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FINANCIAL REPORT
AS OF JUNE 30 2016
DELIVERING SOLID RESULTS
EBITDA
470.1
€ million
+2.4%
EBIT
257.4
€ million
+5.1%
NET INCOME
121.0
€ million
+12.8%
NET FINANCIAL POSITION IMPROVED
2,624.4
€ million
(1.0%)
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1H 2016 OVERVIEW
1H 2016 OVERVIEW
Has been a solid first six months for Hera with the Group continuing to create value for shareholders.
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SOLIDITY AND EXCITEMENT, CREATING VALUE THROUGH EXCELLENCE

Results as of 30 June 2016 in brief

In the first half of 2016, the Group once again demonstrated its solidity: its Ebitda increased by 2.4%, operating profit by 5.1% and the net debt improved by 27 mln Euro despite the penalizing reduction in WACC. These results highlight the Group's resilience and reliability, because they were achieved in a context that is ever more challenging in all economic areas.

Highlights

+2.4% 470.1 mln EBITDA
+12.8% 121.0 mln Net Income
(1.0%) 2,624.4 mln Net financial
position
Business sectors

Data by business

waste
water
gas
electricity
investor kit
The Group's brilliant performance in the first half of 2016, the benchmark with peers and the analysts' evaluations
Benchmark
GAS SALES WATER SUPPLIED VOLUMES WASTE VOLUMES TREATED ENERGY SALES
Analyst
History
EBITDA '14 Networks Waste Energy
Results Capex e cash flow Debt/Ebitda DPS

Share performance and Investor Relations

Over the first six months of 2016, European stock markets witnessed a higher degree of instability and risk aversion shown by financial operators, owing to a progressive deterioration in the macroeconomic context. The apprehension that marked the first quarter - caused by the global economic slowdown, the higher interest rates introduced in the USA by the Federal Reserve and the fall in raw materials - was aggravated by the tension surrounding the referendum on the future of the United Kingdom's membership in the European Union. The unexpected outcome of the latter, on 23 June, set off a disorderly capital flight from Europe's markets, with heavy consequences above all in the financial sector. Only bond markets continued to show low instability, thanks to the protection provided by the European Central Bank and the purchases involved in Quantitative Easing. Piazza Affari recorded the worst performance among European indices on account of its higher exposure to the banking sector, which felt the effects of newly introduced bail-in regulations, but also from growing concerns for its large percentage of non-performing loans.

Within this context, Hera stock amply outperformed both the Italian stock exchange index and its own sector, showing more resilience and less volatility. This fact emerged clearly even during the day on which results of the British referendum were released, with Hera boasting a performance surpassing that of its peers by +3.4%, and +8.9% above the FTSE Mib index. At 30 June 2016 its listings closed, after dividend payment, at an official price of € 2.442 per share, on a par with the beginning of the year. The stock's evolution showed a beta coefficient significantly lower than both the market and that of its peers, settling around 0.4. The stock's relatively low volatility underscores the Group's economic-financial stability and the growth prospects seen in its five-year business plan, communicated to the market during the first part of the year.

In line with the indications set out in its latest business plan, on 20 June Hera paid a dividend of 9 cents per share, the fourteenth in a series of uninterrupted growth since being listed.

  2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
DPS (€) 0.04 0.05 0.06 0.07 0.08 0.08 0.08 0.08 0.09 0.09 0.09 0.09 0.09 0.09

Thanks to the combination of continuously remunerating shareholders with dividends and raising the price of the stock, the total shareholders' return accumulated since listing has constantly remained positive, even in the most difficult moments of the financial crisis, reaching, at the end of the period in question, +178.8%.

The Hera Group's market capitalisation, at the end of the same period, came to € 3.6 billion, figuring once again as the highest in the sector and more sizeable than some stocks that are part of the FTSE Mib, the main Italian stock exchange index.

No change occurred in the number of financial analysts covering the company: Banca Akros, Banca IMI, Equita, Fidentiis, Goldman Sachs, ICBPI, Intermonte, Kepler Cheuvreux, MainFirst and Mediobanca. At the end of the first half of 2016, Hera is able to reconfirm a clear majority of positive reports, with almost all recommendations defined as “ Buy/Outperform” and the consensus target price set at € 2.81.

Breakdown of Group shareholders at 30/06/2016

At 30 June, the corporate structure shows its usual balance, with 51.9% of shares belonging to 117 public shareholders located across the geographical areas served and regulated by a Stockholders' Agreement signed on 26 June 2015 and in force for three years.

After the end of the period currently being discussed, in keeping with the Agreement, 12 Municipality shareholders sold, in a coordinated and transparent way, through an Accelerated Book Building operation, roughly 16 million shares, corresponding to 1.1% of total share capital, to over thirty Italian and foreign institutional investors. Thanks to a demand that reached over four times the amount put on sale, the placing occurred at a price of € 2.35 per share, with the lowest discount seen on the market since the beginning of the year for similar operations, set at 4.3% of the price at closing time on the previous day. The placing led to a rise in floating stock, with clear benefits for trade liquidity.

Since 2006, Hera has adopted a share buyback program, renewed by the Shareholders' Meeting of 28 April 2016 for 18 further months, for an overall maximum amount of € 180 million. This plan is aimed at financing M&A opportunities involving smaller companies, and smoothing out any anomalous market price fluctuations vis-à- vis those of similar large Italian companies. At the end of the period under review, Hera held 17.7 million treasury shares.

In the first half of the year, Hera's senior management engaged in an intense dialogue with investors, above all with its Business Plan Road Show in the first quarter and its participation in sector conferences in the second quarter. The intensity and commitment that the Group puts into communicating with investors has helped reinforce its market reputation, which is now an intangible asset that provides a clear advantage for Hera's stock and its stakeholders.

Hera's stories

In the six month period that just came to an end, Hera carried out highly important projects that will provide benefits to all the key stakeholders. In particular Inrete, the company that manages natural gas and electricity distribution activities was brought online in keeping with operational and accounting unbundling requirements prescribed by the Authority for Electricity, Gas and Water (Aeegsi). Additionally, during the period in question, Acantho further developed the Wi-Fi network in the main seaside resorts located in Romagna, to ensure that tourists and residents are able to navigate directly under their beach umbrellas for free. At international and national levels, the Operations Department continued to implement eco-waste parks in both China and Sicily and, also in the environmental sector, the Group's most recent acquisition (Waste Recycling) has managed to create beauty from waste, transforming it into theatrical sets, costumes and true works of art. Hera continued to create economic, financial, environmental and artistic value; it did so by enhancing Wi-Fi networks, distributing green energy and even turning recycled materials into sculptures. It achieved these results by respecting the environment, following the principles of a periodically updated code of ethics, and applying technologies that are cutting-edge but never invasive or harmful to people, animals or objects. Once again, in the first half of 2016 the Group's excellence took the form of continuous value creation for its stakeholders, confirming its position as a leading actor in the national and international landscape.

  • In-rete: when net really works
  • Eco parks for sustainable waste management
  • Artistic leftovers
  • Romagna on LINE

In-rete: when net really works

Beginning 1 July 2016 Inrete Distribuzione Energia S.p.A, the Hera Group company dedicated to gas and electricity distribution primarily in the Emilia Romagna area became fully operational. This company was established by transferring the business unit relating to these activities that was previously held by Hera S.p.A.'s Energy Networks Department.

Inrete serves more than 1.1 million gas customers in 140 municipalities, with a total of approximately 14,000 km of gas networks in the provinces of Bologna, Modena, Ferrara, Ravenna, Forlì-Cesena and Rimini as well as a foray into Tuscany, specifically the provinces of Pistoia and Florence. It also serves over 260,000 electricity consumers in 24 municipalities in the provinces of Modena, Bologna and Ravenna thanks to an electrical network stretching over 10,000 kilometers.

In line with the guidelines the Group has always followed, Inrete operates with diligence in the field of security and network control with the aim of confirming the excellent quality of its service standards, which are significantly higher than the minimum levels set by the Authority. Inrete takes advantage of the multi-utility's innovative Remote Control Technology Centre, a cutting-edge facility at the European level located in the Forlì area that guarantees the integrated management of all the plants and gas networks in the area served as well as activities of responding to and coordinating emergency response calls. The Group's Remote Electricity Operations Control Center located in Modena provides similar services for all of Inrete's plants and electricity networks.

Inrete constitutes a solid corporate structure into which all the assets directly involved in carrying out activities have converged, starting with the broad range of equipment and systems as well as licenses for gas and electricity distribution in the Emilia Romagna area and dedicated personnel, consisting of approximately 600 sufficiently capitalized business units. Overall, the company's RAB amounts to approximately 1 billion euros. The company therefore has all the resources necessary to operate successfully in its sector of activity, occupying one of the top positions among major national operators, focused on the effective and efficient management of operational services in terms of both growth through free competition and gas distribution tenders.

In the period 2016-2019, it is likely that calls for tenders will be held for all the ATEM of the Inrete area and the regulations for these calls for tenders state that, once the selection process has been completed, the incoming operator be assigned management of the entire ATEM area.

Alessandro Baroncini, who previously held the position of Director of Energy Networks in the parent company, was appointed CEO of Inrete.

Eco parks for sustainable waste management

In China

At the end of 2013 the process was completed to establish the Italian-Chinese joint venture, called H.E.P.T Co. Ltd., held at 30% by Hera, which is also in charge of its Technical Department.

HEPT's core activity is in the field of designing and constructing facilities for the treatment of hazardous waste.

Currently, the technicians of Hera's Engineering Department are designing two hazardous waste treatment plants to be built, the first in Suzhou (Jiangsu Province- China) with a treatment capacity of 180,000 t / year, and the second in Yuyao (Zhejiang Province- China) with a treatment capacity of 100,000 t / year, in addition to a hazardous waste landfill with a total storing capacity of approx.. 2 million cubic meters.

It should be noted that the technology used for the design and subsequent purchase of materials and components is the result of experience accrued by the Hera Group in designing and constructing waste treatment plants in general and managing hazardous waste treatment facilities in particular.

In China

In Sicily

Hera's Engineering Department has recently been chosen by a major private company operating in Catania in the field of treatment and recovery materials from municipal waste, and tasked with the preparation of the final plans and environmental impact report for a waste-to-energy plant with a capacity of 160,000 t/year, using the “Gasification and Melting System” type technology for the core of the plant.

A highly referenced Japanese company in this field has been chosen as the supplier for this technology, also following the visit to Japan to view two of the more than 10 plants they have constructed, which utilize this technology and have been operational for several years.

On the basis of the technical documentation prepared by Hera, the customer is expected to forward the request to authorize the construction and management of the waste to energy plant to the Region of Sicily in September 2016.

If the plant is authorized, Hera's Engineering Department, as the “ Owner Engineer,” will be in charge of preparing both the final plans and all the technical and commercial documents necessary to purchase materials and plant components based on orders issued by the customer; Hera's activities will then continue in terms of construction work, opening the plant and training the personnel who will take care of maintenance and operations.

The new waste-to-energy plant with "Gasification and Melting System" technology will therefore be constructed directly by the customer, with its own equipment and on land it owns, which is located inside its currently existing municipal waste treatment facility.

The methodology proposed by Hera that the customer will use to construct this plant is similar to the methodology Hera used to set up its new waste-to-energy plants at the time they were constructed, and which Iren subsequently used to construct the waste-to-energy plant in Parma where Hera has acted as the "Owner Engineer," providing all the technical design documentation, managing construction and supervising both construction work and the start-up of the plant.

In Sicily

To learn more

Urban waste management

Artistic leftovers

A couple of words about Waste Recycling

With more than 100 employees and 34 million euros in revenue in 2015, Waste Recycling joined Herambiente last December 23. This company specializes in the storage and treatment of industrial waste, a sector in which it has distinguished itself over the years thanks to its management methods and the many treatment options at its disposal. In the Santa Croce sull'Arno and Castelfranco di Sotto plants in the province of Pisa, WR has developed four core lines of business: the storage and selection of non-hazardous waste; the storage and treatment of hazardous waste; an inerting system and a large department dedicated to the treatment of waste in liquid form, which comprises a biological purification plant, a chemical-physical plant with a branch equipped with an evaporator and, shortly, columns for the distillation of solvent. WR has a chemical laboratory that also carries out analyses for third parties. It managed over 400,000 tons of waste in 2015, 70% of which was in liquid form and 30% of which was solid, thanks to more than 5,000 contracts with 2,000 customers, 70% of whom operate in Tuscany with the rest in Lazio, Lombardy, Umbria and Emilia Romagna.

