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

Thank you for standing by, and welcome to the Italgas 2020 Full Year Results Conference Call. [Operator Instructions] I must advise you that your conference is being recorded today, Thursday, the 11th of March 2021. I would now like to hand over to your speaker today, Anna Maria Scaglia, Head of Investor Relations. Please go ahead.

Hi. Good afternoon, ladies and gentlemen, and thank you for joining us. Today, we will walk you through Italgas full year 2020 results. I'm Anna Maria Scaglia, Head of IR. Joined by Mr. Paolo Gallo, our CEO; and Mr. Antonio Paccioretti, our General Manager. We will address any questions you might have at the end of the presentation. I leave now the floor to our CEO, Mr. Paolo Gallo.

Thank you, Anna Maria, and welcome to all the people that are connected to this conference call. We are going to explain you in detail the results of 2020. As you very well know that 2020 has been a very particular year. And I'm very proud of the ability that our organization have shown during the 12 months to adapt to the new environment, using and leveraging all our strengths and looking at the new challenges as also opportunities to improve. At the same time, we have been able to ensure safety of our people, suppliers and customers. And we were able, during the last 12 months to continue to provide our services with no interruption. The numbers that we are going to comment in a moment show the growth path that we started years ago. With a performance that was in line with the targets that we confirmed during the presentation of the plan at the end of October. Our effort in the digital transformation remains paramount, also considering the opportunities set by the energy transition and the objective to significantly reduce methane emission. In Sardinia, we started in -- at the beginning of the year injecting methane natural gas in our network, and that has allowed the citizens that are living in Sardinia to use methane natural gas in their houses, as all the citizens in Italy. You know that in February, we issued 2 bonds, Antonio will tell you more in detail in a moment. But the issuance of the 2 bonds has confirmed the positive view that the debt market recognized to us. I'm also proud of the result achieved by the company in the sustainability area. I will talk in a moment. It's a journey. It's a long journey that we started, and we will continue to follow. Based on the results that were approved yesterday by our Board of Directors, the Board of Directors is going to propose to the next general assembly that will take place on April 20 to distribute a dividend of EUR 0.277 per share for the financial year 2020, that it's an increase of 8.2% versus what we paid last year. Let's move into the numbers. So let's move to Page #3. [Foreign Language] Let's move to Page #3. As you know, this year with our results have been impacted by a few adjustments that I'm going to tell you in a moment. What we are going to comment are the adjusted numbers. They are in line with the guidance, as I said before, that we announced last October. Let me say that on the adjusted basis, 2 main changes severely impacted our numbers. The first big impact, as you know, we have commented this impact in the previous conference call of 2020 has been the resolution of the regulator. The overall impact on our number is more than EUR 45 million. The second element in the positive sense is the fact that since January 1, 2020, there is the full consolidation of Toscana Energia that as you remember, in respect to 2019, Toscana Energia was consolidated only for the last quarter. Despite the challenging operating conditions due to the pandemic situation, adjusted net income was a little bit higher than last year, and that has been, to me, really a great result and is the result of our effort in reducing the cost, being more efficient, and we were able, in that way, to reducing to 0 the strong negative impact of the resolution of the regulator. Let's skip 1 page, and let's move to Page 4. CapEx. CapEx in 2020. I know that there is some problem in following me. If you are connected to -- through the Internet website, we will try to fix the problem. Otherwise, our suggestion is to connect to the phone line and showing the short cut. Okay. So hopefully, it will be restored immediately. Sorry for that. We are not managing the telco communication. Otherwise, it will be perfect as all our digital activity. Having said that, let's go back to the 2020 results. From a CapEx point of view, we were able -- so if you move to Page 4, we were able to beat the last year number, EUR 740 million and it should have been even higher without the COVID. I mean our plan was to invest even more than that. So to pass the EUR 800 million. But unfortunately, for the lockdown and for the other activity that you know very well that has been impacted during the year, we were not able to reach the number. Still, we were able to reach the highest number of investment we have ever recorded. The cash flow generated by -- during 2020, even though we have been -- we have struggled to help, our supply chain remains significant, EUR 740 million. And our net debt reached EUR 4.7 billion. If you include the IFRS 16. Otherwise, it is EUR 4.66 billion, the increase, as I said, mainly related to the higher CapEx, but also to our decision to keep supporting our supply chain as we said several times during last year conference call. Moving to the following page, I would like to give you some flavor about what we achieved in 2020 in the sustainability area, and I'm very proud to say that for the first time ever, and probably we are the only 1 in Europe. We were able to physically count not just making an estimation of the methane emission leakages. And the number that we recorded was 0.1%. That is the amount of the natural gas that was delivered to the final customer. In the same time, all our technological efforts and innovation efforts aim to reduce our carbon footprint has led to the first significant result of 5.4% reduction in the energy intensity. Digitalization and diversity, I mean, 2 area where we focused during 2020. More than 20,000 hours were delivered as a training to our personnel on digital subjects to help our personnel in the digital transformation. And the shares of the women employed in Italgas was growing to 15%. That's still a very low number. But we need always to look where we start from in an industry that until a few years ago was men dominated. And finally, our remuneration of the manager was linked among the others to the -- a number of KPI related to the sustainability. Let's talk a little bit about the investment that we did last year. In Page 6, you see the trend. Since 2016, a significant increase. We increased by more than 5% in respect of last year, but we more than doubled in respect of 2016. As you can see, the trend is growing, significantly growing. We probably, as I said before, we would have achieved a higher result without the COVID. Let's get into details about this EUR 777 million. If you take -- if you look on Page 7, you have a breakdown of the investment. More than EUR 200 million have been invested in digital transformation and meter replacement. Of course, metering CapEx declined in respect of the 2019 and the previous year, but that is more than expected because the replacement program is nearly to be completed. It should have been completed by 2020. But unfortunately, due to the COVID