Mauro Maia: Presentation Adam Smith Assonime convention

Local entities and a new season of privatizations

Adam Smith Society - Assonime

Milan, 2013, June, 3

Mr Mauro Maia, Senior Partner F2i

Introduction page 3

Infrastructures in Italy

Privatizationss page 12– Privatizations at the central level page

13

– Privatizations at the local level page 19

Local entities’ subsidiaries today page 24

A new season of privatizations page 31

F2i’s role page 45– Examples of chains page 54

Conclusions page 692

Index

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Introduction

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– Local entities still hold an important portfolio of subsidiaries (beyond 5.500), which also represent a value reserve for the public treasury (about 35bn €), in most cases being it their majority shareholder and direct manager

– Most of the subsidiaries (about 65%) work in the sectors of infrastructures and local public services, linked to them.

– Right in these sectors, the direct management by the single local entities and the current lack of public funds determine a variety of inefficiencies such as: market fragmentation, poor productivity and profitability, complexities and actual governance anomalies, delays in decision-making processes, lack of resources for investments, often unclear management.

Introduction

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– The pulverization of many infrastructural assets (hydric networks, gas networks, highway networks, airports, etc.) into a countless small local entities generates several problems in terms of growth, renovation and maintenance.

– While large national infrastructural companies (ENI, ENEL, Autostrade, etc.) underwent an advanced process in the ‘90s, which in many cases has favoured their growth and development, s at the local level have remained unaccomplished.

– Moreover, managing companies have been marked by shareholders who were unorganized to manage subsidiaries, generally indebted and unable to sustain development: therefore, having a “parasitical” attitude".

– In my speech I will show how a new season of s, this time focused on “local” assets, could favour efficiency and reactivate the contribution that infrastructures have given to the development of the entire Country in the past.

Introduction

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Until mid ‘70s, our Country has historically had a great tradition in the realization of important infrastructures

– Italy was the first Country in the world to have a highway (“Autostrada dei Laghi” – 1924);

– In 1970 the extension of the Italian highways network (3.913 km) was second only to the German one (4.461 km);

– In the ’60s it was among the “leading Countries” in the production of nuclear energy (3rd Country in the world, following the USA and Great Britain, for installed power – 640 MW);

– It was one of the first Countries to develop hydro electrical plants on a large scale, which in 1960 had already reached the current installed capacity (about 20 GW) covering, at the time, almost 100% of the national energy need;

– In the ’80s it was the first Country, together with France, to launch the high speed railway network project (Rome – Florence) .

The realization of infrastructures represented an important development driver for Italy in the post-war period and in the years of the “economic miracle”.

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In Italy, infrastructures have been promoted, mainly through public funds, by national institutions and public entities:

– IRI, in the field of transports (Autostrade, Alitalia, Tirrenia), telecommunications (STET, RAI), building (Finmeccanica, Fincantieri);

– ENEL, in the field of electricity;

– ENI, in the field of transportation and distribution of natural gas (SNAM, Italgas, etc.) and of petrochemicals (Snamprogetti).

Until the ’80s, the Country had an adequate infrastructural system. The high cash flow generated by the existing infrastructures contributed to the development of new works.


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A similar path was followed by local infrastructures and public services:

– The development of local services, in Italy, originated in late 19 th century following a quick urbanization process that led to a significant increase in the demand for public services (initially limited to road lighting and services for agriculture).

– Initially, services are managed, without any regulation, by private monopolists, often foreign (Austrian), who make profit at the detriment of the communities served.

– This urges Local Entities to directly take charge of the plants building and functioning, both to limit costs and to employ the operational profits in the development of the services themselves (in mid 19th century the first municipalities directly managing local public services are: Genoa, Vercelli, Brescia, Rovigo, La Spezia and Cesena);

– In early ’900, the municipalisation becomes part of Giolitti’s administrative decentralization programme as a response to the need for modernization, deriving from the industrialization process and the related migration flows.

– Despite the possibility to municipalise services is left at the municipalities’ discretion, in time such practice largely extends: electricity and gas distribution, water service, transports, waste management, milk factories, pharmacies, etc. all undergo municipalisation.

Until the '60s, the public services municipalisation model and the reinvestment of profits enable a quick infrastructural growth of the Italian cities.


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– the most patent consequences of the crisis are the uncontrolled growth of costs and deficits of the public companies and the insufficient results in terms of quality and efficiency;

– in the case of local public services, for instance, the deficits cumulated by municipalised companies, which in 1960 were slightly over 3,5bn lire, climb up to 800bn in 1975, to reach 1.800bn in 1980;

– furthermore, this is accompanied by a severe worsening of the general status of Local Entities and central State’s finance, with growing deficits and debts out of control.

The deterioration of the public finance blocks the realization of new infrastructures, which till then had been a driver for development, and leads to a progressive worsening in the quality of services.

This model, based on the trinomial “public finance – management effectiveness – development” begins to undergo a crisis already in the ‘70s-’80s, both for the central State and for Local Entities:


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In early ’90s, Italy is involved in deep processes forcing it to drastically change its economic policy choices:

– the political crisis of the First Republic;

– the economy slowdown: its GNP is permanently below the European average;

– the adhesion to the Euro, which determines the need to drastically reduce deficit, debt and inflation, with quite harsh financial manoeuvres;

– the European Community pressing for the reduction of the public presence in Member States’ economies (Commissary Van Miert will take advantage of the peculiar Italian weakness to “press” a lot on Italy).

The following governments have to cut public expenditure and “ask for money”.

The public sector is no longer able to maintain its role as an investor in the realization and management of infrastructures and, above all, at the central level, it opens the season of the “great privatizations”.


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Privatizations

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Privatizations at the central level

Privatizations, in general, are negatively judged. Actually, they have often had positive outcomes, even if different, depending on the modalities followed:

1. Manufacturing companies, in crisis.these privatizations are generally made by selling to privates operating in the same business sector, which determines their successSome specific cases are:– In 1994 Nuovo Pignone: ENI cedes 70% of the company to General Electric for 700bn

lire;

– In 1995 ILVA: IRI sells the iron company to Gruppo Riva for 2.332bn, disposing a 1.500bn debt.

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These companies have experienced progressive developments.

PrivatizationsPrivatizations at the central level

2. Afterwards, privatizations affect companies operating in the sectors of services and infrastructures, from which the highest revenues will come. These are made:a) either by listing part of the capital, with quite satisfactory

results for the State (but not always for the investors – see ENEL)…

– from 1995 to 2001, the Treasury has marketed 68% of ENI’s capital, with an overall income exceeding €21bn. Stocks today are worth more than three times their first listing (17,8 €/SH vs 5,4 €/SH);

– from 1999 to 2005, 78% of ENEL has been ceded, with a revenue of about €33bn. The first tranche is listed at 4,3 €/SH. An excellent price for the State: 13 years later the stocks is worth about 2,9 €/SH.

