Earnings Call: Q4 2018

Feb 22, 2019

Good morning, everyone. My name is Juan Gaitán, head of investor relations at Cellnex, and I would like to thank you all for joining us today for our full year 2018 results conference call. I am joined today by our CEO, Tobías Martínez, our CFO, José Manuel Aisa, and our Chief Commercial Officer, Àlex Mestre, who will lead today's presentation. We have released earlier today a presentation which we will refer to throughout our prepared remarks, and then we will open the line for a Q&A session. After this session, the investor relations team will be at your disposal to answer any remaining questions. Now I will hand over to Tobías Martínez. Please, Tobías. Thank you, Juanjo. Good morning, everyone, and thank you so much for your time today. I would like to start by sharing with you our excitement because we believe 2019 is going to be a crucial year for the sector, thanks to the combination of 5G and the increasing strategic need for mobile operators to foster more telecom infrastructure outsourcing. With regards to the year we just left behind, 2018 has been again a period of solid execution on all fronts, commercially, operationally, and of course, financially. Among the main milestones. First one, I have to say that we continue to deliver on organic performance, posting a very solid and sustainable growth. It is important to highlight that Iliad continues to generate a steady flow of colocations in Italy, and that we are now also hosting new clients in France and Switzerland. Our financial performance continues to be very strong, thanks to our organic growth, our focus on the management of our cost base, and the contribution from new assets. Revenues have increased 15% when compared to 2017. Our adjusted EBITDA around 20%, our recurring levered free cash flow, a robust 10%, and our backlog has reached EUR 18 billion. The adoption of IFRS 16 from January 2019 will bring radical changes to lease accounting, and its biggest impact will be on net debt, which could rise dramatically at some companies. Additionally, we have developed our own master service agreement that avoids its capitalization, and more recently, we have seen credit rating agencies changing their view on the accounting benefit from selling minority stakes in tower companies. We are becoming the partner of trust of our clients. Based on our experience, initial agreements can create a precedent for more progressive relationship going forward, and the most visible proof is the relationship we are developing with Telecom in France, which is extending beyond towers toward a broader 5G environment. We have beaten our 2018 financial outlook. Finally, I would like to reiterate that in our opinion, 2019 will see a very important number of market opportunities in Europe triggered by 5G, accounting challenges, and changing macro environment and more pragmatic approach by mobile operators. Of course, Cellnex is ideally positioned to play a key role in this exciting opportunity, which we believe is massive. If we flip to slide number 5. You know very well this slide because it is a classic one. We are showing here the historical performance of our key value metrics from 2014 to 2018. As you can see, revenues, adjusted EBITDA before IFRS 16, and recurring levered free cash flow, have grown at least 20% per year. A growth that has allowed these metrics to double in only four years. If we move to slide number 6, we are showing our growth initiatives this year on a number of fronts. Acquisition of towers, build to suit, the deployment of strategic facilities in the context of 5G for our main client in France, and a stronger positioning in the 5G ecosystem by developing IoT initiatives and fiber in our home market. All in all, we have invested and committed to invest up to EUR 800 million for an adjusted EBITDA run rate up to EUR 60 million. With the important characteristic that these transactions are to be cashed out over the coming years. Slide number 7, you can see graphically the result of our growth strategy and our diversification efforts. With around 75% of our revenues to be generated by telecom infrastructure services, and around 65% of our adjusted EBITDA to be generated outside of Spain on a run rate basis. We are today one of the main independent tower operators worldwide on number of sites, with presence in six countries and a portfolio that will consist of close to 30,000 sites. And the best is yet to come. I will now hand over to our CFO, José Manuel Aisa, who will provide more details of the period. Thank you, Tobías, and good morning, everyone. Just a quick update on slide 9 on organic performance. Total PoPs have increased 12% in the year, including the contribution of both organic growth and change of perimeter. If we focus on organic growth only, PoPs have increased 5%, mainly due to the continued densification trend in Europe, the contribution from Iliad in Italy, and new customers on our sites in both France and Switzerland. DAS nodes have increased around 20% in the period, and we believe that the strong credentials we are building in this area will translate into significant opportunities in the future. On slide 10, you can see a list of the commercial initiatives we have on the table in order to underpin future organic growth. In summary, Iliad is now generating organic growth both in Italy and France, and we believe there is room to continue expanding this very good relationship. We are also seeing further demand for our services in Switzerland, with new colocations this quarter from Swisscom and Salt. We are leveraging on CommsCon credentials to deploy more projects in the area of indoor coverage and densification solutions as a neutral host across Europe. And we are expanding our 5G capabilities by analyzing opportunities in the area of fiber, data centers, edge computing, and IoT. Moving to slide 11, you can see here the building blocks of our adjusted EBITDA performance in the year. The positive impact from organic growth and efficiencies is reinforced by the gradual contribution of sites in France and the change of perimeter in the period. All this explains the strong adjusted EBITDA growth in the period of around 20% on a like-for-like basis. As explained in previous quarters, the dark blue column