Tomaso Tommasi di Vignano
In the first half of 2018, the Group once again achieved positive results: Ebitda amounting to € 523.6 million showed a +3.5% increase over the previous year, matched by a +12.1% improvement in net profits. This growth was attained thanks to the contribution coming from all main activities, thanks to additional efficiencies in regulated businesses, and new market shares gained with wider space in liberalised markets. The first half-year thus saw continued creation of value for our shareholders, who were paid a dividend of 9.5 cents per share on June 20.
All Group businesses contributed to achieving the good first-half results, with a particularly positive performance seen in the gas and waste management areas, respectively due to volumes sold and a positive trend in market prices. The electricity customer base increased compared to 1H2017, settling at the end of the reporting period at 2.5 million.
Consolidated Ebitda grew by 17.7 mn€, thanks to the contribution of most business areas. Special mention must go to the performance of the Gas area, whose Ebitda improved by 16.6 mn€, and the Waste management area, whose contribution increased by 4.6 mn€.
Dividend policy uprise to create value for the shareholders
In a macro scenario still showing signs of uncertainty, Hera stock offers a guaranteed return, based on solid fundamentals.
At 30 June, 48.4% of total shares were held by 118 public shareholders located across the areas served and brought together by a shareholders’ agreement, signed on 26 June 2015 and valid for three years, while 51.6% of total shares were floating.
Shareholder 1H 2018
In order to grasp the deep meaning hidden behind these numbers, we’d like to say a few words about the strategies, innovation, projects, value, ideas and social and corporate responsibility that have allowed the Group, thanks to the fundamental contribution coming from our shareholders, customers, suppliers and stakeholders found across the areas served, to obtain growing results and create shared value in the first half of 2018 as well.
The ecosystem and its unitary nature
by Stefano Venier
The circular smart city
by Enrico Piraccini
The Hera Laboratory System
by Chiara Lambertini
Value Creators ranking
by Jens Klint Hansen
Hera’s strategy is geared towards the challenges involved in a sustainable future.
Here is some information taken from the June convention “The ecosystem and its unitary nature: a challenge for a sustainable future”, along with the vision expressed by Stefano Venier, CEO of the Hera Group.
On 4 June, the convention “The ecosystem and its unitary nature: a challenge for a sustainable future”, organised as part of the European Week for Sustainable Development, was held at the Hera Group’s central offices in Bologna.
This event saw the participation of the President of the Emilia-Romagna region, Stefano Bonaccini, who was flanked by internationally recognised figures coming from a range of contexts including institutions, businesses and universities. One prominent guest was Prof. Jeffrey Sachs from Columbia University, who played an important role in elaborating the Sustainable Developments Goals defined by the UN’s 2030 Agenda.
During this event, the content of Hera’s Sustainability Report was presented. Completely renewed as of the current year, this report shows economic, social and environmental indicators undergoing constant improvement, lending ever more credibility to the future outlook of becoming increasingly aligned with the Un Agenda’s SDGs. The Sustainability Report is also the tool through which Hera quantifies shared value, i.e. the portion of Ebitda derived from activities that generate income for the company while at the same time meeting 10 of the 17 sustainability goals indicated in the Global Agenda. This financial data is subdivided into the areas: smart use of energy, efficient use of resources, innovation and contribution to developing local areas.
The international overtones of this event and the new approach to sustainability outlined in the report both underscore the increasingly significant role played by Hera, a company operating in highly critical and important businesses as regards sustainability, in giving a local shape to the global issues involved in ESG.
This ability to actively formulate proposals was underlined by Group CEO Stefano Venier, who stated during the event: "...we have now fully entered a proactive phase, acting as a guide for change with concrete actions and projects”, highlighting that this premise gains even greater weight if considered in relation to the specific features of the sector in which multi-utilities operate: “In managing energy, waste and water, one is working with the main components of the environment. If we furthermore consider their role in some productive activities, or others that have an effect on air quality (such as district heating, energy use and plant management), we clearly see that multi-utilities are able to play a direct and indirect role in global change.”
The CEO’s words pointed towards the disruptive route the Group intends to follow in the future: this route is constructed on economic and governance models capable of sustaining a “purpose driven” approach to the business, with these models calibrated over the long term and therefore not merely guided by short-term emergencies, often retroactively. Hera intends to implement a strategy that goes beyond the concept of “remediation”, i.e. an after-the-fact alleviation of the environmental stress caused by humanity’s activity, by deploying models, actions and projects able to proactively contain the impact of these activities on the environment.
While from a traditional perspective the Group is already highly consolidated and able to autonomously carry on in its own activities, in order to fully introduce this new forward-looking and pre-emptive approach it requires this call to action to be more broadly shared from a multi-stakeholder perspective. Citizens/customers will be asked to modify their behaviour and their models of usage/consumption; business will be required to adopt an environmental and regenerative-by-design approach to planning and offering services, materials and goods; institutions will be called on to establish a framework for action that reduces uncertainty in public sentiment thanks to clear and broadly shared orientations.
This is the kind of globally “engaged” scenario in which the Group intends to operate.
In addition to working in the traditional waste sector, in which it has made courageous and innovative choices, Hera wishes to enlarge its range of business activities to include others falling under its area of expertise.
As regards managing the integrated water cycle, for example, this multi-utility is dedicating significant efforts to an increasing “regeneration and reuse of the resource” (above all in light of the growing amount of drought caused by climate change) and protecting the quality of water and the Adriatic sea.
The experimental programmes currently underway are aimed at:
Innovation continues to be the main lever activated by the Group in order to maintain its role as a leader in creating sustainable and shared value in the businesses in which it operates. Innovation must indeed by applied on the one hand to production and consumer technologies, so as to reduce the demand made on the planet, i.e. to reduce consumption per unit produced or favour recovery/reuse of materials, and on the other to ICT and artificial intelligence in managing goods, services and infrastructures.
A proactive evolution strategy, a focused use of technology and the active and precise involvement shown by all those having interests are, therefore, the fundamental elements for a collective path that leads to creating shared value.
What is a circular smart city?
A city that perfectly integrates efficiency with the wellbeing of its citizens and the environment.
What are its various components?
The Smart part has to do with introducing new technologies, to analyse the city’s data:
As regards the Sustainability content, we refer in particular to a smart and responsible use of resources and the local environment, i.e.:
and now we come to what we mean by… Healthy. A healthy city is one that offers a good environmental quality and deploys strategies aimed at prevention and protecting the health of its residents.
This may involve;
What role will Hera play in providing goods and services to the smart and circular city?
Hera aims at guiding the city towards an economic and digital transition, providing services that are
Does this city exist or is it still a theoretical project?
As of early 2018, this city has begun to develop and grow wider, becoming a concrete reality.
The first experimental services intended to transform a town into a smart, safe and circular city were in fact introduced in January 2018 in Castel Bolognese, in the Province of Ravenna, and will carry on until the end of the current year.
The steps seen in the project’s evolution during the period that has just come to a close.
Rather than single laboratories, the Group can rely on a true “Laboratory System”, made up of:
The Hera Laboratory System is one of the nation’s most advanced professional facilities in the fields of quality control, environment monitoring, industrial plants and process safety, thanks to a service offer that fully meets the Group’s needs. The laboratories are key places for:
To get an even better idea of the huge amount of work carried out within it, all one has to do is take a glance at the figures produced by the laboratory system:
The Laboratory System came into being thanks to a specific regulatory obligation: Art. 7 of legislative decree 31/2001 (implementing the European decree for controls on drinking water), regarding «Internal controls», explicitly requires that in carrying out controls, the integrated water service manager either make use of internal analysis laboratories or stipulate a specific convention with other water service managers.
This regulatory context later evolved, with the introduction of new parameters:
While the laboratory system was initially launched mainly to comply with legal obligations, it must be stressed that its later evolution became part of the Group’s strategy aimed at improving its reputation from a multi-stakeholder point of view, in order to deal with increasing analytical requirements, at times quite different among themselves, thus creating shared value.
Over the years, therefore, additional sectors of analysis were developed, including waste, air and other specialisations. This led to growing competencies and a revision of internal processes: in spite of the extremely high level of innovation already reached, taking the form of both professional skills and technologies employed, the strategic relevance given to the process of modernising the laboratory system requires us to consider it as constantly and continuously evolving..
Ninety percent of the work done in the Group’s laboratories is done for internal Hera customers, i.e. for the Integrated water service (purification plants and distribution), for the waste treatment and disposal sector (waste to energy plants, composting sites, landfills, industrial waste management plants) and for energy plants (gas and odorizing control), contributing to monitoring the environmental impact and proper functioning of the plants.
