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

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Italgas First Half 2021 Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Anna Maria Scaglia, Head of Investor Relations. Please go ahead, madam.

Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us. Today, we will walk you through Italgas first half 2021 results. I'm Anna Maria Scaglia, head of IR team, joined by Mr. Paolo Gallo, our CEO; and Mr. Gianfranco Amoroso, our CFO. We will address any question you might have at the end of the presentation. I now leave the floor to our CEO, Mr. Gallo.

Good afternoon, everyone. Let me start with the presentation. Let's go to Page #2, where I would like to highlight the first half results. Let me say that despite the continuing effects of the delibera 570, we reported a strong growth in the first semester. In particular, the second quarter has seen a strong acceleration in respect to the first quarter. Thanks to the action we put in place in the last year, the operating -- and thanks also to the fact that the operating environment is slightly better in respect of last year. Of course, our numbers show a solid growth that has been led by the RAB mainly; by the revenues from the customers; and as a last point, an efficient cost control. We will see later about the cost evolution. If we add to all of that, our best-in-class cost of debt, we had an excellent growth. In term of net profit, we grew by more than 14% in respect of the first month of 2020. And the growth has been particularly in the second quarter of 2021. So let's analyze more in details all these numbers, and let's move to Page 3. Page 3 show again another big result, that is the CapEx. We have -- we arrived to EUR 420 million. That was 14% higher in respect of last year. And it was led mainly by the digital transformation and the network repurposing. We have seen again in the second quarter of 2021 a strong acceleration in terms of CapEx, especially if we compare that with last year second quarter. You remember very well that last year's second quarter, most of the activity were stopped by the lockdown. Our operating cash flow again show a very significant number, an increase of 43% with respect of last year. It is the result of a positive working capital evolution, as Gianfranco will explain you later. Thanks to that, our net debt is under control, as you can see, only EUR 77 million increase, especially if you compare it with the fact that we paid a dividend of EUR 219 million. So net debt reached EUR 4.7 billion, excluding the impact of IFRS 16 for EUR 70 million. So let's go to Page 4, where we give you a picture of our investment. It's a trend that was already started in the first quarter, where we see an increase in the digital investment and in the repurposing of the network. Digital. The increase in the digital in respect of last year, it's even more important considering the drop in spending for meter replacement. And that drop is fully understandable because we -- our plan to replace the traditional meter gets closer to completion. In addition, relevant to the new network, we added around nearly 400 kilometers of new pipes, 50 of which in Sardinia. And we replaced nearly 0.5 million of all meters with new ones. So this is a significant number considering that the expected -- let me say, the increase in the CapEx investment is really incredible and again set another record for our company. But now let's move to a new section that we introduced in this first -- for the first time in the presentation. It's on Page 5. If you remember, when we presented the plan -- the strategic plan, we also presented our target about reducing greenhouse gases emission by 30% by 2027 and reducing the net energy consumption by 25% over the same period. From now on, we will present to you in every quarter which is the progress of these targets. And so this is the first time that we are going to present to you both greenhouse gas emissions achieved at the end of June of this year and the net energy consumption. As you can see, we have seen an increase of overall emission. That is driven by the fact that in the first 6 months of 2021, we inspected more than 35,000 kilometers of network -- nearly 50%, probably even more than 50% of our overall network. We have an increase in respect of last year of 36%. So if in term of absolute number, we have recorded an increase in term of CO2 emission, there are several indicators that shows us that the situation is becoming better, and therefore, we expect a better result by year-end. Was -- where are those indicators? You can read it in the bottom part of the page when we talk about fugitive emissions. You can see that the number of LISA, LISA is the leak detection search area, so potential leakages, where, let me say, the percentage of true leakages is higher than 90%. So the potential new leakages per kilometer inspected dropped by 19%. That means that we found less potential leakages than last year. The cable fact -- the gas leak per kilometer decreased by 15%. And the timing number is the gas leaked over the gas supplied, was down to 0.064%. The decrease is particularly relevant in Toscana Energia, where the same indicator dropped by 36%. Relevant to vehicles, the CO2-emitted per kilometer traveled, remained constant. But thanks to the use of 92% of compressed natural gas that replaced gasoline and diesel, we had an impressive reduction in term of other pollutants, such as NOx that was reduced by 7%, and particularly -- particulate, that was reduced by 33%. A remarkable reduction. If you flip to the following page, Page 6, we present to you the same picture in term of energy consumption. And in that case, we have a reduction in the electricity consumption that was down due to the better office management and smart working. On the contrary, we had an increase in term of energy consumption for vehicle, but you should consider that the number of kilometers traveled during the period was over 22 million kilometer, up to 24%. Always remember that last year, during the month of April -- let's say, mid-March, April and May, these travels were completely down to 0. In term of industrial consumption, the action that we put in place show better performance, in particular in our preheat system. And in fact, even though the gas supplied increased by 6%, the increase of depleting the gas to preheat the gas supply was only limited to 2%. So we had a reduction in term of preheating gas by 4%. And finally, let me underline an important economic -- economy recovery signal, that is the amount of gas supplied during the first 6 months. We have seen a significant increase of 6% in respect to the same period of 2022 -- 2020. To conclude this new section of the presentation, I would like to quickly describe the action that are in progress to achieve the target that we set in the strategic plan. In the second half of 2021, we will start to apply predictive maintenance on all our networks based on the outcome -- on the data that we collected from [indiscernible] Research. We have -- we are leveraging Seaside, our energy-efficiency company, to run an assessment of our 3 different plants, I mentioned that before, with the objective to improve efficiency and cut emissions. We are implementing inside our main pressure-reduction station, Cogen plant and turbo expansion plant, to produce energy that will be auto used in our company. We are using and deploying Seaside technology, such as Savemixer and Savegas on the network equipment, with the objective to improve performance. Last but not least, we think that training and awareness initiative on all our personnel regarding energy management system is going to be a key driver to reduce the emission, even more to reduce the use of energy. Let's go back to the traditional part of the presentation, and let's go back to the result. Before getting into details, let me just explain because -- why we are talking about reported result and adjusted result is the same as we presented in the first quarter. As you recall, we ran a bond buyback transaction in February, and we treated the relevant cost, EUR 6.4 million, as a nonrecurring item. This is the only item that explains the difference between our reported and adjusted numbers. And it is, as I said, unchanged in respect to the first quarter. So now let's move to the adjusted result on Page 9. Just as a few points before getting into the detailed analysis, despite the delibera 570, higher revenues are mainly driven by upgrowth in client service. The overall operating expenses decreased by 4.7%. We will give you more flavor about such an important reduction. D&A was impacted, of course, by a high RAB and lower depreciation related to meter replacement. The D&A analysis will be done by Gianfranco in a moment. And similarly, Gianfranco will explain to you the tax rate that is in the middle of our range of 27.6%. And the result has been extremely positive, an increase of 14% in the reported net profit. Let's analyze the revenues, and let's go to Page 10. As I said, resolution 570, the delibera that was issued on the 1st January 2020 is continuing to generate a negative impact. Not only we recorded last year EUR 45 million less of revenue, but this year, we are recording in the first semester EUR 4 million as less revenue due to the application of the X-factor, the famous 3.53%. So on an annual basis, the impact on 2021 revenues toward 2020 revenues is going to be more than EUR 8 million. Fortunately, this number was more than offset by the investment we made in the past year that created an upgrowth as we are talking about and also the tariff component that grew by more than EUR 13 million as additional revenue. Other regulated revenues increased by nearly EUR 6 million. And we need to look at the service to client growth by EUR 10 million in respect of last year, and that is fully understandable. We are going back to normal considering that last year, in the first 6 months, we have seen a significant reduction because we were not allowed to go to the customers. What is very positive is that even the gas leakage incentive increased by more than EUR 1 million in respect of last year. That is thanks to the continuous effort, to the 35,000 kilometers inspected in the first 6 months. And then as a negative last year, we recorded tariff adjustment for EUR 4 million that, of course, are not recorded this year. Also the rest of the business gained an additional revenue of EUR 2.4 million, thanks mainly to the cumulative revenues coming from the energy efficiency company and gas. So the sales of LPG and natural gas in Sardinia. If you go to Page 11, you will find what I have commented to you in a table, as usual. So you can have more -- even more numbers -- absolute number just looking at this table. Now let's go to cost, Page 12. I think it's an incredible performance, I would say, to continue to reduce the cost quarter-after-quarter. And if we compare the first 6 months of 2021 with the first 6 months of 2020, all our costs decreased by 4.7%. This is mainly due of the drop of the distribution cost. Net efficiency on a like-for-like basis recorded nearly EUR 6 million. And also, we had other lower distribution cost for EUR 3 million due to the lower COVID-related costs. We were able to reach this cost -- overall cost reduction not [ withstanding ] the fact that other activities, and I'm referring to gas activity, so the sales of natural gas and LPG in Sardinia and the energy efficiency company that register an increase in revenue, of course, register also an increase of cost. But overall, we were able to cut the cost by 4.7%. And if you reach -- if you flip the page to Page 13, you have details -- a table that detail all the numbers that I mentioned to you, divided between distribution, fixed cost and other activities. As you can see, we were able to reduce significantly at the distribution level either the net labor cost, thanks to higher capitalization cost, thanks to the increase of investment that I have mentioned before, as well as the next external cost. While you can see that on the other activities that are mainly energy efficiency and sales of natural gas and LPG in Sardinia, we recorded an increase of cost because the activities generally increase. I will now leave the floor to Gianfranco for the remaining part of the presentation. Gianfranco, floor is yours.

