and - the groupeng.gruppohera.it/binary/hr_ir/bilancio_archivio/hera_group... · chairman sergio...

HeraGroupConsolidatedandSeparateFinancialStatementsFinancialyearended

31December2011

0 Introduction LettertoShareholders 001

Mission 003

Groupstructure 004

Administrativeandcontrolbodies 005

Intruduction 006

Keyfinancialinformation 007

History 008

Strategy 010

ThedevelopmentofsustainabilityinHera 016

Developmentofthebusinesses 018

Developmentoftheownershipstructure

andremunerationofshareholders 025

NoticeofcallingoftheShareholdersMeeting 030

1 Directors'report1.01 Introduction 031

1.02 Corporateevents 033

1.03 Groupperformanceasat31December2011: 035

1.03.01 Financialandeconomicresultsandinvestments 035

1.03.02 Regulatoryframeworkandregulatedrevenues 046

1.03.03 Analysisbybusinesssegment 056

1.04 Commercialpolicyandcustomercare 066

1.04.01 Customersatisfaction 070

1.05 Tradingandprocurementpolicy 072

1.06 Financialpolicyandrating 088

1.07 Researchanddevelopment 091

1.08 Humanresourcesandorganisation 094

1.09 Informationsystems 101

1.10 Quality,safetyandenvironment 104

1.11 PerformanceoftheParentCompanyin2011 107

1.12 ResolutionsconcerningtheParentCompanysresultsforthe

financialyear 108

2 HeraGroupConsolidatedFinancialStatements2.01 Consolidatedaccounts 109

2.01.01 Incomestatement 109 2.01.02 Aggregateincomestatement 110

2.01.03 Statementoffinancialposition 111

2.01.04 Cashflowstatement 113

2.01.05 Statementofchangesinshareholdersequity 114

2.02 FinancialstatementsResolution15519of2006Relatedparties 115

2.02.01 Incomestatement 115

2.02.02 Statementoffinancialposition 116

2.02.03 Cashflowstatement 118

2.03 Explanatorynotes 119

2.03.01 Consolidatedexplanatorynotes 119

2.03.02 Explanatorynotesonrelatedparties 217

2.04 Netfinancialdebt 222

2.04.01 Consolidatednetfinancialdebt 222

2.04.02 NetfinancialdebtResolution15519of2006 223

2.05 Equityinvestments

2.05.01 Listofconsolidatedcompanies 224

2.05.02 Listofsignificantinvestments 226

2.05.03 Essentialfinancialstatementsdataof

subsidiariesandaffiliates 234

2.06 TablepursuanttoArticle149duodeciesoftheIssuersRegulations 237

2.07 StatementpursuanttoArticle154bisofLegislativeDecreeno.58/98 238

2.08 ReportbyIndependentAuditingFirmandBoardofStatutoryAuditors 239

2.08.01 Independentauditingfirm 239

2.08.02 BoardofStatutoryAuditors 241

3 HeraSpaFinancialStatements3.01 Financialstatements

3.01.01 Incomestatement 246

3.01.02 Aggregateincomestatement 247 3.01.03 Statementoffinancialposition 248 3.01.04 Cashflowstatement 250 3.01.05 Statementofchangesinshareholdersequity 251

3.02 FinancialstatementspursuanttoResolution15519of2006Relatedparties

3.02.01 Incomestatement 252 3.02.02 Statementoffinancialposition 253 3.02.03 Cashflowstatement 255

3.03 Explanatorynotes

3.03.01 NoteesplicativeHeraSpa 256 3.03.02 Explanatorynotesonrelatedparties 362

3.04 Netfinancialdebt

3.04.01Netfinancialdebt 369 3.04.02Indebitamentofinanziarionettodelibera15519del2006 370

3.05 Equityinvestments:Statementofequityinvestments 371

3.06 TablepursuanttoArt.149duodeciesoftheIssuersRegulations 372

3.07 StatementpursuanttoArt.154bisofLegislativeDecreeno.58/98 373

3.08 ReportbyIndependentAuditingFirmandBoardofStatutoryAuditors

3.08.01 Independentauditingfirm 374 3.08.02 BoardofStatutoryAuditors 376

4 Reportoncorporategovernanceandownershipstructuresandreportonremuneration

4.01 Reportoncorporategovernanceandownershipstructures 379

4.02 Reportonremuneration 406

0Introduction

HeraGroupConsolidatedandSeparateFinancialStatementsasat31December2011

BoDmeeting22March2012Shareholdersmeeting27April2012

1

Lettertotheshareholders

DearShareholders,

Wewould like topresent toyou the tenth financialstatementsof theHeraGroup for theyear2011,whichsawa

continuationofGroupactivitieswithsatisfactoryresults,inlinewiththecontinuousgrowthachievedeachyearsince

theformationofthecompany.

Inouropinion, thisresultrewards thecommitmentandstrategicdecisions thathavecharacterised thepathofour

companyinastructuredmanner.

Itshouldalsobepointedoutthatthisresultwasachievedoverthelastthreeyearsdespiteagradualworseninginthe

generaleconomicsituation,whichobviouslyaffectedourreferenceareastoo.

Overthelast10years,investmentshaveexceededEuro3.7billion,andEBITDAhasincreasedfromEuro192millionin

2002toEuro644millionin2011.

Withthecontributionfromallbusinesssegments,EBITDAalsoincreasedlastyear,upby6.2%,markinganincreaseof

Euro37.5millionfromthepreviousyear.

Intermsofthevolumeofbusinesshandled,certainsectorswerehitharderbycriticalities intheeconomiccontext,

buttheexpansion inthecustomerbase, including inheavilycompetitivesectors,andthegreatercontributionfrom

theenergysectorsinparticular,madeitpossibletorecordtheaforementionedoverallgrowth.

Limitedchangesweremadetothecompanyperimeterwhich,inanycase,contributedtotheaforementionedresult

intherenewableenergyandgassalessectors.

0Introduction



2

In lightof theabove,weareable tosubmit foryourapprovaladividend in linewith thepreviousyear,and foran

amountenvisagedatthetimedespitethenetprofithavingtocoverhighertaxesintroducedduringtheyear.

And so today is anopportunitynotonly to take stockof the results achieved,but to assess thewiderpicture as

regardstheresultsachievedupuntilnow.

Certainelementswhich,fromtheoutset,setusapartfromtherestoftheindustryoperators,remainthebedrockof

our longpathofgrowth: Iamreferring to the longtermviewwhichhasguidedour investmentdecisions,astrong

focuson limitingrisk,whichhas ledustosearchingforabalancebetweenregulatedandderegulatedactivitiesand,

lastly,anapproachorientedtowardscontinuous,lineardevelopment,bycombiningtheacquisitionprocesswiththe

naturalgrowthachieved.

Inexpandingthecompany,wehaveattemptedtomaintainastronglinkwiththearea,bymanagingand innovating

themultibusinessportfolio,withtheobjectiveofensuringthe loyaltyofourcustomerbasebyofferingacomplete

rangeofservices.

Thequalityofsaidservicesinrespectofothermarketoperatorswasalsofurtherborneoutattheendof2011,bythe

degreeofcustomersatisfaction,whichhasbeenatahighlevelforsometime.

Theyear2011alsosaw the introductionofregulatorychanges forcertainbusinesssegmentswiththedefinitionof

newplayersforregulatoryfunctions,bothnationaland local,againstwhichwemustmeasureourselves inthenew

phaseofmarketcompetitionthatwillaffectthemajorityofsectorsregulatedupuntilthispoint.

Owingtotheselatestchangesandthecomplexnationalandinternationaleconomicsituationtobedealtwith,itwill

beevenmoreimportantinthefuturetomaintainthesolidityoftheGroupsstructureandcloseinvolvementofour

shareholdersinfurtherdevelopments.

Bologna,27April2012

TheChairman

oftheBoardofDirectors

TomasoTommasidiVignano

0Introduction



3

Hera'sMission

"HerasgoalistobethebestmultiutilityinItalyforitscustomers,workforceandshareholders.

Itaimstoachievethisthroughfurtherdevelopmentofanoriginalcorporatemodelcapableof

innovationandofforgingstronglinkswiththeareasinwhichitoperatesbyrespectingthelocal

environment.

ForHera,beingthebestmeansinspiringtheprideandtrustof:customers,whoreceive,thanks

to Heras responsiveness to their needs, quality services that satisfy their expectations; the

womenandmenwhoworkatHera,whoseskills,engagementandpassionarethefoundationof

the companys success; shareholders, confident that the economic value of the companywill

continue tobegenerated, in full respect for theprinciplesofsocial responsibility; theareas in

whichHeraoperates,whereeconomic,socialandenvironmentalhealthrepresentthepromiseof

asustainablefuture;andsuppliers,keyelementsinthevaluechainandpartnersforgrowth".

0Introduction



4

StructureoftheGroup

* oltre al 5% Hera Spa

partecipata da HERA Energie Rinnovabili Spa

partecipata da HERA COMM Srl

partecipata da HERA Trading Srl


SO.SEL. Spa 26%

GALSI Spa 10,40%

Ghirlandina Solare Srl 33%

ADRIATICA ACQUE Srl 22,32%

FlameEnergy Trading Gmbh 50%


partecipata da HERA Trading Srl


SGR SERVIZI Spa 29,61%

HEAD OFFICE FOR DEVELOPPEMENT AND MARKET

SET Spa 39%

ACANTHO Spa 79,94%

MARCHE MULTISERVIZI Spa

40,64%

HERA COMM Srl 100%

HERA TRADING Srl 100%

HERA Energie Rinnovabili Spa 100%

ENOMONDO Srl 50%

FERONIA Srl 40%

ROMAGNA COMPOST Srl

60%

TAMARETE ENERGIA Srl

32%

SEI Spa 20%

MEDEA Spa 100%

Hera Comm Marche Srl 57,38%




GAL.A Spa 60%

*SOTRIS Spa 70%

HERAMBIENTE Spa 75%

REFRI Srl 20%

NUOVA GEOVIS Spa 51%

FEA Srl 51%

AKRON Spa 57,50%

ASA Scpa 51%

Consorzio Akhea 51%

HEAD OFFICE FOR OPERATIONS

HERA SERVIZI FUNERARI Srl

100%

HERA SERVIZI CIMITERIALI Srl

100%

FAMULA ON-LINE Spa 100%

HERASOCREM Srl 51%

HEAD OFFICE SERVICES AND INFORMATION SYSTEM

UNIFLOTTE Srl 97%

SERVICE IMOLA Srl 40%

Estense Global Service Scarl

23%


ERIS Scarl 51%

HERA ENERGIE Srl 51%

SINERGIA Srl 59%

Calenia Energia Spa 15%

MODENA NETWORK Spa 14%

HERA LUCE Srl 89,58%

ENERGIA ITALIANA Spa

11%

AIMAG Spa 25%

0Introduction



5

Administrativeandauditingboards

Chairman Tomaso Tommasi di VignanoVice-Chairman Giorgio RazzoliChief Executive Officer Maurizio ChiariniDirector Filippo BrandoliniDirector Mara BernardiniDirector Marco CammelliDirector Luigi CastagnaDirector Pier Giuseppe DolciniDirector Valeriano FantiniDirector Enrico GiovannettiDirector Fabio GiulianiDirector Luca MandrioliDirector Nicodemo MontanariDirector Mauro RodaDirector Roberto SacchettiDirector Rossella SaoncellaDirector Bruno TaniDirector Giancarlo Tonelli