The remaining ten percent is done for third-party customers, for whom a dedicated commercial offer was defined (and later reinforced).
In the analysis sector, data quality and reliability are essential. As a consequence, in addition to obtaining Quality, Environment and Safety certifications, over the years Hera laboratories have followed Qualification procedures pursuant to regulation UNI CEI EN ISO 17025. This certification guarantees the laboratories’ competence in the services provided, confirming the quality of the work and the operating methodologies adopted.
Given that the Group gives extreme importance to an ethical approach and to creating value while respecting the wellbeing and the ethical convictions of all those having an interest in Hera, in Group laboratories NO tests are done on animals.
The Hera Group gives a huge amount to importance to financial communication from a multi-stakeholder point of view.
Each year, alongside the dialogue promoted by top management during its road shows for the Business plan and its presentations of financial results, the investor relations team, working in close contact with its colleagues in CSR, external relations, finance and control, strategic planning and corporate governance, provides accurate information as to the strategies and actions introduced by the Group, which for over 15 years has continually created value for its shareholders.
This activity in communication and constant dialogue has allowed Hera to gain important recognitions both in Italy and abroad. In the half-year that has just come to a close, two eminent rankings have assigned the multi-utility a significant place among their classifications of the ten most virtuous companies.
The new edition of “Value Creators”, the twentieth report drafted by the Boston Consulting Group* that measures performance in terms of Total Shareholder Return (TSR) among listed companies with the largest capitalisation, through changes in the price of shares and return on dividends paid and reinvested, sets Hera at the sixth place worldwide among companies creating value for the “Power & Gas Utility” sector in the period between 2013 and 2017.
This recognition represents further confirmation of the approval given to the Group’s long-term strategy, that aims at creating shared value with its own shareholders.
* In the last 20 years, the BCG has classified companies based on their total shareholder return (TSR), a long-term indicator that reflects the true profit base for the shareholders of a company.
This international recognition is flanked by the one gained in June 2018 in the annual edition of the Integrated governance index*, promoted locally by Top Legal e Etica News: Hera, that was assigned fifth place among the 47 companies included in the general ranking, also came in first in the special enquiry into the relations between companies and responsible finance.
The 2018 Integrated Governance Index, the leading national Observatory as to the degree to which sustainability is integrated into corporate strategies, involved almost 50% of the top 100 listed Italian companied and drew attention to the significant role played by the Group as regards integrating ESG principles within corporate governance and financial management.
*http://www.integratedgovernance.it/
Constant growth in all indicators
The Hera Group closed the first half of 2018 with operating results up over the same period in the previous year. Ebitda reached € 523.6 million, up 3.5%, Ebit amounted to € 273.6 million, up 4.3% and net profits came to € 162.7 million, up 13.0%.
These results were achieved through the Group’s consolidated multi-business strategy, balanced between regulated and freely competitive activities. Hera pursues this model by combining internal growth and external development through the opportunities offered by the market.
The main corporate and business operations to be taken into account in evaluating the changes with respect to the first six months of 2017 are:
The following table shows operating results at 30 June 2018 and 2017:
Constant and increasing growth
| Income statement (mn€) |
June 18 | % Inc. | June 17 | % Inc. | Abs. Change | % Change |
| Revenues | 2,966.7 | 2,754.0 | +212.7 | +7.7% | ||
| Other operating revenues | 209.8 | 7.1% | 202.3 | 7.3% | +7.5 | +3.7% |
| Raw materials | (1,327.6) | -44.7% | (1,178.4) | -42.8% | +149.2 | +12.7% |
| Service costs | (1,031.6) | -34.8% | (981.7) | -35.6% | +49.9 | +5.1% |
| Other operating costs | (30.3) | -1.0% | (25.8) | -0.9% | +4.5 | +17.5% |
| Personnel costs | (281.7) | -9.5% | (282.4) | -10.3% | -0.7 | -0.2% |
| Capitalised costs | 18.3 | 0.6% | 17.9 | 0.6% | +0.4 | +2.2% |
| Ebitda | 523.6 | 17.6% | 505.9 | 18.4% | +17.7 | +3.5% |
| Amortisation, depreciation and provisions | (250.0) | -8.4% | (243.7) | -8.9% | +6.3 | +2.6% |
| Ebit | 273.6 | 9.2% | 262.2 | 9.5% | +11.4 | +4.3% |
| Financial operations | (39.2) | -1.3% | (45.9) | -1.7% | -6.7 | -14.6% |
| Pre-tax result | 234.4 | 7.9% | 216.3 | 7.9% | +18.1 | +8.4% |
| Taxes | (72.0) | -2.4% | (68.3) | -2.5% | +3.7 | +5.4% |
| Net result | 162.4 | 5.5% | 148.0 | 5.4% | +14.4 | +9.7% |
| Result from special items | 4.8 | 0.2% | - | 0.0% | +4.8 | +100.0% |
| Net profit for the period | 167.2 | 5.6% | 148.0 | 5.4% | +19.2 | +13.0% |
| Attributable to: | ||||||
| Shareholders of the Parent Company | 158.1 | 5.3% | 141.0 | 5.1% | +17.1 | +12.1% |
| Non-controlling interests | 9.1 | 0.3% | 7.0 | 0.3% | +2.2 | +30.9% |
Revenues rise thanks to higher volumes of energy sold
Revenues for the first half of 2018 amounted to € 2,966.7 million, up € 212.7 million or 7.7% over the € 2,754.0 million recorded for the same period in 2017. This trend is due to change roughly € 57 million in higher trading activities, roughly € 120 million in higher revenues from gas and electricity sold owing to larger volumes sold and roughly € 52 million in higher system charges and volumes transmitted. Also note the higher revenues in the waste management area amounting to roughly € 15 million, in spite of the termination of waste services management for 13 municipalities in the Forlě area as of 1 January 2018, and higher revenues in the water service; the remaining changes in the Group’s scope of operations, i.e. the entry of Blu Ranton Srl and Verducci Servizi Srl and the transfer of Medea, contributed with roughly € 3 million overall. The fall in revenues that offset the growth described above was mainly due to lower revenues for electricity production, amounting to € 33 million.
For further details, see the analyses of each single business area.
Revenues (bn€)
Other operating revenues grew over the same period in the previous year by € 7.5 million or 3.7%. This growth is due to higher revenues from energy efficiency certificates amounting to € 7.9 million, on account of the higher price per unit, despite the lower revenues for changes in the scope of operations coming to roughly € 0.6 million.
Increase in costs for raw materials linked to higher revenues
Costs for raw and other materials rose by € 149.2 million over 30 June 2017, with a 12.7% increase; this growth, excluding the change in scope of operations amounting to roughly € 1.5 million, is due to a higher amount of trading, a rise in the price of commodities, larger volumes of gas and electricity sold and a higher cost per unit of energy efficiency certificates.
Other operating costs rose by € 54.4 million overall (€ 49.9 million in higher costs for services and € 4.5 million in higher operating expenses). Excluding the changes in scope of operations, which reduced costs by roughly € 2.5 million, mention must go to the higher costs for system charges and volumes transmitted amounting to roughly € 52 million, higher costs in ICT coming to roughly € 3.2 million and higher costs in commissions for energy agents amounting to roughly € 1.5 million.
0.2% decrease in personnel costs, due to changes in the scope of operations
Personnel costs fell by € 0.7 million or 0.2%. This decrease is linked to changes in the scope of operations, mainly involving the transfer of resources for collection in the Forlě area as mentioned above, whose impact came to € 2.0 million, and a lower average presence. These factors were partially offset by the increase in retribution foreseen by the National labour contract.
Capitalised costs at 30 June 2018 rose over the previous period by € 0.4 million or 2.2%, owing to a lesser amount of interventions on plants and work on assets belonging to the Group.
Ebitda settled at € 523.6 million, rising by € 17.7 million or 3.5% over June 2017. The good performance seen in almost all business areas was responsible for this growth in Ebitda. The gas area contributed more than any other to this increase, thanks to a result that grew by € 16.6 million, due to higher volumes sold and higher income for sales and trading operations. Positive results also came from waste management, the integrated water cycle and the other services area. The electricity area fell by € 7.6 million, owing to lower income in electricity production.
For further details, see the analyses of each single business area.
Ebitda (mn€)
Higher operating amortisation
Amortisation and provisions rose by € 6.3 million or 2.6%, going from € 243.7 during the previous year to € 250.0 million. Amortisations rose on account of new investments in operations, while provisions for doubtful debts dropped, in particular in the sales company Hera Comm Srl.
Ebit came to € 273.6 million at 30 June 2018, up € 11.4 million or 4.3% over the € 262.2 million seen at the same date in 2017.