situation, we were not able to replace around 400,000 small meters that are going to be replaced in these months. While the metering CapEx declined, we had an increase in digitization of the network, and that resulted in a technological upgrade of nearly 500 networks. On the other end, the network, what we spend on the network increased, representing -- increased in respect of 2019, representing 62% of the total out of which 13% is related to the investment that we made in Sardinia. If we talk about physical numbers, last year, we added almost 900 -- more than 900 kilometers of new pipe, 1/3 of which is in Sardinia and we replaced 1.3 million meters if we include the affiliates. Inside this number, there is also, as you can see in the presentation, there is also the replacement of the smart meters that are -- that were not functioning correctly. That represent about 400,000 of them. We will talk that in a moment when we will discuss about onetime item. So let's move into the following chart where we are going to discuss what we call special items. And before getting into the explanation of the numbers of 2020, we would like to clear the point of the special items, so we can concentrate ourself in comparing the 2020 adjusted number with the 2019 adjusted number. So in 2020, we had a few special items. There is a clear explanation here, more than EUR 100 million are the amount that recognize the amortization that have been lost in the past year when we replaced the traditional meters. We have always said even in 2020, 2019 and 2018, that at the time, the regulation did not recognize completely the amortization quota that was lost due to the early replacement. We have been discussing this item with the regulator for many years. And finally, the regulator recognized that our position was correct that because we were obliged to replace the meters earlier than the end of the life, the regulatory life, we were -- we should have been compensated by the amortization that was not recognized. And that represents -- EUR 108 million represent all the amortization quota not recognized for all the smart meters to replace until December -- the end of December of 2019. On the other hand, on the cost side, we have created a special fund to cover the new smart meter that in the future, may have some problem in communicating or broken smart meter and so forth. So that is going to cover the period of the plan until 2026. And we have estimated -- I mean, we have made a very careful calculation and the final estimation number is EUR 38.5 million and that represents for future replacement, to cover future replacement. The other element that you should know is that by the end of year 2021, the so-called [Foreign Language] will end. You remember that the [Foreign Language] has period of application that was 3 years was 2021, 2020, 2018. And therefore, starting from January 1, 2022, the [Foreign Language] will not apply anymore based on the current legislation. So in order to help the people that from 1 day to another, we'll see the retirement date moving by few years, we have decided to create a funds of EUR 13 million to help those people to reduce this big gap that will be created with the fact that [Foreign Language] will end by the year-end. In the end, there is another special item that is on the fiscal side, and maybe Antonio will give you some details later. It's the higher tax to reflect the fiscal impact of the above mentioned items. So this is the explanation about the special items that were included in our annual statement. If you take the special items out, of the reported 2020 result, you will get to the 2020 adjusted result that I'm going to comment. So now you see the comparison between -- on Page 9, the compassion between 2020 adjusted results and 2018 adjusted results. There is an increase of revenues, mainly driven by Toscana Energia consolidation. And of course, on the other side, as I said before, there is a significant decrease of the revenues driven by the resolution of the regulator that, as I said before, the overall amount is EUR 45 million. You should remind that in 2018, Toscana Energia was fully consolidated only in the last quarter. If we take a look at the cost, we will get you into details in a moment. You will see that the overall expenses increased by 3.4% and mainly due to the fact that Toscana Energia has been fully consolidated. Same approach for depreciation and amortization and Antonio will explain you later. Tax rate 27%, details of that will be given by Antonio later. So finally, the net profit adjusted -- reported an increase of 0.1%. And I think it has been an incredible result considering from where we started. Let me give you some more flavor about the results in terms of revenues. Revenues increased by 6%. As I said, you can see the contribution of Toscana Energia, more than EUR 100 million. And on the other side, you see that the regulator resolution impacted us only -- Italgas for EUR 40 million and an additional EUR 5 million to Toscana Energia. This negative effect has been partially compensated by the fact that our RAB has increased. So you can see that there is an increase of number of EUR 18 million. There was an increase considering the M&A. In other terms, last year, we did not have the full M&A consolidated. We have also partially M&A consolidated. While in 2020, all the M&A was fully consolidated. And then finally, we face negative impact of other items for EUR 7.2 million. That is mainly driven by 2 effects. One negative effect that is the COVID-19. COVID-19 determined reduction, a significant reduction of services to the final customer. You remember that during the lockdown period, we were not allowed to go to the customers for any services requested, except the new connection. The overall amount of the services provided to the customer that impacted our 2020 account was equal to EUR 11 million in respect of 2019. That was compensated by an increase of the bonus that we received by the gas leakage reduction. So again, our new technology our digital technology has brought us a significant increase in respect to 2020. And finally, on the meter replacement, in 2020, we have applied the new regulation, and therefore, in respect of 2018, there has been an increase of EUR 7 million. The capital gains is related to the fact that last year, we accounted a capital gain for the sale of a building that, of course, in 2020 is not there anymore. On Page 11, we have only the details of all the revenues. And now if you take a look at the cost, I think that is probably 1 of the most interesting area regarding the consideration is on Page 12. If you take out the additional cost driven by Toscana Energia. And if you compare the overall cost, 2020 versus 2029 (sic), taking also out the additional and cost reduction driven by the COVID-19. So if you compare apple with apple, the efficiency that we were able to achieve in 2020 has been equal to EUR 20 million that represent more than 6% in terms of cost reduction. So as a result, such a reduction is mainly due to our capacity, our ability to control the cost and to implement all the digital tools that were available that we developed, and they represent a really true cost reduction for our company. On the following page, as always, in Page 13, we have details of all those costs. So I'm not going to comment because I have already commented before. I will give the floor to Antonio for the following part of the presentation. Antonio, the floor is yours.

