Rai Way S.p.A.

Good afternoon. This is the Chorus Call Conference Operator. Welcome and thank you for joining the RIE 2022 Full Year 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 Raiway. Please go ahead.

Thank you, operator, and good afternoon. Let me start thanking all of you for joining us today and welcome to our 2022 full year results presentation. As usual, the CEO will start with the highlights and figures of the period. 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 Mr. Mancino. Please, Aldo, go ahead.

Thanks, Giancarlo, and good afternoon to you all. 2022 represented a challenging year, but it brought considerably satisfying results. Due to external factors, our second largest cost item increased by more than 70% with a headwind of more than 8.5 million euros. Not only did we manage to remain on the development trajectory, but we recorded the highest growth in our operating margin since the IPO to date and achieved the industrial plan target in terms of net income one year in advance. All this without considering that the majority of the protection provided by our business model against the 2022 headwinds, namely the link to inflation, will have more effect during 2023. But going in order, from an economic perspective, the adjusted EBITDA growth of 5.7% or 8 million and was driven by The benefit from inflection with an escalator in 2022 equal to 3.6%. Contribution for development activities in the traditional TV broadcasting business. For example, the full impact of reframing of Rai and the first impact of the new broadcasting capacity business at regional level, which enabled us to record a double digit increase in our third party revenues. A strong focus on OPEX, that also as a result of some temporary mitigating actions, implemented when the price of energy had exploded to over 500 euro megawatts per hour, enabled us to keep all costs, other than electricity, substantially stable. The recurring cash generation of 93 to 94 million euros is further approaching the target of about $100 million set in 2020 for the next year, for 2023, and allows us, while still preserving strong financial firepower, on the one hand, to invest in development initiatives. Over $60 million spent in 2022, with an increasing portion directed to business with customers other than Rai, and on the other hand, to remunerate our shareholders with a proposed distribution of the entire profit generated, equivalent to a dividend yield of about 5%. From an operating standpoint, the activities of upgrading Rai Digital Terrestrial Networks, television networks, and for the rollout of the new regional networks has been substantially completed, totally in line with the budgeted timeframe and costs. The implementation of the new digital infrastructure data centers and services, such as the content delivery network, continues unabated. Since the last update in November, tender processes are ongoing for the construction of three additional edge data centers on top of the five edge data centers already under construction. And the application for planning permission for the construction of the hyperscale data center in Rome, in the Rome area, has been officially started. And I will come back on this project shortly. Regarding the current business with third party, in addition to the contribution of regional refining in the tower rental segment, we note a continued sustained demand from fixed wireless operators. In addition, the renewal of the contact with our most relevant mobile operator customer, the framework agreement with the new entrant, and the start of the 5G rollout also in rural areas, please remember, that we are paid per space rented on the site and not per site, put us in the right direction towards stabilizing the business with mobile operators. The good financial and operational news is not limited to 2022. Full recovery from the energy headwind experienced in 2022 through CPI Link, energy price cool down, and further contribution from development initiatives led us to expect a double-digit growth in the mid-teens in adjusted EBITDA in 2023. In 2023, we will also keep investing in the new infrastructure network with the digital infrastructure process, the evolution of telecommunication networks, and the expected uptake of new low-latency services supporting telecommunications. and straightening our optimism on end investment phases. Moving now on slide number six, you will find a synthesis of the digital terrestrial networks operating by way following the upgrade activities in recent years, and so three RAI multiplexes, the macro-regional one, entirely in UHF bandwidth and with coverage above 99% of the population, and the two national multiplexes with the coverage extended to over 95%. The seven regional multiplexes on which we lease capacity to over 140 channels with occupancy close to 100%. Investment in recent years have been significant, around 140 million for Rai and 50 million for the regionals. But it's clear from the evolution of our numbers, well remunerated, fairly remunerated. In 2023, we foresee the last final pieces of investment, which will complete the equipment inventories, And this will bring us to the total amount of investment initially estimated. Moving to slide number seven, as you know, in addition to its traditional business of digital terrestrial broadcasting, RightWay has undertaken an expansion of its managed infrastructure, focusing mainly on the creation of a network of data centers. These initiatives will drive growth beyond 2023 and projections will be detailed in the next industrial plan. But in addition to the usual update on the operational progress of the various projects, we would like to share with you today a flavor of the huge potential we see for these infrastructures. Existing supply is limited and highly concentrated in one area in the country, in the north area, while at the same time, The forecasted growth in demand supports our conviction of the risk rewarded of these initiatives. 