Rai Way S.p.A.

Good afternoon. This is the Curriculum Conference Operator. Welcome and thank you for joining the RightWay First Quarter 2020 Results Conference Call. As a reminder, all participants are in recent 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 Mr. Giancarlo Benucci, head of corporate development of Ryeway. Please go ahead, sir.

Thank you, operator, and good afternoon. Thank you all for joining us today. I really hope that you and your families are doing well in these challenging times. As you remember, just a few weeks ago we had an extensive call on the new industrial plan So we will keep this presentation relatively short, dedicating, as usual, the last part to your questions. So let me now hand the call over to Aldo. Please, Aldo, go ahead. Excuse me, sir.

Is your line on mute?

Thank you, Giancarlo, and good afternoon to everyone. As usual, I will briefly comment on the main highlights of the period while Alberto will then run you through details of our financial performance. Let me start putting the results and numbers we are sharing today in the context of the new and unexplored operating environment brought by COVID-19 we have been dealing with since late February. We cannot say that this emergency had no impact at all on our business. However, we can say that our company has been able to react and adapt to the new conditions, protecting, first of all, the safety of our workers while ensuring the business continuity and the public services. Just to give you some color on some of the several measures we have implemented, almost all employees have been able to work remotely from day one through VPN and cloud solutions, which proved to be extremely performing. In terms of networks, operation and control, the monitoring activity has been guaranteed through remote control systems and agile work models. Finally, the field force. The field force has operated by intervening on-site, obviously also in agile model, to ensure compliance with service levels and support to our customers for needs related to health emergency. In this respect, my thanks go to all our employees, in particular to those working on field, who has shown an unparalleled commitment. All these measures that allows us to keep the activities up and running coupled with the defensive and resilient nature of our business led to a first quarter 2020 performance that also from an economic and financial perspective proved to be extremely solid. despite the lockdown and the economic disruption we are seeing globally since late February. A financial aside from an operational standpoint, as you know, in March, we have defined and approved the strategic guidelines and targets for the next four years. And the focus immediately moved to the implementation with activities carried out along the way set by our new industrial plan. This applies to all the initiatives presented in March, of course, in particular to the farming, being the largest project already in the implementation phase. Here, the precautionary measures imposed by the sanitary emergency translate, compared to the plan, into a more gradual installation throughout this year of new equipment required by the multiplex coverage extension, with the smoother profile in the first half to be recovered in the second part of the year, should the new roles introduced by the so-called phase two of the emergency be effective for the rest of the year. As a result, also our expectations for the full year 2020 are not materially affected and therefore are confirmed as we will see at the end of our presentation. And moving to the slide number five, if you look at the highlights of the period, core revenues reached 55.6 million euros, so 1% higher than the first quarter last year, mainly as a result of the rising contribution for new services to RAI and nice, known MNOs customer performance, considering the basically flat CPI dynamic during 2019. Adjusted EBITDA came slightly above last year figure, benefiting from higher revenues, with growth at this level expected to accelerate a little bit in the coming quarters following the higher contribution from new services. Net income was up 2% year-on-year at €16 million and on the financial side CAPEX in the first quarter amounted to 8.7 million euros, so materially higher than last year, with the development component reaching 7.9 million compared to the 1.7 million of 2019, driven mainly by the multiplex coverage extension as part of the reforming project. Maintenance capex remain steady at low levels reflecting once again our traditional seasonality of the investment activities. To conclude, the recorded net debt at March 31st amount to 2.6 million euros down from 9.5 million euros at last year end with the usual very strong cash conversion of the first quarter at 97.7%. After that, I hand over to Adalberto to provide you with more details on the main items of our results. Please, Adalberto, the floor is yours.

