Italgas S.p.A. (IG) Earnings Call Transcript & Summary

Good day, and welcome to the Italgas 2019 Full Year Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over Anna Maria. Please go ahead.

Hi, good afternoon, ladies and gentlemen, and thank you for joining us. I'm Anna Maria Scaglia, new Head of IR team at Italgas, joined by Mr. Paolo Gallo, our CEO; and Antonio Paccioretti, our General Management. As usual, we will address any questions you have been sending to us at the end of this presentation. If anything else remains open, we will open the Q&A. I will leave now the floor to our CEO, Mr. Gallo.

Good evening. Paolo Gallo speaking. First of all, let me warmly welcome Anna Maria who has recently joined our team. And in the meantime, I would like to thank you -- to thank Marco Porro for the excellent work he had performed in the last 3.5 years with us, and I'm sure that everyone that are currently on the call will do the same with Marco. Now I move to the Page #2 of the presentation. We are trying in this page to highlight some of the key elements that we have achieved in 2019. First of all, let me say 2019 has been the third consecutive year of growing since we demerged from Snam. And 2019 as shown results better than target and better than the guidance we gave to the market during 2019 itself. The second element that I will later show to you is the progress of our digital transformation, what we have done, especially in the last 12 months, and what is the digital transformation -- what digital transformation represents for the company. Results in that area are coming faster than expected, and I will show you some real application later on. The third element is the level of investment. We exceed by far EUR 700 million, the highest number in the Italgas' history. It's 2x the CapEx, the investment that were done back in 2016. It's 2x the profit that we reached in 2019. So it's not just a matter of how much money we invested, it's a matter of the system, let me say, of the industry we put in place to deliver such impressive number. From a physical point of view, we built 1,000 kilometer in 2019, half of that in Sardinia. That means that we have put together engineering, procurement, construction in the best way in the -- at full speed. Fourth element. We have completed, as you know, the Toscana Energia consolidation. And also during 2019, we won 3 concession of -- in the tender that we participated, Torino 2 that was already announced, but also Valle d’Aosta and Belluno. And finally, we have -- and you know that we have done -- and Antonio will get into this point later on -- we have done a very nice exercise of liability management end of last year. And today, we have the best-in-class cost of debt in the industry. And finally, last year, we have been included in Dow Jones Sustainability Index -- World Index. That is a clear recognition of our effort on sustainability. Based on the results that we have achieved that we are going to discuss with you in a moment, the Board of Director has proposed to the next general assembly to distribute a dividend of EUR 0.256 per share. That represents a 9.5% increase in respect to the dividend per share that was distributed last year, much higher than the floor that is included into our dividend policy. Let's move to Page #3, talking about CapEx. As I said before, EUR 740 million were invested in 2019, more than 40% growth in respect to 2018. In this EUR 740 million, there is also included the CapEx that Toscana Energia invested into the last quarter that represents less than EUR 25 million. What we have done with that EUR 740 million? We have built nearly 1,000 kilometer of new or upgraded network. We devoted this amount of money on 150 kilometers of maintenance, 200 kilometers in terms of extension, new network nearly 500 kilometers and then 100 kilometers of other. That means -- this other means mainly the transformation of the LPG distribution system that we have in the Italian Peninsula into gas distribution -- natural gas distribution. So by 2020, what we promised a couple of years ago to connect isolated LPG network into our network has been achieved and will be completed by mid -- by, let's say, next winter time, so by September of 2020. The remaining part of the investment has been devoted to the metering. We have replaced around 1.8 million meters with the new ones. And thanks to the procurement activity, we have been able to achieve an installation cost that is around EUR 103 per meters. If you compare this cost with the standard cost recognized by the regulator, that is EUR 142. And you know that the allocation in 2018 was 60-40. We were able to retain EUR 16 per each meters for -- that has created a positive impact on RAB in terms of free RAB of around EUR 32 million. We confirm that we are going to replace all meters by 2020. We have already achieved nearly 80% of the replacement, and you know that these are fundamental milestone of our digitization program. And in fact, on the digitization side, we have already spent around EUR 40 million. And we will see a more significant growth in 2020 because we are going to replace most of the reduction pressure station. Up to now -- if we make the count up to now to the end of 2019, we have already installed the new digital pressure reduction in the numbers of 600, and we have already digitized 360 we call sub-grid. Continue on the investment side and moving in Page #4. Page #4, there is the Sardinia situation. I wanted just to make a comment on Sardinia. During 2019, we have installed around 440 kilometers of new digitalized pipes with spending of around EUR 80 million. And we have already achieved, as of February 2020, nearly 600 kilometers. So we have already passed 50% of the total network that we are going to complete in a, let's say, 1.5 years. On the -- let me say, on the commercial side, we have already received nearly 20,000 requests of new connection. So the