Snam's Profile

30 Snam | 2017 Sustainability Report

Snam’s profile

The new corporate structure

GAS RULE group insurance Snam services 4 Mobility 100% 100%

Transportation Asset Regasiﬁcation Storage 100% Company 2 SNAM 100% 100% 100% RETE GAS GNL ITALIA STOGIT

Infrastrutture Trasporto gas 100%

Snam is the European and LNG regasification (iii) Snam4Mobility S.p.A. (Asset leader in the construction activities, provides the Company 1 S.r.l. up to 13 December and integrated market with a safe energy 2017), fully-owned management of natural gas source at fair prices, playing by Snam S.p.A., in response to the company’s launching of operational infrastructure. a fundamental role in the activities. The foregoing companies Country’s energy system. were consolidated within the At European level Snam is “Transportation” and “Corporate and one of the main operators other activities” sectors, respectively. in terms of invested capital The main changes in the Snam group for regulatory purposes and structure as at 31 December 2017, operates in major markets compared with 31 December 2016, through agreements were the incorporation of: with major players in the (i) Asset Company 2 S.r.l. , 100% owned by Snam S.p.A.; (ii) industry and direct equity Infrastrutture Trasporto Gas S.p.A. holdings in companies. (ITG), 100% owned by Asset Company 2 S.r.l., based on the acquisition by Snam, with natural Edison of 100% of the share capital gas transportation, of ITG, effective 13 October 20173; dispatching, storage

3 At the same time Snam acquired, from Edison, a 7.3% stake in the capital of the Terminale GNL Adriatico S.r.l. (Adriatic LNG), a major offshore infrastructure for the unloading, storage and regasification of LNG and the largest LNG terminal in Italy. Snam’s profile 31

Development fields or their collection and of the gas treatment centres; gas storage fields are also connected to the network. system

The Dispatching Center manages Snam4Mobility is the new To reinforce the central importance the gas flows through the national company which, since January of the gas system in the European transportation network: from the 2018, has worked to develop a and Italian energy scenario, Snam will control room, manned 24/7, the more sustainable and efficient continue to invest to strengthen and main gas pipelines and compression transportation system. expand the national network, which installations Snam4Mobility was established with comprises the Sardinia methanisation of the Italian gas system are the intention of providing Italy with infrastructures and technologies project and the completion of the monitored and remotely-controlled; for a wide-scale distribution of “reverse-flow” projects enabling operators are also provided with methane and strengthening the its integration with the continental an overall view of the national gas network of compressed natural markets along the North-South and transportation network with the main gas and liquefied natural gas East-West corridors, creating a bi- points of interest and related process plants. The challenge will be to directional flow of gas at the national information. The Dispatching Center make these clean power sources borders at Passo Gries and Tarvisio coordinates the activities carried out available to as many cars as possible within Italy, opening it also to respectively. across the territory and maintains heavy transportation vehicles, such In 2020 the importation of natural working relations with the as lorries and other commercial gas from the Caspian Basin is also other corporate functions and vehicles. projected through the construction infrastructure operators connected of the TAP natural gas pipeline, the to the network in Italy and abroad. terminal pipeline of the project for the so-called Southern Gas Corridor, one of the strategic priorities for the European Union.

Together with the institutional stakeholders and other interested operators, Snam will also continue to develop projects related to the evolution of the gas product (LNG and CNG) in the transportation sector and in biomethane production.

The natural gas introduced into the national network comes from imports and, to a lesser extent, national production. The foreign gas is injected into the national network through eight entry points where the network joins up with the import pipelines (Tarvisio, Gorizia, Gries Pass, Mazara del Vallo and Gela) and with the LNG regasification terminals (Panigaglia, Cavarzere and Livorno).

Domestically produced gas is injected in the network through 53 entry points from the production 32 Snam | 2017 Sustainability Report

The International infrastructure system and Snam’s role

Snam’s international growth aims to consolidate the European infrastructure system facilitating the alignment between the consumer and producer interests, promoting a greater liquidity in the South-European gas market also through the development of new routes, and preserving the connection between the United Kingdom and continental Europe.

