A2A 2017 Investor Guidebook - Amazon S3...- Market position in terms of businesses and EBITDA 12 Main regulatory framework - Networks – regulatory framework 13 Major Transactions

a2a2017

InvestorGuidebook

May 2017

IN PROGRESS

This information was prepared by A2A and it is not to be relied on by any 3rd party without A2A’s prior written consent.

DISCLAIMER - 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 anypart 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-lookinginformation 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-lookingstatements 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 factorsinclude, 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-lookingstatements are current only at the date they are made.

This symbol marks the pages where Exceldownloads are availableAnnual and quarterly Historical series available inthe Investor Databook:https://www.a2a.eu/en/investors/publications-services/investor-guidebook-kit or in dedicatedsections.

This symbol marks the pages which may besubject to updates during the year

Reference to more in-depth, updates anddocuments available in A2A website@

Resources:

Databook in excel: this file is part of the

Guidebook kit and contains annual and quarterlyeconomic, financial and operational Company data as of2008 and all the tables published in this document.

Our Worldp. 4 - 16

Our Resultsp. 17 - 33

Our Responsibilitiesp. 34 - 39

Welcome to A2A Investor Guidebook,prepared for investors and financialanalysts to get a thorough insight into theA2A Group.In order to get the most out of it we haveprovided the Resources section aside, whichrefers to additional material available in thecompany website: www.a2a.eu. You willfind further such references in the Indexpages.

We would like to get your feedback andsuggestions to improve this product.Please write to: [email protected]

A2A Investor Relations Team

The Guidebook starts with the Company Profile at page 3…

2

https://www.a2a.eu/en/investors/publications-services/investor-guidebook-kit

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mailto:[email protected]


Our Responsibilities

• A high weight of green componentscharacterizes A2A asset portfolio. Large scalerenewable production (hydroelectric, WTE), highefficiency production (cogeneration with lowerCO2 emissions) and innovative technologies toincrease energy savings (LED lighting). A2A mayalso leverage on a large and loyal customer baseas a natural hedge for its energy portfolio.

• These mark the Company commitment tosustainability, further strengthened in 2016.

• The shift to a traditional governance model,occurred in June 2014, facilitates decisionmaking and emphasizes the central role of theBoard of Directors

• Milan and Brescia cities are the majorshareholders with a joint control

Company Profile

A2A - THE LEADING ITALIAN MULTIUTILITY

Business Units: top strengthsEnvironment

n. 1 for electricity produced by WTE plantsEnergy Retail

market leader for quality and customersatisfaction

Networks and District Heatingincumbent in its 3 key gas areasfirst domestic operator in DH

Generation & Trading∼2 GW hydro installed capacity in Italy

EPCG∼0.7 GW hydro installed capacity (76% of total)

Our World

• A2A is active in environment, energy retail,networks and district heating, generation andtrading – a business diversification which spansfrom regulated to market exposure thusconsiderably lowering its economic risk profile

• Born in 2008 from the merger of AEM, ASM andAMSA, A2A operates throughout Italy,predominantly in Lombardy

• The business units of the company have a firstclass asset base - both plants and networks. Longterm concessions increase visibility

• A2A business model is very flexible. It allows foroptimizations both in the business units andacross them

• At international level A2A mainly operates inMontenegro through EPCG (electricity)

• The current strategy has been set out in the2017-2021 Strategic Plan. The main lines of thePlan are the following:

- Relaunch: growth in environment, smartnetwork and energy services

- Regeneration: active role in the energy markettransformation

- Reshape: buying options in smart city and greeneconomy

- Discipline in operations and capital structure- Dialogue & engagement with key stakeholders- Digital & technological transformation

EBITDA expected to grow to 1,380 €M in 2021,cumulated CAPEX of the period equal to 2,750 €M

Our Results

• Positive 2016 results were achieved: Ebitda upby almost 18%, strong growth in Net Profit.Investments were up by 23%

• With respect to these external dynamics, theGroup reacted by continuing with the initiativesto improve operational efficiency, which helpedto sustain the profitability

• Debt optimization continued posting satisfactoryresults also in 2016

• A dividend of 0.0492 euros per share, up by20%, was submitted to AGM approval

• A2A medium-term financial strategy is aimed atlengthening the average debt maturity,maintaining an adequate financial flexibility andlowering the cost of debt to support theCompany rating

• A2A adopts a prudent energy risk policy, part ofits Enterprise Risk Management model, whosepurpose is to further develop and integrate riskmanagement activities into the business process

3

(1) Group net income adjusted for the impact of extraordinary items: 2016 = 377 €M; 2015 = 278 €M; 2014 = 175€M; 2013 = 156€M

http://www.a2a.eu/en/investor/overview/strategic_plan_2016.html


INDEX

Our World Our Results Our Responsibilities

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A2A Group- The A2A Group 5

- A2A in Europe 6

- A2A Business Portfolio 7

Assets and Activities- A2A Asset Portfolio 8

- A2A Concessions Portfolio 10

Benchmarking

- Market position in terms of businesses and EBITDA 12

Main regulatory framework

- Networks – regulatory framework 13

Major Transactions- Acquisitions & disposals – track record 14

Strategic Plan 2017-2021- 2017-2021 Strategic Plan in a nutshell 15

- 2017-2021 Strategic Plan – Main targets 16

4

More in-depth, updates and documents available in the following website sections:A2A Group: https://www.a2a.eu/en/group/mission-valuesAssets and Activities: https://www.a2a.eu/en/group/our-plants and https://www.a2a.eu/en/servicesMajor Transactions: https://www.a2a.eu/en/investors/strategyStrategic Plan: https://www.a2a.eu/en/investors/presentations-conference

https://www.a2a.eu/en/group/mission-values

https://www.a2a.eu/en/group/our-plants

https://www.a2a.eu/en/services

https://www.a2a.eu/en/investors/strategy

https://www.a2a.eu/en/investors/presentations-conference


THE A2A GROUP

Our WorldA2A Group

(1) Stakes held through Linea Group Holding S.p.A.

