Good morning, everyone, and welcome to our analyst call. This is following our Q3 results announcements this morning. Before we jump into Q&A as we always do, I just thought I'd give you a quick summary of what we think are the key highlights of this quarter. The first thing to say is that it was indeed an exciting quarter for Vantage Towers. Yet another exciting quarter for Vantage Towers. This was the quarter where we signed this landmark agreement with 1&1 in Germany, positioning us as a partner of the Drillisch team for the provision of at least 3,800 and potentially up to 5,000 existing sites.
This is a major milestone for organic growth in what is our largest market, Germany. Furthermore, this quarter, once again, we've progressed commercialization and there is a bit of repetition in my quarterly discussions with you. Big priority, commercializing our portfolio, and indeed very pleased that we continue to deepen our relationships with MNOs and also in the other than mobile operator space with a number of agreements announced. In Q3, we added 600 new tenancies. We added more tenancies than in the previous tqo quarters, and that takes our year-to-date tenancy ratio to 1.43x, compared to 1.39 in the previous year. As you can see, continued momentum on the commercial side in terms of commercializing our assets.
Also very pleased with our ground lease buyout program, which is progressing, I would say, nicely. 360 signatures in Spain and Germany. Over 100 signatures in other markets, so yet another quarter of progression in this space. We do have 390 commitments in our execution pipeline, which means handshakes with landlords that will lead to buyouts and legal transactions in the coming months. There is the firm commitment, which is the agreement we get with the landlord. I call that the handshake. Then there are, of course, the administrative steps because you're in the real estate space, and that leads to the closing of the transaction and to the signing figure. The signing figure hence is 360 in Spain and Germany and 100 in the other markets.
We also delivered on our financial results, our revenues, and you know this is Q3, so we comment on our revenue figures. Revenues ex pass-through increased by 3.1% to EUR 746 million in the nine months. So you can see a progression of our revenue QoQ. There was an improvement of those trends, which puts us in a good stead for the end of the year. Our non-Vodafone revenue grew by 6% to EUR 125 million, and that's another proof point, I would say, of the progression of our commercial activity beyond Vodafone.
The BTS program also accelerated in Q3, delivering 130 macro sites after 90 in the previous quarter and 100 in the first quarter. Some progression, it's fair to say that it's also challenging. It's challenging from a supply chain point of view. We are seeing some minor short-term slippages, things that require our constant focus. The supply chain, as you know, worldwide, is rather stretched in terms of availability of people and also of materials in some cases. We are very close to the subject, it's fair to say that it's a challenging period for the build-to-suit program. It's also important to highlight that however, the overall plan for build-to-suit remains confirmed. These are, I would say, short-term slippages of the final delivery of individual sites.
Nothing systemic, nothing broader than I would say these challenges. We reaffirm our planned delivery of 7,100 build-to-suit sites until the end of 2026. That's unchanged. Of course, also my pleasure to reaffirm our guidance for fiscal 2022 at revenue between EUR 995 million and EUR 1,010 million. EBITDA after leases margin broadly stable versus prior year and recurring free cash flow, which you will recall we had uplifted in the previous quarter and so confirmed at EUR 405 million - EUR 415 million. That's the headlines of our Q3.
With this, I'd like to open the floor for your questions and remind you as usual that we aim to take one question at a time per analyst to allow enough time for all your colleagues to be able to take part in this session. Thank you very much.
Lovely. Thank you, Vivek. Our first question today comes from David Wright from Bank of America Merrill Lynch. David, please go ahead. Your line should now be unmuted.
Yes. I hope it is. Good morning, Vivek, Thomas. Thank you very much for taking our questions. Maybe just to elaborate a little on the supply chain, please. Just where exactly is the bottleneck? How much do you think it does drag into the fiscal 2023? I guess one question might be if there is some challenge with the CapEx, why might we not expect the cash flow to be a little higher? Although I guess that's obviously extra growth. I'm just wondering how it sort of filters through the financials. Just any more color you can give on supply chain and how much this could drag into the fiscal 2023. Thank you very much.
Yeah, sure.
Let me give you some color on the supply chain challenges, and then we will cover the implications as well afterwards, and Thomas will support me on that. Look, it's a variety of, I would call it, annoying inconveniences, issues. Nothing systemic, but lots of little things. We do live in a slightly different times and it hits in various places. Usually translates into short-term slippages of bringing all the pieces together for the final availability of a site. Once again, nothing systemic, but it could be basically two categories, availability of people, availability of materials.
