Rai Way S.p.A.

Good afternoon, this is the Core School Conference Operator. Welcome and thank you for joining the RightWay First Half 2023 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, sir.

Thank you, operator, and good afternoon. Let me start thanking all of you for joining us today and welcome to our First Stop 2023 results presentation. Today with me, Roberto Sciaccato, CEO, who will share the highlights for the period and and that Alberto Pellegrino, CFO, will take you through the financial performance more in detail. At the end, we will open the line to your questions in the usual Q&A session. Let me therefore hand the call over to Roberto. Please, Roberto, go ahead.

Thanks, Giancarlo, and good afternoon to all of you. I have to give my apologies because just today I'm sick, and just now I am high fever. So, sorry if my speech could be not so much loud and sharp. Anyway, let me start from the extremely positive news in terms of results and material growth we are delivering. The second quarter fully confirmed the trend already shown in the first three months of the year bringing. First half revenues up 12.2%, mainly supported by CPI, and regional farming, and an adjusted EBITDA up to 16.1% year-on-year as a result of higher revenues and manageable underlining cost trend, benefiting from a further reduction in energy consumption with declining tariffs helping the second quarter and the quarter-on-quarter improvement. As for investment, maintenance capex broadly confirmed at 2022 level, while on development, lower farming related components are partially replaced by spending on new infrastructure projects. And the aim here is to make this part more and more material by accelerating our execution. Eric commented the first health financial performance. I also take the opportunity to anticipate, as we will see better at the end, that on the back of these results, we were able to confirm the guidance for 2023 and express increasing confidence and comfort about achieving the communicated targets. Viewing the slide five, From an operating and strategic perspective, as you may remember, in my debut call just a couple months ago, I stressed the opportunity to focus and to operate on two main directions. Value and cash generation maximization in the traditional business. Use of cash to invest in value-accurative diversification operations. in new businesses, which right way can have a competitive positioning. We have started to actively work with my teams on both. On the traditional business, the new broadcast networks, both from national for Rai and regional for other parties, are now up and running. They are still working in DBT, the past technology, But according to indication of the Ministry, it's likely that at least one of the RAI multiplexes will move to DVB-T2 in the coming months. As you know, all the networks we have installed in the context of the refarming are already T2 ready and compliant. Therefore, we'd expect limited activities on our side. The recurring nature of this business provides confidence to also look at some development opportunities ahead. For example, the possible extension of the DAB radio networks after the release of the new dedicated DAB frequency plan, or some possible small extension in the broadcasting value chain, which will be analyzed ahead of the next industrial plan. On the second point, diversification, while recognizing the significant amount of work already done by the company, my intention and the intention of the board is to go through all the initiatives in terms of risk and reward, market positioning, rollout, financial plan, go to market, and so on. We are fully aware that diversification, expansion of managing infrastructure and capital deployment are key parts of the company's success, of the growth we will be able to deliver in the midterm. And at the same time, time to market is a success factor for many initiatives. That's why with the team, we will lead up, lead up. We are using this opportunity also to adjust and optimize. This is very important. Some details in terms of asset design, rollout of priorities, and so on. But the overall picture in terms of opportunities, related spending, and returns remains valid as of today. The review is underway. I mean to get the green light from the board soon, really very soon, in order to go ahead and speed up the execution. Also, catching up some delays that have accumulated for various reasons. The relevant initiatives will likely affect the definition of the capital allocation strategy of the next industrial plan, where we will provide more color more definition on phasing of investment, and profit and loss contribution. Now we could pass to the slide six. Going now back to the first health performance, the results are fully in line with the anticipated material growth path. In particular, revenues are up 12%. 0.2% boosted by the same drivers already seen in the first quarter and specifically induction to inflation, growing contribution of the new regional multiplexes business. Brothers that together with the sound hosting activity, we FWA operators and radio broadcaster confirmed the significant growth almost 27% plus of revenue from customers different from Rai, and this is very relevant for our company. Adjusted bidday reached 90.8 million euros, with a margin close to 67%, to 2.30 basis points higher than first half 2022 as a result of revenue growth and limited cost increase. Indeed, as Alberto will explain in detail, once excluding some non-core items like level of personal capitalization or prior year adjustments, Total OPEX grew by a modest 2-3%, also benefiting from lower energy consumption, minus 14%. I repeat that we are used to sell all the new technology that gives very, very low consumption in our assets, and only marginally as limited in the second quarter only. a lower electricity tariff compared to 2022. Below adjusted EBITDA, after taking into account non-recurring costs, DNA and financial charges, net income level rose by a remarkable 21.3%, as you know, a relevant metric for next year's dividend. I commented the trend of our cap just before. while the net financial position, including the IFRS leasing, closed at €138 million, remaining below one time the adjusted BTA generated in the last 12 months. Considering that, compared to the end of 2022, the net financial position increased only by around €30-35 million, despite seven four million dividend payment and 14 million of development capex you can easily deduce that the cash generation capacity of this company backing your development our development projects and ambitions and with this i i'll And over to Alberto. I give the floor to Alberto to provide you with details on the main items of our result. Please, Alberto, go ahead.