Thank you, Paolo, and good afternoon. We are now on Slide 14, and we will comment the EBIT. EBIT posted EUR 279.4 million at the first half of 2021 with a growth of 10% compared to the same period of last year. This is a result of a EUR 27 million increase in EBITDA that we have already commented, so a revenue increase of around EUR 18.6 million. And lower costs were EUR 8.7 million. Secondly, now we focus on the D&A. D&A posted a higher level of EUR 1.9 million, which is the result of EUR 12 million due to the higher net metering depreciation deriving from our last 12-month investments. Out of this EUR 12 million, approximately EUR 8 million are for the network, approximately EUR 2 million are for the metering, the remaining is EUR 2 million, out of which EUR 1 million is IFRS 16. This increase of EUR 12 million has been almost compensated by the decrease in the acceleration -- in the accelerated depreciation that now for this 6-month period is almost 0, compared to a level of approximately EUR 10 million same period last year. The reason for this is that we are now close to achieved a completion for the replacement program of our traditional meter pool. Now we will move to Slide 15, commenting the net profit. First let me point out the remarkable performance that has achieved our net profit for the semester with a growth of more than 14% to the first 6-month period of 2020. We will focus here on the net adjusted financial expenses with a level of EUR 25.4 million excluding the component that we consider special item due to the refinancing and the liability management exercise we performed in February, which account for EUR 6.4 million pretax. The improving of EUR 1 million in the net financial expenses is the result of a lower cost of debt compared to an average gross debt which is higher compared to the last year. And this is mainly due to the positive impact of the liquidity arising from the exercising of prefunding that we have performed in February. Income from associates is increasing marginally. And finally, we focus on the tax rate. Our tax -- we posted EUR 70 million of taxes. The tax rate resulting in this 27.6%, improving from the tax rate of the first month of 2020, which was around 28.4%, you remember. The positive impact is a result of the fiscal benefit, mainly super and iper ammortamento in [ Jan ]. Now we move on Slide 17. And this is the time to confirm our financial strategy. Nothing has changed. The situation remains extremely positive. We can rely on a situation of cash of around EUR 700 million, which is deposited in banking accounts and available. Our bond average tenor is more than 7 years. The situation in terms of instruments, as you can see from the slide, represents that we have substantially no banking credit lines. We have 84% of bond and 16% of EIB expiring at 2037. Finally, we can continue to benefit on one of the lowest average cost of debt, around 1%, thanks towards the liability management exercise that we have implemented starting from the IPO until last February. Now we move to Slide 16 and talking around the cash flow. Cash flow is another impressive figure of this semester. We reached a level of EUR 550 million, growing of 43% compared to the cash flow through the operational cash flow in last year's first 6 months. This level is generated by a net profit before minorities was EUR 180 million; adding depreciation and other noncash items for EUR 173 million; and finally, but very important, the working capital, which returned to be positive for around EUR 196 million. Working capital contribution is a key event of this semester. It's due mainly to a positive billing seasonality for around EUR 265 million, growing over EUR 70 million approximately compared to the same figure last year first 6 months. This effect is mainly due to an increasing volume of gas supplied in the first 6 months of 2021. In addition to that, we reported the negative contribution for the next tax payable in the region of EUR 27 million. The EUR 550 million of cash flow -- operational cash flow and I would answer to entirely finance the significant technical investment that we have accounted, around EUR 412 million. Finally, the increase in our debt is marginal, only EUR 70 million, notwithstanding the dividend payment of last May of EUR 219 million. Now we'll end up with the balance sheet on Slide 18. Just to give you a short comment about the net invested capital of EUR 6,725 million at the end of June 2021, substantially flat compared to the end of 2020. This is a result of a growth in the fixed capital, which increased by EUR 200 million as a result of CapEx, as we have seen of about EUR 420 million and depreciation for EUR 210 million. This increase of EUR 200 million has been almost compensated by the decrease in the net working capital that we have already commented in the previous slide of EUR 190 million. Net debt, as I said before, was EUR 4.8 billion at the end of June, including IFRS impact of around EUR 70 million and the increase of the same amount, EUR 70 million compared to year-end 2020. Now I leave the floor back to Paolo for the final remarks.

