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

Good day, and welcome to the Italgas 2020 Performance Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anna Maria Scaglia, Head of Investor Relations. Please go ahead, ma'am.

Hi, good afternoon, ladies and gentlemen, and thank you for joining us. Today, we'll walk through Italgas' 2020 performance update. I'm Anna Maria Scaglia. I'm joined by Mr. Paolo Gallo, our CEO; Mr. Antonio Paccioretti, our General Manager. We will address any questions at the end of the presentation. I leave now the floor to our CEO, Mr. Gallo.

Good afternoon to everybody, and welcome to this uncommon situation. Like we promised when we made a presentation on the first quarter result, we want to take the opportunity to update you about how our business is doing currently, and particularly how our construction activity are resuming after the 2 months of lockdown and what, even more important, that implies for our 2020 performances. From a -- the construction point of view, most of our sites have restarted, as expected. We need to thanks all the application, the technology application, we developed in our Digital Factory, because, thanks to that, we have been able to restart slightly faster. And in fact, I'm even more convinced than before that the effort we made in the last couple of years about a digital transformation of the company has been a clear differentiating factor during the outbreak of the coronavirus and even more important for the activities going forward. Let me say the activities outside have restarted and resumed quite quickly. We are, of course, slowly in resuming the activity inside the office. But because, as always, as it was since the beginning of the pandemia, the safety of all our personnel is the first and the foremost priority as well as the safety of our -- of the operation of our network. We will talk in a moment about the investments, and how the COVID has affected our investments. Regarding the payment, if you remember, during the first quarter presentation, we handled several questions about payments and the modification introduced by our regulator. I can tell you that the flow of payments has remained, during this period, healthy. And we collected most of the amount due, with very limited difference in respect to the past. As a result of that, our balance sheet has remained -- is solid. And despite, as I said, some initial fears in the market, we have seen no deterioration in the ability to access capital markets. But also, in this day, these weeks, we are looking how to bring forward, starting from this experience, in other terms, to capitalize the positive element that has appeared during this period. And that is the reason why we launched a project, it is called Italgas reloaded, for which I'm going to speak later on in the presentation. If we move to Page 4, if I'm not right, yes? I'm right. We wanted to show you the progress of the construction activity during the lockdown period and immediately after the lockdown period. Those construction sites include also the activity in Sardinia. As you remember, starting from March 22, we were forced to stop all the major activities that were not relevant to the safety and the continuity of our services. We restarted in May, starting from May 4, when most of the activity were allowed to be restarted, except the ones inside the residential. And -- but we started all the construction only with the use of our application that has been developed in the last 12 months in our Digital Factory that is called the WorkOnSite. You can see that during the month of May, not all the sites were and not all the supplier were ready to use our new application, and we put that, the use of the new application, as an element in order to restart. In other terms, if you didn't -- if the -- our supplier was not available to use this application, they were not allowed to restart the activities. In the 2 recent weeks, so in June period, the percentage reached 98%. And very soon, all our sites will be using this new application, and we will restart the activity. Then first, you will see in the following page, that application has several benefits. First of all, this application allows our technician to remotely monitor the construction site. That, of course, implies less personnel on the field, and you can understand the reason why it is better in the situation like we are now. It's better for safety, but also it's better for cost. Furthermore, the flow of information is boosted, increasing the supervision. And therefore, at the same time, both quality and compliance with our requirement are materially improved. Last but not the least, our supplier also benefits from them. You can imagine that they can -- using the application as an immediate answer in case of emerging difficulties. So those -- it's a clear evidence that the new technology, the digital approach, has been extremely useful to restart our activity on construction. And today, we can say that all sites are using this new application. And in fact, you can see the number on the following page. We are on Page 6. There are nearly 250 users of the -- they are our supplier that are using this application. We have already received, since the start, more than 16,000 photographs. The third wave at our machine learning algorithm is looking in order to approve the advance of the activity. And out of these more than 6,000 (sic) [ 16,000 ] photographs, 82% were positive so that in terms of our algorithm was able to give a green light to the supplier to proceed in their construction, while the remaining 18% provided a negative signal, so in other terms, we require the supplier either to double check or eventually to redo the activity or part of the activity. We will extend the system also to the small construction sites. For the time being, we have just applied this new application to