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Edited Transcript of INW.MI earnings conference call or presentation 28-Apr-17 4:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Infrastrutture Wireless Italiane SpA Earnings Call

TORINO May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Infrastrutture Wireless Italiane SpA earnings conference call or presentation Friday, April 28, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michele Vitale

* Oscar Cicchetti

Infrastrutture Wireless Italiane S.p.A. - CEO and Director

* Rafael Giorgio Perrino

Infrastrutture Wireless Italiane S.p.A. - Head of Finance & Administration

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Conference Call Participants

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* Giles Thorne

Jefferies LLC, Research Division - Equity Analyst

* Jonathan Dann

RBC Capital Markets, LLC, Research Division - Analyst

* Max Alexander Gilbert

New Street Research LLP - Research Analyst

* Parin R. Shah

BofA Merrill Lynch, Research Division - Analyst

* Ricard Boada

Morgan Stanley, Research Division - Equity Analyst

* Simon Coles

Barclays PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good evening, and welcome to INWIT First Quarter 2017 Financial Results Conference Call. Michele Vitale, Head of Investor Relations, will introduce the event. Mr. Vitale, please.

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Michele Vitale, [2]

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Ladies and gentlemen, good evening. Our CEO, Mr. Oscar Cicchetti; and our CFO, Mr. Rafael Perrino, will provide you with an update of our first quarter 2017 operating and financial performance. The presentation will be followed by a Q&A session. Please take note of our disclaimer policy that you should now see on Slide 2. Let me highlight that the reported data refer to the financial statement at March 31, 2017. Let's go through the presentation in detail, starting with Slide 3. Having achieved good economic result in 2016, INWIT is now continuing along its path of growth, diversification and efficiency. Our equity story based on the way we extract more value from the asset we own and on reaching our portfolio of asset and services lead us in the right direction and allow us to confirm our low-teens targets. As you can see in this quick result overview, first quarter result see us on the right track, both the operating and financial results set for the future of the company have been delivered. The tenancy ratio increased to 1.75x and revenue grew by 5.8%, compared with first quarter of the previous year. Moreover, the efficiency plan is in line with our expectation as demonstrated by the 5% year-over-year lease cost reduction. The investment program is being deployed in line with the plan following our strict double-digit IRR policy. As a result, the EBITDA trend was once again double-digit. This quarter, the year-over-year growth is 14%. Now I'd would like to leave the floor to Mr. Oscar Cicchetti, who will guide you to the main highlight of our first quarter result. Later, Mr. Perrino will provide you with an in-depth analysis of our year-to-date financial result. As usual, the presentation will be followed by a Q&A session. I will now hand it over to Oscar.

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [3]