Thank you, Gianfranco. I will just spend 1 minute. I would like just to recall and to everybody based on the result we achieved understanding the effects of the delibera 570, we -- I mean we show to everybody our capability as industrial operator. Investments, service to customer, have grown in respect of last year and have contributed to the increase of the revenues, but also our ability to reduce the cost, thanks to the digital transformation of the company is extremely significant. For the first time, we presented to you environmental performance that I think is probably unique in our sector. And we will continue to do that every quarter. Finally, we submitted the offer for the gas distribution privatization, DEPA, in Greece on July 15, so last Thursday. So the deadline was confirmed. We were very happy about the offer we submitted. We are waiting for the results. We do not expect the final result to be announced before the end of the summer, but we are happy about the work that we have done in evaluating the gas distribution increase. Thank you and I would let you the floor for any questions you may have. We are here with all the team to respond to any question you may have.

[Operator Instructions] The first question is from Javier Suarez with Mediobanca.

Three questions from me. The first one is on the recent regulatory document by Arera. Obviously, it's a first consultation document, but I was wondering if Italgas wants to make any comment on the aspects that are questionable in your view or the aspect of the documents that needs to be rethought in order to make the document -- the second consultation document a little bit more virtuous. That is the first question. The second question is on the simplification -- the decree to increase level of competitiveness, I think, is the name. If you have -- you can give us any indication on when you are expecting the approval by the government of this decree and reassuring us that the measures to accelerate the auction should be included there. And the third question is on the recent statement by the Minister for Ecological Transition on the electrification versus gasification of Sardinia, if you can give us an update on your view on the contribution of natural gas or renewable gas to the decarbonization of Sardinia.