on the right-hand side represents the positive impact on adjusted EBITDA of the IFRS 16 adoption, reaching a total of EUR 591 million in this year. I will now move to our recurring levered free cash flow in the year on slide 12. Our revenues have increased 14%, and our adjusted EBITDA 18%, with our recurring levered free cash flow 10%. Our EBITDA margin is reaching 16%, a significant margin expansion compared to the same period last year. Moving now to the table, we can see that the 18% adjusted EBITDA growth is mainly explained by the contribution from telecom infrastructure services, coupled with a very well-managed cost base. In fact, the operating expenses is just growing by 6% in this period. Payment of lease liabilities increased due to a larger perimeter. Maintenance CapEx is in line with our guidance. Interest paid reflect the terms of our debt structure, and tax are the result of our management initiatives in place. Moving now to our balance sheet on slide 13. It is important to remind that adoption of IFRS 16 provides a better comparability with peers, as it equalize the treatment of land ownership and ground leases. After adoption of this new accounting standard, our leverage ratio has substantially decreased. Compared to December 2017, our balance sheet mostly reflects the increase in PPE due to acquisitions, netted instruments and their associated costs, as well as the capitalization of leases under IFRS 16. Finally, just to highlight that as of February, we have a strong liquidity position of EUR 1.6 billion, plus a backlog equivalent to a 20 years of revenues. Our net income is impacted by one-offs in the year, workforce agreement provision, and a very prudent PPA process as our earnings reflect amortization expense for acquisition-related intangible assets. You will find in the section frequently asked questions, what I think is a very interesting estimation of our net profit attributable to the parent company if we use a PPA more commensurate with the market standards in other industries. Moving to slide 14. You can see here the details of our debt structure as of February, excluding the capitalization of lease liabilities. Our debt has an average maturity of around 5.5 years. No material refinancing is expected before 2022, and our inflation links revenues and fixed-rate debt, around 80%, allow us to expect a positive contribution from future rising inflation. In summary, we have available liquidity of around EUR 1.6 billion, contracted revenues of EUR 18 billion, long maturities, very competitive cost of debt, a compelling business risk profile with very young contracts, and no financial constraints. This combination give us wide array of available options to continue funding our growth strategy. The slide 15, you can see we have beaten our 2018 adjusted EBITDA outlook, and we have also met the rest of the objectives for the year. With regards to our financial outlook for 2019, we expect our adjusted EBITDA to reach between EUR 640 million and EUR 655 million. Our recurring levered free cash flow to grow by 10% at least, our CapEx to behave in line with past performance, and dividends to be distributed according to our current dividend policy. With this, just a few words on M&A. On slides 17 and 18, we are providing our view on how we see adjusted EBITDA and recurring levered free cash flow evolving, thanks to the contribution of already agreed transactions. This means that simply by keeping 2018 flat and then adding the contribution from new sites when they are transferred or built by each relevant date, adjusted EBITDA could reach a figure close to EUR 800 million, and recurring levered free cash flow around EUR 385 million. The following slide only tries to graphically illustrate this ramp up, and also provides an indication of when new sites should be expected, which we hope is useful for modeling purposes. I will not spend much time on slide 19, but we thought it was very important to reiterate that our recent agreement with Bouygues Telecom in France constitute an evidence that a progressive relationship has been developed, and that we can play a key role in the outsourcing process of any type of telecom infrastructure. In this specific example, we will be providing strategic facilities with traffic concentration and edge computing capabilities that will be key for the future deployment of 5G networks in France. I will now hand over to Tobías for a final remark. Thank you, José Manuel. I would like just to finish this presentation the same way I started. We are convinced that we are in a tipping point in the telecom infrastructure outsourcing process. No doubt that 2019 is going to be a crucial year for the sector, thanks of a number of structural changes that will shape the future of the sector and accelerate the number of available market opportunities in Europe. We are in the right place at the right time to capture this massive opportunity. With this, happy to answer your questions. Please, let's open the line. Thank you very much. Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please dial 01 on your telephone keypad. Thank you. The first question comes from Simon Coles from Barclays. Please go ahead. Hi, guys. Simon from Barclays. Thank you for taking the questions. My first one is on the announcement we have seen yesterday evening in Italy. I was just wondering if you could share how you think that impacts your outlook for the market, and how your position changes if this deal was to go through. Secondly, linked to that, I was just wondering if you could update us on your views on active sharing. I think from our point of view, we would always think that active sharing makes life more difficult for a tower co as potentially fewer customers in the market. But the deal yesterday suggests it could be a positive. In your slides today and at your CMD, you have highlighted that active sharing could be an opportunity for yourselves as well. I was just wondering if you could provide us some more color on that too. Thank you very much. Thank you, Simon. Let me cover your first question, and maybe Alex could cover your second question. Yesterday, we saw, let me say, a clear cooperation among different telecom operators, in this case, between Telecom Italia and Vodafone. My understanding up