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Financial institutions

The Group continues with its policy of providing financial institutions with fully transparent and correct information as part of its communication activities, with a balanced distribution of debt.

Major loans (breakdown) as at 31 December
European Investment Bank37.7%42.8%47.6%
Banca Intesa21.5%17.0%12.0%
Banca Credito Cooperativo Ravennate Imolese0.0%0.0%5.4%
Dexia Crediop6.7%5.9%4.7%
Banca delle Marche3.5%4.1%4.2%
Cassa depositi e prestiti4.3%4.1%3.8%
Banca Popolare di Milano3.2%3.4%3.2%
Other institutions11.5%11.8%11.1%

The goal of the Group's financial management is to maintain an adequate current and prospective balance between capital expenditure and sources of funds, both in terms of duration and of type of rates.

Net Financial Indebtedness
(in millions of €)20102011
Cash on hand538.2415.2
Other current loans44.339.1
Current financial indebtedness-150.7-118.3
Net current financial indebtedness431.8336.0
Non-current loans10.310.9
Non-current financial indebtedness-2,302.3-2,334.0
Net non-current financial indebtedness-2,292.0-2,323.1
Total net financial indebtedness-1,860.2-1,987.1

The net financial position as at 31 December 2011 came to Euro 1,987.1 million compared with Euro 1,860.2 million in 2010. The increase in net indebtedness is mainly due to the investments made in the local area and the dividends paid out during 2011.
Investments made amounted to around Euro 325 million, while dividends distributed during 2011 totalled Euro 117.2 million.
As at 31 December 2011, the Group had about Euro 415 million in cash, Euro 280 million in unused committed credit lines, as well as uncommitted credit lines (over Euro 1,100 million), for the purpose of guaranteeing sufficient liquidity to cover any financial commitments at least for the next two years.
The policies and principles for the management and control of the Group's financial management are set out below.

Debt quality

The Group aims to assure such a level of cash as to enable it to fulfil its own contractual obligations both under normal business conditions and in a recession, by maintaining available credit lines, cash and promptly starting negotiations on loans reaching maturity, optimising the cost of funding in relation to current and prospective market conditions.
We note the balanced asset structure of the Group, which offsets the high level of fixed assets with a financial position mainly comprising medium/long-term debt.
Credit lines and the related financial assets are not concentrated in any specific financial institution but are evenly distributed among the principal Italian and international banks with a use largely inferior to total availability.
With regard to medium-long term debt structure, mention should be made of the drawing, carried out on 10 October 2011, of Euro 50 million, envisaged contractually, of the Put Bond maturing in 2031.
As at 31 December 2011, the Group's structure is such that the long-term debt portion is equal to 98% of total financial payables.
Average maturing is about 9 years, of which 59% comprises debts with maturity beyond five years.
There are no financial covenants, apart from that, on a number of loans, relating to the limit on corporate rating, even by a single Rating Agency, below Investment Grade (BBB-).

Cost of Debt

The Group uses external financial resources in the form of medium/long-term financial debt, bank credit facilities of various types and uses the liquidity available mainly in monetary market instruments which can be immediately unfrozen. The changes in the levels of the market interest rates influence both the financial charges associated with various technical forms of lending and the income of various forms of using liquidity, therefore affecting the cash flows and the net financial charges of the Group.
As at 31 December 2011, the exposure to the risk of unfavourable fluctuations in interest rates, with a consequent negative impact on the cash flows, equates to 31% of the total gross financial indebtedness.
The derivatives are perfectly consistent with the underlying debt and in compliance with IASs (International Accounting Standards).
The Group's hedging policy does not provide for the use of instruments with speculative aims and its goal is the optimal allocation between fixed and floating rate within the scope of a conservative strategy with respect to rate oscillation risks. Interest rate risk management essentially aims to stabilise financial flows in order to assure the margins and the certainty of the cash flows from ordinary operations.
During in 2011, even in the presence of a structure that is strongly characterised by long-term debt, the Group was able to maintain its cost at an overall average level around 4.4%.
The portion of value added allocated to financial institutions in 2011 came to Euro 119.5 million.

Credit ratings

The significant development plan implemented by Hera over the past years has involved a continually balanced recourse to financial indebtedness, so as to permit a sound financial statement structure.
The Group's financials are assessed by the two leading international specialised ratings agencies: Moody's ("Baa1 Outlook Negative") and Standard & Poor's ("BBB+ Outlook Stable").
2011 saw a very difficult financial and economic situation which, as is known, led to the downgrading of Italy's sovereign rating. Within this context, on 25 January 2012 Moody's reviewed the Hera Group rating over the long-term, reducing it from "A3 Outlook Stable" to "Baa1 Outlook Negative", while in 2011 Standard & Poor's rating of "BBB+ Outlook Stable", was confirmed. The negative outlook assigned by Moody's depends exclusively on the decision made on the sovereign rating and is linked to the potential impacts which could affect the Group due to deterioration of the Italian macro-economic situation and uncertainty regarding the country's prospects.
Thus, given the current context, action and strategies aimed at ensuring the maintenance/improvement of adequate rating levels have been further enhanced.