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

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

Thank you, and good evening to everybody. Without holding back, I would like to begin with a few observations on the outcome of the discussion regarding the consolidation of Italian broadcasting infrastructure sector. It's well known that this discussion were deeply explored and we spanned a period of about here and. They primarily involved the key shareholders of both Rai Way and El Towers with Rai Way directly involved in the analysis of industrial synergies and in the last part, in the support of RAI in the negotiation phase. Let me say that this is certainly not the appropriate forum nor is our role to elaborate on the reason and differing viewpoints that led to this outcome. But I wish to emphasize the consistency we have maintained with our position from the very beginning. We were in favor of this opportunity provided that the condition for the reasonable, I underline reasonable long-term sustainability and the fair value creation for Rai Way and all its shareholders were met. So we, therefore, accept this outcome as a fact. As you may recall, when we published the industrial plan in 2024, we pointed out that such a plan represented the development path for the company compatible with both stand-alone and consolidation scenarios. The latter, the consolidation represented one of the initiatives to unlock Rai Way 's full potential not recognized by the market. But the other initiatives were the organic reinforcement of the traditional business, the diversification initiatives and other external growth opportunities, all aimed at pulling what we consider the proper value levers for our company. First, to improve the perception of long-term sustainability through higher cash generation from the core business and diversification, then creating future value through diversification and last, optimizing capital structure with benefits for shareholder returns. All of that in a still positive environment for the company, supported by the confirmation of all the pillars of the equity story. While it has not been possible to finalize the consolidation, the rest of the plan remains valid. By saying that, I'm referring to the business dynamics, the additional lever just mentioned and the management's commitment to execution. In terms of dynamics, our traditional business retains its long recognized and appreciated characteristics, which are certainly not compromised by the lack of consolidation. I'm referring to revenue predictability guaranteed by long-term contracts, the protection from macro headwinds, a business model that has also provided resiliency against the technological and regulatory updates such as happened in the 2020 refarming, the best-in-class profitability and operating leverage, a progressive improvement in cash generation and a significant payout. Then of course, there remains our commitment to the other initiatives and value levers. First of all, factoring in the traditional business and therefore, the perception of its long-term sustainability, but through the stability of the Digital Terrestrial Television audience, which post-COVID has remained stable, the expansion of the broadcasting networks like Digital Radio 1 and the consistent operational leverage, all these things are sign pointed in the right direction. From this perspective, let me underline a couple of points. Referring to the press coverage regarding discussion among the shareholders, the position taken by our majority shareholder, the largest customer, should reinforce the perception of long-term sustainability of DTT, Digital Terrestrial Television and consequently of the service that we provide. And we believe that is what RAI is referring to mentioning in its press release, the commitment to push, let me say, fall away, business strategies characterized by solidity and long-term sustainability. I would also like to clarify another misleading point recently reported, namely the comparison of fees paid by different clients in this sector. This error lies in comparing things that are not comparable given the requirements of the public service and the scope of Rai Way's operation. Looking solely at the scope of TV broadcasting, we manage a multiplex with coverage that is essentially with double number of sites that any other multiplex in Italy. We ensure the regionalization of this MUX with MUX its equivalent to 13 MUXes. We provide a full service, including the management of the heads for all the networks of our clients Rai. In addition, among other things, the same contract and fee cover the full service management of five analog FM and 1 digital radio national networks for Rai. Let me say that we manage also the national contribution network, very complex that interconnects studios and playout in all the regional production center in every region as well as seven large mini production centers. And last, we provide satellite broadcasting and contribution services. Let me say that I think that this is enough to give you an idea. Coming back to the initiatives and the value levers. Regarding the diversification initiatives, while progress has clearly been slower than initially assumed, in some case, due to the bureaucratic delays that we already mentioned in the past call, but we reaffirm the soundness of the project, its alignment with technological and market trends and the significant albeit more gradual contribution we expect in the medium to long term. Let's have a quick deep dive into that on Slide 7. On the one hand, there is a broad consensus on the need for medium- to large-scale assets to support the public cloud and AI infrastructure. I'm here referring to hyperscale data centers such as our project in Rome. On the other hand, we continue to see a positive supply-demand balance in the Edge regional data center market. Enterprise demand for co-location and cloud services is expected to grow strongly, far outstripping the number of new megawatts planned outside the major hubs such as Milan and Rome, which will be dominated by large hyperscale facilities. Proximity latency will become increasingly a key purchasing factor, particularly with the spread of Generative AI application. Really, it's a market that has required some fine-tuning from a commercial perspective, but the expansion of our offering allow us to better target end customers and intermediaries such as system integrators and cloud providers. Diversification could also lead to accelerated capital deployment with the potential to improve returns for our shareholders through the optimization of our capital structure. Go to the Slide 8. We are well aware of the relevance that external growth can have both industrial relevance in terms of synergies and acceleration of diversification initiatives and financial in terms of improvements of our capital structure and return for shareholders. Without the opportunity with El Towers, which would evidently have absorbed a large part of our flexibility, our focus must now shift to other areas. In the broadcast infrastructure sector, the remaining market is relatively limited. We are talking about small-scale opportunities that they could bring some benefits in terms of synergies and cost reduction. The opportunities supporting diversification are potentially really more interesting. Regional supply today is either of insufficient quality to attract demand or is managed by operators who use it primarily for their own needs with low utilization rates. This may represent an opportunity to acquire customers, completing our footprint or rationalizing their existing asset. These are the areas where we are already focusing, and let me stress that they have not been compromised by the lack of sector consolidation, as also the first half result demonstrate. Specifically, let's have an overview of them moving back to the overview slide. So come back to the Slide 4. Revenues continue to outperform the CPI contribution with 2.5% growth driven by both the business segments. The adjusted EBITDA improved by approximately EUR 400,000 compared to the first half of 2025. But more interestingly, excluding the negative year-on-year impact from noncore items, which totaled over EUR 2 million, the underlying performance of the adjusted EBITDA recorded an increase of EUR 2.5 million in the half year. This performance was driven by the positive trend in the traditional business, which benefited from the usual operating leverage with cost remaining substantially stable and the proxy lower absorption from diversification initiatives. Below the adjusted EBITDA, the reduction in net income is mainly attributable to the increase in depreciation and amortization resulting from investment in development initiatives. In terms of investment, the maintenance component has returned to a more normalized level following last year's spike linked to planned nonrecurring activities and the cyclical nature of certain IT investments. On the other hand, the development component amounts to approximately EUR 11 million versus EUR 6 million last year due to activities related to the expansion of the DAB, the digital radio network and diversification. Finally, the recurring free cash flow generation in the first half reached EUR 68 million. From an operational standpoint, let me walk through an update on our development activities. The expansion of the DAB network for Rai Way proceeding without issue. The physical installation of solar panel is underway at three of the four photovoltaic fields that we already been authorized. Regarding the CDN, we are negotiating the expansion of managed traffic for the client while simultaneously increasing our network capacity. On the Edge data center front, although numbers are still limited due to the market fragmentation, the response of enterprise client to IaaS services, the Infrastructure as a Service offering is positive. In addition, we are beginning to see initial interest in low latency networks to support AI application, particularly inference for agent-based AI. Let's now talk about the marketing activities for the Hyperscale project. Compared to our previous touch points, we have started engaging with our priority prospects. The initial reaction, particularly from the most involved in public hybrid cloud infrastructure hyperscalers, was one of genuine interest. Given the project positive progress, they are now assessing the asset internally, specifically to evaluate how to coordinate this opportunity with the ongoing deployment of the Milan region and the commercial potential of the Rome area. What is really important is that so far, we have not encountered any significant pushback regarding the time frame of our project or the size. Therefore, the situation remains fluid. In the meantime, we're also extending the outreach to other types of potential anchor tenants such as Neo-cloud or large language models developers. Moreover, the marketing activity is supported with good news from the power front with the high-voltage connection expected to be available by 2029. Following the work carried out with Terna, a very good relationship. Let me recall that high voltage is required to exceed 10 megawatt of facility power that we already will be available soon. But the ability to scale up quickly is an additional selling point for customers, improving the commercial proposition. Further confirming the business trends highlighted at the beginning of the presentation, our first half performance allows us to slightly improve our full year expectation as we will see shortly. That said, I will now leave the floor to our CFO, Adalberto, who will go through a much more detailed overview of the result. Please go ahead.