SCART®

On 27 July, 2016 a ceremony was held in Lajatico (PI) to present the SCART 01 Magazine, a magazine produced by Waste Recycling that was put together in the first half of the year. The first issue of the periodical was presented by the art critic Vittorio Sgarbi and Father Enzo Fortunato, Director of the Press Office of the Sacred Convent of Assisi. The Magazine was created to collect the many initiatives that Waste Recycling carries out every year through its project SCART®.

Since the mid-nineties, artists and creative professionals associated with the project have created everyday objects and works of design using only the waste delivered to its facilities as raw material. The artwork that ensued has been shown at numerous festivals, including international ones, dedicated to art and upcycling. From the beginning the objective has been to encourage people to behave responsibly in relation to the environment, demonstrating that waste can have a creative and artistic side, and even be useful. This first issue of SCART Magazine was naturally dedicated to the most important of these collaborations, namely with Andrea Bocelli's Teatro del Silenzio in Lajatico which began in 2012 and continues today. In the first edition, waste was used to create costumes for the sopranoes who shared the stage with Bocelli, as well as those worn by the chorus and, finally, to make scenery for the ninth edition of the exciting singing performance put on by the Teatro del Silenzio.

“ In keeping with the concept in the first issue, each subsequent issue of the Magazine will be dedicated to an event organized and promoted by SCART® in the local area. There will be 4 issues per year,” says the CEO of Waste Recycling Maurizio Giani. “ It is important that waste be seen more and more as a useful resource for the circular economy, but also something that can produce beauty and emotions. It was a great satisfaction for us to be called once again to create the more than 350 costumes for Bocelli's 30 July 2016 concert. As a matter of fact, the SCART ® workshop has opened its doors to a professional of the stature of Claudia Tortora, the costume designer chosen by the director of this year's show, Luca Tommassini. Our challenge is to continue down the road of cultural and artistic excellence that we embarked on during the 90s, constantly improving and growing.”.

SCART

Romagna on LINE

Thanks to Acantho, the Group's computer network company, beginning in 2015 and the first few months of 2016, numerous WI-FI hotspots were made available along most of Romagna's Adriatic coast to allow vacationers and residents in the most frequented seaside resorts of the region to easily connect to the internet directly from the beach.

The project is characterized by an elevated technological profile and the impressive return in terms of image-improvement enjoyed by the municipalities that sponsored it.

Here are some additional details.

Romagna on LINE

1H 2016 RESULTS

In line with its sustainability policy, Hera Group promotes the consultation of financial reporting through the web. Therefore a HTML version of the interim report as at June 30, 2016 was designed, for an easy online reading.

However, in case of need, the entire H1 file or just the section of interest can be downloaded and printed with a simple click.

Online reading and download center of financial statements

Report on operations

Overview of group management and performance

(€/mln) June 2016  June 2015 Abs. Change % Change
Revenues 2,152.7    2,213.0    -60.3  -2.7% 
EBITDA 470.1  21.8%  459.1  20.7%  +11.0  +2.4% 
EBIT 257.4  12.0%  245.0  11.1%  +12.4  +5.1% 
Net profit 128.2  6.0%  115.4  5.2%  +12.8  +11.1% 

Operating results and investments

Operating results and investmenst

The results of the first six months of 2016 show growth in all performance indicators, even when faced with an increasingly challenging context as defined by various competitive and regulatory factors. The Hera Group has proved able to manage this scenario and operate in a balanced and dynamic way; indeed, a comparison with the previous year shows EBITDA rising by 2.4%, EBIT by 5.1% and net profits by 11.1%.

The main corporate and business operations that led to changes in the Group’s corporate structure during the first half of 2016 were:

  • On 23 December 2015 Herambiente acquired 100% of shareholding in Waste Recycling Spa, which is involved in special waste treatment and recovery in the province of Pisa and in turn holds shares in Rew Trasporti Srl and Neweco Srl.
  • As of 1 December 2015 Herambiente acquired effective control of a number of business branches from Geo Nova Spa, in particular taking over the dangerous and non-dangerous waste storage plant in San Vito al Tagliamento (Pordenone) and the active landfills for non-dangerous waste located in Loria (Treviso) and Sommacampagna (Verona).
  • On 29 December 2015 Hera Spa transferred 90% of the company Hera Energie Rinnovabili to third parties; subsequently renamed Aloe Spa, it is no longer part of the Group’s consolidated scope.
  • As of 1 November 2015, Biogas 2015 became part of the Group’s corporate structure. This company’s activities include energy recovery and energy production from waste recycling, and it is also responsible for constructing, installing and managing the plants involved.
  • On 30 December 2015, AcegasApsAmga Spa divested shares held in Trieste Onoranze e Trasporti Funebri.
  • On 8 April 2016 Hera Comm Srl was definitively awarded the tender announced by the Municipality of Giulianova for the acquisition of 100% of the share capital of Julia Servizi Più, a gas and electricity sales company operating in the area surrounding Teramo.

This consolidated income statement reflects the application of accounting principle IFRIC12 “Service concession arrangements”. The effect of applying this principle, which leaves the results unchanged, is that investments made in goods granted under concession, only including network services, are acknowledged in the income statement.

Constant and rising increases

The table below shows the economic results for the first semesters of 2016 and 2015:

Income statement (€/mln)Jun 2016% Inc.Jun 2015% Inc.Abs. change % change 
Revenues 2,152.7   2,213.0   -60.3 -2.7%
Other operating revenues 162.0 7.5% 155.9 7.0% +6.1 +3.9%
Raw materials (998.0) -46.4% (1,103.9) -49.9% -105.9 -9.6%
Service costs (570.3) -26.5% (530.7) -24.0% +39.6 +7.5%
Other operating costs (20.8) -1.0% (26.9) -1.2% -6.1 -22.7%
Personnel costs (266.7) -12.4% (260.7) -11.8% +6.0 +2.3%
Capitalised costs 11.2 0.5% 12.4 0.6% -1.2 -9.7%
EBITDA 470.1 21.8% 459.1 20.7% +11.0 +2.4%
Amort. & Prov. (212.7) -9.9% (214.0) -9.7% -1.3 -0.6%
EBIT 257.4 12.0% 245.0 11.1% +12.4 +5.1%
Financial operations (58.0) -2.7% (61.3) -2.8% -3.3 -5.4%
Pre-tax profit 199.4 9.3% 183.7 8.3% +15.7 +8.5%
Taxes (71.2) -3.3% (68.3) -3.1% +2.9 +4.2%
Net profit of the year 128.2 6.0% 115.4 5.2% +12.8 +11.1%
Attributable to:            
Shareholders of the Parent Company 121.0 5.6% 107.3 4.8% +13.7 +12.8%
Non-controlling interests 7.2 0.3% 8.1 0.4% -0.9 -11.4%

Revenues at € 2.2 billion

In the first half of 2016, revenues amounted to € 2,152.7 million, down € 60.3 million or 2.7% compared to the € 2,213.0 million seen in the same period in 2015. Various factors are responsible for this decrease: in gas services, volumes sold fell by roughly € 9 million owing to the milder winter seen in 2016; revenues from electricity and gas sales and trading were down by roughly € 157 million following a fall in the price of raw materials; lastly, in regulated gas, electricity and water cycle services, the drop of roughly € 16.5 million is mainly due to a change in the rate of return on invested capital and a new definition of restrictions on revenues in the water service; these negative effects on regulated revenues were partially compensated, in electricity services, by the recovery provided for by resolution 654/15/R/eel consisting in roughly € 13.8 million; for further details see the paragraphs entitled “analysis of the electricity area” and “regulatory framework and regulated revenues”. The following figures show growth: revenues for greater volumes of electricity sold, coming to roughly € 17 million; a greater portion of pass-through revenue related to non-network distribution, coming to roughly € 13 million; greater revenues from energy production in thermoelectric plants, coming to roughly € 10 million; revenues from the environment area, owing to both an increase in waste disposed of and the new incentive mechanism for sales of electricity produced from renewable sources (which has replaced green certificates with a subsidised tariff), coming to roughly € 61 million overall.

For further details, see the analyses of the single business areas.

Other operating revenues grew compared to June 2015 by € 6.1 million, or 3.9%; this growth is due to higher revenues ensuing from IFRIC 12 (€ 1.7 million) and a larger contribution coming from sorted waste (€ 1.7 million), while the remainder can largely be ascribed to a contribution coming from energy savings certificates.

The cost of raw and other materials dropped by € 105.9 million compared to the first half of 2015, with a change of 9.6%; as with revenues, this fall is due to lesser volumes of gas purchased and lesser trading activity, as well as an overall decrease in the price of raw materials and a different mechanism used for incentives in sales of electricity produced from renewable sources (as mentioned above).

Other operating costs grew by € 33.5 million overall (€ 39.6 million in greater costs for services, and € 6.1 million in lesser operating expenses), which is mainly attributable to changes in the scope of consolidation (€ 13.1 million), a rise in the cost of electricity and gas transmission and distribution, largely attributable to the pass-through revenues mentioned above (€ 14.1 million) and the greater costs of disposal for the rise in volumes treated (€ 9.2 million). These effects are partially compensated by lesser IFRIC 12 costs and lesser costs for subcontracted works.

The cost of personnel rose by € 6.0 million or 2.3%, going from € 260.7 million in the first half of 2015 to € 266.7 million in the same period of 2016. This increase is mainly due to the salary raises provided for by the National labour agreement. The entrance of resources from companies in the Environment area and Julia Servizi Più is partially compensated by a reduction in the average presence of resources.

Capitalised costs were € 1.2 million or 9.7% lower at 30 June 2016 than in the previous year.

EBITDA at € 470.1 million (+2.4%)

EBITDA passed from € 459.1 million in the first half of 2015 to € 470.1 million in June 2016, recording a growth of € 11.0 million, or 2.4%. This result is particularly significant considering that the first half of the year suffered from lesser revenues in gas, electricity and water distribution totalling € 16.5 million (respectively: € 5.5 in gas, € 1.4 in electricity and € 9.6 in water) following the reduction in return on invested capital in regulated sectors and inflation. The growth in electricity amounting to € 26.7 million compensates the drop in other business areas, thanks to both the recoveries resulting from the method used in defining tariffs and greater EBITDA resulting from power plants.

Amortisation, depreciation and provisions dropped overall by € 1.3 million or 0.6%, going from € 214.0 million in the first half of 2015, to € 212.7 million in the same period in 2016. The decrease in amortisation of landfills and WTE plants, along with the drop in provisions for third party assets in the gas area due to the duration of the concession in the Forlì-Cesena region, more than compensated the higher amortisation for new investments and the change in scope of Herambiente Group companies and Julia Servizi Più. The provision for doubtful debts rose by € 1.2 million, in particular in sales companies.

EBIT at € 257.4 million (+5.1%)

EBIT at 30 June 2016 amounted to € 257.4 million, up € 12.4 million or 5.1% over the € 245.0 seen in the same period in 2015.

The results of financial management at the end of the first six months of 2016 came to € 58.0 million, improving by € 3.3 million or 5.4% compared to the same period in 2015. This good performance is due to both lesser average debt and greater efficiency in rates obtained thanks to the reimbursement of a few loans, in addition to an optimisation of cash and cash equivalents.

In light of the above, pre-tax profits grew by € 15.7 million, going from € 183.7 million in the first six months of 2015 to € 199.4 million in the same period of 2016.

Income taxes pertaining to the first half of 2016, which came to € 71.2 million, define a tax rate of 35.7%, an improvement compared to the 37.2% in the same period of the previous year. The reason for this decrease can largely be ascribed to the benefits deriving from the application of the “patent box” and tax credits for research and development, in addition to tax concessions for maxi amortisations. Also note that in the first half of 2016 lesser taxes related to previous years for a total of € 1.5 million were recorded, mainly resulting from an interpretation that is more consistent with fiscal norms relating to IAS 19 concerning deferred compensation (TFR).

Net profits therefore rose by 11.1%, equivalent to € 12,8 million, going from € 115.4 million in the first six months of 2015 to € 128.2 million in the same period in 2016.

Earnings post minorities at € 121.0 million (+12.8%)

Group net profits amounted to € 121.0 million, rising by € 13.7 million over the first six months of 2015, thanks among other things to a reduction of minority interests mainly derived from the complete acquisition of Akron and Romagna Compost in the second half of 2015.

