Infrastrutture Wireless Italiane S.p.A. (INW) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the INWIT Full Year 2021 Results and Strategic Update Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Ruffini, Head of Investor Relations. Please go ahead, sir.

Good evening, everyone. Thank you for taking the time to join us for INWIT's Full Year '21 Results and Strategic Update, especially in a day with such dramatic developments. With me today are Giovanni Ferigo, our Chief Executive Officer; and Diego Galli, our Chief Financial Officer. Before we begin, please allow me to draw your attention to the safe harbor statement on Page 2. Following the presentation, we will be happy to take your questions. Over to you, Giovanni.

Thank you, Fabio, and welcome, everyone. Today, we are proud to share a very solid set of results. The growth potential of the new INWIT has become a reality 2 years after the merger with Vodafone Towers. There was a clear step change in industrial KPIs. We added more new sites and more new PoPs in 2021 than we added ever. Revenue, margin and cash flow growth are among the best in industry purely in organic terms. We will continue improving in 2022, another building block of our growth trajectory to 2023 and beyond to 2026, in line with our business plans. Today, we will also talk about our strong asset, an ecosystem of macro grid and micro grid, establish commercial relationship with all players in the market. We are well positioned to capture the growing investment cycle in infrastructure and digital assets. We will zoom in on a few topics which adds visibility to our growth trajectory. The external scenario is improving, and we have rebalanced the contribution of some source of growth. Finally, we will cover our capital allocation framework. We continue to create balance sheet flexibility and are committed to a disciplined approach to new investments. In short, strong growth in 2021, a solid platform to continue growing in line with our business plan ambition. I will now leave the floor to Diego for the first section of the presentation. Thank you.

Thank you, Giovanni, and good evening, everyone. INWIT's various drivers of growth started to kick in during 2021. Q4 show improving trends across the board: more than 1,100 new hospitalities with almost up to double digits; tenancy ratio going beyond 2 for the first time; new sites were more than 3x what they were in Q3; revenues up more than 7%, progressively accelerating; EBITDA growth of over 12% with margin expansion; and strong cash generation, up nearly plus 16% on a yearly basis. '21 -- 2021 demonstrated that our business model has various levers and that the demand and external scenarios are supportive. We made the guidance despite the 2 headwinds which we discussed with you in the past few quarters: first, the remedies process; and second, a choppy delivery of the scale-up in growth. This was done activating alternative sources of growth and pushing further on efficiency. Our assets are a key enabler of the digital transition which is underway, a platform of structural growth, which is reinforced by strong 2021, in line with our mid-term ambitions. Let's now look at the anchor KPIs on Page 6. Anchor PoPs, our point of presences, are up 9% year-on-year. This means more than 3,000 new hospitalities in 2021, mostly related to passive sharing on the common grid and the initial benefits of new sites. New sites accelerated materially in the last quarter for a total of almost 400 sites in the year. This compares with only 70 new sites in 2020. Anchor's continued network optimization and 5G rollout with growing commitments. As a result, we expect both new sites and new PoPs to accelerate further in 2022, supporting revenues. Turning to our other clients on Page 7. Tenancies by other clients were up 10% year-on-year for a total of more than 1,400 in 2021. There was an acceleration in Q4 with 450 new PoPs, the majority of which were fixed wireless access. Our assets are attractive to all operators in the market because of their location and technology. Regarding MNOs, we continued to add point of presence in towns below 35,000 population, where the remedies don't apply. There is a pending legal appeal against the remedies process since November 2020. The timing of this process is not in our hands. And today, we discuss how our targets are confirmed even if with a lower expectation of remedies volume. We will benefit from higher inflation and a slightly better trend from other OLOs. Limiting the assumptions on the remedies allows all of us today and in today's presentation to focus on other growth levers. One of them is the OTMO category, other clients in macro sites, including utilities companies, digital radio, security companies and the public administration. Similarly to fixed wireless access, there is a limited incremental cost, low EMF spectrum utilization. There is also strong demand and similar price range. Moving to our P&L on Page 8, where we will see that multiple levers of growth have kicked in. The results of the quarter show a continued acceleration in our trajectory, in line with guidance. Our organic revenue showed a further acceleration up 7.2%, more than double what it was a year ago. New PoPs, new sites, more tenants on the micro grid, new DAS and repeaters supported this trend. Growth in the quarter is concentrated in all macro sites and new services. This is due to structural reasons, more OLO tenants and thus tenancies coming on stream plus the initial benefits of highway tunnel investments closing Q4, adding 800 new remote units. In the quarter, we also see a lesser contribution by anchors due to reporting of MSA commitments, which has a degree of flexibility within committed services based on client demand on macro sites or other services. These areas of flexibility by the positive line are typically reconciled at year-end. Of course, there is no impact on total MSA-committed revenues purely on its components between reporting lines. We are particularly satisfied with new services more than doubling year-on-year and with delivery on cost efficiency. As a matter of fact, ground lease cost is down 2% despite a growing asset base, pushing EBITDA growth to more than 1.5x revenue growth, up 12% year-on-year ago. So a solid set of financials with improving trends. Let us now move to cash flow on Slide 9. Cash flow generation continued to be strong into year-end, meeting guidance. We generated EUR 366 million of recurring free cash flow on the back of growing profitability, structurally low recurring CapEx and a slightly positive net working capital cycle, which is temporary. We expect fairly neutral net working capital in 2022. Besides improving organic trends, from next year, we will see material benefit from tax schemes, a key driver of improving cash conversion. We can delever by about 0.5 turn per year, progressively creating balance sheet flexibility. Leverage was flat in 2021 because of a tax scheme prepayment of about EUR 334 million. Excluding this very attractive one-off investment, leverage would have been about 5x today. In the appendix, you will find additional details on our financials, including the balance sheet. In summary, a positive quarter on delivery against guidance with improving trends across the board. We see 2021 as a blueprint for 2022 and the coming years, which gives confidence on our growth trajectory. Giovanni, back to you.

