SNAM ANNOUNCES RESULTS FOR THE FIRST QUARTER OF 2014

Transcription

1 SNAM ANNOUNCES RESULTS FOR THE FIRST QUARTER OF 2014 San Donato Milanese, 6 May The Board of Directors, chaired by Lorenzo Bini Smaghi, met yesterday and approved the consolidated results for the first quarter of (unaudited). Financial Highlights Total revenues: 907 million (+1.2%) EBIT: 542 million (+2.1%) Net profit: 292 million (+20.7%) Technical investments: 229 million Operational Highlights Gas injected into the transportation network: billion cubic metres (-12.7%) Number of active meters: million (+0.2%) Available storage capacity: 11.4 billion cubic metres (+1.8%) Main events A Memorandum of Understanding was signed with Cassa Depositi e Prestiti (CDP) which defines the negotiation process for the acquisition of CDP s stake in TAG GmbH A Memorandum of Understanding was signed with Fluxys for the possible creation of a jointly controlled company that combines the respective international assets held in Europe Carlo Malacarne, CEO of Snam, made the following comments on the results: Through our continuous focus on operating efficiency and strict financial discipline, we recorded higher operating profit in the first quarter of 2014 than the same period last year, despite the reduction in gas demand due to the economic environment. The significant increase in net profit also reflects the on-going process of debt optimization, in addition to the increased contribution from our subsidiaries. We remain firmly focused on investing in productive and profitable growth for our shareholders and reconfirm the commitment to our investment plan". 1 This press release constitutes the Interim Director s Report pursuant to Art. 154-ter of the Italian code for securities and exchanges (Testo Unico della Finanza - TUF). This press release is available at Snam Press Office T F ufficio.stampa@snam.it Snam Investor Relations T F investor.relations@snam.it

2 Financial Highlights (millions of ) First Quarter Change % Change Total revenues (*) of which regulated revenues (1) (0.1) Operating costs (*) (4) (2.2) EBIT Net profit (**) EBIT per share (***) ( ) Net profit per share (***) ( ) Technical investments Number of shares outstanding at the end of the period (millions) 3, , Average number of shares outstanding during the period (millions) 3, , (*) Starting 1 January 2014, for the sole purpose of the reclassified income statement, revenues from the construction and upgrading of distribution infrastructures recorded pursuant to IFRIC 12 and equal to the costs incurred ( 61 and 66 million, respectively, in the first quarter of 2013 and 2014), are exposed to a direct reduction of their respective cost item lines. The corresponding figures for 2013 were therefore reclassified. (**) Net profit is attributable to Snam. (***) Calculated considering the average number of shares outstanding during the period. Total revenues Total revenues in the first quarter of 2014 amounted to 907 million, an increase of 11 million (+1.2%) compared to the first quarter of The increase was due to higher non-regulated revenues (+ 12 million; +92.3%) mainly due to storage. With reference to regulated revenues ( 882 million), broadly in line with those from the first quarter of the previous year, higher revenues from transport activities (+ 7 million; +1.4%) and storage of natural gas (+ 5 million; +4.0%) were offset by a decline in revenues from distribution (- 12 million; - 4.8%). Total revenues net of components that are offset in costs amounted to 873 million (an increase of 4 million) or 0.5% compared to the same period last year. EBIT EBIT 2 for the first quarter of 2014 amounted to 542 million (an increase of 11 million), up 2.1% compared to the first quarter of The increase in revenues (+ 4 million) together with the reduction in operating costs (+ 11 million), mainly due to the dynamics of provisions for risks and charges, were partially offset by amortisations for the period (- 4 million), primarily from new infrastructures' entry into service. With reference to business segments, the positive performance of the storage business (+ 19 million; +17.6%), due to higher revenues and control of operating costs, was offset by a decline in the transport sector (- 7 million; -2.3%), which reflects in particular the lower volumes of gas transported, as well as the natural gas distribution sector (- 6 million; -4.8%), which was affected by lower revenues related to the change in regulated tariff criteria. 2 EBIT is analysed by isolating the elements that have led to a change. To this end, it should be noted that the application of tariff regulations in the gas sector generates revenue components that are offset in costs. 2

3 Net profit Net profit for the first quarter of 2014 amounted to 292 million (an increase of 50 million), up 20.7% compared to the first quarter of This increase was due to: (i) the reduction in net financial expenses (+ 24 million) due mainly to the decreased average cost of debt, thanks to the optimisation of the group's financial structure in place during 2013; (ii) lower income taxes (+ 8 million) mainly due to the reduction (starting 1 January 2014) of the additional IRES rate (the so-called Robin Hood Tax) from 10.5% to 6.5%; (iii) higher net income from investments (+ 7 million); (iv) the increase in operating profit (+ 11 million). Technical investments Technical investments amounted to 229 million 3 ( 216 million in the first quarter of 2013). Investments with a greater return than the basic rate of return constitute approximately 71.6% of total investments. Net financial debt Net financial debt at 31 March amounted to 13,120 million ( 13,326 million at 31 December 2013). The positive net cash flow of 497 million from operating activities enabled the Group to fully cover the financing needs for technical investments and to reduce the net financial debt by 206 million compared to the end The comment to technical investments by business segment is provided in the "Information by Business Segment" section. 4 Information on net financial debt is provided on pg

