Infrastrutture Wireless Italiane S.p.A.

Good afternoon. This is the Coruscant Conference Operator. Welcome and thank you for joining the In with Full Year 2021 Results and Strategic Update Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. 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 In with Full Year 21 results and strategic updates, especially in a day with such dramatic developments. With me today are Giovanni Perigo, 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 two. Following the presentation, we'll be happy to take your questions. Over to you, Giovanni.

Thank you, Giaveo, and welcome, everyone. Today, we are proud to share a very solid set of results. The growth potential in the new Inuit has become a reality two years after the merger with Vodafone Towers. There was a clear steep change in industrial KPIs. We added more new sites and more new ports in 2021 than we ever had. 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, established 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 add visibility to our growth trajectory. The external scenario is improving, and we have rebalanced the contribution of some tools of growth. Finally, we will cover all 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. In which various drivers of growth started to kick in during 2021, Q4 saw improving trends across the board. More than 1,100 new hospitalities, with all those up double digits. Tenancy ratio going beyond two for the first time. New sites were more than three times what they were in Q3. Revenues up more than 7%, progressively accelerating. A bit dull growth of over 12% with margin expansion. And strong cash generation, up nearly plus positive plus 16% on an yearly basis. 2021 demonstrated that our business model has various levers and that the demand and external scenarios are supportive. We met the guidance, despite the two headwinds which we discussed with you in the past two 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 farther on efficiency. Our assets are a key enabler of the digital transition which is underway, a platform for structural growth which is reinforced by a strong 2021, in line with our mid-term ambitions. Let's now look at the Anchor's KPIs on page 6. Anchor's POCs Anchor's points of preferences 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. Anchors continue 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 on remedies volume. We will benefit from higher inflation and a slightly better trend from other holos. 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 optimal category. Other clients in macro sites, including utilities companies, digital radio, security companies, and the public administration. Similarly to fixed-valid success, 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 microgrid, 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 hollow tenants and DAS tenancies coming on stream, plus the initial benefits of highway tunnel investments. closing before 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 of macro sites or other services. These areas of flexibility by reporting line are typically reconciled at the 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, groundless cost is down 2%, despite a growing asset base, pushing EBITDA growth to more than 1.5 times revenue growth. at 12% year-on-year growth. So, a solid set of financials with improving trends. Let us now move to cash flow on slide 9. Cash flow generation continues to be strong into year-end, meeting guidance. We generated $366 million 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 benefits from tax schemes, a key driver of improving cash conversion. We can deliver by about half a ton per year, progressively creating balance sheet flexibility. Leverage was flat in 2021 because of a tax scheme prepayment of about 334 million euros. Excluding this very attractive one-off investment, leverage would have been about five times to the rate. In the appendix, you will find additional details on all 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 revenue up by single digits, two-thirds of which is already committed. Inflation will have a positive net effect, and efficiency gains will drive double-digit EBITDA expansion. Recovering free cash flow will be up strongly on the back of margin growth and tax schemes. INGWIS 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 Inuit has become more visible. We can count on 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 in the November 2020 business plan presentation. Business plan targets are confirmed. In our base case, we now include a different holomix with lower remedies. This is because of the uncertainty around the timing of the ongoing legal appeal. To balance this factor, we have more inflation, a better demand trend in other holes. On top of our guidance, next-generation EU 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 balanced sheet flexibility and additional optionality with a clear framework for deployment. Let's begin with our assets, a key competitive advantage, phase 13. In-width assets make up an integrated network, macro and micro grids working together to provide coverage, capacity, and enable advanced applications, indoor and outdoor. We have inherited the best location in Iberia, 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 proximity, connected and equipped assets and there are new opportunities to provide value-added infrastructural 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. In with assets are best in class and attract growing demand from all operators.

Let's begin with ANCOR on page 14.

