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

Good morning, everyone. It's with great emotion that I welcome you all to what promises to be a historic day for Italgas Group. Today, we are setting a bold new horizon, one that will drive our sector evolution towards ever more advanced services on the path to net zero while providing the country with a powerful boost in innovation, growth and sustainability. We pursue this goal with the strength of a vision that has steadily taken root over the years, supported by the sound decisions that have turned into reality. Today, we are crossing a new frontier with the same pioneeristic spirits that has distinguished us as in the last 187 years. And this is far from being meritoric, as you -- we will have clear evidence after you have the chance to examine the plan in this scenario that Paolo and Gianfranco are about to present you. After all, there cannot be room for rhetoric in a company like Italgas, which since its foundation has always prioritized action over words, results over announcement and true developments over baseless ambitions. The spirits of service is in our DNA, driving our contribution to the development of communities. A commitment, we began demonstrating a full quarter of century in advance Italy's unification. Our true strength is the capability of a constant evolution, continually reinventing ourselves while remaining true to our core values. Before turning to the important updates then Paolo and Gianfranco that I pray to come on the stage will share in the 2024-2030 strategic plan. Let me once again express my pride in being part of this Italian excellence, which has now been recognized as an international benchmark. A company I have had the honor of calling ours for several years and which will soon showcase in a video that highlights the group evolution into a one-of-a-kind network tech company on the global stage. Thank you all. [Presentation]

Good morning. To those connected from far away, good afternoon for those in Europe. And thank you for joining us today. I'm joined here by Paolo Gallo, our CEO; Gianfranco Amoroso, CFO. They will run to the presentation today, as you all have seen, and it was introduced by our President today. And the second question as usual has got the usual formalities, so compliance slide. Please read it. And I'll now leave the floor to our CEO, Mr. Paolo Gallo.