4 Operational Highlights (a) First Quarter Change % Change Natural gas transportation (b) Natural gas injected into the national gas transportation network (billions of cubic metres) (2.36) (12.7) Transportation network (kilometres in use) 32,244 32, Installed power in the compression stations (MW) Liquefied Natural Gas (LNG) regasification (b) Regasification of LNG (billions of cubic metres) (0.045) (95.7) Natural gas storage (b) Available storage capacity (billions of cubic metres) (d) Natural gas moved through the storage system (billions of cubic metres) (2.13) (30.6) Natural gas distribution Active meters (millions) Concessions for gas distribution (number) 1,435 1,435 Distribution network (kilometres) (e) 52,632 53, Employees in service at the end of the period (number) (f) 6,023 6, by business segment: - Transportation 1,969 1,955 (14) (0.7) - Regasification Storage (1) (0.3) - Distribution 3,002 3, Corporate (a) The changes indicated in the table, as well as those below in this Press Release, shall be construed as changes in the first quarter of 2014 compared to the first quarter of The percentage of change, unless otherwise indicated, has been determined with reference to the data indicated in the relevant tables. (b) With respect to the first quarter of 2014, gas volumes are expressed in standard cubic metres (SCM) with an average higher heating value (HHV) of 38.1 and 39.3 MJ/SCM respectively for the businesses of natural gas transportation, regasification and natural gas storage. (c) Data relative to the first quarter of 2014 is current as of 2 April The figures for 2013 were in line with those published in the National Transportation Network Report. (d) Working gas capacity for modulation, mining and balancing. The available capacity at 31 March 2014 is that declared to the Electricity, Gas and Water Authority (hereafter referred to as the Authority) at the start of the thermal year , in compliance with decision ARG/gas 119/10. The available capacity for the thermal year amounted to 11.4 billion cubic metres, unchanged from the previous thermal year. (e) This figure refers to network kilometres operated by Italgas. (f) Fully consolidated companies. Natural gas transportation In the first quarter of 2014,16.29 billion cubic metres of natural gas were injected into the national transportation network (a reduction of 2.36 billion cubic metres), down 12.7% compared to the first quarter of The decrease is mainly attributable to the reduction in demand for natural gas in Italy (-18.1% compared to the first quarter of 2013), mainly due to lower consumption in the residential and tertiary (-21.6%) and thermoelectric sectors (-22.4%), partially offset by lower net withdrawals from storage (+2.44 billion cubic metres). 4

5 Liquefied Natural Gas (LNG) regasification In the first quarter of 2014, billion cubic metres of LNG were regasified (0.047 billion cubic metres in the first quarter of 2013). Natural gas storage The volume of gas moved through the storage system in the first quarter of 2014 amounted to 4.84 billion cubic metres, a reduction of 2.13 billion cubic metres (30.6%) compared to the first quarter of The decrease is attributable to lower withdrawals from storage (-2.20 billion cubic metres; %). Natural gas distribution At 31 March 2014, Snam owned concessions for gas distribution services in 1,435 municipalities (unchanged from 31 December 2013), of which 1,344 with an operating network and 91 with networks to be completed/built. At 31 March 2014, the number of active meters at gas redelivery points to end customers (households, businesses, etc.) amounted to million units (5.912 million units as of 31 March 2013). Main events International growth Starting the negotiation process for the purchase of CDP s stake in TAG GmbH On 18 March 2014, Snam signed a MoU with Cassa Depositi e Prestiti S.p.A. which defines the negotiation process for the purchase of CDP s stake in TAG GmbH (owned by CDP GAS S.r.l.), the company holding transport rights for the pipeline connecting the Slovakian-Austrian border with the entry-point of Tarvisio in Italy. The system is made up of 3 pipelines, each 380 km long (for an overall length of 1,140 km) and 5 compression stations, with a transport capacity of around 48 billion cubic meters of gas. Development of the strategic alliance with Fluxys, launched in 2012 Snam and Fluxys signed a MoU to further develop the strategic alliance formed in The agreement aims to pursue growth opportunities through projects to improve the flexibility and security of supply in European infrastructure. The jointly controlled company under consideration would combine the international assets of Snam and Fluxys located in the north-south and east-west European energy corridors, with the exclusion of the companies' respective domestic markets (Belgium and Italy), in order to perform a key role as facilitator for greater flexibility and liquidity of the market through an enhanced interconnection of the European gas networks and markets. Bond issues Under the Euro Medium Term Notes (EMTN) program, on 24 April 2014 Snam carried out a bond issue for a total amount of 500 million for a period of five years (expiring on 24 April 2019), and annual coupon at a fixed rate of 1.5%. 5