Thank you, Javier. On the first question, my answer is quite simple. We are evaluating the consultation document. We will submit by the time requested by the Arera, our comments. And that's it. I mean we are going to see what the comments that we are going to make, and the others comment that will arrive from different sectors what is going to happen later. Javier, I don't want to spend more work about that. I always said that we are in extraordinary times, and we expect that the regulator will take extraordinary decision in order to support the economy, and in particular, the investment in clean infrastructure. So the main comment that I can -- that as Italgas, but I think we are not the only one, we can say about this consultation is that we expect that the regulator will consider the extraordinary time we are facing, the need of investment infrastructure, and therefore, the need to support this sector. On the second item, as you know, probably you have seen also a request from -- what's called Ordine del giorno, something like that, from the House of Representatives, soliciting the government to take action about the simplification and speed up of the gas tender. You have also seen that the sum of the comune like the one of Trieste, has decided to take back the tenders because they are waiting such a simplification or such as speed up happening, in particular, about the recognition of the Arera also to the network owned by municipality. So what we have said for many, many times that was -- this was the main roadblock toward the tender. It happened to be true. It's an evidence. So -- and the so-called the Decreto Concorrenza, we think that will be approved probably during the month -- later of August, in the same months -- between the months of August and September. On the third question regarding Sardinia, our position has not changed. Our position is that the concept of the sector coupling is in this day even more important than in the past. We don't think that if only we get electrification we will be reaching the target set by the European Union, and that is shared also with the European Commission. It should be a joint effort between gas infrastructure and electricity infrastructure to be able to reduce emissions -- the CO2 emission and increase energy efficiency. Today, we have already reached nearly 1,000 kilometers of new gas distribution network in Sardinia. And for the first time ever, the natural gas has reached the residential customer in Sardinia. That's the reality. So we stick on our reality. We have committed to bring natural gas to the cities -- to the Italian citizen that are in Sardinia as well as we bring natural gas everywhere in Italy. Sardinia is one of the region -- target region and should be treated exactly in the same way as the other regions are treated. And we are doing that. I think we have been very successful. The fact that now we have thousands of new customers that are using natural gas in Sardinia, it's an incredible success that we reach, thanks to our effort. So again, my point of view in Sardinia is very clear. It's similar to everybody else. And I think also the study that was recently published by [ RSA, ] that probably you read about it, demonstrate that the combination of electrification and natural gas will provide the best scenario for the Sardinia Island also in term of cost, in term of -- it's the scenario that show the minimum cost to provide the energy to the Sardinian citizen.

The next question is from Harry Wyburd with Bank of America.

I've got 3. I apologize. I'm afraid that the first 2 are follow-ups on the regulations. I hope you'll forgive me for that. And the first one is just on your decision in your business plan only a few weeks ago to assume a 20 basis point cut in the allowed return. And I wondered whether there's anything that you see in the document that sort of significantly changed your outlook or other things that came out in the document more or less structurally similar to what you're expecting? Because -- I guess the reason I ask is that you are the only company to release a prediction at a time that was very close to the release. So I just wondered whether maybe when you have seen the 20 basis points, you perhaps already knew some of the things that were going to be released in this document or maybe a lot of it is totally new. So just interested in your sort of comments there on the 20 basis point assumption. The second 1 is a bit easier, just on the timetable. I guess the -- compared to when we went through this process, I think it was 6 years ago, the initial proposals have come a little bit later. I think the consultation ends on the 12th of September, if I remember correctly. So my question is, after the consultation closes, what do you expect the process to be from then? Should we expect 2 sets of sort of interim and then final proposals like we got last time? Or do you think we're going to progress directly to a set of final proposals later in the year? And then third and final question, a different topic. Just on the Fit for 55 package. Obviously, it was a very wide-ranging set of packages, I should say. Was there anything in there that you think specifically relevant to gas distribution or retail gas that's new? So just interested in your thoughts there.

Okay. Hopefully, I will respond to your -- all of your questions. If not, please reply because line was not so good. On the first question, well, when we elaborate our strategic plan, we did not know anything about, of course, the -- what was contained in the consultation document. What we did, and I think we explained during the presentation of the strategic plan, was that we try to freeze the pandemic period, avoiding to consider the 2020 as a year of reference. And that led to the 20 basis point reduction. We have also explained that we have reduced the risk-free rate, that we have changed the gearing. So the 20 basis point, it was not just, well, we don't know which number to consider. And then we decide, okay, let's keep 20 basis point, but was an exercise to determine the new WACC and with the assumption that did not consider the year 2020, being the year 2020 the pandemic year. So what is going to happen later on? We will see when the consultation will become a delibera -- will become an official document. And based on the number or the new numbers that the regulator will determine, we will see if we have to review our plan to keep it on balance or not -- or our plan is fine like it is now. So I cannot anticipate. We need to know which is going to be the final resolution of the regulator. Again, we are expecting that in front of extraordinary times, the regulator will take extraordinary decision to support the Italian economy and Italian investment in infrastructure. The consultation process is quite standard. We have seen the first consultation document. We are going to respond. They will probably analyze the answer. They will show a second consultation document probably in October time, waiting for reply by probably mid-November, end of November and then issuing the final resolution before Christmas time. Third question, Fit for 55. Some of these documents were already known, like the energy efficiency and the greenhouse gases emission reduction. We already know about the increased target in both of these topics. And regarding the energy efficiency, which is our commitment, even internally, that I have already shown to you in my presentation but also as an external market with our energy efficiency company. So we welcome those decision because it will speed up and will increase the growth of our business in the energy efficiency activities. We expect by the year-end the gas market package that we complete this picture. Again, we expect also by the year-end the document by the European Commission relating to the gas -- to the methane emission for which, as you know, and we have shown to you before in the numbers that we are preparing ourselves in a very tough way. I mean in 6 months, we are inspecting more than 50% of our network. I shall remind you that based on the regulator growth, we should expect our [ metro ] once every year -- or once every 4 years depending on the pressure. We are doing, depending on the situation, more than 3x, more than 4x because our attention and our focus on methanation is extremely high. Thank you.

The next question is from James Brand with Deutsche Bank.

