Cellnex Telecom SA

MAD:CLNX

Earnings Call Transcript 2022-Q2

[Juan Gaitan, Head, IR]

Good morning, everyone. My name is Juan Gaitan, Cellnex's Director of Investor Relations, and I'd like to thank you all for joining us today for our Q2 2022 Results Conference Call.

As always, I'm joined by our CEO, Tobias Martinez; and 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 we have published earlier this morning and then we will open the line for your questions.

And without further ado, over to you, Tobias.

[Tobias Martinez, CEO]

And good morning, everyone, and thank you so much for your time.

Let me please start with the main highlights of the period, which has been marked as always by consistent operational commercial execution, a strong commitment with our strategy and our value creation framework and a reiteration of our targets in a difficult macro backdrop.

Our organic growth continues to be strong with the new PoPs on existing sites and our build-to-suit program, generating a 5.2% growth. The main driver behind this strong performance has been, again, the significant contribution from our build-to-suit program with more than 1,100 new sites deployed in the quarter and with Cellnex having been able to successfully manage our supply chain, which allows us to meet all of our clients' network requirements.

We continue to make progress on our efficiencies plan, reiterating our 2025 target and from a business development standpoint, we are renewing extending contracts with key anchor tenants, as well as making progress in our industrial partnership with Digi in Portugal. We are, again, presenting a solid set of results with revenues increasing 59% compared to the same period last year.

Our adjusted EBITDA, 59%, on our recurrent leverage free cash flow, 62%. We believe Cellnex is one of the few companies in the sector keeping pace with nominal GDP growth. We have integrated ESG as a key pillar in the way we conduct business, and our efforts are being recognized by ESG rating agencies with constant score improvements. Thanks to recent Board composition change, we now have more than 50% female representation and we have also launched the second addition of our Cellnex Foundation program in order to continue implementing initiatives to reduce the digital divide and contribute to environmental sustainability.

Our equity story remains intact, and this management is committed to a consistent execution of our successful strategy. We will continue delivering on our strong growth story, both organic and through selective M&A. Fostering customer loyalty and building long-term industrial partnership will continue to generate sustainable organic growth. Trust and credibility is a precious asset, and we will continue to deliver on all of the commitments with the market.

On external growth, we are confident we will execute on our targeted pipeline and the opportunities are still there and our firepower is fully funded. Our ability to crystallize long-term industrial opportunities with European MNOs remain intact, both inorganic and organic, with Cellnex, the partner of choice for the deployment of digital infrastructure under a neutral host model.

And finally, we are reiterating our 2022 guidance, which is trending to the upper end of the full-year range. Please note that the Hutchison UK transactions will be closed in the coming days and all of our current metrics are also supportive of our medium-term guidance.

If we go to Slide #3, we are showing here the profile of our adjusted EBITDA and cash flow in 2022. How these magnitudes are being generated during the year? As you can see, they are increasing every quarter as we generate organic growth, make progress on our build-to-suit programs and efficiencies plan and include the contribution from the Hutchison UK deal when it is closed. Our 2022 guidance imply an expected EBITDA and recurrent leverage free cash flow of around 40% compared to 2021.

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

If we go to Slide #5, just a quick review of our current footprint and medium-term financial targets. When all our deals are closed and our build-to-suit programs complete, Cellnex will further strength its position in Europe as the main independent telecom infrastructure operator. Managing a portfolio of almost 140,000 sites, with presence in 12 markets, boosting our financials and becoming the industrial partner of choice for our clients.

Please note that this slide numbers exclude the execution of remedies, processes on which we are intensively working today. And just a quick reminder of our medium-term guidance which we are reiterating, it implies an annual an annual growth of more than 20% in all our key financial metrics since 2020 with a targeted EBITDA of between EUR 3.3 billion and EUR 3.5 billion in 2025, including the impact from remedies processes and without the additional contribution from the projects in our pipeline still to be executed.

We now move to Slide #6. Let me please share some consideration regarding our ESG approach. As a company with a clear long-term view, ESG becomes an integral part of our strategy, involving all operational areas, markets and of course, all decision-making entities from a corporate governance perspective. Our Board of Directors approved last year our 2021-2025 ESG Master Plan with 92 different initiatives, each of them linked to the United Nations Sustainable Development Goals.

We are linking key initiatives within this Master Plan to remuneration, both annual variable and our long-term incentive plan. And our ESG committee coordinates the actions to reach these goals, including talent management, equity, cultural diversity, environmental initiatives and climate change strategy. And on this slide, you can see the progress we are making on green energy sourcing, emissions reduction, our social initiatives and corporate governance improvement measures.

