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Financial Policy and Rating

The aim of the Group's financial operations is to maintain an adequate balance, now and in future, between investments and the utilisation of capital on the one hand, and sources of funding on the other, in terms of both the repayment schedule and the type of rate.

The policies and principles for management and control of the risks inherent in the Group's financial operations, such as liquidity risk, interest rate risk and exchange rate risk, are described below.

Liquidity risk Credit rating

The Groups aim is to have a level of liquidity which allows it to meet its contractual commitments both under normal business conditions and during a crisis, by maintaining available lines of credit and liquidity and proceeding with the timely negotiation of loans approaching maturity, optimising the cost of funding according to current and future market conditions.

As part of its short-term financial debt at 30 June 2011, of 98.9 million, the Group has 356 million in cash, 280 million in unused committed lines of credit and ample space on its uncommitted lines of credit (more than 1,200 million), giving it sufficient liquidity to cover any financial commitments for the next two years at least.

The lines of credit and related financial assets are not concentrated with any one lender, but are distributed equally among leading Italian and international banks, with utilisation much lower than the total amount available.

At 30 June 2011, long-term debt accounted for over 95% of the Groups total financial debt. The average term is more than nine years, and 75% of the debt is repayable after five years.

The projected nominal flow based on the annual repayment dates over the next five years and the portion after five years is shown below.

As far as Put Bond/Loan are concerned maximum financing duration was estimated therefore, Put Options wont have same deadlines as per related contracts.

Nominal debt ( million)Second half of 201131/12/201231/12/201331/12/201431/12/2015Over 5 yearsTotal
Convertible bonds00140000140
Put bond/loan00000540540
Bank debt/other payables2836333120276406
Gross financial debt2836173312021.8662.336

There are no financial covenants on the debt except for the restriction on a single corporate rating falling below Investment Grade level (BBB-).

Interest rate risk

The Group is exposed to fluctuations in interest rates (Euribor) concerning the portion of financial expense relative to debt.

The structure of fixed- and variable-rate debt with and without the impact of hedging derivatives is shown below.

Gross financial debt *30/06/2011 31/12/2010
( million)without derivatives with derivatives% with derivatives without derivatives with derivatives% with derivatives
Fixed rate 1,842.61,574.467%1,819.81,665.569%
Variable rate 516.04.00784.06.0033%588.05.00742.08.0031%
Total2,359.02,359.0100% 2,408.32,408.3100%

(*) Nominal flow which includes overdrafts

The portion of debt exposed to the risk of interest rate fluctuations is around 33%. The remaining 67% is fixed-rate debt. Moreover underlying derivatives are matched to the underlying debt.

The Groups hedging policy does not allow the use of instruments for speculative purposes and is aimed at optimising the choice between fixed and variable rates as part of a prudential approach towards the risk of interest rate fluctuations. The interest rate risk is essentially managed with a view to stabilising financial flows in order to protect margins and guarantee cash flow from operations.

In 2011, despite the significant proportion of long-term debt (around 95%), the Group has managed to maintain the cost of debt at an overall average of around 4.3%.

Exchange rate risk not related to commodity risk

The Group adopts a prudential approach towards exposure to currency risk, in which all currency positions are netted or hedged using derivative instruments (cross-currency swaps).

The Group currently has a currency bond of JPY 20 billion, fully hedged with a cross-currency swap.


Hera S.p.A. has a long-term rating of "A3, outlook stable" from Moodys and BBB+, outlook stable from Standard & Poors. These ratings were revised by the ratings agencies in July and June 2010 respectively.

The Groups primary objective in defining its plans is to implement strategies aimed at maintaining/improving its high ratings.

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