Ebit (mn€)
Good performances in financial management
The results of financial management for the first half of 2018 came to € 39.2 million, improving by € 6.7 million or 14.6% over the same period in 2017. The good performances were due to efficiency in rates and higher income for default indemnities from safeguarded customers. In the first six months of 2018, compared to the same period in 2017, the Group furthermore benefitted from dividends paid by the investee company Veneta Sanitaria Finanza di Progetto amounting to roughly € 2.9 million.
Pre-tax profits grew by € 18.1 million, going from € 216.3 million at 30 June 2017 to € 234.4 million in the first half of 2018.
Income taxes for the first half of 2018, which came to € 72 million, defined a tax rate of 30.1%, with a clear improvement over the 31.6% seen one year earlier. The reason for this improvement lies mainly in the Group’s constant commitment towards grasping all benefits foreseen by law, in particular the incentives for large and extremely large amortisations, extended for 2018 by law 205/17, regarding investments in instrumental goods serving a technological and digital transformation along the lines of “Industry 4.0”, in addition to tax credits for research and development and the final balance on previously acquired benefits (patent box).
Net results rose by 9.7%, corresponding to € 14.4 million, going from € 148.0 million at 30 June 2017 to € 162.4 million at the same date in 2018.
The first half of 2018 was impacted by special financial items coming to € 4.8 million involved in the capital gain for the transfer of the company Medea.
+13.0% Net profits
Net profits thus rose by 13.0% or € 19.2 million, going from € 148.0 million in the first half of 2017 to € 167.2 million in the same period of 2018.
Net profits pertaining to the Group came to € 158.1 million, up € 17.2 million over the figure seen at 30 June 2017.
Net profits post minorities (mn€)
Downloads
What follows in an analysis of trends in the Group’s net invested capital and sources of financing for the period ended 30 June 2018.
The Group’s solidity increases
| Invested capital and sources of financing (mn€) | June 18 | Inc. % | Dec 17 | Inc. % | Abs. Change | % Change |
|---|---|---|---|---|---|---|
| Net non-current assets | 5,828.2 | 109.1% | 5,780.6 | 110.5% | +47.6 | +0.8% |
| Net working capital | 84.2 | 1.6% | 23.2 | 0.4% | +61.0 | +262.9% |
| (Provisions) | (571.8) | -10.7% | (574.8) | -11.0% | +3.0 | +0.5% |
| Net invested capital | 5,340.6 | 100.0% | 5,229.0 | 100.0% | +111.6 | +2.1% |
| Equity | (2,715.6) | 50.8% | (2,706.0) | 51.7% | -9.6 | -0.4% |
| Long-term borrowings | (2,847.4) | 53.3% | (2,735.4) | 52.3% | -112.0 | -4.1% |
| Net current financial debt | 222.4 | -4.2% | 212.4 | -4.1% | +10.0 | +4.7% |
| Net debt | (2,625.0) | 49.2% | (2,523.0) | 48.3% | -102.0 | -4.0% |
| Total sources of financing | (5,340.6) | -100.0% | (5,229.0) | 100.0% | -111.6 | -2.1% |
At 30 June 2018, net invested capital (Nic) amounted to € 5,340.6 million, with a 2.1% increase over the € 5,229.0 million recorded in December 2017. This higher amount is mainly linked to the increase in net working capital ensuing from seasonal factors typical of the first six months of each year and the higher volumes of electricity and gas sold. The change in invested capital was also effected, albeit to a lesser degree, by the increase in net non-current assets due to the acquisition of holdings in Blu Ranton Srl and Sangroservizi Srl and the merger of Megas Net into the company Marche Multiservizi Spa.
Net invested capital (bn€)
Net investments rise by roughly € 26.0 million
In the first half of 2018, Group investments amounted to € 177.8 million, further benefitting from € 7.8 million in capital grants of which € 4.1 for FoNI investments as provided for by the national tariff method for the integrated water service, falling by € 11.0 million compared to the first half of the previous year. Including capital grants, overall investments came to € 185.6 million.
Net investments increased by € 26.0 million, going from € 151.8 million in June 2017 to € 177.8 million in the first half of 2018.
Total net investments (mn€)
Strong commitment continues to be seen in operating investments in plants and infrastructures
The following table shows a breakdown by sector, with separate mention of capital grants:
| Total investments (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Gas area | 38.2 | 39.2 | -1.0 | -2.6% |
| Electricity area | 10.0 | 10.5 | -0.5 | -4.8% |
| Integrated water cycle area | 66.9 | 68.2 | -1.3 | -1.9% |
| Waste management area | 31.1 | 20.9 | +10.2 | +48.8% |
| Other services area | 7.6 | 8.7 | -1.1 | -12.6% |
| Headquarters | 30.0 | 22.6 | +7.4 | +32.7% |
| Total operating investments | 183.8 | 170.1 | +13.7 | +8.1% |
| Total financial investments | 1.7 | 0.5 | +1.2 | +240.0% |
| Total gross investments | 185.6 | 170.6 | +15.0 | +8.8% |
| Capital grants | 7.8 | 18.8 | -11.0 | -58.5% |
| of which FoNI (New Investments Fund) | 4.1 | 2.7 | +1.4 | +51.9% |
| Total net investments | 177.8 | 151.8 | +26.0 | +17.1% |
The Group’s operating investments, including capital grants, came to € 183.9 million, up 8.1% over the previous year, and mainly involved interventions on plants, networks and infrastructures, accompanied by regulatory upgrading involving above all gas distribution, with a large-scale substitution of metres, and the purification and sewerage areas.
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.
€ 571.8 million in provisions
Overall, investments in structures increased by € 7.4 million compared to the same period in the previous year.
In the first six months of 2018, provisions amounted to € 571,8 million, with a slight drop compared to the end of the previous year. This change is due to a restatement, towards amortisation provisions, of roughly € 9.5 million, corresponding to the amount reserved for the third-party goods restoration fund linked to the networks owned by Megas Net, now acquired by Group company Marche Multiservizi Spa.
€ 2.7 billion in equity
Equity rose from € 2,706.0 million in 2017 to € 2,715.6 million at 30 June 2018, benefitting the Group’s financial structure. This change is a consequence of the positive result for the period, coming to € 167.2, which financed a € 150.4 million dividend payment.
| NET PROFIT | EQUITY | |
|---|---|---|
| Balances as per Parent Company's separate financial statements | 172.2 | 2,315.4 |
| Excess of equity over the carrying amounts of Investments in consolidated companies | (3.3) | 108.5 |
| Consolidation adjustments: | ||
| Measurement with the equity method of investments reported at cost in the seperate financial statements | (3.6) | (5.6) |
| Difference between purchase price and book value of portion of equity | (3.2) | 127.7 |
| Elimination of intercompany transactions | (4.0) | (11.5) |
| TOTAL | 158.1 | 2,534.5 |
| Restoration of third-party assets | 9.1 | 181.1 |
| BALANCES AS PER CONSOLIDATED FINANCIAL STATEMENTS | 167.2 | 2,715.6 |
Downloads
An analysis of net financial debt is shown in the following table:
A solid financial position
| mn€ | June 18 | Dec 17 | |
|---|---|---|---|
| a | Cash and cash equivalents | 515.2 | 450.5 |
| b | Other current financial receivables | 44.7 | 41.5 |
| Current bank debt | (239.7) | (187.0) | |
| Current part of bank borrowings | (61.3) | (55.3) | |
| Other current financial liabilities | (34.7) | (35.3) | |
| Finance lease payments maturing within 12 months | (1.8) | (2.0) | |
| c | Current financial debt | (337.5) | (279.6) |
| d=a+b+c | Net current financial debt | 222.4 | 212.4 |
| Non-current bank debt and bonds issued | (2,932.6) | (2,825.3) | |
| Other non-current financial liabilities | (21.0) | (21.4) | |
| Finance lease payments maturing after 12 months | (13.0) | (13.9) | |
| e | Non-current financial debt | (2,966.6) | (2,860.6) |
| f=d+e | Net financial position - Consob communication no. 15519/2006 | (2,744.2) | (2,648.3) |
| g | Non-current financial receivables | 119.2 | 125.2 |
| h=f+g | Net debt | (2,625.0) | (2,523.0) |
The overall amount of net financial debt came to € 2,625.0 million. The Group’s financial structure at 30 June 2018 shows current debt coming to € 337,5 million, of which € 61.3 million in bank loans reaching maturity within the year and € 239.7 million in current bank debt. The latter mainly consists of usage of current credit lines, coming to roughly € 190 million, and accruals for passive interest on financing, coming to € 49.7 million. The amount of non-current bank debt rose over the previous year, following the use made in June of the EIB financing line stipulated at the beginning of the year. Medium- and long-term debt is largely made up of bonds issued on the European market and listed on the Luxembourg Stock Exchange (78.6% of the total), with repayment at maturity in a lump sum.
