Koninklijke KPN N.V. (KPN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to KPN's Investor Relations Conference Call. Please note that this event is being recorded. [Operator Instructions] I will now turn the call over to your host for today, Michael Schenk, Investor Relations Officer. You may begin.

Good morning, ladies and gentlemen, and thanks for joining us. Unfortunately, Matthijs will not be able to join us today due to personal circumstances. That is why I am your host today. Welcome to this brief call covering this morning's announcement that we will form a strategic partnership with ABP, represented by its asset manager, APG, to create a new tower company. With me on the call today is our CFO, Chris Figee; and [indiscernible] our Head of M&A, who is available during Q&A. As usual, I would like to remind you of the safe harbor on Page 2 of the slides, which also applies to any statements made during today's presentation. Let me now hand over to Chris.

Yes. Thank you, Michael, and good morning to you all. We've been pretty busy at KPN in 2 weeks, last week -- last fourth announced the acquisition of 200,000 tons passed from DELTA. Tonight, the Boston Celtics are facing off the Dallas Mavericks, so in 10 weeks, but good weeks for KPN. I'm sure you'll look at the materials that we published this morning, but they're reasonably complicated, so I'll give you a quick summary of it all and leave time for question and answers at the end. So we announced that we have signed an agreement with giant pension fund APG, who we know very well from FOX Sports, to jointly create a new tower company. This strategic partnership is aligned with our recent Connect, Activate and Grow strategy to optimize the value of our passive assets and have the best digital infrastructure in the Netherlands. And through this transaction, we drive strategic flexibility over substantial part of our mobile sites, enabling strategic and material synergies regarding the deployment, maintenance and optimization of our passive mobile infrastructure. And the solution also provides a new framework agreement for all tower leases, fully geared towards the future, both financially and technically, and which supports KPN's value creation. It has a positive impact on EBITDA, cash flow and earnings. Just to take out any ambiguity or uncertainty is a positive impact on the group financials. At our recent Capital Markets Day, we announced that we are continuously looking for ways to optimize ownership of our passive network, and we're specifically looking at our mobile site ownership. This transaction clearly demonstrates KPN's intent to optimize the value of our passive infrastructure, leverage the value of our networks and whilst retaining strategic flexibility and long-term operational stability, allowing us to operate the best digital infrastructure and retain network leadership in the Netherlands. Now let's move to the rationale in a little more detail. We executed sale and leaseback transactions in the past and as a result, significant part of KPN's passive mobile network is currently owned by third parties with interest sometimes diverge from KPN as an MNO and result effectively in complex terms and conditions across a myriad of contracts. That's the reality. Under current contracts, lease fees are relatively high, and inflation exposure is often uncapped, resulting in high and fluctuating lease expenses for KPN. And following KPN's continued demand for network growth and densification, amplified and most became -- made more important by the upcoming spectrum auction, having more operational influence over this infrastructure is imperative to our strategy. That's why we've signed an agreement with APG to create a new tower company, new entity for now labeled as TowerCo, we might call it Open Dutch Towers, but that's something to think about in the future, basically consists of the following 3 elements. First, the contribution of assets. TowerCo, as we'll call it right now will hold the passive mobile infrastructure assets of KPN as well as those of NOVEC and OTC. As such, KPN contributes about 250 owned towers, about 1,850 rooftop contracts, plus a built-to-suit commitment for the first 10 years. NOVEC and OTC, already key partners of KPN as we currently really rent about 1,100 locations from them, contribute about 900 towers, 11 broadcasting masks and access to 750 high-voltage pilots, HVPs. Second, as an integral reset on all the current contract with NOVEC and OTC into a simplified that made more effective single framework agreement for all passive mobile infrastructure involved, with more fitting commercial terms and limited risk for escalating prices in the future. And thirdly, KPN pays small equalization fee and acquires 51% of the combined business with corresponding consolidation control as majority shareholder. Hence, this transaction allows on the one hand to renegotiate terms and send a set of contracts into a single and more attractive framework agreements. And on the other hand, the majority share drives control over the heart of a passive mobile infrastructure asset base and increases our EBITDA after leases through consolidation. Let me now touch on the operational side of the strategic partnership. TowerCo will hold the passive mobile infrastructure assets of KPN, as well as those of NOVEC and OTC, leading to a portfolio of about 3,800 mobile sites in the Netherlands. The number of sites is expected to increase, driven by KPN's build-to-suit commitment for about 550 sites for the next 10 years and by third-party patient size. Telco will build, operate