Good afternoon. This is the Chorus Call Conference operator. Welcome, and thank you for joining the Italgas nine-month 2026 results conference call. As a reminder, all participants are in a listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Anna Maria Scaglia, Head of Investor Relations of Italgas. Please go ahead, madam.
Hi. Good afternoon to everyone, and thank you for joining us. I am here with our CEO, Paolo Gallo, and our CFO, Pierre La Tour. We will be running through the presentation. As usual, we will have the Q&A at the end, and the IR team will be available after the call. Please, our CEO.
Hi, good afternoon. My pleasure to be here to go through the nine months results. Let me start with the key highlights. We are on page number two. The first element that I like to underline is that, for the first time ever, we passed EUR 1 billion investment in nine months. That is an incredible achievement. We will get into details in a moment. Inside this investment, we can notice that a number of new biomethane plants have been added to the connection to our grid. In the last quarter, five more. If we compare it with the June results, today we have 20 biomethane plants connected.
That shows the momentum, and still we are going to have much more coming toward the end of the year. Regarding synergies are the other big results. We have already achieved nearly 50% of the overall target that was set at 2032 in only 15 months. As a consequence of these two element investment from one side as well as synergies efficiency, we have delivered solid results, supported by the change in perimeter and the organic growth in our gas distribution business.
The momentum that I mentioned for the biomethane is very similar to the one that we are looking at the tender progress. With 12 ATEMs awarded, one more than in July, and more important, there are 22 in the pipeline, three more than in July. We will look into details about this chart. That confirmed the ongoing acceleration in the tendering process. I am sure there will be a lot of question about the regulation and the new consultation document that was issued at the end of July.
We submitted our comments to the regulator by September 25 as a deadline. Finally, the new things in respect to the new topics in respect of the previous quarter is that we signed a binding agreement with Marubeni and Toho Gas to acquire 22.5% of Floene. That is the leading gas distribution in Portugal. It may look at a financial participation, but it's not, because the agreement between the previous shareholders, so the two Japanese company and Allianz, is an agreement of joint control and will give us a clear industrial role in the developing and the growing of that company.
Now, let's move into the nine-month results. So we are on page three. nine-month results are solid. As you see, we have delivered double-digit growth everywhere. I always remind you, and it is going to be like that until the end of the year. Fortunately, in 2027, there will be a full comparison. 2025, that is the first quarter of Duferco Gas that is missing from the comparison because we completed the acquisition on April 1. So the comparison between 2025 and 2026 is not, of course, homogeneous in term of overall perimeter because three months are missing.
So the revenues increased by 10%, reaching nearly EUR 2 billion in the first nine months. That was given by the change of perimeter, of course. So the nine months that we have more Duferco Gas in comparison of the previous six months in last year. So the change of perimeter is three months. The growth in the Italian gas distribution, that was partially offset by the fact that we, in the meantime, carried out the disposal imposed by the antitrust as a consequence of the acquisition of Duferco Gas.
Revenues grow at 10%, but EBITDA grows by 17%, and that difference is mainly driven by the synergies and the efficiency gains that we have achieved up to the end of September. We will get in more details later on top of that. Profit grew by more than 18%, even in present, despite the impact of the temporary IRAP tax increase.
That is thanks to some fiscal credit in our international activity. As I said, on the investment side, we reach EUR 1.1 billion, 40% more than last year, and that is mainly driven by the upgrade, by the digitization, by the extension of the grid, mainly due to the gas legacy network, as well as the expansion of the grid in Greece. Cash generation was another outperform KPI. We reached nearly EUR 1.2 billion of operating cash flow that was able to cover all of our CapEx.
Thanks also to the contribution of the disposal and considering the dividend payment in the second quarter, net debt reached nearly EUR 11 billion with a slight increase in respect to the end of December 2025. We feel that we will get to the upper end of the guidance that we have announced in June, thanks to those results that we have already accrued in the first 9 months. Let me talk about synergies. Next page.
Synergy is a truly outstanding result. If you remember, we promised to reach EUR 130 million of synergies in comparison to the 2023 combined perimeter. By the end of 2026, we have already achieved that. We have already passed by EUR 6 million that number. The amount just relevant to the 2026 is more than EUR 100 million, EUR 101 million. So an incredible and a really achievement.
