Italgas SpA

MIL:IG

Earnings Call Analysis

Strong Growth in Key Areas Despite Revenue Decline

In the first quarter of 2024, Italgas saw a 13.5% increase in net profit, reaching €117.6 million, and a 10% rise in EBITDA, driven by cost reductions and higher revenues in Italian distribution. Despite a 10% drop in total revenues due to the end of certain incentives, the company generated €342 million in operating cash flow. Investments in new infrastructure continued with €161 million spent, and net debt decreased by €103 million. With strategic focus on digital transformation and integration of new acquisitions, Italgas aims to sustain growth and profitability.

Introduction to Italgas' Dedication to Cutting Costs and Enhancing Efficiency

The first quarter of 2024 has been a strong one for Italgas. Despite a backdrop of regulatory changes and an end to certain incentives, the company has managed to deliver impressive results through rigorous cost control and enhanced efficiencies. These achievements reflect the company’s resilience and strong operational execution. Let's delve into the details of their performance and future plans.

Revenue and Cost Dynamics

Italgas experienced a 10% drop in total revenues, primarily due to a EUR 100 million reduction from their energy efficiency business following the end of the super bonus incentive. However, other regulated segments have seen positive growth, such as the Italian gas distribution revenues which increased by 11%. Operating expenses were effectively managed, dropping by 42%. This significant reduction demonstrates Italgas' commitment to cost efficiency. Also notable is the EUR 12 million contribution from the newly acquired Acqua Campania.

Solid EBITDA and EBIT Growth

The company's EBITDA exhibited solid growth, increasing nearly 10% compared to the previous year. The Italian distribution segment was a major driver behind this improvement, contributing an EBITDA increase of EUR 42 million. Furthermore, EBIT reached EUR 193 million, marking an almost 12% increase. This uptick was driven by higher revenues and cost efficiencies, despite a EUR 4 million rise in depreciation and amortization costs.

Net Profit on the Rise

Net profit saw a significant increase of 13.5%, bringing it to EUR 117.6 million. This robust growth was underpinned by strong revenue management, effective cost control, and increased contributions from income associates, particularly in the water sector. Financial expenses, however, rose by EUR 6.1 million due to higher short-term interest rates and newly issued bonds.

Exceptional Cash Flow Performance

The operating cash flow rebounded significantly to EUR 342 million, reflecting a normalization after the previous year's VAT and super bonus receivables significantly impacted net working capital. This improvement enabled the company to cover its EUR 200 million net CapEx outflow entirely from operating cash flow. Consequently, Italgas managed to reduce its net debt by EUR 103 million by the end of March 2024.

Strategic Acquisitions and the Path Ahead

Italgas announced its intention to acquire 100% of 2i Rete Gas, reinforcing its position as a leading distribution system operator (DSO) in Europe. This acquisition is expected to bring multiple synergies and greater efficiencies, supported by Italgas' advanced digitization capabilities. The deal is to be financed via a bridge credit facility underwritten by JPMorgan, with plans to refinance through a mix of equity, debt, or equity-like instruments ensuring the current rating profile is maintained.

Advancements in the Water Sector

In response to investor demand for greater transparency, Italgas has provided detailed insights into its water business, including contributions from Acqua Campania and affiliates like Sicilia and Latina. The company reported an EBITDA for the water sector of around EUR 40 million. This demonstrates Italgas' potential to operate efficiently across both gas and water distribution networks.

Regulatory Environment and Future Outlook

Recent regulatory updates, including a new deflator assumption, affect future tariffs positively. The deflator for the 2024 tariffs is set at 5.3%, which is higher than the previously applied 3.8%. This change will enhance the company's revenue prospects, contributing an estimated EUR 12 to 15 million in the full year. The company is also on track to deploy significant investments in Greece, with aims to match the profitability levels of its Italian operations by 2025.

Commitment to ESG and Digital Transformation

Italgas continues to push the envelope on sustainability and digital transformation. The company achieved a 15% reduction in energy consumption and a 4% reduction in CO2 emissions compared to the same period last year. These reductions are driven by several factors, including decreased gas and electricity usage and innovative digital transformation efforts. The company also plans to expand the use of artificial intelligence to further streamline operations and cut costs in the near future.

Future Plans and Investor Confidence

Italgas remains committed to its dividend policy, maintaining a 65% payout ratio and a floor of 4% growth. Despite ambitious expansion and consolidation plans, the company reaffirms its intention not to alter this policy. Investors can expect sustained returns, backed by strategic growth, robust financial management, and effective operational performance.

