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CONSOLIDATE HALF-YEAR FINANCIAL REPORT
30 JUNE 2015 - GRUPPO HERA
APPROVED BY BOARD OF DIRECTORS ON 26 AUGUST 2015
Still growing results confirming Group's soundness
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A SELFIE of first half report
H1 2015 OVERVIEW

 

The figures that emerge from the first half of 2015 are once again positive, proving the Group's ability to provide a solid response to its stakeholders in terms of results, which are all the more appreciable considering a macroeconomic context that is still marked by a certain instability.

Even in such circumstances, and the complications they inevitably involve, Hera shares have demonstrated their resilience, achieving a growth of +15% over the first six months of the year and thus bringing a further increase in value to the Group's shareholders, who last June received a dividend of € 0.09 per share, in line with the indications found in its most recent Business Plan.

Continuing to pursue the open and user-oriented communication strategies that the Group has consistently adopted over the years, and fully aware of the importance of providing rapid access to our financial data, we have decided once again to present an HTML version of the half-year results. This version is furthermore enriched with extra content, interactive tools, videos and information that allows the figures to be grasped in their true context and enables them to come across in an enjoyable and complete way.

Tomaso Tommasi di Vignano
Executive Chairman

VIDEO COMMENTO DEL PRESIDENTE
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The results achieved by our commercial activities in the energy sector are particularly significant, having surpassed our expectations based on both a greater demand, due to the cooler temperatures than had been seen in the preceding financial year, and the slight economic upturn, within a context that is becoming ever more competitive.

Regulated activities also witnessed further growth, due above all to a focus on cost containment accompanied by a remarkable management optimisation in view of the tariff updates for 2016. The cost containment also allowed our activities in the Environment sector to be substantially maintained.

Service quality has improved over the course of the semester, due among other things to the developments in parameters regarding the environment and sustainability, demonstrating that the Group continues to set itself ever more important targets in these areas as well.

Among the awards received by Hera in the first six months of the year, one must mention that the Group was recognised as the best multi-utility for environmental sustainability and social responsibility, showing, yet again, the considerable efforts made to reinforce and communicate our outlook on issues in the area of CSR.

Stefano Venier
CEO - Executive

H1 2015 financial results: an overview

H1 2015 financial results show an increase in ebitda standing at +2.5% with a net profit posting +11.4%. Figures confirm the effectiveness of strategies presented in the last Business Plan, together with value from synergies, consistent sales operations and cost reductions policy.

Economic Highlights

+2.5% 459.1 mln EBIDTA

+1 % First
quarter
+ +4.7 % Second
quarter
stable 2.656 mln net debt

MOODY'S
Baa1
STABLE
Better
outlook
+11.4% 107.3 mln net profit

+6.7 % earning per share
  
Data by business

Data by Business

gas
energia
ciclo idrico
ambiente
In the first half 2015 all business sectors show growing results
investor kit
The Group's good performance in the first half of 2015, the benchmark with peers and the analysts' evaluations
Benchmark
Gas Ciclo idrico integrato Ambiente Energia elettrica
Analyst
Ebitda Net profit DPS Debt/Ebitda

Share price performance 30 June 2015

Hera share up 15% in the first half of 2015

In the first half of 2015 European equities, Italian in particular, delivered positive performance...

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Meet the Team

The IR team provides information on financial data and on Hera equity.

Contact Us

Meet the Team

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

LUCA CIMATTI

Information on financial figures, data processing and analysis

+39 051 287034

luca.cimatti@gruppohera.it

MARZIA FAGGIOLI

IR Communication, road show & events

+39 051 287040

marzia.faggioli@gruppohera.it

JENS KLINT HANSEN

Director of Investor Relations

+39 051 287737

jens.hansen@gruppohera.it

...due to the massive liquidity injected by the ECB, through quantitative easing, to purchase European government bonds for a total of €60 billion until September 2016. The announcement of this action resulted in a sharp decrease in bond yields, thus boosting those shares, such as Hera's, that provide attractive and constant dividends.

Against this backdrop, Hera's share continued the rally started in 2014, with a further 15% increase since the start of the new year, and returning to its pre-2008 levels. Over an 18-month period, the share outperformed consistently the average increase of its peers and the Italian market, with a more stable and resilient pattern.

A 0.09 € dividend distribution

In line with guidance contained in its latest business plan, on 22 June 2015 Hera distributed a €0.09 dividend per share, the thirteenth of an uninterrupted and growing series since the I.P.O.

 2003200420052006200720082009201020112012201320142015
DPS (€) 0.4 0.5 0.06 0.07 0.08 0.08 0.08 0.08 0.09 0.09 0.09 0.09 0.09

+155.9% the total shareholders' return since the I.P.O.

The combined effect of a constant return to shareholders through dividend distribution and the rise of the share price resulted in a positive total shareholder return, including the worst moments of the financial crisis, and that reached 155.9% by the end of the period under review.

€2.64 average target price and no negative recommendation

The number of analysts that cover the share is unchanged: Banca Akros, Banca IMI, Equita, Fidentiis, Goldman Sachs, Intermonte, Kepler Cheuvreux and Mediobanca. At the end of the first half of 2015, Hera exhibited a near consensus of Buy/Outperform recommendations, two Hold/Neutral and no negative recommendation.

The consensus target price of €2.64 (which was €2.52 at the end of 2014) showed an average upside potential of + 18%. The shareholder base was balanced, as usual, with 57.3% of total shares outstanding held by 240 public authorities in the geographical area of reference and the remaining 42.7% held by about 24,000 shareholders.

24,000 Group shareholders

Since 2006 Hera has had a share buyback program in place, which was renewed for an additional 18 months and for up to €150 million at the General Meeting of Shareholders held on 28 April 2015. This program is designed to finance the acquisition of smaller companies and to smooth out unusual market price fluctuations vis-ΰ-vis those of the other main Italian companies. At the end of the period under review Hera held 15.2 million treasury shares.

In the general meeting held on 28 April 2015, the shareholders approved an amendment to the articles of association in favour of enhanced voting, which had been introduced by law decree no. 91/2014 (so-called "growth decree"). Enhanced voting will allow such Hera investors as hold their investment for at least 24 months to double their voting rights in connection with certain shareholder resolutions.

This is a way to reward the shareholders that, thanks to their stable investments, are most sensitive to the Group's long-term growth. Hera continued to promote extensively meetings between the Group's top management and the financial community, to expand and diversify the shareholder base with Italian and foreign investors. The Group's effort in its interaction with investors contributed to strengthen Hera's reputation in the market and is an invaluable intangible asset that benefits both the share and the stakeholders.

Stories to tell

A special person: Hera's shareholders

Once again, during these first six months, we have built upon our splendid history. A history made of growth and technology, written by the people who work with us and for us, with their families, their diversity and everything that renders them unique and enriching.

This history is played out in various areas, that may differ among themselves but continue to share one indispensable common denominator: excellence. Excellence is born at the very moment in which we begin to think about the history that we ourselves are writing. Because for us at Hera, every single thread of our history is important, and because for us at Hera every detail of our future history deserves excellence.

  • Making room for the environment
  • Technology meets excellence
  • Diversity

Making room for the environment

The semester witnessed the completion of two organisational operations that are effective as of 1 July 2015. On the one hand, the entire share capital of Akron was purchased, until present controlled by Herambiente with 57.5%; this company manages a chain of plants involved in selecting materials from sorted waste.

At the same time, a transfer to Herambiente was initiated regarding the activities of waste disposal carried out for the cities of Padova and Trieste by the two WTE plants found there, thus creating the Hestambiente company in order to pursue greater integration and efficiency and give full control of these activities to the Group.

Technology meets excellence

In the first half of 2015 development and innovation activities continued in the directions already undertaken in the second half of 2014, in line with the priorities of the Group's business lines. In particular, initiatives planned for the areas of particular interest were launched: environmental services, energy efficiency and smart cities services.

Facility Development in Environmental Services

  • BIOREFINERY Project: a project to construct an anaerobic digestion system for the treatment Of 100,000 tons/year of organic material originating from differentiated waste collection and a system for upgrading the resultant biogas for the production of bio-methane (about 6.5 million Sm3/year). Analyses were conducted to identify the best digestion and biogas upgrading technologies. Studies are currently ongoing to determine the quality of the resultant biomethane, which must comply with currently evolving industry regulations at both national and European levels. Assessments are also ongoing regarding the use of biomethane: connection to the natural gas network (distribution and transport) and loading cylinder trucks.

  • PYROLYSIS AND DIGESTION Project: together with the Interdepartmental Centre for Industrial Energy and Environmental Research at the University of Bologna an experimental plant has been built consisting of a pyrolysis reactor and a digester to produce biogas from organic biomass waste.

  • ENI LIQUEFACTION Project: together with Eni Spa, a phase of technical and economic feasibility has been initiated for a process of thermochemical conversion (Eni technology) to convert organic biomass waste into bio-oil used for the production of bio-fuels. The results of these tests are expected to be available by the end of 2015 and, if the data confirm the suitability of the matrices being tested, assessments will be carried out about how to treat the waste (liquid and solid) resulting from the liquefaction process.

Smart City

Following the wave of evolution and technological innovation in the development of new smart services for cities, the Group has designed and built a prototype of infrastructure which, beginning from the valorization of existing corporate assets and specifically public lighting and broadband connectivity infrastructures, complements some value services for public administrations.

A prototype smart pole was constructed that incorporates different types of technology: smart video cameras, a wi-fi hot spot, RFID readers, environmental sensors, concentrators capable of communicating with nearby probes, and more. In particular, the video cameras can provide video-analysis services, processing the flow of images and automatically recognizing significant events.

The wi-fi hot spot can provide wireless internet access for citizens and merchants and meets the European demand for more widespread connectivity.

Finally, the infrastructure was also created to provide Smart Parking services which, once installed, will enable the immediate identification of empty parking spaces with benefits in terms of reduced traffic congestion, lower CO2 emissions, less time used to search for parking, and increased economic efficiency of parking places for the PA.

Energy efficiency

A preliminary assessment has been completed regarding the application of a Francis turbine for energy recovery from changes in aqueduct water pressure changes in the Bologna area. Attention will focus on small pressure changes at other sites through the evaluation of networks, modeling of energy production and scouting of standard technologies.

At the laboratory of Forlμ, the installation phase was completed on some of the main "intelligent thermostats" identified as being available worldwide. Initials tests were conducted aimed at assessing their compatibility with the hot water heaters found in Italy, the complexity of installation and user experiences. The project involves the preparation of a pilot phase involving some appropriately selected users.

Horizon 2020 Calls for tender

Hera contributed to the design of a major project, together with the cities of Bologna, Berlin and Paris and the participation of multiple industrial and academic partners, to identify, develop and set the stage for energy efficiency initiatives and solutions as well as integrated and replicable services for smart cities.

The main objectives of the project are:

  • energy efficiency for smart buildings by developing home automation solutions: smart thermostats and devices to monitor the internal temperature and air quality levels (air quality sensors);

  • the development and installation of electronic meters in the same residential units where smart thermostats will be installed;

  • the implementation of video surveillance services, wi-fi and smart parking services on existing poles.

The project was presented in the first half of the year and the results of the evaluation are expected by the second half of the year.

Diversity

March 18, 2015 marked the end of the "Policies of good re-entry" financing project which since 2013 had provided training for 75 people returning from parental leave or leave for reasons of family care and involved 50 people in group coaching activities; since 2013, as part of this project, agreements were also established with childcare centers located close to the Hera headquarters in Modena, Ferrara, Forlμ and Rimini. By establishing these agreements, the company was able to ensure a flexible and accessible service for employees located in the areas that still did not offer corporate or inter-corporate childcare facilities.

