A2A NETWORKS & HEAT BU
Stefano Donnarumma - General Manager, A2A Networks & Heat BU
October 2016
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
A2A AT A GLANCE - THE LEADING ITALIAN MULTI-UTILITY
A2A GROUP
2
Local
utilities
A2A Footprint
MONTENEGRO
Focus in Northern Italy withpresence in Montenegro
Technological Partnerships inwaste sector in UK, Spain,Greece
ITALY
A2A FOOTPRINTFINANCIAL HIGHLIGHTS
A2A vs COMPETITORS, EBITDA 2015
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports; CONSOB (shareholding structure updated at 30 September 2016)
SHAREHOLDING STRUCTURE100%: # of shares 3,132,905,277
Total
A2A Spa (treasury shares) 0.8%
Norges Bank 3.0%
Municipality of Brescia 25.0%
Municipality of Milan 25.0%
Free Float 46.2%
53.8% 100.0%46.2%
4.9 €BRevenues
1+ €BEBITDA
2.2 €B Capex 2016-20
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
2016-2020 STRATEGIC PLAN – SHAPING THE FUTURE TODAY
3
A2A GROUP
HIGHLIGHTS
RESTRUCTURE
Substantial reduction inthermoelectric powergeneration exposure
RELAUNCH
Growth acceleration inenvironment, smart
networks and energyservices
RESHAPE
Buying options insmart city
and green economy
DISCIPLINE
Discipline inoperationsand capital
DIALOGUE
Dialogue &engagement withkey stakeholders
DIGITAL
Digital &technological
transformation
STRATEGIC PLAN GUIDELINES
INVESTMENTSFOR
GROWTH
~ € 2.2B cumulated Capex
EBITDA by 2020 € 1.3B (CAGR 4.5%)
- € 0.5B debt reduction in 5 years
Thermal capacity reduction (- 40%)
Strong growth in core skills markets
Regulated / Quasi-regulated EBITDA(1)
by 2020 ~60%
Maintain Solid investment gradecapital structure
DPS(2) 2015 + 13%; stable dividendexpected in 2016
DPS bound to grow thereafter
DIVIDENDPOLICY
ANDCAPITAL
STRUCTURE
BUSINESS-MIXREBALANCE
(1) Regulated activities: Networks, EPCG Electricity distribution, incentivized energy production; Quasi regulated activities: Urban Waste Collection & Treatment, District Heating, Public Lighting(2) Dividend Per Share 2015 4.1 €c/shareSources: A2A 2015 Results & Business Plan Update; Company Annual Reports
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
SUSTAINABILITY – A2A COMMITMENT TOWARDS 2030
4
A2A GROUP
30 ACTIONS by2020
SUSTAINABLEDEVELOPMENT
GOALS vs VALUE CHAIN
GOALS andTARGETS - 2030
ACTION and ENABLINGDRIVERS - 2020
2030 GOALS
THE SUSTAINABILITYPOLICY AND THE 42030 COMMITMENTS
67%recycling
Highlights@2020
100%Smart meter
gas
- 34% t CO2
from electric generation(baseline 2008-2012)
A2A developed a path to define the 2030 commitmentsand short-medium term actions for 2020, identifyingquantitative and measurable KPIs
Relevant to Networks & Heat BU
DECARBONIZATION
1st CLUSTER
CIRCULAR ECONOMY
2nd CLUSTER
SMART TECHNOLOGYINNOVATIONS IN
NETWORKS AND SERVICES
3rd CLUSTER
PEOPLE INNOVATION
4th CLUSTER
25%reduction of injury rate(baseline 2013-2015)
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
DIVERSIFIED AND INTEGRATED BUSINESS PORTFOLIO
A2A GROUP
5
(1) Declared EBITDA equal to 1,044 €M, excluding costs of redundancy schemes (-1 €M), non recurring items (26 €M) and EBITDA from “Other Services & Corporate” (-21 €M)
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
2015Ordinary
EBITDA1,023 €M(1)
GENERATION &TRADING
Fuel sourcing
Powergeneration
Whole-sale &Trading
340 €M 33%
Generation& Trading
∼2 GW hydroinstalledcapacity inItaly
ENERGY RETAIL
90 €M 9%
Electricity / Gassales
free market regulated
market
Energy RetailMarket leaderfor
• quality
• customersatisfaction
WASTE
205 €M 20%
Heat / Electricityproduction
Collection andstreet sweeping
Treatment
Disposal
Waste
N.1 for electricityproduced byWTE plants
EPCG(Montenegro)
Power generation
Electricity networks
53 €M 5%
EPCG∼0.7 GW hydroinstalledcapacity (76%of total)
Top strengths
356 €M 34%
Networks & Heat – Focus of Today
Infrastructure
Stable cashgenerating business
INFRASTRUCTURE
Integrated Water Cycle
Electricity networks
Gas networks
