Cellnex Telecom SA

MAD:CLNX

Earnings Call Transcript 2021-Q1

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Good morning, 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 Q1 2021 results conference call. As always, I'm joined today by our CEO, Tobias Martinez; our CFO, Jose Manuel Aisa; and our Deputy CEO, Alex Mestre, who will lead today's session. Throughout our prepared remarks, we will refer to the results presentation we have shared with you this morning, and then we'll open the line for your questions. And without further ado, I will now hand over to Tobias Martinez. Please, Tobias.

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you, Juan, and good morning, everyone. Thank you so much for your time today, and thank you for sharing with us our birthday because we are celebrating today 6 years since our IPO. Let me please start by sharing with you the main highlights of the period. Our organic growth generation in the period continues to be strong and consistent with new PoPs on existing sites and our build to suit program, generating a 5.5% growth. We are also making tangible progress on our new efficiencies plan, in a way consistent with the lease optimization initiatives we have been implementing in the past. 5G is becoming a reality, and we are identifying new opportunities arising from the need for a better connectivity where a neutral operator like Cellnex can play a key, such as transfer network systems. The period also provides a strong financial performance, with revenues increasing 40% compared to the last year, our adjusted EBITDA, 45%, and our recurring leverage free cash flow, 40%, with our backlog reaching EUR 110 billion when all our deals are closed. Just a few words on our right issue that we have recently concluded. It's been one of the largest offering in Europe and also globally in the last years, and 99.5% of rights holders have subscribed. So thank you very much. Thank you so much to our investors for your continued support and trust in this team. We are actively working on our EUR 9 billion pipeline of opportunities, which we are expecting to execute in the coming 18 months. And we are assessing these opportunities, maintaining our strict financial discipline. In terms of capital structure going forward, we are keeping all doors open, assessing a wide array of available options to continue financing our growth including equity partners at local level. And finally, we are reiterating our guidance with all fronts on track: organic growth generation, all financial metrics in line with our short- and medium-term outlook. Integration is a critical part of our growth strategy, and we can confirm that all our integration processes are on track, and we are also making progress on our new ESG master plan. If we move to Slide #3, we are showing here for illustrative purposes the expected profile of both adjusted EBITDA and recurrent leverage free cash flow during the remaining quarters of 2021. As you can see, these magnitudes will increase every quarter as we generate organic growth, make progress on our build to suit program and efficiency plan and see the contribution from new deals when they are closed. As a reminder, we are expecting our adjusted EBITDA to grow at around 55% and our recurring leverage free cash flow to grow at around 50% in 2021.On the following slide, you can see the status of our current integration processes, which are performing as planned. In order to guarantee a sustainable long-term growth, Cellnex has identified -- has defined and implemented a global governance model with the following characteristics: responsibilities clearly distributed between group and countries; transversal policies, which can be adapted to the realities of each country. The model includes all company functions across our different markets: scalable company policies and procedures; easy monitoring using global dashboards, which allow a the tracking of KPIs; and supervisory and decision-making roles at all levels. If we go to Slide #5, just a quick review of our current footprint and financial metrics. When all our deals are closed and our build to suit program's complete, Cellnex will further strengthen its position in Europe as the main independent telecom infrastructure operator, managing a portfolio of around 130,000 sites with presence in 12 markets, boosting our financial and becoming the industrial partner of choice for our clients. Just a quick reminder of our medium-term guidance that implies an annual growth of more than 20% in our key financial metrics from 2020 and a very well diversified expected EBITDA in 2025 of between EUR 3.3 billion and EUR 3.5 billion. On Slide #6, we are showing our updated shareholding structure after our capital increase, and we can only be grateful, again, for the continued support from investors and for sharing the long-term view of this management team. And with this, I will now hand over to our CFO, Jose Manuel Aisa, who will provide you a few more details.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Thank you, Tobias. Moving to Slide 8, providing a few more details on the period. Revenues have increased 40% to EUR 506 million in the quarter. Our recurring level free cash flow has increased 40% to EUR 180 million. Our total PoPs have increased 65%, including the contribution from organic growth and M&A. And if we focus on organic growth only, that is excluding any change of perimeter, PoPs have increased around 5.5% compared to last year as a result of the continued network densification process we are seeing across Europe and in line with our medium-term guidance. Moving now to our main metrics in Slide #9. On top of the figures, just discussed, our adjusted EBITDA has increased 45% compared to last year, and our margin has increased to 76% from 74%. 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 and recent acquisitions and by the efficient management of our cost base. Payment of leases have increased due to a larger site portfolio. Maintenance CapEx is expected to convert towards our guidance during the year, and interest base reflects the terms of our debt structure and our available liquidity. On the following slide, #10, which explains our recurring levered free cash flow generation, you can see the contribution to organic growth from our different drivers: colocation and associated services, build to suit, escalators and efficiencies. These elements combined generate EUR 24 million in the period, a 20% growth compared to Q1 last year in the period. And if we also take the additional contribution from our recent deals and the rest of cash elements below adjusted EBITDA, Cellnex has generated a strong recurring level free cash flow growth of 42% compared to last year. Moving to Slide 11. You can see our progress on our new efficiency plan. Please note that site management has always played a key role in our operations, and we have been extremely successfully extracting efficiencies out of our portfolio in the past, but we just want to provide additional visibility in our new plan so you can track our progress. We have renegotiated more than 700 ground lease contracts in the period, generated EUR 4 million of annualized efficiencies, and we are on track to meet our efficiencies and synergies target in 2025. Moving to our balance sheet. Movements compared to December last year are mainly explained by our M&A activity in the period. Increase in total assets as a result of our M&A activity and the corresponding increased liability as a result of the issuance of debt in this period. Please note that this picture does not include the proceeds of our recent capital increase. And a quick word of our -- on our goodwill. As you know, we undertake a prudent purchase press allocation process in the context of our M&A activity that prioritize the allocation to fixed assets. So the goodwill you see in our balance sheet only mirrors a deferred tax liability that arises from the higher fair value of assets acquired compared to the original tax base. Therefore, this never is not associated with a consideration paid in the cost -- in the context of any M&A ID. It's just an accountancy element according to IFRS rules. And finally, in Slide 13, a quick update on our capital structure and liquidity position. We have around EUR 23 billion of available liquidity, including EUR 11 billion of undrawn credit lines. Our net debt after our recent capital increase is close to 0; a strong backlog of contracted revenues at around EUR 110 billion; an average debt maturity of 7 years with a highly competitive cost of around 1.5%. No significant refinancing is expected before 2024. 86% of our debt is fixed, and our corporate debt has no covenant, no pledge, no guarantee. This solid capital structure allow us to be in a comfortable position today and maintain our financial flexibility as we assess a wide array of available options to continue financing our organic and inorganic growth. And with this, let's please open the line for your questions.