Availability of people could be to put in place the electricity connection gets shifted by a week or two because a crew or a team is not complete for pandemic reasons. Could be on the construction side, the availability of the full crew or of the crew that brings the crane gets delayed by a few days, few weeks. All those things need to come together at the end for the site to be ready for installation. That's on the people side, minor shifts of the various crews that may be needed to deliver the site. On the material side, well, the logistics and supply chains are tense on materials. What we're doing, we're taking action, of course, on both of these sides.
On the people side, by working very closely with our partners to secure availabilities, confirm them, and try to de-risk each and every one of these steps. That's a very active program that the team in Germany is doing. On the material side, looking at how to simplify the supply chain, things like warehousing more raw material or let's say preassembled towers earlier. Standardizing our formats so that we can mix and match or swap equipment from one site to the other to compensate for sluggish supply chain issues, and indeed be able to have equipment that can be put on the site. Sorry, long answer because it's a variety of subjects. Mainly people and material. Nothing, once again, that is not manageable or to be mitigated. That's why we don't see a long last.
It doesn't impact our long-range view of the BTS program, which we see as a very important opportunity for the company of 7,100 sites by 2026. More of a short-term shift, which means that our ramp-up is not as fast as we would have hoped, but we're working hard to get the pace back to the right level. Maybe on the economics.
Yeah, absolutely. I think it's important to note as well that then obviously standardization, decoupling actually the logistics process with warehousing will help us to counteract any pricing increases actually that you might see there on a per tower basis. We believe that we can drive down procurement costs actually from that perspective and stay in line with our expectations on a per tower construction point. Now, you've asked as well in terms of cash flow. Our recurring free cash flow is not affected by that because it's mainly consisting obviously of EBITDA after leases minus the maintenance CapEx and the respective operational working capital. You would see then some phasing changes in the context of the free cash flow, obviously.
Other than that, I think it's really important to note then that we believe that we will be achieving actually the rollout of the 7,100 BTS sites by the end of fiscal year 2026. Indeed, we've said in the past already that the ramp-up of the acceleration phase is actually going to be finalized by the end of the next fiscal year, so fiscal year 2023. From which onwards, we actually will have run rate pace then for the rollout of the BTS program.
We should expect score.
23 will be.
-to be the sort of-
Yeah. I'm sorry.
Okay.
Sorry.
Very clear. Thank you, guys.
No, that's fine. Thank you very much.
Thanks.
Thanks.
Thank you very much, David. Our next question today comes from Robert Grindle of Deutsche Bank. Robert, please go ahead.
Hi, Robert.
Hello there. Good morning. Thank you.
Hi.
A very quick follow-up to David's question before I ask my own. You're not worried about the long term? It seems pretty minor stuff, but if the delay is persistent two months, say, would you suffer any penalties, or can you claim force majeure because a lot of this is COVID-related? My actual question is, congratulations on the Drillisch deal. Will you have to spend much to get the sites ready for United Internet tenancies? When might you get the visibility on the extension of the contract? Is that sort of nearer term or only really after a few years? Thank you.
I'm not sure how deep we go into. First of all, no, it's not a matter of penalties. We're working very closely with our customers to improve the situation on this. I mean, we're talking about getting the sites on air and working hard with them on that. There is obviously a lot of pressure on the system to make things work, but that's where it is. It's gonna mean a steep 23. That's what it means. I mean, that we need to double up on the production, and that's what the team is enthusiastically getting behind. That's what we're doing.
On the 1&1 contract, there is some level of investment. It fits within the business case that we've taken in hand. It's mainly co-locations, so very different from standing up. I mean, this is an immense majority of co-locations on existing sites. So some level of upgrade. As you will recall, I've always said from the beginning of our journey together in the capital markets, upgrading a site to accommodate another tenant is kind of the happiest moment a CEO of a tower company can have in spending CapEx. Because it is a very pleasantly accretive way of doing business.
That's very much in the, I would say that if that's not standard business, I don't know what is. There is some CapEx. It fits in the case. It's relevant for us, but these are good co-location businesses. In terms of the numbers, the committed number is 3,800. The commercial terms apply up to 5,000. It's very early in the day for us to see what the pace of the rollout. It's fair also to say that 1&1 is also looking at the market currently. It's very early for us to see where and how they will allocate any additional volume.
It's not, it's definitely not in the short term that we will see a move from the 3,800 committed. Is my intuition at this point.
That's on the volume part of the extension. I mean, it runs obviously for 20 years as we were announcing as well. I mean, that extension is obviously quite a bit in the future, so.
Yeah.
Indeed. Thank you.
I'll be watching it from my lounge chair, to be honest. Yeah.
Me too.
Yeah.
Thank you very much, Robert. Our next question today comes from Sam McHugh from Exane. Sam, please go ahead. Your line is now open.
Hi, Sam.