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Thank you, Michele. Thank you, everybody, for sitting with us even if it is Friday afternoon, very close to the weekend. So let's start talking about the main profit and loss key figures. Revenues: As you can see in Slide #5, the total first quarter revenues account for EUR 86.4 million and continue to increase by approximately 6% year-on-year. These result was driven by 3 main components of revenues. Revenues deriving from the Master Service Agreement with TIM for the sites inherited with the IPO. Those revenues increased by 2% as stated in the contract. And let me remind you that from 2018 onward, the escalator will be 100% of the CPI, while for this year for 2017, it was predefined at 2%. The new sites, the second component, are yielding additional revenues amounting to EUR 0.9 million for this quarter. This comes from the contribution of roughly 170 new sites. And the third component, revenues from other operators are also proceeding in the double-digit growth path. Third-party revenues totaled into EUR 21 million this quarter, showing a 15.4% increase versus the first quarter of 2016 and an increase of 37.3% versus the first quarter of 2015 pro forma. Continuing with Slide #6, it's important to highlight that the tenancy ratio increased further to 1.75. As you remember, we started at 1.55, and we are increasing at a pace of [1/10] per year. This result was reached thanks to the increase of tenants other than TIM and the progression of the decommissioning plan. At the bottom of the slide, you can see the OLO tenants' evolution and how we keep increasing our customer base quarter after quarter. Indeed, in the last 3 months, we reached 8,700 tenants by adding 300 additional tenants. All in all, this trend confirms the quality of our assets, as well as our capability to attract regular players in our infrastructures. On the right-hand side, you can see the evolution of the total number of sites. While roughly 20 sites have been newly built this quarter, about 100 have either been completely dismantled or are being dismantled. Let's move now on OpEx and our efficiency plan. In Slide 7, you find an overview of efficiencies achieved in operating expenses. The total OpEx amount to EUR 42.1 million and show a progressive reduction of approximately EUR 0.7 million versus the first quarter 2016 figures and roughly EUR 3 million, compared with the first quarter of 2015 pro forma figures. By breaking down the OpEx number, the chart shows that -- first ground lease -- that ground lease cost decreased by 4.8%, compared to those of the first quarter of 2016 and by almost 12%, compared to the first quarter of 2015 pro forma. This is the result of the renegotiation and land acquisition plans, as well as the decommissioning. We shouldn't forget here that the results also include the additional cost of newly built sites that are starting to become material. The benefits from the ground lease cost reduction plan was likely diminished by other operating expenses and personnel cost needed to support our revenue growth. This increase is mainly related to the startup of new businesses, such as small cell and backhauling. Let's now move forward with Slide 8, which focuses on increasing efficiencies achieved for ground lease cost. As already said, the main sources for the cost-cutting activity remain decommissioning, renegotiation of contracts and acquisition of lands. As regard to the decommissioning plan, we've already dismantled roughly 600 sites, equivalent to 42% of the total target. I remind you that is 1,400. These results come from the 7% dismantled in 2015, the 29% dismantled in 2016. There were about 400 sites. And an additional 7%, roughly 100 sites, dismantled during this first quarter of 2017. Moving on to the renegotiations. We reached 49% of the addressable target. 2,000 contracts have been renegotiated during 2015, 900 during 2016 and 200 in the first quarter of this year. More than half of the potential target is still addressable, even though, as highlighted many times, is getting tougher every quarter. Lastly, considering both land acquisition, long-term right of usage of rooftops, we signed roughly 100 contracts in 2015, roughly 300 during 2016 and about 30 during the first quarter of 2017. This means that we are just slightly lagging behind compared to our target of 1.3, 1.5 deals for the end of 2018. But we're confident we will be able to fill the gap and hit the target. The implementation of our plans is well portrayed on Slide 9, which shows the 2 most relevant KPIs: Revenues from OLOs and the average lease cost evolution. On the