ambition to attack and win, of course, the potential market of 200,000 customer remains unchanged. Let me talk about -- and we should move to Page 5. Let me talk about the digital transformation. As I said before, this process is moving faster than expected. And it is, as you know, our -- the core of our strategy. First of all, cloud is already delivering significant saving and flexibility to introduce new apps. On the saving side, we will talk later. We have completed, as you know, the Data Lake project. And the Data Lake is receiving millions of data from the field, from the smart meters, from the digitized station that will be used soon in our Digital Factory. The Digital Factory is truly our engine, our core engine for the digital transformation. And thanks to the teams that are working in the Digital Factory using agile and design thinking methodology, we are changing the way in which we manage the -- our network, with improvement in the decision-making, in the processes, in the quality of services that we deliver to the end customer. And that's the reason why I want you to detail some of the projects that have been developed and are already in place that have been developed by the Digital Factory. So let's move on to Page 6. We have created last year a new control room, completely new. You can see photograph on Page 6 on your left. It's a really advanced control room where the people can see in a real-time basis what is happening to our network. Not only that they can change depending on the situation the -- what they can see on the screens in order to highlight any potential problem and be able to intervene as soon as possible, they are getting all the alliance from the field, so they are able to call our teams, our technicians that are on the field to immediately intervene. We have 2 of them. One is located in Torino. The other one is located in Naples. And we intend by early -- by the end of 2020, early 2021 to double the size of this control room in Torino because it's going to be the area where the people are addressing all the issues on our network and they're able to immediately intervene and fix any problem it may arise. And the control room has been completely designed by the Digital Factory and was put in place in less than 6 months. Second example, Page 7. We have developed, and it's already used, a completely new application to monitor and review the advance of the work done on our, let me say, day-by-day activity in the construction of new network. You can see on the photograph some example. We are receiving from our supplier photograph and a list of activity performed, and we can check from a remotely position what they have done. We have introduced in our application a machine learning algorithm that can evaluate looking at the photographs if, for example, the depth of the pipe is correct, if the material use to cover the pipe is the right one. And therefore, on a real-time, we can say to the supplier you are doing a good job or you have not done a good job, so you have to do it again. It is clear the impact. We are going to reduce the cost of our supervision. In the meantime, we are going to increase the quality of the work done by our supplier. And finally, all this information will be brought to our cartography, and so we will have immediately an update of our, let me say, cartography pipes with no need later on to update the cartography, but it will be updated -- is updated by the supplier immediately. We are now in the process. We have already started the third room about this activity to link the physical progress of the work with all the payment activity. So once the application, we will add the third part of the application and we can say that all the process from the dig of the ground until the payment of the last -- of the last invoice is completely digitized. Third example, Page #8. We have already provided our technician on the field with weezers, our molecular viewers from which they -- the technician on the field that can communicate in real-time with the center. He can receive information. He can send information. He can receive the commentation. He can receive on-time suggestion how to operate. It is evident the advantage of this new application that has been completely developed by us in the digital room. We can reduce the complexity of the intervention. We can use it as a knowledge transfer. And of course, the intervention will be more efficient. On the other side, we have already released 2 subsequent application in the scheduling that is a real-time scheduling. That means that based on the geo localization of our technician on the field based, for example, on the media condition, based on the traffic condition, the scheduling of our integration will be updated constantly in order to be more efficient from one side and to benefit the end customer that will -- that is going to be updated. It is updated about the intervention if we are late or if we have to delay by 1 day our intervention. I wanted to give you these details to show how important is the digital transformation that we have, the path that we have started. And we have already seen during 2019 significant numbers in terms of saving and reducing penalties, increasing incentive. Now let me move to an area that I think is going to be quite of interest of you, that is the regulation. As you know, since January 1, 2020, the fifth regulatory period started. Let me say immediately, we have filed against this document on just a few days ago, end of February, an appeal at our court, the Administrative Court. But we are not alone, also other gas distributions -- distributors. The association appealed against the same resolution. Why? Well, I think you can get the answer in the numbers that are going to comment. The first point that I want to underline is that they have reduced the allowed return for metering to the same level of the distribution, so the WACC is being reduced