the biggest one, especially the ones in Sardinia. Before summertime, we will release a new release about this application that will be used also for small construction site. And when I'm talking about small construction site, it means small in terms of size, but also small in terms of time. Let's move to give you some numbers about what happened before, during and after the lockdown period, about the major KPI. The first one, on Page 7, is the number on smart meter replaced. You remember very well our commitment to replace all the smart meters before the year-end. Our original plan was to replace all of them -- to replace [Foreign Language] -- to replace the old meter with the smart ones by year-end. Our original plan was to complete the replacement with the smart meters before the summertime. As you can understand, the 2 months of lockdown will prevent us to do that. And you should also consider that, for the time being, hopefully by -- before the end of the June -- before the end of June, we will be able also to replace meters that are located inside houses. For the time being, there is no possibility. I mean the current regulation prevent us to enter into the residential house to replace smart meters. They are only allowed to enter if there is an emergency situation. Nevertheless, since the reopening of the activity from May 4, as you can see, the number of the smart meters replaced by each single day is significantly increased. We will continue to increase the number, and our objective -- the daily number, and our objective is to replace all of them by year-end. If we move to the following page, we will see another interesting activity that we have presented to you, are the regulated service that's requested by the gas sales company, by the commercial companies, mainly -- they mainly include connections and disconnection of the gas supply. As you can see, during the lockdown, the number was very limited and was mainly due to new connection. Disconnection was banned by the regulatory and by the government. So we did not do any disconnection during the lockdown period. We did new connection. Now since May 4, the activity has resumed. And as you can see, we have not reached the level of the previous -- of the level that we experienced before the lockdown, but we are on the way to reach that level. You should remember that this regulated service represent a stream of revenues, significant stream of revenues, for our profit and loss account. And let's move to the last KPI that we want to present to you, it's on Page 9. And there it show the numbers of incoming calls month-by-month in 2020 compared to 2019, incoming call to our integrated supervision center, which manages the emergency. The number of call, as you can see, during the lockdown, has significantly dropped. We see already in May some recovery, even though the total number remains significantly below last year. Generally speaking, I can say that we feel very confident that our supervision control activities, such as Picarro, that we performed extensively during the lockdown period in order to check the safety of our network, will significantly reduce the number of call going forwards. Now let's move to the way that we are going to work in the future. We presented to you during the first quarter result some significant number that happened during the first period of the lockdown, in which nearly 100% of the staff was working remotely. As I said before, even with the reopening of the offices, we still experienced a very limited number of personnel that has rejoined our office. And we think that returning to full presence in the office will not happen for a long time. As a result of that, we have seen, and we will continue to see, a significant increase. We saw a multiple of 10 in VPN connection, chat messages and video conference. Thanks to our IT infrastructure, thanks to the cloud adoption, during the lockdown, as I already said, we did not experience any problem. And of course, in May and June, this situation has not changed. So we are working very well with no problems. And of course, that different way of working is also a nice impact on the environment, like mobility and for ourself, we have seen a reduction up to 85% off the prints. I wanted to finish this overview of the before, during and the post-COVID with the new initiative that we have launched called Italgas reloaded. COVID has been, for everybody, clearly a disruptive moment for all our activity. Although we think that there are important lessons to learn that we have learned during the period, we want to take the positive of this period and to bring forward this experience in order to improve the way that we work. And that's the reason that we launched this project called Italgas reloaded. We put together in a team about 20 of the young employees that have recently joined Italgas, promote the different area of the company, so from the operation, from HR, from IT, from engineering, from construction. So we put together different experience because we asked them to compare the way that the company worked before COVID and the way the company worked during the lockdown. We want -- we have asked them to give us suggestion of the things that we need -- have implemented during the lockdown period that have been extremely positive in the way that we work. The effort is to create a more flexible and efficient working environment that improve the satisfaction of our personnel, with a positive implication of the day-by-day activity. Of course, the safety of our personnel remain our first priority. As similar, the first priority is to improve and to maintain a very high standard for safety of our operation. Not on the least we are conscious that changing the way that we work, we can have a positive implication on the environment -- on the environmental footprint of our group. This is an important area