U.S. markets closed

Edited Transcript of RWAY.MI earnings conference call or presentation 13-Mar-20 10:00am GMT

Full Year 2019 Rai Way SpA Earnings Call

ROMA Apr 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Rai Way SpA earnings conference call or presentation Friday, March 13, 2020 at 10:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Adalberto Pellegrino

Rai Way S.p.A. - CFO

* Aldo Mancino

Rai Way S.p.A. - CEO, MD & Director

* Giancarlo Benucci

Rai Way S.p.A. - Head of IR

================================================================================

Conference Call Participants

================================================================================

* Antonella Frongillo

Banca IMI SpA, Research Division - Research Analyst

* Fabio Pavan

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* Giorgio Tavolini

Intermonte SIM S.p.A., Research Division - Research Analyst

* Stefano Gamberini

Equita SIM S.p.A., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. This is the chorus call conference operator. Welcome, and thank you for joining the Rai Way Full Year 2019 Results Analyst Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Giancarlo Benucci, Head of Corporate Development and Investor Relations. Please go ahead, sir.

--------------------------------------------------------------------------------

Giancarlo Benucci, Rai Way S.p.A. - Head of IR [2]

--------------------------------------------------------------------------------

Thank you, operator, and good morning. Let me start thanking all of you for joining us today. We really appreciate it. In these days, the situation in Italy and around the globe is not easy. It's a situation that is directly affecting our life. So first, we sincerely hope that you and your families are all fine. As you know, with this call, we guide you through not only the 2019 results, but also our new industrial plan.

Let me then draw your attention on Page 2 of the presentation to anticipate as part of the disclaimer that the scenarios and targets we are sharing do not include any impact on the general economy and on our company from the emergency caused by the COVID-19, as its duration, intensity and also the effectiveness of the containment measures are still uncertain. So it's really too early to quantify. I really apologize for this dry disclaimer, but it's a technical requirement.

Let me now leave the floor to the CEO. Please, Aldo, go ahead.

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [3]

--------------------------------------------------------------------------------

First of all, thank you, and welcome -- a warm welcome to everyone also from my side. First of all, I sincerely join Giancarlo in thanking you all for being here today and wishing a rapid return to normality and to our usual habits.

As the company in charge of delivering the signal of the television public services to entire Italian population, we feel our responsibility as civil servant even stronger today. For this growth perspective, apart from any possible inconvenience should we have given that our team is physically divided between (inaudible) me and Adalberto and me and Giancarlo, and we apologize in advance for that. As you know, today, we are also sharing our new industrial plan, our business plan.

Unfortunately, we were forced to postpone to better days any kind of presentation in person, be it market day or roadshow. But in the meantime, we really hope that this call will prove to be as much as comprehensive as possible. The agenda is therefore very busy. So as tradition requires, let's start straight away with a brief overview of the positive 2019 results, moving to today's main dish, the 2023 Industrial Plan, that we are extremely pleased to share with you today.

Let's then start with Slide #5 to introduce what has been the fifth year in a row of uninterrupted growth on all economic and financial metrics, growth that allowed us to even exceed the majority of the targets of the 2015-2019 Industrial Plan. In particular, I would like to highlight the strong performance in terms of the recurring cash generation that we consider a key metric from an operational perspective, also considering that this result have been achieved more than offsetting some headwinds from a weaker than assumed dynamic -- inflection dynamics of the CPI and more competitive -- and much more competitive in MNO (inaudible) market and the fact that some of the Rai new services has now been included under refarming agreement.

Said that, and moving to 2019 results. In a nutshell, the year has been no doubt the year of the agreement with RAI on refarming process, which we finalized back in December, providing a full derisking such a complex technological process, considering the high visibility on revenues and cash flow granted by the economic terms and the renewal of the contract until 2028.

On top of this, financial results came fully in line with our expectations, with the highest ever cash flow generation already highlighted and the further improvements at both EBITDA and net income level, which are up 6.4% compared to 2018. At the same time, we started to deploy a sizable amount of development CapEx that will support future growth and decided to propose to our Annual General Meeting the distribution of a EUR 0.2329 divided for 2019 -- dividend for 2019, equal to 100% payout ratio and a 5.7% dividend yield based on last closing price. Last point, our guidance for a positive 2020 reflects the initial contribution from new growth initiatives, driving further EBITDA improvement.

Slide #7. Before leaving the floor to Adalberto to comment, as usual, the main effects on our P&L and cash flow, let me just point out the main financial highlights of 2019, bearing in mind that for just -- for adjusted EBITDA, net income and cash conversion, we use for comparison purposes, the 2018 figures restated to factor in the impact of IFRS 16.

Core revenues, which are not affected by IFRS 16, reached EUR 221.4 million, 1.7% higher than 2018 ones, mainly driven by CPI and new services on RAI side and with the third-party component, pretty in line with the previous year figure. Then the adjusted EBITDA increased by around 2% -- 2.7% to EUR 131.2 million, with profitability above 60% post-IFRS 16.

Moving to the bottom line. The net income was 6.4% year-on-year to EUR 63.4 million, while on financial side, CapEx, CapEx in the full year exceeded EUR 35 million, above last year's level, thanks to higher development activities driven by preparatory activities for refarming that sum up EUR 17.2 million. Then the recording net financial position at December 31 amounts to less than EUR 10 million. But excluding the leasing component, we ended 2019 with a positive cash position in our balance sheet for around EUR 30 million. Finally, cash conversion remained strong across the year at more than 85%.

Please Adalberto, you can go on.

--------------------------------------------------------------------------------

Adalberto Pellegrino, Rai Way S.p.A. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Aldo, and good morning to everybody also from my side. Let's start, as usual, with the top line, with core revenues overall growing by 1.7% to EUR 221.4 million in 2019. In particular, as you may see, revenues from RAI were up 1.9% as a result of the 1.4% CPI, bringing the fixed contribution slightly above EUR 180 million, and a higher contribution for approximately EUR 1 million on new services for RAI coming from the extension of DAB+ network, as we already talked about in the previous call and other new services offered to RAI.

Revenues from customers, other than RAI, were basically in line with 2018 figures, reflecting, again, the good performance on transmission and hosting services offered to FWA (sic) [FWAP], broadcaster and corporate customers to offset the pressure from MNO.

Following slide, the OpEx, you find both the 2019 reported figure. And as usual, the pro forma ones. So having this pro forma figure in mind, the cost base increased by 1.1% in the full year, totaling EUR 91.1 million. Personnel costs were broadly stable. On the other operating cost side, if you exclude noncore items, the figure increased by 1.5% vis-à-vis 2018 pro forma values. If you look at the last quarter, stand-alone, the comparison is impacted by the low level reported in Q4 2018, as I already highlighted in our call in November.

Slide 10. Let me here just underline the good performance at net income level reaching, as Aldo mentioned, EUR 63.4 million at the end of 2019. And let me recall that when we did IPO of the company, net result was EUR 33.4 million. So this means that today, we almost doubled this amount, something really remarkable. Last comment on tax rate, which stood at almost 29% for the full year, slightly higher than 2018, which was actually positively impacted by a one-off impact on deferred taxes.