from 6.8 to 6.34 metering. And we don't feel that was a good decision, considering that the technology associated to the metering is not as mature as you can have on a pipe. They have significantly reduced the OpEx recognition. And the number is a little bit less than EUR 6 per redelivery point. That is the number to be applied in 2020. We are going to challenge that number, and you can understand why. They have also set as an X factor the level of 3.53%, aiming to recover in 6 year the full -- the difference between 2018 standard cost and 2018 current cost, not our cost but of the industry cost. There are also some new -- some good news. For example, we expect that by 2022, some investment will be recognized on a standard basis. And considering the outperformance that we are doing on the smart meters, we are expecting this introduction with -- let me say, we welcome this introduction because we feel we are going to gain something out of that. The RAB subs, the RAB subsidies that were supposed to be released in 10 years, now they are released in an average of 34 years. So that, of course, it's a positive impact for us. And last, but not least, there is inside the regulation a recognition of the depreciation that was not fully recognized by the regulator in the past years. The only problem is that we were not able to identify a specific number, so we didn't included that in 2019 balance sheet because there is a missing part that should be arrived soon that is a more detailed document to be issued by the regulator, how to calculate the amount that was not fully depreciated. So those are the major elements of the regulation. I'm sure that everyone has read these documents, so you can recognize what I told you right now. Let's move on. Let's take just a quick look on the corporate structure, so we are on Page 10. I don't want to comment in detail. What I wanted just to give you as a message is that we promised in the -- we always promised that our corporate structure would have been lean. We would have reduced the number of companies. We would have pushed the efficiency, the synergy and the harmonization. We did it. You can see it's a very lean structure, and we have completed the job. So our job done. Let's move later on into the numbers. So we are at Page 11. As I said, this is the third consecutive years in which we are growing. At the -- let me -- you know that we are going to comment each of the element, let me just highlight some of them. We have a double-digit increase at the EBIT level. And the net profit adjusted after minority increased by more than 9%. And thanks to the contribution of our the core regulated businesses but also to M&A and thanks to the ongoing efficiency. The main difference is between the reported and adjusted number are 2. One -- and Antonio will explain to you later. One is a noncash item, nearly EUR 86 million that is emerging from the reevaluation of Toscana Energia shares. And we have EUR 18.3 million pretax liability management impact. On the CapEx, we have already discussed and described. And let me just talk about the debt. Our debt reached EUR 4.4 billion. That is explained as there is a small footnote by the consolidation of Toscana Energia debt of 40 -- EUR 437 million. So the reality on a like-for-like basis, our consolidated net debt has increased by around EUR 160 million because the other amount is relevant to the consolidation of Toscana Energia debt. So let's analyze a little bit more in details the results, so you move to Page 12. There are many numbers here. I'm going to underline only a few points because the detailed analysis will follow. Higher revenues are mainly driven by the M&A by our -- what I'm calling day-by-day activity and by one-off capital gain and, of course, by the fact that Toscana Energia has contributed in the last quarter of 2019. Operating expenses are -- show an increase of 3.5%, but we are discussing about a larger perimeter. The larger perimeter is M&A. It's Toscana Energia in the last quarter, of course, only. It's also the Energy Efficiency Certificate for which we will see there is a significant impact on 2019. I will show you more detail, but believe me for a moment, if we take out the cost of the additional Energy Efficiency Certificate that "are under question" they've been -- we won at the tribunal, so -- at the court, so now the authority, the regulator is to review the old system. So if we take out the difference on the energy efficiency, if we take out the additional costs arising from the M&A and the consolidation of Toscana Energia, then we can say that on a like-for-like basis, our cost in 2019 has decreased by nearly 4% in respect of 2018. I will give you comment. Regarding D&A and tax rate, Antonio will give you details later on. If you move one page, Page 13, you will see the revenues. Let me give you description about the revenues. On the distribution side, around EUR 17 million, 1-7, that is coming from the M&A, M&A in the gas distribution. So we don't consider because we've seen other revenues the contribution of Seaside, Medea, et cetera. So only for natural gas distribution. So EUR 17 million is coming from the M&A. EUR 19 million is coming from the tariff component is our day-by-day life. So we have invested there is a RAB increase. There has been an adjustment on the WACC by 20 basis points. We have new grids that have been put into operation during 2019. And of course, there is this X factor that is working on a negative side. That represents around EUR 19 million. EUR 25 million are related to adjustment of previous year. And on top of that, there is the consolidation of fourth quarter of Toscana Energia that represented EUR 32 million. So that explain the increase of EUR 93 million relevant to distribution. On the other side, as expected, we have a lower contribution for smart meter for the plan of installation because we are in the moment in which we are going to finish