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

[Jose Manuel Aisa, CFO]

I can continue?

[Tobias Martinez, CEO]

Yes.

[Jose Manuel Aisa, CFO]

If we move on Slide 8, let me please provide few more details on the period. Our revenues have increased 59% to EUR 1.7 million. Our recurrent leverage cash flow has increased 62% to EUR 637 million. Total PoPs have increased 27% if we include the contribution from organic growth and M&A. And if we focus on organic growth only, our PoPs have increased 5.2% compared to last year as a result of colocation and the strong contribution from our build-to-suit programs.

Moving now to the evolution of our main financial metrics. On top of the figures just discussed, our adjusted EBITDA has increased 60% compared to last year with our margin expanding as result of our operating leverage in terms of perimeter. This EBITDA growth is mainly explained by the contribution from telecom infrastructure services, organic growth, build-to-suit and recent acquisitions and by the proactive and efficient management of our OpEx base.

The following slide explains our recurring leveraged cash flow generation in the period. And you can see here the contribution to organic growth from our different growth drivers; colocation, associated services, build-to-suit escalators and efficiencies. These elements combined generated EUR 98 million in H1 '22, a 25% growth compared to the same period last year. And if we include the additional contribution from M&A and the rest of cash items below adjusted EBITDA, Cellnex has generated again a strong recurring leveraged free cash flow growth of 62% compared to H1 '22 -- '21. Sorry.

Moving now to Slide 11. Just a quick update on our lease efficiency plan. The proactive management of our lease contracts has always played a key role in our strategy, and we keep showing a solid execution, crystallizing efficiencies even in a high inflation environment. In the first half of '22, we have renegotiated plus 2 1,900 lease contracts, generated EUR 27 million of efficiencies, along with those generated in '21 and we are on track to meet our '25 target.

And moving now to our balance sheet. Movements compared to December '21 are mainly explained by our M&A and capital allocation activity in H1 '22, mainly acquisition of minority stakes and own shares, making the most of current market conditions.

And finally, a reminder of the main characteristics of our solid capital structure. We refinanced in Q1 a bond maturing this year with an associated 3% coupon by issuing a new one at a much lower cost, thus reducing the average cost of our debt. No refinancing is required before 2024. We have close to EUR 8 billion of available liquidity at a compelling cost in the current environment. 86% of our debt is fixed and our corporate debt has no covenants, pledges or warranties. So we have full flexibility to make the most appropriate financing decisions.

And with this, let's please open the line for your questions.

[Operator]

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

[Simon Coles, Barclays]

First is, sorry to ask this, but lots of questions around Cellnex potentially doing a buyback. Just wondering if you could give us any updated thoughts on how you're thinking about that, particularly given the Deutsche Telekom [Technical Difficulty] looks like there's not much major M&A left in Europe. And then, secondly, on organic growth. Can you hear me, by the way?

[Tobias Martinez, CEO]

We can, Simon. I think we are trying to reconnect Jose Manuel, but we can hear you. Please continue.

[Simon Coles, Barclays]

Okay. I'm getting a beep. Okay. And second question is just on organic growth. I was just wondering if you take a step back, can you give us a bit more color on where the BTS are being added with regards to, is it on coverage or is on densification? I think historically, you've talked about it, Germany being densification, but I'd just be interested to hear where they're being added these days and how that's really changed in the last couple of years. And then, similar question on the colocation side, just to get a better idea of how colocation deployments are developing.

[Tobias Martinez, CEO]

Thank you, Simon. We can start.

[Jose Manuel Aisa, CFO]

Well, Simon, you know that share buyback program, it's -- the company is always open to consider this optionality. But obviously, share buyback program is not part of our strategy. If I may, it's more opportunistic, it's more tactic, but it's not, let me say our priority. But again, I want to reiterate that the company is open anytime to consider opportunistically a share buyback program. But again, this is not the strategy and this is not the priority of the company.

About organic growth, Alex, maybe you can elaborate?

[Alex Mestre, Deputy CEO]

Yes. In relation to the build-to-suit -- thanks for the question Simon. Basically, now we are seeing the demand in coverage, especially in -- it depends on the countries, but for rural deployment, this is quite needed and specifically in France, there is quite a lot of rooftops and that's densification. So, I think it's a well balance metrics of needs. What we are getting, which is really matching our expectations as we envisage that. And it gives perfect hope for continuously projecting the build-to-suit demand needs as we were initially envisaging.