We are partners to two tier one operators in Italy and their technological upgrade to 5G. This comes with a few features. Strong MSA with all or nothing protection and upgrade feature. A large base MSA growing with the inflection. Source of committed growth across the board from sites to POP, DAS and decoding. and a preferred supplier role. This ensures downside protection and high visibility of future growth. Two anchors also mean we have two tenants from day one on each site. This also gives us a commercial advantage when selling dust 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 site 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 three main categories.

Broadly speaking, out of our 10,000 oil tenancies today, MNOs are slightly less than 50% of total, and the rest is fixable elastics and optimal clients. In other MNOs, the key opportunity is with Iliad. We continue adding new pots in towns below 350 35,000 population where remedies don't apply. The remedy process has started very slowly. Today, we would like to share revised volume assumptions with Iliad. In the next five years, we only expect a take-up of 1,000 remedy sites. This is the assumption in our base case. Should the remedy process be resolved quickly and with higher volumes, that would be an upside. So, hollow growth is composed of MNOs only for 15% of the total. The rest is fixed survival access supported by structural coverage needs of the Italian territory and with utility companies, public administration, and other clients. Both of these tenancies use very little electromagnetic space for us, little additional cost or capex for us, so they are effectively additional margins for tower. We have treated them as a part of the same category in the past. We recently 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 puzzle, our microgrid. New services have seen significant growth over the past two quarters.

Today, we would like to provide more details on the market opportunity and our approach. In with microgrid is composed of different technologies, repeaters, dust, and small cells. They provide dedicated coverage for indoor and outdoor locations. This is key in a world where mobile demand grows exponentially. In DARS alone, there is an addressable market of more than 3,000 coverage projects in the next five years. We aim to capture about 1,000 new projects focused on the most interesting verticals. Each project is unique in terms of number of DASH 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 more sales with stats growing from 2024 onwards, based on assumption of covering only part of the urban sites. We have all seen a recent example in the global wireless infrastructure industry of growing need for more cells. In short, over the past year we have seen new services associated with our microgrid growing significantly more than other revenue lines. We expect this trend will continue, counting on several levels with clear application and a strong track record already achieved. So, moving on to the incremental opportunity of the next generation EU. Since we shared our business plan, the impact of next generation EU 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 three main opportunities and what they mean for our financials. Italy 5G plan means Subsidies to CapEx for market sale or areas. Italy at 1 giga means more investments by fixed-world access players. Micro-coverage funding will help companies and public administration upgrade to dedicated coverage. Next quarter, we will begin the tender process with the news expected by the end of the year. This opportunity is incremental to our plan. We will have to compete and win the tender. There is an additional potential for 30 million euro revenues by 2026. We will provide the regular update on this in the coming quarters. We review our growth pillar. They translate in strong cash generation, as we can see on page 18 with Diego.

Inuit can generate substantial cash flow. We have growing margins, low capex needs, and a neutral working capital, plus an attractive set of tax schemes. The targets of our business plan set out in November 2020 are confirmed. beginning with a strong acceleration in 2022 and targeting approximately €700 million recurring free cash flow in 2026. In with CAPEX can count on secured revenue streams and have the potential to deliver double-digit unlevered results. After CAPEX and dividends, we reduce leverage by about half a ton per year, creating balance sheet flexibility. Considering our rating and cash flow profile, the upper limit of six times is confirmed. Leverage below five times 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 stage.

When looking at capital allocation priorities, 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 opportunities 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 merit focus 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 centers or fibers. Both these options are based on our core principle to grow through industrial projects. Should an opportunity tick these boxes, it would be appropriate for us to consider improving shareholder remuneration beyond our current or dividend policy. All options will be considered, including more dividends or stock buybacks. 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 look 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 remedy volumes. Inuit can deliver high single-digit revenue growth, double-digit margin growth, and even higher cash flow generation, combining Strong MSEs with inflation links, 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 opportunities within next-generation EU tenders, a possible source of upside. in which the macro and micro grid 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.

Our powers are inherently sustainable.