Hi, guys. Just to follow up on the site build and the supply chain issues. A bit more specifically, I think consensus has you rolling out somewhere in the region of 300 or 400 sites a quarter in the next four or five quarters. Obviously, we've just seen 130 or so in this quarter. Now, how should we think about that ramp up? Is 300-400 a bit too optimistic now, and is that the message? Any kind of guidance you could help for kind of the run rate in the next few quarters and years would actually be super helpful. I know the long, long run is unchanged, but the near term would be helpful to get a bit more color if we can, please.
Well-
Yeah, we're working hard on it, on a number of projects to indeed increase the run rate. A bit early for us to start to, you know, come out to the market with the full estimate. There are a number of activities that we're putting in place. We're driving them as a program. I mean, to, you know, for each of the steps of this. The modeling is not simple, to be fair. I mean, it's not hard, but it's not simple. You've got to look at your pipeline of acquisition plans, permits. Permitting is pretty choppy right now. There are a number of permitting activities that are also impacted by the decision speed of the authorities and so on, which is not, I would say, steady-state yet, right? I mean, with, especially with the perturbation.
You need to put all of those together before you can really model the speed of ramp up. It's fair to say we're putting ramp-up activities on each and every one of these steps, but it's a bit early for us to give you a forecast on that.
Yeah. Maybe what could help you is that we will reach run rate rollout speed toward the end of fiscal year 2023 is what we have said.
Yeah.
Right? If you think about this more from a monthly phasing point of view, that means that we will continue to ramp up on a monthly basis, actually, in the next year as well, or quarterly, if you so wish. Then afterwards, you will have achieved a more stable run rate. That should help you then to distribute that a bit, better or closer to where we believe actually the ramp up would be.
Okay. Super clear, guys. Thank you.
Thank you very much, Sam. Our next question today comes from James Ratzer of New Street. James, please go ahead and unmute yourself.
Great. Yes. Good morning, Vivek, Thomas. Hope you can both hear me okay.
Yes, very well.
My question is-
Okay.
Great. So my question really is around potential M&A in the tower landscape. I think since your Q2 results, we've had your largest shareholder, Vodafone, Deutsche Telekom, and Orange, all talking about interest in industrial partners with regards to tower assets. Obviously, that story seemed to get a little bit of a boost again with a Bloomberg story last week. Would just love to get your, kind of, thoughts on anything you can share around how you're thinking about those kind of potential transactions, and in particular, how you would see the benefits to Vantage shareholders, if any of those industrial mergers were to take place. Thank you.
Yeah. First and foremost, I mean, lots of people seem to be talking about the subject, so I'm not sure I have much to add to the choir. Let me try at least a few thoughts. I mean, there's nothing specific to announce or disclose, and if there were, we would. That's not. There are conversations between players, and statements made by big industrial players in this sector who are also my customers, and for one of them, my shareholder. I'd rather refer you to them for that. Look. We're big already. We're 82,000 towers, so it's not that we are in the insufficient scale category.
I mean, we have enough scale to do pretty much what we embarked on doing, which is having procurement size, absorbing the central fixed costs and optimizing, you know, the commercial costs and, the IT costs and so on. At this scale, we've already got a pretty efficient shop, right? I mean, it does deliver operational leverage by the fact that we've got some spread and some best practice sharing, some deals that we can do across countries and all those things. It's not that it's an existential point for us that we absolutely need to increase scale, otherwise we are at the risk of being irrelevant or inefficient.
That's which is a good place to start with because that means that it indeed allows us to ask ourselves the right questions on deals, whether they're indeed satisfactory and relevant for our shareholders. That said, do I see value in consolidation? First of all, these are one-way streets in many cases. If there is an opportunity for the sector to consolidate and it happens in this period of, say, 2022 and subsequent years, being a part of it, are we relevant to be a part of it? Yes. We're one of the big guys in towers in Europe, and I think that's something that means that we should certainly consider such opportunities. What would it allow? I would say two things.
Bit more scale again, so leveraging our good practices, bringing efficiencies to more operations because of the number of countries where you operate. A bit of procurement efficiency once again. IT, never a huge amount. I mean, in towers, it's not huge, but it's there. Having a single IT platform does bring efficiencies to any business because it's optimized for the specific needs of the tower industry. So I'd say that's the industrial benefit. There's another benefit which I see, which I tried to cover last time, I think as well. This notion that this allows you to be an efficient platform to deploy capital across Europe at various paces. That is, you're not locked into. More countries you have, broader your platform is able to deploy. Let me just. What does that mean?
