Italgas SpA

MIL:IG

Earnings Call Transcript 2018-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the Italgas 2018 First Quarter Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Paolo Gallo, CEO. Please go ahead.

[Paolo Gallo, executive]

Good afternoon to everybody. Paolo Gallo, speaking. And welcome to the conference call. We are going to show you and to comment and to receive questions and to answer to your questions relevant to the first quarter 2018 results.

And I will start with Page #2, where we have a brief summary of the numbers. The result that we obtained in the first quarter 2018 confirmed the positive trends that we started in 2017. And let me say that we show also in this quarter a further improvement in the margin. In particularly, I would like to underline the fact, and we will go into details later, that we have continued to reduce the cost year-by-year thanks to the cost reduction program that we have put in place.

EBIT is up by 8.4% in respect of last year, and [ understanding ] the change that we made in our financial structure, that Antonio will discuss later but that we move from variable to 88% fixed interest rate, we have been able to record a 4.5% increase in the net income.

From a CapEx point of view, we are fully in line with our yearly target to invest more than EUR 500 million, and the difference that you can see versus last year, in particular the reduction that you've seen last year, is mainly driven, and I will explain in details later, is mainly driven by our procurement efficiency with the new contracts in place.

Finally, the strong cash flow that you have seen in this quarter, EUR 241 million, has fully financed the overall CapEx, has generated a positive free cash flow before the M&A transactions of nearly EUR 120 million.

After the M&A transactions, that I will talk immediately after, the net debt has been reduced by EUR 64 million in respect to the level that we recorded at the end of last year.

So if we move to Page 3, we will talk about the CapEx. As you know, our plan is to complete the replacement of the old meters with the smart ones by the first quarter 2020, and we are fully on the path. In fact, in the first quarter 2018, we replaced around 401,000 smart meters. If we include also our affiliates, this amount is 470,000; nearly, half a million. That brought to the total installed smart meters up to 3.2 million, 3.6 million if we consider the associates, that represent 44% of the total fleet; in both cases, even if we consider Italgas standalone or Italgas and its associates. At the end of 2018, we will have installed more than 1.6 million smart meters, and we will reach by the end of '18 the percentage of 60%; 60% means 60% of our installed meters are smart.

The reduction of the amount of CapEx that we invested in the first quarter of 2018 in respect of the same period of '17 is mainly driven by the procurement efficiency, as I said before. And I would like to bring you the example of the smart meter cost unit. The installation cost in the first quarter of 2018 has been around EUR 122 per meters installed, compared for the same period of EUR 148. If we take the number of EUR 122 per meters installed and we compare with the standard set by the authority that is EUR 142, as you probably know the difference in EUR 20 will be split between the system and ourselves. In particular, we will get the 40% of that difference in our end.

So the difference, as I said before, is mainly driven by our procurement efficiency and partially is also driven by lower activities that will be fully recovered by the year-end. As you see also, we have installed 28,000 less smart meters. But I said before, by year-end we will pass the 1.6 million smart meters.

As far as the distribution network is concerned, we deployed around EUR 48 million of CapEx devoted to network development, maintenance of the network and cast iron replacement.

Let's move to the following page that is a representation of the consolidated perimeter as of March 31. Before getting into the numbers, as I said before, during the first quarter of 2018 we have completed 4 of the 7 M&A transactions that we have announced in '17, and we devoted to those 4 M&A transactions EUR 48 million. Those transactions are Ichnusa, so the 12 Sardinian concessions; Portopalo, the concession nearby Syracuse in Sicily; the branch of Amalfitana, several concessions in the region of Campania; and the acquisition of Seaside. Seaside is the energy efficiency company that you see on that chart.

The perimeter so presented in this chart is the perimeter that we use for the result of the first quarter 2018, but you should consider that apart from Enerco, for which the transaction was completed last year in December, all the other new acquisitions enter into the perimeter during the quarter. For example, Seaside was acquired on March 13 and, therefore, their contribution, the contribution of those transactions in terms of revenues and in terms of costs, the contribution is limited to a few weeks.