that installation, so even 2020 will be lower than that. I have to underline the fact that we have not considered the provision contained into the new regulatory cycle that will give us the opportunity to recover all the depreciation that was lost in the past year about the meters. So that is not included, of course. On the other distribution revenue, you see a significant increase, more than 10%, thanks to the increased numbers of services provided to the final customer and incentive for gas leak detection and the authorization. These 2 element -- I want to underline these 2 element because this is the result of our digital transformation. So we start seeing what in the plan has been identified as an overall EUR 160 million of advantages. Last, other revenues. Other revenues -- you know that we put in RAB other revenues, the contribution of the new businesses of the LPG in Sardinia and the energy efficiency. The increase of EUR 26.8 million is related by more than half for these new businesses. And then we have -- the other big element is the sales of our real estate asset in Torino that was done in the first quarter of 2019 in the phase of our back also. When we converted -- we sell the old ones and we bought the new ones based on natural gas. To summarize the picture of the consolidated revenues, you can go on Page 14. We have put together the building blocks starting from 2018 revenues to 2019, and you find, let me say, in a different view what I have already told you. EUR 50 million is relevant to the -- to our day-by-day life, EUR 34 million is Toscana Energia; M&A, EUR 32 million; other, EUR 11 million; and then we have a negative impact by the meter replacement. You should remember that the negative impact in meter replacement is a similar number into less depreciation and amortization. So at the EBIT level, the impact is very limited, at the EBIT level, not at the EBITDA level. Let's take a look about the cost, and then I'm going to pass the floor to Antonio. So you see that there is an impact. We have more cost than last year. But as I told you, we have -- that is due to the impact of Toscana Energia consolidation only last quarter. And you can see that there is a negative impact on the Energy Efficiency Certificate. Last year, in 2018, the Energy Efficiency Certificate accounted for EUR 2.3 million. Unfortunately, in 2019, we were obliged to account for an amount of EUR 7.8 million due to the regulation that, as you know, has been canceled by the court, and now should be revised by the regulator. Let me get into more detail. Take a look of the net labor cost. Despite the larger per meter, the net labor cost is flat, thanks to the improved workforce mix, but also thanks to the higher investment that drove higher capitalized cost. So thanks to that investment, we were able also to have also higher capitalized cost. On the next external cost, we see a decrease, EUR 6.5 million, one is coming -- the larger part is coming from the fact that in 2018, we don't have any more a traditional infrastructure, we only have cloud. So that is another result is nearly -- all of that is nearly EUR 6.3 million is coming from that. So the result of our digital transformation, you can now first test, which is the impact from cost reduction on the ICT cost. We have had lower penalties on the gas leakage by EUR 1 million, thanks to the new technology that we have introduced, another result of our digital transformation. And finally, more than EUR 3 million less cost in meter reading. Again, thanks to the traditional -- thanks to the digital transformation, we are replacing all the old meters with new ones. We don't have to read them anymore. Of course, we had -- we have had also some other elements that increased like third-party activities and utilities cost. Concession fees. We see a significant increase by EUR 8 million. You should remember that our own concession that was given at the end of 2012 at a very high concession fee in respect to all the other and also the new ones that are coming and because of the investment and because of the increase of the revenue to the, for example, to the increase of the WACC, the revenues that are under the -- that are calculated for calculation of the concession are higher than in 2018, and therefore, that result in a higher concession to be paid all over Italy but especially to Rome. New concession that we have acquired are bringing, of course, new concession fees. Then we have on the other cost, we have lower net risk fund provision, lower severance, higher capital losses, and that is the explanation of the decrease of the other costs. Last element to be considered is the increase of other activities by EUR 7.8 million that are mainly due to all of Medea as designed and so forth. But as I told you before, if you want to compare the 2019 cost with 2018 cost, you can just skip the page and go to Page 16. We have put together building blocks Toscana Energia M&A and efficient -- Energy Efficiency Certificate. Those are element that you can take out from the comparison of the cost. So at the end of the day, you will see that we were able to save more than EUR 12 million. On a like-for-like basis, that represent 3.6%, so nearly 4% on cost reduction. So again, as always said, we are able to reduce our cost and now that this reduction is mainly coming from the digital transformation. If you want to just to make -- I want to just to make a comment regarding the M&A contribution. If you put together all the M&A, LPG, gas distribution in Peninsula, Energy Efficiency, we have around EUR 43 million in revenues, EUR 24 million about additional cost. So this element is bringing to us an EBITDA margin of around 44%. Of the overall adjusted EBITDA margin, it's up to 72.1%, higher than last year it was 71.5%. And now I'm passing the floor because I'm losing my voice. I'm passing the floor to Antonio. He will continue through the presentation. Antonio?