Earnings Call Transcript 2024-Q1

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Italgas First Quarter 2024 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. At this time, I would like to turn the conference over to Ms. Anna Maria Scaglia, Head of Investor Relations of Italgas. Please go ahead, Madam.

[Anna Scaglia, executive]

Hi. Good morning, everyone. I'm Anna Maria. I'm here with our CEO, Mr. Paolo Gallo; and our CFO, Gianfranco Amoroso. As usual, we will have a Q&A session at the end of the presentation. Today is going to be a very busy call, I'm sure. So, I just run off and I let Mr. Gallo start.

[Paolo Gallo, executive]

Good morning. This is Paolo Gallo speaking. Today, we are here to discuss the first quarter and present the first quarter 2024 results. I can imagine that you may have also other questions based on what we have announced just yesterday about 2i Rete Gas. Their shareholders gave us an exclusivity period to conduct the due diligence with the objective to present a binding offer for the acquisition of 100% of the share capital of the company. I'm expecting that you will have plenty of questions on the topic. So, I say in advance, please be patient and understanding because we -- as of today, we are unable to delve into specific details on the offer, on the nonbinding offer we submitted for obvious reason because it's, of course, a confidential transaction. Of course, we remain committed from now on to fully disclosure data and numbers once a positive agreement is reached. And that's also the reason why yesterday, we decided at the Board level to postpone the strategic plan presentation that was originally set for June 12. Just to give you just a little bit of flavor about the transaction that I'm sure you will immediately understand, there are several strategic rationale for such a transaction. Let me at least point the 2 obvious one. The reinforcement of Italgas position as a leading DSO in Europe, also in the view to fully support the energy transition and the potential of sharing of our best-in-class digitization capability know-how with the outcome of having multiple synergies opportunity that will create value for our shareholders, for our stakeholder, for the community where we are going to operate. As we said in the press release, should we enter into a binding agreement, Italgas will finance the deal via bridge credit facility already underwritten by -- fully underwritten by JPMorgan. The bridge facility then could be refinanced later through a combination of equity, debt, or equity-like instruments with the objective to maintain the current rating profile of Italgas. We, of course, we will disclose final terms and condition of the refinancing upon the finalization of the binding agreement. Let's now move to the first quarter results. And let me say that we are extremely happy about those results. Just to remind you, is the 29th quarter of growth. I think the number -- and this morning, I was thinking about and recounting the numbers because 2019 is becoming a huge number. I don't think there are so many companies that can have such performance. Except the revenues that we were expecting to have a significant drop in the revenues due to the closing of the super bonus at the end of 2023. All the other metrics show a significant increase by double digits. And in fact, even though the revenues were low by more than -- about 10%, the gas distribution regulated revenues increased by 11%. And of course, as you -- everybody knows, this increase is mainly driven by the update in the Italian regulation that we've delayed as normal in the regulation, has incorporated either inflation and rates in the allowed return and tariff assumption. But that is not the only reason why gas distribution revenues have increased also, the RAB evolution has boosted such increase. I would underline that these numbers do not incorporate the updated deflator of 5.3%. We have considered only 3.8%. That was the previous number announced by the regulator, 5.3% was announced last Thursday. And of course, you can imagine because it will affect the 2023 RAB. will positively impact the 2024 tariff. Consider also the positive contribution of Acqua Campania that has been fully consolidated because of our share percentage since February 1. Finally, cost control will continue to remain in place, and that is the reason why we have seen such a significant increase in double digit both EBITDA and EBIT. We will get into details in a moment. Net income finally grew by 13.5% in respect to 2023. If we look at the other -- so we move into Page #5, if you look at the other elements, operating cash flow has come back to what we expect the operating cash flow of a regulated company like us should be 3x last year. You remember that last year, our cash flow was affected by the VAT call relevant to the bonus gas, and also by the super bonus, both elements disappear in the first quarter of 2024. So, we are back to the normal. CapEx is slightly below last year, but it will be recovered throughout the year. And thanks to the operating cash flow, the net debt has reduced in respect to the end of the 2023 by around EUR 100 million, particularly EUR 103 million less than the end of December 2023. If we take a look at the CapEx side, we are on Page 6. We have invested EUR 161 million, slightly below last year. We expect that this amount will be recovered throughout the year. Development and repurposing represent always the majority of the CapEx, 175 kilometers of new pipes were laid down during the quarter out of 100 on in Greece. So, Greece will continue to drive new kilometers of pipe. The digitization effort continue. We will see in a moment significant effects either on the cost control and on the ESG components. If we take a look at the overall physical data, we are on Page 7. As you can see, we managed more than 83,000 kilometers, more than 8 million redelivery points, final customers, more than nearly 2,100 municipality. If we sum up the Italian and