Cellnex Telecom, S.A. (CLNX) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Juan Gaitan, Director of Investor Relations at Cellnex, and I would like to thank you all for joining us today for our Q2 2020 results conference call. As always, I'm joined by our CEO, Tobias Martinez; our CFO, José Manuel Aisa; and our Business Deputy CEO, Alex Mestre, who will lead today's session. Throughout our prepared remarks, we will refer to our results presentation and also to the rights offering we have just announced. We will then open the line for your questions. And now I'll hand over to Tobias Martinez. Please, Tobias.

Well, good afternoon, and thank you so much for your time today. As we published results a couple of days ago and you had plenty of time to digest our numbers, I'm pretty sure your attention will be today on the capital increase we have just announced. In any case, I would like to share with you dearly the main highlights of this strong quarter before covering the right offering. We continue to deliver on organic growth, posting again a very solid quarter. I would like to emphasize the resilience of our business model and our ability to generate organic growth and make progress on our build-to-suit programs under challenging circumstances. A strong financial performance with revenues increasing 48% compared to last year; our adjusted EBITDA, 64%; and our recurring leveraged free cash flow, 54%; and our backlog reaching EUR 47 billion when all of our deals are closed. We are reiterating our guidance and also updating it with the expected contribution from Arqiva and NOS this year. With telecom services, given today's strategic status and a more flexible approach to teleworking, the demand for data will continue to increase dramatically in the coming years. This will require operators to be more pragmatic when making future decisions on network needs, prioritizing the core business and generating more opportunities for infrastructure outsourcing. We have delivered on our promise set out last year. Thank you to our 2 successful capital increases, we have been able to execute our project pipeline while preserving our financial discipline. We are also seeing that the execution of our growth strategy is a self-reinforcing process. New win-win agreements with our partners have a multiplicative effect, increasing the number of opportunities we are able to assess with relevant players. And this is the reason why today we are announcing a new capital increase: because we are confident that we will be able to crystallize value-accretive opportunities in the short term and because we need the financial flexibility required to pursue them. And with this, I will now hand over to our CFO, José Manuel Aisa, who will provide more details of the period.

Thank you, Tobias, and thank you all for your time today. Moving to Slide 3, just a quick summary of our M&A activity this year. We have already committed to invest around EUR 2.5 billion in 2020, mainly in France and Portugal. We are starting to deploy our fiber-to-the-tower project with Bouygues Telecom in France. We have acquired 2 nationwide portfolios in Portugal in just 4 months. We are making progress deploying the new sites committed with our 2 anchor tenants in Portugal. And we have also signed a number of smaller projects that allow us to further improve our industrial profile. And this brings us to the map on Slide 4. When all of our deals are closed and our build-to-suit programs completed, Cellnex will strengthen its position in Europe as the main independent telecom infrastructure operator, managing a portfolio of around 61,000 sites, increasing our financials and significantly improving our business risk profile. On Slide 7, you can see a list of the commercial opportunities we are assessing in order to secure future organic growth. We are seeing demand for our services not only in well-established markets but also in more recent markets with colocation requested by new tenants and discussions around potential new densification solutions. We continue to execute in the area of indoor coverage as a neutral host across Europe with attractive opportunities being assessed for football stadiums, transport networks or shopping centers. We are also expanding our 5G capabilities beyond our core business by analyzing opportunities in tower adjacent areas such as fiber to the tower, outdoor small cells or mobile edge computing, with towers at the core of our strategy and only willing to proceed as a natural extension of our relationship with existing clients and expecting the same tower economics. Moving to Slide 9. Our revenues have increased 48%; our adjusted EBITDA, 64%; and our leveraged free cash flow, 54%, with our adjusted EBITDA margin significantly increasing to 64% -- 74% from 68% last year. If we look at the figures in the table, you can see that this adjusted EBITDA growth is mainly explained by the contribution from telecom infrastructure services, organic growth, build to suit, recent acquisitions and by the efficient management of our OpEx base. Payment of leases increased due to a larger footprint. Maintenance CapEx is expected to converge towards our guidance during the year, and interest paid reflects the terms of our debt structure and our availability -- available liquidity. Moving to Slide 11. You can see the details of our capital structure and our liquidity position as of June 2020. Our debt has an average maturity of around 6 years. 80% of our debt is fixed, and average cost is around 1.5% with no refinancing until July 2022. Please be reminded that these figures do not include the closing of Arqiva transaction in mid-July. Considering Arqiva, our updated liquidity position would be EUR 4 billion, and our net debt, excluding lease liabilities, reached EUR 5.7 billion. When we close all our announced deals, we will reach a backlog of EUR 47 billion, and our debt has no covenant, no pledge, no guarantee. This gives us plenty of financial flexibility to continue financing our growth. If we move to Slide 12, just a quick update on our guidance, where we have simply included the expected contribution from Arqiva and NOS deals in 2020. We are, therefore, reiterating our previous guidance and the additional contribution from the new perimeter will make our adjusted EBITDA and our recurring leveraged cash flow growth at around 70% compared to last year. I will now hand over again to Tobias to comment on our right offering.