Welcome to everybody. Good afternoon and morning for the connection from U.S. It's truly a pleasure to be here. As you have seen, we have organized this meeting at the last moment. We could not disclose before to anyone what we are going to tell you today before. And it is an historical milestone for us for the Italgas history because, as you know and it's going to be the first subject of the presentation, 2i Rete Gas, their shareholders has accepted our offer of acquiring 2i Rete Gas. With that move, we are going to create the European champion in the gas distribution industry. And even more important, we are going to create an incredible value for our shareholder, but also for all stakeholders that belongs to the gas industry. It is evident that with the 2i Rete Gas, we will further consolidate the Italian gas distribution market. We will show you in a moment, synergies that are coming from that combination. But we will also talk about digitization as we have talked already for many years, but even more important about artificial intelligence and the application that starting from today, we can apply to our system. The plan that we are going to present today is not 1 plus 1 plan, but it's a fully integrated one. During the summer, in parallel with the due diligence that we've carried out on 2i Rete Gas, we started to develop the fully integrated plan. And the results are the one that we are going to present today. Let me move to the acquisition, and then let me disclose something that has been already in our press release this morning. But I will give you more flavor to some of the data regarding the acquisition. The total equity value has been set to EUR 2.06 billion. And if we add the net financial position, the enterprise value is EUR 5.3 billion. If we forecast the 2025 as the closing date, the premium of the RAB is going to be around 4%. That is clearly below Italgas' current market evaluation and recent M&A transaction. And in fact, we expect to close the deal in the first semester of 2025, pending the antitrust and the Golden Power and the customer approvals. If you look about the financing of the deal, we have already secured the short-term cash need. You know that we have already signed a EUR 2.2 billion of bridge financing already committed and syndicated by a pool of banks. This amount will be refinanced through a market transaction similar and EUR 1 billion of rights issue, for which -- also for which a standby underwriting agreement has been already signed for the full amount. The capital increase is a clear objective. We want to keep on maintaining the same credit rating. And that -- the EUR 1 billion increase will let us keeping the same credit rating. Regarding another aspect, an important aspect for our shareholders about this transaction, if we compare the result of this plan with the previous one, the EPS accretion starts already in 2026, and it will go up to 15%, 1-5, up in 2029. So we have compared the result of last year plan with the result of this year plan. How we are going to reach this level that is extraordinary is because we are going to have synergies amounting EUR 200 million in 2030. That includes savings, include operational efficiency, and include the implementation of artificial intelligence in the combined group. On top of these, there are another EUR 80 million that are additional revenues from the increased investment that we have identified in order to bring 2i Rete Gas at the same level of digitization that we have in Italgas. The Board of Directors has approved not only the plan, but has also approved a new dividend policy that confirms the 65% payout ratio but increased the floor from 4% to 5% and moving the reference from 2022 dividend paid to 2023 dividend paid. Before getting -- before going on, let me just remind you some numbers of 2i Rete Gas. On the left side, you see the recorded numbers. And on the right side, you see the shareholder structure. 2i Rete Gas recorded more than EUR 0.5 billion of EBITDA in 2023. They are operating a network that in terms of length is very similar to the Italgas one, different from a number of users. After -- at the closing, we will acquire 100% of the company. Let me spend a few words, probably more than a few words, about the pillar and the rationale for this transaction. The acquisition of 2i Rete Gas is a truly transformational deal, not only for Italgas itself, but for the entire industry because with that, we are going to create the European champion in the gas distribution. On top of the fact that we are already as Italgas, the European champion in terms of innovation, digital transformation, industrial expertise. Combining the two organizations, we are building a result that is not only the sum of the part, is much greater than the sum of the parts. And for this reason, we are extremely confident about creating value for our shareholders and for the stakeholders of the industry. With that, we feel that is an occasion, incredible occasion to accelerate investment in the gas distribution, but even more important, to bring the same level of innovation throughout the entire Italian network. The second element that is also important is that we are creating a player across Europe that can face the big challenges in terms of energy transition that the European Union has set -- setting objectives that are extremely ambitious. We strongly believe that a fully digitized smart and flexible network is the only way in order that we can achieve those goals. And finally, the combination of the two groups will create incredible opportunity in terms of value creation, in terms of innovation, in terms of synergies, benefiting our shareholder first and old stakeholder in the -- in our industry. Let me go a little bit more in detail, point by point. First one, we are creating the European champion. If you look at the number of redelivery point, we will become the first player in Europe. It is evident, but to me, it's even more evident the fact that we are the only player that can address the energy transition throughout Europe, thanks to the innovation, the expertise and the digital transformation that we have implemented in Italgas. If you recall the history of our industry, we have several times discussed with all of you about the fragmentation of the market. Still, it's an industry that is composed of more than around 200 operators. And to me, this fragmentation is a clear obstacle. For example, for the level and the quality of the investment being different from one operator to the other. Now with that acquisition, there is a clear opportunity to step up investment, bringing all the network at the same level, if we talk about asset digitization and the use of the network for green gases dispatching. On the right side, I try to list the activities in terms of M&As that either ourself and 2i Rete Gas have tried since 2012 when the new framework -- new legislative framework has been put in place in order to consolidate the market. Because I would like to remind you that in 12 years, only 9 tenders have been awarded. So either ourselves, 2i Rete Gas and the other have tried to acquire the -- some other operator in order to consolidate. But I think this is the most and the foremost larger one. Let me now move into the second pillar, the famous energy trilemma. We have discussed this trilemma several times. And I think now the trilemma has become the true question for the future, not only energy transition, but also security of supply and even more important, cost of the energy. Why only recently? Because I think before, it was clear that the energy transition was addressed through an ideological position. And to me, the ideological position will never solve the trilemma, will never bring us even close to the net zero target set by the European Union. Only balanced solution, only an approach that is technologically neutral will help us to reach this target. Gas infrastructure and the fact that they can decarbonize the molecule as well as we should decarbonize the electrons -- gas infrastructure will play a significant role in the energy transition. But in order to do that, we need to have a big player across Europe, player that are able to leverage financing capability, engineering capability, construction capability, industrial expertise, let me say, more in general. If we move to the last rationale, that is our shareholders and our stakeholders. I have to address the point of the value creation. Our history, Italgas' history in the last 7 years, we have proven to the market our ability to reduce cost. If we take a look at the 2016, that has been the last year in which Italgas was part of the Snam Group. We have been able to reduce the OpEx by 40% in 7 years. That corresponds to around 15% 2016 EBITDA. I think we are in front of another wave similar to what we have faced during the last 7 years. It is evident that the combination of the group will unlock significant synergies. Let me say, the traditional one, cost saving, procurement, streamlining of cost and processes, sharing of best practice. But even more important, digitization and artificial intelligence will make the difference, will create the majority of our synergies. These two elements will sum for the EUR 200 million that I mentioned before. That is equal to 12% of EBITDA in 2023 of the two combined entities. So very similar to what we were able to achieve in the previous wave from 2016 until now. But there is more than that. There is not only this EUR 200 million. There is another one. That is the fact that the level of digitization of 2i Rete Gas' network is not at the same level that we are. Why? Because we have been the unique DSO that has implemented in so extensive way, the digital transformation. There is no one else. Nor in Europe. Nor in U.S., nor in other parts of the world. If you take a look at the numbers, you will understand that 2i Rete Gas has a similar network length of the Italgas, but many more equipment throughout the network. The reason is very simple. It's very clear also. They are operating in areas that are less populated than the ones of Italgas. We have an incredible opportunity to create the largest and the most advanced network in gas distribution in Europe, overcoming the current technological difference created by the fragmentation of the market. And as you can see, we have identified clear step in how to proceed to achieve this goal. Digitization of the network is the first step, integration of the 2i Rete Gas network into our platform, DANA, as well as other best practice that will be shared. And it will be a process very similar to the one that we have already adopted for Greece. It will be larger. But from the other end, it will be even easier because it's going to be in Italy. All these initiatives will create an additional CapEx requirement of EUR 800 million. And this CapEx recurrent will generate the famous EUR 80 million additional revenues in 2030. So if you sum up the two numbers, the increased EBITDA, the synergies, the efficiency driven by this acquisition will sum up in 2030 to EUR 80 million. If we look at some other numbers and if you put together this number with the number of the acquisition and the price that we have agreed to pay, you can understand why we forecast an EPS accretion in respect to the planned 2023-2029, that is going to be positive already in 2026, so the first year after the closing, and will go up to 15%, 1-5, by 2029. To finish this presentation about the acquisition, let me talk about the time line. As we speak, our team is already completing the filing to be submitted to the government and to the antitrust for their approval. As well as we are working to prepare ourselves for the necessary step for the Extraordinary General Assembly for the capital increase. We expect that the closing will take place in the second quarter of 2025. And in the first semester of 2025, also the capital increase with a right issue -- right issue will be completed by the end of the first semester of 2025. Now let's move to the plan. Let's move to some numbers. Detailed numbers will be presented by Gianfranco later. But before going on, let me spend a few words about the scenario in which we are living. The, let me say, sum of the -- let me share with you some of the evaluation that we are incorporated in our plan. First of all, let's go back to the decarbonization and the energy transition targets. In respect of years ago, now the cost of energy is not anymore an economic issue. It has become a social issue. The fact that with the invasion of Ukraine by Russia, many incentives have been given to the final customer like each of us, each single of us. That means that the cost of the energy is spread not only on the industry, but also on each single citizen. On the other hand, the targets set by the European Union by 2050, becoming the first carbon-neutral continent are extremely ambitious. And I think we can achieve those targets as long as we are pragmatic. Millions of households and businesses are feeling the impact of the energy cost day after day. And now the cost of paying the bills of energy, whatever it electricity or gas has become a growing important. And this is not only because of the season because, of course, during the winter, the bill is going to be higher, but it's because there are multiple factors that are creating such a situation, geopolitical situation. We know what is happening around the world, supply chain constraint, volatile global energy market, speculation around the energy market. Those are all factors that are creating that the cost of energy is becoming more and more important. Green gas development and energy efficiency can play a significant role as part of the solution to solve the famous trilemma, achieving a sustainable and secure energy, at the same time, achieving an energy that is going to be fully decarbonized. Leveraging all the infrastructure that we have, we don't need to build new infrastructure. We need to use the infrastructure that we have, we need to upgrade them. That's the way to keep the cost down. If we look at our national energy plan that has been just released, I think this new national energy plan consider all of that. Consider the fact that gas infrastructure today, they provide just natural gas for sulfur, they should provide new gases in the future. And we are talking about biomethane. We are talking about hydrogen. We are talking about synthetic natural gas. Biomethane that is considered zero CO2 or eventually negative is coupled with carbon capture and sequestration. So the waste treatment as -- in the same time, they produce fertilizer as a byproduct for the agriculture as well as CO2 for the food industry. So it's a true circular economy. So we may ask ourselves why we have not invested into that industry. I think that looking at the past will not help us to do that. We should look at the future. And I think we -- now, there are many conditions positive that will help us to develop this incredible opportunity. Hydrogen is the -- is, of course, the other big resources. We know the hydrogen is not energy, but it's a vector of energy. So we need to consider that. But let me speak a little bit more about biomethane. The EBA, EBA is the European Association for Biomethane, envisage that Italy will be the fastest-growing market for biomethane production. And in fact, our national energy plan foreseeing that by 2026, so in a couple of years' time, biomethane will pass the -- will arrive to the 2.3 billion cubic meter that is nearly 5x the current production. Why 2026? Remember that 2026 is the end of the national resilience and recovery plan and there is a huge amount of money that is allocated to the biomethane production. We want to play a role. And how we are going to play a role? We are going to play a role because we will support new connection and how making our network fully digitized, fully smart and fully flexible. On the hydrogen side, we know that the hydrogen cost as a vector is still not competitive. But we need a lot of research and development. And in fact, the amount of projects throughout the entire world is enormous. We are talking about nearly $600 billion just allocated to development of new projects. Europe is play a significant part because 30% of this amount is allocated to projects that are located in Europe. I'm extremely confident that the technology and the innovation will drive down the cost of the hydrogen. Hydrogen will become the vector of the future in terms of energy storage or energy vector, as I said before. But that is an area where we need to invest. And in the same time, we, as a gas DSO, we should prepare ourselves also to accept blending of the -- of the natural gas or biomethane with hydrogen. Let's just finish this first part with our strategy. Similar -- it's very similar to the strategy that we presented in the previous year, with a big difference that our perimeter is much bigger than last year. So on the gas distribution in Italy, we aim to complete the digitization of the network. Our network, the Italgas one, will be 90% digitized by the end of this year. And of course, we will start immediately as soon as the closing is reached with 2i Rete Gas to expand the digitalization also on their network. It will not take so many years as we did in Italgas. The reason is that we learn from our mistake and from our experience and similar to what we are doing in Greece, we will do much faster in upgrading their network. In Greece, we will continue in expanding and digitize the network. Water is another big challenge that we are facing right now. And we think that our tech competence will help significantly reduce the loss of the water. Last but not least, the ESCo business. Energy efficiency is fundamental to reach the energy transition goal. Even though we listen very -- I mean, there is not much discussion about the energy efficiency, honestly. But it's -- you don't have to decarbonize an energy if you don't consume the energy. That is the point. So you solve the problem right at the beginning. And we feel that energy efficiency is an important part of our plan. And finally, I would like to introduce a new chapter, that is the artificial intelligence. And I will tell you more about the artificial intelligence applied to our company. I don't want to spend a lot explaining the artificial intelligence, but I will touch some of the key elements of the artificial intelligence. First of all, it's a game changer. For us, it's a clear game changer because we'll unlock opportunities in terms of operational efficiency, in terms of profitability across all the areas of businesses. It will help us to reduce cost. It will help us in a way that we have never experienced in the past years. It's not only a technological upgrade, the artificial intelligence. It is going to redefine the way that we operate, we compete, we manage the network, we grow. It can be an automation of our processes. It can improve our decision-making. It can enhance our supply chain management. At the end of the day, artificial intelligence will eliminate inefficiency, will improve our quality. The service quality of our activity will ultimately improve the profitability and the quality of our operations. I