas business segments in the first nine months and the third quarter of 2010.

  

Information by business segment
 
Natural gas transportation
Third quarter
 
First nine months
Change
Change %
2009
2010
 
2009
2010
 
 
448
463
Core business revenue (*)
1,355
1,388
33
2.4
77
84
Operating costs (*)
298
227
(71)
(23.8)
250
284
EBIT
692
866
174
25.1
194
205
Investments
629
592
(37)
(5.9)
167
177
- of which with incentives
561
517
(44)
(7.8)
27
28
- of which without incentives
68
75
7
10.3
17.24
17.26
Natural gas injected in the gas transportation network
(billions of cubic metres)
55.34
60.32
4.98
9.0
31,557
31,577
Transportation Network (kilometres in use)
31,557
31,577
20
0.1
8,849
8,893
- of which national network
8,849
8,893
44
0,5
22,708
22,684
- of which regional network
22,708
22,684
(24)
(0.1)



 

(*) Before consolidation adjustments.
 
Introduction
As part of the group's organisational streamlining process after acquiring Italgas and Stogit, parent company Snam Rete Gas S.p.A. strengthened its role as an operational holding company by centralising services relating to staff activities and some strategic activities in order to manage them more efficiently. These activities, as well as the recharging of related costs by the parent company to the subsidiaries, are regulated by service agreements between the parent company and the controlled companies.
 
Results
Core business revenue amounted to €1,388 million, up by €33 million (+2.4%) compared with the first nine months of 2009 and by €15 million (+3.3%) compared with the third quarter of 2009. The increase was due primarily to revenue from the recharging of services provided to subsidiaries (€21 million in the first nine months; €11 million in the third quarter) and to increased transportation revenue (+€13 million in the first nine months; +€5 million in the third quarter) thanks to the higher volumes of natural gas transported (+€18 million in the first nine months; + €2 million in the third quarter), the effects of which were partially offset by applying the new tariff criteria in force for the third regulatory period (1 January 2010 to 31 December 2013). In particular, these criteria required payment in kind by users of the quantities of gas needed to run the transportation system, involving, firstly, lower operating costs in connection with the charges for supplying the gas used for the service and, secondly, a reduction in revenue for the portion allocated to cover operating costs.
 
EBIT was €866 million in the first nine months of 2010, up by €174 million, or 25.1%, compared with the same period of the previous year. This increase was attributable mainly to: (i) lower operating costs (+€104 million, net of components offset in revenue), due essentially to the reduction in variable costs as a result of the payment in kind of natural gas used in the transportation business segment, and to the use of provisions for risks and charges for legal disputes following a charge recorded in the first nine months of 2009 (+€27 million); (ii) a reduction in amortisation and depreciation (+€59 million) due mainly to the change in the useful life of gas pipelines (up from 40 to 50 years) following the recent review for tariff purposes by the Electricity and Gas Authority. The company, taking into account the mechanisms for recognition of tariff components linked to the new depreciation, as well as the technical life of the pipelines, considered it appropriate to restate the useful life of these assets in line with conventional tariff duration.

EBIT was €284 million in the third quarter of 2010, up by €34 million, or 13.6%, compared with the same period of the previous year. This increase was attributable essentially to: (i) lower amortisation and depreciation (+€15 million) due to the change in the useful life of gas pipelines; (ii) reduced operating costs (+€9 million, net of components offset in revenue) due mainly to a reduction in variable costs owing to the payment in kind of natural gas used in the transportation business segment, and to a reduction in fixed costs (+€4 million), relating in particular to lower capital losses.
Operating review
Natural gas injected into the gas transportation network
 (billions of m�)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
   
 
 
 
 
 
2.02
2.02
National production
6.16
6.17
0.01
0.2
15.22
15.24
Imports (entry points)
49.18
54.15
4.97
10.1
4.11
5.41
Mazara del Vallo
16.25
19.03
2.78
17.1
5.70
4.95
Tarvisio
15.89
13.82
(2.07)
(13.0)
2.81
0.81
Gries Pass
8.95
7.63
(1.32)
(14.7)
2.30
1.90
Gela
7.13
6.85
(0.28)
(3.9)
0.10
1.73
Cavarzere (LNG)
0.10
5.21
5.11
 
0.19
0.42
Panigaglia (LNG)
0.83
1.53
0.70
84.3
0.01
0.02
Gorizia
0.03
0.08
0.05
 
17.24
17.26
 
55.34
60.32
4.98
9.0



 

The natural gas injected into the gas transportation network in the first nine months of 2010 amounted to 60.32 billion cubic metres, an increase of 4.98 billion cubic metres, or 9%, on the first nine months of 2009. The increase was attributable to higher natural gas demand in Italy (+7.6%) and the positive balance of around 0.9 billion cubic metres between injections into (+) and withdrawals from (-) the gas storage system. The natural gas injected into the national network from domestic production fields or their collection and treatment centres amounted to 6.17 billion cubic metres, broadly unchanged from the first nine months of the previous year. Imports rose by 10.1% compared with the first nine months of 2009. In addition to gas injected at the Cavarzere entry point (+5.11 billion cubic metres), originating from the LNG terminal and operational since the third quarter of 2009, imports also increased from the Mazara del Vallo entry point (+2.78 billion cubic metres, or 17.1%), though this was partly offset by the reduction in gas injected at Tarvisio (-2.07 billion cubic metres, or 13.0%) and Gries Pass (-1.32 billion cubic metres, or 14.7%). The natural gas injected into the gas transportation network in the third quarter of 2010 totalled 17.26 billion cubic metres, unchanged from the same period in 2009.
 
Investments
           
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
136
155
Development
487
460
(27)
(5.5)
64
97
Investments with 3% incentive
307
304
(3)
(1.0)
72
58
Investments with 2% incentive
180
156
(24)
(13.3)
             
58
50
Maintenance and other
142
132
(10)
(7.0)
31
22
Investments with 1% incentive
74
57
(17)
(23.0)
27
28
Investments with no incentives
68
75
7
10.3
194
205
 
629
592
(37)
(5.9)



 

Investments in the first nine months of 2010 totalled €592 million, down by €37 million compared with the first nine months of 2009 (-5.9%).

