Infrastrutture Wireless Italiane (Milan:INW) Q2 2026 Earnings Call

0:00 Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the InWit Second Quarter twenty twenty six Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.

0:28 At this time, I would like to turn the conference over to Mr. Luigi Minerva, Strategy, M and A and Investor Relations Director of InWit. Please go ahead, sir. Thank you, operator. Good morning, everyone, and thank you for joining us. With me today, I have Diego Gaudi, InWit's General Manager and Emilia Trudeau, Chief Financial Officer.

0:53 Before we begin, please allow me to draw your attention to the safe harbor statement on Page two. Following a brief presentation of the second quarter twenty twenty six results, we will open the floor to questions. Over to you, Diego. Thank you, Luigi, and good morning, everyone. Q2 twenty twenty six results are very much consistent with our confirmed full year 2026 guidance, which reflects the current market context. The telco sector in Italy continues to go through a challenging phase with low returns and minimal investments. Moving to the MSA dispute, we disagree with the recent interim decisions, and we fight the appeal against both rulings.

1:43 We continue to believe that the MSA early termination notices are instrumental and fall outside the legal framework of the MSAs, which are valid until 2038. InWit runs very efficiently the best quality and largely unique network in Italy. There are no rational alternatives to InWix network from a strategic, operational and financial perspective. InWix remains committed to invest, while collaborating with its clients to identify shared value for value solutions on a fair and rational basis.

2:22 Moving to Q2 results. New signs and new POPs reflect the current market context, while the pace of real estate transactions remains sustained. As we anticipated, revenues on a reported basis are declining year on year by around 1%. Revenues are negatively impacted by the absence of uncommitted revenues linked to discretionary projects. If we were to remove such discretionary project based revenues from Q2 twenty twenty five numbers, Q2 twenty twenty six revenues would show normalized annual growth above 3%. EBITDA after leases margins at around 72% are in line with the 2026 full year guidance.

3:13 Following the dividend payments in May, our leverage ratio is now 5.7x and will decline to the midpoint of our 5x to 6x leverage corridor by year end. At the current share price, EWIT offers a dividend yield of around 8.6%, reflecting the undervaluation of our stock. I hand it over to Milena now for a review of KPIs and financials. Thank you, Diego and good morning everyone. Operational KPIs reflect the current challenging market context. The deployment of 50 new towers in this quarter represents a slight improvement over Q1 and keeps us on track to reach our target of around 200 new towers in 2026.

4:07 Three eighty new POPs were added in the quarter confirming a growing tenancy ratio now at 2.4. We are aiming for more than 1,500 new POPs in 2026 targeting a year over year continuous growth in tenancy ratio. Additionally, 400 completed real estate transactions confirm our strong track record aiming for approximately 1,600 transactions in 2026. Year to date, we have built 65 new dedicated DAFs with projects in larger than average location size in Q2. With regards to the next generation EU program Italia five gs, we completed the coverage across more than 500 square kilometers of the countrywide areas, actively bridging the digital device gap that affects those areas.

5:07 We are making progress on Rome five gs Smart City project, bringing five gs connectivity on the metro and digitalization to 100 public squares. The normalized 2025 total revenues base takes into account the lack of project based non committed revenue components, which we have developed over time with operators capturing their discretionary spending. Such discretionary budgets have been put on hold at this stage given the current context of subdued operator investments and stagnant commercial relationships. Adjusting for this one off step down, we delivered approximately 3% normalized revenues growth in Q2 twenty twenty six, driven by the following components: Inflation link based on a 2025 average index of 1.4 Anchored commitment in terms of new towers, new POPs and thus deployment in line with MSA commitments steady OLO's growth across other MNOs and IoT, smart infra growth particularly in indoor DAS across premium locations and projects in the smart city verticals.

6:34 Normalized growth is structural and we expect the business to go back to growth in 2027 in line with the mid term basement outlook. Moving to our financial highlights for the quarter. Q2 revenues reached €267,000,000 up 1% quarter on quarter and down 1% year on year, representing over 3% normalized revenues growth year on year as we just discussed. The revenues components included for towers, tank cost revenues up 2.8%, supported by inflation and MSA commitment. Conversely, OLOs and Smart Impre revenues were down as a result of the lack of project based revenues such as work and service, installation upgrades and DAS more than offsetting the underlying growing number of POPs and DAS locations covered.

