Earnings Call: Q4 2015

Feb 19, 2016

Annual report

Good afternoon, everyone. Thank you so much for your time today. Please allow me to start by highlighting that we are very proud to present again a solid set of results, with all of our projects progressing smoothly and our core activities delivering a sustained strong organic growth with sustained demand seen for our portfolio of assets and services. If we move to slide number 4, I would like to start by highlighting that 2015 has been a year of delivery. We have met guidance we shared with you, and we have done so supporting our activity in our three strategic pillars. The first one is the organic growth. Organic growth means the maximization of our existing portfolio to capture new revenues while efficiently managing our cost structure, hence delivering an attractive operating leverage. The second one is to keep a robust balance sheet with flexible access to debt from capital markets. The objective is to have a stable long-term balance sheet and a competitive cost, while retaining the financing flexibility required to capture new growth opportunities. The third one, we are ready to play a key role in the consolidation of the tower landscape in Europe. In this sense, I would like to emphasize that our geographical focus is Europe, that our neutral and independent nature allows us to be seen as a long-term partner for our customers, and that the only reason why we will execute a transaction is because we will create value for our shareholders. To ensure this is the case, we have a strict investment discipline. As we move to slide number 5, we can approach to specific examples that illustrate our strategic pillars. Organic growth in the telecom site rental business has been strong in 2015, with an increase of PoPs of 8%, mainly due to multi-tenancy services. That means more customers on our towers because they require additional locations, mainly for the 4G rollout, reduction of covered gaps and a higher densification, mainly in the urban areas. It is also important to mention that after just nine months of operations in Italy, the company that runs the towers we acquired from Wind Italy, we have managed to increase our tenancy ratio in the country, thus meeting our acquisition business plan so far. I think it is a very good news for everyone. Looking into 2016 onwards, we believe the main driver for organic growth will be the rationalization of overlapping networks, and in order to capture this growth, we have today identified around 1,000 towers that can be dismantled in the two countries we are present. We are actively and constantly working with different operators, and we expect to present to you good news on this front in the very short term. The economical benefits of this new activity should start being visible from 2016 to 2017. Moving to slide number 6. Here, you can see the main characteristics of our current debt structure. As a result of the refinancing process we carried out last year, we have managed to extend our maturities at a competitive cost, remove any additional covenants which might constrain our future growth, partially hedge our interest rates, and diversify our sources of funding. This creates the appropriate platform to continue pursuing M&A projects, which are analyzed under a strict value creation criteria with a view to maximize levered free cash flow per share, while minimizing the need for capital increases. With this capital structure in place, we will face no refinancing risk for the next six years, as the first maturity in 2020 can be easily repaid with cash generated by the group during this period. Our leverage stands today at EUR 927 million, with a leverage ratio of 3.7 times net debt EBITDA. Moving to slide number seven. This is just to remind you of the excellent M&A execution we have carried out during the last four years. With an average acquisition of 3,000 towers per year, which has allowed us to grow at a low mid-teens CAGR in terms of CapEx, EBITDA, and recurrent levered free cash flow. What next? Our first priority is to consolidate our presence in Spain and in Italy. Then we want to continue pursuing new projects in the main European countries, like U.K., France, and Germany. These countries offer very attractive market dynamics and interesting opportunities that we are currently assessing. I would now like to hand over to José Manuel Aisa, our CFO, who will provide you more details on this front. Thank you, Javier. I would like to take this opportunity to update on the current status of our potential acquisition of Inwit. As you all know, we have submitted along with Italian firm F2i, a non-binding offer to acquire Inwit that would trigger a mandatory tender for 100% of the company. We are today working on the second phase of the process and expect to submit our binding offer by mid-March. It is worth mentioning the importance in this kind of project of engaging a strategic local partner who can provide an important knowledge and understanding of the project framework. Our nature is that of an industrial player. We need to control the assets we acquire in order to seek full synergies and to be able to become a long-term partner for our clients and to provide additional services in the future. The financing associated with this potential transaction has already been approved by several leading financial institutions and covers the total value of the target. Finally, this transaction, and any other we may execute in the future, will only be carried out if we meet our strict investment criteria. First, at least 10% equity IRR on a project stand-alone basis. Second, recurrent levered free cash flow per share contribution from years two, three onwards, and on a consolidated basis. Finally, an increased delevering capacity of acquisitions when compared to the previous situation. So Javier, I give this return. Okay. Let's move to slide number 9. This is again, to remind you that we have met the guidance we shared with you back in August, and that constitutes an excellent starting point to meet 2016 market expectations. We have posted an adjusted EBITDA in line with market expectations. Maintenance CapEx has been slightly below. Working capital change is a slight positive, thanks to our proactive management. Interest payments have been very well contained, and tax outturn has been in line with what we anticipated. All this leads to a net debt position as of 10th of the year below market expectations. If we move to slide number 10. This strong delivery has also been recognized by the market during 2015. A 10% share price up to 23% when compared to our IPO price of EUR 14 per share. A 38% outperformance when compared to the IBEX index. Our share price has recently experienced a high degree of volatility, but our fundamentals remain equally strong and market estimates have been maintained, providing a target price of around EUR 18 per share with an upside potential of 27%. Moving to slide number 11. It is important to make emphasis again on our ability to extend the array of services we can provide over our current assets base and with our available resources. As already discussed, 2015 has been a year when multi-tenancy has provided us with a very strong organic growth, and 2016 will be a year when rationalization projects will play a key role. We are also actively monitoring and analyzing new potential business lines which may provide us with future revenue streams. BTS is an area where we will use an opportunistic approach. Today, we already have an agreement with Wind in Italy to build 400 towers over 6 years. In 2014, we entered into an agreement with Securitas Direct for the deployment of the first global IoT network with national coverage in Spain. We are now looking at extending this network by adding new locations. A field