2009 First quarter report

Transcription

1 2009 First quarter report

2 MISSION Snam Rete Gas is the main natural gas transportation and dispatching operator in Italy and the only one that regasifies liquefied natural gas. At Snam Rete Gas, our aim is to create value that will fulfil our shareholders expectations. This is achieved by providing a transportation and regasification service that offers utmost security and operational reliability and by ensuring that infrastructure is developed in line with the changing Italian gas market. Snam Rete Gas pursues a sustainable model of growth and is committed to in-depth evaluation of the environmental impact of its activities and to the development of new and more efficient technologies. The company counts on the expertise of its staff and on their constant advancement to successfully achieve these goals. OUR BACKGROUND Snam Rete Gas S.p.A. was set up on 15 November On 1 July 2001, the company became operational and received the natural gas transportation and dispatching and the liquefied natural gas regasification lines of business from Snam S.p.A. (now Eni S.p.A.). Snam Rete Gas shares have been listed on the Italian stock exchange since 6 December THE GROUP The Group operates in Italy through: Snam Rete Gas S.p.A. Transportation and dispatching of natural gas 100% GNL Italia S.p.A. Regasification of liquefied natural gas 2

3 2009 First Quarter Report Directors report Basis of preparation 4 Highlights 5 Key figures 6 Operating review 8 Financial review 11 Other information 23 Risk factors and outlook 25 Glossary 26 Condensed interim consolidated financial statements as at and for the three months ended 31 March 2009 Consolidated financial statements 29 Notes 34 Statement of the manager in charge of financial reporting pursuant to article 154-bis of Legislative Decree No. 58/98 (Testo Unico della Finanza) 54 Independent auditors report 55 By Snam Rete Gas is meant Snam Rete Gas S.p.A. and its subsidiary GNL Italia S.p.A. 3

4 Basis of preparation The 2009 first quarter report of Snam Rete Gas at 31 March 2009, approved by the board of directors on 22 April 2009, has been prepared in accordance with article 154-ter of Legislative decree no. 58/98 (Testo Unico della Finanza) and IAS 34 - Interim Financial Reporting - as part of the share capital increase approved by the shareholders in their extraordinary meeting of 17 March This report, reviewed by the independent auditors, PricewaterhouseCoopers S.p.A., comprises the condensed interim consolidated financial statements as at and for the three months ended 31 March 2009, which include the schedules and notes thereto, the directors report and the statement required by article 154-bis.2 of the Testo Unico della Finanza. The income statement figures are provided for the first quarters of 2009 and The balance sheet figures are provided as at 31 March 2009 and 31 December The accounting disclosures in this report do not include the effects of the acquisition of the entire share capital of Stogit S.p.A. and of Italgas S.p.A.. These two companies respectively lead the domestic natural gas storage and gas distribution markets. The related acquisition contracts were signed by Snam Rete Gas S.p.A. on 12 February 2009 and the transactions should be finalised by year end as per the related contracts. Disclaimer This report includes forward-looking statements, especially in the section on the group s outlook about future gas demand, investment plans, dividends and future performance. 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 may differ from those communicated due to different reasons, such as foreseeable trends in demand, offer and natural gas prices, actual performances, general macro-economic conditions, the effect of new energy and environment legislation, the successful development and implementation of new technologies, changes in the stakeholders expectations and other changes in business conditions. 4

5 Highlights > The 2009 first quarter results reflect the impact of the negative economic situation on domestic natural gas demand. Snam Rete Gas recorded a profit of 116 million and EBIT of 224 million, down 17 million (-12.8%) and 31 million (-12.2%) on the first quarter of 2008, respectively. > Natural gas volumes injected into the transportation network equalled billion cubic metres, down 4.96 billion cubic metres or 19.6% on the first quarter of Regasified liquefied natural gas (LNG) volumes were 0.32 billion cubic metres, a 0.29 billion cubic metre decrease (-47.5%) on the same period of > Investments of 204 million were made in the quarter to develop and maintain the natural gas transportation network. They specifically related to the new transportation infrastructure along the Adriatic side (Puglia - Basilicata) and the upgrading of the import infrastructure in Sicily and Calabria. > The Snam Rete Gas share closed the quarter at the official price of 3.97 (-0.3% on 31 December 2008) confirming the share s defensive ability, also considering the highly unstable financial markets. In fact, the Italian S&P/MIB index dropped 18.4% in the three months. > Following the acquisition of 100% of Italgas S.p.A. and Stogit S.p.A. from Eni, on 23 March 2009, the parent s board of directors resolved to execute the proxy given to it by the shareholders in their extraordinary meeting of 17 March Such proxy related to increasing the share capital in one or more instalments against payment up to a maximum, including the premium, of 3.5 billion. This will take place through the issue of ordinary shares with a nominal value of 1 each and regular rights to dividends, to be offered to the shareholders in proportion to the shares already held by them. The issue conditions will be agreed by the directors in another meeting to be called after the authorisation procedures have been completed and just before the offer is made. The board of directors will also set the issue price, the number of shares to be issued and the definitive amount of the share capital increase and related option ratio. 5