You know, in a country like Germany, previous question, you have a new entrant coming in. You have to deploy a bit of capital to get them on your rooftops, or you have a build-to-suit program that's pretty ambitious, where you have to deploy people, resources. For instance, to accelerate your build-to-suit program, you bring in people also from other geographies at certain points in time. You have a broader platform to go and accelerate your capital deployment. Whereas you will have other markets which at a given point of time don't carry intrinsically much growth, either because they're before a 5G auction or because the traffic growth is a bit more stable or because the spectrum allocation means that tenancies are not forthcoming or the market structure doesn't enable.
You have a platform above this at a European level, which goes in and is able to deploy capital in the geographies where there's action at the time when there is action. There, that breadth is quite relevant. I think there's something there versus being, I would say, locked into a single country where your economics and the cash that you generate from your business, you're trying to find an outlet for it in the markets if you really want to create shareholder value. We have broader opportunities to create value for our shareholders because we have more places where we can deploy interesting capital because deploying capital in towers is enjoyable because the return is certain. You don't deploy capital unless you have a revenue on the other side.
It's really good projects to put money into. Would welcome broadening if it works for our shareholders to do the broadening and certainly would see operational value in it as the management of the organization to bring good performance out of that.
Thank you.
Thank you very much, James. Our next question today comes from Emmet Kelly from Morgan Stanley. Emmet, please go ahead.
Hi, Emmet. You are on mute. Emmet, you seem to be muted.
Oh, there we go.
Yeah.
Oh my gosh. Two years later and I'm still on mute.
Oh, no.
Okay, sorry about that. So my question is regarding the ground lease buyout program. Can you maybe just say, give us a few words about the ground lease buyout in terms of the dynamics you're seeing there. Are you buying freehold on land at the moment? Are you extending leases? Are you maybe, how can I say, almost threatening landlords to move locations to get a discount? And could you also maybe just, you know, tie it in with the rooftop argument as well. As you do these ground lease renegotiations, are the negotiations taking place as well with landlords to allow multi-tenants on your rooftop, which will enable you to maybe scale up some of your rooftops over time?
Mm-hmm. Thomas, would you like to?
Sure.
Yeah.
Absolutely. Yeah. Let's start at the beginning of your question, actually. What are we really buying? I mean, there's a good mix between straightaway buying out the land and acquiring longer term rights of use. I mean, they are of completely different lengths. I mean, it depends on country. It depends on the individual situation there as well. It's a good mix between the two of them. Obviously, when you talk about rooftops, this is something that definitely is more absolutely in the area of longer term rights of use. Do we have to pressure landlords? Not really. I mean, this is our acquisition teams. They're discussing with the landlords basically the advantages that the landlords actually have from this.
Wherever landlords would like to release some capital, they are very, very willing to engage on this. That then obviously is an opportunity for both, us on the one hand, saving leases on an ongoing basis, by doing this upfront payment, which is either an acquisition or a longer term right of use. And on the other hand, the landlord actually releases that capital. It's a win-win situation that I think in particular, again, I mean, let me emphasize on the point that over 85% of our landlords are single-site landlords. There is certainly some negotiation dynamic that is very positive for us in that context. Having said that, it's not about pressuring them into things like that. Definitely not.
It's the early days of this program, if I can add.
Yeah.
We are really going with those who are willing, first of all. The beauty of this program is that we are rolling it out across our footprint, and as you can see, the progression beyond Germany and Spain is starting to pick up good momentum. We are not putting pressure on the market. We are catching those-
Mm-hmm.
Who are the willing at the right IRRs, because I mean, we've got a journey to where we want to deploy capital on this program, GLBO. But we can be pretty demanding on the IRRs and doing the deals with those who would prefer cash up front right now, rather than being in a negative negotiation. Yeah.
Yes. That's the general trend on that, Emmet. I mean, if you think about some fewer situations where a landlord might really want to increase the rent very significantly, yeah. Certainly we would actually consider moving away.
Mm-hmm.
I mean, that's.
Can I just-
a scenario where the IRR, as Vivek is actually saying, is incredibly important for us to continue to monitor and all of the other KPIs that we will monitor in that context. We'll do the right thing for the company then.
Mm-hmm.
Can I just ask, just in terms of the scale of the operation, because you have, I think, we'd say roughly 45,000 sites consolidated within the group. I mean, that's a hell of a lot of sites, and you said most of them are single tenant landlords. How do you manage just the sheer volume? Because do you need to outsource this to third parties, or do you deal with various companies like them? How does this work? Is there maybe scope for maybe the industry to get together with other tower companies, or how should we think about this in terms of the big picture?
Well, certainly we need internal coordination that is very efficient and effective, right, in order to safeguard our financials and our strategy behind that. We do have internal resources, but we do as well use a mix of internal and external resources, again pretty different from country to country, in order to then approach the landlords themselves.
