Slide 1: Annual report December 31st 2005
AR annual report December, 31st 2005
Slide 2: Introduction to Hera Group
Introduction to Hera Group ° HER
Slide 3: Hera achieved leadership through a unique consolidation process
Hera achieved Leadership through a unique consolidation process Hera is a leading and fast mover in an Hera positioning in the utility sector evolving market High Incumbent Sales in Italy Enel ENI Multi-utility > Italian utility sector is mainly composed of Local Energy players small local multi-uti
Slide 4: Milestones
Milestones Hera is created from the consolidation of 11 public utility companies in the Emilia Romagna region, a Nov. 2002 first time ever in Italy Giu. 2003 Public offering and listing on the Italian Stock Exchange (44.5% of share capital free float) Ott. 2003 Acquisition of 42% of Agea Ferrara S.p
Slide 5: Hera model is a reference benchmarking
Hera model is a reference benchmarking Hera strong competitive advantage Shareholding 1,016.8 Ml shares M. Bologna; 15,0% > Hera expansion has been carried out through mergers with public shareholders committed Free float; 40,9% M. Modena; 11,2% to maintain 51% of share capital > Hera has become the
Slide 6: Strong asset base and balanced contribution to results
Strong asset base and balanced contribution to results WATER 2005 WASTE 2005 Distributed (Ml m3) 228 Urban waste (Ml tons) 1.6 Population served (Ml unit) 2.3 Special waste (Ml tons) 2.2 Customers (K unit) 914 Population served (Ml unit) 2.4 Pipeline (km) 23,474 34% 24% OTHER 2005 Group GroupEbitda
Slide 7: Business portfolio highlights low risk profile
Business portfolio highlights low risk profile Hera multi-service business portfolio Weight of regulated activities on Ebitda highlight low risk profile: > Balanced between regulated (with long term concessions and diversified authorities) and Free Mkt competitive market businesses. 45% Regulated 55
Slide 8: Revenues and Ebitda targets
Revenues and Ebitda targets REVENUES growth Strategy: sustainable value for Ml € 2.625 shareholders 2.148 > Sector consolidation & Upstream integration 1.099 > Synergies and rationalization > Sustainable development 2002 2005* E2008* 2008 EBITDA Growth by Driver EBITDA growth Ml € Ml € 83 597 57 12
Slide 9: Key highlights on 2005 Results
Key highlights on 2005 Results (Meta accounted since January 1st, 2005) 9
Slide 10: 2005 major achievements
2005 major achievements > Meta PTO executed on 20% of Meta share capital (98 Ml €) > 176,8 Ml new shares issued for the Meta merger Meta merger > Integration activities on track > Significant expansion in volumes managed: > Gas sales: up to 2.8 bl cm, including wholesale > WTE: 614 tons of urban was
Slide 11: Meta integration progressing on track
Meta integration progressing on track May: Preliminary agreement Meta June: Merger was approved by BoD Sept.: Approval of shareholders Merger Oct: PTO executed on 20% of Meta Dec: Merger fulfilment January 2006 > Hera Modena LOC established Meta > Organisational structure deployed Meta Hera 2005 Int
Slide 12: Hera figures on path since 2002
Hera figures on path since 2002 Revenues + 41% Year Ml € 2002* 2003* 2004 2005*** > Meta merger contribution (by 380 Ml€) Incr.% > Increase of volumes, energy prices and Revenues 1099 1,241 1.529 2,148 41% “W-W” tariffs Oper. Costs** (907) (999) (1,237) (1,762) 42% Ebitda 192 242 292 386 32% Ebitda
Slide 13: Hera Group is today among the largest Italian multi-utility
Hera Group is today among the largest Italian multi-utility > Hera has today about 1 Ml customers served Shareholdings and a portfolio focused on balanced portfolio. > The Group can rely upon considerable M. Bologna; 15,0% Synergies and Organic Growth potential to strengthen its market position. Fre