Thanks to all the activity that we put in place in a very short period of time, thanks to the short period of time we needed to integrate with Italgas. You can go through different elements, IT application, contract optimization of the territorial coverage. Energy efficiency initiative is going to be another element that we will see later. Most recently, we have added a number of agentic AI in managing the smart meters regulation, in managing the planning on the field, in managing the internal IT calls.
The list is very long, so I am not going to mention all of them, but we have more than 60 agentic AI working right now. There are, for example, on the quotation process, we have been able to reduce by 30% the time required to prepare an offer, and by 80%, 8-0, the time needed for document verification. AI smart regulator optimize the pressure of the gas in order to reduce the consumption of heating gas and reduce the methane emissions. The results are really incredible, if you want, and AI is progressing at the speed that we have never thought it would be.
As I promised to you that we are going to update every quarter the tender situation to show that it is evident that the situation has changed, is changing, is moving forward. If we look what happened since the award, today we have been awarded 12 ATEMs, officially awarded to Italgas. Two others were awarded to a third party, and two others are awarded to a third party, but under court appeal. On the right side, there is the most interesting one. 22 ATEMs are in the pipeline, and in respect of what we presented in July, three new have been added.
In particular, on the upper part, there is one that is waiting for the final award. We can tell you that is us, and three others for which the bids have been submitted. Then you have another nine for which we will submit offers between the end of this year and the first quarter 2027, and another nine that we expect to submit by the remaining part of 2027. Overall, there is a clear momentum in this tender, finally. We have been waiting for so many years, so we are happy to share with you this element, in which, of course, we are present everywhere, as you can expect.
A few words on the consultation document on the sixth regulatory period. You know that the consultation document has been submitted, has been circulated at the end of July. It was a very wide and open solution, moving from no change to other two different scenarios, and with different sub-scenarios. It was truly a consultation document giving the opportunity to all the stakeholders, including the operator, to provide their comments.
Just to remind that this consultation document does not cover the small operator, does not cover the centralized cost of capital, the CapEx related to new methanization area, the OPEX and the CapEx related to the remote reading control and concentration, and more important, the ATEM tenders that are going on. So for which the process has been already started. When I said the process has been already started, means that the municipality has already asked for information and documents and moved a single information piece.
Therefore, those are the area where the ROS should apply. We have submitted our comments. Depending on your question, we can share which is our opinion on some of the major topics, but I will wait for your question to come. We expect, and then I can anticipate that, one of our requests inside the comments that we submitted, that an interim consultation document should be issued by ARERA. That was our request, instead of waiting until the third quarter of 2027, because I think it is important that the regulator give a clear path and indication.
That is a request that we submitted to the regulator. Hopefully, it will follow this suggestion for clarity. That is what it is represented into page number seven. There are other consultation documents that are expected in the meantime regarding the others, smaller operator, but that is where we are. Hopefully, there will be some interim consultation document issued by the regulator before the end of this long consultation period. Floene. Let me spend some time with Floene.
We just indicated in page number eight, the footprint of the company is the largest, I think they have like 72% of the market share, is the largest gas DSO in Portugal. They have more than 14,000 kilometers, more than 1.1 million gas redelivery points. They cover 106 municipalities. It is quite an interesting company.
The element, I should recall you that one, the criteria to look into other geography was declared when we announced the strategic plan, and the criteria was, let me say, the geography itself, stable macro and geopolitical environment, a fair regulation, for which Portugal is a fair regulation, and then the opportunity to play an industrial role inside the company.
I think the concept of the joint control that already exists between the, let me say, the three shareholders, the current three shareholders in Floene, it is a clear scheme in which if somebody has something to say from an industrial point of view, he can say it. I think that is the most important fact. We are still waiting, so it is not finished yet. We are still waiting some authorization, locally and at the antitrust, the European antitrust. Hopefully, we should get this authorization sooner than later.
But then we will start working in a very constructive way with Allianz as a partner in order to identify which are the value and the area where we create value inside Floene, thanks to our playbook in the digital transformation as well as in the AI deployment. This is part, the value that we have declared is around EUR 120 million as for the equity part. That is consistent with what we announced. If you remember, we put EUR 500 million as an M&A activity.
That is, let me say, one-third, 25% of that amount. So we still have some file that we can use it in the coming years or coming months. Let me take a look at the financial performance for some pages, then I will pass the floor to Pierre La Tour to complete the presentation.