You fine-tune the commission process with each of the vendors, but it works. I mean, there are land negotiators across Europe and we work with them, managing it with keeping a control tower on our side, both on the deals, on the commissions.
Yeah.
On the commercial effort that's being put. I call it commercial because it's actually getting to a deal. Yeah.
I mean.
Thanks very much.
Success is obviously increasing as well, right? If you think about it, I mean, Q1 we were at 390 total agreed or signed. Q2, 590, now 850, right? It's continuously accelerating, which is indeed what we were expecting and we will continue to drive that acceleration forward to achieve then the 10% that we are targeting.
Thanks very much. Thank you.
Thanks, Emmet.
Thank you very much, Emmet. Our next question today comes from Jerry Dellis from Jefferies. Jerry, please go ahead and start your video.
Hi, Jerry.
Yes. Good morning, everybody. Thank you for taking my questions. The first question was really to do with the sort of the supply chain issues again, I'm afraid. I just wondered whether you perceive there's a scenario in which things get worse before they get better. Thinking secondly about the sort of the revenue trajectory into FY 2023. What can you tell us, please, about the sort of the pipeline of tenancy net adds that you have, which may give you comfort as to sort of where maybe revenue growth holds up in the first half against the consensus expectation for next year, which I think is revenue growth of between 6%-7%. Thank you.
The second one, I don't think we're yet at this point where we provide guidance for 23.
No.
Right, Thomas? We're not supposed to.
Yeah. We will come back on the revenue guidance, obviously with the full year results then as well. In the next quarter, expect us to give that guidance. Yeah.
On the first one, look, I mean, can't forecast pandemics and supply chain at a macro level in a massive way, but it's fair to say we are increasing our delivery. This quarter, it's 130. The previous one was 90, the previous one was 100. I would say we are in a progression mode because we're as you can see, as I said earlier, there's no systemic point. There are a number of places where things can shift and go wrong, on which we need to put more controls to mitigate those risks, either by diversifying our supplies, by micromanaging the availability of crews on the ground in a certain town and hoping that they've worn a mask the week before so that they don't miss their appointment because they're stuck at home.
That's the kind of stuff that we're dealing with, right? All very real-life operational problems. Each one of them has a number of mitigation solutions. We're going in with a program to put these mitigation solutions on each and every one of these little incremental steps that ultimately lead to a tower being stood up on a concrete foundation with the equipment and the power, all in place. That's what it is. That's why I would say if it was, if there was something systemic, your question would be, I would be thinking through that question. But looking at the way the issues are, it's more a question of tightening each and every bolt across the system.
Yeah. Maybe I can expand a little bit actually on what I said earlier in terms of this acceleration phasing as well, which gives you some indication on next year. I mean, if you think about the acceleration of the rollout, as we have been saying in the past, we will reach run rate speed by the end of fiscal year 2023. Just really reiterating what I said earlier today already, over the next few quarters, we will continue our acceleration from where we are at this point in time. Expect us to accelerate the BTS rollout as well on an ongoing basis before we then reach the run rate towards the end of the fiscal year. From there onwards, we would be at a run rate speed.
That gives you some indication on the respective revenue obviously as well. Important to note, maybe in the overall context as well, if you think about 1&1 as an example, I mean, we will prepare for that rollout, and we've been talking as well that we are investing into some studies that we are continuing to analyze actually where to roll out these co-tenancies then as well, and reassure us that we will actually know exactly how the landlord is going to react by doing analysis there. What I'm saying is basically that we will continue to invest into this as well, not only from a CapEx point of view, but as well from a cost point of view in order to prepare us for that further rollout of these co-tenancies into the next year as well.
That's something that just operationally are happening as we speak, and that will actually continue into the next year. I hope that gives you some anchor points.
Okay. Thank you.
Thank you for your question.
Thank you very much, Jerry. Our next question today comes from Simon Coles from Barclays. Simon, please go ahead and start your video.
Hi, Vivek. Hi, Thomas. Thanks for taking the question.
Hi, Simon.
Hi.
Good to see you.
You commented on it. It's still a bit early on the phasing of 1&1, but I was just wondering, given they're using O-RAN and they've got a partner in Rakuten helping them build out the network, it's a slightly different sort of process, I imagine, to working with a normal sort of mobile operator in Europe. I'm just wondering, can you provide a bit more color on does it make it more difficult? Does it make it easier? Something that they could actually deploy sort of more quickly than we've seen other operators in Europe in the past few years. Do you have to provide any sort of extra services given the sort of technologies that they're using? Any more sort of color around that would be great. Thank you.
