Hera Group is a leading multi-utility company in Italy that provides waste, energy, and network services. Over the past decade, Hera has grown significantly through market expansion, efficiency gains, acquisitions, and capital investments. Hera's business plan for 2014 targets further growth by expanding its customer base to 2 million customers, enhancing operating efficiency, and making selective investments to complete its asset base, with a focus on waste-to-energy plants, gas infrastructure, and network maintenance and development. Hera aims to increase its EBITDA to over 750 million Euros by 2014 through these strategic initiatives.
5. Hera is strongly positioned to cope with the new scenario
1995-1999
120.0% 2000-2009 2010-2020
100.0%
80.0%
60.0%
40.0%
20.0%
FTSE Mib
0.0%
-20.0%
-40.0%
Transformation
-60.0%
31/12/1997 Developm./consolidation Rationalisation
11/05/1998
11/09/1998
22/01/1999
31/05/1999
01/10/1999
08/02/2000
15/06/2000
19/10/2000
26/02/2001
04/07/2001
07/11/2001
19/03/2002
25/07/2002
28/11/2002
09/04/2003
20/08/2003
23/12/2003
04/05/2004
06/09/2004
11/01/2005
18/05/2005
20/09/2005
24/01/2006
01/06/2006
05/10/2006
12/02/2007
21/06/2007
25/10/2007
04/03/2008
10/07/2008
13/11/2008
26/03/2009
03/08/2009
04/12/2009
16/04/2010
Privatisation process Liberalisation Unbundling
Regulation Authorities role Tenders for public services
development Change of regulatory
framework of public
services
Industry Introduction of IPO processes Business specific strategy
international accounting Asset base development
evolution Establishment of new expansion/renewal Portfolio rationalisation
legal entities (Spa) M&A Financial rebalancing
5
6. Hera Group: leading multi-utility player in Italy
A decade of growth based on key strategic pillars
Unique multi-utility
business model
Innovative approach in Leadership in
multi-utility business core businesses
Synergies and
value opportunities
Strong platform to pursue new opportunities
6
7. Unique multi-business model to underpin growth
Continuous growth significantly improved results
Ebitda Top Ebitda growth in Europe
(m€) (2003-2009)
2003 2009
4%
0% 22%
26% 33%
243 567 17%
57% m€ 50% m€ 15%
17%
12%
13%
Waste Energy Networks Other 10% 9% 9% 9% 8% 8%
Net Invested capital
(b€)
+18% Cagr 0%
3.6
a
A
a
n
a
F
F
l
n
l
e
ra
er
ol
O
e
Ir e
D
A2
Ed
En
Ac
tu
E.
dr
G
H
na
er
Ib
as
G
1.3
Underpinned by 2.4 b€ capex
2003 2009 and acquisitions
7
8. Leadership in core businesses based on deep rooted local presence
From a local player to a top ranked national player
Top ranked in Italy in all businesses 2009 Data/ Cagr ’03-’09
5.1m ton of volume treated* (+13.5% Cagr)
WASTE Market Leader
Full range treatment capacity in 77 plants
1.1m gas (+7% Cagr) and 0.35m
electricity (+37% Cagr) customers
4th in gas supply
ENERGY
8th in electricity supply 2.2 bcm (+5% Cagr) and 7.0 TWh
(+28% Cagr) volumes sold to end customer
57,000 km networks
Dominant player
NETWORK
in reference territory
2.7m POD
*of which 1.2m ton in third parties
8
9. Synergies and value opportunities
Balanced contribution from all drivers
Ebitda drivers Effective model to extract synergies
(m€)
74m€ synergies (12m€ avg/Y)
+132 567
Market expansion and tariff increase
+66
+500k new customers
+127
avg tariff increase (+ 4% Cagr ’03-’09 in
water and waste)
243
Challenging new plants construction
Expanding capacity confirming unique
expertise in plant construction/mgmt
2003 Syn. & New plants M&A 2009
Org. G.
