Good morning to everybody. It's a pleasure to see you all here. It's an important event for Italgas. It's an annual event where the company presents its strategic plan for the next seven years. First and foremost, I would like to welcome here all the investors, stakeholders, and journalists that are present in London today, also those connected on streaming. I would like to welcome on stage, Chairwoman of Italgas, Benedetta Navarra, for our welcoming speech.
Good morning, everyone. Thank you for joining us, whether in person or remotely, for the presentation of Italgas 2023/2029 strategic plan. Your presence is an important indicator of the interest in the development plans of a group that has established itself in recent years as one of the leading companies in Italy and Europe in terms of project capabilities, investment, and value creation, in support of industrial goals and sustainable growth in the countries where it operates. As every year, this event allows us to provide the financial community and all our stakeholders with an important update on the management plan vision and the path that will enable the group to continue playing a leading role in transition to a Net Zero economy. This journey is built in solid foundation, as we will see shortly with Paolo and Gianfranco.
In this particular historical period, marked by significant changes, it is beginning to bear the fruits of the important strategic choices made in previous years in support of a digital transformation that is now the main driver of the ecological transition and that many other companies, not only in our sector, draw inspiration from. The strategic plan we are presenting today is the result of a broad vision, intense teamwork, and the constant drive to overcome the limits imposed by a rapidly evolving scenario and the effects of a dramatic conflict on Europe's doorstep. This plan is our road map leading to the future of energy and is developed along three fundamental directions: innovation, growth, and sustainability. Innovation is the key to our present and future success.
Through an approach based on open innovation, we continue to develop cutting-edge technologies that continuously improve networks, plans, and processes, enabling an increasingly efficient service that project gas distribution towards a zero-emission future. Growth is a goal we pursue with determination. Just as we did with the tender issued by the Greek government, we will seize all opportunities for the development and diversification to strengthen our presence, offer innovative services, and maximize our leadership. That's not all. We consider diversification a strategic lever for further growth and for delivering additional value to territories and communities, as we are already doing in the water and energy efficiency sector. Lastly, but not less important, sustainability is a guiding principle underlying all the choices in the strategic plan. There is no post-talk integration of ESG criteria, nor is there a chase to the parameters of the main sustainability indices.
On the contrary, it's the sustainable vision that underpins this plan. Without it in the future, for our network will be uncertain. By following this path and anticipating the needs of community, we will continue to be a key player for ensuring a more sustainable world for all. In conclusion, I would like to thanks again all those who have contributed to the realization of this plan and all of you that are being here, for being here today, in person or remotely. We will work out together to make Italgas an even stronger, more sustainable, and innovative company. Have a great continuation.
We repowered our strategic development goals in a long-term sustainability framework to continue playing a leading role in the path to Net Zero for the future of the planet, for the future of the people, for a sustainable future together. We are committed to our goals, and this is our road map. We have charted a new development direction, given strong impetus to our strategy and greater value to the business. All of this arising from a fall.
Through the video, you could foresee a little bit the key points we're going to go through today in this journey. It's true that we have a long journey to, together, some aspects that we experienced ourselves as citizens, not only as investors and analysts in the last year. I would like to welcome on stage the CEO and CFO of Italgas, Paolo Gallo and Gianfranco Amoroso, to discuss all these important key points. Welcome. Good morning. In the last few years, we have seen, and I'm going to start with you, Dr. Gallo. We've seen how the geopolitical equilibrium in Europe can change and make also unstable the whole energy system. Supplies can become unreliable, and also prices can put at stake our certitudes. How is Italgas preparing for this uncertain future?
Thank you. Thank you, Chiara, for the question. Thank you, everybody to be here. I'm going to show you a couple of slides to tell you which is our view and how Italgas is going to position itself in this scenario. Let me go through what I call the energy trilemma. In the previous years, there was an equation that was unique, that was: we need to go to Net Zero. Energy transition was a must and was the only statement. The war in Ukraine has brought us a different view. Security of supply that was given, was not anymore something certain, as well as the cost of the energy. Now the equation has become more complex.
I call it energy trilemma, in a sense that we need to cope with the energy transition, we need to cope with security of supply and energy cost. To solve this trilemma, we cannot stay anymore on the ideological position. We need to be more practical. We need to be more focused on leveraging any tools that we have in front of us in order to solve this transition. In this role, this situation, the role of the gas infrastructure, as I said many years ago, has become even more central than before. Why? Because gas infrastructure will bring us different kind of gases, renewable gas, the renewable gases, that will help to solve the energy trilemma. At the end of the day, technology neutrality, avoiding electrical ideology, leveraging sector coupling, should be the approach to ensure to reach all the three goals.
Let me go on and show what Italgas is going to be in that scenario. First of all, if you look better and more deeply in the REPowerEU, you will understand that already in the REPowerEU, renewable gases will play a significant role. 50% of the Russian gas, according to the European Commission, should be replaced by biomethane and hydrogen. biomethane is probably the most important between the two, considering that biomethane is considered zero CO2 or eventually negative CO2, in case it's coupled with carbon capture and storage. You don't have to forget about the bioproducts, such as fertilizer and CO2 for the food industry.
While biomethane is a key element to boost the competitiveness, given its status of developed technology for hydrogen, the high costs are still an issue. I would like to bring to your attention a third point that it's part of the Italgas strategic plan, that is the energy efficiency. Energy efficiency, again, in the REPowerEU, clearly will have a significant role. In fact, they have increased the target to 13% in respect to the previous Fit for 55, that was only 5. Why? Because on one side, energy efficiency will reduce energy consumption, therefore, will increase the security of supply, but also will increase significantly the competitiveness, so the cost of the energy as a whole. Let me go through and talk a little bit about these elements, especially biomethane and hydrogen.
Where do Europe stands about these two elements? Regarding biomethane, EBA is the Association for Biomethane Producer reports a significant forecast. They think that there are a huge possibility to bring the biomethane production up to 40 billion cubic meter by 2030. That is 10 x today production. Even though we have already seen a significant increase on a year on a yearly basis in respect of last year in terms of numbers of biomethane plants in Europe, the production is still not as significant as it should be. 4 billion is not a huge number, but the potential is there. If you think about 2050, they even forecast to pass the 150 billion cubic meter.
Italy, if you look at the map, is probably behind some of its European peers, but we are seeing an acceleration. I will tell you in a moment some data about the request of connection by biomethane plant, and I'm confident that the long-term goals can be met. If we look at the hydrogen, you know, what we can see is there are several projects going on. It's important because we need a lot of research and development to bring the cost of production of the hydrogen at a competitive level. Still we are in a development phase. There are many projects that are moving from, let me say, repurposing or from covering the old value chain, like the one that we have in Sardinia.
Still, I'm stressing the fact that we truly need to have a lot of effort in research and development to make the electrolyzer more competitive from a cost point of view. Let me get into the major point of Italgas. Having seen in a very short description, the scenario, which is our strategy? Our strategy as was, and still is, and will be focused on the energy transition, while seeking for shareholder maximization. The first point that was in our press release this morning was relevant to the dividend.
Dividend will be maintained at the same level as it was before, 65% of the net result as a payout, still maintaining the floor at a growing at the minimum of 4%, the reference here has been moved from the previous 2018 to 2022. I think that during the last years, we have shown our ability to continue to set ourselves even more ambitious target while transforming our network. Sorry. Italy, we aim to complete the repurposing of our network into a smart one. You know, that has been our goal for a long time.
We will continue to do that, and we have a clear target that all our network will be digital by 2024. Regarding the tenders, the tenders is a question that I'm expecting to receive by the analyst in a short period of time. Tenders, unfortunately, continue to be delayed. As you know, part already last year plan, part of the completion of the tender, it's outside our horizon plan, but we still believe in the fact that we will get, at the end of this long journey, 45% as a market share. Greece, it has become part of our core plan.
