Hera S p A : Financial report as at 31 March 2021

TABLE OF CONTENTS

INTRODUCTION

OPERATING

TRENDS

CONSOLIDATED IFRS FINANCIAL STATEMENTS

MISSION AND STRATEGY	3
GOVERNANCE SYSTEM	4

1.01	TRENDS AND CONTEXTS	5
1.02	COVID-19 EMERGENCY MANAGEMENT	8
1.03	OVERVIEW OF OPERATING AND FINANCIAL TRENDS	10
1.03.01	Operating results and investments
1.03.02	Financial structure and adjusted net debt
1.04	ANALYSIS BY BUSINESS AREA	21
1.04.01	Gas
1.04.02	Electricity
1.04.03	Integrated water cycle
1.04.04	Waste management
1.05	SHARE PERFORMANCE AND INVESTOR RELATIONS	42

2.01

FINANCIAL STATEMENT FORMATS

44

2.01.01 Income statement

2.01.02 Statement of financial position

2.01.03 Cash flow statement

2.01.04 Statement of changes in net equity

2.02	SYNTHETIC EXPLANATORY NOTES	49
2.03	LIST OF CONSOLIDATED COMPANIES	51

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1.01 TRENDS AND CONTEXTS, STRATEGIC APPROACH AND GROUP MANAGEMENT POLICIES

Economy and finance: closing data and projections

The context in Italy

Trends and contexts

Economic activity recovered considerably in the fourth quarter of 2020, followed however by a slowdown due to increasing Covid-19 infections, which, in any case, did not prevent all major advanced economies from recording above expansion-ratemanufacturing-related performances in the first quarter of 2021. The services sector in particular, one of the most affected by the pandemic, shows weak growth prospects in the euro area, while more robust indicators have appeared for the US and the UK. Inflation in the world's main advanced economies rose overall, but still remains low, and for this reason the main central banks have confirmed an expansionary orientation in their monetary policies. Due to delays in vaccination campaigns and the spread of new variants of the virus, short-term growth prospects still reflect the uncertainties associated with the ongoing pandemic. In particular, medium- term prospects show the benefits of monetary and fiscal policy support and continued vaccination campaigns, but the timing and scope of recovery remain uncertain. According to the baseline scenario released by the International Monetary Fund (IMF) in April, global output should grow by 6% in 2021, reaching higher than pre-pandemic levels by the end of the year, and by 4.4% in 2022.

With particular reference to the euro area, in order to ensure full support for the economy and inflation and to ensure favourable financing conditions for each sector, i.e. to prevent the rise in yields observed on international markets from resulting in prematurely tightened financial conditions (not justified, that is, by the current economic outlook), in the second half of March and in the current quarter, the European Central Bank broadened and prolonged its monetary stimulus and increased the pace of securities purchases under the Pandemic Emergency Purchase Programme (PEPP) compared to the early months of the year. According to the projections released by the European Central Bank in March, GDP should grow by 4% in 2021 and 4.1% in the following year. According to preliminary data, inflation stood at 1.3%, on a twelve-month basis, in March; the increase compared to the end of 2020 reflected, in addition to the trends in the energy sector, a number of non-recurring factors, whose impact should be offset during the course of this year. The PEPP will continue to be used flexibly and strongly in order to maintain favourable financing conditions and counter the impact of the pandemic on inflation, whose prospects remain weak.

As regards the context in Italy, the most recent data provided by the IMF shows that in the first three months of the current year GDP remained unchanged, affected by the restrictions on movement and other measures intended to counter the Covid-19 epidemic following a new rise in infections. In particular, the strength seen in industry was accompanied by an enduringly weak performance in services. While consumption remained weak, the performance shown by investments and exports was more positive. The propensity to save remains high and household spending is still partly restrained by fear over future developments in infections.

The Italian Government has dedicated additional resources to strengthening the vaccination plan and other initiatives intended to counter the pandemic in the area of healthcare. Within the context of the European Union's financial instrument for recovery (Next Generation EU), the Government has prepared the National Recovery and Resilience Plan (PNRR); according to the initial indications, the available resources should amount to almost 192 billion euro. The forecast for macroeconomic trends included in the 2021 Budget Law projects an annual GDP growth rate for 2021 (which incorporates the PNRR) coming to 4.1%, revised downwards compared to previous estimates due to recent figures concerning the epidemic.

Changes in prices and financial markets

Consumer prices, which had taken a negative turn in the final months of 2020, rose to 0.7% in the harmonised index in March; this rebound is explained by data collection difficulties in March last year and upward pressure on production prices, especially due to the recovery in energy prices and shortages of components and materials in global value chains.

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