Let me start back. It is quite a long time that we have not addressed as a first element, the ESG performance. It is a comparison on like for like. I always remind you that 2i Rete Gas was not part of the group in the first quarter of last year, so that is the reason why we, for the time being, we exclude it, but next year you will see the full comparison.
We have been able to reduce by 8% the total energy consumption of the group without 2i Rete Gas, and that has helped us to partially offset. That is very important, to partially offset the increase of the cost relevant to utilities that we have registered like anyone else in 2026. I am not saying we did not offset completely, but we were close to 70% of the total cost to be offset by reduction in volume.
That is another demonstration of how the energy efficiency can play a significant role in the profit and loss account, especially in the period like the one that we are living, in which the cost of the gas and the electricity is going up. You cannot invent yourself at the last moment in the energy efficiency. That is a result of a long and also some painful journey because looking at the consumption every single month is quite painful for everybody.
Now it is proving to be the right path in order to not only reduce the energy consumption, not only to reduce the scope one and two emission, but to improve the profit and loss account, balancing, not all, but balancing by 70% the increased cost given by the price in the market of the utilities. Technical investment, EUR 1.1 billion, never achieved before.
As you can see, all the items were up, development and repurposing. We nearly achieved 1,000 new kilometers of pipe. Nearly 400 kilometers only in Greece, so significant performance. If you look at the digitization, now you see another wave of digitization. You have seen it in the past years. Now you see another wave that is driven by the legacy of 2i Rete Gas network. We still have quite a long journey to do in order to bring the 2i Rete Gas network at the same level of the remaining Italgas. Let me underline the momentum that we are seeing in the biomethane.
As I said when I opened the conference call, we have 20 plants connected to Italgas network, five more than in June. On top of that, we have already activated several Digital Reverse Flow systems that allow the locally produced biomethane to be injected notwithstanding the local consumption of gas. That is a clear example, a real example. It is not just words. It is not just blah, blah. It is a real example how our network can support the energy transition.
Now let us go to few numbers. Total revenues, page 12. Double-digit growth, +10%, driven by gas distribution business with organic growth and consolidation perimeter change with the first time consolidation of 2i Rete Gas in Q1. Organic growth in gas distribution was positive by nearly EUR 30 million, driven by the RAB increase and more than offsetting the other non-organic components like the impact of RAB revaluation occurring in 2025. That, of course, is not here anymore.
The impact of the fact that we lost, let me say, nearly a quarter of a billion of RAB for asset disposal. Energy efficiency was the main driver of the EUR 45 million decline that you see in the other revenue, the last column before the total. It is a trend that we have already seen in the first two quarters. We should remind that 2025 was still a year in which some of incentive for specific categories were still in place about refurbishment of buildings that completely disappear in 2026.
That is the reason why we are rebuilding for another time the energy efficiency mainly on the industry services. I think the example of Italgas that is able to nearly offset the cost of the increase of the cost of utility is a clear example how we can use energy efficiency effectively also for other industry. Let me just, before leaving the floor to Pierre, let me just talk about the operating cost. The operating cost decreased by 12% in the period on a like-for-like basis.
That translate into EUR 100 million. EUR 100 million more than offset, as you can see, the impact of consolidation with Italgas for the additional quarter. So you see the additional quarter represent EUR 91 million, but the like-for-like EUR 100 million. So we were completely able to more than offset. These numbers show the strong momentum we are in the synergies.
By year-end, we will pass probably 50% of the overall, or we will be very close to past 50% of the overall synergies that we have target for the end of 2032. The remaining decline in the EUR 41.6 million is linked to the fact that we lost revenues in the energy efficiency, but we also lost cost as well in the energy efficiency. Now is the time to Pierre to continue. Thanks.
Thank you, Paolo. So we are now on page 14. We are turning to the EBITDA, where we can see an increase of 17%, reaching EUR 1.6 billion in the first nine months, with gas distribution in Italy and Greece being the main drivers of such a strong performance. Of course, gas distribution in Italy is the main growth engine, supported by the consolidation of 2i Rete Gas, and by the delivery of fast-track synergies.
If we look at the marginality, we reached almost 81%, which is in line with what we already showed during the first 6 months and represents a record high level in the history of the group. Moving on to page 15, we highlight the adjusted EBIT bridge. So adjusted EBIT exceeds EUR 1 billion, and this is up more than 18%. This, of course, is largely driven by the EBITDA increase.
