Piero Sassoli – Director General Tiemme S.p.A.

TIEMME: Transport Companies Merger

Livorno, October 7th 2010LEM Conferences Room

CONFERENCE of EU INTERREG IVCFLIPPER PROJECT

PT IN ITALYBackwardness factors

Italian PT is characterized by several backwardness factors

Criticità Evidenza

NEGATIVE PROFITABILITY

PRODUCTIVITY GAP

FRAGMENTATION ANDSMALL COMPANIES SIZE

• EBIT equal to -2,3%• Public contribution of around €4

billions

• Difference of 20% comparing to the EU average

• More than 1.200 operators• The 1st 5 companies absorbe 27%

of the market

PT IN ITALYManagement shape

More than 1.200 companies, 90% of which has less than 100 workers

N° of Companies on the basis of workers number

0

500

1.000

1.300

Meno di 20 addetti

945

Tra 20 e 100 addetti

158

Oltre 100 addetti

135

Totale operatori

1238

76%

13%11%

< 20 workers 20< x < 100 > 100 workers Total number of companies

PT IN ITALYItalian Players Dimension

470 million Euros

TOTAL REVENUE OFMILAN, TURIN, BOLOGNA, FLORENCE ANDROME COMPANIES: 2 billion Euros

730 million Euros

120 million Euros

540 million Euros

160 million Euros

4.300

3.400

2.400 2.300

VeoliaTransport

RATP Arriva Keolis

Main EU operators Revenue (mln. €)

PT IN ITALYDevelopment Axis

TERRITORIAL INTEGRATION

MO

DAL

IN

TEG

RATI

ON

Creation of widened transport basins(clearing of local dimension)

Integration among the different transport

modalities (road/rail, urban/periurban)

PT IN ITALYLocal utilities consolidation process

Fusione tra AEM Torino e AMGA Genova

Fusione tra AEM Milano e ASM Brescia

Fusione tra le aziende della Lombardia meridionale

Multiutility nata dalla fusione delle aziende di servizi pubblici di Parma,

Piacenza e Reggio Emilia

Multiutility nata dalla fusione delle aziende di servizi pubblici dell’area

romagnola

Fusione tra AEM Torino e AMGA Genova

Fusione tra AEM Milano e ASM Brescia

Fusione tra le aziende della Lombardia meridionale

Multiutility nata dalla fusione delle aziende di servizi pubblici di Parma,

Piacenza e Reggio Emilia

Multiutility nata dalla fusione delle aziende di servizi pubblici dell’area

romagnola

The Local Utilities are facing an important competitive market change

Southern Lombardy companies merger

AEM Milano and ASM Brescia merger

AEM Torino and AMGA Genova merger

Multiutility generated through Parma, Piacenza and Reggio Emilia PT companies merger

Multiutility generated through Romagnole Area companies

merger

PT IN ITALY Consolidation Drivers

PT CONSOLIDATION AXIS

Local Utilities consolidation process, which is determined by two different factors, is affecting also PT sector

International “big player” which buy little local

companies

Local/Regional companies merger

PT IN ITALYThe presence of foreign providers

Important foreign providers are playing a significant role on the Italian market scenario

100 million of kilometers travelled (on the whole)

PT IN ITALY Territorial Aggregations

Abruzzo: hypothesis of merger the 3 PT companies

currently participatedby the Region

At the same time, some Italian Regions are now facing territorial aggregation projects

Hypothesis to aggregate Milan and Turin PT companies

Veneto: hypothesis of services (road/rail) integration in “Central-Veneto” area (Venice, Padua, Treviso)

Friuli Venezia Giulia: hypothesis of integrating PT services at a regional level (the service is now operated by 4 companies)

Liguria: hypothesis of PT reorganization on a regional basis (aggregation of current service basins)

Hypothesis of integrating provincial basins, starting from merger Bologna and Ferrara companies

Marche: integration of services on a provincial basis

Umbria: hypothesis of integrating regional PT operators

PT IN TUSCANYMarket Dimensions

6,220,026,0

40,744,245,349,452,254,169,569,6

95,3

117,5129,4

236,2 233,4

168,9

142,9 141,5 139,8

Kilometers on a Regional Basis (mln. km./year)

Total Italy: 1,8 billion Km

7% overall national offer

PT in TuscanyService structure before TIEMME

Massa C.