National infrastructures

PASSO GRIESPASSO GRIES TARVISIOTARVISIO SNAM RETESNAM GAS RETE GAS AND INFRASTRUTTURE GORIZIA AND INFRASTRUTTURE GORIZIA TRASPORTOTRASPORTO GAS GAS CAARERE CAARERE National Gas Pipeline network (regasification(regasification plant) plant) National Gas Pipeline network PANIGAGIAPANIGAGIA GN GN (regasification plant) (regasification plant) CompressionCompression stations stations LIVORNO OLT LIVORNO OLT (regasification plant) Entry points (regasification plant) Entry points Entry points/Reverse Flow Entry points/Reverse Flow

GNL ITALIA GNL ITALIA Regasification Terminal Regasification Terminal MAZARA DEL VALLO MAZARA DEL VALLO STOGIT GEA STOGIT GEA Storage fields Storage fields

In Italy, Snam uses an integrated infrastructure formed by 32,584 km of methane pipelines, 11 compression plants, 9 operational storage fields and one regasification plant, in addition to one dispatching centre for transportation and storage. Snam’s profile 33

AN UNIQUE INTEGRATED DISPATCHING CENTER

The process of integrating the gas dispatching and the • the dissemination of integrated and multi- disciplinary other operational activities (transportation network and skills for a remote control management of the assets. storage sites) began in 2017, targeting an integrated and synergistic management of the service, thus seizing The integration of the processes related to the field opportunities for a more effective and timely response data acquisition and management of and the upgrade to market needs. of infrastructures to guarantee an even higher level of security and reliability are of paramount importance in The possibility of an integrated operation allows: this situation. • the optimization of the operational schedules of the assets fully consistent with the new balancing regime The integration process also envisages a fundamental objectives; phase such as the training of all the dispatching center • the strengthening of the capacity to react and control employees. The activity, which started at the end of under both ordinary and emergency situations; 2017, will allow the mutual exchange of knowledge • the centralization of information management in and skills typical of network management and storage, accordance to the best technologies and certified achieving the objective of a complete interchangeability management systems (in particular ISO 22301 - of all operators. Operational Continuity - and ISO 27001 - Information Security - already present with reference to the front-end, back-end and simulation systems; 34 Snam | 2017 Sustainability Report

Key financial-economic The adjusted net profit amounted Added value generated results to €940 mln, with an increase of and distributed €95 mln (+11.2% with respect to the Thanks to the solidity of the operational adjusted pro-forma net profit for The Company produces wealth management and to the strict financial 2016). This increase, in addition to an contributing to the economic growth discipline, in 2017 Snam achieved higher operating profit (+€27 of the society and the environment results in line with the expectations. mln) attributable to higher revenues in which it operates, and it measures from regulated activities, reflects an this wealth in terms of added value The financial year closed with a net efficient financial management (+€36 produced and distributed to its key profit of €897 mln, with an increase mln), and greater net income stakeholders. of €306 mln (+51.7% compared to from equity investments (+€15 mln), In 2017, the total gross added value the 2016 net profit referring to the as well as income taxes (+€17 mln) Snam produced amounted to continuing operations amounting to mainly due to the reductionof the Ires €2,447 mln, down slightly (€71 mln, €591 mln). rate from 27.5 to 24.0% starting on 1 equal to 2.8%) from 2016 (€2,518 January 2017, partly offset by higher mln), primarily as a result of the For a better assessment of group income before taxes. effects of separating the natural gas performance and greater data distribution activities from Snam, comparability, Snam drafted the In 2017, a cash flow of €1.9 bln concluded in 2016, which generated “adjusted”4 profit/loss measurements was generated from operations, an extraordinary financial income that exclude the effects of non-recurring allowing the full funding of financial related to reimbursement to Snam transactions. requirements related to net from the companies that were the Furthermore, also due to the investments and the generation of subject matter of the demerger, of discontinuity factors that characterised Free Cash Flow amounting to €0.4 bln. the existing financial debts at their FY 2016 (the separation of the gas respective market value. distribution activities), referring to FY The net financial debt, after paying 2016, the adjusted results reflect the the €0.7 bln dividend to shareholders Italgas Group’s contribution to continuing and the cash flow resulting from the operations, obtained by applying the purchase of treasury shares, recorded relative portion of shares, amounting to an increase of €0.5 mln with respect to 13.5%, to Italgas Group’s net profit for 31 December 2016. the entire year (pro-forma adjusted data).

Breakdown of Added Value

(€ million) 2015 2016 2017 Added value produced (A) 2,429 2,518 2,447 Added value distributed (B) 1,831 1,913 1,621 Employees 238 260 249 Local communities 3 3 5 Donations and sponsorships Statutory environmental compensation Lenders (Bondholders and Banks) 347 610 292 Shareholders 875 722 732 Government 369 323 343 Direct taxes 357 308 329 Indirect taxes 12 15 14 Added value retained by the Company (A) - (B) 598 601 826

Values for 2017 is estimated on the basis of the number of shares as of the publication date of this document. Values for 2016 is updated on the basis of the paid dividend.