Well, thank you, José Manuel. As you were all expecting, I suppose, a few comments on the capital increase we have just announced. Today, we are announcing the launch of a EUR 4 billion right issue to continue executing our European consolidation strategy. A total of EUR 101 million of new shares will be issued at a subscription price of EUR 39.45, that represents a 25% discount to term at closing price of today. The capital increase represents approximately 18% of our market cap. As you know, last year, we identified up to EUR 11 billion pipeline and executed an initial capital increase of EUR 1.2 billion, followed by a second successful EUR 2.5 billion right issue. A total of EUR 3.7 billion in new equity that allowed us to deliver an impressive M&A activity, reaching our target earlier than anticipated. In parallel, we have identified new opportunities that make our new pipeline very robust and busy, with a volume of opportunities of up to EUR 11 billion again. As a consequence, we are raising in one go the equity we need to continue executing value-accretive M&A, a cornerstone of our value proposition. Our equity story is more robust than ever with a large and growing tower consolidation opportunity for Cellnex in Europe, a very robust pipeline with an untapped -- untapered expansion potential across current markets as well as new clients, new geographies and new tower adjacent opportunities. We believe that the potential market share increase still to be captured is significant and that despite building a portfolio of up to 61,000 sites in just 5 years since our IPO, the market opportunity for Cellnex continues to be massive. And with this, we are now at your disposal to answer your questions. So please, let's open the line.

[Operator Instructions] The first question comes from Simon Coles from Barclays.

Clearly, exciting times. So my question is basically focused on the pipeline. The last pipeline number you've given, I understood, was a probability-weighted number. I'm assuming this one is the same. So I'm just wondering if you can give us a bit more sort of idea about the composition of the pipeline. So is it now consisting of new opportunities that weren't present before when you gave the last pipeline number? Or is it opportunities you saw last year but maybe had a low probability and now that has increased because they may be seeing the increase in the valuation of assets over the last year and now they're more interested in talking? And then just on the pipeline, again, sorry, is it still majority macro sites? Or are we starting to see the sort of shift to more adjacent services, which I think you sort of hinted to in your comments just now?

Thank you, Simon. José Manuel will comment on your question.

Simon, yes, I think that your question has several angles. So I will try to go step by step. Yes, this is again the same criteria as last year. So EUR 11 billion is our weighted probability. And I think we have used exactly the same pattern as last year. So this is super important because there is no any change at all. So you are saying about if there is -- I will start for your last point, if there is a shift. There is no shift at all, not at all. I mean in this pipeline, you will find exactly the same proportion of towering deals as we presented to you 1 year ago. So take it for granted, no change. I think that Cellnex has been able to show you that we do have M&A discipline, and M&A discipline has many angles. One of them is that our business model cannot change and the towering deals are by far the most important as a quantum. So no change, no shift. You were also talking about if these are new opportunities. Obviously, there are new opportunities. In fact, as we go -- as we grow, as we receive your support, we can continue our industrial job. We open new doors, and we open new opportunities that there were not before. Last year, we came to visit you as of February. And we said to you, we need your help because we need to show the money. I think we are in a very similar position at that moment. Our pipeline is rich. Our pipeline has visibility. The work -- the company is working from an industrial perspective very well. And now again, as we were in 1 year ago, we need your help. We need the help of our investors.

That's very clear. Can I just ask one quick follow-up, probably? The discount to TERP is 25%. Seems quite high given, I'd say, the goodwill you have in the market from shareholders and the sell-side community as well. Is there any reason for why it's so large?

