Cellnex Telecom SA

MAD:CLNX

Earnings Call Transcript 2020-Q3

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

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 Q3 2020 results conference call. As always, I'm joined by our CEO, Tobias Martinez; our CFO, José Manuel Aisa, and our Business Deputy CEO, Alex Mestre, who will lead today's session.Throughout our prepared remarks, we will refer to our results presentation, and then we will open the line for your questions. As you might have seen today, Cellnex confirms that it is in advanced conversations with Hutchinson to explore scenarios of a strategic collaboration between both companies, including the potential acquisition of certain infrastructure assets. Unfortunately, we are not in a position to provide additional information and the potential terms as no agreement has been reached so far. And we will make a further announcement as and when appropriate. And without further ado, I will now hand over to Tobias Martinez. Please, Tobias.

[Tobias Martinez Gimeno, CEO, MD & Director]

Well, thank you very much, Juan, and good afternoon, everyone, and thank you so much for your time today.I would like to start sharing with you the main highlights of the period, which has been marked by strong results in the quarter, our successful capital increase and the initial delivery of our deal pipeline. As you can see, we are continuing delivering on organic growth, posting again a very solid quarter. I would like to highlight the resilience of our business model and our ability to generate organic growth and make progress on our build-to-suit programs under challenging circumstances.A strong financial performance with revenues increasing 53% compared to the last year and our adjusted EBITDA, reaching up to 68% and our recurring levered free cash flow up to 70%.Integration is critical for our growth strategy. That's why we have the right people, the processes and the expertise to ensure smooth integrations and to keep pace with our growth speed. We are confirming our momentum, ability to execute by announcing our first deal after our recent capital increase. And we expect to provide more visibility on the new projects very soon. Thanks to the intense work we have done from a capital structure perspective, we have today plenty of financial flexibility. And finally, we are reiterating our guidance, which, as you know, includes the contribution from both Arqiva Towers and NOS in Portugal. Moving to next slide. Let me please recall the main highlights of our recent transaction in Poland. This agreement represents one more step in the context of our long-term strategy alliance with Iliad. We are acquiring a 60% stake in place national network of circa 70 -- sorry, 7,000 sites, and we will be deploying up to 5,000 new sites over the next 10 years. We are also expecting an associated adjusted EBITDA contribution of around EUR 220 million on a run rate basis. We believe that the monetization of telecom assets can be an interesting angle for MNOs in the context of their own M&A activity. And we see attractive underlying trends in the Polish market. First of all, a strong economy, tangible densification needs and the potential for subsequent steps in the country.If we move to Slide #4, just a quick update on how our growth strategy translates into geographical presence and financial metrics. 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 independent telecom infrastructure operator, managing a portfolio of around 73,000 sites, boosting our financials and significantly improving our business profile. Our portfolio of sites will be around 10x bigger than -- at the moment of our IPO. Around 90% of our revenues will be generated by telecom services. And the vast majority of our EBITDA will be generated outside of Spain.And with this, I will now hand over to our CFO, José Manuel Aisa, who will provide more details of the period.

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

Thank you, Tobias. If we move to Slide 7, we are showing here our operational performance in the quarter. As mentioned, we have consistently generated organic growth across all of our geographies. Total PoPs have increased around 70%, including the contribution from organic growth and also our recent acquisitions. If we focus on organic growth only, PoPs have increased around 5% compared to last year as a result of the continued densification process we are seeing across Europe. And finally, DAS NOS grew at around 20% organically. And we continue to make progress on our efforts to provide a wider array of services to our clients and to build a stronger 5G capabilities.On Slide 8, you can see the commercial opportunities we are assessing in order to secure future organic growth.In summary, Iliad continues to generate organic growth in Italy and France, and we believe there is scope to further expand the successful industrial partnership as we have just shown in Poland. We are seeing demand for our services, not only in established markets, but also in more recent markets.Current build-to-suit programs progressed, as expected, in all our markets, and we are constantly assessing the potential for further diversification solutions for our clients.We continue to execute in the area of indoor coverage and high-capacity mobile solutions as a neutral host across Europe with attractive opportunities being assessed for football stadiums, transport networks and shopping centers. We're also expanding our 5G capabilities beyond our core business by analyzing opportunities in tower adjacent areas, such as fiber-to-the-tower, outdoor small cells, mobile edge computing and private networks, always with towers at the core of our strategy, and only proceeding as a natural extension of our relationship with anchor tenants and with the same expected tower economics.Moving to Slide 9. You can see here the building blocks of our recurring levered free cash flow in the period. The positive impact on our organic growth is significantly reinforced by the contribution from our recent deals. This is partly offset by cash elements below our adjusted EBITDA being the payment of leases linked to new portfolios, the main contributor. Taking all these effects together, Cellnex has generated a strong recurring levered free cash flow growth of 70% year-on-year.Moving to Slide #10. Our revenues have increased 53%, our adjusted EBITDA is 68% and our recurring levered free cash flow, 70%, with our adjusted EBITDA margin significantly increasing to 74% from 68%, boosted by operating leverage of our business and our change of perimeter which has been very effective in terms of EBITDA margin.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, including build-to-suit and recent acquisitions and also by the efficient management of our OpEx base. Moving to Slide 11. You can see in the balance sheet, the movements compared to December 2019. These movements are mainly explained by our M&A activity in the quarter. Increase in total assets as a result of our deals and the corresponding decrease in cash more than offset by our recent capital increase and debt issuance. Compared to December, our net debt mostly reflects our capital structure activity during the year. We have today a strong liquidity position that allow us to face our committed investments and also continue pursuing the opportunities in our busy pipeline.And following up on this, you can see on 11, 12, the details of our capital structure and our available liquidity position as of September. Our debt has an average maturity of around 6 years, a cost around 1.5% and no refinancing is required before July 2022. Today, we have a strong position of available liquidity at around EUR 8 billion, fully available and committed with no hedge, no pledge, no guarantee, no covenant. We will also reach a backlog of EUR 53 billion when we close all our transactions. And our debt has no covenants. This combination allow us to maintain our financial flexibility in this challenging environment and provide us with a wide array of options in order to continue financing our growth.And with this, we remain now at your disposal to answer your questions. So let's please open the line.