Chairman Sergio SantiStanding Auditor Antonio VenturiniStanding Auditor Elis Dall'Olio

Chairman Giorgio RazzoliMember Luca MandrioliMember Fabio GiulianiMember Rossella Saoncella

Chairman Giorgio RazzoliMember Marco CammelliMember Nicodemo MontanariMember Bruno Tani

Chairman Tomaso Tommasi di VignanoVice-Chairman Giorgio RazzoliMember Maurizio Chiarini

Chairman Giorgio RazzoliMember Filippo BocchiMember Mario Viviani

PricewaterhouseCoopersIndependent auditing firm

Board of Directors

Board of Statutory Auditors

Ethics Committee

Executive Committee

Internal Control Committee

Remuneration Committee

0Introduction



6

Introduction

This yearwillbe the tenthanniversaryofHeraGroupwhichwillbe celebratedwithanAnnualReportonceagain

dedicated tobotheconomicand financialgrowth. Itmakesan important statement, taking into consideration the

continuingcrisiswhichhasledtoalmostallthemainplayersintheindustry,eventhelargestones,sufferingfinancial

stressandneedingtoseriouslyrethinktheirstrategies.

In anhistoric context, these financial statements confirm the long,uninterruptedpathof growthover a tenyear

period which has featured significant challenges: local public services liberalisation processes, legislative

developments in all primary services and serious crises in the banking and finance system, culminating in the

sovereigndebtcrisisthathasgreatlyaffectedItaly.

The results achievedhavemanaged to satisfy thebest expectationsof thosewho, in2002,pursued the forward

lookingplanofuniting11publicutilitycompanies,inthehopeofbringingtogetherthevaluablebusinessculturesand

strongterritoriallinksagainstabackgroundofseriousdisruption.

On theoccasionof this tenthanniversarywepropose to takea lookatwhereHeraGroup isnowand the results

achievedtoshowwhatmakestheGroupstandoutfrom itscompetitors.Thebraveriskaverseapproach, longterm

strategicchoicesand linearstrategiespursued,setagainstthecontextofturbulenteventsandstayingoncourseto

achieve the targets set, can all be cited as examples. This analysis is useful for evaluating the soundness of the

positions reached and understanding how they represent a greater certainty, compared with the past, for

continuingalongthepathoffurthergrowthinthefuture.

0Introduction



7

Keyfinancialinformation

1.1 1.2 1.5

2.1 2.3 2.9

3.7 4.2

3.7 4.1

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Revenues (b)

CAGR +16.2%

192 243293

386 427453

528 567607 645

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Ebitda (m)

CAGR +14.4%

78 113177

216 231 221281 291 315

334

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Ebit (m)

CAGR +17.6%

75 89

148189 179

143189

163206 221

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Pretax Profit (m)CAGR +12.7%

3753

86109 100 110 110

85

142127

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Group Net profit (m)

CAGR +14.8%

0.25 0.44 0.56

0.97 1.17 1.43 1.57

1.89 1.86 1.99

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Net financial debt (b)

CAGR +25.7%

1.3 1.8 1.9

2.5 2.7 3.2 3.0 3.3 3.1 3.1

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Debt/Ebitda (x)

3.5 5.3 5.7

7.0 8.0 8.0 8.0 8.0

9.0 9.0

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11*

DPS ( cent)

CAGR +11.1%

*ProposaloftheBoardofDirectorstobeputtotheShareholdersMeetinginApril2012

0Introduction



8

History

Herawasestablishedthroughthemergerof11localpublicutilitycompaniesinNovember2002.Theestablishment

oftheGroup,oneofthemajorItalianplayersinthebusiness,wasthelargestdomestictransactioninthelocalmulti

utilityindustry.

On26June2003,onlysevenmonthsafterthemerger,theHeraprivatisationprocesscametoanendwithitslisting

on theMilan Stock Exchange, the first IPO after the dotcom speculative bubble burst. The placement ended

successfully,withtheplacementof100%ofthegreenshoetosatisfytheextensivemarketdemand.

After the listing, the public ownership structure remained essentially unchanged, with the exception of capital

increasesreservedforpublicshareholdersofthecompaniesthattheGroupmanagedtoconsolidateyearafteryear,

throughtheoriginalorganisationalmodel.

Thesubsequentmergersofseveralsurroundingorganisationsbroughtthetotalenterprisevaluetoalmost1billion.

ThemergersalsoinvolvedmultiutilitycompanieslikeGeatofRimini(whichtookplaceinthesameyearasthelisting

ontheStockExchange),AgeaofFerrarain2004,MetaofModenain2005,SatofSassuoloin2006,AspesofPesaroin

2007andtheacquisitionof25%ofAimag,operatingintheprovinceofModena,in2009.Thesetransactionsledthe

Group,whichbeganitsoperationsinfiveprovincesintheregion,tocover70%ofEmiliaRomagna,continuouslyand

evenly,crossingoverthebordersinthenorthofLeMarche.

The mergers and acquisitions made the management of the initial integration process more coordinated, but

simultaneously ledtoacreationofvaluethroughthesynergyandrationalisationofactivitiesthroughouttheentire

lasttenyearperiod.

The singlemanagement of all the territories covered (through the implementation of the original organisational

model),withthemanagementofpersonnel,acquisitions,financeandcontrol,planning, legalaffairsandoperational

management concentrated in a single business holding,made it possible to undertake corporate rationalisation

measures,with thesaleofmore than60associatecompanies/businessesdeemednotstrategic,standardisationof

procedures and operations, as well as standardising information systems. This contributed to transforming the

collectionofbusinessesintoanefficientandintegratedGroup.

Organisation also underwent a gradual transformation in response to the different competitive dynamics of the

markets and led the Group to the unbundling of activities (corporate separation of various activities), without,

however,weakeningeitherthesynergiclinksbetweenthevariousactivitiesortheclosebondbetweentheGroupand

thereferenceterritories.

0Introduction



9

177.0

320.6290.5

442.1

504.8471.8

427.1 429.3

353.9324.9

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Totalinvestiments(ml)

Over10yearstheGrouphassupporteddevelopmentwithgrossinvestmentsofover3.74billionininfrastructures

intheterritory,extendingandimprovingtheefficiencyofplantsdedicatedtoallactivitiesrelatingtoprimaryservices

andcustomers,aswellasimprovingsafetyandenvironmentalsustainability.TheGrouphasbeenstronglycommitted

toexpansionand investmentactivities throughout theperiod,whichhas involvedmore than86%of totalEBITDA

producedovertenyears.

Herasdevelopmentoverthedecadehas,throughefficiencymeasures,investmentandcorporatemergers,allowedit

toconsolidatecompetitiveadvantagesinallcorebusinesses,gainingtheleadingpositionintermsofefficiencyand

size in Italy.TheGrouphasalsopromotedgrowth inelectricitysales(originallymanagedbytheGroup inthe Imola

areaonly)atafasterratethananyothercompany,encompassingvariousregions inItaly.Marketresearchhasalso

shownthat,asfarascustomersatisfactionisconcerned,therehavebeenconstantimprovementsmade,culminating

incompletesatisfactionforthelargemajorityofthecustomerbase.

Herahasmaintainedariskaverseapproachthroughoutthisperiodofdevelopment,opting,inthevariouschanges

inthescenarioandinthechoicesforemergingdevelopmentopportunities,forabalancedandprudentreinforcement

ofbothregulatedactivitiesandliberalisedactivities,withoutevergoingafterspeculativeorshorttermoptions.This

pathhasledtolineargrowth,withoutchangestothestrategicrouteoverthetenyearperiod,whichhasallowedthe

Grouptogaingroundinallreferencemarkets,withoutinterruption,achievingprominent,defensiblepositions.

0Introduction



10

Strategy

Herasstrategicobjectivehasalwaysbeenthecreationofvaluefromamultistakeholderperspective,inthemedium

and longterm, competing autonomously and effectively in liberalisedmarkets. The objective is to replicate the

uniquebusinessmodelforexpandingtheGroupandmanagingprimaryservicesinanincreasinglyefficientmanner

inordertosatisfythemainstakeholders.

In2002, thenewlyformedmultiutilitywasacomposite realityandde factonot integrated,whichneeded todeal

with thecriticalproblemsofprotecting the reference territories from the imminentbreakingdownofprotective

barriersinseveralcoreactivities.ThedimensionsofthenewlyformedGroupwere,however,limitedcomparedwith

thosenecessarytodealwiththecompetitivecontextopeninguptolargeplayers,includinginternationalones.

Against this background, Hera formulated a strategy based on its strong points, in other words an open

organisationalmodel,capableofallowinganefficientincreaseinsizethroughexternallines,nationalleadershipinthe

wastesectorandaloyal,extensivecustomerbaseconcentratedinthereferencearea.

Maintainingthecustomerbasewaschosenasastrategic imperative;qualityofservice,aftersalesserviceandan

integrated offering including a complete range of primary serviceswere deemed to be the competitive tools to

achievethisaim.Themultibusinessportfolio(withtraditionalgas,water,wasteandelectricityservices)wasseenas

key inprotecting the customerbase, capableof allowing theGroup the timeneeded to improve thequality and

competitivenessofitsservicesandachievemoresustainabledimensions.Thedevelopmentstrategywasalsodirected

atmaintaining a balance between the various activities of providing all the services to the customer base and

guaranteeingalowvariabilityprofileofthemultiutilityportfolioresults.

Herasstrategicplanwasmadeupoffivepriorities,whichguidedtheGroupsmanagementonacontinuousandlinear

paththroughoutthefirsttenyearperiod:

1) Pursuingaprocessofextractingsynergiesfromcorporatemergers,throughthecompleteintegrationofthebusinessesthatareincorporatedintoHera

2) Implementing theplan forconstructing largeplantsanddevelopingnetworks,balancing thegrowthofallbusinessestoincreasetheefficiencyandqualityofservices

3) Preserving a sound, lowrisk economicfinancial profile, capable of satisfying stakeholders through asustainableapproachinthemediumtolongterm

4) Pursuingmergerandacquisitionopportunitiesintheliberalisedsectors(wastetreatment,energysalesandgeneration),bothtoconsolidatethe leadershipposition intheenvironmentalsectorandtoexpand,froma

defensive perspective, the range of services to customers with electricity services in line with the

development guidelines pursued by large international groups. The acquisition of the assets needed to

achievethegoalhassupportedgrowthintheelectricitybusiness,onlypresentatthebirthoftheGroupinan

embryonicstage

5) RollingouttheinnovativeHeraaggregationmodelinmultiutilitybusinesses inneighbouringareaswithaterritorialcontinuity logic, focusedoncompatibleactivitiesandwitheconomicfinancialprofilescapableof

guaranteeingthefinancialsoundnessoftheGroup.

