Hera Sustainable Approach 2007
1. Introduction to Hera Group (Teverola plant) Introduction
Local multi-utility consolidation process is speeding up Mapping Italian utility sector Introduction Hera reference territory 1
Hera leadership founded on unique governance and operating model Shareholdings: 1, 016. 8 m shares Hera growth based on “balancing” Expansion carried out through mergers which involve public shareholders of merged companies (deals based on cash and share). A unique multi-utility with no “absolute controlling shareholder” (public shareholders commit to maintain 51%). Full reorganization Area presence through L. o. c. Reorganization into 7 multi-business L. O. C. s (100% owned) and few divisions. The holding concentrates all corporate functions whereas L. O. C. s, deeply rooted in the local area, manage operations and strategic customer relations. L. O. C. s are benchmarked in order to define and share best practices Introduction 2
Sharp, continuous and sustainable growth achieved 4 Y double digit growth Ebitda Doubled and net profit tripled. 4 Y Ebitda growth (+22. 1% Cagr) underpinned by the benefits of the effective aggregation model. Dividends increased significantly, maintaining comfortable debt levels. ROI rose by 170 basis points. 4 Y Ebitda Growth Drivers (M€) Cagr +22. 3% Ebitda growth drivers: 54% Synergy exploitation (cost cutting, efficiency gains and HC reduction) and Organic Growth; 46% contribution companies. Introduction of the merged 3
CSR in Hera Corporate Social Responsibility has become a basic management system for Hera focused on: > selection of corporate strategies by assessment and balancing of the legitimate interests of all stakeholders; > responsibility must pervade all day-to-day corporate decision-making procedures. Already in 2003, with the decision to publish the Sustainability Report on a yearly basis, and then in 2005 when the Corporate Social Responsibility Unit was set up, Hera had made Corporate Social Responsibility a part of its strategy. In 2007 the Balanced Scorecard system introduced in 2005 was extended to all managers. The Balanced Scorecard approach help to define objectives of a "qualitative" nature (e. g. stakeholder involvement, increased quality of services to the customer, and staff career advancement). Introduction 4
Main CSR projects The RAB at Ferrara started On May 2005 the kick-off meeting of the Residential Advisory Board regarding the Ferrara waste-toenergy plant was held. The RAB provides a method for consultation between the company and citizens, with functions of monitoring and the exchange of information on environmental indicators. New Mission approved On June 2006, the Board of Directors of Hera Sp. A approved the new Mission and new company Charter of Values, fruit of the efforts of an internal working group. The Mission and Charter of Values have been submitted to the approval of the workforce through focus groups and a survey. The first Hera's kindergarten On January 2007 the first Hera's kindergarten "Tirithera" was opened. The premises of the nursery school, located inside the Hera offices in Cesena, were built following principles of bioarchitecture. Waste-to-energy plant emissions available on-line Beginning from February 2007, are available on the Hera Group website, updated daily, the atmospheric emissions of the waste-to-energy plants, and comparison to legal limits. An archive of data from previous days is also available. Introduction 5
Main CSR projects (2) Corporate Social Responsibility Convention organized by Hera On June 2007 was held a convention organized by Hera entitled "Corporate Social Responsibility: the other side of competition. How to reconcile social responsibility and competitive advantage? " International experts and members of the Italian business world participated in the event, to discuss the relationship between corporate social responsibility and competitive advantage. Second internal climate survey The second internal climate survey has conducted on October 2007. After the first experience in 2005, Hera asks again to all workers to how they "work in Hera". Approval of the new Hera Group Code of Ethics On September 2007 the Board of Directors of Hera approved the new Group Code of Ethics. An Ethics Committee was foreseen, to ensure that the Code will be circulated and observed. The Committee will also record any violations of the Code. Introduction 6
