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 2020 Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Giancarlo Benucci, Head of Corporate Development of Rai Way. Please go ahead, sir.
Thank you, operator, and good afternoon. Thank you all for joining us today. I really hope that you and your families are being well in these challenging times.
As you remember, just a few weeks ago, we hold an extensive call on the new industrial plan, so we will keep this presentation relatively short dedicating, as usual, the last part to your questions.
So let me now hand the call over to Aldo. Please, Aldo, go ahead.
Thank you, Giancarlo, and good afternoon to everyone. As usual, I will briefly comment on the main highlights of the periods, while Adalberto will then run you through details of our financial performance.
Let me start. Putting the results in numbers, we are sharing today in the context of a new and unexplored operating environment brought by COVID-19 we have been dealing with since late February. We cannot say that this emergency had no impact at all on our business. However, we can say that our company has been able to react and adapt to the new conditions, protecting, first of all, the safety of our workers, while ensuring the business continuity and the public services of Rai.
Just to give you some color on some of the several measures we have implemented, almost all employees had been able to work remotely from day 1 through VPN and cloud solutions, which proved to be extremely performing.
In terms of networks, operation and control, the monitoring activity has been guaranteed through remote-controlled systems and agile work model.
Finally, the field force. The field force has operated by intervening on-site of this awesome agile marketing work model to ensure compliance in service level and support to our customers for needs related to health emergency. In this respect, my thanks go to our -- all our employees, in particular, to those working on field, who have shown an unparalleled commitment. All these measures that allows us to keep the activities up and running, coupled with the defensive and resilient nature of our business, led to a first quarter 2020 performance, that also from an economic and financial perspective proved to be extremely solid despite the rough down and the economic disruption we are seeing globally since late February.
The financial side from an operational standpoint, as you know, in March, we have defined and approved the strategic guidelines and targets for the next 4 years. And the focus immediately moved to the implementation with activities carried out along the way set by the new -- our new industrial plan. This applies to all the initiatives presented in March, of course, in particular to refarming being the largest project already in the implementation phase.
Here, the precaution measures imposed by the sanitary emergency translates compared to the plan into a more gradual installation throughout this year of new equipment required by the multiplex coverage extension. With this new profile in the first half to be recovered in the second part of the year, should the new rules introduced by the phase, the so called Phase 2 of the emergency be effective for the rest of the year. As a result, also our expectation for the full year 2020 are not materially affected and, therefore, are confirmed, as we will see at the end of our presentation.
And moving to the Slide #5, if you look at the highlights of the period, core revenues reached a EUR 55.6 million, so 1% higher than the first quarter last year, mainly as a result of the rising contribution from new services to Rai and nice loan and announced customer performance, considering the basically flat CPI dynamics during 2019. Adjusted EBITDA came slightly above last year's figure, benefiting from higher revenues, with growth at this level expected to accelerate a little bit in the coming quarters following the higher contribution from new services. Net income was up 2% year-on-year at EUR 16 million.
And on the financial side, CapEx in the first quarter amounted to EUR 8.7 million, so materially higher than last year, with the development component reaching EUR 7.9 million compared to the EUR 1.7 million of 2019, driven mainly by the multiplex coverage extension as part of the refarming project. Maintenance CapEx remained steady at low levels, reflecting, once again, our, let me say, traditional seasonality of the investment activities.
To conclude, the recorded net debt at March 31 amounts to EUR 2.6 million, down from EUR 9.5 million at last year-end with the usual very strong cash conversion of the first quarter at 97.7%.
After that, I hand over to Adalberto to provide you with more details on the main items of our results. Please, Adalberto, the floor is yours.
Thank you, Aldo. Good afternoon to everyone. So if we move to Slide 6, you can see that our core revenues are 1% higher, reaching EUR 55.6 million, with the Rai component growing 1.3%, thanks to the new services up by 50%, excluding the una tantum impact, supported by coverage extension in relation to the TV broadcasting services and in relation to the DAB+. While fixed consideration remained stable at around EUR 45 million due to the flat CPI recorded across 2019, to be precise, 0.1% as of November 2019, that is the reference period for the indexation of the [ CPI ].
On the other end, revenues from third-parties were down 0.8% at EUR 8.2 million, showing the progressively more balanced customer mix with a non-MNO component that confirm the positive trend we commented also in the previous call, with an increase of approximately 3% vis-à-vis the same period of last year.
