Italgas SpA

MIL:IG

Earnings Call Analysis

Energy Firm Reports Strong 26% Revenue Growth

The energy company delivered robust results with a 26% increase in revenue, primarily driven by its energy efficiency business, ESCo, and the consolidation of Greek operations. EBITDA surged by almost 16%, largely benefiting from contributions by DEPA infrastructure and ESCo. Net profit saw an 11% uptick, tempered by a rise in net financial expenses due to increased short-term interest rates impacting the floating rate debt, partially offset by positive remuneration of liquidity. Despite a substantial reduction in energy consumption and CO2 emissions, the company's net debt increased by roughly EUR 492 million, reaching a consolidated net debt of EUR 6.4 billion. As for guidance, a calculated Weighted Average Cost of Capital (WACC) increase of 80 to 90 basis points is anticipated for 2023, which should support earnings growth sufficient to cover raised interest rates and inflation impact.

Steadfast on 2023 Guidance and Strategic Plan Achievement

The company confirms its committed guidance for 2023, underlining a notable anticipation in the WACC calculation—expected to increase between 80 and 90 basis points next year. This augment should stimulate earnings growth, sufficiently addressing the implications of heightened interest rates and inflation. Executives express a robust assurance in accomplishing the objectives laid out in the midterm strategic plan, a promising sign for investors interested in the company's future trajectory.

Additional Earnings Potential from Decommissioned Meters

An intriguing aspect not factored into the existing guidance is the potential additional earnings from ARERA's recognition of funds for decommissioned meters installed up to 2018. The company is assessing the impact, signaling a potential upward revision to the financial outlook, contingent upon a detailed understanding of the regulator's approach, thereby hinting at unforeseen revenue streams.

Net Debt Neutrality and Material Cash Expectation

For 2023, the firm anticipates a neutral working capital, proposing that this balance might be reached via sale of receivables to banks if conditions are favorable. Alternatively, these would remain on the balance sheet. A noteworthy liquidity event is forecasted for mid-next year, with a projected material cash influx of approximately EUR 120 million, a fact that might influence investment timing and strategy.

Improving Efficiency through Strategic Capital Expenditure

A target has been set to leverage CapEx in a more efficacious manner than in the past, with an immediate goal to decrease water leaks through digitization. This initiative expects to cut down leakage by 15-20%, optimize maintenance via prioritized investments, and ultimately scale back costs related to leaks, reflecting a proactive approach to operational management that should enhance the bottom line.

Awaiting Clarity on Inflation for Precise 2025 Projections

While the company forecasts a WACC increase between 80 and 90 basis points in 2023, the exact trajectory for 2025 remains inconclusive due to the need for greater clarity on inflation rates. Nonetheless, early predictions suggest figures in the vicinity of 2024's numbers, with a variance of approximately 10 basis points, offering investors a glimpse into expected medium-term financial performance.

Remarkable EBITDA Achievement and Profitability

The company succeeded in surpassing the EUR 910 million EBITDA threshold. A standout performance detail is the EBITDA margin of the ESCo business hitting an impressive 21%, which stands out as a testament to profitability within the company's diverse operations, likely to catch the attention of investors keen on efficiency and profitability metrics.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Italgas 9 Months 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Anna Maria Scaglia, Head of IR of Italgas. Please go ahead, madam.

[Anna Scaglia, executive]

Hi. Good afternoon, ladies and gentlemen, and thank you for joining us. Today, we will walk you through Italgas' 9 months 2023 results. I'm Anna Maria Scaglia, Head of IR, joined by Mr. Paolo Gallo, our CEO; and Mr. Gianfranco Amoroso, our CFO. We will address any questions you might have at the end of the presentation. I leave now the floor to our CEO, Mr. Gallo.

[Paolo Gallo, executive]

Good afternoon, everybody, and welcome to this conference call. And I'm going to show you the results that we achieved in the first 9 months of 2023.

As on the Slide #2 on Page #2, you can see an impressive growth that we have recorded in the last 9 months with double-digit increase in all the areas, in all the key operating drivers. Revenues were up strongly by 26%, and the trend is similar to the other -- to the -- what we have already recorded in the previous 2 quarters. And let me say that the 2 main drivers of such increase are the consolidation of Greece, number one; and second, the strong growth of the energy efficiency company.

At the same time, the RAB growth and the deflator in Italy regarding the distribution -- gas distribution in Italy has offset the dilution from the disposal of Naples. Similar, we can see that the total OpEx that I will talk about in a while were up year-over-year, and this is not surprising for the same reason that I have explained for the revenues.

Regarding distribution business, costs remain fully under control, not notwithstanding the inflation impact. Overall, considering our cost of debt, our adjusted net income grew by almost 11%.

