Analyst PresentationMilan, 26 march 20042003 Group Results

Index

Group economic results 2003

Group Balance sheet

Outlook

Conclusions

Appendix

Breakdown by business

2

Group economic results 2003

3

Group Results 2003: The Group first 12 month Financial Reports

Hera GroupEstablished with the first huge merger incurred in the Italian utility sector among 11 multi - utility companies at the end of 2002Leading position in the Waste, Water and Gas sector and a small trading electricity businessFloated in June 2003 on the basis of a 5 years business plan

2003 main activitiesReorganisation of 11 companies into a “Group” Further aggregation of smaller business into an unique business modelAcquisition of 42% of AGEA, a major local player close to the GroupNew main procurement contracts signed

Only 12 month to achieve the first synergiesThe IPO, the Group reorganisation and the business development deliver their first results in 2003.

4

Group Results 2003: Strong Growth thanks to the First Synergies

Turnover: +17,1%Organic Growth

Increase of customer base (+4,8% in Gas, +3,7% in Water),

Territorial further expansion (3 new municipalities & New Services)

Increase in tariffs (+3,7% water tariffs, Switch from tax-to-tariff in waste)

Dual Fuel policy+6,4x medium sized clients in the Electricity business

Favourable climate conditions

EBITDA: +26,4%Increased margins thanks to 23 mln € synergies exploited

Net Profit: +43,6% Tax benefits

2002 % 2003 % Incr.

Turnover 1.133,3 100,0% 1.331,3 100,0% 17,5%

Other operating cost (751,9) (66,3%) (896,4) (67,3%) 19,2%

Personnel costs (189,5) (16,7%) (192,4) (14,5%) 1,5%

EBITDA 191,9 16,9% 242,5 18,2% 26,4%

Provisions (33,0) (2,9%) (33,0) (2,5%) 0,1%Amm. & Depr., provisions (114,3) (10,1%) (129,7) (9,7%) 13,5%

EBIT 77,6 6,8% 112,8 8,5% 45,3%

Interest inc./(Exp.) (12,9) (1,1%) (15,7) (1,2%) 21,7%

Extraordinary inc./(Exp.) 12,0 1,1% (3,3) (0,2%) (127,5%)Adj. On financial assets (1,4) (0,1%) (5,2) (0,4%) 261,1%

Tax (38,7) (3,4%) (35,6) (2,7%) (7,9%)

Tax rate -51,4% -40,2%

Net Profit 36,6 3,2% 53,0 4,0% 44,8%

Minorities (3,4) (0,3%) (3,6) (0,3%) 4,7%

Group Profit 33,2 2,9% 49,4 3,7% 48,7%

5

Personnel +5 mln€

2003 Goal of 200 HC Reduction…

…have been outperformed

Procurement costs +12mln€

Eni (75% procurement): good contractual conditions confirmed (-8% of AEEG average) VNG New contract (international shipping)Atel and Tirreno Power are procurement sources at good conditions

Group Results 2003: Outperforming synergies …

Other savings +6 mln€

Services, warehouses and materials

SAP is currently fully installed

Confirmed

Confirmed

Outperformed

Cumulated Cost Savings Planned

60

23

12

56

16

29

12

3

A2003 P2007Gas Labour G&A IT

6

2003

Total initial HC 4.538 Net Outflow (214)Delta Perimeter 104

Total HC 4.428

Group Results 2003: … and Organic Growth

Organic Growth +27 mln€

Outperformed

Natural extension of services supply on the territory served (3 new Municipalities, Geat and new services)

Natural increase in number of customers both in Gas and Water business

Water tariffs increase

Switch from tax to tariff scheme in Waste

Unexpected increase in Gas volume sold

Unexpected increase in Water volume sold with significant effect on Ebitda

and

Conservative assumptions on Gas Tariff decrease

Ebitda Margin: 18,2%

EBITDA Growth

Ebitda ‘02 Ebitda ‘03

192

243

+26,4%

23

23

15

12

Synergies

Volume Increase (Gas & Water)

Tariff Increase (Water & Waste)

7

Group Balance Sheet

8

Group Balance Sheet: Sound Capital Structure with a D/(D+E) 0,33x

Fixed AssetsCapex plan on track (210 mln€)

Significant investments in Agea, in Tirreno Power and other (110 mln €)

Working CapitalPhysiological growth following turnover expansion

NFPIncreased maintaining a conservative leverage

IPO Plan leverage goal realised (not including investments)

Memorandum Accounts

Mainly related to third party assets

2002 2003

Fixed Asset 1.202,6 1.427,0

Working Capital 73,9 89,2(Provisions) (157,3) (177,4)

INVESTED CAPITAL 1.119,1 1.338,8 Share Capital 788,5 793,2

Net Equity 865,3 894,5Financial Debts 185,3 352,4Net short term financial position 68,5 91,9

Net Financial Position 253,8 444,3

FINANCIAL STRUCTURE 1.119,1 1.338,8

9

Group Balance Sheet: Cashflows Effort Strong Pay Out Ratios

Cashflows in line with the IPO Plan (that could not include investments)

* Balance Sheet NFP

NFP 12/’02 Net Profit D&AChange Net W.C.

and Provisions CapexNet Equitychanges NFP 12/’03

-68ST

53

LT

125

-110

-92ST

-166

LT

234

-195

287

254*

444*

-26

Investm.

