Rai Way SpA
MIL:RWAY
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Rai Way SpA
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[Audio Gap] conference operator. Welcome, and thank you for joining the Rai Way 9 Months 2024 Results Analyst Conference Call. [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, Patricia. Good evening, and welcome to everybody. Before starting today's presentation I would like to remark that from now on participants will have the opportunity to join our quarterly updates both via phone and via web. Webcast viewers will be able to intervene and submit their questions during the final Q&A sessions as well.
As usual, today's speakers will be our CEO, Roberto Cecatto; the CFO, Adalberto Pellegrino; and Giancarlo Benucci, our Chief Corporate Development Officer. Let me, therefore, hand the call over to Mr. Cecatto for an overview of financial results and operating achievements. Please go ahead.
Thank you, and good evening to everyone from me as well. If we were to summarize the first 9 months of the 2024, let me say that the trends confirms that a very solid performance of our traditional business allowing us to approach with confidence without compromising the continuous growth trajectory and diversification path that clearly does not replace but will combine and complement the existing one.
The 9 months confirmed the CPI plus revenues growth profile of the traditional business, sustaining in particular by good result of third-party customers plus 5% underlying in the third quarter, both in the media distribution area, thanks to the contribution of regional multiplex and in the digital infrastructure area for the time being represented by tower hosting with a solid performance of fixed wireless, mobile and especially radio operators. Performance that still demonstrates the good fit of our tower infrastructure with the need to extend telecommunication networks into less urban areas.
At the EBITDA level, even excluding the benefit of some non-core factors, such the higher level of other revenues and capitalized personnel cost. The higher sales coupled with a very tight cost control, which mitigated our OpEx level, the significant increase in energy tariff due to the lack of the 2023 incentives and the rising start-up cost of the new initiatives, which together accounted for an additional burden of over EUR 2 million compared to the 9 months of 2023. Recurring cash generation also continued to steadily grow at over EUR 95 million.
Let me say that it's impressive, really considering that in 9 months, we have exceeded the full year value recorded only 2 years ago in 2022, reflecting the ability to translate our growth into shareholders' value. Again, with reference to traditional business in terms of status of the industrial plan activities, in addition to the progressive improvement of Rai's DTT network coverage, the negotiation for the extension of Rai's DAB Digital Radio Network, the support to the rollout of 5G fixed wireless and DAB networks for third-party customers as proven by the good trend of tower hosting in third quarter and the planning and the permit application for the photovoltaic project as a way to improve the use of our portfolio of land. I will also like to highlight the progress on the improvement of operational efficiency also thanks to the real estate management.
In this perspective, starting from the first half of the next year, Rai Way we'll have a new headquarters located in the center of Rome. As you can see in the Slide 5, the move from the historical building in via Teulada inside the Rai production center, which has been hosting Rai Way since its foundation, will involve all the corporate function involving more than 200 people. And in addition to the expected savings of at least EUR 200 kilo, we are confident it will contribute to strengthen our corporate entity, very important, better communicate our brand and enhance the quality and the productivity of our employees.
Looking now at the diversification project, you can see that the relevance that they are assuming in our capital allocation since they account for more than 50% of the development CapEx in the 9 months. As already anticipated in our last touch point in August, the first 5 edge data center became operational in the third quarter and the trial activities on the edge video delivery network are underway. Involving leading content providers who see the proposed architecture solution as a valid tool for improving the quality of the streaming, especially for live content. Much of our efforts is now on the developing of the best sales strategy for the new assets, also based on the feedback from the first weeks on the market. The characteristics of the physical proximity, latency and quality reliability clearly represent an appreciated proposition.
At this stage, the target is mainly the small and medium enterprise segment, either for the off-premises relocation of their servers or for the deployment of private and hybrid cloud architecture. This is why we are working on the creation of an ecosystem of partners and resellers such as system integrator and private cloud operators, happy to strengthen their offering, proposing our proximity data center. To complement our direct coverage of larger customers and the most interesting sector, we see, especially IT, also leveraging on the ongoing reinforcement of our commercial department.
