Financial
results
2018
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16 years of Hera

Investor Case

On 18 March 2019, Hera was included in the FTSE MIB, the Borsa Italiana index comprising the 40 largest companies listed on the Italian stock exchange in terms of capitalisation, liquidity and trading volume.

Becoming part of this index is a reward for Hera’s path of uninterrupted growth, which began 16 years ago and is based on a multi-business model that combines internal and external growth and shows a mix of activities offering resilience towards the main macro-variables seen in its reference scenario.

INTRO TO THE RESULTS

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Our HISTORY at a glance

Hera was founded in 2002 from the merger of 11 multi-utilities operating in Northern Italy.
The company, listed on the Milan Stock Exchange since 2003, has shown a 50% increase in net profits already in its first annual financial report.
These results were achieved thanks to several factors:

  • the expansion of its business model through the merger with 38 other companies in the surrounding areas;
  • the continuous extraction of synergies, cost reduction and efficiency improvement, obtained through economies of scale with a clear management orientation towards the creation of shared value;

The uninterrupted growth brought the Ebitda and the Net Invested Capital to a 5x increase and to a cash generation that reduced the Debt / Ebitda of the company to 2.5x, despite the fact that the shareholders have always been granted a stable/growing dividend per share.

Today the Group operates in the northern, central and north-eastern area of ​​Italy and presents excellent prospects for further growth, thanks to its ability to meet the constant challenges of the market and exploit its strong competitive advantages.

 

Our MULTI-UTILITY BUSINESS

EBITDA 2018 (M€)

EBITDA 2018

 

National chart

National chart

 

 

LOW RISK EXPOSURE

 

Networks

  • RAB inflated
  • Neutral to spread
  • Neutral to demand cyclicality

 

Networks

 

Waste

  • Low competition (due to lack of treatment plants in Italy

 

Waste

 

Energy

  • Negligible power generation
  • Flexible procurement/supply contracts to fully hedge commodity prices fluctuation

 

Energy

 

S&P's and MOODY's

Rating

Rating

 

  • 1 notch above Country (Italy) credit standing
  • Debt with no covenants (only remain above investment grade)
  • No material refinancing needs in next 5 years
  • 300 m€ committed credit lines available
  • 87% Debt fixed rate
  • 75% Debt made of floated bonds
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Our uninterrupted growth

GROWTH DRIVERS

Track record Ebitda by drivers (M€)

Track record Ebitda by drivers

STRONG CASH GENERATION

Cash flows resilient and un-interrupted growth

CAPEX

CAPEX

Debt/EBITDA (x)

Debt/EBITDA

VALUE CREATION

ROI% vs. WACC%

ROI% vs. WACC%

 

CAPEX

Infrastructure developments (M€)

Infrastructure developments
  • Strong efforts to renew asset base in 2002-2012
  • Negligible write offs in 16 years
  • Solid asset platform in all activities

VALUATION

Market P/E multiples (x)

Market P/E multiples

 

EBITDA/EMPLOYEE

Ebitda per employ (k€ per capita)

MOL per dipendente

 

Ebitda per employ

EPS and share evolution

EPS (c€)

EPS

Share capital increase due to mergers executed (mln of shares)

Aumento del capitale sociale in seguito alle fusioni

Debt/EBITDA

2002-2012: infrastructure renewal (Debt/Ebitda)

2002-2012: rinnovamento delle infrastrutture e significativi investimenti

2012-2017: solid infrastructures (Debt/Ebitda)

2012-2017: estrazione di valore da una solida base
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A 16 year STABLE GOVERNANCE

STABLE GOVERNANCE

 

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Stable shareholding

Stable shareholding

 

  • Mail shareholder holds < than 10% stake
  • High diversification among public entities (111 Municipalities have 38% of share capital locked in a pact)
  • Large presence of institutional shareholders from EU, US, UK and Australia

 

Stable shareholding

 

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Dividend policy

RELIABLE DIVIDEND

Dividend per share (c€)

Dividendo per azione

 

  • One of the few European stocks that has always paid a stable/growing dividend
  • As a consequence, Hera is included in the SPDR S&P Euro Dividend Aristocratics Ucits Etf.

 

Total Shareholder’s Return since IPO +250%
+250%

Dividend per Share

 

Dividend per Share(c€)

Dividendo per azione

 

Payout (%)

Payout

 

Always granted DPS payments
Sustainable payout ratios

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Shared Value and Sustainability

Since its establishment, Hera has always been committed to its stakeholders, in a constant attempt to combine economic and social development.

In 2016, a process was launched to identify the Hera approach to Creating Shared Value (CSV) inspired by the indications defined by Professor Porter and Professor Kramer in 2011.

For Hera, the creation of shared value is achieved through all those business activities that generate operating margins while responding to the drivers of the global UN agenda on social/environmental issues. For Hera, the strategic goal is to improve environmental conditions; guarantee quality and safety; open a dialogue with stakeholders, operate in transparency; select qualified suppliers and employees with which it is possible to pursue a sustainable growth.

The Group adheres to important global programs with a strong sustainability content.

 

Logo Top Employer Italia 2018Logo The Global CompactLogo CDP

 

Logo Top 100 Company 2018Logo CE100Logo The CEO Water Mandate

 

Logo Integrated Governance IndexLogo MSCILogo ISS QualityScore

 

 

Sustainability profile

Sustainability profile

 

Sustainability profile

Main sustainability indicators for the 2018 financial year

 

375 m€ from shared value activities
36% of total Group Ebita - +14% compared to 2017


184 m€ shared value investments
40% of total Group investmets


CE 100
Hera in the MacArthur Foundation program and world leader in the circular economy


Thomson Reuters Diversity&Inclusion index
The Group ranks 2nd in Italy and 22nd in the world in the D&I index

-4,4%
Energy consumption

-16%
Carbon footprint

62,5%
Sorted waste collection

93%
Waste recovered

68%
Reused soil in new plants

 

Servola Purification plant
Avviato per rigenerazione risorsa idrica

Bioplastics
2 agreements to produce bioplastics

Biomethan
From organic waste in the S. Agata biorefinery

Message from the Executive Chairman

The activities in which the Group has been engaged over the last year have produced results exceeding expectations, with an overall trend whose components are decidedly satisfying.

 

READ MORE   ANALYST PRESENTATION

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Message from the Executive Chairman

The activities in which the Group has been engaged over the last year have produced results exceeding expectations, with an overall trend whose components are decidedly satisfying.

The results shown in the 2018 report once again substantiate the improvement that has accumulated over the years and demonstrate that the Group has been able to grasp opportunities for internal growth, integrated with various initiatives aimed at expansion in free market sectors.

Overall, 2018 saw us reach the milestone of one billion euro in Ebitda, reduce the net debt/Ebitda ratio to 2.5 and increase productivity per employee to 120.4 thousand euro (+6%).

Important contributions to internal growth came from both efficiency enhancement processes and the level of service quality, as always higher than the standards required by the Authority.

This year as well, we intend to present an interactive version of our Financial Report at 31/12/2018. This will allow us to provide precise and exhaustive analyses not only of the economic growth that marked last year, but also of how sustainability is implemented across the board, concerning all of the Hera Group’s activities.

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Overview of Group management performance

Operating APMs and investments

Operating APMs and investments (mn€) Dec 18 Dec 17 Abs. change % change
Revenues 6,134.4 5,612.1 +522.3 +9.3%
Ebitda 1,031.1 984.6 +46.5 +4.7%
Ebitda/revenues 16.8% 17.5% -0.7 p.p.  
Ebit 510.1 479.3 +30.8 +6.4%
Ebit/revenues 8.3% 8.5% -0.2 p.p.  
Net profit 296.6 266.8 +29.8 +11.2%
Net profit/revenues 4.8% 4.8% +0.0 p.p.  
Net investments * 431.8 396.2 +35.6 +9.0%

*for the data used in calculating investments, see notes 13, 14, 15 and 16 of the explanatory notes and paragraph 1.01.02 of the Overview of Group management performance.

Financial APMs

Financial APMs (mn€) Dec 18 Dec 17 Abs. change % change
Net non-current assets 5,905.1 5,780.6 +124.5 +2.2%
Net working capital 115.4 23.2 +92.2 +397.3%
Provisions (588.2) (574.8) -13.4 -2.3%
Net invested capital 5,432.3 5,229.0 +203.3 +3.9%
Net debt (2,585.6) (2,523.0) -62.6 -2.5%

 

Operating-financial APMs

Operating-financial APMs Dec 18 Dec 17 Abs. change  
Net debt/Ebitda 2.51 2.56 -0.1  
Ffo/Net debt 27.0% 25.8% +1.2 p.p.  
Roi 9.4% 9.2% +0.2 p.p.  
Roe 10.4% 9.9% +0.5 p.p.  
Cash Flow 3.2 154.7 -151.4  

 

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Operating and financial results

Constant growth in all indicators

With this 2018 financial report, the Hera Group has reached a historical milestone: for the first time, it has met the goal of an Ebitda amounting to over one billion euro. In line with this figure, the Group’s other operating results have also grown over the previous year. With Ebitda coming to 1,031.1 million euro and showing a 4.7% rise, Ebit totalled 510.1 million euro, up 6.4%, and net profits reached 296.6 million euro, up 11.2%. From a financial point of view as well, the Group’s results saw an improvement compared to 2017, as a result of its solid financial structure: the Net debt/Ebitda ratio settled at 2.51, Roi at 9.4% and Roe at 10.4%.

These 2018 results confirm the Group’s path of uninterrupted growth and its solid foundations, having by now consolidated its multi-business strategy, balanced between regulated and free market activities. Reaching these results, which were matched by similar ones in terms of sustainability and opportunities for creating shared value through the principles of a circular economy, was made possible by respecting the pillars of the Hera Group’s strategy: innovation, efficiency, agility, excellence and growth.

The main corporate and business operations which must be taken into account in evaluating the changes with respect to 2017 are as follows:

  • On 20 December 2017, effective as of 1 January 2018, 13,000 protected electricity customers were acquired in the Municipality of Gorizia through EnergiaBaseTrieste Srl, previously served by Eni gas e luce Spa.

  • As of 1 January 2018, urban waste collection services for 13 Municipalities in the Forlì area are no longer managed by the Hera Group.

  • Acting on the binding agreement signed on 21 December 2017, on 6 April 2018 Hera Spa proceeded to transfer its entire holding in Medea Spa to Italgas Spa.

  • On 8 February 2018, a 100% holding of Blu Ranton Srl, a company operating in gas and electricity sales to end customers, was acquired by Hera Comm Marche Srl. The company serves roughly 17,000 gas and electricity customers in Teramo, Pescara and Macerata.

  • On 8 February 2018, Hera Comm Marche Srl acquired a 100% holding of Blu Ranton Srl, a company selling gas and electricity to end users with roughly 17,000 gas and electricity customers in Teramo, Pescara and Macerata.