Thank you, Paolo. Good afternoon to everyone. We are now on Slide 14. Adjusted EBITDA -- EBIT amounted to EUR 547 million in 2020, up 6% year-on-year. This is the result of: first, EUR 64 million increase in our EBITDA, mainly due to the revenues increase of EUR 76 million, and the cost increase of EUR 12 million already commented. Second, almost EUR 33 million increase in D&A, mainly driven by, firstly, higher network and metering depreciation related to the CapEx carried out during the last 12 months for EUR 21 million. Secondly, the consolidation of Toscana Energia, around EUR 32 million, those items were partially compensated by lower accelerated depreciation, EUR 26 million related to the reduction of the economic life of meters. As we are close to the -- to complete the replacement of the entire traditional meter pool, the accelerated depreciation are lower than last year. Moving to Slide 15. Adjusted net profit reached EUR 345.4 million, in line with last year. Net financial expenses of EUR 49 million were the result of lower cost of debt of just below 1% and in reduction versus last year. The lower average cost of debt was offset by higher average gross debt around EUR 5 billion this year. On top of this, in the first quarter, we booked EUR 4 million of other financial income mainly related to the positive solution of the arbitration of Viadana in municipality Lombardia and higher capitalizations. Income from associates decreased by EUR 13 million, mainly related to Toscana Energia full consolidation. We accounted for EUR 135 million of adjusted income tax. Our tax rate was 27.1% at the bottom of our guidance of 27%, 28%. Toscana Energia consolidation also explains the higher minorities. Cash flow from operation amounted to EUR 745 million, and was generated by a net profit of EUR 404 million before minorities and depreciation and other noncash item of EUR 418 million. Our working capital was negative for EUR 76 million. Both working capital and depreciation and other were affected by the noncash impact of cost and revenue special items as detailed in the slide. The working capital absorption, net of this effect, was around EUR 15 million. Such result is positive considering our decision to restock inventories to support our supply chain. The net cash generated allowed us to almost entirely finance the disbursement for the significant CapEx program, around EUR 770 million due to the material increase in technical investment, and our policy to sustain supply, I discussed before, and the M&A activity for EUR 14 million. This explains the increase in net debt by EUR 251 million reported in the year. Moving to the Slide #17. Our debt structure at the end -- at the year-end confirms low interest rate exposure together with reported duration in tenors. This structure has been further enhanced with the recent refinancing transaction carried out in February, thanks to which we have further increased our fixed rate and tenor. We have issued a dual tranche bond, EUR 1 billion, of which EUR 500 million with a coupon of 0% for 7 years. And EUR 500 million with a coupon of 50 basis points for 12 years, and we bought back note expiring in 2022 and 2024 for a total amount of EUR 250 million. As a result, we have further reduced our 2022 and 2024 refinancing needs. We have extended our bond average tenor to 7.5 years from the 6.7 years at the year-end 2020. On top of this, it's worth remembering our EIB loans expiring up to 2037. The refinancing has cut our exposure to floating rates from 13.5% at the year-end, to around 2% at present, as we have repaid our drawn back credit lines. We maintained a significant amount of cash and cash equivalent of around EUR 600 million, readily available on the accounts and time deposits with leading financial institution. Which will permit soon the company to cancel the 500 committed revolving credit facility with significant savings. Also, thanks to this financing transaction, the company can continue to leverage on 1 -- on the lowest average cost of debt of the sector of around 1%. Combined with the superior debt structure, which minimizes both interest rate and refinancing risks. Moving on to the balance sheet. Net invested capital amounts to EUR 6.7 billion, with an increase of almost EUR 440 million compared to the end of 2019. The increase is mainly driven by the CapEx of almost EUR 777 million and depreciation of EUR 425 million. As commented in the previous slide, consolidated net debt was EUR 4.7 billion, including the IFRS 16 impact and of EUR 76 million, with an increase of around EUR 250 million compared to the year-end 2019. I leave now the floor back to Paolo.

