TABLE OF CONTENTS
INTRODUCTION
LETTER FROM THE CHAIRMAN TO SHAREHOLDERS
6
HERA IN A NUTSHELL
8
DIRECTORS’
REPORT
1.01 1.01 TRENDS AND CONTEXT, STRATEGIC APPROACH AND GROUP MANAGEMENT POLICIES
17
1.01.01 1.01.01 Trends and contexts
17
Macroeconomy and finance
Businesses and regulations
Climate and the environment
Technology and human capital
1.01.02 Strategic approach and management policies
31
Macroeconomy and finance
Business areas and industrial strategy
Climate and the environment: sustainable development
Technology and human capital: innovation
1.02 1.02 RISK FACTORS: ACTORS, METHODOLOGY AND AREAS OF MANAGEMENT
42
1.02.01 Risk governance
42
1.02.02 Management methodology
43
1.02.03 Risk areas: identification and management of risk factors
44
1.03 1.03 MAIN EVENTS OCCURRED
56
1.04 1.04 OVERVIEW OF OPERATING AND FINANCIAL TRENDS AND DEFINITION OF APMs
62
1.04.01 Operating results and investments
67
1.04.02 Financial structure and adjusted net debt
72
1.04.03 Parent company management report
76
1.05 1.05 SHARE PERFORMANCE AND INVESTOR RELATIONS
78
1.06 1.06 SUSTAINABILITY RESULTS
80
1.07 1.07 ANALYSIS BY BUSINESS AREA
87
1.07.01 Gas
88
1.07.02 Electricity
93
1.07.03 Integrated water cycle
97
1.07.04 Waste management
102
1.07.05 Other services
107
1.08 1.08 SHAREHOLDERS MEETING RESOLUTIONS
111
1.09 1.09 NOTICE CONVENING THE SHAREHOLDERS MEETING
112
HERA GROUP
CONSOLIDATED
FINANCIAL
STATEMENTS
2.01 2.01 FINANCIAL STATEMENT FORMATS
118
2.01.01 Income statement
118
2.01.02 Statement of comprehensive income
119
2.01.03 Statement of financial position
120
2.01.04 Cash flow statement
122
2.01.05 Statement of changes in net equity
123
2.02 2.02 EXPLANATORY NOTES
124
2.02.01 Introduction
124
2.02.02 Operational and financial performance
139
2.02.03 Taxation
149
2.02.04 Equity and financial structure
155
2.02.05 Investment activities
167
2.02.06 Shareholdings
176
2.02.07 Derivatives and related instruments
183
2.02.08 Provisions and Contingent Liabilities
188
2.02.09 Operating working capital
192
2.02.10 Other information
203
2.04 2.03 FINANCIAL STATEMENT FORMATS AS PER CONSOB RESOLUTION 15519/2006
211
2.03.01 Income statement as per Consob resolution 15519/2006
212
2.03.02 Statement of financial position as per Consob resolution 15519/2006
213
2.03.03 Cash flow statement as per Consob resolution 15519/2006
215
2.03.04 Net financial debt according to the Consob notice DEM/6064293 of 2006
216
2.03.05 List of related parties
217
2.03.06 Commentary notes to the relations with related parts
218
2.05 2.04 SHAREHOLDINGS
222
2.04.01 List of consolidated companies
222
2.04.02 Key figures in the financial statements of subsidiaries and associated companies
223
2.06 2.05 INFORMATION REQUIRED BY LAW 124 OF 4 AUGUST 2017 ART.1 PARAGRAPHS 125-129 AND
229
FOLLOWING AMENDMENTS
2.07 2.06 OUTLINE OF ARTICLE 149-DUODECIES OF THE CONSOB ISSUER’S REGULATION 213
230
2.08 2.07 DECLARATION ON THE CONSOLIDATED FINANCIAL STATEMENT PURSUANT TO ART. 154-BIS
231
OF LEGISLATIVE DECREE 58/98
2.09 REPORT BY THE INDEPENDENT AUDITOR
232
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 6|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 7|
Hera Group – Consolidated Financial Statements at 31 December 2022 8
Hera Group – Consolidated Financial Statements at 31 December 2022 9
Hera Group – Consolidated Financial Statements at 31 December 2022 10
Hera Group – Consolidated Financial Statements at 31 December 2022 11
Hera Group – Consolidated Financial Statements at 31 December 2022 12
Hera Group – Consolidated Financial Statements at 31 December 2022 13
Hera Group – Consolidated Financial Statements at 31 December 2022 14
Hera Group – Consolidated Financial Statements at 31 December 2022 15
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 17|
TRENDS AND CONTEXTS, STRATEGIC
APPROACH AND GROUP MANAGEMENT
POLICIES
Trends and contexts
Hera makes ongoing efforts to interpret the signs coming from the contexts in which it operates, in an
attempt to obtain an overall view of what lies ahead for the Group and its stakeholders. In order to
anticipate future developments, the main drivers of change and their essential interrelations are identified
below. In particular, the macro-trends of the Group’s reference contexts are described, as are its main
management policies, i.e. its industrial strategy and the related sustainability factors (concerning the
environment, technology and human capital).
Macroeconomy and finance
In 2022, the world economy decelerated with respect to the trend of recovery that began in 2021.
According to the International Monetary Fund (IMF), global GDP growth stood at 3.4%, as against 6.2%
in 2021. The causes of this slowdown lie mainly in the outbreak of the conflict in Ukraine and the ensuing
increase in inflation worldwide, driven by energy commodity prices. Furthermore, the lockdowns imposed
in China late in the year additionally hindered recovery in the global supply chain.
This slowdown, compared to the previous year, affected all major global economies, with China’s growth
falling from 8.4 % in 2021 to 3.0 % in 2022, while the growth rate of the US economy went from 5.9% in
2021 to 2.0% in 2022.
The eurozone was the most heavily affected by the war in Ukraine, due to its proximity to the conflict
zone and its dependence on gas supplies coming from Russia. Highly volatile energy commodity prices
accentuated the rise in inflation that had already begun in late 2021, bringing inflation in the eurozone to
9.2 % in December 2022. The IMF has observed that growth in the eurozone came to 3.5% in 2022,
down from the 5.3% seen in 2021.
The IMF’s most recent estimates for the next two years point towards a scenario strongly influenced by
current geopolitical conditions. The global economy is expected to increase by 2.9% in 2023, while for
2024 the increase has been projected at 3.1%. Growth in the eurozone is expected to settle at 0.7% in
2023 and 1.6% in 2024, influenced above all by the additional increases in interest rates announced in
advance by the ECB.
The most recent analyses carried out by the Bank of Italy indicate growth in the Italian economy in 2022
among the best in the euro area, at roughly 4% year-on-year, despite the slowdown witnessed in the last
three months of the year, mainly caused by the persistence of high energy prices and the slowdown in
post-pandemic recovery.
Inflation remained very high in December, standing at 12.3% year-on-year. Energy commodity and food
prices remained at historically high figures, even while falling in the latter part of the year.
Although the consumer confidence rate remained lower than prior to the pandemic, it rose in the latter
part of the year due in part to an improvement in opinions and expectations concerning the overall
economic situation, particularly regarding unemployment.
Industrial production, which had increased in the second and third quarters, declined in the last part of
the year due to energy costs, still high, and a fall in demand.
The slowdown in production also effected foreign trade, bringing growth in exports to a halt in the last
quarter of the year, compared to the strong expansion seen in the first nine months (+0.1% compared to
the third quarter).
For the upcoming years, the most recent IMF estimates indicate growth at 0.6% in 2023 and 0.9% in
2024. As concerns inflation, the Bank of Italy’s projections set this indicator at 6.5% in 2023 before falling
World and
European
economy:
projected
trends
1.01
.01.
01
1.01.01
National
data:
projected
economic
trends
World and
European
economy:
year-end
results
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 18|
to 2.6% in 2024. These forecasts take into account a macroeconomic framework still strongly influenced
by the ongoing war in Ukraine.
The global financial context felt the effects of the negative developments following the trade and tariff
wars between the US and China, the pandemic and slowdowns along the supply chains, as well as the
Russia-Ukraine conflict and the increased pressure on energy resources that caused the major
inflationary shock mentioned above. During one of the worst years for financial markets around the world,
in 2022 Wall Street experienced its most significant drop since the 2008 financial crisis, with the S&P
500 index plummeting by 19.4%, the Nasdaq falling by 33.10%, and the Dow Jones containing its losses
at 8.7%.
A similar trend was seen in Europe, where the main stock exchanges lost around 12% year-on-year
(including the Milan Stock Exchange, which lost 12.6%); London managed to limit the impact of the crisis
with a positive, albeit modest, closure of 0.9%.
The Federal Reserve (Fed) and the Bank of England (BoE) began a process of monetary tightening
during the first half of 2022, which continued with further interest rate hikes in the following months as
well. The European Central Bank (ECB) also adopted a restrictive policy and announced that it would
continue in the early months of 2023 as well; in December, the reference interest rate reached 2.5%.
Also note that the ECB, as part of its asset purchase programme to inject liquidity into the system
(quantitative easing), confirmed the beginning of quantitative tightening as of March 2023. Securities
purchases will thus be reduced by 15 billion euro per month until June, with the pace of reductions during
the following months to be defined at a later date. Reinvestments of government bonds will be ‘partial’,
respecting the defined proportions for redemptions (by nation and national and supranational issuer).
The portion of maturing corporate bonds to be reinvested will be focused only on ‘green’ bonds. In order
to avoid risks of malfunctions in the monetary policy transmission mechanism, the flexibility to re-invest
maturing bonds under the Pandemic emergency purchase programme (PEPP) will remain unchanged,
meaning that this portfolio will be reinvested at least until the end of 2024.
The increase in eurozone interest rates accelerated during the second half of 2022, leading to an upward
shift in the interest rate curve on all maturities by more than 300 basis points (bps) on average, year-on-
year. The implicit forward rate curve forecasts a further rise for 2023 on short-term rates coming to
roughly 3%. On medium- to long-term maturities, no further increases are expected, only slight downward
adjustments coming to roughly 10 bps on average.
Over the year, in Europe, fears that a reduction in monetary stimuli could be accompanied by the
reappearance of fragmentation in markets, resulting in a sovereign debt crisis, led to an increase in
government bond yields. In order to ensure the effective transmission of monetary policy as part of the
normalisation process, a new anti-fragmentation instrument, the so-called TPI (Transmission Protection
Instrument), was introduced by the ECB. This instrument allows the ECB to make secondary market
Financial
markets,
monetary
policies and
interest
rates
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 19|
purchases of securities issued by countries experiencing an unjustified deterioration in financing
conditions.
The size of the purchases, which are not constrained ex ante, depends on the severity of the risks
involved and a list of eligibility criteria to assess whether those countries where the ECB can make
purchases under the TPI pursue sound and sustainable fiscal and macroeconomic policies.
On 31 December 2022, the spread between the yield on the ten-year BTP and the yield on the equivalent
German bond closed at 212 bps, up 77 bps from 31 December 2021. After reaching a peak of 251 bps
in September and experiencing pressure in the last month of the year, 2023 opened with a downward
trend coming to roughly 180 bps.
Unlike in the past, in 2022 the spread of bonds issued by Hera followed the upward trend of government
bonds, narrowing this spread. During the second half of the year, the recovery in Hera’s spread, i.e. the
increase in this spread, confirmed the return of investor confidence in the Group’s creditworthiness. At
31 December, the ten-year spread, in particular, was 82 basis points lower than the BTP-Bund spread
having the same duration.
Businesses and regulations
During 2022, the high volatility of energy commodity prices, coupled with the threat of possible reductions
in the availability of gas, caused a decline in domestic electricity and gas consumption.
In August 2022, European gas prices at the Dutch Title transfer facility (TTF) reached peaks of over 300
euro/MWh, more than ten times the benchmarks seen in 2021.
According to the first estimates processed by the Energy Market Operator (GME), in 2022 gas
consumption decreased by 9.5% compared to the previous year, totalling approximately 69 billion cubic
metres and returning to the amount seen in 2020. The drop in consumption was spread out over the
entire year, but was particularly concentrated in the last four months, during which the recessionary
effects of the war in Ukraine were compounded by milder weather. The industrial and civil sectors
recorded the most significant drops, down 15.2% and 13.2% respectively, while in the thermoelectric
sector the reduction was more moderate (3.1% compared to 2021).
As regards electricity, the data compiled by the national transmission company (Terna) indicates total
national consumption at 316.8 TWh for 2022, down 1.0% compared to 2021. Approximately 86% of
energy demand was met by domestic production, in line with the previous year.
In 2022, net national production from renewable electricity sources decreased by 13.1% compared to
2021, resulting in a portion of consumption met by renewables coming to 31.1%. In particular, the
contribution of hydropower production declined sharply compared to 2021, with a reduction of about
11%, due to the drought conditions seen during the year. On the other hand, photovoltaic production and
wind power production increased by 7% and 2% respectively, compared to the previous year.
Business
trends
Hera spread
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 20|
With regard to the waste management and water businesses, since data referring to 2022 is not yet
available, the most recent values defined by the main national institutes are provided below.
According to the latest calculations of the Institute for Environmental Protection and Research (ISPRA),
the annual production of municipal waste in Italy in 2021 amounted to 29.6 million tons, equivalent to an
average per capita production of about 500 kg, with values gradually realigning to those seen prior to the
pandemic.
On the occasion of World Water Day 2022, ISTAT presented its new report on the statistics of the national
water sector, updated to 2020 and focused on provincial capital cities. This report states that operators
injected 2.4 billion cubic metres of water into the network (the volumes moved in the networks of the
provincial capitals historically represent about 33% of total volumes distributed nationwide), with a
reduction of more than 4% compared to the volumes seen in 2018 (the last available historical data). Of
these, about 0.9 billion cubic metres, or 36.2% of the total amount injected, would seem to have been
dispersed.
Increasing competition was seen in the activities carried out by Italian utilities, with a particular focus on
free market businesses.
In the energy sector, strong commercial pressure persisted, especially in the retail market. This trend
was confirmed by the churn rates, which remained very high and continued to rise, in sales of both
electricity and gas. In 2021, in electricity sales the switching rate increased by 2.6 percentage points
compared to the previous year, while for the gas sales the increase was 1.4 percentage points compared
to 2020 (source: ARERA). In recent years, competition among sales companies has expanded to the
offer of value-added services, complementing the supply of commodities, so as to compose commercial
portfolios in line with customers’ needs, more oriented towards energy saving. Similarly, another factor
that has affected competition in the market lies in the increasing use of digital channels by customers,
both to choose offers and to interact with their energy and service supplier.
As regards the waste treatment and recovery business, the European context has witnessed for several
years now a series of aggregation operations based on the synergies that can be extracted from the
different businesses that fall within the scope of utilities, with a growing connection in particular between
energy, waste and water. Examples of the most widespread partnerships include the production of
biomethane from the organic fraction of municipal solid waste (FORSU) and from sewage sludge, as well
as Waste to Material and Waste to Chemical procedures. Within Italy, moreover, for several years the
focus of the main market players has gone towards expanding plant equipment, and this will be given
further impetus thanks to the resources provided by the National Recovery and Resilience Plan (NRRP).
With regard to regulated businesses, competitive pressure has been introduced into the procedures for
awarding service concessions and their subsequent management.
Considering the local areas in which the Group currently provides the water cycle service, the new
management of the concession in the province of Rimini began in January 2022, with an expected expiry
date coming at the end of 2039.
Turning to legislative and regulatory factors, the most important aspects for the Group in 2022 include:
▪ various government measures intended to support citizens and businesses in coping with rising
energy prices, including measures to curb the effects of price increases on bills;
▪ the measures adopted by the government to ensure security in supplies and the more widespread
use of renewable energy;
▪ measures to promote competition and a reorganisation of the regulation of local public services of
economic importance;
▪ the following measures adopted by the Regulatory Authority for Energy, Networks and the
Environment (Arera):
– a modification of the methods for determining the economic conditions for supply of the protected
gas service as of 1 October 2022, and the regulation of gradual protection for micro-businesses;
– the conclusion of the consultation of the new regulation for expenditure and service targets
(ROSS) in the energy sectors;
– the confirmation of WACC for energy infrastructure services for 2023, set in continuity with the
reference values for 2022;
Competition
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 21|
– an infra-period update, for the three-year period 2023-2025, of the tariff regulations for gas
distribution and metering;
– a measure to incentivise energy transition experiments along the gas chain;
– new regulations for gas metering performance, with reference to smart meters;
– the completion of the regulation of reactive energy input into low-pressure and high-pressure
networks;
– the approval of applications for the recognition of investments in specific 2G metering systems for
the Group’s two electricity distributors, and updates in the 2G directives for the three-year period
2023-2025;
– extraordinary measures taken in the water sector to recognise the cost of electricity;
– the conclusion, once again in the water sector, of the preliminary proceedings to determine the
system of incentives and penalties for technical quality for the two-year period 2018-2019, and
the earliest results of the preliminary investigation on contract quality;
– for the municipal waste management service, the determination of the WACC for the four-year
period 2022-2025, and the introduction of contract and technical quality obligations for waste
collection;
– an investigation into changes in the prices and costs of the district heating service, and a
consequent report to Parliament and the government on the attribution of tariff regulation powers
to the Regulator.
Beginning in the autumn of 2021, the government has introduced a series of measures to support citizens
and businesses in coping with rising energy prices, both in the electricity and gas sectors. Following the
outbreak of war in Ukraine and various price mitigation initiatives, a number of measures to ensure
security of supply and a more rapid development of renewable energy sources also appeared.
The continuation of the war forced national governments to intervene constantly throughout 2022,
updating the measures adopted according to the needs imposed by changes in the scenario. The first
need to which the Italian government intended to respond was a mitigation of the impact of energy price
increases on customers’ bills. To this end, a number of areas were identified for interventions: a reduction
of system charges for both gas and electricity users, which was extended during the year, and a
redefinition of social bonuses, with a wider number of beneficiaries and an increase in the amounts paid.
In addition, Decree Law No. 115/2022, so-called Aid bis, suspended until 30 April 2023 the effectiveness
of contractual clauses that allow a unilateral modification of the price conditions of electricity and gas
supplies, if they fall outside the expected contractual notice periods. These measures were subsequently
extended to 30 June 2023 by Decree-Law No. 198/2022, the so-called Milleproroghe, converted into Law
14/2023, which also clarified that the same did not apply to contractual clauses that allow suppliers to
update contractual economic conditions upon expiry, in line, moreover, with the principles sanctioned by
the State Council in the disputes brought by certain operators for the annulment of prescriptive measures
adopted by the Antitrust Authority.
At the same time, tax credits for procurement by energy-intensive companies were first introduced and
subsequently strengthened, and the way in which the GSE sells the electricity it possesses was regulated
(by the so-called Energy Release, under Law Decree 17/2022).
In order to raise the resources required to sustain these measures, additional charges were introduced
for those benefitting from the energy price increases. In particular, Decree-Law No. 4/2022 introduced a
limit on revenues from electricity generated by certain types of renewable-source plants (including
photovoltaic plants exceeding 20 KW), which was further extended by the Budget Law 2023 (Law No.
197/2022) on the basis of European Regulation 2022/1854, also including electricity generated by the
combustion of waste. The same Regulation was also responsible for the provision of the solidarity
contribution on the share of profits exceeding the average of the previous years, which the Budget Law
applies to companies over 75% of whose revenues come from the energy sectors. This measure
replaces the content of the “Price Cut” Decree (Decree-Law No. 21 of 21 March 2022), which had
introduced, for the year 2022, an extraordinary levy of 25% to be paid by companies operating in the
electricity and gas sectors.
In a context that saw an increasing risk of supply disruptions, the Government was called upon to
intervene so as to ensure the resilience of the domestic gas system. Decree Law 17/2022, the so-called
“Caro Energia”, entrusted the Ministry for the environment and energy security with defining the rules for
optimising the gas cycle in national storage, through means including resorting to counter-flow injections
Measures to offset
price increases in
bills
Measures to ensure
security in supplies
and a broader use
of renewable
energies
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 22|
during the supply season, to guarantee that the filling level is maintained. In addition, with the aim of
containing consumption, with Ministerial Decree 383/2022 of 6 October the Ministry modified the terms
of operation of thermal systems fuelled by natural gas, establishing a reduction in both the temperatures
and the daily and seasonal duration of the ignition period, and regulating the modalities for filling storage
and supply during the winter season.
In addition to these measures, aimed at providing immediate support to the economic system, the
national regulatory framework acknowledged and implemented the European strategy that identifies the
ecological transition as the main tool for reducing dependence on fossil fuels. For this purpose, the
procedures for allocating NRRP resources were published during the year, and for some investments
relating to utilities' areas of responsibility the final awards have already been made. These include
measures for developing the electricity and district heating network, as well as some lines relating to
circular economy projects. In addition, a number of reforms related to the NRRP itself have been
approved, including:
▪ the publication of the so-called Biomethane Ministerial Decree (Ministerial Decree 340 of 15
September 2022), which regulates the allocation of approximately 1.7 billion euro in incentives for
the production of biomethane from agricultural and organic waste;
▪ the definition of requirements for green hydrogen production plants (Ministerial Decree of 21
September 2022);
▪ the National Strategy for the Circular Economy, its Chronoprogramme and the National Waste
Management Programme, to ensure an effective transition to a circular economy.
On 5 August 2022, the annual Law for the market and competition 2021 was approved, which contains
measures for a number of areas of interest, including the awarding of tenders for the gas distribution
service and the waste management service. More specifically, as regards the gas sector, among other
measures, the possibility was given to local authorities to dispose of their assets through tenders on the
basis of the Industrial residual value (VIR) instead of the Regulatory value (RAB). Furthermore, with
regard to the reorganisation of the regulation of local public services, the Government received and
implemented the delegation with the publication in the Official Gazette of the Unified text for local public
services (TUSPL) on 30 December 2022. This legislative decree applies to all services of general
economic interest, with the exception of electricity and gas distribution, and calls in particular for the
requirement of a qualified justification for not turning to the market in the case of in-house awarding.
In regulating the economic conditions for the supply of natural gas in the protected service, note that
ARERA, in order to ensure greater price stability and adherence to market conditions, introduced a new
method for determining the component covering the costs of supply in wholesale markets, moving from
a quarterly forward system to a monthly forward system. In particular, as of 1 October 2022, the new
reference to be used in determining the CMEM component is set at the monthly average of daily prices
at the PSV Day Ahead, published at closure by ARERA.
In regulating the terms and conditions for providing the last resort and default distribution services, note
that Arera also intervened, with Resolution 372/2022/R/gas, with measures to compensate for the
unforeseeable and excessive charges due to the extraordinary situation of the wholesale gas market
price trend, and in particular:
▪ replaced, similarly to what was done for the protected service and once again as of 1 October 2022,
the reference to the CMEM component with the price of the PSV Day Ahead;
▪ introduced, on an extraordinary basis, an equalisation mechanism aimed at compensating the
procurement costs incurred by operators for incremental volumes for the period 1 October 2021 - 30
September 2022, financed by activating a specific tariff component to be applied within the scope of
the services in question.
With Resolution 586/2022/R/eel, Arera also postponed the date for the activation of the gradual
protection electricity service for micro-businesses from 1 January 2023 to 1 April 2023, due to the
postponement of the competitive procedures, which lasted until the end of 2022, and the technical need
for at least three months after the publication of the results to carry out all the prodromal activities for the
transfer of withdrawal points to the new service operators.
Measures to
promote
competition
Protected gas
service
Last resort and
default gas
distribution
services
Gradual
protection
service in
electricity
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 23|
Arera, during 2022, began consultations for the guidelines on the new tariff regulation by expense and
service objectives (ROSS) in the energy infrastructure sectors. The objective of this regulation is to
efficiently direct resources, eliminating distortions in companies' investment choices. The process leading
towards the new method will start with a simplified model, called ROSS-based, which as of 2024 will be
applied to electricity distribution operators and as of 2026 to gas distribution companies. Consultation
document 655/2022/R/com, published at the end of the year, contained Arera’s final guidelines on the
criteria for determining the recognised cost when following the ROSS-based approach: the expense of
distributors, total and no longer simply managerial, will be compared annually with a reference expense
defined by the regulator, any efficiencies/inefficiencies achieved will be shared with users according to
appropriate mechanisms, and the treatment of the capital stock existing at the date of transition to the
new methodology will be guaranteed with continuity in the criteria applied. In the first few months of 2023,
with the publication of the integrated TI-ROSS text, the new tariff regulation will be formalised (which
should essentially constitute a methodological framework with indications of general regulatory principles
and criteria), while for the actual completion of the ROSS-based scheme it will instead be necessary to
wait for updates in the specific regulations for each infrastructure service.
Arera, in late 2022, with Resolution 654/2022/R/com, established the rates of remuneration for capital in
energy infrastructure services for 2023. The changes in the underlying financial parameters, while
considerable, were not sufficient to trigger the updating mechanism provided for by the regulation. For
2023, therefore, the values of 2022 WACC were confirmed at 5.6% for the gas distribution and metering
service and 5.2% for the electricity distribution and metering service.
With regard to the tariff regulations for gas distribution and metering (RTDG), in late December 2022
Arera updated its regulations for the second semi-period (2023-2025) of the fifth regulatory period. The
main changes for 2023 concern: an update of the standard costs for electronic meters up to class G25,
to be applied starting from investments; the introduction of a new parametric recognition method to cover
the costs of remote management and concentrators equal to 1.59 euro/redelivery point (PDP), to be
updated for inflation for the following years; and a differentiation in the cost recognised for switch readings
taken on PDRs equipped with a smart meter compared to PDRs equipped with a traditional meter.
As regards the recognition of operating costs, pending the outcome of the appeals against Resolution
570/2019/R/gas, the Authority decided that it was appropriate not to change the productivity recoveries
set at the beginning of the regulatory period, but also considered introducing a mechanism for adjusting
the allowed revenues to cover operating costs if a reduction in redelivery points emerges. ARERA also
resolved to recognise the residual depreciation of G4-G6 smart meters installed from 2012 to 2018 and
decommissioned before the end of their useful life.
In order to support the process of energy transition and decarbonisation of the gas sector, with Resolution
404/2022/R/gas and subsequent Decision 9/2022, the Authority prepared a special bonus tariff
mechanism aimed at providing incentives for pilot projects optimising the management and innovative
use of infrastructures in the natural gas sector. In particular, three specific project areas were defined,
the first relating to methods and tools for the optimised management of networks, the second concerning
innovative uses of existing infrastructures, including the use of hydrogen and Power-to-Gas in the area
of sector coupling, and the third relating to energy efficiency interventions in gas infrastructure
management. A total of 35 million euro was earmarked for financing these trial projects (each of which
may have a maximum duration of three years), which will be allocated through a selective scoring
procedure based on specific assessment indicators.
As regards gas metering, at the end of the first half of 2022, ARERA approved a measure that defines
more stringent expected output and performance levels for the service provided by smart gas meters.
Indeed, Resolution 269/2022/R/gas establishes new obligations regarding the timing of smart meter
commissioning, the frequency of metering data collection, the granularity of the same, and the timing
with which the data collected is made available. The measures set out in this resolution also affect various
aspects relating to billing and the determination of compensation for customers and sellers. The effective
date of almost all the new provisions has been set at 1 April 2023.
Concerning regulations for electricity distribution, the reformed reactive energy regulations were
completed in 2022. With regard to reactive energy fed into medium- and low-voltage grids, Resolution
232/2022/R/eel established the respective fees as of 1 April 2023. Instead, with regard to the regulation
of the flow of reactive energy fed into high-voltage grids and interconnections, the sector had to wait until
Energy
infrastructure
sectors
Electricity
distribution
Gas distribution
and metering
regulations
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Hera Group – Consolidated Financial Statements at 31 December 2022 24|
late 2022 for Resolution 712/2022/R/eel. ARERA decided that, once again as of 1 April 2023, a basic
unit fee will be applied to the entire national grid and, only for the most critical areas, an increased fee.
Moreover, adopting a gradual approach, under specific conditions (assessed ex post) and which
demonstrate a fundamental absence of critical reactive flows, it is expected that the fees may be
cancelled and, where necessary, refunded.
During 2022, with Resolutions 410 and 411/2022/R/eel, ARERA furthermore approved the Requests for
admission to the recognition of investments in specifically 2G metering systems (RARI) made by Inrete
Distribuzione Energia Spa and AcegasApsAmga Spa. The measures approved the 2G Metering
commissioning plans and defined the mandatory performance of second-generation smart metering
systems, confirming the reference expenditure forecasts submitted to ARERA by the two distributors.
Regarding the electricity metering service, ARERA, in late 2022, updated the 2G directives for the three-
year period 2023-2025 for the recognition of the costs of second-generation smart metering systems.
While introducing a few innovative elements with respect to the previous three-year period, the new
directives guarantee essential continuity in the cost recognition mechanism for companies involved in a
large-scale replacement of 2G electricity meters. The main new features include the introduction of a
bonus for distributors who accelerate their meter replacement plan after obtaining public contributions of
any kind.
As regards regulations for the integrated water service, the measures concerning 2022 with the largest
impact for the Group involve incentive mechanisms for service quality and, as far as tariffs are concerned,
the recognition of electricity costs due to the exceptional context of energy price volatility. On this matter,
with Resolution 229/2022/R/idr the Authority established a number of extraordinary measures for water
operators. More specifically, the possibility of requesting a financial advance from CSEA for electricity
procurement in 2022 was introduced (which was later extended, by Resolution 495/2022, until 30
November 2022) as was the possibility of making an extraordinary request, in agreement with the area
Authority in question, for the recognition of the cost pertaining to 2021, provided that it was accompanied
by a plan of actions to contain consumption and energy costs.
Concerning the regulation of technical service quality, with Resolution 183/2022/R/idr, ARERA concluded
its preliminary investigation, begun with Resolution 46/2020/R/idr, aimed at quantifying incentives (and
penalties) relating to performance in 2018 and 2019. With this assessment, ARERA observed a generally
positive performance shown by operators, who seem to have acted according to largely satisfactory
criteria, with the exception of some cases, in which they were excluded from the mechanism due to
violations of regulations. The penalties relating to 2018 and 2019 are to be treated as reserves and used
for achieving the established objectives, in accordance with the reference regulations, while the bonus
payments relating to the same years were disbursed by CSEA. With Resolution no. 107/2022/R/idr, the
second preliminary assessment investigation was opened for the performance of technical quality in
2020 and 2021 and, at the same time, with Resolution no. 69/2022/R/idr, the first preliminary investigation
was opened in the area of contract quality concerning the objectives for the two-year period 2020-2021.
As a result of the latter preliminary investigation, with Resolution No. 734/2022/R/idr Arera published the
methodological note adopted for the quantitative assessment of incentives/penalties, pointing out that,
in addition to identifying some of the most serious cases of exclusion from the mechanism and thus from
the bonuses, in the event of particular data inconsistencies/incompleteness, in-depth investigations may
be requested from the operators concerned, with the possibility of justifying and possibly correcting the
data sent, providing adequate supporting documentation.
With regard to regulations for the municipal waste management service, the measures with the greatest
impact for the Group that ARERA finalised in 2022 concern regulations for the remuneration of capital,
in order to promote the industrial development of the sector, and the initial elements of quality regulations,
aimed at standardising service levels nationwide. More specifically, Resolution 68/2022/R/rif established
the WACC for the years 2022-2025, providing for a remuneration of capital coming to 5.6% for the
collection service (to be adjusted when tariffs are set for 2024-2025, since until then it will remain at
6.3%). The WACC for the treatment service was instead set at 6.0%, recognising the higher level of risk
associated with this phase of the municipal waste management chain. On the other hand, with reference
to quality regulations, note Resolution 15/2022/R/rif, which introduces the first regulation of service
quality, introducing a set of contract and technical quality obligations for the collection service, minimum
and uniform for all managers, accompanied by quality indicators and the related general standards
Integrated water
service
Integrated waste
cycle
Electricity
metering
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| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 25|
differentiated by regulatory schemes, identified in relation to the actual initial quality level guaranteed to
users by the various managers. Lastly, note Resolution 413/2022/R/rif which, in light of the mandate
given to ARERA by the annual Market and Competition Law 2021, initiated a procedure for defining
technical and quality standards for carrying out waste disposal and recovery activities, proceeding to
verify minimum quality levels and furthermore acquiring information on management costs and any other
suitable element for monitoring the actual methods used in carrying out disposal and recovery activities
and their impact on the fees applied to end users.
With reference to regulations for the district heating service (TLR), note that ARERA closed, with
Resolution 547/2022/R/com, its investigation on the evolution of the prices and costs of the district
heating service, begun with Resolution 80/2022/R/tlr. One factor that appeared, according to the
Regulator, is that indexing district heating prices to trends in gas prices, whereas thermal energy is mainly
produced by waste-to-energy plants and thermal power plants, seems to have led to a progressive gap
between the costs and revenues of this service. This is because the increase in revenues was not
followed by a corresponding rise in variable costs, with a consequent significant increase in margins for
the remuneration of invested capital. ARERA, with Resolution 568/2022/I/tlr, therefore made a report to
the Parliament and the government, essentially proposing the introduction of a cost-reflective regulation
of prices for the district heating service, attributing the related powers to ARERA itself.
A timeline showing the main regulatory periods and related measures introduced by ARERA, pertaining
to the Group’s sectors of activity, is provided below.
Tariff regulatory periods
• Resolution 614/21 set out the new methodology for determining the rates of return on energy capital and established WACC for 2022 only; these
values were confirmed for 2023 as well by the more recent Resolution 654/22
District heating
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Hera Group – Consolidated Financial Statements at 31 December 2022 26|
Lastly, the table below indicates the main tariff references for each regulated sector, based on the
regulatory framework in effect in 2022 and expected to remain until the end of the current regulatory
periods.
