Cellnex Telecom SA

MAD:CLNX

Earnings Call Analysis

Cellnex Reports Strong Q3 Performance

Cellnex has shown robust performance with revenues up by 16% and adjusted EBITDA also increasing by 16% in the nine-month period. Among the achievements, the company has improved free cash flow guidance for 2023, now expecting it to be between EUR 100 million and EUR 150 million. Leveraging asset disposals such as sites in France, it ensures the repayment of upcoming maturities without needing to refinance. Deleveraging efforts are on track with an aim to achieve investment grade status by S&P by the end of 2024. Despite challenges like high interest rates, the company is maintaining cost of debt below 2.5%. Moreover, a new organizational model aimed at operational excellence is being introduced, and the company reiterates its commitment to shareholder value maximization. With various strategic options under consideration, including asset sales, Cellnex is poised for continued growth and enhanced capital allocation.

Steady Performance Amid High Interest Rates

Cellnex displays robust business numbers, reassuring investors of unwavering commitment to targets despite new leadership and challenging macroeconomic conditions like persistent high interest rates. The firm's commitment to bolstering free cash flow and reducing leverage remains ironclad. The quarter's success includes a strong 16% jump in revenues excluding pass-throughs, an identical increase in adjusted EBITDA, and a striking 21% uplift in recurring levered free cash flow. These financial accomplishments are set against a backdrop of a 6.8% growth in points of presence compared to last year, reflecting operational excellence and strategic initiatives .

Improved Free Cash Flow Outlook

In a noteworthy turn, Cellnex forecasts a healthier free cash flow, now pegged to rest between EUR 100 million and EUR 150 million by year-end, outstripping previous forecasts of merely a break-even point. It's a significant upgrade from earlier guidance, with the free cash flow for the past nine months having swelled to EUR 436 million, thanks primarily to asset disposals, such as the French site sell-off for EUR 631 million. This enhanced free cash flow position supports swift deleveraging efforts and offers a robust financial foundation for continuing growth and shareholder rewarding strategies.

Strategic Financial Management in a High-Cost Environment

Cellnex's financial strategy is carefully calibrated for the current high-cost landscape. A keen focus on cost control has the company aiming to peg its average cost of debt below 2.5%, despite tumultuous conditions. An impressive EUR 110 billion in contracted revenues provides a clear picture of future cash flows, presenting an opportunity for Cellnex to potentially clear its debt swiftly if chosen, hinting at formidable financial agility and discipline.

Lease Cost Constraints and Pop Growth Aspirations

A significant part of the company's attention zeros in on lease costs, which loom large in the profit and loss account, prompting efforts to remain flat or achieve modest growth. Growth in points of presence provides vivid visibility and is bolstered by efficient site selections and proactive land aggregation strategies. Additionally, the executive team anticipates minimal disruption from the UK contract restructuring, projecting no significant impact on current operations.

Thriving Despite Macroeconomic Headwinds

Despite economic headwinds, especially those impacting financing costs, Cellnex maintains steadfastness in financial discipline. With a stable cost of financing, the company takes strategic actions, such as extending bond maturities and reducing potential dilutions through instruments like the new convertible bond. The recent adjustments ensure a continuous, stable path forward without sacrificing the bigger picture of return on investment.

Capital Deployment and Shareholder Distribution

Cellnex's comprehensive approach to asset management and mature attitude towards capital allocation is evident. With a keen eye on macro dynamics, forthcoming decisions will weigh industrial investment returns against shareholder value from potential equity activities, like buybacks. Importantly, the company signals the advent of a dividend policy, recognizing its intrinsic value for long-term investors, accompanied by an openness to share buybacks when they promise true value creation.

Earnings Call Transcript 2023-Q3

[Juan Gaitan Mañoso, executive]

Good afternoon, everyone. My name is Juan Gaitan, Cellnex Director of Investor Relations, and I would like to thank you all for joining us today for our Q3 2023 results conference call. Today, I'm joined by our CEO, Marco Patuano, who will share the main highlights of the period, our progress on the targets of the next chapter of our strategy, and then we will open the line for your questions. [Operator Instructions]. So without further ado, over to you, Marco.

[Marco Emilio Patuano, executive]

Thank you, Juan. Good afternoon, everyone, and thank you so much for your time today. So let me begin by reiterating that we maintain an unconditional commitment to the target we set out in November 2022. This has not changed as a result of our new leadership team or the most recent macro environment. If anything, as interest rate remains high, we are even more committed to driving free cash flow growth and deleveraging. Our business performance, we are once again providing solid numbers showing that the Board organization is aligned and fully committed to our targets.