Thank you, Roberto. Good afternoon to everyone. So let's go to the slide on the core revenues that continue the consistent growth that began in the first quarter, coming out at 136 million euros. a consistent growth of 12% compared to 2022 levels, so confirming the overall trend we have already commented in the last call. In fact, more specifically, on the right component, we can see that the roughly 10% growth was driven by the CPI indexation, despite the termination of the medium wave radio service that has been effective since the end of the third quarter last year. As concerns third parties' revenues, the important growth recorded in the first quarter continued in the second quarter, with a 27% increase in the first semester, mainly supported by the full contribution of the new regional MOOCs capacity sold to local broadcasters, and to a lesser extent by the positive CPI link and the strong activity as concerned the fixed wireless access player and our radio broadcaster customers. The percentage growth in the second quarter was lower vis-a-vis the first quarter figures because in the first three months of 2022, the contribution of the new regional MOOCs was still negligible, while it started to be more material in the following months. Let's now move to the following slide on OPEX. Total cost for the first half year amounted to €45.5 million, with a modest growth of 4.5% compared to the first half of 2022. excluding non-core items and lower capitalization, personnel costs increased by 3.9% against the 8.3% reported. On the other end, underlying other operating costs are broadly stable without considering one-off impacts. Energy costs decreased by 1.6 million as you may see in our chart at the right end of the slide. Let's now move to the slide on the profit and loss from core revenues to net income. Our net income reached almost 45 million euro with a double digit growth, 21.3% in the first half. mainly reflecting the non-recurring cost for approximately 3.6 million euro, significantly higher EBITDA, lower DNA following the termination of, as we already commented, of the useful life of the DVBT equipment, heavier financial charge due to the higher net debt and, as you know, the rising interest rates. with a stable tax rate in line with previous year. Moving now to the slide on the cash generation, you see how our net debt evolution, which was the evolution of the net debt in the first six months of the year, consistently with the user dividend payment in the second quarter leveraged in the first six months increased, with net debt at the end of June standing at almost 139 million euro, 37, almost 38 of which related to the IFRS 16, delivering all in all a recurring free cash flow to equity of roughly 62 million euro. That's all on my side. I leave the floor back to Roberto for the closing remarks.

Thanks, Alberto. In terms of expectations for the full year, the guidance for 2023 precisely, a percentage growth of the adjusted bidet expected in the mid-ease area and capex substantially at last year's level, both on development and maintenance comp. It's for the time being confirmed also to take a prudent stance against the volatility of energy price, seeing the recent past. Said that... It's also fair to admit that the result of the first ELF and the current energy price expectation for the second ELF provide us increased visibility and comfort on achieving these targets. To put it very simple, if by mid-teens grow area, you literally mean a range between 15 and 17 years, Within this range, we are moving into the higher end. At the same time, please do not get overly enthusiastic about a mannerly extrapolating, an algebraic extrapolating of the 91 million adjusted BTA, absolute figure of the 16 percentage growth on the first six months. Indeed, in absolute terms, Let me remind you that, based on current features level, second health energy spending is expected heavier than in the first health due to the lack of task credits and the possibility of some startup costs related to new infrastructure. While in terms of percentage of growth compared to the last year, If, on the one hand, the second half will benefit from an easier comparison of the energy costs, considering the super high tariffs recorded in the last six months of 2022, also including the tax credit, on the other hand, please consider the more difficult comparison on us. The regional farming contribution that in 2022 increased progressively quarter after quarter. Therefore, 2 million higher in the second half compared to the first. The 2 million euros una tantum paid by Rai in the second half 2022 for the medium wave shutdown. As well as All the benefits always in the second half of 2022 from the temporary cost mitigation action. That's all on our side. We can now open the line from the Q&A session. Thank you.

Excuse me, this is the Coruscant Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. 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 Fabio Pavan with Mediobanca. Please go ahead. Thank you.

Yes, hi. Congratulations for the results and thank you for taking my question. We had today statements from the finance minister, Giorgetti, which was opening the door to potential sale of Staking Railway by the state-owned Broadcaster Rail. So my question for you is, do you think this may have any impact impact on the potential consolidation process, or do you think it's going to be neutral?

Thank you.

You already know our position on consolidation, so a statement showing that apparently something is moving on. So, let me say that it's a point that we are just now evaluating quite properly. Let me say that going more around on these items, on governance, shareholder structure, I don't comment because it's not our responsibility, but let me say that it's something that is moving for sure.