7:38 On profitability, EBITDA was up 0.5% quarter on quarter and down 2% year on year to $240,700,000 with an EBITDA margin of over 90%. EBITDA after leases stood at approximately €191,000,000 up 0.5% quarter on quarter and down 2.8% year on year with a 71.5% margin reflecting the structural operational efficiency of our business model, which allows us to support substantial investments. And as a reminder, we closed 2025 with a return on capital employed of 8.4%.

8:30 The quarterly recurring free cash flow reflects the expected phasing of financial charges and remains consistent with 2026 full year guidance. In H1, recurring free cash flow reached €300,000,000 down 5% year on year with 63% cash conversion.

8:53 This was driven by structurally low recurring CapEx, efficient taxes thanks to the goodwill tax scheme, slightly positive net working capital and financial charges profiles that reflect phasing of interest payments. Below the recurring free cash flow line, growth CapEx was just above €70,000,000 in Q2 €160,000,000 in H1 consistent with guidance. We closed H1 with free cash flow to equity of about 140,000,000

9:31 Leverage ratio reached 5.7 following the dividend payment in May. We expect it to go back to 5.5% by year end, in line with our guidance. We have an efficient debt profile, out of which 80% is fixed, 20 floating. The current average cost of debt is below 3% and the average bond maturity is above four years. I now hand it back to Diego for the guidance and the closing section. Thank you. Thank you, Emilia. We reiterate our 2026 targets and medium term baseline outlook reflecting the current market environment.

10:16 Even in the unrealistic scenario in which the market remains stuck over the medium term, we would still be able to have a decent organic growth at around 3% for revenue and 4% for EBITDA and a track stable dividend and a solid balance sheet.

10:35 The baseline outlook does not include the following potential upside: normalization of the industry dynamics densification opportunities to expand across digital infrastructure. At the same time, the baseline outlook does not include the downside risk of MSA's actual termination, as we don't believe this is a likely or realistic outcome.

11:01 Moving to the next slide, let me reiterate a few important considerations on the MSA prices and terms. All our prices are in line with the market. They are even more attractive because the MSA fee also includes unique rights to the benefit of the anchors.

11:24 Once more, a benchmark of the MSA anchor tenants' fees shows that they are competitive and well below the European average. The average total fee for point of presence is around €20,000 This is a combination of sales and leaseback, new towers and new POPs. We estimate that broadly half of the fee is related to the financial component of this. On both components MSAs provide convenient and competitive terms. Clearly, they are intrinsically linked to the structure of the sales and leaseback transaction. As industry standard, we paid around $500,000 per tower with a transaction that included a large financial component with an EBITDA per tower of around $25,000 our payback period on the MSA lease and leaseback transaction is around twenty years, consistent with the necessary long duration of the MSA contracts.

12:36 You know the next slide very well. Our network of about 26,000 sites is the result of forty years of work from team Vodafone Idiguit, where we could take the benefit of first mover advantage to build top quality sites in the best available locations.

12:57 Our network is the result of the consolidation of multiple networks, best quality locations, connected with fiber, almost 20% land owned, optimized lease cost, best tenant duration. About 75% of our network is made of unique locations. Inuit is a strategic infrastructure critical to the national security and economy. Our network is available to our on the all or nothing basis.

13:35 Data traffic keeps growing. 2025 download traffic grew by 90% and upload traffic grew by 35%. We believe that the market needs further 10,000 towers in the next few years to cope with additional capacity in urban areas, coverage in suburban and rail and road corridors. The ongoing spectrum renewal process can unlock a new cycle of investments.

14:08 We would welcome proposals to link the spectrum renewal to current holders with future CapEx commitments to support network quality improvement and account digitization.

14:23 However, plans to improve quality are not compatible with the termination of inuit contracts. Level of service could not be maintained while repatriating the best network. Duplication will last decades, will delay densification, and cost billions.

14:46 In the current industry structure, where there is separation between telcos and service companies, we think that the spectrum renewal framework should discourage duplication of infrastructure and support stability and predictability.

