Rai Way S.p.A.

Good afternoon, this is the conference operator. Welcome and thank you for joining the Raiway 9-month 2025 results analyst web call. All participants are in listen-only mode and after the presentation there will be a Q&A session. At this time, I would like to turn the conference over to Mr. Andrea Moretti, head of IR or Raiway. Please go ahead, sir.

Thank you, operator, and thank you all for attending our conference call. The call will be held, as usual, by our CFO, Adalberto Pellegrino, CEO, of course, Roberto Cecatto, and our Chief Corporate Development Officer, Giancarlo Benucci. Please, Mr. Cecatto, go ahead.

Thank you, Andrea. Good evening to everyone. Let's restart. In slide four... Okay. Okay. In slide 4, we summarized the main achievements of the period, both in terms of financial results and in terms of operating activities. The first nine months' financials were particularly solid, even better than our beginning of the year expectation, and showed a clear continuity with the already strong result that we posted at the end of June. Revenue grew even accelerated to basically 3% in the third quarter compared to the plus 2% recorded in the first half. Both business segments grew faster compared to the CPI link contribution. In fact, media distribution services benefited from the expansion of DAB radio coverage for RAI representing around 85% of the increase in the revenues from new services to RAI. But also the radio broadcaster also pushed the digital infra division because of the rising needs of towers to extend private operators' DAB networks. And let's not forget the initial contribution for diversification initiatives, namely data center and CDN, have though still limited as I will elaborate more in a while. Moving to profitability, adjusted EBITDA rose by 2.8%, supported by positive underlying trends in the traditional business, also helped by careful cost control and some non-core items. These non-core benefits benefited both other revenues, including government incentives on new tech projects and proceeds from land sale and mailing costs. But please note that we actually pursued them in this period in order to mitigate the temporary impact of the startup stage of the new initiatives. At the back of the CFO, we later discuss how all these moving parts impacted on the recorded ABTA level. Once again, Net income was in line with last year's after taking into account a higher level of depreciation and amortization, which is a consequence of our continuous investment activity. Speaking of which, in the nine months, we recorded almost the same amount of capex than one year before, slightly above 25 million of euros, but with a different mix. The majority is indeed represented by maintenance activities, which included some planned exceptional non-recurring activities on some big towers. There was also a seasonality effect involving certain high-level cybersecurity IP network investments. The development capex in the nine months were equal to 11 million, therefore below last year level, consistently with the guidance updated in July. In particular, the reduction compared to the expectation at the beginning of the year is the result of three main factors. The first one is the slight shift to 2026 of some investment for RAI DAB network extension, but let me say, to be fully recovered the next year, being orders already placed and installation planned. Therefore, there will not impact on subsequent years. The second phenomenon impacting our development capex is the length of the approval process for some land interested by the photovoltaic project. This is essentially leading to a one-year shift in the investment plan now expected in 26-27 instead of 25-26, and the contribution to P&L with full impact now expected in 20-28. Finally, we are planning a different phasing of the rollout of new edge data centers. We have projects, lands and expertise. It is mainly a matter of setting the right moment of construction in order to match a better level of edge demand and improve returns. Let me clarify that this is definitely not a change in the strategy. The consensus of the need for assets distributed across the territory is more relevant than ever. And this is a concept also reiterated, for example, by the government, the Italian government strategy to attract investment in the edge data center. If you see the July document of the minute. Generally speaking, so at least a European level, not just ours, edge infrastructure are currently experiencing slower uptake due to delays in one of the two areas of demand. In fact, while enterprise demand for regional capacity is present and growing, although fragmented, the demand for edge networks resulting from the spread of low latency services is proving at the moment slower. As I will explain shortly, we are improving the effectiveness of our commercial activities in the enterprise segment, primarily by identifying the right demand aggregators. Meanwhile, the need for low latency and local data processing could accelerate significantly following the rising interest for AI application and the AI cloud architecture that require a low latency inference phase. Also consider that there are several AI