This 9-month period has been marked by excellent commercial performance and consistent operational execution with a point of presence increasing 6.8% compared to the last year. Revenues, excluding pass-throughs, increasing 16% and our adjusted EBITDA up 16%. Our recurring levered free cash flow, up 21% and our free cash flow reaching EUR 436 million due to the disposal of sites in France. And once again, we are confirming all our short-term and medium-term financial targets with an improvement of the -- our free cash flow guidance for 2023 compared to our previous expectations. We are in an environment where interest rates could remain higher for longer, which for most of the companies result in a potentially more expensive refinancing process. However, this is not the case for Cellnex. We already have the cash to repay our 2024 maturities and our 2025 maturities can be repaid with the cash from asset disposals in addition to the free cash flow generation. As just mentioned, we are already working on a number of scenarios as we understood that external factors such as high interest rates are impacting our stock. We have recently entered into a derivative contract in order to gain exposure to our shares But without compromising our deleveraging objectives as this type of agreement avoids the need to buy the actual shares.

It is important to highlight that only a small portion of our debt is variable. From 2027 onwards, our free cash flow generation will allow for rapid deleveraging. So taking all the elements into consideration, we will be in a position to keep our average cost of debt under control at a stable level below 2.5%. As a reminder, we have also repaid the 2026 convertible bond by issuing a new one that allow us to extend maturities, increase its conversion price and most importantly, reduced dilution in terms of free cash flow per share. With regards to our objective of reducing debt, we have already made good progress, thanks to the cash proceeds from the disposal of sites in France and the recent deal in the Nordics. And we have also sold our private network company in Edzcom, as a part of the process to devote management bandwidth to core activities only.

Our intention to become investment grade by the S&P by latest end of 2024 remain unchanged. And we are assessing strategic options for our portfolio of assets to crystallize value and to secure this path to investment grade. We will be pragmatic and open to all options from the sale of minority stakes to full disposal of countries. The moment we reach investment grade and we started generating cash flow above our CapEx commitments, when we become free cash flow positive, we will balance our capital allocation between growth projects subject to strict return criteria, a new cash return policy in order to maximize value for our shareholders, which we will discuss at our forthcoming Capital Market Day. Finally, we're introducing a new organizational model that will enable commercial and operational excellence.

Our organic growth depends on delivery in each and every country. We have, therefore, set out a new organization model that reflects this new way of working. The Managing Directors of the main markets will report directly to the CEO. We have created 2 new roles, the Chief Strategy Officer and the Chief Operating Officer who will also report directly to me and will be part of the company's executive committee. The CSO will lead on the company's strategy, what I call where to go, the COO will be responsible for the how to go, and the CFO will determine whether we're on track or not. I look forward to working closely with Vincent Cuvillier, with Simone Battiferri in their new roles of CSO and COO, respectively. I also look forward to welcoming Raimon Trias, our new CFO, when he will join us in December. Raimon is a 20 years experienced man with private equity-backed Industrial Group, who will bring a new perspective and a deep understanding of value creation in both financial and operational context. This organizational structure is fit for our next Chapter 1 of accelerated free cash flow growth.

I will now provide you a few additional remarks on the period and our financial strategy. This has been another period of excellent commercial performance with organic PoPs growing at 6.8% compared to last year. This is mainly due to the progress we made on our BTS program in Italy, France and Poland with 3.2% growth attributable to BTS and to the PoP generated mainly in Portugal and Italy, with the rest of our markets also showing a steady performance. Other presence growth linked to new colocation has reached a strong 3.6% this period. Excluding the impact from the pass-throughs, revenues increased 16% compared to the same period last year. EBITDA and recurring -- EBITDA, 16%; and recurring levered free cash flow, 21%. Please bear in mind that this performance corresponds to 9 months and when looking at Q3 only, our EBITDA has grown faster than our revenues compared to Q3 last year.

Now moving to our free cash flow. As defined, the free cash flow as a recurring level free cash flow minus expansion CapEx, minus MTS CapEx, plus cash received from remedies. It reached EUR 436 million, around EUR 1.2 billion increase compared to the same period last year. And with the EUR 566 million only in this quarter, mainly due to the disposal of sites in France for EUR 631 million. Free cash flow is expected to stay positive between EUR 100 million and EUR 150 million this year, and this is an improvement compared to our previous guidance, where free cash flow was around breakeven by the end of the year. In a second, I will provide you a few more comments on our updated guidance for the year 2023. Going forward, our free cash flow generation will further accelerate as we get closer to the end of our BTS programs and this will underpin our rapid deleveraging and will give us the financial flexibility to continue growing and to define an attractive shareholder remuneration policy.

