Rai Way S.p.A.

Good afternoon. This is the Curriculum Conference Operator. Welcome and thank you for joining the RightWay First Quarter 2021 Results Analyst Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone in assistance ignore 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, Chief Corporate Development Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, and thanks to all of you for joining us today. As per tradition, following the more extensive call held just a few weeks ago on the full year results, we will try to keep our presentation relatively short today, dedicating, as usual, the last part to your questions. So let me hand the call over to Aldo. Please, Aldo, go ahead.

Thank you, Giancarlo, and good afternoon to everyone. As usual, I will start by providing some color on the first quarter performance, while Adalberto will then bring you through the main financial details. The key message today is that 2021 started bang in line with our expectations, with adjusted EBITDA and profitability growth mainly increasing. driven by the rising revenues contribution coming from refining and strict control, cost control, as you will see more in detail in a while. On the CAPEX side, investment remains strong, in particular thanks to development activities that represent one of the drivers of our future growth. From an operational perspective, in the first quarter, while we continue to work hard on all the important initiatives included in our plan, such as the expansion of the infrastructure portfolio, mainly organically, the introduction of new video distribution services, the digital transformation, and so on, I could say that the most relevant updates for today are on the reforming front with some pieces of good news. Concerning operations, as you will recall, activities are grouped into three major projects. The national multiplexer coverage extension with the number of installation and sites to be increased from the original 400 to 1,000 with the latest T2 ready equipment. And secondly, the upgrading of the equipment installed from the original 400 size 2 T2. And the third project is the rollout of the new macro-regional UHF T2 ready multiplex with 99% population coverage, basically a replacement of the current multiplex one. While on the second and the third project activities are on track in order to roll out the completion by June 2022, The good news is that the coverage extension from 400 to 1,000 sites has also almost been completed, with only around 30 sites left, which will be finished shortly. Basically, recovering from the more gradual deployment observed in 2020, mainly in the second quarter 2020, due to the restrictions related to the pandemic, The second piece of good news is on the last regulatory step, meaning the awarding of the remaining national capacity in four lots of half multiplex each. The tender process has been officially started by the Ministry of Economic Development at the end of April, when the tender specifications were published with offers to be submitted within 30 days, so by the end of May. The rules regulating the auction and set by ARGICOM as already known and RAI has confirmed its willingness to participate in the auction and we are now supporting them in the preparation of all tender documents, in particular on the technical aspects of the networks. Considering the time needed by the Ministry to evaluate the offer and then to associate the generic right of use of capacity with a specific rate frequency, it's fair to expect the final awarding within the third quarter 2021 in line with previous indications. Let me also repeat that although we will not have the final confirmation until the outcome of the auction, our base case remains the one with three multiplex managers for RARI at the end of the reframing process. A base case is that it implies 150 million of total investments and approximately 60 million of incremental yearly revenues affecting starting from the 1st July 2021. Moreover, any extra cost potentially arising from a late confirmation and the need to complete the same activities in a shorter time would be reimbursed. Finally, at the regional level, after the positive outcome already achieved last year in Lombardy and Piedmont, Raiway has been awarded with local frequencies also in four additional areas, so Friuli Venezia Giulia, Lazio, Puglia Basilicata area and in Sicily. For those of you not familiar with the Italian regions, we are talking of a region located in a very rich Northeast area, that is Friuli, the region where Rome is located, that is Lazio, and two of the main regions in the south of Italy, that is Puglia and Sicily, one of which, that is Puglia, where we already have a strong relationship with the main local broadcaster after the acquisition of its infrastructure assets back in 2017. This shows that we have remained sticky with our selective approach, focusing on the most relevant regions with a compelling risk awarding, reward considering the decent level of expected capacity demand from local broadcasters and the investment required for the network rollout, including All the frequencies awarded so far, there are only few regions left to be assigned. In total, we will roll out local networks able to cover around 30 million people, always leveraging on our existing infrastructure. Let me also add that this outcome is fully in line with the assumption of our industrial plan. Now, before moving to numbers, let me just reaffirm as a result of the performance recorded so far our guidelines for the full year 2021 as we will see at the end of the the presentation and now let's look in more detail at our performance in the first quarter 2021 moving to slide number number five starting from core revenues core revenues reached 56.5 million euros, so 1.6% higher than the first quarter last year, as a result of higher revenues from RAI, mainly driven by the new services contribution. Then the adjusted EBITDA increased by more than 3%, at around 34.2 million euros, confirming the profitability above 60% for the full year 2020, driven by the higher top line and the slightly lower cost base. Moving to the bottom line, the net income was up roughly 5% year-on-year at 16.8 million euros, but benefiting from €1 million one-off tax relief related to COVID-19. Excluding these impacts, as already anticipated in our plan, the figures below EBITDA, including net income, are impacted by the rising DNA resulting from the development of CAPEX, mainly related to refarming, which on the other hand, will bring the full benefit on revenues from the second half 2021, as contractually defined, and on EBITDA from mid-2022 with the completion of the progressive switchover from the old to the new networks. Development CAPEX, that remains, of course, relevant also in the first quarter, amounting to €10.1 million from €7.9 million. in 2020. maintenance capex traditionally low in the first quarter amounted to 2.9 million euros recovering from the lower than usual level recorded in 2020. then they recorded net debt at march 31 amounts to 37.3 million euros with the cash conversion that remains very strong above 90%, despite the more normal level of maintenance coverage. And with this, I'll hand over to Adalberto to provide you with details on the main items of our results. Please, Adalberto, the floor is yours. Thank you, Aldo.