0Introduction



11

Toensuregreaterefficiencyandexploiteconomiesofscale,themergerswereintegratedintheoriginalmodelbased

on a business holding company. At the same time, direct operational supervision of all local territories was

guaranteedtopreservethecrucialcompetitiveadvantagesofproximitytocustomersandlocalroots.

Thestrategyoffocusingoncoreactivitiesledtotherationalisationoftheportfolio,withtheconsequentdisposalof

smaller businesses and corporate rationalisation through a leaner organisational structure in line with the new

Groupsmanagementlogics.

Inthefieldofenergyactivity,thedevelopmentstrategieswerealwaysaimedatconsolidatingtheimportantposition

incoresectors (distributionandsaleofgas) inthereferenceterritory,boththrough improvementofnetworksand

qualityofserviceandthrough improvementofaftersalesservice.Thedualfuelstrategy, involvingtheexpansionof

theelectricityservicesofferedtoexistingcustomers,wassupportedbyaparallelandprudentupstreamstrategyof

selfgenerationdevelopmentcomplementingthemarketprocurementsources.Allofthismadeitpossibletomaintain

alowriskexposureprofileinanareainwhichtheGroupdidnothaveobviouscapabilities.

Inthewastedisposalmarket,inwhichHeraisthemarketleaderinItaly,thestrategywasaimedatstrengtheningthe

plant structure for sustainable management with regard to the environment. In a market featuring a seriously

underdeveloped infrastructure, theGroupsgoalwas todevelopa fullyintegratedplantsystem,capableof reusing

waste materials and extracting energy from waste, through an ambitious investment policy involving the

improvementofefficiencyandrationalisationofoperatingactivities.

InregulatedbusinessesHeraadoptedastrategytoimproveefficiencyanddevelopplantsthroughinfrastructuresin

the reference territories, strengthening positions in localmarkets and consolidating strong pointswith a view to

gainingcontractswhentheyexpiredandwereputouttotender.

These basic strategies, albeit implemented in a way which is appropriate to the new reference scenario, were

confirmedyetagaininthe20112015businessplan(presentedinNovember2011).Expectationsforfuturegrowth,in

effect,restonthecontinuationofprocessesaimedat improvingefficiency,thecompletionof largeplantswiththe

development of other complementary technologies in renewable energy, andmaintaining expansion strategies in

liberalisedmarkets.Inanticipationoftendersforgasdistribution,theGroupisplanningtoextendservicesinthenew

basins defined by the Authority in the current reference territories, in which the businesses operating have a

significantlylowerpresencethanHera.

Thegenerationofcashexpectedfromtheseorganicgrowthinitiativessatisfiesthestrategicobjectiveofimproving

financialsoundnessandmaintainingapolicyofdistributingsatisfactorydividendsfortheperiodoftheplan.

Theexpansionstrategiesforexternal lines,underthe logicapplied inthebusinessplanuntil2015,alsoremainand

constituteapriorityforexpansioninthemultibusinesssectorinneighbouringareasandforstrengtheningpositions

infreemarketsatadomesticlevel.Thesestrategiesaredirectedatmaintainingabalancedassetsportfolioandcan

beexpresslypursued thanks to the current flexibilityof the financial structure, considered tobeoneof themost

soundintheindustry.

0Introduction



12

Economicfinancialresultssince2002

P&L(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 1,099.3 1,241.0 1,528.9 2,147.6 2,364.5 2,905.1 3,792.0 4,436.0 3,877.3 4,315.9 +16.4%

Ebitda 191.9 242.5 292.5 386.4 426.7 453.4 528.3 567.3 607.3 644.8 +14.4%

D&A (114.3) (129.7) (115.3) (171.0) (195.3) (232.8) (247.6) (276.0) (291.9) (310.3) +11.7%

Ebit 77.6 112.8 177.2 215.7 231.4 220.6 280.7 291.3 315.4 334.5 +17.6%

Pre taxprofi t 75.4 88.6 147.5 189.3 179.2 142.5 188.9 162.6 205.6 221.2 +12.7%

Tax (38.7) (35.6) (61.1) (80.5) (79.0) (32.6) (78.6) (77.6) (63.6) (94.5) +10.4%

Netprofi t 36.7 53.0 86.5 108.8 100.2 109.9 110.3 85.0 142.1 126.8 +14.8%

Minori ties 3.5 3.5 5.5 7.4 10.1 13.7 15.5 13.9 24.8 24.8 +24.5%

Hera netprofi t 33.2 49.5 81.0 101.4 90.1 96.2 94.8 71.1 117.2 104.6 +13.6% Theeconomicresultsfortheentiredecadeshowconstantgrowthinsales,whichhavealmostquadrupledcompared

with2002(withastrongcontributionfromelectricitysalesandactivityconnectedwithtradingenergyrawmaterials).

EBITDAandOperatingIncomeincreasedrespectivelyby3.4and4.3timescomparedwiththestartingfigure,with

constantanduninterruptedgrowth.

The improvement in operating resultswas supported by organic growth,which contributed to two thirds of the

growthinEBITDA.

Organic growth relating to synergies, operating efficiencies and development ofmarkets constitutes the most

importantorganicfactor,withacontributionof+219million(equalto48%ofgrowthinEBITDAoverthetenyears)

comparedwith 192million in EBITDA in 2002. This factor has contributed to growth, year after year and on a

continuing basis,making an incisive contribution to the rationalisation of costs in the first years and operating

efficienciesinlateryears,whiletheexpansionofthemarketshasbeenaconstantfeaturethroughoutthedecade.

+14.4%Cagr.

0Introduction



13

Organicgrowthhasalsobeensupportedbythedevelopmentoflargeplants(whichcontributed+83million,equal

to the 18% increase in EBITDA): five new wastetoenergy plants, two thermoelectric power plants, an 80MW

cogenerationpower plant,plus the acquisition of awastetoenergyplant for hazardouswaste, a biomass power

plant, several photovoltaic plants and the electricity distribution network in the province of Modena. The

developmentofthissignificantplantstructurehascommittedtheGrouptoachallenginginvestmentplanwhichhas

graduallystartedtomakeacontributiontoresultsinthesecondpartofthetenyearperiod.Onethirdofthegrowth

inEBITDAhasbeensupportedbyexternalgrowthactivity,whichhascontributedapproximately+151million,thanks

tomergerandacquisition transactionswhich tookplacealmosteveryyearandwhichhave, ineffect,constituteda

constantimprovementfactorintheperiod.

M&Atarget year EV/Ebitda Business Turnover Ebitda NPF Stake(%)

11Companies 2002 multi uti l i ty 1,100.0 192.0 (252.0) 100%

Agea 2004 5.9x multi uti l i ty 144.0 25.0 (15.0) 100%

Meta 2005 7.7x multi uti l i ty 278.0 65.0 5.8 100%

Aspes 2007 5.5x multi uti l i ty 90.0 13.0 (5.7) 42%

Geat 2007 7.0x multi uti l i ty 13.0 2.0 (1.4) 100%

Modena province network 2006 8.2xElectrici tynetwork

51.0 12.0 0.0 100%

SAT 2007 8,5x multi uti l i ty 62.0 12.0 (18.5) 100%

Aimag 2009 6,0x multi uti l i ty 31.0 31.0 (41.0) 25%

AllthecorebusinessescontributedtoEBITDA,eachwithaveragegrowthratesindoublefiguresoverthetenyears.

Thanks to appropriatemanagement,both regulated activities (integratedwater service, collection anddisposalof

urbanwaste,distributionofmethanegas,electricityanddistrictheating)and liberalisedactivities (saleofmethane

gasandelectricity, tradingenergycommodities, treatmentanddisposalofwasteandpublic lighting)havemadea

balanced contribution to company results. The balanced collection of activities, thanks to the various portfolio

businessesinternallyoffsettingtheeffectsrelatedtoexternalvariables(GDP,inflation,taxes,exchangerates,weather

conditions,etc.)hasensuredthattheGroupsconsolidatedresultsfortheentireperiodhavebeensoundlyprotected.

0Introduction



14

Theeffectivenessofthismultibusinessapproachhasbeenparticularlyevidentin2006and2007when,followingan

unusuallymildwinter,thenegativeeffectsontheresultsofgasanddistrictheatingactivitiesweremorethanoffset

bygrowthinotherbusinessareas(unaffectedbyweatherconditions).Therefore,inrecentyears,affectedbythecrisis

inthereferencecontext,growthintheliberalisedactivitiesofwastedisposalhassloweddownasaresultofthefallin

consumptionandproduction levels in Italy; thisdynamichasbeenmore thanoffsetbygrowth inenergysalesand

tradingactivities, inwhich theGrouphascreatedstructureswhichhavebenefited fromenergycommoditymarket

conditionscausedbythemacroeconomiccrisis.

The results for net profit over the ten years,which have fluctuated due to changes in tax laws (and periods of

disruption such as the taxmoratorium, goodwill tax redemption transactions and, recently, the introduction and

subsequentincreaseintheRobinHoodTax)haveincreasedtoover104million,almosttriplecomparedwith2002.

The Groups economic development has been associatedwithmaintaining a solid financial structure,which has

supportedtheexecutionofasignificantinvestmentplanandmergersandacquisitions(approximately4billion).

BalanceSheet(ml)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Total netequity 865 895 1,064 1,484 1,516 1,539 1,579 1,701 1,870 1,879 +9.0%

Netfinancial position 254 444 562 974 1,173 1,432 1,572 1,892 1,860 1,987 +25.7%

Netinvestedcapital 1,119 1,339 1,626 2,458 2,690 2,970 3,151 3,593 3,730 3,866 +14.8%

D/Ebookvalue 0.29 0.50 0.53 0.66 0.77 0.93 1.00 1.11 0.99 1.06 +15.3%

NFP/Ebitda(x) 1.3 1.8 1.9 2.5 2.7 3.2 3.0 3.3 3.1 3.1 +9.8%

EBITDA/OF(x) 13.9 12.8 11.0 9.5 7.9 5.7 5.6 4.8 5.3 5.4 (10.0%)

Thisfinancialsoundnesshasessentiallybeenachievedwithoutthehelpofcapitalincreases(towhichtheGrouponly

has recourse for the inclusionofnewpublic shareholders into theGroup through reserved increases). Financial

leveragehasconstantlyincreasedduringtheyearsoftheimplementationoftheplanforconstructinglargeplantsand

thendecreasedandstabilisedoverthelasttwoyearsthankstothegradualincreaseincashgenerationbytheplants

constructed.Thankstothealliancewithafinancialpartner,withaminorityshareinasubsidiaryandthecontinuous

0Introduction



15

improvementincashflows,theGroupiscurrentlyrenownedforthesustainabilityofitsdebt,whichhasaratioof3:1

withEBITDAand1:1withregardstoshareholdersequity.

