a2a 2017 Investor Guidebook July 2017

Transcription

1 a2a 2017 Investor Guidebook July 2017

2 Our World p Our Results p Our Responsibilities p Welcome to A2A Investor Guidebook, prepared for investors and financial analysts to get a thorough insight into the A2A Group. In order to get the most out of it we have provided the Resources section aside, which refers to additional material available in the company website: You will find further such references in the Index pages. We would like to get your feedback and suggestions to improve this product. Please write to: ir@a2a.eu A2A Investor Relations Team Resources: Databook in excel: this file is part of the Guidebook kit and contains annual and quarterly economic, financial and operational Company data as of 2008 and all the tables published in this Reference to more in-depth, updates and documents available in A2A website This symbol marks the pages which may be subject to updates during the year This symbol marks the pages where Excel downloads are available Annual and quarterly Historical series available in the Investor Databook: -services/investor-guidebook-kit or in dedicated sections. The Guidebook starts with the Company Profile at page 3 DISCLAIMER - 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 they are made. 2

3 A2A - THE LEADING ITALIAN MULTIUTILITY Company Profile Our World A2A is active in environment, energy retail, networks and district heating, generation and trading a business diversification which spans from regulated to market exposure thus considerably lowering its economic risk profile Born in 2008 from the merger of AEM, ASM and AMSA, A2A operates throughout Italy, predominantly in Lombardy The business units of the company have a first class asset base - both plants and networks. Long term concessions increase visibility A2A business model is very flexible. It allows for optimizations both in the business units and across them At international level A2A mainly operates in Montenegro through EPCG (electricity) The current strategy has been set out in the Strategic Plan. The main lines of the Plan are the following: - Relaunch: growth in environment, smart network and energy services - Regeneration: active role in the energy market transformation - Reshape: buying options in smart city and green economy - Discipline in operations and capital structure - Dialogue & engagement with key stakeholders - Digital & technological transformation EBITDA expected to grow to 1,380 M in 2021, cumulated CAPEX of the period equal to 2,750 M Our Results Positive 2016 results were achieved: Ebitda up by almost 18%, strong growth in Net Profit. Investments were up by 23% With respect to these external dynamics, the Group reacted by continuing with the initiatives to improve operational efficiency, which helped to sustain the profitability Debt optimization continued posting satisfactory results also in 2016 A dividend of euros per share, up by 20%, was submitted to AGM approval A2A medium-term financial strategy is aimed at lengthening the average debt maturity, maintaining an adequate financial flexibility and lowering the cost of debt to support the Company rating A2A adopts a prudent energy risk policy, part of its Enterprise Risk Management model, whose purpose is to further develop and integrate risk management activities into the business process Our Responsibilities A high weight of green components characterizes A2A asset portfolio. Large scale renewable production (hydroelectric, WTE), high efficiency production (cogeneration with lower CO2 emissions) and innovative technologies to increase energy savings (LED lighting). A2A may also leverage on a large and loyal customer base as a natural hedge for its energy portfolio. These mark the Company commitment to sustainability, further strengthened in The shift to a traditional governance model, occurred in June 2014, facilitates decision making and emphasizes the central role of the Board of Directors Milan and Brescia cities are the major shareholders with a joint control Business Units: top strengths Environment n. 1 for electricity produced by WTE plants Energy Retail market leader for quality and customer satisfaction Networks and District Heating incumbent in its 3 key gas areas first domestic operator in DH Generation & Trading 2 GW hydro installed capacity in Italy EPCG 0.7 GW hydro installed capacity (76% of total) (1) Group net income adjusted for the impact of extraordinary items: 2016 = 377 M; 2015 = 278 M; 2014 = 175 M; 2013 = 156 M 3

4 INDEX Our World Our Results Our Responsibilities A2A Group - The A2A Group 5 - A2A Business Portfolio 6 - A2A Geographical Presence 7 Assets and Activities - A2A Asset Portfolio 8 - A2A Concessions Portfolio 10 Benchmarking - Market position in terms of businesses and EBITDA 11 Main regulatory framework - Networks - regulatory framework 12 - Networks - gas distribution tenders 13 Major Transactions - Acquisitions & disposals - track record 14 Strategic Plan Strategic Plan in a nutshell Strategic Plan - Main targets More in-depth, updates and documents available in the following website sections: A2A Group: Assets and Activities: and Major Transactions: Strategic Plan: 4

5 THE A2A GROUP Our World A2A Group Areas of activity Generation & Trading Energy Retail Environment Networks and Heat EPCG Other Companies (1) Stakes held through Linea Group Holding S.p.A. 5

6 A2A BUSINESS PORTFOLIO Our World A2A Group ENVIRONMENT ENERGY RETAIL NETWORKS & HEAT (2) NETWORKS HEAT GENERATION & TRADING SMART CITY EPCG (Montenegro) 2016 EBITDA (1) 231 M 20% 120 M 11% 285 M 25% 69 M 6% 352 M 31% 6 M 1% 69 M 6% Collection and street sweeping Treatment Electricity / Gas sales free market regulated market Electricity networks Gas networks Heat Generation, recovery and sales Heating Distribution Fuel sourcing Whole-sale & Trading Data transmission Telephony and Internet access Power generation Electricity networks Disposal Integrated Water Cycle Energy Efficiency Services Power generation Video-surveillance Heat / Electricity production Public Lighting SIGNIFICANT SYNERGIES ACROSS THE BUSINESS UNITS Ordinary EBITDA equal to 1,103 M (1) Equal to 1,132 M, calculated as Reported EBITDA (1,231 M) net of non recurring items (128 M) and EBITDA from Corporate (-29 M) (2) Infrastructure activities: electricity and gas networks, heating distribution and integrated water cycle. Energy efficiency activities: heat generation, recovery and sales, public lighting and other energy efficiency services. Sources: A2A Strategic Plan, 2016 Results & Business Plan Update; Company Annual Reports 6