the Greek presence, we wanted also to bring to you also some physical data of the water distribution sector, we manage throughout the 3 companies that we have acquired from Veolia and the existing small concession that we have in Caserta, around 9,000 kilometers of network, and we serve directly and directly around 6.2 million final customers. So, from now on, you will see also going on the numbers and the KPI of the water distribution. Let's get to the -- some update on the regulatory side. We are on Page 8. We have the new resolution that was just issued last week. If I'm not wrong, it was issued on Tuesday, that this new resolution 173 sets update deflator assumption for 2024 tariff. And in fact, the regulator knowledge, the significant of the review of the deflator time series made by ISTAT. So, the new deflator that is going to be applicable to 2023, end of the year RAB will be equal to 5.3%, in our numbers, it's only 3.8%. That was the previous resolution. I think it's quite significantly important because we'll increase the value of the ramp at the end of 2023 by a little bit more EUR 100 million. And of course, that will drive also the new tariff and the new revenues. Today's number do not include, and I underline, I do not include this number because we were closing the numbers a few weeks ago. So, we didn't change our number for this presentation. You will get the new number at the next quarter, at the end of June. Let me take a look at the ASG numbers that again shows, and we are on Page 9, significant movement in respect of last year. Not only we are on the trajectory of our target 2028 and 2030, but we are doing even better. If you look at the energy consumption, we are down with the same -- in respect to the same quarter of 2023 by nearly 15%. And that is coming from, let me say, all over the area. So, we have less gas consumption for deprecating, less electricity consumption, also thanks to the auto production of the electricity. Less use of gasoline and natural gas for our fleet vehicles. And let me say that -- and I wanted to point out this reduction relevant to our fleet vehicles is driven by our digital transformation. Because at the end of the day, we made less kilometers by that last year, significantly less kilometer of last year. That is mainly due by the fact that with the remote control that we implemented at Dana level, we are able to reduce on field intervention, and therefore, we are able to reduce our number of kilometers. So, that is one of the evidence of the progress that you can make in terms of less energy consumption, less CO2 emission, and finally, less cost, thanks to the digital transformation. Let's look at the CO2 emission scope 1 and 2. Again, here, we show minus 4% in respect of last year. So, we will continue to reduce our footprint. What is clearly evident is even though there has been a change in the standard, so-called global warming potential that convert the CH4 leaked with CO2 emission, even though we were able to reduce our emissions. So, you see that there is an increase in term of gas leaks because of the change of the standard. But we found that we would have seen a significant -- still significant decrease in terms of gas leaks. understanding that we made more kilometers in terms of network inspected than last year. As you see, 16% more. We passed 30,000 kilometers inspected in the first quarter of 2024. Remember, the number of kilometers that we manage is 83,000. So, we nearly reach where we are at 40%. So, our target this year is to pass significantly 100% to reach 150% of the kilometer inspected. And the good thing is that we have seen the KPI of gas leak per kilometer survey significantly decrease in Italy and in Greece, 18% in Italy, 25% in Greece, respectively. So again, our approach to reduce our footprint, carbon footprint shows significant and impressive progress toward our targets that we have declared to the market. Let's go back to the numbers now, and let's go to the revenues. It's Page 11. As we have already showed back in Page 4, we have a revenue decrease by 10%. And there are, let me say, the major driving factor is the reduction of revenues from our energy efficiency company by nearly EUR 100 million. That is the end of the super bonus. So, it's very clearly easy to explain. At the same time, we have an increase either driven by the increase of WACC that I should remind that is -- there is a delay in time in which the regulator by the regulation itself, we recognize such increase. And there are other regulated company that increased by EUR 20 million. And then there is the new contribution for 2 months of Acqua Campania that is EUR 12 million. So, those are the main impacts on our total revenues. If you look at the operating expenses, we are on Page 12. As you can see, our effort to continue to reduce our cost is significant. The cost dropped by 42%, but is, of course, driven by also the drop in Geoside cost that is similar to the drop in revenues. But what to me is extremely important is that we were able, on a like-for-like basis to reduce by EUR 6 million our cost in the quarter that represent more than 3% in respect of last year. So, our progress in being more efficiently is continue quarter-after-quarter. And then, of course, we have the addition of the 46 million of Acqua Campania, that of course, it is the specular element of the additional revenue for 2 months. If we look at the EBITDA result, we are on Page 13. The EBITDA has significantly improved nearly 10% more in respect of last year. Of course, there is a negative contribution by the energy efficiency and of the super bonus. But the major driver of increase is, of course, the Italian distribution. And Italian distribution that increased the EBITDA by EUR 42 million, but is the result of what I have already said, higher revenues and cost reduction. I will leave now the floor to Gianfranco to continue the -- and then I will wait for your answer to -- your question to come at the end of the presentation.