left, you can appreciate a meaningful increase in both OLOs and new sites revenues. We posted, considering the 2 revenue sources, plus 19% year-on-year from EUR 18.4 million in the first quarter of 2016 to EUR 21.9 million in the first quarter of 2017. On the right, we show the positive impact that decommissioning, contract renegotiation and land acquisition had on the ground lease cost. The result is visible in the reduction of the average ground lease cost, which reached 12,800 European sites in this first quarter versus the 13,500 in the first quarter 2016 and the initial 14,500. Now let me recap with Slide #10, what we envisaged for the -- for each acceleration plan project and the current stage of development. In general, you can see that, though at different speeds, we are progressing in every single area. Regarding the 500 new sites forecast for 2018, 17% are under construction, 21% are under negotiation, and 29% have been booked. In summary, we are already working on more than 300 sites, equivalent to 67% of the 2018 target. Moving to the small cell, we reached 37% of the total target. 5% small cell are either on air or under construction, 11% are under negotiation and 21% are booked. So out of the 4,000 remote units targeted by 2018, we are currently working on more than 1,000. Finally, let's talk about the fiber backhauling. We plan to build more than 1,000 sites by 2018. Here we have 6% of the fiber connection already booked, 4% under negotiation and 1% under construction, totaling 11% of project already in progress. With backhauling as expected, which was slower compared with the other new business as we had to review and industrialize the internal processing required to build and sell fiber connections. In the next 2 slides, I'd like to give you some more details about our small cell business. In Slide #11, I want to focus first on our offers and our technology platforms, the top of the slides. We offer 2 different services. 4G small cell typically mono-tenant and distributed antenna system, multi-tenant by definition. The platform for 4G small cell includes backhauling, infrastructure and active remote unit, directly connected to the core network of the operators. For the distributed antenna system, in addition to those things, we also provide a centralized equipment and hosting of our customer access notes. With hundreds of projects currently being deployed, we understand that even though we are at the beginning of a long journey, we are moving in the right direction. As a matter of fact, all the metrics are aligned to what we forecast. Unitary CapEx are in the KEUR 10, KEUR 20 area, exactly as forecast. Revenues per remote units are in the range of EUR 3,000, EUR 7,000 per remote unit, again, as we forecasted. And the EBITDA margin of the project is absolutely not dilutive versus the actual business. So all in all, we are delivering more than 10% of IRR for all running projects. It's worth mentioning the most relevant new contract that we signed. I can mention the Isozaki Tower, the highest Italian building owned by Allianz; the Monte Tower another big building used by BNP Paribas, relevant hospitals like Gemelli in Rome and some relevant touristic resorts like Cervia and Sperlonga beaches. The next slide, Slide 12, is about the prospect of this new business. We believe that this technology will be increasingly used in the evolution of 4G and in the preparation for 5G. There are 2 main drivers, pushing up the request for small cell from the mobile operators. The first is growth of data consumption per user, that will soon become even more relevant than now. Such expected growth will force the operators to increase the number of PoPs even in the 4G environment. The second is new frequencies. New frequencies that will impact the mobile network architectures in the 5G scenario. 5G will require many technological innovations, but among others, new spectrum resources, hundreds of megahertz per operator. And those megahertz -- those hundreds of megahertz will be available on new ranges of frequencies higher than the ones currently used by the operator. Higher frequency translates into shorter radius of coverage, as you can see from the qualitative graph on the right of the slide. And finally, into a huge number of PoPs, especially in overcrowded urban areas. I can mention that in the recent article of the IEEE community, we read that in a 5G fully deployed scenario, more than 10 small per each macro will be needed. So with these, I'd like now to leave the floor to Rafael Perrino, who will give you a detailed overview of the first quarter economic and financial aspects. Rafael?