[Operator]

[Operator Instructions] The first question comes from Akhil Dattani from JPMorgan.

[Akhil Dattani, Managing Director and European Telecoms Analyst]

I've got 2, please, if I may. The first is on your organic growth. You talked about, obviously, strong organic performance, but I wondered if you could just give us a bit of a flavor of the sort of organic EBITDA performance you think the business is running at today. Obviously, we saw the M&A that's running through the numbers, it's quite hard to isolate that. And when we think about the organic growth going forward, maybe if you could give us a bit of color on the sort of embedded organic growth you think is in your 2025 guidance. That would be helpful as well. And then secondly on M&A. You mentioned you feel that the M&A that you're looking to, the EUR 9 billion of M&A, could take up to 18 months. I just wondered if by saying that, you're implying that, that is the sort of scale of M&A you expect to do. Or could there still be other variability within that? Clearly in the past, you've tended to deals much faster. And when we think about the mix of deals going forward, you've obviously had some very large transactions in the last 6 months or so. I wonder if you can just comment as you think about your pipeline and opportunities you're looking at today. Are there still any sizable tickets out there of the sort of, I don't know, let's call it anything up to $10 billion size? Or are we talking about a much more bolt-on type M&A strategy for the coming year or so?

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you. Thank you, Akhil. On the first question, as you know, on the Slide 10 of the presentation, we are providing a recurring levered cash flow bridge that explains the difference between Q1 2021 and Q1 2020. You can see that we are generating EUR 24 million of incremental recurring levered cash flow coming from a basket that we call organic growth. So basically, that is build to suit, escalators, inflation, efficiencies because that has an impact that it generates a saving on our group leases, new colocations and associated revenues. So basically, this EUR 24 million translates into a 20% growth compared to last year, including, of course, the build to suit and excluding any M&A activity or change of perimeter.

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

I think that this is the element when asking for 2025 guidance if you consider this percentage of growth more or less and if you -- quarter-by-quarter, you consider that we can grow this up to 20% as we are presenting to you. If you recall, at full year, it was 17% of our recurring free cash flow in this case. So this EUR 24 million as projected will drive you to the 2025 target on top of what we do have as a M&A activity. So we feel very comfortable, Akhil.

[Tobias Martinez Gimeno, CEO, MD & Director]

On M&A, Jose Manuel, you want to comment?

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

On M&A, again, this is -- you know that we have been, as you were suggesting at the very beginning, we have been very active, extremely active in the M&A front during the last few months. I think that now we are presenting to you what small M&A activity, but a very interesting one. I think 5G is kicking in. 5G is going to have an impact on the M&A going on. And we would like to take our time in order to give -- to take our next steps. So I do think that the remaining EUR 9 billion, we will use this in 18 period time. So we are on track. I think we are on good track. But still, we need longer to think, to assess and to deliver on time, okay?

[Tobias Martinez Gimeno, CEO, MD & Director]

In other words, maybe to complement, we cannot extrapolate our M&A activity in the first quarter for the rest of the quarters of this year, Akhil. I think this is -- sometimes happens when it happens, but we are not foreseeing such strength of activity on the M&A in the next coming months.

[Operator]

Your next question comes from Roshan Ranjit from Deutsche Bank.

[Roshan Vijay Ranjit, Research Analyst]

Great. Two for me, please. You've given some more interesting slides towards the end of the presentation around creating more space on the -- on towers, both on the rural and in the urban sites. Can I ask, are you currently coming up against some constraints in terms of space or EM limits and therefore having to be a bit more innovative around how you can host some of the other tenants? And tied to that, can you please give an update on the situation in Italy? There's been increasing news flow now, and I think there's been some reports written by the NPs to the parliament to actually get something done on the emission limits by autumn. So if you can tell us what the latest is there. And secondly, on the next-generation funds, again, you've provided some high-level view in your slide deck. What markets do you think you can benefit the most from? And the logistics of applying for the funds, is it your customers that would apply or can Cellnex directly apply for these funds and deploy them accordingly?