6 Outlook Management s priorities are to grow the business through the creation of significant new gas infrastructures in Italy as well as the evaluation of strategic opportunities for development in Europe. Gas demand Based on the information currently available, Italian natural gas demand at the end of 2014 is expected to remain at 2013's level, in standardised terms for temperature. Investments Snam reaffirms its commitment to the development of infrastructure for the transport, storage and distribution of natural gas through the technical investment plan, whose total anticipated expenditure for amounts to 6 billion on a consolidated level. Efficiency Snam reaffirms its commitment to maximizing value creation through its operational efficiency as well as an efficient capital structure. *** This press release, detailing the group s consolidated results for the first quarter of 2014 (unaudited), constitutes the interim directors report pursuant to Article 154-ter of the Italian code for securities and exchanges (Testo Unico della Finanza - TUF). 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 The accounting principles and policies adopted for the preparation of the Interim Directors Report at 31 March 2014 are consistent with those adopted in the preparation of the 2013 Annual Report, which should be referred to for a description thereof, except for the international accounting standards that came into force on 1 January : IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements" and IFRS 12 "Disclosures of Interests in Other Entities" approved by Regulation No. 1254/2012 issued by the European Commission on 11 December The new provisions introduced by IFRS 10 and IFRS 11 did not result in changes to the group's consolidated financial statements. With regard to the application of IFRS 11 and in view of analyses carried out on joint agreements in which Snam is a part, Joint Arrangements are set up as Joint Ventures. Therefore, Snam's relative investments of continue to be assessed on the basis of the equity method. The extent of information relating to the disclosures of interests in other entities, required for the purposes of the consolidated financial statements in IFRS 12, will be applied in the preparation of the interim financial report at 30 June Results are provided with reference to the first quarter of 2013 and the first quarter of Information on the cash flows is presented with reference to the same periods. Financial information is provided with reference to 31 December 2013 and 31 March The format of the financial 5 More details are provided in the "Recently Issued IFRS" section in the 2012 and 2013 Annual Reports. 6

7 statements reflects that of statements presented in the Interim Directors Report of the Interim Financial Report and the Directors Report of the Annual Report. The scope of consolidation at 31 March 2014 has not changed compared to that at 31 March 2013 and 31 December Given their size, amounts are expressed in millions of euros. Pursuant to Article 154-bis, paragraph 2 of the TUF, the CFO, Antonio Paccioretti (responsible for the preparation of financial statements), 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 whether future events and developments take place. The actual results may therefore differ from those forecast as a result of several factors, including: foreseeable trends in natural gas demand, supply and price, actual operating performance, general macroeconomic conditions, geopolitical factors such as international conflicts, the effect of new energy and environmental legislation, the successful development and implementation of new technologies, changes in stakeholders' expectations and other changes in business conditions. A conference call for financial analysts and investors will be held today, 6 May 2014, at 3:00 pm to present the results of the first quarter of An audio webcast of the presentation will be available on the company's website ( In conjunction with the start of the conference call, the presentation support material will also be made available in the Investor Relations/Presentations section of the website. 7

8 Summary of the results for the first quarter of 2014 RECLASSIFIED INCOME STATEMENT (millions of ) First Quarter Change % Change Regulated revenues (1) (0.1) Non-regulated revenues Total revenues (*) Operating costs (*) (179) (175) 4 (2.2) EBITDA Amortisation, depreciation and impairment losses (186) (190) (4) 2.2 EBIT Net financial expenses (125) (101) 24 (19.2) Net income from equity investments Profit before taxes Income taxes (179) (171) 8 (4.5) Net profit (**) (*) Starting 1 January 2014, for the sole purpose of the reclassified income statement, revenues from the construction and upgrading of distribution infrastructures recorded pursuant to IFRIC 12 ( 61 and 66 million, respectively, in the first quarter of 2013 and 2014) of an amount equal to the costs incurred, are exposed to a direct reduction of their respective cost item lines. The corresponding figures for 2013 were therefore reclassified. (**) Net profit is attributable to Snam. EBIT 6 amounted to 542 million (an increase of 11 million) up 2.1% compared to the first quarter of The increase was mainly due to higher revenues (+ 4 million) and a reduction in operating costs (+ 11 million), mainly as a result of the dynamics of provisions for risks and charges. These effects were partially offset by higher depreciation and amortisation (- 4 million) mainly due to the commissioning of new infrastructure. With reference to business segments, the positive performance of the storage segment (+ 19 million; +17.6%) due to higher revenues (+ 18 million) and control of operating costs, were absorbed by the downturn in the transport sector (- 7 million; -2.3%), which was impacted by lower volumes of natural gas transported, as well as from the natural gas distribution sector (- 6 million; -4.8%), due mainly to the reduction in regulated revenues, particularly related to the change in regulated tariff criteria. Net profit in the first quarter of 2014 amounted to 292 million (an increase of 50 million), up 20.7% compared to the first quarter of The increase is mainly due to: (i) the reduction in net financial expenses (+ 24 million), due mainly to the decreased average cost of debt, that benefitted from the optimisation of the group's financial structure in place during 2013; (ii) lower income taxes (+ 8 million) as a result of the reduction from 10.5% to 6.5% as of January 1, 2014, of the additional IRES surcharge applied to the transport and distribution of natural gas sectors, the so-called Robin Hood 6 EBIT is analysed by isolating the elements that have led to a change. To this end, it should be noted that the application of tariff regulations in the gas sector generates revenue components that are offset in costs. 8