Around 87% of these investments are expected to benefit from incentive-based remuneration. The breakdown of investments in 2009 and 2010 by category will be submitted to the Authority when the respective tariffs are approved for 2011 and 2012.

The main investments with a 3% incentive (€304 million) were:
  • as part of the connection project for the Offshore LNG Toscana (OLT) regasification terminal at Livorno (€95 million), the construction of infrastructure to connect with the plant located off the Tuscany coast, primarily offshore;
  • as part of the new transportation infrastructure project on the Adriatic coast (€63 million): (i) construction work on the main line and the design of connection points for the Massafra-Biccari pipeline in Puglia and Basilicata; (ii) the purchase of private permits for the Sulmona-Foligno-Sestino-Minerbio pipeline in Abruzzo and Emilia-Romagna;
  • as part of the project to upgrade the import infrastructure in Sicily and Calabria (€60 million): (i) materials for and construction work on the Montesano station; (ii) completion works on operating sections and construction of the tunnel section of the Montalbano-Messina pipeline in Sicily; (iii) construction work on the Bronte-Montalbano section of the Enna-Montalbano pipeline in Sicily;
  • as part of the Villesse-Gorizia pipeline project in Friuli-Venezia Giulia (€35 million), construction work and materials.
The main investments with a 2% incentive (€156 million) were:
  • as part of the project to upgrade the transportation infrastructure in the Po Valley with the aim of increasing national transportation capacity (€38 million): (i) construction work on the Cremona-Sergnano pipeline in Lombardy; (ii) the design and purchase of permits for the Zimella-Cervignano pipeline in Veneto and Lombardy;
  • as part of the Palaia-Collesalvetti pipeline project in Tuscany (€22 million), construction materials.
 
The main investments with a 1% incentive (€57 million) involved several projects aimed at maintaining adequate safety and quality levels at the stations.
 
Investments without incentive (€75 million) included projects to replace assets and plants, as well as projects relating to the implementation of new IT systems, the development of existing ones and the purchase of other key operating assets.
 
Investments in the third quarter of 2010 amounted to €205 million, an increase of €11 million, or 5.7%, compared with the same period in 2009.
 
Liquefied Natural Gas (LNG) regasification
(€ million)
Third quarter
 
First nine months
Change
Change %
2009
2010
 
2009
2010
 
 
7
8
Core business revenue (*) (**)
25
26
1
4.0
6
5
Operating costs (**)
20
17
(3)
(15.0)
1
2
EBIT
3
6
3
100.0
2
 
Investments
5
1
(4)
(80.0)
0.19
0.42
Volumes of LNG regasified (billions of cubic metres)
0.83
1.53
0.70
84.3
5
11
Tanker loads (number)
25
42
17
68.0



 

(*) Core business revenue includes the recharging to customers of costs relating to the natural gas transportation service provided by Snam Rete Gas S.p.A. For purposes of the consolidated financial statements, these revenues, together with transportation costs, are charged to GNL Italia S.p.A. to show the scale of the operation.
(**) Before consolidation adjustments.


 
Results
Core business revenue in the first nine months of 2010 totalled €26 million, an increase of €1 million (+4%) on the first nine months of 2009. Excluding revenue from recharging the transportation service provided by Snam Rete Gas, which is fully offset in operating costs, core business revenue rose by €3 million, or 20%, compared with the same period in the previous year. This increase was due to higher revenue from LNG regasification.
 
Core business revenue in the third quarter of 2010 totalled €8 million, a year-on-year increase of €1 million (+14.3%) on the back of higher revenue from LNG regasification.

EBIT amounted to €6 million in the first nine months of 2010 and €2 million in the third quarter of 2010, an increase of €3 million (+100%) and €1 million (+100%) respectively on the results for the same periods in 2009. This increase was due to higher core business revenue.
Operating review
 
In the first nine months of 2010, the Panigaglia (SP) LNG terminal regasified 1.53 billion cubic metres of natural gas (compared with 0.83 billion cubic metres in the first nine months of 2009), unloading 42 methane tankers of various types (compared with 25 in the same period of the previous year). The volumes of LNG regasified rose by 84.3%.
 
In the third quarter of 2010, the Panigaglia (SP) LNG terminal regasified 0.42 billion cubic metres of natural gas (compared with 0.19 billion cubic metres in the third quarter of 2009), unloading 11 methane tankers of various types (compared with 5 in the same period of the previous year).
 
Expansion and modernisation of Panigaglia plant
 
The Environmental Impact Assessment (EIA) of the plans to expand and modernise the GNL Italia regasification terminal at Panigaglia was completed successfully on 9 September. The decree was signed by the Italian environment and culture ministries.
 
Natural gas distribution
Introduction
 
As indicated previously, the results for the first nine months of 2009 include the economic effects of consolidating Italgas in the third quarter of 2009, as these were included in the group’s consolidated financial statements from 30 June of that year, the date when the acquisition was completed. In order to assess the operating performance of the segment for the first nine months of the year, the following table shows comparative data for income statement items for the first nine months of 2009.
(€ million)
Third quarter
 
First nine months
Change
Change %
2009
2010
 
2009
2010
 
 
199
306
Core business revenue (*) (**)
595
874
279
46.9
             60
           143
Operating costs (*) (**)
204
418
214
 
           110
           128
EBIT
305
345
40
13.1
             80
             84
Investments
242
232
(10)
(4.1)
           621
           627
Gas distribution (millions of cubic metres)
5,053
5,293
240
4.7
       49,625
       50,115
Distribution network (kilometres)
49,625
50,115
490
1.0
  5,740,546
  5,820,624
Active meters (number) 
5,740,546
5,820,624
80,078
1.4



 

(*) Before consolidation adjustments.
(**) From 1 January 2010, items include the effects of applying international accounting standard IFRIC 12, “Service Concession Arrangements�?. Applying this interpretation had no effect on the group's or the segment's results, except for the equal recognition of revenue and costs relating to building and upgrading distribution infrastructures (€218 million and €77 million respectively in the first nine months and the third quarter of 2010). More information on this interpretation and how it applies to the Snam Rete Gas group can be found in the “Basis of presentation and accounting principles�? section of the half-year report to 30 June 2010.
 