Slide 14: Ebitda by business
Ebitda by business Waste 2005 EBITDA Growth* > Development driven by full accounting of FEA and C. Ml € 4 386 Ecologico (~ 18 Ml€) and Organic growth (~11 Ml€) 12 15 18 > Ebitda margin beyond 27% 45 Water 292 > Tariff increase fully off set a raining summer (-3 Ml cm) > Ebitda margin +210 bps, with
Slide 15: 3 years stock performance and total shareholders return
0 0,5 1 1,5 2 2,5 3 0 10 20 30 40 50 60 27/06/2003 27/06/2003 19/08/2003 19/08/2003 Hera 08/10/2003 Mibtel Utilities 08/10/2003 27/11/2003 27/11/2003 23/01/2004 23/01/2004 12/03/2004 12/03/2004 05/05/2004 05/05/2004 24/06/2004 24/06/2004 13/08/2004 13/08/2004 04/10/2004 04/10/2004 23/11/2004 23/11/2
Slide 16: Hera Consolidated 2005 results
Hera Consolidated 2005 results (Meta accounted since January 1st, 2005) 16
Slide 17: Major step up in revenues driven by prices and larger company size
Major step up in Revenues driven by prices and larger company size GROSS REVENUES Growth Breakdown REVENUES* Ml € Ml € 2.148 +41% 192 4 2.148 281 119 41 (18) 1.529 1.529 1.241 2004 Waste Water Gas EE Other Intra 2005 SBU 1.099 2002 2003 2004 2005 REVENUES increase > 61% relates to Meta contribution
Slide 18: Ebitda development keep on benefiting from balanced contribution
Ebitda development keep on benefiting from balanced contribution 2005 EBITDA increase driven by: EBITDA** > Meta contribution comes predominantly from: Ml € 386 +32% > Gas 21 Ml€ > Electricity 13 Ml€ 292 > Water 12 Ml€ 242 > Waste 16 Ml€ 192 > Organic Growth limited by 11 Ml€ of tariff reduction and
Slide 19: Net profit and dividends in line with expectations
Net Profit and Dividends in line with expectations NET PROFIT* Increasing value to shareholders Ml € > More than 3 times 2002 Net Profit 101 81 > Proposed dividends of 7€ cent per share (a pay out above 70% and almost on Hera Spa) 50 > 17% increase on 2004 dividend 33 2002 2003 2004 2005 2005 DIVIDE
Slide 20: Free cash flows and net financial position
Free Cash Flows and Net Financial Position > Invested Capital increased from 1.6 to 2.5 Bl € following Meta merger and significant capex and CASH FLOWS* Ml € NWC growth. > Net working capital mainly affected by delays 2004 2005 in invoicing. Net profit 86.5 108.8 Deprec. & Acc. 115.3 170.7 > D/E rat
Slide 21: Cyclical net working capital increase
Cyclical Net Working Capital increase Increase in NWC is equal to 209 mln € Sales increase/Meta effect: 90 Ml€ Sap implementation: 119 Ml€ > Delays in invoicing occurred specifically in > Increase in volume sold (+43 Ml€) November caused an increase in receivables by 15 days of revenues > Delays rel
Slide 22: Bond issue: Hera's 500 Ml € eurobond
Bond issue: Hera’s 500 Ml € eurobond Increase average debt maturity Bond Highlights Diversification of sources Banca IMI, Citigroup, Rationale Bookrunners JP Morgan Secure debt cost S&P: A+ (Negative), Access international investor base Issuer ratings Moody’s: A1 (Stable) Issue amount 500 Ml € Settl
Slide 23: Capex and investments
Capex and Investments Operating Capex CAPEX 51 324 > Capex were up to 324 Ml€ of which 54 Ml€ Ml € 106 made by Meta > 37% of capex related to the Waste business: 167 > 52 Ml€ spread across WTEs projects > 49 Ml€ linked to waste plants maintenance and development Maintenance Development Holding Total
Slide 24: Personnel
Personnel Headcount units Turnover = -146 1.027 5.904 5.023 90 4.877 (236) as of 2004 Dec. Hiring Retirement Hera Dec. 2005 Meta as of Dec. 2005 Ebitda per employee 58,200 € 65,400 € (+12.4%) Net profit per employee 16,100 € 17,100 € (+6.2%) 24
Slide 25: Breakdown of Group Results