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Rafael Giorgio Perrino, Infrastrutture Wireless Italiane S.p.A. - Head of Finance & Administration [4]

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Thank you, Oscar, and good afternoon to you all. Let me introduce the analysis of main KPIs of the first quarter 2017. On Slide 14. Revenues stand at EUR 86.4 million and with OpEx at EUR 42.1 million, the resulting EBITDA is EUR 44.3 million. Once again, this is the highest quarterly net income since the company incorporation when it amounted to EUR 28.9 million. Analyzing this data in more detail, we have a good top line performance with a revenue increase of 5.8% versus the first quarter of 2016. In terms of EBITDA, we posted a robust increase of 13.9% versus Q1 '16. Let me highlight that despite our business enlargement, our costs are constantly decreasing and in particular, let me focus on the OpEx components. The lease cost fell by 4.8% year-on-year with a EUR 1.7 million reduction. Personnel cost increased by EUR 0.3 million year-on-year, mainly due to the increase in the headcount dedicated to new businesses. Other costs increased by another EUR 0.7 million year-on-year. So total operating cost decreased by EUR 0.7 million year-on-year, equivalent to minus 1.6%. As expected, net financial interest for the period amounted to EUR 0.9 million, in line with what we recorded in the first quarter of 2016. This quarter, P&L taxes were equal to EUR 11.5 million. So our net income for the period amounted to EUR 28.9 million, increasing by 23%, compared to Q1 '16. Considering that in these 3 months investment accounted for EUR 6.8 million, the operating free cash flow, EBITDA minus CapEx, equaled EUR 37.5 million. To better recap our growth trend, on Slide 15, we describe our EBITDA driving factor with a qualitative graph. Our EBITDA has a solid base, thanks to high-quality asset inherited from TIM at incorporation. And its growth competent is a mix of asset efficiencies both on revenues and OpEx and the enlargement of business as a result of new investments. To drive our EBITDA growth, we are extracting as much value as we can from the actual portfolio by both increasing the tenancy ratio and applying the CPI escalator and by cutting lease costs through contract renegotiation and the dismantling of sites. And to keep growing in the long term, we are obviously expanding our portfolio by investing in both traditional business, building new macro towers and acquiring lands. And the new one, well described by Oscar before, small cell and fiber backhauling. With Slide 16, we want to draw your attention to our EBITDA margin and its breakdown. As you can see, the EBITDA margin has always been increasing starting from 44.9 (sic) [42.9%] in full year '14 pro forma and closing at 51.3% in Q1 '17. This strong EBITDA growth was due to a combined effect of OpEx efficiency and tenancy increase. The EBITDA increase generated by our OpEx efficiency plan that focused on site portfolio optimization and ground lease renegotiations went from an upside of 2.9% in the full year '16 pro forma to a 3.3% increase in Q1 '17. And again, the EBITDA ramp-up due to an increase in OLOs tenancies went from 3.3% in full year '16 pro forma to 5.1% in Q1 '17, thanks to a strong commercial effort for both traditional and new services. Finally, in the chart, you can see how the EBITDA margin is highly correlated to the tenancy ratio. On Slide 17, you can see a drill down of quarterly net income of EUR 28.9 million that grew by 23% when compared with Q1 '16. This increase mainly comes from a 5.8% increase in revenues and a 1.6% decrease in operating expenses, leading to a 51.3% EBITDA margin. Our EBIT margin amounts to 47.8%, a best-in-class result. Let me highlight that the tax rate for 2017 has declined by 3.5% due to a reduction of Italian IRES tax from 27.5% to 24%. Consequently, taxes for the first quarter '17 accounted for EUR 11.5 million with an implicit tax rate of 28.4%. Net income for the first 3 months of 2017 stood at EUR 28.9 million, equal to a EUR 0.193 per share on an annual basis, increasing by 23% compared with Q1 '16. Now let me show you the cash flow at the end of quarter. We are on Slide 18. In the first 3 months, we invested EUR 6.8 million, fully dedicated to land acquisition and long-term right of usage, as well as new businesses such as small cells and new sites. Even though, we had no maintenance CapEx in the first quarter, we confirm the EUR 5 million investment for the full year as we indicated in our business plan. This quarter, our EBITDA minus CapEx amounted to EUR 37.5 million. Moreover, in this quarter, we reported an increased net working capital of EUR 21.5 million, primarily due to an increase of EUR 22 million in receivables. As you already saw in 2016, receivable undergo a seasonal swing that leads to a negative first quarter. Moreover, as you can see, there has been no taxes cash out in this first quarter. However, please note that the 2016 taxes to be paid in 2017 amounted to EUR 19 million. The first 2017 tranche to be paid in the second quarter 2017 amounted to EUR 18 million, while the second tranche will be EUR 27 million. Finally, we delivered a positive cash flow to equity amounting to EUR 15.6 million. On Slide 19, we provide an overview of our balance sheet at March 2017. Net debt amounted to EUR 18.7 million with a EUR 14.7 million quarterly decrease. The current situation leads to a net debt on an annualized EBITDA ratio of about 0.1x. Lastly, the fully distributable reserves at quarter-end equaled EUR 764 million corresponding to approximately EUR 1.3 per share.