9 Tax 7 and the effects resulting from the first quarter of 2013's inclusion of deferred taxes on dividends for 2012, which were approved by the operating companies but not yet been paid. These factors were partially offset by higher pre-tax profit; (iii) higher income from equity investments (+ 7 million) related to the share of net profit of equity-accounted investments; (iv) the increase in EBIT (+ 11 million). The tax rate amounted to 36.9% (42.5% in the first quarter of 2013). The following information concerns the operating and financial performance of the Snam business segments in the first quarter of The application of the additional IRES surcharge (so-called Robin Hood Tax) to companies operating in the sectors of transport and distribution of natural gas, at the rate of 10.5% for 2011, 2012 and 2013, and 6.5% in This follows the entry into force of Decree Law no. 138 of 13 August 2011, entitled "Further urgent measures for financial stabilization and development", converted into Law no. 148 of 14 September

10 Information by business segment Natural gas transportation (millions of ) First Quarter Change % Change Total revenues (*) of which regulated revenues Operating costs (*) EBIT (7) (2.3) Technical investments Natural gas injected into the national gas transportation network (billions of cubic metres) (2.36) (12.7) Transportation network (kilometres in operation) 32,244 32, of which national network 9,406 9, of which regional network 22,838 22,825 (13) (0.1) (*) Before consolidation adjustments. Results Total revenues for the first quarter of 2014 amounted to 520 million, an increase of 13 million or 2.6%, compared to the first quarter of These include regulated revenues ( 514 million; +1.8% ) and non-regulated revenues ( 6 million). Total revenues, net of components that are offset in costs attributable exclusively to regulated activities, amounted to 471 million (an increase of 3 million, or 0.6%), compared to the corresponding period of the previous year. Regulated revenues in the first quarter of 2014 ( 514 million) relate to natural gas transportation service ( 497 million; + 4 million, or 0.8%), and to the sale of natural gas for the purpose of balancing the gas system ( 17 million; + 5 million). Revenues from transportation net of components offset in costs amounted to 465 million, a slight decrease (- 1 million) compared to the first quarter of The contribution of investments made in 2012 (+ 21 million) was absorbed by the tariff update 8 (- 15 million) and the reduction in the volume of gas transported (-2.36 billion cubic metres; - 7 million). EBIT 9 for the first quarter of 2014 amounted to 291 million (a decrease of 7 million, or 2.3%), compared to the same period last year. The reduction is due to higher operating costs (- 6 million, net of components that are offset in revenues) and an increase in amortisation and depreciation (- 4 million) due mainly to new infrastructure entering service. 8 With deliberation 514/2013/R/gas, the Electricity, Gas and Water Authority established new criteria for the determination of transport rates for the fourth regulatory period (1 January December 2017). For more information, please refer to the "Business segment operating performance - Natural gas transportation - Regulations" section of the 2013 Annual Report. 9 EBIT is analyzed by isolating the elements that led to a change, as the application of the gas sector's tariff regulations generates revenue components that are offset in costs: modulation, interconnection and supply of gas for balancing the system. 10

11 Operating review Natural gas injected into the national gas transportation network 10 (Billions m 3 ) First Quarter Change % Change 2013 (*) 2014 Domestic production (0.15) (8.0) Entry points (**) (2.21) (13.2) Tarvisio Mazara del Vallo (3.52) (61.3) Gela Passo Gries Cavarzere (LNG) (0.61) (39.4) Panigaglia (LNG) (0.04) (80.0) (*) The figures for 2013 were in line with those of the Financial Statements of the national transportation network. (**) Entry points for international imports or LNG terminals (2.36) (12.7) Natural gas injected into the national network in the first quarter of 2014 amounted to billion cubic metres (18.65 billion cubic metres in the first quarter of 2013), with a reduction of 2.36 billion cubic metres, or 12.7% compared to the corresponding period in The decrease is mainly attributable to the reduction in demand for natural gas in Italy (-18.1% compared to the first quarter of 2013). This was due to lower consumption in the residential and tertiary sector (-21.6%) driven lower mainly by the weather as well as lower consumption in the thermoelectric sector (-22.4%), reduced by the decline in demand for electricity and the simultaneous increase in the production of energy from renewable sources, mainly hydro and solar, which was nonetheless partially offset by lower net withdrawals from storage (+2.44 billion cubic metres). Adjusted for weather effect, gas demand has been assessed in billion cubic metres, in reduction by 5.5% compared to the first quarter of Natural gas injected into the network by domestic production fields or by their collection and treatment centres amounted to 1.72 billion cubic metres, a reduction of 0.15 billion cubic metres, or 8.0%, compared to the first quarter of Natural gas injected into the national network from entry points for international imports or LNG terminals (14.57 billion cubic metres) decreased by 2.21 billion cubic metres, or 13.2%, compared to the first quarter of The decrease is mainly attributable to lower volumes injected by the points of entry in Mazara del Vallo (-3.52 billion cubic metres; -61.3%) and by the regasification terminal in Cavarzere (-0.61 billion cubic metres), the effects of which were partially offset by higher imports from the point of entry in Tarvisio (+1.08 billion cubic metres, +14.4%) and Passo Gries (+0.83 billion cubic metres). 10 Gas volumes are expressed in standard cubic metres (SCM) with a traditional higher heating value (HHV) of 38.1 MJ/SCM. The basic figure is measured in energy (MJ) and obtained by multiplying the physical cubic metres actually measured by the relative heating value. 11