[Simon Coles, Barclays]

That's great. And has it really changed in the last couple of years?

[Alex Mestre, Deputy CEO]

I'd say no. So the balance is quite even on that fence. With 5G, the 5G deployment initially is being done on more dense areas, which looks like more a densification. Remember that 5G is being deployed at a higher frequency and being a higher frequency, we need more points of presence than before with frequencies below 3 gigahertz.

[Operator]

The next question comes from Akhil Dattani from JPMorgan.

[Akhil Dattani, JPMorgan]

I've got 2, please, if I may. The first is on M&A. I guess now that the Deutsche Tower process is obviously behind us, I was hoping we could get some comments from you in terms of your involvement in the process and maybe the details in terms of why you pulled out. I guess the sort of questions we're getting, I guess, are around valuation, whether it's funding in the current credit environment or whether it's a deal structure. So any sort of color around that would be helpful. And I guess adding to that, as we look forward, when we think about your M&A strategy, is it more now bolt-on? Or are there other major sort of transactions that could also potentially be on the horizon? So that's the first question.

And then the second one is more for a question specific to the quarter and your PoP growth. If I look at Q2, it looks like you lost just over 200 in Holland. So, I just wondered if you could comment on what's going on there, just so I understand that. Whereas on the other side, Italy and Portugal are very strong. So obviously, I'm just keen to understand what's driving that and to what extent we can extrapolate those strong numbers?

[Tobias Martinez, CEO]

Well, thank you. I take the first one, which is about the transaction with Deutsche Telekom M&A strategy. Well, again, you know that we are always insisting and repeating that we are not obsessed about size, number of sites, flags or markets. Having said that, for us, since the very beginning from an industrial and a strategic point of view, Deutsche Telekom, Deutsche [indiscernible] was and is a fantastic industrial equity story.

It's a great industrial project. And I want to tell you that this is the reason why we were assessing. I think it's our duty as a management, as a company to assess properly every kind of opportunity because, again, it's part of our core business. And this is the most important priority or it was our priority to assess properly to understand if it fits with our strategy or not. Unfortunately, doesn't fit with our strategy as an industrial player long-term. You know that this is not just about, let me say, financial discipline. This is about a strategic fit. You know that our role is an industrial one.

So it means that we have to consolidate the asset. But this is not just from a, let me say, an accounting point of view, I am not just talking about consolidation from an accounting point of view. I'm talking about our role of managing the asset, managing the company, which is key. I mean, we cannot renounce to be as we are. We are an industrial player, again.

And unfortunately, I can tell you that we couldn't find a fit. And this is the reason why at certain point of time, Deutsche Telekom and Cellnex understood that there is no way to keep going on the process because -- full respect for Deutsche Telekom requirements. And that's it. I mean, that's life. But I want to underline that it was not about valuation. It was not about returns. So it's a strategic fit, which is the first question that we are always, always assessing when we are starting a project. So again, unfortunately, because the company is not just about acquiring assets in Germany is to establish long-term partnership with a great customer, which is Deutsche Telekom. I want to be very transparent on this regard.

Second one, our -- well, what happens now, what about our M&A strategy? Well, it's -- for us, it's very important to keep going on the 12 countries where we are today to consolidate our market presence. So in a way, you are right, maybe it's more a bolt-on transactions rather than big transformational deals. But who knows, who knows maybe in 2 years, 3 years from now? So currently, in the short term, it's more about consolidation on the existing countries. It's more about bolt-on projects. But -- well, in 2 years or 3 years from now, who knows what could be the market structure? Very sorry for -- maybe for this long answer, but I think the -- you're right, the Deutsche Telekom transaction deserves a bit of clarification at least from our side.

[Alex Mestre, Deputy CEO]

Maybe coming back to more operational topics. PoPs in Netherlands and in Portugal. So in the Netherlands, what we are, and you well spotted is the loss of PoPs, which were perfectly factorized and forecasted by the merge of Tele2 and T-Mobile. So, you may recall that the moment that we did the transaction, it was a transaction that we did with T-Mobile, but it was just before the operational measures with Tele2.

So we were fully, let's say, aware of that something to be happening and this is the synergies that the 2 operators are looking for and we're perfectly factorized on our acquisition business plan. And then in the case of Portugal, well, it's the expected growth coming from the new entrants. As you might recall, we reported to all of you, a contract up to 1,500 sites with Digi, which is one of the new entrants and this is starting to be executed. So in that sense, I think we could take projection of growth, at least up to those sites in the coming months.