The turns ENI and ENEL into two large European Energy Companies, thanks to a strong growth in the turnover and to their improved productivity and efficiency:

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Former public entities become real “public companies”, efficient and able to compete at the international level.

1 Data recalculated due to inflation

ENI 1994 2012 CAGRRicavi (M€) 62.886 128.766 +4,1%Ricavi/dipendente (k€) 661 1.654 +5,2%EBITDA/dipendente (k€) 314 367 +0,9%

ENEL 1998 2012 CAGRRicavi (M€) 27.803 84.889 +8,3%Ricavi/dipendente (k€) 327 1.152 +9,4%EBITDA/dipendente (k€) 135 227 +3,8%

1 1

Revenues(M€)Revenues/staff member (k€)EBITDS/staff member (k€)

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b) …or by selling directly to privates, often on a “family” base and with disappointing or contradictory results (especially for TLCs):

– In 1997 35% of TELECOM ITALIA is sold for €13bn (among the large s it is the less profitable). Afterwards, the company changes hands several times (Colaninno, Pirelli, Telco, Telefonica), burdens itself with debts (NFP/EBITDA from 0,7x in 1999 to 3,2x in 2005), has to dispose most of the Overseas and loses the international standing gained in STET’s years.

– Between 2000 and 2001 the company Leonardo (led by Gemina with Falck, Italpetroli and Impregilo as stakeholders) acquires about 96% of ADR for 2.327 M€, including a dividend of about 1.519 M€, detached from the company in 2001, thanks to a debt creation (for more than 1.600 M€). Thus, the actual disbursement for Leonardo is equal to 808 M€.

In 2002 the Australian Fund Macquarie buys about 44,7% of ADR’s capital at 480 M€ (1.074 M€ for 100%) from Leonardo, namely with a premium equal to almost 30% of the load value.

In 2007 Gemina1 (become Leonardo’s single shareholder) acquires 44,7% of ADR’s capital for 1.237 M€, namely 2,5 times as much the price paid by Macquarie only 5 years before and more than 3 times as much Leonardo’s net disbursement during the phase!

The heavy debt, created in 2001 to pay the extraordinary and never significantly cut maxi-dividend, determines a very slow growth in the decade following the (2001-2010 CAGR: +3% and substantial block of investments).

In 10 years ADR has changed hands three times and burdened itself with a net debt that, to date, still accounts for about 870 M€ (NFP/EBITDA > 3,2x), after having paid capital gains to the various shareholders (and 190 M€ dividends between 2000 and 2007)!

1 After having changed hands several times, Gemina’s current relative majority (about 35%) is held by Sintonia (which falls under Edizione Holding), directly and through the subsidiary Investimenti e Infrastrutture SpA.


Azienda Anno EV/EBITDA Prezzo/PNNuovo Pignone 1994 7,39x 2,90x

ILVA 1995 4,03x 1,17xENI (media 5 tranche) 1995 - 2001 5,40x 2,10xENEL (solo 1a tranche) 1999 7,20x 3,00x

Telecom Italia 1997 3,40x 1,70xAutostrade 1999 9,40x 4,50x

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– More positive the case of AUTOSTRADE. In 1999, 70% of the company is ceded for about 13,5bn €. Schemaventotto (led by Edizione Holding) acquires 30% of the company from IRI at about 7,05 €/SH. The market absorbs 40% at 6,75 €/SH. In 2006, Schemaventotto agrees Autostrade’s disposal to Abertis at about 25 €/SH, namely beyond 250% more than what paid to IRI, but the operation is not completed Autostrade still remains a sound company in Italian hands.

Privatizations of infrastructures and services, through direct sale to privates, seem to have originated “hit and run” temptations, risking - as it was the case with Telecom and was about to happen with Autostrade, as well - that strategic assets for the Country either fell under foreign control (which implies the management of the consequent cash-flow) or were managed under a mere financial concern perspective.

Comparison btw major privatizations

Among large privatizations, Telecom’s was the less profitable for the State: the EV/EBITDA ratio, for instance, is 3,4x (against ENEL’s 7,2x and ENI’s 5,4x).

Company Year EV/EBITDA Price/NP

Nuovo PignoneILVAENI (5 tranche average)ENEL (first tranche only)Telecom ItaliaAutostrade


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– Privilege, for infrastructures/services, either listing (as ENI or ENEL) or “public company”-like shareholders (as F2i, see ultra).

– Include lock-up restrictions (at least for 5/7 years).

– Introduce, anyway, the “earn-out” concept in favour of the public vendor in case the company is resold within 10 – 15 years.

– Bind not to sale the company to buyers charging it with an excessive acquisition debt.

Lessons learned from privatizations in infrastructures

Privatizations Privatizations at the central level

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Privatizations at the local level

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– The transformation into a joint-stock company occurs in a generalized way: joint-stock companies operating in the sector of public services pass from 22 in 1995 to 56 in 1997, to be more than 450 in 2002. AEM Torino, for instance, is transformed into a joint-stock company in 1997, AMAG Alessandria in 2002;

– Shares disposal is a much more rarefied phenomenon: in 2000, in 75% of cases, the capital share ceded to privates is below 10%. In 2009 the average private capital share does not exceed 25%;

– in several cases, services, even “industrially relevant” ones, remain under Public Entities’ direct management, in particular in the waste sector and in the water one (which, and it is not a coincidence, now are the sectors experiencing most difficulties).

Even the largest municipalised companies that choose listing (AEM Milano – today A2A – in 1998, ACEA in 1999, AEM Torino – today IREN – in 2000) generally maintain a public majority.

– At the local level, the path is followed with much less decision.

– The transformation of “special companies” into joint-stock companies is the preferred way, which should have been followed by the (partial or total) disposal of shares by Public Entities.

– However, the disposal process remains, often, incomplete:

Privatizations Privatizations at the local level

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– This process led to the creation of obviously “slightly larger” companies than those preceding the merge, but internally torn by localistic juxtapositions.

– Contrarily to what happened in the other main European Countries (e.g. Veolia in the waste and water sectors in France, Remondis in the waste sector in Germany, etc.) “horizontal” aggregations were preferred to "vertical” ones.

– In fact these multi-utilities manage an aggregate of different services, among which important synergies are not possible, instead of specializing in the provision of a single service.

Such companies cannot fully develop the synergies and scale economies needed to ensure an efficient management and the necessary investments for a quality service.

In the years 2000 the season of the aggregations of managing companies operating in different territories (A2A, IREN, HERA, Acegas-APS, etc.) was launched, especially in the North of the Country.

Privatizations Privatizations at the local level

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Overall:

− privatizations at the central level were imperatively imposed and quickly and completely realised (though, not always with satisfactory results): today Nuovo Pignone, ILVA, Telecom Italia and Autostrade are entirely private companies; ENI and ENEL are large listed public companies;

− privatizations at the local level were left to the initiative of territorial entities and at the mercy of political localistic balances. It is no surprise, then, that after almost 15 years, they have remained largely uncompleted (all the main listed multi-utilities maintain a public majority) and have not brought along any actual benefits either to companies or, least of all, to the quality of the services provided.

