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Edited Transcript of CLNX.MC earnings conference call or presentation 15-Nov-19 8:30am GMT

Nine Months 2019 Cellnex Telecom SA Earnings Call

Barcelona Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Cellnex Telecom SA earnings conference call or presentation Friday, November 15, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* José Manuel Aisa Mancho

Cellnex Telecom, S.A. - CFO & Corporate Development Director

* Juan Jose Gaitan Mañoso

Cellnex Telecom, S.A. - Head of IR

* Tobias Martinez Gimeno

Cellnex Telecom, S.A. - CEO, MD & Director

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Conference Call Participants

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* Andrew J. Lee

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Fernando Cordero Barreira

Grupo Santander, Research Division - Equity Analyst

* Giles Thorne

Jefferies LLC, Research Division - Senior Research Analyst and Technology Research Analyst

* Henrik Herbst

Crédit Suisse AG, Research Division - Research Analyst

* James Edmund Ratzer

New Street Research LLP - Europe Team Head of Communications Services & Analyst

* Luigi Minerva

HSBC, Research Division - Senior Analyst

* Ottavio Adorisio

Societe Generale Cross Asset Research - Equity analyst

* Roshan Vijay Ranjit

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [1]

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Good morning, everyone. My name is Juan Gaitan, Head of Investor Relations at Cellnex, and I would like to thank you all for joining us today for our Q3 2019 results conference call.

Today, I'm joined by our CEO, Tobias Martinez; and our CFO, José Manuel Aisa, who will lead our presentation today. Yesterday, we released a document, which we will refer to throughout our prepared remarks, and then we'll open the line for a Q&A session.

So now I'll hand over to Tobias Martinez. Please, Tobias?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [2]

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Thank you, Juan. Good morning and thank you so much for your time today. I would like to start sharing with you the main highlights of the period, which apart from the M&A and capital structure announcements, you are already aware of from a pure operational point of view, has been marked by a strong organic growth and a solid financial performance.

We continue to deliver on organic performance posting a very solid growth. And I would like to emphasize that Iliad continues to generate the majority of new colocations in Italy, showing a strong commitment with Cellnex. And that we are also hosting new clients in our more recent markets.

Our strong financial performance is the result of our organic growth, our focus on efficiencies and the contribution from new portfolios. Revenues have increased 13% when compared to the same period last year. Same for our adjusted EBITDA and our recurring leverage free cash flow has increased a robust 12%, with our backlog reaching EUR 38 billion, including the contribution of all announcements deals.

Thanks to our unique industrial model, Cellnex has the right processes and resources required to make sure that our integration efforts keep pace with our growth strategy. We are becoming the partner of trust of our customers. Our industrial profile allows us to crystallize agreements based on bilateral negotiations. And in our experience, we are confident that initial agreements create a precedent for a more progressive relationship going forward.

Despite the high level of M&A activity seen this year, we are constantly assessing growth opportunities in line with our long-term strategy. And in this context, we have taken the necessary steps in order to significantly improve our financial flexibility.

And finally, we are updating our 2019 financial outlook to reflect the incremental contribution from the Salt towers transaction and other agreements in the year.

Moving to Slide #4. I would like to provide you with a quick summary of our recent capital increase. As you are aware, we have recently issued EUR 2.5 billion of new equity on the back of the Arqiva transaction and also the finance -- to finance the current pipeline of projects. And we are extremely happy with the outcome of this process. An outstanding 99.5% of rights holders have subscribed in the offering. Demand has exceeded 38x the supply of new shares, and our share price has been largely unaffected by the offering during the subscription period.

In summary, an outstanding execution, and we need to thank you all for your support.

Slide #5, just a quick update, where we show the result of our growth strategy. When the Iliad and Arqiva transactions are closed, Cellnex will further reinforce its leadership position in Europe by managing a portfolio of around 33,000 sites. We will dramatically increase our financial magnitudes, and we will significantly improve our business risk profile. In this sense, around 85% of our revenues will be generated by telecom infrastructure and more than 80% of our EBITDA will be generated outside of Spain.

