hera group consolidated annual report 2011

HeraGroupConsolidatedandSeparateFinancialStatementsFinancialyearended31December2011

0 Introduction LettertoShareholders 001 Mission 003

Groupstructure 004 Administrativeandcontrolbodies 005

Intruduction 006Keyfinancialinformation 007

History 008 Strategy 010 ThedevelopmentofsustainabilityinHera 016 Developmentofthebusinesses 018

Developmentoftheownershipstructureandremunerationofshareholders 025

NoticeofcallingoftheShareholdersMeeting 030

1 Directors'report1.01 Introduction 0311.02 Corporateevents 0331.03 Groupperformanceasat31December2011: 035 1.03.01 Financialandeconomicresultsandinvestments 035 1.03.02 Regulatoryframeworkandregulatedrevenues 046 1.03.03 Analysisbybusinesssegment 0561.04 Commercialpolicyandcustomercare 066 1.04.01 Customersatisfaction 0701.05 Tradingandprocurementpolicy 0721.06 Financialpolicyandrating 0881.07 Researchanddevelopment 0911.08 Humanresourcesandorganisation 0941.09 Informationsystems 1011.10 Quality,safetyandenvironment 1041.11 PerformanceoftheParentCompanyin2011 1071.12 ResolutionsconcerningtheParentCompanysresultsforthe

financialyear 108

2 HeraGroupConsolidatedFinancialStatements2.01 Consolidatedaccounts 109 2.01.01 Incomestatement 109 2.01.02 Aggregateincomestatement 110 2.01.03 Statementoffinancialposition 111 2.01.04 Cashflowstatement 113 2.01.05 Statementofchangesinshareholdersequity 1142.02 FinancialstatementsResolution15519of2006Relatedparties 115 2.02.01 Incomestatement 115 2.02.02 Statementoffinancialposition 116 2.02.03 Cashflowstatement 1182.03 Explanatorynotes 119 2.03.01 Consolidatedexplanatorynotes 119 2.03.02 Explanatorynotesonrelatedparties 2172.04 Netfinancialdebt 222 2.04.01 Consolidatednetfinancialdebt 222 2.04.02 NetfinancialdebtResolution15519of2006 2232.05 Equityinvestments 2.05.01 Listofconsolidatedcompanies 224 2.05.02 Listofsignificantinvestments 226 2.05.03 Essentialfinancialstatementsdataofsubsidiariesandaffiliates 2342.06 TablepursuanttoArticle149duodeciesoftheIssuersRegulations 2372.07 StatementpursuanttoArticle154bisofLegislativeDecreeno.58/98 2382.08 ReportbyIndependentAuditingFirmandBoardofStatutoryAuditors 239 2.08.01 Independentauditingfirm 239 2.08.02 BoardofStatutoryAuditors 241

3 HeraSpaFinancialStatements3.01 Financialstatements 3.01.01 Incomestatement 246 3.01.02 Aggregateincomestatement 247 3.01.03 Statementoffinancialposition 248 3.01.04 Cashflowstatement 250 3.01.05 Statementofchangesinshareholdersequity 2513.02 FinancialstatementspursuanttoResolution15519of2006Relatedparties 3.02.01 Incomestatement 252 3.02.02 Statementoffinancialposition 253 3.02.03 Cashflowstatement 2553.03 Explanatorynotes 3.03.01 NoteesplicativeHeraSpa 256 3.03.02 Explanatorynotesonrelatedparties 3623.04 Netfinancialdebt 3.04.01Netfinancialdebt 369 3.04.02Indebitamentofinanziarionettodelibera15519del2006 3703.05 Equityinvestments:Statementofequityinvestments 3713.06 TablepursuanttoArt.149duodeciesoftheIssuersRegulations 3723.07 StatementpursuanttoArt.154bisofLegislativeDecreeno.58/98 3733.08 ReportbyIndependentAuditingFirmandBoardofStatutoryAuditors 3.08.01 Independentauditingfirm 374 3.08.02 BoardofStatutoryAuditors 376

4 Reportoncorporategovernanceandownershipstructuresandreportonremuneration

4.01 Reportoncorporategovernanceandownershipstructures 3794.02 Reportonremuneration 406

0Introduction

HeraGroupConsolidatedandSeparateFinancialStatementsasat31December2011BoDmeeting22March2012Shareholdersmeeting27April2012

1

LettertotheshareholdersDearShareholders,Wewould like topresent toyou the tenth financialstatementsof theHeraGroup for theyear2011,whichsawacontinuationofGroupactivitieswithsatisfactoryresults,inlinewiththecontinuousgrowthachievedeachyearsincetheformationofthecompany.Inouropinion, thisresultrewards thecommitmentandstrategicdecisions thathavecharacterised thepathofourcompanyinastructuredmanner.Itshouldalsobepointedoutthatthisresultwasachievedoverthelastthreeyearsdespiteagradualworseninginthegeneraleconomicsituation,whichobviouslyaffectedourreferenceareastoo.Overthelast10years,investmentshaveexceededEuro3.7billion,andEBITDAhasincreasedfromEuro192millionin2002toEuro644millionin2011.Withthecontributionfromallbusinesssegments,EBITDAalsoincreasedlastyear,upby6.2%,markinganincreaseofEuro37.5millionfromthepreviousyear.Intermsofthevolumeofbusinesshandled,certainsectorswerehitharderbycriticalities intheeconomiccontext,buttheexpansion inthecustomerbase, including inheavilycompetitivesectors,andthegreatercontributionfromtheenergysectorsinparticular,madeitpossibletorecordtheaforementionedoverallgrowth.Limitedchangesweremadetothecompanyperimeterwhich,inanycase,contributedtotheaforementionedresultintherenewableenergyandgassalessectors.

0Introduction


2

In lightof theabove,weareable tosubmit foryourapprovaladividend in linewith thepreviousyear,and foranamountenvisagedatthetimedespitethenetprofithavingtocoverhighertaxesintroducedduringtheyear.And so today is anopportunitynotonly to take stockof the results achieved,but to assess thewiderpicture asregardstheresultsachievedupuntilnow.Certainelementswhich,fromtheoutset,setusapartfromtherestoftheindustryoperators,remainthebedrockofour longpathofgrowth: Iamreferring to the longtermviewwhichhasguidedour investmentdecisions,astrongfocuson limitingrisk,whichhas ledustosearchingforabalancebetweenregulatedandderegulatedactivitiesand,lastly,anapproachorientedtowardscontinuous,lineardevelopment,bycombiningtheacquisitionprocesswiththenaturalgrowthachieved.Inexpandingthecompany,wehaveattemptedtomaintainastronglinkwiththearea,bymanagingand innovatingthemultibusinessportfolio,withtheobjectiveofensuringthe loyaltyofourcustomerbasebyofferingacompleterangeofservices.Thequalityofsaidservicesinrespectofothermarketoperatorswasalsofurtherborneoutattheendof2011,bythedegreeofcustomersatisfaction,whichhasbeenatahighlevelforsometime.Theyear2011alsosaw the introductionofregulatorychanges forcertainbusinesssegmentswiththedefinitionofnewplayersforregulatoryfunctions,bothnationaland local,againstwhichwemustmeasureourselves inthenewphaseofmarketcompetitionthatwillaffectthemajorityofsectorsregulatedupuntilthispoint.Owingtotheselatestchangesandthecomplexnationalandinternationaleconomicsituationtobedealtwith,itwillbeevenmoreimportantinthefuturetomaintainthesolidityoftheGroupsstructureandcloseinvolvementofourshareholdersinfurtherdevelopments.Bologna,27April2012 TheChairman oftheBoardofDirectors

TomasoTommasidiVignano

0Introduction


3

Hera'sMission"HerasgoalistobethebestmultiutilityinItalyforitscustomers,workforceandshareholders.Itaimstoachievethisthroughfurtherdevelopmentofanoriginalcorporatemodelcapableofinnovationandofforgingstronglinkswiththeareasinwhichitoperatesbyrespectingthelocalenvironment.ForHera,beingthebestmeansinspiringtheprideandtrustof:customers,whoreceive,thanksto Heras responsiveness to their needs, quality services that satisfy their expectations; thewomenandmenwhoworkatHera,whoseskills,engagementandpassionarethefoundationofthe companys success; shareholders, confident that the economic value of the companywillcontinue tobegenerated, in full respect for theprinciplesofsocial responsibility; theareas inwhichHeraoperates,whereeconomic,socialandenvironmentalhealthrepresentthepromiseofasustainablefuture;andsuppliers,keyelementsinthevaluechainandpartnersforgrowth".

0Introduction


4

StructureoftheGroup

* oltre al 5% Hera Spa

partecipata da HERA Energie Rinnovabili Spa

partecipata da HERA COMM Srl

partecipata da HERA Trading Srl


SO.SEL. Spa 26%

GALSI Spa 10,40%

Ghirlandina Solare Srl 33%

ADRIATICA ACQUE Srl 22,32%

FlameEnergy Trading Gmbh 50%


partecipata da HERA Trading Srl


SGR SERVIZI Spa 29,61%

HEAD OFFICE FOR DEVELOPPEMENT AND MARKET

SET Spa 39%

ACANTHO Spa 79,94%

MARCHE MULTISERVIZI Spa

40,64%

HERA COMM Srl 100%

HERA TRADING Srl 100%

HERA Energie Rinnovabili Spa 100%

ENOMONDO Srl 50%

FERONIA Srl 40%

ROMAGNA COMPOST Srl

60%

TAMARETE ENERGIA Srl

32%

SEI Spa 20%

MEDEA Spa 100%

Hera Comm Marche Srl 57,38%




GAL.A Spa 60%

*SOTRIS Spa 70%

HERAMBIENTE Spa 75%

REFRI Srl 20%

NUOVA GEOVIS Spa 51%

FEA Srl 51%

AKRON Spa 57,50%

ASA Scpa 51%

Consorzio Akhea 51%

HEAD OFFICE FOR OPERATIONS

HERA SERVIZI FUNERARI Srl

100%

HERA SERVIZI CIMITERIALI Srl

100%

FAMULA ON-LINE Spa 100%

HERASOCREM Srl 51%

HEAD OFFICE SERVICES AND INFORMATION SYSTEM

UNIFLOTTE Srl 97%

SERVICE IMOLA Srl 40%

Estense Global Service Scarl

23%


ERIS Scarl 51%

HERA ENERGIE Srl 51%

SINERGIA Srl 59%

Calenia Energia Spa 15%

MODENA NETWORK Spa 14%

HERA LUCE Srl 89,58%

ENERGIA ITALIANA Spa

11%

AIMAG Spa 25%

0Introduction


5

Administrativeandauditingboards

Chairman Tomaso Tommasi di VignanoVice-Chairman Giorgio RazzoliChief Executive Officer Maurizio ChiariniDirector Filippo BrandoliniDirector Mara BernardiniDirector Marco CammelliDirector Luigi CastagnaDirector Pier Giuseppe DolciniDirector Valeriano FantiniDirector Enrico GiovannettiDirector Fabio GiulianiDirector Luca MandrioliDirector Nicodemo MontanariDirector Mauro RodaDirector Roberto SacchettiDirector Rossella SaoncellaDirector Bruno TaniDirector Giancarlo Tonelli

Chairman Sergio SantiStanding Auditor Antonio VenturiniStanding Auditor Elis Dall'Olio

Chairman Giorgio RazzoliMember Luca MandrioliMember Fabio GiulianiMember Rossella Saoncella

Chairman Giorgio RazzoliMember Marco CammelliMember Nicodemo MontanariMember Bruno Tani

