2014-2018business plan - A further step above - Gruppo Hera
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2014-2018 business plan
1 s t O c t o b e r 2 0 1 4
A further step above
INDEX
Hera strategy Annex
Multi-utility strategy resilience 5
Hera’s objective 6 Assumptions 22
Hera’s M&A targets 7 Ebitda growth track record 23
Hera’s key distinctive strengths 8 Consolidated Group Ebit 24
Ebitda targets 9 Financial Strategy 25
Sustainable Development 26
WTE plants 27
Regulated infrastructures 28
Disclaimer 29
Business plan up to 2018
Scenario opportunities/challanges 10
Hera’s strategic priorities 11
Ebitda by strategic areas 12
Networks 13
Waste 14
Energy 16
Capex plan 18
Financial performance 20
Closing remarks 21
GRUPPOHERA
Hera Group’s Strategy
GRUPPOHERA
Hera’s model effectively tackling a turbulent environment
Hera cumulated growth vs. GDP Italy
Acegas Aps
Integration
HERA Ebitda
SAT CAGR +14.0%
Meta Integration
Integration
GDP Italy
0%
CAGR -0.2%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Gas market Mild winter Lehman Water CCI review
Main macro liberalization Brothers default referendum
events
Ukraine crisis European crisis Warm winter
Hera shows a constant growth despite everything
5 GRUPPOHERA
Our ambitions
Lead sector consolidation process exploiting industry
momentum and following a “multi-utility” strategy. In addition
expand in liberalised markets (eg. Waste and Energy supply)
Exploit our key distinctive strengths to grow profitability
Plan to reach a scale overcoming 1 billion Ebitda in next 5Y
Leading industry change to become the first Italian multi-utility
6 GRUPPOHERA
Business plan embeds a few concrete M&A targets out of 5x bigger opportunities
Italian Government discussing to introduce incentives that might reshaped the industry
Italian Government pushing for consolidation
governance
Industry
Incentives for public shareholders to divest from local utilities
Impact for listed companies: preferred vehicle for
municipalities owning local utilities
M&A business plan target vs. opportunities and track records
(m€, n. target)
Hera potentials
+550 Ebitda
+11 companies
5YTrackrecord
average 2009-2013 2004-2008
Target to’18 track record track record track record
+100 Ebitda +154 Ebitda +180 Ebitda +127 Ebitda
+3 companies +5 companies +3 companies +6 companies
Disciplined selection of several potential targets
7 GRUPPOHERA
Exploit a proven set of strengths
OUR TOP STRENGTHS
M&A execution
Financial soundness
Loyal and large customer base
Business expertise
Compact multi-regional presence
Hera Governance
Promptly seize opportunities to further enhance Group’s value
8 GRUPPOHERA
Target to go beyond 1 billion Euro Ebitda
Ebitda growth target
1,020
+100
+89 +21
810
2013* Org. growth & Gas tender M&A E2018
Synergies
Organic Growth Merger synergies Gas tenders M&A
Waste AcegasAps Tenders scheduled AMGA Udine
+56m€ +23m€ starting from next year
+25m€
Networks Amga Udine
+47m€ +5m€ Aiming at confirming 2 Multi utility targets in
current concessions reference territory
Energy over contiguous
(42m€) territories +75m€
All visible levers to replicate growth in line with track record
* Restated applying IFRS11 criteria in force starting from 01/01/2014
9 GRUPPOHERA
Business plan to 2018
GRUPPOHERA
Next future combines opportunities and challenges
Water tariff system full deployment
Industry fragmentation/M&A opportunities
Long and liquid commodity markets
Shortage in waste treatment capacity
Higher perception on sustainable issues
Macro-economic scenario
Increased market competition
Competitive tender in regulated businesses
Increasing capex requirements