Finally, and before handing over to José Manuel, I would like to reiterate that growth remains at the core of our equity story. Cellnex is the #1 independent tower operator in Europe. We are improving our market and customer diversification, while ensuring a visible and growing cash flow generation. We are building industrial ties with all key European mobile operators, with the objective to become a long-term partner. And we are ideally positioned to continue capturing the massive European tower opportunity.

And with this, I will now hand over to our CFO, José Manuel Aisa, who will provide more details of the period.

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [3]

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Thank you, Tobias. Moving to Slide 7. We are showing here the operational performance in the period. As Tobias mentioned, we are seeing an acceleration of our organic growth over recent quarters. In this period, total PoPs have increased 25%, including the contribution not only from organic growth, but also change of perimeter. If we focus on organic growth only, PoPs have increased 5%, mainly due to the continued network densification process we are seeing across our markets.

More specifically, I would mention this organic growth generated by Iliad in Italy as well as the contribution from new customers and our build to suit program.

Finally, DAS nodes are increasing at a constant rate of 20%, and we think the strong credentials we are building in this area will translate into significant opportunities in the future.

On the Slide 8, you can see a list of the commercial initiatives we are implementing in order to secure future organic growth opportunities. In summary, Iliad is now generating organic growth, both in Italy and France, and we believe there is still room to continue expanding this long-term-oriented industrial relationship.

We are seeing further demand for our services in recent markets, with new colocation requests from secondary tenants, discussions around tower densification needs and additional assessments related to 5G developments.

We are leveraging on CommsCon credentials to develop more projects in the area of indoor coverage and densification solutions as a neutral host across Europe. Interesting opportunities are already being discussed for football stadiums, transport systems, bank branches and shopping centers.

We're also expanding our 5G capabilities by analyzing opportunities in tower adjustment services, such as fiber, outdoor small cells, mobile edge computer -- computing, IoT and smart cities.

Moving to Slide 9. You can see here that building blocks of our recurring levered free cash flow growth. The positive impact on organic growth, including efficiencies is reinforced by both the gradual contribution of our contracted build to suit programs and our change of perimeter. This is partly offset by cash elements below adjusted EBITDA, mainly higher payment of leases in the period linked to new portfolios of towers. All these effects combined explain our strong recurring levered free cash flow growth of 12%.

Moving to Slide 10. Our revenues have increased 13%, our adjusted EBITDA -- and also 13%, our recurring levered free cash flow with 12%. Our EBITDA margin reaches now 68%.

Moving now to the different elements in the table, we can see that this 13% adjusted EBITDA growth is mainly explained by the contribution from Telecom Infrastructure Services, coupled with a very well-managed OpEx raise.

Payment of leases increased due to a larger perimeter, maintenance CapEx performs in line with our guidance. Interest paid reflect the terms of our debt structure on our available liquidity. And finally, cash tax reflect the tax payment schedule during the year.

Moving now to our balance sheet on Slide 11. Assets (technical difficulty) increased due to our M&A activity in this year. Available cash flow as of September are showing this as a result of our first capital increase earlier this year and borrowings increased due to the instruments issued in this period.

Compared to December 2018, our net debt as of September increases due to our M&A activity in the year, but please bear in mind, these figures do not reflect the liquidity associated with our last capital increase. This balance sheet is as of September 2019.

For a more updated picture, I will bring your attention to Slide 12. You can see here the details of our capital structure as of November. Therefore, including the cash associated with our last capital increase.

Our debt has an average maturity of close to 6 years, a cost of around 1.5%. And we are not expecting any material refinancing before 2022.

It is also important to highlight that we have significantly increased our available liquidity to EUR 9 billion. We will reach a backlog of EUR 38 billion, when we complete all announced transactions, and our capital structure has no covenants, no pledge, no guarantees at corporate level. This unique combination give us a wide array of available options to continue funding our growth strategy and maintain our financial flexibility.

And with this, we are now happy to answer your questions. So let's please open the line.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Giles Thorne from Jefferies.

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Giles Thorne, Jefferies LLC, Research Division - Senior Research Analyst and Technology Research Analyst [2]

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I have 3 questions, please. And the first one was, we've now seen 2 rural network sharing programs between MNOs announced one in the U.K. and then one in Germany, both have the same hallmarks of shared access with mutual benefit. I'd be interested to see whether you think these are a risk or an opportunity for you guys in the long term?