cloud providers that have already started rolling out their infrastructure using third-party data centers. let me say that it's only a matter of time before these two levers justify or require the addition of farther edge nodes. But at that point, we will be very quick and flexible. To conclude on financials, let me also underline the strength of our recurring free cash generation, which accounted for approximately $94 million despite the seasonality investment, bringing down the net debt compared to the end of June levels. Now we have to speak about the operational perspective. In the traditional business, the main project for our client ride, namely the station of coverage of the DAB network, is proceeding largely as planned. as evidenced by the revenue growth of new services. As already said, the approval process for some of the photovoltaic projects is taking longer than expected, but also in this case, it is a matter of time rather than feasibility or returns. Moving to diversification initiatives, we are focusing on commercial levels to enhance revenue contributions. On the edge of data center within the context outlined before, currently the target market is enterprise, driven by the off-premises relocation of service and even more, the deployment of private cloud environments. This demand is growing but fragmented. Therefore, we try to address and we are addressing it through aggregators such as private cloud operators and system integrators. The latter also through an expansion of our offering to IEA services, infrastructure as a service approach. This new approach, this different targeting is now operational is already in place and starting to show more effectiveness and fit with our partners, hopefully leading to improved results in the coming months. Furthermore, we are talking about a market with some local assets, for example, those held by private cloud operators, which in many cases are largely underutilized and could be consolidated and rationalized as a way to enhance the growth profile. Speaking regarding the CDN, In collaboration with some large clients and our technology partners, we are fine-tuning certain very sophisticated technical aspects and, above all, building a good track record of performance that will encourage customers to gradually move a larger portion of their traffic to our network. Regarding the hyperscale data center project near Rome in the Pomezia municipality, although we have hoped to arrive at this call with the final authorization, updates are not lacking. The process called Conferenza dei Servizi step ended positively as all the other administrative issues inside the administration of Pomezia Municipality. The conclusion of the process is now linked to an exemption that arises only in the last few days from an authority, the Hydrogeological Basin Authority, but we are working on it and aim to obtain it with a reasonably short timeframe. To sum up, the reviscation part is proving to be more gradual, both for market and authorization reasons, but with regard to 2025, we aim to see an initial improvement in contribution in Q4 2025. so the last part of the year. On the other hand, we have nevertheless been able to modulate the fixed cost of these initiatives according to the revenues, essentially entirely offsetting at everyday level the more gradual top-line contributions. While looking at the big picture, what I would like to stress is that we are creating a platform that combines high performance connectivity, centralized data center, distributed data center, and traffic accelerators such as CDN, together with the characteristic of sovereignty, neutrality, and quality. Let me say that this platform is among the most fitting and interesting national infrastructure to enable the next technological shift. We believe to be well positioned to cite future opportunities and certain feedback we get from market operators and potential prospects seems to confirm this. Moving now to the outlook, the results achieved in the first nine months allow us to comfortably confirm the 2025 guidance, especially referring to expected increase in adjusted EBITDA, even slightly above the July expectation, driven by the performance of the traditional business and the non-recurring benefits. Still in terms of outlook, we would also like to provide, to the extent permitted, a brief update on the status of the activities related to the possible broadcasting tower sector consolidation. As already told in the past call, the industrial analysis was substantially completed at the end of July. Since then, while we worked on, of course, on refining our internal evaluation, let me say that our parent company is still reviewing other aspects within its own responsibility, which are evidently necessary for future discussion with the counterparties. Of course, this, together with some initial procedural complexity that we told in the past calls, is leading to longer timelines And this was confirmed by the extension of the terms of the MOU announced by the shareholders. So at present, it is therefore difficult to make predictions either on timelines different from those recently updated in MOU or on the outcome. Please, Alberto, now the floor is yours.

