Infrastrutture Wireless Italiane S.p.A.

Good afternoon, this is the course call conference operator. Welcome and thank you for joining the INWIT first quarter 2024 results presentation. As a reminder, all participants are on 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 and Corporate Development. Please go ahead, sir.

Thank you. Good evening, everyone. Thanks for joining us. With me today is Diego Galli, UNB General Manager, and Emilia Trudu, Chief Financial Officer. Before we begin, please allow me to draw your attention to the Safe Harbor Statement on page two. As usual, following a brief presentation of the results, we will open the floor to Q&A. Over to you, Diego.

Thank you, Fabio, and good evening, everyone. First quarter results display an overall improvement in industrial and financial indicators, confirming the company's execution track record. EWIC business model is based on investments in digital infrastructure, creating value through sharing best quality assets. In Q1, we pressed forward on this front with higher investments in new sites, new indoor coverage dust, and land ownership, making the company stronger. New services, particularly dust, are confirmed as the fastest-growing line in the business, up 60% year-on-year. The market is expanding as clients are asking for turnkey solutions for managed infrastructure services, with different connectivity technologies involved, making locations more smart and sustainable. Our goal is to continue leading the development of this market. The Italian telephone industry continues to be under pressure with limited returns and budget constraints for operators. However, demand for digital infrastructure is confirmed as structurally solid. and neutral players are recognized as an efficiency driver. In 2024, we are witnessing several transformative corporate transactions, which have the potential to improve market fundamentals and unlock more discretionary investments. In this context, the 2026 guidance is confirmed, implying high single-digit revenue growth, highly visible, an industry-leading 76 percent EBITDA margin, and a progressively growing balance sheet flexibility. Providing a balanced profile of growth and yield, in 2024, in with enhanced shareholder operation policy is in full execution with an increased dividend to be paid in a couple of weeks and the share buyback plan ongoing. Moving to the main trends of the quarter on page four, revenues were up 9 percent year-on-year on the back of CPI applying 2023 inflation, asset expansion with more new sites and more DAS, tenancy ratio growth now up to 26, and strong new services. A bid after lease was up 11 percent with more than one percentage point margin expansion. This was underpinned by least cost efficiency, which resulted in more than 400 real estate transactions in the first three months of the year. The current cash flow was about €150 million, up 10% year-on-year, leading to leverage reduction with net debt to a bid up of 4.5 times, despite strong investment activity and continued share-by-back activity. We continue to be pleased about INWIT's industrial capabilities. We added more than 200 sites in Q1, confirming our leadership in the market and providing fuel for future tenancy growth. New POPs were nearly 1,000 in Q1, up year-on-year and consistent with our full-year targets when taking seasonality into account. In brief, Q1 marks a solid beginning of the year, displaying growth and resilience in the current industry context. Now, I will turn it over to Emilia for a more detailed review of the results. Thank you.