We met guidance in 2021, and 2022 is expected to be another year of growth. We expect revenues up high single digits, 2/3 of which is already committed. Inflation will have a positive net effect as efficiency gains will drive double-digit EBITDA expansion. Recurring free cash flow will be up strongly on the back of margin growth and tax schemes. INWIT made significant progress in 2021, delivering at a rapid pace against both industrial and financial indicators. This is a solid platform for continued execution. In the next session, we will review a few strategic topics which support our confidence for the years ahead. Let's move to Page 12. After strong growth in 2021, the trajectory of INWIT has become more visible. We can count upon best quality assets, clear growth drivers, a supportive external scenario and optionality from capital allocation. Today, we will zoom in on the most relevant trends which emerged since the November 2020 business plan presentation. Business plan targets are confirmed. In our base case, we now include a different OLO mix with lower remedies. This is because of the uncertainty around the timing of the ongoing legal appeals. To balance this factor, we have more inflation, a better demand trend in other OLOs. On top of our guidance, NextGenerationEU projects are now more visible. This can be considered a source of upside. We have plenty of growth opportunities, and they are becoming more and more visible. We also build more and more balance sheet receptivity and additional optionality with a clear framework for deployment. Let's begin with our assets, a key competitive advantage, Page 13. INWIT assets make up an integrated network, macro and micro grid working together to provide coverage, capacity and enable advanced applications, indoor and outdoor. We have inherited the best location in Italy given the fact that Telecom Italia and Vodafone built a mobile network before anyone else. Location is still a key advantage in the digital ecosystem. Towers are among the few user-proximated, connected and equipped assets, and there are new opportunities to provide value-added infrastructure and services. Over the past year, for example, we have received growing interest and demand for dedicated coverage of road and rail infrastructure and for advanced monitoring services of infrastructure and environment. INWIT assets are best in class and attract growing demand across all operators. Let's begin with anchor on Page 14. We are partner to 2 star Tier 1 operators in Italy and their technological upgrade to 5G. This comes with a few feature: strong MSA with all-or-nothing protection upgrade feature; a large base MSA growing with inflation; source of committed growth across the board from sites to PoP, DAS and backhauling; and a preferred supplier role. This ensures downside protection and high visibility of future growth. Two anchors also mean we have 2 tenants from day 1 on each side. This also give us a commercial advantage when selling DAS tenancy to top locations. So far, the common grid has been going in line with the expectation, and we have an opportunity to accelerate new sites rollout beginning with 2022. We have made organizational changes on this front. We will soon have a new CTO on board. Now looking at the next piece of the puzzle, other clients. We serve every operator in the market from 3 main categories. Broadly speaking, out of our 10,000 old tenancies today, MNOs are slightly less than 50% of total, and the rest is fixed wireless assets and OTMO clients. In other MNOs, the key opportunity is with Iliad. We continue adding new PoPs in towns below 55,000 population, where remedies don't apply. The remedy process start very slowly. Today, we would like to share revised volume assumptions with Iliad. In the next 5 years, we only express a take-up of 1,000 remedy sites. This is the assumption in our base case. Should the remedy process be resolved quickly with either volumes, that will be an upside. So OLO growth is composed of MNOs only for 15% of the total. The rest is fixed wireless assets supported by structural coverage needs of the Italian territory and OTMO tenancies with utility companies, public administrations and other clients. Both of these tenancy use very little electromagnetic space. For us, little additional cost or CapEx for us, so they are effectively additional margin for tower. We have treated them as a part of the same category in the past. We have simply decided to push on the commercial model for OTMO to capture the positive market trend as more clients realize the importance of distributed infrastructure. We have expanded our OLO tenant at the double-digit rate over the past year. Our macro grid location are best in class, and we expect to continue to attract new clients in 2022. Now to the next piece of the parcel, our micro grid. New services have seen significant growth over the past 2 quarters. Today, we would like to provide more details on the market opportunity and our approach. INWIT micro grid is composed of different technologies, repeaters, DAS and small cells. They provide dedicated coverage for indoor and outdoor location. This is key in a world where mobile demand grow exponentially. In DAS alone, there is an addressable market of more than 3,000 coverage projects in the next 5 years. We aim to capture about 1,000 new projects focused on the most interesting vertical. Each project is unique in term of number of DAS units, but our investment is driven by returning expectations, which are at least double digit. Road and rail infrastructure coverage has emerged clearly over the past year as a new opportunity given the lack of appropriate coverage. We aim to continue to pursue it. Finally, our business plan assumes small cells will start growing from 2024 onwards based on assumption of covering only part of the urban side. We have all seen recent example in the global wireless as a structure industry of growing need for more cells. In short, over the past year, we have seen new services associated with our micro grid growing significantly more than other revenue line. We expect this trend will continue counting on several levers with player application and a strong track record already achieved. So moving on, the incremental opportunity of the NextGenerationEU. Since we shared our business plan, the impact of NextGenerationEU has become more visible. Now we have clear objectives with the process, key actors and deadlines. There will be plenty of ways for us to engage. Today, we will focus on 3 main opportunities and what they mean for our financials. Italy 5G plan means subsidies to CapEx for market cellulars. Italy at 1 giga means more investments by fixed wireless access players. Micro coverage funding will help companies and public administration upgrade to dedicate this coverage. Next quarter, we will begin the tender process with news expected by the end of the year. This opportunity is incremental to our plans. We will have to compete and win the tender. There is an additional potential for EUR 30 million revenues by 2026. We will provide regular updates on this in the coming quarters. We review our growth pillar that translate in strong cash generation as we can see on Page 18 with Diego.

INWIT can generate substantial cash flow. We have growing margins, low CapEx needs and the neutral working capital plus an attractive set of tax schemes. The target of our business plan set out in November 2020 are confirmed, beginning with a strong acceleration in 2022 in targeting approximately EUR 700 million of recurring free cash flow in 2026. INWIT CapEx can count on secured revenue streams and have the potential to deliver double-digit unlevered returns. After CapEx and dividends, we reduce leverage by about 0.5 turn per year, creating balance sheet flexibility. Considering our rating and cash flow profile, the upper limit of 6x is confirmed. Leverage below 5x for a prolonged period would be not efficient. This means deploying excess resources for more growth or additional shareholder remuneration. Let's look at how we will deploy this financial flexibility with Giovanni in the next page.

