In the five-year Plan, clear strategic direction and efficient capital allocation are two factors at the heart of the expected acceleration in EBITDA growth, on a journey that will lead Hera to create even 539 m€ of Shared Value.
|CUMULATED INVESTMENTS 2019-2023
The Plan includes a substantial capital expenditure in projects to enhance Hera infrastructure, in line with the aim of providing our asset base with both continuous innovation and consistently high standards in business continuity.
Investments planned over the Plan’s five-year period, amounting to 2.86 bn€, represent a key driver in the EBITDA cumulated growth of 219 m€ that we expect over the 2019-2023 period.
The new Investment Plan sees 2 bn€ focused on projects to keep the asset quality high and the remaining 900 m€ focused on development.
In more details, the organic development capex is 540 m€, a 29% increase compared to the previous Plan. M&A investments amount to 170 m€ and represent maintenance capex for companies that we expect will enter Hera’s perimeter over the next years. Lastly, the remaining 190 m€ are cash out for gas tenders within 2023, considering that more than half of them will take place over the Plan’s horizon.
Overall, in the five-year period, 73% of capital expenditure will be allocated to regulated activities. Such a structure provides high visibility and attractive remuneration to the new Investment Plan. Networks will absorb by far the largest share of planned investments, i.e. 1,874 m€. The Waste area will have 618 m€ dedicated investments, while to Energy we have planned to allocate 295 m€.
High and visible EBITDA growth
Over the Plan’s period, we expect an overall increase of 219 m€ in consolidated EBITDA, which would then reach 1,250 m€ in 2023.
More specifically, we expect that about half of that growth, i.e. 107 m€, will come from M&A, with the Ascopiave deal that will provide a contribution, starting from the current fiscal year, estimated at 57 m€, or 40 m€ net of the exit of distribution gas activities from the consolidation scope, as part of the agreed transaction.
As regards the organic component of EBITDA growth, we expect to leverage on a number of positive drivers quantified at 188 m€. Therefore, we could largely offset the expected negatives of 76 m€, mainly due to the lower marginality in the safeguard business and the expired incentives on certain WTEs.
All business areas in our portfolio will provide a positive contribution to consolidated EBITDA.
The Energy EBITDA growth of 4.9% will be the most dynamic. This area will leverage on a strong expansion that will lead the customer basis up to 3.5 million in 2023. Even from this viewpoint, the contribution from the Ascopiave deals proves to be essential, as we expect 28 m€ from synergies. The Energy area will also benefit from cross selling campaigns, through the increased weight of dual fuel contracts. The combination of those growth drivers will fully offset the margin contraction in a specific segment of safeguarded customers, which is expected to decrease by 65m€ compared to the 2018 actual level.
We expect a 3.2% growth in Networks EBITDA over the Plan’s period. Both Water (+43 m€) and gas distribution (+32 m€) will drive such increase, leveraging on capex, operating efficiency that Hera succeeds in achieving and is rewarded in the current tariff systems, and some growth via M&A.
Despite the 11 m€ negative impact due to the expired incentives on WTEs, Waste EBITDA is expected to grow at a 4.0% yearly pace, as capacity of waste treatment plants will increase by 1.3 million tons to 2023. That will allow Hera to benefit from increasing prices and early contribution from the new ARERA regulation.
Sound cash flow generation allows Hera to invest and remunerate shareholders while preserving financial flexibility.
As structured, the new Plan envisages that 2019-2023 cumulated cash flows fully fund investments and dividend, while maintaining a well-balanced Debt/EBITDA and preserving Hera’s typical financial flexibility that allowed for taking the attractive M&A opportunities arisen on the market. Compared to the previous Plan, we expect to count on additional 500 m€ of Free Cash Flow, with a subsequent decrease in the D/EBITDA ratio from 2.9x to 2.8x at the end of the Plan’s period, notwithstanding an improved dividend policy.
Clear strategic direction to handle future challenges within a greatly changing scenario.
In the new Business Plan, strategic priorities follow three main directions – industrial growth, risk management and circularity. While sticking to our consolidated business model, we have also aimed at an acceleration of growth combined with a more structured risk management, especially in the areas of climate change, in line with the issues of the businesses in which we operate.
From this perspective, we also meant to better shape our contribution as a multi-utility in achieving a sustainable future. The Plan reflects our commitment to pursuing 11 out of 17 goals in the UN 2030 Agenda, through investments exceeding 330 m€ over the five-year Plan’s period.
According to such structure, approximately 70% of the consolidated EBITDA increase in the five-year period will come from sustainability projects. Therefore, in 2023 we aim to reach 530 m€ of Shared Value EBITDA – an amount representing 42% of total EBITDA.
Starting from this strategic document, our planning sees also a long-term commitment, with the identification of eight well-defined sustainability goals to 2030; the all of them focus on the environmental and social dimension. The newly-included content upgrades the profile of this planning exercise while making Hera’s impact on its operating ecosystem more visible and real.