Logo stampa
15 anni
FINANCIAL
REPORT
AS OF JUNE 30 2017
SHARED VALUES, GROWING RESULTS
+7.6%
mln € 505.9 EBITDA
+16.55%
mln € 141.0
NET PROFIT FOR SHAREHOLDERS
+10%
mln € 2,754 REVENUES
€ cent
9
DPS

The financial results for 1H 2017 prove to be positive once again, thanks to the contribution coming from all business areas and external growth.

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1H 2017 OVERVIEW
1H 2017 Overview
Once again Hera can affirm growth in its results, with EBITDA rising by 7.6% and an increase in Shared Value activities, in line with the call to action contained in the UN's global agenda for 2030

What is Shared Value and how does Hera work in this direction

Porter and Kramer, in a well-known article published in 2011, assert that companies can create Shared value with policies and practices that reinforce their own competitiveness, meeting at the same time the needs of local communities and the challenges faced by society. Hera's multi-utility activities are strongly integrated within the socio-economic fabric of the areas in which it operates, and at present the company can already provide evidence of a significant amount of Shared value expressed through services, activities intended for the region and industrial projects. The figures expressing a portion of the year's EBITDA represent the amount of industrial income that can be directly attributed to the Group's activities and linked to the total economic value distributed to stakeholders in the regions in which it operates.

In 2016 Hera generated roughly € 300 million in EBITDA (or 33% of the total) from "Shared value" activities.

What is Shared Value and how does Hera work in this direction

TheUN's 2030 agenda, with its 17 objectives for sustainable growth, represents a reference framework for enterprises that are called to "adopt sustainable practices and integrate sustainability information into their reporting cycle".

Overall results

The Group, in the first half of 2017, showed a good degree of overall growth: EBITDA increased by +7.6%, operating profits settled at € 262.2 million, up over the € 257.4 million seen at 30 June 2016 and net profits rose by +16.5%. From a financial point of view as well, positive results emerged: net debt remains stable at 2,611.7 and cash flows for the period, which amounted to € 188.8 million, offset M&A financing and dividend payments to shareholders.

Highlights

+7.6% 505.9 mln EBITDA
+16.5% 141.0 mln NET PROFIT FOR SHAREHOLDERS
+10% 2,754 mln REVENUES
BUSINESS SECTORS

Data by business

gas
electricity
water
waste
Investor kit
The Group's brilliant performance in the first half of 2017, the benchmark with peers and the analysts' evaluations
Benchmark
Gas Integrated water cycle Environment Electricity
Analyst
History
EBITDA '16 Networks Waste Energy
Ebitda Net profit Debt/Ebitda DPS

Our equity and Shareholders’ Value Creation

On 30 June 2017 Thomson Reuters’ new GLOBAL DIVERSITY & INCLUSION INDEX was published, which ranks the best publicly traded enterprises across the world according to a series of metrics related to diversity and inclusion. Over 5000 companies were examined in 2017. Hera was awarded first place in Italy, second globally in the multi-utility sector and 14th overall worldwide.

Further information on Hera’s KPI diversity&inclusion

Financial markets showed generally increasing quotations in the first half of 2017, bolstered by a gradual improvement in prospects for economic growth and a fall in political risk in Europe following the defeat of populist movements in the Dutch and French elections. European markets furthermore benefited from the ECB's decision to extend its bond purchasing program (quantitative easing) until December 2017, albeit at a slower pace, corresponding to €60 billion per month as of April. Just like other European stock exchanges, Borsa Italiana recorded a positive performance in the period in question, with an overall increase of +8.6%. Small and medium sized companies led the upturn at Piazza Affari (+20.6% for the Ftse Mid Cap and +22.7% for the Ftse Small Cap) thanks to a significant inflow of capital coming from PIRs (Individual Savings Plans), a type of investment introduced by the most recent national budget, which allows for tax relief when some resources are delivered to companies not included in the stock exchange's main index.

In this context, Hera shares amply outperformed the Italian stock exchange index and the Group's own sector, closing the half-year at an official price of €2.689 per share, up +22.9%, and reaching a capitalisation of €4.0 billion. This trend was sustained among other things by the new business plan to 2020, published in mid-January, and the growing annual and first-quarter financial results, published in late March and mid-May respectively.

On 19 June, following the indications provided in the business plan, Hera paid a dividend of 9 cents per share, the fifteenth in an uninterrupted and rising series since the Group was first listed

 200320042005200620072008200920102011201220132014201520162017
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 0,09

The joint effect of continuously remunerating shareholders through dividend payments and a rise in the price of the stock allowed the cumulative total shareholders' return since the initial public offering to remain consistently positive, even in the most difficult moments of the financial crisis, and to settle, at the end of the reporting period, at over +200%.

At the end of the half-year, a strong majority of financial analysts covering the company (Banca Akros, Banca IMI, Equita Sim, Fidentiis, Intermonte, Kepler Cheuvreux, MainFirst and Mediobanca) gave positive assessments, with almost all recommendations defined as Buy/Outperform, while the consensus target price settled at €2.96.

Breakdown of Group Shareholders at 30 June 2017

At 30 June, the corporate structure included 49.6% of total shares held by 118 public shareholders located across the areas served and united in a Stockholders' Agreement signed on 26 June 2015 and in force for three years, and 50.4% of floating stock.

On 23 June, respecting the terms of the Agreement, 13 Municipality Shareholders sold, in a coordinated and transparent way, through an accelerated book building operation, approximately 25.7 shares, corresponding to 1.7% of the share capital, to over twenty Italian and foreign institutional investors. Thanks to a demand that reached over twice the amount put on sale, the placement occurred at a price of €2.79 per share, with the lowest discount seen on the market since the beginning of the year for similar operations, set at 3.3% compared to closing time on the previous day. The placement 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 held on 27 April 2017 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-á-vis those of the main comparable Italian companies. At the end of the first half, Hera held 19.2 million treasury shares.

In the period under review, Hera's senior management engaged in an intense dialogue with investors, with its business plan road show in the first quarter and its participation in sector conferences in the second.

The intense dialogue cultivated by Hera with investors has helped reinforce its market reputation, and now represents an intangible asset that favours Hera’s stock and its stakeholders.

Meet the 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

Information on financial figures, data processing and analysis

+39 051 287034

luca.cimatti@gruppohera.it

MARZIA FAGGIOLI

IR Communication, road show & events

+39 051 287040

marzia.faggioli@gruppohera.it

JENS KLINT HANSEN

Director of Investor Relations

+39 051 287737

jens.hansen@gruppohera.it

HERA’S STORIES

From "sustainable projects" to the "creation of shared value": best practices in corporate governance and the path towards integrated thought.

Hera’s Governance MISSION is to create shared value for all stakeholders. The Group’s governance is thus oriented towards understanding and evaluating in an INTEGRATED way the stimuli coming from an increasingly complex economic and social context, in order to continue promoting growth and reinforcing to an even greater extent the bonds with local areas that have marked the Group since its establishment.

Hera’s BoD shares considerations and scenarios with its top management, approves long-term investments, areas of investment related to all forms of value (including ESG data) and the annual revisions of its business plan.

In order for the members of the BoD to resolve in an independent and effective way, every three years, following the regular renewal of Hera SpA’s Board of Directors, the Executive Chairman and the CEO organise a course of induction conceived for the newly appointed Directors and Auditors, as foreseen by Borsa Italiana’s Code of Conduct.

These activities are normally carried out during 3 sessions, organised between May and June, during which the company’s executives provide in-depth materials on the sectors in which the company operates, its internal dynamics and their development over time, the principles of correct risk management and the applicable regulatory framework alongside elements of self-regulation.

The procedure is aimed at allowing new Directors and Auditors to grasp the complexity of the Group’s activities, so that they are able to immediately fulfil their institutional role in an optimal way.

The meetings, which are backed up by a well-structured and detailed documentation, are highly appreciated and have become a stable component of the mix of tools involved in managing the Group’s Governance.

All activities dating to the first half of 2017 have been put to the attention of the members of the BoD in a detailed way, in order to foster the creation of shared value across the board and to give ESG parameters an increasingly crucial role in the Group’s management.

1H 2017 projects that produce shared, circular and integrated value.

  • Diversity
    and Millennials
    DIVERSITY AND INCLUSION
    THINKTANK: the value of diversity and the optimism of ideas
  • Energy
    efficiency
    Hera’ESG
    Hera uses only renewable and clean energies
     
  • Aliplast
    CIRCULAR ECONOMY
    Plastic in the circular economy: recycling in its most advanced form
  • Biometano
    CIRCULAR ECONOMY
    The organic is transformed into biogas with the best technologies
Diversity and millennials

 

Diversity management, for Hera, means bringing out the unique contribution coming from each employee. Diversity involving gender, culture, origin and age is now universally recognised as a value and must therefore be managed as best as possible, without forgetting that promoting diversity must go hand in hand with the creation of shared value, because feelings of equality and inclusiveness on the workplace generate cooperative behaviour and promote an organisational coexistence that can only lead to better results.

In light of the importance the Group gives to supporting such values, the recognition bestowed on it on 30 June of the current year by Thomson Reuters is all the more significant. This firm not only included Hera in its 2017 Diversity & Inclusion index, but ranked it first nationwide, second globally in the multi-utility sector and fourteenth worldwide out of the over 5,000 publicly traded companies that were examined.

Read more

This important recognition arrived following a longstanding effort, which led Hera to sign the Charter for equal opportunities and equality in 2009 and to appoint a Diversity Manager in 2011 so as to further promote the development and circulation of corporate policies concerning inclusion and diversity valorisation.

Many innovative projects are sustained in the area, aimed at enhancing the potentiality of diversity across the board.

Read more

Among them, some of the more significant and innovative are the workshops dedicated to millennials who work in the Group, because they allow promising young people to fulfil their potential. This is done consistently with their training, their own individuality and the characteristics regarding diversity for which each of them stands out, and will allow them to translate into concrete action the ideas that take shape and are honed within these creative contexts.

In H1, Acegas-Aps-Amga organised an extremely useful event that brought into play 47 young Italians (including 23 young women and 24 young men), inviting them to work together to imagine tomorrow’s world, plan the future, innovate, simplify and create value.

think tank

This “think tank” was aimed at extracting value from our youngest and most talented employees and discovering new approaches to be used in implementing development and enhancing efficiency.

The project’s key points can be summarised as follows:

Punti focali

The most significant ideas that emerged from the think tank were reviewed with the help of qualified tutors and will be inserted within the business plan to 2021.

 

 

DIVERSITY AND INCLUSION

THINKTANK: the value of diversity and the optimism of ideas

The environment and future generations

 

The area Hera works in is not merely a geographic entity. Above all, it is a primary source of social and environmental wealth, to be respected and protected for the future. Accordingly, Hera is committed to responsibly managing natural resources, improving its results and adopting increasingly efficient technologies with low environmental impact.

Energy saving initiatives

The Group’s focus on energy efficiency is reflected by the ISO 50001 certification for energy management systems for seven companies of the Group: Hera Spa, AcegasApsAmga, Marche Multiservizi, Hera Servizi Energia, Sinergie and Hera Luce. In addition, Herambiente has achieved ISO 50001 certification for some of its plants.

The energy improvement plans of Hera Spa, AcegasApsAmga and Marche Multiservizi drawn up since 2014 as part of their energy management systems, include 177 measures to implement in the three-year span of the management system. These measures contribute to the goal of reducing energy consumption by 3.0% (compared to 2013 consumption) by 2017 that has been increased to 5% by 2020 due to the positive results thus far achieved.

The objective is calculated as the average of the objectives that Hera Spa, AcegasApsAmga and Marche Multiservizi have defined as part of their certification schemes. In particular, the objectives of Hera Spa and Marche Multiservizi are calculated using their 2013 consumption as baseline while AcegasApsAmga considers the average of 2013-14 consumption and has set a reduction target of 3.5%.

The energy improvement plans of Hera AcegasApsAmga and Marche Multiservizi (years 2014-2017)

Type of measureNumber of measures (implemented or to be implemented) Savings per year due to measures implemented or to be implemented (toe)Measures implemented as of 31 December 2016Savings achieved at 31 December 2016 (toe)Company
Integrated water service 86 4,958 57 3,314 H-A-M
District heating 31 2,066 21 1,681 H
Energy networks 12 618 10 618 H-A-M
Vehicles and waste management services 8 375 8 374 H-A-M
Offices 30 170 21 138 H-M
Public lighting 10 461 - - A-M
Total 177 8,648 117 6,126  
  3.7% of 2013 consumption (125% of the target) 2.6% of 2013 consumption (88% of the target)  

The data refer to Hera Spa, AcegasApsAmga and Marche Multiservizi.

The 177 measures already identified and that as at 31 December 2016 are included in the improvement plans of Hera Spa, AcegasApsAmga and Marche Multiservizi will reduce energy consumption by over 8,600 toe, so as to achieve the 3% target set for 2017. The 117 measures already implemented by the end of 2016 have saved over 6,100 toe, 2.6% of 2013 consumption and 88% of the target set for 2017.

Energy improvement plans of Hera Spa, AcegasApsAmga and Marche Multiservizi for 2014-2020: energy efficiency measures implemented and planned and corresponding savings

 

The data refer to Hera Spa, AcegasApsAmga and Marche Multiservizi.

 

Since 2017 Hera uses only renewable energy

The Hera Group has decided to accept a new challenge which, in line with the EU objectives and the UN’s 2030 Agenda, adds to the important efforts it is already making in the field of energy efficiency. Starting in 2017, all of our business in Emilia-Romagna will be 100% supplied by "clean" electricity.

