A2A NETWORKS & HEAT BU

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1 A2A NETWORKS & HEAT BU Stefano Donnarumma - General Manager, A2A Networks & Heat BU October 2016

2 A2A GROUP A2A AT A GLANCE - THE LEADING ITALIAN MULTI-UTILITY FINANCIAL HIGHLIGHTS A2A A2AFOOTPRINT Footprint 4.9 BRevenues ITALY MONTENEGRO EBITDA 1+ B Focus in Northern Italy with presence in Montenegro 2.2 B Capex Technological Partnerships in waste sector in UK, Spain, Greece SHAREHOLDING STRUCTURE 100%: # of shares 3,132,905,277 Free Float 46.2% Municipality of Milan 25.0% Municipality of Brescia 25.0% Norges Bank 3.0% A2A Spa (treasury shares) 0.8% Total 46.2% 53.8% 100.0% A2A vs COMPETITORS, EBITDA 2015 Local utilities ; CONSOB (shareholding structure updated at 30 September 2016) 2

3 A2A GROUP STRATEGIC PLAN SHAPING THE FUTURE TODAY STRATEGIC PLAN GUIDELINES HIGHLIGHTS RESTRUCTURE Substantial reduction in thermoelectric power generation exposure DISCIPLINE Discipline in operations and capital INVESTMENTS FOR GROWTH ~ 2.2B cumulated Capex EBITDA by B (CAGR 4.5%) - 0.5B debt reduction in 5 years RELAUNCH DIALOGUE Thermal capacity reduction (- 40%) Growth acceleration in environment, smart networks and energy services RESHAPE Buying options in smart city and green economy Dialogue & engagement with key stakeholders DIGITAL Digital & technological transformation BUSINESS-MIX REBALANCE DIVIDEND POLICY AND CAPITAL STRUCTURE Strong growth in core skills markets Regulated / Quasi-regulated EBITDA (1) by 2020 ~60% Maintain Solid investment grade capital structure DPS (2) %; stable dividend expected in 2016 DPS bound to grow thereafter (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 c/share 3

4 A2A GROUP SUSTAINABILITY A2A COMMITMENT TOWARDS 2030 A2A developed a path to define the 2030 commitments and short-medium term actions for 2020, identifying quantitative and measurable KPIs Relevant to Networks & Heat BU SUSTAINABLE DEVELOPMENT GOALS vs VALUE CHAIN GOALS and TARGETS GOALS THE SUSTAINABILITY POLICY AND THE COMMITMENTS ACTION and ENABLING DRIVERS ACTIONS by st CLUSTER 2nd CLUSTER 3rd CLUSTER 4th CLUSTER DECARBONIZATION CIRCULAR ECONOMY SMART TECHNOLOGY INNOVATIONS IN NETWORKS AND SERVICES PEOPLE INNOVATION t CO2 from electric generation (baseline ) 67% recycling 100% Smart meter gas 25% reduction of injury rate (baseline ) 4

5 A2A GROUP DIVERSIFIED AND INTEGRATED BUSINESS PORTFOLIO 2015 Ordinary EBITDA 1,023 M (1) Networks & Heat Focus of Today INFRASTRUCTURE Electricity networks Gas networks Integrated Water Cycle 356 M 34% ENERGY EFFICIENCY & SERVICES Heat Generation, recovery and sales Energy Efficiency Services Public Lighting and smart city services GENERATION & TRADING 340 M 33% Fuel sourcing Whole-sale & Trading Power generation ENERGY RETAIL 90 M 9% Electricity / Gas sales free market regulated market WASTE 205 M 20% Collection and street sweeping Treatment Disposal EPCG (Montenegro) 53 M 5% Power generation Electricity networks Heating Distribution Heat / Electricity production Top strengths Infrastructure Stable cash generating business Energy Efficiency & New Services Technological leadership in LED and energy efficiency services (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) Generation & Trading 2 GW hydro installed capacity in Italy Energy Retail Market leader for quality customer satisfaction Waste N.1 for electricity produced by WTE plants EPCG 0.7 GW hydro installed capacity (76% of total) 5

