InvestorNews

At Hera, what’s the role of Innovation?
We have always believed that innovation plays a central role in fuelling the Company's growth. For this reason, we have been pioneers in terms of organisation, having been the first in our sector in Italy to set up a department specifically dedicated to innovation back in April 2014. Our goal, from the outset, has been to implement projects that drive the development of our extensive business portfolio through specific process and product innovations. At the same time, we have always given priority to consolidating and promoting an internal culture of innovation.

How, exactly, do you create a culture of innovation within a large and complex organisation such as Hera?
We started with a very clear idea: innovation must follow two tracks. The first is undoubtedly the reskilling of our people. The second, just as important, is upskilling, through the acquisition of expertise from outside. In an increasingly specialised world, building a partner ecosystem around you is essential, since you can engage them based on the investment you're planning to undertake.
 

By following these two tracks, we have
managed to develop our internal skills and
seize the opportunities that come from
contamination with innovation developed
externally.

In some cases, us at Hera spot a new need and go looking for external partnerships. In other cases, external players come to us with new opportunities. So, it's a two-way street that makes us the hub for different projects while also helping us find new skills and solutions.

How have you gone about picking your partners for innovation over time?
We've always built our partnership ecosystem with diverse profiles, looking for excellence in every field.
Therefore, we work with some of the world leaders for the innovation in specific businesses – for example, an Israeli company that is our partner, which supports us within the water cycle in identifying innovative areas and operators in the sector, for international comparisons and projects from the United States to Singapore. In some cases, Hera requires exclusivity for the sector at national level to establish this type of specialised partnership.
We also have several collaborations in the academic field, mainly with the University of Bologna and the Politecnico di Milano, as well as established relationships with leading international consulting firms.
As part of our Open Innovation programme, we are continuously analysing approximately forty initiatives with start-ups.
We also follow a highly structured approach to developing partnerships, which has proven to be a fundamental requirement in ensuring the success of this collaborative model. We start with an initial scouting phase, in which we analyse opportunities, then move on to the pilot phase, in which we conduct trials in a specific area or on a single plant, and finally proceed to the full-scale roll-out of the initiative. In some cases, the pilot phase may not be necessary, since a project that is already applicable on a large scale is identified directly.

This structured model has allowed us to
leverage external partners to stay at the
forefront of innovation, with great results
and optimal cost and time management. 

What are the main benefits of investing in Innovation?
The benefits we typically derive are in terms of greater efficiency – measurable in terms of lower costs – and greater effectiveness: leveraging innovation, we can do more and better than we did before. One of the most significant results of these 12 years of investment in innovation is what we have achieved in terms of Data Analytics: in February 2020, we set up an internal competence centre to support the entire Group in developing AI programmes that enhance the value of our data.

At Hera, we consider ourselves best
practice in leveraging the valuable data we
have at our disposal.

Our main areas of application have focused on asset management, specifically in the detection of gas leaks or water leaks, but also in the analysis of retail customers' credit quality during the origination phase. For example, immediately after acquiring the significant customer base of the Gradual Protection Service in June 2024, we began continuous monitoring to predict the behaviour of individual users, activating our analysis and predictive algorithms.

How do you use Artificial Intelligence?
At Hera, we have had a continuous focus for years on the use of AI based on algorithms that work on our numbers. As for the new frontier of Generative Artificial Intelligence, we are investing in increasingly broad and personalised uses based on our specific needs. We are not limiting ourselves to adopting more traditional applications, such as conversational chatbots for our customers, which offer explanations and assistance 24 hours a day, 7 days a week, with significant cost savings. We have developed an algorithm that interacts with our sales team, helping them to understand and predict what the customer may want, so that they can offer the most effective and tailored solutions. We have also developed some very promising uses of generative AI in the procurement process, as well as in the setting up and management of certain types of legal proceedings.
We have also created a system to support Hera staff in improving their performance: out of a total of around 7,000 employees, approximately 30% regularly use Microsoft 365 Copilot, with excellent results. Microsoft itself considers Hera to be European best practice for the use of its AI assistant.
Finally, our workforce management is already fully digitised, both for network activities and environmental services.

What investments have you included in the new Business Plan?

1.4 billion euro

Cumulated investments in digitisation
over the 2025-2029 period

Hera will invest a total of 1.4 billion euro in digitisation projects between 2025 and 2029. Over the next few years, we will be focusing primarily on two projects with a high level of technological innovation. We will further develop the workforce management system in the Waste business, to improve our monitoring of the territory by analysing images captured by cameras installed on our transport vehicles. We will also migrate to the new SAP Rise cloud environment, with a wave-based adoption process that will be completed in 2028. This new system will allow us to review and optimise all of the Group's cross-functional processes.

What are the main financial benefits you expect from the investments in innovation included in the new Plan?
In Energy, we expect to benefit from lower costs and to take advantage of predictive analytics on customer behaviour to identify the next best action – which ultimately means higher margins through reduced churn rates, lower cost-to-serve and the expansion of the scope of VAS offers.
In Networks, we expect to be able to optimise infrastructure development and management systems, for instance by identifying network sections to be replaced or upgraded, rather than relying solely on the age of the networks themselves. Data provided by smart meters can also help us identify any points of loss on individual sections analysed at a lower cost than extensive monitoring. All in all, this will lead to optimal capex allocation.

Finally, in the Waste business, we will leverage innovative tools to identify new services that we can offer customers in the management of special waste. Regarding urban waste management, we expect to reap benefits mainly in terms of cost reduction and service improvement, through smart bins, route monitoring and analysis of the territory to understand new needs related to the possible abandonment of waste. We already have systems installed on some vehicles that check the quality of the sorted waste that is unloaded at the treatment plant. This means we can be more focused in our communication initiatives in the area and optimise the use of the plants, as we can check the quality of the waste delivered in advance.

Today, you would not be able to effectively leverage the new tools offered by technology if you had not first created a solid culture of innovation...
I always say that there are three conditions that are necessary but not sufficient for successful innovation: culture, tools and skills, both in internal centres of expertise and in partnerships.

Today, at Hera, we are in the ideal
position to have all three pillars of
successful innovation working at full capacity.

This is especially true at a time such as the present, when the opportunities offered by technology exceed the capacity of potential users to put them into play. This gap is widening, so we need to clearly identify the areas in which to focus our investments to make the best use of new technologies. It is unthinkable for a company to be able to utilise all the new opportunities provided by robotics or GenAI.

When introducing innovative solutions, you therefore follow a well-structured model...
Our approach is proactive, not reactive: we don't just keep our eyes open to spot innovations in the outside world. Instead, we look at our needs and actively seek solutions, both with our internal expertise and by leveraging external partnerships. Once we have identified a new opportunity, whether it arises from an internal need – identified centrally or at a specific business level – or from an external stimulus, we immediately move on to assessing its technical feasibility, to understand how the new tool can be integrated with our systems and processes.
The feasibility assessment also involves formulating an expected return, either financially or in terms of effectiveness. Then, when faced with a new opportunity, we also look for the best individual solution. At that point, there is a choice to be made in terms of implementation strategy, depending on risk management and cost: we can opt for a pilot trial or direct large-scale deployment, depending on the circumstances.
Hence the importance of having a consolidated standard model. Just as important, I would add, is having a central coordination point: an innovation project in one business can also benefit other businesses. In this way, at Hera we can properly assess the opportunity to extend the application of a new project, originally created for a single business, also considering the synergies that can be achieved from scaling up.