Thank you, Diego, and good evening, everyone. On page 5, let's look at news site activity. As mentioned, we are pleased to see a consistent delivery pace at high levels. More than 200 sites in the first quarter means more than 50% growth year-on-year and greater confidence in reaching the full-year target. Demand is solid and backed by three different contractual arrangements. Operators are completing coverage of the market and improving densification both in urban and rural areas. On our last 12-month basis, we added nearly 1,000 new sites, a very accretive use of capital because of two anchor POPs committed to every new MSA site, and a double-digit IRR. Anchor POPs development benefited from these results, as shown on page 6. More than 600 new POPs with Steam and Vodafone in Q1, for a total of more than 41,000 and 6% growth year-on-year. This trend is in line with contractor commitment, supporting an efficient rollout of 5G. In terms of NICs, there is a growing proportion of new POPs for new sites, while the common risk optimization program reaches maturity. The figures confirm that even in the current challenging context, mobile infrastructure investments are a priority And the rollout of standalone 5G continues. Then, also on page seven, hospitality with other clients are up 30% year-on-year to nearly 14,000. InWit infrastructure is open to multiple client categories and technologies, from mobile to FWA and IoT. We had 350 new POPs in the quarter, in line with the first quarter of 2023. Sense of mix, IoT clients showed good trends, in particular the utility segment, where towers are used to host gateways to monitor real-time consumption data. Going forward, 2024 guidance implies a slight acceleration from these levels, consistent with the usual seasonality of our clients. Next, on page eight, square unit services. Revenues in the first quarter were up by about 60 percent year-on-year, to more than 14 million euros. The quarter-on-quarter trend reflects the strong year-end performance and the non-repetition of some revenues, which are the lower recurring fee components. This is a feature of the location-owner business model, which is growing, and we believe will provide structural support to the market. Revenue growth was driven mostly by indoor coverage solutions with DAS technology, both new locations and new tenants on the existing asset base. The current pipeline includes more and more large connectivity projects, where INGUID provides manage infrastructure services. Macrocytes, DAS, small cells, fiber, and IoT work in synergy to enable advanced applications, making venues and cities smarter and more sustainable, meeting the strong demand from location owners and end users. We added about 20 new locations in Q1 for a total of more than 470. The figure will more than double by 2026, in line with revenues from the services expected at more than 100 million euros. Next, we reviewed the P&L. Revenue growth stood at 9% in line with the 2024 guidance midpoint. This was due to material CTI support, with the 5.4 percent average recorded in 2023 applied to Indic MSAs, which are uncapped, and to a lesser extent to the other contracts, new tenants with tenancy ratio up to 2.26, and continued strong growth in new services as discussed. Operational expenditures developed in line with revenues as we invest to support growth in new services, and maintenance followed the overall asset growth. As a result, EBITDA margin was stable at 91.5%. The main efficiency lever continues to be this cost. More than 400 real estate transactions in the quarter supported the EBITDA after-release growth of plus 11%, and margin expansion from 70.9% to 72.2%. Efficiency partially compensated the effect of higher asset base, macro and micro, and the inflation impact, limiting risk of growth on a quarterly and early basis. Moreover, DNA are slightly up in language decoupled trend. Interest charges are about stable as compared with the previous quarter, and taxes are up in line with the phasing of the tax schemes in place. Despite this, the tax rate continues to be very efficient at 16.7 percent. Moving to the cash flow on page 11, recurring free cash flow was 150 million euros in the first quarter for a 65 percent cash conversion ratio. Besides closing a deductive list, we recorded low recurring capital, a structural feature of Inuit, no cash taxes, which are due in Q2 and Q4, about neutral networking capital, which we expect will be positive in the full year. Cash interest was higher year-on-year, in line with expectations and guidance, also due to different phasing in the payment of interest for variable debt and to the increased cost of debt on the floating amount. Below the recurring line, we recorded higher capex, nearly 80 million euros in line with our industrial activity, and a partial reversal of the cash advance book in Q4 related to the next generation EU capex subsidies. This is in line with expectations and the function of the mechanics of the 5G consortium, where 90% of capex is subsidized, but only a portion directly involved in it. Leverage was down to 4.5 times based on annualized quarterly EBITDA, despite the growing capex and the continued direct activity worth 23 million euros into one. As flagged in the past, in which funding needs for 2024 will require a limited amount of additional financing to cover part of the investment plan and should all debt remuneration. Our debt structure continues to be efficient with more than 75% of debt being fixed and no near-term activity. With this, I hand it back to you Diego. Thank you.

Thank you Emilia. A few concluding remarks from my side. In-width business models based on a shared infrastructure investment support growth and resilience in different macro scenarios, as shown by our track record and Q1 results. We strive to be an efficient partner to mobile operators, particularly in the current context where cost control is key. The industry is acting to address its challenges, and there is a potential to unleash a new cycle of investments in connectivity, indoor and outdoor. We are ideally positioned to capture it based on the best infrastructure assets and unique industrial capabilities. We stay committed to affirming our leadership in the market, expanding margins at double-digit rates, offering compelling shareholder returns, and progressively building balance sheet flexibility, a source of optionality and shoulder value. With this, I thank you, and we are now ready for the Q&A session.