thank you roberto and good evening to everyone we are now on slide five that was already commented by by roberto so i would skip it and go straight to the details of each metric starting from slide six, where we can see how the media distribution segment grew by 2.2%, outperforming inflation, which contributed about 1.2%. The growth was supported by the extension of Rai's DAB network coverage included in the new service for Rai, up to 20%. The digital infrastructure segment revenues reached 24.6 million euro, up 3.4% compared to the figures reported last year. This growth was mainly driven by the tower hosting business, which particularly strong volumes from radio broadcaster customers. We continue to see the initial contribution, of course, from the commercialization of our edge data center on the overall figures. Moving to OPEX, on slide 7, we have a 1.8% increase in cost landing at 67.2 million. Breaking down the OPEX, we noticed that personnel costs were up 8.5%, impacted by the negative effect of the lower capitalization levels. This trend is a trend that is fully consistent with what we have planned in our industrial plan. If we look only at the traditional business, the increase is just 5%, mainly represented by the renewal of the collective labor agreement, while a diversification initiative led to an increase of only 0.3 million compared to 9 million, last year. Other operating costs decreased by 5% landing at 31 million benefiting from some non-core benefits as we have already seen in the first half result. Diversification related OPEX are highlighted below the chart and as you can see they more than double year on year to 3.3 million euro as basically we planned. If we strip out this diversification cost as well as the before-mentioned non-core benefits, we arrive at a stable underlying cost base for the traditional business. Such result is driven by, from one side, a slight increase in energy tariff. And on the other side, we have some optimization across other cost items. In order to emphasize the healthy trend in traditional business, in slide eight, we show the detail of the three components impacting the EBITDA growth In particular, we can see the positive evolution of the adjusted EBITDA related to the traditional business that continue to grow plus 2.4 million euro. This positive performance was partially offset by the increase in the startup cost of the diversification initiative, which led to a negative impact on the EBITDA of 1.4 million euro. Nevertheless, the company has sought one-off benefit to help to mitigate the ramp-up phase of the new initiative. I would also like to point out that the level of growth in the adjusted EBITDA linked to non-core items is similar to the impact that this line had already had in the first half. Therefore, the growth in adjusted EBITDA in Q3 is almost entirely attributable to the recurring components. This clearly illustrates how, despite a more gradual commercial uptake, EBITDA absorption from startup of diversification initiative remain under control, mainly thanks also to a focus on the related fixed cost. We are now on the following slide, slide nine, where you may see an increase in adjusted EBITDA that reached 146.1 million euro with a 69.2 margin impacted also by proceeds from asset sale and tax credit on development project included in other income. Just below, We report no recurring cost as well as DNA and financial charge. While the DNA continues to grow due to increased capex, financial charge has slightly decreased, reflecting lower interest rates. So basically, same trend that we have already commented in the previous call. Moving to slide 10. Let's have a look to the net financial position, including 26 million euro of IFRS leasing. Net debt amounts to 164 million euro. Compared to the end of 2024, the net debt increased by almost 40 million, including 90 million of dividend payment. with cash generation therefore remaining healthy and broadly in line with the previous year. Free cash flow to equity stands at 94 million euro over the nine months. As per the outlook, let me turn the floor back to Roberto.

Thanks Alberto. Let me conclude with expectation for the last part of 2025. Confirming our full year guidance for an increase in adjusted everyday drive and buy. Grow of the traditional business even slightly above the previous expectation mainly thanks to better cost control. Only partially offset by the anticipated absorption from the startup phase of diversification initiatives. and positive contribution from higher non-core benefits compared to 2024. As per the CAPEX, we confirmed a higher level of maintenance investment following the mentioned extraordinary activities on towers and the seasonality on cybersecurity EP network refresh already visible in the nine months. But let me say that over the industrial plant cycle, we obviously confirm our average maintenance capex or revenues ratio of 6.5%. In parallel, development capex will be below the 40 million euros spent last year, as commented before. So that's all on our side. We can now open the line for the Q&A session. Thank you.

