Rai Way S.p.A. (RWAY) Earnings Call Transcript

Good evening, and welcome to Rai Way's 9 Months 2026 Results Conference Call. The call will be hosted by Mr. Roberto Cecatto; CEO; Mr. Adalberto Pellegrino, CFO and Mr. Giancarlo Benucci, Chief Corporate Development Officer as well. I will now leave the floor to Mr. Cecatto. Please go ahead, sir.

Good evening to everyone from me as well. Starting with an overview of the financial results, which will be explained in detail by our CFO, Alberto -- the trends and the drivers observed in the first 9 months are broadly in line with the already positive ones in the first half of the year with a further acceleration in the performance of the digital infrastructure segment. Indeed, whilst in the media distribution, the main driver of outperformance compared to inflation remains the extension of the DAB radio network or. In the digital infrastructure, mid-single-digit growth in tower hosting has spanned the entire spectrum of customer categories. Furthermore, of all the figures are still limited, the fivefold growth in the data center segment where the integrated co-location integrated as a service plus fiber offering is helping to channel demand towards our assets and the 2.5% fall growth in connectivity demonstrate that we are on the right track. Total revenues grew by 2.3% year-on-year. In terms of adjusted EBITDA, the performance is somewhat distorted by certain noncore factors and the initial effects of the spike in energy price, which rose by over 1 million over the 9-month period. However, on an underlying basis, growth amounted to EUR 3.5 million in 9 months, a remarkable result, supported by higher revenues and the usual cost discipline across all our main items. In this regard, I would also like to point out that the growth in the adjusted EBITDA has also benefited from the progressively lower absorption by diversification. This is primarily due to the increase in revenue, but also given the slower pace of uptake to a focus on design solution aimed to keeping costs under control. In terms of investment, the maintenance component equal to approximately EUR 8 million returned to a more normalized level following last year's spike that was linked to the planned nonrecurring activities and the cyclical nature of certain IT investments. On the other hand, the development component exceeded EUR 18 million versus EUR 11 million last year, mainly due to the activities related to the expansion of the DAB radio network and diversification, in particular with the announcement of the CDN network and the work to restore and prepare the hyperscale data center area, formerly used as a medium way transmission radiocenter to greenfield the condition, removing the existing structures, towers, building and so on. Considering the trends described above and the stable level of financial expenses and tax rate, the normalized cash flow generation for equity holders at EUR 100 million in the first 9 months. From an operational perspective, it's clear from the figures we just presented that the fundamentals of our business model remain solid. For example, the expansion of the DAB network has been completed on time and on budget, and we are already discussing [indiscernible] the possibility of factor extension along motorways and in urban and extra uber tunnels. The usual growth profile of our tower of [indiscernible] business is still there and the other digital assets like data center backbone adding a few percentage points. The operating leverage is further supported by relentless focus on efficiency. As we will see at the end of the call, these fundamentals translate in a full year outlook confirmed in terms of trends, but with underlying figures, probably better than consensus. Why has already proven in the past some of the headwinds affecting 2026 let me say, in particular, energy price. We lock as a further driver of growth for the next year. However, we are aware that at this stage, this is not enough. And let me say, we are certainly not seeing idle by. We have clear priorities and action plans, the same ones already applied in July conference call and summarize that for convenience on Slide 5. Improving the perception of long-term sustainability, the creating future value through diversification optimizing the capital structure. What again assure you today is that we are clearly working on these areas, both an operational level, for example, through the expansion of broadcasting network led the DB, the marketing on your assets and so on. And through other initiatives and opportunities more strategic, and we will update you in case of positive results. Let me now hand the call over to Adalberto from an in-depth review of the financial results, please.