The summer camps for employees' children continued to enjoy success in 2015 as well: during the summer period, weeks of the service will be made available at special prices, with Hera subsidizing 50% of the entry fee together with Cral on the basis of agreements established with partners in the Emilia Romagna region.

H1 2015 OVERVIEW

"The half-year results, and the growth they display, prove that the Group has once again operated with a deep sense of commitment, continuing along its path of excellence towards future challenges."

The Chairman of the Board of Directors
Tomaso Tommasi di Vignano

 

 

 

Financial statements

Income statement

thousands of eurosnotes1° half 20151° half 2014Abs. change% change
Revenue 3 2,213,014 2,089,089 123,925 +5.9%
Other operating revenues 4 155,879 139,233 16,646 +12.0%
Use of raw materials and consumables 5 (1,103,934) (988,272) (115,662) +11.7%
Service costs 6 (530,670) (518,337) (12,333) +2.4%
Personnel costs 7 (260,749) (251,698) (9,051) +3.6%
Amortisation. depreciation.provisions 8 (214,026) (208,091) (5,935) +2.9%
Other operating costs 9 (26,861) (26,950) 89.00 (0.3%)
Capitalised costs 10 12,374 7,804 4,570 +58.6%
Operating profit   245,027 242,778 2,249 +0.9%
Portion of profits (loss) pertaining to joint ventures and associated companies 11 6,260 4,121 2,139 +51.9%
Financial income 12 57,305 92,690 (35,385) (38.2%)
Financial expense 12 (124,878) (165,381) 40,503.00 (24.5%)
Total financial operations   (61,313) (68,570) 7,257 (10.6%)
Pre-tax profit   183,714 174,208 9,506 +5.5%
Taxes for the period 13 (68,331) (69,477) 1,146.00 (1.6%)
Net profit for the period   115,383 104,731 10,652 +10.2%
Attributable to:      
Shareholders of the Parent Company   107,294 96,257 11,037 +11.5%
Non-controlling interests   8,089 8,474 (385) (4.5%)
Earnings per share 14    
basic   0.073 0.068 0.005 +6.9%
diluted   0.073 0.068 0.005 +6.9%

Pursuant to Consob resolution no.15519 of 27 July 2006, the effects of related-party transactions are indicated in the specific income statement shown in section 2.02.01 of these consolidated financial statements.

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Comprehensive income statement

thousands of eurosnotes1° half 20151° half 2014Abs. change% change
Revenue 3 2,213,014 2,089,089 123,925 +5.9%
Other operating revenues 4 155,879 139,233 16,646 +12.0%
Use of raw materials and consumables 5 (1,103,934) (988,272) (115,662) +11.7%
Service costs 6 (530,670) (518,337) (12,333) +2.4%
Personnel costs 7 (260,749) (251,698) (9,051) +3.6%
Amortisation. depreciation.provisions 8 (214,026) (208,091) (5,935) +2.9%
Other operating costs 9 (26,861) (26,950) 89.00 (0.3%)
Capitalised costs 10 12,374 7,804 4,570 +58.6%
Operating profit   245,027 242,778 2,249 +0.9%
Portion of profits (loss) pertaining to joint ventures and associated companies 11 6,260 4,121 2,139 +51.9%
Financial income 12 57,305 92,690 (35,385) (38.2%)
Financial expense 12 (124,878) (165,381) 40,503.00 (24.5%)
Total financial operations   (61,313) (68,570) 7,257 (10.6%)
Pre-tax profit   183,714 174,208 9,506 +5.5%
Taxes for the period 13 (68,331) (69,477) 1,146.00 (1.6%)
Net profit for the period   115,383 104,731 10,652 +10.2%
Attributable to:      
Shareholders of the Parent Company   107,294 96,257 11,037 +11.5%
Non-controlling interests   8,089 8,474 (385) (4.5%)
Earnings per share 14    
basic   0.073 0.068 0.005 +6.9%
diluted   0.073 0.068 0.005 +6.9%

thousands of euros1° half 20151° half 2014
Net profit / (loss) for the period 115,383 104,731
Items reclassifiable to the income statement    
Change in the fair value of derivatives for the period 750 1,667
Tax effect related to the other reclassifiable items of the comprehensive income statement (207) (459)
other components of comprehensive income. enterprises valuated with the equity method 71 (9)
Items not reclassifiable to the income statement    
Actuarial gains/(losses) post-employment benefits 7,777 (12,993)
Tax effect related to the other not reclassifiable items of the comprehensive income statement (2,134) 3,294
other components of comprehensive income. enterprises valuated with the equity method                                       -  
Total comprehensive income/(loss) for the period 121,640 96,231
Attributable to:    
Shareholders of the Parent Company 112,750 88,190
Non-controlling interests 8,890 8,041

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Statement of financial position

thousands of eurosnote30-jun-201531-dec-2014
ASSETS      
Non-current assets      
Property.plant and equipment 15 2,018,700 2,063,698
Intangible assets  16 2,816,889 2,797,047
Property investments 17 3,683 3,737
Goodwill 18 378,564 378,564
Non-controlling interests 19 153,794 152,808
Financial assets 20 104,507 83,609
Deferred tax assets 21 79,032 68,098
Financial instruments - derivatives 22 115,542 103,096
Total non-current assets   5,670,711 5,650,657
Current assets      
Inventories 23 83,775 103,588
Trade receivables  24 1,454,764 1,463,635
Contract work in progress  25 17,493 16,268
Financial assets 20 34,200 45,150
Financial instruments - derivatives 22 11,015 24,136
Current tax assets 26 41,184 32,200
Other current assets 27 439,035 261,998
Cash and cash equivalents 20 423,914 834,495
Total current assets   2,505,380 2,781,470
Non-current assets held for sale 28   601
TOTAL ASSETS   8,176,091 8,432,728

Pursuant to Consob resolution no.15519 of 27 July 2006, the effects of related-party transactions are indicated in the specific statement of financial position shown in section 2.02.02 of these consolidated financial statements.

thousands of euro 30-jun-201531-dec-2014
SHAREHOLDERS' EQUITY AND LIABILITIES      
Share capital and reserves 29    
Share capital    1,473,869 1,469,938
Reserves   703,510 676,236
Profit (loss) for the period   107,294 164,772
Group equity   2,284,673 2,310,946
Non-controlling interests   144,407 148,055
Total equity   2,429,080 2,459,001
Non-current liabilities      
Borrowings – maturing beyond 12 months 30 2,849,739 3,095,301
Post-employment benefits 31 151,857 162,971
Provisions for risks and charges 32 348,180 336,500
Deferrred tax liabilities 21 16,207 15,084
Finance lease payments - maturing beyond 12 months 33 24,310 25,351
Financial instruments - derivatives 22 32,049 38,415
Total non-current liabilities   3,422,342 3,673,622
Current liabilities      
Banks and other borrowings – maturing within 12 months 30 427,855 547,333
Finance lease payments - maturing within 12 months 33 2,571 3,451
Trade payables 34 961,247 1,193,626
Current tax liabilities 26 114,814 30,203
Other current liabilities 35 801,672 493,563
Financial instruments - derivatives 22 16,510 31,929
Total current liabilities   2,324,669 2,300,105
TOTAL LIABILITIES   5,747,011 5,973,727
TOTAL EQUITY AND LIABILITIES    8,176,091 8,432,728

Pursuant to Consob resolution no. 15519 of 27 July 2006, the effects of the related-party transactions are indicated in the specific statement of financial position shown in section 2.02.02 of these consolidated financial statements.

Reclassified Balance Sheet

Invested capital and sources of financing (€/mln) 30-giu-15% Inc. 31-dic-14% Inc. Abs. change % change 
Net non-current assets  5,432.0  106.8%  5,445.8  106.8%  (13.8)  (0.3%) 
Net working capital  153.0  3.0%  153.1  3.0%  (0.1)  (0.1%) 
(Provisions)  (500.0)  -9.8%  (499.5)  -9.8%  (0.5)  +0.1% 
Net invested capital  5,085.0  100.0%  5,099.4  100.0%  (14.4)  (0.3%) 
Equity  (2,429.1)  47.8%  (2,459.0)  48.2%  +29.9  (1.2%) 
Long-term borrowings  (2,683.6)  52.8%  (2,969.3)  58.2%  +285.7  (9.6%) 
Net cash/short term borrowings  27.7  -0.5%  328.9  -6.4%  (301.2)  (91.6%) 
Net borrowings  (2,655.9)  52.2%  (2,640.4)  51.8%  (15.5)  +0.6% 
Total sources of financing  (5,085.0)  -100.0%  (5,099.4)  100.0%  +14.4  (0.3%) 

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Cash flow statement

thousands of eurosnotes30 June 201530 June 2014
Pre-tax profit   183,714 174,208
Adjustments to reconcile net profit to the cashflow from operating activities:    
Amortisation and impairment of property. plant and equipment   79,595 85,070
Amortisation and impairment of intangible assets   86,095 77,093
Effect of valuation using the equity method   (6,260) (4,121)
Allocations to provisions   48,336 46,612
Financial expense / (Income)   67,573 72,691
(Capital gains) / Losses and other non-monetary elements
(including valuation of commodity derivatives)
  (26) (3,128)
Change in provisions for risks and charges   (9,705) (12,458)
Change in provisions for employee benefits   (4,920) (3,471)
Total cash flow before changes in net working capital   444,402 432,496
(Increase) / Decrease in inventories   18,588 (12,875)
(Increase) / Decrease in trade receivables   (22,410) 22,199
Increase / (Decrease) in trade payables   (229,893) (222,126)
Increase / Decrease in other current assets/ liabilities   127,683 (18,920)
Change in working capitals   (106,032) (231,722)
Dividends collected   6,385 9,732
Interests income and other financial income collected   10,711 12,817
Interests expense and other financial charges paid   (81,775) (104,973)
Taxes paid   (6,397) (13,232)
Cash flow from (for) operating activities (a)   267,294 105,118
Investments in property. plant and development   (40,797) (44,519)
Investments in intangible assets   (104,616) (92,418)
Investments in companies and business units net of cash and cash equivalents 36 (4,870) (7,727)
Sale price of property.plant and equipment and intangible assets
(including lease-back transactions)
  3,398 3,728
Disvestments and contingent consideration   249 1,957
(Increase) / Decrease in other investment activities   (10,551) 11,372
Cash flow from (for) investing activities (b)   (157,187) (127,607)
New issues of long-term bonds                                 - 5,000
Repayments and other net changes in borrowings   (371,909) (191,293)
Lease finance payments   (2,387) (1,399)
Investments in consolidated companies 36 (27,000) (1,860)
Increase in share capital   9,100                               -
Dividends paid out to Hera shareholders and non-controlling interests   (137,299) (131,216)
Change in treasury shares   8,807 (3,346)
Cash flow from (for) financing activities (c)   (520,688) (324,114)
Effect of change in exchange rates on cash and cash equivalents (d)                                 -                               -
Increase / (Decrease) in cash and cash equivalents (a+b+c+d)   (410,581) (346,603)
Cash and cash equivalents at the beginning of the year   834,495 926,933
Cash and cash equivalents at the end of the year   423,914 580,330

Pursuant to Consob resolution no.15519 of 27 July 2006, the effects of related-party transactions are indicated in the specific cashflow statement shown in section 2.02.03 of these consolidated financial statements.