Thank you, Aldo. Good afternoon to everyone. So if we move to slide 6, we can see our core revenues are 1% higher, reaching 55.6 million euros. With the right component growing 1.3%, thanks to the new services, up by 50%, excluding Unatantum Impacts. supported by coverage extension in relation to the TV broadcasting services and in relation to the DAB for us. While fixed consideration remains stable at around 45 million euros due to the flat CPI recorded across 2019, to be precise 0.1% as of November 2019, that is the reference period for the indexation of the fee-from-line. On the other hand, revenues from third parties were down 0.8% at €8.2 million, showing a progressively more balanced customer mix with the non-M&O component that confirmed the positive trend we commented also in the previous call, with an increase of approximately 3% vis-à-vis the same period of last year. Moving now to the following slide on OPEX. Overall costs in the first quarter were €22.5 million, meaning an increase of 1% vis-à-vis the amount recorded in the first quarter 2019. with personal costs basically stable at 11.9 million euro and other operating costs up by approximately 2% at 10.5 million euro, reflecting higher energy price compared to one year ago. Let's give a look to the profit and loss till the net income in the next slide, slide eight. Our net income stood at €16 million, which is 2% from €15.7 million recorded in the first three months of 2019. And the growth mainly reflects the already mentioned growth in the revenues. Of course, a steady and strong profitability with a margin on revenues that stood at 59.6%, almost 60%. Higher DNA, same trend that we comment for the results of the FURIA 2019, and this is the result of the rising investment activity that is counterbalanced by lower financial expenses due to the IFRS 16 leasing. And a tax rate that is down at 28.4% compared to 29% in the last first quarter of 2019. Moving now to the financials. Slide 9. You may see how the 9.5 million euro net debt recorded at the end of December 2019 decreased to 2.6 million euro at the end of March this year, which beside the BIDA contribution was mainly driven by the cap expanding, cash absorption in working capital due to the temporary buildup of trade receivables, and the payments on the capex we had in the last quarter of 2019, on top of the usual tax and cycle dynamics that are the same in all the quarters. so if you deduct the IFRS 16 leasing component accounting for about 40 million euro you would come with a net cash position for around 38 million euro at the end of the first quarter vis-a-vis about 30 million euro at the end of 2019 so this is basically the change in cash is going to impact for approximately the same amount on the change in net debt. Let's now finish my part with commenting our balance sheet. And you may see our net invested capital that amounts to 202.8 million euros. with the equity book value at 200 million euro. We already comment the net debt figures. So I will leave the floor to Aldo for the last slide.

Thank you, Alberto. As far as the guidance is concerned, as anticipated before, based on the operating evidence corrected so far, all the information available today, we are in the position to reiterate the outlook for 2020. Indeed, confirming the preliminary indications and feelings already provided in March, we do not see material impacts on the broadcasting and hosting services already in place. While we expect on the top line of the smoother and more back-end loaded profile within the year of some development activities, for example, installations of multiplex coverage extension will be mostly offset by more gradual associated OPEX and other cost savings initiatives. Said that, we continue to expect further organic growth of the adjusted EBITDA, maintenance on core revenues ratios substantially in line with 2019 figures and higher development capex that are mainly related to the farming process. Of course, should the actual evolution of the emergency differ from what is foreseeable today, we will update the outlook accordingly. So that's all on our site. we will now welcome your question. Thank you.

Excuse me, this is the call 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 the 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 The first question is from Giorgio Tavolini of Intermonte. Please go ahead.

Hi, good afternoon, and thanks for taking my question. I was curious to understand if you see any delay on the reforming process coming from the current debate. on the compensation policy to local TV broadcasters with reference to the amendment to the low-degree relaunch. Thank you very much.

About the research, hi, Giorgio. On the reforming process, So let me remind that there is a deadline in 2022 that is coordinated at European level and that MNOs are already paying the availability of the band for the 700 MHz band by mid-2022. So any delay? At the moment I can see any delay. If you mean having a more gradual switch to the configuration in order, for example, to release the frequencies in any case by 2022, but allowing a longer, a bit of long, so a longer transition to DVB-T2, if it could be, on one side, in principle is not impossible, but difficult It's so difficult as it would bring issues in terms of available capacity to accommodate the offer of both national and local broadcasters. Remind that the switch to DBT2 allows to almost double the capacity available at each multiplex, so in a context with a number of multiplex houses. So for this, from one side. From the other side, on the other side, concerning the agreement signed with Ryan DeSantis, I think it's very well balanced from that perspective. Because as long as number of sites, equipment, and service level remain the same, and I don't see risk on this matrix, the potential impact in terms of lower revenues and lower capex would be overall neutral. About the local broadcast, I can't see the possibility of a delay that, as I remember, is coordinated by a therapy on-level, so I think it could be very difficult to delay that deadline.

Okay, just a follow-up, but on the option for the half-mixes that were belonging to the local TV broadcaster, is there any, I don't know, reschedule or any update on that option? Because we didn't hear any more about the timing. Thank you.