-210

6

-27

Dividend

-110

-47

-20

10

Group Balance Sheet: Capex budgeted on track

WTE Plants and Land fieldsFEA plant construction is almost completed

Gas, Water and E.E. networkEfficient and wider networks

Strategic Projects All authorisations for the other WTE plants are expected within summerInclude Project costs of the plants

Group Reorganisation SAP and other reorganisations

Other BusinessDistrict Heating, Public Light., Funerary service and telematic regional plan

75 mln €

79 mln €

2 mln €

28 mln €

TOTAL CAPEX 2003 210 mln €

26 mln €

Construction Operational

Forlì (WTE)

Rimini (WTE)

Faenza (WTE)Fea (WTE)

Ravenna* (WTE)

Incr. (MW)

8.210.3

10.3

22

2003 2004 2005 2006 2007

10.3

Timing

*Included after IPO 5 year business Plan*Included after IPO 5 year business Plan

Rimini (CCGT)Imola (CCGT) 80

230

Incr. (MW)Timing

Construction Operational2003 2004 2005 2006 2007

Fea (WTE)

Incr. (MW)

8.210.3

10.3

22

10.3

Timing

Construction Operational

2003 2004 2005 2006 2007

11

Group Balance Sheet: Significant Strategic Investments

42% AGEA 58 mln €Same portfolio businessProfitable and synergic with Hera

10% of Hera size 5,5% TIRRENO POWER 18 mln €

Third and cheapest Genco sold by Enel

Other Small investments 11 mln €Organic growth and 23 mln €other changes

Consolidation of Gala and Geat and IAS effect

Strategic Investments:Multi- utility Companies fit table to Hera and close to the Group operational territoryWilling to merger 100% based on Hera modelSignificant synergy potentials

12

Group Balance Sheet: Successful Sector Consolidation Activities

Agea InvestmentAcquisition of 42% stake and further 51% stake to be acquired with exchange of shares within 200458 mln€ consideration (include control premium and 10 mln€ of capital increase). Total consideration expected at an implied EV/Ebitda: 7x (37 mln€ E2003 NFP)

>30 mln€ estimated value of synergiesCore Operations in Ferrara (close to Hera Group) similar to Hera business portfolio

Other ConsolidationsGeat: Multi-utility in Riccione3 minor activities in Municipalities close to Hera

On a proforma basis the Ebitda Growth reaches +38,8%

93

Ebitda '0

2Syn

& O Growth

Ebitda '0

3

Agea

FEA

13

192

243

Proforma 2003 EBITDA with Agea

+26,4%

Proforma with Agea +38,8%

E295

51

Ebitda ‘02 Ebitda ‘03 Ebitda ’03Proforma

Synergy &Org. Growth

AGEA

23,5 266,5

Group Balance Sheet : Higher than Expected Dividends

4,9 € cents DPS 85% pay out ratioExpected 46 million € Net Profit

5,3 € cents DPS 85% pay out ratio of consolidated results49,4 million € Net Profit

IPO Commitments

Dividend 2003+8,2%

Dividends higher than expected (€cents)

Dividend Yield of 4,2%*

5,3

*Yield calculated on the IPO price of 1,25€

4,9

E2003 A2003

5,35,2

14

Outlook

15

Around +20% expected growth

Outlook: Expected Ebitda Growth is Visible

Further synergiesFurther Personnel, Procurement Costs and Other Savings were estimated in the IPO business planA deeper knowledge, gathered in this year, helped to find room for new synergies

FEA (WTE)Enters in operation in 2004Incentive tariff scheme (CIP 6)

Organic GrowthCustomers and tariffs increase

AgeaFull integration in 2004Agea Expected Ebitda Growth

Estimated 2004 EBITDA Growth

Expected Capex 2004 of 220 mln €Expected NFP 2004 of 473 mln €

16

+26,4%

Ebitda ‘02 Ebitda ‘03 Ebitda ’04EstimatesSynergy &

Org. GrowthSynergy &

Org. Growth

FEA

AGEA

243

192

51

Outlook: On Top…Sector Consolidation Opportunities

The sector is moving towards major changes: “consolidation” is the response to face increasing competition pressure

First movers are considered natural points of reference of the consolidation game

Hera has interesting expansion opportunities:

West: Emilia Romagna region (Group focus)

South: fragmented and interesting market in the region of Marche

North: Natural further expansion beyond AGEA (Ferrara) in southern Lombardia and Veneto

A unique open ended business model to catch increasing Sector Consolidation opportunities

HERA

17

Outlook: Vertical integration opportunities

Strategic expansion guidelines include the business vertical integration in the Waste business

The Group is enclosed in the “short list” for the ENI Ambiente waste treatment business in Ravenna that is going to be dismissed by ENI Group.

