Cellnex Telecom SA

MAD:CLNX

Earnings Call Transcript 2022-Q1

[Juan Gaitan Mañoso, executive]

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 Q1 2022 Results Conference Call. As always, I'm joined 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 presentation that we have just published and then we will open the line for your questions. And without further ado, over to you, Tobias.

[Tobías Martínez Gimeno, executive]

Well, thank you, Juan Gaitan. Good afternoon, everyone, and thank you so much for your time. Let me please start with the main highlights of the period, which has been marked by a consistent execution in a challenging macro environment, thanks to our Brazilian business model.

Our organic growth generation continues to be strong and sustainable with new PoPs on existing sites and our build-to-suit programs generating a 6.5% growth. The main driver behind this strong organic growth has been again the significant contribution from our build-to-suit programs with around 900 new sites deployed in the quarter and with no issues observed in our supply chain, which allowed us to meet our clients' network needs on time.

We continue to make progress on our efficiencies plan, and we are reiterating our 2025 saving target. We are presenting again a solid set of results with revenues increasing 64% compared to last year. Our adjusted EBITDA, 66% and our record leverage free cash flow, 67%. In the current macro environment, I invite you to think of Cellnex as a place to be in un-inflationary context with the majority of our contracts linked to CPI, control impact from rising energy prices due to our pass-through mechanism, hedged build-to-suit CapEx and a solid capital structure and long-term trends support our fundamentals.

On M&A, we are ready to execute on our targeted pipeline as the opportunities are there, and our firepower is fully funded. 86% of our debt is fixed. The remaining 40% is linked to Euribor, which is at historical lows. We have an available liquidity fully funded and of around EUR 8 billion, and our debt has no covenant, hedge or warranty.

Again, on the organic front, we have renewed our first batch of sites acquired from Telefonica in Spain at existing terms. We are executing bolt-on agreements, existing clients, and we have the commitment from Digi in Portugal to extensively use our towers for the network rollout. And finally, we are reiterating our 2022 guidance as we are maintaining our assumptions in terms of closing of deals and impact from remedies, and we are also reiterating our 2025 guidance.

If we go to Slide #3, we are showing here for illustrative purposes, the profile of our adjusted EBITDA and cash flow in 2022, how they will be generating during the year. As you can see, these magnitudes will increase every quarter as we generate organic growth, make progress on our built-to-suit programs and efficiencies plan, and see the contribution from the Hutch U.K. deal when it is closed. Our 2022 guidance implies an expected EBITDA and recurrent leverage free cash flow growth of around 40% compared to 2021.

Moving to the following slide, I would like to highlight that we have successfully completed 25 integration processes in 12 countries since 2015. 15 integrations in only 2021 only. And the rest of our ongoing integrations are progressing as planned, with a particular emphasis in the U.K. where we need to finalize the remedies process before we can close the Hutchison deal.

If we go to Slide #5, just a quick review of our current footprint and medium-term financial targets. When all of our deals are closed and our build-to-suit programs complete, Cellnex will further strengthen its position in Europe as the main dependent telecom infrastructure operator. Managing a portfolio of almost 140,000 sites, with present in 12 markets, boosting our financials and becoming the industrial partner of choice for our clients. Please note that these figures do not consider the execution of remedies processes on which we are intensively working today. And a quick reminder of our medium-term guidance, which we are reiterating, it implies an annual growth of more than 20% in all of our key financial metrics since 2020, with a targeted EBITDA in 2025 of between EUR 3.3 billion and EUR 3.5 billion, including the impact from remedies and without the additional contribution from the projects in our pipeline.

And with this, I will now hand over to our CFO, Jose Manuel Aisa, who will provide more details in the period.

[José Manuel Aisa Mancho, executive]

Thank you, Tobias. If we move to Slide 7, let me please provide a few more details on the period. Our revenues have increased 64% to EUR 828 million. Our recurring levered free cash flow has increased 67% to EUR 300 million. Total PoPs have increased 50% if we include the contribution from organic and inorganic growth. And if we think about organic growth only, our POP has increased 6.5% compared to last year as a result of colocation and the strong contribution from our B2C programs.