I have 2 questions. So the first is, would you be able to tell us, I'm not sure how readily available the information is, what the average cost of debt is in the gas distribution sector? It's just hard for -- certainly me as an analyst, I can see obviously yourselves, Terna, Snam, but it was obviously a massive tail of companies, which could be quite relevant in the whole debate around cost of debt in the WACC review given that was obviously where the regulator was proposing the toughest changes. So if you have an average cost of debt, that would be very interesting. And then secondly, on costs where you've highlighted obviously progress in terms of cost efficiency but also that you'd capitalize a lot more costs -- a lot more labor costs. Could you just explain to us maybe a little bit about what's going on there? Because it's hard to know at the outside. Obviously, you had a smaller capital program in Q2 last year. So was that a slightly exceptional period in terms of not being able to capitalize costs that you would have normally capitalized? Or have you reassigned people that were working on outside of the capital program to the capital program, and that's moved the cost? So if you could just explain to us a little bit more about what's going on there with the reclassifications, that would be really useful.

Difficult line to understand. But again, if I'm not answering to all of that, please come back to me. I will start with the second, and then I will pass the floor to Gianfranco about the average cost of debt. As I told you during the presentation, we have registered an increased cost capitalization by our personnel that resulted -- was not the only reason why, that resulted in a personnel cost reduction, not -- it was not the only one, was the major effect driven by 2 things. The first one, it's always a comparison with the previous year. So the first one is because last year, from mid-March until end of May, people were requested -- our personnel were requested to stay at home, working remotely and making activity on the ground only the ones that were considered essential by the regulator. So in that case, the amount of capitalization was lower. The second element is the increase of the investment. 14% more means also a significant increase also in the capitalization side. And let me say a third element in the picture. This is important. We have -- that is, let me say, respond to you either in term of capitalization either in term of less cost. We have internalized, and we presented that in the strategic plan, some of the activities that previously were run by a third party. Those activities were the most expensive one, so with the most content in term of competence and technologies. So we set, let me say, make instead of buy activities. We were able to increase a little bit the capitalization and moreover, to reduce third-party costs. So that is the explanation. So last year was extraordinary in a sense of not being able to fully capitalize as always. This year, we are back to normal, probably better than normal, and also thanks to the higher investment. So these 2 effects combined together. You can see the significant cost reduction in the net cost of personnel because from a gross personnel cost point of view, we have seen a slightly increase in respect of last year because the number of activity that we registered overall increased. And so that's normal that our gross, not net, gross cost to personnel has increased. Gianfranco, it's your floor about talking about the average cost of debt.

Sure. On this matter, I will share a couple of ideas with you on the cost of debt of the sector. First point is that it's quite difficult to have homogenous level for all the gas distribution players because the market is still fragmented and the creditworthiness of different players is very different. It's one thing to lend money to a listed company like Italgas, another completely different thing is to lend money to a small player, privately owned and so on. Having said that, the other important point is our level of 1% is not only the -- probably the lowest in the sector, but it's also the result of various transaction that we have implemented to reach this level. So it is a good point, I think, to note that it depends a lot. Your actual cost, your mark-to-market cost depends a lot on the history of your indebtedness. And if the history is quite recent, like in our case, you have the possibility in the past to refinance the -- your indebtedness and to get the best condition in the market. But each time you make this exercise, you have to pay something upfront. Consider that when we had our spin-off from Snam in 2016, we had to -- as you know, we had to fully refinance our indebtedness towards Snam, towards the mother company. And we posted a cost of more than EUR 110 million upfront in order to do that. And after that, of course, we have the possibility to take the opportunity of the favorable condition in the market for the time. So our current level is probably the best cost of debt, making the mark-to-market exercise, but it's not affordable for the large majority of the gas distribution player in the sector.

Next question is from Enrico Bartoli with Stifel.

A few questions also on my side. First of all, on M&A. I'm interested in your view on what we can expect in the second half of the year, if we can expect an acceleration compared to the first half. And also if you have any interest in the asset that the press reported that A2A is considering disposing in the Lombardy region? And second question is related to DEPA. You indicated that a final decision on the tender is not expected by the summer. So we have to assume that by the end of the year, we are likely to have some visibility on the outcome. And if you can comment on the competition there, the press reported it also, EPH was an industrial player interested in the asset. Last one is again on operating costs. Regarding the decline in absolute terms that you reported in the first half, this is something that you consider would be replicable in the second half of the year?

Well, about -- maybe in case if I missed something, Gianfranco will add about some -- on the M&A. What we are expecting in the second half of the M&A? Well, hopefully, there will be some movement in term of operators that are willing to sell. We know about the A2A initiatives. And of course, as any other initiative of selling gas distribution all over Italy, we are interested in too. So we'll look at it if the process will start. We've seen that there's been rumors on the newspaper, but it was not commented by A2A. So we are waiting any official step forward, and of course, in case there are, we will consider it as interested, one. On the DEPA time line, we expect that the closing of the operation should happen before the year-end. Also because it should be quite easy to evaluate only 2 offers -- of course, they have to go through the evaluation of the administrative documentation that was submitted. It was quite heavy. And therefore, they have to go through each page to consider if it is -- everything is okay and valid, and then they will open the economic offer. Well, we will not consider EPH, at least in the -- with the company that was admitted to the tender was more a fund and not an industrial operator. It, of course, took the, we say, the support of the activities that EPH -- the group EPH has in the gas distribution. But it's not, at least from our understanding, is not the company EPH that is the front runner in the offer, but of course, it's part of the group. We feel that we are -- I mean we are the true industrial in making that maybe offer, but still the offer is not based on, let me say, on a technical evaluation of the competitors. The competitors were admitted because all the competitor is somehow the expertise in managing the gas network. I think the main difference will make -- will be on the price. That is the way that the tender is evaluated. We feel that we have a lot of expertise in developing new networks. We have just talked about with the question raised by Javier, we had talked about Sardinia. I think we have demonstrated to everybody that we were able to develop nearly 1,000 kilometers of new gas distribution in 2 years in a situation where we had also to create storage equipment, storage feature, storage of the liquefied natural gas to supply our gas distribution network. So even in a complicated environment and difficult environment, we were able to demonstrate our ability to build new networks and digital network also. From an operating cost point of view, let me say that -- I mean every quarter, there is the same question. We are demonstrating you that we are able to continue to reduce the cost now, thanks mainly to the digital transformation that we are implementing. So are we going to be able to further reduce the cost? I mean we have -- the answer, generally speaking, is yes, that we have a clearly track record in the last 5 years to be able to continue to reduce the cost. If you look at the like-for-like cost in the 6 months, we were able to cut down the cost of 3%. So still in that area, in that region, we will continue to do our job to be more efficient and providing a better service to the final customer. I don't know if Gianfranco would like to add something about the M&A. I will let him talk in it at the M&A of data because he's following both topics.