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Michele Vitale, [5]

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Oscar, Rafael, thank you. And now we can open the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from Mr. Simon Coles from Barclays.

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Simon Coles, Barclays PLC, Research Division - Research Analyst [2]

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It's Simon Coles from Barclays. My first is on the average land lease cost reduction we've seen that fall to EUR 12,800 this quarter. I was just wondering how much further we think that can go. And is there maybe an acceleration going in some of the lease cost reduction plans start to feed through. Secondly, on small cell, I was just wondering are you seeing any increase in appetite from operators lately or from customers and buildings and perhaps (inaudible) into the buildings? And then lastly, we've seen Crown Castle doing a big -- small cells in the U.S. and they brought more fiber assets there. I was just wondering if you -- what your thoughts are on fiber assets? Are there any in Italy that you can potentially buy or eventually you meet market, because you have a number of operators running on fiber?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [3]

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Thank you for the questions. Let's start from the first point, the lease cost. It seems to me that we are on track on all the driver that -- for the reduction. The decommissioning is going more or less in line with the plan. We are at 43% of the plan. Renegotiation, as I told you, we already have a couple of thousand of addressable contracts that we will try to renegotiate. The only, I think, item that we should highlight, is not fully in line with our linear progression, is the acquisition of lands and long-term right of usage. We signed just 30 contracts. I have to say that first we were under pressure in the -- for the end of the year. And now I do believe that in the coming months, as I was saying in the presentation, we will be able to fill the gap. So all in all, if you look at the result in absolute terms, so the reduction in the total amount of lease cost, I -- again, I want to highlight that in these, we have also to take into account that we have 170 new sites that are giving revenues, and on the other hand, we are paying the lease for those sites. So looking at the total cost, the total OpEx for leasing, we have to take into account the reduction brought by renegotiation and acquisition and decommissioning and the increase that is related to the new contracts for the new sites. The trend for the unitary lease costs continue to decrease and this is relevant. Again, I think that we have some seasonalities in this trend. But in any case, we are absolutely confident that we can reach our target. The second question is about small cell. Here we have to say that the -- yes, the operators are becoming more and more sensitive to the need for this new technology. The most relevant proof is the plan of our anchor tenant of our main customer TIM, that was exactly one of the drivers of our business acceleration announced in July last year. TIM decided to put on air many thousands of small cell in a 2, 3-year plan. So, all in all, I do believe that all the operators are looking at this new technology as a relevant, let's say, tool for managing the growth of data for going through the evolution of 4G and for the preparation of -- for the 5G. That is about fiber. So first -- our first objective is to connect 1,000 of our existing sites. And of course, the new sites we will build up. So for those sites, in principle, when we decide to analyze a single project, we first, of course, look for existing assets. But in general, if in those sites, there is not yet fiber connection, this means, that there is no fiber close to the site. So in principle, for each project, we will be laying cables -- digging, laying cables and connecting the sites. If your question were in general of existing assets of fiber in Italy, I have to say that there are several assets that are mainly in the long-distance connections. There are assets on the highway, on the small streets, and there are a few assets in the city rings in the metropolitan area.

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Operator [4]

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Next question comes from Mr. Giles Thorne from Jefferies.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [5]

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I had a couple of questions too, please. We've obviously seen Cellnex announce their framework agreement with Iliad for their deployment of network in Italy. I'm guessing by process of elimination, you haven't signed such a framework agreement, but it would be useful just to get that confirmation. And if indeed you haven't signed a framework agreement given you were quite clear that you were in a dialogue with Iliad, it would be interesting to understand why you think you haven't signed one and yet Cellnex has, so sorry for the convoluted question there, but I hope that makes sense. And second, I also wanted to pick up on the fiber question previously and expand on it a little bit, because the Crown Castle's approach is to be -- is to find high-density fiber deployments in high-density urban areas and use that as a fantastic candidate for putting a small cell network on top of it, which is a much more fiber-led small cell investment rather than kind of a demand-led small cell investment that you articulated. So do you see a change coming, where you would be more fiber-led? And given you have -- you sit within the same building or you sit within the same group as the Telecom (inaudible) in Italy, do you find yourself able to direct or influence where and when TI does lay its fiber, because TI has obviously been fantastically active on fiber deployment. Hopefully that makes sense too.

