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Consolidated explanatory notes

These consolidated half-year financial statements as at 30 June 2012 were prepared pursuant to the EC Regulation no. 1606/2002 of 19 July 2002, according to the IAS/IFRS International Accounting Standards (hereunder referred to as IFRS), approved by the European Commission, supplemented by the related interpretations (Standing Interpretations Committee - Sic and International Financial Reporting Interpretation Committee - IFRIC), issued by the International Accounting Standard Board (IASB) as well as by provisions set forth in application of Art. 9 of the Legislative Decree no. 38/2005.

The same accounting criteria applied to the consolidated financial statements as at 31 December 2011 were adopted in the drawing up of these consolidated half-year financial statements, prepared according to IAS 34 - Interim Financial Statements. As for a more thorough description, refer to the financial statements as at 31 December 2011, except for information given in section "Accounting principles, amendments and interpretations applied on 1 January 2012".

The figures in these consolidated half-year financial statements are comparable with the same balances of the previous financial year, unless otherwise indicated in the notes commenting on the individual items.

While preparing the financial statements as at 31 December 2011, the Municipalities of Cesena, Ferrara, Forlì, Imola, Ravenna and Rimini were also considered related companies with significant influence. The tables in the Income Statement of these half-year consolidated financial statements do not show the associated positions as at 30 June 2011, considering the difficulties related to obtaining said information. Taking account of the ongoing nature of the underlying relations, it is believed said values may reasonably be in line with the same figures as at 30 June 2012.

Non-recurring costs and revenues are indicated separately in the financial statements.

Use of estimates. Preparation of the consolidated half-year financial statements and related notes requires the use of estimates and valuations by the directors, with effects on the balance sheet figures, based on historical data and on the forecasts of specific events that are reasonably likely to occur on the basis of currently available information. The main areas characterised by valuations and assumptions, especially the types and assumptions for their processing, together with reference book values, are set forth below.
Allocations to provisions for risks. These allocations have been made by adopting the same procedures as previous periods and hence by referring to the updated reports of the legal counsel and the consultants overseeing the disputes, as well as on the basis of developments in the related proceedings. Specifically, in the paragraph relating to provisions for risks the assumptions used to estimate the provision for risks in INPS (Social Security) disputes are specified.
Revenues recognition. Revenues for the sale of electricity, gas and water are recognised and accounted for at supply and include the allocation for services rendered between the date of the last reading and the ending of the period. This allocation is based on estimated of the customer's daily consumption, based on the historic profile, adjusted to reflect the weather conditions or other factors which might affect consumption under evaluation.

Please also note that these valuation procedures, especially those relating to the more complex valuations, such as the determination of any impairment losses on non-current assets, are generally only made definitively at the time the annual report is prepared, except when there are indications of impairment requiring an immediate valuation of any losses in value.

Income taxes are recognised based on the best estimate of the weighted average rate expected for the entire financial year. By effect of the Decree Law Monti (Decree Law 201/2011), calculations were made by taking account of the higher deduction per tax wedge which will be admitted for 2012, pursuant to Art. 11 of the Legislative Decree no. 446/97.

A comparison of single items in both the income statement and the statement of financial position must also take into consideration the changes to the scope of consolidation indicated in the specific section.

Financial Statements
The formats used are the same as those applied to the consolidated financial statements as at 31 December 2011. Specifically, a decremental format has been used for the income statement, with individual items analysed by type. We believe that this type of disclosure, which is also used by our major competitors and is in line with international practice, best represents company results. The statement of financial position makes the distinction between assets and liabilities, current and non-current.

The cash flow statement has been prepared using the indirect method, as allowed by IAS 7. It should be noted that the cash flow statement has been amended with respect to the corresponding period of the previous year in order to best represent the actual cash flows in the year in terms of operations and financial and investment management. Following said improvement, for the purposes of consistency, the figures from the previous period were reclassified so that the data can be directly compared.

The statement of comprehensive income is presented in a separate document from the income statement, as permitted by IAS 1 revised. The statement of changes in shareholders' equity has been prepared as required by IAS 1 revised.

Moreover, with reference to Consob resolution no. 15519 of 27 July 2006 on financial statements, specific supplementary formats of income statement, statement of financial position and cash flow statement have been included, while highlighting the most significant relations with related parties, in order to avoid altering the overall clarity of the financial statements.

The consolidated statement of financial position and income statement schedules and the information included in the explanatory notes are expressed in thousands of Euro, unless otherwise indicated.

Scope of consolidation
These consolidated half-year financial statements as at 30 June 2012 include the financial statements of the Parent Company, Hera Spa, and its subsidiaries. Control is obtained when the Parent Company has the power to determine the financial and operational policies of a company, in such a way as to obtain benefits from the company's activity.