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

Yes. Thank you, Roshan. This is Alex Mestre. So on the first question, I think probably you're referring to Slide #18 and also probably maybe Slide #19. So what here we are trying to illustrate is not an issue in relation that we are having constraints on the spaces on the rooftops, for instance, in the case of the feature. It's more what we are intending to illustrate, is the capacity that alongside with our clients. In that case also, there is one vendor involved, but there are other vendors working in order to have our contribution on a faster rollout of 5G having combined antennas, which are multiband passive if you look at the central picture, which is the bottom part of the antenna, plus the active 3.5 gigahertz antenna on the top. And that's quite helpful because we are doing an intervention in order to deploy 5G, which is also helping to put some order into the landscape of the rooftop. So the visual impact is clearly improved, and those new developments around antennas are helping us, let's say, that alongside, we are rolling out faster the 5G. We are also having a better, say, a structure rooftop on the antennas. The next slide in Page 19 if you were also referring to that, this is another example of the things that we are developing alongside the vendor ecosystem in order to have also sort of street works kind of systems, which are shareable. Because in many cases, this is one of the elements that the initial designs are lacking the capacity of the equipment to be shared. And this is our late motive, isn't it? Then we are also trying to influence on the developments. That's the rationale for illustrating those pictures here. You were asking also in relation to Italy on the radiated emissions. That's true. And we are, in general, optimistic on the way that the radiations being emitted are actually measured all over Europe. There is a need for urbanizing the way that this is measured. And we are, let's say, working on this. But the good element is that it really seems that we are going towards the right directions in all the countries, and that would potentially include Switzerland, which is one of the countries that there is, let's say, a different methodology when measuring the emitted radiation. And the last part of your question was referring to the next-generation funds. Well, we are precisely this week on the process of every government submitting to the EU the different initiatives. We are quite involved in many of them, and there are a bit of all kinds of different alignments and consortiums being created. So in some cases, we are leading it. In other cases, we are supporting our clients' initiatives. And in other cases, we are just behind our clients. So we -- well, we strive to be as compelling as possible in order to present projects, which are very much aligned with the needs of the European society, especially that has been proven after the pandemic, so how important is having good connectivity and so on. And this is where we have put most of our focus on providing good coverage everywhere.

[Roshan Vijay Ranjit, Research Analyst]

Great. That's helpful. If I could just add, let's say that any benefits from the EU fund will only kick in from, I guess, fiscal year '22, i.e., there's nothing in your guidance from -- benefiting from the EU fund this year.

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

No, our guidance does not include any benefit from this possibility.

[Operator]

The next question comes from Simon Coles from Barclays.

[Simon Alexander Arulraj Coles, Research Analyst]

So I know the focus is still on macro towers. But this quarter, you had 40% growth in DAS and small cells. So I'm just wondering how you're seeing the demand develop there. You've obviously signed a couple of agreements on railways in the Netherlands and the U.K. So is that the opportunity in the shorter term? And then, I guess, longer term, I was just wondering if you could give us some more color on how you see the small cell environment playing out because, I guess, some might suspect that the barriers actually are slightly lower and some of your peers have preferred supplier agreements with their majority shareholders. So it seems like a slightly different environment versus the macro towers. So I'm just wondering how you see that going. And then maybe just to add to that, how big an opportunity do you think it could be in Europe?

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you, Simon, for the question. In relation to the DAS and the small cell, honestly, we have not changed our view. So we've been quite prudent in the very beginning on the small cell deployment. What we are seeing is, let's say, some sort of traction more in indoor coverage, which is one of the elements that are collateral to the small cells. The small cell is initially, let's say, understood as something which is outdoor, where DAS systems and indoor coverage is one of the areas where we are, let's say, putting some effort because, yes, there is a need there. And in terms of how we see the market going forward on that, still, we are very much on the prudent side because with the new bands being made available for the MNOs, there is still the capacity of what we've been talking in the past of squeezing the macro, no? So when we would be talking about much higher frequencies like 26 gigahertz and these kind of elements, that might be different. We are not yet there. So our effort is very much on the, well, deploying small cells where we have this capacity. And as you know, thanks to the Arqiva deal, we have capacity to have access to the London urban furniture. And yes, there is some developments there, but just with the MNOs where are maybe lacking a bit of frequencies. And clearly, it's a good example on how correlated is the access to the spectrum versus the need of the small cells. So in that sense, we do not see any major, let's say, change on our forecast on how we believe the market may evolve, neither because the demand is -- the organic demand or because other, let's say, clients are vertically integrated with our company. So we don't see that as the potential barrier for us having access to this market when actually may develop in the future.

[Operator]

The next question comes from Sam McHugh from Exane BNP Paribas.

[Samuel McHugh, Analyst of Telecom Operators]

I have 2 questions and one follow-up. I'll be quick. The good thing about your PoP growth this quarter was it was a bit more skewed towards colocation versus BTS. And it does feel like BTS will naturally ramp up. So do you think you can sustain kind of 3-ish percent colocation growth over the next 12, 18 months? Number one. Secondly, Tobias, you're always very deliberate. And in your opening remarks, you highlighted that all options are open regarding M&A. But specifically, you felt the need to call out equity shareholders at a local level. I just wondered why you wanted to mention that. Should we be thinking about bigger deals in total, but just you're not owning 100% of them? And then the clarification was on EMF that was in Italy. I just wondered if your 2025 efficiency targets make an assumption that they get changed or whether that could be incremental upside to the 2025 target.

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

Thank you so much, Sam. I will start maybe with your first one, and I will leave Tobias and Jose Manuel to comment on the second. Maybe there was a third, we may be requiring for you to repeat that. Apologies. And the first one, the answer is yes. So roughly, I mean they're around pretty big figures. We have provided a 5.5% organic PoP growth. The simple composition of that is roughly 3.5% coming from the colocation, an additional maybe 2% coming from build to suit. Do we think that is sustainable in the coming quarters? Clearly, yes. I mean it's not maybe too different from what we have seen in the past. We think it's solid, predictable and also underpinned by the general certification needs that we are seeing across Europe. And then the remaining 2% is as a result of the progress that we are making on our build to suit programs. So we are not expecting any change in trends in the coming quarters. The second question.