where we also see an opportunity is backhauling, which consists of acquiring the right of use of existing fiber to the tower, or the deployment of new fiber where such an alternative is not available. This will represent a way to increase the attractiveness of our portfolio, as we will be able to offer high-speed connectivity, thus avoiding future capacity bottlenecks if data demand continues rising at the current rate. The economics are similar to our core business. It is deployed on an infrastructure that can be shared across multiple customers in exchange for a long-term contract. We are also seeing potential revenues from what we call managed services. Advisory services for operators in non-core countries in order to help them with tower outsourcing processes. These services may include assistance during the pre-acquisition stage of towers, supporting the transfer of assets to the new tower co, as well as supporting further M&A plans. It is worth mentioning that these partnerships involve no equity contribution by Cellnex. In addition to our traditional macro tower business, we are also assessing the potential to increase our presence in the small cells paradigm. We currently have an 8-year contract with the Barcelona Municipality, by which we can sell co-location services for small cells placed through the city. In this regard, and leveraging on this contract, we are pleased to announce to you that we have just reached an agreement with Orange to deploy the first small cell network in Barcelona, with the potential to add more operators in the future into this network. If we move to slide number 12, we describe our experience in the area of small cells, IoT, and smart cities. As I have just mentioned, we already have a contract with the Barcelona Municipality, which grants us access to urban infrastructure and public locations in order to sell co-location services for small cells. Such agreements are of key importance as having access to premium locations in urban areas, and it is a key differentiation factor when deploying a small cell network. Today, we are analyzing the possibility with different MNOs to initiate some pilot projects with the objective to shape the business model, find the most suitable locations, and provide high-capacity connectivity in areas of a strong data demand. As I mentioned, we have just reached an agreement with Orange for the deployment of the first small cells network in Barcelona. In the area of the Internet of Things, we have deployed a national coverage network based on Sigfox technology for our customer, Securitas Direct. Today, we provide the network infrastructure, backhaul connectivity, and network maintenance, but we are also analyzing the possibility to expand our presence in other areas of the value chain. Finally, in the area of smart cities, we currently manage and maintain the Wi-Fi network of the city of Barcelona, allowing us to offer innovative services to third parties over this network, such as Wi-Fi mesh. It means active interconnection of access points or as a platform of offload. I mean, mobile data downloads over Wi-Fi networks. Moving to slide number 13, let me now please end this session reminding our main highlights for 2015. We are now a public company in a very successful IPO, with the market supporting our equity story based on becoming the tower consolidator in Europe. We have managed to show a continued strong performance in the telecom site rental business based on organic growth and strategic acquisitions, while setting the foundations for future organic growth. By the end of 2015, we held the position number 25 in terms of market capitalization of Spanish companies. The 20th of July, we successfully completed our inaugural debt capital market transaction, with a EUR 600 million bond, a seven-year maturity, and a coupon of 3.125%. The bond was six times oversubscribed and has no covenants, allowing for future growth. We carry out a transformational deal less than one year ago by acquiring 7,377 towers from Wind in Italy. The integration process of this new company is on track, and we are extremely pleased with its performance, better than anticipated. We have started implementing the first stage of our efficiency program. We have paid our first dividend. The national MUX re-tendering process has been completed, and we are now working with our customers in order to accelerate the switch file. Additionally, the 700 MHz band has been allocated to TV use at least until 2023. Finally, six months ago, we shared a guidance with you that we have met, which proves our focus on delivery. Now, please allow me to hand over to José Manuel Aisa, who will explain to you in detail our 2016 business and financial performance. Please, Jose Manuel. Thank you, Tobias. Regarding the 2015 business performance, let me start by highlighting that we have met the guidance we shared with you two quarters ago, and that we have managed to meet this guidance mainly because of the strong organic growth in 2015, leading at the same time to a cash conversion ratio of 83%. Moving to slide 15. In terms of cities, we have managed to increase the number of new PoPs by 8% compared to December 2015, thanks to our clients 4G rollout, the reduction of coverage gaps, and higher network densification needs. In 2015, we have doubled the size of our tower portfolio by acquiring 300 towers from Telefonica back in January 2015 and 7,377 towers from Wind back in March. It's worth mentioning that the integration process of this new company is on track, and in less than one year of operations, we are proud of its performance, even better than we anticipated at the time of the acquisition. We are also paving the way for future organic growth by actively pushing densification projects with mobile operators looking for a reduction of their cost base to maintain traffic. In Italy, we see a pool of around 2,000 towers to be decommissioned and are working intensely to announce an agreement. This strong performance of our telecom site rental business more than offsets the temporary impact from the shutdown of TV channels back in 2014, which we expect to bring back to normalized levels this year. In this regard, we can confirm that the re-tendering process of 15 TV channels has been completed, and that we have signed contracts with all of the groups that have been awarded the TV channel. We are now working closely with our customers in order to help them switch on the definite content as soon as possible, and they are all now prospecting in test mode. Additionally, the risk of loss of eight TV channels was completely removed. Four national DTT content with free-to-air channels have recently been renewed, and the outcome of the World Radio Communication Conference back in December. In the network services and other areas, we have also seen a strong performance thanks to the PPDR site business, with expansion of the COMDES network in the Valencia region and the common station network for the railway station in the Barcelona area. As Tobias has stated earlier, we have deployed an Internet of Things network with national coverage. We are analyzing the possibility to invest in backhauling for our customers, and we are also looking into the possibility to start trials in Barcelona in the area of the small cell. On top of everything we have learned and what we believe we can achieve in the short term, we keep analyzing any single opportunity we can find to continue creating value for our shareholders. One example is the refinancing process we carried out last July, allowing us to achieve an efficient capital structure ready to continue capturing new growth opportunities. Another is our efficiency program, the details of which we will provide later. Last but not least, the new measures we have implemented in order to strengthen