Here we have a clear, and I will show you in a moment, a clear plan about upgrade, expansion of the network, digitization of the network. I will leave details for later. Regarding the energy efficiency, we still have our plan in place. We want to be a significant player in the energy efficiency business, and therefore, we have allocated a significant amount of CapEx to grow also in the area. Last but not least, and I'm very happy, it was announced last week, the agreement with Veolia to acquire their water asset in Italy. For us, it's an important step. If you remember, in back in 2020, we announced our intention to enter significantly into the water distribution. It took us a little bit of time.
It was tough time, I mean, to find an interesting asset like the Veolia ones. Finally, we found it. Well, we closed. We signed the SPA, and hopefully, we will close the deal very soon. At the end of the closing, nearly 6 million people will be served by us directly or indirectly. That represent about 10% of the Italian population. If you look at all these business line, there is a common area. Digitization will continue to drive our strategic action across all these line, as well as the sustainability, but we will talk that more in detail in a moment.
Thank you, Mr. Gallo. We'll have the time to go deeper into each one of these major points. Thank you for the overview. I would like to start with the distribution network in Italy, because the distribution network in Italy is already very deep into the territory, still you decided to keep on investing on it. What's your direction, and what's the meaning of these new investments in the field?
Yep. Thank you. I want to thank you for the question. If you go back to 2017, when this long journey has started, we have been working all these year to improve our distribution system. We did vision that our network should be digital, should be smart, should be flexible, in order to cope with all the challenges that I have talked about before, the energy trilemma. In fact, in these seven years, we have invested more than EUR 5 billion just to upgrade the network. We are going to invest, as you can see in this slide, more than EUR 6 billion again in the next seven years. You can see the partition is EUR 1.5 billion on the tender, EUR 4.6 billion on our network.
The plan clearly state the role of digitization as a central role. As I said before, we target to have our network fully digitized by the end of 2024 to support the innovation. The innovation is, together with digitization, is a significantly engine, is our engine, to go through all these changes, to cope with the challenges that we have in front of us. Thanks to innovation and digitalization, also, the way that we are going to identify a single investment will be different from the past. I always said that we should move from the traditional CapEx approach or maintenance approach to a smart maintenance. What does it mean? There will be a more clever CapEx allocation. We will invest where it is needed. That will be our major focus.
Of course, as you can see here, there is a lower visibility in the tender. We know that there has been delayed for many years. Still, there is a delay. Is what we did want to see, but unfortunately, tenders we are not the guys that are driving the tenders, so we cannot do anything, just trying to push and put more effort everywhere to let everybody understanding the need to complete the tender process, but that is what it is. Still, our view about the tender is that at the end of the tender process, we will get to 45% as a market share. Let me get the in more details about these investments. Out of the EUR 4.6 billion, EUR 2.9 billion are devoted to the network: repurposing, upgrade, extension, and digitization.
Digitization is not here, is in another chapter. What I was telling you before, predictive maintenance is going to be more and more important in our plan. Our CapEx allocation will be mainly driven by the data and the use of the data that we are going to collect from the field. There are several implication in this approach. We can improve efficiency and quality of our investment with a benefit for the end user. We can reduce, and we will reduce our construction time using digital innovation, and that means not only lower cost for us, but also less disturbance in the community in which we operate. Clearly, the major effort in repurposing, upgrading the network is to make the network ready to accept, in the future, renewable gases.
Biomethane, I will talk in a moment, and hydrogen. We are investing also in the reverse flow project, in order to make the network ready to accept significant amount of renewable gases in the area where the consumption is very low. Better intervention, don't forget about that, allow us not only to reduce leak, but also to reduce the emissions. Let me talk about my favorite subject, innovation and digital transformation. In the previous years, up to 2022, we have already invested EUR 1.3 billion. We are going to invest another EUR 1.6 billion in the years to come. DANA will be extended to at least 90% of our network by the end of next year. DANA, as you know, is a software, proprietary software, that was developed by our Digital Factory.
It is the acronym for Digital Advanced Network Automation, it's a software that allows remotely control, but also remotely manage our infrastructure. We are testing today the initial benefit of such system because we can control in real time our network, that is extremely important for the future if you think about the injection of renewable gases. I will give you, in a moment, an example how this system is helping us to manage renewable gases. That is relevant to biomethane. We are progressively completed the upgrade all of all other equipment such as city gate, district governors. I mean, every stuff that is sitting on the network by the end of next year, will be fully digital.
We are probably at 80%-85% of the completion, what remains in front of us is probably a smaller portion. We are, and that is quite interesting, we are progressing in our smart meters, proprietary, we call hydrogen-ready smart meters. We have already received the first prototype. By year-end, we should receive the first 20,000 smart meters to be installed on the grid and tested throughout the year 2024. In 2025, we will start a more extensive deployment after the all testing, by 2029, we should install more than 5 million new smart meters. We are doing that for two main reasons. The first one is the old GPRS system will be sooner or later disconnected by the telecommunication company.
With our plan, we forecast this disconnection by 2029, but can be one year before or one year later, but sooner or later they will discontinue such systems. We need to intervene with the smart meter that were installed back in 2014. Also for to fix a number of problems that we have seen in the first generation of smart meters. That was the two main reason for which we start developing.
On top of that, the development has led us to introduce other feature inside the smart meter, such as cybersecurity, such as the ability to measure different kind of gases, like hydrogen, and not least, to have a battery that will last for 15 years, so the regulatory life of the smart meters. Biomethane. Let's go back to the biomethane, and I will show you how DANA has worked very well on the biomethane. First of all, let's show you the increase of request in Italy about the biomethane. Last month, in the last 2023, we have seen an incredible increase of requests. Now we have feasibility request that is three times what it was 1 year ago. That's quite significant, showing the focus of many player in developing biomethane plant.
All of them are going through the assessment. You know, that we need to present to anyone that is requesting a feasibility request, an amount of money to be spent, the time, and so forth. We are very confident that in the planned period, more than 400 new biomethane plants will be connected to our network, considering Italy mainly, but also Greece. Why it is so important, the fully digitized and remotely controlled network for the biomethane? I take you the example of the first connection we made a couple of months ago, is the great producer, Bonollo, that has built its own biomethane plant to treat the waste coming from grape. Why it's so important? I mean, biomethane, at the end of the day, from a chemical structure, is CH4, so it's the same as a fossil methane.
There are impurities inside the gas, and such impurity may different from situation, from the other situation, and we have the biomethane should comply with a certain specification. Therefore, impurity may become an issue. The ability to monitor in real time is fundamental to see if those composition of the gas will meet the specification. What happened during the first period of test is that Bonollo has some problem in the process of producing biomethane. Biomethane was out of spec. DANA immediately recognized that in real time, that the gas was not according to the spec, and they immediately, DANA says in an automatic way, immediately stopped the injection and send the biomethane back. That is, imagine we have one single plant, okay?
You can manage one single plant even manually, but at the end of the day, we will have 100 and 100 plants connected to our network. We need to be able to monitor all of them in real time and intervene in case there is a problem. I would like also to spend some time about talking innovation, because as I said before, innovation with digital transformation is our engine, is our push forward toward the new challenges, to face the new challenges that we have in front of us. Innovation has been, since 2017, one of the area where we try to invest more. I mean, you know very well our Digital Factory, the number of application that our Digital Factory was able to develop, reviewing business process, make them simple, make them digital.
They are also tackle other kind of areas, so, for example, the supplier journey, the employer journey. Digital Factory has really become our center to review the processes and introduce new application. Very soon we will have in 2025, I announced that couple of days ago in Torino, we will have our new research and development facility in Torino. We will have our lab on hydrogen located in Sardinia. About the hydrogen-ready smart meter, I have already talked about. Just a quick update about the power-to-gas project that we have in Sardinia. We have received the environmental impact assessment, and we are waiting just to receive, that is more a formality, the final authorization to start construction.
We expect to start construction in the second part of this year, and to complete the construction next year, it will be then in operation. Finally, I want to focus yourself on the open innovation, the true open innovation that we have put in place toward the third parties, called Ideas4Italgas . You see nearly 500 startup have been evaluated in the last couple of years, and we have developed with them a number of proof of concept. Some of the solution have been adopted by Italgas. We have also decided to lever our internal personnel, and that is the call for ideas. We have started just recently to ask our personnel to bring new ideas to us, and we have received nearly 250 proposal.