Moving now to Slide 8. The performance of our main metrics. On top of, if you will, just discussed, you can see our adjusted EBITDA has increased 66% compared to last year with a solid margin expansion as a result of our operating leverage and change of perimeter. This EBITDA growth is mainly explained by the contribution from telecom infrastructure services, organic growth build-to-suit and acquisitions and by the best-in-plant management of our OpEx rates.

The following Slide #9, explains our recurrent levered free cash flow generation in the period. And you can see here the contribution to organic growth on our different growth drivers, colocation, associated services, build-to-suit escalators and efficiencies. These elements combined generated EUR 46 million in the first quarter of '22, a 25% growth compared to the same quarter last year, and we also include additional contribution from M&A and the rest of cash items below adjusted EBITDA. Cellnex has generated again a strong recurring free cash flow growth of 67% compared to Q1 2021.

Moving to Slide 10, just a quick update of our lease efficiency plan. The proactive management of our ground lease contract has always played a key role in our operations, and we keep demonstrating a solid execution, crystallizing efficiencies even in a high inflation environment. In the first month of '22, we have negotiated more than 850 ground lease contracts, generated EUR 20 million of efficiencies in '21, and we are reiterating our '25 targets.

Moving to our balance sheet. Movements compared to December '21 as explained by our M&A and capital allocation activity in Q1 '22, mainly acquisition of minority stakes and own shares making the most of current market conditions and reaching today a level above 1% of our share capital.

And finally, a summary of the main characteristics of our solid capital structure. We have recently refinanced a bond mature in '22 with associated 3% coupon by issuing a new one at much lower cost, thus reducing the average cost of our debt. The significant refinancing is required before '24. We have close to EUR 8 billion of available liquidity, so we do not need additional debt to fund the growth opportunities in our time line. 86% of our debt is fixed. We have no exposure to the U.S. dollar, and our corporate debt has no covenant, no pledge, no guarantee. So we have full flexibility to make further finance and funding decisions.

And with this, let me -- please open the line for your questions.

[Operator]

Ladies and gentlemen the Q&A session starts now. [Operator Instructions] The first question comes from Andrew Lee from Goldman Sachs.

[Andrew Lee, analyst]

Your results are pretty in line. And you answered the question that investors come in on leases and the concentration in Q1 really clearly. So I had 2 questions, slightly different to that. Firstly, apologies on Deutsche Telekom. And you're probably limited in what you can say on that. But I wondered if you could just talk about how you think about the conceptual funding of a deal for Deutsche Telekom. Historically, you said you don't want to do another equity raise. So I wondered how you're thinking about that balance between using your own equity, the use of your existing balance sheet capacity and how much you think that is as well as the potential use of other financial partners? That would be really helpful.

And then just secondly, in terms of the organic growth outlook. Obviously, organic growth is strong now. The balance between build-to-suit and colocation is similar to last quarter. And we understand the densification is at the half -- the driver of that growth. But how should we think about the balance between build-to-suit and colocation going forward? If build -- you said that you're confident that your headline organic growth is sustainable into is -- said that early on. But does that mean that if build-to-suit slows, colocation would likely be accelerating? How do you give us confidence in the sustainability of the overall growth?

[Tobías Martínez Gimeno, executive]

Andrew, Tobias, is speaking. I will take the first question about Deutsche Telekom. Well, you know that it's public information that we are in the process, of course. Obviously, it's our duty and obviously, we have to assess properly if this is our opportunity in order to be there. Obviously, as you can imagine, we cannot elaborate more than that, very sorry, because I do not want to convey the wrong message that we do not want to enter in the discussion, but difficult to say, difficult to go further. But obviously, Germany, it's a very attractive market. And obviously, Deutsche Telekom is also a very attractive potential customer as well. So we are in the process. And obviously, we have restrictions, legal restrictions in order to disclose additional information. But happy to talk about your second and third question that I think also the second one is linked with this project. So maybe Jose Manuel...

[José Manuel Aisa Mancho, executive]

Of course. No, I think that you are going in the right direction when you raised the question, Andrew. Yes, I think that Cellnex should be focused on what we have seen before working with partners. Obviously, when we work with partners, financing is a must. And also, we have been clear that no rate issue. I mean, we are not going to ask for money from our current investors. These are part of the deal. You know that we cannot disclose further, but please bear in mind that we have been able to also to co-invest with our other clients in France now and recalling, so this could be somehow a copy paste in this transaction, also other things that we have done in the past has been with that in which we delivered a little bit of shares of new Cellnex shares. So there must be a combination of these elements in the order that we were seeing before.

