Negative impacts of the new regulatory framework effective from 1st January 2020 have been largely offset by three positive drivers:
- RAB (Regulatory Asset Base) growth
- the contribution of M&A and Toscana Energia, fully consolidated starting from 2020,
- the capacity to ensure business continuity, even during the lockdown period, leveraging on the digital transformation embraced already three years ago
The Company could therefore react in a prompt and effective way to the new scenario resulting from the Covid-19 spread, while reaching the highest level of operating investments ever carried out in a single quarter, for an amount exceeding 200 million euro.
First-quarter 2020 P&L proves Italgas ability to react to changes in the operating scenario. The new regulatory context, following ARERA Resolution no. 570/2019/R/gas, resulted in a cut of metering WACC from the former level of 6.8% to 6.3% for the 2020-2021 two-year period; the new regulation has also envisaged a reduction of OpEx allowed per Redelivery Point. Moreover, Italgas could not benefit from capital gains from asset disposals as it did in 2019; lastly, the replacement of meters decelerated, as expected. Nevertheless, Italgas achieved a 3.7% growth in EBITDA, partly through the contribution of Toscana Energia. The EBITDA Margin shows a slight decrease, from 70.5% in Q1 2019 to 69.5%, as operating costs grow at a higher (+9.0%) pace than that of Total Revenues (+5.2%). New efficiencies continue to be achieved, anyhow. The change in operating costs reflects the wider Group consolidation scope; on the contrary, on a like-for-like basis, costs decrease by 2.7%.
EBIT shows a slight decline (-0.6%) due to the increase (+9.2%) of Depreciation & Amortisation. Such change reflects higher depreciation for the capex carried out over the last year and the full consolidation of Toscana Energia.
The 11.4 million euro decrease (-13.2%) in Net Profit, which stands at 74.9 million euro, reflects:
• The slight decline in EBIT (-0.7 million euro) due also to the absence of capital gains from asset disposals (9.2 million euro in 2019).
• Higher Net Financial Expenses (-1.2 million euro) due to the higher average debt in the Q1
• The decrease in Net Income from Equity Investments (-4.9 million euro), as Toscana Energia is no more consolidated with the equity method
The record amount of capex has been 85% covered by cash generation
During the first three months of 2020, Italgas has carried out 206.0 million operating investments, i.e. 53.6 million euro more than those of the same period of 2019.
More than three-quarters of the investments were concentrated in distribution, with the aim of maintaining the high quality of the network and continuing its extension. During the first three months of 2020 c.310 km of new pipes have been laid down. In more detail, during Q1 in Sardinia Italgas laid down approximately 165 km of new networks. With a total of more than 630 km of “smart pipes” built to date.
During this quarter, even the meter replacement program continued, despite in March the lockdown to avoid the Covid-19 spread affected the pace of replacement. Metering investments reached 30.1 million euro. In the first quarter of 2020, the company installed 274.5 thousand new meters, of which 218.3 thousand to replace traditional meters and 56.2 thousand to restore digital meters with anomalies. The smart meter installation plan is expected to be concluded in 2020.
Net investments for the first quarter of 2020 have been largely funded by Cash Flow from Operations, which stood at 174.2 million euro, with a negative Free Cash Flow before M&A activities of 22.6 million euro.
Net Financial Debt as of 31 March 2020 amounts to 4,450.5 million euro, with an increase of 39.9 million euro compared to 4,410.6 million euro at 2019 year-end, excluding the effects ex IFRS 16 (1.6 million euro).
At the end of March 2020, Italgas therefore continues to boast a solid and efficient debt structure, with an 88% weight of fixed-rate debt and no significant refinancing need before 2020. The cost of debt is at a very low level, around 1.1%. Moreover, Italgas has bank deposits of around 208 million euro and can rely on undrawn committed credit facilities of 500 million euro, maturing in October 2021.