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New Sensitivity Game now available

Hera’s Business Plan undergoing a stress test

Hera’s Investor Relations team has just completed the new version of the “Sensitivity Game”. Presented with the name of an intriguing game, it is actually a high-potential tool for analysts and investors that aim to test the impacts of different scenario assumptions on Hera’s future performance.

The findings are remarkable. Basically, Hera’s business model, growth strategy and balanced diversification through different operating activities ensure the achievement of significant progress in terms of EBITDA at the end of the Plan’s period, even under worst-case circumstances.

In the new enhanced version, the Sensitivity Game effectively expresses the Company’s commitment in terms of transparency and proactive stakeholder engagement.

We try to understand better the importance of this project by talking to Luca Cimatti, who he is responsible for the management and analysis of financial data in Hera’s Investor Relations team.


How did you get to the creation of the Sensitivity Game?
The project starts with Hera’s will to offer in total transparency, to investors and analysts, a tool that allows for measuring the impact of scenario variables on the different businesses in which the Group operates. In the past, we had already made available a similar model to a limited number of analysts, but in the current version, we created a more sophisticated tool, which we would like to make available to anyone who wants to either analyse or evaluate Hera. The version just released is the result of a work built over the years, using information from various internal teams, with the aim to structure a Sensitivity Game that can test the targets of Business Plan to 2023. Since it is a model that we have been using for some time in its “core” structure, we could verify ourselves its ability to deliver reliable results.

How does this tool work exactly?
Inside an interactive presentation, we placed two excel sheets where everyone can input his/her own hypothesis on different variables: some macroeconomic variables, such as inflation, others that are more business-specific, for example energy price, or even variables of financial strategy, as a higher leverage. One of the two input sheets is dedicated to assumptions in terms of capital allocation, e.g. through M&A activities. Following the input of a specific hypothesis on a variable, all the output pages are updated automatically. This way, it is possible to obtain a very accurate and detailed analysis of the performance in each business area and, at the end, to come to a fair value for the price of Hera’s shares. Every year the model will be updated to integrate the characteristics of the new Business Plan – an exercise that requires a work of several weeks only for the maintenance activity, given the amount of information included and the complexity of its structure. Just think that behind the input screens there are more than 40,000 excel cells “working” to produce the outputs

What are the main evidences that this sensitivity analysis brought to light?
I would say that essentially the results prove the resilient nature of Hera’s business mix, even in terms of business strategies. In our portfolio, we have a natural balance offered by the diversification of our activities, half of which are regulated. Also in liberalised fields, the business approach has always been very conservative; our only activity in power generation, for example, is in WTE plants, which also benefits from some incentives. The constant research for synergies from the acquisitions completed over time, with higher efficiency standards applied in the integration phase, indeed represented an important driver for EBITDA growth, with no need to explore riskier areas to create value.

What happens applying the worst-case scenario assumptions?
Given Hera’s solid structure, if we try to move all the variables towards their most negative value, through a sort of stress test, in a “worst-case scenario” where no M&A transaction is accomplished and no synergy is extracted, we still reach 1.2 billion-euro consolidated EBITDA at 2023. Even if investors might have assumptions that differ from the Company’s ones on the external scenario, through this sensitivity exercise they realise that Hera’s results are manly driven by internal levers, into the hands of the management. That is exactly what allowed for a constant and regular growth for almost 17 years, sheltered from shocks and volatility that may characterise external variables. In such a particular period as the one we are living with the Covid-19 pandemic, we think it is even more rewarding to have this kind of visibility on cash flows.

Is it possible to analyse the impact of “Corona-virus”?
The model does not provide a specific analysis related to “Corona-virus”, since it is a totally new and unknown phenomenon; however, it can offer a sensitivity towards the dynamics of certain macro variables that are experiencing a significative change at the moment. In the hard current situation, Hera Group undertook a prompt crisis management action plan, proved effective in keeping the main activities up and running. Hera is providing an attentive answer to the stakeholders needs, confirming once again to be aware of the importance of its social role, even at a time of crisis.

Any idea about future evolution of the Sensitivity Game
We mean to top ourselves. Already next year we plan to add to the model a new section for sustainability targets, thus integrating the analysis of Shared Value creation, also at the level of each single business. In a world that will be always more interested in assessing the effectiveness of companies’ long-term strategies, we can and will offer a concrete solution.

Hera’s IR Team makes the Sensitivity Game available to anyone who requests it, by filling this form.

Luca Cimatti
Luca Cimatti
25 March 2020
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