Financialdebthasanaveragedurationof9yearsandisfullyprotectedagainsttheriskofinterestratevariations.Itis

alsoaccompaniedbycommittedcreditlineswhichhavenotyetbeenused,equalto280million.

CompanycapitalisationhasalsostrengthenedsincetheestablishmentoftheGroup,withreservedcapital increases

related to themergersand theprovisionofprofit sharing, resulting in shareholdersequityofmore thanEuro1.7

billion,approximately1.5timesthemarketcapitalisationrecordedattheendoftheyear.

0Introduction



16

ThedevelopmentofsustainabilityinHera

Hera Group has developed a multistakeholder approach with a view to guaranteeing sustainability and sound

business operations in the longterm as well. The milestones in this development can be identified as the

developmentofaCodeofGovernancewithatraditionalapproach,basedonaBoardofDirectorswhich,over the

years,hasseenanExecutiveCommittee,an InternalControlCommitteeandaRemunerationCommitteeadded, in

linewiththebestpracticespromotedbytheBorsaItalianacodeofconduct.

TheCodeofGovernance includeswiderangingpowersforthetwoExecutiveDirectors.Thisarrangement,together

withtheconstantreconfirmationofthemandateoftheExecutiveChairmanandtheChiefExecutiveOfficer (which

has changedonlyonce),hasguaranteed thenecessary continuityand sustainability inmanagement for theentire

period.

The revision of the corporate mission in 2005 led to the clear expression of the sustainable approach to the

managementoftheGroup,inheritedfromthetraditionoftheintegratedcompanies,tostrengthenthecommitment

tosatisfyingstakeholdersinthemediumtolongterm.

Thecreationofthecodeofethics in2007and,atthesametime,thesettingupoftheEthicsCommitteewithinthe

BoardofDirectors, led to thepreparationof theGroupsethicalprinciples.The introductionofan incentivebased

remunerationsystemfordirectorsandmanagerialstaff (Balancedscorecardsystem)basedonreachingeconomic

financial targets and environmentalsocialethical KPIs, completed Heras sustainable system, guaranteeing the

implementationoftheapproachandrootingitfirmlyincorporateculture.Companyresultswithregardtothesatisfactionofmajorstakeholdersclearlyshowanimprovementinperformance

from a point of view of quality of service, respecting the environment and employee satisfaction. The proposed

timescale includes the years characterisedby ahomogenous comparisonbetweenKPIs (in termsof consolidation

boundariesandtypeofKPIs).

2005 2006 2007 2008 2009 2010 2011

GrossvalueAdded(mln) 722.1 802.5 817.1 923.8 977.4 1,010.4 1,042.6

PersonnelTraining(Kh.) 18.5 20.1 24.3 33.2 23.0 23.0 28.1Occupational accidents* 50.1 47.5 42.4 37.6 32.6 29.6 23.4Gravityofdamage** 1.1 1.5 1.1 1.2 1.8 1.0 0.5CustomersCustomersatisfactionindex(max100/100) 67 67 65 67 69 69 70RispectofAEEGstandards 95% 95% 95% 96% 98% 99% 99%Gas EmergencyService(requests satisfiedwithin60min.) 95% 96% 97% 96% 97% 98% 99%Avgwaitingtimecall center(sec.) 70 35 46 66 33 34 37Avgwaitingtimecustomerdesk(min.) 27 24 21 19 15 15 11AmbienteEnergyfromrenewablesources (incl.51%fromWTE) 51% 51% 51% 54% 63% 68% 71%WTEemissionratio/respectofbylawstandards (best

0Introduction



17

Specialmention shouldbemadeof theenvironmentalperformance indiceswhich reflect theeffortmade in these

years to gradually decrease the effect of environmental impacts (in terms of emissions into the atmosphere of

methanegasfromthevariousactivitiesoftheGroup)inthelightofthecontinuousincreaseinvolumesofactivity.

GHGemissions(ton CO2 eq.) 2007 2008 2009 2010 2011 Cagr.

WTE 0.26 0.35 0.42 0.38 0.42 +12.3%

Landfil l 0.55 0.40 0.38 0.41 0.38 (8.7%)

Vehicles 0.06 0.06 0.06 0.06 0.06 +0.0%

Wastemanagement 0.87 0.81 0.86 0.85 0.86 (0.3%)

Volums (kton) 4,398 5,158 5,114 5,703 5,107 +3.8%

Sortedcollection/recycling(kton) 620 788 840 937 965 +11.7%

Percentageofsortedurbanwaste 36.0% 42.0% 44.8% 47.8% 50.5% +8.8%

WTEElectricity(GWh) 328 392 476 526 585 +15.5%

DistrictHeating 0.12 0.10 0.20 0.24 0.24 +20.2%

Heatdistributed(GWht) 392 423 476 534 499 +6.3%

Gasnetworkleakage 0.31 0.33 0.33 0.37 0.36 +3.5%

Gas distributed(mcm) 2,150 2,370 2,334 2,504 2,389 +2.7%

Electricityconsumptions 0.23 0.23 0.24 0.23 0.23 +0.0%

Waterdistributed 241 257 257 251 254 +1.3%

Headquarter 0.004 0.004 0.005 0.005 0.005 +4.2%

Totalemission(direct&indirect) 1.49 1.48 1.68 1.70 1.70 +3.3%

The sustainability reporting system, prepared and approved by the Board of Directors at the same time as the

economicfinancial statements, underlines the importance attributed to them in corporate governance. Heras

sustainablemanagementsystemhasreceived importantrecognitionand is includedamongstthebestpractices in

Italy.

0Introduction



18

Developmentofthebusinesses

Heraistheleadingdomesticoperatorinthewastemanagementsectorthroughthequantityofwastecollectedand

treated.

Wastecollectionactivity regulatedbyconcessioncontractshasdevelopedover theyears through the inclusionof

companies, and now covers all the areas fromModena to PesaroUrbino. Thanks to constantly raising customer

awarenessandsupportinglocalinstitutions,theHerawastecollectionsystemisbasedonrecyclingthemajority(over

50%)ofwastematerials(glass,paper,plasticandmetalsandbiomass)andonthedevelopmentoftheenergycontent

oftheremainingpart,throughwastetoenergytreatmentsandextractionofbiogases.

29.3% 30.4% 30.9% 31.2%36.0%

42.0%44.8%

47.8%50,5%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Sortedcollection(%)

Thiseffectivesystemhasmadeaconsiderablecontributiontothedecreaseintheamountofurbanwastedisposedof

directlyinlandfills,therebyreducingsoilpollution.

Theactivitiesofwastetreatmentanddisposalhavebenefited,overtime,fromsignificantexpansionandrenovation

of the plant structure. Themultiyear plan for themodernisation of large plantswas completed in 2011. Landfill

capacitywasalsoexpandedandthebiomasstreatmentplants,alreadypartoftheGroupsassets,wereupgraded.

0Introduction



19

PlantsInstalledcapacity

(MW)Authorizedtreatment

capacity(t)Wastetreated

(t)

ForlWTE 10.7 120,000 115,741

RavennaWTE 6.2 56,500 42,118

Rimini WTE 13.0 150,000 114,375

ModenaWTE 24.8 240,000 176,295

FerraraWTE 12.9 130,000 129,837

FEAWTE 22.0 220,000 201,020

RavennaF3WTE 4.2 40,000 39,955

Biomass plantEnomondo 13.7 114,000 103,690

Total 107.5 1,070,500 923,031

Today,thestructurecomprises79plants,capableofsatisfyingwastetreatmentanddevelopmentrequirementsofall

kinds. It is a part of the Groups excellence on a national scale and hasmade a contribution to supporting the

considerable expansion in the volume of activities over the tenyear period and also satisfying the complex

requirementsofdisposalanddrainageatproductionsites.

Totalerifiutidamercato('000ton)

2,490 2,3932,676

3,2553,502 3,437 3,413 3,325 3,473 3,382

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

CAGR+3,5%

Withthegenerationofapproximately0.7TWh,theGrouphasbecomeoneofthemainoperatorscommittedtothe

recoveryofelectricityfromwasteandistheonlycompanyinrecentyearsthathasmanagedtobuildandactivatefive

newWTEplantsinItaly.Thisoperationhasledtotheinstalledcapacityreachingapproximately100megawatt,with1

milliontonnes/year.

InthelightoftheinsufficientinfrastructuresinthewastetreatmentsectorinItaly,whicharetypicalandculminatedin

the waste emergency in Campania, Sicily, Calabria, Puglia and Lazio, invitations to tender were put out for the

constructionofnewWTEplants in several Italian regions.At the endof 2011Herawas awarded the contract to

purchasea40%stakeintheconstructionandmanagementofaWTEplant,producing140thousandtonnesayear,in

theprovinceofFlorence,andwascommittedtoincreasingitsmarketshareinordertoputtheuniqueexpertiseithas

gainedinthemarkettogooduse.

0Introduction



20

In order to best rationalise the business in linewithmarket logics, in 2010 theHeraGroup set up the company

Herambientewhichbecame responsible forallwastedisposal, treatmentand recovery liberalisedactivities. In the

same year, the Group opened up the Herambiente share ownership to Eiser, an infrastructure investment fund,

therebyguaranteeingfinancialsupportforthefuturedevelopmentofthecompany.

(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 288.4 284.6 362.3 481.7 539.7 553.6 632.1 642.1 703.1 740.1 +11.0%

Ebitda 58.2 62.3 85.7 130.5 150.5 156.3 186.3 187.3 195.1 194.2 +14.3%

Ebit 15.9 20.6 47.3 63.9 73.8 81.8 100.3 92.3 86.9 84.6 +20.4%

Growth intheWasteManagementarea,whichsupportedthegrowthoftheGroupsresultsoverthetenyears,has

causedEBITDA toalmostquadruple.Thedevelopmentdynamics saw resultsover the last two years stabiliseasa

result of the economicfinancial crisiswhich affected industrial and consumer businesses in Italy. In spite of the

difficultmarketcontext,thewastemanagementarearecordedadoubledigitaveragegrowthrate,higherthanthe

Groupaverageforthetenyearsunderconsideration.

Sinceitsinception,Herahasalsooperatedinthefieldofintegratedwaterservicemanagement,fromthedistribution

ofdrinkingwater to thecollectionandpurificationofwastewater,andhas theexclusive right to theseservices in

sevenprovinces inEmiliaRomagnaand thenorthofLeMarche,basedon longtermconcessions (onaverageuntil

2022).