Thanks a lot, Paolo. Thank you, and good afternoon ladies and gentlemen. We are now on Slide 17. And our consolidated debt -- EBIT adjusted amounted to around EUR 516 million in 2019, showing a remarkable 13.2% increase compared to the previous year. This is the result of, first, a EUR 65.5 million increase in EBITDA adjusted, mainly due to the revenues increase of EUR 18 million and the adjusted cost change of EUR 14 million, as already commented. Second, a EUR 5.5 million increase in D&A mainly driven by 4 elements: the first one, higher network and metering depreciation related to the CapEx carried out during the year, EUR 14 million for the network, and EUR 9 million for the metering. Secondly, in the first quarter, the consolidation of Toscana Energia for EUR 12 million, higher depreciation related to the M&A activities, around EUR 6 million and finally, the impact of -- for the leasing asset ex-IFRS 16, EUR 8 million. Those items were partially compensated by the lower accelerated depreciation, EUR 39 million related to the reduction of the economic life of the meters to be substituted by 2020. As we are close to complete the replacement of the entire traditional meter pool, the accelerated depreciation are lower than last year. Moving to Slide 18. The 2019 net adjusted profit reached EUR 345.2 million, up by 9.4% versus 2018. Net financial expenses, excluding the nonrecurring items, were EUR 51 million in the year with an average cost of our debt of around 1.1%, well in line with our expectations. Income from associates decreased by EUR 5 million, mainly related to Toscana Energia, which contributed to our profit and loss under the EBIT level only for 9 months this year. Finally, we accounted for EUR 128.3 million of adjusted income taxes. This is EUR 14.8 million higher than 2018 as a result of higher adjusted taxable income. The adjusted tax rate in 2019 was 27.7%, almost in line with 2018, mainly due to the tax benefit deriving from the enactment of specific tax rules on depreciation related to smart meters, the so-called iper ammortamento, that compensated the higher taxable income. Please note that our reported numbers include EUR 18 million of nonrecurring negative pretax impact related to the liability management we put in place last December. But we will comment on it later on. We also booked in our reported numbers a EUR 85.9 million of noncash capital gain related to the revaluation of our 48.68% initial stake in Toscana Energia, in line with the purchase value of the incremental 1.98% stake acquired in the fourth -- in the third quarter. The latter permit us -- permitted us to fully consolidate the company. Moving to the cash flow. In 2019, our cash flow from operation amounted to EUR 697 million and was generated by the net income of EUR 423.6 million and dividend -- and D&A and other nonmonetary items equal to EUR 244 million. The net working capital further supported the cash flow generation with a positive impact on EUR 29 million, in line with our guidance, mainly due to temporary net cash in resulting from payments to and from gas account volume. This result demonstrate the strong cash flow generating capacity of the group. If we exclude the EUR 30 million generated by the Toscana Energia in the first quarter, also this year, the operating cash flow was equivalent to around 10% of our RAB. We paid EUR 189 million of dividends to Italgas shareholders for the full fiscal year 2019 and the per quarter special dividend paid to minority shareholders by Toscana Energia in the first quarter was EUR 18.5 million. Net of all dividends, the net cash available for the growth amounted to around EUR 500 million. The net cash generated allowed us to almost entirely finance the significant technical investment, EUR 591 million, and the M&A activities, EUR 121 million, thus resulting in an increase of just EUR 187 million of our net debt position before considering the first consolidation of Toscana Energia and net debt. Turning to Page 20, let me complete the comment of the full year net debt evolution. The overall increase, you can see from our account, has to take into consideration that related to the first time consolidation of Toscana Energia, around EUR 410 million as of October 1. This, together with the cash flow evolution we have just commented, brings the net financial position at the end of December 2019 at EUR 4.4 billion. Looking at the debt structure. We have worked to further enhance our debt structure and keep low exposure to volatility. In particular, refinancing needs at 2022 has been reduced by EUR 482 million after the recent liability management exercise. Our bond, which represents around 72% of our total debt, have a very long average maturity of about 8 years, extended by the EUR 1.1 billion euro bond issues executed in 2019. We maintain a significant amount of liquidity and undrawn committed credit lines of EUR 500 million, and 88% of our gross financial debt is at fixed rate. In December, we carried out our liability management exercise, detailed in the slide, that further enhanced our debt structure following the bond issuance and the European Investment Bank loan swap of last July. This allowed us to take advantage of the favorable market conditions. We bought back understanding notes for a total nominal amount of around EUR 650 million, and we issued a new bond, EUR 500 million. Also thanks to this financial -- financing transaction, the company can leverage on one of the lowest average cost of funding on the sector at 1.1% at the end of last year with very low exposure to interest rate risk and to refinancing risk. Moving on to the balance sheet. The net invested capital amounted to EUR 6. 28 billion at the end of 2019 with an increase of EUR 1.1 billion compared to the previous year. Decrease is mainly driven by the increase in fixed assets on the back of the consolidation of Toscana Energia for an overall impact including the reduction of equity accounted of EUR 685 million. Secondly, CapEx in the year for EUR 740 million and lastly, depreciation of EUR 392 million. As commented in the previous slide, consolidated net debt was equal to EUR 4.4 billion, maintaining the leverage ratio in line with our guidance. The group leverage was around 61% on RAB at the end of the year -- of this year. This is calculated considering our affiliates equity RAB, the impact on the IFRS 16 and TFAR and the other adjustments usually applied by rating agencies. Let me now return the floor to Paolo for the dividend proposal.