6 Key figures Key operating figures First quarter Change Change % Natural gas injected into the National Gas Pipeline (billions of cubic metres) (*) (4.96) (19.6) on behalf of Eni (4.88) (31.9) on behalf of other operators (0.08) (0.8) Regasification of liquefied natural gas (LNG) (billions of cubic metres) (0.29) (47.5) on behalf of Enel Trade (0.12) (34.3) on behalf of other operators (0.17) (65.4) 31,474 Gas Pipeline Network (kilometres in use) 31,081 31, ,779 National Network 8,528 8, ,695 Regional Network 22,553 22, (*) The 2009 first quarter figures are updated to 8 April Key financial figures First quarter Change Change % Core business revenue (23) (4,8) 399 Operating costs ,5 489 Amortisation, depreciation and impairment losses , EBIT (31) (12,2) 226 Net financial expense (6) (10,9) 530 Profit (17) (12,8) Investments (13) (6,0) Net invested capital , Equity , Net financial debt ,5 32 Free cash flow (77) (66,4) Number of shares outstanding during the period (m) 1.760, , Average number of shares outstanding during the period (m) 1.760, ,0 3,98 Period official share price ( ) 4,04 3,97 (0,07) (1,7) 4,14 Average period official share price ( ) 4,38 3,93 (0,45) (10,3) 6

7 Key financial ratios First quarter Change 0.34 Earning per share ( ) (*) (0.01) 0.58 EBIT per share ( ) (*) (0.01) 63.6 Leverage % (*) Calculated considering the average number of shares outstanding during the period. SNAM RETE GAS ON THE STOCK EXCHANGE Performance of the Snam Rete Gas share on the Milan stock exchange (Period: 31 December April Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Snam Rete Gas S&P/MIB DJ Utilities 7

8 Operating review Natural gas transportation and LNG regasification Quantities of natural gas injected into the national gas network (*) First quarter 2008 (billions of m³) Change Change % 9,12 National production 2,25 2,09 (0,16) (7,1) 76,52 Imports (delivery points) 23,00 18,2 (4,80) (20,9) 24,77 Mazara del Vallo 7,05 7,08 0,03 0,4 24,58 Tarvisio 7,61 4,46 (3,15) (41,4) 15,69 Gries Pass 5,13 3,81 (1,32) (25,7) 9,87 Gela 2,56 2,50 (0,06) (2,3) 0,09 Gorizia 0,04 0,03 (0,01) (25,0) 1,52 Panigaglia (LNG imports) 0,61 0,32 (0,29) (47,5) 85,64 25,25 20,29 (4,96) (19,6) (*) The 2009 first quarter figures are updated to 8 April Gas injected into the national transportation network in the first quarter of 2009 decreased by 4.96 billion cubic metres or 19.6% to billion cubic metres. This decrease was due to the lower domestic natural gas demand in the period, mainly attributable to less consumption by the industrial and thermoelectric sectors as an effect of the ongoing economic crisis, and to the balance of withdrawals (-) and injections (+) of gas into storage (about -3 billion cubic metres). A breakdown of imports by delivery point shows smaller imports compared to the first quarter of 2008, mainly to the Tarvisio delivery point (-41.4%), partly due to the breakdown in relations between Russia and Ukraine which led to a halt in imports in January 2009, and to the Gries Pass (- 25.7%) and smaller volumes of regasified LNG injected into the network by the Panigaglia terminal (-47.5%). Volumes injected by shipper First quarter 2008 (billions of m³) Change Change % Eni (4.88) (31.9) 9.82 Enel Trade (0.46) (16.9) Other (4.96) (19.6) 8

9 Quantities of regasified gas (billions of m³) First quarter Change Change % ,23 Enel Trade 0,35 0,23 (0,12) (34,3) 0,29 Eni 0,26 0,03 (0,23) (88,5) Other 0,06 0,06 1,52 0,61 0,32 (0,29) (47,5) The Panigaglia (SP) LNG terminal regasified 0.32 billion cubic metres of natural gas in the first three months of 2009 compared to 0.61 billion cubic metres in the same period of Different sized methane tankers unloaded 11 loads compared to 19 in the first quarter of Investments First quarter Change Change % 816 Development (3) (1,8) 581 Investments with 3% incentive ,6 235 Investments with 2% incentive (18) (26,5) 228 Maintenance and other (10) (18,9) 103 Investments with 1% incentive ,5 125 Investments with no incentives (12) (35,3) (13) (6,0) Investments of 204 million were made during the period, down 6.0% on the first quarter of In order to provide a consistent comparison of the different types of investment made in the first quarters of 2009 and 2008, the investments of the first quarter of 2009 have been classified in accordance with resolutions no. 166/05 (natural gas transportation and dispatching) and no. ARG/gas 92/08 (LNG regasification) issued by the Electricity and Gas Authority. The Authority identified separate project categories which have different incentives. Investments made in the first quarter of 2009 will be remunerated applying the Authority s standads for the third regulatory period, which may differ from those of the current regulatory period, which expires on 30 September The key development investments related to: as part of the project for the new transportation infrastructure along the Adriatic side ( 59 million), the purchase of materials to construct the Massafra-Biccari pipeline in Puglia and Basilicata; as part of the project to upgrade the import infrastructure in Sicily and Calabria ( 27 million): (i) construction of the Montalbano-Messina pipeline in Sicily and the Rende-Tarsia pipeline in Calabria; and (ii) work to complete the Mazara-Menfi and Tarsia-Morano pipelines in Sicily and Calabria, respectively; as part of the project to improve the import infrastructure from the North East ( 11 million): (i) assembly of a new turbocompressor to upgrade the Malborghetto station in Friuli Venezia Giulia; and (ii) construction of the Tarvisio-Malborghetto pipeline; as part of the project to upgrade the transportation infrastructure in the Po valley ( 7 million): (i) acquisition of materials and easements to construct the Poggio Renatico- 9