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Statement of change in equity

thousands of eurosShare capitalReservesReserves for derivative instruments recognised at fair valueReserve for actuarial gains/(losses) in post-employment benefitsProfit for the periodEquityNon-controlling interestsTotal
Balance at 31 December 2013 (as adjusted) 1,410,357 607,681 (3,063) (19,503) 164,934 2,160,406 145,317 2,305,723
Profit for the period (as adjusted)         96,257 96,257 8,474 104,731
Other components of comprehensive income at 30 June 2014:                
fair value of derivatives, change in the period     894     894 314 1,208
Actuarial gains/(losses) post-employment benefits       (8,952)   (8,952) (747) (9,699)
other components of comprehensive income, enterprises valuated with the equity method   (9)       (9)   (9)
Total comprehensive income for the period   (9) 894 (8,952) 96,257 88,190 8,041 96,231
change in treasury shares (1,009) (2,334)       (3,343)   (3,343)
change in equity interest   (1,215)   (17)   (1,232) (628) (1,860)
change in scope of consolidation                             - (41) (41)
other movements   30       30 (47) (17)
Allocation of 2013 profit:                
- dividends paid out         (126,744) (126,744) (10,340) (137,084)
-  allocation to other reserves   16,903     (16,903)                   -                     -
- undistributed profits to retained earnings   21,287     (21,287)                   -                     -
Balance at 30 June 2014 1,409,348 642,343 (2,169) (28,472) 96,257 2,117,307 142,302 2,259,609
Balance at 31 December 2014 1,469,938 707,524 (1,085) (30,203) 164,772 2,310,946 148,055 2,459,001
Profit for the period         107,294 107,294 8,089 115,383
Other components of comprehensive income at 30 June 2015:                
Change in the fair value of derivatives for the period     319     319 224 543
Actuarial gains/(losses) post-employment benefits       5,066   5,066 577 5,643
other components of comprehensive income, enterprises valuated with the equity method   71       71   71
Total comprehensive income for the period   71 319 5,066 107,294 112,750 8,890 121,640
change in treasury shares 3,931 4,876       8,807   8,807
change in equity interest                             - 9,100 9,100
other movements   (15,021)   (56)   (15,077) (11,923) (27,000)
altri movimenti   (56)       (56) (57) (113)
Allocation of 2014 profit:                
- dividends paid out   (6,270)     (126,427) (132,697) (9,658) (142,355)
- allocation to other reserves   8,087     (8,087)                   -                     -
- undistributed profits to retained earnings   30,258     (30,258)                   -                     -
Balance at 30 June 2015 1,473,869 729,469 (766) (25,193) 107,294 2,284,673 144,407 2,429,080

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Net borrowings

(€/million)30 Jun 201531 Dec 2014
a  Cash and cash equivalents 423.9 834.5
b  Other current financial receivables 34.2 45.2
   Current financial debt (139.5) (175.6)
   Current portion of bank debt  (279.9) (302.2)
   Other current financial liabilities (8.4) (69.6)
   Finance lease payables due w ithin 12 months  (2.6) (3.4)
c  Current financial debt (430.4) (550.8)
d=a+b+c  Net current financial debt 27.7 328.9
   Non-current bank debt and bonds issued (2,757.7) (3,020.6)
   Other non-current financial liabilities  (6.1) (7.0)
   Finance lease payables due after 12 months  (24.3) (25.3)
e  Non-current financial debt (2,788.1) (3,052.9)
f=d+e  Net borrowings - Consob communication n°15519 of 28 July 2006 (2,760.4) (2,724.0)
g  Non-current financial receivables 104.5 83.6
h=f+g  Net financial debt (2,655.9) (2,640.4)

Moody's has improved the outlook frome "negative" to "stable" with a Baa1 rating

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Report on operations

Operating performance

The Group's multi-business strategy characterized the result of the first half of 2015, driving its balanced operating and financial results. All performance indicators improved, with net profit for the period up by 10.2%, thanks to gross margins, lower net financial expense and tax benefits.

Constant and balanced performance improvement

The main corporate actions and transactions that resulted in a change in the scope of consolidation for the first quarter of 2015, compared to the same period in 2014, were as follows:

  • Merger of Amga Spa, a company that operated in the Udine area, with and into Hera Spa as of 1 July 2014 and simultaneous transfer of gas distribution and public lighting assets to AcegasAps Spa which changed its name to AcegasApsAmga Spa. AcegasApsAmga Spa.

  • Following this transaction, the Company acquired equity interests in Amga Energia e Servizi, a company engaged in the sale of gas and electric energy, Amga Calore e Impianti and Black Sea Technology Company, a company engaged in the sale and distribution of gas in Bulgaria.

  • HeraComm was awarded the Default gas service contract for the period 1 October 2014 – 30 September 2016 in the regions of Emilia Romagna, Friuli Venezia-Giulia, Toscana, Umbria and Marche and expanded its geographical area through the acquisition, effective 1 May 2015, of Alento Gas, a company operating in methane sales.

Consistent and growing results

As already indicated in previous financial reports, the consolidated income statement reflects the application of IFRIC 12 "Service Concession Arrangements". The effect of the application of this standard, which did not affect the results, is the recognition in the income statement of capital expenditures on network assets held under concession.

Thus, in the period under review other operating revenues were up euro 91.7 million and euro 78.4 for the same period of 2014, capitalized costs were down 32.7 million in 2015 and 19.6 million in 2014 while operating expenses for services, materials and other expenses were up euro 59.1 million in the first half of 2015 and € 58.8 million in 2014.

The table below shows the results for the six months ended 30 June 2015 and:

Income statement
(€/mln)
June 2015%Inc.June 2014 (*)%Inc.Abs. change% change
Revenues 2,213.0   2,086.7   +126.3 +6.1%
Other operating revenues 155.9 7.0% 138.8 6.6% +17.1 +12.3%
Commodities and materials (1,103.9) -49.9% (988.3) -47.4% +115.6 +11.7%
Service costs (530.7) -24.0% (518.3) -24.8% +12.4 +2.4%
Other operating costs (26.9) -1.2% (26.9) -1.3% +0.0 +0.0%
Personnel costs (260.7) -11.8% (251.7) -12.1% +9.0 +3.6%
Capitalised costs 12.4 0.6% 7.8 0.4% +4.6 +58.9%
EBITDA 459.1 20.7% 448.0 21.5% +11.1 +2.5%
Deprec. and amort. (214.0) -9.7% (205.2) -9.8% +8.8 +4.3%
Operating profit 245.0 11.1% 242.8 11.6% +2.2 +0.9%
Financial operations (61.3) -2.8% (66.1) -3.2% -4.8 -7.3%
Pre-tax profit adjusted 183.7 8.3% 176.7 8.5% +7.0 +4.0%
Taxes (68.3) -3.1% (69.5) -3.3% -1.2 -1.7%
Net profit adjusted 115.4 5.2% 107.2 5.1% +8.2 +7.7%
Non-recurring financial charge - 0.0% (2.5) -0.1% -2.5 +101.7%
Net profit for the period 115.4 5.2% 104.7 5.0% +10.7 +10.2%
Attributable to:            
Shareholders of the Parent Company 107.3 4.8% 96.3 4.6% +11.0 +11.4%
Non-controlling interests 8.1 0.4% 8.5 0.4% -0.4 -4.5%

(*) For better comparison with the first half of 2015, the first half of 2014 was recast by reducing the amount of revenues related to the so-called "leak provisions" by €2.4 million, to reflect the amount of provisions made, while revenues rose by €0.5 million in connection with releases from provisions, without any effect on operating results.

€2.2 billion in revenues

In the first half of 2015 revenues amounted to €2,213.0 million, up €126.3 million, or 6.1%, on €2,086.7 million in the corresponding period of 2014. The increase was due mainly to the change in the scope of consolidation, which accounted for about €81 million, the larger volumes of gas sold and greater trading activities, which contributed about €131 million. Revenue growth was somewhat mitigated by lower waste levels treated and by lower revenues from regulated distribution due to extraordinary items in the first half of 2014. For further details, reference is made to the analysis of the single business areas.

Other operating revenues grew by €17.1 million, due to higher other revenues resulting from the application of IFRIC12, amounting to approximately €11.4 million, the change in the scope of consolidation for €4.5 million as well as organic growth for €1.2 million, which offset the lower contribution derived from white certificates for about €5 million, following resolution 13/2014/R/efr of the Authority for electricity, gas and water (AEEGSI), which had determined a positive impact in the first half of 2014.

Costs of raw and other materials rose by €115.6 million, or 11.7%, on the comparable amount for 2014. As with revenues, this change was due to larger volumes of gas sales, greater trading activities and changes in the scope of consolidation.

Other operating costs (service costs up €12.4 million while other operating expenses were in line) grew overall by €12.4 million (+2.2%). This difference was due to several factors: change in scope of consolidation for approximately €13 million; greater IFRIC 12 costs for €4 million; greater transmission costs for customers outside the network for approximately €5 million offset by lower costs of contract works for about €6 million and lower waste disposal costs for approximately €4 million.

Personnel costs rose by €9.0 million, or 3.6%, from €251.7 million in the first half of 2014 to €260.7 million in the first half of 2015. This increase was due to the salary raises provided for by the national labour agreement and the change in the scope of consolidation due to the merger of Udine with and into the Group, accounting for €6.7 million.

Capitalized costs were up €4.6 million on the comparable amount of 2014, due mainly to greater internal works performed by the Group's companies.

EBITDA at €459.1 million (up 2.5%)

EBITDA went from €448.0 million for the first half of 2014 to €459.1 million for the first half of 2015, with an increase of €11.1 million, or 2.5%. This was due to the gas business, up €21.5 million, the Integrated Water Cycle, up €4.9 million and Other Services, up €0.3 million, which offset the drop in the other businesses.

Amortization, depreciation and provisions rose overall by €8.8 million, or 4.3%, going from €205.2 million for the first half of 2014 to €214.0 million for the same period of 2015. The increase was due to the change in the scope of consolidation for €8.6 million, greater depreciation due to new investments for €1.8 million and greater allowance for bad debt for €3.6 million, particularly in the sales companies. This effect was partly offset by lower depreciation determined by lower levels of waste disposal in landfills.

Operating profit at €245.0 million (up 0.9%)

Operating profit for the first half of 2015 was €245.0 million, down €2.2 million, or 0.9%, compared to €242.8 million for the same period of 2014.

For the six months ended 30 June 2015, financial expense exceeded financial income by €61.3 million, down €4.8 million, or 7.3%, compared to the same period of 2014. The decrease was due mainly to the higher rofits of associated companies and joint ventures for €2.1 million and the lower cost of average debt, compared to the previous year, as a result of the refinancing transactions undertaken in 2014, which cut the cost of medium/long-term debt.

Based on the above, adjusted pre-tax profit, i.e. pre-tax profit before non-recurring expenses, rose by €7.0 million, from €176.7 million for the first half of 2014 to €183.7 million for the period under review.

Income taxes for the first half of 2015, amounting to €68.3 million, reflect a tax rate of 37.2%, which was much better than the tax rate for the first quarter of 2014 (39.3%). This improvement was due to the elimination of the "Robin Hood Tax" (the additional 6.5% corporate income tax applicable to the Group companies operating in the energy sector), following decision no. 10 of the Constitutional Court dated 11 February 2015, and the lower IRAP rate, as a result of the ability to deduct from the cost of labour for permanent employees (article 1, paragraphs 20-25, Law 23 December 2014, no. 190).

Adjusted net profit (after-tax profit before non-recurring expenses) rose by 7.7%, or €8.2 million, going from €107.2 million in the first half of 2014 to €115.4 million for the comparable period of 2015.

Results for the first half were affected by capital losses of €2.5 million, recognized among non-recurring financial expenses, due to the write-off of the carrying amount of the investment in Energia Italiana Spa for €2.1 million and other minor investments.

Net profit after min. of €107.3 million (up 11.4%)

Thus, net profit was up 10.2%, or €10.7 million, going from €104.7 million for the first half of 2014 to €115.4 million for the first half of 2015.

Net profit attributable to the shareholders of the parent company amounted to €107.3 million, up €11.0 million on the comparable period of 2014.

