Operating and financial outlook

Despite the persistent financial crisis and associated reduction in consumption, 2010 was certainly a particularly positive year. In fact, thanks to its regulated business and the corrective actions taken by management, the Acea Group surpassed its objectives set out in the budget in all areas of business.

The new 2011-2013 Industrial Plan was defined during the year, a well known fact, which focused on not only the natural development of the company’s business but internal efficiencies, in order to obtain greater synergies which should translate to higher value for all stakeholders.

2010 also saw the signing of the agreement to end the energy partnership with GdF-Suez, allowing the company to focus more on electricity and gas sales and, hopefully on gas distribution, if the tender soon to be called can be won, which will allow ACEA to retain water, electricity and gas concession agreements for the City of Rome, creating important operating synergies.

The next three years will be focused on not only the aforementioned internal efficiencies but on the (i) downstream repositioning in the electricity sector following the conclusion of the joint venture with Gds-Suez, by selecting a new mix of customers and developing in-house sourcing and electricity skills, (ii) on the development of its core water business with particular reference to the geographical areas where Acea is already present, i.e. Tuscany, Lazio, Umbria, Marche, Campania, Abruzzo, (iii) on the development of the waste segment, with the revamping of its disposal plants and (iv) growth in the photovoltaic sector in its reference area.

More specifically, as regards the water sector, where ACEA is comfortably the domestic leader, the next three years will see considerable investments of more than 200 million euros per year, in order to guarantee increasingly better service and quality, to obtain the target return on investments through tariff increases which are among the lowest in Europe.

The networks segment, in which ACEA is the third largest electricity distributor in Italy, will grow in terms of internal lines, through the implementation of a new Public Lighting project in conjunction with Roma Capitale, and through new Led systems, by developing innovative "smart grid" and electric car projects. Photovoltaic activities will be further developed with new small-scale plants in the city of Rome as part of the “Roma Città del Sole” project, with more than 60 installed Mgw expected to be achieved in 2013.

More than 150 million euros per year will be invested in the Networks segment over the three-year period.

As already pointed out, the energy segment, where ACEA is the third largest domestic operator in terms of electricity sales, will be focused on the electricity sales sector, developing higher profit segments, the dual fuel offer (electricity and gas), a more effective CRM and revamping of the Salisano and Orte plants.

More than 60 million euros will be invested in the Energy segment over the three-year period.

In the Environment segment, where ACEA is the fifth largest operator in waste disposal, with 550 thousand tonnes of waste treated annually, the power of the Terni and San Vittore WTE plants will be increased, bringing installed electricity capacity to 62 Mgw in 2013, by investing roughly 160 million euros over the three-year period.

Various financial transactions were carried out in 2010, including the 10-year fixed rate public bullet bond of 500 million euros with coupon of 4.50%, which was assigned A- and A+ ratings by Standard & Poor’s and Fitch respectively and a 20 billion yen 15-year fixed rate private bullet bond (swapped into 162 million euros) with coupon of 5.0255%.

The two transactions achieved the objective of both lengthening the average life of the debt, bringing it to 10 years, and balancing debt quality, regulating around 70% at a fixed rate, so as to ensure protection against an increase in interest rates – rather pronounced trend noted over the last few months and still in progress – and financial and credit volatility, with an overall average rate of 3.52%, among the lowest in the sector in absolute terms.

In order to obtain the strongest financial structure possible, irrevocable three-year lines of credit have been requested and obtained totalling 500 million euros and short-term credit facilities, free to all and at the disposal of the Group, totalling more than 1 billion euro.

ACEA’s solid business together with its equally strong financial structure allowed Standard & Poor’s and Fitch to assign Acea the significant “A” rating.

The company intends to pursue the financial objectives set out in the previous year, and are as follows:

  1. Interest rate and commodity risk: definition and application of a precise interest rate and commodities risk hedging policy consistent with the subsequent hedging of long-term debt, for at least 60% of total debt and fully compatible with IAS/IFSR3.
  2. Quality of debt: consolidation of short-term debt up to a maximum of 40% of total debt.
  3. Credit lines: obtain ample uncommitted and committed credit lines, to guarantee sufficient liquidity to meet financial commitments for at least the next two years.
  4. Financial charges: maximum reduction in the cost of funding.