Chairman Tomaso Tommasi di VignanoVice-Chairman Giorgio RazzoliMember Maurizio Chiarini

Chairman Giorgio RazzoliMember Filippo BocchiMember Mario Viviani

PricewaterhouseCoopersIndependent auditing firm

Board of Directors

Board of Statutory Auditors

Ethics Committee

Executive Committee

Internal Control Committee

Remuneration Committee

0Introduction


6

IntroductionThis yearwillbe the tenthanniversaryofHeraGroupwhichwillbe celebratedwithanAnnualReportonceagaindedicated tobotheconomicand financialgrowth. Itmakesan important statement, taking into consideration thecontinuingcrisiswhichhasledtoalmostallthemainplayersintheindustry,eventhelargestones,sufferingfinancialstressandneedingtoseriouslyrethinktheirstrategies.In anhistoric context, these financial statements confirm the long,uninterruptedpathof growthover a tenyearperiod which has featured significant challenges: local public services liberalisation processes, legislativedevelopments in all primary services and serious crises in the banking and finance system, culminating in thesovereigndebtcrisisthathasgreatlyaffectedItaly.The results achievedhavemanaged to satisfy thebest expectationsof thosewho, in2002,pursued the forwardlookingplanofuniting11publicutilitycompanies,inthehopeofbringingtogetherthevaluablebusinessculturesandstrongterritoriallinksagainstabackgroundofseriousdisruption.On theoccasionof this tenthanniversarywepropose to takea lookatwhereHeraGroup isnowand the resultsachievedtoshowwhatmakestheGroupstandoutfrom itscompetitors.Thebraveriskaverseapproach, longtermstrategicchoicesand linearstrategiespursued,setagainstthecontextofturbulenteventsandstayingoncoursetoachieve the targets set, can all be cited as examples. This analysis is useful for evaluating the soundness of thepositions reached and understanding how they represent a greater certainty, compared with the past, forcontinuingalongthepathoffurthergrowthinthefuture.

0Introduction


7

Keyfinancialinformation

1.1 1.2 1.5

2.1 2.3 2.9

3.7 4.2

3.7 4.1

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Revenues (b)

CAGR +16.2%

192 243293

386 427453

528 567607 645

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Ebitda (m)

CAGR +14.4%

78 113177

216 231 221281 291 315

334

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Ebit (m)

CAGR +17.6%

75 89

148189 179

143189

163206 221

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Pretax Profit (m)CAGR +12.7%

3753

86109 100 110 110

85

142127

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Group Net profit (m)

CAGR +14.8%

0.25 0.44 0.56

0.97 1.17 1.43 1.57

1.89 1.86 1.99

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Net financial debt (b)

CAGR +25.7%

1.3 1.8 1.9

2.5 2.7 3.2 3.0 3.3 3.1 3.1

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Debt/Ebitda (x)

3.5 5.3 5.7

7.0 8.0 8.0 8.0 8.0

9.0 9.0

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11*

DPS ( cent)

CAGR +11.1%

*ProposaloftheBoardofDirectorstobeputtotheShareholdersMeetinginApril2012

0Introduction


8

History

Herawasestablishedthroughthemergerof11localpublicutilitycompaniesinNovember2002.TheestablishmentoftheGroup,oneofthemajorItalianplayersinthebusiness,wasthelargestdomestictransactioninthelocalmultiutilityindustry.On26June2003,onlysevenmonthsafterthemerger,theHeraprivatisationprocesscametoanendwithitslistingon the Milan Stock Exchange, the first IPO after the dotcom speculative bubble burst. The placement endedsuccessfully,withtheplacementof100%ofthegreenshoetosatisfytheextensivemarketdemand.After the listing, the public ownership structure remained essentially unchanged, with the exception of capitalincreasesreservedforpublicshareholdersofthecompaniesthattheGroupmanagedtoconsolidateyearafteryear,throughtheoriginalorganisationalmodel.Thesubsequentmergersofseveralsurroundingorganisationsbroughtthetotalenterprisevaluetoalmost1billion.ThemergersalsoinvolvedmultiutilitycompanieslikeGeatofRimini(whichtookplaceinthesameyearasthelistingontheStockExchange),AgeaofFerrarain2004,MetaofModenain2005,SatofSassuoloin2006,AspesofPesaroin2007andtheacquisitionof25%ofAimag,operatingintheprovinceofModena,in2009.ThesetransactionsledtheGroup,whichbeganitsoperationsinfiveprovincesintheregion,tocover70%ofEmiliaRomagna,continuouslyandevenly,crossingoverthebordersinthenorthofLeMarche.The mergers and acquisitions made the management of the initial integration process more coordinated, butsimultaneously ledtoacreationofvaluethroughthesynergyandrationalisationofactivitiesthroughouttheentirelasttenyearperiod.The singlemanagement of all the territories covered (through the implementation of the original organisationalmodel),withthemanagementofpersonnel,acquisitions,financeandcontrol,planning, legalaffairsandoperationalmanagement concentrated in a single business holding, made it possible to undertake corporate rationalisationmeasures,with thesaleofmore than60associatecompanies/businessesdeemednotstrategic,standardisationofprocedures and operations, as well as standardising information systems. This contributed to transforming thecollectionofbusinessesintoanefficientandintegratedGroup.Organisation also underwent a gradual transformation in response to the different competitive dynamics of themarkets and led the Group to the unbundling of activities (corporate separation of various activities), without,however,weakeningeitherthesynergiclinksbetweenthevariousactivitiesortheclosebondbetweentheGroupandthereferenceterritories.

0Introduction


9

177.0

320.6290.5

442.1504.8

471.8427.1 429.3

353.9324.9

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Totalinvestiments(ml)

Over10yearstheGrouphassupporteddevelopmentwithgrossinvestmentsofover3.74billionininfrastructuresintheterritory,extendingandimprovingtheefficiencyofplantsdedicatedtoallactivitiesrelatingtoprimaryservicesandcustomers,aswellasimprovingsafetyandenvironmentalsustainability.TheGrouphasbeenstronglycommittedtoexpansionand investmentactivities throughout theperiod,whichhas involvedmore than86%of totalEBITDAproducedovertenyears.Herasdevelopmentoverthedecadehas,throughefficiencymeasures,investmentandcorporatemergers,allowedittoconsolidatecompetitiveadvantagesinallcorebusinesses,gainingtheleadingpositionintermsofefficiencyandsize in Italy.TheGrouphasalsopromotedgrowth inelectricitysales(originallymanagedbytheGroup inthe Imolaareaonly)atafasterratethananyothercompany,encompassingvariousregions inItaly.Marketresearchhasalsoshownthat,asfarascustomersatisfactionisconcerned,therehavebeenconstantimprovementsmade,culminatingincompletesatisfactionforthelargemajorityofthecustomerbase.Herahasmaintainedariskaverseapproachthroughoutthisperiodofdevelopment,opting,inthevariouschangesinthescenarioandinthechoicesforemergingdevelopmentopportunities,forabalancedandprudentreinforcementofbothregulatedactivitiesandliberalisedactivities,withoutevergoingafterspeculativeorshorttermoptions.Thispathhasledtolineargrowth,withoutchangestothestrategicrouteoverthetenyearperiod,whichhasallowedtheGrouptogaingroundinallreferencemarkets,withoutinterruption,achievingprominent,defensiblepositions.

0Introduction


10

StrategyHerasstrategicobjectivehasalwaysbeenthecreationofvaluefromamultistakeholderperspective,inthemediumand longterm, competing autonomously and effectively in liberalised markets. The objective is to replicate theuniquebusinessmodelforexpandingtheGroupandmanagingprimaryservicesinanincreasinglyefficientmannerinordertosatisfythemainstakeholders.In2002, thenewlyformedmultiutilitywasacomposite realityandde factonot integrated,whichneeded todealwith thecriticalproblemsofprotecting the reference territories from the imminentbreakingdownofprotectivebarriersinseveralcoreactivities.ThedimensionsofthenewlyformedGroupwere,however,limitedcomparedwiththosenecessarytodealwiththecompetitivecontextopeninguptolargeplayers,includinginternationalones.Against this background, Hera formulated a strategy based on its strong points, in other words an openorganisationalmodel,capableofallowinganefficientincreaseinsizethroughexternallines,nationalleadershipinthewastesectorandaloyal,extensivecustomerbaseconcentratedinthereferencearea.Maintainingthecustomerbasewaschosenasastrategic imperative;qualityofservice,aftersalesserviceandanintegrated offering including a complete range of primary services were deemed to be the competitive tools toachievethisaim.Themultibusinessportfolio(withtraditionalgas,water,wasteandelectricityservices)wasseenaskey inprotecting the customerbase, capableof allowing theGroup the timeneeded to improve thequality andcompetitivenessofitsservicesandachievemoresustainabledimensions.Thedevelopmentstrategywasalsodirectedat maintaining a balance between the various activities of providing all the services to the customer base andguaranteeingalowvariabilityprofileofthemultiutilityportfolioresults.Herasstrategicplanwasmadeupoffivepriorities,whichguidedtheGroupsmanagementonacontinuousandlinearpaththroughoutthefirsttenyearperiod:

1) Pursuingaprocessofextractingsynergiesfromcorporatemergers,throughthecompleteintegrationofthebusinessesthatareincorporatedintoHera

2) Implementing theplan forconstructing largeplantsanddevelopingnetworks,balancing thegrowthofallbusinessestoincreasetheefficiencyandqualityofservices

3) Preserving a sound, lowrisk economicfinancial profile, capable of satisfying stakeholders through asustainableapproachinthemediumtolongterm

4) Pursuingmergerandacquisitionopportunitiesintheliberalisedsectors(wastetreatment,energysalesandgeneration),bothtoconsolidatethe leadershipposition intheenvironmentalsectorandtoexpand,fromadefensive perspective, the range of services to customers with electricity services in line with thedevelopment guidelines pursued by large international groups. The acquisition of the assets needed toachievethegoalhassupportedgrowthintheelectricitybusiness,onlypresentatthebirthoftheGroupinanembryonicstage

5) RollingouttheinnovativeHeraaggregationmodelinmultiutilitybusinesses inneighbouringareaswithaterritorialcontinuity logic, focusedoncompatibleactivitiesandwitheconomicfinancialprofilescapableofguaranteeingthefinancialsoundnessoftheGroup.