Higher efficiency std request from Authorities
Fast moving, competitiveness, and scale become crucial
10 GRUPPOHERAOur 4 strategic priorities
Time to market
Excellence Growth
Pushing all Group Higher market shares
practices to make a and new M&A
step forward opportunities
Dimension/scale External growth
Competitiveness
Efficiency Innovation
Keep on deploying Focused innovation
economies of scale on key industrial
and focus on processes and
profitability market approach
To keep on moving a further step on creating value
11 GRUPPOHERAAbove 1 Billion Ebitda growth comes from all top ranked businesses
Ebitda by strategy area
(m€)
319
499
Ebitda E2018
1,020m€
+80 (4)
174
239 +130
28
369
Ebitda 2013*
810 m€
Networks Waste Energy
178
24
Regulated 53% Regulated 57%
Networks
2013 E2018 Energy
Liberalised 47% Liberalised 43%
Waste
* Restated applying IFRS11 criteria in force starting from 01/01/2014
12 GRUPPOHERANETWORKS: step change in management approach to create value
Strategic pillars
EXCELLENCE GROWTH
Confirm Hera concessions
Outperform regulatory quality standards Improve margins on services/works for
Strengthen commercial culture in all customers
“regulated” activities Exploit opportunities in water tariff
evolution
EFFICIENCY INNOVATION
Smart metering
Increase cost-efficient management
Technological evolution applied in water
Reduce leakages
management activities
Spread out “real-time” WFM
Become an enabler for “Smart” cities
Ebitda growth drivers
(m€) 499
+49
+47 +21
+13
369
310
239
120
2002 2007 2012 2013* Synergies Org. Gas tender M&A E2018
growth
Developing our “safety box”
* Restated applying IFRS11 criteria in force starting from 01/01/2014
13 GRUPPOHERANETWORKS: developing our “safety box”
RAB evolution Gas distribution tender schedule
(b€)
Udine Gorizia
3.4
+0.01 +0.14
2.7 +0.47 Trieste
Padua 1
within 2015
Ferrara
Modena 1-2 within 2016
Bologna 1-2 Ravenna within 2017
Imola Rimini
Forlì-Cesena within 2018
2013 Gas Electricity Water E2018
Pesaro-Urbino
The sustainable enhancement of our business
Capex plan: 1.38 b€ Water Leakages
(m€) (%)
340 30%
314
258 249 29%
103
221 21 95
15
221 237 237 219 234
Tenders
Networks
E2014 E2015 E2016 E2017 E2018 2013 E2018
14 GRUPPOHERAWASTE: a further step up
Strategic pillars
EXCELLENCE GROWTH
Further enhance quality of customer Complete set of treatment techn./plants
service with a “one stop shop” proposal Fine tune effective marketing tools
Target maximum exploitation of value Confirm Hera concessions in collection
contained into the waste Further evolve collection management
EFFICIENCY INNOVATION
Target higher urban sorted collection std
Exploit new technologies in biogas
enhancing recycling/reducing disposals
Enhance energy efficiency in all plants
Streamline procedure/organization.
Increase recycling quality/profitability
Further rationalize of group structure
Fully deploy benefit of WFM tech
Plant optimization
Ebitda breakdown
+17 319
(m€)
+56
+7
239
202
156
58
2002 2007 2012 2013* Synergies Org. growth M&A E2018
Replicating fast growth track records
1
* Restated applying IFRS11 criteria in force starting from 01/01/2014
15 GRUPPOHERAWASTE: exploit our unique expertise
Expand market with a “one stop shop” proposal Facing tenders from a strong competitive position
S. W. Hera volume treatm. Avg cost per family Tender schedule
(mton) (2013 cost €) 2015 2017 Natural
end
3,5
25% lower cost Forlì
Ravenna
Rimini
1,9
Main clients
Bologna
1,6
Ferrara
211 Modena
161
Pesaro-
Urbino
Padova
Trieste
2012 2013 E2018 Hera Avg Italy
The sustainable enhancement of our business
Total capex: 0.53 b€ Sorted collection ’E18 treatm. mix urban W.
