Italgas SpA

MIL:IG

Earnings Call Transcript 2020-Q1

[Anna Scaglia, executive]

Hello. Good afternoon, it's Anna Maria Scaglia, Head of IR at Italgas. I start apologizing. We had some technical issues. Hope you are all well and you're able to connect. We will walk today to Italgas First Quarter results. I'm joined by Mr. Gallo, our CEO; and Mr. Antonio Paccioretti, our General Manager. [Operator Instructions]

I will leave now the floor to our CEO, Mr. Gallo.

[Paolo Gallo, executive]

Good afternoon to everybody, and I, again, apologize for the delay. I mean, the operator has some problem in connecting everybody. I've been waiting like 15 minutes on the telephone in order to get access. But sorry for that. First of all, let me let say that we hope that you and your family and your friends are all safe and well in this unpleasant situation that we are -- all of us are experiencing.

I will move to Page #2. Hopefully, somebody will switch -- will move the page to show you the page that I'm going to comment. In Page #2, we have reported the major result that we achieved in the first quarter of 2020. And those results are showing the resilience of our business model in those -- in these difficult times. I'm very proud and that was -- what we discussed with the Board of Directors this morning. I'm very proud by the ability that our people have shown during this day to change from 1 day to another the way that we operate our network.

Let me say that thanks to decision that were made a couple of years ago about cloud transition and the digital transformation. And of course, we didn't made because we thought that there was a pandemia coming. But thanks to those decisions, we have been able to react with no problem at all to a completely different environment.

And moreover, all the digital technologies that we can use will be leveraged in the next weeks to restart our activity. We will discuss in a few moments in more detail about that.

Looking at our core number, I'm sure that you have imagined a reduction in our net profit, and that is mainly due by the very penalized new regulatory system that started January 1, 2020. The upper part of the profit and loss account enjoy the consolidation of Toscana Energia that impacted the revenues, the EBITDA and the EBIT.

And we will try to do and what is also important, we will go into more detail, is to see that no matter of the situation in the first quarter of 2020, we recorded the highest value of investment. We passed the EUR 200 million. And we will talk, and Antonio will talk later about the consolidated net debt slightly increased in respect to the end of 2019.

And in fact, the reason why there has been a slightly increase is because at the end of March, we took care of our supplier. We anticipated some of the payment because we wanted to be sure that all our suppliers, that I would probably call now more partner than supplier are safe, are in healthy condition because we will count on them to restart next week in our activities.

So let me skip to page -- to the following page, Page #3, where I'm going to show you the investment we made in the first quarter. There has been a significant change in our investment, as you can see, the metering that has been always a significant number in the past couple of years now represent only 15% of the total investment, and that is -- we expected that. The investment in this smart meters has been slightly impacted by COVID-19 in the months of March. We will explain later.

But overall, our investment, even without considering Toscana Energia, that is about EUR 12 million. So it's a minor number. We registered a significant increase in respect of last year. Say, as I said, the 75% of the investment are relevant to the network. And it's extremely important these numbers because we have seen growing from a physical point of view in terms of adding new kilometer of pipes, replacing -- connecting the LPG-isolated distribution network with our network. So by 2020, all our LPG distribution network, not -- excluding Sardinia in all the other region in Italy, will be converted to natural gas.

And of course, to Sardinia, we have built until nearly the end of March 165 kilometers of new network in Sardinia, bringing the total -- passing the total of 600 kilometers. So we are around 60% of the overall network.

Regarding the smart meters, we expected a reduction, as you can see in terms of number of smart meter installed, because we are moving towards the end of the replacement program that even with the delay caused by the COVID-19, will be completed by the end of 2020. We have seen a decrease in respect of our planned replacement because during the month of March, we were unable to go to the final customer and replacing the old meters with the smart one.

You will also notice that there has been a slight increase in the unit cost of each smart meter installed. Again, something that we expected because the increase is mainly -- it's only related to the installation cost. As you can understand, we are not replacing any more 2 million of smart meters. So we cannot enjoy the economy of scale as we enjoyed last year. And on top of that, this morning, the meters that we are going to replace with the smart ones are located, let me say, in a more difficult area. Therefore, it will require additional effort from our person and from our supplier to replace them.

Nevertheless, our final cost of the total cost installation plus the smart meter is in any event lower than the amount recognized of the standard by the regulator.

Let me now skip the page and move to Page #4. I want to take a few minutes of this presentation, talking about the impact and how we react on the -- regarding the COVID-19. First of all, from an impact on our activities. Since February 21 -- 21st, that was the first day that it was discovered the first positive case in Italy nearby Milano, we set up an emergency agile team that is composed by 5 senior staff that during these 2 months have overlooked all the situation and have decided on a daily basis which actions should be taken in order to guarantee the health and safety of our personnel.

