Vantage Towers AG: FY23 Half Year results

14 November 2022

Delivering robust 6% Group revenue growth in H1 and further progressing macro site new build in Q2 

• Vantage Towers welcomes creation of a Joint Venture (“JV”) by Vodafone with GIP and KKR, which will hold Vodafone’s 81.7% stake. JV to launch voluntary takeover offer for outstanding shares at €32
• Commercialisation of our tower footprint continues:

• Added 710 net new tenancies in H1 FY23 resulting in a closing tenancy ratio of 1.45x, more than half-way to our medium-term target of >1.50x (compared to 1.39x at March 2021)
• We increased our commercial footprint with ancillary revenue opportunities providing indoor coverage solutions, high-speed broadband internet, and fibre agreements

• Over 400 new macro sites delivered in H1 FY23 (vs. 190 in H1 FY22 and 320 in H2 FY22) in a difficult operating environment. In H1 FY23, 260 new sites were delivered in Germany. Acceleration in Q2 FY23 with 260 new sites vs. 140 in Q1 FY23. We continue to closely manage the new macro site build programme (Built to suit, “BTS”) and undertake direct measures to accelerate production and manage cost
• Our Ground Lease Buyout (“GLBO”) programme continues to progress with over 860 signed contracts and additional over 640 commitments in the pipeline across our European footprint since inception, increasing the total to over 1,500
• Delivering on our financials:

• H1 FY23 Group Revenue (ex. pass through) at €523.6m, up 6.0% year-on-year (YoY) driven by inflation escalators, tenancy growth and other chargeable services to mobile network operators (MNOs)
• H1 FY23 adj. EBITDAaL at €272.7m (+1.8% YoY) and margin at 52.1% reflecting investment costs in FY23 to accelerate the BTS programme and the 1&1 rollout, all ahead of the corresponding revenue contribution from FY24 onwards
• H1 FY23 RFCF (Recurring Free Cash Flow) at €220.2m reflecting good adj. EBITDAaL conversion (80.7%) and normalisation of working capital and cash tax payments relative to H1 FY22. Strong basis to deliver FY23 RFCF guidance

• FY23 guidance reaffirmed: Group Revenue (ex. pass through) growth of 3.0-5.0% YoY; Adj. EBITDAaL of €550m-€570m EUR and RFCF of €405m-€425m

Vivek Badrinath, CEO of Vantage Towers, commented:

We look back on a solid first half of the year with Group Revenue growth of 6.0% driven by inflation escalators, tenancy growth as well as chargeable services to mobile operators. We have seen further acceleration of our new macro site build programme with improved delivery in Germany. For the second half of the year, we will further invest in the acceleration of the built-to-suit programme and the 1&1 rollout – focusing on production and delivery.  We remain on track to deliver our guidance for the current financial year and our medium-term targets, and believe that the new joint venture will enable Vantage Towers to further enhance its position as one of the leading tower companies in Europe.

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Commercial update

Continued commercial momentum across the business

In H1 FY23 we continued to concentrate on our key focus areas: the acceleration of our BTS programme, the rollout of 1&1, the GLBO efficiency programme, and the continued commercialisation of our business.

