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Operating results

Consolidated Income Statement
(in millions of €)20102011
Revenues3,666.94,105.7
Other operating income210.4210.2
Raw materials and consumables (net of changes in inventories)-2,140.5-2,440.1
Service costs-810.7-870.5
Other operating costs-38.8-39.8
Personnel costs-361.9-370.0
Capitalised costs81.949.3
EBITDA607.3644.8
Amortisation, depreciation, allowances-291.9-310.3
EBIT315.4334.5
Financial charges-109.8-113.2
Pre-tax profit205.6221.2
Tax-63.6-94.5
Net profit for the year142.1126.8

Despite the presence of the persistence of a particularly unfavourable economic climate, 2011 results disclosed growth in all the main economic and quantitative indicators. The main business areas continued to disclose constant growth when compared with last year, with the exception of the waste management area, where the impact of the slowdown in production activities is most evident.
The main economic and operating results were all up with the exception of the net result; in relation to the latter, it should be recalled that 2010 had benefited from non-recurrent positive effects on taxes for Euro 25.1 million. Net of these effects, the net result would also have been up on last year.
The majority of the quantitative indicators were up: greater volumes of electricity were sold, partly thanks to the allotment of the management of protected customers for the Lombardy, Tuscany, Lazio and Abruzzo, Molise and Puglia regions, for the three-year period 2011-2013, and greater volumes of water managed. By contrast, minor volumes of gas and heat were sold and distributed, due to higher average temperatures when compared with last year, in any event offset by greater volumes brokered, and lower volumes of waste marketed.
Furthermore, the following events occurred during 2011:

  • As from February 2011, the Herambiente Group consolidated the activities of Enomondo at 50%, a company which runs a 13 MWe biomass plant, in partnership with Caviro Distillerie Srl.
  • In July 2011, Hera Comm Marche absorbed Sadori Gas, which currently has a customer portfolio of more than 34,000 contracts, able to generate over 47 cubic metres of gas sold a year, distributed throughout 42 Municipalities included in the provinces of Pesaro-Urbino, Ancona and L'Aquila.
  • Hera Spa extended the scope of activity of the gas distribution service winning the public tender for the service in the municipality of Formignana (FE) as from 1 July 2011 and acquiring the networks in the municipalities of Pievepelago, Riolunato and Fiumalbo (Mo) as from 1 June 2011; annual volumes distributed will increase approximately 4 million cubic metres.

