Italgas SpA

MIL:IG

Earnings Call Transcript 2018-Q3

[Operator]

Good day, and welcome to the Italgas 2018 Third Quarter Consolidated Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Paolo Gallo. Please go ahead, sir.

[Paolo Gallo, executive]

Good afternoon, everybody, and thank you for joining us. As anticipated, we are going to give you details of the results we just approved this morning, the Board of Directors. And as usual, we will have time at the end of the presentation for any question you may have.

So let me start from Page #2, where there is -- where the major results are indicated. As you can see, during the first 9 months, the result achieved are fully in line with what we have presented at the end of June. And in that way, we are demonstrating our ability to outperform the 2017 result.

At EBITDA and the EBIT level, we have recorded an increase of 9% versus 2017, and it is the result of our effort in the operational efficiency that continue like we explain in the month earlier, even though, let me say -- and I will get into details later, even though the conservative approach we have taken during this quarter about the white certificate.

Net profit still show a significant increase, but of course, as you know, and Antonio will explain in details, we have a very strong position regarding fixed interest rate debt that, of course, have some cost. And that's the reason why from 9% from EBIT, we -- the net profit has increased by 6%.

Regarding 2018 target, we confirm what we have already presented to you and discussed in June. What we can tell you more is that we will position ourself in the higher part of the range that was given to you.

Finally, the operating cash flow is still very strong also in the third quarter. Thanks to that, we were able to fully finance the CapEx, the M&A, nearly EUR 100 million, and to pay the dividend, EUR 168 million. And the final result is the net debt is in line with the level that we recorded at the end of last year.

Let's move to the CapEx situation, where I am going to comment the major points. So let's move to Page #3. In the 9 months in '18, we have installed more meters than last year even though you see that the CapEx devoted to the smart meter is less. That's the reason -- that is driven by the price effect. Thanks to the procurement activity, we were able to spend less than last year. EUR 23 million is the difference as a price effect. In fact, while the authority recognized for each meter installed EUR 142, our cost is EUR 115. And as you know, the difference will go by 60% to the system and the 40% will remain with us as an additional RAB. If you want to speak in numbers, around EUR 12 million of that. That is the difference. The 40% is recorded into the RAB without any expenditure. Let me say, it's our incentive to spend less than the amount recognized by the authority.

At the end of June, we told you that we were nearly close to 50% of the replacement of the meters. In -- at the end of September, we reached 53%. So we have already passed the requirements set by the authority. But we will continue as per our plan, and we expect to complete the replacement in the first half of 2020.

Regarding the distribution CapEx. So the activity that we perform on the network, we deployed nearly EUR 180 million devoted to development, maintenance, replacement of the cast iron pipes. You still see a number that is the small, that is the one in green. That is the CapEx driven by the acquisition we performed during this year. It's still a small number, but it's growing, mainly for the Sardinia activities. By the year-end, you will see a more significant number.

If we move to Page 4, we have reported that structure that you know very well. But we wanted to show to you that there has been a change during the month of September. The participation in Toscana Energia, Umbria Distribuzione and Metano Sant’Angelo Lodigiano has been the merger from Italgas Reti and are controlled directly by Italgas S.p.A. It's another step in our company reorganization. It's an important step because the dividends will flow, especially from Toscana Energia, directly from Toscana Energia into Italgas S.p.A.

But the effort to continue to make our corporate structure more effective and efficient will continue, and in fact, in the next month, we will have all the special purpose vehicle that are set in Sardinia will be merged into Medea. That will become our company to manage all Sardinian operation. And all the special purpose vehicle under the name new grids that are operating in Campania, Calabria and Sicilia, the ones that we recently acquired from CPL, will be merged into Italgas Reti. So again, in the next months, you will see a further simplification of the corporate structure.

Now let's move into the numbers and let's move to Page 5. Page 5 show the comparison of the result achieved in the first 9 months 2018 versus 2017. Let me point out some key points because then I will go into details later to explain some of the phenomenon that we will analyze later on. First of all, higher revenues are mainly driven by the fact that we have entered into the second phase of the smart meter replacement.