Lucca Pistoia

Firenze

Arezzo

Siena

Grosseto

Livorno

Pisa

Prato

CATBLUBUS

Cons. Autolinee Pratesi

VAIBUS

Cons. Pisano Trasporti

ATL/ ATM RAMA MobilitàSiena Mobilità

Etruria Mobilità

ATAF & LINEA, Più Bus, Autolinee Chianti

Valdarno, Autolinee Mugello Valdisieve

Massa C.

Lucca Pistoia

Firenze

Arezzo

Siena

Grosseto

Livorno

Pisa

Prato

CATBLUBUS

Cons. Autolinee Pratesi

VAIBUS

Cons. Pisano Trasporti

ATL/ ATM RAMA MobilitàSiena Mobilità

Etruria Mobilità

ATAF & LINEA, Più Bus, Autolinee Chianti

Valdarno, Autolinee Mugello Valdisieve

Tuscany assigned the operation of the whole road PT by tenders, generally identifying service areas fitting with Province territories

PT IN TUSCANYDevelopment Perspectives

• The new Regional PT system should aim at clearing the Province territorial dimension, by defining 3 integrated road-rail areas (coast, metropolitan area and southern area)

• These 3 areas will complement Regional transport which is mainly significant at a local level, while a 4th area for covering Regional railway network will be identified.

Area costiera

Coast

Metropolitan Area

Southern Area

TIEMME PROJECTGeneral Framework

Arezzo

Siena

Grosseto

Livorno Pisa

Firenze

PratoPistoia

Lucca

Massa Carrara

Piombino

“Southern Tuscany” project, bases on

merger process of PT companies of the cities of Arezzo,

Siena, Grosseto and Piombino, concluding with the creation of

TIEMME on 01st August 2010

TIEMME PROJECTThe objectives• Exploiting the potential coming from companies merger as a

tool to enhance competitiveness, by creating a new subject playing a crucial role both at Regional and National level.

• Supporting the conditions enhancing services efficiency and quality

• Preserve companies value, by protecting shareholders assets: risk of colonization or sale”

• Encouraging PT re-launch in Southern Tuscany, as a crucial condition to safeguard and develop occupation

“TIEMME” Project bases on several well-defined strategic axis

TIEMME PROJECTStakeholders perspective

SHAREHOLDERS• Enhancing

managing and commercial efficiency

CUSTOMERS

EMPLOYEESImproving the service

both from a quantitative and qualitative point of view

Job protection

One of project’s key characteristics is the production of an output for all the involved stakeholders

TIEMME PROJECTAggregated values

UP TO 2009

The overall merger could lead to the creation of one single operator producing more than 90 million Euros revenue and having more than 1.100 employees

REVENUE(mln €)

EMPLOYEES

TOTAL

21,7

273

35,6

428

9,2

125

92,8

1.159

KILOMETRES(mln km)

8,312,4 3,3 36,0

26,3

333

12,0

TIEMME PROJECTIn the national framework

0

50

100

150

ATM

141

Trambus

130

Arriva

100

SITA

96

COTRAL

81

GTT

74

CTT*

51

ATC Bo

37

ANM Na

36

Toscanadel Sud

36

Kilometres covered by the main Italian PT operators (mln. km)

The new subject would play a crucial role in the National framework (among the 1st 10 actors of the Country)