12 Technical investments First Quarter 2013 First Quarter 2014 / Type of investment Remuneration (%) Type of investment Remuneration (%) millions / millions Development of new import capacity 9.4% 39 Development of new import capacity 9.3% 51 Development of National and Regional Networks 8.4% 13 Development of National and Regional Networks 8.3% 13 Safety and quality 7.4% 20 Replacement and other 6.4% 23 Replacement and other 7.3% Technical investments amounted to 106 million in the first quarter of 2014, an increase of 11 million (11.6%) compared to the corresponding period of the previous year ( 95 million). Investments were classified in accordance with decision 514/2013/R/gas by the Authority for Electricity, Gas and Water( the Authority ), which identifies various categories of projects with different incentive levels 11. The breakdown by category of investments in 2013 and 2014 will be submitted to the Authority for the approval of the respective tariffs for 2015 and The main investments with a 9.3% remuneration ( 51 million) incentive were: support for the market in the northwest part of the country as well as reversing physical flows of transport at the points of interconnection with Northern Europe ( 39 million): (i) the continuation of construction work on the Zimella - Cervignano pipeline in Veneto - Lombardy; (ii) the continuation of construction work on the connections and removal of the Poggio Renatico - Cremona pipeline, in Emilia Romagna - Lombardy and (iii) the construction of a regulation plant for the Cervignano - Mortara pipeline in Lombardy; projects to upgrade the transportation network from entry points in southern Italy ( 11 million): the materials and the continuation of revamping of the Enna station in Sicily. The main investments for development with an 8.3% remuneration ( 13 million) incentive relate to a number of works aimed at strengthening the network and the connection of new regional and national redelivery points, among which were: construction work related to pipelines and associated connections as part of the methane conversion in Calabria ( 3 million); materials for the Gavi - Pietralavezzara strengthening pipeline ( 2 million), in Piedmont. 11 With decision no. 514/2013/R/gas, the Authority established new criteria for the determination of transport rates for the fourth regulatory period (1 January December 2017) whose main characteristic elements with reference to the remuneration of Net Invested Capital (NIC) recognised for regulatory purposes (real pre-tax WACC) are as follows: 6.3% for investments made up to 31 December 2013; 7.3% for investments made from 1 January 2014 (includes a flat-rate increase in WACC in compensation for the regulatory lag: +1%). The following extra remunerations are included: 1% for 7 years for investments in the development of the regional network; 1% for 10 years for investments in the development of the national network; 2% for 10 years for investments in the development of the entry points. 12

13 Investments with a 7.3% remuneration ( 42 million), which includes a flat-rate increase to offset the regulatory time lag, relate to projects aimed at maintaining levels of safety and quality, the replacement of machinery and projects related to the development of new IT systems. It also relates to the implementation of existing assets ( 6 million) and the purchase of other operating assets, including real estate investments ( 4 million). 13

14 Liquefied Natural Gas (LNG) regasification (millions of ) First Quarter Change % Change Total revenues 8 6 (2) (25.0) - of which regulated revenues 8 6 (2) (25.0) Operating costs (*) 5 5 EBIT 2 (2) (100.0) Technical investments 1 1 Volume of regasified LNG (billions of cubic metres) (0.045) (95.7) Tanker loads (number) 1 (1) (100.0) (*) Before consolidation adjustments. Results Total revenues for the first quarter of 2014 amounted to 6 million (a decrease of 2 million, or 25.0%), compared to the first quarter of 2013, and are entirely related to regulated activities. Regulated revenues in the first quarter of 2014 ( 6 million) include fees for the regasification service ( 5 million, - 1 million or 16.7%) and the compensation of users for charges related to the transport of natural gas provided by Snam Rete Gas S.p.A. ( 1 million, -50.0%) 12. EBIT for the first quarter of 2014 decreased by 2 million compared to the first quarter of The reduction is due to lower regulated revenues (- 1 million, net of components that are offset in costs 13 ) and higher operating costs (- 1 million, net of components that are offset in revenues). Operating review During the first quarter of 2014, the LNG terminal in Panigaglia (SP) regasified billion cubic metres of natural gas (0.047 billion cubic metres in the first quarter of 2013). The volume of regasified LNG reflects the on-going crisis in European gas consumption and the general trend in global demand for LNG, which has shifted strongly to the Far East to the detriment of the European market. 12 For the purposes of the consolidated financial statements, these revenues, together with the costs of transport, are eliminated by GNL Italia S.p.A. in order to represent the substance of the operation. 13 Expenses that are offset revenues refer to costs for the transportation service provided by Snam Rete Gas that GNL recharges to its customers. 14