Thank you. This is the Coruscall 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 telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. We kindly ask you to please limit to one question at a time. The first question is from Jacob Bluestone with BNP Paribas. Jacob Bluestone, your line is open.

Hi, good afternoon. Thanks for taking the question. I had a question on site deployments, please. You show on slide five that new sites were 205 in the quarter, so up year on year but down queue on queue. Can you help us understand, is the slowdown from last quarter seasonal, or is there something else at play here? Thank you.

Thanks, Jacob. Yeah, I would say the rollout of new sites is progressing well. The end-to-end machine is well oiled, and the number of the quarter has to be read in the context of seasonality is higher than last year by, I think, 50 percent, and that shows the underlying trend. Q1 follows also particularly strong Q4. So again, the demand is there and our ability to build new sites is well on track.

Thank you.

Welcome.

The next question is from Ranjit Roshan with Deutsche Bank.

Good afternoon. Thank you for the question. One, please. You're highlighting the higher EMF limit on slide 11. So that's now been approved from my understanding. Can you run us through what in practical terms are the next stages? And whilst you have always said you haven't been constrained by this limit, what is the potential upside from the raise limit for Inuit? Thank you.

Thanks, Ocean. Yeah, the new law has been approved. It's in place since actually a few days with the increase of the limit from 6 volts per meter to 15 volts per meter. So it's a significant increase, though still significantly below the EU limit, which is 60 volts per meter. As we shared in the past, this is not going to be a game changer for Inuit. It's going to be a facilitator in managing new requests for co-locations, though we don't expect a significant upside at this stage. So again, not a game changer. We'll facilitate and support the deployment of of our plan. From an operational point of view, the law has been implemented, it's been approved, and now there will be also some operational decrees to be, a decree to be approved and implemented. So again, not a game changer, but support, a facilitator to support the continuous improvement of our tenancy ratio, which is expected to achieve 2.5 by 2026.

Thank you for that. If I may just follow, do you see it more beneficial for FWA customers or OLO customers who are focused on the, I guess, traditional M&O side?

Yeah, clearly the general relaxation of the limits, clearly the impact is more meaningful for the M&Os. for as far as the fixed service access is concerned, the EMF impact is relatively limited. So the facilitation and the support will be mostly for collocation from MNOs.

Perfect, thank you.

Welcome.

The next question is from Andrew Lee with Goldman Sachs.

Good evening, everyone. Just had a question on the, you alluded to it, and obviously it's behind your underlying growth in the quarter, but just on the operator landscape in Italy, has there been any change you've seen at all in terms of overall demand? Any signs of, you know, or kind of reason to hope for an improvement sooner than expected? And is there a split of where that demand has, you know, or kind of been held back a little bit between Anchor 10 and OLOs been any different to how you would have anticipated? So any kind of change there would be helpful. Thanks.

Yeah, thanks, Andrew. Actually, so far, no significant changes to highlight. the the plans agreed with the with the anchor tenants are progressing on track with the with the committed operational plans and revenue revenue profile so no no significant significant change Clearly, we don't expect any significant change during 2024. We think it's going to be a year of, how can I say, transition towards new operating models and new entities, both considering the separation for Telecom Italia, the network separation, and having the NETCO focused on service and connectivity going farther as well as adding the fast web of all the new fast web. Clearly, we would expect focused as well on improving network quality, investment, and connectivity. So no expectation for a change in the short term, but prosecution of the current commitments, but a positive view on the development of the industry for the medium-long term. And there is, I think, an opportunity in the medium term to catch up with the low investments, relatively low investments done to support 5G and to recover and accelerate the investment cycle. Thank you. Welcome.