Following slide. In terms of financial implications, I remind you that we ended 2018 with a positive net cash position of EUR 16.6 million. Cash flow generation before dividend payment was strong as usual in 2019, with cash generation at EUR 74 million. And even considering the dividend payment, our cash balance increased, reaching more than EUR 30 million at the end of 2019. Taking into account the IFRS 16 leasing liabilities for approximately EUR 40 million, net debt amounts EUR 9.5 million. Let me just drive your attention on the CapEx amount, above EUR 35 million and materially higher vis-à-vis 2018 figures because of the increase in the amount of the development CapEx that will assure future growth.

Slide -- following slide, dividend proposal. I will end with the proposal to the Annual General Meeting, the dividend proposal that will amount to EUR 0.2329 per share, meaning 100% payout of our net income, with an implicit dividend yield of 5.7%. If you look at the progression in dividends paid since our IPO, the total amount distributed to our shareholders is around EUR 293 million in 6 years, equal to 36% of the company initial market cap, a figure that we deem significant. And now it's time for the 2020 guidance, for which I hand the floor back to Aldo. Please Aldo.

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [5]

--------------------------------------------------------------------------------

Thank you. Thanks, Adalberto. And now we come to the guidance. Guidance, that -- as anticipated, does not incorporate at the moment the impact from COVID-19 that in our case should, however, be fairly limited, considering the resiliency and protection of our business.

Said that, we expect adjusted EBITDA to keep growing on an organic basis as a result of revenue growth, supported by rising contribution from refarming activities and a slight increase in operating cost related to implementation of new services that will bring benefits in following years.

Just to give you the example of refarming. At this stage, the multiplex coverage extensions will bring additional installation at energy cost and new equipment are on the top of the existing ones. Then obviously, once all the refarming activities will be completed and the old and less efficient equipment switched off, the revenues will flow almost entirely to EBITDA as already guided.

Same applies also to other initiatives of the new plan with 2020 characterized by start-up costs, but no or limited top line contribution. About the maintenance CapEx, on core revenue, substantially in line with 2019 figure with on the other hand, rising development CapEx mainly related to progression of refarming activities.

And so now -- let's now move to the industrial plan that will keep us, let me say, extremely busy for the next 4 years until 2023. Before starting, let me just remark as already evident from the first part of our presentation of today, the effort made in the last years to put our company in the best shape -- possible shape to undertake the next and fundamental step of growth that we have symbolically summarized into the slogan broadening horizons, meaning a further evolution of Rai Way as it clearly emerges from the strategic goals I will illustrate now in a moment.

I will then share the floor with Adalberto and with Giancarlo to provide more color on the main initiatives and the related financial details. After that, we will, of course, more than happy to answer your questions.

So proceeding by order, we have identified 3 main pillars to ground the strategic development of our company up to 2023. On one side, strengthening the core business. And on the other, the willingness and commitment to expand the managed infrastructure without seizing to actively cover the main optionalities for innovative uses of the current assets.

In particular, starting from the strengthening of our core business. What does it mean? This means in media segment, not only leveraging on the opportunities although very material related to our traditional broadcasting platform, like the refarming for digital terrestrial television or the extension of the DAB network, both for RAI and for third parties, but also involving into broadband platform, being IP or 5G base, developing networks and services for the contribution and distribution of content. These focus on widening, I say, I would say, complementing our offer for the media sector, follows the trend related to the evolution of consumer habits and the content fruition on which we will elaborate in a while. And aims also at improving our long-term positioning in the industry.

Regarding the other -- our goal, other pillar, the tower hosting business. On one side, we will continue with our strong and rewarding commercial activity that is bearing fruit with no telco customers. But on the other, we have to react to the greater competitiveness of the sector in respect of certain specific clients and namely the MNOs.

In response of it, we need to evolve the value proposition for these specific customers, protecting the overall balance of third-party segment. And this will happen through a mix of -- from one side, a higher volume and wider range of services, mainly leveraging on the opportunities offered by the 5G network's architecture, in terms of rural coverage, backhauling capacity, densification and local computing needs. And at the same time, accepting more competitive pricing on the replaceable portion of our assets, but in exchange of longer duration of the contract.

Regarding the core business, finally, we confirm our effort in pursuing operational excellence and efficiency. Considering, as you know, the exceptional results we already achieved in the recent years, we have been forced, but also happy to adopt more and more disruptive approach linked to the evolution -- to the digital evolution of operating and organizational model. This will translate not only into savings, but also, perhaps more importantly, into innovative management and control of the assets, a leaner business processes, for example, to the introduction of a new CRM platform.

Second goal, expansion of the managed infrastructure by external lines. What does it mean? We mean, a concrete commitment to pursue this growth path as an essential part of our capital allocation strategy, mainly in response to the willingness to enhance diversification, step up the size, scale that following the consolidation wave in the industry have become an important competitive factor have reached operational and financial synergies. More, the identification of possible areas of expansion will reflect the desire to maintain a predominant infrastructural footprint, consistent with the company's know-how, strengthening at the same time our growth profile through the achievement of industrial synergies and/or the great exposure to rapidly developing markets.

In addition to this, we will continue to actively cover and address new uses of our current infrastructure, meaning services and technologies that are still not mature, but that we consider credible options and presenting a good fit with the distinctive features of our assets, for example, in terms of coverage, site and available spaces. Now before going into the details of each initiative, let me outline our capital allocation strategy and the related financial implication, in particular, on 2 key metrics, cash generation from one side and shareholder remuneration.

As you can see from the slide, the plan envisage development initiatives for over EUR 200 million accumulated in 4 years period that, however, are expected to bring an increased recurring cash flow of more than 25% compared to the current values, basically approaching EUR 100 million per year, thanks to revenue growth improved by -- improved margins by more than 300 basis points and the further sustainable reduction in the CapEx -- in the maintenance CapEx level.

On the shareholder remuneration side, we have had the distribution of about 25% of the current market cap over the period of the plan through dividends and buybacks, at least to take advantage from some valuation becoming that our stock suffers from time to time. And then Adalberto will better elaborate on this later. And this is hopefully one component of the value creation for shareholders, with the remainder entrusted to the potential benefits of external growth, enabled by a leverage that organically will remain at around 1x net debt-to-EBITDA even after investment and distribution indicated above.

Now before driving you to the specific initiatives of the plan, let me give you a bit of color on the environment we operate in, meaning the expected evolution of our reference sectors that I'm sure you are familiar with. Moving to start number -- Slide #18, starting with the media sector, if broadcasting is undergoing a major reorganization, both on technological and in terms of multiple structure, due to the well-known refarming process, the evolution of viewers' consumption habits are leading to the fast uptake of the over the top platforms, on which we will focus in a while. At the same time, the media production change -- the media production chain is experiencing significant upgrades, both in terms of quality, for example, the 4 key contents and technology of contribution with an increased use of the broadband network. Today, mostly IP and tomorrow also 5G.

In the telco environment, the progressive rollout of new generation networks, both fixed fiber and mobile 5G is coupled with operators returns that in the last few years have been under a bit pressure. This pushes the same players on one side, to partnership and sharing agreement in order to avoid network duplication and reduce the employed capital. And on the other, to develop an ecosystem of new services that will help to better monetize the investments. Moreover, many of these new services, specific IoT verticals, have strict requirements in telco bandwidth, latency and thus local computing.

