Rai Way S.p.A.

Welcome and thank you for joining the RightWay 2021 Full Year Results Analyst Conference Call. As a reminder, all participants are listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Giancarlo Benucci, Chief Corporate Development Officer. Please go ahead, sir.

Thank you, operator, and good afternoon. Let me start thanking all of you for joining us today, and really apologize for being a bit late, but we experienced some technical issues with our brand-new website. Anyway, as usual, Aldo will start with the highlights and figures of the period, and Alberto will then illustrate the financial details, and at the end, we will welcome your questions in the usual Q&A session. So thanks again, and let me now have the call over to Aldo. Please, Aldo, go ahead.

Thanks, Giancarlo, and good afternoon to all of you. As expected, the full quarter of 2021 continues on the same trajectory already stated in the third quarter, with the benefits of development activities, and in particular, for the time being, the ongoing refining for Rai, progressively reinforcing our growth. Growth now more visible, but we have gradually but steadily improved our results year on year, achieving around 30 million of higher recurring cash generation compared to the levels of 2014, the year of our IPO. From the financial perspective, 2021 performance has been satisfactory and even slightly above our expectations, excluding no recording items, Revenues increased 3%. In turn, adjusted EBITDA rose 5%, with the margin improving by 160 basis points, despite lower temporary savings from pandemic safety measures. And development investment. have increased to over 70 million euros, driven mainly by the reforming activities for Rai, but also by regional reforming and by the setup of the new infrastructures and services that are expected to support medium-long-term growth. These results enable us to propose to our annual general meeting the full distribution of the net profit equivalent to a dividend per share of 24 euros and 36 cents and the dividend yield of 4.5 percent based on yesterday closing price we are so also proud that as a result as a first result of the initiatives of our three-year sustainability plan The improvement in financial results came along with an enhancement of the company's ESG profile, recognized by leading international rating providers. The growth just described has not ended in 2021, and on the contrary, the revenues and ABTDA growth trend is expected to continue in 2022. finally supported also by a more tangible contribution from the CPI. Although considering the current environment, it's wise to keep electricity prices monitored too. Well, before moving to operational update, let me point out that 2021 also confirmed the role and resilience of the TV broadcasting. And looking at slide number six, After the peak resulting from the pandemic and the restriction to mobility, the audience of the digital terrestrial platform has returned as expected to the usual levels of around 10 million viewers on an average day. This is a value that is stable since years despite the well-known growth in the use of the OTT platforms as demonstrated by the increase in users of video-on-demand platforms, either subscription-based, as shown in the chart, or advertising-based, with the latter more typical of traditional broadcasters. But in addition to the audience level, we can confirm that viewers are coalescing around specific platforms based on the content they want to watch using on-demand for series and movies and real-time delivery for entertainment, news, sport contents, which backs of our view of the complementarity of the different platform and therefore of long-term sustainability of the digital terrestrial platform that moreover has shown to be efficient for certain contexts. On the bottom left of the slide, we have shown the viewing modes of the 2022 San Ramos Song Festival, the most popular event produced by our client, Rai. Without going into much detail about the numbers, I would like only to share a couple of messages. Entertainment remains a mainly, if not fully, linear content. 99.5% viewing was in real time. And this is true regardless on the platform, since even on the OTT platform, typically on demand, viewing was largely in real time, 80% of the total. So broadcasting today, digital, terrestrial television, remains the reference distribution platform for linear consumption. For Sanremo, Sun Festival, 98%. So it's hard to imagine what would happen if 98% of traffic moved to a fixed telecom network, both in terms of congestion of the network and in terms of distribution costs for the broadcaster. Conversely, to enable even a minimum of immigration, it would be necessary to make contents available geographically closer to end users, possibly at network access level, so avoiding the backbone. And this is exactly what we are planning through our EDGE CDN projects. Moving now to the update on operations. Let's start with the refarming project for RAI at slide number seven, which, as you know, is the main growth driver in the business plan horizon. By the end of 2021, we have received in excess of 100 million euro investment, which is about 70% of the total plant, equal to 150 million euros. Of the three macro projects to upgrade Rai Networks, the extension of national multiplexes coverage, other than the multiplex that already covers over 99% of the population, has been completed. These networks are now hosted on approximately 1,000 of our sites compared to the initial 400. On the other hand, with regard to the two technological upgrade projects, the new macro-regionalized multiplexing UHF band and the upgrade to T2 of old multiplex, the new head ends of the transition to MPEG-4 and HEDC encoding and the distribution network have also been completed. While the replacement of transmitters with new DVB-T equipment remains to be finalized, having, however, already reached completion rates between 70% and 80%, depending on the specific network. On 8 March last year, The switch from MPEG-2 to MPEG-4 standard took place in all Italian regions, enabling a recovery in efficiency on the standard definition channels and therefore the accommodation of more or less the same number of channels in fewer multiplexes. While the switch from DVB-T to DVB-T2 technology is planned for the beginning of next year, leading to an increase in available capacity and therefore to the expected improvement in channel quality from standard definition to high definition. So everything is moving on track. The opportunity offered by refarming is not, however, limited to right customer. The new distribution structure of regional content, which shares distribution capacity between several broadcasters, is opposite to the previous system where each broadcaster