If we switch on Slide #3, we look at the cash flow, CapEx and debt. This time, we decided to make a different representation with respect to the past, showing the operating cash flow for all the activity, except the Geoside, the energy efficiency company, considering the absorption of the cash flow that either myself or Gianfranco will explain later.

So if you take a look at that, you can see that the operating cash flow, excluding the energy efficiency company has grown year after year by nearly 15%, while because of the cash absorption of Geoside, the operating cash flow decreased 12.6% year after year. We will explain you later, which is this situation.

CapEx reached about nearly EUR 600 million, similar level of last year with a different -- significantly different mix that I will explain in a moment. As a result of the CapEx expenditure and the cash flow evolution and the dividend that were paid in the second quarter, net debt increased by EUR 480 million, just about EUR 6.4 billion, excluding the IFRS 16.

Let's move to the CapEx slide. CapEx, Slide #4. As I said, the overall CapEx expenditure increased by nearly 8% in respect of last year with a significantly different mix. The major difference is Greece. We nearly spend about EUR 75 million to Greece, while the remaining amount was spent in Italy. In Italy, the effort on the digitization remains extremely strong. We invested more than EUR 170 million just in the digitization component with an increase of more than 14% versus the same period of last year.

As usual, development and repurposing of the network attracted the majority of the CapEx for an amount that was nearly EUR 300 million. And the number includes also the remaining activities still going on in Sardinia for about EUR 40 million.

In Greece, the major expenditure was related to network extension. And in fact, if we take a look at the 9 months, we added about 680 kilometers of new network, out of which 435 kilometers were in Greece. That is a significantly number.

If we skip and we go to Page #5, we would like to spend a couple of slides talking about the Water business. As you know, we just closed last week the acquisition of the Veolia Italian Concession Water business unit. And I recall you, the price for EUR 115 million of equity, part of which is related or will be paid under a certain objectives and targets that may be achieved by the operating companies. The deal is extremely important for us and makes a strategic step for our group because we are going to enter, like we have said more than 3 years ago, we are going to enter the water business.

Let me underline the fact that the numbers that we are going to show you are relevant to year 2022 and therefore do not reflect any action taken from Italgas. As highlighted during my strategic plan presentation in London, water assets in Italy need a significant investment to tackle structural high leakage rates. Our initial estimates over the plan period, so in the 2024-2029, our initial estimate was for an investment required in the 3 companies of around EUR 300 million. This is a very preliminary assumption that we included in our strategic plan, which I expect to refine and revise as we are now able to establish a direct contact, a direct dialogue with the companies.

On top of that, I should add that the 2 companies, Siciliacque and Acqualatina, is already applied and has already received approval for funds coming from the national recovery and resilience plans for an amount that is EUR 140 million for both of them. So which is our plan, that is our plan that we have already discussed was the -- during our presentation in London, our plan for the water distribution. Of course, we want to play an industrial role. And this is based on the expertise and the companies that we have in managing network infrastructure.

Our primary focus will be reduced -- will be to reduce the level of leaks. And our idea, the same that we have applied successfully on the gas network is to start with digitization of the full network. It's a relatively small investment, but it's an extremely crucial investment because we let us understanding the situation of the network and will help us to immediately reduce the leakages of the water by what we estimate between 15% and 20%.

But what is more important is that with the deterioration of the network, we will be able to collect millions of data, similar to what we are doing in the gas distribution. And with those data, we will be able to prioritize the investments in the area that need more in terms of replacement of pipes or equipment. The result of this action will be to reduce the cost associated to the leaks and to use our CapEx in a much more clever way than in the past.

And finally, we expect that we can leverage local and territorial synergies regarding construction activity in the area where we have gas distribution and water distribution, an achievement that was never achieved before by anyone. And we will be going to demonstrate that it's fully possible, and we will do it in Latina area, where we manage gas distribution since many, many years, and we are going to also be involved in the water distribution for Acqualatina.

Let me close with showing the financial data of the water aggregated by the 3 companies, including -- let me say, by the 4 companies, the 3 companies that we recently acquired by the closing, and the fourth company that we -- the so called Italgas Acqua, the concession in Caserta that we own 100%. So that is an aggregated view of 2022 financials.

And in the second column, that is the equivalent of the pro-quota, that will be of NEPTA. NEPTA, as you know, is the new name of the water company fully owned by Italgas. This is a pro-quota that will include the pro-quota of Acqua Campania, the pro-quota of Acqualatina and the consolidation of Siciliacque and of course, the consolidation of the previous Italgas Acqua, so the Caserta concession that is 100% owned by us.

