Infrastrutture Wireless Italiane SpA

MIL:INW

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the INWIT First Quarter 2022 Financial Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Fabio Ruffini, Head of Investor Relations. Please go ahead, sir.

[Fabio Ruffini, executive]

Good evening, everyone. Thank you for taking the time to join us for INWIT's Q1 2022 Results Conference Call. With me today are Giovanni Ferigo, our Chief Executive Officer; and Diego Galli, our Chief Financial Officer.

Before we begin, please allow me to draw your attention to the safe harbor statement on Page 2 of the presentation. Following the presentation, as usual, we will be happy to take your questions. Over to you, Giovanni.

[Giovanni Ferigo, executive]

Thank you, Fabio, and welcome, everyone. Just over 2 weeks ago, we presented a strategic update confirming our business plan targets with more visibility on growth, also supported by the positive external scenario and a harder acceleration in 2022. Today's results show a further step up in revenue growth, earnings expansion, and cash generation. All metrics are materially up year-on-year at top level in the industry in organic terms.

We achieved 9% growth cruising speed needed to meet our 2022 guidance, and we expect limited volatility across quarters. This is consistent with our business model. On industrial KPIs, new sites and new PoPs, we continue to expand our infrastructure. PoPs' growth was 9% year-on-year, although [indiscernible] with a rise in Q1. This is due to timing of new contracts in the context of still positive structural demand. Current pipeline allows us to say that from the second quarter of the year, we will show a material improvement in new sites and new PoPs. We continue to benefit from positive trends in wireless infrastructure services. The Italian market needs to improve coverage to allow for 5G densification with positive implication for towers. Location owners need dedicated coverage with us.

To capture this demand, we count on an ecosystem of macro grid and micro grid and established commercial relationship with all players. We are a clear beneficiary of the current inflationary trend and our MSA is best in class. We see benefits already in this quarter.

Finally, important tenders for next-generation EU are now live. We are working hard to support clients and play an important role. So a material acceleration of financial KPIs to 9% revenue growth and a solid pipeline of new sites and new PoPs allow us to continue to be confident on our outlook.

Let's move to Page 4, Anchors. Anchor PoPs are up 8% year-on-year on the back of the new sites and acceleration of the common grid. We added nearly 3,000 new tenders over the last 4 quarters. This is a key feature for INWIT, the partnership with TIM and Vodafone in the technological shift to 5G and the network optimization.

After a strong Q4 with 170 new sites, Q1 2022 was softer. The lower PoPs in Q1 are related to timing, not underlying trends. Operational plans continue to be strong as visible in the delivery pipeline and in line with the contractual commitments of MSAs. We are working to reduce quarterly volatility of industrial KPIs. We have a new organization and processes in place.

We confirm the expectation of an acceleration of new sites and new PoPs in Q2 2022, aiming to reach more than 500 new sites in the current year.

Turning to our other client on Page 5. Tenancies by other clients were up in the double digits year-on-year for a total of more than 1,300 in the last 12 months. This is one of the best organic performance trends in the sector.

Structurally, our assets are attractive to all operators in the market because of the location and technology. Beyond MNOs, there is a wide client base interest in placing active equipment and sensors on our towers for a limited incremental cost and low electromagnetic spectrum emissions.

After a pick up in the later part of this last year, Q1 new PoPs were below our expected run rate, discounting mainly 2 factors. [indiscernible] asset clients, as reported by the press, there were several corporate and organizational changes, which ruled down the contractualization of new PoPs. We believe this is temporary and our discussion with clients confirms it.

Also, we keep on working to strengthen our organization and processes on the technology and commercial front. The objective is a more stable delivery of new PoPs going forward.

Regarding MNOs, we continued to have the PoPs in towns below 55,000 operations. No material update on the remedy front. As you know, our short-term and medium-term target are derisked from this factor. There could be upside in case of a quick resolution of the ongoing legal dispute in [indiscernible] sales.