and maintain the passive infrastructure through an open access model, which is very important, it's an open access business of about 6 FTEs. TowerCo and KPN have entered a new long-term master service agreement regarding the provision of tower infrastructure services for an initial period of 20 years. The average tenancy ratio today is about 1.5% and expected to improve over time as new sites are built along with lease-up on existing sites. And again, this is an open access to our company, which is important to other lines. Let's move to the deal structure. In this transaction, KPN will hold a 51% consolidating stake in TowerCo and APG will hold the remaining 49% with TenneT selling its stake in NOVEC as part of this transaction. KPN has agreed an upfront cash equalization payment of about EUR 120 million to NOVEC and OTC's current shareholders for the majority stake in the company. The transaction is subject to regulatory approval, with this strategic partnership expected to start operations in the fourth quarter of 2024. One way to look at is to think this business has an enterprise value of EUR 600 million to EUR 700 million, taking typical powerful multiples and the EV of this business, plus the reset of terms, plus the derisking of KPN's in future lease commitments. So it's an access to a business that's worth probably EUR 600 million or EUR 700 million in that order of magnitude, plus a reset of terms because of derisking. And against that, KPN pays an acquisition fee of EUR 120 million and injects our 250 towers and about 1,900 rooftops and gets access to about 1,000 towers and a bunch of high-voltage balance and broadcasting mass. And in that, there is a build-to-suit commitment over time. And the combination of the 2 for KPN, means and return on invested capital well north of 10%. And if you go a bit out in time, the ROCE moves towards -- current ROIC is our estimate. So when it comes to the financial terms, we, as a shareholder owned 51%, plan to fully consolidate the tower company, which adds positively and on a pro forma and full year basis about EUR 30 million of reported EBITDA to KPN in '24. Over the 2025 to '27 period, the EBITDA is expected to grow at more than 3% on average per annum and incremental to a CMD target of about 3% CAGR EBITDA growth. CapEx is expected to decline over the coming periods, should be in the mid-teens in the early years. Operating free cash flow is about EUR 20 million pro forma in full year 2024 and will show a decent 10% growth on average per annum in 2025 to 2027, driven by EBITDA growth and gradually declining CapEx. CapEx on a pro forma basis on a fully consolidated basis is about EUR 10 million in the first years, growing to EUR 15 million to EUR 20 million in the back end of the plan period. The delta between the operating free cash flow and the full free cash flow is mainly related to interest expenses. For safety purposes, you can include 50% of your free cash flow in your contribution to KPN. So these are all pro forma 2024 numbers. Obviously a transaction is subject to regulatory approval. We hope and expect closing in the fourth quarter of the year. So really start to add to KPN for 1 quarter this year or full year 2025. Net debt on a consolidated basis increased about EUR 300 million to about 0.1x impact on KPN's leverage ratio driven by the equalization payments and the impact from refinancing TowerCo based on the leverage ratio of about 5x net to EBITDA locally. As mentioned, note that the 100% is consolidations, so consolidated -- so KPN owns only 51%. KPN's group fully loaded leverage ratio is expected to stay within a 2.5x net debt to EBITDA ratio that we stand for. So all this fits into the 2.5x times net debt to EBITDA cap that we concluded. So to summarize, if you take a step back, over a decade ago, KPN sold its tower portfolio to maximize upfront value, actually in exchange relatively high anchor fees. We felt that our key digital infrastructure, mainly towers and are locked with a bunch of third parties at relatively unfavorable terms and rooftops at risk of moving in the same direction and is becoming a highly competitive market. With a consolidated market and KPN's requirements for new locations in coming decades, KPN was to a large extent dependent on third parties for one of these key infrastructure networks. With this infrastructure being paramount to KPN in the coming decades, think about densification, bringing a biggest rollout with a strong desire to bring this partially back to the default of KPN, creating a fully aligned and future proof situation for key KPN digital infrastructure. So basically we have a transaction where there's an integral reset of all the current contracts with NOVEC, OTC into a single framework agreement, both parties contribute assets. NOVEC, OTC to see about 900 towers, KPN, 250 towers and 1,800 rooftops, and a built-to-suit commitment. And this allows, on the one hand, to reset terms of contracts into a single framework agreement, on the other hand, get the majority share to drive control over passive mobile infra and increase our EBITDA and free cash flow through consolidation. The solution provides a new framework agreement fully geared towards the future, both financially and technically, and allows for optimized operations for a business that will have open access worlds. There's a long-term agreement ensuring adequate provision of locations over a 20-year term at substantially lower fees to KPN and adjusted inflation amendments. So with that, I leave the floor for some questions. Michael, can you share the instructions?

