In the first quarter of 2024, following record growth in the previous year, Hera again succeeded in posting healthy operating performance, with EBIT up 4.2%, resulting in a 12.2% increase in Earnings per Share.
Regulated businesses are once again having a significant impact on growth, whereas Hera had lately only been relying on additional efficiencies and service quality rewards to produce sound results. We had been waiting for the application of the new WACC levels expected from the ARERA Resolutions and the adjustment of RAB and costs to the high levels of inflation: an update that is instead currently possible with the new regulatory framework, in force since the beginning of the year.
In the liberalised sectors, structural growth compensates for almost all of the lower margins associated with the activities under the 110% Ecobonus, which expired at the end of 2023.
Meanwhile, the financial profile remains very solid, with leverage of 2.66x, which leaves room for future growth opportunities.
Dear Shareholders,
After fiscal year 2023 that saw an EBITDA increase of around 200 million euro – an unprecedented progress in Hera’s more than twenty-year history – we opened 2024 with quarterly results that confirm the trajectory set out in the 2023-2027 Plan, in an environment that is quite different from last year.
In a more normal scenario, results show a more structural quality
The gradual normalisation of energy prices, as well as the ending of the incentives of the 110% Ecobonus for the efficiency upgrading of residential buildings, meant that the structural growth of this first quarter fully expressed the value created, right down to the bottom line of the Income Statement.
On the other hand, in the regulated businesses, the upward revision of the WACC by ARERA as well as the adjustment to current inflation levels of the RAB and allowed costs have finally brought us back up-to-date parameters to current market conditions.
Once again, our multiutility business model proves
that we can deliver sound results, across different stages
of economic cycles and through changes in the scenario,
by relying on a well-diversified portfolio of operating assets,
managed with a consistent focus on minimising risk.
The true compass for interpreting performance today is EBIT
If we examine the first-quarter 2024 figures, we can see, in short, how the 40.9% decline in Revenues – essentially reflecting the reversion of energy prices to more normal levels – turned into 4.2% growth in EBIT and double-digit progress in Earnings per Share, up 12.2%, in key P&L indicators.
How were we able to capture the benefits of commodity deflation? We could reduce provisions for bad debts by 12 million euro: therefore, to a greater extent than the 10 million increase in depreciation and amortisation linked to infrastructure development investments.
EBIT grew at a rate of 4.2%, which is higher than the 1.7% increase in EBITDA.
EBITDA is on the rise, leveraging on organic growth
Our business portfolio achieved an EBITDA growth of 1.7%. This is a very strong operating performance, considering that as of 1 January the contribution from the activities under the framework of the 110% Ecobonus incentives ceased. Both liberalised and regulated activities reported growing results owing to structural and recurring elements such as the expansion of customers, increased volumes, and updated tariffs.
The performance improved at EBIT level, up 4.2%, leveraging on lower provisions for bad debts that benefited from the normalisation of the energy market.
Performance is even stronger below the EBIT line
Advantages from a retreat of energy prices are tangible also in net financial charges, as we succeeded in optimising the financial management, with a decrease of 11.4 million euro that allows Pre-tax Profit to rise by 11.1%.
At the bottom line of the Income Statement, the advantages of a normalising operational framework are even stronger, as proven by the EpS of 9.93 eurocents, up 12.2% compared to that of first-quarter 2023.
As always, we take a forward-looking and careful approach to seizing the different opportunities in each business
Particularly in the Energy area, it was critical to be able to leverage a broader base, with some 300,000 new customers won over the past 12 months. We also benefited, in terms of returns, from a process of renewing contractual conditions which, together with the scenario and operational activities put in place, allowed us to reduce modulation costs.
Our commitment to the Energy Efficiency of residential buildings certainly does not stop with the changing framework of incentives and scaled-down conditions: firstly, the tax bonus from the end of 2023 has dropped from 110% to 70%; secondly, it is no longer possible to transfer credits to banks.
Hera, however, remains strongly committed to helping its customers optimise their energy consumption. On the one hand, this allows us to reach the CO2 reduction targets we have set for 2030. On the other hand, since we can leverage the organisation we have structured and our expertise, we have a revenue stream that remains attractive even today, due to the profitability it can generate, as the 6 million euro EBITDA achieved in the quarter just ended shows.
In the Waste area, due to our solid leadership, we could count on the continuous growth in the market waste treatment to compensate for lower revenues from that share of WTEs’ production that we could not hedge against the dynamics of energy prices.
The Networks area made the largest contribution to growth through increased regulated returns set by ARERA to reflect higher interest rates and inflation levels, as well as increased RAB from the investments we have made. We continue to invest in improving the resilience of infrastructures and the quality of services, in line with the challenging objectives we set ourselves in the business plan. We are seeing the effects of this being acknowledged, as recently ARERA confirmed Hera Group at the top of the national water service management for the 2020-2021 period.
Execution of the investment plan continues while leverage remains conservative
Hera’s strong cash generation continued in the first quarter of 2024, allowing us to continue to fund capital expenditure while maintaining a solid balance in terms of Debt-to-EBITDA ratio.
Leverage at 2.66x, such as that recorded
at the end of March 2024, allows us plenty of
flexibility in seizing growth opportunities
that the market may provide in the near future.
The normalisation of the energy market made it possible to rationalise the financial sources taken up during the crisis, with benefits in terms of lower financial charges that turned into a lower average cost of debt, down to 2.7% compared to 3.0% in the same period of 2023.
We are increasingly oriented towards assessing our performance from a value creation perspective
In a scenario that remains deeply affected by high interest rate levels and, therefore, requires us to measure our management performance against an increased cost of capital, at Hera, we are increasingly focused on monitoring KPIs that tell us whether we are actually creating value.
In first-quarter 2024, with a ROI moving up to 9.5% from 8.6% and a ROE on the rise, from 9.4% to 10.3%, we can state that in these early months of the year we have strengthened our value creation.
This also increases the visibility of the commitment we made last January to deliver more value to shareholders, as a reflection of the good results we will achieve in managing the business.
