Covid-19 emergency management
Covid-19 impacts on business and operations
In 2020 the Group, much like the entire utilities sector, did not directly suffer from the interruption of activities due to the lockdown and subsequent restrictions. It did, however, have to cope with the fall in consumption resulting from the crisis. This reduction did not lead to a decrease in the Group’s overall results, which continue to show growth, even though they were partially affected by the pandemic.
The breakdown of the Group’s business portfolio, marked by balance between free-market and regulated activities, is an initial factor that allowed the economic impact to be contained, since regulated activities were not affected in the short term by market phenomena related to the pandemic. The high level of resilience that characterizes the Group, not only in terms of infrastructures but also from an operational and organizational point of view, allowed it to maintain a positive trend of growth, containing the operating and financial impacts of the crisis. The year-end figures showed, considering all business areas as a whole, a reduction in earnings caused by the Covid-19 health emergency coming to approximately 31.4 million euro.
In terms of operations, the intensive use of alternative work and communication tools made necessary by the pandemic raised a major challenge for the Group, which immediately set itself the objective of enabling thousands of its employees to continue working remotely, in order to ensure service continuity, but also to allow them to more easily manage their private lives. Making the most of the experience previously gained in remote working for hundreds of its employees, the Group was able to extend this program by effectively addressing its significant technical and organizational impact, in compliance with IT security requirements and without interrupting work activities.
From a technological point of view, advanced tools were introduced to protect workstations and servers, as were functions aimed at making digital identity and IT access management increasingly secure.
Lastly, the pandemic led to a drastic reduction in business trips, with internal events also cancelled and, as a result, an exponential increase in remote meetings and virtual training rooms. Since Hera had already started a process of digitalization of processes some time ago, thanks to its adoption of the digital workplace, the Group’s IT architecture was already adequate and able to support the increased use of digital collaboration tools.
Potential impacts on business, financial situation and performance in the future
The results of the first quarter of 2021 – with EBITDA up 3.7% and net profit improving by 6.3% compared to the first quarter of 2020 – proved that Hera, despite the pandemic, is continuing along its path toward sustainable and profitable development indicated in the Business Plan.
Considering the external context in which Hera achieved these results, the Group faced less restrictive lockdown compared to the first quarter of 2020, particularly in the month of March, which last year had seen a complete closure of non-essential production activities and severe limits to people’s mobility. From January 2021, with the start of the vaccination campaign, the prospect of a progressive return to normality is increasingly visible. In the first quarter of 2021 the weather was also much less mild than that of 2020, with temperatures more aligned to historical averages; this has certainly had a positive impact on gas demand, giving an additional contribution to positive results.
If last year, in the first quarter, the penalising effects of the pandemic had completely neutralised the benefits of organic growth, and only the entry of EstEnergy into the Group’s perimeter, following the agreement reached with Ascopiave, had allowed to post a quarterly EBITDA increase of 5.6%, in 2021 the growth drivers are mainly organic.
The sector that suffered most significantly was the commodities area, where a reduction was seen in demand for electricity and gas, especially from industrial customers, primarily due to the restrictions caused by the lockdown and the slow progress of economic recovery, as a result of further measures taken by the national and regional governments. The reduction in consumption primarily concerned Northern Italy, due to its industrial and productive fabric, characterized by intensive energy use. Alongside the reduction in demand, a decrease was also seen in electricity and gas prices, however, the extraordinary efforts deployed by Hera to face the health emergency allowed the impact on Ebitda to be contained within the limits foreseen last year at the beginning of the pandemic, thanks in particular to all the support measures introduced.
With the recovery of demand, especially from industrial operators, by mid-2021 the Group expects to fully offset negatives registered due to pandemic.
As regards the prospective management of financial requirements and the related cost, the Group amply demonstrated its ability to obtain resources on financial markets at sustainable costs also in the future. Indeed, by the end of 2020 the Group registered cash and cash equivalents of approximately 987.1 million euro, to be freely used, committed lines of credit amounting to 650 million euro and uncommitted lines of credit totalling 537 million euro. Furthermore, in December 2020 the Group issued a 500 million euro 10-year bond at a very low nominal rate, coming to 0.25%.