  • On 7 March 2018, the respective shareholders meetings approved  a project for merger by incorporation of Megas Net Spa (a company related to the Group which owns distribution networks) into Marche Multiservizi Spa; the effective date of the transaction was 1 June 2018, with accounting and tax effects retroactively set at 1 January 2018.

  • On 26 March 2018, Hera Comm Srl transferred 2.88% of the share capital of Hera Comm Marche Srl to the minority shareholder Walter Sadori Srl.

  • On 26 November 2018, Hera Comm Srl acquired the remaining 51% of Sangroservizi Srl, a gas, electricity and other energy product sales company with approximately 7,000 gas customers served in the Province of Chieti.

The following table shows operating results at 31 December 2018 and 2017:

Constant and increasing growth

 

Income statement (mn€) Dec 18 % Inc. Dec 17 % Inc. Abs. change % change
Revenues 6,134.4   5,612.1   +522.3 +9.3%
Other operating revenues 492.0 8.0% 524.8 9.4% -32.8 -6.3%
Raw and other materials (2,984.1) -48.6% (2,606.8) -46.4% +377.3 +14.5%
Service costs (2,040.5) -33.3% (1,952.2) -34.8% +88.3 +4.5%
Other operating costs (62.5) -1.0% (84.6) -1.5% -22.1 -26.1%
Personnel costs (551.4) -9.0% (551.6) -9.8% -0.2 -0.0%
Capitalised costs 43.3 0.7% 43.0 0.8% +0.3 +0.7%
EBITDA 1,031.1 16.8% 984.6 17.5% +46.5 +4.7%
Amortisation, depreciation and provisions (521.0) -8.5% (505.3) -9.0% +15.7 +3.1%
EBIT 510.1 8.3% 479.3 8.5% +30.8 +6.4%
Financial operations (91.7) -1.5% (101.5) -1.8% -9.8 -9.7%
Pre-tax profit 418.4 6.8% 377.8 6.7% +40.6 +10.7%
Taxes (121.8) -2.0% (111.8) -2.0% +10.0 +8.9%
Net result 296.6 4.8% 266.0 4.7% +30.6 +11.5%
Result from special items 0.0 0.0% 0.8 0.0% -0.8 -100.0%
Net profit for the period 296.6 4.8% 266.8 4.8% +29.8 +11.2%
Attributable to:            
Parent company shareholders  281.9 4.6% 251.5 4.5% +30.4 +12.1%
Non-controlling interests 14.7 0.2% 15.4 0.3% -0.7 -4.2%

Revenues increase thanks to higher volumes of energy sold and trading operations

Revenues for 2018 came to 6,134.4 million euro, with a 522.3 million euro or 9.3% increase over the 5,612.1 million euro recorded in 2017. This trend is due to a rise in trading operations amounting to roughly 215 million euro, higher revenues for gas and electricity sales owing to a larger amount of volumes sold and totalling roughly 142 million euro, a higher selling price for gas and electricity, coming to roughly 105 million euro, and higher system charges and larger volumes transmitted, amounting to roughly 50 million euro. Also note the higher revenues for the waste management area, higher revenues from the water cycle area and other services, which offset a drop in revenues from electricity generation. The end of urban waste collection services in 13 Municipalities in the Forlì area as of 1st January 2018, the transfer of Medea Spa and the acquisition of Blu Ranton Srl represent a change in the scope of operations leading to a drop in revenues coming to approximately 12 million euro. For further details, see the analyses of each single business area.

Revenues (bn€)
Ricavi

 

Other operating revenues fell compared to the previous year by 32.8 million euro or 6.3%. This drop is due lower revenues from energy efficiency certificates amounting to roughly 33 million euro, due to a lower unit price introduced by Inter-ministry Decree 10/05/2018, which set a limit on expected contributions and led to an equivalent impact on the market price. The lower revenues produced by changes in the scope of operations, coming to roughly 1.2 million euro, and the lower revenues for long-term commissions, amounting to roughly 1.0 million euro, were offset by higher insurance-related reimbursements and refunds.

Increase in costs for raw materials linked to higher revenues

Costs for raw and other materials rose by 377.3 million euro or 14.5% over 31 December 2017; this increase, not including changes in the scope of operations coming to roughly 1.5 million euro, is due to increased trading operations, the higher price of commodities and the higher volumes of gas and electricity sold.

Other operating expenses grew by 66.2 million euro overall (88.3 million euro in higher service costs and 22.1 million euro in lower other operating expenses). This includes higher costs for system charges and volumes transmitted amounting to roughly 50 million euro, higher costs for commissions and third-party works coming to roughly 6 million euro, higher costs for energy agent fees coming to roughly 3.0 million euro and higher costs for ICT operations coming to roughly 6.6 million euro. In the waste management area, an approximately 26 million euro increase was seen in reclamation, treatment and by-product waste outsourcing. This trend was mitigated by a 6.3 million euro fall in costs produced by the change in scope of operations, lower costs for operating efficiencies in the regulated sector, lower fees for network concessions, lower costs related to losses on credits coming to roughly 15 million euro and lower capital losses involving the 2017 financial year amounting to roughly 7 million euro.

Personnel costs stable

Personnel costs fell by 0.2 million euro, essentially in line with the previous year. The increased compensation foreseen by the National labour contract was offset by a lower amount of resources due to changes in the scope of operations and a reduced average presence.

A slight rise in capitalised costs for 2018 was seen with respect to the previous year, coming to 0.3 million euro or 0.7%, owing to increased interventions on plants and work on assets belonging to the Group.

Ebitda reached 1.03 billion euro, up 46.5 million euro or 4.7% over 2017. This increase in Ebitda came from the good performance seen in almost all business areas. The gas area was mainly responsible for this growth, thanks to a result that rose by 14.8 million euro, due to higher volumes sold and higher margins on sales operations. Results were positive for the waste management, integrated water cycle and other services areas as well. The electricity area dropped by 1.0 million euro, owing to lower margins in electricity generation deriving from regulatory changes concerning actual imbalances.

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

Ebitda (mn€)

Marrgine operativo lordo

Higher operating amortisation

Amortisation, depreciation and provisions rose by 15.7 million euro or 3.1%, going from 505.3 million euro in the previous year to 521.0 million euro. Amortisation rose on account of new investments in regulated distribution operations and the change in scope of operations related to the sales companies Blu Ranton Srl and Sangroservizi Srl. Allocations to the doubtful debt provision dropped, in particular in the sales company Hera Comm Srl, and were only partially offset by an increase in the AcegasApsAmga Group resulting from the application of Ifrs 9.

Ebit at 31 December 2018 came to 510.1 million euro, up 30.8 million euro or 6.4% over the 479.3 million euro seen in 2017.

Ebit (mn€)
Margine operativo netto

Good performances in financial operations

The result of financial operations in 2018 came to 91.7 million euro, with a 9.8 million euro or 9.7% improvement compared to 31 December 2017. These good performances were partially due to income from the dividends paid by the affiliated company Veneta Sanitaria Finanza di Progetto coming to roughly 2.9 million.

Pre-tax results increased by 40.6 million euro, going from 377.8 million euro at 31 December 2017 to 418.4 million euro in 2018.

Tax rate falls

Taxes for the year went from 111.8 million euro in 2017 to 121.8 million euro del 2018. Further improvement was seen in the tax rate, which for 2018 came to 29.1% compared to 29.6% at 31 December 2017 (the latter, without including only redemptions, would have come to 30.9%). Contributions came from the benefits grasped in terms of large and extremely large amortisations, the latter concerning the substantial investments in instrumental goods serving a technological and digital transformation along the lines of industry 4.0 of which the Group was able to take advantage, in addition to incentives related to the patent box and tax credits for research and development.

The net result rose by 11.5%, corresponding to 30.6 million euro, going from 266.0 million euro in 2017 to 296.6 million in 2018.

At the end of 2018, the result from financial special items amounted to zero, given that it is the sum of positive and negative entries, such as the financial capital gain for the transfer of the company Medea to third parties and the depreciations on some non-recurring financing. In 2017 the result from special items came to 0.8 million euro.

+11.2% Net profit

Net profit thus rose by 11.2% or 29.8 million euro, going from 266.8 million euro in 2017 to 296.6 million euro in 2018.

Profits pertaining to the Group amounted to 281.9 million euro, increasing by 30.4 million euro over the figure seen in 2017.

Net profit post minorities (mn€)
Utile netto post minorities

 

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Analysis of the Group’s financial structure and investments

The Group’s solidity increases

What follows in an analysis of trends in the Group’s net invested capital and sources of financing for the year ended 31 December 2018.

Invested capital and sources of financing (mn€) Dec 18 Inc.% Dec 17 Inc.% Abs. Change % Change
Net non-current assets 5,905.1 108.7% 5,780.6 110.5% +124.5 +2.2%
Net working capital 115.4 2.1% 23.2 0.4% +92.2 +397.4%
(Provisions) (588.2) -10.8% (574.8) -11.0% -13.4 -2.3%
Net invested capital 5,432.3 100.0% 5,229.0 100.0% +203.3 +3.9%
Equity (2,846.7) 52.4% (2,706.0) 51.7% -140.7 -5.2%
Long-term borrowings (2,558.8) 47.1% (2,735.4) 52.3% +176.6 +6.5%
Net current financial debt (26.8) 0.5% 212.4 -4.1% -239.2 -112.6%
Net debt (2,585.6) 47.6% (2,523.0) 48.3% -62.6 -2.5%
Total sources of financing (5,432.3) -100.0% (5,229.0) 100.0% -203.3 -3.9%

At 31 December 2018, net invested capital (Nic) amounted to 5,432.3 million euro, with a 3.9% change compared to the 5,229.0 million euro recorded at the end of 2017. This higher amount is linked to the increase in net non-current assets mainly involving the significant investment policy implemented during 2018. Additional factors with a lesser influence included the merger of Megas Net into the company Marche Multiservizi Spa the acquisition of holdings in Blu Ranton Srl and Sangroservizi Srl.

The increase in invested capital is furthermore linked to a higher generation of net working capital.

Net invested capital (bn€)
Capitale investito netto

 

In 2018, Group investments amounted to 431.8 million euro, further benefitting from 30.8 million in capital grants, of which 12.5 million for FoNI investments as provided for by the tariff method for the integrated water service.
Including capital grants, overall Group investments came to 462.6 million euro. Net investments grew by 35.6 million euro, going from 396.2 million euro in 2017 to 431.8 million euro in 2018.