today is this is an operational cooperation in terms of passive infrastructure, but obviously they want to share as well the 5G RAN sharing in terms of active equipment. In terms of market analysis, no big changes for us. We have been competing with Inwit since almost four years ago, and Inwit have a strong relationship with Telecom Italia, and thanks to this strong relationship with Telecom Italia, with Vodafone. We have been competing with them, and they, Telecom Italia and Vodafone, were working in order to improve the operational savings on cities below 35,000 inhabitants. Having said that, we have already 1,000 PoPs from Telecom Italia and Vodafone in cities below 35,000 inhabitants. It means that even though they have a strong cooperation, sometimes you need to ask for colocation to other third parties. Therefore, we do not expect an impact on our financial figures in the short term, of course, because we have our contracts already in place with both telecom operators. But again, the big portion of our exposure is related in cities below 35,000 inhabitants, and therefore, again, we do not expect a big impact on that. The second important thing is, our understanding is they are moving in the right direction in order to cooperate and to mutualize the 5G rollout, from our point of view, make a lot of sense. You can see the same movement towards in the U.K. with CTIL and MBNL. We understand that this is an agreement in order to improve the savings, and therefore is related with value creation. But value creation at the end, for what? Our understanding is at certain point of time, you have to monetize. You have to get money back, selling either shares or assets. In our understanding, the full picture will be first achieving savings, and then potentially in the future, why not to sell down shares of this company. In the short term, in the summary, in the short term, no impact on our relationship with Telecom Italia and Vodafone. We do not have a lot of exposure. In other words, we have a very low exposure. Even though they are working since almost four years ago, we had been able to deliver almost 1,000 PoPs. And, well, happy to continue delivering services and competing in Italy. Our Cellnex Italy, our company, is over-performing. I have to say that is over-performing since our IPO. In 2018, they are over-performing among the different subsidiaries of Cellnex Group. And our guidance for organic growth in 2019 will be 5% in Italy, so it means 1% above of our organic growth of the group. All in all, it's just to show you that, well, I think this is a very rational transaction or agreement. We'll see what happen in the future. And no big changes, at least in the competitive landscape between Inwit and Cellnex in Italy, because our organic growth is boostered by the agreement with Iliad. And I pass the floor to Àlex to cover the second question. Thank you, Tobías. Good morning, everyone. Well, I would like to answer the question twofold. Maybe first qualitative and after quantitative. The fact of two MNOs sharing not only the mast, not only the passive infrastructure, but also the active infrastructure, is a good element. Those are great news because clearly the MNOs are recognizing that the fact of having or owning the mast or even the equipment is not a competitive advantage anymore. So this is one of the elements that we as InfraCo, are always having to convince in our pitch to the MNOs, "Hey, guys, the competition is not on the mast. The competition is on your services that you provide to the end user." So recognizing that RAN sharing is possible, that is really two MNOs having a mimetic coverage and mimetic network among both of them. This is one of the first steps that we normally need to convince when mutualizing infrastructure to the MNO. So having that decision already taken on their side, that's good news. That will be the qualitative part. The quantitative part will be in relation to how our contracts have worked. So, by definition, our contracts either do not allow RAN sharing, either the RAN sharing is already fixed in an incremental fee by the anchor. And this is in all the cases. If this is not, let's say, economically defined, then what we need to do is sit down and negotiate and try to see how this substitution product, which is a RAN sharing, can be, let's say, recovered in our side. And this is what is happening. It is normal course of business having this type of discussions. In our revenues, there is a portion of it coming from RAN sharing agreements among MNOs. In that sense, we believe the trend, all in all, is a good trend among MNOs. Very clear. Thank you so much, guys. Thank you. The next question comes from Roshan Ranjit from Deutsche Bank. Please go ahead. Hi, afternoon, and thanks for the questions. I've got three, please. Tobias and José Manuel, you mentioned a strong pipeline in 2019 in market opportunities. You've previously mentioned Cellnex's interest across the whole of Europe, but is it possible to just identify some of the maybe key focal markets where you think there is a real rationale for something to maybe occur in the nearer term? Secondly, on the Iliad agreement, you mentioned the progress being made in Italy. Is it fair to say that the run rate of PoPs being added has moved higher than the, I think you were running at 100 PoPs a quarter before. Has that moved higher, if you can say there? Lastly, just on the organic growth. You just mentioned the medium-term guidance, 3%-4%, running higher than that in Italy. I would assume that that's also the case in France, given the Bouygues agreement. Now that you've signed the agreement in Switzerland with Swisscom and Salt, would it be fair to say that would also be running higher than that 3%-4% average? Thanks. Well, thank you. I will cover the first question regarding the pipeline of opportunities. First of all, I have to say that we have opportunities in all of the countries where we are today, the six countries. Our pipeline, if I may, is plenty of opportunities. Some of them are public, very well known, and others we cannot disclose. France is a key country on our European platform. France is performing extremely well. We are growing very fast. Italy remains very attractive despite this agreement from Telecom Italia and