Networks and Heat

Other Companies

Areas of activity

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Generation & Trading

Energy Retail

Environment

EPCG

5

(1)


A2A IN EUROPE

Our WorldA2A GroupBack to Index

6


A2A BUSINESS PORTFOLIO

Our WorldA2A GroupBack to Index

Ordinary EBITDA equal to 1,103 €M

(1) Equal to 1,132 €M, calculated as Reported EBITDA (1,231 €M) net of non recurring items (128 €M) and EBITDA from “Corporate” (-29 €M)(2) Infrastructure activities: electricity and gas networks, heating distribution and integrated water cycle. Energy efficiency activities: heat generation, recovery and sales, public lighting and other energy efficiency

services.

Sources: A2A Strategic Plan, 2016 Results & Business Plan Update; Company Annual Reports

2016EBITDA(1)

7

GENERATION &TRADING

Fuel sourcing

Powergeneration

Whole-sale &Trading

352 €M 31%

ENERGY RETAIL

Electricity / Gassales

free market regulated

market

ENVIRONMENT

120 €M 11%

Heat / Electricityproduction

Collection andstreet sweeping

Treatment

Disposal

EPCG(Montenegro)

Powergeneration

Electricitynetworks

69 €M 6%

NETWORKS & HEAT(2)

IntegratedWater Cycle

Electricitynetworks

Gasnetworks

HeatingDistribution

Heat Generation,recovery and

sales

Energy EfficiencyServices

Public Lighting

SMART CITY

Telephony andInternet access

Data transmission

Video-surveillance

6 €M 1%

NETWORKS HEAT

69 €M 6%285 €M 25%231 €M 20%


A2A ASSET PORTFOLIO

Our WorldAssets and activities

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(1) Management-only. The treatment capacity is not included in the total because A2A revenues are mainlybased on electricity sales.

(2) 2016 figures include LGH and refer to 31/12. 2015 figures are average values

ENVIRONMENT PORTFOLIO

NETWORKS PORTFOLIO

ENERGY RETAIL PORTFOLIO(2)


A2A ASSET PORTFOLIO


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(1) net of:• the shutdown of Brindisi

coal plant, groups n.3 and4 of San Filippo del Melafuel oil plant and groupn.1 of Cassano CCGT plant(thermoelectric plants)

• the deed for the non-proportional partialdemerger of Edipower(Udine hydroelectricplants except fromAmpezzo and Somplago)

EPCG (MONTENEGRO)ELECTRICITY GENERATION PORTFOLIO

GENERATION & TRADINGELECTRICITY GENERATION PORTFOLIO

COGENERATION & DISTRICT HEATING PORTFOLIO


A2A CONCESSIONS PORTFOLIO


(1) Extension of the temporary continuation regime until 12/31/2017 pursuant to Regional Council Decreeno. X/4225 of 10/23/15

(2) In temporary continuation regime until 12/31/2017 pursuant to Regional Council Decree no. X/5823 of11/18/16

(3) Extension of the temporary continuation regime until 12/31/2017 pursuant to Regional Council Decreeno. X/4595 del 12/17/15

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GENERATION – Hydroelectric PlantsENVIRONMENT


A2A CONCESSIONS PORTFOLIO


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NETWORKS

DISTRICT HEATING

(1) MinimumTerritorialArea


A2A MARKET POSITIONIN TERMS OF BUSINESSES AND EBITDA

A2A is well positioned in its main businesses, leaderin district heating and in waste-to-energy activities

Our WorldBenchmarking

Sources: AEEGSI Annual Report, companies data, internal analysis. 2016 figuresnot available yet.

2016 EBITDA

(source: FY 2016companies’presentations)

A2A: the highest EBITDAamong local utilities

Local

utilities

12

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NETWORKS - REGULATORY SCENARIO

ELECTRICITY

5th Tariff regulatory period: 2016-2023 (8 years)• Tariff not linked to change in unit volumes consumption• Shift from input-based to output-based model as of 2016 and Totex mechanism (optimisation

of opex and capex) as of 2020• WACC: in 2016-2018, 5.6% (distribution, metering); additional remuneration related to

innovative projects and energy efficiency improvement• Gradual approach to the extension of asset life• Price cap: 1.9% (distribution), 1% (metering). The potential extra-efficiencies achieved in the

3rd and 4th regulatory periods are to be shared 50-50 with the consumer by 2019• Interim reviews: some WACC parameters (3 years) - see box