The next question is from George Yeratiokonu with Citi.

Good afternoon, and thank you for taking my question. It's actually a comment you made in your opening remarks, Diego, about corporate actions that could be available. To the degree that you can comment, both timing and the kind of actions you are considering, it would be great to get a bit of color as to what to expect. Thank you.

Yes, thanks, George. My comment was actually related to the industry and to the sector and related to what I said in relation to the previous question. Actually, after many years where the industry and the telco industry in Italy has been declining pressure in terms of returns and therefore investments, in 2024 we see significant changes that in our view again go in the right direction to make the industry and the operators more sustainable. And so both if we think about the telecom separation, Vodafone the fast web and also the fix for the success operators have been redefining their strategy and restructuring so um some tangible things have happened and will go to execution again in our view supporting a positive view on on the market in the industry in italy and if i could ask it in a slightly different way from your perspective in your own industry are there opportunities

that you could act upon yourself, or is it more how you see the M&O market developing?

I think from our side, clearly we have quite clear priorities in keep on expanding our assets through the investments as we are doing. So, sites indoor and outdoor sites, so not only new towers at, I would say, strong base, new indoor coverage, so continue expanding our assets through deploying, but also happy to acquire existing assets from operators as we did in the past. as well as when thinking about a more dynamic industry, open to assess opportunities as they will emerge. We spoke in the past about, for instance, the involvement in active equipment. We keep on being open about that. It's a slightly different case compared to passive infrastructure, but open to consider and assess. So I think that we are in... a healthy situation where we have strong industrial capabilities, credibility with our customers and partners, and financial headroom we can put at work to keep on supporting our growth, either organically or with bolt-ons and inorganic options.

Thank you.

Welcome.

The next question is from Stefano Gamberini with Equita.

Good afternoon, everybody. Just a quick question regarding investments. Now you have a leverage of 4.5 times that the BDA. So how you can, we can say, you re-leverage your company for coming also quarters. So my question is regarding are there some new M&A files that should arrive shortly or could you accelerate the land buyout that was already good in this first quarter or finally you have a buyback now already approved of 165 million euros that will end in October could we expect some we can say extending that you can extending this buyback for the following quarters or not many thanks

Yes, I think it's good to see how our leverage keeps on clearly declining. It was 4.5 in Q1, also absorbing the impact of the BEBEC. Otherwise, it would have been 4.3 times. So continuous ability to deliver it. So, in terms of capital allocation in the framework of a more prudent or, let me say, cautious leverage profile, we said between 5 to 5.5 times, we have a significant headroom. And we are considering, we are clearly always monitoring opportunities, and some of the ones you mentioned are relevant, the acceleration of land buyout is an option, provided that We can continue to acquire good financial returns, so provided that the market remains balanced, but it's clearly an option because it creates value. We can accelerate investments on energy. As well, we can accelerate investments on big projects related to smart city. More towers are always, always welcome. And also more adjacent businesses such as edge data center and IoT. So we are assessing the options which are consistent with our priority, meaning creation of industrial synergies and returns, competitive returns. As we did in last year, if the opportunities for additional investments to support growth will not materialize then we will consider additional shareholder remuneration we constantly review the capital allocation so it's a clearly a topic we will keep on considering a quick follow-up if i may i didn't catch what you think about investment in energy if you can elaborate a little bit thanks yeah we have started investing on solar panels And we have started now, I think we have 400 sites which take the benefit in terms of energy consumption from the solar panels. And it's an interesting business because it's fully consistent with our business model. It makes our infrastructure more resilient for the short and long term. and also may offer, if somehow towerized, may offer good returns aligned with our business model. So there is the opportunity we are considering to invest a little bit more on this field. Thanks. Welcome.

The next question is from Patrick Morris with Barclays.