Vodafone. Spain, Netherlands, and U.K. I think that is very well known that maybe CTIL will be in the market. It seems that the public information is in this direction. Obviously, we are also willing to understand if we have some opportunities in new countries. Again, we do expect that 2019 as a tipping point in the outsourcing trend of passive infrastructures. Very sorry, not being more specific on the opportunities because we cannot. But again, we are considering around seven, eight transformational deals. Hi, Roshan. This is Juan. On organic growth, I would say that in Iliad in 2018, we have seen a steady growth coming from this new engine in the country. I would say that around 100 PoPs reported from Q2. That's all that is three quarters of revenue, actual revenues now being generated in the country. It is true that based on the information and visibility we have, we are optimistic about the prospects in 2019. You know that this growth is not secure, so we prefer to be prudent in order to quantification of this opportunity. But yes, one might maybe expect to see an acceleration of the organic growth in Italy coming precisely from this operator. Also good news, as you very well mentioned, also good news in France. We are starting to generate growth from Free on our towers. I would say 2019 will be a year of a continued integration of existing sites, continued focus on the build-to-suit program we have with WIG, and also commercialization of sites to third parties. Again, in the context of the framework agreement we already have with Free in France, we have no secured volume, but we are also optimistic about the performance in 2019. Switzerland as well, we are generating PoPs from Salt, from Swisscom, based on the hospitality agreements we have recently signed. I would say, please allow me to be cautious on Switzerland, because you know that it is difficult to generate organic growth based on the emissions restrictions we have in the country. But so far, we are happy with the organic growth we are generating in the country. That's great. Thank you. Thank you. The next question comes from Charles Thorne from Jefferies. Please go ahead. Thank you. I have three questions, please. Starting with, coming back to the Inwit and Vodafone news. Obviously, Vodafone is pursuing a different path in Italy. I was wondering to what extent, if at all, this changes the nature of your conversations that you have with Vodafone with respect to other countries? It is a very loose, very top-down type question, but how does this impact your engagement with Vodafone, be it at Newbury level, be it at country level? Any color there would be useful. Secondly, second question was on Switzerland, Sunrise. When you originally entered Switzerland, first of all, could you confirm that the sites that you bought in Q4 were explicitly excluded from the original Sunrise transaction that you did? And the fact that Sunrise has now been willing to sell these sites suggests that Sunrise's view of either your competence or the strategic value of those towers has changed. It would just be useful to get some color there. Then lastly, Tobias, in an interview, you have said that the central office agreement that you have with Bouygues is going to be a good template to go to other telcos with. Could you expand a bit more on that? Thank you. Yes. So in relation to the first question, on how the agreement that was public yesterday could affect our discussions with Vodafone. I would refer to the presentation that Vodafone did a couple of weeks ago, on which they were clearly specifying that the tower discussions, the strategic potential agreements, would be done country by country. I think that is a good clarification from previous, let us say, announcements on Vodafone side. So that is a clear example. That is exactly what we are perceiving in the market, that the discussions are country by country. Then, on the second question, if you want to answer. Yes. Hi, Charles. This is Juan. Yes, we can confirm that we have extended our cooperation with Sunrise in Switzerland. As you know, we acquired more than 2,000 sites 2 years ago from Sunrise. Some sites were excluded from the initial perimeter of the project, deemed according to the client strategic. I guess that based on the relationship we have been building over this time, now these towers have been included, and we have acquired. It is a combination of basically 2 things. It is the acquisition of 133 existing sites, and then an expansion of the build-to-suit program. Remember that we had an initial cooperation agreement in order to build 400 sites. So now that build-to-suit program has been extended to 475 sites. So 75 incremental sites to be built. Maybe Alex can elaborate. We do have feedback, obviously, from the customer that are more comfortable. Quite a progressive relationship is being developed with the client, and that is something that, as you can imagine, we can extrapolate with other clients the moment we start working together. That's crucial. Our industrial approach allows Cellnex, let's say, to establish a trustable relationship with technical teams. Once we are at that point, we can open those discussions on going a little bit beyond the asset class of a tower. Towers is just a portion of a telecom operator. I'm not even saying mobile network operator. Of a telecom operator. There are other, in the hierarchy of the network, other assets that, as you mentioned, we are entering into discussions and starting to transaction with some clients like Bouygues. We have started with beyond the towers, with metropolitan offices and central offices. Those are other data centers where the equipment is co-located. The type of services we will provide are very similar to a tower. So, hosting linked to a services agreement related to power, security, and overall maintenance of those sites. Those are important because are on the higher level of the hierarchy of the network. We are getting closer and closer to the core of the network. Either you have the trust from the telecom operator, or you will not be able to go into this type of assets. Most importantly, all those assets are connected through optical fiber. This optical fiber element, it is one, again, asset that is totally linked to the final access to the end users, to