Antonio, I'm going to spend very few words. And as you have seen, we were able to deliver very strong and very interesting results. Our activities is focused on 3 main areas: the digital transformation, cost efficiency and sustainability. And thanks to that -- and we are only at the beginning, but thanks to that, we were able to propose a significant dividend policy -- dividend -- not policy, based on the dividend policy, we were able to propose a significant dividend increase in respect of 2019. So EUR 0.256 per share, increase of 9.4% versus 2028 (sic) [ 2018 ], we are going to have a cash payment of EUR 207.1 million to be paid in 2020. Another -- if you remember, when we deliver the first dividend policy discussing about which is back to 60% payout or the increase of 4%, we have shown for 2 consecutive years since the new policy has been in place that we are able to beat the 4% increase, and it's seeing a significantly manner. So let me thank you for your attention. It has been a long conversation from our side. Now we are waiting for you to respond, and I'm passing the floor to Anna Maria.

Yes. Good evening. As I said, we've been collecting the questions from the analysts. We have received questions from MainFirst, Mediobanca, Exane, Equita, Intermonte, Bank of America, SocGen, Citigroup and Akros. I'm going to make the questions one by one. The first group of questions was under the...

Anna Maria, sorry to interrupt you. Just to explain why we have used this different way that is slightly different from before is only because due to the coronavirus crisis. We are all in different places. So right now, I am in Torino. Antonio is in Milano. Probably Anna Maria is [ at home ]. And therefore, not being able to be as one team together physically, we had preferred to help the conversation to have Anna Maria getting the question earlier, so we can answer you more quickly. And of course, as soon as the crisis will go back, we will come back to the normal situation where we will open the floor to the questions. And we will open the floor to the questions immediately after I answer the question that Anna Maria collected.

So the first group of question is on the regulatory review. We commented a lot in the slide. But can you just maybe tell us what are the tools to mitigate the impacts and whether there is anything, in particular, that you think is negative. Those were the questions asked.

Okay. Let me say, we have already commented that the -- on the regulatory side. There are elements that we have difficulty to completely understand. That's the reason why, not only us, but also other operators, have decided to go to the court and to appeal against this authority, with this regulator document. We think -- supposing that all the numbers will be confirmed, we think that we will continue to be more efficient than the numbers recognized by the regulator. On the OpEx side, it is the most impacted one, I mean, in terms of size. We are talking about EUR 6 per redelivery point. You can make the math, very simple. We are going to be more efficient, and we should thank you. What we have put in place since 2017 in terms of the synergy, cost efficiency and last but the most important one, the digital transformation. I think that the X factor is also a very challenging one, 3-point-something percent is significant. We don't think it is fair. We don't think it is fair to keep this number for 6 years. So hopefully, the regulator will review that. But if I'm looking about the small operator that is even higher than that, that is 7-point something. That is going to be a tough element for them. That's the reason why most of them have appealed the regulation. I think that will -- as soon as they will realize the new numbers, I think we should have some effect, positive effect for us on the M&A side. Maybe I should -- I didn't comment about -- and then I'm just -- remember now about Sardinia. I think that is a good step forward, even if it's the equalization of the tariff is limited to 3 years. I think it's going to be much more than that. I think it's going to be forever. That is my expectation. Remember that we moved from a consultation where they wanted to create a new area in the -- in Italy that was limited to Sardinia, so there was no equalization with the remaining part of the Peninsula. We fight that very strong, not only us, but everybody. We get the first success, first 3 years, I think it's going to be forever. I don't have any other comments on the regulatory side. So if you can move to some other questions.

Yes. The second group of questions was on M&A. What are the main reasons on the slowdown in M&A? Can you update on the potential there? And what is the possibility of an acceleration or what our statistics are on this front?

Well, on the M&A, it is true, there has been a slowdown. And the slowdown is mainly driven by the fact that the low-hanging fruit, we took of them, most of them. As you've seen, there are other operators that are acting on this market. So I think that at the end of last year, we have seen an acceleration on the tender side. And therefore, probably some of the operators have decided to put on hold their idea to sell the company. I think that the -- we will do some M&A transactions during 2020. I cannot discuss because we still have many discussions going on. We have a pipeline around 100,000 redelivery points, but we -- there is a negotiation going on, so we don't know what is going to be close. We don't want to pay just for acquisition. As you know, we have been very strict in the amount that we pay and we want to keep that policy. And I think that the X factor and reduction on the OpEx recognition by the regulator may help in that M&A activity. So pipeline is there. It's a pipeline. That means that it's not -- we still are in the negotiation side. So hopefully, some of that pipeline will be closed during 2020.