Followingthemergersthattookplace,thephysiologicaldevelopmentofactivitiesandinvestmentsmade,theGroup

has essentiallydoubled itsnumberof customers,upgraded thepurificationplants, expanded thedistribution and

seweragenetworksbyaround10thousandlinearkmandincreasedthevolumeofactivitiesbyanaverageannualrate

of4%.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Customers ('000) 617 640 800 914 982 1,015 1,154 1,166 1,173 1,184

Waternetwork(Km) 17,900 17,900 18,465 23,919 24,508 24,623 26,118 26,296 26,535 26,772

176 180203

228 244 241257 257 251 254

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Volumssold(mlmc)CAGR+4,1%

0Introduction



21

Thewaternetwork,likeallGroupnetworks,iscurrentlycontrolledbyasingleremotecontrolsystem,createdin2007

anddeemed tobeoneof themost advanced inEurope.Remotemonitoringofnetworkshasmade itpossible to

optimisemaintenanceandsupervisionprocesses,guaranteeinggreaterefficiencyandlowerrunningcosts.Thanksto

these systems and the modernisation of the networks, recorded performance (in terms of average leaks per

kilometre)hasbeenamongstthebestdomestically.

The entire environmental control system, from the analysis of thewater before distribution to thewastewater

collectionandpurification systems,has recorded importantprogressandguaranteedahighqualityof serviceand

maximumsafetyforcustomers.

TheGroupisthesecondmostimportantoperatorinItalybysalesvolumes,withacontinuousandextensivepresence

inthereferencemarket.

(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 240.7 248.0 304.9 346.2 398.4 407.6 459.0 583.7 579.2 596.7 +10.6%

Ebitda 53.6 66.4 76.5 94.3 107.5 118.5 130.2 131.4 142.0 150.2 +12.1%

Ebit 20.7 27.8 39.4 50.3 59.4 57.1 71.7 59.1 69.7 73.0 +15.0%

Fortheentiredecade,HerasresultshaveshownconstantgrowthofEBITDA;runningcostsandoperatinginvestment

costshavealsobeencoveredwithatrendtowardsacashbalance.

Thereferendumof June2011repealed theregulationgoverning thechargeonreturnon investment,although the

MinisterialDecreeof1August1996,whichdefines thestandardised tariffmethod for the integratedwaterservice

(DiPietroMinisterialDecree), remains in force.The resultinguncertaintyshouldhoweverbeovercome following

Law214/2011,whichgivestheElectricityandGasAuthoritythetaskofdefiningthetariffstructure infuture.Inthis

context,however,theHeraGroup isapplyingtheagreementsdefinedwiththe individual localauthorities,someof

whichexpireon31December2012andothersinsubsequentyears.

TheGroupalmostentirelycoversthereferenceterritory inthegassectoraswell.This includesdistributionservices

andsalesservices,plusmethanegastrading,aswellasthemanagementofdistrictheating.Heraiscurrentlyamong

theleadinglocalfirmsandthefourthnationallyintermsofsalesvolumes.Inspiteoftheliberalisationofthesales

market, theGrouphasmaintainedanddeveloped itsoriginal customerbase, reaching1.11millionusers, inother

wordsalmostdoublingitintenyears,thankstosuccessivemergers.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Volumsdistributed(ml m3) n/a 1,661 1,912 2,399 2,312 2,150 2,370 2,334 2,504 2,389

Customers ('000) 668 700 799 940 1,003 1,019 1,066 1,071 1,072 1,115

Gasnetwork(Km) 7,880 8,261 8,261 11,804 12,294 12,377 13,186 13,342 13,514 13,734

0Introduction



22

Saleshavealsomorethandoubledinthisperiod,withvolumeshandledreachingmorethan3.3billioncubicmetres.

Thedistributionnetwork,developed throughdirect investment and the acquisitionof companies,has reached14

thousandkm.

1,444 1,6342,062

2,7862,408 2,337 2,493

2,803 2,9143,321

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Gasvolumessold(mlm3)

CAGR+9.7%

The uncertain situation has led the Group to pursue prudent and flexible procurement policies, taking the

opportunitiesthatarisefromtheslowprocessofopeningupanddevelopingrawmaterialimportcapacitiesandthe

internationalandItalianwholesalemarkets.Herahasamultiyeargasimportingcapacityofalmost500millioncubic

metres per year through the TAG gas pipeline (Russian gas). It has also gradually diversified internal (domestic)

sources, striving formaximum flexibility through annual agreements (multiyear contracts are currentlypresent in

10%of totalsupplies).Lastly, therehasbeenanorganisationalbreakdownwhichhas led to theestablishmentofa

sales company (Heracomm) and a trading company (Heratrading), thanks to which Hera has established direct

operationalactivities inBaumgartenandatotherEuropeanhubs.ThissupplyportfoliostructurehasprotectedHera

from the risksofpurchasing predeterminedmaterialsmany years ahead and, in recent years,has allowed it to

derivebenefitfromthegrowingavailabilityofmethanegasinthecountry.Anothermeansofsafeguardingsupplies,

setagainstabackgroundofmaintaininga lowriskprofile,hasseenHerapurchaseastakeofmorethan10%ofthe

capital ofGalsi, a special purpose vehicle for the construction of a gas pipelinewith a capacity of 8 billion cubic

metres,whichwillgodirectlyfromAlgeriatoItaly.Theprecontractedcapacitycomestoapproximately1billioncubic

metresperyear,aquantitythatallowsHeratofocusondiversifyinggassupplieswithathirdfromNorthAfrica,athird

fromEuropeandathirdfromItalianoperators.Salesvolumesrelatingtodistrictheatinghavealsoalmostdoubled.Asisknown,thisisawayoftransformingenergy

intoheatmoreefficientlyandwithlessimpactontheenvironmentthanindependenthousingheatingsystems.

282

434 470 426 392 423476

535 499

2003 2004 2005 2006 2007 2008 2009 2010 2011

Heatdistributed(GWht)CAGR+7.4%

0Introduction



23

Thedistrictheatingnetworkhasbeendeveloped inurbanareas intheterritorynearthe largewastetoenergyand

cogenerationplantsbuiltinthelasttenyears,therebyexploitingheatsourceswhichwouldnototherwisebeused.

(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 473.1 514.1 589.8 871.2 987.6 922.0 1,216.4 1,290.7 1,237.1 1,490.2 +13.6%Ebitda 70.4 99.7 106.0 118.5 116.1 104.7 143.8 174.4 193.9 208.7 +12.8%

Ebit 35.9 66.1 81.7 85.9 77.9 60.6 82.6 111.9 135.0 149.2 +17.1%

Economicresultshaveconstantlyimproved(withtheexceptionof2007asmentionedpreviously)bringingEBITDAto

over209millionwhich istripletheoriginal figure in2002.Thegrowthofthisresult ismainlydueto investments,

efficiency,mergersandacquisitionsand,lastly,thenotedflexibleupstreamstructure.

Thedual fuel commercial strategyhas allowed the electricitymarket todevelop at sustained growth rates,both

through crossselling activities to existing customers and through expansion into newmarkets. The strategy has

protectedexistingcustomers inthegassector,asshownpreviously,andplacedHeraamongthetopeightdomestic

operators,withannualsalesofapproximately10TWh,witha tenfold increase in thecustomerbase toalmost500

thousand(comparedwith49thousandatthebeginningin2002).

948 1,6282,282

3,755 3,1334,335

5,075

7,047 7,744

9,996

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Electricitysold(GWh)

CAGR+29.9%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Volums distributed(Gwh) 509 536 1,507 1,880 2,248 2,263 2,117 2,238 2,304Customers ('000) 49 50 54 177 264 273 287 335 383 482 28.9%Electricitynetwork(Km) 1,410 1,423 1,429 5,586 6,521 9,363 9,528 9,659 9,743 9,942 24.2%

Commercial development in the electricity sector has been accompanied by a parallel cautious development in

electricitygenerationforthesustainablemanagementofcustomerdemand.Overtheyears,Herahasbeeninvolved

intheconstructionoftwobaseloadnewgenerationCCGTplants inCampania(anareawithapoor infrastructure),

witha capacityof1,200MW.Theseplantshavebeenbuilt througha jointventurewith thepurchaseofminority

stakesbyforeignpartnersofinternationalstanding.Therelativelysmallfinancialcommitmenthasallowedaccessto

cost price electricity, while the signing of special agreements (PPA), which include flexible supply conditions,

guaranteealowriskprofile.SincetheestablishmentoftheGroup,ithashelda5.5%stakeinTirrenoPoweraspartof

thisinitiative,throughthecompanyEnergiaItaliana.

In2008,an80MWgascogenerationplantwascompletedinImola,whichguaranteesselfsufficiencyfortheprovince

ifthereisanationalgridblackout.Lastly,Herasgenerationfacilitiesincludedthedevelopmentofmorethan100MW

of cleanenergy fromwastetoenergyplants,a further13MW frombiomass thermoelectricplants,aswellas the

0Introduction



24

recentdevelopmentofsmallbiogasandphotovoltaicgenerationplants,whichcompletethediversifiedportfolioof

theGroup.TheproductionofelectricitydestinedforHeraenduserscoversmorethan30%ofcustomerdemand;theremaining

partispurchasedonthemarketwithawidelydiversifiedportfolioofsupplies.

Electricitydistributionactivitieshaverecordedsignificantdevelopmentsincetheirestablishment.Themergerwiththe

Modenamultiutility (Meta S.p.A.) in 2005 and the acquisition of the Enel electricity network in the province of

Modena have contributed to the expansion of the network to almost 10,000 kilometres which, thanks to the

investmentsmade,isfullyequippedwithelectronicmetersandmanagedremotelythroughasingle,stateoftheart

remotecontrolcentre.

(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 78.4 126.6 205.0 396.7 389.4 989.2 1,557.3 2,032.5 1,468.3 1,585.2 +39.7%

Ebitda 9.3 8.2 7.4 22.5 25.3 42.7 54.4 53.0 59.8 73.2 +25.8%

Ebit 6.0 2.8 5.0 12.2 10.2 9.8 22.6 26.3 26.6 39.7 +23.4%

Thestrongimpetusofmarketandtradingactivities,themergerwithMetaofModenaandthesubsequentacquisition

oftheEnelnetworkintheprovinceofModenain2006,hasledtoEBITDAincreasingmorethanseventimesoverin

tenyears.

0Introduction



25

Developmentoftheownershipstructureandremunerationofshareholders

Thepublicownershipstructurehasmainlydevelopedasaresultoftheinclusion(throughreservedcapitalincreases)

ofnewpublicshareholdersfollowingvariousmergers.

786,5

1.115,1

+6,7 +46,7

+176,9 +16,0+82,3

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sharecapitalevolution

(Geat) (Agea)(Meta)

(SAT) (Gas network)

Today,publicshareholdersarerepresentedby187referenceterritorymunicipalitiesandtheyhold61%ofHeras

sharecapitalofordinaryshares,madeupof1,115,013,752ordinaryshares.

Freefloat29.8%

Bankfoundationsagreement9.4%

MunicipalitiesofFerraraProvince3.3%

MunicipalitiesofBolognaProvince18.8%

MunicipalitiesofModenaProvince12.7%

MunicipalitiesofRomagnaProvinces26.0%

Shareholdingasat31Dec.2011

Theteamhasasignificantpresence(approximately16.2%)ofinternationalinvestorsandisdenotedbythepresence

(approximately 3.5%) of private investors (around 10 thousand people) resident in the reference territory (and

thereforeHeracustomers)whowereinvolvedintheGroupsplacementontheStockExchange.