don't believe and I don't have the fear that has been said several times that artificial intelligence will eliminate jobs. I think we'll change the job. The reality is that the artificial intelligence can increase human capability and can move the people from the low-value task to the high-value task. We don't have to forget in the moment in which we embrace artificial intelligence that we need to be responsible. And the responsibility is not only the formal compliance. I don't really care about the formality. I more care about the content of the compliance itself. We need to build a system that is fair, transparent and secure. We need to have a system where trust is the foundation of our success. We need to be sure that the data that we collected are protected against any potential cyber threat. On the other side, artificial intelligence will change the way that the IT system will work. As well as we change 8 years ago when we -- 7 years ago, when we moved our IT infrastructure from the traditional one into cloud. Why we can talk today about artificial intelligence in this plan, there is a very simple reason: because we have created in Italgas, a unique platform where billions of data have been collected, stored and are ready to be used. Where all the processes -- most of the process, maybe not all, but most of the processes have been digitized. And we can -- we can adopt artificial intelligence because our company has been transforming to a digital one. Otherwise, you can talk and talk about artificial intelligence, but talks remain talks, and you don't do any facts. So that is the big difference that we have in respect of other companies. And let me just picture the two waves that we have. One has been already passed. The other one is going to be the next strategic plan. Thanks to implementation to the innovative solution -- I'm talking about the first wave -- we have fully optimized our network. We have our proprietary software that is called DANA that has been adopted. We have moved, I mentioned before, all our IT infrastructure into cloud. We have our IoT system. We have our data lake solution. And we have been able to achieve an incredible saving in terms of OpEx. Now we are moving into a second wave. And the second wave -- I'm sure we will find other skeptical person. Maybe not here, but maybe we will talk to them in the coming days. Because they will say that the amount that we have identified in terms of additional savings and improve the quality of the service may not be realistic. In front of them, I will tell we have demonstrated when everybody were skeptical about the digital transformation, that the digital transformation has been the driver in the last 7 years in order to achieve the result that we were able to achieve. So I'm sure we will convince them with the facts. And we have already started working on artificial intelligence. We have identified more than 100 potential application course all the company. Some of those have been already partially tested and implemented. Smart maintenance, still at a very preliminary phase. Or let me say, application to identify potential critical portion of the network that need to be replaced. Or artificial intelligence able to remotely control on construction activities. But still, we are very -- at a very preliminary -- initial, very preliminary part of the artificial intelligence. But think about -- I will give you some idea about generative AI that can be applied to the projects -- to the project. For example, Picarro, we can think about that in a few years from now, we will have self-driving vehicles that will go during the night to look for a leak research. Self-driving vehicle, if you go to San Francisco, you will see already going through the city. So we don't have, as of today, a regulatory framework to use them, but it's not going to be so difficult to apply them, especially if you run the cars during the night, as we are obliged to do it in order to find leakage research. Things about customer support. For example, automated metering and billing application in order to provide on real time dots. This is a very -- two example of many more that we have already identify that are not futuristic concept. Some of them will be implemented very soon. Some other may need some regulatory changes that will arrive. In any event, the point is that we have already started work on artificial intelligence and generative AI. Let's start having some numbers. And then I'm really close to the final point, I will pass the floor to Gianfranco. First of all, gas distribution. Gas distribution was, is and will be still at our -- it will be our core business. As you can see, we have more than doubled the investment in the gas distribution, of course, thanks to including the acquisition of 2i Rete Gas and including the investment requested by 2i Rete Gas. What I would like to point it out is that digitization, nearly EUR 3 billion is a huge number and includes what I told you, the need to upgrade the network of 2i Rete Gas at our standard. The core still will be the extension, the upgrade, the repurposing of the network, nearly EUR 10 billion. Let me underline another element that there is still a tender amount, net of disposal. But apart the absolute number, if you look about the percentage of the overall investment has been significantly decreased in respect of the previous plan. And then it's a way to derisk our investment CapEx. Again, I'm talking a little bit about in order to explain more about this CapEx, about the integration between Italgas network and 2i Rete Gas network. And we have looked at this network following a bottom-up approach, a very pragmatic approach. Assuming that the 2i Rete Gas network will converge over a few years' period to our level. Of course, digitization is the top -- is the core of the plan. As I told you -- as I said before, we will work on the hardware as well on the software. So we will bring soon the network of 2i Rete Gas into our DANA system. We will apply -- the implementation of artificial intelligence will be also carried out on the network of 2i Rete Gas. We will expand the use of Picarro. They have just started to use Picarro. I think they had a plan last year to cover 10,000 kilometers. This year, Italgas will do nearly 150. So more than 100,000 kilometers to survey our network. So you see which is the gap and the increase that we can apply. Of course, all this intervention will be beneficial in terms of efficiency, in terms of reducing the level of the emission. We will continue on our network extension regarding Sardinia, regarding the item that we won recently. Our goal is to digitize the network as well to be ready to accept all kind of gases that will come to the markets. And for this integration, IT will play a significant role, starting from the adoption of cloud by 2i Rete Gas. A few examples of what can be shared between Italgas and 2i Rete Gas. The Nimbus smart meters what we call ever, that is these smart ever seen is ready, has been -- has gone through the testing throughout 2024. We will finish the testing by year-end, and we will start the deployment in 2025. In our plan, we will install by the end of the plan, more than 6 million, in terms of numbers, of Nimbus. We replace either the GPRS that is going to be discontinued by the telco and the faulty smart meters. Nimbus works perfectly also with the 2i Rete Gas network. So also, 2i Rete Gas will enjoy these new meters. The other example is DANA. DANA, after several development of the platform, DANA has been completed. Now we are thinking about a new wave of what we call DANA 2.0, that is the application of artificial intelligence to our system. Imagine a generative AI that can manage remotely intervention, call the field operator to be dispatched in the field and close the intervention, all done by artificial intelligence. That is the future, but it's not very far in the time in this future. So that is the second -- the evolution of DANA into DANA 2.0. The effort on biomethane will continue because it's already a solution. So what we are doing from our side, we are making and we are testing our network to be flexible so to be able to invert the direction of the flow. So eventually in the area where there is more injection of volume in terms of biomethane that the local consumption, we should be ready to move this biomethane back eventually to the transportation system. As well as we are working to reduce the cost of connection, waiting for the regulator to change the rule, similar to what happened everywhere else in Europe, where the majority of the costs are sustained by the system and only a portion is sustained by the operator. As well, we are developing partnership in order to acquire expertise, and we are eventually ready to invest in a minority participation if it helps in order to develop new projects in Italy. On the gas distribution, last slide is on the tender. We have reviewed the gas tender schedule. As you can imagine, considering that 9 of the tenders only have been awarded in 12 years. The commitment for us is to continue to consolidate the sector. We have allocated EUR 1.1 billion investment net of disposal. And according to the calendar that we think it is realistic. That is what we said every single year, but there's never been so realistic in the past years. Let me talk about the other -- Greece, water and ESCo very briefly. Starting from Greece. We acquired Greece in 2022. We merged the three DSO into one, into Enaon. And we are working very hard to, in terms of emission and in particular, to replace some pollutant sources like lignite or fuel oil with some clean fuel that can then sooner can be also fully decarbonized. We have submitted to the regulator a proposal to unify the tariff across the country because we feel that is efficient, fair and equitable for all the Greek citizen. We are continuously working in order to align the standard of Enaon to our standard. And we are very happy about the first result that we have already achieved, but that is not the end of the story. We will continue to share best practice expertise and knowledge with our Greek colleague that I'm sure they are online right now. And they will also benefit from the artificial intelligence implementations. So the artificial intelligence implementation will be across the group, so including Greece. Few numbers of Greece. Reviewed investment up to EUR 1 billion. That is EUR 100 million more than last year plan. If you see, the total CapEx is fairly divided in 1/3, 1/3, that is new monetizations, smart meters, digitization and extension and development. it's important because digitization is another big important element of the CapEx plan for Greece. Also in Greece, we will apply the Nimbus soon, starting from next year. The target is to reach nearly 1 million redelivery points, so 1 million customers by the end of the plan. And a network that will be in the range of 11,000 kilometers. Now let's move to water. Our focus of water is stronger than ever. And the business is gaining momentum. It's gaining also some publicity, although not very nice publicity on the newspaper about the lack of water, especially in Sicily. I will talk about in a moment. We are one of the largest player in the sector. We serve 10% of the Italian population directly or indirectly. It is clear, and this is evident that water sector require a level of investment that has never experienced before. But even more important, the quality of investment is not only the level of the amount, but the quality of the investment. I think Italgas can provide a quality of investment that has never been provided before. And in fact, we are thinking about applying a DANA, what we call DANA for water. So similar system that we have developed for the gas to be applied also for the water sector. Our focus today is on two main areas: the use of the national resilience and recovery funds, that has to be completed by 2026, and the digitization of the network. EUR 450 million has been allocated as the CapEx, with the major aim to reduce by 60%, the loss of water. Let me explain in -- the loss of water for us is the main point. I mean, we cannot deal with area where we lost 70%, 60%. I mean, that's insane, especially if our loss in the gas is 0.1%. So the target has been set for all the companies. And it will be achieved through two main activities. Digitalization of the water, so understanding the real data. Because in some of the loss, there is also some other elements like the fact that somebody is stealing the water. So it's not only loss of the water. So putting a digitization network in place means that we are able to -- we will be able to identify where leakages are going on. So also, Acqua Campania, that is a very limited amount of loss should reduce by 40%, that loss. NEPTA, that is the Caserta one that is now in the range of 60%, should reduce the water leakage to by 50%. So the target is to arrive at 30% as a water leakage. I said that there will be 2 levels of implementation in order to achieve those targets. One is digitization. The other one is the replacement of the pipes using, at least in the next couple of years, the national resilience and recovery funds. Siciliaque, same, 65% is the target. Acqualatina, 60%. Acqualatina is about 70%, 7-0. The loss of water, we want to bring that to 30%. So if you make the math, 60% applies to 70% will bring to 30% reduction. So that is the focus that we have. And regarding the Sicily, we are fully aware of the dramatic situation that Sicily are easing, and we are working in and with the local authority to face this situation, not only for now, for the -- for this period, for these months, but even more important, for the long term. What we expect in terms of numbers -- I'm sorry, I didn't turn the pages. What we expect in terms of numbers about the water we expect if we -- so you have -- first of all, let me say that you have seen that we have treated the four companies, even the last 2, Siciliaque and Acqualatina are not fully consolidated by us in the same way. We are industrial partner, and we want to put our hands in the management of the company. We want to help the company to improve. So we are not financial partner. That's the reason why I have talked as Acqualatina or Siciliaque as well as Acqua Campania or NEPTA. So if we consider them fully consolidated, the RAB of this company will pass the EUR 300 million by the end of the plan. Revenues will be over EUR 200 million. EBITDA contribution will be higher than EUR 90 million in the same period. But remember, with the target, as I said before, to bring in the water distribution. So I'm talking about NEPTA. And Acqualatina, the losses of water down to 30%. That is a significant effort. Last but not least, and I'm going to end this long presentation is the energy efficiency. As I said before, energy efficiency is fundamental in order to reach the energy transition goal. And our goal that we announced last year, that our ESCo will become a Tier 1 player in the energy efficiency is still confirmed. Of course, you will not see in 2024, the numbers that we have shown you in 2022 and 2023. The Superbonus has gone away. But I think we have -- we are big enough, we are a big shoulder that we can sustain our energy efficiency company to face the situation and be able to build a sustainable and strong future. Our idea is that we will offer to our customer, a solution that are, of course, digital based on artificial intelligence with the aim to reduce energy consumption, generally speaking, so gas and electricity. Targets are -- sector targets are residential, industrial segments as well as public administration if there are any nice tender to participate. We have allocated EUR 300 million for organic growth and for small acquisition. By -- during the plan, we will go back to 2023 results, so the results that at the time incorporated a Superbonus. To present our ESCo, I wanted to present the result that our ESCo has helped Italgas Group to achieve in 2 years, only 2 years. We reduced by 15% the gas consumption in our industrial operations. We reduced by 33% the electric consumption in our buildings. And even more important, we reduced by 55% the gas consumption into our buildings that I think are the results that we achieved, thanks to our ESCo. And I think this is the result that our ESCo should present to the potential customer, saying, we are not just talking about blah, blah, blah, but we are demonstrating with facts what we are able to deploy and to support our customer. I forgot that now I have to talk a little bit about our sustainability because they're also extremely important. We talk about energy efficiency, but it's part of the sustainability part of our plan. The first one is dedicated to the people. If we were able to achieve the result that you have seen up to now, including the acquisition of 2i Rete Gas, we need to thank every single person that is working with Italgas. That's the reason why the focus of our ESG targets is the people first. Training is fundamental, and I think it's not enough. I think our colleague, Peter Durant has set a target that is not very ambitious, but we will do better than that. Because I think that the training should be fundamental, especially in a scenario that is changing so fast. Imagine about artificial intelligence. We need to support our people to follow the evolution. Same as women and responsibility. We want to see more women in responsibility role. So 33% is a decent target. We will do better than that. There's no doubt. And reducing the pay gap is a social responsibility. If the people -- if two person are doing the same job, they should be paid the same. There is no doubt about that. Gender cannot be the difference. Very quickly, CO2 and energy efficiency. Energy efficiency, we have already included the 2i Rete Gas energy efficiency. We have estimated what was their baseline in 2020, and we have decided to set the same challenge that we have put on us, 33% reduction. Similar to the Scope 1 and 2 emissions, 42% reduction. Of course, the basis is larger than before, net zero by 2050. So what we have said, we don't know exactly which are the consumption and the emission of the 2i Rete Gas network, but we feel that they were similar to us in 2020. So if we are able to achieve as Italgas, minus 33%, minus 42% by 2030, it will be the same for 2i Rete Gas. Artificial intelligence solution, Picarro, will help us to achieve those numbers. And finally, Scope 3. Scope 3 has been the most challenging one because it involves our supplier. And the target that we have set for us and for 2i Rete Gas is the same. And we will achieve that by involving our supplier through contractual requirement. So we will ask them to achieve certain ESG level. But even more important, contractually is one lever, but it's not enough. Even more important, we will ask them to analyze, collect data similar to what we do because that's the only way in which we can measure the CO2 emitted by our supplier. And we will extend that also to the 2i Rete Gas suppliers. Some of them are coming, some other are not. I'm now handing the floor to Gianfranco. There's been a long presentation for the financial part. Thank you, Gianfranco.