When looking at capital allocation policies, we must begin with providing more fuel to our organic growth when possible. Growth CapEx returns are very attractive, so we aim to continuously look for extra investment opportunity in this domain. Next, we must analyze and consider all possible M&A opportunities, which would create value for the shareholders. We do that with discipline and following strict criteria, not only financial value, but also industrial merits focused on familiar businesses and geographies and synergy potential. We also want to be clear we will not invest in other infrastructure domains like large data center or fiber. Both these options are based on our core principle to grow through industrial projects. Should no opportunity tick these boxes, it would be appropriate for us to consider improving shareholder remuneration beyond our current or dividend policy. All option will be considered, including more dividends or stock buyback. In short, we understand the importance of maintaining an optimal financial structure and carefully analyzing alternatives, looking for projects with the best risk-return profile. So now looking at our business plan target on Page 20. Given the positive demand trend and an improving external scenario, we confirm our business plan targets, which now include a more conservative assumption on remedies volumes. INWIT can deliver high single-digit revenue growth, double-digit margin growth and even higher cash flow generation combining strong MSAs with inflation linked, clear sources of committed growth and strong asset, attracting demand from all market players. On top of this target, we will pursue a number of opportunity within NextGenerationEU tenders, a possible source of upside. INWIT's macro and micro grids are best positioned to capture the infrastructure and digital investment cycle underway. After a year of execution and positive trends in demand, we are confident of the trajectory ahead of us. Let's now share our improved sustainability targets on Page 21. Towers are inherently sustainable. The more infrastructure is shared among the operators, the lower the use of resources. Also, our assets connect more and more people to high-speed networks, reducing the digital divide. We started the sustainability journey in November 2020 and have already recorded several positive results as declared from a number of rating upgrades. Over the course of 2021, we improved our rating for CDD, MSCI, Sustainalytics and FTSE Russell. More importantly, we set ambition targets and are regularly providing updates. 2021 was a strong year on all key fronts. We include ESG in our governance, pushed on diversity and training, used 70% renewable electricity and issued the fair sustainability-linked loan. Today, we are happy to share with you that we aim to be carbon neutral by 2024, bringing our more demanding target forward by a year. Moving to Page 2022 -- Page 22. So 2021 was a big year. 2 years after the Vodafone Tower merger, we delivered a strong step-up in growth. The full potential of INWIT is starting to materialize. Execution in 2021 is a solid platform for us to continue growing on the trajectory of the business plan at the same time as activating more growth pillars. The trajectory is today even more visible than a year ago, supported by a positive external scenario and good trends in demand. We can count on clear growth drivers and balance sheet flexibility. We sit at the crossroads of infrastructure and digital investments, enabling mobile connectivities for everyone. This give us confidence on the path ahead of us, and we look forward to continue executing quarter after quarter. Thank you, and we will now take your questions.

[Operator Instructions] The first question comes from the English conference call, and it's from Andrew Lee with Goldman Sachs.

Obviously, you've done a great job to make up for the potential lack of Iliad remedies. So apologies for focusing on risks rather than the upside. But I just wanted to ask you around what's been a major topic of conversation over the last couple of months in the telco space, i.e., mobile consolidation. I wonder if you could just talk us through where the risks to your business are from a potential in-market mobile consolidation in Italy. There's been one deal that has been made and rejected between Vodafone and Iliad. So maybe you want to speak specifically to that or speak more broadly. But it would be great if you could talk through the risk to medium-term operations and the risks to longer-term growth prospects from consolidation.

Thank you. We have a strong, let me say, protection because our MSA is, let me say, a sort of guarantee for the future. We can -- we have 8 plus 8, we have, let me say, contracts. And so I don't see any risk in terms of our business in the hypothetic consolidation of mobile operator in Italy.

What about the longer term? Because obviously, if you go from 4 to 3, it places a limit there on your -- on the total cotenants you can reach. Does that -- how much does that matter to you given the electromagnetic limits you have on your business? Does it make a massive difference to the kind of longer-term growth outlook for your business? And just -- so is that -- for follow-on -- just follow-up too is just the 8 plus 8, so is that the average remaining length of the contracts you have? Just to clarify on that.

Let me elaborate some other thoughts on this. So from a theoretical point of view, when eventually 2 operators come together, they have 2 options. So they put together the grid or they put together the point of presence, optimizing one of the existing grid. So in this theoretical scenario, what we do believe is that, first, we have the best assets in the market. And our grid is clearly -- eventually, it's going to be in thinking about potential scenario, the grid of choices. That means that eventually, considering that the number of points of presence is also mainly driven by capacity and considering that the number of customers will not change, we -- it's reasonable to think that there will be eventually also potential additional point of presence on our grid. All these considering that, as Giovanni said, the MSA offers a strong protection because in case of new frequencies brought on our grid, this imply the recognition of a fee to INWIT. So considering these elements, what -- sorry, these kind of thoughts are underpinning what Giovanni just said. So in summary, we, at this stage, based on the information that we have and our rational assumptions, also a consolidation now, we don't read it as a risk. In terms of MSA duration, it's 8 plus 8 plus 8 plus 8. It's indefinitive because it's basically based on the all-or-nothing terms, which basically means that the operators cannot choose or pick up and choose. Either the renewal is for everything or for nothing. And again, considering that it means spending 30 years to build and optimize the network, clearly, it's not a thinkable scenario to abandon 100% of the agreements.

Yes. Okay. And so the average remaining length is what -- is how many years if we add those 8s?

Sorry, the first cycle of 8 years started in 2020. So now we have 6 left.

And just lastly, the Iliad remedies could -- I guess, those may not manifest if they were to get together with someone because that's their choice. But I guess it's the only element that's -- that you think at risk in the near to medium term.

Again, thinking about theoretical scenarios, but actually [indiscernible] say and actually could transform in another way to be delivered, let me say it like that. Because again, the number of customers and data demand, that does not change even if the companies who manage it are different or are combined, if you see what I mean.

