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 2026 results. [Operator Instructions]. At this time, I would like to turn the conference over to Ms. Anna Maria Scaglia, Head of IR of Italgas. Please go ahead, madam.

Good afternoon, everyone. It's Anna Maria here. I'm here with our CEO, Paolo Gallo; and our CFO, Pierre La Tour, and they will run through the presentation today. As usual, there will be the Q&A at the end of the presentation. I leave now the floor to our CEO, Paolo Gallo.

Good afternoon, and it's great to be back here. just 1 month after we launched and we delivered the new strategic plan, 632. And I'm pleased to say that we are fully on track on what we are going to deliver in the coming years. Let me start with the major achievement we reached in our first semester 2026. First, we continue to deliver solid double-digit growth that is driven by organic growth, perimeter change to area gas enlargement and the benefit arising from the cost synergies linked to the integration of Diets -- as you can see, synergies, as you can see in the numbers, synergies, the efficiency continues to progress steadily and rapidly. We have already achieved 42% of the 2022 target. The 2022 target is the latest we announced in our strategic plan. So it's EUR 280 million. And honestly, it has been achieved in just 1 year since the integration of 2i Rete Gas since the acquisition of retest and 1 year since the integration of Direct gas rating. Regarding the tender. For the first time, we are going to give you a detail in number. So I'm not going to disclose anything. It will be in a couple of pages. But honestly, what we have announced in our strategic plan 1 month ago, is becoming more solid than even 1 month ago, but I will get into detail in a moment. And finally, we have received an outlook upgrade by Moody's that based on the strategic plan, opening for potential not outlook out rate but a potential upgrade in our rating. All of that is extremely positive. And I wanted to guide you into our numbers in details. Let me move to the summary of the results. as we anticipated, we have delivered double-digit growth in all the KPIs. But even more important, with a strong operating cash flow. -- we nearly reached EUR 1 billion of cash flow operation. Before starting, I think it's worth reminding that we teas acquisition was completed on April 1. And therefore, the comparison between the first half of '16 with the first half of 25 is not homogeneous because in 2016, we have the full 6 months while in the first half of '25, we had only the second quarter. Let me start from the top. Adjusted revenue were up 15% -- 17.5% versus the previous year. and this was driven by organic growth in the Italian gas distribution and the first time consolidation of Diretgas in the first quarter. Profitability grew even bigger by 25%. We passed EUR 1 billion is EUR 172 million. with an EBITDA margin that reached 81%. That is a clear evidence of the synergy and the efficiency that were delivered during the 6 months. As we move down -- adjusted net profit grew more than 27% as a result of the -- our financial management despite the impact of the temporary Europe tax increase. The other record that we achieved is relevant to the technical investment. We really reached EUR 800 million, 55% year-on-year basis. and that is driven mainly by the upgrade in digitization of the 2i Rete gas legacy network that is consistent with the allocation priority we outlined in our strategic plan. As I already anticipating, the operating cash flow is another record, EUR 930 million that cover all of our CapEx and part of the dividend, while the disposal by -- that you remember very well were compulsory by the antitrust contributed to further reducing our leverage. And in fact, the net financial debt is slightly lower than what we recorded at the end of 2025. If we move on and we'll take a look at the synergies. I think that it's an incredible progress that we have made. We are talking about only months after the integration of 2i rete gas and only 15 months since the closing, we have already achieved 42% of the overall target of the EUR 280 million that we just announced in June. That's an incredible pace. And it really gives us the real confidence about what is in front of us. Let me just go through very quickly about what we have already done and what we are doing right now and what we are going to do in the coming months and years. As of today, we have done a lot of working in in-sourcing of core activity, IT system consolidation, review and streamlining our territoried headquarter organization, and rationalization of our car fleet, offices and contract. On the new initiative ongoing, I think it's worth spending a few words on the incredible speed at which we are developing at scale our AI, in particular, Agentic AI models and application, implementing into our daily operation, both on the field, but as well as the back office. We're talking about field works scheduling, IT service, claims and contact center, network optimization. And then just the beginning. It's the beginning of an incredible journey and I'm sure you will be surprised by the incredible amount of value. We will be able to create and deliver through AI combined with our unique digitized infrastructure. The new trial that we are going to show, we are on Page 5, and this is the first time that we are going to show such a detailed chart is about the tender and the positive tender momentum continues. We discussed it during the strategic plan presentation and also through the one by one or the group meeting we had in the road show we made in Europe and U.S. And while during these meetings as well in strategic plan, there were some skepticism about the tenders to become real. Let me show our numbers that shows that we were right than the signal that we get from the field were consistent. As of today, you can see that in the period 2020, first half of 2026, 11 items have been awarded to Italgas. 2 have been awarded to a third party and an additional 2 have been awarded but other court appeal. So we are talking about 15 in since 2020. So limited number in a long period of time. If we are looking about the next 12 months, so the second half to '26 and the first half of '27, we have 90 tenders coming to the market. Two of them are waiting for a final awards, 3 are tenders be submitted for which we will see probably before the end of the year, the final award, but then we are going to see that the pipeline is growing. So we have another 8 items for which the offer should be submitted by end of 2026 and additional 6 for which we expect that the offers to be submitted in the first half of '27. So as you can see, it's a significant number. So we are not talking about op or about let me say, good faith. We're talking about facts. And in fact, if you look about the top part of the chart, when we are talking about the 2 items to be awarded, the 3 and the 8 for which we are talking about 13 items, we are talking about EUR 400 million of additional rub opportunity, additional [indiscernible] on top of the amount of assets that we already own in those after. Now let's move to the -- some more numbers and more details about financial performance. As we anticipated, revenues grew nearly 18%, 15.5% in respect of the first year. You can see which is the contribution of rete gas, but you can also see the contribution coming from as the organic growth of the regulated gas distribution. So the fact that we invested last year, now we are seeing the results. The negative part of the revenue is the 1 linked to the network and the redelivery point that we were obliged to dispose and the negative contribution is EUR 2.6 million. And finally, what we have already anticipated in the first quarter is the reduction in revenues in -- especially in the energy efficiency that you will see is also -- will be reflected also in reduction of cost. If we talk about cost, that is probably the most amazing chart of this presentation if we compare the cost of 2025, you can see that the effect of 2i rete gas, fact that there is a difference of quarter between '25 and '26 is EUR 91 million. At the same time in the first 6 months, we were able to save nearly the same amount, EUR 82.2 million. So we were able to make equal to 0 to 2i rete gas effect. And then there is another reduction of cost driven by the reduction of revenues that I have already talked about that is the energy efficiency. But let me just go back to the EUR 82 million that represented 22.8% cost reduction that is coming from the synergies for which I'm going to talk about in a moment. And I think that is really an outstanding result that we reached in the first 6 months of 2026. So if I translate this number into the margin, the 2026 EBITDA that passed the EUR 1 billion increased by 25% in respect of the last year with gas distribution, Italy and Greece contributed to the vast majority of these results. Gas distribution -- Italian gas distribution is the main growth engine, supported by the fact that we have consolidated in 4 to 6 months as -- and of course, the synergies are the other big boost in increase in the EBITDA. And let me underline the fact that the EBITDA margin reached 81% of the revenue. That is a number that we have never achieved in the history of Italgas. Now Pierre La Tour will give us more details about the other part of the financial results. Please, Pierre.