Finally, in the tower area, we are observing the progressive spin-off of captive assets, with consolidation seen as a natural strategy for value creation and monetization. At the same time, the role of TowerCo is also evolving from pure hosting providers, basically real estate players, to a sort of service providers, offering also the active equipment and technology or network providers expanding in adjacent infrastructures.

All these market developments lead, of course, to opportunities for a way I have already anticipated in terms of traditional network upgrade, introduction of new media and telco services and infrastructural expansion and that are addressed by initiatives included in our plan.

But before going through these initiatives, let me just elaborate on the evolution of the consumer habits and the implications in terms of platform rebalancing today and in the longer term. Slide #19, the market evidence, you can see a recap in this slide, the market evidence, and you can find also all the details in this slide in the appendix, confirms so far 2 unquestionable facts. Video content consumption is steadily increasing, with growth driven by modes of consumption, on demand and through mobile device, in particular, by the new generation, which are not digital terrestrial television based. However, if you look at the linear TV, of course, digital terrestrial television is based on linear TV, it remains, by far, the reference mode continuing to represent in Italy according to various statistics more than 80% of viewing hours, with a little pending rebalancing curve that is protected by factors like strong and substantially stable audience, confirming the DTT and -- as the medium with higher reach, and this despite increasing broadband coverage and OTT subscription takeup.

Secondly, 85% of broadcasters' advertising collection coming from traditional platform that consequently cannot be abundant. And then peculiarity of the Italian market that is mostly free-to-air market. Just to give you an idea, consider that free-to-air is the most widely used platform in more than 70% of households, basically the opposite compared to United States or U.K., basically making the market less attractable by OTT platform, which, in any case, involve the costs for the platform or -- and/or the broadband subscription.

So said that, on the current picture, the questions would be, what should we expect for the future? Is the rebalancing of consumption between platform expected to continue? We say, yes, let me say with no complete substitution, but reaching a balance with the coexistence of platform and a hybrid approach based on the polarization between modes of fruition and type of content.

In particular, with respect of the 2 drivers mentioned before, mobility and on demand, evidence suggest, and again, I invite you to take a look at the attached material, suggests that the TV set, when available, remains the preferred device compared to mobiles, and linear and on-demand consumption will be complementary with on-demand focus on nonlive or deferrable content, mainly TV series or movies, while linear TV remains the reference mode for nondeferrable live events addressed to a wide audience, such as entertainment, sports, news. So given that linear TV will then continue to survive, the question is, what is the most efficient solution for linear content distribution? Well, in terms of cost and spectrum, broadcast of digital terrestrial television remains the most efficient solution to distribute the offer of traditional broadcasters. In different words, transferring the offer of nondeferrable linear content of a traditional broadcaster, currently, the digital terrestrial television entirely non IT platform could entail prohibitive cost for both broadcaster on the basis of a consumer pricing model in terms of strengthening the backbone. And this efficient approach of broadcast broadband mix is also consistent with the rationale behind the concept of 5G broadcasting architecture that is indeed, as you will see later on, part of our optionalities, we monitor as a potential future uses of our infrastructure.

Finally, let me also remind the coverage obligation that the public service must comply with that are not easy to be managed through IP. As in this respect, you need to consider the penetration and not only the coverage.

So to conclude this balance between broadcast and broadband platform to catch the advantage for -- of both, meaning the large coverage and the audience of broadcast multicast mode, combined with the flexibility and personalization of broadcast unicast translates also into balance, if not promising, long-term prospects of our company, thanks to the complementary services we will offer on the new platforms, plus the potential activities related to the upgrade of network, for instance, with 5G broadcasting. Sorry to stress this point, but it's the strength of our business model as clearly proven by the refarming.

Well, let's now leave the floor to Giancarlo to drive you through each specific initiatives. Giancarlo, the floor is yours.

--------------------------------------------------------------------------------

Giancarlo Benucci, Rai Way S.p.A. - Head of IR [6]

--------------------------------------------------------------------------------

Thank you, Aldo. And moving now to the review of the key initiatives. On the core business, we identified 3 main areas of activities, and I'm referring to Slide 21. One, focused on the services for media clients, the second on protection of the tower business and then the effectiveness and efficiency of internal processes and organizational model through the digital transformation, a transformation that will be also key to grow new digital skills that together with an asset connectivity to be made available, both at site and for our backbone, represents the enabling factors of the plan to expand the offering also on new services and platforms.

Now starting from the media segment, and moving to Slide 22. Not only we will continue to upgrade and expand for both RAI and third parties, the traditional TV and radio broadcasting networks, namely the refarming and the DAB+, and let me say that we are talking of a relevant amount of activities for size and remuneration. But we are also expanding our video services or new platforms in terms of distribution of content also on OTT and IP platforms through the implementation of a local content delivery network and the extension of our transmission and contribution services with more flexible solution using, again, broadband solutions like IP or 5G.

Moving to Slide 23. On the traditional broadcasting platforms, RAI, we continue, of course, [to pay] our main customer in the coming years. The focus will be on the technical implementation of the key refarming process following the well-known agreement recently signed with RAI.

Here on the left side of the slide, you can find just a recap on the evolution of the network configuration and the related activities in terms of development of new UHF DVB-T2 macro regionalized multiplex and coverage extension and T2 upgrade for the national MUXes, bearing in mind, there's still pending tender for the allocation of the residual transmission capacity that will define the final sector structure.

On the value side, DAB coverage expansion is expected to proceed at fast pace, with the goal to reach at least 75% of population coverage. Lastly, satellite broadcasting services will be upgraded as well, with the configuration of transponders and head-end that will allow end users to receive new channels even in ultra HD on the DTH platform.

Coming back to the DTT refarming and moving to Slide 24, this process will impact not only the national broadcasters and RAI, but local TV as well, with the expected release of all the frequencies currently used by local operators, deal awarding through tenders of 2 multiplexes for the diffusion of local TV content to network operators and the selection through beauty contest of the local content providers that will have access to the transmission capacity. As you probably remember, so far, our approach to the local TV has been extremely cautious and selective.

The new configuration could now make this market slightly more sustainable, avoiding network duplication and providing affordable prices for capacity, although with considerable differences from region to region in terms of attractiveness. In this respect, our selective approach will continue with the prioritization of geographical areas based on market size and risk.

Moving now to the broadband platforms. You find on Slide 25 a focus on the content delivery networks, also known as CDN. For those not familiar with this IP-based technology, CDN is a system of connected servers used to distribute multimedia content such as video-on-demand or live streaming to IP platforms that basically storing and making this content available closer to the end user, reduce the congestion of the telecom network, improve the throughput and latency and therefore the quality of services and quality of experience for final user, 2 issues that are key for content service providers. To make it simple, it's a mix of technology platform and connectivity. The importance and the demand for these services and products is expected to increase following the rise in video traffic and video quality. Today, only the big OTT players have an internally-owned CDN, while traditional broadcasters usually use a multi-CDN approach, relying on external providers, being mainly operators managing global CDN or telco. Rai Way will start to roll out its local carrier-neutral CDN, with local meaning drastic, but with better capillarity of the service on the national territory, basically ensuring high performance. And with carrier neutral, meaning reaching all end users regardless the Internet service provider used.