In fact, until the end of June 2018, we have considered the replacement of the 50% as the requirement of the authority. Now that we have passed the 50%, we have accounted both in revenues and in depreciation the additional 50% of internal revenues recognized by the authority and accelerated depreciation. But Antonio will explain you more in detail later on.

Regarding the operating expenses. Operating expenses are lower in respect to 2017 by 2.2%. Even though you should consider that our interest change since 2017, especially for all the M&A activity we have done and for the energy efficiency company that we have acquired in spring. We were able -- so to reduce our cost, even though as I said before, we have accounted in the third quarter an additional cost for the energy efficiency certificate following the implementation of the government decree by the authority. We estimate that if the system will remain as it is, we estimate a loss for each certificate between EUR 6 to EUR 10. Italgas -- but not only Italgas, also Enel Energia have challenged the decree, [Foreign Language]. And if nothing happened, we will do the same for the authority delibera that has been issued for -- on this subject.

Regarding the higher D&A that we have recorded, depreciation and amortization, that we have recorded in the first 9 months, Antonio will explain later, is mainly linked to the smart meters. There is also an higher interest expense. As I said before, it is driven by our fixed interest rate debt position. Again, Antonio will explain later the same for the income tax rate. Our interest expense is mainly explained why EBITDA and EBIT increased by 9% year-over-year while net profit only by 6.1%. Then we'll give you more details about the revenues. So let's move to Page 6.

The revenues increased by 5.5%. Regarding the distribution, EUR 6.7 million are coming from the M&A. And when I talk about M&A in distribution, I'm referring only to the acquisition we made on the Italian peninsula regarding gas distribution, so no Ichnusa nor Medea and, of course, no Seaside is included in this number.

EUR 6.1 million -- EUR 6.8 million, sorry, is what we call our day by day life is the RAB increase minus the x factor, plus the inflation, plus the Napoletanagas incorporation. What is interesting is that those 2 numbers are very similar. So the increase coming from the M&A, from 0 to EUR 6.7 million is very similar as the number to the increase we have had on the -- on our original perimeter. EUR 6 million negative is the negative adjustment related to the previous year.

The second element to take a look is the tariff contribution for meters replacement. As we said, we started the second phase that concern the remaining 50%. And that's the reason why we have recorded such increase, a similar phenomenon we will see into the depreciation and amortization. EUR 3 million in other distribution revenues. They are COGR-regulated services to final customer and the incentive and penalties for gas detection and odorization.

Other revenues, the additional EUR 7.4 million is mainly related to the business acquired in Sardinia and in the energy efficiency. If you sum up the additional revenues coming from the M&A, you arrive in the range of EUR 12 million.

Let's take a look at the cost on the OpEx side, Page 7. As I said before, the costs are down by 2.2% versus last year. There are several phenomenon inside those costs. The first one is the net labor cost. The net labor cost increased by 2 reasons. The first one is because our perimeter has changed, both in term of the M&A, both in term of personnel that is coming -- that has arrived from Snam on the ICT staff, starting from January 1. And the third reason is the application of the national labor contract. And that is around EUR 6 million, the sum of all those effect. The other element is a lower capitalization in respect of last year by EUR 6 million.

The next, external cost. You can see we have seen a significant reduction, EUR 14.5 million. Again, there are different phenomenon inside this number. The first one, we reduced the third-party cost, consultancy mainly, by EUR 2 million. Some of the cost of the real estate rentals have been categorized under a new rule, that is the IFRS 16. There has been a significant Snam reduction activities. Thanks to the personnel that have come back to Italgas from Snam, we have seen the increase in term of cost of personnel before. That reduction is -- account for around EUR 6 million, and that represent the first outcome of our project to move all our application to cloud project that is going to be completed by a week. So in a week's time, all our infrastructure and application will be on cloud. And we expect that this project will bring savings starting from next year.

As we -- as I said before, white certificates have moved from a positive contribution in the first semester to a negative contribution in the third quarter. We have accounted during the third quarter EUR 4 million that is the result of the delibera that was issued by the authority to implement the government decree. As I said before, we have challenged the decree at the Tribunale Amministrativo Regionale, and we will do the same for the delibera because we don't feel that is correct that gas distributor and the electricity distributor should bear cost with no possibility to recover. I should also remember that in respect of the first 6 months result, we have reclassified the margin of the white certificate, the margin that are generating by Seaside, our energy efficiency, into revenues for Seaside effect and, of course, into higher cost from our perspective.

