Within the frame of a scenario that looks challenging but provides plenty of opportunities, Hera sets its 2023 targets, leveraging on the Group strength that the healthy 2019 forecast results once again confirm. All indicators are on the rise compared to the previous Plan, with five-year cumulated dividends increasing by 20%.
“Forecast 2019 results exceed expectations and indicate the achievement of several strategic targets well in advance. Starting from that strong premise, we began to build a Plan to 2023 with a growth exceeding that of the previous one.”
The 2019-2021 Business Plan boasts a first strength in the sound forecast results that we have achieved in the latest fiscal year; that provides us with a solid platform on which we can leverage aiming at a higher and solid growth over the following years.
2019 EBITDA of 1,081 million euro indicates a growth of 50 million euro over the 2018 level. Therefore, Hera exceeded by 3% the expectations of the previous Plan, because of 86m€ organic growth, fuelled by all business areas, and 8 m€ incremental contribution from M&A activities. Those factors offset the impact of negatives, which overall amounted to -44m€ and were mostly due to the expected reduction in the margins of the safeguard customers business.
A very positive year, in which we have also achieved a number of strategic targets well ahead of expectations. Among 2019 achievements, the asset swap that we have signed with Ascopiave late this year plays a significant role. The agreement adds ca. 700,000 new Energy customers to our base, leading it to 3.3 million Energy users, i.e. the third largest in the industry, after the national players Enel and Eni. It is a deal with a clear strategic value, which provides a current leadership position in Triveneto while helping us in meeting a target of the Plan to 2022 well in advance.
Moreover, in 2019 through acquisitions and autonomous development of new plants, we managed to strengthen significantly the infrastructure for waste treatment in Pistoia, Bologna (with the new Biomethane plant) and Cordenons, increasing the overall capacity by 2.5 million tons. Therefore, already in the second half of 2019 we could fully benefit from the surge in prices experienced all over Europe, as a result of infrastructure scarcity that is especially pronounced in our Country, where Hera confirmed to be the leading player.
In 2019, we have therefore achieved significant goals, whose positive effects will be even more visible in the future. The year 2019 also represents a milestone for the shares; on 18 March 2019, the stock entered the FTSE MIB, the index of the 40 blue chips of the Italian Stock Exchange. Such achievement provides us with access to the most qualified investors and visibility on the financial markets. The growth perspectives and the solid fundamentals proven by the results released quarter by quarter during 2019, within the new frame of the FTSE MIB have led the share price to rise by 46% on an annual basis and to reach the 26th place in the ranking by market capitalisation.
“The five-year Plan takes shape within a scenario that offers attractive opportunities to a Company with a strong market position and a growth model such as Hera is.”
Just the way 2019, first year of the Business Plan to 2023, represents a solid starting point, so the read of the future scenario proposes attractive elements that support growth perspectives in all the main operating activities.
The Authority ARERA has recently released a new regulation that affects all our regulated activities, including the collection and sweeping business, which was the last one without a national tariff system. Both in Water and in distribution of Gas and Electricity the new tariff systems are substantially consistent with those of the past, while the new tariff system in Collection and Sweeping better aligns the service conditions to the other regulated activities. This way we have a much higher visibility on returns for roughly half of our businesses and more comfort in taking most of future investment decisions.
Moreover, the markets in which Hera operates still offer consolidation opportunities, considering the highly fragmented competition and future tenders for gas concessions. This paves the way for additional growth opportunities via M&A both in the liberalised businesses, such as energy sale and waste treatment, and in the multi-utility industry, typically strongly focused on regulated businesses. Hence, this scenario still provides favourable opportunities to continue our growth through M&A, leveraging on a business model that is open and aggregative.
The sector of the electricity sale will see the beginning of a process of full liberalisation from 2022 onwards. Such process will involve around 20 million customers, today still under the “maggior tutela” regime. The Hera Group, which has recorded higher growth rates than the average of other operators, will be able to compete, leveraging on the market share achieved, to benefit from the opening up of the market, further fueling its growth path.
“On the back of the results achieved in 2019 and opportunities that the scenario provides for the future, we could design a growth pattern that is more dynamic and less risky compared to the previous Plan.”
A robust Investment Plan is at the heart of our Business Plan. Over the five-year period, we forecast to put into play 2.86 billion euro. We will focus 0.9 billion on growth, with above 0.5 billion euro (+29% vs. the previous Plan) for organic development capex of infrastructure and additional 0.4 billion euro for M&A and gas tenders in our business areas, as we expect that around half of them will be granted within the Plan’s horizon to 2023. An investment plan aiming at support further growth in all businesses, while keeping a conservative risk profile, considering that we will allocate 3/4 of investments to regulated activities, with a profile of increased visibility on medium- to long-term returns.
The Plan sets the objective of reaching an EBITDA of 1,250 million euro in 2023, with an increase of 219 million euro over the five-year period, therefore increasing the previous target by 10%. Organic components quantifiable in 188 million will drive the growth, flanked by the contribution of 107 million coming from M&A, in line with our historical average – again, an essential lever in Hera’s growth.
Overall, organic growth and M&A will fully offset the impact of negatives, amounting to 76 million, which mainly refer to expected lower margins in the safeguard business and expiring incentives on renewables in the waste plants.
More than 150 million euro, or about 70% of EBITDA cumulated growth over the five-year Plan’s period, will be generated through Shared Value projects, so demonstrating that sustainability deeply integrates with the businesses that we run and the pursued strategy.
In a logic of adherence to the UN 2030 Agenda and the national and European Energy Plans, we have also stated our commitment on eight sustainability targets to 2030. Reasoning within a long-term perspective, we want to indicate Hera’s most significant changes with material impact at social and environmental level, starting from today.
Higher EBITDA growth will translate into higher cash flows compared to the previous Plan, so strengthening our typical financial flexibility and putting us in the position of taking growth opportunities via M&A that the Plan does not include. Notwithstanding the robust Investment Plan, the 2023 target for the Debt-to-EBITDA ratio is 2.8x – even in this case, an improvement compared to the old Plan.
Shareholder remuneration through dividends accelerates – a relevant component, but not the only one, of Total Shareholder Return. It is a fact that the market has always recognised the progress achieved in line with the Business Plans’ targets, rewarding Hera with stock price rises.”
On the basis of estimated cash flows and funding needs for the five-year investments, and on the condition that our usual financial flexibility will be maintained in order to grasp unexpected M&A opportunities, we have set an improved policy of earnings distribution that envisages a 20% increase in the dividend per share over the Plan’s period. In a transparent way, we have indicated each step of such a path through time. Starting from the current fiscal year, each year we have designed a 0.5-cent increase of dividend per share, up to the level of 12-euro cents for the 2023 fiscal year. The new Plan includes and acceleration in the dividend growth, with increases that will take place every year rather than every two years as in the previous Plan.
If we look backwards and calculate the Total Shareholder Return that Hera has provided from the IPO to date, we realise that the overall return for the shareholder, summing up dividends and capital gains, was on average 9.5% per year. Such value accurately reflects the 10% average growth that Hera achieved in terms of Earnings per Share. This means that the market is willing to incorporate in the stock price the value that the Company creates over time. A very encouraging premise, even looking ahead, ensuring that the sound Plan’s perspectives might translate into satisfactory returns for all shareholders.