Good afternoon to everyone. So, let's go to slide number six. For revenues kept Growing in the first quarter of the year, coming out at 56.5 million euros, an increase of 1.6% compared to 2020 levels. Thanks to the right component, up by 2.6% given the expected rising contribution from new services at 3.6 million euros. and despite the fixed consideration marginally impacted by the negative inflation recorded at the end of 2020, and therefore just a notch below 45 million euros, as you may see in the blue box. On the other hand, revenues from third parties show a decrease of 3.9%, reaching 7.9 million euros, with the negative impact coming from the MNO's pressure only partially balanced by the good performance of the fixed wireless access segment. Let's move now to slide number seven. Total cost in the first quarter amounted to €22.3 million, a figure broadly in line with €22.5 million recorded in the same period last year. that was, however, only partially impacted by COVID-19 effects, which became instead much more material during the second quarter 2020. Generally speaking, it's fair to say that OPEC are trending back to pre-COVID levels, with rising expectations down the road. Coming back to the first quarter, personnel costs stood at 11.9 million euros, in line with last year's figures, while other operating costs were down by 1.4%, reaching €10.4 million, with higher maintenance and higher expenses related to the implementation of new services, mainly the coverage extension, offset by lower energy price and efficiencies on connectivity capacity rentals. Now, moving to the profit and loss on slide 8. All in all, our net income enjoyed a nice 5.2% growth at 16.8 million euro, mainly reflecting, as we comment, an higher top line, strong profitability that reached 60.6%. in line with the full year results, but growing vis-a-vis Q1 2020. Higher DNA, of course, impacted by the huge ongoing development investments, and a particularly low tax rate at 23.4%, benefiting from the €1 million one-off tax relief related to COVID-19. For your reference, the tax rate was 28.4% one year ago. Moving now to the cash generation, slide 9, you can see how the company was basically debt-free at the end of March with 37.3 million euros, including basically all this amount is due to the IFRS 16 component and while bank loans amount to 15 million euro with available cash for 14.5 million euro. I remind you that the company closed the year 2020 with a net debt of 46.1 million euro meaning that as usual in the first quarter we had a positive cash generation resulting from the strong EBITDA contribution net of the capex spending 13 million euro materially higher vis-a-vis the Q1 2020 figure including more than 10 million euro of development capex Then we have lower P&L, profit and loss taxes, and the positive impact coming from the working capital, from the net working capital contribution. That's all on my side. Aldo, please.

Thank you, Alberto. Moving now to slide number 10 and to the expectation for 2021. The results of the first quarter allow us to confirm the guidance for the full year already provided. In particular, under two main assumptions. Three multiplex managed for rye after the farming that although the final confirmation will come only after the auction remains our base case. And the second assumption is on the current visibility of course on the pandemic. So we expect with this assumption, we expect adjusted EBITDA to be slightly above the 2020 reported level, meaning that when excluding the COVID related OPEX reduction recorded in 2020, that we expect by far lower in 2021 and a slightly negative CPI, the underlying growth would be more marked and mainly driven by the step-up in RAI contracts starting from the second half, partially offset by the lower contribution from third parties in line with the trend and level anticipated in our industrial plan. and higher network costs following the coverage extension and before the savings expected in 2022 from the switch-off of the multiplex, and some minor temporary costs related to the refarming transition. So looking at investment, both development and maintenance CAPEX are expected above 2020. And this is all on our side. So thank you, and let's now open the line for any questions you may have.

This is the Chorus Call Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Stefano Gamberini of Equita. Please go ahead.

Good evening, everybody. Thanks for taking my questions. Three from my side. The first regarding the recovery plan. Could you elaborate a little bit about what could be the potential upside for your company regarding the digitalization funds that will arrive from a recovery plan and should already flow by the end of the year, if you have some projects or if you could be involved in some way. The second question regarding the recent deal from A Towers, they disposed a tower teller, so probably now the two companies are more similar and probably it could be easier to go ahead with a consolidation in the sector. What could be the steps that we are still waiting for going ahead? Sorry for this repeated question, but clearly it's very interesting from our side. The third one regarding the adjusted BDA 2020. Could you give us this figure, could you remind us this figure in order to have a precise point to start for forecasting 2022 EBITDA, 2021 EBITDA? Many thanks.