Thank you, Roberto, and good evening from me as well. I will skip as usual the Slide #9, which show our financial KPI in order to directly comment each trend. So first, core revenues on Slide 10. In the semester, core revenues increased by 2.5%, reaching EUR 144 million, showing a trend basically in line with what we commented in the first quarter call. Both business segments contributed to the positive performance. More in details and referring to underlying trends, Media distribution was up 1.9%. Basically, we have almost doubled the impact of CPI, which stood at 1%, primarily thanks to the expansion of the DAB network for RAI. Digital infrastructure shows a growth of 6.4% on a recurring basis, driven by the strong performance of all tower hosting connectivity and data center operations. Focusing on diversification initiatives, they generated a total of EUR 0.6 million, 3x the level of the first half of 2025. Let's go to the following slide. In terms of OpEx, they recorded an increase of 3.3% from EUR 45.9 million to EUR 47.4 million. Personnel costs representing around 55% of the total cost base of the semester were higher compared to last year, mainly because of the renewal of the collective labor agreement. The impact of diversification on the labor cost trend was indeed very limited, almost stable compared to the first quarter. On an underlying basis, other operating costs were up only by 0.9%, totally referring to diversification, which had an impact of EUR 0.2 million. Traditional business indeed was stable, thanks to cost control actions, a positive contribution from energy tariffs, still positive. Let me remember that last year, we had an important impact on our other operating costs in relation to noncore benefits. So the reported plus 5.9% growth on a recurring basis become only 0.9%. This is even more evident looking at the following slide, Slide 12. As you can see, the traditional business once again is very healthy and continues to grow, showing an increase in adjusted EBITDA of EUR 2.5 million out of a EUR 3 million increase in revenues. We recorded no impact from diversification as a consequence of the revenues increase and of our focus on cost. I would like to focus on the noncore items bar amounting to negative EUR 2.3 million in order to recall that last year, we sold the real estate property for EUR 1.5 million. And we had also, as just commented, a high level of non-core items on other benefiting the 2025 adjusted EBITDA. In the first half of 2026, we had not such an impact. So finally, as anticipated, the effect from energy tariffs was positive in the semester and equal to EUR 0.2 million. But according to the current energy futures, it is reasonable going to worsen in the remaining part of the year as we will discuss talking about the outlook. On the following slide, as usual, we recap the whole profit and loss. First pointing out last year's asset sale contribution that I have just mentioned in other revenues and income. Together with all the other revenues and cost items, it brought the adjusted EBITDA to EUR 96.8 million, slightly above the first half 2025 level. Reported EBITDA on the other hand, was lower by 0.8%, mainly reflecting the ongoing adjustments related to the impact of the lease agreement with Rai covering now the regional offices after we move to the new headquarter. We make this adjustment because the renewal is pending and the lease costs are accordingly accounted as OpEx instead of D&A and financial charge. The adjustment amounted in the first six months, EUR 1.2 million. Scrolling down, we noticed an increase in D&A in coherence with the trend already commented in the previous quarter from EUR 26.7 million to EUR 30.3 million. This ongoing trend mainly reflects the increase in CapEx related both to diversification and to development initiatives in the core business as already commented in the past. Net financial charge and tax rate were basically flat, leading to a 6.7% decrease in net income, which amounted EUR 44.1 million. Moving to Slide 14. Let's have a look to the net financial debt, including EUR 26.7 million of IFRS leasing, net debt closed at EUR 168 million, bringing the leverage ratio to 0.9x. Compared to the end of 2025, the net debt increased by EUR 31.4 million, including, of course, the payment of our dividend. The recurring free cash flow to equity grew to around EUR 68 million from EUR 63 million recorded in the first half 2025, mainly due to lower maintenance CapEx in 2026. As per the outlook, let me turn the floor back to Roberto.