Main CSR results and awards European EMAS Award In November 2005, the Ecolabel and Ecoaudit committee (a body appointed by the Italian Ministry for the Environment, issuing EMAS certification) selected Hera for the European EMAS Award and singled out the corporate EMAS certification project as an instance of excellence. Sodalitas Social Award's Award On 7 June 2006 Hera was awarded the Sodalitas Social Award for its project involving the local community in the Ferrara RAB (Residential Advisory Board). The Hera Group was recognized in this field as a result of the project involving the local community. Sustainability report A+ GRI-G 3 The Hera Group Sustainability Report 2006 was drawn up using the G 3 guidelines set forth by the Global Reporting Initiative. In terms of the levels of application identified for these guidelines, this Report reached a level of application of A+, which corresponds to complete application of the requirements of the guidelines, and an independent external audit. Financial Statements Oscar On 28 November 2007, the Hera Group has won the 2007 “Financial Statements Oscar”: sponsored by FERPI, the Italian Federation of Public Relations, the award destined to major Italian companies with the most outstanding levels of transparency, timely and quality of communication since 1955 (Fiat, RCS, SIP, Pirelli, ENI, ENEL, to name but a few). Introduction 7
Hera Sustainable Future Hera Sustainability 8
Mission, Ethics & Strategy are focused on Sustainability Hera sustainable “nature” > Hera main shareholders are public entities which promoted since beginning a sustainable approach towards all stakeholders, which is the core of the Group Mission. > Hera strategy is focused on exploiting all growth opportunities (internal and external) enhancing financial as well as social and environmental performances to continue past “sustainable” growth path. > The Mission and the strategy are pursued applying the ethical code binding all stakeholders to respect Hera fundamental principles. Communication and Controlling procedures and contractual clauses are set in place in order to avoid actions not compliant with the code by stakeholders. Hera Sustainability Group Strategy focus on Sustainability Creating & communicating values > Ethical code guarantees transparency, equal opportunities and respect of ethical values in the management of all activities. Hera Core Values: >Integrity >Transparency >Individual responsibility 9
Governance for an integrated multi-stakeholder approach Shareholding Organizational structure Board of Directors Remuneration Committee Chairman Internal Audit Committee C. E. O. Investor Relat. Communication > 58% shareholdings is build up by public entities (tied in a pact 51% of shares) > Each private shareholder has max. 2% voting rights > Since flotation (2003) the Group has changed governance in order to guarantee minority shareholders’ interests Hera Sustainability CSR Vice President Internal Audit QSA > Bo. D include 18 members of which 16 nonexecutive and 4 representatives of minority shareholders. > Internal Bo. D Committees in place > CSR and QSA and IR functions directly in line to Top management guaranteeing continuous dialog with stakeholders 10
Citizenship > Hera acts as an relevant economic and social entity with the responsibility of managing significant environmental and social resources of its reference territory. > Hera is committed to properly use natural resources (earth, water, air) delivering services to people aiming at reducing negative environmental effects (CO 2 emissions, water and soul pollution) through efficiency gains, R&D on innovative processes and real time control systems. > Hera is as well committed to promote social enhancement through promotion of values, respect of people, listening and speaking to all stakeholders. > This citizenship has a significant impact on how Hera people effectively think, organize, act and manage relations with personnel, customers, suppliers shareholders, the environment and the other stakeholders. Hera Sustainability 3 Y positive trend of all main KPI Economic responsibility Value added (ml €) Ebitda per employee (K€) Social responsibility Hiring on an indefinite basis (no. ) Training for employee (per