It's a project involving several actors, to be honest, but we can leverage on our assets, the IP backbone on our unique video expertise on the strong relationship with broadcasters and on what volume a valid value proposition. Together with the content distribution, the evolution of broadband network also influences the transmission services, meaning the point-to-point contribution of content.

Currently, this transmission services are mainly based on satellite radio link, that in our case, complement an IP-based contribution network, the Rai Way contribution network, but with sort of limited flexibility. The evolution of these services, integrating EP and mobile interconnection and, of course, platforms, enables better flexibility, transmission of high-quality content and remote production. A good example of a concrete application is the Wi-Fi hotspot that we implemented, we already implemented for the Olympic Stadium in Rome, where our fiber-based contribution network has been connected to several Wi-Fi hotspots, allowing for a wireless coverage of the stadium, the use of wireless backpack camera and the possibility for the operator to autonomously start the live transmission and it also worked very well.

After having outlined the major initiatives in the media broadcasting sector, I would now like to illustrate how we want to protect our hosting business, in particular, for nonmedia customers, so please move to Slide 27. As you know, over the last few years, we have been experiencing 2 opposite drivers: solid growth from non-MNO customers, namely (inaudible) value broadcaster, fixed wireless and corporates, a trend that we expect to confirm going forward; and pressure from MNO segment. Here, we will work on 2 different, but strictly connected levers, more oriented -- retention-oriented value proposition and volumes.

Starting from volumes, let me say that once the value proposition is okay and we manage to retain telco customers on our towers, volumes that, again, excluding the MNOs are, by the way, already growing, volumes will improve, mainly driven by 5G rollout and this likely also beyond 2023 and 4G coverage completion and fixed wireless access, a technology that is progressively growing the interest not only of the specific fixed wireless players, but also of traditional fixed telco players for coverage of rural area.

On the value proposition, very simple, we need to have a more competitive offer for the portion of our sites competing with alternative towers. This means, first of all, no doubt, better pricing than widening the services -- the service offering beyond the pure hospitality, basically to give existing customers a second reason on top of pricing to stay, to cover -- to recover the price point and to attract new customers. In this perspective, the new 5G network architecture and the growing requirements in terms of bandwidth, latency and local computing of many of the new services enabled by the same 5G offer us a very nice opportunity or even better opportunities.

First of all, fiber by calling. Fiber by calling becomes relevant, in particular, for the less rural sites in our portfolios, and they mean relevant as a stand-alone service but even more considering the fiber to the towers enables also additional services and brings potential synergies with the broadcast distribution network. For example, in terms of replacement of radio link.

Then the so-called DAS, the Distributed Antenna System, to be honest, it's quite unrealistic for TowerCo with no MNO [customers] like us to get a request for a DAS from an MNO, as of course, they will use their own infrastructure provider, but we can try to get it from the other way around, dealing directly with venue owners of point of interest near our towers, possibly for venues with video intensive events, where we can leverage on existing relationship with owners and also try to offer additional services.

Then edge data center or better tower edge data center, as you can see on Slide 28, meaning in very simple words, small distributed data centers located at the edge of the network therefore also towers devoted to the hosting of equipment for data storage and processing that bringing computational capacity closer to the end user's device reduce latency and avoid less saturation of the telco backbone. Basically, we are talking of a colocation infrastructure, so space equipped with [RAC] conditioning and connectivity located in the tower sites, addressing the growing edge computing market for low latent application as well as the network utilization of the MNOs. That is, let me say, key for the 5G networks.

Some of our towers offer very good fit in terms of high coverage, provided available space and of course MNOs present. We will start to deploy some market tests, basically covering the main Italian districts with the potential and, of course, willingness to increase the number of edge sites, should market reaction be positive, a kind of flexibility and approach that applies also to the other services, like the fiber by calling or the DAS.

That's all from my side on the initiatives. So thank you for your attention, and I now hand the line over back to Aldo.

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [7]

--------------------------------------------------------------------------------

Thank you, Giancarlo. After the reviewing of the offering and commercial side, to strengthen our core business, we cannot say to take the opportunity representing by the so-called digital transformation, providing our company with a future-proof operating model. We have already started this important journey during 2019. That journey will impact skills, processes and tools at all levels of our organization. The planned activities are really many. And just to name a few, until 2023, we will be busy developing a new integrated platform to support corporate processes, deploying technological innovation in asset management and control and data management, upgrading the field operation model, reshaping our know-how to keep up with the times, and last but not least, introducing agile solution for processes and organization. Therefore, as I said in my introduction, an initiative with a very, very large scope aimed not only at extracting efficiencies or savings, but improving process effectiveness, organization and scale.

Well, moving to Slide #30. Well, from a strategic angle, however, we do not want to limit our effort to current core business, but we are keen to extend our assets' perimeter, I mean, infrastructural asset perimeter, as we see several benefits from pursuing this kind of opportunities, scale, synergies, customers and/or market diversification, optimization of capital structure. And our motivation is even stronger if you consider that looking at our peers and that the players operating in the new segment we are targeting, size appears to be a competitive factor to catch opportunities.

Here -- and in the following 2, 3 slides, we have represented a couple, I would say, rational, but not a relative example of possible direction of expansion. One, of course, more horizontal, the broadcasting towers and therefore more oriented to scale and synergies. The second one, more vertical but somehow consistent with our asset on the ground, represented by data center, referring to the infrastructural part of the business. In this case, of course, more oriented to diversification and enhancement of growth profile.

Starting from the broadcasting towers, to be precise, referring to the -- to our domestic market. I don't want to beat around the bush. We all know that market structure in Italy is a UNICOM. We all agree on the rational and benefits of sector restructuring and so on. But this is not the point. We must admit that so far, despite the several industrial benefits represented and promoted by the operating companies, not all the involved actors, several to be frank, have been simply ready to sync with shop and some discontinuities in the environment have not have helped. But it doesn't mean that this will not happen in the future.

Our position, our idea has been clearly represented and is well-known to you guys. What I can stress today is that in the meantime we have not set on our hands ahead of this opportunity, we have today a company that is more solid with a better financial, higher visibility and less risk, better prospects, clear strategic direction and a credible plan. I am referring to our steady growth year after year since 2015 to the agreement of refarming, to the planned service expansion of new media platform to the restructuring of the offer of MNO segment, and this is now fully discounted to the higher market valuation. Of course, before the market fell off over the last week. Although, on this particular point, we are not -- we are still not satisfied, and we expect more to come. So let me say, we are in a good shape already and optimistic.

With regard to the data center, as regards to the expansion to our [data] infrastructure asset classes, we have studied and assessed several possibilities, and one interesting option is represented by colocation data center, a market that in Italy has an interesting way to go, and this is definitely an infrastructural market, with several characteristics similar to those of towers, but with a major difference linked, at least in Italy, to the different phase of the market cycle, with towers being a mature market already undergoing a wave of consolidation in data center, in particular, focusing on top-tier assets, being more at every stage, both on demand and on supply side. And this implies on one side higher growth profile, double-digit on average, driven by cloud, of course, from both global provider and domestic one, so telco ICT provider driven by OTT growth, public administration, the GDPR.

On the other side, potential temporary supply/demand unbalance, with acceleration and pullback are also possible. For instance, recently built capacity will match first upcoming demand, but forecast such as still a limited number of quality assets compared to the expected demand growth.