10 Cremona pipeline in Emilia Romagna and Lombardy; and (ii) work to complete the Poggio Renatico station in Emilia Romagna. upgrading of the pipeline network in South Piedmont ( 6 million), including construction of the Cherasco-Cuneo and Oviglio-Ponti pipelines and transportation infrastructure in the Po valley ( 6 million), engineering works for the Zimella-Cervignano pipeline and purchase of materials for the Cremona-Sergnano pipeline. The maintenance and other investments covered a number of works aimed at ensuring adequate safety and quality levels of the systems, the replacement of assets and plants, the introduction of new IT systems, the development of existing ones and the purchase of other operating assets. 10

11 Financial review Reclassified consolidated income statement First quarter Change Change % 1,902 Core business revenue (23) (4.8) 8 Other revenue and income 1 1 1,910 Total revenue (23) (4.7) (399) Operating costs (*) (110) (115) (5) 4.5 1,511 EBITDA (28) (7.5) (489) Amortisation, depreciation and impairment losses (120) (123) (3) 2.5 1,022 EBIT (31) (12.2) (226) Net financial expense (55) (49) 6 (10.9) 796 Profit before tax (25) (12.5) (266) Income taxes (67) (59) 8 (11.9) 530 Profit (**) (17) (12.8) (*) Operating costs include the captions Purchases, services and other costs and Personnel expense of the consolidated income statement included in the condensed interim consolidated financial statements. (**) The profit for the period is wholly attributable to Snam Rete Gas. EBIT 1 recorded for the first quarter of 2009 amounts to 224 million, down 31 million or 12.2% on the same period of 2008, mainly due to: (i) smaller transportation revenue (- 23 million), principally attributable to the decreased volumes of gas transported; (ii) higher operating costs (- 5 million), mainly due to the rise in variable costs for the purchase of fuel gas used by the compression stations (- 7 million) and higher controllable fixed costs (- 1 million), the effects of which were partly offset by smaller accruals to the provisions for risks and charges (+ 5 million); and (iii) greater amortisation and depreciation expense (- 3 million) following the roll-out of new transportation infrastructure during the period. The profit ( 116 million) decreased by 17 million (12.8%) compared to the same period of 2008, due to the decrease in EBIT (- 31 million), partly offset by the lower income taxes (+ 8 million), following the decreased profit before tax, and smaller net financial expense (+ 6 million), thanks mainly to the cutting of interest rates. Non-recurring significant events and transactions and other special items No non-recurring significant events and transactions took place during the three months (or in the same quarter of 2008) nor were there any other special items in either period. 1 EBIT is analysed by considering only those elements that have led to a change therein, as application of the gas sector tariff regulations generate costs and revenue which are netted. 11

12 Revenue First quarter Change Change % 1,867 Transportation (23) (4.8) 20 Regasification 6 5 (1) (16.7) 1,887 Revenue from regulated activities (24) (5.0) 15 Revenue from non-regulated activities ,902 Total core business revenue (23) (4.8) 8 Other revenue and income 1 1 1, (23) (4.7) Core business revenue ( 461 million) decreased by 23 million. This decrease was due to the smaller transportation revenue (- 23 million), following the decreased volumes of gas transported (- 34 million) and the upgrading of the transportation tariffs (- 7 million), the effects of which were partly offset by the investments made in 2007 (+ 18 million). Transportation revenue by shipper is analysed in the following table. First quarter Change Change % 1,081 Eni (41) (14.0) 254 Enel Trade (7) (10.6) 603 Other (74) Revenue and fine adjustment (36) (35) 1 (2.8) (34) Interruptibility fee as per resolution no.277/07 (10) (8) 2 (20.0) Regional network transportation fee as per resolution no. 45/07 - (8) Equalisation (2) (2) 45 Additional fee to cover the greater cost of purchasing fuel gas 1, (23) (4.8) Regasification revenue ( 5 million) decreased by 1 million compared to the first quarter of 2008 and comprises the fee for the LNG regasification service carried out at the Panigaglia (SP) terminal. Revenue from non-regulated activities ( 3 million) mainly relates to the rent and maintenance of optical fibre telecommunications cables, rented to third parties. 12

13 Operating costs The operating costs of 115 million may be broken down as follows: First quarter Change Change % 162 Variable costs Fixed costs (6) Accruals to (utilisation of) provisions for risks and charges 6 1 (5) (83.3) Variable costs First quarter Change Change % 105 Fuel gas Network losses Electricity Gas excise duty Recurring variable costs Charges made by third parties Variable costs netted against revenue The increase in recurring variable costs ( 8 million) is mainly due to the greater cost of fuel gas for the compression stations following the higher unit cost, partly offset by the smaller quantities used. Variable costs netted against revenue of 8 million relate to costs for the recharging of the transportation service on their networks by third party operators. Fixed costs F irs t q u ar ter 2008 ( m ) Change C h an ge % 116 P ersonnel expense E xterna l c osts Personnel expense First quarter Change Change % 140 Gross personnel expense Personnel-related services 2 2 (37) Capitalisations (8) (7) 1 (12.5) 114 Total recurring personnel expense Termination benefits 1 (1) (100.0) 1 Other personnel expense 1 (1) (100.0) 115 Total personnel expense for regulated activities Gross personnel expense 1 Total personnel expense for non-regulated activities