Thank you, Paolo. So on Page 8, we show the adjusted EBIT bridge -- as you can see, adjusted EBIT exceeded EUR 700 million, up almost 27%. And this increase was largely driven by the EBITDA increase. which was partially offset by higher D&A of EUR 67 million. Now the increase of D&A mainly stemmed from the consolidation of irete gas and the carryover effect of the investments that were carried out in the previous 12 months. If we move on to Page 11, here we have the adjusted net profit bridge. So adjusted net profit after minorities reached EUR 398.6 million, with an increase of 27.3% versus last year. This was mainly driven by 2i retegas acquisition contribution as well as by the solid operating performance. Now the higher EBIT contribution for EUR 147.5 million was partially offset by, firstly, an increase of adjusted net financial expenses that now include the cost of 2i rete gas consolidation -- consolidated debt for 6 months and the interest charges related to the full quarterly impact of the dual tranche bond issue that was carried out in March 2025 and as well as the bond that was issued back in April 26. Now this drives a higher cost of debt. So we currently have a cost of debt that stands at just below 2.1%, and this compares to the 1.95% that we had in the first half of 2025. Moving on a EUR 2 million higher contribution from equity investments. And finally, a higher adjusted taxes of EUR 38 million. Now this increase is due to a higher taxable income and a higher tax rate of 28.6%, which compares to 28% in the first half of '25. Now the increase in tax rate is mainly linked to the temporary ERP tax increase as well as lower incentives compared to 2025, which were partially offset by the recovery of prior year's foreign tax losses.