Considering these dynamics, the question could be, how this market might be addressed in a viable way then? So just a few hints. First, focus on high-quality efficient assets with the right colocation. Targeting those customers who may potentially secure a decent level of occupation. And with a make or buy approach, both possible, but with strict requirements.

So to recap, an interesting market, not the easy to be -- the easiest to be addressed, but where the possible role of a company like ours, as an independent, carrier neutral, high reliable operator with a possibility to integrate central data centers with towers and edge data centers or mini data centers and synergies with services or new platform illustrated before. And this I think could make sense.

Last pillar, innovation. So last pillar, our strategy is what we call optionalities, meaning the actively monitoring coverage offsetting innovative services, that has actually did not mature, mainly due to lack of technical regulatory standardization, but where we see long-term potential and strong fit with our assets. You can call it scouting or innovation, but it is sort of innovation also devoted to increase the long-term value of our assets. And for instance, we see opportunities. Where? In the take-up of drone sectors with activities and services of different natures that may be offered from our towers that are in good position for offering in service for drones, or 5G broadcasting that once the rollout of 5G will be completed may prove to be the new standard for media content delivery.

Basically, the idea behind 5G broadcasting on which we started first experimental tests is to have different 5G layers complementing the 5G mobile infrastructure with the 5G broadcast network in order to sell the viewers with the most efficient technology according to the situation. The composite is to use the power of broadcasting based on high-tower, high-power configuration, and therefore, deploy it on an infrastructure like ours to serve the large number of users also in mobility, combined with the capacity of mobile 5G to provide interactive services to individual users in unicast mode, like on-demand. And with intelligence in the users' receiver to select the best option for service, quality and availability. So an orchestration of cooperative networks that would provide flexibility, optimization of resources, absorbing peak traffic for contents, addressing large number of users and minimization of investments.

And now let me conclude my this part of presentation with something that we really care about, sustainability. ESG, let me say, is no longer a differentiation factor, it's the standard. The 2023 Industrial Plan marks a novelty by explicitly introducing into equation, our strong commitment to sustainability. And broadly speaking, confirming the focus on ESG topics already shown with sustainability levers we are publishing since 2017. ESG doesn't want to be just a slogan, but a concrete way to develop our company, the right motive of our activities. Starting from our 4 fundamental pillars: social, innovation, governance and environment, health and safety and take into account the recommendation of the main indices. We have been developing specific objectives and targets, linked that to our main activities contributing to achieve the sustainable development objective, the so-called SDGs.

To give you a bit of flavor, let me mention our engagement in pursuing energy efficiency, introducing technological platform and processing affecting our people with initiatives such as smart working and e-learning training experiences. And lastly, ESG will also positively impact governance with for instance, the introduction of ESG criteria in the variable remuneration policy. So having gone through the strategic objective and the initiative for the next 4 years, it's now time of numbers, so for Adalberto to show how all these actions translate into financial targets. Adalberto, the line is yours.

--------------------------------------------------------------------------------

Adalberto Pellegrino, Rai Way S.p.A. - CFO [8]

--------------------------------------------------------------------------------

Thanks again, Aldo. And let us go to the financial side of the plan. But before that, just a quick, but important forward on top of the one made by Aldo on the guidance 2020 relating to the impact of the COVID-19 that, of course, is valid for the industrial plan as well. Then all the figures you will find within the next slide, to be read on an organic basis, so without incorporating any potential upside coming from what we call potential external growth. Third, talking about refarming. The plan is based on the base case scenario that assumes Rai Way managing 3 multiplex for RAI at the end of the process. And last, the CPI assumptions for the plan consider a reported CPI close to 0 in 2019 and a forecasted one of 0.8% for 2020. 1.1% in 2021 and 2022, each of these figures impacting on the following years.

So Slide 38. If you look at these figures, you find all the main financial of the plan with the target for 2023. Starting with core revenues, we expect to touch EUR 247 million with an average year-on-year growth of 2.8%. A higher pace of growth above 4% yearly is expected for adjusted EBITDA, also thanks to the contribution of refarming and other new services in terms of risk profitability as well as to the digital transformation mentioned by Aldo, with adjusted EBITDA to reach EUR 154 million in 2023, coming along with a margin of 62%. The net income will consequently mark EUR 10 million more than in 2019 at around EUR 73 million. As already pointed out by my colleagues, this plan will be reaching development CapEx. And I will specifically elaborate on this in a few minutes. Now finally, for this slide, cash, of course, will be king with a further strong progression in the recurring free cash flow to equity expected as of 2023, close to the EUR 100 million threshold, a remarkable amount.

Let's move to the following slide. After this plan teasers, I will now dig deeper on some items and concepts, beginning with core revenues. On the right side, you will see the full effect of refarming in terms of revenues from July 2021 onwards, while additional new services, such as DAB, CDN and others will gradually contribute across the entire span of years. Under the continued pressure from MNOs, revenues from third parties are expected to reach EUR 33 million in 2023 with the customer mix more balanced, thanks to the new commercial initiatives and services to be offered to our customers.

Following Slide #14 -- #40, sorry, OpEx, you will see a cost base pretty steady across the plan, thanks to the continuous efficiency initiatives, digital transformation and improvement in the organizational model that will offset emerging costs linked to the new services. All these drivers will affect both personnel and other operating costs, even if with different magnitude and timing, resulting in a personnel component lower than today's one at the end of the plan.

Following slide, #41, by combining revenues and cost effects, you end up with an adjusted EBITDA profile that shows a material improvement in the last 2 years of the plan, both in absolute and marginal terms. Why this? As I mentioned, the increase in the fixed consideration related to the refarming will be effective starting from July 2021. At that date, the activities of the network will be ongoing, and they will terminate by mid-2022. So starting from the second half 2022, Rai Way will benefit, will finally benefit from having a new and more efficient network. And so 2023 will be the first full year after the closing of all the refarming activities. We also saw the full impact in terms of efficiencies on our cost. Moreover, the optimization effect of the digital transformation are expected to materialize in 2022 and 2023 when our network will be fully implemented. And adjusted EBITDA is finally expected, as I mentioned, to total EUR 154 million. And the net income profile deserves some clarification as well, given the burden represented in the first years, mainly by higher D&As linked to CapEx cycle and the cumulative presence of some EUR 3.5 million one-off expenses concentrated in 2020 and 2022. As already unveiled, at run rate, net income will then touch EUR 73 million in 2023.

Next slide, as promised, some remarks on CapEx side, given the crucial role that investments will play in the next years for us. So looking at the maintenance CapEx, the 2023 figure is expected to be in line with today's EUR 18 million amount. But if we consider the recurring level component, the amount will be about EUR 15 million in 2023, with the ratio recurring maintenance CapEx on sales, down to 6%, a sustainable level, thanks to the efficiency of a brand-new network. Refarming will, of course, be a catalyst of the development component as well, accounting for almost 2/3 of the accumulated to EUR 220 million foreseen across the plan. The remaining EUR 80 million will be connected to various initiatives such as CDN, connectivity upgrade, new telco services, digital transformation, regional refarming and so on. Overall, development activities will be mainly spread across the next 2 years, and they will be financed by the recourse to bank loans.