0Introduction


11

Toensuregreaterefficiencyandexploiteconomiesofscale,themergerswereintegratedintheoriginalmodelbasedon a business holding company. At the same time, direct operational supervision of all local territories wasguaranteedtopreservethecrucialcompetitiveadvantagesofproximitytocustomersandlocalroots.Thestrategyoffocusingoncoreactivitiesledtotherationalisationoftheportfolio,withtheconsequentdisposalofsmaller businesses and corporate rationalisation through a leaner organisational structure in line with the newGroupsmanagementlogics.Inthefieldofenergyactivity,thedevelopmentstrategieswerealwaysaimedatconsolidatingtheimportantpositionincoresectors (distributionandsaleofgas) inthereferenceterritory,boththrough improvementofnetworksandqualityofserviceandthrough improvementofaftersalesservice.Thedualfuelstrategy, involvingtheexpansionoftheelectricityservicesofferedtoexistingcustomers,wassupportedbyaparallelandprudentupstreamstrategyofselfgenerationdevelopmentcomplementingthemarketprocurementsources.AllofthismadeitpossibletomaintainalowriskexposureprofileinanareainwhichtheGroupdidnothaveobviouscapabilities.Inthewastedisposalmarket,inwhichHeraisthemarketleaderinItaly,thestrategywasaimedatstrengtheningtheplant structure for sustainable management with regard to the environment. In a market featuring a seriouslyunderdeveloped infrastructure, theGroupsgoalwas todevelopa fullyintegratedplantsystem,capableof reusingwaste materials and extracting energy from waste, through an ambitious investment policy involving theimprovementofefficiencyandrationalisationofoperatingactivities.InregulatedbusinessesHeraadoptedastrategytoimproveefficiencyanddevelopplantsthroughinfrastructuresinthe reference territories, strengthening positions in localmarkets and consolidating strong pointswith a view togainingcontractswhentheyexpiredandwereputouttotender.These basic strategies, albeit implemented in a way which is appropriate to the new reference scenario, wereconfirmedyetagaininthe20112015businessplan(presentedinNovember2011).Expectationsforfuturegrowth,ineffect,restonthecontinuationofprocessesaimedat improvingefficiency,thecompletionof largeplantswiththedevelopment of other complementary technologies in renewable energy, andmaintaining expansion strategies inliberalisedmarkets.Inanticipationoftendersforgasdistribution,theGroupisplanningtoextendservicesinthenewbasins defined by the Authority in the current reference territories, in which the businesses operating have asignificantlylowerpresencethanHera.Thegenerationofcashexpectedfromtheseorganicgrowthinitiativessatisfiesthestrategicobjectiveofimprovingfinancialsoundnessandmaintainingapolicyofdistributingsatisfactorydividendsfortheperiodoftheplan.Theexpansionstrategiesforexternal lines,underthe logicapplied inthebusinessplanuntil2015,alsoremainandconstituteapriorityforexpansioninthemultibusinesssectorinneighbouringareasandforstrengtheningpositionsinfreemarketsatadomesticlevel.Thesestrategiesaredirectedatmaintainingabalancedassetsportfolioandcanbeexpresslypursued thanks to the current flexibilityof the financial structure, considered tobeoneof themostsoundintheindustry.

0Introduction


12

Economicfinancialresultssince2002P&L(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.Revenues 1,099.3 1,241.0 1,528.9 2,147.6 2,364.5 2,905.1 3,792.0 4,436.0 3,877.3 4,315.9 +16.4%Ebitda 191.9 242.5 292.5 386.4 426.7 453.4 528.3 567.3 607.3 644.8 +14.4%

D&A (114.3) (129.7) (115.3) (171.0) (195.3) (232.8) (247.6) (276.0) (291.9) (310.3) +11.7%

Ebit 77.6 112.8 177.2 215.7 231.4 220.6 280.7 291.3 315.4 334.5 +17.6%

Pre taxprofi t 75.4 88.6 147.5 189.3 179.2 142.5 188.9 162.6 205.6 221.2 +12.7%Tax (38.7) (35.6) (61.1) (80.5) (79.0) (32.6) (78.6) (77.6) (63.6) (94.5) +10.4%

Netprofi t 36.7 53.0 86.5 108.8 100.2 109.9 110.3 85.0 142.1 126.8 +14.8%Minori ties 3.5 3.5 5.5 7.4 10.1 13.7 15.5 13.9 24.8 24.8 +24.5%

Hera netprofi t 33.2 49.5 81.0 101.4 90.1 96.2 94.8 71.1 117.2 104.6 +13.6% Theeconomicresultsfortheentiredecadeshowconstantgrowthinsales,whichhavealmostquadrupledcomparedwith2002(withastrongcontributionfromelectricitysalesandactivityconnectedwithtradingenergyrawmaterials).EBITDAandOperatingIncomeincreasedrespectivelyby3.4and4.3timescomparedwiththestartingfigure,withconstantanduninterruptedgrowth.The improvement in operating resultswas supported by organic growth,which contributed to two thirds of thegrowthinEBITDA.

Organic growth relating to synergies, operating efficiencies and development of markets constitutes the mostimportantorganicfactor,withacontributionof+219million(equalto48%ofgrowthinEBITDAoverthetenyears)comparedwith 192million in EBITDA in 2002. This factor has contributed to growth, year after year and on acontinuing basis, making an incisive contribution to the rationalisation of costs in the first years and operatingefficienciesinlateryears,whiletheexpansionofthemarketshasbeenaconstantfeaturethroughoutthedecade.

+14.4%Cagr.

0Introduction


13

Organicgrowthhasalsobeensupportedbythedevelopmentoflargeplants(whichcontributed+83million,equalto the 18% increase in EBITDA): five new wastetoenergy plants, two thermoelectric power plants, an 80 MWcogenerationpower plant,plus the acquisition of awastetoenergyplant for hazardouswaste, a biomass powerplant, several photovoltaic plants and the electricity distribution network in the province of Modena. ThedevelopmentofthissignificantplantstructurehascommittedtheGrouptoachallenginginvestmentplanwhichhasgraduallystartedtomakeacontributiontoresultsinthesecondpartofthetenyearperiod.OnethirdofthegrowthinEBITDAhasbeensupportedbyexternalgrowthactivity,whichhascontributedapproximately+151million,thankstomergerandacquisition transactionswhich tookplacealmosteveryyearandwhichhave, ineffect,constitutedaconstantimprovementfactorintheperiod.M&Atarget year EV/Ebitda Business Turnover Ebitda NPF Stake(%)

11Companies 2002 multi uti l i ty 1,100.0 192.0 (252.0) 100%

Agea 2004 5.9x multi uti l i ty 144.0 25.0 (15.0) 100%

Meta 2005 7.7x multi uti l i ty 278.0 65.0 5.8 100%

Aspes 2007 5.5x multi uti l i ty 90.0 13.0 (5.7) 42%

Geat 2007 7.0x multi uti l i ty 13.0 2.0 (1.4) 100%

Modena province network 2006 8.2x Electrici tynetwork

51.0 12.0 0.0 100%

SAT 2007 8,5x multi uti l i ty 62.0 12.0 (18.5) 100%

Aimag 2009 6,0x multi uti l i ty 31.0 31.0 (41.0) 25% AllthecorebusinessescontributedtoEBITDA,eachwithaveragegrowthratesindoublefiguresoverthetenyears.Thanks to appropriatemanagement,both regulated activities (integratedwater service, collection anddisposalofurbanwaste,distributionofmethanegas,electricityanddistrictheating)and liberalisedactivities (saleofmethanegasandelectricity, tradingenergycommodities, treatmentanddisposalofwasteandpublic lighting)havemadeabalanced contribution to company results. The balanced collection of activities, thanks to the various portfoliobusinessesinternallyoffsettingtheeffectsrelatedtoexternalvariables(GDP,inflation,taxes,exchangerates,weatherconditions,etc.)hasensuredthattheGroupsconsolidatedresultsfortheentireperiodhavebeensoundlyprotected.

0Introduction


14

Theeffectivenessofthismultibusinessapproachhasbeenparticularlyevidentin2006and2007when,followinganunusuallymildwinter,thenegativeeffectsontheresultsofgasanddistrictheatingactivitiesweremorethanoffsetbygrowthinotherbusinessareas(unaffectedbyweatherconditions).Therefore,inrecentyears,affectedbythecrisisinthereferencecontext,growthintheliberalisedactivitiesofwastedisposalhassloweddownasaresultofthefallinconsumptionandproduction levels in Italy; thisdynamichasbeenmore thanoffsetbygrowth inenergysalesandtradingactivities, inwhich theGrouphascreatedstructureswhichhavebenefited fromenergycommoditymarketconditionscausedbythemacroeconomiccrisis.The results for net profit over the ten years,which have fluctuated due to changes in tax laws (and periods ofdisruption such as the taxmoratorium, goodwill tax redemption transactions and, recently, the introduction andsubsequentincreaseintheRobinHoodTax)haveincreasedtoover104million,almosttriplecomparedwith2002.The Groups economic development has been associated with maintaining a solid financial structure, which hassupportedtheexecutionofasignificantinvestmentplanandmergersandacquisitions(approximately4billion).BalanceSheet(ml)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Total netequity 865 895 1,064 1,484 1,516 1,539 1,579 1,701 1,870 1,879 +9.0%Netfinancial position 254 444 562 974 1,173 1,432 1,572 1,892 1,860 1,987 +25.7%Netinvestedcapital 1,119 1,339 1,626 2,458 2,690 2,970 3,151 3,593 3,730 3,866 +14.8%D/Ebookvalue 0.29 0.50 0.53 0.66 0.77 0.93 1.00 1.11 0.99 1.06 +15.3%NFP/Ebitda(x) 1.3 1.8 1.9 2.5 2.7 3.2 3.0 3.3 3.1 3.1 +9.8%EBITDA/OF(x) 13.9 12.8 11.0 9.5 7.9 5.7 5.6 4.8 5.3 5.4 (10.0%) Thisfinancialsoundnesshasessentiallybeenachievedwithoutthehelpofcapitalincreases(towhichtheGrouponlyhas recourse for the inclusionofnewpublic shareholders into theGroup through reserved increases). Financialleveragehasconstantlyincreasedduringtheyearsoftheimplementationoftheplanforconstructinglargeplantsandthendecreasedandstabilisedoverthelasttwoyearsthankstothegradualincreaseincashgenerationbytheplantsconstructed.Thankstothealliancewithafinancialpartner,withaminorityshareinasubsidiaryandthecontinuous

0Introduction


15

improvementincashflows,theGroupiscurrentlyrenownedforthesustainabilityofitsdebt,whichhasaratioof3:1withEBITDAand1:1withregardstoshareholdersequity.Financialdebthasanaveragedurationof9yearsandisfullyprotectedagainsttheriskofinterestratevariations.Itisalsoaccompaniedbycommittedcreditlineswhichhavenotyetbeenused,equalto280million.CompanycapitalisationhasalsostrengthenedsincetheestablishmentoftheGroup,withreservedcapital increasesrelated to themergersand theprovisionofprofit sharing, resulting in shareholdersequityofmore thanEuro1.7billion,approximately1.5timesthemarketcapitalisationrecordedattheendoftheyear.

0Introduction


16

ThedevelopmentofsustainabilityinHeraHera Group has developed a multistakeholder approach with a view to guaranteeing sustainability and soundbusiness operations in the longterm as well. The milestones in this development can be identified as thedevelopmentofaCodeofGovernancewithatraditionalapproach,basedonaBoardofDirectorswhich,over theyears,hasseenanExecutiveCommittee,an InternalControlCommitteeandaRemunerationCommitteeadded, inlinewiththebestpracticespromotedbytheBorsaItalianacodeofconduct.TheCodeofGovernance includeswiderangingpowersforthetwoExecutiveDirectors.Thisarrangement,togetherwiththeconstantreconfirmationofthemandateoftheExecutiveChairmanandtheChiefExecutiveOfficer (whichhas changedonlyonce),hasguaranteed thenecessary continuityand sustainability inmanagement for theentireperiod.The revision of the corporate mission in 2005 led to the clear expression of the sustainable approach to themanagementoftheGroup,inheritedfromthetraditionoftheintegratedcompanies,tostrengthenthecommitmenttosatisfyingstakeholdersinthemediumtolongterm.Thecreationofthecodeofethics in2007and,atthesametime,thesettingupoftheEthicsCommitteewithintheBoardofDirectors, led to thepreparationof theGroupsethicalprinciples.The introductionofan incentivebasedremunerationsystemfordirectorsandmanagerialstaff (Balancedscorecardsystem)basedonreachingeconomicfinancial targets and environmentalsocialethical KPIs, completed Heras sustainable system, guaranteeing theimplementationoftheapproachandrootingitfirmlyincorporateculture.Companyresultswithregardtothesatisfactionofmajorstakeholdersclearlyshowanimprovementinperformancefrom a point of view of quality of service, respecting the environment and employee satisfaction. The proposedtimescale includes the years characterisedby ahomogenous comparisonbetweenKPIs (in termsof consolidationboundariesandtypeofKPIs).