Let me remark another time that this 2022 achieved performance did not reflect any action taken by Italgas nor the potential positive of the new review, nor the potential positive impact of the digital transformation that we are going to try to push also in these companies. I should remind you finally that while Acqualatina and Siciliacque have significant RAB value, Acqua Campania business model reflect a very small ownership of the assets. It's a different business model, hence a lower margin that is included in those numbers.

Now let me go back after this brief presentation about the water, but we will talk more about water in the months to come. Let me go back to the normal presentation, our ESG results that again are showing quarter-by-quarter significantly progress toward our -- and probably an acceleration toward our targets that we set for 2028 and 2030.

We can see from an energy consumption point of view, we are on Page #8, that the energy -- net energy consumption was down by nearly 20% if we consider only Italy. And even if we add -- so it's an addition in terms of perimeter, the Greece consumption, we are still below last year by 14.1%. The main contribution of this significantly drop comes from industrial gas consumption, which was lower, thanks to the action that we implemented to improve the performance of our operating system, but also civil consumption contributed significantly, thanks to the efficiency that we put in place and we achieved in managing our buildings and through a constant and daily monitoring of the performance of each single building. So we can be energy efficient also in managing real estate assets.

Electricity consumption was down also to lower use by our water company. So it's a small company, but represent a significant amount of electricity consumption, thanks to the efficiency that we introduced in all the equipment that is used to pump the water from the source to the final customer. Finally, fleet optimization, improved travel planning of all our workforce keep driving lower consumption for vehicles.

The reduction in the energy consumption is, of course, a direct reflection in the reduction of CO2 emission. Of course, that is not only because the major driver in CO2 emission is the gas leaks. Gas leaks were lower in Italy in respect of last year and slightly higher if we had Greece, if we had -- if we include the Greek perimeter.

What is still very remarkable in these first 9 months is that we have increased the kilometers inspected in Italy by 15%, exceeding 75,000 kilometers. So we are reaching -- we are very close to have already inspected the full network. And similarly, for the first time ever, we are able -- we were able to reach to pass more than we are -- I think, around 60%, the kilometers inspected in Greece. And that is for the first time ever because last year, we were not the owner of the DEPA infrastructure. I think very little inspection on the network was performed.

The decline in emissions from gas consumption in vehicle reflect the trends that I explained, as I said in the previous slide, so relevant to the reduction of energy consumption.

Now let me skip to the results. So we are on Page #10 of our presentation. Our revenues, as I said, at the beginning increased by 26% in the first 9 months, mainly led by the strong contribution of our ESCo. You see on the right part of the slide and as a second contribution, the Greek consolidation. In Distribution, if we look at the Italian part, we see a growth, thanks to the growth in the RAB and the associated deflator. We had an increase of about EUR 40 million of higher revenues.

Higher allowed OpEx in the Italian distribution, driven by the inflation, were mainly offset -- nearly practically offset by negative X-factor. So in other terms, we are giving back to the system the increased cost -- in terms of the inflation, we are giving back to the system through the X-factor. Naples and Gaxa disposal accounted for nearly EUR 50 million, EUR 49 million in lower revenues. And finally, as I already said, DEPA contributed for EUR 117.5 million. And Geoside, in respect of last year, increased the business in terms of revenue by EUR 173.7 million.

So that is the picture of the revenue. So revenue increased by 26%. We will give you a deep dive later on Geoside to show you, let me say, the key parameters and key factor of this business regarding mainly the Superbonus. If we take a look at the operating expenses, the operating expenses were up as we are on Page 11, and were up mainly driven, as you can see, by Geoside, by the energy efficiency activity. Of course, DEPA infrastructure was contributed significantly to such increase as well as it contributed to the revenues.

But if we take a look on the like-for-like, it's minus EUR 0.3 million. So let me say, I would say probably EUR 0 million. So we were able to fully compensate inflation cost by our efficiency. And then I think it's an achievable -- and it's a great result.

Let me -- and then, of course, the EUR 8 million that you see is the part of the disposal of the Naples concession as well as Gaxa. Let me go now on Page 12. And then I will pass the floor to Gianfranco for the remaining presentation.

So I'm going to finish by illustrating the EBITDA result that is significantly increased in respect of last year, nearly 16% higher. And as you can see, there are -- the 2 main contributors are, of course, DEPA infrastructure and energy efficiency. As you can see also the change in the mix of EBITDA between last year where 97% of the total was represented by the gas distribution in Italy. And 2022, '23, where this number has decreased to 84%, while DEPA and Geoside representing the remaining 16%. What is remarkable is that we passed the EUR 910 million as EBITDA. The ESCo business, we will see in a moment, achieved an EBITDA margin of 21% that is absolutely remarkable.

I will leave the floor now to Gianfranco for the remaining part of the presentation.