[Operator]

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

[Simon Alexander Arulraj Coles, Research Analyst]

The BTS models. If I look at that from memory, it looks like the one on the left with the higher upfront consideration is the model that you...

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Apologies, sorry. I'm very sorry, Simon. This is Juan. The line was cut for some seconds. So if you would please repeat from the rest -- from the top...

[Simon Alexander Arulraj Coles, Research Analyst]

Can you hear me now?

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Yes, yes. Now yes. Please go ahead.

[Simon Alexander Arulraj Coles, Research Analyst]

Okay. Great. Yes. I was just looking at Slide 5 and the BTS models. I think from memory on the left-hand side, where you have a higher upfront consideration is what you used with Wind Tre in Italy, whereas on the right-hand side with a lower upfront consideration is what you used with say, Bouygues or Iliad in France.Now clearly, the one on the left implies like a higher EV/EBITDA multiple if you're using initial numbers. But I'm just wondering obviously, that should -- either one should have the same returns or the same IRRs, but are there any pros and cons from your side on either model? And is that the right thinking?

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

This is José Manuel. Listen, both of them, as we are clearly explaining in this slide, have the same returns, have very similar impacts on our cash flow -- recurring levered free cash flow, sorry. So they are, from a pure financial perspective, the extremes of our business model, let's call it M&A model, or the needs of our clients.What we wanted to illustrate here, it's something which is a little bit different maybe, but co-hidden with your question, which is the following: For us, it doesn't matter being on the left or being on the right. For us, what it does matter is that the run rate Cellnex EBITDA in the long term is the same.Look, Cellnex is focused on contractualizing the EBITDA growth in the future. And this is what we are really, really -- what is really interesting for us in terms of value generation. How you contractualize this EBITDA, it is more upfront and less build-to-suit or less further initiatives, or it is less upfront and more build-to-suit and further initiatives is exactly the same. This is just a way to show that we do contracts from scratch, from 0, in which Cellnex tried to meet the requirements of our clients, first of all, from an industrial perspective, but also from a financial perspective. We tried to reach win-win agreements in every single scenario. And this is the value-added of Cellnex, to be able to combine these strong industrial capabilities, but also, let's say, a very clear from-the-scratch financial profile.

[Operator]

Your next question comes from Akhil Dattani from JPMorgan.

[Akhil Dattani, Managing Director and European Telecoms Analyst]

I've got 2, please. One is just a general update on M&A in the context of the announcement today. I guess when you announced the EUR 4 billion rights issue, you outlined an EUR 11 billion probability weighted M&A pipeline. I just wondered if you can help us understand how much of that EUR 11 billion was accounted for by the 2 deals you've effectively announced, I guess the Hutch one and the Play deal. Because obviously, cumulatively, they're EUR 12 billion. And if you would give us some sense as to how we think about the pipeline of other deals you're still looking at now and how significant those are? So any sort of color there would be very useful.And then the second question is that listening to the Hutchison call this morning, they seem to be implying that the EUR 10 billion ticket would be largely upfront. I don't know if you can comment or not. But irrespective of that, it looks like that transaction would take your leverage to around 6x pro forma and would largely consume the sort of capital that you had for the pipeline you were looking at. So I just wondered if you could talk us through how you think about future financing of deals. Do you see the need and the desire to come back to the market soon? Or are other ways you're thinking about deal funding?