The total debt shows an average time to maturity of over seven years, with 63% maturing after more than five years.
Net financial debt went from € 2,523.0 million in 2017 to € 2,625.0 million in June 2018. Note that in June 2018 dividends were paid amounting to € 150.4 million.
Net financial debt (bn€)
Downloads
A multi-business strategy
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.
The Group’s various areas contribute to its overall Ebitda in a balanced mix, reflecting its multi-business strategyntribuzione delle diverse aree del Gruppo al margine operativo lordo evidenzia un mix bilanciato e coerente con la strategia multibusiness
The Group’s income statements include corporate headquarter costs and account for intercompany transactions 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. The business areas affected by this accounting principle are: natural gas distribution services, electricity distribution services, all integrated water cycle services and public lighting services.
Ebitda grows
The first half of 2018 showed significant growth compared to the same period of the previous year, in terms of both Ebitda and volumes sold. This result was achieved thanks to the colder temperatures seen during the winter months, commercial development and higher income for distribution services.
9.6% growth in Ebitda
The following table shows the changes occurred in terms of Ebitda:
| (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Area Ebitda | 188.4 | 171.8 | +16.6 | +9.6% |
| Group Ebitda | 523.6 | 505.9 | +17.7 | +3.5% |
| Percentage weight | 36.0% | 34.0% | +2.0 p.p. |
The number of gas customers rose by 26.8 thousand, or 1.9%, over the first half of 2017. The entry of the companies Blu Ranton Srl and Verducci Servizi Srl within the Group’s consolidate scope contributed with 19.8 thousand customers, while the remaining growth was created by marketing initiatives, and by maintaining and developing the customer base.
Overall volumes of gas sold increased by 601.1 million m3 or 26.6%, going from 2,257.7 million m3 at June 2017 to 2,858.7 million m3 in the first half of 2018, a period in which degree days (*) rose by 7% compared to the previous period. Trading volumes showed growth coming to 518.1 million m3 (22.9% of total volumes) owing to greater activity abroad, in particular on the TTF. Volumes sold to end customers increased by 2.7% or 82.9 million m3 over the first half of 2017, thanks to the colder winter temperatures in 2018 and the increased customer base, amounting to roughly 69.0 million m3 and the contribution coming from the companies Blu Ranton Srl and Verducci Servizi Srl, amounting to roughly 13.9 million m3.
(*) This unit of measurement expresses the thermal demand of a given geographical area. High figures in degree days indicate average daily temperatures lower than the conventional reference temperature, set at 20° C.
The following table summarises operating results for the gas area:
| Income statement (mn€) | June 18 | Inc. % | June 17 | Inc.% | Abs. Change | % Change |
|---|---|---|---|---|---|---|
| Revenues | 1,128.8 | 937.9 | +190.9 | +20.4% | ||
| Operating costs | (886.5) | -78.5% | (714.4) | -76.2% | +17.,1 | +24.1% |
| Personnel costs | (58.8) | -5.2% | (57.3) | -6.1% | +1.5 | +2.6% |
| Capitalised costs | 4.7 | 0.4% | 5.6 | 0.6% | -0.9 | -16.0% |
| Ebitda | 188.4 | 16.7% | 171.8 | 18.3% | +16.6 | +9.6% |
Revenues went from € 937.9 million in June 2017 to € 1,128.8 million in 30 June 2018, with a growth of € 190.9 million or 20.4%. The main reasons for this growth include higher revenues from trading amounting to roughly € 128 million, owing to the higher price of the raw material gas, accounting for roughly € 23 million, the higher volumes of gas sold, coming to € 28 million, and the acquisitions of Blu Ranton Srl and Verducci Servizi Srl, accounting for roughly € 7.6 million. Revenues for energy efficiency certificates also rose, due to the increase in market prices, coming to roughly € 12.4 million, and the revenues from the foreign companies operating in Bulgaria, thanks to increasing commercial development, amounting to € 2.3 million. This growth was limited by lower revenues for the transfer of the company Medea amounting to € 4.9 million, and lower revenues for system charges coming to € 5.7 million.
The growth in revenues was reflected by an even higher increase in operating costs, which went from € 714.4 million in June 2017 to € 886.5 million in the same period in 2018, thus showing an overall growth of € 172.1 million. This trend is mainly due to the higher amount of trading, higher volumes sold, the higher cost of raw materials and the higher cost per unit of energy efficiency certificates.
Ebitda rose by € 16.6 million or 9.3%, going from € 171.8 million in the first half of 2017 to € 188.4 million at 30 June 2018, thanks to higher volumes and income in sales and trading activities, higher income in Bulgaria and higher incentives for safety in gas distribution networks.
In the first half of 2018, net investments in the gas area amounted to € 38.2 million, falling by € 1.0 million compared to the same period in the previous year. A € 1.5 million increase was seen gas distribution, mainly due to higher non-recurring maintenance on networks and plants, while requests for new connections dropped slightly compared to the first half of the previous year.
Investments fell by € 2.4 million in district heating and heat management, mainly as an effect of the significant work done on the Barca district heating plant in Bologna the previous year. New connections for district heating were equivalent to those seen in the same period of the previous year.
Details of operating investments in the Gas Area are as follows:
| Gas (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Networks and plants | 33.0 | 31.5 | +1.5 | +4.8% |
| DH/Heat management | 5.2 | 7.6 | -2.4 | -31.6% |
| Total gas gross | 38.2 | 39.2 | -1.0 | -2.6% |
| Capital grants | 0.0 | 0.0 | +0.0 | +0.0% |
| Total gas net | 38.2 | 39.2 | -1.0 | -2.6% |
Ebitda grows
Ebitda for the electricity area decreased compared to the previous year, for reasons including the maintenance phase of a power plant held by the Group.
-8.3% Ebitda falls
The following table shows the changes occurred in terms of Ebitda:
| (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Area Ebitda | 84.0 | 91.6 | -7.6 | -8.3% |
| Group Ebitda | 523.6 | 505.9 | +17.7 | +3.5% |
| Percentage weight | 16.0% | 18.1% | -2.1 p.p. |
The number of electricity customers shows 1.0 million supply points, rising by 8.9% (82.8 thousand) compared to the first half of 2017. This significant increase was due to both free market activities, amounting to 10.5% of the total as a result of the reinforced marketing operations introduced, in particular in regions of central Italy, and an enlargement of the customer base achieved thanks to the new protected customers in the Municipality of Gorizia, coming to roughly 13 thousand customers.
Volumes of electricity sold went from 4,805.9 GWh at 30 June 2017 to 5,866.5 GWh at 30 June 2018, with an overall increase amounting to 22.1% or 1,060.6 GWh. The volumes sold on the free market accounted for 16.2% of this growth, with the remaining 5.8% consisting in safeguarded volumes.
Ebitda falls by € 7.6 million
The following table summarises operating results for the area:
| Income statement (mn€) | June 18 | Inc. % | June 17 | Inc.% | Abs. Change | % Change |
|---|---|---|---|---|---|---|
| Revenues | 1,184.2 | 1,147.6 | +36.6 | +3.2% | ||
| Operating costs | (1,083.4) | -91.5% | (1,039.0) | -90.5% | +44.4 | +4.3% |
| Personnel costs | (22.4) | -1.9% | (22.5) | -2.0% | -0.1 | -0.4% |
| Capitalised costs | 5.5 | 0.5% | 5.5 | 0.5% | +0.0 | +0.0% |
| Ebitda | 84.0 | 7.1% | 91.6 | 8.0% | -7.6 | -8.3% |
Revenues rose by 3.2%, going from € 1,147.6 million in June 2017 to € 1,184.2 million in the same period in 2018. The main reasons underlying this growth are the increase in volumes sold, which created higher revenues amounting to roughly € 93 million, and higher revenues for transmission outside the grid and system charges, coming to € 61 million with no change in costs, and higher revenues for the regulated distribution service. Partially offsetting this trend, mention must go to lower revenues in trading amounting to roughly € 70 million, a lower price of raw materials coming to roughly € 11 million and lower revenues for electricity production amounting to roughly € 32 million, mainly owing to maintenance on the previously discussed Teverola plant.
The increase in revenues was proportionally reflected by a rise in operating costs, which went from € 1,039.2 million in the first half of 2017 to € 1,083.4 million in the same period in 2018, thus showing an overall increase of € 44.4 million. This trend is mainly due to the higher volumes sold and the higher system charges, in spite of the lower price of raw materials and the lower amount of electricity production.
