Sustainability remains one of the cornerstones of the Group’s strategies for growth, perfectly integrated and relevant to all operating areas, with an increasing focus on creating value for stakeholders, as shown by the recent introduction of the concept of corporate purpose in the Group’s Articles of Association: The Group’s strategy is in fact guided by the corporate purpose, at the centre of which there is the creation of shared value for the Planet, People and Prosperity.
The Group has enhanced its five-year strategy, following the new European directives and at the same time maintaining its coherence with the goals of the UN’s 2030 Agenda, which for years has guided Hera’s commitment towards sustainable development.
The Business Plan to 2028 confirms and reinforces the growth envisaged in the previous plan: by 2028 the Hera Group expects EBITDA of 1.7 M€, with an average annual increase of 7%, net of some discontinuities related to non-recurring opportunities.
Investments at 4.6 bn€, 250 M€ more than the previous plan: an increase of approximately 5.7% compared to the 2023-2027 investment plan. The investment allocation ensures a distribution of investments to increase assets resilience (approx. 2 bn€) and initiatives contributing to the ecological transition (approx. 2.8 bn€).
Looking at the allocation of investments by ‘type’, about 49% of the resources will be dedicated to maintenance while 51% will be allocated to development.
The breakdown of investments by sector allocates 54% to Networks, 24% to the Environment, 21% to Energy and 1% to Other Services. Approximately 2.6 bn€ of investments (or 96% of eligible investments) are aligned with the European taxonomy through the adoption of circular economy solutions and models.
Approximately 4 bn€ or 77% of total investments are allocated to projects that create value not only for shareholders but generate shared value for all stakeholders and support the growth of CSV Ebitda to 66% of Group Ebitda by 2028.
Dividends are promised to grow further, with an average annual growth rate of 4.0%, to reach 17 c€ at 2028 (+21% since the last dividend distributed).
Operating cash flows will increase, supporting investments, dividends and expansion through M&As, maintaining financial solidity with the Debt/Ebitda ratio at 2.8x in 2028, thus leaving room for other investment projects not included in the Plan.
Operating-financial policies fully confirmed and renewed commitment towards development and growth, with interventions focused on the circular economy, energy transition, environmental protection, technological evolution and social cohesion.
VALUE CREATION
The Group's strategy focuses on creating value through four main growth levers: efficient allocation of capital to investment projects with the best risk-return profiles, expansion of market shares in the businesses covered, expansion of the scope through M&A transactions and extraction of synergies or cost efficiencies, including financial ones.
As far as the overall EBITDA is concerned, the planned projects will make it possible to reach EUR 1,700 million euro. Structural growth, with a CAGR of +7%, will be achieved through the usual growth levers, split between organic growth (+€375m) and M&A (+€100m).
Thanks to these growth targets of the economic indicators, the Plan projects an increase in return on invested capital (ROI) to 9.5% in 2028, up from 8.7% in 2023 adj. Maintaining the historically conservative risk profile, this level of return implies an important increase in value creation: the differential between ROI and WACC increases from 220 bps in 2022 to 400 bps in 2028.
Dividends are expected to increase steadily each year until reaching a coupon of 17 eurocents by 2028, with net earnings per share also expected to grow by an average of 6% per year. At current Hera share prices, the new policy guarantees an average yield of 5% and offers full visibility on prospective dividends in each year of the plan.
As a result, the total shareholder return (TSR), which takes into account both expected earnings performance and dividend yield, stands at over 11% on average per annum.
SUSTAINABLE GROWTH
Hera also confirms its important focus on the circular economy and decarbonisation, in order to encourage and support the ecological transition of the territories served with concrete initiatives aimed at citizens, public administrations and industrial customers, making available the extensive plant base and know-how gained in the various business sectors.
The initiatives envisaged in the Business Plan to 2028 make it possible to project a trajectory that is perfectly consistent with the achievement of the industrial objectives to 2030 in terms of circular economy and carbon neutrality.
With reference to the circular economy, the traced path confirms the 2030 targets such as the increase in recycled plastics (+165% compared to 2017), or the reuse of wastewater (up to 14.4% of the total).
Regarding the Group's commitment to reduce carbon emissions, the ambitious 37% reduction target to 2030, already validated by the prestigious international network Science Based Target initiative (SBTi), is confirmed, projecting a 32% reduction as early as 2028. Furthermore, in July 2024, the Group committed to achieving ‘Net Zero’ status by 2050, through a reduction in Scope 1, 2 and 3 emissions of around 90 per cent compared to 2019 and the removal of all remaining emissions at the end of the decarbonisation pathway.
At the same time, the 'shared-value EBITDA' will continue to grow significantly: it is expected to rise to 66% of the Group's total EBITDA in 2028, amounting to approximately EUR 1,124 million (compared to EUR 776 million in 2023), in line with the target of 70% by 2030.
INCREASE IN RESILIENCE
The diversified asset management strategy also confirms the focus on strengthening the three main lines of business, maintaining the current balance, which has ensured a constant uninterrupted growth and the strong resilience of the Group's results in all the scenario situations experienced over the last twenty years.
Maintaining this set-up means that approximately 60 per cent of development investments are dedicated to regulated activities, which thus provide regulatory protection against the cyclical nature of demand, inflation and interest rate trends.
Even with regard to the remaining 40% of development investments, attributable to free market activities, the strategy of low risk appetite is guaranteed by the implementation of hedging policies on operational risks in asset management, which have proven particularly effective even in situations of wide fluctuations in commodity prices experienced over time.