GAS

4th Tariff Regulatory period: 2014-2019 (6 years)• Tariff not linked to change in unit volumes consumption• WACC: in 2016-18, 6.1% (distribution), 6.6% (metering)• WACC is applied either to RAB or to VIRAEEGSI

(1) - for new ATEM’s entrants (so-called"asymmetric regulation")

• Price cap: up to 2016 1.7% for distribution and 0% for metering. Price cap reduced to 0% in thefirst 2 years of ATEM’s

• Interim reviews: price cap (3 years) and some WACC parameters - see box

WATER

Regulatory Body: the Energy Authority (AEEGSI)

NETWORKS - REGULATORY FRAMEWORK

Our WorldRegulatory Framework

In December 2015 AEEGSI defined the WACCremuneration for the regulated energynetworks, effective from 1 January 2016. Thecommon parameters are set for gas andelectricity, excluding those specific of eachsector, such as beta and D/E.

• WACC is real pre-tax allowed return.• WACC regulatory period lasts 6 years (2016-

2021)• The interim review is fixed every 3 years for:

Risk Free Rate; Country Risk Premium(2);Inflation used to calculate “F” factor; Gearing(value more in line with those used by otherEuropean regulators), Tax Rate according tothe annual Stability Law

ELECTRICITY GAS WACC reform

(1) VIRAEEGS: Asset residual value («valore industrialeresiduo») - as recognised by AEEGSI for tariffs purposeand calculated in compliance with the guidelines setby the Ministerial Decree 226/11 and with theResolution 19/2016 - DIUC, is equal to the capitalexpenditure necessary to rebuild anew the assets,depreciated due to use and obsolescence (on thebasis of regulatory asset useful lifes).

(2) only if there is a more than 20% deviation in theaverage spread between 10-year government bondsof Italy and Germany vs the previous period

(3) The figure is calculated as the sum of cost of equity,cost of debt, gearing, recognized financial costs ("OF")and fiscal costs ("Ofisc")

13

2nd Regulatory period: 2016-2019 (4 years)• Allowed revenues based on full recovery cost subject to efficiency and capped in terms of tariff

growth• Regulatory matrix with six different tariff schemes, linked to the need for new investments, the

evolution of underlying costs due to consolidation or improvement in quality of service and Opex percapita

• Fixed annual maximum tariff increases - ranging from 5.5% to 9%, different for each of the six tariffschemes assigned at Local Authority Level (EGA)

• Overall return equal to 5.3%(3), with an additional 1% extra return for investments made from 2014• Introduction an X-factor equal to 0.5% to promote higher efficiency on internal Opex• Interim review: RAB and variable costs (2 years); assumptions on financial costs and taxation can be

modified every 2 years if there are "significant changes"

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ACQUISITIONS & DISPOSALS - TRACK RECORD

Our WorldMajor Transactions

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14


2017-2021 STRATEGIC PLAN IN A NUTSHELL

Our WorldStrategic PlanBack to Index

Strategic Plan Guidelines

15

RELAUNCHGrowth in environment,

smart networksand energy services

Focus on low-riskbusinesses

Active role in the energymarket transformation

Flexible fleet to serveshortening EU markets

Re-alignmentwith EU Winter Package

Development by adjacencies

REGENERATION RESHAPEBuying options

in smart cityand green economy

From pilot projectsto market solutions

FOCUS TRANSFORM

Waste, Retail and Networks to lead the growth

More options for generation and a more conservative energy scenario

Resilience of net income growth to commodity prices

Dividend target of 7.5 €cent in 2019 confirmed

Positive free cash flow generation with increasing Capex and dividends

Key takeaways 2017-2021 NO LONGERA GEN.CO.

Growth mainly drivenby non-generation

businesses

Higher option valuefrom generation

assets and WinterPackage

Strong CAPEX increasein regulated/

quasi-regulated markets

Annual investments 50%higher than past three

years’ average

Further optimizationfrom operational

excellence

Local aggregations,M&A, RES/DER

and other projectsto strengthen A2A

positioningand to mitigate risk

Updated Project Pot

BOOST INBUSINESSES

WITH PROVENTRACK RECORD

ROOM FORUPSIDES

OUR FUTURE IS SUSTAINABLE, GREEN, OPEN, SMART

ACCELERATE

DISCIPLINE DIALOGUE DIGITALOperational excellence

project adoption

Further deleveraging, withhigher Capex and DPS

Dividend target of 7.5 €centin 2019 confirmed

Extension of multi-stakeholderforum and territorialsustainability reports

Sustainability targetin management MBO

People: ageing policy, welfare,managerial development, talent

management,employer branding

Further Business Unitsprocess digitalization

New HR ERP

Strong fiber development

New IT and digital servicesto municipality

Strong investmentsin automation

A2A: what kind of company going forward?