Thank you, Adalberto. As anticipated, we are now in the position to slightly the full year guidance provided in March. Considering the persistent volatility in the energy market, the outlook remains based on constant electricity price. Under this assumption, while our previous indication was for a flattish year-on-year adjusted EBITDA with the underlying business growth offset by the negative impact from the level of noncore items. We now expect that the adjusted EBITDA to be above the 2025 level, let's say, a couple of millions above, with the uplift mainly driven by lower than initially assumed negative impact for the level of noncore items, but also by better strong cost control in the underlying business. In particular, the underlying growth that we can now anticipate in EUR 3.5 million, EUR 4 million range is supported primarily by the traditional business, thanks to CPI link and the expansion of DAB networks, together with a stable or slightly improving absorption from diversification. As for the potential impact from electricity price not included in this guidance. In addition to the sensitivity already provided, we can indicate that based on the current power futures for the rest of the year, headwind compared to 2025 will be approximately EUR 2 million. Please keep in mind that volatility of the futures is very high. Moving to investments. Maintenance CapEx is now expected below 2025 levels, therefore, lower than previously assumed because of the rephasing of certain extraordinary activities. At the same time, development CapEx is confirmed above the 2025 level, reflecting the investment in the solar project, the extension of the DAB network, and the expansion of the CDN network. So that's all from our side, and we can now open the line from the Q&A session.

[Operator Instructions] The first question is from Giorgio Tavolini of Intermonte.

The first one is on the end of discussions with the EI Towers. I was wondering if we should expect an updated industrial plan in early 2027. And in particular, I was wondering if you will be starting by that time the discussions with Rai for the renewal of the current MSA. So, I guess it should expire in 2028 and could be extended for up to seven years. So, I was wondering if there is some link for the presentation of the updated industrial plan or we should expect something earlier this year. The second question is on the development CapEx. You still expect an increasing portion of development CapEx for this year I don't know if it's fair to assume EUR 40 million given the important acceleration required in the second half of this year. And in particular, I was also curious to understand if given the significant level of investments that are required for data center, everyone is talking about data center investments in days. And in part given the need for you to maintain a sustainable leverage profile, I was wondering if you consider partnering with financial infrastructure investors through an off-balance sheet joint venture to fund part of the expansion.