(m€) (%) (%)
Landfill
122 120 120 Compo
; 9%
st; 17%
89 64%
Select.;
78 53% 16%
3rd
parties;
29%
WTE;
29%
E2014 E2015 E2016 E2017 E2018 2013 E2018
1
16 GRUPPOHERAENERGY: expanding market presence through all levers
Strategic pillars
EXCELLENCE GROWTH
Develop markets and reduce churn
Further “tailored” commercial offering Confirm at least 50% of current
Customer care beyond bench mark “safeguarded” customers served
Further exploit benefit from energy
savings incentives
EFFICIENCY INNOVATION
Keep on serving with high quality and
Create new marketing proposals
low cost to serve
Promote partnership with clients in
Optimize procurement/plant mgmt
micro-cogen. and energy mgmt
Minimize power generation cost
Ebitda growth drivers
(m€)
+5 +33 174
(42)
178
151
43
15
2002 2007 2012 2013* Synergies Org. growth M&A E2018
…to tackle margin normalization
* Restated applying IFRS11 criteria in force starting from 01/01/2014
17 GRUPPOHERAENERGY: enlarging customer base to offset lower consumptions/margins
Maintain Gas customer base and market share Expanding downstream keeping short upstream
Gas Market Gas supply Electricity Market Electricity supply
Customers
Eni; Customers 1.3 1.3 0.7 1.0
Other 29.4% Enel; (m)
(m) Other 34.9%
2013* E2018 2013 E2018
3.0 3.2
9.2 9.5
Enel;
Sources
= Hera;
8.8%
Edison;
Sources
(bcm)
2.2
1.9
Hera;
Edison;
Eni; 7.3% (bcm) 7.7 7.8
Iren; 7.8% Acea;4.1%
4.8% 5.1% 0.8 1.3 3.8% 3.9%
2013 E2018 1.5 1.7
Direct supplies National 2013 E2018
Targeting 2.3m Energy customer base
*Includes AMGA Udine *Includes AMGA Udine Own production Market
The sustainable enhancement of our business
Total capex: 0.11 b€ Customer satisfaction Cross selling potentials Power generation mix
(m€) (TWh)
1,3
“Delighted”
24 23 24
20 1.7
18 1.5
0,7 0.9
1.0 1.1
0.5
0.4 0.5 0.6
0.2
Electricity Gas 2013 E2018
2014 2015 2016 2017 2018 2013 2015 E2018 Dual Fuel Single service Green Fossil
18 GRUPPOHERACapex plan: 2.1 b€ to sustain low risk growth and efficiency gains
2.1 b€ Capex breakdown by legal entity
(m€)
498 473
417 20 20 373
18 103
332 21 95 30
15
332 379 375 357 328
2014 2015 2016 2017 2018
Hera Group Gas tenders M&A target
Development/Maintenance & Regulated/liberalised
(b€)
2.09
Liberalised 1.89
28%
Gas tenders
72%
Regulated
Cum. Capex Cum. D&A
Enhancing return on invested capital by ~100 basis points
19 GRUPPOHERACumulating financial “firepower” to face future challenges…
E2018 Cash flows Refinanced debt in last 12 months
(m€)
1/3rd of gross debt refinanced
1,200
- in last 18 months
+500 Debt structure as of 1H ‘14
(373) +268
+641 +200 Average maturity >8 Years
+500
4.1% avg cost of debt
Operating cash Capex & Free cash flows*
flows Investments Sept. '13 Oct. '13 June '14 Total 46% variable and 54% fixed
Bond EIB loan Green issued - interest rates
*Before M&A and dividends Bond
FFO/Net Debt Current ratings Debt/Ebitda
(%) (x)
24%
3.1x
20%
BBB/Stable 2.8x
Baa1/negative
2013 E2018 2013 E2018
*FFO calculated as the sum of reported net profit + D&A + provision (non adjusted)
and grow safe and sound
20 Fai vedere senza M&A e Gare debt/ebitda GRUPPOHERAClosing remarks
Hera aims at leading industry transformation moving
from a solid position thanks to the distinctive advantages
built through a consistent strategy over the past years.
Business plan aims at reaching a scale of above 1 billion
Ebitda factoring in only visible drivers balancing well
known Organic and M&A drivers in line with track
record. Ebitda growth transferred down to bottom line
(EPS expected to grow at +5% cagr).
Business mix and proven strategy underpin plan reliability.
Financial soundness targeted to enhance solidity and to create room for further
potential growth opportunities beyond planned targets.
Dividend policy confirmed at a floor of 9c€ DPS per annum up to 2018.