As you remember, before the COVID outbreak, publication of auction criteria was expected in the first part of the reduction by mid-year. But we think that, as you may imagine, the activities are experiencing a little bit a little bit slow down.

So this is... The next question is from Fabio Pavano, Mediobanca. Please go ahead.

Yes, hi. Good evening and thank you for taking my question. You managed to present your strategic plan two months ago. we were at the beginning of this lockdown, of this crisis. So my question is, in these two months, we have seen many things. And for what concerns the digital transformation, I think everybody shares the view there has been a strong acceleration. Do you have any thoughts you can share with us on what you think see as normal eventually speed up in kind of services and also some opportunity for you to be captured in terms of new business. Thank you very much.

Hi Fabio. For sure we're carefully giving a look to what's happening and probably there will be also some uh some opportunity on which we can we will be able to focus in the next month so something probably in terms of revenues but probably the first that seems clear to me probably is something more related to the way to work clearly this This quarter for us is the first quarter in which the company did a quarterly report completely working at home and smart working. So for sure, looking at one of the pillars of our industrial plan, that is the digital transformation, for sure, probably we can see if there will be any to boost on this project, basically learning by what's happening in these days. So at this stage, I would limit to this, the opportunity that we see. For sure, we are carefully giving a look to what's happening around us in order to try to take also some opportunities.

Okay, thank you. The next question is from .

Please go ahead. Sorry. Three questions, if I may. First, regarding the third parties' revenues, if I'm not wrong, they were down 1% more or less. Could you give us a little bit more color about the different components of these revenues in terms of MNOs and others, and what is the trend that you're expecting for the coming quarters. The second, regarding the buyback, you announced the buyback during the business plan presentation. When could we expect that it could start on the market? Because if I'm not wrong, this should also happen in 2021. And the last question, just the typical one regarding an update, if something is moving on or not of a possible deal with eight hours.

Many thanks.

So about your first question related to the third party's revenues. So the overall slightly declining trend of third-party revenues is the result of several drivers, in particular the headwind related to M&Os, and the positive performance of the other third parties, so a trend that we expect to continue for a while as anticipated also in our industrial plan. On the MMOs, in the future, you will see a mix of more retention-oriented pricing and new services. So new, more competitive and price model for Telco customers in order to retain volume and then leverage. mainly beyond 2023 on the rollout of 5G, particularly in the senior urban and rural areas. And that, as you know, is the final part of the network rollout. And at the same time, expanding the offering with services consistent with the 5G network architecture and enable services For example, about the NIMI data centers on the edge and so on, on the basis of our towers. So, two more considerations. The phasing of the two initiatives is different with pricing revision first, retention, and then upselling and new services. why we said that revenues would bottom out during the planned period. And secondly, consideration the demand-driven approach on services with the possibility to scale up in case of positive market response. So we prefer to take an overall conservative stance about this.

yes about the dead-by-back we are waiting our shareholder meeting as you see from the documentation we will have an authorization from the shareholder meeting replacing the one that is currently in place so the proper timing will be after after the shareholder meeting and the dividend payment in terms of launch of our potential buyback plan. In terms of consolidation, probably your last question, no updates for the time being. Of course, what we highlighted in our industrial plan remains, of course, valid.

Thanks a lot.

You're welcome.

The next question is from Antonella Frangillo of Banca Unit. Hi, good afternoon. I have two questions. The first one is on the dividend proposal. Since last March, several companies decided to cancel or suspend the dividend proposal, also companies with a strong balance sheet. So I was wondering if you confirm your dividend proposal ahead of the shareholders meeting of end June. And the second question is on the board renewal. I have seen that TRI has just published the slates. They look in continuity with the current management team. Is there any comment that you would share with us on that? Thank you.

So in terms of our dividend proposal is confirmed.

So clearly our financials in the first quarter confirms how strong is our business model and so we confirm our dividend proposal and in term of as concern the second questions for sure we are happy of the continuity and let's see waiting to finalize the proper process that will and with the general meetings that we will have next June.

Thank you. Thank you. As a reminder, if you wish to register for a question, please press star M1 on your telephone For any further questions, please press star and 1 on your phone. Gentlemen, there are no more questions this time.

So thank you. Thank you all, and thank you for joining the call. Thank you all. Bye-bye.