15:08 About MSA dispute, the interim recent decisions were not in our favor, ruling it did not recognize the urgency requirement based on the assessment of the financial strength of the company. Also, was a view of change of control, we disagreed with.

15:27 We appealed the decisions and we remain convinced about the strengths of our arguments. In particular, change of control did happen in August 2022 when the shareholder agreement between Derek Mitali and Vodafone Group was terminated.

15:45 Any different interpretation would have triggered a mandatory tender offer, which did not happen. In terms of timing, we expect the appeals to be concluded by November 2026, while the ordinary process will last for several years. Anyway, we remain convinced that the situation should be addressed through fair and reasonable discussions between InWit and its clients to identify shared value for value solutions.

16:24 Q2 results are consistent with 2026 guidance. We reiterate both 2026 and BPIRMA guidance. Ingrid has the best assets. There is no rational case for duplicating the existing high quality infrastructure. Tim and Vodafone monetized their assets, and InWeek paid in excess of €10,000,000,000 in exchange for long term contracts and proportional fees.

16:53 InWeek business model and operational efficiency consistently bring a material benefit to its clients and the industry. In Italy, there is a dramatic need for investments and densification in order to increase the performance and resilience of the network, and Inuit is the best option.

17:13 And we remain committed to invest while collaborating with our customers to identify shared value for value solution on a fair and rational basis. With this, we thank you for your attention, and we will now open the floor to Coenamin.

17:31 Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question comes from Roshan Ranjit with Deutsche Bank. Please go ahead.

18:24 Great. Morning, everyone. Thanks for the presentation. I've got two questions, please. Firstly, Diego, thanks for the detail on the appeals process. One question I had was I thought it was quite interesting, the language that was used from the judge as part of the TI hearing versus the Fastweb hearing where it seemed they

18:49 gave a bit more color, perhaps going into the details of the merits or their stance on the merits of the case. Can you explain why they were able to provide more color on the TI situation versus the fast web situation, please? And secondly, you mentioned the spectrum framework auction. Any details there? Because I think we should be hearing in the next day or two and the trade off between renewals versus investments. Have you been involved in any discussions there with DashCom? Thank you.

19:28 Yeah. See, clearly, the the the the on the TI and fast forward ruling, we disagree on both. Basically,

19:43 the merit of the top of the content is basically very similar. The on TI, the tone was more on the urgency, on faster also on the merit and on the change of control. Honestly, no more specific reasons behind that, transparent and clear to us. Anyway, yeah, in our view, there is some inconsistency. And

20:14 as we know, the injunction process is a process basically which follows a brief approach from a single charge. We just appeared yesterday and the day before yesterday. And we remain convinced that the change of control did happen in 2022, and there is no space for a different interpretation because, among others, as we said, a different interpretation would have triggered a mandatory tender offer.

20:49 On the spectrum, yes, the process is ongoing since a while. Continue. Clearly, we are a relevant part of the industry and we are involved. Our position is has been and is positive supporting all approaches which are supporting and facilitating investments, investment cycle in Italy. At the same time, we think that it's important that the framework is supporting the overall industry

21:20 and so telco and infra companies of the entire value chain.

21:38 Great. But when when should we hear on the framework? It should be I thought it was kind of end of July, so it should be this week. We should be hearing on on on the details?

21:50 Yeah. There should be the expectation is about consultation document to come out in a few days or a few hours, let me say. Then the consultation document will be available for the government to take a decision. And the consultation will be open for sixty days.

22:13 Okay, understood. Thank you for that. Thank you. The next question comes from Fabio Pavan with Mediobanca. Please go ahead. Yes. Hi, good morning. You for taking my two questions. First one is a follow-up on Adjicom, provided we should have consultation document in a few hours or days, then it will be up to the government to decide how to,

22:48 I think, replace this renewal. Do you think this is something that could be solved before Iran? And do you think

23:00 a decision on the sector of renewal could come also if the uncertainty on the MSAs persist? Second question is quite simple. I was just wondering if in these days or weeks you are engaging in some form of with your anchors. Thank you. Hi, Fabio. On the timing, as we said, consultation out in a few days. Consultation will be open for sixty days, then eventually it will be to the government to decide. There is a scenario where there is a decision by year end. Clearly, the industry has been underinvested for years.