that we want to look very carefully. Let's move now on -- before getting into the guidance, on the major event that happened since the end of the first quarter, We have been awarded -- and in terms the -- of the concession of Belluno, the -- what we call stazione appaltante, this issue certification that we are doing. That means once that the service agreement, the concession contract will be signed, we will have an additional 40,000 redelivery points that will be developed in the years to come. We have been shortlisted for the DEPA distribution asset that are currently for sales in Greece for privatization. We have announced the acquisition of the 15% share in a small company, nearby Torino, called Reti Distribuzione. And from a financial point of view, Fitch has confirmed the rating of BBB+ despite the downgrading that affected our nation. And finally, just the 20th of May, we paid the dividend that was equal to nearly 5%, or over 5% of the dividend yield, as promised. Now I'm going to spend a couple of pages on the guidance. We are on Page 13. We estimated that our total revenues should be -- should exceed EUR 1.3 billion. We've highlighted the EBITDA in the range between EUR 960 million to EUR 980 million. EBIT should be in the range between EUR 530 million and EUR 550 million. Lockdown has affected, during the period, our investment, but we have a view in this week what we can achieve by the year-end. Some of the investment lost during the 2-month period will be recovered. So we expect our overall investment that should exceed EUR 700 million, in line with what we have invested in 2019. Regarding the net debt, of course, we assume there will be no additional significant M&A by the year-end. So we don't -- we didn't consider that for the time being. And so the net debt should be in the range of EUR 4.5 billion. With that net debt, the average should be close to 60%, the leverage, I'm sorry. The leverage should be close to 60%. Regarding the revenues, on Page 14, we have shown the evolution of our revenues. Of course, the revenues in 2020, we've taken into -- we'll consider the consolidation of Toscana Energia for 12 months. You should remember that in 2019, the consolidation of Toscana Energia was limited to the last quarter of 2019, and also the contribution of the M&A that we carried out last year, and we see the full result this year. On the negative side, as you very well know, is the impact of the resolution of the new regulatory rules that was approved and entering into force on January 1, 2020, that I remind you, accounted for -- on a yearly basis, for EUR 40 million. We were able to partially compensate half of that by everything that we did last year, in terms of proper growth, and also by the fact that there are -- there should be a recognition of the depreciation that were not recovered of the old meters that we are going to replace in 2020. We had not considered in this guidance the number because we were not able to clearly identify -- clearly calculate for all the meters that were replaced before 2020. So in 2019, 2018, 2017, for which, if you remember, we discussed at several time in the past, we did not receive the full compensation by the regulator. But the new regulation set the principle saying that whatever was lost in the past would be recovered. The only problem, for the time being, for the meters that were replaced earlier than 2020, we are not able to make an exact calculation, but we are waiting a more detailed definition, a more detailed calculation, by the regulator. Of course, if you remember, last year, we had a capital gain coming from the sales of our headquarter -- a very, very -- all the quarter in Torino. Of course, we don't have capital gains this year. That is on the revenue side. On the cost side, of course, the situation, as you can see, has had some impact at the current situation. There are cost increase due to the -- all the equipment that we were forced to buy to guarantee the safety of our personnel. In the meantime, we have experienced during the lockdown period, and we will continue to experience, less cost in ancillary labor cost, mainly due to the travel, overtime and fund relief -- holidays fund release. In overall, we are able, with the same perimeter of last year, to continue to reduce the costs by around 3%. That is the commitment that we took several times, and the fact that we will continue to deliver that. Of course, you see the cost -- the overall cost increasing by the fact that Toscana Energia will be fully consolidated for 12 months, while, last year, it was consolidated only for the last quarter. So the cost -- the guidance on the cost is between EUR 360 million and EUR 380 million, including, of course, Toscana Energia. And moving to the CapEx side. As I said before, the lockdown period has been negative in the second quarter because we were obliged to stop most of our construction activity. We will be able to recover in the second half of 2020 some of them, but not everything. Still, our overall investment will stay above EUR 700 million, in line with last year. Out of the EUR 700 million, nearly EUR 270 million are devoted to the digitalization projects but towards the remaining replacement of the old meters with the smart one, and another significant part to the increase of the equipment that will be transformed from a traditional one into a digital one. Overall, we think that this guidance, in terms of overall investment, show our strong commitment, both during the lockdown phase and also especially during this restarting phase until the -- until the year-end, proving the resiliency of our business model. I am stopping here. I spent half an hour illustrating what happened, especially after the lockdown period. And now we are ready to answer to any questions you may have. I will leave the floor to Anna Maria. So up to Anna Maria to introduce.