And starting in 2017, only energy from renewable sources will be used for activities managed by Hera Spa in Emilia-Romagna. A first step toward the "carbon footprint zero" that places the Hera Group among the leaders in Italy in terms of saving energy resources and fighting climate change, able to anticipate and exceed the guidelines set by the National Energy Strategy, by the "Climate-Energy Package" and by the 2030 Agenda for sustainable development.

 

HERA’ESG

Hera uses only renewable and clean energies

The versatility of plastic

 

April 2017 saw the completion of the purchase carried out by Herambiente, a Hera Group company and a national leader in waste treatment and recovery, of 40% of the shares of Aliplast, an outstanding enterprise in the segment of plastic waste collection, recycling and consequent regeneration.

A further 40% of the company’s shares will be purchased within March 2018, and the remaining 20% within June 2022.

This important operation, which flanks the one brought to a conclusion in late 2015 involving Waste Recycling (Castelfranco di Sotto, Pisa), is one of the ways in which the Group has broadened its activities over the last few years in order to arrive at industrial processes that are ever more sustainable and generate shared value.

With the purchase of Aliplast, indeed, Hera is consolidating its own presence in the most complete and fully evolved form of plastic recycling. This company can in fact boast of having achieved, over its more than thirty years of history in research and investment, an ability to fully operate within the principles of a circular economy, which are at the root of today’s evolution towards a complete productive sustainability. The close loop concerns two kinds of materials: polyethylene and PET. In the first case, packaging is collected directly from the industries that make use of it. Later, through a process that includes washing, crushing and extrusion, a new raw material is created, used by Aliplast itself to produce a regenerated polyethylene film which is perfectly suitable for industrial packaging. In the case of PET, the initial raw material consists of plastic bottles, which are collected, washed and crushed. From the flakes that remain at the end of the final process, a compact sheet is obtained that, once thermoformed, can be transformed into packaging material that is once again suitable for contact with food. Aliplast is marked above all by the extreme degree to which it represents the principles inspired by a circular economy: the initial packaging, once collected and sorted, is regenerated in such a way as to be able to carry out its function and thus become part, once again, of the production cycle.

Thanks to its new purchase, Hera can give greater value to its own plastic waste, thus creating synergies in its logistic flows and its selection of materials, which are directly headed for recycling and transformation into new products, closing off an uninterrupted cycle of production.

With Aliplast, furthermore, the Group’s offer of global waste management is reinforced for medium-large scale customers, who are increasingly requesting to deal with a single operator, specialised in collection and treatment of all the various types of waste. 

 

CIRCULAR ECONOMY

Plastic in the circular economy: recycling in its most advanced form

Biomethane in ... circulation!

 

The first half of 2017 saw significant progress made in projects inspired by the principles of a circular economy, aimed at biomethane production and increased efficiency in the water purifier sludge line, planning on which began in 2016.

At the Sant’Agata Bolognese site it will soon be possible to produce, in an entirely circular way, roughly 7.5 million standard cubic metres of biomethane per year and roughly 20,000 tonnes of quality compost. The plant will be able to treat 100 thousand tonnes of organic waste and 35 thousand tonnes of pruning material from sorted waste each year.
Authorisation procedures for the new plant came to an end in March 2017, allowing the works to begin. They will continue over the course of the year with civic works and supplying the systems that make up the anaerobic digestion section, concluding in 2018 when the biomethane will be injected into the Snam network.
The project, thanks to its use of the best technologies for treatment of the organic fraction, is already becoming a benchmark both nationally and worldwide.

Work continues, furthermore, on enhancing the efficiency of the sludge line in the Modena and Rimini urban waste water purifiers, with the intent of producing renewable energy and reducing the amount of sludge to be disposed.
A dynamic sludge thickener is expected to be installed before the anaerobic digestion section, as well as a cogenerator, whose purpose will be to produce both electricity and heat from renewable sources, to be used for the plant.
In Modena authorisation procedures have been initiated, and will come to an end within the summer months, with the definitive plans for the intervention being completed in the meantime.
In S. Giustina (RN) a new thickener has been installed and maintenance work has been done on the third digester. Within the end of the year, two more thickeners will be installed and definitive planning will be completed for the recovery of biogas, as preparation for a possible request for authorisation.

 

CIRCULAR ECONOMY

The organic is transformed into biogas with the best technologies

1H 2017 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, 2017 was designed, for an easy online reading.

For further info about numbers and KPI, please contact the IR team of Hera IR@gruppohera.it

Results as of 30 June 2017: interactive charts

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Report on operations

Group management performance

Operating APMs and investments

Operating APMs and investments
(€/mln)
Jun 2017Jun 2016Abs. change % Change
Revenues (*) 2,754.0 2,502.8 +251.2 +10.0%
EBITDA 505.9 470.1 +35.8 +7.6%
EBITDA/Revenues ratio (*) 18.4% 18.8% -0.4 p.p.  
Operating profit  262.2 257.4 +4.8 +1.9%
Operating profit/Revenues ratio (*) 9.5% 10.3% -0.8 p.p.  
Net profit  148.0 128.2 +19.8 +15.5%
Net profit/revenues ratio (*) 5.4% 5.1% +0.3 p.p.  
Net investments 151.8 152.2 -0.4 -0.3%

(*) The amount of 2016 Revenues has been corrected (with no effect on results) due to the reclassification of system charges. For details, see paragraph “1.01.01 Operating and financial results”.

Financial APMs

Financial APMs
(€/mln)
Jun 2017Dec 2016Abs. change % Change
Property,plant and equipment 5,652.6 5,564.5 +88.1 +1.6%
Net working capital 88.6 99.9 -11.3 -11.3%
Provisions (552.5) (543.4) -9.1 -1.7%
Net invested capital 5,188.7 5,121.0 +67.7 +1.3%
Net financial debt  (2,611.7) (2,558.9) -52.8 -2.1%

Operating results and investments

Constant growth in all indicators

All of the Hera Group’s indicators for the first half of 2017 showed growth. In particular, Ebitda rose by 7.6%, operating profits by 1.9% and net profits by 15.5%.

These significant results, achieved thanks to the Group’s consolidated multi-business strategy, are to be considered within an increasingly challenging context defined by regulatory and competitive factors, within which Hera proved its balance and agility, combining the two strategic levers of internal and external growth.

The main corporate and business operations having an effect on the first half of 2017 are described below.

  • In September 2016 Hera Comm Srl was awarded the Friuli Venezia-Giulia and Emilia Romagna portion of the last resort gas supply service (FUI) for the period between 1 October 2016 and 30 September 2018, along with 5 portions of the default service in gas distribution between 1 October 2016 and 30 September 2018.
  • As of 1 November 2016 the company Gran Sasso Srl, which is involved in free market electricity and gas sales in the L’Aquila, Pescara and Chieti areas, became part of the Group’s consolidated scope.
  • In November 2016, in the national tender held by the Single Purchaser for 2017-18 safeguarded services, Hera Comm Srl was awarded six portions in eleven regions of Italy.
  • On 1 February 2017 Waste Recycling Spa acquired the “plants” corporate branch of the Pisa company Teseco Srl, a leading figure in industrial waste treatment and recovery.
  • In January 2017 Herambiente Spa signed a binding deal with Aligroup Srl for the acquisition of the Aliplast Group, a leading operator in the segment of plastic waste collection and recycling with subsequent regeneration, using an integrated process that transforms all waste into products ready to be reused. The operation came to a conclusion on 3 April 2017 following the fulfilment of the condition precedent, i.e. the approval of the Italian antitrust authority. As of the 2017 half-year report, each company of the Aliplast Group is entirely consolidated and contributes to the results of the Hera Group with effects involving operations and equity backdated to 1 January 2017.

In order to respect sector regulations concerning unbundling, with effective date 1 July 2016 Hera Spa conferred its corporate branch dealing with electricity and gas distribution to Inrete Distribuzione Energia Spa.

On 1 January 2017 Heratech Srl, a company that manages works requested by customers (new connections, technical opinions, urbanisation, etc.), became operational for all network services managed by the Group. It furthermore deals with planning and implementing plants and networks and other highly specialised technical activities, for both the Group and third parties. The company is 100% controlled by Hera Spa.

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.

It should also be noted that as of this half-year report dated 30 June 2017 the Group has recorded system charges incurred for the period in question concerning electricity and gas services in the income statement among “service costs” when involving charges received from third-party distributors, and among “revenues” when involving the corresponding amounts included in bills for end customers, for an amount of € 347.7 million. Previously, these tariff components had been recorded in debt and credit receivables among the other “current assets/liabilities”. This being said, the Group has reformulated the income statement for the first six months of 2016, as well as the balance sheet at 31 December 2016, with the same criterion described above, in order for the two periods to be correctly compared. In particular, as regards the income statement for the first six months of 2016, this re-statement led to an increase of € 350.1 million in “revenues” and “service costs”. In this regard, see also paragraph 2.02.01 of the explanatory notes.

Constant and increasing growth

The following table shows the operating results for the first six months of 2016 and 2017:

Income statement (€/mln)Jun 2017% Inc.Jun 2016
as adjusted
% Inc.Abs. change % Change 
Revenue 2,754.0   2,502.8   +251.2 +10.0%
Other operating revenue 202.3 7.3% 162.0 6.5% +40.3 +24.9%
Raw materials (1,178.4) -42.8% (998.0) -39.9% +180.4 +18.1%
Service costs (981.7) -35.6% (920.4) -36.8% +61.3 +6.7%
Other operating costs (25.8) -0.9% (20.8) -0.8% +5.0 +24.1%
Personnel costs (282.5) -10.3% (266.7) -10.7% +15.8 +5.9%
Capitalised costs 17.9 0.6% 11.2 0.4% +6.7 +59.7%
EBITDA 505.9 18.4% 470.1 18.8% +35.8 +7.6%
Amort. & Prov. (243.7) -8.9% (212.7) -8.5% +31.0 +14.6%
EBIT 262.2 9.5% 257.4 10.3% +4.8 +1.9%
Financial operations (45.9) -1.7% (58.0) -2.3% -12.1 -20.9%
Pre-tax profit 216.3 7.9% 199.4 8.0% +16.9 +8.5%
Taxes (68.3) -2.5% (71.2) -2.8% -2.9 -4.1%
Net profit of the period 148.0 5.4% 128.2 5.1% +19.8 +15.5%
Attributable to:            
Shareholders of the Parent Company 141.0 5.1% 121.0 4.8% +20.0 +16.5%
Non-controlling interests 7.0 0.3% 7.2 0.3% -0.2 -2.6%

€ 2.8 billion in revenues

In the first half of 2017, revenues came to € 2,754.0 million, up € 251.2 million or roughly 10.0% over the € 2,502.8 million in the same period of 2016. 2017 benefited from the entrance of the Aliplast Group, which contributed with roughly € 54 million, and Gran Sasso Srl, with € 6.4 million. Not including these changes in the scope of consolidation, growth in revenues settled at € 190.8 million, mainly due to greater activity in trading, amounting to roughly € 128 million, higher revenues for the price of raw material in electricity for € 70 million, higher volumes of gas sold for € 28 million and higher regulated revenues in water services for roughly € 20 million, offsetting the reduction and the lower revenues for lesser volumes sold and transported outside the electricity network for roughly € 14 million.

The remaining reduction in revenues, coming to € 41 million, refers to the effect of the sale of green certificates last year amounting to roughly € 24 million (with an equal effect on costs), and lower revenues for environmental and energy efficiency certificates that were recorded in a different way, reclassified from revenues to other revenues and proceeds, coming to € 17 million.

Other operating revenues grew compared to the same period of the previous year by € 40.3 million or 24.9%. This growth is mainly due to the aforementioned restatement of environmental and energy efficiency certificates amounting to roughly € 17.0 million from “revenues” to “other operating revenues”, and higher Ifric12 revenues coming to € 12.0 million, higher revenues for energy efficiency certificates amounting to € 10.0 million and, lastly, a higher contribution for sorted waste.

Costs for raw and other materials rose by € 180.4 million or 18.1% compared to 30 June 2016; this rise, not including the change in scope of operations due to the entrance of the Aliplast Group and Gran Sasso Srl, amounting to roughly € 29.3 million, and the change in the remainder of the portfolio of environmental certificates for roughly € 24 million, is due to greater activity in trading, an increase in the price of raw material in electricity, higher volumes of gas sold and a higher cost per unit of energy efficiency certificates.

Other operating costs, not including the change in scope due to the entrance of the Aliplast Group and Gran Sasso Srl, amounting to roughly € 16.4 million, increased by € 50.0 million overall (€ 45.3 million in higher costs for services and € 4.7 million in higher operating expenses). Mention must also go to the roughly € 17.0 in higher Ifric12 costs, higher costs for implementation of works for third parties, higher costs of disposal and collection for the higher volumes treated and for the development of new projects in the area of sorted waste.

Personnel costs rose by € 15.8 million or 5.9%, going from € 266.7 million in June 2016 to € 282.5 million at the same date in 2017. This increase is mainly due to higher retribution foreseen by the national labour contract and to changes in scope, of which the most significant involve the waste area with the entrance of the Aliplast Group and the corporate branch of Teseco Srl, coming to € 8.4 million overall. These increases were only partially offset by a lower average presence.

Ebitda at € 505.9 million (+7.6%)

Capitalised costs at June 2017 rose compared to the same period in the previous year by € 6.7 million or 59.7%, for greater works on plants and projects implemented on goods belonging to Group companies, including the different corporate breakdown following the birth of Inrete Distribuzione Energia Spa and Heratech Srl.

Ebitda settled at € 505.9 million, showing an increase of € 35.8 million or 7.6% over June 2016. This growth in Ebitda can be ascribed to the good performance shown by all areas of the Group, but the energy areas in particular thanks to higher earnings in the sales business due to the new portions of the safeguarded and default markets. Positive results were seen in the integrated water cycle and the waste area as well.