Okay. Talking also about the growth. People have read the news about potential enter in Greece. Can you provide any comments on that? What's this equity rationale? Eventually, do you have any visibility on timing?

On the Greece side, let me say, first of all, part of the network in Thessaloniki was built by Italgas. Italgas had the share in one of the companies that are -- that have been grouped into the larger holding distribution company that is on sale, that is EDA THESS. That is exactly the share currently owned by Eni at 49%. So originally, at the year -- at the beginning of 2000, that share was owned by Italgas that helped to build the network. So we know part of the network very well. That's the first rationale. The second rationale is that the regulation in Greece is very similar to our. The third rationale Greece need a significantly expansion of the existing grid. The dimension of the grid that just to give you an idea of the existing grid in Greece is about half of the city of Rome. So it's a small one. They need an expansion of the grid because they want to achieve a significant CO2 emission reduction, so they want to -- not to use anymore the coal and the lignite. They would not to use it for heating. So the only way that they can achieve that objective is through the expansion of the distribution network. And as we have demonstrated in Sardinia, we know how to build. We know how to keep control of the cost. We know also we are able to make a very quick construction. We have built in a little bit more than 1 year, 600 kilometers only in Sardinia. So we know the work very well and, therefore, we feel those are the strategic rationale. In the meantime, the fact that there is a slow in the tender process, a slowdown in the tender process, of course, we know that we have the capability, the experience also to address a very competitive tender are -- in Greece. From a timing point of view, we have submitted our expression of interest. Now we should expect a tender, let me say, rules probably end of March, beginning of April. And then there will be a binding offer to be submitted. We have been told before summertime.

Thank you. Following up, analysts have been raising articles about potential consideration by the government of tender acceleration to support the GDP. Do you have any comment? Is that realistic? Too early to say?

We know that there are some block elements. For example, the full -- the recognition of the RAB to the comuni to the municipality who owns the network instead of a VIR. I know that there has been discussion between the Ministry of Industry, the regulator and the Association of Comuni to remove that block. We don't have any particular issue. We know that, that will help probably accelerate the -- will help accelerate the tender. So any modification of the current rule that are going to help the tenders to accelerate are welcome. So there are discussion. Hopefully, we should see something in the next month.

Moving to the current situation, the coronavirus in Italy. Can you -- do you expect any implications for the company? And also eventually, any impact on working capital for billing?

Let me say that our main focus and our main attention up to now is to 2 elements. First of all, to apply the rules issued by the government, strictly, because we want to stop the virus spreading in Italy. In the meantime, we want to make our personnel as safe as possible. We don't want to put them at risk. So since the beginning of that situation, we have adopted measures to prevent that our personnel will be put at risk. And on the other side, we have done all -- everything that was possible to do in order to guarantee the safety of our network. So we have not think for the time being about the impact, the economic impact of this coronavirus crisis because our focus has been different. But let me say, if I have to say something about that, that we may see some -- first of all, let me say, it will mainly depend how long this crisis will stay, how long this restriction will remain. Because what we see mainly immediately is that there will be a slowdown in the investments, and there will be probably some reduction in the activity that we performed on behalf of the commercial companies. Again, if the period will be not so long, we don't have any doubts that we will recover everything in the rest of the year. Otherwise, we have to review our -- some of our plan.

And maybe as a follow-up, people are asking if we provide any data about 2020 guidance at this time.

We normally -- we do not provide any data about guidance of 2020. Our rules is that we will provide the guidance at the moment in which we will deliver the new industrial plan. So we -- they have to wait until June to know our guidance.

I now move to a question on the meters replacement. Can you, Antonio, provide us the impact of the meters replacement, both on revenues and D&A this year? Can you confirm whether the target is still in place for 2020 and any impact for the future as well?

For this year, for '19, we have accounted revenues for EUR 22 million and accelerated depreciation for EUR 32 million. As you know, we are planning to conclude the full substitution of the fleet of traditional meters with the smart ones by this year, by 2020. We expect for this year to have revenues in the range of EUR 9 million and accelerated depreciation for around EUR 11 million.

Thank you. Another question on the digital -- digitization plan. In the strategic plan last June, we quantified a commodity benefit of EUR 160 million over the time period. Can we provide an update how much of the target amount has been already achieved?