For your information, we closed a fifth transaction, that is Medea, on April 6. So you will see the effect of the Medea consolidation in the next quarter.

Let's move to the following page, Page 5. So let's go through the profit and loss account. I will underline only a few points because the detailed analysis will follow.

The first point that I love to underline are the operating expenses. Operating expenses are lower than last year first quarter by 3%. And in fact, after the big cutting program of last year that reduced the cost base by more than [ 50% ], we confirm our goal to reduce between 2% and 3%, so better than the X-factor per year, considering of course the same perimeter.

If we look at the first quarter 2018, as I said before when I talk about the M&A transactions, the perimeter is more or less the same because the contribution of the new acquisitions were limited to a few weeks, as I said. And therefore, the comparison between the cost of the first quarter 2018 versus the first quarter 2017 is quite comparable.

There are 3 other elements that if you take a look at the profit and loss account are under your eyes. The first one is that we have accounted lower an amount -- a lower amount for depreciation and amortization, but these details will be given by Antonio later.

And in the same way Antonio will explain to you why we have accounted higher interest expenses in the first quarter and why we have a higher income tax rate. Of course the first explanation of income tax rate is that we have recorded a higher profit before tax.

Let's go into more detailed analysis about revenues and costs. So the following pages is the consolidated revenues. I will go line by line, but let me say that the regulated -- the total revenues are up by 1% in respect of last year.

Distribution revenues. Distribution revenues, you see a small difference, but there are several components. The first one is in the distribution line, the additional EUR 2 million coming from the M&A. The M&A are excluding Seaside and Ichnusa that are considered in the other revenues; so mainly Enerco and the limited contribution of Amalfitana branch and Portopalo concession. But you will start to see the effect of our M&A. So additional EUR 2 million.

Then we have an additional EUR 2.6 million that I'm calling our day-by-day life. That means that it's driven by the RAB increase; reduced by the X-factor applied by the -- the 1.7 applied by the regulator; increased by a very small amount of inflation, 0.58%. And then we have the negative impact of EUR 3.7 million that is coming from an adjustment coming from the previous year.

That is the first line, so what is called distribution. If you sum those elements, you will see that the delta is an increase of EUR 0.9 million.

If we move to the second level, tariff contribution for meter replacement, there is a lower compensation, mainly driven by the fact that we have installed 28,000 less meters. But as I said before, this amount will be fully recovered during the year, because at the end of the year we will -– we confirm that we will install more than 1.6 million smart meters.

The third line, other distribution revenues, are in line with last year, and they normally cover regulated service to final customer, incentives and penalties for gas detection and odorization.

Finally, other revenues, you see a significant increase in the other revenues, by EUR 2.3 million. And there are many, many items. I would like to mention the small contribution of Seaside, the energy efficiency company; the small contribution of Ichnusa, the Sardinia concessions; a more significant contribution coming from the services that we give to our affiliates; and the [ hydro ] distribution is another contribution, positive contribution, to the other revenues.

Now let's move to the OpEx analysis. So the total OpEx recorded in the first quarter of 2018 show a reduction of EUR 2.5 million. Over all, that is equal to 3% and is fully in line with the goal that we have set for ourselves to reduce year-by-year on the same -- considering the same perimeter our total cost between 2% and 3%.

But let's go through each of the major items. The net labor cost. Net labor cost increase is driven by EUR 1 million that is the application of the national labor contract plus some amount that we normally called [Foreign Language]. That means that they are only present in the first quarter, but they will not be replicated in the remaining part of the year.

And then we have an additional EUR 2.4 million for lower capitalization. Lower capitalization of course is linked to the lower CapEx that we have experienced in the first quarter of 2018, but that lower capitalization should be recovered by the year-end.

The second element to be considered is the net external cost. We have a EUR 2.6 million reduction, and that is very good news because those are all third-party costs, especially concentrated in the ICT. And I am very happy to say that that's a very good start for our project to move all our applications to Cloud, [indiscernible] project that is ongoing and that should be completed by September this year. And I'm sure and I'm very confident that this project will bring to the company additional significant savings.

