Economics and Finance of the Major Local Utilities ( )

Transcription

1 Economics and Finance of the Major Local Utilities ( ) Milan, 15 July 2015

2 The panel of local utilities Shareholders: Regions; Provinces and Municipalities that are regional capitals; plus, Municipalities > 100,000 inhabitants, Provinces > 500,000 inhabitants (at end of 2013) Companies: local utilities (water mains, airports, motorways, electricity and gas, city cleaning and local public transport) with revenues above EUR 50 mln. in Part-owned by one or more local authorities with a stake of at least 33%, making for a relative majority Panel: 115 local authorities (51 Municipalities, 44 Provinces and 20 Regions) and 66 companies: 11 water mains, 5 airports, 4 motorways, 12 electricity and gas (or multi-utility), 9 city cleaning and 25 local public transport. Their consolidated financial statements span a total of 440 companies. Representativeness: roughly 50% in terms of value added and employees. 2

3 Executive summary In 2013, local utilities earned revenues of EUR 30.7 bln. (making them the fifth industrial group in Italy), up 34.2% on 2006 (industry +9.8%) Between 2006 and 2013 they generated profits of EUR 4.7 bln., despite the losses made by local public transport (- 1.6 bln.) and city cleaning (-0.3 bln.). Record losses in Lazio (-840 mln., -1,229 ATAC alone) and Campania (-334 mln., -228 CTP alone). Record profits in Lombardy (2,394 mln., 1,534 mln. A2A alone) and Emilia-Romagna (+854 mln., Hera alone +858 mln.). The local utilities have debts of 36.8 bln. (39% of local authorities debts), of which 7.1 bln. is owed to the public administration (19% of the total); Receivables with the public administration total EUR 7.6 bln., making for a net receivable of 0.5 bln. In 2013, local public transport and city cleaning cost society 4.7 bln., the other sectors generated 1.8 bln. Between 2006 and 2013, local public transport absorbed 23.0 bln. in public resources. The portfolio of investees is worth 15.8 bln. (of which 4.2 in stock-market value) and accounts for 17% of the debt of local authorities. The richest ones are: Municipality of Milan (2,565 million), Rome (2,122 mln.), Turin (1,266 mln.) and Brescia (1,659 mln.). Lombardy is the richest region with 531 million, followed by Friuli Venezia Giulia with 316 mln. If invested at 2%, the value of the investees would yield around 330 million per year, against dividends for 2013 of 370 million. If used to repay debt, they would lead to 520 mln. lower annual interest expense. The 115 local authorities account for 5,008 appointments to boards: 2,048 in companies and 2,960 in other public entities, on average 35 per Municipality, 27 per Province and 101 per Region. The Regions pay the most on average: +63% on the Provinces, +24% on the Municipalities. Between 2010 and 2014, the local authorities reduced their appointments by 28% and average compensation by 5.4%. The Provinces have made the greatest cuts: -35% and -10%, respectively. 3

4 Revenues: Italy s fifth-largest industrial group Value in 2013 ( bln.) In % % change average % change per year Water mains Airports Motorways Electricity and gas City Cleaning Local Public Transport Total (*) +4.3 (**) North Centre South and Islands (*) % change in industry revenue: +9.8% (**) average % change per year in industry revenue: +1.3% 4

5 Profits: Local public transport made heavy losses Cumulative net profit/loss ( ) bln ROI 2013 ROE 2013 Water mains Airports Motorways Electricity and gas City Cleaning Local Public Transport Total 4.7 (*) 6.8 (**) 4.5 (***) North Centre South and Islands (*) Profits of water mains, airports and motorways = losses of local public transport and city cleaning North: +5.7 bln.; Centre-South: -1.0 bln. (**) ROI of industry 2013: 7.5% (**) ROE of industry 2013: 4.7% 5

6 Scathing tax rate, but improvements are coming (regional production tax IRAP reform) Tax rate, City Cleaning Local Public Transport Electricity and gas Airports Motorways Water mains IRAP tax rate IRES corporation tax rate -Tax rate of panel: 46%, of which 18.3% (40%) from IRAP - From 2015, tax rate estimated at 38% (-17.3%), under Stability Law 2015: circa EUR 170 mln. saving on Sectors: water mains from 35.6% to 32.9%; airports from 45.7% to 36.2%; motorways from 36.8% to 34%; electricity and gas (and multi-utilities) from 46.7% to 40.4%; city cleaning from 72.3% to 45.3%; local public transport from 64.2% to 20.6% 6

7 How much do local authority shareholders give and receive? To/from whom? 2013, mln. Local Public Transport -3, City Cleaning -1, Airports Motorways Water mains Electricity and gas and multi-utilities Contributions and transfers (including collective agreement supplements) Taxes and concession fees Net profit/loss Electricity and gas and multi-utilities -1,449-3,238 Water mains Motorways Airports City Cleaning Local Public Transport -2,901 Total 7

8 Ownership (and incestuous) relationships with the public administration 2013, mln. 3,824 2,369 1, Local Public Transport City Cleaning Airports Water mains Electricity and gas Motorways Total Receivables (+) and payables (-) with the public administration. Public administration grants for new facilities 8