Breakdown of Group Results (Meta accounted since January 1st, 2005) 25
Slide 26: Meta merger and organic growth strengthened all businesses
Meta merger and organic growth strengthened all businesses REVENUES Growth Breakdown Waste Ml € • Leadership in profitability contribution came 192 4 2.148 from good combination of plant 281 41 (18) performance and market consolidation 1.529 119 Energy • Meta merger has significantly strengthened el
Slide 27: Waste recorded outstanding performance
Waste recorded outstanding performance > WTE of Bologna and Ravenna contributed on full year basis EBITDA build up Ml € > Hera asset base reached 72 treatment plants 131 > Ebitda margin above 27% (up by +340 bps) 29 86 16 > Volume disposed achieved 3.8 Ml tons of 58 62 which 2.2 of special waste wit
Slide 28: Take off in profitability recovery (water)
“Take off” in profitability recovery > Ebitda margin moved from 25 to 27% EBITDA build up > In 2005 additional sewerage service was Ml € included to complete the integrated water 6 94 service in the territory. 66 76 12 > New accounting principles for revenue 54 accruals determined a write off on his
Slide 29: Growth overcame distribution tariff reduction (gas)
Growth overcame distribution tariff reduction (2005-2007 ) > Competition caused churn rate of about 16,000 customers (-0.8% in term of volumes) EBITDA build up whilst organic growth provided additional Ml € 11,000 clients. 118 > Increase in volumes (+18%), reaching 2.8 Bl 100 106 21 (9) cm, related
Slide 30: Tripled Ebitda from regulated revenues (electricity)
Tripled Ebitda from regulated revenues > Meta merger increased customer base up to 177,000 EBITDA build up Ml € > About 80% of Ebitda related to regulated 22 activities 2 > 3 Twh (+1Twh vs. 2004) to liberalised market 9 8 7 13 > Procurement coverage only through long term contract (Atel) and Electri
Slide 31: Keep on growing (other businesses)
Keep on growing > Significant business extension in Public EBITDA build up Lighting (almost 300,000 lighting towers) Ml € thanks to Meta 21 > District Heating achieving 470 Gwht on track 1 17 3 with 2008 targets > Enhancement in profitability by 230 bps 6 0 2002** 2003 2004* Meta Hera 2005* CAPEX Ml
Slide 32: Closing remarks
Closing remarks 32 GRUPPO
Slide 33: Historical growth and further achievements give visibility on 2008 targets
Historical growth and further achievements in 2006 give visibility on 2008 targets > In 3 year Ebitda doubled balancing internal 3Y EBIDTA GROWTH and external growth Historical and Expected Ml€ > Further 211 Ml€ EBITDA increase is +211 Ml € expected in the next 3 years, mainly related 597 to interna
Slide 34: 1Q 2006 M&A: Geat Gas merger and ENEL network acquisition
1Q 2006 M&A 100% acquisition of ENEL network 100% merger of GEAT GAS (Modena Province) > Gas downstream (distribution and sales) in > Unique opportunity to strengthen electricity the touristic area of Riccione. business (concession up to 2030) > Strengthening of Hera presence in a key area. > 4 serv
Slide 35: Future initiatives on upstream and sector consolidation
Future initiatives on Upstream and Sector Consolidation > Negotiation among the parties started to increase share capital of Galsi SpA up to Up Stream 30 Ml € to fund next project steps and to update by-laws Integration gas > Gas Supply preliminary contracts under negotiation with Sonatrach > Closel
Slide 36: Continuing double digit growth
Continuing double digit growth > Growth performed in line with expectations maintaining a double digit growth rate 3Y CAGR 2005 results > Regulatory impact on results was overcame > Meta integration completed by year-end EBITDA 26% > 2008 target confirmed > Normalisation of NWC expected by June ‘06