Thank you, Paolo. So let me start the financial section of this strategic plan. I think could be a good idea with a recap of the full CapEx plan, including all the other business, not only the gas distribution. Commenting the bold number, it is quite clear that the CapEx is almost doubled because we had in the past plan, EUR 8.1 billion, and now we are approaching EUR 16 billion. Of this EUR 15.6 billion, the main portion is the gas distribution, which remains at the core of the strategy with EUR 2.8 billion of CapEx, including the acquisition of 2i Rete Gas. In order to make the comparison more affordable, if you deduct from this EUR 12.8 billion, the EUR 5.3 billion of the asset acquired, you arrive to a number around EUR 9.2 billion, which means EUR 2.6 billion of more CapEx in the gas distribution versus the old plan. Of course, this is the result of the development jointly projected between Italgas and 2i Rete Gas. Because the plan, as Paolo explained, has been conceived as a let's say, a combined entity business plan. And also, the CapEx follow this role. A few comments on the tender and on the other business tender. I think Paolo already mentioned it, but it's worth to recall. As a lower impact on the total, the percentage is now down to 7%. I mean this give to the whole plan more visibility about the future development of the RAB also. The other business, you will see there is EUR 0.8 billion of what we call other initiatives, so water and ESCo. 2/3 of this amount is water, mainly focus on the existing perimeter. So for this plan, no significant M&A is envisaged. And this also gives more visibility to the development of the water sector. The remaining EUR 350 million or so is for the ESCo, the energy efficiency company. In this case, we have more or less 2/3 of this amount for M&A activity because the development is also inorganic of this business. So the result of this is that also the RAB, our RAB is doubled by 2030. You see that we start from EUR 9.7 billion at the end of 2023, and we reached EUR 18.2 billion without considering the tender, plus, let's say, EUR 1 billion for net tender, you reach EUR 19.2 billion. This gives us a grow rate compounded average of 10.2%, considering the tender and 9.4% without considering the tender. Of course, in this growth, there is also the contribution of 2i Rete Gas. And you can consider in order to understand the composition of this growth, the starting point of EUR 4.9 billion, that is the RAB of 2i Rete Gas at the end of 2023. Same trend, I would say, also in the redelivery point, we have a grow rate compounded average of 9.7% across the plan. Considering the tender that has limited the contribution, as explained before, 8% without considering the tender. Also in this case, you can see in the graph on the right of the slide, the contribution given by 2i Rete Gas. If we move to the P&L. So here, we have a growth on the left side of the slide, the growth of the EBITDA across the plan. The growth rate is about 13% across the plan, including the growth of 2i Rete Gas -- the contribution, of course, of 2i Rete Gas. We start from the level of EUR 1.2 billion, let's say, Italgas standalone 2023. And then we have the contribution of the growth, Italgas and 2i Rete Gas, the synergies and efficiency that Paolo already commented, more than EUR 200 million. Both in terms of cost, in terms of revenue. So we are approaching the EUR 220 million. And then you have the contribution of the tender. Interesting to see the evolution and the composition of the synergies and efficiencies that we have in this slide on the graph on the right side of the slide. In order to better understand the evolution of the synergies, you have to consider the starting point as a combination of the two cost bases of the two companies. So you will have the first bar and the second are the starting point of the two companies. Then you have to add the synergy efficiency contribution made by artificial intelligence. And then a limited contribution of the tender. The area, as Paolo already explained, and the drivers of this significant amount of efficiencies and synergies are, let's say, leveraging of the cost -- acting on the cost basis, on a combined cost basis of the two companies. Basically the digitization, design to cost, smart maintenance and of course, the contribution of the AI transformation to the cost basis. All this translates into a double-digit EPS growth. Considering, of course, the capital increase of EUR 1 billion. Let me say that the EBITDA that I commented in the slide before and all the action to reduce and optimize the operational cost drive to a 13% average compound growth of the net income up to the end of the plan in 2030. This is translated in terms of earnings per share. In a 10% growth rate through the plan, of course, average grow rate that you see in the left side of the slide. And then EPS accretion, as already commented by Paolo, that it will be accretive from year 1 after the deal. So let's assume 2026. And double digit at the end of the plan, around 15%. If we move to the following. We have also designed and recap the acquisition financing, the capital structure of the deal. As you can appreciate, the deal will be financed through debt, of course. We are consolidating the debt of the target company, and we have also to finance with new debt, the price of the acquisition. And the capital increase of EUR 1 billion. We think that this target capital structure is optimized in order to preserve the current rating of the group. And also to deliver a material deleverage of the group across the business plan and you can -- as you can appreciate on the graph on the right side of the slide, when you see the leverage ratio, net debt to RAB, that after the closing of the deal will recover to a very low level at the end of the plan, well below 64%. So this -- the combination of the capital structure in terms of equity and debt, of course, will deliver also a strong cash flow generation in the plan. And this will result in the following. And this will result also in the growth of the equity RAB per share. Let me comment briefly on the cash flow. We have made this chart on the left in order to make you understand that if we consider the first bar, which is the financial impact on the acquisition in terms of debt, so excluding the capital increase, which is a negative, of course. And then the cash flow generated from operations across the plan -- in aggregate on the plan, which cover all the CapEx, all the dividend. So basically, having absorbed the acquisition in terms of increasing of the debt, the net financial position could be considered as neutral. Then you have the last bar on the right, which are the tender M&A. So all the things that are not, let's say, 100% predictable or under our control. So what is under our control -- is fully, let's say, under control, meaning that the net debt will be more or less flat, having absorbed the acquisition. And this -- of course, this deleverage is a significant deleverage in the plan will also translate in a growth of the equity RAB. We consider the starting point of 2023. And you can see there the deleverage, you arrive to an equity value calculated for the gas distribution, increase of 1.8, 80% more. So let me just briefly comment on the maturities of the debt. We have put together the maturities of Italgas that you already know very well and also the maturity of the target company without considering the new debt that will be done in order to refinance the bridge loan. So the maturity profile is well spread along the different years. There is a majority -- a large majority of fixed rate coupon. The, let's say, the cost of the debt of the target -- or the bond of the target is comparable with our. Of course, there is a slight difference in terms of rating and in terms of cost, but we are talking about a few -- some basis points, not a huge amount. So the strategy will be to keep this bond up to maturity. Let me also add that there is not any event triggering acceleration. So the maturities, the bond can remain as they are now up to maturity. And then we will refinance the bond at maturity with new bond issued by the combined entity. In terms of cost of debt, you have seen that we have recently issued a bond at 3%. So this is a good reference for, let's say, the upper limit going forward. I'm pretty confident to go below that. There will be also in the plan, a large portion, a large majority of fixed rate, maybe an increased -- slightly increased portion of floating rate in the last year of the plan in order to benefit from, let's say, a normalized steepness of the curve of the interest rates. Going to the guideline, finally. For current year, we are projecting revenues of EUR 1.8 billion and adjusted EBITDA between EUR 1.32 billion and EUR 1.35 billion. EBITDA adjusted is projected at EUR 800 million. Technical CapEx, around EUR 900 million. And the net debt at the end of 2024 of EUR 6.6 billion, excluding IFRS 16. The leverage will end slightly better than we forecasted before summer, around 63%. If we put ourselves at the final year of the plan, including tenders, we are projecting revenues slightly above the EUR 3.6 billion, EBITDA approximately EUR 2.8 billion and EBIT of EUR 1.8 billion. The RAB will approach EUR 19.2 billion, and the leverage, as you can see, is improving and will end at 62%, as explained before. Last, but very important, the dividend policy that we have redesigned also taking into account this important transaction. The main driver of the dividend policy remain the 65% of the payout of the net income adjusted. That, in our opinion, is the best way to make our shareholders participate in the growth that we are delivering in the plan. What we have improved is the floor that is being -- has been brought to 5%. And the reference here, of course, now is 2023. So to recap, the highest of 65% payout on adjusted net income per share and the DPS 2023, EUR 0.352, 5% increase per annum as a floor. So let me now hand it over to Paolo for the final remarks of this presentation.