M&A
15 deals for a total EV in excess of 1 b€
focused exclusively on core businesses
9
10. Innovative approach in doing the multi-utility business
Strategic steps to anticipate market trends
Implementation of a business Multi-service/multi-regional player
model focused on territorial
presence 2003: 1.2m customers 2009: 1.8m customers
Further evolving organisational/
business model Milan Milan
Venice Venice
Bologna Bologna
Leading Sustainable approach
to business (CSR):
Rome Rome
“we do better what is good”
Multi-service offering Presence with dual offering
10
12. Business plan to 2014
1995-1999
120.0% 2000-2009 2010-2020
100.0%
80.0%
60.0%
40.0%
20.0%
FTSE Mib
0.0%
-20.0%
-40.0%
Transformation
-60.0%
Developm./consolidation Rationalisation
31/12/1997
11/05/1998
11/09/1998
22/01/1999
31/05/1999
01/10/1999
08/02/2000
15/06/2000
19/10/2000
26/02/2001
04/07/2001
07/11/2001
19/03/2002
25/07/2002
28/11/2002
09/04/2003
20/08/2003
23/12/2003
04/05/2004
06/09/2004
11/01/2005
18/05/2005
20/09/2005
24/01/2006
01/06/2006
05/10/2006
12/02/2007
21/06/2007
25/10/2007
04/03/2008
10/07/2008
13/11/2008
26/03/2009
03/08/2009
04/12/2009
16/04/2010
Privatisation process Liberalisation Unbundling
Regulation Authorities role Tenders for public services
development Change of regulatory
framework of public
services
Industry Introduction of IPO processes Business specific strategy
international accounting Asset base development
evolution Establishment of new expansion/renewal Portfolio rationalisation
legal entities (Spa) M&A Financial rebalancing
12
13. Hera Group strategic priorities ’10-’14
Consistent multi-utility strategy leveraging upon key strengths
Four strategic priorities
Further expand downstream Further enhance efficiency
to achieve 2m customers to increase operating result
Focused strategy Selective investment
to enhance profitability to complete asset base
Targeting to increase
returns and cash flows
13
14. 2014 Hera Group targets
Ebitda Drivers
(m€)
Market expansion ● Efficiency gains in
and tariffs increases 800 ● +40 750 network management
in water and waste +73
+70 and commercial activities
567
600
430
Capex
400 320
(m€) ● Selective investment plan
with appropriate flexibility
200 and expected returns
0
Initiatives to exploit
waste energy content 2009 Org. G. Syn. New E'14
and renewable sources plants
Strengthening cash flows to support returns and flexible capital structure
14
15. Further expand downstream to achieve 2 million customers
Multi-service customers base Evolution of Hera Energy contracts
(m customers) (m contracts)
2.0
1.8 1.7
1.4
1.2
0.9 1.1
1.1
2004 2009 E2014
0.8
Avg n. of 2.4 0.6
2.0 0.3
contracts/ 0.1
customer 1.6
2004 2009 E2014
Electricity Gas
Hera customer satisfaction indexes*
Residential Business Hera commercial strategy
E2014 > 70 E2014 > 70 Increase focus on Residential and SoHo
2009 69 2009
Further exploit opportunities in Marche,
65
Tuscany and Umbria
2006 67 2006 62 Focus on cross selling and customer
loyalty
* 60 corresponds to satisfied, 70 to delighted
15
16. Further enhance efficiency and increase operating result
Average Cost per POD 45 m€
(€/POD)
Efficiencies -2.5% Cagr
(m€)
Smart grid and metering
141.4
124.8
Workforce Management
Remote control
Support activities
2009 E2014 rationalisation
74.0 73.0 Average Cost to serve 14 m€
(€/contract)
-3.6% Cagr Multi-utility approach
22
19 Sales channels tailored
on clients’ segment
On-line services and
optimisation of
E2010 E2014 customer operations
Other initiatives 14 m€
Reduction of Urban Waste collection costs
through operations rationalization
2004-2009 E2010-2014 Headcount rationalization in staff
Specific projects to rationalize indirect costs
(in sourcing optimisation)
16
17. Selective investments to complete asset base
… fully exploiting competitive advantage
Waste 546 m€
Hera ’10 – ’14 Capex: 1.7 b€
(m€) WTE Biomass Digestors
472 340 m€/ y on avg
430 428
15
351
9 312
229
10 Energy & Other 211 m€*
183
195 CCGT peak l.
35 • Complement power gen. mix
38
21 with “Tamarete” (peak load)
149 121
87 • Partnership in upstream gas
'07 '08 '09 E'10 E'14 *of which 51 m€ for Other activities/Corporate
Networks 2.4
943 m€
Asset base** (b€) 2.2
0.2
0.2 0.3
0.3
D.H.