And therefore, we have, during these 2 months, we have released subsequent indication to our personnel and to the personnel of our supplier, how they should operate in a safely and healthy condition.

During the month of March, except the smart meter installment, everything else has been -- went more or less as planned until March 22, when we were forced by the government decree to stop all the activity, except the ones related to maintenance and related to operation. In general, that should maintain the safety of the network and the continuity of supply.

So we have continued to guarantee and to monitor our network. For example, we have increased the use of our Picarro vehicles to detect any potential leakage in our network in order to, again, guarantee safety and continuity of the supply.

Regarding the payment that we see from our commercial counterpart. As of March, we have collected -- I mean, the rate -- the percentage of collection was aligned to any previous quarter, in some cases, even higher. So for the March period, we didn't see -- we didn't experience any delay in payment from our commercial counterpoint.

In the meantime, we -- as I said before, we have guarantee and we have accelerated, in some cases, the payment of our supplier because as I said, it's -- for us, it's crucial that our supplier remain stable and healthy from a financial point of view in order that they will be able to meter their restart activity hopefully starting next week.

To ensure the restart of the activity next week, we have also increased our inventory in terms of, for example, smart meter, but also other material, in order to be sure that the restart of the activity we have everything that we need in order to reopen the construction of new network doing the proper maintenance and replacing the old meter.

Because the -- as you know, we are entering to what is called Phase II, starting from May 4, we have already established a very detailed plan, a very detailed condition that has been agreed with the trade unions at national level. So from next Monday, the operation will restart, all the operation that are -- let me say, that are in the open air, of course, with no problem. There will be some restriction about activities that are -- that should be done inside residential house. And also, our people will start to go to the office, of course, with a limited number for the time being in order to ensure that our population will not get -- will not become positive, will not get any positive situation.

Let me skip and spend another -- a little bit more time about the focus on our people. As I said already, our first thought since the beginning of the pandemia was to guarantee the health and the safety of our personnel. So all our personnel has been working since the beginning of March in a smart working mode, and we didn't find any problem in doing that thanks to our digital transformation. Otherwise, it would have been much more trouble. We didn't experience much more trouble than other situation like we have now.

We have taken specific care for the personnel with pre-existing medical condition, putting them on our paid leave, and not only that, we have extended to all our staff, all our personnel a special health insurance to cover them in case they become positive.

And finally, we have also made a special donation to several hospitals in Italy and to Protezione Civile. We have launched internally a call for donating hours -- donating of working hours, and we have collected 7,000 -- more than 7,000 working hours donated by our employees, for which I'm very proud of. And the value, the correspondent value in terms of money has been matched by the same amount of money by Italgas. And this amount of money will be donated -- total amount of money will be donated to Protezione Civile.

Let me spend another couple of slides on this on COVID-19 to show you also some numbers. We have experienced during the last couple of months an unprecedented disruption in our operation. We had 20% prioritized intervention that has been done with additional safety measure for employee and for the customer in order to guarantee the safety and the continuity of supply. We have experienced a reduction in emergency call that was quite unexpected by nearly 40%. And then thanks to the fact that we have seen an increase in the gas consumption and more stability in gas consumption that has resulted in a more stable pressure inside the gas network.

We have increased the success rate of the critical intervention by 27%, I always made the comparison quarter-to-quarter, of course, as you can understand, thanks to the application, the planning application that we have developed and put in place. And as I said, we have put on leave -- paid leave for health reason, about 5% to 7% of all our personnel.

Moving to Slide 7. There are other important numbers that I would like to share with you. All our personnel was able to work remotely. Also thanks to the fact that all our personnel, including technicians, workers, employee, managers, now they have everybody, they have either one iPhone or one iPad or both of them. That was a decision that we took last year, and we ended the distribution of all these mobile devices to everybody, fortunately, in February. So we were ready to face the pandemia with all the people having one mobile devices available.

And in fact, the result of that situation is that what was normal before in terms of virtual power network connection, so the numbers of personal computer connected remotely to our network was less than 200 personal computer per day. Today, we have an average of more than 2,000. So 2,000 person every day, more than 2,000 person every day, are connecting themselves with the personal computer to our system -- IT system. And with such big increase, we didn't experience any problem, thanks to the cloud selection and decision we made a couple of years ago.

The number of video conference increased by 1,000%. The number of messages, the chat activity between our employer increased by 700%. So there are a huge number that has shown that the decision we took couple of years ago to completely transform our company into a digital one, was a decision that has helped us to face such an unpleasant situation, and it will help us to move very fast in the next weeks and months to restart our activities.