our cash management. Coming to the next slide. You can see here the evolution of sites, new sites, and the resulting gross leasing tenancy ratio, with the impact of M&A activity explaining the main changes. In slide 17, we have continued to optimize our network through decommissioning and managed to grow organically by adding tenants in the two countries where we are present. It is very important to emphasize that in the period, we have increased the number of PoPs by 8% when compared to December 2014, reflecting the attractiveness of our portfolio for mobile operators. On slide 18, we can indicate the framework of Cellnex site rental business in terms of revenue. Here you can see how the 15 asset sales contribute EUR 8 million to our 2015 figures, with the change of parameters at EUR 188 million in the same period. Moving now to adjusted EBITDA in slide 19. You can see how the negative impact of the broadcasting business is more than offset by inorganic and organic growth in the telecom site rental business, with a contribution of the organic growth of EUR 6 million in the year, talking about the telecom site rental. Slide 20. If we now focus on the adjusted EBITDA margin evolution, operating leverage coming from organic growth increases our margin by 2%. All of this in turn illustrates that the contributions and data center are the temporary loss of TV channels. In slide 21, let me now spend some time explaining our recurring level free cash flow generation in detail. I would like to start by highlighting that recurring level free cash flow in 2015 has increased 28% when compared to 2014, and that we have managed to keep our sound cash conversion ratio at 83%, even with temporary negative impact from our broadcasting business. Looking to revenues, telecom site rental increases mainly due to the strong organic growth of the results and to recent acquisitions. In the broadcasting business, we have suffered the negative impact of the shutdown of nine TV channels which took place in May 2014. This effect has partially been offset by the stimulus carried out during the first months of 2015. Please take into consideration that this is a one-off effect in the year, with its associated revenues not to be seen again in 2016. Network services and other revenues show a strong increase due to the extension of PPDR contracts and the sale of set-top terminals. Moving now to OpEx, we have a very well-contained cost base with a flat performance on a like-for-like basis. Decrease shown is mainly due to cost synergy associated with our recent acquisitions and incremental cost when we charge it as a pass-through. Therefore, partially reflective on revenues. As the year progresses, we expect efficiencies to start being more and more visible on our figures. On adjusted EBITDA, our adjusted EBITDA reaches EUR 235 million, in line with our guidance and showing a strong 32% increase when compared to last year. Our working capital change remain slightly positive thanks to our strict management, and we expect this strict trend going forward. When compared to last year, tax paid has decreased, mainly because of the implementation of certain tax management measures. Maintenance CapEx has been rational during this last quarter, reaching normalized levels. Decrease in non-M&A investment CapEx is mainly explained by the work carried out in the process of the single tower, which partially translates into more revenues in the period. M&A investment increased due to the data platform phase 2 of Waterstones. On shareholder remuneration, our board of directors will propose at the annual shareholders meeting the distribution of a final dividend of EUR 0.047 per share, bringing the total dividend to be distributed against 2015 results to around EUR 20 million, if approved, or in other words, 20% of our recurring level free cash flow for the second half of 2015 after taxes and the IPO. Slide 22. Moving now to our balance sheet. Net leverage has decreased to 3.7 times net debt adjusted EBITDA, annualized EBITDA, below market consensus and also below our long-term average target of 4 times. The group has increased the size of its total assets by amount slightly below EUR 1 billion due to the impact of Galata. Our total equity has remained similar to 2014, with the change mainly due to the net profit generated in the year. Our total borrowings have increased EUR 350 million in order to accomplish the already mentioned acquisitions, and with our balance sheet now reflecting our new capital structure and our own issues. Coming back to the remaining lines of our income statement, depreciation and amortization charge increased mainly as a result of our recent acquisitions. It is worth mentioning that we have finalized the purchase price allocation process of Galata, and the figures provided can now be used to project D&A going forward. With regards to income tax, it includes the non-cash impact in deferred tax due to the change in the Italian tax rates applicable from 2017 onwards. This was a change carried out by the Italian government as of September 28, 2015. Net profit reaches EUR 48 million, down with respect to last year due to the combined contribution of EBITDA as well as Spain. We will now focus on our capital allocation for this year. Slide 23. M&A investment has been dedicated in 2015 to the execution of Galata and 300 towers for Telefonica. Organic expansion CapEx, which is directly linked to additional earnings or their reduction, is deployed with the strict criteria of low risk and levered IRR. In 2015, most of these CapEx has been invested in simulcast, the first step of our efficiency plan and the process of a split of Tronoherty in the context of our IPO. Additionally, our board has provided us with a new capital deployment tool we might use, which is the potential acquisition of treasury stock. We do keep additional lever to make the most of attractive CapEx buys and for its future use in corporate transactions, thus reducing the size of capital increases. Going now to slide 24. As highlighted in 2015 and reflected in our H1 2015 results, there are several cost areas where we see room for improvement and that will constitute the basis of our current efficiency plan. The main contributor to this efficiency plan will be savings from ground leases. The two tools we will be applying are straight rent allocations, which reduce the annual rent being paid, and also extended duration of ground lease contracts. Also, we target on a lump sum being paid in advance in exchange for a lease reduction and extension of the contract. The initiative targets around 5,000 sites, and we believe we can extract savings of around EUR 14 million in 2019 cumulative. But there are also other areas from where we can extract additional savings. When it comes to energy, we will focus on reducing the amount of electricity used and the electricity fees currently being paid by renegotiating with our suppliers. In this area, we are targeting a total of 800 sites with potential for OpEx reduction. We are also upgrading our radio frequency connectivity network in order to make a more efficient use of the spectrum and thus achieve savings in our spectrum fees. Other alternatives are focused on the redesign of internal processes to remove inefficiencies and contract renegotiation with suppliers. Slide 25. These first measures are expected to be domestic in 2015, and we will see the full benefit in 2019, with the aim to improve OpEx consensus for that year. It is important to highlight that this plan is back-loaded, with the bulk of the savings reaching mainly in 2018-2019 period. CapEx-intensive initiatives will fall into the non-M&A asset CapEx category, and as such, they will be deployed aiming at a low risk and levered IRR. As you can see on the chart, we expect an evolution of