Finally, based on the current pipeline, we expect [indiscernible] new PoPs to be more than 400, a material acceleration from Q1 and more in line with our run rate.

Moving to new services on Page 6. New services was a key contributor to growth in 2021 and a similar trend is expected for the current year. There are synergies between INWIT's ecosystem of macro grid tower and micro grid for dedicated coverage, thus, [indiscernible] a material opportunity to provide better coverage on high-density areas in need of optimal network capacity and [indiscernible].

We are well positioned to capture this demand because of our location and relationship advances with our 2 anchors. These results are evident from the revenue run rate. It's more than doubled over the course of the year because we added more tenants on to our installed base and other new assets.

There are more than 3,000 locations in Italy, which will need to be covered by 2026, and we target about 1/3 of the market.

Over the course of Q1, we added new projects, mostly in the health care and entertainment verticals.

Also, there is a material opportunity in rail and road infrastructure coverage. Today, we covered about 1,000 kilometers of road and highway tunnel and we monitor the market for additional opportunities.

Going forward, we expect a further pickup in new services, which will grow at the rate above INWIT's average in the coming years, also supported by the next-generation EU.

With this, I hand this over to Diego to discuss our edge in the inflationary environment. Thank you.

[Diego Galli, executive]

Thank you, Giovanni. Good evening, everyone. In the quarter, we posted a 9% organic revenue growth. And before discussing quarterly financial, I would like to do one of the key drivers behind this result.

In an inflationary environment, the INWIT on-prem sales are well structured to offer both downside protection and upside potential with 0% floor and no cap. The positive effect of this structure in our accounts is only starting to be visible in Q1 2022. Following the plus 1.9% average inflation in 2021 and will support us going forward.

In terms of inflation impact on financials, I would highlight the following. Revenues and costs are all linked to CPI, which means that as inflation grows, we retain a meaningful margin.

Energy costs are borne by our clients. We are a pass through in our P&L, so no impact from the recent trend in energy prices.

Currently, we are experiencing some headwinds in our CapEx cost due to the rising cost of raw materials like steel, though the impact is now material. These contractual provisions mean that for every 1% increase in inflation, we have a positive sensitivity of more than EUR 5 million EBITDAaL. Our business planning assumptions are fairly cautious for inflation. We assume 1.9% average yearly inflation in '22 and '23, with an impact in '23 and '24 P&L. As you know, Italian CPI is currently running much higher.

Let us now move to Page 8 for the P&L. Q1 results delivered a further acceleration in all financial metrics with better organic growth, margin expansion and reduction in leverage. INWIT business model shows its resilience and is able to manage short-term volatility in this the new PoPs. Organic revenue growth improved materially for the fourth consecutive quarter, going from 3% to 9% organic growth, and we are satisfied with these financial results, achieving already in Q1, the growth implied by our 2022 guidance. The coming quarters of the year, we'll have a similar growth rate. We will keep on adding revenues to our run rate and keep decreasing speed in organic growth. Despite the growing comparison base, growth in the quarter was focused on anchors on the back of new sites and PoPs in recent quarters, inflation and more commitments.

OLO [indiscernible] discount other technical services such as upgrades and installation, which were particularly positive in the last quarter of 2021.

New services were rather flat and they are expected to pick up over the course of 2022. Cost control, particularly in ground leases, which were rather stable despite the asset expansion in the [indiscernible]. So cost control allowed us to further expand the EBITDAaL margin to 67%.

Net income growth of more than 50% was supported by an optimized cost of financing and lower taxes due to tax scheme with a tax rate of approximately 12%. We expect the full year 2022 tax rate to continue to be approximately 12%.

Let us now move to cash flow on Slide 9. Cash flow generation was solid in the first quarter, with recurring free cash flow up 36% year-on-year. This was achieved thanks to EBITDA growth, low recurring CapEx, and slightly positive net working capital, which more than compensated higher risk cost payments due to the standard lease payment cycle.