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Analysis of financial structure and investments

The table below shows changes in the Group's net invested capital and sources of financing for the six months ended 30 June 2015:

The Group's size increases

Invested capital and sources of financing (€/mln)30 jun 15% Inc.31 dec 14% Inc.Abs. change% change
Net non-current assets 5,432.0 106.8% 5,445.8 106.8% (13.8) (0.3%)
Net working capital 153.0 3.0% 153.1 3.0% (0.1) (0.1%)
(Provisions) (500.0) -9.8% (499.5) -9.8% (0.5) +0.1%
Net invested capital 5,085.0 100.0% 5,099.4 100.0% (14.4) (0.3%)
Equity (2,429.1) 47.8% (2,459.0) 48.2% +29.9 (1.2%)
Long-term borrowings (2,683.6) 52.8% (2,969.3) 58.2% +285.7 (9.6%)
Net cash/short term borrowings 27.7 -0.5% 328.9 -6.4% (301.2) (91.6%)
Net borrowings (2,655.9) 52.2% (2,640.4) 51.8% (15.5) +0.6%
Total sources of financing (5,085.0) -100.0% (5,099.4) 100.0% +14.4 (0.3%)

For a better understanding of changes in invested capital, the financial structure at 31 December 2014, which is shown above for comparative purposes with that at 30 June 2015, was recast. In particular, deferred tax assets are shown net of provisions for taxation, reclassified for €15 million. Consequently, in the recast financial structure, provisions are lower by such amount, as is the amount of net non-current assets.

Net invested capital amounting to €5.1 billion

At 30 June 2015, net invested capital was slightly down from 31 December 2014. There was a small change in property, plant and equipment as a consequence of the depreciation schedules of machinery and equipment.

Net investments rose to €139.5 million

In the first half of 2015, Group investments amounted to €139.5 million also thanks to a capital grant of €5.3 million, of which €3.3 million for the New Investment Fund (FoNI), as provided for by the tariff method for the integrated water service. The Group's net investments grew by €8.1 million, from €131.4 million at the end of June 2014 to €139.5 million at the end of the period under review.

Including capital grants, the Group's total investments amounted to €144.8 million. The table below shows investments grants by business segment, with details of the capital grants:

Total investments (mln €)June 2015June 2014Abs. change% change
Gas segment 32.2 27.5 +4.7 +17.1%
Electric energy segment 10.5 10.2 +0.3 +2.9%
Water segment 59.6 52.5 +7.1 +13.5%
Waste management segment 14.0 19.5 -5.5 -28.2%
Other servces segment 6.4 6.7 -0.3 -4.5%
Headquarters 22.2 20.9 +1.3 +6.2%
Total capital expenditures 144.8 137.3 +7.5 +5.5%
Total financial investments 0.0 0.0 +0.0 +0.0%
Total gross investments 144.8 137.3 +7.5 +5.5%
Capital grants 5.3 5.9 -0.6 -10.2%
       of which for FoNI (New Investment Fund) 3.3 4.8 -1.5 -31.3%
Total investments, net 139.5 131.4 +8.1 +6.2%

The Group continues to make substantial investments in plants and infrastructure

Net investments, amounting to €144.8 million, rose by 5.5% compared to the first half of 2014 and related mainly to works on plants, grids and infrastructure. Regulatory upgrades were undertaken in the purification and sewerage areas. Details of the capital expenditures are provided in in the analyses by business segment.

At headquarters, capital expenditure for buildings, information systems and fleets

At headquarters capital expenditure concerned corporate buildings, information systems and the vehicle fleet, as well as activities in laboratories and remote control structures. Overall, infrastructure investment rose by €1.3 million on the previous year, mainly due to works at the offices of AcegasApsAmga.

Net working capital amounts to €153 million

Net working capital was largely in line with the comparable amount at year-end 2014, due mainly to the collection of receivables from customers receiving last resort service who, as a result, cannot be disconnected. Collection of these receivables, for a total of €78.7 million, from the electricity sector equalization fund (CCSE) – in accordance with resolution 370/12 by the Authority for electric energy, gas and water (AEEGSI) – took place on 2 February 2015. Without considering this amount, the increase in net working capital would have been in line with seasonal trends for working capital.

Provisions amount to €500.0 million

At 30 June 2015, provisions amounted to €500.0 million, an amount in line with the comparable figure at 31 December 2014. In essence, uses for the period were equal for the provisions made.

€2.4 billion in equity

Equity fell from €2,459.0 million at 31 December 2014 to €2,429.1 million at 30 June 2015, following the dividend distribution of 2014 net profit for €142.4 million, partly offset by net profit for the period of €115,4 million. Equity was affected also by changes in equity investments in Group companies.

Reconciliation between the Parent Company's equity and consolidated equity
 Net profitEquity
Balances as per separated financial statements 142,256 2,231,290
Excess of equity over the carrying amounts ofInvestments in consolidated companies (34,657) (12,273)
     
Consolidation adjustments :    
-   Measurement with the equity method of investments reported at cost in the separate financial statements 760 35,963
-   Difference between purchase price and book value of correspond (1,529) 52,838
-   Elimination of intercompany transactions 464 (23,145)
     
Total 107,294 2,284,673
     
Non-controlling interests 8,089 144,407
     
Balances as per consolidated financial statements 115,383 2,429,080

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Analysis of net cash (Net borrowings)

The table below provides details of the composition and changes in net borrowings:

A strongly liquid position

(€/million) 30-jun-1531-dec-14
aCash and cash equivalents 423.9 834.5
bOther current financial receivables 34.2 45.2
 Current financial debt (139.5) (175.6)
 Current portion of bank debt (279.9) (302.2)
 Other current financial liabilities (8.5) (69.6)
 Finance lease payables due w ithin 12 months (2.6) (3.4)
cCurrent financial debt (430.4) (550.8)
d=a+b+cNet current financial debt 27.7 328.9
 Non-current bank debt and bonds issued (2,757.7) (3,020.6)
 Other non-current financial liabilities (6.1) (7.0)
 Finance lease payables due after 12 months (24.3) (25.3)
eNon-current financial debt (2,788.1) (3,052.9)
f=d+eNet borrowings - Consob communication n°15519 of 28 July 2006 (2,760.4) (2,724.0)
gNon-current financial receivables 104.5 83.6
h=f+gNet financial debt (2,655.9) (2,640.4)

 

Short-term borrowings include mainly overdrafts, amounting to approximately € 139.5 million, maturing portions of bank loans for approximately € 85 million, and bonds for € 195.4 million maturing in February 2016. This amount was down from 31 December 2014, following repayment of the €180 million loan from the European Investment Bank (EIB), which was reimbursed in January 2015.

The amount related to medium/long-term bank debt and bonds consists mainly of bonds issued on the European market and listed on the Luxembourg Stock Exchange (79% of the total), with repayment at maturity.Total borrowings show an average term to maturity of over 8 years, with 67% maturing beyond five years.

Net borrowings rose to €2.66 billion

Net borrowings increased slightly from €2,640.4 million at the end of 2014 to €2,655.9 at 30 June 2015. Attention is called to the dividend payment for €142.4 million in June and the improvement in working capital, which in the period under review benefited from the collection of receivables for €78.7 million from the electricity sector equalization fund (CCSE) on behalf of customers who cannot be disconnected.

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  • Gas
  • Electricity
  • Water cycle
  • Environmental
  • Other services

An analysis of the operating results of the segments in which the Group operates is given below: Gas segment, which includes the distribution and sales of methane gas and LPG services, remote heating and heat management; Electricity segment, which includes the Electricity production, distribution and sales services; Integrated Water Cycle segment, which includes the aqueduct, purification and sewerage services; Environment segment, which includes the collection, treatment and disposal of waste services; Other Services whichincludes the public lighting, telecommunications and other minor services segment.

Balanced business portfolio confirmed between the main business segments

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

The analysis by business segment considers the increase in revenues and costs, with no impact on the EBITDA, relating to the application of IFRIC 12, as shown in the Group's consolidated income statement. The segments affected by the application of IFRIC 12 are: methane distribution services, power distribution services, all integrated water cycle services and public lighting services.

Gas

Gas: EBITDA rises

The first semester of 2015 saw the gas area's contribution to the Group's EBITDA grow with respect to the corresponding period in 2014, both in absolute terms and as a percentage. Note that for a a better comparison with the income statement for the first six months of 2015, the same period of 2014 has been restated, reclassifying € 0.1 million from 'revenues' to 'lower provisions'. The EBITDA of the first six months of 2014 has therefore been decremented by € 0.1 million, with no effect on the operating results.

Gas Area contribution to overall EBITDA up +3.9%

The following table summarises the change in EBITDA:

Gas Area EBITDA increases by 14.2%

(€/million)June 2015June 2014Abs. change% change
Sector EBITDA 172.5 151.0 +21.5 +14.2%
Group EBITDA 459.1 448.0 +11.1 +2.5%
Percentage weight 37.6% 33.7% +3.9 p.p.

1.3 million gas customers

The number of gas customers rose by 97.9 thousand, thanks to the integration of Amga Energia e Servizi, which contributed with 85.9 thousand customers (+5.6%), the Bulgarian subsidiary BSTC (8.6 thousand customers; +0.7%) and the management of Default gas (3.9 thousand customers; +0.3%). Excluding these changes in the scope of consolidation, the number of customers decreased by only 0.04% (roughly 500 customers, in absolute terms) compared to the first half of 2014, thanks to the commercial initiatives and customer loyalty plans set in place to counteract competitive pressure.

Volumes sold increase by +33,7%

Volumes of gas sold rose by 464.7 million m3 (+33,7%), going from 1,379.2 million m3 in the first semester of 2014 to 1,843.9 in the first half of 2015. The acquisition of the companies Amga Energia & Servizi and BSTC contributed, respectively, with 82.4 million m3 and 25.3 million m3 sold. The remaining increase of 152.9 million m3 is mainly due to the cooler temperatures seen compared to the first semester of 2014, the hottest in the last 30 years. Trading volumes increased by 212.6 million m3 (+11.5% of total volumes).

The following table offers an overview of the economic results of the area:

Gas: overall EBIDTA rises

Income statement
(€/mln)
June 2015% Inc.June 2014% Inc.Abs. change% change
Revenues 891.4   785.5   +105.9 +13.5%
Operating costs (655.1) -73.5% (574.8) -73.2% +80.3 +14.0%
Personnel costs (68.1) -7.6% (61.8) -7.9% +6.3 +10.2%
Capitalised costs 4.2 0.5% 2.1 0.3% +2.1 +102.0%
EBITDA 172.5 19.3% 151.0 19.2% +21.5 +14.2%

Gas revenues come to € 891 million

Revenues went from € 785.5 million in the first semester of 2014 to € 891.4 million, increasing by € 105.9 million (+13.5%). This is mainly due to the larger volumes of methane gas sold and traded, which over the same geographical area rose by roughly € 131.5 million, on account of the cooler temperatures compared to thecorresponding period in 2014. The greater contribution coming from the Udine area and, to a lesser degree, from Default gas service, is more than offset by the lower revenues owing to a decrease in the price of raw materials and the lower revenues for energy efficiency credits, that in the first half of 2014 benefited from Aeegsi resolution 13/2014/R/efr.

The increase in revenues is reflected proportionally on operative costs (+€80.3 million).

Gas EBITDA: €172,5 million

EBITDA rose by €21.5 million (+14.2%), passing from €151.0 million in the first half of 2014 to €172.5 million for the first six months of 2015, thanks to the larger volumes of gas sold, the consolidation of the Udine area and Default gas service, that offset the positive non-recurring entries of the first half of 2014 pertaining to arrears in energy efficiency credits, amounting to roughly €5 million.