At 30 June 2018, Ebitda dropped by € 7.6 million or 8.3%, going from € 91.6 million in 2017 to € 84.0 million in 2018, owing to lower income from electricity production as explained above, despite the higher income from volumes sold in the safeguarded market and higher revenues from distribution services.
Investments made in the electricity area during the first half of 2018 amounted to € 10.0 million, with a slight drop compared to the € 10.5 million seen during the first half of the previous year.
The interventions mainly concerned non-recurring maintenance on plants and distribution networks in the Modena, Imola, Trieste and Gorizia areas.
Compared to the first half of the previous year, a lower amount of network extension interventions and lesser non-recurring maintenance on plants and networks were seen.
Requests for new connections fell compared to June 2017.
Details of operating investments in the electricity area are as follows:
| Electricity (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Networks and plants | 10.0 | 10.5 | -0.5 | -4.8% |
| Total electricity gross | 10.0 | 10.5 | -0.5 | -4.8% |
| Capital grants | 0.0 | 0.0 | +0.0 | +0.0% |
| Total electricity net | 10.0 | 10.5 | -0.5 | -4.8% |
INTEGRATED WATER CYCLE
Growing results in the first half of 2018
In the first half of 2018, the integrated water cycle area recorded a € 1.5 million increase in Ebitda, corresponding to 1.3%. As regards regulations, note that 2018 is the third year in which the tariffary method defined by the Authority for the period 2016-2019 (resolution 664/2015) is applied, and that for both 2018 and 2017 the revenue covering the underlying cost of amortisation related to investments made is recognized on an accrual basis.
+1.3%: Mol rises
The following table shows the changes occurred in terms of Ebitda:
| (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Area Ebitda | 112.8 | 111.3 | +1.5 | +1.3% |
| Group Ebitda | 523.6 | 505.9 | +17.7 | +3.5% |
| Percentage weight | 21.5% | 22.0% | -0.5 p.p. |
The number of water customers settled at 1.5 million, rising by 5.0 thousand or 0.3% over the first half of 2017, confirming the moderate trend towards organic growth in the areas served by the Group, mainly in the Emilia-Romagna region managed by Hera Spa.
142.8 million m3 managed in the aqueduct
The main quantitative indicators of the area are as follows:
The volumes dispensed through the aqueduct showed a 3.9 million m3 or 2.6% drop, mainly linked to seasonal variations seen in the first six months of 2018, consisting in a larger amount of rainfall and snowfall than occurred in the same period of the previous year. Furthermore, decreases were seen in the amount managed in sewerage (roughly 0.8%) and purification (roughly 0.7%) compared to the quantities recorded in June 2017. Volumes dispensed, following the Authority’s resolution 664/2015, are an indicator of activity in the areas in which the Group operates and are subject to equalisation owing to legislation that calls for regulated revenues to be recognised independently from volumes distributed.
An overview of operating results for the water area is provided in the table below:
| Income statement (mn€) | June 18 | Inc. % | June 17 | Inc.% | Abs. Change | % Change |
|---|---|---|---|---|---|---|
| Revenues | 412.3 | 406.8 | +5.5 | +1.4% | ||
| Operating costs | (212.8) | -51.6% | (208.2) | -51.2% | +4.6 | +2.2% |
| Personnel costs | (89.5) | -21.7% | (90.0) | -22.1% | (0.5) | (0.6%) |
| Capitalised costs | 2.9 | 0.7% | 2.6 | 0.6% | +0.3 | +11.4% |
| Ebitda | 112.8 | 27.4% | 111.3 | 27.4% | +1.5 | +1.3% |
Revenues in the water cycle area showed a € 5.5 million or 1.4% increase. This result is due to higher revenues for dispensing amounting to roughly € 2.0 million, as an overall effect of the tariffs established by the Authority for 2016-2019 and the recognition of bonuses for contract quality, ensuing from a commitment towards improving standards compared to those set by the Authority. Furthermore, higher revenues were seen involving subcontracted works and Ifric12 carried out during the first half of 2018, amounting to roughly € 5.0 million. This growth was only partially offset by a drop in other revenues, including roughly € 0.5 million due to a lower amount of new connections.
Operating costs increased by € 4.6 million or 2.2% overall. Note the higher costs for subcontracted works and Ifric12 amounting to € 5.0 million overall and higher costs due to a rise in the price of both electricity and the raw material water, coming to roughly € 1.0 million. These factors were partially offset by roughly € 1.3 million in lower operating costs for network and plant management.
Ebitda grew by € 1.5 million or 1.3%, going from € 111.3 million in June 2017 to € 112.8 million in 2018, mainly due to higher revenues from dispensing.
Net investments in the integrated water cycle area amounted to € 59.1 million in the first half of 2018, up € 9.6 million over the same period in the previous year. Including the amount of capital grants received, which fell by € 11.0 million, investments made decreased by € 1.3 million and came to € 66.9 million compared to the € 68.2 million seen in the first half of the previous year.
Investments mainly involved extensions, reclamations and network and plant upgrading, in addition to regulatory upgrades involving above all purification and sewerage.
Investments were made for a total of € 33.2 million in the aqueduct, € 22.6 million in sewerage and € 11.2 million in purification.
The more significant works include: in the aqueduct, upgrading interconnections in the Modena area water system, interventions aimed at upgrading hanging reservoir areas and higher programmed maintenance in the Padua and Trieste areas; in sewerage, continued progress was made in the important works for the Rimini Seawater Protection Plan, in addition to redevelopment of the sewerage network in other areas; in purification, the lower investments made compared to the previous year were due to the significant work done in upgrading the Servola purifier in the area served by the AcegasApsAmga Group, carried out during the previous year.
Requests for new water and sewerage connections remained stable.
Capital grants amounting to € 7.8 million included € 4.1 million deriving from the tariff component called for by the New Investments Fund (FoNI) tariffary method and fell by € 11.0 million compared to the previous year, mainly due to the portion concerning work done on the Servola purifier.
Significant operating investments made in the aqueduct, sewerage and purification
Details of operating investments in the integrated water cycle area are as follows:
| Integrated water cycle (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Aqueduct | 33.2 | 27.8 | +5.4 | +19.4% |
| Purification | 11.2 | 23.2 | -12.0 | -51.7% |
| Sewerage | 22.6 | 17.3 | +5.3 | +30.6% |
| Total integrated water cycle gross | 66.9 | 68.2 | -1.3 | -1.9% |
| Capital grants | 7.8 | 18.8 | -11.0 | -58.5% |
| of which FoNI (New Investments Fund) | 4.1 | 2.7 | +1.4 | +51.9% |
| Total integrated water cycle net | 59.1 | 49.5 | +9.6 | +19.4% |
Ebitda increases
In June 2018 the waste management area accounted for 24.0% of Group Ebitda, with an area Ebitda increasing over the first half of 2017. As regards waste treatment, the initiatives pursued were aimed at recovering material and increasing energy efficiency, in particular launching the Sant’Agata Bolognese biomethane production plant and proceeding with the full activity and growth of Aliplast, which represents the key element able to bring circular economy to completion. Attention towards a sustainable and efficient development of the entire path followed by waste in the areas served by the Group was confirmed by figures including a higher level of sorted waste, which settled at 59.8%, as will be discussed below. Lastly, the first half of 2018 saw a confirmation of the Group’s commitment to reinforcing its position as market leader through both developing precise and focused marketing initiatives intended to broaden its customer portfolio and by maintaining a continuous presence in calls for tenders.
+3.8% growth in Ebitda
The following table shows the changes occurred in terms of Ebitda:
| (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Area Ebitda | 125.9 | 121.3 | +4.6 | +3.8% |
| Group Ebitda | 523.6 | 505.9 | +17.7 | +3.5% |
| Percentage weight | 24.0% | 24.0% | +0.0 p.p. |
Commercial waste +3.6%
Volumes marketed and treated by the Group in the first half of 2018 are as follows:
| Quantitative data (mgl/t) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Municipal waste | 1,120.2 | 1,131.2 | -11.0 | -1.0% |
| Commercial waste | 1,177.5 | 1,136.6 | +40.9 | +3.6% |
| Waste marketed | 2,297.6 | 2,267.9 | +29.7 | +1.3% |
| Plant by-products | 1,560.9 | 1,303.0 | +257.9 | +19.8% |
| Waste treated by type | 3,858.6 | 3,570.8 | +287.8 | +8.1% |
As of 2018, municipal waste also includes some types of waste previously classified as commercial waste. The data for municipal and commercial waste in the first half of 2017 has been restated so as to reflect the classification used for the current year.