And it is typical for Italian corporates tax payment in Q2 and Q4, where we will see the benefits of the tax gains. Gross CapEx includes cash out for the highway tunnel investment closed in July last year.

Cash generation led to leverage reduction from 5.5x net debt to EBITDAaL at year-end 2021 to 5.3x in Q1. This continues to be highly cash generative and to count on long-term high visible cash flow, supportive of as leverage between 5x and 6x. We progressively create balance sheet flexibility, help leverage [indiscernible], which gives us optionality to push on growth or to increase shareholder remuneration.

In summary, despite temporary factors impacting industrial KPIs, a solid quarter from the financial point of view with acceleration in growth and margin expansion.

Giovanni, back to you.

[Giovanni Ferigo, executive]

Okay. So the acceleration financial we recorded in Q1 is consistent with our guidance. We continue filling new sites, adding PoPs antennas on our micro grid for dedicated coverage and supporting organic growth. Inflation will have a positive net effect and efficiency gains will drive double-digit EBITDAaL expansion. Recurring free cash flow will be up strongly on the back of margin growth and tax schemes, in which we'll deliver high single-digit revenue growth, double-digit margin growth, and having higher cash flow generation, combining strong MSA inflation rate, clear source of committed growth and strong asset attracting demand from all market players.

Over the course of the past year, we made significant progress to build a platform for growth, which now is starting to deliver its full potential.

Let's now look at our key attributes in the next page. Towers are among the few [indiscernible] connected in the INWIT assets, and there are new opportunities to provide value at the infrastructural services. We have plenty of growth opportunities, and they are becoming more and more visible. Our track record has become more substantial quarter after quarter, reaching 9% revenue growth.

Short term, we are focused on execution, improving the run rate of industrial KPIs and refining our operational and commercial processes to be able to serve the positive demand in the market in a more stable manner. We can count on best quality assets, macro and micro grid working together to provide coverage, capacity and enable advanced applications indoor and outdoor. Clear growth drivers with 2 anchors and multiple other categories of clients, a supportive external scenario with structural demand and next-generation EU funds and optionality from capital allocation.

With this, I thank you, and we will now take your questions.

[Operator]

[Operator Instructions] The first question is from Roshan Ranjit with Deutsche Bank.

[Roshan Ranjit, analyst]

I actually got 2 very quick ones, hopefully. Firstly, you've decided to [indiscernible] the guidance more, I guess, the midterm guidance at this stage. I appreciate it is Q1. But that is running with your 1.9% CPI assumption for FY '23. And currently, as you said, CPI initially is at 6.5%. So I mean, at what stage do you feel comfortable in moving that assumption up? I mean, I guess it will come later in the year, we're talking about a kind of Q2, Q3. What I guess is preventing you at this stage from lifting that higher?

And secondly, just a quick one. On the lease negotiations. I haven't seen, maybe I missed it, the data points in your presentation. How many lease buyouts or negotiations did you do this quarter? And are you seeing a bit more maybe opposition from landowners in negotiating given the higher inflation environment? Or are they still very happy to negotiate with you and maybe even more happy to sell it out to you.

[Giovanni Ferigo, executive]

Thank you, Roshan, for the questions. With regard to, let me see, inflation, yes, we will talk again in the next month [indiscernible]. Honestly, we'll wait for a few more months of actual data. And it's that clearly, I mean, the number you mentioned is the actual so far. And I think we have been very clear in disclosing the impact of 1% inflation on our revenues and EBITDAaL. So again, let's wait till some echo point. And yes, in the future that will be reflected in our outlook.

With regards to ground lease cost. Yes, [indiscernible] in the quarter. Clearly, there is a lot of work clearly behind those numbers and a lot of work done in, let me say, distributed manner by many people across the land. As you know, we've got a very segmented owner base. So there are a lot of one to one deals, which make the total number. So there is a little bit of variability and volatility across the quarter. Though the environment is still positive, we are able to continue to maintain our cruising speed, our number.