Small-scale subsidiaries, and those in which the exercise of voting rights is subject to substantial and long-term restrictions, are excluded from line-by-line consolidation and valued at cost.
Equity investments comprising fixed assets in large-scale associated companies are valued under the equity method. Those of an insignificant size are instead carried at cost. Subsidiaries and associated companies that are not consolidated, or valued at equity, are reported in note 18.

Companies held exclusively for future sale were excluded from consolidation and valued at cost or fair value, net of sales costs, whichever is the lesser. These equity investments are recorded as separate items. Equity investments in joint ventures, in which the Hera Group exercises joint control with other companies, are consolidated with the proportional method reporting the assets, liabilities, revenues and costs on a line-by-line basis in a measure that is proportional to the Group's investment.

Changes to the scope of consolidation in the first half of 2012, compared with the consolidated financial statements as at 31 December 2011 are shown below.

Changes in the scope of consolidation

Subsidiaries

Consolidated companiesCompanies no longer consolidatedNotes
Feronia Srl Consolidated on a line-by-line basis 
Hera Servizi Cimiteriali Srl Consolidated on a line-by-line basis 

On 31 January 2012, Herambiente Spa purchased 30% further share in the share capital of Feronia Srl from Sorgea Srl. The company's equity investment in this company increased to 70%.

Hera Servizi Cimiteriali Srl, incorporated on 22 December 2010, became operative after the disposal, on 1 May 2012, by Hera Spa of the business branch related to the business handling burials and cremations. By virtue of to this transaction, the company, previously measured at cost, is consolidated on a line-by-line basis.

Jointly controlled companies

Consolidated companiesCompanies no longer consolidated Notes
 FlameEnergy Trading GmbhConsolidated at equity 


Flameenergy Trading Gmbh The company underwent a remarkable reduction in size of its activities by joint decision of shareholders. Therefore, in light of the limited significance of the contribution of this company to the scope of consolidation, this company has been measured at equity as from this consolidated half-year financial statements.


Associated companies

New companies measured at equityCompanies no longer measured at equityNotes
 Feronia SrlConsolidated on a line-by-line basis
FlameEnergy Trading Gmbh Consolidated at equity 

Comments on these changes are also given in the section "Subsidiaries" and "Jointly controlled companies".

Changes in the scope of consolidation

With effect from 1 January 2012, Acantho Spa acquired over 600 residential customers from Geosat Srl, a company with registered office in Bologna and operating in the Romagna region and part of Marche region, as wireless internet services and service provider. In particular, the transferred branch concerns the supply of connections to the internet network through broadband wireless connections in the provinces of Forlì, Cesena, Ravenna, Rimini and Pesaro-Urbino.

Hera Energie Rinnovabili Spa acquired the entire capital of the following companies:

  • Amon Srl, on 8 February 2012;
  • Esole Srl, on 8 February 2012;
  • Ctg Ra Srl, on 8 March 2012;
  • Juwi Sviluppo Italia 02 Srl, on 1 March 2012,
    which operate in the field of building, operation and production of electricity from photovoltaic plants owned and located in the Municipalities of Copparo (Fe), Alfianello (Bs), Faenza (Ra) and Petriolo (Mc), respectively. On 28 June 2012, these companies merged into Hera Energie Rinnovabili Spa, effective as from 1 January 2012.

 

A list of the companies included in the scope of consolidation is provided at the end of these notes.

Seasonal effects on business
Within the Group, water and energy sectors are the most influenced by seasonal factors, taking account of consumption peaks, in the summer and winter season, respectively. In general, however, taking account the Group business portfolio, the half-year economic data are not particularly influenced by the above-mentioned effect. Conversely, equity figures, as also described in the following notes, highlight a decrease in trade payables at end of June, above all with respect to the timing of raw materials supply.

Significant events after the end of the period and business outlook
Information regarding the company's activity and significant events occurred after year end are included in a special section of the consolidated half-year report (par. 1.2).

Other information
It is also noted that, over the first half of 2012, atypical and unusual transactions were not accounted for, according to Consob communication no. 6064293 of 28 July 2006.

These consolidated half-year financial statements as at 30 June 2012 were drawn up by the Board of Directors and approved by the same at the meeting held on 28 August 2012.

Accounting standards, amendments and interpretations applicable from 1 January 2012
Starting from 1 January 2012, the following amendment to the accounting standards have been applicable as they have already concluded the EU endorsement process:

Amendments to IFRS 7 "Financial instruments: supplementary disclosures": the amendment promotes transparency in the information presented in the financial statements on transfers (derecognition) of financial assets in the portfolio, improving disclosures on the risks which remain for the entity that performed the transfer and the effects on the financial position, especially if said transfers are carried out at the end of an accounting period.

