Italgas SpA

MIL:IG

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Italgas Third 2019 Consolidated Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, 7th of October 2019.

I would now like to hand the conference over to your first speaker today, Chief Executive Officer, Mr. Paolo Gallo. Thank you. Please go ahead, sir.

[Paolo Gallo, executive]

Good afternoon to everybody, and thank you for the introduction. We are going to present to you the result achieved at the end of September '19. And as usual, at the end of the presentation, we will leave you time for any question you may have on those numbers.

So let's start from Page #2 of the presentation. As usually, we presented the corporate structure as of September 2018 that is different from the one that we presented at the end of June. The reason, as you know, we are always trying to reduce and to streamline our corporate structure. And in fact, the EGN assets were managing Italgas Reti effective on August 1. We have also consolidated in Italgas Reti the ongoing concern of CNR gas distribution that we acquired on September 25. More important, we have underlined our participation in Toscana Energia that as of end of September 2018 was 48.68%. Starting from October 1, our share move to 50.66% because we acquired nearly 2% from some local municipality in Tuscany. Those municipality exercise their right of withdrawal, and we exercise the option to buy, not only on our -- on the stake that was reserved to us, but also on the stake that was reserved to the other shareholders. We achieved that starting from October 1 after having received the authorization by the antitrust authority. So at the end of -- when we will present the result at the end of the year, you will see a quarter of the result of Toscana Energia fully consolidated in our profit and loss account.

Let's move to Page 3, that the summary of the results, I would like to say outstanding result again for another quarter. This is the 11th consecutive quarter of growth since demerged from Snam. The third quarter 2019 has been extremely positive. EBIT has increased in that quarter by 22% and net income by 27%. And that means that the net profit, as you see, has increased by 16% in respect of last year. And EBIT has increased by 13%. We will discuss in a moment, the increase of the revenues, mainly they are driven by the M&A and by the revision of the work. But what it is extremely outstanding is the level of the cost. The OpEx were almost flat year-by-year, even though we have seen, and we will explain additional cost for the energy efficiency certificate. Plus the cost of the new M&As, plus the increase of construction fees. So we were really able to control and reduce further our cost. Another element extremely impressive is the CapEx deployment. It is up by nearly 42% in respect of last year. And we confirm that by the year-end, we will pass the EUR 700 million. I want to just recall that the -- in 2016, our overall expenditure that was the last year in which we were consolidating Snam, we spend about EUR 350 million in CapEx. In 3 years' time, we were able more than double our capability to deploy CapEx.

Cash generation still very strong, Antonio will explain more in details. Financial position, we remain below EUR 40 billion, even if we have made a significant investment and we have paid dividends, nearly a EUR 190 million. And again, I can confirm that by the year-end, we will remain below EUR 4 billion as a net financial position.

Let's skip and move to Page 4. Talking about CapEx. This first page, you show the overall CapEx expenditure. It's -- again, it's very impressive. You see a significant portion of the CapEx coming from Sardinia. Last year was close to 0. This year is more than 12%. You see also some digitization investment in the grid last year was close to 0, this year is 3.4%, and it will grow significantly in the last quarter.

Regarding the meters, we installed in the 9 months, 1.3 million meters. The -- there is -- even we installed more meter than last year. You can see the reduction of spending, mainly driven by the price effect. There is EUR 13 million, 1-3 million euro difference, and [ mainly thanks ] to our procurement. The installation cost that is quite important is being equal to EUR 140 per meter to be compared with the amount recognized by the authority, EUR 142. And that generates, that we call free RAB of about EUR 70 million. You remember that there is a sharing between 60% and 40%. 60% is benefit of the system, 40% is the benefit of all Italgas generating what I'm calling free RAB.

The overall meters replaced at the end of September reached the total of 5.5 million meters that are nearly 73% of our total fleet. If we consider our affiliates that starting from the next quarter will be consolidated. We passed the 73%, and the total meters replaced are equal to 6.2 million. We confirm that by the end of 2020, our replacement program will be completed.

