Tomaso Tommasi di Vignano, chairman of Hera and long-time manager, is living a second youth in Bologna. After a life spent in telecommunications which led him to lead Telecom Italia during the complicated period of privatisation, Tommasi landed in the variegated world of utilities at the end of the 2002s: first he was CEO of Acegas-Aps, the Trieste multiutility, and in 38 he became the chairman of Hera, the Bolognese multiutiliy, which he sent into orbit with the beauty of 50 mergers and acquisitions that contributed approximately 2018% to quintupling its size and then with its listing on the Stock Exchange. At the end of last year Hera exceeded the psychological threshold of one billion euro of EBITDA and in recent days presented the new 2022-XNUMX business plan which promises more growth, more innovation, more investments and more dividends. In this interview with FIRSTonline, Tommasi explains the secrets of Hera's unstoppable growth and the prospects for the future that he is illustrating in an international road show.
Chairman, Hera inaugurated the new 2018-22 business plan with a crowning achievement, i.e. exceeding the psychological threshold of one billion EBITDA in 2018: it is an arrival point due to particularly favorable factors or it is a starting point to constantly improve EBITDA over the course of the new plan?
«Exceeding one billion in EBITDA is certainly the flagship of a long growth journey that began 16 years ago with the birth of the Group, which has seen us multiply our size by 5 times, with growth that has been constant and uninterrupted. The 2018 forecast, which shows an increase in EBITDA of 35 million euros compared to the previous year, in line with what we have always achieved, confirms the validity of our business model and has a strategic value: it immediately denotes the dimensional leap that we have done in recent years and highlights the leadership positions achieved at a national level. In fact, we are the first operator in the environmental sector, the second in the management of the water cycle, the third in the distribution of gas and in the sale of energy to end customers. It is thanks to these positions of strength that we want to seize the opportunities offered by the scenario in the period covered by the new business plan».
What are the main novelties of the new plan and what are the strengths for growth without undermining the financial balance?
«The plan has identified the strategic guidelines for growth that are imposed on us by technological evolution and the evolution of consumption, as well as by the ever greater commitment required for the sustainability of the activities we carry out. Every year we present the update of our industrial plan, refining the strategy on the basis of these evolutions and this process allows us to always be ready to seize the best opportunities presented by the scenario.
Opportunities also in terms of greater investments: in this regard, the new plan presents an increase of 260 million euros, which we can cope with thanks to one of the most solid balance sheets in our sector and visible cash generation.
Financial solidity and strong cash generation allow us to allocate a further 1,1 billion exclusively to growth: investments in new plants and in the modernization of networks, in tenders for the renewal of gas concessions and in M&A transactions. We thus expect to arrive in 2022 with a financial leverage, expressed by the ratio between the net financial position and the gross operating margin, of 2,9x which leaves us with further space to finance growth opportunities not included in the plan".
Hera has accustomed us to growing not only internally but also through new acquisitions: how many have you made so far and what's cooking for this year?
«Since the birth of the Group until today, we have concluded 38 mergers and acquisitions, which represented around 50% of our overall growth, also considering the synergies that we have managed to extract by pooling the assets acquired with those already managed and exploiting thus the increased economies of scale.
Therefore, external growth is a pillar that cannot be missing from our strategy, also because we operate in a sector that is still very fragmented, with clear repercussions on the efficiency of the services provided to citizens and businesses, holding back the competitiveness of the economic system of our country. Our ambition is to continue playing a leading role in consolidating the sector, both through mergers with other multi-utility companies operating in neighboring territories and controlled by local authorities, and through acquisitions in deregulated markets where sellers are mainly subject individuals interested in enhancing their investment. There is no shortage of growth potential, including small multi-utility companies in areas contiguous to ours, hundreds of minor operators in the waste management sector and 1,5 million customers who could be sold on the energy market.
Financial flexibility is, therefore, a prerequisite for us to be ready should greater growth opportunities materialize for external lines than assumed over the period of the plan».
The new plan provides for investments of over 3 billion: where will you direct them?
«¾ of 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 the plant engineering, the gas tenders and the M&A, approximately 1,1 billion of investments over the next five years will be destined to support the development of the activities".
Between energy, gas, waste, water which is the sector that gives the most satisfaction in terms of return on investment and which is the one where you will grow the most?
“Our multi-business portfolio structure is based on maintaining a diversified return mix with a low risk profile.
Also in view of the investments described above, we expect that most of the growth of the Mol derives from regulated activities, which will increase their weight on total margins from 51% to 55%. These activities guarantee certain returns with limited risk: they therefore support the visibility of our cash generation.