Yes. Thanks. Well, just adding a point to comment on the M&A, it is also true, I think, that the current discussion around the regulation, depending on the final outcome, but if the direction will be confirmed, probably for this more operator life, it will become more difficult in order to impact with this reduction in the returns. And on the other side, also the expectation for the price also probably will be more, let's say, moderated by this new level of return. So all in all, probably there will be a positive environment, maybe not immediately in the second half of the year, but in the medium term for external growth opportunities.

Next question is from Stefano Gamberini with Equita.

I have also 3 question. The first regarding this measure that you expect end of August, September to accelerate the tenders. Could you remind us what are the main 3 measures that the government should approve urgently to accelerate this tender? The antitrust authority issued some proposal in March. I don't know. There were some rumors on the press in this month. But at the end of the day, we are still waiting for this measure. Probably, there are some discussion inside of the government. If you can help us to fix what are the main 3 measures on your side. The second regarding the decision of the regulated kickoff the process for introduce the topics from the next regulatory period in all the regulated energy companies. This will regard also the gas distribution probably in 2026 according to the existing regulation, but we can't exclude that they anticipate to 2024 as the other operators. What in this case, are the main risks that you see for the gas distribution? Because the regulator underlined that they want to set the capitalization rate to avoid in the future stranded assets with a differentiated approach across the sectors. And so if you can comment on this. And the third question regarding your full year guidance, considering the good performance of your OpEx in the first part of the year and a trend that could be confirmed also in the second part, if I understood correctly. So it seems to be that an EBITDA close to EUR 1 billion for full year could be probably very conservative. Why you didn't change this guidance?

Thank you, Stefano. I mean the first question is -- I don't know how many times you asked me the same question. I'm trying to be -- I don't -- I -- because you always ask 3 questions. I only respond with 2 subjects, not 3 because honestly, 2 are probably more than enough to speed up the tenders. The first one is what I mentioned at the beginning: recognition of the value of the VIR to the network owned by the municipality. I mean the demonstration is that the community Trieste decided to take back the tender waiting for such decision. The second one that to me is very important is to create a national register for the commissioner that are requested at the beginning to put together the tender and a different -- or the same register but different peer person that has to evaluate the tender. Why it is so important? It was suggest by also by the antitrust, like you mentioned. Because at least this national register will create -- first of all, the possibility for each of the stazione appaltante or comune to identify not to think about strange professionals in order to put together the commission. The second one, it will avoid potential conflict of interest. You know that the current legislation prohibit to be a commissioner if you add some relationship in the past with the stazione appaltante, with the municipality who organized the tender. So one of the way to avoid this potential conflict of interest that is prohibited by law is to create a national register. So to me, if we do only 2 of these and these 2, that will be an incredible acceleration on the tender side. On the topics. We welcome every new approach set by the regulator with the aim to be more efficient and more focused on the goal of the gas distribution. So honestly, I don't anticipate risk for us if the regulator will move into the topics point of view. Why? Because the concept -- first of all, I don't see stranded cost on our side, considering that our gas distribution, and I'm talking about Italgas, of course, only. We'll be ready very soon, even than -- earlier than is needed to manage different kind of gases, renewable, low-carbon, 0-carbon gases. So stranded is the concept like you can use for coal power plant because in a very short period of time, these assets will no longer be needed. On our side, our asset will be needed for a long time because they will change their main concept to be under just natural gas just in one way. The concept of reserve -- reverse flow, the concept of different gases will apply to our infrastructure, and all the repurposing that we are doing now, all the digital transformation that we are introducing will lead to our infrastructure to handle all these different kind of gases and all the different flows one direction or the opposite direction. So any change in the regulation that will create a focus on being more efficient, more smart, more flexible, we will welcome. I mean we are far away of any other one. Regarding the last question, the guidance. Well, the use of term very conservative is probably too much. We confirm the guidance, and that's the end of it. And as usual, maybe we will be slightly better than the guidance. But as you know me since many years, and we normally put the numbers that are always difficult to achieve, are not easy. So the guidance is still a target. Can be achieved? Yes. Can be improved? Maybe a little bit, but it's not very conservative. Thank you, Stefano, for your question.

And just a quick follow-up, if I may. Regarding this RAB owned directly by municipalities. Could you remind us what is the total amount in term of millions that are actually in -- they own and the revaluation that could be impacted in order to be put on tender these assets?