Analysis of the group's financial structure

The Group’s magnitude increases

The table below shows changes in the Group’s net invested capital and sources of financing for the period ended 30 June 2016:

Invested capital and sources of financing (€/mln)30-giu-16Inc. %31-dic-15Inc. %change Abs.change %
Net non-current assets 5,506.5 108.0% 5,511.3 106.9% (4.8) (0.1%)
Net working capital 116.4 2.3% 157.0 3.0% (40.6) (25.9%)
(Provisions) (525.1) -10.3% (513.5) -10.0% (11.6) +2.3%
Net invested capital 5,097.8 100.0% 5,154.8 100.0% (57.0) (1.1%)
Equity (2,473.4) 48.5% (2,503.1) 48.6% +29.7 (1.2%)
Long-term borrowings (2,719.5) 53.3% (2,743.6) 53.2% +24.1 (0.9%)
Net(cash)/short term borrowings 95.1 -1.9% 91.9 -1.8% +3.2 +3.5%
Net borrowings (2,624.4) 51.5% (2,651.7) 51.4% +27.3 (1.0%)
Total sources of financing (5,097.8) -100.0% (5,154.8) 100.0% +57.0 (1.1%)

Net invested capital: € 5.1 billion

At 30 June 2016, net invested capital dropped compared to 31 December 2015. The change is related to the good performance of net working capital that, in addition to a drop due to seasonal factors in the core businesses, recorded a further reduction due to the good performance of trade receivables.

Net investments rise to € 152.2 million

Group investments came to € 152.2 million in the first six months of 2016, with a further € 5.0 million in capital grants, of which € 3.0 million for the New Investments Fund (FoNI), as provided for by the tariff method for the Integrated water service. Including capital grants, the Group’s overall investments amounted to € 157.2 million. Net investments rose by € 12.7 million, going from € 139.5 in June 2015 to € 152.2 million in June 2016.

Strong commitment continues in operating investments in plants and infrastructures

The following table shows a subdivision by sector, with separate mention of capital grants:

Total investments
(€/mln)
Jun 2016Jun 2015Abs. Change % Change 
Gas business 39.8 32.2 +7.6 +23.6%
Electricity business 11.8 10.5 +1.3 +12.4%
Water cycle business 61.1 59.6 +1.5 +2.5%
Waste management business 17.5 14.0 +3.5 +25.0%
Other services business 5.5 6.4 -0.9 -14.1%
Headquarters 21.6 22.2 -0.6 -2.7%
Total operating investments 157.2 144.8 +12.4 +8.6%
Total financial investments 0.0 0.0 +0.0 +0.0%
Total gross investments 157.2 144.8 +12.4 +8.6%
Capital contributions 5.0 5.3 -0.3 -5.7%
        of which FoNI (New Investment Fund) 3.0 3.3 -0.3 -9.1%
Total net investments 152.2 139.5 +12.7 +9.1%

Capital expenditure totalled € 157.2 million, up 8.6% over the first six months of 2015, and mainly concerned interventions on plants, networks and infrastructures. In addition, updating activities were performed as required by new regulations, mainly concerning gas distribution with a large-scale metre substitution and the purification and sewerage area.

Investments at headquarters in buildings, IT systems and vehicle fleet<

Remarks on investments in each single area are included in the analysis by business area.

At the Group’s headquarters, investments concerned interventions on corporate buildings, IT systems and the vehicle fleet, as well as laboratories and remote control structures. Overall investments in structures fell by € 0.6 million compared to the same period in the previous year.

Provisions came to € 525.1 million

At June 2016, provisions amounted to € 512.7 million, growing compared to December 2015 thanks to provisions for the period, which covered usage expenses and the effects of the adjustment of the TFR fund, calculated according to actuarial criteria

€ 2.5 billion in equity

Equity decreased, passing from € 2,503.1 million at 31 December 2015 to € 2,473.4 million at 30 June 2016, following a dividend payment totalling roughly € 144.0 million, to which corresponds a contribution given solely by the first six months of the year amounting to € 128.1 million.

Tempo medio di attesa al contact center - no ivr (sec.)1° sem161° sem151° sem14
Clienti Residenziali 42 31 46
Clienti Business 39 27 32
Tempo medio di attesa a sportelli (min, sec)
1° sem16 1° sem15 1° sem14
Media 9 9 11

Analysis of the net cash

A solid financial position

An analysis of net borrowings is provided in the following table

(€/mln) 30-giu-1631-dic-15
aCash and cash equivalents 248.3 541.5
bOther current financial receivables 36.7 34.7
 Current financial liabilities (89.5) (129.2)
 Current portion of bank debt (87.4) (284.9)
 Other current financial liabilities (11.2) (68.2)
 Finance lease payables due within 12 months (1.8) (2.0)
cCurrent financial debt (189.9) (484.3)
d=a+b+cNet current financial debt 95.1 91.9
 Non-current bank debt and bonds issued (2,823.2) (2,845.4)
 Other non-issued financial debt (5.4) (5.8)
 Lease payments due after 12 months (15.9) (17.6)
eNon-current financial debt (2,844.5) (2,868.8)
f=d+eNet financial position - CONSOB Communication No 15519 of 28/07/2006 (2,749.4) (2,776.9)
gNon-current financial receivables 125.0 125.2
h=f+gNet non-current financial debt (2,624.4) (2,651.7)

Current borrowings consist mainly in shares of bank loans reaching maturity for roughly € 87.4 million, accrued interest for roughly € 55 million and usage of current credit lines for roughly € 34 million. The amount of bank loans reaching maturity has fallen since 31 December 2015, as a consequence of the reimbursement of a € 195.4 million bond in February 2016. The amount related to non-current bank debt and bonds is prevalently made up of bonds issued on the European market and listed on the Luxembourg Stock Exchange (78% of the total) with repayment at maturity.

As a whole, borrowings show an average term to maturity of over 8 years, with 73% maturing after more than 5 years.

Net financial debt rises to € 2.62 billion

Net financial debt went down from € 2,651.7 in 2015 to € 2,624.4 at 30 June 2016. This drop, which is partially to be expected on account of the seasonal nature of the gas business, was further reinforced by a good performance of trade payables.

  • Gas
  • Electricity
  • Integrated water cycle
  • Waste management
  • Other services

An analysis of the results achieved by management in the various business areas in which the Group operates is provided below, including: the gas area, which covers services in natural gas and LPG distribution and sales, district heating and heat management; the electricity area, which covers services in electricity production, distribution and sales; the integrated water cycle area, which covers aqueduct, purification and sewerage services; the waste management area, which covers services in waste collection, treatment, recovery and disposal; the other services area, which covers services in public lighting and telecommunications, as well as other minor services.

Contribution coming from the various areas to Group EBITDA highlights a balanced mix, coherent with the Group’s multi-business strategy

The Group’s income statements include corporate headquarter costs and reflect intercompany transactions accounted for at arm’s length.

The following analyses of each single business area take into account all increased revenues and costs, with no impact on EBITDA, related to the application of IFRIC 12, as shown in the Group's consolidated income statement. The business areas affected by IFRIC 12 are: natural gas distribution services, electricity distribution services, all integrated water cycle services and public lighting services.

Gas

Gas: a drop in EBITDA

The first half of 2016 saw a general reduction in the gas area compared to the same period in the previous year. These results must be considered within a regulatory context that defined 2016 as the first year in which resolution 583/2015/R/com of 2 December 2015 took effect. This resolution modified the methods used in calculating the rate of return for invested capital for infrastructure services in the gas sector, with the aim of introducing more stability into the regulatory framework. This resolution’s negative impact on revenues and EBITDA amounted to € 5.5 million over the first six months of the year.

Contribution to overall EBITDA decreases

Gas area EBITDA falls by 6.0%

The following table shows the changes occurred in terms of EBITDA:

(€/mln)Jun 2016Jun 2015Abs. Change  % Change
Business EBITDA 162.0 172.5 -10.5 -6.0%
Group EBITDA 470.1 459.1 +11.0 +2.4%
Percentage weight 34.5% 37.6% -3.1 p.p.  

1.3 million gas customers

Total gas customers rose by 1.8% over 30 June 2015, owing to both the commercial and customer loyalty initiatives set in place to contrast competition, and a wider customer base, in central Italy in particular with the acquisition of Julia Servizi Più, which occurred in June 2016 and contributed with roughly 13 thousand customers to the overall number.

Increase in trading volumes: +7.7%

Volumes of gas sold rose by 119.1 million m3 or 6.5%, going from 1,843.9 million m3 in  the first half of 2015 to 1,963.0 m3 in the first six months of 2016. This change is exclusively due to a 150.2 million m3 increase in volumes of trading (representing +7.7% of total volumes).

Volumes sold down -2.5%, on account of milder temperatures

The ensuing 31.1 m3 reduction in volumes sold to final customers was due above all to the milder temperatures seen in winter 2016 (roughly 39.2 million m3) and was mitigated by the contribution of Julia Servizi Più, (with roughly 8.1 million m3).

Gas: overall EBITDA falls

The following table summarises the income statement for the gas area:

Income statement (€/mln)Jun 2016% Inc.Jun 2015% Inc. Abs. Change % Change
Revenues 793.8   891.4   -97.6 -10.9%
Operating costs (568.7) -71.6% (655.1) -73.5% -86.4 -13.2%
Personnel costs (67.1) -8.5% (68.1) -76% -1.0 -1.5%
Capitalised costs 4.1 0.5% 4.2 0.5% -0.1 -2.4%
EBITDA 162.0 20.4% 172.5 19.3% -10.5 -6.0%

Gas revenues at € 793.8 million

Revenues went from € 891.4 million in the first half of 2015 to € 793.8 million in 2016, decreasing by € 97.6 million or 10.9%. The main reasons for this include: a fall in the price of raw materials that impacted sales by roughly € 63 million and trading by € 19 million; a decrease in volumes of natural gas sold coming to roughly € 9 million; lower regulated revenues totalling roughly € 6.4 million, largely owing to the reduction in the rate of return corresponding to € 5.5 million.

This fall in revenues was reflected proportionately in a decrease in operating costs, which went from € 655.1 million in the first half of 2015 to € 568.7 million in 2016, thus recording an overall drop of € 86.4 million compared to the first six months of 2015.

Gas EBITDA: € 162.0 million

EBITDA was down by € 10.5 million or 6.0%, passing from € 172.5 million in the first half of 2015 to € 162.0 million in 2016, due to lesser margins in trading and lesser revenues from regulated services, in which the reduced rate of return had a € 5.5 million impact.

Net investments in the gas area: € 39.8 million

In the first half of 2016, investments in the gas area amounted to € 39.8 million, up € 7.7 million over the same period in the previous year. In gas distribution, a € 2.8 million increase was recorded, mainly caused by activities in regulatory upgrading pursuant to resolution 554/15 (priorly resolution 631/13) consisting in  a large-scale metre substitution which also involved lower-class devices (G4-G6), in addition to higher non-routine maintenance on networks and plants. In the first half of 2016 a slight drop was seen in requests for new connections compared to the previous year, an activity which continues to feel the effects of the overall economic situation.

Investments increased by € 4.8 million in remote heating and heat management, of which € 3.2 million in remote heating mainly involving the revamping of Bologna’s Barca cogeneration plant, and € 1.6 million in heat management, especially in the company Sinergie, for the combined effect of advance work on various 2016 interventions and a delay in a few works recorded in the first half of 2015. A slight increase was seen in new remote heating connections compared to the previous year.

Investments grow

Details of operating investments in the Gas area are as follows:

Gas
(€/mln)
Jun 2016Jun 2015Abs. Change  % Change
Networks and plants 29.9 27.1 +2.8 +10.3%
RH/Heat management 9.9 5.1 +4.8 +94.1%
Total Gas Gross 39.8 32.2 +7.6 +23.6%
Capital contributions 0.0 0.1 -0.1 -100.0%
Total Gas Net 39.8 32.1 +7.7 +24.0%

Electricity

Electricity: increase in EBITDA

In the first half of 2016, the Electricity Area grew in both absolute terms and as a percentage of Group EBITDA. These results are to be considered within a regulatory context that defined 2016 as the first year in which resolution 583/2015/R/com of 02/12/2015 was implemented, which modified the method used in calculating the rate of return on invested capital for infrastructure services in the electricity sector. The negative impact of this resolution on revenues and EBITDA, owing solely to the rate of return, came to € 1.4 million for the first six months of the year. Revenues for the first half of 2016 furthermore include the effect of a temporal alignment between the tariffary components of return and amortisation of investments, as further explained in the paragraph “regulatory framework and regulated revenues”. This alignment appears to be reasonable in light of resolution 654/15/R/eel.