[Gianfranco Amoroso, executive]

Thank you, Paolo. We are now on Slide 13, talking about EBIT. In 9 months, EBIT reached almost EUR 537 million, with an increase of about 18%. In this period, we have seen an increased EBITDA of the Italian perimeter of about EUR 40 million as a result of the variance of revenues and OpEx that Paolo have already explained. Then we have the D&A that are higher of about EUR 19 million. The D&A are mainly related to CapEx deployed in 2023, so of this year, 9 months, in addition to the carryover impact of the CapEx executed in 2022. Please take into account that in this figure, the disposal of Naples is neutral. So in other words, in the 2022 accounts, the D&A of Naples were equal to 0.

Then EBITDA incremental contribution of DEPA of almost EUR 61 million, reaching the level of EBIT of EUR 536.7 million. Now move to the following slide and commenting the net profit that is about 11% increase versus 9 months 2022. Here, the main point of attention are the net financial expenses that were up almost EUR 30 million compared to last year, mainly due to the impact of the rising short-term interest rates on our floating rate debt, including also the debt raised locally at the level of DEPA.

In relation to the fixed rate portion of our debt, we have accounted the full impact of the EIB loan that we executed last December and the new bond issued in June. These 2 negative effects above have offset the positive remuneration of the liquidity. Please note that we also counted in this 9-month period the cost linked to the factoring of the VAT receivable related to 2022 and first half 2023.

The net contribution from associates decreased by EUR 1.3 million. And finally, we accounted for EUR 125 million of income taxes, marking increase of EUR 12 million due to a higher taxable income with a tax rate that was 26.9%.

Now let's move to Slide 15, summarizing what we said so far. More in details, we see a growth of EBITDA of about 16%, EBIT about 18%, while net profit posted a 10.8% increase, mainly due to the growth of interest rates that had a growth of EUR 31 million, as commented in the previous page. Just a quick deep dive on Geoside, as promised by Paolo. So we see here the strong impact of the activity boosted by the Superbonus. More in detail, Geoside, in the 9 months reached the peak of its activity, mainly thanks to the traction of the Superbonus progression, with all the projects now approaching the completion of the works.

Revenues were up of almost 3x compared to last year, and EBITDA has reached EUR 54.4 million, well above the amount of the full year 2022.

Moving now to Page 17, talking about the cash flow. As anticipated by Paolo in the consideration of the different type of business, we have divided the cash flow generation of our distribution business from that of the ESCo Geoside. While the form remains strongly cash flow generative covering the majority of the CapEx, Geoside is temporarily absorbing cash. More in detail, the distribution asset generated in the 9 months cash flow from operation of EUR 577 million, notwithstanding a working capital absorption of EUR 70 million in the period due to lower volumes distributed year-to-date on the back of a milder climate.

On the other side, Geoside cash flow generation was negative for almost EUR 180 million. This was due to the growing receivable for Superbonus linked to the higher level of activity that I have commented already. Those receivables will be repaid through tax deduction in the 4 years following their origination. And I've also described this during the first half and first quarter reporting, and will have a material positive effect in the tax cash out next year, if you consider the positive contribution of the EUR 40 million of the, let's say, fiscal receivable 2022. And in addition, the EUR 80 million of the fiscal receivable 2023, in both cases, in installments of 4 years.

Net CapEx generated a cash outflow of almost EUR 607 million. All this, coupled with dividends and other payments for EUR 284 million, resulted in a net debt increase of approximately EUR 492 million.

And finally, we arrive to the net debt on Page 18. I will give you an update on our debt structure and on our cost of debt at the end of September. As you know, in June, we issued a EUR 500 million new bond, 10 or 9 years that will cover part of the refinancing needs of next year. As a consequence of this new bond and the bank facilities subscribed in the last 12 months, our cost of debt on average reached approximately 1.4, reflecting the rise in the short-term market rates. On the asset side, we will expect that the mark-to-market of the interest rate will be factored in the regulatory work reset starting from January 2024.

Consolidated net debt was EUR 6.4 billion, including the IFRS 16 impact of approximately EUR 80 million. In terms of structure, our debt composition remained broadly unchanged, 8% floating and 92% fixed. Now I'll leave the floor to Paolo for the final remarks.

[Paolo Gallo, executive]

Thank you, Gianfranco. Just moving to the last slide, that is #19. A few things to be remarked. Regarding Italian distribution, strong fundamentals led by the growth of the RAB despite the negative impact of Naples disposal. Diversification with Greece and Geoside is a material growth driver, as you have seen.

Regarding the cash flow generation, the reason why we show the difference with and without the energy efficiency is to show that the distribution cash flow generation remains solid and covering the majority of the CapEx. And the impact of the Geoside cash absorption is linked to this to the business model. We know very well. And this business model will start to revert, so we start to generate cash starting from next year. Just to give you an idea, next year, we expect to have like EUR 120 million of tax credit to be offset in the month of June. So that is a cash generation. So we will see significant cash generation coming from next year.

