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Introduction

Introduction

Despite the macroeconomic climate in Italy, which continues to be hampered by the prolonged global economic crisis that has caused sharp falls across all Western stock markets, the Hera Group recorded growth in all its results including net profit in the first half of 2011. The Hera Groups results were boosted by contributions from new plants and installations, the usual organic-growth factors, both in regulated and deregulated activities, and extraordinary financial transactions.

The contribution from new plants and installations represented only part of their actual capacity: the waste-to-energy plant at Rimini started out in 2010 with waste disposal and then began to generate electricity midway through the first quarter of 2011. The contribution of the Enomondo (joint venture with an industrial partner) biomass thermoelectric plant was consolidated into the Groups financial results from the start of the year. This plant allows Hera to process and dispose of waste with efficiency and environmental standards above the European average. It also ensured another solid contribution to operating results, despite a drop in urban-waste volumes owing to less household consumption as a result of the economic crisis.

The improved natural-gas supply contract for the 2010-2011 thermal year enabled Hera to capitalise on excess supply in the commodities market. This contributed significantly to the improved results in the period, despite lower sales volumes as a result of the mild winter. These results highlight the positive contribution of ongoing strategies to maintain a diverse and flexible structure of procurement sources.

The strategy of expanding in the electricity market, which was able to rely on a solid commercial structure, effective cross-selling and efficient customer support continued to support electricity sector sales growth in the first half of 2011, confirming the strength of the Groups presence in open markets. The results were also boosted by the allocation of mandates for default-provider services (2011-2013 period) in some Italian regions, helping the Group to reach a customer base of more than 453,000 (up 18.6% on the start of 2011). Upstream development in electricity production to partially cover sales also enabled the Group to capitalise on the good supply conditions offered by the procurement market and to mitigate the impact of lower margins from producing electricity from traditional sources.

Despite the tough macroeconomic climate, characterised by ongoing weak growth in GDP and manufacturing, there was a slight increase (0.9% in terms of volume) in theindustrial-waste disposal business.

Business from energy distribution, urban-waste collection and integrated water service concessions also played a part in the improved first-half results, owing mainly to price adjustments in accordance with returns guaranteed by national laws and by the new tariff systems.

Lastly, there was also progress inexternal developmentthrough the acquisition of gas sales company Sadori Gas, which has 34,000 customers in Le Marche and Abruzzo and will contribute to the Groups results from the second half of the year, and the expansion of Marche Multiservizi's environmental activities.

EBIT increased from the same period in the previous year owing to the contribution from all the Group's strategic business segments (Environment, Energy and Networks), which was reflected in the Group's net profit (+14%).

As at 30 June 2011, the Groups net financial position was broadly unchanged compared with a year earlier at around 1.97 billion. The debt-to-EBITDA and debt-to-equity ratios improved. The positive cash flow in the first half of 2011 was also testament to the Groups financial stability, more than offsetting investments of over 138 million.

First-half operations confirmed the competitive strength of the company in open-market businesses and provided further evidence of the growth trend outlined in the business plan across all Heras activities. Moreover, the Group's financial flexibility has laid the foundations for pursuing further growth opportunities that are not part of the business plan.

 
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