Heating Distribution
Energy Efficiency& New ServicesTechnologicalleadership in LED andenergy efficiencyservices
ENERGY EFFICIENCY &SERVICES
Heat Generation,recovery and sales
Energy EfficiencyServices
Public Lighting andsmart city services
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
NETWORKS & HEAT BU – KEY FINANCIALS
6
NETWORKS & HEAT BU
2015 EBITDA BREAKDOWN 2015 CAPEX BREAKDOWN BY CATEGORY100% = 181 €M
(1) Net of non-recurring items (3 €M)
100% = 353 €M(1)
75% of EBITDA in electricity, gas distributionand water cycle
Development CAPEX is the main component
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
INFRASTRUCTURE: TRADITIONAL BUSINESS,STABLE CASH GENERATOR
7
NETWORKS & HEAT BU
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
• Diversified Portfolio of Networksto manage regulatory risk
• Excellent continuity of electricityand gas service
• Highest safety standards
• Focus on cost efficiency and newtechnologies (e.g. smart grids)
Electric PowerDistribution
GasDistribution
WaterCycle
HeatingDistribution
BUSINESS MODEL
1,120,000 Points of Redelivery 1,260,000 Points of Redelivery
1,000 km network 7,000 km network
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
ENERGY EFFICIENCY & SERVICES:SOURCE OF NEW OPPORTUNITIES
NETWORKS & HEAT BU
8
• Diversified technology/fuel mix
• High efficiency cogeneration
• Environmental friendlytechnology
• District Cooling option
• Technological leader in LED PublicLighting in Italy
• 1,000+ MWt of Thermal Capacityand 200,000+ Lights
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
Gas-fired high efficiencycogeneration
Geothermalheat pumps
Solarthermal
Public lightingBiomass
Heat recoveryfrom third parties
BUSINESS MODEL
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
STRATEGIC CONTEXT
9
NETWORKS & HEAT BU
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
Growth of investment innetworks to rebalance
business portfolio
InvestmentGrowth
• 1,106 € Million Investments in2016-20 plan in Network &Heat BU (~50 % Group Capex)
• Additional projects withpotential upside under study
Regulatory RiskMitigation
ChallengingRegulation
• WACC Remuneration Impact• Water tariff• Gas National tenders• Local Aggregations
Network re-design tosupport new services
NewTrends
• Integrated management ofnetworks
• Advanced Automation• E-mobility growth• Changing Consumer Behavior
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
GROWTH DRIVERS
10
NETWORKS & HEAT BU
ExternalGrowth
OrganicGrowth
Smart CityServices
Energy EfficiencyServices
ENERGY EFFICIENCY & SERVICES
INFRASTRUCTURE
Water InfrastructureEnhancement
M&A
GasTenders
LocalAggregations
LED LightDeployment
Smart GridInfrastructure
New Heat TransportationBackbone (Cassano)
+59 €M for the BUover 2016-2020 Plan
New projects on topof strategic plan[est. 65 - 95 €M]
EBITDA TARGETS
ArtisticLighting
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
FOCUS – GAS TENDERS: DOMESTIC MARKET OVERVIEW
11
NETWORKS & HEAT BU
MARKET STRUCTURE OUTLOOK
KEY NUMBERS
• Highly concentrated market: first 5 players cover 67% of totalmarket,
• 2 large national players: Italgas (30%) and 2i Rete Gas (18%) havea strong presence all across Italy
• Many small players with low market shares: more than 200players managing less than 20k cubic meters
Main Players(market share as number of redelivery points managed)
• Consolidation process ongoing(expected around 30-40 players atthe end): technical and financialconstraints for small players,incumbents and big players areexpected to consolidate theirpositions (synergies from economiesof scale)
• Regulatory evolution: introduction ofa new mechanism for Capex tariffrecognition (DCO 456/16)
• Tenders bidding period: 175 tenderswill be held in the next 4 years, needto accurately select ATEMS in which tocompete
Iren
33%
a2a(Unareti)
4%
8%7%
Hera
18%
2i Rete Gas
30%
ItalgasOthers(< 4%)