7 A2A GEOGRAPHICAL PRESENCE Our World A2A Group Italy Lombardy G G G G G G G W DH C C E G DH PL C G PL G DH PL C DH G DH C G C C E C G DH C E G W DH PL C Legenda Environment Waste collection Treatment plants Biogas/Biomass plants Waste-to-Energy Generation & Trading Hydroelectric CCGT Coal Fuel Oil Solar Networks Electricity Gas Water Public Lighting E G W PL C Montenegro Heat Cogen. & thermal plants Thermal solar plants District Heating DH E Foreign Hydroelectric Coal Electricity Networks E Technological partnerships abroad on waste treatment plants (UK, Spain and Greece) 7

8 A2A ASSET PORTFOLIO ENVIRONMENT PORTFOLIO ENERGY RETAIL PORTFOLIO (2) Our World Assets and activities (2) 2016 figures include LGH and refer to 31/ figures are average values NETWORKS PORTFOLIO (1) Management-only. The treatment capacity is not included in the total because A2A revenues are mainly based on electricity sales. 8

9 A2A ASSET PORTFOLIO COGENERATION & DISTRICT HEATING PORTFOLIO Our World Assets and activities GENERATION & TRADING ELECTRICITY GENERATION PORTFOLIO EPCG (MONTENEGRO) ELECTRICITY GENERATION PORTFOLIO (1) net of: the shutdown of Brindisi coal plant, groups n.3 and 4 of San Filippo del Mela fuel oil plant and group n.1 of Cassano CCGT plant (thermoelectric plants) the deed for the nonproportional partial demerger of Edipower (Udine hydroelectric plants except from Ampezzo and Somplago) 9

10 A2A CONCESSIONS PORTFOLIO ENVIRONMENT GENERATION Hydroelectric Plants Our World Assets and activities (1) Extension of the temporary continuation regime until 12/31/2017 pursuant to Regional Council Decrees (2) Except from Boscaccia and Premadio II (total capacity of ~80 MW) expiring in 2037 and 2043 respectively NETWORKS DISTRICT HEATING 10

11 A2A MARKET POSITION IN TERMS OF BUSINESSES AND EBITDA Our World Benchmarking 2016 EBITDA (source: FY 2016 companies presentations) A2A: the highest EBITDA among local utilities Local utilities Sources: AEEGSI Annual Report, companies data, internal analysis. not available yet figures A2A is well positioned in its main businesses, leader in district heating and in waste-to-energy activities 11

12 NETWORKS - REGULATORY FRAMEWORK Our World Regulatory Framework NETWORKS - REGULATORY SCENARIO Regulatory Body: the Energy Authority (AEEGSI) ELECTRICITY GAS 5 th Tariff regulatory period: (8 years) Tariff not linked to change in unit volumes consumption Shift from input-based to output-based model as of 2016 and Totex mechanism (optimisation of opex and capex) as of 2020 WACC: in , 5.6% (distribution, metering); additional remuneration related to innovative projects and energy efficiency improvement Gradual approach to the extension of asset life Price cap: 1.9% (distribution), 1% (metering). The potential extra-efficiencies achieved in the 3 rd and 4 th regulatory periods are to be shared with the consumer by 2019 Interim reviews: some WACC parameters (3 years) - see box 4 th Tariff Regulatory period: (6 years) Tariff not linked to change in unit volumes consumption WACC: in , 6.1% (distribution), 6.6% (metering) WACC is applied either to RAB or to VIR AEEGSI (1) - for new ATEM s entrants (so-called "asymmetric regulation") Price cap: up to % for distribution and 0% for metering. Price cap reduced to 0% in the first 2 years of ATEM s Interim reviews: price cap (3 years) and some WACC parameters - see box ELECTRICITY GAS WACC reform In December 2015 AEEGSI defined the WACC remuneration for the regulated energy networks, effective from 1 January The common parameters are set for gas and electricity, excluding those specific of each sector, such as beta and D/E. WACC is real pre-tax allowed return. WACC regulatory period lasts 6 years ( ) The interim review is fixed every 3 years for: Risk Free Rate; Country Risk Premium (2) ; Inflation used to calculate F factor; Gearing (value more in line with those used by other European regulators), Tax Rate according to the annual Stability Law WATER 2nd Regulatory period: (4 years) Allowed revenues based on full recovery cost subject to efficiency and capped in terms of tariff growth Regulatory matrix with six different tariff schemes, linked to the need for new investments, the evolution of underlying costs due to consolidation or improvement in quality of service and Opex per capita Fixed annual maximum tariff increases - ranging from 5.5% to 9%, different for each of the six tariff schemes assigned at Local Authority Level (EGA) Overall return equal to 5.3% (3), with an additional 1% extra return for investments made from 2014 Introduction an X-factor equal to 0.5% to promote higher efficiency on internal Opex Interim review: RAB and variable costs (2 years); assumptions on financial costs and taxation can be modified every 2 years if there are "significant changes" (1) VIR AEEGS : Asset residual value («valore industriale residuo») - as recognised by AEEGSI for tariffs purpose and calculated in compliance with the guidelines set by the Ministerial Decree 226/11 and with the Resolution 19/ DIUC, is equal to the capital expenditure necessary to rebuild anew the assets, depreciated due to use and obsolescence (on the basis of regulatory asset useful lifes). (2) only if there is a more than 20% deviation in the average spread between 10-year government bonds of Italy and Germany vs the previous period (3) The figure is calculated as the sum of cost of equity, cost of debt, gearing, recognized financial costs ("OF") and fiscal costs ("Ofisc") 12

13 NETWORKS GAS DISTRIBUTION TENDERS Our World Regulatory Framework (1) According to DL n.210/2015 converted into Law n.21/2016. In case the municipalities do not respect procedures to start gas auctions, Regional governments would take substitute power Public tenders deadline could be delayed Sources: A2A internal elaboration based on Utilitalia data Tenders for the assignment of the gas distribution services have to be carried out only for ATEMs (Aree Territoriali Minime, i.e., Minimal Local Areas), which are clusters of municipalities (175 in the whole national territory) established by the Ministry for Economic Development The first tenders started in 2016 and the last ones are expected to close in Consequently the first service management contracts for ATEM will be active as of the second half of 2017 Each concession will be granted for 12 years 13

