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Edited Transcript of CLNX.MC earnings conference call or presentation 26-Jul-19 10:00am GMT

Half Year 2019 Cellnex Telecom SA Earnings Call

Barcelona Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Cellnex Telecom SA earnings conference call or presentation Friday, July 26, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alexandre Mestre Molins

Cellnex Telecom, S.A. - Global Business MD & GM of Global

* 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

* Emmet Bryan Kelly

Morgan Stanley, Research Division - Head of European Telecoms Research

* Fernando Cordero Barreira

Grupo Santander, Research Division - Equity Analyst

* Giles Thorne

Jefferies LLC, Research Division - Equity Analyst

* Henrik Herbst

Crédit Suisse AG, Research Division - Research Analyst

* James Edmund Ratzer

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

* Juri Zanieri

Kempen & Co. N.V., Research Division - Analyst

* Luigi Minerva

HSBC, Research Division - Senior Analyst

* Roshan Vijay Ranjit

Deutsche Bank AG, Research Division - Research Analyst

* Simon Alexander Arulraj Coles

Barclays Bank PLC, 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 thank you all for joining us today for our First Half 2019 Results Conference Call. I'm joined today by our CEO, Tobías Martínez; and our CFO, José Manuel Aisa, and they will lead today's presentation.

We have released earlier today a presentation, which we will refer to throughout our prepared remarks, and then we'll open the line for a Q&A session. When it ends, the Investor Relations team will be at your disposal to answer any remaining questions.

So now I'll hand over to Tobías Martínez. Please, Tobías.

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

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Hi. Hello, 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 has been marked again by a strong organic growth and a solid financial performance. Among the main milestones, I would emphasize that we continue to deliver on organic performance, posting a very solid growth. It is important to highlight that Iliad continues to generate the majority of new colocations in Italy and that we are also hosting new clients in the markets we have more recently opened.

Our financial performance continues to be very strong, thanks to our organic growth, our focus on cost efficiencies and the contribution from new assets.

Revenues have increased 11% when compared to the same period last year. The same for our adjusted EBITDA and our recurring leverage, free cash flow has increased at a robust 10%, with our backlog reaching EUR 36 billion, including the contribution of the Iliad and Salt transactions.

We are reiterating our 2019 financial outlook. More specifically, we are now targeting the upper end of our full year range. As a reminder, the closing of the Iliad and Salt transactions are well on track, and we will update our financial guidance in due course. We are becoming the partner of trust of our clients based on our experience. Initial agreements create a precedent for a more progressive relationship, and this is exactly what we will try with BT in the U.K. as a result of our recent partnership agreement. Despite the level of M&A activity you are seeing this year, we are always assessing growth opportunities that make sense for Cellnex. And in this context, we have issued a new convertible bond and increased our credit facilities in order to improve our financial flexibility.

And finally, we are very happy for having been included in the MSCI Index, a new milestone that provides us with more visibility and stock liquidity.

If we flip to Slide #4. Just a quick update where we reflect the result of our growth strategy. When the Iliad and Salt transactions are closed, Cellnex will further reinforce its leadership position in Europe by managing a portfolio of around 45,000 sites. We will double our key financial magnitude and we will significantly improve our business risk profile. Around 80% of our revenues will be generated by telecom infrastructure, and around 80% of our EBITDA will be generated outside of Spain.

Finally, and before handing over the -- to José Manuel, I would like to reiterate that growth remains at the core of our successful equity story.

Cellnex is the #1 independent tower operator in Europe. We are building long-term industrial relationship with the key European mobile operators. We are improving our geographic and customer diversification while ensuring a visible and growing cash flow generation. We are leveraging on our proprietary industrial know-how in order to become our clients' partner of trust in the 5G world. And we are ideally positioned for the massive expected sector growth opportunity. In our view, the tower market opportunity in Europe is now the largest and most visible ever.

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 so much, Tobías. Moving to Slide 6, which you will know very well, we are showing the operational performance in the period. As Tobías mentioned, we are seeing an acceleration of organic growth in the last quarter. In this period, total PoPs have increased 11%, including the contribution of organic growth and change of perimeter. If we focus on organic growth only, PoPs have increased 5%, mainly due to the continued densification trend we are seeing across our markets. More specifically, I would highlight the strong organic growth generated by Iliad in Italy and the contribution of new customers in France and Switzerland.

Finally, DAS nodes have increased at the usual rate of circa 20%, and we think the strong expertise we are building in this sector will translate into significant opportunities in the future.

On Slide 7, you can see a list of the commercial initiatives we have on the table 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 Switzerland with new colocations from Swisscom and Salt and also in France from SFR. We are leveraging on CommsCon differentials to deploy more projects in the area of indoor coverage and densification solutions as a neutral host across Europe with interesting opportunities identified for football stadiums and transport systems.