[Gianfranco Amoroso, executive]

Thank you, Paolo. Let's start with the EBIT reported in the first quarter that has reached EUR 193 million with an increase of almost 12% in the period, excluding Acqua Campania, we have an increase of the EBITDA of around EUR 23 million. That is the result of the variance of revenues and OpEx that we have already commented, and higher D&A for EUR 4 million, that as usual in this period of time are mainly related to the carryover of the CapEx executed last year. To all this, we have to add the incremental EBIT contribution of our Acqua Campania for 2 months of almost EUR 1.4 million. Moving now to Slide 15. On the net profit trend, which marked a significant increase of 13.5% compared to last year same period, reaching after minorities, a level of EUR 117.6 million. I will bring you through the different components of this trend and commenting the net financial expenses that reached a level of EUR 26 million. That is EUR 6.1 million higher than last year. This is mainly due to the impact of the rising short-term interest rates and the new bonds that we have issued last June and this February. Income from associates increased by more than EUR 3 million, mainly due to the contribution of water sector affiliates, Sicilia and Latina consolidated at equity. Finally, we reported EUR 45.2 million of income taxes, marking an increase of approximately EUR 4 million due to the higher taxable income. Tax rate was at the normal level at 26.5%, in line with the level of last year, not considering the extraordinary impact of the patent box that we commented for the results of the full year 2023.On Page 16 is just a recap of the P&L elements that we have discussed in the previous slide. So, I will step directly to the following page. That is a new one, since we promised you that we would have increased visibility on the water business. So, in the first column, you have the figures of the perimeter that is currently consolidated line by line, including Acqua Campania for 2 months, of course. While in the second column, we have added both Sicilia and Latina on a proportional basis, getting to an EBITDA of around EUR 40 million. Now going to the following page. We have now the cash flow in the period, that as commented already by Paolo has recovered significantly to a more normalized level. We reported around EUR 342 million of cash flow from operations. This is a significant increase if we compare to this level, to the level of past year first quarter that was deeply affected by the net working capital, important absorption by the VAT and super bonus receivable, that in the combination were around EUR 200 million negative. This year, net working capital first quarter reflects the usual positive billing seasonality of this period of the season for around a contribution -- a positive contribution of EUR 60 million. Net CapEx generated a cash outflow of around EUR 200 million, which was entirely covered by the operating cash flow that we generated in the period. All this net of financial investment related for the, let's say, M&A, related mainly to the Belluno tender completion, so they're taking charge of the management of the ATEM resulted finally in a net debt decrease of approximately EUR 90 million compared to the level of the end of 2023. Now let's make the usual update of our debt structure at the end of March. We are on Slide 19. First, let me recap that our latest debt transaction, we issued a new bond of EUR 650 million in February, and we have repaid as a consequence, the bond of EUR 380 million per in March. We also signed a EUR 600 million sustainability-linked backup revolving credit facility for rating purposes. As a result of the new bond and the repayment, our liquidity was above EUR 600 million at the end of the first quarter. Looking forward to our maturities profile, we have a bond expiring next year of around EUR 500 million and some banking lines in the second half of this year that can easily roll it over in the banking market. Looking at the cost of debt, it was at a level of 1.4%, basically in line with the level that we reported for the full year 2023. Nothing new about the current composition of our debt that is almost unchanged with 92% fixed and 8% floating.

[Anna Scaglia, executive]

Operator, it's the IR here. We are now ready to take questions from investors and analysts. Thank you.

[Operator]

Thank you. This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from John Campbell, Bank of America.

[John Campbell, analyst]

I've got 3, if I can. My first one is related to basically, the news of the day. And I wanted to know if you had a preference in terms of order for debt, equity, or hybrids when you go to hypothetically repay a bridge loan and what's your hybrid capacity? Second question is, I'm interested in 2i Rete Gas RAB value for the gas distribution. And the last one would be, is it fair to say that if there is any hypothetical transaction, you would expect EPS accretion or dilution in the following years to come? Thank you.