Second question was, with your brand-new IRS footprint in mind, have you initiated a conversation with Xavier Niel regarding [AZ] towers?

And then final question is just on open RAN, we've had some material unusual of late. Could this -- my question is, could this ease your path to long-term ownership and hosting of MNOs on active infrastructure?

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [3]

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Thank you, Giles. Maybe I can start with the third one. We are closely following the development. We are extremely interested in the future of network architectures. And I think that, that is obviously for quite innovative auctions and more than happy -- we're happy to assess how we can help in this process. I guess also with a more digitalized networks, I think that are -- that opens the door for being more active in the -- further connectivity between new elements of the network. And also, as you very well mentioned to consider how in the Arqiva area, we can play, I would say, a more important role. In any case, please bear in remind that, I think that is just to, maybe, in our case, in our view, at least status and also that this is a process that needs to be coordinated with our clients. So the moment they are comfortable to open these discussions with us, we are more than happy to help them.

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [4]

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Well, maybe coming back to your first and second question. First question about rural infrastructure in Germany or in U.K., in Germany, unfortunately, we are not so -- we can't -- we can't afford this opportunity in Germany. And in U.K., we will assess when we have more information about this initiative, but why not, could be an additional organic growth in for Arqiva in U.K. So the third concern...

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Giles Thorne, Jefferies LLC, Research Division - Senior Research Analyst and Technology Research Analyst [5]

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I'm sorry to interrupt, just -- it wasn't so much the specifics of what they're doing in the U.K. and Germany, it's more your perspective on the behavior of MNOs to go in that direction, it can be in any European country.

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [6]

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Well, I think, it's an opportunity for sure for promoterization on the existing and the new infrastructure is where make a lot of sense in the rural areas, but it depends on the conditions. So for us, it's a little bit early to assess if it makes sense for us or for our customers so. So far, we are not in conversations with our customers in this project. But obviously, it's an opportunity. So we understand that it could be a positive impact on our activity in U.K.

And in -- about your question about [AZ] towers, well, we have a lot of interactions with Iliad and with the companies owned by Xavier Niel. But so far, no conversations about AZ tower. So we'll see. But obviously, it could be an opportunity for further integration and consolidation on the Irish market.

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Giles Thorne, Jefferies LLC, Research Division - Senior Research Analyst and Technology Research Analyst [7]

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So is it fair to say that Ireland sits out of the EUR 4 billion pipeline that you've not yet -- the EUR 4 billion M&A pipeline that you've not yet got across the line?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [8]

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We are not yet. This is the answer, not yet. But obviously, it's in our potential projects, why not.

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Operator [9]

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The next question comes from Andrew Lee from Goldman Sachs.

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Andrew J. Lee, Goldman Sachs Group Inc., Research Division - Equity Analyst [10]

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I had a couple of questions. One, on organic growth and one on deal regulations. Just on the organic growth side, do you think your organic revenue growth is showing signs of acceleration? And are you seeing any acceleration of the demand for sharing of towers, for tower densification for 5G specifically?

And then on deal regulation, there's been some increased investor concern on the scope for regulatory approval for tower deals. And are you seeing any change in regulatory response to in-market tower consolidation deals? And is there any update you can give us on initial conversations with the regulator on the Arqiva deal? And do you still expect the Iliad deal to complete this year?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [11]

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Thank you, Andrew. On the first one, maybe the answer is, yes. We -- as you know, we have 6 build to suit programs in place, 2 in Switzerland, 2 in Italy, 2 in France, with our 2 anchor tenants. We then see that this is becoming a more important element for them in the context of our discussions when we discuss, when we negotiate tower disposals. We see that they have a strong densification needs, and this is an area where we can help. And as a result of that, you can see that we are not into the market. So yes, on the densification area, we -- maybe we do see an acceleration of the prospects.

On the organic growth, the increase within asset ratio, I would say that in the previous quarters, we are happy with their performance that's why we are showing to the market. Now this quarter, you can see that, for example, in Italy, maybe in Italy, it's a different case because our organic growth is mostly generated by 1 specific client. But we are comfortable with the prospects for the medium term. I mean, I -- we are seeing organic growth in the coming quarters, performing in line with what you were seeing today. So yes, everything is going in -- going well.