Net investments in the Gas Area: €32.1 millions

In the first semester of 2015, investments in the Gas Area came to €32.1 million, recording an increase of + €4.6 million with respect to the same period in 2014. This increase can largely be traced to the effects of the wider geographical scope of the AcegasApsAmga Group, that now includes Amga Udine (2.0 million) and BSTC (0.4 million).

In gas distribution, the increase of €2.6 million compared to the previous year is due to the regulatory upgrade required by resolution 631/13, consisting in a large-scale substitution of metres involving lower category devices (G4-G6) as well, and a higher amount of extraordinary maintenance on networks and plants.

The request for new connections was substantially in line with the same period of the previous year, with a slight drop in areas served by Hera, offset by the larger scope of AcegasApsAmga.

Investments rose by €2.2 million in district heating and heat management, mainly due to interventions on the Forlμ University Campus plant and the revamping of the cogeneration plant in Bologna. In this service as well, new connections remained in line with the low levels seen in the previous year, as a result of the ongoing crisis in the construction sector.

The details of operating investments in the Gas Area are as follows:

Gas
(€/mln)
June 2015June 2014Abs. change% change
Networks and plants 27.1 24.5 +2.6 +10.6%
TLR/Heat management 5.1 2.9 +2.2 +75.9%
Total Gas Gross 32.2 27.5 +4.7 +17.1%
Capital contributions 0.1 0.0 +0.1 +100.0%
Total Gas Net 32.1 27.5 +4.6 +16.7%

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Electricity

Electricity: EBITDA falls

In the first semester of 2015, the contribution of the electricity area to the Group's EBITDA decreased, both in absolute terms and as a percentage, with respect to the first six months of 2014. Note that for a better comparison with the income statement for the first half of 2015, the same period of 2014 has been restated, reclassifying €0.1 million from 'revenues' to 'lower provisions'. The EBITDA of the first six months of 2014 has therefore been decremented by €0.1 million, with no effect on the operating results.

Contribution to overall EBITDA: -3.2%

Electricity Area EBITDA drops by 20.9%

The following table summarises the changes in EBITDA:

(€/million)June 2015June 2014Abs. change% change
Sector EBITDA 49.6 62.7 -13.1 -20.9%
Group EBITDA 459.1 448.0 +11.1 +2.5%

826 thousand electricity customers

The number of electricity customers recorded an increase of 11.1% (+ 82.5 thousand), due to both an increase in free market activities and the contribution of Amga Energia & Servizi (15 thousand customers). In particular, the increase in free market customers compared to the first half of 2014 comes to 14%, affecting the total number of customers by 65% and confirming the positive trend seen in recent years.

Volumes sold rise by 3.6%

Volumes of electricity sold passed from 4,464.4 GWh in the first half of 2014 to 4,624.0 GWh in the first semester of 2015, with an overall increase of 3.6%. Continuity was given to the Group's attentive policy of supplying large industrial clients with solid financial ratings.

The following table offers an overview of the economic results of the area:

Electricity: fall due to nonrecurring amounts receivable in the first half of 2014

Income statement (€/mln)June 2015% Inc.June 2014% Inc. Abs. change% change
Revenues 718.1   693.5   +24.6 +3.5%
Operating costs (649.4) -90.4% (613.2) -88.4% +36.2 +5.9%
Personnel costs (22.8) -3.2% (20.7) -3.0% +2.1 +10.1%
Capitalised costs 3.7 0.5% 3.0 0.4% +0.7 +23.0%
EBITDA 49.6 6.9% 62.7 9.0% -13.1 -20.9%

Revenues for electricity: € 718,1 million

The Group's revenues rose by € 24.6 million (+3.5%), going from € 693.5 million in the first half of 2014 to € 718.1 million in the corresponding period of 2015. This is mainly due to larger trading activities and the change in the scope of Amga Energia & Servizi; the increase was contained by a lower price for raw material sales and lower regulated revenues in distribution services due to the non-recurring recovery of past amounts receivable in the first half of 2014, equal to € 9.2 million.

Operating costs rose by € 36.2 million (+5.9%), proportionally to revenues.

Electricity Area EBITDA at € 49.6 million

At the end of the first semester of 2015, EBITDA fell by € 13.1 million (- 20.9%), passing from € 62.7 million in the first half of 2014 to € 49.6 million in 2015, due to the lesser revenues in regulated distribution services mentioned above, including past amounts receivable for the equalisation of the Gorizia area, and a lower contribution coming from electricity production in the plants managed by the Group, dispatching services in particular.

Net investments in the Electricity Area: € 10.5 million

In the Electricity Area, investments amounted to € 10.5 million in the first semester of 2015, showing a change of + € 0.3 million compared to the € 10.2 million of the previous year.

The interventions prevalently involved the extraordinary maintenance of plants and distribution networks in the areas surrounding Modena, Imola, Trieste and Gorizia.

With respect to the same period in the previous year, + € 0.9 million were recorded in extraordinary maintenance and - € 0.6 million in new constructions. Note the lower amount of intervention carried out during the first half of 2015 on the Cogen plant in Imola.

Connections in this area dropped with respect to the previous year.

The details of operating investments in the Electricity Area are as follows:

Electricity
(mln €)
30 Jun 201530 Jun 2014Abs. change% change
Networks and plants 9.8 9.7 +0.1 +1.0%
Industrial cogeneration 0.6 0.5 +0.1 +20.0%
Totale Electricty gross 10.5 10.2 +0.3 +2.9%
Capital contributions 0.0 0.0 +0.0 +0.0%
Total Electricity net 10.5 10.2 +0.3 +2.9%

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Integrated water cycle

Integrated Water Cycle: sustained growth

In the first semester of 2015, the integrated water cycle area grew compared to 2014, both as a contribution to the Group's EBITDA and in terms of the area's absolute value. 2015 is the second year in which the water tariff method defined by the AEEGSI for 2014-2015 (resolution n. 643/2014) is to be applied. Note that for a better comparison with the income statement for the first six months of 2015, the same period of 2014 has been restated, reducing the quota of revenues pertaining to the so-called "water leakage fund" by an amount corresponding to the entry concerning provisions, for € 2.4 million overall; for the same reason, € 0.1 million have been reclassified from 'revenues' to 'lower provisions'. The EBITDA of the first six months of 2014 has therefore been decremented by € 2.5 million, with no effect on the operating results.

Integrated Water Cycle EBITDA rises by 4.7%

The following table summarises the changes in EBITDA:

(€ million)June 2015June 2014Abs. change% change
Sector EBITDA 107.6 102.7 +4.9 +4.7%
Group EBITDA 459.1 448.0 +11.1 +2.5%

1.4 million customers in the Water Cycle

The number of water clients settled at 1.4 million, increasing by 1.3 thousand (+0.1%) and confirming the tendency of organic growth in the Group's reference areas, in particular in the Emilia Romagna territory managed by Hera Spa.

143.4 million m3 managed in the aqueduct

The following table offers an overview of the economic results of the area:

Volumes dispensed, through the aqueduct, are substantially in line with the first six months of 2014. The volumes dispensed, following Aeegsi resolution n. 643/2013, are an activity indicator of the geographical areas in which the Group operates, and are subject to equalisation in accordance with norms that define regulated revenue independently from the volumes distributed.

Integrated Water Cycle: EBITDA increases

La sintesi dei risultati economici dell'Area:

Income statement (€/mln)June 2015% Inc.June 2014Inc.%Abs. change% change
Revenues 377.4 - 369.5 - +7.9 +2.1%
Operating costs (196.6) -52.1% (194.9) -52.7% +1.7 +0.9%
Personnel costs (74.8) -19.8% (72.9) -19.7% +1.9 +2.6%
Capitalised costs 1.6 0.4% 1.0 0.3% +0.6 +58.6%
EBITDA 107.6 28.5% 102.7 27.8% +4.9 +4.7%

Revenues from the Integrated Water Cycle at € 377 million

Revenues rose by € 7.9 million (2.1%), going from € 369.5 million in the first half of 2014 to € 377.4 million in 2015, due to several reasons: greater revenues from sales for € 6 million owing to the application of the new tariffs for the integrated water system resolved by the Area Authority for 2015; greater revenues from works, deriving from the application of IFRIC12 (for € 6.5 million), offset by lower revenues for contracts and other subcontracted works and lower revenues for connections.

I costi operativi aumentano di 1,7 milioni di euro, pari allo 0,9%, e sono legati ai maggiori costi per lavori, riclassificati a costo di esercizio per l'applicazione del principio IFRIC12 per 2,1 milioni di euro. Al netto di questo valore, i costi operativi sono in calo di 0,4 milioni di euro, dove i maggiori costi per l'acquisto di materia per i maggiori canoni di concessione del servizio sono compensati da minori costi operativi e minori costi per opere conto terzi.

EBITDA rises to € 107.6 million

EBITDA rose by € 4.9 million (4.7%), going from € 102.7 million in the first half of 2014 to € 107.6 million in the same period of 2015, resulting from higher approved tariffs and lower operating costs.

Net investments in the Integrated Water Cycle Area: € 54.8 million

Gross investments in the Water Cycle Area amounted to € 59.6 million, up € 7.1 million on the previous year. Not including capital grants, investments in the Area came to € 54.8 million, mainly involving extensions, reclamation activities and upgrades to networks and plants, as well as regulatory upgrading regarding above all purification and sewerage facilities.

Investments totalled € 28.5 million in the aqueduct, € 16.9 million in sewerage facilities and € 14.2 million in purification structures.

Among the main interventions, note the following: in aqueducts, network upgrading and scheduled maintenance, up compared to the previous year by +2.1 million; in sewerage, the works foreseen by the Seawater Protection Plan in Rimini (including the first phase ofthe AUSA basin, the first phase of the Dorsale Sud and the Hospital lamination basin) and the East Zone sewerage pipeline in San Giovanni In Persiceto (Bo); in purification, plant makeover in Ponte Rizzoli, Cesenatico and Cattolica, water line upgrading in the Bagnacavallo purification plant, revamping the oxygen production plant of the Idar purification plant in Bologna, and beginning works on the Servola purification plant in Trieste.

Requests for new water and sewerage connections were essentially in line with the same period of the previous year, remaining however somewhat low due to the continuing crisis in the construction sector. Capital grants for € 4.8 million included € 3.3 million due to the tariff component deriving from the tariff method for the New Investments Fund (FoNI), and fell compared to 2014 by - € 0.9 million.

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

Integrated Water Cycle
(mln €)
June 2015June 2014Abs. change% change
Aqueducts 28.5 26.4 +2.1 +8.0%
Purification 14.2 11.4 +2.8 +24.6%
Sewage 16.9 14.7 +2.2 +15.0%
Total Integrated water cycle gross 59.6 52.5 +7.1 +13.5%
Capital contributions 4.8 5.7 -0.9 -15.8%
       of which FoNI (New Investment Fund) 3.3 4.8 -1.5 -31.3%
Total Integrated water cycle net 54.8 46.8 +8.0 +17.1%

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Environmental area

In the first semester of 2015, the environment area represented 26.1% of the Hera Group's EBITDA; it ropped in comparison to the corresponding period in 2014, mainly due to the minor volumes disposed on account of a progressive abandonment of disposal in landfills. Note that for a better comparison with the income statement for the first six months of 2015, the same period of 2014 has been restated, reclassifying € 0.1 million from 'revenues' to 'lower provisions'. The EBITDA of the first six months of 2014 has therefore been decremented by € 0.1 million, with no effect on the operating results.