As a result, we expect first revenues contribution from new savings.
[Technical Difficulty]
Okay. So we will continue. Sorry and apologize, we will go on.
So I repeat the last statement. Sorry for this accident. So anyway, as a result of what we are speaking before, we expect first revenue contribution from new services in the 2024 to be in line with the expectation albeit still limited and to fill now the pipeline for 2025.
Before leaving all the economic and financial details to Adalberto, the CFO, I think that in light of these results is not surprised to look with increasing optimism to 2024 and thus confirm the EBITDA growth target. It's now time to have a more detailed look to the economic and financial performance on the first 9 months of this year, I will accordingly leave the floor to Adalberto. Please go ahead.
Thank you, Roberto. Good afternoon to everyone. Before analyzing each metric, let's start, as usual, with an overview of the main financial KPIs on Slide 6. 9 months revenues were up 1.1% in line with plus 1.2% growth recorded in the first 6 months. Adjusted EBITDA confirmed the positive trend of the first 2 quarters with a slightly lower pace because of a number of positive and negative factors that we will go through in a while.
Let me highlight that the EBITDA still reached a new record high, both in absolute terms hitting EUR 142.2 million, both as a percentage of revenues. Adjusted EBITDA margin reached, in fact, 68.9% over 1 percentage point more than the same period of last year and 6 points higher than 2022. Net income was also up, we recorded EUR 70.5 million, corresponding to a growth of 1% over the first 9 months of the year.
Moving to CapEx. In the period, we invested EUR 25.1 million, EUR 2 million less than 1 year ago. The decrease is totally attributable to the maintenance CapEx, while development CapEx were stable. Compared to 2023, we have accelerated our effort in diversification, as we already commented in the previous call, which accounted for more than 50% of developing CapEx while last year, they represented only 16%. Investments and dividend payout impacted on net financial debt, which grew to EUR 148.2 million from EUR 105 million at the beginning of the year. Finally, the financial just commented, are boosting our cash conversion that reached 96.2% being 94% last year and more or less the same figure in the first 9 months of 2022.
On Slide 7, we dive deeper into revenues, providing a double breakdown, the new view coherent with the industrial plan and the old one by client category. On the top left, we analyze Media Distribution and Digital Infrastructure trends both on a positive trajectory. Media Distribution segment revenues increased by 1.5% to EUR 182.8 million. The growth rate was higher than CPI whose contribution was 0.7%, thanks to the full effect of new regional DTT networks, which recorded a strong increase. Digital infrastructure, which currently means tower hosting, post revenues up by 1.5%, turning into 3 plus 3% in the 9 months, 3.9% in the third quarter if we scrap nonordinary phenomenon.
The second chart shows the old revenue breakdown with third parties revenue posting a plus 3.3%, pushed by the positive trend of business with fixed wireless access player and radio operators. This trend is even clearer if we take off the residual impact of refarming and other noncore items effect, in that case, the 9 months performance would be 4.4% and the quarterly performance almost 5%.
Let's move to OpEx, Slide 8. Please keep in mind that we are considering as usual cost net of extraordinary adjustments, namely the incentives that we paid out last year to former employees. Looking at the performance, let me first highlight the slight year-on-year decrease of OpEx, minus 0.3% to EUR 65.9 million despite the start-up cost of diversification initiatives that we show on the bottom of the chart. In the first 9 months, they accounted for EUR 1.7 million, more than doubling last year level. Breaking down the OpEx, the personnel costs were down 2.3% because the benefit once again of the high level of capitalization, EUR 1 million more than in the first 9 months of the previous year without considering that personnel costs would have been broadly stable.
Other operating costs increased by EUR 0.6 million, corresponding to 2% impacted by energy, a trend that we have already seen commenting the result in our previous call. Over the 9 months, despite a slight decline in our energy consumption, the lack of incentives granted by the government during the first 6 months of 2023 caused an increase of more or less EUR 1.2 million, which we were able to partially offset, thanks to the reduction of other cost items, saving EUR 0.7 million.