And as you can see, it is only partially offset by higher D&A, EUR 70 million net of the disposals impact, where the increase of D&A mainly stems from the consolidation of 2i Rete Gas and the carryover effect of the investments carried out in the previous 12 months. Moving on to the next page, the overview of our adjusted net profit bridge on page 16.
Adjusted net profit after minorities reached EUR 585.5 million. This is an 18.3% increase versus last year. It was mainly driven by the 2i Rete Gas acquisition contribution, as well as by the strong operating performance. The higher EBIT contribution of EUR 162.1 million was partially offset by three phenomena. Firstly, an increase of adjusted net financial expenses, now including the cost of 2i Rete Gas consolidated debt for nine months and the interest charges related to the full impact of the bond issuances executed in March 2025 and in April 2026, driving a higher cost of debt of approximately 2.1%, which is in line with the previous quarters of this year.
Secondly, EUR 2 million higher contribution from equity investments. Finally, higher adjusted taxes of EUR 45 million due to a higher taxable income and a higher tax rate of 29% versus 28.1% of the first nine months of 2025. The increase in tax rate is mainly linked to a temporary IRAP tax increase, as well as lower tax incentives compared to 2025, which are partially offset by the recovery of prior year's foreign tax losses.
If we were to exclude the latter, the tax rate would have been 30.7%. Moving to the cash flow, I am now on slide 17. We reported a record-high cash flow from operations of EUR 1.175 billion, driven by a solid operating and financial performance. The cash conversion of EBITDA in the first nine months was firmly above 70%. Net working capital contribution is lower compared to what we have reported in the first half, mainly due to the usual pattern of billing seasonality.
This effect was partially offset by the energy efficiency tax bonus collection and incentives cash-in. Our operating cash flow allowed us to cover the net cash investments in the period of EUR 1.049 billion and part of the dividend payout. Finally, the cash-in from mandatory AGCM disposals completed during the first half contributed to more than EUR 250 million positive cash inflow, which was partially offset by the cash out linked to the Torino 5 ATEM award closing and the resulting acquisition of third-party network operations of the ATEM.
All in all, this leads to a moderate increase of our net financial debt by EUR 158 million compared to full year 2025, which we believe will mostly be reabsorbed in Q4 as we confirm our guidance of closing with a net debt excluding IFRS 16 and IFRIC 12 impact of EUR 10.8 billion. Finally, I am on page 18, where we have an overview of our debt structure and our maturity wall.
Now, due to the previously described cash flow trend, we closed the nine months with a net debt of EUR 10.9 billion, excluding IFRS 16 and IFRIC 12, which amounts to EUR 11 billion including them. As you can see, our financial structure remains very solid. 80% of debt is at a fixed rate, and the average cost of our gross debt is approximately 2.1%. We stand on a strong liquidity buffer of approximately EUR 700 million, thanks to the pre-financing initiatives that were executed during the period, which will allow us to cover all the upcoming maturities while keeping the needed financial flexibility.
As you see, our maturity profile is well-spread over the coming eight years. Following the publication of our 2026-2032 strategic plan, Moody's confirmed our Baa2 rating and upgraded the outlook from stable to positive, while S&P and Fitch reaffirmed their BBB+ ratings with stable outlooks.
These decisions recognize our leading market position, our strong operating performance, our expected financial strengthening, supported by regulated growth in Italy and Greece, accelerating gas tenders, disciplined investments to 2i Rete Gas synergies, and a continued deleveraging trend. Now, let's open the Q&A session.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Javier Suárez, Mediobanca.
Thanks for the presentation. Several questions. The first one is no surprise, I guess, on regulation. It's a general question and a broad question, and that may be opening the debate on which are the implications for the gas distribution sector for the application of the simplified ROS system, taking into consideration that this new framework will not be applied to the auctions happening before 2027, and in that context of acceleration in these auctions.
So in this context, which is your proposal to the regulators, and which aspect, in your view, should be modified to create a virtuous circle of higher CapEx consolidation and lower tariffs as well? That would be the first question. Second question is on the timing for the regulatory document.
Is my interpretation correct that you are expecting a second consultation document with more details, arguably, before the year-end, or if not, at the beginning of 2027? I think that would be extremely helpful for the market to understand the direction that regulation in Italy is taking. The third question is on the news flow of today, that the government may increase the IRAP for the sector. Government indicated yesterday that that was included in the budget law, but still the information is limited.
