Rai Way S.p.A.

Good afternoon. This is the Curve Call Conference Operator. Welcome and thank you for joining the RightWave First Half 2024 Results 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 Andrea Moretti, Head of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good afternoon to everybody and welcome to our first half 2024 results presentation. Today's speakers will be our CEO, Roberto Cecatto, our CFO, Adalberto Pellegrino, and Giancarlo Benucci, our Chief Corporate Development Officer. The presentation will cover results as of the 30th of June 2024, as well as an update about the projects included in the industrial plan that we presented last March. Let me therefore hand the call over to Mr. Cecatto. Please go ahead, sir.

Thank you, Andrea, and good afternoon to everyone. As usual, I will briefly comment on the main highlights of the period, while immediately after, Adalberto will run you through the details of our financial performance. Economic and financial results for the first half of the year confirmed the trajectory and growth trends observed in the first quarter. Revenues grew once again mainly driven by CPI, full contribution from broadcast services to regional broadcasters, and a positive dynamics in tower hosting volumes. In particular, the latter segment benefited from the contribution of customer categories such as fixed wireless access and radio broadcasts, also thanks to the extension of private DAB operators coverage. As for the OPEX trend, apart from the benefit already observed in the first quarter resulting from higher personnel capitalization, The rationalization efforts on several items more than offset the rising startup cost for diversification initiatives and the absence of the electricity incentives that had characterized the first half of 2023. Overall, therefore, adjusted EBITDA was up 3% in the health year, with an absolute growth recorded in the second quarter that, on an underlying basis, has been ever better than in the first one. Capital expenditures were basically in line with last year, consistently with the guidance, while looking at the development component alone, more than 50% was related to diversification projects. I am referring in particular to the completion of the first five-edge data center. The net financial position stood at €146 million, mainly reflecting recurring cash generation of €64 million, up 3.5% versus 2023, and €86.5 million in dividend payments. Numbers aside, during the presentation of the business plan, we had emphasized the focus we would place on execution. I repeat, the place, the focus on execution. And also, we have indicated the priorities. We are trying to keep our promises, and the first seven months have proven particularly intense and fruitful. Starting from one of the key neighbors, we have a profoundly revamped Raiways organizational structure, on which slide 5, as you see, focuses. We create three divisions, consistently with the markets in which the company operates media distribution and digital infrastructure, with an increasing focus on the latter items. The first division, broadcasting and media, includes broadcasting networks, TV and radio, but also CDN and transmission network. The second division, called infrastructure, includes power and real estate. The third division will manage our data center network. In addition, if you see, we have established what we have named operation structures, which include field force at regional level, as well as control, central control, and security, let me say, cybersecurity especially centers, and we provide the cross-functional support to all the three divisions. Thus, we have moved from a functional model that was ideal for a mono-business model to a divisional model which we believe is more focused and effective to support an increasing opening to new markets and new customers, and so to create value. Indeed, the new model identifies specific responsibilities and improves commitment to reach the planned targets, assigning all the relevant levers to the divisional managers. Finally, the reorganization allows internal people to grow and to freeze up resources to be redeployed in support of diversification. But please, going back to an overview in the slide four, let's now turn to the several updates related to the development initiatives. For the strengthening of the traditional business, The main drivers envisaged in the plan are those related to the further accession of the managed network, particularly radio, and the better utilization of existing assets like backbone and LANs, and the improvement of operational efficiency, also through the optimization of the real estate footprint. On the first point, we are already working on a project for the first adaptation of the DAB network in order to improve coverage of highways in major provinces. We are now developing the project and deepening the technical configuration to be shared with DRI, but the initiatives at its site are in line with the assumptions of our plan. On the real estate front, we are already actively working on the optimization of the real estate footprint in all the territories, starting also with the selection of the new headquarters, hopefully to be finalized soon. On the diversification initiatives side, the successful delivery of the first five edge data centers in Milan, Turin, Venice, Rome and Florence took place just in the last few days. Let's have an in-depth look thanks to the slide 6. The inauguration of the five facilities met the timeline indicated in the plan, making the first 1.6 MW of IT load ready for commercialization. As you can also appreciate from the pictures, they are extremely modern data centers, interconnected through their away proprietary backbone, and so smaller in size, they will be respecting high standards of security and redundancy, meeting the Tire Tree standard. From the commercial point of view, as you may have seen, we have announced the collaboration with Oracle, Precisely because of the proximity, security, and quality of our assets, Oracle has selected Rayway as a data center provider to propose to its customers in order to install their Edge Cloud solution and artificial intelligence services. At the same time, Rayway will be able to enrich each colocation offering by making Oracle a AI and cloud solution available to customers. So, let me say, it's not a sales contract, but it's a collaboration and what we might call a co-marketing agreement. This demonstrates the appeal of our assets ever for relevant players in the world of cloud services. In addition, this agreement is fully in line with our business strategy. which, as you may recall, included indirect channels such as private cloud providers or system integrators to address prospects as a corporation and public administration. For the implementation point of view, in the coming months, we will work on the extension of the network with the design of new edge of data center covering central southern Italy. And talking again about the data center, let's not forget the hyperscale project. In relation with the permitting front, the latest contacts with the relevant authorities make us optimists on the target of getting the final green light within the time frame assumed in the plan, meaning end of this year. We change subject, CDN. On the CDN-related activities, we are also fully on track at the moment with the functional trials that have started in the recent weeks, and we have involved all the major content providers in Italy. The performance test will follow starting from September. In terms of expectation for the full year, in light of the result and the progress just described, we can only confirm the indication of growth of our adjusted EBITDA compared to 2023, as I will explain more in detail at the end of the presentation. Going now back to the first semester performance on slide 7, you will find a summary of the main figures. I will skip it, as I've already briefly commented on them, and I will leave the floor to Adalberto, the CFO, for a closer look to results. Please, Adalberto, go ahead.