Thank you. I think we have outlined today all our result that's proven to be extremely positive. We have been able even in a very difficult year to deliver significant and sustainable growth, and we have confirmed our leadership position in the gas distribution sector. We will continue to strive to generate efficiency, thanks also to our digital transformation. As we said at the beginning, this allows us to propose to the next general assembly, dividend per share for the fiscal year 2021 of EUR 2.77, (sic) [EUR 0.277] number that is higher than 8.2% than the last year. When in October, we delivered a new dividend policy, we said that, that was going to be between 65% of the payout and the increase of 4% of dividend per share of the previous year, and that has been proven to immediately deliver additional value to our shareholders. For me, that's all, I would like to open the floor for any question you may have on the numbers. Please, the floor is yours.

[Operator Instructions] You have the first question coming from the line of Harry Wyburd from Bank of America.

I've got 3. First one, just a very general one. You obviously enjoy 1 of the lowest cost of debt in the sector. And I guess the hot topic de jure is rising rates. I just wanted to ask on your financing strategy. Can you give a bit of a...

Excuse me to interrupt you, but the line is extremely bad. So we hear you up and down. So either you speak slowly or you improve the line probably, to speak is probably easier than improving the line.

Okay. Sorry about that. I'll try and speak a bit louder and slower. So on the -- the first question was a general 1 on your exposure to rising rates. And obviously, you enjoy 1 of the lowest cost of debt in the sector. So I wanted to understand how you would position yourself to be ready for a rise in rates. So would you look to buy back more bonds, particularly the 2024 and 2025 maturities on Slide 17. Or are you comfortable with rising rates? And do you think that higher allowed returns and inflation gearing should protect you? It's a general question on how you see your exposure to higher rates? Second one, is on the regulatory review. So I just wanted to understand what the latest time line is that you expect on the regulatory review. When do we expect the next consultation document and do you think the increase in rates that we've had in the last few weeks is going to impact the formula and the outcome of the allowed return? And then finally, just trying my luck a bit here. I know you don't typically comment on guidance this early, but consensus for this year, I believe, is around EUR 350 million of the net. I wonder, can you give us any kind of gauge as to whether you're comfortable with that?