For further details, see the analyses of each single business area.

Amortisation and provisions rose overall by € 31.0 million or 14.6%, going from € 212.7 million in June 2016 to € 243.7 million at the same date in 2017. Amortisations increased due to new investments in regulated businesses and the change in scope due to the companies of the Aliplast Group and the sales companies. Provisions for doubtful debts rose, in particular in the sales company Hera Comm Srl, owing to the tenders awarded for safeguarded customers.

Ebit at € 262.2 million (+1.9%)

Ebit reached € 262.2 million in June 2017, up € 4.8 million or 1.9% over the € 257.4 million seen in the same period in 2016.

The results of financial management at the end of the first half of 2017 came to € 45.9 million, improving by € 12.1 million or 20.9% compared to the same period in 2016. The good performances were due to lower average debt and efficiency in rates obtained among other things thanks to the effects of the liability management operations set in place during 2016. Higher earnings involving recovery of default indemnities from safeguarded customers also had a positive impact on the results.

Pre-tax profits grew by € 16.9 million, going from the € 199.4 million seen in June 2016 to the € 216.3 recorded in the first half of 2017.

Income taxes pertaining to the first half of 2017 amounted to € 68.3 million, defining a tax rate of 31.6%, with a clear improvement compared to the 35.7% seen in the same period of the previous year. The reasons for this decrease are mainly tied to a fall in the Ires rate, that went from 27.5% in previous years to 24% as of 2017, in addition to lower taxes coming to € 4.5 million that ensued from the opportunities grasped through a broader consolidated fiscal scope of operations. Note furthermore the continuous commitment to obtaining all benefits recognised by law, in particular the tax credit for research and development, the increase in deductions for amortisations and the patent box.

Net profits rose by 15.5%, equivalent to € 19.8 million, going from € 128.2 million in the first half of 2016 to € 148.0 million in the same period in 2017.

Earnings post minorities at € 141.0 million (+16.5%)

Group net profits reached € 141.0 million, with a € 20.0 million increase over June 2016.

Analysis of the Group’s financial structure and investments

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 2017.

Invested capital and sources of financing (€/mln)30-giu-17Inc. %31 Dec 16% Inc. Abs. change % Change 
Property,plant and equipment 5,652.6 108.9% 5,564.5 108.7% +88.1 +1.6%
Net working capital 88.6 1.7% 99.9 2.0% (11.3) (11.3%)
(Provisions) (552.5) -10.6% (543.4) -10.6% (9.1) (1.7%)
Net invested capital 5,188.7 100.0% 5,121.0 100.0% +67.7 +1.3%
Equity (2,577.0) 49.7% (2,562.1) 50.0% (14.9) (0.6%)
Long-term borrowings (2,723.3) 52.5% (2,757.5) 53.8% +34.2 +1.2%
Net(cash)/short term borrowings 111.6 -2.2% 198.6 -3.9% (87.0) (43.8%)
Net debt (2,611.7) 50.3% (2,558.9) 50.0% (52.8) (2.1%)
Total sources of financing (5,188.7) -100.0% (5,121.0) 100.0% (67.7) +1.3%

Net invested capital comes to € 5.2 billion

At 30 June 2017, net invested capital increased over 31 December 2016 by € 67.7 million. This change is entirely due to the acquisition of the shareholding in the Aliplast Group by the company Herambiente Spa. Efficiency in managing net working capital was also confirmed, which fell by an additional € 11.3 million.

Net investments totalling € 151.8 million in the first half-year

In the first half of 2017, Group investments amounted to € 151.8 million, benefiting from € 18.8 million in capital grants, of which € 2.6 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 came to € 170.6 million, up € 13.4 million compared to June 2016 against net investments essentially in line with the previous year, as an effect of higher capital grants. Net investments, in fact, went from € 152.2 million in June 2016 to € 151.8 million in June 2017, with a reduction of € 0.4 million.

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 2017Jun 2016Abs. change % Change 
Gas area 39.2 40.3 -1.1 -2.7%
Electricity area 10.5 11.2 -0.7 -6.2%
Water cycle area 68.2 61.1 +7.1 +11.6%
Waste management area 20.9 17.5 +3.4 +19.4%
Other services area 8.7 5.5 +3.2 +58.2%
Headquarters 22.6 21.6 +1.0 +4.6%
Total operating investments 170.1 157.2 +12.9 +8.2%
Total financial investments 0.5 0.0 +0.5 +100.0%
Total gross investments 170.6 157.2 +13.4 +8.5%
Capital contributions 18.8 5.0 +13.8 +276.0%
        of which FoNI (New Investment Fund) 2.7 3.0 -0.3 -10.0%
Total net investments 151.8 152.2 -0.4 -0.3%

Operating investments came to € 170.1 million, growing by 8.2% over the first half of 2016, and it mainly involved interventions on plants, networks and infrastructures, in addition to regulatory upgrading involving above all gas distribution, with a large-scale substitution of metres, and the depuration and sewerage areas.

At Group headquarters, investments in corporate buildings, IT systems and the vehicle fleet

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

At Group 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 increased by € 1.0 million compared to the previous year, mainly in IT systems.

Provisions come to € 552.5 million

In 2017, provisions amounted to € 552.5 million, up over December 2016 thanks to period provisions that were higher than outflows for usage.

Equity at € 2.6 billion

Equity increased by € 14,9 million, going from € 2,562.1 million at 31 December 2016 to € 2,577.0 million at 30 June 2017, first and foremost owing to the contribution coming from period results of € 148.0 million, which entirely financed dividend payments totalling € 140.4 million.

RECONCILIATION BETWEEN SEPARATE AND CONSOLIDATED FINANCIAL STATEMENTS

 Net profitEquity
Balances as per Parent's Company's separate financial statements 165.9 2,301.3
Excess of equity over the carrying amounts of Investments in consolidated companies (17.7) (9.7)
Consolidation adjustments:    
-    Measurement with the equity method of investments reported at cost in the separate financial
     statement
(2.8) 43.0
-    Difference between purchase price and book value of corresponding portion of equity (4.9) 122.1
-    Elimination of intercompany transactions 0.5 (23.2)
Total 141.0 2,433.5
Restoration of third-party assets 7.0 143.5
Balances as per consolidated financial statements 148.0 2,577.0

Analysis of net cash

A solid financial position

(€/mln) 30 Jun 1731 Dec 16
aCash and cash equivalents 324.0 351.5
bOther current financial receivables 35.1 29.4
 Current bank debt (107.9) (72.1)
 Parte corrente dell'indebitamento (57.5) (71.7)
 Other current financial liabilities (80.1) (36.2)
 Finance lease payments maturing within 12 months  (2.0) (2.3)
cCurrent financial debt (247.5) (182.3)
d=a+b+cNet current financial debt 111.6 198.6
 Non-current bank debt and other sources of financing (2,828.1) (2,847.8)
 Other non-current financial liabilities  (4.3) (5.0)
 Finance lease payments maturing after 12 months  (14.9) (14.9)
eNon-current financial debt (2,847.3) (2,867.7)
f=d+eNet debt - Consob communication n° 15519 of 28/07/2006 (2,735.7) (2,669.1)
gNon-current financial receivables 124.0 110.2
h=f+gNet financial debt (2,611.7) (2,558.9)

Borrowings show an average term to maturity of 8 years, with 68% maturing after over 5 years.

The amount of current financial debt, € 247.5 million, is mainly made up roughly € 55.8 million in bank loans reaching maturity, roughly € 49.6 million in accrued interest, roughly € 58.2 million in the use of current credit lines, and financial debt for the acquisition of Aliplast Spa coming to roughly € 53.1 million. The amount concerning non-current bank debt and bonds is largely made up of bonds issued on the European market and listed on the Luxembourg Stock Exchange (77% of the total), with repayment at maturity.

Net debt comes to € 2.61 billion

Net financial debt increased by € 52.8 million, going from € 2,558.9 million at 31 December 2016 to € 2,611.7 million at 30 June 2017.

Cash flows generated by management in the first half-year, totalling € 188.8 million, amply contributed to financing the acquisition of the Aliplast Group (roughly € 100 million) in addition to dividend payments amounting to over € 140 million.

Analysis by business area

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. After the second half of 2016, the Hera Group revised the arrangement of its own multi-business portfolio in order to improve and simplify financial reporting on its industrial structures: the industrial cogeneration business has been transferred from the electricity area to the gas area, bringing it together with heat management, which furthermore respects the Group’s organizational outlook. For a correct comparison with the current representation, the respective 2016 data has been reclassified.

Contribution coming from the Group’s various areas towards overall Ebitda shows a balanced mix, in line with its 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 the single business areas take into account all increased revenues and costs, having 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.

The new organisational and corporate configuration ensuing from the creation of Inrete Distribuzione Energia Spa and Heratech Srl has led to a different representation of personnel costs and operating costs within the various business areas, while remaining globally unchanged.

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

Gas

Gas: an increase in Ebitda

The gas area, at the end of the first half of 2017, showed growth over the same period of the previous year as regards both Ebitda and volumes sold. This result was partially obtained thanks to the company Hera Comm Srl being awarded five portions of the default gas distribution service for the period between 1 October 2016 and 30 September 2018 and one portion of the last resort gas service for the period between 1 October 2016 and 30 September 2018. Compared to the first half of 2016, the revenue covering the underlying cost of amortisation related to investments made in the reference period for the consolidated first-half report.

Contribution to Group Ebitda drops

Gas area Ebitda grows by 4.0%

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

(€/mln)Jun 2017Jun 2016
as adjusted
Abs. change % Change 
Area EBITDA 171.8 165.2 +6.6 +4.0%
Group EBITDA 505.9 470.1 +35.8 +7.6%
Percentage weight 34.0% 35.% -1.1 p.p.  

1.4 million gas customers

The number of gas customers rose by 3.5% over the same period in 2016. This trend is due to both marketing actions set in place and the portions of default gas distribution and last resort gas awarded. The wider customer base was also supported by the acquisition of Gran Sasso Srl, which brought roughly 16,300 customers. The contribution coming from the new portions awarded amounts to roughly 25,000 customers.

15.0% increase in volumes sold

Volumes of gas sold rose by 294.7 million m3 or 15.0%, going from 1,963.0 million m3 at 30 June 2016 to 2,257.7 million m3 at the same date in 2017. This change is mainly due to growth in trading volumes, which came to 228.7 million m3 (10.1% of total volumes). The volumes sold to final customers showed a 5.4% increase over June 2016, thanks to the broader customer base and the contribution coming from Gran Sasso Srl, amounting to roughly 10.2 million m3. Note furthermore that the larger amount of portions awarded in the tender for default and last resort gas services allowed the volumes sold in the first half of 2017 to increase by roughly 21.1 million m3. Not including these changes in scope of operations, the increase in volumes came to 2.8%.

Gas: growth in overall Ebitda

The following table summarises operating results for the gas area:

Income statement (€/mln)Jun 2017% Inc.Jun 2016 as adjusted% Inc.Abs. change % Change 
Revenues 937.9   834.7   +103.2 +12.4%
Operating costs (714.4) -76.2% (606.1) -72.6% +108.3 +17.9%
Personnel costs (57.3) -6.1% (67.5) -8.1% -10.2 -15.1%
Capitalised costs 5.6 0.6% 4.1 0.5% +1.5 +36.7%
EBITDA 171.8 18.3% 165.2 19.8% +6.6 +4.0%

Note that pro forma data has been prepared for June 2016 in order to account for both the reclassification of the industrial cogeneration business from the electricity area to the gas area, and the insertion of system charges in the income statement, as for 2017. The effect on the 2016 data of the first reclassification amounts to € 3.2 million in Ebitda, consisting of € 6.4 million in revenues, € 2.9 million in operating costs and € 0.4 million in personnel costs. The second reclassification increases revenues and operating costs to the same degree, € 34.6 million.

Gas revenues reach € 937.9 million

Revenues went from € 834.7 million at 30 June 2016 to € 937.9 million at 30 June 2017, showing € 103.2 million or 12.4% in growth. The main reasons for this lie in the sales and trading businesses: increased revenues from trading amounting to roughly € 49 million and the higher price of raw materials in gas sales for € 4.5 million, which included a 5% increase in the cost of natural gas at the TTF; the higher volumes of natural gas sold, not including changes in the scope of operations, contributed with roughly € 13 million; roughly € 8.5 million in new portions of the default service awarded; and the acquisition of Gran Sasso Srl, amounting to roughly € 6.6 million.

Furthermore, contributions from energy efficiency certificates rose by roughly € 10 million, due to the higher value per unit, as did revenues from the gas distribution service, for the previously mentioned revenues covering amortisation costs.

Lastly, note the higher revenues in the district heating service, amounting to roughly € 2.4 million, and higher revenues for Ifric12 works and subcontracting.

The increase in revenues had a virtually proportional effect on operating and personnel costs, which went from € 673.6 million overall at 30 June 2016 to € 771.7 million in 2017, thus showing a total increase of € 98.1 million. This rise was mainly due to greater volumes sold, a higher price of raw materials, a larger amount of trading and the higher cost per unit of energy efficiency certificates.

Gas Ebitda: € 171.8 million

Ebitda increased by € 6.6 million or 4.0%, going from € 165.2 million in the first half of 2016 to € 171.8 million in 2017, thanks to higher earnings in trading activities, larger amounts of gas sold and the wider scope of the default service.

Net investments in the Gas Area: € 39.2 million

In the first half of 2017, investments in the Gas Area came to € 39.2 million, showing a € 1.1 million decrease compared to the same period in 2016. In gas distribution, a € 1.6 million increase was seen, mainly owing to activities in regulatory upgrading pursuant to resolution 554/15 (ex-resolution 631/13) for a large-scale meter substitution, which also involved lower-class devices (G4-G6), and lesser non-recurring maintenance on networks and plants. Requests for new connections in the first half of 2017 were similar to those seen in the previous year and thus continued to reflect the overall economic situation.