Well, it's -- last year, we did 20%, 19.5%. We are now 25%. This is EUR 4 billion, one shot. The market is not as stable as last year. And in the case of Cellnex, we have been in a very good situation, but we do not control macroeconomic impacts maybe due to, I don't know, COVID or whatever. So we have decided to be a little bit more prudent. Also in terms of revocables, last time, we were at 36% of irrevocables. Now we are at 18% of irrevocables. So we have a little less irrevocable initially. So we decided to be prudent. And I think that the company, Cellnex, has always been very prudent setting expectations. Anyway, we wanted to adapt to this criteria.

The next question comes from Akhil Dattani from JPMorgan.

I've got a few, please. Firstly, just on the rights. Could you just help us understand a little bit better the timing of how you've made the announcement today? I guess last year, you announced one right pre a deal, one with the deal. Obviously, this is a pretty large right. So is there some specific reason why you've done it this way? Is there maybe a big opportunity that you feel you need to show your ability to fund first before you do it? So just if you can just walk us through the way you thought about the timing here, that would be useful. The second clarification was just a follow-up to the prior question, which is you talked a lot about this being predominantly towers. Just any color in terms of the probability-weighted pipeline in terms of in footprint and out of footprint would be useful. Just particularly given obviously the high synergies from in-footprint deals. The third one is in regards to -- I'm sure you've seen the press speculation we've had today that the Benetton family had an offer from infrastructure funds for their stake. I'm just keen to get your thoughts. There's a lot of rumors circulating around potential offers for Cellnex from private equity and infrastructure funds. Have there been approaches? How do you think about this? And kind of what can you tell us on that? And then the very last thing is you've talked about 19% of the offering being precommitted. I assume that given that number, that doesn't include the Benetton family. But I mean anything you can clarify around who that does and doesn't include would be useful.

Thank you so much, Akhil. José Manuel, maybe we can start with the timing.

Yes. I mean I think in terms of timing, we have picked up the moment in which there was a good visibility of our pipeline. The timing was the best. After our General Assembly Meeting, we have reset all our delegations in order to carry out a capital right issue, giving the rights to all of our shareholders, as always we have done. So I think that you have to consider that before July 21, we couldn't do it. We didn't have the delegation. As to the pipeline, before was not as mature as it is now. So it's the combination of these 2 factors. The market seems to be open. We are not a specialist in market. So we do not control the dynamics, but we do feel it's a good timing in terms of market momentum. So we are going into this direction. It's nothing more. For us, what is very important is that all our shareholders have the right to subscribe their rights because we do think that this capital raise is going to create a lot of value for our shareholders. And we want to give the opportunity to everyone to join us. This is very important. In terms of the out/in footprint, please take in -- sorry, just to maybe analyze the answer, Akhil. Remember that we -- our initial capital increase last year was EUR 1.2 billion, which we almost exhausted. I mean that had power in just 1 year, yes. So given that the amount of opportunity that we have on the table today, we are preferring to, I would say, to try and raise the equity allowed to capture that pipeline in one go instead of coming back to the market constantly.

Yes. No, maybe to complete the answer, the company is trying to avoid to go twice a year. I mean this is the reason why we are factorizing maybe the next 12, 18 months in order to execute our pipeline. So this is the reason why we are reaching EUR 4 billion, because the company is trying to avoid to rise new equity twice a year. Yes. Let's go to...

Yes. Your second question, Akhil, was regarding the footprint in terms of countries. I think we're going to follow exactly the same criteria as last year. So if you take where we were at Cellnex last year when we announced these 2 right issues, we were in Spain, in Italy, in Netherlands, France and Switzerland. And as we speak right now, we are -- we have improved our presence in these 5 countries, and we have opened 3 new countries, which have been Portugal, U.K. and Ireland. So I'm pretty sure that we are going to follow this pattern. Obviously, we will reinforce our presence. We will consolidate our presence in our core markets. In fact, the vast majority of the money that we have invested has been in our core markets, in the last right issue. But also, we will try to open those markets that we think are commensurated or somehow makes sense for us because there are clients already present in that market or because we do think from a partnership perspective, this client is in other country or from a partnership perspective, this client is strong, and then it makes sense for us. So there will be always a good criteria. It's not going to be random. Also regarding -- as we said to you last year, and again, it's the same pattern, we said to you last year that we have different deals in different situations. So in the last prospectus, you could see that we had some deals just in scouting basis or the deals on a nonbinding or that are binding or that are on exclusivity basis. So again, in this pipeline visibility, we are finding the same situation. So the footprint, very similar. The nature of the deal is very similar. And regarding to your last question, we cannot comment. I mean it's something that we keep on working. We think that the towering market in Europe is in its infancy yet. Cellnex is going to consolidate this market. And apart from that, if there is any noise, we do not comment.

