Rai Way SpA
MIL:RWAY
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Rai Way SpA
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Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Rai Way First Quarter 2019 Results Analyst Conference Call. After the presentation there will be an opportunity to ask questions.
[Operator Instructions] At this time, I would like to turn the conference over to Mr. Giancarlo Benucci, Head of Corporate Development and IR for Rai Way. Please go ahead, sir.
Thank you. Good afternoon, and welcome to our first quarter 2019 results call. I'm here with Aldo Mancino, CEO and Adalberto Pellegrino, CFO. Let me now hand the call over to Aldo.
Please, Aldo, go ahead.
Thank you, Giancarlo, and good afternoon and good morning to those connected from the U.S. As usual, today, I will keep my remarks relatively short since we presented our full year 2018 results just a few weeks ago.
First of all, before commenting the key takeaways of our first quarter, let me remind you that, as you all know, starting from this year, we are adopting the new IFRS 16 accounting standard, which impacts some of the KPI we usually share with you.
Therefore, in order to have you compare the 2018 and the 2019 figures on a like-for-like basis, we provide you with restatement of 2018 economic figures, meaning simulating the impact of IFRS 16 on last year's numbers. Consequently, also the numbers will be compared to the 2018 pro forma figures and the 2019 reported one. In any case, Adalberto will go more in details on this later on.
From an operational standpoint, the first quarter of the year proceeded in line with expectations, continuing the good momentum already experienced in 2018 with the adjusted EBITDA that continues its growth, mainly driven by higher revenues on the back of CPI contribution and new services for RAI.
Then, as far as the 700 mega refarming process is concerned, on April 18,the AGCOM issued the conversion of and awarding criteria with 2 important topics. First, the new Rai multiplex 1, the one with 99% of coverage on [indiscernible] has foreseen network #8.
So it's a good news as it clears up some uncertainties on the main multiplex we will ran. Then, and as confirmed, the 0.5 conversion factor between the current rights of use of frequency and the right of use of 2019 capacity. And this means that the right of use of each frequency currently awarded to the operator will be converted into the right of use of additional capacity equal of half of its DVB-T multiplex. Furthermore, each new right of use of DVB-T2 frequency we be then assigned to national operators with right of use of transmission capacity equivalent to one DVB-T to multiplex, meaning 2 half multiplexes either individually or jointly.
In other words, all the operator, including RAI currently owning 5 multiplexes will be automatically awarded with 2.5 and all the operator currently owning 1 multiplex will remain with 0.5 multiplex. Moreover, the AGCOM also formally stated the process to define the criteria of auction to award the outstanding 2 multiplexes or that the full slot of half multiplex each of additional capacity, which should take place in the third quarter of this year.
Looking at the schedule, we shared with you back in March, the next relevant milestone is the issue of the roadmap by the Ministry of Economic Development expected imminently. Then the same ministry is expected first to formally award the frequencies to the national operators by June 30, and subsequently call the auction for the additional capacity.
So let me say that so far the outcome is in line not only with the budget, but also with our assumption confirming the likely scenario of Rai Way running 3 multiplexes for RAI. Also in light of all this, the current talks with RAI to finalize the process, meaning define technical solutions, and consequently related investment and the remuneration are ongoing with the aim to reach an agreement in the coming weeks. And then, once the final scenario under the funding will be defined, we will update our current industrial plan currently covering the period 2015-2019.
Looking at the business with third-parties, we are pleased with the performance of the segments different from MNOs that in the first quarter grew at the single -- in the high-single digits benefited from a renewed and more effective commercial approach. Here, I'd mention on top of this side, the further progresses in the radio TV broadcasters, fixed wireless access providers and corporate segments, but also on transmission side -- services side, the improvement mainly related to the signal transport of the Italian football league Serie A.
Now I would like to provide you some color on the Memorandum of Understanding we recently signed with RAI and OpenFiber that this agreement encompasses joint research and development activities with the aim to identify and turn ultra-broadband products, technologies and services for the broadcasting of HD and ultra HD video contents on IP platforms. And therefore, a good opportunity that confirms the focus on the company on innovation and that will help us to follow the development of the platforms that will complement and integrate the traditional DTT and satellite platforms. So in a nutshell, we are reaffirming our -- today, our guideline for the full year 2019 as presented back in March.