Let's move to Page 8. So let's start to discuss about our result. And in the Page 8, there is a comparison between the economical profit -- the profit and loss account in the first quarter of 2020 in comparison to 2029 (sic) [ 2019 ]. Let me say that, first of all, in 2020, the Toscana Energia full consolidation in respect to the 2019 when the Toscana Energia -- the consolidation of Toscana Energia is at the equity level.

So thanks to the consolidation of Toscana Energia, the full consolidation and the carryover of the M&A of last year, we were able to reduce the negative impact of the Delibera, the new regulatory framework. And also, the EUR 9 million capital gains that we booked last year, it is the same -- that was the same of our very old office in Torino and the cars.

Operating expenses increased by 9% due to the enlarged perimeter. Depreciation, amortization, Antonio will explain later, was impacted by cost of Toscana Energia consolidation. And then tax rate was in line with our guidance, but Antonio will dedicate later on trying to illustrate also the tax rate.

Let me move to a more detailed analysis regarding revenues and costs. Revenues, we have shown you 2 pages. One is the, let me say, the standard one, the format, the standard format that we always showed to you, I will ask you to move to Page 9, where I think there is a very nice representation of the different impact of the revenues on the first quarter of 2020. The increase of the revenues was equal to 5.2% in the first quarter. And that is due to the -- a number of effects.

Let's analyze one by one. The new regulatory framework has impacted us by EUR 10 million. The new regulatory framework has many negative components and very few positives. The negative components are the reduction of the WACC for metering from 6.8% to 6.3%. The big reduction in the OpEx recognition that is by EUR 5.5 per redelivery point. The reduction is always in Europe a number per redelivery point about decentralized OpEx. Those -- all the 3 are negative. Of course, the major one is the EUR 5 -- EUR 5.5 per redelivery point. And then there is one small positive that is the release of the frozen grant that we received many years ago, for which, there is a very positive and limited amount.

So if we want to sum up in a quarter, the impact of the delivery has been equal to EUR 10 million. And you can -- I mean, it's a linear situation. So if you want to have the impact for the full year you have to multiply this number by 4.

Fortunately, we have been able to limit the amount of this by all the investment that we made in last year that has shown an increase mainly for the new RAB -- for the increase of RAB, in terms of revenue, that is equal to EUR 5.2 million. And then we have Toscana Energia, that is a full consolidation. We have carryover M&A, so M&A that did not exist in the first quarter 2019. I'm talking about mainly Conscoop. So the acquisition we made relevant to some concession in Italy in the peninsula and the concession we made and we will see later concession that we acquired in Sardinia.

There is a reduction in the contribution for the meter replaced. Let me make a comment on this one. We have used the previous criteria. So we didn't introduce the criteria, a new criteria introduced by the new regulatory system because it was not very clear for us, the wording of the Delibera about how much we are going to be recognized for the depreciation that we lost for an accelerated replacement of the meters. And we are waiting. And the second reason is that we are waiting a document from the regulator that will give us more details about how to calculate.

Let me just say for the sake of clarity that if we will be able to recover for the meters replaced during the first quarter of 2020, so I'm not talking about the past. I'm just talking about the first quarter of 2020, the amount of revenues that we will be able to increase, it will be in the range of EUR 5 million. So we -- but for the time being because we are not sure about the number, we didn't include this number. But in case the regulator will recognize 100% of what we have lost in replacing before the end of the regulatory life of the meters that we have replaced during the first quarter, we should receive an amount that is in the range of EUR 5 million.

So finally, 2 other components. We have seen some reduction of activities, especially during the month of March the activity in terms of regulated activity. So the service that we provide to our commercial customer, such as closing the meters because they don't receive payment and other stuff like that. But let me say that even if you show less revenues, we will have also less cost because the marginality of this activity is very limited.

And finally, there is -- we accounted a sale -- capital gain that was recorded in the first quarter of 2018, about the sales of the headquarter, the old headquarter in Torino and some -- and the sales of the cars. That, of course, is not, it was -- we don't have in the first quarter of 2020. So these are the explanations quite detailed about the evolution of the revenues.

Let's move to the cost. Here, again, there are 2 slides, the traditional one, and then we have the more friendly one given the explanation of the different effect. You can look at both of them. One is on Page 11. The other one is on Page 12. So first of all, if we try to consider what we consider on a like-for-like basis, the comparison of the operating expenses in the first quarter of 2020 in comparison with the first quarter of 2019, we can show you that we have reduced the cost by EUR 2.5 million that represent 2.7% versus the previous year. So we have always said that we will try to stay in the range between 2% and 3% per year of cost reduction. And again, even in a difficult time, we were able to accomplish that on a like-for-like basis, of course.

