Hera focuses on electricity and gas sales. More waste treatment facilities

In companies’ presentations to the market, there is always one table that stands out as more useful than the others. Or, if you like, one that provides a clearer insight into some of the key business development strategies. This is also the case with the 2024–2028 business plan for Hera. Among the many charts presented by the multi-utility company – on which *La Lettera al Risparmiatore* has spoken to senior management – one of particular interest is the one showing the contribution of the various business areas to the projected increase in profitability. In particular, the target – which the group confirms – is for around 1.7 billion in EBITDA by the end of the business plan. Well then: the greatest “contribution” in terms of structural growth – that is, excluding the impact of one-off items – comes from the Energy sector (+177 million in Mol). Next come the Networks division (+155 million in EBITDA) and the Environment division (+136 million).

Given these figures, it is clear that the sale of gas and electricity is a priority for the multi-utility company. One of the key focuses here is customer growth. The target, again for 2028, is around 4.5 million customers. However, by the end of the first quarter of 2025, the customer base had reached 4.63 million. In other words, the numerical target has already been met. Can Hera, therefore, simply sit back and do nothing? The answer is no. Firstly, it should be noted that this surge in numbers is essentially due to the multi-utility company taking on around one million customers following the end, in 2024, of the protected market for domestic electricity customers. These are customers that Hera has secured partly thanks to a discounted contract, which is due to expire on 1 April 2027. Clearly, at that point, on the one hand, the pressure on customers to switch providers will be greater; and, on the other, the group will need to have succeeded in further strengthening customer loyalty. The company emphasises that this latter process has been underway for some time. In this regard, the group states that its churn rate is lower than the industry average in Italia. This result stems, amongst other things, from its commitment to efficiency and the services offered to customers. It is not just about cross-selling. It also involves, for example, offering a diverse range of services: from various forms of insurance to energy efficiency solutions (through corporate ESCOs) and the installation of solar panels. Indeed, with regard to the latter, Hera forecasts – again by 2028 – the installation of approximately 300 megawatts of photovoltaic capacity. Of this, albeit a small proportion, is attributable to retail customers.

So, is everything plain sailing? The reality is more complicated. The investor points out that, in the first quarter of 2025, the Energy division saw a decline in EBITDA. This trend suggests there is a risk that the target set in the business plan may not be met. Hera, whilst aware of the situation, calls for a more detailed analysis. Firstly, it is emphasised that the trend described is the result of one-off events which will – for the most part – be accounted for in 2025. Excluding such situations – Hera adds – the trend in the first quarter corresponds to a structural increase of 6 per cent. In other words: a rise not too far off the plan’s forecast (8 per cent CAGR). What’s more, the multi-utility company points out that, in fact, the discounted contracts will expire in April 2027. At that point, the profit margins for customers on such agreements could improve. True! Customer retention is key. However – Hera is confident – given its ability to retain customers, EBITDA at that time can only benefit as a result. Not only that. The group states that the acquisition of new customers was, in any case, achieved at lower costs than those that would have been incurred through normal marketing efforts. In light of this, whilst the company estimates that by the end of 2025, the gross operating margin in the Energy sector will be lower than in 2024, it nevertheless confirms its target of 576 million in EBITDA by 2028. That said, however, a further objection can be raised. The ever-increasing presence of low-cost operators in the electricity sector is capable – potentially – of poaching customers. Which is a problem. Not so, retorts the multi-utility company. The emergence of new entrants is nothing new. Hera, pointing out that over the last 15 years its market share in gas and electricity has risen from around 1 per cent to 8 per cent, says it is fully capable of adapting to market developments.

So far, these are some considerations regarding the Energy sector. There is, however, also the Waste sector. In this division, Hera has various strategies: from driving forward the remediation sector to focusing on the plastics cycle, right through to continuing to develop the industrial waste business. In general – whilst continuing to move towards a circular economy – the multi-utility company has a major investment programme to expand its plant base. In this regard, for example, during the current financial year, the expansion of a facility for the treatment of special waste is planned. But that is not all. Also this year, on the one hand, the carbon fibre recycling plant has been commissioned; and, on the other, the soft plastics facility in Novara is currently being commissioned. Further projects are also planned over the course of the plan. This is no small undertaking, so much so that the estimated capital expenditure (Capex) for the business unit up to 2028 stands at around 1.1 billion. Nevertheless, the investor highlights a problem. Namely: Italia is characterised by weak industrial production. This is a context in which, with less waste being generated, Hera’s specific business may suffer. The group dismisses this concern. Firstly, it points out, the infrastructure in Italy is insufficient to handle the volume of industrial waste generated. Consequently, should there be a significant decline, it would be the group’s overseas facilities that would be affected. Furthermore – the group adds, emphasising that it holds a market share of around 10 per cent in the wider waste sector – the multi-utility company offers a comprehensive range of services (for example, on-site treatment of bilge water at shipyards). This, Hera concludes, is an additional feature that makes it more attractive to customers and, therefore, more resilient to industry trends in Italia.

Yes, in Italia. But what are the prospects regarding the water network? Here, the focus is on the water cycle. Among the various targets, it is worth noting the reduction of network leaks and lower urban runoff. As for the electricity network, however, alongside the objective – common to all projects – of making the infrastructure resilient to extreme events, there is a desire to enable the supply of greater power, particularly in light of the electrification of the economy. Thus, amongst other things, the group aims to increase the capacity of the substations connecting Terna’s transmission network and Hera’s own distribution network by 30 per cent. Finally, with regard to the gas sector, the digitalisation of the pipeline network has been underway for some time. On closer inspection, this work cuts across all networks (around 200 Capex projects by 2028). With regard to gas, the target – for which Hera states it is on track – is to achieve (also by 2028) 97 per cent coverage with digital meters. These second-generation smart meters are expected to reach 92 per cent coverage in the electricity sector. Water networks, however, are lagging behind: by the end of the planning period, the forecast is to have around 642,000 digital meters, representing coverage of over 40 per cent.