Following slide, recurring cash generation, not considering the development CapEx will remain strong during the whole plan. With the 2023 target of almost EUR 100 million, a remarkable result, 25% higher than 2019 levels, with an increase of almost 6% year-on-year. If we think in terms of field, the current 7% based on the price of yesterday is expected to grow up to 9% based, as I mentioned, on stressed price share of EUR 4.1.

Finally, this is supposed to be the last slide of our today's presentation, containing a final overview on the capital allocation strategy for the next year. The rationale behind this topic has already been anticipated by Aldo, so I will just take a little time for some closing remarks from the financial perspective. Leveraging on the CapEx-driven organic growth, the company will be able to secure a strong cash generation, as I just acquainted with free cash flow to equity up to EUR 20 million in 2023 compared to 2019. This allowed the continuation of the dividend policy based on the 100% net income distribution. Ultimately, also through a mix of dividends and share buyback, depending on market and sector conditions. Yield, on average during the period 2020, 2023, is about 5%. But there will be more than 6.5%, considering the expected dividend in 2024 based on the net income recorded -- that we expect to record in 2023. This, of course, assuming 100% net income distribution. On top of this, we have also planned the implementation of an additional buyback out of the distributable reserves for EUR 20 million, equal to 7% of the free floating, which we record across the plan, a total accumulated distribution including buyback of around EUR 270 million, equal to 20% of the current market cap. But this is not the end of the story because the other layer of value creation we have in mind is represented by the external growth, a key factor also for the optimization of the capital structure, taking advantage of the high business visibility and of the availability of resources to finance inorganic growth.

Sorry, there is an issue. Okay, I believe it is so. So the net debt-to-EBITDA should remain around 1x across the plan, far below the 4 to 6x that can be observed among peers. That's really all on my side, and we will now be glad to answer to your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from Mr. Stefano Gamberini of Equita SIM.

--------------------------------------------------------------------------------

Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [2]

--------------------------------------------------------------------------------

Three questions on my side. First of all, I've understood correctly that the possible consolidation in the broadcasting tower is old right now. Could you elaborate a little bit more why, what are the problems, what are these parts that now do not agree with this kind of consolidation and what could be the solutions?

The second, is there also a risk of delays in refarming with these -- or how are going all the proceeds for the refarming, including, for example, the auction for the MUXes, the 2 MUXes. So are there some risks of delays? Then my further question is regarding your investments. If I'm not wrong, EUR 140 million for the refarming, EUR 80 million for other activities. In November, you underlined that the refarming could add EUR 13 million of free -- recurring free cash flow, now you're in the region of EUR 20 million. So this means my estimate that the EUR 80 million new investment will allow you to get EUR 7 million of additional recurring free cash flow, am I wrong?

And if you can elaborate a little bit more regarding the margins on the revenues that you expect to get from these additional investments, also considering the slide with breakdown of revenues where most of growth will arrive from RAI. So are these investments mainly dedicated to RAI? Or where I'm wrong? Because it's not easy to understand the additional revenues. We see additional free cash flow where these revenues arise.

--------------------------------------------------------------------------------

Adalberto Pellegrino, Rai Way S.p.A. - CFO [3]

--------------------------------------------------------------------------------

So let me start with your last question. Of course, the overall impact on the run rate cash flow figures we comment is the result of many components. Of course, there is the impact from the refarming, that is the one that we already disclosed. And then saying that the other impact is linked to the other investment is true, but we have also to consider that there will be a more balanced mix of revenues coming from third parties due to, as we always comment, the pressure coming from the MNOs and the strong commercial push that we are implementing in order to increase our revenues from all our customers, the customers different from those. So there are also many impacts to take into consideration for a proper assessment of these figures.

Coming on the second question, and then I will leave the floor to Aldo for the consolidation. The risk of delay in refarming actually, we plan all the activities in advance considering the deadline of the law because as you may recall, officially, the refarming process related to the 700 band is supposed -- is -- not is supposed -- has to start, according to the official road map, in September 2021, to be finished in June 2022. So in order to manage this in a -- also logic of managing any potential risk, we start in advance all the activities. So hopefully, thanks to this, we should be able not to have any impact. But then, of course, our -- we really hope that this situation will not last a lot, and hopefully, we could -- there will be the possibility to work as we work 1 month ago looking at our target that we really -- that for us represents important target that we'll take into consideration during the next years in our -- in all our activities. Having said that, Aldo...

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [4]

--------------------------------------------------------------------------------

I can elaborate a little more, Adalberto, about the impact of coronavirus, and then we can reply about the question on consolidation. As already, we anticipated in the presentation, of course, for the time being, we are not incorporating the impact of -- impact from the spread of COVID-19. But if necessary, we can -- we will update our expectation in due course. But it's also, let me say, fair to say that, generally speaking, our business should be resilient and well protected.

The -- starting from the service contract with RAI. The service contract with RAI as well as the also, the existing contract with MNO, a big network operator or public organization should not be, as Adalberto said before, substantially impacted by the emergency. Potentially, we could see a smoother profile of some development activities and related revenues ramp up. So a rephasing, due to suppliers, for example, due to suppliers' delay or the deliveries or technicians that are not allowed to reach sites following the restrictions and this impacting, of course, the installation on your part. And I am, of course, thinking about the professional, the extension of the multiplex, the multiplex, 2, 3 and 4, or the extension of the DAB coverage or the volume ramp up, including in some contracts. But you have to keep in mind that the same drivers could also lead to postpone some maintenance activity and therefore, related OpEx, not to mention, the lowering energy cost should oil price remain at the current level for a long period of time. But in terms of, again, continuity of our activity, we would be ready to extend smart working. This is a solution that we are already adopting today at almost our entire workforce, apart from some needed activities of network monitoring that requires presence on site.

So fingers crossed and let's really hope that this measure implemented by the government will bear fruits, letting us to come back to usual business and let me say, definitely more important to normalize. About the -- your question on consolidation. As you have seen in our industrial plan, we have commitment in playing an active role in consolidation, and we confirm it. At the same time, as you know -- all you know, guys, the consolidation of broadcasting infrastructures faces some constraints that are legislative and regulatory so to be managed. Therefore, political decision are key factor also considering, of course, the strategic nature of the assets that are involved. So what I can do is I can confirm the strong rationale of market and consolidation; and that as of today, there are no, of course, ongoing discussions.

--------------------------------------------------------------------------------

Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [5]

--------------------------------------------------------------------------------

Just a quick follow-up, if I may. Regarding the third-party's revenues at slide -- sorry, 39. Could you help us to understand a little bit better, the trend of MNOs and third parties? Because if I'm not wrong, new investment, EUR 80 million means higher revenues mainly in this area or the higher revenues will arrive also from RAI, thanks to the new EUR 80 million of additional investment.

--------------------------------------------------------------------------------

Adalberto Pellegrino, Rai Way S.p.A. - CFO [6]

--------------------------------------------------------------------------------

No, the additional investment that you mentioned of EUR 80 million, we refer both to RAI and other customers. I would say, also through -- there is a component that is also linked to the digital transformation. So it's linked to efficiencies not properly linked to the top line. And in terms of trend that you see on the third party's revenues, as you may recall, we are seeing, also looking at the past 2 very different trends that are impacting on our third party's revenues, pressure from MNOs that is -- that we try to offset by a very interesting growth coming from all the other non-MNO customers, in particular, I'm referring to TV and radio broadcasters, to corporate -- in relation to the refarming that will also impact on the local level. In particular, in relation to the corporate customers, the fixed WA sector that we expect will continue to have a positive impact on our overall revenues.