OpEx reflecting full year impact of recent changes of perimeter, inflation, and any incremental OpEx linked to additional organic growth. This efficiency plan targets an OpEx reduction of 5% of the 2019 OpEx without initiatives. Moving to slide 26. In terms of the financial outlook for 2016, we believe we can provide a recurring levered free cash flow at least 10% higher than in 2015 and in line with the market expectations. Looking at the different contribution lines, it is important to highlight that 88% of our revenues for 2016 are already fully contracted. We expect adjusted EBITDA to grow around the high teens mark, and the rest of the lines can be projected according to our already established guidelines. I think our measures expect that we will expect it to be similar to 2015, despite a higher income in 2016. Now let me please hand over to Tobias for the final remarks. Please, Tobias. Thank you, Jose Manuel. Well, let me present this presentation first saying that thank you for your time and for your interest. Finally, reminding that this year we have managed to show a very tough organic growth. We have changed our capital structure, allowing for future growth. We have successfully carried out a transformational deal and integrated a new company, Galata, with a performance which is in line with our business plan. We have met the guidance we provide, which proves our focus on delivery. With this, only I would like to open the line to answer your questions. Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press 01 on your telephone keypad. First question comes from Simon Coles from Barclays. Please go ahead, sir. Hi, Simon Coles from Barclays here. Congratulations on the results. I am just having a question on your efficiency plan for 2016 to 2019. Do you plan to try new cash advance techniques to get better terms on the lease cost, or are you more leaning towards the rent negotiation technique? It is a combination of both things. As explained in the presentation, obviously we have been talking about cash advances, renegotiations, and also, I mean, a lot of different techniques which might be also will help. At the end of the day, depending on side-by-side basis, you have to understand the needs of the landlords and then to make the propositions that better sticks to this thing. I think the answer to your question is all the tools are available on our hands. I think we have a devoted team which is pushing every single opportunity, and we will try our best in order to improve this cost issue we will carry out. Okay. You won't lead with one technique and then have another technique as a fallback option? Exactly. It depends side by side. Okay, great. I was just wondering, so Inwit has said that they're going to buy as many leases as possible. Is there any reason why you have decided not to use that technique as well? Hi, this is Francisco. We might choose it as well. We are confident we can apply these tools with overview, with our agents on our places, and if detected this type of opportunity, we are happy to analyze it. At this stage, we believe the impact we experience, we discussed it from these two tools we have shared with you. Okay. Thank you very much. Next question comes from Henrik Katz from Credit Suisse. Please go ahead, sir. Yeah, thanks very much. I have two questions, please. First one is on the 2,000 sites you have been talking about for a couple of quarters now and the efficiency around that. Just wondering, you seem to have been delayed slightly, and if you could just explain a little bit what the difficulties been when you have been negotiating around this. Once you have found a model that works, I guess this is one of the first deals of a kind in Europe. If you think once you have found a solution, if this kind of applicable on other areas, and next deal should be a little bit smoother. Then the second question was around the financing of your update on the Inwit deal. You are saying that you have got long-term financing approved, covering the total target value. Does that mean we should rule out that you would potentially do a rights issue to finance part of a potential deal? That was it. Thanks very much. Actually, as well on that, you have talked about 6.5x, I think, the maximum debt-to-EBITDA you can stretch to, given what has been going on in the debt market. Is that still your thinking, or has that changed? Thank you. Okay. Thank you, Henrik. This is Àlex Mestre, business development director. I will answer the first part of your question, which is in relation to- Let's say the potential decommissioning plans as Jose Manuel and Tobias mentioned during this call today, we are in advanced discussions. Here there are several projects ongoing, not only in Spain but also in Italy. As you know, we are approaching two types of business model. One, it is, in some cases easier, which is the monetization of assets that one operator may be, let's say, interested in selling. The other one is more on the rationalization. Then this aspect that takes some time on finding the pairs. We need to go into the detail analysis of site by site, making the decision which one of the two potential sites to be decommissioned is going to survive at the end. That obliges us to do an analysis in relation to not only the cost of the lease but also, for instance, the fiber assets. In some cases, there is also interesting to move the fiber if the ground is cheaper or the other way around. If the fiber is present, we may choose the side with the fiber. That takes some time. That also takes some, let's say, discussions with the MNOs and a detailed analysis on which are the activities that have to be performed by the MNO or by ourselves, especially on the moving of the equipment. All those discussions are quite advanced. We have detailed, let's say, identified bunch of portfolios, as I said, with several operators and in both countries, Spain and Italy. That will take some time. But work is absolutely in progress. Regarding the questions about the rights issue. What we have now approved, the banks give us different structures that will accommodate the different price, and that we can offer. Rights issue obviously is something that we may execute in this transaction, but we are not forced to execute it at the beginning of the transaction or very early. I think we will have enough headroom, if necessary, to execute in the right momentum, in the right moment for the market, being aware of how the market is and being commensurate with the situation of our balance sheet. Also, please take into account that the financing of the structure is based also in our minorities. We were talking about F2i. As you know that Telecinco is not selling its real estate. I think the funding of the transaction is not only a question of rights issue or debt coming from banks. I think banks have to support us in every single tranche of the financing structure, then obviously to be able to minimize the rights issue and at the same time to find the right momentum to execute it. Also, on top of that, in the current market, and talking about bonds and talking about debt market, we're going to be consistent with our long-term forecast at the EBITDA, as we have explained, happily to go to a peak. That could be maybe 6.5x at the EBITDA, but always being commensurate with the current market situation. If the market is tougher or it seems it is this year, maybe the peak, for instance, for the EBITDA is something we have to be prudent. Okay? Maybe another peak slightly smaller can be more achievable. At the end of the day, we will try to present to you a fully financed package that gives comfort that we are not in a hurry to execute a bond issuance or to execute a rights issue, or execute whatever scheme we may have. We will have time, we will have the back of our