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

Andrew, happy also to take the question -- Akhil, sorry. Listen, Akhil, you know very well the company for a long time. And you know also that the prospectus that we write down in the month of July, presented to you, Akhil, a very clear pipeline of up to EUR 11 billion. So this is a public info we can share. You know that also we have invested in Poland, and it is clear that our investment in Poland is around, with the build-to-suit program, EUR 2.3 billion, EUR 2.5 billion -- up to EUR 2.3 billion, EUR 2.5 billion. And obviously, this is consuming already from our pipeline.Also, in the prospectus, we clearly stated that the company was facing at several transformational deals. We define those transformational deals clearly in the prospectus. We highlighted that these deals were more than 15,000 sites. We highlighted that what -- they did have an impact on Cellnex. So when we, at that time, said to you that our pipeline was imminent, it was true.So apart from that, we cannot -- as we have been very clear in the relevant fact today, we cannot go beyond. But what I can tell you is that Cellnex is not going to change the methodology. We raised the equity when we do have the pipeline and when we have consumed our firepower and it's as simple as that. You were suggesting some net debt to EBITDA, that's fine. But for me and for us, I think the trigger is the pipeline that we can present to you accretive opportunities.And finally, in your question was you were suggesting about the 2 models of Cellnex has in order to face M&A deals, more upfront or more deferred consideration, doesn't matter. At the end of the day, as clearly explained in the prospectus, are within the EUR 11 billion. For us, what is very important, please, is the backlog, the visibility of the revenues. And you can see that as Cellnex has been able to grow, we have diversified our clients, we have improved our business risk profile. And therefore, we have been able to obtain for the same credit quality, from the same corporate rating, more capacity to go do that. This is a methodology we have always used. This is a methodology we explained to you when we raised our EUR 4 billion capital increase, and this is what we are presenting to you every single quarter.

[Operator]

The next question comes from Andrew Lee from Goldman Sachs.

[Andrew J. Lee, Equity Analyst]

I had 3 questions, I think one is a follow-up to Akhil's. And as you said, you've kind of demonstrated that you'll raise cash when there's a pipeline to do it. You've told us also quite frequently, there's a number of negotiations or things you're working on. And in the past, you've sometimes raised equity in advance and sometimes raised equity alongside a deal. So just wondered if you could give us any insights into next time, whether you'd wait for a deal or you'd look to raise ex ahead of that.Second question, a lot of questions you've got, when you raised the equity over the summer was how much competition do you see when you're looking for these deals. So I wondered if you could just comment on the degree of competition you've faced when you were negotiating the Play deal and when negotiating the Hutch deal.And then if it's okay, I was just going to ask a quick third question. There is a EUR 300 million EBITDA number out there for -- historical number for Hutch towers. I think that there are problems with that number in terms of apples-to-apples comparison with previous deals and in terms of what you're actually going to be getting with your deal, but I wonder if there's any comments you can make either for us to just ignore that number. Or any color around what exactly do you think the EBITDA you'll be getting with the deal?

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Thank you, Andrew. We will start maybe with your second question on competition. Maybe, Tobias, you can take that one?

[Tobias Martinez Gimeno, CEO, MD & Director]

Yes. Andrew, well, in terms of competition, I think it's worth to underline that if you look at Play or Hutch, this is the -- I think the consolidation or the crystallization, if I may say, of a long-term relationship with our customers. So I think this is a strong proof of the partnership agreement we have with our customers. If you look at the very beginning of Cellnex story, Hutch was our first international customer in Italy. So we had, since the very beginning, a very good relationship, very trustable partnership agreement, means that we know each other very well. So we are leveraging on this relationship.And this is the same with Iliad. Iliad is one of our also best customers as well with a huge portfolio. We are running a huge portfolio of assets, so we are partners also as well of Iliad. This is not just about a supplier.I mean I think this is the common, for me, element that this is differentiation in terms of competition. I mean, at the end of the day, it's not a public tender. It's not a public competition process. It's a question of customer loyalty, it's a partnership agreement and we are building our relationship and our -- we are developing our footprint in Europe and our industrial partnership with our customers. This is the most important thing, that we are not just competing for multiples, we are not just competing for build-to-suit, we are not just competing for sale and leaseback transactions. This is about customer relationship. This is about partnership agreement. And I think both Play and Hutch are, well, a very good, I think, proof of this strategy and relationship of Cellnex.

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Thank you, Tobias. Coming back to first question and third question on the sequence related to -- about the capital increase.

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

Well, here, again, this has not changed. Both questions are as the methodology answer. Cellnex, as you are saying, is able to do capital increase with higher [ monitor ] attached or capital increase with a pipeline attached. At the end of the day, in both circumstances, we do it because we do know that the M&A has already happened or is going to happen in the short term. So only in the moment, we have high visibility. And for us, this is a concept to have high visibility because you have already -- you are about to sign or you will sign in the next few months.This M&A, and allow me to spend to you, takes time. We have a pipeline that is built up with a lot of time. We're building up the relationship, building up industrial credentials. It's not something that appears for 1 day and disappears the other. And therefore, we tend to have very good opportunities and exclusive opportunities and global opportunities.

[Tobias Martinez Gimeno, CEO, MD & Director]

Yes. And maybe the environment, José Manuel, if I may, when we were assessing our pipeline in July, June, we were seeing -- or projecting, unfortunately, a second wave of COVID but also U.S. elections. So let me say, a lot of turmoil around the world, it was our understanding in June, July. And then we decided to proceed because at the end of the day, the pipeline was there, the opportunities, the customer relationship was there. So maybe you never know when you will be in a situation to crystallize, to execute the pipeline.Well, so maybe the success rate execution on M&A is quite high. So I think Cellnex is also demonstrating that when we are focusing in one opportunity, well, at least we are doing all the best. And maybe this is the reason why we anticipate this capital increase, not just looking at the pipeline. This is my additional comment, Andrew. It's about also context. So context matters in the currencies [ context ].