Natural gas
distribution and
measurement
Electricity
distribution and
measurement
Integrated water
service
Integrated waste cycle
Regulatory period
2020-2022
First sub-period of the fifth
regulatory period
(Resolution 570/19)
2023-2025
Second sub-period of the fifth
regulatory period
(Resolution 737/22)
2016-2019
First sub-period of the fifth
regulatory period
(Resolution 654/15)
2020-2023
Second sub-period of the fifth
regulatory period
(Resolution 568/19)
2016-2019
Second regulatory period
(Resolution 664/15)
2020-2023
Third regulatory period
(Resolution 580/19)
2018-2021
First regulatory period
(Resolution 443/19) (1)
2022-2025
Second regulatory period
(Resolution 363/21) (2)
Regulatory
governance
Single level (ARERA)
Single level (ARERA)
Dual level (Governmental
authority Body, ARERA)
Dual level (regional
authority, ARERA)
Recognised
invested capital
for regulatory
purposes (RAB)
Previous cost revised
(distribution)
Weighted average between
actual cost and standard cost
(measurement)
Parametric recognition
(centralised capital)
Parametric recognition for
assets up to 2007
Previous cost revised
for assets since 2008
Previous cost revised
Previous cost revised
Regulatory lag
for investment
recognition
1 year
1 year
2 years
2 years
Return on
investment (3)
(real, pre-tax)
2019
6.3% Distribution
6.8% Measure
2020-2021
6.3% Distribution and
Measurement
2022-2023
5.6% Distribution and
Measurement
2019-2021
5.9%
2022-2023
5.2% Distribution and
Measurement
2018-2019
5.31%
2020-2021
5.24%
2022-2023
4.8%
+1% for investments since
2012, covering the regulatory
lag
2020-2021
6.3%
+1% for investments from 2018,
covering the regulatory lag
2022-2025 (4)
5.6% Collection (adjusted when tariffs
are set for the years 2024-2025, until
then 6.3%)
6.0% Treatment
Recognised
operating costs
Actual average cost values by
company grouping
(size/density), based on 2011
(for revenues until 2019) and
2018 (for revenues from 2020)
(5)
Sharing for efficiencies
achieved against recognised
costs
Upgrade with price-cap
Average actual segment cost
values on a 2014 basis (for
revenues until 2019) and (2018
for revenues from 2020)
Sharing for efficiencies
achieved against recognised
costs
Upgrade with price-cap
Efficient costs: 2011 operator’s
actual values inflated
Upgradable costs: actual values
with 2-year lag
Additional charges for specific
purposes (provisional nature)
Collection and treatment
Actual operator costs with 2-year
regulatory lag
Additional costs for quality
improvement and changes in the
manager’s scope (previsional)
Additional charges for specific
purposes (previsional)
Annual efficiency
operating costs
Annual X-factor
2019
Distribution:
1.7% large enterprises
2.5% medium-sized enterprises
Measurement and marketing:
0%
As of 2020:
Distribution:
3.53% large enterprises
4.79% medium-sized
enterprises
Measurement: 0%
Marketing: 1.57%.
Annual X-factor
2019
Distribution: 1.9%.
Measurement: 1.3%.
As of 2020:
Distribution: 1.3%.
Measurement: 0.7%.
Efficiency mechanism based
on:
sharing operator efficiencies
2016
Differentiated sharing level with
respect to the distance between
actual cost and efficient cost of
the operator
Incentive
mechanisms
Net revenue sharing from fibre
transit in the electricity
infrastructure
Sharing of electricity costs
based on energy savings
achieved;
Recognition of 75% of margins
from activities aimed at
environmental and energy
sustainability
Collection
Sharing on revenues from the sale of
material and energy (range 0.3-0.6)
and from Conai fees
Treatment
Sharing not explicitly recognised by
the method, although it can be traced
back to the general principles
supporting the development of the
circular economy
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Hera Group – Consolidated Financial Statements at 31 December 2022 27|
Annual limit on
tariff increases
On an asymmetrical basis and
depending on:
- investment needs
- cost-effectiveness of
management
- changes in scope of
operations
Mechanism to guarantee
financial equilibrium
Collection
On an asymmetrical basis and
depending on the presence of:
-perimeter changes
-improved Service quality
Treatment
Limit to growth less tight since the
efficiency factor is not provided for, it
is a function of
-inflationary growth
-environmental impact of plants
Collection and treatment
Mechanism to guarantee financial
balance
(1) Resolution 443/19 is applied to managers in the integrated waste cycle, including treatment activities (for disposal or recovery) only if these activities are
included in the operator’s corporate scope. On the other hand, the tariff regulation of the gate fees of the plants is postponed to a dedicated measure.
(2) Resolution 363/2021/R/rif updated the previous regulatory period and introduced tariff regulation for treatment where these are “minimum” plants, i.e.
essential for closing the municipal waste cycle.
(3) For the energy and waste sectors, reference is made to the WACC methodology, while for the integrated water service the values refer to the coverage
rate of financial and fiscal charges.
(4) For the years 2022-2025, the reference measure for the WACC in the waste sector is Resolution 68/2022/R/ref.
(5) In February 2020, Inrete Distribuzione Energia Spa, the Group’s main distributor, challenged the measure before the Lombardy-Milan Regional
Administrative Court (TAR) with regard to the significant reduction in the recognition of operating costs introduced by Resolution No. 570/2019.
Climate and the environment
Regulatory and economic interventions aimed at managing climate change, and the concrete
opportunities that derive from addressing the risks associated with it, have become priorities for
international and national institutions, as well as those operating in all economic sectors. The Group’s
main concerns in pursuing environmental sustainability coincide with the 17 goals on the 2030 Agenda
for Sustainable Development (SDGs), as well as the indications contained in the Paris Agreement to limit
global warming to below 2ºC, and the long-term climate strategy “A Clean Planet For All” (adopted by
the European Union), intended to achieve carbon neutrality by 2050 and to limit the increase in
temperature to below 1.5ºC. Further important elements moving in this direction include the change
called for by the Green Deal, the European Commission’s plan for a Europe that is more competitive in
the fight against climate change and increasingly capable of transforming the economy and society by
setting them on a path of sustainable development and, in the wake of this, the circular economy action
plan (CEAP). The actions taken by European and national institutions are coordinated and converge
towards the goals of a fair, sustainable and inclusive transition. Adopting the Green Deal and related
initiatives, aimed at tackling climate and environmental problems in order to achieve carbon neutrality
and the transition to a regenerative and circular growth model, is aimed towards an industrial strategy
that implements the circular economy in all sectors.
The Circular Economy Action Plan, presented by the Commission last year, has made it possible to
outline a strategic framework for circular economic development in the European Union and, in so doing,
is geared towards accelerating the transition and making the change foreseen by the Green Deal
possible.
Incentive initiatives, reuse and recyclability in products, reduction of overpackaging and rules for
bioplastics have become increasingly important in this respect. Above and beyond the plastics sector,
the promotion of the circular economy is also encouraged with respect to water management, both in
terms of reuse of purified wastewater for irrigation in agriculture and in terms of minimum requirements
for the use of reclaimed water.
National policies are developing in a European context where priorities are defined and available
resources allocated accordingly. In this sense, the National recovery and resilience plan (NRRP), which
makes use of the European funds made available by the NextGenerationEU package supplemented by
a complementary national fund, guides Italy in the implementation phase of the European Green Deal
and, since there is an overall consensus concerning the need to introduce progressively more
challenging climate targets, reinforced instruments have been made available to member states with the
aim of:
▪ accelerating the process of ecological and digital transition;
▪ accelerating the transition to a regenerative and circular growth model;
▪ providing a tool to help investors in the transition to a low-carbon economy.
In order to manage the energy crisis that began last year, the European Commission introduced in May
2022 a series of measures that can be launched in the short term (REPowerEU), including a common
Climate change
Circular
economy
action plan
Opportunities
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 28|
gas purchasing platform, a cap on gas and electricity prices, the diversification of supply and a reduction
of gas demand through energy efficiency measures and electrification of consumption.
The drive to decarbonise the European economy has instead been entrusted to long-term measures, in
particular the Fit for 55 package, which aims to reduce climate changing emissions by 55% within 2030
by focusing on an increase of renewable energies in the production mix. In terms of energy efficiency,
the current 2030 targets, revised upwards to meet this ambitious emission reduction target, will be
pursued by giving a leading role to public buildings in the process of making Europe’s building stock
more efficient. In terms of renewable energies, whose increased production is crucial to replace fossil
fuels and reduce carbon intensity, the electrification of consumption will require considerable investments
along the entire supply chain and, as far as regional energy planning is concerned, it is expected that
the recovery of waste heat from industrial processes will have significant potential. The development of
renewable gases, including hydrogen, by constructing electrolysers powered by renewable energy
sources, will also be a priority.
In early 2018, the European Commission published the Sustainable Finance Action Plan, which aimed
to respond to three objectives: redirecting capital flows towards sustainable investments in order to
achieve sustainable and inclusive growth; managing financial risks arising from climate change, resource
depletion, environmental degradation and social issues; and promoting transparency and a long-term
vision of economic and financial activities.
The first concrete action took the form of the EU’s own definition of a Taxonomy for sustainable
investments, aimed at directing investors’ funds towards sustainable initiatives.
In order to be aligned with this Taxonomy, economic activities must comply with three principles identified
by the Regulation:
▪ contribute positively to at least one of the six environmental objectives set out, including mitigation of
climate change, adaptation to climate change, sustainable use and protection of water and marine
resources, transition to a circular economy, prevention and reduction of pollution, and protection of
biodiversity and ecosystem health;
▪ not produce negative impacts on the environment;
▪ respect minimum social guarantees.
Moreover, as of 1 January 2022, companies subject to the directive on non-financial reporting must
indicate the amount of their activities that fall under the European Taxonomy.
As regards the Italian context, the six strategic missions of the NRRP are built around the six pillars of
intervention set out in the European Regulation for Recovery and Resilience and are accompanied by
specific sectoral reforms. Mission 2, “Green revolution and ecological transition”, the largest in terms of
resource allocation, addresses the initiatives that most closely concern the Hera Group.
For the water cycle and waste sector, the NRRP aims to modernise networks and plants and reduce the
infrastructure gap between the north and south of the country, assigning a central role to the national
Plan for the water sector, for providing public funding, and to the national Programme for waste
management.
In the energy sector, the NRRP focuses on developing renewable energy sources, modernising
electricity grids (to increase their digitalisation and resilience against climatic events) and energy-saving
solutions. Other key actions include the integrated development of the hydrogen supply chain, promoting
production- and consumption-side projects at the same time and the principle of energy efficiency as the
first zero-emission fuel.
All countries that signed the Paris agreement made a commitment to a strategy for reducing climate-
changing emissions reaching 2050. The strategy will move towards improving knowledge of climate
impacts, intensifying climate risk planning and assessment, accelerating adaptation actions and
developing resilience to climate change globally. People are becoming increasingly sensitive to
environmental and social inclusion issues and are thus driving the increase in demand for green & digital
interventions, in line with EU recommendations on economic recovery and resilience. In order to get
various stakeholders and civil society involved in the adoption of sustainable behaviour, the European
Commission has created the European Climate Pact. This initiative offers individuals and organisations
opportunities to learn about climate change and find solutions, and provides a space for individuals to
interact and promote a European climate movement. Organisations can identify their own ambassadors
with a focus on gender equality and, in order to support the beginning of concrete actions, the Pact’s
platform makes it possible to share experiences, funding opportunities and know-how.
Strategy for
decarbonisation
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| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 29|
The inevitability of climate change, which has led the European Commission to anticipate its emission
reduction targets to 2030, with the hope of achieving full decarbonisation by 2050, is also forcing local
authorities to review priorities and courses of action. Moreover, the pandemic has made it urgent to
implement actions to make cities and local programmes more resilient and has increasingly oriented
regional policies towards circular economy initiatives, sustainable mobility, carbon neutrality and
digitisation. This scenario is increasingly ambitious and offers new opportunities to the utility sector. All
types of customers (household, industrial and public administration) will be called upon to introduce
technological improvements that can reduce their energy needs.
Promoting and selling products and services for energy efficiency and supporting the energy efficiency
of buildings are some of the initiatives being promoted.
Stakeholders, both financial and non-financial, who are increasingly interested in sustainability issues,
are therefore also moving towards green financing, which can raise liquidity on the capital market at rates
that are potentially lower than the alternatives.
Following a rationale based on value sharing between companies and communities, oriented towards
finding solutions for the benefit of both, the engagement of the community and individuals is becoming
increasingly important. The main megatrends are those built on the UN 2030 Agenda, theoretical
references and successful experiences of shared value approaches and new business opportunities.
The new lines of development will continue to include the full exploitation of data (seen as a real corporate
asset) and a greater focus on cybersecurity, to protect the company and its data. The speed of change
makes it essential to define training plans that enable the corporate population to better manage change
(first and foremost digital change). This includes training that may be fragmentary but is still able to
provide the necessary continuity (self-development).
Technology and human capital
Digital technological evolution involves a continuous acceleration of some major ICT trends and, in
addition to moving beyond the paradigms found in economic and social contexts with increasing speed,
it alters entire market segments and social relationship patterns. The rise of Artificial Intelligence,
automation, Robotic Process Automation, data collection and management (Internet of Things, data
governance and data analytics), cybersecurity and, finally, cloud-based platforms favours an increase in
the amount of data produced and the speed of its availability, generating further opportunities for
companies. Utilities are actors capable of promoting a wider use of innovation thanks to their contribution
to digitisation and technological development, giving attention to IT security as well. The Internet of
Things and digital interaction between people (exemplified by the automation of more standardised
customer relations through chatbots) favour a continuous and growing flow of data, which allows not only
timely analyses of different situations (real time analytics), but also a more precise definition of decisions
and actions to be taken, often with the support of artificial intelligence. In this direction, the EU
Commission, adopting the communication “Digital compass for 2030: the European model for the digital
decade” has confirmed the path for an ethical digital development in Europe, with clear targets to 2030
benefitting citizens and businesses. The main goals include:
▪ 80% of the population between 16 and 74 with basic digital skills;
▪ 20 million specialists in ICT, equally distributed between men and women;
▪ 75% of businesses using cloud computing, big data and Artificial Intelligence services;
▪ 90% of small and medium-sized enterprises with a basic level of digital intensity;
▪ 100% of public digital services available online,
▪ 80% of citizens using digital identity solutions;
▪ 100% of households with gigabit connectivity and inhabited areas covered by 5G.
The benefits of digitally-aware development have been defined in Italy by the “Strategy for Technological
Innovation and Digitisation”, one of whose main challenges is to accelerate the transition to a digital
society, prepared to achieve the above-mentioned European targets. This strategy intends to innovate
by safeguarding the economic, environmental and social sustainability and guaranteeing equal
opportunities for participation. In 2022, more than 45% of Italian companies adopted forms of remote
working, allowing their employees to work from home at least one day a week. Italy also ranks third in
terms of readiness for 5G. Investments in telecommunications, networks, software, automation and other
technological infrastructures, which are essential for reaching European targets, must be accompanied
by the spread of a culture and training that will enable the new technologies, which in turn are oriented
towards a sustainable and circular economy, as well as hinging on digitisation and artificial intelligence.
Environmental
and socio-
economic
factors
Opportunities
In the utility
sector
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| Directors’ report
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Hera Group – Consolidated Financial Statements at 31 December 2022 30|
The NRRP intends to direct 22% of the available funds towards a major digital acceleration in the country,
as a lever to give a decisive boost to the country’s competitiveness. By virtue of their relationship with
the public administration and SMEs, utilities play an important role in supporting digital transformation,
in particular through digital services for optimising the yield of production processes, but also through
sensors installed for data collection and analysis, without forgetting connected machinery for automatic
task performance and predictive maintenance. Examples of this can be found in the various applications
in the relevant businesses, such as data-driven energy management solutions, thanks to connected and
smart-sensor-equipped systems and devices inside public buildings, or sensors and smart devices
distributed throughout the territory, coordinated and integrated by digital platforms that process the
generated big data for resource planning and service optimisation. The widespread presence of digital
technology affects all aspects of business operations, extending the changes to the point of translating
into additional and new value-added services.
The increase in infrastructural requirements, which continues to drive the demand for investment in
connectivity and remote collaboration tools, for utilities focuses on the need for connectivity and security
applied to remote working and also multi-channel interaction with the customer, without forgetting the
management and sensitisation of infrastructures across the area served. The digitisation process is also
fuelled by incremental investments in Artificial Intelligence and hyper-automation, Internet of Things and
Internet of Behaviors (IoB), distributed cloud and 5G. Operation technology (OT) or remote management,
which had developed over the past few years as a niche area limited to plant effectiveness and with little
attention to cybersecurity aspects, requires companies to increase investments in order to reduce system
fragility. In this context, it is essential to continue to deploy all available technological skills and resources
to increase the level of protection and attention to cybersecurity risks, in order to counter threats and
minimise possible consequences. Customers in all sectors, who are increasingly inclined to interact
through digital channels, expect real-time responses and uninterrupted service availability, and therefore
the advantage goes to the most proactive suppliers in terms of attention to behaviour and optimisation
of consumption, but also, increasingly, additional services such as smart house and e-mobility.
Cloud platforms have made high-performance connectivity available and enabled significant
infrastructural economies of scale for exponential technology development, optimising the use of time.
The availability of processing power also drives the spread of Artificial Intelligence and Robotic Process
Automation applications with integrated Artificial Intelligence (IRPA), which are useful for making the
most appropriate decisions on actions to be taken. The identification and formalisation of managerial
processes that combine human and automated activities, balancing them according to the value added
to the process, is therefore one of the issues to which all organisations will have to pay particular
attention, not only in terms of organisational design, but also from the point of view of training and
managerial monitoring.
The enhancement of the human component is also fundamental for a balance between technology and
people, focusing the organisation of resources on value-added activities, according to a pattern of
intelligent integration, which is not limited to mere cost efficiency and purely replacements, but rather fits
into the broader horizon of the Just Transition targeted by the European Union. The current historical
moment has emphasised the need to address the priorities towards which corporate culture, leadership
styles and models must be directed. The strong acceleration of the digital transformation confirms the
need for an increasingly sensitive approach to relational aspects. When dealing with the consolidation of
remote working, therefore, the ability of companies to develop distinctive and inclusive communities is a
critical factor in their success, and its consolidation reduces the risk of the weakening of relational capital
resulting from an irrational use of remote working. Repositioning individual priorities towards an all-round
concept of individual well-being and the increased search for flexibility, combined with a growing need
for work-life integration, are driving companies to seek constant alignment between individual and
collective purpose.
The digital workplace transformation and the interconnection on a single platform allow people to interact,
share information and gain knowledge and skills. Research by the World Economic Forum in the energy
and utilities sector, however, shows that 11.8% of workers are at risk of redeployment, with only 51% of
them successfully re-employed. The socio-demographic evolution characterised by a lower birth rate and
an increasing incidence of migration will also lead to an increase in the co-presence of different
generations within organisations and an increasing focus on diversity and inclusion issues. The ongoing
technological, energy and environmental transitions, together with the evolution of organisational models
The added
value of a
resilient
workforce
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| Directors’ report
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Hera Group – Consolidated Financial Statements at 31 December 2022 31|
and ways of working, have an impact on the evolution of skills and learning models, but also on a concept
of leadership based on authenticity, autonomy and transparency, on performance management beyond
the boundaries of space and time, and on a greater search for agility and participation in work regulations.
The emerging roles on which to focus training investments will depend on skills related to digital
transformation, energy transition (with a focus on decarbonisation and renewable energies), the
environmental transition (with a focus on circular economy, climate change and green finance) and, last
but not least, problem solving and self-management, thus underlining the increased importance of “soft
skills”. The technological ability to acquire huge amounts of data makes it even more important to invest
in the human ability to read it and make it “speak”, so that it can generate the expected value. At the
same time, while the increasingly pervasive adoption of remote collaboration tools has created a change
in the way of working and measuring performance, the ability to provide an environment that is also
connected in terms of human relations becomes, for this very reason, sought after and valued. The wider
presence of performance management skills, through rooted trust, responsibility, motivation and
autonomy, is necessary to ensure the achievement of objectives in a context in which the working time
factor is becoming less and less important compared to the result, and has proved to be crucial. Employer
branding, moreover, will be decisive in attracting and retaining talent; engagement and inclusion,
interconnected by the idea that each person must be valued and encouraged to express his or her
potential, are fundamental to maximising performance.
In order to generate value for people, it seems increasingly important to move towards structured data
governance and to develop sustainable and circular behaviour. Enabling experiences and paths in
training and development that are increasingly defined by a rationale of individual and collective
responsibility will make it possible to face future scenarios that are changing and not always predictable.
Flexible organisational models used to increase agility and resilience, individual empowerment actions,
accompanied by a rethinking of working methods, the reinterpretation of space and time, and the well-
being of people, are therefore drivers for the valorisation of human capital and as a consequence for
increased productivity. In this respect, the creation of fair and inclusive environments is essential for the
responsible financial community, and the commitment to promoting policies of inclusion and protecting
diversity must increasingly translate into a fight against discrimination in the workplace.
Strategic approach and management policies
Scenario analysis is a methodology for defining useful inputs for strategic plans to increase the
effectiveness of the business model over time.
This type of analysis involves a process aimed at testing a strategy’s resilience under different
assumptions describing possible future states. For the Hera Group, it is essential to analyse the potential
impact, positive or negative, of various economic-financial, business, regulatory, competitive,
environmental, technological and human capital scenarios that are different from each other, but equally
plausible and internally consistent.
The study of scenarios has also been applied to climate change, in order to understand how physical
and transitional climate opportunities and risks may plausibly affect business and its various areas over
time.
The reference framework within which the Group’s strategy has been developed in the various areas
consists of three areas:
▪ the environment, in order to respond in a concrete way to the threats linked to climate change, by
regenerating resources and strengthening the resilience of the assets managed, favouring the energy
transition and aiming at carbon neutrality;
▪ socio-economic factors, in order to match developments in the Group’s size with the generation of
an increasing portion of shared value, to positively affect the well-being and prosperity of stakeholders
and the areas served;
▪ innovation, to drive the evolution of the Group’s activities, thanks to the opportunities offered by the
most advanced technologies and digitalisation, with the aim of increasing the efficiency and quality
of the services provided, multiplying opportunities for stakeholder engagement and accelerating the
spread of behaviours and skills capable of responding to the challenges of a constantly evolving
context.
1.01.02
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| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 32|
Macroeconomy and finance
The debt structure towards which the Hera Group is oriented responds to its business needs, not only in
terms of the duration of loans, but also in terms of interest rate exposure. The Group’s financial strategy,
in turn, is aimed at maximising its return profile while maintaining a prudent risk strategy.
The scenario projected in the Plan expects the Group’s financial structure to maintain, in 2026, 20% of
variable-rate debt and 80% of fixed-rate debt, within the limits of the financial risk policy. These
projections are part of a well-pondered long-term planning of the necessary financial resources, which
Hera carries out by analysing and monitoring cash flows, paying attention to maintaining a flexible and
efficient debt structure. The average cost of debt, in particular, is constantly monitored, both through
financial risk management activities which, in order to limit the risk of interest rate fluctuations, include
the use of derivative instruments, and through assessments of liability management operations aimed at
seizing favourable market opportunities and maintaining a debt repayment profile that is evenly
distributed over time. One challenging objective for the upcoming years, falling under the Plan, within a
scenario that includes rising rates and a highly volatile market, is to contain the average cost of debt
through liability and financial risk management activities. The Plan confirms the Group’s desire to meet
financial requirements through fixed-rate bond issues, including green and/or sustainable bonds, taking
advantage of any opportunities for subsidised finance, in order to respond to the Group’s investment
needs with further gains in efficiency and thus guarantee the implementation of innovative and
sustainable projects in the environmental, water and energy sectors. The funding strategy is reflected by
the actions included in the Business plan for projects to reduce greenhouse gas emissions and increase
the amount of recycled plastic.
Most of the Group’s business is concentrated in Italy, and its rating is thus closely linked to the country’s
rating, its macroeconomic trends and its political scenario. Hera’s actions and strategies remain oriented
towards maintaining and improving adequate ratings; its usual communication with the rating agencies
Moody’s and Standard & Poor’s (S&P) has confirmed positive feedback in terms of the solidity and
excellent balance of its business portfolio, as well as in terms of excellent operating performance, efficient
and proactive risk management and resilient creditworthiness indicators. In 2022, in particular, Moody’s
and S&P ratings were confirmed respectively at BAA2, with an outlook going from stable to negative
which reflects the worsening of the sovereign rating outlook (since, despite the Group’s business being
recognised as sound and sustainable, a company’s rating cannot be 1 notch higher than that of the
country in which it operates), and BBB+ with a stable outlook. The rating obtained is among the highest
in the multi-utility sector at European level and is higher than the sovereign rating, confirming the path of
growth implemented over the years and the results in line with multi-year expectations.
Over the period covered by the plan, the ongoing adoption of sustainable financial reporting best
practices will support the Group’s green financing and ratings. Hera has already been committed to green
funding for some time: it was the first Italian company to issue a green bond in 2014, which was followed
by an ESG-linked loan in 2018. In 2019, it adopted a Green Financing Framework (GFF), accompanied
by a further green bond issue. An expected further improvement in sustainability ratings, in turn, will
make it even easier to access lines dedicated to sustainable financing, characterised by potentially lower
costs than traditional credit lines. Consistently with these guidelines, the Group is also in the process of
implementing the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD)
coming from the Financial Stability Board, which foresee the definition of climate scenarios, risks and
opportunities related to climate change, as well as processes for managing these risks, and the definition
of targets for reducing climate-changing emissions.
In this context, becoming part of the Dow Jones Sustainability Index (DJSI), the first index to track the
financial performance of the world’s leading companies in terms of sustainability, bears witness to the
validity and credibility of the path taken by the Hera Group, opening up further developments.
Recognitions of this type, in fact, act above all as a stimulus and allow Hera to identify the areas to be
developed for further improvement in its performance and, at the same time, to include among its
reference investors those who are engaged in socially responsible investing (SRI), a segment that, as
mentioned above, is undergoing considerable and continuous expansion.
Financial
planning
Sustainable
financial
reporting
Credit
ratings
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 33|
Business areas and industrial strategy
The Group’s 2022-2026 Business Plan, approved in February 2023, was drafted with respect to a
complex external context, strongly disrupted by the geopolitical and energy crisis. Faced with such a
challenging scenario, the Group’s strategy to 2026 confirms the strategic aspects of its previous planning,
putting the focus back on its synergic relationship with its reference areas, thanks to significant
investments in projects capable of effectively responding to the main macro-trends of the utility sector:
ecological transition, innovation, cohesion and social development.
To orient the ecological transition, the Group’s plan focuses on reducing climate-changing emissions,
the circular economy and resilience in services, to improve their quality and continuity.
The Hera Group’s strategy is also developed thanks to a solid contribution coming from innovation, by
adopting technological solutions that will make it possible to know and monitor customers’ needs and
adapting existing services to their requirements, and to optimise the management of the assets,
rationalising their maintenance.
In the free-market businesses of the energy sector, the Group aims to consolidate its national position
through a gradual increase in its customer base, reaching the target of four million energy customers by
2026. This goal will be pursued by strengthening and enhancing the portfolio of value-added services
offered, with increasingly advanced solutions to enable and support customers in the path towards the
energy transition. Examples of this include offers for monitoring and reducing waste, including the sale
of smart thermostats, and those aimed at increasing energy efficiency. The Group’s innovative service
package also includes the sale of charging stations for sustainable mobility and the design, sale and
installation of photovoltaic systems.
The customer base will also be expanded by taking advantage of the opportunities arising from the
termination of the protected electricity service, which is scheduled to come to an end for household
customers in January 2024.
Innovation will be a key element in enabling the evolution of the relationship between sellers and
customers towards new standards of quality and satisfaction. This will be possible thanks to customised
offers that will leverage the data collected by second-generation meters and the introduction of artificial
intelligence solutions supporting the various business applications used in customer relations.
In the energy services business, the Group aims to grasp the new energy efficiency opportunities that
will emerge in particular in the public administration segment, thanks to the NRRP and national energy
saving targets.
With regard to the waste treatment and recovery business, the Group intends to consolidate its
leadership by leveraging plant and industrial development, as well as commercial development in the
industrial waste and recovery sectors. In the latter area, Hera, acting through its subsidiary Aliplast, will
develop new projects both to expand plant capacity in segments already covered, such as the production
of recycled PETs for food use and recycled polymers for cosmetics and food, as well as in narrower and
more innovative segments. In particular, two new plants will be built, with state-of-the-art technology,
also partially financed by the NRRP: work on both a carbon fibre regeneration plant in Imola (BO) and a
rigid plastics recovery plant in Modena will begin during the period covered by the Plan.
In terms of commercial development, the Global Waste Management solutions offered to industrial
customers will also be strengthened, with customised services covering the entire waste cycle, water
resource management and energy services, fully exploiting the synergies between the various
businesses covered by the Group. Furthermore, customers will be offered the means with which to
improve the circularity of their production and logistics activities, with the aim of reducing waste
production or changing its nature towards higher-value types of waste. Lastly, development in the
remediation sector is expected to be accelerated by ongoing corporate acquisitions.
As regards regulated businesses, our strategy for the coming years will be based on innovation and
digitalisation, intended to increase the resilience of the infrastructures managed and to improve
operations, benefiting the service offered to the Group’s customers.
For example, the use of predictive maintenance and functional modelling models will make it possible to
classify, plan and better gauge the interventions necessary for the range of networks managed, with
benefits both of an economic nature and concerning system resilience.
Free-market
businesses
Regulated
businesses
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| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 34|
In gas and electricity distribution, a drive towards innovation will come from installing approximately 410
thousand second-generation (2G) electricity meters, which will allow for a more precise measurement of
consumption, and around 300 thousand NexMeter gas smart meters, patented by Hera, having
advanced safety functions in the event of leaks or earthquakes, and which can also be used for green
gas mixtures.
During the period covered by the Plan, the Group will further evolve its businesses towards
decarbonisation, through investments in innovative and circular projects involving renewable gases, from
the production phase to their final use, and at supporting the electrification of consumption and an
increase in distributed generation. For example, the Power-to-Gas plant is scheduled to become
managerial at the Idar purification plant in Bologna Corticella, which will use wastewater and electricity
originating from renewable sources to produce biomethane and oxygen.
In the water cycle, work will continue on making networks more resilient to climate change, smarter in
terms of automation and remote monitoring of assets, and more efficient in the management of water
resources. The district-based programme for the aqueduct will be developed and extended, which allows
the condition of the pipelines within portions of the water network (districts) to be constantly controlled,
thanks to a precise monitoring system that provides data that can also offer indications on the presence
of hidden leaks, as well as remote pressure regulation. Concerning the sustainable management of water
resources, various circular economy initiatives have been planned for saving, reusing and recovering
water, both at customers' premises and at the Group's assets and sites, including through the effective
optimisation of sewage sludge management and recycling materials from water cycle waste with
dedicated plants and innovative tools.
In district heating, investments will mainly be focused on projects aimed at developing and optimising
existing systems and maximising the use of renewable heat. In this sense, the main efficiency-enhancing
project, awarded NRRP funds, consists in the interconnection between two district heating systems in
Bologna, the S. Giacomo facility (fed by a cogeneration plant with a gas integration boiler) and the Caab
Pilastro system.
Lastly, in the municipal waste business, the Group will confirm its commitment to achieving ambitious
recycling targets, by improving the quality of sorted waste collection. On the one hand, new
communication campaigns and citizen engagement initiatives will be launched, with a focus on single-
use plastics and packaging, as well as actions countering abandonment and degradation. On the other,
the planned change for all Emilia-Romagna municipalities to unit pricing systems within the time covered
by the Plan will also play an important role. As a further support to the virtuous behaviour of citizens,
more than 60,000 smarty bins will be made available, which can be monitored remotely and in real time
(by a control room) in order to improve this service and optimise operator interventions.
The industrial strategy described thus far makes it possible to project growth in the Group’s Ebitda at
2026 coming to over 250 million euro, compared to the final figure for 2021, in order to reach the 1,470
million euro at the end of the time covered by the Plan. This development will follow a solid, sustainable
and balanced path, fuelled both by internal and external lines, consistent with Hera’s history and its
industrial evolution over the years. Investments coming to approximately 4.1 billion euro have been
planned over the five years, an amount significantly higher (approximately +53%) than the average seen
during the last five years and also higher than the amount set out in the previous plan. These investments
will be supported by more than 130 million euro of NRRP funding among the calls for tenders already
assigned, which will allow for more rapid interventions for the ecological transition in the areas served,
demonstrating that the Group’s strategy is fully in line with national and European policies concerning
sustainability. The margins created during the time covered by the Plan will make it possible to respect
the significant financial commitment required in terms of investments, also enabling the ratio between
net debt and Ebitda to be brought back below 3x, starting from 2025, thus confirming the Group’s solidity.
By 2026, 62% of the Group’s total Ebitda will contribute to creating shared value, fuelled by approximately
2.8 billion euro in investments over the period covered by the Plan (equivalent to 70% of the total amount
of investments planned for the five-year period), a target in line with the Group’s 2030 objective of
increasing the amount of Shared Value Ebitda to 70%. The Plan to 2026 also confirms the convergence
of the path towards the other 2030 targets that Hera is pursuing regarding carbon neutrality and the
circular economy, including the ambitious 37% emissions reduction target (compared to 2019, with SBTi
validation) and a +150% increase in recycled plastics (compared to 2017).