And we are expanding our 5G capabilities by analyzing opportunities in the area of fiber, data centers, edge computing and IoT. In this particular sense, we have recently expanded our IT network in Portugal after reaching a new agreement with our client, Securitas Direct.

Moving to Slide 8. You can see here the building blocks of our recurring levered free cash flow growth. The positive impact from organic growth including efficiencies is reinforced by the gradual contribution of sites in France, partially offset by cash elements below adjusted EBITDA, mainly payment of leases and interest in the period. This explains the strong recurring levered free cash flow growth of around 10% that we are presenting today.

Slide 9. I will now move to our recurring levered free cash flow. Our revenues have increased 11%; adjusted EBITDA, also 11%; and recurring levered free cash flow, 10%, being our EBITDA margin [68%].

Moving now to the table. We can see that the 11% adjusted EBITDA growth is mainly explained by the contribution from telecom infrastructure service coupled with a very well-managed cost base.

Payment of leases increased due to a larger perimeter. Maintenance CapEx is in line with our guidance. Interest paid reflect the terms of our debt structure and our available liquidity, and tax-reflected payment schedule during the year.

Moving now to our balance sheet on Slide 10. It is important to remind that the adoption of IFRS 16 provides a better comparability with peers as it equalizes the treatment of land ownership and ground leases. Additionally, we have a prudent purchase price allocation policy in place, which leads to an allocation of acquisition to fixed assets with only a marginal impact on goodwill. Compared to December 2018, our net debt substantially decreases following our successful rights issue earlier in the year.

Linked to our recurring topic of liquidity we have been raising during this presentation. On Slide 11, you can find a summary of our recent activity devoted to increase our available liquidity. As you can see, we have been very active issuing new instruments at very attractive terms while we have also been expanding our existing credit facilities to increase our financial flexibility with the objective to be prepared to continue pursuing our growth opportunities in Europe.

In summary, we have built an incremental available liquidity in the period of around EUR 3.5 billion with an average maturity of 6 years and at an all-in cost of 0.8%.

Moving to Slide 12. You can see here the details of our capital structure as of July. Excluding lease liabilities and including the recent issuance of our new convertible bond with a coupon after-tax of around 0%, 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.

Also, please bear in remind that we have significantly increased our available liquidity to EUR 5.5 billion. We will reach a backlog of EUR 36 billion when we complete the Iliad and Salt transactions. And our capital structure has no covenant, no hedge, no pledge and no guarantee. 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 happy to answer your questions. So please, let's open the line.

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Questions and Answers

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Operator [1]

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Ladies and gentlemen, the Q&A session starts now. (Operator Instructions) The first question comes from Roshan Ranjit from Deutsche Bank.

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Roshan Vijay Ranjit, Deutsche Bank AG, Research Division - Research Analyst [2]

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Three for me, please. Now -- so you saw Vodafone's news on the new TowerCo. On the call earlier today, they were referring to valuations of around 20x in their eyes and haven't had received several offers for various parts of its tower portfolio. Now if I look back to some of the deals, which Sonex has done, I think management has been quite disciplined in their approach. And referring to recent Iliad/Salt deal, that was done, I think, a full run rate on 17x. Is it possible to just provide some views on how we should think about a bridge in valuation? Obviously, there are a number of moving parts in there, but how you continue to think about valuation?

Secondly, can we just get your views on holding stakes in other entities? Now all your deals have been done in actual purchase of hard assets. What's your view on stakes in other entities? Because I think there are a few opportunities near term on the horizon.

And lastly, just a bit of detail in your release today. You've handily given us the split on the BT payment. Now the right of first offer refers to around 3,000 towers. Does that mean that you've potentially done the diligence on the available towers from BT and selected the ones which may interest you if they become available?

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

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Well, about the Vodafone question, you know that the multiple is an outcome of many things and we have to be careful in order to compare different type of transactions. So in order to be fair, to compare apples-and-apples is very difficult. It's very difficult to make a proper assessment when you talk about above of over 20x and when we want to compare with our multiple of our last transaction of 18x. So we could talk about Iliad because Iliad is a clear transaction with -- and specific fee, with a specific escalator, with organic growth plan attached. I mean it's a strong build-to-suit program, as you know. And this is the reason why we do believe that on our side, we could submit attractive valuations when we are willing to assess all of the ingredients in order to submit, at the end of the day, a price at, obviously, a multiple. But I don't know what is behind of a multiple above 20x. So this is a very generic, let me say, comment above 20x. But happy to pay above 20x if the conditions are there.