Total net investments (mn€)
Totale investimenti netti

 

Strong commitment continues to be seen in operating investments in plants and infrastructures

The following table shows a breakdown by business area, with separate mention of capital grants:

 

Total investments (mn€) Dec 18 Dec 17 Abs. Change % Change
Gas area 115.4 101.5 +13.9 +13.7%
Electricity area 23.0 23.6 -0.6 -2.5%
Integrated water cycle area 157.9 156.6 +1.3 +0.8%
Waste management area 78.1 67.2 +10.9 +16.2%
Other services area 18.8 18.7 +0.1 +0.5%
Headquarters 69.1 72.4 -3.3 -4.6%
Total operating investments 462.3 440.0 +22.3 +5.1%
Total financial investments 0.3 0.5 -0.2 -40.0%
Total gross investments 462.6 440.5 +22.1 +5.0%
Capital grants 30.8 44.3 -13.5 -30.5%
        of which FoNI (New Investments Fund) 12.5 8.2 +4.3 +52.4%
Total net investments 431.8 396.2 +35.6 +9.0%

 

The Group’s operating investments came to 462.3 million euro, up 5.1% over the previous year, and 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 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. Overall, investments in structures decreased by 3.3 million euro compared to the previous year.

115.4 million euro net working capital

Net working capital amounted to 115.4 million euro at the end of 2018, showing growth over the 23.2 million euro recorded at the end of 2017. This result is due to various factors that influenced trends in 2018, including: a reduction in tax liabilities, increased surpluses in gas stocking introduced by the trading company and intended to contain costs for raw materials, and a change in the deadline for paying suppliers, now set at 60 days, that led to a reduction in trade payables. Results in terms of NWC were furthermore impacted by the higher volumes of electricity and gas sold in 2018.

588.2 million euro provisions

In 2018, provisions totalled 588.2 million euro, increasing compared to the amount recorded at the end of the previous year. This result is mainly a consequence of period-specific provisions, adjustments to post-mortem landfill provisions and reinstatements of third party goods due to the application of accounting standard Ias 37, which more than offset outflows for usages. For details on the transfer of provisions, see the explanatory notes.

2.8 billion euro equity

Equity rose from 2,706.0 million euro in 2017 to 2,846.7 million euro in 2018, benefitting the Group’s financial structure. Equity reinforced the Group’s solidity thanks to the good net result coming from management in 2018, amounting to 296.6 million euro, which not including the 152.3 million euro dividend payment recorded guarantees a self-financing coming to 144.3 million euro.

Return on net invested capital (Roi) settled at 9.4% in 2018. This result, superior to the one achieved in 2017, is a consequence of the good revenues recorded over the year, up more than proportionally compared to the increase in net invested capital.

Roi (%)
Roi

*adj for non-recurring items

Return on equity (Roe) went from 9.9% in 2017 to 10.4% in 2018. This increase is due to the good operating and extra-operating economic results for 2018.

Roe (%)
Roe

Reconciliation between separate and consolidated financial statements

  Net results Net equity
Balances as per Parent Company's seperate financial statements 195.1 2,335.2
Excess of equity over the carrying amounts of investments in consolidated companies 157.0 224.5
Consolidation adjustments    
Measurement with the equity method of investments reported at cost in the seperate financial statement 0.9 (1.2)
    Difference between purchase price and book value of corresponding portion of equity (5.1) 107.1
    Elimination of intercompany transactions (66.1) (4.9)
Total 281.9 2,660.7
Restoration of third-party assets 14.7 186.0
Balances as per consolidated financial statements 296.6 2,846.7

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Analysis of net cash (net borrowings)

A solid financial position

An analysis of net financial debt is shown in the following table:

mn€   Dec 18 Dec 17
a  Cash and cash equivalents  535.5 450.5
b  Other current financial receivables  37.3 41.5
   Current bank debt  (70.3) (187.0)
   Current part of bank borrowings  (451.5) (55.3)
   Other current financial liabilities  (76.1) (35.3)
   Finance lease payments maturing within 12 months  (1.7) (2.0)
c  Current financial debt  (599.6) (279.6)
d=a+b+c  Net current financial debt  (26.8) 212.4
   Non-current bank debt and bonds issued  (2,644.3) (2,825.3)
   Other non-current financial liabilities  (20.7) (21.4)
   Finance lease payments maturing after 12 months  (12.2) (13.9)
e  Non-current financial debt  (2,677.2) (2,860.6)
f=d+e  Net financial position - Consob communication no. 15519/2006  (2,704.0) (2,648.2)
g  Non-current financial receivables  118.4 125.2
h=f+g  Net debt  (2,585.6) (2,523.0)

 

The overall amount of net financial debt came to 2,585.6 million euro, showing an increase of roughly 62.6 million euro over the previous year. The Group’s financial structure at 31 December 2018 shows current debt coming to 599.6 million euro, of which 60.8 million euro in bank loans reaching maturity within 2019, 394.6 million euro in bonds reaching maturity in December 2019 and 70.3 million euro in current bank debt. The latter mainly consists of accruals for passive interest on financing, coming to 51.2 million euro, and usage of current credit lines, coming to roughly 19.1 million. The amount of non-current bank debt and bonds issued decreased compared to the previous year, owing to the amount of bonds reaching maturity, already partially refinanced with medium-term lines of credit. At 31 December 2018, medium- and long-term debt was largely made up of bonds issued on the European market and listed on the Luxembourg Stock Exchange (77.4% of the total), with repayment at maturity.
The total debt shows an average time to maturity of over 6 years, with 64% maturing after more than five years.

Net financial debt went from 2,523.0 million in 2017 to 2,585.6 million euro at 31 December 2018.

Net financial debt (bn€)
Indebitamento finanziario netto

The Group’s characteristic management generated positive operating cash flows coming to 155.5 million euro, down compared to the previous year mainly owing to higher outlays for investments and higher net working capital generation.
Net financial debt furthermore rose as a consequence of the acquisition operations carried out during the year, involving Megas Net Spa, Sangroservizi Srl and Blu Ranton Srl.

Cash flow (mln/euro)
Cash flow

The net debt/Ebitda ratio fell to 2.51. This result benefitted from positive operating results, whose growth was decidedly more substantial than the ensuing increase in financial debt.

NetDebt/Ebitda (X)
NETDEBT/EBITDA

The Funds from operations/Net debt indicator went up compared to the result seen in 2017. This index as well, like the previous one, benefited from a positive trend in operating flows, which increased more than proportionally compared to the growth seen in net debt, confirming the Group’s increasing financial solidity and its ability to meet its financial obligations.

Ffo/NetDebt (%)
Ffo/NetDebt

These results confirm the Group’s financial solidity: the opinions provided by rating agencies are BAA2 (stable outlook) from Moody's and BBB (positive outlook) from Standard & Poor's.

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Analysis by business area

A multi-business strategy

An analysis of the operating results achieved in the Group’s various business areas 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 generation, 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 and recovery; 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 strategy

Ebitda December 2018
Ebitda December 2018

  

The Group’s income statements include corporate headquarter costs and account for intercompany transactions 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.

GAS

Ebitda grows

The gas area showed significant growth at 31 December 2018 compared to the same date in 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.

Gas area Ebitda 2018
Gas area Ebitda 2018

 

Gas area Ebitda 2017
Gas area Ebitda 2017

 

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

+4.9% increase in Ebitda

(mn€) Dec 18 Dec 17 Abs. Change % change
Area Ebitda 316.5 301.7 +14.8 +4.9%
Group Ebitda 1,031.1 984.6 +46.5 +4.7%
Percentage weight 30.7% 30.6% +0.1 p.p.  

The number of gas customers rose by 59.6 thousand or 4.3% over 31 December 2017. The entry of the companies Blu Ranton srl and Verducci Servizi srl within the Group’s consolidate scope contributed with 22.6 thousand customers and the remaining growth was created through marketing initiatives and by maintaining and developing the customer base.

Customers (k)
Customers

Overall volumes of gas sold increased by 951.5 million m3 or 18.2%, going from 5,216.6 million m3 in December 2017 to 6,168.2 at 31 December 2018, with degree days (*) rising by 3% over the previous period. Trading volumes showed growth coming to 857.0 million m3 (16.4% of total volumes), owing to a higher amount of intermediation, while volumes sold to end customers increased by 4.2% over December 2017, equivalent to 94.5 million m3. The contribution coming from the increased customer base came to roughly 76.3 million m3 and the company Blu Ranton srl contributed with roughly 18.2 million m3.

Volumes sold (mn m3)
Volumes sold

 

The following table summarises operating results for the gas area:

Income statement (mn€) Dec 18 % Inc. Dec 17 % Inc. Abs. Change % change
Revenues 2,371.0   1,980.3   +390.7 +19.7%
Operating costs (1,958.2) -82.6% (1,584.5) -80.0% +373.7 +23.6%
Personnel costs (111.2) -4.7% (110.3) -5.6% +0.9 +0.8%
Capitalised costs 14.8 0.6% 16.2 0.8% -1.4 -8.6%
Ebitda 316.5 13.3% 301.7 15.2% +14.8 +4.9%

Revenues went from 1,980.3 million euro in December 2017 to 2,371.0 million at 31 December 2018, with a growth of 390.7 million euro or 19.7%. The main reasons for this growth include higher revenues from trading amounting to roughly 301 million euro, owing to the higher price of the raw material gas, accounting for roughly 66 million euro, the higher volumes of gas sold, coming to roughly 25 million euro, and the acquisition of Blu Ranton Srl, accounting for 11 million euro. Revenues for companies operating abroad, in Bulgaria, rose thanks to increased commercial activities by 6.7 million euro. This growth in revenues was contained by lower revenues from energy efficiency certificates totalling roughly 31 million euro, following the 10 May 2018 Inter-Ministry Decree that set a limit on projected tariffs, which had an equivalent impact on market prices, and lower revenues for the transfer of the company Medea coming to 8.6 million euro. Lastly, revenues from long-term commissions and subcontracts rose by 9 million euro, with an equivalent effect on operating costs.

Revenues (mn€)
Ricavi

The growth in revenues was reflected by an increase in operating costs, which went from 1,584.5 million euro in December 2017 to 1,958.2 million euro in 2018, thus showing an overall growth of 373.7 million euro. This trend was mainly due to the higher amount of trading, higher volumes sold and the higher cost of raw materials, despite the lower cost per unit of energy efficiency certificates and the operating efficiencies set in place by the Group.

Ebitda rose by 14.8 million euro or 4.9%, going from 301.7 million euro at 31 December 2017 to 316.5 million euro at 31 December 2018, thanks to higher volumes and income from trading, the activities in Bulgaria, higher incentives for safety in gas distribution networks and higher operating efficiencies in distribution.

Ebitda (mn€)
Margine operativo lordo

In 2018, net investments in the gas area amounted to 115.4 million euro, up 14.4 million euro over the previous year. A 12.0 million euro increase was seen in gas distribution, due to higher non-recurring maintenance on networks and plants for cathodic protection of the steel network in the Municipality of Trieste, with 37 km of the network being completed, bringing the amount of upgrading to over 95%, in line with the indications set out by Arera. Requests for new connections increased compared to the previous year. Investments also increased in heat management, thanks to the activities of the companies Hse Srl and Ase Spa, falling instead in district heating as an effect of the significant work done on the Barca district heating plant in Bologna the previous year, but growing overall by 1.9 million euro compared to 2017. New connections for district heating rose over those seen during the previous year.