0Introduction



26

Since2006,Herahasconductedasharebuybackprogrammewithamaximumof15millionshares,foratotalamount

of60million.Thisprogrammeaimstofinanceanyopportunitiestobuysmallcompaniesandtorectifyanyunusual

movementintheGroupssharepricecomparedwithitsmajordomesticcompetitors.TheShareholders'Meetingon

29April2011renewedtheplanforthepurchaseoftreasurysharesforafurther18months,uptoamaximumtotal

amountof60million.Heraheldapproximately9.7milliontreasurysharesinitsportfolioasat31December2011.Over the course of the ten years, remuneration for shareholders has always involved constant or increasing

dividends,evenatthemostdelicatetimesfollowingmergersorduringthemacroeconomiccrisisofrecentyears.

27.6

42.047.9

71.281.3 82.5 82.5

88.999.9 100.4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Totaldividends(m)

CAGR+15.4%

*TobeapprovedbytheShareholders'MeetingofApril2012

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Total dividends (ml) 27.6 42.0 48.2 71.2 81.3 82.5 82.5 88.9 99.9 100.4DPS() 0.035 0.053 0.057 0.070 0.080 0.080 0.080 0.080 0.090 0.090PayOutratio(onHeranetprofit) 83% 85% 60% 70% 90% 85% 87% 125% 85% 96%

*TobeapprovedbytheShareholders'MeetingofApril2012

Intheperiodunderconsideration,thedividendpersharewentfrom0.035to0.09centsandtheBoardofDirectors

proposeddividendfor2011confirmsthatof2010.

0Introduction



27

Thesharepriceoverthetenyearperiodisillustratedinthegraphbelow.

Hera,12.3%

FTSEAllshares,37.1%

LocalUtilities,21.9%

100%

50%

0%

50%

100%

150%

200%

26/06/20

03

17/10/20

03

13/02/20

04

07/06/20

04

27/09/20

04

19/01/20

05

16/05/20

05

06/09/20

05

28/12/20

05

21/04/20

06

14/08/20

06

05/12/20

06

02/04/20

07

26/07/20

07

16/11/20

07

14/03/20

08

09/07/20

08

30/10/20

08

26/02/20

09

23/06/20

09

13/10/20

09

08/02/20

10

02/06/20

10

22/09/20

10

14/01/20

11

10/05/20

11

31/08/20

11

21/12/20

11

PerformanceofHerasharesinceIPO

Hera FTSEAllshares LocalUtilities

After listing (placementpriceof1.25),thesharesregisteredconstantgrowth,whichbeganandcoincidedwiththe

announcementofgoodresultsin2003(anincreaseinEBITDAof25%witha50%increaseinnetprofit).Thepositive

trend,oftenabove the sectoraverage,was supportedbygood financial statementsandbusinessplansmarkedby

growthandmergers.Thesharepricereacheditshighestvaluein2007of3.4.Theworldfinancialcrisis,whichbegunthesecondhalfof2008(thecollapseofLehmanBrothers)andcontinuedfor

mostof2009,alsohadseriousrepercussionsonglobalfinancialmarketsthroughout20102011andcreatedagreat

dealofuncertaintyamongoperators.ThecrisisthenturnedintoasovereigndebtprobleminseveralnearbyEuropean

countrieswhich reached levels felt to be excessive,worrying investors; the crisis specifically affected Italywith a

furthernegativeemphasisinthesecondhalfof2011.ThejointactionsoftheCommunityinstitutions,togetherwith

rigorousfinancialpoliciesimplementedintheEuropeancountriesinvolved,havestillnotmanagedtorestorefaithin

thefinancialmarketwithareturntonormalconditions.Inthisdifficultfinancialmarketcontext,theEuropeanutility

sectorsufferednegativemarkettrendsinrecentyears,recordingaperformancethatwasslightlyworse(around5%)

in 2011 as a result of factors specifically related to the sector (tax on nuclear fuel, the June referendum for the

abolishment of thewater tariff system in Italy and the increase in the RobinHood Tax introduced by the Italian

Government).TheseaspectsalsoaffectedtheHerashareprice, inspiteofthefactthattheir impactontheGroups

fundamentalswas less important, comparedwith that on other operators in themarket, thanks to the prudent

strategiespursuedbytheGroup.

0Introduction



28

Hera29.7%

FTSEAllshares24.3%

LocalUtilities32.3%

40%

36%

32%

28%

24%

20%

16%

12%

8%

4%

0%

4%

8%

12%

16%

30/12/20

10

14/01/20

11

28/01/20

11

11/02/20

11

25/02/20

11

11/03/20

11

25/03/20

11

08/04/20

11

26/04/20

11

10/05/20

11

24/05/20

11

07/06/20

11

21/06/20

11

05/07/20

11

19/07/20

11

02/08/20

11

17/08/20

11

31/08/20

11

14/09/20

11

28/09/20

11

12/10/20

11

26/10/20

11

09/11/20

11

23/11/20

11

07/12/20

11

21/12/20

11

Herasharein2011

Hera FTSEAllshares LocalUtilities

TheFTSEItaliaAllShareIndexclosed2011withaperformancedown24.3%comparedwiththestartoftheyear,while

theItalianLocalUtilityindexclosedinthesameperioddownmorethan32%.In2011,butalsoforalmosttheentire

tenyearperiod,Herastockoftenfaredbetterthanlocalutilities,withanofficialpriceatthelasttradingsessionofthe

StockExchangein2011of1.096,inotherwordsanegativeperformanceof29.7%.Herasbestrelativeperformance

(compared with the local utility sample) coincided with the publication of good results for quarterly financial

statementsandbusinessplans.Theaveragedailytrading levelstoodat1.3millionshares,withanaveragevalueof

1.8millionin2011.

TheHeraGroupmarketvaluationattheendof2011involveda2011EV/EBITDAmultipleof4.9,a2011P/Eratioof

slightlymorethan11andadividendyieldof8.4%.Marketcapitalisation,equalto70%ofthebookvalue,doesnot

seemtofullyreflecttheimprovedfinancialsoundnessoftheGroupcomparedwithitscompetitors,theprospectsfor

furthergrowth forecast inthebusinessplanandtheopinionsof financialanalysts,whohaveexpressedanaverage

valuationapproximately36%higherthanattheyearend.

Since its listing,theGrouphaspromotedand improvedrelationswithfinancialanalysts.In2002stockcoveragewas

representedby fourstudies,onlyoneofwhichwas issuedbyan internationalbroker.Overtime,thiscoveragehas

increasedto14studies,withinternationalbrokerssuchasCitigroupandMerrillLynch.Inspiteofthefinancialcrisisin

theseyearshaving causedmajor restructuring inbanks,Hera stillenjoysextensive coverage from11 independent

studies,halfof them international:AlphaValue,BancaAkros,Banca IMI,Centrobanca,Cheuvreux,DeutscheBank,

Equita,Exane(BNPParibasgroup),Intermonte,KeplerandMediobanca.Inaddition,theBancaIMI,Cheuvreux,Kepler

andDeutscheBankanalystsincludeHerastockamongthebestinvestmentopportunitiesfor2011.Attheendof2011,

Hera includes nine Buy/Outperform evaluations, two Hold/Neutral opinions, and no negative ratings. The 1218

monthaverage stock targetprice,expressedbyanalystevaluations, is1.48per share.At theendof2011,Banca

AlettibeganastudyintoHera.Withthepublicationofitsfirstreportatthebeginningof2012,BancaAlettipreferred

Hera stockoverothers in the localutility sector,by virtueof the sustainabilityof theGroups financialdebt (also

confirmedbyresearchintothesectorbyCheuvreux)anditsdividenddistributionpolicy.

0Introduction



29

Herastock is included inmanySRI indices: ithasbeenpartof theKempenSNSSmallerEuropeSRI Index formany

years.In2008itwasalsoincludedintheECPIEthicalIndexEuro.In2009itwasincludedintheECPIEthicalIndexEMU,

madeupof105companiesfeaturingsustainabilityconsistentwiththeECPISRImethodandlistedontheEUmoney

market.

The Groups main means of communication with shareholders and stakeholders is undoubtedly its website

www.gruppohera.it. Over the course of the tenyear period, the section dedicated to shareholders/financial

operators(InvestorRelations)hasbeencontinuously improved,withthe implementationof interactivetools,timely

updatesandpublication inrealtimeofpricesensitivereleasesandcompanydocuments.For the thirdconsecutive

year,HerasonlinefinancialcommunicationhasbeenrecognisedbytheHallvarsson&Halvarssonwebrankinginthe

nationalclassamong themajordomestic listedcompanies: in2011 theGroupswebsite took thirdplace,aheadof

manylargerItalianorganisations.

Since its establishment in 2002, Hera has placed special emphasis on direct communication with investors,

culminating in a Road Show introducing the stock in Italy and abroad (United Kingdom, France, Switzerland, the

Netherlands,Germany,Austriaand theUnitedStates).Thanks to thepositive feedbackand the interest shownby

foreign investors,meetingswerealsoarranged, from2005onwards,withFinnish,SwedishandDanish investors. In

2011Hera intensified itsdialoguewithEuropeanandAmerican investors,withanaverageof350contactsperyear.

Timelinessofreportsandtransparencyincommunicationhasbeenimprovedfurther,alsoinresponsetothegrowing

senseofuncertaintyfeltbystakeholdersatthistimeofdeepdisruption.

0Introduction



30

NoticeofcallingoftheShareholdersMeeting

Shareholdersarecalledto theOrdinaryShareholdersMeeting intheAuditoriumof theCNRCONGRESSCENTREat

101ViaGobetti,Bolognaon27April2012at10.00am,onsinglecall,todiscussandresolvethefollowingmatters:

Agenda

1. Financialstatementsasof31December2011,DirectorsReport,proposaltodistributetheprofit,andreportoftheBoardofStatutoryAuditors:consequentresolutions;

2. Presentationofthecorporategovernancereportandremunerationpolicydecisions;3. Renewal of the authorisation to purchase treasury shares and procedures for arrangement of the same:

consequentprovisions.

Thefulltextoftheproposedresolutions,togetherwiththerelatedreportsandthedocumentswhichwillbeputto

themeetingareavailable to thepublicat thecompanyheadquarters,atBorsa ItalianaS.p.A.andon theCompany

website(www.gruppohera.it)underthetermsofthelaw.

Righttoattendandparticipatebyproxy

Thosewhoareeligible toattend the ShareholdersMeetingare thosewhoareentitled to voteat theendof the

accountingdayof18April2012andthosefromwhomtheCompanyhasreceivedtherelevantnotificationfroman

authorised intermediary.Thosewhoareonlyshareholdersfollowingthisdatewillnothavetherighttotakepart in

andvoteatthemeeting.