58% development capex 0.8
0.9 • Mainten. 458 m€
E.E.
Gas
• Develop. 485 m€
0.9 1.0
Water
2009 E2014
**Regulated Asset Base (RAB) for Gas & Water and Net invested capital for Electr. and D. Heat.
17
18. Focused strategy to enhance profitability (1/3)
Key strategic actions 2014 Target
• Reach 2m customers and
9 TWh electricity sales
volume increase 2.2 bcm gas sales*
• Leverage upon short upstream From 42% to 44% of
position electricity provisioning
from owned assets**
Energy
• Further diversify procurement From 38% to 58% of
mix and trading opportunities Gas provisioning
from international supplies
Waste
• Optimise cost to serve and 3.6% yearly decrease
customer satisfaction in cost to serve
CSI to 70 in all segments
Networks Exploit flexible upstream and
downstream potential
* Excluding wholesale and power plants
** Total power gen. 4.6 TWh of which 1.5 TWh from renewables and co-generation 18
19. Focused strategy to enhance profitability (2/3)
Key strategic actions 2014 Target
• Consolidate leadership also + 900 kton mgmt (4.8% Cagr)
outside territory +1,200 kton treatment capacity
• Extract cash flows
Energy +6.9% Revenues (Cagr ’09-’14)
-10.2% Capex (Cagr ’09-’14)
• Increase energy/material 930 GWh of renewable
recovery power generation;
~500 GWh of Green Certificates
Waste
• Enhance effectiveness in
Sorted collection 54% and
urban waste mgmt 20% Urban Waste to landfill
Networks Exploit leadership to pursue market
opportunities and cash flow generation
* From third parties
19
20. Focused strategy to enhance profitability (3/3)
Key strategic actions 2014 Target
• Increase efficiency gains
2.5% yearly decrease
in cost per POD
Energy • Expand and enhance networks
-120 bp leakage in Water nets
-3.9% capex/POD (Cagr ’09-’14)
• Pursue positive cash flows + 2.4% Cagr on water
revenues per m3
Waste 0.9b€ Capex
Networks Further expand presence in reference
territory and potential opportunities to
exploit asset (ie. Electricity)
20
21. Ebitda growth by strategic areas
All business areas contributing
Ebitda
(b€) +183 m€
200 +58
21
+109 +15 22
188
296
2009 E2014
346
287 567m€ 750m€
71 0
86
Waste Energy Networks
Waste Energy Networks
+ 20 m€ tariffs (+3.1% Cagr) + 33 m€ tariffs
+ 3 m€ new plants
+ 37 m€ new plants + 25 m€ other org.g.& syn.
+ 12 m€ other org.g.& syn.
+ 52 m€ other org.g.& syn.