The more infrastructure is shared among 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 is clear from a number of rating updates. Over the course of 2021, we improved our rating for CDP, MSCI, Sustanalytics, and Tootsie Russell. More importantly, we set ambitions 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 first sustainability-linked loan. Today, we are happy to share with you that we aim to the carbon neutral by 2024. bringing our most demanding target forward by a year. Moving to page 22. So, 2021 was a busy year. Two years after the Vodafone Tower merger, we delivered a strong step up in growth. The full potential of Inuit 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 driver and balance sheet flexibility. We sit at the crossroads of infrastructure and digital investments, enabling mobile connectivity for everyone. This gives 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.

Excuse me, this is the Coruscant Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question comes from the English conference call and it's from Andrew Lee with Goldman Sachs. Please go ahead.

Yeah, good evening everyone and thanks for the really clear presentation and 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'd 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.

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 have an 8 plus 8 year, let me say, contract. And so, let me say, I don't see any risk in terms of our business in the hypothetical consolidation of mobile operator in Italy.

What about the longer term? Because obviously if you go from four to three, it places a limiter on the total contents you can reach. 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, sorry, that's a follow-up one. The follow-up two is just the eight plus eight. So is that the average remaining length of the contracts you have? Just to clarify on that. Thank you.

Let me elaborate some other thoughts on this. So from a theoretical point of view, let's when eventually two operators come together, they have two options, or they put together the grid, or they put together the point of presence, optimizing one of the existing grids. 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 going to be, in thinking about potential scenarios, the grid of choices. That means that eventually, considering that the number of point of presence is also mainly driven by capacity, and considering that the number of customers will not change, it's reasonable to think that there will be eventually also potential additional point of presence on our grid. All this considering that, as Giovanni said, the MSA offers a strong protection because in case of new frequencies brought on our grid, this implies the recognition of a fee to English. So, considering these elements, these kinds of thoughts are underpinning what Giovanni just said. So, in summary, at this stage, based on the information that we have on rational assumptions, also a 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 operator cannot choose or pick up and choose either the renewal is for everything or for nothing. And again, considering that they've been spending 30 years to build and optimize the network, clearly it's not a thinkable scenario to abandon 100% of the grid.

Yeah, okay, thanks. And so the average remaining length is how many years, if we add those eight?

Sorry, the first cycle of eight years started in 2020, so now it's six years less.

Thank you. 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 that's the only element that you think at risk in the near to medium term.

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

Okay. Thank you. Thanks very much.

The next question is from Roshan Ranjit with Deutsche Bank. Please go ahead.

Great. Good evening, everyone. Thanks for the questions. Thanks for providing information around the ILIAD remedies. That's clearly been a talking point for the last 12, 18 months now. But can I just say, given the shift in your internal kind of forecasting, you know, 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, a third of the blended OLO pricing. So if you're now reducing your kind of M&O contribution or the Iliad contribution, but 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 the shift that you flagged in your email 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 price and shift between those different segments? And then lastly, just on the business update, thank you for providing the additional information, but just going to the cash return point, how should we think about the timing? You've kind of given us the levers for the headroom, but when should we think about you feeling comfortable and saying, okay, we've got this headroom for cash returns and this is when we should be distributing it? Thanks.

No, thank you for the questions. I'll start from the first two and actually from the MSA1. No, actually, no change in fundamentals, no change in pricing. That's a quarter-specific issue topic, but no change in the fundamentals and the way in pricing and the way we read the trends. With regard to the Holos mix, Yeah, you're perfectly right. And the other OLOs have prices which is broadly one-third of the MNOs. This means that this shift of volume, actually, the increased fixed-value success 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 two 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 year, but also for the next two years, so for 2023 and 2024. So there are three components, less Iliad, more fixed-file less than optimal, higher inflation in the assumption of inflation slightly below 2% from 2022 to 2024. On the third question, on capital allocation and timing to Giovanni.

Okay. As you can understand, just at the end of this year, we will rise to 5.2 times And so, in 2023, we are under, let me say, we are able to, let me say, analyze, to act as something in acquisition in organic operations. So, we are, let me say, I said, which is our policy, with a very, very strong discipline, with the industrial synergies in the evaluation, not only financial, but industrial because we are the only organic grow 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 to ask a previous point. Just on the 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've had over the last few years? Thanks.