An analysis of the volumes treated shows a 1.3% growth in waste marketed, mainly due to a rise in commercial waste coming to 3.6%, offsetting the slight drop in municipal waste. The increase in volumes of commercial waste is a result of a rise in intermediation operations.
Municipal waste fell slightly, while plant by-products rose thanks to an increased production of leachate in landfills due to the higher amount of rainfall seen in the first half of 2018 compared to the same period in 2017.
Sorted urban waste showed further progress, going from 57.6% in the first half of 2017 to 59.8% in the same period of the current year. In June 2018, sorted waste increased by 1.7% in areas served by Hera Spa and by 11.4% in areas served by Marche Multiservizi Spa, while in the Triveneto region growth settled at 1.0%.
Decrease in the use of landfills
| Quantitative data (k/t) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Landfills | 353.0 | 414.3 | -61.3 | -14.8% |
| Waste-to-energy plants | 662.4 | 653.5 | +8.9 | +1.4% |
| Selecting plants and other | 240.3 | 218.9 | +21.4 | +9.8% |
| Composting and stabilisation plants | 158.9 | 192.8 | -33.9 | -17.6% |
| Inertia and chemical-physical plants | 696.8 | 613.6 | +83.2 | +13.6% |
| Other plants | 1,747.3 | 1,477.6 | +269.7 | +18.3% |
| Waste treated by plant | 3,858.6 | 3,570.8 | +287.8 | +8.1% |
The Hera Group operates in the entire waste cycle, with 89 plants used for municipal 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.
Waste treatment showed growth coming to 8.1% over the first half of 2017. Note in particular the lower quantity disposed of in landfills, while in the chain of waste to energy plants the quantity treated was essentially in line with the previous year, showing a slight 1.4% increase. The increased quantity in selecting plants is due to the higher quantity treated, mainly in the Castiglione delle Stiviere plant. The lower quantity in composting and stabilisation plants is mainly due to planned maintenance in some plants for regulatory upgrading. The higher quantity in stabilisation and chemical-physical plants can be traced to the increase in leachate in landfills due to a rise in the amount of rainfall. Lastly, subcontracted and other plants benefitted from the higher quantities treated by Waste Recycling and from an increase in by-products treated in subcontracted plants.
Ebitda rises
The table below summarises the area’s operating results:
| Income statement (mn€) | June 18 | Inc. % | June 17 | Inc.% | Abs. Change | % Change |
|---|---|---|---|---|---|---|
| Revenues | 561.4 | 546.4 | +15.0 | +2.7% | ||
| Operating costs | (338.6) | -60.3% | (325.5) | -59.6% | +13.1 | +4.0% |
| Personnel costs | (100.9) | -18.0% | (102.5) | -18.8% | -1.6 | -1.6% |
| Capitalised costs | 3.9 | 0.7% | 2.9 | 0.5% | +1.0 | +34.2% |
| Ebitda | 125.9 | 22.4% | 121.3 | 22.2% | +4.6 | +3.8% |
Revenues in June 2018 rose by 2.7% or € 15.0 million, going from € 546.4 million at 30 June 2017 to € 561.4 million at the same date in 2018. This change is due to the positive trend seen in the price of special waste and an expansion of the industrial customer portfolio, which offset the fall in volumes treated, the lower revenues from electricity production and the termination of municipal waste services in 13 Forlě-area Municipalities as of 1 January 2018.
Operating costs rose by 4.0% or € 13.1 million in 2018, going from € 325.5 million at 30 June 2017 to € 338.6 million at the same date in 2018. This change is due to higher costs in the waste treatment business due to a development of upgrading activities and subcontracting by-products, and in municipal waste to developing new projects for sorted waste. The change was offset by lower costs for services and maintenance of Wte plants and lower costs tied to the aforementioned Forlě area.
The cost of personnel, not including the transfer of resources for collection in the Forlě area, as mentioned above, dropped slightly by 0.6%.
Ebitda went from € 121.3 million in the first half of 2017 to € 125.9 million in the same period in 2018, showing growth amounting to € 4.6 million or 3.8%. This change was sustained by higher prices for special waste treatment, which proved able to more than offset the slight fall seen in prices/incentives for electricity and the exclusion of Forlě from the scope of collection and sweeping activities.
Net investments in the waste management area concerned plant maintenance and upgrading and amounted to € 31.1 million, up € 10.2 million over the first half of the previous year.
The composter/digester sector showed a sharp increase in investments amounting to € 9.7 million, mainly due to interventions on the Sant’Agata Bolognese composter involved in creating the biomethane plant.
The decrease in investments in landfills, coming to € 0.7 million, is mainly due to the work done in 2017 towards creating the 9th sector of the Ravenna landfill, compared to new interventions on the Cordenons plant and others with a lower overall value.
The Wte plants sector saw a € 0.9 million increase, mainly due to work done on the Padua plant, which was not entirely offset by the less significant interventions on the Pozzilli, Rimini and Modena plants.
Increased investments in the Special waste plants sector were due to maintenance interventions on the Ravenna plants.
The ecological islands and collection equipment sector showed higher investments coming to € 1.0 million, mainly in the areas served by Hera Spa, while the € 1.1 million decrease in the selection and recovery sector is largely explained by lower investments in the Aliplast Group, due to the significant interventions carried out the previous year on the company Alimpet Srl’s Pet line, not entirely offset by higher investments made in the same sector of the company Waste Recycling Spa.
Operating investments increase
Details of operating investments in the waste management area are as follows:
| Waste management (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Composting/digestors | 13.0 | 3.3 | +9.7 | +293.9% |
| Landfills | 3.5 | 4.2 | -0.7 | -16.7% |
| WTE | 4.4 | 3.5 | +0.9 | +25.7% |
| RS Plants | 1.0 | 0.7 | +0.3 | +42.9% |
| Ecological areas and gathering equipment | 3.1 | 2.1 | +1.0 | +47.6% |
| Transshipment, selection and other plants | 6.1 | 7.2 | -1.1 | -15.3% |
| Total Waste management gross | 31.1 | 20.9 | +10.2 | +48.8% |
| Capital grants | 0.0 | 0.0 | +0.0 | +0.0% |
| Total Waste management net | 31.1 | 20.9 | +10.2 | +48.8% |
Ebitda rises
The other services area brings together all minor businesses managed by the Group, including public lighting, telecommunications and cemetery services. In the first six months of 2018, this area’s results increased by 27.3% over the previous year, with Ebitda indeed going from € 9.9 million in the first half of 2017 to € 12.6 million in the same period of 2018.
The changes occurred in terms of Ebitda are as follows:
| (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Area Ebitda | 12.6 | 9.9 | +2.7 | +27.3% |
| Group Ebitda | 523.6 | 505.9 | +17.7 | +3.5% |
| Percentage weight | 2.4% | 2.0% | +0.4 p.p. |
526,8 thousand lighting points
The following table shows the area’s main indicators as regards public lighting services:
| Quantitative data | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Public lighting | ||||
| Lighting points (k) | 526.8 | 509.6 | +17.2 | +3.4% |
| of which led | 13.5% | 7.2% | +6.3 p.p. | |
| Municipalities served | 166.0 | 162.0 | +4.0 | +2.5% |
An analysis of the data regarding public lighting shows a growth of 17.2 thousand lighting points and an increase of 4 municipalities served. During the first six months of 2018, The Hera Group acquired roughly 26 thousand lighting points in 9 new municipalities. The most significant of these were: roughly 6 thousand lighting points in Abruzzo, roughly 3 thousand lighting points in Lazio, roughly 9 thousand lighting points in the Triveneto region, mainly in the provinces of Udine and Venice, and more lighting points managed in the municipalities already served. The increases seen during the year more than offset the loss of roughly 9 thousand lighting points and 5 municipalities managed, mainly in the provinces of Forlě and Padua. The percentage of lighting points that use led light bulbs also increased, settling at the end of the first six months of 2018 at 13.5%, up 6.3%. This change reflects the constant attention shown by the Group towards an increasingly efficient and sustainable management of public lighting.
Area grows
The area’s operating results are provided in the table below:
| Income statement (mn€) | June 18 | Inc. % | June 17 | Inc.% | Abs. Change | % Change |
|---|---|---|---|---|---|---|
| Revenues | 67.7 | 63.3 | +4.4 | +7.0% | ||
| Operating costs | (46.2) | -68.2% | (44.4) | -70.2% | +1.8 | +4.1% |
| Personnel costs | (10.2) | -15.0% | (10.2) | -16.1% | +0.0 | +0.0% |
| Capitalised costs | 1.2 | 1.8% | 1.2 | 1.9% | +0.0 | +0.0% |
| Ebitda | 12.6 | 18.6% | 9.9 | 15.6% | +2.7 | +27.3% |
Area revenues increased over June 2017 by € 4.4 million, going from € 63.3 million to € 67.7 million in June 2018. This growth is due to the positive contribution coming from both public lighting, whose revenues increased by roughly € 2.0 million due to the good result of participation in public tenders, and telecommunications, whose revenues rose thanks to a higher amount of external commercial collaborations and the contribution coming from the digitalisation and innovation processes implemented by the Hera Group.