15 Natural Gas storage (millions of ) First Quarter Change % Change Total Revenues (a) (b) of which regulated revenues Operating costs (a) (b) EBIT Technical investments of which with a greater return (3) (6.5) - of which with a basic rate of return Concessions (number) of which operational (c) 8 8 Natural gas moved through the storage system (billions of cubic metres) (d) (2.13) (30.6) - injected withdrawn (2.20) (31.6) Total storage capacity (billions of cubic metres) (a) Regulated revenues in the first quarter of 2014 includes revenues from charges to users of storage related to the transportation of natural gas provided by Snam Rete Gas S.p.A., registered pursuant to decision 297/2012/R/gas starting1 April For the purposes of the consolidated financial statements, these revenues are eliminated by Stogit S.p.A., together with the costs of transport, in order to represent the substance of the operation. (b) Before consolidation adjustments. (c) With working gas capacity for modulation services. (d) Gas volumes are expressed in standard cubic metres (scm) with an average Gross Calorific Value (GCV) of 39.3 and 39.4 MJ/scm, respectively, for the first quarter of 2014 and Results Total revenues for the first quarter of 2014 amounted to 172 million (an increase of 32 million), up 22.9% compared to the first quarter of 2013, and relate to regulated revenues ( 158 million; %) and non-regulated revenues ( 14 million). Total revenue, net of components that are offset in costs attributable exclusively to regulated activities, amounted to 156 million, an increase of 18 million, up 13.0% compared to the corresponding period of the previous year. Regulated revenues in the first quarter of 2014 ( 158 million) relate to fees for the storage of natural gas ( 144 million, + 6 million, or 4.3%) and the compensation of users for charges related to the transportation of natural gas provided by Snam Rete Gas S.p.A. ( 14 million). The increase in storage revenues is mainly due to the contribution of investments made in 2012 (+ 8 million). Non-regulated revenues for the first quarter of 2014 ( 14 million) mainly relate to additional storage revenues for the thermal year ( 13 million, 2 million for the thermal year) arising from contractual agreements between Eni and Stogit as part of the activities related to Legislative Decree 130/2010. EBIT for the first quarter of 2014 amounted to 127 million, an increase of 19 million or 17.6%, compared to the first quarter of The increase was due primarily to higher revenues (+ 18 million), lower depreciation and amortisation (+ 2 million) as the useful life of certain assets ended, and the control of operating costs (- 1 million, net of components that are offset in revenues). 15

16 Operating review Natural gas moved through the storage system The volume of gas moved through the storage system in the first quarter of 2014 amounted to 4.84 billion cubic metres, a reduction of 2.13 billion cubic metres, or 30.6%, compared to the volumes moved in the first quarter of 2013 (6.97 billion cubic metres). The decrease is attributable to lower withdrawals from storage (-2.20 billion cubic metres; -31.6%) due to milder temperatures in the first quarter compared to the same period last year. Total storage capacity at 31 March 2014, including strategic storage, amounted to 15.9 billion cubic metres (0.2 billion cubic metres; +1.3%). This included 11.4 billion cubic metres of available storage capacity and 4.5 billion cubic metres of strategic storage capacity (unchanged relative to the thermal year) 14. Technical investments (millions of ) First Quarter Change % Change Development of new fields (greater return of 4% over 16 years) Upgrading of capacity (greater return of 4% over 8 years) (6) (31.6) Maintenance and other Technical investments in the first quarter of 2014 amounted to 50 million, unchanged from the first quarter of Investments were classified in accordance with Resolution ARG/gas 119/10 by the Authority for Electricity, Gas and Water, which identifies various categories of projects with different incentive levels. 86% of investments are expected to benefit from a higher rate of return exceeding the base rate. Investments with a greater return of 4% over 16 years ( 30 million) relate to development activities in the Bordolano and Treste River fields, mainly for the drilling of wells, purchasing materials and performing work on systems. Investments with a greater return of 4% over 8 years ( 13 million) relate to the drilling of wells, design and repowering and activities carried out mainly in the storage fields in Settala and Minerbio. 14 On 29 January 2014, the Ministry of Economic Development fixed the volume of strategic storage for the contractual storage year (1 April March 2015) at 4.62 billion cubic metres, roughly in line with the contractual year (4.60 billion cubic metres). The Stogit quota remained unchanged at 4.5 billion cubic metres. 16