Environment area: EBITDA falls

The following table summarises the changes in EBITDA:

(€/million)June 2015June 2014Abs. change% change
Sector EBITDA 119.8 122.3 -2.5 -2.0%
Group EBITDA 459.1 448.0 +11.1 +2.5%

Urban waste: +3.0%

The table below provides an analysis of the volumes commercialised and treated by the Group during the first half of 2015:

Quantitative data (thousand of tonnes)June 2015June 2014Abs. change% change
Urban waste 1,018.8 989.2 +29.6 +3.0%
Market waste 981.2 1,118.0 -136.8 -12.2%
Wasted marketed 1,999.9 2,107.3 -107.4 -5.1%
Plant by-products 1,251.4 1,250.0 +1.4 +0.1%
Waste treated by type 3,251.4 3,357.3 -105.9 -3.2%

This analysis shows a +3.0% increase in urban waste, while market waste shows a temporary reduction in volume, resulting from the programmed decrease in the Group's landfill capacity and the foreseen and particularly intense activities in maintenance of the WTE plants seen in the first quarter of 2015. More specifically, recovery and increased functionality was guaranteed in all of the WTE plants with the exception of Pozzilli, that is still feeling the effects of the overhaul of its boiler in the first quarter of 2015.

+1.3% in sorted urban waste

Sorted urban waste recorded further progress, going from 53.3% to 54.6%. This high percentage of recovered waste brings significant environmental benefits and a greater flexibility in the capacity of treatment plants, that can now deal with a further development of volumes treated and disposed in an even more sustainable way.

This result is mainly due to the new and fully operative selection and recovery plant in Bologna and the efficiency improvement projects promoted in recently acquired areas of the Triveneto region, in which a focused project of process integration allowed separate waste collection to rise by over 3 percent (from 43.9% to 47.2%).

The Hera Group operates in the entire waste cycle with 78 treatment and disposal plants for urban and special waste, the most important of which are: 10 WTE plants, 11 composting/digestors and 7 selecting plants.

Sharp decrease in the use of landfills

The environment sector's asset management furthermore responded to the need to deal with the volumes coming from HASI's market and new customers, without significantly modifying its decision to use landfill disposal to an ever lesser degree, thus remaining in line with the indications of the European Authorities, as foreseen in the Business Plan.

Treatments in WTE plants felt the effects of the early maintenance carried out in this period, while selection and recovery plants reflect the fully operative status of the new plants begun in 2014.

Environment: EBITDA decrease in line with volumes

The following table offers an overview of the economic results of the area:

Quantitative data (thousand of tonnes)Giu 2015Inc%Giu 2014Inc.%Var. Ass.Var. %
Landfill 449.2 13.8% 651.1 19.4% +7.0 +0.8%
Waste-to-energy plants 688.3 21.2% 711.4 21.2% +26.0 +2.6%
Selecting plant and other 224.3 6.9% 220.7 6.6% +61.4 +22.0%
Composting and stabilisation plants 226.5 7.0% 245.7 7.3% -1.4 -0.4%
Stabilisation and chemical-physical plants 665.1 20.5% 639.0 19.0% +26.0 +4.1%
Other plants 998.0 30.7% 889.4 26.5% +108.6 +12.2%
Waste treated by plant 3,251.4 100.0% 3,357.3 100.0% -105.9 -3.2%

 

Income statement
(€/mln)
June 2015% Inc.June 2014% Inc.Abs. change% change
Revenues 430.1   439.9   -9.8 -2.2%
Operating costs (226.9) -52.7% (231.5) -52.6% -4.6 -2.0%
Personnel costs (85.8) -19.9% (87.2) -19.8% -1.4 -1.6%
Capitalised costs 2.3 0.5% 1.1 0.3% +1.2 +108.3%
EBITDA 119.8 27.9% 122.3 27.8% -2.5 -2.0%

Environment revenues: € 430 million

Revenues decreased by 2.2% in 2015, due to the lesser volumes disposed and lower revenues from services in environmental hygiene.

Environment EBITDA: € 120 million

The change in EBITDA confirms the factors noted above, with a contraction of -2%, in line with the drop in revenues, thanks among other things to the greater contribution of electricity generation to the EBITDA.

Net investments in the Environment Area come to € 13.6 million

Gross investments in the Environment Area concerned plant maintenance and upgrading, and amounted to €13.6 million, down by -€5.8 million compared to 2014.

The composting/digestors sub-sector increased with respect to the previous year by +€0.7 million, mainly due to interventions regarding the dry-fermentation plants in Rimini (optimisation exhausted air treatment, photovoltaic plant) and Voltana (access control and fencing, leachate tanks and a new water collection network), partially offset by reduced investments in the Sant'Agata plant, for works carried out in 2014.

The reduced investment in landfills (-€2.3 million) is due to lesser maintenance interventions for the Pago, Tre Monti and 1C Lugo plants, and for Feronia, in addition to a reduction owing to the 2014 enlargement of the Cΰ Asprete di Tavullia (PU) landfill, carried out by Marche Multiservizi for €1.9 million. In the current year, also note the interventions for the 8th sector of the Ravenna landfill and the beginning of works on the 9th sector.

The WTE sub-sector grew by +0.4 million on the previous year due to increased works on the Padova and Trieste plants, partially compensated by a reduction in extraordinary maintenance on various plants in the remaining areas covered by the Group.

In the Special Waste Plant sub-sector, the larger investments compared to the previous year were due to an increase in maintenance interventions, in particular the sludge dehydration plant in Ravenna and TCF (Chemical-Physical Treatment).

In collection systems, note the continued works on the small underground centres in Bologna and the completion of works on a new innovative collection system (so-called WFM Environment).

In selection plants and transferers, note the drop of - € 3.7 million due to the completion of works on the Akron selection plant in Bologna and a transfer implant built in the Cervia area, both in 2014.

The details of operating investments in the Waste management Area are as follows:

Waste management
(mln €)
June 2015June 2014Abs. change% change
Compostaggi/Digestori 1.4 0.7 +0.7 +100.0%
Landfill 2.9 5.2 -2.3 -44.2%
WTE 4.9 4.5 +0.4 +8.9%
RS plants 1.0 0.7 +0.3 +42.9%
Ecological areas and gathering equipment 2.8 3.7 -0.9 -24.3%
Transshipment. selection and other plants 1.0 4.7 -3.7 -78.7%
Total Waste handled gross 14.0 19.5 -5.5 -28.2%
Capital contributions 0.4 0.0 +0.4 +100.0%
Total Waste handled net 13.6 19.4 -5.8 -29.9%

The semester also witnessed the completion of two organisational operations that will be effective as of 1 July 2015. On the one hand, the entire share capital of Akron was purchased, until present controlled by Herambiente with 57.5%; this company manages a chain of plants involved in selecting materials from sorted waste. At the same time, a transfer to Herambiente was initiated regarding the activities of waste disposal carried out for the cities of Padova and Trieste by the two WTE plants found there, thus creating the Hestambiente company in order to pursue greater integration and efficiency and give full control of these activities to the Group.

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Other services

The other services area covers all minor services managed by the Group: public lighting, telecommunications and cemetery services.

Other Services: EBITDA rises

In the first semester of 2015, the results of the other services area grew by € 0.3 million: EBITDA passed from € 9.3 million in the first six months of 2014 to € 9.6 million in the corresponding period of 2015. Note that for a better comparison with the income statement for the first six months of 2015, the same period of 2014 has been restated, reclassifying € 0.1 million from 'revenues' to 'lower provisions'. The EBITDA of the first six months of 2014 has therefore been decremented by € 0.1 million, with no effect on the operating results.

Other Services Area EBITDA grows by € 0.3 million

The following table summarises the changes in EBITDA:

(€/million)June 2015June 2014Abs. change% change
Sector EBITDA 9.6 9.3 +0.3 +3.5%
Group EBITDA 459.1 448.0 +11.1 +2.5%

The main indicators of this area, which concern activities in public lighting, are as follows:

Quantative dataJune 2015June 2014Abs. change% change
Public lighting        
Lighting points (thousands) 521.4 458.8 +62.6 +13.6%
Municipalities served 157.0 129.0 +28.0 +21.7%

521 thousand lighting points

The data regarding public illumination shows an increase of 62.6 thousand lighting points and 28 municipalities served. This growth is due to both the consolidation of the Udine area (+23.5 thousand lighting points, in 15 municipalities) and new contracts awarded by tender. The increase in lighting points is lower than the growth in municipalities served on account of the loss of 29 thousand lighting points in the municipality of Rimini, for which maintenance contracts have however been retained.

Other Services: revenues increase

The economic results of the area are:

Income statement
(€/mln)
June 2015% Inc.June 2014% Inc.Abs. change% change
Revenues 60.4   56.3   +4.1 +7.3%
Operating costs (42.0) -69.6% (38.5) -68.4% +3.5 +9.1%
Personnel costs (9.3) -15.4% (9.1) -16.2% +0.2 +2.2%
Capitalised costs 0.5 0.9% 0.6 1.0% -0.1 -17.5%
EBITDA 9.6 15.9% 9.3 16.4% +0.3 +3.5%

Revenues for Other Services: € 60.4 million

Revenues in this area rose by € 4.1 million, thanks to both an increase in the public lighting business (due to tenders awarded and the enlargement of the area served in Udine) and higher revenues from telecommunications.

EBITDA up € 0.3 million

EBITDA grew by € 0.3 million as regards public lighting, thanks to the higher revenues, while the telecommunications business remained substantially in line with the corresponding period of the previous year.

€ 6.4 million in net investments

Investments in the Other Services Area came to € 6.4 million, dropping by - € 0.3 million compared to the first semester of 2014. In telecommunications, € 4.3 million were invested in networks and TLC and IDC (Internet Data Centre) services, with an increase compared to 2014 of + € 0.1 million.

In public illumination services, the investments of € 2.1 million went to maintaining, revamping and upgrading public lighting systems, with an overall drop of - € 0.4 million concerning two companies in the AcegasApsAmga area, Sinergie and Insigna.

The details of operating investments in the Other Services Area are as follows:

Other Services
(€/mln)
June 2015June 2014Abs. change% change
TLC 4.3 4.2 +0.1 +2.4%
Public lighting and street lights 2.1 2.5 -0.4 -16.0%
Total other services gross 6.4 6.7 -0.3 -4.5%
Capital contributions 0.0 0.0 +0.0 +0.0%
Total other services net 6.4 6.7 -0.3 -4.5%

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Trading and procurement policy

Gas consumption on the rise: +8%

As far as gas is concerned, in the first half of the year consumption rose by 8% as compared to the same period of 2014, an increase in absolute terms of over 2.6 Gmc. The key driver of this recovery as compared to 2014 was the climate: in the first quarter of 2015, a colder winter than previous year led to a higher rate of civil consumption (+10% compared to the first quarter of 2014, which in absolute terms corresponds to an increase of more than 1.6 GMC); subsequently, at the beginning of the summer, higher temperatures along with lower rainfall and wind speeds increased the need for gas consumption in the thermoelectric sector (+8.6%).

Industry, less affected by the climate, instead displayed a decrease (-1.8%) despite numerous signs of economic recovery, a recovery which therefore has yet to manifest its effects in the gas-intensive industrial sectors.

Optimizing the portfolio

This market environment has naturally had a positive impact on sales of Group stock, and trading activities in the first half were focused, on one side, on optimizing the portfolio with the aim of balancing the short-term position and, on the other side, on the negotiation and management of new supply contracts for the 2015/16 thermal year.

In detail, short-term adjustments guided by efficient requirement forecasting were carried out through purchase or sales adjustments at the virtual trading point (PSV) in Baumgarten using the Title Transfer Facility (TTF) and on Net Connect Germany (German NCG). These operations generally occurred under favorable conditions and have made it possible to meet the expected target results.

Since April, Hera Trading has begun procuring both the gas earmarked to fill the storage acquired at auction, about 0.33 billion cubic meters, and the gas earmarked for the deregulated market of Hera Comm for the 2015/2016 thermal year, approximately 0.5 billion cubic meters, drawing directly from the spot market; as of June 30, this activity is still in progress.