On the first part, it's a bit early. I mean, we're ramping it up, working well, good collaboration at technical level, good dialogue. No. Nothing to report, but no, I wouldn't say not enough data points to see if it's harder or easier than the rest, right? I mean, the installation part is not, you know, miles away from what we're used to, right? I mean, you're talking antennas and electronics on site. There is a synchronization with the fiber that needs to be done, but nothing, you know, nothing that we haven't seen elsewhere. There's no conceptual big gap on the part that pertains to us.
Configuration, turning on, tuning, et cetera, I'm less expert on, but that's more on, I would say, their relationship between 1&1 and Rakuten , and they will work on that. Too early to say in terms of, let's say, experience, return of experience on this one. Certainly good technical collaboration. I'm feeling pretty confident that everybody wants to make it happen on time and on schedule. That's what I'm seeing today. Now that the second part to your question was on. Sorry.
Just if you have to provide any other-
I forgot the second part.
If you just have to provide any other extra services.
No. Not at this point. We're open. I mean, we've got to. Yeah, no. Sorry. When we design the process, we'll synchronize deliveries of equipment on site and things like that, so that's more, it's more logistical stuff than anything else. No. So nothing, you know, on the radio or IT side that we are involved in. That's in Rakuten and operators.
Cool. Great. Thanks very much.
Looking forward to it. It's an exciting project. Yeah.
Very much.
Definitely.
Thank you very much, Simon. Our next question today comes from Usman Ghazi from Berenberg. Usman, please go ahead and start your video.
Hi, Usman.
Hey.
Hi. Hi, guys. I'm just gonna follow up on the 1&1 question, and then I've got my own question. Just following up on Simon's kind of question. I wanted to know if 1&1 wanted to go faster than I think currently the timeline is 3,800 sites by 2025. Now, if 1&1 wanted to go faster than that, let's say they wanted 3,800 sites by 2024 or 2023, for example, and give a...
You know, assuming they have the capability internally and the CapEx budget to do that, is Vantage in a position to deliver you know these sites earlier than 2025 or is it just that you know landlord approvals et cetera will take time, so you know it is 2025 that you can deliver the 3,800 sites by? So that was my first question.
Look, we're
Yeah.
Maybe to that one. Look, at this point, we're gearing up for the 3.8 for this period. The candid answer to your question is it depends. It depends on what sites. There are some sites that are easy to provision and others which are harder. It depends which category you're in. If you need the things that you've got to take care of are landlord approval and, in some cases, upgrades or, let's say, adaptations of the rooftop. Depending on how complex it is, some of them could be easier and could be done fast, some of them would require more time. It's really. I would say your.
It's hard to answer your question because it really depends on where the demand is, not how much the demand is, if I can put it that way. Yeah.
That's clear. My question was just on M&A. You know, clearly there's benefits, as you've indicated, you know, if there's a deal on the table. I just wanted to understand, you know, what your red lines would be, if you're willing to say, you know, Given there are several opportunities on the table, it'd be good to understand, you know, what the red lines are for you internally when you're looking at these opportunities.
Well, the main red lines apply to our shareholders, is what they want to do in terms of ownership, what they want to do in terms of shareholder rights, et cetera. For us, there's. We're very open-minded.
Accretive.
It needs to be accretive and favorable to our shareholders. That's about as far as it goes, right? I mean, because combinations which have an industrial sense, which are relevant, where I would say the management. Let me probably reword it. What would management be looking at in a combination of this nature, which essentially is one where the shareholders are looking at the accretion that it would generate? We'd be looking at being able to deploy operationally in an efficient way across a broader footprint, and having as few constraints as possible on driving, I would say, operational efficiencies across the system. That's what we'd be looking for.
Yeah.
In this situation.
Strategic fit, I guess, with-
Yeah.
With the quality of our network, the way that we are positioned here with really great tenants that are rated very well as well. I think overall it needs to be accretive and in the context of a strategic fit analyzed then.
Yeah. We said. Indeed, very good point. Thanks, Thomas. Good point. That's. I mean, we're trying to keep the company to the identity that we've expressed to you over the years, right? Over the last couple of years. Which is we have a strong one of the stronger grids in the market, number one or number two, which means we have attractive locations to, on an ongoing basis, continue to grow tenancies with a very high proportion of investment-grade customers, and indeed a very clear visibility on our revenue flows for the long run. That's what we stand for.
Any combination, what we'd be expecting is that we keep this logic of a Europe-based Tier 1 supplier of in the geographies where we operate.
Yeah.
That's the strategic fit that we'd be looking for, indeed.
Yeah. All right. Thank you very much.
Thanks.
Thank you very much, Usman. Our next question today comes from Nick Delfas from Redburn. Nick, please go ahead. Your line is now open.
Hi. Thanks very much.
Hi, Nick.