[Paolo Gallo, executive]

Regarding your -- I noticed that you don't have any question on our results at all. I mean, hopefully, I told you when I opened the conference call that we have limited capability to respond, to close to 0. I would rather prefer at least one question on the results, but that's fine. Well, regarding the -- what we have said about that equity and equity-like so hybrid position, the objective is one that we will have the details of a potential transaction, we agree on the details. We will restructure the ratio between debt equity or hybrid in order to keep the same and maintain the same credit rating profile. That's for us, it's of utmost importance to keep that. So, we will do it a combination that will be as efficient as possible in terms of capital allocation. And we will do it in order to, as I said, to keep the credit rating profile. You also ask, which is our hybrid potential capacity. Honestly, we didn't have any hybrid instrument issues of today. So, that you can find yourself the answer. Second question, if I'm correct, you asked, which is the RAB of the 2 assets. What I can tell you is what has been our estimation based on which we submitted the nonbinding offer to the shareholders of 2i Rete Gas. Our estimation is that at the end of 2023, 2i Rete Gas RAB is around EUR 4.9 billion. That is our best estimation that has been calculated on the tariff, that as you know, the regulator published and recently, the regulator published the tariff -- for final tariff for 2023 and provisional tariff for 2024. So based on that, we made our assumption. The third one question is to give you numbers, we are not in that situation. We have no doubt at all that EPS will be accretive for the company and for the shareholders. We have no doubt at all.

[Operator]

The next question is from Javier Suarez of Mediobanca.

[Javier Suarez Hernandez, analyst]

Two additional questions on 2i Rete Gas, and then 2 questions on the numbers. On the transaction that you have announced the intention to present a time being offer. The question is much more philosophical than financing is, how that compares with the option that you have within the company? So, in recent business plan, the company present interesting CapEx planning in Greece, diversification opportunities on the waste business in Italy, and also the tenders while suffering a significant delay were also there as an option. So how does compare this opportunity with other opportunities that Italgas has on the table. And if as a consequence of a successful presentation of a binding offer, you may reconsider those -- any of these options, and even financing partially the operation with some disposals. That would be the first question. The second question is just by making a comment that for the company to maintain the credit rating is very important. So, can you share with us which is the key multiples that you are looking at while making -- while considering the stability on the credit rating. So, it is fair to say that the AFFO versus net debt has to be between 13% to 15% and the net debt to RAB below 70%, is that for assumption?Then the third question is on the numbers. It is really interesting to see the company continue showing capacity to reduce the cost base. The question for you is, do you see any -- are you experiencing any benefit from the implementation of artificial intelligence into the company? Or how do you measure Artificial intelligence impacted or even accelerating the euro capacity of the company even more efficient. And the final question is on Greece. Can you set with us your latest thoughts on the capacity of Italgas to improve the profitability of your activities in Greece, which are -- which is the level of profitability that Greece has as we speak and the potential that you see in the next 2 to 3 years?

[Paolo Gallo, executive]

You announced 3 questions, you did 4 questions, but that's fine. We will pass that. At least you introduced 2 minor, let me say, second question on the results. First question, and then the second will be answered by Gianfranco. First question is, as of today, we didn't see any impact. And honestly, we don't see any impact on the other opportunity that we have. Greece is a well-established plan for the next 7 years. We know exactly the numbers of investment. We know what is needed in Greece. So, there is no, let me say, change in our plan to, let me say, to change -- there's no plan to change what we have already announced that is the plan also linked to the question #4 that I will come back. Regarding the water, again, that's an important opportunity for us to become a network operator. We have already demonstrated that we can make synergies between gas distribution and water distribution. We have demonstrated in the area of Latina, where we have combined intervention by our gas DSO and by the water DSO. We have in front of us in the water sector, a challenge that is the implementation of the funds that are coming from the national resilience and recovery fund. So, it's quite important that we accomplished that. We have the clear goal to reduce the leakages. So again, the plan has not and will not change. The acquisition of 2i Rete Gas is an incredible opportunity to consolidate the sector, to be efficient and to introduce digital stuff that we have introduced in our network. And that is going, let me say, in parallel with the third question. So, I will anticipate third and fourth question, and then I will let the credit rating evaluation to Gianfranco thereafter. What we think is that our ability to reduce cost is clear. We have reduced cost for 29 quarter. So, it is evident how good we are reducing costs, and that is thanks to the digital transformation we have significantly spread all over the company. And you are right, our next and very close frontier is the artificial intelligence. You can apply artificial intelligence to your business processes only if you have a significant number of data and digital processes. And that is our -- the frontier that we are going to get in the next, I will not say years, but in the next months. And we feel that a second wave of cost reduction will happen in the next -- in the years to come. As significant as the one that we have already demonstrated to you in these past 7 years. So, it's true. I mean, artificial intelligence has become -- we are working on that. We have already some implementation that are probably basic artificial intelligence, but still that's a good example in which we can -- thanks to the data, thanks to the digital stuff that we introduce, we are probably the only one in Europe as a DSO that is able to introduce massively the artificial intelligence in our processes. Regarding Greece, we told you last -- during the presentation of last strategic plan that we have an ambition. And the ambition is to bring the profitability of Greece at the same level of the Italian company. We are on that trajectory. We are moving quite fast. I mean, all the experience that we have gained in Italy and we are moving to Greece is helping us to move faster than what we have done in Italy in the past years. We are not yet there, of course. It will take us another, let me say, 2024 to 2025. If I have to set my target is that by the end of 2025, Greece should be at the same level of the other Italian companies. We are confident that we will be able to do that. Again, the artificial intelligence can boost also Greece in moving in that direction. So, we are also happy about that, the result that Greece is bringing to us in a very short period of time, because you imagine it's a little bit more than 1 year that we are doing, and we are managing fully the companies. We have already achieved significant milestone in ahead of our expectation. So, I think Greece will soon be at the same line of the Italian profitability, in terms of the Italian company in terms of profitability. I leave the floor for credit rating comments to Gianfranco.