I'm taking back the call because I would like to to comment the other performance we made this month about the technical investment, nearly EUR 800 million invested in 6 months only. With an increase of 55% compared to the previous year, driven by, of course, the increased perimeter as 2i rete gas, but even more important, the up of the digitization upgrade of the network that we inherited from doing rate gas. And in fact, you can see that all all the area of investments are growing. We reach in development and repurposing activity EUR 142 million. But even more important, the digitization jump from a little bit more than 100 last year to EUR 171 million, up 61% and continue because that is the -- what we spend to support the transformation and the modernization of the 2i rete gas network. And then we have also another jump in the ICT real estate that explained the difference. During the period, I'm going back to the other in a moment, but during the period we laid 650 kilometers of new network, a 50% increase compared to last year and nearly 50% of that 40% of that has been done in Greece that continues to contribute to our results financially and technical. Let me spend a little bit more on the Italgas property that probably was not -- it is the first time that we mentioned. We have recently established a new company fully owned by Italgas the objective of this company is to manage it to unlock the full value of the group real estate portfolio. And probably you have never noticed but this portfolio, it includes more than EUR 0.5 million of square meters. And with an asset value that meets even more important than square meter that is passed this EUR 300 million, for which we are working to make it more efficient as well as making, creating value for the company. Historically, real estate is the kind of value that normally sit quite on the balance sheet. What we are doing with the creation of Italgas Property is bringing the value into the focus and trying to create value and to have a clear accountability in order that, first of all, we manage our real estate asset more efficient. And whatever we don't use, we are going to sell it and create value for the company. Before we go back to the financial performance. Let me talk a little bit about the ESG performance. As you know, we always see our ESG performance deeply correlated with the investment and with the action that we take every single day. Given the change in the perimeter that we have already commented for the financial result, we think that focusing on gas distribution like-for-like basis is more representative as soon as we were able to make a comparison between the 2i rete gas network with the new results that we are bringing, we will do it. The problem is that there is no comparison between the first quarter of last year with the first quarter of this year. So if we stay on a same perimeter, net energy consumption decreased by nearly 15% year-over-year -- this reduction reflects our effort to be more efficient and to introduce new processes as well as new equipment to reduce the use of natural gas for the breeding system as well the consumption of electricity. Similarly, Scope 1 and 2 emissions were also reduced by 6.6% and -- as you can see, the major number is coming from reduction in fugitive emission which statistify the effectiveness of use of in our search. We are doing the same on the 2irete gas network. And by year-end, we will show the results that we are able to achieve also on a new on a fully new network that was not tested before, if not partially with Picard.

Okay. Moving on to Page 14. We reported a record high cash flow from operations of EUR 930 million. This was driven by solid operating and financial performance as well as a favorable net working capital trend. The cash conversion of EBITDA in the first half was over 85%. Our net working capital contribution is positive at EUR 175 million and reflects the billing seasonality that we already observed in Q1. Operating cash flow allowed us to cover the net cash investments in the first 6 months amounting to EUR 734 million and part of the dividend payout. Finally, the cash in from mandatory Italian antitrust authority disposals completed during the first half, contributed to more than EUR 250 million positive cash inflow leading us to reduce our net financial position slightly by EUR 32 million as of 30th of June. So to conclude on this page, our CEO pointed out Slide 8 on operating costs as the most amazing slide in the presentation. Now I believe that this is the second most amazing slide. Why? Because we have been able in a nutshell to generate cash and this despite CapEx worth over EUR 700 million as well as the payment of dividends worth over EUR 400 million. Moving on to Page 15. Here, we show our debt structure. As a result of the cash flow trend that we just commented, we closed our first half with a net debt of EUR 10.7 billion, excluding IFRS 16 and IFRIC 12 or EUR 10.8 billion, including them. Our financial structure remains, as you can see, very solid. 81% of debt is at a fixed rate and the average cost of our gross debt is just under 2.1% with a strong liquidity buffer of more than EUR 1.2 billion. And this is thanks to the prefinancing initiatives executed during the first semester, which will allow us to cover all the upcoming maturities while keeping the needed financial flexibility. Among the key highlights of the first half of 2026, I think it's worth highlighting the decision by Moody's to upgrade our credit outlook to positive from neutral. Now according to the rating agency, and I quote the positive outlook reflects our expectation that Italgas will maintain sound operational performance and will continue to strengthen its financial profile over the coming years, potentially supporting a higher rating -- now this is an important external validation of the strengthening of our financial profile. And crucially, it reflects the credibility of the new strategic plan 2026, 2032 that we presented only a month ago.