Regarding the -- what we have achieved in these 9 months, we have closed the deal with Veolia. We closed it last week, and I think what was extremely interesting is that we have achieved objective in our Greek activity ahead of schedule, significantly ahead of schedule. If you remember, we told you that we were planning to merge the 3 DSO in 1 single DSO. By the end of the year, we were able to do it at the end of September, so 3 months ahead of schedule.

We completed reorganization of the DEPA Infra and of course, the DSO. We migrate the Greek infrastructure into cloud. So they are fully aligned with our IT model. And finally, we group all the personnel in Athens and the nearby area in 1 single building. For us, it's extremely important to start working as a single company.

Regarding the guidance, we confirm the guidance for 2023. Anticipating some of the questions, we are telling that the observation period to calculate the WACC has been closed by end of September. Now it's just a matter of calculation. We expect the WACC to be set -- the increase of the WACC to be set between 80 and 90 basis points next year. And of course, that will drive material earnings growth that will cover the raised interest rate, will cover also, of course, the part of the inflation that we have experienced.

And then I can say, generally speaking, that we are -- if you look at all these numbers, you can really feeling the acceleration that we are giving to all our actions. So we are extremely confident to reach end of schedule our midterm strategic plan objective that we presented in June in London. I'm -- now we are all available here to respond to any questions you may have, and I will pass the floor back to Anna Maria Scaglia.

[Anna Scaglia, executive]

Operator, please open the line. Thank you.

[Operator]

This is the Chorus Call conference operator. [Operator Instructions] The first question is from Javier Suarez of Mediobanca.

[Javier Suarez Hernandez, analyst]

Two or 3 questions. The first one is on the...

[Paolo Gallo, executive]

Javier, sorry if I interrupt you. Can you -- I mean, the line is very, very bad. So can you speak slowly because we really are trying to understand you. Sorry for that.

[Javier Suarez Hernandez, analyst]

Yes. No, no, no problem. I'm on the fixed line, I would try to speak more slowly. First question is on the working capital absorption by Geoside, your energy efficiency activity. So year-to-date has been at minus EUR 180 million. How do you see that working capital absorption by the year-end? And a related question is the CFO mentioned during his presentation that the recovery of that working capital should be during the next 4 years. Are you expecting a linear recovery of those -- of that amount? Or can you give a...

[Paolo Gallo, executive]

Javier, honestly -- Javier, sorry to interrupt you a second time, but honestly, I really -- I did not understand anything about the second question, really anything. I don't know which is -- maybe it's our line, it is bad, maybe it's yours. Honestly, I don't know.

[Javier Suarez Hernandez, analyst]

Yes. I'm just speaking through the fixed line, so I don't know what to do. Yes. Okay.

[Paolo Gallo, executive]

Hello? Javier?

[Anna Scaglia, executive]

Operator, can -- maybe switch to next question while we wait for Javier to reconnect.

[Operator]

Yes. The next question is from John Campbell of Bank of America.

[John Campbell, analyst]

Thank you. Good afternoon. Thanks for taking my questions. I think probably the first one I had, perhaps predictably relates to your allowed return. So I know the observation period for your trigger mechanism has closed at the end of September. I'm mainly interested in when you expect to have a formal announcement from the regulator, ARERA.

And the second question is, of course, looking further ahead now to 2025. I know the observation period there has just kicked off. But have you had any sort of discussions with ARERA, the regulator, about sort of what to expect, which should be a more substantial review than the trigger mechanism was in 2024? For example, you should be faced with a mechanically falling cost of debt, looks to be like market rates should help prop that up. So any comments on 2025 allowed returns would be very helpful.

[Paolo Gallo, executive]

We expect that ARERA, before the year-end -- I think last year, they announced it was early December. We'll announce the number of the new WACC. The reason why we gave you a range between 80 to 90 basis points is because there is still some elements regarding the inflation that has to be, let me say, known exactly. That's the reason why that is -- even if the observation period is ended, there's still some uncertainty about the inflation rate.

Regarding the 2025, we just started the observation period. So it's hard to be -- to predict how it's going to look like. My guess is that we will be at the same level of 2024, more or less, let me say, minus/plus 10 basis points.

[John Campbell, analyst]

Excellent. That's very clear. Just one final one, if I can, related to your water strategy as well. So if you look at your strategic plan, 2023 to 2029, you had EUR 400 million of total CapEx dedicated to water. Now you spent roughly EUR 100 million acquiring the assets from Veolia. So that leaves you, I suppose, with the EUR 300 million indicative CapEx wallet. I think you mentioned that, that could be revised sort of in either direction. Are you able to provide sort of some idea of whether it will be revised up or down? And if that's to be a significant extent as well?