[Operator]

The next question comes from Luigi Minerva from HSBC.

[Luigi Minerva, HSBC]

I'd like to perhaps go a bit deeper on your capital structure ambitions and I was wondering now what is your view about your right credit rating in these conditions, whether your ambition is now to aim, for example, to an investment-grade credit rating? And if that is the case, what sort of leverage ratio policy you would have to adopt in order to achieve investment grade?

And secondly, I wanted to go back to one of your comments on Slide 2 when you say you are open to consider further options with all stakeholders. You've touched on the share buyback option. I was wondering what are your thoughts about potential debt repurchase. And perhaps what sort of pecking order you have if you think about the share buyback or A debt repurchase, or perhaps a higher dividend in your framework?

[Jose Manuel Aisa, CFO]

Okay. This is Jose Manuel. And your question -- your first question, and you know that we have always been committed with the credit quality of the company. And since at the very beginning, Cellnex has been step by step improving the business risk profile, improving every single angle of the credit quality. And this is a process that I'm pretty sure is not going to be a topic here. Your question is about when. This will come on due time.

Now, right now what we are doing is exploring different alternatives, seeing, working with rating agencies, understanding how our deployment build-to-suit is working and thinking, going step by step. But our commitment always has been maintained and improved the credit quality, and this is the main message we have to share with you.

Maybe the second question, Juan?

[Juan Gaitan, Head, IR]

I think there was a question on share buyback as well, Jose Manuel, which may be related to…

[Jose Manuel Aisa, CFO]

Okay. I take it. Fine. Okay. So, regarding the share buybacks and during the first part of this year, we were very opportunistic and we acquired some shares. In fact, it was more than 1% of our capital. I think we will continue being opportunistic with every single security that is trading. Okay. We have to do it. We have always done a very clear IRR comparison between our current projects, our current securities being traded. And we have been, as Tobias was saying before, fully committed with our strategy view, but also with our M&A discipline. So, we will continue in this way, improving credit quality and at the same time being very opportunistic in the market.

[Luigi Minerva, HSBC]

Yes. If I may just quickly follow up on the second question. So how would you feel about allocating part of the firepower to repurchase some of your bonds, which are trading well below par?

[Jose Manuel Aisa, CFO]

In fact, this is one of the opportunities we could do, but on due course and taking into account different elements -- the different elements. Also, you know that we are restricted very often when you do this question. What I have to remind you is that Cellnex can operate on the market following the law and the recommendations of the regulator. But yes, this is something that may occur. Again, following always the very clear criteria of comparing where we can allocate best our capital.

[Operator]

The next question comes from Andrew Lee from Goldman Sachs.

[Andrew Lee, Goldman Sachs]

Obviously, lots of questions around the DT Tower deal. And it appears there are multiple interesting takeaways from what happened there and what it could show for the future. For example, those buyers that you're losing out to have a much lower required IRR on deals than you do, for example. So, I just had a few questions around this and looking forward rather than backward.

So firstly, are you seeing similar competition from private investors to other tower portfolios as you saw for DT? And do you think differing debt financing opportunities are part of the reason for that?

Secondly, do you think smaller MNOs have greater demand to strategically partner with you, Cellnex, than versus larger operators like Deutsche Telekom. And then if you don't mind, the third question was, are you seeing demand from private investors to take a stake in Cellnex, given they're very, very keen to deploy capital in this space?

[Alex Mestre, Deputy CEO]

Thank you, Andrew. I will try the first one, and then I will let the team. On the first one, this could be the case, I just have to tell you that having been involved in this process for a long period of time. I mean, we were quite comfortable with the financing package associated with this opportunity. So, we don't have visibility on the rest, but also from our perspective. I would say that we were quite comfortable with the conditions associated with this specific opportunity. The main reason, as Tobias highlighted at the beginning of the session was a strategic one. It was our ability or inability to play an industrial role rather than IRR evaluation.

[Tobias Martinez, CEO]

Correct. No, I want to underline the comments from [Juan Jose]. I mean, it was not an IRR issue. And we had the full -- the strong conviction that our financial package was super competitive, I can tell you. I mean, we -- obviously, we are not aware of the different financial package of our competitors, but I can tell you that we know how is the market today.

