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Analysis of the Integrated Water Cycle Area

The Group currently operates in the Integrated Water Cycle management sector in over 180 municipalities, with more than 2.5 million inhabitants, with almost complete coverage of the area in question.

Hera operates through seven ATOs in the Provinces of Ravenna, Ferrara, Forli-Cesena, Rimini, Modena, Bologna and Pesaro-Urbino.

Agreements were set up with all of the aforementioned Agencies regulating the Integrated Water Service, and in addition to lengthening the license terms up to 2022 on average, also guarantee the Group the return on its capital investment over the next few years.

In the first six months of 2009, the Integrated Water Cycle area shows an drop in its results compared with the same period of the previous year:

(mln/Ä)30-jun-0830-jun-09Abs. ChangeChange %
Area EBITDA 61.6 59.5 -2.1 -3.4%
Group EBITDA 257.6 271.3 +13.7 +5.3%
Percentage 23.9% 21.9%-2.0 p.p.

The results show performance slightly down, mostly connected with the lower volumes distributed, fewer works and connections, and the extraordinary effect from which the first half of 2008 benefitted.

An analysis of the operating results in this area is shown below:

Income Statement
(Euro millions)
30-jun-08Inc.%30-jun-09Inc%Abs. ChangeChange %
Revenues 215.2 219.6 +4.4 +2.0%
Operating costs (169.1) -78.6% (161.5) -73.6% -7.6 -4.5%
Personnel costs (52.3) -24.3% (51.8) -23.6% -0.5 -1.0%
Capitalised costs 67.9 31.5% 53.2 24.2% -14.7 -21.6%
EBITDA61.628.6%59.527.1%-2.1-3.4%

Revenues, equal to Euro 219.6 million, are up 2.0% over the first half of 2008, in connection with the combined effect of the increased tariffs, decreased volumes supplied and lower amount of works and connections.

The decrease in operating costs is essentially tied to the lower costs capitalised for works for investment, which in the Groupís organisation are entirely executed by the Territorial Operative Companies, which are described in detail in the specific paragraph.

The following table shows the major quantitative indicators of the area, which are down compared to the first half of 2008:

Quantitative data30-jun-0830-jun-09Abs. ChangeChange %
Volumes sold (mln of mc)
Aqueducts 122.0 120.7 -1.3 -1.1%
Sewerage (*) 106.8 104.5 -2.3 -2.2%
Purification 107.0 104.5 -2.5 -2.4%

(*) for homogeneity of comparison, the 30-06-2008 figure was reclassified considering, compared to the previous report, 3.3 million m3 concerning the industrial sewerage service

The volumes distributed, down 1.1% compared to the first half of the previous year, shown signs of recovery with respect to the first quarter figures, which show a drop of about 3.6%.

The EBITDA at the end of the first half of 2009 decreased by Euro 2.1 million, passing from Euro 61.6 million in 2008 to Euro 59.5 million in 2009 (-3.4%). When analysing this result, it should be kept in mind that the first half of 2008 benefitted from extraordinary income of the Marche Multiservizi Group amounting to about Euro 3 million. Net of this effect and despite the decreased volumes and works, the areaís result would be up Euro 0.9 million, equal to 1.4%

 
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