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Financial Results 9M 2023
Message from the Executive Chairman of the Board
EBITDA over 1 billion, with high-quality growth
The first nine months of 2023 showed double-digit growth, moving from EBITDA to the P&L bottom line.
A set of clear features backs up the quality of the growth achieved over the period. Indeed, this was a cross-sectional growth, which involved operational, financial, and fiscal management, as well as all businesses across the multi-utility portfolio. Such growth can also be described as qualitative due to the high EBITDA component achieved in activities that contribute to the energy transition and circularity.
The Energy area goes on playing a driving role, in the wake of repeated and well-targeted achievements through commercial activities that often bring with them better margins. The outcome is that Hera can now leverage a solid base of 3.8 million customers.
Despite increased investments and a shareholder remuneration through dividends up 4%, the significant cash generation allowed for a Debt reduction of 101 million euro, which brought the leverage back to 2.91x, compared to 3.62x at the end of September 2022.
Such set of results thus portrays Hera as a Company with a healthy risk-return profile – a solid starting point on which to build the Plan to 2027 that the management will present in early 2024.
Cristian Fabbri
Dear Shareholders,
Hera resolutely continues to execute its Business Plan, as the double-digit growth rate achieved in EBITDA, EBIT and Net Profit proves, despite the scenario of the first nine months of 2023 being very challenging on several fronts.
While the conflict that broke out in the Middle East heightened geopolitical tensions, Central Banks continued to adopt restrictive monetary policies to curb inflation. On the operational side, last winter’s mild temperatures limited gas consumption, while last spring’s floods resulted in an emergency in our reference territories.
The progress achieved thus reflects Hera’s ability
to grow and, at the same time, to be resilient
against a volatile scenario:
a combination that enhances the value of financial performance.
A time of significant achievements while maintaining a balanced risk profile
In the first nine months of this year, since we could count on significant cash generation, we carried out new M&A transactions, increased operating investments and remunerated shareholders with dividends up 4%, while also sticking to our strategic objective of deleveraging in order to maintain a conservative risk profile.
At the end of September 2023, the Debt-to-EBITDA ratio has come down to 2.91x, compared to a peak of 3.62x a year earlier, when the withdrawal campaign from storage fields had not yet begun. It should be remembered that Hera had prudently built up some gas reserves in the early part of 2022, during the energy crisis, in view of the new 2022-2023 thermal season.
Through the investments carried out, Hera continues to fuel future growth, in line with the Plan
During the first nine months of 2023, a total of 592.9 million euro in net investments and company acquisitions were made: an amount exceeding by 18.7% the amount for the first nine months of 2022.
While net operating investments, totalling 489.8 million euro, were mainly concentrated in regulated electricity and gas activities, in order to make the infrastructure even more resilient and future returns even more visible, financial investments (26.1 million euro) and M&A transactions carried out (77.1 million euro) enabled Hera to become even stronger in strategic areas, such as industrial waste treatment, photovoltaics or ICT, with a view to creating value. This is the case with the acquisition of ACR Reggiani, F.lli Franchini, Tiepolo and Asco Tlc, besides the joint venture with Horowatt.
An EBITDA benefitting from the strong expansion in sustainability-oriented activities
A more detailed analysis of the nature of the components underlying the 132 million euro increase in EBITDA, from 874.8 in the first nine months of 2022 to 1,006.8 million euro, highlights the fundamental contribution made by sustainability-oriented businesses.
The progress in the consolidated figure derives 44 million euro from the Decarbonisation services – which reached an EBITDA of around 100 million in the nine-month period, also benefitting from the SuperEcobonus tax incentives – and 14 million from new acquisitions. Among the latter, the result of ACR Reggiani, operating in the remediation of industrial sites, stands out.
On closer examination, the third component of the 132 million euro increase in Group EBITDA, represented by the 74 million in Organic Growth, also includes several sustainability-related businesses, such as the waste recycling business.
The Energy area continues to provide strong momentum to a growth that also reflects the increase in EBITDA of all businesses
The quality of the growth achieved in the first nine months is also due to its cross-sectional nature, as all activities in Hera’s portfolio made progress. In this consistently positive picture, the Energy area played a predominant role, having contributed 112 million of the 132 million increase at Group level.
This significant performance also reflects the gain of 310 thousand new customers in the liberalized market and in the market of last resort achieved in the first nine months of 2023. In Q3 2023, Hera won important tenders in the Default and FUI segments, with a two-year term and attractive margins. The other new customers came from the Consip segment, dedicated to Public Administration users, in which Hera was awarded four tenders out of a total of 17 launched in the period between July and September 2023.
The strong expansion of the customer base, which has now reached 3.8 million, made it possible to offset the 15% drop in volumes in gas, due to the mild temperatures in the first months of the year, while electricity volumes sold increased by 16.8%.
The Energy area also includes the progress of Decarbonisation and Value Added Services, which not only brought in the 44 million euro already mentioned in terms of EBITDA, but also contributed to Hera’s progress towards its target of a 37% reduction in CO2 emissions from Scope 3 by 2030.
Effective liability management optimised both the structure and the cost of debt
The operating management is not the only area in which we achieved appreciable results, as proven by the translation of the 15.5% improvement in EBIT into a 10% rise in Net Profit after Minority Interest, despite the sharp rise in interest rates.
The successful refinancing transactions completed from Q2 2023 onwards enabled Hera to raise funds of 1.5 billion euro, at more competitive costs than before. Today, Hera can thus count on a debt structure that is 97% fixed-rate, with an average duration of 5.5 years and an average cost of 2.8% – which is therefore not far off the 2.6% recorded at the end of September 2022.
Notwithstanding the cash absorption for higher investment, leverage improved
In the first nine months, Hera generated an operating cash flow of 664 million euro, also benefitting from 277 million euro released from working capital management as a result of withdrawals from gas storage facilities and the normalisation of credits against falling energy prices. This made it possible to cover operating and financial investments, as well as the distribution of dividends, producing an excess cash of 101 million euro, which translated into an equal reduction in Net Financial Debt, with the beneficial effects in terms of lowering leverage to 2.91x at the end of September 2023.
The results achieved in the first nine months also produced a boost in terms of returns, with ROI improving by 130 basis points, having reached 9.0%, and ROE standing at 10.6%, compared to 9.0% at 30 September 2022.
Therefore, we can state that the quality
of growth in these nine months of 2023
also lies in the sound ‘risk/return’ profile achieved.
We face the future from a position of strength
With a leverage well below 3x reached at the end of September 2023 – a threshold within which we believe it is physiological to stay – we can look to the future from a position, in terms of financial flexibility, that allows us to be ready to undertake any new acquisition transactions arising in a market that is still very atomistic.
In these last months of the year, we are defining how to deal with the new tenders for Maggior Tutela customers and, more generally, we are completing the drawing up of the Business Plan that we will present to you at the beginning of the year.
Our choices, as always, will be oriented towards seizing all opportunities that will allow us to achieve further growth while maintaining a conservative risk profile, in a rationale guided by the aim of creating value for all stakeholders.
We believe that we can build our future design on the solid path we have travelled over more than 20 years, in a world that is certainly presenting new risks and new complexities, but also great opportunities for those who, like Hera, have a basis of assets – both tangible and intangible – of great value and a clear strategy to execute.