Ready to lead the industry change and create further value
21 GRUPPOHERAAnnex
GRUPPOHERAAssumptions
2013 E2015 E2018
Brent (Dollar/Barrel) 108 103 105
Exchange ratio €/$ 1.33 1.30 1.30
PUN (€/MWh) 63.0 60.5 67.7
Inflation (5Y moving average) 1.9% 1.5% 1.5%
Italian GDP trend (%CAGR) +1.1%
Green certificate (€/MWh) 89 91 85
White certificates (€/TEP) 76 119 122
CO2 certificates (€/ton) 4 8 10
22 GRUPPOHERAConsolidated Group Ebitda growth track record Ebitda growth track record (m€) * Restated applying IFRS11 criteria in force starting from 01/01/2014 23 GRUPPOHERA
Consolidated Group Ebit target
Ebit by strategic area
(m€)
Ebit 2013* Ebit E2018
8 11
107
162
400 518
169
116 241 104
Networks
Energy
* Restated applying IFRS11 criteria in force starting from 01/01/2014 Waste
24 GRUPPOHERAFinancial Strategy
Refinancing needs to 2018 Pursuing balanced interest nature
(m€) (%)
3.869
2.847 Variable
Rates 45%
Fixed
282 68 47
298 55%
327 1.022
2014 2015 2016 2017 2018 post plan Total
Hera Group financial strategy
• Maintain financial liabilities homogeneous
with investment time horizons
• Non speculative financing
• Optimize mix variable/fixed to stabilise
related cash flows
25 GRUPPOHERASustainable development
Electricity production – renewable CO2 emission avoided
(GWhe) (ton)
CAGR 2013-18: +0.6%
550 2013 E2015 E2018
534 544
3 5 8
429 429 439
19 22 2 27
2
73 73 62
10 13 13
2013 E2015 E2018 (271.137) (279.365) (282.290)
Solar Biogas Digesters Hydro WTE Depuration
Thermal energy production – renewable Low emission vehicles
(GWht)
CAGR 2013-18: +2.2%
149 166 166 19.2%
6 6 18.6%
5
77 77
17.1%
71
73 83 83
2013 E2015 E2018 2013 E2015 E2018
WTE Geotherm Biogas
26 GRUPPOHERAWaste to Energy plants as of today
Waste To Energy Plants (in 2013)
Market leader by volume treated from third parties Installed capacity E.E. produced Waste treated
(about 4 million ton in 2013. In 1H 2014 market expansion (MWh) (GWh) (kton.)
progressed). Special waste volume treated signed +25%
Ferrara 13.1 69.8 129.9
Y/Y.
Ravenna 6.2 30.2 47.8
Ravenna F3 4.2 22.5 38.3
Forlì 10.9 66.7 119.9
Fully integrated and diversified asset base
allows to offer 360 degree services to industrial customers. Rimini 10.9 82.2 139.8
Modena 24.8 123.2 190.8
Bologna 22.0 149.3 199.1
Isernia 13.4 98.2 93.5
10 WTE and other treatment plants produce energy Padova
from waste (about 1 TWh produced in ’13 of which 86% 31.3 220.7 345.3
generated by WTEs). Trieste
Total 136.8 862.8 1,304.4
27 GRUPPOHERARegulated infrastructures
Hera RAB 2014*
(b€)
3.1
Water development capex driven by new regulation
1.4
Water framework (2nd national player).
1.0 Gas distrib.
0.3 Elect. distrb.
Other reg.
0.4
Gas and Electricity distribution:
*include Amga Udine RAB consolidated since 07/01/2014
well proven regulation supervised by AEEGSI.
Hera returns on RAB
Reg. Concession Allowed
Regulatory framework protects returns from
Breakdown by business
period length returns volume fluctuation risk.
Water ‘14-’15 ~’24 6.8%
Gas distribution ‘14-’19 ‘14-’18 6.9%
Electricity distribution ‘12-’15 ’30 6.4%
28 GRUPPOHERADisclaimer This presentation contains forward-looking statements regarding future events (which impact the Hera Group’s future results) that are based on current expectations, estimates and opinions of management. These forward-looking statements are subject to risks, uncertainties and events that are unpredictable and depend on circumstances that might change in future. As a result, any expectation on Group results and estimates set out in this presentation may differ significantly depending on changes in the unpredictable circumstances on which they are based. Therefore, any forward -looking statement made by or on behalf of the Hera Group refer on the date they are made. The Hera Group shall not undertake to update forward-looking statements to reflect any changes in the Group’s expectations or in the events, conditions or circumstances on which any such statements are based. Nevertheless, the Hera Group has a “profit warning policy” , in accordance with Italian laws, that shall notify the market (under “price-sensitive” communication rules) regarding any “sensible change” that might occur in Group expectations on future results. 29 GRUPPOHERA
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