23:47 So and all the players need visibility and predictability. So the sooner the better in terms of supporting the industry and the new cycle of investments. With regards to the or can I say the intersection with the MSA, honestly, I think that the new investment cycle is not consistent with the current situation? And I think that any plan to improve quality and support the country digitalization is not consistent, is not compatible with the current situation on MSA and with the termination of inbuilt contracts, which are fundamental inbuilt infrastructure is fundamental to support in the most efficient way not only the maintenance of current service level but the improvement.

24:48 On the engagement with the PD Encore, we have the process open with Telecom Italia on the, let me say, assisted procedure with LOICS or legally assisted procedure. And while with Fastweb, there is no procedure, this was rejected. Our proposal was rejected by Fastweb a few months ago. And that's where we are. Thank you very much. Thank you. The next question comes from Paul Sidney with Berenberg.

25:34 Please go ahead. Thank you. Good morning. Just two questions for me, sort of big picture questions. You built 50 towers in the quarter. I'm guessing that's more than your competitors. I was just wondering, do you have a structural advantage over your competitors in the Italian market in terms of building new sites? Second question, we know that Italy needs 10,000 new towers, but there's obviously consolidation that's being speculated. But in in my mind, why would mobile operators want to reduce the number of sites? So do you see actually consolidation as a potential problem in terms of reducing the number of towers that are needed, or is it is it all part of this need for the the the 10,000 new towers irrespective of consolidation?

26:47 Hi, Paul. On the competitive advantage from an investor point of view, I would say that has been, in the last years, the company building the highest number of sites and actually the market, Gilead has been building some towers, but excluding Gilead, we have been the only ones building the towers And consistent we have consistently built the end to end, what we call, operational machine from search to location search to permit to construction to maintenance. And we think we have the most efficient and effective operational machine in the country.

27:36 Let me say that also from a contractual point of view, we have a preferred supplier relationship with Tim and Vodafone whereby we have the right of first offer and last call on all new new towers. So we think that we have both industrial and a contractual strong position. With regard to consolidation, it may drive on the short term some loss of point of presence and but overall, it could be also the way to drive the market to be more sustainable and support the investments to improve the quality and to ensure the operators have better investments.

28:34 So the overall context would be more supportive of investments. And additional towers are structurally needed because as we said, the data traffic has constantly increased, artificial intelligence adds an additional layer on top, And this is five gs is dramatically behind in Italy. Italy is behind Europe, and Europe is behind the world yet. And additional point of presence are needed both for capacity reasons in urban areas and the coverage in suburban and, as we said, in on transport corridors. So again, in concluding, consolidation may drive some reduction in the short term. But, overall, we have a positive view for the medium long term.

29:28 That's great. Thank you. Just a quick follow-up. Did did the Italian government recognize that there is a need for four towers in a bit the 10 towers number? What what what's the view of the Italian government? I think that there is an overall recognition that the industry has been under strong pressure in terms of returns, and that's not sustainable. And that has investments in the last years, and there is a significant need to speed up the investments again to accelerate on five gs deployment for the benefit of social communities as well as companies and the economy.

30:17 About the numbers, there may be different views, but I think that the order of magnitude is how can I say there is a consensus about the order of magnitude to densify the network and to cope, as I said, for the cope with the additional capacity and coverage which is needed? Great. Really appreciate your comments. Thank you very much. Thank you. The next question comes from Rohit Modi with Citi. Please go ahead. Hi. Thank you for taking my questions. I have two, please. One is a follow-up basically on engagement with with Anchors.

31:04 I believe, and please correct me if I'm wrong, that you need to finalize your migration plan by 03/31/2007 after the MSA, if things remain as it is now. Now whether you engage with them on on on migration after the appeal decision or you'll wait for it. And if you win the appeal decision, do you need to discuss the migration plan or that can be postponed until you get the decision from the original case? And second question is basically in the quality of your POPs, particularly in the OLO segment. If your top growth has in the OLO segment has been consistent, but we see the revenue growth has revenue has declined or 1H. And if I look at your slide on Page on Slide 17, if you look at the chart, which is there's a growth in OLO from 25% to 26%.