5G, IoT, private networks, more privacy-fixed networks, and the resulting digitalization process that will involve business and consumers are driving us into the so-called fourth phase of the Internet. This digitalization transition will be based on a wide range of use cases, some of which mentioned in this slide, such as industrial automation, content delivery network, high-quality streaming, artificial intelligence, predictive analytics that will require complementing the centralized cloud computing with decentralized and distributed computing therefore edge computing, to match the requirements in terms of low latency and throughput. As a result, enterprise data process at the edge will only but increase dramatically, obviously requiring an appropriate infrastructure component for storage and computing. While this is true globally, it's even more in a country like Italy, with its orography and up till now limited data center availability when correlated to the GDP produced compared to that of other European countries. Moving to slide number eight, with our project we are addressing this infrastructure need precisely through a unique proposition based on a network of high quality, tier three also at the edge. distributed and interconnected data centers that enables continued computing with centralized storage and low latency at the regional edge. So a carrier-neutral infrastructure, interconnected, independent, based on an architecture possibly comprising an hyperscale data center and around 18 distributed regional data centers. So two projects, the hyperscale data center and the edge data center, that make absolute sense even separately, but represent an even greater proposition when combined under the same offering. Infrastructure to eventually leverage the launch of the new platform and services, such as our video edge video delivery network, that will meet the needs of linear and high definition streaming. So as mentioned earlier, we have recently started the tendering process for the construction of an additional three edges in Bologna, Rome, in the Rome area, and Palermo that will be added to the first five already under construction and expected to complete between late 23 and early 2024. Therefore, we have extended the footprint to central and southern Italy and increasing distributed capacity to 2.3 megawatts, with an investment of further 10 to 15 million to be added to the approximately 25 million devoted to the first five assets. These assets will be interconnected through the over 5,000 kilometers of the upgraded dry waste proprietary backbone and fiber optics, which required around 10 million investment in 2022, and with a similar amount planned for 2023. On the upper scale in the Roma area, which in terms of size represents the largest and most scalable project, after finalizing the design and the draft agreement with the municipality, we have officially submitted the planning application, the so-called Conferenza di Servizio, aimed at involving the various relevant authorities and which, if no critical issues arise, could be concluded by the end of the year. In the following slide, slide number nine, we recall the typical cash profile for a greenfield or a brownfield infrastructure project. That is It's also valid for our edge network and data center hyperscale projects. There will be an initial construction phase that will require some startup costs, but mainly heavy capex. For the hyperscale, the rollout will be progressive in order to follow demand module by module or even data hole by data hole within the same modules And we start once authorization is obtained. For edge, construction has already started for the first five, as I said before. And we'll continue with the others. So once construction is completed, investments will tend to the maintenance level, not to differences from towers. We are talking about why low single-digit capex revenues ratio. While the gradual increase in capacity utilization and sales will first bring the asset to break even by covering fixed costs and when fully utilized will deliver a marginality that can be estimated within the 40% to 50% range. So cash profile that will still grant an expected project unlevered IRR about 10%. As you may easily guess from my tone, we are extremely excited by these projects in terms of potential, the interest they are generating amongst potential customers, capital deployment, opportunity, and value creation. Moving to the improvement of our ESG profile. Let me highlight that about two-thirds of the initiatives included in our sustainability plan that goes up to 2023 have been completed and that the vast majority of the quantitative targets have been already reached. Just to mention a few of the achievements in the last year, 2022. On the environmental front, apart from being among the few companies to use 100% green energy, we have been able to reduce our energy consumption by 16% compared to 2020. On the governance side, we are pleased to have adopted the first sustainable supply chain policy that, within the procurement rules we must follow because of our public nature, we promote strict environmental, social, and ethical standards for suppliers. On innovation and digitalization, While there is no need to stress once again our huge effort, I would remark the social benefit that such innovation brings to citizens and local areas. For example, the extension of coverage of the national multiplexes of the new regional broadcasting networks. Moving now to slide number 11. and back to the financial figures for the full year 2022. Before leaving the floor to Adalberto for more details, I would just like to point out that all the economic indicators are moving upwards, with the top line up 6.7%, supported by contribution for development activities and CPI, relative stable EBITDA margin despite energy costs, net income up in double digits and increase that will be also reflected in our dividend. Maintenance capex will under control and the notable amount of capital invested in development activities with the growing portion falling outside the reforming for right, mainly including regional reforming, new proprietary fiber optic backbone, digital transformation enabling efficiencies and activities, mainly design, and on data centers and CDN, the content delivery network. And our usual sound recording generation allows us to remain fully financial flexible when it comes to financing our growth initiatives. So please, Adalberto, the floor is yours.