Negotiating modulated gas in the amount of approx. 1.5 billion mc

During the month of April, ahead of time as compared to the previous year, negotiations began on the modulated gas destined for the protected market on the REMI (delivery points) of the Group sales companies, in the amount of approximately 1.6 billion mc for the 2015/16 thermal year, in line with the conditions of supply established by Aeegsi beginning in October 2013.

In terms of the electricity market, the first six months of 2015 were characterized by a substantial phase of stagnation both as regards fuel consumption, a decrease of 0.3% compared to the equivalent period of 2014, and as regards prices, which remained nearly the same from week to week: the weekly SNP from the beginning of 2015 up to week 27 ranged between 45 and 58 € / MWh.

The reform of the electricity market

The lack of recovery in demand and the downward trend in both Terna purchases on the ex-ante ancillary services market and in sales on the down regulation market, has further aggravated the situation characterizing the power generation sector which, in all locations, requires a review of the layouts of the market and regulatory framework, including changing the Ancillary Services market (MSD) with the aim of rewarding flexibility in gas-powered thermoelectric plants (Capacity Payment) pending the introduction of the capacity market.

The negative repercussions of the scenario that is heavily impacting manufacturers producing from conventional sources, in the case of the Hera Group, in view of the limited installed thermoelectric power as compared to the final market held, is greatly mitigated by sales activities carried out on end customers.

Reduction in the results of electricity trading

As for the trading of electricity and environmental certificates, in the first half of the year there was a slight contraction in the volume of shares traded and unit margins as well as a lower average enhancement of the import capacity as compared to the equivalent period of 2014. Particular attention was paid to the management/optimization of Hera Comm's purchase portfolio through transactions carried out on the stock exchange and over-the-counter (OTC) platforms.

The management of commodity risk and exchange proved to be particularly effective in a context of significant volatility in oil prices and euro-dollar exchange rates.

REMIT application

In the first half of the year, measures were initiated to enable the application of the Regulation on integrity and transparency in wholesale energy markets (REMIT) beginning this October.

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Financial policy and rating

Financial markets

In the first half of 2015, the economy in the Eurozone showed signs of recovery. Despite the uncertainty created by the Greek crisis and fear for China's slowdown, which spook equity and commodity markets, the perception of a recovery in the Eurozone has not changed substantially. In fact, Eurozone bonds and equities are less sensitive to the swings, quite sharp at times, of Asian markets thanks to the constantly improving cycle, support from the ECB's monetary policy and also to the recent abatement of the fear for Greece.

ECB's expansionary policy

The ECB did not change its expansionary stance, confirming the levels of its key interest rates and the €60 billion in bond purchases in the open market until September 2016 and otherwise until the adjustment of the inflation path will be such as to converge to the medium-term target (below but close to 2%). Developments in the Eurozone's economy are considered in line with the monetary policy committee's expectations while recent events in financial markets, which reflect the uncertainty about the international situation, did not alter the recovery path and expectations of a higher rate of inflation from the latter part of 2015 and for the next two years thereafter.

Interest rates at record lows

Support to the recovery also came from low interest rates which, thanks to the start of the ECB's quantitative easing, hit record lows, prompting many companies to take advantage of the window of opportunity to issue new debt instruments. In fact, companies that issued bonds benefited to a significant extent from interest rates that, on average, fell by one percentage point.

In the last few months of the first half, after a decline phase, the swap curve (reference for the bond market) resumed its upward path, reflecting a spread between 2- and 10-year swap rate of over 100 bps, heading for a medium-term reading of 125/120 bps.

Swap curve and 10-y BTP-Bund spread up

The uncertainty over Greece's future also contributed to a widening spread between the 10-year Italian BTP and the 10-year German Bund (a benchmark for the cost of funds). At 30 June 2015, the 10-year BTP had a yield of 2.1%, with a spread over the comparable German indicator that after reaching 90 bps in March rose to as much as 160 bps.

An active and prudential risk management model

Given the economic and financial context, the Group's financial management policies are designed to maximize returns though within the scope of a prudential risk management strategy. The average cost of debt was optimized thanks to liability and financial risk management activities intended to take favourable market opportunities. In particular, on 28 May 2015, 2 offset swap transactions were carried out, one on the €500-million 2019 bond (fixed rate 2.09%) and one on the €500-million 2021 bond (fixed rate 1.81%), which increased the fixed-rate portion of the Group's debt to 85%, with the objective of setting future cash flows at the level of the interest rates recorded in the first half of 2015. Following the offset swap transactions, the forward rate curve showed a rise which confirmed the Group's expectations of higher interest rates.

Committed Lines

To support the liquidity risk indicators and to optimize the opportunity cost of funding, the Group has committed lines of credit for €395 million with an average expiration of 4 years.

The financial risk management strategy

The following notes discuss the policies and principles follone in managing and controlling financial risks, such as the liquidity risk and related default and debt covenant risk, interest rate risk, exchange rate risk and rating risk.

Liquidity risk

An active and prudential risk management model

The Group tries to match the maturities of its assets and liabilities, linking its investments to sources of funds that are consistent in terms of maturity and manner of repayment, taking into account the refinancing requirements of the current debt structure. Liquidity risk refers to the company's failure to meet its financial obligations, due to the inability to obtain new funds or to sell assets in the market. The Group's objective is to ensure such a level of liquidity as to make it possible to meet its contractual obligations both under normal conditions and under critical conditions through the availability of lines of credit, liquidity and a timely start of negotiations on maturing loans, optimizing the cost of funding on the basis of current and future market conditions.

Liquidity adequate to a worst case scenario

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

Worst case scenario30.06.201531.12.2014
(€/million)from 1 to 3
months
from 3 months
to 1 year
from 1 to 2 yearsfrom 1 to 3
months
from 3 months
to 1 year
from 1 to 2 years
Bonds 14 288 84 43 286 83
Bonds and another financial liabilities 143 93 91 366 128 95
Trade payables 961 0 0 1.194 0 0
Total 1,118 380 176 1,603 414 178

To guarantee sufficient liquidity to meet every financial obligation for at least the next two years (the timespan of the above worst case scenario), at 30 June 2015 the Group had €423.9 million in liquidity, €395 million in unused committed lines of credit and a substantial amount that can be drawn down under the uncommitted lines of credit (€1,000 million). The lines of credit and the relevant financial activity are not concentrated in a specific lender but are distributed among the main Italian and foreign banks, with a use much lower than the total available.

Average maturity of debt over 8 years

At 30 June 2015, the Group had mainly a long-term debt structure, accounting for 90% of total borrowings, of which about 79% reflects bonds repayable at maturity. The average term to maturity is over 8 years, of which 67% maturing beyond five years.

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

Debt repayment outlays (€/mln)30.06.201531.12.201631.12.201731.12.201831.12.2019Over 5 yearsTotal
Bonds 0 195 0 0 500 2,035 2,731
Bank debt / due to others 180 88 68 49 46 298 729
Total 180 283 68 49 546 2,334 3,460

Default and debt covenant risk

This risk is related to the possibility that the loan agreements entered into contain clauses whereby the lender might demand accelerated repayment of the loan in the presence of certain events, thus giving rise to a potential liquidity risk.

No financial covenants

At 30 June 2015, a significant portion of the Group's net borrowings was covered by loan agreements containing a number of clauses, in line with international practices, that place some restrictions

The main clauses guarantee equal treatment of all debt holders (pari passu) and prevent the company from granting to subsequent lenders, with the same seniority status, better security and/or liens on its assets (negative pledge).

Change of control & Investment grade

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

Interest rate risk

Prudential interest rate risk management

The Group uses external funding sources in the form of medium- to long-term financial debt, various types of short-term credit facilities and invests its available cash primarily in immediately realizable highly liquid money market instruments.

Changes in interest rates affect both the financial costs associated with different types of financing and the revenue from different types of liquidity investment, causing an impact on the Group's cash flows and net financial charges.

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

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

Offset Swaps to optimize the cost of debt

The Group features an interest rate risk exposure, inclusive of the derivative effect, on 15% of its debt. The remaining 85% of its debt carries a fixed rate of interest, thanks also to the offset swap transactions completed on 28 May, converting to fixed rates the floating rates that each of the two €500-million bonds maturing in 2019 and 2021 were required to pay, as of March, as a result of hedging swaps.

The transactions lowered the interest rates for the two bonds to 2.09% and 1.81%, respectively, a much lower level than the original 4.5% and 3.25%.

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

85% of debt carries a fixed rate of interest

Gross borrowings (*)30.06.201531.12.2014
(€/million)without
derivatives
with derivatives% with
derivatives
without
derivatives
with derivatives% with
derivatives
fixed rate 2,794 2,825 85% 2,888 2,013 56%
floating rate 526 496 15% 711 1,586 44%
Total 3,321 3,321 100% 3,599 3,599 100%

Exchange rate risk unrelated to commodity risk

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

Rating

Il rating conferma i punti di forza costruiti dal Gruppo nel tempo

Hera Spa ha i rating sul lungo termine di Moody's 'Baa1 Outlook Stabile' e di Standard & Poor's (S&P) 'BBB Outlook Stabile'.

Il 3 giugno 2015 Moody's ha rilasciato una Credit Opinion in cui conferma il livello di rating "Baa1" e migliora l'Outlook a "stabile", valutando positivamente il profilo di rischio del Gruppo in termini di soliditΰ e buon equilibrio del portafoglio di business gestiti, nonchι buone performance operative e la strategia consolidata del Gruppo.

Il Rating di S&P risulta confermato in quanto presenta l'aspettativa di S&P che il Gruppo possa raggiungere i livelli target sugli indicatori di merito creditizio e che la sua solvibilitΰ non sia completamente vincolata alle condizioni del rischio sovrano.

Dato l'attuale contesto macroeconomico e l'incertezza sulle prospettive normative ed economiche del Paese, il Gruppo ha quindi rafforzato le azioni e le strategie indirizzate a garantire il mantenimento/miglioramento di adeguati livelli di rating.

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Sustainability policies

Presented in H1 last sustainability report

Contains the numbers of economic, social and environmental responsibility.

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

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Quality,safety and environment

Hera Spa has confirmed the vailidty of its integrated management system, having passed maintenance audits for the ISO 9001, ISO 14001, OHSAS 18001 and SA8000 standards.

Other important outcomes were achieved by certain Group companies:

  • Hera Luce successfully passed maintenance audits for the SA 8000 certificate and the integrated quality, safety and environment management system;

  • the effectiveness of Hera Comm's quality management system was confirmed;

  • Herambiente confirmed ISO 9001, ISO 14001 and OHSAS 18001 certificates and EMAS registrations for its plants, also extending them to the new corporate structure.

At the beginning of 2015, the Lean Organization project conducted as part of the unified prevention and protection service was concluded, with a particular focus on the risk assessment process.

In June, the Lean Organization project was initiated in the area of Hera Spa QSE Coordination.

Updates were initiated in relation to some health and safety risk assessments such as: electrical hazards, confined spaces, fire risks and the risk of work-related stress.

As a result of the prevention and protection measures established and the implementation of the identified and recommended mitigation measures, the results of the risk assessments show acceptable levels of residual risk in relation to the criteria adopted.

The overall trend in the number of accidents at Hera Spa shows an increase largely due to traffic accidents both "in transit" (home - work) and during working hours. The activity of QSE Privacy and Regulations Internal Control continued, further developing legal constraints concerning privacy.

As part of an integrated management system, legal prescriptions concerning Health and Safety, Environmental Protection, Quality and Privacy for the Hera Group have gained increasing weight as a normative reference.

Protocol 231 for the prevention of environmental crimes was updated following the development of national regulations. In terms of information security, a vulnerability assessment of the structures of Hera and Acegas Aps Amga's remote control systems was conducted in response to the changing scenario of external threats, taking the opportunity to direct security considerations toward the harmonization of the two infrastructures.