Privatizations

Public presence in the main local multi-utilities

Società Quota Pubblica%ACEA 51,0%A2A 54,9%IREN 55,1%HERA 58,0%

Company Public Share %

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The persisting public management has also generated more complex and expensive governance systems, bureaucratising and slowing down decision-making processes (see ultra).

Episodes of unclear and casual management are quite often witnessed in local public companies.

Privatizations

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Local Entities’ subsidiaries today

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Local Entities’ subsidiaries today – Aggregated data– In 2009, industrial companies in which Local Entities had a share were 5.512 (65,3%

of which controlled)1, mainly operating in the sectors of utilities and business services (65%).

– Always in 2009, the 4.139 companies with a regularly registered balance sheet (75% of the total) were marked by the following aggregated figures:

1 The source of the information in this chapter is “Le società partecipate dagli Enti Locali" Edizione 2011 – Centro Studi Unioncamere e Ricerche studi SpA.2 Press sources for Local Entities’ subsidiaries (Il Sole24Ore 22/7/2011). For ENI and ENEL market capitalization was considered.

Item Aggregated data Comparison

Revenues 59,3bn € (average: 14,3 M€/company). About 77% is represented by the utilities’ revenues

46% of ENI’s turnover70% of ENEL’s turnover

EBITDA % 13% of revenues vs. 21% ENI and ENEL’s average

Fiscal year profit % 1,7% of revenues (against 3,1% of the 2.025 main Italian companies)

vs. 4,5% ENI and ENEL’s average

Staff members 267.000 (average: 64,5/company) vs. 152.000 ENI + ENEL

Value2 30 – 35bn € vs. about 100.000 ENI + ENEL

Overall, Local Entities’ subsidiaries generate 1/3 of ENI and ENEL’s total turnover, employing almost twice as many staff members. Consequently their profitability is almost halved and their value is equal to 1/3!

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– Focusing on larger companies, also the main 69 utilities in which Local Entities have a share do not show better performances than the general average:

Item Aggreagted data Comparison

Revenues 28,4bn € (average: 412 M€/company), equal to about 48% of the total turnover of Local Entities’ subsidiaries.

22% of ENI’s turnover33% of ENEL’s turnover

EBITDA % 15,5% of revenues vs. 21% ENI and ENEL’s average

Fiscal year profit % 1,7% of revenues vs. 4,5% ENI and ENEL’s average

Staff members 135.391 (average: 1.962/company) vs. 152.000 ENI + ENEL

All together, the main local utilities do not reach 1/7 of the overall size of national energy companies.

The "multi-utility” model causes the dispersion of resources in many different sectors (electricity, gas, water, waste and other urban services), which affects profitability and efficiency, excluding the benefits deriving from specialization.

Local Entities’ subsidiaries today – Large utilities

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– Large ”national champions" (ENI, ENEL, Atlantia), specialised in a single sector, show a better profitability and sounder property structures compared to multi-utilities and can destine more resources to investments.

– This also because, in multi-utilities, inefficient business segments consume the resources produced by the profitable ones

– For investments, multi-utilities are currently trying to compensate the lack of cash flow with debt, which for some of them is reaching unsustainable levels in the long term (> 4x EBITDA!).

An example of the importance of size and sector specialisation is given by the analysis of the data regarding the main listed infrastructure groups.

Dati in M€ Ricavi EBITDA % Utile % Invest. PFN Mkt Cap EV EV/EBITDA Inv./EBITDA PFN/EBITDACampioni nazionaliENI 128.766 28.587 22% 8.673 7% 13.517 15.511 68.607 84.118 2,94x 47% 0,54x

ENEL 84.889 16.738 20% 2.075 2% 7.075 42.948 27.575 70.523 4,21x 42% 2,57x

Atlantia 4.034 2.398 59% 830 21% 1.630 10.064 9.124 19.188 8,00x 68% 4,20x

Terna 1.806 1.390 77% 464 26% 1.235 5.855 7.060 12.915 9,29x 89% 4,21x

Maggiori multi-utilityA2A 6.480 1.068 16% 271 4% 360 4.372 1.977 6.349 5,94x 34% 4,09x

ACEA 3.613 695 19% 85 2% 513 2.495 1.157 3.652 5,25x 74% 3,59x

HERA 4.493 662 15% 134 3% 289 2.217 2.159 4.376 6,61x 44% 3,35x

IREN 4.328 630 15% 162 4% 400 2.555 982 3.537 5,62x 64% 4,06x

N.B. - Dati da bilancio 2012, eccetto Mkt Cap, al 16 maggio 2013

Media "campioni nazionali" 45% 14% 6,11x 62% 2,88x

Media maggiori multi-utility 16% 3% 5,86x 54% 3,77x


Data in M€ revenues EBITDA % profit % investment NFP Mkt cap EV EV EBITDA Inv/EBITDA NFP/EBITDA

National champions Major multi-utilities

Note: data from 2012 balance sheets, except for Mkt Cap, at 2013, May, 16

National champions averageMajor multi-utilities average

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GAS DISTRIBUTION

WATER

AIRPORTS

Quotate/Miste Pubbliche Benchmark EuropeoThames Water

EsempiEBITDA %

Mediterr. delle Acque (GE)45%

Acqua Bene Comune (NA)19%

28%RedditivitàEBITDA%

22% 60%

EfficienzaOPEX (€/m rete)

17,5 29,7 24,6

Private / Public comp. Multiutility Benchmark EuropeoGas Natural

EsempiOPEX (€/m rete)

ERG (F2i)4,4

A2A Reti Gas10,6

RedditivitàEBITDA%

60% 45% 61%

EfficienzaOPEX (€/m rete)

4,6 10 8,1

Comparing the performances of the main Italian companies working in Local Public Services (LPS)-related sectors, better results emerge when the presence of privates in capital and management increases:

Maggioranza privata Maggioranza pubblica Benchmark EuropeoFraport Francoforte

EsempiOPEX (€/pax)

GESAC (NA)7,6

SEA (MI)11,2

RedditivitàEBITDA%

38% 19% 40%

EfficienzaOPEX (€/pax)

7,4 9,1 13,9

Higher tariffs (and, thus, higher unit revenues) leave foreign airport managing companies a larger space to recover efficiency. Despite higher unit costs, in fact, the EBITDA margin remains higher.