Moving now to the following slide. On OpEx, overall cost in the first quarter were EUR 22.5 million, meaning an increase of 1% vis-à-vis, the amount recorded in the first quarter 2019, with personnel costs basically stable at EUR 11.9 million and other operating costs up by approximately 2% at EUR 10.5 million, reflecting higher energy price compared to 1 year ago.
Let's give a look to the profit and loss till the net income in the next slide, Slide 8. Our net income stood at EUR 16 million, an increase of 2% from EUR 15.7 million recorded in the first 3 months of 2019. And the growth mainly reflects the already mentioned growth in the revenues. Of course, experienced some profitability with margin revenues that stood at 59.6%, almost 60%. Higher D&A, same trend that we comment for the results of the full year 2019. And this is the result of the rising investment activities that is counterbalanced by lower financial expenses due to the IFRS 16 leasing. And a tax rate that is down at 28.4% compared to 29% in the last, first quarter 2019.
Moving now to the financials. Slide 9. You may see how the EUR 9.5 million of net debt recorded at the end of December 2019 decreased to EUR 2.6 million at the end of March this year, which, besides EBITDA contribution, was mainly driven by the CapEx spending, the cash absorption in working capital due to the temporary buildup of trade receivable, and the payments on the CapEx we had in the last quarter of 2019. On top of the usual tax and cycle dynamics that are the same in all the quarters. So if you deduct the IFRS 16 leasing component accounting for about EUR 40 million, we would come up with a net cash position for around EUR 38 million at the end of the first quarter vis-à-vis about EUR 30 million at the end of 2019. So this is -- basically the change in cash is going to impact approximately the same amount on the change in net debt.
Let's now finish my part with commenting our balance sheet. And you may see our net invested capital that amounted EUR 202.8 million with the equity book value at EUR 200 million. We already commented the net debt figures.
So I will leave the floor to Aldo for the last slide.
Thank you, Adalberto. As far as the guidance is concerned, as anticipated before, based on the operating evidences collected so far and on the information available today, we are in the position to reiterate the outlook for 2020. Indeed, confirming the preliminary indications and feelings already provided in March, we do not see material impact on the broadcasting and hosting services already in place, while the effect on the top line of the smoother and more back-end loaded profile within the year of some development activities, for example, installation of multiplex coverage extensions will be mostly offset by more casual associated OpEx and other cost savings initiatives.
So with that, we continue -- we expect further organic growth of the adjusted EBITDA, maintenance CapEx on core revenues ratio substantially in line with 2019 figures and higher development CapEx that are mainly related to the refarming process. Of course, should the actual evolution of the emergency differ from what is possible today, we will update the outlook accordingly.
So that's all on our side. We will now welcome your questions. Thank you.
[Operator Instructions] The first question is from Giorgio Tavolini of Intermonte.
I was curious to understand if you see any delay on the refarming process coming from the current debate on the compensation policy to local TV broadcasters and with reference to the amendment to the low decree relaunch?
So about the relaunch -- Giorgio, from the -- on the refarming process, so let me remind that we -- there is a guideline in 2022 that is coordinated on -- at European level. And that MNOs are already paying the capability of the bank of the 700 megahertz band by mid-2022. So in May, at the moment, I can see an NDA, if you mean having the more gradual switch to the configuration in order, for example, to reduce the frequencies in any case by 2022. But allowing along a bit of a longer transition to the DVB-T2 basically. On one side, the principle is not impossible but difficult. It's so difficult as it would bring issues in terms of available capacity to accommodate the offer of both national and local broadcasters. I remind that the switch to T2 -- to DVB-T2 allows to almost double the capacity available at each multiplexes. So in a context with a number of multiplex have it. So for this from one side.
From the other side -- on the other side, concerning -- by the way, the agreement signed with Rai in December is, let me say, very well balanced from the -- from that perspective. So -- because as long as number of site's equipment and service levels remain the same and I don't see risk on these metrics, the potential impact in terms of lower revenues and lower CapEx would be overall neutral. So yes, and about the local broadcast, I can see the possibility of a delay that, as I remember, is coordinated by the – at the European level. So I think it could be very difficult to delay that right.
Okay. Just a follow-up, but on the auction for the half MUXs that were belonging to the local TV broadcaster. Is there any, I don't know, schedule or any update on that auction? Because we didn't hear any more about the timing?
