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Strategic approach and business plan

Hera's strategic objective has always consisted in the creation of value from a multi-stakeholder perspective in the medium-and long-term, by competing autonomously and efficaciously in liberalised markets. The objective is to replicate a "unique" business model intended to expand the Group and manage primary services in an increasingly efficient manner in order to satisfy the main stakeholders. This strategy has continued, from 2002, to sustain uninterrupted growth in results through all the main levers available. The strategy is based on the Group's strong points, in other words an "open" organisational model that is able to provide for efficient increase in size through external lines, a national leadership in the waste sector and a loyal, and an extensive customer base concentrated in the reference area.

The Group's strategic imperative is to preserve its customer base by giving a great deal of attention to service quality, after-sales support service and an integrated offer of a complete set of the multi-business portfolio's primary services. Furthermore, development strategies are aimed at maintaining a balance between the various activities, in order to conserve a low variability/risk profile as regards the Group's results.

Hera's strategic plan has been articulated into five priorities, which led the Group's management to follow a continuous and linear path throughout its first eleven-year period:

  1. Pursuing a process of extracting synergies from business combinations, through the complete integration of the companies incorporated into Hera;
  2. Implementing the plan for large plant construction and developing networks, by balancing the growth of all the businesses so as to increase efficiency and service quality;
  3. Peserving a solid, low-risk economic-financial profile, capable of satisfying stakeholders through a sustainable approach in the medium to long-term;
  4. Pursuing merger and acquisition opportunities in liberalised sectors (waste processing, energy sales and generation), both to consolidate its leadership in the environmental sector and expand, in a defensive perspective, the offer to customers with electricity services in line with the development directives pursued by large international groups. The acquisition of assets needed to achieve the goal has thus supported growth in the electricity business, which was present only in an embryonic stage at the birth of the Group;
  5. Applying Hera's innovative aggregation model for multi-utility businesses in neighbouring areas according to a rationale of territorial continuity, focused on compatible activities and economic-financial profiles capable of guaranteeing the Group's financial soundness.

To ensure greater efficiency and to exploit scale economies, the mergers were integrated in the original model based on an industrial holding company. At the same time, "direct operational supervision" of all local territories was ensured to preserve the crucial competitive advantages deriving from customer proximity and local roots. A reorganisation of the activities was implemented in the first semester of 2013, through a corporate structure consisting of vertical units, which is capable of further improving the management of the businesses with respect to the preceding organisation, that followed a territorial model. The new vertical unit organisation has proved to be functional in maintaining the solid traditional connections that have always constituted one of the Group's competitive advantages, through the establishment of organisational structures dedicated to territorial relations.
The strategy of focusing on core activities led to a rationalisation of the portfolio, with the consequent disposal of minor businesses and the sale of assets not held to be strategic, as well as a corporate rationalisation involving a much thinner organisation, which currently responds better to the Group's management rationale.

The Group's development strategies in energy businesses have always aimed at consolidating its significant position in the "core" sectors (gas distribution and sales) of its reference area, both by improving networks and service quality and by improving after-sales support services. The dual-fuel strategy, an expansion of the offer of electricity services to existing customers, was supported by a parallel and prudent upstream strategy of self-generation development complementing the market procurement sources. All of this maintained low risk-exposure in an area in which the Group did not have distinctive capabilities.

In the waste disposal market, in which Hera is the market leader in Italy, strategies were aimed at strengthening the plant structure for sustainable operations and respect for the environment. In a sector featuring seriously underdeveloped infrastructures, the Group's goal was to develop a fully integrated plant system, capable of reusing waste materials and extracting energy, through an ambitious investment policy involving the improvement of efficiency and rationalisation of operations.

In its regulated businesses Hera adopted a strategy for greater efficiency and plant development by creating infrastructures in the reference areas, strengthening positions in local markets and consolidating strong points with a view to gaining contracts when the present concessions expire and are put to tender.

These underlying strategies, even considering the new forms they take with respect to toady's reference scenario, have been confirmed once again in the 2012-2016 business plan.
This plan, approved by the Company's board of directors on 22 October 2012, is currently being updated, with an extension of its validity to 2017, following developments that have come about in the market contexts of the various businesses and a few modifications introduced and expected in the regulatory framework, the most significant of which include (i) AEEG resolution n. 196/2013 issued on 13 May 2013 that modified calculation procedures for sales of gas in the standard offer market and that will be fully effective as of 1st October 2013 with a reduction of marginality with respect to the previous system; (ii) the expected change in procedures for calculating regulated revenues in gas distribution for the fourth regulatory period, anticipated in their basic contents by the AEEG consultation documents DCO 56/2013 and 359/2013, that highlight both a rationale of updating invested capital remuneration and covering operational costs, as well as indications as to the outcome of tenders for service management to be held in the near future, whose development has been the object of recent government measures (for more details, concerning other regulatory interventions as well, see the chapter on regulation).
The new business plan, whose approval is foreseen within the month of September 2013, will furthermore take into account the revision of Acegas-Aps's Business Plan, that above and beyond the effects previously mentioned will also reflect recent accomplishments in the area of synergies, that came about during the first 8 months of integration, and the effects of the provision issued on 17 April 2013 by AGCM concerning the prohibition of acquisition of joint control over Isontina Rete Gas on the part of Acegas-Aps and Italgas.
Expectations for future growth rest primarily on continuity in processes of efficiency improvement, contributions deriving from the Acegas Aps merger, predictable further expansion by way of external growth lines that have already been identified and set under way, (operation with the multi-utility Aimag and continued coverage of the area as regards gas distribution services) and, lastly, continuity in expansion strategies in liberalised markets. The cash generation foreseen by these "organic, internal- and external-line" growth initiatives satisfies the strategic objective of improving financial solidity and maintaining a policy of constant dividends distribution per share throughout the period covered by the plan.
Expansion strategies for external lines also continue to be part of the rationale applied until present in the business plan to 2016, with a focus on neighbouring territories for strategies of multi-business expansion, and with a domestic prospective of expansion on free markets.