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For the eighth year in a row, in 2010 the Hera Group achieved positive results with the most significant organic growth since its establishment.

This figure becomes even more significant when examined in conjunction with the general macro-economic environment. Despite the modest recovery of 2010, the global situation compared to the pre-crisis period seems to be still one of deficit. In Italy, industrial output levels were positive at 5.5% (compared to a drop of approximately 17.5% in 2009). The GDP grew by 1.2% (compared to a decrease of 5.0% in 2009), exports increased by 15.7% (compared to -22.5% in 2009) and imports increased by over 22% (compared to -17.8% in 2009). The demand for energy services was also up; the demand for gas increased from 4.8%, assisted also by the colder weather (compared to -8% in 2009), while demand for electricity increased at a slower rate, to reach 1.8% (compared to -6.7% in 2009). In this context, Hera continued to pursue its strategies for development of its plants, external expansion, expansion on deregulated markets and general streamlining.

The growth strategy on deregulated markets led to a considerable increase in electricity sales in 2010, with sales volumes increasing by 10% compared to 2009, to approximately 7,7TWh. This result confirms the performance in 2009 (+2TWh) which enabled Hera to be included among the 10 electricity companies with the greatest rate and speed of growth in the Middle East, Europe and Africa in the Platts classification. The increase in sales in 2010 was achieved through a sales development policy that led to an expansion of the customer base from 335,000 to over 382,000. The increase in sales was achieved through cross-selling to existing customers and the expansion in new markets that are geographically close to the reference areas of Emilia Romagna and Northern part of Marche region.

The Hera Group has been able to use its efficient sales force and after sales service as leverage with which to gain the loyalty of existing customers while promoting efficient cross selling activity. In 2010, the Group won the bid to provide electricity for the 2011-2014 period to protected customers in Lombardy, Tuscany, Lazio, Abruzzo, Molise and Puglia, thereby conquering new shares in this market where Hera has been active since 2009. Sales were evenly distributed among small to medium sized business customers and domestic customers, maintaining a final customer base with a good range of diversity.

On the gas market also, sales in 2010 increased slightly compared to the levels reached in 2009 (volumes up by +4% over about 1.1 million customers, in line with the change in demand. These results benefited from the cold winter season, the success in expanding the market and the maintenance of the market shares thanks to the sales activity aimed at ensuring customer loyalty. The profitability of the gas area has significantly increased thanks to procurement policies, which made it possible to benefit from the drop in gas prices on the commodity market In Europe, due to the fall in demand and to the new LNG capacity on stream.

The urban and industrial waste disposal market, where Hera is the leader in Italy, experienced a growth of volumes, despite the negative results of the 2nd quarter of the year and the operational results thanks to the increase in WTE treatments and other new plants started up. These results can be better appreciated if seen in light of the Italian macro-economic 2010 scenario..

The plant development strategy, aimed at vertically integrating the activities, was pursued, including by the construction of new waste treatment and district heating plants, improving the expertise gained over the years to their construction and management. In addition to deploying the plants constructed in 2009, another 2 new plants were launched in 2010. The last of the large waste to energy plants development plan, i.e., the Rimini WTE, was started up in the middle of the year and furthermore a new thermoelectric biomass plant, held in a joint venture with an industrial partner in the reference territory, entered into operation in Faenza.

The concession managed activities for the distribution of energy, collection of urban waste and integrated water services which represent 50% of the Groups EBITDA contributed to the growth in 2010, thanks also to the tariff adjustments still processing in order to reach the guaranteed returns and the new tariff systems. In particular, for the distribution of gas, domestic authorities have defined a level of revenues based on a more congruous value of capital invested, while for water and urban waste collection services the tariffs established are in line with the agreements reached with Local Authorities. The rationalisation actions undertaken in 2010 continued to contribute to the growth in annual results: in particular through the development scheme of the remote control and grid maintenance activities.

The 2010 results were not affected by the development strategy along external lines which, at the end of the year, resulted in the conclusion of the memorandum of understanding with ACAM.

To support these actions for development, in 2010 Hera increased the Groups financial flexibility by opening the shareholding of Herambiente to a financial partner with whom Hera will share the expansion of the business and which purchased 25% stake, against a consideration of Euro 125 million. The financial partner is Ambiente Arancione, a join venture holding Eiser Global and APG (see also section 1.02). This transaction also implied a capital gain of Euro 50 million and resulted in greater capitalisation of the Group, together with a reduction of the net financial debt. The performance of the year, which also produced a positive cash generation, therefore closes with strengthened financial indices; a debt to equity ratio reduced below 1 and a ratio of D/Ebitda down to approximately 3. Furthermore, at the end of 2010, a convertible bond maturing in 2013 was issued of Euro 140 million, which ensures additional immediate liquidity and support for growth along external lines and which, if converted, will allow for improvement of the financial indices in the future.

The accounts for the year show increased operational results in all business areas, despite a conservative policy regarding additional provisions and amortisation/depreciation as against investments made as part of the development plan. The net profit after minority interest, which is almost double compared to last year, even not taking into account the mentioned capital gain of about Euro 50 million.

The 2010 accounts solidly confirm the expectations of the five year business plan which was announced to the financial markets in October and the strategic choices pursued over the last few years. In light of the solidity of the economic and financial performance of the Group, the Board of Directors has decided to propose to the shareholders meeting a dividend of Euro 0.09 per share, up by 12.5% compared to last year.

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