In terms of regulation, I will leave Tobias -- José Manuel to complement. We don't see any...

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [12]

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Any change.

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [13]

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Any change in the landscape. Bear in mind that now we have already received the approval from the French authority with the acquisition of Iliad Towers in France. That authorization came earlier than we expected. As you know, these are business model that precisely welcomes everyone on our towers. As you know, we are a niche operator and independent operator. Our business model is pro-competition, usually, at -- also the use of the services come at a price, typically lower than the ownership cost, which tends to be alternative. So we have had very productive discussions with regulators with very positive outcomes. So we don't see this changing.

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [14]

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And we do not expect any issue to close all of our deals with Iliad before year-end.

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Andrew J. Lee, Goldman Sachs Group Inc., Research Division - Equity Analyst [15]

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Any updates on, initial conversations around Arqiva?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [16]

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Any update on Arqiva?

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [17]

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No, no, no. Everything -- it's...

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [18]

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On track.

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [19]

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On track.

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Operator [20]

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Your next question comes from Roshan Ranjit from Deutsche Bank.

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Roshan Vijay Ranjit, Deutsche Bank AG, Research Division - Research Analyst [21]

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Three for me, please. Just on Italy, you've made good progress, as you've highlighted, we've seen a good increase in the PoP. So is that all coming from Iliad, because clearly, the deal hasn't closed there. So they are using the legacy framework agreement that they've had with you. Is that fair to assume? And just to tie on to that, you mentioned scope for signing another build to suit in Italy. Is the scope to combine that with the eventual build to suit that you will have with Iliad?

Secondly, on the probability weighted for EUR 3 billion pipeline, is that consistent of a mix of assets? So tower and potentially fiber assets. And again, tied on to that, is your view on fiber assets the same as towers regarding minority versus majority? And just tied on to the previous question, what is your -- you want a time frame for getting competition approval for the Arqiva deal, is that a 5, 6-month time period. Is that fair to assume?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [22]

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Thank you, Roshan. I will answer the first and second and José Manuel, the third and fourth. Basically, the organic growth, we are showing with regards to Arqiva -- sorry, with regards to Iliad in Italy. That is linked to the legacy framework agreement that we signed. So as you know, the Italian part of the transaction with Iliad has not been closed yet. So that activity is not showing up, (technical difficulty) yet. So everything that we are posting today is pure organic growth. Iliad using our initial portfolio, our legacy portfolio in Italy to host their own equipment. So nothing different from the information we have been providing in the past. The build to suit program that you mentioned, it's quite a small one, it's still to be signed. This is an opportunity that is still being assessed with an alternative wireless operator in Italy. And then when we have more information, let's see how this is scoped for that to be combined with any other plan we have in the country. But I guess, it is still early stages. Now I'll leave for José Manuel.

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [23]

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Well, regarding your third and fourth questions, let's just start by the last one, regarding Arqiva antitrust, it's -- we are on track. There is nothing, especially on that. Let me tell you that Cellnex has been successfully working with different antitrust bodies in different European countries. For instance, the last one, and which is public information is antitrust with Iliad in France. We presented the file to antitrust in Iliad -- Iliad antitrust file, I think it was at the beginning of May. And at the end of August, everything was clear. This is public information, you can check. And this is the general trend that we are seeing with Cellnex. And let me explain to you, why?

Cellnex is a neutral operator. As a neutral operator, we are pro-competitive. What we do is to open the towers to everyone. No single client has on Cellnex tower earn a special right, and this is key. This is key. Therefore, what we do is to facilitate those towers that before were in our balance sheet of a telco, to be opened to everyone, under very clear contracts that are perfectly comparable. As soon as we share this business model with our antitrust bodies in Europe, what we tend to see is that Cellnex is pro-competitive and facilitate the investments in 5G, densification of 4G because Cellnex is a partner industrial company for telcos, it's not a financial instrument, with covenants, restrictions in the use of tower. So please let's differentiate our equity and industrial story from others. In the case of U.K., it's exactly the same. So no change.

And your third question is about the pipeline. And I think we have been very clear and very vocal about this. Cellnex is a tower company. As a tower company, obviously, there are infrastructures that are next to the towers. For instance, edge computing; for instance, distributed antenna systems; for instance, fiber to the tower, fiber to the antenna; and this is our objective.