As far as the first question, I mean our possible strategy for the future in order to manage our cost of debt structure. I mean, you know -- I believe that we have already demonstrated also very recently, the capacity of our company to properly manage our debt structure. We believe that it is in the interest of the company to invest for reducing the volatility and the possible risk proceeds on our debt structure, therefore, to invest on fix rate and on the duration on tenor. So in order to minimize the risks for both interest rates and refinancing. The current market condition permit us so far -- has permitted us so far, and I expect also for this year to pursue these targets efficiently. These targets I believe that it is not the case to discuss today our next steps and our strategy for the future transaction. I mean transaction like this one on the debt capital market can be discussed after the transaction is done by the company. On the work review, we, as you know, we -- this is the last year for the current regulatory period as far as the return is concerned, we expect -- we expected -- we will have the new return starting from next January. And in terms of -- for the discussion about the new number, we expect, in terms of calendar we expect the first consultation document, I would say, in this spring, as we say, just before the summer, May, June, maybe. Usually, the process provides after the first consultation document a few weeks or few months for the company to this -- for the company and for all the stakeholders to discuss the content of this first in consultation document. So we expect a second one in -- just after the summer. And the decision as usual, just at the end of the year. The discussion, 1 of the main discussion is the level of the spread between our -- the spread between the Italian, let me say, risk of the BTP and the bond, which today it is considering the average so far calculated so far starting from October is in the range of 110 basis points. So this is the element that can permit you to make your assumption in your calculation. Last question is on the guidance. As normal, we don't provide guidance for this year. Until we are going to present the industrial -- the strategic plan that is set for June -- May, June -- mid-June.

We have the next question coming from the line of Javier Suarez from Mediobanca.

I have 3, is on the new administration, the new government in Italy and possible initial discussions between the company, the new minister for ecological transition or Prime Minister, the administration in general. The question for you is, do you see that there is a realistic expectations that there could be as a consequence of this conversation, a much more virtuous circle when it comes to the acceleration on the gas tenders. That would be the first question. Then the second question is on the hydrogen. Since your latest presentation, there has been plenty of discussion on hydrogen evolution, et cetera, et cetera. In your latest strategical update, you were mentioning that the digital transformation of the network should be completed by 2022, and that should be instrumental for the distribution of different gases. So you would be so kind of sharing with us your latest on the opportunity that renewable gases and hydrogen may bring for a company like Italgas? And the third and final question is on other opportunities in your latest digital update. You were mentioning the intention to invest in things such as energy efficiency, services and water distribution. If you give us and share with us your latest thought on that as well?

Okay. Regarding the first quarter, I mean, the line is really bad, to be honest. So if my answer are not correctly, say intervene and change, and the line is, I don't know why it's really bad. On the first question, let me say that first, as you know, first of all, we don't know exactly which are the responsibility of new ministry of ecological transition and the ministry of industry. So let me say that, first of all, we need to understand exactly our sector where it is going to be -- I mean, the activity relevant to our sector are going to be allocated. Having said that, we think that either 1 minister or the other, ones that we will know exactly the responsibility. We are going to show them, as we have done it in the past the positive result of an accelerated cash tender, hopefully, and that is not only from an investment point of view, but also from an upgrade point of view of the gas network. So we know very well that the small and medium operator are investing practically to 0. There is no upgrade. There is no -- on the small operator, there's no -- even the obligation to replace traditional meter with smart one. So there is no -- it's clear that the upgrade of the network is not going to happen on this operator. So what we are going to do very soon to present to the new government and the new ministry either the positive impact of the gas tender acceleration from an investment point of view, but also from an upgrade point of view. And that brings me to the second question. Why I'm talking about upgrade and digital transformation is because, I mean, I have had personally recently a meeting with the cabinet of Frans Timmermans that you know is in charge of the recovery fund, the energy transition and so forth. As the same, I had a meeting with Kadri Simson, the DG Energy of the European Commission. And the message that we received from the cabinet of Frans Timmermans was very clear that our grids are going to be strategic for the energy transition. And our grids should be able in the future to manage different gases. And when they say different gases, they mentioned renewable gases, natural gas, hydrogen/e-gas, in English is synthetic natural gas. To do that, you need to upgrade and that I'm not saying is what they said to us, you need to upgrade your gas networks in order to be able to manage different gases. So for -- from a major transition point of view, it is essential that the gas network, the gas distribution network should be upgraded, should become a different network, should become a digital network to manage different gases that are essential in order to achieve the objectives set by the European Union in term of decarbonization. So going back to the first question, gas tender are needed to clarify the picture and to push the investment on the existing network. On the last subject, energy efficiency and water distribution. We have several of those, we are working on, both on the energy efficiency and the water distribution. And so hopefully, soon, we will tell you something about it maybe because there is [indiscernible] may say a little bit more about the energy efficiency as the response with a general point of view, considering what we are doing right now. [indiscernible] could just give you a flavor that what we are doing on the energy efficiency.

