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 2021 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. Please go ahead, sir.
Thank you, operator. Good afternoon, and thanks to all of you for joining us today. As per tradition, following the more extensive call held just a few weeks ago on the full year results, we will try to keep our presentation relatively short today, dedicating, as usual, the last part to your questions.
So let me hand the call over to Aldo. Please, Aldo, go ahead.
Thank you, Giancarlo, and good afternoon to everyone. As usual, I will start by providing some color on the first quarter performance, while Adalberto will then bring you through the main financial details.
The key message today is that 2021 started broadly in line with our expectations with adjusted EBITDA and profitability growth mainly driven by the rising revenues contribution coming from refarming and strict cost control as we will see more in detail in a while. On the CapEx side, investment remains strong, in particular, thanks to development activities that represents one of the drivers of our future growth. From an operational perspective, in the first quarter, while we continue to work hard on all the important initiatives included in our plan, such as the expansion of the infrastructure portfolio, mainly organically, the introduction of new video distribution services, the digital transformation and so on, I would say that the most relevant updates for today are on the refarming front with some pieces of good news.
Firstly, concerning operations. As you will recall, activities are grouped into 3 major projects. The national multiplex coverage expansion with the number of installation and sites to be increased from the original 400 to 1,000 with the latest T2-ready equipment. And secondly, the upgrading of the equipment installed on the original 400 sites to T2. And the third project is the rollout of the new macro regional UHF T2-ready multiplex with 99% population coverage, basically a replacement of the current multiplex 1.
While on the second and the third project activities are on track in order to roll out the completion by June 2022, the good news is that the coverage extension from 400 to 1,000 sites has also almost been completed with only around 30 sites left, which will be finished shortly. Basically recovering from the more gradual deployment observed in 2020, mainly in the second quarter 2020 due to the restrictions related to the pandemic.
The second piece of good news is on the last regulatory step, meaning the awarding of the remaining national capacity in 4 lots of 0.5 multiplex each. The tender process has been officially started by the Ministry of Economic Development at the end of April when the tender specification were published, with offers to be submitted within 30 days, so by the end of May. The rules regulating the auction and set by AGCOM is already known. And RAI has confirmed its willingness to participate in the auction. And we are now supporting them in the preparation of all tender documents, in particular, on the technical aspects of the network. Considering the time needed by the ministry to evaluate the offer and then to associate the generic right of use of capacity with a specific frequency, it's fair to expect the final awarding within the third quarter 2021, in line with previous indications.
Let me also repeat that although we will not have the final confirmation until the outcome of the auction, our base case remains the one with 3 multiplex managed for RAI at the end of the refarming process. Our base case implies EUR 150 million of total investments and approximately EUR 60 million of incremental yearly revenues expected starting from the 1st July 2021. Moreover, any extra cost potentially arising from a late confirmation and the need to complete the same activities in a shorter time would be reimbursed.
Finally, at the regional level, after the positive outcome already achieved last year in Lombardy and Piedmont, Rai Way has been awarded with local frequencies also in 4 additional areas, Friuli Venezia Giulia, Lazio, Puglia and Basilicata area and in Sicily. For those of you not familiar with the Italian regions, we are talking of a region located in a very rich northeast area, that is Friuli. The region where Rome is located is Lazio. And 2 of the main regions in the south of Italy, Puglia and Sicily, one of which, that is Puglia, where we already have a strong relationship with the main local broadcaster after the acquisition of its infrastructure assets back in 2017.
This shows that we have remained sticky with our selective approach, focusing on the most relevant regions with a compelling risk/reward considering the decent level of expected capacity demand from local broadcasters and the investment required for the network rollout. Including all the frequencies awarded so far, there are only few regions left to be assigned. In total, we will roll out local networks able to cover around 30 million people, always leveraging on our existing infrastructure. Let me also add that this outcome is fully in line with the assumption of our industrial plan. Now before moving to numbers, let me just reaffirm as a result of the performance recorded so far our guidance for the full year 2021, as we will see at the end of the presentation.
And now let's look in more detail at our performance in the first quarter 2021, moving to Slide #5. Starting from core revenues. Core revenues reached EUR 56.5 million, so 1.6% higher than the first quarter last year as a result of higher revenues from RAI, mainly driven by the new services contribution. Then the adjusted EBITDA increased by more than 3% at around EUR 34.2 million, confirming the profitability above 60% for the full year 2020, driven by the higher top line and a slightly lower cost base.
Moving to the bottom line. The net income was up roughly 5% year-on-year at EUR 16.8 million, but benefiting from EUR 1 million one-off tax relief related to COVID-19. Excluding this impact, as already anticipated in our plan, the figures below EBITDA, including net income, are impacted by the rising D&A resulting from the development CapEx, mainly related to refarming, which on the other hand will bring the full benefit of revenues from the second half 2021 as contractually defined and on EBITDA from mid-2022 with the completion of the progressive switchover from the old to the new network.