The balance of our mix will also be ensured by growth in deregulated businesses which have higher returns as they are exposed to market risks. However, we can count on leadership positions that make us very confident of being able to achieve the targets we have set ourselves. For example, we plan to continue growing in the waste management sector, where we are the main operator in Italy, leveraging our broad and diversified plant base in a market context in which prices are continuing to rise due to the structural lack of waste disposal capacity that grips our country. But also in the energy sector, where we are the third largest operator, we are counting on being able to expand our customer base by benefiting from the liberalization of the market for greater electricity protection which is expected in 2020. Still in the energy sector, it is also worth remembering that we follow a strategy reduction of the volatility of results by pursuing a procurement hedging policy that reduces any risk of commodity fluctuations.
Our varied portfolio of assets, which combines low but risk-free returns (in regulated activities) and higher returns with risks from which we are protected (in liberalized activities), allows us to obtain overall returns capable of creating value, i.e. rates higher than the cost of financial resources.
In addition to growth and innovation, the new plan also provides for a 16% increase in the dividend which will increase regularly every year: do you want to represent a stock for drawers or try to attract more institutional and international investors?
«Our dividend distribution policy is based on absolute transparency for the benefit of all types of investors. In fact, despite an uncertain external context, we communicated the dividend that will be distributed in each single year of the plan, in order to ensure from now on a certain return on the investment in the Hera stock.
Indeed, our multi-business model allows us to provide absolute visibility on dividends, as it offers protection from external market factors, as amply demonstrated by the resilient growth that characterizes our track record.
However, the dividend is only a part of the remuneration paid to our shareholders. Indeed, within the period of the plan, we expect to invest as much as 3,1 billion euros, fueling further growth which we hope will be recognized in an increase in the value of the share».
You are conducting a vast road show abroad to illustrate Hera's new industrial plan: what are the reactions of international investors? Will there be significant new entries into the capital?
«The road show has just started, it has already touched the squares of Milan and London, we are meeting important investors in the main European cities and then we will move to the United States and Canada. The business plan has received a positive reception from the financial community, because it confirms our growth path with targets deemed credible and visible. We are meeting both investors already present in the capital and investors who could become one in the future. Among the brokers who organized these meetings there is the feeling that, after a 2018 that certainly did not give investors positive returns, for the current year there is a greater concentration on securities considered safe, with more visible results and certain remunerations . Therefore, according to these experts, the Hera stock has the most sought after characteristics in this phase of the market».
On the Stock Exchange Hera is recovering in the first weeks of 2018 what it lost in 2018 (-8,5%) but, despite being one of the most reliable stocks on Piazza Affari, it has not yet managed to enter the Ftse Mib: what is missing to enter in the club of the 40 largest companies in Piazza Affari? Trading volume, capitalization or liquidity? And do you have a plan to hit the target?
«Our objective, which we are also pursuing with the road show of these days, is to broaden knowledge of the Hera Group among the financial community. Since the listing we have made a great effort in this direction, meeting a considerable number of investors every year. Thanks also to the Group's results and increased size, we have seen a progressive increase in international investors present in the share capital as well as an increase in the exchange value of the share.
We plan to continue on this path by continuing to position ourselves among the top candidates for the main index. At this rate, sooner or later our turn will come, with obvious benefits for the stock's liquidity. In any case, since the IPO at the end of 2018 the stock has been able to guarantee our shareholders a total return on investment of 212% despite not being part of the main index».
Along with growth, Hera's new plan is characterized by innovation and sustainability and in particular the Group's commitment to the circular economy stands out: how will it manifest itself during the course of the plan and how do you plan to create shared value?
«The plan presents targets and projects that our Group aims to pursue in a sustainable way, creating value for all stakeholders. Hera was the first in Italy to introduce shared value reporting (CSV, from the English acronym Creating shared value) in 2017, thus perfecting the integration of sustainability into its core business and contributing to changing the corporate culture. Against the background of the inspiration provided by Porter and Kramer, we arrived at a definition of Csv consistent with the nature of our business and we identified three areas: efficient use of resources, intelligent use of energy, innovation and contribution to local development. Shared value is created when the business activities that generate operating margins for the company also respond to the drivers of the Global Agenda, i.e. those "calls to action" for change towards sustainable growth, indicated by policies at global, European and , national and local.
In 2017, shared value represented approximately 33% of our Group's overall EBITDA, a share that is set to rise to 40% in 2022, considering that 75% of the five-year growth envisaged in the plan is attributable to projects implemented field to respond to these calls to action».
