Rai Way S.p.A.

Good afternoon. This is the Coral School Conference Operator. Welcome and thank you for joining the RyeWay First Hope 2022 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 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 of Flyway. Please go ahead, sir.

Thank you, operator, and good afternoon. Let me start thanking all of you for joining us today and welcome to our FirstUp 2022 results presentation. As usual, Aldo Mancino, the CEO, will start with the highlights and figures of the period and At Alberto Pellegrino, the CFO will then illustrate the financial details, and at the end, we will welcome your questions in the usual Q&A session. Let me now hand the call over to Aldo. Please, Aldo, go ahead.

Thanks, Giancarlo, and good afternoon to all of you. Let me start by saying that we are very pleased with the performance of the first half of the year and with the developments in the initiatives you are carrying out. The development investments of the last few years in the traditional broadcasting business, both for RAI and for third parties, are continuing to pay off and allow us today to present further tangible EBITDA growth in the second quarter, even in the context of an unprecedented, at least to my best knowledge, increase in electricity prices, which is one of our main cost items. A second quarter that also brings positive updates on operational activities, particularly with regard to business with third-party customers. Therefore, despite the usual attention we must give to certain elements, such as the dynamics of energy market, the results for the first half of the year and the nature of our business model allow us to look to the future with optimism. In particular, the first half of 2022 showed a remarkable growth, even slightly above our expectations, with revenues growing by 7%, benefiting from the contractual step-up relating to the farming for rye, which began, as you may remember, in the second half of 2021, benefiting also from the inflection boost, and the growing contribution from the new regional frequencies business, which pushed revenues from third parties in the second quarter to a double-digit growth compared to the same period of last year. As expected after the expiration of the fixed price contract at the end of March, in the second quarter the growth in electricity prices started to have an initial increase significant impact on our P&L as well. Despite this, thanks to the growth in revenues just highlighted, tighter cost control that we started at the beginning of the year in order to mitigate the hike in energy prices, and some non-recurring benefit also on the cost side, we have been able to secure adjusted EBITDA growth of eight 0.5% in the second quarter, bringing the total over the six-month period in absolute terms to more than 8 million euros above last year's level. In terms of investments, the level of development capex was basically maintained at the previous year's levels with a gradual reduction in activities for network upgrades, rebalance, by the increase in investments for third parties, mainly for regional refarming, but also with the first purchases related to the development of new infrastructures. From an operational point of view, after almost three years, refarming activities for RAI are nearing completion. Frequencies have been released throughout the territory. The new multiplexes are already operational in DVB-T standard with National multiplex coverage now over 95% as a result of the extension project. We are now finalizing the upgrade of the last equipment of DVB-T2 technology. The macro-regional multiplex already at 100% coverage. The two national multiplexes now at 80% in order to have T2 ready networks. ready for the time starting 1st January 2023, when the authorities have decided to start the switchover. But as anticipated, today's most interesting update mainly concerns initiatives for third-party customers. First, at least as they have already begun to contribute to our numbers, the regional networks. in the seven geographical areas where the frequencies have been assigned to railway are all now in operation. As you may recall, we focused on the areas that, based on our analysis, appear to have the greatest commercial attraction from a point of synergy with railway infrastructure and local reliability. The results are proving us right. with prospects even slightly higher than initial expectations. Sold capacity, already expressed at full T2, is in fact close to 100% in all regions, with revenues gradually coming into full swing in a couple of years. In terms of activities with mobile network operators, the goal of our industrial plan is a progressive stabilization, as you trying to address the two main elements of pressure, pricing from one side and technical optimization of the network from the other side through a progressive realignment of tariffs, possibly through the activation of new POPs at incentivized rates and the further extension of volumes also in view of the rollout of the new 5G networks. Exactly on these principles, Negotiations with the most relevant M&A clients are in a very advanced stage, and we should finalize the contract renewal in the coming weeks. All in all, we expect a little bit of further pressure in the very short term, but to reach, at the end of the new contract period, revenues equal or above the current level. At the same time, last month we finalized a framework agreement with Iliad, Iliad is already one of our customers, although on a still number of sites, considering that so far their focus has naturally been on coverage of urban areas with higher traffic density. But the next step, the next phase, will be to complete the network even in the areas, the rural ones, most covered by our infrastructure. possibly using a decent number of our sites. This is a framework agreement with no commitment, but the level of interest in our portfolio gathered so far makes us confident that the client will contribute to the goal of stabilizing the business with M&AOS. So broadcast business, tower hosting, and let me conclude with new infrastructure services. In March, during our full year results presentation, we provided an update on the status of the major organic development initiatives we are putting in place to expand our infrastructure and service portfolio, diversifying the business and gaining exposure to higher growth segments, namely the edge data centers, the CDN, and the hyperscale data centers, along with the upgrade of the backbone that will be used both to offer connectivity and to our customers to interconnect by fiber optics, all these are new assets. We are happy to share with you today that in addition to the already ongoing rollout of the new backbone, after the design phase we have started the procurement procedure related to the construction of the first set of edge data centers. and the provision of technology components, hardware and software components of the CDN on the content delivery network. The initial set of the edge data centers, five to be precise, starting from the north part of Italy, will account for 1.6 megawatts of geographically distributed capacity and around of 20, 30 million of estimated investments within 2023. As said, this is only the first part of the project that will progressively double the availability, the available IT capacity to around three megawatts by 2025. We will refine our projections with the outcome of the procurement phase, but we expect a return on deployed capital above 10%, the level of 10%. As for the edge CDN, the approach scalability and equally important estimated return on capital are more or less the same. We aim to have a first release based on a decent number of edge nodes by the end of 2023. and then progressively extend the capillarity and the quality to address Ultra HD linear video contents and gaming applications. For this project, CAPEX, for the setup of the network, of the CDN network, are expected at around 20 million, of which up to 10 to be spent by next year, 2023. In terms of expectation for 2022, the more than €8 million growth in adjusted EBITDA recorded in the first half represent a good buffer to absorb the further sharp surge in electricity prices witnessed since the beginning of July. The target of adjusted EBITDA growth remains achievable, although more challenging, of course limited in absolute value and dependent on mitigating actions on other costs. At the same time, however, these dynamics of the electricity prices are also reflected in inflection, both directly on energy goods and indirectly through the impact on other products. And the link of the CPI included in almost all of our contracts will also allow us to recover possibly more than the cover, in 2023, so only with a time lag, the headwinds that hurt us in 2022. And I have already elaborated on slide 5, 6, and 7, which graphically summarize what I have just commented on the configuration of the new broadcast networks operated by REWE following reframing and updates on new infrastructure and services. So before handing the floor over to Adalberto to give more details, I would move now to slide number eight to summarize the key financial of the first half 2022. Let's start with core revenues that reached 121.2 million euros, 7% higher than the first half of last year because of the already mentioned effects. While adjusted EBITDA grew by 11.9% to 78.2 million euros, confirming, as in the first quarter, the double-digit growth at bottom line, where net income reached 37 million euros. Investments as June 30, supported by reforming activities both at national and regional levels, showed a recovery after delays in the first quarter that mainly affected maintenance graphics, driving net debt at 120 million euros, also factoring in the 65.1 million euros dividend payment and the calendar shift to tax payment to July. Lastly, recurring free cash flow was strong in the period with cash conversion close to 95%. And with this, I'll hand over to Adalberto to provide you with details on financial performance. Please, Adalberto, the floor is yours.