The next question is from Roshan Ranjit with Deutsche Bank.

Thanks for pointing the information around the Iliad remedies. That's clearly been a talking point for the last 12, 18 months now. Can I just add, given the shift in your internal kind of forecasting more now to FWA rather than the third-party OLOs, how should we think about pricing? Because if I think back a couple of quarters ago, we were thinking that FWA pricing is broadly, I think, 1/3 of the blended OLO pricing. So if you're now reducing your kind of MNO contribution or the Iliad contribution but you're not keeping -- you're not increasing the third-party volumes, is there a step-up in FWA pricing, please? And secondly, just on the quarter itself, there was a shift that you flagged [ in your e-mail ] around the MSA macro contribution versus the new services. Again, is there a pricing difference there or volume difference? You said the absolute MSA amount is unchanged. So how should we think about that pricing shift between those different segments? And then lastly, just on the business update. But just going to the cash return point, what -- how should we think about the timing? Any -- you've kind of given us the levers for the headroom. But when should we think about you kind of feeling comfortable in saying, "Okay, we've got this headroom for cash returns, and this is when we should be distributing it."

No, thank you for the questions. I'll start from the first 2 and actually from the MSA one. No, actually, no change of fundamentals, no change in pricing. That's a quarter, a specific issue, topic about not changing the fundamentals and the way in pricing and the way we read the trends. With regard to the OLOs mix, yes, you're perfectly right. And the other OLOs have prices, which is broadly 1/3 of the MNOs. This means that this shift of volume -- actually, the increased fixed wireless access and optimal volume does not make up, does not offset the reduction coming from Iliad. It's a partial offset but not a full offset. The difference between the 2 is made up by inflation. Inflation is higher than originally expected. And in this -- and we now in our base plan, in our base case, we assume inflation that actually will create price increases in our expectation of below 2% for the 2022. That is clearly coming from the actual last year, but also for the next 2 years. So for 2023 and 2024. So there are 3 components. Less Iliad, more fixed wireless than optimal, higher inflation in the assumption of inflation of slightly below 2% from 2022 to 2024. On the third question on capital allocation and timing to Giovanni.

Okay. Okay. As you can -- let me say, the end result or the handoff this year, we will arrive to 5.2x. So in 2023, we are under, let me say -- we are able to, let me say, analyze, to act at something in acquisition in organic operations so we are, let me say -- I said, which is our policy. We have very strong discipline with the industrial synergies in the evaluation, not only financial, but industrial because we are the only organic growth company based on industrial, let me say, capabilities. And let me say, we are studying, we are analyzing and choosing the right, let me say, solution at the right time.

Great. That's helpful. I'm sorry, I just forgot -- previous one. I just want to follow up on the previous question. Regarding the electromagnetic emissions, what is the latest there? Because, again, this tends to be pushed back every year or so. When can we expect this limit to actually increase given all the talk that we had over the last few years?

Let me say there is a lot of -- in this moment, there is a lot of pushing from the, let me say, telecommunication community to increase these limits. But at the moment, we are -- in my agenda, there is a lot of meeting with the, let me say, government representatives to give our contribution to this, let me say, limit. And -- but we have not expectation in this moment. But I think that it will be a good news that we'll have to ask to push the pace of the -- our, let me say, industrial KPIs.

The next question is from Fabio Pavan with Mediobanca.

Congratulations for the results. The first one is on the contribution from the revenue. I guess the message you provided was pretty clear. I was just wondering if you can share with us how this compares with your previous assumption in order to better understand the magnitude. The second question is related for the information you have provided on the potential new business opportunities from NextGenerationEU facilities. You're talking about EUR 30 million of potential additional revenue in 2026. If my understanding is correct, this refers just to first part of the potential auctions in place? Or if I'm wrong, so this is the total amount you may get from this recovery plan?

So let me start from the first one. And actually, we reduced Iliad volume by nearly half, so nearly 50%.

Okay. About the NextGenerationEU, not our only 3 projects. These are the, let me say -- I call them the touchable projects because the tenders are, let me say, ongoing. We are interacting with the ministers to be a very important actor for the full, let me say, [ European-bound ] destination that will be more and more, let me say, our biggest -- [ I said ] it's only 3 projects. There is all the team of the healthy, the team of the, let me say -- of the school, the team of the Industry 4.0. So let me say these are only the first visible and touchable projects of NextGenerationEU. We are, let me say, interacting for the others that are very, very important. About the amount, I cannot say anything. We are in the designing time of the process. So okay, for the next, let me say, quarter [indiscernible], okay?

Yes. Just a little more of elaboration on the remedies case because -- let me clarify, I think it's important from our side to clarify that now we have this as a base case that is a planning assumption, which will -- is driving us to -- has given us to identify further use of growth to compensate the shortfall. However, from a business perspective, from an industrial perspective, we keep on working and having a positive and constructive relationship with Iliad. And we count on clearly building stronger and bigger business, including through the remedies process. If that will come -- clearly, as we said, the process is not within our control. But anyway, should the remedy process be resolved quicker -- quickly or in a better way with higher volumes, then that will be an upside. And we keep on working for that upside.

The next question is from Jakob Bluestone with Credit Suisse.

I had a few questions actually I was hoping you could help with. Firstly, it might just -- it would be helpful just to understand under the sort of roughly EUR 350 million roughly incremental revenues that you expect by 2026, in your new business plan, how much of that is contracted? And how much of that is sort of still to play for? So that's the first question. The second question is just around the leverage and just to sort of understand a little bit what exactly it is you're looking at. I mean, on Slide 18, you show the net debt to EBITDA, and it sort of seems to suggest that you would hit the point in the middle of FY '22, if I read the slide correctly, in terms of the sort of cash returns decision. But earlier in the presentation on Page 9, you show net debt to annualized EBITDA, and then you also show a leverage ratio, which is excluding the tax scheme. So just to -- it might just be helpful to understand, what is the correct ratio to look at? Is it last 12 months? Is it annualized? Does it include or does it exclude the tax scheme? Just to sort of understand whether that would -- at what point do you sort of pull the trigger and say that the leverage is where you want it, we're at a point where you can start returning cash. And then just last question on the Iliad assumption. So you're saying you're assuming longer term 1,000 sites from Iliad of the remedy sites. You've obviously given guidance for '22, '23 and '26. I presume that's in the '26 number. But can you maybe just sort of explain, do you have anything in Iliad for '22 or '23 as well? That's it.