We decided to work, to work on three of them to make a reality, but also the other 240... well, 231 will be evaluated later. As you can see, there is an enormous sensibility about innovation, not only on the external world, but also on our employee. I want to talk about hydrogen. I would like just to give you a brief view about what we are doing on the hydrogen. We have several initiatives, as I told you on the network already, so I'm not going to repeat myself. On the network, we are also testing the compatibility of our material with hydrogen.
We have already passed the first phase, now we are moving to a more deeply inside evaluation, testing the equipment that should be completed by year-end. To make clear that at the end of the day, our network is fully ready to accept hydrogen. Power-to-gas project in Sardinia is another part of the equation. We want to show that the hydrogen produced out of renewable can be used for mobility, can be used for industry, can be used blended with natural gas to be delivered to the final end user. As I said before, there is a clear need of more research and development. That's the reason why we have signed recently an MOU with Cadent. Cadent is the U.K. largest DSO, we have also other MOU with Jemena, with Marubeni, with PG&E in U.S.A.
All those MOU are focused on the hydrogen. Why? Because we need to share the knowledge that we have about using hydrogen in our network. That is fundamental if we want to clearly demonstrate the possibility to deliver hydrogen in our network. I will close my view on the Italian activity, talking about the tenders. As you know, the La Spezia tender was awarded last year. We signed this year the first Torino 1. Long-term market share ambition is clearly confirmed. We didn't change our view. Unfortunately, the progress remains low. Therefore, we have to review our expectation in term of when those tender will happen. As always, we have showed to you our view that has changed year after year, taking into, let me say, accepting what is going on, that there is a clear delay.
In our view, is that those tender will happen. Today, more than before, we are in an incredible position to take up advantage of the result of those tender. Of course, some of the tenders are outside the plan period, and the CapEx allocated reflect such a situation. That is our view on the Italian distribution.
Thank you very much. Mr. Gallo, I would like to go East now.
Yeah.
You talked about Greece and how in the last year you've finalized the acquisition of the main Greek gas distribution operators. Already this is a very important, let's say, milestone for Italgas. I would like to ask you, how is it different from operating in Italy, since you've been telling us about importance of digitization, and I guess the distribution network in Greece is different from the Italian one?
Yep. I mean, Chiara, you are perfectly right. I would like to welcome also some Greek journalists that are here present. It's the 1st time. Greece is now, has become one of the core of our asset. As you remember, last year, we started operate first of September, we closed the other deal with the acquisition of minority stake in EDA Thess by year-end. The reality is that we started operating in first of January 2023, and over these five months, we started to work out not only to define the plan strategy for the three DSO, but also to start an open and productive dialogue with the regulator. Regulator, you know, is very important for us, especially considering the innovation that we want to bring also into the Greek network.
I would like to summarize under these two main pillar, our strategy about Greece. On the network side, our view, and that is reflected into the three DSO plan, is to expand and increase the network from one side, that is mainly, if you remember the name, DEDA DSO, and increase the penetration of the gas distribution, especially in the area of Athens. The other big element is the innovation. We want to bring to the Greek asset the same view, the same innovation that we have brought into Italgas, or evidently at a higher speed, because now we know exactly what we have to do.
We expect that the Greek network will become soon similar to the Italian network, thanks to the all technology, innovation, digitization that we are going to bring to them. Smart metering is one of that. We expect to install in Greece the new smart meters that will be available soon from our development, as well as to support the area that are not connected by the TSO, by the Greek TSO, we will develop the LNG infrastructure, similar to what we have done in, successfully in Sardinia. That is one of the pillar. The second pillar is more internal, is what is going to happen, and I will show you in a moment, in terms of post-merger integration. IT. We started from the IT. Two of the three DSO has already moved their infrastructure into cloud. The third one will come soon.
We wanted to have a linear organization, and we want to leverage all the competence and capability that we find out in our Greek colleagues. Finally, joint procurement is an additional opportunity to leverage economy of scale. Let's see the numbers about the nearly EUR 1 billion investment in the seven years period. As you can see, the majority is focused on extension development, maintenance, and new methanization. If you sum up the two numbers, you get to 74%. Three quarter of the overall investment is fully dedicated to new methanization, extension, development, and maintenance of the network. Still, the remaining one fourth of the amount is fully dedicated to smart meter digitization and IT as a general.
At the end of the plan, we should move from 7,500 km to 11,000 km of network, and our RAB should be in the range of EUR 1.2 billion, starting from EUR 0.7 billion of 2022. We expect that the regulator, that's the reason why I mentioned before that we are in an open discussion with the regulator, we expect the regulator to support smart meters roll out, digitization plan, and biomethane production, because we will explain to the regulator the benefit of all of that. I mean, now we have the number to show to anyone which are the benefits coming from innovation, digitization, and smart, digital, and flexible network that can accept in the future renewable gases, I'm sure the regulator will support us very strongly.
Let me go more in detail. For the benefit of our Greek colleagues, which is our plan? We are going to reach additional 42 municipalities in Greece by 2021, 29 of which are in the area covered by DEDA. Redelivery points should reach nearly 1 million by the end of the plan, and of course, they will be all smart. The aim is exactly to transform. Well, for the new network, the aim is to have a digital network immediately, and for the existing one, to transform the network fully digital during the plan period. We are going to use the same approach that we have used in Italy. It should be faster, it should be clear, it should be evident to the regulator, the advantage of such transformation.
From a, an organization point of view, you see today organization, you see what is going to happen by year-end. The idea is to merge the three DSO into one single DSO, to allow competent, competencies and experience sharing. On the other end, we would like to have more integration with Italgas group to lever the economy of scale and to make our Greek colleagues part of our group, be part, fundamental part of our group. Finally, I'm already answered to some of the question that I'm sure will come from the analyst about: What do you expect in term of synergies coming from, and efficiency coming from Greece? Today, the EBITDA of the Greek companies are below the Italians one. We know that.
I mean, we were there seven years ago. That's normal. We have done a long journey to improve our cost structure, to improve our EBITDA. We've been very successful. Year by year, we are able to cut costs. We do the same in Greece. The ambition is to bring the level of EBITDA of our Greek activities at the same level, maybe a little bit lower, because they are smaller than the Italgas, than the Italian activity. As you can see, also, Toscana Energia, because it's a smaller company, has a little bit lower EBITDA. That's normal. There is a clear gap there. Our ambition in the plan is to close the gap. We have demonstrated in the past, to be able to do it, we'll do it again in Greece.
Thank you very much, Mr. Gallo. I would like to come to you now. We've been talking about the importance of the EU, REPowerEU plan, and within this European plan, our goal, which is not at all easy, is how our society can continue doing what the society is doing with less energy, basically. Using less energy, less resources, but without renouncing to the growth. How is Italgas investing in this field, Mr. Amoroso, and what's the strategy you have put in place?
Thank you, Chiara. Let me make a quick deep dive in the world of energy efficiency. Very quick, I promise. First, our strategy is confirmed to become a Tier 1 player in this business. I would say that in the last two years, our attention has been focused on the organic growth with the traction provided by the Superbonus scheme for the renovation of the buildings. From now onward, our focus will be on inorganic growth. We will seek M&A opportunities to grow our market share, remaining in four main areas. First area, condominiums and residential buildings, of course, what we are doing now with a new way to do it. Industrial player, public sector. The groups, or what we call captive.
Let me add that our ability, that we will see more in detail after with Paolo, in reducing the energy consumption costs, is a clear evidence that will support us in our commercial strategy approach in our clients. Let me just show you what does it, this is mean more in details. It is clear that as Chiara was saying, the benefits of the energy efficiency are now evident. There is also support from the government to develop these kind of activities. The market, however, is still very fragmented. There are many small players. This, for us, is an opportunity to consolidate. Of course, not all the activities are within our scope of interest. This chart that you see show you the products that we can offer to the different segment of clients.