banks, and also we will try to be coherent with the market in terms of financing. Thanks very much. Can I just follow up on the first question in terms of the rationalization of portfolios? It sounds like there's a lot of moving parts. Just because you find a good solution for these 2,000 sites you're looking at now doesn't mean you have a blueprint for the next step. Is that how it should And each time it will require quite a lot of factors taken into account and quite complicated negotiations. Is that right? Thanks. No, I think it is quite a blueprint, a grouping kind of process. We know what has to be, let's say, taken into account in each one of the projects. And it is a matter to decide which activities are done by the MNO, which activities are done by us. But I think our value proposition is quite straightforward. It is more an engineering analysis that has to be performed in order to identify which are, let's say, the final sites to be decommissioned and which ones revised, as I said. But it is not, let's say, a starting from scratch every time, each one of the projects. To go through all the different details. No, it's more straightforward in terms of knowing clearly what has to be done. Great. Thanks so much. Next question comes from Luigi Minerva from HSBC. Please go ahead, sir. Yes. Good afternoon. Thanks for taking the questions. I have three, if I may. Firstly, on Inwit and the structure of your partnership with F2i. Should we assume a 50/50 contribution or maybe 60/40 with you having a higher contribution? If you can give us some guidance there. Secondly, I am interested in the level of the debate with the network, the mobile operators. Now we are talking about also backhauling opportunities. Traditionally, towers backhaul that have been considered strategic. I am just wondering, how do you engage with them? If you feel they are more receptive of the idea that ownership of this infrastructure is not necessarily relevant over the medium term for the mobile operators. Finally, I am intrigued about the Smart Cities project in Barcelona and with Orange. On paper, it looks like a great opportunity, but I am just wondering about the economics. Is there anything you can share with us already at this stage? Thank you. So maybe to answer your questions about F2i. F2i will get minority shareholder, and it is because, we have the duty to manage the process, the project, and we have to integrate in our structure if we succeed initially. So, F2i fits very well with us. It is very complementary with us. The final stake is not really defined, but a minority stake. When we talk about the new services like the backhaul, we are talking about connect our existing portfolio of assets, connecting the optical fiber to the tower. It is an initiative of Cellnex taking into consideration the requirements from our customers and the technical requirement of the new technologies like 4G. So this is, I think, a win-win scenario, an opportunity to bring these new services in our existing towers. So this is the reason why we could execute the last mile of connectivity from point of service from this point of service of optical fiber to our towers. We think that this is an added value on top of our existing towers. And regarding the small cells, maybe Àlex will know better than me. Absolutely, yeah. Final agreement, because it is very recent. It is recent. I think we are launching a press release today alongside with Orange and the municipality of Barcelona. This is leveraging on the contract that has been automation of eight-year contract that we have with the municipality, where we have access of port telecom purposes to the municipal furniture like lamps and traffic lights. We are experimenting with, let's say, Orange, the rollout of several cells on the most, let's say, in terms of traffic areas of Barcelona, with a system that is intended to be, let's say, permanent. So it's a bit more than a pilot as described. And here, let's say, interestingly, we are working on the different positions where the small cells could be, either it is advertising, let's say billboards or ramps, the height, and how the height affects synchronization with macro cells. We believe that there is a strong interest from Orange in particular on going fast on that area and being able to reuse the different frequencies they have. As you know, the MNOs have different plots of frequencies, and specifically in that case, 2.6 gigahertz is going to be used. Other MNOs are also having interest on that, and there are different, let's say, layers of involvement to the point that potentially share active equipment. In the case of Orange, we provide the optical network, access to the infrastructure, and power supply and help them on the engineering and design. In terms of economics, should we assume a sort of lump sum for a given city and with a certain profitability, a certain margin? How should we think about it? Well, in terms of economics, this is something that being the landlord, let me put it like that, the municipality is some of the firms that are in the process to be discussed yet with the municipality. But I think in some logical sense from the MNO, they tend to link, let's say, the traffic which is delivered by a small cell in comparison to one macro. And this is a sort of, let's say, thresholds that they are willing to pay for a small cell. But this is part of the issues which are on, let's say, on the topics to be worked on the test. Okay. Thank you very much. Next question comes from Emmet Kelly from Morgan Stanley. Please go ahead, sir. Yes. Good afternoon. Thanks for taking the questions. I've got three quick questions, please. The first one is on Spain. I've seen that Yoigo have said that they're looking to expand their network in Spain. They've been looking at adding about 5,000 or 6,000 PoPs in Spain. Do you see an opportunity there for Cellnex, be it secondary tenancies or maybe build-to-suit? That's my first question. The second question, just looking at the map that you have on page 7 of the presentation, I see you've outlined a few kind of newish markets, Portugal, U.K., Germany. I noticed earlier you said you felt in Italy, you need a partner in that market to do a deal with Inwit. Are you likely to be looking for partners in those countries as well, or are you looking to buy off indebted operators or looking for maybe some remedies that might come out of proposed consolidation? Just trying to figure out what you are thinking on these markets or whether these maybe more than European markets may be more of a secondary focus for you. Then just in the last question, kind of more of a throwaway question. I am just looking at the same map. I see you mentioned consolidation in Italy. Does that consolidation refer to consolidation between Inwit and Cellnex as being the opportunity or consolidation between Hutch and Wind, assuming Hutch and Wind just get approved by the commission. Could you just remind us of what the opportunities might be there for you? Thank you. Well, today, on your first question, about Yoigo. Today, Yoigo is a relevant customer of Cellnex in Spain. Today, we have 2,500 PoPs with Yoigo. As you can imagine, if Yoigo wants to roll out a new or 4G network, we will be there. I do not know in which size or what will be the final approach, but I cannot tell you anything else because this is a very sensitive information from our customer. But of course, could be a potential opportunity if this project will happen. On your question about the slide number, in page number 7. Well, for us, makes sense to raise agreements with local partners if the role will be complementary. I mean, like with F2i. We are industrial investors, as you know. We have a clear role. We have a clear strategy over Europe. But it does not mean that to get local partners is