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Analysis of the Integrated Water Cycle Segment

By means of the integration of the Pesaro area, the Group currently operates in the Integrated Water Cycle management sector in over 180 municipalities, with 2.5 million inhabitants, with a more or less complete coverage of the area in question.

Hera operates in 7 ATOs coinciding with the Provinces of Ravenna, Ferrara, Forlė-Cesena, Rimini, Modena, Bologna and Pesaro.

Agreements were set up with all the afore-mentioned ATOs, regulating the Integrated Water Service and guaranteeing the Group not only the extension of the concessions on average until 2022, but also the certainty of general tariff development until the end of 2007 and the guarantee of achieving the anticipated return on investment over the next few years, in accordance with the provisions of the Galli Law.

Also in relation to that set forth above, the Integrated Water Cycle Segment demonstrated improved results above the Group average, and improves its percentage weight, as shown in the table below:

(mln/€)

31-Dec-05

pro-forma

31-Dec-06

Change

Change %

Area EBITDA

94.3

107.5

+13.2

+14.0%

Group EBITDA

386.4

426.7

+40.3

+10.4%

Percentage

24.4%

25.2%

+0.8 p.p.

 

The results at the end of 2006 disclose a trend in line with expectations, involving an increase in revenues linked to the tariff scheme approved by the ATOs, and an increase in the volumes lower than in the past.

An analysis of the operating results achieved in the Integrated Water Cycle segment is shown below:

Income statement

(mln/€)

31-Dec-05

pro-forma

Incr.%

31-Dec-06

Incr.%

Change

Change %

Revenues

346.2

 

398.4

 

+52.2

+15.1%

Operating costs

(263.2)

-76.0%

(319.2)

-80.1%

-56.0

+21.3%

Personnel costs

(75.4)

-21.8%

(85.3)

-21.4%

-9.9

+13.2%

Capitalized costs

86.7

25.0%

113.6

28.5%

+26.9

+31.1%

Ebitda

94.3

27.2%

107.5

27.0%

+13.2

+14.0%

During 2006, revenues were generated for a total of Euro 398.4 million, up by 15.1% when compared with 2005, in relation to: the consolidation of Aspes Pesaro for Euro 18.8 million, equating to an increase of 5.4%; the tariff increases linked to the agreements with the ATOs amounting to around Euro 14.4 million; the increase in volumes for approximately Euro 6.0 million; while the remaining balance concerns the rise in complementary services managed.

The average tariff of the Integrated Water Cycle increased by 4.9%, rising from Euro 1.29 per cubic metre in 2005 to Euro 1.35 per cubic metre in 2006.

The increase in costs derives from both the afore-mentioned consolidation of the Pesaro companies for around Euro 9.3 million and the additional services provided, the greater internal capitalisation relating to the investments of the Area Plan and the additional electricity costs caused by the rise in prices already indicated in the previous paragraphs.

The main quantitative figures of the business area, illustrated below, do not reveal any significant changes between the two periods under review.

Quantitative data

31-Dec-05

pro-forma

31-Dec-06

Change

Change %

Number of customers (thousand units)

914.0

982.4

+68.4

+7.5%

Volumes sold (millions of cm)

    

Aqueduct

228.4

243.6

+15.2

+6.7%

Sewerage

199.7

208.6

+8.9

+4.4%

Purification

205.8

216.0

+10.2

+5.0%

Taking into account the Pesaro area as well, customers in the Water Cycle exceeded 980 thousand units,

Volumes rose, net of the contribution from the Pesaro area, by 2.0%; also considering the new municipalities served, this figure emerged as lower than forecasts by around 1%, essentially as a result of the water saving awareness-raising initiatives developed during 2006.

The EBITDA at the end of 2006 increased by Euro 13.1 million, rising to Euro 107.4 million when compared with the figure of Euro 94.3 million in the previous year, involving an improvement of 13.9%.

 
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