To arrive to the final number of the operating expenses, we need to add Toscana Energia as we have added the revenues, we need to add also the cost by nearly EUR 10 million. I'm on Page 12. There is EUR 3.2 million of carryover of the M&A. So as I said before, we were able to have M&A in the first quarter of 2020 that were not present in 2019. So more revenues, but also more cost.

And then we have a decrease relevant to the white certificate. As you know, the white certificate, the Ministry decree was canceled by the court and subsequent also the determination by the regulator. So we have made -- waiting for the new proposal from the regulator. We have put a number that is consistent with the regulation that exists prior to the one that was canceled. We will see in due course during the year, what is going to be the regulatory proposal in order to eventually update this number. And also, as -- and the first quarter has been impacted by the donation, so the amount that we donated to the, as I said before, to 7 hospitals in Italy and to Protezione Civile.

I will -- I'm going to finish this presentation, my part, and I will pass the floor to Antonio, who will continue to explain the other numbers. Antonio, please, the floor is yours.

[Antonio Paccioretti, executive]

Thank you, Paolo, and good afternoon, everybody. We are now on Slide 13. Consolidated EBIT amounted to EUR 123 million, almost flat year-on-year. This is the result of, first, EUR 8 million increase in EBITDA, mainly due to the revenues increase of EUR 16 million and the cost increase of EUR 8 million already commented. Second, almost EUR 9 million increase in D&A, mainly driven by the 3 following elements: higher network and metering depreciation related to the CapEx carried out during the last 12-month of EUR 6 million; the consolidation of Toscana Energia, EUR 11 million; and those items were partially compensated by the lower acceleration of depreciation, EUR 9 million, related to the reduction of the economic life of the meters. As we are close to complete replacement of the entire traditional meter pool, the accelerated depreciation are lower than last year.

Moving to Slide 14. The first quarter 2020 profit reached EUR 74.9 million, down 13% versus first quarter '19. Net financial expenses were EUR 13 million in the quarter, with an average cost of 1.1% in reduction by around -- by almost 10 basis points versus last year. The slightly lower average cost of debt was offset by the cost of the higher gross average debt for around EUR 0.8 billion (sic) [ EUR 0.8 million ].

Income from associates decreased by EUR 5 million, mainly related to Toscana Energia, now fully consolidated. Toscana Energia consolidation also explains the higher minorities.

Finally, we accounted for EUR 30 million of income taxes. Our tax rate is around 27%, in line with our expectations versus 26.4% last year, when Toscana Energia was equity accounted.

In the first quarter 2020, the cash flow from operation amounted to EUR 174 million and was generated by a net profit of EUR 80 million before minorities, plus D&A and other nonmonetary items equal to EUR 96 million.

Let's look in more detail to the change in working capital. At this time in the year, the business seasonality usually implies a positive contribution from working capital, and we have been collecting revenues in line with the pre-COVID-19 situation. However, in light of the current COVID-19 situation, we have decided, as highlighted by Paolo before, to support our venders and suppliers, which led to a working capital increase of around EUR 60 million.

The health of our value chain will be particularly important when all the activities will be allowed to restart. We also carry out some restocking of smart meters, around EUR 10 million, in order to ensure availability of materials. All this had some negative temporary impact on our working capital.

We are working to have, for the full year, a neutral working capital impact on the cash flow. The net cash generated allowed us to almost entirely finance the significant technical investment, around EUR 210 million; the M&A activity, EUR 6 million carried out in the first quarter, thus resulting in the increase of EUR 40 million of our net debt position.

Looking at our debt structure on Page 14 (sic) [ Page 16 ]. You may notice that little has changed since we reported 2019 full year number in March. In particular, refinancing needs are very limited and no major refinancing is due before 2022. Our bonds, 71% of the total, had a very long average maturity of about 8 years, and our longest European investment bank line expires in 2037.

We maintain a significant amount of liquidity of EUR 200 million and undrawn committed credit lines of EUR 500 million. 88% of our gross financial debt is at fixed rate. At this stage, we have not seen any significant change in the access to credit, yet we believe maintaining a strong financial position, low exposure to interest rate risk and low refinancing risk is a core of our business model. We are working to ensure that this is not affected by our current condition.

Moving on to the balance sheet. Net invested capital amounted to EUR 6.4 billion at the end of the first quarter, with an increase of around EUR 120 million compared to the end of 2019. The increase is mainly driven by CapEx in the first quarter, EUR 2,010 million; and depreciation, EUR 104 million. As commented in the previous slide, consolidated net debt was equal to EUR 4.450 billion, excluding the IFRS impact with an increase of EUR 40 million compared to the year-end 2019. And maintaining the leverage ratio in line with our guidance.