So the trends are more or less always the same that we look at the past, but we expect also to have a positive impact from new initiatives to be launched, also in the context of a potential agreement with MNO players in order to maintain the level of sites that we offer today to them, but probably with a lower price, and so this, of course, will have an impact. But overall, looking at overall figures, after probably a little decrease in 2020, figures should stabilize at EUR 31 million, more or less.

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [7]

--------------------------------------------------------------------------------

So let me give you a little bit more color about this important point. The trend of third party revenues, as you said before, is a result of several drivers. You said just -- on the negative, mainly MNO, but also a small impact for refarming on third-party broadcast in particular. You have to remember that as the model, in this case, also for broadcasting is pure broadcasting, so broadcasting equipment hospitality, also on the negative side.

On the positive, results from commercial activity with, as Adalberto said, other -- with other customers, so local TV refarming and new services. But of course, the headwind is related to and limited to head MNOs, so mobile operators. Here, about mobile operators, as you see, we have highlighted, in the presentation, the trend that you see is a mix of more and more retention-oriented pricing and new services. So new, more competitive pricing model for telecom customers in order to retain volumes and then leverage and also maybe beyond 2023 on the rollout of 5G networks, both in semi-rural or rural areas that as you know, is the final part of the network rollout.

At the same time, expanding the offering with services consistent with the 5G network architecture and enable new services, in which way 2 considerations. So let me say, the Phase 1, the phasing of these 2 initiatives are different. With pricing revision first, retention and then upselling the new services, and this is the first phase. And that's why we said and I said before that revenues will bottom out during the pre-planned period. Second consideration, the -- we want to adopt a demand-driven approach on new services with the possibility to scale up in case of positive, and we are sure that this would be market response. So we prefer, as you have seen, to take, let me say, an overall conservative stance on that point.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

The next question is from Mr. Fabio Pavan of Mediobanca.

--------------------------------------------------------------------------------

Fabio Pavan, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

Congratulations for having managed to provide this presentation in this current environment. I think this is remarkable. Moving to the questions. My first 1 is on -- about the center and cloud. As you know I'm pretty interested in this topic. I'm happy to see you're talking about that. I was just wondering if you already are doing something with your third parties, discussing something on maybe tower added by the center or if it's something that could have been in the future. And then when moving to potential external growth, you already are scouting some companies. It's much more a plan of securing site? Or we could even expect kind of bigger deal?

Second question is on digital transformation. It is interesting, would like just -- if you can provide some more color in terms of where your improvements are coming from. And also on the letter, you were mentioning status on 2022, so why is that? How can we move to this assumption?

First question, sorry. Just these 2 ones. The question is on the buyback. If I'm right, you are definitely taking the starting point, and this amount could even grow in the future. And finally, for Aldo, I see your point on consolidation. We have managed to discuss something similar also in another forum a couple of days ago. Would you agree if I say that in this current environment, it's clearly not, if you can imagine, talks to start soon. But if there is a project which can create value, not just for you but for the country, this is something that eventually would be taken into consideration?

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [10]

--------------------------------------------------------------------------------

Ciao, Fabio. So let me start with the last questions, and then I will ask Giancarlo to elaborate more on the data center. So on the consolidation, let me just say that the situation we are living now happened really so fast. And so we really hope that with the same speed everything will come back to the -- we will have again a normal scenario. So having said that, of course, you know how we believe in the positive coming from this project. We cannot elaborate more on this point.

Buyback. Buyback, yes, EUR 20 million is the amount, just to be clear, let me highlight that the overall total available reserves amount EUR 30 million. So if we will go on in the future, take into consideration the available reserves, just take in mind that the maximum amount is EUR 30 million. So EUR 10 million additional coming from our reserves. And then there is our policy on the net income as we commented during the presentation.

Then digital transformation. Digital transformation, why in 2022? Let me say that thanks to all the work that we are doing on -- that we will do and we did on our network, we are also taking the opportunity to improve not only the technologies, but also the possibility to having a better management of all our transmissions, infrastructure also from remote. So the occasion that we have to update our network is something that we are using also for other purpose and digital transformation is, of course, an important aspect that we are taking into consideration in this context. So this is why you see the impact coming basically at the end of the refarming. The refarming is something that is extraordinary. It's an incredible project that we will have to do in the next years. But this is something -- this is not coherent with the normal process and digital transformation's typical impact on ordinary processes. Because of this as well as I mentioned in consideration of some upgrades that we will have the opportunity to implement in our network to improve the remote control, this is the reason why you will see the impact starting from 2022. But these are the impacts that you are seeing in terms of savings. There will be, before this impact, some -- you have to take into consideration that you will see some CapEx that we will have to spend, something that we will start to spend this year.

Also to include in Rai Way, all the new relevant software to manage the company in a more digital way, so we will see a progression of investments in this year with the first positive -- significant and positive impact coming from 2022. Some minor impact will be -- will happen also in the next years, but something not significant. And this is the answer on the digital transformation. Then on -- I believe Giancarlo can elaborate on the data center.

--------------------------------------------------------------------------------

Giancarlo Benucci, Rai Way S.p.A. - Head of IR [11]

--------------------------------------------------------------------------------

Sure. Fabio, if I got your question correctly, in particular, on the edge data center on the tower edge data center, it's of course, an innovative business, but we see this as an architecture, as a good architecture to address the requirements in terms of latency and network virtualization that are key for 5G and for 5G-enabled services. Let me say, it's not only our idea. There are several tower companies and new, very focused companies on tower edge data center that are working on it.

We are right now selecting the sites, our sites that have the best fit in terms of coverage mainly focusing on the coverage of the main Italian financial and industrial district to have a latency in the range of, let me say, less than 10 milliseconds. And obviously, presence of MNOs on our side as the new services will, however, run on an MNO mobile network. So let me say that in this case, in the case of edge data center, the timing will follow the 5G network rollout. While, of course, in terms of traditional central data center, in this case, the supply-demand is at the early stage but let me say that from a technological perspective, is a more mature market.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

The next question is from Giorgio Tavolini of Intermonte.

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [13]

--------------------------------------------------------------------------------

Let's go with the following question. And then...

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Yes, sir. The following question. The next question is from Antonella Frongillo of Banca IMI.

--------------------------------------------------------------------------------

Antonella Frongillo, Banca IMI SpA, Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

I have 2 questions. The first one is on the labor cost, could you elaborate a little bit on that? I understood that the decrease over the plan is linked to the digital transformation. Is that correct? And does that imply a lower number of employees? Is that agreed with unions? And that's the first question.

And the second one is on COVID-19. Is there any possibility that the potential impact on RAI, which, I guess, would be higher than on Rai Way could trigger any sort of impact on the service agreements in place with Rai Way?

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [16]

--------------------------------------------------------------------------------

Hi, Antonella, this last question, let me say that we do not expect any impact from this contract and that's it. Let me also say that in this period, the role of RAI is something really, really important in the country. Because thanks to RAI, we have the possibility to -- the government has the possibility to reach all the citizens for all the relevant key message. And so I don't expect nothing coming from what we were asking for.