Contribution to overall EBITDA: +5.4%

Electricity area EBITDA grows by 53.9%

The following table shows the changes occurred in terms of EBITDA:

(€/mln)Jun 2016Jun 2015Abs. Change % Change 
Business EBITDA 76.3 49.6 +26.7 +53.9%
Group EBITDA 470.1 459.1 +11.0 +2.4%
Percentage weight 16.2% 10.8% +5.4 p.p.  

 

Electricity customers reach 855.6 thousand

The number of electricity customers recorded a 3.5% (29.3 thousand) increase, mainly due to growth in the free market, which came to 9.1% confirming the growth trend seen in recent years, mainly due to a reinforcement of commercial activities.

Volumes sold increase by 4.7%

Volumes of electricity sold went from 4,624.0 GWh in the first half of 2015 to 4,843.6 GWh in 2016, with an overall increase of 4.7%.

The increase in volumes sold can be traced above all to a reinforcement of commercial activities and an increase of volumes sold to last resort customers.

Electricity: EBITDA up by 53.9%

The following table summarises the income statement for the area:

Income statement (€/mln)Jun 2016% Inc.Jun 2015% Inc.Abs. Change % Change 
Revenues 697.7   718.1   -20.4 -2.8%
Operating costs (598.6) -85.8% (649.4) -90.4% -50.8 -78%
Personnel costs (26.8) -3.8% (22.8) -3.2% +4.0 +17.5%
Capitalised costs 3.9 0.6% 3.7 0.5% +0.2 +5.4%
EBITDA 76.3 10.9% 49.6 6.9% +26.7 +53.9%

Revenues from electricity come to € 697.7 million

Revenues dropped by 2.8%, going from € 718.1 million in the first half of 2015 to € 697.7 million in 2016, thus showing an overall reduction of € 20.4 million. The main reasons for this decrease are: a fall in the price of energy (Pun, Nationwide Price) coming to 24% on average compared to the previous year, that caused € 27 million in lesser sales revenues and € 48 million in lesser trading revenues; lesser regulated revenues in distribution amounting to € 1.4 million, owing to the reduction in the rate of return. These effects were partially contained by the € 17 million of greater volumes sold, owing to higher commercial activities, with both greater regulated revenues for the recovery of the time lag mentioned above and greater revenues for energy production in thermoelectric plants.

Operating costs fell by € 50.8 million or 7.8%; this figure is proportionally higher than the decrease in revenues for the lower cost of raw materials.

Electricity EBITDA at € 76.3 million

At the end of the first half of 2016, EBITDA rose by € 26.7 million or 53.9%, going from € 49.6 million at 30 June 2015 to € 76.3 million in 2016 due to higher margins on sales activities, higher margins in electricity production and a recovery of regulated revenues. These effects were partially reduced by € 1.4 million in lesser revenues in the regulated distribution service, owingto the fall in the rate of return.

Net investments in the electricity area: € 11.7 million

Investments made in the electricity area came to € 11.7 in the first half of 2016, rising by € 1.2 million over the € 10.5 million seen in the previous year.

The main interventions concerned non-routine maintenance of plants and grids in the areas surrounding Modena, Imola, Trieste and Gorizia.

Compared to the same period in the previous year, € 1.4 million in higher non-routine maintenance took place, mainly involving interventions on the Cogen plant in Imola, as well as a slight € 0.1 million drop in industrial cogeneration for Energy Service activities.

New connections in this area increased with respect to the previous year.

The details of operating investments in the electricity area are as follows:

Eletricity
(€/mln)
Jun 2016Jun 2015Abs. Change % Change 
Networks and plants 11.2 9.8 +1.4 +14.3%
Industrial cogeneration 0.5 0.6 -0.1 -16.7%
Total Electricty Gross  11.8 10.5 +1.3 +12.4%
Capital contributions 0.0 0.0 +0.0 +0.0%
Total Electricity Net 11.7 10.5 +1.2 +11.4%

Integrated water cycle

Integrated Water Cycle: slight drop

Over the first half of 2016, the integrated water cycle area recorded a slight drop compared to the same period in 2015, both as a contribution to Group EBITDA and as the absolute value of this single business area. 2016 is the first year in which the tariff method defined by the AEEGSI for 2016-2019 (resolution 664/2015) takes effect, largely involving in a reduction in the rate of return. The resolution’s negative impact on revenues and EBITDA, resulting from the rate of return and the restriction on revenues, amounts to € 9.6 million for the first six months of 2016.

Contribution to EBITDA: -0.7%

Water cycle area EBITDA falls by 0.9%

The following table shows the changes occurred in terms of EBITDA:

(€/mln)Jun 2016Jun 2015Abs. Change % Change 
Business EBITDA 106.6 107.6 (1.0) (0.9%)
Group EBITDA 470.1 459.1 +11.0 2.4%
Percentage weight 22.7% 23.4% -0.7 p.p.  

1.5 million customers in the water cycle

The number of water customers settled at 1.5 million, increasing by 6.7 thousand (+0.5%) compared to the first six months of 2015, confirming the trend of organic growth seen across the areas served by the Group. The Emilia Romagna area managed by Hera Spa is responsible for 70% of this growth, while 26% pertains to the areas served by AcegasApsAmga and for the remainder to the areas served by Marche Multiservizi Group, thanks to a slight recovery in the number of new connections.

143.0 million m3 of water managed in the aqueduct

The main quantitative indicators of the area are as follows:

Volumes dispensed through the aqueduct were essentially in line with the first six months of 2015. Volumes dispensed, following AEEGSI resolution 664/2015, are an indicator of activities in the geographical areas served by the Group and are subject to equalisation pursuant to regulations that call for a regulated revenue to be recognised independently of volumes distributed.

Integrated Water Cycle: slight drop in EBITDA

The table below synthesises the income statement for the water area:

Income statement (€/mln)Jun 2016% Inc.Jun 2015% Inc.Abs. Change % Change 
Revenues 374.1 - 377.4 - (3.3) (0.9%)
Operating costs (193.3) -51.7% (196.6) -52.1% (3.3) (1.7%)
Personnel costs (75.2) -20.1% (74.8) -19.8% +0.4 +0.5%
Capitalised costs 1.1 0.3% 1.6 0.4% (0.5) (30.5%)
EBITDA 106.6 28.5% 107.6 28.5% (1.0) (0.9%)

Revenues from the integrated water cycle reach € 374.1 million

Revenues for the first six months of 2016 showed a slight decrease, down 0.9% with respect to the same period in 2015, going from € 377.4 million in 2015 to € 374.1 million in 2016. The main reasons for this include € 9.6 million in lower revenues for distribution, owing to the reduction in the rate of return and the reformulation of the restriction on revenues, only partially compensated by higher revenues covering costs acknowledged by the Authority, € 3.1 million in higher revenues for subcontracted works, as well as higher revenues coming from connections and the application of accounting principle IFRIC 12.

Operating costs fell by € 3.3 million or 1.7%, largely on account of the lower cost of electricity for plants, lower operating costs and lesser expenses employed for structures, in spite of a higher amount of subcontracted works and higher costs for the application of accounting principle IFRIC 12.

EBITDA at € 106.6 million

EBITDA saw a slight decrease of € 1.0 million, or 0.9%, passing from € 107.6 million in the first six months of 2015 to € 106.6 million in 2016. This is due to € 9.6 million in lesser revenues for dispensing caused by the decrease in the rate of return and the newly defined restriction on revenues, largely compensated by lower operating and structural costs, subcontracting activities and higher revenues from new connections.

Investments in the Integrated Water Cycle: € 56.1 million

Investments in the Integrated Water Cycle Area amounted to € 56.1 million, with a € 1.3 million increase over the previous year. Including capital grants, investments in this area came to € 61.1 million. The interventions mainly concerned extensions, reclamations and network and plant upgrading, in addition to regulatory upgrades which largely involved purification and sewerage.

Investments totalled € 30.4 million in the aqueduct, € 17.6 million in sewerage and € 13.1 million in purification.

Among the more significant works, note: in the aqueduct, water system interconnections and network and plant upgrading, including a particularly complex and substantial upgrading of water networks in the historical centre of Bologna and an upgrading of interconnections in the Modena water system; in sewerage, continued progress in works for the Rimini Seawater Protection Plan, in addition to redevelopment of the sewerage network in other areas; in purification, the creation of the head tank of the Riccione purification plant, upgrading on the Cattolica purifier, revamping of the oxygen production facility in the Idar purification plant in Bologna and, in the areas served by AcegasApsAmga, continued works in upgrading the large purification plants in Servola, Cà Nordio and Abano Terme.

Requests for new water and sewerage connections rose by € 0.5 million over the previous year, remaining rather low nonetheless, due to the enduring crisis in the construction sector.

Capital grants amounting to € 5.0 million included € 3.0 million pertaining to the tariff component of the New Investments Fund (FoNI), and increased compared to the first half of 2015 by € 0.2 million.

Net investments increase: +€ 1.3 million

Details of operating investments in the Integrated Water Cycle are as follows:

Water Cycle Business
(€/mln)
Jun 2016Jun 2015Abs. Change % Change 
Aqueduct 30.4 28.5 +1.9 +6.7%
Purification 13.1 14.2 -1.1 -7.7%
Sewage 17.6 16.9 +0.7 +4.1%
Total Water Cycle Gross  61.1 59.6 +1.5 +2.5%
Capital contributions 5.0 4.8 +0.2 +4.2%
     of which FoNI (New Investment Fund) 3.0 3.3 -0.3 -9.1%
Total Water Cycle Net 56.1 54.8 +1.3 +2.4%

Waste management

In the first half of 2016, the waste management area’s contribution to Group EBITDA came to 24.8%, with a sector EBITDA that decreased by 2.8% compared to the same period in 2015.

Waste management area: decrease in EBITDA

The following table shows the changes occurred in terms of EBITDA:

(€/mln)Jun 2016Jun 2015Abs. Change % Change
Business EBITDA 116.5 119.8 -3.3 -2.8%
Group EBITDA 470.1 459.1 +11.0 +2.4%
Percentage weight 24.8% 26.1% -1.3 p.p.  

Commercial waste: +20.1%

Volumes marketed and treated by the Group in the first half of 2016 are as follows:

Quantitative data (thousand of tonnes)Jun 2016Jun 2015Abs. Change % Change 
Urban waste 1,007.6 1,018.8 -11.2 -1.1%
Commercial waste 1,178.1 981.2 +196.9 +20.1%
Wasted marketed 2,185.8 1,999.9 +185.9 +9.3%
Plant by-products 1,276.3 1,251.4 +24.9 +2.0%
Waste treated by type 3,462.1 3,251.4 +210.7 +6.5%

An analysis of the volumes treated shows a 9.3% increase in waste marketed, mainly due to a rise in commercial waste coming to 20.1%. This growth is accounted for above all by the late-2016 acquisitions of Waste Recycling and the Geonova plants, which gave a significant  impetus to management of industrial waste.

Urban waste showed a minor decrease compared to the first half of 2015, coming to 1.1%. This change can largely be attributed to strand waste, which fell by 13.2 thousand tonnes compared to the previous half-year. Excluding this change, urban waste would show a slight growth, coming to 0.2%.

+2.3% in sorted waste

Sorted urban waste recorded further progress, rising from 54.6% to 56.9% primarily thanks to new projects intended to expand this area. High percentages of overall recovery led to greater environmental benefits. In the first six months of 2016, sorted waste grew by almost one percent in areas served by Hera Spa, by almost two percent in areas served by Marche Multiservizi and confirmed, in 2016 as well, the marked growth trend, with over three percent, seen in areas located in the Triveneto region.

A sharp fall in landfill usage

Quantitative data (thousand of tonnes)Jun 2016Jun 2015Abs. Change % Change 
Landfills 370.5 449.2 -78.7 -17.5%
Waste-to-energy plants 687.4 688.3 -0.9 -0.1%
Selecting plant and other 258.8 224.3 +34.5 +15.4%
Composting and stabilisation plants 211.3 226.5 -15.2 -6.7%
Stabilisation and chemical-physical plants 721.4 665.1 +56.3 +8.5%
Other plants 1,212.7 998.0 +214.7 +21.5%
Waste treated by plant 3,462.1 3,251.4 +210.7 +6.5%

The Hera Group operates in the entire waste cycle, with 83 urban and special waste treatment and disposal plants, the most important of which are: 10 waste to energy plants, 11 composters /digesters and 8 selecting plants.

