Rai Way S.p.A. (0R40.L) Earnings Call Transcript & Summary

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Rai Way First Half 2025 Results Analyst Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Andrea Moretti, Head of IR of Rai Way. Please go ahead, sir.

Thank you, operator, and good afternoon. Welcome, everybody, to our half year financial results call. Today's speakers will be, as usual, our CEO, Roberto Cecatto; our CFO, Adalberto Pellegrino; and Giancarlo Benucci, our Chief Corporate Development Officer. Let's start with Mr. Cecatto. Please go ahead, sir.

Thank you, Andrea. Good afternoon to all of you. Let me start from positive news in terms of results that we are delivering. Revenues were up to 2%, accelerating from 1.7% performance in the first quarter, underpinned by both media distribution and digital infrastructure. Considering the CPI-linked contribution equal to 1.2%. The additional boost was provided by DAB coverage extension for RAI, rising tower hosting volumes, in particular, from radio broadcaster and the initial contribution from diversification initiatives. Adjusted EBITDA hit EUR 96.3 million, up by 3%, also helped by some noncore items that Adalberto will cover in a while. Scrapping them, adjusted EBITDA underlying trend was in line with our expectation and full year guidance, providing for a constant growth in traditional business, compensated by the start-up operating expenses of diversification initiatives. Net profitability was in line with last year's as were investments, but with a significant difference compared to the first semester of 2024. Out of EUR 16.1 million CapEx in the first 6 months of 2025, the majority was represented by maintenance activities. Indeed, as anticipated during the last call, this year, we are undergoing some extraordinary maintenance activities. And just to give you an example, in the Puglia region, we are investing EUR 2.7 million, of which EUR 1.5 million already spent. on a crucial 70 years old transmission site in order to decommission 2 old transmission towers while building a brand-new 20 -- sorry, 120 meters high tower, one of the tallest and more modern Rai Way has ever engineered. That will rationalize and renew one of our major infrastructure assets while enabling synergies and efficiencies and guaranteeing the continuity of the TV and radio content transmission in full security with higher quality standard. On top of that, the maintenance component of our CapEx also reflects a phasing skewed in the first half of certain investment on the IP network. As for development component, the lower first half level reflects, first of all, the completion of the first phase of the rollout of diversification initiatives. And second, the current focus on marketing of the existing assets. And third, the design of new assets, in particularly the new edge data center in Bari as well as also incorporated in the guidance, the slight shift to 2026 of certain activities related to various initiatives, mainly in the traditional business. Let me say that this must not be misunderstood. Our view of the markets we are investing in remains confirmed as does the company commit. [ Optimism ] and commitment are clearly reflected in our operational progress. In fact, in the last 2, 3 years, the CDN market has experienced a very rapid evolution, also driven by consumption dynamics during the COVID period. In fact, after a phase of tremendous volume growth followed by a period of traffic stabilization but very high competition, the market is now approaching a new normal, let me say, with a more balanced supply and demand and a more rational and stable progression in both volumes and price. On the one hand, this evolution has led to the acceleration of certain dynamics that we initially expected to be more gradual. But on the other hand, it has created a context in which with decreasing competition, the performance and the quality of our solution can truly be a differentiating factor. To summarize, a more gradual growth curve but with the same landing point in the long run and greater customer interest. Not surprisingly, from a commercial standpoint, we are reaching the players that we aim to reach. After a long trial period, which is normal for a newcomer, -- but let me say, long trial, not so much long because at the end, it's really a few months that we have the infrastructure already on running. Our network architecture currently distributed across multiple distributed injection point and interconnected via a proprietary high-performance network and the quality of our application partners have led to sign framework agreements with at least 3 of the main operators offering live streaming in Italy with further negotiation underway. By allowing us to pick 1 of the 2, 3 CDNs used by each of these clients, these framework agreements will bring streaming traffic, thus revenues on our network from now on. On the edge data center side, we maintain the view of a growing regional needs of megawatts today, largely underserved or currently served from the Milan region due to the lack of high-quality alternatives. Considering sites, location and features, our commercial sweet spot is represented by midsized enterprise and digital players, which is exactly where we are focusing our efforts. In the region where we already operate apart from Milan that are Veneto, Liguria, Tuscany, Piemonte and latter on parts of Southern Italy, research estimate over 30 megawatts of additional demand in the coming years from this resort. And we have to compare with 1, 2 megawatt that we currently have available in the pipeline with relatively limited competition. While receiving positive clients' feedback on proximity, quality, interconnection and national footprint, we keep working on a few key points, particularly in terms of client targeting, which might be consistent with the typical commercial footprint of an infrastructure company and on the effectiveness on the go-to-market. Apart from [indiscernible], as many enterprise IT projects we see that have a long decision and implementation time, sometimes up to 12, 18 months. Around half of the medium enterprise data center requirements originate from private cloud application. Application that luckily are largely channeled through system integrators and which we have chosen as our partners. However, system integrator integrate solution provided by private cloud operators who are the ones who ultimately decide where to place the servers. Therefore, this is the experience that we see in the past months of the approach in the market. So therefore, to avoid being disintermediated and better intercept this underlying demand, we are extending our offer to include IaaS services, basically virtual machine for storage and computing. Let me say, still infrastructure based, but with more value-added features. This solution became even more competitive. First, because when backed by distributed interconnected network like ours; and second, when powered by smart, cost-effective software such as that of Cubbit, an Italian cloud storage start-up that will support our service under strategic business alliance. Going forward, we will, therefore, focus on expanding service range, growing partnership, including private cloud players using our direct presence in a more targeted and effective way. Considering on the other side, the hyperscale project, following the positive outcome of the so-called, conference of [indiscernible]. The last step is the signing of the concession with the municipality. So the final authorization, the agreement with the municipality. We have already finalized the draft document. Therefore, barring any unforeseen delays, we expect to sign the agreement within the next few weeks. Let me say, taking into consideration the upcoming summer breaks, let's say, by September, more or less. Finally, putting us in the composition to move forward with the final design and procurement activities. But going now back to the numbers, I would also like to underline the financial performance, resulting in the generation of more or less EUR 63 million in the semester and let me say, in line with the last year. The combined effect of free cash flow generation, investment activities as well as the payout of dividends drove our net debt at the end of June to around EUR 178 million, which is less than our time our last 12 months EBITDA. Looking ahead to the remainder of the year, we are pleased to raise our adjusted EBITDA guidance for the full year, together with the minor rephasing of some investment that I mentioned earlier. But I will elaborate more on that at the end of this call. To conclude, I would also like to share a brief update on the analysis currently underway regarding the potential consolidation with 8 towers. To date, we have mainly worked on industrial aspects and the activities are now progressing also on other relevant elements that you could easily imagine. Now it's time to deep dive in our first half of 2025 financial results, which will be discussed by our CFO. Please, Adalberto. Now the floor is yours.

