Rai Way (Milan:RWAY) Q4 2025 Earnings Call

0:00 This is the conference operator. Welcome, and thank you for joining the Rai Way Full Year twenty twenty five Results Presentation. All participants are in listen only mode. And after the presentation, there will be a Q and A session. At this time, I would like to turn the conference over to Mr. Andrea Moretti, Head of IR. Please go ahead, sir. Thank you, operator, and good evening. At today's conference call, we will present Railway's 2025 full year results, operating achievements as well as our 2026 guidance. Today's hosts are CEO, Roberto Cicato CFO, Adalberto Pellegrino and our Chief Corporate Development Officer, Giancarlo Benucci.

0:46 Please Mr. Giacatto, go ahead. Good evening from me too. The fourth quarter and more in general, the entire 2025 confirmed the sound and stable fundamentals of our business. This year further supported by cost control actions and non core benefits. As you may remember, in March of last year, we provided an outlook for 2025 guiding for a broadly stable adjusted EBITDA. We have largely exceeded the target. And while it's honest to say that a big part of the beat came from non core items, Let me say that the operating performance also proved to be better than expected, in particular in the traditional business, both in term of top line and opportunity to optimize the cost base.

1:47 Consequently, as shown on Slide four, we maintained the upward trend in our key metrics even during the start up of diversification initiatives, which are already starting to contribute to our medium and long term growth. More in details, looking at the overall financial result, the 2.4% year on year increase in revenues reflects the contribution of both our anchor customer, Rai, supported by inflation and the gradual expansion of the DAB network and by third party clients, which on an underlying basis rose by 4.4% over the full year and by, let me say, a remarkable 10% in quarter four.

2:47 Third party revenues were driven by, first, the excellent performance in the tower hosting of radio broadcasters broadcasters as they are rolling out DAB networks. Second, the growing utilization of our EP fiber backbone for connectivity services. And finally, by the diversification initiatives, we generated over €1,000,000 of revenues in 2025. In term of adjusted EBITDA, as mentioned earlier, the increase compared to 2024 of over EUR 6,000,000 in absolute terms was driven by these factors.

3:35 The traditional business contributing approximately €5,000,000 also thanks to the reduction in external cost. The expected higher absorption of approximately €1,000,000 from diversification initiatives, which we nevertheless managed to contain despite the more gradual revenues evolution. And finally, as anticipated, the level of certain noncore items, which contributed positively to grow for approximately EUR 2,500,000. The net profit saw a slight decline due to the expected rise in depreciation and amortization and reported one off costs for over EUR 4,000,000.

4:30 Excluding the one offs, we could say that the profit will also have risen. In term of capital expenditure, the maintenance component was higher than usual and of course confirmed the recurring level of around 6% of revenues due to some extraordinary activities, for example, relating to passive infrastructure and the cyclical renewal of certain IT components. The development component on the other end stood at around €30,000,000 consistently with the re phasing already discussed in the last November conference call. The recurring cash generation to equity holders stood at around €118,000,000 broadly in line with last year, despite the above mentioned temporary fluctuation in maintenance CapEx.

5:32 If we were to consider the over the cycle figure for maintenance CapEx, the trend will still show grow to a level above €120,000,000 As for the dividend distribution, in line with our usual policy, we confirm the payout of basically the 100% of the profit generated, meaning 0.33 per share. I would like to point out that with this year's distribution, we will have essentially returned to the shareholders the full capital invested in the IPO in 2014, to be precise 95%. Moving on the operational business update, would like to focus on the recent progress made on the development initiatives included in our plan.

6:30 Within a context anticipated during our November call involving certain delays relating to authorization processes or market condition, which however we do not believe will undermine the rationale or long term potential of our project, the company has not remained passive. And recent months have brought some positive updates. Regarding the traditional activities and assets, the extension of the radio network for Rai is proceeding smoothly. As of December 2025, it has achieved a population coverage of approximately 70% with 179 sites compared to the initial 56% with only 62 sites and the full scale target of 85%.

7:29 For the photovoltaic project aimed to creating value from our real estate portfolio, we have received permits for the first four sites totaling over 12 megawatt. You can see that on Slide six. Let me say that consider the various legislative changes to the authorization procedures secured while we were working on that. So, it took more time than previously planned. But we have already placed purchasing order and we are about to start construction with installation time of around six months and first revenue contribution expected by the end of twenty twenty six.