Okay, thank you.

The next question is from Milo Silvestre with Equita. Please go ahead.

Good morning, everybody, and thank you for taking my two questions. The first one concerns the data center, so I would like to ask about the last update regarding the Edge data center. And if you think the foresight can be commissioned by the R&D. The second question concerns the service contract with Rai. And here I would like to ask if you see a potential risk on the introduction of a cap on inflation considering the high inflationary environment there. and the fact that there are that I reported negative. Thank you.

Sorry, the second question was on the CPI on the contract. Could you kindly repeat?

Yeah, exactly. Concerning the possible if you see a possible risk and introduction of a cap on inflations.

OK, now as concern. As concerns the second question, as you know, we just renewed our contract at the time of the reforming agreement. And so the contract now... I will cover all the years till June 2028. So any change to the contract has to be agreed between the parties. So from our side is something that is quite difficult to accept. So I don't see here any risk on this point. On the first question was about the edge data center, right? Do you need some clarification on the status of the project?

Yeah. Okay. Hi, Milo. On the edge side, as you know, we have five assets that are already under construction, and deconstruction is – I would say, proceeding according to the plan. So these five assets will progressively come into operation starting from the end of the year and in the beginning of 2024. Then out of the three additional data centers on which we were completing the awarding procedure, on one of the three, we will... award the construction pretty soon. We are at the end of the awarding process, while on additional two, we are evaluating potential alternatives in terms of sites in order to get some benefit on the sites and on the cost of the assets. So I would say for the time being, everything is on track.

Thank you.

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

Hi, good evening, and thanks for taking my questions. I was wondering if you can provide more clarity or maybe... based on your visibility regarding the timing for the capital market day, the new plan, when you expect to give some update to us. Secondly, just a follow up on the data center questions. The IPS Scalar Data Center is something that is currently under review in the strategy review you announced today or you expect to have a green light on this project I mean, for sure the consolidation discussions could delay this big project or not. I don't know if there is some link between the two initiatives, I mean, the data center IP Scalar and the consolidation.

Thank you. Thanks for the question. The Abescale is on the path. Of course, it's a relevant investment, but consider that we are running all the process to receive the permission on our field of our property. And, of course, in Italy, the permission issue is always a difficult issue. a difficult task, but to give you an idea, the next week there will be a high-level meeting between the local authorities with the measure and the chief officer from railway to define in the best way also the timeline to receive the permission. And consider that the permission on our property is a milestone. that give all the grant on the project evaluation and development. Considering the size and dimension from the financial point of view, we are managing all the development plan to give some reserve that will not impact on the consolidation option in case of. So we are running to make the proper development path with the proper funds, but without affecting the, make the limit to the possible option of the consolidation.

And many thanks. And for the timeline of the Capital Markets Day, should we set some news in February, March next year?

Of course, this is something that will be decided by our board. I believe, personally speaking, that it makes sense, the time frame you mentioned.

Okay.

Many thanks.

The next question is from Lamprosos Maelis with Juan Lanscott Campen. Please go ahead.

Yes, hello, and congratulations on your results, and thank you for allowing my question. This is also about the consolidation with A towers. Assuming it does happen at some point, would acquiring more towers be of interest, or if not, or different? Perhaps can you share a bit more of color on your thoughts of what driveway might be post-integration with A towers?

Could you clarify, sorry, the line was not good. As you mentioned about the post-integration scenario with railway, but we didn't get the beginning of your question, sorry.

Oh, sorry, yes. Assuming the consolidation happens, would acquiring more towers be of interest? Or what would the strategy be once railway consolidates with A towers to give a bit more color on it?

I'm sorry, but here in our office the line is really bad. We didn't get your point on what railway should acquire more in the potential consolidation. Could you clarify, sorry?

Yes, yes.

It's just I would like to know if acquiring... The interest stake are you referring to?

No, no, no. If acquiring more towers would be of interest for right-wing, once the consolidation with eight towers happens. Sorry.

I would say a big important step would be the consolidation, and this is today one of our priorities on which we have to work with our board. Having said that, happy to comment on probably in a second moment, what we could do in terms of further development. But for the time being, I would focus on the first step. For sure, a potential second step will be decided with a relevant stakeholder, taking into consideration the size of the potential company that would be higher, and so this could be for sure... be interesting for focusing on some opportunities, but this is quite too early now for commenting on this. Okay. Thank you very much. You're welcome and sorry for didn't get properly at the beginning of your question.

No problem.

Mr. Menucci, gentlemen, there are no more questions registered at this time.

Okay. Thank you, everybody, for joining the call and speak soon. Bye-bye.

Thank you. Bye-bye.