2017-2021 STRATEGIC PLAN - MAIN TARGETS

Our WorldStrategic PlanBack to Index

16

1,135*

1,3801,380

66

422

263

141

268

78 51 3434 6

31 12

97

457

341

192

301

22%

13%

2017 WASTE ENERGYRETAIL

NETWORKSAND

DISTRICTHEATING

GENERATION& TRADING

SMARTCITY

EPCG OTHER 2021 2021REGULATED /FREE MKT MIX

REGULATED

QUASI REGULATED

MERCHANT LOW VOLATILITY

MERCHANT HIGH VOLATILITY

OTHER

EPCG

NETWORKS

GENERATION &TRADING

WASTE

ENERGY RETAIL

SMART CITY

BYBU

BYMIX

+245

- 34- 22

8

14

€M

30%

35%

* Central value of the range 1,120 €M – 1,150€M considered as the reference value for EBITDA2017

M&A

DEVELOPMENT

MAINTENANCE

MANDATORY

2017 - 2021TOTAL CAPEX

2,750

3%

57%

36%

5%


2,750

9%

47%

25%

8%

6%

1%

2%

GEN.& TRADING

RETAIL

WASTE

DISTRICTHEATING

NETWORKS

CORPORATEEPCG

1% SMART CITY


2,750

12%

34%

1%

53%

MERCHANT

MERCHANT LOWVOLATILITY

QUASIREGULATED

REGULATED

€M

2017-2021EBITDA

2017-2021CAPEX

Other 2021 targets:• Net Income 470 €M• Net Financial Position 2.5 €Bn

(1.8x NFP/EBITDA)

@More in-depths and documentsavailable on A2A website.Strategic Plan:https://www.a2a.eu/en/investors/presentations-conference




INDEX

Our Results Our ResponsibilitiesOur World

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Consolidated Results- Consolidated Income Statement 18- Capital Employed and Sources of Financing 19- Consolidated Balance Sheet 20- Consolidated Net Financial Position 21- 2016 Quarterly Accounts 22

Operating Results- Environment 23- Energy Retail 24- Networks and Heat 25- Generation & Trading 26- Other services and Corporate 28

- Foreign (EPCG) 29

Debt- Financial Strategy 30- Group Debt Structure 31- Bonds and EMTN Programme 32

Risk Management- A2A Group Risk Management 33

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More in-depth, updates and documents available in the following website sections• Operating and Consolidated results: https://www.a2a.eu/en/investors/financial-reports• Debt: https://www.a2a.eu/en/investors/debt• Risk Management: https://www.a2a.eu/en/investors/strategy

https://www.a2a.eu/en/investors/financial-reports

https://www.a2a.eu/en/investors/debt

https://www.a2a.eu/en/investors/strategy


Our ResultsConsolidated Results

CONSOLIDATED INCOME STATEMENT

Note: Group net income adjusted for the impact ofextraordinary items: 2016 = 377 €M; 2015 = 278 €M;2014 = 175 €M; 2013 = 156 €M; 2012 = 116 €M;

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Scope of consolidationThe consolidated Annual Financial Report at 31/12/2016 includes the figures ofthe parent A2A S.p.A. and those of the subsidiaries over which A2A S.p.A. exerciseseither direct or indirect control, even if the holding is less than 50%. In addition,companies in which the parent exercises joint control with other entities (jointventures) and those over which it has a significant influence are consolidatedusing the equity method.Changes in the scope of consolidation• Following the purchase by Aprica S.p.A. on 20/04/2016, of the 64% of the

investment in LA BI.CO DUE S.r.l., a company active in urban waste services inthe Province of Brescia, the latter was fully consolidated at 31/12/2016. Inaccordance with the provisions of IFRS 3, at 31/12/2016, the Group completedthe Purchase Price Allocation process, allocating to the portfolio of clients thedifference between the amount transferred, measured in accordance with IFRS3, and the net fair value attributed to assets acquired and liabilities undertaken.

• On 20/07/2016 A2A Ambiente S.p.A. finalized the acquisition of 100% of RI.ECO-RESMAL, Group active in the collection, sorting and recovery of waste in thehinterland of Milan; the latter has been consolidated with the line-by-linemethod and the Annual Report at 31/12/2016 reflects the Purchase priceallocation activities, following which the difference between the price paid andtransferred, valued in accordance with IFRS 3, and the net fair value attributedto the assets acquired and liabilities undertaken of RI.ECO-RESMAL wasallocated entirely to the portfolio of clients of the acquired perimeter on thedate of first consolidation.

• Following the purchase by A2A S.p.A., which was finalized on 05/08/2016, of51% of the investment in the Lombardy multi-utility LGH, at 31/12/2016, thelatter was fully consolidated. Based on the provisions of IFRS 3, in the AnnualReport at 31/12/2016, the transaction was accounted for by fully allocating thedifference between the price paid and fraction of Equity of LGH on the date offirst consolidation to the item Goodwill pending the completion of PurchasePrice Allocation.

• On 20/10/2016, the acquisition was finalized of 75% of the share capital ofConsul System S.p.A., the main independent Italian ESCo (Energy ServiceCompany), with the aim of creating operational synergies and developing newproducts and services; as a result of this transaction, the Group obtained controlof the company and therefore at December 31, the latter has been fullyconsolidated. At 31/12/2016, the Purchase price allocation activity was notcompleted as required by IFRS 3 and in the Annual Report, the differencebetween the price paid and fraction of Equity of Consul System S.p.A. wasentirely attributed to Goodwill.

• Lastly, the shareholding held by A2A Ambiente S.p.A. in Bellisolina S.r.l.,previously fully consolidated, was reclassified to the item “Non-current assetsheld for sale”, in anticipation of its sale, which was finalized in late January2017.