Then we see a positive contribution of the white certificates consolidating the trend that we have already seen in 2017. And of course the fact that we have acquired the energy efficiency company called Seaside will bring to us more advantages.

Finally, if we take a look at the other costs, that there is a delta of EUR 2.8 million, it's mainly driven by less risk fund provision and less severance plans provision that we have accounted in the first quarter of 2017.

I will pass now the floor to Antonio that will answer some of the questions that I've raised and will give you more details about the remaining part of the income statement.

[Antonio Paccioretti, executive]

Our consolidated EBIT in the first quarter 2018 amounted to EUR 112.4 million, showing a solid 8.4% increase compared to the first quarter 2017. This is the result of 2 elements: firstly, the increase of our EBITDA, a EUR 5.3 million increase mainly due to the revenue increase of EUR 2.8 million and the EUR 2.5 million decrease of our operating cost; secondly, the EUR 3.4 million decrease in depreciation, mainly driven by the decrease of accelerated depreciation of around EUR 12 million, EUR 17 million in this quarter and EUR 5 million in the first quarter –- EUR 17 million in the first 2017 and EUR 5 million in this quarter, related to the meters to be replaced by 2018 according to the authority's broad outline.

In the first quarter '18, net profit was EUR 74.7 million, up 4.5% versus the same period of 2017. On top of the already commented EBITDA increase, let me highlight the following trends.

Net financial expenses amounted to EUR 12 million, with an increase of EUR 1.5 million compared with the same period of '17, mainly due to a higher average cost of debt related to the transactions carried out so far aimed at increasing the fixed [indiscernible] of the total debt and its maturity profile. This was partially compensated by lower upfront fees of around EUR 2 million.

Let me remember that in '17 Italgas issued bonds for a total value of EUR 2,650 million: EUR 1.5 billion issued in January, EUR 650 million in March, EUR 500 million issued in September '17. In addition, in January '18, we successfully arranged the [ reopening ] of the EUR 250 million of the previous bond issue maturing in January 2029, and we have finalized the interest rate swap transaction maturing in 2024 which we used to transform the entire new [ EB ] loan amounting to EUR 360 million from floating rate to fixed rate.

Finally, we also accounted an increase of EUR 3.6 million of income tax, which amounted to EUR 30.5 million, compared with the first quarter 2017 due to the higher taxable income and the higher tax rate, around 29% in this quarter versus 27.3% in the first quarter 2017. This increased due to some temporary elements which will be absorbed in the full year. For the full year, we expect a tax rate in the range of 28%.

In the first quarter '18, the operating cash flow totaled EUR 241.2 million and allowed us to fully cover the financial needs associated with the technical investments and to generate a cash flow before M&A of around EUR 120 million. The cash flow from operation was generated by our net income, EUR 74.7 million; D&A and other small monetary items, equal to EUR 69 million; a EUR 97.5 million of net working capital decrease, mainly related to tax accrued in the period and not paid, the usual trend in the first quarter, and the [ billing ] seasonality which according to the current regulation tracks the gas volumes actually distributed.

After the cash-out related to M&A activities, EUR 55 million, the free cash flow amounted to EUR 64 million.

Our debt at the end of March 2018 reached EUR 3,656 million, excluding EUR 31 million of debt related to the first-time adoption starting from January 2018 of the IFRS 16 related to the operating leasing. Our debt is composed of EUR 2.9 billion of bonds and EUR 784 million of EIB financing. We have locked in a competitive cost of funding, with an average fixed-rate debt portion of around 88%. The entire funding needs of the company are covered by medium- to long-term financing.

Our debt maturity profile, the right side of the slide, confirms that we have achieved our goal to reduce refinancing risk and to assuring a long-term debt maturity well distributed along the time horizon.

In order to ensure a safe liquidity profile, we also have at our disposal around EUR 1.1 billion of an RCF, fully undrawn at the end of this quarter.

We would like to highlight that recent capital market [indiscernible] and the [ aging ] transactions executed in January bring the current amount of the fixed-rate debt above EUR 3.2 billion.