14 Personnel expense ( 30 million) is in line with the first three months of 2008 and made up 50.8% of the total fixed costs (51.7% in the first quarter of 2008). Recurring personnel expense ( 30 million) comprises personnel-related services of 2 million (canteen, travel expense reimbursement, etc.) and is shown net of capitalisations of 7 million, being the part of the personnel expense absorbed by investments. The number of employees at 31 March 2009 is analysed in the following table by position. Position Managers Junior managers Employee 1,235 1,241 1,234 W orkers ,329 2,345 2,329 The workforce at quarter end decreased by 16 over 31 December 2008, while it is unchanged with respect to 31 March Accruals to the provisions for risks and charges The smaller accruals to the provisions for risks and charges (- 5 million) relate to the expected smaller costs of litigation. External costs First quarter Change Change % 31 Materials and maintenance 7 6 (1) (14,3) 12 IT services Telecommunications Rent, lease and payments 3 2 (1) (33,3) 12 Technical and professional services Insurance ,0 12 Other costs ,3 95 Recurring operating costs Capital losses on eliminations Other costs Other external costs Modulation and storage services 6 5 (1) (16,7) 22 Costs netted against revenue 6 5 (1) (16,7) 124 Total external costs of regulated activities ,6 3 Materials and maintenance Other costs 3 Total external costs of non-regulated activities ,6 External costs of 29 million show a 1 million increase over the first quarter of

15 Amortisation, depreciation and impairment losses First quarter Change Change % 485 Gas transportation business ,5 457 Depreciation ,5 28 Amortisation 5 4 (1) (20,0) The 3 million increase in this caption is mainly due to greater depreciation of property, plant and equipment used in the transportation business (+ 4 million) following the roll-out of new infrastructure during the period. Net financial expense Net financial expense ( 49 million) decreased by 6 million, mainly due to the smaller average cost of borrowing, down from 4.16% in the first quarter of 2008 to 3.25% in the first quarter of 2009, partly offset by the increase in the average borrowing for the period (approximately 400 million). Financial expense of 4 million was capitalised in the period compared to 6 million in the first quarter of Income taxes 4 Regasification business ,5 First quarter Change Change % 291 Current taxes (11) (14.3) Deferred tax (income) expense (37) Deferred tax expense (10) (9) 1 (10.0) 12 Deferred tax income 2 2 (25) (10) (7) 3 (30.0) (8) (11.9) Income taxes ( 59 million) decreased by 8 million compared to the same period of 2008, mainly due to the smaller profit before taxes. The tax rate is 33.7% compared to 33.5% in the same period of Reclassified consolidated balance sheet The reclassified consolidated balance sheet combines the assets and liabilities of the legallyrequired balance sheet format in accordance with their function, split into the three basic functions: investment, operations and financing. Company management holds that this format presents information useful for investors as it allows identification of the sources of financing (own and third party funds) and the application of such funds for non-current assets and working capital. The reclassified balance sheet format is used by management to calculate the key leverage ratios. 15

16 RECLASSIFIED CONSOLIDATED BALANCE SHEET (*) Change Property, plant and equpiment 10,549 10, Intangible assets Net payables for investments (286) (243) 43 Non-current assets 10,302 10, Net working capital (464) (576) (112) Provisions for employee benefits (29) (29) NET INVESTED CAPITAL 9,809 9, Equity 3,573 3, Net financial debt 6,236 6,197 (39) COVERAGE 9,809 9, (*) Reference should be made to the paragraph on the reconciliation of the reclassified consolidated balance sheet with the legally-required consolidated balance sheet. Net invested capital ( 9,854 million) increased by 45 million compared to 31 December 2008, due to the rise in non-current assets (+ 157 million), partly offset by the reduction in net working capital (- 112 million). Property, plant and equipment and intangible assets ( 10,702 million) mainly relate to the transportation infrastructure. Changes in these captions (+ 114 million) are analysed below: Property, plant Intangible Total and equipment as sets Opening balance at 31 December , ,58 8 Investments Amortisatio n, depreciation and impairment losses (119) (4) (123) Other changes Closing balance at 31 March , ,70 2 Other changes ( 33 million) relate to: (i) the change in pipes in stock purchased for investment purposes and not yet used to construct plants (+ 40 million); and (ii) the grants for the period (- 7 million). The grants received from state and private bodies, recognised as a decrease in the cost of property, plant and equipment, total 78 million and 170 million, respectively. Net payables for investments ( 243 million) mainly relate to the development of transportation infrastructure. 16