And let me say, it's interesting to see that the total cost despite the increased asset base, let's talk about additional size, let's talk about the infrastructure related to tunnels is still going down. And actually, we are already in line with the 2023 total cost target. So it's clearly, -- we already shared in the past, this is an action, a program, which is giving us very good results.

[Operator]

The next question is from Fabio Pavan with Mediobanca.

[Fabio Pavan, analyst]

Just one, if I may. I was wondering if you can provide us some more color on the pipeline you were mentioning for Q2, as of acceleration of [indiscernible].

[Giovanni Ferigo, executive]

Thank you, Fabio. Okay. As we said in the presentation, in Q2, we see the pipeline very consistent with numbers. Our clients are confirming the need to be offered in our towers. And so our, let me say, forecast is to gain 400 new PoPs for, let me say, OLOs; and to build more than, let me say, 400 new sites in addition to the 50 that we will do, okay? This is our very, very -- I'm very, very confident in the pipeline. Regarding the new sites, our target for the full year is around 500 new sites at the moment.

[Operator]

The next question is from Andrew Lee with Goldman Sachs.

[Andrew Lee, analyst]

I just had a question around contract renegotiation risk. Obviously, very clear and positive [indiscernible] you have in an inflationary environment. So just wanted to ask around, is there any risk to that outlook from any of your contracts coming to an end and the operators renegotiating the no cap clauses? And then maybe I just didn't hear it correctly, but to Roshan's question on the ground lease negotiations you're having with landowners. Obviously, you've been able to talk down the actual inflation you pay on those costs this year and in the past. Are you seeing any push back or any change in behavior from landowners that you're speaking to at the moment.

[Giovanni Ferigo, executive]

Yes. Thank you. With regards to the MSA revenue index to inflation. It's a contractual process. It's clear and there is no room for renegotiation. So it's straight forward, and as I said, no room for renegotiation.

So 1st of January, we applied the 1.9% rate that we have seen in 2021. So starting from Q1 2022, we have started the standard regular approach, which we see every new year to apply the average inflation rate of the previous year.

With regards to ground leases, actually, there are 2 different dynamics. One is the dynamic driven by inflation, which is actually, by the way, a little bit, again, fragmented compared to the top line revenue. So the adjustment to inflation, our contracts are 75% indexed to inflation, but the adjustment to inflation is standard, it's regular, [indiscernible] revenues. And there is no direct link with the current cycle and continuous cycle of renegotiation, continuous cycle of land buyout. These 2 things are not actually connected. So we are going on the standard program, the continuous program of both land buyout and negotiation. So actually, so far, we have not seen any change in the environment.

[Andrew Lee, analyst]

Okay. Can I just -- on the first question, your answers around your own price inflation. The question was more, are any of your contracts, in terms of material proportion contracts, actually coming to an end and, therefore, subject to renegotiation or any risk on that side of things?

[Giovanni Ferigo, executive]

Yes. Actually, my answer was mostly related to the MSA, which is clearly the majority of our revenues and where we have the close of 0 floor and no cap. The other contracts with the other players, obviously, the conditions are different generally. With all of the inflation, index is 75% of inflation. And honestly, this is a standard practice in the market since [indiscernible]. There is a logical reason for that because also ground lease costs, as we said, are indexed inflation. So as we know [indiscernible] that, it's a standard practice in the contracts, and actually, we don't see any pressure from this perspective.

In terms of renewals, yes, there is a standard cycle of renewals. We don't see any peak or any different trend in terms of renewal cycles. So the cycles of renewal will continue as in the past, including the growth related to inflation.

[Operator]

Next question is from Jakob Bluestone with Credit Suisse.

[Jakob Bluestone, analyst]

I just had a couple of questions. Firstly, just on your cash flow. You reported a EUR 33 million positive working capital movement, which is sort of quite a large contributor. So this is below recurring levered free cash flow. Can you maybe just share with us what does that relate to? And will that reverse?