14 ACQUISITIONS & DISPOSALS - TRACK RECORD Our World Major Transactions 14

15 STRATEGIC PLAN IN A NUTSHELL Strategic Plan Guidelines Our World Strategic Plan RELAUNCH Growth in environment, smart networks and energy services Focus on low-risk businesses REGENERATION Active role in the energy market transformation Flexible fleet to serve shortening EU markets Re-alignment with EU Winter Package Development by adjacencies RESHAPE Buying options in smart city and green economy From pilot projects to market solutions DISCIPLINE DIALOGUE DIGITAL Operational excellence project adoption Further deleveraging, with higher Capex and DPS Dividend target of 7.5 cent in 2019 confirmed Extension of multi-stakeholder forum and territorial sustainability reports Sustainability target in management MBO People: ageing policy, welfare, managerial development, talent management, employer branding Further Business Units process digitalization New HR ERP Strong fiber development New IT and digital services to municipality Strong investments in automation FOCUS TRANSFORM ACCELERATE A2A: what kind of company going forward? Key takeaways Waste, Retail and Networks to lead the growth More options for generation and a more conservative energy scenario Resilience of net income growth to commodity prices Dividend target of 7.5 cent in 2019 confirmed Positive free cash flow generation with increasing Capex and dividends NO LONGER A GEN.CO. Growth mainly driven by non-generation businesses Higher option value from generation assets and Winter Package BOOST IN BUSINESSES WITH PROVEN TRACK RECORD Strong CAPEX increase in regulated/ quasi-regulated markets Annual investments 50% higher than past three years average Further optimization from operational excellence ROOM FOR UPSIDES Local aggregations, M&A, RES/DER and other projects to strengthen A2A positioning and to mitigate risk Updated Project Pot OUR FUTURE IS SUSTAINABLE, GREEN, OPEN, SMART 15

16 STRATEGIC PLAN - MAIN TARGETS Our World Strategic Plan +245 M EBITDA 1,135* WASTE ENERGY RETAIL NETWORKS GENERATION SMART AND DISTRICT HEATING & TRADING CITY ,380 1, % 13% 30% 35% EPCG OTHER REGULATED / FREE MKT MIX BY MIX * Central value of the range 1,120 M 1,150 M considered as the reference value for EBITDA 2017 OTHER EPCG NETWORKS GENERATION & TRADING REGULATED WASTE QUASI REGULATED ENERGY RETAIL SMART CITY MERCHANT LOW VOLATILITY MERCHANT HIGH VOLATILITY BY BU 2,750 2,750 2,750 M CAPEX 1% 9% 47% 6% 2% EPCG CORPORATE SMART CITY NETWORKS DISTRICT HEATING 3% 57% M&A DEVELOPMENT 12% 1% 34% MERCHANT MERCHANT LOW VOLATILITY QUASI REGULATED Other 2021 targets: Net Income 470 M Net Financial Position 2.5 Bn (1.8x NFP/EBITDA) 25% 1% 8% TOTAL CAPEX WASTE RETAIL GEN. & TRADING 36% 5% TOTAL CAPEX MAINTENANCE MANDATORY 53% TOTAL CAPEX More in-depths and documents available on A2A website. Strategic Plan: presentations-conference 16

17 INDEX Our World Our Results Our Responsibilities Consolidated Results - Consolidated Income Statement 18 - Capital Employed and Sources of Financing 19 - Consolidated Balance Sheet 20 - Consolidated Net Financial Position Quarterly Accounts 22 Operating Results - Environment 23 - Energy Retail 24 - Networks and Heat 25 - Generation & Trading 26 - Other services and Corporate 28 - Foreign (EPCG) 29 Debt - Financial Strategy 30 - Group Debt Structure 31 - Bonds and EMTN Programme 32 Risk Management - A2A Group Risk Management More in-depth, updates and documents available in the following website sections Operating and Consolidated results: Debt: Risk Management: 17

18 CONSOLIDATED INCOME STATEMENT Our Results Consolidated Results Note: Group net income adjusted for the impact of extraordinary items: 2016 = 377 M; 2015 = 278 M; 2014 = 175 M; 2013 = 156 M; 2012 = 116 M; 18

19 CAPITAL EMPLOYED AND SOURCES OF FINANCING Our Results Consolidated Results (1) Net of balances included in net financial position Scope of consolidation The consolidated Annual Financial Report at 31/12/2016 includes the figures of the parent A2A S.p.A. and those of the subsidiaries over which A2A S.p.A. exercises either direct or indirect control, even if the holding is less than 50%. In addition, companies in which the parent exercises joint control with other entities (joint ventures) and those over which it has a significant influence are consolidated using the equity method. Changes in the scope of consolidation Following the purchase by Aprica S.p.A. on 20/04/2016, of the 64% of the investment in LA BI.CO DUE S.r.l., a company active in urban waste services in the Province of Brescia, the latter was fully consolidated at 31/12/2016. In accordance with the provisions of IFRS 3, at 31/12/2016, the Group completed the Purchase Price Allocation process, allocating to the portfolio of clients the difference between the amount transferred, measured in accordance with IFRS 3, and the net fair value attributed to assets acquired and liabilities undertaken. On 20/07/2016 A2A Ambiente S.p.A. finalized the acquisition of 100% of RI.ECO- RESMAL, Group active in the collection, sorting and recovery of waste in the hinterland of Milan; the latter has been consolidated with the line-by-line method and the Annual Report at 31/12/2016 reflects the Purchase price allocation activities, following which the difference between the price paid and transferred, valued in accordance with IFRS 3, and the net fair value attributed to the assets acquired and liabilities undertaken of RI.ECO-RESMAL was allocated entirely to the portfolio of clients of the acquired perimeter on the date of first consolidation. Following the purchase by A2A S.p.A., which was finalized on 05/08/2016, of 51% of the investment in the Lombardy multi-utility LGH, at 31/12/2016, the latter was fully consolidated. Based on the provisions of IFRS 3, in the Annual Report at 31/12/2016, the transaction was accounted for by fully allocating the difference between the price paid and fraction of Equity of LGH on the date of first consolidation to the item Goodwill pending the completion of Purchase Price Allocation. On 20/10/2016, the acquisition was finalized of 75% of the share capital of Consul System S.p.A., the main independent Italian ESCo (Energy Service Company), with the aim of creating operational synergies and developing new products and services; as a result of this transaction, the Group obtained control of the company and therefore at December 31, the latter has been fully consolidated. At 31/12/2016, the Purchase price allocation activity was not completed as required by IFRS 3 and in the Annual Report, the difference between the price paid and fraction of Equity of Consul System S.p.A. was entirely attributed to Goodwill. Lastly, the shareholding held by A2A Ambiente S.p.A. in Bellisolina S.r.l., previously fully consolidated, was reclassified to the item Non-current assets held for sale, in anticipation of its sale, which was finalized in late January