Let me now return the floor to Paolo for the closing remarks.

[Paolo Gallo, executive]

Thank you, Antonio. I want to just to close this presentation and waiting for the -- waiting for your answer. I want just to recap some of the points that I have already made. We have shown our ability to react to the COVID-19, that has been a situation that none of us has experienced this in the past.

Our priority has been since February 20, the health and the safety of our personnel and the personnel of supplier. Now our priority is to restart the activity to restart the investment because, as you know, and I've said that many times, our investments are the most precious one for the Italian economy. We need to thank all our people that in these 2 months have been acting. They've been doing their activity in an incredible way. And the result that we were able to show to you today are the results that they have achieved in these 3 months.

And we need to thank the digital transformation we put in place because now we have an incredible tool -- I would say, we have incredible tools that we will use in order to guarantee health and safety of our personnel. And in the meantime...

Can you hear me because I received a message, Anna? Okay, I will continue. Hopefully, everybody are listening. In the meantime -- okay. Somebody has written to me that there are people that are listening to me. Okay. So I would say we have incredible tools that have demonstrated to be extremely effective during these 2 months, and these tools will help us to provide health and safety to our personnel and the personnel of our supplier in order to restart the activity.

I'll make you -- I wanted to make one single example that show to you the effect of our digital program. We have developed, as you know, an application that this application let us remotely control the construction in progress. So for example, we can remotely control the construction in progress in Sardinia from our virtual control room in Turin. Now that the construction in Sardinia, but also in the other part of Italy will restart, not only our supplier should have all the masks, gloves, all what is needed to work safety and healthy. But also, they need to have in place our application. In that way, we can control remotely the construction progress without having obliged to send people to look after the construction and certify the amount of activity that has been done.

That is one example, but I can list a very -- I can make a very long list of example of new technology that we developed in the last couple of years and now are extremely useful to restart the activity.

So I wish you -- all of you, to you and your friends and your family to be -- to stay safe and to follow the -- all the procedure that has been set by our government in order to restart the activity from one side, but to limit, to avoid a restart of positive case all over Italy.

Thank you, and now we are open to all questions, you may want to pose or you have already asked Anna Maria about it. Thank you.

[Anna Scaglia, executive]

Okay. Sorry, it's Anna Maria, again. So hope I'm not repeating, but on working capital impact from COVID situation and in general, we received several questions. I divided in 3 parts: The first one is we are facing a significant increase in terms of counterparty risk. The second group of questions was related to the net working capital and, therefore, if we have seen impact on payments. And the third question is related to what could be the impact still related to payments, but linked to volume, if there's been any volume risk.

[Paolo Gallo, executive]

Okay. On the first question is -- the answer is very easy. As you know, around 70%, 80% of our commercial customer are very big companies like Eni, ANEEL, Edison, ACEA. So I mean we don't see counterparty risk growing because they are big companies, and therefore, we don't see that is happening.

From -- let me skip and go to the last question, Anna Maria, made regarding the volume risk. Having said that, there is no counterparty risk from a volume risk point of view, you know that we are -- we don't have a risk on the volumes delivered. We know that there is -- at the end of the year, there is the comparison between the amount that we have invoiced and the amount that we should have been invoiced. And if there is a difference, the difference will be compensating the following year.

Having said that, so we don't have a volume risk. I don't know if any of you have seen the first quarter level of consumption, everybody were expecting a reduction in gas consumption that is what happened. But on our segment of activity so that are residential commercial, we have seen an increase in Italy, about 13% in gas consumption. And that is mainly driven by the month of March because during the month of January and February, thanks to the higher temperature, higher external temperature the consumption was lower in comparison to the first quarter of 2019.

So in the first quarter of 2020, we have experienced an increase of natural gas consumption by more than 13% thanks to, as you can imagine, people staying at home and using more gas than before. Even though in our segment, you also need to consider restaurants, small commercial activities that, on the other hand, have experienced a reduction in consumption. So overall, our segment has seen an increase of 13% in natural gas consumption.

Anna Maria, the second question was relevant to the net working capital, right?

[Anna Scaglia, executive]

Yes.

[Paolo Gallo, executive]

As already explained by Antonio, the first quarter have seen an acceleration. I've also said in terms of payment to the -- to our supplier and an increase in our inventory. Those actions, as explained by Antonio and by myself, were taken in order to guarantee this ability from a financial point of view of our supplier and to guarantee that we have enough material to restart next week.

I think I have responded, Anna Maria. I missed something or not?

[Antonio Paccioretti, executive]

There is the very last point, which is the possible impact on the Resolution 116 of the authority, Paolo.