capita h/year) Workforce attending at least 1 training c. Accident frequency index (number of accidents/hours worked x 1, 000) Internal climate index (score 0 -100) Customer satisfaction index (score 0 -100) Avg call center response time (sec) Avg branch operator waiting time (min) Total return for shareholders since IPO ISO 9001 certified suppliers (unit) Environmental Responsibility % Energy produced from renewables Compliance of treated water with legal limits Compliance with Kyoto Protocol (<100% optimal) Water grid loss (real and procedural)* Separate waste collection % low envir. impact road vehicles Solid waste collected disposed in landfill without pretreatment (% total waste) 2004 2005 2006 541. 6 58. 2 750. 4 65. 4 838. 8 68. 6 93 17. 2 79. 2% 115 18. 5 82. 2% 126 20. 1 92. 5% 56. 8 50. 1 47. 5 67 102. 9 33. 8 79. 8% - 50 67 70. 2 39. 5 89. 6% 1. 046 34. 5 35. 8 1. 37 x 1. 400 38. 0% 32. 7% 30. 4% 13. 9% 42. 4% 30. 0% 107% 24. 9% 31% 13. 0% 47. 7% 31. 7% 95% 23. 4% 33. 5% 25. 4% 29. 8% 29. 1% 24. 0% * Related to networks of merged companies in 2004 -2005 11
Governing Corporate Social Responsibility > Main Organizational Units 2006 -E 2010 KPI Growth > Supervisory Board on corporate crime prevention (legislative decree 231/2001) > Corporate Social Responsibility Unit > Quality, Safety and Environmental Management Office = > Internal Auditing Department > Risk management Unit > Main procedures and instruments > Organizational Model for corporate crime prevention (legislative decree 231/2001) > Code of Ethics > Quality, Safety and Environmental Management System > Hera business plan include targets on main sustainability KPIs. Annex: Business plan E 2007 -2010: Sustainable Growth = 12
Personnel Hera’s most relevant stakeholder > A continuous internal communications system is having success (meetings, House organ, intra-net site, television screens) > At Hera all relevant matters are shared with employees starting from the discussion on the new mission, new business plan etc. > In 2005 the first survey on personnel satisfaction yielded positive results Personnel Breakdown 2004 2005 2006 84 192 1, 987 2, 760 5, 023 93 245 2, 458 3, 108 5, 904 99 252 2. 535 2. 998 6. 227* 43. 8 13. 7 44. 4 14. 3 21% 19% 21% 20% 21% 22% 246 273 272 Litigations 33 21 24 Strikes (hours pro capita) 4. 3 4. 0 4. 8 414 493 Senior Manager Clerks worker Total head count Avg Age (years) Seniority in Hera (years) > A Balance score Card system was introduced Female on total (%) to guarantee a fair valuation of results and Female on executives bonuses (493 people received a bonus in ’ 06) > Hera is implementing a “Student program” to hire and educate 151 people coming out from university. > Hera commitment is to improve education and know how sharing. Training activities performed obtained positive feed back from personnel (1. 0 ml€ spent in training in 2006) Hera Sustainability Protected categories (unit) Persons awarded with bonus * Include Aspes personnel 13
Personnel (2) Hera actions and commitments on social responsibility > Hera commitments to improve its social responsibility are stated in the business plan 2006 -E 2009 > Hera will invest in training employed people to share best practices and promote internal carriers replacing natural retirement > Above 3 Ml€ investments are planned to improve training courses to employees in next 3 years. > Safe and security on work place will be certified with Ohsas 18001 within 2007 > Balanced Scorecard system will be extended to 100% of managers within 2007 > Facilities will be built in order to meet family needs of workers (e. g. Kinder garden etc) Hera Sustainability Commitments 2006 -E 2010 Social Responsibility KPI 2004 -2006 2004 2005 2006 93 115 126 Training for employee (per capita h/year) 17. 2 18. 5 20. 1 Workforce attending at least 1 training c. 79. 2% 82. 2% 92. 5% 56. 8 50. 1 47. 5 - 50 - Hiring on an indefinite basis (no. ) Accident frequency index (number of accidents/hours worked x 1, 000) Internal climate index (score 0 -100) 14