An opportunity to strengthen the waste treatment business

Strategic Joint ventures opportunities for the construction of electric generation plants are under evaluation in order to sustain the electricity business development.

18

Consolidations and vertical integration in Waste and Electricity business are strategic Plans to be considered “On top” the IPO business plan

Outlook: 2002 - 2007 Ebitda CAGR

5 year planned Ebitda Growth in IPO PlanE2004 Higher Ebitda Growth than planned

Outperforming 2003 resultsNext Agea full consolidationProfitable WTE plant (FEA) on trackBetter knowledge of further synergies and organic growth potentials within the Group

Confirmed IPO Plan strategic rational A new business plan is requested considering 2003 outperforming synergies and sector consolidation results

19

243300

378

E 2007

192

243

Planned 5 year CAGR 14,4%

A2002

A2003

E 2004

E 2005

E 2006

Conclusions

2003 results outperformed expectations

The huge growth realised has been driven only by synergies deriving from the Hera-merger

Further Ebitda Growth is expected in 2004 thanks to:Further synergiesNew projects (FEA)Agea consolidationOrganic Growth

Expansion opportunities through further sector consolidations are constantly monitored

Dividends per share at 0,053€ higher than expected (yield of 4,2%): confirmed the 85% pay out commitment on consolidated results for year 2004-2007

20

Break Down by Business

21

Appendix

Break Down by Business: WASTE

Turnover: -1,9%Increased sales thanks to switch from tax to tariff of further Municipalities servedReductions of volumes in low value added waste (Chemical treatment).

Ebitda: +7,0%Synergy deriving from a rational use of the plants Increase in margin thanks to focus on higher value added activities

Hera is focusing on WASTE Business with a huge investment plan in order to expand WTE capacity maintaining the leadership in this profitable field

… waiting for FEA (WTE plant in Bologna)

2002 % 2003 % Incr.%Sales 288,4 99,0% 284,6 99,6% (1,3%)Capitalisation of cost 2,9 1,0% 1,2 0,4% (58,6%)

Turnover 291,3 100,0% 285,8 100,0% (1,9%)

Other operating cost (154,0) (52,9%) (148,4) (51,9%) (3,6%)Personnel costs (79,1) (27,2%) (75,1) (26,3%) (5,1%)

EBITDA 58,2 20,0% 62,3 21,8% 7,0%

2002 2003 Incr.%

Volume treated 2.490 2.393 (3,9%)Landfields 956 919 (3,9%)WTE 371 362 (2,4%)Sorting 366 433 18,3%Composit. 130 141 8,5%Chemical treatment 667 538 (19,3%)

Tax to tariff. (N. Municipalities switched to tariff)

22

23 33 (43,5%)

Break Down by Business: WATER

Sales: +8,6%Hot climate boosts pro - capite consumption

Customers increase of 3,7%

Tariff increase of 3,6%

Higher capitalised costs following new accounting for capex

Ebitda: +23,9%Higher turnover with marginal cost increase

No impact of capitalised cost on Ebitda

Increase in customer base and volumes, tariffs and margins

Increased profitability mainly thanks to un-elastic cost structure and synergy exploitation

2002 % 2003 % Incr.%Sales 195,4 76,4% 212,3 70,3% 8,6%Other 45,3 17,7% 35,7 11,8% (21,2%)Capitalisation of cost 15,0 5,9% 53,8 17,8% 258,7%

Turnover 255,7 100,0% 301,8 100,0% 18,0%Other operating cost (137,1) (53,6%) (175,7) (58,2%) 28,2%Personnel costs (65,0) (25,4%) (59,7) (19,8%) (8,2%)

EBITDA 53,6 21,0% 66,4 22,0% 23,9%

2002 2003 Incr.%Clients 616.860 639.563 3,7%

Domestic clients 512.746 535.697 4,5%Industrial clients 104.114 103.866 -0,2%

Volumes (mln c/mt) 176,3 180,2 2,2%

Domestic clients 116,3 118,9 2,2%Industrial clients 60,0 61,3 2,2%

Fresch Water Tariff incr. 3,6%

23

Break Down by Business: Energy Business

Energetic activities represent 49% of Group turnoverThe Strong position held in Gas sector is defended with a dual fuel policyElectricity business is currently based on trading activities310 MW of Production facilities are planned to be built