And then also, you mentioned a couple of times on the call that you saw a reduction in the quarterly volatility of KPIs. Can you maybe just detail what are some of the steps you're taking to reduce that? Yes, I'll leave it there.

[Giovanni Ferigo, executive]

Yes. Now with regards to the first question, Jakob, this is referring to the movement of working capital below recurring free cash flow. So free cash flow to equity, yes, it's something that actually will be reversed in the next quarter. So timing is temporary, it would be reversed in the next quarter.

Sorry, and your second question?

[Jakob Bluestone, analyst]

Yes. You mentioned a couple of times, I think Diego mentioned a couple of times that you expect to reduce the quarterly volatility of new PoPs going forward. And I was just wondering if you could explain how?

[Giovanni Ferigo, executive]

Yes. Just 2 perspectives on this. I think it's nice to see how we -- I mean, there is no volatility anymore of revenues. And the trend is quite stable, consistent, and the activation of the multiple growth drivers, which has been done actually last year, this study shows the strength and the resilience of the business against stability to the growth profile despite the volatility of the PoPs and despite some, I can say, up and down on the different line. So the effect for us is absolutely relevant to see the consistent resilience of the revenue [indiscernible] trajectory.

About industrial KPIs, okay, as you know, we are very focused on this item. As you know, we changed our organization in the first month of the year, and we are improving the process to deliver, to be more stable in the numbers of the industrial KPIs. So let me say, I am confident that from the second quarter, third quarter, fourth quarter, we have to gain -- we will gain a stability in this, let me say, KPIs. About the site, I know there is a lot of, let me say, problems with the permit, with the timing, but now, let me say, the trend is going towards a stable, when you say, feed of permits to their local authority to permit to us to be more constant and deliver the sites -- new sites, the hospitalities, the common grade, let me say. This is our target for the second, third, and fourth quarter.

[Operator]

The next question is from Georgios Ierodiaconou with Citi.

[Georgios Ierodiaconou, analyst]

The first one is more of a follow-up around the new sites and the third-party PoPs. I just wanted to clarify, for the target of 500, whether you expect it to be relatively linear already from the second quarter, or whether we could more, like [indiscernible] last year, a lot of this has been added towards the end.

And similarly, the comment you've made of more than 400 new PoPs on third parties. I was just wondering whether that is kind of target for each of the quarters? Or is it more for the second quarter? And if you could comment at all on the mix between MNOs [indiscernible].

[Giovanni Ferigo, executive]

Thank you, Georgios. So new site, okay, our target is 500 within the end of the year. When you see, during the second quarter, we start with more than 100 sites. It's all to be constant in the other quarters to gain the 500.

Regarding the, let me say, hospitality of third parties, okay? In the second quarter, our target is 400, that we have to maintain this pace for Q3 and Q4 of the year.

So let me say, it's only a question of our, let me say, organization and processes that just these days are giving us good results.

[Georgios Ierodiaconou, analyst]

If I could ask a follow-up based on what you said about cash parts and also new site. Your guidance obviously is for around 9% growth for the rest of the year. I just wanted to ask if within that guidance you exclude any small acquisitions you may do. Whether DAS or any other kind of arrangement, that's what you did with Vodafone last year, or if you were to do any of those kind of transactions, whether that 9% would accelerate much higher given the contributions from those deals.

[Giovanni Ferigo, executive]

I mean it's difficult to say at this stage. So the approach that we have actually in terms of small acquisitions is that basically, they are considered organic as part of the guidance when it is done the same -- when instead of building a new DAS, actually we buy, so that's somehow equivalent. So there could be some cases where we buy instead of building. So it's actually not additional, but is replacing what we have in our CapEx.

There could be also something more that is not included in the guidance, but let me say this at this moment is difficult to say.

[Operator]

Next question is from Stefano Gamberini with Equita.