All in all, if we exclude the positive effect of personnel cost capitalization and the negative impact of electricity tariff, total OpEx were down EUR 0.5 million. Once again, despite diversification start-up cost.
The favorable trend of core revenues and OpEx that we may see in Slide 9 translated into an increase in adjusted EBITDA which grew by 2.7% to EUR 142.2 million, as we can see. Here, you may also see the increase recorded in Q3 by our other revenues and income items due to a one-off impact amounting approximately EUR 1.4 million. Given the presence of this effect as well as other noncore factors, such as you already mentioned, higher capitalization and energy tariffs, we want to help you better understand our underlying profitability. That's why in Slide 10, we highlighted how not only the reported figures, but also the underlying clean dynamics of our EBITDA continue without continuing also in the third quarter on the same trajectory as in the first half.
In fact, even neutralizing those noncore contribution, EBITDA growth from the traditional business remained very solid in the quarter, amounting plus 0, almost plus EUR 1 million, EUR 0.9 million to be precise. That quarterly performance offset the start-up cost of diversification project totally in line with the sanction and phasing of the plant.
Going back to the previous slide to the 9 months profit and loss, we remark the constant increase of D&A and financial charge, our strong investment activities reflects, of course, on D&A, but also on the amount of total debt, so on financial charge. The latter are also impacted by interest rates and by a derivative we had in place last year and effective till October 2023, when we have signed a new financing agreement. In light of a stable tax rate, we finally registered net income, as we commented that reached EUR 70.5 million.
Moving to Slide 11. We have the 9-month evolution of our net financial debt, including EUR 30.9 million of IFRS leasing on September -- at the end of September, we recorded a net debt of EUR 148.2 million, slightly higher than EUR 146 million recorded at the end of June. Cash generation over the 9 months standing at EUR 96 million and over the quarter, equal to EUR 32 million remain very strong, but we registered a significant absorption at working capital level, typical of the third quarter, amounting EUR 34 million that was connected to the tax and CapEx payment cycle. So net debt, the amount of EUR 148.2 million corresponds to a leverage ratio of 0.8.
As per the outlook of the remaining part of the year, let me turn the floor back to our CEO, Roberto, please.
Thanks for your analysis, Adalberto. The results that we have presented so far make us definitely comfortable about the 2024 targets. So that we are pleased to confirm our guidance, as restated during the presentation of our first half results. More details, let me remind you that we expect an increase in adjusted EBITDA over 2023 levels despite the lack of energy tax credits and the setup cost of the new infrastructure cost for diversification. This is going to be achieved, many thanks to CPI for sure for the impact of the regional refarming positive impact and better-than-expected performance of tower hosting, let me say, with very strong cost control actions, actions even deeper than initially expected as it was one of the drivers of the first half guidance uplift.
On top of that, we also benefited from certain nonrecurring noncore factors, such as higher level of capitalized personnel and other revenues, as already seen in the first 9 months. As per capital expenditures, both maintenance and development CapEx are expected substantially in line with the previous year's level.
That's all on our side. We thank you for your attention. Sorry for the interruption in the audio. And now we are ready to answer to your question.
This is the chorus call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Giorgio Tavolini, Intermonte.
The first one is on the Evergreen topic on the consolidation with the EI Towers, if you had any update or I mean, incremental news regarding potential combination with them. The second one is on the financial expenses trend. Since I understand that there was an increase in Q3, so I was wondering if it's right to assume roughly EUR 7 million financial expenses in -- for a full year basis. So for this year and a declining path from 2025 and then a pickup in 2026 since there will be higher investments related to the CapEx cycle for the extraordinary activities? And the third one is on the run rate savings of EUR 200,000 related to the new headquarter. When we should expect the savings to occur from an annualized basis from 2025? And if it's a higher EBITDA and upside on EBITDA?