In the other cost, the main reason why we have seen such a big reduction is that we have released a number of risk fund that were too big, too large. In the other activity, the increase by EUR 3.4 million is mainly due by the activities carried out by Medea, Seaside and Ichnusa.

If we compare revenues and the cost relevant to the M&A activities or the overall M&A activity, we have around EUR 6 million of cost compared to EUR 12 million of revenues. We have an EBITDA of around 50%, even a little bit more. That regards, of course, distribution, energy efficiency, the sales of the LPG. In fact, we've limited or no synergy. And let me say that we are doing quite a good job in the M&A.

I will now give the floor to Antonio, who will continue into the presentation. Antonio?

[Antonio Paccioretti, executive]

Thank you, Paolo, and good afternoon , everyone. As Paolo just commented, our consolidated EBIT in the 9 months for this year amounted to EUR 333 million, therefore, showing a solid 8.9% increase compared to the 9 months of the -- of last year. This is the result of: firstly, a reduction -- a decrease of 51.3% of our EBITDA, mainly due to the revenue increase of EUR 45.7 million and EUR 5.6 million decrease of our OpEx. Secondly, the EUR 24.1 million increase in D&A, mainly driven by the accelerated depreciation, EUR 21 million, related to the reduction of the economical life of the meters to be replaced by 2018 according to the Authority's rollout plan and the remaining meters to be replaced according to the company decision to complete the full replacement plan by 2020. Also leasing ex IFRS 16 show a reduction of EUR 5.5 million in our depreciation.

The 9 months 2018 net profit was EUR 226 million, up 6.1% versus the same period of 2017. In addition to the already commented EBIT increase, let us highlight the following trend. Net financial expenses amounted to EUR 35.6 million, with an increase of EUR 8.6 million compared to the same period of last year, mainly due to an higher average cost of debt related to the full impact of the transaction carried out so far and at increasing the fixed quarter of our total debt and its maturity profile. Finally, we accounted EUR 87.2 million of income taxes with an increase of EUR 5 million compared to the 9 months 2017 due to the higher taxable income. For the full year, we expect the tax rate almost in line with the 9 months in range, therefore, of 28%.

In Page 10, we discussed the consolidated cash flow. Our cash flow from operation amounted to EUR 590 million and was generated by, first of all, net income of EUR 226 million plus D&A and other nonmonetary items equal to EUR 252.8 million. A EUR 110.9 million of net working capital decrease mainly related to the billing seasonality which according to the current regulation tracks the gas volumes actually distributed, EUR 132 million. Then a decrease of receivable for energy efficiency contribution for EUR 62 million and tax accrued in the period and not paid for EUR 34 million. These 3 positive effects have been partially offset by the increase of receivables for smart meters contribution for EUR 62 million and other net receivable [Foreign Language] for EUR 66 million.

For the full year, we expect the change in working capital to be neutral or slightly positive. The sum up of operating cash flow total EUR 590 million and allowed us to fully cover the financial need associated with the CapEx and M&A. After the cash-out related to the payment of dividend, EUR 168 million, the significant positive cash flow permitted us to maintain our net debt almost in line with the level of year-end 2017.

Moving on to our debt structure in Page 11 of the presentation. The financial strength of the company is further confirmed. In particular, our sound debt structure can leverage on 3 main pillars: No refinancing need before 2022; 87% of our gross financial debt is a fixed rate with a significant duration of about 7 years; and finally, a safe and adequate liquidity profile, also supported by significant amount of undrawn committed credit line. As of the end of September, total funding needs of the group are covered by bonds, 79%, with an average maturity of 7 years. European Investment Bank loans, 21%, with the final maturity in 2032, 2035 and 2037.

Moreover, you can see how our debt maturity profile confirms that we have achieved our goal to lead refinancing risk with maturities well distributed and on the time horizon and very low exposure to interest rate. Notwithstanding our strategy to invest in fixed-rate and long-term tenure, we have been able to lock in the competitive cost of funding at 1.1%, 1.2%.