The next page, Page 5, focus on the network that I think it's extremely important. I wanted just to underline the kilometers of grid, new, repaired, upgrade, extended that we were able in 9 months to deliver 639 kilometer in comparison to 163 of last year.

I want to recall the positive effect of such investment into our economy, also in terms of job creation. We have divided this kilometer between extension, new network maintenance and Sardinia. Sardinia is a significant number. If we sum up all the kilometers already achieving Sardinia at the end of October. So I'm adding 1 month in respect to this number. The total is 380 kilometers and you have to compare it with the 1,100 that is our total objective. So we are fully in line with the objective that we have set for developing the new network in Sardinia. And also all the other numbers in terms of extension and new network have seen a significant increase and also the maintenance. We doubled the kilometers of network under maintenance. One other area that is very important is the transformation of the LPG isolated grids that are in the Italian Peninsula into network that is fully connected with our network and transformation from LPG to natural gas. We are on the process to complete most of them. The completion will be by the end of 2020. It's a program that we started a couple of years ago, and we are in progress all over Italy. And by the end of 2020, we will not have any more LPG isolated grid working -- operating in Italy.

Now let's keep on the profit and loss on Page 6. And as I said, higher revenues are driven by the increase of the recent acquisition and by some one-off capital gain. We will get into details in the following pages. As I anticipated, the operating expenses are particularly flat. We have increased by EUR 800,000, so less than EUR 1 million. And I will show you that this is a significant achievement, thanks to the attention that we have given to the cost expenditure. If I -- in the expenses, we will look at it. There are also some provisions that were already present in the first half of 2019, relevant to the first -- to the energy efficiency certificate. And of course, there are also that we will comment later, some additional cost due to the increase of our revenues and, therefore, the increase of the concession fees. On a like-for-like basis. The -- if we take out the cost, the additional cost for the white from the energy efficiency certificate, white certificate and the M&A's activity, we were -- in the concession fee, we were able to achieve the delta concession fee. We were able to achieve a decrease in our cost that is close to 10%. Regarding the lower D&A, depreciation and amortization, Antonio will explain later as well as the lower tax rate.

Let's take a look at the revenues. Revenues are up by 3.7% versus last year. Let's take a look at the different line distribution. Distribution, the overall amount, the increase overall amount is EUR 40 million is mainly driven by the new M&A, M&A in gas distribution. So we are not talking about Seaside, not talking about Medea and all the LPG distribution. There are a EUR 10 million of tariff components that is mainly WACC. And then we have some adjustments, positive and negative, relevant to the previous year. The major element that is driving the adjustment is the recognition by the regulator of cost that we had in the past year relevant to the traditional meters reading that was not recognized at the time and was recognized during this quarter. The EUR 40 million for nearly EUR 41 million increase in the distribution completely offset the reduction in the tariff contribution for meter replacement. That is something that you have already seen in the first and the second quarter of 2018. The more we are going close to the end of the program replacement, and we will see less and less tariff contribution.

On the other distribution revenues, it's a significant increase by EUR 8 million, is mainly driven by our -- by the increase of the services provided to the commercial companies. And by the fact that we have been more efficient in leak detection and authorization. So those are bonus coming from the regulator.

Other revenues, there is a significant increase driven by the capital gain of the real estate asset in Torino, by the vehicle and fleet. You know that we have sold our older vehicle fleet and we're changing into rental, you will see here, and around EUR 3 million of other revenues. But then you will see also a similar amount in the cost about depreciation of less value that we have accounted in the quarter for the same amount. So on the EBITDA basis, these additional revenues are fully compensated by their relevant cost. And the other major driver is the LPG activity, distribution in Sardinia and the energy efficiency.

Similar to what we have done in the previous quarter. If we look at the M&A's contribution, so if you look at the M&A activity that exclude Enerco and Amalfitana that have been already merging with Italgas Reti, the revenues are equal to EUR 29 million, while the same contribution 1 year ago was only EUR 5 million. So there is a significant increase in -- thanks to the M&A.