INVESTMENTS
The strategy to 2028 envisages financial resources to be set aside for investments, which will increase compared to the previous Investment Plan. Investments are planned that will feed into plant base maintenance, organic growth initiatives and external growth initiatives, including M&A opportunities.
Specifically, we will allocate:
- to Decarbonisation 1.1 billion euro, in line with our target of reaching Net Zero by 2050, to take action on climate-changing emissions, thanks to the development of renewable plants, energy efficiency initiatives and partnerships with our stakeholders.
- to Resource Regeneration 2.0 billion euro to reduce the consumption of natural resources and to ‘close the loop’ on our activities, through the development of circular solutions and the protection of ecosystems.
- to Resilience 2.4 billion euro, to further increase the resilience of the Group's assets and businesses and to cope with increasingly frequent and intense exogenous phenomena.
- to Innovation and digitalization 1.3 billion euro, to promote the application of cutting-edge technologies and innovative solutions that support the Group's industrial development and the pursuit of transition objectives.
The new Business Plan revolves around three strategic levers.
In all the businesses Group's projects are placed around these dimensions with the aim of combining the development of the multi-utility with that of the context in which it operates, in a "win-win" perspective to increase shared value.
The Group's investment plan reserves significant resources to meet climate and technological challenges:
- 22% of investments will contribute to decarbonization,
- 39% will be allocated for resource regeneration,
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25% will be dedicated to innovation
- 47% will go to improve the resilience of our assets.
The 4.6-billion-euro investment plan will allocate
- 2.5 bn€ to Networks for plant base maintenance and network development;
- 1.1 bn€ to Waste to enhance the Global Waste Management service and plastic recycling activities;
- 1.0 bn€ to Energy to increase the share of renewable energy produced and sold;
- 0.1 bn€ to Other Services to promote the TLC network evolution, the renewal of data centres and the optimization of network measurement systems.
Respecting the Group’s objective of maintaining a resilient growth profile, prepared to seize the opportunities that arise over the next five years, all business areas will contribute to growth in Ebitda, benefiting from various drivers/opportunities:
NETWORKS
In Networks, the business plan envisages growth of +€155 million, supported by a substantial €2.5 billion investment plan. It is the main enabler for the development of ‘smart solutions’ as well as innovative projects that are synergic with the other activities in the portfolio. We will therefore intensify investments following resilience and digitisation logics for a greater ‘connection’ of infrastructures.
WASTE
In the Waste sector, the business plan envisages growth of +€136 million, pivoting on our leadership position, based on a unique, broad, modern, sustainable and diversified plant base, which represents a solid ‘platform’ and enables us to seize the many upside opportunities over the next five years, thanks to the strong growth in demand for services offered focused on sustainability and the country's under-capacity in terms of plants.
ENERGY
In Energy, the business plan envisages structural growth of +€177 million, net of some non-recurring temporary opportunities. The Group will also leverage commercial development through its wide range of value-added and sustainable services. On the other hand, the quality of the services provided is confirmed by a customer base with a quality profile above the market average, both in terms of loyalty and punctuality in payments.
The new Plan further reinforces the Hera Group’s focus on generating value for its shareholders as well. They can indeed count on a return on invested capital well above the weighted average cost of capital and on a solid and transparent dividend policy, whose payment has been fully confirmed in 2024.
The dividend policy included in the new business plan envisages a dividend per share of 15.0 cents for the financial year 2024 (payable in 2025), higher than the 14.5 that was envisaged in the previous business plan. This increase is then reflected in a parallel increase of the entire curve for the following years as well, to reflect the improved earnings growth profile within the plan. The dividend will reach a level of 17 eurocents by 2028, which marks an average annual growth of 4% and 21% over the last dividend distributed.
With this Business Plan, the Group confirms its strategy’s consistency with the most recent and ambitious European policies as well as the recommendations of the UN Agenda. The significant amount of investments, equal to 77% of the total, going towards Shared Value initiatives and the ensuing economic growth provide a guarantee of the Group’s medium to long-term development.
The Group's commitment to generating value for the community is confirmed by the growth of Shared Value EBITDA, which rose from 33% of the Group's total EBITDA in 2016 to 52% in 2023.
Estimates to 2028, drawn on the basis of the Plan projects and initiatives, project a Shared Value EBITDA above 66%, in line with the target of 70% by 2030.
Entirely geared towards Shared Value, the Plan includes projects capable of both developing the businesses managed by the Group and promoting the wellbeing of local areas, workers and stakeholders in general, following a rationale of mutual benefit.
Working together with the stakeholders, a path of growth for the Group and the surrounding ecosystem will be designed which gives full value to the prosperity of the local community over the medium and long term.
The increase in Ebitda, consistent with the objectives on the UN’s 2030 Agenda, will be pursued thanks to investments for shared-value projects corresponding to roughly 77% of the total for 2024-2028, around 4 bn€ out of the total 4.6 bn€ allocated under the Plan.
Some key sustainable projects are:
- projects related to the transition to the circular economy
- sustainable water management projects
- energy transition and renewable energy projects
Over the five-year period 2024-2028, it is estimated that the economic value distributed to stakeholders (which includes employees, shareholders, suppliers and public administration) will be approximately 10 billion euro.
The Hera Group and hydrogen
The interventions planned include further expansion in district heating, an increased use of electricity from renewable sources and energy upgrading for buildings, but also launching initiatives to develop hydrogen as an energy vector.
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