Development CapEx, that remains, of course, relevant also in the first quarter, amounting to EUR 10.1 million from EUR 7.9 million in 2020. Maintenance CapEx, traditionally low in the first quarter, amounted to EUR 2.9 million, recovering from the lower than usual level recorded in 2020. Then the recorded net debt at March 31 amounts to EUR 37.3 million with the cash conversion that remains very strong, above 90%, despite the more normal level of maintenance CapEx.
And with this, I'll hand over to Adalberto to provide you with details on the main items of our results. Please, Adalberto, the floor is yours.
Thank you, Aldo. Good afternoon to everyone.
So let's go to Slide #6. Core revenues kept growing in the first quarter of the year coming out at EUR 56.5 million, an increase of 1.6% compared to 2020 levels, thanks to the RAI component, up by 2.6%, given the expected rise in contribution from new services at EUR 3.6 million, and despite the fixed consideration marginally impacted by the negative inflation recorded at the end of 2020, and therefore, just a notch below EUR 45 million, as you may see in the blue box. On the other hand, revenues from third parties saw a decrease of 3.9%, reaching EUR 7.9 million, with the negative impact coming from the MNO pressure, only partially balanced by the good performance of the fixed wireless access segment.
Let's move now to Slide #7. Total cost in the first quarter amounted to EUR 22.3 million, a figure broadly in line with the EUR 22.5 million recorded in the same period last year that was, however, only partially impacted by COVID-19 effects, which became instead much more material during the second quarter 2020. Generally speaking, it's fair to say that OpEx are trending back to pre-COVID levels with rising expectation down the road. Coming back to the first quarter, personnel cost stood at EUR 11.9 million, in line with last year figures, while other operating costs were down by 1.4%, reaching EUR 10.4 million, with higher maintenance and higher expenses related to the implementation of new services, mainly the coverage extension, offset by lower energy price and efficiencies on connectivity capacity rent.
Now moving to the profit and loss on Slide 8. All in all, our net income enjoyed a nice 5.2% growth at EUR 16.8 million, mainly reflecting, as we comment, a higher top line, the strong profitability that reached 60.6%, in line with the full year results, but growing vis-a-vis Q1 2020. Higher D&A, of course, impacted by the huge ongoing development investments and a particularly low tax rate at 23.4%, benefiting from the EUR 1 million one-off tax relief related to COVID. For your reference, the tax rate was 28.4% 1 year ago.
Moving now to the cash generation, Slide 9. You can see how the company was basically debt-free at the end of March with EUR 37.3 million, including basically all this amount is due to the IFRS 16 component. While bank loans amount to EUR 15 million with available cash for EUR 14.5 million. I remind you that the company closed the year 2020 with a net debt of EUR 46.1 million, meaning that, as usual, in the first quarter, we had a positive cash generation resulting from the strong EBITDA contribution net of the CapEx spending, EUR 13 million, materially higher vis-a-vis the Q1 2020 figure, including more than EUR 10 million of development CapEx. Then we have lower P&L, profit and loss taxes and the positive impact coming from the net working capital contribution.
That's all on my side. Aldo, please?
Thank you, Adalberto.
Moving now to Slide #10 and to the expectation for 2021. The results of the first quarter allow us to confirm the guidance for the full year already provided. In particular, on the 2 main assumptions, 3 multiplex managed for RAI after the refarming that although the final confirmation will come only after the auction remains our base case. And the second assumption is on the current visibility on the, of course, on the pandemic.
So with this assumption, we expect adjusted EBITDA to be slightly above the 2020 reported level, meaning that when excluding the COVID-related OpEx reduction recorded in 2020 that we expect by far lower in 2021 and a slightly negative CPI. The underlying growth would be more marked and mainly driven by the step-up in RAI contracts, starting from the second half, partially offset by the lower contribution from third parties, in line with the trend and level anticipated in our industrial plan and higher network costs following the coverage extension and before the savings expected in 2022 from the switch off of the multiplex and some minor temporary costs related to the refarming transition. So looking at investment, both development and maintenance CapEx are expected above 2020.
And this is all on our side. So thank you, and let's now open the line for any questions you may have.
[Operator Instructions] The first question is from Stefano Gamberini of Equita.
Three from my side. The first regarding the recovery plan. Could you elaborate a little bit about what could be the potential upside for your company regarding the digitalization funds that will arrive from recovery plan and should already flow by the end of the year? If you have some projects or if you could be involved in some way? The second question regarding the recent deal from EI Towers. They disposed Towertel. So probably now the 2 companies are more similar. And probably, it could be easier to go ahead with consolidation in the sector. What could be the steps that we are still waiting for going ahead? Sorry for this repeated question, but clearly, it's very interesting from our side. The third one, regarding the adjusted EBITDA 2020, could you give us this figure? Could you remind us this figure in order to have a precise point to start for forecasting 2021 EBITDA.
Thank you, Stefano. And starting from your first question about the benefit, potential benefit from the recovery fund, it could be absolutely for us. It could be an opportunity for us as well. We are now working to assess how these funds will be passed on the real economy as a stimulus to demand rather than supply development. And therefore, what impact they will have on our initiatives in terms of increased demand from customers or reduced investment from the other side.