And then let's take a look at the cost that, for me, are probably the best result that we have achieved even though there are several negative items that are not unfortunately under our control. Those are the increase in the white certificates that are the consequence of the Libra issued by the ARERA to implement the government decree. So you see EUR 7.8 million is the same number that we had in -- at the end of June. It will continue to be the same until the end of the year because it's our forecast, what is going to cost us the buying and selling the white certificate.

The other negative element is the increase of concession fees driven by the increase of the revenues, mainly relevant to Rome concession, EUR 4 million out of this EUR 5 million and EUR 1 million, due to that, we have a new concession, new activities, and therefore, we pay other concession. So those are the elements negative that we cannot control, but we were able to completely compensate them through a net labor cost decrease, mainly thanks to higher capitalization. You don't have the number, but at the gross labor cost, the gross labor cost is flat, even though there are M&A cost. So personnel that was the cost of the personnel coming from the M&A. So the labor cost is flat, thanks to the higher reinvestment, there is higher capitalization, and therefore, the net cost is lower by EUR 7 million.

Lower external cost, that is the -- we are comparing 9 months with no ICT contract with Snam. That is the 2018 with 9 months that was with the ICT contract with Snam, and we were able to save EUR 6.4 million. The implementation of the new gas detection, gas leakage detection by Picarro has lowered our penalties by EUR 3.5 million, bringing the penalties close to 0, so we don't pay any penalties anymore. And thanks to this reaching from traditional meters to smart meters, we reduced the cost of the traditional meter reading costs by EUR 2.5 million. So overall, the reduction in net external cost is being equal to more than EUR 12 million.

Concession fee, I have already said. Other costs increased by the same number due to the higher capital losses that is the higher capital losses that I mentioned before, equal to the revenues of the fleet vehicle. The other activities have increased by either the net external cost by nearly EUR 5 million because of Medea, so because of the activity in Sardinia.

Overall, we were able to maintain the cost flat. So all the additional revenues are increasing our EBITDA. If we take a look at the EBITDA of the M&A, that includes LPG distribution, the new gas distribution in the Italian Peninsula Energy efficiency, as I said before, EUR 29 million revenues, EUR 70 million cost, EBITDA margin equal to 42%.

Now I will pass the floor to Antonio that we'll continue to explain and illustrate the results up to now achieved. Thanks.

[Antonio Paccioretti, executive]

Thank you, Paolo, and good afternoon, everybody. Our consolidated EBIT in the first 9 months of this year amounted to EUR 367 million, showing a remarkable 12.9% increase compared to 9 months last year. This is a result of, firstly, a EUR 31.5 million increase of our EBITDA, mainly due to the revenues increase of EUR 32 million and almost flat level of OpEx, thanks to the continuous efficiency of both labor and external costs that allowed the company to offset the increased cost due to the energy efficiency activity and our large business perimeter. Secondly, the EUR 11.5 million decrease in D&A, mainly driven by the lower accelerated depreciation, EUR 36 million, related to the reduction of the economic life of the meters to be substituted by 2020. This positive effect was partially offset by higher network depreciation EUR 4 million to EUR 5 million, higher depreciation related to the assets acquired in our M&A activities around EUR 5 million. And finally, higher depreciation related to the adoptions of IFRS 16, EUR 5.5 million, for our vehicle fleet replacement started in the second half last year. The 9-month maintained net profit was EUR 262.6 million, up by a significant 16% versus the same period last year.

Net financial expenses amounted to EUR 37 million, with an increase of EUR 1.6 million versus the same period of 2018 related to the transactions executed during 2019 aimed at further reducing our exposure to interest rate volatility and extended maturities and durations. Income from associates increased by EUR 2 million, mainly related to Toscana Energia.

Finally, we accounted EUR 94 million of income tax with an increase compared to the first 9 months last year, as a result of higher taxable income. The tax rate in the first 9 months this year was close to 27%, mainly due to tax benefits deriving from the enactment of specific tax rules on depreciation related to smart meters. [ This was the amount ]. The 9-month tax rate then can be considered a reasonable guidance also for the full year.