Now let's look in more detail at our performance in the first quarter of 2019 moving to Slide #4. As anticipated, here on this slide you can see, for adjusted EBITDA, net income and cash conversion, as already stated, the 2018 figure simulate the impact of IFRS 16 on last year's performance.
Core revenues which are not impacted by IFRS 16 reached EUR 55 million, higher than the first quarter last year as a result of higher revenues from RAI driven by the CPI contribution and new services and also revenues from third-parties, which are only slightly lower than last year, thanks to the positive performance with clients different from MNOs. Then the adjusted EBITDA increased by around 3% at EUR 32.9 million, driven by the higher top line and the broadly stable cost base.
Moving to the bottom line, the net income was up 6% year-on-year at EUR 15.7 million. And then on the financial side. So CapEx; CapEx in the first quarter amounted to EUR 2.6 million, higher than last year, mainly due to the development component at EUR 1.7 million from EUR 0.2 million in 2018, driven by preparatory activities for refarming, namely release of radio link frequencies and DAB network expansion.
About maintenance CapEx, although higher than last year, are pretty low as there are usual backend-loaded seasonality. Then the recorded net financial position at March 31 amounts to EUR 10.9 million. And here, let me highlight that excluding the impact of IFRS 16 for almost EUR 15 million -- [ EUR 50 million ], the company would have reported a net cash position of EUR 36.7 million compared to a net position -- net cash position of EUR 16.6 million at 31 December 2018, confirming the strong cash generation with the cash conversion at 97.3%.
And with this, I'll hand over to Adalberto to provide you with updates of the main items of our results. Mr. Adalberto the floor is yours.
Thank you, Aldo. Good afternoon to everyone. Also in this quarter, we delivered a good set of numbers, which confirms that progress of the company in line with expectation, as Aldo already anticipated. Let me just remind you that due to the adoption of the new IFRS 16 accounting standard from January -- from the beginning of this year, starting from the next slide on OpEx, you will also see the 2018 pro forma figures that simulate the impact of IFRS 16 also on 2018 figures.
But let's start with the top line, which is not impacted by the IFRS 16. Core revenues were 1.8% higher, reaching EUR 55 million with the RAI component growing 2.3%, driven by the fixed-consideration that benefit from the 1.4% CPI as well as by new services that were up for -- almost 1/3rd at EUR 1.6 million with the growth driven by the new contracts signed in 2018.
On the other hand, revenues from third-parties were down 0.8% at EUR 8.3 million. And here, if you consider that the year-on-year reduction in Q1 of 2019 was 3.8%,we are showing a good improvement. Thanks to the lower decrease from the MNOs, but more importantly, to the high single digit growth of the other segment of customers, so confirming a positive trend on the revenues, not related to the MNO customer that we saw also last year.
Moving now to the slide on cost, Slide #7. Here you see the first impact of the IFRS 16 being a portion of our leasing cost no longer accounted for in the OpEx. And if you compare the first quarter 2018 pro-forma figures with the first quarter 2019 once the overall cost base increase EUR 0.2 million or 0.9%; with first, the personnel cost that increased by 2.4% as a consequence of the hiring of the new personnel in the context of the agreed process within the early retirement plan implemented over the past year, and also an impact coming from the new collective employment agreement. Secondly, other OpEx remained flat with a higher maintenance and utility -- with utilities cost that have been offset by further efficiencies on inter-company and other cost.
Now let's go to Slide 8 on the profit and loss. Our net income stood at EUR 15.7 million, up 6% from EUR 14.8 million recorded in 2018 on a pro forma basis, mainly driven by, the mentioned, the higher revenues, the further growth on -- in profitability with our margin on revenues that was 40 basis point higher than last year at 59.7%; the higher EBTIDA also helped by the absence of non-recurring cost in 2019 and the broadly stable, below the line items with a tax rate that, as reflected, went back to the underlying level of around 29%. Also confirmed as the yearly rate expected for 2019.
Just to focus on the IFRS impact, Slide 8, is also useful to have a quick view on the overall impact on our profit and loss. In fact just comparing the pro forma figures with the figures that we disclosed last year, you will see that we have higher D&A for EUR 2.2 million; higher net financial expenses for EUR 0.2 million and the -- on the other side, we have an improvement on the EBITDA of EUR 2.3 million. More or less these are the same impact that we have in the first quarter 2019. And as you see -- as you may see, there is no significant impact at the net income level.