8:16 And in 2026 and early twenty twenty seven, we expect to receive the further authorization, so we can consider 2028 as the first year of full scale contribution from such a larger project, in which we plan to invest more than €30,000,000 and we expect the run rate contribution to EBITDA in the region of EUR 4,000,000. Let's now move to diversification to Slide seven. Today's focus is on data center, in particular on the long awaited successful completion of the regulatory process for the hyperscale data center in Pomeccia.

9:02 It followed a positive outcome of the so called Conferencia de Servizi and the signing of the concession agreement with the local council. The authorization set out the physical footprint and size of generator, so the shape, for a project with four independent modules covering 70,500 square meters, 16 data holes, four per each module and an IT load of approximately 35 megawatt. In parallel, we are also working with the electricity grid operator to define a timeline for high voltage availability.

9:50 However, the initial phase, at least for the first six, seven megawatt, we will rely on the medium voltage line and our own photovoltaic system, which is among those mentioned here. Bear in mind that the authorization itself has already generated a significant initial value, a site with an approved project holds a not negligible worth. Let me say that we have an independent expert check that estimated the value, actual value at EUR 15,000,000. However, this is not the end goal. We are now starting engaging with prospects also in order to identify the best strategy to develop the asset.

10:45 Indeed, this asset is authorized, which therefore guarantees a significant reduction in time to market. It's an optimal sites and modularity making it compatible with both hyper scale and more enterprise oriented use. It show flexibility regarding the fit out, therefore it's fully AI compliant if necessary and requested. It is located in Rome that is a strategic location from several perspectives. And last but not least, it has access to our proprietary edge architecture including regional data center and fiber optics capable of supporting AI inference and other low latency application.

11:36 We are confident about the project's appeal to hyperscalers, cloud operator and larger corporate. But let me say that our aim is to be balanced the risk reward profile of the investment while ensuring the scalability of Rai Way business. Coming back to dimension in the slide four for the regional data center, let me say that we are waiting for a wider adoption of latency sensitive application. For instance, also AI inference, and completing our network through the hyperscale, we are primarily targeting enterprise customers.

12:23 As you may recall, in order to improve the commercial effectiveness of this segment, we have expanded our offering to include infrastructure as a service solution. This solution combines physical data centers with virtual storage and computing, essentially data center, server, and the virtual environment. And the move is actually helping to reduce our customer decision making times and to better channel infrastructure requirements, primarily those underpinning the cloud into our asset. It's a fragmented market with a larger number of opportunities, albeit with a small average value.

13:12 So over time, we expect to see a gradual increase in the contribution to our figures. Our commitment to sustainability is certainly not to change in the 2025. On the contrary, its principles have become an increasingly integral part of our business management. We will provide an update on the progress of the plan later, but I'm pleased to announce that we have achieved one of the key objectives to the carbon neutrality. I will now hand over to Alberto for all the details on this year financial performance and I will be back at the end to discuss the outlook for 2026, which I anticipate to be in line with the positive trends of the recent years and for some closing remarks.

14:10 Please, Alberto, the floor is now yours. Thank you, Roberto. Good evening to everyone. Would skip Slide eight, which provides an overview of the financial results for 2025 and go straight to the data of metric. So on Slide nine, we analyze the trend of core revenues, which grew by 2.4%, above EUR282 million on a yearly basis. Media Distribution Services were up by 2.2, those reflecting a number of effects, including the 1.2% increase in Rai fixed consideration due to the CPI indexation.

15:07 Extensions of Rai's DAB network coverage included in the new services for Rai category, which amounted EUR 9,700,000 with a growth of 30% year on year. The initial and then we have also positive impact from the initial contribution from CDN services. As per digital infrastructure, revenues reached EUR 33,300,000, up 4.1% compared to last year, but up almost 5% without excluding some prior year adjustment and non core items. Such growth benefit from tower hosting, whose underlying growth was 3% driven by CPI indexation and strong volumes in radio broadcasting, which was up by 35%.

16:07 The contribution from data centers and connectivity services was also material and focusing on third parties customer. So the 16% of our revenue is not coming from Rai. Generally speaking, they registered a significant acceleration in 2025, especially in the last quarter, thanks to the business development activities. Moving to OpEx, Slide 10, we have a 1% increase of cost, which landed at €93,300,000 on a yearly basis. Breaking down the OpEx, we noticed the personnel costs were up 5.2%, which decreased approximately 4% when considering only the traditional business.