Regarding the EUR 160 million, let me say that we can account a number in 2019 about -- around EUR 10 million. And that is mainly driven by what I've already told you. Part of the decrease of the ICT cost is driven by the digital transformation. So part of the EUR 6 million is driven by the digital transformation. We have recorded less penalties on the gas leakage. That is clearly digital transformation. We have recorded our incentive for gas leakage and authorization, and it is clearly digital transformation. We have recorded less meter reading, and that is clearly digital transformation. And we have also recorded some less material and maintenance cost that is due to the fact that we were able to identify better the behavior of the network and, therefore, to intervene, not after our situational break in the -- in our network, but before of that. So if I have to say, it's between, let me say, EUR 8 million to EUR 11 million, the amount. It's always difficult to make account of that. But we were able to clearly identify some effects -- some facts that are linked to the digital transformation. And I'm expecting that in 2020, everything that I showed to you in the -- as example that we have put in place, will provide additional and significant savings, both in the CapEx side and in the OpEx side.

Thank you. Moving to Toscana Energia. Can you provide any visibility of the evolution of the business? What potential impact from the integration could be? And also, can you comment on the cost in Q4 relative to the run rate for the year?

Let me say, I -- the numbers -- I will let the numbers on Antonio. But the synergies with Toscana Energia is moving forward very fast. We were just discussing this morning with our procurement the fact that we are negotiating with Microsoft and because the end of the licenses for the new licenses. And we are putting together, for example, in that negotiation, not only Italgas, but also Toscana Energia. So the base of the negotiation is larger, and we were able to achieve better result for Italgas and much better for Toscana Energia. So we are bringing -- that is just an example that I tell you now. That on all the elements, we are bringing Toscana Energia a part of our group. So Toscana Energia will enjoy the same cost-effective scale that we are enjoying. So also the public shareholder will enjoy because, of course, that will result in a higher profit and, therefore, higher dividend also for them. So we are bringing in a situation in which Toscana Energia is part of -- it's a real part of our group, enjoying the same advantage that we are enjoying. Maybe, Antonio, can you add some numbers about Toscana Energia?

Talking about some numbers in the fourth quarter '19. Toscana Energia contributed to our EBITDA of -- for an amount of around EUR 30 million and to our EBIT for the amount of EUR 18 million. But it is important to say that due to the accounting adjustment that we have accounted for the -- following the first consolidation, those numbers are not representative for the full year. So for the full year, the company has accounted an EBITDA of EUR 106 million and an EBIT of EUR 57 million. So this is useful for you for your projection next -- for the future.

A further question on Sardinia. What could be the implication following the announcement by China yesterday of a new cable interconnections between Sicily -- between the Mainland and Sardinia? And also, how this is competing with our project to expand distributions, the networks in the island?

Well, I think, again, I said that many times. I don't think there should be a competition because the use of electricity and the use of the gas, that's a combination of the 2 will drive the transition to a decarbonized society. Let me just make the fact that, while in the next weeks, we will start providing natural gas to the end customer in Sardinia, and by probably, we need to have another 1 year, 1.5 years to complete all the gas distribution network. I don't think that in 1 year, 1.5 years after, we will be able to build a new connection, that based on the information that I have read what that is public. The cost has been increased significantly to EUR 3.7 billion, while our cost is much lower than that. It's -- we are talking about EUR 500 million. So I don't think there should be any competition. There is no competition. We are providing both terminals. We are providing a different option to the Sardinia Island to have 2 different sources of energy. Our -- it's already there and will be soon available to the Sardinian citizen. So I don't see that development of Terna a problem for us. On the contrary, I would probably welcome that development because that's the only way in which Sardinia can make a good step forward in order to abandon the coal production and becoming a decarbonized island also.

And a further question on ESG related, maybe if you can comment about the fact that gas distribution is not eligible in the list of taxonomy for ESG, what the implication and also if there are any risks on the European upcoming green deal.

Well, I prefer to refer to a meeting, to official meeting that we had in January with the other Gas Distribution Association, which I am the Chairman, we did the G Energy, we did Jørgensen that is completely aligned with our view. Europe need -- the European Union need the transportation and the gas distribution if they wanted to achieve the objective set by the new green deal. And they are fully recognized the value of our asset for now, for tomorrow, and for the future. For now because we can use the natural gas to replace the coal production, to replace the oil consumption and support. Tomorrow because the natural gas network can assess all the biogas that is going to be produced in Europe, and for the future because these assets will represent a very large and effective storage, the so-called power-to-gas for the use of hydrogen, the storage for the energy surplus that is coming from renewable. So the future of our network is very clear, but it's also clear in the mind of the Digi Energy.

Thank you. Operator, are there any questions from the web? Otherwise, we'd talk.

At the moment, no questions over the phone. [Operator Instructions] No questions at this time. Please continue.

Okay. So thank you, everybody, for your participation. If you need any kind of follow-up, please come to myself or [ Armando ] and the IR team. And thank you very much, and good evening to everyone.

Thank you to everyone. Good evening.

That does conclude our conference for today. Thank you for participating. You may all disconnect.