17 Net working capital Change Trade receivables (38) Inventories Tax assets 4 (4) Other assets (16) Deferred tax liabilities (487) (467) 20 Accrued and deferred income (*) (190) (227) (37) Trade payables (161) (109) 52 Fair value of derivatives (39) (88) (49) Tax liabilities (48) (87) (39) Provisions for risks and charges (52) (53) (1) Deferred income for rent of telecommunications cables (29) (28) 1 Other liabilities (35) (38) (3) (464) (576) (112) (*) This caption includes: (i) other liabilities related to the excess invoicing compared to the ceiling established by the Authority and fines charged to shippers that exceeded their allowed capacity (- 272 million); and (ii) assets recognised to cover the greater costs incurred to purchase fuel gas used by the compression stations and network losses in the thermal years and (+ 45 million). The change in net working capital of 112 million is mainly due to: (i) the fair value loss on derivatives (- 49 million), related to the reduction in market interest rates; (ii) the increase in tax payables (- 39 million); (iii) smaller trade receivables (- 38 million), mainly due to the smaller volumes of gas transported; (iv) higher accrued and deferred income related to transportation revenue (- 37 million), and (v) the decrease in other assets (- 16 million), mainly attributable to the use of the VAT advance paid to the ultimate parent in December 2008 ( 17 million). These factors were partly offset by the decrease in trade payables (+ 52 million) and deferred tax liabilities (+ 20 million). Deferred tax liabilities ( 467 million) decreased by 20 million compared to 31 December 2008, mainly due to the accrual for deferred tax assets, offset against equity, for the fair value loss on derivatives and the reversal of deferred tax liabilities provided for on excess fiscally-driven accelerated depreciation, recognised in previous years. The tax liabilities ( 87 million) increased by 39 million, principally due to the recognition of the net payable for income taxes ( 62 million), partly absorbed by the smaller VAT payables due to the ultimate parent ( 21 million). Other liabilities ( 38 million) principally comprise amounts due to personnel, social security institutions and pension funds ( 22 million) and the payable due to the Cassa Conguaglio Settore Elettrico (Electricity Equalisation Fund) for the fees due in line with resolutions no. 277/07 (Interruptibility) and no. 45/07 (Equalisation) totalling 10 million. 17

18 Equity Change Share capital 1,956 1,956 Legal reserve Share premium reserve Other reserves (32) Retained earnings 733 1, Profit (414).less Treasury shares (794) (794) Interim dividend (158) (158) 3,573 3, Equity of 3,657 million increased by 84 million over 31 December 2008 mainly due to: (i) recognition of the profit for the period (+ 116 million); and (ii) the fair value loss on derivatives recognised in the hedging reserve (- 32 million, net of the related tax effect). Note 14 Equity to the condensed interim consolidated financial statements gives information about the equity captions. Reconciliation of the profit for the period and equity of Snam Rete Gas S.p.A. with the consolidated profit for the period and consolidated equity Profit Equity First quarter Snam Rete Gas S.p.A. separate financial statements ,557 3,640 Profit of the subsidiary GNL Italia S.p.A. 1 1 Excess in separate financial statements, including profit or loss for the year, compared to the carrying amount of the investments in the consolidated company Consolidation adjustments: Elimination of intragroup profits Other adjustments Consolidated financial statements ,573 3,657 In their meeting of 9 April 2009, the shareholders of GNL Italia S.p.A. resolved to carry forward the profit for 2008 after allocating part thereof to the legal reserve. Net financial debt and leverage The leverage ratio shows a company s degree of indebtedness and is the net financial debt to net invested capital ratio. It is one of the key ratios used to gauge the soundness and efficiency of a company s financial position. 18

19 Change Financial liabilities 6,237 6,198 (39) Short-term financial liabilities 1, (40) Current portion of long-term financial liabilities Long-term financial liabilities 5,200 5,200 Financial receivables (1) (1) Net financial debt amounts to 6,197 million, a decrease of 39 million compared to 31 December Positive net cash flows from operating activities (+ 320 million) covered the group s financial requirements for net investment outlays (- 281 million) and decreased net financial debt by 39 million. Long-term financial liabilities of 5,200 million make up 84% of net financial debt (83% at 31 December 2008). The average maturity of the long-term financing, including the current portion, is just below four years (just above four years at 31 December 2008). A breakdown of the liabilities by type of interest rate at 31 March 2009 is as follows: 6,236 6,197 (39) % % Change.floating rate 2, , (40).fixed rate (*) 3, , , , (39) (*) Includes two floating rate loans converted by two interest rate swaps into fixed rate loans of 800 million, the expiry date of which has been extended from 2009 to The two loans are effectively fixed rate loans until 2009, when the two derivative contracts expire, and floating rate loans during the extension period. All the financial liabilities are due to Eni and they are all in Euros. Note 3 Other current assets to the condensed interim consolidated financial statements gives information about the derivatives. The leverage ratio, ie, the ratio of net financial debt to net invested capital, is 62.9% (63.6% at 31 December 2008). Reclassified consolidated cash flow statement The reclassified consolidated cash flow statement set out below summarises the legally-required format. This reclassified consolidated 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, ie 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 dividend/capital injections); or (ii) with the change in net financial debt for the year, after adding/deducting the debt flows related to equity (payment of dividend/capital injections). 19

20 RECLASSIFIED CONSOLIDATED CASH FLOW STATEMENT Profit Adjusted by: - Amortisation, depreciation and other non-monetary components Interest and income taxes Cash flow from operating activities before changes in working capital Change in working capital due to operating activities Interest and income taxes paid (51) (41) Net cash flows from operating activities Investments in property, plant and equipment and intangible assets (286) (238) Disinvestments 1 Net payables for investments 8 (43) Free cash flow Change in financial liabilities (116) (39) Cash flows of equity Net cash flows for the period 0 0 (*) Reference should be made to the paragraph on the reconciliation of the reclassified consolidated cash flow statement with the legally-required consolidated cash flow statement. CHANGE IN NET FINANCIAL DEBT First quarter ( m) ( m) First quarter Free cash flow Cash flows of equity Change in net financial debt