Moving on to look at the balance sheet, the net invested capital amounts to EUR 4.9 billion, with an increase of EUR 44 million compared to the year-end 2017. The increase is mainly driven by the EUR 137 million increase in the fixed assets and by the EUR 93 million decrease in our net working capital. The increase of EUR 137 million of fixed assets was related to the investments accounted in the period, around EUR 106 million; depreciation and amortization, EUR 86 million; and EUR 6 million of subsidies received; EUR 33 million of higher CapEx related to the adoption of the IFRS 16, I repeat, the operating leases in relation to very [indiscernible] real estate; and EUR 32 million of lower payable for investment; EUR 55 million of fixed CapEx of the new perimeter, which is Enerco, Ichnusa, Amalfitana, Seaside and Portopalo.

The first quarter '18 consolidated net debt was equal to EUR 3,656 million, with a reduction of EUR 64 million compared to the year-end '17 as a result of the free cash flow generation in the period.

That's all. Now we would like to open the floor for your questions.

[Operator]

[Operator Instructions] We will take our first question today from Harry Wyburd from Bank of America.

[Harry Wyburd, analyst]

Three relatively straightforward ones for me. So firstly, we're about a third of the way through the year now. I wondered if you would comment on consensus. I know you were reluctant to do that at the beginning of the year. Could you say whether you think that the current net income consensus of EUR 304 million from Bloomberg is a fair assumption for the year? Or do you think you can beat? You've obviously beaten consensus relatively consistently in the past. Second one is a perennial one. Could you just give us the latest on the tender process, how that's going and how your thinking of M&A versus tenders is developing? And then the third one, on the electoral front, it's now looking like we may be going back to new elections in Italy. If we get stuck in a relentless cycle of elections, how does that impact your day-to-day business? Does that gum up the local decision making process? And does that have an impact on your operations? So could you just comment on how you think repeated elections would impact you?

[Paolo Gallo, executive]

Okay. On the first question, let me say that the consensus or the forecast of Bloomberg, I would revert the question to Bloomberg itself because we don't normally give such guidance, especially at the beginning of the year. You will get more indication in June time when we will present our new business plan for the 2018-2024 period. So we are not responding to that question. The second question about tender process and M&A. We -- as we said several times that the tender process is not as fast as we expected. Regarding 2018, we expect about 10 tenders to be submitted, in all. Most of them should be of our interest, but we don't know yet. Let me say that the good part is that the more that the tender process is slowing down, the more that there are opportunities in the M&A. And as we have demonstrated last year, that we closed 7 M&A transactions, we have currently in negotiation several others. We expect to close at least another one before the end of June; so in the first semester. But in our pipeline we have others that we are currently negotiating. Of course we cannot disclose any of them, but we can confirm our goal to reach around 200,000 redelivery points acquired by the year-end; 200,000 redelivery points represent the sum of what we have acquired in 2017 and what we are going to acquire in 2018. So it's the program that we have launched last year for which we confirm our target. Probably the amount that we are going to spend to acquire that amount of redelivery points is going probably to be more than EUR 200 million, probably closer to EUR 250 million. But let me say the good part is that tender process is slowing down, M&A will go up. From a third element, I'm really -- we don't really have any idea what's going on from a political point of view. You can read on the newspaper as we read in the newspaper. But you have asked if there are any impacts on our day-to-day business, and I can assure you that there is no impact, at all.

[Operator]

Our next question comes from Javier Suarez from Mediobanca.

[Javier Suarez Hernandez, analyst]

It's Javier, at Mediobanca. Again, and sorry for insisting on that, a follow-up versus a previous question and answer. And the question is maybe gearing a little bit there the question into what needs to happen to see an acceleration in the auctioning process for new gas and distribution concessional areas? What is the period for that to happen? Because personally I was expecting to see one of the largest gas auctions [indiscernible] should be a significant [indiscernible], but it is obvious that something more needs to happen. So I would appreciate if you can give us some light on what needs to happen to see that acceleration effectively moving on. Then the second question is on the [ capital factor ] of the company while the company suffered this delay on the concessional process. The question is does the company -- could the company reconsider things such as its dividend policy if we see a continuous delay and delay on this process? Therefore, is the company ready to react and readjust its strategy if this is happening again and again and again? And the third question is on the CapEx during the first quarter of the year. I think that you have explained that, but that there has been an improvement, I think you mentioned, on the procurement cost. But is there something apart from that that is delaying your CapEx? Or it's just that improvement in the lower -- improvement in the procurement cost?