16:59 Increase is mainly due to the renewal of the collective labor agreement that we already commented in our last calls. Diversification initiatives led to an increase of only €300,000 compared to 2024. Other operating costs were down by 3.2%, positively affected by non core benefits. Excluding these items, the underlying basis grew by 1.6 driven by diversification initiatives or the startup costs related to these initiatives, which contributed $1,900,000 to the increase.

17:44 Costs related to the traditional business benefited from further optimizations, showing an improvement of around 2.5%, mainly related to contribution capacity, energy consumption, travel and lodging, real estate and others. Let's now move to Slide 11, where we can see that the traditional business continue to grow, also supported by the efficiency mentioned earlier. The strong performance also made it possible to offset the expected negative impact related to the startup of diversification activities, mainly thanks to careful cost management. Growth also was supported by benefits from non core items as you may see in the chart.

18:39 All these, we are now on Slide 12, turns into an increase in the adjusted EBITDA that reached €191,800,000 with a marginality of 16.8%, positively impacted also by proceeds from asset sale and tax credit on development project included in the line other revenues and income. Just below, nonrecurring costs are mainly related to M and A activities, voluntary layoff incentives and lease agreements for our regional offices, which is temporarily accounted for as OpEx until renewal.

19:29 Moving further down, we see the trend that we already commented of our IRD and A, mainly related to the level of our CapEx, financial charge, also in this case, same comment of last call, we have a positive impact from lower interest rates. And this is all for this slide. Let me comment Slide 13, where we may give a look to our net financial position. So including EUR 27,100,000 of IFRS leasing, net debt closed at EUR 136,500,000.

20:17 Compared to the end of twenty twenty four, it increased by almost EUR 10,000,000 after paying out 89,700,000 in dividends, while the net financial position to EBITDA ratio remains broadly in line to approximately 0.7 times. Overall, cash generation remained healthy and in line with the previous year with free cash flow to equity stable at EUR 118,000,000 despite strong maintenance activities. As you can see in Slide 14, this will support both development CapEx and the distribution of 100% of our net income, 88,600,000 as a dividend, subject of course to approval at the next shareholder meeting.

21:12 The dividend proposal of €0.33 per share implies a dividend yield of 5.7% at current market price and brings the accumulated distribution since the IPO at approximately EUR $761,000,000, which confirms once again our strong focus on shareholder remuneration. As per the sustainability aspects, let's go to Slide 15. 2025 was the second year of our sustainability plan and we achieved many important targets as Roberto commented initially.

21:58 In particular, we are pleased to announce the achievement of the carbon neutrality on Scope one and Scope two market based. And I would like also to specify that the carbon neutrality is about the whole company perimeter, so including also our five edge data center. Moreover, in 2025, we also finalized the submission of the SBTI targets. On social, you may also see some interesting KPIs such as the increase in our training hours. Jumping to the governance pillar of our ESG actions, let me underline the cybersecurity certification we have obtained that are related to the data center and CDN service.

22:57 On the right of this slide, you have our five ESG rating that are basically unchanged compared to 2024. That's all from me. So I'll hand it back to our CEO. Thanks, Alberto. Let me conclude with the expectation for 2026 on the Slide 16. Our company and our business have demonstrated in the past strong resilience in any macroeconomic environment. It's also true that the international geopolitical situation, which is far from stable, is causing volatility in electricity price, which is notably one of our main cost items.

23:45 Consider that one month ago, energy futures suggested a slight decrease in the '26 average price compared to 2025. In only four days after the war erupted, they recorded an increase of nearly €30 per megawatt. Although the CPI link included in most of our contracts allow us with the certain time lag, of course, to recap any spikes reflected in inflation, In the short term, we believe it is more useful to provide guidance at constant energy price. Let me remind you our sensitivity to them. Given our annual consumption of approximately 70 gigawatt hour, a €10 per gigawatt hour change has an impact of about €700,000 on our EBITDA.

24:50 Under this assumption, we expected adjusted EBITDA in the 2026 to be broadly in line with the previous year with underlying business growth offset by a negative impact from the level of non core items. In other words, excluding the non core impact, we foresee a further year over year growth of an underlying basis that you can assume at around EUR 3,000,000. In particular, growth will result from two components. First, further grow in the traditional business, mainly driven by CPI linked increase and the expansion of the IB networks for both Rai and the other customers that are impacting on tower hosting.