So I think from our point of view, it would be a very good transaction if beyond of the multiple the business ingredients or the assumptions are there. So you know that we are long, we are not just investing as a pure sale-and-leaseback transaction. So it means that we will like to establish long-term relationship with the current customers. We'd like to go beyond a pure sale-and-leaseback. We are willing to talk about the commissioning, build-to-suit. We are willing to share a 5G strategy with our customers. This is the reason why we are willing also to enter in a different type of assets required from our customers. So all in all, it matters when you are assessing important transactions and when you are assessing 20, 25 and 30 years contracts. So I think we should be careful comparing literally 20x in front of 70x. So maybe the second question, could you...

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [4]

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Yes. Roshan, I think we will need to clarify -- to ask you to clarity your second question, please.

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Roshan Vijay Ranjit, Deutsche Bank AG, Research Division - Research Analyst [5]

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Sure. Sure. Just to get your views on stakes in listed entities. What -- I think previously, you said that you would be open to considering buying your large stakes in other tel companies, other NewCos if they were to be formed. Just to get an update there if that's still the case or if your view has changed.

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

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Well, I think it is not, for us, a relevant matter if it's a listed company, it's not. The main important thing for us is the role. I mean we are industrial, as you know. Obviously, we have -- a relevant part of our mindset is the financials. But for us, it's very important to get a clear role of an industrial player to run the company, to understand the business model, to be committed with this business plan, with the development of the assets and to deliver an outstanding operational service. So if it's a listed company, my first reaction is not very positive. I mean, I'm not asking for a listed company. We are not looking for a listed company. But if it's the case, if it's the case, making an industrial an industrial sense, why not? So in other words, it's not a constraint. But again, I think we are not looking for this type of project. We are looking for a project where we can develop our industrial role.

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [7]

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And on the third one on BT. We are also joined by Alex Mestre, our Global Business Director. So maybe, Alex?

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [8]

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Certainly, yes. Good morning, everyone. In relation to the BT towers, we should remember that those are marketing rights. So the cherrypicking of the towers has been, first, in relation to the quality of the tower; and second, in order to value them properly, they should have revenues already on those towers because the revenue stream comes from third parties. Besides those initial, let's say, batch of towers that we are now taking as a -- leading the commercial responsibility, there is also options to follow on, on exploring the rest of the assets that BT is today still having full control of them, and that is something that will be a second stage, but discussions are really undergoing.

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Operator [9]

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The next question comes from Simon Coles from Barclays.

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Simon Alexander Arulraj Coles, Barclays Bank PLC, Research Division - Research Analyst [10]

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I guess my first one is we've seen the Vodafone announcement today, but we've also seen a number of active sharing agreements across Europe as well. So I was just wondering, are the developments that we're seeing -- is that different to how you expected the landscape to evolve? Does this change your thinking at all? And on active sharing, what opportunities could that potentially bring?

And then secondly, we've heard Vodafone, and I think Telefónica said it yesterday as well, that they don't see any advantage in running 2G and 3G networks. And at your CMD back in 2017, I think you had a slide showing that you're interested in moving further up the value chain, potentially into active management and things like this as well. So I was just wondering, are there new opportunities potentially appearing from the deals that we're seeing across Europe right now? And how could these work?

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [11]

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Yes. So certainly, the active sharing is something that has to be, let's say, understood differently from the passive sharing, and it's totally the decappable. This is quite important, no? Active sharing is the fact of having the active equipment combined in different technologies. You have MORAN, you have MOCN. So there are different ways technically to reach this active sharing.

Where this equipment is hosted, it is actually irrelevant. It belongs to a third party. It belongs to a JV among the 2, let's say, clients of that JV, that would be the potential MNOs, or belongs in an independent way to the different brand sharing players. So actually, we have a very clear view that this is something that is totally, totally detachable from the active sharing agreements. What is interesting on the active sharing, it is that the mutualization of something that was supposed to be very highly competitive tool that, it is the 5G coverage, is already happening. So the mutualization element is there on the table. This is what we have always been defending. And for us, this is honestly good news.

On the second question -- was in relation of potentially mutualizing beyond only the passive sharing and also the active sharing from an independent player like a TowerCo, specifically on legacy technologies like 2G and 3G. It is true that in the past, we, let's say, indicated and hinted that as a potential future revenue stream. There are some, I would say, shy talks around that concept. It has been pointed out I think also this morning in some of the presentation results, but it is something that if there are clients interested on that, yes, we would be open to consider. Why not?

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Simon Alexander Arulraj Coles, Barclays Bank PLC, Research Division - Research Analyst [12]

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And then I just -- on the first one, is the evolution in the landscape any different to how you thought the different markets would be playing out? Obviously, the Vodafone announcement is quite significant.