And also, I want to be extremely, extremely, extremely clear on that. It was not an IRR problem. So the industrial angle of this project for us was extremely, extremely accretive, extremely accretive. But again, it's not just a pure financial discipline. It's more than that. It's a strategic fit, which includes, obviously, the financial discipline. But the main issue was the lack of strategic fit and the lack of capacity of Cellnex in order to consolidate and to run the assets and to run the company, which for us is a must.

[Jose Manuel Aisa, CFO]

On the second question, Andrew, I think that our value proposition is valid for all mobile operators in Europe. What we can offer is very clear. We want to build -- we want to build a long-term industrial partnership, not just around towers, but around digital infrastructure in the future. And I guess what we can offer is different from what the financial sponsors can offer.

And we do believe, as we have demonstrated in the past and as we believe, this will happen in the future that this proposition will be appreciated by all types of mobile operators, regardless of the size, okay? On your third question, this can always happen. I mean, we are a listed entity, Anyone can buy our shares. And it looks like this type of investors is interested also in digital infrastructure across Europe and one possibility to deploy capital for these investors could be becoming at some point a shareholder in Cellnex. So clearly, yes.

[Operator]

The next question comes from Roshan Ranjit from Deutsche Bank.

[Roshan Ranjit, Deutsche Bank]

Two for me, please. You mentioned that the U.K. deal should be closed in the next few days. Is it possible to get a sense of the appetite you've seen for the -- I think it was 1,000 sites, which you have to -- some of is part of the remedies. Where that interest is coming from, industrial players or financial investors?

And secondly, I guess, a long-term question. The Augmented TowerCo, I think we're now over a year since you first announced the Augmented TowerCo in Poland. And at the time, you talked about porting that model across to some of your existing more established markets.

I think at the time, you said there could be opportunity in France, clearly, given all of the anchor customers you have there? I think Tobias, you mentioned just now on the call about focusing on your consolidated footprint. So is it possible to get a sense of how the discussions are going with your existing anchors around the Augmented TowerCo? And any progress which you can talk about there would be super helpful.

[Alex Mestre, Deputy CEO]

Maybe I can take the first one. We need to be -- we have some restrictions in terms of information because we haven't reached a binding agreement yet, but it is imminent. And it is basically -- these are interests. The discussions are been deployed with our existing tower operators in the country. So it's an industrial player. Okay.

[Jose Manuel Aisa, CFO]

And it will be simultaneously, if I may say in parallel and closing the deal with the U.K. and signing the agreement also with the remedy taker, of course. We have to submit it in front of the CMA. So everything will be disclosed in a few, few days.

[Tobias Martinez, CEO]

Yes, on the Augmented Tower company, so as we already mentioned to you, we are on the process first to understand on the best way possible, the implications of operating this new layer of value proposition. This is what we are doing with Polkomtel in Poland. But of course, and in parallel, what we are trying to assess properly is where could be interest from other players all over the different geographies. So while there is an obvious one, there is a player in Poland, which is also our anchor where logically discussions are happening because the other 2 players in Poland are already having something similar. So it becomes a very, very natural evolution in Poland as a next step.

Then what is clear also is that there are different possibilities for this to happen. That could happen on a 4-1 anchor on complete national geography. And then we look for a second one, could happen in those areas where the 2 operators are already sharing and they can look for a monetization process by which we would be managing an active network already with 2 tenants from inception. And that may sometimes happen on rural areas and/or in specific regions of one country. So, there are several schemes by which we could be, let's say, extending that concept in other geographies with other anchors.

So what we can tell you is that we are actively in talks. The interest is high. But as we also intended to say to you is that nothing will happen in 2022. This is a level of discussion that it requires time. The CTOs of the other side, as you can imagine, is another layer of comfort that we need to provide. But our expectations remain intact on the capacity to deploy the [ATC] asset in the future on our site.

[Roshan Ranjit, Deutsche Bank]

So, you said nothing will happen in 2022. So should we be thinking about progress in Poland in 2023 or progress in Poland and other geographies in 2023?

[Alex Mestre, Deputy CEO]

Some progress in 2023 in Poland or other geographies.

[Operator]

The next question comes from Stan Noel from Bernstein.

[Stan Noel, Bernstein]

I wanted to know -- you have, obviously, a huge pipeline in terms of build-to-suits, more than 22,000 sites still to build and also your competitors are building a lot of new sites. Do you see beyond those new sites a need for more build-to-suit in your footprint? Or do you feel that this will basically achieve the -- deliver on the need for the 5G grid of your clients.