Moving on to the cash flow statement. In the first 9 months of 2019, the cash flow from operations amounted to EUR 528.8 million. It was generated by our net income of EUR 262 million plus D&A and other nonmonetary items equal to EUR 231 million and further supported by the positive evolution of our net working capital.

The change in our working capital of EUR 35 million was mainly due to the billing seasonality, which according to the current regulation tracks the gas volume after distributed for around EUR 117 million. Tax accrued in the period and not paid for EUR 44 million. Income tax, partially offset by higher net VAT receivable for around EUR 30 million. These positive effects have been partially offset by the increase of receivables for white certificate, EUR 42 million; increase of receivables for smart meters contribution, EUR 20 million; and higher inventories, EUR 13 million.

Net of the payment of the dividends for the full fiscal year 2018, EUR 189 million, net cash -- net cash flow available for the first 9 months amounted to EUR 340 million. This strong cash flow generation allowed us to meet the significant level of disbursement for technical investments, around EUR 400 million. Our M&A activities, EUR 110 million, thus, resulting in an increase of EUR 164 million of our net debt position, which at the end of this period, totaled to EUR 3,978 million.

Moving on to our debt structure. Last July, Italgas significantly invested in fixed rate duration and tenure for further reducing the exposure to financial risks and taking advantage from the current financial markets in terms of spreads and rates. Firstly, the bond issue. We executed our bond issue of EUR 600 million with a coupon of 0.875% and the maturity of -- maturity 2030. Secondly, the stock transaction we executed to transform the European Investment Bank loan of EUR 300 million from floating to fixed rate, with a final all-in cost below 0. Now the company can leverage on a superior debt structure that combines one of the lowest average cost of funding with the outstanding solidity in terms of fixed rate and more than 90% of our debt, a very long-term maturity of almost 100% of our debt and a safe liquidity profile. The cost of debt in the first 9 months was around 1.2%, and this can be also considered a reference for the full year 2019.

Moving on to look at the balance sheet. The net invested capital amounts to around EUR 5.4 billion, with an increase of around EUR 250 million compared to the year 2018. The increase is mainly driven by the EUR 230 million increase of fixed assets, supported by the EUR 21 million increase in the net working capital. Fixed assets increased by EUR 230 million was mainly related to an increase of higher capital deployment related to M&A, EUR 73 million. And CapEx for the current perimeter of EUR 463 million, up EUR 31 million of higher CapEx related to the adoption of the IFRS 16, operating leases for vehicles and real estate and EUR 52 million of higher payable for investment. Last but not least, EUR 280 million of D&A and EUR 8 million of subsidies.

Our consolidated net debt at September 2019 was equal to EUR 3.978 billion, with an increase of EUR 164 million, maintaining the leverage ratio in line with our guidelines. That's all.

We would like -- we would now like to open the floor to questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Harry Wyburd from Merrill Lynch.

[Harry Wyburd, analyst]

Good evening, everyone. I've got 3. The first one, and I apologize if you've covered this before, and I may have missed it. But in the third quarter, it looks like you had an EUR 18 million reimbursements relating to remote meter reading. So I just wondered if you could give us a bit more -- or remind me what -- give a bit more color on that? And to what extent that was anticipated in your budget and business plan for this year? And then the second one is on the more long-term guidance. I think -- but based on what the points that you gave us the CMD, the EBIT, RAB ratios and so on. You kind of pointed towards something around net income guidance around EUR 400 million by 2021 and just over EUR 500 million by 2025. So I just wanted to revisit that and see if there's been any shift there? Do you think that's still achievable?

And maybe if you could also just remind us how much of that guidance is from the tenders? Because that was guidance inclusive of tenders. And then the final one, this might be a little bit mature, but just looking at your debt maturity chart, you've got close to EUR 1 billion bond coming up in 2022, but that will be in January. So it's not much more than 2 years away. I guess, for you today, with rates suddenly spiking up, would you consider doing some liability management, given, obviously, the interest rate environment is very forgiving at the moment? And if you had to pay a high coupon on that bond, that could have quite a significant impact on earnings. So is there any way -- or would you consider shifting that maturity further into the future?