[Tobias Martinez Gimeno, CEO, MD & Director]

[indiscernible] and you had for us?

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

No, no, no, Tobias. Go ahead. Go.

[Tobias Martinez Gimeno, CEO, MD & Director]

No, no, no. My view is just to maybe to recall that we keep open all of the optionability in order to co-invest with someone at local level. But someone means not just for pure financial requirements or looking at new equity or additional equity. This is not the trigger. This is not a driver. The driver is always the strategic fit, I mean when we found the right partner in order to secure, to reduce the risk, the execution of the business plan or to accelerate the consolidation in one country. If you look at our footprint in the 12 countries, we are investing with our customers as well. So well, just to recall, this is not for a specific purpose. We are not reiterating that because we are thinking in something specific. It's just because, well, the company remains open. But obviously, just with the restriction that, for us, is very important to get the control, not just for accounting purposes. It's because at the end, for us, it's very important to take the management of the company to develop the management role in the project. I don't know if, Jose Manuel, you do have [indiscernible].

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Sorry, Sam, maybe -- we are not sure if there was a third question. Apologies.

[Samuel McHugh, Analyst of Telecom Operators]

Yes. Apologies. Yes, there was. Sorry. It was on the EMF rules in Italy. I just wondered if your efficiency targets included any assumptions on those rules changing. If they don't or even if they do, how big do you think the incremental opportunity is for optimization of BTS and decommissioning in Italy if the rules did change?

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Well, in principle, we have not taken any consideration of that flexibility going forward into the efficiency plan.

[Operator]

The next question comes from Jakob Bluestone from Crédit Suisse.

[Jakob Bluestone, Research Analyst]

I've got 2 questions, please. Firstly, just a similar line to -- Sam was just asking around the funding. You outlined on Slide 20 a range of alternative available funding approaches to M&A. And I was just wondering, I mean, is this sort of what -- how you more intend to fund future M&A rather than going down the rights issue route in the future? Is that how we should be reading it that perhaps you'll be doing fewer rights issues going forward once you've -- now that you've completed this one? My second question was just on France. You very helpfully have provided a split-out of the French business effects unit in your Excel sheet today, which is always quite interesting. I just had a question on the margin there. I think you report EUR 78 million of EBITDA on EUR 85 million of revenues. So something like a sort of 92% EBITDA margin for the French business. I was just wondering if you could maybe help us understand why the margin is quite so high. It looks like that there's no utilities or close to 0 utility charges in the French business. So maybe it's just a sort of cost allocation, but just interested on how sustainable is that very high margin that you reported for your French business.

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you, Jakob. I will maybe start with the more operating question. I will leave Jose Manuel to elaborate on the first one. The answer is yes, I guess there are some slight differences compared to the -- to other markets in the sense of -- I mean, for example, in France, we are not providing the electricity service. It is up to the mobile operator to sign an electricity contract with electricity supplier. So we are not involved in that link of the value chain. That increases the margin. And then also the separate high margin, that also -- it's directly associated with the contracted revenues that we are receiving from our core tenants. So I would say that [ osmosis ] playing this margin. Maybe a bit accelerated for the 5G rollout. I mean all of the telecom operators are accelerating the 5G rollout, but it's not relevant. It's not a relevant percentage. The vast majority, it's about pure, let me say, traditional kind of service. Jose Manuel?

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Yes. Regarding the first point, this slide, in fact, it's not the first time we shared with you, this is just pure optionability. It does not mean anything about our capital. Anything but our capital structure is full of flexibility, okay? But not in us. So we do think and I do think as a CFO that Cellnex has built not only a very strong balance sheet, but also has been able to build different financial instruments that allow us to increase our firepower in different ways. And this is -- maybe you can see that we are a crossover company, but we are able to issue at a very long-term maturity at 12 years, for instance. You can see how our coupons are very adjusted. You can see how banks are giving us credit lines long term with no hedge, no pledge, no guarantee, no covenant. So we tend to -- I tend to feel, maybe it's a personal point, that many times, I am not able to explain well that service is not only about net debt to EBITDA, but also about other qualitative elements that some stakeholders like credit lines or bondholders appreciate. And maybe what I would like to share with all the market again is that service has plenty of financial flexibility to do many things in the next quarter or something. Nothing else apart from that.

[Operator]

The next question comes from Georgios Ierodiaconou from Citi.

[Georgios Ierodiaconou, Director]

I have 2 questions and one quick follow-up, please. So my first question is around the growth in colocations we are seeing in Italy. I was wondering if you can give us a bit of color between the mix of the growth Iliad, fixed wireless access, maybe. Any cancellations you are seeing from the 3 incumbents? Just to get a bit of an idea of what's driving the growth there. And my second question is on your agreement with Hutch. Yesterday, during that call, they suggested that some of the all-or-nothing agreements they have with you have some amendment clauses in the event of consolidation. Do you want mind giving us an idea of how that works? And does that mean you commit less capital, which you can then redeploy into new deals? Just to get an idea of -- to the extent you can comment on the dynamics and integrations of that. And then my follow-up is on the EU recovery fund. I know you commented on that earlier. It will be great if you can give us any color on the mix of countries where you see the most benefit so we kind of get an idea of where to expect this kind of growth to accelerate.

