Hera's board of directors presented the new business plan to 2022 and also examined the 2018 preliminary results, which consolidate a gross operating margin (GOM) at the end of the year of 1,02 billion euros, up 3,6% compared to 984,6 million at 31 December 2017 and higher than the expectations of the previous business plan. The NFP/GOM ratio stood at approximately 2,54x, in line with the previous year.
On the solid foundations of this milestone and the results already achieved, which outline an uninterrupted 16-year growth path, the Board of Directors approved the new Plan to 2022 which reflects a strong commitment to further industrial development of the Group, despite a scenario characterized by increasing complexity.
A scenario in profound evolution
The macro-economic scenario is less favorable (with interest rates recovering and a less positive outlook than last year), however it should not significantly affect the Group's prospects, thanks to the composition of the service portfolio, the evolution of business models implemented in recent years and the high component of regulated activities. The next few years will be full of important appointments, starting with the already started process of gas distribution tenders, which is expected to result in an important rationalization of the number of operators. Also in the waste collection sector, the launch of tenders for service concessions, which have already expired or is about to expire, is expected to start in the five-year period. Regulatory changes are also envisaged for the customer segments of protected energy services, aimed at promoting a further increase in the added value of the services offered and greater competition in the market. Added to this is the continuation of the process of consolidation of the multi-utility sectors, energy sales and waste treatment services, which are still today among the most fragmented in Europe.
Investments of over 3,1 billion euro, capital and financial solidity confirmed
Given the opportunities offered by the scenario, the new Plan to 2022 envisages investments of over 3,1 billion euros, an increase of around 260 million compared to the previous strategic document. ¾ of these investments will be concentrated in regulated activities: around 70% will continue to be absorbed by the network chain and around 6% in urban waste collection. Important infrastructure modernization and development interventions will be implemented, confirming the Group's commitment to invest in the reference territories to provide increasingly innovative, resilient and quality services, and investments for gas distribution tenders are confirmed to confirm the main concessions currently managed. Overall, considering the expansion of plant engineering, gas tenders and M&As, approximately 1,1 billion in investments over the next five years will be destined to support business development.
An investment plan that is also sustainable from a financial point of view, thanks to growing cash generation, useful for covering investments and the payment of dividends. The ratio of net financial debt to EBITDA is forecast at 2,9x by 2022, in line with the release of the previous Plan. Net of the effect of the tenders, the financial equilibrium remains in line with the current one, guaranteeing ample room for maneuver to be able to seize any further growth opportunities not included in the Plan, without compromising the financial solidity of the Group.
A targeted strategy to seize opportunities and focus on shared value as a further element of competitiveness
The Group's strategy focuses on the Ecosystem, Circularity and Technology, through the activation of the now consolidated cornerstones of efficiency, excellence, growth, innovation, agility and with the declination of coherent planning that guarantee the full implementation of the Business Plan.
Always attentive to the dimension of sustainability, the Group has identified lines of development aimed at pursuing the objectives of the UN Agenda applicable to the activities of the multi-utility (for at least 10 of the 17 objectives indicated): almost 3/4 of the five-year growth envisaged in the Plan will be supported by the projects put in place to respond to this "call to action", thus bringing the share of EBITDA to shared value to exceed 2022 million euros in 470 (40% of total EBITDA).
GOM targets growing with a balance between the various business areas, between regulated and free market activities, as well as between internal growth and external development
Against the investments made for the next five years, a gross operating margin is forecast for 2022 of 1.185 million euros, up by over 200 million compared to the 984,6 million finalized at the end of 2017 and with an average annual increase of approximately 40 million over the course of the Plan, to which all the supply chains will contribute (networks, environment, energy and other services such as telecommunications and public lighting), with the usual balance between margins from regulated activities and from the free market, as well as between internal and external growth .
Thanks to the extraction of efficiencies and increasingly substantial investments, the overall contribution to the increase in GOM generated by organic growth is expected to be around 120 million over the course of the Plan (130 million if we consider the 10 million of lower incentives), while a GOP of 80 million is expected from growth through acquisitions. Targets in line with the five-year growth of the previous Plan and which benefit from the outperformance already consolidated with the 2018 trends and the outcome of the tenders on the markets of last resort in which the multi-utility has become the leader in all segments.
Growing shareholder value and an increasingly challenging dividend policy
The Plan confirms the attention paid to the creation of value and the transparency of the dividend policy, which is increasingly challenging compared to the past and to the forecasts of the previous Business Plan. The relevant dividend, which had already risen to 9,5 cents per share in 2017, will in fact increase to 10 cents per share in 2018 and 2019, to 10,5 in 2020 and 2021 and to 11 in 2022 (+16% compared to the last payment of the dividend); with an increase of 0,5 cents every 2 years.
Networks: efficiency and resilience to face climate change, innovation and excellence to be protagonists of the smart economy
Most of the growth over the course of the Plan is expected from the networks area: the GOM attributable to electricity and gas distribution, water cycle and district heating services will go from 424 million euros in 2017 to 581 million in 2022, thus contributing to around half of the Group's overall margins.
Numerous initiatives have been put in place to make networks increasingly "smart", increasing their efficiency, circularity and resilience, also to better face the growing climate and environmental challenges. The projects include the massive installation of "smart" meters as factors enabling the evolution towards smart cities. An example is represented by the new advanced functions of the latest generation gas meters developed by the Group in partnership with Panasonic, which will allow constant monitoring of the service, increasing its safety in the event of leaks, seismic events or network outages.
