Message from the Executive Chairman of the Board
Growth continues, leveraging on a controlled risk profile

Half-year results confirm that Hera has a well-balanced asset portfolio and a clear long-term strategy. These elements allow the Group to navigate through a challenging scenario, such as the current one, without halting growth while confirming solidity.
Another evidence that emerges as Hera’s strength is the controlled risk profile in operational and financial management. On this basis it has been possible to absorb the impact of negative external elements, and, on this basis again, decisions have been taken to ensure the best possible conditions for future development, from higher investments to prudent provisioning.
In a still complex environment, Hera has a well-defined Business Plan agenda for the second half of the year. Moreover, the preparation of the Plan that will guide the path to 2026 is already underway, with the aim to better manage both challenges and opportunities of the new scenario variables.

Dear Shareholders,
In the first half of 2022, Hera achieved an EBITDA of 631.2 million euro, marking an increase of 3.3%: a performance that is in continuity with the 3.3% progress of the first quarter and confirms a consistent execution of the actions set out in the five-year Business Plan.

We are advancing swiftly in the execution of the Plan
Looking at the numbers, therefore, we cannot but judge these results as sound, having already achieved 44% of the EBITDA target to 2025 in less than a third of the Plan period.
Actually, the scenario that we had to face in the first six months of this financial year turned out to be much more challenging than we could have predicted.

…with 3.3% growth achieved in a particularly difficult scenario
The Russian-Ukrainian conflict, with the geopolitical tensions that followed, created serious disruptions in the supply of gas and other raw materials, overlapping with the effects of the pandemic. With the aim of containing the acceleration of inflation, central banks adopted tightening policies that had an immediate impact on the level of interest rates.
The result was a scenario of great uncertainty, with very volatile gas and electricity prices, which exceeded the levels of the first half of 2021 by more than four times, and a cost of money that suddenly became more expensive.

Hera’s response was to consistently stick to its Purpose and Strategy
In the face of these new challenges, Hera has remained consistent to its strategic approach, which relies on a business portfolio balanced between regulated and liberalised activities, as well as on an operational and financial management oriented towards maintaining a controlled risk profile, with the goal of responding to the interests of all stakeholders – an approach that has proven to be as valid as ever in this complex conjuncture.

Putting all growth levers into action to counter the effects of negative factors
The growth of 20.3 million euro in EBITDA therefore expresses the choral contribution of our typical levers of organic and external expansion. Together with the brilliant result of the circular economy business, those levers more than compensated for the 10.2 million euro margin that was lost due to the WACC cut by the Regulator for the new regulatory period that began in January 2022.
In the first half of the year, we also continued to invest with conviction, pushing ahead with all the projects included in the Plan. Thus, we carried out careful maintenance, to ensure the quality of our infrastructure, and at the same time made development investments, mainly focusing on the expansion of waste treatment capacity. Therefore, we did not slow down the pace: in total, we invested 288,5 million, i.e. 17% more than in the first half of last year.

Prudent provisions made with the aim to get protection from fluctuations in energy commodity prices
The EBITDA growth gave us sufficient room to make prudent provisions, aimed solely at covering the risks of wide fluctuations in energy commodity prices, since the quality of our customers’ receivables remained intact. Any difficulties in bill payments, which suddenly became much more expensive, were managed in the genuine logic of attention to stakeholder needs that has always guided Hera’s policies. In fact, we have granted payment extensions to more than 140,000 customers who have requested them since the pandemic emerged – a choice that is proving to be far-sighted and has prevented the deterioration of the profile of our trade receivables.

The bottom line also remains solid, benefitting from a proactive financial management
The ability of our P&L to effectively absorb the negatives of the external environment is also confirmed at the level of Net Profit after minority interests, which amounted to 183.3 million euros: a figure only marginally lower than the first half of 2021 of 186.3 million, net of the contribution of 25 million euro from special items.
Profit also benefited from the improvement in net result from the finance area, due to the successful liability management transactions, which extended the average duration of debt to seven years and reduced its cost to 2.6%.
Profit of 183.3 million also absorbs the negative impact of a higher tax rate, which rose from 26.7% in H1 2021 to 29.0% due to changes in tax regulations.

Hera maintains sound financial ratios despite higher investments and dividends
The healthy cash generation from operations, amounting to 524.3 million euro, made it possible not only to carry out the technical investments envisaged in the Plan, but also to store a sizeable amount of gas, worth 377.8 million euro, which will help ensure the continuity of supplies to customers in the next heating season. This, without Hera incurring any risk in relation to fluctuations in commodity prices, since it is gas that has already been contracted with end customers and hedged against price risk, even with financial tools.
In the six months just ended, we also remunerated our shareholders with the distribution of a dividend of 12 euro cents, up by one cent compared to the previous year.
In the Financial Statements as at 30 June 2022, therefore we find ourselves confirming that growth has not been held back by the critical external environment. We also remain financially strong, with a Debt-to-EBITDA ratio of less than 3 times, having, moreover, built up gas stocks to cover future customer consumption needs.

Ready to update the map of our growth path with the aim to manage the risks of the scenario
Currently, with the government crisis that unfolded in Italy on 14 July, the scenario presents an additional element of uncertainty.
Nevertheless, at Hera we are already working to shape the new Business Plan to 2026. We aim to have a tool to guide us in the best possible way in the new scenario, both in managing negative factors and in assessing new opportunities. The priority is to preserve our controlled risk profile, which has always proved rewarding in the long path of growth achieved in the more than 20 years of our history.

Tomaso Tommasi di Vignano
Tomaso Tommasi di Vignano
26 July 2022
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