• Further commercialisation with 370 net new tenancies added in Q2 FY23. In total, we have added 710 net tenancies in H1 FY23 taking our closing tenancy ratio to 1.45x compared to 1.42x in H1 FY22. Of these, more than 200[3] were non-committed net additions in H1 FY23 and we are more than half-way to our medium-term target of >1.50x (compared to 1.39x at IPO in March 2021).
• Powering Europe’s digital transformation: Vantage Towers’ consolidated portfolio increased to 45.9k macro sites across our eight European markets. In H1 FY23, we added over 400 new macro sites. Whilst the BTS programme accelerated to 260 new sites in Q2, after having added 140 new sites in Q1 FY23, we continue to have to manage macro site build challenges and expect these to persist in FY23. We are focused on enhancing our BTS production and continue to undertake direct measures in a number of areas including process and operations; supplier and sourcing; steering and control: and organisation and governance.
• The increase in new build sites was partially offset by decommissioning, in particular driven by the active sharing agreements of our anchor tenant, mainly in Spain and Portugal. This type of decommissioning creates efficiencies in our network since our revenues are maintained by our portfolio fee mechanism.
• Efficiency programme: Our programme to optimise ground leases through buyouts or long-term right-of-use (GLBO) continues to progress adding over 220 contracts and commitments in Q2 FY23 taking the current total to over 1,500 since inception across our European footprint, of which over 860 are signed and over 640 commitments remain in the pipeline.
• Accelerating a sustainably connected Europe: we continue to expand our customer reach across our footprint in Europe – for example in Greece, we signed a new agreement with Nowhere Networks, a company that offers fast communication solution for ships globally, to host directional antennas on our towers enabling high speed broadband internet on ships. In Germany, we reached an agreement with McKay Brothers, an operator of low latency wireless networks, to provide improved networks for high-frequency trading. In Spain, we reached new colocation agreements with a fibre service provider, Adamo, to support their fibre network expansion especially in rural areas. 
• Increasing momentum for indoor coverage solutions: in Romania, we signed a new colocation agreement for our existing DAS (Distributed Antenna System) sites. Furthermore, in Spain, we have reached an agreement with La Paz University Hospital to study and propose a solution for multi-operator indoor mobile coverage in the centre’s facilities. In Hungary, we signed an agreement to provide the DAS solutions of the Budapest National Athletics Stadium that has been built for the 2023 Athletics World Championship.
• Expanding our product portfolio with new partnerships: in addition to our existing fibre partnerships with Vodafone in Portugal and Germany, Lyntia in Spain, and 1&1 Versatel in Germany – we signed another fibre sales agent agreement with VDI-Channel (a company belonging to Grupo Amper) to expand our capabilities in Spain.

Group Summary Financial Results

Group Revenue (ex. pass-through) grew 6.0% YoY in H1 FY23, mainly driven by ‘Macro site’ and ‘Energy and other’ revenue. Macro site revenue grew 3.9% YoY in H1 FY23 accelerating in Q2 (+4.5%) vs. Q1 (+3.4%) driven by our contractual inflation escalators and tenancy growth. As previously disclosed, over 95% of our revenue is linked to inflation.

‘Energy and other’ revenue grew from €15.1m to €27.7m, mainly driven by other chargeable services to MNOs in H1.

Moreover, non-Vodafone revenue continues to grow and saw an increase of 11.5% YoY to €102.1m in H1 FY23 (H1 FY22: €91.5m).

In H1 FY23 we saw consistent revenue growth across all markets driven by contractual inflation escalators, tenancy growth, and other chargeable services to MNOs.

Germany also generated revenue growth from non-MNO contracts and Spain realised additional revenues from the active sharing agreement and incremental energy revenue as previously disclosed in Q1.

Adjusted EBITDA increased from €427.4m to €443.8m (+3.8%) with the adjusted EBITDA margin lower at 83.2% (H1 FY22: 85.6%) reflecting revenue mix and increases in non-lease operating expenses. As previously communicated, we expect to invest €10-15m in our business in FY23 to ramp up our BTS programme, to facilitate 1&1’s access on our existing sites, and build out our supporting teams, all ahead of the corresponding revenue contribution from FY24 onwards. In H1 FY23, adjusted EBITDAaL increased 1.8% YoY with a corresponding margin of 52.1%. Our ground lease expenses increased by 4.4% YoY to €161.3m reflecting our macro site and tenancy growth alongside inflation escalators, which were partly offset by savings from the GLBO programme.

Recurring operating free cash flow (OpFCF) increased from €288.6m to €296.8m (+2.8% YoY) while recurring free cash flow (RFCF) stood at €220.2m in H1 FY23 reflecting good adj. EBITDAaL conversion (80.7%) and normalisation of working capital and cash tax payments relative to H1 FY22. Our FY23 guidance for RFCF remains unchanged at €405-425m.

Net Debt increased to €2,047.9m at H1 FY23 compared to €1,895.9m at FY22, mostly reflecting the €319m dividend paid in August offset by dividends received from the Company's associate and co-controlled joint venture investments.

Vantage Towers’ associate and joint venture 

The performance of both companies is in line with our expectations.

INWIT delivered solid financials and confirmed their targets for the current financial year. INWIT added 1.2k new tenants and more than 170 new sites between 1 January 2022 and 30 June 2022, bringing the tenancy ratio to 2.1x with a total of 23k sites. The INWIT renegotiation and land acquisition programme continues with a further 650 agreements.