[Paolo Gallo, executive]

Regarding the first question you raised. That is the amount of reimbursement we received from the regulator. You're right, it's EUR 18 million. We had not only positive stuff, but also negative stuff. And so we had EUR 18 million, but then we have like nearly EUR 4 million negative. This one is relevant to the period 2011, 2016, traditional meter rating. There are costs that we had in the past and were not recognized in the previous tariff. Of course, we submitted the request to the regulator. We had, let's say, probably more than 1 year discussion with them about -- the main question was should those costs already being recognized in the tariff in the past or not? At the end of the day, we were quite confident that they were not. And in fact, they recognize us EUR 80 million. Second question, we have said several times that the ratio EBITDA of RAB will be and will move -- will be over, will be -- will pass the 7%, will move toward 8%. So that is the only answer that I can give to you. More detailed number, we will not provide. Detail number, especially for the years to come, except during the revision of the industrial plan. Regarding the third questions, Antonio?

[Antonio Paccioretti, executive]

But in relation to our debt structure, the first comment, I would say is that, we are so proud and happy about that because having -- we are so satisfied about our cost, which is just above 1%, having such a solid debt structure tenure of more than 7 years and no refinancing until 2022. No refinancing until 2022 usually is an advantage. Having said that, and for commenting your answer, I would say that we have already demonstrated in the past our proactive approach for actively managing our debt structure, our liabilities. We are monitoring the market closely, and we will take all the opportunity for taking advantage of the current conditions.

[Operator]

And your next question comes from the line of Javier Suarez from Mediobanca.

[Javier Suarez Hernandez, analyst]

I have 3 as well. The first one is on the second consultation document on the gas distribution activity in Italy. So in principle, reading at what the regulator has said, we may expect a cut on the allowed remuneration for gas distribution in Italy in 2020 and 2021. And I personally see that a little bit surprising since for most of the other activities, that remuneration has been confirmed in 2020 and '21. So you can help us to understand the reason behind how the company maybe compares with the regulator to maintain the existing remuneration.

Also on the regulatory document, there are some compensations related to the gas meter substitution that may be compensating the damage from the cut on the allowed, if you can help us to understand also that component, that would be very helpful as well and the third question is on the -- also on the document. At least to my eyes, there are very small incentive for consolidation or those incentives are only for the various small operators. So you can give us your impression on that. My personal impression is that is a kind of a missed opportunity and still, and that puts for consolidation to happen is not there.

[Paolo Gallo, executive]

Okay. Let's start from -- okay, your questions are all on the second document. So I will give you answer on each specific item, but you should consider they are not financed. So we have not even submitted the comments to the regulator that should be submitted by mid-November. So it's an anticipation of the position that we will take towards the regulator. How the things will evolve and how the things will finally be at -- we will discover that probably between Christmas or around Christmas time. First question about the review of the WACC. You know that the regulator has proposed 2 elements. The first one is to bring the data unlevered for the meters at the same level of the unlevered data for the distribution. Our position has been already clear in the first consultation document. We don't have the same technology risk. The technology risk of the smart meter is still there, also because we have a very short history in terms of meters. It's only 4 years in reality, and we are the company that have more history than anyone else.

So we feel that it is not the right moment to align this to beta because the technology risk is different. The regulator has also claimed that to your second question, that is that we are going to pay you the depreciation that you lost in the past year, linking the 2 elements, but there is no link at all, as you can easily understand between review of EBITDA and paying the depreciation that I will talk in a moment. The second proposition, the second idea of the regulator is to review the general, the EBITDA levered, I think, and we are providing -- we will provide a very detailed study to the regulator that the current 0.439% is the current one, it should be even a little bit higher according to our evaluation. So we didn't see the reason why, also we don't see what happened in respect of last year to lower EBITDA. So while on the alignment between meters and network is something that should happen sooner or later. Because, in fact, once the technological risk of the smart meter will be reduced, then there is no reason why to give a different data. It's a completely different history to reduce the -- generally speaking, the EBITDA for the -- our sector.