Of course, very high, value-add services are addressed to industrial player and to the group, both Italy and Greece. Greece, for us, is a new area of business. Building renovation is traditional way to do this kind of intervention with a bonus scheme, is addressed to residential buildings and public sector, as well as Energy Plus Service, which are long-term contract for heat management that can secure a stable flow of revenues, can be directed to buildings, to public sector, and also to industrial players. Finally, public lighting is for public. EPC, which means Energy Performance Contract, are typically for industrial player and the public sector. To sum up, the strategy is to grow in this, in this segment, in this area, preserving our margins. Let me go to the economical performance. Targets first are confirmed.
We are planning to invest in excess of EUR 300 million in this activity. The CapEx for the M&A development is more or less the same than in the previous plan. The economical performance, you can see that 2022 and 2023 have been sustained by the Superbonus. Consider that this year, our company will achieve a level of revenues that is quite double compared to what we achieved last year, well above our expectation, in the region of EUR 300 million. Of course, the Superbonus this year will end. There will be different incentive for doing this kind of work, you see in 2024, an impact in terms of volumes in our activity, not in our marginality, of course.
Our efforts going forward and looking forward will be to go back to the level that we have now in terms of volumes and revenues, with a different mix of product, to be reached toward 2027, 2028, as you can see. The EBITDA margin will be maintained and preserved at a level between 18% and 20%. I leave now the floor back to Chiara.
Thank you very much, Mr. Amoroso. I'll go back to Mr. Gallo, because one of the, well, a big news from last week is that Italgas is diversifying its activities, investing in the water sector. That is a very different sector from the gas one, especially because in Italy, and you acquired stakes from Veolia in the southern center of Italy, we have a lot of problems of management. It's a very fragmented field, in terms of management, and also you have to deal with leak, leaky pipes, right? I would like to ask you, what's your strategy for that?
Yeah. First of all, let me say that water distribution is not so different from gas distribution.
Okay.
The only difference is.
You'll explain us how?
-gas and the other way, you distribute a liquid. It's always distribution. In fact, it's one of the reason why we decided to move into the water distribution, because of the many commonality that we have between the two sectors. Before doing that, let me just give you, well, let me say, first of all, I'm extremely happy, and I'm extremely happy that we were able to enter into this sector. That was a great achievement, and I'm sure we will show you, in the years to come, the ability to change some of the elements, some of the forces that are inside this sector. Before going there, let me just give you a very high-level picture of the water business.
Many of you, they know already this number, just to recap something, leakage rate, you mentioned leaky pipes. Leakage rate is very high. It's nearly four times the European average, water is a scarce resources. Really, I mean, having such a high level of leakage is really a pity, we have seen that when we don't have rains, when there is a short of water, we are in a very tough situation. Of course, leakages in Italy are not everywhere the same. If you move from north to south, you will see that the percentage will increase. Why? I would say that there are two main reasons why there is such a high leakage rate. First one is too low investment amount for many years, no technology innovation brought into the system, to the sector.
You can see 60% of infrastructure is more than 30 years. There are limited number of smart meters applied into the industry. There are very limited, if close to zero, availability of data. Why it's so important? It's extremely important because investment will take time. I mean, replacing pipes will take years, but we cannot wait all this time. If you bring the technology, the innovation, the digital stuff that can be done very, in a very quick period of time, you can reduce your leaks by 15%-20%. That would be the immediate step. The scenario, if you want, looks somber, but we believe it's an interesting opportunity for us, for an operator like us, that has demonstrated to manage properly network and be able to build new network. Let me show you the perimeter.
We have very our small concession nearby Caserta. What we are going to acquire is three companies that are operating in the water distribution. Siciliacque, Acqua Campania, they are operating in the transport of the water, I would call it a similar TSO, if you want to make a comparison in the gas. Acqualatina, they cover the full value chain. In other terms, they go from collecting the water, bringing the water to the final end user, to the final customer, take the water back, cleaning the water, and release the water either to the river or to the sea. The value of the deal in term of equity is EUR 150 million. It includes earn-out. What this mean?
Means that a portion of this amount will be paid to Veolia based on certain performance achieved by the three companies. At the end of this initial journey to get to the closing, that is subject to a number of authorization to be received, Italgas, we serve 6 million people directly, Acqualatina, or indirectly, Siciliacque and Acqua Campania, covering about 10% of our population. We are going to be a significant player in the water distribution in Italy. Why, to respond to you, there are more similarity than difference between gas distribution and water distribution. Similarity in the operation, regulatory framework, value creation, and for Italgas, there is also a significant geographical overlap.
Italgas is spread all over Italy, is present in the area where the three companies are operating. There is a clear potential synergy putting together the activities of the water distribution and the gas distribution. We are going, once that we become shareholder, to lever the Resilience and Recovery Fund, that is allocated nearly EUR 5 billion for water distribution. To get those funds, you need to develop projects, moreover, you need to do the projects, we are good in building new facilities, new network, and therefore, we are in a right position to have the possibility to get access to these funds in order to improve the efficiency and reduce the leakage. As I told you, digitization will be our first priority by far because it will immediately bring advantages, reduce the leakages.
I told you, our estimation is between 15%-20%. In some area, we have, like, 60% leakages, six zero, and we think that we can reduce them to 40 from the technology. Reason is very simple. With the technology, you immediately understand if you have a leakage. Today, traditionally, to understand there is a leakage, you need to see the water coming out of the ground and understand there is a leakage. It will take days to happen to that. All these days are leakages. Technology will give you, I will show you in a moment, will give you immediately the evidence of any problem on the network. Finally, we think that we will be a catalyst, especially in the south.
In the center and south of Italy, of other water distribution, we may have additional opportunity in the M&A. Let me explain what does it mean, what does digitization of water network mean? We have put a picture for you to fully understand. I'm going to explain to you. Apply the digital transformation approach, exactly the same, in the same thing that we have done on gas distribution, exactly the same. Split the water network in sub-network, what we call DMAs, district metered areas. Those sub-networks are fully digitized with smart meters and IoT equipment. Up to now, I didn't mention any replacement of pipe. It's just to add digital equipment. DMAs will be remotely supervised to collect data and provide remote command and control.
Data and remote control will immediately enable us to see if anything unusual is happening on the network. As I told you, if there is a leakage, I mean, water is easier than the gas. It's liquid. At the pressure at which it is delivered, you cannot compress. So if you inject 100 liters, you need to get out 100 liters. If you don't get out 100 liters, there is a leakage somewhere. If you are able to measure in real time this parameter, you immediately identify if there are leakages, and you can immediately intervene. Once that you start collecting data, similar to what we have done in the gas distribution network, you will be able to prioritize investment, so to decide where it is more important to replace the pipes, because pipes are older and need to be rejuvenate.
That's my view on the water.
Thank you very much. We'll never say again that the gas.
Are so different.
Yeah.
Are very similar.
Different. Now we've come, Mr. Amoroso, to the ESG targets in your plan. We all have a plan in our hands or digitally. We probably all seen that the targets are very ambitious. Would you like to explain us how are you gonna make your future strategy less impactful from a sustainability point of view, and also on the human resources level?
I'm going to respond.
We made a deal. Yeah.
All right. Go for it.
Regarding this plan, in this plan, we are just confirming the targets that we have announced last year. You said, what you have done new? There is no more ambition? There is more ambition because the perimeter is enlarged. We have added the Greek activities. The same journey that we did for many years in Italy, has to be done in few months in Greece, to really bring them at our same level of knowledge, sharing data, and getting in place action to reduce CO2 emission and improve energy efficiency. That's a clear ambition. If we keep the same targets with an enlarged perimeter, it's evident that there is a clear ambition. We don't want to reduce our targets.
Which are the action that we have identified to comply with the target that is here, - 33% of net energy consumption by 2030? Three area, industrial consumption, real estate, and car fleet. Those are the main three energy consumer, if you want. On the industrial consumption, technology and digital transformation is playing a central role to reduce gas consumption for preheating or to reduce energy generally for all our industrial activity. We are moving very quickly in this direction. You see every quarter our impressive records in reducing energy consumption. We are clearly on the line that will bring us to the targets that we have set here. Real estate, similar. We are putting a lot of technology in our big buildings, understanding that that is the...