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [6]

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Thank you for the 2 questions. First, we didn't sign any agreement -- any framework agreement with Cellnex. We do believe that the deployment of the network of these operators will take time. So there are no news. We will announce when -- we will make an announcement when we have something to announce. Even taking into account that usually the framework agreement in our experience could mean to recognize discount. So to that extent, we are ready. As we said, new clients could be an opportunity for all the infrastructure owners. And so, that's it, nothing more than that. The second is fiber. You are right. Small cell, first of all, let me explain what we usually do in the small cell. We decide case by case. First, we see that there is -- there are available fiber connection in the area where we are interested in. In such areas, we could find fiber owned by operators or owned by, in some cases, municipalities, utilities. So in those cases, if we see that there are fiber available, we buy fiber to connect our small cell. In many cases, talking about the fiber for the backhauling of macro sites, let me -- let's say, coming back to the point I was highlighting in the previous questions. Talking about the 1,000 fiber connections for our sites, I know that in those sites, in principle, there were no available fiber cable close to the sites and the proof of that is that the operators are not yet using fiber for connecting the sites. So in the majority of those case, confirming that we -- case by case we look for existing assets if any. But I do believe that in those case -- in the majority of those cases, we will be forced to lay cables. This was my previous answer. I don't know if I properly answered your question.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [7]

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I think so, yes, you certainly expanded on it. And if I could come back to the first question about the framework agreement. Please excuse the direct question, but do you think the fact that you sit within the TI group limits your relevance to Iliad as a potential tower partner?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [8]

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Let me say that, we are an independent company. As we many times we stated we had an -- we are an independent company. We work for the benefit of our shareholder. We -- in all our decision, we are the majority of the Board that is composed by independent directors. So we can say that whatever we do is in the interest of all our shareholders. Don't have doubts about it.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [9]

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And, yes, okay. That's fine. It wasn't governance independence. It was -- it doesn't matter. We can -- let's -- we can move on.

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Operator [10]

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Next question comes from Mr. Parin Shah from Bank of America.

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Parin R. Shah, BofA Merrill Lynch, Research Division - Analyst [11]

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Just a couple of questions. On the fiber point that you were just talking about, is it a case, INWIT is the (inaudible) digging the fiber, laying it and essentially owner of the assets? Or are you taking out long-term leases from Telecom Italia? And my second question is just regarding comments made by American Tower most recently at a conference, I think, held by competitor. They were talking about how it's incredibly difficult to find assets in Europe that have no full cost exposure and are growing revenues, EBITDA meaningfully. And clearly, you are one of those companies -- and one of the only companies of that nature that have the scaled portfolio in a major market. Do you think that American Tower should take a strategic stake in INWIT over time, just wondering what your thoughts are on that?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [12]

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Yes. The first question is very easy? No. When we look for the backhauling, we do not use lease from the operators. In case of leasing, of course, you know that for the fiber the typical way to buy fiber is long-term right of usage, the IRU. When we deploy small cell project, we can use IRU for the backhauling. But when we want to connect sites taking into account that we want to sell IRU to our customer, the only way for us to make the investment is to lay cable. So we will never, let's say, in the large majority of the cases, we will be laying cable and not buying IRUs. The second is, yes, we are growing. I do believe that, our -- I think, that from the IPO onward, we always say that we do believe that this is the organic way for creating value. So we do believe that there are many opportunities for an organic value creation. And of course, we're -- the results are telling us that we were right, because we have been able to get all the opportunities that are in the Italian market, all the opportunities to have a strong relationship with the main mobile operator. Of course, first of all, TIM and also the other. And we have good assets. So the reason why -- the main reason why we do believe that the organic way to create value is the preferred one is because we do have high-quality asset, compared with the other. Having said that, of course, we are managing the company and not the share. But in this case, I think that this company could be interested for all the potential investors.