[Paolo Gallo, executive]

Well, the answer is very easy. It cannot be revised down. I mean we know exactly, and everybody knows that the water sector has been underinvested for decades. So revising the numbers down, either we are, I don't know, we do a miracle or otherwise, it's all going to happen. So if a revision will happen, it will be up. There's no doubt.

What we are doing right now, and I think it's very interesting. We are reviewing with the 2 companies. I'm referring to Siciliacque and Acqualatina, the ones that have received funds from the -- our resilience and recovery plan. We are revising with them the whole investment and see if they are room to apply for additional funds to support the digital transformation of the network in particular.

So we may eventually revising up investment, and we may eventually be able to receive additional funds from the resilience and recovery plan. But generally speaking, if I have to guess, EUR 300 million will go up, not down. That's for sure.

Javier, are you back? So you can ask the 2 additional questions.

[Operator]

Would you like me to open Mr. Suarez's line again?

[Paolo Gallo, executive]

Please.

[Javier Suarez Hernandez, analyst]

Any better? Can you hear me now?

[Operator]

That's right, yes. Thank you.

[Javier Suarez Hernandez, analyst]

Okay. I would try to make the question if you cannot hear me, please interrupt me again. So the question -- the first question is on this working capital absorption by the energy efficiency...

[Paolo Gallo, executive]

Javier, the first question -- we understood the first question, but we lost you after the first question. So if you want to move to the second one?

[Javier Suarez Hernandez, analyst]

Okay. I will move to the second one. It is, during the presentation, there is a clear focus on water distribution asset. If you can, please comment on latest consultation document for water distribution and your expectations on returns, profitability while investing in water distribution versus gas distribution assets.

And the third question is related to the second one. I was interested in your comment on the potential of the capacity of obtaining additional synergies operating together, the gas and water distribution assets. If you can please elaborate on that.

[Paolo Gallo, executive]

For the first question, I will pass the floor to Gianfranco, and then I will take the floor back for responding about the water questions.

[Gianfranco Amoroso, executive]

Okay. Thanks. So for working capital absorption by the ESCo. You have seen that in the 9 months, the absorption linked to the receivable was about EUR 180 million. Going forward and looking forward, I can say that it is not linear, of course, because of the -- most of the receivables will be collected and finalized by year-end. So everything will end by this year, and this means that there will be an increase more than linear.

And secondly, I wanted also to say that our net debt guidance for 2023, anticipated maybe your question, I assume a neutrality of the working capital. This implies that this neutrality can be achieved through a sale to the banks on this receivable if the market -- the banking market will be available to do that at a reasonable cost. Otherwise, we will have this asset is receivable in our balance sheet. And as we said before, we will have a material cash in next year by June of around EUR 120 million.

[Paolo Gallo, executive]

Going back to your second question, Javier, I think the consultation document that was recently issued by the regulator is very nice. I mean, we just take a look and honestly, it's in line with our expectation. First of all, we -- I mean, they are proposing to move the regulatory period from the actual 4 years to 6 years. So they will align this number to the -- to the gas distribution numbers. So that is fine.

But I think more even important is on the quality -- technical quality that they are looking for all the target set by -- or indicated by the authorities. When you are talking about resilience, water distribution should be resilient, can only be resilient if you digitize the network. Otherwise, you will never be able to manage that network in that way. In the moment in which you say the water distribution should achieve energy efficiency target, should achieve an increased amount of water to be reduced. Any way, to do it is through digitization of the network. Because that's the only way in which you can measure what you are doing.

So we are very pleased about that. And I'm getting to the third element, quite relevant. But we are very pleased about them because it goes exactly in the direction that we have envisaged when we described to you the strategy on the water distribution.

Finally, last but not least, the regulator will recognize the so-called extra cost in 2022 about the electricity, the cost of the electricity that all the water operator were incurred in [ 2023 ] due to the high cost of energy that was recorded. And I should recall you that among all the operational costs in the water distribution, one significant part is covered by the energy cost. So if you are efficient in using your water and pumping the water, you will reduce significantly the cost -- the operational cost.

Last question, sorry, I will just forget the synergy. I mean, it's going to be a very challenging test for us. Never experienced anywhere in Italy. Our idea is clearly that because we are managing the gas distribution in Latina, that is the only area where there is a clear overlap between our gas operations and the water distribution, we will coordinate, let me say, Italgas Reti, our company with Acqualatina to intervene at the same time when they need to intervene and to avoid to duplicate intervention, reducing in that way the impact on the local community and increasing our synergy.

So we will do it. There's no doubt about that, and we demonstrated that we can do it. Thanks.

