Message from the Executive Chairman of the Board
Effort in organic growth is rewarding Hera. M&A contribution proves essential.

A reassuring picture has emerged from first-quarter 2020 results, despite a tough scenario.

Shareholders remuneration has been confirmed, with 10 euro cents to be paid on 8 July 2020.

Dear Shareholders,

the results of the first quarter have been achieved in a context characterised by exceptionally mild winter temperatures and the restrictions imposed to control the Covid-19 outbreak; restrictions that did not prevent Hera from continuing to provide its services.

Negatives weigh in for over 18 million euro…
If we consider the like-for-like perimeter – i.e. excluding EstEnergy, as a result of the deal signed with Ascopiave at the end of the past year – we can verify that in the first two months of the current year mild weather conditions have heavily affected volumes of gas sold; in March, on the other hand, while lower temperatures compared to March 2019 were favouring a recovery in households demand, our volumes have been negatively influenced by the stoppage imposed on some of our industrial clients because of the virus. Therefore, in the first quarter, overall gas volumes decreased by 8%.

Concerning electricity sales, like-for-like volumes suffered a 4% decline in the first three months of 2020. While in January and February 2020 we could benefit from a growth, as a result of a customer base 86,000-units wider than in 2019, in March the impact of the measures to contain Covid-19 caused a reduction in demand from industrial clients that more than compensated the volumes increase of the two previous months.

The like-for-like EBITDA of the first quarter of 2020 therefore reflects a negative impact of 9.5 m€ due to Covid-19 and 7.5 m € for the adverse weather conditions. On top of those negatives, we also had to record 1.2 m€ of expired incentives on renewable energy production.

… but the EBITDA still increases by 5.6%
Nevertheless, the Group EBITDA was 349 m€, achieving a growth of 18.4 m€.

Two levers that have always been at the heart of our development strategy ensured continuity to our path, even in challenging scenarios – i.e. organic growth and M&A.

Hera’s EBITDA reflects 10.2 m€ of organic growth and 26.4 m€ of M&A
In the first quarter of 2020, all business areas in which Hera operates provided a positive contribution at consolidated EBITDA level, generating a total organic growth of 10.2 m€, with the Energy area offering the most significant incremental contribution, of 4.4 m€, mostly leveraging on a successful commercial expansion, while the sound performance of the Waste area, whose EBITDA improved by 2.9 m€, reflects a continuing positive price trend.

In the first quarter of 2020, the M&A component has played a leading role, with a driving effect of 26.4 m€, which turned out to be essential in determining the 18.4 m€ growth of the Group EBITDA. In this context, EstEnergy alone provided a contribution of 27.4 m€.

A framework of reassuring fundamentals
The 0.2% improvement achieved in consolidated Net Profit appears lower than that recorded at EBITDA level: compared to the first quarter 2019, higher amortisation and depreciation connected to the Ascopiave deal had a negative impact, as well as the related increase in notional financial charges.

Counting on a significant Free Cash Flow – 45 m€, out of which 28 m€ attributable to EstEnergy – we maintained a balanced Debt-to-EBITDA ratio, equal to 2.93x. The level would be significantly lower, i.e. equal to 2.44x, excluding the notional debt of the Ascopiave deal.

During this unprecedented crisis, Hera’s business portfolio once again proved to be resilient, not just for its 51% exposure to regulated businesses, but even for the features of the remaining 49% that focuses on liberalised activities.

This quarterly set of results therefore confirms the effectiveness of our model both for growth and for the integration process of acquired companies. Such model continues to result in strong cash generation combined with a solid financial profile, even in the worst moment of the crisis.

After the strict lockdown to contain the infections in March and April 2020, now the so-called Phase 2 is ahead of us, when Italy will exit the more stringent measures, with a progressive reopening of industrial activities.

Resumption of business and investments while relaxing lockdown measures
For Hera, this second phase represents the chance to go back into marketing activities aimed to expand the customer basis further as well as resume the investment program for both maintenance and development that in some cases has been delayed – both of them being fundamental levers of organic growth.

Shareholders remuneration is confirmed
Considering the fact that financials continue to be very healthy and that the financial strength of the Group remaines intact, unlike other listed companies we could submit to the Meeting a dividend proposal unchanged compared to the one we announced with the new Business Plan in January, before the outbreak of the pandemic in Italy. On 8 July 2020, a 10 euro cents per share dividend will be paid, which at the recent price levels provides a yield around 3%. The Shareholders Meeting of the last 29 April has also confirmed the Executive Directors for a new three-year period, ensuring continuity to the execution of the Business Plan.

It remains essential to aim for long-term goals
All in all, we will face the next few months continuing to aim to long-term goals, while taking great care in overcoming the pitfalls of the scenario. We will be ready to seize the opportunities that may arise for a player – as Hera is – with a solid structure and a strong market position.

Tomaso Tommasi di Vignano
Tomaso Tommasi di Vignano
13 May 2020

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