Thank you, Stefano. And starting from your first question about the benefit, potential benefit from the recovery fund, It could be absolutely for us, it could be an opportunity for us as well. We are now working to assess how these funds will be passed on the real economy as a stimulus to demand rather than as a supply development. And therefore, what impact they will have on our initiatives in terms of increased demand from customers or reduced investment from the other side. For example, on the current tower rental side, however, an incentive to 5G and fixed wireless access and the consequent faster deployment of these networks will be benefits in terms of volumes. with TELCO customers. For example, accelerating of course the equipment upgrade to 5G. So this from the tower rental side. But the reasoning is even more direct when we look at the new services and the new infrastructure that we intend to introduce. Remember in our industrial plans such as or a mini data center, edge data center, which since we do not have Terracom towers represents the way we have identified in our plan to intercept the growth deriving from data, from 5G, from the cloud. And those are all segments that should be most stimulated by the recovery fund. And your second question is about the disposal of the Tawatel. Remember, we already commented in the past call, and the message is, let me say, it's the same. So good monetization of an asset in a market whose structure is rapidly changing. hard to define it as a trigger, but definitely it could be read as a positive, considering that the perimeter of the two companies is now even more, as you said, aligned and more similar. And about your third question?

As concerns your third If my understanding is correct, you asked for some clarification on the 2020 adjusted EBITDA, and in particular on the impact coming from COVID. We didn't disclose a precise impact on the COVID that, as you may, as everybody knows, is fortunately a positive impact. Probably the best proxy is just to look at the Q2 2020 other OPEX amount, and you will see that vis-à-vis the other second quarter, we have a decrease of above €2 million, and I believe that this is the best proxy to have an idea of the overall impact on our financials.

Very clear. Many thanks.

You're welcome.

The next question is from Fabio Pavan of Mediobanca. Please go ahead.

Yes. Good afternoon and thank you for taking my question. Actually, this is a follow-up on the point you were making on the recovery. I was wondering if in order to be prepared to capture this demand for cloud and data management, you as a company may consider to put in place already and to accelerate a plan of investment on the data center and cloud business.

Fabio, sorry, you have some problem with the line and we are not able to understand what you're asking for. Could you kindly try to repeat? I don't know, but there is a strange echo. Please, if you can just try to repeat the question slowly.

Okay, thank you. I will try. Yes, it's just a follow-up on the question on the recovery plan. What I was wondering is if Raiway may consider to put in place a plan for capital from the cloud and data center, even more in the light of new business that may come from these recovery plan, IE demand for cloud services and data center.

Fabio, in reality is already part of our plan, exactly what Aldo said before. I mean, not having a, telco towers, I mean at least if I got your question correctly, not having telco towers is the way we see and I mean through the introduction of this kind of infrastructure and services to play a role and to serve the growth coming from cloud, from 5G and from data growth. Let me say that In our plan, the cloud plays a very important role in at least three different initiatives. For sure, edge data center, then hyperscale data center, and then last but not least, I will add also the digital transformation. There is an internal project, but basically it's based always on the benefit of a cloud infrastructure. So we are working very hard on all these projects, on all these initiatives, and the rationale is exactly what you said. And we welcome in this perspective any benefit or acceleration that the recovery plan might bring forward.

The next question is from Giorgio Tavolini of Intermonte. Please go ahead.

Hi, good afternoon, and thanks for taking my question. Just a brief follow-up on the revenue trend. I don't know if you have... I don't know, in this quarter, you basically had a very positive performance on the other revenues from MNOs and the fixed barless access, I suppose. You're competitive today in with an early termination of an hospitality contract with some MNOs. Do you have... Do you experience any similar pressure from MNOs? And I don't know what was the trend, the underlying trend of MNOs from MNOs hospitality services in Q1. Thank you.

So, of course, we are seeing pressure from MNOs from M&Os, and you may see that we had a decrease vis-a-vis last year figures. The trend of the third parties' revenues is the result of several drivers. As you may remember from past presentation, The impact is coming from the rationalization effort of our MNO customers that we expect to mitigate through an increase of volumes in the medium terms, mainly thanks to 5G upgrade and fixed wireless access player. Unfortunately, the phasing of the two drivers is different as a The upselling of new services, 5G, backhauling, and so on, will start to be effective in the very last part of the plan and beyond 2023. However, the trend and numbers of our third-party revenues, including also the MNOs, are fully in line with the assumption of our industrial plan, to be clear. We anticipate the revenues from third parties to bottom up during the period reaching around 30 million euro before stabilizing and then starting to recover and going forward to the headwind from M&O should start to be mitigated by a more balanced client mix. And also the benefit, we will also see the benefit coming from the regional reforming as also Aldo commented at the beginning of our call.

Okay, thank you. I was just comparing Q1 2021 with Q4 2020, just because I see that there was an improvement quarter on quarter. So I suppose there was a rising contribution from the 6WA more than offsetting the pressure from MNOs.

Nothing material. Okay, thank you. You're welcome. Nothing material. As a reminder... Pardon me. Probably I didn't get your question. You were referring to the new services...

No, the third party's revenues, 7.9 is improving on quarter-on-quarter basis.

Sorry, I didn't get it properly. Anyway, the figures had some impact, as you mentioned, And everything is in line with the guidance that we gave to the market, and it is also consistent with the business plan overall trend that you may know. Okay. Thank you.

Gentlemen, there are no more questions registered at this time.

Okay, thanks again for joining the call and speak soon and have a good evening.

Ciao, ciao. Thank you. Bye-bye.