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 2022 Results 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 quarter 2022 results presentation. As per tradition, following the extensive call just a few weeks ago on the full year results, today, we will try to keep it relatively short, focusing on a quick financial and operational update and leaving then room for your questions, which we believe will be forthcoming.
Let me, therefore, hand the call over to Aldo Mancino. Please, Aldo, go ahead.
Thank you, Giancarlo, and good afternoon to all of you. As expected, the first quarter of 2022 showed the remarkable growth in line with our expectations with revenues growing by 6%, benefiting from the inflection boost; the contractual step-up relating to the refarming for RAI, which began, as you may remember, in the second half of 2021 and whose impact will also be visible in the second quarter; and then the first contribution still minor from regional refarming, which is due to grow significantly in the coming quarters. Top line growth was sustained by an exceptionally light cost base, the result of operating leverage, cost control and an electricity bill that was still enjoying the fixed price contract that was still in place until the end of March. All in all, EBITDA was up 15.5% with a record margin just under 66%, more than 500 basis points higher than last year.
On the operational side, refarming once again was the main driver of development investment. With -- on the national front, the new network rollout being in line with the road map, Adriatic and Southern regions have been completed, and we are now proceeding with the [ Mediterranean ] ones. On the regional front, the network activation in 6 out of the 7 areas and the achievement of almost full capacity utilization following the commercialization phase, which has resulted as of today in more than 100 customers using our frequencies.
Regarding the new services, the rollout of fiber optic backbone upgrade has started, while the design and procurement phase is continuing in the other projects. Now before moving on to our usual financial highlights, let me reaffirm our confidence following the performance of the first quarter and the current market expectation on the evolution of electricity prices in the guidance for the full year provided last March, to which I will return in a moment and, of course, our full commitment to pursuing the opportunities included in our industrial plan.
On Slide 5, you can see how in the quarter core revenues exceeded EUR 60 million, thanks to the aforementioned effects, while adjusted EBITDA, matching EBITDA in the absence of one-off items, jumped by 15% to EUR 39.5 million, delivering a double-digit growth even at bottom line level, where net income neared EUR 19 million. Investments in the quarter saw a temporary slowdown to EUR 9.2 million, also due to some supply delays that mainly affected maintenance CapEx, already traditional low at the beginning of the year. This has helped net debt, which stood at just under EUR 71 million, down from the year-end closing of around EUR 88 million. And above all, cash conversion, which exceeded 98%.
And with this, I'll hand over to Adalberto to provide you with details on the main items of our results -- financial results. Please, Adalberto, the floor is yours.
Thank you, Aldo, and good afternoon to everyone. So starting from Slide 6. Core revenues show a remarkable growth in the first quarter of the year coming out above EUR 60 million, an increase of 6.5% compared to 2021 level. More specifically, in RAI component, the acceleration in growth, plus 7.9% quarter-on-quarter, enjoyed anticipated contractual step-up related to the refarming and, as you should remember, effective from last -- 1st of July, supported by the positive CPI dynamic as well. The CPI recorded in November that is the relevant value to -- for the indexation of our -- of the majority of our revenue was 3.6%.
To better understand the impact on RAI revenues when comparing the first quarter of 2021 and 2022, revenues from refarming activities and reclassified new services totaling roughly EUR 2.1 million in the first quarter 2021 have been restated in the chart from new services to fixed consideration. As a result, the EUR 50.8 million recorded in the first quarter 2022 should be read against the EUR 47 million in the first quarter 2021.
Let's now spend a few words on the revenues from third parties that show a decrease of 2%, reaching EUR 7.7 million, but if we strip out the impact from the expiration of some lower-margin nonhospitality services, we can read a nice stabilization trend with pressure on MNOs, offset by CPI-link, fixed wireless access dynamic and the initial but promising contribution from regional refarming. That, as a matter of fact, will flow in more materially along the rest of the year, finally reversing the overall trend on third parties revenues.
Let's now go to Slide 7. OpEx, total costs, in the first quarter amounted to EUR 20.6 million, significantly lower vis-à-vis the EUR 22.3 million recorded in the first quarter 2021. On this point, however, I must hold back excessive optimism that may result in unrealistic expectation for the full year, given the record double-digit growth at EBITDA level. Indeed, in the first 3 months, personnel costs, when excluding noncore impacts, remain quite flat. While the record low of EUR 9.4 million in other operating costs benefit from lower electricity consumption year-on-year, electricity prices in the Q1 still locked in -- still locked in at 2021 levels. And last but not least, let me say, above all, the positive impact of the government energy bonds amounting almost EUR 1 million in the first quarter.