Results
 
Core business revenue amounted to €874 million in the first nine months of 2010 and €306 million in the third quarter of 2010, an increase of €279 million (+46.9%) and €107 million (+53.8%) respectively on the same periods in the previous year. Excluding revenues from the application of IFRIC 12, recognised since 1 January 2010, core business revenue rose by €61 million (+10.3%) and €30 million (+15.1%) respectively in the first nine months and the third quarter of 2010, owing to higher revenue from natural gas distribution (+€54 million in the first nine months; +€25 million in the third quarter) and more income from technical services performed at redelivery points (+€6 million; +€4 million). The increase in distribution revenue was attributable mainly to the effects of applying the 'gradual mechanism' introduced by the Electricity and Gas Authority through its Resolution no. 79/09 of 1 June 2009, which modified tariff criteria pursuant to the previous Resolution, no. 159/08. More specifically, the Authority introduced for the new regulatory period a gradual increase in tariff components covering amortisation and depreciation, on top of the increase already introduced for the return on invested capital.
EBIT in the first nine months of 2010 amounted to €345 million, an increase of €40 million, or 13.1%, on the corresponding period in 2009. The increase was due mainly to higher core business revenue (+€61 million, net of the effects of IFRIC 12), which was partly offset by greater amortisation, depreciation and impairment losses (-€22 million), comprising higher amortisation and depreciation (-€12 million) and impairment losses on some assets (-€10 million).
 
EBIT in the third quarter of 2010 totalled €128 million, a rise of €18 million, or 16.4%, on the same period in the previous year. This increase was due mainly to higher core business revenue (+€30 million, net of the effects of IFRIC 12), which was partly offset by greater amortisation and depreciation (-€7 million) and higher operating costs (-€6 million), largely owing to greater provisions for risks and charges.
 
Operating review
Investments
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
46
45
Network maintenance
145
128
(17)
(11.7)
24
26
Network extension and upgrade
67
73
6
9.0
4
6
New networks
11
17
6
54.5
6
7
Other investments
19
14
(5)
(26.3)
80
84
 
242
232
(10)
(4.1)



 

Investments in the first nine months of 2010 amounted to €232 million, a decrease of €10 million, or 4.1%, compared with the same period in 2009.

Network maintenance investments (€128 million) mainly involved renovating sections of obsolete pipes, by replacing cast-iron pipes, and continuing the meter replacement programme.

Network extension and upgrade investments (€73 million) involved extending existing networks in response to commitments arising from concession contracts.

Investments in the third quarter of 2010 amounted to €84 million, an increase of €4 million, or 5%, compared with the same period in 2009.
 
Distribution network
The group’s gas distribution network as at 30 September 2010 covered 50,115 km, an increase of 142 km compared with 31 December 2009 (+490 km compared with 30 September 2009). This increase was attributable to constructing new networks and extending existing networks in response to commitments arising from concession contracts, as well as to service access requests from end customers (households, businesses, etc.).
 
Gas distribution
The volumes of natural gas carried by the group's distribution network (5,293 million cubic metres in the first nine months of 2010 and 627 million cubic metres in the third quarter of 2010) rose by 240 million cubic metres (+4.7%) and 6 million cubic metres (+1%) respectively compared with the same periods in 2009. The increase was due mainly to different weather conditions.

At 30 September 2010, the group had concessions for gas distribution services in 1,449 municipalities (compared with 1,441 at 31 December 2009). It had 5,820,624 active meters at gas delivery points to end customers (households, businesses, etc.), compared with 5,740,546 at 30 September 2009 and 5,770,672 at 31 December 2009.
 
Regulation
Through Resolutions ARG/gas 114/10 of 28 July 2010 (“Approval of gas metering and distribution service tariffs for 2009�?) and 115/10 (“Approval of gas metering and distribution service tariffs for 2010�?), the Electricity and Gas Authority approved definitive metering and distribution tariffs for 2009 and 2010 respectively.
Natural gas storage
Introduction
As indicated previously, the results for the first nine months of 2009 include the economic effects of consolidating Stogit in the third quarter of 2009, as these were included in the group’s consolidated financial statements from 30 June of that year, the date when the acquisition was completed. In order to assess the operating performance of the segment for the first nine months of the year, the following table shows comparative data for income statement items for the first nine months of 2009.
(€ million)
 
Third quarter
 
First nine months
Change
Change %
2009
2010
 
2009
2010
 
 
68
74
Core business revenue (*)
251
267
16
6,4
14
14
Operating costs (*)
40
43
3
7,5
38
42
EBIT
160
169
9
5,6
67
70
Investments
200
166
(34)
(17.0)
10
10
Concessions (number)
10
10
   
8
8
- of which operational
8
8
   
3.0
3.03
Natural gas moved through the storage system (billions of cubic metres)
13.35
11.68
(1.67)
(12.5)
3.0
3.03
- of which injected
7.30
6.84
(0.46)
(6.3)
   
- of which withdrawn
6.05
4.84
(1.21)
(20.0)
8.9
9.20
Natural gas storage (billions of cubic metres) (**)
8.90
9.20
0.3
3.4



 

(*) Before consolidation adjustments.
(**) Working gas capacity for modulation, mining and balancing services. The value shown represents the maximum available capacity and may not correspond to the maximum replenishment carried out.
Results
Core business revenue amounted to €267 million in the first nine months of 2010, an increase of €16 million, or 6.4%, on the same period in 2009 owing to higher storage revenues (+€10 million), mainly due to changes in tariffs relating to the return on capital expenditure, and to income from the sale of gas no longer required for storage purposes (+€5 million). Storage revenues (€261 million) refer to modulation (€211 million) and strategic (€50 million) storage.
 