Our objective is to expand our business model, tower business model to adjacent assets. But it's all about towers. And all our business model, which has been successful, let's recall, very clear, very simple: backlog; escalators linked to inflation; organic growth between 3%, 4%, 5%; OpEx well maintained; CapEx, maintenance CapEx 3% revenues full stop. This is our business, nothing beyond. We will never get any investment without a non-core tenant on a long-term contract attached to this non-core tenant. You do not have to expect this from Cellnex, okay?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [24]

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Roshan, maybe José Manuel a follow up on our procedure regarding control on assets.

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [25]

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Control on, sorry, I forgot. Well, you know that obviously, Cellnex, before talking about control from accounting perspective, let's talk about controls in a industrial perspective. We are a industrial company, and we like managing towers. And this is key. And therefore, managing towers means many times that we have to -- from an accounting perspective, control that business. At the same time, if there is an opportunity in which we have the industrial control and the management control, and we do not have the accounting control, a consolidation, this is not a problem as long as there is a path to control at any point. We are a long-term investor, and we are more than happy to go with our clients in a long path, leaving different periods of time, patience pays off.

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Operator [26]

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The next question comes from Henrik Herbst from Crédit Suisse.

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Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [27]

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I had two questions. Firstly, on the organic PoP growth, which remains very strong, but it's slowing a little bit. Also, when you look at it in absolute terms, the PoP additions, a slowing a bit versus a year ago, despite your sort of tower portfolio growing. Just wondering, I mean, I guess you have a bit of sort of insight into what you do get sort of incoming requests from your tenants. How should we think about that going forward? Should we think about that continuing to slow down? Or -- and maybe if you can talk a little bit about what's driven that slowdown? It seems to be not only sort of slower build to suit, but sort of underlying ex build to suit slowdown as well. So if you can give a little bit of color on how we should think about that? And then in terms of just going back to your deal pipeline as well. I guess we started to see more build to suits included in your deals with Iliad, France and Italy, for example. How should we think about that going forward? Do you think that build to suit will become even more bigger components of sort of future deal? Or will it be -- continue to be sort of more loaded towards existing towers?

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [28]

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Thank you, Henrik. I will go for the first one, and I will leave Mr. Tobías to answer the second one. The first one, I mean, it is true that mostly in Spain, we have seen a quarterly slowdown, but the reminder we provide views, I mean, annual views, midterm views and with the information we have from customers, nothing has changed. I mean from quarter-to-quarter, you can see maybe, in some cases, a lumpy profile. Also bear in mind that the way we take PoPs, we don't get a daily flow of request every day. So it could be the case in maybe some quarters, you can see a different pattern, a different profile. But given that we focus on the longer term, all in all, we are confident that the same annual trends will be seen in all markets where we are present. So this is just, in our view, an impact in the quarter, but our view on the underperformance is not changed based on the information we have already from clients.

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [29]

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Well, second question about build to suit. Currently, we are managing, I think, the largest portfolio of build to suit programs in different countries. I mean I think this is the proof that customers are seeing Cellnex as a clear industrial partner and long-term partner. We like very much to be in the densification of the existing networks because this is an opportunity to improve our customer loyalty, our customer relationship with our existing customers, but there's also an opportunity for organic growth because it allows us to approach the third-parties in order to attract them on the new infrastructure. So happy to be in the build to suit programs. I think this is also very attractive for you because it's -- those type of projects help us in order to show you our evolution on our organic growth and investments in every country. So, so far, so good. And we are very happy to work with our customers on these type of projects.

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Operator [30]

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The next question comes from Ottavio Adorisio from Societe Generale.