Let me see. 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, but we have not expression in this moment, but I think that it will be a good news that we'll have to ask to push The next question is from Fabio Pavan with Mediobanca.

Please go ahead.

Yes. Good evening. Congratulations for the results and thank you for taking my two questions. The first one is on the contribution from the remedies. 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 next generation new facilities. You're talking about 30 million euros of potential additional revenue in 2026. If my understanding is correct, this refers just to the 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. Thank you.

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

Okay, about you, not only three 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 an important actor for all the, let me say, that will be more and more, let me say, bigger than only three projects. There is all the team of the healthy, the team of the school, the team of the industry So, let me say, these are only the first visible and touchable projects of the EU. 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, Mr. Goan, okay?

Okay, thank you. Thank you very much.

Yeah, 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 is driving us to, has driven us to identify farther sources 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, quicker, quickly, or in a better way with higher volumes, then that would be an upside, and we keep on working for that upside.

Thank you.

The next question is from Jacob Bluestone with Credit Suisse. Please go ahead.

Hi. Thanks for taking the questions, and thanks for the presentation as well. I had a few questions, actually, I was hoping you could help with. Firstly, it might just it'd be helpful just to understand out of the sort of roughly 350 million Euro, 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 seems to suggest that you would hit the point in the middle of FY22, if I read the slide correctly, in terms of a 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. Does it last 12 months? Does it annualize? Does it include or exclude the tax scheme? Just to sort of understand, you know, what is it that would – at what point do you sort of pull the trigger and say that the leverage is where you want it or at a point where you can start returning cash? And then just last question on the ILEAD assumptions. So you're saying you're assuming longer-term 1,000 sites. from Iliad of the remedy sites. You've also 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, thanks.

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 is more than 50% then gradually goes to close to 50% slightly slightly lower. And this is related to the fact that in the first part of the plan, the main source of growth is is basically the commitment. So new sites and new point of presence for the anchor tenants. Then gradually we there is the 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 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 two and four tenants can, we have, yes, the right of refusal. So, basically, we are the key and probably the only vendor for Vodafone team for services such as Mozilla and us. With regard to the second question related to the debt, yeah, sorry for that, 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 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 multi-year 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 by half a 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, we are studying in Italy for interesting assets. It could be towers, let me say, coverage, dedicated coverage, small cell and so on. And in the same time, we are... studying small mid-sized tower calls in Europe. This is the two trajectories that we are analyzing with the team of Mergers & Acquisitions that is actually, let me say, running on.

Thank you. If I could 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 two? I guess given the liquidity in your shares, is there an argument that maybe special dividends make more sense than buyback? So just any thoughts you can share on that would be helpful. Thank you.

Yeah. 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 create industrial value, 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 my back is a little bit more flexible. Clearly, dividends 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 on the avenue of using the excess flexibility to build additional growth.

Thank you. That's very helpful.

The next question is from Sam McHugh with BNP Party Bike Sun. Please go ahead.

Hi there, guys. Just two quick questions, please. On the EU recovery funds, a two-part question, actually. The 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 even 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 and then the running of the asset? So 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 try and size what the upside would be, were they to come on to all 4,000 in the end. Thanks very much.

Okay, so on the recovery fund, yes, the revenues have to be thought as recurring revenues. And in terms of CAPEX, 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 also in this framework, um the is interesting to say that what is the program the programs are are considering for for the investment is a return of broadly 88 with the flexibility of broadly 30 per 20 to 30 range on additional returns. So, we are talking about double-digit returns. So, let me see the framework. Seventy percent of capex are financed and overall returns are up to double-digit returns. In terms of capex per unit, let me say, will be the typical capex we talk about. If it is new sites, capex for new sites. If it is new POPS, new point of presence on existing sites, it 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 points of presence overall, so above and below 35,000 municipalities, and with quite limited take-up from the remedies process.