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [13]

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No, not really. So actually, we believe it accelerates the mutualization concept. So the fact of owning a tower is less considered as a competitive advantage because once you have agreed to share the active part, the competitive advantage of owning a tower or not owning the tower is totally vanished. So we believe it is on the right trend.

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Operator [14]

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The next question comes from Emmet Kelly from Morgan Stanley.

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Emmet Bryan Kelly, Morgan Stanley, Research Division - Head of European Telecoms Research [15]

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Yes. The question I have just relates to build-to-suit. You've obviously signed a number of build-to-suit contracts across your portfolio, whether it's with WIG, with Iliad, with Salt, with WIND. Can you just maybe tell us what the future you see for the build-to-suit market is in Europe? I think the BTS market has maybe caught a few investors by surprise in terms of how big the opportunity is. Are you seeing many more opportunities emerge for build-to-suit across Europe? I see Deutsche Telekom, for example, expanding their German portfolio from 28,000 to 36,000. You saw Arcep, of course, ask each of the operators to run at 5,000 PoPs each. So are you seeing many more of these opportunities come, especially as 5G requires more dense networks and operators are focused on rural coverage?

And could you just also maybe just remind us how you do this build-to-suit? Are you working largely with third parties to do this? And is this build-to-suit as well -- is it really focused on more rural areas rather than urban areas given the difficulty in getting permissions for putting up new towers across Europe?

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José Manuel Aisa Mancho, Cellnex Telecom, S.A. - CFO & Corporate Development Director [16]

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Thank you. Thank you, Emmet. Yes. I mean that's right, and it's becoming an increasingly a part of our negotiations with conversations -- the relationship we have with mobile operators in Europe, as Tobías was implying at the beginning of the presentation. We don't simply offer sale-and-leaseback transactions. We also want to partner and we want to offer densification solutions. And I guess that the build-to-suit programs try to answer precisely this question.

And there are many different angles depending on the specific opportunity we'll have on the table, no? So we can help -- as you mentioned, the new deal in France covering white spots. We can help mobile operators covering or, I would say, reducing the coverage gaps.

Also, as you can imagine, in the context of 5G, in the context of a more mobile data being demanded, cities will drive densification. So we are also helping mobile operators in the -- providing more infrastructure in order to improve the capacity in cities. So again, it depends on the country. It depends on the specific needs of the client, makes perfect sense for them to partner with us. But a reminder that this is a model that basically shifts from a CapEx perspective from the mobile operator point of view to a service perspective. So in this case, we incur the investment. We take -- we lead the whole project. And right after that, simply, a operator, they can continue focusing on the connectivity and they pay for the service that we provide.

Also -- I mean why not? I mean we are providing build-to-suit services in rural areas, in cities. More densification will be complemented with even more technologies in the future. You know that there's a lot of talk about small cells. Maybe we don't really see that many today, but for sure, there is also that technology that will complement densification needs in cities.

And in terms of -- maybe I will leave the last part which may be more operational for Alex. But in terms of the different opportunities we have on the table, today, we have 6 of them. I mean, I don't think that's such a small figure. We have 2 build-to-suit programs in Switzerland with Sunrise, with Salt. We have, as you know, with WIND Tre, now also with Iliad. We have also a build-to-suit program more recently with Iliad in France. And then a build-to-suit program with WIG telecom in France specifically for cities. So the densification efforts here of WIG telecom in France are specifically devoted to urban areas. So as you can see, a mix of countries, clients and different needs. And finally, you were also asking about maybe the challenges and who actually carries out the activity.

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [17]

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Yes. So I think, José, you're totally right. We have a mix of different models here. We have models where we have 100% of the responsibility on our shoulders. We have models where we share the responsibility with the mobile network operator. And we reuse their capacity as well, and that depends very much also on the transaction, how this has been closed.

The operational element there, normally, there is a very clear matrix of responsibilities being clearly distinguished between the operator and ourselves. And depending on the model, we, let's say, share more or less of that responsibility. So I don't know if that's enough or if we could go more drilled down since you don't know...

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Emmet Bryan Kelly, Morgan Stanley, Research Division - Head of European Telecoms Research [18]

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Yes. That's very useful. Is it fair to say you don't see many challenges in getting these towers up and going, whether it's building permission or environmental regulations? You don't see many obstacles there? You think the path is clear?

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [19]

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Yes, this is country by country. When we have agreed those agreements, this has been taken into consideration. And in whatever, let's say, guidance or disclosure that Franco has given, everything is already included, taking basically country peculiarities. So this is very much country-by-country. The difficulties on building or rebuilding and if it's urban or...

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [20]

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Rural.

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [21]

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Rural, no? But what we are not seeing is a deviation on what we have initially planned.