Investments fell by € 2.8 million in district heating and heat management, including € 2.1 million in district heating mainly due to the higher amount of work done in the first half of 2016 on the Bologna Barca and Forlì Campus plants, and € 0.7 million in heat management, especially in the company Sinergie Spa. In new district heating connections a slight drop was seen compared to the previous year.

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

Gas
(€/mln)
Jun 2017Jun 2016 as adjustedAbs. change % Change 
Networks and plants 31.5 29.9 +1.6 +5.4%
RH/Heat management 7.6 10.4 -2.8 -26.9%
Total Gas Gross 39.2 40.3 -1.1 -2.7%
Capital contributions 0.0 0.0 +0.0 +0.0%
Total Gas Net 39.2 40.3 -1.1 -2.7%

The 2016 data has been corrected to reflect the reclassification of the industrial cogeneration business from the electricity area to the gas area, for a total of € 0.5 million.

Electricity

Electricity: increase in Ebitda

Ebitda pertaining to the electricity area grew over the first half of 2016, both in itself and as a contribution to overall Group Ebitda.

Sales activities widened the customer base and Hera Comm Srl was awarded national tenders by the Single Purchaser for 2017-18 safeguarded services, winning six portions across eleven of Italy’s regions, with a different mix than in the previous period; lastly, production activities showed a good performance once again in asset management.

Contribution to Group Ebitda: +2.5%

Ebitda in the Electricity area grows by 25.2%

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

(€/mln)Jun 2017Jun 2016
as adjusted
Abs. change % Change 
Area EBITDA 91.6 73.1 +18.5 +25.2%
Group EBITDA 505.9 470.1 +35.8 +7.6%
Percentage weight 18.1% 15.6% +2.5 p.p.  

(*)Note that the data pertaining to June 2016 has been corrected to account for the reclassification of the industrial cogeneration business. The effect on the 2016 data of the first reclassification amounts to € 3.2 million in Ebitda, or 0.6%.

931 thousand electricity customers

The number of electricity customers showed an 8.8% increase (75.2 thousand), mainly due to growth on the free market, which came to 15.9%, confirming the trend seen in recent years owing to a reinforcement of marketing and the broadened customer base gained in 2016 with the acquisition of the company Gran Sasso Srl, which contributed with roughly 3.5 thousand customers.

Volumes sold in line with the previous year

Volumes of electricity sold went from 4,843.6 GWh in the first half of 2016 to 4,805.9 GWh in 2017, showing an overall decrease of 0.8%. Volumes sold on the free market grew by 5.2%, containing the drop seen in volumes sold to safeguarded customers, mainly owing to a different mix of portions awarded, who proved to consume less energy than the previous customers.

Electricity: Ebitda grows by 25.2%

The following table summarises operating results for the area:

Income statement (€/mln)Jun 2017% Inc.Jun 2016 as adjusted% Inc.Abs. change % Change 
Revenues 1,147.6   1,006.8   +140.8 +14.0%
Operating costs (1,039.0) -90.5% (911.2) -90.5% +127.8 +14.0%
Personnel costs (22.5) -2.0% (26.4) -2.6% -3.9 -14.8%
Capitalised costs 5.5 0.5% 3.9 0.4% +1.6 +40.9%
EBITDA 91.6 8.0% 73.1 7.3% +18.5 +25.2%

Note that pro forma data has been prepared for June 2016 in order to account for both the reclassification of the industrial cogeneration business and the insertion of system charges in the income statement, as for 2017. The effect on the 2016 data of the first reclassification amounts to € 3.2 million in Ebitda, consisting of € 6.4 million in revenues, € 2.9 million in operating costs and € 0.4 million in personnel costs. The second reclassification increases revenues and operating costs to the same degree, € 315.5 million.

Revenues from electricity: € 1,147.6 million

Revenues rose by 14.0%, going from € 1,006.8 million in the first half of 2016 to € 1,147.6 million in 2017. The main reasons for this growth include: a rise in the price of energy (Pun, nationwide price), up 33% over the previous year, which led to higher revenues amounting to € 70 million in sales, € 79 million in trading and roughly € 14 million in energy production in thermoelectric plants. Revenues for volumes sold fell, coming to roughly € 3.5 million, as did those for extra-network transportation, by € 9 million. Revenues for regulated services dropped, owing to lower revenues covering amortisation costs.

The increase in revenues was reflected to an equal degree by rising operating and personnel costs, which went from € 937.6 million overall at 30 June 2016 to € 1,061.5 million in 2017, thus showing a total growth of € 123.9 million. This change is mainly due to an increase in the cost of materials.

Electricity Ebitda at € 91.6 million

At the end of the first half of 2017, Ebitda rose by € 18.5 million or 25.2%, going from 73.1 million at 30 June 2016 to € 91.6 million in the same period in 2017, thanks to higher earnings in sales on the free market and to safeguarded customers, as well as higher earnings in electricity production.

Net investments in the Electricity Area: € 10.5 million

In the Electricity Area, investments in the first half of 2017 came to € 10.5 million, down € 0.7 million compared to the € 11.2 seen in the previous year.

Interventions mainly concerned non-recurring maintenance on plants and distribution networks in the Modena, Imola, Trieste and Gorizia areas.

Compared to the same period in the previous year, non-recurring maintenance fell by € 0.7 million, for the most part due to the more extensive interventions carried out on the Imola Cogen plant in the first half of 2016.

As regards requests for new connections in this area, a slight rise was seen compared to the first half of the previous year.

Details of operating investments in the Electricity Area are as follows:

Eletricity
(€/mln)
Jun 2017 Jun 2016Abs. change % Change
Networks and plants 10.5 11.2 -0.7 -6.2%
Total Electricty Gross  10.5 11.2 -0.7 -6.2%
Capital contributions 0.0 0.0 +0.0 +0.0%
Total Electricity Net 10.5 11.2 -0.7 -6.2%

The 2016 data has been corrected to reflect the reclassification of the industrial cogeneration business from the electricity are to the gas are, for an overall amount of € 0.5 million.

Integrated water cycle

Integrated Water Cycle: Ebitda up in absolute terms

In the first half of 2017, the integrated water cycle area recorded € 4.7 million of growth in Ebitda, up 4.4%. As regards current regulations, note that 2017 is the second year in which the tariff method defined by the Authority for electricity and gas (hereinafter the Authority) for 2016-2019 (resolution 664/2015) was applied, and that compared to the first half of 2016 the revenue covering the underlying cost of amortisation related to investments made in the period covered by the consolidated half-year report, is recognized on an accrual basis. Furthermore, with resolution 655/15, in force as of July 2016, the minimum standards of contractual quality have been defined, including both general and specific standards such as further requirements for help desks, invoicing and estimates. Through this resolution, mechanisms for recognising commercial quality have been introduced.

Contribution to Ebitda: -0.7%

Water Cycle Area Ebitda rises by 4.4%

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

(€/mln)Jun 2017Jun 2016Abs. change % Change 
Area EBITDA 111.3 106.6 +4.7 +4.4%
Group EBITDA 505.9 470.1 (25.9) (5.5%)
Percentage weight 22.0% 22.7% +2.4 p.p.  

Water Cycle: 1.5 million customers

The number of water customers settled at 1.5 million, rising by 5.0 thousand or +0.3% over the first half of 2016. This is part of a trend of internal growth seen across the areas served by the Group, in particular in the Emilia-Romagna area managed by Hera Spa.

146.7 million m3 managed in the aqueduct

The main quantitative indicators of the area are as follows:

The volumes dispensed through the aqueduct showed a 3.7 million m3 (roughly 2.6%) growth over the figures seen in June 2016: this can be traced to both higher consumption across all areas served and the higher amount of rain seen in the first half of 2016 compared to the same period in 2017. Furthermore, growth was also seen in the amount managed in sewerage (roughly 3.1%) and purification (roughly 3.6%) over June 2016. The volumes dispensed, following Aeegsi resolution no. 664/2015, are an indicator of the activities of the areas in which the Group operates and are subject to equalisation thanks to regulations that call for regulated revenues to be recognised independently of volumes distributed.

Integrated water cycle: increase in Ebitda

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

Income statement (€/mln)Jun 2017% Inc.Jun 2016% Inc.Abs. change % Change 
Revenues 406.8 - 374.1 - +32.7 +8.7%
Operating costs (208.2) -51.2% (193.3) -51.7% +14.9 +7.7%
Personnel costs (90.0) -22.1% (75.2) -20.1% +14.8 +19.7%
Capitalised costs 2.6 0.6% 1.1 0.3% +1.5 +139.2%
EBITDA 111.3 27.4% 106.6 28.5% +4.7 +4.4%

Revenues from the Integrated Water Cycle come to € 406.8 million

Revenues showed an 8.7% increase, going from € 374.1 million in June 2016 to € 406.8 million in the first half of 2017. There are various reasons for this: higher revenues from dispensing coming to roughly € 20.4 million, as a result of the tariffs provided for by the Aeegsi for the three-year period 2016-2019 (Mti-2); higher revenues covering the underlying cost of amortisation and the recognition of commercial quality; higher revenues for the application of accounting principle Ifric12, amounting to roughly € 7.0 million; higher revenues for commissions and subcontracted works coming to roughly € 7.0 million.

Operating and personnel costs rose by € 29.7 million or 11.1% overall; this increase is due to a higher price of electricity for plant functioning, higher volumes or raw material purchased, higher costs for commissions and subcontracted works as well as for Ifric12.

Ebitda at € 111.3 million

Ebitda showed a growth of € 4.7 million or 4.4%, going from € 106.6 million in June 2016 to € 111.3 million in 2017, resulting from the combination of roughly € 20.4 million in higher revenues from dispensing, € 6.0 million in higher equalisable costs and the higher cost of personnel.

Net investments in the Integrated Water Cycle Area: € 49.5 million

Net investments in the Integrated Water Cycle Area amounted to € 49.5 million, falling by € 6.6 million compared to the previous year owing to higher capital grants, which were up by € 13.8 million. Not including capital grants, investments in this area came to € 68.2 million, with a € 7.1 increase over the previous year.

The interventions mainly involved extensions, reclamations and network and plant upgrading, in addition to regulatory upgrades involving above all purification and sewerage.

Investments were made totalling € 27.8 million in the aqueduct, € 17.3 million in sewerage and € 23.2 million in purification.

Among the more significant works, note in particular: in the aqueduct, upgrading interconnections in the Modena area water system, a significant upgrading of an abduction conduct in the Ferrara area and anti-earthquake upgrading of water plants; 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 higher investments compared to the previous year depended above all on the ongoing work done in upgrading the Servola purification plant, in the area served by AcegasApsAmga Spa.

Requests for new water and sewerage connections dropped compared to the same period of the previous year.

Capital grants amounting to € 18.8 million included € 2.6 million pertaining to the tariff component provided for by tariff method for the New Investments Fund (FoNI) and rose compared to the first half of 2016 by € 13.8 million.

A higher amount of capital grants, coming to € 13.8 million, caused a € 6.6 million decrease in net investments

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

Water Cycle Area
(€/mln)
Jun 2017Jun 2016Abs. change % Change 
Aqueduct 27.8 30.4 -2.6 -8.6%
Purification 23.2 13.1 +10.1 +77.1%
Sewage 17.3 17.6 -0.3 -1.7%
Total Water Cycle Gross  68.2 61.1 +7.1 +11.6%
Capital contributions 18.8 5.0 +13.8 +276.0%
     of which FoNI (New Investment Fund) 2.7 3.0 -0.3 -10.0%
Total Water Cycle Net 49.5 56.1 -6.6 -11.8%

Waste management

At 30 June 2017 the waste management area accounted for 24.0% of Group Ebitda, with its own Ebitda rising by 4.1% over the first six months of 2016. Over the first half-year, the waste management area reinforced its organisational structure through the acquisition of the Aliplast Group, a national leader in plastic recycling, and the “plants” corporate branch of the Pisa company Teseco Srl, a leader in industrial waste treatment and recovery. These significant operations allowed the Group to further widen its commercial offer and its own range of plants.

Waste Management: Ebitda rises

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

(€/mln)Jun 2017Jun 2016Abs. change % Change 
Area EBITDA 121.3 116.5 +4.8 +4.1%
Group EBITDA 505.9 470.1 +35.8 +7.6%
Percentage weight 24.0% 24.8% -0.8 p.p.  

Commercial waste: +6.5%

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

Quantitative data (thousand of tonnes)Jun 2017Jun 2016Abs. change % Change 
Urban waste 1,013.4 1,007.6 +5.8 +0.6%
Commercial waste 1,254.5 1,178.1 +76.4 +6.5%
Waste marketed 2,267.9 2,185.8 +82.1 +3.8%
Plant by-products 1,303.0 1,276.3 +26.7 +2.1%
Waste treated by type 3,570.8 3,462.1 +108.7 +3.1%

An analysis of the volumes treated shows an 3.8% increase in waste marketed, mainly due to a rise in commercial waste coming to 6.5%, thanks to commercial initiatives aimed at plant saturation, intermediation channel and new market development, and an increase in total plants due to the acquisition of the “plants” corporate branch of Teseco Srl and the Aliplast Group.

Urban waste showed an increase compared to the same period in the previous year, thanks to a higher amount of sorted waste and shore cleaning, which rose by 1.6% overall and offset the lesser amount of unsorted waste, which fell by 0.6%.

The increase in by-products is mainly due to the increase in the total number of plants, due to the acquisition of the “plants” corporate branch of Teseco Srl.