Could you help us to understand your latest information on the possible increase in IRAP in 2027, 2028, and 2029, and the implication for Italgas shareholders of this decision? The final question is on your strategy, growth strategy. We have seen this operation in Portugal.
I would like to frame that operation in the context of what the company is trying to do. Is a fair statement to make that during the next few years, the international effort of the company is going to focus in Greece and now Portugal, and that is going to be the strategic focus of the company beyond Italy? Or there is an element that there is a worsening in the regulatory framework in Italy, the company could consider other additional M&A activity as well. Many thanks.
Thank you, Javier, for your question. Let me start for the two easy one, then we can talk about the other. The second question is, it has been our request to the regulator to issue an interim consultation document to better qualify, to let have the market better understanding which is the direction in which the regulator would like to move. Because as you know, there is a quite wide range of selection, not only the three.
As of today, ROS 1 and ROS 2, but below this decision, ROS 1 is ROS 2, of course, not as of today, there are other, let me say, position that can be taken. It's like you are in a three decision in which you need to select which is your route.
That's the reason why we said to the regulator in our comments, we formally requested to issue an interim one, and hopefully they will follow our, let me say, suggestion. But we don't know yet. The third one, it's even easier. We can give you the telephone number of some office in Rome, so you can call and ask if the IRAP has been included or not.
The effect is very simple. You have already a calculation about the 2% increase on our tax rate. If we can tell you 1% what is going to be, it's very easy. It's an easy calculation. Let me now concentrate on the first and the fourth one that is more general, which is the ROS that we like. What we said in our consultation is that if we need to move to a ROS, the ROS should be a ROS.
The ROS should be a full TOTEX. We do not think that A1, A2 is a true full TOTEX. We tell very clearly. For the good of the system as well as the good of the operator, we tell the regulator very clearly that our view is that the moment we move to the TOTEX concept, it should be a true TOTEX. It should not take just the OPEX to treat them in a different manner than today, because otherwise, it is going to be just a TOTEX by label, but in reality, it is just a different way to regulate the OPEX system. Let me just give you some of the major comments that we made that to me are very important.
The other comment that we said is, it is important that when you look at the OPEX efficiency, you create a positive competition among the operators to be one more efficient than the other. In other terms, to us, if you do not want to go to the full TOTEX, you need to keep the clusters. You need to create a competition among the operator of the different cluster. That will help the system to be more efficient, because otherwise, you risk to penalize the operator that is more efficient, here, Italgas, and then you leave the other aside.
The other comment is that we cannot forget the remaining operator, the ones that are below 300,000 redelivery point, because as we said, and it is clear on the regulation that the value recognized for the OpEx can be, in certain situation, even more than EUR 10 per redelivery point, based on the 25. It represent 40% more than the large operator that is, by definition, more efficient than the smaller one.
Finally, the comment that we made that is important, again, is important for us, is that if the synergies are coming from an M&A activity like we did on 2i Rete Gas, for which we invested significantly in order to extract synergy, you need to give us time to recover the investment that we made, and then we will be happy to share the efficiency and the synergies with the system, because that is the rule.
We told the regulator that the current system today, as you know, if you take the last regulatory cycle, the photo year was set in 2018, and then from 2020 to 2025, all the difference between the actual and the standard cost was given back. If you consider it is a seven years period, and probably to reach the 2018 synergy, whoever operator has invested decided, made the decision even earlier. The request is that synergy should go back to the system.
I fully agree with that point. That should be given to the operator enough time to recover investment that he has made in order to achieve those synergies. That the other, I think, important message that was delivered to the regulator.
For question Europe, I think that we have, let me say, we have declared our idea that we are ready to create a pan-European DSO much earlier than the new DSO, the new consultation document was issued. There is nothing new in our strategy.
I think we can create value, and Greece is a clear demonstration that we can create value locally in different geography, thanks to our playbook that we have ready and available for other geography. Other geography would be interesting if they meet the criteria that I mentioned, fair regulation, stable macroeconomic system, and the more important, the possibility to play an industrial role.
Next question, please.
The next question is from Aleksandra Arsova, Equita.
Hi, good afternoon. Thank you for taking my questions. The first one-
Can you speak louder? Because we have
Sorry
a difficulty to understand. Can you raise your voice
Yes
please?
Yeah, sure. The first one is on the synergies and some questions on the first one. You said EUR 136 million of synergies
I'm sorry, but there is some voice in the background. I don't know if somebody's talking in your area or somebody else.