Key figures
for the
Group
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| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 35|
web
SR
Utilities are called upon to develop strategies able to effectively orient the challenges and the priorities
of the coming years. Hera’s strategy has always been based on a close relationship with the areas served
and its own ecosystem. The evolution of this context, in its economic, political, local and technological
aspects, affects the Group’s activities across the board and influences the guidelines that will
characterise their evolution, leading towards increased resilience and accelerating the evolution of its
corporate culture. Local areas are the focus of the Group’s strategic plan, which can be subdivided into
various areas of action:
▪ Energy Transition, the path to economic growth and sustainability for the green transition;
▪ Resilience, confirmed and strengthened through the evolution of the enterprise risk management
model;
▪ Regeneration, including a project for the reuse of soil and demolition materials;
▪ Technology, understood as harnessing the enormous amount of data available and its use in
Artificial Intelligence projects, and for the enhancement of cyber security monitoring tools;
▪ Community, and tools for listening to and communicating with the reference area, considered
fundamental for wellbeing, and aimed at consolidating relations with stakeholders and generating the
engagement necessary for the success of initiatives;
▪ Human resources, enhancing the development of the individual and guiding the evolution of the way
of working;
▪ Opportunity, in terms of growth in size, as well as green gas development, an opportunity to exploit
synergies between the different businesses managed, including extending laboratories towards the
external market by exploiting the experience and know-how acquired.
See the following paragraphs for further details about the strategic actions mentioned above, and the
attention towards human capital implied by each of them.
Climate and the environment: sustainable development
Hera’s shared value framework, introduced in 2016, has oriented the Group’s strategy towards growth
based on responses to the problems of the external context, capable of maximising shared value, both
for the company and for the community. Creating shared value is the perspective that integrates an
orientation towards sustainability into the very heart of the Group’s strategic approach.
The latest revision of this model includes the topics
of resilience and adaptation to climate change,
drinking water (included within the scope of
sustainable management of water resources) and
biodiversity. These are issues to which the Group
has been committed for years, which complement
the other dimensions of Hera’s framework (such as
the circular economy and sustainable management
of water resources). The Group’s objective is to
create shared value through business activities that
are strongly integrated into the socio-economic
fabric of the communities served, generate operating
margins and respond to the drivers of the Global
Agenda, i.e. the calls to action for change indicated
by policies at a global, European, national and local
level. The year 2022 confirmed the validity of the
initiatives already launched by the UN Global
Agenda to 2030 to respond to the megatrends in
place: fragile planet, technological disruption and accelerated urbanisation were considered the most
closely linked to Hera’s business, having a direct impact on corporate activities. Hera’s contribution is
most significant for seven sustainable development goals on the 2030 Agenda: 6) clean water and
sanitation, 7) clean and affordable energy, 9) business, innovation and infrastructure, 11) sustainable
cities and communities, 12) responsible consumption and production, 13) combating climate change and
17) partnership for the goals.
The Group’s website (www.gruppohera.it/gruppo/sostenibilità) and its Sustainability Report (Sustainable
Strategy and Shared Value section) offer further details on the actions that the Group intends to promote
Local areas
Shared value
framework
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 36|
by contributing in a broad sense to the 17 Goals of the UN 2030 Agenda. Also note that the Group has
set itself clear industrial objectives for both 2026 and 2030, to make a significant contribution to achieving
carbon neutrality. The main elements include energy efficiency solutions applied both within the Group’s
operations and to customers (by valorising multi-business assets), the development of new renewable
plants, the sale of green energy to customers and, as mentioned above, a strong commitment to reduce
carbon dioxide emissions from the industrial chain, reaching 37% by 2030 (compared to 2019),
calculated according to Science Based Target references.
In order to foster a culture linked to these SDGs among the Group’s entire workforce, dedicated training
events have been made available on its corporate training platform, concerning the circular economy in
particular; the UN agenda is also part of training for all newly hired employees. The main actions include
those aimed at promoting energy efficiency, sustainable management of water resources, the selection
of suppliers with qualifications in terms of environmental and social sustainability aspects, the
development of employment and new skills, and a broader use of innovation and digitalisation.
Awareness of the significance of climate change is considered by the Group to be the first necessary
step towards incorporating precise responses to the resulting risks and opportunities into its corporate
strategy, consequently reflecting the effects of these responses in the drafting its multi-year plans.
Among the initiatives identified to seize the opportunities emerging from an analysis of the climate
scenarios hypothesised, the most promising were included in the Business Plan to 2026, which also
reflects the mitigation actions identified in response to the risks defined. In particular, the Group’s strategy
to implement climate change mitigation mainly consists of:
▪ choosing renewable electricity to power its own activities and to promote dedicated business
solutions for customers; examples include the plans to install photovoltaic systems at Group sites
and other suitable areas, and the launch of the first energy community projects;
▪ increasing the production of energy from renewable sources (in particular geothermal and
biomethane, in relation to which, at the Sant’Agata Bolognese plant, performances exceeding
expectations continue to be obtained);
▪ offering solutions to reduce the carbon footprint of customers in all segments (households,
condominiums, businesses and public administrations, for example by setting Business Plan targets
that aim to involve customers in replacing boilers with a high environmental impact);
▪ initiatives and projects to reduce the carbon footprint, such as the technological and regulatory
feasibility studies to produce green hydrogen through water electrolysis, using the share of renewable
energy generated by WTEs, or connecting the two district heating systems in the Bologna area that
are currently separate, from which a single, more resilient, efficient and saturated district heating
network will emerge (Power-to-gas plant);
▪ implementing technological innovation projects and initiatives for greater environmental sustainability
in the Group's activities, such as optimising the mix with which district heating heat is generated to
increase the portion produced from renewable sources, extending the district heating programme for
the water network, and extending public lighting with smart, consumption-conscious solutions. Also
confirmed during the period covered by the Plan are revamping and automation interventions of some
networks and district heating systems, of primary electricity substations, as well as the roboticization
of about 1,200 secondary substations (“Apennine resilience plan”, which will address resilience with
a view to mitigating the risks identified in the area of electricity distribution).
In order to support the energy transition to which society is called, the Hera Group essentially plans
actions aimed at increasing the incidence of energy efficiency among the various user categories, as
well as exploiting every possible form of renewable energy.
Actions to reduce energy consumption within the Group's perimeter (-8.6% to 2026 compared to 2013)
will therefore continue with renewed impetus.
The resilience of networks and plants, recycling, separate waste collection, purification and sewage, and
saving water resources guide specific projects in the various sectors. By way of example, the design and
execution phases of engineering works show a progressive focus on sustainability issues, reducing the
environmental footprint and minimising the use of virgin soil. Building information modelling (BIM)
technology, which makes material analysis possible (even during plant demolition), allows for maximum
recycling and reuse and extends the circular approach to the end-of-life of the work. The development
of plastic recycling, in terms of increasing the recycling capacity of flexible plastics, in addition to building
plants for recycling new types of plastics (rigid and carbon fibres) and processing plastics and paper,
and an increase in the production of biomethane, foreseen in the period covered by the Plan, are
increasingly oriented towards giving new value to the organic portion of solid municipal waste. The
Regeneration
& resilience
Energy
transition and
Opportunities
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 37|
rationale underlying circularity also involves the Group’s main purchasing processes: Hera’s strategic
approach involves an increasing focus on materials or goods that meet the principles of the circular
economy and extends the adoption of minimum environmental criteria (MC) to the definition of product
characteristics, not only to components for water connections but also to other standard elements of the
networks such as gas and water reducers and sewer lifts.
The Group confirms its commitment to widely adopting circular economy solutions with medium- and
long-term industrial objectives and projects based on defined deadlines, through technological and
behavioural solutions. These solutions are oriented towards improving the volume and quality of sorted
waste collection, providing new plant capacity for the treatment, recovery and recycling of special urban
waste (including through partnerships in the local area), revamping of sludge treatment plants, the
recovery of sand from the integrated water cycle waste for subsequent reuse, and lastly technology, to
maximise the reuse of water resources and for advanced plant engineering for purification quality,
including through technological upgrading of dewatering systems. Actions to increase the resilience of
the Group's activities also include the installation of remote-controlled accessories and sensors in all
networks (to ensure remote monitoring and management), the installation of smart meters for each
business, and the implementation of programming and modelling tools based on artificial intelligence to
anticipate critical events or optimise maintenance.
To benefit the wider use of circular models, greater attention will also be paid to the various customer
engagement tools, so as to use the different communication/dissemination channels according to the
features of the various geographical areas, as well as to improve and expand the tools already in place
by paying attention to the different types of customers.
The campaign to raise awareness of environmental challenges will continue to involve schoolchildren
(environmental education projects), and will be carried out through the main media at a local level (press
tour on environmental issues).
Decarbonisation policies reduce dependence on fossil fuels and therefore contribute to guaranteeing the
security of the system. The Group’s plant assets also have further potential to seize opportunities related
to the development of new renewable energy vectors, such as hydrogen. The Group intends to become
involved in the various phases of this chain, and is launching experimental projects in this direction. In
the sustainable hydrogen production phase, a circular solution comes from synergies between the
electrolytic process and the water purification process, with multiple circular flows of material between
the two activities (oxygen as input for purification and biogas from sewage sludge as material for
hydrogen methanation). The Group’s Waste-to-Energy plants will be able to use biogenic electricity
(considered renewable) to power electrolysers capable of obtaining hydrogen for industrial customers,
mobility or the distribution network. Once again with reference to gas distribution, experiments are
underway on the Group’s assets to assess the optimal blending percentage between methane and
hydrogen for the operation of cogeneration assets and plants for industrial and household users. Finally,
note the project to install the latest generation of “NexMeter” gas meters, suitable for measuring
hydrogen/methane mixtures, as described in the paragraphs above.
For Hera, the need to guarantee quality and continuity in essential services in such a changing context,
subject to increased climate risks, represents a cost, but at the same time an opportunity. The necessary
increase in investments to improve the resilience of its assets puts the Group, thanks to its solidity and
financial capacity, in an advantageous position compared to smaller competitors, who could face greater
difficulties in dealing with such a volume of investments. In addition, internal reinforcement, accompanied
by growth through external lines and tenders, allows the Group to seize opportunities for development in
the most effective way. In this regard, further consolidations in the waste management and energy
businesses are envisaged in period covered by the Plan, which will allow for synergies in activities
complementary to those of the Group. This involves an expansion of the Group’s range of services while,
as regards the energy markets, Hera Comm, which has already been awarded two lots for the protected
electricity service, is awaiting the tenders scheduled for 2023 for the 2023-2024 and 2024-2025 thermal
years for the last resort gas and default gas markets. Further tenders in the regulated markets are
possible in the period cover by the Plan. Many of the Group’s projects fall within the financing scope of
the NRRP and are related to the circular economy. Their objectives include the improvement and
mechanisation of the urban waste collection network, and the construction, modernisation and expansion
of treatment plants for waste sorting, sewage sludge, leather and textile waste.
Several tenders concerning the Group are expected to be issued in the coming months.
Opportunity
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| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 38|
In other words, the Group aims to make the most of the opportunities offered by technological evolution
and digitalisation to extract innovations, managerial improvements, cost efficiencies and synergies
related to data management, in order to meet the needs of the local area and stakeholders, to take a
leading role in the provision of services and to accompany cities towards new development models,
overseeing each technological upgrade by analysing its impacts and mitigating its side effects.
Technology and human capital: innovation
Advances in the chemical and engineering industries are at the forefront of technological development
in production processes, and concern the waste management (first and foremost plastics) and energy
(biogas and biofuels) sectors. This is where the search for concrete solutions may prove to be
instrumental adapting to climate change or countering the depletion of natural resources. The Group
strategically exploits these advances in order to identify plastic recycling processes that can flank
mechanical procedures and make the process effective even for less pure and less valuable types of
plastic. The same advances make it possible, for example, to experiment with solutions that use excess
renewable electricity (otherwise unusable) to split molecules into hydrogen and oxygen and then convert
the result into synthetic methane gas by adding carbon (from CO
2
).
Hera has adopted a Group strategy to exploit all available information and to be able to guarantee the
quality and exchange of data flows. The principles that have guided the implementation of the strategy
are those of an organisational approach to data architecture, which is articulated in the organisation of
information by “domains”, development according to a product strategy, on a self-service technology
platform and with the adoption of a federated governance model.
The Group’s data strategy model and related guidelines are included in training courses dedicated to
individual business units, with the aim of spreading the strategic plan at all levels. In order to increase
the ability to intercept anomalous events, the data sources used with the convergence between the
management environment (applications) and the industrial environment (Group plants) must be
continuously extended. Vulnerability assessment activities on both environments, aimed at preventing
attacks on systems and plants, are fundamental; to this end, the model envisages distributed actions
and responsibilities, and it will be further strengthened in the period covered by the Plan, through projects
aimed at increasing monitoring capacity and the evolution of prevention tools.
The utility sector is fragmented and characterised by strong technological gaps, the resolution of which
is necessary to comply with the new European directives. In order to consolidate its role in the Italian
utility sector, Hera intends to leverage the specialisations built up over time, through the implementation
of new analytical methods and the development of automation and process digitisation projects. The
main pillars for developing the digitisation of the Group’s activities include:
▪ more sensors in the field of operation and thus greater control capacity, through the enhancement of
remote monitoring, the installation of smart meters in the various businesses and the expansion of
predictive maintenance systems;
▪ digital customers, both in terms of making personalised offers to customers through the management
of 2G meters, and through artificial intelligence applied to sales channels and customer interaction;
▪ data strategy, aimed at exploiting all available information and ensuring the quality and exchange of
data flows, i.e. creating the first data products;
▪ reporting on digital transformation initiatives according to the corporate digital responsibility (CDR)
framework.
Further developments in digitalisation include the definition of a specific training plan to strengthen
employees’ skills in innovation and sustainability, the continuation of data analytics projects and artificial
intelligence to support the circular economy and energy transition, as will be explained below in the
strategies for human capital development.
Digital transformation processes will cover various business areas, in order to make the most of the
opportunities offered by new technologies. In the sales business (energy and gas), for example, customer
acquisition activities will be supported by advanced digital marketing tools; the technological
infrastructures of the billing processes will be renewed to optimise the “meter to cash” process; and, to
enhance customer centricity, a new customer relationship management platform will be implemented.
The ”more control” offer was also introduced, through which customers equipped with second-generation
A strategy
moving
towards
green
innovation
Digital
strategy
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 39|
SR
electricity meters will be able to monitor their energy consumption hour by hour via app, and will be able
to see the next day's cheapest energy hours. In distribution (water, gas and electricity networks) and
collection (waste) businesses, the implementation of advanced functionalities aimed at improving the
effectiveness of the service is planned, such as predictive maintenance, the sharing of managerial
progress with municipalities through the development of a dual system, or the implementation of virtual
control for containers, in order to optimise their maintenance.
Data strategy is increasingly designed in such a way as to transform the Group into a data-driven
company, where decisions guided by data, valued as a corporate asset and subject to an ethical and
conscious reading, highlight the growing importance of data management and resources dedicated to its
protection.
In 2022, international geopolitical events related to the Russia-Ukraine conflict led the national
cybersecurity agency to raise the cybersecurity alert level, which forced Hera to increase the monitoring
carried out by the Group’s Security Operation Centre (SOC). Cyber security initiatives have continued
and will be renewed in terms of technologies, processes and people. In the area of technologies,
interventions are aimed at improving the security of mobile devices (smartphones and tablets) and
controlling access to cloud services. For the security of smartphones and tablets, a solution was
implemented for real-time monitoring (centralised at the Group SOC) of 80% of the company’s devices.
For the protection of access to cloud services, a cloud access security broker solution is planned, and
event monitoring is centralised at the SOC. The group's cybersecurity monitoring service has also been
enhanced with additional dedicated tool consoles; moreover, following the installation of probes in the
industrial environment, visibility on the various operating contexts, particularly water and electricity, has
increased. The evolution of the regulatory system also continued in 2022, with the revision and
publication of the Security by Design procedure in each project, accompanied by the publication of
mandatory training videos.
In order to ensure the security monitoring of systems, vulnerability assessment and penetration testing
activities are constantly implemented, particularly of Group services exposed on the Internet.
With regard to people, who represent the human factor in the chain of cyber-attacks, awareness activities
continue to be planned through a dedicated online training platform, extended to the entire corporate
population, as well as monthly adaptive ethical phishing exercises. In addition, in the area of cyber
security for industrial plants, an ad hoc training course was set up and a technical document was defined
on cyber security controls in the area of operation technology to support the design of new plants.
The evolution of technology and digitalisation, calling for continuous development of employee skills and
the consequent training needs, confirms the Group’s strategic decision to introduce cloud-based
platforms to increase individual productivity and as the main tools for collaboration, since cooperation
between man and technology requires continuous evolution in the way we work. With this in mind,
process automation projects (virtual factories and digital labs) encourage a wider awareness of
technological integration, focusing on initiatives to apply artificial intelligence and enhance the
community, through digital workplace tools.
The Group intends to use data to generate value for people and for its business; the gradual digitalisation
of human resources management processes, as well as the creation of a reference architecture to
integrate systems and data available by using a prescriptive analytics approach, confirm this intention.
In the context of the current transitions, the human resources development guidelines are constantly
updated in order to address the priorities within the Next GeneHERAtion Growth model, and guide
corporate policies. After observing the external context, the Group has confirmed investments with the
following strategic objectives:
▪ people development;
▪ people engagement;
▪ increasingly agile and flexible approach to organisational and operational models and the evolution
of regulatory tools;
▪ evolution of skills to support the current energy, environmental and digital transition by seeking
possible integrations between the different dimensions considered;
▪ technologies, to enhance the contribution of each individual through the conscious development of
technological innovation, following a human-centred rationale.
Technology
Community
and human
resources
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In order to encourage ethical values and behaviour that can represent a distinctive model for the Group,
a result-oriented culture is increasingly fostered, as well as relations between individuals and widespread
leadership. The Group's programmes on culture and an agile approach to improving performance,
through deeply rooted trust, responsibility, autonomy and work ethics, are guided by the continuous
development of a work by objectives culture. As part of the Group’s strategy, it is fundamental to make
everyone perceive how their work and their sense of belonging are correlated to the company’s overall
results and performance and, consistently with this, the development of a talent attraction strategy guided
by the company’s purpose is fundamental. In order to enable everyone to express their potential and
accelerate the organisation’s growth, favouring harmony between work and private life and guaranteeing
an ethical approach to work, welfare initiatives dedicated to individual physical, psychological and
financial wellbeing will continue, in line with the priorities identified by continuously listening to people
and with the aim of enhancing their wellbeing. As regards digital transition, the “HER@futura” programme
will be followed up on, as mentioned among the previous development pillars for digitalisation, by
introducing increasingly innovative and customised initiatives to develop digital culture, processes and
skills, increasing the level of digital proficiency at all levels of the organisation and integrating aspects of
corporate digital responsibility in the execution of projects and business processes.
In order to consolidate awareness of the Digital Workplace, the dissemination of the use of Microsoft 365
tools among the entire corporate population, segmented by target audience, and the implementation of
new projects for the digitisation and automation of business processes will continue to be promoted. With
the aim of consolidating the transfer and wider spread of technological knowledge within the Group,
specific initiatives aimed at further stimulating the application of new technologies and methodologies
will also continue through partnerships with universities, suppliers, start-ups and innovative training
centres.
Therefore, moving towards a virtuous integration between people and technology remains central. The
objective is to make each person a protagonist along the path of process automation and virtualisation,
enhancing the skills of individuals to improve the daily work experience of the workforce.
In order to go beyond the concept of equality and achieve true equity in treatment, thus recognising
individual specificities, the Group will continue to evolve its performance management, with the aim of
making dialogue between team leader and team member increasingly effective, orienting it towards
accountability regarding measurable objectives and greater delegation and autonomy in the organisation
of work-related activities. This result management-oriented path will be further consolidated through a
series of initiatives. The Group, also in this regard, is continuing its path of progressive digitalisation,
which enables it to encourage experiences, training, development and career paths in an increasingly
self-determined manner, confirming a rationale based on individual and collective empowerment and
guided by the company’s purpose. Human resources management and development processes are
designed to preserve the skills and distinctive values built up over time and, at the same time, to develop
individual talents, regardless of gender and age, seeking innovation in all aspects that can generate
added and sustainable value over time. In order to develop people’s unique characteristics, targeted
policies and programmes are foreseen to enhance inclusiveness and diversity, oriented at fostering a
culture of innovation and continuous improvement. In this sense, structured and frequent engagement
initiatives will be implemented in synergy with the biennial surveys on human resources satisfaction, and
diversity monitoring methodologies will continue to be implemented as a tool for awareness and
sensitisation and a development of the Group’s gender equality reporting model.
The expression of diverse individual potential constantly guides diversity & inclusion initiatives. Hera’s
strategy hinges on the continuous development of an inclusive culture of diversity, understood as an
engine for generating change, in which employees can benefit from a positive balance between
development actions assigned to them by the manager and development actions in which the initiative
instead starts from themselves. It is no coincidence that, in addition to retaining the figure of the Diversity
Manager (introduced in 2011), Hera, a signatory of the “Utilitalia Pact - Diversity makes the difference”,
promotes inclusive policies at all levels of the organisation, progressively refines measures to reconcile
work-life time and adopts a merit management system that is not only transparent, but also and above
all neutral with respect to gender, age and cultural diversity, with the adoption of systems aimed at
monitoring progress and internal and external awareness policies. Artificial intelligence and digital tools
are also now well established to analyse data emerging from listening initiatives that allow for in-depth
analysis of employees’ level of satisfaction on issues related to the working environment and corporate
values, and translate them into corrective actions in each employee’s reference department, but also
through internal mobility between various departments.
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The Group’s strategy also contributes to the creation of value by accelerating the process of re-designing
training activities from a blended learning point of view, the continuous evolution of professional academy
progressions, the increasingly widespread use of a HerAcademy learning centre as a reference point for
internal and external knowledge sharing, without forgetting other projects to further improve the level of
employee engagement.
Consistently with its corporate path, the Group has planned multidisciplinary initiatives to develop
projects consistent with the SDG framework, with particular reference to the circular economy, and to
work in an ecosystem perspective with the various stakeholders, so as to converge towards common
goals in terms of green economy. The broader adoption of a green culture and an approach oriented
towards sustainability and circularity is a central element of the strategic plan and presupposes a path of
cultural change that, since the previous year, has been supported by various project initiatives, processes
of continuous updating of know-how and the expansion of the offer of specialised higher education, linked
to the Group’s core activities, to seize market opportunities and encourage the route towards the energy
and environmental transition. Over the period covered by the Plan, the awareness-raising and skills-
building processes already launched concerning the impacts related to Fit for 55, TCFD, EU Taxonomy
and the continuous regulatory changes at European and national level will continue. The data of the
“ecoHERA” assessment, carried out in 2022, will also be used to consolidate the indicators that measure
and verify the level of proficiency achieved in both the energy transition and environmental transition
fields, and to build the programme of transversal and vertical initiatives for strengthening the skills of the
corporate population.
The objective of achieving results in terms of green economy in relation to the reduction of the Group’s
carbon footprint, by way of example, is shared through the enhancement of the contribution of remote
working, through the enrichment of the green offer within the corporate welfare tools, and by raising
awareness on green issues already at the time of hiring.
This integrated vision of technological evolution and employee experience, accompanied by the
application of organisational network analysis, artificial intelligence and business intelligence tools, aims
to foster the optimisation of organisational processes, human capital development and individual
decision-making capabilities. The evolution of competences and roles according to the needs of the
business, through a strategic dialogue between the areas of business and the function of human
resources, enables a shared understanding of the meaning of the business challenges addressed by the
business plan, but also a sense of the risks and opportunities.
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RISK FACTORS: ACTORS, METHODOLOGY
AND AREAS OF MANAGEMENT
Risk governance
The Hera Group’s organizational structure is designed to uphold management effectiveness and
profitability across the entire value chain while at the same time managing any risk exposure arising from
its businesses.
Hera’s corporate governance system enables strategies to be handled uniformly and consistently. The
Risks Committee is the principal policy-making, monitoring and reporting organ for risk management
strategies. Additionally, under article seven of the Self-Governance Code, the Controls and Risks
Committee oversees the internal auditing system, the efficiency of corporate operations, the reliability of
financial reporting and compliance with laws and regulations, as well as the protection of company
assets. In order to maximise the consistency of the management strategy, these bodies meet
periodically. During 2022, the Risks Committee met four times and the Controls and Risks Committee
met seven times.
The Group has adopted a three-tier risk defence strategy, appropriately distinguishing between:
▪ the role of risk management, entrusted to the risk owners in charge of the various organizational
sections;
▪ the role of risk guidance and control, entrusted to the Risks Committee, which relies on risk specialists
who carry out second-level controls, i.e. who are responsible for defining, applying and updating risk
analysis methodologies and carrying out control activities for the areas under their responsibility
(review challenge and control);
▪ the role of assessing the effectiveness of risk management processes and the internal control and
risk management system, entrusted to the Internal Auditing department.
The Risks Committee sets the general risk management guidelines, maps and monitors corporate risks,
ensures that risk policies are set forth and outlines the information protocols targeted to the Controls and
Risks Committee, the Internal Auditing management and the Statutory Auditors.
The Board of Directors approves the risk policies and measurement parameters, guides and assesses
the adequacy of the internal control and risk management system. The Controls and Risks Committee
supports the Board of Directors in defining internal control and risk management guidelines.
The Executive Chairman and the CEO supervise, each within their area of responsibility, the internal
control and risk management functions. The Vice Chairman oversees coordination between the Risks
Committee and the Controls and Risks Committee, maintaining an independent status.
1.02.01
1.02
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The risk governance structure is outlined here below:
Management methodology
Hera has introduced the Enterprise Risk Management (ERM) process, to provide the Board of Directors
with useful elements for assessing the nature of corporate risks and defining the Group’s risk profile,
particularly in the medium to long term. The definition of the risk profile is made explicit by the Board of
Directors itself through the approval of the Group risk management policy and the risk limits established
therein.
The risk management framework is formulated through three key elements:
▪ the risk model, which identifies the types of existing and emerging risks to which the Group is
potentially exposed, and is subject to periodic review;
▪ the Group’s risk propensity, which defines acceptable risk levels consistently with a given risk
management strategy, through the identification of:
– key risk scales;
– risk metrics;
– the limitations associated with key risks;
– monitoring, escalation and updating processes to ensure that corrective actions are identified and
implemented;
▪ risk management activities, which ensure effective monitoring and management of the risk universe
to which the Group is potentially exposed. The activities are broken down into:
– ongoing risk management, also by means of sectoral management entrusted to dedicated risk
specialists/risk owners;
– enterprise risk management, aimed at analysing the evolution of the Group’s overall risk profile,
to support informed risk-taking and the identification of strategic objectives.
On 8 February 2023, the seventh Enterprise Risk Management report on the 2023-2026 Business Plan
was presented to the Board of Directors.
Over the course of 2022, the ERM analysis made further methodological improvements and refinements,
while at the same time not revealing any critical risks, either in terms of reputation or operating-financial
impact.
The area of significant risks includes two additional ones with respect to those identified last year,
concerning the possibility of a deterioration in net financial position due to the scenario of extreme
commodity price volatility, or due to possible criticalities in the market for sales of receivables involved in
1.02.02
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Hera Group – Consolidated Financial Statements at 31 December 2022 44|
energy efficiency initiatives. In the same area, the risk of a reputational impact deriving from possible
proceedings undertaken by supervisory/regulatory/investigation bodies was confirmed, generated by the
degrees of discretion on the start of verification/investigation procedures, in the presence of non-univocal
interpretative guidelines (despite the Group’s conduct always complying with the law), as was an
operating-financial risk, deriving from high-intensity seismic events relating to networks. The risk arising
from the possibility of fires at waste treatment and recovery plants, while confirmed, has a negligible
impact in terms of consequences on the Group’s results and none whatsoever for the environment and
business continuity. However, due to the growing social awareness on the issue, such events can lead
to significant reputational consequences due to the perceived risk. The difficult economic situation,
partially due to the Russia-Ukraine conflict, reverberating in various forms on the activities and priorities
of all economic operators, could also affect the full compliance of actions taken by companies that are
engaged, on behalf of Hera, in interventions on the networks managed by the Group through external
tenders. Hera is committed, however, to containing this risk by confirming its approach to extensively
monitoring the health of the value chains affected by its businesses.
Risk areas: identifying and managing risk factors
The existing and emerging risks which Hera faces belong to different types: risks deriving from the
evolution of the macroeconomic and financial, business (regulatory and competitive), technological,
environmental and human capital contexts, including a constantly increasing regard to climate change
and sustainable development. Paragraph 1.01, “Contexts and trends, strategic approach and Group
management policies”, provides a detailed analysis of the factors constituting some of the fundamental
prerequisites for identifying these risks.
In order to mitigate exposure to these risks, introduce optimisation measures (including technological
and efficiency improvements) within current structures and develop strategic planning that offers
coherent responses, Hera carries out the specific analysis, measurement, monitoring and management
activities described below.
1.02.03
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Hera Group – Consolidated Financial Statements at 31 December 2022 46|
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Operating and financial area
Identifying commodity price risk
The Group operates in an integrated manner in the supply and sale of electricity and gas at different
stages of the value chain. Hera is therefore exposed to risks arising from the volatility of energy markets,
which are only partially mitigated by an integrated assessment of these markets and associated
management strategies. Energy market risks are centralised in the Central Market Department, which is
responsible for the purchase and sale of electricity and gas.
Managing commodity price risk
In order to standardise the approach to risk taken by the various corporate structures involved and with
the aim of optimising the use of the market for hedging operations, the Group has adopted specific
policies aimed at setting guidelines and operating procedures for the energy risk control and
management process. Hera structured these processes to achieve an effective management of
procurement and hedging concerning the energy market, with a clear focus on the skills involved. The
Group’s approach provides for a single interface for the management of risk deriving from the energy
market: Hera Trading. A unified risk management approach, in compliance with the assigned policies,
provides advantages in terms of achieving higher levels of coverage, cost optimization by resorting less
to the market, and greater flexibility in structuring procurement and supplying customers.
Identifying risks associated with the debt market
The operating and financial area, in addition to being characterised by fluctuating energy and commodity
prices, may show different scenarios as a result of changes in interest rates, exchange rates, the credit
spread and as an effect of possible liquidity crises. These fluctuations may have an impact on Group
results, future growth and strategic investments (e.g. due to high refinancing costs).
The Group might not be able to meet its payment obligations due to an inability to raise new funds, or it
may only be able to do so on unfavourable economic terms, due to an inability to liquidate assets on the
market, or due to a changed risk perception. Among the factors determining this perceived risk, the
creditworthiness assigned to Hera by rating agencies plays a key role, as it influences the possibility of
accessing sources of funding and the related economic conditions. The Group’s debt structure is not
subject to financial covenants on debt balances, with the exception of the corporate rating limit (i.e. the
assignment of a rating lower than BBB) defined on a portion of debt equal to approximately 150 million
euro. On the other hand, with respect to the remaining outstanding debt, mandatory early repayment is
provided for only in the event of a significant change of control over the Group, in the event that a
concession is revoked (concession event), or assets are sold (sale of assets event), resulting in
downgrading the Group to non-investment grade or lower, or terminating the publication of the rating.
Managing risks associated with the debt market
Hera’s financial management is centralised in the Administration, Finance and Control Central
Department, which aims to maintain an adequate balance between the maturities of assets and liabilities,
matching investments to consistent sources of financing in terms of duration and repayment methods
while taking into account the need to refinance the current debt structure. In order to meet its medium-
and long-term commitments, Hera’s strategy involves diversified financing sources and a balanced
maturity profile, constantly monitoring rating indicators and the availability of long-term credit lines. This
strategy is considered effective in minimising liquidity risk even in the event of particularly critical
scenarios. Approximately 40% of the Group’s financial debt is long-term (more than five years) and 59%
of this is represented by bonds with repayment at maturity. See note 26 to the consolidated financial
statements, “Non-current and current financial liabilities”, for further details in terms of worst case
scenarios.
Moreover, the Group’s activities and strategies are particularly focused on ensuring that the highest rating
level is maintained, as appears in its BBB+ rating with a stable outlook, confirmed by S&P, and the Baa2
rating confirmed by Moody’s, even with a worsened outlook, from stable to negative, due to the worsening
of the outlook of the sovereign rating).
Financial risk control and management processes are based on a careful monitoring of the Group’s
financial indicators, as well as a permanent presence on the benchmark markets, to minimise the impact
of interest rate and spread volatility so as to ensure efficient debt servicing. The Group also uses
derivative financial instruments to reduce its exposure to interest and exchange rate fluctuations. At 31
December 2022, the Group’s exposure to the risk of interest rate fluctuations was 22%, while the
Sensitivity
analysis
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remaining 78% of debt is at a fixed rate. A 1% increase in the benchmark interest rate with respect to the
business plan scenario, based on the assumption of a coupon rate shift and an unchanged debt structure,
would increase financial expenses by an average of approximately ten million euro per year.
Identifying risks from counterparties
Hera operates with counterparties that might fail to fulfil their obligations, unable to comply with either
economic terms or any contract provisions (delivery of goods or services). Additionally, credit risk affects
the Group across all of the various areas in which it operates: the sale of energy commodities and
services, waste treatment activities and telecommunication services.
Managing risks from counterparties
Hera employs a structured origination process, formalised in specific credit risk management procedures;
this process allows the Group to adequately select its counterparties through credit checks and requests
for guarantees, where applicable. In addition, its positions in relation to the counterparties are regularly
monitored while articulated, proactive actions are planned, including external risk relocation through
credit transfer, where appropriate. Expected losses are constantly estimated and monitored; the Group
employs measures of default probability, exposure at default and loss-given default developed on the
basis of its own historical series, customer payment behaviour and current credit processes. In order to
test the soundness of the models, both internal and external information is used that may serve as a
benchmark for the evolution of the macroeconomic environment.