[Paolo Gallo, executive]

Okay. Regarding the first question, we have said many times in the past what should happen in order to speed up the process. There should be, let me say, more effort by what we call the [Foreign Language]; that is, the authority that is linked to the municipality that should put together the tender. There should be more effort by the commission that normally is put in charge of evaluating the offers made and for which I would like to make an example. We submitted last June our offer for Torino 2, and still we need to receive the final conclusion. That should be quite easy because we were the only one offering. So it should have been easy by the commission to go through the evaluation of all the documentation and finally award the tender. Of course if the [Foreign Language], first, and the Ministry of Industry, second, will use their power to replace the so-called [Foreign Language], of course that it is going to be a very powerful tool in order to accelerate the tender process. But as of today none of the 2 institutions, so regions and the Minister of Industry, have exercised such power. So I cannot say more than that, not because I don't want to say, but really it's the correct or the detailed synthesis, the detailed summary, of what should happen in order to accelerate the tender process. The second question, dividend policy. We have already said that when we will go through the new industrial plan 2018-2024, the board of directors will review the dividend policy. And so again, I cannot anticipate anything because it has to be, first of all, reviewed by the board of directors and approved by the board of directors. You will have news in June, and I'm sure it will be positive news. Regarding the CapEx in the first quarter, I tried to explain with a clear example about the smart meters. As I said, mainly it's due by procurement efficiency, and the example of the smart meters was very clear. But if you look at the smart meters that we have also installed 28,000 less meters, so partially there was a delay, but that was not due anything that we had some delay caused by third-party companies, for example, in the smart meters that were late implementing our plan. But to tell you the truth, the 28,000 smart meters will be recovered in one week. So we have already recovered during April and during May this slack, because as you know we have a peak of installation of nearly 12,000 smart meters per day. So it's an easy recover. So there was, again, mainly driven by procurement efficiency, some delay in activities, but those delays, some of them have been already recovered, some others will be recovered during the year.

[Operator]

Your next question comes from Enrico Bartoli from MainFirst.

[Enrico Bartoli, analyst]

My first question is related to the current situation at the energy authority. So there have been several temporary postponements in the current board of directors. We don't know when actually politically it will be possible to appoint the new board. Do you expect that this situation could determine some delays in the regulatory process, the new WACC for the next [ authority ] period or even the regular activities related to the tender process? A second question is related to the revenues for the replacement of meters. You highlighted that probably there will be some acceleration in the next quarters due to recovery of the pace of installation. Could you give us an indication of the level that you expect for this kind of revenues for the full year, if it's going to be more or less in line with 2017 or there is going to be any kind of difference? And the third one is related to your efficiency program. If you can give us some details of where you are compared to your budget, what you have achieved in the first quarter is consistent with that, if you can update us on your expectations for the full year.

[Paolo Gallo, executive]