Going on the second question. The second question, it's an issue that we have discussed and we presented since the end of 2016, beginning of 2017 to the regulator. We said there are 2 pieces of the story. The first piece of the story was covered by the first consultation document. The second has been covered by the second consultation document. The first piece of the story, is that during the period, the regulatory life of the meters traditional have been reduced from 25 to 20 to 15 years. Every time that the regulatory life was reduced, there was no recovery of the lost depreciation.

So the regulator after nearly 3 years of discussion and presentation of numbers and study and analysis confirmation by -- also by our auditors, they recognize that there was a piece of the depreciation that was lost. And that was addressed in the first consultation document. Then we have the other piece -- the second piece of the story is that if you replace a meters before it finished the regulatory life, supposing that we have installed the meters when the regulatory life was already 15 years, then it's a traditional one. We have to replace it before the end of the regulatory life, we are going to lose the part of the depreciation, thanks to the fact that you replaced, let's say, 5 years before. And we do that because there is not only an objective, it's compulsory objective by the regulator to replace 50% by the end of last year and 85% by next year.

So we told the regulator, we are following your path to replace all the traditional meters, but you should take into consideration that some of the meters that we are going to replace, they have not reached the end of the regulatory life. So you should compensate us for the amount of money in terms of depreciation that you don't recognize. So at the end of the day, our discussion that has been very long. At the end of the day, we're successful. So both elements of the story are now recognized in the consultation document. Now the discussion is moving on how -- not how, when you are going -- when the regulator will pay us. Our position is now some of the payment is already due because it was -- the first piece of the story that I told you was already due years from now.

The second piece may be 1 year, or it will happen 1 year from now. So our position is very clear. There is no -- and then, let me say, there is no reason why we should be paid in 10 years, in 5 years. You should be paid when you replace the meters, full stop. If there is an additional life of the meter that you replace, we should receive the compensation for the depreciation loss. That is our position. So let me say, one element has been already recognized by the regulator. We are losing money under depreciation. The second element is when, and I think that is going to be -- the position is the one that I told. You were talking about incentive for consolidation. That is true. I mean, specific incentive for consolidation are only relevant to small companies. But let me say that there are other elements that may support or may push for further consolidation.

And let me mention at least 2 of them. The first one is the revision of the OpEx and the standard OpEx and the X factor. We expect, of course, some reduction in the OpEx in the level of OpEx recognition that will affect everybody in the industry. But to me, it will affect even more the small operator. And the other one is the introduction, hopefully very soon of standard CapEx. Standard CapEx, we have demonstrated to the market that we are -- thanks to our economic scale, we are able to have a level of standard CapEx for us, lower like the smart meter than they were recognized by the authority. If they introduce the standard CapEx, there will be a further push in the consolidation. Thank you.

[Operator]

And your next question comes from the line of Stefano Gamberini from Equita SIM.

[Stefano Gamberini, analyst]

Three questions also from my side. The first, if you can elaborate a little bit about Sardinia. Is there a risk that the CapEx related to mechanization of Sardinia will be not recognized in tariffs according to -- not recognized, but there is that they will be not shared all over Italy. And consequently, that you couldn't receive the returns on your investment in Sardinia, if you can update us on this. The second, regarding the future scenario, if we consider that the spread between the [ TPM ] bond is now around 130 basis points that probably the regulator will increase the leverage in 2022 for distribution. We will see what could happen on the EBITDA. At the end, there is a risk of reduction in allowed WACC by my calculation 80, 100 basis points. What could be potential measure from you that you can adapt to offset this potential reduction in allowed WACC? And the third is just if you can update us as usual in terms of tenders. Are there some accelerations as well as M&A if we could expect something by end or in the first quarter 2020?