[Gianfranco Amoroso, executive]

Yes. Talking about credit rating. First, I would like to make a statement on the fact that for us is not just a matter to have, let's say, a single level of rating flag, but also to have a sustainability profile for the cash flow of the company in terms of costs and also flexibility to be able to be on the market in the coming years. So, let say that we have different rating agencies. We are rated as you know, by 2 of them, Moody's & Fitch, the other company, the target is rated by 2 of them, Moody's and Standard & Poor's. So, the target rating will be a combination of the, let's say, judgment made by these agencies based on a variety and multiple parameters. The priority between these parameters is that the main, let's say, driver. And my statement is based on the fact that this common between the 3 agencies are the ratio based on the fund from operation to net debt. As you know, we were, at the end of 2023 slightly below 15%, and the threshold to maintain the rating is 10%. So, you see we have plenty of space on this parameter that is common to Standard & Poor, Moody's and Fitch. There are also difference between the 3 agencies. And in particular, Fitch has also another parameter that is the leverage or the net debt of RAB, and the target level for Fitch is between around 63%. At the end of 2023, we were above 64% with the trajectory in our business plan to go back -- to land back to a level below 63%. I have also to add that in a combination like the one that you mentioned, it is also important to analyze the composition of the cash flow. And in this situation, if everything will be completed, we will have a refocusing on the Italian regulation that is valued more by the rating agencies. So, we expect to get some headroom and flexibility also on the parameter net debt over RAB, gaining some, let's say, points over the current 63% to 65% or 66%.

[Operator]

The next question is from Fernando Garcia of RBC.

[Fernando Garcia, analyst]

I have one question about the deflator. Could you please explain if the process of measuring by ISTAT has changed, and what are these changes? And also, that you said in the presentation that ISTAT could do the same in 2025, and that ISTAT could revise the whole-time service? What do you think will be the implications if ISTAT do that?

[Paolo Gallo, executive]

What happened is that change the series of calculation that were not consistent with the previous one. And that's the reason why the regulatory is intervening in order to align the calculation of the deflator for 2024, to be applied on RAB 2023, in line with what was done before. So, it may happen again, I would probably say yes. But that is the reason. So, the true point that we raised over the regulator is that ISTAT change the series and they were not consistent with the previous one. And that's led to the deflator to be calculated at 3.8%. Regulator understood the problem, intervene, and went back to the old series, and the deflator when -- the new deflator is 55.3%. That to me is also consistent with the fact that because of the delay, we are getting now what we -- somebody else has already got in the past for the situation of inflation that we recorded in 2022 and the initial part of 2023.

[Operator]

The next question is from Stefano Gamberini, Equita.

[Roberto Letizia, analyst]

Yes. It's Roberto Letizia, actually from Equita because Stefano is not showing, so I will take the question. On the results, maybe very rapidly, what would be the positive impact of the higher deflator on results versus what you --

[Anna Scaglia, executive]

Roberto, it's Anna Maria here. Can you speak a little bit slower?