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Emmet Bryan Kelly, Morgan Stanley, Research Division - Head of European Telecoms Research [22]

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And the 2,200 sites that you have with Bouygues, I think you've got 2 separate BTS contracts with Bouygues France. Am I right in saying that, that does not include the new deal, that anything that could come from the new deal would be on top of those 2,200 sites? Is that right?

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [23]

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That's right. Basically, the sites that we are deploying currently with WIG are more in urban areas. The new deal, I assume you mean the Arcep push, the new (inaudible) urban, it is different. So that would be a different geography, yes.

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Operator [24]

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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 [25]

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I had 2 questions for you. Firstly, there has been some press speculation about Cellnex's interest in fiber assets in Portugal. I'm sure you can't comment on that directly, but I wonder if you could just speak maybe hypothetically about how fiber assets would fit in with your overall strategic aims. And what would you say to some of the players out there that believe a fiber deal would imply you're running out of M&A optionality in mobile towers in Europe?

And then second question, just again on the Vodafone telco announcement, that may well create an independent telco of decent scale. We may also get another large-cap telco doing the same thing. They may sell some towers, but maybe these new entities could become acquisitive in time. So I wonder if you could just maybe comment on whether this move by Vodafone is a challenge or an opportunity for Cellnex and why.

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [26]

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Well, first of all, I have to underline that tower remains our core asset. I mean, we are not defocusing our strategy about assets. This is a clear statement. But if you look at the evolution of the networks, if you look at the new requirement from our customers, if you look at the reflections of the customers in Europe or even around the world about outsourcing, customers are, well, maybe raising new questions about the outsourcing and the perimeter of this strategic decision of the telecom operator.

So we are following this evolution. We are interacting, as you know, very proactively with all of the players in the market and obviously is a must to assess, it makes sense for us and in which conditions. But nothing else up today on this [radar].

And the second question, it's about, again, Vodafone?

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [27]

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Vodafone is -- with a limited information we have, is it a challenge or an opportunity?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [28]

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Yes. Yes. But well, maybe, again, for us, first of all, it's a confirmation of the model. Second important thing, as we said earlier, well, it's -- no differentiation about the network when you are sharing the same infrastructure. So all in all means that is a confirmation that passive infrastructure is not any more a competitive advantage in terms of differentiation. So then why not to maximize the monetization, why not to take advantage of it and to deliver as much as possible and to reuse these proceeds in order to get more competitive in your core business. So this is, frankly speaking, our understanding of this evolution beyond of this information of today from Vodafone.

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Operator [29]

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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 [30]

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I had a few questions. Firstly, just going back to your comments about the role you're playing when buying potential stakes in tower companies. Does that mean that you need sort of a majority stake? Or is it enough that you get management control?

Then secondly, I was just wondering, I guess, you're starting to see 3.5 gigahertz spectrum being deployed in some of your markets. Have you been involved in any projects? I guess, massive MIMO is likely to be used quite widely. And I think there was talks about you being able to charge more for a tenant using massive MIMO. So any news there?

And then the last question is about the deal on high towers with BT. I guess the deal was structured in sort of different ways than we've seen previously where you essentially just get a management contract. You're not sort of taking -- actually, owning any assets. You're not really taking on any of the OpEx. You're basically just looking to better monetize it. Are you sort of open to do more deals like that? Or was that basically a one-off?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [31]

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Well, regarding your first question about majority or minority stakes, again, for us, it's very important to develop the role as an industrial player, as a manager running the company, although while we cannot maximize the efficiency, we cannot take our own responsibility about the business plan in front of our investors. So it doesn't make sense if we are not able to run the business, to run the company. But can we be open to get a minority stake with a [path] to control at a certain point of time? Why not? But frankly speaking, we do prefer to be more transparent and having a clear majority position since day 1. This is our first option, our first priority. But again, we could be a minority shareholder for a certain period of time. But we are not financial investors. In other words, we cannot be a passive shareholder. We do believe that this is a business where size matters in terms of synergies, in terms of efficiency, industrial model. I mean this is not just about, again, a pure monetization, a pure (inaudible) transaction. And I pass the floor to Alex.

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [32]

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Deployment, yes, so 5G, 3.5 gigahertz, yes, certainly, we are doing that as of now. As we speak, we are starting with a few operators to do the first initial deployments on 3.5 gigahertz massive MIMO antennas.

Certainly, today, those antennas are in an additional layer on the top of the existing antennas. Potentially in the future, those antennas, as you know, are becoming more compact and are becoming multiband. Today, this is an additional layer. What cannot be inferred from that, it is automatically an additional revenue always, because depending on the different transactions that we've been doing, the anchor normally has certain rights to access on our mass, that those antennas could be fitted within that area without automatically generating additional revenues. It's not always like that, but this is a factor for you to take into consideration.