EachpersonentitledtotakepartcannominatearepresentativetoattendtheShareholdersMeeting,pursuanttothe

law,withtherighttousetheproxyformavailableontheCompanywebsiteforthispurpose.Thedetailsofhowthe

companycanbenotifiedelectronicallyaboutproxiesarealsoavailable.

TheCompanyhasappointedServizioTitoliS.p.A.asarepresentativewhomshareholderswithvotingrightscan,by25

April2012,nominateasaproxywithinstructionsforvotingonallorsomeoftheproposalsontheagenda.Theproxy

for theabovementioned representativeshouldbeconferred in theappropriatemannerusing thededicatedproxy

formavailableontheCompanywebsitewww.gruppohera.itTheproxyfortheappointedrepresentativeisnoteffectivewithregardtoproposalsforwhichvotinginstructionshave

notbeengiven.

Othershareholdersrights

Shareholderscanaskquestionsaboutitemsontheagendabeforetheactualmeeting.

Shareholderswho,evenjointly,representafortiethofthesharecapital,canask,within10daysofthepublicationof

this notice, for the inclusion of subjects to be discussed indicating the further topics proposed in the question.

Questionsshouldbepresentedinwriting.

A detailed study of these rights and themethods for their exercise can be consulted on the Companywebsite

www.gruppohera.it.

Bologna,26March2012

TheChairmanoftheBoardofDirectors

(TomasoTommasidiVignano)

1Directors'report



31

1.01 Introduction

ThetenthfinancialstatementspublishedsincetheestablishmentofHeraGroupshowgrowthandperformance in

2011 that are unusual set against the background of the difficult economic context and compared with other

operatorsintheindustry.

The financial crisiswhichbegan in2008 culminated in2011 in a sovereigndebt crisis in severalnearbyEuropean

countries,which experienced times of political instability and, in the case ofGreece, controlled default. These

systemic crises had serious repercussions on the economic situation through the banking systems tightening of

lendingtobusinessesandconsumers.InItalythisslowingdownoftheeconomyhadprofoundeffects leadingupto

the first signsof recessionwhichappearedat theendof2011.The2011 seasonallyadjustedGDP figures for Italy

stood at +0.5% comparedwith +1.2% for 2010 (with negative figures in the last two quarters of the year)with

forecastsofnegativegrowthratesforthecurrentyear.IndustrialproductionlevelsinItalyhavedecreasedto5.0%in

2011 (comparedwith+5.5% in2010),exportshave sloweddown (+11.4% comparedwith+15.7% in2010),witha

similarsituation for imports (+8.9%comparedwith+22.6% in2010).Thissituationhasaffecteddemand forenergy

services,which recorded adecrease in demand for gas of 6.3% (comparedwith +4.8% in 2010),whichwas also

influenced by the warmer weather during the year, and a slowing down in the demand for electricity (+0.6%

comparedwith+1.8%in2010).

In spite of this difficult context, Hera continued to consistently pursue its strategies which led to sustained

improvementsinresultsinalmostallbusinessareaswithoutinterruptionsince2002.

In2011,theliberalisedmarketsstrategyallowedconsiderablegrowthinsalesintheElectricitysector,withvolumes

increasingbyalmost30%(goingfrom7.7TWhinthepreviousyearto10.0TWh)forthethirdconsecutiveyear,with

volumesdoublingoverthreeyears.This increasewassupportedbyanexpansionofthecustomerbase,whichwent

from383thousandtoalmost500thousand,reachinga figuretentimeshigherthantheoneattheoutset in2002.

HeraGroupwasabletoleverageefficientsalesandaftersalesservices,whichresultedinahighdegreeofloyaltyfrom

existing customers and promoted effective crossselling actions. At year end 2010, the Groupwas awarded the

contractforsupplyingelectricity in20112013toserviceprotectioncustomers intheregionsofLombardy,Tuscany,

Lazio,Molise,AbruzzoandPuglia,gainingnew sharesof themarket in theprocess.Theexpansionof theGroups

electricityrelatedactivitiesproducedgrowth insectorEBITDA in2011thatwasapproximately7timestheresult in

2002.

In theGasmarket too, theGroups sales volumes increased in2011by14% (3.3 comparedwith2.9billion cubic

metres in2010),offsettingtheeffectsofthewarmerweatherconditionsthroughanincrease intradingactivity(1.3

comparedwith0.7billion cubicmetres in2010) and a slight growth in the customerbasewhichwent above1.1

millionhouseholds (+4%).Profitability in theGassector increased thanks toprocurementstrategies,whichallowed

greatermarginsbenefitingfrommarketconditions.

1Directors'report



32

Volumesintheurbanandindustrialwastetreatmentmarketdecreasedinthesecondpartoftheyearasaresultof

theproduction systemandconsumption crisis.Thanks to its strongmarketposition, theGroupmanaged topartly

mitigatetheeffectsofthenegativeperformanceofthemarketbygainingnewcustomerswhichmeantthattheyear

endedwithafallinvolumesof2.6%.Measuresaimedatimprovingtheefficiencyofthewastemanagementsystem

continuedthroughouttheyear:separatedwastecollectionaccountedforashareofmorethan50%ofurbanwaste

(previously47.8% in2010) and the increase inwastetoenergy treatment grewby15.3% (going from800 to923

thousandtonnes);thecontributionofthenewFaenzabiomassthermalpowerplant(ajointventurewithCaviroand

consolidatedprorata intheaccountsat50%) isalsoofnote.Themeasurestaken ledtoanessentiallystableresult

comparedwith2010inEBITDA,confirmingtheunbrokengrowthtrendrecordedinallthefinancialstatementssince

2002.

Theplantdevelopmentstrategy,aimedatconsolidatingfreemarketactivities,continuedwithelectricityproduction

initiatedatthenewRiminiwastetoenergyplantandtheabovementionedFaenzaplant.Expertisegainedoverthe

years, both in the construction of plants and themanagement ofWTE, has led to theGroup being awarded the

contract,attheendoftheyear,fortheconstructionandmanagementofaWTEplantintheprovinceofFlorence,in

partnershipwithlocaloperatorQuadrifoglio.

Energydistribution,urbanwastecollectionandwaterservicesactivitiesmanagedunder licence,which represent

52%of theGroupsEBITDA, contributed to the improved results in2011,whichwere alsohelpedby investments

madeandbyadjustmentstothetariffspaidbytheAuthorities.Specificallyforgasdistribution,thedomesticAuthority

definedan income levelbasedonamore consistent valueof capital invested,while forwater servicesandurban

waste collection services the tariffs setwere in linewithexistingagreementswith localAuthorities.Theefficiency

measuresundertakenin2011continuedtomakeacontributiontotheimprovementinannualresults,reaffirmingthe

growthpaththattheGrouphasbeenonsinceitsestablishment.

The2011resultsalsobenefitedfromthedevelopmentstrategyforexternallineswhich,attheendoftheyear,ledto

theconsolidationby incorporationofSadoriGas (asalescompany).Thistransactionmade itpossibletostrengthen

theGroupsmarketpositioninLeMarche.

OperationsfortheyearproducedapositivefreecashflowafterhedgingofinvestmentsandM&Aoperations,which

led toanet financialdebtwhichwas lower than the thirdquarterof2011,almostentirelyhedgedbyshareholder

equity(debttoequityratioof1:1)andwitharatioofapproximately3:1comparedwithEBITDA.Thesoundnessofthe

financialstructureisevenmoreimpressive,takingintoconsiderationtheextendedaveragedebtmaturity(around9

years)andtheamountofavailableandcommittedcreditlines(approximately280million).

Thefinancialstatementsfortheyearshowgrowth inoperatingresults,evenallowingfortheconservativepolicyof

reservesandincreaseddepreciationandamortisationofinvestmentsincurredaspartoftheplantdevelopment.Net

profitafterminority interests,recordedgrowth inahomogenouscomparisonwith the figures for2010 (bothyears

beingfreedbythepositivenonrecurringeffectsofhigherredemptiontransactionsnotfiscallyrecognised).

The 2011 accounts are a sound confirmation of the expectations set out in the fiveyear plan announced to the

financialmarkets inNovemberandconfirmthevalidityofthestrategicchoicestaken inrecentyears. Inthe lightof

the soundnessof theGroupseconomicand financial indicators, theBoardofDirectorshasdecided topropose a

dividendof0.09persharetotheShareholdersMeeting,inlinewiththepreviousyearandcontinuingthepolicythat

theGrouphaspursuedsinceitsestablishment.

1Directors'report



33

1.02 Corporateevents

Corporateevents

TheGroupcontinuedtostreamlineitscorporatestructurein2011.Thisinvolvedliquidatingtwocompanies,removing

fivecompaniesfromtheCompaniesRegister,withdrawingfromtwocompanies,increasingequityinvestmentsintwo

companiesandcarryingoutthreemerger/transformationoperations.

ThemainM&Atransactionswereasfollows:

EnomondoS.r.l.

On16February2011,HerambienteS.p.A.acquiredfromCaviroSocietCooperativaAgricolaanadditional10%ofthe

sharecapitalofwastetoenergycompanyEnomondoS.r.l.,takingitsstaketo50%.

AcanthoS.p.A.

On 7March 2011, the share transfer from Infracom Italia S.p.A. toHera S.p.A. of 17.50% of the share capital of

telecomscompanyAcanthoS.p.A.wasformalised.

HerasocremS.r.l.

On12April2011, theExtraordinaryShareholdersMeetingofcremationand funeralservicescompanyHerasocrem

S.p.A.votedtotransformthecompanyfromacompanylimitedbyshares(S.p.A.)toalimitedliabilitycompany(S.r.l.),

andtoreducethesharecapitalto100,000,witheffectfrom13July2011.

Itisalsoproposedtodisposeoftheequityinvestment.

HeraCommMarcheS.r.l./SadoriGasS.r.l.

On27April2011,HeraCommS.r.l.acquiredfromWalterSadoriS.r.l.50%ofthesharecapitalofSadoriGasS.r.l.,a

companythatsellsgasintheMarcheregion.

ThemergerbyincorporationofSadoriGasS.r.l.intoHeraCommMarcheS.r.l.,inwhichHeraCommhasa60%stake

andMarcheMultiserviziS.p.A.controlstheremaining40%,wascompletedwitheffectfrom1July2011.

Asaresultofthistransaction,thesharecapitalofHeraCommMarcheS.r.l.increasedfrom1,458,332to1,977,332.

HeraCommS.r.l.nowholds57.38%ofthesharecapitalofHeraCommMarcheS.r.l.,withMarcheMultiserviziS.p.A.

controlling29.50%andWalterSadoriS.r.l.theremaining13.12%.

HeraCommMediterraneaS.r.l./HeraCommS.r.l.

With effect from1December2011 and from1 January2011 for taxpurposes,HeraCommMediterranea S.r.l., a

whollyownedsubsidiaryofHeraCommS.r.l.,wasmergedbyincorporationintoHeraCommS.r.l.

1Directors'report



34

Significanteventsaftertheendofthefinancialyearandoutlook

FeroniaS.r.l.