Thank you, Gianfranco. If I have to do the final remarks, I will probably stay on two points that are fundamental for this plan. The first one is, of course, the acquisition of 2i Rete Gas. I mean, we have already told you what does it mean for us, what does it mean for the country, what does it mean for Europe. So I don't want to go through again. The second point is the artificial intelligence. And the fact that it is based on a unique platform that we have developed. The combination of the two will create an incredible value an outstanding value for our shareholders. But will also create the opportunity for the future of the gas infrastructure in a sense that they will be able to be part of the solution of the trilemma. Security of supply will be guaranteed apart from the infrastructure because we will distribute gases that are locally produced. Think about biomethane and think about hydrogen from green energy production, is produced locally. So that will increase security of supply. The fact that we are leveraging AI, generative AI, digital solution will improve our efficiency. And you know that we'll reduced the cost at the end of the day for the final customers. So that's the other element of the trilemma. And then the more -- the carbonized molecule will be injected into our network, the more we will close to net energy transition. I think those are the main takeaways of this plan. If you want to be in a very short -- with a very short terms. And I think this is going to be crucial for Europe and for the other operator in the industry to follow us if we want really to achieve the targets that everybody aren't are in front of us. So thank you. Now I think Anna Maria will open the floor for questions. Thank you very much, everybody.

