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Walter Sinigoi

MIB School of Management

12 January 2007

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EXECUTIVE SUMMARY Investor’s recommendation: hold

The analysis provides the basic financial information of the company Save Spa from a

point of view of a generic investor, analyzing the general performance, the key success

factors, the business strategy and the main challenges they may have in the future. We

focus our attention especially over the airport management that is the core business of

this company. The main points can be summarized as follows:

• Profitability in the airport-management industry is generally increasing. The

financial performance is quite good, the Save group generated consolidated

revenues of 166 millions of Euro in 2005 while EBIT has increasing from 10,6

millions (2002) to 24,3 (in 2005). The airport business is the most relevant part

of the company, with more than 50% of revenues. However, the airport system

is running below 60% of its capacity.

• The general strategy is based on diversifying the business into lower risk areas

(the food and beverage and retail activities) and selective acquisitions of other

airport concessionaries, be aware of the increasing competition from the local to

the regional airports and the battle for mega hubs positions currently taken by

the airports. The main success drivers are the traffic growth and the limited

capacity.

• Save could invest on acquiring new airport concessions in Italy and Eastern

Europe and try to create other local hubs for passengers heading for

international destinations via the Venice airports (with agreement with other

Italian players). Save Spa may focus more on the operational efficiency (they

cannot take a huge advance in the economy of scale).

• Positive aspects of the company: the company revenue mix is well-diversified,

the financial performance has been positive during the last four years, the Venice

airport concession expires in 2041, the airport improved profitability and the

synergies between the departments are increasing.

• Negative aspects of the company: Save have a number of litigations with its

shareholders (specially with the Comune di Venezia and the Provincia di Venezia

which didn’t approve the IPO following Save’s entrance in the Milan stock

exchange), the passenger traffic growth is a little below expectations (-0,9%),

the Gemina acquisition have future dubious consequences. The Airport has a

negative revenue mix.

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An Introduction to the company: mission and vision

The Save group are the company who manage, since the 1987, the Venice Marco Polo

airport. From the 1996, the company also owns 45% of Treviso airport, a structure that

has been growing at a furious pace on the back of the boom in European low-cost

carriers. The Venice airport is the third main intercontinental airport in Italy (in the first

two position we find Rome and Milan) and, linked with the Treviso airport, the Venice

airport constitute the “Venice Airport System”, the third largest hub in italy in terms of

volume of traffic (7.1 millions passenger in 2005)1.

The Save group manages infrastructures and related services in 103 Italian railway

stations2. From the year 2000, Save also started operation in F&B department. Save was

listed on the Milan stock exchange on 2005 and the same year they bought 10,4% of

holding company Gemina while, one year after, the Save group acquires 100% of

AIREST from Austrian airlines. The main shareholders are the Marco Polo Holding

(39%), private investors (63,8%), Veneto region (36,2%), Province of Venice (14,5%)

and City of Venice (14,6%)3. The mission of the company can be summarized as follow:

the Save group want to “manage the different business units in an innovative way, with

high responsibility and integrity, with the final aim at developing the territory witch it

serves”, and “manage all the three business units in a integrated way in order to

anticipated the travelers needs as they pass through the infrastructures the Save

1 The numbers have been taken from http://save.irelations.it

2 In the context of its strategy, whose aim is to develop and expand management activities in the

infrastructures and buildings connected with passenger transport, the SAVE S.p.A. Group, through

Archimede 1 S.p.A., in which it has a 60% holding, has acquired 40% of Centostazioni S.p.A., the

company that handles the integrated management of the 103 medium- sized Italian railway stations. 3 Source: http://save.irelations.it

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manage”4. In the vision declaration of Save Spa, the company focuses its attention on

the customer side, to “become a mobility player offering high quality services” and to

“increase the time value of travelers during their stay in the airports and in the other

mobility infrastructures”5.

Save group: the company profile

The Save Spa operate in a high competitive environment: the airport management

industry’s market includes around 50000 airports of different sizes and specialties and

also some firms which are specialized on managing the airports.