Customers represent Hera focus > Customer satisfaction survey in 2005 highlighted a significant degree of satisfaction (67 points achieved on a max of 100) 2006 -E 2010 Commitments to better > Develop web-site potentials to serve customers > Reduce response time on claims > Work out a welcome kit for new customers > Loyalty of customers is highlighted by low churn rates in liberalized activities (such as gas sale: 0. 8% churn rate) > In order to meet the commitment to improve the customer care Hera is implementing: >An integrated SAP IT system (CRM and one invoice for different services) >Working out a quality standard card for all provinces >Several projects aiming at enhancing customer care activity (in 3 years dedicated personnel increased by above +100%) Hera Sustainability 2004 -2006 KPI 2004 Customer satisfaction index (score 0100) Avg call center response time (sec) Avg branch operator waiting time (min) 2005 2006 - 67 - 102. 9 70. 2 34. 5 33. 8 39. 5 35. 8 15
Suppliers considered strategic partners 2005 -2006 Suppliers data > Hera deals with 16 k suppliers Materials > 70% in reference territory Services Workers Total suppliers > A qualification system introduced on certification basis > Ethical Code in contract clauses Commitments for the future > Improve ethical code knowledge among suppliers > Increase share of supplier certified Ohsas 18001, SINAL, SIT and SA 8000 > Improve web-site information dedicated to suppliers Hera Sustainability 2005 2006 9, 143 9, 337 9, 387 1, 080 15, 815 9, 886 1, 197 16. 170 65% 66. 5% Resident in other regions Resident outside Italy Total 34% 1% 100% 32. 5% 1% 100% Value of supplies certified ISO 9001 SOA ISO 14001 - EMAS SINAL OHSAS 1. 046 277 100 23 10 1. 400 418 155 29 18 Resident in reference territory 16
Environment > Hera waste management, water services and energy production activities have an intense use of environmental sources. > The commitments regarding low environmental impact of these activities highlights positive results in past 3 years in term of CO 2, exploitation of waste recycling, water leakage. > In electricity production, Hera is active mainly with WTE plants, district Heating and biogas (100% renewable sources) which have low environmental impact and benefit from incentive schemes (CIP 6 tariff and Green certificates). > Hera is respecting all national and Kyoto protocol standards regarding CO 2 emissions and laws on pollution in general. > 10% of 2006 Ebitda was related to benefits coming from Hera environmental low impact activities. Hera Sustainability 2004 -2006 Electricity Production GWh WTE Cogeneration Biogas (landfill) Turbo expansion plants Biogas from depuration plants Hydro Total 2004 158. 4 124. 6 10. 7 11. 1 2. 6 1. 2 308. 5 2005 260. 5 102. 2 16. 6 2. 6 1. 5 392. 8 2006 306. 1 94. 6 15. 3 9. 8 1. 6 0 427. 4 2005 2006 38. 0% 32. 7% 30. 4% 13. 9% 42. 4% 30. 0% 107% 24. 9% 31% 13. 0% 47. 7% 31. 7% 95% 23. 4% 33. 5% 25. 4% 29. 8% 29. 1% 24. 0% 2004 -2006 KPI Environmental Responsibility % Energy produced from renewables Compliance of treated water with legal limits Compliance with Kyoto Protocol (optimal <100%) Water grid loss (real and procedural)* Separate waste collection % low envir. impact road vehicles Solid waste collected disposed in landfill without pre-treatment (% total waste) 17
Environment (2) > Hera is committed to enhance the outstanding position in WTE (building 4 new plants). Electricity Production targets > Waste management will focus on recycling in order to reduce landfill treatments. > Investments in Water services aims to reduce leakages. > CO 2 emissions will have a positive balance in 2009. Environment: targets > Increase Cogeneration (district heating) plants > R&D will focus on alternative energy sources (fuelcell, solar) and on solving CO 2 emission issues through innovative technologies > Hera is committed to increase up to 20% the portion of E 2009 Ebitda coming from benefits of low environmental impact. Hera Sustainability 18
Closing remarks Past main focus of Hera CSR action: > Mission and Corporate value identification > Sustainability reporting > Strategy sharing and management process optimisation (Balanced Scorecard) > Dialog with inhabitants living close to industrial plants of Hera > Reduce environmental impacts and certification (ISO 9001, ISO 14001) > Targets for CSR activities: > Sharing and apply the ethical code of conduct > Obtain further certification (OHSAS 18001, EMAS) > Start the process to obtain SA 8000 certification > Further extend the dialog opportunities with stakeholders (es. RAB) Hera Sustainability 19
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