Let me finish before opening the questions. Let me finish about a few comments about the consultation document that was published during the weekend by Arera on Ross. And let me just bring you the first element. I always remind you that this is a consultation document, for which the regulatory body will collect comments by end of September of this year. First of all, let me say that it is confirmed that there will be a potential ROS introduction by 2028, like we knew already, for larger operator only in a sense that they set in the consultation document, they indicate a potential treasure of 300,000 redelivery points above the operator that will have to, let me say, for which the regulation will become Ross regulated. There are a number of exclusions not only the operators that are below the treasure, but also all the items that have been already tendered or going to be tender by end of 2027 will be excluded from Ross. The regulatory period will be -- will start 2028 and will be for 4 years until 2031. Arera show in the consultation document, 3 possible options from the option that is the one that we have already. So option 0, let me say, an intermediate option that is probably the most favorable by the area itself and the most extreme 1 that is a full Ros application. And then there are a number of other elements for which we are studying. And of course, we will reply with our comments to ARERA by the time set by rangeland well, it's not end of September 25th of September. I will open the floor for questions, please.

[Operator Instructions]. First question is from Javier Suarez Hernandez, Mediobanca.

Hi, everyone, and thank you for the presentation. I have 3. The first one is on the government decree on the gas tenders. You mentioned during the presentation that acceleration is happening. So the question for you is what do you think the decree from the government should introduce in order to further accelerate all this process. So the latest news that we are hearing is that maybe a discrepancy between what is happening and the difficulty by the government to create that trade war. So I guess it would be interesting to see your point of view on the contribution from the government decree to that acceleration. That would be the first question. And the second question, I would be interested on some more granularity on the performance of the Greek Water and ESCO activities during the second quarter. And the third is on the creation of Italgas property, can you confirm that this was not part of your recently presented business plan? And if so, which could give us additional in terms of EBITDA enhancement when do you see the capacity from Italgas property maybe further accelerate the efficiency, the efficiency journey of your company.

Thank you for your question, Javier. First of all, on the first question, if you remember, the -- what you are referring, I think, is the cretocriteri if I'm correct, the 1 that has been postponed after the meeting between starter journey. I think that is the 1 that you are referring. But this decree was not aimed to accelerate the tender in itself will just tend to redefine some of the points that were given to the different tenders to the tender, let me say, process in order to reflect the fact that the points already assigned were based in -- were developed in 2012 when the situation was significantly different there were no digital activities at the time. There was no II nonenergy transition, no biometerogen, -- so the idea of the government was to redesign the, let me say, the points. So redesign the way that you evaluate a tender, considering that there are new things coming on. But nothing to do with acceleration over the tender for which we see what is happening right now, independently of this the retort -- the second question is regarding the result of the non, -- let me say, as we told you several times, -- we are making -- I don't know if we have presented during the plan, but we are making significant results regarding the over year-over-year. We are going to tomorrow, to present to the in Greece in Athens. We are going to present the plan for the Greek company. So tomorrow, we are going also to show which are the objective specific to the Greek territory. So if you are willing to join is going to be a 3:30 in the at time if you are willing to join the presentation you are more than welcome. You will get more detail. But to be more synthetic, I will say that EBITDA level as well as the profit level. We are improving in respect of last year, even though during 2026, we have accounted in -- as a deduction of revenue. The amount that better, the saving that we have performed in 2 specific that are the cost for the smart metering as well as the cost of the managing CNG and LNG that according to the Greek regulation, where we're giving us a standard at the beginning of the regulatory period, but we're supposed to be finally based on actual we were able to significantly reduce the cost of the smart metering as well as the LNG management, thanks to our experience in Italy. So we are going to give back some of these synergies to the Greek system. Notwithstanding this situation, we were able to significantly increase the result, thanks to the cost savings we were able to achieve. The contribution of the Greek company to the overall EBITDA is EUR 71 million. And you can also see the contribution of the water that we consolidate only to company out of 4, and the energy efficiency is EUR 70 million of the EBITDA. The last one about Italgas property. This is the first time that we talk about the Italgas property. If it was mentioned during the strategic plan that, that was part of the strategic plan. Let me say the 2 objectives of the Italgas property is we want to be even more efficient in managing our buildings between brackets. We recently acquired the building that we are in Milano, via Car robo. We just acquired at the end of June. The reason is that we are covering nearly 70% of the overall space. It didn't make any sense just to pay a rental fee. So we just bid. It was more economic viable. So that was the first step made by Italgas property. So what we are going to do is to be more efficient in managing our property and where our property or some of our assets, we don't need them anymore. We would like to create value. One example is Venice where we have a couple of properties that we are not using anymore, for which we have -- we are in the process to complete the cleaning of the soil and once that is cleaning we will try to create value around this property. The Venice is probably the more clear example, but there are rather small properties for which we will probably sell it or we will try to create value around it. That is the objective of italgas property. The fact that the overall real estate value is above EUR 300 million, give you the idea that we are not talking about only peanuts.