Thank you. I will take this point on the energy efficiency. Let me say that we are delivering the strategy that we have announced in our last strategic plan. First point, you remember, was the merger, the reorganization of the 2 companies of the group. The merger between Toscana Energia Green and Seaside is almost at the end and will be in front of the notary end of -- by the end of April. Normal business, we are doing the business to company as a one. We are now achieving a significant amount of orders coming from the new superbonus in the [indiscernible] schemes. And lastly, we are progressing also on the CapEx plan that we have announced around EUR 100 million in the plan. And as Mr. Gallo was saying, we are now examining some -- several opportunities for external growth.

We have the next question coming from the line of Enrico Bartoli from Stifel.

The first 1 is related to the operating cost. You show this EUR 20 million of efficiency achieved in 2020. I wonder if you can give us some details on the sustainability in 2021 on this kind of cost? Or if there is anything connected with the incentives that the government gave for the COVID emergency? And in general, if you can elaborate on the evolution of the cost that you can expect for 2021 and particularly the impact of the provisions that you account in terms of personnel cost of EUR 13 million in 2020. The second question is related to the tender process, there was the recent award of the Torino 1 to you. If you can update us on the status of the other [indiscernible] which are present and in particular, on Belluno, I think, that there were some development on the legal side. And the third one is related to the investments. If you can give us some guidance on the level of investment that you expect in 2021, at least in comparison to the level achieved in 2020?

On the operating cost, well, let me first of all say, we have not received any government support due to the COVID. So 0, and we are proud of that because we don't need that. We are managing our cost properly. We were able to reduce the cost. So we didn't need anything. As you know, the COVID has impacted us in several -- from a cost point of view in different areas. So from a cost point of view, we have accounted all the, what we call DPI that we bought for our personnel. The mask, the gloves, I mean, all that stuff that you know very well. On the other side, our costs were reduced by the fact that over time was reduced. We did not have any travel expenses. We reduced the holiday fund. Overall, we were able to compensate more cost and less cost from the other side. Let me say that the EUR 20 million that we showed to you did not take into account what I have just told you. So we've neutralized the COVID effect and we compare it with that. It's going to be sustainable. I mean, we have shown you, I mean, it's our strategy to respond and to confirm what we have been able to prove since 2016. Our idea that our cost can be reduced that we can be more effective in our activities of spending less. We have proved it in many years. So I don't have to prove anything more than that. We will continue to do that. And as I said already many times, in 2020, what you are going to see in terms of cost reduction is mainly driven by the digital transformation. So the traditional way of cutting the cost will remain in place. But of course, it's not able to generate the number that we are talking about, the number that we are talking about EUR 20 million is coming from the digital transformation. So you will see more coming in the next year. That is in line from what we have announced in October with our strategic plan. And as always, we are doing probably even better than what we said in October. I hope I answered to everything. On the tender process, we expect, in 2021, between 4 to 5 tenders to be submitted 2 or 3 of them are of our interest. So that is what we are working currently in putting together all the documentation for those tenders. Regarding Belluno, I don't -- we don't have any recent news except, but it's probably quite old that the administrative court rejected the request coming from the [indiscernible] and the [indiscernible], they decided to go to the Consiglio di Stato. So to the final court to make the decision about the request. But the first step I know was already known since several months. If I remember well. So it's not -- I don't have any news. On the guidance side, as I said before, we don't provide today the guidance of 2021, we will provide the guidance in June. Having said that, considering what I told you about the CapEx in 2020, we expect to do more CapEx than we did it. So we are, for example, smart meters were supposed to be concluded in 2020. 400,000, we were not able to replace due to the COVID. We will do it in 2021. So my expectation is that the CapEx, the level of investment in 2021 will pass the 2020 result, also considering the fact that we are recovering what we are not able to do it -- to do in 2020. So if I have to say a number, the number will be higher than what we recorded in 2020.

The next questions come from the line of Stefano Gamberini from Equita Sim.

A few questions also from my side, if I may. First, regarding the gas tender -- sorry, the tender in Greece, what is the situation there? If you can remind us what are your investment criteria, could you also present here off together with some financial investors or not, just to have a picture when something could arrive on that side. The other 2 questions I have. Regarding the tender in Naples according to [indiscernible] Energia in the Naples [indiscernible] gas would be ahead slightly. Why? And what do you expect, considering that the authority decided to go ahead with a new calculation of the different offer. And the last 1 is regarding the situation for the M&A 1 year ago when the new regulation was introduced. It was clear to me that for the small operators, the cut was even deeper than yours and probably difficult to sustain in terms of recognized OpEx. So is the environment changed for M&A deals? Or at the end of the day, even after 1 year, the small operators are still there waiting for the tenders and without any acceleration on M&A deals?