21 RECONCILIATION OF THE RECLASSIFIED BALANCE SHEET FORMATS WITH THE LEGALLY-REQUIRED FORMATS Reclassified consolidated balance sheet Reconciliation of the reclassified balance sheet formats with the legally-required formats Reclassificed consolidated balance sheet items (where not expressly stated, the component is taken directly from the legally-required format) Notes to the condensed interim consolidated financial statements Partial amount from legallyrequired format Amount from reclasified format Partial amount Amount from legallyrequired reclasified from format format Non-current assets Property, plant and equipment 10,549 10,663 Intangible assets Net payables for investments, consisting of: (286) (243) - Payables for investments (see note 7) (298) (259) - Receivables for investments (see note 1) Total non-current assets 10,302 10,459 Net working capital Trade receivables (see note 1) Inventories Tax assets, consisting of: 4 Current tax assets 1 IRES receivables to parent for national consolidated tax scheme (see note 1) 3 Trade payables (see note 7) (161) (109) Tax liabilities, consisting of (48) (87) Current tax liabilities (1) (13) Other current tax liabilities (4) (2) IRES payables to parent for national consolidated tax scheme (see note 7) (3) (53) Payable to parent for group consolidated VAT scheme (see note 7) (40) (19) Deferred tax liabilities (487) (467) Other current tax assets 2 2 Provisions for risks and charges (52) (53) Other current assets (liabilities) consisting of: (267) (371) Other receivables (*) (see note 1) 20 6 Other current assets Other non-current assets 3 3 Payments on account and advances, Other sums payable (see note 7) (34) (38) Other current liabilities (52) (75) Other non-current liabilities (256) (315) Total net working capital (464) (576) Provisions for employee benefits (29) (29) NET INVESTED CAPITAL 9,809 9,854 Equity 3,573 3,657 Net financial debt Financial labilities, consisting of: 6,237 6,198 - Long-term financial liabilities 5,200 5,200 - Current portion of long-term financial liabilities Short-term financial liabilities 1, less - Financial receivables, cash and cash equivalents consisting of: (1) (1) - Other financial assets (1) (1) - Cash and cash equivalents Total net financial debt 6,236 6,197 COVERAGE 9,809 9,854 21

22 ( m) First quarter Reclassified captions and reconciliation with legally-required captions Partial amounts from legally-required formats Amounts from reclassified formats Partial amounts from legallyrequired formats Amounts from reclassified formats Profit for the period Adjusted by: Amortisation, depreciation and other non-monetary components amortisation and depreciation impairment losses (reversals of impairment losses) 1 - change in provisions for risks and charges change in provisions for employee benefits - losses (gains) on disinvestments, eliminations and derecognitions Interest and income taxes Interest income (6) (2) -Interest expense Income taxes Other adjustments Cash flows from operating activities before changes in working capital Change in working capital due to operating activities Inventories (2) (2) -Trade and other receivables Other assets 2 -Trade and other payables 2 (72) -Other liabilities Cash flows from operating activities Interest and income taxes collected (paid) (51) (41) -Interest collected Interest paid (61) (45) -Income taxes paid (collected) Net cash flows from operating activities Investments in property, plant and equipment and intangible assets (286) (238) -Investments in property, plant and equipment (280) (234) -Investments in intangible assets (6) (4) Disinvestments 1 -Property, plant and equipment 1 Net payables for investing activities 8 (43) Free cash flow Change in financial liabilities (116) (39) - Taking on short-term financial liabilities 3,916 - Taking on long-term financial liabilities 317 3,913 - Repayments of short-term financial liabilities (3,865) - Repayments of long-term financial liabilities (163) (3,912) -Increase (decrease) in short-term financial liabilities (270) (91) Cash flows of equity 0 -Repurchase of treasury shares -Capital injections -Dividend paid Net cash flows for the period