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you, Georgios. Maybe I can start with the third one. Short answer is mostly spend in Italy. Those are the markets where maybe we think [indiscernible] higher probability of being successful. Coming back to your first question, the majority of organic growth we are generating is -- well, first of all, it's a traditional MNO. So in the quarter, no activity in the commercial activity translated into PoP, strong fixed wireless access, so 100% MNOs. And all of this, as you can imagine, the vast majority is coming from Iliad. On the second question, I can maybe leave to Alex to elaborate. Just maybe -- just to start, you know that our MSAs, our contracts with anchor tenants, those are fully protected against any type of consolidation. That will be a change of control event, so we are protected against that. Just to provide you one example, we have already seen that in Italy with WIND and Hutch [indiscernible] in the past with no impact on our current cash flows. And also, we are not expecting any impact on our future renewals because, again, the all-or-nothing clause applies. It's a [indiscernible]. But I don't know, Alex, if you want to comment anything else.

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

Of course, always will be the option of the nothing if there is merge, but that has to be totally assessed. The beauty, let's say, or the consequence of this all-or-nothing is exactly that. Whatever happens before that, as Juan Jose said and as we have proved in the past, is not going to impact the cash flows with our anchor.

[Operator]

The next question comes from Ottavio Adorisio from Societe Generale.

[Ottavio Adorisio, Equity analyst]

A couple of questions on my side as well. The first is related to your cost savings and the second in some renewal for your contracts. On the cost savings, you provided guidance for 2021, 2022. And you also spilled out the two drivers: the lease optimization and the exploitation of the network cost synergies. I guess that in the quarter, most of the savings, they still come from optimization of the leases. So I was wondering, for your targets you have for 2022 of EUR 25 million to EUR 30 million, how much will be from network cost synergies and how much would be from lease optimization? And also if possible, if you can give an update of your EUR 90 million to EUR 100 million of recurring OpEx and lease savings by 2025. The reason I'm asking for that is because in the previous call, we're wondering about the synergies you can get by optimizing your network now that you're completing most of the acquisitions. At that stage, you say that you still have to check the real overlaps, so you're still going with the due diligence. The check -- I mean with the contract at MSA and MLA, and for the MLA, you have to check the willingness of the clients to move. So I believe still a work in progress, that guidance. So if you cannot provide, let's say, any sort of numbers, if you can see if the EUR 90 million to EUR 100 million, it's a base case scenario or it's a conservative or there could be upside to that given that how negotiation are going and the integration plans you're currently implementing. Now going to the second question is related to tower renewal. In your intro, you basically said that you're celebrating today the 6 years since the IPO, a lot of time this has passed by. So a lot of emphasis on new contracts and new acquisition, but I believe that you're now also reaching close to the first renewal, if I'm not mistaken, because now -- just my memory since the IPO, the very first deal you signed was with Babel and Telefónica in Spain that was in 2012. It was for only 8, 10 years. And then was the bolt one in 2013. So I believe that over the next 1 or 2 years, you do starting some renewal. A lot of things have changed in terms of how you do contract. I believe that stage was mostly MLA, now MSA. Of course, there was no BTS at the stage. You do have now augmented tower core strategy. So I was just wondering if you can start spending a bit more -- give us a bit more granularity if already you start engaging with the clients in terms of renewal and how is it going. And if pricing will be the main lever, if the client's willing to basically get more services from you and potentially even changed from the MLA to an MSA?

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

Yes. So thank you, Ottavio. This is Alex. Yes, you have good memory. The first contract that will expire is the Babel contract with Telefónica, and this is on 2022. And then the next ones are also Telefónica, and that was properly disclosed at the right moment. So well, those are good times, as you well suggested to maybe reconsider what could be a change from the initial status quo. So -- and of course, we are not well, never -- we expected to the last minute to have a discussion around these type of topics. We engaged discussions much earlier, and part of the elements that we've been developing since we first signed those contracts could be on the table. But the most important thing that will be preserved is what we, let's say, indicated by the beginning that those contracts potentially were renewed with a tunnel of pricing, which is plus/minus 5%, as we already disclosed previously. So nothing different than that. It's going to be on the table. And if there is something different, it would be for the benefit of the company.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Coming back to your first question of Ottavio, we are not expecting them to crystallize in the synergies in 2021, 2022. It is true that by 2025, we should be seeing more, maybe an easy simple split would be like 75% of the total figure we provided coming from your renegotiation of current sales, so efficiencies and maybe an additional 25% coming from efficiencies, mostly because of that initiation. And that's why at this stage, we believe that, that's our base case. And obviously, as we -- over this quarter see as we have more information, happy to revisit that figure.

[Operator]

The next question comes from Fabio Pavan from Mediobanca.

[Fabio Pavan, Research Analyst]

Congratulation for the results. Very quick one on my side. I was wondering if you may elaborate a little bit more on the 5G opportunities that you think may arise in the near future. And also, I was wondering if you share the view that the resilient recovery plan may speed up. Finally, investment on 5G for what concern Europe in general.

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you, Fabio. Well, I will start with this one, if you want to complement. No, I would say that for us, clearly, it's an opportunity that we are hoping to see translated in the number of fronts. 5G, we believe that -- well, depending on the final frequencies to be used in the actual deployment of 5G, if we see higher frequencies being used, that will be translated into smaller cells. So there will be a loss of coverage to be compensated with most sites. So hopefully, we will be seeing more densification, densification that can be translated into more colocation, so new tenants on existing sites, but also in the areas where we cannot provide a service. Maybe there is an opportunity to provide even more size beyond the current build to suit programs that we have signed with clients. So maybe more tenancy rate increase, but also more build to suit. Also, we believe that while maybe at this stage, we are cautious about the small cell opportunity, so out of coverage based on the small cells, maybe we see more demand from clients when we see a final growth of 5 years. So macro sites will need to be complemented with the small cells. And also, that is an area where we can -- we want to play a role. We are seeing today, demand for either coverage based on DAS. So that is an area where even today, we are making tangible progress to all stadiums, hospitals. As we are providing visibility on in the presentation, we are finding also an interesting opportunity in the area of transport network systems to provide connectivity. So we are also very active here. And then moving beyond, I would say, our traditional activity, we also think that makes sense for a neutral host to provide ancillary services around the tower and to extend our relationship with a current anchor client. We are already providing fiber portfolio for Bouygues Telecom in France. We are also starting to explore the possibility to move into mobile edge computing. Those are areas where more CapEx will be required. Maybe it makes sense for, again, a neutral operator to provide this CapEx to the service instead of the mobile operator. And then more [indiscernible], even why not to consider the possibility to enter into the active infrastructure area. So we see this as an ecosystem. We see this as a trend that will require mobile operators to think about their future CapEx needs in a different way. And adversely, more than happy to try and partner with our clients beyond macro towers, beyond what you see today.