Core business revenue in the third quarter of 2010 totalled €74 million, an increase of €6 million (8.8%) on the same period in 2009 owing to higher modulation storage revenue. Storage revenues (€73 million) refer to modulation (€57 million) and strategic (€16 million) storage.
 
EBIT in the first nine months of 2010 amounted to €169 million, an increase of €9 million, or €5.6%, compared with the same period in 2009. The increase was due to higher core business revenue (+€16 million), the effects of which were partly offset by greater amortisation and depreciation (-€4 million) and higher operating costs (-€3 million), owing essentially to higher variable costs as a result of the reduction in natural gas inventories related to the aforementioned sale.
 
EBIT in the third quarter of 2010 totalled €42 million, an increase of €4 million (10.5%) on the same period in 2009. This rise was due essentially to higher storage revenues (+€5 million).

  

Operating review
Investments
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
51
24
Development of new fields
158
96
(62)
(39.2)
51
24
Investments with an incentive of 4% over 16 years
158
96
(62)
(39.2)
8
40
Capacity upgrades
21
55
34
 
8
40
Investments with an incentive of 4% over 8 years
21
55
34
 
8
6
Maintenance and other
21
15
(6)
(28.6)
67
70
 
200
166
(34)
(17.0)



 

Investments in the first nine months of 2010 amounted to €166 million, a decrease of €34 million, or 17%, compared with the same period in 2009. This reduction was due largely to the Fiume Treste concession development activities drawing to an end.
 
Investments with an incentive of 4% over 16 years (€96 million) fell by €62 million, or 39.2%.
Investments with an incentive of 4% over eight years (€55 million) rose by €34 million, mainly as a result of new projects to increase pressure.
It is expected that around 91% of investments will benefit from incentive-based remuneration. The breakdown of investments in 2009 and 2010 by category is submitted to the Authority when the respective tariffs are approved for 2011 and 2012.
 
Natural gas moved through the storage system
A total of 11.68 billion cubic metres of natural gas was moved through the storage system in the first nine months of 2010, a reduction of 1.67 billion cubic metres, or 12.5%, on the corresponding period in the previous year. This decrease was attributable mainly to the large withdrawals of gas from storage as a result of the Russian supply crisis in January 2009 and to subsequently higher injections of gas to restore previous volumes in the first nine months of 2009.
A total of 3.03 billion cubic metres of gas was moved through the system in the third quarter of 2010, a slight year-on-year increase of 0.03 billion cubic metres.
The total storage capacity at 30 September 2010 was 14.2 billion cubic metres, an increase of 2.2% compared with 2009.
 
Regulation
Through Resolution ARG/gas 119/10 of 3 August 2010 (“ Consolidated act on the regulation of the quality and tariffs for natural gas storage services for the 2011-2014 period (TUSG): approval of part II, “Regulation of natural gas storage service tariffs for the regulatory period 2011-2014 (RTSG)�?, measures on the transitory payment for the gas transportation metering service for 2011�?), the Electricity and Gas Authority established criteria for determining the tariffs and reference revenue for natural gas storage services for the third regulatory period (1 January 2011 – 31 December 2014).
 
Stogit presented its proposed tariffs for 2011 to the Authority on 15 October 2010.
 
Legislative Decree no. 130/10 – New storage capacity programme -
Legislative Decree no. 130, “ Legislative Decree bearing measures for greater competition in the natural gas market and the transfer of resulting benefits to end customers, pursuant to article 30, paragraphs 6 and 7, of Law no. 99 of 23 July 2009�?, came into force on 19 August 2010.
Among other things, the Decree obliges entities that inject natural gas into the national network to disclose their wholesale market share on an annual basis. The maximum market share has been set at 40% of the total volume of gas injected, although this can be increased to 55% if an entity commits to building new natural gas storage infrastructures (or upgrading existing ones) in order to free up 4 billion cubic metres of new storage capacity over a five-year period. This commitment can be made by stipulating appropriate agreements with storage subsidiaries.
Consequently, the ultimate parent, Eni, informed Stogit of its intention to build new storage capacity by asking its storage subsidiary to prepare and submit a draft proposal. Stogit carried out this request and the ultimate parent, Eni, then submitted Stogit’s proposal to the ministry of economic development with a view to increasing the aforementioned maximum market share.
 
Once the proposal has been approved by the ministry upon consultation with the Electricity and Gas Authority, it will become binding for Stogit, in terms of efficiency and timeframe, and must be completed within five years from 1 September 2010. More specifically, Stogit must ensure punctual completion of the proposal’s infrastructure capacities. Where authorised, this activity will be carried out in compliance with the obligations of functional separation established by Resolution no. 11/07 of the Electricity and Gas Authority.
 
The following summary tables show the reclassified consolidated income statement items.
 
Revenue
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
713
831
Core business revenue
1,630
2,507
877
53.8
   
Business segments
 
 
 
 
448
463
Transportation
1,355
1,388
33
2.4
7
8
Regasification
25
26
1
4.0
199
306
Distribution
199
874
675
 
   
- of which building and upgrading
       
 
77
  distribution infrastructures
 
218
218
 
68
74
Storage
68
267
199
 
(9)
(20)
Consolidation adjustments
(17)
(48)
(31)
 
8
6
Other revenues and income
10
17
7
70.0
721
837
Total revenue
1,640
2,524
884
53.9



 

Revenue - Regulated and non-regulated activities
(€ million)
Third quarter
 
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
708
825
Regulated business revenue
1,618
2,484
866
53.5
444
449
Transportation
1,344
1,357
13
1.0
5
6
Regasification
15
18
3
20.0
196
303
Distribution
196
865
669
 
   
- of which building and upgrading
       
 
77
  distribution infrastructures
 
218
218
 
63
67
Storage (*)
63
244
181
 
13
12
Revenue from non-regulated activities
22
40
18
81.8
721
837
 
1,640
2,524
884
53.9



 

(*) From 1 July 2009, when the effects of consolidating Italgas and Stogit were first recognised, revenue is shown net of the modulation service provided for Snam Rete Gas S.p.A.
 