20 CONSOLIDATED BALANCE SHEET Our Results Consolidated Results At 31 December 2016 A2A S.p.A. reserves available for distribution to shareholders amounted to 214,940,217 euro, of which to fiscal moderate suspension equal to euro 124,783,022. (1) Book values on A2A Separate Financial Statements at 31 December 2016 (2) At their general meeting on 17 July 2014, EPCG shareholders approved a share capital increase arising from the conversion of the company s tax liability. As a result, A2A shareholding decreased to 41.75%, with no variations in A2A rights to manage the company as established in the agreements signed in

21 CONSOLIDATED NET FINANCIAL POSITION Our Results Consolidated Results (1) The net result is stated excluding gains on the disposal of shareholdings. (2) Net of balances with contra-entry in equity Mandate for the legal audit of the accounts for the years from 2016 to 2024 The AGM called On 11 June 2015 the AGM conferred the mandate for the legal audit of the accounts for the years from 2016 to 2024 to Reconta Ernst & Young S.p.A.. Business outlook for operations The year 2017 started with market conditions (energy scenario, average temperatures) generally satisfactory in spite of the scarce water resources, both in Italy and in Montenegro. On April 3, the company presented the Business Plan to the public that, despite the continuity of strategic direction with previous plans, has introduced important changes, most notably the acceleration of investments in the Environment and Networks Business Units aimed at transforming A2A into a multi utility oriented more to the provision of services to local communities and less to conventional electricity generation. The execution of the Strategic Plan will be the main commitment of the company, expected during the year also upon renewal of the Board of Directors and company Top Management, whose expectations regarding the economic-financial performance for the year are good: EBITDA is expected to range between 1.12 and 1.15 billion euro (down from 2016, year however favoured by more than 120 million euro of nonrecurring income) ensuring a net profit in line with or higher than as reported in Update after Q Results The favourable trend of the energy scenario recorded in Q1 2017, and more specifically in the month of January 2017, led to a considerable increase in the results expected in the Generation and Trading Business Unit. This improvement, compared to the expectations contained in the new BP announced by Management in April, allows greater optimism for the financial results of the year with a forecast EBITDA ranging between 1,170 and 1,190 million euros. The improved operating profitability, net of the tax effects, is also expected to have an impact on the net profitability. 21

22 2016 QUARTERLY ACCOUNTS Our Results Consolidated Results 22

23 ENVIRONMENT OPERATING REVIEW Our Results Operating Results Description The Environment Sector comprises the activities relating to the entire waste management cycle. These activities are briefly described below: Collection and street sweeping: street cleaning and the collection of waste for transportation to its destination; Treatment: an activity that is carried out in dedicated centers to recover or convert the waste in order to make it suitable for the recovery of materials; Disposal: this involves the final disposal of urban and special waste in combustion plants or landfills, where possible recovering energy through waste to energy or the use of biogas. (1) Investments in 2016 do not include the price paid for the acquisition of the investments in RI.ECO, RESMAL and LA BI.CO DUE for approximately 23 million euro. (2) Quantities at the plant entrance Other notes LGH: it is noted that the figure of FTE refers to the average of the reporting year, while labour costs are related only to the five months of consolidation (from August 2016). 23

24 ENERGY RETAIL OPERATING REVIEW Our Results Operating Results Description The activities of the Commercial Business Unit Sales are aimed at the retail sale of electricity and natural gas to customers in the free market and sale to customers served under protection scheme. 24

25 NETWORKS AND HEAT OPERATING REVIEW Our Results Operating Results Description The activities of the Networks and Heat Business Unit mainly consists of the technical and operational management of networks for the distribution of electricity, the transport and distribution of natural gas and the management of the entire integrated water cycle (water captation, aqueduct management, water distribution, sewerage network management, purification). It is also aimed at the sale of heat and electricity produced by cogeneration plants (mostly owned by the Group), through district heating networks and ensures the operation and maintenance of cogeneration plants and district heating networks. Also included are activities relating to the management service of third-party heating plants (heat management services), public lighting, traffic regulation systems, the management of votive lights and systems design services. (1) Investments in 2016 do not include the price paid for the acquisition of the shareholdings in Consul System S.p.A. for approximately 15 million euro. (2) Figures include the production of Lamarmora, Famagosta, Tecnocity and other plants (3) Figures include heat production of WTE plants and Cassano thermoelectric plant Other notes LGH: it is noted that the figure of FTE refers to the average of the reporting year, while labour costs are related only to the five months of consolidation (from August 2016). 25

26 GENERATION & TRADING OPERATING REVIEW Our Results Operating Results Description The activities of the Generation and Trading Business Unit are related to the management of the generation plant portfolio (total installed capacity of 8.8GW) of the Group. The Generation sector has the specific goal of maximizing plant availability and efficiency, minimizing operating and maintenance (O&M) costs. The Trading sector has the task of maximizing the profit from the management of the energy portfolio through the purchase and sale of electricity, fuel (gaseous and nongaseous) and environmental certificates on domestic and foreign wholesale markets. The Trading Business Unit also includes the activity of trading on domestic and foreign markets of all energy commodities (gas, electricity, environmental certificates). 26