Hi. On inflation is my question. Just want to understand, let's say inflation is currently 5% in Germany. Which inflation rate do you exactly take for the year ahead? Is that a March inflation for starting in April? How does that impact also your ground leases? Do they typically all uprate with inflation at the same time? Thanks very much.
Thomas?
Yeah.
I was supposed to give you a T-shirt about inflation, but I haven't done that yet. You can go ahead.
Yeah. It's, I mean, obviously you look at the 12-month January to December net inflation rate. You see where we'll end up at the end of that December. From there onwards, you actually look at the situation that with regards to the MSA. I mean, the cap is pretty clearly in Germany, as an example, at 2%.
From there, I think you can take your considerations what the next year might be, right, from that perspective. We haven't yet announced that.
Yeah. It's to end December for the year starting first of April.
That's right. You look at the January to December numbers.
For ground leases.
Allowed by Germany.
... those will uprate with CPI?
It's a mixture. I mean, it's a mixture of them automatically increasing and on the other hand, some are not automatic increases as well. Overall, what we've seen in the past is that the adjustments haven't come through in line with inflation. Then I would remind you of the GLBO program that we've spoken about earlier as well, and the success we have in that space, which clearly allows us to moderate any inflationary trend that we expect on the leases.
All of the cost initiatives and GLBO, one of the most important ones actually in our context, and with the leases obviously forming such a large component of our cost, I mean, over 2/3, then as a consequence, this is really important for us to continue to drive and continue to accelerate, which is exactly what we have been doing in the third quarter. I mean, if you take that into account, we are confident that we can actually achieve our medium-term objectives of high 50s% margin.
Okay
... while inflation is obviously, at least a temporary topic here.
Yeah.
We have tools in our hand that we can use and are using in order to manage that.
Great. Thanks very much, indeed.
Thanks.
Thank you very much, Nick. Our next question today comes from Luigi Minerva at HSBC. Luigi, please go ahead and unmute yourself.
Hello, good morning, Thomas and Vivek.
Good morning. Hey, nice background. Love it. Yeah. Sorry.
Thank you. Yeah. We love birds at HSBC. My question is on M&A, and I just wanted to get your views on the way the competition authorities are approaching market definition. We have different examples from France, U.K. In some cases, you know, the market definition only looks at independent TowerCo. So I'd be interested in your views on that approach. You know, sometimes it seems a bit strict. Then specifically, if we were to think about Germany, I'm wondering whether, you know, a combination with another substantial platform, say, for example, Vantage and GD Towers. I mean, how do you see the trade-off there between potential remedies and synergies and whether, you know, such a combination essentially would see remedies offsetting the synergies potential?
Thank you.
To answer your question, Luigi, I think in a way you've given all the pointers to the answer in a nutshell. Because as you can see, first thing, indeed, it's fair to say that it's we don't yet see a, I would call it a pan-European doxa on the subject. It's still, and for good reason. I think it really depends as much on the competitive situation in the market as it depends on the rollout. So which is why you see CMA in the U.K. And to be fair, the not taking into account only independent tower cos is probably something that we see less and less of in the coming years, in my view, because all the operators are becoming, are...
I mean, if you look at when we started, less than 50% of the towers were in TowerCo. Today, 75% are in TowerCo in Europe. The journey is started. Look at the behaviors of the TowerCo. I mean, we did sign a contract with 1&1. I mean, if that's a point, if there's a point, that's one. I think this notion of independent versus non-independent, I think it was an interesting point of debate in a very nice 2019 point of debate, but I don't think it's a 2022 point of debate. I think those tenants will evolve. It's about market by market. I'll point you to Italy, Iliad and INWIT. That deal was agreed.
INWIT is working very hard with Iliad and TIM and Vodafone to ensure that indeed the open access nature of INWIT is completely put in place. For regulators, ab initio, a tower, an independent TowerCo which takes strong open access, which has a strong presence on the open access side, is pro-competitive, all said and done. 1&1, new entrant comes in, ability to roll out network using existing infrastructure is an enhancement to the competitive nature of the market, which is what they typically look for on the retail side, on the downstream side. I think the conversation can only be open because, I mean, having TowerCos that enable operators to have space brings down an entry barrier, and that's kind of good for them.
It's about market by market. On your last question, which is what if Vantage and GD Towers in Germany, I would only say, the result. It's for the authorities in a hypothetical transaction, if it were to occur, to make up their mind. It's a fact that I wouldn't expect anything else than an open access provider, which is our nature, in any transaction of that sort. It's a conversation about how that could fail. Yeah. The nature of remedies. The French case was very specific because they took a very specific read and breakdown of the market. I'm not sure that formula. A formula is not in EU law in any way.
That's something that was more of an analysis tool for them. I'd say that's where the. Yeah. Great.
Well, thank you very much.