Stefano, you rely too much on my knowledge. I don't have that numbers in mind. We can look at it. I will ask the -- our regulator guys to look at and to provide to you a detailed answer. What I can tell you is something more. I mean is like -- some examples that we faced in the past when we consider RAB coming from municipality. Generally speaking, the difference between RAB and VIR is between 3 to 4 times. And the reason being, you know very well, the municipality weren't able to provide all the necessary documents to the regulator to prove what they have spent to build their network. And that's the reason that the RAB is so lower in respect to the VIR. You know very well that in Italgas, RAB and VIR are very -- I mean, on an average, are very close one to each other. There is no big difference. Very, very mild difference between the 2 numbers. Of course, that is not true where you -- in the past, you were not able to keep track of all the expenditure you made in building the network. And therefore, you were not able to provide proof to the regulator. So the regulator applies standard RAB, and therefore, the number is very low. But generally speaking, the difference is between 2 to -- between 3 to 4x, so it is significant. In term of absolute numbers, for which I don't know, as soon as we collect that, I will provide it to you through our Investor Relations guy.

Next question is from [ Carlos Azzurri ] with [ Sugar. ]

I had a couple of questions. The first one is related to the Scope 1 and 2 emissions. And I was hoping you could provide a breakdown by activity. I know that you're targeting -- I think you alluded to gas leaks in networks and also the fuel lease for your vehicle fleet in your 30% reduction target, but I just want to see what the breakdown is now as of 2020 or whatever figures you have available.

If I well understood, you would like to receive a breakdown of the CO2 emission. In our -- if you go back in our presentation of our original [ fair ] plan, we made that breakdown. Probably we did not give you the exact number, but we can tell you that the majority of CO2 emission are driven by the fugitive emissions, so by the gas leakage. I think it's about -- around 80% that is coming from fugitive emission. That's the reason why our major effort is in finding those emission. But even more than that, that is even more important because -- okay. You find the emission and you fix the problem. But sometimes it happen that when you pass -- the pass the second time in the same area, you may find other fugitive emission. So the concept of predictive maintenance is that we have already a very significant number of data coming from 2018 to 2020. What we are doing is that we get all this data, and we try to identify the area where we can expect in the future some leakages. And based of this algorithm, of these artificial intelligence applied to the data, we will direct our maintenance becoming more predictive one, more repurposing, if you want, replacing the existing pipes in order to reduce in the future those emissions. And that's the major way in which we are going to reduce the 30% the CO2 emission. If you want to have a reference and if you go back to our presentation of this [ last year ] plan, you can go to Page 40, where there is a detailed representation of the 30% reduction. I said around 20 -- 80% is coming from gas leakages.

That was very helpful. And my second question was on the operating costs. I was having a hard time trying to reconcile the explanation that you gave in your press release, where you mentioned that it's mostly coming from a reduction in net personnel costs and the explanation you gave in the presentation on Slide 12, where you -- I guess it falls into the bucket of distribution net efficiencies. How exactly do you look at this? Is this reduction in any way related to the furlough schemes in Italy?

I'm sorry, I didn't get the question. The reduction is linked to?

To the furlough schemes -- to the use of furlough schemes for your personnel?

Right. We did not understand the question, sorry. I mean all of us, not only me. Which figure...

Okay. I'll try again. I'll try again. So if you look at Slide 12 of your presentation, do you attribute the decline in operating expenses to distribution net efficiencies? That's what is, the category or...

Fornero, Fornero. Now I understand. Okay. No.

And now if you go to the press release, you break down that as net personnel costs, which makes me wonder, is that related -- how do you explain that? What do you call efficiencies in the presentation as opposed to personnel costs in the press release? Is that related or...

Okay. I try to answer, but I don't know if I got the point. From a retirement point of view, I don't know if you were referring to that, we have a significant, say, around 80% replacement as a factor. So meaning that every 100 person that are leaving the company, we replaced with a new 80. Of course, that will bring some efficiency from a cost point of view even though we are ending the so-called hundreds, being 100 numbers, the sum of the number of years in working with the age, under the make of 62 years of age plus 38 years of working. So we are phasing out this opportunity for the people to retire. And therefore, that is not the main driver of cost efficiency in the net personnel. It contributed a little bit. But I told you, you probably did not hear me when I said that from a labor gross cost point of view, not net -- gross, we have registered an increase of cost, around 2%, if I remember well, in respect of last year. So if you take just the cost -- the gross labor cost, we have seen an increase. What we have seen is a decrease driven by the capitalization cost of the personnel. I don't know if you -- if I got your -- if I was able to answer to your question.

Just a quick follow-up on that. So going forward, would you say that, that evolution is going to continue. So if you see a downward trend on the net basis?

We will continue to see, let me say, no overall reduction of cost because -- the other element that I mentioned that probably was not well understood is the concept of the make-or-buy approach that we are using. And that -- we started this approach when we have seen a significant reduction in term of meters to be replaced, for which we have allocated when we were replacing nearly 2 million meters per year. We have allocated a significant number of person. So we said what we are going to do with the personnel? We are going to engage them into new works. So we have decided -- we have listed a long list of jobs that are with very high need of competency and knowledge that previously were awarded to a third party, and now we are using our internal personnel to perform them. So if you will not see significant cost reduction in the personnel cost, we will have a significant cost reduction in third-party cost because some of the activities that were previously allocated to a third party will be carried out by our internal personnel, especially those activities that are linked to the digital transformation. And I will bring you an example that was also presented in our strategic plan. There are activities that we did not have before, like the maintenance of the digital pressure-reduction station. The digital components were not part of those equipment earlier. But those digital components will require, maybe not immediately but very soon, some maintenance activity. That maintenance, we decided to keep it internally because it's a competence that we'll grow internally. So we will have more people allocated to do, let me say, difficult job, difficult from a competence point of view and from a technology point of view. So you will see more people of Italgas running jobs that are -- that require very high competence and very high knowledge of technologies. And therefore, you will see cost reduction on a third party. I hope it is clear now.