Net investments gas (mn€)
Investimenti netti gas

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

Gas (mn€) Dec 18 Dec 17 Abs. Change % Change
Networks and plants 92.6 80.6 +12.0 +14.9%
RH/heat management 22.8 20.9 +1.9 +9.1%
Total gas gross 115.4 101.5 +13.9 +13.7%
Capital grants 0.0 0.4 -0.4 -100.0%
Total gas net 115.4 101.0 +14.4 +14.3%

The Regulatory asset base (Rab), which defines the value of assets recognised by the authority for return on invested capital, dropped slightly compared to 2017, owing to a slightly more precise mapping of the titles owned, despite the entry of Megas Net Spa in the scope of operations of Marche Multiservizi Spa.

Rab (mld/euro)
Rab

For further details on this matter, see chapter 1.06.01, Regulatory framework and regulated revenues.

ELECTRICITY

Slight drop in Ebitda

At the end of 2018, Ebitda for the electricity area fell slightly compared to the previous year. The lower result for electricity generation, caused by changes in regulations for actual imbalances, was almost entirely offset by the results coming from sales and distribution.

Electricity area Ebitda 2018
Electricity area Ebitda 2018

 

Electricity area Ebitda 2017
Electricity area Ebitda 2017

 

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

-0.5% Modest decrease in Ebitda

(mn€) Dec 18 Dec 17 Abs. Change % Change
Area Ebitda 183.5 184.5 -1.0 -0.5%
Group Ebitda 1,031.1 984.6 +46.5 +4.7%
Percentage weight 17.8% 18.7% -0.9 p.p.  

-0.5%Modest decrease in Ebitda

The number of electricity customers settled at 1.1 million supply points, rising by 8.9% (87.1 thousand customers) compared to 31 December 2017. This significant increase came about on the free market, now amounting to 12.1% of the total, as a result of the reinforced marketing operations introduced, in particular in regions of central Italy. The growth was able to offset the decrease in safeguarded and protected customers, despite the increased customer base in the Municipality of Gorizia, amounting to roughly 13 thousand customers.

Customers(k)
Clienti

 

Volumes of electricity sold went from 10,517.3 GWh at 31 December 2017 to 11,854.1 GWh at 31 December 2018, with an overall increase of 12.7% or 1,336.8 GWh. Volumes sold on the free market grew by 13.2% out of the total and fully offset the drop in safeguarded and protected volumes.

Volumes sold (GWh)
Volumes sold

The following table summarises operating results for the area:

Ebitda falls by 1.0 million euro

Income statement (mn€) Dec 18 Inc% Dec 17 Inc.% Abs. Change % Change
Revenues 2,462.1   2,380.2   +81.9 +3.4%
Operating costs (2,244.9) -91.2% (2,161.8) -90.8% +83.1 +3.8%
Personnel costs (44.9) -1.8% (44.8) -1.9% +0.1 +0.2%
Capitalised costs 11.1 0.5% 10.9 0.5% +0.2 +1.8%
Ebitda 183.5 7.5% 184.5 7.7% -1.0 -0.5%

Revenues rose by 3.4%, going from 2,380.2 million euro in December 2017 to 2,462.1 million euro in 2018, with an 81.9 million euro or 3.4% increase. The main reasons underlying this growth are the increase in volumes sold, which created higher revenues amounting to roughly 117 million euro, higher revenues for transmission outside the grid coming to roughly 40 million euro, with no change in costs, a higher price of raw materials coming to roughly 39 million euro, higher revenues for subcontracted commissions and higher revenues for the regulated distribution service. Countering this trend, mention must go to lower revenues for trading amounting to roughly 86 million euro and lower revenues in electricity generation coming to roughly 23 million euro, mainly owing to the changes in regulations on actual imbalances.

Revenues (mn€)
Ricavi

 

The increase in revenues was more than proportionally reflected by a rise in operating costs, which went from 2,161.8 million euro at 31 December 2017 to 2,244.9 million euro at the same date in 2018, thus showing an overall increase of 83.1 million euro. This trend is mainly due to the higher volumes sold and the higher price of raw materials, despite the lower amount of electricity generated and the operating efficiencies introduced by the Group.

At 31 December 2018, Ebitda fell by 1.0 million euro or 0.5%, going from 184.5 million in 2017 to 183.5 million euro in 2018. This was due to lower income from electricity generation coming to 13 million euro, owing to the reasons mentioned above, despite the higher income coming from volumes sold on the free market, higher revenues in distribution and increased operating efficiencies in distribution.

Ebitda (mn€)
Margine operativo lordo

Investments made in the electricity area in 2018 amounted to 23.0 million euro, essentially in line with the 23.6 million euro seen one year earlier.
The interventions mainly concerned non-recurring maintenance on plants and distribution networks in the Modena, Imola, Trieste and Gorizia areas.
Compared to the previous year, a lower amount of network extensions and higher non-recurring maintenance on plants and networks were seen, while requests for new connections fell compared to 2017.

Net investments electricity (mn€)
Investimenti netti energia elettrica (mln/euro)

 

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

Electricity (mn€) Dec 18 Dec 17 Abs. Change % Change
Networks and plants 23.0 23.6 -0.6 -2.5%
Total electricity gross 23.0 23.6 -0.6 -2.5%
Capital grants 0.0 0.0 +0.0 +0.0%
Total electricity net 23.0 23.6 -0.6 -2.5%

Rab, which defines the value of assets recognised by the authority for return on invested capital, dropped slightly compared to 2017.

Rab (bn€)
Rab

For further details on this matter, see chapter 1.06.01, Regulatory framework and regulated revenues.

INTEGRATED WATER CYCLE

Growing results

In 2018, the integrated water cycle area recorded growth in Ebitda coming to 19.8 million euro or 8.6%. 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 accruals basis.

 

 

Ebitda water cycle area 2018
Ebitda water cycle area 2018

 

Ebitda water cycle area 2017
Ebitda water cycle area 2017

 

 

+8.6% Ebitda increases

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

(mn€) Dec 18 Dec 17 Abs. Change % change
Area Ebitda 249.7 229.9 +19.8 +8.6%
Group Ebitda 1,031.1 984.6 +46.5 +4.7%
Percentage weight 24.2% 23.3% +0.9 p.p.  

The Hera Group covers all areas of the water cycle, from sourcing and treatment, with over 400 plants, to drinking water distribution, with over 35 thousand km of pipelines, to sewerage management, with over 18 thousand km of pipelines managed, to purification and environmental restoration, with over 1,000 plants and purification systems.

The number of water customers settled at 1.5 million, rising by 4.9 thousand or 0.3% over 2017, confirming the moderate trend towards internal growth seen in the Group’s reference areas, mainly in the Emilia-Romagna region managed by Hera Spa.

Customers(k)
Clienti

291.1 million m3: quantity managed in the aqueduct

Quantity managed 2018 (mn m3)                        
Quantity managed 2018 (mn m3)

 

Quantity managed 2017 (mn m3)  
Quantity managed 2017 (mn m3)

 

The volumes dispensed through the aqueduct showed a 11.7 million m3 or 3.9% drop, mainly linked to seasonal variations seen in 2018, consisting in a larger amount of rainfall and snowfall than occurred in the same period of the previous year, which has been defined as the driest year in the last two centuries, with precipitation below the seasonal averages for nine months out of twelve and with temperatures ranking it as the fourth hottest year ever. Furthermore, decreases were seen in the amount managed in sewerage (roughly 2.3%) and purification (roughly 2.2%) compared to the quantities recorded in 2017, owing to the lower volumes distributed. 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. Another indicator of the network’s efficiency is the number of breaks per km in the network, which corresponds to ratio between the total number of breaks and the length of the network. This indicator shows a decrease compared to 2017, going from 7.4 breaks/km to 7.0, thanks to both the excellent management of repairs and investments aimed at an ever-increasing performance of the aqueduct system. On the latter point, note the Group’s commitment to searching for hidden leakage, with both traditional systems and technologically evolved satellite scanning.

The electricity consumed in plants showed an 8.1 GWh decrease, going from 389.5 GWh in December 2017 to 381.4 GWh in 2018. This drop is related to both the lower volumes dispensed in 2018 resulting from the extraordinarily dry weather seen in 2017 and the Group’s commitment to managing energy as a resource ever more efficiently and prudently, as results from the innovative interventions carried out on plants.

 

Energia consumata

An overview of operating results for the water area is provided in the table below:

Income statement (mn€) Dec 18 Inc% Dec 17 Inc.% Abs. Change % Change
Revenues 878.6   859.9   +18.7 +2.2%
Operating costs (455.7) -51.9% (457.0) -53.1% (1.3) (0.3%)
Personnel costs (179.3) -20.4% (178.1) -20.7% +1.2 +0.7%
Capitalised costs 6.1 0.7% 5.1 0.6% +1.0 +19.5%
Ebitda 249.7 28.4% 229.9 26.7% +19.8 +8.6%

Revenues in the water cycle area showed an 18.7 million euro or 2.2% growth over 2017. This result is due to higher tariff revenues, which only grew by 0.6%, as an overall effect of the tariffs established by the Authority for 2016-2019, the recognition of bonuses for contract quality and the change in scope of operations ensuing from the launch of AcegasApsAmga’s new Servola purifier. Furthermore, higher revenues were seen involving subcontracted works and works financed and commissioned by asset companies, amounting to roughly 12 million euro. Lastly, 2 million in higher other revenues were seen compared to 2017, mainly involving contributions received and incentives for the use of renewable sources.

Revenues (mn€)
Ricavi

 

Operating costs increased by 1.3 million euro or 0.3% overall. Not including the higher costs involved in the works carried out as described among the revenues for 12.0 million euro overall, and the higher costs for electricity consumed by plants coming to roughly 1.4 million euro (an effect of the higher price of electricity, despite the lower volumes consumed), costs were contained by 12.1 million euro overall. This trend is due to the lower cost the raw material water, coming to roughly 5.0 million euro, while the remainder involves lower operating costs for plant and network management, only partially tied to the 2017 water emergency.

Ebitda showed a 19.8 million euro or 8.6% increase, going from 229.9 million euro in December 2017 to 249.7 million euro in 2018, mainly due to higher revenues, operating efficiencies and lower costs related to the 2017 water emergency.