Thanks, Luigi.
Thank you very much, Luigi. We have time for just one more question today, and that's from Georgios Ierodiaconou from Citigroup. Georgios, please go ahead and unmute yourself.
Yes. Good morning, and thank you for taking my question. It's actually, if you don't mind, I would like to ask a follow-up after Luigi's question first. Which is just to confirm that when you are looking at your options, is it fair to conclude that antitrust considerations are not a main worry for you? Because you gave us a number of reasons why in Germany there should be, you know, a merger potentially allowed. But do you give it 100% probability, and therefore that's something you're willing to pursue? Or is it something you have doubts, and therefore there could be some discounting if you would ever have negotiations for something like this to materialize? My second question is actually another follow-up, which is on the tenancy growth that was discussed earlier.
I was just curious if you could give us a bit of an idea of the mix between MNO and non-MNO tenants that you are adding, both in the agreements and in the existing numbers. I know from the disclosures of your Italian subsidiary that there could be different ARPUs between different kinds of customers. We'll be curious to hear any disclosures on that. Thank you.
I'll leave that part to you. It's variable across geographies, so I can say it's a bit of a broader question. On the first one, though, just to say, look, I certainly can't say the probability is 100%. It's a new area, as Luigi mentioned. There's still a bit of case law to be built on this, right? I mean, there haven't been that many. I mean, INWIT is the one big precedent of this nature, I guess, that we have, which was favorable. We think it's any...
I mean, it's definitely a conversation that's worth having, where we think that on the balance it is pro-competitive to have open access TowerCos providing services to all MNOs, and that if they're strong and efficient, that brings down the cost of infrastructure for the industry. We do believe that there's a case. Now, the case is to be judged by those who judge the case, not by those who bring it forward. I'll be humble at that point in time and certainly not prejudge or pre-calculate probabilities of somebody else's decision. That's where I leave it.
We certainly think there are lots of good arguments for saying that the strong TowerCo is good for the telecom sector. It's good for digitizing Europe because it makes better use of the capital that's been rolled out, and it helps people to compete without spending as much money as if they had to build everything on their own.
Yeah. To the revenue question. Exactly. On the tenancies. I mean, first of all, let me say it's a good mix of both. MNO tenancy is on the one hand, and OTMO tenancy is on the other hand.
If you think back to when we were set out to go on this journey during the IPO, what we've said there is that our revenue guidance that we actually had set out at that point in time didn't really include a lot of OTMO. We were more on the MNO side. We were very cautious and conservative on the OTMO component of our future tenancies and revenue growth. From that perspective, you've seen us doing there actually pretty well, and actually exceeding expectations, I think is really fair to say, compared to what we have been seeing during the IPO phase. That gives you an indication from that perspective. Now, on the other hand, you were talking about ARPU or actually the revenue contribution that then such OTMOs actually provide.
I think what we have to consider in that context is that the space that they occupy on a given tower is significantly less than an MNO would actually be taking up as well. You have relatively easy additions in that space that gives you a really healthy revenue contribution, albeit obviously a lower one than an MNO would give you. However, the space that they occupy is significantly less as well. If you take all of that into account, a very, very good addition to our revenue growth, and secondly, from a profitability point of view, actually very profitable business for us as well. Then there's a healthy mix between the two.
If I could confirm from your statements, given the 1&1 agreement and better take-up on the non-MNO side, that means your tenancy ratio targets appear relatively conservative now. Is that a fair conclusion from?
Well, what we've said through the 1&1 announcement was that certainly we are now confident that we can actually achieve our midterm guidance towards the upper end of that guidance. So that's what we have stated so far, and that's, I guess really what I can confirm to you. It is definitely towards the upper end of that guidance. Okay?
Okay. Right. I think that was indeed the last question in the sequence. I am really thankful for all the good questions. As you can see, we're just as a summary and to conclude, if there are no further questions, right? Yeah.
Yes. We have run out of time for further questions, I'm afraid.
Yeah.
I'll hand back now to you, Vivek.
Thank you very much. No, just to conclude, we're on our journey. Q3, of course, is a revenue statement. We'll see you again on the full year results. We're progressing commercialization, GLBO ramping up, operational work going on to strengthen our BTS program to overcome the short-term, I would say, supply chain issues that we're facing. And to accelerate our ramp-up as we go forward. And hence, guidance reconfirmed for the full year. Looking forward to seeing you on the other side of our very active fourth quarter. Lots of good things happening. The 1&1 co-location program is very exciting for us, and indeed, standing it up is one of the big priorities.
Once again, a very active quarter in Vantage Towers, with good progression along the lines of the strategy and the directions that we've given you from the beginning of our listed company journey. Thank you very much for your attention today.