But again, what it matters is a discipline is there, industrial discipline and what most matters is the contract. And the contract is everything. We are talking about a long-term investment. We need to have comfort about all the clauses and this give us value and capacity to fund any transactions and as we have always showed to you.

[Tobías Martínez Gimeno, executive]

Maybe the third question, maybe Alex, you try and...

[Alexandre Mestre Molins, executive]

Sure. Yes. In relation to the organic growth, Andrew, I think the point you are raising is correct. So there is a combination between build-to-suit and new colocations. Let me not forget though that we still have 23,000 build-to-suits yet to be deployed in the coming years. And that amount is also a fluid element. Let's recall that we have announced at the end of February, an additional 5,000 build-to-suits. So this is also part of this pipeline of -- organic pipeline of new build-to-suits that we are normally implementing. So it's not something that we believe all of a sudden, build-to-suits will just vanish, it will be also continuously implementing alongside with the colocation. So on our view, the mix that we are today having between the 2 elements will be there for a long time, because the combination of new colocation required for densification and new upgrades for 5G and again, build-to-suit for both for densification and coverage in rural areas or undercovered areas, which is part of also the build-to-suit that we are having.

[Operator]

The next question comes from Akhil Dattani with JPMorgan.

[Akhil Dattani, analyst]

Maybe if I could stick on the topic of M&A first. Tobias, you mentioned in your answer to the previous question that Germany is a very attractive market. And I guess without wanting to get into the specifics of any deal, I was just interested in your comment around that. There's often a lot of debate around Germany and whether it really is an attractive market. And so I guess I just wanted to understand why you think it is? And I guess the 2 specific things people ask a lot about is, firstly, the fact that there's already existing tower co. So there seems to be less future potential in-market bolt-on M&A potential than in other markets you operate in? And then secondly, there's a lot of rooftops. So I just wondered if that content if you can give us a bit of color on why you think it's an attractive market conceptually without getting into valuation or anything else?

The second thing was, hypothetically, if you were to choose not to go for the DTT you were not to get it. I was hoping to get a bit of color from you around other M&A opportunities because you said in your introductory comments that there's still interesting options ahead. So I guess, any sort of broad high-level color around alternative M&A opportunities? And also, you've had a really aggressive M&A story over the last few years, you've been extremely successful. Is it fair to say post DTT, the future M&A options do start to become a bit more limited? And if they do, how do we think about balance sheet priorities? I guess, obviously, you've talked about the buyback that you've been tactical around recently, but could shareholder returns start to become a bigger theme for Cellnex going forward? So those are my 2 questions.

[Tobías Martínez Gimeno, executive]

No, thank you for the questions. I will take the first part of your questions about the activity of Germany. First of all, you -- when you assess the market, you have currently 3, let me say, very well-established telecom operators, but you have to take into consideration that we have a new player in Germany, which is Deutsche, this is a fact. The third -- the second point is the quality of the assets, the nationwide coverage of Deutsche Punto is the best one. No doubt about that. So the quality, the footprint, the densification it's best class. And the third one, if you look at 5G, 5G is about additional kind of assets around of the pure, let me say, towers. So it means fiber to the tower densification, it means not just small cells, it's about a new build-to-suit program in Germany, but also data centers. So -- and the fourth, which is very important for me is, we are not acquiring, we are not dealing just about portfolio of towers.

You are partnering with a strong and the largest telecom operator in Europe, which is, let me say, strategic wise, very, very important because there are some opportunities maybe beyond of Germany, why not. So all in all, it's because it makes sense this transformational deal for us. But obviously, we have to assess properly. We have to understand the fit with us. The master fit is there. The strategic fit is there, and we are working on it. So -- but it's not just about, well, there is -- there are American Towers or Vantage and therefore, it is that there is no room for improvement. There are a lot of room for improvement, a lot of opportunities on the industrial and the verticals. And well, the fourth telecom operators will booster the demand. So maybe -- we can tackle the question about what happens if we are not executing Deutsche Telekom. Maybe Alex, you can...