Thank you, Roberto. As anticipated, the main results are Full in line with our expectation on slide 8, we discuss revenues. As usual, we are up 1.2 percent, reaching 137.6 million euro in the first six months of the year, with both business lines, media distribution and digital infrastructure on a positive trend. Media distribution segment revenues increased 1.2%, more than CPI, whose contribution was 0.7%, thanks to the full effect of the new regional DTT networks for our regional broadcast customers, as well as some positive impact from new services. Digital infrastructure. Currently means tower hosting, waiting for upcoming contribution from data center, where revenue, I'm referring to tower hosting business, generated a grow by 1.1%, which turns into a plus 3% if we scrap non-ordinary effects. The same higher performance can be seen in the old revenue breakdown that we keep on providing. Third parties revenues register plus 2.9%. In both cases, the business has been pushed forward by fixed wireless access and radio equipment hosting. Moving to OPEX on slide nine. we have a decrease of cost of 2.7%. And looking closer, our personnel is still impacted by the high level of capitalization that we first recorded in Q1 as we commented. This effect has been reabsorbed only in a limited way in the second quarter, so it still weighs on the first half figures. Net of it, personnel costs are stable year on year. Other operating costs are also down, minus 2.3%, benefiting from rationalization across different lines, such as fiber rental. thanks to the switch to our new proprietary backbone, and intercompany service internalization. And then we have some other benefits from other costs, such as travel and lodging that reduce semester on semester. On the other side, energy costs are up vis-à-vis last year's first semester figures. We can see in the detailed table we put on the right side, you may see the chart on the right side of the slide, the lower raw energy price, €106 per megawatt in 2024, compared to €142 last year. And this lower price is more than compensated by the lack of incentive and by an increase in other tariff components. This translates into an average total energy price of €201 per megawatt, vis-à-vis €188 last year. In light of a slight increase in consumption, Raiway's energy costs are up by 6.9% or €0.4 million in the first six months of the year. Let's now move on to the following slide, slide 10. to comment the other lines of the profit and loss below the adjusted EBITDA that, as we have already seen, reached 93.5 million euro with a 68% margin, 120 basis points above the first half 2023 level. A very notable increase which reflects on reported EBITDA too because we don't have significant one-off components that we recorded the last year in relation to HR expenses for 3.6 million euro. DNA and financial charge are increasing respectively because of our strong investment activity, development investment activity and the interest rate effects. Also considering our stable tax rate, we recorded the net income level up by 5.2% from 44.9 million euro to 47.1. As you know, that's a relevant metric for next year dividend. Moving to slide 11, let's have a look to the net financial position. including €32.7 million of IFRS leasing, net debt close at €146 million, remaining below one time the adjusted EBITDA generated in the last 12 months. Compared to the end of 2023, net debt only increased by €41.1 million, despite €86 million of dividend payment and €12 million of development capex. with cash generation therefore remaining very healthy. Free cash flow to equity stands at a remarkable 64 million euro over the six months. As per the outlook of the second half of the year, let me turn the floor back to our CEO.