had its own network, has improved the sustainability of customers by reducing their distribution costs and ensuring affordable rates. So as you can see from slide number eight, Our focus has been in areas with greater appeal, both commercially, for example, higher turnover and lower customer risk, and technically, greater synergies in our existing infrastructures. So, good news here. 100% success rate in the seven areas where we beat in light of the compelling risk rewarding. The completion of the networks roll out in north and Italy, while the central and south areas we are proceeding in line with the roadmap. And an outcome of negotiation with customers that has achieved almost full occupancy of the available bandwidth. This is really an interesting opportunity for us, largely incremental considering the current limited exposure to this segment. with investments in the meetings range and margins and returns that benefit from synergies with existing infrastructures. Despite the material opportunities offered by our traditional business and platform, as you know, we are introducing new infrastructures, possibly in synergy with assets we already own, and evolving our media services also on the content distribution on broadband platforms, which, as anticipated, are becoming more and more complementary to broadcasting. You already know the main initiatives that we summarized on slide number nine. So first, the developmental network of edge data sent in our major sites, also in terms of size, that will host the servers of all those providers, offering increasingly low latency services. Second, the deployment of a capillary and career-neutral CDN content delivery network, mainly addressing the needs of high quality and live streaming. The deployment of an hyperscale data center since large centralized data storage, a market that we expect to be supply-demand unbalanced, given the increasing growth of cloud providers, OTT players, and so on, and the significant barriers to developing new quality assets in terms of spending, suitable land, and power availability. Last but not least, The capacity expansion of our national backbone, which in addition to the opportunity to offer connectivity to our existing customers, is an enable for the three previous projects, in particular for the Edge Network and the CDN. I won't go into detail by each individual project, but the sense I want to pass on to you is that activities are progressing. For example, with the start of the rollout of the new backbone, which will keep us busy for about a year. The final design for the seven major deep data center to be followed by the construction phase that will lead to the availability of the assets during 2023. The forthcoming selection of the technology partner for CDN, for the CDN. with the first commercial release of the service expected during 2023 and the subsequent capitalization to be coordinated with the availability of the edge data centers. And the submission of an hyperscale data center project to the relevant municipality and the ongoing permitting phase, which is probably one of the most delicate ones for this kind of assets. I remind you that we are talking about initiatives aimed at improving a company's positioning, which during the industrial plan period will mainly contribute in terms of cost and investment rather than margin, but with expected returns that will hopefully represent one of the drivers of our medium long-term growth. Consider that, overall, they account for several tens of millions of capital employed or in hundreds if you include the development of hyperscale data center with returns expected well excess the our cost of capital moving now to slide number 10 let me give you a brief update on the progress made by our company on the asg front during 2021 following the ongoing implementation of our first sustainability plan approved in march We can be extremely satisfied that about 50% of the initiatives included in the plan have been completed and eight of the original 14 quantitative targets have been already matched. Our 2021 non-financial statement contains all the details, but I would like to draw your attention here on just a few achievements. On the environmental pillar, we have achieved, or better confirmed once again, our targets of 100% green electricity supply, which is unique in the industry, allowing us to be well positioned on the path toward carbon neutrality by 2025. Moreover, the farming project with the 100 million euros green investment target already met. has started to produce benefit also in terms of reduced reduction of electricity consumption, which has fallen 3% since 2020 and should fall further. From a social point of view, let me highlight, firstly, the recent introduction following the trial during the pandemic of a structural agile working scheme for our employees, As well as confirming the attention even to people outside our company, they improved coverage of the DTT signal in over 1,000 Italian municipalities. Once again, in 2021, we paid particular attention to governments, reinforcing the ESG oversight at board and no-board level, and the engagement with our stakeholders, whether suppliers and shareholders. And two technological innovations as distinct in trait of our DNA with over 115 million spent since 2019 to bring the new generation digital TV into the homes of Italians and to start the digital transformation process of the company. Railways commitment has also been rewarded by the main ESG rating agency with significant upgrades from the recent evaluation of CDP, MSCI, and SOST Analytics on 2021 activities. Moving now to slide number 11, you'll find the main financial figures here for the full year 2021. So starting from core revenues, near 230 million euros, up 2.4% year-on-year on a reported basis, mainly as a result of the reforming related step-up on the right side, and more than offsetting the slightly negative CPI recorded in 2020 and the pressure on third parties which, by the way, we are expecting to reverse the trend very soon. Adjusted the BTDA came in at €42.9 million, more than 5% higher versus 2020, pushing profitability above 62% in the full year. At the bottom line, net income grew by 2.1% at 65.4 million euros, factoring in high DNA due to rising investments. On the financial side, CAPEX in the period grew up to 85 million euros, The materials step up vis-à-vis 2020, boosted by development activities again and maintenance capex, back to more recurring levels, around 6% on core revenues, after the drop recorded in 2020. And the resulting in 87.9 million euros net debt at the end of the year, when cash generation stood consistently close to 90%. I will now leave the floor to Adalberto for all the details of the financial performance. Adalberto, please, the floor is yours.