Between 1 April 2022 and 30 September 2022, Cornerstone delivered total revenue of €228.9m driven by increase in new sites and tenancies.

Our Group Guidance

We confirm our guidance for FY23 as well as our medium-term targets

We confirm our unchanged FY23 Group outlook for Group Revenue (ex. pass through), adj. EBITDAaL, and RFCF and reconfirm our medium-term targets underpinned by continued focus on commercialisation and tenancy growth, BTS rollout, and progress being made in the GLBO programme.

APPENDIX

Non-IFRS Measures - Unaudited

The Group presents financial measures, ratios and adjustments that are not required by, or presented in accordance with, IFRS, German GAAP or any other generally accepted accounting principles on a consolidated basis (“Non-IFRS Measures”).

These Non-IFRS Measures on a consolidated basis should not be considered as an alternative to the consolidated financial results or other indicators of the Group’s performance based on IFRS measures. They should not be considered as alternatives to earnings after tax or net profit as indicators of the Group’s performance or profitability or as alternatives to cash flows from operating, investing, or financing activities as an indicator of the Group’s liquidity. The Non-IFRS Measures as defined by the Group, may not be comparable to similarly titled measures as presented by other companies due to differences in the way the Group’s Non-IFRS Measures are calculated. Even though the Non-IFRS Measures are used by management to assess ongoing operating performance and liquidity and these types of measures are commonly used by investors, they have important limitations as analytical tools, and they should not be considered in isolation or as substitutes for analysis of the Group’s results or cash flows as reported under IFRS.

Definitions

Reconciliations of Non-IFRS measures

Adjusted EBITDA

The table below sets forth the reconciliation of the Group’s non-IFRS measure adjusted EBITDA on a consolidated basis to profit before tax in the consolidated income statements for the periods indicated.

Adjusted EBITDAaL

The table below sets forth the reconciliation of the Group’s non-IFRS measure adjusted EBITDAaL on a consolidated basis to profit before tax in the consolidated income statements for the periods indicated.

Recurring Operating Free Cash Flow and Recurring Free Cash Flow

The table below sets forth the reconciliation of the Group’s non-IFRS measures Recurring Operating Free Cash Flow and Recurring Free Cash Flow to adjusted EBITDA for the periods indicated.

Net Financial Debt

The table below sets forth the calculation of the Group’s non-IFRS measure Net Financial Debt from the Consolidated statement of financial position as at 31 March 2022 and 30 September 2022.

Glossary

Disclaimer on forward looking statements

This announcement contains "forward-looking statements" with respect to Vantage Towers’ results of operations, financial condition, liquidity, prospects, growth, and strategies. Forward-looking statements include, but are not limited to, statements regarding objectives, targets, strategies, outlook, and growth prospects, including guidance for the financial year ending March 31, 2023, medium-term targets, new site builds, tenancy targets and the tenancy pipeline; Vantage Towers’ working capital, capital structure and dividend policy; future plans, events, or performance, economic outlook, and industry trends.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "will", "could", "may", "should", "expects", "intends”, “prepares" or "targets" (including in their negative form or other variations). By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. All subsequent written or oral forward-looking statements attributable to Vantage Towers or any member of the Vantage Towers Group, or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realised. Any forward-looking statements are made of the date of this announcement. Subject to compliance with applicable law and regulations, Vantage Towers does not intend to update these forward-looking statements and does not undertake any obligation to do so.

References to Vantage Towers are to Vantage Towers AG and references to Vantage Towers Group are to Vantage Towers AG and its subsidiaries unless otherwise stated.

Rounding

Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

[1] The non-IFRS measures presented in this announcement are defined and reconciled on pages 5-8.

[2] Consolidated refers to our reporting segments Germany, Spain, Greece, and Other European Markets, in which we have a controlling interest.

[3] Non-committed refers to tenancies that were not already committed in November 2020 at the Capital Markets Day.

[4] Medium-term targets of the Consolidated Group excluding INWIT and Cornerstone.

[5] Assuming capacity to invest in organic or inorganic opportunities up to leverage of 5.5x Net Financial Debt / Adj. EBITDAaL to maintain investment grade rating.