The last slide is dedicated to our balance sheet. So moving to -- moving on to our balance sheet, net invested capital amounts to EUR 5,020,000,000, with an increase of approximately EUR 114 million compared to the year-end 2017. The increase is mainly driven by the EUR 190 million increase of fixed assets only partially offset by the EUR 79 million decrease in net working capital.

Fixed assets increased EUR 190 million was mainly related to EUR 429 million as capital deployment for EUR 94.6 million for M&A and CapEx for the current perimeter EUR 334 million. EUR 47.8 million of higher CapEx related to the adoption of IFRS 16 operating leases in relation to vehicles and real estate. EUR 27 million of lower payables for investment and EUR 295 million for D&A.

The 9 months 2018 consolidated net debt was, therefore, equal to EUR 3,734,000,000, with an increase of EUR 14 million compared to the year-end '17. As a result of the free cash flow generation in the period without considering debt for operating leases of EUR 43 million, according to the said accounting principle.

That's all. We would now like to open the floor to questions.

[Operator]

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

[Harry Wyburd, analyst]

Two questions for me. The first one, and I apologize in advance because I'll definitely mispronounce this. But I think ANEEL told this morning, there was an article saying that Ascopiave, which I've definitely pronounced wrong, is considering selling its gas retail business and potentially doing some asset swaps of its gas distribution activities and it specifically named Italgas. So I wondered -- you probably won't want to comment on that specifically, but what you might be able to comment on is would you ever contemplate buying a business that was nonregulated, i.e., a retail business? The first question. And then the second one has been a recurring question. Now that we've reached the end of the observation period, do you believe that the regulator will stick to the formula and allow you an increase in allowed returns when they publish their final determination on the allowed cost of capital in a few weeks' time.

[Paolo Gallo, executive]

Okay. Regarding the first question, regarding Ascopiave, I think all of us have read what Il Sole Ventiquattrore and the journalist, I don't remember the name that's written, I think you should revert -- you should ask him questions, not to us. We are not involved in that at all. Of course, we are not interested at all to buy their retail business. So everything that you have read on that newspaper, I think it's a fantasy by the journalist. So it's hard to us to comment what is a fantasy. You should ask the journalist. The journalist called us, and we told them that there's nothing. And even though he wrote no matter that we said that it's nothing between -- in discussion with Ascopiave. Regarding the second question, weighted average cost of capital. The observation period has ended. The new number in term of -- the new number in term of spread is 179 that result into -- through the formula into 139, instead of 100. So we expect that the increase could be up to 30 basis points in the WACC application.

[Harry Wyburd, analyst]

Okay. And you assume flat in your guidance. Am I correct in that?

[Paolo Gallo, executive]

I beg your pardon?

[Harry Wyburd, analyst]

In your guidance, in your business plan, you assume a flat allowed burn, is that correct?

[Paolo Gallo, executive]

Well, the guidance is -- we have not given any guidance related to 2019. Of course, the new WACC will be applied starting from January 1, 2019. We will not have -- we'll have no effect on the 2018 guidance.

[Harry Wyburd, analyst]

Okay. But your longer-term business plan -- okay, fine.

[Operator]

Next question is from Javier Suarez from Mediobanca.

[Javier Suarez Hernandez, analyst]

On the regulator, on the new regulator, the regulator has issue the ruling 529 that should mark the start of the regulatory review for the fifth regulatory period. I would just question, it would be so kind to give your first interpretation on the document. What do you see the key criteria entering into the fifth regulatory period? I think that the regulator is trying stimulate efficiency, outperformance, maybe stimulate competition. And I just wanted to hear from you if this should be instrumental or would your revenues are supportive for an acceleration in the consolidation of gas distribution in Italy. That is the first question. Second question is on white certificate. I think that you have defined your accounting this quarter as conservative. Can you quantify for us the potential damaging effect on your EBITDA, if the existing ruling and regulation affecting white certificate is not modified? And when do you expect this core ruling could be issued and, therefore, eventually the decision that has been taken could be reverted? And then the third and final question is on the guidance. I think that you mentioned during the conference call that you are guiding for -- to be at the upper end of the range, if I understood correctly. To what target you are referring -- would -- you are making that statement, just the EBITDA target for 2018 or something more?