25:41 Second, the contribution of diversification initiatives to EBITDA, which, although as planned, is still negative in absolute term, will be stable or slightly improving compared to 2025, also thanks to higher expected revenues. Moving to investment, the maintenance components is expected to remain close to the 2025 levels, once again due to certain extraordinary activities in the cycle nature of certain components. However, over the cycle, we confer the average level of 6.5 of core revenues. The development components is expected to exceed the twenty twenty six level, reflecting the planned activities mainly on the solar project, the extension of the B network and the CDN network expansion.

26:44 However, on this specific metric, the phasing of certain investment may change a bit depending on the timing of the permitting process and the speed of commercial uptake. That's all on our side. I thank you for the kind attention, and we can now open the line for the Q and A session. Thank you. We will now begin the question and answer session. The first question is from Giorgio Tavolini of Intermonte.

27:36 Please go ahead. Hi, good evening. Thanks for taking my three questions, please. The first one is on the consolidation. I mean, the extent you can comment, should we expect any formal communication by end of this week regarding the dossier with the EI towers since the expiration of the MoU is end of this month? The second question is on the hyperscaler data center. Back to Slide seven. If I remember correctly, your previous CapEx envelope in the business plan envisaged €77,000,000 for the first module of the hyperscale data center. Last week, indicated you reminded that this project could involve up to €400,000,000 investments to reach the total capacity of 36 megawatts.

28:33 So I was wondering if you can provide an indication of the phasing of these additional investments after, I don't know, 2027, so 2028, how much every year? And if you have already some pre committed capacity on the first set of megawatts, so 5.5? And the third question is on the IFRS 16. I saw there was a strong steep reduction in the lease liabilities, 27,000,000 compared to the usual €5,000,000 while the lease payment came broadly stable at around €10,000,000 So I was wondering if it's fair to assume lower lease payments from 2026 onwards, so EUR 10,000,000 flat? Or should we expect a lower lease payment? Thank Thank you, Giorgio.

29:38 Concerning the first question, let me say that the reference shareholders of matters within their own responsibility have an MOU due to expire in few days. We simply have to wait for an update from their site. I get your point, but at this stage, our position cannot be different. Please, Alberto, for the second question. Yes. As concerned, the IFRS 16 actually is quite complicated. We expect that we have again an increase in 2026 because in the next months, we expect to have the renewal of an important contract that as of today is under negotiation, and so there is no impact on the overall financials.

30:39 As concern, CapEx on related to the hyperscale data center, let me first just clarify, we don't have a pre commitment as of today because we have just launched the marketing campaign with the conference with what we did the last week at the presence of of the ministry. So we will start now the marketing activities and of course, we will keep you informed. As concerned the CapEx, we have as you were remembering EUR 76,000,000 in our business plan, and this is basically the proxy that you may keep in mind assuming one year of delay vis a vis the business plan. So in the business plan, we had 76 in 2026 and 2027.

31:40 We could have the same overall number, but split in 2027 and in 2028. 76 is related to the very first part of our hyperscale data center, half building, half of the first building, of course, so a total capacity of between four and five megawatt, typically the most expensive capacity because there are also CapEx regarding the entire project that has an impact on the first part of the project. And as concern, the EUR 400,000,000 that Roberto mentioned, this is related to the full potentiality of our project.

32:37 We have an authorization from relevant administration to build an hyperscale data center of almost 40 megawatt. Assuming the capacity we are planning, we are thinking as of today for the first model, the total capacity should be at around 36 megawatt, but this is the run rate capacity. So in our plan, we just put 4.5, more or less, megawatt. In ten year time horizon, I would say, should be fair to assume 18 megawatt of capacity.

33:24 But of course, we invest in this business because it give us an opportunity to increase the scale to the extent that we have commercial opportunities. And so also keeping in mind our financial flexibility, if we will have interesting opportunity for sure, we will be more than happy to accelerate the deployment. So just to summarize, '76 is consistent with the first small part of an entire capacity that could lead to a total investment of EUR 400,000,000. But this is a number that will happen after many years.

34:15 Thank you very much. Gentlemen, there are no more questions registered at this time. Thank you, operator. So we just thank you all the participants to the call.

35:05 We will keep you informed about our next marketing activities, and we wish you a nice evening. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.