the network, to the clients of the telecom operators. Yes. If your question is, can we have this type of discussion with our MNOs? Yes. Yes, we believe they are totally entitled to have it, and we have the level of knowledge as industrial players to have and entertain those discussions with other telecom operators. If I could just step in there and try and have another go at my Vodafone question. Vodafone obviously retains the right to realize value in any which way it wants. In Italy, it's chosen the path that it's chosen. If you got all the other OpCo CTOs and CEOs mandated to consider similar type paths, what are you doing to ensure that they choose the Cellnex path rather than choosing to share with another MNO in each of these markets? Well, I don't know exactly what you mean when you say that Vodafone has decided one path in Italy, to be honest. Because the press release that opened yesterday, it opens a lot of, let's say, opportunistic or options of optionality for Vodafone. They are starting talking about a 5G agreement, which we fully understand, and we fully endorse. Also, there is a need on their side to go in this direction because there is this concept of use it or lose it, the frequencies on the last 5G auction. They need to really deploy as a mandate. The best way to do it is sharing, fully understood. The second is passive sharing. From that point on, they talk about potential combination. We understand that at the end, potentially it could be a monetization. Where this agreement will end up for us is still unclear. We believe it's totally normal to have this type of path to discover how far the MNOs can go together. But when you look that from only an operational OpEx synergies project, as Tobias was saying before, the monetization is not there. We understand that ultimately, some operators, based on their, let's say, declarations, also monetization is an aspect that they need to look after, no? We believe that there is a lot to discuss yet, and it's a long journey to finally figure out which is the best, let's say, setting for each one of the MNOs. That not necessarily has to be the same for each one. Maybe not the same in different countries. Just to finish our point of view, maybe the strategy for the same customer in different countries with different market positioning will be different. We keep open to follow up the evolution of this announcement. Thank you very much. Thank you. The next question comes from Hendrik Herbst from Credit Suisse. Please go ahead. Yeah, thanks very much. I had two questions. If we just start, continuing on the M&A topic, I think if we look beyond the big transformational deals, you have done a pretty good job buying smaller portfolios in the quarter, and you have grown your total portfolio basically by 5%. A lot of that will come from France, but the rest seem to be a mix of smaller acquisitions from various MNOs. I am just trying to understand a little bit the rationale behind those deals. Are they MNOs you haven't done much deals with before, just trying you out and starting a partnership? Or is it existing partners that are just finding more towers they haven't sold to you yet? How you think about the opportunity going forward. Are we maybe thinking about it wrong, just focusing on these big transformational deals, but in the meantime, maybe it just takes longer and you do acquire portfolios piecemeal? The second question is on France and the New Deal between ARCEP and the MNOs. Are you seeing any signs at all that the MNOs are starting to build more towers to cover these white spaces? How do you think about your role? How do you think about that opportunity? Is it near term, or do you think there will be more in a couple of years? That was it. Thanks so much. Thank you, Hendrik. I will try with the first one and please my colleagues to complement. I guess that you have highlighted a very interesting attribute of our M&A. Of course, we are pursuing transformational deals. Of course, we are considering big transactions in current markets and in new countries where it makes sense. But the cyclical history shows that we have started small with rural operators, and as we have been building trust and a more progressive relationship, we have been able to increase our scope. This has been the case with Bouygues Telecom in France. We started with 500 sites in rural areas, and less than one year after that, we have been able to cooperate in, let's say, more strategic areas of the country. Now, more recently, even opening the scope of the assets we are happy to share. Switzerland as well. Now we are expanding our cooperation. As you know, in our home market in Spain, we have started by acquiring sites from Telefónica, again in rural areas, then progressing towards more strategic cities. Interestingly, in the quarter, we are also starting in a similar way with new operators. This M&A activity you have seen in 2019 is not only coming from existing customers, but also new ones. As you can imagine, there is an obvious second step that we want to pursue. Yes, very happy with the performance, happy with the relationship we are building with clients, and hopefully we can continue providing more activity in the shorter term. Hendrik, just to say to you that next week for us is important, is GSMA in Barcelona. We work step by step. When we present something to you, it's because there is a clear business model, there is a clear value driver, there is a clear industrial rationale. This has to build up throughout time, with time. Please note that we build up all from scratch and with different parties sharing their best know-how in Europe. Next week for us is important here in Barcelona also. Maybe Àlex, you could. Yes. In relation to France and the white areas. It is true there is an obligation by the MNOs in the so-called New Deal agreement with the French government that they got an extension on their frequency concessions, and in return they should provide better coverage in white areas. There is a plan on which areas have to be covered. The regulator is clearly indicating in a staggered way which are the areas that have to be covered, and then the MNOs have either to reach an agreement among them or build new sites. What we are starting to see is the MNOs asking for proposals