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Parin R. Shah, BofA Merrill Lynch, Research Division - Analyst [13]

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Can I just add one question on Iliad, because the framework agreement, Cellnex, I guess, clarified on the call, it's not necessarily a contract. Do you think Iliad remains a party that you will able to do significant business with? And do you think that you can win significant volume from Iliad over time? And I mean, are you hesitant to move to buy Iliad to you signing on multiple contracts, multiple framework agreements as a negotiating factor?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [14]

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I continue to believe that it's really too early today to answer your question and to deal with this issue. We do not -- we don't know what kind of plan the carrier, the foreign mobile operator, has in Italy. As you know, they have some relevant part to play, that are related to the digital -- mobile digital network operator agreement with WIND and 3. They have the possibility to use the rent sharing. It's likely that they will start with digital approach for the services. But I do believe that talking about something that is not clear, that didn't happen and is not happening now, I think is really too early.

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Operator [15]

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The next question comes from Mr. Ricard Boada from Morgan Stanley.

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Ricard Boada, Morgan Stanley, Research Division - Equity Analyst [16]

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So I have a couple of questions. The first one, do you see the potential to emulate Cellnex with the agreement they recently signed with, I believe, it was a Spanish real estate company to provide small cells in their portfolio, is there a company with this profile in Italy? And then, secondly, it's been a long time since we last -- it's been a few weeks since we last heard an update on the EI Towers, Rai Way, INWIT potential consolidation in the press? Can you confirm if anything has changed?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [17]

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We have a lot of agreements with building owners, with utilities. So I think that it's not worth mentioning those agreement before they really come to be relevant for the growth in the small cell. We have a lot of agreements. I do believe that now you have to -- we have to consider that we are at a very early stage of the small cell. So what we see is that first, we look for locations where the multi-operator small cell and distributed antenna system are needed because of the relevance of the locations. So in this, we are absolutely looking at the single areas, and of course, area by area, one by one, we will be looking if the agreements, if the older framework agreement, that we have with building owner and other could work or not. So it's a sort of cherry picking, cherry picking location by location. On the other hand, the multi -- mono-operator, small cell, are a consequence or specific request from the operator. The consolidation is very easy, nonuse, of course, we really stated we are an ideal partner for the consolidation in whatever manner it will happen. We have a very, very appealing to that extent financial flexibility. We are interested in growing in telecom tower. So whatever telecom tower assets come to the market, we are invested in -- we are interested in, but just press, nothing more than gossiping on the press.

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Operator [18]

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The next question comes from Mr. Max Gilbert from New Street Research.

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Max Alexander Gilbert, New Street Research LLP - Research Analyst [19]

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So, I see on Slide 15, you've now got EBITDA growth to continue in high-teens post 2019? I guess, it's going to be interesting to find out what's driving that? Is it the small cells? Is it the increase in the macro cells? (inaudible) that will be very interesting? Second one is just on the -- you said you're going to pick up the slack on land acquisitions. Does that mean you are going to be paying less? Or you can continue the same economics?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [20]

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Sorry. I didn't switch on the microphone. So I do believe that with projects that we have already been launching, we are paving the way for the future growth of the company and for giving the company the possibility to continue its trend of growth and value creation even from '19 onward. The name of the game after the 2019, of course, is small cell. I do believe that fiber backhauling is something that will continue. But of course, once we have reached 100% of the target, there is no way to continue to grow. If we consider what we've been talking about on the small cell, we should see a lot of deployment, an increasing number of remote units in the 4G and more and more in the 5G. If you can see the -- if you see that the public figures about the nonresidential small cell shipments that we reported from a qualitative point of view in the slides, they say that this -- those equipment will be shipped at the -- with a growth of 30% year-on-year. So I think that the name of the game for the future growth is related to the small cell.