Thank you. We will now begin the question and answer session. To enter the queue for questions, please click on the Q&A icon on the left side of your screen. When announced, please click continue on the pop-up window. If you are connected in audio only, please press star and one on your telephone. The first question is from Giorgio Tavolini of Intermonte Sim. Please go ahead.

Hi, good evening and thanks for taking my questions. The first one is on your development capex projection. I mean, this should imply lower revenues or slower revenues from diversification activities next year. So, in particular, compared to your assumption in the business plan. So, I was wondering, the consensus currently foresees some 5 million revenues on the data center initiative and 7 million in 2027. Then also in solar production, you should expect some few millions revenues next year and up to 5 million in 2027. So I was wondering if you do confirm these revenues under the new CAPEX assumption. The second one is on the fact that in the recent days, there has been considerable noise about the risk of MSA renegotiation across telecom towers, which has significantly affected the stock prices. We are currently negotiating a deal with the EI Towers, which will, of course, involve the individual MSAs with your anchor tenants, right? Could you remind us what level of contractual protection your MSAs provide? For example, whether they include all or nothing, the closest preferred supplier, most favorite client provisions, or other similar protection, and whether there are any legal terms governing the early notice for renewal discussions? Thank you.

So let me take the first question, Giorgio. And yes, of course, there are some factors that could bring an impact on 2027 revenues, even if I would prefer to focus on EBITDA. Of course, the impact are the same one that characterized the dynamics on the first nine months that we have commented. Let me just remember the main topics, the permit timelines for hyperscale, diversification dynamics, referring to EDGE and CDN, with more gradual growth and consequent re-facing of some investment on a new edge to improve alignment with demand and of course meet expected returns. Then I would also add the delay in the permits that we commented for some lands involved in the photovoltaic project. So we Let me elaborate more on these three topics in order to clarify the potential impact. And let me also add a few consideration on the traditional business that of course is, as you have seen also in the slide, number eight is continuing to give a positive contribution. So on the API scale, The approval process is taking one year longer than we have originally assumed in the plan, but here really the impact on revenues and adjusted EBITDA in 2027 is really negligible. Here it is more a matter of a different distribution of investments. For the rest of the diversification initiatives, EDGE and CDN, the fundamentals and the quality of the architecture remain, of course, solid. There is certainly a more gradual uptake, but a catch-up could come both from the result of the more targeted commercial approach we have put in place and also from the contribution that could come theoretically from the AI. As I mentioned a few words on the traditional business, albeit with various moving parts, less development such as MUX 12, that of course not depending by us, but better performance of the inertial business on tower hosting and above all efficiency. So the traditional business is currently slightly above expectation and 2027 targets. Then, last with regard to photovoltaic project, that I'm treating separately from the traditional business. Currently, we are seeing a time lag of approximately one year in investment. Therefore, we do not expect major change in cumulative capex, only different yearly distribution during the business plan time horizon, but with full impact on EBITDA to start in 2028. so only a temporary gap so i prefer to give you an overall view of all all the impact just to clarify that assuming of course no change in the macroeconomic assumption referring to cpi and energy price we're talking about all in all very limited risk in absolute number, low to mid-single digit on the EBITDA, with a few tens of millions of lower investment likely moved to the following year. However, we are working and we have already identified alternative levers to mitigate the impacts and strive towards the announced 2027 EBITDA target, which remains, of course, our goal. Just to give you an example of some levers, greater internal efficiencies, contribution from potential non-organic growth, and possible one-off from disposal of non-core assets.

The next question is from... Just one second.

We will have to answer to the following, to the second question for Giorgio. Do you just repeat the main...

The second question we did in relation to the... I was wondering if your master service agreement foresees good protection, good contractual protection in the event of a renegotiation that are now on the table of some telecom tower costs. So if there are all or nothing clauses, preference supplier and most favorite client provisions, or I don't know if there are legal terms governing the daily notice for renewal discussion. I mean, I ask this because you are renegotiating a deal with EI Towers that will involve your individual master service agreement with your anchor tenants.