CAPITAL EMPLOYED AND SOURCES OF FINANCING

(1) Net of balances included in net financial position

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CONSOLIDATED BALANCE SHEET

(1) Book values on A2A Separate Financial Statements at 31 December 2016(2) At their general meeting on 17 July 2014, EPCG shareholders approved a share capital increase arising from

the conversion of the company’s tax liability. As a result, A2A shareholding decreased to 41.75%, with novariations in A2A rights to manage the company as established in the agreements signed in 2009

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At 31 December 2016 A2A S.p.A. reserves available for distribution to shareholders amounted to 214,940,217euro, of which to fiscal moderate suspension equal to euro 124,783,022.


Business outlook for operationsThe year 2017 started with market conditions(energy scenario, average temperatures) generallysatisfactory in spite of the scarce water resources,both in Italy and in Montenegro. On April 3, thecompany presented the 2017-2021 Business Plan tothe public that, despite the continuity of strategicdirection with previous plans, has introducedimportant changes, most notably the acceleration ofinvestments in the Environment and NetworksBusiness Units aimed at transforming A2A into amulti utility oriented more to the provision ofservices to local communities and less toconventional electricity generation. The execution ofthe Strategic Plan will be the main commitment ofthe company, expected during the year also uponrenewal of the Board of Directors and company TopManagement, whose expectations regarding theeconomic-financial performance for the year aregood: EBITDA is expected to range between 1.12 and1.15 billion euro (down from 2016, year howeverfavoured by more than 120 million euro of non-recurring income) ensuring a net profit in line with orhigher than as reported in 2016.Update after Q1 2017 ResultsThe favourable trend of the energy scenario recordedin Q1 2017, and more specifically in the month ofJanuary 2017, led to a considerable increase in theresults expected in the Generation and TradingBusiness Unit. This improvement, compared to theexpectations contained in the new BP announced byManagement in April, allows greater optimism forthe financial results of the year – with a forecastEBITDA ranging between 1,170 and 1,190 millioneuros. The improved operating profitability, net ofthe tax effects, is also expected to have an impact onthe net profitability.

Mandate for the legal audit of the accounts for theyears from 2016 to 2024The AGM called On 11 June 2015 the AGM conferred themandate for the legal audit of the accounts for the yearsfrom 2016 to 2024 to Reconta Ernst & Young S.p.A..


CONSOLIDATED NET FINANCIAL POSITION

(1) The net result is stated excluding gains on the disposal of shareholdings.(2) Net of balances with contra-entry in equity

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2016 QUARTERLY ACCOUNTSBack to Index

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Our ResultsOperating Results

DescriptionThe Environment Sector comprises the activities relating to the entire waste management cycle. These activities are briefly described below:• Collection and street sweeping: street cleaning and the collection of waste for transportation to its destination;• Treatment: an activity that is carried out in dedicated centers to recover or convert the waste in order to make it suitable for the recovery

of materials;• Disposal: this involves the final disposal of urban and special waste in combustion plants or landfills, where possible recovering energy

through waste to energy or the use of biogas.

ENVIRONMENTOPERATING REVIEW

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(1) Investments in 2016 do not include the price paid for the acquisition of the investments in RI.ECO, RESMAL and LA BI.CO DUE for approximately 23 million euro.(2) Quantities at the plant entranceOther notes – LGH: it is noted that the figure of FTE refers to the average of the reporting year, while labour costs are related only to the five months of consolidation (from August 2016).



DescriptionThe activities of the Commercial Business Unit Sales are aimed at the retail sale of electricity and natural gas to customers in the free marketand sale to customers served under protection scheme.

ENERGY RETAILOPERATING REVIEW

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DescriptionThe activities of the Networks and Heat Business Unit mainly consists of the technical and operational management of networks for thedistribution of electricity, the transport and distribution of natural gas and the management of the entire integrated water cycle (water captation,aqueduct management, water distribution, sewerage network management, purification). It is also aimed at the sale of heat and electricityproduced by cogeneration plants (mostly owned by the Group), through district heating networks and ensures the operation and maintenance ofcogeneration plants and district heating networks. Also included are activities relating to the management service of third-party heating plants(heat management services), public lighting, traffic regulation systems, the management of votive lights and systems design services.


NETWORKS AND HEATOPERATING REVIEW

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(1) Investments in 2016 do not include the price paid for the acquisition of the shareholdingsin Consul System S.p.A. for approximately 15 million euro.

(2) Figures include the production of Lamarmora, Famagosta, Tecnocity and other plants(3) Figures include heat production of WTE plants and Cassano thermoelectric plantOther notes – LGH: it is noted that the figure of FTE refers to the average of the reporting year,while labour costs are related only to the five months of consolidation (from August 2016).



DescriptionThe activities of the Generation and Trading Business Unit are related to themanagement of the generation plant portfolio (total installed capacity of8.8GW) of the Group.• The “Generation” sector has the specific goal of maximizing plant

availability and efficiency, minimizing operating and maintenance (O&M)costs.

• The “Trading” sector has the task of maximizing the profit from themanagement of the energy portfolio through the purchase and sale ofelectricity, fuel (gaseous and nongaseous) and environmental certificateson domestic and foreign wholesale markets. The Trading Business Unitalso includes the activity of trading on domestic and foreign markets ofall energy commodities (gas, electricity, environmental certificates).