Operating costs
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
   
Business segments
 
 
 
 
77
84
Transportation
298
227
(71)
(23.8)
6
5
Regasification
20
17
(3)
(15.0)
60
143
Distribution
60
418
358
 
   
- of which building and upgrading
       
 
77
  distribution infrastructures
 
218
218
 
14
14
Storage
14
43
29
 
(9)
(32)
Consolidation adjustments
(17)
(61)
(44)
 
148
214
 
375
644
269
71.7



 

Operating costs – Regulated and non-regulated activities
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
146
207
Regulated business costs
372
621
249
66.9
115
100
Controllable fixed costs
219
329
110
50.2
20
5
Variable costs
92
15
(77)
(83.7)
11
102
Other costs
61
277
216
 
   
- of which building and upgrading
       
 
77
  distribution infrastructures
 
218
218
 
2
7
Non-regulated business costs
3
23
20
 
148
214
 
375
644
269
71.7



 

Amortisation, depreciation and impairment losses
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
174
167
Amortisation and depreciation
422
484
62
14.7
   
Business segments
 
 
 
 
122
107
Transportation
368
309
(59)
(16.0)
1
1
Regasification
3
3
   
34
41
Distribution
34
116
82
 
17
18
Storage
17
56
39
 
 
 
Impairment losses
 
10
10
 
174
167
 
422
494
72
17.1



 

EBIT
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
 
 
Business segments
 
 
 
 
250
284
Transportation
692
866
174
25.1
1
2
Regasification
3
6
3
100.0
110
128
Distribution
110
345
235
 
38
42
Storage
38
169
131
 
399
456
 
843
1,386
543
64.4



 

Net financial expense
(€ million)
Third quarter
 
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
47
49
Financial expense related to net financial debt
123
135
12
9.8
             
47
49
- Charges on short- and long-term financial debt
123
135
12
9.8
             
23
26
Losses on derivative contracts
44
75
31
70.5
1
 
- Fair value adjustment
3
 
(3)
(100.0)
22
26
- Difference in interest accrued in the period
41
75
34
82.9
   
 
       
7
4
Other financial (income) expense
9
14
5
55.6
5
4
- Accretion discount
5
12
7
 
2
 
- Other financial (income) expense
4
2
(2)
(50.0)
             
(7)
(11)
Financial expense capitalised
(15)
(27)
(12)
80.0
70
68
 
161
197
36
22.4



 

Income (expense) from equity investments
(€ million)
Third quarter
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
14
15
Natural gas distribution
14
38
24
 
14
 
 
 
 
 
 
11
15
Equity method valuation effect
11
38
27
 
3
 
Capital gains from sale of equity investments
3
 
(3)
(100.0)
14
15
 
14
38
24
 



 

Income taxes
(€ million)
Third quarter
 
 
First nine months
 
 
2009
2010
 
2009
2010
Change
Change %
126
145
Current tax
263
468
205
77.9
   
(Advanced) deferred taxes
       
(16)
(19)
Deferred taxes
(32)
(57)
(25)
78.1
(1)
(3)
Advanced taxes
(3)
(11)
(8)
 
(17)
(22)
 
(35)
(68)
(33)
94.3
31.8
30.5
Tax rate (%)
32.8
32.6
(0.2)
 
109
123
 
228
400
172
75.4



 

Reclassified consolidated balance sheet
The reclassified consolidated balance sheet set out below combines the assets and liabilities of the balance sheet format included in the annual consolidated financial statements and condensed interim consolidated financial statements in accordance with their function, split into the three basic functions: investment, operations and financing.
Management believes that this format presents useful additional information for investors as it allows identification of the sources of financing (equity and third-party funds) and the application of such funds for fixed and working capital.
The reclassified consolidated balance sheet is used by management to calculate the key leverage and profitability ratios.
 
RECLASSIFIED CONSOLIDATED BALANCE SHEET
(€ million)
   
 
 
 
30.06.2010
 
31.12.2009
30.09.2010
Change
17,488
Fixed capital
17,077
17,611
534
12,893
Property, plant and equipment (*)
12,684
13,027
343
405
Compulsory inventories
405
405
 
4,134
Intangible assets (*)
4,082
4,170
88
290
Equity investments
301
305
4
2
Financial receivables held for operations
2
2
 
(236)
Net payables for investments
(397)
(298)
99
(1,628)
Net working capital
(1,332)
(1,925)
(593)
(106)
Provisions for employee benefits
(107)
(108)
(1)
14
Assets held for sale and directly related liabilities 
14
14
 
15,768
Net invested capital
15,652
15,592
(60)
 
 
 
 
 
5,731
Equity (including minority interests)
5,703
5,698
(5)
10,037
Net financial debt
9,949
9,894
(55)
15,768
Coverage
15,652
15,592
(60)



 

(*) The net book value of infrastructures under concession for natural gas distribution at 31 December 2009 (€3,341 million) was reclassified from “Property, plant and equipment�? to “ Intangible assets�? pursuant to IFRIC 12, in effect from 1 January 2010.
 
Fixed capital (€17,611 million) rose by €534 million compared with 31 December 2009, owing essentially to the change in property, plant and equipment (+€343 million) and intangible assets (+€88 million), as well as to the reduction in net debt from investment activities (+€99 million).
 
Equity investments
This item (€305 million) includes the equity investments accounted for using the equity method, in particular Toscana Energia S.p.A. (€144 million), Azienda Energia e Servizi Torino S.p.A (€103 million) and ACAM Gas S.p.A. (€48 million).
 