In the context of electricity distribution, the upgrading of the networks is envisaged for the benefit of service continuity, from the construction of new primary substations and targeted actions on secondary substations, up to the automation and digitization of the networks to support personnel intervention in the field. District heating will play an important role in the decarbonisation of the local area, thanks to over 70% of the heat production over the Plan period generated from renewable and assimilated sources. On the gas area side, an opportunity for dimensional growth is represented by the tenders for the assignment of gas service concessions which, after innumerable postponements, should take place by 2022, and already starting from the current year, in all the territories in which all the contracting stations have already defined the value of the VIR (residual industrial value) of the networks. In this context, the Hera Group aims to grow mainly through the reconfirmation in the areas already covered, thanks to investments of approximately 470 million. Lastly, in the water area, the focus will be placed on the protection of the resource, through the strengthening of leak detection and the development of districtisations, up to innovative water management projects to promote a increasingly sustainable and conscious management of water. Particular attention will be dedicated to the reuse of purified water, already implemented with excellent results in the Bologna area and being extended to other territories.
Consolidate leadership in the environmental sector, increasingly protecting resources and maximizing their reuse
The GOM of the environment chain is expected to grow from 246 million euros in 2017 to almost 300 million in 2022. The objective in the environment chain is to confirm itself as the reference operator in the integrated waste cycle, with concrete answers for both companies and citizens. The protection of environmental resources remains a priority objective, as does the maximization of their reuse. Particular attention will continue to be dedicated to the development of separate waste collection, expected to grow from 57,7% in 2017 to over 73% in 2022 and with improvement objectives also from a qualitative point of view, through targeted communication campaigns and citizen involvement. Timely pricing can represent a tool to encourage citizens to also improve the quality of separate waste collection, as demonstrated by the excellent results, well beyond expectations, achieved in some municipalities where it has already been introduced (by exceeding 85% of a capital like Ferrara with peaks close to or even higher than 90% in some municipalities in the Modena area).
In the treatment and recovery of waste, the Herambiente Group will be able to consolidate its leadership at national level by leveraging complete and integrated commercial offers, such as those aimed at large industrial customers which include from environmental services to energy services up to purification, but also on a state-of-the-art plant fleet capable of providing solutions to support the circular economy: from the biomethane production plant, recently inaugurated in the Bologna area, to the strengthening of Aliplast's excellence in plastic recycling, with new business opportunities, up to the launch of important partnerships such as those with Eni in biofuels and with Bio-on to develop new 100% natural and biodegradable plastics. The collection and analysis of data from field infrastructures (bins, vehicles, etc.) and from plants such as waste-to-energy plants will make it possible to optimize all activities, automating processes and reducing costs.
Energy: over 3 million customers thanks to the customer experience and new "sustainable" solutions
The margins of the energy sector in 2022 will amount to 268 million, a slight increase compared to the objective of the previous strategic document. The challenging goal is to exceed 3 million energy customers at the end of the Plan and confirm itself among the leaders in the sector with an increasingly consistent and loyal customer base, thanks to the positive customer experience and new solutions aimed at saving and respecting 'environment. In addition to the organic development of the customer base and further hypotheses for the development of the territorial presence along the Adriatic route, the Group can start from an excellent result which has seen it reconfirm its leading role in the field of last resort services in recent months of energy markets. An important opportunity to strengthen the customer base is represented by the overcoming of the protection market, from which the multi-utility expects to acquire at least 500.000 customers. The commercial development will leverage value-added offers, from those supporting the smart home (smart thermostat, remote sensors, etc.) to the combination with insurance or maintenance products, up to energy efficiency services up to electric mobility . The country's energy efficiency objectives themselves represent an opportunity for the development of the Group's energy services through its specialized companies, capable of providing ad hoc solutions for public administrations, condominiums and industrial customers.
The Group will also focus on increasing attention to the customer experience, resorting to the digitization of processes and payments to meet the needs of increasingly "connected" customers, as well as adopting efficient data management and analysis systems to ensure service excellence and accelerate the "time to market". The application of behavioral sciences combined with targeted actions (such as the reporting of consumption in the bill) will finally make it possible to promote an increasingly virtuous use of energy.
Tomaso Tommasi di Vignano, Executive Chairman of Hera
The growth we have forecast over the period of the Plan is absolutely credible considering our track record. Our investment program is important, growing by 260 million, just as the increased cash flow generation will allow us to maintain the ratio between NFP and GOP at 2,9x, as envisaged in the previous strategic document. We confirm the strong focus on the creation of value for our shareholders and a transparent policy in the distribution of dividends year by year. A solidity and visibility also guaranteed by the prospects of the external scenario (greater protection and gas tenders) implemented by the Plan, based on the precautionary assumptions of maintaining current market shares.
Stefano Venier, Chief Executive Officer of Hera
“In a five-year period of strong expansion of the plant base, a new phase is expected with important appointments in almost all businesses. The Plan is based on the assumption of affirming our leadership in services to the reference area and of pursuing technological evolution, to increasingly increase the regeneration in the management models of the activities and their resilience. Improve our risk/return profile thanks to a major development in regulated businesses that complements the performance of free market businesses. The Business Plan was built around topics of global interest as we are perfectly aware of our role as enabler of circular smart cities, but also of the need to adequately respond to the new needs of our customers and the territorial ecosystem, induced by the evolution digital and environmental challenges".