Thanks, Adalberto. Let me now conclude with the expectation for the full year, recapped on slide 12. As anticipated in the opening remarks, considering the results of the first health just presented, we are increasingly comfortable with the growth targets for the 2024. and specifically CPI for the impact of regional refarming and the first contribution from DAB network station driving the growth of age-justed ABTA compared to the 2023. Also, this growth is limited by the lack of energy tax credits and the new infrastructure cost, but broadly compensated by the reduction of other Compared to the first semester, in the second half the year-on-year growth will be somewhat mitigated by the realignment of personal capitalization to the last year level, higher delta energy tariff, and rising startup cost of the diversification initiatives. But it's also true that compared to the very initial expectation, we are seeing far support from some non-recruiting factors, such as a better level of capitalized personnel or other revenues, and a better cost management performance despite energy tariffs higher than old power futures. On the CAPEX side, the maintenance CAPEX are now expected substantially in line with the previous year, with the reduction compared to previous guidance due to slippage of some activities to next year, while the development components is still expected in line with the 2023 level, with the larger majority related to diversification and other third-party or internal projects. That's all on our side, and we thank you for your attention and can now open the line for the Q&A.

Thank you. This is the course 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 one at this time. The first question is from Fabio Pavan of Mediabanca.

Yes, good evening and thank you for taking my question, which is related to the edge data center. You said they are now ready for commercialization when we expect to start Eventually, do you already have managed to have some conversation with potential customers? So there is some color you can share with us. Thank you.

Hi, Mr. Pavan. Let me say that the Agile Data Center has just become operational. I think this is an expectation that we confirm with the release just in time as planned. And our choice was to start the actual commercialization only after reaching the availability of the assets. Because we would like to be very sure that we have the assets properly functioning, certified, and so on. Mainly to provide certainty on timing. We already have some outstanding commercial offers. that we have prepared, also through the agreement with Oracle, but not only. Actually, the first small contract has been signed just yesterday, but let's say the commercialization activity starts now, and the goal is also to finalize under indirect partnership in the next months to create a sort of ecosystem, in particular to address small and medium customers. So we have started.

Thank you.

The next question is from Giorgio Tavolini of Intermonte.

Hi, good evening. Thanks for taking my question. Before doing the question, I mean, I hope your field operation staff are safe and well after yesterday's fire in central Rome. which happened very close to your headquarter. Regarding the questions on the this year ABDA guidance, you mentioned no recurring items. So I was wondering if you are referring to startup costs, reversal of personnel capitalization, the absence of energy incentives, and so on. Regarding your business plan assumption on CPI for 2025-2026, you assumed 1.5 inflation rate, while the current CPI is steadily running below 1%, so around 0.6. I understand you applied the final figure at the end of November. but I wonder if we should consider revising the CPI inflation assumption. The third question is on the first half breakdown within the media distribution revenues, because I didn't see the contribution from regional broadcasting and CDN on top of the RAI contribution. So I was wondering if you can provide the granularity on the breakdown, please. Thank you.

For the first question, let me answer to the five questions. Yes, yesterday was quite a complex day because we were very near to the fire that was in the Monte Mario Hill. Let me say that we have a plan, a disaster plan, so we moved all the operatives and offices there. in backup situation and we were able to grant the continuity on the service and also considered yesterday there were also some council meeting for the committees and we were able to move and manage absolutely smoothly all the events without any kind of problems. So we were very happy to manage the situation like yesterday we were able to do. For the other question, I leave the floor to Adalberto, to the CFO.

So, as concerned your first question on EBITDA guidance, you basically mentioned the main non-recurring impact. On top of the ones you mentioned, we also expect to have an additional impact from some penalties that will give an help to our growth. As concern the inflation rate, actually yesterday the ISTAT just released the latest figures and in order to understand which is the impact on our 2025 figures in terms of potential indexation impact. If we see the increase of the Italian CPI vis-à-vis November, that is our key date for the indexation, we have an increase of 1.5. So typically, figures are commented on a yearly basis. So if we look not at the yearly figures, but if we look at the increase of the Italian CPI vis-a-vis November, we are in line with our business plan guidance. Last question on media distribution revenues. The difference between media distribution revenues and if you look at the chart, the second chart that we include in slide 8, you made a difference with the right new services and the right fixed consideration of recurring services, you may obtain the amount of revenue. of the revenues related to regional broadcasting customers that amount 5.8 million euros in the first six months of the year, with an increase of half a million vis-à-vis the last semester.

The next question is from Stefano Gamberini of Equita.