In 2022, the 24-month unpaid ratio of the Group’s main sales companies amounted to 0.71%.
Regulatory and business area
Identifying competition and economic risks
Within the final reference market, which is mainly limited to Italy, the economic and geopolitical context,
the rising volatility in the prices of energy and other raw materials, as well as the difficulties connected to
global logistics chains, all contribute to putting pressure on sales margins which, added to the increased
competition on the free market, may impact the Group's profitability. The increased difficulty in
forecasting volumes to cover the needs of the sales portfolio, continuously changing, may furthermore
require Hera to purchase or sell additional energy on potentially unfavourable terms.
A potential reduction in waste production, deriving not only from the economic context and European
and national regulatory frameworks and from new trends in customer behaviour, together with the
unavailability of treatment and recovery infrastructures, may have a negative impact on the Group’s
ability to pursue its objectives. The risks of the waste management business related to the management
of its set of plants are concentrated in the Herambiente Spa.
Managing competition and economic risks
The Group has maintained elevated flexibility in energy commodity procurement sources while at the
same time developing hedging activities to minimize exposure to operating risks from electricity
generation, thus ensuring ongoing alignment with the market and maximising natural hedging.
In waste management and treatment activities, the Group’s diversified plant equipment features
technologies that are cutting-edge and high-performance in terms of environmental impact, which to date
have enabled the Group to achieve its strategic objectives. The implementation of a circularity strategy
– through the polymeric material recycling process carried out by Aliplast Spa – and the development of
recycling lines for other types of plastics make it possible to seize the opportunities offered by the
evolution of European regulations.
Free-market businesses have gained increasing importance in the Group’s portfolio, contributing
significantly to its operating performance but also exposing it to growing competition. The Group
responds to the challenge of competition by continuously innovating its sales offers and introducing new
products in a timely manner, increasing its presence and customer base on the free market, and aiming
to ensure the fulfilment of expectations in terms of service range and quality.
Risk analyses deriving from changes in the economic context (GDP and inflation) and energy market
conditions (gas and electricity prices) make it possible to quantify the sensitivity of the Group’s Ebitda to
changes in primary operating and financial indicators.
In particular, a 1% reduction in GDP compared with the business plan’s scenario would lead to an
average annual drop in Ebitda of approximately 3 million euro.
Sensitivity
analysis
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A 1% reduction in the inflation rate compared with the business plan’s scenario would lead to an average
annual drop in Ebitda coming to approximately 7 million euro. A 1€/MWh increase in the price of gas and
an ensuing rise coming to 2€/MWh in the price of electricity on the wholesale market compared to the
indications set out in the business plan would lead to an average annual drop in Ebitda coming to roughly
0.8 million euro.
Identifying regulatory risks
Hera carries out part of its activities in a regulated market, and its operations are therefore influenced by
the regulatory measures taken by the sector authorities and the government (in particular concerning
tariffs and market structure), government incentives for renewable energies, the concessions granted by
local authorities (for regulated activities relating to waste collection services, gas distribution, integrated
water service and public lighting) and national authorities (for electricity distribution), as well as by the
impacts expected from changes in the market structure and its liberalisation, and from the evolution of
supply and demand in the energy and waste management sectors.
Periodic updates of the legislative and regulatory framework, both at national and European levels, may
significantly impact the sectors in which Hera operates, influencing its profitability as a consequence.
Regulatory risks impact network businesses (water cycle, gas and electricity distribution and district
heating) and the municipal waste collection business and result in the introduction or modification of
economic, organizational and IT requirements to be met by Hera, and on potential market structure
changes caused by them.
The tenders for gas distribution, the integrated water service, waste collection and street sweeping
scheduled for the time covered by the Plan determine the risk of losing some of the areas currently
managed, especially in contexts with a significant presence of competition, only partially offset by
compensation for the portion of invested capital not yet depreciated.
Lastly, there is a risk arising from the regulatory uncertainty surrounding the end of protected services,
in terms of the implementation timeframe.
Managing regulatory risks
The Group’s organisational structure liaises with national and local authorities and carries out extensive
consultation with institutional stakeholders, actively taking part in working groups established by
authorities and adopting a transparent, co-operative, proactive approach towards possible regulatory
instability.
The Group operates by making the most of its technical skills and management efficiency. Indeed, Hera’s
focus on service quality, cost efficiency and innovation is a competitive strength in tenders for gas
distribution, the integrated water service and waste collection and street sweeping services.
Identifying strategic risks
Strategic risks, associated with long-term planning, financial sustainability, involvement in strategic
initiatives and appropriate investment decisions, affect the soundness of results for the various supply
chains and business units. Moreover, the Group’s ability to achieve its strategic objectives may be
compromised if the necessary licences, authorisations and permits to carry out its activities are not
maintained or obtained.
Achieving the planned results is therefore conditioned by the different endogenous and exogenous risks
that are simulated, measured and controlled as appropriate.
Managing strategic risks
Hera has developed a well-planned strategic risk analysis model designed to gauge the soundness of
its Business plan against a variety of adverse risk scenarios, which supports an integrated risk projection
from an enterprise-wide viewpoint. Thanks to this model, it is possible to perform scenario analyses,
stress testing and what-if analyses of plan forecasts through an effective analysis of risk factors and
related variables, and enables an adequate assessment of the risk level of the various business sectors.
Hera constantly monitors the authorisation processes and proactively participates in the working tables
for obtaining permits, licences and authorisations, to avoid the possibility of jeopardising the regular
performance of its activities.
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SR
Environmental-catastrophe, climatic, technological and human capital
areas
Seismic, atmospheric and other climatic events may affect the Group’s performance. Hera intends to
continue valorising its resources and to ensure that they are preserved and developed, so as to continue
to enjoy their benefits in the future. The physical and transitional risks linked to climate change, as well
as accidents in the Group’s plant equipment, may generate potential environmental damage, and
therefore the operating and strategic implementation of best practices in risk management and the
opportunities deriving from climate change, i.e. the gradual updating of current reporting tools,
increasingly reflect TCFD recommendations. Risks arising from cybercrime, which Hera also assesses
in terms of their impact on service continuity, are also being given increasing attention. Since accidents
may pose a risk to people’s rights and freedoms, i.e. if they cause physical, material or immaterial
damage, the Group’s policies regarding the parameters and acceptability thresholds are published on its
web portal.
The risk management approach is organised according to the specific areas in which environmental,
technological and human capital risks occur.
Identifying environmental-catastrophe risks
Hera, while aware of the need to preserve natural resources, uses them to provide essential services to
its customers. The Group’s activities, in turn, have an environmental, water and carbon footprint, and
adopting mitigation and adjustment measures to reduce environmental-catastrophe risks is therefore
fundamental. In keeping with the ambitious goal to reduce current levels of greenhouse gas emissions
compared to their current level, as set out by international organisations, the physical and transitional
climate change risk scenarios relevant to the Group’s activities have been identified. For further details,
please refer to the next section, “Identifying climate change risks”.
As regards the environmental standards with which Hera must comply in carrying out its businesses, the
Group’s activities are subject to various rules and regulations, including rules relating to CO
2
emissions,
emissions of other substances produced by combustion, water discharge and the handling of hazardous
and solid waste. Non-compliance with CO
2
limits contributes to climate change, while non-compliance
with legal limits on other environmental aspects leads to worsened environmental conditions and
exposes the Group to fines.
Scarcity of water resources, or possible contamination of water reserves, may affect the regular water
supply and cause service interruptions or significant environmental, economic and social damage,
worsening the water stress, which affects these natural resources by their very nature, in order to meet
water demand.
In addition, note the risks stemming from the impact on the Group of weather variability in relation to the
electricity and gas demand deriving from the various scenarios. The most significantly affected areas
pertain to the Central Market Department, which is exposed in terms of electricity, gas and heat sales
and to the variable demand resulting from different weather scenarios.
Managing environmental-catastrophe risks
Investments aimed at preventing and reducing the frequency of harmful events and measures to curb
their severity, play a key role.
The Group’s commitment to reducing carbon dioxide production began with reporting on its own
performance and commitments in the area of climate change and continues with projects to promote
energy production from renewable sources, reduce energy consumption, and provide customers with
opportunities to cut greenhouse gas emissions. The Group is committed to contributing to mitigating
environmental risks by complying with the energy efficiency objectives set by national legislation and the
United Nations, continuing to improve its production facilities and encouraging virtuous and responsible
forms of consumption on the part of its customers. The Group uses exclusively electricity from renewable
sources to operate its production sites. In relation to the consequences of extreme events, which are
expected to occur with increasing frequency as a possible consequence of climate change, Hera has
taken steps to adopt important measures, such as, for example, the Rimini seawater safety plan,
currently underway which, in addition to maintaining the quality of marine resources, increases the
resilience of the stormwater drainage infrastructure in the event of extreme events. For further details on
specific initiatives, please refer to the section “Mitigating climate change” in the Hera Group’s
Sustainability Report.
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SR
Hera has adopted an environmental control system that is effective both in terms of the governance of
environmental certification processes and related audits, and in terms of the operational management of
controls and surveys. The Group succeeds in tackling environmental hazards by constantly monitoring
potential pollution factors and ensuring transparency in surveys, as well as through substantial
investments in technological plants that ensure consistently better air and water quality than required by
legal limits. For more details, see the sections on “Protection of air, soil and biodiversity” and “Sustainable
water management” in the Sustainability Report. Moreover, in line with its circular economy strategy,
Hera has already invested (and continues to do so in the medium-to-long term) in sorting, recovery and
composting plants, increasing the amount of waste treated while at the same time reducing the use of
landfills, thus anticipating the requirements of European and national regulations. For further details, see
the “Transition to a circular economy” section in the Sustainability Report.
Strengthening the resilience of the Group’s water supply and distribution system in a medium to long-
term outlook continues. Furthermore, the reduction of the water footprint is pursued through the water
management system, which aims to promote a sustainable management of this resource both inside the
Group (by preventing network leaks, reducing diffuse consumption, recovering rainwater for irrigating
green areas and washing vehicles) and externally (by monitoring domestic consumption and offering
advice and solutions to optimise it, providing support with technological solutions for water-demanding
customers, and providing support for the construction of treatment plants to reuse/recover water). The
implementation of water safety plans in the integrated water service also ensures an approach to water
quality management based on risk assessment and management, and thus on prevention and control.
Regarding weather-variable risks, the Group relies on advanced energy demand-forecasting tools that
ensure an optimal use of the available sources. It also relies on adequate flexibility in the supply sources
of energy commodities, ensuring their availability at market rates. A 1°C increase in the average winter
temperature, compared with the scenario set out in the Business plan, leads to an average annual drop
in Ebitda of approximately 16 million euro.
Identifying climate change risks
The physical and transitional risks from climate change scenarios pertinent to the Group’s activities have
been classified according to their potential consequences on business, and submitted to further impact
and mitigation assessments in relation to their criticality (some examples include extreme weather
phenomena such as floods and droughts as well as health and economic risks).
Climate scenario analysis is a methodology to test the resilience of business plans under different
assumed future developments. Hera selected two of the most relevant scenarios out of the nine that
were considered as starting points. In particular, the IEA ETP 2DS transition scenario by the International
Energy Agency, chosen as an ambitious climate scenario, envisages a future evolution characterised by
strong decarbonisation processes in order to keep the temperature increase below 2°C: this scenario
has been used in identifying transition risks.
The physical IPCC RCP 8.5 scenario, chosen as a pessimistic scenario, instead envisages a “business-
as-usual” trend and consequent sharp temperature rise (approximately 4°C): this scenario has been
used in identifying physical risks. Based on these scenarios, eight physical risks and eight transition risks
were identified, associated with related business impacts. Each risk and opportunity was associated with
a timeline, a priority level (defined as the combination of the probability that the context in which Hera
operates will change and the impact of the risk/opportunity on the business) and consequent
management methods, in the case of the risks identified, and business initiatives, in the case of the
opportunities identified.
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STR
Type
Causes
Physical risks
▪ heat waves;
▪ abnormal winter temperature changes;
▪ flooding and floods resulting in landslides and
mudslides*;
▪ extreme weather phenomena*;
▪ rising sea levels;
▪ changes in the timing of annual and average rainfall;
▪ drying soils*;
▪ rising temperatures*; the risk associated with
decreased gas consumption and district heating for
residential use as a result of an increase in temperature
was also assessed as significant in the long term.
Transition risks
▪ electrification of energy consumption*;
▪ development of renewable energy sources;
▪ introduction of measures requiring structural and non-
structural efficiency upgrades*;
▪ limits on the production of greenhouse gas emissions;
▪ an increase in the cost of raw materials and greenhouse
gas emissions*;
stigmatisation of the sector in which the company
operates, i.e. limited access to the capital market;
▪ absence and/or obsolescence of the highly specialised
skills required by the market to develop new
technologies or replace existing products;
▪ legal disputes;
▪ obsolescence of existing plants and the associated
need to introduce new, more sustainable
solutions/technologies.
*These are the most significant risks currently being addressed, as described in section 2.04, “Climate Change Mitigation”, of the Sustainability Report.
In order to assess potential impacts on the Group’s assets deriving from extreme phenomena related to
climate change, a flood risk analysis was completed in 2022, with a medium/long-term time projection.
The results show that the average annual loss referred to timelines reaching 2030 and 2050, in
accordance with the PCP 8.5 scenario, increases by 0.2 million euro and 0.5 million euro, respectively,
compared to current conditions.
Note that physical risks are distributed over both the medium and long term, with a higher number of
occurrences in 2031-2050, consistent with the principle that climate change impacts will become more
evident in the long term.
Transition risks are mainly concentrated in the medium term, and are distributed across all categories of
the TCFD classification. Each risk has also been associated with one or more management methods: 21
management methods were identified for physical risks and 13 for transition risks; some of the resulting
actions have already been integrated into the investments made, as well as being reflected in the
Business plan. For further details, please refer to the section “Hera’s climate strategy” in the Sustainability
Report. The investments and the mitigation and adaptation actions planned to date, moving in the
direction of the energy transition towards carbon neutrality and the environmental transition towards the
circular economy, as well as for technological evolution, in line with European strategies and the
objectives of the UN 2030 Agenda, are now fully part of the Group’s way of operating and are often
implemented in advance compared to the estimated timeframe, in light of the Group’s positive results.
The ongoing Russia-Ukraine conflict is leading to an increasing European effort to diversify energy supply
sources and the transition process. For an evaluation of the potential effects in terms of impairment tests,
specifically in relation to gas consumption, see note 25 of the consolidated financial statements in
paragraph 2.02, “Commentary notes”.
Managing climate change risks
Hera has launched a series of initiatives to mitigate the effects of climate change, and at the same time
reduce its own carbon footprint. Risk assessment activities continue, with the appropriate level of detail,
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especially with regard to transition risks and their modelling. Following the results of the first phase of
analysis, a series of mitigation and adaptation activities have been identified, with no risks determined
that – as regards their valuation over the time covered by the Business plan – may cause a need to make
write-downs on the Group’s assets.
Type
The Group’s main initiatives/actions
Mitigation activities
▪ reduction in internal energy needs through efficiency investments;
▪ specific investments for the growing role of renewable energy
production, such as those planned in plants for biomethane
production and initiatives to build electrolysis plants for producing
green hydrogen;
▪ sales of renewable electricity and gas with compensated emissions;
▪ offers of photovoltaic generation systems;
▪ offers of energy efficiency services to retail and institutional
customers;
▪ acceleration towards the reuse of raw materials through polymer
recovery and regeneration activities with consequent reduction of
CO
2
emissions.
Adaptation activities
▪ consolidation of the resilience of Group infrastructure to climate
change, increasing its capacity to adapt to adverse physical
conditions. In this regard, the Rimini seawater protection plan will
ensure a better response capacity of the integrated water service
infrastructures to extreme precipitation events in the area;
▪ development of project hypotheses for the integration and partial
replacement of water sources, as well as the construction of
interconnections between them, in order to deal with emergency
conditions by 2030;
▪ interventions for district-based water networks and monitoring
leakage;
▪ agreements and investments for the reuse of purified wastewater,
reducing pressure on primary water resources and thus water stress
on the area served, which will be accentuated by climate change in
the coming decades.
As mentioned in paragraph 1.01.02, “Strategic approach and management policies - Climate and the
environment: sustainable development”, Hera implements a risk management policy aimed at achieving
carbon neutrality. The main contributions include energy efficiency solutions through the valorisation of
multi-business assets, applied both within the Group and to customers, the development of new
renewable plants, the sale of green energy to customers and a strong commitment to reduce carbon
dioxide emissions from the industrial chain by 37% within 2030 (compared to 2019), calculated according
to the Science Based Target method.
Identifying managerial and ICT security risks
Despite careful planning and insurance protection, negative externalities generated by exceptional
events may jeopardise business continuity and increase the financial requirements for restoring normal
operations. The provision of public utilities therefore requires both preventive activities and actions to
counter interruptions, delays or poor service levels. Technological risks include the managerial security
of distribution networks (fluids and electricity), the logical security of information, the security of
communication networks and information systems, and the reliability of remote-control systems. The
main threats to on-premise systems (hosted in company data centres) or in the cloud include identity
theft, phishing aimed at taking control of a personal computer and then attacking central systems, and
attacks on exposed services such as public websites.
The security of the information used, produced and processed by the company depends on the way it is
managed and the human and technological resources involved. The loss of confidentiality, integrity and
availability of corporate information, whether business-critical information or personal information (i.e.
any data relating to natural persons, as more fully defined by the European regulation GDPR and the
privacy code of Legislative Decree 196/03) may result in serious financial losses with consequent
damage to market image. A business impact analysis has been carried out on all ICT systems used by
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the Group, and a security risk analysis is carried out annually to identify and assess risk, using a
methodology based on a framework that considers three areas of security: availability, integrity and
confidentiality.
Managing operational and ICT security risks
Centralised network monitoring systems (remote control of fluids and the electricity network) ensure
continuous real-time monitoring and supervision and, in some areas, remote management, making it
possible to promptly report potential critical factors to the technical structures in charge of emergency
response and, where possible, to intervene directly to resolve the potential critical situation. These
systems have been used in a variety of situations, allowing the service to be restored within an
appropriate timeframe and ensuring adequate resilience of the services offered.
The Group constantly monitors the level of IT security risk, runs tests to continually assess the level of
penetrability of its systems and network security, and carries out training campaigns to raise awareness
among all users.
During 2022, work continued on measures aimed at ensuring the confidentiality, integrity and availability
of Hera’s systems. The main initiatives, a consolidated part of the Group’s strategy and its method of
action, are described in paragraph 1.01, “Contexts and trends, strategic approach and Group
management policies”. By way of example, in the context of industrial plants, coordination of
cybersecurity improvement initiatives has been boosted, aimed at a single monitoring model for
cybersecurity covering both IT (Information Technology) and OT (Operation Technology) areas. In order
to block any vulnerabilities in systems or applications that could be exploited by an attacker, vulnerability
assessment activities have also been intensified, extending them to industrial plants.
Identifying people’s safety and development risks
People and their behaviour increasingly influence the effectiveness of corporate strategies. The
protection of people thus remains a key element that must be reflected in workplace safety and at the
level of social protection. The Group therefore continually focuses on the emerging needs and
requirements of all employees.
Hera’s structured process for identifying hazards and the related risk assessment informs its analysis of
roles, work activities, processes, workplaces, equipment, vehicles, plants and substances used. With
reference to the specific nature of its business and its local presence, the Group has also established
criteria for identifying risk scenarios due to the spread of the Covid-19 virus from an Enterprise Risk
Management viewpoint.
The risk mitigation measures adopted and the effectiveness of their implementation are periodically
monitored and reviewed. In this regard, a specific checklist has been developed for periodic monitoring
by the heads of the various organisational units.
With the aim of identifying, measuring and monitoring the risks that threaten the Group’s assets and the
continuity with which it provides essential services, a risk assessment model has been implemented for
the physical security of these assets. This model aims to prevent and mitigate threats and impacts
caused by events (malicious, culpable or accidental) such as fire, theft and acts of sabotage/vandalism.
Managing people’s safety and development risks
In order to ensure worker health and safety and mitigate on-the-job injury risk, the Group is constantly
committed to measures promoting better monitoring as well as to the enhancement of safety protection
and prevention practices aimed at reducing the frequency and severity of accidents.
The teaching methods chosen for worker training are no longer solely technical or normative, but geared
towards developing self-awareness in the perception of risk and in adopting safe and aware behaviour.
The prevention and protection measures put in place by the Group aim to minimize the probability of an
adverse event occurring, and lower the severity of the consequences following the event.
It is of fundamental importance for Hera to develop workers’ awareness of the risks associated with their
work, and the company increasingly uses training courses that encourage people to gain greater
awareness, modifying their own behaviour in terms of risk perception and becoming a virtuous example
for other workers.
Focusing on these aspects is an essential element of operations, in order to maintain a steady decrease
in the number of injuries, the accident frequency rate, the severity rate and the number of days of absence
due to injury. In this respect, the Group has obtained important certifications for occupational health and
safety, such as ISO 9001 (quality management system), ISO 14001 (environmental management
system) and ISO 45001 (health and safety on the workplace). The process of hazard identification and
risk assessment and control is carried out in a preventive and proactive (rather than reactive) manner, in
order to identify appropriate risk reduction and control measures.
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The ongoing commitment shown by people and the integration of safety into processes and training are
the cornerstones of the Group’s safety culture. This strategic element of risk management is based on
the premise that everyone is responsible for their own health and safety, as well as that of the people
with whom they interact.
This principle has been included in the procedure for managing the process of identifying hazards and
assessing risks to the health and safety of workers. This procedure provides that each employee
promptly report and halt any risky situation or unsafe behaviour. In addition, in 2022, the heads of the
organisational units completed and managed about 5,000 checklists, instrumental in monitoring the
measures adopted and the possible need for specific procedures for managing workers.
In order to maintain a high level of efficiency in carrying out its activities and guarantee the highest level
of safety in the workplace and compliance with environmental standards, and reduce risks related to the
continuity of services, Hera has drawn up a technical-management project that:
▪ guarantees a uniform minimum level of security throughout the Group, through the application of
homogeneous, standardised and modular countermeasures;
▪ applies advanced technological solutions in compliance with regulations, standards and good
practices;
▪ centrally manages contracts (infrastructures, maintenance and services) guaranteeing correct
standardisation and optimisation of intervention costs.
For example, to better manage events, the Group’s synergies, skills and resources have been made use
of by centralising the alarm reception point in a control room with a view of all alarms/alerts concerning
assets, and also by managing the global contractor’s networks and systems (for installation and
maintenance of systems, and activation of surveillance services).
Lastly, with reference to social wellbeing, and with the aim of fostering a positive working environment,
Hera has created a welfare system based on attention to people. This system includes interventions
which are monetary or linked to the quality of life, such as services relating to the family, education, work-
life balance, wellbeing, leisure and health.
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MAIN EVENTS OCCURRED
1.03
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Business and financial events
On 17 May 2022, the Hera Group, which in 2014 became the first Italian company to issue a green bond,
published its new Green Financing Framework, which consolidates its policy of transparency towards
investors. As confirmation of Hera’s green commitment, now also based on the new and ambitious
European standards, the Group is the first multi-utility in Europe to publish a framework certified by an
independent company in line with the European Taxonomy. This new Green Financing Framework
provides a benchmark for issuing green bonds and new green bank loans related to the following areas:
“Sustainable Water and Wastewater Management”, “Circular Economy and Pollution Prevention and
Control” and “Energy Efficiency and Energy Infrastructure”, selected in compliance with the Green Bond
Principles 2021 (GBP) of the International Capital Market Association (ICMA) and the Green Loan
Principles 2021 (GLP) of the Loan Market Association (LMA).
On 18 May 2022, Hera announced its third green bond, having a nominal value of 500 million euro,
repayable in 7 years. The funds coming from this listed bond, subscribed under the Euro Medium Term
Note Programme (EMTN), will be used to finance or refinance several projects, already implemented or
foreseen in the Business Plan, selected on the basis of the Green Financing Framework, which pursue
one or more of the objectives on the UN’s 2030 Agenda, i.e. Sustainable Development Goals (SDGs),
divided into 3 areas:
▪ integrated water cycle (in line with SDGs 6, 13 and 14): wastewater management and treatment
projects, sewerage and water infrastructures for resilience and adaptation to climate change;
▪ circular economy, pollution prevention and control (responding to SDGs 11, 12 and 13): innovative
projects in plastics manufacturing, biogas and biofuel production for use in transport, waste collection
systems, anaerobic digestion and composting of organic waste, vehicle fleets for waste management
services;
▪ energy efficiency and infrastructure (respecting SDGs 7, 11 and 13): electricity generation through
photovoltaics and geothermal energy; district heating networks; installation of devices and equipment
for regulating and controlling energy performance; renewable energy technologies; networks for the
introduction of hydrogen; electricity transmission and distribution networks.
Due to the strong demand, with subscriptions amounting to 3.4 times the offer, and the quality of the
orders received, the price was set at a highly interesting level. The bond will pay an annual fixed-rate
coupon coming to 2.5%. This new issue, whose settlement date was set at 25 May 2022, was listed, as
of its issue date, on the regulated markets of Euronext Dublin and the Luxembourg Stock Exchange and
on the Italian stock exchange’s ExtraMOT Pro multilateral trading system.
In July, Hera obtained from Bureau Veritas Italia, a leading multinational company in the certification
sector, a certificate for its circular economy projects falling under the Afnor XP X30-901 standard, the
first issued to an Italian multi-utility.
This standard is now the main international reference for implementing management systems for circular
economy projects. The certification encourages a standardisation of company methodologies for
managing projects, by adopting a concrete tool to perform a critical analysis of these projects in relation
to areas of action and environmental, social and economic factors. More specifically, it is based on a
framework that combines the 3 traditional areas of sustainability (environment, economy and society)
with the 7 action areas of the circular economy (sustainable procurement, eco-design, industrial
symbiosis, service economy, responsible consumption, product life extension, efficient product and
material management).
Hera has implemented a management system for its circular economy projects and has defined the
following three projects according to this framework: the O.V.E. project, to transform exhausted
vegetable oils collected in the areas served into biofuel; a project to integrate circularity criteria in
procurement; and a project to reuse purified wastewater.
A preview of the innovative Power-to-gas plant designed and constructed by the Group, called SynBioS
(Syngas biological storage) and capable of converting renewable electricity and wastewater into green
hydrogen and later into biomethane, was presented at the Gastech exhibition in Milan.
The commissioning of SynBioS, located in Bologna inside the largest purification plant among those
managed by the Group by catchment area served, is currently scheduled to take place within 2023 and
is linked to support coming from incentive measures, such as those of the NRRP. More specifically, this
plant uses wastewater and renewable electricity to produce green hydrogen and oxygen. By making use
Green
Financing
Framework
Green
Bond
Bureau
Veritas
Power to
Gas
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of the CO
2
in the biogas produced by the digestion of sewage sludge, the hydrogen is converted into
biomethane, which can then be fed into the city’s gas network without limits on concentration and easily
stored, thus providing a diversified supply. In addition, the oxygen will be used in the future to increase
the purification capacity and efficiency of the sewage treatment plant.
When fully operational, thanks to a capacity of 1 MW, the plant will be able to produce about 190 Nm3/h
of green gas, avoiding the emission into the atmosphere of about 50 Nm3/h of carbon dioxide,
corresponding to the annual impact of about 400 cars, and supplying enough methane to cover the
annual consumption of 1,200 families.
In September, Hera and Cirfood, a leading Italian cooperative company involved in collective and
commercial catering and welfare services, signed a memorandum of understanding to collaborate on
projects aimed at promoting the circular economy, environmental sustainability and sustainable mobility,
in line with the objectives for sustainable development defined by the UN 2030 Agenda. This agreement
will last three years and will be developed by gradually implementing a series of environmental actions
and initiatives, starting from the catering outlets located mainly in the areas served by Hera, and then
gradually extending to other regions. Widespread communication activities will also be jointly developed,
targeting both employees and customers, to whom targeted campaigns will be addressed.
In particular, the agreement calls for cooperation on several specific projects in the area of environmental
sustainability, including: the fight against food waste; solutions for sustainable mobility; research on
solutions consistent with the principles of the circular economy both in the choice of packaging types and
the management of their end-of-life; the most advanced solutions for valorising waste, both food and
otherwise.
In November, the first trial for the use of hydrogen in a city gas distribution network was carried out in
Castelfranco Emilia (MO). More specifically, this activity involved injecting a mixture of methane and
hydrogen into a portion of this city’s gas infrastructure, managed by Inrete Distribuzione Energia, the
Hera Group company that distributes natural gas and electricity.
This initiative, which involved approximately thirty households, is the first of its kind in Italy and aims to
study innovative solutions for the use of green gases, which are energy vectors with a low environmental
impact that, when fully operational, will contribute to decarbonisation. One must recall, in fact, that
hydrogen combustion does not produce CO
2
, but mainly water vapour. It also represents an important
milestone in the process undertaken by Inrete Distribuzione Energia to explore the various operational
aspects that allow the gas infrastructure to be managed in complete safety, even in its current
configuration and including mixtures of natural gas and hydrogen.
During 2022, tension continued to be seen on energy markets, intensifying above all in the first three
quarters of the year. These trends were marked by a sharp rise in prices and high volatility, were strongly
influenced by the ongoing conflict in Ukraine. During the summer, prices reached a peak, only to
gradually fall and reach levels in December similar to those witnessed prior to the outbreak of the conflict.
In the energy markets, note the agreement within the European Union to purchase 15% of gas and the
introduction of a price cap on electricity.
The general context included two important phenomena, linked to the conflict:
▪ a rise in inflation especially due to energy commodities, with a consequent impact on GDP growth
and energy demand;
▪ a reduction in gas supplies from Russia to Europe coming to over 60% compared to 2021 (when this
figure came to 155 billion cubic metres across Europe), with impacts on the physical availability of
this commodity and consequently on the level of market liquidity. The Italian market saw a similar
reduction, going from roughly 28 billion cubic metres in 2021 to around 11 billion in 2022, equivalent
to a reduction in national demand coverage from 39% to 16%.
From this point of view, the Group was directly exposed to the risk of unavailable gas supplies from
Russia, but was still able to operate in full continuity thanks to a well-considered procurement policy,
turning especially to the spot markets and no longer having current contracts with counterparties
traceable to Russian suppliers of raw materials. Price tensions on wholesale gas markets, moreover,
impacted the storage process, requiring the Group to significantly increase its financial efforts, since this
process coincided with the period of most elevated volatility and highest prices, partially due to
considerable speculation. The current energy scenario also entails impacts of a commercial nature,
especially for the structural change in offers to customers (with a prevalence of indexed formulas with
Russia -
Ukraine
conflict
Cirfood
Hydrogen
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respect to the past) and the need to manage supply modulation processes more dynamically, in light of
the high market volatility. The operating and financial impact of this new scenario are discussed below
in the Directors’ report, especially as regards trends in each strategic business area.
Significant corporate operations
On 30 March 2022, the Group finalised the acquisition of a business unit from Bfeng Srl, the engineering
company of the BolognaFiere Group, thus becoming the party responsible for managing the Bologna
Exhibition Centre’s district heating system. This acquisition is part of a broader project that will allow,
starting in 2025, the Group’s two other currently existing district heating systems to be interconnected
thanks to the construction of a new backbone, thus further extending a sustainable and environmentally
friendly heating system in the city.
The benefits created by this interconnection include a lesser use of methane gas, amounting to about
4.2 million cubic metres per year, thanks to the recovery of heat from the Granarolo waste-to-energy
plant, and a reduction in nitrogen oxide and carbon dioxide emissions coming respectively to 13.2 tonnes
and 10,800 tonnes per year. The possible construction of new connections along the backbone could
also save up to 24,100 tonnes of CO
2
emissions and 19.5 tonnes of nitrogen oxides.
On 13 April 2022, Hera Comm Spa acquired 100% of the share capital of Con Energia Spa, active
especially in central and southern Italy with over 40,000 customers in its portfolio, specialising in natural
gas and electricity sales to end customers.
On 30 June 2022, Marche Multiservizi acquired 70% of Macero Maceratese Srl, which operates in the
waste management sector and whose customers are mainly located in the province of Macerata and
partially in the remaining provinces of the Marche region, as well as in the neighbouring regions of
Abruzzo and Umbria. Macero Maceratese is involved in services related to waste management for SMEs
and large-scale distribution, and activities related to municipal waste management, partly for energy
recovery and landfills, and partly for treatment and recovery, with an annual average of 58,000 tonnes
of waste treated. With this additional transaction, the Group has strengthened its national leadership in
the waste management sector, with particular reference to industrial waste management and treatment,
making its state-of-the-art set of plants and an all-round service for special waste available to these new
customers.
Other corporate operations
On 12 July 2022, effective as of 1 August 2022, the Shareholders Meeting of Biorg Srl, following a free
share capital increase from 3 million euro to 7 million euro, resolved a further share capital increase
reserved for the incoming shareholder Sara Srl and amounting to 3 million euro, subscribed and paid up
by the latter through the transfer of its “Nonantola” business unit, consisting of the related composting
plant. At the end of the aforementioned transaction, the share capital of Biorg Srl therefore amounted to
Euro 10 million, 70% of which was held by subsidiary Herambiente Spa and 30% by shareholder Sara
Srl. Following the aforementioned transfer, Biorg Srl acquired ownership of the land and building where
the aforementioned plant is located from the company Agricola Corticella Srl.
On 13 September 2022, Aliplast Spa acquired the entire shareholding of Alibardi Fiorenzo Srl, a company
operating in Quinto di Treviso and involved in the collection and production of plastic materials.