Ebitda showed a € 2.7 million increase over the first half of 2017. This change was due to higher income from public lighting and telecommunications services.
Investments in the other services area came to € 7.6 million, falling by € 1.1 million compared to the same period in the previous year.
Investments coming to € 4.3 million were made in telecommunications, involving networks and Tlc and Idc (Internet data centre) services, down € 0.7 million compared to the first half of 2017, while the € 3.3 million of investments in the public lighting service concerned maintenance, upgrading and modernising lampposts in the areas served, showing a € 0.4 million decrease.
Details of operating investments in the other services area are as follows
| Other Services (mn€) | June 18 | June 17 | Abs. Change | % Change |
|---|---|---|---|---|
| Tlc | 4.3 | 5.0 | -0.7 | -14.0% |
| Public lighting and traffic lights | 3.3 | 3.7 | -0.4 | -10.8% |
| Total Other services gross | 7.6 | 8.7 | -1.1 | -12.6% |
| Capital grants | 0.0 | 0.0 | +0.0 | +0.0% |
| Total Other services net | 7.6 | 8.7 | -1.1 | -12.6% |
Downloads
Ecb: no change in interest rates and reduction in qe
In June the Ecb announced a reduction of quantitative easing (qe) to 15 billion euro a month during the last quarter of the year (as compared to the current pace of 30 billion euro a month) followed by a definitive halt in purchasing. It was however underlined that interest rates are expected to remain at their current level at least until mid-2019 and,
in any case, for as long as necessary to ensure that trends in inflation remain aligned with the current expectations for a sustained adjustment path. Therefore, no signs of an increase in interest rates will be seen until monetary policy has become completely normalised. The American central bank (Fed), instead, proceeded with a second 25 basis point rise (from 1.75% to 2.00%) since the beginning of the year and revised upwards the number of increases in rates foreseen for 2018, going to four instead of the three expected until present. This choice, made at a time when data on growth and inflation are positive and sustained by a good contribution from all components, suggeststhat the Fed intends to give the American economy free reign.
10y Btp-Bund Spread vs. Hera Spread
The 10-year Btp-Bund spread, a benchmark for measuring the cost of new long-term funding, after almost one year regular trends, saw a sharp increase in May, reaching a peak of 288 bps, due to political uncertainty in Italy. In late June it underwent a slight reduction, coming back to around 237 bps. Hera’s 10-year spread felt the effects of this, recording an increase, less than proportional to the sovereign spread however, of roughly 42 bps compared to the previous year. The consolidated trust shown by investors and the Group’s positive credit standing maintained its spread roughly 112 bps lower than the Btp-Bund spread over the same time period.
10-Year Btp-Bund Spread vs. Hera Spread
The Group gives constant attention to a financial management capable of maximising its yield profile while maintaining a cautious risk strategy. The average cost of debt is constantly optimised through forms of liability and financial risk management aimed at seizing favourable market opportunities.
To support liquidity risk indicators and optimise the costs/convenience of funding, the Group has obtained committed credit lines amounting to € 300 million. In May, € 200 million in committed lines were renegotiated with a new sustainable revolving credit line for an equal amount but with a postponed maturity date (2023), thus bringing the average date to maturity to over 4 years. The new credit line, named “ESG Linked RCF Facility”, introduces elements of sustainability through incentives based on meeting specific environmental, social and governance (Environmental social governance, hereinafter Esg) targets. For this purpose, a few Esg performance measures have been defined, thanks to which the Group will be able to benefit over time from more favourable rates.
In January, the Group completed a € 110 million financing contract with the European investment bank (Eib) aimed at sustaining the investment programme for the period between 2017 and 2021 involving projects related to the waste cycle sector. More specifically, the credit line will be used to additionally improve the performances seen in waste management services, in particular increasing the percentage of sorted waste indicated in the regional objectives of the areas served, to further increase the efficiency of the operating processes involved in waste treatment, recycling and recovery, and to improve sustainability standards in plants.
Financial risk management strategy
A list is provided hereunder of the policies and principles involved in 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.
Liquidity risk
Proactive liquidity management
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 available credit lines, liquidity and a timely start of negotiations on maturing loans, optimizing the cost of funding on the basis of current and future market conditions.
The table below shows the ‘worst case scenario’, where no consideration is given to assets (cash, trade receivables etc.) and emphasis is placed on financial liabilities, both principal and interest, trade payables and interest rate derivatives. All demand loans are called in while other loans mature on the date when repayment can be demanded.
Adequate liquidity for a worst case scenario
| Worst case scenario | 30 June 18 | |||||
|---|---|---|---|---|---|---|
| (mn€) | from 1 to 3 months mesi |
over 3 months to 1 year | from 1 to 2 years | from 1 to 3 months mesi |
over 3 months to 1 year | from 1 to 2 years anni |
| Bonds | 14 | 76 | 471 | 38 | 76 | 471 |
| Debts and other financial liabilities | 244 | 70 | 61 | 191 | 63 | 59 |
| Trade payables | 1,091 | 0 | 0 | 1,396 | 0 | 0 |
| Total | 1,349 | 146 | 532 | 1,625 | 139 | 530 |
In order to guarantee sufficient liquidity to meet every financial obligation for at least the next two years (the time limit of the worst case scenario shown above), at 30 June 2018 the Group had € 515 million in liquidity, € 300 million in unused lines of credit and a substantial amount that can be drawn down under uncommitted lines of credit (roughly € 686 million).
The lines of credit and the corresponding financial assets are not concentrated on a specific lender, but distributed among major Italian and foreign banks, with a usage much lower than the total available.
Average term to maturity over 7 years, with 66% maturing after over 5 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 maturing within the year comes to 8.6% and the amount of long-term debt comes to roughly 91.4% of total financial debt, of which approximately 75% consists in bonds with repayment at maturity. The average term to maturity is approximately 7 years, of which 63% maturing beyond 5 years.
The table below shows cash outflows broken down by annual maturity, within and beyond five years.
| Debt nominal flow (mn €) (*) | 30 June 18 | 30 June 19 | 30 June 20 | 30 June 21 | 30 June 22 | Over 5 years | Total |
|---|---|---|---|---|---|---|---|
| Bonds | 0 | 395 | 0 | 290 | 68 | 1.867 | 2,620 |
| Bank debt / due to others | 301 | 55 | 51 | 60 | 58 | 339 | 864 |
| Total | 301 | 450 | 51 | 350 | 126 | 2.206 | 3,484 |
* Rolling year compared to the date of the financial statements
Default risk and debt covenants
No financial 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.
At 30 June 2018, a significant portion of the Group’s net borrowings was covered by loan agreements containing a number of clauses, in line with international practices, that place some restrictions. The main clauses guarantee equal treatment of all debt holders with respect to the company’s other non-guaranteed debts (pari passu) and a commitment towards bondholders preventing it from granting to subsequent lenders, with the same seniority status, better security and/or liens on its assets (negative pledge).
As to acceleration clauses, there are no financial covenants on debt except a corporate rating limit, specifying that no amount of debt coming to roughly €150 million can be rated below investment grade (BBB-) by even one rating agency.
Change of control & Investement grade
On the remainder of the debt, the acceleration clause is triggered only in case of a significant change of control of the Group that entails a downgrading to non-investment grade, or lower, i.e. the termination of the publication of the rating.
Interest rate risk
A model of active and prudential management of 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 technical 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 deriving from its characteristic management.
Interest rate risk management entails, from time to time and depending on market conditions, 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 13% of total borrowings, while the remaining 87% of debt is at fixed rates.
87% of debt at fixed rates
| Gross borrowings (*) | 30 June 18 | 31 Dec 17 | ||||
|---|---|---|---|---|---|---|
| (mn €) | without derivatives |
with derivatives |
% with derivatives |
without derivatives |
with derivatives |
% with derivatives |
| Fixed rate | 2,812 | 2,831 | 87% | 2,692 | 2,714 | 86% |
| Floating rate | 432 | 413 | 13% | 454 | 431 | 14% |
| Total | 3,244 | 3,244 | 100% | 3,146 | 3,146 | 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 a bond outstanding for 20 billion Japanese yen, fully hedged by a cross currency swap.