[Paolo Gallo, executive]

Okay. First of all, that resolution applies only for the month of April. Up to now, we have -- first of all, we will have a clear picture tomorrow, that is the end of the month. Up to now, we have received some, let me say, communication, very few communication by our commercial customer that they want to use it. The impact, according to our estimation, should be very minor. So we will be able tomorrow to have a clear number because tomorrow is the end of the month and the date in which the invoice should be paid.

[Anna Scaglia, executive]

Thank you. Let's move to the next group of questions. In terms of CapEx and operations, can you just maybe highlight what could be the guidance of an impact on the CapEx for the full year? As you mentioned, the closing of nonessential activities -- some nonessential activities, do we expect to impact our capitalized cost? And overall, if we can provide any visibility of guidance in terms of potential impact on CapEx and what's going on?

[Paolo Gallo, executive]

Okay. As explained, we have already seen in the first quarter, a reduction, thanks to the month of March of the meters installed even though our result in the first quarter in terms of investment has been much higher than last year.

April, of course, it's a month in which not only we did not install smart meters, but also, we stop all the construction in progress everywhere in Italy. So in May, we are going to restart most of the activity. We will not go -- we will not be at full speed immediately as you can understand, it will take some weeks to go back to the full speed.

So overall, let me add one comment on the smart meter because our plan was to finish the replacement, to terminate the replacement of the old meters by July -- by the end of July. We have, of course, the remaining part of the year to recover. So the smart meter installment will be recovered. So by year-end, all our meters will be smart. So the amount of investment allocated to the smart meter is confirmed. We should have probably some reduction in the remaining investment. I would probably say that this amount -- this deduction of amount hopefully will be recovered during the remaining part, but we don't know yet.

Having said that, we confirm -- we can confirm. Having said that, we say that our view on the 2020 investment is to stay -- if we are not able to recover everything to stay in line with the investment recorded in 2019, while, of course, our planned investment was higher than that.

[Anna Scaglia, executive]

Moving to the lockdown and impact on cost and the reaction. Do you have any particular incremental cost to signal due to the COVID? And do you expect to be able to set any incremental costs and how much is the digitization helping? What more can be done?

[Paolo Gallo, executive]

For incremental cost, I mean, we have experienced the donation for which we don't want to disclose the amount. But that is one of the incremental costs we have experienced.

Since the end of March, we have focused -- because the lockdown was completely focused in order to reduce our cost, we have made an agreement with the trade unions to use for all our staff and personnel -- let me say, for all the personnel to use the holiday, the vacation day that were accumulated at the end of last year that you know that this amount represent a cost for the company.

So during the whole month of April, we were able to put on vacation about everybody by an amount that was nearly 50% on the staff side. And by 20%, 25% of the people in -- the operating people, the people that are working in the operation. So that is a way in which we have addressed the cost issue from a personnel point of view.

We didn't use, and I want to underline that, and I am proud to say, we didn't use -- we didn't ask for what is so-called [Foreign Language]. We did not use that system, but we use a more soft system like using the vacation accumulated at the end of last year.

From a digital point of view, as I said already, we have used all our technology in order to have -- to guarantee safety of our network, to guarantee our operation, and we have been extremely successful. We are going to accelerate and leverage the use of the digital technology because we feel that they will guarantee at least the 3 components or 3 elements: the first one, health and safety of our personnel; the second one, the possibility to restart faster our activities; the third one, to reduce our cost.

The fact that we were able to work in a remote situation, of course, I can imagine that in the next month, there will be a reduction in travel activities because we have been experienced successfully to connect one to each other remotely, without the need to be physical connected. And so there are many, many other elements of our day-by-day life that is going to be impacted by the new situation and by the use of the digital technology that will result in a cost reduction.

So we will see -- starting from April 1, we will see some cost reduction going on, and we will see more and more the use of the digital technology. For example, we have digitized our digital factory. So during the month of April, our digital factory has continued to work on the application that they are developing. And even though everybody were located in a different location, they were able to connect maybe 40 people in 1 single digital room, working on the application to be developed. We will continue to do that, and we will -- and our digital factory will continue to deliver new application or upgrade of the existing application in order to give to our personnel all the technologies that they needed to continue to operate in a different manner in the next weeks, in the next month.

[Anna Scaglia, executive]

Now regarding the tender process, what's the impact of the COVID situation? Are we holding discussion with the government on possible acceleration of tenders? What's the power that can be exercised by the government to allow that? What's the role of the company?

[Paolo Gallo, executive]

Well, as probably I think, I have already told you in the previous conference call when we discussed the 2019 result that we have experienced an increase of questions and data coming from the municipality about the tender. And probably because everybody are working at home, everybody are working remotely. Everybody are doing activities that in a previous -- in our previous life, were not on the top of the list.