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
INITIATIVE HIGHLIGHTS KEY BENEFITS
KEY NUMBERS
FOCUS – GAS TENDERS: COMPANY OVERVIEW
12
NETWORKS & HEAT BU
• 175 ATEMs (Aree Territoriali Minime, i.e., Minimal Local Areas) inItaly defined by Ministry for Economic Development
• Assignment of ATEMs concessions subject to tenders
• 12-year concessions, first tenders in 2016 and the last onesexpected to close in 2019, First service management in H2 2017
Current Footprint A2A (Unareti) Competitive Position
A2A has competitive advantage in territories where it is incumbent player
• Increased geographical penetrationopportunity to extend presence inareas not covered today
• Increase Asset Baseopportunity to increase investment aspart of tender requirements
• Operational EfficiencyCost reduction due to economies ofscale in increased territorial coverage
• Present in 26 ATEMs today• Average Market Share 40%
• Top 3 ATEMs Market Share• Milano 1 - 96%• Brescia 3 - 74%• Bergamo 4 - 69%
15-20%RAB Increase 2020 vs 2015
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
FOCUS – GAS TENDERS: DETAILS ON THE PROCESS
13
NETWORKS & HEAT BU
100%
Economic Offer
Technical Offer -Safety & Quality
27%
Technical Offer -DevelopmentPlan
45%
Total Tender Score
28%
TENDER SCORING BREAKDOWN TENDERS SUCCESS FACTORS
Economical criteria have a ceiling and are based onthe following elements:• Discount on gas tariff• Discount on prices related to additional services• Annual fee to the municipality• Extension of the network for new customers• Additional energy efficiency obligation
Safety and Quality are based on the followingelements:• Network inspections in order to prevent gas leaks• Emergency service performance• Odorization service performance• Improving the level of other quality standard levels
set by the Authority (e.g., works execution; …)
Network Development Plan relies on:• New Builds: investment plan for the extension and
the increase of capacity of the distribution network• Maintenance: investment plan for the substitution
of network components• Innovation: investment plan for the technological
innovation of the network system
• Target ATEMs Selectionbased on strategic fitting andexpected level ofcompetition
• Right balance betweenprobability of success andprofitability Economicoffer impacts on ATEM’sprofitability
• Best technical projectTender scoring is weightedtowards technical elementsof the bid
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
INITIATIVE HIGHLIGHTS KEY BENEFITS
KEY NUMBERS
FOCUS – SMART GRID INFRASTRUCTURE
14
NETWORKS & HEAT BU
ImprovedDemandManagement
IntegratedDistributionManagementSystem
Integration withIndustrial EnergyManagementSystems
Automation ofsubstations toimprove networkresilience
Management ofvolatile renewalenergy powergeneration
Infrastructuredeployment fornew services(e.g.. e-mobility,last mileconnection)
Electricity network enhancement with new hardware andsoftware to harness opportunities created by new technologies
• Increase of Regulated Asset Basenew hardware and software investmentswill be recovered and remunerated @WACC
• Lower Operating Costreduction of workforce required fornetwork maintenance and management
• Enabling of new service offeringsEnergy efficiency and services formunicipalities (e.g. smart city)
7-15 €MEBITDA upside
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
FOCUS – DISTRICT HEATING: COMPANY OVERVIEW
15
NETWORKS & HEAT BU
Today:
Local distributor in the cities of Milan, Brescia andBergamo
First Italian operator
More than 2 TWht of heat delivered to customers (25% ofthe market)
Strong integration with waste cycle (50% of heat fromWTE)
Tomorrow:
Growth in volumes (network expansion and acquisition ofnew network nearby)
Enhancement of the green energy mix by reduction offossil fuels, use of locally available waste heat and RES,recycle of energy from waste in the circular economy.