Thank you, Roberto. Good afternoon to everyone. I would skip as usual, the Page 6 in order to jump directly to Page 7, which covers the revenue trend. Let me start with -- so with core revenues, which grew by 2.3%, reaching EUR 216 million in the first 9 months of the year, maintaining the positive trend recorded in the first half of the year. Looking at the business segments. Media Distribution grew by 1.5% above the 1% inflation rate, mainly supported by the ongoing expansion of the DAB network for [indiscernible]. Digital Infrastructure delivered solid growth of 7.6% on an underlying basis reflecting strong performance across all the business lines, including tower hosting connectivity and data services. Overall, diversification activities contributed about EUR 1 million in revenues compared to EUR 0.3 million in the first 9 months of 2025. Slide 8. In -- let's give a look to our OpEx. They recorded an increase of 4.5% from EUR 67.2 million to EUR 70.2 million. Looking more closely at the individual cost component. On an underlying basis, we can see that personnel costs increased by 1.8% in line with the trend already commented in the first half call, mainly due to the renewal of the collective labor agreement. The figures also include the increase for EUR 0.2 million due to diversification activities. Again, looking on an underlying basis. Other operating costs increased by 4.8% in absolute number, EUR 1.7 million, mainly reflecting the sharp increase in the electricity unit prices during the third quarter and amounting EUR 1.1 million. Slide 9. As usual, it provides a clear visual summary of what we have discussed so far. As you can see, the traditional business remains healthy and continue to grow, confirming the resilience of our core activities with a stand-alone increase in adjusted EBITDA of EUR 3.2 million out of a EUR 4.1 million increase in revenues, the gray box. At the same time, diversification had a positive impact for EUR 0.3 million on the EBITDA of the period noncore items had a negative impact of EUR 2.2 million, mainly reflecting a tougher comparison with 2025 when probably some one of you will remember, I would remember that our adjusted EBITDA benefited from a EUR 1.5 million capital gain from real estate exposure. And then last year, we also had a high level of nonrecurring items. Finally, as anticipated, the higher energy unit cost weighed on the 9-month performance with a negative impact of EUR 1.1 million. In this way, you may see all the rationale behind the increase of EUR 0.3 million in our adjusted EBITDA. Slide 10, moving to the full profit and loss. We can see the 6.1% decline in net income that is entirely driven by noncash or nonrecurring items. Again, you may see, looking at the other revenues figures. As commented, these were lower than last year, mainly reflecting the just commented capital gain recorded in 2025. Adjustments were higher, primarily due to the impact of the lease agreement we try covering our regional offices temporarily accounted in this line for comparison purpose waiting for the renewal of the contract. Looking at D&A, we continue to see the same trend that [indiscernible] as already commented in the past with a progressive increase due to investments in both diversification and other development initiatives. Slide 11. Net debt, you may see -- you may see including EUR 26 million of IFRS leasing, net debt closed at EUR 161 million, compared to the end of 2025, the net financial debt increased by EUR 24.4 million, including, of course, the dividend payment in the compared to the first half figures, we have a little improvement of our net debt due to our for the seasonality of our cash flow that is impacted in an important way by the quarter in which the dividend is paid that is the second one. The recurring free cash flow to equity grew, reaching around EUR 100 million last year in the first 9 months, the recurring free cash flow to equity amounted EUR 94 million. And the improvement is mainly due to lower maintenance CapEx recorded in the first 9 months of 2026. And now as per the guidance, let me turn the floor back to Roberto, our CEO.

Thank you, Adalberto. Let's now turn to the last slide on our full year guidance. Assuming cost and electricity price, we had already revised our guidance upwards in July with the expectation for adjusted EBITDA shifting from flat to above 2025 level. Over the last few months, the magnitude of increase is gradually risen, particularly thanks to cost control, lower than initially assumed the negative impact from level of noncore items. In particular, we now estimate this increase at around EUR 4 million is the effect of the around EUR 5 million underlying growth driven by higher top line, a broadly stable cost in the traditional business and the reduction in the drain from diversification and around EUR 1 million negative contribution from the level of noncore items. Taking electricity price into account as well and based on the futures for the last months and half of the year. The headwind should also amount to around EUR 4 million, bringing the expected reported adjusted EBITDA, broadly in line with the last year. But energy headwind that ever will be reserved next year, thanks to its effect on inflation and consequently, on the escalator mechanism that applies to the majority of our revenue. The expectation for investment on the other end are unchanged with the maintenance component remaining below last year's level as the rate in July. And the development component confirmed above the 2025 level, mainly reflecting activities in the solar project, the station, the DB network and the expansion of the CDN network. So that's all from our side. And now we can now open the line for the Q&A session. Thank you.

[Operator Instructions] The first question comes from Fabio Pavan with Mediobanca.

Two questions. First 1 is, please, if you can tell us more on the acceleration diversification, you just talked in the presentation, maybe some more granularity, I appreciate it could be too early, but which alternative there you're exploring? And if there is any visibility in terms of time? And the second question is actually on 2027 moving parts. So you managed to flag that excluding the impact of electricity prices would have been higher. So in '26 we will capture a negative impact for energy cost, but there is a link to CPI, which should drive numbers in '27. What about the cost line, please? .

