Read this article to learn:
- Details of Vantage Towers' IPO and inaugural bond
- Key performance metrics and how they compare to short-term and mid-term targets
- Vantage's independence from Vodafone and how customers have viewed this
- Progress in ground lease cost optimisation
- The benefits derived from Vantage's involvement in joint ventures
- The shape of Vantage's M&A appetite
- Opportunities in adjacent assets and services
The entrance of Vantage Towers has created an exciting, ambitious and sizeable new player in Europe’s dynamic tower market. In less than 12-months the towerco, with 82,000 towers in eight markets, has established their management team, strategy and processes, entered into two joint ventures, completed a major M&A deal, listed on the Frankfurt Stock Exchange and issued an inaugural bond – all in the midst of a global pandemic. Organic growth is very much on track, with the strong revenues from non-Vodafone customers demonstrating that any concerns over a lack of independence from Vantage’s parent company are unfounded, and cost optimisation efforts are well underway, further improving Vantage’s bottom line. After such a stellar year, TowerXchange was delighted to sit down with Vantage Towers’ CFO, Thomas Reisten to discuss the company’s growth trajectory.
TowerXchange: Please can you introduce yourself and your path to becoming the CFO of Vantage Towers
Thomas Reisten, CFO, Vantage Towers: I have 23 years of industry experience and have worked in a number of finance roles in different countries. I’m originally from Germany and spent the first part of my career there, before the opportunity arose to work abroad. My first international assignment was in Japan which was a fantastic personal and professional experience, particularly from a cultural diversity point of view. From Japan I then moved to Romania before taking my first CFO role at Vodafone Ireland.
Then onwards I had the opportunity to take over the CFO role at Vodafone India. At the time, India was a very exciting place to work, with a lot of turmoil following the entrance of a new competitor into the market. There was a big focus around cost optimisation in what was a very sizeable and complex business; there was also a lot of work around preparing for the merger between Vodafone India and Idea Cellular (another operator in the Indian market.) During my tenure I was also appointed to the board of Indus Towers, a sizeable tower company with over 130,000 sites. This opportunity gave me a great deal of insight into the tower business; how to maximise top line revenues, optimise the bottom line and how to be customer oriented towards the MNOs. I was lucky enough to also oversee the sale of Vodafone Idea’s remaining towers to American Tower, and this provided me with a valuable insight into the M&A space.
It was in my role at Vodafone India that I first met Vivek [Badrinath – Vantage Towers’ CEO], who was Regional CEO for AMAP. I joined as CFO for AMAP and we worked together across a number of opportunities. When the opportunity arose to work alongside Vivek at Vantage Towers it was impossible to turn down. Starting a new company, working towards an IPO – it was a very exciting opportunity!
TowerXchange: Firstly, congratulations on Vantage Towers’ IPO – can you talk us through the path to the IPO and some of the key metrics
Thomas Reisten, CFO, Vantage Towers: The IPO comes as the culmination of an 18-month process, and whilst it has been a large project that has been going on for a long time, in IPO terms, it has been executed very quickly and during exceptional times. We have taken the company from formation to IPO whilst working from our home offices, our kitchen tables, our bedrooms. We have managed to legally separate towers in 8 markets, completely build a new company, form a management team and recruit the operational team whilst working virtually. We have built systems and processes, things that would usually be done with the team standing around a white board, whilst all based remotely, and created a new strategy and a very exciting new brand. It has been a fantastic achievement.
On 18 March, we listed on the Frankfurt Stock Exchange with a market capitalisation of over €12bn. We issued just over 92mn shares to our investors at €24, raising €2.2bn in capital implying a free float of 18.3% with Digital Colony and RJJ as anchor investors in the process, helping to provide positive momentum and demonstrate the demand for Vantage Towers shares. After the IPO, we also placed a €2.2bn inaugural bond at very attractive borrowing rates which positions us well in terms of finalising our capital structure and funding.
TowerXchange: It has been almost a year since Vantage Towers was established, can you provide some of the key milestones as well as performance metrics of the company to date?
Thomas Reisten, CFO, Vantage Towers: By the end of Q3 we had 82,000 towers (including Cornerstone and INWIT) and had grown in size over the year by the addition of the two joint ventures. What was most reassuring in the third quarter was the commercial momentum that we have been showing, adding 1,400 tenancies of which 1,100 were non Vodafone tenants. This emphasises that we are open for business not only with Vodafone but also with others, third parties are trusting us to host their equipment dispelling concerns around independence. In Ireland for example we have won contract with Eir and Three– both of these are competitors to Vodafone – and in Germany we signed a deal with IoT player Sigfox. Our tenancy ratio in our 8 consolidated markets stands at 1.39x 9M FY21PF compared to 1.37x at FY20PF.