On the Greece side, originally, the tender -- the binding offer was supposed to be submitted on March 16, so in a few days. The deadline has been extended. We don't know yet the exact date. It looks like the June. That for us, it's unfortunate because we were ready to submit the binding offer for in March. We are going to be -- to make the bid by ourselves. So we don't need -- we have no -- we don't have any agreement nor we don't need anyone to submit a bid. The overlap considering also the pie that is not -- that is not owned by the Greek government. The overlap is around EUR 600 million. And then, I mean, any other numbers it will be just a guess. And of course, we are not willing to deliver any of our evaluation considering the tender is in process. Regarding Napoli, I mean, what you said is correct. We feel that our offer is better. The 2 -- the result was very close to a charter, a 0.3% difference. So nothing. And in fact, the authority, [Foreign Language] -- I don't know the translation in English, but the commission that is judging the results have requested to the -- both to the 2 -- to the 2 operators that is not customary, the review of the offer and they have asked specific questions, understanding if that is an offer that is sustainable or not. That is the rules of the game. Normally -- in a normal tender, where the first in the rank is clear. Those requests are only given to the first one, not to the second. In that case, the requests were made to both the operators, demonstrating that the 2 numbers are so close and is too close to say who's going to be the winner. We feel we made the best offer, and we feel that at the end of the day, the best offer will win. On the M&A side, I mean, what you said is right. We have discussion going on. The small operator are still there. We have discussion going on. As you have seen in our numbers, the impact of the resolution has been significant. We were able to overcome the EUR 45 million, thanks to what we have done in the past, thanks to what we have done in 2020, managing the cost. I don't know if the smaller operator have done the same way. My feeling is that they even reduced the amount of investment. So the situation and that goes back to the previous question. The situation on the tenders is becoming critical because you don't have -- you have 2 completely different situations, the largest -- or the larger operators are investing, upgrading the network. The small ones are just waiting. But more than that, I cannot tell you because I don't have any other news to tell you.

The next question next question come from the line of Alex Wheeler from RBC.

My first question is on the digitization of the network. Can you provide an update specifically on what steps need to be taken in 2021 to reach your full year -- sorry, to reach your target of a full digitization of the network by early 2022. And then secondly, on the tenders that you mentioned for 2021, is it possible for you to give a potential investment value for those tenders that you expect this year?

Okay. On the digitization, we have clarified our plan in transforming and upgrading the network. When we presented the strategic plan in October, we are completely on track. So let me say that in the first half of 2021 we will complete the replacement of the traditional meter, but it is only part of the overall scenario. What we are doing, I mentioned that we were able to upgrade already in 2020, 500 what we call super networks. That means it's a partition of our overall network. 2021 will be much higher than that, will be probably around 3x. Our objective is by mid of 2022 to have completed the upgrade. What does it mean to completely upgrade? It's not only the meters. It's the gas pressure reduction station, the valves, the measure, the pressure at the end of the grid, odorization unit, catalyst unit in other terms, all the equipment that is sitting on the network will be digital in 2020. In the meantime, we have -- we are working on getting all the data, not only getting all the data coming from the field, but also organizing the data, analyzing the data, writing algorithm to understand the data that will help us to manage differently the network. So we are in parallel through our digital factory, starting to work on the data and now are coming in billions of data, organizing them, analyzing and building algorithm to manage the network. On the tender side, we can say that we are looking at -- we are expecting 5 of the tenders, couple, 2 or 3 are of our interest. What is going to be the investment is not going to impact 2021 because we are going, as you know, when we present the offer, it will take between 6 to 12 months to get the result. And then you need to consider if anyone will raise some questions to the court as happened everywhere, most everywhere. So it will make eventually the assignment of the tender even longer. So what is important for us is that the new tenders should be on the market, should be on the scene on, moving up, we expect during 2021, overall, not -- that doesn't mean that all of them are of interest to us, around 5. But for the numbers, there is no impact on 2021.

The next question comes from the line of Emanuele Oggioni from Banca Akros.

The first 1 is on the gas tender and the potential new simplification, draft law. I wonder when you expect any update on the potential support from the government's measures to simplify the concession rules for the gas tenders. This is my first question. And the second 1 is on the nonrecurring cost for the provision for the faulty meters at 2020 and also the -- your estimate of the breaks for until 2026. Could you please give us more details on the computations of the number or the percentage of hypothesis of faulty meters you are expecting in this period.