27 GENERATION & TRADING SCENARIO Offer and Demand Prices and margins Our Results Operating Results Note: the electricity installed capacity figures refer to a gross capacity Sources: Terna, Snam and ISTAT (1) Equal to the ratio between reserve and requirement. Percentage calculated by using higher reserve between winter and summer periods. For 2016 the ratio is calculated using requirement and reserve at the requirement peak (12 July 2016). (2) The yearly figures refer to the thermal year (3) Italian National Price of the electricity (4) CCGT Gas Cost based on gas at virtual trading point (PSV) with 51% efficiency (previously 53%). The figures include transport costs. (5) GC - average system cost until 2015, Feed-in tariff value as of 2016 (6) Spark spread net of environmental costs (GC + CO2) (7) Dark spread net of environmental costs (GC + CO2). The environmental costs for a coal plant are equal to: 1.4 /MWh (2012); 8.52 /MWh (2013); 8.1 /MWh (2014); 7.5 /MWh (2015); 5.3 /MWh (2016). Coal plants efficiency is equal to 35%. The figures include logistics costs. 27

28 OTHER SERVICES AND CORPORATE OPERATING REVIEW Our Results Operating Results Description The following is a brief description of the activities carried out by this sector: Corporate: guidance, strategic direction, coordination and control of industrial operations, as well as services to support the business and operating activities (i.e. administrative and accounting services, legal services, procurement, personnel management, information technology, communications etc.) whose costs, net of amounts recovered from accrual to individual business units based on services rendered, remain the responsibility of the Corporate; Other services: activities relating to video-surveillance, data transmission, telephony and internet access services. (1) Including A2A Smart City (EBITDA equal to 6 M) Other notes: LGH: it is noted that the figure of FTE refers to the average of the reporting year, while labour costs are related only to the five months of consolidation (from August 2016). Note on accounting standards The annual report of the A2A Group at December 31, 2016 has been prepared in accordance with the International Financial Reporting Standards (IAS/IFRS) issued by the International Accounting Standard Board (IASB) and approved by the European Union. Given the fact that the reporting standars has been undergoing many changes, figures reported in the past may differ from the ones you find here - which reflect the latest version of IAS/IFRS. You find more detailed explanations in the published reports. 28

29 FOREIGN OPERATING REVIEW Our Results Operating Results Description The Business Unit includes the activities carried out by the investee company Elektroprivreda Crne Gore AD Nikšic ' (EPCG) in relation to the production and sale of electricity in Montenegro and the operational technical management of the related electricity distribution networks. (1) 2015 figure includes asset write-downs equal to 246 M as a consequence of the Impairment Test. (2) Technically 2015 write-downs were recorded as an adjustement to consolidated accounts.figures (3) Data net of distribution losses 29

30 FINANCIAL STRATEGY Our Results Debt 1. FLEXIBILITY provide the Company with the right instruments to take potential market opportunities, in a prompt and efficient way 2. DIVERSIFICATION optimize financial sources and assess/select at any time the most economical and/or best available 3. LIQUIDITY maintain an adequate liquidity cushion in terms of cash and available committed lines to cover planned cash outlays and absorb low-probability events 4. RISK MANAGEMENT manage in a proactive way the interest risk with the main purpose to mitigate the effects of market volatility A2A financial strategy is focused on debt and cost reduction, while maintaining a high average debt duration and adequate financial flexibility 30

31 GROUP DEBT STRUCTURE Our Results Debt STATISTICS RELATIVE TO DEBT AT 31/12/2016 Total gross debt: 3.8 Bn Average cost of debt: 3.5% Average maturity: 5.4 yrs 1.1 Bn liquidity position, of which: Bn cash Bn undrawn committed lines and loans DEBT BREAKDOWN CURRENT CORPORATE CREDIT RATING Standard & Poor s BBB/A-2 Outlook Stable Moody s Baa3 Outlook Stable 31

32 BONDS AND EMTN PROGRAMME Our Results Debt On 19 September 2012 the Management Board of A2A approved the adoption of a Bond Issue Programme (Euro Medium Term Note Programme) for a maximum amount of 2 billion euro, listed on the Luxembourg Stock Exchange On 6 November 2014 the Board of Directors of A2A approved and authorised the update of the Programme and the increase of the total amount of notes which may be issued thereunder to 4 billion euro. The Board authorized the issue of notes up to an aggregate amount of Euro 1 billion, by December 31, 2016 On 10 November 2016 the Board of Directors of A2A approved a framework resolution for the issue of notes to be issued under the EMTN Programme in one or more series or tranches, in one or more times, up to an aggregate amount of Euro 1 billion, by December 31, 2019 The adoption of the EMTN is part of the A2A Group s medium-term financial strategy, which is aimed at lengthening the average life of the Company s outstanding debt and at maintaining an adequate financial flexibility in order to efficiently manage the future debt maturities, to support the Company s rating The bonds to be issued on the basis of the Programme are placed to institutional investors Euro Bonds 2025, 2022, 2021 and 2019 and Private Placements 2023 and 2024 were issued under the EMTN Programme (1) Date from which interest is paid; (2) Last date on which interest accrues; (3) The current bond rating where applicable, is different from the issue rating and is equal to the M/L term rating assigned to the Company by S&P and Moody s. 32

33 A2A GROUP RISK MANAGEMENT Our Results Risk Management The risk management model process and activites The A2A Group has a risk assessment and reporting process which is based on the Enterprise Risk Management method (1) and on the best risk management practice, in compliance with the Corporate Governance Code as updated by Consob in The model, operative since 2010 and far from being a static reference, is subject to periodic revision consistent with the evolution of the Group and the context in which it operates. The methodology adopted is characterized by the following steps: 1. Regular identification and the updating of the risks to which the Group is exposed 2. Risk assessment process carried out through the involvement of all Group structures, risk owners and risk controllers, which includes: update of risk scenarios (specific events in which risk can materialize) related to activities risk scoring, based on the probability of occurrence and the impact on the life of the Group (quali-quantitative measurement) establishment of the relative controls and mitigation plans 3. Definition of risk priorities and risk reporting submitted to the top management for approval 4. Balance sheet disclosure Objectives The methodology adopted is modular and leverages on the fine-tuning of the experience gained and methods of analysis used: on the one hand, it aims to develop the risk assessment further with specific reference to the consolidation of the mitigation process and on the other to develop and integrate risk management activities in business processes. This evolution is carried out consistent with the gradual increase in the awareness of management and the business structures about risk management issues, achieved among other things through the use of specific training support provided by Group Risk Management. RISK CATEGORIZATION (1) This method follows the framework set by the Committee of Sponsoring Organizations of the Treadway Commission (CoSO report) 33