Listed/Mixed Public European Benchmark

Profitability EfficiencyOPEX (€/m network)Examples

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The inefficiency of the public management model, localistic and fragmented, emerges also in the governance structure of the companies in which Local Entities have a share1:

Even among the largest companies, the governance of the public ones is more complex and expensive:

– About 26.000 people with offices (board members and auditors): 6,3/company- about 10% of the overall workforce (267.000 staff members);

– About 39.000 offices (Board of Directors and Auditors’ Committee): 1,5/person- 14,6% of the overall workforce, plus 5.000 other offices in various Committees;

– The total cost exceeds 1bn € (about 24,5 k€/office), 9% of the overall workforce cost;

– Proliferation of powers and proxies to single administrators (often to ”divide” governance among the various ”souls" composing the Board of Directors, especially in multi-utilities deriving from different aggregation processes). The resulting complexity slows down the decision-making processes.

1 Data processing by F2i, referred to 4.139 companies, based on Unioncamere’s data

Componenti (CdA + CS) Compenso medio (€)

IREN 16 64.625ACEA 12 68.333HERA 21 80.944SEA 12 99.360Media 15,3 78.316

ADR 16 26.125ERG 14 30.714ITALGAS 6 32.333Acqua Campania 10 69.900Media 11,5 39.768

Pubblico vs. privato +33% +97%

Local Entities’ subsidiaries today – Governance

Components (Board of Directors + Auditors’ Committee) Average fee

Average

Public vs private

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In summary, the analysis on Local Entities’ subsidiaries provides the following indications:

– Reference sectors are generally fragmented. In each sector there are at most 1 – 2 players of larger size (however not comparable to major European leaders) and too many operators on a provincial/municipal scale;

– The presence of privates in Local Entities’ subsidiaries is limited (on average, 25% of the capital), as further proof of a process remained unaccomplished;

– Companies that underwent an advanced privatization process have a larger size on average than still public ones;

– Larger size and "privatistic" management seem to determine a greater efficiency, which in turn generates a higher profitability and greater investments;

– Among large companies, the "best performers" are, almost always, the private ones or the privates-led ones. F2i, for instance, succeeded in generating efficiency in the companies it directly manages (e.g. ERG, GESAC, etc.), but not always in those where it had limited governance rights (SEA);

– Large listed multi-utilities show better results than companies with public majority, but do not reach the performance levels of large public companies or of those companies whose management is demanded to the private partner.

– This is also due to the fact that being multi-business does not favour efficiency in single chains;

– Private companies also show, on average, greater efficiency in terms of governance than the public ones.

Local Entities’ subsidiaries today – Conclusions

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A new season of privatizations

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– As seen, infrastructures in Italy have played a fundamental role for development in the past.

– Nowadays, instead, this contribution has halted, especially due to the situation of public finance.

– The problem is then how the infrastructures’ contribution to development can be reactivated and where the necessary resources can be found.

– A ”substitute" for public finance is needed for development, yet granting Public Entities a control and monitoring role on the infrastructures and services provided .

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New infrastructures must be funded by the existing ones!

– Infrastructures generate, in fact, important profits (EBITDA margin ≥ 50%), that can and must fund development

Of course, for existing infrastructures to fund new works, they have to be of relevant size and not fragmented.

To date, instead, the concept of “vertical aggregation" or ”chain" within a single sector has been missing.

– My quite self-evident answer to this question is the following:

Who can fund infrastructures today?

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− High debt, used, more and more often, to cover part of the current expenditure, besides for investments;

− Decreasing transfers from the State;

− Increasingly strict limitations for the internal stability pact;

Today, also due to the persisting international economic crisis, several Local Entities are facing critical financial situations…

…which determines the extreme difficulty in finding funds to:

− Participate in the subsidiaries’ capital increases, needed to ensure the development and the efficiency of the services provided to citizens;

− Develop the existing infrastructures and fund new works increasingly demanded by the territory.

Local Entities’ subsidiaries today

New (real) privatizations of Local Entities’ subsidiaries could represent a good solution to:

- Eliminate fragmentation and inefficiency of the utilities sectors;

- Favour investments for the development of the managed assets;

- Reduce the debt of local administrations.


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The Ronchi Decree Law tried to prevent and find solutions to Local Entities’ financial problems. It identified such a solution in a private partner entering the managing companies, actually liberalizing the market :

− The measure (Legislative Decree 112/2008, then transformed into Law 133/2008), in fact, included:

o The assignment of public services to private companies through tenders, or to mixed companies provided that the private partner held at least 40% of capital, had been chosen through tender and dealt with operational management;

o The limitation of the in-house assignment (possible only in exceptional cases);

o Conclusion of the existing in-house assignments by 2011/12/31, unless 40% of capital was ceded to a private partner;

o For companies listed before 2003/10/01, maintenance of the management (acquired even before this date) with compulsory progressive reduction in public shareholding.

− The Ronchi Decree Law would have thus enabled the most efficient operators to compete for the assignment of concessions, in territorial domains where public services had historically been a prerogative of Local Entities.

Such measures were however annulled by June 2011’s referendum.


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Subsequently, the Monti Government tried to favour aggregations and the entrance of privates in local public services, with Decree Law 1/2012 (“Liberalizations Bill" - art. 25) and with the "spending review", envisaging:

- The obligation to organise local public services (LPS) through ATOs (optimal territorial domains) at least on a provincial scale, to favour their economies of scale and the service efficiency;

- Limitations in the in-house assignment of LPSs (except for the hydric service, on which the result of the Referendum weights), namely:

o Lowering the maximum threshold of the annual LPS value over which tenders are required (from 900.000 to 200.000 €/year);

o Inclusion of the balance sheet data of the in-house companies in the calculation of the limits of the internal stability pact (with, consequently, no need for Local Entities to create formally external companies to subtract the expenditure made at the perimeter of the stability pact)). This principle, actually already in force in the past, would be an important driver for privatizations, but remains unenforced, waiting (since 2009) for a never issued implementation decree.

o Strengthening the Antitrust’s opinion (which remains however non binding) on the market analysis made by Local Entities in order to choose between the in-house or the external assignment.

This measure, too, was actually annulled by the Constitutional Court’s verdict 199/2012, being contrary to the referendum’s result.

Under the normative perspective, privatizations for Local Entities still remain an opportunity rather than a legal obligation.

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Another driver for the rationalization of the management of Local Public Services can be represented by the aggregation of the Provinces.

– The unification of the Provinces could represent an opportunity to reactivate and accomplish the utilities aggregation process, started in 2000, following however a new model including:

– Division of the existing multi-utility “packages” and aggregation “by chain”

– Assignment of the control shares of the companies to a reference institutional partner (as in the ENI and ENEL cases), in order to make them real independent public companies.

In general, the "in-house” management, which, based on the decree on LPSs, imposes that the controlling Entity takes charge of the consolidation of the assigned companies’ debt, should be substituted with a management "in institutional hands", which, through minority shares, enables the public Entity to dispose the debt, but also to monitor the quality of the services provided to citizens.

The disposal of the control shares of the assets to institutional players (ensuring development and transparency), would be an opportunity for Local Entities to mitigate the ”suffering" of public accounts, without running into the risks of a “wild privatization”.