17 Regulation and other provisions Ministerial Decree 19/02/14 - Methods of allocation of modulation storage capacity, 1 April March 2015 (OJ No. 50 of 01/03/14). With this decree, the Ministry of Economic Development has defined modulation storage space for the thermal year of 1 April March 2015 in the amount of 6,950 billion cubic metres, to be assigned as a priority (50% of the space indicated) to entities that directly or indirectly supply household customers. The decree includes that such space, together with other available storage capacity of approximately 1.61 billion cubic metres, are awarded through competitive bidding procedures in succession, to be held for the entire injection period. The Ministerial Decree also establishes that an area for natural gas storage of 500 million cubic metres shall be allocated to industrial enterprises and their consortiums, allowing them to offer integrated regasification services designed to allow the direct supply of LNG from abroad. Decision 85/2014/R/gas - "Provisions for the transfer of storage capacity for the thermal storage year." With this resolution, published on 28 February 2014, the Authority for Electricity, Gas and the Water governs the organization of tender procedures for the allocation of storage capacity for the thermal year on the basis of the provisions of the Ministry of Economic Development's decree of 19 February 2014, entitled "Methods of allocation of modulation storage capacity, 1 April March 2015"; this changes the procedures for determining the injection service available to users during the injection phase and includes certain interventions related to storage capacity conferred under the measures referred to in Legislative Decree 130/10. In particular, the decision requires that four sequential tendering procedures take place each month from March to September 2014, for the conferral of skills in order to obtain a uniform and leading modulation service. The decision refers to a subsequent provision as regards the changes to the guarantee mechanism of revenues from storage companies also taking into account the current regulatory criteria. Lastly, with reference to the capacity relative to the service under Legislative Decree 130/10, the decision establishes that users can make their own capacities available to Stogit for allocation to third parties. Consultation document 189/2014/R/gas Criteria for determining the recognised core revenue for storage natural gas service for the fourth regulatory period. On 24 April 2014, the Authority for Electricity, Gas and Water published the consultation document 189/2014/R/gas relating to the criteria setting natural gas storage recognised core revenue for the fourth regulatory period. 17

18 Natural gas distribution (millions of ) First Quarter Change % Change Total revenues (*) (**) (14) (5.4) - of which regulated revenues (12) (4.8) Operating costs (*) (**) (10) (12.7) EBIT (6) (4.8) Technical investments Distribution of gas (millions of cubic metres) 3,544 3,299 (245) (6.9) Distribution network (kilometres) (***) 52,632 53, Active meters (millions) (*) Starting 1 January 2014, for the sole purpose of the reclassified income statement, revenues from the construction and upgrading of distribution infrastructures recorded pursuant to IFRIC 12 and equal to the costs incurred, are exposed to a direct reduction of their respective cost item lines. The corresponding figures for 2013 were therefore reclassified. (**) Before consolidation adjustments. (***) The figure refers to network kilometres managed by Italgas. Results Total revenue for the first quarter of 2014 amounted to 243 million (a decrease of 14 million), up 5.4% compared to the first quarter of 2013, and relate to regulated revenue ( 236 million; -4.8%) and non-regulated revenue ( 7 million; -22.2%). Regulated revenues in the first quarter of 2014 ( 236 million) relate to fees for the distribution of natural gas ( 228 million; - 8 million) and technical services related to the transmission service ( 8 million). The reduction in distribution revenues is mainly due to the effects from changes in tariff criteria 15, valid for the new regulatory period (1 January December 2019). EBIT for the first quarter of 2014 amounted to 120 million (a decrease of 6 million), up 4.8% compared to the corresponding period of The decrease is mainly attributable to lower regulated revenues (- 12 million) due mainly to the reduction in revenue for natural gas transmission (- 8 million) and lower capital gains on distribution concessions (- 6 million), as well as higher depreciation and amortisation for the period (- 2 million). These factors were partially offset by lower operating costs (+ 10 million) mainly due to lower expenses related to the management of the Energy Efficiency Certificates (+ 5 million). 15 With deliberation 514/2013/R/gas, the Electricity, Gas and Water Authority established new criteria for the determination of transport rates for the fourth regulatory period (1 January December 2019), whose main distinguishing features were: the restatement of operating costs and centralised expenses, and the update of the rate of return on net invested capital (WACC) fixed at 6.9% in real terms before taxes for the distribution service and of 7.2% in real terms before taxes for metering service (respectively 7.6% and 8% in the third regulatory period). For more information, please refer to the " Business segment operating performance - Natural gas distribution - Regulations" section of the 2013 Annual Report. 18

19 Operating review Natural Gas Distribution In the first quarter of ,299 billion cubic metres of gas were distributed, a reduction of 245 million cubic metres or 6.9%, compared to the first quarter of This was primarily due to weather conditions. At 31 March 2014, Snam owned concessions for gas distribution service in 1,435 municipalities (unchanged from 31 December 2013), of which 1,344 are with an operating network and 91 with networks to be completed/built, with a number of active meters at the point of gas redelivery to end customers (households, businesses, etc.) amounting to million units (5.912 million units as of 31 March 2013). Distribution network At 31 March 2014 the gas distribution network is 53,033 km long (52,993 km at 31 December 2013), an increase of 40 km compared to 31 December Technical investments (millions of ) First Quarter Change % Change Distribution Network maintenance and development Replacement of cast-iron pipes Metering (3) (17.6) Other investments 8 5 (3) (37.5) Technical investments in the first quarter of 2014 amounted to 71 million, an increase of 2 million compared to the first quarter of 2013 ( 69 million). Investments in distribution ( 52 million) mainly related to development initiatives (extensions and new networks) and renovating sections of pipe that are obsolete by replacing them with cast-iron pipes. Metering investments ( 14 million) mainly related to the meter replacement plan and the telereading metering project. Other investments ( 5 million) primarily related to IT and real estate investments as well as vehicles. Isontina Reti Gas S.p.A. and Framework Agreement with Acegas - Aps S.p.A. - The Lazio Regional Administrative Court repealed the decision by the Competition and Market Authority (CMA) On 17 April 2013, the Competition and Market Authority (CMA) prohibited Italgas' purchase of a 50% stake in Isontina Reti Gas S.p.A. and the subsequent transfer of branches of Italgas and Acegas - Aps into the company, as it would lead to the creation of a dominant position held by Isontina Reti Gas, such as to eliminate or substantially and durably reduce competition on the market for future tenders 19