[Roberto Letizia, analyst]

So, on the results, actually very rapidly on the RAB deflator, which is higher than what you applied in the number. What's going to be the benefits on results in the first quarter, just to have a comparison. Then on the energy efficiency side, what has been the change of the year from the expected lower contribution of the super bonus activity? And regarding the super bonus, is there any risk on your side that you envisioned from the extension of the validity of the fiscal credits from 4 years to 10 years. What kind of risk and impact do you see on that side? While on the potential deal, if you allow me a question on that, but would this operation and the revision of the financing structure, including potential equity would eventually call for revision, for example, of the dividend policy of the group? Or do you see this dividend policy not being the remaining 4% growth and 65% payout? Or do you see anything on this? And perhaps if you can tell us if there is any potential antitrust issue on the concentration of the business from such a deal and potentially some remedies or in terms of disposal, which would reduce the overall size of this deal?

[Paolo Gallo, executive]

Okay. Regarding the first point, I think what we can tell you is an initial evaluation that we have made. I can give you the impact on the overall year is around between EUR 12 million to EUR 15 million overall on the year end -- on the full year. So that is -- and it's going -- I mean, if you want to get the quote, just divided by 4. That's very simple. Super bonus, what we recorded in the first quarter of 2024 was a small queue coming from 2023. So, something that was not closed by the end of 2024 has been converted into the 70-30 model, a very small amount of money. And so, let me say, we expected just a drop to 0. It was a little bit higher, and that is mainly due by some of the activities were not completed by 2023, and they was changed into the 70-30 model. And so, I'm going to respond, and that is attached to the third question, based on the information that we have today, the change from 4 years to 10 years, depreciation, let me call it in that way, should affect only the, let me say, the cost that anyone would account for 2024. So, for us, it's going to be extremely minor effect on our profit and loss and financial, especially on the financial side. Going to the 2 questions relevant to the potential transaction, we are not going to change the dividend policy at all. I mean, premium policy will remain there also because we have been able to demonstrate that 65% is the dry balance between shareholder remuneration and capability of the company to grow and the fact that we have announced this potential deal, it's a clear demonstration that we have been throughout this year. We have been able to keep the possibility to grow. So, I don't expect the dividend policy will be changed. I'm expecting the 65% will continue to be higher than 4% as a floor. So, I'm expecting that shareholders will be more than happy to stay on the same dividend policy. Regarding the antitrust, as you know, Golden Power, one side and on the other side, the antitrust is the Italian antitrust. So, there is no European antitrust evaluation, so all in the Italian ones. We will see. I cannot tell you about what is going to happen. I mean, I'm not in the antitrust or antitrust will make their own evaluation and will tell us what -- will tell us their outcome. So, I cannot anticipate there will be an antitrust evaluation? Sure. There's no doubt about that.

[Operator]

Next question is from Alberto De Antonio of BNP.

[Alberto de Antonio Gardeta, analyst]

A couple of questions on results, and then regarding the transaction. On results, just to clearly understand the impact of the revaluation of the deflator. You have that in the first quarter, the impact is EUR 14.6 million. So, if you update it to the new number, I guess, it's going to be like between EUR 3 million and EUR 5 extra million this quarter, and I guess also in the following quarters? And also, regarding the cost of debt, this quarter has been at 1.4%, but you have issued some debt. How do you see the cost of debt at the end of the year, if you can say so? And then regarding the transaction, do you have any visibility on the timing of the transaction and when the exclusivity period is going to end? And if then, target to I has any change of control clauses on the debt? And if you have any visibility on the cost of debt of the target?

[Paolo Gallo, executive]

Sorry. What I did not fully understood is the first question. So, can you repeat it so I can -- you can make it simple.

[Alberto de Antonio Gardeta, analyst]

Yes, just to understand the impact of the deflator. So, on your presentation is 14.6 million in this quarter. And I guess that this is calculated with the 3.8 deflator. So, for this quarter, you have a potential upside of between EUR 3 million and EUR 5 million. Is that correct?

[Paolo Gallo, executive]

Yes. Correct. I mean, sorry that I missed your question. Regarding the cost of debt at the year-end, maybe Gianfranco you can tell if there are any differs in respect of today.

[Gianfranco Amoroso, executive]

Let me say that we expect a slight increase compared to the current 1.4 million, also because we have 2 loans expiring in September that were at a very extremely competitive rates and will be refinanced in the current market. So, let's say, 20 or 30 basis points or more than that, in terms of average because the 2 loans, I'm talking about the marginal costs. So, the average will be more or less slightly above the current level.

[Paolo Gallo, executive]

So, 1.5, that can be our best -- at the end of the year. So, then you do the average, and of course, you will see there will be not very far from --

[Gianfranco Amoroso, executive]

On the target. There was the other question about the cost of debt, basic of public data. We have calculated an average cost around 2%, mainly based on the bonds that are in the market.

