Good afternoon, this is the Chorus Call Conference operator. Welcome, and thank you for joining the Rai Way first half 2024 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may seek an operator by pressing Star and zero on their telephone. At this time, I would like to turn the conference over to Andrea Moretti, Head of Investor Relations. Please go ahead, sir.
Thank you, operator. Good afternoon to everybody, and welcome to our first half 2024 results presentation. Today's speakers will be our CEO, Roberto Ceccato, our CFO, Adalberto Pellegrino, and Giancarlo Benucci, our Chief Corporate Development Officer. The presentation will cover results as of the thirtieth of June, 2024, as well as an update about the projects included in, in the industrial plan we presented last March. Let me therefore hand the call over to Mr. Ceccato. Please go ahead, sir.
Thank you, Andrea, and good afternoon to everyone. As usual, I will briefly comment on the main highlights of the period, while immediately after, Adalberto will run you through the details of our financial performance. Economic and financial results for the first half of the year confirmed the trajectory and growth trends observed in the first quarter. Revenues grew once again, mainly driven by CPI, full contribution from broadcast services to regional broadcaster, and a positive dynamics in tower hosting volumes. In particular, the latter segment benefited from the contribution of customer categories such as fixed wireless access and radio broadcasters, also thanks to the extension of private DAB operators coverage.
As for the OpEx trend, apart from the benefit already observed in the first quarter, resulting from higher personnel capitalization, the rationalization efforts on several items more than offset the rising startup cost for diversification initiatives and the absence of the electricity incentives that had characterized the first half of 2023. Overall, therefore, adjusted EBITDA was up 3% in the half year, with an absolute growth recorded in the second quarter, that on an underlying basis has been ever better than in the first one. Capital expenditures were basically in line with last year, consistently with the guidance, while looking at the development component alone, more than 50% was related to diversification projects. I am referring in particular to the completion of the first 5 Edge data centers.
The net financial position stood at EUR 146 million, mainly reflecting recurring cash generation of EUR 64 million, up 3.5% versus 2023, and EUR 86.5 million in dividend payments. Numbers aside, during the presentation of the business plan, we had emphasized the focus we would place on execution. I repeat, the place, the focus on execution, and also we have indicated the priorities. We are trying to keep our promises, and the first seven months have proven particularly intense and fruitful. Starting from one of the key enablers, we have profoundly revamped the Rai Way's organizational structure, on which slide five, if you see, focuses. We create three divisions consistently with the markets in which the company operates media distribution and digital infrastructure, with an increasing focus on the latter items.
The first division, broadcasting and media, includes broadcasting networks, TV and radio, but also CDN and transmission network. The second division, called infrastructure, includes power and real estate. The third division will manage our data center network. In addition, if you see, we have established what we have named operation structure, which include field force at regional level, as well as control, center control and security, let me say cybersecurity, especially centers, and we provide the cross-functional support to all the three divisions. Thus, we have moved from a functional model that was ideal for a mono business, to a divisional model, which we believe is more focused and effective to support an increasing opening to new markets and new customers, and so to create value.
Indeed, the new model identifies specific responsibilities and improve commitment to reach the plan targets, assigning all the relevant levels to the divisional managers. Finally, the reorganization allow internal people to grow and to free up resources to be redeployed in support of diversification. But, please, going back to an overview in the slide 4, let's now turn to the several updates related to the development initiatives. For the strengthening of the traditional business, the main drivers envisaged in a plan are those related to the further extension of the managed network, particularly radio, and the better utilization of existing assets like backbone and land, and the improvement of operational efficiency, also through the optimization of the real estate footprint. On the first point, we are already working on a project for the first station of the DAB network in order to improve coverage of highways and major province.
We are now developing the project and deepening the technical configuration to be shared with RAI, but the initiative at its sites are in line with the assumption of our plan. On the real estate front, we are already actively working of the optimization of the real estate footprint, in all the territory, starting also with the selection of the new headquarters, hopefully to be finalized soon. On the diversification initiatives side, the successful delivery of the first 5 Edge data centers in Milan, Turin, Venice, Genoa, and Florence, took place just in the last few days. Let's have an in-depth look, thanks to the slide 6. The integration of the five facilities met the timeline indicated in the plan, making the first 1.6 MW of IT load ready for commercialization.
As you can also appreciate from the pictures, they are an extremely modern data center, interconnected through Rai Way proprietary backbone, and are so smaller in size. They were built respecting high standard of security and redundancy, meeting the Tier III standard. From the commercial point of view, as you may have seen, we have announced the collaboration with Oracle. Precisely because of the proximity, security, and quality of our assets, Oracle has selected Rai Way as a data center provider to propose to its customers in order to install their edge cloud solution and artificial intelligence services. At the same, at the same time, Rai Way will be able to enrich each colocation offering by making Oracle AI and cloud solution available to customers. So let me say, it's not a sales contract, but it's a collaboration and what we might call a co-marketing agreement.