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Ottavio Adorisio, Societe Generale Cross Asset Research - Equity analyst [31]

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Three questions on my side. The first one is from the Iliad and the Salt deal. You complete one, and I believe that you're quite at an advanced stage to all the due diligence on the other two. So I was just wondering, now that you know everything about at least the logistics about the towers, what's your intention? Are you going to keep all the sites you bought? Or I suppose there is a significant overlap in some places? So are you planning to decommission and potentially to move some of the antennas and to reap some of the synergies? If that's the case, could you please quantify the sort of synergies you can get on across these 3 geographies? The second one is on the balance sheet. You've been upgrade recently on the outlook for both credit agencies. You stressed that now you have a lot of liquidity. So even after the Arqiva deal, I basically believe you have something like EUR 2.5 billion hard cash sit in your balance sheet. As far as I understand, the only deal that you officially associated with is the TSL in London. If you can talk about potential opportunities going around aside from the one you allied in the past with the MBNL in the U.K. And the third one, it's specific to these numbers. I'm looking at Spain, and I was surprised to see quite a significant acceleration on EBITDA margins during the year. Last year, you announced the restructuring on the headcount. But it looks that the drivers was not only that. So I was wondering what's the driver and if that could be replicated across other geographies?

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [32]

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So I will maybe try the third one. I would tell you there has been no specific impact, I mean, in some cases. As you know that we have different OpEx lines. So I mean it could be the case that maybe one specific one, general services and orders so anything that has to do with maybe consultancy services, projects that we are internally developing. So the costs associated with that activity maybe has slowed down. And you can see some margin expansion coming from that. But we are not aware of any other than the program that you are mentioning, and it's very well known. So we are making progress on that. No, other than that, we are not implementing in Spain an incremental initiative. It is true that as a company, we have a focus to be efficient in every single country that we are present and every single measure that we can find extra savings we implement. But in terms of big programs being implemented, nothing new beyond what you already know. On the first and second, I will leave (inaudible). Second, (inaudible) balance sheet.

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Unidentified Company Representative, [33]

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Okay. Balance sheet. Well, we have liquidity. We have been very, very -- we have been very clear to the market. We think we have a strong pipeline in front of us. You are not talking about U.K. We started in the U.K. with very first investment some time ago. We learned and we have just presented -- we presented to you in June, another step with an anchor tenant in the U.K. And after the summer, we presented to you the third step in the U.K. market. I do think, as you are suggesting that this is not the last step. TSL is a key asset for us. But also, we do think that the Cellnex might do other things in the U.K. at the right moment. As you know, Ottavio, and you follow the company very well. This takes time, it's not easy, and this has a lot of work. So let's go step-by-step. Now what we have on our plate is a lot is to get the closing of Arqiva and to -- as much as we can to do a good offer for TSL, which is a great asset for us. Industrial -- this is a pure industrial deal in which we are very interested. And I think Tobías, do you want to...

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [34]

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So the first one about the overlapping or the potential overlapping on the existing infrastructures, Iliad and Salt. We do not expect to dismantle in the short term any asset because it doesn't make sense in the short term. I mean, having very, very strict restrictions in Italy, strict restrictions in Switzerland, as you can imagine, is a very, very sensitive matter. But I cannot tell you that this is 100% in this -- I'm not telling you that we could not finance a few towers that we could get a clear understanding that we should dismantle. It will take time, this assessment. But we are not in a rush in order to dismantle. And in France, for sure, they have not -- there are not overlapping on the existing infrastructure. So maybe, potentially speaking, in Switzerland and in Italy, I do not expect a big impact.

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Operator [35]

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The next question comes from James Ratzer from New Street Research.

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James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [36]

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Indeed, 2 questions, please. So the first one was just on Slide 15. Looking at the kind of market opportunities, I just wanted to make sure I kind of read this correctly. I mean are you saying here that of the EUR 7 billion that are being actively monitored, if we take out our key Arqiva and Cignal, that essentially leaves about kind of the EUR 3 billion or so of opportunities that are being looked at, at the moment that you haven't announced to the market? Because if so, I suppose I'm just kind of surprised that the figure was that small. I mean, does that suggest you're, for example, not looking at any real opportunities in Germany at the moment might not be on the table. I just want to understand how to understand the numbers on that slide, please? And then the second question was regarding the electronic communications code in the U.K. Do you think as a result of some of the provisions in that, that it might give you the opportunity to renegotiate some of your ground rents in the U.K. lower when you close the acquisition of Arqiva?

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [37]

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Thank you, James. Maybe I will start with the second one. The answer is yes, I guess that -- well, as you know, this is going to be a long closing process. First of all, we need to focus on the carve-out, working with the -- with our partners. So in the shorter term, our focus will be closing the deal itself. And then maybe at the second stage to have a better understanding of our ability to renegotiate better terms. But it is true that the framework exists, and the framework is quite beneficial for our purposes. So we do believe that we can get savings with regards to grow our leases in the U.K.