If you go back to the REPowerEU, you will see that there is an energy efficiency that has, in the building, one of the area of improvement, and we are following that. Digital staff innovation is a key issue to reduce the consumption of energy in the building. On the car fleet, on a single car consumption, we can do very little. It's not up to us, it's what they do, the car maker, in term of reducing energy consumption.
What we can do is reduce the utilization of the car. We can do that. There is already, we have already seen some result bringing to our personal new application that can where the work can be due remotely, there is no more need to take a car to go to the final end user, but we can do it everything in remotely. That is the way in which we can reduce the car fleet energy consumption. On the Scope 1 and 2 and 3, again, the target are fully confirmed. If you look at the Scope 2, the major driver are the leakages from our network. In that case, Picarro is playing a significant role in reducing such leakages.
I would like to remind you that our leakages are below 0.1%, if you remember what I said before about what, 60, I mean, we are talking about completely two different numbers. Reducing CO2 is also a by-product of reducing the energy consumption. It's clear to understand. Regarding Scope 3, Scope 3 is more complicated because it involves our supplier. What we have done in the last 18 months, we have tried to convince, and we have pushed all our supplier to do it. We have tried to convince the supplier to do what we are doing in Italgas, or to monitor energy consumption, CO2 emission, et c., in order that we can report a better, let me say, Scope 3 amount of CO2 emitted by our supplier.
If we put together all these numbers, it is clear that if you put these numbers, the number already achieved, and our targets, and you design a trajectory, you will see that by 2050 on a graph, we'll get to Net Zero, as it is written now. Net Zero, not Zero. Net Zero. Last but not least, ESG is not only CO2 and energy, is also the people. The people is the personnel, the people is extremely important for us. If you think about all the transformation that we have brought into our company in the last seven years, we were able to achieve those targets and those results only thanks to the people. If we don't have our people with us, we'll never be able to reach such targets.
It's fundamental, the focus that we are putting on our people, engagement, and training hours. Training hours is another fundamental part of the equation. As you know, the digital transformation requires significant digital skill in our people, and what we are doing is that to increase year after year, the number of hours in training in general, but especially in the digital area. We need to have our people fully on board. We need to have our people fully trained to cope with this new technology that we have put in place. We need to have our people also happy, so we need to balance the private life with the public, with the working life, and that's the reason of the target put in the welfare.
We need to provide to them enough opportunity to continue to have their own private life, to be happy while working with us. Finally, on the women, we have seen an increase since 2020 of the women in the responsibility. It's not enough. We have an heritage. I mean, that is what it was Italgas. It's not a startup, we cannot change the old organization and the old people from one day to another. We have put a target that is becoming more difficult, we feel that it's important to set targets that are very ambitious, especially in this area. To close also with the gender gap, we don't want to have any more gap between women and men, there should be...
We put in the range ± 3%, because that is also important for us.
Thank you very much. This time.
Now is the time of Gianfranco.
I'm really coming to you, Mr. Amoroso. Let's talk finance. I know you have some data to share with us. Please.
Thank you, Chiara. Now we start talking about our financial strategy. We have completely redesigned our financial strategy to cope with a changing environment, high interest rate, inflation rising, but always guaranteeing long-term support to sustainable growth and visible shareholder return. First, we made a careful review and reallocation of the CapEx, our CapEx, giving priority to the generation of cash flow. We have reviewed also all the M&A and regulation-linked opportunities across the plan. Second, a continuous search for operational performance and improvement in efficiency to address rising inflation in the cost. This, thanks to digitization and to best practice transfer. Third, new funding strategy to cope with higher interest rate and also considering our internal needs in terms of maturity profile of our debt, preserving a very low risk profile for our group.
Last, very important, an updated and extended up to 2026 dividend policy, allowing shareholder to benefit from growth while guaranteeing downside protection. Talking about the CapEx plan, we have presented today a EUR 7.8 billion of investment planned in 2023 to 2029. As you can see, let me comment about the difference between this plan and the previous plan in the old business plan. You see the same number, EUR 7.8 billion. It's not a mistake, 'cause last year we presented a plan of EUR 8.6 billion, if you deduct the M&A already allocated in 2022, you come to a figure that is fully comparable to the current one, EUR 7.8 billion.
The composition of the 7.8 is different, as you can see, if you do not consider the tender, you come to a number that is EUR 300 million higher compared to the previous one, 6.3 versus 6.0. In between, within the 6.3, you have the portion of the network, the Italian gas distribution, that is slightly growing compared to last plan, about EUR 4.6 billion. We have EUR 800 million for the diversified activities, aggregating energy efficiency and water, and an important part of that is the recent acquisition of the water asset that become a platform for potential further new M&A opportunities, of course.
We have Greece, with the 900 million CapEx plan that we have presented today, that always comparing to the old business plan, and not considering the acquisition price for the company, is about EUR 200 million higher in terms of total CapEx, reflecting the strong development that we applied for the first year. All in all, if you compare the two aggregate numbers, we can say that more or less the same figure, but more visibility about the composition and the RAB, because you have less tender and more RAB within the remaining. More RAB for Italian distribution, more RAB for water, because also the acquisitions that we made is a fully regulated business. The portion of the tender is reduced due to the fact that we have rescheduled some tenders beyond the business plan horizon. Talking about CapEx drive us to the RAB evolution.
RAB evolution is divided between Italy and Greece this year. You see that the aggregate amount of RAB has a growth rate in the plan of 3.1%. This is a result of two different growth rates. The Italian component has a growth rate of 2.6%, while the Greek component has a higher growth rate of 7.3%. The mix of the weighted result is this 3.1% that you see. Of course, comparing to the previous plan, you have a different starting point because the other year. Now we have the acquisition of DEPA compared to the previous business plan. You add to all this, the contribution of the tenders, you reach a level of growth of 4.8%. Let me briefly talk about inflation.
You know, that in Greek, in Greece, RAB is not inflated, while this is the case in Italy. We have considered this business plan, a deflator on average about 2.7%. This is the result of the current 2.8% applied to the tariff revenue of 2023. For 2024, the deflator go to 3.9%, and then declines toward the end of the plan. You have the same picture on the right side of the slide. In terms of delivery point, the average growth rate is 3.3%, driven mainly by the growth of DEPA and by the tenders.
As Paolo mentioned before, we confirm our target Italian market share of 41% at the end of the plan, that become 45% if we consider all the tenders, the completion of the tender process after the end of the business plan. Now maybe, Paolo, you want to say some word of this impressive chart?
Yeah, the reason why I would like to give you some words about that is, if you remember in the, in the past strategic plan edition, we were comparing a non-digital scenario with a digital scenario. We've done it for many years. I think there's no more sense to do it. I mean, we are in a fully digital company, and therefore it doesn't make any sense to say what we would be if we were in a non-digital scenario. It doesn't make any sense. What we wanted to show here is, it's a different perspective, is our ability to continue to reduce our cost to be efficient through digitization, Design to Cost, smart maintenance, personnel efficiency, economy of scale. We didn't put the number, but those are. I mean, beyond this graph, there are two numbers.
What we want to say to you is that our cost in 2029 will be at the same level of 2022. No matter of the growth activity that is inside. Tender are excluded, if you take out the tender for a moment, growth of the activity that we are going to experience throughout the seven years, inflation. Inflation has become a number, an important number for the future, in terms of cost of personnel, in terms of cost of material, and, I mean, in terms of the day-by-day life that we are experienced, all of us.
No matter of the growth, no matter of the inflation, the efficiency that we have included into the plan will be able to, at 2029, to have the same level of cost that we experienced last year. That's quite significant. That, to me, we are going to show you in the future presentation, which is our achievement in term of cost efficiency, forgetting about the non-digital scenario because it's a, it's an unrealistic one. It was very useful at the beginning when we were moving into the digital transformation, digital transition. Now that we are fully digital, it doesn't make any sense to make such a comparison. Yours, back.