+0.7% in sorted waste collection

Collection of sorted urban waste showed further progress, passing from 56.9% in June 2016 to 57.6% in the first half of 2017. Over the first six months of 2017, in the areas served by Hera Spa, sorted waste collection increased by 0.5%, in those served by Marche Multiservizi it rose by 1.7% and in the Triveneto area growth settled at 0.9%.

Rise in waste disposed of

Quantitative data (thousand of tonnes)Jun 2017Jun 2016Abs. change % Change 
Landfills 414.3 370.5 +43.8 +11.8%
Waste-to-energy plants 653.5 687.4 -33.9 -4.9%
Selecting plant and other 218.9 258.8 -39.9 -15.4%
Composting and stabilisation plants 192.8 211.3 -18.5 -8.8%
Stabilisation and chemical-physical plants 613.6 721.4 -107.8 -14.9%
Other plants 1,477.6 1,212.7 +264.9 +21.8%
Waste treated by plant 3,570.8 3,462.1 +108.7 +3.1%

The Hera Group operates in the entire waste cycle, with 94 plants used for urban and special waste treatment and disposal and plastic material regeneration. The most important of these include: 10 waste to energy plants, 11 composters/digesters and 15 selecting plants. The entry of the corporate branch of Teseco Srl contributed with three chemical-physical plants, one inertisation plant and a storage plant, while the entry of the Aliplast Group contributed with six selecting plants and three material transformation plants.

Waste treatment grew by 3.1% over the first half of 2016. As regards landfills, the increase is due to the greater availability of the Ravenna and Tremonti plants, following the authorisations obtained. Concerning waste to energy plants, the reduction in waste treated compared to the same period in 2016 is due to both a change in the classification of a few plants, included within “Other plants”, and a different scheduling of plant suspensions and planned maintenance. The lower quantity of selection plants can be ascribed to a change in the classification of a few plants in the “Other plants” category. The quantitative decrease in the chain of inertisation and chemical-physical plants is due to a change in the classification of a few plants in the “Other plants” category. Lastly, the chain of “Other plants” benefited from a greater degree of intermediation, a different representation (mentioned above) of a few plants in this category and the acquisitions of the Aliplast Group and the “plants” corporate branch of Teseco Srl.

Waste: Ebitda rises

Una sintesi dei risultati economici dell’area

Income statement (€/mln)Jun 2017% Inc.Jun 2016% Inc.Abs. change % Change 
Revenues 546.4   491.4   +55.0 +11.2%
Operating costs (325.5) -59.6% (288.4) -58.7% +37.1 +12.9%
Personnel costs (102.5) -18.8% (88.0) -17.9% +14.5 +16.5%
Capitalised costs 2.9 0.5% 1.5 0.3% +1.4 +95.7%
EBITDA 121.3 22.2% 116.5 23.7% +4.8 +4.1%

Waste management revenues: € 546.4 million

Revenues for the first semester of 2017 rose by 11.2%, or € 55.0 million, going from € 491.4 million in June 2016 to € 546.4 million in the same period of 2017. Not including the changes in scope of operations due to the entry of the Aliplast Group, which contributed with € 54.5 million, and lower sales for green certificates amounting to roughly € 24 million (passing to costs), the waste management area showed a roughly € 25 million increase in revenues over the previous year. This change is due to higher volumes treated thanks to the development of market activities, changes in the market price of special waste, which showed a positive trend in the first half of 2017, and higher revenues for urban hygiene coming to roughly € 5 million due to the tariffary adjustments resolved by the ATOs, in particular those following the development of sorted waste services. Furthermore, note the lower revenues from electricity production mainly due to the loss of energy incentives for a few plants and for the lesser production of energy in some WTE plants, only partially offset by the increase in energy prices (involving incentives and the market).

Operating costs for the first half of 2017 rose by 12.9%, or € 37.1 million, going from € 288.4 million in June 2016 to € 325.5 million in 2017. Not including the change in scope of operations owing to the entry of the Aliplast Group, which contributed with € 39.3 million, and the previously mentioned effect of green certificates, coming to roughly € 24 million, the waste management area saw costs rising by roughly € 22.0 million over the previous year. This change is due to the higher costs caused by the rise in waste treated, the increase in costs tied to maintenance works on a few disposal plants and higher costs for developing new projects in the area of sorted waste.

Waste management Ebitda at € 121.3 million

Ebitda went from € 116.5 million in June 2016 to € 121.3 million in the same period of 2017, thus showing a growth of € 4.8 million in absolute terms, or 4.1%. This change is due to the entry of the Aliplast Group within the scope of operations of the Hera Group, with € 7.6 million, higher volumes marketed in the disposal business and higher prices for special waste. These positive effects allowed the drop in revenues in energy management to be offset.

Net investments in waste management: € 20.9 million

Net investments in the waste management area concerned plant maintenance and upgrading and amounted to € 20.9 million, up € 3.4 million compared to 2016.

The chain of composters/digesters showed an increase in investments coming to € 1.9 million, mainly due to interventions on the Sant’Agata composter for activities tied to the biomethane project.

The decrease in investments in landfills, which came to € 3.7 million, is mainly explained by the works carried out in the first half of 2016 in creating the 9th sector of the Ravenna landfill, not offset by the activities initiated on the Tre Monti (tank reclamation and new energy recovery system) and Loria landfills, in addition to reprogramming works on the Galliera and Cordenons plants.

In the chain of WTE plants, a € 1.2 million increase over the previous year was seen, mainly due to works including the modification of the steam generator in the Pozzilli plant and lesser maintenance interventions for the other WTE plants.

Investments in the Special Waste Plant chain were basically in line with the previous year. The chain of ecological islands and collection equipment saw investments that dropped by € 0.9 million, owing to the implementation in 2016 in the Triveneto region of Hergo Ambiente, the innovative information system that manages in an integrated way all of the Hera Group's Environmental Services activities, and to lower investments in collecting equipment in the area served by Marche Multiservizi.

The € 5.3 million increase seen in the chain of Selection and Recovery Plants is mainly due to the acquisition of the Aliplast Group, in addition to the activities of Waste Recycling, which is implementing the project I-Waste, a management platform able to gather and elaborate information from various types of sensors that collect analytic data involved in the performance of the various devices and of the treatment plants, putting them into relation with production activities, in order to enhance the efficiency of management, technical and energy processes, introducing IoT extensively into the company.

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

Waste Management
(€/mln)
Jun 2017Jun 2016Abs. change % Change 
Composting/Digestors 3.3 1.4 +1.9 +135.7%
Landfills 4.2 7.9 -3.7 -46.8%
WTE 3.5 2.3 +1.2 +52.2%
RS Plants 0.7 0.8 -0.1 -12.5%
Ecological areas and gathering equipment 2.1 3.0 -0.9 -30.0%
Transshipment, selection and other plants 7.2 1.9 +5.3 +278.9%
Total Waste Management Gross 20.9 17.5 +3.4 +19.4%
Capital contributions 0.0 0.0 +0.0 +0.0%
Total Waste Management Net 20.9 17.5 +3.4 +19.4%

Other services

Other services: Ebitda rises

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

In the first half of 2017, the results of the other services area increased by 14.0% over the previous year: Ebitda in fact went from € 8.7 million in the first six months of 2016 to € 9.9 million in the same period of 2017.

Increased contribution to Group Ebitda

Other Services Area Ebitda increases

The changes occurred in Ebitda are as follows:

(€/mln)Jun 2017Jun 2016Abs. change % Change 
Area EBITDA 9.9 8.7 +1.2 +14.0%
Group EBITDA 505.9 470.1 +35.8 +7.6%
Percentage weight 2.0% 1.8% +0.2 p.p.  

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

Quantative dataJun 2017Jun 2016Abs. change % Change 
Public lighting        
Lighting points (thousands) 509.6 519.7 (10.1) (1.9%)
Municipalities served 162.0 148.0 +14.0 +9.5%

509.6 thousand lighting points

An analysis of the data regarding public lighting shows a fall of 10.1 thousand lighting points and an additional 14 municipalities served. The Hera Group, over the first six months of 2017, acquired roughly 34 thousand lighting points in 21 new municipalities. The most significant of these were: in Lombardy, roughly 4 thousand lighting points in the provinces of Brescia, Bergamo and Cremona; in Abruzzo roughly 13 thousand lighting points; in Lazio roughly 4 thousand lighting points; and in the Triveneto region, roughly 13 thousand lighting points mainly in the province of Pordenone. The increases seen over the year only partially offset the loss of roughly 44 thousand lighting points and 7 municipalities managed, of which the most significant decrease concerns the loss of roughly 29 thousand lighting points in the municipality of Rimini.

Other Services: revenues rise

The operating results of the area are as follows:

Income statement (€/mln)Jun 2017% Inc.Jun 2016% Inc.Abs. change % Change 
Revenues 63.3   59.3   +4.0 +6.7%
Operating costs (44.4) -70.2% (41.6) -70.2% +2.8 +6.7%
Personnel costs (10.2) -16.1% (9.7) -16.3% +0.5 +5.2%
Capitalised costs 1.2 1.9% 0.7 1.2% +0.5 +73.2%
EBITDA 9.9 15.6% 8.7 14.6% +1.2 +14.0%

Revenues for Other Services reach € 63.3

Revenues in the area were up over June 2016 by € 4.0 million, going from € 59.3 million to € 63.3 million in June 2017. This growth in the first half-year is due to a positive contribution coming from all the businesses that make up the area: revenues from the business of public lighting grew by roughly € 1.1 million, thanks to the good performance of Hera Luce Srl, while the remainder of the increase came from telecommunications and cemetery services managed by AcegasApsAmga Spa.

Ebitda grows by € 1.2 million

Ebitda showed a € 1.2 million growth compared to the first half of 2016, owing to higher earnings in public lighting, brought by the good performance of Hera Luce Srl, and higher earnings in telecommunications services.

Net investments: € 8.7 million

Investments in the Other Services Area came to € 8.7 million, up € 3.2 million compared to the first half of 2016.

In telecommunications, € 5.0 million of investments were made in networks and TLC and IDC (Internet Data Center) services, with a € 0.5 million increase over 2016.

In the public lighting service, investments went to maintaining, enhancing and modernising lampposts, and amounted to € 3.7 million, increasing by € 2.7 million compared to the first half of the previous year. This increase concerned the areas served by both Hera Luce Srl and AcegasApsAmga Spa.

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

Other Services
(€/mln)
Jun 2017Jun 2016Abs. change % Change 
TLC 5.0 4.5 +0.5 +11.1%
Public Lighting and Street Lights 3.7 1.0 +2.7 +270.0%
Total Other Services Gross 8.7 5.5 +3.2 +58.2%
Capital contributions 0.0 0.0 +0.0 +0.0%
Total Other Services Net 8.7 5.5 +3.2 +58.2%

Procurement policy and trading

Natural gas consumption on the rise: +8.9%

As far as gas is concerned, in the first six months of the year the total consumption increased by 8.9% as compared to the same period of 2016, with an increase in the absolute value of over 3,200 Gmc. The driving factor behind this recovery, as compared to 2016, is gas consumption for electricity production: in the first six months of 2017, thermoelectric consumption increased by 20.0% as compared to the first six months of 2016 which, as an absolute value, corresponds to an increase of approximately 2,030 Gmc. The industry also displays signs of recovering, with gas consumption rising by 6.2% as compared to the first half of 2016. In addition, as far as residential consumption is concerned, climate change has led to an increase in consumption in the first six months of 2017, an increase of approximately 727 Gmc as compared to the same period of the previous year, corresponding to 4.0%.

Portfolio optimization

The weather pattern of the first half of the year obviously had an impact on the Group's sales, with a significant increase in January and February followed by a reduction in March.

Trading activities in the first half of the year were directed at optimizing the Group’s portfolio, on one hand with the aim of balancing its position on the short term, and on the other hand at negotiating and managing new procurement contracts for the 2017/2018 thermal year.

In detail, short-term adjustments, guided by an efficient forecasting of needs, were carried out through purchase or sale adjustments at the Virtual Exchange Point (Psv), the Virtual Trading Point (Austrian Vtp), the Title transfer facility (Dutch Ttf) and Net connect Germany (German Ncg). These operations generally took place on favourable terms and allowed the Group to achieve the established objectives in terms of results.

Since April 2017, Hera Trading Srl has initiated the procurement of both gas earmarked to fill the store purchased at auction, approximately 0.33 billion cubic meters, and gas earmarked for the Hera Comm Srl free market for the 2017/2018 thermal year, approximately 0.6 billion cubic meters, drawing directly on the spot market; this activity was still ongoing as of 30 June.

Negotiation of modulated gas for approximately 1.4 billion cubic meters

During March, in line with the previous year, modulated gas for the protected market on REMIs (delivery points) of the Group Sales Companies was negotiated for a total of approximately 1.4 billion cubic meters for the 2017/18 thermal year, in line with the provision terms established by Aeegsi beginning in October 2013. Thanks to negotiations, it was possible to obtain particularly favourable conditions in terms of both prices and payment conditions.

Electricity consumption on the rise:+2.4%

The electricity demand in the first half of 2017 showed an increase as compared to the same period of the previous year, rising by 2.4%.

Regarding electricity production, the first half of the year showed an increase in both thermoelectric and photovoltaic production, with increases of 14.8% (+11.0 TWh) and 12.0% (+1.0 TWh) respectively. This increase was counterbalanced by lower wind production, recording a significant decrease of -12.0% (-1.2 TWh), a lower hydroelectric power output of 3.05 TWh, equal to -14.3%, mainly due to lower imports from abroad, equaling 4.76 TWh or -23.4%.

Regarding prices in the electricity market, the first half of 2017 showed a significant increase: the NSP monthly average fluctuated between € 72 / MWh in January and € 43 / MWh in April while in the corresponding period of 2016 the NSP displayed values between 32 and 46 € / MWh. This trend is mainly due to the increased production of electricity from gas thermoelectric plants.