34 INDEX Our World Our Results Our Responsibilities Sustainability - A2A Commitment to Sustainability 35 - A2A Sustainability plan goals 36 - Main Statistics and Performances 37 Research and Innovation - Research and innovation projects 38 Corporate Governance - Traditional Governance Model 40 Investors - A2A shareholding structure 41 - Stock Exchange A2A is one of the Blue Chips 42 - Dividends 43 - Shareholder information More in-depth, updates and documents available in the following website sections Sustainability: Corporate Governance: Investors:

35 A2A COMMITMENT TO SUSTAINABILITY TO STRENGTHEN Our Responsibilities Sustainability Governance and Tools Sustainability Policy Integrated Report: A2A 2016 Integrated Report has been prepared in accordance with the Sustainability Reporting Guidelines of Global Reporting Initiative (GRI) version G4, level «in accordance-core». The Report considers six forms of capital (Human, Financial, Relational, Intellectual, Manufacturing and Natural), in accordance with the International Integrated Reporting Council (IIRC) framework. The 2016 Integrated Report was approved by A2A AGM held in May Territory and Sustainability Committee: the Committee has the task to assist with information, advice and proposals the Board of Directors, the Chairman and CEO of the Group in defining guidelines, orientations and initiatives Code of Ethics Organisation, Management and Control Model (according to 231/01 Law) Policy for Quality, Environment and Safety and Systems for the Management of Quality, Environment and Safety Targets Quantitative and measurable KPIs Medium to Long Term CIRCULAR ECONOMY Develop a sustainable waste management approach for the entire life cycle DECARBONIZATION Contribute to the achievement of the national and European objectives to reduce GHG emissions Piano Industriale /17 goals GOALS and TARGETS SDG vs. VALUE CHAIN The sustainability ACTION and ENABLING policy and the DRIVERS commitments GOALS and TARGETS 2030 ACTION and ENABLING DRIVERS SMART GRID AND SERVICES Increase the reliability of grids and services by increasing the investments in technological innovation 30 actions by 2020 OUR 2030 PATH PEOPLE INNOVATION Actively contributing to community welfare and improved working conditions Sustainability in practice Stakeholder Engagement: 240 engagement initiatives in 2016, with external and internal stakeholders. The forumascolto programme, the multistakeholder feedback initiative launched by A2A in 2015 aimed at understanding the needs of the communities where it operates, continued in 2016 Materiality Evaluation: A2A Group materiality matrix was updated Sustainability Issues for Risk Management: Climate Change impacts Investments for Sustainability: some examples Reconversion of the San Filippo del Mela plant in Sicily: world s first STEM thermodynamic solar plant Extraordinary maintenance of the Silla2 waste-to-energy plant: 15% increase in thermal production Start-up of the new Giussago bioreactor Reduction of Heavy Fuel Oil (HFO) deposits Smart Metering project for smart gas meters Replacement of the lighting points with L.E.D technology almost completed in Milan, Brescia, Bergamo and Cassano D Adda Energy efficiency interventions on the integrated water cycle of Brescia Completion of the first stage of development of the 3 inter-connected macro operating systems in Milan district heating network A2A is a voluntary member of Global Compact, the UN initiative for the promotion of a culture of corporate citizenship For more, visit 35

36 A2A SUSTAINABILITY PLAN GOALS Our Responsibilities Sustainability 2020 goal already achieved 2020 goals 2016 results 99.0% Urban waste sent for recycling or energy recovery 98.86% CIRCULAR ECONOMY 67.0% Separated waste collection in the communities served 56.2% 80.0% Impact of the recovery capacity of the material in the Group's plants on the urban waste collected 84% Carbon intensity in electricity generation (gco2/kwh) 417 DECARBONIZATION -234 CO2 avoided thanks to the extension of the district heating network (ktonnes/year) ,260 Green electricity sold (GWh) 769 SMART GRID AND SERVICES 90% 400,000 The CSI Total in multi-client of reference surveys (CERVED DataBank) with a value never below customers with online A2A Energia services 92.4% 268, Million euro invested in the Smart City area regional workshops with 30 actions to be implemented 2 workshop (11 actions) PEOPLE INNOVATION 4,000 inspections/year at the roadwork sites of the A2A Group 1,406 20% Target employees involved in Smart Working projects 5% 36

37 MAIN STATISTICS AND PERFORMANCES Our Responsibilities Sustainability Note on consolidation of sustainability statistics: EPCG, Consul System S.p.A., LA BI.CO DUE S.r.l., the RI.ECO- RESMAL S.r.l. group and the Linea Group Holding S.p.A. group are excluded; Edipower data included as of 2013 * Restated figures (1) 2014 Milan figures and Group total Index have been restated (update of temporary data). Municipality of Como is included as of this year. (2) Other municipalities in the Provinces of Bergamo, Brescia, Mantua, Milan and Varese. The index of collection calculated as weighted average (3) Source: ISPRA (4) 2014 and 2015 figures have been modified due to a change in the calculation method Frequency Rate = n accidents x 1,000,000 : hours worked Severity Index = n days of absence x 1,000 : hours worked Occurence Rate = n accidents x 1,000 : workers 37