2005 2006 2007 2008 2009 2010 2011

GrossvalueAdded(mln) 722.1 802.5 817.1 923.8 977.4 1,010.4 1,042.6PersonnelTraining(Kh.) 18.5 20.1 24.3 33.2 23.0 23.0 28.1Occupational accidents* 50.1 47.5 42.4 37.6 32.6 29.6 23.4Gravityofdamage** 1.1 1.5 1.1 1.2 1.8 1.0 0.5CustomersCustomersatisfactionindex(max100/100) 67 67 65 67 69 69 70RispectofAEEGstandards 95% 95% 95% 96% 98% 99% 99%Gas EmergencyService(requests satisfiedwithin60min.) 95% 96% 97% 96% 97% 98% 99%Avgwaitingtimecall center(sec.) 70 35 46 66 33 34 37Avgwaitingtimecustomerdesk(min.) 27 24 21 19 15 15 11AmbienteEnergyfromrenewablesources (incl.51%fromWTE) 51% 51% 51% 54% 63% 68% 71%WTEemissionratio/respectofbylawstandards (best

0Introduction


17

Specialmention shouldbemadeof theenvironmentalperformance indiceswhich reflect theeffortmade in theseyears to gradually decrease the effect of environmental impacts (in terms of emissions into the atmosphere ofmethanegasfromthevariousactivitiesoftheGroup)inthelightofthecontinuousincreaseinvolumesofactivity.GHGemissions(ton CO2 eq.) 2007 2008 2009 2010 2011 Cagr.WTE 0.26 0.35 0.42 0.38 0.42 +12.3%Landfil l 0.55 0.40 0.38 0.41 0.38 (8.7%)Vehicles 0.06 0.06 0.06 0.06 0.06 +0.0%Wastemanagement 0.87 0.81 0.86 0.85 0.86 (0.3%)Volums (kton) 4,398 5,158 5,114 5,703 5,107 +3.8%Sortedcollection/recycling(kton) 620 788 840 937 965 +11.7%Percentageofsortedurbanwaste 36.0% 42.0% 44.8% 47.8% 50.5% +8.8%WTEElectricity(GWh) 328 392 476 526 585 +15.5%DistrictHeating 0.12 0.10 0.20 0.24 0.24 +20.2%Heatdistributed(GWht) 392 423 476 534 499 +6.3%Gasnetworkleakage 0.31 0.33 0.33 0.37 0.36 +3.5%Gas distributed(mcm) 2,150 2,370 2,334 2,504 2,389 +2.7%Electricityconsumptions 0.23 0.23 0.24 0.23 0.23 +0.0%Waterdistributed 241 257 257 251 254 +1.3%Headquarter 0.004 0.004 0.005 0.005 0.005 +4.2%Totalemission(direct&indirect) 1.49 1.48 1.68 1.70 1.70 +3.3% The sustainability reporting system, prepared and approved by the Board of Directors at the same time as theeconomicfinancial statements, underlines the importance attributed to them in corporate governance. Herassustainablemanagementsystemhasreceived importantrecognitionand is includedamongstthebestpractices inItaly.

0Introduction


18

DevelopmentofthebusinessesHeraistheleadingdomesticoperatorinthewastemanagementsectorthroughthequantityofwastecollectedandtreated.Wastecollectionactivity regulatedbyconcessioncontractshasdevelopedover theyears through the inclusionofcompanies, and now covers all the areas fromModena to PesaroUrbino. Thanks to constantly raising customerawarenessandsupportinglocalinstitutions,theHerawastecollectionsystemisbasedonrecyclingthemajority(over50%)ofwastematerials(glass,paper,plasticandmetalsandbiomass)andonthedevelopmentoftheenergycontentoftheremainingpart,throughwastetoenergytreatmentsandextractionofbiogases.

29.3% 30.4% 30.9% 31.2%36.0%

42.0%44.8%

47.8%50,5%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Sortedcollection(%)

Thiseffectivesystemhasmadeaconsiderablecontributiontothedecreaseintheamountofurbanwastedisposedofdirectlyinlandfills,therebyreducingsoilpollution.Theactivitiesofwastetreatmentanddisposalhavebenefited,overtime,fromsignificantexpansionandrenovationof the plant structure. Themultiyear plan for themodernisation of large plantswas completed in 2011. Landfillcapacitywasalsoexpandedandthebiomasstreatmentplants,alreadypartoftheGroupsassets,wereupgraded.

0Introduction


19

PlantsInstalledcapacity

(MW)Authorizedtreatment

capacity(t)Wastetreated

(t)

ForlWTE 10.7 120,000 115,741RavennaWTE 6.2 56,500 42,118Rimini WTE 13.0 150,000 114,375ModenaWTE 24.8 240,000 176,295FerraraWTE 12.9 130,000 129,837FEAWTE 22.0 220,000 201,020RavennaF3WTE 4.2 40,000 39,955Biomass plantEnomondo 13.7 114,000 103,690Total 107.5 1,070,500 923,031 Today,thestructurecomprises79plants,capableofsatisfyingwastetreatmentanddevelopmentrequirementsofallkinds. It is a part of the Groups excellence on a national scale and has made a contribution to supporting theconsiderable expansion in the volume of activities over the tenyear period and also satisfying the complexrequirementsofdisposalanddrainageatproductionsites.

Totalerifiutidamercato('000ton)

2,490 2,3932,676

3,2553,502 3,437 3,413 3,325 3,473 3,382

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

CAGR+3,5%

Withthegenerationofapproximately0.7TWh,theGrouphasbecomeoneofthemainoperatorscommittedtotherecoveryofelectricityfromwasteandistheonlycompanyinrecentyearsthathasmanagedtobuildandactivatefivenewWTEplantsinItaly.Thisoperationhasledtotheinstalledcapacityreachingapproximately100megawatt,with1milliontonnes/year.InthelightoftheinsufficientinfrastructuresinthewastetreatmentsectorinItaly,whicharetypicalandculminatedinthe waste emergency in Campania, Sicily, Calabria, Puglia and Lazio, invitations to tender were put out for theconstructionofnewWTEplants in several Italian regions.At the endof 2011Herawas awarded the contract topurchasea40%stakeintheconstructionandmanagementofaWTEplant,producing140thousandtonnesayear,intheprovinceofFlorence,andwascommittedtoincreasingitsmarketshareinordertoputtheuniqueexpertiseithasgainedinthemarkettogooduse.

0Introduction


20

In order to best rationalise the business in linewithmarket logics, in 2010 theHeraGroup set up the companyHerambientewhichbecame responsible forallwastedisposal, treatmentand recovery liberalisedactivities. In thesame year, the Group opened up the Herambiente share ownership to Eiser, an infrastructure investment fund,therebyguaranteeingfinancialsupportforthefuturedevelopmentofthecompany.(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 288.4 284.6 362.3 481.7 539.7 553.6 632.1 642.1 703.1 740.1 +11.0%

Ebitda 58.2 62.3 85.7 130.5 150.5 156.3 186.3 187.3 195.1 194.2 +14.3%

Ebit 15.9 20.6 47.3 63.9 73.8 81.8 100.3 92.3 86.9 84.6 +20.4% Growth intheWasteManagementarea,whichsupportedthegrowthoftheGroupsresultsoverthetenyears,hascausedEBITDA toalmostquadruple.Thedevelopmentdynamics saw resultsover the last two years stabiliseasaresult of the economicfinancial crisiswhich affected industrial and consumer businesses in Italy. In spite of thedifficultmarketcontext,thewastemanagementarearecordedadoubledigitaveragegrowthrate,higherthantheGroupaverageforthetenyearsunderconsideration.Sinceitsinception,Herahasalsooperatedinthefieldofintegratedwaterservicemanagement,fromthedistributionofdrinkingwater to thecollectionandpurificationofwastewater,andhas theexclusive right to theseservices insevenprovinces inEmiliaRomagnaand thenorthofLeMarche,basedon longtermconcessions (onaverageuntil2022).Followingthemergersthattookplace,thephysiologicaldevelopmentofactivitiesandinvestmentsmade,theGrouphas essentiallydoubled itsnumberof customers,upgraded thepurificationplants, expanded thedistribution andseweragenetworksbyaround10thousandlinearkmandincreasedthevolumeofactivitiesbyanaverageannualrateof4%.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Customers ('000) 617 640 800 914 982 1,015 1,154 1,166 1,173 1,184Waternetwork(Km) 17,900 17,900 18,465 23,919 24,508 24,623 26,118 26,296 26,535 26,772

176 180 203228 244 241 257 257 251 254

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Volumssold(mlmc)CAGR+4,1%

0Introduction


21

Thewaternetwork,likeallGroupnetworks,iscurrentlycontrolledbyasingleremotecontrolsystem,createdin2007anddeemed tobeoneof themost advanced inEurope.Remotemonitoringofnetworkshasmade itpossible tooptimisemaintenanceandsupervisionprocesses,guaranteeinggreaterefficiencyandlowerrunningcosts.Thankstothese systems and the modernisation of the networks, recorded performance (in terms of average leaks perkilometre)hasbeenamongstthebestdomestically.The entire environmental control system, from the analysis of thewater before distribution to thewastewatercollectionandpurification systems,has recorded importantprogressandguaranteedahighqualityof serviceandmaximumsafetyforcustomers.TheGroupisthesecondmostimportantoperatorinItalybysalesvolumes,withacontinuousandextensivepresenceinthereferencemarket.(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 240.7 248.0 304.9 346.2 398.4 407.6 459.0 583.7 579.2 596.7 +10.6%

Ebitda 53.6 66.4 76.5 94.3 107.5 118.5 130.2 131.4 142.0 150.2 +12.1%

Ebit 20.7 27.8 39.4 50.3 59.4 57.1 71.7 59.1 69.7 73.0 +15.0% Fortheentiredecade,HerasresultshaveshownconstantgrowthofEBITDA;runningcostsandoperatinginvestmentcostshavealsobeencoveredwithatrendtowardsacashbalance.Thereferendumof June2011repealed theregulationgoverning thechargeonreturnon investment,although theMinisterialDecreeof1August1996,whichdefines thestandardised tariffmethod for the integratedwaterservice(DiPietroMinisterialDecree), remains in force.The resultinguncertaintyshouldhoweverbeovercome followingLaw214/2011,whichgivestheElectricityandGasAuthoritythetaskofdefiningthetariffstructure infuture.Inthiscontext,however,theHeraGroup isapplyingtheagreementsdefinedwiththe individual localauthorities,someofwhichexpireon31December2012andothersinsubsequentyears.TheGroupalmostentirelycoversthereferenceterritory inthegassectoraswell.This includesdistributionservicesandsalesservices,plusmethanegastrading,aswellasthemanagementofdistrictheating.Heraiscurrentlyamongtheleadinglocalfirmsandthefourthnationallyintermsofsalesvolumes.Inspiteoftheliberalisationofthesalesmarket, theGrouphasmaintainedanddeveloped itsoriginal customerbase, reaching1.11millionusers, inotherwordsalmostdoublingitintenyears,thankstosuccessivemergers.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Volumsdistributed(ml m3) n/a 1,661 1,912 2,399 2,312 2,150 2,370 2,334 2,504 2,389Customers ('000) 668 700 799 940 1,003 1,019 1,066 1,071 1,072 1,115Gasnetwork(Km) 7,880 8,261 8,261 11,804 12,294 12,377 13,186 13,342 13,514 13,734

0Introduction


22

Saleshavealsomorethandoubledinthisperiod,withvolumeshandledreachingmorethan3.3billioncubicmetres.Thedistributionnetwork,developed throughdirect investment and the acquisitionof companies,has reached14thousandkm.