Net working capital
 (� million)
30.06.2010
 
31.12.2009
30.09.2010
Change
583
Trade receivables
738
628
(110)
411
Inventories
411
438
27
21
Tax receivables
21
15
(6)
108
Other assets
145
103
(42)
(872)
Deferred tax liabilities
(934)
(847)
87
(735)
Provisions for risks and charges
(669)
(753)
(84)
(447)
Trade payables
(471)
(364)
107
(144)
Tax payables
(67)
(272)
(205)
(244)
Accruals and deferrals from regulated business revenue
(235)
(233)
2
(141)
Derivatives
(78)
(156)
(78)
(168)
Other liabilities
(193)
(484)
(291)
 (1,628)
 
(1,332)
(1,925)
(593)



 

Net working capital (-€1,925 million) decreased by €593 million compared with 31 December 2009, owing mainly to: (i) an increase in other liabilities (-€291 million) due largely to the allocation of funds (€304 million) for the 2010 interim dividend of €0.09 per share, which will be paid from 21 October 2010 with an ex-dividend date of 18 October 2010; (ii) higher tax payables (-€205 million) due mainly to higher pre-tax profit and lower prepaid taxes; (iii) lower trade receivables (-€110 million) as a result of lower distribution receivables (-€104 million), owing largely to the seasonal nature of receipts; (iv) more provisions for risks and charges (-€84 million) due, in particular, to balancing payments to storage clients (-€61 million) and an increase in provisions for site dismantling and restoration (-€29 million); (v) a reduction in the fair value of derivative financial instruments (-€78 million) as a result mainly of lower market interest rates. These factors were partly offset by: (i) lower trade payables (+€107 million); (ii) lower deferred tax liabilities (+€87 million) owing essentially to the transfer of deferred taxes, relating to amortisation and depreciation carried out purely for tax purposes in previous periods, and to the allocation of prepaid taxes on the change in fair value of the derivatives (€21 million).

  

Assets held for sale and directly associated liabilities
Assets held for sale and directly associated liabilities relate to a real-estate complex owned by Italgas (€14 million, net of environmental provisions for charges relating to restoration work on the property) for which negotiations for a sale to Eni S.p.A. are ongoing.
 
Net financial debt and leverage
     
(� million)
30.06.2010
 
31.12.2009
30.09.2010
Change
       10,044
Financial liabilities
        9,986
        9,905
(81)
1,643
Short-term financial liabilities
         1,585
            696
(889)
1,215
Short-term portion of long-term financial liabilities
            915
         1,723
808
7,186
Long-term financial liabilities
         7,486
         7,486
 
(7)
Financial receivables and cash and cash equivalents
(37)
(11)
26
(1)
Financial receivables not held for operations
(1)
(1)
 
(6)
Cash and cash equivalents
(36)
(10)
26
       10,037
 
        9,949
        9,894
(55)



 

The net cash flow from operating activities (+€1,536 million) covered the financial obligations of net investments in the period (-€1,009 million) and of paying the dividend balance for 2009 of €0.14 per share, paid from 27 May 2010 (-€472 million). The remainder was used to reduce the net financial debt by €55 million.
 
Long-term financial liabilities of €7,486 million make up 76% of net financial debt (75% at 31 December 2009) and have an average maturity of four years and four months (four years and five months at 31 December 2009).
 
All the financial liabilities are due to Eni and they are all in euro.
 
The breakdown of debt by type of interest rate at 30 September 2010 is as follows:
     
 (� million)
 
31.12.2009
%
30.09.2010
%
Change
Floating rate
4,270
43
1,897
19
(2,373)
Fixed rate
5,716
57
8,008
81
2,292
 
9,986
100
9,905
100
(81)



 

Floating-rate financial liabilities (€1,897 million) decreased by €2,373 million compared with 31 December 2009, owing essentially to a reduction in short-term debt and the execution of five Interest Rate Swaps (IRSs). These IRSs, which have a maturity of around two years from September 2010, convert existing floating-rate loans (for a total of €1,285 million) into fixed-rate loans.
 
Fixed-rate financial liabilities (€8,008 million) increased by €2,292 million compared with 31 December 2009 following the execution of the aforementioned five IRSs and the taking out of three floating-rate loans, for a total amount of €1,000 million, which were converted into fixed-rate loans through the execution of three additional IRSs.
 
Three more IRS derivative contracts have been also executed in 2010, for an overall notional amount of €900 million. They converted existing floating-rate loans into fixed-rate loans. These derivative contracts will come into effect from October and November 2010 for around two years; until then, the loans will accrue interest at a floating rate.
 
In total, Snam Rete Gas had 20 outstanding IRS derivative contracts, for a notional amount of €7,235 million, as of 30 September 2010.
 
Leverage - the ratio of net financial debt to net invested capital - is 63.5% (63.6% at 31 December 2009).
 
There were no breaches of loan agreements at the reporting date.
 
Covenants
Snam Rete Gas has entered into a €300 million loan agreement with Eni funded by the European Investment Bank (EIB), which is based on Eni maintaining a minimum rating. This indicator has been met; Snam Rete Gas believes failing to meet this covenant would have a limited impact.
 