[Paolo Gallo, executive]

I'm trying -- we had problem in hearing you. So we don't know if we are able to give you the right answer. If not, please reply because the line was quite terrible. If I well understood, the first question is regarding what we expect about next regulatory period that will start at the beginning of 2020. So the consultation will go through in the next year. There has been rumors about application of standard CapEx. We would welcome to have standard CapEx. The reason being is that we feel that we are much more affected than anybody else in the market, and the demonstration is the smart meter installment. We have been demonstrated our capacity to stay below the standard given by the authority, and as you know, there is 60%-40% share. So we enjoy the 40% saving. We enjoy the 40% of our saving. But in the market, there are people that are spending more than the standard for which they are not enjoying. They are losing 40% of what they spent additionally. So from a -- if I have to say if standard CapEx will come, we will welcome them because we feel we have the ability to be the best in the market. The second question is on the white certificate. We have accounted in this quarter, in the third quarter, all the effect that we estimate is as of today on the white certificate. So if the decree and the delibera of the authority will remain in place, that's the effect. Of course, we feel that is not -- I mean, we feel that those cost that have been moving to us are not correct. We are fully regulated. So no matter if we -- whatever we will do in term of buying white certificate, we are going to lose money, even if we are very smart in doing that. So that's the reason why we have challenged the -- both the decree, and we will do the same for the delibera. Of course, to the time -- we have more time to challenge the delibera. When we expect that [ ITAR ] will make any evaluation, we don't know. It will take few months for the people to understand the Italian administrative regulation. We have not requested the suspensiva. Suspensiva means that we request the judge to evaluate the -- to stop immediately the decree or the delibera, whatever act you are going to challenge. We didn't want to arrive to this point because we hope that the new government to who we have explained the problem will intervene to change the decree that was issued by the previous government. That's the reason why we have not requested suspensiva. Also because from a legal terms, you should have a clear damage if the decree or any act that you challenge will not be suspended. Relevant the guidance, I was referring to the EBITDA. The guidance, we give the guidance of EUR 810 million, EUR 830 million. We said we are on the higher range of that -- of the higher part of that range.

[Javier Suarez Hernandez, analyst]

And just as a follow-up, in your interaction, and that was part of my first question, your interactions with ANEEL, regulator, do you have any evidence that the regulator intends to stimulate competition on the process of gas auction? And if so how do you see the regulator intends to do so?

[Paolo Gallo, executive]

As you know, the regulators has nothing to do in the process to stimulate competition among the auction of the ATEM. I think that you are referring to that point. You know that the role of the regulator in that case is to help the stazione appaltante, the municipality, to put together the right recommendation, and he has the role to evaluate if the VIR is correct, especially when the VIR is higher than 10% than the RAB. So I don't see how the regulator may intervene to stimulate competition. I think that more than stimulate the competition, we should say to stimulate the auction to come. Otherwise, if there will be no auction, no tenders, well, you don't see competition because there's nothing to compete for.

[Operator]

Next question comes from Anna Maria Scaglia from Morgan Stanley.

[Anna Maria Scaglia, analyst]

Just a very quick question for me, following up of the last statement. We also read about these proposals included into the budget decree about basically trying to create a centralized point where the municipality can go and build for the process of the tenders and as well we have read of meetings between the government and the utilities. I was wondering if you can give us a bit of feedback whether you think that the government is clearly going in the direction to help the tenders, what the views -- their views is on the investments that Italgas can do. And can you elaborate on those points?