[Alexandre Mestre Molins, executive]

Sure. Yes. So there is plenty of opportunities yet there. And those opportunities, we believe, are ideal for Cellnex to seize them. Why is that? Because of our industrial capacity. And I would make 2 buckets out of that. One is smaller. This is true in comparison with the deal that you were mentioning, core business transactions tower. And when I say smaller, it means more complex and it means that you need to take into consideration that there are maybe legacy RAN agreements on the country. Just thinking, for instance, around the Nordics and someone being able to understand those legacy agreements, those complexities, understanding that there are things that have to be previously unwind, as we did, for instance, in Portugal with NOS that we have just recently completed the second transaction on NOS, which was related to previous RAN sharing agreements. So all that complexity makes these type of deals, I think, perfect for Cellnex because we are able to speak the same language and understand the intrinsic complexity of those deals. That would be point number one.

Point number 2, is in relation to growing alongside with our clients, and this is a little bit on those adjacencies that we have already started to work around in -- for instance, in Poland with Polkomtel, in Bouygues, so we will see that more and more our clients will be open and inclined to consider these type of transactions with an industrial partner, which is already an important partner from the original transaction coming out from the towers. And really, we believe that there is going to be a very important area of potential incremental capacity for our -- on our side to deploy the higher tower. So that's the 2 ends where we really see that there is yet growth still there. I don't know Jose if you want to comment on the possibility of buybacks?

[José Manuel Aisa Mancho, executive]

Of course, no. The buyback program is we finally -- we were not in a worst-case scenario, we were not to deploy the firepower that we have committed to the market is, of course, a possibility. And in fact, during these 3, 4 months, we have already acquired 1% of the company, 1% plus. And also taking into account that we can buy shares when we have no restriction and now they got perspective. So not every day we can do it according to the Spanish and European legislation. So I think we have been active as much as we have been able to do it. At the same time, being commensurated with our firepower. So yes, this is an instrument that it is there, it does exist, and we are happy to make it work at the right moment.

[Operator]

Your next question comes from Simon Coles from Barclays.

[Simon Coles, analyst]

I guess one on sort of leverage is sort of linked to some of the previous questions. You've had a good track record of sort of increasing leverage, I think when you initially, I've heard back in the day sort of much lower than you are now, and now we're sort of heading towards 7x. But if there is a big deal coming up, do you think there's scope to maybe increase leverage slightly higher, maybe temporarily, I guess because of sort of the visibility, how many free cash flows, but also the deleveraging potential that you've demonstrated in the past? And then secondly, just on BTS CapEx. It's at a similar level to last year, which was quite a material step up on the year before. So it feels like BTS is going very well. I think when you initially announced a lot of these BTS transactions, you've always said that it should be sort of back-end loaded or at least steady progression. It feels like they're a little bit more front-end loaded than we might have thought. So is it fair to assume that we should see another very strong year on the BTS side this year?

[Tobías Martínez Gimeno, executive]

Simon, I can maybe start with the second one. The sort of answer is yes, that is something that I turn that we anticipated last year. As you saw, 2021 was extremely strong in terms of build-to-suit and what we are seeing and didn't do is when to do it, what we anticipate is a strong execution on the build-to-suit front, also linking this to Alex's previous comment in the coming years, at least '22 and for sure '23, the pattern that you will be seeing is a bit consistent with our delivery in '21. So yes, and Jose Manuel do you want to comment on...

[José Manuel Aisa Mancho, executive]

Of course, in terms of -- you know that very well Simon that during -- as you are saying, during the first year since inception until now, we have been able to step-by-step to increase our net debt EBITDA and do not deteriorate our credit quality, why? Because of the business profile, because of the backlog, our capacity to delever quickly than before. There are many elements that have helped us a lot in order to increase our threshold. And you are suggesting a further step, I agree with you. I tend to agree fully. In fact, if you look at our last reports by Standard & Poor's and Fitch, you can see that both of them are giving us a little bit more headroom with the same corporate rating. This is just an example of our financial policy, which is a step-by-step, increasing the business risk profile and therefore, increasing the level of debt.

Regarding the next transaction, which is as for your question, what happens for the transaction, exactly the same. We will repeat the models apparently. So if we were to do a transformational deal, I'm pretty sure that our net debt to EBITDA could improve or who knows, we get investment-grade, no longer across over title. So this is something that is important. It's something important. Many times, we see -- we tend to see M&A just a pure IRR element. That's one key element, but it's not the full picture. It's about the contract. It's about the backlog, it's about the credit quality. It's many things that can transport Cellnex and how to estimate this into an IRR. And this is the big question we have. So I think that, as always, if we go ahead with a different firepower, firepower we have is because we will create value for you significantly.