38 RESEARCH AND INNOVATION PROJECTS FOCUS ON SMART GRIDS AND SMART CITIES Our Responsibilities Research & Innovation Networks & Heat Smart Domo Grid Pilot projects promoted by the Energy Authority WFM & IDMS network management systems IDE4L (Ideal Grid for All) Corporate S.C.U.O.L.A. (Smart Campus as Urban Open Labs) Smart Domo Grid is a smart grid solution with demand/response functions that can allow for the interaction of the electricity grid with the devices controlling household appliances and energy storage devices, taking A2A directly into the future of the Smart City. In Brescia, the experimentation involved 21 families with new appliances, tools and training for their use The Smart Domo Grid project was co-financed by the Ministry of Economic Development, with A2A as project leader partnering the Department of Energy of Milan Politecnico University and Whirlpool. Projects for AEEGSI Resolution no. ARG/elt 39/10 are being completed as A2A has obtained the AEEGSI s approval to carry out two pilot projects: the first regards a primary cabin in Milan (Lambrate) and the second a primary cabin in Brescia (Gavardo) with different characteristics in the underlying network. Both set out to overcome the present limitations of the interface protection of generators connected to the medium-voltage grid, to introduce innovative voltage regulation functionalities and, potentially, to carry out local dispatch, only reporting summarized data to Terna of the production put into the MV grid. Co-financed by AEEGSI WFM (Workforce Management) focuses on the integration of the management of physical assets with the mapping system, also using GPS technology for the localization of facilities and operational teams available in the area, equipped with mobile devices for more effective and efficient management of operations. IDMS (Integrated Distribution Management System) is a significant step forward in the electricity grid management during the conduction and planning stages. Its primary objectives also include the interoperability between the multi-service room in Brescia and the electrical control room in Milan, ultimately ensuring prompt disaster recovery between the two in the event of unavailability of one of the two sites. IDMS will also oversee the management of the public lighting network (LED lighting) and the supervision and control system, with the aim of reducing energy consumption. The Ide4l project is focused on the function of electricity networks, dealing with the matter of grid operative management with the aim of improving quality of service, it integrates and manages the network of energy obtained from renewable sources. The project covers extremely technically complex areas: Congestion management, Distributed Energy Resource (DER) Distributed Generation (DG) integration, Power Quality and DER. Co-financed by the EU New Energy Manager System optimizing energy consumption in presence of renewable energy production and storage and innovative smart electric veichles charger integration Energy demand/response function between final users and DSO; Energy buildings real-time data collection for statistic analysis and final user awareness Prototype of hybrid photovoltaic panel producing electricity and heat (testing energy storage integration) Co-financed by Regione Lombardia. Project and technological partners: Politecnico of Milan, University of Brescia, ADB, Italdata, GFM Net, Coster, CPL Concordia, SIEL, CEL, LU-VE 38

39 RESEARCH AND INNOVATION PROJECTS FOCUS ON SMART GRIDS AND SMART CITIES Our Responsibilities Research & Innovation Corporate B.S.L. (Brescia Smart Living) E-Moving project Electric Car Design and development of an innovative smart city architecture: new telecommunication hybrid network for Internet of Things; data collection from smart meters and smart sensors indoor and outdoor; smart lighting; smart gas meter with innovative features; Integrated home energy management services; platforms providing info and services at city, district, end user level; services for security and safety of operators, for monitoring and support fragile people. Co-financed by the Ministry of Education, Universities and Research. Academic Partners: Enea, University of Brescia. Industrial Partners: ST Microelectronics, Beretta, Cavagna, TeamWeare, FGE, Iperelle, Cauto Development and field test of a public and private electric vehicles charging infrastructure mainly in Milan and Brescia Charging services for final user and support to car sharing that use electrical vehicles (provided by Renault) Charging points actually activated : 100 public, 150 private. About 600 final users involved In May 2016 A2A, in collaboration with Nissan, opened in Milan the widest Italian Fast Charge Network: 12 poles able to charge up to 50 kw DC (Chademo/Combo) and 22 kw AC Corporate & Smart City Sharing Cities Digital and data driven program to overcome some of the key environmental challenges facing Cities: carbon emissions from buildings and transport and air quality. The objectives are 1) actively engage citizens in the development of mechanisms of participation 2) co-design solutions for the retrofit of buildings 3) the integrated management of energy systems, 4) electric mobility 5) the new services linked to smart lighting. IT platforms will be developed to gather information from the field and turn them into services to citizens. Co-funded by H2020 program. Total budget around 28M. 34 Partners led by The Greater London Authority. A2A participates in with Unareti and A2A Smart City. Core cities: Milan, London and Lisbon. Follower cities: Bordeaux, Burgas and Warsaw. Digital Islands Home to the charging of electric quadricycles, video surveillance services, Wi-Fi, info points and LED lighting. A2A has sponsored and supported the installation of these new infrastructures within the city of Milan also to promote private electric mobility and carsharing. Environment E-Waste The specific objective of the project was the optimization of recycling of WEEE (Waste Electrical and Electronic Equipment) and increase of the amount of rare earth and precious metals from the waste collected. The project involved the re-definition of logistics cycles of recovery and use and improvement of existing plants combined with the definition of new treatment technologies. Partnership between A2A Ambiente/Amsa and the companies Tecnochimica S.r.l., RE.MEDIA, Stena Technoworld S.r.l., S.E.VAL. S.r.l., Gaser San Giuliano S.r.l., the research bodies of Politecnico di Milano and Cefriel, in collaboration with the Municipality of Milan and the Municipality of San Donato Milanese. 39

40 TRADITIONAL GOVERNANCE MODEL (AS OF 13 JUNE 2014) Our Responsibilities Corporate Governance Current Board in charge until 2020 AGM Current Board in charge until 2020 AGM Board of Statutory Auditors Effective auditors (3) Giacinto Sarubbi (Chairman) Maurizio Leonardo Lombardi Chiara Segala Substitute Auditors Sonia Ferrero Stefano Morri (1) As per Code of Self-Discipline by Borsa Italiana. All directors except from the Chairman and the Chief Executive Officer are independent as per Article 148 of the Consolidated Financial Act (T.U.F.); (2) The three Committees are pursuant to the guidelines defined by the Corporate Governance Code by Borsa Italiana; (3) All members are independent as per Code of Self-Discipline by Borsa Italiana. The 2017 AGM established the following annual remuneration: for each member of the Board of Directors (80 k); for the Chairman of the Board of Statutory Auditors (130 k) and for the Effective Statutory Auditors (80 k). The Board of Directors decided remuneration for the top positions: a fixed remuneration for the Chairman, the Deputy Chairman and the CEO for their responsibilities; a variable short-term remuneration for the CEO related to the achievement of the objectives assigned. Further details are shown in the Report on Remuneration 40