[Stefano Gamberini, analyst]

A few questions also from my side. First of all, regarding the new sites, you expect 500 new sites this year. Last year, they were around 360. So this means more or less 1,000 between '20 to '22. So if I'm not wrong, you need something in the region of 800 sites next year to reach the target you have. So could you confirm this acceleration also next year? Or do you see some risk on this side -- on this topic?

The second question regarding the acceleration of new PoPs that you're expecting for the coming quarters, if I'm not trying to reach the target 2023 of total 11,000 new PoPs from the anchor tenants and 810 from OLOs. You need to have in the region of 1,500 new PoPs per quarter. When you expect to rise to this level of new PoPs per quarter?

And the very last one regarding what are the contract penalties for 2 anchor tenants if they do not meet the commitment of 11,000 new PoPs they agreed with you by 2023.

[Giovanni Ferigo, executive]

Okay. Thank you, Stefano. Okay, new sites. Okay. The target of this year is 500, okay? And so we are confident to gain the important this result. But just today, we are working in terms of designing and presenting permits for 2023, where our targets are 800 new sites. So let me say, we confirm the number that you said.

[Diego Galli, executive]

On the PoPs cruising speed, yes, Stefano, actually, as you pointed out, so far, we have been constantly higher than 1,000, basically between 1,100, probably 1,200, which has allowed us actually to grow total comps by 9% at this stage. So it's a significant step up, but not yet at the cruising speed needed to achieve the target and actually we need a further acceleration, which is basically depending on 2 things. We see the demand from customers, though in some cases, in this quarter, takes more time to contractualize, to finalize the contractualization of the estimated demand.

Also as Giovanni said, we are working to shorten the end-to-end cycle to deliver the contracts and down by the way also to the invoicing.

So the third element, which will help us is the same simplification that actually is becoming a little bit more concrete in accelerating the end-to-end cycle. So we think that there is room, and the chance, the possibility to achieve this target, difficult to say exactly when. Therefore, actually, we are playing with numbers, and we are playing sensitivities. Let me just point me out that actually this gap of basically 150, 200 hospitality would mean that we achieve the target 1 quarter or 2 quarters after, which actually would have a limited impact. And actually, so far, somehow we have been able to compensate to other growth engines.

So I think that for me this quarter, it is interesting really to see how somehow the strength of the weight of the growth engines that have been put in place are able, as we said, to mitigate short-term variance volatility of KPIs and somehow also the fact that we have been slightly behind the target has not been impacting significantly the revenues.

I finished just saying that so far, we talked a lot about the year, which actually has been the main cause for the gap of last year. And as we shared last quarter, we have planned to compensate and to replace it to other sources of growth, which are visible in the pipeline.

So long story short, yes, we need to further accelerate. I cannot say at this stage when we will achieve the cruising speed. Even in worst case that will take a little bit longer, or we will get there a little bit later, it's just a question of short term, 1 or 2 quarters, with a neutral impact on the revenue growth.

About the third question, let me say, I'm absolutely confident on commitment by the anchor because, let me say, it's something that is useful for them in terms of 5G network, special coverage, and so. About penalties, there is no public disclosure. So let me say this is the question that I can say to you, Stefano.

[Stefano Gamberini, analyst]

Just a quick follow-up. In the case that you take more time to reach the 800 new sites. Do you see some risk on that point that it takes a longer period for that. So there are some risks on this or on the topic you're seeing to be on track?

[Giovanni Ferigo, executive]

No, no. As I said previously, we are just working now for the 2023 presenting the design for the municipalities, gaming, asking the permits. So let me say, this path is very clear. Our base pipeline is clear. I'm really very, very confident to gain numbers for the next year.

[Operator]

Gentlemen, this concludes the Q&A session. Back to you for any closing remarks.

Apologize, we have another question from David Guarino with Green Street.

[David Guarino, analyst]

The question is, it seems like you're going to generate some excess free cash flow relative to your long-term guidance ranges just due to some conservatism in those CPI-linked escalators. Can you talk about the capital allocation strategy with any additional proceeds.