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– Only specialized players of relevant size (on the model of ENI, ENEL, Atlantia, etc.) can generate quantitatively sufficient cash flow to make new investments.

– The specialization of each player in a single sector (or “chain”) is a necessary precondition for an efficient and high-quality management. The attempts to aggregate multi-utilities in "macro-utilities” show in fact that managing different businesses at the same time harshly penalises the service efficiency and the companies’ accounts.

– To achieve such goals it is necessary to activate a new "institutional capitalism"! Namely, it is necessary that institutional investors (banks, foundations, pension funds, etc.) fund the creation of large sector "public companies”, that is to say “national champions” able to foster an efficient management and the development of the infrastructural assets.

Italy should favour aggregations in infrastructures able to give birth to “national champions” in the different sectors!


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A patent example of the extent to which the small size of public companies and the complexity of their governance and shareholders structure can jeopardise the development of infrastructures is given by the highway authorities in the North of Italy:

– The shareholders of the Brescia-Padua Highway ("Serenissima”) are an example of how the multiple public and private partners, each with very different problems, end by conditioning each other:

Soci Pubblici Soci Privati

Provincia 2,42%

Comune 0,09%

CCIAA 1,63%

Provincia 4,74%

CCIAA 1,62% Totale 17 Soci Pubblici Totale 10 Soci Privati

Provincia 0,00% 33,7% 66,3%

CCIAA 0,50%

CCIAA 1,42%

Provincia 0,09%

Comune 0,17%

CCIAA 1,24%

Provincia 4,45%

Comune 4,55%

CCIAA 1,58%

Provincia 7,82%

Comune 0,26%

CCIAA 1,13%

Re Consult

CIF

Equiter (Gruppo Intesa Sanpaolo)

Milano Serravalle4,91%1,42%

23,26%

A4 Holding"Serenissima"

6,36%

0,50%

Enti Pubblici Provincia di Vicenza

Enti Pubblici Provincia di Venezia

Enti Pubblici Provincia di Verona

9,20%

10,58%

5,68%

6,41%

Enti Pubblici Provincia di Brescia

Enti Pubblici Provincia di Padova

Enti Pubblici Provincia di Milano

Ai2 - Astaldi

Soc. delle Autostrade Serenissima

Altri3,11%

7,98%

14,96%

Enti Pubblici Provincia di Bergamo

4,13%

1,50%

(1) Società di diritto privato anche se a maggioranza di soci pubblici

(1)


Public partners Private partners

ProvinceMunicipalityChamber of Commerce (CCIAA)

Total 17 Public Partner Total 10 Private Partners

(1) Private law companies though with public shareholders majority

40

The case of the ”Autostrade per l’EXPO 2015” shows instead how difficult it is for small sized companies to accomplish great projects:

9.400 M€1

– Lombard Foothills Highway (87 km + 70 km ordinary roads): 5.000 M€

– Bre-Be-Mi (62 km): 2.400 M€

– Milan’s Eastern external bypass (33 km): 2.000 M€

Existing highways

Highways to be developed

Existing Italian highways and developments underway

Autostrade per l'EXPO

1 Data: Osservatorio Territoriale Infrastrutture Nordovest – January 2013


Dati in M€ Rete (km) Ricavi EBITDA % Utile % PFN PFN/EBITDAMI - Serr. 185 211 101 48% 17 8% 227 2,25x

SIAS + ASTM 1.375 1.022 579 57% 573 56% 1.727 2,98x

Atlantia 5.079 4.034 2.398 59% 830 21% 10.064 4,20x

Abertis 7.002 4.039 2.459 61% 1.083 27% 14.070 5,72x

Brisa 1.310 591 411 70% 42 7% 2.038 4,96x

41

Autostrade per l'EXPO’s main sponsor is however Milano – Serravalle Tangenziali SpA, a very small company compared to major European managing companies…

Milano – Serravalle is company with mainly public capital, controlled by the Province of Milan, through ASAM:

ASAM 52,9%Milan Municipality 18,6%Gruppo Gavio 13,6%Other public partners 14,9%

…but committed with relevant shares (about one third) in the realization of the highways under construction.


Data in M€ Newtork Revenues EBITDA Profit NFP NFP/EBITDA

42

Aggregated financial plan for the 3 works1

Commitments appear disproportionate to the economic “size” of the two players

42

Almost

50partners

overallIncluding public and

private ones!

They could rise up to 2.100 M€, since the banks that have to fund the Foothill Highway have asked partners for an equity increase up to 1bn€

1 Data processing based on data from the Osservatorio Territoriale Infrastrutture Nordovest – January 2013

Investimenti M€ % Coperture M€ %Realizzazione 7.370 78% Equity 1.850 20%Altri oneri 2.052 22% Finanziamenti pubblci 1.250 13%

Banche 6.322 67%Totale investimenti 9.422 100% Totale coperture 9.422 100%

Investitori % M€Milano - Serravalle 34% 637 EBITDA '11: 101 M€Autostrade per l'Italia 5% 89 EBITDA '12: 2.398 M€Altre concessionarie autostradali 8% 139Gruppo Intesa SanPaolo 22% 399Costruttori 20% 376Altri 11% 210TOTALE 100% 1.850 di cui ca. 510 (28%) già versati


Investments CoverageRealization EquityOther burdens Public funds

Banks

Total investments Total Coverage

InvestorsMilano-SeravalleAutostrade per l’ItaliaOther highway authorities Gruppo Intesa SanPaoloBuildersOthersTOTAL of which about 510 (28%) already disbursed

43

Despite Milano-Serravalle’s financial structure appears sound today (see slides above), the planned commitments for the realization of the 3 works are quite onerous:

– Milano-Serravalle has already disbursed about 160 M€ for the 3 EXPO projects, thus the remaining commitment accounts for about 480 M€ (which could rise up to 650 M€, if banks ask for a further equity for the Foothill Highway), namely 4,8 times as much the EBITDA1 and 1,3 times as much the current net assets2 (366 M€), which should more than double. Its partners, though, are mainly public and could have funds problems;

– Even accepting a NFP/EBITDA ratio equal to Atlantia’s (3,8x), the company should fall into debt for further 160 M€ and demand partners no less than 320 M€ (however a lot for public players);

– It is actually no coincidence, then, that in late December 2012 the Milano–Serravalle’s partners’ meeting rejected the request for a capital increase made by the Board of Directors, due to the opposition by public partners. The capital increase was then approved in March 2013.

The small size of the main sponsor and the high number of smaller partners cause continuous difficulties in bringing projects forward (e.g., for none of the three the project financing was completed, only Brebemi is at the closing stage).

43

1 6,5x in case of a further Foothill Highway’s equity increase.2 1,8x in case of a further Foothill Highway’s equity increase.