Miss Arsova, could you please use your receiver, please? Or a headset.
Yeah, I'm using it, but maybe I can reconnect later on. Just give me a second.
You can try, Aleksandra.
The synergies. You accelerated on the synergies in the nine months. On one hand, does this make it more reasonable to assume for you to reach the higher end of the guidance or even better, given the acceleration in synergies? The second one is, does it make sense for you to accelerate the synergies in 2026, considering that probably it will be the base year for the new regulatory period in 2028? Maybe it increases the likelihood of a higher flowback of synergies in 2028. Then another question on M&A and on your strategy follow-up.
Since you have a firepower of a total of EUR 500 million, would you prefer to build a portfolio of equity investments with minority stakes, or will you use the remaining part of this EUR 500 million maybe to increase the stake in Floene and, let's say, run it directly as it is with Greece? The last one is maybe a consequence on the IRAP increase, the potential IRAP increase. So next year, 2027, has some potential downsides on estimates, the CapEx work, the higher IRAP, maybe increasing interest charges due to increasing interest rates and debt. Do you see any downside risk on your dividend policy? Thank you.
Let me start from the first question, and especially to your question, does it make sense to accelerate? I think we will not be serious if in front of a consultation document, we would decelerate the synergies. I would never do it. Why? Because I think our position to the regulator to say that we need time to recover the investment we have made to make those synergies happening, it's a serious rationale, and I think they will listen, and they will understand.
That's business rationale. If I'm investing, I need to have some times to recover my investment. So that is not going to happen. We're not going to stop. We're going to, if it's possible, even to accelerate. It's a proof that we are serious on the market.
We are not playing around opportunity situation, which I don't like, because the negative side is that you decelerate, you stop, and then to restart is going to be even more painful. So I always said that. One of the rules of the game is the synergies or the efficiency, let me say, could be given back sooner or later. The only point that I raised to the regulator very clearly is, you need to give us time to recover investment that we have made.
And I think that is absolutely reasonable, rational, and the people will understand. On the M&A side, it's true, we still have some significant amount that can be used in the coming months and years. We would prefer to consolidate, it is clear. Our business is based on consolidation, but you may not find those opportunities, so you need to adapt yourself.
The reason why we look at Floene, even without consolidation, is because the role of the industrial player is clearly there, and we can help Floene and the other partner to create value, with the technology that we have, with the approach that we have, and I think everybody will be happy about that. And in that case, our industrial role is fully preserved. Last question is a sequence of negative element. So what can I tell you?
Hopefully, some of them will not materialize, but if they are going to materialize all, like you said, WACC, IRAP, what is the last one? Interest rate. Interest rate is probably the most reliable. We expect another increase by 25 bps by the central bank before year-end. You know what we are doing. We will try to be even more efficient that we are today to partially compensate these, let me say, these element that may reduce our profit.
We will not review the dividend policy. You have requested me to review the dividend policy for the last 10 years, and the answer has been always no. I think it's the right balance, and will still be the right balance. Thank you.
Thank you. Just maybe the question on the guidance. Operator, I guess next question.
The next question is from Francesco Sala, Banca Akros.
Good afternoon. Thank you for taking my questions. I got three. The first one is, whether you can help us understand your assumption embedded in the upper end of the net profit guidance. That based on the current run rate, there is a portion potentially upside on the high end of the range on the net profit. Second question is, whether you can share with us your view on 2027 WACC after the end of the observation period, whether you are expecting a cut, regardless of whether France is included or excluded in the panel.
Thirdly, still on the acquisition in Portugal, I wonder whether you can elaborate on what you mean by having an industrial role in the company, and if you can give us some examples so we can understand better what kind of contribution beyond the capital investment you can make in the company.
Thank you.
The first two are a very easy question. On the guidance, we have already told you, we will move into the high end of the guidance. I think that it's up to you to decide which is the high end. It's very close to the high end. Very, very close, a little bit more, I don't know. It's up to you to make your evaluation. On 2027 WACC, the speculation as of today is depends on France inclusion or exclusion or other stuff like that. Let's wait the decision coming from the regulator.
If it's France in, France out, Europe in, Europe out. We don't know, we don't speculate. We're just waiting. It's better. Otherwise, you just waste your time in trying to There is mainly two scenario. One is going to remain as it is, the other one is going to reduce by 30-35 bps. That is the two scenario. The last one is probably the most interesting one, and thank you for your question because it helped me to elaborate on a specific case of Floene, what we can do.