So thank you. Thank you for those in the room and those connected to the webcast and the conference call. If you want to register for the Q&A in the conference call, please press star 1. We will start from the people in the room. So if -- maybe, Javier. And then Francesco. If you can please say your company name as well.

Thank you, Maria. Javier Suarez, Mediobanca. Several questions on the transaction. The first one is on the synergies from the transaction. When you are talking about EUR 200 million of synergies, are you referring to just moving up to Italgas standard to 2i Rete Gas? Is that the source of the EUR 200 million? Or you are also including the utilization of artificial intelligence into both networks? The thing that I'm trying to capture, if the EUR 200 million may have significant upside just because of the utilization of artificial intelligence that you are mentioning during your presentation. Also, a related question is the synergies are likely to be significant. Have you make an assumption on the regulatory flowback for these efficiencies during the business plan land? Then second question on the financing for the operation. So on the financial of the operation, in the numbers that you are showing in Slide 50, are you making an assumption on possible asset disposal? Is that embedded in your number? Or this is including the whole of 2i Rete Gas? Would you consider the utilization of hybrid financing [ Apio ], which is the cost -- that cost of high-risk financing is embedded into the cost that you are guiding to, that 3%? And also, I'm interested to know which is your assumption in term of date for consolidation of 2i Rete Gas is from the first of January 2026 or is second half of 2025? And the assumption that you are making on the remuneration for electric -- excuse me, gas distribution in Italy beyond 2025. Thank you.