And then going back to the 12 countries where you are and the bolt-on deals that you may be looking into, I mean, assuming you achieve all you want to achieve in those 12 countries, whether in terms of build-to-suit and the portfolio or portfolio acquisitions is -- and before talking about the transformation deal, would you say that your job is done and then you can focus on those share buybacks and returns to shareholders? Or there will be potentially opportunities to go to new territories, whether it's in Europe or outside Europe?

[Tobias Martinez, CEO]

Stan, I'm Tobias. I take the second one because it's more a strategic one. Currently, we have around a EUR 6 billion pipeline on our existing countries and just running with our customers. So, this is our priority to serve our anchor tenants, but also to improve the organic growth. Therefore, we have a lot of opportunities in front of us to consolidate, to going forward with our customers. So we -- again, we are always considering all of the options. But buyback, again, is an opportunistic one. Buyback is -- we cannot consider as a part of our strategy. So again, it's not our priority, even though we are always paying attention on the opportunity in order to launch a tactic payback.

But again, we do believe that, obviously, that allocating our firepower with our existing customers and leveraging on our existing markets is always more accretive for our Cellnex shareholders' value creation. And this is the reason why we are prioritizing organic growth or expansion projects with our clients because it's a very low risk -- level of risk and obviously, a very attractive return and multiple, which is not the M&A.

Maybe, Alex, you can take the build-to-suit question.

[Alex Mestre, Deputy CEO]

Yes. So on the build-to-suit, what we are envisaging is that -- and actually, it has been proved that there is some additional demand above the committed volumes. And this is something that we've been, let's say, representing to you. Is this going to go much further on the existing geographies with the existing clients? Well, it remains to be seen. Actually, the volumes that we have are material. And as we said before, with Simon, there are 2 types of build-to-suit, the one devoted to coverage and the one devoted to densification.

At a certain point in time, we believe that the densification path is going also to move towards different type of deployments like Small Cells because indoor coverage is required because the densification is -- and the bandwidth being used per user is that big that will require, let's say, more PoPs at lower level in order to have less coverage in order to serve more people. So, this is something that it will evolve on the coming years. The plans we have on build-to-suit now are lasting until 2027. We believe that within that period of time, the build-to-suit will remain on the levels that we have already disclosed to you.

[Operator]

The next question comes from Jakob Bluestone from Credit Suisse.

[Jakob Bluestone, Credit Suisse]

I have 2 questions, please. Firstly, you mentioned that you expect your guidance to come in or so you expect to come in at the upper end of guidance. Can you maybe just give us a little bit of color behind that? And obviously, you see the results, but is it just sort of the inflationary upward pressure on revenues or what?

And then just secondly, can you maybe just be a little bit specific around the sort of timing that you expect on the execution of your residual M&A pipeline? I think when you did the rights issue, originally, you said you expect it to complete it within 18 months, which would be to the end of '22. Are you thinking a longer timeframe now? So just any update you can give on the timing would be helpful.

[Alex Mestre, Deputy CEO]

On the first question, the main reason is when we provided our guidance, we were including some assumptions in terms of -- well, it's our organic growth, our build-to-suit contribution from new deals, namely the Hutch UK transaction and also more obviously the impact from [remedies] both in France and U.K. What we have seen over the course of this year is that the negative impact in '22 coming from the U.K. is going to be lower than we initially expected, and that is why we are expecting now the 2022 results to reach the upper end of this range that we provided at the beginning of the year. So obviously, that the main reason is the less negative impact from remedies in the U.K.

On the second question, well, the reality is that I can -- go ahead.

[Tobias Martinez, CEO]

No. Maybe I take the second one, Jakob. As you can imagine, well, when you have to assess properly the German or the potential German transaction, the Deutsche Telekom project, you have to pause the rest of the projects because it's a big elephant in the room. And obviously, we are extending, if I may say, the period of timing which we want to execute additional transactions. I think regarding the M&A strategy, it's very important to underline the word of selective M&A, as I said earlier, is about consolidation on the existing markets where we are today.

Second one, to execute expansion projects, which is maybe not exactly an M&A. We are not acquiring companies, but we are investing in very, very attractive projects, working with our customers in the countries where we are today and you will see in the next coming, maybe 12 months, being 100% transparent with you. So having the Deutsche Telekom project in the middle of this 18-month period of time, obviously, we deserve more time in order to execute the expected pipeline.