[Operator]

The next question comes from Roshan Ranjit from Deutsche Bank.

[Roshan Ranjit, analyst]

Great. I've got 2, please, based around inflation. You've been very clear on the contracts you got on the top line. Is it possible to get a sense of the CPI assumption you are making over the midterm to hit your guidance by 2025? I see you've assumed a [indiscernible] blended inflation in 2022 over '21, but what about the medium term. And then moving to the leases. You've been very clear and very targeted in your optimization and efficiency programs. But can you tell us the CPI mechanism or the inflation mechanism on the leases, which haven't been negotiated? Are they purely linked to CPI or percent of CPI? And are there any caps on those ground leases, which haven't been negotiated yet?

[José Manuel Aisa Mancho, executive]

Let me take the first one and then, listen when we gave to you 2025 revenues and EBITDA we gave to you a range. And this range will run the model -- Cellnex model with different scenarios, in terms of PoPs, in terms of inflation, in terms of efficiencies, in terms of many elements. And we will come back to you with that range is because we do think that scenarios of inflation, current scenarios of inflation can we within that range, obviously, in the higher part of the range if these were to be sustained in the following year. So for us, as you know, we are not changing. We are not changing, but it is true that inflation is super high. Let's put it this way. We should land in the highest part of this range and this inflation were to be very low, we should land maybe in the average or low point of the range. But this is one CPI. There are always other CPIs moving the needle of Cellnex.

And for instance, you can see our EBITDA growth. Our EBITDA growth of this quarter is being driven not only by inflation, but also -- but a good behavior of OpEx, which is fully under control. It's fully under control. It's like-for-like OpEx flat. So operating leverage does work also has an impact. So in our view, as an infrastructure company, we must take care of inflation impact on our revenues, but especially to maintain a very good and excellent operating leverage, okay? And this is within our range or the range that we gave to you last year in '21 for '25.

[Alexandre Mestre Molins, executive]

And maybe just to complement Jose Manuel's answer. Let's see what happens in 2023. So in the current situation may be prudent. Let's see the evolution. So maybe the second question on the leases...

[José Manuel Aisa Mancho, executive]

On leases, the typically, the mechanic is -- well, you need to be very mandatory, that there is a small portion of our lease contracts, which are simply flat. They have no escalator embedded. So even without renegotiation, we are not seeing an increase linked to these contracts. In some other cases, it is not extremely difficult for us to avoid the CPI link included in the contract, because as you know that we will have much more getting power vis-a-vis the landlord. And this I would say that this negotiation is not included in our side actions, okay? So because again, we have been getting this strength, this position in Europe and what we are seeing is the reason to difficult for us to avoid these CPI increase. In some other cases where this negotiation is unsuccessful, simply what you should be expecting is that that annual fee been increasing every year with inflation in that market.

[Tobías Martínez Gimeno, executive]

Yes, Alex, to complement your answer, you have to bear in mind that we launched a very, let me say, aggressive plan of acquisitions and also cash advance project. And we launched this project 3 years ago, roughly speaking. So when the inflation was very low. So currently, we are taking advantage of the -- we are benefiting of this, let me say, efficiency plan in terms of ground lease contracts. So we keep growing. We are benefiting average speaking of lower inflation impact on the ground lease because it's a mix, it's a sort of different actions.

[Roshan Ranjit, analyst]

Great. That's helpful.

[Operator]

The next question comes from Abhilash Mobasher from Berenberg.

[Abhilash Mohapatra, analyst]

Yes. I've got one around your sort of the way that you think about your cost of capital fees. Obviously, we've seen yields going up materially and continue to go up. How does that sort of factor into your thinking about cost of capital and linked to that, how does it then impact your thinking around the IRR that you could generate from future M&A? And then the second one is just a quick follow-up to an earlier answer. Was I right in understanding that you have ruled out issuing any new equity as part of any potential deal with Deutsche Telekom?