[Paolo Gallo, executive]

Going back to your question, first question about transaction dynamic exclusivity, is going to be a few months. I mean, we want to be as fast as possible, I mean, to go through the data. I mean, we know the business very well. I mean, we are industrial operators. So, we know exactly the business. So, we should be very quick in going through the due diligence. And therefore, I'm expecting that this exclusive period would be relatively short, let us put together a nice binding offer.

[Operator]

The next question is from Davide Candela, Intesa San Paolo.

[Davide Candela, analyst]

I just have 2. The first one is a clarification on the energy efficiency business. Of course, there is a drop related to expert incentives. I was wondering you reported close to EUR 0 million EBITDA in the quarter. And I was wondering if it's just about operating leverage of some one-off costs, just about to understand the potential evolution throughout the year for this business. The second one is on water. It is more broad, and I was wondering if you can share maybe your view about the sector, and if sooner or later, there will be or not a consolidation. This maybe will be sensitive for Italgas in the sense that could be relevant to become a regulated operator both exposed to gas distribution and water.

[Paolo Gallo, executive]

On the energy efficiency, as you can understand, I mean, you are right, there was a significant drop close to 90% of the activities in the super bonus. In the same time, our fixed cost more or less remain the same. So that's the reason why you saw a significant drop in the EBITDA. We expect that throughout the year, we should recover part of that marginality of profitability, if you want, because we will have other activities or other revenues that we lend. I mean, we are focusing and we have been focused since the beginning of the year to move and get new contracts on the energy efficiency, either at the industrial level or, let me say, public administration, or large condominium level in order to replace, of course, we will never able to replace the size of the revenues coming from the super bonus and to recover part of the profitability. I think most of the operators will be -- are in our condition where fixed costs are the ones that were last year with the super bonus. But I mean, we are very confident that we have the -- that are mainly persons. So mainly, let me say, our personnel. And we feel that our personnel will be the driver to bring the energy efficiency with the profitability and margin that we expect. So, in the range of 18% to 20% EBITDA. Our value are the person that are in the energy efficiency company, that are working very hard to bring new activity inside the company, and I'm extremely confident that they will be successful. On the water side, we are -- I mean, you talk about consolidation. I start this conversation with the consolidation in the gas. We have been waiting 12 years, and we have seen now consolidation of very limited ones. And I mean, the wood sector is very similar. And there is no, let me say, tenders that are on the horizon that will bring consolidation. Our view on the -- like you asked me on the water sector is that with the acquisition of the Veolia asset, we will very soon demonstrate our ability to be a network operator, not only gas but the water. We will soon be able to demonstrate that we can reduce significantly the level of leakages that currently are in the -- at least in the companies that we are operating, mainly Acqualatina that is the distribution. We will demonstrate that the digital application of all the digital application that we will bring into the -- into those company will make the difference. And of course, we are ready if there are any consolidation processes that is going to happen, and we will be ready to be there. But with the demonstration that we are changing the game in the operation of the water distribution through the digital first, and the artificial intelligence second, as I said to Javier before.

[Operator]

The next question is a follow-up from Javier Suarez, Mediobanca.

[Javier Suarez Hernandez, analyst]

I'm sorry, I forgot two additional questions. The first one is on the bridge credit facility that you have time, you can share with us the -- how much time do you have for the refinancing of the bridge launch? Is that a year or is a longer period of time? And the second question, during the presentation, you mentioned that the deal should be EPS accretive. So, it is fair to say that doing the math, that EPS accretion could be at high single digits. Do you think that customer is roughly correct? Obviously, that is the spending on the price that you offer. Doing the math, I think that should be leading to a number close to high single digit. Any comment is welcome.

[Paolo Gallo, executive]

Javier, you are trying -- you are bad. You move from 4 to 6 questions. You are the only one. I know you very well, so I don't have any problem to answer to you. But now you are digging into details that we cannot share today. So, for bridge facility, it will be enough -- the time will be enough to get to the closing if, of course, we will sign a binding agreement to get to the closing and to be fully refinanced with no issue at all. On the EPS accretion, I told you, it will be. There's no doubt it will be EPS accretion. The numbers we will give you when we will know the numbers, and we will be in the situation to disclose those numbers to the market. Sorry for that, but you have the numbers. We will give you when we will know the numbers, and we will be in the situation to disclose those numbers to the market. Sorry for that, but you ask too much.

[Operator]

[Operator Instructions]. Gentlemen, Mrs. Scaglia, there are no more questions registered at this time.

[Anna Scaglia, executive]

Okay. So, thank you very much to everyone attending. As IR team, I'm available to take any follow-up questions that you might have. Thank you, and see you soon.

[Operator]

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