9 Per-employee data: cost of labour, productivity and ULC Net value added ( 000) Cost of labour ( 000) ULC (%) 9

10 Local Public Transport: 23.0 bln. absorbed in 8 years Cumulative , bln ,595-22,184-23,027 Net profit/loss Contributions and transfers (including collective agreement supplements) Taxes Balance 10

11 Local public transport: Public transfers per staff member 2013,

12 Local public transport: coverage of operating costs with market revenues 2013, in %

13 % coverage of operating costs with market revenues Local public transport: between the market and public transfers a map Local public transport companies: transfers per staff member and coverage of operating costs with market revenues AVM (VE) Less payments More market revenues/lower costs Less payments Less market revenues/higher costs TPER (BO) AMT (GE) ATAC (RM) UMBRIA TPL (PG) AMAT (PA) CTP (NA) ATM (MI) BRESCIA MOBILITA (BS) ATV (VR) GTT (TO) START ROMAGNA (FC) ARPA (CH) AMT TRASPORTI (TS) AST (PA) SETA (MO) ARST (CA) COTRAL (RM) TRENTINO TRASPORTI (TN) TRENORD (MI) Public transfers per staff member ( 000) More payments Less market revenues/higher costs 13

14 How much is the portfolio of investees worth? An estimate At end of 2013, bln; upper chart: local authorities in the investigation; lower chart: other local authorities Local authorities in the investigation Electricity and gas Local Public Transport 0.0 Water mains 0.3 Motorways City Cleaning other local authorities 0.0 Airports North Centre South and Islands 0.9 Total Electricity and gas Local Public Transport Water mains Motorways City Cleaning Airports North Centre South and Islands Total Portion of shareholders equity Portion of stock-market value The portfolio of local authorities was worth 15.8 bln at the end of 2013 (of which 4.2 in stock-market value). - Represents the amount spent to make local public transport function in 5 years, but accounts for 17% of the consolidated debt of Regions, Provinces and Municipalities (93.2 bln. at end 2013) bln. invested at end 2013 (state bond yield: 2.1%) would have generated annual gross income of approximately EUR 330 mln.; if it had been used to repay debt there would have been a saving on interest expense of around 520 mln. Cumulative dividends in 2013 totalled EUR 370 mln. 14

15 The richest local authorities: portfolios in excess of EUR 300 mln. Value of equity investments at end of 2013, mln. 1,899 1, , Milan Municipality Rome Municipality Turin Municipality Brescia Municipality Lombardy Region Genoa Municipality Verona Municipality Friuli Venezia Puglia Region Giulia Region Bolzano Municipality Portion of shareholders equity Portion of stock-market value - Between EUR 300 and 200 mln.: Municipalities of Bologna, Naples and Modena. Portion of stock-market value: EUR 461 mln. - Between EUR 200 and 100 mln.: a further 13 local authorities. Portion of stock-market value: EUR 587 mln. 15

16 Local utilities on the stock market Local utilities index / Mediobanca industry index (Jan 2003 = 100)

17 Satisfied or disappointed investors? % change in stock market values at end 2014 compared to issue price upper chart: cumulative; lower chart: annual average Hera Acea Acsm-Agam A2a Iren Hera Acea Acsm-Agam A2a Iren 17

18 Dividend yield: better or worse than state bonds? Difference between average dividend yield of listed companies and state bond yield (hundreds of bps)

19 Net income received by shareholder local authorities Dividends collected from local utilities (cumulative amounts , mln.) 2,311 2,429 2,603 1,764 1,985 1,423 1,

20 Appointments: how many, who and where Number of appointments to boards of local utilities and other public entities 5,008 2, ,793 2,017 1,436 1, , Municipalities Provinces Regions Total Local utilities Other public entities Total Municipalities Provinces Regions -Average appointments per local authority (companies and other public entities) total 43, of which: Municipalities 35, Provinces 27, Regions Appointments of senior executives at companies account on average for 44% of the total. 20

21 Compensation: the Regions pay the best Average compensation by type of role, 2013/2014 Senior executives BoD Non-senior Chairman executives Auditors Board BoD Member Auditors Board Liquidator Total average compensation EUR Municipalities 25,490 12,619 20,249 19,002 26,110 24,142 Provinces 31,847 7,811 16,864 9,831 23,736 18,343 Regions 52,202 14,044 16,949 12,985 35,702 29,932 Total 40,246 12,060 18,364 14,597 29,532 24,724 -Average regional compensation is 63% higher than at provinces and 24% higher than at municipalities 21

22 Compensation at municipal investees Average compensation by role/regional per-capita GDP (2012, ratio) 10 highest values for senior executives Cagliari Naples Campobasso Salerno Andria Catania Messina Reggio Calabria Bari Catanzaro 22

23 Compensation at provincial investees Average compensation by role/regional per-capita GDP (2012, ratio) 11 highest values for senior executives Reggio Calabria Bari Caserta Taranto Lecce Rome Palermo Cagliari Vicenza Modena Naples 23

24 Compensation at regional investees Average compensation by role/regional per-capita GDP (2012, ratio) 10 highest values for senior executives Basilicata Puglia Sardegna Lombardy Trentino AA Campania Lazio Abruzzo Molise Sicily 24

25 Significant cuts to appointments, less so to compensation Total appointments, cumulative and average compensation, % change on like-for-like basis ( ) Municipalities Provinces Regions Total Appointments Average compensation Total compensation 25

26 Mediobanca Research Dept. Milan Foro Buonaparte,