Yes. Thanks for the questions. Let's try to take one after one. The first one is about the contracted growth revenues. In the first part of the plan, it's more than 50%, then gradually goes to close to 50%, slightly lower. And this is related to the fact that in the first part of the plan, the main source of growth is basically the commitment. So new sites and new point of presence for the anchor tenants. Then gradually we -- there is the take-up in the weight of the growth of new services. Mostly DAS and small cell will be heavier and then having a stronger weight on the growth. So -- and let me remind that for the small cell and DAS, there is just a limited commitment. But we have the position of preferred supplier, meaning that the 2 anchor tenants can -- we have -- yes, the right of refusal. So basically, we are the key and probably the only vendor for Vodafone and TIM in -- for services such as small cell and DAS. With regard to the second question related to the debt, yes, sorry for that if it can create some misunderstanding. But clearly, on Page 9, the ratio is calculated considering the net debt in relation to the last quarter annualized EBITDA. So that's somehow the more -- most reactive indicator, the one that shows really the potential of the company because it's based on the last quarter EBITDA. Then when looking at the multiyear perspective, it's common practice to use the yearly EBITDA. And that's why you may see on 2021 5.7 instead of 5.5. So clearly, both KPIs are correct. It depends on the perspective and the use of the indicator. So for the medium term, we think that the representation on Page 18 is fair. And the key message there is the ability of the company to deliver -- to delever by 0.5 turn per year. Clearly, doing the same calculation based on the different criteria would have shown the same trajectory.

About inorganic operations, okay, we are looking at having in Italy for interesting assets. It could be towers, let me say, coverage, dedicated coverage, small cell and so on. And at the same time, we are studying more midsized tower, of course, in Europe, okay? This is the 2 trajectories that we are analyzing with the team of merger and acquisition that is actually, let me say, running on, okay?

If I'd just ask one quick follow-up. You mentioned both dividends and buybacks as mechanisms for returning excess cash. Can you maybe just comment on your sort of thinking in terms of your relative preference between those 2? I guess given the liquidity in your shares is an argument that maybe special dividends make more sense than buyback. So just any thoughts you can share on that would be helpful.

Yes. Yes, let me first maybe underline again that the priority is further organic growth -- to fuel the organic growth with additional levers, including M&A, building to exploit and leverage on our capacity to creating large-scale, very industrial synergies. That's the priority. On the specific on your point is, let me say, it's a little bit of premature discussion. Clearly, the tools are different. One is more flexible and -- i.e., buyback is a little bit more flexible. Clearly, dividend is more structural. It's again, no specific -- I cannot give a specific answer at this stage. And I think this is the reflection of the fact that we are more focused on the avenue of using the excess flexibility to build additional growth.

The next question is from Sam McHugh with BNP Paribas Exane.

Just 2 quick questions, please. On the EU recovery fund, a 2-part question actually. The EUR 30 million of revenues, should we be thinking about these as recurring revenues rather than project revenues? I presume that's what you meant. And then secondly, growth CapEx required. I don't know if you have any visibility at all about the level of CapEx that could be required in this kind of project. And how much is subsidized? Is there no CapEx at all? Is it just your expertise in the running of the asset? Or any more detail around what you think the investment could be on the other side? And then secondly, on the remedy side. Just a clarification. I think you're saying you'll get an extra 1,000 Iliad PoPs on the 4,000 sites by 2026. But roughly how many do you have today? Just so we can time size what the upside would be were they to come on to all 4,000 in the end.

Okay. Sorry, on the Iliad -- on the recovery fund, the -- yes, the revenues have to be stocked as recurring revenues. And in terms of CapEx, that's -- there is a degree of complexity there, and that will get more clear in the next quarter. But the general scheme is that the subsidy, let me say, will cover 70% of the CapEx requirements. And the -- also in this framework, we -- it's interesting just to say that what is the programs are considering for the investment is a return of broadly 88% with the flexibility of broadly 30 -- 20% to 30% range on additional return. So we are talking about double-digit returns. So that -- let me share the framework, 70% of CapEx financed and overall return to double digit -- up to double-digit returns. In terms of CapEx per unit, let me say, will be the typical CapEx that we talk about. If it is new sites, CapEx for new sites, if it is new PoPs, new point of presence on existing sites will be related to CapEx for upgrade of the sites. This is the kind of investment that we do expect.

On Iliad, so today, we've got, let me say, broadly 1,000 point of presence overall. So a growth in below 35,000 municipalities and with very quite limited take-up from the remedies process.

The next question is from George Ierodiaconou with Citi.

I've got a couple of follow-ups, please. The first one is on the EU recovery fund contribution. You gave us a revenue contribution of up to EUR 30 million. I was wondering if you can update us a bit on how we should think about leases and other cost that you may be incurring just to get a better idea of how this could translate in EBITDA or ROCF. My second question is around the comment you made earlier around the agreements that you have in place in the event of more spectrum coming on board and the need for additional PoPs. I just wanted to clarify, in the current emission limits, would it be possible to host additional spectrum? And if you can give us an idea of how the pricing works in that case. And then a final question is around the cycle of renewals. I believe earlier you mentioned another 6 years left in the 8-year initial cycle. My understanding is that relates to the MSAs. If you could give us a similar update about the third-party contracts that you have in place, it would be great.