Let me go through the first question about the ARERA authority. As you know, there has been a decree that has said that the new authority, the new board, should be in place 90 days after that the new government will be in place. But there are currently in the Parliament discussions to fix a date; so to fix a period between now and maybe, let's say, 90 days or whatever it is. They are telling me between -- before the end of September in which the new board should be in place. So currently -- the picture is that currently there is a decree that has been approved by the government that says that the new authority should be in place 90 days after the formation of the new government. The Parliament that should approve this decree is proposing the modification setting by the end of September the election of the new board. Having said that, which is the impact? Regarding the new WACC, we should wait in any event the end of September, because the period in which all the numbers should be looked, should be evaluated, is 1st of October 2017, 30 September 2018. Regarding the tender process, the authority has more a role of consultancy or evaluating the tender documentation for which the offices inside the authority are doing their job, as a normal job. So they don't need to have to respond to any [Foreign Language]. They don't need to have the approval of the board; they just respond based on the rules that were set for them in the process. So for the time being, we don't see any significant impact by the fact that the authority still is in place but of course is not in full power. Regarding the second question, about the tariff contribution for meter replacement, I will pass the -- well, let me try to say and then Antonio can help me. Let me try to say that in the first quarter we have accounted the revenues considering that we are going to replace according to the minimum set by the authority, the 50%. In the next months as our plan will progress, we will also introduce the second 50% that based on our plan will be replaced by the first quarter of 2020. In that case, we see, let me say, quite significant increase in the tariff contribution by the year-end of around, let me say, 15% or something like that. No, more; probably, 20%. So Antonio is telling me that there will be around EUR 65 million of revenues coming from the meter replacement and around EUR 60 million of additional depreciation. Third element, our cost efficiency program is completely on track. Last year we arrived, as you know, with a [indiscernible] advance to our goal of cutting our base cost of 15%. We said that we will continue to reduce the cost. Of course we cannot continue to reduce the cost by 15% every year, but we will continue to reduce the cost by around 2%, 3% every year, with the same perimeter -- considering the same perimeter, of course. And we have demonstrated in the first quarter that we are able to achieve that target because our base cost has been reduced by 3%.

[Operator]

Our next call comes from James Brand from Deutsche Bank.

[James Brand, analyst]

I just had a few questions on M&A given that it's becoming a more important part of your strategy and your growth as some of the tenders are being delayed. I was wondering whether you could give a bit more detail on the strategy here. Obviously, from the footprint of the assets you've acquired so far they're quite geographically spread nationally, but are you looking to acquire assets that overlap with your existing territories and where you can secure synergies? Or in some cases are you looking for entry points into new areas where maybe that gives you the opportunity to compete more in the tenders? Are the companies that you're buying more efficient operators? Or are there ones where you can look to take out costs? So a bit more detail there on the kind of companies you're looking at buying. And then, finally, I saw you put some details towards the end of appendix on the premium to -- what you spent against the RAB, but that's including the LPG networks. So I was wondering whether you could just say maybe ex-the LPG networks what you'd spent against the RABs so we can work out premium.

[Paolo Gallo, executive]

Okay. Regarding our strategy on the M&A, first of all, as you said, we are spread all over Italy. So there is no territory in Italy that is not of our interest. Depending on the acquisition, we may find ourselves in a situation where we [ strengthen ] our position, we increase our position, we enter into a new territory. So in that regard, we don't have a specific strategy. The strategy is more on the kind of company that we are going to acquire. They should be private companies. Normally they are small companies. Those, more companies that are run by private entrepreneurs. They are willing to sell because they will not participate to the tender because they are so small that they do not have the technical and financial capability to participate to the tender. That's another prerequisite that we are looking at. So they are not participating to the tender process. We normally acquire, let me say, a limited number of people, as we have demonstrated in the recent acquisitions, in a sense that those are more technicians that are working on the grid. So we don't acquire, for example, staff because they don't have the staffs; they are a small company. And the good thing is that starting from day one we apply to the new acquired entity, either a branch or a company, we apply our contracts. So we immediately extend our maintenance contract, our smart meters contract, our utilities contract to them, and we bring immediately the efficiency that we are able to have in our situation. In addition, the acquisition of those small companies in a certain way will [ derisk ] our business plan, as you correctly mentioned before, because we have anticipated the tender process. And therefore, we'll be better positioned during the tender process. Regarding the premium that we are ready to pay, you can look at our history. Generally speaking, we have paid a few points as a premium over RAB. In some cases, we paid 0; 0 premium over RAB, of course. And there's only one case, the first one, in which we paid a significant premium, but because the VIR, the reconstruction value, that was certified was much higher than the RAB. And that would be our policy, going forward. So we will try to limit the premium as a small percentage depending, for example -- depending how many number of persons will be transferred to us, for example. If they transfer less persons, then we may eventually recognize then some premium. I didn't fully understood your question about the LPG grid, but let me try to reply. And then if you have any -- if I didn't answer your question, please, you can ask again. Regarding the LPG grid that we have, in our end we have started already as per our plan to transform them into natural gas fuel grid. How we are going to do that? In 90% of the cases, we will connect that grid to our network and, therefore, the situation is going to be very easy. So we will just extend our pipeline, and then those grids will be transformed, as we have already done once, into a natural gas grid. In a few cases, limited cases, we will use the LNG tanker, and we will put the LNG tanker in front of the grid, transforming also from LPG to LNG. I don't know if I answered to you on this question. Please reply if I didn't.