Significant events occurred after the reporting period
The Hera Group, acting through its subsidiary Herambiente Servizi Industriali, signed a binding
agreement at the end of 2022 for the acquisition in 2023 of 60% of the company A.C.R. di Reggiani
Albertino Spa, one of Italy’s leading companies in the remediation, industrial waste treatment, industrial
plant decommissioning and oil & gas-related civil works sectors, with headquarters in Mirandola
(Modena).
Bfeng
Con
Energia
Macero
Maceratese
A.C.R.
Alibardi
Fiorenzo
Biorg
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This operation will create the leading national operator in remediation and global service activities, with
a widespread presence throughout the country. The synergies between the Hera Group’s set of plants
and its multi-business strategy, and ACR’s consolidated experience in environmental and industrial
reclamation, are unique nationwide in terms of know-how and waste treatment capacity, and are able to
create significant and positive economic impacts in the sectors in which the two companies operate.
Through its subsidiary Herambiente Servizi Industriali, the Hera Group now manages 18 multi-purpose
sites dedicated to the treatment of waste produced by companies and processes 1.3 million tonnes of
industrial waste every year. In 2021, A.C.R. recorded revenues coming to roughly 110 million euro and
Ebitda amounting to about 17 million euro in the sectors covered by the transaction.
The transaction was closed on 8 March 2023.
The Hera Group, through its subsidiary Acantho, and Ascopiave were awarded the public tender called
by Asco Holding for the transfer of 92% of the shares of Asco TLC, held by Asco Holding itself and by
the Treviso-Belluno chamber of commerce. The partnership between Ascopiave and Acantho called for
the two companies to participate in this tender with an amount coming to 60% and 40% respectively.
Asco TLC, a company active since 2001 in providing ICT services mainly to corporate customers and
public administrations, owns a significant local network, located in the Veneto and Friuli-Venezia Giulia
regions and including over 2,200 km of fibre optics, 56 radio links and 24 xDsl exchanges in unbundling,
and provides services to more than 2,700 customers.
The closing of this transaction, following the fulfilment of the conditions precedent called for by the
procedure, came about on 14 March 2023.
Asco TLC
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OVERVIEW OF OPERATING AND FINANCIAL
TRENDS AND DEFINITION OF ALTERNATIVE
PERFORMANCE MEASURES
The Hera Group uses alternative performance measures (APMs) to convey as effectively as possible
information concerning trends in the profitability of the businesses in which it operates, as well as its
equity and financial situation. In accordance with the guidelines published on 4 March 2021 by the
European securities and markets authority and in keeping with the provisions of Consob communication
no. 5/21 of 29 April 2021, the content of and the criteria used in defining the APMs used in this financial
statement, if present, are explained below. Any operating, financial and fiscal special items are described
below, as are any adjustments related to operations (managerial adjustments) considered to be useful
in understanding the results. Adjusted APMs included reconciling items not extracted directly from the
consolidated financial statements, however the reconciliations show how the figures are calculated.
The Hera Group determines its operating indicators for the reporting period by classifying as special
items any significant components of income that (i) derive from non-recurring events or transactions, or
any transactions or events that are not frequently repeated during the usual course of business; (ii) derive
from events or transactions that do not represent normal business activities. At the same time, certain
accounting items are adjusted using an operating valuation criterion, if and when the latter facilitates the
analysis of certain specific business trends. In light of the fact that the managerial adjustments referred
to above have an impact on the balance sheet, their effects are provided as an adjustment of the financial
indicators described below.
The indicators illustrated below are used as financial targets in internal presentations (business plans)
and in external presentations (for analysts and investors). They provide useful measures for assessing
the Group’s operating performance (as a whole and within each business unit), including comparisons
between the reporting period in question and previous periods as regards operating profitability.
The managerial adjustments (not directly extracted from the consolidated financial statements) indicated
in the calculation of the single APMs are described, if present, in a specific table provided in the section
below entitled “Special items and managerial adjustments / balance sheet reconciliation”, as are any
operating, financial and fiscal special items and managerial adjustments.
Ebitda is calculated as the sum of the operating income shown in the balance sheets and depreciation,
amortization and write-downs.
Adjusted Ebitda (hereinafter referred to as Ebitda*) is calculated based on Ebitda, as described above,
adding or subtracting managerial adjustments.
Ebit is calculated by subtracting operating costs from operating revenues. Among operating costs,
special operating items are deducted from amortisations and provisions.
Adjusted Ebit is calculated based on Ebit, as described above, adding or subtracting any managerial
adjustments.
Adjusted pre-tax results are calculated by subtracting the financial operations shown in the balance
sheets from adjusted Ebit, as described above, net of any special financial items.
Adjusted net results are calculated by subtracting from adjusted pre-tax results, as described above,
the taxes shown in the balance sheets minus special fiscal items and the fiscal effect of any managerial
adjustments.
Results from special items (if present in the current report) are aimed at drawing attention to the result
of the special item entries.
Adjusted net profit is calculated by adding the result from special items to the adjusted net result, as
described above. This indicator therefore includes any managerial adjustments used to bring certain
accounting valuation items back into line with managerial criteria.
1.04
Alternative
performance
measures
(APMs)
Operating
APMs and
investments
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 63|
Adjusted Ebitda on revenues, adjusted Ebit on revenues and adjusted net profit on revenues
measure the Group’s operating performance through a proportion, expressed as a percentage, of
adjusted Ebitda, adjusted Ebit and adjusted net profit divided by the amount of revenues.
Net investments are calculated as the sum of investments in tangible fixed assets, intangible assets
and equity investments net of capital grants.
Adjusted net non-current assets are calculated as the sum of: tangible fixed assets; intangible assets
and goodwill; equity investments; deferred tax assets and liabilities (including managerial adjustments).
Adjusted net working capital is made up of the sum of: inventories (adjusted to reflect the different
managerial value of gas storage); trade receivables and payables; current tax receivables and payables;
other assets and other current liabilities; the current portion of assets and liabilities for financial
derivatives on commodities.
Provisions includes the sum of the items “employee severance indemnities and other benefits” and
“provisions for risks and charges”.
Adjusted net invested capital is defined by calculating the sum of “adjusted net fixed assets”, “adjusted
net working capital” and “provisions”.
Adjusted net equity is obtained by adding the economic effects of managerial adjustments, net of
deferred taxes, to the equity that appears in the balance sheets.
Net financial debt (at times referred to below as Net debt) is a measure of the company’s financial
structure determined in accordance with ESMA guidelines 32-382-1138, adding the value of non-current
financial assets. This measure is therefore calculated by adding together the following items: current and
non-current financial assets; cash and cash equivalents; current and non-current financial liabilities;
current and non-current portions of assets and liabilities for derivative financial instruments on interest
and exchange rates.
Adjusted sources of financing are obtained by adding “net financial debt” and “adjusted net equity”.
The Net debt to adjusted Ebitda ratio (Net Debt/Ebitda*), expressed as a multiple of adjusted Ebitda,
is a measure of the operating management’s ability to pay back its net financial debt.
Adjusted funds from operations (FFO*) are calculated beginning with adjusted Ebitda, subtracting
provisions for doubtful accounts, financial charges, uses of severance pay reserves and provisions for
risks (net of releases from provisions and increases due to changes in assumptions on future outlays
following revised estimates on current landfills) and taxes, net of any special items and the fiscal effect
of any managerial adjustments.
The Adjusted FFO/Net debt indicator (FFO*/Net debt), expressed as a percentage, provides a
measurement of the operating management’s ability to pay back its net financial debt.
Adjusted ROI, or return on net invested capital, is defined as the ratio between adjusted Ebit, as
described above, and adjusted net invested capital. It is intended to indicate the ability to produce wealth
through operating management, thus remunerating equity and capital pertaining to third parties.
Adjusted ROE, or return on equity, is defined as the ratio between adjusted net results and adjusted net
equity. It is intended to indicate the profitability obtained by investors, recompensing risk.
Cash flow is defined as operating cash flow, net of dividends paid. Operating cash flow is calculated as
adjusted Ebit, to which the following are added:
▪ amortisation, depreciation and provisions for the period, not including provisions for doubtful debts;
▪ changes in adjusted net working capital (*);
▪ provisions for the risk fund, net of releases from provisions (**);
▪ use of severance pay reserves;
▪ the difference between changes in taxes paid in advance and deferred taxes (***);
▪ operating and financial investments;
Financial
APMs
Operating-
financial
APMs
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 64|
▪ divestitures;
▪ financial charges and financial income (****);
▪ current taxes.
(*) net of the effects arising from the fair value measurement of commodity derivatives recognised as cash flow hedges and net of any changes in NWC
arising from changes in the scope of consolidation.
(**) minus releases from provisions and increases caused by modifications in estimated future expenses following revised appraisals for operating landfills.
(***) net of fiscal effects related to the cash flow hedge accounting of hedging derivatives.
(****) minus the effects of discounting deriving from the application of accounting standards IAS 37 and IAS 19 and the profits coming from associated
companies and joint ventures, plus the dividends received from the latter, and gains/losses from transferred shareholding (excluding special items, if present).
The Hera Group’s APMs are provided in the following table:
Operating APMs and investments (mn€)
Dec-22
Dec-21
(redetermined)
Abs. change
% change
Revenues
20,082.0
10,555.3
9,526.7
+90.3%
Adjusted Ebitda
1,295.0
1,219.4
75.6
+6.2%
Adjusted Ebitda/revenues
6.4%
11.6%
(5.2) pp
0.0%
Adjusted Ebit
627.9
607.3
20.6
+3.4%
Adjusted Ebit/revenues
3.1%
5.8%
(2.7) pp
0.0%
Adjusted net profit
372.3
369.5
2.8
+0.8%
Adjusted net profit/revenues
1.9%
3.5%
(1.6) pp
0.0%
Net investments
688.7
570.3
118.4
+20.8%
Financial APMs (mn€)
Dec-22
Dec-21
(redetermined)
Abs. change
% change
Adjusted net non-current assets
7,522.3
7,308.3
214.0
+2.9%
Adjusted net working capital
1,096.0
2.4
1,093.6
+45,566.7%
Provisions
(657.6)
(633.4)
(24.2)
+3.8%
Adjusted net invested capital
7,960.7
6,677.3
1,283.4
+19.2%
Net debt
(4,249.8)
(3,261.3)
(988,5)
+30.3%
Operating-financial APMs
Dec 22
Dec 21
(redetermined)
Abs. change
Adjusted Net debt/Ebitda
3.28
2.67
0.61
Adjusted FFO/Net debt
21.1%
26.7%
(5.6) pp
Adjusted ROI
7.9%
9.1%
(1.2) pp
Adjusted ROE
10.0%
10.8%
(0.8) pp
Cash flow
(864.0)
181.2
(1,045.3)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 65|
Special items and managerial adjustments / IFRS balance sheet
reconciliation
Gas prices increased sharply in the second half of 2021, and this trend continued with higher volatility
throughout 2022, reaching its peak during the summer. This rise also affected the natural gas storage
process, which, compared to the same period of 2021, took place during a period of time (starting in April
2022) characterised by purchasing prices up to five times higher than those seen one year earlier, which
produced both operating (purchasing costs) and financial impacts (involving working capital).
Therefore, to supplement the report at 31 December 2022, and in order to facilitate the analysis of
business trends and ensure that the results are more easily comparable, the Group’s management has
decided to present the results by valuing gas storage according to a managerial criterion, in order to
provide a representation that reflects the context seen during the year, marked by significant and sudden
price changes with respect to the past.
More specifically, from a managerial point of view, the accounting standard calls for stored gas to be
valued considering all gas deliveries made during the injection periods (April - October). This means that
the definition of average costs per unit also includes purchases intended for delivery and sale to end
customers during the period. The use of this criterion led to the definition of an average cost coming to
107 €c/sm3 that, also considering the purchases intended for delivery to end customers with costs
defined in 2021 (much lower than the costs in 2022), is significantly lower than the cost of gas purchased
and injected into storage in 2022.
From a managerial point of view, the accounting valuation of the inventory was therefore adjusted by
taking into consideration only the flows identified under management for injection into storage, the
average price of which was 128 €c/sm3, in line with the average market price over the injection period
and, as described above, significantly higher than the average accounting price. As part of its balanced
portfolio management, the Group introduced the appropriate hedges to correspond to the scheduled
withdrawals during the winter. This means that the value of gas purchases destined for storage,
determined under managerial criteria and in compliance with risk management policies, is fully
recoverable during the periods in which residual withdrawals will be made.
From an accounting point of view, instead, no distinction can be made between the various supply
processes, all of which fall under a single commercial portfolio. Therefore, since gas is a fungible
commodity, all purchase transactions, regardless of their end purpose, are considered by calculating the
average carrying cost. This different valuation criterion, which has always been used, does not produce
significant differences when dealing with a price trend that does not change considerably over time.
In order to ensure a uniform comparison of results, the managerial statement for the period under
comparison was also redetermined using the same managerial criterion.
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 66|
The following table provides a reconciliation between the income statement referred to in the remarks on
unaudited managerial statement and the published consolidated income statement.
Dec-22
Dec -21
(redetermined)
mn€
Published
statement
Managerial
adjustments
Managerial
statement
Published
statement
Managerial
adjustments
Special
items
Managerial
statement
Revenues
20,082.0
20,082.0
10,555.3
10,555.3
Other operating revenues
548.2
548.2
400.1
400.1
Raw and other materials
(16,730.0)
94.1
(16,635.9)
(6,668.5)
(4.4)
(6,672.9)
Service costs
(2,105.8)
(2,105.8)
(2,464.6)
(2,464.6)
Personnel costs
(601.1)
(601.1)
(592.8)
(592.8)
Other operating expenses
(74.9)
(74.9)
(66.5)
(66.5)
Capitalised costs
82.5
82.5
60.8
60.8
Ebitda
1,200.9
94.1
1,295.0*
1,223.9
(4.4)
‐
1,219.4*
Amortization, depreciation and
provisions
(667.1)
(667.1)
(612.1)
(612.1)
Ebit
533.8
94.1
627.9*
611.7
(4.4)
‐
607.3*
Financial operations
(125.0)
(125.0)
(204.8)
85.0
(119.8)
Pre-tax result
408.8
94.1
502.9*
406.9
(4.4)
85.0
487.5*
Taxes
(103.5)
(27.1)
(130.7)
(34.2)
1.2
(97.6)
(130.6)
Net result
305.3
67.0
372.3*
372.7
(3.2)
(12.6)
356.9*
Result from special items
‐
‐
12.6
12.6
Net profit
305.3
67.0
372.3*
372.7
(3.2)
‐
369.5*
Attributable to:
Parent company shareholders
255.2
67.0
322.2*
333.5
(3.2)
330.3*
non-controlling interests
50.1
50.1
39.2
39.2
* Adjusted results, as described above
The table below shows the impact on the balance sheet of the managerial adjustments made to gas
storage, which, unlike the other special items, have not yet been reflected in cash receipts or
disbursements:
Dec-22
Dec-21
(redetermined)
mn€
Published
values
Managerial
adjustments
Managerial
values
Published
values
Managerial
adjustments
Managerial
values
Net non-current assets
7,549.1
(26.8)
7,522.3*
7,308.0
0.3
7,308.3*
Net working capital
1,003.0
93.0
1,096.0*
3.5
(1.1)
2.4*
Provisions
(657.6)
(657.6)
(633.4)
(633.4)
Net invested capital
7,894.5
66.2
7,960.7*
6,678.1
(0.8)
6,677.3*
Equity
(3,644.7)
(66.2)
(3,710.9)*
(3,416.8)
0.8
(3,416.0)*
Net debt
(4,249.8)
(4.249.8)
(3,261.3)
(3,261.3)
Sources of financing
(7,894.5)
(66.2)
(7,960.7)*
(6,678.1)
0.8
(6,677.3)*
* Adjusted results, as described above
For 2022, as mentioned above, the value of stored gas has been adjusted.
More specifically, the change in storage was adjusted by 94.1 million euro, resulting in a negative tax
effect coming to 27.1 million euro. The cumulative effect of these managerial adjustments, i.e. also
considering the effects of misalignments in previous periods, resulted in a positive impact on equity
totalling 66.2 million euro.
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 67|
Concerning 2021, the values classified as special items and the managerial adjustments made are
related to the following:
▪ a negative adjustment of the change in gas storage coming to 4.4 million euro, and an ensuing
positive tax effect coming to 1.2 million euro;
▪ the partial repurchase of five bonds, for a total book value of 1,780 million euro, which led to the
recognition of expenses totalling 82.6 million euro since the repurchase price was higher than the
book value. The related tax effect, coming to 19.8 million euro, was also taken into account and
recognised as an adjustment to the tax charge for the period;
▪ a write-down of the equity investment and non-current financial receivable related to H.E.P.T. Co.
Ltd, totalling 2.4 million euro, due to the conditions of the Chinese market in question;
▪ a tax realignment of certain goodwill amounts that were recorded at 31 December 2019, pursuant to
Article 1, paragraph 83, of Law 178/2020. This operation resulted in the tax recognition of these
amounts, with the consequent recognition of a tax benefit coming to 87.0 million euro, against the
payment of a 3% substitute tax set at 9.2 million euro.
Operating results and investments
For the Hera Group, the year 2022 closed with improvement in operating results and investments
compared to the previous year, with consolidated adjusted Ebitda coming to 1,295.0 million euro, up
6.2%, adjusted Ebit up 3.4%, and adjusted net profit up 0.8%. As regards investments as well, significant
growth was seen, coming to 20.8%, reflecting the Group’s ongoing focus on the resilience of assets
under management.
These results are particularly important, since they must be set against the backdrop of a particularly
complex external scenario, characterised by continuous volatility on the energy market and a highly
unstable international geopolitical situation. The management policies adopted by the Group, and its
solid and resilient business model, proved to be effective in responding to these complexities, and even
in this difficult moment guaranteed that the quality and continuity of the services provided remained high
and continued to create value for its stakeholders.
As regards this latter aspect, note that the Hera Group, in order to support its customers during this
particular situation, developed and implemented a few specific initiatives, from the possibility given to
customers of requesting monthly billing for consumption and payment by instalments, to tools for
monitoring consumption, and advice on saving energy and money. In addition, a specific training plan
for operators was activated to offer qualified support on consumption analysis and efficiency.
The initiatives to support customers, the value generated for stakeholders and the proven ability to
positively face the challenges of 2022, which showed an unprecedented complexity, find their
foundations in the Group’s consolidated multi-business industrial model, balanced between regulated
and free-market activities.
Despite the complicated scenario, the Hera Group has continued to grasp opportunities to expand its
scope of operations through a number of acquisitions. In particular, in the waste management area, note
the acquisition by Marche Multiservizi Spa of Macero Maceratese Srl, a company specialised in the
recovery and treatment of waste, and the acquisition by Aliplast Spa of Alibardi Fiorenzo Srl, a company
specialised in the collection and production of plastic material. The energy areas, instead, benefited from
the acquisition of Con Energia Spa by Hera Comm Spa.
Efficiency in the
services offered
and growth in
industrial margins
1.04.01
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 68|
The following table shows operating results at 31 December 2022 and 2021:
Income statement (mn€)
Dec 22
% Inc.
Dec 21
(redetermined)
% Inc.
Abs. change
% change
Revenues
20,082.0
0.0%
10,555.3
0.0%
9,526.7
90.3%
Other operating revenues
548.2
2.7%
400.1
3.8%
148.1
37.0%
Raw and other materials**
(16,635.9)
(82.8)%
(6,672.9)
(63.2)%
9,963.0
149.3%
Service costs
(2,105.8)
(10.5)%
(2,464.6)
(23.3)%
(358.8)
(14.6)%
Other operating expenses
(74.9)
(0.4)%
(66.5)
(0.6)%
8.4
12.6%
Personnel costs
(601.1)
(3.0)%
(592.8)
(5.6)%
8.3
1.4%
Capitalised costs
82.5
0.4%
60.8
0.6%
21.7
35.7%
Ebitda*
1,295.0
6.4%
1,219.4
11.6%
75.6
6.2%
Amortization, depreciation and
provisions
(667.1)
(3.3)%
(612.1)
(5.8)%
55.0
9.0%
Ebit*
627.9
3.1%
607.3
5.8%
20.6
3.4%
Financial operations
(125.0)
(0.6)%
(119.8)
(1.1)%
5.2
4.3%
Pre-tax result*
502.9
2.5%
487.5
4.6%
15.4
3.2%
Taxes
(130,6)
(0.7)%
(130.6)
(1.2)%
‐
0.0%
Net result*
372.3
1.9%
356.9
3.4%
15.4
4.3%
Result from special items
‐
0.0%
12.6
0.1%
(12.6)
100.0%
Net profit for the period*
372.3
1.9%
369.5
3.5%
2.8
0.8%
Attributable to:
Parent company shareholders*
322.2
1.6%
330.3
3.1%
(8.1)
(2.5)%
Minority shareholders
50.1
0.2%
39.2
0.4%
10.9
27.8%
* Adjusted results, as described in paragraph 1.02
** Managerial values to reflect the different managerial value of gas storage
REVENUES (bn/€)
Revenues at December 2022 were up by 9,526.7 million euro compared to 2021, almost exclusively as
an effect of the significant increase in the price of electricity and gas seen in 2022. Indeed, the energy
sectors showed significant growth, coming to 8,842 million euro, or 93% of the overall change. In addition,
growth was seen in turnover for energy services, related to energy efficiency in residential buildings
20.1
billion euro
revenues
(+90.3%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 69|
(insulation bonus and 110% super-bonus) and an increase in activities for value-added services for
customers. As a whole, these effects contributed with roughly 290 million euro.
Lastly, revenues from the waste management sector contributed with 160 million euro, mainly due to
energy production, acquisitions on the industry market and increased prices in the markets. For further
details, see the analyses of the individual business areas in paragraph 1.07.
Other operating revenues in December 2022 increased by 148.1 million euro compared to 2021. Note
the higher revenues from energy efficiency certificates amounting to 60 million euro, as described in
more detail in the Gas area in paragraph 1.07.01, and higher revenues from contracts on assets under
concession coming to 56 million euro.
The cost of raw and other materials increased by 9,963.0 million euro compared to December 2021. This
increase was related to a rise in energy commodity prices, as seen under revenues. Lastly, note the
increase in the purchasing price of raw materials in the recovery market and the higher purchasing costs
for energy efficiency certificates, as mentioned above.
Other operating expenses decreased by a total of 350.4 million euro (with lower service costs coming to
358.8 million euro and higher operating expenses at 8.4 million euro). Overall, lower costs amounted to
739 million euro mainly related to system charges, as a result of the legislative measures indicated in
paragraph 1.07.01 and paragraph 1.07.02, concerning higher costs for gas transport and storage. The
decrease in costs indicated above was partially offset by higher costs in energy services for energy
efficiency and value-added services, amounting to approximately 242 million euro. Higher costs were
also seen for waste collection and treatment, totalling roughly 90 million euro, mainly due to higher
supplier prices, corporate acquisitions and increased activities related to developing new sorted waste
collection projects. Lastly, note the higher costs for orders on goods under concession and for third-party
works, coming to roughly 63 million euro.
Personnel costs increased by 1.4% compared to 2021, for the equivalent of 8.3 million euro. This
increase was related to salary increases under the national collective labour agreement and changes in
the scope of consolidation due to the corporate acquisitions, as mentioned above. These effects were
partially contained by a lower average presence recorded in the period.
Capitalised costs increased by 21.7 million euro, due to higher works invested in assets owned by the
Group.
EBITDA * (mn€)
Adjusted Ebitda rose by 75.6 million euro compared to 2021, up by 6.2%. This trend was due to good
performances in the waste management area, which increased by 46.3 million euro, and the overall
contribution coming from the energy areas, totalling 28.8 million euro.
1,295.0
million euro
Ebitda *
(+6.2%)
+1.4%
increase in
the cost of
personnel
Costs of raw
materials related
to trends in
revenues
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 70|
For further details, see the analyses of the individual business areas.
Depreciation, amortisation and provisions at 31 December 2022 increased by 9.0% compared to the
previous year, settling at 667.1 million euro. Higher depreciation and amortisation were mainly due to
new investments, an increase in commissions in sales companies for commercial campaigns, and
changes in the scope of operations resulting from the consolidation of companies with gas sales and
waste management activities. Allocations to the provision for bad debts also increased overall, mainly
due to the protected and gradual protected service markets.
EBIT * (mn€)
Adjusted Ebit amounted to 627.9 million euro, up 3.4%. The increase resulting from growth in Ebitda was
partially reduced by higher depreciation and amortisation, as described above.
The result from financial operations at 31 December 2022 came to 125.0 million euro, up 5.2 million euro,
or 4.3%, compared to 31 December 2021. This change is mainly due to an increase in net financial debt,
which occurred in late 2022, due to an increase in the amount of net working capital related to gas storage
and the trend in energy commodity prices compared to 2021 (the impact of this was partially mitigated
by lower IAS 37 charges).
Adjusted results before taxes increased by 15.4 million euro, or 3.2%, The growth in the net operating
margin was added to the impact of financial operations, as described above.
Taxes for 2022, as shown in the operations statement, amounted to 130.6 million euro (the same amount
as in the previous year): the tax rate for adjusted results came to 26%, as against 26.8% in 2021. In this
comparison, note that in both years the benefits deriving from the redemption of certain “higher values”
originating from an equal number of acquisition transactions were included.
During 2022, note the benefits that the government provided, through numerous regulatory provisions,
as a measure to support the expenses incurred for the purchase of electricity and gas (in this regard and
for further details, see the note commenting on taxes in paragraph 2.02.03 of the Consolidated financial
statements).
The adjusted net result increased by 4.3%, or 15.4 million euro. Growth in the adjusted pre-tax result
remained stable due to the absence of changes in taxes.
In 2021, a special item result was present with a total value of 12.6 million euro. For a detailed description
of its content, see the beginning of section 1.04, “Overview of operating and financial trends and definition
of APMs”.
The adjusted net profit thus increased by 2.8 million euro (+0.8%), due to the sum of all the events
described above.
627.9
million euro
Ebit *
(+3.4%)
Tax rate at
26.0%
Financial
operations
increase
+0.8%
Net profit *
+4.3%
Net result *
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 71|
In 2022, the Group’s net investments amounted to 688.7 million euro, up 118.4 million euro compared to
the previous year. This includes financial investments coming to 3.2 million euro, due to Marche
Multiservizi Spa’s equity investment in Aurora Srl, a company currently inoperative, involved in the waste
treatment sector. Financial investments decreased by 7.8 million euro compared to the previous year,
which included an equity investment in SEA - Servizi Ecologici Ambientali Srl.
Capital grants amounted to 23.9 million euro, of which 17.4 million euro involving FoNI investments, as
foreseen by the tariff method for the integrated water service. Net operating investments amounted to
685.5 million euro, up 126.3 million euro compared to the previous year.
The following table provides a breakdown by business area, with separate mention of capital grants:
Total investments (mn€)
Dec 22
Dec 21
Abs. change
% change
Gas area
156.7
141.3
15.4
+10.9%
Electricity area
78.3
55.3
23.0
+41.6%
Integrated water cycle area
208.0
194,6
13.4
+6.9%
Waste management area
149.2
98.2
51.0
+51.9%
Other services area
15.3
14.6
0.7
+4.8%
Headquarters
102.1
84.8
17.3
+20.4%
Total gross operating investments
709.5
588.7
120.8
+20.5%
Capital grants
23.9
29.4
(5.5)
(18.7)%
of which FoNi (New Investments Fund)
17.4
16.8
0.6
+3.6%
Total net operating investments
685.5
559.2
126.3
+22.6%
Financial investments
3.2
11.0
(7.8)
(70.9)%
Total net investments
688.7
570.3
118.4
+20.8%
TOTAL NET OPERATING INVESTMENTS (mn/€)
Including capital grants, the Group's operating investments amounted to 709.5 million euro, up 120.8
million euro on the previous year, and mainly related to works on plants, networks and infrastructures. In
addition, regulatory upgrading was done, especially in the gas distribution sector for the large-scale metre
replacement, and in the purification and sewage sector.
Comments on investments in the individual areas are provided in the analysis by business area.
Net investments
rise to 688,7
million euro
685.5
million euro
net operating
investments
(+126.3 mn/€)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 72|
At Group headquarters, investments concerned interventions on corporate buildings, IT systems and the
vehicle fleet, as well as laboratories and remote control structures. Overall, investments in structures
increased by 17.3 million euro compared to the previous year, mainly due to work on corporate buildings
and the vehicle fleet.
Financial structure and adjusted net debt
What follows in an analysis of trends in the Group’s net invested capital and sources of financing at 31
December 2022.
Invested capital and sources of
financing (mn€)
Dec 22
% Inc.
Dec 21
(redetermined)
% Inc.
Abs. change
% change
Net non-current assets*
7,522.3
+94.5%
7,308.3
+109.4%
214.0
+2.9%
Net working capital*
1,096.0
+13.8%
2.4
+0.0%
1,093.6
+45,566.7%
(Provisions)
(657.6)
(8.3)%
(633.4)
(9.5)%
(24.2)
(3.8)%
Net invested capital*
7,960.7
+100.0%
6,677.3
+100.0%
1283.4
+19.2%
Equity*
(3,710.9)
+46.6%
(3,416.0)
+51.2%
(294.9)
(8.6)%
Long-term borrowings
(5,598.5)
+70.3%
(3,633.1)
+54.4%
(1,965.4)
(54.1)%
Net current financial debt
1.348.7
(16.9)%
371.8
(5.6)%
976.9
+262.7%
Net debt
(4,249.8)
+53.4%
(3,261.3)
+48.8%
(988.5)
(30.3)%
Total sources of financing*
(7,960.7)
(100.0)%
(6,677.3)
+100.0%
(1,283.4)
(19.2)%
* adjusted results, as indicated in the section on Alternative performance measures (APMs)
Net working capital* amounted to 1,096.0 million euro at the end of 2022, up from 2.4 million euro seen
at the end of 2021. This change was affected by the fair value of commodity derivatives, which increased
by 180.4 million euro compared to the previous year, with a corresponding impact on equity for hedging
contracts recognised as cash flow hedges and, to a lesser extent, on the income statement for the year
for trading derivatives. The changes in net working capital that led to a corresponding increase in net
financial debt were mainly due to:
▪ the higher value of gas storages, both in terms of prices and volumes, which at 31 December 2022
amounted to 503.7 million euro, as well as to the value of withdrawals made in December, with a
value coming to over 200 million euro, which while transmitted have not yet been fully translated into
the resulting cash flows from sales to end customers;
▪ a change in the VAT position coming to 89.9 million euro (at 31 December 2022 this figure resulted
in a credit of 17.1 million euro while at December 2021 it was a debit of 72.9 million euro).
As far as the value of trade receivables is concerned, there are no critical issues on the performance on
collections, which are, on some market segments, better than the previous year thanks to the continuous
and careful control of credit management processes including during the acquisition of contracts
(origination management).
In 2022, provisions amounted to 657.6 million euro, up from 633.4 million euro at the end of the previous
year. This result is mainly the consequence of provisions for the period and adjustments to the post-
mortem provisions for landfills and restoration of third-party assets, which more than offset releases for
utilisation.
Equity* rose from 3,416.0 million euro in 2021 to 3,710.9 million euro in 2022. This equity strengthens
the Group’s solidity, thanks to the positive net result for 2022 operations, amounting to 372.3 million euro
and the effect of cash flow hedge reserves, offset by the impact of dividend payments.
Adjusted return on net invested capital (ROI*) stood at 7.9% in 2022, down from the 2021 ROI, which
came to 9.1%, due to an increase in net invested capital (NIC) that was greater than the increase in
operating income (Ebit).
1.04.02
657.6
million euro
provisions
3.7 billion
euro equity*
1,096.0
million euro
net working
capital
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 73|
ROI* (%)
* adjusted for non-recurring entries and the Ascopiave transaction
The results of management led to an adjusted return on equity (ROE*) coming to 10.0%, down from the
amount seen in 2021. This drop was related to an increase in equity (mainly due to the value of cash
flow hedge reserves) greater than the increase in operating profit.
ROE* (%)
* adjusted for non-recurring entries and the Ascopiave transaction
9.4%
9.4%
8.6%
9.1%
7.9%
2018 2019 * 2020 2021 2022
10.4%
10.4%
10.2%
10.8%
10.0%
2018 2019 * 2020 2021 2022
7.9%
ROI*
10.0%
ROE*
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 74|
An analysis of adjusted net financial debt is shown in the following table:
mn€
31 Dec 22
31 Dec 21
A
Cash
1,942.4
885.6
B
Cash equivalents
‐
C
Other current financial assets
77.7
29.3
D
Liquidity (A+B+C)
2,020.1
914.9
E
Current financial debt
(563.0)
(443.6)
F
Current portion of non-current financial debt
(108.4)
(99.5)
G
Current financial indebtedness (E+F)
(671.4)
(543.1)
H
Net current financial indebtedness (G+D)
1,348.7
371.8
I
Non-current financial debt
(1,997.0)
(461.0)
J
Debt instruments
(3,197.3)
(2,702.0)
K
Non-current trade and other payables
‐
‐
L
Non-current financial indebtedness (I+J+K)
(5,194.3)
(3,163.0)
M
Total financial indebtedness (H+L)
(3,845.6)
(2,791.2)
Non-current financial receivables
151.8
142.7
Net financial debt (excluding put option)
(3,693.8)
(2,648.5)
Nominal amount - fair value put option
(475.9)
(474.2)
Net financial debt with adjusted put option
(4,169.7)
(3,122.7)
Portion of future dividends - fair value put option
(80.1)
(138.6)
Net financial debt (Net debt)
(4,249.8)
(3,261.3)
The total amount of net financial debt came to 4,249.8 million euro, with an increase of roughly 988.5
million euro compared to the previous year. This change was mainly due to the cash absorption caused
by the variation in net working capital, as mentioned above.