Okay. Okay, let me say, about the utilization of the recovery funds, okay, it's business, for us, as usual. New sites, dedicated coverage, habilitate infrastructure monitoring, environmental monitoring. And so let me say it's nothing of different for our capabilities to satisfy the needs of the community, let me say. And so let me say we continue, we propose our innovation -- innovative solution to meet the needs and, let me say, the possibility to be, let me say, actor in this. So let me say nothing new in terms of industrial KPI, new sites, new dedicated coverage outdoor, indoor and new, let me say, IoT solution too that will permit this evolution in terms of, let me say, verticals that the P&L and the European funds will permit, okay? Additional spectrum. Okay, let me say, the usual in the other countries could be that the problem is the spectrum. In Italy, the problem is the power, let me say, allowed. And so, let me say, carry on. Other frequencies always must be, let me say, limited by the actual limits and so -- let me say, electromagnetic limits. So let me say we have to be compliant with this actual law. And for this, I think that this, let me say, really very, very, very -- probably the most severe limit that is present in Europe collapse in some time because it's impossible otherwise to, let me say, habilitate the new 5G services. Okay. The third was the amount of contract duration.

No, sorry. Yes, we spoke about 6 referring to MSA and highlighting that is the first turn of an indefinitive contract with the all-or-nothing clause. So it's going to be 6 plus 8, 8 and so on. With regards to the other clients on OLOs -- I mean, on MNOs, is generally 6 plus 6 years or 9 plus 9 years.

And the remaining -- if you can give us an indication of roughly how much is the duration left on this initial period for some of your key clients. Maybe Iliad will be -- perhaps it's more useful if that's something you can share.

We say we have 2 main customers on the MNOs, one well established, which has gone through already in 3 years ago on network restructuring. So it's an ongoing -- let me say, the average is -- let me say, an average aging of the contracts. But they are in actual terms, very stable, and we don't counter -- significant meaningful, how to say, [indiscernible]. With the other -- with regard to the other customer, that is the more recent operator, which has been building its own network. Actually, the relationship started in 2019. So most of the contracts are in the initial period.

Very clear. If you don't mind, sorry, just -- can I ask one more clarification on the first question? You mentioned it's business as usual, the NextGeneration fund -- projects. So the EUR 30 million of revenue contribution, is it fair to assume around EUR 20 million contribution to EBITDA if that were to be EBITDA -- sorry, if that were to be -- if that were to come through? Is that a fair proxy?

Yes. We confirm that our margins are in line with the internal, let me say, governance, okay -- I mean, guidance. So okay.

The next question is from Abhilash Mohapatra with Berenberg.

The first one is just a clarification, please, on the anchor revenues in Q4. I know you mentioned the thing about the different reporting lines. But even if I look at the mix across anchor MSA revenues plus new services, maybe it was slightly softer than at least what I was expecting. So I'd just like to understand how we should think about the evolution of the revenues there, given the revenues have probably been coming in a bit softer than the volume growth. And then the second one, just maybe a comment, if any, around the recent speculation around Telecom Italia potentially looking to divest its stake in INWIT. Just wondering, sort of how do you see that? Any comments you'd make -- any comments you can make around that would be helpful.

Yes. No, fair point. Yes, we think that the quarter has been slightly softer. We mentioned in the presentation at the end, I think we used the expression choppy delivery. And we mostly -- we are active with the delivery of the new sites in the quarter, but we have also said that most of them were at the end of the quarter. So we keep on having a delivery, which is, how can I say, at the end of the quarter, which does not allow -- display the full potential of the revenue in the quarter itself. And that's one of the key actions that we have in place to -- as we discussed in the past, to shorten the end-to-end cycle from customer demand to invoicing.

Okay. About the second question, look, we have a clear [ group offer, ] working with core operators in the market. We underline this many times today. INWIT and anchor have a strong commercial relationship based on MSA. Despite of shareholder structure, the MSA remain in force and fully effective for the entire duration of the agreement between the parties, INWIT and, respectively, TIM and Vodafone Italia, in their role as customer clients instead of shareholders. So we continue in our, let me say, business [indiscernible], creating value for all the shareholders, okay? Let me say we are convinced that we are an attractive asset. And finally, let me say that we have a policy of not commenting on media speculations.

The next question is from Ben Rickett with New Street Research.

Two questions, please. So firstly, your sort of updated balance sheet flexibility or more focus on growth CapEx, does your guidance assume that there will be incremental growth CapEx? And how much does that contribute to, for example, 2026 guidance? And then second question, just following up from a previous question. If TI did sell their stake in [indiscernible] and there was a change of control, is it your understanding that, that would then trigger a mandatory offer for the minorities? Or what would the mechanics be around that change of control?

Yes. On -- thanks for the question. On growth CapEx, actually, I think that there are 2 different topics. One is the growth CapEx included in the plan, for which we have some pressure on prices but we are managing and we don't expect any significant change. It's the EUR 1.1 billion included in the plan. Then the reduction of leverage coming from the EBITDA is creating the financial headroom, which then can be deployed with additional increasing investments, which can take the form also of a small acquisition, acceleration of land buyout in bulks of sites in dedicated infrastructure. That would mean additional investments and additional returns, so additional basically top line. So 2 different perspectives, I would say.

Thank you. This is Fabio Fernando. On your second question, unfortunately, we can't go into those details. So we don't have more information than any of you to talk on the subject. And so obviously, this is -- there's an Italian law framework in place and shareholder agreements in place, of which -- abstracts of which are available to the public. So I guess, it's more a question for the lawyers than for us. Apologies for not being able to comment more.

The next question is from David Guarino with Green Street.

There was recently news of a well-established competitor that's entering the Italian small cell and DAS market. I was wondering if you could just talk about how competitive the Italian micro grid market is becoming and what risk that might pose to your long-term new services growth outlook.

For us, it's a good news. Because finally, there is another, let me say, actor believing in the solution that DAS and small cell can give to the market or to the customer needs. So let me say we are actors in this from many years with our innovative solution, okay? And we will see how this new, let me say, actor will manage the customer needs. But okay, we are stronger and solid base in technology solutions.

Okay. So just to confirm though the -- so on your deck, the 1,000 new DAS projects by '26, I'm guessing a small portion of that are contractually obligated. The rest is new business you guys have to source though, correct?