Outperform customer base increase thanks to Dual Fuel Policy

Gas business outperformed expectations

Sales: +25,4%Cold climate boosts pro-capite consumptionGas Customers increase of 4,8%Electric medium sized customers increase by 6,4x

Ebitda margin: +230 basis pointsLow procurement costsOther synergies

2002 % 2003 % Incr.%Sales and other rev. 511,0 90,3% 640,7 97,3% 25,4%Heat Mgt and Pub. Light. 40,5 7,2% 0,0 0,0% 0,0%Capitalisation of cost 14,1 2,5% 17,9 2,7% 27,0%

Turnover 565,6 100,0% 658,6 100,0% 16,4%

Other operating cost (449,8) (79,5%) (516,2) (78,4%) 14,8%Personnel costs (36,0) (6,4%) (34,5) (5,2%) (4,2%)

EBITDA 79,8 14,1% 107,9 16,4% 35,2%

24

Break Down by Business: GAS

Sales: +18,8%More favourable Climatic conditions vs a “Hot 2002”Customer base increase following natural expansion

Ebitda: +41,4% Increased turnoverProcurement cost savingsOther savings

Dual Fuel policy applied, on gas customers helps to fidelise medium sized customers2003 figures do not include activities reclassified in “Other Business”

Benefit from synergies and Growth

2002 % 2003 % Incr.%Sales and other rev. 432,6 89,1% 514,1 97,1% 18,8%Heat Mgt and Pub. Light. 40,5 8,3% 0,0 0,0% 0,0%Capitalisation 12,2 2,5% 15,5 2,9% 27,0%

Turnover 485,3 100,0% 529,6 100,0% 9,1%

Other operating cost (382,6) (78,8%) (400,0) (75,5%) 4,5%Personnel costs (32,2) (6,6%) (29,9) (5,6%) (7,1%)

EBITDA 70,5 14,5% 99,7 18,8% 41,4%

2002 2003 Incr.%Clients 667.930 699.861 4,8%Domestic 667.695 699.504 Industrial and medium sized c. 235 357

Volumes 1.444 1.634 13,1%Domestic 1.149 1.309 Industrial and medium sized c. 296 325

Avg. sales price per c/ mt (€) 0,299 0,302 1,0%

25

Break Down by Business: ELECTRICITY

Turnover: +61,5%Commercial success (6,4x customers)

Expectations outperformed in slightly more than half a year

Ebitda: -11,8%Decreasing trade margins as expected

Planned CCGT plants to gather the margins on production

Dual fuel approach gathering a first strong growth in customer

Electricity prices used as a commercial tool to preserve Gas customersElectricity business finalised to serve local customers

2002 % 2003 % Incr.%

Sales and other rev. 78,4 97,6% 126,6 98,1% 61,5%Capitalisation of cost 1,9 2,4% 2,4 1,9% 26,3%

Turnover 80,3 100,0% 129,0 100,0% 61,5%

Other operating cost (67,2) (83,7%) (116,2) (90,1%) 72,9%Personnel costs (3,8) (4,7%) (4,6) (3,6%) 21,1%

EBITDA 9,3 11,6% 8,2 6,4% (11,8%)

2002 2003 Incr.%Clients 48.934 50.075 2,3%Domestic 48.796 49.049 0,5%Industrial and medium sized c. 138 1.026 643,5%

Volumes (GW/h) 948 1.629 31,4%Domestic 242 228 (5,9%)Industrial and medium sized c. 706 1.018 44,2%

Avg. Tariffs

5,86

6,13

4,6%7,53

6,22

(17,4%)

Trader 383

26

-

DomesticIndustrial and medium sized c.

Break Down by Business: OTHER

TurnoverThe two reclassified businesses account for around 50% of turnover

New service added in 2003 (Funerary in Bologna)

EbitdaBetter margins are expected thanks to synergy and growth potentials

Huge increase thanks to Heat Mng./District Heating and Public Lighting reclassification and addition of new services

Public Lighting business with 200.000 light pointsFurther rationalisations in progress to exploit synergy and growth potentials

Heat Mng.32%

P Light.25%

Funerary22%

Other21%

Sales 2003 Ebitda 2003Heat Mng.

7%

P Light.36%

Funerary42%

Other15%

2002 % 2003 % Incr. %24,2 88,3% 83,7 82,5% 245,9%

Capitalisation of costsSales

3,2 11,7% 17,7 17,5% 453,1%

Turnover 27,4 100,0% 101,4 100,0% 270,1%

Other operating cost (17,6) (64,2%) (72,2) (71,2%) 310,2%Personnel costs (9,4) (34,3%) (23,2) (22,9%) 146,8%

EBITDA 0,4 1,5% 6,0 5,9% 1400,0%

27