Thank you. Now, going to the debt structure and the funding strategy, and our new funding strategy. First of all, we are all aware that the interest rate scenario has dramatically changed in the last 12 months, and also the cost of funding, of course. The evidence of that, you know, we issued two weeks ago a new bond, EUR 500 million, nine years, with a coupon of 4.4%. Consider that the previous one that we issued in 2021 was 12 years with a coupon of 0.5%, the difference is that. This new scenario, combined with the maturities that you see in the chart in our business plan, drive up the cost of debt in our business plan.
The interesting thing is to see how the composition of our debt, you see in the chart. The dark blue area of the graph and the orange one are the cost of funding below 1% and between 1% and 2%, so our old cost of debt. This declining, as you see the chart, gradually following the profile of our maturities. Is replaced by the light blue area, which is the actual cost, more than 4%, and the upper area of the graph, the blue area, which is the floating. This, to sum up, is a result that drive our cost of debt at the end of plan at 3%, starting from the current level of 1%.
Not only that, also, the composition between floating and fixed is changing because, as you see also in the graph, now we have the floating that is 9%, and going towards the end of the business plan, this purchase can become around 30%, and this has been done to keep under control the cost of debt in the different years. Finally, the financial structure of our group. We crafted this plan, and we have worked very hard with an eye to the special eye to the financial structure of the plan. The result is, as you can see, a very well-balanced situation.
The operating cash flow fully cover all the organic CapEx and the dividends, and also, a block of M&A activity, which are the assets of Veolia that we recently acquired, and leave us with a sufficient headroom to accommodate further M&A opportunity, the tenders, and the shareholder remuneration. These flexibilities make us very confident in terms of preserving our current rating. You see on the right side of the slide, the ratio between net debt and RAB, that across the plan is always well below the threshold, the upper limit of 70%, also improving starting from 2023 onward. A similar trend for the other ratio, the funds from operation to net debt, that is improving across the plan, starting from the low point of 2022.
Now, the guidance with the tenders, of course, as usual. For this year, we estimate revenues in excess of EUR 1.75 billion, EBITDA around EUR 1.18 billion, EBIT around EUR 680 million. This with a technical CapEx of around EUR 900 million, and net debt included IFRS 16 of EUR 6.4 billion, and assuming a working capital position neutral by year-end. As a result, the leverage this year will end around 65%. If you jump to the end of the business plan, we have revenues in excess of EUR 2.7 billion, EBITDA in excess of EUR 1.8 billion, RAB of EUR 12.4 billion, and EBIT to RAB ratio around 9%.
As a result of what we have commented before about the cash flow, the leverage will decrease below 60%, at 59% at the end of the plan. A new slide this year, just to show you the growth rate that are implied in the guidance that we gave. You can see that for revenues and EBITDA, we have maintained, and we can project the same level of growth rate, around 8%, across the plan. More or less the same growth path can be also projected for the net income due to the action that we have explained on the cost of debt also, of course. In addition, this year, we provide you also with some more breakdown in the EBITDA composition for 2023 and 2029.
As you can see, the contribution of the distribution, Italy and Greece, decrease in 2029 due to the growth of the diversified activities and the tenders. I leave back the floor to Paolo.
Just to close the presentation, the board of directors approved the new dividend policy. That is in line with what was the previous one, 65% payout and 4% as a floor, starting from the result of 2022 that we have already announced. As you can see, I mean, the numbers that we put here, starting from 2016, has been impressive in term of growing of the dividends. We think that this 65% is the right balance, from one side, to allow investors to keep benefiting from our results, and from the other side, to keep the room to grow.
The fact that we were able to acquire the Greek activity, more recently, we are going to acquire the Veolia asset, means that we have been able, in all this year, to preserve our ability to grow. The numbers in the dividend shows our ability also to reward our shareholders. Now I leave the floor to Chiara.
To me, because the presentation of the strategic plan has come to an end. Thank you very much to both of you for showing us all the key points, the document we've seen together. We have the time now for questions from analysts and stakeholders. Anna Maria Scaglia, Head of Investor Relations of Italgas, is already on stage for that. I leave the floor, and thank you again.
Thank you. Thank you, everyone, and good morning to those connected via the webcast and phone. I'm Anna Maria Scaglia of IR, we will start with the Q&A with people here in the room, and then we'll take, as usual, the question coming by phone. For those connected by phone, the way to register for the question is star one on your telephone keypad. Everyone with the raised hands, we start maybe with-
It's going to be a tough session.
With James Brand from Deutsche Bank. Please, James?
Thank you for the presentations. James Brand from Deutsche Bank. A couple of questions. Firstly, on the meters, so the fitting of the new hydrogen-ready meters, have you agreed that with the regulator at this stage? I think it involves phasing out the old meters a bit sooner than was originally planned. I guess that would be important to agree that, so you can get fully remunerated for what you would have earned had they run the full life span. The second question is on the gearing. That comes down to around 60% by 2026, which I think in the past you've been comfortable with a level of gearing that's been slightly above that.
I was just kind of wondering, is that still the way you would think about it? Does 60% give you some headroom? If it does, whether we should expect you to fill that with maybe more acquisitions and opportunities that come up in the future? Thank you.
Okay. On the first one, let me say that the smart meter is still testing. We have already told the regulator that we are developing the smart meters for the two reasons that I showed, that I told you. One, that the GPRS, they have not ended the regulatory life yet, but they are not very far from. Remember that the first smart meter were installed back in 2014, 2013, 2014, so they have nearly 10 years. It will take another two, couple of years to start the installment of the new ones. We are going to be very close to the end. Second one, the second reason is that those smart meter have shown a number of problems: life of battery, problem of communication. That's normal.
That was the first smart meter developed. As soon as we will have our smart meter certified, we will start talking about the regulator. We have already started talking about. We expect that the regulator will act as he decided time ago, when he asked us to replace the traditional smart meter with the smart one. Covering the delta in term of depreciation, not fully depreciated. That is what is inside. That is the assumption that we took in the business plan. I mean, bringing in the smart meters, new features like service security, hydrogen ready and so forth, I think it will be welcomed by the regulator. Second question. I mean, the fact that we are slightly below the previous plan is just a matter of calculation. The answer is yes.
I mean, that small additional room, I think we are below by 1%.
Yeah, more or less.
It's not a huge, unfortunately, it's not a huge below, because that is the room that we reserve for us, for new acquisition, investment opportunity that may arise. For us, it's important. I mean, Greek was a clear demonstration that with such a room, we were able to do a big acquisition. Veolia is another demonstration.
60% of the ...
No, I mean, from a credit rating standpoint, you remember that we need to stay below 65 to maintain the same credit rating. We are allowed to eventually go a little bit over, if in the trajectory you will come back. In the range of 60-65 is the right range to maintain our credit rating. That it's, in this day, extremely important for the interest rates. Let me add one element, going back to the meters, that I just come to my mind. The regulator, just to support what I told you, has issued a call to fund research and development projects that will cover also innovative smart meter for hydrogen. We are ahead of the regulator. They are going to get the call, we are going to present the final smart meter.
That's normal, what we have done in the last few years, to be ahead of the regulator.
Thank you. Next question from John Campbell, from Bank of America.
Yes, thank you for taking my questions. I've got two main questions, if I can. didn't spot in the presentation any details regarding WACC, upcoming WACC. for example, the Italian trigger mechanism.
Okay.
Also the Greek regulatory review.
Okay.
Sort of following on from that, is the EUR 800 million-EUR 900 million, excuse me, CapEx for Greece, is that confirmed, or is that your best expectation? The second question is regarding the tender. It looks like the peak has moved out beyond sort of the plan horizon. Is there anything that you expect could invigorate that process, for example, a tightening of regulatory allowances at the next review? Thank you.
On Italian WACC.