I must remind that under the new contract in force since April 1, raw electricity prices will no longer be capped and consequently, we will see a spike in the electricity bill in the coming quarters that in any case, and as already anticipated, we consider absolutely manageable.
Now moving to the profit and loss on the following slide, Slide 8. All in all, our net income enjoy, as Aldo mentioned, a double-digit growth, 11.7%, reaching EUR 18.8 million, mainly reflecting a higher top line; the strong profitability at 65.8%, up by 513 basis points vis-à-vis the first quarter 2021; reflecting also higher D&A following the recent investment activity -- development investment activity; while tax rate is now back to normal levels from the 23.4% recorded in Q1 2021 due to the EUR 1 million one-off tax relief related to COVID in relation to IRAP.
Moving now to the cash generation, Slide 9. You can see how the company consistently with the seasonality where typically the first 3 months of the year record a good cash generation. In these 3 months, our net debt improved from EUR 87.9 million at the end of last year, reaching roughly EUR 71 million at the end of March, a result -- as a result of, among others, strong EBITDA contribution; the unusually light impact of CapEx totaling EUR 9.2 million in the quarter, almost exclusively related to development investment; and then EUR 7.5 million of P&L taxes, resulting all in all, in a record recurring free cash flow of about EUR 28 million.
That's all on my side, Aldo.
Thanks, Adalberto. Moving now to Slide #10. As anticipated in the opening remarks, let me now elaborate on the guidance for the full year 2022, confirming the indications already provided in March. Obviously, and unfortunately, the double-digit growth in adjusted EBITDA recorded in the first quarter will be gradually absorbed over the course of the year, in fact, although the effect of the CPI will continue and the contribution of regional refarming will become increasingly tangible. On the other hand, the comparison will become more challenging, step-up refarming for RAI effective from second half of 2021. And above all, the impact of inflated raw electricity prices will come into play while, as commented before, in the first quarter, we only benefited from the cuts in charges and the reduction in consumption.
As a net effect, all of this, we, therefore, reiterate at the full 2022 level what we have already anticipated, namely in terms of revenues, a mid-single-digit growth, mainly driven by CPI-link; full impact of the step-up related to RAI effective refarming from the second half of 2021 with a benefit of additional around EUR 3.5 million; and third-party regional refarming, drivers that allow us to balance the postponement of some new services for RAI compared to initial expectations and, on the other hand, to reach a turning point for third-party revenues, although through a more shared approach in the definition of stabilization path with MNOs as a mix of discounts and higher volumes at attractive fees.
Adjusted EBITDA is expected to grow further, assuming a progressive normalization of electricity prices. On this specific point, let me recall what was indicated in March. As you remember, assuming a level of unit prices at around EUR 250 per megawatt hour -- per hour, which match the future expected for the remaining 9 months of the year, growth, in any case, limited by the headwind would have come through actions on costs and further government relief measures.
While in case of progressive price reduction, the confidence in growth would have increased, becoming less dependent on actions on costs. And conversely, in a scenario with further prices increases, growth in 2022 would have been less likely, but the headwind mitigated over time by -- first by CPI-link or revenue applied at the beginning of this year; secondly, progressive reduction in consumption and the possibility to temporary act on other cost items.
So now what is the situation today after about 2 months? In terms of price trends, the average unit price paid in April was around EUR 250 megawatt per hour. And future forthcoming months, although still volatile, unfortunately, are at slightly higher levels. At the same time, the government has extended also for the second quarter 2022 the additional relief measures approved in December for the first quarter. And it is reasonable to expect further [indiscernible] prices return to more rational levels. So the company has already either identified some cost areas to act temporarily on in order to contain the FX.
But bottom line, we are still within the base scenario that should allow us to guarantee a slight growth of our adjusted EBITDA compared to 2021, even under these conditions. Moreover, in terms of further perspective recovery, I would point out that the CPI accrued in April compared to November, which will impact 2023 revenues, is equal about 4%, of which 1.5% derives from the energy component.
And lastly, at investment level guidance, maintenance CapEx is expected to be in line with Industrial Plan values, therefore, slightly higher than the recurring value of around 6% of revenues that we expect post network upgrades. And about development CapEx, is seen -- development CapEx is seen in line with or slightly higher than 2021 values with the completion of refarming activities and the growing portion related to the implementation of new services.
That's all on our side. We can now open the line for the Q&A session. Thank you.