Yeah, thanks, guys, for taking the questions. If I could just ask a bit on the OLO growth on slide seven, where you give the splits of other clients that grew by 1.6 thousand in the last 12 months. You say in the slides there was a bit of a mix shift in terms of other clients like utility clients. But could you just give us a broad sense of the split between M&Os, FWA and others in terms of that 1.6K in the last 12 months? Thank you.

Thanks, Maurice. Yeah, it's good to see how the hospitality keeps, the new tenants keeps a good pace. Overall, the MNO tenants are, let me say, across the plan timeframe at about 15% of the total. as the rest is fixed wireless access and IoT. In the more recent quarters, fixed wireless access, as we discussed, has been relatively soft, so the IoT component has been more higher. Yeah, that's in terms of overall composition of the holopods.

Sorry, as a quick follow-up, is the 15% of net ads rather than total or both?

Yeah, it's net new box, so net ads considering the planned timeframe between now and 2026. Great, thank you. You're welcome.

The next question is from Luigi Minerva with HSBC.

Yes, good afternoon. Thanks for taking my questions. It's really a couple of clarifications on previous questions. So the first one is on the share buyback and I understand your message, Diego, there. And I'm wondering if essentially the limited free cash flow generation can limit your ability to do further shareholder distribution beyond what has been already announced and I suppose that if you have to issue a bond or open new credit lines with banks to support shareholder distribution, then it makes that option less attractive. And the second question is on, perhaps also related to this, is your discussions with your leading shareholders, Adyen and Vantage. What kind of priorities are they communicating to you when it comes to capital allocation and perhaps whether the listing of the company medium to long term is still the best solution from their perspective? Thank you.

Let me start from the end. I think that what is the shareholders' direction is reflected in our plan, which has been fully supported by the Board, including clearly the capital allocation, and in particular the capital allocation which has been approved in March. which has been an evolution of the previous one and which, as we do remember, has meant an increase in terms of dividends. a more cautious leverage profile, more investments for growth, and also the share buyback. So I would say a full portfolio of tools have been put at work, and this framework is still the reference framework for the plan. And with regard to the buyback, you are absolutely right. Clearly, I mean, when making these kind of decisions, we consider different elements. The leverage, which keeps on reducing, of course. We are mindful of the share price trading, which has been and still is low level. But at the same time, you're right, we are cash. We are still, we are not yet cash positive. So we need to consider the cost, also the cost of debt, which is clearly still on the high level. So as we did last year, the decision is the result of the weight of the different elements. including clearly the perspective of investing to fuel additional growth. So, as I said, we constantly review the capital allocation. We weigh the different factors, and as we did last year, we will continue to assess and implement, I would say, a fairly balanced capital allocation approach.

Thank you, Diego.

Thank you.

The next question is from David Guarino with Green Street.

Thank you. Hey, we've seen InWin amongst other tower codes across the globe display pretty poor stock price performance over the past year. But it's interesting that the transaction we see in the private market suggests there's still a pretty strong bid for tower assets. So I was wondering if you could just explain, why do you think that disconnect exists between public and private market investors and Is there anything NWIC can do to close that gap?

Yeah, thanks, David. It's, yeah, it's, the difference is, let me say, still there. I think there are considerations about clearly the macro environment, the impact of interest rates, the leverage, and so the overall cost of financing and returns expected from the transactions. which position at a different level the public and the private. Let me take the view that I would say the private has been quite, sorry, the public has been quite depressed in the last few months. Clearly, the correlation with the American rates and the U.S. rates is particularly high. So I think that there is clearly room for a recovery of the share price in the next month as soon as the rates, interest rate situation will gradually improve. Structurally, I think that Inuit has been demonstrating the strength of its operating model, which is fundamentally based on having two anchor tenants, which allow us to realize synergies, and then being open to all the operators in the market, not only to mobile operators, but to all kind of operators, and also expanding in addition business quite quickly.

That's helpful. And then I just had a separate follow up. There seems to be, there's a pretty big growing cluster of larger size data centers that are popping up around Milan, a mix of both hyperscale and co-location facilities. Wouldn't we ever consider expanding into some of those larger scale data centers? Or do you think internally that maybe edge data centers are really the only complimentary asset type for your portfolio?