[José Manuel Aisa Mancho, executive]

Well, regarding both questions are the basics of valuation and corporate finance. We are a long-term investor. And as a long-term investor, we should be consistent with what we have done in the past. Risk and reward as a long-term investor, we must recover between risk and reward. We cannot break this rule. When regarding all the business plan, we have to present to you something that makes sense, makes sense because the contract is well written, the backlog makes sense, the counterparty has a level of risk and the capacity of the growth of the business is whatever. And all these elements, some of the investors cannot be happier to the evolution of the interest rates, okay? This is important. We have to keep an eye on interest rate to understand the evolution of the cost of equity, of course, we have to. But at the same time, we cannot forget that maybe what it matters are the next 30 years, 40 years, 50 years, and we have to be consistent with the risk and reward of those cash flows that are being projected. So yes, we will try to be confident but with all the elements, not only with one.

The second, as we were saying before, I mean that we have been clear that Cellnex should work with partners. Cellnex should work with partners and therefore, business project financing. And therefore, business maximizing this way of acquiring gaining optionability in the future to do a target acquisitions. So we have to present to you different formulas that are coherent with current equity market. We do not see a right issue right now, to be honest, and we do have power. Now the market -- equity market is not there. We have to do the deployment of our last right issue, and this is where we have to be focused. I think that we will repeat all the schemes that we have done before. So nothing new, but right issue this time is not on the agenda.

[Operator]

The next question comes from Ottavio Adorisio from Societe Generale.

[Ottavio Adorisio, analyst]

Couple of question on my side. Related to the event that from a different track, you provided useful information about the fact that the refinance bond with a lower cost. But that bond was issued in 2015 that was just around your IPO, and sovereign rates was even higher than today. So as a benchmark, could you just tell us how the cost of the refinancing compared to the average maturity of the debt and the average cost of debt you currently have? The second question is related to EBITDA and to an information you provided on Slide 16. You basically say that only one-third of the cost that related to BTS construction cost. So could you give us a bit of color what about the other two-third of the cost you have? And also related to that, was the ratio of the BTS towers that have been built by the [ Hangotenants ]?

And the third one, talking about partners. Last year, you partnered especially with Deutsche Telekom, you credit investment fund, and I believe you already contributed EUR 200 million. At that stage, you are referring to enlarging the fund -- to open the fund to pallet equity, to infrastructure funds and so on and so forth. So the idea was effected to use this plan to make deals. So it's been more than a year, and I was wondering if you could give us an update, and if you plan to use this fund at some stage or if you're actually all the M&A you're talking or the one that Alex was referring would be then directed through your balance sheet?

[José Manuel Aisa Mancho, executive]

I will try to answer and please you complementing. So average cost and this one has a coupon of 2.25%. And what we have done is to get half of this bond and to do it -- to float it in [ due course ] plus 1% spread. So all in, we have hedged this in a way that all-in the current cost of this bond is no longer 2.25%, but all-in is 1.7%, which is commensurated, it is very similarly in line with our current capital structure. Okay? So we have used hedge instruments. We did have -- we had worked out this flexibility before handing swing this one, and I think we have taken advantage of different elements, and we have done something which is very interesting. So in line with our current financial structure. So this is about the average cost.

And your second question was about the build-to-suit. We have target particularly well that we have always used our build-to-suit programs to reduce that from M&A proceeds. Build-to-suits for us is a combination of 3 elements. First, is to securitize the value growth of the future, to securitize the densification of our current clients. Second is a way to fund M&A transactions, because we defer the payment of them to the build-to-suit. And third and very importantly, is to have a tax shield because, as you know, the acquisition of shares is not taxable in Europe, but the acquisition of assets is fully taxable. So it makes sense for us to use build-to-suit for 3 different reasons that create a lot of value for our shareholders.

You had another question in this point, which is the percentage of build-to-suit that are carried out by our partners very high. I would say to you that the vast majority of them. So that's very simple to answer. Not all of them, because it's impossible, about 90% usually have this characteristic. And finally, you were talking about our long-term relationship with Deutsche Telekom Group. You are right, we co-invested in Cellnex Switzerland, we co-invested Cellnex Netherlands, we have co-invested in digital infrastructure vehicle last year. And I think we have several instruments to face new opportunities with them, how to put all of them together give us a little bit of time. But you know that since the very beginning, Ottavio you have followed the company, we have taken advantage of every single instrument to be creative and to extract value for our shareholders, and we will keep on doing so.