41 A2A SHAREHOLDING STRUCTURE A2A SHAREHOLDING STRUCTURE AT DECEMBER 31, 2016 Our Responsibilities Investors Free Float Municipality of Milan Municipality of Brescia Norges Bank A2A S.p.A. (treasury shares) Total 46.1% 46.1% 46.1% 25.0% 25.0% 3.1% 0.8% 53.9% 100.0% - Share capital: 3,132,905,277 shares with a par value of 0.52 euro each - Market cap: 3,853 M - Treasury shares: 23,721,421, equal to 0.76% of the share capital All shares are voting shares, although - as laid down in art. 9 of by-laws - no individual shareholder other than the Municipality of Milan and the Municipality of Brescia may hold an equity interest exceeding 5% of the share capital. Should such ceiling be exceeded, the voting right attached to the shares held in excess of 5% of the share capital may not be exercised. 3-year new Shareholding Pact between Brescia and Milan Municipalities was signed on 1 February The Pact regards 42% of A2A share capital. Number of shareholders: about 82,500 Institutional investors: 33.8% of share capital Geographic breakdown of the institutional investors: UK 25.2% Luxembourg 18.1% USA 17.5% Italy 17.1% France 7.2% Germany 2.5% Retail investors: 12.9% of the share capital Geographic breakdown: Italy 99.8% Foreign: 0.2% 57.8% of retail investors are in Lombardy, the region where historically A2A has been more active. Investors from the provinces of Milan and Brescia own respectively 26.3% and 12.9% of the total retail shareholding. The above-mentioned information derives from an internal analysis based on the shareholders register data - updated at 22 June 2016 (i.e., dividend payment date) and classified by the provider. 41

42 STOCK EXCHANGE - A2A IS ONE OF THE BLUE CHIPS Our Responsibilities Investors /share A2A in ,000,000 60,000,000 40,000,000 Volumes A2A vs FTSE MIB and EURO STOXX UTILITIES (Prices 30 December 2015 = 100) ,000, Volumes (right-hand scale) A2A 2016 figures (Borsa Italiana) Price A2A FTSE MIB EURO STOXX UTILITIES Market capitalisation at December 31, 2016: 3,853 m Average capitalisation: 3,685 m Average volumes: 11,140,269 Average price: /share Maximum price: /share Minimum price: /share Number of shares: 3,132,905,277 A2A stock is also traded on the following platforms: Chi-X, BATS, Turquoise, Equiduct, Sigma-X, Aquis, BOAT OTC, LSE Europe OTC, BATS Chi-X OTC Moreover, A2A has been included in the Ethibel Excellence Investment Register and in the Ethibel Pioneer Investment Register. 42

43 DIVIDENDS Our Responsibilities Investors With reference to year 2016, the Shareholders' Meeting approved the distribution of an ordinary dividend of euros for each ordinary share in circulation (corresponding to paid dividends of approximately 153 million euros), up by around 20% compared to the previous year, entirely taken from 2016 A2A S.p.A. net income. (1) Dividend Yield calculated on annual average share price (2) Pay-out calculated on ordinary income (net of non-recurrent items) Dividend Policy The Strategic Plan confirms a dividend policy based on sustainable growth (DPS at around 7.5 euro cents in 2019 and a minimum 60% pay-out ratio in the following years). Dividend taxation Dividends no longer attract any tax credit and, depending on who the recipient is, they may be subject to withholding tax at source or, in part, contribute towards taxable income. 43

44 SHAREHOLDER INFORMATION Shareholders meetings As laid down in A2A by-laws, the company holds one compulsory Shareholders General Meeting per year. The Annual General Meeting is called by the Board of Directors within 120 days (or 180 days under certain circumstances) of the end of the fiscal year. With reference to the procedures for the AGM call, please refer to A2A By-laws and Corporate Governance section of the company website (i.e., Shareholders Meetings). This section also contains all relevant documents for the AGM. American Depositary Receipts A2A American Depositary Receipts (ADRs) are traded on the US Over The Counter market (OTC) under the symbol AEMMY. Three unsponsored ADR programs were launched by Deutsche Bank (2008), BNY Mellon (2008) and Citibank (2014) respectively. In all cases, one ADR represents five A2A ordinary shares. Further details are available at websites and Our Responsibilities Investors A2A Investor Relations policy Main goal: promote and support the correct knowledge and valuation of the A2A stock by the financial community, through a communication which is active, transparent, well-timed, constant, correct and not discriminatory Core activities: - hold regular meetings (one-to-one and group meetings) with the financial community in Italy and abroad - arrange conference calls with the management at the time of the release of the Group results - organize International roadshows with the top management for the presentation of important strategic developments Blackout period: during the 15 days before the release of the financial results The IR department is not in charge neither of comments about A2A performance in the Stock Exchange, nor of financial advice about the investment in A2A. Additional Information Additional information about A2A is available at Share price information, previous Annual Reports and Interim Accounts, press releases and other relevant information can be found in the Investor Relations section of that site. Comments and suggestions are welcome ( ir@a2a.eu). Documentation Annual Reports, Quarterly and Interim Reports, Sustainability Reports, Corporate Governance Report and Report on remuneration are available on our website ( ). They may also be obtained, on request, from the Company Secretary at the company s registered office or through at ir@a2a.eu. A dividend relating to the financial year 2016 may be payable from 24 May 2017, with ex-dividend date 22 May 2017 (record date 23 May 2017) Purchase and disposal of treasury shares: main points The 2017 Shareholders General Meeting authorized the Board of Directors to conduct treasury share purchase and disposal transactions to the extent to which such authority has not been exercised after 2016 AGM: the maximum number of treasury shares that can be held is 313,290,527, which is equal to one-tenth of the shares making up the share capital, considering the shares already owned by A2A S.p.A. and by its subsidiaries; treasury share purchases and disposals will be conducted to pursue, in the interest of the Company and in respect of the principle of equal treatment of shareholders and of current applicable regulations, objectives such as transactions related to business projects consistent with the strategies that the Company intends to pursue, in relation to which the opportunity for share exchanges may be manifested; The authorization to purchase and dispose of the shares will have a term of validity of 18 months starting on the date of the Meeting resolution A2A treasury shares were equal to % of the share capital at 31 December