[Operator]

The next question is from James Brand of Deutsche Bank.

[James Brand, analyst]

Well done on the good results. I'll try and speak slowly so hopefully, you can hear me okay. I had questions on kind of 2 different topics. Firstly, on the -- I wanted to just check with you. Obviously, you have the new allowed return on capital this year, whether you're expecting to outperform that or perform in line with the allowed return? And secondly, are you still expecting a full regulatory review at the end of this year to take effect from next year or do you expect another kind of 1 year rollover?

And then on the kind of eco bonus, Superbonus, I was wondering whether you could confirm how much working capital you had built up now? And you hopefully mentioned that you would see this EUR 120 million reversal coming through next year. So would you be able to comment more broadly on when you'd -- I suppose slightly longer profile on the reversal of the working capital, over how many years would you expect to recoup what you put in?

[Paolo Gallo, executive]

Well, on the first question, my answer is, I mean, look at our past, our track record. I mean, we will always be able to outperform in allowed return because we are more efficient than the average of our industry. So I'm expecting we'll continue to do that.

And the demonstration that you can see is on the cost. If you look at the like-for-like efficiency is that even though there is a significant deflation all over Europe, we were able to completely contain the increase of cost and to have a very [ green ] efficiency. Let me say, like-for-like, it's the same cost, but with [ green ] efficient completely recovered.

And regarding your second question, is -- you are relevant to the Greece, right? The second question is relevant to the regulation in Greece, if I well understood? As you know, there has been, how do you say, an interim resolution by the regulator in Greece that gave us the new WACC for 2023, that is 8.57%. That's been supported by a law that was passed by the parliament.

Now we are in the discussion with the regulator to complete the 4 years, as always, so to cover the tariff for 2024, '25 and '26. And we hope that before the year-end, we should get those tariffs and confirmation of the WACC for the remaining 3 years. And so by the end of the year, now we will be fully onboard on the fourth year -- on the 4 years' regulation period. So the interim, as you know, was done because they wanted to see the evolution of the inflation, they wanted to see the evolution of the interest rate.

And that's -- I mean, 2023 has been a year in which they are -- they were able to look at a different scenario, different macroeconomic scenario in respect to the previous regulatory period. If I well responded to you, I will pass the floor to Gianfranco regarding the Superbonus questions.

[Gianfranco Amoroso, executive]

Yes. Regarding Superbonus, absorption of cash up to now, we have -- I can give you the calculation, how we calculated the EUR 180 million for the 9 months 2023. We have the negative absorption due to the increase in working capital that is around EUR 220 million. And as a positive, of course, we have the net income and the DNA of the company, which takes into account the tax impact for the EUR 40 million that we have compensated in the tax spending this year in June. So you deduct this, let's say, EUR 40 million from the EUR 220 million. This is for this year. For last year, we have a net impact -- a lower impact because the Superbonus activity was starting of around EUR 100 million.

[Operator]

The next question is from Emanuele Oggioni of Kepler.

[Emanuele Oggioni, analyst]

The first one is your outlook on deflator to be applied to 2025 RAB. So the deflator which we published basically at the end of next year for 2023. If you remind me, what is your assumption included in the business plan for '25 and '26 RAB effect on tariff?

And the second question is on the special contribution for the water business in Q4. So in the -- as you -- we consolidate these assets and -- the acquired assets and the expected contribution is possible in 2024 in terms of EBITDA and also CapEx and cash flow generation -- the cash flow generation, if possible?

[Paolo Gallo, executive]

Last question is practically impossible to respond. I would probably go and present a new strategic plan for the water. So I'll try to give you some -- regarding the deflator in 2025, we have -- in our plan, we have 3.4%. That is our best estimate to date. It's going to happen? We don't know, honestly. And we need to take a look. So it's difficult to say.

Regarding the water contribution. The reason why we presented to you the 2022 result is to start -- let you understand and appreciate the number of the, let me say, the 3 companies we acquired, plus the 1 that all of them are in this core net company. So when we look ahead for [indiscernible], honestly, today, it's tough to say which is going to be the contribution as the profit because, as you know, we can only consolidate Siciliacque with the other ones will not be consolidating.

So you can take, let me say, a look at those 2022 number increasing by a little bit probably because they are performing slightly better and then divide it by 4. But that is going really to be a guess also for us. We have just started a few days ago to take a look at the company. So for us, it's difficult.

Then if you are asking me for 2024, it's even more difficult because we started, honestly, from the revision of the CapEx plan that for us is the #1 priority because that is linked to the release of the funds from the recovery and resilience plan. Why it's so important? Because we need to understand which is the status of the plan. If they are well on track, would they need to be supported? Because remember that to get those funds, we need to close all the works by 2026. So we don't have a lot of time in front of us.