[Operator]

The next question comes from Stefano Gamberini from Equita.

[Stefano Gamberini, analyst]

Just a quick clarification about the change of net debt during the period, which is around EUR 1.7 billion. Excluding the recurring free cash flow, the expansion CapEx, build-to-suit and M&A, there remains around in my estimate, in my calculation around EUR 0.4 billion, EUR 0.5 billion from issuers equity account the accrued, sorry, interest and the other cash out. Could you give us an idea what are the main issues that impact this for the around EUR 450 million. I'm referring to the -- that structure in the annex, mainly related to the treasury acquisitions? Or are there some other elements?

[José Manuel Aisa Mancho, executive]

It is surely acquisitions. That is correct. This is the amount corresponding to the acquisition of [indiscernible], yes.

[Tobías Martínez Gimeno, executive]

Roughly speaking, it is about 1% and...

[José Manuel Aisa Mancho, executive]

A little bit more. That the reason was a little bit more than EUR 300 million that is seasonal. He's very right.

[Operator]

The next question comes from David Guarino from Green Street.

[David Guarino, analyst]

Question on the energy costs. If could you remind us what percentage of your OpEx is related to energy costs? And I was wondering if you could provide some more color on your energy hedging program, specifically what the remaining duration of your forward hedge contracts are? And then I'll -- my second question on an unrelated note, on the Telefonica contract automatic renewal, I believe this is the first contract renewal you've had since coming public. So could you just remind us, is it common for MNOs to take the renewal option? And why wouldn't they just opt to renegotiate a longer-term contract now that the lease is over?

[José Manuel Aisa Mancho, executive]

David. Let me -- I mean coming back to your first question. In Q1 2022, we have total utilities cost, which is the last priority of corresponding to energy of EUR 64 million and that corresponds to a total OpEx excluding leases of close to EUR 200 million. So that gives you, I would say, a proportion of the total OpEx, which is corresponding to electricity. Also to remind you that the vast majority of this electricity cost is actuated as a pass-through. So this is a slide that we are also presenting today. This is the same content that we prepared a few quarters ago. And it is important to highlight that even if you see increases in the context of the recurring environment where we are able to pass-through this cost, the majority of that to our clients.

In terms of efficiency, we have a number of measures in place. We are trying basically to do the same with less consumption. We are also working on a number of initiatives, which could be free cooling. So maybe less air conditioning and more making the most of environmental conditions are on the site, okay? So sort of a free cooling system using the air along the side without the need to use air conditioning to maintain the temperature at site level.

And of course, we are -- at least we were quite active last year was to sign long-term contracts with electricity companies. So we have secured the cost for a number of years. So in the short term, I would say that all in all, with our efficiency measures and our contracts in place, we are comfortable with the current situation. There was a last question linked to Telefonica renewal.

[Alexandre Mestre Molins, executive]

Yes. Happy to take that one. It is true that at a certain point, there were concerns raised by you on -- in relation to those renewals, and we always try to be quite clear. So we were confident on this to happen in a smooth way. There is a clear win relationships being established and willingness to continue working together, even though in the case of Telefonica, they have been, let's say, selling towers to someone else presently. But the relationship already being established and the uniqueness of the sites that we acquired to them already a few years ago was giving, let's say, the opportunity for both parties to continue with our relationship without any major disruption or thinking that they could be building sites in a position to ours or anything like that. So this is where we've been quite, let's say, convinced that, that was the way that would be resolved. This is just the first batch. It's 1,000 towers. It was the project we named Babel, and those were naturally renewed at the same terms and conditions. They are coming -- in the coming years, other batches from Telefonica and from other anchors, and we believe we have that element, well, let's say, linked and discussed with our partners and should not be any potential surprise around that topic as we have just demonstrated with Telefonica.

[David Guarino, analyst]

Okay. That's helpful. And then just to confirm on the first question on the hedge cost. So it sounds like your hedges extend out pretty far into the future, and there's higher energy prices across Europe don't have any impact on your '25 guidance. Is that correctly to understand that?

[José Manuel Aisa Mancho, executive]

That is what it is.

[Operator]

The next question comes from Sam McHugh from BNP Paribas.