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James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [38]

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Is there something to help to quantify at all? I mean, there's -- I mean, potentially, the savings could be quite material. I suppose I want to understand what you think they might be worth?

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [39]

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That's our understanding, too, but it's too early to quantify at this stage. Okay. And regarding your first question concerning the Slide 15, what -- this is the pipeline EUR 11 billion is the total that we presented to you back in February 2019. So we split the pipeline into 2 parts, EUR 4 billion and EUR 7 billion. We executed EUR 4 billion with Iliad and Salt as it's explained in the footnotes. And then this -- we are still in 2019. We executed EUR 4 billion out of EUR 11 billion. There is EUR 7 billion -- there are EUR 7 billion remaining. So we have not changed the criteria we used at the very beginning of this year. You are suggesting Germany. Germany, it is not in these numbers. I mean, we are -- as we actively explained to you during the last road show, this EUR 7 billion is rightly speaking in our core markets, in the 7 markets in which we are working. Germany is not there yet. Let's see in the future. So I think we have been super consistent, the very -- the first part of the year, let's say, once we have been able to secure these EUR 7 billion that, by the way, this will take at least 12, 18 months. So it's not going to be automatic. And at that time, we'll talk again about finance.

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Operator [40]

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The next question comes from Luigi Minerva from HSBC.

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Luigi Minerva, HSBC, Research Division - Senior Analyst [41]

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My first question is on Italy and whether the remedies that would come from the Inwit deal could be an opportunity for you. Maybe you can tell us what could be your expectations there. The second is on, again, Germany and I mean control. You've been very helpful in explaining the importance of control and the fact that you are industrial partners and that you are able to accept nonaccounting control for a limited time. So just on the back of comments yesterday from Tim Hoettges, which were very positive and complementary for Cellnex, I was wondering if that could be the path to do something in Germany with DTT? And what is your current views on that? And then maybe the third, the last question is on the returns of build to suit programs versus existing towers. Build to suits should come with lower returns. So has the weight in the business mix becomes more important? How do you think about your returns profile?

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [42]

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Thank you, Luigi. I will take the last one if that's okay? But (inaudible) as we have mentioned during the call, it should become some more and more relevant part of our M&A discussions with operators. And in many cases, we are not only accounting an initial acquisition of size, but also an attached future program. And then from expected returns perspective, we analyze everything as a whole. So you are aware of our M&A tools of our M&A criteria. So in our M&A assessment, you don't only -- we don't only quantify or assess the acquisition of the initial portfolio, but also the future revenues and, of course, future financial effort associated with the build to suit programs that we have announced. So all in all, we apply a holistic view. We analyze a whole period in the same way as a packet. So we don't see any difference in the returns we had expected either from the towers we're acquiring or from the towers we will be building in the future for similar debt profile.

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [43]

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Well, maybe taking question #1 and #2. About the potential remedies on the Telecom Italia and Vodafone transaction, I think we cannot speculate with our potential remedies today. Obviously, we have to wait for the outcome of the antitrust authorities. If this file will be in Phase 2 is when we can assess and we can sort in our point of view. But in our view, so far, it's too early to say. If we could get some advantage or not on the potential outcome of the antitrust authorities in the file. Second, about Deutsche Telekom. Well, as you know, we have a very good relationship, but this is not just a question of having a very kind and friendly relationship. It's a question of being shareholders in Switzerland. We had and we have the opportunity to show them what can we do for them, but it's the same with other telecom operators. I mean, it's the same with the rest of the European telecom operators. We want to attract all other telecom operators. We want to be the partners, the long-term partners for them. And well, obviously, very happy to hear from Tim these kind words about Cellnex, but so far nothing specific on these regards, but we are working since we are shareholders in Switzerland in order to find the right opportunity for a win-win opportunity. And well, [I'm] very happy having a shareholder and a potential customer very happy.

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Operator [44]

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The next question comes from Fernando Cordero from Banco Santander.