Fabio, let me take your second question, and then we will address also your first question. So in terms of expectation for 2027, of course, we will give a more detailed guidance on the next call in March. But however, the aim is to move as close as possible to the target set out in our business planning in terms of adjusted EBITDA. . And of course, as you commented, we will have, for sure, a positive impact from the CPI, which in 2027 will enable us at least to recover from lower figures recorded in the early years of our industrial plan compared to the expectation. Other contribution will come from the progressions of our development initiatives, both in our traditional business and in diversification and the benefit from the mitigation initiatives, for example, on efficiencies launch to offset the temporary shift or more commercial uptake of some projects. The mix will be slightly different from the initial assumptions with lower contribution from some new projects, but a better contribution from the existing business, also thanks to efficiency gain. But the target is achievable. The impact you mentioned in terms of higher energy cost of EUR 4 million is something that, of course, will impact 2026 figures as we commented talking about the guidance. Hopefully, looking at the future, we should not expect any further increase in 2027, and see for sure the energy cost remains a question mark. But overall, the CPI, as you know, will be fixed at the end of the year.

While Fabio, Jan Carlos, in terms of acceleration in the diversification. Let me say that we are starting to see a bit of acceleration from several perspectives. First of all, from the pure asset commercialization, as you have seen in the presentation, basically, our revenues from the data centers increased 5x by 5x. It's true that we are still talking of limited numbers, small numbers. But in any case, we think that with the expansion of the offering, we are moving in the right direction in order to convey more demand, in particular, enterprise demand and local demand on our assets. Then there is an acceleration, I would say, also in terms of possibility to build new asset. As you know, we are -- we have some discussions and some engagement with major potential takers on the hyperscale data centers and some of the discussions are moving forward. Obviously, we are not yet there, but we see interest on the asset -- and so we are collecting all the documentation in order to move forward with these discussions. And [indiscernible] -- we have already started the site works in order to have the land ready to start the construction of the data centers. I would say, always from an organic point of view, also on the CDN, we are, let me say, talking to some customers and also to our major customer [indiscernible] in order to understand how we can move more traffic on our network. And last but not least, also on the nonorganic front, it's something that we have already mentioned during our call in July, but we can confirm that we are building a nice pipeline of opportunity. And the comment we can make at this stage is that we could be approaching the start of a trend towards the separation also in the cloud sector between infrastructure and services and this is a trend we have anticipated and included amongst the factors likely to accelerate and create value in our diversification journey. So on timing, difficult to say, but these are busy days and hopefully, in the coming weeks we will be in the position to share something with you.

The next question comes from Giorgio Tavolini with Intermonte.

The first one is on a more general question on the Syneron strategy following the end of discussions with towers. I was wondering if you had the time to reassess your stand-alone strategy priorities in terms of, I don't know, getting more visibility on broadcast revenues, selective M&A on infrastructural assets, small tower operators and so on and so forth. And in particular, what is the position that [indiscernible] scale data center -- so basically, Chile to talk to high regarding this, let's say, risk regarding a placement of the excesses your shipping in your holding? The second question is on energy cost. As data center are becoming a larger part of your business, I was wondering if energy costs should become increasingly relevant for 2027, 2028, so in the next future. So if properly capturing potential headwinds associated with a more energy-intensive business mix when compared to current status quo. And the third question is on data center demand. If you identified any potential parters to accelerate the ramp-up of the data center business already, particularly bringing enterprise local demand, as you were mentioning before. So I was wondering if you already found some partner to speed up this demand collection.

So talking about your first question, -- of course, we work a lot, as you know, in order to assess and to support the feasibility of the potential merger in the broadcasting sector. So your point is super correct because now we are full of energy in order to work on the priorities that are the same of our business plan of our industrial plan that is still valid. But for sure, I would say, all the the main pillar of our strategy that were described in our second slide of our presentation are all pillar on which we may work with a with a lot of effort since we may focus only on that. So your point is correct. Now we are a lot of energy in order to work on these streams that are the same of our industrial plan. For the second question regarding the energy cost, let me say that the energy cost is something that affect all the industries. I consider that we are focusing on enterprise customers and consider that the migration from an individual let me say, [indiscernible] with a few server is absolutely more efficient to put server of the company in a data center that is absolutely more efficient in terms of energy consumption compared to the stand-alone situation. So considering that, I think that more and more, there will be an increase on the cost of energy, more, there will be interest to put a device server installation on data center, also in regional data center, in edge data center and also in the upper scale. So I think that this is really not an issue.

On the third one, not clear, if you are referring to.