With a view to rebalancing net working capital, considering the tensions affecting commodity prices,
during the year the Group routinely carried out rescheduling transactions on trade payables, through
reverse factors or letters of credit, amounting to 506.3 million euro overall. At the end of the year, the
amount of outstanding transactions, exclusively through letters of credit, amounted to 192 million euro.
By means of these transactions, the Group optimised its payment terms, while keeping the same amount
recorded under trade payables, since they are part of its typical working capital management. In fact,
note that the Group has trade payables, with different payment terms, based on the contractual
agreements defined with the individual counterparties of the various businesses in which it operates,
ranging from 7 days to 60 days from the date of invoice issuance.
The financial structure shows current debt at 671.4 million euro, of which 316.6 million euro is due to
banks, referring to drawdowns on current account lines amounting to roughly 257.4 million euro and
passive interest on loans coming to 59.2 million euro.
The current portion of debt to other lenders amounted to 246.4 million euro, of which 145.1 million euro
for the daily fair value adjustment of commodity derivatives exchanged on the EEX platform.
As regards the current portion of non-current financial debt, which came to 108.4 million euro, 87.1 million
euro was related to the portion of medium-term bank loans due within one year (of which 22.0 million
euro is linked to a private placement with a ten-year term maturing in 2023) and 21.3 million euro to
current payables related to leasing contracts.
Non-current financial debt increased by approximately 2,031.3 million euro compared to December 2021,
mainly due to the placement in May 2022 of a 500 million euro green bond maturing in seven years, and
the disbursement of 1,625 million euro in new bank loans as of August 2022. These latter lines were
activated to support the gas storage business and to address the potential liquidity risk due to energy
price volatility.
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 75|
Cash and cash equivalents increased from 885.6 million euro in 2021 to 1,942.4 million euro at 31
December 2022.
At 31 December 2022, 59.4% of medium/long-term debt consisted of bonds with repayment at maturity.
The total debt has an average residual maturity of about five years. 39.4% of debt matures after five
years.
NET FINANCIAL DEBT (bn€)
Cash flow from operations was absorbed by the increase in net working capital, mainly influenced by the
cash absorbed due to gas storage and the other trends mentioned above, as well as by the significant
investments made during the period. In addition, cash absorption was due to the payment of dividends
and the purchase of shareholdings, among which above all the acquisition of 100% of Con Energia Spa,
specialised in gas and electricity sales to end customers, and the purchase by Marche Multiservizi Spa
of 70% of the share capital of Macero Maceratese Srl, specialised in waste recovery and disposal.
CASH FLOW (mn€)
The 2022 Net debt/Ebitda* ratio rose to 3.28, compared to 2.67 in 2021. This indicator was strongly
influenced by the cash absorbed due to gas storage, coming to 503.7 million euro. This ratio would come
to 2.89, excluding the effect of changes in gas storage.
4.25
billion euro
net financial
debt
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 76|
NET DEBT/EBITDA* (X)
* adjusted for non-recurring entries and the Ascopiave transaction
The FFO*/Net debt ratio settled at 21.4%, confirming the Group’s financial solidity and its ability to meet
its financial obligations. This indicator was also strongly affected by the high value of storage (Ffo/Net
debt 23.9% excluding gas storage).
FFO*/NET DEBT (%)
* adjusted for non-recurring entries and the Ascopiave transaction
Parent company management report
The following table provides the main indicators of operating performance for the year, pursuant to article
2428 of the Italian Civil Code:
(mn€)
2022
2021
Abs. change
% change
Revenues
1,666.3
1,508.6
157.7
10.5%
Ebitda
288.4
286.6
1.8
0.6%
Operating profit
127.3
132.2
(4.9)
(3.7)%
Net profit
271.0
223.8
47.2
21.1%
To understand this performance and the changes with respect to the previous year, the current structure
of the Parent Company must be taken into account. This company directly manages certain businesses
2.51x
2.48x
3.02x
2.87x
2.67x
3.28x
2018 2019 * 2019 2020 2021 2022
27.0%
29.0%
25.2%
26.7%
21.4%
2018 2019 * 2020 2021 2022
21.4%
FFO*/ Net debt
3.28x
Net debt/Ebitda*
1.04.03
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 77|
(municipal waste collection, the integrated water service, cogeneration and district heating) and has
shareholdings in Group companies, in addition to carrying out the main corporate governance functions
on their behalf.
Ebitda, despite the unfavourable period linked to the socio-economic context, shows the Parent
Company’s ability to grasp opportunities arising from the economic recovery, particularly in the district
heating sector, following the increase in the reference energy index, which is pegged to the price of gas.
For more details, see chapter 1.07 “Analysis by business area”.
A summary of the adjusted financial information at 31 December 2022 compared to the 31 December
2021 data, is provided below:
Analysis of invested capital and
sources of financing (mn€)
31 Dec 22
%
31 Dec 21
%
Abs. change
% change
Net fixed assets
3,864.7
109.0%
3,750.9
107.3%
113.8
3.0%
Net working capital
(154.6)
(6.1)%
(107.3)
(4.3)%
(47.3)
44.1%
Gross invested capital
3,710.1
104.6%
3,643.6
104.2%
66.5
1.8%
Other provisions
(164.4)
(4.6)%
(147.3)
(4.2)%
(17.1)
11.6%
Net invested capital
3,545.7
100.0%
3,496.3
100.0%
49.4
1.4%
Total equity
2,530.3
71.4%
2,469.9
70.6%
60.4
2.4%
Net financial debt
1,015.3
28.6%
1,026.4
29.4%
(11.1)
(1.1)%
Sources of financing
3,545.6
100.0%
3,496.3
100.0%
49.3
1.4%
Regarding the other information required by article 2428 of the Italian Civil Code, note the following:
▪ Research and development:
– see paragraph 1.06 of the Directors’ report, “Sustainability Results”.
▪ Relations with subsidiaries, associates, parent companies and companies controlled by the latter:
– as required by article 2428, paragraph 3, point 2 of the Italian Civil Code, see the financial
statements contained in paragraph 3.03, prepared in accordance with Consob resolution
15519/2006, relating to the separate financial statements of Hera Spa; lastly, note that these
financial statements do not contain atypical or unusual transactions.
▪ Treasury shares:
– regarding the information required by article 2428, paragraph 3, points 3 and 4 of the Italian Civil
Code, the number and nominal value of the shares comprising the share capital of Hera Spa, the
number and nominal value of the treasury shares in its portfolio at 31 December 2022, in addition
to changes in these that occurred in 2022, see note 16 of paragraph 3.02.04 and the statement
of changes in equity, paragraph 3.01.05, part of the separate financial statements of Hera Spa.
▪ Foreseeable changes in management:
– regarding the performance of the businesses units that make up the current structure of the Parent
Company, please refer to paragraph 1.01.02 of the Directors’ report, “Strategic approach and
management policies”
▪ The Company’s use of financial instruments:
– regarding the Company’s objectives and policies on financial risk management, including its
hedging policies for each main category of transactions foreseen and the Company’s exposure
to price risk, credit risk, liquidity risk and the risk of changes in cash flows, see the description
provided in paragraph 1.02.03 of the Directors’ report, “Risk areas: identification and management
of risk factors”.
▪ Secondary offices:
– the Company does not have secondary offices.
▪ Significant events occurred after the reporting period:
– see paragraph, 1.03 “Main events occurred”.
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 78|
SHARE PERFORMANCE AND INVESTOR
RELATIONS
During 2022, the main stock exchanges in Western countries performed negatively, following a
downward revision of economic growth prospects, a consequence of the geopolitical tensions that arose
with the outbreak of the conflict in Ukraine. As mentioned in previous paragraphs, this conflict
exacerbated tensions on energy markets, particularly affected by a reduction, in the present or expected
in the future, of gas supplies from Russia. Difficulties in raw material procurement, with supply chains
struggling to regain lost ground, also persisted after the disruptions caused by the pandemic. The
combination of the conflict and the effects of the pandemic thus triggered an inflationary spiral that led
central banks to revise their expansive monetary policies, putting an end to asset purchases on the
market (quantitative easing) and raising interest rates.
Against this backdrop, the Italian FTSE All Share index fell by 14.1% during the reporting period, showing
the worst performance among major European stock exchanges.
With an official price of 2.529 euro at 31 December, Hera stock was down 31.1%, showing however a
more resilient performance than the reference sector. The utilities sector, on the other hand, saw a more
pronounced drop than the Italian stock market, due to its higher sensitivity to the effects of the rise in
interest rates by the European Central Bank and tensions in the energy markets.
2022 HERA STOCK, LOCAL UTILITY SECTOR AND ITALIAN MARKET PERFORMANCE COMPARISON
On 20 June 2022, Hera’s twentieth dividend was paid. The coupon, amounting to 12 cents per share,
increased by 9% year-on-year, respecting the indications set out in the business plan. Hera thus
confirmed its ability to remunerate shareholders thanks to the resilience of its business portfolio, which
has allowed it to pay steady and growing dividends since its listing.
euro 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Dps 0.035 0.053 0.06 0.07 0.08 0.08 0.08 0.08 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.095 0.10 0.10 0.11 0.12
Geopolitical
tensions and
inflation
trigger
selling on
stock
markets
Hera shares
perform
better than
peers
12 cent
dividend paid
1.05
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 79|
The joint effect of continuously remunerating shareholders through dividends and a rise in the price of
the stock over the years allowed the total shareholders return accumulated since the IPO to remain
consistently positive and to stand at over +234.9% at the end of the reporting period.
The financial analysts covering the stock (Mediobanca, Exane Bnp Paribas, Intermonte, Intesa
Sanpaolo, Kepler Cheuvreux, Equita Sim) expressed positive or neutral opinions, with a target price that
continued to show significant potential for improvement. At the end of the year, the consensus target
price came to 3.60 euro, showing a 42.4%upside potential.
SHAREHOLDER BREAKDOWN AT 31 DECEMBER 2022
At 31 December 2022, the shareholding breakdown showed its usual stability and balance, with 45.8%
of shares belonging to 111 public shareholders located across the areas served and brought together
by a stockholders agreement, renewed for three further years and effective from 1 July 2021 to 30 June
2024, and a 54.2% free float. The shareholding structure includes high number of public shareholders
(111 municipalities, the largest of which holds shares amounting to less than 10% of the total) and a
large number of private institutional and retail shareholders.
Since 2006, Hera has adopted a share buyback program, most recently renewed by the Shareholders
Meeting held on 28 April 2022 for a further 18 months, for an overall maximum amount of 240 million
euro. The purpose of this program is to finance M&A opportunities involving smaller companies, and
smoothing out any abnormal market price fluctuations vis-à-vis those of the main comparable Italian
companies. As of 31 December 2022, Hera held 38.5 million treasury shares.
The Group continued to engage in intense communications with financial market players in 2022. After
presenting the 2021-2025 business plan, the Executive Chairman and the CEO took part in a road show
with investors in the main financial centres to update them on business trends and future prospects.
Further occasions for contact came about by participating in the sector conferences organised by the
brokers covering Hera stock. The intensity of the Group's commitment to dialogue with investors
contributes to strengthening its reputation on the markets and constitutes an intangible asset to the
benefit of Hera's stock and stakeholders. The intense dedication shown by the Group towards dialoguing
with investors contributed to reinforcing its market reputation and represents an intangible asset
benefiting Hera stock and stakeholders.
As regards the information required by article 2428, paragraph 3, subparagraphs 3 and 4 of the Italian
Civil Code, concerning the number and nominal value of the shares constituting the share capital of Hera
Spa, the number and nominal value of the treasury shares held at 31 December 2022, as well as the
changes in these shares during 2022, see note 25 of paragraph 3.02.04 and the statement of changes
in equity in paragraph 3.01.05 of the Parent Company’s separate financial statements.
45.8%
share capital
pertaining to
the public
stockholders
agreement
Ongoing
communication
with the market
in 2022 as well
Treasury
share plan
approved
+235%
total
shareholders'
return since
the IPO
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 80|
SR
SUSTAINABILITY RESULTS
The Group’s commitment to reporting to stakeholders as to the results achieved in the areas of creating
shared value (CSV) and sustainability was confirmed once again this year by its Sustainability Report,
available at bs.gruppohera.it and on the Group’s website in the sustainability section.
The Sustainability Report contains the Hera Group’s consolidated non-financial statement, prepared
pursuant to legislative decree 254/16, and acts as a separate report compared to this Directors’ report,
as provided for in Article 5, paragraph 3, letter b) of legislative decree 254/16. The Sustainability Report
also includes indicators and information relating to the environment, personnel and research and
development activities.
What follows is a summary of the main results reported in the 2022 Sustainability Report.
During 2022, further progress was made in CSV areas and as regards sustainability, both in terms of
results and recognitions obtained and new projects launched. Note, first and foremost, the process of
updating the Code of Ethics, begun in June and completed in December, which led to the approval of its
sixth edition by Hera Spa’s Board of Directors during the meeting held on 8 February 2023. This updating
process was the most participative seen since the introduction of the Code, involving management, all
employees, with a specific initiative dedicated to younger workers, and trade unions. The “corporate
purpose” introduced into Hera Spa’s Articles of Association in 2021 characterises the new edition of the
Code, which incorporates a commitment to a just ecological and digital transition, attention to the more
vulnerable customers, promotion of work and personal well-being and the importance of communication
and listening, even in critical moments.
Hera stock was included in 2022, for the third consecutive year, in the Dow Jones Sustainability Index,
World and Europe, with a score that confirms the Group as the best company in the “Multi and Water
Utilities” sector, and the Group achieved a top ranking internationally, for the second consecutive year,
in the ESG Evaluation carried out by S&P Global Ratings;
Creating shared value: CSV Ebitda rises to 670.3 million euro (51.8% of
total Ebitda); CSV investments come to 510.0 million euro (62.3% of
total investments)
The 2022 Sustainability Report consolidates its representation of content focused on creating shared
value. The achievements made and the targets set for the future are accompanied by a summary of the
scenario related to the three drivers for creating shared value:
(i) Energy - pursuing carbon neutrality;
(ii) The Environment - regenerating resources and closing the circle;
(iii) Local areas (and Businesses) - enabling resilience and innovating, to which an equal number
of chapters are dedicated, representing the most significant part of the report.
One of the strengths of the Group’s reporting is its quantification of shared value Ebitda (CSV Ebitda),
i.e. the portion of Ebitda that derives from business activities capable of meeting the objectives on the
Global Agenda, which refers to calls to action for sustainable growth (relevant to the Group’s activities)
summarised in the three drivers mentioned above.
In 2022, CSV Ebitda came to 670.3 million euro, corresponding to 51.8% of the Group’s total Ebitda.
2022 CSV Ebitda showed a 17% increase compared to the amount seen in 2021. 2022 CSV Ebitda was
thus in line with the path set out by the 2022-2026 Business Plan, which was designed so that
approximately 62% of 2026 Ebitda will come from business activities that meet the priorities on the Global
Agenda. The Group’s contribution to creating shared value also comes from the investments made in
the three CSV drivers, which in 2022 amounted to 510.0 million euro, roughly 62% of total investments,
including corporate acquisitions.
The Group’s quantification of shared-value Ebitda and investments for 2022 was audited for the fourth
consecutive year by an auditing firm, in order to confirm these distinctive aspects of the Group’s reporting
to all stakeholders.
1.06
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 81|
Pursuing carbon neutrality: -6.9% in energy consumption; 27.1% of contracts with energy
efficiency services; -11.7% greenhouse gas emissions
Hera pursues the carbon neutrality of its own activities and those of its customers by promoting energy
efficiency and projects in the area of the energy transition.
With regard to energy efficiency, note that:
▪ the initiatives included in the ISO 50001 energy improvement plans and already implemented by the
end of 2022 have made it possible to reduce energy consumption by more than 19 thousand tons of
oil equivalent (corresponding to the annual consumption of more than 13 thousand households),
equivalent to 6.9% of 2013 consumption, on the path towards the target set for 2026;
▪ at the end of 2022, gas and electricity contracts with energy efficiency solutions amounted to 27.1%
of total contracts and showed further growth compared to the previous year; initiatives to promote
energy efficiency among residential customers include the Consumption Log, a free report to raise
customer awareness of energy savings, based on the principles of behavioural economics, in addition
to the numerous offers with energy efficiency solutions that were further enhanced in 2022.
With regard to the energy transition and renewable energies, Hera continued to promote its carbon-
neutral commercial offer in 2022, achieving at the end of the year:
▪ an amount of electricity from renewable sources sold on the free market coming to 41.1% of total
electricity sold, not far from the 2026 target, set at 44%;
▪ an amount of methane gas with compensation for CO
2
emissions sold on the free market coming to
14.2%, rapidly increasing compared to the 2026 target set at 21%.
In 2022, the Group continued to promote the Hera Photovoltaic offer launched in 2021, which provides
for a “turnkey” installation of photovoltaic panels. During this same year, approximately 1,300 panels
were sold for a total capacity coming to roughly 7 MW.
Within the Group, note:
▪ further progression in the green profile of Hera’s own electricity consumption, which as of 2022 is
covered by 100% renewable energy;
▪ the production of 7.7 million cubic metres of biomethane and a new plant, operative as of December
2022 in Spilamberto (Modena), whose annual production is expected to come to 3.7 million cubic
metres;
▪ ongoing work on initiatives for the development of hydrogen and photovoltaics, including the
continuation, with positive results, of the first national trials for hydrogen injection into the gas network
for household use in Modena; the conclusion of the final design of a power-to-gas plant in Bologna,
closely integrated with the wastewater treatment process; the start of construction of the first of a
series of photovoltaic plants that will be built within the Group’s sites and which, added to those built
at external sites, will bring the Group’s own installed photovoltaic power to over 90 MW by 2026;
▪ over 50 million euro obtained in NRRP contributions for developing district heating in Bologna,
Ferrara and Forlì, through which the efficiency of the current energy sources used (waste-to-energy
plants in the case of Bologna and Forlì, geothermal energy in Ferrara) will be improved, with
significant benefits in terms of reducing carbon dioxide emissions.
Lastly, based on the third report drafted according to the Science Based Targets initiative methodology,
as mentioned above, the Group’s greenhouse gas emissions (scopes 1+2+3 from downstream electricity
and gas sales) saw an 11.7% reduction in 2022 (excluding the transitory increase in volumes sold in last
resort gas services), compared to the 2019 base year, which is within the path for the 2030 target
validated by SBTi. More specifically, 2022 saw reductions in scopes 1+2 (market-based) emissions and
carbon intensity of electricity sales (scope 3, upstream) coming to 17.5% and 21.0% respectively.
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Hera Group – Consolidated Financial Statements at 31 December 2022 83|
Regenerating resources and closing the circle: sorted waste at 67.8%; +17.5% of packaging
recycled; 7.3% purified wastewater reused; -20.5% in water consumption
Hera regenerates resources and closes the circle through initiatives and projects in three areas: (i)
transition towards a circular economy, (ii) sustainable management of water resources, (iii) protection of
air, soil and biodiversity.
With regard to the transition to a circular economy, 2022 saw sorted waste collection come to 67.8%, up
2.5 percentage points compared to 2021 (Italian 2021 average: 64%) and use of landfills for the disposal
of urban waste at 2.3% (European 2021 average: 23%). In this respect, Hera is almost 20 years ahead
of the EU target for the circular economy and ranks among the most virtuous European countries. In
October 2022, Hera published the thirteenth edition of its “Tracking Waste” report, verified by DNV, thus
providing citizens with a guarantee of the effective recovery of separate waste collection, which came to
91%. This report contains indications as to how the area served by Hera positions with respect to the
recycling targets set by the EU as part of the circular economy package: the overall recycling rate, where
Hera with 57% has already achieved the target set for 2025, and the packaging recycling rate, where the
Group with 68% is close to the target set for 2030.
Once again as regards the circular economy, 2022 saw:
▪ an 80.6% material and energy recovery rate in Herambiente Spa’s sorting plants, stable compared
to the previous year;
▪ a further improvement in the circularity profile of Hasi Srl and its subsidiaries, demonstrated by an
increase in the portion of managed waste sent for material and energy recovery, which went from
43.1% in 2021 to 48.6% in 2022;
▪ the quantity of plastics recycled by Aliplast coming to approximately 79.2 thousand tonnes, slightly
down compared to 2021 due to increased energy costs and lesser demand for recycled PET and the
ensuing shift of some large companies towards the use of virgin plastics. The figure for 2022 is
however 33% higher than in 2017, the baseline of the commitments made in the New Plastics
Economy Global Commitment, promoted by the Ellen MacArthur Foundation.
Regarding the sustainable management of water resources, the initiatives to preserve them were
significant, such as the internal water management project, which led to a 20.5% reduction in
consumption in 2022 (compared to the 2017 baseline), agreements with local authorities to make 7.3%
of the water coming out of purification plants reusable, and the Consumption Log, mentioned above,
which was distributed to about 35% of domestic water service customers.
As far as air protection is concerned, positive results were confirmed in relation to the environmental
performance of the Group’s WTE plants, which in 2022 as well recorded very low atmospheric emissions,
on average 86% lower than legal limits, and the Imola cogeneration plant, whose average PM10
concentrations were 99% lower than the limits. Finally, with regard to soil protection, note that from 2018
to 2022, the construction of infrastructures involved soil reuse coming to 78%.
Enabling resilience and innovating: 102.8 million euro invested in innovation and digitisation;
2.3 billion euro in economic value distributed to local areas; local suppliers account for 64.5%
of the total
Significant results were achieved by the Group in 2022 in the CSV areas related to economic growth and
employment in the areas served, social inclusion, innovation and digitalisation. Equally important were
the initiatives aimed at ensuring the resilience of its operations and therefore of the areas served.
The total added value distributed to local areas amounted to 2,324 million euro, or 76% of the total
economic value. The amount distributed to local suppliers came to 64.5% of the total, reaching 881
million (+9% compared to the previous year), while the induced employment is estimated at over 9
thousand people; these figures confirm the Group’s primary role in promoting growth in the local area.
With regard to induced employment, the employment of disadvantaged people (amounting to 899) as a
result of supplies and partnerships with social cooperatives is estimated at 82.3 million euro in 2022.
Once again concerning social inclusion, note the measures put in place by Hera and improving on those
defined by ARERA to support customers facing hardship in coping with rising energy prices: the number
of bills paid by instalments increased by 36% compared to 2021 and the memoranda of understanding
in place with the 135 municipalities served made it possible to prevent suspension of supplies to
customers assisted by social services in 58% of cases. All the measures and advice for dealing with the
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Hera Group – Consolidated Financial Statements at 31 December 2022 84|
energy crisis have been summarised in SOStegno Energia, an online guide that supplements the existing
SOStegno Hera guide summarising the tools available to customers facing financial difficulty.
In the area of innovation, investments amounting to 102.8 million euro were related to initiatives in two
areas: ecological transition and digital transformation. With regard to digital transformation, the 2022
Sustainability Report confirms reporting for 20 projects, as introduced for the first time in the 2020 Annual
Report, concerning objectives, results and impacts based on the framework of Corporate digital
responsibility, defined as the set of practices and behaviours that help an organisation use data and
digital technologies in an ethical and responsible manner, from a social, environmental, economic and
technological point of view.
In 2022, the effort to develop digital channels for customer relations continued, with customers registered
for online services rising to 29.4% and those who requested electronic billing coming to 34.5%. The
Group’s engagement in this area, combined with its focus on local communities, continued in 2022 with
the fourth edition of the campaign to promote electronic billing and customers’ digital behaviour, called
Digi e Lode, through which the Group from 2017 to 2022 donated 565 thousand euro for the digitalisation
of 226 schools.
As regards climate change resilience, the Group made investments coming to approximately 62.1 million
euro in 2022. In this area, note:
▪ the continued work on upgrading the electricity distribution grid in the Modena Apennines: the amount
of network upgraded at the end of 2022 rose to 38 kilometers, equivalent to 57% of the overall
resilience plan defined;
▪ a 14% increase in remote-controlled plants, which went from 7.9 thousand in 2021 to 9 thousand in
2022;
▪ the planning and construction, in the aqueduct, of numerous interventions in the Triveneto and Emilia
Romagna regions to mitigate drought risk, including aqueduct interconnections, optimization of
catchment and intake pipes, and new wells and reservoirs; these interventions came in addition to
development of predictive algorithms and the use of innovative technologies to support leakage
detection; the district-based network for effective leakage monitoring increased from 48% in 2021 to
51% in 2022.
The results achieved in terms of creating shared value came alongside those in the following areas,
which complete the Group’s sustainability profile and are reported in the “Alongside the protagonists of
change” section of the Sustainability Report.
Thanks to awareness-raising programmes and the adoption of ISO 45001 certification, which covers
88% of the Group’s workers, the accident frequency rate remained more or less stable (10.5 in 2022)
and was 48% lower than the sector average, reported by Utilitalia. A further drop was seen in the
frequency rate for manual labourers, which came to 21.8 in 2022 (vs 22.9 in 2021 and 30.5 in 2020). In
2022, workers received more than 6.6 million euro through the Hextra welfare system, to which 99% of
employees adhered. The amount of training remains high: in 2022, there were 30.8 average hours of
training per capita, in line with 2021, and the role of sustainability objectives in the balanced scorecard
system linked to the incentive system involving management remained significant: in 2022, 37% of the
variable remuneration of Group executives and middle managers was linked to sustainability target
projects, with 24% of sustainability target projects geared towards creating shared value.
In 2022, an overall increase was seen in call centre contacts (+25%, over 1.7 million more calls), which
had an impact on waiting times. This was mainly due to the turbulence that occurred in the energy
markets in the second half of the year and the resulting impact on bills, which prompted customers to
contact the company for clarification and support. There was therefore an increase in the average
conversation time required to provide adequate advice to customers, especially concerning payment by
instalment options, social bonuses and energy saving opportunities. The average waiting time at call
centres for residential customers thus increased from 32 seconds in 2021 to 93 in 2022. The corporate
segment also saw an increase in calls to call centres in 2022 (+34%), which affected the average waiting
time, which stood at 112 seconds. In 2022, Hera Group help desks handled inflows that increased by
17%, due to both the reasons described above and a return to face-to-face contacts compared to
previous years. As a result, average waiting times increased slightly, going from 6 minutes in 2021 to 9
minutes in 2022.
The survey conducted in 2022 on the quality of services provided by the Group (approximately 9,950
interviews conducted with household customers) recorded a customer satisfaction rate coming to 72/100,
down one point from the previous year, but still above 70/100, corresponding to high satisfaction.
When selecting suppliers in 2022, the Group used the most economically advantageous bid method for
95% of public tenders and 68% of overall tenders (in terms of value). Considering overall tenders, the
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Hera Group – Consolidated Financial Statements at 31 December 2022 85|
SR
average score reserved for social and environmental factors came to 39/100. The “circular procurement”
project also continued in 2022, with the application of the appropriate guidelines and the identification of
technical criteria providing an advantage in tenders: eco-efficiency, dematerialisation, renewability and
recyclability. As in previous years, in 2022 circularity criteria were included in over 82% of tenders carried
out with the most economically advantageous bid method, with an average score of 13.2. Supplier
monitoring focused on social responsibility towards workers also continued in 2022, as did monitoring of
accidents, which involved 83% (in terms of commissioned value) of suppliers of services and works.
Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)
The recommendations of the Task Force on Climate-related financial disclosures (TCFD) came after its
establishment as a result of the 2015 Paris Agreement, in which the member states of the United Nations
committed to keeping the global average temperature increase below 2°C compared to pre-industrial
levels and if possible limiting the increase to 1.5°C by the end of the 21
st
century. During the same year,
the G20 Financial Stability Board created the TCFD, with the aim of facilitating transparency on the
financial opportunities and risks associated with climate change. In 2017, the TCFD published the
reporting recommendations mentioned above, which are now an international benchmark for climate
change disclosure by companies. The TCFD’s recommendations are applicable to organisations across
all sectors and are categorised according to four areas: governance, strategy, risk management and
metrics & targets.
The Group began its path towards alignment with the TCFD’s recommendations in 2020, and this
ongoing process has been defined according to three main steps:
▪ establishing of a dedicated cross-departmental working group;
▪ carrying out an in-depth analysis of the gaps in the reporting system and the way in which the Hera
Group deals with climate opportunities and risks with respect to the recommendations;
▪ defining a work plan to gradually increase the degree of alignment with the TCFD’s
recommendations, the results of which can be seen in this consolidated report and in the 2022
Sustainability Report, which can be consulted for an exhaustive illustration of the four thematic
reporting areas (see the dedicated section “Hera for the climate”).
The European taxonomy of environmentally sustainable activities
The EU Taxonomy is a unique EU-wide classification system introduced with Regulation 2020/852, which
establishes a list of environmentally sustainable economic activities. This is a classification tool provided
for in the Action plan on sustainable finance, aimed at supporting the EU in increasing sustainable
investments and implementing the Green Deal.
Following the recommendations of Delegated Regulation 2021/2178, which introduces disclosure
requirements for information linked to the taxonomy in NFS, a multi-step process was developed in 2021
to analyse the Taxonomy’s applicability along the entire value chain, taking into account all of the Group’s
consolidated companies. This process was focused exclusively on climate change mitigation and
adaptation targets, for which Delegated Regulation 2021/2139 set out a list of activities that contribute
substantially to these objectives, and a list of technical screening criteria that these activities must meet
in order to be classified as environmentally sustainable. It thus became possible to go beyond the
disclosure requirements established for the 2021 NFS and to quantify and report on the economic KPIs
(turnover, opex and capex) of the activities managed by the Hera Group that are eligible for the
taxonomy, i.e. activities included in the list envisaged in Regulation 2139, as well as those aligned with
the taxonomy, i.e. activities that meet the technical screening criteria, as regards the mitigation target. In
addition, the economic KPIs were supplemented with Ebitda coming from activities aligned with the
taxonomy (which therefore accompanies and complements CSV Ebitda), and the amount of investments
in those activities has been introduced in the Business Plan.
In 2022, this process continued by refining and updating the analysis of the technical screening criteria,
by preparing the reporting in greater detail required for the current year and with an in-depth study of the
complementary delegated act 2022/1214, which introduced certain nuclear and fossil gas energy
production activities in the list of eligible economic activities, by defining the technical screening criteria
for their alignment.
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Hera Group – Consolidated Financial Statements at 31 December 2022 86|
SR
Once again with reference to the EU Taxonomy, note that in May 2022 Hera issued its third green bond,
with a total amount of 500 million euro repayable over seven years, aimed at financing or refinancing
numerous investments selected on the basis of the Group’s Green Financing Framework, which was
aligned with the principles underlying the Taxonomy in 2022.
Please refer to the sustainability report for an exhaustive discussion of the topics.
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Hera Group – Consolidated Financial Statements at 31 December 2022 87|
ANALYSIS BY BUSINESS AREA
An analysis of the operating results achieved in the Group’s business areas is provided below, including:
the gas area, which covers services in natural gas distribution and sales, district heating and heat
management; the electricity area, which covers services in generation, distribution and sales; the
integrated water cycle area, which covers aqueduct, purification and sewerage services; the waste
management area, which covers services in waste collection, treatment and recovery; the other services
area, which covers services in public lighting and telecommunications, as well as other minor services.
EBITDA * DECEMBER 2022
The Group’s income statements include corporate headquarter costs and account for intercompany
transactions at arm’s length.
The following analyses of each single business area take into account all increased revenues and costs,
having no impact on adjusted Ebitda, related to the application of IFRIC 12. The business areas affected
by this accounting standard are: natural gas distribution services, electricity distribution services, all
integrated water cycle services and public lighting services.
The value of adjusted Ebitda, broken down by strategic business areas, reflects the adjustment to the
valuation of gas storage described in the introduction to paragraph 1.04. For a detailed identification of
the effects of this adjustment, the values of Adjusted Ebitda and Ebitda are provided below:
Dec 22
Dec 21 (redetermined)
(mn€)
Ebitda *
Ebitda
Ebitda *
Ebitda
Gas Area
585.1
491.1
483.2
487.6
Electricity Area
71.6
71.6
144.7
144.7
Integrated water cycle Area
261.9
261.9
262.4
262.4
Waste management Area
338.0
338.0
291.7
291.7
Other services Area
38.4
38.4
37.4
37.4
Total
1,295.0
1,200.9
1,219.4
1,223.9
* refers to the adjusted results as mentioned in chapter 1.04
A multi-business
strategy
.
1.07
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Hera Group – Consolidated Financial Statements at 31 December 2022 88|
Gas
Significant growth was seen in 2022 compared to 2021, both in terms of volumes sold and end
customers, thanks to the opportunities provided in the Energy Services segment by energy efficiency
incentives, the 110% super-bonus and insulation bonus, the corporate acquisition of Con Energia Spa
and the awarding of tenders related to the markets of last resort and Consip. In particular, Hera Comm
Spa was awarded the following lots nationwide:
▪ six of the nine lots of the last resort gas service (for customers involved in public services or without
a supplier) for the period from 1 October 2021 - 30 September 2023 in: Valle d’Aosta, Piedmont,
Liguria, Trentino A.A., Veneto, Friuli-Venezia Giulia, Emilia-Romagna, Tuscany, Umbria, Marche,
Lazio and Campania. In the previous tender, Hera Comm was awarded eight out of nine lots;
▪ all nine lots of the default gas distribution service (for customers in arrears), for the period 1 October
2021 - 30 September 2023 in: Valle d'Aosta, Piedmont, Liguria, Lombardy, Trentino A.A., Veneto,
Friuli-Venezia Giulia, Emilia-Romagna, Tuscany, Umbria, Marche, Abruzzo, Molise, Basilicata,
Puglia, Lazio, Campania, Sicily and Calabria. In the previous tender, Hera Comm was awarded five
out of nine lots;
▪ two of the 12 lots of the Consip GAS14 tender for supplying natural gas to public administrations in
2022, both in Lombardy.