[Giovanni Ferigo, executive]

Let me say, we have a very, very severe discipline in our, let me say, capital allocation, okay? Let me say, today, our focus is based on real estate or land buyout, road, rail, [indiscernible] infrastructure, DAS, and more portfolio of, let me say, macro sites that are really [indiscernible] in Italy, okay? What we did today, finally, around EUR 70 million highway tunnel investment in July, as you remember, that gained more than EUR 10 million revenue run rate in line with our average profitability. And so with, let me say, industrial fit with revenue that we are gaining.

Okay. Now so -- our, let me say, attitude, let me say though, is, we are looking for clear industrial synergies and more plus, let me say, aggression. We know very well the business. We are the only organic growth company in the market. So let me say that we are totally concentrated in the core business or in adjacent technologies.

For the, let me say, our region, in Italy, if there is something interesting or, let me say, Europe, not outside Europe, and let me say, there is a rate of discipline that are absolutely in line with our cost of capital. So let me say this is our strategy. We are analyzing, we are studying, and at the right moment, for the right action, we will act.

[David Guarino, analyst]

That's helpful. Good to know opportunities exist for growth. And maybe one final one probably for Diego. I know you've spoken of targeted leverage levels for the company, but do you have a desired mix of fixed versus floating rate debt.

And then lastly, can you just comment on what current unsecured borrowing rates for INWIT look like today? And if the company has any intention to look for more permanent financing to replace some of the variable rate loans.

[Giovanni Ferigo, executive]

Yes. In general, we are fine with an 80-20 mix of floating and fixed we have today. And so yes, that's our, let me say, general approach. In terms of borrowing costs today, our average cost today is 1.7%. Now probably we are at about 100 basis points -- 80 to 100 basis points higher at current situation.

The profile, our rating profile is quite positive. We restructured the debt last year. So we don't have any termination, any duty in the short term. So we are all the time to eventually make decisions. We are monitoring the market, and we are assessing options if there is any opportunity to refinance the current debt. Yes.

So we are monitoring and looking at it, but what can we say, again, without any pressure, because we are in, I would say, a quite comfortable situation at this stage.

[Operator]

The next question is from Luigi Minerva with HSBC.

[Luigi Minerva, analyst]

I wanted to ask you, with the changes in the shareholding structure with the team significantly reducing their stake, do you expect any change in the priorities with regards to capital allocation? So for example, would shareholder distribution become more prominent in your priority list?

[Giovanni Ferigo, executive]

Luigi, we have a different plan that we presented on last 24th of February. So we continue in our trajectory. We don't perceive any change.

[Operator]

Next question is from Abhilash Mohapatra with Berenberg.

[Abhilash Mohapatra, analyst]

Apologies if these have been answered earlier. The first one was just on 2023. So obviously, [indiscernible] has discussed quite a big step-up in inflation potentially next year in your MSA contract. I was just wondering, in terms of the other growth elements, could we see your customers maybe dial down some of the growth plans just to sort of limit the total amount that they pay you next year.

And then secondly, and sorry if this has been asked earlier. What gives you the confidence on the sort of 400 new PoPs per quarter target -- OLO PoPs target from Q2?

[Giovanni Ferigo, executive]

With regard to the first point, actually, there are, I'm going to say, different contractual chapters, different elements in the contract and there is no MSA contract, and there is no way to [indiscernible] to compensate one colleague with the others. So there are different elements. Each of them is specifically regulated. And as I said, there is no way to compensate one with the other.

About let me say the commercial pipeline. We got in touch with each of the CEO of our OLOs clients, [indiscernible] larger MNOs. They confirmed the interest to be offered in our tower. So let me say, the second quarter is strong and [indiscernible] ability to accelerate the hospitality of our clients. So we are very confident in the pipeline that we checked it and our customers confirmed the need.