Okay. Thank you, everyone. So operator, can you please give the instructions to ask the question? Thank you.

[Operator Instructions] And now we'll take our first question from Javier Suarez from Mediobanca.

I have 3, probably is on the general scheme in which the company is operating and the -- at both at a European level and also at an Italian level. There is obviously a significant push for the so-called New Green Deal, and maybe using the current crisis to do things differently in the energy sector and using maybe the capacity of the sector to invest to accelerate the recovery phase. So in this context, I was wondering how do you see the role of Italgas in that reconstruction phase. And how do you see the Italian government could change things to make out of that process a virtuous circle? The second question is also related to this macro thing, or sector dynamic phase. There is plenty of discussion on the role of hydrogen. And I was wondering how this may or not impact the business plan for Italgas in the next year to come? And the third question is also related to the role of hydrogen, and it's specifically in the region of Sardinia. That is, obviously, where you are constructing a brand-new pipeline. If you are making those investments to make the new pipeline hydrogen compliant? And a very last question from my -- the final one is on the dividend. So looking -- I don't know if it's the conference call to ask for the dividend for 2020. But looking at your latest guidance, the numbers would indicate to a lower dividend in 2020 versus 2019. So do you think that, that is a reasonable assumption to make? Or do you want to make any comment on that?

Okay. Well, let me start maybe with your first question. During this lockdown period, we had a similar discussion with the task force that was set by the government about the value that it can bring, the role it can play, Italgas, in the recovery phase. Let me mention just title about that to make you understand. The first one is that our investments are probably, more than anyone else, the most precious investment for the country. In, let's say, 1.5 years ago, we brought, because of the a study that was developed with a consulting activity -- a consultant company, in which, line by line, we demonstrated which is the multiplier of our investment. The multiplier, considering the different type of investment that goes from pipes placement, to maintenance, to IT, to meters replacement and stuff like that, was equal to 3.3. So meaning that every EUR 100 that we invest, there are EUR 330 that are generated in the economy. And that is extremely precious in this time of -- in this period, especially because more than 90%, 95% of our investment is local. So the role is very clear. We are building and maintaining critical infrastructure for the country. And in the meantime, our investment can produce a significant economic impact on the local economy. The second element that we underlined to the task force is the need to immediately restart and close the tenders because, considering that the multiplier is so high in our investment, we always said that as soon as the tenders will be assigned, there will be a significant amount of investment, especially in the area where these modern operator are limiting their investment waiting for the tenders to come. So we made several proposal to the government directly, and to the task force indirectly, in order how to change the way that the tenders are currently done in order to accelerate them then and therefore, it was already in investment. Second and the third question, regarding the hydrogen. We have always said that the importance -- we have always underlined the importance of our infrastructure in aligning a hydrogen vision. We are continuing to do that. And that's the reason why we are massively investing in the digital transformation of our grids. That's the only way which our grid can affect hydrogen and with the mixed with natural gas. For Sardinia, because these new grids are digital matter, of course they are immediately ready to accept any kind, any mix of hydrogen with natural gas. And finally, on the dividend side, you should wait our review of the plan that is going to happen at the end of October. You remember very well that the last plan that we have approved is the dividend policy that ended exactly this year. So with the dividend to be paid in 2020 based on the result of 2019. We will submit a new dividend policy in October -- at the end of October to our Board of Directors. And of course, we will come back to you at that time to explain the dividend policy that the Board is going to approve.

Now we take our next question from Enrico Bartoli from MainFirst.

First one is related to DEPA. You mentioned that, actually, you are in the shortlist for the tender of these assets. If you can elaborate a bit on the strategic and industrial rationale that is triggering your interest in there? And if possible, on some comments on the existing regulation and the potential in terms of -- that the company would offer in terms of potential and additional investments? The second question is related to the possible impact on working capital from the COVID situation and the current economic crisis. There were some proposals by the regulator. If you can elaborate a bit on what you expect in terms of evolution over the next quarters? And the third one is related to, again, on the tenders. So you recently were awarded the Belluno tender. The unit CapEx per PDR there is significantly high. If you can update us on your view in terms of, let's say, the amount of investment that would be needed by the new tenders in terms of unit CapEx mainly compared to the current ones?