6 NETWORKS & HEAT BU KEY FINANCIALS 100% = 353 M (1) 2015 EBITDA BREAKDOWN 2015 CAPEX BREAKDOWN BY CATEGORY 100% = 181 M (1) Net of non-recurring items (3 M) 75% of EBITDA in electricity, gas distribution and water cycle Development CAPEX is the main component 6

7 INFRASTRUCTURE: TRADITIONAL BUSINESS, STABLE CASH GENERATOR Electric Power Gas Distribution Distribution 1,120,000 Points of Redelivery 1,260,000 Points of Redelivery Diversified Portfolio of Networks to manage regulatory risk Excellent continuity of electricity and gas service BUSINESS MODEL Heating Water Distribution Cycle 1,000 km network 7,000 km network Highest safety standards Focus on cost efficiency and new technologies (e.g. smart grids) 7

8 ENERGY EFFICIENCY & SERVICES: SOURCE OF NEW OPPORTUNITIES Gas-fired high efficiency cogeneration Geothermal heat pumps Diversified technology/fuel mix High efficiency cogeneration Environmental friendly technology Heat recovery from third parties BUSINESS MODEL Solar thermal District Cooling option Technological leader in LED Public Lighting in Italy Biomass Public lighting 1,000+ MWt of Thermal Capacity and 200,000+ Lights 8

9 STRATEGIC CONTEXT Investment Growth Growth of investment in networks to rebalance business portfolio 1,106 Million Investments in plan in Network & Heat BU (~50 % Group Capex) Additional projects with potential upside under study Challenging Regulation Regulatory Risk Mitigation WACC Remuneration Impact Water tariff Gas National tenders Local Aggregations New Trends Network re-design to support new services Integrated management of networks Advanced Automation E-mobility growth Changing Consumer Behavior 9

10 GROWTH DRIVERS INFRASTRUCTURE Smart Grid Infrastructure Water Infrastructure Enhancement Gas Tenders New Heat Transportation Backbone (Cassano) Local Aggregations EBITDA TARGETS +59 M for the BU over Plan Organic Growth ENERGY EFFICIENCY & SERVICES LED Light Deployment Energy Efficiency Services External Growth New projects on top of strategic plan [est M] Artistic Lighting Smart City Services M&A 10

11 FOCUS GAS TENDERS: DOMESTIC MARKET OVERVIEW MARKET STRUCTURE Highly concentrated market: first 5 players cover 67% of total market, 2 large national players: Italgas (30%) and 2i Rete Gas (18%) have a strong presence all across Italy Many small players with low market shares: more than 200 players managing less than 20k cubic meters Main Players (market share as number of redelivery points managed) OUTLOOK Consolidation process ongoing (expected around players at the end): technical and financial constraints for small players, incumbents and big players are expected to consolidate their positions (synergies from economies of scale) Others (< 4%) 33% Iren 4% 7% a2a 8% (Unareti) Hera Italgas 30% 18% 2i Rete Gas Regulatory evolution: introduction of a new mechanism for Capex tariff recognition (DCO 456/16) KEY NUMBERS Tenders bidding period: 175 tenders will be held in the next 4 years, need to accurately select ATEMS in which to compete 11

12 FOCUS GAS TENDERS: COMPANY OVERVIEW INITIATIVE HIGHLIGHTS 175 ATEMs (Aree Territoriali Minime, i.e., Minimal Local Areas) in Italy defined by Ministry for Economic Development Assignment of ATEMs concessions subject to tenders 12-year concessions, first tenders in 2016 and the last ones expected to close in 2019, First service management in H KEY BENEFITS Increased geographical penetration opportunity to extend presence in areas not covered today Increase Asset Base opportunity to increase investment as part of tender requirements Current Footprint A2A (Unareti) Competitive Position Present in 26 ATEMs today Average Market Share 40% Operational Efficiency Cost reduction due to economies of scale in increased territorial coverage KEY NUMBERS Top 3 ATEMs Market Share Milano 1-96% Brescia 3-74% Bergamo 4-69% A2A has competitive advantage in territories where it is incumbent player 15-20% RAB Increase 2020 vs