[Abhilash Mohapatra, analyst]

Just a very quick follow-up then, just going back to the earlier question on the sort of big step-up, new site deployment that's implied for 2023, if you want to hit your previously issued target. Is that also a contractually sort of agreed element? So is that a guaranteed thing that there will be sort of 800, 900 new sites next year?

[Giovanni Ferigo, executive]

Absolutely, yes. The new sites are included in the commitment. It is our anchor. So let me say we are sure to had 2 customers in the new sites. And let me say, looking for the third that could be OLO or [indiscernible] assets or others that can be offered in our towers.

[Operator]

The next question is from Jeremy Dellis with Jefferies.

[Jeremy Dellis, analyst]

Two questions, please. You've commented in the past that the standard sort of lease fee from fixed wireless access and OTMO customers averages out at about 1/3 of the standard MNO fee. Given that there's quite a range of different customers in the fixed wireless access and OTMO bucket, how confident are you that, that sort of 1/3 ratio holds good through your medium-term guidance?

And then secondly, just returning to the issue of governance post TIM's sell down. You sort of appreciate that Ardian would not end up in a controlling position, but it will end up as a shareholder of significant influence more than in the past. So I'd be interested in what conversations you might have had with them? Or what are the circumstances under which they might be able to sort of force a change in strategy if they were so minded.

[Giovanni Ferigo, executive]

Jeremy, on the prices of OLO suite product assets and [indiscernible], yes, 1/3 is the reference. And so far, it's all going very well. And actually, we have done even slightly better in terms of mix supporting the overall revenues in terms of average prices. So yes, we are [indiscernible]. As I said, it is going so far very well and we are confident also for the future.

About Ardian, let me say, yesterday, in the Board, there was a representative of Ardian, one director, that approved the actual, let me say, industrial plan that is absolutely confirmed. There's no any, let me say, concept regarding the change of strategy we've done with [indiscernible] director. So absolutely no conflict.

[Operator]

The next question is a follow-up from Stefano Gamberini with Equita.

[Stefano Gamberini, analyst]

Two quick questions. With the proper termination of the shareholder agreement for the control of your company. Can you ask the renewal of the MSA contract to TIM or not? Could you confirm that you can't? And the second, can you provide some more granularity on the progress of COVID-funded tenders, what we can expect shortly. You said that you are working hard. And if you see some also slippage on the tenders or not.

[Giovanni Ferigo, executive]

About the shareholder agreement, nothing changed and nothing will change, I know. So let me say, TIM is will be 1 of the 2 most important customer for us. So let me say, we confirm absolutely independently for the shareholder composition. About the European funds, there are 2 important considerations. TIM [indiscernible] applied to Italy one [indiscernible]. They are 2 very important customers for us, and there is some potential for us to provide [indiscernible]. So this is an opportunity.

About the other 5G tender. It's at the moment [indiscernible]. So in any day we are starting, we cannot comment much because the deadline of the tender will be on Monday, 9, up to 15. And so let me say, we are working in a very different number of scenarios with our [indiscernible]. So it's totally live today, tomorrow, Saturday, probably Sunday to present our consideration.

[Operator]

Next question is a follow-up from Giorgio Tavolini with Intermonte.

[Giorgio Tavolini, analyst]

I was wondering if you could elaborate more on what is going on at TIM level. TIM team is going to break up the group into a service company [indiscernible] company. And I was wondering if you think it could affect the master service agreement with you in which level, or I mean if there could be some implication that you expect from these changes, operational changes, strategic changes as a team.

[Giovanni Ferigo, executive]

No. In my opinion, nothing will change, because independently, we are the mobile industry. [indiscernible] of TIM often will be replaced. TIM will ease and will remain our customer with the MSA, the commitment and, let me say, contribute to our industrial plan that we presented.

[Operator]

Gentlemen, there are no more questions registered at this time.

[Giovanni Ferigo, executive]

Thank you, everyone, for connecting.

[Operator]

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