As already emerged from the financial statements as at 31 December 2010, the Consolidated Income Statement incorporates the application of the interpretation of accounting standard IFRIC 12 "Service Concession Arrangements" which changed the procedure for reporting company events for companies operating in industries regulated by specific concessions. In accounting terms, the effect of the application of this principle, which does not alter the results, is the representation in the income statement of the investment work carried out on assets under concession, limited to grid services. Therefore, other operating income was higher by Euro 143.6 million for 2011 and by Euro 135.2 million for 2010, capitalised costs were lower by Euro 35.5 million in 2011 and Euro 35.4 million in 2010 and operating Service costs, materials and other operating expenses were higher by Euro 108.1 million in 2011 and Euro 99.8 million in 2010.
EBITDA rose from Euro 607.3 million in 2010 to Euro 644.8 million in 2011, +6.2%; EBIT increased from Euro 315.4 million to Euro 334.5 million, + 6.1%; the pre-tax result increased 7.6%, passing from Euro 205.6 million to Euro 221.2 million; the net profit fell from Euro 142.1 million in 2010 to Euro 126.8 million in 2011, -10.8%.
Revenues rose Euro 438.8 million, +12.0%, increasing from Euro 3,666.9 million in 2010 to Euro 4,105.7 million in 2011. This was mainly due to: (i) greater volumes of electricity sold (+ 29.1%) and distributed; (ii) additional gas sales and distribution revenues, partly as a result of the increase in the prices of the raw material (gas); (iii) higher revenues from the waste management area, in particular due to additional electricity generation revenues; (iv) the additional revenues from management of the water cycle.
The increase in costs for raw materials, amounting to Euro 299.6 million, when compared with last year, was affected by the higher volumes of electricity sold and the increases in the price of the raw material (gas).
Other operating costs (Service costs were up by Euro 59.8 million and Other operating costs by Euro 1.0 million), saw a total increase of Euro 60.8 million (+7.2%); the increase is attributable to higher costs for transporting electricity and gas (representing over 75%), while the remaining balance concerns additional costs due to the application of IFRIC 12, the increase in the scope of activities and inflationary dynamics.
The increase in Personnel costs, which rose from Euro 361.9 million in 2010 to Euro 370.0 million in 2011 (+2.2%), is mainly connected to changes in contractual dynamics.
The decrease in Capitalised costs, which fell from Euro 81.9 million to Euro 49.3 million, is essentially linked to minor work carried out on plants and work between Group companies, specifically for the completion of the new WTE plants.
The Group consolidated EBITDA in 2011 disclosed growth, rising from Euro 607.3 million to Euro 644.8 million (+6.2%), thanks to the satisfactory performance of the electricity sector, which rose from 9.8% to 11.4% as a percentage of the total result, and of the gas and water cycle sectors.
Amortisation, depreciation and allowances increased by 6.3%, up from Euro 291.9 million in 2010 to Euro 310.3 million in 2011. The increase was essentially due to: (i) greater allowances made to the bad debt provision, (ii) the bringing onto stream of new disposal plants whose depreciation offsets the effect of the reduction in minor quantities transferred to landfills.
EBIT for 2011 amounted to Euro 334.5 million, up 6.1% when compared with the same period in 2010.
The result of financial operations as at 31 December 2011 amounted to Euro 113.2 million compared to Euro 109.8 million as at 31 December 2010. The greater liability is due to the increase in average borrowing and the rise in the spreads registered throughout 2011. The total cost of financial operations also reflects the benefits deriving from the management of cash on hand which partly pegged the rise in borrowing rates as well as the additional profits from associated companies amounting to around Euro 0.4 million.
As a result of the above, profit before taxes increased from Euro 205.6 million in 2010 to Euro 221.2 million in 2011, up by 7,6% or Euro 15.6 million.
Taxes rose from Euro 63.6 million to Euro 94.5 million; 2010 had included non-recurrent positive effects for Euro 25.1 million, while 2011 benefited to an extent of Euro 7.6 million. Specifically, assets acquired by the parent company Hera S.p.a. due to the merger via incorporation of Agea Reti were recorded for an additional statutory value of Euro 6.4 million; this additional value, not recognised for tax purposes, was freed up in 2011 by means of the application of the substitute tax pursuant to Article 176.2 ter of the FCA, amounting to Euro 0.8 million, leading to the consequent reversal to the income statement of the deferred tax liabilities originally recorded. The transaction therefore made it possible to record a positive non-recurring balance of Euro 1.2 million in the income statement.
Furthermore, the Group carried out a realignment of the tax and statutory values relating to the goodwill, deriving from the consolidated financial statements as at 31 December 2010, pertaining to the controlling equity investments, as per Articles 23, subsections 12-15 of Decree Law no. 98/2011, by means of application of the substitute tax, totalling Euro 5.8 million and the consequent recognition of deferred tax assets, totalling Euro 12.2 million, equal to the full future IRES and IRAP tax benefit on the amount freed up. The transaction made it possible to record an additional positive non-recurring balance of Euro 6.4 million in the income statement.
In addition to the above, additional taxes were recorded following the increase in the IRES Robin surtax by 4 percentage points, as well as the increase in IRAP of 0.30% for the concessionary companies set up as a result of the 2011 measures for a total of Euro 4.6 million. The final tax rate therefore comes to 42.7%.
Net profit as at 31 December 2011 amounted to Euro 126.8 million, down 10.8% compared to Euro 142.1 million in 2010.
Net of the extraordinary effects of taxes for 2011 and 2010, the net profit would increase Euro 2.2 million, +1.9%, on last year.

 
Balance sheet
(in millions of €)31-Dec-201031-Dec-2011
Net fixed assets4,142.34,292.7
Net working capital-29.1-31.5
Provisions-382.8-394.7
Net capital employed3,730.43,866.5
Shareholders’ equity1,870.21,879.4
Long-term debt2,292.12,323.1
Net short-term position-431.9-336.0
Net financial position1,860.21,987.1
Total sources of financing3,730.43,866.5

The net capital employed in 2011 increased 3.6% from Euro 3,730.4 million to Euro 3,866.5 million as a result of the investment plan.
Net fixed assets as at 30 December 2011 amounted to Euro 4,292.7 million compared with Euro 4,142.3 million in December 2010, involving an increase of 3.6%.
Provisions at the end of 2011 amounted to Euro 394.7, up 3.1% with respect to the balance in December 2010 of Euro 382.8 million.
Net working capital remained more or less unchanged, disclosing an improvement of around Euro 2.4 million when compared with December 2010.
Shareholders' equity rose from Euro 1,870.2 million to Euro 1,879.4 million due to dividends authorised for a total of Euro 121.4 million, of which Euro 117.2 million already distributed.