on potential new sites to be built. We believe it's going to be a combination of those two aspects, new sites and higher level of sharing among the MNOs on existing sites already. There is an opportunity coming there, yeah. Great. Thanks very much. Thank you. The next question comes from James Ratzer from New Street Research. Please go ahead. Yes, thank you very much indeed. Two questions, please. The first one, I think, follow up from what you were just chatting about. Are you able to quantify a little bit what you are seeing from MNOs about the demand for more tower space as we move to a 5G world? It seems from what Vodafone and TIM were saying yesterday, one of the drivers for the deal is increasing or being able to increase their PoPs in Italy from around 19,000 today up towards around, say, 25,000 PoPs. So maybe in that case, the MNOs are wanting to increase their PoP presence by up to 25% in a 5G world. Are you seeing similar type discussions in other markets of that magnitude, in terms of just thinking about the potential revenue opportunity for you? Secondly, in Italy specifically, is there an opportunity for you to come in and counter bid, and be part of the transaction, either with Inwit or Vodafone? If you are not, do you think Italy is still a good market to be exposed to? Might it make sense to potentially sell in Italy and redeploy the capital into other markets where there might be more follow-on M&A transactions to come? Thank you. Well, first, in relation to the 5G needs on densification. As you are aware, the 5G frequencies are including one band, which is the 3.5 gigahertz, which is the highest band among the ones being used as of today. The thumb rule is higher frequency, lower radius, more PoPs. Just because the frequencies, there is going to be a need of higher densification. However, also 5G is being allocated in lower frequencies, like 700 megahertz. The requirement of densification will come at the moment that the number of users being connected onto a single PoP is big enough to require a densification. Because if at the very beginning with 700 megahertz, you can cover 5G in a much wider umbrella, the densification can wait. This is one of the elements that the MNOs will play very wisely with their CapEx when they decide to deploy 5G. Unless there is a regulatory obligation to deploy, which is exactly the case in Italy. If I recall correctly, in October 2018, a few months ago, the frequencies were granted, and the MNOs have 72 months, so let's say six years, to deploy 5G, even in cities below 5,000 inhabitants. So this is a massive deployment. It seems very logical that, and it looks very reasonable as well, that the MNOs are sharing that CapEx needs meanwhile. Is this going to be done in a high densification 3.5 gigahertz frequency? That remains to be seen. This number of PoPs, ultimately for sure long term, is going to be required. Meanwhile, there are mitigating technical elements that the MNOs may use in order not to deploy with this high level of densification. Was there another question? It's about possibility to play- Oh, yes, Italy. Well, going back to, so reading the press release, which is the only formal thing that we can do. They talk about the eventual combination of the assets. That only makes sense, as Tobias mentioned before, if there is a monetization interest. So that door, we understand, is still open. Okay. Interesting. Could I go back to the first point? A number of MNOs have said that they think they can get similar reach with 3.5 gigahertz using beamforming from existing tower sites as they do, say, with 1,800. A number of MNOs have then suggested that they don't need to densify using 3.5 gigahertz. You're suggesting you think that actually they probably will need to densify further. Is that right? Yes. In the long run, yes. Beamforming at 700 megahertz is not yet a technology. Maybe next week, as José Manuel was saying, we might be surprised. As we know, beamforming at 700 with massive MIMO is not yet there. In order to massive MIMO, which is required for beamforming, that is going to be at 1.8 and above. It will be required at certain point in time, both 3.5 and beamforming. This is our understanding. Yes. Okay. Thank you. Thank you. The next question comes from Luigi Minerva from HSBC. Please go ahead. Yes. Good afternoon. Thanks for taking my question. It is really about future strategy. The first part of the question is about your M&A criteria. I do not underestimate in any way the progress you are making, and I know it is clearly visible in the operational figures. It is a fact, I think, that if we look at the last 12 months, it is much harder to find assets which are attractively valued, where you can buy a controlling stake. My first question is therefore, under what conditions or at what point you are willing to change your M&A criteria to compromise on them? Maybe, for example, consider buying minority stakes as a kind of bridge towards an option to gain future control. I know until what point you will stick to your golden rules, even if you cannot execute on big transactions. The second part of the question is more a long-term one. You probably envisage Cellnex as becoming, at some point in the future, an attractive dividend story. Given what we are seeing on your pipeline, how far do you see that point in time? Is it like a 5 years horizon, or it becomes shorter if you cannot execute M&A in the way that you wish? Thank you. Thank you, Luigi, for your questions. Two questions. Your first one is about strategic angle, and you were talking about M&A golden rules, M&A discipline. We are not going to change the M&A discipline. No way. We are a long-term investor. As in a long-term investor means not only 2, 3, 5 years, means 10 years. We are looking for good industrial deals that allow us to create value for all of our shareholders. This is the key criteria, and this is not going to change. If the market is paying more, is paying less, it matters, of course. What matters more is in the long term. If today we do not buy one asset, maybe tomorrow we can buy it, as long as we use your money, we use the money of our shareholders in the right way. We are not going to change the discipline regardless of the situation of private equity or what they are doing. Time