On our updated '23 guidance, just a few comments. We are updating our revenue guidance mainly due to the lower electricity prices, which we pass through to our customers. However, core revenues remain the same, and there is, therefore, no impact on the rest of our financial objectives, including EBITDA and recurring levered free cash flow, which we reiterate. On free cash flow, we are increasing our guidance, which is now positive between EUR 100 million and EUR 150 million by the end of 2023.

Let's now take a closer look to our debt maturity profile, which is on Slide 13 and our capacity to deleverage. As I mentioned earlier, we are not planning to refinance our 2024 and 2025 maturities. We already have the cash that will allow us to repay 2024 maturities. And we are working on asset disposal that will give us the option to repay 2025 maturities and expensive credit lines linked to Euribor. Only 25% of our debt is variable, so any cost increase would be manageable. From 2027 onwards, we will generate significant free cash flow that will provide us with substantial deleveraging capacity, something that you can see on Slide 14. We have made the unconditional commitment to become investment grade by Standard & Poor's as well as to maintain our investment grade status by Fitch. We have very high visibility of future cash flows due to the size of contracted revenues for a total of EUR 110 billion. And if we choose to, we can repay all of our debt with our cash flow in a short period of time. Of course, this needs to be balanced against the optimal long-term capital structure we mapped for Cellnex, topic that we will further elaborate at our Capital Market Day.

If we move now on Slide 15. We are well protected against interest rate increase given that we don't need to face significant maturities in the short term and 75% of our debt is fixed rate. Our average cost of debt will only marginally increase until 2025 due to debt repayments, and we can further reduce it if we successfully sell assets at attractive valuation. Finally, on Slide 16, I would like to highlight the speed at which we are progressing with deleveraging, thanks to the well-executed asset monetization at premium valuation. You can see here the details of our last 2 transactions in France and in the Nordics that have allowed us to reduce not only our debt but also to crystallize value due to the attractive associated multiples in a challenging environment.

With this, we remain at your disposal to answer your question. I think that being concise is a value. So more time for you to making all the questions. So please, look forward to you.

[Juan Gaitan Mañoso, executive]

Thank you so much, Marco. The first question comes from Andrew Lee of Goldman Sachs.

[Andrew Lee, analyst]

I had -- apologies given you were so concise, I had 3 questions, but I think they're all very quick. They're all on asset sales. Interested to see your comments on Slide 4 about additional monetization opportunities. So 3 quick questions. Firstly, what are the pace of discussions with buyers right now? How likely is it that we happen -- that we see these on a further sale in the next 3 to 6 months? The second question was Stonepeak appears to have preferred to be a financial rather than strategic investor in your Nordic assets. Is that a broader trend from private suitors and therefore, what is more likely in terms of sales from here, full disposals or partial sales? I know you said that you'd be open to either.

And finally, just -- you've talked a lot about kind of different ways you'd think about preferences for what assets you sell. But I just wondered if you could answer if there are any sacred cows that you just wouldn't sell at any cost or any price should I say.

[Marco Emilio Patuano, executive]

Thank you, Andrew. As I said, we're going to be very pragmatic. So we made our portfolio review based on industrial analysis. So what are the assets that are contributing less to our strategic story and then we have made the point if it would be preferable to have full monetization or to have a partial monetization. I think that pragmatism says that if in certain market, you are not big enough and you don't have a possibility for having further growth, the full monetization becomes a real and concrete possibility. And so we don't exclude it. And this explains you also because in Stonepeak case and the Nordic case, we went for a partial monetization. We consider that in the Nordic market, the market is very fragmented, and there are possibility. I can't tell you when, but in the future, there could be and so having a partner could have been a good idea.

So what assets, I tell you assets where we are subscaled and where we don't see a possibility for further consolidation or for the growth in the market. Next, the 3, 6 months. Well, the portfolio analysis has been completed. Now we will move to the execution. So I can't tell you if it is going to be 3 months, 6 months or 9 months, but the process of making it happen already started in our house. And I think I answered to all your questions, Andrew.

[Juan Gaitan Mañoso, executive]

Thank you, Andrew. So the next question comes from Akhil Dattani from JPMorgan.