Yes, absolutely. The -- yes, there are some that are contracted. Most of them know this business to be developed and built. I think that what is important to highlight is now the trajectory we are in. We started from nil, from scratch, from 0. Now the business has become to be material, and we see increasing interest from all parties involved, all the operators, not only the anchors, location owners. And also we have identified clear avenues for stimulating further growth when we think about the railway and the highways and road infrastructure. So we have identified dedicated verticals, which will offer additional sources of growth. Let me also remind that our MSA includes the role of INWIT as preferred supplier to Vodafone and TIM. That means that those -- the anchor tenant to develop the micro grid that will leverage on INWIT. So we have a competitive advantage in having 2 Tier 1 operators in the market with a term of preferred supply role.

That's helpful explanation on it. And maybe just switching gears, one quick follow-up. On the M&A slide in your deck, you noted data centers and fiber are M&A don'ts. But could you just comment on the company's posture towards owning active infrastructure?

No, really prefer active in the sense, okay? Sort of clarify, okay? In this moment, the unique active equipment that we are buying is DAS and small cell, okay? Let me say difference is to propose to the anchor tenants to manage their active equipment, but it's something that will come in the next year, okay? This is the -- our, let me say, policy in these terms, okay? [ Open RAM, ] let me say, sort of architecture will facilitate this, let me say, new scenario. But for the moment, the unique active equipment that we buy and we manage are the small cell and the DAS.

The next question is from Luigi Minerva with HSBC.

The first one is on what you're seeing in terms of CapEx from your customers, particularly TIM, Vodafone. So whether you are seeing some shortage in equipment in the supply chain affecting their ability to invest. And perhaps another aspect of it, they are trying to renegotiate the terms of the spectrum payment. So if they were to succeed, do you think that, that could translate into higher network CapEx short term? The second question is on your -- just a follow-up, a clarification on your M&A point. You also mentioned small midsized tower cos in Europe. And I'm wondering whether there is a conflict whereby -- or rather whether you would not be allowed to buy assets in the Vantage Towers footprint.

Okay. Thank you, Luigi. So starting from delay in terms of, let me say, having the equipment for investment, [ TIM, ] Vodafone said something to us, but let me say, interacting with them, I didn't perceive any delay, any problem in these terms. They are investing. They are, let me say, asking active equipment for 5G. They are continuing. About the, let me say, spectrum payment could be -- okay, let me say, it could be a solution. It's something that all the mobile operators are asking to the government. I like to, let me say, reminder -- remember to everyone that Vodafone and TIM paid EUR 2.4 billion for the use of the spectrum, okay? This could generate additional investments, could be -- I hope -- it could be really a good news. Around, let me say -- about -- sorry, the M&A, okay? We are -- we have no conflict. We are totally free to look, to analyze the midterm companies and always under our, let me say, criteria that I underline once more that are industrial synergies and returns. This is our unique obligation, let me say, okay? Thank you.

The next question is from Stefano Gamberini with Equita.

Three questions also from my side, if I may. The first, could you explain a little bit better how these OTMOs payments work in term of contracts, how you can collect these clients? And what is the visibility you have for the forthcoming years of revenues from these kind of clients? And in particular, what are in your projection in 2023 and '26, the revenues from these new clients? The second is more or less the same. You said that you have 66% [Foreign Language] totalize the 2022 9% revenue growth. That is the same level of November when we can expect some improvement during the year. But also in this case, what are the additional -- what are -- sorry, the share of revenues that you expect from the micro networks, both on 2002 (sic) [ 2022 ] and 2003 (sic) [ 2023 ], so in the short term, but especially in the long run in 2026, if something has changed compared to the previous plan also in term of small and DAS, small cells and DAS that you expect to deliver in 2023 and '26. Finally, I have a question regarding consolidation. Clearly, there was this offer from Vodafone Italia -- sorry, from Iliad to Vodafone -- for Vodafone Italia. If we can expect the merger between Iliad and one of the 2 -- your anchor tenants, that means 7 million client -- additional clients to probably your network and also additional frequencies. And you said that in this case, we -- they should pay additional fees. Is your network -- could your network host all these clients? Or do you have some limits due to electromagnetic pollutions to host such bigger necessity of capacity by -- in eventual -- in an eventual case of a merger between Iliad and one of the 2 main anchor tenants you have?

Okay. Starting from OTMOs. It's interesting market. Our clients are the municipalities fundamentally where we are interacting with Utilitalia, that is, let me say, consortium of the municipalities in Italy, giving them, let me say, some important solution due to the fact that we have, in average, 1 tower each 3 kilometers. And so let me say for all the monitoring of their asset, it's very, very useful. For us, it's a very, very interesting, let me say, business because they occupy practically no space in the tower. They don't use electromagnetic space. It's -- let me say, to design, to install this -- the equipment of this customer, okay, we can spend 1 week, so differently from the mobile operator. So let's just say it's very interesting. And the market is enlarging more and more. These are the -- our customers, and we are continuing to look for them for the solution that they need. About the money...

Yes. Actually, the financials are very similar to the fixed wireless access. Actually, we treated them together. But then actually, we realized it was a sort of hidden in the fixed wireless access category, but it's in hidden gem that now we are going to value -- to valorize to unlock the growth potential. So pricing is similar, if not slightly higher than fixed wireless access. In terms of -- moving to the next one on the contracted growth. Let me say that the 2/3 of contracted growth is our, can I say, structural formula, it's our recipe, is a structural composition. Clearly, quarter-after-quarter, once -- when signing new contracts and finalizing new deal, we will gradually increase. But the key point is that, that's a structural way to enter in the new fiscal year.

Sorry, just to complement on this, Stefano. So it's not really a way for us to introduce a new KPI that will change, say, month after month, and then will get to 100% at the end of the year. It's for us to say that 2/3 means inflation and contractual commitments. The rest, as for other industries, is business development and dialogues with clients. So it's more of a structural point than a moving target quarter-after-quarter.

On that target [indiscernible] that target's -- no -- basically, no change there. From a financial perspective, we can just say that -- and planning perspective, we have a better visibility than before, more data points and a more visible opportunity in dedicated verticals.