On the Italian WACC, we can confirm that we are considering the plan and the trigger mechanism starting from 2024, with a level of 6.4%. We believe that we are progressing in the observation period, so now we are quite confident this, with these levels could be achieved. Then, after that, in 2025, we have a slight decline due to the fact that the composition, we expect a different composition also between not only the TIC but also a different composition between the old cost of debt, new cost of debt. Going forward in the plan, there will be a level that is lower than the 6.4%. For Greek?
On the Greece side, we have submitted to the regulator, you remember, probably I mentioned already three different studies from a third party to show how much there should be the increase in term of WACC in respect of the existing seven. Final decision has not been taken yet. Also considering the election that are going on in Greece right now. We expect to have final decision by the end of this month, beginning of July. That is what we get as a promise by the regulator. We are waiting. We are confident. I mean, the study that we submitted were very solid, so we are quite confident about the outcome.
EUR 900 million in Greece is not our best estimate, is the amount of investment that we submitted to the regulator in the three different plans. Here you see one single plan, of course, you see everything together, but that is the amount that is on the base of the tariffs of the regulator, of the Greek regulator. Let me say, if you want, you say it's an estimate or is agreed, is agreed, in a sense that it has been submitted to the regulator. The regulator has issue a consultation. Comments were very limited, not significant, so we are, again, we are extremely confident on this number. It's not an estimation. Which is the Okay, tenders, what could trigger?
You know, it's always the same question, so I'm, honestly, I have a hard time to answer to you. We are always confident that the people, I mean, the municipality will start doing those tenders. Let me say, what is happening right now, there's always something new. What is happening right now is that the rules to evaluate the tender was established back in 2012, so an age ago, I would say, even it's only 11 years, but it's an age ago. The minister is revising those rules, correctly, because it's a completely new world, energy transition, technology, innovation, digitization.
We are very happy that the minister is going to review those elements for giving the points, for giving the score, because we feel we will be, we will really show the gap between us and the other competitors. None of our competitors in Italy have done what we have done. The more evaluation criteria set by the government, by the ministry, will be close to our days, the more we will be in advantage. That's another reason why there is a delay, because municipality are waiting to see the new rules to be applied. That's it.
Next question is, Jose Ruiz from Barclays. Please go ahead.
Good morning. Thanks for the presentation. Just two questions. The first one is, I see this drop in terms of revenues for the energy efficiency because of a Superbonus. Is there any offsetting factors that you're considering? I don't know what is the impact in terms of EBITDA, if you can develop on that.
Got it. I got it.
Okay. The second question is, if you can share with us, if you know, the leakage levels of the Veolia assets or the...
Hmm.
Right. On the ESCo business, as we have discussed, there is this drop due to the fact that the incentive will be no more 110% of the total cost. Probably, the situation will be a different scheme that will be more probably 70%, 30% in terms of incentives, and this, of course, will imply a decrease in this kind of activity. This is the decrease in volumes. I would say not in market share, because the 2023 figures are not permanent. We all know. For everybody.
Exactly. Exactly. All the market will go down the same way. As we said, we are developing a different business line to offset the decrease, and this will take time because we have to work on our client portfolio. Of course, it's not something that you can do following year, and that's it.
We don't know the number exactly. I need to say that there is a big difference between Latina, that cover the full value chain, in respect of the other two that are an wholesale seller of water. We expect to see that the two Siciliacque campaigns should be lower, and Latina should be higher. If we look at our concession in Caserta, that is not very far from Latina, so from a geographical point of view, we are in the range of 60% losses, leakages. I'm expecting that that should be the number. If it's better, we will be happy. If it's like that, we know that there is a good area for improvement, and we can bring that very quickly, similar to what we are doing in Caserta.
Again, I show you, which is our view immediately, technology, technology. That's the first step to significantly reduce the leakages. If they are in the range of 60%, in a couple of years maximum, we can bring them down to 40%. That is our view.
Thank you. Next question from Mark Freshney, from Credit Suisse.
Hello, thank you for taking my questions. Firstly, on the CapEx, I think, EUR 7.8 billion. I mean, despite supply chain challenges and higher input costs over the last year, as you roll it forward, the CapEx was flat, despite significant inflation and labor issues. Can you talk through that? My second question is just on the Greek business. As I see it, you're taking your business model, your digitization strategy and transposing it to Greece, and we saw the benefit on the EBITDA margin. That's something that you can do that the previous owners couldn't, but no doubt you would have paid for that benefit. How can you keep that benefit? Because it's one that you've earned, not the regulators.
On the first one, I mean, you are right. Let me say that the inflation impact on our CapEx has been, in 2022, very limited. In a sense that we have not seen a significant increase in, on the material side of the CapEx. We are talking about, like, probably in the range of 5% increase on the CapEx side. Where we recorded the highest inflation, if you remember my slide about cost efficiency, is on the cost, not on the CapEx. Driven by utilities, I mean, you know very well what happened to utilities cost, driven by the cost of personnel. Okay? Honestly, on the CapEx side, we have seen very little. If you look the numbers, you see that the CapEx, I will tell you one more thing, that the CapEx slightly increased.
They moved from EUR 6 billion - EUR 6.3 billion. I don't know if you want to show the picture. What happened is that there has been a reduction in the vendor for the delay. Let me add 1 element. What has been our focus on the CapEx, in analyzing the CapEx? We want to spend less for doing the same stuff. Probably, you didn't get my concept of Design to Cost. We want to review, and we have already started, to review our engineering activity, to identify the area where we can spend less doing more or less doing the same. I would probably look more, sorry, to tell you differently. We probably look not only about the amount, but the activity that are behind the amount of CapEx. Those are the same or even more. Why?
Our focus should be, and that should be good for the system, good for the end customer, good for us, to spend less and doing more. Remember that sooner or later, we will get into the TotEx view. TotEx view is exactly this one. You should be efficient, not only in the cost, and we have demonstrated to be able to achieve efficiency cost that was never achieved before. We need to be efficiency in the CapEx deployment, time and cost per unit. We should reduce the cost per unit, and we should do, with less money, more things to do. You can start seeing this first element, and that will make resources free to do other things.
For us, to me, for us, it's not really important, the number, the overall number, but it's the activities and the list of things that we are going to do below this number, inside this number. You need to think differently, because TotEx, sooner or later, will come, and we need to be ready to be efficient in OpEx, we are already, and in CapEx. Greece, you know that the regulation is different in Greece. You know that for the four years period, you can keep your efficiency. Any, let me say, any overperformance in the cost, meaning that we are spending less, will be discussed at the end of four years period, and then it will be given back in the next four-year tariffs. Honestly, I will be extremely happy, not very happy.
I will be extremely happy if I'm able to bring Greece in these four years period at the same level of EBITDA to the Italian one, and be extremely happy to give this money back to the Greek customers. Showing, and I'm going back to the initial part of my presentation, showing that the gas network will play a central role in the energy transition, but also will play a central role in providing gas at sustainable cost to the final customer.
Next question from Emanuela Cioni. Please go ahead.
Thank you. Emanuela Cioni at Kepler Cheuvreux. Thank you for taking my question as well. First of all, I have two question on the water business. Could you share, first of all, the duration of the concession managed by the acquired companies, if it's possible? The second question is what we should expect in term of return on capital employed for the water business? And the similar question is for the energy efficiency business. You are still investing in this different business, including in the. After the Superbonus , at the end of the Superbonus , we expect a strong decline as for everyone in the sector, starting from next year.
What are the drivers, why you are interested to continue to invest in these services, in these businesses? What, probably, you spot an interesting return on capital employed also in this kind of businesses? If you share with us more details on that. Finally, back to the Italian core business. You mentioned before the underlying hypothesis on the allowed WACC, so the trigger, this look slightly back in 2025, et c. I wonder if you could add more details also on the hypothesis embedded in your business plan for the deflator parameter for the real WACC in Italy. Thank you.