21
22. Cash flow development
… all business areas in positive zone
Waste Cash flows
2014 Cash flows (m€) 101
(b€)
2009 E2014
Cash flow/ton(€) 15.9
0.45
Energy Cash flows
(0.31) (m€)
26
0.14 2009 E2014
Cash flow/customer(€) 15.4
Networks Cash flows
Operating Capex & Inv. Free Cash (m€)
Cash flows flows
15
E2014
Appropriate free cash flows to
2009 E2014
guarantee shareholder’s return
Cash flow/POD(€) 5.3
22
23. Targeting enhanced returns and flexible financial structure
Benefitting from Ebitda growth and bottom line enhancement
Return on Net invested capital (ROI) Enhanced financial flexibility
(%)
> 10%
8,1%
FFO/Debt
~ 20%
15%
2009 E2014
0%
NIC* 3.6 3.9
(b€) 2009 E2014
Debt/Ebitda
Return on Equity (ROE)
(b€)
> 9%
5% 3,3x
< 2,8x
2,0
2009 E2014 2009 E2014
*Net invested capital = fixed assets + working capital - provisions
23
25. Closing remarks (1/2)
Hera ready to tackle with the current scenario
and the forthcoming developments…
Accomplished
With Herambiente Networks acquisition
Energy position execution in the and efficiency enhance-
and downstream front position to ment allow to properly
presence to exploit
lead Italian Waste address challenges/
opportunities
sector development opportunities from
tenders
25
26. Closing remarks (2/2)
…with increasing profitability and
enhancing financial strengths
750 m€ EBITDA (+ 183 m€) with marginal risks
340 m€/year of Capex down 120 m€/year vs 2005-2009,
55% on regulated activities
Free Cash Flow of all businesses in “positive” zone
Net Debt/EBITDA to <3 by 2013
26
28. Years of intense activities
Consistent pattern to strengthen positioning in all businesses
2003 2004 2005 2006 2007 2008 2009 2010
WTE BO WTE FE WTE FC WTE MO WTE RN
Start up Start up Start up Start up Start up
Ecologia Herambiente Herambiente
WASTE Acquisition Spin-off Partnership
First Bio-energy plant with Eiser
Start up
First 3 acquisition: CCGT Cogen. 80 MW 100MW
international Tecnometano 400MW Start up CCGT
import of gas Argile gas (JV) Start up (JV) Start up
ENERGY from VNG SGR (20%)
CCGT Megas Trade Aspes gas
Flamenergy (JV) 800MW Acquisition Acquisition
VNG-Hera (JV) Start up
Italgestioni Tecnometano Elect. network Gas & District
disposal acquisition MO province Heating
acquisition Networks
NETWORK Acquisition
Geat dist.
acquisition
Agea (FE) Meta (MO) Aspes-Megas Aimag
Merger Merger Merger Acquisition
GROUP (25%)
SAT
Merger
28
29. Risk exposure of economic targets
Risk factors Impacts Mitigating
2010-2014 factored in factors
• Downstream • Churn gas > 4% • Loyal customer
competition • Churn E.E. > 10% base
Energy • Squeeze of margins • Margins gas • Upstream
(8/10%) balancing/flexibility
• Green Certificates • 83 €cent/MWh • Low exposure (-10%
GC price = -0.6% ’14
Group Ebitda)
Waste • Waste collection • n.a. • Dominant player in
tenders (post ‘13) ref. territory
• Authorization risk • n.a. • Bologna WTE is the
only exposed
• Gas tenders/ new • -8% tariffs impact • Asset ownership
tariff period (’11-’14)
• Water tenders (post • n.a. • Shareholder’s
Networks 06/’13) decision
• Regulatory risk • n.a.
…still retaining some Capex flexibility (~10%)
29
31. WASTE: overview
Short market with an unsatisfied demand
Special Waste Production*
(m tons)
+2.3% Cagr
Shortage in treatment capacity 82
56
(8% WTE treatment in Italy vs 20% UE)
2000 2006
Increase in control/regulation National player ranking
(m tons)
5,1
2,9
1,1 1,0 1,0
Fragmented market
Hera A2A Veolia Italia Green Iren
Holding
Mkt
6.1% 3.5% 1.3% 1.2% 1.2%
share %
*2008 data; special waste do not include C&D
31
32. Hera growth strategy
Focus on deploying key competitive advantages
Hera Strategy
Key Success Factors Consolidate leadership Hera Distinctive Features
Economies of scale also outside territory
Market leadership
Integrated solution
providing (full service) Extract cash flows Fully comprehensive
business coverage
Asset management
expertise Increase energy/
material recovery Unique expertise
Relationship with
Authorities Strong corporate image
Enhance effectiveness