Thanks, Chris. And we will now open the floor to questions. As a reminder, please limit your question to 2, please. Operator, over to you.

[Operator Instructions] First question comes from Andrew Lee of Goldman Sachs.

I had 2 questions. The first one is hopefully pretty straightforward, and the second one may be slightly more complex, but I'll give it a go anyway. So first one is just how does the cash commitment of EUR 120 million as part of this deal feed into your decision making on future buybacks and dividend payments? And then the second question is really a kind of what now? So, thanks, Chris, you kind of very clearly articulated why you've done the deal today. But just trying to get an understanding of why your partners, ABP, et cetera, went into the deal, who started the decision, or the process of doing this deal. And the reason I try to get an understanding of that is, do you expect now to build your stake further in the telco from the 51% today and also trying to get an understanding as to what this pertains -- how this pertains to any kind of thoughts on your fixed network ownership, given you currently have a 100% ownership of that.

To your first question, this is completely set of many debit environment, there's no impact, any dividend or buyback plans are unaffected by this transaction. This is fully inside our -- our cash story, our leverage limits of 2.5x net debt to EBITDA, so we're fully committed to return our full free cash flow to shareholders. You might argue our free cash flow goes up to shareholders a tiny bit in the coming years and de-risk our free cash flow going forward. And there's no cross [indiscernible] whatsoever. Also, any -- whatever follow-on buybacks or follow-on decisions, it's separate. So this is fully into the existing cash that we have, and cash back. So how did this start? This is a debate discussion that took us quite some time to work out, it was kind of complex selection. Obviously, APG, we know very well through our Glaspoort joint venture, obviously, TenneT was a shareholder in NOVEC, OTC, and is looking for, I think, a redirection of its strategic investments, and was thinking whether they wanted to be a long-term owner of this asset in the long run, given their other priorities. And we came to bear that we thought, gee, if you in the future of this company, we think it's strategically important to have control over your core network, right. Even if you're a passive network, you want to own control and have more strategic flexibility that we didn't have at this point. Who started it? I think we started it. It's actually a long time ago. I think we launched -- we floated the idea with APG, thinking that at some point, TenneT would probably be willing to engage into a discussion. So we kind of banked on or hypothesized that TenneT would probably want to exit. This is a strategic move for us. So we floated the idea at APG and then it hit home and all 3 parties got together. It took us quite some time to work out, first of all, because we had to renegotiate, obviously, all the lease contracts into a new single framework arrangement. Then there was a fair degree of evaluation discussions and the icing on the cake was the accounting technology to make sure that we could consolidate the transaction. And I can tell you what, I can write a PhD on consolidation from now on and actually seriously thinking about doing that when I retire. There was a long discussion on that, so it took a long time, has its further implications on our fixed network. Look on fixed, we own all the urban fixed growth at that fiber assets. And on the semi-urban, we've got to deal with APG, in which we have a 50-50 joint venture, which at some point will control and will consolidate. On power, we now have something similar, is there a further read across? Not that much, except that we think it's imperative for telco to have majority ownership of your core assets. Not necessarily 100% ownership, but it doesn't mean that we immediately intend to sell our fixed assets in the short-term, but at least we want control as a principle. There's no plan for us to go up from 51% in the other side, our partner is here too, as an investor. So we think we go from 0% to 51% and that's where we will stay.