13 FOCUS GAS TENDERS: DETAILS ON THE PROCESS TENDER SCORING BREAKDOWN TENDERS SUCCESS FACTORS 28% 27% 45% Total Tender Score 100% Economic Offer Technical Offer - Safety & Quality Technical Offer - Development Plan Economical criteria have a ceiling and are based on the 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 following elements: 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 Selection based on strategic fitting and expected level of competition Right balance between probability of success and profitability Economic offer impacts on ATEM s profitability Best technical project Tender scoring is weighted towards technical elements of the bid 13

14 FOCUS SMART GRID INFRASTRUCTURE INITIATIVE HIGHLIGHTS Electricity network enhancement with new hardware and software to harness opportunities created by new technologies Improved Demand Management Integrated Distribution Management System Integration with Industrial Energy Management Systems KEY BENEFITS Increase of Regulated Asset Base new hardware and software investments will be recovered and WACC Lower Operating Cost reduction of workforce required for network maintenance and management Enabling of new service offerings Energy efficiency and services for municipalities (e.g. smart city) KEY NUMBERS Infrastructure deployment for new services (e.g.. e-mobility, last mile connection) Automation of substations to improve network resilience Management of volatile renewal energy power generation 7-15 M EBITDA upside 14

15 FOCUS DISTRICT HEATING: COMPANY OVERVIEW Today: Local distributor in the cities of Milan, Brescia and Bergamo First Italian operator More than 2 TWht of heat delivered to customers (25% of the market) Strong integration with waste cycle (50% of heat from WTE) Tomorrow: Growth in volumes (network expansion and acquisition of new network nearby) Enhancement of the green energy mix by reduction of fossil fuels, use of locally available waste heat and RES, recycle of energy from waste in the circular economy. CO2 reduction in coherence with A2A sustainability commitment. 15

16 FOCUS NEW HEAT TRANSPORTATION BACKBONE (CASSANO) INITIATIVE HIGHLIGHTS 760MW Cassano Power Plant owned since 1961 From early 2000s the Plant has gone through significant enhancements to increase efficiency and decrease the Emissions Today at 30km from Milan it is a potentially relevant source of heat that will be delivered to Milan through a major pipeline Interest to co-finance the investment expressed by Lombardy Region, Ministry of the Economic Development, also in line with the Efficiency Strategy of EU Commission KEY BENEFITS Enabler of new business opportunities 130,000 citizens live in the municipalities served by the new pipeline Source of white certificates for energy efficiency Positive Environmental impact Reduced CO 2 and pollutant particles emissions from heating (today heating is provided with natural gas/oil boilers) KEY NUMBERS M EBITDA upside 16

17 FOCUS WATER INFRASTRUCTURE ENHANCEMENT INITIATIVE HIGHLIGHTS New regulation increased allowed tariff for water distribution collection and purification to allow investment increase for network improvement 17 projects for water distribution services 9 projects for drainage water collection network improvement 4 projects for water depuration (e.g. Verziano) KEY BENEFITS Increase of Regulated Asset Base new investments to solve European violation and avoid fines Lower Operating Cost rationalization of network design to limit energy losses and water leakages Verziano depuration site (rendering) 161 M Investment Plan Better Water Quality Best in class technology for new water depurators to become top rank in quality in Italy KEY NUMBERS 50+ M EBITDA one-off increase 160+ M Capex Plan