[Paolo Gallo, executive]

Regarding the first question on Sardinia. First of all, the progress of our CapEx has been extremely significant. 380 kilometers already completed. We expect that, if not by the end of the year, in January, we will start supplying natural gas to the final customer. And regarding the way to, let me say, to share the distribution cost, not only in Sardinia, but also all over Italy. I think in the second consultation document, they have not discussed it because they have assigned to a third-party consultant study. Let me say that the reaction of everybody, not only gas distributor, but Confindustria Consumer Association, Environmental Association has been toward all the same element, that is a fair position to share the cost and we have also provided a detailed analysis to the regulator, which is the impact of that sharing on the overall -- on the Italian Peninsula is very limited. We are talking about a few euros per cubic meter. So very, very, very limited amount. And it is a fair position because if you think about all the subsidies that were given to the metallization of Italy in the past year were paid by the General Finance, and it's being paid by the overall tax of everybody, including the people and the citizens living in Sardinia. Having said that, we have already collected around 20,000 request of connection to our grid. That is a significant number, new connection. The reason being that with or without a sharing of cost of gas distribution, at the end of the day, the bill for the Sardinia cities will be lower than today. Of course, it will be much lower if there is a sharing of distribution costs with the remaining Peninsula. It will be not as high as, if it's not -- if it's limited to Sardinia. But 20,000 request for connection is a significant number.

Regarding the 2022 WACC revision, we are handling the WACC revision for 2020, let's address one point at a time. If you go back to the history, what happened last year, you remember very well. Everybody were forecasted a reduction in WACC, and then we had an increase. So it's really hard today to think about what is going to happen in 2022. You know that there is 1 year of review of the spread. We didn't know what is going to happen, to be very honest. So I prefer to skip. Our focus now is to support the current bid and leverage both for the measurement for general distribution. So we are focused on that.

On the tenders, as you know, we are going to present the offer for Torino, early December. There has been a small delay, but not significant. Napole has been delayed to early February. So things are looking -- moving on.

Regarding M&A, I think, between the end of the year, first quarter of 2020, we'll probably announce some new M&A transaction, hopefully. We are working very hard. Generally speaking, we confirmed the target 2019, 2020 together.

[Operator]

And your next question comes from the line of Bartek Kubicki from Associate Generale (sic) [ Societe Generale ].

[Bartlomiej Kubicki, analyst]

Two questions, if I may, please. One on your guidance. As I remember, for 2019, you have been guiding on EUR 840 million, EUR 860 million of EBITDA. Third quarter or 9 months were quite good, you have a couple of one-offs. What would be the new guidance now? And the second -- and related to this also, it looks like your M&A activities are a little bit delayed. So I would like to know how much of sort of -- how much of the guidance could be taken away due to the fact that you have not yet completed this 250,000 points of or delivery points for this year? And the second question, I know there was a discussion already on the refinancing. But I would just like to know whether you will be willing to spend whatever, EUR 130 million, EUR 140 million to buy back the high-coupon bonds and refinances at lower rates or not, especially in the environment like we would have probably next year when you would earn additional EUR 130 million of nonrecurring EBITDA due to the old meters depreciation. So just to see whether this is something you would consider and be willing or this is out of question?

[Paolo Gallo, executive]

Let me start from the M&A question. M&A will not hit our guidance. If there is any delay, will not hit our guidance because we have already -- at the time that we gave the guidance, we knew that any M&A would happen at the end of the year. So it will impact eventually 2020, but not 2019. We have anticipated that we look pass EUR 860 million as a guidance, a little bit over EUR 860 million, and that is based on the results that we have achieved in the first 3 quarters. On the buyback bonds, Antonio, would you like to...

[Antonio Paccioretti, executive]

That's like -- frankly speaking, if your question is, will you buy back some of your bonds? I believe that it is clear that I cannot answer. If your question is, do you have any plan for actively manage your liabilities? I believe that, again, the answer is, yes, we are monitoring the market and whether the opportunities would present would be -- whether we will have some opportunities due to the market condition, we will work for capturing such conditions.

[Operator]

And your next question comes from the line of Enrico Bartoli from MainFirst.