EBITDA* GAS AREA 2022 EBITDA* GAS AREA 2021
The following table shows the changes occurred in terms of adjusted Ebitda:
(mn€)
Dec 22
Dec 21
(redetermined)
Abs. change
% change
Area Ebitda*
585.1
483.2
101.9
+21.1%
Group Ebitda*
1,295.0
1,219.4
75.6
+6.2%
Percentage weight
45.2%
39.6%
+5.6 p.p.
* refers to the adjusted results as mentioned in chapter 1.04
Ebitda rises
585.1 mn€
45.2%
483.2 mn€
39.6%
1.07.01
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Hera Group – Consolidated Financial Statements at 31 December 2022 89|
CUSTOMERS (k)
The number of gas customers increased by 21.4 thousand, or 1.0%, compared to the previous year. This
growth can be seen mainly in the markets of last resort where the customer base, as a result of the
tenders for the 2021-2023 period, increased by 59.8 thousand. Traditional markets are down by -38.3
thousand, despite the positive contribution made by the entrance of Con Energia into the Group’s scope
of operations.
VOLUMES SOLD (mn/m3)
Total volumes of gas sold decreased by 3,120.5 million m
3
, or 19.2%, due to reduced trading (-3,251.1
million m
3
), limited by the high prices seen during most of 2022. Volumes sold to end customers
increased by 130.6 million m
3
, or 3.8%, as compared to the same period of the previous year. This growth
was due to last resort markets, coming to 296.6 million m
3
, or +157.5% (8.6% of total volumes sold),
thanks to the positive outcome of the new tenders mentioned above, partially contained by traditional
markets, coming to 166.0 million m
3
, or -5.1% (-4.8% of total volumes sold). The latter were affected by
both a less favorable climate, with average temperatures higher than the previous year, and lesser
consumption, mainly involving the measures taken by the industrial sector and changing habits in the
household sector, as a result of the high cost of energy commodities.
13.1
Billion m3
sold
(-19.2%)
2.1
million
gas
customers
(+1.0%)
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Hera Group – Consolidated Financial Statements at 31 December 2022 90|
The following table summarises operating results for the gas area:
Income statement (mn€)
Dec 22
% inc.
Dec 21
(redetermined)
% inc.
Abs. change
% change
Revenues
13,483.6
5,969.0
7,514.6
+125.9%
Operating costs
(12,780.4)
(94.8)%
(5,377.5)
(90.1)%
7,402.9
+137.7%
Personnel costs
(134.4)
(1.0)%
(126.9)
(2.1)%
7.5
+5.9%
Capitalised costs
16.4
+0.1%
18.6
0.3%
(2.2)
(11.8)%
Ebitda *
585.1
4.3%
483.2
8.1%
101.9
+21.1%
* refers to the adjusted results as mentioned in chapter 1.04
REVENUES (mn€)
Revenues increased by 7,514.6 million euro, nearly triple those of the previous year. The reasons mainly
lie in the increased price of the raw material gas, which began rising in October 2021. This trend
generated higher revenues in trading coming to 4,973 million euro and in sales coming to 2,388 million
euro. The CMEM tariff component, which in the protected market represents trends in the cost of raw
materials, more than tripled on average compared to the previous year.
Higher revenues were related to the increase in volumes sold in the amount of 58 million euro, due to
the new lots won in the tenders mentioned above, the change in the scope of Con Energia Spa in the
amount of 26 million euro, and the Energy Services business area in the amount of 273 million euro,
thanks to activities related to energy efficiency, insulation incentives and the 110% super-bonus.
In addition, increased revenues from activities in Bulgaria came to 38 million euro.
Also note the higher revenues from energy efficiency certificates amounting to 60 million euro compared
with the previous year, limited by a decrease in the number of energy efficiency certificates as per
obligations for 2020 and 2021 specified by the 21 May 2021 Ministerial Decree.
This growth was contained by lower revenues mainly related to system charges, with an equal effect on
costs, amounting to 414 million euro, as a result of Resolutions 635/2021/R/com, 35/2022/R/eel,
141/2022/R/com, 295/2022/R/com. As of 2021, the government has progressively reinforced the
extraordinary measures to contain the effects of raw material price increases, with significant impacts on
general system charges, which have progressively decreased since the fourth quarter of 2021.
Regulated revenues were substantially in line with the previous year. From a regulatory point of view,
through Resolution 614/2021/R/com, published in late 2021, ARERA adjusted the criteria for determining
13.48
billion euro
revenues
(+125.9%)
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Hera Group – Consolidated Financial Statements at 31 December 2022 91|
and updating the rate of return on invested capital (WACC) by reducing it from 6.3% in 2021 to 5.6% in
2022. This reduction was offset by increased investments and their remuneration as part of tariffs and
higher premium revenues obtained thanks to security recoveries (Resolution 383/2022/R/gas).
This increase in revenues was proportionally reflected by growth in operating expenses, which increased
by 7,402.9 million euro overall. This trend was mainly due to the increase in raw material gas prices
mentioned above, including the higher costs for energy efficiency certificates, and increased activity in
the area of Energy Services.
EBITDA* (mn€)
* refers to the adjusted results as mentioned in chapter 1.04
Adjusted Ebitda increased by 101.9 million euro, or 21.1%, mainly due to higher sales and brokerage
activities, with a contribution amounting to approximately 80.3 million euro, mainly due to the enlargement
of the scope of areas served as a result of last resort markets, as mentioned above. The remaining
growth was related to incentivized energy efficiency activities and district heating.
585.1
million euro
Ebitda*
(+21.1%)
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Hera Group – Consolidated Financial Statements at 31 December 2022 92|
NET INVESTMENTS GAS (mn€)
Net investments in the gas area amounted to 156.0 million euro in 2022, up 15.4 million euro compared
to the previous year. In gas distribution, the overall increase came to 12.3 million euro, mainly due to
non-recurring maintenance on networks and plants, which was up compared to the previous year, even
considering the lower effect of the large-scale meter replacement pursuant to Resolution 554/15, relating
to the commissioning of smart gas meters. In gas sales, investments coming to 13.3 million euro were
recorded for activities related to the acquisition of new customers, up by 3.1 million euro compared to
the previous year. Investments were largely in line with the previous year in district heating and heat
management services, with a decrease in district heating by Hera Spa that offsets the increase in energy
services in the activities of the companies Hera Servizi Energia Srl and AcegasApsAmga Servizi
Energetici Spa. Requests for new connections were also up compared to the previous year.
Details of operating investments in the gas area are as follows:
Gas (mn€)
Dec 22
Dec 21
Abs. change
% change
Networks and plants
116.2
103.9
12.3
+11.8%
Acquisition gas customers
13.3
10.2
3.1
+30.4%
DH/heat management
27.2
27.1
0.1
+0.4%
Total gas gross
156.7
141.3
15.4
+10.9%
Capital grants
0.7
0.7
‐
+0.0%
Total gas net
156.0
140.6
15.4
+11.0%
The Regulatory asset base (RAB) for assets owned in the gas area, which defines the value of the assets
recognised by the Authority as regards return on invested capital, increased compared to 2021.
RAB (BN€)
156.0
million euro
net
investments
gas
1.07
billion euro
2022 RAB
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Hera Group – Consolidated Financial Statements at 31 December 2022 93|
Electricity
At the end of 2022, the result was lower than in 2021, mainly due to the different conditions of energy
markets, related to the exceptional context of rising raw material prices, which affected procurement
activities, and a lower contribution from production due to reduced use of the dispatching services
market. However, there is evidence of solid business development, which is confirmed by the growth in
customers, mainly in the free market, and the number of sign-ups for innovative offerings (related to
electric mobility, photovoltaics, heating and air conditioning) and value-added services. In addition, Hera
Comm Spa was awarded the following lots nationwide:
▪ four of the eighteen lots of the Consip GAS19 tender for supplying electricity to public administrations
in 2022, in the Provinces of Rome, Campania, Calabria and Sicily. In the previous tender, Hera Comm
was not awarded any lots;
▪ three of the nine lots of the gradual protection service for supplying electricity to public administrations
for the period from 1 July 2021 to 30 June 2024, in Campania, Marche, Umbria, Abruzzo, Molise,
Basilicata, Calabria, Sicily and Sardinia;
▪ one of the nine lots of the safeguarded market for the years 2021 and 2022 in Campania, Abruzzo
and Umbria, compared to seven lots in the previous two years.
EBITDA ELECTRICITY AREA 2022 EBITDA ELECTRICITY AREA 2021
The following table shows the changes occurred in terms of Ebitda:
(mn€)
Dec 22
Dec 21
(redetermined)
Abs. change
% change
Area Ebitda
71.6
144.7
(73.1)
(50.5)%
Group Ebitda*
1,295.0
1,219.4
75.6
6.2%
Percentage weight
5.5%
11.9%
(6.4) pp
* refers to the adjusted results as mentioned in chapter 1.04
144.7 mn€
11.9%
71.6 mn€
5.5%
1.07.02
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Hera Group – Consolidated Financial Statements at 31 December 2022 94|
CUSTOMERS (K)
The number of electricity customers increased by 3.4% (up 48.0 thousand) compared to the same period
in 2021. This growth occurred mainly on the free market (+4.6%, amounting to +4.1% of the total) due to
the reinforced commercial action implemented in the amount of approximately 58.1 thousand customers.
The safeguard market was also up by 2,900 (+16.2%, or +0.2% of the total) compared to the same period
of the previous year. These effects largely succeeded in offsetting the decline, coming to approximately
13 thousand customers (-12.1%, or -0.9% of the total), that occurred in the safeguarded market.
There was a significant increase in sales of value-added services, with around 95.9 thousand customers
requesting these services, with a 29% increase compared to the previous year, demonstrating the
increasing loyalty of the customer base.
VOLUMES SOLD (GWh)
Volumes of electricity sold increased by 482.3 GWh, or 4.1%, compared to the same period of the
previous year. This trend was caused by the increase in volumes sold in the traditional markets in the
amount of 340.2 GWh (2.9% of the total), from 11,042.8 GWh in 2021 to 11,383.0 GWh in 2022, mainly
driven by the free market, which was partially offset by a slight decrease in the safeguarded market.
There was an increase of 142.1 GWh or 1.2% in the safeguarded market as compared to the total.
1.4
million
electricity
customers
(+3.4%)
12.2
TWh
Sold
(+4.1%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 95|
The following table summarises operating results for the electricity area:
Income statement (mn€)
Dec 22
% inc.
Dec 21
% inc.
Abs. change
% change
Revenues
5,042.7
3,024.6
2,018.1
66.7%
Operating costs
(4,950.9)
(98.2)%
(2,846.8)
(94.1)%
2,104.1
73.9%
Personnel costs
(44.0)
(0.9)%
(47.0)
(1.6)%
(3.0)
(6.4)%
Capitalised costs
23.7
0.5%
13.8
0.5%
9.9
71.6%
Ebitda
71.6
1.4%
144.7
4.8%
(73.1)
(50.5)%
REVENUES (mn€)
Revenues increased by 2,018.1 million euro, approximately double those of the previous year. This trend
is mainly related to the higher price of the raw material amounting to approximately 2,292 million euro,
resulting from the growth of the average value of SNP (single national price) seen in 2022.
In addition, higher power generation revenues came to 108 million euro and higher revenues for value-
added services for customers totalled 30 million euro.
Lastly, higher volumes sold and trading activities registered a growth of 79 million euro.
This growth was contained by lower revenues mainly related to system charges, with an equal effect on
to costs, coming to 503 million euro, following Resolutions 635/2021/R/com, 35/2022/R/eel,
141/2022/R/com, 295/2022/R/com and 462/2022/R/com. Starting in 2021, the government progressively
reinforced its extraordinary measures to contain the effects of raw material price increases, with
significant impacts on general system charges, which progressively decreased since the third quarter of
2021.
Adjusted revenues were substantially in line with the previous year. From a regulatory point of view,
through Resolution 614/2021/R/com, published in late 2021, ARERA adjusted the criteria for determining
and updating the rate of return on invested capital (WACC), reducing it from 5.9% in 2021 to 5.2% in
2022. This reduction was wholly offset by increased investments and their remuneration in tariffs.
The increase in revenue was reflected more than proportionally by operating costs, which rose by 2,104.1
million euro. This trend is mainly due to the increase in raw material prices that impacts on the sales and
production activities mentioned above.
5.0
billion euro
revenues
(+66.7%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 96|
EBITDA (MN€)
Ebitda declined by 73.1 million euro compared to 2021, or 50.5%, mainly due to lower margins on sales
activities amounting to 67.1 million euro, related to complex modulation activities, in a year which saw
particular increases and volatility in raw material prices. This is compounded by a 15.8 million euro
decline in the generation business, mainly due to fewer requests in the dispatching services market.
Value-added services activities are up in the amount of 8.4 million euro.
In the electricity area, 2022 investments amounted to 78.3 million euro, up 23.0 million euro compared
to the previous year.
The interventions carried out mainly concerned non-recurring maintenance on distribution plants and
networks in the Modena, Imola, Trieste and Gorizia areas.
Compared to the previous year, a 18.0 million euro increase was seen in electricity distribution, mainly
due to more extraordinary maintenance and strengthening of networks and plants and ongoing large-
scale meter replacement activities, as well as measures to improve the resilience of the network. In
energy sales, investments coming to 5.0 million euro were recorded for activities related to the acquisition
of new customers. Requests for new connections increased slightly compared to the previous year.
NET INVESTMENTS ELECTRICITY (mn€)
78.3
million euro
net investments
electricity
71.6
million euro
Ebitda
(-50.5%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 97|
Operating investments in the electricity area were as follows:
Electricity (mn€)
Dec 22
Dec 21
Abs. change
% change
Networks and plants
54.1
36.1
18.0
+49.9%
Acquisition electricity customers
24.2
19.2
5.0
+26.0%
Total electricity gross
78.3
55.3
23.0
+41.6%
Capital grants
‐
‐
‐
+0.0%
Total electricity net
78.3
55.3
23.0
+41.6%
RAB, which defines the value of the assets recognised by the Authority as regards return on invested
capital, increased compared to 2021.
RAB (bn€)
Integrated water cycle
In 2022, results for the integrated water cycle area were largely in line with the previous year, with Ebitda
coming to 261.9 million euro. The result is particularly positive because it shows that the Hera Group
was able to offset the reduction in WACC with the Technical bonuses awarded for the excellence of the
service provided to citizens.
On this matter, note that during 2022, the regulatory authority ARERA published via Resolution
183/2022/R/idr the results related to the incentive mechanism in the regulation of Technical Quality
established by Resolution 917/2017 for the years 2018 and 2019. Each of the water service operators
was analysed and ranked with respect to the following 6 macro-indicators: water leakage, service
interruptions, quality of water delivered, adequacy of sewage system, quality of purified water, and sludge
disposal. With reference to the level of Technical Quality excellence that identifies and rewards the top
three positions nationwide considering all the macro-indicators mentioned above, Hera Group was
awarded the second and third rankings for the year 2018, and in 2019 it was awarded the first, second
and third rankings in the overall ranking of Italian utilities, proof of the very high quality standards adopted
by the Group in managing the service it provides.
As regards regulations, note that 2022 was the third year in which the tariff method defined by the
Authority for the third regulatory period (Mti-3), 2020-2023 (resolution 580/2019), was applied. A revenue
(VRG) is assigned to each operator, defined on the basis of operating costs and capital costs, according
to the investments made, with a view to increasing efficiency in costs, in addition to measures intended
to promote and valorise interventions for sustainability and resilience. Finally, following ARERA’s
Resolution 639/2021/R/idr, note the reduction in remuneration of invested capital (WACC) from 5.24%
to 4.8%.
Finally, with regard to concessions, note that ATERSIR, as an outcome of the specific tender, definitively
awarded Hera the integrated water service in the Province of Rimini, excluding the Municipality of Maiolo,
for the years 2022-2039. The Hera Group, already the outgoing operator in the 24 municipalities, will
maintain ownership of the service for the next 18 years, and will manage it under the principles of
sustainability and innovation.
2021
2022
0,371
0,375
0.375
billion euro
2022 RAB
Results largely
unchanged in
2022
1.07.03
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 98|
EBITDA WATER CYCLE 2022 EBITDA WATER CYCLE 2021
The following table shows the changes occurred in terms of Ebitda:
(mn€)
Dec 22
Dec 21
(redetermined)
Abs. change
% change
Area Ebitda
261.9
262.4
(0.5)
+(0.2)%
Group Ebitda*
1,295.0
1,219.4
75.6
+6.2%
Percentage weight
20.2%
21.5%
+(1.3) pp
* refers to the adjusted results as mentioned in chapter 1.04
CUSTOMERS (K)
The number of water customers increased by 5.3 thousand over 2021, or 0.4%, confirming the moderate
trend of internal growth in the Group’s reference areas. The Emilia-Romagna area managed by Hera
Spa accounted for 76% of this growth, while the area served by AcegasApsAmga Spa accounted for
13% and the remainder involved the area served by the Marche Multiservizi Spa Group.
261.9
mn€
20.2%
262.4
mn€
21.5%
1.5
million
Integrated
water cycle
customers
(+0.4%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 99|
The main indicators for the area are as follows:
AMOUNT MANAGED 2022 (mn/m3) AMOUNT MANAGED 2022 (mn/m3)
The volumes supplied through the aqueduct, which amounted to 289.3 million m3, decreased by 0.8%
compared to December 2021, amounting to 2.2 million m3. In December 2022, the quantities managed
relating to sewerage amounted to 238.1 million m3, down 0.2% compared to the previous year, while
purification volumes amounted to 237.6 million m3, an increase of 1.1% compared to 2021. The volumes
supplied, following the Authority’s resolution 580/2019, are an indicator of the activity of the areas in
which the Group operates and are subject to equalisation, owing to legislation that provides for a
regulated revenue, recognised independently from volumes distributed.
ELECTRICITY CONSUMED (GWh)
Electricity consumed in plants decreased by 6.9 GWh. This decrease is related mainly to the Group's
commitment to increasingly efficient and prudent management of energy resources, carried out by
implementing innovative measures in plants.
289.3 million
m3: amount
managed in the
aqueduct
355.9
GWh
electricity
consumed in
plants (-1.9%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 100|
The following table summarises operating results for the water cycle area:
Income statement (mn€)
Dec 22
% inc.
Dec 21
% inc.
Abs. change
% change
Revenues
1,052.6
964.7
87.9
+9.1%
Operating costs
(611.9)
(58.1)%
(521.3)
(54.0)%
90.6
+17.4%
Personnel costs
(185.6)
(17.6)%
(185.9)
(19.3)%
(0.3)
+(0.2)%
Capitalised costs
6.7
0.6%
4.9
0.5%
1.8
+36.9%
Ebitda
261.9
24.9%
262.4
27.2%
(0.5)
+(0.2)%
REVENUES (mn€)
The growth in revenues was related, for a total amount of 59.0 million euro, to higher regulated revenues.
This increase is due in the amount of 12.6 million euro to the excellent performance the Group achieved
in terms of Technical Quality in managing the Integrated Water Service. The remainder of the growth in
tariff revenues is due to equalizable tariff components, particularly electricity, and is contained by the
reduction in the return on capital employed (WACC) and the continuous and progressive increase in
inflation.
Lastly, note the approximately 28.1 million euro of higher revenues for contracts and works on behalf of
third parties carried out up to December 2022.
The increase in operating costs as of December 2022 was mainly impacted by the current energy
scenario, with energy commodity prices rising sharply as compared to the previous year, and rising prices
for all major supplies of materials and services. The above-mentioned effects resulted in higher costs for
a total of 62.8 million euro. The last point to note is the higher costs related to the completed works
described above, under revenues, for a total of 28.1 million euro.
878.6
911.9
883.6
964.7
1,052.6
2018 2019 2020 2021 2022
1,052.6
million euro
revenues
(+9.1%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 101|
EBITDA (mn€)
Ebitda was broadly in line with the previous year, declining slightly by 0.2% or 0.5 million euro. Higher
procurement costs for energy components and an increase in network and plant operating costs due in
part to higher prices for material and service suppliers were nearly offset by recognition of the Hera
Group’s commitment to the highest possible standards of technical quality.
In 2022, net investments in the integrated water cycle area amounted to 188.1 million euro, up 19.1
million euro compared to the previous year. Including the capital grants received, investments totalled
208.0 million euro, up 13.4 million euro.
These investments mainly involved extensions, reclamations and improvements to networks and plants,
as well as regulatory upgrading, especially in the water and sewerage area.
Investments amounted to 126.8 million euro in the aqueduct, 45.5 million euro in sewerage and 35.6
million euro in purification.
NET INVESTMENTS WATER CYCLE (mn€)
The main interventions included: in the aqueduct, continued remediation work on networks and
connections related to ARERA Resolution 917/2017 on the regulation of the technical quality of the
integrated water service, including the early implementation of specific renewal and upgrade measures
aimed at countering the risks of water shortages related to the particular drought conditions that are
becoming increasingly frequent, such as the construction of hydraulic connections capable of expanding
188.1
million euro
net
investments
water cycle
(+19.1)
261.9
million euro
Ebitda
(-0.2%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 102|
the interconnections of water systems. Major maintenance continued on the intake works for the Setta
stream serving the Sasso Marconi drinking water treatment plant, along with work to reduce interference
between the water network and the suburban railway line in the municipality of Ferrara, as well as the
upgrading of water networks in other areas served and the large-scale replacement of meters. In
sewerage, in addition to continuing to implement the Rimini seawater safety plan (PSB), maintenance
work was carried out to upgrade the sewerage network in other areas served along with work to update
drains to comply with Regional Decree no. 201/2016. In purification, worthy of note were the upgrades
to the Lido di Classe purification plant, the revamping of the anaerobic digestion system at the Gramicia
purification plant in Ferrara, the installation of centrifuges at the Savignano purification plant, and the
work carried out on the San Giovanni in Persiceto purification plant. Requests for new water and
sewerage connections increased slightly compared to the previous year. Capital grants, amounting to
19.8 million euro, are down by 5.8 million euro and include 17.4 million euro deriving from the tariff
component of the tariff method for the New Investments Fund (FoNI).
Details of operating investments in the integrated water cycle area are as follows:
Integrated water cycle (mn€)
Dec 22
Dec 21
Abs. change
% change
Aqueduct
126.8
113.5
13.3
+11.7%
Purification
35.6
36.1
(0.5)
+(1.4)%
Sewerage
45.5
45.0
0.5
+1.1%
Total integrated water cycle gross
208.0
194.6
13.4
+6.9%
Capital grants
19.8
25.6
(5.8)
+(22.7)%
of which FoNI (New Investments Fund)
17.4
16.8
0.6
+3.6%
Total integrated water cycle net
188.1
169.0
19.1
+11.3%
RAB, which defines the value of the assets recognised by the Authority as regards return on invested
capital, increased compared to 2021.
RAB (bn€)
Waste management
In 2022, the waste management area accounted for 26.1% of the Hera Group’s overall Ebitda, with this
area’s Ebitda up by 46.3 million euro compared to the previous year. In 2022, therefore, the Group
continued to ensure a significant level of growth, facilitated by geographic expansion and sound
management and business policies, despite the current challenging economic and geopolitical
environment. In Italy, in fact, the progressive and persistent increase in inflation, energy costs and
difficulties in sourcing raw materials led to a slowdown in production in many manufacturing sectors
during 2022, with repercussions in the production of waste as well.
In the markets covered by the Group, Herambiente’s leadership was consolidated in particular in the
industry market with the signing at the end of 2022 of an agreement to acquire, in 2023, 60% of the
company A.C.R. di Reggiani Albertino Spa, one of the largest Italian companies operating in the field of
reclamation, industrial waste treatment, the decommissioning of industrial plants, and civil works related
to the oil and gas sector.
1.74
billion euro
2022 RAB
Ebitda rises
1.07.04
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 103|
All the main circular economy initiatives, from material recovery to renewable energy production, also
continued during 2022. As part of the Ministry for the Environment and Energy Security’s “Lighthouse”
series of circular economy projects, the Group was also awarded PNRR grants to build platforms catering
to material recovery. In particular, two of these projects are absolutely innovative at the European level,
not only technologically but also by virtue of the strategic relevance of the materials involved: namely,
the carbon fibre regeneration plant that will be built in Imola (BO) and the rigid plastics recovery plant
that will be located in Modena.
Protecting environmental resources has been confirmed as a priority objective in 2022, along with
maximizing their reuse; this is also demonstrated by the special attention the Groups has devoted to
developing sorted waste collection. Thanks to the Group's substantial commitment to this area in all the
areas it manages, sorted waste collection increased by more than two percentage points as compared
to 2021 figures.
EBITDA WASTE MANAGEMENT AREA 2022 EBITDA WASTE MANAGEMENT AREA 2021
The following table shows the changes occurred in terms of Ebitda:
(mn€)
Dec 22
Dec 21
(redetermined)
Abs. change
% change
Area Ebitda
338.0
291.7
46.3
+15.9%
Group Ebitda*
1,295.0
1,219.4
75.6
+6.2%
Percentage weight
26.1%
23.9%
+2.2 p.p.
* refers to the adjusted results as mentioned in chapter 1.04
Volumes marketed and treated by the Group in 2022 are as follows:
Quantity (k tons)
Dec 22
Dec 21
Abs. change
% change
Municipal waste
2,207.1
2,241.8
(34.7)
(1.5)%
Market waste
2,554.2
2,334.3
219.9
+9.4%
Waste commercialised
4,761.2
4,576.1
185.1
+4.0%
Plant by-products
2,161.7
2,200.5
(38.8)
(1.8)%
Waste treated by type
6,922.9
6,776.6
146.3
+2.2%
An analysis of this data shows a rise in waste commercialised, due mainly to an increase in market
waste. As regards municipal waste, 2021 saw a decrease of 1.5% compared to the previous year.
338.0 mn€
26.1%
291.7 mn€
23.9%
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 104|
Market volumes increased compared to 2021 by 9.4%, due to the consolidation of previously existing
commercial relations, growth in the customer portfolio and recent corporate acquisitions.
Finally, the figures for plant by-products decreased by 1.8% from the previous year due mainly to lower
levels of rainfall.
SORTED WASTE (%)
As previously mentioned, municipal sorted waste collection stood at 67.8%, up +2.5 percentage points
from the previous year, thanks to the development of projects in the areas managed by the Group.
The Hera Group operates in the entire waste cycle, with 100 plants for treating municipal and special
waste and regenerating plastic materials. The main plants include: 9 waste-to-energy plants, 13
composting/digestion plants and 17 selecting plants.
The close attention paid to the set of plants has always been a distinctive element of the Group’s
propensity for excellence: operations are indeed ongoing to provide plants with the best available
technologies.
WASTE TREATED BY TYPE OF PLANT 2022 WASTE TREATED BY TYPE OF PLANT 2021
.
+2.5
percentage points
sorted waste
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 105|
Quantity (k tons)
Dec 22
Dec 21
Abs. change
% change
Landfills
648.5
636.4
12.1
+1.9%
WTE
1,180.2
1,205.2
(25.0)
(2.1)%
Selecting plants and other
603.8
550.8
53.0
+9.6%
Composting and stabilisation plants
490.4
498.1
(7.7)
(1.5)%
Inertisation and chemical-physical plants
1,405.1
1,322.4
82.7
+6.3%
Other plants
2,594.9
2,563.8
31.1
+1.2%
Waste treated by plant
6,922.9
6,776.7
146.2
+2.2%
Plastic recycled by Aliplast Spa
81.0
80.9
0.1
+0.1%
Waste treatment showed an overall growth of 1.2% compared to 2021. Analysing the individual sectors,
an increase was seen in the quantity disposed of in landfills whereas, with regard to waste-to-energy
plants, the downward trend is due mainly to the revamping of the Ravenna F3 plant and Trieste plant.
The increased quantity in sorting plants was due to the greater quantities treated in all plants, thanks to
the rise in sorted waste collection. In the composting and stabilization plants, volumes are decreasing
mainly due to lower quantities at the Ostellato plant, which was shut down for reconversion to
stabilization, while in the inertisation and chemical-physical plants chain, the increased quantities were
mainly due to higher volumes treated at the recently acquired plants. Lastly, note the increase in the
other plants sector.
The table below summarises the area’s operating results:
Income statement (mn€)
Dec 22
% inc.
Dec 21
% inc.
Abs. change
% change
Revenues
1,578.8
1,328.4
250.4
+18.8%
Operating costs
(1,058.0)
(67.0)%
(846.5)
(63.7)%
211.5
+25.0%
Personnel costs
(215.8)
(13.7)%
(211.8)
(15.9)%
4.0
+1.9%
Capitalised costs
33.0
2.1%
21.7
1.6%
11.3
+52.2%
Ebitda
338.0
21.4%
291.7
22.0%
46.3
+15.9%
REVENUES (mn€)
Revenues increased by 18.8% compared to the previous year. Revenues from energy production were
up by +68.0 million euro, mainly due to the increase in market prices, despite a 25.0 thousand ton
reduction in volumes in waste treated in WTEs. A higher contribution also came from Aliplast Spa, up
1,578.8
million euro
revenues
(+18.8%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 106|
+56.5 million euro compared to 2021, or +35%, as a result of the increase in prices in all areas due to
the elevated value of virgin polymer and high market demand. The price increase has positively affected
the Industry market and material valorisation revenues in the amount of approximately 6.7 million euro,
particularly for paper, cardboard and plastic.
The 32.4 million euro increase in revenues related to recent acquisitions in the Industry market is also of
note.
Operating costs for 2022 grew by 25.0%. In the treatment market, there was an increase in the costs of
purchasing raw materials as well as consumables (especially chemicals) and for changes in the scope
of operations compared to the previous year. There are also higher transportation and treatment costs
for by-product management due to higher supplier prices. In the recovery market, an increase was seen
in the purchasing costs for raw materials sustained by Aliplast Spa, related to the trend in revenues
mentioned above. As far as municipal waste collection is concerned, the increased activities were related
to developing new sorted waste collection projects.
EBITDA (mn€)
The rise in Ebitda was mainly due to increased revenues in energy management, coming to
approximately 30 million euro, expansion in the industrial waste market accounting for approximately 4
million euro, and new acquisitions, in the amount of approximately 3 million euro. Also contributing
positively has been an increase in the prices of treated waste, partly offset by increases in the purchase
prices of consumables as well as treatment and transportation costs.
Net investments in the waste management area were related to maintenance and upgrading on waste
treatment plants and amounted to 148.4 million euro, up 51.9 million euro compared to the previous year.
Including the capital grants received, the investments made amounted to 149.2 million euro, up 51 million
euro.
The composting/digester plants sector showed an increase of 12.3 million euro, mainly due to Biorg Srl
starting work to construct a plant producing biomethane.
Investments in landfills increased by 9.0 million euro, due to work carried out on the Ravenna plant and
Cordenons landfills, as well as Marche Multisiervizi Spa's building of the Cà Asprete plant.
The WTE sector showed a 5.4 million euro increase, due to revamping on line two of the Trieste plant,
as well as non-recurring maintenance carried out on the Bologna and Rimini plants, while the 11.1 million
euro increase in the industrial waste plants sector is related to revamping activities at the F3 plant in
Ravenna.
Investments in the collection area and equipment sector increased by 2.5 million euro compared to the
previous year and included the construction of underground waste collection areas, while the 10.5 million
euro increase seen in the sorting and recovery plants sector was due to higher investments for the work
on the new PE regenerator and replacement of the PELD regenerator belonging to Aliplast Spa, as well
as the start of the Vallortigara company's construction of the new Marano Vicentino plant.
338.0
million euro
Ebitda
(+15.9%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 107|
NET INVESTMENTS WASTE MANAGEMENT (MN€)
Details of operating investments in the waste management area are as follows:
Waste management (mn€)
Dec 22
Dec 21
Abs. change
% change
Composters/digesters
19.8
7.5
12.3
+164.0%
Landfills
17.3
8.3
9.0
+108.4%
WTE
30.0
24.6
5.4
+22.0%
RS plants
28.4
17.3
11.1
+64.2%
Collection areas and equipment
19.1
16.6
2.5
+15.1%
Transshipment, selecting and other plants
34.5
24.0
10.5
+43.8%
Total waste management gross
149.2
98.2
51.0
+51.9%
Capital grants
0.8
1.7
(0.9)
(52.9)%
Total waste management net
148.4
96.5
51.9
+53.8%
Other services
The other services area covers all minor businesses managed by the Group, including: public lighting, in
which the Hera Group’s efforts go towards planning, constructing and maintaining lighting structures,
contributing to safety across the areas served through avant-garde technologies and constant attention
towards the circular economy and sustainability; telecommunications, in which the Group offers
connectivity for private customers and companies, telephone and Data Centre services through its own
digital company; and, lastly, cemetery services. At December 2022, results in this area stood at 38.4
million euro, up 1 million euro over the previous year.
148.4
million euro
Waste
management
(+51.9 mn€)
Ebitda
rises
1.07.05
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 108|
OTHER SERVICES EBITDA 2022 OTHER SERVICES EBITDA 2021
The changes occurred in terms of Ebitda are as follows:
(mn€)
Dec 22
Dec 21
(redetermined)
Abs. change
% change
Area Ebitda
38.4
37.4
1.0
+2.7%
Group Ebitda*
1,295.0
1,219.4
75.6
+6.2%
Percentage weight
3.0%
3.1%
(0.1) pp
* refers to the adjusted results as mentioned in chapter 1.04
The following table shows the area’s main indicators as regards public lighting services:
Quantity
Dec 22
Dec 21
Abs. change
% change
Public lighting
Lighting points (k)
614.3
563.2
+51.1
+9.1%
of which LED
40.7%
35.2%
+5.5
+0.0%
Municipalities served
197.0
184.0
+13.0
+7.1%
In 2022, the Hera Group acquired approximately 65.4 thousand lighting points in 30 new municipalities.