Ebitda (mn€)
Margine operativo lordo

Net investments in the integrated water cycle area amounted to 127.6 million euro in 2018, up 14.5 million euro over the previous year. Including the capital grants received, which dropped by 13.3 million euro, the investments made increased by 1.3 million euro and totalled 157.9 million euro, as against the 156.6 million euro seen one year earlier.
Investments mainly involved extensions, reclamations and network and plant upgrading, in addition to regulatory upgrades involving above all purification and sewerage.
Investments were made coming to 81.5 million euro in the aqueduct, 49.5 million euro in sewerage and 26.9 million euro in purification.

Net investments water cycle (mn€)
Investimenti netti ciclo idrico

 

The more significant works include: in the aqueduct, the increased activity in network improvement required by Arera resolution 917/2017 on the regulation of the technical quality of integrated urban water management, upgrading interconnections in the Modena area water system, interventions aimed at upgrading hanging reservoir areas and 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 and now in their final phase.
Requests for new water and sewerage connections remained stable with respect to the previous year.
Capital grants amounting to 30.2 million euro included 12.5 million euro deriving from the tariff component called for by the New Investments Fund (FoNI) tariffary method and fell by 13.3 million euro compared to the previous year, mainly due to the portion concerning work done on the Servola purifier.

Details of operating investments in the integrated water cycle area are as follows:

Significant operating investments in the aqueduct, sewerage and purification areas

Integrated water cycle (mn€) Dec 18 Dec 17 Abs. Change % change
Aqueduct 81.5 63.8 +17.7 +27.7%
Purification 26.9 50.8 -23.9 -47.0%
Sewerage 49.5 42.0 +7.5 +17.9%
Total integrated water cycle gross 157.9 156.6 +1.3 +0.8%
Capital grants 30.2 43.5 -13.3 -30.6%
        of which FoNI (Fondo Nuovi Investimenti) 12.5 8.2 +4.3 +52.4%
Total integrated water cycle net 127.6 113.1 +14.5 +12.8%

Rab, which defines the value of assets recognised by the authority for return on invested capital, increased over 2017.

Rab (mn€)
Rab

 

WASTE MANAGEMENT

Ebitda grows

At 31 December 2018, the waste management area accounted for 24.4% of Group Ebitda, with an area Ebitda increasing over 2017. As regards waste treatment and recovery, in 2018 the Hera Group consolidated its national leadership by deploying complete and integrated marketing offers, shaping commercial partnerships with the sector’s main players and remaining constantly present in calls for tenders, in addition to maintaining an avant-garde set of plants able to offer effective and sustainable solutions that support a circular economy. As examples of the latter point, note recent inauguration of the biomethane production plant in Sant’Agata Bolognese and the reinforcement of Aliplast Spa’s outstanding activity in plastic recycling, which represents the key element able to bring a circular economy to completion. Environmental resource protection was confirmed as a priority goal for 2018 as well, along with optimising reuse, as is demonstrated by the Group’s particular focus on promoting sorted waste in all areas served, which in 2018 showed an increase coming to almost five percentage points.

Ebitda waste management area 2018
Ebitda waste management area 2018

 

Ebitda waste management area 2017
Ebitda waste management area 2017

 

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

Increase in Ebitda: +2.4%

mn€ Dec 18 Dec 17 Abs. Change % Change
Area Ebitda 252.0 246.0 +6.0 +2.4%
Group Ebitda 1,031.1 984.6 +46.5 +4.7%
Percentage weight 24.4% 25.0% -0.6 p.p.  

Volumes marketed and treated by the Group in 2018 are as follows:

Commercial waste -5.0%

Quantity (k tons) Dec 18 Dec 17 Abs. Change % Change
Urban waste 2,348.0 2,310.5 +37.5 +1.6%
Commercial waste 2,142.8 2,256.5 -113.7 -5.0%
Waste marketed 4,490.8 4,567.1 -76.3 -1.7%
Plant by-products 2,802.2 2,234.5 +567.7 +25.4%
Waste treated by type 7,293.0 6,801.6 +491.4 +7.2%

As of 2018, municipal waste also includes some types of waste previously classified as commercial waste. The 2017 data for municipal and commercial waste has been restated so as to reflect the classification used for the current year.

An analysis of this data shows waste marketed falling, due to a 5.0% drop in commercial waste, partially offset by an increase in municipal waste. The decrease in commercial waste is a consequence of the temporarily lower amount of plant capacity available.
Urban waste showed an overall increase of 1.6%, owing above all to growth in sorted waste and waste form sandy shores, while the quantity of non-sorted waste decreased.
Plant by-products rose thanks to an increased production of leachate in landfills, due to the higher amount of rainfall seen in 2018 compared to the previous year, marked by an extraordinary drought.
Further progress was seen in sorted urban waste, which went from 57.7% at 31 December 2017 to 62.5% at the same date in 2018, increasing by 5.3% in the areas served by Hera Spa and 7.3% in the areas served by Marche Multiservizi Spa, while in the Triveneto region growth settled at 0.7%.

Sorted waste(%)
Raccolta differenziata
Waste disposed of  
by type of plant in 2018
Waste disposed of   by type of plant in 2018

 

Waste disposed of  
by type of plant in 2017
Waste disposed of   by type of plant in 2017

 

Lower use of landfills

Quantity (k tons) Dec 18 Dec 17 Abs. Change % Change
Landfills 704.3 872.3 -168.0 -19.3%
WTE 1,309.8 1,305.4 +4.4 +0.3%
Selecting plants and other 531.2 451.2 +80.0 +17.7%
Composting and stabilisation plants 361.5 379.4 -17.9 -4.7%
Stabilisation and chemical-physical plants 1,231.7 1,000.5 +231.2 +23.1%
Other plants 3,154.6 2,792.8 +361.8 +13.0%
Waste treated by plant 7,293.0 6,801.6 +491.4 +7.2%

The Hera Group operates in the entire waste cycle, with 89 plants used for municipal and special waste treatment 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 7.2% over 31 December 2017. Note in particular the lower quantity in landfills, while in the chain of waste-to-energy plants the quantity treated increased slightly compared to the previous year. The larger quantity seen 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 an increase in landfill leachate 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.

The table below summarises the area’s operating results:

Ebitda rises

Income statement (mn€) Dec 18 Inc% Dec 17 Inc.% Abs. Change % Change
Revenues 1,123.7   1,083.8   +39.9 +3.7%
Operating costs (684.3) -60.9% (647.5) -59.7% +36.8 +5.7%
Personnel costs (196.1) -17.4% (198.6) -18.3% -2.5 -1.3%
Capitalised costs 8.8 0.8% 8.2 0.8% +0.6 +7.3%
Ebitda 252.0 22.4% 246.0 22.7% +6.0 +2.4%

Revenues rose by 3.7% or 39.9 million euro, going from 1,083.8 million at 31 December 2017 to 1,123.7 million in 2018. As regards waste treatment, this change is due to the positive trend seen in the price of special waste and higher revenues for electricity generation caused by an increase in the price of market energy, the CEC and the higher recognition of the percentage for the Grin in the Ferrara WTE plant obtained during the current year but with effects backdated to 2016. Lastly, a positive contribution to revenues came from an expansion in intermediation and upgrading operations, as well as in Waste Recycling Spa’s customer portfolio, and from the higher quantities managed and sold by Aliplast Spa. These positive effects, along with higher revenues for increased sorted waste in urban waste collection, fully cover the change in scope of operations due to the termination of urban waste services in 13 Forlì-area Municipalities as of 1 January 2018.

Revenues (mn€)
Ricavi

Operating costs rose by 5.7% or 36.8 million euro, going from 647.5 million euro in 2017 to 684.3 million euro in 2018. This change is due to higher costs in the waste treatment business linked to an advancement in upgrading activities, subcontracting by-product disposal and an increase in purchasing costs on the PET sustained by Aliplast Spa and related to the higher revenues mentioned above. As regards municipal waste, note the higher costs involved in developing new projects for sorted waste. These trends were mitigated by lower costs for services and maintenance of waste-to-energy plants, a reduction in the costs for electricity sustained by Aliplast Spa, as an energy consuming company, and lower costs due to the aforementioned changes in the Forlì area.

The cost of personnel, not including the transfer of resources for collection in the Forlì area, as mentioned above, showed a slight increase coming to 0.2%.

Ebitda went from 246.0 million euro in 2017 to 252.0 million euro in 2018, showing growth amounting to 6.0 million euro or 2.4%. This change was sustained by higher prices for special waste treatment, higher revenues from electricity generation and lower maintenance on plants, which were able to more than offset the exclusion of Forlì from the scope of collection and sweeping operations.

Ebitda (mn€)
Margine operativo lordo

Net investments in the waste management area concerned plant maintenance and upgrading and amounted to 77.7 million euro, up 10.8 million euro over the previous year.
The composter/digester sector showed a sharp increase in investments amounting to 9.8 million euro, mainly due to interventions on the Sant’Agata Bolognese composter involved in creating the biomethane plant Sant’Agata Bolognese, in addition to other interventions including upgrading the Tre Monti mechanical biological treatment plant.
Investments in landfills rose by 0.9 million euro, mainly due to interventions on the Cordenons plant in 2018, as well as plants belonging to the company Marche Multiservizi.
The WTE plants sector was in line with the previous year, given that the lower 2018 investments for the Pozzilli plant were basically compensated by the non-recurring maintenance done on the Bologna, Padua, Ferrara, Forlì and Trieste plants.
Increased investments in the Special waste plants sector mainly concerned maintenance interventions on the Ravenna industrial waste treatment plants.
The ecological islands and collection equipment sector showed higher investments coming to 1.0 million euro, mainly in the areas served by Hera Spa, while the 1.8 million euro decrease in the selection and recovery plants 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.

Net investments waste management (mn€)
Investimenti netti ambiente

 

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

Operating investments increase

Waste management (mn€) Dec 18 Dec 17 Abs. Change % Change
Composting/digestors 24.5 14.7 +9.8 +66.7%
Landfills 10.8 9.9 +0.9 +9.1%
WTE 10.3 10.3 +0.0 +0.0%
RS plants 3.6 2.4 +1.2 +50.0%
Ecological areas and gathering equipment 12.3 11.3 +1.0 +8.8%
Transshipment, selection and other plants 16.8 18.6 -1.8 -9.7%
Total waste management gross 78.1 67.2 +10.9 +16.2%
Capital grants 0.4 0.3 +0.1 +33.3%
Total waste management net 77.7 66.9 +10.8 +16.1%

OTHER SERVICES

Ebitda rises

The other services area covers all minor businesses managed by the Group, including public lighting, telecommunications and cemetery services. In 2018, this area’s results showed a 30.2% increase over the previous year, with Ebitda going from 22.5 million euro at 31 December 2017 to 29.3 million euro in 2018.

Ebitda other services 2018
Ebitda other services 2018

 

Ebitda other services 2017
Ebitda other services 2017

 

The changes occurred in terms of Ebitda are as follows:

mn€ Dec 18 Dec 17 Abs. Change % Change
Area Ebitda 29.3 22.5 +6.8 +30.2%
Group Ebitda 1,031.1 984.6 +46.5 +4.7%
Percentage weight 2.8% 2.3% +0.5 p.p.  