On31January2012,HerambienteS.p.A.acquiredfromSorgeaS.r.l.anadditional30%ofthesharecapitalofFeronia

S.r.l.,acompanyoperatinginthewastemanagementsector,takingitsstaketo70%.

SviluppoAmbienteToscanaS.r.l.

On 7 February 2012, following the awarding of the contract put out to tender by Quadrifoglio S.p.A. for the

constructionoftheFlorenceWTEplant,HeraS.p.A.andHerambienteS.p.A.constitutedthecompanynamedSviluppo

AmbienteToscanaS.r.l.,withthecorporateobjectsofdevelopment,designandimplementationofinterventionsand

investments pertaining towastemanagement services, inwhich they respectively hold 95% and 5% of the share

capital.

AmonS.r.l.

On 8 February 2012,Hera Energie Rinnovabili S.p.A. acquired the entire share capital of Amon S.r.l., a company

owningaphotovoltaicplantsituatedintheMunicipalityofCopparo(FE).

EsoleS.r.l.

On8February2012,HeraEnergieRinnovabiliS.p.A.acquiredtheentiresharecapitalofEsoleS.r.l.,acompanyowning

aphotovoltaicplantsituatedintheMunicipalityofAlfianello(BS).

JuwiSviluppoItalia

On1March2012HeraEnergieRinnovabiliS.p.A.purchasedJuwiSviluppoItalia02S.r.l.,ownerofaphotovoltaicplant

inPetriolo(Macerata).

CTGRAS.r.l.

On8March2012HeraEnergieRinnovabiliS.p.A.purchasedCTGRAS.r.l.,ownerofaphotovoltaicplant inFaenza

(Ravenna).

1Directors'report



35

1.03 Groupperformanceasat31December2011:

ConsolidatedsummaryresultsoftheHeraGroup:

(million) 31Dec10 %inc. 31Dec11 %inc. %Change

Revenues 3,666.9 4,105.7 +12.0%

EBITDA 607.3 16.6% 644.8 15.7% +6.2%

Operatingmargin(EBIT) 315.4 8.6% 334.5 8.1% +6.1%

Netprofit 142.1 3.9% 126.8 3.1% 10.8%

1.03.01Financialandeconomicresultsandinvestments

Theresultsfor2011,inspiteofthecontinuingparticularlyunfavourableeconomicsituation,showgrowthasfarasall

themaineconomicandquantitative indicatorsareconcerned.Themainbusinessareascontinuetogrowconstantly

comparedwiththepreviousfinancialyear,withtheexceptionofthewastemanagementsegment,wheretheimpact

oftheslowdowninproductionactivitiesismoreobvious.

Economicandoperatingresultshaveallincreased.Netprofitalsoincreasedcomparedwiththepreviousyear,taking

intoaccountthepositivenonrecurringeffectsofhigherredemptiontransactionsnotfiscallyrecognised(25.1million

in2010and7.6millionin2011).

Quantitative indicators have, in themain, increased: greater volumes of electricitywere sold, also thanks to the

managementofserviceprotectioncustomersintheregionsofLombardy,Tuscany,Lazio,Abruzzo,MoliseandPuglia,

forthethreeyearperiod20112013,andgreatervolumesofwatermanaged.Ontheotherhand,notelowervolumes

of gas and heat sold as a result of higher average temperatures compared with the previous year. They were,

however,offsetbygreatervolumestradedandlowervolumesofcommercialisedwaste.

Alsonotethefollowingeventswhichtookplaceduring2011:

SinceFebruary2011,HerambientehasconsolidateditsstakeinEnomondoto50%,acompanythatmanagesa13MWebiomasspowerplant,inajointventurewithCaviroDistillerieS.r.l.

In July2011,HeraCommMarche incorporated SadoriGas,whichhas a customerportfolioofmore than34,000contractsandiscapableofproducingandsellingmorethan47millioncubicmetresofgasperyear,

distributedthroughout42municipalitiesintheprovincesofPesaroUrbino,AnconaandLAquila.

HeraS.p.A.expandeditsgasdistributionserviceactivitiesbywinningthepublictenderforthemunicipalityofFormignana (FE) from 1 July 2011 and by acquiring the networks of themunicipalities of Pievepelago,

Riolunato and Fiumalbo (Mo) from 1 June 2011; annual volumes distributedwill rise to approximately 4

millioncubicmetres.

1Directors'report



36

As seen from the financial statementsasat31December2010, theConsolidated IncomeStatementconsiders the

interpretationof the IFRIC12accountingprinciple "ServiceConcessionArrangements".Atanaccounting level, the

impactofthisinterpretation,whilstnotchangingtheresults,hasmeantthatinvestmentsinassetsunderconcession

(networkservices)arereportedintheincomestatement.Therefore,theincomestatementshowsanincreaseinother

operating incomeof143.6millionfor2011and135.2millionfor2010, lowercapitalisedcostsof35.5million in

2011and35.4million in2010,and increasedoperating costs for services,materialsandotheroperating costsof

108.1millionin2011and99.8millionin2010.

Thetablebelowcontainstheeconomicresultsfortheyears2010and2011:

Incomestatement(million)

31Dec10 %inc. 31Dec11 %inc. Abs.Change %Change

Revenues 3,666.9 0.0% 4,105.7 0.0% +438.8 +12.0%

Otheroperatingincome 210.4 5.7% 210.2 5.1% 0.2 0.1%

Rawmaterials (2,140.5) 58.4% (2,440.1) 59.4% +299.6 +14.0%

Servicecosts (810.7) 22.1% (870.5) 21.2% +59.8 +7.4%

Otheroperatingcosts (38.8) 1.1% (39.8) 1.0% +1.0 +2.6%

Personnelcosts (361.9) 9.9% (370.0) 9.0% +8.1 +2.2%

Capitalisedcosts 81.9 2.2% 49.3 1.2% 32.6 39.8%

EBITDA 607.3 16.6% 644.8 15.7% +37.5 +6.2%

Depreciation,amortisationandprovisio (291.9) 8.0% (310.3) 7.6% +18.4 +6.3%

Operatingprofit(EBIT) 315.4 8.6% 334.5 8.1% +19.1 +6.1%

Financialoperations (109.8) 3.0% (113.2) 2.8% +3.4 +3.1%

Pretaxprofit 205.6 5.6% 221.2 5.4% +15.6 +7.6%

Taxes (63.6) 1.7% (94.5) 2.3% +30.9 +48.6%

Netprofitfortheperiod 142.1 3.9% 126.8 3.1% 15.3 10.8%

EBITDArosefrom607.3million in2010to644.8million in2011(+6.2%),EBITrosefrom315.4millionto334.5

million (+6.1%),pretax profit increased by 7.6% from 205.6million to 221.2million, andnetprofitwent from

142.1millionin2010to126.8millionin2011(10.8%).

Revenue increasedby438.8million,up12.0%goingfrom3,666.9million in2010to4,105.7million in2011.The

main reasons are: (i) greater volumes of electricity sold (+29.1%) and distributed; (ii) greater revenues from the

distribution and sale of gas, also through the effect of the increase in the price of the rawmaterial; (iii) greater

revenuesfromthewastemanagementsegment,specificallygreaterrevenuesfromtheproductionofelectricity;and

(iv)greaterrevenuesfromthemanagementofthewatercycle.

1Directors'report



37

The increase in thecostof rawmaterialsandothermaterials,equal to299.6millioncomparedwith theprevious

year,isattributabletothehighervolumesofelectricitysoldandtheincreaseinthepriceofgas.

Other operating costs (Costs for services increased by 59.8million andOther operating costs increased by 1.0

million),increasedoverallby60.8million(+7.2%);morethan75%oftheincreaseisattributabletogreaterelectricity

andgasdeliverycostsandtheremainderisduetotheincreasedcostsoftheapplicationofIFRIC12,theextensionof

thescopeofactivitiesandinflationdynamics.

TheincreaseinPersonnelcosts,whichwentfrom361.9millionin2010to370.0millionin2011(+2.2%),ismainly

relatedtothedevelopmentofcontractdynamics.

ThedecreaseinCapitalisedcosts,whichwentfrom81.9millionto49.3million,ismainlyconnectedtothedecrease

inworkonplantsandworksbyGroupcompanies,particularlythecompletionofthenewwastetoenergyplants.

GroupconsolidatedEBITDA for2011grew,going from607.3million to644.8million (+6.2%) thanks to thegood

performanceintheelectricitysegment,whichwentfrom9.8%to11.4%ofthetotalresultsforthegasandwatercycle

segments.

Amortisation,depreciationandprovisionsincreasedby6.3%,goingfrom291.9millionin2010,to310.3millionin

2011. This increase wasmainly due to: (i) increased sums set aside for doubtful receivables, (ii) the entry into

operationof thenewdisposal facilitieswhosedepreciation and amortisation offset the effectof the reduction in

lowerquantitiessenttolandfills.

OperatingIncomefor2011stoodat334.5million,anincreaseof6.1%comparedwiththesameperiodin2010.

Thenet financial incomeat31December2011stoodat113.2millioncomparedwith109.8million in2010.The

greaterexpensesareduetoboththeincreaseinaveragedebtandtheincreaseinspreadsrecordedthroughout2011.

Theoverallcostof financialmanagementalso reflects thebenefitsgained from themanagementofcashwhich, in

part,moderatedtheincreaseininterestratesaswellastheincreasedearningsfromassociatedcompaniesbyaround

0.4million.

Inthe lightoftheabove,PreTaxProfitrosefrom205.6millionfor2010to221.2millionfor2011,an increaseof

7.6%,or15.6million.

Taxeswentfrom63.6millionto94.5million;2010includedtheoneoffpositiveeffectsof25.1million,while2011

benefitedby7.6million.Specifically,assetspurchasedbytheParentCompanyHeraS.p.A.,asaresultofthemerger

byincorporationofAgeaReti,wererecordedatahigherstatutoryvalueequalto6.4million;thishighervalue,not

recognisedfortaxpurposes,wasreleased in2011throughtheapplicationofthesubstitutetax,pursuanttoArticle

176,paragraph2teroftheTUIR(ConsolidatedIncomeTaxAct),equalto0.8million,withtheconsequenttransferto

theincomestatementofthedeferredtaxliabilitiesoriginallyrecorded.Theoperationthereforeallowedtherecording

ofapositiveoneofffigureof1.2millionintheincomestatement.

1Directors'report



38

TheGroupalsoconducted the realignmentof fiscaland statutoryamounts relating togoodwill, resulting from the

consolidated financialstatementsat31December2010,ofcontrolling interests,pursuant toArticle23,paragraphs

1215, of DecreeLaw 98/2011, through the application of the substitute tax, equal to 5.8 million, and the

consequentdisclosureofdeferredtaxassets,equalto12.2million,correspondingtothe future IRESand IRAPtax

benef

and - the groupeng.gruppohera.it/binary/hr_ir/bilancio_archivio/hera_group... · chairman sergio...

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