Two factors characterise our nine-month 2019 results, i.e. net profit that grows in the double-digits and KPIs that accelerate quarter after quarter. Such features confirm that our efforts to put into play a set of proactive initiatives and their successful execution allowed Hera to counter factors that could have conditioned its growth rate, such as the expected margin decline in last-resort businesses.
We have operated all the levers that we had at our disposal to fuel EBITDA growth
EBITDA rises by 5.0%, benefitting both from the incremental contribution of newly consolidated assets from M&A deals – such as CMV, Cosea Ambiente, the Pistoia landfill, and Sangro Servizi – and from the organic growth driven by sound performance in all business areas.
The 37.2 million euro increase in EBITDA reflects several source of contribution – 16.9 million from Networks, 10.4 million from Energy, 3.8 million from Environment, in addition to 6.1 million from Other Services. At the same time, as a whole our portfolio remains well balanced, considered that regulated activities represent 51% of total EBITDA, while those liberalised count for the remaining 49%.
Networks determined 45.4% of the total increase in consolidated EBITDA
Networks reflect the 2019 tariff increases, with a strong impact especially in the Water business, which could fully reap the regulatory benefits, by leveraging on high quality of service, continuous search for efficiency and well-selected investments that bring synergies and returns.
The Energy businesses counted on three drivers – significant increase in the number of customers that fuelled volumes, recovery in power generation, and trading income that took advantage from the volatility of gas prices
The Energy area benefitted from several factors that drove its EBITDA. First of all, the strong expansion in the number of customers over the nine-month period, which was well above the average growth recorded in the last few years. Net additions in customers were 184,800, of which 132 thousands in the electricity business and 52 thousands in gas, while the newly acquired companies entering the Hera consolidation perimeter for the first time contributed with 30 thousands net additions.
The strong position achieved as a result of the intensive commercial campaign that took place over the last few months will help us to conquer a market of several million customers that should open up in front of us, considered that beginning from 1st July 2020, the full liberalisation of the electricity market will enter into force. At year-end, we will also have the opportunity to make a quantum leap, increasing by 700 thousands the number of our customers through the Ascopiave transaction, with regard to which we are waiting for the final checks of the Antitrust.
Another driver of the EBITDA in the Energy area was the power generation, with the asset base being fully operational, especially once that the Teverola plant restarted working. Therefore, we could exploit the strong momentum in demand of ancillary services coming from the grid operator.
Even trading activities provided a substantial contribution. Large fluctuations in gas prices allowed for trading opportunities, which we have successfully seized while keeping our risk profile under control.
This great combination paved the way for an improvement of Energy EBITDA, offsetting the effects of the margin decline in the last resort businesses – a factor that was widely expected but not negligible, considering its weight.
The increase in Waste EBITDA had a sizeable acceleration in the third quarter
In recent months, finally Hera could count on an enlarged asset base, with the acquisition of the Pistoia landfill at the end of July, the granting of permissions for which Hera had applied many years ago and the Cordenons landfill, in Friuli, entering into operations. The new Biomethane plant in Sant’Agata Bolognese has become fully operational, while we have continued to benefit from the essential contribution of Aliplast. The stronger asset base allowed us to take advantage from the rising prices in the segment of special waste.
EBITDA increase also benefits from a key contribution of 6 million from Other Businesses
The strong performance that Hera proved to be able to achieve in the Other Services, such as the public lightings and telecommunications, reflects the positive impact of technology innovations adopted over time. It also proves that an eager approach to circularity has generated sound returns from any point of view.
Cash flow from operations fully funds organic growth
We still represent a story of strong cash generation. With a nine-month 2019 operating cash flow of 552 million euro, Hera could fully fund a strong rise in capital expenditure as well as the payment of a growing dividend.
The 6.0% increase in Net Financial Debt, which was 155.1 million euro in the nine-month period, is mostly due to the application of the newly introduced IFRS16, while there was a cash-out of 58.9 million euro for the aforementioned M&A deals. The Net Debt-to-EBITDA ratio is 2.57x, a slight improve compared to the same period of the previous year.
Net Profit after Minorities increases by 10%, leveraging on sound results from the areas of operations, finance and fiscal management.
In the first nine months of 2019, Net Profit reaches 230.8 million euro, a double-digit increase. The bottom line of P&L reflects the sound operating performance, with EBIT up 7.7%, and even the lower weight of net financial expenses to Revenues as well as the decrease in the tax rate compared to the same period of 2018.
This set of data confirms our expectations and proves that we are going ahead on the path indicated in the Plan to 2022.
In roughly one third of the time span covered by the five-year Business Plan to 2022 – i.e. 21 months out of 60 overall – we have already achieved around 42% of the targeted 200-million euro growth of EBITDA.
On the one hand, in terms of organic growth, we have already achieved a contribution of 81 million euro to EBITDA growth compared to the 89-million euro growth envisaged as a whole over the five-year period. On the other one, on the M&A side, we are about to achieve a substantial result through the Ascopiave deal – as we said before, the Antitrust opinion is the only missing step to reach the closing of the deal.
Provided that the fourth quarter Hera typically benefits from the seasonal peak in gas consumptions, we can look into the end of the 2019 fiscal-year in all confidence.