That's an interesting topic. Clearly, we expect for the future that the edge to the towers will be relevant, but it's not. It will take time. So for sure, that's a business which will be relevant for us, the far edge to the towers. At the other opposite, there are the big data centers, and in the middle, there are, let me say, the regional local data centers. So I would think and I would say that between the far-edge and the regional ones, there is a business which deserves interest and analysis from our perspective because there are a lot of similarities to our business. It's a business where clearly there is an investment which is shared, so supports the role of neutral law. to make synergies with our current customers and expand the further customers. And it's an interesting infrastructure model. We are considering it's very close to, again, to our assets and to our business model. So again, opportunities where there is the chance to create industrial synergies and good returns are in our scope of consideration and assessment.

Very good, thank you.

Welcome.

The next question is from Osman Gazi with Berenberg.

Hello, thank you. I just wanted to follow up on the on your comments on the data center opportunity. Clearly very relevant, but can you can you expand into this without making an acquisition? I mean, are there any? you know, assets of interest in the sector, or is this kind of, you know, this new territory in which it can play a part in growing the market?

Yeah, I would say clearly organically it allows us to exploit the space we have available. We have 24,000 sites, 24,000 locations, Clearly, many of them are in central areas, in business district areas. So we have already clearly the sites are connected with fiber. There is energy protection, and there is physical space in many of them. which allow to host additional kind of equipment. So there is, again, our core infrastructure supports synergies towards an organic investment when edge and data center, let me say computing capacity will be needed at the far edge of the network. So there is a layer which we can leverage on. There are also other opportunities which may come. And again, we do assess multiple options. And if they will be interesting to share with you, we will do at when and if it will become, again, interesting and relevant.

Do you cannot follow up? I guess I mean, I can understand the far edge opportunity is obviously very close to your core, which is, you know, these 24,000 locations and posting compute capacity here that I understand, but what you described earlier was, you know, an opportunity somewhere in the middle between the far edge and the centralized data centers of the hyperscalers, so something like what American Tower did with CoreSight. Is that the kind of opportunity that you're exploring now, or am I misunderstanding?

Yeah, again, I think that when we talk about far-edge, I think it's an opportunity which we don't see in the short term, but is relevant for it with also thinking about the run, the cloud, the cloud run, and the way run will evolve in the medium-long term. So, that's clearly something we are considering and assessing and studying because it's connected, strictly connected to our core business. The hyperscale data center is different, completely different, and is, yeah, we still consider it a little bit far from our core interest. Thank you.

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

Hi, thank you. I just had two quick questions. Firstly, you've mentioned the impact of higher interest rates in the quarter. I was just wondering what you're assuming for interest rates in your 2026 guidance. Does that assume that interest rates remain roughly at the current levels, or are you assuming a decline there? And then the second question, a few months ago we saw the sale of OpNet to Wintrae. I was just wondering if you'd had any initial discussions with Wintrae about what they are planning to do with the asset and whether you think there's a risk there that you see tenancy losses as a result of that. Thank you.

Yeah, I'll take the first question about the interest rate. Actually, when we think about the refinancing or the limited amount of new financing that we will For 2024, we are assuming a rate in line with the current rate environment. So, our business plan already assumes the current rate in the range of, let's say, 4.5%, 5%. So, this is a method in our guidance.

And the winter... With regards with OPNET, yeah, the deal was somehow expected. We have not yet started to discuss with Win3 about the development of OPNET. It's good to see that OPNET has found a way to progress and to, I guess, to keep on investing then on the development of Fixed Wireless Access Network for which clearly our towers are are available to host additional additional equipments when and if they will together with win3 deploy some developments a development plan okay understood thank you welcome thank you gentlemen there are no more questions registered at this time

Thank you everyone. Have a good evening. Thank you.