[Operator]

The next question comes from Fernando Cordero from Banco Santander.

[Fernando Cordero Barreira, Equity Analyst]

Two questions. The first one is related -- is a follow-up on your recent answer, Juan Jose. You said after almost 2 months since you announced the [indiscernible], I would like to understand if you have seen more commercial traction on the [indiscernible] tower proposal to MNOs. And in that sense, what has been your learnings and also the market learning from your conversation with clients on this new model that has started with [indiscernible]? And second -- the second question is also on Poland. In that sense, it's quite a specific one in the terms that, finally, it seems that the Play acquisition has seen both a larger amount of sites than initially expected. I just would like to know if there are additional, let's say, inorganic growth to come from Play. Or what is the reason for this higher amount of sites coming from the Play deal?

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you, Fernando. I will start with the second one, and I will leave Alex to elaborate on the first one. Basically, what we are doing with the transactions is just to rebalance. I mean the economics of the projects are exactly the same. So usually expecting the same consideration, including upfront and the build to suit CapEx and, of course, the same contract EBITDA. So the -- we are not [indiscernible] the run rate multiple. Simply, what we were doing is that as of the closing, we are transferring more site into the upfront consideration, so more sites being acquired in exchange for a higher consideration. And then we are reducing the component of the [indiscernible]. So it's just the overall magnitude of the project are exactly the same. It is simply that we are, as of the closing, integrating and paying for more size than initially expected.

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

And also, yes, another -- just to complement. If you see these things, it's because there are tax angles that are beneficial for us. So from a pure economical perspective, the project is exactly the same. However, if you go in details into the tax -- [ Polish ] tax law, this treatment can be more beneficial for us. So there are several elements when you see the changes that are more linked to the tax and to the tax treatment and to the speed of the build to suit product.

[Tobias Martinez Gimeno, CEO, MD & Director]

And Fernando, in relation to the augmented tower corner, so just to put the things in perspective, we cannot even talk to the potential first client in Poland that will be Play for the augmented tower [ con ] because we have not yet closed the Polkomtel Infrastruktura transaction. We are in the middle of the antitrust process, so we cannot step in and have any discussion meanwhile. So the idea, we would not have a gauge with the idea unless we would not see any rationale behind that. The concept is socialized, which is normal after the disclosure of the news. And it is true that it has created some attraction around it through our potential partners as well as for the rest of players of the ecosystem. So in a sense, that is confirming that potentially there is a path to go in this direction. Now we need to see the different use cases that are several. Potential rent sharing agreements among the different MNOs per country are different, are geographically based or are maybe based on other elements. So we are starting to have the full design as of per country per client and trying to figure out how this could be moved forward.

[Operator]

The next question comes from Luigi Minerva from HSBC.

[Luigi Minerva, Senior Analyst]

Yes, my 2 questions. The first one is a follow-up on the emissions limit regulation, and I was wondering if you can give us an indication of what's the upside in terms of tenancy ratio growth if Italy and Switzerland were to harmonize their measurements to the European Union recommendations. And the second question is on Portugal, whether you are seeing any indication of new business coming from the new entrant?

[Tobias Martinez Gimeno, CEO, MD & Director]

So probably, it's, Luigi, too early to yet authorize anything. As we mentioned before, we cannot authorize anything on the detailed guidance in relation to potential change of the emissions since it's not yet clear how this may be changing probably too early to anticipate any impact on that. And secondly, in Portugal, yes. So the auction is still ongoing. It has yet to provide final picture on who would be actually, let's say, having the predominant role as a potential new entrant. And well, as you can imagine, the different candidates and players have been in contact logically, and we've been part of the qualification towards the [indiscernible]. So well, hopefully, that will happen, and that will be an interesting point.

[Luigi Minerva, Senior Analyst]

Yes. I think on Portugal, actually, the spectrum to the new entrant has been awarded already. But I get from your answer that there is no, therefore, indication of new business coming.

[Operator]

The next question comes from Nick Delfas from Redburn.

[Nick Delfas, Research Analyst]

I'm just trying to understand a bit better the drivers of PoP growth. So obviously, 5G does have higher frequencies, but also increasing use of massive MIMO. Most of the things we see are coverage-driven. So could you just give a little bit of an overview of how you see the drivers of PoP growth at the moment between coverage and capacity? Is it mainly coverage-driven still? Has it changed at all in the last 3 months? And the second question is around rooftop upleasing. This has been a big subject, obviously, for American Tower in Germany and Vantage. Anything you can say about how that's going for you, for example, in France and how difficult or easy it is to lease-up rooftops?