Good afternoon, everybody, and thanks for taking my question. I have three of them. The first regarding the hyperscale data sent. If understood correctly, you expect the final authorization by end. That's good news. So could you elaborate a little bit more about what is the procedures for the procurement when, if you already signed the contract or you are close to sign the contract for the construction of the hyperscale data center, and when we would expect that this should be up and running. Clearly, we know what are the targets in the business plan, but I would like to have more color of what is the situation about, not only the authorization, but all the other steps that you need to have it up and running. The second, if you can help us a little bit more about this strategy on the edge data center, because if understood correctly, You want to move to small entrepreneurs, so it means that you need a commercial network, or am I wrong about it? And I do not understand why you still need the final technical approval before going ahead with the commercial strategy. Probably you should start immediately the full operation the day after, and also what are your, we can say, strategy about the growth in the south, so what is the visibility that you have in the existing five data centers in order to go ahead with the construction of the new centers in the south. The third, if you can help us to understand the situation with eight hours. I know that clearly it is not in your hands, but just to have an idea if we could expect that in September there should be some novelties starting from the green light, sorry, not the green light, but on the appointment of the new board of directors in Rai, what are in your view the following steps in order to do ahead as soon as possible with the consolidation in the

Ciao Stefano, I will take your questions. On the first one, the IP scale, you are correct. We are optimistic to get the green light, let me say, in line with the timeframe defined in the industrial plan, that is by year end. I mean, you need to consider that this is a project that when fully deployed will amount hundreds of million euros of investments. And so also the design of a project like this, it's quite expensive. That's why we are basically waiting for the final approval before moving to the executive design, executive and final project. while obviously in order to get the green light, we have already presented what is called a preliminary design. So the preliminary design is already there, and we are waiting for the final green light in order to move to what is called the executive planning and executive project. Then you can assume a few months, let's say six months in order to have the project and the, let me say, the FPC contractor and then as we have already said in the past, you can assume 12, 18 months in order to have the asset operational, built and operational. When going to your second question on the edge data center, let's try to be very clear on this point in order to avoid misunderstanding. We are not waiting for the commercialization of the assets. We have waited till now because, as Roberto said, we just wanted to have full visibility on the availability of the asset. Also because being, let me say, a newcomer in the sector, we wanted to preserve a good name and not to offer something that was not there. Now the assets are operational and, sorry? Yeah, of course, also the prospects have started to visit our data centers. So the commercial activity now is up and running. to rely also on indirect channels. I mean, it's very simple because as an infrastructure company, we have, let me say, a sales force, a sales department that is, let me say, relatively limited. We have not commercial sales force distributed on that territory. And when you want to address small and medium enterprises, You also need to rely on indirect channels like system integrators or private cloud operators. So it's something very, very common in the sector. While coming to your last question on the eight hours, I mean, I'm pretty sure that you monitor the situation very well. The appointment of the new right board is underway, and I think it's essential to carry on any discussion. So let's see.

Sorry, I may add because there was a question about the expansion of the Southern Italy. Consider that the Southern Italy is a market that is growing and needs more than the northern part of Italy the presence of data centers of high quality certified especially in some regions like Puglia, Campania, and Sicily. Consider that we have already defined, for instance, the purchasing of a field in the center of the industrial area of Bari, and we are looking for a similar situation in a very strategic position, both in terms Sicily and in Campania. So we will trust on this move because in the panorama, in the national panorama, we are moving in an area that needs this kind of infrastructure.

Mimi, thanks. Just a quick follow-up about this strategy on the health data center. I understand clearly that you don't have your own sales force, but I would be interested to understand a little bit more how you are moving. What is the level of utilization that you expect by the end of the existing health data center and at the end of 2025? And the second, regarding this expansion in the south, the same, how you are moving also in this case on the commercial strategy, and if you can help us to, I don't know, have what are your main peers that we can probably follow to understand a little bit better the trend of this market. Thank you.

The impact in 2025 is expected to be limited. We are talking really about few hundred thousand euros. As concern the field factor, this is something that will increase progressively. We do not expect to reach significant occupancy in 2025. We expect to reach a proper field factor in three, four years and reaching at run rate level an average occupancy of between 80 and 90 percent depending from the data center. This is our plan and this is consistent with the figures that we disclose in our industrial plan.

I don't know if I got your question correctly. It was the main peers operating in the southern part of Italy on the data centers. Let me say that there are a couple of players, of operators, having a national presence, including south of Italy, but let me say, to be honest, that the quality of the data centers that we are deploying is by far higher compared to the quality of the assets of the already existing assets that are mainly all the telecommunication POPs that are converted or have residual space for collocation. So a couple of players, but really different asset quality.

Okay, thanks again.

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

Thank you, operator. It's fine. And thank you all of you for your participation and consideration. Despite a very busy week on the earnings side, we remain available for any follow-up questions, and we wish you a good evening. Goodbye.