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

Quantity Dec 18 Dec 17 Abs. Change % Change
Public lighting        
Lighting points (k) 534.3 522.1 +12.2 +2.3%
   of which LED 14.9% 13.1% +1.8 p.p.  
Municipalities served 176.0 163.0 +13.0 +8.0%

534.3 thousand lighting points

An analysis of the data regarding public lighting shows a growth of 12.2 thousand lighting points and a net increase of 13 municipalities served. Over the course of 2018, the Hera Group acquired roughly 19 thousand lighting points in 14 new municipalities. The most significant of these were: roughly 6 thousand lighting points in Abruzzo; roughly 4 thousand in Lombardy; roughly 4 thousand in the areas managed by Marche Multiservizi, following the entry of Megas Net Spa; roughly 2 thousand in the Triveneto region, mainly in the provinces of Udine and Pordenone; roughly 1.1 thousand in Emilia-Romagna; lastly, more lighting points managed in the municipalities already served. The increases seen during the year fully offset the loss of roughly 7 thousand lighting points and 1 municipality served in Emilia-Romagna. The percentage of lighting points using led light bulbs also increased, settling in 2018 at 14.9%, up 1.8 percentage points. This change reflects the constant attention shown by the Group towards an increasingly efficient and sustainable management of public lighting.

The area’s operating results are provided in the table below:

Area grows

Income statement (mn€) Dec 18 Inc% Dec 17 Inc.% Abs. Change % Change
Revenues 147.1   136.2   +10.9 +8.0%
Operating costs (100.2) -68.1% (96.3) -70.7% +3.9 +4.0%
Personnel costs (20.0) -13.6% (19.8) -14.5% +0.2 +1.0%
Capitalised costs 2.5 1.7% 2.5 1.8% +0.0 +0.0%
Ebitda 29.3 19.9% 22.5 16.6% +6.8 +30.2%

Area revenues rose over December 2017 by 10.9 million euro, going from 136.2 million euro to 147.1 million euro in December 2018. This growth is mainly due to the positive contribution coming from telecommunications, thanks to increased external commercial collaborations and the digitalisation and innovation processes implemented by the Hera Group, and public lighting, due to good results from participation in public tenders.

Revenues (mn€)
Ricavi

Ebitda showed a 6.8 million euro growth over December 2017. This change is due to higher income from public lighting and telecommunications services.

Ebitda (mn€)
Margine operativo lordo

Investments in the other services area came to 18.8 million euro, essentially in line with the previous year.

Investments coming to 10.0 million euro were made in telecommunications, involving networks and Tlc and Idc (Internet data centre) services, up 0.8 million euro compared to 2017, while the 8.7 million euro of investments in the public lighting service concerned maintenance, upgrading and modernising lampposts in the areas served, with a 0.8 million decrease owing to the interventions seen during the previous year in the municipalities of Modena, Udine and Cesena, not entirely offset by investments in the Spinea and Aviano areas, and those made by the company Marche Multiservizi in the municipality of Pesaro.

Net investments other services (mn€)

 

Investimenti netti altri servizi

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

Other services (mn€) Dec 18 Dec 17 Abs. Change % Change
Tlc 10.0 9.2 +0.8 +8.7%
Lighting and street lights 8.7 9.5 -0.8 -8.4%
Total other services gross 18.8 18.7 +0.1 +0.5%
Capital grants 0.0 0.0 +0.0 +0.0%
Total other services net 18.8 18.7 +0.1 +0.5%

 

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Reference scenario and Group strategy

The utility sector and the Authority: rationalising the industry and liberalising the market

The public utilities sector plays a leading role within the Italian economy, accounting for approximately 7% of the country’s Gross domestic product (GDP; source: Top Utility report drafted by Althesys). This result, however, is reached through levels of service and efficiency that differ greatly across the country on account of the high level of fragmentation among variously sized operators. The most recent census, carried out by the government in 2014, counted no less than 1,500 of the latter, a figure which is quite distant from the standards seen in other European Union countries. With the goal of improving the efficiency and transparency of these services, over time the government and the national Authority have therefore pursued actions aimed at rationalising the sector.

In gas distribution, for example, tenders for renewing grants are foreseen within the next five years across the entire country. These competitive procedures have been designed to promote greater consolidation among operators, while at the same time favouring the more efficient ones and those able to sustain the widest-reaching investment plans. The areas concerned by the tenders have in fact been geographically widened, now covering provinces instead of municipalities. It follows that, according to estimates made by sector professionals, a reduction should be seen in the number of companies, from over two hundred to twenty or thirty.

During 2018, the Regulatory authority for energy, networks and the environment (Arera, Autorità di regolazione per energia reti e ambiente), began preparations for a new definition of the new tariff system, which will come into effect as of 2020 and cover a period of four years. After establishing a higher degree of uniformity in tariffs and service quality nationwide, expectations are that higher efficiency will be achieved and the sector will be rationalised, turning to means including a definition of the mechanisms used in tenders for granting concessions for urban waste collection and street cleaning.

In liberalised businesses, the government’s objective is to promote a higher level of market competition, to the advantage of end consumers. For this reason, an intention to completely liberalise the electricity market as of 1 July 2019 was included in the 2017 Competition Bill. At present, roughly 20 million users have not yet chosen a free market energy supplier. Launching this process thus represents an opportunity to stimulate competition and give space to companies with the best service levels and the largest scale economies.

In the sector of (free market) waste treatment, the year that has just come to a close confirmed the country’s persistent undercapacity in the area of plants. This situation has become even more critical by various foreign factors, such as China’s import ban on low-quality plastic waste (plastic mix) and an increase in waste exports from the United Kingdom, with the effect of saturating the continent’s treatment plants, which were the destination for a significant amount of Italy’s waste. In this scenario, considering the continual difficulties in building new plants over the short term, prices for waste disposal increased for the fourth consecutive year. The pace of this growth over the last year seems destined to persist in 2019, going to the advantage of operators owning plant capacities.

In the energy sales business, the government’s objective is to promote a higher level of market competition, to the advantage of end consumers. To this intent, a prediction for the complete liberalisation of the electricity market as of 1 July 2020 was confirmed by the Milleproroghe Law 91/2018. At present, roughly 20 million users have not yet chosen a free market energy supplier. Launching this process thus represents an opportunity to stimulate competition and give space to companies with the best service levels and the largest scale economies. The scenario seen in the sector is therefore marked by factors pointing towards a higher industrialisation of activities, to be achieved through increasing investment plans and involving a consolidation of smaller businesses. In this context, Hera operates with its usual development model that is geared towards making the most of scale economies and synergies (internal growth) and expanding the geographical extent of its own operations (external growth), by integrating sector enterprises. This strategy has been coherently pursued by the Group since its establishment, and its effectiveness has been proven: over the past sixteen years, its size has been quintupled and a position of national leadership has been reached in all areas of activity (the country’s first operator in the waste management sector, second in the integrated water service, third in gas distribution and in energy sales to end customers).

The scenario seen in the sector is therefore marked by factors pointing towards a higher industrialisation of activities, to be achieved through increasing investment plans and involving a consolidation of smaller businesses. In this context, Hera operates with its usual development model that is geared towards making the most of scale economies and synergies (internal growth) and expanding the geographical extent of its own operations (external growth), by integrating sector enterprises. This strategy has been coherently pursued by the Group since its establishment, and its effectiveness has been proven: over the past sixteen years, its size has been quintupled and a position of national leadership has been reached in all areas of activity (the country’s first operator in the waste management sector, second in the integrated water service, third in gas distribution and in energy sales to end customers).

Hera reaches its previously set targets

The results for 2018 as well are the fruit of this strategic approach, which has led the Group to reach the milestone of one billion euro in Ebitda, even exceeding the target established by the five-year business plan for 2014-2018 (1,031 million euro, as against the goal of 1,020 million, and a net debt/Ebitda ratio coming to 2.5 instead of the objective set at 2.9). All activities managed contributed to this positive result, confirming the validity and effectiveness of the Group’s perfect balance between regulated and free market activities that allows it to maintain a high level of risk diversification. The portfolio’s balanced mix, that combines areas with a low return but no risk (in regulated businesses) and areas with a higher return but also risks from which the Group is protected (in free market businesses), makes it possible to obtain an overall return capable of creating value; that is, this portfolio leads to rates of return that exceed the average cost of the financial resources used.

The new business plan to 2022

The new business plan to 2022, presented in early January 2019 and based on the Group’s strong position and acquired leadership, is aimed at grasping the opportunities arising within the reference scenario and continuing along its path of uninterrupted growth. Ebitda is expected to increase by 200 million euro, reaching the goal of 1.185 billion euro by the end of the period in question, a target which is higher than the one set in the previous plan.

Relying on the Group’s current market position and the availability of accumulated financial resources, growth will also be fuelled by an ambitious investment program coming to roughly 3.1 billion euro, increasing by 260 million over the previous plan. The Group will be able to meet this objective thanks to one of the most solid set of assets seen in the sector and its visibly growing cash generation (+30% Cagr over the last five years).

1.1 billion euro will be exclusively dedicated to growth: investments in new plants and network modernisation, tenders for renewing gas concessions and M&A operations. This strategy calls for an efficient allocation of capital, conserving the Group’s current low risk profile, and confirms its objective of maintaining financial solidity, with a net debt/Ebitda target set at 2.9 that leaves further room to finance the growth opportunities not included in the plan.

Three quarters of investments will go to regulated activities: approximately 70% will go towards networks and approximately 6% to urban waste collection. It follows that most of the growth foreseen by the plan will fall into these areas, whose overall weight will increase from 51% to 55%. The balanced aspect of this mix will be guaranteed by factors including growth in free market activities. In the waste management sector, the Group – Italy’s leading operator in this field – can rely on a wide and diversified set of plants, within the context of a market whose prices are continually growing due to the country’s structural lack of disposal capacity. In the energy sector, the Group – which ranks third in the country – counts on expanding its customer base, making the most of both the liberalisation expected in the protected electricity market and initiatives in cross selling its services. In late 2018, tenders were also held for renewing concessions in safeguarded electricity and default gas services, and the Group confirmed its status as Italy’s foremost operator for the upcoming two years, gaining roughly 70% of the market.

Creating shared value

The new plan also expects dividends to increase (from 9.5 cents in 2018 to 11 cents paid in 2023), showing uniform growth over the five years in question and testifying to a transparent dividend policy benefitting all shareholders. The Group’s multi-business model, indeed, allows it to give a significant visibility to cash generation, given that it offers protection from external market factors, as is amply shown by the resilient growth constituting its track record.
The plan includes targets and projects that the Group intends to pursue in a sustainable way, creating value for all stakeholders. Its strategy has identified lines of development oriented towards pursuing the targets set out in the Un Agenda that can be applied to the activities in which it is involved (covering at least 10 of the 17 goals indicated): almost 3/4 of the growth expected over the five years covered by the plan will be sustained by projects that respond to these ten “calls to action”, thus bringing shared value Ebitda to reach over 470 million euro (40% of overall Ebitda) by 2022.