 
Operating investments (non financial)
(in millions of €)20102011
Gas/District Heating/Heat Management Services48.852.2
Electricity/Industrial Cogeneration Services39.033.8
Integrated Water Service94.2100.6
Waste Management Services98.770.1
Other Services13.314.0
Central Structure51.854.2
Total345.8324.9

Gas service investments were higher than in the same period last year. Measures for the gas service in the area in question, regarded expansion, enhancement and upgrading of distribution networks and plant and included the start-up of the project for the mass replacement of gas meters. In the district heating service sphere, investments concerned network extension work in the areas of Bologna, Imola, Forlì-Cesena, Ferrara and Modena whereas Heat Management service investments concerned structural work on thermal plants operated by companies of the Group.
Electricity service investments mainly concerned the extension of the service and special maintenance of the plants and distribution grids in the Modena and Imola areas, along with network support services. Investments in the area were down with respect to the same period in the previous year due to the completion of the new photovoltaic plant built at the Bologna Freight Village and the final stage of the mass replacement of current meters with electronic meters, to comply with the replacement plans resolved by the AEEG. Investments include those relating to the production of energy and heat which mainly refer to the co-generation plant in Imola and those relating to industrial co-generation which regard the construction of new plants at local companies.
With regard to the Integrated Water Cycle, it saw an increase in measures on treatment plants with respect to the same period last year. Investments mainly refer to expansions, enhancements and upgrades of networks and facilities, and to regulatory compliance mostly in the treatment sewage sphere.

 
Investments in the integrated water service of Territorial Operating Structures (2011)
 

With regard to the seven TOS, during 2011 41% of investments concerned the extraordinary maintenance of the networks (in line with last year), while 33% concerned plant, specifically in the treatment sphere (25% in 2010). Investments for the extension of networks and connections were down, equating to 26% of the total (33% in 2010).

In the waste management service, initiatives for the maintenance and enhancement of existing facilities were up with respect to the previous year. With regard to waste-to-energy plants, initiatives mainly concerned the construction of the Rimini plant.
With regard to Other services, in the telecommunications sphere, a transaction was carried out for the acquisition of transmission capacity (IRU) linked to the exit of Infracom. The Public Lighting service saw investments down with respect to the same period in 2010; the Other item included investments in cemetery services inclusive of the construction of the new crematory complex.
There was an overall increase in investments within the Central Structure sphere when compared with the same period of the previous year, due to maintenance measures on the vehicle fleet and those for developing the information systems. Other investments include measures for completing the laboratories and the remote control structures.

Financial equity investments and acquisitions
(in millions of €)20102011
Investments8.10.0
 
Total investments of the Territorial Operating Structures (millions of euro)
 

Environmental costs and investments
The measurement of the costs and the environmental investments makes it possible to quantify in economic terms the interventions carried out in order to improve the environmental sustainability of the Group and the territory in which it operates, thereby showing how much of the activity translates into environmental improvement.
Any cost or investment connected to interventions which resulted in a significant positive environmental impact was defined as an environmental expense. Taking account of the activities managed by Hera, several characteristic activities carried out by the company such as separate waste collection, the operation of composting plants or the expansion of treatment plants were also taken into consideration.

Environmental costs and investments
(in millions of €)20102011
Costs239.2245.5
Investments147.6126.0

With respect to the energy services, environmental costs pertain to the emergency response services for gas network safety, ordinary maintenance of the gas network, the operation of plants for the generation of energy from renewable sources, the operation of the networks and district heating plants.
For the water service, environmental costs are connected to the emergency response service, the ordinary maintenance of the aqueduct and sewage systems and to the disposal of waste water treatment and purification sludge.
For the environmental services, the activities considered were the management of separate waste connection, the operation of waste selection, separation and composting plants and the disposal of the waste produced by disposal plants. Furthermore, the fees paid to Municipalities for the environmental compensations relating to the waste disposal plants were counted.
Lastly, the costs involved in energy savings activities, the environmental management system and for the purchase of methane fuel for the motor vehicles were considered.
In total, the operating costs connected to interventions aimed at improving environmental sustainability amounted to Euro 245.5 million in 2011 (3% more than in the previous year). The most significant increases concerned waste management services, specifically separate waste collection, and the costs for the purchase of energy certificates (mainly white certificates).
With regard to investments, in relation to energy services, the activities considered were those aimed at the extraordinary maintenance of the gas networks, the construction or upkeep of plants for the generation of electricity from renewable sources or similar sources and the management of district heating systems. The investments related to industrial cogeneration were also considered.
For the water service, the interventions aimed at reducing losses within the water systems, the extensions of the sewage network and treatment plants and the interventions for the improvement of the environmental performance of the plants themselves were counted.
For the waste management services, the activities connected to separate waste collection, e.g. investments in Equipped Drop-Off Points, the construction or upkeep of the waste selection, separation and composting plants, the reduction of atmospheric emissions from waste-to-energy plants, the generation of electricity in waste-to-energy plants were considered. Also considered were the investments for the disposal of waste produced by the company (landfill leachate collection facilities in landfills and waste disposal plants).
With regard to the central structure, investments for the purchase of methane-fuelled vehicles and of skips and "igloo" bins for separate waste collection were considered.
Total environmental investments amounted to Euro 126 million, down 15% from 2010, mainly as a result of the minor investments in the waste management area in relation to the completion of the upgrade work on the waste-to-energy plants in 2010, partly offset by the increases relating to composting plants and in the photovoltaic sector. Environmental investments accounted for 39% of non financial operating investments.