[Paolo Gallo, executive]

Let me start on the end and then I will go to the -- what has been included into the new law. When we met with the government, I personally underline the fact that there is a huge amount of investment that unfortunately are not there, are not mobilized by the fact that the ATEM's tenders are not taking place. I think some of you will remember that we have estimated in EUR 20 billion of missing investments over a period of time that is shorter than the 12 years. And we have estimated a missing investment of EUR 3 billion per year in that field, if all the auction will be -- all the tenders will be awarded. And that kind of investment is probably the most precious one because it has an involvement of the local economy very high. We have estimated more than 3x the gross national product generated. In fact, the number correct is 3.3. So every euro spent will generate EUR 3.3 in gross national product. The reason being is that it's very local, the kind of investment that we do. So we have brought at the attention of the government that situation and we explained to them that the reason why the tenders are not happening is because there is a lack of competence, there is a lack of willingness of the municipality to take this tender at the right level, and we have suggested that probably a more centralized entity will help the tenders to happen. And in fact, what you have read, you probably read correct there is an idea of the government to help the local municipality through a central entity to promote not only our gas distribution tenders but to promote tenders in different sectors. One of that sector is the gas distribution. So let me say that we are happy to read that article because it's the first signal of a long effort that we have made, let me say, in the last couple of years to make everybody aware that the tenders are a missing opportunity not for Italgas but for Italy for the investment on the local territory. I hope that is enough for -- as explanation for you.

[Operator]

Next question comes from Enrico Bartoli from MainFirst.

[Enrico Bartoli, analyst]

A few questions on my side. First of all, on the installation of digital meters. You alluded that you have overcome the 50% of your [ PDR ]. If you can give us a hint of what we expect -- we have to expect by the end of the year. And since we are starting the second phase against that probably some regulatory spend that was required by the authority in order or the authorize the additional 50%, if you can update on the situation on this side. Then second question is related to the mechanization of Sardinia. I wonder if you have the opportunity to discuss this with the government. And if you can give us some flavor on the approach of the new government regarding this project. And thirdly, regarding M&A, if you can update us the state of the art and if you can expect any additional transactions by the end of the year.

[Antonio Paccioretti, executive]

As far as the smart meters, new smart meters installation project is concerned, first of all, we -- in the first 9 months, we have installed, from the beginning, around 3.8 million smart meters, which is well in line with the targets set by the authorities of having at least 50% by the end of this year. We will overcome 60% by the end of this year actually. In terms of impact on our accounts, we will have higher depreciation due to the fact that we started to have also depreciation for the second phase, let me say, the second wave of substitution together with the amount to be received as indemnification for debt. All in all, we expect for this year what we have accounted in the first 9 months of this year our numbers in the range -- in the region of around EUR 60 million of higher depreciation and EUR 60 million for revenues.

[Paolo Gallo, executive]

Regarding on the yearly basis, we are around EUR 80 million of accelerated depreciation of the smart meter. You have requested also about authorization of the authority. There is no need of authorization, in a sense that the authority has set a minimum level to be achieved. And they set when they said, "You should reach 50% not later than the end of December 2018." It doesn't say if we pass the limit, they are more than happy, so we don't have to go and get the authorization from anybody. We will continue in the replacement program with the same rules that are used for the first 50%. Regarding the Sardinia mechanization. We have explained, we have told local authority and national authority about our program for the new networks of gas distribution in Sardinia, and we have received a positive approach, either a local level or a national level. So as we said already in June and we confirm today also the same stuff, we have already given contract for around EUR 100 million, EUR 90 million relevant to 4 basin, so 4 concessions: one is in Alghero; the other one is nearby Porto Torres; the third one is nearby Cagliari; and the fourth one is, I don't remember, sorry for that. But still are 4 concessions for which the activities on ground have already started. Lastly is relevant to the M&A. We confirm the target that we have given, and we expect to announce, hopefully, some new M&A operation by the year-end.

[Operator]

Next question comes from Antonella Bianchessi from Citi.

[Antonella Bianchessi, analyst]

Yes, a very quick question. Since the average age of your employee is very high, do you think you will have an impact from the change in the pension reform in Italy? Do you think this can accelerate your cost cutting? We can see some improvement in the reduction of the cost or some acceleration of the reduction of the cost over the next few years. Do you have an estimates or something regarding this point?