will put everyone in its place. Long-term investors, we are very patient, and patient pays off, I can tell you. Patient pays off by far. No change at all. You were talking about the minority stake. Minority stake has nothing to do with M&A golden rules. M&A golden rules apply for everything, minority or majority stakes. The only difference is the accountancy impact on our books. As a long-term investor, we are happy to buy minority stakes as long as, in the long term again, we can have a path to control, or we can see that there will be a path to control of the asset. Our role is an industrial role. It is a pure industrial role. We are a neutral player, and when we talk to operators, we like first of all analyzing our industrial role and building up a good partnership and a good business model, very clear business model. All the deals we have presented to you today, which are up to EUR 800 million, up to EUR 60 million of EBITDA, these are powerful industrial deals. Very powerful industrial deals, built from scratch. With a very clear business model with all the ticks on the box. Maybe it is not a transformational deal. However, we can tell you that there is a plan behind, there are cash flows behind, and there are paths to growth behind. We do not have to build up now, from now on. It is done. It is present. Now we only have to execute a contract. This is the key point. So minority stake, happy as long as we see that in the long term, we can get, obviously, the consolidation and the control of the industrial angle. Finally, your point was about dividends. Listen, I think Tobias said before, our CEO said before that we are handling several transformational deals at this time. We also suggested to you that we are working thoroughly in different angles, and next week is important. Listen, we do not feel like in a mood of paying more dividends. That we are committing today with all of you. This is where we are as of today. Well, maybe just to add that if we do not deliver M&A transactions, obviously, we will pay more attractive dividends, but this is not the case. Again, we are foreseeing 2019 with a very, very attractive pipeline of opportunities. Okay. I appreciate it. Thank you very much. Thank you. The next question comes from Fernando Cordero from Santander. Please go ahead. Hello, good afternoon, and thanks for taking my three questions. The first one is related also with M&A, obviously a hot topic. In that sense, I would like to know your views on assets that may have diversified activities, not only telecom tower activity, but also potentially if those assets having other activities, like for example broadcasting, are ruled out on your side, or could be also in your side or in your pipeline. My second question is related with the small cells, and I would like to know if you are seeing any kind of change on the market developments in terms of increasing the likelihood of seeing higher development of small cells in 4G world, or we should wait or expect to see solutions in 5G in order to see the small cells market to boom. The last question, I would say, is just on a quantitative. I would like to reconcile your adjusted EBITDA target for 2019 under IFRS 16 basis with pre-IFRS 16 basis. I would like to know if your EUR 640 million-EUR 655 million EBITDA guidance is coherent with, according to my numbers, EUR 460 million-EUR 475 million EBITDA guidance before IFRS 16 for 2019. Thank you. Well, maybe answering your first question, Fernando. Our priority is to develop telecom infrastructures. This is our objective. But sometimes we find different type of services, different type of assets. We are willing, and we are not dogmatic against other types of services, but always a path to reach the objective. Obviously, valuation could be different. Obviously. It depends on the type of the asset. But for us, 5G is also a good example in order to show that telecom infrastructures means more than pure towers as of today. We are talking about fiber, we are talking about edge computing, we are talking about different type of assets. Just three or four years ago, we never thought about that. So it depends, Fernando. But should be at least a path to reach an attractive positioning on telecom infrastructure. Otherwise, it doesn't make sense. Maybe Juanjo, you could cover the second question. Sure. Basically, you were asking if we're identifying any change in terms of the market for small cells demand. Exactly. Yeah. The reality is no. This is an We know that maybe in the longer term, as you very well point out in the context of 5G, we do see an acceleration. We do see operators more open to consider complementing the rollout of traditional networks with more small cells or other type of densification solutions. The reality is that as of today, the majority of the densification is still being based on macro sites, with a caveat. It is true that we do see a demand for maybe indoor coverage based on distributed antenna systems. But I would say that those projects address a specific need, which is a very high concentration of mobile data demand in a limited period of time. You know that we are developing projects in the area of airports, hospitals, football stadiums. Yes, we can clarify that maybe for that specific purpose, we do see demand, but for outdoor coverage, we tend to be more cautious. Yes, there is a mantra in the technical department, which is squeeze the macro. And this is very much in line of what you were saying before, Alfonso, on the C-dot F and everything. So meanwhile, you can squeeze the macro, there is intention of not deploying additional sites. Finally, let me shift from the exciting world of 5G to the fantastic world of 2019. Let me try a very easy figure, maybe we can elaborate later. If you take the midpoint of our financial outlook, let's say it's EUR 645. Also, if you consider the IFRS 16 adjustment in terms of EBITDA change in 2018, that was like EUR 173. If you consider that for 2019, that adjustment is going to be a bit higher. Assume that maybe it's EUR 185. So EUR 645 minus EUR 185 should give you around EUR 460, which is the figure that according to consensus, and before the M&A we have announced this quarter, that's what should be the case. So this EUR 460 pre IFRS 16 should be market consensus before