Statement of comprehensive income
(€ million)
 
First nine months
 
2009
2010
Net profit
468
827
 
 
 
Other components of comprehensive income
 
 
 
 
 
Change in fair value of cash flow hedge derivatives (effective share)
 (47)
 (76)
Tax effects of the other components of comprehensive income
13
21
     
Total other components of comprehensive income, net of tax effect
  (34)
 (55)
     
Total comprehensive income
434
772
  attributable to:
   
 - Snam Rete Gas
434
772
 - Minority shareholders
   
 
434
772



 

Shareholders’ equity
 
(� million)
 
 
 
Equity at 31 December 2009
 
5,703
Increases owing to:
   
- Comprehensive income first nine months of 2010
              772
 
- Other changes
          1
 
   
    773
Decreases owing to:
   
- Distribution of balance of 2009 dividend
(472)
 
- Interim dividend 2010 
(304)
 
- Other changes
(2)
 
   
(778)
     
Equity including minority interests at 30 September 2010
5,698
attributable to:
 
 
- Snam Rete Gas
 
5,697
- Minority shareholders
 
1
   
5,698



 

At 30 September 2010, Snam Rete Gas had 194,603,475 treasury shares (compared with 194,886,225 at 31 December 2009), equal to 5.45% of the share capital. Their market value at 30 September 2010 was €719 million 8
 
8 Calculated by multiplying the number of treasury shares by the period-end official price of €3.6932 per share.
 
Reclassified consolidated statement of cash flows and changes in net financial debt
The reclassified consolidated statement of cash flows set out below summarizes the legally required format. This consolidated reclassified cash flow statement shows the opening and closing cash and cash equivalents and the change in net financial debt during the period. The two statements are reconciled through the “free cash flow�?, i.e. the cash surplus or deficit left over after servicing capital expenditure. The free cash flow closes either: (i) with the change in cash and cash equivalents for the period, after adding/deducting all cash flows related to financial liabilities/assets (taking out/repayment of loans) and equity (payment of dividends/capital injections); or (ii) with the change in net financial debt for the period, after adding/deducting the debt flows related to equity (payment of dividends/capital injections).
 
RECLASSIFIED CONSOLIDATED STATEMENT OF CASH FLOWS
(€ million)
Third quarter
 
First nine months
2009
2010
 
2009
2010
234
280
Net profit
468
827
   
adjusted by:
   
165
155
- amortisation, depreciation and other non-monetary components
413
458
(2)
1
- net capital losses on asset sales and eliminations
2
3
174
187
- interest and income taxes
382
585
(184)
(143)
Change in working capital due to operating activities
(105)
70
(63)
(61)
Dividends, interest and income taxes collected (paid)
(261)
(407)
324
419
Net cash flows from operating activities
899
1,536
(292)
(339)
Investments
(692)
(900)
(6)
 
Change in consolidation scope and business units
(4,477)
(12)
16
1
Divestments
17
2
27
62
Other changes relating to investment/divestment activities
(89)
(99)
69
143
Free cash flow
(4,342)
527
(81)
(139)
Changes in short- and long-term financial debt   
1,169
(81)
(2)
 
Equity cash flows
3,197
(472)
(14)
4
Net cash flow for the period
24
(26)



 

CHANGE IN NET FINANCIAL DEBT
(€ million)
Third quarter
 
First nine months
2009
2010
 
2009
2010
 
 
 
 
 
69
143
Free cash flow
(4,342)
527
   
Financial payables and receivables from acquired companies
(2,219)
 
(2)
 
Equity cash flows
3,197
(472)
67
143
Change in net financial debt
(3,364)
55



  

Other information
Disclosure required by article 37 of Consob Regulation no. 16191/07
Pursuant to article 37 of the Market Regulations directive, relating to controlled companies subjected to the management and coordination of others, there are no conditions preventing the quotation of Snam Rete Gas S.p.A. shares on the electronic stock exchange organised and managed by Borsa Italiana S.p.A.
 
Competition Authority
Investigation into gas distribution and selling in Italy
With reference to the preliminary investigation opened by the Competition Authority on 6 May 2009 into Eni S.p.A and Italgas S.p.A, which aimed to establish the possible abuse of a dominant market position in breach of article 82 of the EU Treaty, the Authority ruled on 8 September 2010, and in acceptance of commitments made, to close the proceedings against the aforementioned companies without having established an infringement pursuant to article 14-ter, paragraph 1, of Law no. 287/90.
 
Investigation into gas distribution in Italy

On 13 October 2010, the launched a preliminary investigation into whether Italgas had refused to supply or been late in supplying the necessary information to the municipal authorities of Rome and Todi for the preparation of calls for gas distribution tenders (the current Italgas concession has expired), and whether it had therefore abused its dominant market position.
The Competition Authority has indicated that the investigation will be completed by 15 December 2011.
 
IFRS financial statements
Balance sheet
   
(€ million)
30.06.2010
 
31.12.2009
 
30.09.2010
 
ASSETS
 
 
 
 
Current assets
 
 
 
6
Cash and cash equivalents        
36
 
10
703
Trade and other receivables             
916
 
747
411
Inventories                                                
411
 
438
 
Current income tax assets                  
2
 
1
4
Other current tax assets                               
5
 
4
49
Other current assets
67
 
31
1,173
 
1,437
 
1,231
 
Non-current assets
 
 
 
12,893
Property, plant and equipment (*)             
12,684
 
13,027
405
Compulsory inventories
405
 
405
4,134
Intangible assets (*)                                
4,082
 
4,170
290
Equity-accounted investments
301
 
305
1
Other financial assets
1
 
1
42
Other non-current assets                        
34
 
34
17,765
 
17,507
 
17,942
25
Non-current assets held for sale
25
 
25
 
 
 
 
 
18,963
TOTAL ASSETS
18,969
 
19,198
 
LIABILITIES AND EQUITY
 
 
 
 
Current liabilities
 
 
 
1,643
Short-term financial liabilities      
1,585
 
696
 
Short-term portion of long-term
     
1,215
financial liabilities
915
 
1,723
946
Trade and other payables             
1,106
 
1,341
18
Current income tax liabilities                 
5
 
47
21
Other current tax liabilities                
18
 
10
145
Other current liabilities                           
187
 
124
3,988
 
3,816
 
3,941
 
Non-current liabilities
 
 
 
7,186
Long-term financial liabilities     
7,486
 
7,486
735
Provisions for risks and charges                            
669
 
753
106
Provisions for employee benefits             
107
 
108
872
Deferred tax liabilities              
934
 
847
334
Other non-current liabilities                    
243
 
354
9,233
 
9,439
 
9,548
11
Liabilities directly associated with assets held for sale
11
 
11
13,232
TOTAL LIABILITIES
13,266
 
13,500
 
 
 