Thank you, Roberto. Good afternoon to everyone. So I would skip to Slide 6 to focus on core revenues, where you may see that we have an increase of 2%, reaching EUR 140.3 million in the first 6 months of the year, with both business lines on a positive trend. Media distribution increased by 1.8% more than CPI, whose contribution was more or less 1.2%. And the increase -- the organic increase is due to the coverage extension of the RAI DAB network that gave us a positive impact in the first semester and that is included in the line new services to RAI that increased up to 20%. And then we have also the first positive contribution from the commercialization of our CDN services. Regarding the Digital Infrastructure segment, revenues amounted EUR 16.4 million with a growth of 3.6%, mainly thanks to the tower hosting business. And in particular, we have seen very interesting volumes from -- increasing volumes from radio broadcaster, growing 50% -- up to 50% as well as also in this case, the first positive contribution from the commercialization of our edge data center. Moving to OpEx. Next page, Page 7. We see an increase of 3.7%, landing at EUR 14.9 million in the first 6 months. Breaking down the OpEx, personnel costs were up 10%, which drops to approximately 6% when excluding capitalization that are lower compared to the previous year. The residual increase is due to the planned growth of our workforce in line with the assumption of our industrial plan and also in the average increase in the average cost per FTE due to the impact of the renewal of the collective labor agreement and to other items. Other operating costs were down by 3.3%, positively affected by noncore benefits. Excluding these items, the underlying basis grew by approximately EUR 2 million. driven by diversification initiative, which contributed approximately EUR 1.2 million, higher energy tariffs, adding more or less EUR 0.7 million. So we have a broadly stable level of our underlying cost basis in the traditional business. All this, we now -- we may move to the following slide, Slide 8. We see the adjusted EBITDA that reached EUR 96.3 million with a 68.6% margin, impacted also by proceeds from asset sales that we have included in the line other revenues and income. Slightly below, we highlight nonrecurring costs, mainly related to M&A as well as D&A, which confirmed the growing trend as the result of our development CapEx and financial charge that are improving vis-a-vis the last year figures due to lower interest rates. Net result amounted to EUR 47.3 million in the first 6 months of the year. Moving to Slide 9. Let's have a look to our net debt. As usual, including EUR 40 million of IFRS leasing, net debt closed at EUR 178 million, close to 1x the adjusted EBITDA generated in the last 12 months. Compared to the end of 2024, the net debt increased by approximately EUR 50 million, including, of course, the impact of the payment of our dividend, EUR 89 million. With cash generation, therefore, remaining healthy and in line with the previous year, free cash flow to equity stands at EUR 63 million in the first 6 months. So as per the outlook, let me turn the floor back to our CEO. Please, Roberto.