23 Other information Incentive plans for managers involving Snam Rete Gas shares Stock grant plan At 31 March 3009, Snam Rete Gas did not have any commitments to assign stock grants. Stock option plan Reference should be made to the 2008 Annual Report for information on the , 2005 and stock option plans. In its meeting of 11 March 2009, the board of directors set the exercise percentage for the stock options assigned in 2006 considering the company s TSR positioning in the three years 2006, 2007 and 2008 compared to that of the six leading European utility companies. Accordingly, 731,325 options related to 2006 have been forfeited due to this positioning, calculated at the end of the vesting period. Changes in the stock option plans for each year of assignment are as follows: Year Option exercised Forfeited options (*) Exercised Existing options ,500 (21,000) (587,500) ,500 (433,000) 207, ,000 (30,000) (256,000) 391, ,000 (51,000) (69,000) 538, ,597,500 (1,061,525) 1,535, ,326,500 (242,900) 2,083, ,235,000 2,235,000 9,743,000 (1,406,425) (1,345,500) 6,991,075 (*) Includes forfeited options due to termination of employment relationship and, beginning from the plan, the options forfeited as a result of the TSR positioning at the end of the vesting period. Treasury shares At 31 March 2009, Snam Rete Gas had 195,429,850 treasury shares (unchanged from 31 December 2008), equal to approximately 10% of the share capital. Their market value was roughly 776 million 2 at period end. Related party transactions Snam Rete Gas S.p.A. is a subsidiary of Eni S.p.A.. Transactions undertaken by Snam Rete Gas S.p.A. and its consolidated subsidiary with related parties, as per IAS 24 - Related party disclosures, mainly involve the exchange of goods, provision of services and the provision and utilisation of financial resources in addition to transactions to hedge currency and interest rate risk with the ultimate parent Eni S.p.A. and its subsidiaries and associates as well as with Enel, a state-controlled company, and its subsidiaries. All these transactions are part of its ordinary business activities, usually take place at market conditions, ie, those conditions that would be applied between two independent parties, and are performed in the interests of the Snam Rete Gas group. Given the activities performed and the nature of the relationship (company entirely or nearly entirely owned by Eni), the services provided by certain companies are charged at rates agreed based on the specific costs incurred and minimum profit margin to cover the general costs and remuneration of invested capital. The amounts of trade, other and financial transactions carried out with related 2 Calculated by multiplying the number of treasury shares by the official price at 31 March 2009 ( 3.97 per share). 23

24 parties are disclosed in note 22 Related party transactions to the condensed interim consolidated financial statements. Litigation There are no significant updates to the information given in the 2008 Annual Report. Subsequent events Public discussion document on the regulatory framework for the third regulatory period (1 October September 2013) With its public discussion document no. 4/09, published on 3 April 2009, the Electricity and Gas Authority set out the regulatory framework for determination of the natural gas transportation and dispatching tariffs for the third regulatory period (1 October 2009 to 30 September 2013). This document sets out the reasons for intervention, the objectives and the Authority s preliminary guidelines. It proposes certain alternative options for each of the more significant issues. As is normal practice, the parties affected by the document may present their comments and proposals to the Authority before and no later than 15 May

25 Risk factors and outlook Introduction This section provides an update of the group s key risk factors. Reference should be made to the notes to the consolidated financial statements at 31 December 2008 for a description of the key risks and related management policies. Market risk Interest rate risk Large fluctuations in interest rates could affect the cost of floating rate financing which amounts to 2,484 million at 31 March 2009 ( 2,524 million at 31 December 2008), equal to 40% of the group s financial debt (unchanged from 31 December 2008). Assuming a 10% increase/decrease in interest rates at 31 March 2009, the group s profit for the period would decrease or increase by 1 million. Other price risk Snam Rete Gas uses nearly all the gas purchased as fuel for its compression stations. The cost of such gas in the first quarter of 2009 was 40 million ( 33 million in the first three months of 2008). As shown in the 2008 Annual Report, the current tariff system establishes that these costs are recognised considering the 2004 financial statements data and updated using the price capping mechanism for the current regulatory period. Credit risk The group did not encounter significant cases of defaulting customers in the period. At 31 March 2009, overdue but not impaired receivables (as there is no doubt about their collection) amount to 14 million ( 13 million at 31 December 2008). The group is not exposed to significant credit risk. At period end, roughly 80% of its receivables (81% at 31 December 2008) were due from very reliable customers, including the ultimate parent Eni S.p.A., whose receivables made up approximately 49% of the total (50% at 31 December 2008). Liquidity risk At present, the group believes that cash flows from its operations and its current financial and capital structure can reasonably allow access to a wide range of financing from the capital market and banks at normal market conditions. Moreover, Snam Rete Gas entirely finances itself through the ultimate parent Eni S.p.A.. This means that should Eni S.p.A. sell control of Snam Rete Gas S.p.A., there is no guarantee that the company would be able to obtain loans and financing from other sources at the same conditions as those currently applied. Outlook Following execution of the acquisition of Italgas and Stogit, mentioned in the section on the group s highlights, Snam Rete Gas will become the sole integrated operator in the regulated gas sector in Italy and one of the largest in Europe in terms of its RAB (regulatory asset base). The group s results for the twelve months of 2009 will include the results of the companies being acquired from the date on which the related transactions are executed. The group will continue to focus on operating efficiency in 2009, benefitting from the available organisational and technological tools. It confirms its investment plan to upgrade its transportation infrastructure in the four years from 2009 to The forecast outlay of roughly 4.3 billion will ensure higher safety levels and greater flexibility. 25

26 Glossary The financial, commercial and technical glossary is available on the company s internet site The most frequently used terms are as follows. Financial terms Controllable fixed costs These are the operating fixed costs of the regulated activities being the sum of total recurring personnel expense and recurring external operating costs as described in the section on the Financial review of the directors report. Leverage Financial structure indicator; measures the degree of debt and is calculated as the ratio of net financial debt to net invested capital. Commercial terms Network Code Set of rules governing the rights and obligations of parties involved in the supply of a transportation service. Regasification tariffs Unit prices applied to the regasification service. They include tariffs for used capacity ( Capacity ) and tariffs for unit of energy transported ( Commodity ) connected, respectively, to the regasification capacity required by the Shippers and the volume of gas unloaded from the methane tankers Regulatory period A period of time, usually four years, for which the regulations are defined for the service of transportation and dispatching of natural gas and regasification of liquefied natural gas. The first regulatory period started on 1 October 2001 and ended on 30 September The second regulatory period for the transportation activity began on 1 October 2005 and will end on 30 September 2009, while for the regasification activity it went from 1 October 2005 to 30 September The third regulatory period will run for four years from 1 October 2008 to 30 September Thermal year A period of time into which the regulation period is divided and that runs from 1 October to 30 September of the following year. Transportation tariffs Unit prices applied to the natural gas transportation and dispatching service. They include tariffs for used capacity ( Capacity ) and tariffs for unit of energy transported ( Commodity ) connected, respectively, to the transportation capacity requested by the Shippers and to the volume of gas injected into the network. 26