In the field of physical security, a review of the risk management approach was carried out following an ERM orientation and the results will be shared with the Enterprise Risk Manager by the end of the year. As part of the evolution of corporate information systems in the Environmental, Health and Safety field, in early 2015 production was initiated on the prevention and protection programming system, proceeding with the actual use of a pilot application in the BU water area before going live in the area of sewage raisers.

During the first half of 2015, all planned audits were carried out together with the reference services or on request for all the management's areas of competence. Likewise, all the findings of the audits were shared with the Services and all the necessary upgrading or improvement measures were taken.

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Industrial relations,employee development and training

Industrial relations

In 2015 work continued in the various local areas and Group companies to harmonize conditions originating from local bargaining (homogenization was achieved in the territories of Ravenna and Forli-Cesena over the summer period in relation to working hours in specific operational areas with the consequent reduction of on-call overtime; certain benefits no longer suited to changed work contexts were also harmonized). Remuneration and regulatory conditions were also harmonized with those currently in place in the Group for the employees of Herambiente SpA headquartered at Pozzilli (Isernia) in the areas of holidays, making up overtime, additional time off, medical appointments, delays and transfers. In terms of on-call response, verification meetings continued to be held following the implementation of the new organizational model of emergency response. This process led to approving the Minutes of meetings in which it was decided that further refinement activities would be carried out in relation to both the organizational model and operational scopes. Agreements were also signed in all areas of the Group relating to the calculation and definition of productivity indicators for the 2013-2015 performance bonus. The legally required joint verification procedure was also carried out in relation to the merger of Akron Spa into Herambiente Spa. And finally, for the first time at the Group level, an Agreement on Financed Training was signed.

Development

Activities continued in the formation and diffusion of the Group's Leadership Model: a series of initiatives have been carried out since 2010 for all managers and middle managers. In the first half 2015, training initiatives were held about the focus on service, addressing primarily the Group's middle managers, managers and directors, fully integrated into the employee program of AcegasApsAmga. In the first half of the year, the questionnaire for the internal climate survey was updated, and all the necessary communicational and organizational activities were initiated for the launch of the survey, which will be conducted according to the "Policies of good re-entry" project, funding for which was actuated March 19, 2013 and concluded March 18, 2015; a final report on the project, which was approved by all the trade unions, was also sent to the Ministry and a verification of the consistency of the values and activities reported is scheduled for the second half of the year. In 2015, the new Development Process was launched for the entire Group, involving the training of all the supervisors involved in the evaluation and calibration process, as well as an assessment of Managerial Performance and Skills covering approximately 5,000 employees.

Training

In the first half of 2015 a total of 141,190 hours of training were held at the Group level: 16.9 hours were held per capita (14.6 in 2014), with an increase of approximately 16%. At the Group level, approximately 92% of employees were involved in at least one training activity. The economic investment, less costs for personnel in training and in-house instructors, was 766,702 euro, 95,018 euro of which derived from the use of financed training funds. The data attest to the substantial investment in terms of both funds and resources that the Group dedicates to the ongoing valorization and development of its human capital, including through the consolidation of HerAcademy, the Group's Corporate University.

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Commercial policy and customer care

Crescita della base clienti del Gruppo

In the first half of 2015, the Group's customer base increased by 5.3% compared to the same period of the previous year.

Electricity customers increased by 9.3%, mainly thanks to the sales push as well as the consolidation of customers from Amga Udine, who were brought into the Group beginning 1 July 2014.

Gas customers increased by 110 thousand units (+ 9.0%). This result was largely due to the new companies entering into the Group: Amga Udine in July 2014 and Alento Gas in May 2015. Not including the newly merged companies, the customer database recorded a slight increase.

Water customers initially increased by approximately 0.2%, with a lower growth than in previous years due to the ongoing crisis in the real estate sector.

Contracts (thousands)June 2015 June 2014Delta pdf n.delta pdf %
Gas 1,327.3 1,217.1 110.2 9.1%
Electricity 826.3 755.9 70.4 9.3%
Water 1,445.7 1,443.1 2.6 0.2%
District heating 11.6 11.4 0.2 1.8%

Amounts in thousands

The volume of contacts handled by the Group's channels was slightly lower in the first half of 2015 compared to the same period of 2014 (-2.5% average daily contacts); the decline involved all channels except the internet, which continues to grow (+ 7%).

Overall, the most heavily used contact channel was the call center (54.2%), followed by help desk (28.3%), internet (12.4%) and mail (5.2%).

The results obtained by the Hera Call Center were largely improved compared to the first half of 2014, both in terms of average waiting time (-33% residential customers, 15% business customers) and the percentage of calls with a waiting time of more than 2 min, which was 8% compared to 11% in the same period of 2014.

The same was true of the Hera help desks, recording in the first half of 2015 an average waiting time of less than 9 minutes (-23% compared to the same period of 2014).

The excellent performance achieved by contact channels has contributed to improving the overall quality perceived by end users.

Secondo l'indagine di Customer Satisfaction, infatti, il punteggio raggiunto dagli sportelli θ stato 81 (+2 punti rispetto al primo sem. 2014), a seguire il Center Famiglie con 80 (+3 punti rispetto al primo sem. 2014) e il Call Center Aziende con 75 (valore in linea con il 2014).

As a matter of fact, according to the customer satisfaction survey, help desks achieved a score of 81 (+2 points compared to the first half of 2014), followed by the Family Call Center with 80 (+3 points compared to the first half of 2014) and the Company Call Center 75 (value in line with 2014). In addition, during the first half of 2015 important initiatives to standardize the Group's contact channels were carried out involving, for the first time, the areas of Trieste and Padua (entry into the Hera Group telephone platform) and Udine (new help desk layout).

Below are listed some of the key quality parameters concerning Hera help desks and call centers:

Average waiting time - contact center (sec.)1'half 20131'half 20141'half 2015
residential customers 53 46 31
business customers 33 32 27

Average waiting time - customer point (min.,
sec.)
1'half 20131'half 20141'half 2015
Average 12 11 9

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Information system

The Information Systems department is responsible for ensuring that processes and systems are efficient and continuously adapted to sector regulatory requirements, in addition to supporting business, improving service levels and reducing the risks in terms of the systems' technology and safety in keeping with the Group's strategic guidelines and sustainability objectives.

Corporate developments

In the first half of 2015, following the Group's corporate evolution, activities were initiated and completed on systems related to the merger of Akron into Herambiente and the establishment of the new company Hestambiente for the management of the Padua and Trieste waste-to-energy plants.

Harmonizing the systems of other companies

Harmonization of the other companies' systems is continuing within the Group's Enterprise framework and platforms, as is the associated adaptation of internal policies; in addition to AcegasApsAmga, which continues to follow the current three-year plan, analyses and associated planning for all the other Group companies were initiated.

Regulatory compliance

In terms of regulatory compliance, in the first half of 2015 there were more than 30 initiatives with repercussions on the information systems concerning TARI management, the Default Service, Split Payment and Reverse Charges (2015 Stability Law), the treasury system for managing EMIR Directives regarding derivatives, and the multi business remote reading pilot project, among others.

Supporting business

The activities in support of business have included several actions carried out to ensure greater process efficiency and better visibility in the eyes of customers; these include the Customer Portals and Apps for accessing Group services.

Technologies risk reduction

Technological risk reduction activities have involved continuing with the project of archiving business processes data/documents on the SAP platform, thus reducing the size of the system database and making it possible to obtain the best performance and lowest storage costs.

DSI processes efficiency

Beginning in January a new organizational structure was launched for the department aimed at specializing the structures related to operating systems activities and developing and evolving the platforms; a part of this comprises the initiatives for the new Group Unified Control Room model and strengthening the Demand Management structures for the various business areas.

Information systems securit

The security of information systems and the proper management of data privacy in relation to corporate information is one of the main goals of the Information Systems Department, which continually updates and improves standards in compliance with applicable laws and company policies and invests in training its staff.

The department continues to work to prevent and monitor against possible cyber-attacks by continuing the specific activities already underway and periodically carrying out risk analysis (vulnerability assessment) on ongoing systems.

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Human resources

Human resources

As of June 30, 2015, the Hera Group had 8,376 permanent employees (consolidated companies), with the following breakdown by role: managers (150), middle managers (506), employees (4,365) and workers (3,355). This workforce was the result of 115 new hires and 161 departures as well as changes in scope* that brought 3 new hires. The new hires were made essentially as a result of qualitative turnover involving the addition of more qualified staff.

(*) Alento Gas

Industrial and operational integration: the Hera model

Organization

In the multi-utility landscape, the Hera model is distinguished for having carried out an industrial and operational integration based on a Holding which ensures an integrated Group vision through Central Departments dedicated to planning and control. Through the specific Business areas, the operational management of the Group's activities is guaranteed; their coordination and direction (as far as the operational areas are concerned) is provided by the Operations General Department.

The Utility sector is increasingly characterised by rapid changes, with competitive dynamics and a regulatory context oriented towards specialisation, and by certain key elements (such as water and environmental services regulations, public tenders for services and regional regulation). In short, in this landscape growth is closely tied to businesses' ability to achieve continuous innovation in industrial processes.

Innovating and simplifying operational mechanisms

The Group's operational model was consolidated during 2015, pursuing the simplification of operational mechanisms and further increasing the commitment to technological and process innovation with the aim of identifying tools for achieving the Group's objectives.

The Group's organizational macrostructure is outlined below:

Within the Operations General Department, the Engineering Department was organizationally reconfigured, overcoming the division between Large Plant Engineering and Network Systems Engineering and concentrating skills related to the planning, design and implementation of projects within a single organizational area.

The Group aims to maintain the best balance between business-sector prospects and ties with the local area through organization, processes, resources and systems, seeking to maximize the effectiveness and efficiency of its services.

Harmonizing the AcegasApsAmga organizational model

In the course of 2015, the process of organizational harmonization of AcegasApsAmga was continued. To that end the activities of procurement, fleet management and facility management were concentrated in the Purchasing, Procurement and Services department.

in the Purchasing, Procurement and Services department. A project has also been launched with the aim of fostering an improvement in the performance and service levels provided by the interface structures at AcegaApsAmga, promoting an integrated vision of the various areas associated with customer management.

As of June 30, 2015 the activities leading to the merger by incorporation of Akron Spa into Herambiente Spa have been completed, the latter company to be operational as of July 1, 2015.

Main developments at Herambiente

These activities were aimed at consolidating the position of market leadership in the process of recovering materials and energy from waste, contributing to completing the value chain downstream of the usual treatment process.

By virtue of this merger, Herambiente gained 7 plants in the Emilia-Romagna region complete with storage, selection, treatment and recovery facilities.

Finally, in the Production Department, the Company Hestambiente Srl was established, with operational effectiveness as of July 1, 2015, following the sale by AcegasApsAmga of waste-to-energy plants in Padua and Trieste with the strategic objective of developing the business and strengthening the company's leading position in the field of waste disposal.

Main developments in the Central Market Department

In relation to the Central Market Department, the following developments occurred:

  • effective March 2015, the reorganization of Hera Comm's Top Business Market and associated definition of the organizational structure of Hera Servizi Energia, the company that oversees and develops integrated management services for electricity and heat as well as the improvement of energy efficiency and heat management;

  • effective April 1, 2015, the definition of the organizational structure of Amga Energia & Servizi in accordance with Hera Comm's configuration and orientation guidelines, and the concurrent reorganization of Hera Comm's Costing and Forecasting function;

  • effective February 2015, the reorganization of Hera Comm's Company Market function

Main developments in central departments

The final event of note is the reorganization of the Finance function of the Administration, Finance and Control Central Department.

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While waiting for the new Business Plan

What they say about us

Financial Times 24 August 2015