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Max Alexander Gilbert, New Street Research LLP - Research Analyst [21]

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And on the land acquisition?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [22]

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Land acquisition. We continue to have our policy. Our offer -- maximum of our offer is 7x the annual fee that we pay to the landlord. This is something that continue to work, because even after some of the tax benefit for the landlord, and we are continuing with our approach. I do believe that the small number of the first quarter this year is something that will be recovered in the coming quarter. And I can -- I feel confident to confirm the target of 1.3, 1.5 land or rooftop acquired for the end of 2018.

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Max Alexander Gilbert, New Street Research LLP - Research Analyst [23]

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I'm sorry. I actually have one more follow-up, if you don't mind, appreciate it late on a Friday. Again, with regard to the small cells. So the 21% you highlight in Slide 10 as requested. What exactly does that mean? Are you -- is that MNOs approaching you? I mean do you expect to get 100% win rate on the 21%?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [24]

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Two things. The first thing is the MNO are interested in. So the MNO told us that they are ready to buy something in those locations. And for this reason, we say that they -- we consider this as booked. Let's say that if we were able to find the locations to sign the agreement with the location owner and to propose to come back with a commercial proposal for sure we will have orders and small cell on air.

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Operator [25]

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The last question comes from Mr. Jonathan Dann from RBC.

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Jonathan Dann, RBC Capital Markets, LLC, Research Division - Analyst [26]

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Two questions. On the tenant growth of 300,000, could you just remind us what the mix are for wireless local loop versus, I guess, mobile operator in that number. And then, secondly, a follow-on on the small cells. Of the 37% of the 4,000, what percentage of that, sort of roughly 1,000, what percentage of those small cell nodes have a second tenant or second tenant interested? How is it going getting sort of leasing up?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [27]

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Thank you, Dann. The first question is that we are the mix. The new tenants are mainly wireless local loop operator, IoT players and there is a mix of tenants. What we're seeing is that the main source of new commercial deals comes from wireless local loop operators and IoT players. Even though the other operators continue to be active, mainly Vodafone is our second customer. As far as the breakdown of small cell is concerned, I have to say that in all our DAS project, we have at least 2 tenants. In some cases, we have 3, but usually the majority is 2. So we have 2 point something, but we do not have 1 project with just 1 tenant.

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Jonathan Dann, RBC Capital Markets, LLC, Research Division - Analyst [28]

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And what's the -- can I ask 2 follow-ups. What's the mix of DAS versus small cell, in those numbers?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [29]

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What is it, sorry?

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Jonathan Dann, RBC Capital Markets, LLC, Research Division - Analyst [30]

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What's -- roughly speaking, is it 50-50 the mix of DAS versus small cell?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [31]

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If we consider all the number -- so if we consider the around 1,000 small that we have considering, the already under construction, targeted under negotiation or requested, is I think that we have the majority of those small cell are mono. But even then -- but there is also a relevant percentage of distributed antenna system.

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Jonathan Dann, RBC Capital Markets, LLC, Research Division - Analyst [32]

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The wireless local loop players in Italy, do they also own sort of high frequency, like 28 gigahertz millimeter wave spectrum, some of them do in the U.K.?

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [33]

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No. Not yet. Not yet. They are working on the traditional WiMAX frequencies.

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Michele Vitale, [34]

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Thank you, John. Thank you all for joining us and for your interest in our conference call. As you have seen, once again, we presented another good set of result, which I hope you appreciate. Thank you, again. Have a great weekend.

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Oscar Cicchetti, Infrastrutture Wireless Italiane S.p.A. - CEO and Director [35]

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Thank you. Thank you. Bye. Have a good weekend.

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Operator [36]

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Ladies and gentlemen, the conference is over. Thank you for calling INWIT.