[Tobias Martinez Gimeno, CEO, MD & Director]

Yes. So in relation to the PoP growth, which is not the only organic growth element to be considered, but when we talk precisely about PoP growth, certainly, there are 2 elements. One is coming out from the physics, which is related to the higher spectrum that is already impacting the 3.5 gigahertz. So what you are thinking on massive MIMO antennas do require more points of presence. And the other one is in relation to the bandwidth needs that requires also an additional densification. So it focused traffic, which is linked to the consumption and the physics, which are linked to the frequencies. And those are the 2 main levers of PoP growth. On [indiscernible] and on the top of that, there are other elements, like, as we mentioned before, indoor coverage and everything that is not counted as PoP, but it's also, let's say, the -- it's having exactly the same sort of types. So the second question in relation to the rooftops, and we are quite well experienced on that because when we did the first transaction precisely 6 years ago in Italy, by then, WIND was proposing in the portfolio quite a lot of rooftops. And one of the questions that we were asking ourselves, well, what was the potential cotenancy projections around that. And after 6 years, I think we have clearly demonstrated that the rooftop, it is also cotenancy sort of assets, because initially, that was one that we've experienced, let's say, the dynamics in Italy well. And it has been, let's say, a good driver of growth, the rooftops. The dynamics are not identical in every country. This is also true. But the experience that we're having in Italy, clearly, and in Spain as well, up to a certain point, but we'll -- and actually is helping us in order to have the right landlords contracts in order to facilitate that in the future. An example that we were mentioning before on the Page 18 is part of the elements that we believe are important also in relation to the landlords to have not a forest of antenna on the top of your house but have something, which is more friendly in terms of visual impact as well.

[Nick Delfas, Research Analyst]

Can I just follow-up on 2 things? So are you saying that the PoP growth is almost all densification and technology-related, it's not really coverage-related and the coverage, I suppose, is more in the build to suit? Is that a fair way of thinking about it?

[Tobias Martinez Gimeno, CEO, MD & Director]

Well, not exactly. So -- because not all the MNOs are having exactly the site at the same place. So coverage also leads to PoP -- so to PoP upgrades. So I think it's a combination of both. We cannot only think that the build to suit, for instance, is required for coverage because there is a problem of lacking frequencies. So you may need a build to suit because traffic as well because...

[Nick Delfas, Research Analyst]

Sort of the hard and fast rule. Okay, yes.

[Tobias Martinez Gimeno, CEO, MD & Director]

Exactly.

[Nick Delfas, Research Analyst]

And you mentioned in terms of rooftops, Italy and to extent, Spain, are good countries. Are there bad countries in terms of the contracts that exist?

[Tobias Martinez Gimeno, CEO, MD & Director]

Well, normally, when you are inheriting a contract from an MNO that was done several years ago, that contract was not even envisaging the possibility of having several tenants, and this is happening in some cases. The beauty is that, for instance, in our case in France, the rooftops that we are incorporating in our portfolio, many of them coming from build to suit operations, where all those elements, which are always win to win with the landlords, are already taken into consideration.

[Operator]

The next question comes from Giovanni Montalti from UBS.

[Giovanni Montalti]

So just a follow-up. Going back to Slide 10. There is a bucket of EUR 69 million, you say mainly leases. I guess this is including all the OpEx growth. Can you confirm this is all, let's say, nonorganic? I mean for the way you present the slide, it is the way we should read it.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Yes. That's the case, Giovanni. Exactly. That's exactly mostly to a change of perimeter. Yes.

[Giovanni Montalti]

So if I want to look at the cash flow, let's say, conversion of the new perimeter, it would be EUR 98 million minus EUR 69 million. So it looks kind of low, the contribution from the cash conversion of the changing perimeter. Is there any maybe additional comments that you can share with us to clarify better this trend?

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

No, yes. Because here, you have a time issue. For instance, the coupons. We pay once a year a coupon. And then you pay once a year, the...

[Tobias Martinez Gimeno, CEO, MD & Director]

Even the lease.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

The lease. Even the lease.

[Tobias Martinez Gimeno, CEO, MD & Director]

There are some countries where, for example, the annual lease is paid in Q1.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Yes.

[Tobias Martinez Gimeno, CEO, MD & Director]

Okay. So it's not representative of the...

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Exactly.

[Tobias Martinez Gimeno, CEO, MD & Director]

Of the cash conversion offered by the change of perimeter. We think it's a timing issue.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

This is the point. So when assessing that, you should consider the timing issue, which -- between elements below EBITDA -- and our EBITDA have different patterns of behavior. Above EBITDA is very recurrent because it follows contracts that starts from closing onwards. Below EBITDA, it depends on when we pay exactly the different elements. I would not look at -- sure, yes, I would not give an answer to your question with Q1 results but with the full year, that will be the right moment. Regarding full year...

[Giovanni Montalti]

No, no, I imagine so -- sorry.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

No, no. And just in full year '20, you have also for last year what happened, so that can be a good proxy. Sorry.

[Giovanni Montalti]

No, no, I imagine so. That's why I was asking to try, but I understand the dynamics. And sorry, one very last follow-up. You were confirming that in your 2021 outlook, you are not including the contribution from the recovery fund. I guess this is the same for the 2025 outlook or you have [indiscernible] something there?

[Tobias Martinez Gimeno, CEO, MD & Director]

No, that's also the case for the 2025 outlook, yes. For that, we treat that as an option, not embedded in our figures.

[Operator]

Your next question comes from Andrew Lee from Goldman Sachs.

[Andrew J. Lee, Equity Analyst]

Just a couple from me. Firstly, just to follow-up on Sam's question earlier on the quality or the makeup of the points of presence growth. We saw a tick-up in the tenancies on existing towers as a proportion of total PoP's growth. You were mentioning you don't see a meaningful change from here. Could you just give us a bit more insight? Like could we start to see you generating more of your points of presence growth going forward from existing towers as you benefit from scale -- in market scale? Second question, probably, yes or no, are you seeing any greater level of competition as you negotiate M&A at the moment, given we've seen AMT come out with its funding process for Telxius? And partly, is that set up with CDPQ's to provide a platform for more deals going forward? And then thirdly, just any -- are we in a place of seeing any more fiber to the site deals like the one you did with WIG?