Giorgio, you are referring to the MSA we have in place with Rai, correct?

Yes, exactly. Just a reminder because I can't recall all the stuff. Thank you.

Okay, listen, you mentioned some protection clauses that usually we see in the TECO contracts. Let me say that when looking at our MSA with RAI, let me remind that we have a tacit renewal clause in 2028. then followed by additional seven years of contracts. We have exclusivity on new services. Let me remind also that we are Today, the only operators able to guarantee a 99% population coverage that is required by law for the main multiplex of Rai. And let me also add that Rai is and will remain, according at least to the Queen of the Prime Minister, not only a client, but also our shareholder. So life and business renegotiations are always possible, but there are all the elements that I mentioned to keep in mind.

Yes, and consider also what is written in the PCM that underline the strategic relevance of the governance by RAI of this kind of infrastructure. So it's something that is a little bit different in terms of relationship with our assets.

Okay, very clear. Thank you.

The next question is from Andrea De Vita of Intesa San Paolo.

Yes, hello to everybody. Thank you for taking my question. So a follow-up on Giorgio's question based on the current evolution vis-à-vis your targets for 2027 and your answer. So just to understand your focus, will it be to protect the free cash flow 2027 and DABTDA 2027, or let's say the whole philosophy and target longer term in terms of total investments and the total worth of projects.

Almost all. I would say, of course, as I mentioned, answering to Giorgio, we, rather than focusing on revenues, I mentioned we are giving an important effort in order to confirm the the number that we include in our 2027 business plan as concerned the adjusted EBITDA, and then, of course, we will focus on all the key elements and all the key metrics in terms also of cash flow and shareholder remunerations.

But I think that in other numbers, it is harder to square all of that. So it's a kind of trade-off for 2027. Because we are not making the investments in time to generate the related revenues, as I understand.

Yes, as I mentioned, we are seeing... Let me elaborate again on this. We are seeing... a small gap in absolute number, low to mid single digit, coming from the different components that I commented, talking, answering to Giorgio. But again, of course, as I mentioned, this low to mid single digit potential gap on the EBITDA is coming with a few tens of millions of lower investments, but these are, as I commented, in part temporary effect. So, as concerned, for example, the photovoltaic project, we have a delay of one year, so we will have the same investment even if The run rate level will be in 2028, so just a postponement. And in any case, in order to confirm the target for 2027, we are working on mitigation measures. As I mentioned, we, of course, as usual, have put a great effort in terms of internal efficiencies. We then can look at some contribution from non-organic growth and although less relevant, also some one-off benefits. For example, from disposal of non-core assets. So This is the main impact that we are seeing and where we are working in order to confirm the key guidance that for us is the EBITDA. But then, of course, we are taking under control the cash flow and the shareholder remuneration.

Okay, thank you. And just a very little question on Q3. So, very interesting, the the waterfall slide on ABTDA gap, just wanting to understand the figure for the third quarter. So if more or less was organic growth, was reported growth, and was it the case that the negative gap in diversification was offset by another positive contribution from non-organic items?

The third quarter is basically the growth of the third quarter is all organic growth. I didn't get your last point, if you can repeat.

It is plus three, let's say, plus two, organic, minus one, diversification, plus one, non-organic. Is this the math? Or plus two, zero and zero? Just to understand, to be clear, if also in Q3 there was an impact, a positive impact from non-organic items in third quarter alone.

You have to take it into consideration that the level of the non-core items that we have included here is more or less the same of the level that we had in the first half. So excluding these, basically, you may see that there is, if I see the number, more or less compared to the growth that we had in the first half, we will have an additional million euro of organic growth, more or less.

And so there was no, the other part is, there was no negative incremental losses from diversification in Q3 alone.