1,444 1,6342,062

2,7862,408 2,337 2,493

2,803 2,9143,321

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Gasvolumessold(mlm3)CAGR+9.7%

The uncertain situation has led the Group to pursue prudent and flexible procurement policies, taking theopportunitiesthatarisefromtheslowprocessofopeningupanddevelopingrawmaterialimportcapacitiesandtheinternationalandItalianwholesalemarkets.Herahasamultiyeargasimportingcapacityofalmost500millioncubicmetres per year through the TAG gas pipeline (Russian gas). It has also gradually diversified internal (domestic)sources, striving formaximum flexibility through annual agreements (multiyear contracts are currentlypresent in10%of totalsupplies).Lastly, therehasbeenanorganisationalbreakdownwhichhas led to theestablishmentofasales company (Heracomm) and a trading company (Heratrading), thanks to which Hera has established directoperationalactivities inBaumgartenandatotherEuropeanhubs.ThissupplyportfoliostructurehasprotectedHerafrom the risksofpurchasing predeterminedmaterialsmany years ahead and, in recent years,has allowed it toderivebenefitfromthegrowingavailabilityofmethanegasinthecountry.Anothermeansofsafeguardingsupplies,setagainstabackgroundofmaintaininga lowriskprofile,hasseenHerapurchaseastakeofmorethan10%ofthecapital ofGalsi, a special purpose vehicle for the construction of a gas pipelinewith a capacity of 8 billion cubicmetres,whichwillgodirectlyfromAlgeriatoItaly.Theprecontractedcapacitycomestoapproximately1billioncubicmetresperyear,aquantitythatallowsHeratofocusondiversifyinggassupplieswithathirdfromNorthAfrica,athirdfromEuropeandathirdfromItalianoperators.Salesvolumesrelatingtodistrictheatinghavealsoalmostdoubled.Asisknown,thisisawayoftransformingenergyintoheatmoreefficientlyandwithlessimpactontheenvironmentthanindependenthousingheatingsystems.

282434 470 426 392 423

476 535 499

2003 2004 2005 2006 2007 2008 2009 2010 2011

Heatdistributed(GWht)CAGR+7.4%

0Introduction


23

Thedistrictheatingnetworkhasbeendeveloped inurbanareas intheterritorynearthe largewastetoenergyandcogenerationplantsbuiltinthelasttenyears,therebyexploitingheatsourceswhichwouldnototherwisebeused.(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 473.1 514.1 589.8 871.2 987.6 922.0 1,216.4 1,290.7 1,237.1 1,490.2 +13.6%Ebitda 70.4 99.7 106.0 118.5 116.1 104.7 143.8 174.4 193.9 208.7 +12.8%

Ebit 35.9 66.1 81.7 85.9 77.9 60.6 82.6 111.9 135.0 149.2 +17.1% Economicresultshaveconstantlyimproved(withtheexceptionof2007asmentionedpreviously)bringingEBITDAtoover209millionwhich istripletheoriginal figure in2002.Thegrowthofthisresult ismainlydueto investments,efficiency,mergersandacquisitionsand,lastly,thenotedflexibleupstreamstructure.Thedual fuel commercial strategyhas allowed the electricitymarket todevelop at sustained growth rates,boththrough crossselling activities to existing customers and through expansion into new markets. The strategy hasprotectedexistingcustomers inthegassector,asshownpreviously,andplacedHeraamongthetopeightdomesticoperators,withannualsalesofapproximately10TWh,witha tenfold increase in thecustomerbase toalmost500thousand(comparedwith49thousandatthebeginningin2002).

948 1,6282,282

3,755 3,133 4,3355,075

7,047 7,7449,996

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Electricitysold(GWh)

CAGR+29.9%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Volums distributed(Gwh) 509 536 1,507 1,880 2,248 2,263 2,117 2,238 2,304Customers ('000) 49 50 54 177 264 273 287 335 383 482 28.9%Electricitynetwork(Km) 1,410 1,423 1,429 5,586 6,521 9,363 9,528 9,659 9,743 9,942 24.2% Commercial development in the electricity sector has been accompanied by a parallel cautious development inelectricitygenerationforthesustainablemanagementofcustomerdemand.Overtheyears,HerahasbeeninvolvedintheconstructionoftwobaseloadnewgenerationCCGTplants inCampania(anareawithapoor infrastructure),witha capacityof1,200MW.Theseplantshavebeenbuilt througha jointventurewith thepurchaseofminoritystakesbyforeignpartnersofinternationalstanding.Therelativelysmallfinancialcommitmenthasallowedaccesstocost price electricity, while the signing of special agreements (PPA), which include flexible supply conditions,guaranteealowriskprofile.SincetheestablishmentoftheGroup,ithashelda5.5%stakeinTirrenoPoweraspartofthisinitiative,throughthecompanyEnergiaItaliana.In2008,an80MWgascogenerationplantwascompletedinImola,whichguaranteesselfsufficiencyfortheprovinceifthereisanationalgridblackout.Lastly,Herasgenerationfacilitiesincludedthedevelopmentofmorethan100MWof cleanenergy fromwastetoenergyplants,a further13MW frombiomass thermoelectricplants,aswellas the

0Introduction


24

recentdevelopmentofsmallbiogasandphotovoltaicgenerationplants,whichcompletethediversifiedportfoliooftheGroup.TheproductionofelectricitydestinedforHeraenduserscoversmorethan30%ofcustomerdemand;theremainingpartispurchasedonthemarketwithawidelydiversifiedportfolioofsupplies.Electricitydistributionactivitieshaverecordedsignificantdevelopmentsincetheirestablishment.ThemergerwiththeModenamultiutility (Meta S.p.A.) in 2005 and the acquisition of the Enel electricity network in the province ofModena have contributed to the expansion of the network to almost 10,000 kilometres which, thanks to theinvestmentsmade,isfullyequippedwithelectronicmetersandmanagedremotelythroughasingle,stateoftheartremotecontrolcentre.(ml) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cagr.

Revenues 78.4 126.6 205.0 396.7 389.4 989.2 1,557.3 2,032.5 1,468.3 1,585.2 +39.7%Ebitda 9.3 8.2 7.4 22.5 25.3 42.7 54.4 53.0 59.8 73.2 +25.8%

Ebit 6.0 2.8 5.0 12.2 10.2 9.8 22.6 26.3 26.6 39.7 +23.4% Thestrongimpetusofmarketandtradingactivities,themergerwithMetaofModenaandthesubsequentacquisitionoftheEnelnetworkintheprovinceofModenain2006,hasledtoEBITDAincreasingmorethanseventimesoverintenyears.

0Introduction


25

DevelopmentoftheownershipstructureandremunerationofshareholdersThepublicownershipstructurehasmainlydevelopedasaresultoftheinclusion(throughreservedcapitalincreases)ofnewpublicshareholdersfollowingvariousmergers.

786,5

1.115,1

+6,7 +46,7

+176,9 +16,0+82,3

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sharecapitalevolution

(Geat) (Agea)(Meta)

(SAT) (Gas network)

Today,publicshareholdersarerepresentedby187referenceterritorymunicipalitiesandtheyhold61%ofHerassharecapitalofordinaryshares,madeupof1,115,013,752ordinaryshares.

Freefloat29.8%

Bankfoundationsagreement9.4%

MunicipalitiesofFerraraProvince3.3%MunicipalitiesofBolognaProvince18.8%

MunicipalitiesofModenaProvince12.7%

MunicipalitiesofRomagnaProvinces26.0%

Shareholdingasat31Dec.2011

Theteamhasasignificantpresence(approximately16.2%)ofinternationalinvestorsandisdenotedbythepresence(approximately 3.5%) of private investors (around 10 thousand people) resident in the reference territory (andthereforeHeracustomers)whowereinvolvedintheGroupsplacementontheStockExchange.

0Introduction


26

Since2006,Herahasconductedasharebuybackprogrammewithamaximumof15millionshares,foratotalamountof60million.ThisprogrammeaimstofinanceanyopportunitiestobuysmallcompaniesandtorectifyanyunusualmovementintheGroupssharepricecomparedwithitsmajordomesticcompetitors.TheShareholders'Meetingon29April2011renewedtheplanforthepurchaseoftreasurysharesforafurther18months,uptoamaximumtotalamountof60million.Heraheldapproximately9.7milliontreasurysharesinitsportfolioasat31December2011.Over the course of the ten years, remuneration for shareholders has always involved constant or increasingdividends,evenatthemostdelicatetimesfollowingmergersorduringthemacroeconomiccrisisofrecentyears.

27.642.0 47.9

71.281.3 82.5 82.5 88.9

99.9 100.4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Totaldividends(m)

CAGR+15.4%

*TobeapprovedbytheShareholders'MeetingofApril2012

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Total dividends (ml) 27.6 42.0 48.2 71.2 81.3 82.5 82.5 88.9 99.9 100.4DPS() 0.035 0.053 0.057 0.070 0.080 0.080 0.080 0.080 0.090 0.090PayOutratio(onHeranetprofit) 83% 85% 60% 70% 90% 85% 87% 125% 85% 96%*TobeapprovedbytheShareholders'MeetingofApril2012 Intheperiodunderconsideration,thedividendpersharewentfrom0.035to0.09centsandtheBoardofDirectorsproposeddividendfor2011confirmsthatof2010.

0Introduction


27

Thesharepriceoverthetenyearperiodisillustratedinthegraphbelow.

Hera,12.3%

FTSEAllshares,37.1%LocalUtilities,21.9%

100%

50%

0%

50%

100%

150%

200%

26/06/20

03

17/10/20

03

13/02/20

04

07/06/20

04

27/09/20

04

19/01/20

05

16/05/20

05

06/09/20

05

28/12/20

05

21/04/20

06

14/08/20

06

05/12/20

06

02/04/20

07

26/07/20

07

16/11/20

07

14/03/20

08

09/07/20

08

30/10/20

08

26/02/20

09

23/06/20

09

13/10/20

09

08/02/20

10

02/06/20

10

22/09/20

10

14/01/20

11

10/05/20

11

31/08/20

11

21/12/20

11

PerformanceofHerasharesinceIPO

Hera FTSEAllshares LocalUtilities After listing (placementpriceof1.25),thesharesregisteredconstantgrowth,whichbeganandcoincidedwiththeannouncementofgoodresultsin2003(anincreaseinEBITDAof25%witha50%increaseinnetprofit).Thepositivetrend,oftenabove the sectoraverage,was supportedbygood financial statementsandbusinessplansmarkedbygrowthandmergers.Thesharepricereacheditshighestvaluein2007of3.4.Theworldfinancialcrisis,whichbegunthesecondhalfof2008(thecollapseofLehmanBrothers)andcontinuedformostof2009,alsohadseriousrepercussionsonglobalfinancialmarketsthroughout20102011andcreatedagreatdealofuncertaintyamongoperators.ThecrisisthenturnedintoasovereigndebtprobleminseveralnearbyEuropeancountrieswhich reached levels felt to be excessive,worrying investors; the crisis specifically affected Italywith afurthernegativeemphasisinthesecondhalfof2011.ThejointactionsoftheCommunityinstitutions,togetherwithrigorousfinancialpoliciesimplementedintheEuropeancountriesinvolved,havestillnotmanagedtorestorefaithinthefinancialmarketwithareturntonormalconditions.Inthisdifficultfinancialmarketcontext,theEuropeanutilitysectorsufferednegativemarkettrendsinrecentyears,recordingaperformancethatwasslightlyworse(around5%)in 2011 as a result of factors specifically related to the sector (tax on nuclear fuel, the June referendum for theabolishment of thewater tariff system in Italy and the increase in the RobinHood Tax introduced by the ItalianGovernment).TheseaspectsalsoaffectedtheHerashareprice, inspiteofthefactthattheir impactontheGroupsfundamentalswas less important, comparedwith that on other operators in themarket, thanks to the prudentstrategiespursuedbytheGroup.