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

It's true. And also, your last question was about some figures of some projects that we cannot comment. But what I can tell you is that Cellnex builds up all the deals from scratch, from 0. So we -- I'm afraid that every single deal that we have presented to you, for instance, the last one, well, this contract was -- didn't exist. The carve-out, in fact, is somehow -- is doing or will be done in the next few months. So this does not exist. We have to agree with the counterparty. We have to understand the needs of the counterparty. And as a consequence, there is an EBITDA. So this is how we work. We do not have a crystal ball.

[Operator]

Your next question comes from Roshan Ranjit from Deutsche Bank.

[Roshan Vijay Ranjit, Research Analyst]

Two for me and one quick follow-up. When you announced the deals, can I just get the element of ground lease renegotiation that goes into the kind of upfront calculation of the multiple? Because I know as part of your ongoing cost efficiencies, you're constantly negotiating with the land owners. But in the kind of upfront year 1 and full run rate type multiple, it's possible to get a sense of how much of that efficiency is baked in, if any, upfront, please?Secondly, if I think back to your CMD back in 2017, you had this quite a detailed map, Tier 1, Tier 2. I think you even went to Tier 3 geographies. We've now started to move on to some of the Tier 2 geographies. Is it possible to get an update? Have any new geographies moved on? Have we moved a bit further east in the map across Europe? And quickly, just a follow-up on the previous question regarding build-to-suits. Did you say, José Manuel, you would not be interested in stand-alone build-to-suit projects if they were offered? It will have to be in conjunction with some upfront towers.

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

Thank you, Roshan, for your questions. I will maybe start with your first question. I mean during the valuation process, we treat our leases as any other cash element. So as the revenues that we will be generating from the contract with anchor tenant, incremental fees to be generated from third parties as we increase the maturity over time. In some cases, there is a staff base and an existing operating platform. And of course, there is an important cash element, which are the ground leases to total loss. Our expectations on how this initial payment will evolve, that has an impact on the price that we can offer to a seller. But again, I mean we don't reapply a different methodology associated with the ground leases because we treat that as any other cash item in the valuation process.The second -- yes, Tobias?

[Tobias Martinez Gimeno, CEO, MD & Director]

Well, I will take second and third, geographies. Geographies remain the same priority. I mean no changes at all. So Poland has been and is, for us, maybe the most attractive one in the East of Europe. This is the reason why we were assessing since maybe 2.5 years, this country, in order to understand the economics of the macroeconomics, the evolution of the country itself, but also to understand the fourth operators in the country, which is very important to understand, the market positioning, the structure of the assets, the market share of everyone. So no -- again, not just a one single step forward. So understanding and to be really is the opportunity -- the right opportunity for Cellnex then suddenly appears. And it was the case, and it has been the case. We are not changing our priorities, but maybe it's worth to say that Poland is our first choice in East of Europe.A third about build-to-suit stand-alone. Let me explain you that build-to-suit stand-alone, in the vast majority of the opportunities, is not there. It's not there. So we are not pursuing, generally speaking, build-to-suit projects in a stand-alone. And the other way around, if you look at our build-to-suit portfolio of projects are attached maybe 95%, 98% to the M&A transactions. But if one of the existing anchor tenants want to -- they want to launch an additional build-to-suit program on top of the existing, then is when we are assessing a build-to-suit on a stand-alone basis. That is when one of our anchor tenants is tending to launch an additional or a complementary build-to-suit program. But we are not proactively looking at or pursuing opportunities based on build-to-suit programs.

[Roshan Vijay Ranjit, Research Analyst]

That's very helpful. If I just quickly follow up on that, where are we on the potential integration of the 2 build-to-suit projects in France, please?

[Tobias Martinez Gimeno, CEO, MD & Director]

Well, generally speaking, I have to say that we are performing very well this 2020, even though in the middle of the crisis. Maybe the last, last minute, it's about of this topic is in the hands of [ Juanjo ] but I can tell you that in my dashboard, I do not have any red signal on -- flag on this indicator.

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

Just to provide you some more accurate figures. Only in the 3 months of Q3, we have deployed close to 100 new sites for Bouygues and around 80 new sites for Iliad. So in the context of, I would say quite a challenging environment, we have been quite successful deploying our commitments...

[Tobias Martinez Gimeno, CEO, MD & Director]

Absolutely. Absolutely. It's performing very well. Let's see what happen in the future if the evolution becomes worse and worse. But up to date, we are very, very happy.

[Operator]

The next question comes from Giles Thorne from Jefferies.

[Giles Thorne]

My first question was on Portugal. We've finally seen the Vodafone and NOS sharing agreement, which has been a long time coming. And indeed, while they were negotiating it, you managed to buy 2/3 of the towers in the market. I'm assuming the answer to the question is that your revenue is contractualized so there's no risk, but that sharing agreement is going to have some site rationalization and some RAN sharing. So it'd be useful to know what revenue impact the Vodafone-NOS agreement has on you.Second question is on Italy. It follows a similar question as I asked, I think, on the last call around the U.K., in a hypothetical situation where you are buying more towers in Italy. Given some of the lead indicators we had around the Inwit Vodafone antitrust review, what are you expecting could be an issue or no issue at all in Italy in the event you buy some more towers there?And then my third question was on France. American Tower has been buying a decent number of towers off the radar from Orange. I wanted to know if you were offered those towers.