[Enrico Bartoli, analyst]

The first one is regarding cost efficiency. If you can update or give us the guidance on the level of cost that you expect for the full-year '19? And the potential, the room that you have for continuing the cost efficiencies over 2020. Regarding this matter, you make a comment about the possible impact from the new regulation in 2020 on the recognized OpEx. What could be, in your opinion, the impact on the resecting on the allowed OpEx revenues due to the fact that you made -- you are very effective in reducing your cost base in the last 2 years? And second question is regarding your guidance for net debt. You mentioned for the end of the year below EUR 4 billion. And I wonder if this includes an impact from the IFRS 16 and the consolidation of Toscana Energia? And the last one is related, if you can update us on the amount of revenues that you expected to be accounted this year and next year related to the substitution of the meters?

[Paolo Gallo, executive]

I mean, for the first question, cost efficiency. You remember that our goal has always been to be better than the X factor. We are always in the range of 2%, 3% per year. We have been able to do it even more than that. I mean, we realize that we are able to do more than that. That the 3% is the minimum that we give as an objective to continually reduce on a like-for-like basis, of course. We expect that the digital transformation that we started about 1 year ago, we'll start providing significant effects starting from next year. So if our ability to continue to reduce cost will probably decrease in a traditional way, we will have the digital that will bring a significant result. Target is always, let's say, 3% per year as a minimum on a like-for-like basis.

What we expect on the revision of the -- on the second consultation document and the final regulation on the review of the OpEx, it's difficult to say because you remember, and probably you have read that they are referring as of -- based on the second consultation document, they are referring to the cost base of the industry sector in 2018, we didn't have that number as you can understand. We have our numbers, but we don't have the overall industry sector number. So the average will be based on the industry sector. So we don't -- to be honest, we don't know. I mean, we can guess, but it's going only to be a guess, it would be based on what the -- the others, they have done in respect to the standard. As you know, 50% will be immediately passed in reduction of the standard OpEx, the remaining 50% will be split over the 6-year time to determine in that way the X factor. Really, we don't know the numbers.

The only thing that we can do is to continually work aggressively toward the close to be able to stay 2 step ahead of any cost reduction on the regulation. All the guidance that we gave for 2019, what I said before, does not include, and I'm underlining, does not include the consolidation of Toscana Energia, so it's a like-for-like comparison. It includes the Toscana Energia in the old ways so not consolidated through their contribution at the profit level. Relevant to the revenues, Antonio, maybe you can add something.

[Antonio Paccioretti, executive]

I understand the question was related to the net financial position at the end, which the current -- the net financial position end of September was EUR 3.980 billion without IFRS 16. And for sure, without Toscana Energia. The guideline at the end of the year, which we already gave below -- slightly below EUR 4 billion is the same. So without the IFRS and without Toscana.

[Paolo Gallo, executive]

Can you repeat the question, again, to the revenues for the smart meters? Because we have not...

[Enrico Bartoli, analyst]

Yes, if you can update us on what you expect for '19 and the contribution that you expect for 2020?

[Antonio Paccioretti, executive]

Okay. Understood, sorry. The explanation we have is the same we already gave to our shareholders. We expect to have for the rest of the smart meters, we have all the traditional meters, we have to substitute with [ the ones ], a negative impact, considering revenues and depreciation of around EUR 10 million.

[Paolo Gallo, executive]

Of course, just to make it clear, that is based on the old -- on the existing regulation, does not include the story that I told you before, responding to Mediobanca again when I discussed about the fact that the regulator will recognize as was lost for the difference in regulatory life and was lost or is going to be -- or we are going to lose when we are going to change meters that have not fully depreciated from a regulatory point of view. So under the current regulation, the number provided by Antonio is correct. Future regulations of 2020 will be different based on whatever the regulator will decide upon.

[Operator]

Thank you. And there are no further questions at this time. Please continue, sir.

[Paolo Gallo, executive]

Okay. Therefore, thank you, everyone, for participating to the conference call. If you need additional information, as usual, please contact the IR department. Thank you, everyone, and have a good evening.