Hera’s current financial situation, supported by careful management applied to all phases of the credit process and prospects for future performance in all businesses, enables the Group to maintain, even during the ongoing pandemic, the financial planning outlined in the 2021 budget.
The projected investments have therefore been confirmed, as a necessary driving force for development especially in network activities, as have dividend payments, the latter increasing compared to the previous year, as already foreseen by the 2020-2024 Business Plan.
Effective and potential and impacts on shareholders
The Board of Directors, considering the positive results reached and the strong cash generation registered in 2020, has decided to put an 11 cents per share dividend to the 2021 Shareholders Meeting.
In fact, the Shareholders’ Meeting held at the end of April approved the proposal of the Board of Directors to distribute a dividend of 11-euro cents, therefore 0.5-euro cents higher than that anticipated when the new Business Plan was presented last January and 1-euro cent higher than the 10-euro cents distributed for 2020.
With an ex-dividend date set on 5 July 2021, Hera shares offer a yield of 3.7% on the end-2020 price of 2.98 euro, an attractive level of return that appears even more attractive given the low risk profile that Hera can boast also in a tough period.
The 0.5-euro cents increase has further benefited the shareholder remuneration policy described in the Business Plan, since this is a new starting point that will be applied, thus arriving at a dividend coming to 13 cents per share by 2024, with constant increases introduced year after year. The rise in financial expenditure for the dividends foreseen over the period covered by the Plan will be fully covered by the cash already generated in 2020.
Even in a period heavily conditioned by the pandemic, Hera has therefore succeeded in creating the financial conditions to provide shareholders with a generous remuneration, while the Group remain focused on pursuing the Plan’s targets on a more solid basis, as also proven by first-half of 2021 performance.
Related content
Our Crisis Management policy establishes the guidelines and operational processes for the management of crisis events.
In line with the best practices of the sector, the policy ensures the correct identification, assessment, management and monitoring of crises to which all the companies of Hera Group may potentially be exposed. The model includes policies, procedures and operating instructions whose purpose is to encourage compliance with regulatory requirements on emergencies and the execution of plans for the continuity and reinstatement of the activities, resources and infrastructures necessary to provide the services.
Nature of the crisis
The term “crisis” means any situation caused by critical events that seriously affect the operational capacity of companies, the safety of workers and the environment, and that may threaten the company's prospects and reputation. The crisis must be dealt with in a prompt and professional manner, in order to limit the damage and restore the situation to normality. For this reason, a crisis management policy has been established in order to raise awareness, and ensure organisational adequacy, the availability of management resources and operational readiness, all of which are necessary to effectively deal with and manage crisis events.
Different types of crises, related to a unified paradigm, were firstly identified that, in safeguarding the specificities of the action plans in order to evaluate and manage events, guarantees a constant corporate commitment, safeguards the unity of governance and ensures an adequate allocation of resources for the management of crises.
Context and reference model
Crisis management goes hand in hand with increasingly new needs related to the development of the required safety standards, the increasing visibility and importance for stakeholders of issues relating to the ability to manage emergencies and the awareness that resilience represents a fundamental strategic development axis to achieve the Group's mission. With these intentions, our Crisis Management model and its operational uses were established in a well-structured manner, including the bodies and roles responsible for its management.
The Crisis Committee
Our Crisis Committee ensures the correct and effective operational management of the critical event. The Crisis Committee is activated only in cases involving an emergency that might endanger the solidity and reputation of the company or seriously compromise the interests of our stakeholders. Its function is to collect and analyse useful information in order to assess the alert state and declare the state of crisis.
In an emergency situation, the Crisis Committee evaluates the type of event that has occurred and the causes, the degree the service has been compromised, the possible impacts on the stakeholders and the implications in terms of the safety of persons; the Committee also declares a state of crisis by deciding the activation of the measures provided in the respective Crisis Management Plans.