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Maybe the first one on the RAN sharing in Portugal. Yes, Alex, if you want to comment?

[Alexandre Mestre Molins, Business Deputy CEO]

Yes, absolutely. Thank you, Giles. As you well mentioned, that deal on RAN sharing between Vodafone and NOS was already in the market for quite a long time. So we were in a position to take that into consideration and it was fully factorized. As we have mentioned in other occasions, we like our clients sharing infrastructure where there is active/passive because this is very much in line of what our meter is, so mutualizing infrastructure. So that's a good sign on the operators willing to cooperate among themselves and having a third party always helps it. And this is more or less what is our job about.So as you can imagine, on the way we have factorized this potential RAN sharing agreement, at the moment, we sign with NOS installation of securing that in the event that RAN sharing would potentially happen in the future, we would be getting a portion of those revenues in the typical classes that RAN sharing are customary in Europe.On the other way around, that also was triggering the number of sites that we would be potentially acquiring. And everything was fully factorized because in the event of RAN sharing, this is an optimization that is done by the operators prior to selling the tower. So we took both elements into consideration. So we think it's a very good news that finally, NOS and Vodafone reached that agreement in Portugal.

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Second question was around...

[Giles Thorne]

And then just on Portugal -- sorry, just one on Portugal. The 5G clients of NOS and Vodafone on 5G aren't finalized yet and there's no official RAN sharing there. Is there an opportunity -- is there an incremental revenue opportunity there in the event that each party built its own RAN, it's probably unlikely, but just have you had the 5G conversation?

[Alexandre Mestre Molins, Business Deputy CEO]

Well, with the anchors, normally, the way we define the usage of the asset, it is in a reserve capacity area. So normally, we are not charging our clients -- anchor clients based -- unless they go beyond certain limits, based on the number of antennas, number of frequencies or anything like that. There is a part of the site that is devoted to their interest. And this is how normally we deal with the anchor clients.There is an element of antenna integration on the 5G world. So when 5G started at 3.5 gigahertz, those -- and this is still the main way of deploying 3.5, is separated antennas. But we are starting to see that vendors are embedding 3.5 down to 700 into the single antenna. So then this is not actually much bigger than the space being occupied by 2 sets of antennas or 3 sets of antennas, which is actually less. So for the anchors, we would not be foreseeing an increment because additional 5G being deployed, at least as of now.

[Tobias Martinez Gimeno, CEO, MD & Director]

So the question on Italy and the antitrust environment in the event of increasing our market share in Italy. Well, I guess that we've seen a quite clear example of the European Commission allowing the creation of the largest tower in Italy. So I mean without anticipating any outcome, I guess that the whole environment is quite favorable, so any other potential player in Italy increasing its market share. So I guess that we like what we see. Third question is American Tower and Orange. Well, maybe limited level of details that we can provide. We look at many opportunities across Europe. And when we are successful, it's either because some contracts offer, maybe they meet our standards or, of course, we need to remain a disciplined player. So also in the occasions where we cannot meet our M&A criteria, we cannot be successful acquiring those assets.

[Alexandre Mestre Molins, Business Deputy CEO]

Tobias mentioned before, build-to-suit stand-alone projects are a bit more difficult. If we talk about the French deal between Orange and American Tower, it was purely stand-alone and we deem not convenient for us, that project.

[Operator]

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

[Samuel McHugh, Analyst of Telecom Operators]

Two questions and one very short follow-up. Just on France, PoP growth looked pretty good this quarter, and maybe it's probably your best organic growth opportunity at the moment. I wonder if you could just remind us what you are targeting in terms of tenancy ratio in the French business in the medium term or what you think is achievable.And then secondly, on minority. It's obviously in Poland and France, you have these minority stakes that the MNO still owns. Can you just remind us on the structure for the buyouts? Do you hold call options? Do they put options for a third party? And how is the fair value determined on those deals?And the last clarification was just, I think you mentioned in the IPO -- I'm sorry, actually, on your prospectus, that you were looking at several, i.e., more than one transformational deal. So I just wanted to confirm that within your pipeline, there were more than one deal with more than 15,000 sites.

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Thank you so much, Sam. Maybe we're going to start with the first one on the kind of growth in France.

[Tobias Martinez Gimeno, CEO, MD & Director]

Sure. So yes, actually, we are well positioned in France, having 2 anchors, 2 platforms and 2 growing platforms, which is quite important because we may have some sort of levers in order to help our clients to mutualize, meanwhile they deploy and generate efficiencies around that. The reality is that the French market is very, very active. There is a lot of pressure, and there is a great effort on our partners on deploying 5G rapidly besides, let's say, vendors, swaps and so on, and it's very vivid in that respect when deploying 5G.The possibility we have is out there. Those are -- especially the last transaction is still recent, and we are on the first phases of deploying the build-to-suits with Iliad. So that's the type of projects we like because there is a high level of industrial component, high level of technical communications with our clients. And we believe we can play a role on trying to match the interest of our clients there and generate efficiencies that could be resounding and creating value for all of us.