What we have observed outside in, based on the documents that were provided during the due diligence, there are a number of area that we can help Floene to move in the same direction that we have taken many years ago. Smart meters is one of the example. Probably you would be surprised, but Italy is the only country where the large operator above 50,000 redelivery point have received an obligation by the regulator to replace the traditional meter, the smart one. As you know, we are on the second generation already, but it is a reality that is unique to Italy.
If you go through the other country, Portugal, Spain, France, there is not such a situation. The only other country that is moving with similar to Italy is Greece, where we have demonstrated to the regulator the benefit for the final customer and for the system to move from a traditional meter to the smart one, and that what we are installing right now in Greece.
Portugal is another example where I think, if the regulator is willing to hear, we can bring him a case in which there is a benefit for everybody, for the system, for the final customer, and for the operator. Another example, methane emission. Methane emission, we are the only operator in Italy or few of them. We are the only operator in Greece that have adopted the most advanced leakage detection that has been proved to be very effective.
Our leakages are below 0.1% of the overall gas injected. Not only, but we are able to measure. There is no other system that is able to measure the amount of leakages. Again, we have built over, since 2018 when we started, we have built an incredible experience. We talk with the supplier, Picarro, on a, let me say, at the same level of competence. We have an incredible background in how we can deploy quickly and very effective.
We did it in Greece. Again, it's a demonstration. We can do it in Portugal, of course, if there is an agreement with the other partner and with the company. Those are the two example that came to my mind, but I can continue like that. Everything that we have told you we have done in Italy can be transferred. We have already transferred to Greece, can be transferred to Portugal if there is a business case with the agreement of the other partner and with the agreement of the management of the company. Thank you.
The next question. The next question is from Davide Candela, Intesa Sanpaolo.
Good afternoon. Thank you for taking my question, for the presentation. I have two. The first one is a thematic high level question on AI. I was wondering if, as you are progressively implementing more your models, I was wondering if you are noticing some emerging risk from safety, notably given the critical role of your infrastructure, and if such risk or the prevention of such risk could let you incur in some cost that you are not taking into account today because of this fast development.
That is the first one. The second one is still on regulation and looking through at the second consultation document on the gas transmission, so referred mostly to Snam, there was a mention to a potential revision of the gearing that was deferred to the broader regulatory review of the work starting from 2028. I wonder if maybe it is just tied to this sector, but I wonder if you can see some risk of a spillover also to other regulatory activities and also on gas distribution as well. Thank you.
On the first question, your question is well taken in the sense that when we develop new application, new algorithm of AI, one of the prerequisite that we put into our system is to be sure that, first of all, the development of that algorithm is completely done in-house where we do not have to do it, let me say, in some other ecosystem that can be contaminated, let me use this word.
The second element that we take care is that we try to foresee potential weak points in advance. So in other terms, we try to design the algorithm development by, let me say, security by design, we say, or safety by design to avoid exactly the risk that you are taking. I think we are probably in the best situation in which we can tackle that situation, that topic.
The reason is, as you know, we have been growing competence in the risk related to the digital transformation, and that has been true for several years. Now, based on that competence, we are using the same careful, the same approach when we develop AI. So the two element is we do it internally. We do not rely on a third-party ecosystem. We think about safety and security when we develop. So we are not waiting to put it into, let me say, operation, and then we test later, but we do it before. Having said so, of course, risk are not reduced to zero, but in that case, you minimize the risk.
With our cybersecurity control system that is based in Torino, close to our control room, is the area where we look, not only on a daily basis, continuously what is happening over our overall IT and network system to avoid a situation where safety or risk related to cybersecurity are happening. So I think risk, you cannot bring the risk to zero, but you can reduce significantly the amount of risk that we can see. On the regulation side, you mentioned the Snam, the consultation document.
You mentioned the gearing that from what I understood, has been moved to 2028. Honestly, it is a different business than the gas distribution. So you may see some area where you can take some ideas, but I do not think the gearing is one of them because, it is a different business.
Thank you.
The next question is from Marcin Wojtal, Bank of America.
Yes. Good afternoon. Thank you for taking my questions. I have two. The first one is on your capital allocation strategy. When you look at potential new opportunities, would the U.K. market be interesting for Italgas as one of the options to enter? Specifically, it was reported earlier in the year that a stake in Cadent Gas, the number one U.K. gas distributor, could be up for sale.