44

To accelerate the building of the new works, ensure their realization within timelines and allow the closing of their respective project financing, it would be necessary to centralize responsibilities and duties in the hands of a single, large private partner! – In recent years, the main public partners have repeatedly tried to privatize Milano-

Serravalle, unsuccessfully, to date:

2011 2012 2013

June

1st municipal tender

18,6% at 170 M€ (5,08 €/SH)Deserted

October

2nd municipal tender

18,6% at 145 M€ (4,33 €/SH)Deserted

November

3rd municipal tender

(together with SEA)

18,6% at 145 M€ (4,33 €/SH)

Deserted for the Mi–Serr part

October

1st Province/Municipality/other public

partnersjoint tender

82% at 650 M€ (4,45 €/SH)Deserted

January

2nd Province/Municipality/other public

partnersjoint tender

82% at 650 M€ (4,45 €/SH)Underway

– The excessive price, the uncertainty on the financial commitments for Autostrade per l'EXPO and, in the first tenders, the substantial absence of governance granted to the buyers, have determined the operations’ failure.

– Moreover, in 2012 the company – in line with the other Italian authorities – registered a 6,3% reduction in traffic!

These auctions were actually an attempt by Public Entities to mitigate their cash difficulties through private money, without adequately considering the conditions to attract serious and rigorous capitals.


45

F2i’s role

46

– The scarcity of public finance, which causes the impossibility of realizing new infrastructures and to efficiently manage the existing ones, can be compensated today only by private finance.

– Based on the reflection on some inputs emerged:

o The role played by infrastructures in Italy’s development in the second post-war period;

o The lights and shadows of the privatizations experience in the ’90s;

o The need for a new season of privatizations, as a solution to the high debt of Local Entities;

o The opportunity to give birth to “national champions", specialized in the different infrastructural sectors, on the model of the Italian and foreign large players;

…F2i was established, namely a private but institutional Fund to aggregate the existing infrastructures in chains, and to use the funds deriving from the management of such assets to enable their development.

F2i’s role

47

– F2i, with a 1.852 M€ fundraising, is the largest Fund operating in Italy and the main infrastructural Fund worldwide dedicated to a single Country (country fund).

– Recently F2i has carried out the first closing of a second fund that has already raised 610 M€ (final target: 1.200 M€).

– F2i was established as a private but institutional tool by high-standing sponsors, which have contributed to assert its sound reputation:

o the Government through CDP

o the main Italian banks (Unicredit, Intesa SanPaolo)

o an important foreign bank (Merrill Lynch – BoA)

o the networks of former bank foundations and private pension funds

o life insurance companies and pension funds

F2i’s role

48

F2i’s investors per category

F2i, due to both its mission and the institutional nature of its investors, pursues long term shareholdings under an industrial perspective.

Categorie N. Invest. Ammontare sottoscritto

% sul Fondo

Banche 7 593 M€ 32,02%Casse Previdenziali 13 487 M€ 26,30%Fondazioni 26 439 M€ 23,70%Assicurazioni 4 175 M€ 9,45%Istituzioni finanziarie pubbliche (CDP) 1 150 M€ 8,10%Management SGR / Sponsor 1 8 M€ 0,43%Totale 52 1.852 M€ 100,00%

(FONDO I)

Fundraising from limited partners for further closings is underway.

Categorie (FONDO II) N. Invest. Ammontare sottoscritto

% sul Fondo

Banche 2 200 M€ 32,79%Casse Previdenziali 3 120 M€ 19,67%Fondazioni 7 190 M€ 31,15%Istituzioni finanziarie pubbliche (CDP) 1 100 M€ 16,39%Totale 13 610 M€ 100,00%

F2i’s role

Categories Investors No. Amount signed % on the Fund(FUND II)

BanksPension fundsFoundationsInsurance companiesPublic Financial Institutions(CDP)SGR’s management/SponsorsTotal

(FUND II)Banks Pension fundsFoundationsPublic Financial Institutions (CDP)Total

75% 85,1%

100%

100%

100% 40%

49,0%

100%

60,0%

100% 70%

67,7%

44,3%

87,7%

100,0%

53,8%

85,0%

15,9%

100%

49,8%

26,3%

2.064,4 97,5%Dismissioni 31,7 1,5%

Costi di gestione fondi 20,3 1,0%

TOTALE IMPEGNATO 2.116,5% su raccolta 86,0%

Autostrade

237,5 11,2%

222,5 10,5%

31,4 1,5%

Aer

opor

tiTL

CRi

nnov

abili

748,9 35,4%

Acq

uaA

mbi

ente

Infracis

Alerion CP

Impegnato

F2i Reti Italia

ERG

2iGas

G6

F2i Rete Idrica Italiana

Mediterranea delle Acque

Fondi 1+2

436,5 20,6%Gas

SAGAT

Iren Ambiente

F2i Ambiente

TRM

HFV

F2i Aeroporti

GESAC

SEA

Saster Net

Metroweb Italia

Metroweb

Brescia

Metrobit

252,0 11,9%

135,7 6,4%F2i Energie Rinnovabili

– F2i created 7 chains, which are part of a structured Group, committing about 2.116 M€ (86% of total fundraising).

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1

1 For SAGAT all commitments until 2014 are included (acquisition of the other private partners’ shares)

1

Accordi in corso di definizione

F2i’s role

DisposalsFund management costsCOMMITTED TOTAL% on fundraising

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− In a few years, F2i has offered a model to infrastructures in Italy, operating as a real “public company” and giving birth to a structured Group of companies and company chains proposing themselves as a benchmark within their sector.

− The companies in which F2i holds the majority, or an important governance role, registered in 20121:o Aggregated turnover: 1.728 M€o EBITDA: 720 M€ (EBITDA Margin: 42%)o Staff members: 8.435o Investments: 425 M€ (59% EBITDA)

In 2012 F2i’s subsidiaries invested almost 60% of EBITDA.

1 2012 aggregated data. They refer to: Gruppo ERG, Alerion CleanPower, HFV, Mediterranea delle Acque, GESAC, Software Design, SEA (pre-final balance), Metroweb, SasterNet, Metrobit and SAGAT.

F2i’s role

51

− Moreover, thanks to F2i, important assets, that had ended in foreign hands, came back, with their cash flows, under the Italian control:

− E.On Rete Gas

− Gesac

− G6 Rete

− Metroweb

F2i’s role

52

o Participate to the acquisition of brownfield regulated assets put up to sale also by Public Entities, to support its own development. As an innovative solution, institutional vendors are often granted an earn-out, as a protection for future valuations exceeding a defined threshold;

o Involve the national and local financial system in the managing companies, according to the spirit of real international public companies;

o Ensure an industrial management, aiming at the company’s efficiency and managerial development. To actively influence management, F2i aims at achieving majority shares in subsidiaries;

o Favour aggregation processes, in sectors marked by high fragmentation and development potential at the national and European levels;

o Ensure the enhancement of the subsidiaries’ management, involving it in the company’s development projects and in personal growth paths.