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

José Manuel, you want to comment on minority stakes?

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

Yes. No, your question was about minority stakes with partners in these cases, MNOs. You know that we have always had MNOs as partners in different subsidiaries. I recall the first one being Wind in our initial -- in our towers of Italy. At that time, we did have 10% stake in Galata Towers. And also, as we speak now Salt has 10% in Switzerland, Salt towers. And Iliad has 30% in France, 40% in Poland.But this is because the MNOs who are initially the servers but also, and most importantly, our clients want to stay for an initial period of time on the Board of Directors, understanding how we work. And it's as natural as that. Obviously, there must be an exit because this is a win-win. Everything that we do with telco is from scratch. And therefore, we try to couple, we try to match and we try to meet their requirements from an industrial perspective but also financial perspective. So for us is good, then maybe we only acquire 50% after all, and we can pay 40% a little bit later. So it depends on the needs on the needs of both parties.The exit has to be regarding fair market value. I mean, obviously, we are not going to pay less than the fair market value at that moment. You have a good example with Deutsche Telekom Capital Partners in Cellnex Switzerland. This is public info. It's exactly the same methodology or very similar. Maybe it's not copy-paste, but it's very similar.In the long term, and this is something that Cellnex has clearly stated in the prospectus, we would like to buy out all our minority partners. They are not long-term investors. They are long-term clients. So they want to stay there as a client, not as a co-shareholder. And eventually, we will buy out all of them because this is a natural structure.Also, there was a third question?

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

If you can confirm that if we are assessing more than [indiscernible].

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

Well, this -- yes, you were asking about the EUR 11 million and we were very clear that was a weighted ability. And then in a weighted probability, the answer to your question is yes, some of them with higher probability, others with less probability. We were very clear at the moment of the road show of our last capital increase that we did think that Cellnex with this equity money had to devote a part to do a transformational deal with maybe in our current geographies, but other geographies. Also maybe with current clients in new countries, with current clients in current countries, we explain all this. So yes, yes. Yes, there might be several of them, yes.

[Operator]

The next question comes from Jakob Bluestone from Crédit Suisse.

[Jakob Bluestone, Research Analyst]

I've got 3 fairly quick questions. Firstly, on the potential Hutch deal, I don't know if you can comment on this, but some of the assets are shared or not fully owned. I don't know if you can comment whether buying in some of those other shareholders' stakes in some of these assets is part of the current pipeline or deal that's potentially on the table?Secondly, could you maybe comment a little bit on what your thinking is around the potential for more competition for assets from tower companies that are controlled by operators? Is that something that you see becoming sort of more of a source of competition for assets?And then just thirdly, if you could maybe give a little bit more color around what was behind the BTS step-up that we saw in the quarter. I think you mentioned EUR 180 million BTS in France, which I think is about twice what you did last quarter. So just to help us understand why there was such a big acceleration.

[Tobias Martinez Gimeno, CEO, MD & Director]

Maybe starting with the third one, just to clarify, it was 180 sites in France. So around 100 Bouygues Telecom; 80 sites, Iliad. There was also one metropolitan center that we deployed also in the context of -- also for Bouygues Telecom. Well, basically, it's -- I mean it is also difficult to project a quite stable quarterly performance. So in some cases, you will see quite -- for us, this is just 3 months. So some quarters, maybe you see a slow progress; maybe another quarter, an acceleration. But what is important for us is just to maybe to meet our annual targets with mobile operators, rather than focusing on the quarterly performance, but there is, too. I mean in Q3, we have seen an acceleration of our build-to-suit deployment.On the first question, unfortunately, the answer will be quite short. At this stage, we cannot really comment. Hopefully, we will be in a position to provide more details on it.Second question, competition for assets coming from MNO captive tower costs. We would assign a low probability to be honest with that. I guess that this type of initiatives have -- pursue a different target for mobile operators willing to monetize these assets. Typically, what we are seeing is that they are not in a position to give up the control, so they are just willing to monetize a portion. And if that is the case, the resulting entity is still controlled by that mobile operator. So in terms of high dependency, I was about to say limited, actually, no mutuality. And also that new entity is still controlled by the mobile operator. So I guess that's making that, that's our call.

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

Yes. No. If you talk about M&A -- the competition, the level of competition with proprietary tower cost is 0. It doesn't exist. I'm being very transparent with you. If the competition level is about the organic growth, this is a different story, country by country, but it's very low.

[Tobias Martinez Gimeno, CEO, MD & Director]

So I'll remind you, Jakob, that if they wanted firstly to compete against us, you know that we are engaged in active discussions with mobile operators. So that means [indiscernible] mobile operator actually will be trying to acquire assets from a competitor. So I don't know.

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

It's very unlikely that the seller will be in a position to sell down 100% of the assets to one competitor. So this is the reason why we do believe that we are insisting -- we are, again, talking about the strength of our industrial business proposition. This is the reason why I think we have succeeded.