a must. Because if you look back on our Galata transaction, we did not get any Italian partners. But when we approach Inwit, as you can imagine, if you add Galata and on top of that, Inwit, it will count more than 50% of our current business. So this is the reason why we thought that makes sense to approach and to look for a local partner, and F2i fits very well with us. From our point of view, consolidation for us make more sense in the meaning of Inwit. I mean, Inwit is the current network that fits 100% with us, make a lot of sense in terms of synergies because for us, Italy is not a project, it is a real operation. We are delivering one-third of our revenues. We have 50% of our assets in Italy, and we have a national coverage network. So, this is the reason why for us, well, the consolidation between Wind and Hutch maybe is a fact in the whole of Europe, in every country. Consolidation will happen in every country. But for us, in terms of infrastructures, it is attractive to approach in the meaning of telecommunications companies like Inwit. Sure. Thank you very much. Next question comes from James Ratzer from New Street Research. Please go ahead, sir. Yes, thank you very much indeed. Two questions. First one was regarding the potential bid for Inwit. I know it's been widely rumored that in the first round, EI Towers had the highest bid, but they were only willing to bid for a 30% stake in Inwit. I just wanted to check that you would not be willing to go down to a 30% stake. You have previously commented on the commentary you'd make a mandatory offer, if your bid was successful, and is the point to check if there's any flexibility on that from your perspective. Secondly, just regarding M&A in other countries, and this follows on from Anna's previous question. You've got quite a wide range of countries you are now interested in across Europe. Firstly, I presume we'd only see you move in those countries if Inwit is unsuccessful. Secondly, which countries do you think are most appealing to you when you're looking at these countries? What is it in particular that you would be most interested in looking for? Thank you. Okay. It's very difficult to reply to the first question because this is very sensitive information regarding the offers. As we are aware, at least for the press, it is true, taking into consideration that we have no official information for other offers. If it's true that others are submitting 39.9%, first of all, that I want to remark is that, at least the process letter from TI was very clear, at least 45% of the stake. Second remark that I want to underline is that if you submit below 30%, minorities shareholders of Inwit will be out of this transaction. Third one is that Cellnex is an industrial partner, and our DNA is to manage the whole infrastructure, to manage the company, receive the synergies, to lead, and to take the responsibility in front of our shareholders for this project. These are the reason why, for us, it doesn't make sense to give 30% or 29.9%. Second question. Our project is huge. It's not Spain, it's not Italy. For sure, Italy and Spain today are our first priority. I'm not telling you that for us, is the same company without or with Inwit. We have other opportunities in our pipeline, for sure, but we want to prioritize today our opportunities, and for sure, Italy and Spain consolidation are our first priority, and this is the reason why, and which makes a lot of sense in the next weeks. But for sure, if we don't succeed Inwit, we will proceed with other opportunities that we have in our pipeline. With the other opportunities that might be in your pipeline, is there anything specific in the different countries you would be looking for if you were to rank attractiveness of each of the different countries in Europe you're looking at? As we stated several times before, for us it's very important to keep in the five countries, in the big five countries in Europe. I mean Spain and Italy, but France, Germany, and U.K. as well. This would be our second priority after the consolidation of Italy and Spain. Okay, great. Thank you very much. Next question comes from Domenico Ghilotti from Equita. Please go ahead, sir. Yeah. My first question is on the tower rationalization process. I would like to understand how to think about this process. If you see a small number of big framework agreements, or if you are more moving, say, batch by batch or little by little. The second question is Sorry, Dominic, you might repeat your first question. Sorry. Sure. Rationalization process. I would like to understand if you have to assume a small number of big framework agreements with deals or with MNOs, or if you are moving little by little. So batch by batch, it would be much more progressive all the time. Second question is on backhauling. In slide 11, I see EUR 20 million CapEx. I do not understand if this is related to the backhauling opportunity or not, and in case, what is your expectation in terms of investment related to backhauling opportunity? Okay. In terms of rationalization, those are very much a retain engineering project, and we work on batch by batch as a general rule. Batch by batch is not 20 by 20, it is more 200 by 200. So have to have some sort of material level in order to launch, let us say, the processes for the commissioning and the rest of the process. So it is more on this 100 range, batch by batch always. Okay. Yeah. Regarding the backhauling investment, what here what we have put is It is an investment that we are somehow assessing. It is a first step also, as we were saying before, we are opening the market in many angles, and if this deal close in the next months, we will see more 3,000 towers. Obviously we have a longer contract for this investment, EUR 20 million. Okay. Thank you. Next question comes from Sam Wood, from Goldman Sachs. Please go ahead, sir. Thanks for the questions. I've just got two on organic PoPs growth, please. Firstly, organic PoPs growth this year at 8%, just slightly ahead of expectations that you laid out at the IPO. What's driving the increase versus your original expectations? What's your expectation of a feasible long run organic CapEx rate, excluding transformational and non-transformational M&A? Secondly, to what extent do your expectations of organic PoPs growth differ across the existing portfolios in Spain and Italy today? In terms of this past year, I think we've been, as we mentioned, as Emanuele was mentioning before, overachieving our expectations in Italy in terms of the original business plan. We've been able, I think, to close some framework agreements in terms of new tenancy ratio that helped us to reach this growth alongside also in Spain. In that sense, the organic, let's say, requirements based basically in terms of requirements of new PoPs due to densification, which is catching most of the, let's say, requirements from our customers have led this growth. I understand that the second part of your question is whether we are in a position to maintain this- This question, because I think that from now on, we think that 8% is difficult to carry out, should be less in the future. At the same time, we should see some rationalization. Exactly. The organic growth trend or mix should change a little bit in the future. 