Waste treatment increased by 6.5% over the first six months of 2015. This growth is mainly explained by the higher volumes managed by selecting plants, primarily due to the acquisition of Waste Recycling, and an increase in waste treated in plants belonging to third parties, a consequence of both the increased consolidated scope dating to late 2015 and a higher level of waste brokerage. This increase in volume is partially mitigated by a fall in landfill usage, as had already been seen throughout 2015.

Note that during the second half of 2015, significant corporate and organisational changes occurred within the waste management area. The entire share capital of Akron, 57.5% held by Herambiente, was acquired; before this acquisition, the company in question dealt with sorted waste material selection, with a dedicated chain of plants. Later, activities in waste disposal carried out for the municipalities of Padua and Trieste were transferred to Herambiente, creating the company Hestambiente, in order to continue towards higher levels of integration, efficiency and a full control of WTE across the Group. Furthermore, a merger occurred between Romagna Compost and Herambiente Recuperi, as did acquisitions of Biogas 2015, a branch of Geo Nova including a few of its plants, and of the Waste Recycling Group.

Waste management: a slight decrease in EBITDA

The table below summarises the income statement for the waste management area:

Income statement (€/mln)Jun 2016% Inc.Jun 2015% Inc.Abs. Change % Change 
Revenues 491.4   430.1   +61.3 +14.3%
Operating costs (288.4) -58.7% (226.9) -52.7% +61.5 +27.1%
Personnel costs (88.0) -17.9% (85.8) -19.9% +2.2 +2.6%
Capitalised costs 1.5 0.3% 2.3 0.5% -0.8 -34.1%
EBITDA 116.5 23.7% 119.8 27.9% -3.3 -2.8%

Waste management revenues come to € 491.4  million

Revenues rose in the first half of 2016 by 14.3% or € 61.3 million, passing from € 430.1 million in 2015 to € 491.4 million in 2016. This growth is due to an increase in volumes treated, the new incentive mechanism for sales of electricity produced from renewable sources (in which a subsidised sales tariff substitutes recognising the value of green certificates as a reduction of costs), with a positive effect on revenues amounting to € 34 million, compensating for the lesser revenues for electricity production following a reduction in the CIP6/CEC unit price and the decrease in green certificate recognition for some plants.

Operating costs in this area during the first half of 2016 increased by € 61.5 million, in line with the rise in waste treated and the new mechanism of incentives for electricity production (as mentioned above).

Waste management EBITDA at € 116.5 million

EBITDA went from € 119.8 million in the first half of 2015 to € 116.5 million in 2016, thus showing a fall of € 3.3 million, or 2.8%, largely due to the lower price of both electricity production and energy certificates.

Investments in the waste management area: € 17.5 million

Net investments in the waste management area involving plant maintenance and upgrading amounted to € 17.5 million, up € 3.9 million over 2015.

The figures seen in the composting/digester subsector were essentially in line with the previous year. Investments in the Ozzano (refining line completed) and Sant’Agata (activities tied to the biomethane project) composters increased in the first half of 2016, compensated by lesser interventions on the Rimini and Voltana plants, which had undergone dedicated interventions in 2015.

The appreciable increase in investments for landfills, coming to € 5.0 million, can primarily be traced to the creation of the 9th sector of the Ravenna landfill and works on the Tre Monti landfill, including the installation of a new motor and a biogas intake network, as well as works on landslide repair and road access.

In the WTE subsector, the € 2.6 decrease compared to the previous year was mainly due to the more extensive works on plants in Padua and Trieste implemented in 2015, in addition to a fall in maintenance works on the Forlì and Ravenna plants.

Investments in the Special Waste Plants subsector were basically in line with the previous year. A slight decrease, coming to € 0.2 million, was seen in maintenance works on the Ravenna plants owing to interventions completed in 2015 (sludge dehydration and improvements to cooling towers).

In selection and transhipment plants, the € 0.9 increase recorded is largely attributable to the consolidation of the company Waste Recycling and involves the completion of works on the chemical-physical treatment plant and the biological treatment plant.

Details of operating investments in the waste management area are as follows:

Waste Management
(€/mln)
Jun 2016Jun 2015Abs. Change % Change 
Composting/Digestors 1.4 1.4 +0.0 +0.0%
Landfills 7.9 2.9 +5.0 +172.4%
WTE 2.3 4.9 -2.6 -53.1%
RS Plants 0.8 1.0 -0.2 -20.0%
Ecological areas and gathering equipment 3.0 2.8 +0.2 +7.1%
Transshipment, selection and other plants 1.9 1.0 +0.9 +90.0%
Total Waste Management Gross 17.5 14.0 +3.5 +25.0%
Capital contributions 0.0 0.4 -0.4 -100.%
Total Waste Management Net 17.5 13.6 +3.9 +28.7%

Other Services

The other services area brings together all minor services managed by the Group, including public lighting, telecommunications and cemetery services.

Other services: decrease in EBITDA

During the first six months of 2016, the results of the other services area saw a 9.4% decrease compared to the previous year, with EBITDA going from € 9.6 million in the first half of 2015 to € 8.7 million in the same period in 2016.

Slight drop in contribution to Group EBITDA

Other services EBITDA falls by € 0.9 million

The changes occurred in EBITDA are as follows:

(€/mln)Jun 2016Jun 2015Abs. Change % Change 
Business EBITDA 8.7 9.6 -0.9 -9.4%
Group EBITDA 470.1 459.1 +11.0 +2.4%
Percentage weight 1.8% 2.1% -0.3 p.p.  

519.7 thousand lighting points

The following table shows area’s main indicators as regards public lighting services:

Quantative dataJun 2016Jun 2015Abs. Change % Change 
Public lighting        
Lighting points (thousands) 519.7 521.4 (1.7) (0.3%)
Municipalities served 148.0 157.0 (9.0) (5.7%)

An analysis of the data regarding public lighting shows an overall decrease of 1.7 thousand lighting points and a loss of 9 municipalities served. The Hera Group acquired roughly 22 thousand lighting points in 8 new municipalities, above all in Lazio and Lombardy. Along with the higher number of service requests in municipalities already managed, this allowed the loss of approximately 24 thousand lighting points and 17 municipalities served to be contained.

Other services: revenues fall

A summary of the income statement for the other services area is provided below:

Income statement (€/mln)Jun 2016% Inc.Jun 2015% Inc.Abs. Change % Change 
Revenues 59.3   60.4   -1.1 -1.8%
Operating costs (41.6) -70.2% (42.0) -69.6% -0.4 -1.0%
Personnel costs (9.7) -16.3% (9.3) -15.4% +0.4 +4.3%
Capitalised costs 0.7 1.2% 0.5 09% +0.2 +38.9%
EBITDA 8.7 14.6% 9.6 15.9% -0.9 -9.4%

Revenues for Other Services at € 59.3 million

Renues for the area fell compared to the previous year, mainly on account of the transfer in late 2015 of the company Trieste Onoranze e Trasporti Funebri, held by AcegasApsAmga. Not including this change, revenues in the other services area would be essentially identical to the previous year.

EBITDA falls by € 0.9 million

EBITDA shows a € 0.9 million decrease compared to June 2015. Half of this change is accounted for by a lower amount of EBITDA in public lighting in areas in North-Eastern Italy, where the business is currently being rationalised in order to meet the new challenges of the market and where lesser non-recurring activities were requested by municipalities. The remainder is due to both a fall in cemetery services and lower EBITDA in the telecommunications business.

Net investments: € 5.5 million

Investments in the other services area amounted to € 5.5 million, falling by € 0.9 million compared to the first half of 2015.

In telecommunications, investments coming to € 4.5 million were made in networks and TLC and IDC (Internet Data Centre) services, with a € 0.2 million rise compared to 2015.

Investments totalling € 1.0 million in public lighting services mainly went to maintaining, enhancing and modernising lampposts, with an overall decrease of € 1.1 million that included both the company Hera Luce and the company Insigna in AcegasApsAmga’s operating area.

Details of operating investments in the other services area are as follows:

Other Services
(€/mln)
Jun 2016Jun 2015Abs. Change % Change 
TLC 4.5 4.3 +0.2 +4.7%
Public Lighting and Street Lights 1.0 2.1 -1.1 -52.4%
Total Other Services Gross 5.5 6.4 -0.9 -14.1%
Capital contributions 0.0 0.0 +0.0 +0.0%
Total Other Services Net 5.5 6.4 -0.9 -14.1%

Trading and procurement policy

Recovery in gas consumption: +1.3%

As regards gas, in the first six months of the year overall consumption rose by 1.3% over the same period in 2015, with an increase in terms of volume coming to over 450 Gm3. The driving element of recovery, compared to 2015, was gas consumption involved in electricity production: in the first half of 2016, thermoelectric consumption rose by 10.6% on the same period in 2015 which in terms of volume corresponds to an increase of roughly 980 Gm3. Industry is showing signs of a slow recovery, with gas consumption up  2.7% over the first half of 2015. As regards household consumption, instead, climactic factors brought about a decrease that in the first half of 2016 led to a fall of roughly 605 Gm3 compared to the same period in the previous year (-3.3%).

An optimised portfolio

Climatic factors in the first half of the year naturally had a negative impact on Group sales.

Trading operations in the first half of the year were oriented on the one hand towards optimizing the portfolio with a view to balancing short-term positions, and on the other towards negotiating and managing new supply contracts for the 2016/2017 thermal year.

Going into further detail, short-term adjustments, oriented by an efficient prediction of upcoming demand, were implemented through purchase or sale agreements at the Virtual Exchange Point (VEP) in Baumgarten, on the Title Transfer Facility (TTF) and on Net Connect Germany (German NCG). The conditions for these transactions were generally favourable and allowed objectives in terms of expected results to be met.

As of April, Hera Trading initiated gas procurement activities aimed at both filling the storage capacity purchased by auction, with roughly 0.35 billion m3, and providing gas for the Hera Comm free market for the 2016/17 thermal year, with roughly 0.5 billion m3, sourcing it directly from the spot market; this activity, as at 30 June, is still ongoing.

Negotiation of modulated gas for roughly 1.5 billion m3

During the month of April, as in the previous year, negotiations began for modulated gas intended for the protected market REMI delivery points of the Group’s sales companies. The total amount in question reached roughly 1.6 billion m3 for the 2016/17 thermal year, as per the supply conditions resolved by the Aeegsi beginning in October 2013. This negotiation allowed particularly favourable terms to emerge in terms of both prices and payments conditions.

Electricity consumption falls by -0.9%

Demand for electricity in the first half of 2016 dropped compared to the same period of the previous year, showing a decrease of 0.9%.

As regards electricity production, the first half of the year recorded an increase in both thermoelectric production and wind power, which rose by 2.6% (+1.8 TWh) and 13.2% (+1.2 TWh) respectively. This increase was offset by a lower photovoltaic production, which recorded a notable decrease of -18.0% (-0.45 TWh) and a lesser contribution coming from hydroelectric energy, at 2.2 TWh (–9.3%).

Electricity market prices dropped significantly in the first half of 2016: the average PUN wavered between 46 €/MWh in January and 32 €/MWh in May, while in the same period in 2015 the PUN remained between 47 and 55 €/MWh. This trend can largely be attributed to the reduction in prices for natural gas.

Electricity market reform

Over the first half of the year, a progressive increase in dispatching expenses was seen, brought about by the higher costs incurred by Terna on the DSM (Dispatching Service Market) to procure the resources necessary for safe dispatching on the national power system. To find a solution for the increasing costs of dispatching, the AEEGSI has issued preliminary statements consisting in Consultation documents concerning a “Revision of regulations on current unbalances” (DCO 316/2016/R/EEL) and a “Initial phase of the reform of the dispatching services market” (DCO 298/2016/R/EEL).

Price risk management

The negative scenario which is having a serious impact on companies involved in production from conventional sources, as regards the Hera Group - bearing in mind its limited installed thermoelectric capacity compared to the end market served - is strongly mitigated by commercial activity involving final customers.

Electricity trading performance

As regards activities in electricity trading and Green Certificates, the first six months saw improved performances in terms of both margins and the average value of import capacity held compared to the equivalent period in 2015. Particular attention went to the management/optimisation of Hera Comm’s purchase portfolio by way of operations on the Stock exchange and on Over the Counter (OTC) platforms.