[Operator]

The next question comes from Emmet Kelly from Morgan Stanley.

[Emmet Bryan Kelly, Head of European Telecoms Research]

I have a couple of questions, please. The first question is if you do end up buying the towers of CK Hutch, can you maybe talk a little bit about the scope of selling additional services to CK Hutch? So I'm thinking about maybe space, be it on the Arqiva sites, the Cignal towers, et cetera, or maybe fiber-to-the-antenna or edge computing services to them in the future? And then second question, big picture question, one of the expected uses for the European recovery fund is digital and to close the digital divide, which became a pretty big theme during the COVID crisis. I'm wondering what your thoughts are on this and if you're hearing any early news about any wireless projects that might be funded by the fund coming from the European Commission?

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Thank you, Emmet. Alex, if you want to...

[Alexandre Mestre Molins, Business Deputy CEO]

Sure. Yes. So in relation to the specific opportunity you mentioned, nothing can be disclosed neither comment, as you can imagine but, of course, yes. So the spirit on our site is trying to sell additional services, always on what we call adjacent type of asset services like densification, and that could be small cells and DAS systems or fiber-to-the-tower and so on. There is also a private networks element that we are starting to consider as one of those collateral services that we are providing, as you have seen some recently on the news as well. So we will, of course, be fully devoted with every client in order to deploy additional services. So in relation to the second question, yes, this fund, which is now being settled, which is almost EUR 800 billion all over Europe, interestingly, there is a big portion of those funds being allocated in countries where we do have activity of that. So what we are actively working is having discussions with the public administrations in order to identify which type of projects, of course, related to our activity, which could be providing connectivity in rural areas, which could be a combination of the networks on the rural areas and the coverage on transportation lines, for instance. There is also projects in relation to hospital coverage, for indoor coverage. So there is a set of activities that we are already having discussions with the public administrations in several countries in order to see which would be the best type of projects that we could be proposing.

[Operator]

The next question comes from Giovanni Montalti from UBS.

[Giovanni Montalti]

Before, you were mentioning the disclosure you made in your prospectus about potential transformational deal that could also include, let's say, new shares to be issued to an MNO. Could you share with us some color or thoughts about how would you balance this type of structure with your neutrality?

[Tobias Martinez Gimeno, CEO, MD & Director]

Well, thank you for the question. It's clearly stated in the prospect of the transformational deal, which is defined a transformational deal which are now with more than 15,000 towers, may have the delivery of equity as a part of the proceeds. So when we talk about equity, you are -- we can be talking about the equity that we are sharing in Poland, so at the level of the target. And we can be talking maybe at the level of Cellnex Telecom SA. So everything is open in the prospectus.However, what is not open and what is very clearly stated is that neutrality is paramount importance for Cellnex, and this is a key element of us. So any shareholding or any MNO partner we may have at any level of the group must have fully availability or must represent or must give Cellnex the total flexibility to manage every single client in any market. And this means having the stakes that are no more. We were talking 10%, 20%, 30%. And this is what we are presenting.However, let me tell you that these stakes at the level of the country can be maximum. These levels if we were to talk about the level of Cellnex Telecom SA, that issue will be significantly less, okay? Significantly less. We can at the level of the target, maybe the...

[Giovanni Montalti]

Sorry, less than 10% or less than 30%?

[Tobias Martinez Gimeno, CEO, MD & Director]

Is less than -- at the level of the targets. So this is more or less what we can -- where we can -- this is the financial...

[Giovanni Montalti]

Sorry. Let me follow up quickly just to make sure I understand correctly. So if these stakes were to be -- let's say, if these new shares were to be issued from Cellnex mother company, you -- is it sensible to assume that this stake wouldn't be bigger than a 10% stake or a 15% stake? Or there will be no Board representation?

[Tobias Martinez Gimeno, CEO, MD & Director]

They count it as pure financial investment, pure financial investment.

[Giovanni Montalti]

So you would ensure your neutrality is not allowing any influence of your governance? So it makes sense to assume there would be no further presentation for the MNO or things like that, I guess?

[Tobias Martinez Gimeno, CEO, MD & Director]

What I can tell you is that our neutrality must be preserved. There are different elements to get this neutrality completely preserved. What we represented in the prospectus is that we were open to give this stake as long as it's financial and as long as preserves our neutrality. I wouldn't like to go more into detail because what is key must be financial, okay, apart from that.

[Giovanni Montalti]

Yes, clear. clear. Sorry, if I may squeeze in one more very quickly. Looking at your BTS plan so far, I think consensus is kind of assuming a pretty linear execution or, let's say, until 2027, now 2030 with Poland. Is it a fair assumption? Or is there any specific projects you would see more back-end loaded or more front-end loaded? I'm thinking, for example, of Wind in Italy. It seems like it could be more back-end loaded compared to linear assumption. Can you help us with some granularity on this front?

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

Thank you, Giovanni. I think that Alex will correct me because he manages our relationship with our clients. With the information we have today and right after we reach an agreement with a mobile operator, I mean we're -- in many cases, we sign 5-, 8-, 10-year development programs. So maybe we have limited visibility on the specific needs of the client in terms of densification. So for modern purposes, what we have been suggesting is that linearly, that makes perfect sense.

