Rai Way S.p.A. (RWAY) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Rai Way First Half 2023 Results Analyst Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giancarlo Benucci, Chief Corporate Development Officer of Rai Way. 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 half 2023 results presentation. Today with me, Roberto Cecatto, CEO, who will share the highlights for the period; and Adalberto Pellegrino, CFO, who 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 with high fever. So sorry if my speech would be not much loud and sharp. Anyway, let me start from the extremely positive news in terms of result and material growth we are delivering. The second quarter fully confirmed the trend already shown in the first 3 months of the year [ bringing ]. First half revenues up 12.2%, mainly supported by CPI and regional refarming. And an adjusted EBITDA up 16.1% year-on-year as a result of higher revenues and manageable underlying 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 the 2022 level while on development, lower refarming related components are partially replaced by spending on new infrastructure projects. And the aim here is to make this part more and more material [ maximizing ] our execution. I already commented the first half 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 5, from 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 2 main directions; value and cash generation maximization in the traditional business, use of cash to invest in value-accretive diversification in new businesses which Rai Way can have a competitive positioning. We have started to actively work with [ my team about ], on the traditional business, the new broadcasting networks, both from national for RAI and regional for other parties are now up and running. They are still working in DVB-T, the past technology. But according to indication of the ministry, it's likely that at least one of the RAI multiplex will move to DVB-T2 in the coming months. As you know, all the networks we have installed in the context of refarming are already T2-ready and compliant. Therefore, we expected 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-reward, market positioning, rollout, financial plan, go-to-market and so on. We are fully aware that the diversification, expansion of managing infrastructure and capital deployment are a key part 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, with the let up, lease 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 reason. 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 it to the Slide 6. Going now back to the first half performance. The results are fully in line with the anticipated material growth path. In particular, revenues are up 12.2%, boosted by the same drivers already seen in the first quarter and specifically indexation to inflation, growing contribution of the new regional multiplexes business. That, together with the strong activity with FWAP operators and radio broadcaster confirmed the significant growth, almost 27% plus of revenue from customers different from RAI. This is very relevant for our company. Adjusted EBITDA reached EUR 90.8 million, with a margin close to 67% to 230 basis points higher than first half '22 as a result of revenue growth and limited cost increase. Indeed, as Adalberto will explain in detail, once excluding some noncore items, like level of personnel capitalization or prior year adjustment, total OpEx grew by a modest to 3%, also benefiting from lower energy consumption, minus 14%. I bet that we are used to start all the new technology that give very, very low consumption in our assets. And only marginally is limited in the second quarter only, lower electricity tariff compared to 2022. Below adjusted EBITDA, after taking account nonrecurring costs, D&A and financial charge, net income level rose by a remarkable in 21.3%, as you know, a relevant metric for next year dividend. I commented the trend of our CapEx just before. While the net financial position, including the IFRS leasing closed at EUR 138 million, remaining below onetime the adjusted EBITDA generated in the last 12 months. Considering that compared to the end of 2022, the net financial position increased only by around EUR 30 million, EUR 35 million despite EUR 74 million dividend payment and EUR 14 million of development CapEx. You can easily deduce the cash generation capacity of this company backing our development projects and ambitions. And with this, I'll hand over to Adalberto. I give the floor to Adalberto to provide you with details on the main items of our results. Please, Adalberto, 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 EUR 136 million, 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 concerned to 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 MUX 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 3 months of 2022, the contribution of the new regional MUX was still negligible, while it starts to be more material in the following months. Let's now move to the following slide on OpEx. Total costs for the first half year amounted to EUR 45.5 million, with a modest growth of 4.5% compared to the first half 2022. In particular, excluding noncore items and lower capitalization, personnel costs increased by 3.9% against the 8.3% reported. On the other hand, underlying other operating costs are broadly stable without considering one-off impacts. Energy cost decreased by EUR 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 EUR 45 million with a double-digit growth, 21.3% in the first half, mainly reflecting the nonrecurring cost for approximately EUR 3.6 million, significantly higher EBITDA, lower D&A following the termination of, as we already commented, of the useful life of the DVB-T equipment, heavier financial charge due to the higher net debt and as the rising interest rates, with a stable tax rate in line with the 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 6 months of the year, consistently with the user dividend payment in the second quarter, leverage in the first 6 months increased with net debt at the end of June standing at almost EUR 139 million, almost EUR 38 million of which related to the IFRS 16, delivering all in all, a recurring free cash flow to equity of roughly EUR 62 million. That's all on my side. I leave the floor back to Roberto for the closing remarks.

Thanks, Adalberto. In terms of expectation for the full year, the guidance for 2023 precisely, a percentage growth of the adjusted EBITDA expected in the mid-teens area and CapEx substantially at the last year's level, both on development and maintenance. It's for the time being confirmed also to take a prudent stance against the volatility of energy price seen in the recent past. Saying that, it's also fair to admit that the result of the first half and the current energy price expectation for the second half provide us increased visibility and comfort on achieving these targets. To put it very simple, if by mid-teens growth area, it literally means a range between 15% and 17%. Within this range, we are moving into the higher end. At the same time, please do not get overly enthusiastic about mathematically extrapolating and algebraically extrapolating of the EUR 91 million adjusted EBITDA, absolute figure of the 16 percentage growth on the first 6 months. Indeed, in absolute terms, let me remind you that based on current futures level, second half energy spending is expected heavier than in the first half due to the lack of tax credit and the possibility of some start-up 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 cost considering the super high tariffs recorded in the last 6 months of 2022, also including the tax credit. On the other hand, please consider the more difficult comparison on the regional refarming contribution that in 2022 increased progressively quarter after quarter, therefore, EUR 2 million higher in the second half compared to the first. The EUR 2 million [ onetime ] paid by RAI in the second half 2022, for the medium wave shutdown, as well of the benefit 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 for the Q&A session.

[Operator Instructions] The first question is from Fabio Pavan with Mediobanca.

Congratulations for the results. We had today statements from the Finance Minister Giorgettti, which was opening the door to potential sale of taking Rai Way by the state-owned broadcaster RAI. So my question for you is, do you think this may have any impact on the potential consolidation process? Or do you think it's going to be neutral?

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 have just now evaluating quite properly. Let me say that going more around on these items, on government national structure, I don't comment because it's not our responsibility. But let me say that it's something that is moving, for sure.

The next question is from Milo Silvestre with Equita.

Good morning, everybody, and thank you for taking my 2 questions. The first one concerning the data center. So I would like to ask about the last update regarding the edge data center and if you think in the foresight can be commissioned by year-end? While the second question concerning 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 the inflation, considering the higher inflationary environment and the fact that RAI reported negative [ values in contract ]?

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

Yes, exactly. Concerning the possible -- if you see a possible risk on introduction of a cap on inflation?.

Okay. Now as concerned, the last -- the second question, as you know, we just renew our contract at the time of the refarming agreement. And so the contract now will cover all the years till June 2028. So any change with the contract has to be agreed between the parties. So from our side, it's something that is quite difficult to accept. So I don't see here any risk on this point. The first question was about the edge data center, right? Do you need some clarification on the status of the project?

Yes.

Okay. Milo, on the edge side, as you know, we have 5 assets that are already under construction. And the construction is, I would say, proceeding in according to the plan. So these 5 assets will progressively come into operation starting from the end of the year and in the beginning of 2024. Then out of the 3 additional data centers on which we were completing the awarding procedure. On one of the 3, we will award the construction pretty soon. We are at the end of the awarding process. While on additional 2, 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.

The next question is from Giorgio Tavolini with Intermonte.