Message from the CEO
Focus on FY19 results

The performance of FY19 confirms that Hera’s growth path leverages on a well-balanced mix of portfolio activities, which the Company manages with both a forward-looking approach and actively monitoring market opportunities.

  • In 2019 Hera has achieved results that have been mostly driven by organic growth – the M&A deal signed with Ascopiave will only show its benefits starting from 1 January 2020.
  • The 5.2% increase in consolidated EBITDA on one hand reflects the sound performance of regulated businesses, deriving from the high quality of the service provided to customers and significant efficiencies achieved. On the other hand, in 2019 Hera also leveraged on a strong expansion in the customer base, a general rise in the prices of special waste and, in the second half of the year, an increased plant capacity. The expected reduction in the business of Safeguard customers could therefore be absorbed with no impact on the Company’s growth profile.
  • The 12.6% increase in the Shared Value EBITDA confirms sound returns on dedicated investments. In 2019, Hera has concentrated more than 200 million euro – i.e. 40% of total investments – on projects aimed to Shared Value creation, thus generating around 39% of its own EBITDA.

In FY2019 Group Revenues reached 6,912.8 million euro. The increase of 778.4 mn€ (+12.7% vs. 2018) mainly reflects the positive impact of drivers from the energy area:

  1. higher trading (435 mn€),
  2. increase in volumes sold, both in gas and in electricity (59 mn€),
  3. rising revenues from power generation (14 mn€),
  4. pass-through proceeds for volumes transported and system charges (205 mn€)

Also regulated revenues make a positive contribution (+16 mn€) as well as the newly-consolidated companies do (+25 mn€).

Consolidated EBITDA growth is 54.0 mn€ (+5.2%) compared to fiscal year 2018. It leverages on the positive contribution from most business areas.

The most dynamic growth was recorded in the Gas area, where EBITDA increases by 25.1 million euro (+7.9%), with volumes up 59.7%.

The performance in the Water Cycle area is also remarkable, with EBITDA that increases at a 6.2% pace due to higher revenues from aqueduct and new connections, awarded by the regulatory structure.

In the Waste area, where EBITDA rose by 4.8%, Hera benefitted from higher prices in the treatment of special and industrial waste, a broader consolidation scope and a lower cost for the IFRS16 application.

The Electricity area is the only one that experienced a slight decrease in EBITDA (-2.7%), mainly due to the pressure coming from increased competition in the Safeguard market for the 2019-2020 two-year period. Higher margins in power generation in the dispatching service and higher volumes sold (+8.2%) however contributed to mitigate such pressure on margins. Moreover, the number of customers recorded a sizeable increase (+17.2%), reaching 1.3 million.

Noteworthy performance in Other Services, business segment that mainly groups public lightings and telecommunications, with a 21.1% increase in EBITDA compared to previous fiscal year – a performance essentially driven by higher margins achieved, mostly in telecommunications services.

The increase recorded at the EBIT level (+6.4%) is higher than that recorded at the EBITDA level (+5.2%). The “Depreciation & Provisions” item grows by 4.1%, i.e. at a relatively low pace, as lower provisions to credit loss fund partly offset both higher depreciation on newly operating assets and the adjustment of the rate for the useful life of the water plants.

The area of financial management shows a 9.1% rise in net result, with net expenses that move from 91.7 up to 100.0 mn€. Such increase reflects the application of the newly introduced IFRS 16 on operating leases. In 2019, Hera placed a new 500-million euro Green Bond with 8-year maturity, at a cost that was well below that for bonds due within the fiscal year; the benefits in terms of Hera’s debt cost will materialise from 2020 onwards.

The fiscal management area enjoys a marked improvement in the adjusted tax rate, which stood at 28.3% (vs. 29.1% in 2018), as a result of the continuous search for fiscal optimisation opportunities allowed by the legislation in force.

Ascopiave contributes to earnings starting from 1 January 2020. However, the deal that has been completed on 19 December 2019 generated a gain of 85 mn€ in the 2019 P&L. Net Profit that includes such item is therefore 385.7 mm€, a 36.8% increase.

Net Profit excluding special items instead posts a 6.7% increase, reaching 300.8 mn€.

During 2019 Hera invested 509.2 mn€ net of capital grants, an increase of 77.4 mn€ over the investments made in 2018.

Net Financial Debt is 3.27 bn€, compared to 2.59 bn€ at 2018 year-end. That debt increase mainly derives from the fair value calculated on the sale option granted to Ascopiave (583.4 mn€) and the application of IFRS16 on operating leases (81.6 mn€).

Excluding the impact of the Ascopiave deal, Adjusted Net Financial Debt shows a slight change over the 12-month period, as it reaches 2.69 mn€ at 2019 year-end.

Strong Free Cash Flow, equal to 286 mn€, allowed for funding the distribution of 2018 dividends, capex for infrastructure development and a good part of M&A deals.

In 2019, Shared Value EBITDA was 422.5 mn€, a 12.6% increase over the 2018 level that stood at 375.2 mn€. Such performance proves that the Shared Value component represents an increasingly higher portion of total EBITDA. Its weight rose by three percentage points, from 36% in 2018 to 39% in 2019, in line with the Business Plan target that envisages a 42% weight of Shared Value EBITDA in 2023.

The 422.5 mn€ amount derives from specifically tailored initiatives and projects, with benefits that will be visible also over the coming years. In 2019, Hera invested 202.4 mn€ in projects aimed to Shared Value creation (+10.0% vs. 2018), an amount representing 40% of total investments carried out by the Group.

Shared Value investments focus on the three main areas in which Hera has stated its commitment:

  • smart use of energy,
  • efficient use of resources,
  • innovation and contribution to sustainable development of communities served.

The overall economic value distributed to the communities was 2,131 million euro, equal to 78% of overall economic value, up 11% vs. 2018.

Stefano Venier
Stefano Venier
25 March 2020

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