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INCOME STATEMENT

mn€ notes 2018 2017
Revenues 1 6,134.40 5,612.10
Other operating revenues 2 492 524.8
Use of raw materials and consumables 3 -2,984.10 -2,606.80
Service costs 4 -2,040.50 -1,952.30
Personnel costs 5 -551.4 -551.6
Other operating costs 6 -62.5 -84.6
Capitalized costs 7 43.2 43
Amortisation, depreciation and provisions 8 -521 -523.7
Operating earnings   510.1 460.9
Share of profits (losses) pertaining to joint ventures and associated companies 9 14.9 14.7
Financial income  10 96.9 105
Financial expenses 10 -203.5 -221.2
Financial management   -91.7 -101.5
Earnings before taxes   418.4 359.4
Taxes  11 -121.8 -92.6
Net profit for the year   296.6 266.8
Attributable to:      
Parent company shareholders   281.9 251.4
Minority shareholders   14.7 15.4
Earnings per share 12    
Basic   0.192 0.171
Diluted   0.192 0.171

Pursuant to Consob Resolution no. 15519 of July 27th 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.

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STATEMENT OF COMPREHENSIVE INCOME

mn€ notes 2018 2017
Profit (loss) for the year   296.6 266.8
Items reclassifiable to the income statement      
Fair value of derivatives, change in the year 19 18.1 6.6
Tax effect related to the other reclassifiable items of the comprehensive  income statement   -5.6 -1.9
Other business components valued using the equity method   0.1
Items not reclassifiable to the income statement      
Actuarial income/(losses) post-employment benefits 27 2.7 -3.2
Tax effect related to the other not reclassifiable items of the  comprehensive income statement   -0.7 0.9
Toal comprehensive profit (loss) for the year   311.1 269.3
Attributable to:      
Parent company shareholders   296.2 253.8
Minority shareholders   14.9 15.5
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ASSETS

mn€ notes Dec 31st 18 Dec 31st 17
Assets      
Non-current assets      
Property, plant and equipment 13.31 2,003.70 2,015.70
Intangible assets 14. 31 3,254.90 3,127.00
Goodwill 15. 31 381.3 384.1
Equity investments 16.31 149.1 148.8
Non-current financial assets 17. 33 118.4 125.2
Deferred tax assets 18 159.2 150.5
 Financial instruments - derivatives 19 45.3 66.1
Total non-current assets   6,111.90 6,017.40
Current assets      
Inventories 20 157.3 121.2
Trade receivables 21. 33 1,842.20 1,760.90
Current financial assets 17. 33 37.3 41.5
Current tax assets  22. 33 34.3 29.8
Other current assets 23. 33 281.2 303.3
 Financial instruments - derivatives 19 111.9 40.2
Cash and cash equivalents 17. 32 535.5 450.5
Total current assets   2,999.70 2,747.40
Assets held for sale 24 22.9
Total assets   9,111.60 8,787.70

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

SHAREHOLDERS' EQUITY AND LIABILITIES

mn€ notes Dec 31st 18 Dec 31st 17
SHAREHOLDERS' EQUITY AND LIABILITIES      
Share capital and reserves 25    
Share capital    1,465.30 1,473.60
Reserves    913.5 820.2
Profit (loss) for the year   281.9 251.4
Group net equity   2,660.70 2,545.20
Non-controlling interests   186 160.8
Total net equity   2,846.70 2,706.00
Non-current liabilities      
Non-current financial liabilities 26. 33 2,684.60 2,892.20
Post-employment and other benefits 27 129.5 142.3
Provisions for risks and charges 28 458.6 432.5
Deferred tax liabilities 18 43.1 45.5
Financial instruments - derivatives 19 37.9 34.5
Total non-current liabilities   3,353.70 3,547.00
Current liabilities      
Current financial liabilities 26. 33 611.6 279.6
Trade payables 29. 33 1,360.40 1,395.90
Current tax liabilities  22. 33 6 37.9
Other current liabilities 30. 33 866.9 769.4
 Financial instruments - derivatives 19 66.3 46
Total current liabilities   2,911.20 2,528.80
Total liabilities   6,264.90 6,075.80
Liabilities that can be associated with assets held for sale 24 5.9
Total net assets and liabilities   9,111.60 8,787.70

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

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CASH FLOW STATEMENT

mn€ notes Dec 31st 18 Dec 31st 17
Earnings before taxes   418.4 359.4
Adjustments to reconcile net profit to the cash flow from operating activities      
Amortisation and impairment of property, plant and equipment   167.9 167.2
Amortisation and impairment of intangible assets   223.6 216.3
Allocations to provisions   129.5 140.2
Effect of valuation using the equity method   -14.9 -14.7
Financial (income) expenses   106.6 116.2
(Capital gains) Losses and other non-monetary elements   -18 21.2
(including valuation of commodity derivatives)
Change in provisions for risks and charges   -29 -30.2
Change in provisions for employee benefits   -12.2 -9.3
Total cash flow before changes in net working capital   971.9 966.3
(Increase) Decrease in inventories   -36 -7.8
(Increase) Decrease in trade receivables   -183.3 -205.7
(Increase) Decrease in trade payables   -38.5 99.7
(Increase) / Decrease in other current assets/ liabilities   124.4 92.8
Change in working capital   -133.4 -21
Dividends collected   15.3 11.1
Interests income and other financial income collected   70.9 74.9
Interests expense and other financial charges paid   -126.6 -129
Taxes paid   -176.6 -147.5
Cash flow from (for) operating activities (a)   621.5 754.8
Investments in property, plant and equipment    -159.2 -150.3
Investments in intangible fixed assets   -305.2 -290.2
Investments in companies and business units net of cash and cash equivalents 32 -10.1 -116.3
Sale price of property, plant and equipment and intangible assets   5.8 7.8
Divestment of equity investments and contingent considerations   15.9 0.2
(Increase) Decrease in other investment activities   15.2 -10
Cash flow from (for) investing activities (b)   -437.6 -558.8
New issues of long-term bonds 32 221.3
Repayments for non-current financial liabilities 32 -0.2
Repayments and other net changes in financial payables 32 -133.7 33
Lease finance payments 32 -2.3 -3.1
Proceeds from the sale of shares without loss of control 32 1.8
Acquisition of Interests in consolidated companies 32 -11.3 -1.6
Dividends paid out to Hera shareholders and non-controlling interests   -151.4 -140.9
Changes in treasury share   -23.1 15.4
Other minor changes   0.2
Cash flow from (for) financing activities (c)   -98.9 -97
Effect of change in exchange rates on cash and cash equivalents (d)  
Increase (decrease) in cash and cash equivalents (a+b+c+d)   85 99
Cash and cash equivalents at the beginning of the period   450.5 351.5
Cash and cash equivalents at the end of the period   535.5 450.5

Pursuant to Consob Resolution no. 15519 of July 27th 2006, the effects of relationships with related parties are accounted for in the appropriate cash flow statement in paragraph 2.04.03 of this consolidated financial statement.

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STATEMENT OF CHANGE IN NET EQUITY

mn€ Share capital Reserves Reserves derivatives valued at fair value Reserves actuarial income/(losses) post-employment benefits Profit for the year Net equity  Non-controlling interests Total
Balance as of Dec 31st 16 1,468.10 772.4 -0.4 -29.5 207.3 2,417.90 144.2 2,562.10
Profit for the year         251.4 251.4 15.4 266.8
Other components of comprehensive income:                
Fair value of derivatives, change for the period     4.5     4.5 0.2 4.7
Actuarial income/(losses) post-employment benefits       -2.2   -2.2 -0.1 -2.3
Other business components valued at net equity   0.1       0.1   0.1
Overall profit for the year 0.1 4.5 -2.2 251.4 253.8 15.5 269.3
Changes in treasury share 5.5 9.9       15.4   15.4
Payment of minority shares             0.2 0.2
Changes in equity investments   -9.5       -9.5 7.9 -1.6
Changes in the scope of consolidation             1 1
Other movements            
Allocation of revenues:                
Dividends paid out         -132.4 -132.4 -8 -140.4
Allocation to reserves   74.9     -74.9  
Balance as of Dec 31st 17 1,473.60 847.8 4.1 -31.7 251.4 2,545.20 160.8 2,706.00
Adoption of IFRS 9   -19.3       -19.3 -0.6 -19.9
Balance as of Jan 1st 18 1,473.60 828.5 4.1 -31.7 251.4 2,525.90 160.2 2,686.10
Profit for the year         281.9 281.9 14.7 296.6
Other components of comprehensive income:                
Fair value of derivatives, change in the year     12.4     12.4 0.1 12.5
Actuarial income/(losses) post-employment benefits       1.9   1.9 0.1 2
Overall profit for the year 12.4 1.9 281.9 296.2 14.9 311.1
Changes in treasury share -8.3 -14.8       -23.1   -23.1
Changes in equity investments   -4.1       -4.1 -5.4 -9.5
Changes in the scope of consolidation   6.7       6.7 27.7 34.4
Allocation of revenues:                
Dividends paid out         -140.9 -140.9 -11.4 -152.3
Allocation to reserves   110.5     -110.5  
Balance as of Dec 31st 18 1,465.30 926.8 16.5 -29.8 281.9 2,660.70 186 2,846.70
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NET FINANCIAL INDEBTEDNESS

    Dec 31st 18 Dec 31st 17
a Cash and cash equivalents 535.5 450.5
b Other current financial receivables 37.3 41.5
  Current bank debt -70.3 -187
  Current portion of bank debt -451.5 -55.3
  Other current financial liabilities -76.1 -35.3
  Finance lease payables due within 12 months -1.7 -2
c Current financial debt -599.6 -279.6
d=a+b+c Current net financial debt -26.8 212.4
  Non-current bank debt and bonds issued -2,644.30 -2,825.30
  Other non-current financial liabilities -20.7 -21.4
  Finance lease payables due after 12 months -12.2 -13.9
e Non-current financial debt -2,677.20 -2,860.60
f=d+e Net debt - CONSOB Communication No. 15519/2006 -2,704.00 -2,648.20
g non-current financial receivables 118.4 125.2
h=f+g Net financial indebtedness -2,585.60 -2,523.00
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Financial results FY 2018

Areas of activity

Total EBITDA Group 1031.1 mn €, + 4.7% vs. '17.

 

The Hera share

Share performance and investor relations

Over the course of 2018, all main types of investment (shares, bonds, oil, gold) across the world showed a negative return. A number of significant events (including trade wars, the rise in USA interest rates and the projected end of quantitative easing in the euro zone) weighed on their performance, introducing uncertainty as to the solidity of the growth accomplished by the global economy.