[Alex Mestre, Deputy CEO]

Maybe if I may, we may have paused the M&A, what we have not paused is the organic activity. And I think we haven't probably stressed enough one of the key elements which are on the first page of the presentation, which is the renewal for another 30 years of one anchor contract that goes above north of 4,000 PoPs. And this has been one of the questions that, in the past, we recall you were asking, which -- how the first renewals coming into the scene and how we should project the renewals in terms of discounts or whatever.

So now we are pleased to announce that this is already fully signed. More than 4,000 sites are being secured for another 30 years. And that goes alongside with an agreement with this same player by which we will provide around 1,800 fiber-to-the-tower services by the acquisition of those fibers on -- from that client on our site, which is going very much in this element of fiber-to-the-tower expansion. This is the very last mile. It's less than 500 meters from the backhaul into our tower. But as you can imagine, this is an additional element of value proposition for other potential tenants on those sites. So, we are planting our roots of our towers with those fiber-to-the-tower projects. So, I think it's worth to emphasize that even though the M&A has been paused, the organic has continued.

[Operator]

The next question comes from Fabio Pavan from Mediobanca.

[Fabio Pavan, Mediobanca]

Yes. Thank you for the presentation. Thank you for the clarification on Germany. I listened to your answers. My question probably is, provided Cellnex to play an industrial role in the countries where it operates and you also provided a comment from -- on the credit, they need to maintain -- to pay attention to credit quality. And finally, we discussed about the interest from private investors for these kind of assets. So probably the question for you to conclude this long conversation is would you ever consider to open the door for private investors in the local subsidiaries where Cellnex operates?

[Tobias Martinez, CEO]

Well, yes, when we said earlier in our conversation that we are always considering all of the alternatives, all of the choices, we were including this optionality. You are completely right. You are completely right. So, we are not against, let me put on that way of having private co-investors. But obviously, again, our strategic role matters. I mean, we have to consolidate, which means that we have to run the company, we have to run the asset because we are investing for the long term.

And I mean, when we talk about the long term, we are talking about 30 years or 40 years from now. And we know very well that private investors will exit at a certain point of time. So, we have to understand if this private investor, let me put on that way, I'm very sorry, is just putting money. But if this private investor is helping us in order to accelerate the execution of the business plan, if this private investor is lowering the risk of execution, more than welcome, more than welcome.

But also, we like to be selective because if it's a question of financing, it's a question of capital structure, at certain point of time, when we are assessing a project, well, it's completely valid. We are not against -- I'm not against, again, but the appealing is lower. I mean because if the question is to find a way to finance a project, well, we have several levers in order to structure the capital structure of the project. But again, we are not against private investors, but we have to understand, again, the strategic fit and the long-term commitment. Otherwise, well, if it's just about financing, it's a different story.

[Operator]

The next question comes from Sam McHugh from BNP Paribas.

[Sam McHugh, BNP Paribas]

Just 2 quick questions. On the U.K., we've obviously had tons of press speculation about a merger between 3 and Vodafone, and you're obviously having to make the divestments alongside closing the deal. I don't know if you would say anything about what the probability of the deal not closing in the U.K. I don't know if you can say anything about whether there were other delays behind this project that could be related to M&A. I know it's super sensitive.

And the second is more mechanical, just a very high CapEx versus the build-to-suit sites in 2Q. Is it just the payments for the MNOs can be lumpy? Or is there anything specific in that?

[Alex Mestre, Deputy CEO]

Thank you, Sam. On the second question, the explanation is a prepayment that we have made to SFR in the context of the build-to-suit program. So that explains the relatively high figure compared to previous quarters. In any case, the size of the build-to-suit program with that MNO is unchanged. So it is simply that we have made a prepayment this quarter. On the first one, I would say it's a negligible probability of non-closing the deal. So, we are making progress on all the different fronts. First, we need the binding agreement with the remedy takers subsequently. So yes, a few days after that, we will be in a position the moment that we have a green light from the CMA to close the Hutch UK deal. So it's almost there.

[Tobias Martinez, CEO]

And maybe to recall, again, our contracts are fully protected in front of potential merge, full protection gap. I think it's important to recall and obviously, our agreement with Hutch, it's meeting the same standards of previous transactions.

[Operator]

The next question comes from Georgios Ierodiaconou from Citi.

[Georgios Ierodiaconou, Citi]

I've got a couple of follow-ups. The first one is around the comments you made earlier about the financial investor in one of your subsidiaries. Earlier in the year, you are suggesting that there was interest. If I get your message now, unless they bring something industrial to the table, you don't really see the rationale. So, I'm just curious whether something has changed in your thinking or whether the idea of selling parts of the subsidiaries was more as one of the moves you are envisaging to fund more major deal. And therefore, now the probability of that happening is much lower. Just any clarity on that will be great.