Okay. Regarding the first one on Greece. Well, we -- I think we have already explained, and maybe it is better to say again, rationale of our interest for Greece. First of all, where we are. The current process is that we have been prequalified with other 5 bidders. You remember that 9 bidders expressed interest in that process but only 6 have been prequalified. Now the next step should be we should receive, hopefully soon, the nondisclosure agreement. That has to be signed before getting the access to the virtual data room. So to go into the details of the 3 companies that have been joined in one single group, and it is the object of the privatization. And then based on the virtual data room, we are going to make our binding offer. And then we expect that based on our -- viewed by the year-end, that we then should be identified. The rationale is that there are a lot of new construction to be done in Greece. The overall size of the privatization is -- just to give you an idea, is about 50% to 60% of the Roma distribuzione, or the distribution that we have in Rome. So it's not a big size, but there are a lot of activities that are very similar to work we are doing in Sardinia. So the construction of new network is something that we started at, let's say, 1.5 years ago in Sardinia. It's -- as you know, it's a huge project for us in Sardinia, but we had put together many capability that we didn't have before. And now we are ready to use that also for Greece. We think that all the digital transformation that we applied to our company in Italy can be an advantage for Greece, for the Greek citizen, and will be also advantage for the company. So I think the end rationale is, if you want to summarize, it's not a big asset. There is a significant amount of new construction to be carried out, in which we feel quite strong about. It's an asset the -- that we can improve the management through bringing all the digital innovation we have already experienced in Italy. Second question is relevant to the regulator. You know that the regulator has, for the April, allowed the commercial company to pay 80% of their bill to us. That was the same for May. In June, that amount was increased to 90%. So they are only allowed to reduce their bill by 10%. But it's also a provision that whatever was not paid in April, May, and what is not going to be paid in June, that will be recovered by before the end of the year. So from a financial impact, if you look at the overall 2020 year, there should be no impact at all. Of course, we may have, and you will see maybe some impact -- some limited impact by the end of June. Last question regarding Belluno tender is significant. I think we have explained probably a couple of years ago, as an example, of Belluno, that because the current gas distribution in the area of Belluno is limited, it covers about 34 comuni. There are a lot of activities to be done in order to expand the current network. In particular, in our plan, we think that around 300 kilometers will be built based on the tender. So a new 300 kilometers will be built in the area of Belluno. New 17, so 50% of the existing comuni, will be added. And to the existing nearly 4,000 -- sorry, 4,000 -- 40,000 redelivery point, a new 40,000 redelivery point will be added. So that's the reason why you see such relatively huge number. I mean, it's huge for Belluno. We are talking about EUR 130 million, EUR 140 million of investment. You see that significant amount for Belluno because we are talking about 17 new comuni here, 300 kilometers of new pipes, 40,000 of new redelivery points, of course, in the period of the 12-year concession.

Our next question comes from James Brand from Deutsche Bank.

I had a couple of questions or really, just one question really just on kind of investments over the next few years. And firstly, well, with a kind of 2-parter. The first one is just whether you see any other tenders coming up this year. I guess that there might be more coming up next year. But if you could give us a bit of an idea for the kind of upcoming pipeline in terms of tenders. And then also tied in with investment around -- on acquisitions, there were some changes in the regulatory settlement at the beginning of this year, which provided some incentives for small companies and medium-sized companies to merge. But also on the other side of the spectrum, provided some really tough allowances for costs for some of the smaller operators that potentially put them under a bit of pressure. I was wondering whether you could just maybe tell us how you're feeling about your ability to make acquisitions post the regulatory review and now you’ve have the chance to digest it. And also tied to that, what kind of expectations could we be thinking about acquisition investments over the next few years? I know you haven't put out formal new targets, and maybe we should wait for the updated business plan in October for that. But could we be -- is it credible for us to be thinking you might just continue to do EUR 100 million of acquisitions a year maybe or something like that over the medium term? Maybe if you could give us some context around that, that would be really interesting.