And we'll now take our next question from Luigi Minerva of HSBC.

Just a clarification on Slide 6, because if I look at the assets under the KPN perimeter, particularly the third-party powers, only 1,100 will fall into the perimeter of the TowerCo. So I just wanted to understand what happens to the 1,900 that are excluded from the TowerCo. You will no longer use them. So you have negotiated yourself out of the agreement on these towers or just what happens to those 1,900 really? And then secondly, just like trying to get to the bottom of the impact on earnings, as you were suggesting, Chris, in your remarks. So what is the dividend that APG will get from TowerCo? And perhaps you've given us an idea of interest charges, about EUR 10 million, I guess, but if you can give us some color about incremental DNA and taxes as well.

Yes. So on the remaining towers, of course, we have contracted other tower providers, other tower companies and other colleagues. So they're operated by third parties. Basically, we adhere to the contacts that we have with them and they will remain active and remain part of our network. Obviously, going forward, priority for new tower developments will be at this new TowerCo. So basically they're operated by a number of third parties, in which we have contracts -- which was contracts, and they are important to us, and they'll compete to operate, to serve our mobile networks. But then again, new build-to-suit commitments obviously are in this new TowerCo. When it comes to how we looked at the business at this point, look, there's been a work to be done due to run up of the closing of this transaction. What we've shown to you is the impact when you consolidate, consolidated impact on EBITDA, on operating cash flow and free cash flow. Obviously, the company has the intent to basically run at a 5x net debt to EBITDA leverage and excess being distributed to both shareholders. So you have a situation where probably the cash that's being upstream is higher than the free cash flow reported. At this point, we focus on the reported free cash flow. The actual cash in might be a bit higher. Think about the business, about ‘25 – ‘24, ‘25 EBITDA of around EUR 35 million, interest, net interest about EUR 11 million, taxes around EUR 4 million and CapEx around EUR 10 million, which brings you to around EUR 10 million to EUR 11 million free cash flow in this business. That's kind of how the math works. But then again, as I said, the way we think about it today is that we report the consolidated number. The actual cash into KPN might be a bit higher simply because of the maintenance of a leveraged target into the asset.

And we'll now take our next question from Georgios of Citi.

The first one is on the deal itself. And just trying to understand, beyond the savings from the renegotiation of the existing leases. Are there any benefits you may have in the future? So I'm just trying to understand if the build-to-suit program is just for expansion of the network, or could you use it to replace some of the existing lease arrangements with third parties going forward and renegotiate that terms? And then my second question is around the comment you made earlier, Chris, around consolidation. Should we assume that other potential assets, whether it's edge data centers or other infrastructure, you may have options to monetize in the future, will be preferably structured in a similar way where you keep control or do you look at each asset in a completely different starting point?

Good questions. On the -- first one on the savings indeed, well, that's obviously right. There's a -- the renegotiation of the lease contract. So the build-to-suit is primarily around new towers, but there will be also opportunities for replacement. So when towers and other operators come up for renewal, we will try to think through do we renew or do we [indiscernible] it gives us a fair degree of optionality. So I think the 550 towers built to suits. Think about 80%, the majority will really be around densification and new towers. But we do see opportunity for replacing existing contracts with new towers in more favorable terms. That is not yet actually modeled in the plan. The plan is not supposed to do that, but that's an additional upside in the numbers we gave. And of course, obvious upside, we believe tenancy ratio is good to up -- at this point, the tenancy ratio on KPN's towers is lower than the tenancy ratio in a typical tower company. So basically opening up our towers to third parties should give additional benefits that come into earnings. So it basically is savings through the new MSA, new renegotiated terms. There is a assumption to some alignment of tenancy ratios between KPN towers and what OTC has. And we think the 5G rollout will require more [indiscernible]. There is already a search for new locations. So we think that's a valuable asset that increase in value. And then thirdly, we get optionality to replace existing tower arrangements in more favorable terms in this new company. What does it mean for competition? Well, I think we come to the conclusion of core assets to your network you want to control. We don't need to own everything but the core assets that are imperative to your strategy, you want to be in control. You don't need to own 100%, but you also want to own 51%. So look, you mentioned edge computing and edge codes. It's really early days. We haven't -- fairness, we haven't started on this yet, except few sketches, but [indiscernible]. If we do anything here, probably this deal is a fair blueprint for what we do there, because I think that's an asset that you want to keep control of. Now, obviously it's slightly less complicated, gives you less, you don't have to resolve anything that's existing, but I think it's for us, the way you think about optimizing the value of your network. If you can bring in third-party ownership, third-party financing or third-party skills that's helpful, but strategic assets you want to own and control.