The most significant acquisitions were approximately 9.2 thousand lighting points in Lombardy,
approximately 16.1 thousand in Tuscany, approximately 14.0 thousand in Umbria, and approximately
12.0 thousand in other regions of central Italy. Finally, acquisitions were made in the Triveneto area
amounting to approximately 12.2 thousand lighting points and in Sardinia amounting to approximately
1.2 thousand. The year’s increases fully offset the loss of about 14.3 thousand lighting points and 17
municipalities, mainly in the Triveneto area and Emilia Romagna.
The percentage of lighting points using LED lamps is also growing, standing at 40.7%, up 5.5 percentage
points. This trend highlights the Group's continued focus on the increasingly efficient and sustainable
management of public lighting.
Quantitative indicators in the other services area also include the 4,520 km of proprietary ultra-wideband
fibre optic network that the Hera Group owns through its digital company, Acantho Spa. This network
serves the main cities in Emilia-Romagna, Padua and Trieste, and provides companies and individuals
with high-performance connectivity, high reliability and maximum security for systems, data and service
continuity.
38.4
mn€
3.0%
37.4
mn€
3.1%
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 109|
The area’s operating results are provided in the table below:
Income statement (mn€)
Dec 22
% inc.
Dec 21
% inc.
Abs. change
% change
Revenues
196.2
170.8
25.4
+14.9%
Operating costs
(139.2)
(71.0)%
(114.1)
(66.8)%
25.1
+22.0%
Personnel costs
(21.3)
(10.9)%
(21.2)
(12.4)%
0.1
+0.5%
Capitalised costs
2.7
1.4%
1.9
1.1%
0.8
+42.9%
Ebitda
38.4
19.6%
37.4
21.9%
1.0
+2.7%
REVENUES (mn€)
The growth in revenues was mainly due to public lighting, where there was an increase of 22.5 million
euro, primarily as a result of energy adjustments on public lighting fees. Other contributions to this area’s
growth came from telecommunications, which accounted for a total of 2.3 million euro due to increased
activities in telephone and connectivity services.
The growth in operating costs is mainly due to the public lighting business and is affected by the
significant rise in energy carrier prices, as well as the increased costs of materials and services required
for energy upgrading.
EBITDA (mn€)
38.4
million euro
Ebitda
(+2.7%)
196.2
million euro
revenues
(+14.9%)
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 110|
Ebitda for the other services business increased by 2.7% overall, or 1 million euro, thanks to the
telecommunications business, despite the lower contribution made by public lighting due to the increase
in the price of the raw materials and services used in carrying out energy upgrades in the related plants.
Net investments in the other services business for 2022 amounted to 15.3 million euro, up 2.0 million
euro compared to the previous year. Including the capital grants received, the investments made rose
by 0.7 million euro.
In telecommunications, 9.1 million euro in investments were made in network and TLC services, up 0.5
million euro compared to the previous year. In public lighting, investments were related to maintenance,
upgrading and modernisation for lighting systems in the areas managed and amounted to 6.2 million
euro, up 0.3 million euro compared to the previous year.
NET INVESTMENTS OTHER SERVICES (mn€)
Details of operating investments in the other services area are as follows:
Other services (mn€)
Dec 22
Dec 21
Abs. change
% change
TLC
9.1
8.6
0.5
+5.8%
Public lighting and traffic lights
6.2
5.9
0.3
+5.1%
Total other services gross
15.3
14.6
0.7
+4.8%
Capital grants
‐
1.3
(1.3)
(100.0)%
Total other services net
15.3
13.3
2.0
+15.0%
15.3
million euro
other services
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 111|
SHAREHOLDERS MEETING RESOLUTIONS
The Hera Spa Shareholders Meeting:
▪ having acknowledged the Board of Directors’ report on management;
▪ having acknowledged the Board of Statutory Auditors’ report;
▪ having acknowledged the Independent Auditors’ report;
▪ having examined the financial statements at 31 December 2022, which close with profits totalling
270,976,394.86 euro;
resolves:
▪ to approve Hera Spa’s financial statements at 31 December 2022 and the report on management
prepared by the Board of Directors;
▪ to allocate profits for the 1 January 2022 – 31 December 2022 financial year, amounting to a total of
270,976,394.86 euro, as follows:
– 13,548,819.74 euro to the legal reserve; and
– a dividend amounting to 0.125 euro gross paid to each ordinary share outstanding (excluding,
that is, treasury shares held in the company’s portfolio) on the day of payment for said dividend;
and
– 71,235,231.99 euro to the extraordinary reserve.
The total dividend paid out therefore amounts to 186,192,343.13 euro, corresponding to 0.125 euro for
each ordinary share outstanding (excluding, that is, treasury shares held in the company’s portfolio);
– to establish 21 June 2023 as the initial date for dividend payment, and 19 June 2023 as ex-
dividend date for coupon no. 21, dividends being paid to shares recorded at 20 June 2023;
– to grant a mandate to the Board of Directors, and its Chairman, to ascertain in due time, in
accordance with the definitive number of shares outstanding, the exact amount of profits to be
distributed, and therefore the exact amount of the extraordinary reserve.
1.08
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 112|
NOTICE CONVENING THE SHAREHOLDERS
MEETING
1.09
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 113|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 114|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 115|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 116|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 118|
FINANCIAL STATEMENT FORMATS
Income statement
mn € | notes | 2022 | 2021 |
Revenues | 1 | ||
Other operating revenues | 2 | ||
Raw materials and materials | 3 | ( | ( |
Service costs | 4 | ( | ( |
Personnel costs | 5 | ( | ( |
Other operating costs | 6 | ( | ( |
Capitalised costs | 7 | ||
Amortisation, provisions and depreciation | 8 | ( | ( |
Operating revenues | |||
Share of profits (losses) pertaining to joint ventures and associated companies | 9 | ||
Financial income | 10 | ||
Financial expenses | 11 | ( | ( |
Financial management | ( | ( | |
Earnings before taxes | |||
Taxes | 12 | ( | ( |
Net profit for the period | |||
Attributable to: | |||
parent company shareholders | |||
minority shareholders | |||
Earnings per share | |||
basic | 17 | ||
diluted | 17 |
Pursuant to Consob Resolution no. 15519 of 27 July 2006, the effects of relationships with related parties are accounted for in the appropriate income
statement outlined in paragraph 2.03.01 of this consolidated financial statement.
2.01.01
2.01
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 119|
Statement of comprehensive income
mn € | notes | 2022 | 2021 |
Net profit (loss) for the period | |||
Items reclassifiable to the income statement | |||
Fair value of derivatives, change for the period | 29 | ||
Tax effect related to reclassifiable items | ( | ( | |
Items not reclassifiable to the income statement | |||
Actuarial income (losses) employee and post-employment | 30 | ||
benefits | |||
Shareholdings valued at fair value | 26 | ( | ( |
Tax effect related to not reclassifiable items | ( | ( | |
other components of business comprehensive income | |||
valued at net equity | |||
Total comprehensive profit (loss) for the period | |||
Attributable to: | |||
parent company shareholders | |||
minority shareholders |
2.01.02
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 120|
Statement of financial position
mn € | notes | 31 Dec 22 | 31 Dec 21 |
ASSETS | |||
Non-current assets | |||
Tangible assets | 21, 25 | ||
Rights of use | 22, 25 | ||
Intangible assets | 23, 25 | ||
Goodwill | 24, 25 | ||
Shareholdings | 26, 27 | ||
Non-current financial assets | 18 | ||
Deferred tax assets | 14 | ||
Derivative instruments | 29 | ||
Total non-current assets | |||
Current assets | |||
Inventories | 32 | ||
Trade receivables | 33 | ||
Current financial assets | 18 | ||
Current tax assets | 13 | ||
Other current assets | 35 | ||
Derivative instruments | 29 | ||
Cash and cash equivalents | 18 | ||
Total current assets | |||
TOTAL ASSETS |
Pursuant to Consob Resolution no. 15519 of 27 July 2006, the effects of relationships with related parties are accounted for in the appropriate statement of
financial position outlined in paragraph 2.03.02 of this consolidated financial statement.
2.01.03
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 121|
mn € | notes | 31 Dec 22 | 31 Dec 21 |
NET EQUITY AND LIABILITIES | |||
Share capital and reserves | |||
Share capital | 15 | ||
Reserves | 15 | ||
Profit (loss) for the period | 15 | ||
Group net equity | |||
Non-controlling interests | 16 | ||
Total net equity | |||
Non-current liabilities | |||
Non-current financial liabilities | 19 | ||
Non-current lease liabilities | 22 | ||
Post-employment and other benefits | 30 | ||
Provisions for risks and charges | 31 | ||
Deferred tax liabilities | 14 | ||
Derivative instruments | 29 | ||
Total non-current liabilities | |||
Current liabilities | |||
Current financial liabilities | 19 | ||
Current lease liabilities | 22 | ||
Trade payables | 34 | ||
Current tax liabilities | 13 | ||
Other current liabilities | 36 | ||
Derivative instruments | 29 | ||
Total current liabilities | |||
TOTAL LIABILITIES | |||
TOTAL NET EQUITY AND LIABILITIES |
Pursuant to Consob Resolution no. 15519 of 27 July 2006, the effects of relationships with related parties are accounted for in the appropriate statement of
financial position outlined in paragraph 2.03.02 of this consolidated financial statement.
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 122|
Cash flow statement
mn € | notes | 31 Dec 22 | 31 Dec 21 |
Earnings before taxes | |||
Adjustments to reconcile net profit to the cashflow from operating activities | |||
Amortisation and impairment of assets | 8 | ||
Allocation to provisions | 8 | ||
Effects from valuation using the net equity method | 9 | ( | ( |
Financial (income) expenses | 10 | ||
(Capital gains) losses and other non-monetary elements | |||
Change in provision for risks and charges | 31 | ( | ( |
Change in provision for employee and post-employment benefits | 30 | ( | ( |
Total cash flow before changes in net working capital | |||
(Increase) decrease in inventories | 37 | ( | ( |
(Increase) decrease in trade receivables | 37 | ( | ( |
Increase (decrease) in trade payables | 37 | ||
Increase/decrease in other current assets/liabilities | 37 | ||
Changes in working capital | ( | ||
Dividends collected | 37 | ||
Interest income and other financial income collected | 37 | ||
Interest expenses, net charges on derivatives and other paid financial charges | 37 | ( | ( |
Taxes paid | 37 | ( | ( |
Cash flow from operating activities (a) | |||
Investments in tangible assets | 21 | ( | ( |
Investments in intangible assets | 23 | ( | ( |
Investments in subsidiary companies and business units net of cash holdings | 28 | ( | ( |
Other equity investments | 28 | ( | ( |
Sale price of tangible and intangible assets | 28 | ||
Divestments of shareholdings and contingent consideration | 28 | ||
(Increase) decrease in other investment activities | 28 | ( | |
Cash flow from (for) investing activities (b) | ( | ( | |
New issue of long-term bonds | 20 | ||
Repayments of non-current financial liabilities | 20 | ( | |
Repayments and other net changes in financial liabilities | 20 | ( | ( |
Repayments of leasing liabilities | 20 | ( | ( |
Acquisition of Interests in consolidated companies | 20 | ( | ( |
Dividends paid out to Hera shareholders and non-controlling interests | 20 | ( | ( |
Changes in treasury shares | 15 | ( | ( |
Cash flow from (for) financing activities (c) | ( | ||
Increase (decrease) in cash holdings (a+b+c) | ( | ||
Cash and cash equivalents at the beginning of the period | 18 | ||
Cash and cash equivalents at the end of the period | 18 |
Pursuant to Consob Resolution no. 15519 of 27 July 2006, the effects of relationships with related parties are accounted for in the appropriate cash flow
statement outlined in paragraph 2.03.03 of this consolidated financial statement.
2.01.04
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 123|
Statement of changes in net equity
Reserves | |||||||||
actuarial | |||||||||
Reserves | income | Reserves | Non- | ||||||
mn € | Share | Reserves | derivatives | (losses) | shares | Profit for | Net equity controlling | Total | |
capital | valued at | employee | valued at | the period | interests | ||||
fair value | and post- | fair value | |||||||
employmen | |||||||||
t benefits | |||||||||
Balance at 1 Jan 21 | ( | ( | |||||||
Profit for the period | |||||||||
Other components of comprehensive income: | |||||||||
fair value of derivatives, change for the period | |||||||||
Actuarial income | |||||||||
(losses) employee and post-employment | |||||||||
benefits | |||||||||
fair value | |||||||||
shareholdings, change | ( | ( | ( | ||||||
for the period | |||||||||
Overall profit for the period | ( | ||||||||
change in treasury | ( | ( | ( | ||||||
shares | |||||||||
change in equity | ( | ( | ( | ( | |||||
investments | |||||||||
other movements | |||||||||
Allocation of revenues: | |||||||||
dividends paid out | ( | ( | ( | ( | |||||
allocation to reserves | ( | ||||||||
Balance at 31 Dec 21 | ( | ( | |||||||
Balance at 1 Jan 22 | ( | ( | |||||||
Profit for the period | |||||||||
Other components of comprehensive income: | |||||||||
fair value of derivatives, change for the period | |||||||||
Actuarial income | |||||||||
(losses) employee and post-employment | |||||||||
benefits | |||||||||
fair value | |||||||||
shareholdings, change | ( | ( | ( | ||||||
for the period | |||||||||
Overall profit for the period | ( | ||||||||
change in treasury | ( | ( | ( | ( | |||||
shares | |||||||||
change in equity | ( | ( | ( | ( | |||||
investments | |||||||||
other movements | ( | ||||||||
Allocation of revenues: | |||||||||
dividends paid out | ( | ( | ( | ( | |||||
allocation to reserves | ( | ||||||||
Balance at 31 Dec 22 | ( | ( | |||||||
2.01.05
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 125|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 126|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 127|
The criteria and principles adopted are outlined here below.
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 128|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 129|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 130|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 131|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 132|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 133|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 134|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 135|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 136|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 137|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 138|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 139|
STR
STR
Operational and financial performance
Please note that paragraphs 1.04 and 1.07 of the Directors’ report provide an analysis of the business
management performance for the financial period, also by business area; please refer to these for a
specific analysis of the changes in the main categories of operating expenses and revenues, as well as
the Group’s overall financial management.
2.02.02
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 141|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 142|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 143|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 144|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 145|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 146|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 148|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 152|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 153|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 155|
Equity and financial structure
31 Dec 22
31 Dec 21
Change
Net equity
3,644.7
3,416.8
227.9
Net financial debt
4,249.8
3,261.3
988.5
Net financial debt / Net equity
1.17
0.95
Compared to 31 December 2021, shareholders’ net equity increased due mainly to the combination of
the following effects:
▪ net income for the year amounting to 305.3 million euro, down from 372.7 million at 31 December
2021;
▪ positive change in the other comprehensive income components totalling 153.5 million euro, driven
mainly by changes in cash flow hedge reserves related to gas and electricity commodity transaction
hedges;
▪ distribution of dividends in the amount of 193.8 million euro.
Net financial debt is an alternative performance indicator, as monitored by the Group, the definition of
which is reported in Section 1.04 “Overview of operating and financial trends and definition of alternative
performance indicators.” It increased significantly from the previous period; cash generation from
operations for the year, as reported in the cash flow statement in Section 2.01.04, showed a significant
decrease compared to the previous year, amounting to 1,009.7 million euro, due to the significant cash
absorption resulting from the trend in net working capital. In addition, investment activities involved higher
outlays in the financial year 2022 than in the previous financial year, which were necessary to develop
the businesses managed by the company in line with its business plan. For these reasons, the Group
has made use of increased financial debt, mainly by signing short- and medium-term contracts and
issuing a 500 million euro bond. For more details, see Section 1.04.02 “Equity structure and reclassified
financial debt” and Note 19 “Financial Liabilities”.
2.02.04
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 156|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 157|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 158|
Net financial debt
The following is the financial debt prepared in accordance with Guideline no. 39, issued on 4 March 2021
by ESMA, as implemented by Consob in its communication 5/2021 of 29 April 2021. The Group also
monitors its financial performance through the Net Financial Debt indicator, which adds non-current
financial receivables to the regulatory schedule.
notes
31 Dec 22
31 Dec 21
A
Cash holdings
18
1,942.4
885.6
B
Cash equivalents
18
‐
‐
C
Other current financial assets
18
77.7
29.3
D
Liquidity (A+B+C)
2,020.1
914.9
E
Current financial debt
19
(563.0)
(443.6)
F
Current part of non-current financial debt
19, 22
(108.4)
(99.5)
G
Current financial debt (E+F)
(671.4)
(543.1)
H
Current net financial debt (G+D)
1,348.7
371.8
I
Non-current financial debt
19, 22, 29
(2,553.0)
(1,073.8)
J
Debt instruments
19
(3,197.3)
(2,702.0)
K
Commercial and other non-current payables
‐
‐
L
Non-current financial debt (I+J+K)
(5,750.3)
(3,775.8)
M
Total financial debt (H+L)
ESMA guidelines 32 – 382 - 1138
(4,401.6)
(3,404.0)
Non-current financial receivables
18
151.8
142.7
Net financial debt
(4,249.8)
(3,261.3)
To better understand the financial dynamics taking place during the course of fiscal year 2022, see the
financial statements and the comments shown in the Directors’ report in paragraph 1.04.02 “Equity
structure and reclassified net financial debt”.
For the schedule of financial debt with related parties, see Section 2.03.04.
The following is an analysis of the balance sheet items included in the determination of net financial debt,
with the exception of financial assets and liabilities related to interest rate derivative financial instruments
which are detailed in Note 29 “Derivative Instruments” and lease liabilities which are shown in Note 22
“Rights of Use and Leasing Liabilities”.
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 162|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 163|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 165|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 167|
Investment activities
The Group’s assets increased compared with the comparison year mainly due to new investments made
in public services under concession, particularly in the integrated water cycle and natural gas distribution
businesses.
Also note the recognition of customer lists amounting to 44.3 million euro and goodwill amounting to 5.2
million euro in connection with business combinations carried out during the year.
The following notes comment on the composition of and main changes within each asset category; note
that additional information about investments made during the period can be found in section 1.07
“Analysis by Strategic Business Area” of the Directors’ Report.
The value of all tangible and intangible assets, including goodwill, was subjected to impairment testing,
the results of which can be found in Note 25 “Impairment tests on assets”.
2.02.05
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 169|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 170|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 171|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 172|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 173|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 174|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 175|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 178|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 181|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 182|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 183|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 187|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 188|
Provisions and Contingent Liabilities
2.02.08
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 189|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 190|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 191|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 192|
Operating working capital
notes
31 Dec 22
31 Dec 21
Change
Inventories
32
995.1
368.0
627.1
Commercial receivables
33
3,875.0
2,918.0
957.0
Commercial payables
34
(3,093.1)
(2,356.6)
(736.5)
Current tax assets
13
46.0
21.2
24.8
Current tax liabilities
13
(17.1)
(27.9)
10.8
Other current assets
35
642.5
422.3
220.2
Other current liabilities
36
(1,720.0)
(1,435.6)
(284.4)
Operating working capital
728.4
(90.6)
819.0
Operating working capital consists of the same components as net working capital, as defined by the
alternative performance indicators in Section 1.04 “Overview of operating and financial trends and
definition of alternative performance measures,” with the exception of current portions of assets and
liabilities for commodity derivatives.
The change in the year 2022 with respect to the comparative period is mainly due to the increase in
methane gas inventories, as detailed in Note 32 “Inventories”.
2.02.09
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| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 193|
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Hera Group – Consolidated Financial Statements at 31 December 2022 195|
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Hera Group – Consolidated Financial Statements at 31 December 2022 198|
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Hera Group – Consolidated Financial Statements at 31 December 2022 199|
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Hera Group – Consolidated Financial Statements at 31 December 2022 200|
▪
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Hera Group – Consolidated Financial Statements at 31 December 2022 201|
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Hera Group – Consolidated Financial Statements at 31 December 2022 203|
Other information
02.02.10
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| Directors’ report
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Hera Group – Consolidated Financial Statements at 31 December 2022 204|
(Goodwill) / Profit
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Hera Group – Consolidated Financial Statements at 31 December 2022 205|
Changes to the accounting standards
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Hera Group – Consolidated Financial Statements at 31 December 2022 206|
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| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 207|
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Hera Group – Consolidated Financial Statements at 31 December 2022 208|
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Hera Group – Consolidated Financial Statements at 31 December 2022 209|
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Hera Group – Consolidated Financial Statements at 31 December 2022 210|
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Hera Group – Consolidated Financial Statements at 31 December 2022 212|
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Hera Group – Consolidated Financial Statements at 31 December 2022 213|
| Introduction
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| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 217|
| Introduction
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Hera Group – Consolidated Financial Statements at 31 December 2022 218|
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Hera Group – Consolidated Financial Statements at 31 December 2022 219|
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Hera Group – Consolidated Financial Statements at 31 December 2022 220|
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Hera Group – Consolidated Financial Statements at 31 December 2022 221|
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Hera Group – Consolidated Financial Statements at 31 December 2022 222|
SHAREHOLDINGS
List of consolidated companies
2.04
2.04.01
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 223|
Key figures in the financial statements of subsidiaries and associated
companies
2.04.02
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 224|
| Introduction
| Directors’ report
| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 225|
| Introduction
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Hera Group – Consolidated Financial Statements at 31 December 2022 226|
| Introduction
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Hera Group – Consolidated Financial Statements at 31 December 2022 227|
| Introduction
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| Consolidated financial statements
Hera Group – Consolidated Financial Statements at 31 December 2022 231|
DECLARATION ON THE CONSOLIDATED
FINANCIAL STATEMENT PURSUANT TO ART.
154-BIS OF LEGISLATIVE DECREE 58/98
1 – The undersigned Orazio Iacono, who holds the office of CEO, and Massimo Vai, acting as Manager
responsible for preparing Hera Spa’s corporate accounting documents, certify, taking into account the
provisions of Article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of 24 February 1998:
▪ the appropriateness with regard to the characteristics of the company and
▪ the effective application
of the administrative and accounting procedures used in preparing the consolidated financial statements
for the financial year 2022.
2 - They additionally certify that:
2.1 - the consolidated financial statements:
a. have been prepared in accordance with the applicable international accounting standards
recognised in the European Community pursuant to Regulation (EC) 1606/2002 of the European
Parliament and of the Council of 19 July 2002;
b. correspond to the results of the accounting books and records;
c. give a true and fair view of the financial position, results of operations and cash flows of the issuer
and the group of consolidated companies.
2.2 – The report on operations includes a reliable analysis of trends and results of operations, as well as
the situation of the issuer and the group of consolidated companies, along with a description of the main
risks and uncertainties to which they are exposed.
The Chief Executive Officer The Manager responsible
for preparing the corporate
accounting documents
Orazio Iacono Massimo Vai
Bologna, 21 March 2023
2.07
Ancona Bari Bergamo Bologna Brescia Cagliari Firenze Genova Milano Napoli Padova Parma Roma Torino Treviso Udine Verona
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INDEPENDENT AUDITOR’S REPORT PURSUANT TO ARTICLE 14 OF LEGISLATIVE DECREE No. 39 OF
JANUARY 27, 2010 AND ARTICLE 10 OF THE EU REGULATION 537/2014
To the Shareholders of
Hera S.p.A.
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Opinion
We have audited the consolidated financial statements of Hera S.p.A. and its subsidiaries (the “Group” or
“Hera Group”), which comprise the statement of financial position as of December 31
st
, 2022, the
income statement, statement of comprehensive income, statement of changes in net equity, cash flows
statement for the year then ended, and explanatory notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements give a true and fair view of the
consolidated financial position of the Group as of December 31
st
, 2022, and of its consolidated financial
performance and its consolidated cash flows for the year then ended in accordance with International
Financial Reporting Standards as adopted by the European Union and the requirements of national
regulations issued pursuant to art. 9 of Italian Legislative Decree no. 38/2005.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated Financial Statements section of our report. We are independent of Hera S.p.A. (the
“Company”) in accordance with the ethical requirements applicable under Italian law to the audit of the
financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
2
Revenue recognition – revenue earned but not yet billed
Description of the key
audit matter
As disclosed in the explanatory notes to the consolidated financial
statements in the paragraph addressing "Accounting policies and
consolidation principles - Revenue and cost recognition", revenue from
electricity, gas and water sales is recognised and accounted for when the
service is rendered and includes an accrual for revenue earned but not yet
billed at the reporting date. As disclosed in Note 1, this accrual, which as of
December 31
st
, 2022 amounted to Euro 1,261 million, is determined, as far
as electricity and gas are concerned, by estimating the daily consumption by
customer, based on the customer's historical profile, adjusted to reflect the
weather conditions and other factors that could impact consumption, while,
as far as the integrated water network is concerned, by estimating the
revenue guaranteed by the regulated reference tariff (guaranteed revenue
commitment, “VRG”).
We have considered the procedure used for the determination of the above
accrual to be a key matter for the audit of the Group's consolidated financial
statements for the year ended on December 31
st
, 2022 in view of: i) the
discretionary component inherent in the estimated nature of the accrual; ii)
the materiality of its total amount; iii) the high number of the Group's users;
iv) the complexity of calculation algorithms adopted by the Group for the
determination of the accrual, which made it necessary to have the support
of IT specialists to perform the related audit procedures.
Audit procedures
performed
The audit procedures that we carried out on the accrual for revenue earned
but not yet billed at the reporting date included, among others, the
following:
• analysis of the IT procedures adopted by the Group for the determination
of the accrual for revenue earned but not yet billed and of the related
calculation algorithms, with the support of our IT specialists;
• identification and understanding of the key controls implemented by the
Group to monitor the risk of an incorrect accrual and testing of the
effectiveness thereof. This work was performed with the support of our IT
specialists;
• testing on a sample basis to verify the completeness and accuracy of the
main data used by management to determine the accrual;
• testing, based on a sample of users, of the process for the estimation of
quantities consumed and the application of the correct reference tariff;
• a comparative analysis of the key parameters pertaining to users and
consumption used for the determination of the above accrual;
3
• verification of the correct determination of the guaranteed revenue using
the regulated reference tariff;
• review of the adequacy and compliance of disclosure provided on the
recognition of revenue earned but not yet billed at the reporting date
with the applicable accounting standards.
Recognition and measurement of derivative financial instruments
Description of the key
audit matter
On account of the business in which it operates and of its financial structure,
the Group holds derivatives to hedge its exposure to the risk of fluctuations
in interest rates, in exchange rates and in natural gas and electricity prices.
As disclosed in the paragraph in the explanatory notes to the consolidated
financial statements addressing "Accounting policies and consolidation
principles - Derivative instruments ", the Group enters into transactions,
which, if they satisfy the requirements laid down by International Financial
Reporting Standards to qualify for hedge accounting, are designated as
hedging instruments and are classified as fair value hedges or as cash flow
hedges; alternatively, they are classified as held for trading.
The determination of the fair value of derivatives is performed by the Group
using models developed internally that include an estimation component.
Moreover, the recognition methods vary based on the nature of the
derivative. Lastly, the impact of the fair value measurement of derivatives is
material to the results and financial position. Specifically, as disclosed in
detail in Note 29 to the consolidated financial statements, the following are
recognised in the consolidated financial statements for the year ended
December 31
st
, 2022: i) in the statement of financial position, assets and
liabilities arising from the measurement of derivatives of Euro 1,623 million
and Euro 1,354 million, respectively, and cash flow hedge reserve recognized
in equity for an amount of Euro 257 million; ii) in the income statement, net
operating costs and net financial income arising from the measurement of
derivatives of Euro 5 million and Euro 1 million, respectively, as well as net
operating income and net financial costs realised during the year with
reference to derivatives of Euro 80 million and Euro 4 million, respectively.
For the above mentioned reasons, we have considered the recognition and
fair value measurement of derivatives to be a key matter for the audit of the
Group's consolidated financial statements for the year ended on December
31
st
, 2022.
Audit procedures
performed
The audit procedures that we carried out on the recognition and
measurement of derivatives, performed also through the involvement of
specialists from our network, included, among others, the following:
4
• identification and understanding of the key internal controls
implemented by the Group, as well as testing to check compliance with
internal policy for the determination of the fair value of derivative
financial instruments, for the designation of hedging instruments, for the
measurement of their prospective effectiveness and for the
determination of the ineffectiveness of the hedging relationship;
• understanding of the fair value hierarchy allocation criteria, of the
valuation techniques and methodologies used to verify the effectiveness
of hedging relationships and for the measurement of any ineffectiveness
and an analysis of the reasonableness thereof in compliance with market
standards and best practices;
• analysis and verification of the sources used by the Group for the
determination of market parameters and verification of the reliability of
the key market inputs used;
• verification of the consistency of the accounting treatment adopted by
the Group with applicable accounting standards;
• independent determination, on a sample basis, of fair value of some
derivative financial instrument;
• verification, on a sample basis, of the formal documentation for the
designation and verification of the measurement of effectiveness, as well
as verification of the accuracy of the effectiveness test;
• review of the adequacy and compliance of the disclosures provided in the
explanatory notes with the applicable accounting standards.
Responsibilities of the Directors and the Board of Statutory Auditors for the Consolidated Financial
Statements
The Directors are responsible for the preparation of consolidated financial statements that give a true
and fair view in accordance with International Financial Reporting Standards as adopted by the European
Union and the requirements of national regulations issued pursuant to art. 9 of Italian Legislative Decree
no. 38/2005 and, within the terms established by law, for such internal control as the Directors
determine is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless they have identified the existence of the
conditions for the liquidation of the Company or the termination of the business or have no realistic
alternatives to such choices.
The Board of Statutory Auditors is responsible for overseeing, within the terms established by law, the
Group’s financial reporting process.
5
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with International Standards on Auditing (ISA Italia) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with International Standards on Auditing (ISA Italia), we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
• identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control;
• obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Directors;
• conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group to cease
to continue as a going concern;
• evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation;
• obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance, identified at an appropriate level as required by
ISA Italia, regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
6
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence applicable in Italy, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditors’ report.
Other information communicated pursuant to art. 10 of the EU Regulation 537/2014
The Shareholders' Meeting of Hera S.p.A. has appointed us on April 23, 2014 as auditors of the Company
for the years from December 31
st
, 2015 to December 31
st
, 2023.
We declare that we have not provided prohibited non-audit services referred to in art. 5 (1) of EU
Regulation 537/2014 and that we have remained independent of the Company in conducting the audit.
We confirm that the opinion on the financial statements expressed in this report is consistent with the
additional report to the Board of Statutory Auditors, in its role of Audit Committee, referred to in art. 11
of the said Regulation.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Opinion on the compliance with the provisions of the Delegated Regulation (EU) 2019/815
The Directors of Hera S.p.A. are responsible for the application of the provisions of the European
Commission Delegated Regulation (EU) 2019/815 with regard to the regulatory technical standards on
the specification of the single electronic reporting format (ESEF – European Single Electronic Format)
(hereinafter referred to as the “Delegated Regulation”) to the consolidated financial statements as of
December 31
st
, 2022, to be included in the annual financial report.
We have carried out the procedures set forth in the Auditing Standard (SA Italia) n. 700B in order to
express an opinion on the compliance of the consolidated financial statements with the provisions of the
Delegated Regulation.
In our opinion, the consolidated financial statements as of December 31
st
, 2022 have been prepared in
XHTML format and have been marked up, in all material respects, in accordance with the provisions of
the Delegated Regulation.
Due to certain technical limitations, some information contained in the explanatory notes to the
consolidated financial statements, when extracted from XHTML format in an XBRL instance, may not be
reproduced in the same way as the corresponding information displayed in the consolidated financial
statements in XHTML format.
7
Opinion pursuant to art. 14 paragraph 2 (e) of Legislative Decree 39/2010 and art. 123-bis, paragraph 4,
of Legislative Decree 58/1998
The Directors of Hera S.p.A. are responsible for the preparation of the report on operations and the
report on corporate governance and the ownership structure of Hera Group as of December 31
st
, 2022,
including their consistency with the related consolidated financial statements and their compliance with
the law.
We have carried out the procedures set forth in the Auditing Standard (SA Italia) n. 720B in order to
express an opinion on the consistency of the report on operations and some specific information
contained in the report on corporate governance and the ownership structure set forth in art. 123-bis, n.
4 of Legislative Decree 58/1998, with the consolidated financial statements of Hera Group as of
December 31
st
, 2022 and on their compliance with the law, as well as to make a statement about any
material misstatement.
In our opinion, the above-mentioned report on operations and some specific information contained in
the report on corporate governance and the ownership structure are consistent with the consolidated
financial statements of Hera Group as of December 31
st
, 2022 and are prepared in accordance with the
law.
With reference to the statement referred to in art. 14, paragraph 2 (e), of Legislative Decree 39/2010,
made on the basis of the knowledge and understanding of the Group and of the related context acquired
during the audit, we have nothing to report.
Statement pursuant to art. 4 of the Consob Regulation for the implementation of Legislative Decree 30
December 2016, no. 254
The Directors of Hera S.p.A. are responsible for the preparation of the non-financial statement pursuant
to Legislative Decree 30 December 2016, no. 254.
We verified the approval by the Directors of the non-financial statement.
Pursuant to art. 3, paragraph 10 of Legislative Decree 30 December 2016, no. 254, this statement is
subject of a separate attestation issued by other auditor.
DELOITTE & TOUCHE S.p.A.
Signed by
Francesco Masetti
Partner
Bologna, Italy
April 4, 2023
This independent auditor’s report has been translated into the English language solely for the
convenience of international readers. Accordingly, only the original text in Italian language is
authoritative.