Qualification/reliability in Urban Waste mgmt
32
33. Consolidation of leadership
Exploiting strong asset base to expand market share
Focus on value Expand geographical Increase “full service”
added treatments scope customer base
Hera sales volumes
(kton)
+4.8% Cagr
4,212
Leverage upon domestic plant shortage
3,325 Identified key target areas/regions/segments
2,350 Developed competitive commercial offers (full
+ 9% Cagr service)
1,531
Special w. Physiological market growth
Urban w. Manage volume growth with efficient treatments
1,794 + 1% Cagr 1,862 (urban w. landfill treatments down to 20%)
Increase sorted collection from 45% to 54%
2009 E2014
33
34. Expand asset base
Fully integrate asset base across value chain
Hera treatment capacity Develop and fully exploit existing WTE capacity
(kton)
Modena Rimini Modena Bologna TOTAL
(revamp) • 50 MW
• 310 GWhe
+ 1,223 Kton Potential new initiatives outside territory not accounted
66
6,338 1.7
300 1.5
273 186 Landfill development
5,115 398
1.1 1.3
Authorised extensions Special
5,069 of existing landfills for Urban
77% 80% special waste 0.4 0.3
3,912
2009 E2014
1,203 23% 20% 1,269
New frontier: Biogas/mass project
2009 WTE La ndfil l s Compos t Other Third E2014
a nd Chi ‐fi Hera pa rti es • 140 Kton
• 215 Kton
pla nts pl a nts Biomass • 12.7 MW
Digestors • 8 MW
(JV)
Hera plants Third parties • 45 GWhe • 89 GWhe
Leadership linked to the integration of asset base development
and to expansion opportunities, partly outside reference territories
34
35. Increase energy production awarded with incentives
Diversified renewable incentive schemes underpinning results
Renewable power generation Green certificate incentives to waste
(GWh) G.C. revenues (m€)
+ 443 931 40
488
71
14
413
2009 E2014 2009 E2014
WTE Landfills Digestors Biomass
GC quantity 158 482
(GWh)
+ 89 +443
+ 43 GC price 88.5 83.7
+ 53 (€/MWh)
+ 258
Complement Green Certificates with special
tariffs schemes (i.e. 280 €/MWh for energy
WTE Landfills Digestors Biomass Total produced by biogas plants)
plants
35
36. Growing cash flow despite increasing Capex
Full contribution from all new and started up plants
’10-’14 Ebitda growth Cash Flow significant progression
(m€) (m€)
+9.6% Cagr
296 101
187
2009 E2014
ROI 9.2% 13.6%
2009 E2014
’10-’14 Capex plan*
(m€)
109
102
70 Development
Cash Flow/ ton 15.9
(€)
40 Maintenance
Avg capex 04-09 Avg capex 10-14
*Including a portion of Hera Indirect Capex
36
38. Hera strategy leverage upon flexible procurement mix
Leverage upon unique and effective position to expand markets
Key Success Factors Hera Distinctive Features
Leverage on short Sizeable and effective in
Flexible procurement upstream position client management
mix
Further diversify Effective mix of assets
Market size procurement mix and
trading operations Know how in trading/
Effective commercial procurement and asset
capabilities management
Reach 2 m customers
Efficient production and Strong and qualified
commercial operations Optimize cost to image
serve
Loyal customer base
38
39. Keeping a balanced and effective upstream strategy (1/2)
Unique flexible upstream profile is the key competitive advantage
Evolution of Hera Electricity provisioning mix to serve final clients
(TWh)
8.6
7.0
4.9 Exploit trading and procurement capabilities
Market
57%
4.1 58%
• Reach flexibility with current asset base
Hera • Identify opportunities on new leading edge
assets projects in the M/L term
42% 3.7 44%
3.0
2009 E2014
39
40. Keeping a balanced and effective upstream strategy (2/2)
Further diversify gas low risk profile procurement
Evolution of Hera gas provisioning mix* to serve final clients
(bcm)
2.2 2,2
Exploit market position
Consolidate relationship with key player
Domestic 1.0 42%
supply 1.4
62%
Exploit short term opportunities
Int.l supply 1.2 58%
0.8 38% Leverage on procurement trading capabilities
Exploit capacity available on international
pipelines
2009 E2014 Expand trading strengths
Identify infrastructure opportunities