Very clear. And since you mentioned the Celtics Chris, I hope you are ready for Lucca.

Well, let's talk about separately about Jrue Holiday and Derek, why don't you be able to guide Lucca tonight? That's the plan. We'll wear them out.

And we'll now take our next question from Titus Krahn of Bank of America.

Just 2 on the towers, please, from my side. The first one, just as a kind of follow-up question on the existing MSAs you have with third-party towers, is there any color you could give us, kind of how the waterfall is of when they're expiring? Because you're talking about the potential to replace some existing contracts. Is that something over the next couple of years or much longer term when those existing third-party contracts expire? And secondly, just on the potential increase in the tenancy ratio of your TowerCo. And could you talk more about how you have incentivized this, given that there's always some, I guess, some governance difficulty between the MNO having a majority stake, but the minority partner potentially wanting to increase tenancies also with, well, I mean, even if there was a fourth entrant or anything in the Dutch market, how do you manage to kind of make sure this is aligned?

Yes. So on the first one, on the MSA, we don't want to go into the details of that, but it's going to be a gradual process, a multi-year gradual process. We have existing contract that we will adhere to and there might be -- a fair amount might be renewed actually. So we'll be opportunistic to say, to renew the existing owners, but there will be a gradual process over time. When it comes to tenancy, well, it's an independent outcome. We do hold obviously a control of 51% share, but obviously we have a partner that has certain interests as well. Our interest is really to improve tenancy. We're not here to limit tenancy, to limit others. This is truly an open access to our company, which we want to make sure we consolidate the results and we have protection of our own framework agreements. There are clearly incentives to management team to improve tenancy. So the objective is to improve tenancy, not to prioritize KPN of others, it's truly own open access business and we run an open access wholesale model with -- that's a pretty happy open access wholesale customers. So we're used to this business. We have a partner interest and the management team is clearly incentivized to increase tenancy. And for KPN, look, in the end, I'm a financial guy, so more tenancy is more income, is a happy CFO. So I live on that very simple presumption. So that's also how we think and try to incentivize the business.

And we'll now take our next question from Nuno Vaz of Bernstein.

So 2 from my side as well. One is a clarification on the debt on the holding, because you talked about raising more debt. But just for me to understand more clearly, is there any debt in the holding that is not part of the EUR 120 million that you'll be sort of taking over as well? And then second question on the CapEx side, because these 550 sites on the BTS side, I assume that's also a significant amount of CapEx. Is this included in the annual EUR 10 million that decreases to EUR 5 million sort of guidance you provided today? Could you tell us what's the total amount of CapEx for the BTS? And what would be the sort of negative -- what would be the negative run rate impact on EBITDA from this BTS?