We remain on track to meet our short term annual targets and are making very good progress on our mid-term targets where we are looking to achieve a tenancy ratio of 1.5x, growing revenue in the mid-single digit CAGR, looking at achieving a high 50s percentage EBITDAaL margin (from our guidance of 54% at 9M FY21PF) with a recurring free cash flow growth rate in the mid to high single digits.
When discussing our capital structure, it is important to note our dividend policy where we are paying out 60% of recurring free cash flow, and that includes both INWIT and Cornerstone dividends. In terms of leverage ratio we have been targeting 4x net financial debt/ EBITDAaL which gives us a billion euros of additional funding opportunities for organic and inorganic growth.
TowerXchange: Given the scale of the two companies and their prominence in the European market, comparisons are inevitably drawn between Vantage Towers and Cellnex, with emphasis often placed upon the involvement of an MNO in Vantage Tower’s ownership structure changing the profile of the company. Can you further speak to the relationship between Vantage Towers and Vodafone and to what extent Vodafone should be considered an anchor tenant like any other? What marked differences do you see between Vantage Towers and other towercos operating in the European market, what are Vantage Tower’s particular strengths?
Thomas Reisten, CFO, Vantage Towers: In terms of our relationship with Vodafone, our MSA sets out clear guidelines. It is a very balanced MSA with Vodafone which allows us to be a great platform to drive our future growth. In that context, growing our business in the non-Vodafone space is very important element as well, and is something that as aforementioned, we have been demonstrating.
Vantage Towers is very much an independent towerco. We have a two-tier board structure – with our supervisory board governing us as a management board. Our supervisory board is independent and acts only in the interest of Vantage Towers. We have a very experienced supervisory board in place, with Dr. Rüdiger Grube (the former CEO of Deutsche Bahn) acting as Chairman, with extensive experience in Germany and in how the independent governance of boards should be run.
On top of this, the Vantage Towers team has an incentive structure in place to drive non-Vodafone revenue. This ensures that the team are focussed on securing tenancies from other parties, operating as an independent company.
Turning to our strengths as company, it is important to look at our asset base and how we have been formed. We have been handed the assets of Vodafone who has been either the number one or number two operator across our footprint. We have sites in prime locations, increasing the attractiveness to our customers. With high quality sites available to our very strong commercial team, we are in a good position to monetise the asset base.
We have strong foundation to build off as increased coverage and densification requirements drive growth. Our new build programme of 7100 sites (5500 of which are in Germany) reflects this. We have set aside around €1bn in investment to deliver these sites, which after completion will deliver an additional run rate EBITDA of €130mn on an annual basis.
Vantage Towers’ industrial model is also a key differentiator from other players in the market. Our teams have the capabilities and the processes to rollout their own towers, allowing us to place towers where we need them, design them as we want, and drive the cost optimisation overall in their deployment – driving higher profitability.
TowerXchange: Ground leases account for around two thirds of Vantage Tower’s cost base and there is a significant cost optimisation strategy underway. Can you further elaborate on this strategy, what are the targets/ goals and what progress has been made to date?
Thomas Reisten, CFO, Vantage Towers: It is important to look at this in the context of our overall cost optimisation strategy. If you follow the guidance, we’re aiming to increase our EBITDA margin from 54% to the high 50s. There are two components to do this: one is to drive lease rates up to improve profitability, the other is cost optimisation. We have a number of cost optimisation initiatives underway, from rolling out remote monitoring to reduce site visits and maintenance costs to energy efficiency initiatives such as the rollout of free cooling solutions. As you have mentioned however, the largest component of our cost base is leases. We are carrying out a number of initiatives to tackle this, renegotiating contracts and driving ground lease buyouts. We have set aside a €200mn investment programme to target 10% of the sites across our footprint over the medium term, aiming to acquire land or longer-term rights of use for those plots. This will help us drive down overall lease cost. We have already launched pilots in Spain and Germany and have seen a good level of interest from landlords. We have since launched initiatives in four additional countries and will broaden this even wider as we look to target those 10% of sites.