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Fernando Cordero Barreira, Grupo Santander, Research Division - Equity Analyst [45]

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The first question is related with -- it's almost follow-up on the previous one on Germany, and in more general, the whole Europe because at the end, as you well know, many of the larger MNOs are accelerating their plans in order to monetize that our assets. And in that sense, Germany could be an example, but not only Germany. I would like to hear from you again, what is your approach to this probably intense corporate activity or our outsourcing during 2020, both in terms of corporate and also in terms of what could be the impacting competition going forward? This is my first question. And the second question is related with the rationalization business or the decommissioning opportunities. You are saying that you are approaching, again, MNOs in the Spanish market in order to drive that business. And I would like to know if you have seen or started to see any more or incremental willingness from the MNOs in order to look for rationalization deals.

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [46]

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Thank you, Fernando. I will maybe take the second one. The short answer is yes. But also, I guess, that particular angle, it's been discussed in the context of our broader discussions with operators. I guess that as you -- and maybe you're (inaudible) to your first question. Everything is now moving in Europe. We are having very active discussions with all operators in different markets. So the decommissioning opportunities is just one more angle that we bring on the table in the context of our broader discussions with operators. Progress, we admit that in the past, it has been much low, but hopefully, again, in the context of -- in depending on the progress we make, talking with our clients, hopefully, we will be able to provide more visibility in the short term.

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [47]

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Well, coming back to your third question about monetization of the big telecom operators in Europe. And our view in the future is that when a telecom operator is looking for monetization, we do not believe we are maybe the best choice or the first, at least of the first choice. Why? Because sometimes, it's about minority stakes, it's just looking for monetization with a very high multiple. But when the discussion is about value creation, it's a different story. It means that the customer is looking for long-term commitments. It's about industrial capabilities. It's about alignment on the strategy of our customers. And this is about many things beyond just pure monetization. And this is when at least Cellnex is, I think, one of the first choices. It depends of the strategy of our customers. We are trying to convince, obviously, by facts, by our value proposition that value creation, looking for mid- to long term is the best choice. And this is not against of providing also a very attractive valuation and monetization in the short. So this is maybe my answer on that because it is not just a question of Cellnex. Obviously, we are trying to convince our potential customers and our existing customers that make more sense to go through a value creation rather than just a pure monetization.

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Fernando Cordero Barreira, Grupo Santander, Research Division - Equity Analyst [48]

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Just as a follow-up, if I may. In that sense, in your conversations with your different players, particularly with the big MNOs, are you facing or already seeing that the MNOs are more open to lose the control of the assets, given that they are more focused on active negotiating agreements because at the end, if you are more active in -- or if you are more, I would say, committed with these active-sharing agreements probably a commitment with the passive infrastructure should be lower, no?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [49]

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Well, we are foreseeing that the big telecom operators are reaching agreements on active-sharing agreement. So it makes a lot of sense. In our view, you don't need to link the passive sharing agreement, if you wish, maybe the optionality is to monetize the passive infrastructure. Obviously, the passive infrastructure should be aligned with the active sharing agreement, this is for sure, and providing flexibility to our customers. But I think Cellnex is doing in this way currently. So I do not see any conflict of interest between active sharing agreement and passive sharing agreement with potential monetization of the existing infrastructure. This is clearly our view. On the behavior on the strategy of the big telecom operators, we do believe that they are going forward. So the evolution on the strategy, it's very clear. I think Orange is announcing in the next coming days or weeks that they will release the position about passive infrastructures, but we do not believe, let me say, a global strategy in the meaning that everywhere the same execution of the strategy. I mean maybe you could get a global strategy, of course, but the execution would be, in our view, country by country because the market positioning in every country is different. So maybe for the telecom operators, it's more -- it's providing more flexibility in every country and then is when Cellnex could fit the requirements of the customers. But again, it's when we can develop our industrial role, our managing the assets and attractive third-parties. This is about sharing, sharing and sharing. And again, being neutral, being open, no restrictions, this is the key. This is the reason why we are growing constantly at 4%, 5% on organic growth.

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Operator [50]

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There are no further questions. Dear speakers, back to you for the conclusion remarks. Thank you.

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [51]

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Thank you so much. We have now reached the end of the session. Thank you, again, for your time today, and for the remaining questions, the investor relations teams will be at your disposal. [Talk to you] again. Thank you so much. Bye-bye.