Subscribe to InvestorNews
to stay updated on Hera Group’s results and strategy
InvestorNews
Financial Results H1 2023
Message from the Executive Chairman of the Board
EBITDA on acceleration, with debt down and risk profile under control
In the second quarter of 2023, Hera gave fresh impetus to the growth already achieved in the first quarter, with first-half EBITDA showing an overall progress of 13.8%.
This result reflects the positive contribution of all business areas, while also having a significant sustainable connotation, given the continued development of the Decarbonisation activities.
In the first half of the year, the successful efforts to win new customers in the free market, the tenders awarded in the segments of last resort, STG and Consip, as well as the strong positioning in Decarbonisation services gave the Energy area a driving role in the Group’s growth.
The healthy cash generation in the first half of the year also allowed the Group to intensify investments and remunerate shareholders with a dividend up 4% year-on-year, while debt fell by 104 million euro.
Therefore, Hera proves that its strategy can generate profitable growth even in scenarios with significant areas of risk, while maintaining sound financial discipline. A strategy consistent with the Industrial Plan and executed by speeding up the schedule.
Cristian Fabbri
Dear Shareholders,
In the first half of 2023, Hera confirmed its resilience in achieving significant results, continuing at a fast pace along the growth path outlined in its Business Industrial Plan, despite a scenario that poses serious challenges. Geopolitical tensions remained alive in the second quarter, while the largest rise in interest rates undertaken by Central Banks in 20 years continued. These factors were combined with particularly mild winter weather, which reduced gas consumption.
Half-year results prove the solid roots behind Hera’s growth
Having achieved EBITDA growth of 13.8% on a half-yearly basis, compared to the 6.7% growth recorded in the first quarter of the year, means that we have kept our pace despite the very challenging environment.
The quality of this growth is witnessed by the positive contribution that all the businesses in which we operate made to the Group’s EBITDA progress, confirming the effectiveness of the operating investments and M&A deals made in the past and continued in this half-year.
The growing number of customers in Energy and the rich offer portfolio are a driving force
In particular, the Energy area has played a leading role – having contributed an impressive 68 million euro to the overall increase of 87 million euro recorded at consolidated EBITDA level. That was due, on the one hand, to the success of commercial actions and, on the other, to the tenders we have won in the gradual protection, MUI and Consip segments. These two factors have generated an increase of 40 million euro in performance from the Sale and Trading of energy commodities. Today Hera serves 3.7 million customers: an ever-expanding base – which has grown by 7.9% in the last 12 months alone – to which the Group can offer a broad portfolio of services. With these premises, we could absorb, with no negative impact, the reduction in consumption induced both by winter temperatures above the historical average, and by customers’ wish to minimise the cost of their energy bills.
Growing weight of Decarbonisation services marks sustainable growth
The Energy area could also benefit from more than 28 million euro of EBITDA growth in Decarbonisation services, consisting of energy efficiency solutions for condominiums, public administration and corporate clients, in addition to value-added services dedicated to private individuals. This result confirms Hera’s solid position in a business that is constantly developing, despite the reduction in government incentives, as well as the Group’s proactive role in offering solutions that lead towards a ‘net-zero economy’, in line with its commitment to hit a 37% reduction in emissions by 2030.
Being the enabler of sustainability for our clients
is a role for which we have not only a true vocation,
but also a concrete agenda, as proven
by the pipeline of approximately 1 billion euro of submitted projects.
A set of results that confirms the ability to seize opportunities, but also to effectively manage challenges
Looking below the EBITDA line, we find EBIT up 11.9% despite careful provisioning policies and increased depreciation due to new investments. The sound operating results made it possible to fully absorb higher Net Financial Charges, which reflect the more expensive financing of working capital in a context of rising interest rates. This, together with the optimisation of tax management resulting in a drop in the tax rate by more than two percentage points, led to a Net Profit after minorities of 187.7 million euro, an increase of 2.4% that exceeds consensus estimates.
The significant amount of investments sets the stage for continued growth over the coming years
Believing in the strategy that has led us to these results, we have fuelled future growth by intensifying investments, particularly in infrastructure, with capex totalling 330 million euro, while we have concluded M&A transactions totalling 73 million euro, particularly in the environment sector, with ACR Reggiani, and in the plant engineering sector, with F.lli Franchini, Tiepolo, and Horowatt, to rapidly strengthen ourselves in business segments that are already proving to be very attractive and that add value to our entire portfolio of sustainable offerings to promote the decarbonisation and the circular economy.
Growth continues in a sustained but balanced manner
In the first half of the year, we could leverage not only on significant operating cash flow of 460 million euro, but also on 280 million euro of cash released from working capital management, as a result of the depletion of the gas storage fields we had completed in the first quarter. This allowed us to cover in full both operating and financial investments as well as the 240 million euro in third-party results and dividend distributions, recording a positive net cash generation of 104.1 million euro, which led to an equal reduction in Net Financial Debt. Therefore, as of 30 June 2023, the Debt-to-EBITDA ratio stands at 3.0 times – a level that we believe is balanced for our business model and leaves us adequate financial flexibility.
Therefore, we can state that in the first half of the year
we strengthened margins on current operations
and continued to invest in laying the foundations
for future development, while we remunerated
our shareholders with a yoy dividend increase
of 4% and kept leverage within physiological levels.
The quality of growth is also appreciable due to the control in the underlying risk profile
This half-year has shown how the methods adopted by Hera to manage the risks of the energy crisis have been rewarding, through the purchase and storage of large quantities of gas carried out in 2022; quantities then used with the new thermal season, until the complete depletion of storage at the end of March 2023.
The same can be said for the success of the hedging policies we have implemented in other risk areas of the scenario.
Hera also acted proactively on interest-rate risk
Another area we carefully controlled is that of financial management, amid the continuing restrictive policies of the monetary authorities. The objective, which was fully achieved, was to optimise the cost of our debt, which actually showed a modest increase compared to the interest rate hike, having risen from 2.6% in the first half of 2022 to 2.9% in the half-year just ended. The path has been to replace traditional sources with more competitive long-term alternatives, while lengthening the average duration of debt, which now stands at 5.5 years. This was done through liability management operations, which started at the beginning of the second quarter of 2023 and enabled us to raise more than 1 billion euro in funding. This is a direction we continued to follow after the end of the first half of the year, with the 460 million euro EIB loan granted to Hera to accelerate the ecological transition, in particular with resources dedicated to projects aimed at further strengthening the resilience of the water service against future extreme weather events in flooded areas.
Well-ahead on the Plan’s execution time, due to an effective business portfolio and accurate execution
Therefore, our path towards the completion of the Plan to 2026 continues at a fast pace, having already covered about 65% of the cumulative growth expected over the five-year period at EBITDA level in less than a third of the time. This performance also saw a significant contribution in the first half of the year from the Decarbonisation Services result, where the development horizons are becoming more and more visible and attractive.
We can then face the challenges of the second half
of the year confident that we have the right strategic approach
to manage risks but also to seize the opportunities of the new scenarios.