The Save Group actually falling in the services to travelers, specifically into three

different business areas:

• the airport management (the main activities are the management and

development of airport infrastructures and handling of aircrafts, passengers and

cargo, the management of car parks, the creation of software for air traffic data

management and the ground services at the Treviso and Venice airports

regarding cargo handling and general aviation activities)

• the management of mobility infrastructures, related services and public catering

(property management and development of projects for upgrading the railways

stations, the management of integrated services for the properties,

implementation of investment plans, management of tenders)

• the management of the travelers shops in the mobility infrastructures (the F&B

and retail division directly manages 43 food and beverage outlets and shops

selling mainly items for travelers).

4 From SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006

5 Source: SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006. The company

called these different phases of their vision like the “Traveller Mobility Value” and “Pleasant travel

experience”.

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The recent performance: the income statement show how the Save group have been

worked in these last four years: as we can see in the graph below, the Save group

generated consolidated revenues of 166 millions of Euro in 2005, EBITDA is increasing,

recorded in 47,5 millions during the same year, while the EBIT is totally increasing from

10,6 (2002) to 24,3 (2005) millions6.

The company is profitable because, instead of the diminution in the net profit caused by

the increasing of the tax rate, if we calculate the ROS we have, in 2005, plus 6,6%7.

If we take an overview of the three SBUs performance made it in 2005, we can say that

the airport business are the most relevant part of the company, with more than 50% of

revenues generated by non-aviation activities. The airport system is running below 60%

of its capacity (as a consequence, also below the European average)8. Save has a

concession to manage Venice and Treviso airports expiring in 2041 (Venice) and 2012

(Treviso); the airports concession accounted for 58% of the revenues and 84% of the

EDIBTA in 20059.

6 From http://www.veniceairport.it

7 The graph of sales, ROCE and margins are taken from http://www.borsaitaliana.it/bitApp

8 Source: Mediobanca Securities report

9 From Citigroup Global Markets, country research Italy.

INCOME

STATEMENT

Save Spa

2002 2003 2004 2005

Total revenues 88,8 133,8 155,3 166,0

EBITDA 24,0 39,6 47,0 47,5

EBIT 10,6 17,9 18,4 24,3

Net Profit 8,9 8,6 4,9 11.0

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Starting from this year, the airport operations should receive a boost thanks to the

effects of the new tariff system made in 2006 while the revenues from the other non-

aviation activities are strictly related to passenger traffic trends.

Concerning the rail station business, this is a fast growing and low risky activity due to

the fact that the quality of the service currently offered to the customers is very bad.

Same studies forecasts increases in rents for outlets and offices, as well as in average

revenue per traveler10. The F&B is comparable with the Autogrill or the Compass and, as

is possible to see in the graph, it generated revenues for the 28% of the commercial.

This last one is the natural diversification for a business who manages airports and

railways stations.

Key and drivers of competition

Industry is growing: the airports industry is influenced by some external and internal

factor: looking the external side, we can understand how the globalization, the

privatization, the security problem and the growth of demand caused a tremendous

transformation over the past decade11. From an internal point of view, we have to take

into consideration the increasing in rivalry due to the new entrants (like financial

investors and property developers) and the price-war between the existing competitors

(low-cost airports, hub airports, urban and regional airports). As a result, airport

companies try to diversified their portfolio (shift to non-airline revenue sources), do

same specialization (focus on serving particular clients) and corporatization.

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For further information, consult the Citigroup global market research 11

The airport industry growth by 10% between 2000 and 2005 and the current current capacity utilization

is less o 60% of the total capacity in traffic peak. For further information, consult the group work on airport

management industry made during the groupwork experience.

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Companies peer comparison: even though that the biggest airports are in USA, the

biggest airport companies are in the Europe. With the leading company British Airport

Authority, which for instance has more than 8% global market share, the biggest

companies hold around 35% of all market

share. Based on the these consideration, we

can understand that Save Spa is relatively

small compared with the international

competitors but, at the same time, the

EBITDA growth more respect with the other

airport companies:

Analysts show us a optimist future for the

Save Spa12 that will take the second position

in the growth after the BAA. In the short

term, the key growth driver should be the

revision of airport tariffs, which have been

frozen from the 1999 in Italy. Another

important key driver is air traffic growth.