0Introduction


28

Hera29.7%

FTSEAllshares24.3%

LocalUtilities32.3%

40%36%32%28%24%20%16%12%8%4%0%

4%

8%

12%

16%

30/12/20

10

14/01/20

11

28/01/20

11

11/02/20

11

25/02/20

11

11/03/20

11

25/03/20

11

08/04/20

11

26/04/20

11

10/05/20

11

24/05/20

11

07/06/20

11

21/06/20

11

05/07/20

11

19/07/20

11

02/08/20

11

17/08/20

11

31/08/20

11

14/09/20

11

28/09/20

11

12/10/20

11

26/10/20

11

09/11/20

11

23/11/20

11

07/12/20

11

21/12/20

11

Herasharein2011

Hera FTSEAllshares LocalUtilities TheFTSEItaliaAllShareIndexclosed2011withaperformancedown24.3%comparedwiththestartoftheyear,whiletheItalianLocalUtilityindexclosedinthesameperioddownmorethan32%.In2011,butalsoforalmosttheentiretenyearperiod,Herastockoftenfaredbetterthanlocalutilities,withanofficialpriceatthelasttradingsessionoftheStockExchangein2011of1.096,inotherwordsanegativeperformanceof29.7%.Herasbestrelativeperformance(compared with the local utility sample) coincided with the publication of good results for quarterly financialstatementsandbusinessplans.Theaveragedailytrading levelstoodat1.3millionshares,withanaveragevalueof1.8millionin2011.TheHeraGroupmarketvaluationattheendof2011involveda2011EV/EBITDAmultipleof4.9,a2011P/Eratioofslightlymorethan11andadividendyieldof8.4%.Marketcapitalisation,equalto70%ofthebookvalue,doesnotseemtofullyreflecttheimprovedfinancialsoundnessoftheGroupcomparedwithitscompetitors,theprospectsforfurthergrowth forecast inthebusinessplanandtheopinionsof financialanalysts,whohaveexpressedanaveragevaluationapproximately36%higherthanattheyearend.Since its listing,theGrouphaspromotedand improvedrelationswithfinancialanalysts.In2002stockcoveragewasrepresentedby fourstudies,onlyoneofwhichwas issuedbyan internationalbroker.Overtime,thiscoveragehasincreasedto14studies,withinternationalbrokerssuchasCitigroupandMerrillLynch.Inspiteofthefinancialcrisisintheseyearshaving causedmajor restructuring inbanks,Hera stillenjoysextensive coverage from11 independentstudies,halfof them international:AlphaValue,BancaAkros,Banca IMI,Centrobanca,Cheuvreux,DeutscheBank,Equita,Exane(BNPParibasgroup),Intermonte,KeplerandMediobanca.Inaddition,theBancaIMI,Cheuvreux,KeplerandDeutscheBankanalystsincludeHerastockamongthebestinvestmentopportunitiesfor2011.Attheendof2011,Hera includes nine Buy/Outperform evaluations, two Hold/Neutral opinions, and no negative ratings. The 1218monthaverage stock targetprice,expressedbyanalystevaluations, is1.48per share.At theendof2011,BancaAlettibeganastudyintoHera.Withthepublicationofitsfirstreportatthebeginningof2012,BancaAlettipreferredHera stockoverothers in the localutility sector,by virtueof the sustainabilityof theGroups financialdebt (alsoconfirmedbyresearchintothesectorbyCheuvreux)anditsdividenddistributionpolicy.

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Herastock is included inmanySRI indices: ithasbeenpartof theKempenSNSSmallerEuropeSRI Index formanyyears.In2008itwasalsoincludedintheECPIEthicalIndexEuro.In2009itwasincludedintheECPIEthicalIndexEMU,madeupof105companiesfeaturingsustainabilityconsistentwiththeECPISRImethodandlistedontheEUmoneymarket.The Groups main means of communication with shareholders and stakeholders is undoubtedly its websitewww.gruppohera.it. Over the course of the tenyear period, the section dedicated to shareholders/financialoperators(InvestorRelations)hasbeencontinuously improved,withthe implementationof interactivetools,timelyupdatesandpublication inrealtimeofpricesensitivereleasesandcompanydocuments.For the thirdconsecutiveyear,HerasonlinefinancialcommunicationhasbeenrecognisedbytheHallvarsson&Halvarssonwebrankinginthenationalclassamong themajordomestic listedcompanies: in2011 theGroupswebsite took thirdplace,aheadofmanylargerItalianorganisations.Since its establishment in 2002, Hera has placed special emphasis on direct communication with investors,culminating in a Road Show introducing the stock in Italy and abroad (United Kingdom, France, Switzerland, theNetherlands,Germany,Austriaand theUnitedStates).Thanks to thepositive feedbackand the interest shownbyforeign investors,meetingswerealsoarranged, from2005onwards,withFinnish,SwedishandDanish investors. In2011Hera intensified itsdialoguewithEuropeanandAmerican investors,withanaverageof350contactsperyear.Timelinessofreportsandtransparencyincommunicationhasbeenimprovedfurther,alsoinresponsetothegrowingsenseofuncertaintyfeltbystakeholdersatthistimeofdeepdisruption.

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NoticeofcallingoftheShareholdersMeetingShareholdersarecalledto theOrdinaryShareholdersMeeting intheAuditoriumof theCNRCONGRESSCENTREat101ViaGobetti,Bolognaon27April2012at10.00am,onsinglecall,todiscussandresolvethefollowingmatters:

Agenda

1. Financialstatementsasof31December2011,DirectorsReport,proposaltodistributetheprofit,andreportoftheBoardofStatutoryAuditors:consequentresolutions;

2. Presentationofthecorporategovernancereportandremunerationpolicydecisions;3. Renewal of the authorisation to purchase treasury shares and procedures for arrangement of the same:

consequentprovisions.Thefulltextoftheproposedresolutions,togetherwiththerelatedreportsandthedocumentswhichwillbeputtothemeetingareavailable to thepublicat thecompanyheadquarters,atBorsa ItalianaS.p.A.andon theCompanywebsite(www.gruppohera.it)underthetermsofthelaw.RighttoattendandparticipatebyproxyThosewhoareeligible toattend the ShareholdersMeetingare thosewhoareentitled to voteat theendof theaccountingdayof18April2012andthosefromwhomtheCompanyhasreceivedtherelevantnotificationfromanauthorised intermediary.Thosewhoareonlyshareholdersfollowingthisdatewillnothavetherighttotakepart inandvoteatthemeeting.EachpersonentitledtotakepartcannominatearepresentativetoattendtheShareholdersMeeting,pursuanttothelaw,withtherighttousetheproxyformavailableontheCompanywebsiteforthispurpose.Thedetailsofhowthecompanycanbenotifiedelectronicallyaboutproxiesarealsoavailable.TheCompanyhasappointedServizioTitoliS.p.A.asarepresentativewhomshareholderswithvotingrightscan,by25April2012,nominateasaproxywithinstructionsforvotingonallorsomeoftheproposalsontheagenda.Theproxyfor theabovementioned representativeshouldbeconferred in theappropriatemannerusing thededicatedproxyformavailableontheCompanywebsitewww.gruppohera.itTheproxyfortheappointedrepresentativeisnoteffectivewithregardtoproposalsforwhichvotinginstructionshavenotbeengiven.OthershareholdersrightsShareholderscanaskquestionsaboutitemsontheagendabeforetheactualmeeting.Shareholderswho,evenjointly,representafortiethofthesharecapital,canask,within10daysofthepublicationofthis notice, for the inclusion of subjects to be discussed indicating the further topics proposed in the question.Questionsshouldbepresentedinwriting.A detailed study of these rights and the methods for their exercise can be consulted on the Company websitewww.gruppohera.it.Bologna,26March2012TheChairmanoftheBoardofDirectors (TomasoTommasidiVignano)

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1.01 IntroductionThetenthfinancialstatementspublishedsincetheestablishmentofHeraGroupshowgrowthandperformance in2011 that are unusual set against the background of the difficult economic context and compared with otheroperatorsintheindustry.The financial crisiswhichbegan in2008 culminated in2011 in a sovereigndebt crisis in severalnearbyEuropeancountries,which experienced times of political instability and, in the case ofGreece, controlled default. Thesesystemic crises had serious repercussions on the economic situation through the banking systems tightening oflendingtobusinessesandconsumers.InItalythisslowingdownoftheeconomyhadprofoundeffects leadinguptothe first signsof recessionwhichappearedat theendof2011.The2011 seasonallyadjustedGDP figures for Italystood at +0.5% comparedwith +1.2% for 2010 (with negative figures in the last two quarters of the year)withforecastsofnegativegrowthratesforthecurrentyear.IndustrialproductionlevelsinItalyhavedecreasedto5.0%in2011 (comparedwith+5.5% in2010),exportshave sloweddown (+11.4% comparedwith+15.7% in2010),withasimilarsituation for imports (+8.9%comparedwith+22.6% in2010).Thissituationhasaffecteddemand forenergyservices,which recorded adecrease in demand for gas of 6.3% (comparedwith +4.8% in 2010),whichwas alsoinfluenced by the warmer weather during the year, and a slowing down in the demand for electricity (+0.6%comparedwith+1.8%in2010).In spite of this difficult context, Hera continued to consistently pursue its strategies which led to sustainedimprovementsinresultsinalmostallbusinessareaswithoutinterruptionsince2002.In2011,theliberalisedmarketsstrategyallowedconsiderablegrowthinsalesintheElectricitysector,withvolumesincreasingbyalmost30%(goingfrom7.7TWhinthepreviousyearto10.0TWh)forthethirdconsecutiveyear,withvolumesdoublingoverthreeyears.This increasewassupportedbyanexpansionofthecustomerbase,whichwentfrom383thousandtoalmost500thousand,reachinga figuretentimeshigherthantheoneattheoutset in2002.HeraGroupwasabletoleverageefficientsalesandaftersalesservices,whichresultedinahighdegreeofloyaltyfromexisting customers and promoted effective crossselling actions. At year end 2010, the Group was awarded thecontractforsupplyingelectricity in20112013toserviceprotectioncustomers intheregionsofLombardy,Tuscany,Lazio,Molise,AbruzzoandPuglia,gainingnew sharesof themarket in theprocess.Theexpansionof theGroupselectricityrelatedactivitiesproducedgrowth insectorEBITDA in2011thatwasapproximately7timestheresult in2002.In theGasmarket too, theGroups sales volumes increased in2011by14% (3.3 comparedwith2.9billion cubicmetres in2010),offsettingtheeffectsofthewarmerweatherconditionsthroughanincrease intradingactivity(1.3comparedwith0.7billion cubicmetres in2010) and a slight growth in the customerbasewhichwent above1.1millionhouseholds (+4%).Profitability in theGassector increased thanks toprocurementstrategies,whichallowedgreatermarginsbenefitingfrommarketconditions.