Let me, first of all, say that we have a hard time to understand you because the line was very bad. I'm sorry for that. So I'm trying to respond to what I understood. If I missed some question regard my answer, please just repeat slowly because I don't know, your line was not as good as the other. So regarding, if I well understood, the investment for the coming years. Let me say that our original plan for 2020 was to have a higher investment and higher CapEx level than the one that we presented to you with the guidance. And the fact that we went back to the level of 2018 was because of the 2-month lockdown. We are going to recover that. So we have not canceled investment. We have just postponed. We were obliged to do it because of the 2-months lockdown. So the next year investment will be significantly higher. So we will continue to be high from that point of view. Regarding -- if I also well understood, you mentioned about the tenders for the coming years. As I said before, we have made suggestions to the government and to the task force to change the rule in order to accelerate the tender process because we feel that it's going to be positive for the country. You mentioned earlier on which is the impact of the new regulation system of the small companies. And if that is -- will help us to make, let me say, acquisition. First of all, the idea that in order to push the smaller operator to join together, we don't see that anymore in the new regulation. The new regulation, in terms of cost recognition, has penalized us significantly, as you have seen in the first quarter and as you have seen in our guidance, but it also penalized the small -- the smaller operator. So as I said in the conversation I had with you previously, we expect that when the smaller operator will fully realize the impact of that cost cut reduction recognition, I'm sure that we will have more opportunity to increase our M&A. Regarding our plan to M&A, so that brings to our M&A, we are still committed on the target that we have already declared to the market. We are still working, I mean, we are working actively in -- and we are discussing that the small one acquisition we made of the 15% of Reti Distribuzione, that is a company located in nearby Torino, it's the first step. But we have other discussion in the pipeline, and hopefully, we will be able to announce a new acquisition during the year. I don't know if I have responded to all our questions to you. Please, if not, speak slowly because your line was…

Sorry. Sorry about the line, and sorry about speaking so quickly. No, you did answer all the questions so -- and they were very good answers.

Okay. Thank you.

Our next question comes from Bartek Kubicki from Societe Generale.

Just 3 very short questions, if I may ask you. Firstly, on the OpEx dispersion you are providing, EUR 360 million, EUR 380 million. What needs to happen to actually hit the EUR 360 million level or -- and what needs to happen to hit the EUR 380 million level? So in other words, what is the variability factor in your OpEx for 2020? Secondly, on coming back to DEPA. My key questions would be, what are the main criteria for actually -- for the seller to choose a new -- the bidder? Is it the price? Is it something else? And if this is the price only, what is your sort of target IRR you would see on this transaction? And lastly, on Belluno, very shortly, I think you were the only bidder in this tender. So I wonder how aggressive did you go in terms of the concession fee? Is it somewhere near the upper end? Or you are more modest, closer to what you have right now on the other concessions?

First question, we give you a range on the OpEx because we don't want you to have the exact number. And you'd take that, so we don't -- otherwise, we will give you our profit and loss account. Having said that, there are, let me say, certain uncertainty about the cost. One is, for example, the cost of all things that we have bought for the COVID. We have made an estimation between now and year-end based on our projection that, progressively, the situation will -- may -- will become better. But if the situation changes, we may experience higher cost. We have made our projection about overtime and holidays fund release based on the fact that the people -- most of the people are staying at home. Again, if the scenario is going to change, we will have change also in our cost. So that's the reason that we also give a range. The second, on DEPA, it's hard to say about if it's only price. The reason being is that, as I said before, we have only prequalified ourself based on a very general description of the tender process. We have not yet received a detailed tender process, where we will probably know what will be the criteria to evaluate the best offer. It's going to be only price. If I have to say, price would be probably, being a privatization, the majority of the element of evaluation. It's going to be only one? To be honest, I think, no, because there are a lot of activities in development, so investment that the Greek government may require, and therefore, they may decide to ask a commitment about how much investment the bidders are willing and available to do. So there will be probably a combination. I may add another element they may request, which is the quality of the service. So I don't think price will be probably the major evaluation, but that is not going to be the only one, and will be probably investment. Another, there will be probably request something about the number of employee. And so it's going to be a mix, very similar, maybe very similar to our tender process in Italy [Foreign Language]. On Belluno, we were -- unfortunately, we were not the only one. We had 4 offer: one was 2i Rete Gas, our major competitor on a national level; one was Ascopiave; and the third -- and the fourth one was Erogasmet. Our concession were on the upper end. So because of the strong competition, we were first, so I always -- we said to move on the upper end of the level of the concession, but we feel that the synergies that we can gain from the economy of scale will exceed the level of concession that we have given to the item of Belluno.

Our next question comes from Stefano Gamberini from Equita SIM.