[Samuel McHugh, analyst]

Two questions. Just on the interest side for your variable debt. Can you just give us a bit of color about what that's linked to the 12-month Euribor under the floor there? And then what is assumed in the guidance for this year in terms of step-up on interest costs, if anything, on that variable interest? Any color would be helpful. And the second more broad question on lease optimization. I know how you think about the macro environment impacting your ability to negotiate with landlords or past landlord's willingness to engage with you? Do you think there'll be more opportunity? Are you seeing any change in behavior from landlords [ consultation ] wise. Are they more willing to negotiate with you? Any color on the changes you are seeing there would be helpful?

[José Manuel Aisa Mancho, executive]

The first one is regarding the variable. If you know that our debt in -- 87% of our debt is fixed as of April, also some very minor, in our excel, we are providing results as of March, but in our presentation a bit more updated information. So as of April, it is 86% of our net is fixed and 14% is variable. So this 14% variable it is open to Euribor. This Euribor tend to be 6 months or 1 year, okay? And then on top of that, we have the spreads that tend to be all of them a little bit, well, circa 100 basis points. That's all. So we are trying to keep this 85% fixed, 15% open. We really think that somehow the Euribor is going to grow, but even with this, we do not think that can increase the average cost of our debt in the next few quarters, okay? So we feel comfortable in this regard.

In other terms regarding ability and land loss leases...

[Tobías Martínez Gimeno, executive]

Look, we are at full swing. So in that sense, if you look at the results, we are providing to you on Page 10 of the presentation. This quarter, we did 857 negotiations, which is 15% more than the first quarter last year. So we end up 2021 with 3,125 leases negotiated, let's say, in any kind of the different mechanisms we have. And the machinery now is accelerating. We do not foresee, let's say, any impact on the intended 20,000 actions that we are expecting for 2025 with this EUR 90 million to EUR 100 million improvement on our recurring leverage free cash flow. In fact, also we are presenting as guidance for 2022 estimation that we will be around EUR 35 million of efficiencies, which is, again, much more than the 20,000 that we have completed last year. So we are very confident on that.

[Operator]

The next question comes from Jerry Dellis from Jefferies.

[Jeremy Dellis, analyst]

Yes. First question has to do with the ground lease contracts and where you have contracts, where there is some sort of inflation escalator. Does the inflation escalation come progressively through the year? In other words, is the point of escalation different depending on the particular sort of contracting question? Are they more focused towards the beginning of the year? Or should they -- should this sort of issue continue to sort of build up as we go through the year? And then secondly, in relation to an aspect of the potential structuring of a deal with Deutsche Telekom, it was reported in the German press that the long possibility was the insertion of legacy Cellnex assets into the perimeter as a way of paying for an equity stake. I just wondered on your sort of thoughts on that and whether it's possible in theory to structure that in a tax-efficient way.

[Tobías Martínez Gimeno, executive]

Now maybe I take the last question, I'm Tobias. We are not considering to contribute any kind of current assets on the potential transaction in Germany. Obviously, there is overlapping in Austria, which makes sense for us. Obviously, we are already there, but we are not structuring a transaction in which we are incorporating any existing assets from Cellnex. And then the lease...

[José Manuel Aisa Mancho, executive]

Yes, the first one, the rating -- thank you for the question. Reminder, I mean, typically, in our case, one contract is one individual. So as of today, we have thousands of contracts and each of them with different terms. And what happens is that escalators, impressions, they happen, it's basically over the year. But also, please let me highlight that this is under our do nothing scenario, okay? So if we didn't manage proactively this contract, we should be stating is that these leases gradually throughout the year, they will go up, what we have demonstrated in the past and also what we are actively doing today is to avoid this CPI increases by negotiating with landlord, okay? So this is something that, again, is a matter of [ issuance ], it is a matter of implementing these practices in the past. It's also, I would say, a structural characteristic of the sector is still fragmented. So also we had an extending contracts. We have a number of tools in place. So again, under our do nothing scenario, this is what you should be expecting either an increase over the year, that we have been able to avoid that in the past. And we do, as Alex mentioned, we do believe in our ability to maintain this trend in the future.

[Operator]

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

[Juan Gaitan Mañoso, executive]

Thank you so much for your time and for your questions. Looking forward to see you soon. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for joining. We have reached the end of the conference call. You may now disconnect your lines.