Reform of the electrical market

During the first half of the year, the Authority initiated the first phase of pilot projects for the participation of the consumption units and unequipped units in the Dispatching Services Market (MDSD) by resolution 300/2017 of 5 May 2017 and additionally involving various forms of aggregation according to geographic parameters. Pilot projects define the modes for remunerating ancillary services which are currently not remunerated.

In addition, with Resolution 419/2017 the Authority approved the new transitional regulation on actual imbalances, which provides for the introduction of macrozonal non-arbitration fees beginning 1 July 2017, the application of a new calculation method for calculating the aggregated zonal imbalance beginning 1 September 2017 and the re-instatement of the single pricing mechanism for dispatching points of unequipped units while maintaining the dual pricing mixed system for consumer units to counter programming strategies that do not comply with the system.

Regarding the trading of electricity and environmental certificates, in the first half of the year performance improvements were achieved in terms of both EBTDA and average value of the import capacity held as compared to the corresponding period of 2016. Particular attention has been granted to the management/optimization of Hera Comm Srl 's purchasing portfolio through operations on the Italian Stock Exchange and Over the Counter (Otc) platforms.

Price risk management

The management of commodity and exchange risk has proved to be particularly effective in a context characterized by intense volatility in both oil prices and the eurodollar exchange rate.

Financial policies and rating

Economic surveys confirm that the Eurozone enjoys excellent health

In the first six months of the year, the eurozone economy displayed a satisfactory macroeconomic position characterized by a high growth rate. There was renewed confidence in the reform process and in supporting cohesion, which could help unlock demand and investment.

The GDP rose by 0.5% in the first three months of the year, in line with signals from previsional indicators. The growth rate was 1.7%, a development compatible with the forecasted growth rate of 1.9% for both this year and next year. Economic surveys have confirmed that the eurozone enjoys excellent health. Quality indicators measuring the confidence of the industry have recorded the fastest growth in the economic activity of the last six years, with all major sectors displaying a historically high economic climate. The improvements in the labor market also provide impetus for growth in the eurozone. The unemployment rate continued to fall and has reached the lowest level since 2009. The acceleration in the employement rate is consistent with an increase of private spending in the EU, although in Italy the improvement in public sentiment has not yet had an impact on trends in actual consumption, which remains lower than the average. The composition of the GDP reveals the definitive revival of private investment, an indispensable condition for strengthening bases for growth. In April, inflation measures led to an impetus-generating trend, with the general index again near the BCE target (1.9%) and core index at 1.2%, the highest since 2013. Price trends have varied in recent months, revealing instances of instability in the reflation process taking place in the eurozone. In June, the general inflation rate showed a slowdown in the rise of consumer prices due to a less signficant increase in energy prices; however, the result is better than expected and core inflation, which is particularly relevant to the BCE, has increased. According to data released by Eurostat, consumer prices rose, respectively to 1.3% throughout the year from 1.4% in May, greater than the consensus (1.2%) for the general figure and up to 1.1% y/y for the 'Core' index, as compared to 0.9% in the previous month, also higher than expected for a less significant increase of 1.0%. Inflation is not a concern for bond investors for the time being; especially if oil prices remain low, conditions should remain favorable for European short-term governamental bond markets with positive impetus coming from the extension of indexes and seasonal factors.

The details published by the BCE regarding corporate bond yields confirm its significant role in credit markets, with the expectation of increasing volatility if tapering occurs.

ECB: Unchanged interest rates and gradual reduction of QE

At the latest monetary policy meeting, the BCE did not modify the cost of money, as analysts expected, but launched the signal that markets were waiting for. The cost of money remained unchanged, with the main rate at zero and the rate on bank deposits at - 0.4%. The Quantitative easing (QE) purchasing plan remained unchanged as well, with a value of 60 billion per month, and will last until the end of 2017.

Although recovery in Europe is greater than the trend and widely distributed, the message of the President of the BCE revolved around the three "Ps": prudence, persistence and patience. The European monetary policy must be persistent and cautious, with gradual adjustment of the European Central Bank's incentive in order to ensure that this recovery be accompanied by stimulus despite factors of uncertainties (Brexit, political elections, public debt consolidation, immigration, etc.). All signals currently indicate that recovery in the eurozone will grow stronger and more widely spread. Deflation drives have been replaced by reflation ones. However, President Draghi stated that "a considerable degree of monetary adjustment is still needed to ensure that the dynamics of inflation become long-lasting and self-sustained".

However, the details reveal signs of a course-change for the future: there is no longer a reference to the possibility of "lowering" rates if needed, but there is still a reference to potentially revising the scope and diminution of purchases if prospects become less favourable or if it becomes advisable due to financial conditions. It was also specified that the rates will only be raised “far beyond" the end of QE purchases.

The Bank of England also maintained rates unchanged at 0.25%, but in the US the rate situation was different: in June, the Fed decided to raise rates again by + 25bps (1% -1.25%), as the market had already foreseen. The members of the Federal Open Market Committee (FOMC) commented on the recent data showing weak inflation, defining them as "transitory"; they focused instead on the projections for the coming quarters that show an improvement in the labour market and a drive to raise consumer prices, thus maintaining the cycle of rate hikes and the continuation of a gradual approach to monetary restriction. There is widespread consensus regarding two additional rate hikes, in September and December, and a move to begin tapering reinvestments by the end of the year while stressing the importance of monitoring inflation.

10 year BTP-Bund Spread vs Hera Spread

Despite the fact that QE heavily reduced the spread among European governmental bonds, it continues to measure the sovereign risk differential among the countries in the eurozone.

The spread between BTPs and Bunds is currently decreasing, favoured by political prospects in Italy; in fact, the reduction of political tension has fuelled the demand for Italian bonds. The spread between the yields of Italian and German ten-year bonds, after rising in the first half of the year, fell at the end of June to reach the level it had occupied at the end of 2016.

Nevertheless, the spread of Hera Spa 10-year bonds was not affected by Italy's political and economic uncertainty thanks to investors' trust and the company's stable credit rating, which is lower by approximately 100 bps as compared to the spread for the BTP-Bund of the same duration.

Liability management to optimize the average cost of debt

The Group maintains its focus on a financial management plan capable of maximising its yield profile while maintaining a cautious risk strategy. The average cost of debt is continuously rendered efficient through forms of liability and financial risk management aimed at seizing market opportunities. In particular, in March pre-hedging was carried out on the next maturity to be refinanced in 2019, making it possible to set a particularly low rate of interest, below 1%, for the next issue.

To support liquidity risk indicators and optimise the costs/convenience of funding, the Group has obtained committed credit lines amounting to 345 € million with an average age of over 2 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 to 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, in which 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 on which repayment can be demanded.

Adequate liquidity for a worst-case scenario

Worst case scenario30.06.201731.12.2016
(€/mln)from 1 to 3 monthsfrom 3 months to 1 yearfrom 1 to 2 yearsfrom 1 to 3 monthsfrom 3 months to 1 year from 1 to 2 years
Bonds 14 76 76 38 76 76
Debts and other financial liabilities 220 61 62 76 77 57
Trade payables 1,085 0 0 1,271 0 0
Total 1,319 137 138 1,386 153 133

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), as of 30 June 2017 the Group had 324 € million in liquidity, 345 € million in unused committed lines of credit and a substantial amount that can be drawn down under uncommitted lines of credit (approximately 800 € million).

The lines of credit and corresponding financial assets are not concentrated on a specific lender, but rather 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 coming due by the end of the year equals 5.1% and the long-term debt comes to roughly 94.9% of total financial debt, roughly 80% of which consists of bonds with repayment at maturity. The average term to maturity is over 8 years, 68% of which maturing beyond 5 years.

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

Debt nominal flow (€/mln)31.12.201731.12.201831.12.201931.12.202031.12.2021Over 5 yearsTotal
Bonds 0 0 395 0 290 1,935 2,620
Bank debt/due to others 138 55 53 49 47 324 666
Total 138 55 448 49 337 2,259 3,285

No financial covenants

Default risk and debt covenants

This 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.

As of 30 June 2017, 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 establish 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 better security and/or liens on its assets (negative pledge) to subsequent lenders with the same seniority status.

As for 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 & Investement grade

On the remainder of the debt, early reimbursement only occurs in case of a significant change of control of the Group that entails downgrading to non-investment grade or lower, or the termination of the publication of the rating.

A model of active and prudential rate risk management

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.

The Group's exposure to interest rate risk, including the effect of derivatives, comes to 17% of total borrowings.

85% of debt at fixed rates

The Group's exposure to the risk of rate variation, including the effect of derivatives, comes to 15% while 85% of debt is 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.

Total borrowings (*)30.06.201731.12.2016
(€/mln)without derivateswith derivates% with derivateswithout derivateswith derivates% with derivates
fixed rate 2,691 2,706 85% 2,693 2,712 84%
floating rate 486 471 15% 520 501 16%
Total 3,178 3,178 100% 3,213 3,213 100%

*Total borrowings: does not include cash and cash equivalents, other current and non-current financial receivables

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 an outstanding bond for 20 billion Japanese yen, fully hedged by a cross-currency swap.

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

Rating
Hera Spa has been given a long-term `Baa1 Negative Outlook' rating by Moody's and a `BBB Stable Outlook' rating by Standard & Poor's (S&P).

On 5 May 2017 Moody's issued a credit opinion confirming the "Baa1" rating with a "Negative" 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 negative outlook is due to the deterioration of Sovereign risk, as most of the Group's EBITD originates from domestic business and is therefore vulnerable to the country's macroeconomic trends. However, the Group remains a notch above the sovereign rating thanks to the diversification and solidity of its portfolio of regulated activities with low-risk profile, a high degree of liquidity and resilient indicators of credit worthiness.

As of 31 March 2017, for S & P's annual review, the company rating was confirmed as the levels achieved for the indicators of credit worthiness exceeded expectations despite the scenario of elevated domestic political risk. S&P believes that the solvency of the Group is not fully bound to the conditions of sovereign risk and that conditions do not exist under which this solvency would be jeopardised.

Given the current context of prolonged uncertainty characterising 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 2016 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 21st march 2017 and by the Shareholder's meeting on 27th April 2017.

Read more link

Technological innovation

Technological innovation and project development

In the first half of the year a number of initiatives were developed in the areas of circular economy, energy efficiency and new services for the city.

Biomethane

This project will produce approximately 7.5 million cubic meters of biomethane per year at the facility of Sant'Agata Bolognese and about 20,000 tonnes of quality compost. This plant will be able to treat 100 thousand t/y of organic waste and 35 thousand tonnes of yard waste from differentiated collection. The authorization process for the construction of the new plant was completed in March 2017 and made it possible to begin construction work. Works will continue over the course of the year with civil engineering works and the supply of the systems comprising the anaerobic digestion facility and are scheduled to end in 2018 with the introduction of biomethane into the Snam network. The project, equipped with the best technology for the treatment of organic wastes, is already becoming a benchmark for the Italian market and will serve as a guide for the country, a virtuous example of circular economy.

Biomethane 2.0 and bioethanol

In the context of circular economy, tests were carried out to determine the compositions and yields of the biomass varies in different seasons in order to recover energy from organic wastes from parks and gardens to produce biofuels such as biomethane or bioethanol. In addition, technologies for pre-treating wood (steam explosion) have been developed, improving the digestion processes, through pressure and temperature, for biomethane production or alcoholic fermentation as regards bioethanol. The tests will be completed by the end of the year and, following the indications produced, it will be possible to measure the amounts of mass and energy of the processes and assess the technical-economic feasibility of potential investments.

Smart Waste

An indoor prototype of a new urban waste collection system has been built that, in addition to user recognition and waste measurement, is able to deliver other innovative services for the city: environmental monitoring, wi-fi, video surveillance, electric charging services for bikes and cars. With the collaboration of Acantho, this initiative continues with the construction of the prototype suitable for testing in an outdoor environment. The test of the prototype is scheduled by the end of the year; the prototype consists of a totem equipped with the main technologies and two modules connected to it for waste delivery.

Energy recovery from sewage sludge

The two efficiency projects of the sludge line in the urban water treatment plants of Modena and Rimini are still ongoing and are aimed at producing renewable energy and reduce the amount of sludge to be disposed of. The installation of a dynamic thickener of the sludge prior to the anaerobic digestion section and a co-generator is planned, with the aim to produce renewable electrical and heat energy that will be directly used in the plant. The authorization process that will be completed by the end of the summer was initiated in Modena and in the meantime the final design of the operation was completed. A new thickener was installed and maintenance work was carried out at the third digester in S. Giustina (RN). By the end of the year, two additional thickeners will be installed and the final design for biogas recovery will be completed to potentially file the authorization request.

Advanced Water Security

The video analysis systems were installed in the plants of the water systems of Bologna Borgo Panigale and Bologna San Vitale. In each of the two plants a thermal camera and an optical were installed, in the first case a fixed shot camera and in another with movement to analyse a more extensive area, which can acquire images in synchronization and activate the registration in case of detected intrusion. The detected intrusion trigger alarms that are managed by the Milestone software. Currently the system is being tested. To complete the plant, the Group is considering installing an Access Control system to enable / disable video cameras when authorised personnel enters these sites.

Environmental monitoring

The environmental control units identified during 2016 were installed in sites with a high residential density and intense vehicular traffic in the city of Ferrara. Initially, the data transmission system (data are sent every two minutes via GSM) and the power supply system of the control units (all equipped with a photovoltaic panel) were tested. Subsequently, the correlation with official Arpae data was verified, showing good reliability of the system. Despite being low cost, in the future it will be possible to use the control units as a support and integration to the official measurement methods. Currently, data are recorded and processed to check the variations of pollutant gas parameters depending on the weather conditions and seasonal temperatures. Shortly, mathematical modelling will be carried out to better assess the dispersion of pollutants and the exposure of the population.