Three quick questions also from my side. First of all, regarding your statement that 2021 CapEx will be, by far, higher 2020. Just if you can elaborate a little bit about the main drivers, because if I'm not wrong, the digital meters should decline substantially in 2021 and also the digitalization process probably over. So what are the main part of your investment that will increase substantially during 2021 and probably in the following year, but in this case, regarding this statement? The second, regarding what you expect from the government on the present rumors about the possible new measures from the government in order to sell investments and also to help some sectors, like the gas distribution. One of these measures was to postpone the existing concession up to -- ahead -- sorry, 12 years, another one about the authorization process. So what do you expect as main measures from the government in order to accelerate investments or the tenders, as you already said? And the third, regarding the RAB at the end of '20. If I'm not wrong, with a level that's 60%, the RAB should be in the region of EUR 7.5 billion. Is this flat year-on-year? Or where I'm wrong regarding my estimate?

Okay. Regarding the 2021 CapEx, for which we have not elaborated, let me say, you are right. Smart meter, we should finish by year-end. The digital, as we mentioned, digitization, we will add new equipment to be transformed. I'm talking about the station that reduce the pressure. We have just started. So we will have a peak in 2021. And then you should remember that, for example, Torino2, that we started the new concession just a few months ago. We will see a significant amount of investment in Torino2 in 2021 because, as always, we try to concentrate our investment in the first 4 or 5 years of the concession, as usual. We should also expect that a few -- for example, if Belluno will be awarded by year-end, we will see investment starting again in 2021. So Torino2, Belluno, remember that we have been awarded by Valle d'Aosta also. Valle d'Aosta is also a significant investment. So we will start new investment in Valle d'Aosta. And then what we have not invested in 2020, we will see them in 2021. So in other terms, what we are losing in terms of investment about the smart meters, that is around EUR 150 million this year. Next year, probably, we will go down to EUR 30 million, EUR 40 million because we will continue to replace the smart meters that are [Foreign Language].

Broken.

The broken smart meters. So we will continue to do that. The remaining part is going to be replaced by, as I said, Torino2, Belluno, Valle d'Aosta. And then this substation that reduce the pressure, we will see the major activity there, still, digital transformation. So we expect -- and then the recovery of what we have not entered in 2020. So it will be probably higher than the ones in 2019, 2020. What we expect from the government support, especially, I would probably say more of the tenders. They're not big investment. As you can see, we can -- we can proceed quite well on the investment side. Our authorization process is easier because it’s for smaller activities. We expect that the government will make some changes in the regulation of the tenders in order to accelerate it. That is something that, as I said, we have proposed to them and, hopefully, some of our suggestion will be taken and will be implemented. With regards to the RAB for 2000 -- for the end of the year, so it should be around EUR 7.6 billion, EUR 7.7 billion. So you missed by little your -- the -- to give you a logic.

Okay. And just a quick follow-up, if I may. Do you expect these new measures from the government for tenders already in this simplification decree that is expected on Monday? Or do you think that it takes more time?

According to me, it should -- it takes more time, a little bit more time. But I think we have provided a clear picture of the situation. We have provided a clear picture of the positive impact of new investment in our sector. We have provided some suggestion how to change. Hopefully, some of the suggestions will be considered and implemented.

Our next question comes from Olivier Van Doosselaere from Exane.

I have really just have one remaining. You gave quite a few data points and activity levels. I was surprised you didn't comment on volumes, which, I guess, is also an interesting data point. I was of the idea that volumes in gas distribution would probably have further a bit less.

Excuse me if I interrupt you.

Yes, hello?

Excuse me if I interrupt you. The line is very bad. So I think I can understand very limited. So can you just repeat slowly because I don’t know, some lines are bad, some other are better. And sorry for that. Can you repeat? Because I missed most of your question.

Yes, no problem. Maybe this is better. I was just wondering if you could give us a bit of an indication also on how your -- the gas distribution volume, growing through your network, have evolved throughout the period of the pandemic and coming out of that?

Okay. On the -- now I got your question very clearly. I mean we are still waiting the [Foreign Language] but we have seen 2 elements, 2 different elements. The volume that we have seen in March have shown an increase. So we had more consumption that we'd consider only for our volumes and not for the volumes, in general, in Italy. We have seen a margin increase, mainly driven by the reservation. We have seen a decrease in April, as a general, and I think we don't have yet the number of May. Having said that, as you know, our business is not affected at all by the volumes. Volumes are only determined the cash flow profile. So at the end of the day, at the end of the year, the overall revenues that we need to receive, we -- will be received, no matter about the volume. Having said that, we have seen that strange movement of the consumption. I'm talking about residential. So I'm not talking about gas for electricity production or gas for industry, for which is not served by the distribution. We have seen probably that decrease in April and probably partially in May, also due to the [indiscernible] weather in respect of last year. While in mid-March, we have seen an increase of gas consumption.