So look, here's the plan. On the cash we're paying EUR 120 million out of KPN Group cash onto the shareholders. And then OTC itself will be relevered in a sense, basically we're buying it initially debt free and then relevered. So there will be leverage inside this entity of around EUR 200 million gross debt into the entity and there's EUR 100 million cash out. So the EUR 300 million net debt impact is basically a payment of EUR 120 million, about EUR 200 million of gross debt in the assets. So that's the EUR 300 million impact. So that's one. On the CapEx impact, look, here's the thing. We have 250 towers in our own business if we had not done this deal. So, the counterfactual, which is a very legalistic competition term, but the counteract means, if nothing would have happened, we would have owned 250 towers and money building probably 550 towers ourselves. In the new model, basically the CapEx is spent by OTC of this tower company and 51% owned by KPN. So the build-to-suit commitment and the CapEx is included in the net EUR 10 million. So in this transaction, simply speaking, we save CapEx on the KPN side and CapEx increases on the company -- on the TowerCo side. The net of those 2 is around EUR 10 million CapEx in the first years and gradually going down. So that's all embedded in the CapEx. So what we're presenting here is net impact. So I don't want to make life more complicated on the EBITDA impact. The EBITDA impact of KPN has basically, first of all, we pay -- at this point, we pay a fee to OTC we're applying to them. So what's happening is actually inside the numbers, we almost eliminate the payments that we make to them and we get a share under the profits of this business. So it's a combination of existing payments elimination, intra-group eliminations, and part of their business that leads to this net impact on EBITDA of about EUR 30 million. A net impact of cash flow -- of CapEx is about EUR 10 million. So you have to compare the existing situation where you have payments to a party where you've got no ownership into and the existing plan and then a new situation where you own 51%. So, very long story. And all I'm telling you, the EUR 10 million CapEx impact includes the net impact of the build-to-suit commitments in this business.

And we'll now take our next question from David Vagman of ING.

First question about the MSA inflation close, it has been renegotiated and understand they might be capped or they might be lower. How did you basically compensate your partners, what was the mechanism. And maybe related to that, could you give us an overall understanding of the valuation multiples of the overall deal in terms of multiples? Maybe easy to operating free cash flows and something like this. And last point, any intention to -- at some point buy back -- buy a majority stake in Cellnex towers or other, you let it lapse and then I don't know, what are your plans basically for the remainder of the towers you're using, of the sites you're using?

Look, on the reset of the MSA, it's part of a bigger part -- it's actually part of EUR 120 million. So you think about what KPN contributes to the deal is towers and rooftop contracts. It's a build-to-suit commitment and a long-term commitment to this business and an equalization payment. What KPN gets is reset terms, improved set of terms to ourselves. It is 51% of this business. So it was -- so it's part of the total what we bring in and what we get out. You could argue it's part of EUR 120 million, slightly more complicated because there's also a commitment to sites in the long-term that we need to do anyway, right. We are -- it's commitment of part of the towers and rooftops that we bring in and you get something back. So it's very difficult to say, gee, the MSA is worth EUR x million because it's part of a deal where you enter, inject assets and get business back. And then you look at the whole thing and then for us that's an ROIC, well north of 10% to 12% going up or going up over time. On your second question, what do we do with the Cellnex towers? I have no plans, but doesn't mean I don't want to do anything. We just haven't thought about it. We've been focusing on this for now. There is no read through to whatever we do with our other partners. KPN is always open for business. But at this point, we really focused on this transaction.

And maybe on the overall valuation of the deal, any [indiscernible] that there will be...

We estimate that the value of this entity, both the assets that we inject into this business and the assets we get back into this business are around 20 times EV/EBITDA, which is -- we see where the market is. I mean, it's around where markets trade slightly below transaction multiples. Because obviously we're bringing in 250 towers and get excess to 1,000 towers. We're bringing some rooftops with slightly lower margins, but we get access to high-voltage pilots and broadcast towers with a slightly different margin profile. I think our estimate in total, the assets are roughly valued at 20 times EV/EBITDA, which you feel is in line with the market. To me it's more important that the return on investment of KPN, what we bring in and what we return is well north of 10% to 12% and moving up if you extend the time period. But it's not off from where towers typically trade, put it this way.

And we'll take our next question from Usman Ghazi of Berenberg.

I had a housekeeping question. I mean, the EUR 600 million to EUR 700 million that you mentioned, presuming that includes the value of the [indiscernible] commitment as well.

Good question. I'm applying this [indiscernible] EV to EBITDA multiples of the business. I think if you -- if you add the BTS commitment, you probably move to the upper end of the range.

So that you move to the upper end of the 20 times range...

Yes, EUR 600 million to EUR 700 million probably include the BTS, it probably moves to the upper end of the range of valuation, I guess.

Got it. Okay. And then just the 2 questions I had was, I mean, I'm just wondering how do you avoid the conflict of interest? Obviously because the ownership of towers, most telcos have given it up because they say give it to a neutral host, they maximize tenancies, you're maintaining control and you still want to drive tenancies up. So just what is the governance framework here? That was the first question. And then on the second question, I just wanted to understand the scope of this vehicle that's being created. Is this just a TowerCo or can this vehicle act as a kind of as an entity that into which you can sell other stuff, maybe your active equipment or what have you?