In Q3, the impact of the diversification was not so big. Yes, you're right.

Okay. Okay.

Thank you. You're welcome.

The next question is from Milo Silvestre of Equita.

Good afternoon, everybody. My question concerns the potential integration between the railway and the tower. On the initial remark, you said that at this point in time it is difficult to make a forecast on the outcome. On this sentence, does it imply that there could be complications?

No, let me say that I think that we cannot consider that situation a complication. As I told before, we are not the only player involved in this process. there are also the shareholders, the ones that assign the MOU that are assigning other aspects. So we have to wait. It's a time-consuming activity, let me say, but we have to rely on the updated timeline of the MOU. Let me say that if there was some blocking situation, there was no reason to renew and extend the MOU at the end of September.

Thank you.

The next question is from Fabio Pavan of Mediobanca.

Yes, hi, good evening. I would have a couple of questions. First of all, just to clarify On this, we can say that for the time being, 27 BDA targets are confirmed despite some delay in investment. That is my first question. Second question, thank you for the clarification on your comment on consolidation. My question for you is, are you still confident that this could happen or you are much more concerned with respect to some months ago. And my final question is, considering what you just told us on the data center, and provided that appetite is at very high level for this kind of asset you were mentioning before, sector is looking for consolidation as well, would you be open to consider any offer for this? Thank you.

So, Fabio, let me take the first question. Yes, the 2027 EBITDA guidance, in light of what I have explained, is, of course, confirmed.

The second question, let me say, to be honest, I cannot answer if I'm confident or concerned. So I pass to the third question. Data center, let me say, we have a long way to go with the data center initiative. We have not considered selling it until now. we are focused on maximizing the value of what we have built and what we are planning, the hyperscale data center. Then let me say, as a more added value, because they had synergies with our other assets, such as fiber and CDN, and it's something that we are viewing in the market approach up to now. So it's comfortable for a customer to have the possibility to have a colocation site, some IIS services, but with a very good backbone connection, connection that is not only a connection to a fiber, but a connection to all the mix point of presence in Italy, also with some regional peering. And let me say also with the CDN, that is an accelerator, is a highway for high-level performance needs. So the situation could be different, as we told in some other call, if we speak about partnership, including industrial ones, which may consider following the discussion with potential customers.

Thank you, very clear.

As a reminder, if you wish to ask a question, please click on the Q&A icon of the left side of your screen or press star and one on your telephone. For any further questions, please click on the Q&A icon or press star and one. The next question is a follow-up from Giorgio Tavolini of Intermontesim. Mr. Tavolini, your line is open.

Hi, sorry again for asking this clarification, but I guess you have just said that your DDA guidance for 2027 is confirmed. Before you said that you expect Salo to meet single-digit impact from lower revenues due to the diversification impacting EBITDA. So I was wondering if your free cash flow target is confirmed rather than the EBITDA. So what is the right metrics to look at? Thank you.

Our target is the recurring free cash flow and, of course, is confirmed because it includes, of course, the impact of the adjusted EBITDA and the current level of our maintenance capex. So, fully confirmed. Okay.

Okay, so on the ABDA, we should see some, let's say, some impact that is offset by lower capex on the time frame. Is that correct?

As I mentioned, we have the delay in some initiatives, photovoltaic, the commercial uptake on the edge of the center is giving a negative gap that in the case is limited. So part of this gap is already offset by the good performance of our traditional business. There is, as I mentioned, a delay in the photovoltaic project, but all in all, if from one side we see a potential gap from low to meet the single digit in term of impact potential impact on the bida because it's not material we are we are already working in order to find levels to mitigate and offset offset this impact okay thank you very much you're welcome

For any further questions, please click on the Q&A icon on the left side of your screen or press star and one on your telephone. Gentlemen, there are no more questions registered this time.

It's fine. So thank you all for participating and we are available for any follow-up questions. Have a good evening.

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