8% has been exceptional. All our guidance has been always around 3%-4% in the organic growth term, which makes sense. If more, we are working for more, of course, it will be easier good news for everyone. We are talking about 3%-4% of organic growth, taking into consideration no inflation. Yes. Taking- Yes. Next question comes from Herman Garcia from JB Capital Markets. Please go ahead, sir. Good afternoon, gentlemen. I have just one question. I would like to know your impressions about the potential IPO of Telefonica's towers in the U.K. Thank you very much. Well, for us, as I told you this morning, Telefonica is one of our main relevant customers, so we are managing our relationships as it is. Second one, we have to understand finally more on the specific strategy of Telefonica on that regard, because as we are aware, it seems that this is a mix of different type of infrastructures, not only in Spain, even in other countries even with some submarine cables or I do not know what will be the final perimeter. Obviously, we keep open, we keep near of our customers in order to explore any kind of cooperation that we may have. As of today, that is it. Maybe if you wish, maybe to underline another important, I think, question is maybe we are the unique independent telecom infrastructure in order to consolidate the market, in order to attract other operators. I think this is another characteristic of our project and the scope of Europe. If I am not wrong, maybe the overlapping with the perimeter of this company will be in Spain. Our scope is the whole Europe. Again for us being neutral and independent, it is very important to be the consolidator in every country. Okay. Thank you very much. Next question comes from Fabio D'Orazio from Société Générale. Please go ahead, sir. Hi, good afternoon. This is Fabio D'Orazio. I have another follow-up question. The first is on the backhauling. This one is calling into a model that is a lot different from the one you have done in the past. In the past, you usually bought towers, and then you lease space. Here you have to build. My question is, you mentioned a EUR 20 million opportunistic CapEx. How much more of the expansion CapEx you put it today was around 5%-10% of revenues will be put on calling? Second, if you keep also the revenue model, so working for calling, how are you going to charge for it, and there will be any synergy with purchases? I believe that towers you provide a performance once you take some small infrastructure rental. The second question is on the top capping. Custom revenue is still down around EUR 25 million. EUR 15 million are basically one-off. The question is, what is the rest, and how are we to think about that going forward into 2016? The third is on the dynamics of any potential rights issue for this transaction with Inwit. More precisely, you basically stressed that you want to keep flexibility. You do not know what markets are like. The transaction complete, basically the transaction anyway. Then you also put 6.4 times as your peak for net debt to EBITDA. It is difficult to imagine that you can do with 6.4 times the entire transaction. Therefore, how are you going to basically, take decisions on the rights issues if you can basically start your gearing up to 6.4? What else you can do? Thanks. Okay. I will try to answer your questions because it has not been clear, has been maybe 10. So help me if I forget something, okay? Regarding the first one is the EUR 20 million CapEx. Obviously, it's working now. What percentage of the 5%-10% guideline if we have to obtain from these initiatives? To be honest, right now, I don't know. What we do know is that what we have done this year. This year, we have invested EUR 13 million of expansion CapEx, which represents 5%. Most of it has come from the simulcast, okay? So eventually, we are satisfied at least 5% we need maybe for that opportunity of the backhauling or maybe for a simulcast tomorrow or maybe for dismantling part of these 2,000 towers. But rest assured that stages that will bring to you different opportunities that will be kept between the 5%-10%. Obviously, if we do 5%, increase in revenue will be really smaller than if we invest 10%. But I cannot tell you how much will be allocated as not only these opportunities are coming, but also we are working at more cells, we are working in different cities. So there are different angles that have to be kept in this 5%-10% as long as we get a good ROI. Otherwise, we will not do it. Obviously, in your first question, you were also pointing out the thing that if there were some kind of economies of scale, or if we could do something, this was the concept. But of course. If we operate the backhauling, it's because we do think that in that tower, there will be the current tenant and another tenant tomorrow or maybe another one much later. So for us, at the end of the day, backhauling is another sharing scheme. A tower is a sharing opportunity. So backhauling is again a sharing opportunity around long-term contracts that have to be done case by case. This is very easy. We cannot give you, "It will be 2% in that third year." We can't. I wish I could, but I can't. Your second question was about EUR 20 million of which you said half more or less was coming from simulcast as Tony said. And the other half is coming from what? Okay. I think that, it is true that the simulcast is what is left, something one-off. But at the same time, you have to take into account that the expansion progress, expansion CapEx will allow us to have this kind of one-off in a recurrent basis, as we were saying before. But on top of that, another half of this EUR 25 I think you said is the organic growth. You have EUR 8 million coming from organic growth, but it has been explained the presentation. And the rest is always, I don't know. You can be talking a little bit of efficiency. More or less it's easy they did and all. The thing is, at the end of the day, that the company is performing well. It's performing very well. And I think that in this 2016, we will be able to deliver what we are committing again here. Also, Tony, you know that we are a prudent company, we are a prudent management team, and we try to give something that we are able to deliver. And step by step. So, you have a structural thing that maybe is not into our model, but you have to take into account. Also regarding the rights issue, you are right. If we go to the 6.5x net debt to EBITDA, we cannot execute any other thing. Totally right. However, as I explained before, the idea is not only to go to 6.5x net debt to EBITDA. This is a possibility, but also to be commensurate With the market situation, with the bond market, with the bank debt market. We have to keep coherence because as you know, the market is important, but as you said, also, the opportunities and the pipeline is important. So pretty sure that if we go to the market at some point with a rights issue, it's because we're able to present to you a coherent framework, not only because we have done Inwit or not, or it's a coherent framework. Okay? Which, from a net debt to EBITDA perspective, will make sense. Will make sense. From a recurrent EBITDA perspective, I can assure you we'll be attractive. Which at the end of the day is what we think our shareholders are asking for. Many thanks. You're welcome, Matteo. Next question comes from Patrick Bajzek from Auris Qing Financial. Please go ahead, sir. Dario, well done on your results. I have one quick question regarding consolidation in Europe. We know that there is potential move from four players to three players in France and in U.K. In a situation where you would see a remedy disposal of towers in those two countries, would you be in a position to participate in those remedies and acquire some of them on your own? Yes, this is an opportunity for sure. Maybe we could be part of the remedies. We could be part of the solution. In Italy, we know very well in advance the potential merge between Wind and Hutch. It is a full protection in our complex. Looking in the future, we could help even if the merge happens or not. Maybe another example of that, maybe you are referring for is U.K. Again, today our priority is to approach and to understand if we can succeed on the Inwit transaction, because we have to submit the binding offers at mid of March. As you can