First question on, look, there's a clear incentive for management, that clear minority rights and protective rights for a co-shareholder. So basically we have consolidation control, but it still means it's an independently run companies, KPN having consolidation control and a management that incentivized to grow the business and has a clear plan and a clear ambition to grow this business, undersigned by both parties and KPN will certainly not interfere or have any say on third parties signing up. Also critically, we made arrangements that KPN will not solely determine the location of towers. Obviously your third-party wants to have towers and we can support that, we'll do it. So there's a clear incentive structure and decision making structure. That means the location, the search circles are flexible. KPN has given a build-to-suit commitment. Those towers are open for third parties. But then again, we are flexible to third-party questions and we do this all the time today as well. So that's an important point to make. On the scope of the transaction, well, in theory, there's no limit. In practice, this is a transaction aimed at mobile infrastructure, right. Could there be further assets being injected? Yes, why not? If both parties agree that this transaction could be scaled up and could be larger, there's not something that's stupid to bring in fixed network ads or anything else. It's a business circle and a management team centered around mobile infrastructure. But anything that has a relation to that could, in theory, be injected if both parties agree.

And our final question is from Keval Khiroya of Deutsche Bank.

And I have 2, please. So, firstly, can I check what the IFRS 16 lease liabilities will be following this transaction? And second, you talked about existing contracts with the third parties. Are you able to share how material those are with an existing base of leases, which I think were just above EUR 140 million in the P&L last year?

IFRS 16, today we have EUR 130 million -- EUR 130 million assets on our balance sheet that will fall away because this transaction will replace by a new one. So I think the IFRS 16 impact on our balance sheet is going to be a bit negative, would decline in the ROU. So the current position, EUR 130 million towards this business, the new ROU will probably be a bit less than this. The exact number to be fine tuned towards closing. On the existing revenues, I don't have that number at hand. But think today, for example, if you look at the perimeter of the new entity, the power that OTC and NOVEC bring in have a tendency slightly just above 2. KPN just below 2, right. When you look at the highest voltage spitting sites, they have a tendency just above 1. So there is a certain degree of business. I don't have the number at hand what third party revenues are, something to work out towards consolidation. We can disclose more about it in the future. But think of a business where today tenancy ratio on the rooftop -- on the towers that we injected by the other side are above 2 and KPN just below 2. That hopefully give you a bit of a benefit here.

All right. Thanks for your questions, everyone. I'll now hand over to Chris for some final remarks.

Yes. So, thanks. To summarize, we're setting up a new tower called a combination of NOVEC and OTC and our own passive mobile network, somewhat against the current, but believe -- of telco thinking, but we believe it's important that as a telco, you have majority control of your strategic assets. But with that, we continue to work with our partner, APG, who we've worked with very effectively in the past, and have a transaction that creates a TowerCo that is very material in the Dutch environment, that provides open access to third party, that is incentivized and targeted to deliver that, but then again, allows KPN to also reduce risks and increase benefit -- increase our earnings from the MSA agreement, and we consolidate the earnings of the tower in the business. So we create more operational efficiency, we set our lease fees, we drive control over passive infrastructure and add EBITDA, operating cash flow and free cash flow to our numbers, which are to some extent additive to our CMD. So the EUR 337 million is not included. This is material to be determined, but at least it's additive to our EUR 337 million, so this should be allowing us to slightly outperform the EUR 337 million numbers, given the fact that we're adding additional EBITDA, which is growing faster than the 3% that we aim for, although a new framework agreement geared towards the future, financially and technically. So thank you much for your time. Fingers crossed for the Celtics tonight. My story is Celtics [indiscernible] but we'll talk about it in a few weeks when we're done. And thank you very much for your attention.

Yes. If you have any further questions, please reach out to the IR team. Thanks a lot.

Ladies and gentlemen, this concludes today's presentation. Thank you for participating. You may now disconnect your line. Have a nice day.