Passenger traffic at Venice airport system

growth higher then the Italian airport

average thanks to:

1) new infrastructure 2) strong catchment area 3) the growth of low-cost carriers (and

also thanks to the beauty of the city). This, linked with other factors like the despite of

Volare in 2003 and the difficult financial situation of Alitalia right now (that still lose

market share) should determine a positive impact over the business performance of

Save Spa for the next year. Speaking about the capabilities of this firm, we can notice

that Save have sufficient economic and financial resources. The economic capital of the

company is estimated in 639 million of Euro13, more than the majority of the Italian

airports but not so much to be competitive in a globalization environment (the BAA have

over 9400 millions of Euro). However, by maintaining a high equity level, the Save is not

considering a high-risky company. There is a good and improving synergy between the

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Source: www.borsaitaliana.it – report by Citigroup, 2006 13

www.borsaitaliana.it

Peer comparison 2006

EBITDA

BAA 1562

Fraport 574

Wien Airport 165

Copenaghen Airport 205

Save Airport 44

Peer comparison

EBITDA Growth prevision 2007

BAA 11,3%

Fraport 6,0%

Wien Airport 6,6%

Copenaghen Airport 2,6%

Save Airport 8,1%

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three department of Save: air traffic growth should fuel the top line performance for the

F&B retail outlets located in airports, while Centostazioni should give Save greater

access to desirable locations for new outlets.

Business strategy

By their recent acquisitions and the entrance in the Milan exchange market, Save group

try to shift the revenues to the non-airlines services diversifying into complementary

business with low risk: the food and beverage and retail activities. The margins and cash

flow of the last year were depressed by the acquisitions of AIREST, the leading provider

of airline and terminal catering in Austria. The acquisition of the 10,4% of Gemina have

the aim of controlling Areoporti di Roma, the main Italian hub and it might have a bigger

influence on Save valuation in the future. The success drivers are the traffic growth,

the increases of tariffs and the limited capacity for the airport. The railway stations

dreadful quality of services currently offered across the stations a large potential for

improvement. F&B should increase the number of outlets matched with an increase in

spending per passenger and limited capacity.

To develop and extend its management activities in the transport infrastructure, the

Save Spa business strategy already have four different points and four key success

factors14:

Business strategy

� Strategy objectives

� Maximizing the potential of

existing ventures

� Selective acquisition of other

airport concessionaries

� Progressive acquisition of

additional Food and beverage and

retail concession through tenders,

direct negotiations or acquisitions

of competitors

� Acquisitions of companies active in

the transport infrastructure

management

� Key success factors

� a strategic long-term vision aimed

at identifying and meeting new

needs of its key customer portfolio

� excellence in the range of services

it offers, made possible by ongoing

focus on process and on the

customers

� sophisticated skills and expertise

that SAVE Group employees have

developed in managing and

providing services

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Source: SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006.

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SWOT analysis

Weaknesses

� The Treviso airport concession

expires in 2012

� Still not the main hub for any airline

� Excessive geographic concentration

Opportunities

� General growth of the airport industry, specially in Eastern Europe

� Tax efficency could improve

� Synergies between the department of Save Group (well-diversified

portfolio)

Threats

� The new tariff system could work below expectations

� Difficult to differentiate the services

(due to the intense competition)

� Airlines financial could affect the

profitability

Strengths

� Source of international traffic

for foreign airlines

� The Venice airport

concession expires in 2041

� The revenue-mix is well

diversified

Future outlook: investment opportunities and recommendations

• To increase the demand the save spa is actively developing links with airlines

outside of the European market. A recent example of this is Emirates, the first

international airline that will offer non-stop services to and from Venice from the

Middle East, satisfying existing demand and helping to generate future demand.

• Save could invest on acquire new airport concessions in Italy and eastern

Europe, leveraging on the Venice Treviso pole, and try to create other local hubs

for passenger heading for international destinations via the Venice airport (with

agreement with other Italian airport structure).

• Save Spa may focus more on the operational efficiency, due to the fact that the

company is too small to taking the economy of scale as an advantage (compared

with the leader of the market BAA and the main followers). This is stringy related

with a costumer related management strategy capable to satisfy the customers.

This is probably one of the main challenges facing by Save: we already seen that

the differentiation in the airport industry is very difficult to take, but starting a

price war in this environment can became very risky for the company thanks to

the increasing competition, specially for the regional airports.

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Bibliography

SAVE SpA – Roadshow, London presentation of the company, 8-9 march 2006

Citigroup Global Markets, country research

Mediobanca Securities report

Axia report research 2006

Ing Bank London Branch Research Policy Report

www.borsaitaliana.it

www.bloomberg.com

www.veniceairport.it

http://save.irelations.it

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