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The external growth strategy

The growth strategy for external lines led to a Euro 115 million increase in EBITDA in five years through the finalisation of a significant number of mergers and acquisitions.

Two main principles guided the expansion strategy for external lines: expansion through mergers with multi-business companies involved in related areas and upstream integration of deregulated activities.

The multi-business development line involved five companies, four of whom are in the Emilia Romagna region.

(ml€)

Merger

Revenues

EBITDA

Agea

2004

144

25

Meta

2005

278

65

Aspes*

2006

90

13

Geat 

2006

13

2

Sat

2008

62

12

 

The acquisition of Geat (Riccione), Agea (Ferrara), Meta (Modena) and Sat (Sassuolo, Modena) have given the Group a 70% cover of the region in the activities that comprise the main business activities of Hera. As with Hera's original merger model, these operations were carried out by fully merging the company into Hera, mainly through share swaps.

Hera also extended its activities into the Marches, acquiring a holding in Marche Multiservizi which is the most important multi-utility company in the region, created by the merger of Aspes Multiservizi Spa of Pesaro and Megas di Urbino.

This strategy of further extending its multi-business and identifying certain domestic players to operate with has gained growing consensus among both public and private investors. Hera's public shareholders recently gave authorisation to the management to initiate contacts with the main listed multi-utility companies who have recently expressed interest in becoming strategic partners of Hera.

In addition to its multi-business development activities over the past five years, the company has also been involved in M&A operations with mono business companies to strengthen its hold in the deregulated market of special waste management and energy activities.

The expansion of the gas sale and distribution activities was pursued through the acquisition of small to medium-sized companies operating in the reference market and leading to the company having over 90% penetration in the area.

Acquisitions in the gas sector

Activity

Ownership

Argile Gas (Bologna)

Sales

100.0%

Gasgas (Ferrara)

Sales

100.0%

Tecnometano (Ferrara)

Distribution

100.0%

TS Distribuzione (Bologna)

Distribution

100.0%

TS Energia (Bologna

Sales

100.0%

SGR Servizi (Rimini)

Sales

29.6%

Geat Gas (Riccione)

Sales and distribution

100.0%

In 2007 Hera also increased its holding to 10.4% of the share capital of Galsi in a joint venture with other international operators. Galsi was set up to construct a gas pipeline between Italy and Algeria. Its participation in the project allowed the Group to secure a 15-year term contract for the import of 1 billion cubic metres of gas directly from Algeria.

In the electricity sector, Hera acquired an indirect 5.5% holding in Tirrenopower Spa in 2003, and a 15% holding in Calenia Energia (a company set up to build an 800 MW CCGT plant in Sparanise in Campania) and a 39% holding in Set Spa (a company set up to build a 400 MW CCGT plant in Teverola in Campania) in 2004. The electricity distribution network for 18 municipalities in the province of Modena was also acquired from Enel in 2006, strengthening the regulated portion of the business.

The Group's 2007-2010 investment plans include the construction of a new CCGT (combined cycle gas turbine) cogeneration plant in Imola, with an installed capacity of 80 MW. All these initiatives will mean that the Group will be able to cover a significant portion of the supply demand by customers through own electricity power generation which it intends to balance out perfectly over the next few years.

Acquisitions in the electricity sector

Installed capacity

Ownership

Tirreno Power

Generation (2.600 MW)

5.5%

Calenia Energia

Generation (800 MW)

15.0%

Set

Generation (400 MW)

39.0%

Electricity network (prov. of Modena)

Distribution

100.0%

As regards the waste management business, Hera has strengthened its position as a market leader with the acquisition of the Centro Ecologia Ambiente in Ravenna from the Eni Group providing a waste to energy (WTE) plant for the treatment of special waste. This operation completed the range of services offered in the treatment of special waste.

This strategy of upstream integration means that the Group can now offer a wider range of competitive, quality services which is effective in gaining customer loyalty and can be further developed in the future.