4 See Financial Report for greater details. Snam’s profile 35

With regard to the main reference Distribution of value added (%) stakeholders, Added Value was distributed as follows: 0.2 • Employees 10.2% (-0.1 percentage points compared to 2016) in the 33.8 29.9 form of direct compensation Shareholders consisting of wages, salaries Lenders and severance pay and indirect Snam compensation consisting of social Government security contributions and staff- Employees related service costs (canteen Local Communities services, reimbursement of travel expenses); 10.2 14.0 • Government 14.0% (+1.2 11.9 percentage points compared to 2016) – through the payment shares by Snam under the share produced was also reinvested within of direct and indirect taxes. The buyback programme launched in the company and approximately increase is mainly attributable November 2016; 80% was allocated to depreciation/ to greater income before taxes, • Lenders 11.9% (-12.3 percentage amortisation of tangible and intangible despite the reduction of the IRES points compared to 2016). Reduction fixed assets used in the production rate from 27.5 to 24.0% (since 1 in response to the process January 2017); benefits arising from optimising (100% in 2016). • Shareholders 29.9% (+1.2 activities implemented during 2016 percentage points compared and 2017, in particular the liability Lastly, approximately €5 mln was to 2016) - through distributed management operation completed in designated for local communities dividends. The value delivered October 2016. (0.2% of the value generated) through increased despite the smaller donations and sponsorship initiatives number of shares outstanding The 33.8% (+9.8 percentage points and environmental compensation following the buyback of treasury compared to 2016) of Added Value pursuant to the law.

Relations with the financial community

Snam believes that maintaining constant relations with investors and the entire financial community is of strategic importance for its reputation. In this respect, it endeavours to disseminate 2017 ENGAGEMENT ACTIVITY comprehensive and timely information, capable of effectively The presentation of the Strategic Plan and conference calls upon the publication of the Company’s results (annual, semi-annual and quarterly). representing the business’s strategy and In 2017, the followings were carried out: performance, particularly enhancing the • 18 road shows to meet shareholders and institutional investors at the major dynamics that ensure the creation of financial centres of Europe and North America; value over time. • 5 industry conferences allowing investors specialising in the utility and infrastructure sectors to meet Snam’s senior management; In addition to the ongoing meetings • 115 one-to-one meetings between Snam’s management and investors, in and initiatives, Snam makes multiple addition to numerous group meetings (for a total of 213 meetings). economic and financial publications Meetings were also held with 34% of the SRI investors, out of the total regarding business performance and number registered in the shareholder structure the sustainability projects and initiatives developed by the Company. 36 Snam | 2017 Sustainability Report

Business activities Stogit Lo stoccaggio di gas naturale consiste

Total storage capacity available Natural gas storage involves injecting 5 (billions of cubic metres) STORAGE Lombardia gas into the porous rock of an exhausted deposit that previously Stogit manages, under concession, contained it, returning the deposit to 12.2 nine storage fields located in 3 11.5 12.0 a certain extent, back to its original Lombardy, Emilia Romagna and Emilia Romagna state. Once stored, the gas can be Abruzzo. The fields are composed of re-injected in the transportation 2015 2016 2017 deposits, wells, pipelines, treatment 1 system and supplied according to plants, and compression stations. Abruzzo market demand. Natural gas moved through In the gas system, storage makes the storage system (billions of cubic metres) it possible to offset the difference between the gas supply and demand and therefore to ensure continued 19.58 20.00 19.92 supply.

2015 2016 2017

Gas injected in the network Snam Rete Gas 8 11 1 TRANSPORTATION (billions of cubic metres) manages the gas pipeline network via Districts Compression stations New integrated transportation During transportation, the natural gas is loaded at 74.59 and storage activity dispatching delivery points connected to the importation lines 70.63 48 centre (Russia, Northern Europe and North Africa), with the 67.25 Maintenance centres regasiﬁcation plants and the gas production and throughout Italy storage centres distributed throughout Italy. 2015 2016 2017 IMPORT LINES

The gas is then transported for delivery, based on customer directions, to redelivery points connected Transportation network Installed power in the compression to local distribution networks and to major industrial and thermoelectric consumers. (km in operation) stations (MW) Dispatching ensures continuous gas-ﬂow monitoring and balancing activities based on user-deﬁned 32,534 32,584 922 922 scheduling, both under normal and emergency 32,.508 877 conditions.

2015 2016 2017 2015 2016 2017

LNG regasification Regasification is the final activity in the REGASIFICATION (billions of cubic metres) liquefied natural gas (LNG) chain and Panigaglia involves taking gas extracted from GNL Italia manages the 0.62 deposits back to its original state, and regasifier in Panigaglia then liquefied at -160° for transportation (La Spezia), the first plant 0.21 15 0.03 on purpose-built ships. In the gas system, of its kind, which was built the LNG chain thus enables in Italy in 1971. diversification of supply sources. Number 2015 2016 2017 of tanker loads (5 in 2016, 1 in 2015) Snam’s profile 37

Stogit

Lo stoccaggio di gas naturale consiste

2015 2016 2017

2015 2016 2017 2015 2016 2017