Okay. And finally, about the consolidation. Okay, you are right. The new hypothetical company have to manage 22 million customers. That is the sum of the customer of the 2. So they need surely more users of spectrum. And let me say, as we previously said and confirmed, each new frequencies must be paid in our towers. And let me say case by case, probably we will have to densify the network in terms of capacity. And this is another good opportunity for us. And then, let me say, we have to analyze the project that they will do. But okay, you're right. They cannot manage with only the -- we're the only owned spectrum this quantity of customers. And so let me say we have to interact with them in terms of new sites, new hospitalities. And the electromagnetic limit is an issue that, I repeat, is a very, let me say, limited criteria that will define all densification, all new sites. We will see. We will see, okay?

Just a quick follow-up regarding this OTMOs. So could you more or less quantify how big could be this market considering your network is so wide all over Italy?

It is -- from this year, it will be an important source of revenues. Keep in mind all the, let me say, water company, all the, let me say, gas company, there is some, let me say, public safety and so on. So it's something that is growing day by day. That is, let me say, very interesting issue. It's something totally new that we had -- are having the capacity to catch. This need is important, okay? There are 50 -- okay, I am looking for the data. 50 in the Q4. And then this is -- we consider a starting point for the whole -- the next -- not next, for this year. Okay. Okay.

50 new PoPs in the [indiscernible]

[indiscernible], yes.

The next question is from Fernando Cordero with Banco Santander.

The first question, sorry, is regarding the edge computing opportunity. At which extent have you already priced that opportunity, particularly on the long-term target that are you seeing the second phase of the plan? And I just would like to understand if as well as you are the preferred supplier for new sites for small cells. Are also -- are you sourcing the preferred supplier for Telecom Italia and Vodafone in terms of new edge computing and facilities? The second question is regarding...

Fernando, pause. The line is not very clear. Can you please repeat and maybe going a little bit slower? Thank you.

Can you hear me better right now?

Yes. If you can please speak a little slower, that will help. Thank you.

Yes. I was trying to understand how you consider the edge computing opportunity in your plan, particularly, at which extent the preferred supplier role that INWIT have with Telecom Italia and Vodafone is also applying to a potential edge competing opportunities. The second question is related with fixed wireless access players. And we have already heard so many questions around mobile consolidation, but I just would like to understand how should I think on fixed networks consolidation in Italy and at which extent it may affect or not to demand from fixed wireless players. And the last question is we have heard quite recently from other tower companies in Europe talking about potential issues on the supply chain in order to develop and to deliver the build-to-suit programs. I just would like to understand if you are facing the same problems and just your view on that.

Okay. Thank you, Fernando. So let me say edge computing, as you know, is my passion, okay, but is a part of, let me say, a scenario that will help our customers to manage all the verticals, 5G, IoT that will arrive sooner in the market. The tower finally is the nearest network element service for -- to the customer. And so for all the new services that need very, very low latency, are absolutely necessary. Then there, we can -- let me say that the edge computing done through mini data center at the base of the tower is our solution. And if you think that the mini data center is another, let me say, neutral host asset because we can offer anyone, we can sell computational capacity, storage capacity and pre-elaboration capacity. So let me say through the IoT sensor on the drones, we can serve, we can deliver very interesting services to our customer. In principle with anchor tenants, Vodafone and TIM, it's nothing material today, but we are defining our, let me say, chain in term of solution. We are finalizing proof of concept of mini data center and, let me say, IoT platform and drones. So let me say it's something that I believe strongly. We have to interact with our, let me say, anchor tenants before and then with all our customers. In terms of consolidation of fixed wireless assets operator, okay, the same. Always licensing the frequencies, we are involved. And so let me say the same. The numbers of the customers is different. The equipment are different, but always, you have to be compliant with the electromagnetic limits, with the, let me say, space in the tower. And let me say each new frequencies that will arrive in our tower must be, let me say, paid. And so let me say, we have -- we look to this very, very interesting, let me say, scenario because in Italy, there are 4 very, very strong fixed wireless access operators that are -- they are battling in the market to gain more and more customers with their solutions, okay?

Just a follow-up here, Giovanni, that is saying I was also, let's say, willing to understand at which extent -- when we are talking about fixed networks consolidation, I was talking about the fiber networks -- the 2 fiber networks per se in Italy, and at which extent a stronger fiber player could impact on the demand from, I mean, market positioning of the fixed wireless players and consequently, your business with them.

[indiscernible] Okay. The fixed wireless access operator can, let me say, anticipate the 1 gigabit for each customer because the fiber will not arrive quickly in each part of Italy. But with a wireless solution, you can give important, let me say, performance in this moment to the final customer. And finally, there will be a battle between the FTTH solution and fixed wireless access solution because, let me say, from the technological point of view, the fixed wireless access solution are, let me say, improving, improving, improving the performance. And the investments are really cheaper to gain the final customer. Okay, Fernando, now?

Quite clear, Giovanni.

The next question is from Simon Coles with Barclays.

Just on the shareholder returns because not entirely clear. Could you just clarify, once you get below 5x, so that happens in the middle of '22, could you then come with a shareholder returns update? Or do you need to wait until the full year next year before you ever announce anything along these lines? And then just linked to that, you talked about sort of the focus is on being able to spend growth CapEx to drive further EBITDA growth. But given you're going to delever at sort of 0.5x, [indiscernible] is there any reason to believe that when you do come with the increased shareholder returns that you need to keep any fire power back so you don't go all the way to 6x if you do announce something?

Thanks for the question, Simon. So I think as far as timing, based on our guidance, so Page 18, we will actually be still at 5.2x at the end of '22. So I think as far as timing, we will be below 5 over the course of '23. And that would kind of put us in the position of starting to think about how to deploy. Obviously, this is the framework. And obviously, as we said, we monitor any other opportunity that we see in the market. So this is kind of how we wanted to describe it. So we have a target capital structure, which we want to keep optimized. We have an outlook that is around industrial synergies and attractive returns. And we wanted to be disciplined to kind of share how we look at these options with the market.

Okay. Yes. Sorry, I meant '23. It's just sort of trying to understand timing and whether it's a trigger or is this something that guides. That's useful.

Gentlemen, there are no more questions registered at this time. Back to you for any closing remarks.

Thank you, everyone, for connecting. Bye-bye.

Thank you. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.