I mean just to reinforce -- I'm Tobias speaking. Edizione remains a valuable shareholder of Cellnex with a stake above 13% after dilution is the case. And Edizione has reiterated its continued support to the company management and the strategy going forward. So in my view, we'll see. But currently, they have to offer their option rights to Atlantia, which has a right of refusal on any disposal of option rights by Edizione, which expires in 3 business days for deal being announced. So subject to Atlantia decision, Edizione will decide how to best monetize the rights in an orderly fashion, taking into account the success of the overall transaction. So I just can tell you that many investors have indicated their interest to potentially acquire further exposure in Cellnex. So this is the information that we can share with you because as a company, we cannot comment on their motivation. But again, we can confirm that Edizione, again, remains a very valuable shareholder and they are reiterating its continued support to the company.

The next question comes from Andrew Lee from Goldman Sachs.

So 2 questions. The first one is slightly longer. Just on the deal power that the EUR 4 billion raise or potential up to EUR 4 billion it gives you. So you flagged the kind of deal pipeline of EUR 11 billion from that. But you say that it includes build-to-suit and additional initiatives, which I would presume includes things like fiber backhaul. I would have thought that EUR 4 billion of equity raise could maybe have funded more, maybe EUR 10 billion to EUR 11 billion of tower purchases alone, given the build-to-suit and additional initiatives can be done via CapEx. Just wondered if you changed what you think the market will allow you as gearing on a net debt-to-EBITDA basis. And just any color here that you could give us would be really appreciated. And then just a second question that I'm sure you'll get over the next couple of days is, do you see the same scope for value creation per incremental euro spent on a deal as you look like delivering from the last year or so of deals? Or are you seeing greater competition rising for the assets that you want to consolidate?

Okay. Many questions. I will try to follow all of them. If not, Franco will help me. Regarding the mix of business that we are targeting, it's exactly the same as before. So build-to-suit programs. We have done with the last money you gave us last year, that market gave us last year, we have carried out several build-to-suit programs. And our build-to-suit program right now has 9,000 towers to be carried out in the next year, which is the largest build-to-suit program I see by far in Europe, and I don't know in Western countries, but I'm pretty sure it is. So this is a key part of our pipeline. It's a key part. And you know well that this build-to-suit program has many benefits because it also allow us to fund as we go, so allow us to somehow be more efficient in the way we deploy the equity. The equity that the market give to us is a key tool for us. Also, you can see other projects in which we pay more money upfront. Obviously, there must be a combination. And finally, you were talking about backhaul for us is fiber to the tower. There are projects of this, yes, in the same proportion that we have carried out in the last year. So you can see that only one has been with our French client Bouygues because we did have those towers and those towers have to be linked somehow with fiber. Otherwise, I mean, the competition -- there is no competitive advantage. There's not enough competitive advantage. We have to keep on working with our clients in order to foster their competitiveness. And yes, it's going to be the same pattern. So do not -- it's not going to change. Maybe it's very boring, but it is very safe and as is as visible as it was. So otherwise, we were not here asking for the help of investors. You were talking about net debt to EBITDA. One thing that -- target. The one thing that it has been very clear during the last years, during the last 5 years when we first come to the market, the net debt to EBITDA of Cellnex has been improving step by step, has been a little bit higher. And at the same time, we have maintained the credit quality -- the credit quality. And for me, this is -- and for us, this is the key point. It's not only to have more net debt to EBITDA, but to have more net debt to EBITDA with a better business risk file with more capacity to deliver the company with a financial structure that is fully flexible. So yes, we are going to keep on working in this direction, and we do think we have headroom to improve, as you can see. As you can see in some of the reports of the rating agencies, just to take a reference, they recognize that our business risk profile has increased after our M&A investment. And therefore, our capacity to go more into net debt to EBITDA is higher. So for us, this is a consequence of a better business risk profile. So yes, we are going to keep on working in order to optimize the diversification of our client, diversification of clients, diversification of the risk, and therefore, our capacity to go more into net debt to EBITDA is higher. The last point was about competition. We have always had competition. At the beginning, if you recall, it was American Tower, then it was KKR. Now it's sounds [ Finnish ] towers. The only thing that we do think is that Cellnex continues in every single competitor. They come. They run away. They come. They run away. But the only one who is, all day long, building up from scratch deals is Cellnex. And this is our proposition to you, is to be able to, from an investor perspective, a good deal.