GENERATION & TRADINGOPERATING REVIEW

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(1) Equal to the ratio between reserve and requirement. Percentage calculated by using higher reservebetween winter and summer periods. For 2016 the ratio is calculated using requirement and reserve atthe requirement peak (12 July 2016).

(2) The yearly figures refer to the thermal year(3) Italian National Price of the electricity(4) CCGT Gas Cost based on gas at virtual trading point (PSV) with 51% efficiency (previously 53%). The

figures include transport costs.(5) GC - average system cost until 2015, Feed-in tariff value as of 2016(6) Spark spread net of environmental costs (GC + CO2)(7) Dark spread net of environmental costs (GC + CO2). The environmental costs for a coal plant are equal

to: 1.4 €/MWh (2012); 8.52 €/MWh (2013); 8.1 €/MWh (2014); 7.5 €/MWh (2015); 5.3 €/MWh (2016).Coal plants efficiency is equal to 35%. The figures include logistics costs.

GENERATION & TRADINGSCENARIO


Prices and marginsOffer and Demand

Note: the electricity installed capacity figures refer to a gross capacitySources: Terna, Snam and ISTAT

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DescriptionThe following is a brief description of the activities carried outby this sector:• Corporate: guidance, strategic direction, coordination and

control of industrial operations, as well as services tosupport the business and operating activities (i.e.administrative and accounting services, legal services,procurement, personnel management, informationtechnology, communications etc.) whose costs, net ofamounts recovered from accrual to individual business unitsbased on services rendered, remain the responsibility of theCorporate;

• Other services: activities relating to video-surveillance, datatransmission, telephony and internet access services.

OTHER SERVICES AND CORPORATEOPERATING REVIEW

Note on accounting standardsThe annual report of the A2A Group at December 31, 2016 has been prepared in accordance with the International Financial Reporting Standards (IAS/IFRS) issued by the International AccountingStandard Board (IASB) and approved by the European Union.Given the fact that the reporting standars has been undergoing many changes, figures reported in the past may differ from the ones you find here - which reflect the latest version of IAS/IFRS. You findmore detailed explanations in the published reports.

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(1) Including A2A Smart City (EBITDA equal to 6 €M)Other notes: LGH: it is noted that the figure of FTE refers to the average ofthe reporting year, while labour costs are related only to the five monthsof consolidation (from August 2016).



DescriptionThe Business Unit includes the activities carried out by the investee company Elektroprivreda Crne Gore AD Nikšic ' (EPCG) in relation to theproduction and sale of electricity in Montenegro and the operational technical management of the related electricity distribution networks.

FOREIGNOPERATING REVIEW

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(1) 2015 figure includes asset write-downs equal to 246 €M as a consequence ofthe Impairment Test.

(2) Technically 2015 write-downs were recorded as an adjustement toconsolidated accounts.Figures

(3) Data net of distribution losses

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FINANCIAL STRATEGY

Our ResultsDebt

FLEXIBILITY• provide the Company with the right instruments to take potential

market opportunities, in a prompt and efficient way

DIVERSIFICATION• optimize financial sources and assess/select at any time the most

economical and/or best available

LIQUIDITY• maintain an adequate liquidity cushion in terms of cash and

available committed lines to cover planned cash outlays and absorblow-probability events

RISK MANAGEMENT• manage in a proactive way the interest risk with the main purpose

to mitigate the effects of market volatility

1.

2.

3.

4.

A2A financial strategy is focused on debt and cost reduction, whilemaintaining a high average debt duration and adequate financial flexibility

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30


GROUP DEBT STRUCTURE

• Total gross debt: 3.8 €Bn• Average cost of debt: ∼3.5%• Average maturity: 5.4 yrs• 1.1 €Bn liquidity position, of which:

- 0.4 €Bn cash- 0.7 €Bn undrawn committed lines and loans

STATISTICS RELATIVE TO DEBT AT 31/12/2016

Our ResultsDebt

DEBT BREAKDOWN

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CURRENT CORPORATE CREDIT RATING

Standard & Poor’s

BBB/A-2

Outlook Stable

Moody’s

Baa3

Outlook Stable

31


BONDS AND EMTN PROGRAMME

(1) Date from which interest is paid; (2) Last date on which interest accrues; (3) The current bond rating – where applicable, is different from the issue rating and is equal to the M/L term rating assigned to theCompany by S&P and Moody’s.

Our ResultsDebt

• On 19 September 2012 the Management Board of A2A approved the adoption of a Bond Issue Programme (Euro Medium Term Note Programme) for amaximum amount of 2 billion euro, listed on the Luxembourg Stock Exchange

• On 6 November 2014 the Board of Directors of A2A approved and authorised the update of the Programme and the increase of the total amount of notes whichmay be issued thereunder to 4 billion euro. The Board authorized the issue of notes up to an aggregate amount of Euro 1 billion, by December 31, 2016

• On 10 November 2016 the Board of Directors of A2A approved a framework resolution for the issue of notes to be issued under the EMTN Programme in one ormore series or tranches, in one or more times, up to an aggregate amount of Euro 1 billion, by December 31, 2019