Okay. Let me address the first. Should I respond or should I wait -- get more questions? I'll start responding. I will respond. Maybe I can or -- let me address the question raised by Javier. I said the synergies are coming from 2 mainstream. The first one is very traditional, streamline our organization, economy of scale, in the procurement. I mean, very, very traditional. But those are the minor ones. The majority will come from the application of the all-digital application that we have developed, digital improvement that we have developed in Italgas to 2i Rete Gas. And for that reason, you can take a look what we have been able to achieve in the last 7 years in respect to the starting point. So we have not adopted the number that is different from what we have already achieved in Italgas. On top of that, it is the new part is the artificial intelligence applied to both of them to a larger perimeter. You can easily understand that if you apply an artificial intelligence on processes that are relevant to one perimeter that is smaller, the results also are smaller. The more that you enlarge the perimeter and the more the results are higher. So EUR 200 million are -- it's even a little bit more than EUR 200 million. So we're under EUR 200 million. It's something that we feel achievable. It's going to be at the end of the plan. If you remember and if you look at what we were able to achieve throughout the years has been increasing year after year. Regarding the clawback, it's a value that we will give back to the system. You know how it works. It will take 6 years. We divide the 50% and then throughout. I'm not worried about that because we have demonstrated -- if you remember, in 2020, there was already a clawback to the system. 50%, immediately in 2020, reducing the OpEx recognition and the famous 3.53 that was corrected down because there was a mistake to 3-point something, every single year. We have been able to continue to reduce our cost. So I'm not worried about that. And I think that is the contribution that we can give to the system, giving them back some of our efficiency and producing other. So that is the same system. The point is that the amount is large because the perimeter that we are going to attack is larger than before. We have considered disposal. We cannot disclose this number. And we consider the disposal that may be requested by the antitrust, but we don't disclose this number. So that contain -- the plan contains a certain level of disposal. In the plan, we don't have consider emission of hybrid bonds. So the cost is, let me say, the cost of the traditional combination of bonds, the financing from the European Bay and other financing from banks. So it's a combination of that. We -- the consolidation of 2i Rete Gas will happen the day after the closing. So we expect the second quarter to open the closing. So we will start from that point of view. So we'll be -- 2025 will be just a portion of 2025, not full. We expect the -- for 2025, we expect to a WACC of 6.1%. That is what we expect based on the current calculation. You know that the observatory period has ended. So we can make the math, and we are at 6.1%.