– F2i’s institutional profile ensures a stable long-term partnership and the absence of financial speculations, making the Fund the ideal partner also for public players. F2i can in fact:

F2i’s role

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– F2i was established as a private but institutional investment tool to aggregate existing infrastructures in chains, to grant subsidiaries:

o Operation efficiency;

o Balanced financial management, avoiding the companies’ impoverishment through excessive debts and extraordinary maxi-dividends;

o Focus on development, thanks to the reinvestment of a good portion of the generated cash flows in the enhancement of the managed assets and networks.

In a period when public finance is an extremely scarce resource, the infrastructural gap – quantitative and technological – can be filled with the model proposed by F2i: using the resources deriving from an efficient management of the existing infrastructures to fund the development of new works.

F2i’s role

F2i’s role Examples of chains

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Concrete examples of how F2i works to aggregate infrastructural assets – with a particular focus on local public services – are the gas distribution, water and airports chains.

F2i’s role Examples of chains

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GAS

− The F2i Reti Italia group was established after the acquisitions of ENEL Rete Gas (2009), E.On Rete (today 2i Gas – 2010) and G6 (former Gruppo GdF – 2011).

Enel Rete Gas

F2i Reti Italia

2i Gas*

14,9%

85,1%

100%

75% 25%

Managed by F2i since Apr. 2011

2i Gas has already been merged into ERG, G6 will be in 2013 G6

100%

Managed by F2i since Sept. 2011

* Former E.On Rete

• Rab (M€): 2.588

• Revenues (M€): 6891

• EBITDA (M€): 3601 (52%)

• Investments (M€): 151

• Staff members (#): 2.043

• Customers (#): 3.817.000

• Managed network(km): 57.237

• Concessions (#): 1.962

F2i Reti Italia

42% of EBITDA

1 Consolidated data reclassified, excluding IFRIC 12 principle effects .

http://www.f2isgr.it/f2isgr/index.html

F2i’s roleExamples of chains

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GAS

F2i Reti Italia’s widespread territorial coverage

F2i Reti Italia

− With the aggregation of 3 important networks, in just 2 years F2i Reti Italia has become the second national player, for market share, in a still very fragmented sector (more than 250 operators).

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GAS

− The Group size allows to sustain important investments, in favour of development, modernization, efficiency and network security:

Investments M€

ERG + + +

190

93108

42% of EBITDA

Gruppo F2i Reti Italia

Gruppo F2i Reti Italia

151

190

52% of EBITDA

Smaller investments due to tenders being blocked and new timeline of the Energy Authority’s plans for the

instalment of electronic meters


Others

Transparency, Quality and Security

Growth

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− The absence of conflicts of interest ensures transparency (in measurement in particular) and efficiency towards users:GAS

Inspected network (%) Actual average intervention time

Source: Energy Authority 2011

Energy Authority’s requirement

~30’Gruppo

F2i Reti Italia

60’

National average


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Incentives allocated by the Energy Authority for security recovery(1) (k€)

(1) Includes incentives allocated in 2012 for number of odorization measures and for number of dispersions in the network

45%

21%

8%

6%

20%

% incentives on the total

% market share

Altri

17%

23%

2%

2%

56%

− Commitment in investments determines a service quality acknowledged and awarded by the Authority!GAS

3.016

905

1.185

3.075

6.785

Altri

Estra Reti Gas

Gas Natural

Italgas

ERG


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− The F2i Reti Italia group represented the main innovation factor in gas distribution in the years 2000, favouring and leading the market concentration process.

− The acquisitions made have, moreover, allowed to bring back into Italian hands strategic networks for the Country, formerly controlled by foreign companies.

− It is a fact that the presence of a large independent operator, backed by sound investors, can bring significant benefits to the sector, favouring the increase of efficiency and the technological evolution of the network.

− F2i Reti Italia aims at strengthening its role as a large independent operator in gas distribution, able to represent a benchmark – in terms of security, transparency and investments – for the authorities and the entire sector.

GAS


61

WATER− F2i entered the hydric sector through the acquisition of 40% of

Mediterranea delle Acque (“MdA”), in 2010.

− The company manages the integrated hydric service for the Municipality and Province of Genoa, supplying water to about 870.000 inhabitants.

− It falls under Gruppo Iren, a multi-utility in Genoa, Turin, Parma and Piacenza, born from the merge between Iride and Enìa.

− With an aqueduct network longer than 2.500 km and a 1.600 km drainage and purification network, MdA pumps in more than 95 million cubic meter of drinkable water.

− The current domain plan forecasts investments for about 700 M€, 600 M€ of which still to be made.

− MdA employs about 410 staff members.

100% 100%

60% 40%

49% 66,50%

IREN SpA

IREN Acqua e Gas SpA

MdA

F2i

F2i Rete Idrica Italiana

AM.TER. IDRO-TIGULLIO


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The goals of the operations made by F2i are:

− Entering a sector of strategic interest for the Country that needs important investments, bringing fresh financial resources for the development of the managed assets;

− Establishing a partnership with IREN, primary operator in the utilities sector in Italy;

− Exploiting the growth and consolidation opportunities in a fragmented market, aiming at creating a “national champion”;

− For the purpose, F2i will keep working on new initiatives, aiming at aggregating some of the major national players of the sector.

WATER


63

− In late 2010 F2i entered the airport sector with the acquisition of 70% of GESAC, a company managing the Airport of Naples-Capodichino, thanks to a concession in force till 2043.

− GESAC was established in 1980 by the Municipality and Province of Naples and Alitalia. In 1997, following the privatization process, Public Entities ceded a 70% share to the British group BAA (subsequently acquired by the Spanish group Ferrovial).

− The company has endorsed an important investments plan for the infrastructural development of the airport in the recent years (Capex cumulated from 1998 to 2009 exceeded 190 M€, with cumulated net profits for 47,6 M€), partly funded with public funds (63 M€) and partly self-funded.

− In the 2009-2012 period, investments for about 65 M€ were made.

− In 2012 Gesac managed a passenger traffic of 5,8 M/pax, employing about 310 staff members.

AIRPORTS


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AIRPORTS

− In late 2011 F2i acquired 29,75% of SEA’s shares, a company managing the Milan airport system (Linate and Malpensa) since 1948, from the Municipality of Milan. In late 2012, F2i also acquired a further 14,56% share from the Province of Milan.

− The current Convention, lasting 40 years, was signed with ENAC in 2001.

− SEA and the companies of the Group ensure all services and related activities, such as airplanes landing and take off, airport security management, passenger and freight handling, commercial services. SEA also holds a 30% share of the Airport of Bergamo.

− The Milan airport system lies in one of the most economically developed European areas (Lombardy’s gross product accounts for more than 20% of the national one) and also represents a bridge between the Mediterranean Sea and continental Europe.

− In 2012 the Milan system registered a 27,8 million passenger traffic and 434.000 t of freight transit (about half of the national freight traffic).