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Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [33]

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And on BT.

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [34]

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BT, yes. The reason for not acquiring sites in some cases, and this is true that this is probably the first time we'll do it on a material, though a small scale, is the asset itself. So in the case of those towers from British Telecom, and normally that happens with incumbents, the assets are not sellable, the rights that the incumbent may be having on those assets are specific because it is a former public, let's say, telecom operator, and that's basically the main reason for that. That happens also when you look at the change compound. So on the rooftops of the change compound, the change compound is something that the telecom operator is not in a position to sell. So that's basically the main reason for not acquiring and looking for an alternative way to create value because this is, let's say, our main focus, not creating value irrespectively of who owns the asset, and that's the agreement we reached with BT, that they were considering that those assets were under-commercialized, and well, we will put all our knowledge and effort in trying to create value around those assets.

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Operator [35]

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The next question comes from Luigi Minerva from HSBC.

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Luigi Minerva, HSBC, Research Division - Senior Analyst [36]

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The first one is really on the impact that initiatives, like the one that Vodafone has announced this morning, may have on your pricing power going forward. So if we make an example and look at Italy, obviously, on your towers, you host some of the Vodafone's equipments. So now on the existing business, you are protected by the current contracts. But on the new business, Vodafone may actually choose to use Inwit. So whether this increased level of competition can diminish your pricing power and then eventually lead to lower rents for you.

And the second question is more generally on the level of discussions that you're having. If we put together now comments from Vodafone this morning and from Deutsche and Telefonica, it looks like there is a certain reluctance from the top 1 or 2 player in a market to engage with an independent tower company. And indeed, the last streams of deals you've announced are with the likes of Iliad, WIGs or more the smaller players in the market. So yes, I was just wondering (inaudible) your views on this, whether it's a pattern or whether we -- it's just a coincidence.

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [37]

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Thank you so much, Luigi. Well, I guess that we need to be very happy with the situation we have today in terms of what we are achieving in Europe. And we do believe that this -- that we are doing (inaudible) process, i.e., we will not say there is a reluctancy of incumbents to do -- I mean, to outsource. We do think it's just a matter of time. We have a relationship with every single operator in Europe, and we are optimistic that a time will come that we will become a partner for them. And interestingly, this was not the situation maybe 3 years ago (inaudible) maybe we were new to the market. We needed to prove credentials. The -- how interesting our business model was also for more mobile operator. And the reality is that, today, all doors in Europe are open to us. So we have the flexibility to continue explaining our value proposition to mobile operators. Of course, there's a different degree of our progress in terms of the profile of the clients. But also [weakening] incumbents, also, there is a different degree of the relationship. But we are optimistic that this is just a matter of time.

Also, in time, not only in terms of deciding to do something with us, but also bear in mind that there are maybe something these operators could decide is to, first of all, is to achieve efficiencies and to partner between them and then potentially as a second step, to further monetize or to further extract the monetization potential of (inaudible).

So again, even if we see 2 mobile operators partnering in the short term, we don't see that as the end game. So again, we have -- I think that would have demonstrated that in this sector, that patience pays off and we are well on track.

On the -- coming back to your first question, maybe the specific potential impact on the -- on this Vodafone, Telecom Italia agreement. Well, first of all, like I said, we need to learn the specific details of the agreement. But I would say that nothing really changes on how we see our position, our competitive position in Italy. We have our contracts in place. So I mean I would say we are comfortable in terms of the potential impact in the short term. Nothing is suspected. And then we'll see how (inaudible) this agreement and how that potentially changes the competitive dynamics in the country.

We have a national footprint that (inaudible) has been increased with the new agreement with Iliad. So we are expanding our presence. We're also continuously expanding our presence also by building towers for Wind Tre and Iliad. So beyond the towers today owned by Inwit, we continue to be attractive partner for every single mobile operator in Italy.

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Operator [38]

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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 [39]

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Two questions, please. The first one was just regarding the deal you have with Iliad at the moment. I wonder if you could give us an update on the process and timing for closing that transaction. In particular, just interested in what discussions you are having in the various markets with the competition authorities. I mean as you become bigger in the tower market, are you starting to find any pushback from authorities about you arguably becoming actually too dominant in this space. What kind of market share of towers in markets do you think you can get up to before you would bump into competition authority resistance?

And then the second question, please, just regards to your business in Spain, at the moment, still putting up very strong tenancy growth in that market. I was wondering if you could just talk a little bit more about which operators specifically you're seeing driving that tenancy growth, how you see that going forward over the next 12 months.

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [40]

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James, I'm really sorry. Just to clarify, your second question was around Spain?