CO2 reduction in coherence with A2A sustainabilitycommitment.
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
INITIATIVE HIGHLIGHTS KEY BENEFITS
KEY NUMBERS
FOCUS–NEW HEAT TRANSPORTATION BACKBONE (CASSANO)
16
NETWORKS & HEAT BU
• Enabler of new business opportunities130,000 citizens live in themunicipalities served by the newpipeline
• Source of white certificates for energyefficiency
• Positive Environmental impactReduced CO2 and pollutant particlesemissions from heating (today heatingis provided with natural gas/oil boilers)
760MW Cassano Power Plant owned since 1961
From early 2000s the Plant has gone through significantenhancements to increase efficiency and decrease the Emissions
Today at 30km from Milan it is a potentially relevant source ofheat that will be delivered to Milan through a major pipeline
Interest to co-finance the investment expressed by LombardyRegion, Ministry of the Economic Development, also in line withthe Efficiency Strategy of EU Commission
50-60 €MEBITDA upside
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
FOCUS – WATER INFRASTRUCTURE ENHANCEMENT
17
NETWORKS & HEAT BU
3537362825
’17 ’182016 ’19 2020
Verziano depuration site(rendering)
161 €M Investment Plan
• Increase of Regulated Asset Basenew investments to solve Europeanviolation and avoid fines
• Lower Operating Costrationalization of network design tolimit energy losses and water leakages
• Better Water QualityBest in class technology for new waterdepurators to become top rank inquality in Italy
New regulation increased allowed tariff for water distributioncollection and purification to allow investment increase fornetwork improvement
• 17 projects for water distribution services• 9 projects for drainage water collection network improvement• 4 projects for water depuration (e.g. Verziano)
INITIATIVE HIGHLIGHTS KEY BENEFITS
KEY NUMBERS
50+ €MEBITDA one-offincrease 160+ €M
Capex Plan 2016-2020
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
INITIATIVE HIGHLIGHTS KEY BENEFITS
KEY NUMBERS
FOCUS – LED LIGHT DEPLOYMENT
18
NETWORKS & HEAT BU
161,000 LED
2015 …@2020
309,000 LED
2016
200,000+ LED
TraditionalLights
LEDLights
Deployment of LED technology on all A2A managed PublicLighting InfrastructureA2A is a technological leader with 100,000+ LED installed in 2016M&A opportunities to grow this business under consideration
• Lower Operating Costreduced need for maintenance withlong lasting LED technology
• Energy saving and better light quality59 million of kWh saved bymunicipalities, clearer light to increasevisibility at night
• Win-win solution for A2A and thelocal authorities involved
Milan Area Satellite view, March 2016
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
50%Energy efficiency
23,000Tons of CO2 avoided
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
INITIATIVE HIGHLIGHTS KEY BENEFITS
KEY NUMBERS
FOCUS – ARTISTIC LIGHTING
NETWORKS & HEAT BU
19
4,000+Lighting Points installedand to be converted toLED technology
Milan Castle lit by A2A Monument Lighting, May 2016
Deployment of LED technology on all A2A managedArtistic Lighting Infrastructure
A2A is a leader in the business of Lighting Monuments andPublic Buildings
• Higher visibility to Municipalitiesincreased brand recognition forA2A through public lighting
• Lower Operating Costreduced need for maintenance withlong lasting LED technology
• Reduced EmissionsReduced CO2 Emissions
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
50%Energy Saving
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
En&AProject
Business UnitConsolidation
• Consolidation of control rooms and call centers• Increased efficiency in field works• More leverage in negotiation of roadworks
contracts with suppliers• Integration of information systems and processes
Before Aftera2aSpA
a2aReti Elettriche
a2aReti Gas
a2aLogistica
a2aServizi allaDistribuzione
100%
100%
100%
100%
100%
NewcolaunchedApril 1st
2016
En&A a project for efficiencies onoperative fixed and variable costs, CAPEX,and revenue increase
a2aSpA
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
OPERATIONAL EFFICIENCY IMPROVEMENT
20
NETWORKS & HEAT BU
+50 €M A2A EBITDA
