Fiscal Year 2023 shows very healthy performance at operational level, with an EBITDA increase of 15% translating into a 17% EPS increase.
The strong EBITDA improvement reflects a “structural” component connected to organic growth and M&A – typical Hera’s development levers over time – which is complemented by a significant contribution from the markets of Last Resort and Energy Efficiency services under the Ecobonus incentives.
The Energy area played a driving role in the growth of the Group’s EBITDA, leveraging on a significant expansion of the customer base, which Hera proved to be able to manage while improving margins.
Another significant feature of the 2023 Financial Year lies in the rapid deleveraging implemented, with the Debt-to-EBITDA ratio dropping to 2.56x despite higher investments and dividends distributed, leveraging on strong cash generation and the release of working capital – following the gradual withdrawal of gas reserves built up to cope with the energy crisis and the fall in energy commodity prices.
The Board of Directors proposes to the Shareholders’ Meeting a dividend per share of 0.14 euro: this is the basis for the new dividend policy, with the Plan envisaging an increase of 0.05 euro per year until 2027. With a dividend yield of 4.7%, considering the EPS of 26 eurocents achieved, up 17%, the challenging target to provide shareholders with a Total Shareholder Return of 12% is definitely met.
Dear Shareholders,
2023 sees the largest EBITDA increase ever achieved in a Financial Year in Hera’s 23-year history, for approximately 200 million euro.
This result confirms the ability of our multi-utility business model to manage the absorption of shocks in the outside scenario and to continue to grow both as energy prices rise and normalise. The significant progress in EBITDA also proves the resilience of our infrastructure to the extreme atmospheric events that climate change brings, as in the case of the floods that hit our reference territory last May.
The acceleration of growth at the operational level also results from the best harnessing of short-term opportunities
By leveraging a well-balanced portfolio of regulated and liberalised activities, constantly oriented to the achievement of our long-term sustainability goals, but with equally constant focus on seizing the opportunities that the market can provide in the short term, we were therefore able to achieve 1,495 million euro of EBITDA – well ahead of the levels originally set in the Business Plan to 2026 and exceeding analysts’ consensus estimates.
The 2023 15.4% EBITDA growth rate originates in the first place from a “structural” 7% development component, coming from two levers that Hera typically deploys to achieve the continuous progress shown over the years: organic growth, contributing approximately 65 million euro in 2023, through higher investments and new operational efficiencies, and M&A, which contributed 25 million euro, as ACR Reggiani in the Waste area and two companies in the Energy business entered the Group perimeter.
In addition to this “structural” component of growth, Hera achieved approximately 110 million euro of EBITDA in taking advantage from specific businesses opportunities, especially in the area of Energy Efficiency, for the interventions made under the government’s Ecobonus incentive scheme, as well as in awarding additional customers in the Last Resort segments.
Growing investment plan and M&A operations enable growth, in line with the newly presented Business Plan.
In 2023, net operating investments increased by 13.7% over 2022, with balanced growth both on regulated businesses, which saw a RAB increase of 150 million euro, and liberalised businesses.
Through the M&A deals closed, for a total amount of 118.8 million euro, Hera strengthened its position in strategic businesses, such as remediation of production sites and industrial waste treatment, through the acquisition of a 60% stake in ACR Reggiani capital. The same logic inspired the acquisitions in the Energy area, where today Hera is able to respond even more effectively to the demand for photovoltaic system installation from business customers, following the acquisition of F.lli Franchini.
Shared Value EBITDA grows at the same pace as total EBITDA – a sign that our commitment to sustainability is real
Shared Value EBITDA is 106 million euro higher than last year, a 16% increase.
Based on the results achieved on the various projects in 2023 and building on the investments we have dedicated to decarbonisation, circular economy, and resilience&innovation, we can say that we are on the right track to achieve our commitments with horizon 2030.
Finally, not insignificant is the fact that, since 92% of our investments in these projects are considered “taxonomy compliant,” i.e., aligned with the European taxonomy, Hera can access a large market of sustainability-linked financial instruments – an opportunity that we have long proven we know how to seize, having issued more than 2 billion euro in green bonds and sustainability-linked bonds.
The Energy area drives total growth
In a framework in which all businesses in the portfolio delivered a sound performance, the role of Energy stands out, with a 632-million-euro EBITDA, up by 183 million euro over 2022, which made a major contribution to the 200 million progress of Group EBITDA.
Behind this increase, in addition to the 25 million contribution from Decarbonisation and Value-Added Services, are the improvement gained at the margin level and the success of the new customer acquisition campaign. The 330 thousand new customers acquired in 2023 led the total customer base at the end of the year to reach 3.8 million, between gas and electricity.
The acceleration of EBITDA was matched by stronger value creation
The improved operating results translated into a more than proportional growth in earnings per share, which in 2023 increased by 17.1%, amounting at 0.259 euro.
At the same time, we significantly strengthened returns by allocating investments according to strict criteria and always striving for new efficiencies. Therefore, Return on Equity rose from 10.8% of 2022 to 11.1% while Return on Investment increased by 190bps, reaching 9.8%, with a positive impact also resulting from the significant expansion in the Energy Supply business, which absorbs less invested capital.
These returns are not obvious in a phase of high interest rates and strong absorption of working capital by the Energy Efficiency business, in view of the costly assignment of Ecobonus credits. In fact, they prove the effective contribution coming from Hera’s financial and fiscal management.
The healthy results also highlight the effectiveness
of the Group’s business model and its approach
aimed at minimising negative impacts from macroeconomic scenarios.
FY2023 results also highlight the rapid deleveraging that brought the Net Debt-to-EBITDA ratio below the 2021 levels
In 2023, strong cash flow generation, of approximately 940 million euro, came in combination with a significant release of Net Working Capital, for around 604 million euro, mainly due to withdrawals from gas storage and the beneficial effects on receivables of lower energy commodity prices. This allowed us to have the resources to fully cover higher operating investments, disbursements for M&A transactions, and the distribution to shareholders of dividends 4% higher. Therefore, we generated a Free Cash Flow of more than 422 million euro, which reduced Net financial Debt to 3,827.7 million euro.
Thereby, the Debt-to-EBITDA ratio at the end of December 2023 is down to 2.56x, showing a fast recovery from the peak level of 3.62x at the end of September 2022, ahead of the start of withdrawals from the gas storages of the reserves that we had chosen to build up at the outset of the energy crisis, to cope with the following thermal season.
The 2023-2027 Plan has a good start, with first-year performance exceeding expectations
With a leverage well below 3x – a threshold under which we believe it is correct to remain, given our business portfolio structure and the contained risk profile we wish to preserve – it seems clear that Hera has ample flexibility to finance new operations within a market characterised by the presence of small players that it would be efficient to aggregate.
After presenting to investors the new Business Plan 2023-2027, approved the last 24 January, we are focusing on executing the strategic design of creating value for all stakeholders, with a progressively increasing weight of Shared Value EBITDA and a challenging Total Shareholder Return target set at 12%.
The 17% growth in Earnings per Share achieved in 2023, together with the proposed dividend of 14 eurocents per share, up 12% on 2022, which leads to a yield of 4.7% on the 2022 year-end price, confirms that we have provided a good starting point in giving satisfaction to our shareholders.
The visibility that we have on the returns across our businesses, the deleveraging achieved, and the new base of 14 eurocents, on which to grow the dividend per share by 0.5 cents per year, indicate that at the end of 2023 we have already laid significant premises to meet the Plan targets.