Managing commodity and exchange risk proved once again to be particularly effective, even in a context marked by the notable volatility of oil prices and the euro-dollar exchange rate.

REMIT applicatoin

Over the first half of the year a further phase of implementation of the Regulation concerning wholesale energy market integrity and transparency (REMIT) was initiated, introducing as of 7 April 2016 reporting requirements for both standard commodity contracts concluded bilaterally and non-standard commodity contracts. As of 7 October 2015, instead, reporting requirements have been in force for standard commodity contracts executed on regulated markets (Organized Market Places).

Financial policies and ratings

A slowdown in emerging economies

Expansion continues in the United States and other advanced countries, while emerging economies remain a factor of risk for world growth. Concern over an abrupt slowdown in China has subsided, but the country’s economy continues to deteriorate. The fall in the price of oil has not as yet translated into a reinforcement of global activity, and the IMF and the OECD have modified downwards their forecasts for growth in international commerce and the expansionary stance of monetary policies in advanced countries has intensified.

In the early months of this year, concerns over global growth triggered notable price decreases on international financial markets, which have since been reabsorbed to some degree. The performance of bank stock has been particularly poor throughout Europe, especially in Germany and Italy, with markets now paying closer attention to credit quality, partly owing to operators’ uncertainty about the future direction of banking regulation.

Growth continues in the euro area, although the risks associated with trends in foreign demand and uncertainties in the geopolitical situation have increased. The inflation rate stands at zero, reflecting among other things an ample slack in the labour market.

The ECB’s expansive monetary policy

In March, the ECB’s Governing Council introduced a substantial package of expansionary measures, over and above what observers had expected, consisting of an increase in the size and composition of securities purchases, a further reduction of official rates and new measures to refinance banks at exceptionally favourable conditions.

Once the new measures were announced, monetary and financial conditions became more expansionary: yields on public and private sector securities diminished; risk premiums were reduced; share prices picked up; and the euro appreciated.

The measures adopted by the ECB’s Governing Council should support economic activity through several channels: helping the flow of credit to the economy and lowering its cost; ensuring certainty as to the availability and cost of bank funding; cutting the cost of capital for businesses; bolstering the value of households’ real and financial wealth; and stimulating the real estate market. Support for economic activity and employment is a necessary prerequisite for bringing inflation back to levels consistent with price stability.

Interest rates at historical lows

The ECB’s program of Quantitative Easing has significantly contributed to reducing swap rates (now negative on those with a time to maturity of up to five years) and narrowing spreads, to the point of becoming a favourable combination for corporate issuers who, in the month of March, increased the amount of new offers on the primary market, thus refinancing their own debt at particularly advantageous rates.

The strong drop in the yield curve in euro continued after the outcome of the referendum on the United Kingdom’s future in the European Union (“Brexit”).

Market curves and 10-year BTP-Bund spread

The spread between ten-year BTPs and the German bund (as a reference parameter for the cost of borrowing), after having fallen below 110 basis points in March, rose at times to levels of 145 basis points, as an effect of the turbulence on financial markets, burdened by the risk of a slowdown in the rate of global growth.

The surprise created by “Brexit” had repercussions on the spread as well, which, after having shot up to over 190 basis points, was immediately checked by the ECB and the main central banks that took action on the markets, bringing it back under 140 basis points.

On 1 July the spread returned below 130 basis points after the European Commission authorised Italy to use government guarantees to support the country’s banking sector.

Limited credit offer

A gradual recovery in lending continued to be seen, aided by the expansionary spur of monetary policy measures; the persistently high volume of non-performing loans is however restricting banks’ profitability, and the numerous regulatory restrictions set a limit to the bank system’s credit disbursement policies.

A model of active, risk-adverse management

Given this economic and financial scenario, the Group has devised a financial management plan capable of maximising its yield profile while maintaining a cautious risk strategy. The average cost of debt has been optimised through forms of liability and financial risk management aimed at seizing market opportunities.

To support liquidity risk indicators and optimise the costs/convenience of funding, the Group has obtained committed credit lines amounting to € 395 million with an average age of 4 years.

Financial risk management strategy

A list is provided hereunder of the policies and principles aimed at financial risk management and control, including liquidity risk with the related default risk and debt covenants, interest rate risk, exchange rate risk and rating risk.

Proactive liquidity management

Liquidity risk

The Group attempts to match the maturities of its assets and liabilities, linking its investments to sources of funds that are consistent in terms of maturity and manner of repayment, taking into account the refinancing requirements of its current debt structure.

Liquidity risk refers to a company’s potential failure to meet its financial obligations, due to an inability to obtain new funds or sell assets on the market.

The Group’s objective is to ensure such a level of liquidity as to make it possible to meet its contractual obligations under both normal and critical conditions by maintaining the availability of lines of credit, liquidity and a timely start of negotiations on maturing loans, optimizing the cost of funding on the basis of current and future market conditions.

The table below shows the ‘worst case scenario’, where no consideration is given to assets (cash, trade receivables etc.) and emphasis is placed on financial liabilities, both principal and interest, trade payables and interest rate derivatives. All demand loans are called in while other loans mature on the date when repayment can be demanded.

Adequate liquidity for a worst case scenario

Worst case scenario 30.06.201631.12.2015
(mln/euro)from 1 to 3 monthsfrom 3 months to 1 yearfrom 1 to 2 yearsfrom 1 to 3 monthsfrom 3 months to 1 yearfrom 1 to 2 years
Bonds 14 84 84 242 84 84
Debt and other financial liabilities 94 94 58 134 97 75
Trade payables 907 0 0 1,121 0 0
Total 1,015 178 142 1,497 181 160

In order to guarantee sufficient liquidity to meet every financial obligation for at least the next two years (the time limit of the worst case scenario shown above), at 30 June 2016 the Group had € 248.3 million in liquidity, € 474 million in unused lines of credit of which € 395 million in committed lines of credit, and a substantial amount that can be drawn down under uncommitted lines of credit (€ 1,000 million).

The lines of credit and the corresponding financial assets are not concentrated on a specific lender, but distributed among major Italian and foreign banks, with a usage much lower than the total available.

Average term to maturity: 8 years

The Group’s financial structure is both solid and balanced in terms of composition and time to maturity, bringing liquidity risk to a minimum even in the event of particularly critical scenarios.

The amount of debt that matures within the year has fallen to 5.4% compared to the month of December (11.8%) as an effect of the reimbursement of the eurobond that matured in February 2016 (€ 195.4 million) and a lesser usage of short-term lines, repayable on demand.

The amount of long-term debt comes to roughly 94.6% of total financial debt, of which roughly 79% consists in bonds with repayment at maturity. The average term to maturity is over 8 years, of which 73% maturing beyond 5 years.

The table below shows cash outflows broken down by maturity within and beyond five years.

Debt repayment outlays (mln/euro)30 June 201631 Dec 201731 Dec 201831 Dec 201931 Dec 2020Over 5 yearsTotal
Bonds 0 0 0 500 0 2,035 2,535
Bank debt / due to others 134 71 52 53 49 368 727
Total 134 71 52 553 49 2,403 3,263

No financial covenants

Default risk and debt covenants

The risk is related to the possibility that loan agreements entered into contain clauses whereby the lender may demand accelerated repayment of the loan if and when certain events occur, thus giving rise to a potential liquidity risk

At 30 June 2016, a significant portion of the Group’s net borrowings was covered by loan agreements containing a number of clauses, in line with international practices, that place some restrictions. The main clauses guarantee equal treatment of all debt holders with respect to the company’s other non-guaranteed debts (pari passu) and prevent it from granting to subsequent lenders, with the same seniority status, better security and/or liens on its assets (negative pledge).

As to acceleration clauses, there are no financial covenants on debt except a corporate rating limit, specifying that no amount in excess of €150 million in debt can be rated below investment grade (BBB-) by even one rating agency.

Change of control & Investment grade

On the remainder of the debt, the acceleration clause is triggered only in case of a significant change of control of the Group that entails a downgrading below investment grade or the termination of the publication of the rating.

Prudential management of interest rate risk

Interest rate risk

The Group uses external funding sources in the form of medium- to long-term financial debt and various types of short-term credit facilities, and invests its available cash primarily in immediately realizable highly liquid money market instruments. Changes in market interest rates affect both the financial costs associated with different types of financing and the revenue from different types of liquidity investment, thus impacting the Group's cash flows and net financial charges.

The Group’s financial policy has been designed to identify an optimal mix of fixed- and floating-rate funding, in line with a prudential approach to interest rate risk management. The latter aims to stabilize cash flows, so as to maintain the margins and certainty of cash flows from operating activities.

Interest rate risk management entails, from time to time, and depending on market conditions, transactions involving a specific combination of fixed-rate and floating-rate financial instruments as well as derivative products.

Offset swaps to optimise the average cost of debt

The Group’s exposure to interest rate risk, including the effect of derivatives, comes to 17% of total borrowings. The remaining 83% of debt is at fixed rates, resulting from a stipulation of offset swaps dating to 28 May 2015, with which two € 500 million bonds maturing in 2019 and 2021, that in March were at floating rates as an effect of hedging derivatives, were brought to fixed rates.

This operation allowed the rates to be set at 2.09% and 1.81% respectively, decidedly lower than the original rates of 4.5% and 3.25%.

83% of debt at fixed rates

The Group applies a financial management approach based on risk mitigation, adopting a risk hedging policy that leaves no room for the use of derivatives for speculative purposes, derivatives being a perfect hedge of the underlying debt instruments.

Gross borrowings (*)30 June201631 Dec  2015
(mln/euro)without derivativeswith derivatives% with derivativeswithout derivativeswith derivatives% with derivatives
fixed rate 2,610.5 2,633.2 83% 2,799 2,826 83%
floating rate 562.8 540 17% 593 567 17%
Total 3,173 3,173 100% 3,392 3,392 100%

Exchange risk unrelated to commodity risk

The Group adopts a prudential approach towards exposure to currency risk, in which all currency positions are netted or hedged using derivative instruments (cross-currency swaps). The Group currently has a bond outstanding for 20 billion Japanese yen, fully hedged by a cross currency swap.

Ratings confirm the strong points built up by the Group over time

Ratings

Spa has been given a long-term ‘Baa1 Outlook Stabile’ rating by Moody’s and a ‘BBB Outlook Stabile’ rating by Standard & Poor’s (S&P).

On 1 June 2016 Moody’s issued a credit opinion confirming the “Baa1” rating with a “Stable” outlook. This positive appraisal of the Group’s risk profile is due to its solid and balanced business portfolio, in addition to its good operating performance and consolidated strategy.

The rating previously issued by Standard & Poor’s was confirmed, owing to S&P’s expectancy that the Group can meet targets in credit worthiness and that its solvency is not completely dependent on the conditions of sovereign risk.

Given the current macroeconomic context and the prolonged uncertainty of Italy’s economic prospects, the Group’s actions and strategies are always calibrated so as to maintain and/or upgrade its rating.

Sustainability policies

Presented in H1 last sustainability report

Contains the numbers of economic, social and environmental responsibility.

It focus on the commitments, the results obtained and future perspectives Approved by the BoD on the 24th march 2015 and by the Shareholder's meeting on 28th April 2015.

Read more

Industrial relations, development and training

The company's growth and organizational and managerial evolution require constant reviews and updates which, if properly directed, offer additional opportunities for improvement in terms of effectiveness and efficiency without resulting in higher costs. In the first half of 2016 this result was achieved in that Hera Spa was able to maintain all its certifications, while Heracomm's authorization for Emission Trading and certifications 9001, 50001 and 11352 were extended.

A review was initiated on the Integrated Management System according to the new ISO 9001 and 14001/2015 in anticipation of the Group's obtaining certifications in the new standards during 2017.

After having applied to the Commission for Enquiries, Hera Spa received confirmation that it is correct to use the criteria set out in the January 2015 INAIL Manual in relation to reclamation activities.

Regarding environmental issues, monitoring protocols have been prepared to ensure timely feedback on the markers defined in the workplace, with the aim of sharing this feedback with supervisory bodies. Another important result was the completion of the organizational realignment to come into line with one of the standards methods of emergency management throughout Hera Spa, with a reduction in the number of individuals involved in emergency management and a significantly increase in the degree of control over the functioning of emergency management systems (e.g. fire alarm, evacuation procedures, etc.). In order to launch the new company INRETE beginning 1 July without interruptions, the company retained all its certifications (ISO 9001, 14001, OHSAS 18001, 50001), as well as its membership in the Roll of 10B Environmental Managers and the SOA. During the 2016 and 2017 financial years, removal of all products containing asbestos will be completed, with a significant improvement in environmental quality for both workers and the environment in general.