27 Technical terms Liquefied natural gas (LNG) Natural gas, mainly consisting of liquefied methane cooled at approximately -160 C under normal atmospheric pressure in order to make it suitable for transportation by special ships (methane 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 pressure in the pipelines. Storage of natural gas Industrial process that allows the injection of gas into a rocky area (emptied fields, deposits, etc.) that can ensure the storage and subsequent supply. 27

28 Condensed interim consolidated financial statements as at and for the three months ended 31 March 2009

29 Consolidated balance sheet Total including with Total including with related parties related parties ASSETS Current assets Cash and cash equivalents Trade and other receivables (NOTE 1) Inventories (NOTE 2) Current tax assets 1 Other current tax assets 2 2 Other current assets (NOTE 3) Non-current assets Property, plant and equipment (NOTE 4) 10,549 10,663 Intangible assets (NOTE 5) Other financial assets 1 1 Other non-current assets ,592 10,706 TOTAL ASSETS 11,227 11,287 LIABILITIES AND EQUITY Current liabilities Short-term financial liabilities (NOTE 6) 1,023 1, Short-term portion of longterm financial liabilities (NOTE 10) Trade and other payables (NOTE 7) Current tax liabilities (NOTE 8) 1 13 Other current tax liabilities (NOTE 8) 4 2 Other current liabilities (NOTE 9) ,630 1,566 Non-current liabilities Long-term financial liabilities (NOTE 10) 5,200 5,200 5,200 5,200 Provisions for risks and charges (NOTE 11) Provisions for employee benefits Deferred tax liabilities (NOTE 12) Other non-current liabilities (NOTE 13) ,024 6,064 TOTAL LIABILITIES 7,654 7,630 EQUITY (NOTE 14) Share capital, fully paid-up and consisting of 1,956 1,956 1,956,445,600 shares with a nominal value of 1 (unchanged from 31 December 2008) Share premium reserve Other reserves 1,190 1,158 Retained earnings 733 1,263 Profit for the period Treasury shares (794) (794) Interim dividend (158) (158) Total equity: - attributable to the shareholders of the parent 3,573 3,657 - attributable to minority interests TOTAL EQUITY 3,573 3,657 TOTAL LIABILITIES AND EQUITY 11,227 11,287 29

30 Consolidated income statement First quarter 2008 First quarter 2009 Total including with including Total including with including related parties non-recurring related parties non-recurring REVENUE (NOTE 16). Core business revenue Other revenue and income 1 1 Total revenue OPERATING COSTS (NOTE 17). Purchases, services and other costs (82) (46) (87) (54). Personnel expense (28) (28). Amortisation, depreciation and impairment losses (120) (123) OPERATING PROFIT FINANCIAL INCOME (EXPENSE) (NOTE 18). Financial income 1. Financial expense (62) (61) (44) (42). Derivatives (*) 6 6 (5) (5) (55) (49) PROFIT BEFORE TAX Income taxes (NOTE 19) (67) (59) Profit for the period attributable to the shareholders of the parent attributable to minority interests Basic earnings per share ( per share) (NOTE 20) Diluted earnings per share ( per share) (NOTE 20) (*) Beginning from the financial statements at 31 December 2008 and in order to give a better presentation of the income statement, financial income and expense are stated separately and give separate mention of gains and losses on derivatives. The 2008 first quarter figures have been reclassified accordingly. 30

31 Statement of changes in consolidated equity Share capital Share premium reserve Legal reserve Treasury shares Other reserves Interim dividend Retained earnings Profit for the year Equity at 31 December , (794) 877 (141) ,507 Other changes in equity: - Reclassification of 2007 profit 594 (594) - Losses taken directly to equity (fair value of derivatives) (20) (20) - Stock option and stock grant plan costs Profit for the period Total Equity at 31 March , (794) 857 (141) 1, ,620 Transactions with shareholders: - Distribution of ordinary dividend 141 (370) (229) ( 0.13 per share to complete the 2007 distribution commenced with the interim dividend of 0,08 per share) interim dividend ( 0.09 per share) (158) (158) - Issue of shares for stock option and stock grant plans (17) (370) (386) Profit for the period Other changes in equity: - Losses taken directly to equity (fair value of derivatives) (58) (58) (58) (58) Equity at 31 December 2008 (NOTE 15) 1, (794) 799 (158) ,573 Other changes in equity: - Reclassification of 2008 profit 530 (530) - Losses taken directly to equity (fair value of derivatives) (32) (32) (32) 530 (530) (32) Profit for the period Equity at 31 March 2009 (NOTE 15) 1, (794) 767 (158) 1, ,657 31