the deals we have announced today. I hope it makes sense. It makes sense. Helpful. Thank you so much. Thank you. The next question comes from Ottavio Adorisio from Societe Generale. Please go ahead. Hi. Good afternoon, gentlemen. A couple of questions on my side. One is very specific to Tobias, and it is about a comment you made earlier in the call, and I have seen it being quoted in the press about the possibility of looking into CTIL in the U.K. I would be interested to understand the business case to buy into a JV where the tenancy ratio are relatively close to 2 times, I suppose, considering you got 2 operators in a country where the other 2 operators are tied up in another JV, MBNL. There is already an independent tower co in the market, Arqiva. Just want to understand what is the interest for you to dedicate so much capital to enter a market where it is pretty likely the organic growth would be capped. The second one, I think this probably is for José Manuel. It's about the slides you have on the presentation on page 25. Basically, it's a mention about auditing firms that have confirmed that MSA contract will be pure service contract, and therefore, there will be no liability appear on the balance sheets over your customers. Now we are on the IFRS 16 year, so it's 2019 already. I was wondering if any of your customers already had reported IFRS 2019 and were able not to show the MSA contract as a lease. Thank you. Hi. Well, regarding CTIL. I just said that we will be willing to assess why? Because CTIL today is a JV between two operators where there is no EBITDA. They have to define what will be the pro forma basis on CTIL in terms of figures. But the second thing that is important to understand is CTIL is running two networks in parallel, 50% each one. This is an opportunity to work for the future evolution on the rest of the technologies. Densification is, again, a must in the future. It's mixing macro and micro cells, as we are expecting everywhere. Why not? Also an opportunity to develop fiber to the antenna and different type of services around of 5G and 4G plus, if I may. I cannot tell you that we have already a decision in order to go ahead with CTIL, but it seems to us that would be an opportunity, according with the strategy or the plans of O2 and Vodafone. Yes. The question around our clients, as you said, Ottavio, and this is the first months in which IFRS 16 has kicked in. Cellnex has been one of the early adopters, and we have been maybe the only one early adopter, maybe second or third early adopter of IFRS 16 in Europe. I will be able to answer you this question with annual accounts or semi-annual accounts in July, not before this year. However, I can advise to you that our clients will be able to record, not all of them, only those clients that have an MSA, will be able to record our contract as a service. That's a fact, okay? I will happy to show you this in four months time. Five months. That's great. Yeah. Thank you. If I can make a follow-up, this one is a bit more generic, and forgive me if I try not to be specific, but this one is related to your transformation deals and deals going forward, deal making. Of course, there is a lot of doubts surrounding how competitive the deal making will be going forward, the state of the balance sheet and so on and so forth. I was just wondering, there is out there a big operator that effectively you're already working with, and that's Deutsche Telekom. Your footprint is very complementary, taking just Netherlands out of the picture. My question is, you have totally different approach, but of course, having Deutsche Telekom into your equity will not create any problems to your independence because effectively, in your markets where Telekom is not operating. Just wondering how the possibility of cooperating with a company like Deutsche Telekom, considering they also themselves, they're looking very closely on their tower portfolio. For 2 or 3 years, you've been almost 2, 3 years, been working together in Switzerland, so I'm sure that both of you knows how the other operates. That will also not require a lot of capital, considering it could be an equity deal. I know that it's not very specific, but I just want to grasp, because all your deal you've done so far has been on cash. What about an equity deal? Ottavio, you know us very well. You have followed us very well, the company, since the very beginning, and you have seen us growing up. Yes, we are building a relationship not only with MNO, you are asking, you are talking about, but also with other MNOs in Europe. This transaction that you are saying, it's a potential transaction of course. We are more than happy to think, we are more than happy to, from an industrial perspective, to assess not only these ones, but also others that take time. We want to be very rigorous and strict when we say to you that we're going to do something. Yes, why not? We are open to assess every single opportunity that allow us to maintain or not to increase further the shareholder value. Also to maintain our industrial know-how, both things at the same time. Ottavio, we cannot disclose things that we have not been able to sign, or we are not. That is something you know, that our policies has always been very prudent in regard. I think that in many deals, I'm not just talking about Deutsche Telekom, I'm just talking in general. I think in a very good path. You were talking also about equity deals. You were talking about financial structure. You know that we are more than, we always have been focused on preserving full financial flexibility. You know perfectly well that we have strong cash flows, that we can raise attractive debt financing. We can look for partners like in the case of Cellnex Switzerland. Of course, to answer your question, we can also raise equity if there is a market condition, if there is appropriate pipeline, as you were suggesting, if the share price is good. There are many factors. We are not close, but it has to make sense for you, or at least we should have a strong pipeline in front of us. The company is performing in that direction. The company is performing well, industrially driven. I think that this year can be interesting from a transformational, but also organic growth perspective. Okay. Thank you.