For example, on the current tower rental side, however, an incentive to 5G and fixed wireless access and the consequent faster deployment of these networks will be benefits in terms of volumes with telco customers. For example, accelerating, of course, of the equipment upgrade to 5G. So this from the tower rental side. But the reasoning is even more direct when we look at the new services and the new infrastructure that we intend to introduce. Remember in our industrial plan, such as data center or mini data center, edge data center, which, since we do not have telecom towers represents the way we have identified in our plan to intercept the growth deriving from data, from 5G, from the cloud, and those are all segments that should be most stimulated by the recovery fund.
And your second question is about the disposal of the Towertel. From what we already remember, we already commented in the past call. And the message is, let me say, it's the same. So good monetization of an asset in a market whose structure is rapidly changing. It's hard to define a trigger, but definitely it could be read as a positive considering that the perimeter of the 2 companies is now even more, as you said, aligned and more similar. And about your third question, I give the floor to Adalberto.
As concerned your third question, if my understanding is correct, you asked for some clarification on the 2020 adjusted EBITDA and in particular, on the impact coming from COVID. We didn't disclose a precise impact on the COVID that, as everybody know, is fortunately a positive impact. Probably the best proxy is just to look at the Q2 2020 other OpEx amount. And you will see that vis-a-vis the other second quarter, we have a decrease of above EUR 2 million. And I believe that this is the best proxy to have an idea of the overall impact on our financials.
The next question is from Fabio Pavan of Mediobanca.
Actually, this is a follow-up on the point you were making on the recovery, Aldo. I was wondering if in order to be prepared to capture this demand for cloud and data management, you as a company may consider to put in place already and to accelerate a plan of investment on the data center and cloud business.
Fabio, sorry. You have some problem with the line, and we are not able to understand what you're asking for. Could you kindly try to repeat? I don't know, but there is a strange echo. Please, if you can, just try to repeat the question speaking slowly.
Okay. I will try. Yes. It's just a follow-up on the question on the recovery plan. What I was wondering is, if Rai Way may consider to put in place a plan for CapEx on the cloud and data center, even more in light of new business that may come from this recovery plan, i.e., demand for cloud services and in data center.
Fabio, in reality, it's already part of our plan, exactly what Aldo said before, I mean, not having telco towers. I mean, at least if I got your question correctly, not having telco towers is the way we see. And I mean, through the introduction of this kind of infrastructure and services to play a role and to serve the growth coming from cloud, from 5G and from data growth. Let me say that in our plan, the cloud plays a very important role in at least 3 different initiatives, for sure, edge data center, then hyperscale data center. And then last but not least, I will add also the digital transformation. There is an internal project, but basically is based always on the benefit of a cloud infrastructure. So we are working very hard on all these projects and all these initiatives and the rationale is exactly what you said. And we work, I mean, in this perspective, any benefit or acceleration that the recovery plan might bring.
The next question is from Giorgio Tavolini of Intermonte.
Just a brief follow-up on the revenue trend. I don't know if you have, I don't know, in this quarter, you basically had a very positive performance on the other revenues from MNOs and the fixed wireless access, I suppose. Your competitor today saw an early termination of a hospitality contract with some MNOs. Did you experience similar pressure from MNOs? And I don't know what was the trend, the underlying trend from MNOs, hospitality services in Q1?
So of course, we are seeing pressure from MNOs. And you may see that we had a decrease vis-a-vis last year figures. The trend of the third parties revenues is the result of several drivers. As you may remember from past presentation, the impact is coming from the rationalization effort of our MNO customers that we expect to mitigate through an increase of volumes in the medium term, mainly thanks to 5G upgrade and fixed wireless access player.
Unfortunately, the phasing of the 2 drivers is different as the upselling of new services, 5G, backhauling and so on will start to be effective in the very last part of the plan and beyond 2023. However, the trend and numbers of our third parties revenues, so including also the MNOs, are fully in line with the assumption of our industrial plan. To be clear, we anticipated revenues from third parties to bottom up during the period reaching around EUR 30 million before stabilizing and then starting to recover. And going forward, the headwind from MNO should start to be mitigated by a more balanced client mix. And also the benefit, we will also see the benefit coming from the regional refarming as also Aldo commented at the beginning of our call.
Okay. I was just comparing Q1 2021 with Q4 2020 just because I see that there was an improvement quarter-on-quarter. So I thought there was a rising contribution from the fixed WA more than offsetting the pressure from MNOs.
Nothing material. Pardon me. Probably, I didn't get your question. You were referring to the new services...
The third parties revenues, EUR 7.9 million, is improving on quarter-on-quarter basis. So was that...
Yes. Yes. Sorry, I didn't get it properly. Anyway, the figures had some impact, as you mentioned, and everything is in line with the guidance that we gave to the market and is also consistent with the business plan overall trend that you may know.
[Operator Instructions] Gentlemen, there are no more questions registered at this time.
Okay. Thanks again for joining the call and speak soon and have a good evening. Ciao ciao.
Thank you. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone. Thank you.