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James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [41]

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Yes, Spain. The tenancy -- the strong tenancy growth you're still seeing in Spain.

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [42]

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Yes. No. Sorry about that. Well, today, I mean this quarter (inaudible) that we have seen quite interesting organic growth, new PoP simulated by traditional operators here and that we already have (inaudible) you can imagine who (inaudible) into our portfolio through our organic growth generated in the country.

But also, I mean despite this interesting growth, we wouldn't really like to extrapolate a trend in the future. You know that also because of the nature of this business on how we generate organic growth every quarter, it's difficult -- maybe 3 months is just too short of a period of time to reach conclusions. I'm happy with what we've seen this quarter. And unfortunately, because of the nature of how mobile operators densify, actually, in the countries where we are pressing, it's difficult to -- I mean to -- I think it's too early to update our guidance or to reach, I would say, more high-level conclusions.

On the first question, I will -- well, just to clarify, I mean you know that with Iliad and Salt, we are reaching agreements in 3 countries: in France, in Italy and Switzerland. And because of how the rules are set in these countries, we knew beforehand that we needed to go through local French antitrust in France. So what we need to clarify is that, that is not a reaction. Again, (inaudible), I mean, this -- we knew before reaching the agreement that we needed to go through this process. And maybe I can leave Alex to provide more color on the processing fronts.

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [43]

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Yes. So out of the 3 processes that step is only required in France, as you mentioned, which is now ongoing and we do not expect major disruptive event around that, that may affect closing date. In relation to the closing date, in the case of France and Italy, those will be, for sure, by the end of the year, not before. In the case of Switzerland, it will be also by the end of the year. So in that sense, everything is in track on our previous discussions and nothing has changed.

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James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [44]

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[Can I come into] a broader question, I mean, in the discussions you've had with antitrust authorities, are you coming up against potential market share limits where the antitrust authorities might be concerned about how dominant you can become in single markets?

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [45]

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No, we do not expect because we are one of the main players in order to improve the competition. I mean we are a very pro-competitive market company. So frankly speaking, we are buying infrastructure from -- owned by 1 MNO and we are sharing with everyone. So we are accelerating the rollout of 5G. We are improving the level of tenancy ratio. So again, we do not expect to be assessed like other players in the telecom market because, again, we are playing in favor in order to improve the sharing of those infrastructures.

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Operator [46]

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The next question comes from Giles Thorne from Jefferies.

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Giles Thorne, Jefferies LLC, Research Division - Equity Analyst [47]

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I have 3 questions, please. I wanted to begin by coming back to the question of RAN sharing. It's evident now that operators are looking to RAN sharing as a means of reducing the cost of 5G deployment, which obviously represents a potential tailwind for someone like yourself because you can create a tenant that otherwise might not have existed. So my question is, as you look at your existing operations and you speak to your customers, are there any clear candidates for people who could enter into RAN sharing agreement for 5G? And given the typical boilerplate, TowerCo commercial agreement doesn't actually allow RAN sharing. How would you actually go about [manufacturing] that?

My second question was to come back to this high-level theme of Vodafone, TowerCo representing incremental competition to yourself. My reading in the press release today is that, that vehicle is going to be given a clear mandate to drive colocations, which is an explicit statement of competition for yourself. So it feels to me, we're about to stress test over the next 18 months the importance of independence to a telco when they enter into an agreement with a TowerCo. What's your view? Very high-level question, what's your view?

And then final question still, I'm afraid, on the Vodafone telco. They have mentioned today in their release that they had expressed -- sorry, have received a number of offers over time that substantiated their view that they had an asset base with some value. I'm guessing you're one of those parties that expressed interest. What is it that you think you now need to do to get those deals done? I guess this is asking in a different frame, a question that was asked earlier, which is how do you get one of these bell weathers -- bell weather telcos across the line?

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [48]

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Shall we start maybe with the first one on the potential to monetize RAN sharing?

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [49]

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RAN sharing? Okay. RAN sharing, as you well mentioned, typically is something that it is not allowed because it's a kind [relation] of a potential prospect that we may be having on the same tower. Having said that, it is a reality and that allows us to see it and negotiate. And for the future contracts, it's something that, most likely, the counterparty will like to have a very clear understanding of how the monetization may work.

Since this is an element that is now, as you mentioned, let's say, spreading, we will have a quiet, I assume, interesting discussions with our clients on the coming months. I'm trying to see how this is going to be properly written on the...