TIEMME PROJECTBenefits produced by local utilities aggregation

EBITDA INCREMENTALE IN % SULL ’ EBITDA INIZIALEEBITDA INCREMENTALE IN % SULL ’ EBITDA INIZIALE

15- 20% dell’EBITDA

iniziale

Operazione A

21,0%

Operazione B

16,0%

Operazione C

14,3%

Operazione D

20,3%

range diriferimento

Il grafico si riferisce ai benefici COMPLESSIVAMENTE ottenibili (in

termini di impatto positivo sull ’EBITDA rispetto all’EBITDA aggregato iniziale)

nell’arco di un piano pluriennale a seguito di operazioni di aggregazione

nel settore delle Utilities

Il grafico si riferisce ai benefici COMPLESSIVAMENTE ottenibili (in

termini di impatto positivo sull ’EBITDA rispetto all’EBITDA aggregato iniziale)

nell’arco di un piano pluriennale a seguito di operazioni di aggregazione

nel settore delle UtilitiesWORST CASE

BEST CASE

Bain & Company, advisordi riferimento delle principali operazioni di aggregazione nel settore delle utilites (es. A2A, Iride, Hera), ha riscontrato sul campo un incremento

dell’EBITDA “post aggregazione” quantificabile tra il 15 e il 20% del valore di partenza

FONTE: ESPERIENZE BAIN & COMPANY

EBITDA INCREMENTALE IN % SULL ’ EBITDA INIZIALE% INCREMENTAL EBITDA ON THE ’ INITIAL EBITDA

15- 20% dell’EBITDA

iniziale

Operazione A

21,0%

Operazione B

16,0%

Operazione C

14,3%

Operazione D

20,3%

Reference range

Il grafico si riferisce ai benefici COMPLESSIVAMENTE ottenibili (in

termini di impatto positivo sull ’EBITDA rispetto all’EBITDA aggregato iniziale)

nell’arco di un piano pluriennale a seguito di operazioni di aggregazione

nel settore delle Utilities

The figure refers to the overall benefits that could be reached (interms of positive impact of the finalEBITDA comparing to the initial one)

’’

in a long-term perspective thanks toUtilities aggregation processes

’WORST CASE

BEST CASE

Bain & Company, advisordi riferimento delle principali operazioni di aggregazione nel settore delle utilites (es. A2A, Iride, Hera), ha riscontrato sul campo un incremento

dell’EBITDA “post aggregazione” quantificabile tra il 15 e il 20% del valore di partenza

SOURCE: BAIN & COMPANY Experiences

Bain & Company, reference advisor on the main merger procedures in the utilities sector (e.g. A2A, Iride, Hera), found out an increase of the “post merger“

EBITDA between 15 and 20% of the initial value

15 / 20%Of the initial

EBITDA

TIEMME PROJECTArezzo urban-metropolitan integration

Arezzo

Siena

GrossetoPiombino

KEY OBJECTIVES• First step towards a wider

convergence perspective in Southern Tuscany

• Consolidation of competitiveness on a local basis, in order to get ready for the next integradìted tenders

• Creation of a more efficient and better organized service network (urban-periurban integration)

• Achievement of economic benefits, and industrial efficiency improvement

-6 million Euro revenue-1,8 million Euro km

-110 employees

-15 million Euro revenue

-6,7 million km

-170 addetti

-170 employees

TIEMME PROJECTArezzo urban-metropolitan integration: synergies

Company merger related benefits - governance costs reduction

- logistical optimization (headquarters)

Core processes synergies (operation, maintenance)

- network optimization possibilities, thanks to service areas territorial contiguity

(routes rationalization on common itineraries)

- productivity increase linked to a joint management of turn-over

- bus park rationalization- - money saved thanks to spending power

increase

“Activities sharing” related benefits - administration and staff

“COMPANY”SYNERGIES

“OPERATING”SYNERGIES

“CORPORATE”SYNERGIES

TIEMME PROJECTOverall operation structure

..% ..% ..%..%

TIEMME

In Kind Transfer

• “TIEMME” project required the creation of a new company (“newco”)where the involved companies (TRAIN, LFI, RAMA, ATM)were acting as shareholders