And we want to revise them. So our first week focus has been -- has go through in detail all those planned network. So the hard part, softer parts of the [ AT ], the digital transformation, the digital equipment. Let us understand what you want to do and what we can help you in order to make it real by the end of 2026. That, for us, is the utmost important item. So we have not started yet to look at the numbers for 2024. I'm sure that in the next conference call, we'll probably give you more data about 2024 water contribution. Sorry for that. But that is the best information I can tell you.

[Operator]

The next question is from Stefano Gamberini of Equita.

[Stefano Gamberini, analyst]

The first is regarding the Slide #7. If I'm not wrong, I noticed that the RAB at the end of 2022 was in the region of EUR 274 million regarding the 3 water companies you purchased. While on the other side, adding the adjusted net debt of EUR 70 million to the price you paid, your price was by far lower to this RAB, means around a 30% discount versus the RAB. Could you share with us why you decided to offer such a lower price versus RAB in this sector? What are the main drivers? And what is, in theory, your expectation in the future regarding the evaluation of the company versus the RAB?

In particular, I'm interested also to understand what is the level of delinquency rate in this area, the people that do not pay the bills, if this is, we can say, a problem for you or not. The second, regarding the guidance on full year EBITDA from this EUR 1,180 million? Does it include also the -- you can say, the revenues that you expect for the commissioned meters that are recognized by ARERA? I guess, not because this happened in October from your press release and you expect the quantification in the first quarter. I'm interested to understand if this is material or not.

And lastly, if you can share with us your thoughts about the trend of the RAB deflator. What I mean is we noticed that in the second quarter '23, the gross fixed investment deflator was just 1% versus the CPI at 7%. I know that it's difficult to understand why, but what is the expectations that we can see in the forthcoming quarters? And if the gap remains so high, will you ask some adjustment to the regulator in the future? Many thanks.

[Paolo Gallo, executive]

The first question, there is one part that I'm not going to respond. That is the question in which why we pay the offer so less. So I'm not going to respond to that, of course, Stefano, I'm sure you understand that.

The first part, look, I mean, the RAB, the one that you mentioned, EUR 273.9 million is the one relevant to us. So is the -- so 49% of Acqualatina, 47% of Acqua Campania, 100% of Italgas Acqua, so the Caserta concession and 75% of Siciliacque. The full RAB is EUR 412 million. And the similar, the net debt adjusted is the overall EUR 120 million relevant to the part of NEPTA EUR 69 million.

And I'm going to tackle that part of the earn out of the price is relevant to the reduction of the delinquency rate, either in Siciliacque and Acqualatina. So in fact, there is delinquency rate that is, I mean, very similar to the other company in that region. One of the, let me say, the objective that we fully agree with Veolia is to -- if we are able to reduce this delinquency rate and recover some of the receivable -- the past receivable, we will pay them the earnout. So that is exactly linked -- the earnout is linked to that point.

Regarding the guidance, the guidance that we provided to you does not include the fact that ARERA, we recognized to us additional amount of money for the decommissioning meters that are up to, if I remember, were installed up to 2018, which is going to be the impact. Honestly, we have our time. We are trying to -- in this day because it just came out calculated in understanding the approach of the regulator.

You need also to consider that on the other side, there is going to be the depreciation, the accelerated depreciation of these items that are taking out from the network. So from one side, there is the additional revenues. From the other side, there is the additional depreciation. So the accelerated depreciation.

Regarding the last question, you know very well that the deflator will present -- represents something different -- significantly different in respect to the CPI. The deflator represent, let me say, the inflation for, let me say, construction and for everything that is related to machinery and other stuff like that. And that's been too with the CPI. Well, that has little to do with CPI.

And in fact, I told you, I think, in other questions like that in the past that on the CapEx side, we have experienced little inflation. I mean, we call them inflation. But at the end of the day, are exactly, let me say, what is corresponding to the deflator. So we have seen little increase or little request of increase except in 2022 -- I'm talking about 2023, little increase in terms of, let me say, price related to material and other stuff.

And so in the deflator recorded -- the one that you recorded as being at 1% is consistent with what we experienced on the CapEx side. So honestly, I don't see why should I go to the regulator and ask him for different. Still, I like the rules to be applied as we know. Practicability of those rules and not changing the rule to me is the value. And on top of that, in terms of content, there is, let me say, consistency between deflator from one side and what we are experiencing in terms of the increase of cost on the CapEx side.

[Anna Scaglia, executive]

Next question, please.

[Operator]

[Operator Instructions]

Ms. Scaglia, gentlemen, there are no more question at this time.

[Anna Scaglia, executive]

Well, thank you. Thank you very much for everyone attending. And if you need any follow-up, as IR team, we are available. Thank you.

[Operator]

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