TowerXchange: Vantage Towers is involved in two joint ventures, namely INWIT and Cornerstone – can you explain the structure of those joint ventures and how they are managed operationally
Thomas Reisten, CFO, Vantage Towers: We have two joint ventures, namely INWIT in Italy (in which we have a 33.2% stake) and Cornerstone in the UK (in which we have a 50% stake). Both of these assets are co-controlled. As part of this, we have appointment rights to the board: I, for example, serve on the board of Cornerstone.
Both INWIT and Cornerstone are great assets which are really important parts of our business. As well as the financial contribution of these assets, the exchange of best practice between Vantage Towers and these two companies is very important. If you look at the UK for example, Cornerstone have been very successful in deploying street furniture – we can take learnings from this and apply to our other markets. In Italy, INWIT are very strong in DAS and small cells and have also been very successful in lease cost optimisation – something we can once again learn from.
TowerXchange: In terms of M&A opportunities what is Vantage Tower’s outlook? Orange has hinted at an appetite to explore the potential formation of a joint venture with other MNO owned towercos, naming Vantage Towers in these comments – how do you consider such opportunities? Following the Wind Hellas deal do you see similar opportunities to acquire MNO owned portfolios in other markets? What about the acquisition of towerco owned towers?
Thomas Reisten, CFO, Vantage Towers: Whilst the company´s guidance and business case is driven by our strong organic growth, M&A is an element that we would look at. The €1bn in incremental leverage from increasing our leverage net debt/ EBITDAaL from 4x to 5.5x (whilst still remaining investment grade) provides us with the fire power to participate in M&A. For the right opportunity we would also be able to issue further equity.
In terms of our priorities for M&A, our current asset structure gives us a leading position in our markets. Any merger or acquisition needs to be a good strategic fit and must create value. In-market consolidation would have to be accretive to our existing assets. If you think about expanding into new territories, we would be looking for leading, top quality assets in those areas.
In terms of the Wind Hellas deal, we created a great asset which is the market leader with two strong anchor tenants – this is a great platform from which to build future growth.
There is clearly a case for further consolidation across some European territories and we would be interested in exploring some of the assets – be they owned by MNOs or by other shareholders. It comes back to the same thing however, they must be high quality assets, leading assets with a good strategic fit that are value accretive for Vantage Towers.
TowerXchange: RANsharing is playing a more significant role in the European market. Can you explain the impact that this has on Vantage Tower’s portfolio? Do you foresee a role for Vantage Towers to play in the management of RAN equipment further down the line?
Thomas Reisten, CFO, Vantage Towers: Let’s take this question in two parts. Firstly, you have to ask, what is our purpose? Vantage Towers aims to power Europe’s digital transformation. We enable sharing, so active sharing is something that we should be helping MNOs with. For us, active sharing is a real benefit – we get an active sharing premium when two operators enter into an agreement which helps offset the loss of a tenant. On top of this, the decommissioning that arises as a result of active sharing offers a further opportunity, enabling us to optimise our cost base. If you look at our portfolio, Spain and Portugal are embracing active sharing and we are seeing real benefits. Active sharing also has an impact on energy consumption, driving down our carbon footprint and impacting ESG in a positive manner.
In terms of whether Vantage Towers will get involved in the management of RAN equipment, we continue to evaluate adjacent services and what options make sense for us and our customers.
TowerXchange: Finally, speaking of adjacencies, whilst we have spoken largely about Vantage Towers’ macro-tower business, what is Vantage Towers’ plans to expand into new asset types and services? What contribution do you expect these to make to your financials?
Thomas Reisten, CFO, Vantage Towers: Our current guidance doesn’t rely on adjacencies, with the strongest elements being around our committed build-to-suit pipeline of 7,100 sites, the inflation linkage built into MSAs and the driving up of our lease rate from 1.39x to our medium-term target 1.5x. Adjacencies can provide a great upside as they’re not included in our current guidance. As such, we are engaging in understanding how we can leverage adjacencies further. As mentioned previously, INWIT have been very successful in this regard, particularly around small cells and DAS and so we are taking learnings from them. Our partnership with Sigfox is another great example of Vantage Towers exploring adjacencies, analysing what else we can do in the IoT space.
Vantage Towers are platinum sponsors of the 5th Annual TowerXchange Meetup Europe, taking place virtually on 25-27 May. Tune into a keynote address from CEO Vivek Badrinath, participate in interactive roundtable discussions and working groups with the management team, and schedule one-to-one meetings to develop relationships further. For more information please visit https://meetup.towerxchange.com/europe