[Operator Instructions] The first question is from Fabio Pavan of Mediobanca.
Just one on my side. I was wondering if there is any update on DPCM and the potential sector consolidation that you can share with us.
About consolidation, since the last touch point in March, a few things have actually happened with regard to possible sector consolidation. The DPCM published in the official gazette -- journal, so the -- namely the Gazzetta Ufficiale, for non-Italians, the Prime Ministry Decree which, at the time of the full year results, so last March, was just a press rumor. After that, the hearing of the Ministry of Economic Development at RAI Supervisory Committee and the note of the Ministry of Finance at the same committee, which demonstrate a certain support of the government towards industrial deals to strengthen the value of our -- and the positioning of our company, of Rai Way.
To that, the recent hearing of RAI's CEO, again, at the same supervisory -- RAI Supervisory Committee, where he commented the DPCM as a measure that provides RAI with flexibility to support potential industrial operation to enhance the value of our company, of Rai Way, consistently with our Industrial Plan and not simply a way to extract cash, pointing out that the different options will be assessed in the context of the new RAI Industrial Plan currently under development and anticipating the upcoming selection of financial adviser to support RAI in this assessment.
So based on these events that I just -- to summarize, I am confident that condition are being created to discuss solution to meet the requirement of all parties, of course, the requirement of -- firstly, the requirement of the government, which are set out in the DPCM with the retention of 30% in the hands of RAI, the preservation of RAI and public control of the infrastructure and the confirmation of the listing of the company; and of course, the requirement of all shareholders. And the governance of the combined entity will likely be the key also with reference to antitrust topics. But this is -- let me say, that is a topic which belongs mainly to shareholders and not to Rai Way.
But as the operating company that knows very well the sector, the operational and the regulatory -- all regulatory aspects and has analyzed this opportunity over time from -- also from different perspectives, we are certainly proactive in supporting the discussion and [indiscernible] us our ideas. But since governance will be a key point, we cannot, of course, bypass or disregard the shareholder engagement.
[Operator Instructions] The next question is from Giorgio Tavolini of Intermonte.
I was wondering if you could provide us a more granular update on the key issues with the antitrust in the event of a combination with Rai Way -- between Rai Way and EI Towers. In particular, I was wondering if you could clarify the main obstacles regarding the horizontal and vertical integration because I didn't actually understand completely what are the real missing conditions to proceed with this sort of combination. And in particular, I was wondering if you could clarify also the structure in the sense -- if it's, I don't know, the current structure of RAI controlling the infrastructure of the combined entity, if it's in -- if in the future could be an obstacle for the antitrust issues since EI Towers would bring competitors of RAI hosted on the infrastructure of the combined entity. So it was just to clarify what are the main missing points more in detail.
So I start from the -- from your first question about antitrust issues. Antitrust issues are largely known because the sector, as all of you know has been investigated several times by the Italian -- the authority, the AGCM, in recent years, last time for the Persidera transaction. So there are 2 different aspects. On horizontal integration, I think that the international experiences of a single operator should offer, in my opinion, a good benchmark. And the aspect about the vertical -- on the vertical perspective, it's clear that the reducing the influence of vertical-integrated players would help. This is for sure. But remedies, I think, could be -- can be varied. So the important thing would be to evaluate these remedies and they do not -- that they do not jeopardize industrial and financial rationale and the value creation of a potential deal.
And about the second part of your question is -- I tried to elaborate something for -- but the decree requires RAI to keep at least 30%, and so a level that already applied to other, as you know, public infra companies to preserve the ownership of the asset. And the -- and keeping the control of the infrastructure in order to guarantee this is the continuity of the public services -- service we are providing -- that we are providing. So for example, one could potentially imaging governance solutions that preserve the ownership and the control of the infrastructure also with 30% of stake, giving at the same time, comfort to the regulator as reducing the influence of vertical-integrated players on operating activities and access to infrastructure. So you say -- [ OpEx ] are also other types of remedies, of course. So this -- I think this is -- could be enough, yes.
Okay. Just a follow-up for the 2 different master service agreement. Do you see any -- let's say, any problem related to the different time frames of both master service agreement of EI Towers and Rai Way and also on the fact that EI Towers doesn't have the ownership of the active equipment?
No, we don't see here any issue. Let me also say that theoretically, we could also imagine some alignment in the context of a negotiation. But here, clear -- to be clear, I don't see any issue. Anything could be managed.
Gentlemen, there are no more questions registered at this time.
Okay. Thank you, operator, and thank you for all of you, and speak soon. Bye-bye.