On the first question, we have the Acqualatina as a still 10 years concession period. The one in Siciliacque will end in 2044, and Acqua Campania is going to expire at the end of this year. Acqua Campania, of course, as soon as we will be part of the shareholder, one of the shareholder will start discussion with the regione, how to handle and how eventually to have a additional period in the concession. Today, it is, I mean, it is difficult in the water sector to identify, while it's very easy in the gas, you say the WACC, and we know exactly what it is. You know that the regulation in the water sector is slightly more complicated. Let me say that the.
If you have a, let me say, if you put together, if you try to build an equivalent WACC, it's going to be similar to the one in the gas. That is the easiest answer to tell you, because otherwise we will get into a more detailed discussion that is a little bit more complicated. Because you know exactly that the water regulation is quite different since the referendum in 2012 about the recognition of cost. You know, that there is a recognition of the office, there is a recognition of the cost of debt, there is a recognition of the cost of equity. We are talking about...
If you want, I mean, mixing all that stuff, you will end up to have a similar WACC, that doesn't exist in the water, in similar to the gas. On the energy efficiency, in that case, we have our numbers that we can tell you. I think the interest to still invest in the energy efficiency is that they require, except the Superbonus, once that we are out of the Superbonus, there is a limited requirement of capital invested. The margin is always in the range between 18%-20%, it's part of the trilemma that I have described. Security, supply, energy efficiency is playing a significant role, both in security, supply, and the cost of energy. It is, let me say, linked to our missions.
It is that we have given to ourselves to be a player in the energy transition. That's the reason why energy efficiency is in our activity. Maybe in that case, because it's our calculation.
Yeah.
The range of the
It is, yeah.
return on investment.
We made normally a calculation based on the net capital invested. As Paolo was saying, the investment is very limited. Basically, the Superbonus has a payback of four years, if you simply get the credit from the benefit. The return is double digits between 12-13.
Return is-
Higher return on capital invested. Higher, of course, than the remaining of our business, but it's, of course, a different risk profile and volatility. This is 11. About, you have a question about deflator, maybe?
Yes.
The deflator we mentioned in the presentation, we have an average of 2.7% in the plan. We have, for 2023 tariff revenue, 2.8%, and for next year, we have forecasted 3.9%.
Regulatory review for DEPA. I notice that the CapEx plan, the new CapEx plan is in line, basically EUR 0.9 billion. Basically, the organic CapEx is almost flat compared with last year.
No, no.
No, no.
200 more.
EUR 200 million more.
EUR 200 million more.
EUR 700 million last year.
Yeah.
Okay, okay.
It's EUR 200 million over EUR 700 million is a significant increase.
For DEPA?
Yeah.
Okay, that's why also partially you already explained the answer, because the RAB was higher. In 2019, despite the RAB was higher.
Yes.
Okay. Thank you.
If there are no questions from the room, we can go from the telephone. I ask kindly the operator to open the line, and we can start with the first person.
The next question is from the conference call coming from Javier Suarez with Mediobanca. Please go ahead.
Hi, good morning, and thank you for the presentation. I have several questions that focus on the slide number 45. The first one is on the assumptions for the allowed return on RAB in Italy and then on Greece. If you can give us the average number, you may explicit the number for 2024, but the average allowed return on RAB for the period that goes from 2005 to 2009 in Italy, that would be helpful. Also, if you are considering a different number in your assumptions, different from the current 7% allowed return on RAB for DEPA.
If the number is different, you can give us a sense of the level of distance or difference between current regulation and what you are assuming. Second question is on the EBITDA target for 2029 at over EUR 1.8 billion. This is a number similar to the previous number for 2028. I guess that that is due to the switch of CapEx toward activity that has a lower EBITDA margin. If that, if that is a legitimate comment, or you disagree with that? The third question. Obviously, the company has now three different optionality in terms of CapEx. One is CapEx on the Italian gas distribution network.
Second one is on the water distribution network in Italy. The third one is a gas distribution network in Greece. You can give us a sense of the different in spread of work there between the three different activities, in order to see which is the profitability that you see, or the difference in profitability that you see in the three activities versus your cost of capital. The final question is also on the slide, is very helpful that you detail the breakdown of the EBITDA contribution in 2023 and 2029. I wanted to ask you can give us the split between, for example, the 8% contribution from ESCos and Water, explaining that information between ESCos and Water. That will be helpful as well. Thank you.
Javier, sorry, can you repeat the last question a little bit slower? You went very fast. Sorry.
Okay.
Please-
No, no, no problem. It was on the slide number 45. You detailed the split of the EBITDA contribution by the different activities. For example, you put together the contribution from the ESCos and Water distribution at 8% in 2029. You can explain that 8% between ESCos and Water, that would be helpful.
Thank you.
Okay. It was quite difficult to fully understand your question. The line was extremely bad. Having said so, let's try to answer what we have understood. Eventually, Javier, please intervene if it's not the correct answer. The first one, what is the work I can imagine on the RAB on average? We told you that we expect an increase of 80 basis points for next year, then, let's say, a reduction of 20 basis points following on, depending on the review. That is our best forecast. Let me say, the more that you are in the future, the less is the probability of the number. Therefore, I would rely more on the next one.
That should be in 2024, and then we have expected to have a reduction of 20 basis points. Regarding the,
The WACC for.
Okay. Regarding DEPA, I told you, we submitted three studies for the WACC. There is going to be a significant increase in respect of the 7%, 7.02% today. We don't know yet what is going to be the number. If I have to give you, let me say, a forecast, it will be between 8%-9%. That would be in that range, based on the study that we submitted to the regulator. It will depends mainly on the assumption that the regulator will take forward, but if I have to forecast, that is going to be above 8% and below 9%. Let me say, that is going to be the range, but honestly, we don't have the number yet.
We should, as I told, in the previous answer, we should get the number before the end of the month, beginning of July. Why the target EBITDA in 2021 is similar to the last year of 2028? The answer is in the assumption that we made. Tender has been slowed down, and therefore, the contribution of tender in 2029 is lower than it was supposed to be last year, and that's the reason why the two end year of the plan are very similar one to each other, so it's mainly driven by the delay on tender. Different CapEx optionality, if you want, I have already answered somehow to one of your colleagues here in the room.
I said that the water, if you translate all the numbers into the WACC, is very similar to the gas. The ESCo has a different return on investment, requiring less CapEx. I think that the portfolio that we are developing is a value, because the fact that you are talking about CapEx optionality means that we will have in front of us opportunity, water, gas in Italy, gas in Greece, and ESCo, where we can allocate our CapEx in the best profitable manner in term of return, and return and risk. Of course, you need to consider both of them. It's right, we are building CapEx optionality. That for us is extremely important to enhance the return and reduce the risk. I don't know if I responded to you.
Was the last one?
There was a remaining question on the, on the EBITDA breakdown, the contribution from water. That is a number that I was looking for in that EUR 1.8 billion, the assumption that you have for water contribution.
EUR 1.8 billion.
Yeah.
EUR 1.8 . you need to consider that the water, as of today, is difficult to see the full contribution at the EBITDA level. The reason being is that we are going to consolidate Siciliacque, because we are going to own more than 50%, nearly 75% of the company, while we are not going, as of today, to consolidate Acqualatina and Acqua Campania. These two company, you will not see the contribution at EBITDA level. You will see the contribution at the net income level. That's the reason probably you don't understand the numbers in the partition between EBITDA, between the different business. At the EBITDA level, as of today, we may eventually try to change that situation, but the plan assumption is this one.
The contribution at EBITDA is limited to Siciliacque, while the other may contribute to the profit, not to the, not to the EBITDA.
Okay. Many thanks.
Operator, are there any other questions from phone?
As a reminder, if you wish to register for a question, please press star and one on your telephone. I confirm that there are no more questions registered at this time.
Thank you. Mr. Gallo?
Thank you. Thank you, all. Thank you, Chiara, for participating, and thank you, all of you, for participating here. Of course, I'm sure you will have more question in the coming days. Anna Maria Scaglia and all the Investor Relations team is available to respond, starting from today. In a couple of hour, we will start our roadshow, and we will go and meet a different kind of investor. You will have the opportunity again to raise other question directly, and we will more than happy to answer to you. Thank you for participating again to this event.