I am just wondering if, in that context, could be looking at the U.K. a bit more than before. My question number two, if you allow me, is on regulation. Just on interpretation of some of the commentary from the consultation. You are basically saying that under the new ROS model, it will not apply to ATEMs with tenders which are launched or in progress by the end of 2027.
Could you please clarify what is your current understanding of how it is going to be applied to operating costs? Specifically for networks in those ATEMs that are still run under the existing municipal concessions until they are handed over, do you expect them to be also outside of the ROS OPEX base from January 2028, or only once the handover has taken place?
Is that fully clear in the current draft? Because there seems to be some sort of discussion whether this applies to both OPEX and CapEx. Is that clear in your view, and is that something that you are asking ARERA to confirm? Apologies for the long questions.
The first one, first answer is very easy. The U.K. may be an interesting market. Cadent, no. We know that there's been some rumors that we submitted an offer. That is not true. We didn't submit any offer during the sales process that I don't know if it's going on, still going on, has been finished, we are not aware of. One of the reasons is that they put on the market, I think 17% of the share among, I don't know if seven or eight shareholders that are all equity fund.
One of the key elements that we would consider is to have a clear industrial role, for which I don't think 17 in among so many numbers of shareholder will give you. One of the criteria is not met. That's the reason why. We were aware of, we just thought about, and then we decided to leave it aside. On the regulation, what we have understood, if it was clear, it was not a consultation document, it was a final document.
There are several, as I said, it's like you are in a tree decision when you have to decide at each of the Not at each of the point, you have to decide to go right, left, or continue on the same direction. You have multiple decisions that you can take there. Regarding the question about which are the ATEMs that will be excluded by the ROS, according to our understanding, are the ATEMs where the municipality have started a number of activity for tender process, including the collection of information from the operator.
The regulator has put a table where it shows that only 57 ATEM among the 177 did not show any of those activities. According to us, those are the ATEM that will be subject to ROS, while the other will not be subject to ROS. As well, we do not expect for, let me say, from a reasonable approach, that we may see the regulation as of today until the end of 2027, then a ROS application for the ATEM still under not being awarded, maybe for one or two year, and then go back to the previous regulation. It would be crazy to see a change in the regulation for a short period of time, then go back to the previous one.
That is the point that we raised to the regulator in order to clarify, and that's the reason why we have asked the regulator, considering that there's been different interpretation, different way to read the consultation document that according to us were not fully correct, it would be We would wish to see an interim consultation document to clarify all those aspect that have been under discussion with different interpretation between the operators and the analyst. More than that is tough to say also for me.
Next question, please.
The next question is from Mark Apes, Citi.
Hello, thank you for taking my question. I've got two quick ones here. The first one, on the synergies target and the pace of delivery so far, should we still think of your EUR 280 million target as a fixed target, or is there anything you've seen, any indications of scope for potential further upside to that arising from AI or digitalization, et cetera? My second question is a follow-up on the M&A points. Do you have a target investment return framewo rk for your acquisitions, please? Thank you.
Let me start from the second. Can you give us, if you have some more information where we can take a look about the targets of the acquisition? Because, of course, it's not a matter of return, it's a matter to find out if there are Again, I'm going back to the three criteria. Nice of the stable economic framework. Fair regulation, industrial role.
Fair regulation is where you find your return. Fair regulation means that a fair return is recognized to you. Italy is a fair regulation. Greece is a fair regulation. Portugal is a fair regulation. Of course, they have different way to give to fair regulation. Greece include inflation in the WACC. Italy does not. Portuguese is even a different one. So fair, it's an extended evaluation, but the three countries show a fair regulation. So we don't have numbers.
The regulation is done by many elements, not only by the return. For example, the time lag to recognize the increase of RAB, which is the regulated life of each equipment. You have a number of variety that you put together and say, okay, it is a fair regulation, but it is not a WACC number only. WACC, of course, it is important. Regarding for synergies, as of today, we do not see a target update for the final 2032. We will review it in the next strategic plan.
What we see, and that is the reality, is that the speed at which we are achieving the progress in the synergy is higher than we expected. So we are happy about that. But we are also surprised by the speed that we are able to put into our working day, into our day-by-day activity to achieve those synergies. Thank you.
Very much.
Next question?
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Okay, thank you. Thank you to everyone attending, and the IR team, as usual, is available for any follow-up. Thank you.
That is the two.
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