So in fact, in the last couple of months, we have received many questions from the municipality about data. So we expect that this request will probably as a result, some new tender still going on, which one we didn't know yet. So we will see in the next month.

Regarding discussion with the government, yes, we have discussion with the government, with the Ministry of Development through our National Association, Anigas. Anigas supported mainly by us has produced some idea, some proposal how to accelerate the tenders.

I need to say that the tenders need to happen. They need to be awarded because our economy will need investment in the infrastructure, and as I said many times, our investments are the most prestigious one because every euro that we invest, the multiplier in terms of gross national product is 3.3. So they are extremely valuable, our investment.

So hopefully, we will try and we'll try out, and hopefully, we will find the way in order to have some new regulation from the government to push, to accelerate the tenders and, therefore, to accelerate the investment.

[Anna Scaglia, executive]

M&A and COVID. Long list of questions, but I think all of them go to the point, which is should we expect a slowdown or rather an acceleration of M&A given the current COVID situation or more in general?

[Paolo Gallo, executive]

Well, let me say that I don't see the connection between COVID-19 and the M&A, to be honest. I see more the connection between M&A and the new regulatory framework. In a sense that you have seen the impact on our numbers in the first quarter, EUR 10 million in respect of last year. A similar impact, of course, with a different magnitude, it will be recorded by the smaller operator also.

So probably as long as -- as soon as they realize the impact on their revenues about the new regulator, I think some of them will think about maybe it's the time to sell.

The only element connected to COVID-19 is that sometimes in order to start a negotiation, we need to see the owner, especially if there are small operators, you see -- you need to see the owner on a face-to-face basis. So maybe we need to wait maybe a couple of months before getting in touch personally with the smaller operator and ask them if they are willing to sell.

But if I have to guess, I'm sure that in the second semester of 2020, we will see some opportunities driven by the new regulation or driven by the COVID-19.

[Anna Scaglia, executive]

Thank you. Moving to financial costs and debt. Three questions. The first one is what the status of the debt market that Italgas is seeing at the moment. The second question is the cost of debt of the company, whether we see a risk of an increase given the Italian government yield? And the third question is related to the recent downgrade by future of the sovereign debt and whether there could be an impact for Italgas.

[Paolo Gallo, executive]

Antonio, would you like to answer?

[Antonio Paccioretti, executive]

Yes. Thank you, Paolo. I would start saying that the financial market is open. For companies, for issuer and borrower like us, we don't see any problem of refinancing. So this is a performance.

Second comment is if there's any link between our cost of debt and the Italian government yield evolution, the answer is no. We don't have any contractual provisions leading to debt. It is clear that we are talking -- I'm talking about the current outstanding debt.

For the future financing, which we could raise in the following year -- in the next year, it's clear that we cannot exclude an indirect impact, but please take into account that we don't have any refinancing exercise in 2020 and 2021, and the first bonds going to maturity in 2022 after the liability management executed last year is only in the amount of around EUR 300 million.

Then the comment about the Fitch -- downgrade by Fitch. We have seen yesterday Fitch downgrading the Italian Republic. And after such a downgrade, the Italian Republic has a rating equal to BBB minus. Our rating with them is BBB plus. So we stand 2 notches above the Italian sovereign risk.

According -- let me say that as far as we have understood according to the public -- as publicly disclosed by them, such a difference is not to be considered an automatic -- cannot imply an automatic effect -- an automatic reaction.

We understand that the decision of the rating agencies will be taken, evaluating the issuer one by one, verifying the business and financial profile of the issuer -- of each of the issuer as it is impacted by the macro condition in the host country.

[Anna Scaglia, executive]

Thank you. Moving to the Resolution 570, which sets the new tariff for this year. Can we please update the market on the legal case? As well as we receive question on the [ needed ] compensation, the additional compensation, which Mr. Gallo, you commented during the call already?

[Paolo Gallo, executive]

Regarding the fact that we -- not only we, not only Italgas, but all the operators and all the association have filed against the Delibera, the new regulation in the quarter. We don't have, for the time being any dates at which this element will be discussed in the quarter. And we are pushing because this discussion will happen sooner than later. But considering the current condition related to COVID-19 and most of the quarters are still -- most of its [ regions ] are still closed.

Regarding the -- which is the amount that -- regarding the amount to the smart meters in case of the full recovery, I've already told you that would be in the range on the first quarter. So relevant to the number of smart meters that we replaced in the first quarter of 2020 would be in the range of EUR 5 million.