That's really helpful. Just to clarify, just a quick follow-up on the first question. I guess what I really was asking was you said you've got EUR 11 billion, your deal pipeline, or up to. But how much do you think -- how much -- what size of deals or scale of deals do you think you can actually do with the EUR 4 billion of equity raise? Could you actually deploy more capital than that with the equity raise? Or is that the limit that you think you can do with this equity raise?

No. Just to -- I will follow the same example as the last year. Last year, we raised EUR 3.7 billion. And we did, I think, EUR 10.5 billion, EUR 10.6 billion of deals, okay? So it's going to be on the same range. It's going to be on the same range. It will depend on how the deals are structured. But our commitment is to show how to get to the same characteristics. That's the reason why we say up to. Maybe it's more than EUR 11 billion, could be EUR 11.5 billion, but maybe EUR 10 billion or EUR 10.5 billion. So it is not mathematical. But I think last year, capital increases and what we have done is the best paradigm in order to project what is going to be Cellnex with this money -- with this new money.

The next question comes from Roshan Ranjit from Deutsche Bank.

Two for me, please. Firstly, Tobias, just following up on some of your comments following the AGM yesterday regarding minority stakes. If I remember correctly, previously, I think you said minority stakes may be of interest if there is a clear path to control at some point. Now I think your comments yesterday were quite definitive in saying or suggesting that minority stakes aren't for us. And again, we've seen stories associating in Cellnex with certain portfolios. So can we just get your latest thoughts on the minority stakes? And secondly, going back to one of the previous questions. You've done capital raises in 2 different ways. You've announced it alongside the deal. And previously, the first one was ahead of the deal. Are you finding that certain MNOs are requiring or wanting to see the kind of financial commitment or financial backing that Cellnex has to maintain this long-term industrial partnership with build-to-suits, et cetera, over the future years? Or is it as you said that there is a very strong pipeline coming up, and you just want to kind of raise the money and deploy it gradually over time?

Well, about your first question, our strategy remains the same since the very beginning. I mean we are not considering minority stakes, at least if this is a clear path to control, clear means commitment, and which is not the case. I mean it's just the exception, if I may. But remains the same, the same strategy since the very beginning. And this is not just about an accounting topic. It's because our role -- I mean we are industrials. We have to consolidate because it's part of our ability to create value. I mean we cannot be a financial, let me say, sponsor. We cannot be a financial shareholder. So this is the reason why for us it's, let me say, a clear border or it's a limit. I mean for us, the ability to manage the assets, the ability to manage and to run the company. It's key in order to extract the full synergies, the efficiency. Otherwise, it's impossible. And this is the reason why I was very careful about my words in order to say maybe with the exception, but this exception remains the same since the very beginning of having a clear path to control. Otherwise, this is not for us. This is not for us. It's when Cellnex is not the best solution. It's when we are not the best partner for this project.

And then if I may just follow up on that quickly. So in your up to EUR 11 billion pipeline announced this afternoon, is it fair to say that there aren't any probability weightings on minority stakes in there?

Of course. Of course. No minority stakes. Any single euro doesn't match with our strategy.

Okay. Your second question, José Manuel, on the...

Backing.

Yes. Maybe I can start and José Manuel can...

Yes, please.

This is something we saw last year. I mean presently, before the price equity for the first time since our IPO, we were finding that maybe conversations with operators were difficult to make progress on. And given that, I mean, we are assigning a very high probability of executing on our pipeline. That's how we decided in the end you rise equity for the first time on the back simply of a pipeline, and no specific deal behind. Clearly, the success of a capital increase -- of high initial capital increase facilitated many conversations with mobile operators across Europe. And we are of the opinion that we should be experiencing something similar now. José Manuel, if you...

No, fully agree. I think that Cellnex is still -- I mean it has a lot of opportunities. And we have to show the money also. So yes, this was a fact. You could see in February that we received the equity ticket, EUR 1.2 billion, as of March, and we could see how in May, we were announcing the deal. And what we are presenting here is a more -- I mean, higher number. We are communicating to you that as we have always we said, we will require up to 11 months -- 18 months, sorry, up to 18 months to deploy this money. This is the same commitment that we have done before with you, but it's following the same pattern. So the answer is yes, backing for us is important.