20 for the concession for the distribution of natural gas in the areas of Gorizia, Trieste, Pordenone and Padua 1. It appealed the aforementioned Italgas proceedings, notified on 13 June 2013, before the Regional Administrative Court of Lazio. On 20 March 2014, the Lazio Regional Administrative Court filed a judgment that upheld the appeal filed by Italgas, cancelling the effect of the contested measure. In particular, the judgment noted the legitimacy of the strategy to rationalise concessions, showing that the operation does not change the existing competitive dynamics. Demerger of AES Torino S.p.A. On 9 April 2014, Italgas and IREN Energia (a company wholly owned by IREN) signed a binding agreement for the separation of natural gas and district heating activities that are currently carried out by AES Torino (51% of which is owned by IREN Energy and 49% by Italgas). According to the agreement, which provides for the non-proportional partial demerger of AES Torino, the IREN Group will be the beneficiary of the business unit relating to the distribution of district heating and will exit as a shareholder of AES Torino, while Italgas will hold the entire share capital of AES Torino (which it will become after the completion of the demerger). On 24 April 2014, the AES Torino Shareholders Meeting approved the proposal of non-proportional demerger of AES Torino S.p.A. The transaction is conditioned on obtaining the necessary approvals (including the Antitrust) and will end with the demerger scheduled for 1 July With the completion of the Italgas agreement, AES Torino will return to directly managing the natural gas distribution service in the City of Torino with 1,335 kilometres of network, 469,000 active redelivery points and 625 million cubic metres transported in

21 Other information Litigation Snam is involved in civil, administrative and criminal procedures as well as legal actions in connection with its business activities. The most significant proceedings are described below, which include new proceedings for which there have been further developments than that which is shown in the 2013 Annual Report. Snam Rete Gas S.p.A. - Genoa Incident The Public Prosecutor at the Court of Genoa has opened a criminal case against unknown persons in connection with the incident that occurred on 20 March 2014 in the municipality of Serra Riccò (GE). It specifically relates to the release of gas from a pipe in the gas pipeline called the Recco Junction. The section of pipe concerned has been seized. The company is working closely with the authorities. Snam Rete Gas S.p.A. - Tresana Incident The Public Prosecutor at the Court of Massa has opened a criminal case against unknown persons in connection with the incident that occurred on 18 January 2012 in the municipality of Tresana (MS). It is related to a fire that took place as a result of a gas leak, which presumably occurred as a result of a breakage of a dielectric joint. The incident caused the death of an employee who was working for the contracting company, injured 10 people and caused damage to homes and property. The portion of the system affected by the incident and the surrounding area have been seized by an order of the Public Prosecutor at the Court of Massa, who has also appointed a technical consultant (CTU). Snam Rete Gas has appointed its own technical consultants. The technical consultant's appraisal was filed on 29 November Following the company's petition, on 11 November 2013 the Public Ministry ordered the release of the aforementioned portion of the system. Closure of preliminary investigations is being completed, in which a few executives and managers are under investigation for various reasons. The company continues to fully cooperate with the authorities. The following tables provide a summary of items in the reclassified consolidated income statement. 21

22 Total revenue (millions of ) First Quarter Change Business segments % Change Transport Regasification 8 6 (2) (25.0) Storage (*) Distribution (14) (5.4) Corporate Consolidation adjustments (55) (76) (21) (*) Revenues generated by the storage sector in the first quarter of 2014 includes the recharging of transport services provided by Snam Rete Gas, pursuant to the Authority for Electricity, Gas and the Water's decision 297/2012/R/gas of 19 July 2012, in force from 1 April These recharges, amounting to 14 million, are offset in operating costs associated with the purchase of transport capacity provided by Snam Rete Gas. Revenue - Regulated and non-regulated revenues (millions of ) First Quarter Change % Change Regulated revenues (1) (0.1) Business segments Transport Regasification 6 5 (1) (16.7) Storage Distribution (12) (4.8) Non-regulated revenues Total revenues

23 Operating costs (millions of ) First Quarter Change % Change Business segments Transport Regasification 5 5 Storage (*) Distribution (10) (12.7) Corporate (4) (9.8) Consolidation adjustments (55) (76) (21) (4) (2.2) (*) Starting 1 April 2013, the operating costs of the storage segment include costs associated with the purchase of transport capacity provided by Snam Rete Gas pursuant to the Authority for Electricity, Gas and the Water's decision 297/2012/R/gas of 19 July Operating costs Regulated and non-regulated activities (millions of ) First Quarter Change % Change Costs of regulated activities Controllable fixed costs Variable costs Other costs Costs of non-regulated activities 13 3 (10) (76.9) (4) (2.2) Amortisation, depreciation and impairment losses (millions of ) First Quarter Change % Change Amortisation and depreciation Business segments Transport Regasification 1 1 Storage (2) (12.5) Distribution Corporate