[Operator Instructions] Our next question comes from Oriana Bastianelli from Kairos.

My questions have been already answered.

Okay. Thank you.

Our next question is from Emanuele Oggioni from Banca Akros.

My first is on -- as regards the EUR 130 million metering reimbursement. On a cash flow point of view, is it confirmed that the cash-in of a [Foreign Language]? And is the easier of the question. The second question is on an update on Sardinia. As regards -- if you could elaborate on the cost-benefit analysis, the one which came out, or the CapEx development, or delay in CapEx in Sardinia? And also when do you expect the regulator, the Italian regulator, will announce to further extend the 3-year tariff equalization period?

Regarding the EUR 130 million, first of all, the number is -- it's not known, otherwise, we would have put the old number in our guidance, even part of the number is not going to be recurring. So what we have included in our guidance is around EUR 20 million. That is the recognition of the depreciation that was not recognized for the placement of the meters in 2020. The remaining, as I've said before, we have not included because we are not able to calculate a precise number until the regulator will issue a detailed procedure that will also contain the amount of time needed to cash in that amount. So some unforeseen at the beginning of 5 years, to be honest, we don't know yet. It will be contained in that document that the regulator will probably issue in the next weeks, months, eventually, in order to regulate the way, first of all, that the recovery of the depreciation cost in the meters replaced will be calculated. And then it will also tell us how much time you will need for us to cash in that amount. The second question on cost-benefit analysis in Sardinia. The cost-benefit analysis, I think they are nearly -- and the tech analysis, but I have to say the data analysis does not consider us. In other terms, the cost-and-benefit analysis involve the transportation in Sardinia and the electrical connection between Sardinia and Sicily. The reason being that those investments have not been approved yet, nor the transportation, nor the electricity connection, while our concessions have been totally approved. We have funds provided by the region of Sardinia. So we are not part -- or better, we are part of that cost-benefit analysis because they considered that there will be soon gas distribution activity in Sardinia, but we are not part of the cost-benefit result. Regarding the 3 years, as you have read on the new regulation, it's the starting point. And of course, soon, probably maybe 1 or 2 years from now, they will decide what to do. Based on our evaluation, there has been a lot of pressure from everyone, starting from region of Sardinia, to make these 3 years let’s say, forever. Thank you.

Our next question comes from Stefano Gamberini from Equita SIM.

Just a very quick thing about hydrogen. This is a topic that is clearly now very interesting, and some know that this could emerge also from you shortly. So just if you can spend a few words about your first consideration. What are the main obstacles for transforming a network in the -- to hydrogen-ready? And if the problem is that CapEx are very significant for this transformation. And on the other side, it's impossible to see what are the benefits for the season and, in your view? A few words about this topic.

Yes. And as I told you, the first step that you have to take forward to assess gases like the hydrogen, different from natural gas is, you need to have a truly digital network. Truly, digital network means that -- in not only in the smart meters, but with many equipment along the network, you should be able to measure volume, pressure, quantity. You should have gas analyzer. We are installing many gas analyzer along the network because you need to know, on a real-time basis, which is the exact content of the gas, for any other gases that are flowing into your network. That is true for hydrogen, but it's also true for biogas. You need to know what is exactly inside the gas network right on a real-time basis. So that is something that we are doing right now. So it's something that is going on. So it's not only the smart meter, but right now, in 2021, we will have the peak of the replacement of the substations. Substation will not only reduce the pressure, but it will also measure cost and temperature content of the gas. So we’ll know exactly which is the content of the gas. We have shown of advantage of having a gas distribution network as a way to store the hydrogen, the green hydrogen, so the hydrogen that is coming from the production of renewable. That's the way to store the energy, the excess energy coming from renewable and to use it later on in time or eventually in a different place in respect to where the energy is being produced. To do that, you need to have transportation and a distribution system ready to set different gases from the natural gas. The only way to do that, you make it digital. Thank you.

Operator, are there any further questions?

We have no further questions at this time, ma'am.

Okay. So thank you to everyone. If you have any pending questions, please refer to the IR team, and good afternoon.

Thank you to everybody. Thank you for Anna Maria to have organized it.

This concludes today's call. Thank you for your participation. You may now disconnect.