Worksites coordination (Underground Facility Management)

The coordination system for the worksites was developed with the technology of the Consorzio Futuro in Ricerca Ferrara, represents a true intra-group coordination platform to optimize the activities carried out in the local area, by reducing the number of excavations, and manage in an integrated way the authorization documents and worksite data. At the beginning of the year, experimentation with the Water Department was launched, while in the second quarter of the year the Engineering Coordination of AcegasApsAmga Spa was involved as well.

Operation Centre – Municipality Dashboard

The above mentioned services are included in a single IT platform called Operation Centre, a dashboard for managing the public administration services, controlling and analysing the local areas and communicate information to citizens. This platform makes it possible to display data in real time, process them, put them in correlation, create value-added synoptic views and integrate services already developed (such as energy maps or the smart totem). The demo version of the dashboard was created in the Ferrara area and currently several municipalities have expressed strong interest in the instrument.

Hera Management Dashboard

An evolution of the previous project led to the development of a multi-tiered monitoring dashboard as a target for updates, including daily updates, of the Company's main KPIs. The project, created in collaboration with the Information Services Department, will be completed in 2017 and targets the Company's top management. The dashboard will be visible through Smart blackboards available in the company.

Other initiatives

To keep pace with developments taking place in the environment surrounding the Group, other initiatives have been undertaken. Some examples are listed here below.

  • The Smart Home project is testing home automation solutions (control units and various sensors / actuators to remotely control their home) to be integrated into current business offers.
  • Some apps have been developed to allow Hera employees to more easily access some of the Company's functions (meeting room reservations, document approvals, authorisations, ...) via smartphone.
  • The open innovation platform HEuRekA+ open to all employees continues to be used to collect, comment and evaluate innovative ideas and proposals (over a thousand employees are taking part in this initiative).
  • In all major Hera locations, a wi-fi connection was set up open to employees and guests alike.

Quality, safety and environment

In the first half of the year, the Quality, Safety and Environment Department obtained the renewal of the certifications of Hera Spa management systems ISO 9001 and ISO 14001, in the 2015 versions, as well as OHSAS 18000 and SA 8000.

In line with previous years the injury indicators are decreasing; in particular, there was a reduction in injury days.

The central coordination of the Department at the Group level continued to focus on a number of cross-cutting issues such as the decontamination of structures containing asbestos, the Presidio Privacy, the completion of the process of organizationally and managerially rearranging emergencies in civilian sites and the selection process to choose a certifying body for the 2018-2020 three-year period.

On 17 February 2017 the service order no.3 was published containing the organizational evolution of the Department which, by applying the principles of organizational simplification, flexibility and operational efficiency, achieved a flexible use of resources, reducing organizational positions by 10 and unifying and centralising multiple services in a single structure, more agile and tailored to the satisfaction of internal and external clients.

Industrial relations, development and staff training

Industrial Relations

On 25 May, the Group signed, together with the National, Regional, Territorial, and RSU OOSS, a renewal of the Supplementary Collective Agreement for all Hera Group employees operating in Emilia Romagna, FVG, Marche and Veneto. With this renewal and the integration of Marche Multiservizi, the process of harmonization of the Group Result Prize will be completed, valid for the years 2016-2019. The following are the most significant new items in the Agreement:

  • an average increase of 650€ established for the four-year period;
  • beginning in 2018, as provided for by current law, the employee will have the opportunity, on a voluntary basis, to substitute up to 50% of the PdR in cash with Welfare services; This amount is added to the "Flexible Welfare Package" that the Company already grants its employees individually;
  • in order to obtain these company contribution tax benefits for a part of the PdR, the Parties agreed to set up, on an experimental basis, a Participating System.

At the level of the Group as a whole, an agreement was signed with the National OOSS regarding the 2017 Funded Training Plan.

In the Emilia Romagna Region, an agreement was signed regarding the establishment of a "multi-period" work schedule in the DSA-mountain area of Modena, bringing the weekly hours up to 40 in the summer, a period that is more critical for the service, with consequent elimination of overtime, alternating between 36 and 38 hours depending on the period. The new schedule for the personnel of Heratech Srl was defined Laboratory supervisor - Waste sector, Ravenna area. In the area of Ferrara, in the sectors of Aqueduct Networks, working hours have been redistributed over 6 days per week, during the summer, with better coverage during the ordinary time slot, thereby reducing on-call overtime. This summertime distribution was also introduced in the Imola area and revised for the Ravenna area. In Herambiente Spa, agreements have been devised for the areas of Bologna and Rimini fo establish a system of on-call availability in Selection and Recovery Facilities. In Uniflotte Srl a joint investigation was carried out regarding the establishment of a system for On-Call Availability for Emergency Management. Following the introduction of the new work schedule of 38 hours per week for CCNL Servizi Ambientali personnel, as of 1 January the new work schedule was verified and the changes were implemented. Likewise in the ER area, a draft agreement on "departure from home to travel to a worksite" was signed, concerning a new operational approach aimed at recovering efficiency margins and increasing productivity by optimizing the local presence of personnel involved in scheduled technical/operational activities and support staff in the sector of Networks and Plants. This operational approach has already been launched in the territories of Modena and Ferrara, in addition having been set up on an experimental basis in Bologna for some time now. In the Friuli Venezia Giulia and Veneto areas, agreements were signed to achieve more uniform working hours and on-call availability at the company Sinergie Spa for both Sinergie Spa and Estenergy Spa agreements were signed regarding the Result Prize, with measures to bring it into line with the Group Prize. In the Marche area, trade union agreements were signed regarding the GPS vehicle locator system, company closures and to facilitate the use of holiday time as well as an agreement regarding Funded Training.

Training

In the first half of 2017, the Hera Group's new leadership model was launched along with engagement and training initiatives involving approximately 5,000 people in different ways, with all Group executives and middle managers present in the classroom. These initiatives will continue in the next half of the year as well.

In 2017, the seventh edition of the Climate Survey will be carried out during the first half of the year. The working group has updated the questionnaire and decided on the ways it will be distributed in the second half of the year.

In the first half of 2017, approximately 5,000 people were assessed and given associated feedback. The assessment, regarding Performance and Managerial Skills, is carried out by the individual in charge and calibrated according to the larger organizational structure; the individual in charge also provides feedback to the employee being evaluated.

Formazione

In the first half of 2017, a total of 122,354 hours of training were delivered at the Group level: 14.1 hours per capita, equal to approximately 59% of the overall target for 2017. Likewise at the Group level, approximately 91% of employees were already involved in at least one training activity. The economic investment, net of trainee and in-house trainer costs, amounted to € 722,892, € 68,600 of which came from training funds. These data show a significant commitment in terms of both finances and resources the Group has made to continuously valorising and developing its human capital, including through the continuation of HerAcademy, the Group's Corporate University.

pAs to HerAcademy programs, particularly noteworthy is the sixth edition of the university orientation initiative and the fourth edition of the initiative orienting participants to the world of work as well as the second year of a school-work scheme management model based on a work-and-school skills integration approach. This was started up following the memorandum of understanding signed in 2015 with the Emilia-Romagna Regional Education Office. For the 2016-17 school year , the total number of course programmes increased to 80 and the scope of involvement was extended to High Schools as well.

Commercial policy and customer care

In the first half of 2017, the client portfolio of the Group showed an increase of over 3% as compared to the same period of the previous year.

The number of clients increased in all services, particularly in the electricity sector: the increase of supplies in a safeguard regime, the competitivity of the offering and quality of the service are the main reasons for the increase of more than 75,000 customers (+ 8.8%).

Customers of the gas service increased by approximately 47 thousand units (+ 3.5%): this result was achieved thanks to both the ongoing commitment to commercial activities and the entry, in the Hera Group, of Gran Sasso Srl and Azzurra Energie, active in Abruzzo in the sale of electricity and gas. Water service customers initially grew by approximately 0.3%.

Contracts30 Jun 201730 Jun 2016Delta pdf n.delta pdf %
Gas  1,398.8   1,351.7   47.1  3.5%
Electricity  930.5   855.2   75,3 8.8%
Water  1,456.1   1,451.1   5.0  0.3%
District heating  12.0   11.7   0.3  2.6%

Data expressed in thousands

The volume of contacts managed through the channels of the Group grew by 9% in the first half of 2017 as compared to the first six months of 2016, reaching an overall volume of approximately 2,780,000 contacts. The increase mainly involved the call centre channel (+ 20%), followed by the protocol (+ 6.5%), help desk (+ 4%) and IVR (+ 2.5%).

The call centre is still the contact channel most widely used by clients (48.5%), followed by IVR (15.8%), customer help desks (13.5), the online channel (9.4%), text messages (7.3%) and regular mail (5.5%).

The Hera call centre has significantly improved the quality of its service for residential customers in terms of average waiting time (31 seconds vs. 42 seconds in 2016), the number of answered calls (95.8% vs 94.4 % in 2016) and the number of calls with an average waiting time of over 2 minutes (7.4% vs. 12.4% in 2016).

The Hera Group help desks confirm a waiting time of less than 10 minutes in 2017 as well.

The ongoing commitment to increasing the quality of contact channels for the end customer has resulted in a further improvement in the quality perceived by clients in 2017. According to the customer satisfaction survey, the help desks obtained a score of 84.4 (1 point more than the first half of 2016), followed by the household call centre with a score of 82 (a value in line with the first half 2016) and the business call centre with 77.6 points (a value in line with the first half of 2016).

Below are the main indicators for Hera help desks and call centres.

Average waiting time - contact center no ivr (sec.)1st Half 171st half 161st Half 15
Residential customers    31  42   31
Business customers    49  39  27

Average waiting time - customer (min, sec.)1st Half 171st Half 161st Half 15
Average   10  9

Information system

The Information Systems department is responsible for ensuring the development and efficiency of the Group's information systems to support its business. It also ensures that the systems are continuous adapted to comply with 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 developments

In terms of Corporate Developments, it should be noted that the new company Hera Tech Srl has begun production as part of the Group's information systems.

Standardizing systems in other companies

The multi-year plan for standardizing the information system in AcegasApsAmga Spa is still ongoing. In the first half of the year, the systems for the management of environmental services and waste treatment and disposal facilities were started, while the roll-out of network service systems (electricity and gas distribution) is underway, which will come into effect in the second half of 2017. Production was initiated on the project supporting the finance and control processes, passive cycle and supplier portal, Tari management, environmental service and waste treatment and disposal facilities management for Marche Multiservizi Spa.

Regulatory compliance

The planning activities have been completed to bring the Group's systems in line with the contractual quality control of the integrated information system for the distribution (Authority - Resolution 655/15/R/Idr of 23/12/15) and the developments of the platform for managing the remote reading and management of gas meters. Adjustments were also implemented in terms of the quality of the water service (Authority - Resolution 218/16/R/Idr of 05 May 2016) and the accounting unbundling of the water sector (Authority - Resolution 137/16/R/Com of 24 March 2016). In the commercial area, the projects were completed regarding protected categories (Authority - Resolution 296/15/R/Com of 21 June 2015) and the establishment of similar protection (Authority - Resolution 369/16/R/eel Of 07 July 2016).

Support for business

This section includes the introduction and evolution of different solutions, such as the new commercial portal for on-line services, the new system for personnel management processes and the front-end credit process management platform (the back-end process management platform is under way)

Reducing technology risk

As part of the process of continuous technological innovation and improving the performance of the Group's information systems, activities were carried out to develop the IT infrastructure and to publish services on the internet.

Information system safety

The IT and enterprise data safety systems, 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, conducted through a periodic risk analysis of production systems (vulnerability assessment), updates of existing systems (such as the upgrade of processes for managing system logs) and the adoption of new, specialized solutions.

During the six-month period, checks were carried out for the renewal of the Group’s ISO 9001 certification.

Personnel Structure

Human Resources

Hera Group's employees with open-ended contracts as of 30 June 2017 equal 8,689 (consolidated scope) and are distributed by role as: executive managers (150), middle managers (537), office clerks (4,591), and workers (3,411). In 2017 this structure is the result of 98 entries and 132 exits as well as changes in company structure in the amount of 349 individuals (Aliplast Spa, Sinergie Spa and Teseco Srl). Hiring mainly resulted from a quality turnover entailing the entry of a skilled workforce.

Innovation and streamlining of operating processes

Structure

In the first half of 2017 the Group consolidated its organizational and operating model, continuing with the streamlining of operational mechanisms and further developing its commitment to technological and process innovation with the aim of securing the tools needed to achieve the Group's aims.

Below is the Group's organizational macrostructure:

Beginning 1 January 2017, Heretech Srl, an Hera Group company, was established with the aim of achieving further efficiency and effectiveness in the management of plant and network design and construction processes, in the management of technical activities for end customers, in measuring and monitoring consumption and in managing the activities of the Group's laboratories and system for monitoring and regulating fluids at a distance.

The Group has also completed a further integration of its laboratory system, including for the areas currently covered by AcegasApsAmga Spa, thus achieving operational excellence in laboratory analyses in the northeast area.

Uniforming AcegasAps Amga's organisational model

Beginning April 2017, the organizational model of the Environmental Services Department has been improved by reviewing the operating environment characterizing Collection Areas and Centres in terms of operational efficiency and by setting up the Ravenna Area.

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

Main developments in Herambiente

In the first half of 2017, the process of uniforming and simplifying AcegasApsAmga Spa's organizational structure continued.