And then the second question. And I know you made some comments earlier. I just wanted to understand from your perspective, do you think you need to be investment grade in the medium term? I acknowledge you have good access to financial institutions and other source of funding. But is it fair to assume that over time, you will need to have an increasing percentage of your debt in bonds and therefore, moving to investment grade could be more strategic? I'm just curious to hear your thoughts on that.

[Alex Mestre, Deputy CEO]

On the first question, the demand is there, the appetite is there. Conversations are ongoing. And as always in that conversations, I mean it is important to reach agreements in terms of our valuation, but also corporate governance and the different roles of the different entities involved in those agreements. Okay. But structurally, nothing has changed. So, we are not assigning a different probability of those agreements in reaching the future.

On the second question, Jose Manuel, do you want to elaborate? I'm not sure he can hear us already. He's muted.

As we have been discussing, I mean, we are open to this possibility. We appreciate that in the current environment, this is something that makes sense for us to consider maybe more because, clearly, the macro situation has changed compared to maybe one year. So clearly, there is merit in assessing this possibility. But also as Tobias was mentioning at the beginning of the call, this is a new scenario that we are assessing, but also in combination with the different strategic implications of such a decision. So it's a matter of, again, first of all, a meeting that is a possibility that makes sense, but also we are trying to combine this possibility with the rest of our strategic priorities.

[Georgios Ierodiaconou, Citi]

If I could follow up on that, what is it, based on your conversations with the other rating agencies, what is it that you need to do to get to investment grade?

[Alex Mestre, Deputy CEO]

It's something that we are still working on. We have a very direct and intense interaction with them. And now it's a matter of understanding what type of public, official commitments we should make in order to reach that. But again, I mean, as you know, we are already investment grade by Fitch. We have the -- as you know, also the BB+ by S&P. They like our credit profile. They like our leveraging path, but also in the -- I would say that in the past, we have made a decision to keep optionality, to keep flexibility from a financing perspective in order to pursue our growth strategy. So it is just a matter of sitting with them and understanding what type of a commitment, official one we should be making in order to reach potentially the investment grade.

[Operator]

The last question comes from Fernando Cordero from Banco Santander.

[Fernando Cordero, Banco Santander]

And I just would like to -- just to discuss a little bit the organic performance year-to-date and particularly quarter-on-quarter because this has been the first quarter in which the comparison is fully organic with no perimeter changes from material ones at least versus the first quarter. And I would like to understand the 2.2% growth quarter-on-quarter that we have seen in the second quarter can be extrapolated to full year implying close to, let's say, 9% yearly growth on that front in that sense, again, willing to understand your views, if we can already step on this organic performance.

The second question is related with your pipeline. Already quite clear the views on timing, execution and so on, but also trying to put or to quantify a little bit what could be your willingness to be more involved in, let's say, greenfield projects rather than on existing portfolios? Just to understand if you can give us some color on what amount or what percentage of your current pipeline is devoted to greenfields rather than to existing portfolios?

[Jose Manuel Aisa, CFO]

On the first question, maybe too early to say. I mean, obviously, the full-year performance will be based on the remaining 2 quarters, based on the trends that we are seeing and also the remaining changes of perimeter during the year. You might expect quarterly performance in line with what you are seeing today. Also remember that we have seen a one-off effect in the Netherlands, which is no longer to be seen for the rest of the year. So let's see what are the results provided by our markets during the rest of the year, and we will reach a conclusion. But I guess with information we have today, you might extrapolate what you have seen this quarter to the rest of the year.

[Alex Mestre, Deputy CEO]

And on the question on the pipeline, just to, Fernando, understand that when you say greenfield, you mean new geographies on towers or new, new type of projects in relation, not towers or adjacencies. So I don't know what do you mean?

[Fernando Cordero, Banco Santander]

Yes, particularly projects in which you will be investing in new assets. When you say new assets, no existing ones, that is everything excluding already existing portfolio.

[Alex Mestre, Deputy CEO]

Okay. So, well, I think it's maybe a bit difficult now. But clearly, the intention is to continue investing in our core assets and growing with our clients with adjacencies. So that would not be, I think, part of what you are asking for. So, I would say that on the greenfield, we will be thinking on the figures that would be, I don't know, 15% on that range on absolutely new projects, not linked to our existing core assets or anchor clients, but it's just a figure.

[Operator]

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