This demonstrates the appeal of our assets, even for relevant players in the world of cloud services. In addition, this agreement is fully in line with our business strategy, which, as you may recall, included the indirect channels, such as private cloud providers or system integrators, to address the prospects as a corporation and public administration. For the implementation point of view, in the coming months, we will work on the extension of the network with the design of new edge data centers covering central southern Italy. And talking again about the data center, let's not forget the hyperscale project. In relation with the permitting front, the latest contacts with the relevant authorities make us optimistic on the target of getting the final green light within the time frame assumed in the plan, meaning end of this year. We change subject, CDN.
On the CDN-related activities, we are also fully on track at the moment with the functional trials that have started in the recent weeks, and we involved all the major content providers in Italy. The performance test will follow, starting from September. In terms of expectation for the full year, in light of the result and the progress just described, we can only confirm the indication of growth of our adjusted EBITDA compared to 2023, as I will explain more in detail at the end of the presentation. Going now back to the first semester performance, on slide seven, you will find a summary of the main figures. I will skip it, as I've already briefly commented on them, and I will leave the floor to Adalberto, the CFO, for a closer look to results. Please, Adalberto, go ahead.
Thank you, Roberto. As anticipated, the main results are fully in line with our expectation. On slide 8, we discuss revenues. As usual, we are up 1.2%, reaching EUR 137.6 million in the first six months of the year, with both business lines, media distribution and digital infrastructure, on a positive trend. Media distribution segment revenues increased 1.2%, more than CPI, whose contribution was 0.7%, thanks to the full effect of the new regional DTT networks for our regional broadcast customers, as well as some positive impact from new services provided.
Digital infrastructure currently means tower hosting, waiting for upcoming contribution from data center, where revenue—or I'm referring to tower hosting business—generated a growth by 1.1%, which turns into +3% if we scrap non-ordinary effects. The same higher performance can be seen in the overall revenue breakdown that we keep on providing. Third-party revenues register +2.9%. In both cases, the business has been pushed forward by fixed wireless access and radio equipment hosting. Moving to OpEx on slide nine, we have a decrease of cost of 2.7%. Looking closer, our personnel is still impacted by the high level of capitalization that we first recorded in Q1, as we commented.
This effect has been reabsorbed only in a limited way in the second quarter, so it still weighs on the first half figures. Net of it, personnel costs are stable year-on-year. Other operating costs are also down, minus 2.3%, benefiting from rationalization across different lines, such as fiber rental, thanks to the switch to our new proprietary backbone and intercompany service internalization. And then we have some other benefits from other costs, such as travel and lodging, that reduce semester-on-semester. On the other side, energy costs are up vis-a-vis last year, first semester figures. As we can see in the details table, we put on the right side, you may see the chart on the right side of the slide.
The lower raw energy price, EUR 160 per megawatt in 2024, compared to 142 EUR last year. This lower price is more than compensated by the lack of incentive and by an increase in other tariff components. This translates into an average total energy price of EUR 201 per megawatt, vis-a-vis 188 EUR last year. In light of a slight increase in consumption, Rai Way energy costs are up by 6.9%, or EUR 0.4 million in the first six months of the year. Let's now move on the following slide, slide 10, to comment, the other lines of the profit and loss below the adjusted EBITDA.
That, as we have already seen, reached EUR 93.5 million with a 68% margin, 120 basis points above the first half 2023 level. A very notable increase, which reflects on reported EBITDA, too, because we don't have significant one-off components that we recorded last year in relation to HR expenses for EUR 3.6 million. The net financial charges are increasing, respectively, because of our strong investment activity, development investment activity, and the interest rate effects. Also, considering our stable tax rate, we recorded the net income level up by 5.2% from EUR 44.9 million to 47.1. As you know, that's a relevant metric for next year dividend.
Moving to slide 11, let's have a look to the net financial position, including EUR 32.7 million of IFRS leasing. Net debt closed at EUR 146 million, remaining below 1x the adjusted EBITDA generated in the last 12 months. Compared to the end of 2023, net debt only increased by EUR 41.1 million, despite EUR 86 million of dividend payment and EUR 12 million of development CapEx, with cash generation therefore remaining very healthy. Free cash flow to equity stands at a remarkable EUR 64 million over the six months. As per the outlook of the second half of the year, let me turn the floor back to our CEO.