In June, the prototype model for the management of the physical security of company assets was presented to the Risk Committee, and this model will be extended to the whole company during 2016/2017.

As for health and safety in the workplace, the 2015 health report was presented, which does include any significant findings about the health of workers, while a focus group was held on the potential evolution of occupational diseases, in particular bone and joint diseases and, in some limited cases, asbestos exposure.

In the first half of the year, the incidence of accidents at Hera Spa showed no particular shifts as compared to 2015.

With regard to suppliers, a search was launched to identify a method of analysis comprising a series of indicators that would complement and implement existing indicators in order to increase the bases for evaluating supplier performance in terms of contracts and technical specifications.

Quality, safety and environment

The company's growth and organizational and managerial evolution require constant reviews and updates which, if properly directed, offer additional opportunities for improvement in terms of effectiveness and efficiency without resulting in higher costs. In the first half of 2016 this result was achieved in that Hera Spa was able to maintain all its certifications, while Heracomm's authorization for Emission Trading and certifications 9001, 50001 and 11352 were extended.

A review was initiated on the Integrated Management System according to the new ISO 9001 and 14001/2015 in anticipation of the Group's obtaining certifications in the new standards during 2017.

After having applied to the Commission for Enquiries, Hera Spa received confirmation that it is correct to use the criteria set out in the January 2015 INAIL Manual in relation to reclamation activities.

Regarding environmental issues, monitoring protocols have been prepared to ensure timely feedback on the markers defined in the workplace, with the aim of sharing this feedback with supervisory bodies. Another important result was the completion of the organizational realignment to come into line with one of the standards methods of emergency management throughout Hera Spa, with a reduction in the number of individuals involved in emergency management and a significantly increase in the degree of control over the functioning of emergency management systems (e.g. fire alarm, evacuation procedures, etc.). In order to launch the new company INRETE beginning 1 July without interruptions, the company retained all its certifications (ISO 9001, 14001, OHSAS 18001, 50001), as well as its membership in the Roll of 10B Environmental Managers and the SOA. During the 2016 and 2017 financial years, removal of all products containing asbestos will be completed, with a significant improvement in environmental quality for both workers and the environment in general.

In June, the prototype model for the management of the physical security of company assets was presented to the Risk Committee, and this model will be extended to the whole company during 2016/2017.

As for health and safety in the workplace, the 2015 health report was presented, which does include any significant findings about the health of workers, while a focus group was held on the potential evolution of occupational diseases, in particular bone and joint diseases and, in some limited cases, asbestos exposure.

In the first half of the year, the incidence of accidents at Hera Spa showed no particular shifts as compared to 2015.

With regard to suppliers, a search was launched to identify a method of analysis comprising a series of indicators that would complement and implement existing indicators in order to increase the bases for evaluating supplier performance in terms of contracts and technical specifications.

Commercial policy and customer care

The Group’s customer base grew by 1.3% in the first half of 2016 compared same period in the previous year.

Electricity customers increased by 3.5%, mainly due to an intense and coordinated commercial activity carried out across all areas served by the Group.

Gas customers went up by roughly 12 thousand individuals (+0.9%): this result is an effect of the entrance, within the Hera Group, of Julia Servizi Più, a company operating in Abruzzo in electricity and gas sales. Water service customers increased very slightly, by roughly 0.4%, a figure which reflects the ongoing crisis in the real estate sector.

Contracts30 June 1630 June 15Delta pdf n. delta pdf % 
Gas  1,339.2 1,327.3 11.9 0.9%
Electricity 855.2 826.3 28.9 3.5%
Water 1,451.1 1,445.7 5,4 0.4%
District heating 11.7 11.6 0,1 1.2%

dati espressi in migliaia

The volume of contacts managed through Group channels saw, in the first half of 2016, a 5.6% increase over 2015, thus reaching an overall amount of roughly 2,550,000 contacts. The channels involved in this rise include protocol (+14%), SMS (+13%), Call Centre (+5.7%), IVR (+5.4%) and the web (+5%); the contacts handled by customer assistance desks remained unchanged.

The call centre once again ranked in 2016 as the most widely used contact channel (44%), followed by IVR (17%), customer help desks (14%), the web (11,5%), SMS (8%) and correspondence (5,5%).

The rise in contacts at the Hera Call Centre led, in the first few months of 2016, to a slight drop in the percentage of calls answered, thus bringing the progressive amount in the first half of the year to  94.5%. One must however note the strong recovery seen in May and June, when the amount of service reached 96%-97%. The same is true for waiting times (including IVR) that, as a half-year average, saw a +15% increase over 2015 but in recent months were back in line with the same period in 2015.

The results achieved by the Hera Customer Assistance desks were once again quite good, closing the first half of 2016 with an average waiting time of under 10 minutes.

The good performances achieved by contact channels contributed to a further improvement of the quality perceived by end customers. According to the Customer Satisfaction review, in fact, the rating reached by customer help desks was 83 (up +2 compared to the first half of 2015), with the Families Centre also reaching 83 (+3 compared to the first half of 2015) and the Businesses Call Centre at 78 (+3 compared to the first half of 2015).

Important initiatives aimed at improving services for end customers were introduced in the first half of 2016, including a free telephone number for contacts from mobile phones and a renovation of the system used to manage customer help-desk waiting lines.

The main indicators of Hera’s customer assistance desks and call centres are as follows:

Information systems

The Information Systems Department is responsible for guaranteeing the development and efficiency of the Group's business support information systems. It also ensures that the system continuously adapts to the sector's regulatory requirements and business needs, reducing risks in terms of technology and security in full accordance with the Group's strategic guidelines and sustainability objectives.

Corporate evolution

In the first half of the year, the Group’s corporate developments were primarily characterized by projects ensuing from the merger of Genova Spa into Herambiente Spa, the transferal of the activities of HARE into Herambiente Servizi Industriali Srl and the construction of the new company InRete Distribuzione Energia.

Standardisation of systems in other companies

The plan to harmonize the other companies’ systems within the Group's platforms is ongoing. The AcegasApsAmg three-year migration plan continues and the activities associated with the first phase of the project to standardize the IT systems of Marche Multiservizi were set into motion.

Regulatory adjustment

Projects associated with the second phase of the unbundling program were completed and activities were set in motion regarding the management of the RAI fee in customer bills. Measures to ensure compliance continued in relation to the migration of processes between sellers and distributors on the platform of Acquirente Unico (Integrated Information System).

Support to business

Several projects have been completed in this area, including the new sales force management system (SFA) for the different channels and different types of customers, the management of new commercial offers including the consumption analysis reports detailed in customer bills, and the new system for managing employees wages. Lastly, the current remote reading option was extended to point-multipoint residential meters.

Reduction of technology risk

As part of the process of ensuring continuous technological innovation and performance improvement of the Group's information systems, several significant application databases were migrated to a specialized, dedicated platform.

Information system safety

The security of IT systems and enterprise data, in compliance with data protection regulations, are among the key objectives of the Information Systems Division. Our commitment to preventing and monitoring potential cyber attacks is ongoing, through a periodic risk analysis on the production systems (vulnerability assessment), through updates of the existing systems and new specialized solutions; in relation to this latter, it should be noted that activities of Virtual Patching continued to be carried out on the Group’s systems.

During the first half of the year, audits were conducted for the maintainence of the ISO 9001 certification.

Human resources

Hera Group’s employees with open-ended contracts as of 30 June 2016 equal 8,439 (consolidated scope) and are distributed by role as: executive managers (156), middle managers (525), office clerks (4,500), and workers (3,258). This setup ensues from 101 entries and 94 exits and from changes in the company structure of Julia Servizi S.r.l., which introduced 6 new units. Hiring mainly results from a quality turnover entailing the entry of skilled workforce.

Industrial and operational integration: the Hera model

Structure

The Hera model stands out in the multi-utility industry for implementing its industrial and operational integration under one leading holding company, which ensures the governance of the group as a whole through a central management unit in charge of setting and control.  The management of dedicated business lines is entrusted to each individual General Department and Company under the supervision of the head of Hera S.p.A. and which, in terms of the Energy, Integrated Water and Environmental Services, are coordinated by the General Operations Department.

The utility sector changes constantly and rapidly due to competitive dynamics, to a specialty-oriented regulatory setting, and to other key elements such as water and environmental services legislation, service allocation tenders and regional regulations. Accordingly, growth in such a setting rests on the ability of enterprises to innovate the industrial processes on a regular basis, taking advantage of synergies deriving from an economy of scale and ensuring maximum service efficiency.

Innovation and streamlining of operating processes

Besides consolidating its structural model, in the first six months of 2016 the Group completed the operations necessary to finalize the spin off of natural gas and electricity distribution, continuing to streamline its operating processes and was further committed to technological and process innovation, with the aim of securing the tools needed to pursue the Group’s aims.

Below is the Group's organizational macrostructure:

In line with regulatory developments on functional unbundling, logistic changes to spin off the distribution of gas and electricity have been implemented since 1 January 2016.

As far as the Energy Network Department is concerned, the overall management structure was rearranged with a view to streamlining the model. The District Heating Department and the Relevant Production Units function (CHP Imola) were relocated within the Market Central Department, as they were not directly affected by unbundling legislation and were consistent with DHG sector guidelines.

Beginning 1 July 2016, the Energy Network Department converged into Inrete Distribuzione Energia Spa.

As part of the streamlining, it is worth mentioning the reallocation of the Technical Services Department - previously under Central Innovation - into the Technical Customer Department, to back the management role in the delivery of technical customer services group-wide.

Through its structure, processes, resources and systems, the Group aims to balance its business prospects and territorial roots while pursuing maximum effectiveness and efficiency in service delivery.

Uniforming AcegasApsAmga’s organisational model

AcegasApsAmga’s structural uniforming plan is still ongoing in 2016.

To this purpose, the Technical Customer Management Department was created in charge of coordinating technical activities aimed at managing customers for business units, according to the Group’s organizational model.

A company-wide project aiming to improve performance and service in AcegaApsAmga contact structures was completed, promoting an integrated view of the diverse customer management issues. To this end, the structure of Customer Operations was incorporated into the Administration, Finance and Customer Operation Department, thereby acquiring the coordination of invoicing.

Main developments in Herambiente

Activities related to the management of public lighting, laboratories and cemeteries were concentrated in the Public Lighting and Services Department, and activities of relating with local stakeholders were concentrated in the Planning Control and Local Authorities Relations Department.

During the first half of 2016 activities that led to the reorganization of the Market Department were completed. The rationale behind this development was: to increase the effectiveness of customer service through the rearrangement of the business structures’ operating model, to facilitate mechanisms for the commercial integration of new areas acquired and to promote the optimization of processes through the introduction of a Lean Organization approach

To this end, the business activities of Herambiente Servizi Industriali were concentrated into two areas: Global Service, and SMEs and micro-waste collection, with specific operating models for each customer segment.

As for the logistics area, the ongoing cost-optimization process according to the principles of Lean Organisation has been joined by a greater degree of market orientation with the establishment of the Operational Customer Management Department, focused on providing proactive response to customer needs.

The Authorizations and Environmental Monitoring function was also created, placed directly under the supervision of Herambiente Spa’s CEO, aimed at centralizing the responsibilities and activities

associated with the configuration as well as technical and administrative management of environmental permits.

Having taken operational effect 1 July 2016, preparatory activities were completed for renting out the business branch Storage Plant for hazardous and non-hazardous waste located in San Vito al Tagliamento (PN) from Herambiente Spa to Herambiente Servizi Industriali s.r.l.

Main developments in the Market Central Department

As to the Market Central Department, in addition to the above changes to the District Heating Department and to the Relevant Production Units, below are the main changes:

  • effective as of 1st July 2016, the reorganization of Amga Calore & Impianti, specifically aimed at focusing the Technical Management towards core operational activities  (and associated removal of the customer management activities) and at strengthening the technical-economic optimization of plant performance;
  • effective as of 1st January 2016, the new Energy Services Department was established to focus on the Energy Service business as well as to attain transversal cooperation between the group companies operating in this area and the District Heating Department.
  • effective as of 1st January 2016, the Direct Selling structure in the Top Business market was reallocated within the Marketing and Indirect Sales Management (renamed Marketing and Sales) in order to underpin the overall coverage of the Top Business customer segment, and to encourage interaction with strategic marketing setting activities.