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Volumesintheurbanandindustrialwastetreatmentmarketdecreasedinthesecondpartoftheyearasaresultoftheproduction systemandconsumption crisis.Thanks to its strongmarketposition, theGroupmanaged topartlymitigatetheeffectsofthenegativeperformanceofthemarketbygainingnewcustomerswhichmeantthattheyearendedwithafallinvolumesof2.6%.Measuresaimedatimprovingtheefficiencyofthewastemanagementsystemcontinuedthroughouttheyear:separatedwastecollectionaccountedforashareofmorethan50%ofurbanwaste(previously47.8% in2010) and the increase inwastetoenergy treatment grewby15.3% (going from800 to923thousandtonnes);thecontributionofthenewFaenzabiomassthermalpowerplant(ajointventurewithCaviroandconsolidatedprorata intheaccountsat50%) isalsoofnote.Themeasurestaken ledtoanessentiallystableresultcomparedwith2010inEBITDA,confirmingtheunbrokengrowthtrendrecordedinallthefinancialstatementssince2002.Theplantdevelopmentstrategy,aimedatconsolidatingfreemarketactivities,continuedwithelectricityproductioninitiatedatthenewRiminiwastetoenergyplantandtheabovementionedFaenzaplant.Expertisegainedovertheyears, both in the construction of plants and themanagement ofWTE, has led to theGroup being awarded thecontract,attheendoftheyear,fortheconstructionandmanagementofaWTEplantintheprovinceofFlorence,inpartnershipwithlocaloperatorQuadrifoglio.Energydistribution,urbanwastecollectionandwaterservicesactivitiesmanagedunder licence,which represent52%of theGroupsEBITDA, contributed to the improved results in2011,whichwere alsohelpedby investmentsmadeandbyadjustmentstothetariffspaidbytheAuthorities.Specificallyforgasdistribution,thedomesticAuthoritydefinedan income levelbasedonamore consistent valueof capital invested,while forwater servicesandurbanwaste collection services the tariffs setwere in linewithexistingagreementswith localAuthorities.Theefficiencymeasuresundertakenin2011continuedtomakeacontributiontotheimprovementinannualresults,reaffirmingthegrowthpaththattheGrouphasbeenonsinceitsestablishment.The2011resultsalsobenefitedfromthedevelopmentstrategyforexternallineswhich,attheendoftheyear,ledtotheconsolidationby incorporationofSadoriGas (asalescompany).Thistransactionmade itpossibletostrengthentheGroupsmarketpositioninLeMarche.OperationsfortheyearproducedapositivefreecashflowafterhedgingofinvestmentsandM&Aoperations,whichled toanet financialdebtwhichwas lower than the thirdquarterof2011,almostentirelyhedgedbyshareholderequity(debttoequityratioof1:1)andwitharatioofapproximately3:1comparedwithEBITDA.Thesoundnessofthefinancialstructureisevenmoreimpressive,takingintoconsiderationtheextendedaveragedebtmaturity(around9years)andtheamountofavailableandcommittedcreditlines(approximately280million).Thefinancialstatementsfortheyearshowgrowth inoperatingresults,evenallowingfortheconservativepolicyofreservesandincreaseddepreciationandamortisationofinvestmentsincurredaspartoftheplantdevelopment.Netprofitafterminority interests,recordedgrowth inahomogenouscomparisonwith the figures for2010 (bothyearsbeingfreedbythepositivenonrecurringeffectsofhigherredemptiontransactionsnotfiscallyrecognised).The 2011 accounts are a sound confirmation of the expectations set out in the fiveyear plan announced to thefinancialmarkets inNovemberandconfirmthevalidityofthestrategicchoicestaken inrecentyears. Inthe lightofthe soundnessof theGroupseconomicand financial indicators, theBoardofDirectorshasdecided topropose adividendof0.09persharetotheShareholdersMeeting,inlinewiththepreviousyearandcontinuingthepolicythattheGrouphaspursuedsinceitsestablishment.

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1.02 CorporateeventsCorporateeventsTheGroupcontinuedtostreamlineitscorporatestructurein2011.Thisinvolvedliquidatingtwocompanies,removingfivecompaniesfromtheCompaniesRegister,withdrawingfromtwocompanies,increasingequityinvestmentsintwocompaniesandcarryingoutthreemerger/transformationoperations.ThemainM&Atransactionswereasfollows:EnomondoS.r.l.On16February2011,HerambienteS.p.A.acquiredfromCaviroSocietCooperativaAgricolaanadditional10%ofthesharecapitalofwastetoenergycompanyEnomondoS.r.l.,takingitsstaketo50%.AcanthoS.p.A.On 7March 2011, the share transfer from Infracom Italia S.p.A. toHera S.p.A. of 17.50% of the share capital oftelecomscompanyAcanthoS.p.A.wasformalised.HerasocremS.r.l.On12April2011, theExtraordinaryShareholdersMeetingofcremationand funeralservicescompanyHerasocremS.p.A.votedtotransformthecompanyfromacompanylimitedbyshares(S.p.A.)toalimitedliabilitycompany(S.r.l.),andtoreducethesharecapitalto100,000,witheffectfrom13July2011.Itisalsoproposedtodisposeoftheequityinvestment.HeraCommMarcheS.r.l./SadoriGasS.r.l.On27April2011,HeraCommS.r.l.acquiredfromWalterSadoriS.r.l.50%ofthesharecapitalofSadoriGasS.r.l.,acompanythatsellsgasintheMarcheregion.ThemergerbyincorporationofSadoriGasS.r.l.intoHeraCommMarcheS.r.l.,inwhichHeraCommhasa60%stakeandMarcheMultiserviziS.p.A.controlstheremaining40%,wascompletedwitheffectfrom1July2011.Asaresultofthistransaction,thesharecapitalofHeraCommMarcheS.r.l.increasedfrom1,458,332to1,977,332.HeraCommS.r.l.nowholds57.38%ofthesharecapitalofHeraCommMarcheS.r.l.,withMarcheMultiserviziS.p.A.controlling29.50%andWalterSadoriS.r.l.theremaining13.12%.HeraCommMediterraneaS.r.l./HeraCommS.r.l.With effect from1December2011 and from1 January2011 for taxpurposes,HeraCommMediterranea S.r.l., awhollyownedsubsidiaryofHeraCommS.r.l.,wasmergedbyincorporationintoHeraCommS.r.l.

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SignificanteventsaftertheendofthefinancialyearandoutlookFeroniaS.r.l.On31January2012,HerambienteS.p.A.acquiredfromSorgeaS.r.l.anadditional30%ofthesharecapitalofFeroniaS.r.l.,acompanyoperatinginthewastemanagementsector,takingitsstaketo70%.SviluppoAmbienteToscanaS.r.l.On 7 February 2012, following the awarding of the contract put out to tender by Quadrifoglio S.p.A. for theconstructionoftheFlorenceWTEplant,HeraS.p.A.andHerambienteS.p.A.constitutedthecompanynamedSviluppoAmbienteToscanaS.r.l.,withthecorporateobjectsofdevelopment,designandimplementationofinterventionsandinvestments pertaining towastemanagement services, inwhich they respectively hold 95% and 5% of the sharecapital.AmonS.r.l.On 8 February 2012,Hera Energie Rinnovabili S.p.A. acquired the entire share capital of Amon S.r.l., a companyowningaphotovoltaicplantsituatedintheMunicipalityofCopparo(FE).EsoleS.r.l.On8February2012,HeraEnergieRinnovabiliS.p.A.acquiredtheentiresharecapitalofEsoleS.r.l.,acompanyowningaphotovoltaicplantsituatedintheMunicipalityofAlfianello(BS).JuwiSviluppoItaliaOn1March2012HeraEnergieRinnovabiliS.p.A.purchasedJuwiSviluppoItalia02S.r.l.,ownerofaphotovoltaicplantinPetriolo(Macerata). CTGRAS.r.l.On8March2012HeraEnergieRinnovabiliS.p.A.purchasedCTGRAS.r.l.,ownerofaphotovoltaicplant inFaenza(Ravenna).

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1.03 Groupperformanceasat31December2011:

ConsolidatedsummaryresultsoftheHeraGroup:(million) 31Dec10 %inc. 31Dec11 %inc. %ChangeRevenues 3,666.9 4,105.7 +12.0%

EBITDA 607.3 16.6% 644.8 15.7% +6.2%

Operatingmargin(EBIT) 315.4 8.6% 334.5 8.1% +6.1%Netprofit 142.1 3.9% 126.8 3.1% 10.8%

1.03.01FinancialandeconomicresultsandinvestmentsTheresultsfor2011,inspiteofthecontinuingparticularlyunfavourableeconomicsituation,showgrowthasfarasallthemaineconomicandquantitative indicatorsareconcerned.Themainbusinessareascontinuetogrowconstantlycomparedwiththepreviousfinancialyear,withtheexceptionofthewastemanagementsegment,wheretheimpactoftheslowdowninproductionactivitiesismoreobvious.Economicandoperatingresultshaveallincreased.Netprofitalsoincreasedcomparedwiththepreviousyear,takingintoaccountthepositivenonrecurringeffectsofhigherredemptiontransactionsnotfiscallyrecognised(25.1millionin2010and7.6millionin2011).Quantitative indicators have, in themain, increased: greater volumes of electricitywere sold, also thanks to themanagementofserviceprotectioncustomersintheregionsofLombardy,Tuscany,Lazio,Abruzzo,MoliseandPuglia,forthethreeyearperiod20112013,andgreatervolumesofwatermanaged.Ontheotherhand,notelowervolumesof gas and heat sold as a result of higher average temperatures compared with the previous year. They were,however,offsetbygreatervolumestradedandlowervolumesofcommercialisedwaste.Alsonotethefollowingeventswhichtookplaceduring2011:

SinceFebruary2011,HerambientehasconsolidateditsstakeinEnomondoto50%,acompanythatmanagesa13MWebiomasspowerplant,inajointventurewithCaviroDistillerieS.r.l.

In July2011,HeraCommMarche incorporated SadoriGas,whichhas a customerportfolioofmore than34,000contractsandiscapableofproducingandsellingmorethan47millioncubicmetresofgasperyear,distributedthroughout42municipalitiesintheprovincesofPesaroUrbino,AnconaandLAquila.

HeraS.p.A.expandeditsgasdistributionserviceactivitiesbywinningthepublictenderforthemunicipalityofFormignana (FE) from 1 July 2011 and by acquiring the networks of the municipalities of Pievepelago,Riolunato and Fiumalbo (Mo) from 1 June 2011; annual volumes distributedwill rise to approximately 4millioncubicmetres.