• The adoption of the EMTN is part of the A2A Group’s medium-term financial strategy, which is aimed at lengthening the average life of the Company’soutstanding debt and at maintaining an adequate financial flexibility in order to efficiently manage the future debt maturities, to support the Company’s rating

• The bonds to be issued on the basis of the Programme are placed to institutional investors• Euro Bonds 2025, 2022, 2021 and 2019 and Private Placements 2023 and 2024 were issued under the EMTN Programme

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A2A GROUP RISK MANAGEMENT

Our ResultsRisk Management

The risk management model – process and activitesThe A2A Group has a risk assessment and reporting process which is based on the Enterprise Risk Management method(1) and on the best risk management practice, incompliance with the Corporate Governance Code as updated by Consob in 2014. The model, operative since 2010 and far from being a static reference, is subject to periodicrevision consistent with the evolution of the Group and the context in which it operates. The methodology adopted is characterized by the following steps:

1. Regular identification and the updating of the risks to which the Group is exposed2. Risk assessment process carried out through the involvement of all Group structures, risk owners and risk controllers, which includes:

• update of risk scenarios (specific events in which risk can materialize) related to activities• risk scoring , based on the probability of occurrence and the impact on the life of the Group (quali-quantitative measurement)• establishment of the relative controls and mitigation plans

3. Definition of risk priorities and risk reporting submitted to the top management for approval4. Balance sheet disclosure

ObjectivesThe methodology adopted is modular and leverages on the fine-tuning of the experience gained and methods of analysis used: on the one hand, it aims to develop the riskassessment further with specific reference to the consolidation of the mitigation process and on the other to develop and integrate risk management activities in businessprocesses. This evolution is carried out consistent with the gradual increase in the awareness of management and the business structures about risk management issues,achieved among other things through the use of specific training support provided by Group Risk Management.

(1) This method followsthe framework set by theCommittee of SponsoringOrganizations of theTreadway Commission(CoSO report)

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INDEX

Our Results Our ResponsibilitiesOur World

@

Corporate Governance

- Traditional Governance Model 35

Investors

- A2A shareholding structure 36

- Stock Exchange – A2A is one of the Blue Chips 37

- Dividends 38

- Shareholder information 39

34

More in-depth, updates and documents available in the following website sections• Sustainability: http://www.a2a.eu/en/sustainability/• Corporate Governance: https://www.a2a.eu/en/governance/• Investors: http://www.a2a.eu/en/investors/shares

https://www.a2a.eu/en/investors/publications-services/financial-calendar

http://www.a2a.eu/en/sustainability/

https://www.a2a.eu/en/governance/

http://www.a2a.eu/en/investors/shares

https://www.a2a.eu/en/investors/publications-services/financial-calendar


Our ResponsibilitiesCorporate Governance

(1) As per Code of Self-Discipline by Borsa Italiana; (2) the Executive Committee has the role of providing consultative input in the coordination of the executive directors’ activity, and preparing proposals for the Board ofDirectors. The other three Committees are pursuant to the guidelines defined by the “Corporate Governance Code” by Borsa Italiana; (3) Resigned on 3 may 2017; (4) All members are independent as per Code of Self-Disciplineby Borsa Italiana.

Effective auditors(3)

Giacinto Sarubbi(Chairman)

Cristina CasadioNorberto Rosini

Substitute AuditorsOnofrio ContuPaolo Prandi

TRADITIONAL GOVERNANCE MODEL (AS OF 13 JUNE 2014)

Current Board in charge until 2017 AGM Current Board in charge until 2017 AGM

Board ofStatutoryAuditors

The 2014 AGM established the following annual remuneration:• for each member of the Board of Directors (80 €k)• for the Chairman of the Board of Statutory Auditors (100 €k) and for the Effective Statutory Auditors (70 €k).

Additional 30 €k for the Chairman and 10k for the Effective Auditors were established by the 2015 AGM.The Board of Directors decided remuneration for the top positions:• a fixed remuneration for the Chairman, the Deputy Chairman and the CEO for their responsibilities• a variable short-term remuneration for the CEO related to the achievement of the objectives assigned Further details are shown in the Report on Remuneration

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http://www.a2a.eu/gruppo/export/sites/default/a2a/en/governance/shareholders_meetings/documents_2016/annual_report_remuneration_.pdf


A2A SHAREHOLDING STRUCTURE AT DECEMBER 31, 2016

Institutional investors: 33.8% of share capital

Geographic breakdown of the institutional investors:

• UK 25.2%

• Luxembourg 18.1%

• USA 17.5%

• Italy 17.1%

• France 7.2%

• Germany 2.5%

A2A SHAREHOLDING STRUCTURE

- Share capital: 3,132,905,277 shares with a par value of 0.52 euro each

- Market cap: 3,853 €M

- Treasury shares: 23,721,421, equal to 0.76% of the share capital

All shares are voting shares, although - as laid down in art. 9 of by-laws -no individual shareholder other than the Municipality of Milan and theMunicipality of Brescia may hold an equity interest exceeding 5% of theshare capital. Should such ceiling be exceeded, the voting right attached tothe shares held in excess of 5% of the share capital may not be exercised.

3-year new Shareholding Pact between Brescia and Milan Municipalitieswas signed on 1 February 2017. The Pact regards 42% of A2A sharecapital.