− Turnover almost reaches 590 M€ (53 M€ net profit). Staff members are more than 5.000.

− Development plans forecast investments for about 600 M€ by 2015 (capacity increase and realisation of the third runway in Malpensa, widening of the Cargo area, etc.).


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AIRPORTS

− In late 2012 F2i acquired 28% of SAGAT, a company managing the "Sandro Pertini” Airport in Turin since 1956, from the Municipality of Turin. F2i also acquired a further share of the company (22,8%) from Sintonia (Gruppo Benetton), thus gaining the absolute majority share in SAGAT. Finally, further acquisitions from private partners are in the pipeline by 2014, for an overall 67,7% share.

− SAGAT will be managing the Airport of Turin until 2035.

− The Airport of Turin lies in one of the richest regions in Italy (Piedmont), namely the fifth for gross product (about 124bn €, 8% of the national one), the fourth for exports (10% of the national total), the sixth for number of inhabitants and the second for extension.

− Piedmont’s strong business and touristic vocations and the passengers/province inhabitants ratio (1,6x vs. 2,4x national average) allow to envision a sound development potential for the airport.

− In 2012 the airport reached a 3,5 m passenger traffic (2000-2012 average annual growth: +1,9%).

− Turnover accounts for 63 M€, achieved by employing 410 staff members.

− SAGAT holds shares in the Airports of Florence (33,4%) and Bologna (7,21%).


AIRPORTS

F2i holds (direct and indirect) shares in 7 of the main ports identified by the Government’s National Plan for Airports and is considering the acquisition of further assets:

In competitionSmall (indirect) share

Relative majority (indirect) share

= Airports where F2i is directly present

= Airports where F2i is indirectly present

Open discussions

In competition

F2i’s airports move 53,7 Mpax, equal to 36,6% of the national traffic. 66


Traffic over 1.000.000

Traffic over 500.000 with specific territorial features

Territorial continuity

Other airports

Rimini – highly growing traffic trendSalerno - Used to delocalize Naples traffic

67

AIRPORTS

− The Italian airport system is marked by:

o excessive number of ports with a low specific traffic, especially in the Centre-North (in the South the concentration is smaller);

o mainly public ownership;

o normative uncertainty on tariffs;

o lack of investments (in the last years no significant interventions have been made in major airports)

PMO

CTA

TRN

CUF MXP

VBS

LIN

BGY

BZO TSF

TRS

VCE VRN PMF FRL

FLR PEG

BLQ RMI

AOI

PSR

FCO CIA FOG BRI

GOA

NAP BDS

SUF CRV

TPS REG

AHOOO

OLB

CAG

PSA

SIE

Aeroporti >10m passeggeri

Aeroporti >5<10m passeggeri

Aeroporti >2<5m passeggeri

Aeroporti >0,25<2m passeggeri

Aeroporti <0,25m passeggeri

Area ad elevata concentrazione

− SEA, GESAC and SAGAT represent two exceptions in the national scenario:

o SEA manages the Milan airport system, the only one, together with Rome, having a truly international size and located in the most developed territory of the Country;

o Capodichino and Turin are located in “low airport density” areas, yet with a wide potential user base and, thus, with a relevant development potential.


Airports>10m passengersAirports>5<10m passengersAirports>2<5m passengersAirports>0,25<2m passengersAiports<0,25m passengersHigh-concentration areas

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− F2i launched the airport chain by entering companies with peculiar know-how and track records and with wide growth perspectives:

o with Gesac, F2i «brought back to Italy» the important cash flows produced by the company, to destine them to growth and development;

o with SEA and SAGAT, F2i met Local Entities’ need to sell strategic assets for the Country to reduce their debts, avoiding, in this case, too, to let them end in foreign hands;

o together, in 2012, the 3 companies managed 37 Mpax, more than 25% of the national total (53,7 Mpax and 36,6% including companies in which they are indirectly present);

− the long-term goal is to promote infrastructural and business development, rationalization and the attainment of adequate profitability levels, with benefits also on satellite activities and on the socio-economic fabric;

− F2i is pursuing an investment strategy focused on the creation of an airports network: thus, a “national network” rather than a “runway” strategy, favouring an aggregation process, the suppression of unused ports and the offer of a recognizable, modern and quality airport format.

AIRPORTS


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Conclusions

Conclusions

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− The transformation of local public services management launched in the ‘90s has remained unaccomplished:

o Local Entities, still holding large majority shares in several companies: do not have “fresh resources” to invest in the managed assets;

often are rather forced to use subsidiaries’ profits to fund their own expenditure;

least of all, are able to fund the development of new works.

o This has favoured, in many cases, the persistence of a local, often municipal, dimension of the managing companies. This implies:

a higher risk of political intervention in management;

performance gaps compared to private companies operating in the same sectors;

difficulty in ensuring the quality of the service, due to operational inefficiencies and failed scale economies;

fragmentation of the reference sectors and inadequateness to compete on an increasingly internationalised market;

complex and expensive governance structures.

− Moreover, the aggregations of the years 2000 generated multiservice unspecialized companies, often burdened with internal localistic juxtapositions.

Conclusions

71

Today is thus necessary to reactivate the (never accomplished) privatization process, aiming at the same time at the aggreagation of small local companies and at the creation of “national champions", specialized in a single service, able to ensure:

o synergies, efficiency and adequate tariff levels;

o high quality of the service and technological development;

o transparency in management;

o development of the existing assets and realization of new works;

o service development also in depressed areas (South).

To do this, it is necessary to activate an “industrial capitalism” having the necessary capitals to develop infrastructures, funding the establishment of large sector public companies and ensuring their managerial independence.

Conclusions

72

This all requires a clear trade-off as to the roles played by the State, the privates and the Local Entities:

o the State must ensure clear timings and profitable tariffs and, through the Authorities, monitor and regulate the correct functioning of the market;

o the privates must adopt a long-term perspective, bringing ”fresh resources", avoiding to charge targets with excessive debts, making management effective to reduce costs and committing to a significant reinvestment of profits;

o the Local Entities must maintain minority shares in the managing companies to monitor the quality of the services provided to citizens.

F2i is an example of this trade-off. A real "public company" that has succeeded in launching a system of infrastructural networks (able to interact to make the Country grow), maximising its management and taking care of their development.

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Conclusions

F2i wants to actively participate in the evolution of the services sector, maintaining the route already followed in gas distribution, in the airport sector and in the integrated hydric service. Namely, F2i intends to:

o strengthen its presence in shareholdings already in portfolio (capital increases for development support, acquisition of shares from the other partners, etc.);

o intervene with new investments in the chains already launched;

o launch new chains, also taking advantage of the investment opportunities determined by the current economic-financial situation of the Country;

in order to bring forward the process of creation of leader Groups within its sector and fund the

development of national and local infrastructures.

Mauro Maia: Presentation Adam Smith Assonime convention

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