[Operator]

Our next question comes from Juri Zanieri from Kempen.

[Juri Zanieri, analyst]

It's Juri Zanieri from Kempen. Just one quick question on my side. By looking at the income from associates, that seems just slightly below my expectation. So I was wondering if you can give a bit more color and, especially, tell us what will be the indication for the full year results.

[Antonio Paccioretti, executive]

The result of our affiliates is in line with expectation; mainly, we are talking about Toscana Energia. We expect for Toscana Energia the same result of last year. So we are talking about EUR 40 million of net income. Last year, on top of the usual, the recurrent, results, we had a [ nonrecurring ] item due to some nonrecurring fiscal item, which will be not part of our profit and loss to this year. So again we expect the confirmation per quarter of the EUR 40 million of net income also for this year.

[Juri Zanieri, analyst]

Okay. Perfect. Very clear. So you will expect a roughly EUR 20 million contribution, over all?

[Antonio Paccioretti, executive]

Yes. 50% of EUR 40 million is EUR 20 million.

[Operator]

Our next question comes from Stefano Gamberini from Equita.

[Stefano Gamberini, analyst]

A few questions, if I may. First of all, regarding your installation of new [ D7 ] meters, if I'm not wrong, the regulator issued its regulation for the first 50%, and regarding the following investments the regulation is still pending. So what could happen if the regulator does not approve the installation for the remaining 50%? The second, sorry to return to the gas tenders, just to understand what are the tenders that you expect in forthcoming months. If I'm not wrong, Beluno should be there. But just to get these 10 tenders by year-end, considering on the side of the regulator there are still these 12 total tenders under analysis by the regulator, if I'm not wrong, the risk is to see even less tenders during '18. If you can just help me on this point. Last 2 things, very quickly. Regarding you offer for [ Giauno and Bare 2 ] attempts [indiscernible]. If I'm not wrong, you risk to have the same antitrust limits that they have. So if you can elaborate a little bit about this what are the risks that your offer could be not accepted for this reason? And lastly, probably I lost the cost of debt, the average cost of debt, for the fixed part, what is this? And what is the average duration of this 88% of fixed-cost of debt?

[Paolo Gallo, executive]

Okay. For the first question, I'm laughing a little bit because it is not the first time that we received that question, and I would like to make it clear. There are 2 different documents of the authority. The first one does not set the limit, but set the minimum that is the latest one; so set the minimum of smart meters to be installed by the end of the year 2018. Again I am underlining, set the minimum that should be reached. If you are not able to reach that minimum, you will get the penalties. There is another document of the authority that set the way that they are going to recognize the reimbursement for the meters to be replaced. Those are 2 different documents. So what is going to happen if I am going to replace smart meters on the 1st of January 2018? Nothing. I am going to get the same reimbursement by the authority because the document that set the way to reimburse is the same. It does not say any -- it does not have any ending date. Of course, the authority may always decide to modify the rules, but as of today there is no modification in place. We will probably expect that the authority will issue a new document setting new objectives in terms of when all the companies should reach 100% of the G6 installation by a certain date. We have set that goal by ourselves; that is, first quarter of 2020. If nothing will happen from the authority, we will do it. So that is on our plan. We are completely on track. And the rules for the reimbursement are exactly the same of the rules of today, because the rules of the reimbursement does not talk about dates. Regarding the tenders, let me say at least, let me mention to you at least the first 6 -- the 5 that we see is going to happen soon are [ Validalsis ], that has been published; Torino, again another Torino, of course; [ La Spatia ]; [ Udine ]; and then the other 2, [ Crimona 2 and 3 ], that have been put in together. Those are the ones that we expect to happen soon. And then there are, like you mentioned, Beluno and some others that may happen later on. So that is the first 6 that they may happen soon. Gas Natural. We are interested in acquiring the concession that [ Duerte Gas ] is going to sell. They are in [ Bare and Forgia ]. In [ Forgia ], we don't have any problem because we don't have any presence. In [ Bare ], we may be limited by the fact that the antitrust has issued a limit of 10%. We feel that that limit is not preserving the competition. On the contrary, it's limiting the competition. And therefore, we have requested the antitrust authority to remove such limit and, therefore, we are working to submit an offer also for [ Bare ]. Last question, I will pass the floor to Antonio.