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you, Andrew. I will maybe start with the first one. No, I would say that my previous answer was mostly related to the coming quarters, mostly 2021. And I said that with the information that we are having from our clients' plans, I guess that we are comfortable in similar trends. That was my only comment. Can this accelerate? Maybe faster organic growth can be expected to increase in more recent markets. Could be the case, but I guess we need more information. So that's why we prefer to keep the outlook for the rest of the year with trends similar to what you are seeing today. In -- now maybe coming back to the third question, Alex, on potential more fiber projects.

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

Yes. Well, this is, as we always mentioned, a lateral type of asset, which has to be rational for us to look at it. So either it's because it's connecting, which was the case of WIG, the towers with the central offices that we were also having an impact on these type of assets. So rationale has to be there. What we are not intending to is to deploy our investment in fiber to the home, and I think this is something that we've iterated already in the past and continues being as such. So if there is a fiber investment, it should be linked to the infrastructure, basic infrastructure around the mobile towers.

[Tobias Martinez Gimeno, CEO, MD & Director]

There was your second question on competition. And Jose Manuel, if you want to...

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

I think that regarding American Tower, American Tower, clearly stated that in order to pay Telxius, they need to raise money, and they have done it fine. Nothing to say. I do not think that this is -- this increase will reduce competition. We do think that we continue working as we have always been, being an industrial partner for our client in the new context of the 5G, which I do think we have a very unique competitive advantage. And second, we are a neutral operator. That also help us in front of vertical integrated tower costs. So we are where we were before.

[Operator]

The next question comes from Emmet Kelly from Morgan Stanley.

[Emmet Bryan Kelly, Head of European Telecoms Research]

Yes. Two quick ones. Firstly, it feels like we're entering a more inflationary environment, first, with rising labor costs. And secondly, there's also natural resource prices going up in [indiscernible] steel. Can you maybe just talk a little bit about how you manage these costs in the coming couple of years, both for OpEx and if there's actually an impact from rising steel prices on BTS Capex? And then the second question is kind of linked with the question that was asked earlier. If you look at Poland, you're buying 7,000 sites of each of Play and Polkomtel. So 7,000 is the starting point in both portfolios. The BTS with Polkomtel is 1,500. And then the Play BTS program is really huge, it's up to 5,000 sites. Can you maybe say like what's driving the difference between those 2 BTS programs? Is this densification? Or is it a weaker starting point for one of the networks? Just any commentary on that as well because the site increase is very, very notable.

[Tobias Martinez Gimeno, CEO, MD & Director]

Thank you, Emmet. Alex, do you want to start with...

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

Let's start with the last one. Yes, sure. Well, in relation to the build to suit, it is correct that the amounts being agreed are different. There are 2 different strategies. We also believe that the starting point, probably in terms of coverage, one of the players is more eager to develop coverage. But do not forget that those are the committed quantities, that we can go above those quantities in the event that this 1.5 (sic) [ 1,500 ] of Polkomtel, for instance, is way to go beyond that. Having said that, and this is part of what we've been, let's say, emphasizing lately is that having 2 anchors will bring opportunities to create value on the table. And this value has to be, let's say, properly shared among the stakeholders. But for sure, there will be a lot of opportunities in Poland. And if you can see that on the top of that, we have even the active infra layer will create very, very interesting discussions. At the moment, we may have them in order to really make a solid and efficient network for our 2 anchors there.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Regarding your first question, Emmet, the impact of inflation on our OpEx and build to suit programs, in fact, have followed you well. In terms of the build to suit programs and, Alex, you can correct me, the majority of them are -- has a fixed price. So there is no...

[Alexandre Mestre Molins, Deputy Chief Executive Officer]

Not impacted by inflation.

[Jose Manuel Aisa Mancho, Corporate Finance, CFO and M&A Director]

Yes, the vast majority, maybe no 100%, but I will say to you that the vast majority. And second, regarding the other items of OpEx, if we recall since 6 years ago, we have been at the very beginning with higher inflation. I remember that 2015, '16, we had an inflation of 2%, for instance, in Spain and Italy. At that time, we were able to control our OpEx perfectly well. So no big changes if the OpEx were to be, I don't know, 5%, which I don't think is the case, maybe I would start worrying. But I'm afraid that one of the good things that Cellnex mitigates is that we grow also by steps. So we do not grow linearly perfectly well. We grow by integration of companies and also by growth of the corporation. And this takes time, step-by-step, not in a linear way. So I do think right now, we do have scale, economies of scale.

[Emmet Bryan Kelly, Head of European Telecoms Research]

Great. And I just ask just a quick follow-up as well. The question I'm getting a lot at the moment is just regarding any potential updates on the kind of regulatory processes in France, Italy or U.K. Can you make some preliminary comments on that? Or is that something you cannot comment on?

[Tobias Martinez Gimeno, CEO, MD & Director]

Maybe the update is, as you might have seen in the news, is that in some -- in a couple of countries, there is a confirmation that we are entering into stage 2 of the regulatory process. That's actually our base case. So when we provided timings of expected closings, we were anticipating that we were entering into stage 2. So other than this confirmation, no changes compared to our initial scenario, so other things going as planned.

[Operator]

Thank you. Ladies and gentlemen, we have reached the end of the Q&A session. Dear speakers, the floor is yours.

[Tobias Martinez Gimeno, CEO, MD & Director]

Just again, thank you so much for your time, and we just hope that you have a fantastic weekend. Thank you. Take care.