And in terms of level cost, we are not expecting nothing incredible on -- in terms of reduction of employees. We are just trying to imagine to build the most efficient processes, leveraging of the, let me say, the age of our employees that are close to the retirement. So without being -- leveraging on this, we should be able to implement some efficiencies that will have a positive impact, as you have seen on the overall cost of personnel. But inside the number that you have seen in this slide, let me also highlight that we want to be more efficient on the standard process, but we also want to hire new talent in order to be more competitive with some incoherence with all the competence that are required by the new services that we cover in our business plan, in our industrial plan.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from Mr. Giorgio Tavolini, the Intermonte.

--------------------------------------------------------------------------------

Giorgio Tavolini, Intermonte SIM S.p.A., Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

On the radio business. Could you please elaborate more on the opportunity and the related financials from the digital plus? And secondly, I didn't hear about your experimental partnership with OpEn Fiber on the Ultra HD. Do you expect OpEn Fiber to be a preferred supplier for the future for the fiber backhauling to your towers? And another question on the broadcasting business. I understand this broadcasting technology is set to survive for the medium long run as a complementary to nonlinear TV. But do you expect headwinds from the reduction in the number of broadcasters in Italy for the near future?

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [19]

--------------------------------------------------------------------------------

Let me try to answer to your first 2 questions, and then I will ask my colleague to elaborate more on your last question. Talking about the DAB+. The DAB+ is an interesting opportunity for us also because the band that the DAB+ will use is the VHF band, and this is a band that is comfortable with our network because, as you may recall, our MUX1, as of today is, based on both UHF and VHF band. So in this sense, this represents an opportunity, also considering that RAI will -- is ready to increase the coverage of the services. This is something that we already did -- we are already doing. In fact, you may recall, I spent a few words commenting the historical figures, the 2019 figures. One of the main initiatives of the year is related to the coverage extension of the DAB+. So it's something that is impacting, and we expect it will continue to impact in the future.

Of course, we are not talking about -- we're talking about figures that are not so significant, looking at our overall amount of revenues, but looking at the increase in revenues, of course, we will have a little benefit coming also from these initiatives that will impact not only RAI, but also third parties, because we expect that there will be an increase in the coverage, generally speaking, in the market.

Coming to your question on OpEn Fiber. Of course, we are -- this is the agreement that you mentioned is something important for us as we are really interested in investing and spending our time in testing new solutions, so happy for this. And in terms of potential future supplier, of course, in the market, there's not a lot of players. And we will see once we will have to select the proper provider, we see who will win.

--------------------------------------------------------------------------------

Giancarlo Benucci, Rai Way S.p.A. - Head of IR [20]

--------------------------------------------------------------------------------

Giorgio, it's Giancarlo speaking. On your question on the broadcasting platforms, basically, you mixed 2 different things. So let's split between the refarming and the impact of refarming and then the platform rebalancing.

On the refarming, if your question was on the potential impact from the reduction of the number of broadcasters, let me say that the impact will be very, very limited. For us, the refarming is extremely important for RAI and you are already -- we are more than aware of the positive impact of the refarming process and agreement with RAI. In terms of third parties, let me say that we see a limited impact on the tower hosting due to reduction in the number of multiplexes but very limited. And in any case, already included, obviously, in the plan and in the financials of the plan.

The second part of your question was on the trend on the platforms, and that was exactly what we tried to address in our presentation. This coexistence of broadcaster and broadband platforms that many are predicting looks rational as it combine the benefit and the efficiency of both. So on 1 side, the large coverage in the audience of broadcast that is particularly suitable for live and non-deferrable event to a wide audience, that is at the same time, combined with the flexibility and personalization of broadband unicast that is efficient for a on-demand provision of non-live and deferrable events.

Let me stress 1 point. We are not absolutely saying that there won't be connected TV in our home in the future. We are saying exactly the opposite, that the number of connected TV will increase further and further, but the TV can receive different contents through different platforms, maximize the efficiency of the resources. And so if the rebalancing of platform will lead to a lower amount of content to be distributed through broadcast, through DTT, it's also true on the other side, that, first of all, our broadcasting activities are not only related to the number of contents that you broadcast as the correlation between activities and remuneration is limited and is not linked to the number of MUX as we have shown with the refarming.

And on the opposite, we will likely have more activities on new platforms, that is part of the evolution included in this plan. And also, third, last comment, we cannot rule out the possibility to review the entire broadcasting network with a technological upgrade. For instance, Aldo, during the presentation, referred to 5G broadcasting. And as you have already seen with the refarming, the technological upgrade implies considerable activities for us. And thanks to our business model, we will benefit from that.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

The next question is from Mr. Stefano Gamberini of Equita SIM.

--------------------------------------------------------------------------------

Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [22]

--------------------------------------------------------------------------------

Sorry, 3 quick questions. The first regarding the buyback. If I understood correctly that the buyback of EUR 20 million will be -- will go ahead during 2020 as it's written in the press release or during older plan? The second, regarding your flexibility, you underlined that you will have a debt-to-EBITDA 1x, while you could go up to 4, 6x considering your competitors. So now that the possible consolidation in broadcasting tower is on all, could you accelerate to find out some other opportunities or probably this could happen not shortly? And the last, sorry, to come back still on this EUR 80 million of additional investments on top of the refarming. Has this already set? And when will you roll out all these investments? What I mean is do you already define all the different initiatives? Or this could be challenge and -- sorry, could be updated considering the demand from the market and the possible contracts that you sign in the future?

--------------------------------------------------------------------------------

Adalberto Pellegrino, Rai Way S.p.A. - CFO [23]

--------------------------------------------------------------------------------

So coming from the last question. Let's start with the last question. The EUR 80 million of additional investments. This is our realistic expectation for the amount of the investments. Part of this are, I would say, that the majority are not yet set, in the sense that we don't have yet the contract, but we did a lot of work in order to have an estimation of the potential impact in terms of CapEx. So then, of course, if the -- you know that the flexibility that we have, come to your second question, is also related to our organic business. So if they would be adding to invest more, always happy to do it, and we will do it to the extent that we will have the proper return.

Coming to your second question, I -- the potential consolidation is not on all the -- I understand the situation is the same that we had a few weeks ago. Of course, now priority for the government is in some other place and I totally agree with this, but I would not say the consolidation project is in terms of broadcasting, as Aldo mentioned during commenting the specific slide, I would not say that it is on hold.

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [24]

--------------------------------------------------------------------------------

Yes. What I said before, Fabio, is that there is not any ongoing discussions. So it isn't not on hold. This is just to be clear on this point.

--------------------------------------------------------------------------------

Adalberto Pellegrino, Rai Way S.p.A. - CFO [25]

--------------------------------------------------------------------------------

And your question on the buyback. Yes, EUR 20 million of buyback will start in 2020.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

(Operator Instructions) Gentlemen, at this time, there are no questions registered.

--------------------------------------------------------------------------------

Aldo Mancino, Rai Way S.p.A. - CEO, MD & Director [27]

--------------------------------------------------------------------------------

Okay. Then let us thank all the participants for joining the call and speak soon. Bye-bye.

--------------------------------------------------------------------------------

Adalberto Pellegrino, Rai Way S.p.A. - CFO [28]

--------------------------------------------------------------------------------

Bye-bye.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.