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Analysis of the Gas Segment

During 2006 the importance of the Gas segment, which includes sales and distribution activities, decreased when compared with the same period last year by more than three percentage points in terms of margin contribution, in favour of the Group's other business segments.

The importance of this business segment with respect to total Group activities is illustrated below:

(mln/€)

31-Dec-05

pro-forma

31-Dec-06

Change

Change %

Area Ebitda

118.4

116.1

-2.3

-2.0%

Group Ebitda

386.4

426.7

+40.3

+10.4%

Percentage

30.7%

27.2%

-3.4 p.p.

 

The results of the Gas segment were down with respect to the previous year due to the exceptionally mild climate during the last two months of 2006, which caused a sharp decrease in volumes distributed and sold; said results were also affected by the intervention of the Electricity and Gas Authority (AEEG) relating to the reduction of the sales tariffs (resolution No. 134/06) as from July 2006. During 2006, as already mentioned previously, the rise in the cost of the raw material due to the elevated level reached by oil prices should also be taken into account, along with the commercial aggressiveness of the competition on business customers.

The results are summarised below:

Income statement

(mln/€)

31-Dec-05

pro-forma

Incr.%

31-Dec-06

Incr.%

Change

Change %

Revenues

871.2

 

987.6

 

+116.4

+13.4%

Operating costs

(733.5)

-84.2%

(856.9)

-86.8%

-123.4

+16.8%

Personnel costs

(43.5)

-5.0%

(44.1)

-4.5%

-0.6

+1.4%

Capitalized costs

24.3

2.8%

29.5

3.0%

+5.3

+21.7%

Ebitda

118.4

13.6%

116.1

11.8%

-2.3

-2.0%

Revenues in the Gas segment rose by 13.4%, passing from Euro 871.2 million in 2005 to Euro 987.6 million in 2006, due to the consolidation of the Pesaro companies for a total of Euro 21.0 million and the rise in the raw material cost, transferred onto the sales price, partially offset by lower volumes distributed and sold.

The change in the distribution tariff also affected the Revenues item, passing from 5.3 to 5.4 €/cents on average per cubic metre

The following table shows the trend in the main quantitative factors which contributed towards determining the distribution and sales activity results; readers are informed that besides being affected by a milder spring than in the previous year, the climatic trend in 2006 saw the last quarter of the year featuring exceptionally high temperatures. Trading activities decreased due to the drop in interest shown by international suppliers for the Italian market and the lower transportation capacity acquired by the Group.

Quantitative data

31-Dec-05

pro-forma

31-Dec-06

Change

Change %

Number of customers (thousand units)

939.6

958.4

+18.8

+2.0%

Distributed volumes (millions of cm)

2,399.1

2,312.3

-169.4

-7.1%

Volumes sold (millions of cm)

2,786.3

2,409.0

-377.3

-13.5%

- of which Trading

447.6

267.4

-180.3

-40.3%

With regards to the climatic trend described above, distributed volumes dropped from 2,399.1 million cubic metres in 2005 to 2,312.3 million in 2006, despite the 82.5 million cubic metres deriving from the consolidation of Aspes Pesaro. Volumes sold decreased to a greater extent mainly as a result of the lower volumes handled for trading activities.

With respect to the previous year, the Group registered a decrease in EBITDA in the Gas segment, in relation to the afore-mentioned effects, of Euro 2.3 million, passing from Euro 118.4 million to Euro 116.1 million. Net of the contribution from the Pesaro area companies, the decrease would have come to Euro 5.2 million, or 4.4%.

As a result of the afore-mentioned increase in the raw material cost transferred onto sales prices and the aforesaid loss in profitability, the percentage margin fell from 13.6% in 2005 to 11.8% in 2006.

 
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