[Anna Scaglia, executive]

A few questions on Toscana Energia. They sum up to the potential having now controlled the company consolidated the potential of cost-cutting and efficiency initiative, if you would see any material ones?

[Paolo Gallo, executive]

Well, with Toscana Energia, also in the past years, we have done a lot of activities in order to share the advantage of Italgas also in Toscana Energia. Think about the meters, it is in place since many years. The fact that we are buying the smart meters also for Toscana Energia, we are buying many things on their behalf, and therefore on the -- for example, on the procurement activities, we have already experienced in the past year in Toscana Energia, of course, the efficiency that we have in Italgas.

Of course, we will try to even push even hard in trying to find efficiency that most of them will remain in Toscana Energia, so it will be shared with our -- with the other shareholder, and we are happy for that.

We are working very hard -- that we are working very hard, and we will continue to work very hard in the future months about increasing the integration between the 2 companies, trying to leverage the best practice each of the company has and sharing the different experience, and I'm sure we will have some additional saving efficiency. Mainly, they will remain in Toscana Energia, but do not expect a huge number because most of them have been already achieved in the last 2, 3 years with a common, for example, procurement activities.

[Anna Scaglia, executive]

Thank you. A few questions about a bit more longer term. We've been asked whether our business plan is confirmed in June, whether there will be a guidance and if we have already any comment about the dividend policy potentially.

[Paolo Gallo, executive]

Well, let me say, from a guidance point of view, as always, we will give you a guidance beginning of June, especially after having experienced a month of May, which we will know exactly how our activity are starting. We are internally discussing and debating if it makes sense to keep an update of our industrial plan of June or eventually to postpone into September. We didn't make any decision yet. We will communicate if the industrial plan -- the revision of the industrial plan will be postponed. We will communicate it on a timely manner to the market, but the discussion is still going on. You can imagine that we have been working since the beginning of the year on the new industrial plan. And now in the view of the COVID-19, we are trying to understand which is the impact also of this new situation on our plan.

Regarding the dividend policy, you know that it's a matter of discussion inside the Board of Directors, and it is normally based on the new industrial plan where the Board of Directors is able to see the future resolve that we envisage in the plan, and therefore, based on that, the discussion on the dividend policy will be taken and a decision will be taken also.

[Anna Scaglia, executive]

Thank you. And on the international growth, there have been some rumors about potential -- Italgas being potentially interested in some assets in Greece. Is this still something that we are considering? Is there any update there?

[Paolo Gallo, executive]

Well, we -- as you know, we have submitted our expression of interest back in February. We have been requested to provide additional information, more detailed information about our company. We provided them -- we provided to the Greek fund the information, even though it was a little bit difficult to collect signature and to put together documents and notary was also documents requested to be authorized. But we did it all.

We are waiting that the Greek fund -- we know that there has been an extension about providing documentation, I think, by the end of -- beginning of next week. We have already provided everything. So we don't have to provide anything more. And we expect, thereafter, that the Greek fund will identify, will declare which are the share listed company. And from that point on, we know which are the tender condition, we should have access to the data room. And of course, our interest is not -- is always the same. We are very much interested in that Greek acquisition.

[Anna Scaglia, executive]

And very last question. There were some comments by one of the ministers in Italy about the Terna-Snam discussions. We received the question, whether we have thought about that or whether we think the distribution will make sense to have some those kind of discussions as well between gas and electricity?

[Paolo Gallo, executive]

Well, there is -- I've seen that there is some market recently about a potential merger between Snam and Terna. Let me say that the activity is completely different with Snam and Terna. They are acting on a natural monopoly. We are acting based on concession that lasts for 12 years. There are more than 200 operators in the natural gas. There are mainly, not -- so mainly in the electricity distribution. Again, they are also acting electricity distribution based on a concession that lasts I think until 2029. So I mean it's a completely different market.

The only update I see is that I would like to see a consolidation in our sector. So in the gas distribution, there will be already a big success to significantly reduce the number of operators. We always said we see that after the tender, there should be no more than 10, 20 natural gas operators. That would be a great success for our sector, for our economy, for the capability of the company to invest. I don't see any comparison between this idea between -- about Snam and Terna.

[Anna Scaglia, executive]

Okay. Thank you. Operator, are there questions from the line?

[Operator]

Not at the moment. [Operator Instructions]

There are no questions. Please continue.

[Anna Scaglia, executive]

Thank you. So thank you, everyone. So if there are any follow-up questions, myself and Armando are available. And sorry again. I do apologize, again, for the technical issue.

[Paolo Gallo, executive]

Thank you to everybody. And I will hope to see you soon in person and stay safe.

[Operator]

That does conclude our conference for today. Thank you for participating.