[Antonio Paccioretti, executive]

The duration of the fixed rate, our fixed rate, is between 7 and 8 years.

As far as the cost is concerned, this is the other part of the question, we had in the quarter a cost which is around 1.1%, 1.2% including the noncash item. This could be the reference for the year.

[Operator]

Our next question comes from Antonella Bianchessi from Citi.

[Antonella Bianchessi, analyst]

A very quick question. When we talk about M&A, you said that the delays in the tender will support the M&A. Which is the potential? Which part of the market is potentially up for sale? And what prevents Italgas, being the largest player, to accelerate on this process materially, given that the tenders are delayed? And the second question is on the 6 tenders you mentioned, there is any of those that you are pretty keen on or that you are looking at it very closely, and if you can elaborate on timing exactly of those tenders?

[Paolo Gallo, executive]

Okay. On the first question, when we launched the M&A activities, before starting we have made an extensive evaluation of the potential sellers, considering the criteria that I mentioned before: private owner, small companies, companies that have not [ tried ], let me say, potential to participate in the tenders, and so forth. We have identified about 1.5 million redelivery points. So we have identified a number of companies potentially, and the aggregation of redelivery points is 1.5 million. Let me say that we -- regarding acceleration, we are pushing very hard in that activities, but of course we cannot handle the, let me say, 20 M&A in parallels. We are handling 4 or 5 maximum in parallel and of course that negotiation, and you should consider that you negotiate with a private entrepreneur may takes a little bit long. But now that we have closed 7 transactions, I think we are fully equipped to continue on that path. And therefore, again, our goal of reaching 200,000 redelivery points as a sum of the acquisitions in '17 and '18 by the year-end is confirmed. Regarding the tenders, we are looking at all of them. All the tenders that will come up, we will take a look and we will consider to participate or not based on the situation. So I cannot say more than that, of course. In our strategy if we are well positioned in that [indiscernible], we will participate, by sure. If we are -- generally, if we don't have a position in the [indiscernible], it's difficult that we consider to participate. But the judgment and the decision is made one by one.

[Operator]

[Operator Instructions] Our next question comes from Oliver Van Doosselaere from Exane.

[Olivier Van Doosselaere, analyst]

I just had a little one, one last quick one, just to understand the process. I was wondering if indeed we wouldn't have a government in place for a new board at the regulator to be appointed, can you help us here a bit better how the process would exactly happen? So who would actually be taking the lead in terms of putting forward the candidates on which the Parliament could then give its opinion?

[Paolo Gallo, executive]

The process is quite clear, then we can discuss and argue how the process will start. But the process is that the 2 ministries, the Minister of Industry and the Minister of Environment, should propose a list of 5 candidates for the board of the authority, and then this list should be voted positively by 2/3 of the relevant commission of the Parliament. So you should have a government in place and 2 ministries in place and the Parliament in place. That is the quite easy process to explain and maybe a little bit more difficult to put in place in these days.

[Operator]

There are no further questions in the queue.

[Paolo Gallo, executive]

If there are no more questions, thank you, everybody, for participating to the call. And if you need any additional follow-up, please contact the IR department.

Thank you. Bye, bye.

[Operator]

Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect.