S&P Global Ratings today said that it does not expect that Italian multi-utility Hera SpA's new "Strategic Plan To 2024" (for the period Jan. 1, 2021, to Dec. 31, 2024) will hamper its projected credit metrics improvement.
Hera plans to invest on aggregate €3.2 billion, 40% higher than in the previous five years. We expect a strong increase of EBITDA over the period to offset the spending.
Hera starts from a stronger starting point than we previously expected, with 2020 preliminary results above our expectations. We will be in a position to update our base-case scenario and assess the rating after Hera publishes its full-year 2020 results at the end of April 2021. Our current outlook on Hera is positive, with the threshold for an upgrade remaining at more than 23% adjusted funds from operations (FFO) to debt (including income from last resort clients) until the end of 2024.
In the new strategic plan, regulated networks will represent about 65% of total investments, with waste collection and recycling representing more than 20%. The remainder will be invested in retail activities and ancillary services (i.e., public lighting, energy management, etc.).
We now forecast EBITDA will increase to €1.3 billion in 2023 from €1.085 billion in 2019, led primarily by the retail business (adding about €100 million thanks to the Ascopiave acquisition contributing by €84 million). Networks and waste will represent about €100 million of EBITDA growth together. The total regulatory asset base (excluding district heating) should increase with a compound annual growth rate of 2.8% over 2020-2024 to €3.780 billion in 2024 from €3.290 billion in 2019.
As a result of the higher investments, reported net debt should increase by about €400 million by 2024. Nevertheless, reported leverage should decrease to 2.8x from 3.0x in 2019, thanks to stronger EBITDA growth.
Preliminary EBITDA for 2020 is forecast at about €1.118 billion (€1.085 billion in 2019), higher than our expectation of €1.075 billion. The stronger-than-expected results stem from the resilient performance of Hera's network, combined with robust ancillary services, which more than offset declining waste prices, with only 60% of volumes that were sold forward for 2020. Reported net debt for 2020 is expected at €3.250 billion, declining versus the 2019 level at €3.280 billion with better-than-expected working capital management throughout the COVID-19 crisis. Thanks to the strong 2020 results, we expect the adjusted FFO to debt (including income from last resort clients) for 2020 to approach 23%, as opposed to our previous expectation of 22%