As part of this process, the underlying organization has been revised by eliminating the need for a Planning, Integration and Relations with Local Governmental Bodies department, and reallocating the activities managed by this department. In detail, planning and control activities have been shifted under the jurisdiction of the Administration, Finance and Control department; Regulatory and tariff activities, engineering coordination and energy management activities have been shifted under the department of Gas calls for tenders, Regulatory and Engineering Coordination; relations with local governmental bodies has been placed directly under the directors of the General Manager; and, finally, oversight of innovation activities has been shifted to the Electricity Management department, with a focus on aspects related to Operations. As of the same date, the Customer Operations department was relocated under the direct supervision of the General Manager.

As of 30 June 2017, a revision of the organizational model of Herambiente Spa was carried out involving a shift to focus commercial structures on two specific business segments: the first one, headed by the Industry Market department, aimed at selling products and services related to the industrial waste market and the second one, headed by the Utilities Development Planning and Market department, focused on the market for special wastes from urban sources.

In the Industry Market department in particular, in order to foster the utmost synergy among the divisions operating in the industrial waste market, the companies Herambiente Servizi Industriali Srl and Waste Recycling companies and the components of Herambiente Spa involved in Environmental Decontamination and Operational Global Service activities were combined.

In the Development, Planning and Utilities Market department, the sales structures having to do with the urban and special wastes market from the sphere of Utilities were combined with sales structures operating in the materials recovery market. Alongside the sales structures mentioned above, the Logistics Division was integrated into the Development, Planning and Utilities Market department.

In addition, in order to pave the way for integrating the business plans of the two departments, the Marketing division was placed directly under the responsibility of the CEO of Herambiente Spa.

At the same time, the Technology and Engineering division was reallocated to within the Production department in order to foster the optimization of technical processes in the field of production with a specific focus on innovation processes.

In the Central Market department, it is worth mentioning: effective May 2017, the organizational arrangement of Medea Spa was revised; With the establishment of the Operational and Commercial Coordination unit aimed at ensuring management of the company's operating activities.

Main developments in the Central Unit area

In the Central Unit area, it is worth mentioning:

  • effective February 2017, the reorganization of the Quality, Safety and Environment Department focused in particular on logics of flexible resource utilization through integrated internal mechanisms for integrated activities planning;
  • effective 1 May 2017, the reallocation of Hera Luce Srl's supplier accounting, financial statement and general accounting activities under the Administrative department of the Central Management, Finance and Control Department, consistent with the Group's operating model and carried out to complete the integration process begun in the previous months.

In the Innovation Central Department, it is worth mentioning:

  • effective February 2017, the reorganization of the Information Systems department aimed at strengthening the focus on managing individual IT processes by improving their performance ("Business Relationship Management", Delivery & Maintenance", "IT Operations") and aligning the working model towards to effectively manage new technological trends;
  • effective June 2017, the reorganization of Hera Luce Srl, aimed at achieving the optimal organizational configuration to face the challenges generated by the company's developmental strategy;
  • effective May 2017, the organizational arrangement of Acantho was revised, associated in particular with new supervisory positions established by the company's Board of Directors;

Financial statements

Income statement

€/mlnnotesFirst half 2017First half 2016
as adjusted
Revenues  1 2,754.0 2,502.8
Other operating revenues 2 202.3 162.0
Use of raw materials and consumables  3 (1,178.4) (998.0)
Service costs 4 (981.7) (920.4)
Personnel costs 5 (282.4) (266.7)
Other operating costs 6 (25.8) (20.8)
Capitalised costs 7 17.9 11.2
Amortisation, depreciation,provisions 8 (243.7) (212.7)
Operating profit   262.2 257.4
Portion of profits (loss) pertaining to joint ventures and associated companies 9 8.2 6.5
Financial income 10 58.5 68.6
Financial expense 10 (112.6) (133.1)
Financial operations   (45.9) (58.0)
Pre-tax profit   216.3 199.4
Taxes 11 (68.3) (71.2)
Net profit for the period   148.0 128.2
Attributable to:      
Shareholders of the Parent Company   141.0 121.0
Non-controlling interests   7.0 7.2
Earnings per share 12    
basic   0.096 0.082
diluted   0.096 0.082

Pursuant to Consob Resolution no. 15519 of 27 July 2006, the effects of relationships with related parties are accounted for in the appropriate income statement in paragraph 2.04.01 of this consolidated financial statement.

Statement of comprehensive income

€/mlnnotesFirst half 2017First half 2016
Profit (loss) for the period   148.0 128.2
Items reclassifiable to the income statement      
fair value of derivatives, change in the year 19 3.1 0.3
Tax effect related to the other reclassifiable items of the comprehensive income statement   (0.8) (0.1)
Items not reclassifiable to the income statement      
Actuarial income/(losses) post-employment benefits 26 1.4 (7.9)
Tax effect related to the other not reclassifiable items of the comprehensive income statement   (0.4) 0.6
Total comprehensive income/ (loss) for the period   151.3 121.1
Attributable to:      
Shareholders of the Parent Company   144.2 114.4
Non-controlling interests   7.1 6.7

Statement of financial position

Assets

€/mlnnotes30 Jun 201731 Dec 2016 as adjusted
ASSETS      
Non-current assets      
Property,plant and equipment 13 2,016.4 2,019.2
Intangible assets 14 3,082.5 2,968.0
Goodwill 15 375.7 375.7
Equity investments 16 146.2 148.5
Non-current financial assets 17 124.0 110.2
Deferred tax assets 18 80.2 80.3
Financial instruments - derivatives 19 105.8 109.5
Total non-current assets   5,930.8 5,811.4
Current assets      
Inventories 20 122.9 104.5
Trade receivables  21 1,640.1 1,672.0
Current financial assets 17 35.1 29.4
Current tax assets 22 46.0 33.9
Other current assets 23 298.7 225.9
Financial instruments - derivatives 19 29.1 56.5
Cash and cash equivalents 17, 30 324.0 351.5
Total current assets   2,495.9 2,473.7
TOTAL ASSETS   8,426.7 8,285.1

Pursuant to Consob Resolution no. 15519 of 27 July 2006, the effects of relationships with related parties are accounted for in the appropriate statement of financial position in paragraph 2.04.02 of this consolidated financial statement.

Liabilities

€/mlnnotes30 Jun 201731 Dec 2016 as adjusted
SHAREHOLDERS' EQUITY AND LIABILITIES      
Share capital and reserves 24    
Share capital    1,469.6 1,468.1
Reserves    822.9 742.5
Profit (loss) for the period   141.0 207.3
Group equity   2,433.5 2,417.9
Non-controlling interests   143.5 144.2
Total equity   2,577.0 2,562.1
Non-current liabilities      
Non-current financial liabilities 25 2,909.3 2,933.1
Employee leaving indemnity and other benefits  26 142.8 145.8
Provisions for risks and charges 27 409.7 397.6
Deferrred tax liabilities 18 48.4 27.2
Financial instruments - derivatives 19 43.8 44.1
Total non-current liabilities   3,554.0 3,547.8
Current liabilities      
Current financial liabilities 25 247.5 182.3
Trade payables 28 1,085.4 1,274.1
Current tax liabilities 22 92.8 21.0
Other current liabilities 29 834.3 633.0
Financial instruments - derivatives 19 35.7 64.8
Total current liabilities   2,295.7 2,175.2
TOTAL LIABILITIES   5,849.7 5,723.0
TOTAL EQUITY AND LIABILITIES   8,426.7 8,285.1

Pursuant to Consob Resolution no. 15519 of 27 July 2006, the effects of relationships with related parties are accounted for in the appropriate statement of financial position in paragraph 2.04.02 of this consolidated financial statement.

Cash flow statement

€/mlnnotes30 Jun 201730 Jun 2016
Pre-tax profit   216.3 199.4
Adjustments to reconcile net profit to the cashflow from operating activities:    
Amortisation and impairment of property, plant and equipment   82.3 76.9
Amortisation and impairment of intangible assets   100.3 90.6
Allocations to provisions   61.1 45.2
Effect of valuation using the equity method   (8.2) (6.5)
Financial expense / (Income)   54.1 64.5
(Capital gains) / Losses and other non-monetary elements
(including valuation of commodity derivatives)
  (4.9) (11.6)
Change in provisions for risks and charges   (16.0) (13.1)
Change in provisions for employee benefits   (4.0) (3.3)
Total cash flow before changes in net working capital   481.0 442.1
(Increase) / Decrease in inventories   (8.7) 21.7
(Increase) / Decrease in trade receivables   5.9 35.3
Increase / (Decrease) in trade payables   (208.4) (219.2)
Increase / Decrease in other current assets / liabilities   133.0 108.0
Change in working capital   (78.2) (54.2)
Dividends collected   5.2 7.7
Interests income and other financial income collected   22.5 14.8
Interests expense and other financial charges paid   (63.3) (74.3)
Taxes paid   (13.5) (10.7)
Cash flow from (for) operating activities (a)   353.7 325.4
Investments in property, plant and development   (49.5) (50.3)
Investments in intangible fixed assets   (120.8) (107.1)
Investments in companies and business units net of cash and cash equivalents 30 (94.7) (5.2)
Sale price of property,plant and equipment and intangible assets
(including lease-back transations)
  1.7 3.5
Divestment of unconsolidated companies and contingent consideration   0.1                               -
(Increase) / Decrease in other investment activities   (19.6) (1.7)
Cash flow from (for) investing activities (b)   (282.8) (160.8)
New issues of long-term bonds                                 -                               -
Repayments and other net changes in borrowings   34.9 (312.7)
Lease finance payments   (2.0) (2.2)
Investments in consolidated companies 30 (1.4)                               -
Share capital increase   0.2                               -
Dividends paid out to Hera shareholders and non-controlling interests   (134.2) (136.1)
Change in treasury shares   4.1 (6.9)
Other minor changes                                 -                               -
Cash flow from (for) financing activities (c)   (98.4) (457.9)
Effect of change in exchange rates on cash and cash equivalents (d)                                 -                               -
Increase / (Decrease) in cash and cash equivalents (a+b+c+d)   (27.5) (293.3)
Cash and cash equivalents at the beginning of the period   351.5 541.6
Cash and cash equivalents at the end of the period   324.0 248.3

Pursuant to Consob Resolution no. 15519 of 27 July 2006, the effects of relationships with related parties are accounted for in the appropriate statement of financial position in paragraph 2.04.02 of this consolidated financial statement.

Statement of changes in equity

€/mlnShare capitalReservesDerivative instrumentsProvisions for employee benefitsProfit for the periodEquity Non-controlling interestsTotal
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)
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:                
- dividends paid out         (132.5) (132.5) (11.4) (143.9)
- allocation to ohter reserves   39.5     (39.5)                   -                     -
- undistributed profits to retained 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
                 
Balance at 31 December 2016 1,468.1 772.4 (0.4) (29.5) 207.3 2,417.9 144.2 2,562.1
                 
Profit for the period         141.0 141.0 7.0 148.0
Other components of comprehensive income at 30 June 2017:                
fair value of derivatives, change in the year     2.2     2.2 0.1 2.3
Actuarial income/(losses) post-employment benefits       1.0   1.0   1.0
Comprehensive Income for the period                  - 2.2 1.0 141.0 144.2 7.1 151.3
                 
Change in treasury shares 1.5 2.6       4.1   4.1
Payment for non-controlling shares                             - 0.2 0.2
Change in equity interests   (0.3)       (0.3) (1.1) (1.4)
Change in the scope of consolidation                             - 1.1 1.1
Allocation of 2016 profit:                
- dividends paid out                  -     (132.4) (132.4) (8.0) (140.4)
- allocation to ohter reserves   12.3     (12.3)                   -                     -
- undistributed profits to retained to retained earnings   62.6     (62.6)                   -                     -
Balance at 30 June 2017 1,469.6 849.6 1.8 (28.5) 141.0 2,433.5 143.5 2,577.0

Net borrowings

€/mln 30-giu-1731-dic-16
a Cash and cash equivalents   324.0 351.5
b Other current financial receivables  35.1 29.4
  Current bank debt  (107.9) (72.1)
  Current portion of bank debt   (57.5) (71.7)
  Other current financial liabilities  (80.1) (36.2)
  Finance lease payables due within 12 months   (2.0) (2.3)
c Current financial debt  (247.5) (182.3)
d=a+b+c Net current financial debt  111.6 198.6
  Non-current bank debt and bonds issued  (2,828.1) (2,847.8)
  Other current financial liabilities   (4.3) (5.0)
  Lease payments due after 12 months   (14.9) (14.9)
e Non-current financial debt  (2,847.3) (2,867.7)
f=d+e Net debt - CONSOB Communication No 15519/2006  (2,735.7) (2,669.1)
g Non-current financial receivables  124.0 110.2
h=f+g Net non-current financial debt  (2,611.7) (2,558.9)

The first half of 2017 confirmed the Group’s positive trend and showed growth in results, thanks on the one hand to the performance of all business areas, including a good recovery in volumes and prices in the waste area, and on the other to its distinctive organisational model, which combines internal and external growth.

The HTML version of the financial report at 30 June 2017 furthermore allows the data to be consulted in a transparent and detailed way, these figures being all the more appreciable in light of the fact that they include the contribution coming from Aliplast, consolidated over the half-year in question. The activities of the Treviso company, alongside urban waste management oriented towards biomethane production, in fact played a fundamental role in allowing the Group to operate according to the good practices of a circular economy and to continue safeguarding the environment and all localities in which the Group is present.

The economic results at 30 June are all the more significant considering that they were reached within a macroeconomic context that continues to remains less dynamic than could be expected. A significant performance was shown as foreseen by the Energy sector, in which the Group proved able to seize important opportunities. The path of development in compliance with ESG policies across all management and operational levels also continued: as of 2017 the companies of the Hera Group used solely clean or renewable-source energy, , with the idea of creating shared value becoming ever more engrained not only in the products and services offered to customers but also in the company’s processes and its philosophy.

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