Thanks, Adalberto. In terms of expectation for the full year, considering the trend and the result recorded in the first semester, we are now in a position to raise our profitability guidance for 2025, mainly to reflect more favorable electricity tariffs and higher noncore benefits compared to the initial expectation. Noncore benefits that, by the way, really never come for free, but are actively targeted by the management to maintain the usual levels of growth despite the temporary impact of development initiatives. Excluding the noncore impacts and other factors not under company control, the underlying trends are overall confirmed with the progressive growth of traditional business driven, for example, by contractual indexation, DAB coverage extension, rising tower hosting volumes with radio broadcaster and so on, partially offset by the already anticipated absorption from the start-up phase of this diversification initiatives. As per the CapEx, we confirm the higher level of maintenance investment following some extraordinary activities such as the one that I mentioned before. While we now foresee a lower level of development CapEx compared to last year when we spent around EUR 40 million, mainly investing in diversification projects. No doubt, we will keep on working on our main projects such as DAB radio network expansion, the additional edge data center in the south of Italy and the other internal projects. Therefore, as commented in my initial remarks, this update follow just a slight shift to 2026 of certain activities related to the various initiatives, mainly in the traditional business, in particular, DAB radio and solar projects related. So that's all on our side. We can now open the line for the Q&A session.

[Operator Instructions] The first question is from Fabio Pavan, Mediobanca.

The first one is on the potential sector consolidation. I was wondering if you can share with us some more details eventually on what are the activities run so far and the expected time line for this process? And the second question is on hyperscale data center following the green light and so we had this expected signing of the concession. What are the next steps on this project?

Concerning the consolidation, the extraordinary operation, consider that we are under a mountain of NDA and limits. So you could consider that I could give you some information, but not so much. Let me say that there is a large effort by all the parties involved, especially Rai Way. We have worked a lot on the industrial evaluation, especially on synergies. Of course, now we are progressing on the other aspect because the synergies are one of the items, of course, of this kind of analysis and review. And the work is going on for sure. Considering timeline, let me say that the timeline, I could only say that the process also, as I mentioned in the past call, is quite complex. And so we have to spend a lot of efforts to overcome this complexity, let me say. But concerning the timeline, we cannot give particular information up to now and also because there was a reference given by the shareholders that is public.