Ratings
Ratings confirm the strong points built up by the Group over time: positive outlook from S&P
Hera Spa has been given a long-term ‘BAA1 negative outlook’ rating by Moody’s and a ‘BBB positive outlook’ rating by S&P.
On 13 March 2018, as part of its annual review, S&P improved the Group’s outlook from stable to positive, with no change in long- and short-term creditworthiness, defined as BBB/A-2. S&P noted that the Group’s good prospects for growth, confirmed by the expectations of its latest business plan, could allow it to stably improve its rating, as long as Group management maintains its growth strategy, improvements in cash flow and a well-disciplined policy in remunerating shareholders.
On 5 May 2017 Moody’s released a credit opinion in which it confirmed the BAA1 rating and the negative outlook, positively evaluating the Group’s risk profile in terms of the solidity and good balance of the portfolio of businesses managed, as well as the Group’s good operating performance, its lack of liquidity risk and its resilient indicators as to creditworthiness, thus maintaining its rating one notch higher than the sovereign rating. The negative outlook, instead, depends on Italy’s rating, in that most of the Group’s Ebitda derives from domestic businesses and is therefore exposed to the country’s macroeconomic trends and its political scenario. On 30 May, Hera’s outlook was declared «Under review for downgrade» following the deterioration in sovereign risk that led to a review of the outlook for a downgrade of Italy.
Given the current context and the prolonged uncertainty as to the prospect of sovereign risk, the Group’s actions and strategies are always particularly careful and aimed at guaranteeing the maintenance and improvement of adequate ratings.
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The Hera Group employees with open-ended contracts as of 30 June 2018 number 8,555 (consolidated scope) and are distributed by role as: executive managers (149), middle managers (533), office clerks (4,593), and workers (3,280). In 2018 this structure is the result of 133 entries and 212 exits as well as changes in company structure that involved a reduction in the amount of 49 individuals (Alea AmbienteSpa, Blu Ranton Srl, Medea Spa and Megas Net Spa). Hiring mainly results from a quality turnover entailing the entry of skilled workforce.
Main developments in the General Operations department
More specifically, during the first half of 2018, the group planned an evolution in its organisation, formalised as of 1 July 2018, which led to a further rationalisation of Heratech Srl's organisational model by simplifying the company's underlying organisation and merging all activities connected with the planning, forecasting and execution of work in the electricity sector with Inrete Distribuzione Energia Spa.
In relation to Inrete Distribuzione Energia Spa, as of 1 July 2018, the company's underlying organisation was rationalised by further specialising distribution activities by business segment (gas and electricity), focusing on standardisation, project development and the monitoring of metering and remote management in a unified, transversal organisational setting.
Main developments in the Herambiente Group
As of 30 June 2018, the organisational model of the Industrial Market Department of Herambiente Spa was revised, integrating the commercial activities and processes of Waste Recycling Spa with those of Herambiente Servizi Industriali Srl in order to focus the commercial structures to a greater extent in relation to market segments served with a view to improving the overall customer experience. As of 30 June 2018, the preparatory activities for dismantling the Operational Services Division and relocating its activities and resources within Herambiente Spa have also been completed. The aim of this operation is to enhance the overall effectiveness and efficiency of the processes managed and to simplify relations with the top management of Herambiente Spa.
Main developments in the Central Market department
In relation to the Central Market department of Hera Spa, the following are worth mentioning:
Main developments in the Central Unit area
In the Central Unit area, the following are worth mentioning:
On 23 April 2018 agreements were signed for all Hera Group personnel regarding the finalisation of the performance bonus indicators for 2017, the identification of the new performance bonus indicators for 2018, and issues of work-life balance. The latter agreement in particular prolongs the Group's experiment with allowing smart-remote working and providing time-saving services and allows all employees to freely transfer their vacation time/time off/working time reduction ("solidarity-hours") to colleagues so that they might look after minor children and/or spouses who, due to disability and/or serious illness, require constant care. For every day gifted by an employee, the company will supplement this transferred time with an additional half hour. Following the acquisition of the majority of shares by the Hera Group, an agreement was signed, valid for 2018-2019, regarding the implementation of an economic incentive system (including Group welfare) for employees of Aliplast Spa. This is aimed to initiate a process of gradually integrating and harmonising the latter company with the treatment applied within the Group (including performance bonuses). In addition, agreements were signed regarding the 2018 financed training plan and the minutes of the 2018 training plan meeting. In the Emilia Romagna area, in order to make more rational use of the Imola cogeneration plant, new working hours have been established for staff based on a 24-hour shift schedule. An agreement was reached in the Environmental Services Department of Hera Spa to install a GPS localization system (called "hergo ambiente") on vehicles belonging to the environmental division, applicable to the Cesena and Ravenna areas.. This agreement implements the provisions of the Atersir technical regulations regarding the assignment of urban and similar waste management in the territories of Cesena and Ravenna. In keeping with the evolution of the organizational model of Inrete Distribuzione Energia Spa's electricity emergency response in the Modena area, an agreement was reached to replace the emergency response service based on 16-hour shifts with daily working hours, from Monday to Friday. Together with this move to replace the 16-hour shift emergency response service, the on-call organisational model was also refined. In the Environmental Services Department of Hera Spa, a trade union agreement was signed regarding moving beyond standby duty outside of normal working hours. An agreement was also reached regarding the implementation of a system of standby availability outside normal working hours at Uniflotte Srl.
In the Friuli Venezia Giulia and Veneto areas, agreements were signed to implement organisational changes to the availability service as part of the Electricity Department of AcegasApsAmga Spa and Hera Luce Srl, for the Trieste and Gorizia areas. Agreements were also signed regarding financed training for AcegasApsAmga Spa and Hestambiente Srl. In the Marche region, agreements were signed with the unions regarding the procedure for Megas Net Spa's merger by incorporation into Marche Multiservizi Spa as wel as financed training.
Development
In the first half of 2018, initiatives were launched to train employees and disseminate the leadership model, with about 5000 people involved in various ways.. In the first half of the year, on-the-job training was also carried out for all Hera Group managers and executives. These initiatives will continue in the next half of the year as well.
The first phase of the smart working pilot project was completed and the second phase involving about 400 people was launched; this phase will continue until the end of 2018.
Training
In the first half of 2018, a total of 114,598 hours of training were delivered at the Group level: 13.6 hours per capita, equal to approximately 54% of the overall target for 2018, and approximately 94% of employees have already been involved in a training activity. The economic investment, net of trainee and in-house trainer costs, amounted to 430,589 euros. 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.
As to HerAcademy programs, particularly noteworthy is the seventh edition of the university orientation initiative and the fifth edition of the initiative orienting participants to the world of work as well as the third 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 2017-2018 school year, the expansion of the perimeter to include all the territories of the Hera and AcegasApsAmga Groups was consolidated.
As part of the HER@futura project, the process of developing basic digital skills was launched for all Group personnel, based on their own level of digital readiness.
Welfare
On 23 January 2018, HEXTRA, the unified welfare system for all Hera Group companies that can be customized according to individual choice, was launched once again; it will remain active until 18 November 2018. All employees with fixed-term and open-ended contracts were awarded a flexible welfare sum of 385 euros each.
In keeping with the previous year, an additional education quota for employees who have school-aged children, from kindergarten to high school, will be allocated for 2018 as well.
The main new items introduced in 2018 concern:
All of these choices demonstrate the Group's constant attention to its workers as a key factor in achieving its corporate objectives through continuous investment in the development of Hextra and they position us among the leading national companies in the field of corporate welfare.
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contact Luca for information regarding financial data, investor kit and Hera equity
Luca Cimatti
+39 051 28.70.34
contact Marzia for information on financial events, road shows and ESG communication
Marzia Faggioli
+39 051 28.70.40
mob. +39 329 88 43 904
Tomaso Tommasi di Vignano
Chairman of the Board of Directors
The figures showing growth in the first half of 2018 demonstrate the coherence and credibility of the strategic choices regarding the mix of businesses and the balanced investment policies pursued by the Group over the last 15 years.
Given these bases, it is clear that even in a moment of uncertainty and volatility such as the present, Hera continues to create value for its own shareholders. This comes about thanks to both the payment of growing dividends and the sustainability shown by the policies we support over a time span covering the long term.
Stefano Venier
CEO
The results for the period in question confirm yet again the validity of the operating, tax and financial initiatives coherently supported by Hera as of its establishment.
This positive trend, linked to the Group’s solid foundations, lends further credibility to the strategies and expectations outlined in the Business plan. We intend to pursue these elements with the constantly increasing engagement of our stakeholders, in order to continue, with them, along the path we share in creating economic, environmental and social value.
Stefano Venier
CEO
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