Perfect. Thank you very much. You're welcome.

The next question is from George Yerodiakounou with Citi. Please go ahead.

Yes, thank you. Good afternoon. 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 30 million. I was wondering if you can update us a bit on how we should think about leases and other costs that you may be incurring just to get a better idea of how this could translate in EBITDA or IRCF. My second question is around the comment you made earlier around the agreement 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 that there are six years left in the ATR 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. Thank you.

Okay. Okay. Let me see. About the utilization of the recovery funds, okay, this is for us as usual, new sites, dedicated coverage, habilitated infrastructure monitoring, environment monitoring. And so, let me say, it's nothing different for our capabilities to satisfy the needs of the community, let me say. And so, let me say, we continue. And we propose our innovative solution to meet the needs and, let me say, the possibility to be, let me say, an actor in this. So, let me say, nothing new in terms of industrial KPIs, new sites, new dedicated coverage, outdoor, indoor, and new, let me say, IUT solution, too, that will permit this evolution in terms of, let me say, verticals that the PNRR, the European funds will permit. Okay. Additional spectrum. Okay. Let me say, usually in the other countries, it could be that the problem is the spectrum. In Italy, the problem is the power, let me say, allowed. And so, let me say, let me say, carry on other frequencies always must be, let me say, limited by the actual 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 collapsed in some time because it's impossible otherwise to, let me say, habilitate the new 5G services. Okay, the field was contract duration.

We spoke about six referring to MSA and highlighting that is the first turn of an indefinitive contract with the all or nothing clause. So it would be six plus eight, eight, and so on. With regard to the other clients on all those 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 would be perhaps the most useful if that's something you can share.

We have two main customers on the MNOs, one well-established, which has gone through already three years ago on network restructuring, so it's an ongoing, let me say, the average is, let me say, an average age of the contracts, but they are, in actual terms, very stable, very stable, and we don't encounter... significant meaningful missiles. With regards 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, I'm just going to ask one more clarification on the first question. You mentioned this business as usual, the next generation fund projects. So the 30 million of revenue contribution, is it fair to assume around 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 models are online with internal, let me say, governance, okay, guidance.

Thank you.

The next question is from Abhilash Moapatra with Barenburg. Please go ahead.

Yes, good evening, and thanks for taking my question. 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 MSD revenues plus new services, maybe it was slightly softer than at least what I was expecting. So I'd just like to understand, you know, how we should think about the evolution of the revenues there given, you know, 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 telecommentalia potentially looking to divest its stake in Ingrid. Just wondering, you know, sort of how do you see that? Any comments you make? Any comments you can make around that would be helpful. Thank you.

Yes, no, fair point. Yes, we think that the portal 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 happy with the delivery of the new sites in the portal. But we also say 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 revenues 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 growth path working with all operators in the market. We underlined this many times today. Inuit and Anchor have a strong commercial relationship based on MSA. Despite the shareholder structure, the MSA remains in force and fully effective for the entire duration of the agreement between the parties, Ingwit and respectively TIM and Vodafone Italia, in their role as customer clients instead of shareholders. So we continue in our, let me say, business plan, creating value for all the shareholders. 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.

Thank you.

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

Hi, guys. Thank you for the question. 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 the previous question. You know, if TI did sell their stake in Daphne 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? Thank you.

Yeah. Thanks for the question. On gross capex, actually, I think that there are two different topics. One is the growth cap is included in the plan for which we have some pressure on prices, but we are managing and we don't expect any significant change is the 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 or acceleration of land buyout in bulk of sites in dedicated infrastructure that would mean additional investments and additional returns. So additional basically top line. So two different perspectives, I would say.

Thank you. Ben, this is Fabio. If I may, on your second question, unfortunately, we can't go into those details. So, obviously, we don't have any more information than any of you on the subject. So, obviously, there's an Italian law framework in place. It shows agreements in place, abstract of which are available to the public. So, I guess it's more of a question for the lawyers than for us. Apologies for not being able to comment more.