This amendment entailed not significant effects on the information supplied in these consolidated half-year financial statements as well as on the measurement of the related balance-sheet items.

Accounting standards, amendments and interpretations endorsed by the European Union which are not yet applicable and have not been adopted early by the Group.
Starting from 1 January 2013, the following amendment to the international accounting standards shall be mandatorily applicable as it has already concluded the EU endorsement process:
Amendments to IAS 1 "Presentation of the Financial Statements" published by the IASB on 16 June 2011 and applicable to reporting periods beginning on or after 1 July 2012, modifies the presentation of the statement of comprehensive income, requiring a separate indication of components depending on whether said items can then be reclassified to the income statement or not. The application of this amendment will have no impact on the measurement of balance-sheet items.
Amendments to IAS 19 "Employee benefits", published by the IASB on 16 June 2011 and applicable from 1 January 2013, eliminates the possibility of applying the corridor method, requiring the recognition in the income statement of the cost of employment and financial interests and recording in the statement of comprehensive income of the entire amount of actuarial gains and losses. Furthermore, the method of calculating the interest cost was modified. The Group, which is currently using the "corridor" method, is evaluating the impacts which will result from the application of this amendment.

Accounting standards, amendments and interpretations not yet endorsed by the European Union
The following updating of IFRS standards (already approved by the IASB) and the following interpretations and amendments are in the process of being endorsed by the competent bodies of the European Union:

  • IFRS 9 "Financial Instruments", published by the IASB on 12 November 2009 and subsequently amended on 28 October 2010. With effect from 1 January 2015, this standard is the first part of a process taking place in phases for the replacement of IAS 39 and introduces new criteria for the classification of financial assets and liabilities and for the derecognition of financial assets
  • Amendments to IFRS 7 "Financial instruments: Supplementary Disclosures", published by the IASB on 16 December 2011 and applicable from 1 January 2013, requires more information on the effects of asset and liability offsetting on the financial position.
  • Amendments to IAS 12 "Income taxes", published by the IASB on 20 December 2010, clarifies the method of calculation of deferred taxes in the event of real estate investments measured at fair value based on IAS 40. This amendment should have been applicable retrospectively as from 1 January 2012.
  • Amendments to IFRS 1 "First-time Adoption of International Financial Reporting Standards", published by the IASB on 20 December 2010 and applicable from 1 July 2011.
  • IFRS 10 "Consolidated Financial Statements", published by the IASB on 12 May 2011 and applicable from 1 January 2013. This standard will replace the SIC 12 standard "Special Purpose Entities" and partly the IAS 27 standard "Consolidated Financial Statements", which will be renamed as "Separate Financial Statements" and will govern the accounting treatment of equity investments in the separate financial statements. The IFRS 10 standards outlines the new criteria for the preparation of consolidated financial statements and establishes the principle of control as the basis for consolidation of a company in the consolidated financial statements of the Parent Company. This standard also sets out how to apply the principle of control to identify whether a company is controlled.
  • IFRS 11 "Joint arrangements", published by the IASB on 12 May 2011 and applicable from 1 January 2013, redefines the method of accounting of joint arrangements in the consolidated financial statements and sets out that the only applicable accounting method is at equity.
  • IFRS 12 "Disclosure of interests in other entities", issued by the IASB on 12 May 2011 and applicable from 1 January 2013, expands the information required regarding various types of investments.
  • IFRS 13 "Fair value measurement", issued by the IASB on 12 May 2011 and applicable from 1 January 2013, provides a unique definition of the fair value concept, clarifying the calculation methods for financial statement purposes.
  • IAS 27 Revised "Separate financial statements", issued by the IASB on 12 May 2011 and applicable from 1 January 2013.
  • IAS 28 Revised "Investments in associates", issued by the IASB on 12 May 2011 and applicable from 1 January 2013.
  • IFRIC 20 - "Stripping Costs in the Production Phase of a Surface Mine", published by the IASB on 19 October 2011 and applicable from 1 January 2013.
  • Amendments to IAS 32 "Financial instruments: Disclosure and Presentation", published by the IASB on 16 December 2011 and applicable from 1 January 2014. These amendments clarify the application of some offsetting criteria of financial assets and liabilities included in IAS 32.
  • IFRS 1 (Amendments) - "First-time Adoption of International Financial Reporting Standards"- Government Loans, published by the IASB on 13 March 2012 and applicable from 1 January 2013.
  • Ameliorations to IFRS (2009-2011) (amendments), published by the IASB on 17 May 2012 and applicable from 1 January 2013.
  • Guide to transition (amendments to IFRS 10, IFRS 11 and IFRS 12), published by the IASB on 28 June 2012 and applicable from 1 January 2013.