imagine, we are 100% devoted to understand if we can succeed or not. Thank you very much. That was a great answer. Thank you. Thank you. Next question, it's a follow-up one from Domenico Ghilotti from Equita. Please go ahead, sir. Yes, thanks. The first question is on the ground lease savings that you are targeting EUR 14 million by 2019. It would be interesting to know what is the CapEx or advanced payment at these savings, in your opinion. The second question you were mentioning is protection that you have on the Wind/Hutch potential merger. Could it be a full protection? How long is this protection? Third question, last question is, on the telecom revenues, looking quarter-on-quarter, I see some decline in the trend. I would like to understand what is driving down the performance on a constant basis. Hi, Dominique. This is Juan. On the ground lease, well, it's not a mono key. CapEx will be placed on the X times the annuity. We are just negotiating with the vendor, and again, the final amount will be 38, which depends on the need to create straightforward negotiations or just a process. It's not a big commitment if you can make any paper. The second question, the protection lasts for the full duration of the current contract. So it's full protection. To your third one, we have two different effects. In Italy, explained the slight decline. Electricity associated with the pass-through, and the electricity cost will pass through our customers. So it's just one of adjustment on these bills are resulting into Q4. Again, in Italy, as you know, you are aware that we took additional G to Wind into additional support energies, which is linked to the allocation of a certain amount of towers. We did not need G. We took more than 15. We took already in Q1 2016. So it has some timing effect on this additional G we had to do to Wind. Okay, thank you. Next question comes from Fernando Cordero from Banco Santander. Please go ahead, sir. Hello, thanks for taking my two questions. The first one is related with the competitive test. In that sense, the question is just on the second digital dividend. Starting from the news coming from the ITU as well as from GN from the European Union, which is going to allocate the 700 MHz spectrum to more players. I do not know when it could take place. But in any case, can you remind us what could be the impact in your business of this potential second digital dividend in terms of revenues to maintain the current capacity and also as well on CapEx? The second question is a follow-up on the Inwit transaction, Inwit deal. My question is regarding what time or after or where. What is going to be the reactor funding picture in the sense that are you looking to fully stress your capacity for additional use or looking within a structure for potentially to build room and change some room to do in some 6Q finish of them? Thanks. In relation to the first question, in the 700 MHz band, we do not foresee any impact in the number of multiplexers. The recent re-planning and everything has mostly taken that into account, and we do not see any impact. Below 200, the good news from the recent ITU Conference last November in Geneva is that this is also protected until 2023. In that sense, we also feel that the broadcasting business is pretty well secured. That's awesome. The second question was regarding, I think it's something very similar to Dario's question on the 15.5, or whatever, on the right issue, no? Obviously, we will have to bring to you something which is commensurate with our pipeline. If we do a right issue or IPO, I don't know, whatever, we have to have the right issue time, then we have to present a right issue for today and maybe for, I don't know, maybe tomorrow. I don't know. It will depend on the market, how it's performing. It will depend on the demand of ourselves, if we are performing well, if we are not performing well, how is the bond market. We are already exploring every single situation because at the end of the day, what we want to present to you is something that from every single perspective, is lucrative. Being aware that we cannot come back to the market every 2 months, okay? This is the number where we are. It's not easy to figure out the number, but it will make sense to all of that, you will see. Okay. Thank you. Next question comes from Jonathan Dan from Royal Bank of Canada. Please go ahead, sir. Hi there. Thank you for taking this call. I have 2 questions. The first question is to do with tax. I believe there's a rule in, if not law in Italy, that allows you to convert goodwill into tax deductions. Have you already capitalized on that? Then secondly, if there's any similar opportunities in Spain. My second question, I think in the first quarter, you mentioned the framework agreement with a mobile broadband operator for around 1,500 sites. Can you just give us an update on that contract or that arrangement? Well, John, again, you follow very well the last months of evolution of Cellnex. This goodwill change of law took place in Italy as of December 28, 2015. Finally, it seems possible to depreciate the goodwill from 10 years to five years. The thing is that in order to depreciate this goodwill for tax purposes in five years' time, you need to pay tax on 16% of the goodwill. Then you can somehow get back, let's say, the corporate tax income of the company multiplied by this goodwill for five years. Obviously, divided by five for five years. This is something that can take place as long as there is a merger and as long as this goodwill comes up in the balance sheet of the company. So it cannot be a consolidated goodwill. It has to be a goodwill that appears in the financial published statements of the company. In order to do so, as you know, you have to merge the target and the vehicle. This is something that maybe it depends on the structure, maybe it doesn't happen. This is the first caveat. The second caveat I will say to you regarding the goodwill is you have to see that from, as we said. Finally, you have to do a PPA exercise. A PPA exercise, you know, is a purchase price allocation in which you say how much of this goodwill has to be allocated to assets and therefore are not tax deductible, or how much of this goodwill can be retained as goodwill and therefore deductible. So John, the law is clear. There are three limitations, and it's not easy to fulfill all of them. You can take for granted that if we finally, as a company, we will assess this in detail. We are also assessing this in detail, but it's not easy to implement. Second, the question I think is more Yeah, in relation to the wireless broadband operator. Yes, we are on the plan as targeted in terms of deployment. We foresee that during 2016, we will go ahead with a relevant volume of sites. Imagine line on what we did on 2015, which are some of them already absolutely completed and the others are still working process, but yes, the plan is on track. That's fine. Can I ask a slight follow-up with Inwit? When we see in the press that Telecom Italia wants to keep 15% and F2i 66%, are they talking the percentage they want in Inwit or the percentage they want in a merged, in an eventual single Italian tower company? In Inwit, John. They are talking in Inwit. They want to stay in Inwit. They would allow themselves to be diluted in a subsequent merger with Cellnex? Well, no, I don't think they are exactly in the run. It's the same. Okay. I guess it keeps everybody busy for another year. You are right. You are right. Thank you. Thank you, John. There are no further questions. Excellent. Since we have no further questions, we can then conclude this Q&A session. I would like to thank you all for your participation. If more questions arise, as always, I remain at your disposal. Thank you so much, and have a great weekend. Bye-bye.