31:57 I'm just wondering if do you expect the higher growth coming in Oilo in the second half or if there's kind of a discretionary revenue impact that's coming in there? You. Rohit, let me start from the second question on oros. And let me comment that, in general, the market is quite soft. Honestly, the lack of visibility on the frequency renewal process and as we said, in general, the low returns and investments are making the market overall soft. Specifically with the olos, we are doing good progress with our all of customers.

32:45 And the financial trend is impacted from the fact that last year we had some special projects on discretionary spend, which this year has not been repeated. So basically related to specific work orders, specific project based activities, which depending on the customer's availability, customer budgets are not recurring every year. So they were last year, but not in this quarter. With regards back to the engagement and let me the repatriation plan, the MSA says that the repatriation plan, so the plan whereby have to give back and free up the towers giving it back to INWIT.

33:49 So the repatriation plan should be completed by a period which should not be shorter than three years. So completion in a period not shorter than than three years. That is the MSA framework. Honestly, we keep on being convinced that the current contract lasts until 2038. We know that the legal process will continue. The ordinary process will last for years. But anyway, we are open to be engaged and to engage with the operators if they wanna start sharing the repatriation plan.

34:37 Yeah. Thank you. Sorry. Just just just just just just clarification. You you need to agree on a migration plan by thirty first of March twenty seventh. Right? That's the case, or you don't have to that's on the part of the missing contract? Yeah. Not not on the plan. The repatriation plan has to be agreed between parties one year before the the termination of the contract. Okay. Thank you. Welcome. The next question comes from Ben Rickett with New Street Research. Please go ahead. Hi there and thank you for the questions. I have two, please. Firstly, coming back to your discussions with the anchors, I think you said you're in talks with Tim.

35:29 I just wondered if you could say anything about how productive those discussions have been so far and whether you're optimistic that a resolution can be achieved? And then on fast web, when do you expect discussions with them to to start again? And then a second question, I was just interested in how much this is all costing you in terms of legal fees and consulting fees. You would be that's embedded within the guidance, but I just wondered if you could quantify the cost of this dispute from additional professional fees. Thank you. Hi, Ben.

36:17 Let me say, I think it's too early to be either optimistic or pessimistic. I think that the the engagement with the customers is still clearly impacted by the the legal processes and some uncertainties around around the context. Anyway, the we we teamed the literally assisted process. So let me say it's moving on, I would say, slowly. And so let's see. The the the procedure will be open until mid mid September. With with Fastweb, again, we are open to discuss, and we have been always open. As we said, we do appreciate discussion based on rationale and referral approach.

37:12 And the discussion about the repatriation plan and open to start having those discussions as soon as fast forward will trigger them. On the cost, let me say that the costs are are some some millions of euros. We can estimate, yeah, some some in the in the the low, but absolutely, let me say, a couple couple of millions, a few millions. Clearly, would have preferred to invest these couple of millions in new towers instead of legal cases, but this is where we are.

38:01 That's helpful. Thank you. And out of interest, are you not discussing with Tim and Fastweb together given that their prevencies are very similar, they have the same contract, etcetera? Honestly, I I think that at a certain point in time, that could be a scenario, but I don't see neither an helpful or realistic scenario of this in this case. And, yeah. Okay. Okay. Thank you. Welcome. The next question comes from Nilo Silvestre with Equita. Please go ahead. Good morning, everybody.

38:48 Just a quick follow-up on the last question. You mentioned as low engagement with due to legal process. Is that because you are waiting for the panel ruling on the interim measure? As we said, we are open to discuss, and and clearly, the legal process, we think, should give clarity on the legal framework. This didn't happen with the recent decisions, but we remain confident that through the appeal process the decision will help give clarity about the legal context, which may facilitate the business discussion.

39:47 So honestly, we remain focused on having scenarios where we can have discussion based on fair and rational approach. The legally assisted procedure with TIM can support this approach, we will see with Fastrat. The current situation is not great for Inuit, of course. I think it's not great for anyone. The industry is told it's impossible to plan and define the investments which are needed. So I think that the effort and willingness to get out from this situation of fair and rational approach should be from all parties.