 
 
 
EQUITY                    
 
 
 
 
Equity attributable to Snam Rete Gas
 
 
 
3,570
Share capital
3,570
 
3,570
2,404
Reserves
2,395
 
2,395
547
Net profit
732
 
827
(791)
Treasury shares
(792)
 
(791)
 
Interim dividend
(203)
 
(304)
5,730
Total equity attributable to Snam Rete Gas
5,702
 
5,697
1
Capital and reserves attributable to minority interests
1
 
1
5,731
TOTAL EQUITY
5,703
 
5,698
18,963
TOTAL LIABILITIES AND EQUITY
18,969
 
19,198
 
 
 
 
 



  

(*) The net book value of infrastructures under concession for natural gas distribution at 31 December 2009 (€3,341 million) was reclassified from “Property, plant and equipment�? to “ Intangible assets�? pursuant to IFRIC 12, in effect from 1 January 2010.
 
Income statement
(€ million)
Third quarter
 
 
First nine months
2009
2010
 
2009
2010
 
 
REVENUE                                               
 
 
713
831
Core business revenue
1,630
2,507
8
6
Other revenues and income
10
17
721
837
Total revenue
1,640
2,524
 
 
 
 
 
 
 
OPERATING COSTS
 
 
(85)
(134)
Purchases, services and other costs
(258)
(391)
(63)
(80)
Personnel expense
(117)
(253)
         
(174)
(167)
AMORTISATION, DEPRECIATION AND IMPAIRMENT LOSSES
(422)
(494)
399
456
EBIT
843
1,386
 
 
 
 
 
 
 
FINANCIAL INCOME (EXPENSE) 
 
 
 
1
Financial income 
1
1
(47)
(43)
Financial expense
(118)
(123)
(23)
(26)
Derivatives
(44)
(75)
(70)
(68)
 
(161)
(197)
 
 
 
 
 
 
 
INCOME FROM EQUITY INVESTMENTS
 
 
11
15
Equity method valuation effect
11
38
3
 
Other income (expense) from equity investments
3
 
14
15
 
14
38
 
 
 
 
 
343
403
PRE-TAX PROFIT
696
1,227
       
 
(109)
(123)
Income tax                             
(228)
(400)
   
 
 
 
234
280
Net profit
468
827
 
 
 
 
 
 
 
Attributable to: 
 
 
234
280
- Snam Rete Gas
468
827
   
- Minority shareholders
 
 
     
 
 
   
Earnings per share
 
 
0.07
0.08
- basic (� per share)        
0.20
0.24
0.07
0.08
- diluted (� per share)
0.20
0.24
         



 

Statement of comprehensive income
(€ million)
     
 
First nine months
 
2009
 
2010
Net profit
468
 
827
       
Other components of comprehensive income
 
 
 
       
Change in fair value of cash flow hedge derivatives (effective share)
 (47)
 
 (76)
Tax effects of the other components of comprehensive income
13
 
21
       
Total other components of comprehensive income, net of tax effect
  (34)
 
 (55)
       
Total comprehensive income
434
 
772
Attributable to:
     
 - Snam Rete Gas
434
 
772
 - Minority shareholders
     
 
434
 
772



 

Statement of cash flows
(€ million)
     
Third quarter
 
First nine months
2009
2010
 
2009
2010
234
280
Net profit
468
827
   
Adjustments for reconciling profit for the period with cash flows from operating activities:
   
174
167
Amortisation and depreciation
422
484
   
Impairment losses
 
10
(11)
(15)
Equity method valuation effect
(11)
(38)
(2)
1
Net capital losses on asset sales, cancellations and eliminations
2
3
(1)
(1)
Interest income
(3)
(1)
66
65
Interest expense
157
186
109
123
Income tax
228
400
 
1
Other changes
 
1
   
Changes in working capital:
   
(34)
(8)
- inventories
(33)
(11)
(55)
(39)
- trade receivables
(1)
116
(83)
(83)
- trade payables
(103)
(107)
1
17
- provisions for risks and charges
18
65
(13)
(30)
- other assets and liabilities
14
7
(184)
(143)
Working capital cash flows
(105)
70
2
2
Change in provision for employee benefits
2
1
   
Dividends collected
 
34
 
3
Interest collected
4
3
(63)
(64)
Interest paid
(148)
(185)
   
Income taxes paid net of reimbursed tax credits
(117)
(259)
324
419
Net cash flows from operating activities
899
1,536
   
Investments:
   
(280)
(260)
- property, plant and equipment
(672)
(688)
(12)
(79)
- intangible assets
(20)
(212)
(6)
 
- change in consolidation scope and business units
(4,477)
(12)
27
65
- change in payables and receivables relating to investments
(89)
(99)
(271)
(274)
Cash flows from investment activities
(5,258)
(1,011)
   
Divestments:
   
5
1
- property, plant and equipment
6
2
 
(3)
- change in payables and receivables relating to divestments
   
11
 
- equity investments
11
 
16
(2)
Cash flows from divestments
17
2
(255)
(276)
Net cash flows from investment activities
(5,241)
(1,009)
1,506
1,008
Taking on long-term financial debt
10,812
1,022
(1,503)
(200)
Repaying long-term financial debt
(9,817)
(214)
(84)
(947)
Increase (decrease) in short-term financial debt
174
(889)
(81)
(139)
 
1,169
(81)
(2)
 
Net capital contributions
3,444
 
   
Dividends paid to Snam Rete Gas shareholders
(247)
(472)
(83)
(139)
Net cash flows from financing activities
4,366
(553)
(14)
4
Net cash flow for the period
24
(26)
38
6
Cash and cash equivalents at start of period
0
36
24
10
Cash and cash equivalents at end of period
24
10



 

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updated
05 August 2016 - 16:18 CEST