Next question. We have Francesco Sala.

Francesco Sala, Banca Akros. I have a few questions. As regards to the deflator, you disclosed your assumption. I wonder whether your assumption includes the recent revision by ISTAT on deflators? And secondly, if it includes some, let's say, assumptions on the consultation document published by ARERA at the end of July? As regards to CapEx, I wonder whether you include some public grants. And if yes, what is the size of this CapEx public grants included in the numbers of the business plan? And as regards finally, deflator -- your assumption on CPI for the, let's say, at least the next few years.

So for -- as for the deflator, we have provided the average of EUR 1.8 billion. This is the result of value -- well, the value for 2023 revenue tariff for '24 is well known, it's EUR 5.3 billion. For the end of the year, we have a level value slightly negative. And then we have across the plan a value of EUR 2.2 billion straight going forward. About inflation, you asked. So revenue tariffs this year is EUR 9 billion. We have for 2025, a level of EUR 2.5 billion. And then 2% going forward.

The majority of the grants that we have included, but they are not -- they will not flow into the RAB or they are not remunerated are the grants that are given to the water companies coming from the national resilience and recovery fund. So you know that they are about EUR 150 million for Acqualatina and Siciliacque together. They are not counted into the RAB nor they are not remunerated. The majority is there.

And next question from Stefano Gamberini.

Stefano Gamberini from Equita SIM. I have 4, if I may. The first...

You are setting the standard now.

Okay. The first, regarding what are the implied tariffs in this plan. What I mean is, if I'm not wrong, I'm trying to figure out the trend of tariffs related to the growth of revenues that you have, excluding clearly, the Superbonus impact that we have in 2024. So I got a 6% growth of CAGR of tariffs, which means around 50% cumulative increase in tariffs. Am I wrong? Do you think this could be a risk or not? Also considering which is, n my view, significant. The second is what is your assumption regarding the trend of gas consumption? If I'm not wrong, moving forward, Terna and Snam national scenario forecast a decline in the region of 30%, 35% to 2024 of gas consumption. So end 2030, if I'm not in the region of 10%. In your plan, you expect a growth of redelivery points of the combined entity. What do you expect, we can say, in the long run, considering a scenario that could be we can say more on a declining of cash consumption and the risk that you see in this kind of scenario for clearly your investments and the returns? The third, if I may, still on the savings. Are this backloaded? Are front loaded? You include EUR 300 million of investment in artificial intelligence and on the other EUR 80 million of savings related to these investments, which is a return in the region of 25%, which is huge. Is that visible? And when could we expect the impact on your EBITDA, '26, '27?

Skeptical on artificial intelligence. We -- the first one.

Okay. And the last question regarding the dividend policy, considering this transformational plan that you have right now and such a significant growth of EBITDA, 13%; net profit, 13% as well; and EPS, 10%, why you just stop your dividend policy to 2026? Could we expect that this 65% payout is sustainable for the overall plan period until 2030?

Okay. No, no, no. Honestly, I have not understood your question, the first one. I tell you very...

I tried to figure out what is the tariff growth, Italian regulated tariff growth in the plan, which is, in my view...

Which tariff?

The distribution tariffs.

The distribution tariff are set by the -- you know very well, by the WACC, the depreciation and the OpEx. On the WACC, we have taken a view that is going to be 6.1 flat. On the depreciation, it's linked to the investment. On the OpEx, we have put, let's say, efficiency year after year that will be reduced the OpEx recognition. So why revenues are going up is because there is a combined entity. So it's the sum of the 2. And there is investments. The increase of redelivery point is not significant in the Italian territory. So I'm linking also to the gas demand. The increase of redelivery point is mainly driven by Greece. Greece is going to bring 300,000 new redelivery points. Honestly, if I have to say, I don't see an increase in tariff. I see an increase in the fact that the perimeter, the RAB, the basic RAB is significantly bigger than the existing one. So the point is that I told you, I mean, if you take 6.1 flat, if you do the depreciation of the investment and the initial RAB and if you make some assumption about efficiency that has to be given back to the system, you will get to the numbers of the revenues that we told you. Gas demand is -- as the money in 2024 is not down, at least for our customers. Always remember that we serve a different, let me say, in a different market than not the transportation. So we serve residential, we serve commercial. We serve small industry, very, very small. So 2024 is not down. As I told you, very limited growth in the number of redelivery points in Italy, significantly grow in Greece. And during my presentation, I told you in 2024, we have already seen a significant and even unexpected growth in demand of connection in Greece, not only in the new area where we bring the new gas distribution network, that is quite natural. But especially in the area of Athens and Thessaloníki that have already speciate -- Thessaloníki has already a significant high penetration. And -- well, on the saving -- on the saving, I mean, I know that you were skeptic about that I said it, so I cannot respond anything different. You were skeptical too when we were able to achieve all the reduction costs that we were able to achieve year after year. We demonstrated that we are able to achieve that. So once -- believe us and believe in our numbers. And I can tell you, the EUR 80 million, according to me, it's in the lower range of the number that we can achieve. We -- honestly, artificial intelligence is something that we don't know yet what is going to deploy, what is going to generate. We were very conservative, similar in the digital transformation, and we achieved much more than we have forecasted. I'm expecting the same stuff. So EUR 80 million is probably -- well, my people wanted to go to EUR 8 million. I want to put more than that, honestly. Okay, fine. I accepted the calculation, but it's going to be higher than that. I'm sure. I have no doubt about it. Once in your life, believe me.

More frontloaded or...

No, it's not even front loaded. It has the same profile that we have experienced from 2017 to 2023 in the previous experience, same profile. That is not frontloaded, that is probably backloaded. And again, we are going to make a mistake because artificial intelligence will be much faster than the digital transformation. The result will come faster. But we have used again another conservative approach. In our plan, we have a lot of the same dividend policy throughout the entire plan period. So the result that you see are contain the same dividend policy. To respect the Board of Directors, we limited the application to 2026.