Fabio, on the hyperscale data centers, the steps that you recalled are correct. We expect to sign the concession with the municipality in the coming weeks, I would say. The draft concession has already been agreed. So there are now some formal steps. And after that, and in particular, after having reached full visibility on timing. We will start on one side, all the pre-marketing activities also because any sort of pre-agreement will be -- or some sort of soft agreement will be more than welcome also in terms of derisking. And then we will start also -- the final design and procurement activity. So now the focus is to finally close this, I would say, never-ending authorization process.

Fabio, let me add also that we spend a lot of effort, also thanks to our, let me say, institutional brand to speed up a process that is really -- was really a nightmare. And the fact that really we are arriving at the final step, really the final step, I think that give us a very good opportunity compared to any kind of other subject that would like to approach this kind of adventure in the region of the center of Italy.

The next question is from Giorgio Tavolini, Intermonte.

The first one is a follow-up on the M&A time line. We appreciate that you can't provide specific information at this stage on the timeline. But should we expect a very definitive and, let me say, vocable go-no-go decision by when you will make this decision? And the second question is on the EBITDA guidance. I was wondering, you said clearly that noncore benefits do not come for free, but I was a little bit surprised to see the EUR 1.5 million noncore benefit supporting the adjusted EBITDA performance. So I was wondering if you can clarify if the EBITDA upgrade will, of course, benefit or will be driven by the EUR 1.5 million noncore benefit booked in H1? Or if the performance is pretty underlying, so stripping out this EUR 1.5 million. And the third question is on the CDN and the edge data center revenue breakdown. So this year, you guided during the first quarter call for around EUR 1 million revenues I don't know if it's fair to assume an equal split between the 2 initiatives. While looking forward to your business plan target of EUR 10 million revenues by 2027, I was wondering if you can, let's say, give some indication on the mix. So will be, let me say, 70% edge data center, EUR 7 million or less.

So let's start on the EBITDA guidance. The EUR 1.5 million you mentioned was already embedded in our guidance. We have seen in the first half some other -- some additional impact, mainly impacting on other OpEx as commented previously. So these are -- this is the one-off we are referring to. As concerned the CDN and edge data center guidance, yes, we mentioned in our last call, the figures that you just remind in your question. Giving some more details on this, yes, we may assume more or less half and half, probably I would expect a little bit more from the CDN rather than on the edge data center.

Concerning the first question, as I mentioned, I cannot answer completely, you could understand. But in my opinion, there is no [ deadline ], let me say. It's a process that is flowing and the work is progressing, but this is what we could confirm.

The next question is from Andrea Devita in Intesa Sanpaolo.

Very simple question on your level of investment. So I see this volatility on maintenance CapEx and development CapEx. So just to understand in the second part of the year, whether we will have maintenance CapEx more in the region of single digit or low digit or double-digit million euro and the same for maintenance CapEx. So we have like very different trends and very different levels for FY '24, and we would like to understand the absolute likely number for FY '25, if possible.

Okay. So as concerned our maintenance CapEx, in fact, this semester, we had high figures compared to the past, but this is nothing impacting the overall figures we expect to have at the end of the year. Simply, we have some activities that we finalize in advance, keeping in mind that our overall guidance for the present year is an increasing trend, but this trend will be exactly consistent with the trend of our business plan that, as you remember, had an increase in the midyear of our industrial plan to go back at the end of the plan at 6.5%. So all in all, for sure, the first half figures confirm the fact that we will go above the previous year figures. But this is something that should be consistent with the trend of our industrial plan that includes some nonrecurring activities. As overall guidance, you should assume 6.5% of our revenues of our core revenues on the long term.