For the first question, as I said before, as soon as we will know, who will have the responsibility for our sector, we will present our position in our gas tender, the positive impact on investment, the positive impact on the upgrade in terms of energy transition. As of today, we have not made any step because we're still waiting, who is going to have the responsibility. On the faulty meters, let me say that up to the end of 2020, the number of faulty meters that we replaced were around 400,000, and the relevant costs have been already accounted. So the EUR 38 million that we have in our -- as special items that we have declared in our annual statement are relevant to all that -- all the faulty meters that we have cleared from January 1, 2021 until 2026. How we have determined this number? We have divided the meters in matrix with 3 axis. The first 1 is relevant to the supplier. The second 1 is relevant to the year in which the meter has been installed. And the third 1 is the year in which the problem may happen. Based on that, on the rate of the problem, rate of the default. We have determined the value, considering also the warranties that were provided by our supplier. In some cases, we had the full warranty, in other case, a partial warranty. In other case, because those are based on the contracts that were developed years ago. The new contract have a good coverage in terms of warranty. It may happen that the faulty meters are not linked to a problem of the supplier, maybe just broken by the customers. So in that case, the cost of the replacement is completely up to us. It's not covered by the warranty. So we have developed a matrix. Let me say the main difference is that the smart meters installed at the beginning of the program. So going back to 2014, 2015 and '16 have shown a level of default higher than the new ones. In addition, as you know, already in 2020, we continue to do that. We are not using anymore the GPRS solution. We are using the narrowband IoT solution. The main difference of the 2 systems is that the narrow band IoT provide a better communication, even in a difficult situation. Some of the faulty meters have not broken simply, they have put in a position with a difficult way to communicate. So the moment that we take out those meters, they are perfectly functional. So we will reuse them. But in that case, to cover the difficulty in communication, we are using and is very effective, the narrow band IoT solution. The narrow band IoT solution provide even another positive -- other positive element, that is that they consume less energy, so less battery than the other ones. And so the battery life is even longer than in the other solution. So considering all that scenario, we have developed a very detailed case and 30.5 -- EUR 38.5 million is the result of that. To me, that gives you also another element of the valuation when we said that the -- when the resolution levalized the return on the network is the same as the return of the meters, we always said the 2 technologies have a different -- have a different foundation. The smart meters have technology that is not as reliable as a pipe. And the number of faulty meters has demonstrated that we were right. So that is another element that we will submit in our -- let me say, in our process to demonstrate that according to us, the reduction in the return of the smart meter should not have been taken as a decision by the regulator. Otherwise, we are going to submit to the regulator, the fact that we were obliged to put aside that fund because of the technology that is not -- especially, I'm talking especially to the old ones, the technology that was not as reliable because it was a new technology as it is today.

We have another question from the line of Stefano Gamberini from Equita Sim.

Yes. I mean, 3 quick questions. First of all, regarding the RAB at year-end, in 2020, if you can supply us this figure? The second, regarding what is the dispute with municipality from that you write about in your press release, could be something significant or not, the potential impact? And the third, regarding the taxonomy, could we expect some calculation, some estimates in the next business plan, considering that from 2021, it will become quite an important element for investors.

If I'm not wrong, you are at the second round but having said that, we will take your question. That means that you have raised a 6 questions instead of the standard 3. On the first 1 on RAB I will tell that on the RAB for the guidance, of our RAB at the end of this year, I would say that we will give our guidance for the RAB, together with the rest of the guidance in June. Please take note that the RAB at the end of 2020, which is the 1 which is used for the calculation of revenues for 2021 is at around EUR 7.8 billion. On the dispute with the community Roma. There are 2 disputes going on. The first 1 is that the community Roma claim the fact that we were late in delivering the investment promise in 2012. On the other side, we claim against the community Roma saying that we were late because we were late in getting the authorization, and that has caused us a damage. Having said that, we are currently discussing with the community Roma to settle and I think we are in a good path. Each of us recognize that they have responsibility of that. So we are discussing with them currently how to settle the dispute. Hopefully, it will be settled very soon. But remember, there are 2 disputes, the community Roma against us and us as against the community Roma. On the taxonomy side, I'm going back to the answer that I gave to the Mediobanca to Javier. When I talk with the [indiscernible]. I asked exactly the question about taxonomy. He responded to me that as long as the investment on the grid, have the objective to upgrade them to accommodate different gases, those investments are, let me say, inside the taxonomy. Because, let me say, the majority, if not 100% of our investment that we made on the grids, with the aim to upgrade them to make them digital and to make them available to accommodate different gases, they are compliant with taxonomy. And then you are not allowed to make any more questions. You have already doubled your peers.

We have no further questions at this time. So please continue.

Okay. Okay. So many thanks to everyone attending. Many thanks to Stefano for the double questions and for everything, the IR team is available. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines. Thank you.