Understood. Thank you, guys.

The next question is from David Guarino with Green Street. Please go ahead.

Thanks for taking the question, guys. There was recently news of a well-established competitor that's entering the Italian small-cell and DAS market. I wonder if you could just talk about how competitive the Italian microgrid market is becoming and what risks that might pose to your long-term new services growth outlook?

Okay.

For us, it's a good news because finally there is another, let me say, actor believing in the solution that that small cell can give to the market or to the customer needs. So, let me say it. We are actors in this for 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, so in 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, correct?

Yeah, absolutely. 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 zero. Now the business has become to be material. 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 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 the anchor tenants to develop their microgrid will leverage on INWIT. So we have a competitive advantage in having two tier one operators in the market with a term of preferred supply role.

I think that's a 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 cyber are M&A don'ts. But could you just comment on the company's posture towards owning active infrastructure? Sure.

No, we prefer active in this sense.

Just to clarify, in this moment the unique active equipment that we are buying is a DAS and small cell. Different is to propose to the anchor tenants to manage the active equipment, but it's something that will come in the next year. Okay, this is our, let me say, policy in these terms. Okay, open running, let me say, 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 dust.

All right, thank you.

The next question is from Luigi Minerva with HSBC. Please go ahead.

Yes, good evening. Thanks for taking my questions. The first one is on what you're seeing in terms of capex from your customers, particularly team 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? And the second question is on your, just a follow up, a clarification on your M&A point. You also mentioned small mid-size tower calls 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. Thank you.

Thank you Luigi. Delay in terms of, let me say, having the equipment for investment, neither Tim, neither 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, and they are continuing. about the spectrum payments could be, okay, let me say, could be a solution. It's something that all the mobile operators are asking to the government. I like to, let me say, remember to everyone that Vodafone and team paid 2.4 billion euros for the use of the spectrum. Okay, this... could generate additional investments. Could be. I hope. It could be really a good deal. Around, let me see, 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.

Thank you.

The next question is from Stefano Gamberini with Equita. Please go ahead.

Good evening, everybody. Three questions also from my side, if I may. The first, could you explain a little bit better how these utmost tenants work in terms 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 your projections in 2023 and 2026, the revenues from these clients? new clients. The second is more or less the same. You said that you have 66% totalized 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 share of revenues that you expect from the micro networks both on 2002 and 2003, so in the short term, but especially in the long run, in 2026, if something has changed compared to the previous plan or in terms of small cells and dust that you expect to deliver in 2023 and 2026. Finally, I have a question regarding consolidation. Clearly, there was this offer from Iliad to Vodafone Italia. If we can expect a merger between Iliad and one of the two, your anchor tenants, that means 7 million additional clients to probably your network and also additional frequencies, and you said in this case 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 a bigger necessity of capacity in an eventual case of merger between Iliad and one of the two main high continents you have? Thank you.

Okay, starting from Optimo.

It's an interesting market. Our clients are the municipalities, fundamentally. We are interacting with Utilitalia, that is the, let me say, consortium for the municipalities in Italy, giving them, let me say, some important solutions. due to the fact that we have, on average, one tower each three kilometers. And so, let me say, for all the monitoring of the asset is 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. Let me say, to design and to install the equipment of this customer, okay, we can spend one week. So, differently from the mobile operator. So, let me say, it's very interesting. And the market is enlarging more and more. These are our customers, and we are continuing to look for them for the solution that they need. About the money?