 

Andamento titolo nel 2018
Andamento titolo nel 2018

 

The results achieved over the past year provide evidence, yet again, of the strategies pursued over time by the Group and their credibility. In 2018 Hera dedicated 184 mn€ to investments aimed at creating shared value, corresponding to 40% of the Group’s total investments. They include 71.3 mn€ going towards innovation and contributing to development, 68.9 mn€ to a more efficient use of resources and 43.8 mn€ to a smarter use of energy. These decisions, geared towards implementing sustainability, stakeholder engagement initiatives and a regenerative approach to Group activities, were all conceived according to the levers presented in the business plan to 2022.  The latter were intended to guarantee further growth in Shared Value Ebitda, which indeed reached 375.2 mn€, making progress equivalent to +14% over 2017 and accounting for 36% of the total 2018 Ebitda.

Stefano Venier
CEO

Strategic projects

Hera’s top-priority projects,
following the main strategic aspects set out in the 2018 – 2022 business plan.

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Agility

Agilità

Digitalisation and Smart Working

Strategic goal

Promoting and developing agility and cooperation

 

Priority project-goal

Digitalizzazione e Smart Working

Introducing a change management plan to accompany the Hera Group in this evolution, necessary in order to take on this transformation and change in working methods. This project, launched in 2018, acts in areas including culture, processes, tools and human capital valorisation. Some elements implemented include training personnel and distributing digital instruments dedicated to smart working (tablets, smartphones, high-performing laptops, webcams, clouds), to optimise working hours and reduce travelling between home and the office and between one office and another, with clear social, organisational and environmental benefits.

 

Meets the call to action of the UN’s SDGs

 

E_SDG goals_icons-individual-cmyk-05 E_SDG goals_icons-individual-cmyk-04 E_SDG goals_icons-individual-cmyk-08

 

A quality working environment contributes to personnel loyalty and gives full value to talent, supporting economic growth and making it sustainable over the long term.

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Excellence

Excellence

Rimini Seawater Protection Plan

Strategic goal

More efficient use of resources
Sustainable water management

Strategic goals linked to Creating Shared Value

 

Priority project-goal

Rimini Seawater Protection Plan

Revising Rimini’s sewerage and purification system, in order to eliminate the problems created by areas where swimming is prohibited following sea disposals. In 2018, 2 of the 14 interventions foreseen were concluded. The entire plan will be completed within 2022.

 

Meets the call to action of the UN’s SDGs

 

E_SDG goals_icons-individual-cmyk-06 E_SDG goals_icons-individual-cmyk-14

 

Proper purification allows the natural circularity of the water cycle to be implemented and gives a regenerated resource back to the environment.

S. Agata Biomethane

Strategic goal

A smarter use of energy
Encouraging renewable forms of energy

Strategic goals linked to Creating Shared Value

 

Priority project-goal

S. Agata Biomethane

Conversion of the pre-existing traditional composting plant found in S. Agata Bolognese into a biomethane production plant using the organic portion of sorted waste: biomethane injected into the city’s network as of December 2018.

 

Meets the call to action of the UN’s SDGs

 

E_SDG goals_icons-individual-cmyk-09 E_SDG goals_icons-individual-cmyk-13 E_SDG goals_icons-individual-cmyk-11 E_SDG goals_icons-individual-cmyk-07

 

Biomethane production rounds off the organic waste cycle (separation, collection, processing, transformation of the waste into gas distributed through the city’s network), produces ‘zero km’ renewable energy and reduces the environmental impact of natural resources supplied form abroad.

Implementing in the plants managed by the Group

Strategic goal

A smarter use of energy
Promoting energy efficiency

Strategic goals linked to Creating Shared Value

 

Priority project-goal

Implementing in the plants managed by the Group

Implementing in the plants managed by the Group: a 4.4% reduction in consumption in 2018 (compared to 2013) thanks to the interventions introduced.

 

Meets the call to action of the UN’s SDGs

 

E_SDG goals_icons-individual-cmyk-11 E_SDG goals_icons-individual-cmyk-07 E_SDG goals_icons-individual-cmyk-13 E_SDG goals_icons-individual-cmyk-12

 

Energy efficiency reduces the impact on the environment and contributes to containing the company’s management costs for facilities.

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Innovation

Innovation

Business intelligence and data analytics in networks and environmental services

Strategic goal

Innovation and contribution to local development
Encouraging innovation and digitalisation/data analytics

Strategic goals linked to Creating Shared Value

 

Priority project-goal

Business intelligence and data analytics in networks and environmental services

Digitalisation of company processes and data management, to implement predictive and prescriptive tools in network and environmental services management. More specifically, in 2018 predictive algorithms were devised to optimise programmed searches for gas leaks, as well as for network conduction and maintenance. As regards environmental services, processes for paper collection in Ferrara were optimised and waste collection in Ferrara, Modena, Ravenna and Bologna was made more efficient on the whole.

 

Meets the call to action of the UN’s SDGs

 

E_SDG goals_icons-individual-cmyk-09 E_SDG goals_icons-individual-cmyk-13 E_SDG goals_icons-individual-cmyk-11

 

Optimising waste collection based on needs and on the quantity of material conferred enables a more precise service to be guaranteed to citizens and the environmental impact caused by vehicle circulation (emissions, noise, traffic congestion) to be reduced.

Data analytics and digitalisation initiatives for the water cycle aimed at limiting energy consumption

Strategic goal

Innovation and contribution to local development
Encouraging innovation and digitalisation/data analytics

Strategic goals linked to Creating Shared Value

 

Priority project-goal

Data analytics and digitalisation initiatives for the water cycle aimed at limiting energy consumption

Ongoing work on these projects has been seen in the Sassuolo and Modena aqueduct plants, where energy maps have been applied, and in the Ferrara purification plants, where studies continue on NZEP technologies (Near to Zero Emission Plants, i.e. almost self-sufficient plants) and on limiting consumptions during the oxidation phase. Furthermore, safety plans for the San Giovanni in Persiceto and Imola water systems have been completed.

 

Meets the call to action of the UN’s SDGs

 

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Innovation and digitalisation lead to a more responsible management of water as a resource and its re-circularisation. This allows for energy savings, reduced emissions, improved customer service, increased economic return for the company and higher resilience towards the effects of climate change.

Extending and improving the performance of the remote control system

Strategic goal

Innovation and contribution to local development
Encouraging innovation and digitalisation/data analytics

Strategic goals linked to Creating Shared Value

 

Priority project-goal

Extending and improving the performance of the remote control system

This project is aimed at implementing remotely controlled and managed plants, with the intention of developing new operative functions. In 2018 in particular, the number of remotely controlled plants reached 5,700, while for 6 other large plants 3D holographic control technology has been prepared.

 

Meets the call to action of the UN’s SDGs

 

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Innovation and remote control technologies allow infrastructures to be created that offer higher resilience to weather conditions, increasing cities’ sustainability and at the same time optimising predictive maintenance and improving service quality.

Smart gas metres

Strategic goal

Innovation and contribution to local development
Encouraging innovation and digitalisation/data analytics

Strategic goals linked to Creating Shared Value

 

Priority project-goal

Smart gas metres

Ongoing work on the project for substituting old-generation gas metres with remotely manageable ones (through radio frequencies) provided with a metrological certification, in order to bill customers for the gas they actually consume (instead of using statistical estimates); beginning of experimentation with evolved (smart) gas metres, provided with security functions and assisting network management and domotics.

 

Meets the call to action of the UN’s SDGs

 

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Innovation and the IoT allow us to design tools that are more resilient to weather conditions, monitor the use of primary resources to promote a more responsible use, improve customer service, lowering economic pressure (with a particular impact on those with economic difficulty) on citizens and containing the effect on the company’s Ebitda of economic sanctions for erroneous invoicing.

Information security

Strategic goal

ICT effectiveness

 

Priority project-goal

Information security

Developing a plan containing initiatives aimed at guaranteeing information security for the company, with awareness raising and training projects concerning aspects of information security and data management.

 

Meets the call to action of the UN’s SDGs

 

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The issue of information security has now become crucial in managing fixed (plants, resources, infrastructures) and intangible (personnel, customers, sensitive data) assets, both for reputational purposes and risk management, and to guarantee the privacy of sensitive data concerning customers.

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Efficiency

Efficiency

«Moving from home» for operating personnel

Strategic goal

Operating excellence in management

 

Priority project-goal

«Moving from home» for operating personnel

Training personnel and providing IT tools to allow operating teams to reach intervention locations starting from their own homes, and optimising at a later date their daily route (reducing the time required to move from one location to another and thus enhancing the efficiency of the service offered to customers).

 

Meets the call to action of the UN’s SDGs

 

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An innovative and efficient personnel management allows the time required for interventions to be reduced, containing the loss of raw materials in the event of malfunctions and improving at the same time the service offered to customers. Optimising the routes followed by operating teams will reduce environmental impact, waiting time for customers and shifts for Hera personnel.

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Growth

Growth

Joint Venture with China to create waste treatment facilities able to sustainably dispose of dangerous waste

Strategic goal

Infrastructure and procurement portfolio development

 

Priority project-goal

Joint Venture with China to create waste treatment facilities able to sustainably dispose of dangerous waste

The establishment of a Joint Venture in China was approved by Hera’s BoD on 15 May 2013, to meet the needs of the Chinese market concerning local requirements for dangerous industrial waste treatments plants. The same year, a Joint Venture, named HEPT Co. Ltd., was established between Hi-Firm Group Ltd (60%) – the Chinese partner -, Hera SpA (30%) and NPV China (10%), for planning, EPC, commissioning and training services involving nationally significant industrial and/or urban WtE plants. After a start-up period and intense commercial activity, the first year of full operations was 2018, marked by the entry of Shanghai Electric in the capital of the two project companies established to build plants in Taihu and Yuyao, commissions already assigned to HEPT; furthermore, HEPT participated in a public tender called by the Wanhua Chemical Group (a very large Chinese chemical company) to create a SUSTAINABLE treatment plant for its own dangerous industrial waste in an area with infrastructural shortcomings. The tender was won, and the commission was awarded to HEPT in Ja V with a local Design Institute. HEPT, with the support of Hera, furthermore participated in the Project Development led by the partner Hi-Firm, which gave more stability to the hypothesis of creating a fourth dangerous waste treatment plant, Hancheng, in the Chinese province of Shaanxi, to minimise the environmental impact of waste disposal and produce energy from the process.

 

Meets the call to action of the UN’s SDGs

 

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Protecting our planet has no borders. Hera’s technology for a sustainable management of dangerous waste has been put to the service of a project for waste treatment facilities in the province of Hunan, to mitigate the environmental impact of activities in the surrounding area and improve the quality of life for the inhabitants of neighbouring cities.

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