• In particular, former companies got “newco” assets basing on in kind transfers evaluated on a patrimonial basis (in kind patrimonial contribution of each former company to the “newco”)

TIEMME PROJECTBusiness model °

- TPL revenue – service contract and traffic related revenue - Market activities revenue

“Parent Companies” (LFI, TRAIN, RAMA, ATM), besides being newco shareholders, will keep their real estate property rights (headquarters,

depots), and receive a fare from newco for property exploitation

• Newco fare for real estate exploitation

• Administration revenue from “parent companies”

LFI, TRAIN, RAMA, ATM

TIEMME

- REVENUE - - COSTS-

• Real estate depreciation• Extraordinary property maintenance expenses• Financial costs for real estate loans

• Service operation, management and maintenance costs

• Corporate costs

• “Parent companies” fares for real estate exploitation

• Administration costs

TIEMME PROJECTMethodology

Algebraic Sum of Budget Values of assets and liabilities related to the different company branches (discounted back)

Income Surplus Value/Capital Loss associated to the activities transferred to the “newco”

NET ASSETS

SELF-START-UP FORECAST

COMPANY BRANCHES VALUE

The contribution of every company was determined basing on a mixed methodology (property-income) and considering transferred activities

discounting back and start-up forecast

TIEMME PROJECTBus park evaluation methodology

0,0

20,0

40,0

60,0

80,0

100,0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 19Vehi

cle

valu

e (%

on

ourc

hase

cos

t)

Curva d’ammortamento ATM

Curva d’ammortamento

RAMA

Curva d’amm

ortamento LFI

Curva d’amm

ortamento

TRAIN

In order to define bus park value at market value, UNI-ASSTRA methodology was employed: “real” vehicles depreciation was calculated by normalizing different companies amortization policies

• Homogenization of amortization policies among the different companies (real incidence of amortizations on the cost of vehicles between 4,7% and 9,2% on a yearly basis)

• Identification of a vehicles value that could be associated to the “real” market value

OBJECTIVES

Number of years

TIEMME PROJECT Different companies assets in the newcomln € TRAIN LFI RAMA ATM

Adjusted Net Assets % assets

Start-up Income

Overall Value

% assetsOther Transfers (liquidity/credits)Company Branches Value% assets in the “newco” 36,72% 30,32% 30,52% 2,44

TIEMME PROJECTIndustrial plan: inertial scenario

2010 2011 2012 2013 2013

INITIAL ECONOMIC SITUATION(“time zero”)

INERTIAL SCENARIO (costs dynamics increase economic impacts identification)

BREAK-EVEN OBJECTIVE

TIEMME PROJECTReference Framework

Multi-year objective attainment is based on some crucial strategic axis

PUBLIC TRANSPORT

MINOR BUSINESS

DEVELOPMENT RATIONALIZATION

ADJUSTMENT FEES

OTHER REVENUES INCREASE

PRODUCTIVITY IMPROVEMENT

INTERNAL EFFICIENCYENHANCEMENT

INDIRECT STAFF

MAINTENANCE

PURCHASES

GENERAL EXPENDITURES

TIEMME PROJECTImplementation Approach

WORKING GROUPS

Industrial plan implementation is managed by the different working groups

PRODUCTIVITY

MANTEINANCE

CORPORATE

PURCHASE

Reorganization and implementation of maintenance activities and optimization processes

Staff and governance reorganization and indirect staff turn-over procedure“Purchase unit” design and implementation

New commercial strategy and development opportunities identification

Business revitalizattion strategies identification and implementation

COMMERCIAL

SYSTEMS AND TECHNOLOGIES

Managing of companies convergence process towards an integrated platform

COMPLEMENTARY SERVICES

Trade union negotiacion and homogenization of employment rules