Let's moreover to the following slide on the cash flow generation, where we can see, starting from the EUR 16.6 million net cash position, we recorded at the end of 2018, we had EUR 49.3 million impact due to the new leasing liabilities related to the application of IFRS 16 and we consequently closed the first quarter with a EUR 10.9 million net debt.
The cash generation in the first quarter is approximately EUR 22 million, below the level we reached in the first quarter 2018, because as you may recall, in the first quarter 2018, we had some collection that we received on some invoice that were due in the previous year. So on a normalized basis, figures are in trend with the figures recorded last year.
Let's now move to my last slide before having Aldo finishing the presentation with the slide on guidance. So less than few words on the balance sheet. You see our net invested capital reaching EUR 207 million and we have a big increase vis-a-vis the year-end 2018 figures that we commented a few weeks ago, we may see a big increase in the net fixed assets due to the IFRS 16 that is broadly offset by the increase in the net debt. The equity book value amount, EUR 196.5 million. Aldo?
Thank you. Thank you Pellegrino Adalberto. So to conclude the results of this first quarter and the visibility we have on the rest of this year allow us to confirm our expectation for the full year. Therefore, before the impact of the IFRS 16 we reaffirmed the guidance before a further improvement of the adjusted EBITDA and maintenance CapEx on core revenue substantially in line with 2018.
And with that, we'll now welcome your questions. Thank you.
[Operator Instructions] The first question is from Fabio Pavan with Mediobanca.
The first one relates to AGCOM criteria. Could you just guide us through the way we should come from 5 to the final 3, because this is extremely important. And the second question is on the deal with OpenFiber if you just could share with us some more color on what you can do and what could happen in the future, also in terms of duration of this contract.
Okay. Fabio, Giancarlo speaking on your first question that is the conversion criteria just issued by AGCOM, basically the conversion factor that will be applied to the number of multiplexes owned by each operator is basically 0.5. So this will lead to an automatically 2.5 MUXs awarded to RAI, then considering a few factors, first of all that, imagine that after MUX does not exist so these will imply that the 0.5 transmission capacity will, in any case, be on a physical multiplex and then also considering the role of RAI as public broadcasting company, we presume also the importance for them to control also the infrastructure. And finally, also the possibility for broadcasters to be awarded with an additional 0.5 MUX of additional capacity from the auction. Let me say that, all in all, this will translate into a -- the management of 3 multiplex for Rai Way.
Hi, Fabio, Aldo speaking, about OpenFiber, as I told during my presentation, the agreement with the RAI and the OpenFiber is aimed at jointly test, let me say, boarder technology and Fab, this is of course for casting of HD video content on IP platforms. Of course being a memorandum of understanding related to our activities, it's relevance is mainly a strategic one as it confirms that the focus of the company on innovation with particular reference to alternative platform and that can integrate the traditional one. About the duration, the duration is 2 years.
The next question is from Stuart Gillies with Kempen.
So just a quick comment on the refarming process. So yes, you commented obviously at the start. Just confirmation on the timelines, so can we still expect the auction for the additional capacity to take place late November and will it be following the stage that we will get the updated industrial plan?
Yes, we expect that this auction we be finalized by November, by the end of the year. And also as commented in the call for the full year figures, we'd be able, at this point, to update our business plan.
The next question is from Giorgio Tavolini with Intermonte.
I would ask if you could provide the analyzed impact for IFRS 16 on 2018 in order to fine tune our estimates and to have the full amount for D&A and net financial position, if I can let's say assume a similar impact for the full year of the first quarter 2018. And the second question is related to the upcoming sales of Persidera. I would like to know if there is any, let's say implication on the spectrum auction during November, and what are your latest thoughts on this process?
So let's start with the question on the IFRS, you can -- we can use as proxy for the full year figures, absolutely the projection of the first quarter -- of the first quarter figures. So in term of EBITDA, just to be clear, the overall yearly impact is something more than EUR 9 million. And second -- as concerned the other question please.
Well, let me say that the refarming process and the sale of Persidera, generally speaking, are not linked each other. The second part of your question is on our thoughts, but let me say that the current process is different from the one we took part of. So let me say that we are not going to give any comment. Let's see what will happen.
[Operator Instructions] Gentleman, there are no more questions registered at this time.
Okay. Thanks to everyone for joining the call and speak soon.
Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.