177 Projects at Group level
44 Projects at Networks& Heat BU level
INVOLVEMENTMore than 400 resources involved
SCORECARDSscorecards with detailed schedules,responsibilities and targets
MASTERPLANSDetailed projects masterplans forProcurement, ICT, HR
MONITORINGMonthly monitoring of progress atprocess level
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
R&D AND INNOVATION PROJECTS
21
NETWORKS & HEAT BU
ONGOING PROJECTS BUILDING THE 2020 CITY
New conceptPrimary Cabins
Work ForceManagement
Integrated DistributionManagement System
IDE4L (Ideal Grid for All)
S.C.U.O.L.A. (Smart Campus asUrban Open Labs)
B.S.L. (BresciaSmart Living)
Sharing Cities
Sources: A2A 2015 Results & Business Plan Update; Company Annual Reports
SMART LIGHTS
SMARTMETERING
SMARTSECURITY
CONNECTEDCITY
DIGITAL ISLANDS E-MOBILITY
PARTNER OFNISSAN
PARTNER OFSHARE & GO
13 NEW HIGHSPEED CHARGERS
NEW OWNe-FLEET
SMART DOMO GRID
ELECTRICITY LOADBALANCING
ELECTRIC COSTOPTIMIZATION
PILOT PROJECTWITH 22 FAMILIES
HOUSE OF THEFUTURE
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.
KEY INVESTMENT HIGHLIGHTS
• Solid diversified business
• Key player in Regulated Sectors
• Tangible growth opportunities
• Technological Trends enabling additional growth
• Critical mass from a perimeter enlargement
• Management background with strong track record
• Strong commitment to Sustainability
22
Deliveringquality and
growth with lowrisk to increase
shareholdervalue
A2A GROUP
This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.23
This document has been prepared by A2A solely for investors and analysts. This document does not constitute an offer or invitation to purchase or subscribe any shares or other securities and neither it nor any part of it shall
form the basis of or be relied upon in connection with any contract or commitment whatsoever. Some information contained herein and other material discussed at the meetings may include forward-looking information based
on A2A’s current beliefs and expectations. These statements are based on current plans, estimates, projections, and projects and therefore you should not place undue reliance on them. Forward-looking statements involve
inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited
to changes in global economic business, changes in the price of certain commodities including electricity, gas and coal, the competitive market and regulatory factors. Moreover, forward-looking statements are current only at
the date on which they are made.
A2A Investor Relations Team
Mail: [email protected]
Phone: +39 02 7720 3974
http://www.a2a.eu/en/investor/
CONTACTS AND IR PRODUCTS
a2a
2016
InvestorGuidebook
InvestorDatabook(excel file)
Concise and thorough insight in the A2A Group in the form of a longpresentation divided into three main parts: Our World, Our Resultsand Our Responsibilities. The selected contents are all publiclyavailable information, which you may find spread across a largenumber of Company documents
• Historical economic, financial and operational company data asof 2008 – on annual and quarterly basis
• Economic, financial and operational data useful for building A2Aearnings model – 2015 FY reported and 2016-20 BP forecast
• Tables of the Investor Guidebook mainly relevant to aquantitative analysis
Periodic update service for investors and
analysts on the significant steps of A2A
Business Plan – such as relevant
investments, new projects, achievements,
contracts, agreements. If you wish to
subscribe to the service, please visit A2A
website at the following link
http://www.a2a.eu/en/investor/overview/
newsletter/
Brief and synthetic document that shows the highlights and thestrengths of A2A business model
Moreover A2A publishes the following documents in the Investor Library Section on A2A website:• Overview of the Italian Energy Market (yearly basis)• Notes on energy and environmental markets (quarterly basis)Both documents are prepared by the Market Analysis, Modeling and Pricing Unit of A2A
Newsletter
Publications
The publications are available at the following link: http://www.a2a.eu/en/investor/guidebook/
a2a
2016
CompanyProfile
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