No, there -- but before the -- if you remember, before the COVID outbreak, when publication of auction criteria was expected in the first part of the year reduction by the Airbus. We think that, as you may imagine, the activities are experiencing a little blow -- a little bit slowdown for this business.
The next question is from Fabio Pavan of Mediobanca.
You managed to present your strategic plan 2 months ago, we were at the beginning of this -- lockdown of this crisis. So my question is, in these 2 months, we have seen many things. And for what concern, the digital transformation, I think everybody shares the view, there has been strong acceleration. Do you have any thoughts you can share with us on what you see as normal eventually speed up in kind of services and also an opportunity for you to be captured in terms of new business?
Fabio, for sure, what is -- we're carefully giving a look to what's happening and probably there will be also some opportunity on which we can -- we will be able to focus in the next month. So something probably in terms of revenues, but probably the first that seems clear to me, probably, is something more related to the way to work. Clearly, this quarter for us is the first quarter in which the company did a quarterly report, completely working at home is not working. So for sure, looking at one of the pillars of our industrial plan that is the digital transformation. For sure, probably we can see if there is -- if there will be any edge on to boost on this project, basically learning by what's happening in these days. So at this stage, I would limit to this, the opportunity that we see. For sure, we are carefully giving a look to what's happening around us in order to try to take also some opportunities.
The next question is from Stefano Gamberini of Equita.
So 3 questions, if I may. The first regarding the third-parties' revenues, if I'm not wrong, they were down 1%, more or less. Could you give us a little bit more color about the different components of these revenues in terms of MNOs and others? And what is the trend that you're expecting for the coming quarters? The second regarding the buyback, you announced buyback during the business plan presentation. When could we expect that it could start on the market? Because if I'm not wrong, this should also happen in 2020? And the last question, just the typical one regarding an update. If something is moving on or not of a possible deal with EI Towers?
So about -- yes, about your first question related to the third-parties' revenues. So the overall slightly declining trend of third-party revenues is the result of several drivers, in particular, the headwinds related to MNOs and the positive performance of the other third-parties. So a trend that we expect to -- will continue for a while as anticipated also in our industrial plan. On the MNOs, in the future, we will see a mix of more retention-oriented pricing and new services. So new, more competitive and price model for TowerCo customers in order to retain volumes, and then leverage, also, I can say, mainly beyond 2023 on the rollout of 5G, particular in the semi-rural band and rural areas. And that, as you know, is the final part of the national rollout. And at the same time, expanding the offering with services consistent with the 5G network architecture and enable services. For example, a bus with mini data centers on the edge, so on the basis of our towers. So to more configuration, the phasing of the 2 initiatives is different with pricing revision first, retention and then upselling and new services. And that's why we said that revenues will bottom out during the plan period. And second, the consideration, the demand-driven approach on services with the possibility to scale up in case of positive market response. So we prefer to take an overall conservative stance about this. Now I'm going to pass the floor.
Yes, about the buyback, we are awaiting our shareholder meeting. As you will see from the documentation, we will have an authorization from the shareholder meeting, replacing the one that is currently in place. So the proper timing will be after the shareholder meeting and the dividend payment in terms of launch of our potential buyback plan. In terms of consolidation, covering your last question, no update for the time being, of course, what we highlighted in our industrial plan remains, of course, valuable.
The next question is from Antonella Frongillo, Banca IMI.
I have 2 questions. The first one is on the dividend proposal. Since last March, several companies decided to cancel or suspend the dividend proposal, also companies with a strong balance sheet. So I was wondering if you confirm your dividend proposal ahead of the shareholders meeting of -- in June and the second question is on the Board renewal. I have seen that Rai has just published the slates, they look in continuity with the current management team. Is there any comment that you would share with us on that?
So in terms of -- our dividend proposal is confirmed. So clearly, our financials in the first quarter confirms that how strong is our business model. And so we confirm our dividend proposal. And in term of -- as concerned to the second question, for sure, we are happy of the continuity and let's see, we'll be waiting to finalize the proper process that will end with the general -- the shareholder meeting that will be held next June.
[Operator Instructions] Gentlemen, there are no more questions registered at this time.
So thank you. Thank you all, and speak to you soon. Thank you for joining the call.
Thank you all. Bye-bye.
Bye.
Thank you. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.