Thanks, Adalberto. Let me now conclude with the expectation for the full year, recapped on slide 12. As anticipated in the opening remarks, considering the results of the first half just presented, we are increasingly comfortable with the growth targets for 2024. Specifically, CPI, full impact of regional refarming and the first contribution from DAB network station driving the growth of adjusted EBITDA compared to 2023. So this growth is limited by the lack of energy tax credits and the new infrastructure cost, but broadly compensated by the reduction of other OpEx. Compared to the first semester, in the second half, the year-on-year growth will be somewhat mitigated by the realignment of personnel capitalization to the last year level, higher delta energy tariff, and rising startup cost of the diversification initiatives.
But it's also true that compared to the very initial expectation, we are seeing further support from some non-recurring factors, such as better level of capitalized personnel or other revenues, and the better cost management performance, despite energy tariffs higher than all the power futures. On the CapEx side, the maintenance CapEx are now expected substantially in line with the previous year, with the reduction compared previous guidance due to slippage of some activities to next year, while the development components is still expected in line with the 2023 level, with the larger majority related to the diversification and other third party or internal project. That's all on our side, and we thank you for your attention, and can now open the line for the Q&A.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Fabio Pavan of Mediobanca.
Yes, good evening, and thank you for taking my question, which is related to the edge data center. You said they are now ready for commercialization. When do you expect to start? Eventually, do you already have managed to have some conversation with potential customers so there is some color you can share with us? Thank you.
Hi, Mr. Pavan. Let me say that the edge data center have just become operational. I think this is an expectation that we confirm with the daily release, just in time as planned. And our choice was to start the actual commercialization only after reaching the availability of the assets, because we would like to be very sure that we have the asset properly functioning, certified, and so on, mainly to provide certainty on timing. We already have some outstanding commercial offers that we have prepared, also through the agreement with Oracle, but not only.
Actually, the first, a small contract has been signed just yesterday, but let's say the commercialization activity starts now, and the goal is also to finalize other indirect partnership in the next months, to create a sort of ecosystems, in particular to address small and medium customer. So we have started.
Thank you.
The next question is from Giorgio Tavolini of Intermonte.
Hi, good evening. Thanks for taking my question. Before doing the question, I mean, I hope your field operation and staff are safe and well after yesterday's fire in central Rome, which happened very close to your headquarters. Regarding the questions on this year DAB guidance, you mentioned no recurring items. So I was wondering if you are referring to startup cost, reversal of personnel capitalization, the absence of energy incentives, and so on. Regarding your business plan assumption on CPI for 2025 to 2026, you assumed 1.5% inflation rate, while the current CPI is steadily running below 1%, so around 0.6%.
I understand you apply the final figure at the end of November, but I wonder if we should consider revising the CPI inflation assumption. The third question is on the first half breakdown within the media distribution revenues, because I didn't see the contribution from regional broadcasting and CDN on top of the RAI contribution. So I was wondering if you can provide the granularity on the detailed breakdown, please. Thank you.
Thanks for,
For the first question, let me answer the fire question. Yes, yesterday was quite a complex day because we were very near to the fire that was in the Monte Mario hill. Let me say that we have a disaster plan, so we moved all the operations and offices in backup situation, and we were able to grant the continuity on the service, and also consider that yesterday there were also some council meetings for the committees, and we were able to move and manage absolutely smoothly all the events without any kind of problem. So we were very happy to manage the situation like yesterday we were able to do.
For the other question, I leave the floor to Adalberto, to the CFO.
So, as concerns your first question on EBITDA guidance, you basically mentioned the main non-recurring impact. On top of the ones you mentioned, we also will have, we expect to have an additional impact from some penalties that will give a help to our growth. As concerns the inflation rate, actually, yesterday the Istat just released the latest figures, and in order to understand which is the impact on our 2025 figures in terms of potential indexation impact, if we see the increase of the Italian CPI vis-à-vis November, that is our key date for the indexation, we have an increase of 1.5.
So typically, figures are commented on a yearly basis. So, if we look not at the yearly figures, but if we look at the increase of the Italian CPI vis-à-vis November, we are in line with our business plan guidance. Last question on media distribution revenues. Actually, the difference between media distribution revenues and, if you look at the chart, the second chart that we include in slide 8, you made a difference with the RAI new services and RAI fixed consideration regarding services, you may obtain the amount of the revenues related to broadcasting regional broadcasting customers that amount EUR 5.8 million in 2020, in the first six months of the year, with an increase of EUR 500,000 vis-à-vis the last semester.
The next question is from Stefano Gamberini of Equita.
Good afternoon, everybody, and thanks for taking my question. I have three of them. The first regarding the hyperscale data center. If I understood correctly, you expect the final authorization by end. That's good news. So could you elaborate a little bit more about what is the procedures for the procurement, when if you already signed the contract or you are close to sign the contract for the construction of the hyperscale data center, and when we could expect that this should be up and running? Clearly, we know what are the target in the business plan, but I would like to have more color of what is the situation about not only the authorization, but all the other steps that you need to have it up and running.