18 NETWORKS & HEAT BU FOCUS LED LIGHT DEPLOYMENT INITIATIVE HIGHLIGHTS KEY BENEFITS Deployment of LED technology on all A2A managed Public Lighting Infrastructure A2A is a technological leader with 100,000+ LED installed in 2016 M&A opportunities to grow this business under consideration ,000 LED ,000+ LED Energy saving and better light quality 59 million of kwh saved by municipalities, clearer light to increase visibility at 309,000 LED LED Lights Traditional Lights Lower Operating Cost reduced need for maintenance with long lasting LED technology Win-win solution for A2A and the local authorities involved KEY NUMBERS 50% Energy efficiency Milan Area Satellite view, March ,000 Tons of CO2 avoided 18

19 NETWORKS & HEAT BU FOCUS ARTISTIC LIGHTING INITIATIVE HIGHLIGHTS Deployment of LED technology on all A2A managed Artistic Lighting Infrastructure A2A is a leader in the business of Lighting Monuments and Public Buildings KEY BENEFITS Higher visibility to Municipalities increased brand recognition for A2A through public lighting Lower Operating Cost reduced need for maintenance with long lasting LED technology Reduced Emissions Reduced CO2 Emissions KEY NUMBERS 4,000+ Milan Castle lit by A2A Monument Lighting, May 2016 Lighting Points installed and to be converted to LED technology 50% Energy Saving 19

20 NETWORKS & HEAT BU OPERATIONAL EFFICIENCY IMPROVEMENT Before After a2a a2a SpA SpA 100% Business Unit Consolidation a2a 100% Reti Elettriche 100% a2a Reti Gas 100% a2a Logistica 100% a2a Servizi alla Distribuzione Newco launched April 1st 2016 En&A a project for efficiencies on operative fixed and variable costs, CAPEX, and revenue increase En&A Project INVOLVEMENT More than 400 resources involved SCORECARDS scorecards with detailed schedules, responsibilities and targets MASTERPLANS Detailed projects masterplans for Procurement, ICT, HR MONITORING Monthly monitoring of progress at process level 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 +50 M A2A EBITDA 177 Projects at Group level Projects at Networks 44 & Heat BU level 20

21 NETWORKS & HEAT BU R&D AND INNOVATION PROJECTS ONGOING PROJECTS BUILDING THE 2020 CITY B.S.L. (Brescia Smart Living) Work Force Management Integrated Distribution Management System IDE4L (Ideal Grid for All) New concept Primary Cabins S.C.U.O.L.A. (Smart Campus as Sharing Cities Urban Open Labs) DIGITAL ISLANDS E-MOBILITY SMART DOMO GRID CONNECTED CITY NEW OWN e-fleet HOUSE OF THE FUTURE SMART METERING PARTNER OF SHARE & GO ELECTRIC COST OPTIMIZATION SMART LIGHTS PARTNER OF NISSAN ELECTRICITY LOAD BALANCING SMART SECURITY 13 NEW HIGH SPEED CHARGERS PILOT PROJECT WITH 22 FAMILIES 21

22 A2A GROUP 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 Delivering quality and growth with low risk to increase shareholder value Management background with strong track record Strong commitment to Sustainability 22

23 CONTACTS AND IR PRODUCTS Publications A2A Investor Relations Team Mail: Phone: a2a 2016 Investor Guidebook Historical economic, financial and operational company data as of 2008 on annual and quarterly basis Economic, financial and operational data useful for building A2A earnings model 2015 FY reported and BP forecast Tables of the Investor Guidebook mainly relevant to a quantitative analysis Investor Databook (excel file) Newsletter 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 newsletter/ Concise and thorough insight in the A2A Group in the form of a long presentation divided into three main parts: Our World, Our Results and Our Responsibilities. The selected contents are all publicly available information, which you may find spread across a large number of Company documents a2a 2016 Company Profile Brief and synthetic document that shows the highlights and the strengths of A2A business model The publications are available at the following link: 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 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. 23