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [50]

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On your second question, well, I guess it's, I mean, difficult for us to speak on behalf of others. You know that we are presenting countries where, in some cases, there is today a tower company controlled by a mobile operator. And the only thing we can confirm is that we haven't seen competitive dynamics changing a lot in that our organic growth innovation has not been impacted in any way. So Spain, there is a tower controlled by an operator, and nothing has happened in terms of our ability to continue creating value and the [satellite] situation in Italy. So I guess that with the information or at least the experience we have today, our positioning in this country is valued. Our value proposition is valued by mobile operators. So we shouldn't be -- based on past experience, we shouldn't be concerned about a new TowerCo. (inaudible) maybe on the third one.

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Tobias Martinez Gimeno, Cellnex Telecom, S.A. - CEO, MD & Director [51]

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Well, the third one, we -- as you can imagine, we are and we will be happy to assess any specific portfolio of asset within the specific assumptions. I mean we cannot speculate about multiples. Again, based on just multiples, it's -- from our point of view, it is useless. I mean it depends on the country because companies like are you mentioning, are in different countries in different end markets, different end market positioning. In some countries, some operators are sharing 50% of the assets with other competitors. So as you can imagine, the complexity around these type of transactions, it depends country by country and asset by asset.

But again, everyone has to assess, taking into consideration, some assumptions and therefore is when we pull to make a fair comparison on valuations. Otherwise, it's a pure financial assessment.

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Operator [52]

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The next question comes from Juri Zanieri from Kempen.

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Juri Zanieri, Kempen & Co. N.V., Research Division - Analyst [53]

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Sorry. But all my question already have been answered.

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Operator [54]

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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 [55]

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The first is related with the SFR agreement that you have commented into the earnings release. I would like to know a little bit more on the details of that agreement with the (inaudible). This is -- this is going to accelerate your organic growth in PoPs in the French market.

The second question is regarding your (inaudible) follow-up on (inaudible) closing process of the Iliad and Salt deal. And I would like to know (inaudible) with the current ongoing process, are you having more visibility on the potential synergies, I think, that can come from these assets or inorganic growth deal in that sense? (inaudible) some opportunities in optimizing the ability to do programs in -- even optimizing as well the portfolios in the markets where you are enlarging your presence. Just to understand if there is more synergies opportunities in that deal.

And the third question is a retail one. Given your current surprise, we are not too far from the conversion price of the first convertible one. If I'm not wrong and according to your presentation, EUR 35.8 is the strike. Could you give us a little bit of color of what are the timing for the conversion of this convertible one in order to understand how (inaudible) can be transferring to equity?

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Alexandre Mestre Molins, Cellnex Telecom, S.A. - Global Business MD & GM of Global [56]

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Thank you, Fernando. Yes, considering SFR, well, the relevance of that element, it is that even though SFR is having their own TowerCo company, there is space for cooperation among ourselves. So it is a [framework] agreement. It is a normal way that the relationship is being established. And that framework agreement accepts addendums to it, which are the new colocation, let's say, points of presence that will be into the agreement. So the relevant element is that this framework agreement is signed and let's see how attractive is our portfolio for SFR, that we believe there are areas where we can help the densification of SFR clients.

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [57]

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Yes. Second question, Fernando. I think I'm afraid this is still too early. I mean between signing and closing, I guess (inaudible) I would say a strong M&A legal component and also client management work to be done. So I would say that we are well (inaudible) try and meet our deadlines. But I would say still early to quantify any incremental synergies above the figures we have already shared with the market.

And on the last one on the competitive...

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Unidentified Company Representative, [58]

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Fernando, this is a good news, so how -- that we are reaching the conversion price so early. So this has a positive angle. And let me tell you that the conversion of this one into equity should take place at the moment that we get the price until maturity. So from an economical perspective, a rational investor will ask for it at the moment of maturity.

So before, what we can do (inaudible) what we can do is to show how the management the ability to avoid this conversion. And it's something that, in the past, majority of the cases, this is what happens. Let's say, in Slide 14, we are trying to answer this question beforehand. And as you can read there, we are seeing the convertible bonds in the money as usually refinanced rather than converted into shares. Please note that a convertible bond -- the convertible bond market is a pocket itself. So once you get to maturity, once you get to conversion, you can, again, reissue another convertible bond, which is our clear strategy. For us, convertible bonds are in a debt finance instrument, okay? And as you know, it's very convenient for us because it has a lower coupon and a very positive treatment after tax in Spain.

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Operator [59]

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Thank you. Ladies and gentlemen, there are no further questions in the conference call. I now give back the floor to the company. Thank you.

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Juan Jose Gaitan Mañoso, Cellnex Telecom, S.A. - Head of IR [60]

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Well, thank you so much all for your time today. And for any remaining questions, the Investor Relations team will be at your disposal. Thank you so much. And for those of you who are lucky enough to take holidays today, have a very happy summer. Thank you. Bye-bye.