Retail investors: 12.9% of the share capital

Geographic breakdown:

• Italy 99.8%

• Foreign: 0.2%

57.8% of retail investors are in Lombardy, the region where historically A2A hasbeen more active. Investors from the provinces of Milan and Brescia ownrespectively 26.3% and 12.9% of the total retail shareholding.

The above-mentioned information derives from an internal analysis based on the shareholders register data - updated at 22 June 2016 (i.e., dividend payment date) and classified by the provider.

Number of shareholders: about 82,500

Our ResponsibilitiesInvestorsBack to Index

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0.8%

3.1%

25.0%

25.0%

46.1%

100.0%46.1%

53.9%

Free Float

Municipality of Milan

Municipality of Brescia

Norges Bank

A2A S.p.A. (treasury shares)

46.1%Total


60

65

70

75

80

85

90

95

100

105

110

A2A FTSE MIB EURO STOXX UTILITIES

0

20,000,000

40,000,000

60,000,000

80,000,000

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

Vo

lum

es

€/s

har

e

Volumes (right-hand scale) Price

Our ResponsibilitiesInvestors

STOCK EXCHANGE - A2A IS ONE OF THE BLUE CHIPS

A2A vs FTSE MIB and EURO STOXX UTILITIESA2A in 2016

(Prices 30 December 2015 = 100)

A2A 2016 figures (Borsa Italiana)

Market capitalisation at December 31, 2016: € 3,853 m

Average capitalisation: € 3,685 m

Average volumes: 11,140,269

Average price: 1.176 €/share

Maximum price: 1.287 €/share

Minimum price: 0.956 €/share

Number of shares: 3,132,905,277

A2A stock is also traded on the following platforms: Chi-X, BATS, Turquoise,Equiduct, Sigma-X, Aquis, BOAT OTC, LSE Europe OTC, BATS Chi-X OTC

Moreover, A2A has been included in the EthibelExcellence Investment Register and in the EthibelPioneer Investment Register.

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37



DIVIDENDS

(1) Dividend Yield calculated on annual average share price(2) Pay-out calculated on ordinary income (net of non-recurrent items)(3) Proposal by the Board of Directors to be approved by the Shareholders' Meeting

Dividend PolicyThe 2017- 2021 Strategic Plan confirms a dividend policy based on sustainable growth (DPS at around 7.5 euro cents in 2019 and a minimum 60%pay-out ratio in the following years).Dividend taxationDividends no longer attract any tax credit and, depending on who the recipient is, they may be subject to withholding tax at source or, in part,contribute towards taxable income.

With reference to year 2016, the Board of Directors proposed that Shareholders' Meeting approves the distribution of an ordinary dividend of 0.0492euros for each ordinary share in circulation (corresponding to paid dividends of approximately 153 million euros), up by around 20% compared to theprevious year, entirely taken from 2016 A2A S.p.A. net income.

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38


SHAREHOLDER INFORMATION

Shareholders’ meetingsAs laid down in A2A by-laws, the company holds one compulsory Shareholders’General Meeting per year. The Annual General Meeting is called by the Board ofDirectors within 120 days (or 180 days under certain circumstances) of the end ofthe fiscal year. With reference to the procedures for the AGM call, please refer toA2A By-laws and Corporate Governance section of the company website (i.e.,Shareholders’ Meetings). This section also contains all relevant documents for theAGM.

American Depositary ReceiptsA2A American Depositary Receipts (ADRs) are traded on the US Over The Countermarket (OTC) under the symbol AEMMY. Three unsponsored ADR programs werelaunched by Deutsche Bank (2008), BNY Mellon (2008) and Citibank (2014)respectively. In all cases, one ADR represents five A2A ordinary shares. Furtherdetails are available at websites www.adr.com and www.sec.gov.

A2A Investor Relations policy• Main goal: promote and support the correct knowledge and valuation of the

A2A stock by the financial community, through a communication which isactive, transparent, well-timed, constant, correct and not discriminatory

• Core activities:- hold regular meetings (one-to-one and group meetings) with the financial

community in Italy and abroad- arrange conference calls with the management at the time of the release of

the Group results- organize International roadshows with the top management for the

presentation of important strategic developments• Blackout period: during the 15 days before the release of the financial resultsThe IR department is not in charge neither of comments about A2A performancein the Stock Exchange, nor of financial advice about the investment in A2A.

DocumentationAnnual Reports, Quarterly and Interim Reports, Sustainability Reports, CorporateGovernance Report and Report on remuneration are available on our website(www.a2a.eu ). They may also be obtained, on request, from the Company Secretaryat the company’s registered office or through e-mail at [email protected] .


Additional InformationAdditional information about A2A is available at www.a2a.eu. Share priceinformation, previous Annual Reports and Interim Accounts, press releases and otherrelevant information can be found in the Investor Relations section of that site.Comments and suggestions are welcome (email: [email protected]).

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A dividend relating to the financial year 2016 may be payable from 24 May 2017, with ex-dividenddate 22 May 2017 (record date 23 May 2017)

http://www.adr.com/

http://www.sec.gov/

http://www.a2a.eu/


http://www.a2a.eu/


Documents

A2A 2017 Investor Guidebook - Amazon S3...- Market position in terms of businesses and EBITDA 12 Main regulatory framework - Networks – regulatory framework 13 Major Transactions