Yeah, actually, the financials are very similar to the fixed-value success. Actually, we treated them together, but then actually we realized it was a sort of hidden in the fixed-value success category, but it's a 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-purpose access. In terms of moving to the next one on the contracted growth, let me say that the two-thirds of contracted growth is our structural formula. It's our recipe. It's a structural composition. um quarter after quarter once uh when signing new contracts and finalizing new deal the we will uh we will gradually uh gradually increase but the key point is that that's a structural way to enter in the new in the new fiscal year sorry just to complement um on this so it's not really

a way for us to introduce a new KPI that will change, say, month after month, and then we'll get to 100% at the end of the year. For us to say that two-thirds 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 dust targets, on small-cell dust targets, basically no change there from a financial perspective. We can just say that from a 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 customers, so they need surely more usage of spectrum, and let me say, as we previously said and confirmed, each new frequency must be paid in our towers, and let me say, Case by case, probably we 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 are right, they cannot manage with the with the only on the 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 limits is an issue that I repeat is a very, let me say, limited criteria that will define the identification of new sites. We will see, we will see, Stefano, okay?

Many thanks. 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 and it will be an important source of revenues. Keep in mind all the, let me say, water companies, all the, let me say, gas companies, 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, an interesting issue. It's something totally new that we, 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 we consider a starting point for all the next non-DEX for this year. Okay. Okay. 50 new POPs in the last quarter.

Yes. Okay, maybe thanks.

The next question is from Fernando Cordero with Banco Santander. Please go ahead.

Hello, good afternoon. Thanks for taking my three questions. The first question is regarding the edge computing opportunity and at which extent have you already priced that opportunity, particularly on the long-term target that is in 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 in with the preferred supplier for Telecom Italia and Vodafone in terms of new edge computing facilities?

Fernando, the line is not very clear. Can you please repeat and maybe go a little bit slower? Thank you. Can you hear me better right now? Yes, if you could 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, and particularly at which extent the preferred supplier role that Ingrid has with Telecom Italia and Vodafone is also applying to a potential edge computing opportunities. The second question is related with fixed world access players, and We have already here some questions around mobile consolidation, but I just would like to understand how should I think on fixed network 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 built-to-suit programs. I just would like to understand if you are facing the same problems and just your view on that. Thank you.

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, scenario that will help our customer to manage all the verticals, 5G verticals, IoT, that will arrive soon in the market. The tower finally is the nearest network element service to the customer, and so for all the new services that need a very, very low latency are absolutely necessary. then there we can, let me say, 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 host everyone, 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 the anchor tenants, it's nothing material today. But we are defining our, let me say, chain in terms of solution. We are finalizing proof of concept of mini data center and, let me say, IoT platform and drone. 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 water access operator, okay, it's the same. Always licensing the frequencies we are involved in, so let me say it's 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, let me say, each new frequency 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 four very, very strong fixed wireless 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 I was also, let's say, willing to understand at which extent when we are talking about fixed net worth consolidation, I was talking about the fiber net worth, the two fiber net worths present in Italy, and at which extent a stronger fiber player could impact on the demand from the market positioning of the fixed wealth players and consequently in your business with them.

The VIX1 assets operator can anticipate the one gigabit for each customer because the fiber will not arrive quickly in each part of Italy. But with a wired solution, you can give important performance in this moment to the final customer. Finally, there will be a battle between the SPTH solution and fixed water access solution because, let me say, from the technological point of view, the fixed water access solutions 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. Please go ahead.

Hi, thanks for taking the quick question. It's just on the shareholder returns because it's not entirely clear. Could you just clarify Once you get below five times, say 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 talk about sort of the focuses on being able to spend growth capex to drive further EBITDA growth. But given you're going to deliver at sort of 0.5 times per year, is there any reason to believe that when you do come with the increased shareholder returns, that you need to keep any firepower back so you don't go all the way to six times if you do announce something. Thank you.

Thank you for the question, Simon. So I think as far as timing, based on our guidance, so page 18, we will actually be still at 5.2 times at the end of 22. So I think as far as timing, we will be below five over the course of 2023, 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 We have an outlook that is around industrial synergies and attractive returns. And we wanted to be disciplined, kind of share how we look at these options with the market.

Okay, thank you. Sorry, I meant 23 is just sort of trying to understand timing and whether it's a trigger or it's just something that guides. So that's useful. Thank you.

Gentlemen, there are no more questions registered at this time.

Back to you for any closing remarks.

Thank you, everyone, for connecting.

Bye-bye.