* Procurement breakdown has been calculated on the overall gas sales
40
41. Hera will defend gas positioning and expand electricity
Keep on expanding customer base leveraging upon key commercial strengths
Hera commercial strategy Evolution of Hera Energy clients
(m clients)
Keep in focusing on residential and
SoHo 1.7
1.4
Further penetrate surrounding Regions
1.1
0.9
Keep on leveraging on “salvaguardia” 1.1
customer base (Tuscany and Umbria)
0.8
0.6
Focus on cross selling through a 0.3
multiservice offer 0.1
2004 2009 E2014
Provide key industrial clients trigen Electricity Gas
solutions
41
42. Enhancing commercial efficiency
Enhance loyalty and efficiency
Hera customer satisfaction Indexes Hera efficiency: Cost to serve
(60 correspond to satisfied, 70 to delighted) (€/contract)
-3.6% Cagr
Residential Business 22
19
E2014 > 70 E2014 > 70
2009 69 2009 65
2006 67 2006 62 E2010 E2014
Multi-utility approach to exploit
Hera effectiveness drivers economies of scale
Implement innovative CRM practices Sales channels tailored on clients’
segment
Leverage upon direct contact points to Online services and electronic
enhance customer satisfaction invoices
Optimisation of customer operations
42
45. Hera Strategy
Continue efficiency improvements to strengthen presidium of reference territory
Key Success Factors Hera Distinctive Features
Increase efficiency
gains Almost fully coverage in
Efficient cost structure contiguous areas
Continuity of served areas Constant improvement of
Relationship with
Expand and enhance efficiency
networks
Authorities Positive relationship with
Ownership of assets Authorities
Pursue positive cash Outstanding service
flows quality
45
46. Regulated tariffs
Visible and safe growth perspectives
Avg. revenue per m3 of water distributed
(€/m3)
+2.4 % Cagr
1.79
1.59
+2.6% cagr (agreed water tariff up to ’12)
2009 E2014
Total gas revenues
(m€) +1.1 % Cagr
164
156
RAB upgrade (from 800 m€ in 2009 to
900 m€ in 2014)
2009 E2014
Total electricity revenues
(m€) +0.8% Cagr
50.8
48.3
1.7% cagr volume increase
2009 E2014
46
47. Efficiency gains in cost management
Economies of scale deployed in networks management and control
Cost per POD in water Average Cost per POD
(€/POD) -2.2 % Cagr (€/POD)
-2.5 % Cagr
Cost per POD in gas
(€/POD)
-1.7 % Cagr
Cost per POD in electricity smart metering and smart grid
(€/POD)
-5.4 % Cagr
workforce management
network remote control
network layout optimization
47
48. Heating production as a source of additional profitability
Benefitting from new asset base developed to enhance profitability
Hera heating production sources Hera heating production sources
(GWht)
+5.5 % Cagr
746 Increase volume sold to new customers
(new urbanization)
22%
570
11% 492
Efficient
13% thermal energy
21% Efficient sources for heat production
296 production
14% 14%
14%
9%
Waste contribution to increase heat gen.
48% 34%
Increase of margins/environmental
performances
2009 E2014
Gas boilers Geotherm. Co-gen.
WTE Hera CCGT
48
49. Gas distribution tenders in 2011
Win upcoming tenders completing reference territorial coverage
Incumbent in reference territories Hera key strengths to win tenders
(% of customers)
55%
Incumbent in reference territories
Ferrara
4th national player
Modena Continuity in territory served
Bologna Ravenna 80%
16%
Remote control of networks
71% Forlì-Cesena
98% Rimini
Quality of service
Marche
83%
Multiservizi
Average local Market Share 64%*
Other main players:
Potentials to win tenders inside the
SGR 12% E.On 4% reference territory and in surroundings
Aimag 9% Edison 3%
*% on total Municipalities
49
50. Strong profitability increase
Capital discipline and efficiency gains turn cash flows to positive
Ebitda Capex
(m€) +3.7 % Cagr (m€) 229 195
346
288
2009 E2014 2009 E2014
Ebitda Capex
(€/POD) 109.2 126.4 86.9 71.1
(€/POD)
Cash Flow RAB/ NIC*
(m€) 15 (b€)
2009 E2014
Cash Flow/POD 5.3
(€)
*Regulated Asset Base for Gas & Water; Net Invested
Capital (Fixed Asset, Working Capital less provisions) for E.E. & D.H
50