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As seen from the financial statementsasat31December2010, theConsolidated IncomeStatementconsiders theinterpretationof the IFRIC12accountingprinciple "ServiceConcessionArrangements".Atanaccounting level, theimpactofthisinterpretation,whilstnotchangingtheresults,hasmeantthatinvestmentsinassetsunderconcession(networkservices)arereportedintheincomestatement.Therefore,theincomestatementshowsanincreaseinotheroperating incomeof143.6millionfor2011and135.2millionfor2010, lowercapitalisedcostsof35.5million in2011and35.4million in2010,and increasedoperating costs for services,materialsandotheroperating costsof108.1millionin2011and99.8millionin2010.Thetablebelowcontainstheeconomicresultsfortheyears2010and2011:Incomestatement(million) 31Dec10 %inc. 31Dec11 %inc. Abs.Change %Change

Revenues 3,666.9 0.0% 4,105.7 0.0% +438.8 +12.0%

Otheroperatingincome 210.4 5.7% 210.2 5.1% 0.2 0.1%Rawmaterials (2,140.5) 58.4% (2,440.1) 59.4% +299.6 +14.0%Servicecosts (810.7) 22.1% (870.5) 21.2% +59.8 +7.4%Otheroperatingcosts (38.8) 1.1% (39.8) 1.0% +1.0 +2.6%Personnelcosts (361.9) 9.9% (370.0) 9.0% +8.1 +2.2%Capitalisedcosts 81.9 2.2% 49.3 1.2% 32.6 39.8%EBITDA 607.3 16.6% 644.8 15.7% +37.5 +6.2%

Depreciation,amortisationandprovisio (291.9) 8.0% (310.3) 7.6% +18.4 +6.3%Operatingprofit(EBIT) 315.4 8.6% 334.5 8.1% +19.1 +6.1%Financialoperations (109.8) 3.0% (113.2) 2.8% +3.4 +3.1%Pretaxprofit 205.6 5.6% 221.2 5.4% +15.6 +7.6%Taxes (63.6) 1.7% (94.5) 2.3% +30.9 +48.6%Netprofitfortheperiod 142.1 3.9% 126.8 3.1% 15.3 10.8% EBITDArosefrom607.3million in2010to644.8million in2011(+6.2%),EBITrosefrom315.4millionto334.5million (+6.1%),pretax profit increased by 7.6% from 205.6million to 221.2million, andnetprofitwent from142.1millionin2010to126.8millionin2011(10.8%).Revenue increasedby438.8million,up12.0%goingfrom3,666.9million in2010to4,105.7million in2011.Themain reasons are: (i) greater volumes of electricity sold (+29.1%) and distributed; (ii) greater revenues from thedistribution and sale of gas, also through the effect of the increase in the price of the rawmaterial; (iii) greaterrevenuesfromthewastemanagementsegment,specificallygreaterrevenuesfromtheproductionofelectricity;and(iv)greaterrevenuesfromthemanagementofthewatercycle.

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The increase in thecostof rawmaterialsandothermaterials,equal to299.6millioncomparedwith thepreviousyear,isattributabletothehighervolumesofelectricitysoldandtheincreaseinthepriceofgas.Other operating costs (Costs for services increased by 59.8million andOther operating costs increased by 1.0million),increasedoverallby60.8million(+7.2%);morethan75%oftheincreaseisattributabletogreaterelectricityandgasdeliverycostsandtheremainderisduetotheincreasedcostsoftheapplicationofIFRIC12,theextensionofthescopeofactivitiesandinflationdynamics.TheincreaseinPersonnelcosts,whichwentfrom361.9millionin2010to370.0millionin2011(+2.2%),ismainlyrelatedtothedevelopmentofcontractdynamics.ThedecreaseinCapitalisedcosts,whichwentfrom81.9millionto49.3million,ismainlyconnectedtothedecreaseinworkonplantsandworksbyGroupcompanies,particularlythecompletionofthenewwastetoenergyplants.GroupconsolidatedEBITDA for2011grew,going from607.3million to644.8million (+6.2%) thanks to thegoodperformanceintheelectricitysegment,whichwentfrom9.8%to11.4%ofthetotalresultsforthegasandwatercyclesegments.Amortisation,depreciationandprovisionsincreasedby6.3%,goingfrom291.9millionin2010,to310.3millionin2011. This increase was mainly due to: (i) increased sums set aside for doubtful receivables, (ii) the entry intooperationof thenewdisposal facilitieswhosedepreciation and amortisation offset the effectof the reduction inlowerquantitiessenttolandfills.OperatingIncomefor2011stoodat334.5million,anincreaseof6.1%comparedwiththesameperiodin2010.Thenet financial incomeat31December2011stoodat113.2millioncomparedwith109.8million in2010.Thegreaterexpensesareduetoboththeincreaseinaveragedebtandtheincreaseinspreadsrecordedthroughout2011.Theoverallcostof financialmanagementalso reflects thebenefitsgained from themanagementofcashwhich, inpart,moderatedtheincreaseininterestratesaswellastheincreasedearningsfromassociatedcompaniesbyaround0.4million.Inthe lightoftheabove,PreTaxProfitrosefrom205.6millionfor2010to221.2millionfor2011,an increaseof7.6%,or15.6million.Taxeswentfrom63.6millionto94.5million;2010includedtheoneoffpositiveeffectsof25.1million,while2011benefitedby7.6million.Specifically,assetspurchasedbytheParentCompanyHeraS.p.A.,asaresultofthemergerbyincorporationofAgeaReti,wererecordedatahigherstatutoryvalueequalto6.4million;thishighervalue,notrecognisedfortaxpurposes,wasreleased in2011throughtheapplicationofthesubstitutetax,pursuanttoArticle176,paragraph2teroftheTUIR(ConsolidatedIncomeTaxAct),equalto0.8million,withtheconsequenttransfertotheincomestatementofthedeferredtaxliabilitiesoriginallyrecorded.Theoperationthereforeallowedtherecordingofapositiveoneofffigureof1.2millionintheincomestatement.

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TheGroupalsoconducted the realignmentof fiscaland statutoryamounts relating togoodwill, resulting from theconsolidated financialstatementsat31December2010,ofcontrolling interests,pursuant toArticle23,paragraphs1215, of DecreeLaw 98/2011, through the application of the substitute tax, equal to 5.8 million, and theconsequentdisclosureofdeferredtaxassets,equalto12.2million,correspondingtothe future IRESand IRAPtaxbenefiton theamountreleased.Theoperation thereforeallowed therecordingofapositiveoneoff figureof6.4millionintheincomestatement.Inadditiontotheabove,notetheincreasedtaxesaccountedforfollowingtheincreaseintheadditionalRobinHoodIRES(corporate)Taxof4percentagepoints,aswellastheincreaseinIRAPof0.3%forlicensedbusinesses,establishedthroughtheprovisionsof2011,foratotalof4.9million.Thefinaltaxratewas42.7%.TheNetprofitat31December2011stoodat126.8million,adecreaseof10.8%comparedwiththe142.1millionfor2010.Netoftheextraordinaryeffectsoftaxesin2011and2010,theNetprofitincreasedby2.2million,up1.9%comparedwiththepreviousyear,asshowninthetablebelow.(million) 31Dec10 31Dec11 Abs.Change %ChangePretaxprofit 205.6 221.2 +15.6 +7.6%Ordinarytaxes (88.6) (102.0) +13.4 +15.1%Adjustednetprofit 117.0 119.2 +2.2 +1.9%Oneoffminortaxes 25.1 7.6 17.5 69.8%Netprofitfortheperiod 142.1 126.8 15.3 10.8%

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AnalysisoftheGroupscapitalandfinancialstructureThe performance of the Groups net invested capital and the sources of financing for the year ended as at 31December2011,withrespecttothesituationattheendofthepreviousyear,isshownbelow.Netinvestedcapitalandsourcesoffinancing(million) 31Dec10 %inc 31Dec11 %inc Abs.Change%Change

Netfixedassets 4,142.3 111.0% 4,292.7 111.0% 150.4 +3.6%Networkingcapital (29.1) 0.8% (31.5) 0.8% (2.4) +8.2%(Provisions) (382.8) 10.3% (394.7) 10.2% (11.9) +3.1%Netinvestedcapital 3,730.4 100.0% 3,866.5 100.0% 136.1 +3.6%Shareholders'equity 1,870.2 50.1% 1,879.4 48.6% 9.2 +0.5%Longtermfinancialliabilities 2,292.1 61.4% 2,323.1 60.1% 31.0 +1.4%Netshorttermfinancialposition (431.9) 11.6% (336.0) 8.7% 95.9 22.2%Netfinancialposition 1,860.2 49.9% 1,987.1 51.4% 126.9 +6.8%Totalsourcesoffinancing 3,730.4 100.0% 3,866.5 100.0% 136.1 +3.6%Net investedcapital increasedby3.6% in2011, from3,730.4million to3,866.5million.The risewasdue to theinvestmentplan,detailsofwhichcanbefoundintherelevantsection.Net fixedassetsat31December2011amounted to4,292.7million,an increaseof3.6%on theendofDecember2010(4,142.3million).Provisionsattheendof2011stoodat394.7million,anincreaseof3.1%comparedwiththeDecember2010figureof382.8million.Networkingcapitalremainsvirtuallyunchangedregisteringanimprovementofapproximately2.4millioncomparedwithDecember2010.Shareholdersequitywentfrom1,870.2millionto1,879.4millionasaresultofthedividendsof121.4million,ofwhich117.2millionhasalreadybeenpaidout.

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Thetablebelow illustratestheParentCompanysstatutorypositionandtheconsolidatedfinancialstatementsat31December2011.

Netprofit ShareholdersequityBalancesfromParentCompanyannualaccounts 87,817 1,677,159Dividendsfortheyear (71,385)Shareholdersequityevaluationofbusinessesrecordedintheannualaccountsatcost 6,126 17,687

Bookvalueofconsolidatedinvestments (487,364)

Shareholdersequityandoperatingresultofconsolidatedbusinesses 81,886 499,585

Allocationofdifferencestoassetsofconsolidatedbusinessesandrelateddepreciation:Goodwillonconsolidation 55,018Intangibleassets (549) 4,944

Otheradjustmentstoeliminateeffectsofintergrouptransactions 695 (30,114)

Total 104,590 1,736,915

Allocationofminorityinterests 22,165 142,431

Balancesfromconsolidatedfinancialstatements 126,755 1,879,346

ReconciliationbetweenParentCompanyseparatedandconsolidatedfinancialstatements

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AnalysisoftheGroupsnetfinancialposition:Thebreakdownandchangesinnetfinancialdebtareanalysedinthefollowingtable:million 31Dec11 %inc. 31Dec10 %inc. Abs.

Change%

Change

a Cashandcashequivalents 415.2 538.2

b Othercurrentfinancialreceivables 39.1 44.3Currentbankloans 48.3 58.4Currentportionofbankloans 57.7 71.1Othercurrentfinancialloans 8.6 16.6Financialleasingpayablesmaturingwithinthenextyear 3.7 4.6

c Currentfinancialdebt 118.3 150.7

d=a+b+c Netcurrentfinancialdebt 336.0 0.2 431.8 0.2 95.8 0.2

e Noncurrentfinancialreceivables 10.9 10.3Noncurrentbankloans 277.1 345.8Bondsissued 1,829.7 1,787.3Othernoncurrentfinancialloans 221.9 160.4Financialleasingpayablesmaturingbeyondthenextyear 5.3 8.8

f Noncurrentfinancialdebt 2,334.0 2302.3

g=e+f Noncurrentnetfinancialdebt 2,323.1 1.2 2292 1.2 31.1 0.0

h=d+g Netfinancialdebt 1,987.1 1.0 1860.2 1.0 126.9 0.1Net financialpositionat31December2011stoodat1,987.1millioncomparedwith1,860.2million in2010.Theincreaseinnetdebtisduetoinvestmentsmadeanddividendspaidduring2011.Debtismainlymadeupofmedium/longtermdebtswhichcovermorethan95%oftotaldebt,balancingtheGroupscapitalstructurewhichfeaturesahighleveloffixedassets.HeraS.p.A.enjoysa longterm ratingofBaa1 issuedbyMoody'swithanegativeoutlookandBBB+byStandard&Poor's,withastableoutlook.

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HeraGroupInvestmentsTheGroups tangible and intangible investments totalled 324.9million, compared to 345.8million in the sameperiodofthepreviousyear.Thetablebelowliststheinvestmentsbeforedisposals,forthereferenceperiod,bybusinesssegment:Totalinvestments(million) 31Dec10 31Dec11

hera group consolidated annual report 2011

Investor Relations

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