Main development in the Central Entities Department

In the Central Unit area, it is worth mentioning:

  • effective as of May 2016, the reallocation of the Area Managers for the different territories, previously allocated to the Local Authorities Relations Central Department, headed by the Strategic Planning and Regulatory Affairs Department, renamed Planning, Regulatory Affairs and Local Authorities Central Department;
  • effective as of March 2016, the Administration, Finance and Control Central Director was appointed Manager in charge of the organizational unit responsible for ensuring compliance with the EMIR regulations on derivatives contracts;
  • effective as of 1st January 2016, the reallocation of Uniflotte S.r.l.’s supplier and general  accounting within the Department of Administration, Finance and Control, in line with the Group's operating model;
  • with reference to the structural changes ensuing from the above spin-offs, the reallocation - effective as of 1st January 2016 - of the Insurance structure, which was previously under the Customer Technical Department and which reported directly to Risk Management and Insurance at the Central Legal and Corporate Affairs Department.

In the Innovation Central Department, it is worth mentioning:

  • effective as of April 2016, Hera Luce was reorganized so as to further strengthen activities for managing awarding contracts and optimize staff activities in keeping with the ongoing processes of integration into the main structures;
  • effective as of May 2016, Acantho Technical Department was reorganized, specifically in order to foster the development of an integrated vision of business processes according to a network approach and end to end logics as far as the management of customers and network infrastructures and assurance activities.

New committees: Management Review and Business Review

In addition to the internal committees, appointed directly by the Board to perform an advisory and proactive role in specific areas of expertise, the Group's management provides for two collegial committees:

  • Management Review, which deals with examining and sharing corporate policies, strategies, goals and operational planning group-wide, as well as with fostering integration between corporate entities.
  • Business Review, whose duty is to report on periodic operating performance to each of the corporate business areas, and to assess the progress of specific budget unit actions set forth under the budget and business plans.

Financial statements

Income statement

€/mlnnotesFirst half 2016First half 2015
Revenue 1 2,152.7 2,213.0
Other operating revenues 2 162.0 155.9
Use of raw materials and consumables 3 (998.0) (1,103.9)
Service costs 4 (570.3) (530.7)
Personnel costs 5 (266.7) (260.7)
Amortisation, depreciation,provisions 6 (212.7) (214.0)
Other operating costs 7 (20.8) (26.9)
Capitalised costs 8 11.2 12.3
Operating profit   257.4 245.0
Portion of profits (loss) pertaining to joint ventures and associated companies 9 6.5 6.3
Financial income 10 68.6 57.3
Financial expense 10 (133.1) (124.9)
Total financial operations   (58.0) (61.3)
Pre-tax profit   199.4 183.7
Taxes 11 (71.2) (68.3)
Net profit for the period   128.2 115.4
Attributable to:  
Shareholders of the Parent Company   121.0 107.3
Non-controlling interests 7.2 8.1
Earnings per share 12
basic   0.082 0.073
diluted   0.082 0.073

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Statement of comprehensive income

€/mlnnotesFirst half 2016First half 2015
Profit (loss) for the period   128.2 115.4
Items reclassifiable to the income statement      
fair value of derivatives, change in the year 19 0.3 0.7
Tax effect related to the other reclassifiable items of the
comprehensive income statement
  (0.1) (0.2)
Items not reclassifiable to the income statement      
Actuarial income/(losses) post-employment benefits 26 (7.9) 7.8
Tax effect related to the other not reclassifiable items of the
comprehensive income statement
  0.6 (2.1)
Total comprehensive income/ (loss) for the year   121.1 121.6
Attributable to:      
Shareholders of the Parent Company   114.4 112.7
Non-controlling interests   6.7 8.9

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Statement of financial position

€/mlnnotes30 Jun 201631 Dec 2015
ASSETS      
Non-current assets      
Property, plant and equipment 13 2,000.7 2,031.6
Intangible assets 14 2,922.1 2,895.6
Goodw ill 15 378.0 378.0
Non-controlling interests 16 154.0 157.1
Non-current financial assets 17 125.0 125.2
Deferred tax assets 18 77.1 73.0
Financial instruments - derivatives 19 159.6 108.2
Total non-current assets   5,816.5 5,768.7
Current assets      
Inventories 20 94.5 116.3
Trade receivables 21 1,466.3 1,533.0
Current financial assets 17 36.7 34.6
Current tax assets 22 41.5 29.1
Other current assets 23 247.9 226.1
Financial instruments - derivatives 19 16.5 6.5
Cash and cash equivalents 17, 30 248.3 541.6
Total current assets   2,151.7 2,487.2
TOTAL ASSETS   7,968.2 8,255.9

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Cash flow statement

€/mlnnotes30 Jun 201630 Jun 2015
Pre-tax profit   199.4 183.7
Adjustments to reconcile net profit to the cashflow from operating activities:      
Amortisation and impairment of property, plant and equipment   76.9 79.6
Amortisation and impairment of intangible assets   90.6 86.1
Allocations to provisions   45.2 48.3
Effect of valuation using the equity method   (6.5) (6.3)
Financial expense / (Income)   64.5 67.6
(Capital gains) / Losses and other non-monetary elements
(including valuation of commodity derivatives)
  (11.6) -
Change in provisions for risks and charges   (13.1) (9.7)
Change in provisions for employee benefits   (3.3) (4.9)
Total cash flow before changes in net working capital   442.1 444.4
(Increase) / Decrease in inventories   21.7 18.6
(Increase) / Decrease in trade receivables   35.3 (22.4)
Increase / (Decrease) in trade payables   (219.2) (229.9)
(Increase) / Decrease in other current assets/ liabilities   108.0 127.7
Change in working capitals   (54.2) (106.0)
Dividends collected   7.7 6.4
Interests income and other financial income collected   14.8 10.7
Interests expense and other financial charges paid   (74.3) (81.8)
Taxes paid   (10.7) (6.4)
Cash flow from (for) operating activities (a)   325.4 267.3
Investments in property, plant and development (50.3) (40.8)
Investments in intangible fixed assets   (107.1) (104.6)
Investments in companies and business units net of cash and cash equivalents 30 (5.2) (4.9)
Sale price of property,plant and equipment and intangible assets
(including lease-back transations)
  3.5 3.4
Divestment of unconsolidated companies and contingent consideration   - 0.2
(Increase) / Decrease in other investment activities   (1.7) (10.5)
Cash flow from (for) investing activities (b)   (160.8) (157.2)
New issues of long-term bonds - -
Repayments and other net changes in borrow ings   (312.7) (371.9)
Lease finance payments   (2.2) (2.4)
Investments in consolidated companies 30 - (27.0)
Share capital increase   - 9.1
Dividends paid out to Hera shareholders and non-controlling interests   (136.1) (137.3)
Change in treasury shares   (6.9) 8.8
Cash flow from (for) financing activities (c)   (457.9) (520.7)
Effect of change in exchange rates on cash and cash equivalents (d)   - -
Increase / (Decrease) in cash and cash equivalents (a+b+c+d)   (293.3) (410.6)
Cash and cash equivalents at the beginning of the period   541.6 834.5
Cash and cash equivalents at the end of the period   248.3 423.9

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Statement of changes in equity

€/mlnShare
capital 
ReservesReserves for
derivatives
instruments
recognized at fair 
value
Reserve actuarial
income/(losses)
post-employment
benefits
Profit for
the year
EquityNon-controlling
interests
Total
Balance at 31 December 2014 1,469.9 707.5 (1.1) (30.2) 164.8 2,310.9 148.1 2,459.0
Profit for the period         107.3 107.3 8.1 115.4
Other components of comprehensive income at 30
June 2015 :
               
fair value of derivatives, change in the period     0.3     0.3 0.2 0.5
Actuarial income/(losses) post-employment benefits       5.1   5.1 0.6 5.7
Total comprehensive Income for the period   - 0.3 5.1 107.3 112.7 8.9 121.6
Change in treasury shares 3.9 4.9       8.8   8.8
Payment for non-controlling shares           - 9.1 9.1
change in equity interests   (15.0)       (15.0) (12.0) (27.0)
Allocation of 2014 profit :                
- dividen paid out   (6.3)     (126.4) (132.7) (9.7) (142.4)
- allocation to other reserves   8.1     (8.1) -   -
- undistributed profits to retained earnings   30.3     (30.3) -   -
Balance at 30 June 2015 1,473.8 729.5 (0.8) (25.1) 107.3 2,284.7 144.4 2,429.1
Balance at 31 December 2015 1,474.2 729.8 (0.6) (25.5) 180.5 2,358.4 144.7 2,503.1
Profit for the period         121.0 121.0 7.2 128.2
Other components of comprehensive income at 30
June 2016:
               
fair value of derivatives, change in the period     0.1     0.1 0.1 0.2
Actuarial income/(losses) post-employment benefits       (6.7)   (6.7) (0.6) (7.3)
Total comprehensive Income for the period   - 0.1 (6.7) 121.0 114.4 6.7 121.1
Change in treasury shares (2.8) (4.1)       (6.9)   (6.9)
Allocation of 2015 profit :                
- dividen paid out   -     (132.5) (132.5) (11.4) (143.9)
- allocation to other reserves   39.5     (39.5) -   -
- undistributed profits to retained earnings   8.5     (8.5) -   -
Balance at 30 June 2016 1,471.4 773.7 (0.5) (32.2) 121.0 2,333.4 140.0 2,473.4

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Net borrowings

€/mln 30 Jun 201631 Dec 2015
a Cash and cash equivalents 248.3 541.5
b Other current financial receivables 36.7 34.7
  Current bank debt (89.5) (129.2)
  Current portion of bank debt (87.4) (284.9)
  Other current financial liabilities (11.2) (68.2)
  Finance lease payables due w ithin 12 months (1.8) (2.0)
c Current financial debt (189.9) (484.3)
d=a+b+c Net current financial debt 95.1 91.9
  Non-current bank debt and bonds issued (2,823.2) (2,845.4)
  Other current financial liabilities (5.4) (5.8)
  Lease payments due after 12 months (15.9) (17.6)
e Non-current financial debt (2,844.5) (2,868.8)
f=d+e Net financial position - CONSOB Communication No 15519 of 28/07/2006 (2,749.4) (2,776.9)
g Non-current financial receivables 125.0 125.2
h=f+g Net non-current financial debt (2,624.4) (2,651.7)

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Despite a rather challenging macroeconomic context, the financial report at 30 June 2016 once again shows increasingly positive results. During the year under review, thanks to the good level of cash generation it was possible to implement the envisaged investment plan and, last June, to distribute a dividend of 9 cents to shareholders, in line with what was specified in the industrial plan for 2019. Additionally, the performance of Hera stock was particularly positive as, since the beginning of the year, it has outperformed the Italian stock market. This was possible thanks to the good fundamentals that have historically characterized our multi-utility Group and the credible growth strategies we have envisaged for the future.

To allow our stakeholders to easily grasp the financial results for the first half of the year, we have decided to create an HTML version of the financial report as of 30 June 2016, so that these date can be consulted quickly and in a way that is simple, fast, transparent and, especially, sustainable, in line with the Group's policies.

In the first half of 2016 Hera enjoyed good performance in terms of free-market activities: its customer base grew along with its positioning in the Marche-Abruzzo area and overall results along the whole value chain.

The Group's effective operational management, which achieved a significant increase of 12.8% in the last line of the income statement (listed after third party results) was joined by equally effective management in the financial sector. As a matter of fact, the NFP showed further improvement: after 136 million euros were paid to shareholders and investments were made in the amount of 152.2 million, the Group was able to pay down its debt by 27.3 million euros, thus achieving the financial flexibility needed to support its future growth in the best possible way.

 

Meet the IR Team

Contact us

Meet the IR Team

HERA S.P.A.
INVESTOR RELATIONS
via Carlo Berti Pichat 2/4
40127 Bologna
TEL. 39 051 287040
MAIL IR@gruppohera.it

LUCA CIMATTI

Gestione ed analisi dei dati finanziari

+39 051 287034

luca.cimatti@gruppohera.it

MARZIA FAGGIOLI

Comunicazione IR, road show ed eventi

+39 051 287040

marzia.faggioli@gruppohera.it

JENS KLINT HANSEN

Direttore Investor Relations

+39 051 287737

jens.hansen@gruppohera.it