40:37 Thank you. And regarding assisting with the team, are you discussing about the MSA or on minor, let's say, topics? Yes. We started from more specific operational topics. So these are the ones which are currently under discussion. The overall framework is covered everything, but the current discussions started from the more operational topics. Thank you. Welcome. The next question comes from Andrei Kavaciczak with UBS. Please go ahead. Yes, good morning everyone. Thanks for the presentation. I have a question related to the potential investments obligations or remedies related to the spectrum update that you said we're expecting very shortly.

41:33 So obviously, there'll be a consolation period. There'll be, I guess, a follow-up in terms of the budgets and those two things or those several things, including the agcom, the budget, etcetera, will form, I guess, an opinion or clarity around what the associated potential investment obligations are. Presumably, this will impact everyone starting 2029. And I was curious from your perspective, you know, when is a time that given, I guess, various planning considerations, permits, considerations, etcetera. When is the time that the from your perspective that the anchors really have to start committing to some build with respect to these obligations? So is it kind of going into 2027, because maybe the lead time is a bit longer, say, two years to achieve these? Is it maybe, you know, a year later? Like, any color on when, you know, there starts to be a situation that not doing anything in terms of the kind of MSA dispute starts to hurt both sides and then I guess the party on the kind of network build side more economically?

42:55 Thank you. Hi, Andre. Yes, the intersection between the spectrum renewal process and the investment plans and MSAs, honestly, is an interesting one. It's really the trigger is actually the decision about the spectrum renewal. Then I think that immediately after that, there will be the need to define the plans actually to get the expected renewal. I think the plans should be already been defined in order to get the renewable.

43:41 So, that's in the news an important figure which will quite fast then drive the need to put on the ground investments. And again, I think that the current context and situation and termination of the contract we deal with are not consistent compatible with plans to invest based on a spectrum renewal with commitments to improve quality. I guess the plans that you mentioned, they're a function of, you know, what the obligations might be, right? So we don't know those yet. And I'm sure you have, you know, potentially some opinion given how the state of the grid of mobile networks in Italy looks like. But more practically speaking, if we're talking about an average kind of process for a new tower, which obviously, again, depends, I guess, the area, etcetera. But speaking about averages, how long before a tower has to be in the ground do the, you know, parties involved actually start to kind of work on the permit processes, etcetera? If you can be more specific, that would be very helpful.

45:07 Yeah. Yeah. This this I mean, you are right. It depends on on the areas, but on average, the the time it takes to to roll out the towers takes twelve to fifteen fifteen months. That's the kind of time horizon. Thank you very much. Welcome. The next question comes from Abhilash Mohapatra with BNP Paribas. Please go ahead. Hi, good morning everyone. Thanks for taking my question.

45:55 My question was on Slide 12, this is obviously a slide you've shown us in the past where you talk about the tower market potential in 7,000 to 12,000 new towers. I guess my question is how much of that growth do you think you can accommodate on existing Inuit sites and therefore, I suppose the balance would involve building new towers but how much of that growth can you actually accommodate by adding on secondary tenancies on your existing portfolio? Yeah. Actually, Abhilash, that's the need for additional additional point of presence in in the sense of additional towers.

46:45 So basically all incremental. That's the way to consider it because as we said, there is the additional need in urban areas for capacity and which cannot be accommodated on the current towers as well as coverage in suburban and railroad corridors. So all these requires additional additional towers, new towers. Got it. That's helpful. So so and maybe just to follow-up. Suppose what is, you know, what prevents the telcos from building those towers on their own?

47:36 Why would they necessarily come to In Vit for building these sites? Yeah. The two consideration, the first one is related to the preferred supplier clause whereby the unclean tenants are committed to have a special relationship with Inuit. Inuit has the right of making the first proposal and the last offer for all new towers deal. And let me also say that InWit is the most efficient company to do this kind of stuff. We are dedicated. We have taken the best people from team and Vodafone through the carve out in the past.

48:25 And so the teams and the people were moved to Inuit actually. And in the last years, we have kept on investing, on improving capabilities, systems, and process to deliver new towers in the quickest and most efficient way. So we think that both from a contractual point of view, but underpinned by the best industrial capacity in the country. And that's the reason why they we have a competitive advantage in the market. Good. Thank you. You're welcome. Ms. Trudeau, gentlemen, there are no more questions registered at this time.

49:20 Thank you all. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.