Okay. Thank you for the question. For the first question, the mother of all of the other questions, let me say that I fully understand your question on this topic. But you know that it's not entirely up to us. You know very well our position. It could be a logical step for the sector that needs at least to be explored, analyzed and discussed to find the right condition, especially for the Rai shareholders -- Rai Way shareholders, but there are regulatory financial legislative limitation that make this opportunity not only in our end.
Let me say that we must be patient and wait for the discussion to enter into a full swing. I understand that the patience can turn to tiredness, but we are not distracted. And the meanwhile, we continue the healthy management, as you can see, to increase the value of the company for all the shareholders.
For the second and third question, I leave the floor to Adalberto, if you could give more details. The third one is very simple. We try to finalize the transfer in the second half for this year and so we expect some startup costs to have the benefits for the last quarter of this year.
As concerned, the interest rate, the number you mentioned for 2024, makes sense. Broadly speaking, just let me give you some more color because actually, probably in the first months of the year, we had the impact related to the higher level of Euribor, while we are seeing a progressive decrease. Actually, we just finalized an interest rate swap till the end -- till the termination date of our financing we have in place, that is October 2026 with basically on EUR 65 million, we will pay 2.3 more or less percent of Euribor plus, of course, the margin that is applicable to all our financing that is 1.1%.
I don't know if you were asking some more clarification?
[Operator Instructions] The next question is from Milo Silvestre, Equita.
Just one quick question about the data center, if you can elaborate about the consolidation phase and how much of the capacity installed is basically committed or sold to some clients?
Ciao Milo, as you know, there is no pre-committed capacity. And let me say this is not a market where customer purchase decisions comes in a day. The decision often part of a cloud migration process or IT infrastructure upgrades of the clients that take a little bit of time. We have chosen to start with the marketing activities of these assets only after they have been completed in order to have a certainty on timing and the possibility to show the real quality of the asset and not just PowerPoint presentations. And the contracts that we are having now are several and hopefully, contracts will come.
[Operator Instructions] The next question is a follow-up from Giorgio Tavolini, Intermonte.
I was just wondering if you can update us on the inflation rate because we are entering in the November end. So basically, I don't know if -- what are your latest assumptions for 2025 when applying -- I had 1.5% inflation rate. So I guess it will be a little bit lower and you apply the November end CPI. So I was wondering if you have any updated -- if you are updating this number, we should expect slightly lower revenues for 2025.
So the 1.5% that you have is the one of our industrial plan. Actually, the last of future figures from ISTAT are referred to September, even if there is a preliminary view also on October. And typically, we focus on the increase vis-a-vis November 2023 and the official figures at the end of September, the magic number was 1.1% vis-a-vis November 2023. It seems from the preliminary figures announced by ISTAT that in October level is expected to be flat and let's see what's happening in the last month in order to see the full comparison November vis-a-vis November -- November 2024 vis-a-vis November 2023.
Okay. And should we expect any update on 2025 in early March in the outlook? I mean.
As usual, we will provide proper outlook on 2025 figures. As concerned, CPI, when we will announce it at least the CPI would be the official one. So on March, we will see some more update on 2025 figures also in relation to the CPI trend.
There is one is on the CapEx development. I was wondering if you -- if we should expect catch-up in Q4 since -- in the 9 months, it was lower the CapEx year even though you had a higher working capital absorption for the delay. So I was wondering if you are expected -- if you expect to catch up with a higher CapEx -- development CapEx in Q4?
Yes. absolutely normally in the last quarter of the year, we do -- even if we look at the past basically more than the amount that we do in the first 9 months. So this is what we expect to have also this year.
And you should have a releasing working capital since you have already accrued the absorption in 9 months. Am I correct?
We should have typically the CapEx that we have in the last quarter. They are going not to have any significant impact on the cash flow. So we will see. Broadly speaking, all the amount of the CapEx has an increase of the trade payable that then typically will be absorbed during the first months of the following year is actually same trend that we have seen this year.
[Operator Instructions] Mr. Moretti, gentlemen, there are no more questions registered at this time.
It's fine. Thank you, operator, and thank you all for your participation. We remain available for any follow-up questions, and we wish you a good evening. Goodbye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.