[Paolo Gallo, executive]

We have made a very initial -- because we don't know yet the condition. We have made a very initial estimation. As you know in our plan, we have estimated with the current regulation to have around 700 person that will exit the company for retirement. We have tried to made a simulation what is going to happen if the change in the rules are the ones that we read on the newspapers. So 100 as the sum of 62 and 38. And that's it. And of course, if that is going to be the picture and if everybody that has the right to go to retire under this new scheme will decide to do, then the number around 700 will nearly double over the planned period, so from now until 2024. What is going to be the impact on the cost, it's much more difficult to, as of today, to evaluate. The reason being we don't know what are going to be the economic condition of that exit. So we don't know if the company has to support that exit or not. For sure, we can see that there's going to be a reduction in term of cost. New people will enter, it will be young people with digital approach and blah, blah, blah, all the stuff that you know that what is going to be the impact in term of cost on our profit and loss, it's very difficult today to make any estimation, and we don't want to do it. The only estimation we made is that potential number of exit will double from 700 to 1,400 during the plan period, so in the next 6 years.

[Operator]

Next question comes from Stefano Gamberini from Equita Group.

[Stefano Gamberini, analyst]

Three quick questions. First of all regarding the year-end guidance. Does it include the acquisition of EGN or not? And when do you expect to close this acquisition? The second regarding Toscana Energia, if I'm not wrong, you expected to take the control or to consolidate -- for the full consolidation of the company by year-end. What is happening? And the third, regarding the first -- not the consultation, but the kick-off of the consultation period from the regulator that will introduce cost benefit analysis in order to go ahead with investments. Do you think that this approach from the regulator could change the total amount of CapEx that you expect in, for example, in the case of tenders, if the tenders go ahead or also the total amount of EUR 2.6 billion CapEx from Italgas alone considering both networks, centralized CapEx and digitalization. And very last question regarding the tenders. If I'm not wrong on the regulator side, there were just 2 new tenders this year. Nothing happened during this year. Could you elaborate a little bit more what is the scenario in your view, even considering the new centralized entity that could help the local authorities if this means any way in isolation next year or there is case to see something close to 0 or so in the forthcoming months?

[Paolo Gallo, executive]

First question regarding EGN, we expect the closing to happen by the year-end. Second question, Toscana Energia. Toscana Energia, as you know, public service has issued tender for the selling of 3%. The price was out in the sky. So we have quoted a reasonable price. We were the only bidder. So the auction has been canceled. It's been -- not canceled, it's been -- I mean, the result of the auction has been 0 in a sense that the price they requested and what we offered was far away. And therefore, they didn't do anything. They may eventually make another auction in the next weeks. And of course, we will participate. In the meantime, some of the smallest shareholders have decided to -- in Italian, [Foreign Language], so decided to give the shares back to the company, some of them with no challenge to the price asserted by the Board of Directors of Toscana Energia. And Toscana Energia offer those shares to all the other shareholders. They are a very small number. We bought them or we are in process to bought them, and we have also exercised the option for the remaining 52% of those shares because nobody else has requested to buy. But there are like 15,000. So nothing. Some other have challenge the price set by the Board of Directors of Toscana Energia, in that case, the Florence Court has appointed an expert who will decide if that price is correct or eventually we'll decide for another price. So the process complicated. This will go on. And I think at the end of the day, if it's not going to be by the year-end, it will be by the beginning of next year. We should have the opportunity to buy what is -- what will let us consolidate. So we'll let go up to 50% plus 1 share in Toscana Energia. Regarding the analysis, the cost-benefit analysis, especially in the tenders, when we present the investment to the stazione appaltante, to the municipality for the tenders, we normally present the cost-benefit analysis. So we do already internally cost-benefit analysis. So we didn't see an impact on our CapEx because all our CapEx have already gone through our internal evaluation of the cost benefit. Last but not least, the tenders, valido all'asta, as you know happened, as we have forecasted. And we submitted the offer. Now we expect the -- a long process before the conclusion. We do not expect any other tenders to happen between now and year-end. So instead of 3, we are going to have only 1, valido all'asta. Regarding the central entity that should help, the municipality, to set the tenders, well, I would expect, I would wait final approval of the government decree of the government law to see in which form this central entity will be designed.

[Operator]

[Operator Instructions]

[Paolo Gallo, executive]

Okay. If there are no more questions, thank you very much for participating to the call. If you need any follow-up, please contact the IR department, and good afternoon to everybody.

[Operator]

Thank you. That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.