Message from the Executive Chairman of the Board
Growing results, with a careful approach to minimising risks and seizing opportunities

The results of the first nine months of 2021 show a significant growth in terms of EBITDA, around 9.6%. A growth that is significant also for its strong organic component.

Leveraging on a proactive approach in non-regulated business, today Hera can fully benefit from the recovery in volumes compared to the period of restrictions imposed by the pandemic while it is reaping the attractive returns from the energy efficiency solutions developed under the incentive system provided by the National Recovery and Resilience Plan.

The strong cash generation funds the investments that fuel organic growth and M&A, and allows for shareholder remuneration, while the debt-to-EBITDA ratio decreases.

Hera’s results, which prove that the Group can grow quarter after quarter, even in very challenging conditions, are not surprising. On the contrary, they show how a balanced portfolio structure, a consolidated strategy and thorough risk control are the prerequisites for seizing the opportunities of the economic recovery and the regulatory framework when they arise.

The increase in EBITDA is significant because of its size and even for the relevant organic component.

Dear Shareholders,

the first nine months of 2021 show an EBITDA increase of 77.1 million euro: one of the highest in our history. To find a change of greater magnitude we have to go back to 2013, when we completed a transaction that transformed our Group, through the acquisition of AcegasAps.

The rise in EBITDA in the first nine months of 2021 is appreciable not only for its size but also for the quality that it expresses. Out of total 77.1 million euro, 40.2 million reflect the recovery from the period penalised by anti-COVID restrictions, while 29.6 million – more than 38% – are the result of organic growth. This represents a significant performance, especially considering that in the third quarter of 2020 many restrictions had been already lifted and operating conditions were therefore almost normal. The steady growth in consolidated EBITDA was also fuelled by an early contribution of 7.3 million euro from recent M&A activities, which consolidate a very fragmented market in non-regulated activities.

The EBITDA of the first nine months of 2021, which accounts for 883 million euro, shows a significant increase even compared to 786 million euro, the level reached in the same period of 2019, before the pandemic outbreak.

In the first nine months of 2021, the 9.6% increase in EBITDA has been accompanied by even stronger growth rates at EBIT and Net Profit level, which improved respectively by 13.5% and 32.3%, confirming a positive contribution also from the financial and fiscal management area.

In the liberalised areas, Hera acted in a dynamic and effective way
A further reassuring element is that all business areas made a positive contribution to EBITDA progress.

The greatest impulse came from the liberalised areas, where Hera has confirmed its ability to identify and seize the opportunities of the upturning economy by developing larger volumes and exploiting the new areas of intervention created by the Italian government’s National Recovery and Resilience Plan, through solutions that leverage the “ecobonus” incentives, with a proposal that has met with the interest of numerous condominiums, bringing visible returns for Hera and immediate benefits for the environment.

Free Cash Flow covers the majority of 2020 dividends
In the first nine months of 2021 Hera generated an important operating cash flow, of 643 million euro, which, together with a net working capital that does not absorb resources, has allowed us to finance cautious provisions, investments for 377 million euro (+13%), as well as 150 million between M&A operations and bond buy-back. We reached a Free Cash Flow of 117 million euro, which covered about two thirds of the dividend paid on the last 7 July, determining a minimum increase of 77 million euro at Net Financial Debt level, which remained substantially stable at 3.3 billion euro.

With these premises, we have been able to improve our leverage, measured in terms of Debt-to-EBITDA ratio, from 2.87 times of 31 December 2020 to 2.75 times.

Hera has proved its ability to move through economic cycles while continuing to deliver growing results with a low risk profile
As we look at the situation at 30 September, therefore, we have more than one reassuring sign.

We are just over a third of the way through the Five-Year Plan; yet we have already achieved more than half of the EBITDA growth, with 115 million euro cumulatively reached, out of 215 million euro expected for the five years.

While we can benefit from the stabilisation of performance resulting from the fact that half of the business is regulated and therefore profitable even in the presence of any weakness in volumes, we can also count on a strong positioning in the liberalised businesses, with a presence that is also concentrated in the wealthiest and most productive areas of the country.

We have shown that our portfolio structure and the way we run the business can protect us from external shocks, whether it be the limitations imposed by the pandemic or tumultuous energy prices. Assessing risk certainly means being able to mitigate the impact of negative factors, but it also means having a structured system in place to take advantage of opportunities as they arise. Our expansion in terms of market share and plant capacity in liberalised markets, carried out with determination over time, therefore allows us today to ride the recovery of the economy and to be a leading player in the circular economy.

Sticking to the strategic guidelines that have brought us this far, and with the awareness and experience we have gained through challenging scenarios, we are shaping the next Business Plan that we expect to present to you in January 2022.

Tomaso Tommasi di Vignano
Tomaso Tommasi di Vignano
10 November 2021

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