[Alexandre Mestre Molins, Business Deputy CEO]

Maybe a hint would be, as you normally realize, we are announcing fixed committed and then an up to volume in terms of build-to-suit. So I think the fixed committed is something that the clients have certain visibility, and those would be short-term linearized, I think, would not be a bad assumption. And for the up to, probably it's possible that the client is not having the same level of certainty, so could be a little bit back-loaded potentially.

[Operator]

Your next question comes from Florian Henritzi from Bank of America.

[Florian Henritzi, Research Analyst]

So I had 2. Firstly, I want to come back on your M&A. I mean looking at the Hutchison deal and also the recent acquisition in Poland, I think this will increase your footprint quite significantly. I think you will also enter now into potentially 4 new markets if we assume the Hutchinson deal is going to be announced at some point. So I was just wondering is there a point at which you think you will maybe need to take a break from M&A and really focus your attention on the integration of all these assets in order to make sure not to compromise sort of your day-to-day operations. So that's the first question.And then secondly, I had a question on Poland. As far as I understand, you have the potential to build up to 5,000 sites there. How confident should we be that these sites, they are going to be delivered given, I understand there's no rebinding commitment from Play? And also in importantly, could you just clarify what the unlevered IRR on the Play deal is?

[Tobias Martinez Gimeno, CEO, MD & Director]

Well, thank you for your questions. The first one, listen, this is not an infrastructure fund. This is not a private equity company. This is an industrial company. And any time we do have a client of -- we have a new client, a new need of a client, we meet -- we try to meet that need. If this means M&A, it will mean M&A. But we do not have a fund that we'll have to invest it. And therefore, once we have used it up, then we do another one. It will depend on how the market is evolving. And it is clearly that Cellnex opened up a new market 5 years ago, and this market is in its infancy in Europe.We think there are many, many things to do. And one of the things that we can do is through the instrument call M&A. But this is one of the tools. At the end of the day, this is an industrial company. So you know also there are 4G, 5G, who knows, tomorrow, 6G. This will change again the landscape of the infrastructure telecom, and Cellnex is doing connectivity as we say. So M&A, well, I don't know. What we want is to give a service to our client.

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

Maybe to complement in this first question. So it's not just about M&A. It's also about other type of infrastructure required by 5G. I mean the adjacent assets are part of the 5G topology and we are seeing that they are becoming more and more relevant in order to set up the 5G networks. Obviously, it seems that 5G auctions in some countries are a little bit late, they will come a little bit late. But generally speaking, I think there are a lot of opportunities even beyond of the M&A, even beyond of the M&A.About integration? Well, integration, it's a very good question. I mean it's not just about M&A, if I may say so. Integration is the day after of this celebration of the M&A. In one way, you have to deliver. In the other way, you have to integrate people, assets, customers. So I like always to say that we are acquiring companies. We are not acquiring assets. So it means that we are integrating companies, means people are in touch, different cultures, different IT systems, different methodologies, maybe different also procedures -- I mean processes. This is the reason why integrations, we pay a lot of attention, we deserve a lot of resources because this is a very important topic. Maybe a very large integration in one country like U.K. maybe deserves 2.5, 3 years from now in order to get full integration on the systems, on the IT, on the procedures. I mean it's a lot of hard work behind or beyond of the M&A transaction. We have a specific team to do it in-house because, obviously, we have partners that are helping us on the human resources, on processes, organization, IT systems. But this is led by the COO, which is taking care of the integrations and means, people, again, processes, IT. That's it. But this is maybe the hiding part of the company, but it's absolutely, absolutely key. It's key in order to deliver reliability in the next 20, 25 years from now. And this is key in order to integrate people, to identify their talent and then to reduce as well all the best practice everywhere.So we are finding a very, very good best practice in the very small companies or even niche companies like Edzcom when we buy this company in Finland. And at the end of the day, it's about talent. It's about people, but this is about individuals. It's not just about in generic, just people. It's about individuals. But very good question.

[Tobias Martinez Gimeno, CEO, MD & Director]

And very quickly on your second question, Florian. Short answer, I mean the -- Poland, we are targeting [ escalation ] returns as any another transaction. So at least 10% equity IRR, that's our criterion. And in terms of the 5% site [indiscernible] facility, I don't know, Alex, did you want to comment...

[Alexandre Mestre Molins, Business Deputy CEO]

Yes. I think the answer we gave previously probably is not so much in here. So there is a minimum of 1,500 being committed and up to the 5,000. So clearly, the first tranche is out there. We envisage the Polish market becoming more dynamic in terms of tower evolution. We expect also to see a sort of domino effect. As always, we try to look at second and third stages when we enter into a country. And for sure, things will be happening. So that's probably the most plausible situation there.

[Operator]

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

[Juan Jose Gaitan Mañoso, Head of Investor Relations]

Thank you so much. Again, we have now reached the end of this session. Thank you so much for your time today. And for any remaining questions, we will be at your disposal. The IR team will be at your disposal. Thanks very much. Bye-bye.