The second, if you can help us a little bit more about the strategy on the edge data center, because if understood correctly, you want to move to small entrepreneurs, so it means that you need a commercial network, or am I wrong about it? And I do not understand why you still need the final technical approval before going ahead with the commercial strategy. Probably, it should start immediately, we can say, the full operation the day after, and also, what are your, we can say, strategy about the growth in the south? So, what is the visibility that you have in the existing five edge data center in order to going ahead with the construction of the new centers in the south?
The third, if you can help us to understand, the situation with EI Towers . I know that, clearly it is not in your hands, but, just, to, to have an idea, if, we could expect, that in September, there should be some novelties starting, from the, green light, or, or, or, sorry, not the green light, but on, on the, appointment of the new, board of directors in RAI, what are, in your view, the following steps in order to, to ahead as soon as possible with the consolidation in the tower business? Many thanks.
Ciao, Stefano, I will take your questions. On the first one, the hyperscale, you are correct. We are optimistic to get the green light, let me say, in line with the timeframe defined in the industrial plan, that is by year-end. I mean, you need to consider that this is a project that when fully deployed, will amount hundreds of millions of euros of investments. And so also the design of a project like this, it's quite expensive. That's why we are basically waiting for the final approval before moving it to the executive design, executive and final project. While obviously in order to get the green light, we have already presented what is called a preliminary design.
So the preliminary design is already there, and we are waiting for the final green light in order to get to move to what is called the executive planning and executive project. Then you can assume a few months, let's say 6 months, in order to have the project and, let me say, the EPC contractor. And then, as we have already said in the past, you can assume 12-18 months in order to have the asset operational, built and operational. When going to your second question on the edge data center, let's try to be very clear on this point in order to avoid misunderstanding. We are not waiting for the commercialization of the assets.
We have waited till now because, as Roberto said, we just wanted to have full visibility on the availability of the asset. Also, because being a newcomer in the sector, we want to, we wanted to preserve a good name and not to offer something that was not there. Now the assets are operational and... Sorry?
Start also the visit.
Yeah, of course, also the prospects have started to visit our data centers, so the commercial activity now is up and running. Then the need to rely also on indirect channels, I mean, it's very simple, because as an infrastructure company, we have, let me say, a sales force, a sales department that is, let me say, relatively limited. We have not commercial sales force distributed on that territory. And when you want to address small and medium enterprises, you also need to rely on indirect channels, like system integrators or private cloud operators. So it's something very common in the sector.
While coming to your last question on the EI Towers , I mean, I'm pretty sure that you monitor the situation very well. The appointment of the new RAI board is underway, and I think it's essential to carry on any discussion. So let's see.
Sorry, may I add, because there was last question about the expansion on the Southern Italy. Consider that, the Southern Italy is a market that, is growing and need more than the northern part of Italy, the presence of, data center of high quality, certified, especially in some regions like Puglia, Campania, and, Sicily. Consider that we are, already defined, for instance, the purchasing of, a field in the center of, the industrial area of Bari, and we are looking for similar situation in a very strategic, position, both in Sicily and, in, Campania. So, we will draft, on this, this move, because, in the, in the panorama, in the national panorama, we are moving in an area that need this kind of infrastructure.
Many thanks. Just a quick follow-up about this strategy, you know, on the edge data center. I understand clearly that you don't have your own sales force, but I would be interested to understand a little bit more how you are moving. What is the level of utilization that you expect by year-end of the existing edge data center and at the end of 2025? And the second, regarding this expansion in the south, the same, how you are moving also in this case on the commercial strategy? And if you can help us to, I don't know, have a, what are your main peers that we can probably follow to understand a little bit better the trend of this market? Thank you.
The impact in 2025 is expected to be limited. We are talking really about a few hundred thousand EUR. As concern the fill factor, this is something that will increase progressively. We do not expect to reach a significant occupancy in 2025. We expect to reach a proper fill factor in 3-4 years, and reaching at run rate level an average occupancy of between 80% and 90%, depending from the data center. This is our plan, and this is consistent with the figures that we disclose in our industrial plan. On the, I don't know if I got your question correctly.
It was the main peers operating in the southern part of Italy on the data centers. Let me say that there are a couple of players, of operators having a national presence, including south of Italy. But let me say, to be honest, that the quality of the data centers that we are deploying is by far higher compared to the quality of the assets, of the already existing assets, that are mainly old telecommunication PoPs that are converted or have residual space for co-location. So a couple of players, but really different asset quality.
Okay, thanks again.
Gentlemen, there are no more questions registered at this time.
Thank you, operator. It's fine. And thank you, all of you, for your participation and consideration, despite a very busy week on the earnings side. We remain available for any follow-up questions, and we wish you a good evening. Goodbye.