The next question is from Bartek Kubicki with Societe Generale.

Just one topic I would like to discuss, namely the Greek privatization. If you can -- apologies if I missed it on the previous calls maybe. If you could just give us some numbers for those companies in terms of EBITDA, net income based on historical figures, also may be the RAB. And whether you can confirm if the Thessaloniki 49% stake by Eni would be on sale as well or not, whether this is going to be the same transaction or a separate transaction following this one? And lastly, I suppose you will confirm but just to confirm whether any EPS accretion coming from a DEPA acquisition will immediately follow through higher dividends?

Can you repeat the last question? Because I had -- again, the problem was a little bit bad.

Sure. I mean I was just wondering whether you can confirm, and I presume you will confirm, that the Eni EPS net income accretion coming from the Greek acquisition will immediately follow to your dividends based on your 65% payout ratio.

Last question is difficult. First of all, for a matter of -- I'm very [Foreign Language] I'm very scaramantic, so I don't want to anticipate what pay up if we are the winner on DEPA. So we're not going to respond to the last question. To the other question, I'm going backward. The Eni stake was on sale -- is on sale, but it will be a separate transaction after the tender has been awarded. But in the clarification that we received from the funds -- the privatization funds, we received also the agreement that was reached between Eni for the 95 -- sorry, for the 49% of EDA Thess, in term of the price. So the price of the Eni stake is linked to the price of the overall transaction, but it's a transaction that will be consumed after the closing and not during or before. Regarding the numbers, I don't know if Gianfranco will give you the numbers about -- the 100% of data, including the 49% of Eni. So it's the overall, not the one owned by the Greek funds without Eni.

Yes. Just to give you some figure broadly because, as you know, we are covered by confidentiality, but the last report received for the RAB is around EUR 650 million. And on a consolidated basis at the infrastructure level, the EBITDA is in the region of EUR 550 million. And as Paolo was saying, this perimeter is now made of 100% of EDA Attikis and 100% of EDA Thess and 100% of EDA, and of course, the shares up for sale are regarding the 100% of DEPA Infrastructure.

Okay. And just for clarification, this stake of Eni, this is -- this will be a separate competitive -- I mean it's not going to be competitive because the price will be linked, but does it mean that you will be the ultimate buyer of the stake or there is a risk that somebody else may enter into the shareholder structure?

No. The Eni transaction will happen after, but all the rules have been already set. So there's not going to be any discussion, any tender or anything. There is a formula that has been agreed between the Greek funds and Eni how to price the 49% of Eni. It was agreed between the 2, and it was transmitted to the tender -- to the bidder. Just a correction, the -- I think we had some misunderstanding between myself and Gianfranco. The overall EBITDA in 2020 of the 3 companies around EUR 80 million.

The next question is from Chris Laybutt with Morgan Stanley.

Congrats for the results today, very solid given the backdrop. We've had a lot of questions today. And so I think all of mine have been answered. So a high-level one, if you were to look at the tender processes and the industry consolidation in Italy in your sector, what's the range of potential market share scenarios that you envisage long term, so looking forward 10-plus years, just to give us some idea of what you envisage for the firm both medium term and long term?

Okay. It is -- I mean we -- in the elaboration of the strategic plan, we have done the exercise that will help us -- will help me to respond to your question because we evaluate it one by one the item that will be under tender. And our market share will evolve from the current market share that is slightly above 35% to 45%. So we see that on the long term, long term means the end of the plan, so 2027, [ part of our ] market share will be -- will reach 45% moving from 35%. So then it will depend on what is happening about the tender in the meantime, but we will see a significant growth of the market share. Market share for us is measured on the number of redelivery point, number of meters -- on the overall number of meters. You may see different way to calculate the market share based on kilometers, but that is not the way that we measure. And also at the European level, we measure the market share in gas distribution.

And could I just follow up with one final question on the Arera process in terms of the WACC? And I'm wondering whether you could give a sense very simplistically as to whether you're happy with the consultation so far, you're broadly okay with it or you're upset with it? And I guess the context is in the U.K., we've just had a reset where we've seen a reduction of allowed returns of 200 basis points plus. And the company has made it pretty clear that they were upset from the very start, and they're now appealing. And so I guess just a comment in terms of how you think that consultation fits with those perceptions would be really useful.

Well, normally, I don't -- I'd avoid to make judgment on intention. I'm trying to judge on the results. That's the reason why -- it's difficult for me to say if I'm happy or not happy or disappointed or strongly disappointed about the consultation because I would like to judge and make an evaluation on the final one. I'm going back to what I said at the beginning. I'm expecting that the regulator will face extraordinary times, like we are living today, with extraordinary action. I'm expecting that the regulator will act supporting the Italian economy, will act supporting the need of investment in infrastructure, will act supporting the need of the energy transition and the investment related to. And they can do that because if they can support from the regulator point of view, there will be more room for the funds coming from the COVID fund coming from Europe to be used in other sectors that probably they need more than in our. We can do and we can support the energy transition and the digital transformation by ourself -- mainly by ourself as long as we will have a regulation that is supporting these efforts.

Operator, if there are no other questions, I think we are -- we can close this call.

Ms. Scaglia, gentlemen, there are no more questions registered at this time.

Okay. So thank you, everyone, for attending. The IR team, as usual, we are available for any questions that you might have and follow on. And we wish you all a very nice summer.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.