[Akhil Dattani, analyst]

Maybe I can start with the first question on leverage. Marco, you've mentioned that the ambition or target is to redeem the debt that's due '24 and '25. I guess I was just looking to get more of a holistic view as to how you think about leverage going forward. I guess the historic message from Cellnex has been to go to investment grade, and obviously, therefore, gets meaningfully below 7x. And I think in prior calls, you've mentioned maybe somewhere in the, let's say, mid-6 level makes sense. I guess if I look at the numbers, if you're saying that you're going to redeem '24 and '25, implicitly by the end of 2025, your leverage would be 5.5x, so lower than those previous sort of numbers. So I appreciate, obviously, you'll have a Capital Markets Day, and you'll give us more flavor then. But can you maybe just talk us through at a high level how you think about the ranges of what does and doesn't make sense given what you said is obviously a higher for longer rate environment? So that's the first question.

The second one was on the CFO. Obviously, you've announced a CFO hire. And I guess it would be great for us to understand better the thought process in terms of the higher of that individual. I guess the questions we get a lot are the expectation might have been it could have been someone from public markets or some with the infra background as you said, this is someone slightly different, obviously, very keen to understand what are the credentials that for you mean that, that individual will bring to the table that you think will help Cellnex's journey going forward?

[Marco Emilio Patuano, executive]

Thank you. Our target when we said that it has to be below 7x the overall environment was different. And in an environment where interest rates are still very high, I think we have to be more prudent. So a capital structure, a more prudent capital structure goes in the 6 or eventually even below 6, then between 6 and 7. So let me say that, of course, it will depend on what happens in the -- in these -- end of 2023 and 2024. But I think that, in any case, a more prudent capital structure is -- fits better for these overall market environment. We -- again, we are going to be pragmatic. I don't -- I have not the magic number but we will adapt with the secured pragmatism to the situation if high for longer, we're going to go lower than what we expected on a few months ago.

The CFO. Yes, it was -- the choice was made after deep diving in the corporate culture of Cellnex. As everybody knows, we have a very strong finance department except -- so even if we don't consider our former CFO that you all know, he was a talented guy behind him. You know [ Juan ],but there are other very good professional at finance [indiscernible] is our Head of Finance, Tobias Schwender is our Head of M&A. We have a very strong finance team. I think that introducing a mentality coming from a stronger controlling where with people who have been working with private equity in environment where a strong controlling culture is the rule of the game can be extremely productive for us. This means that we are going to leverage on our point of strength. Our guys are -- our team is a team. It's not just a one-man show. Behind a very good CFO, there was a strong team and these allow us to work on some of the elements where we could improve and to maintain our point of strength.

[Juan Gaitan Mañoso, executive]

The next question comes from Jakob Bluestone at BNP Exane.

[Jakob Bluestone, analyst]

I've got 2, please. Firstly, could you maybe just talk us through the slowdown in your colocation growth as you show in Slide 9 in the presentation, you went from about 1,300 co-locations last quarter to 600, and you lost tenancies in Spain. So maybe if you can expand a little bit more what's going on there? And then just secondly, could you maybe just expand a little bit more on the thinking behind the equity swap and if that will impact your conversations with credit rating agencies?

[Marco Emilio Patuano, executive]

Sure. Well, the slowdown is partially a slowdown, partially is also the fact that in Q2 -- Q1 and Q2, we performed particularly strong in a couple of countries. Q3 is where we expect it to be. And therefore, we are doing in Portugal, in Italy and France, we're doing what we expected to do for this quarter. The negative of Spain is a process of run sharing that, again, we had agreed with our clients. So nothing unexpected. It's something that we had in our plant. So the real point is not if this quarter is weaker than our expectation. No, it's in line with our expectation. The topic is let's look forward. So what we do expect is something closer to what we did this quarter is close to what we did in the previous ones. I would say that going forward, the focus, the managerial focus is growingly on new colocations. The market is -- has to be analyzed country by country. And therefore, let me say that we are where we expected it to be, but forward-looking, this becomes one of the imported metrics for our management team.

The equity swap. The equity swap, we all know that the reasons behind the price of our shares are somehow performance independent where they are not linked to our performance. And when we saw -- by the way, me personally, and the Board considered the -- our proposal, we consider this price as a non-responding to what we consider the core value of our shares. So I made a plus on an investment. You can consider it big or small, but it's a personal money that I put in and the Board gave the same message. It's a message. The message is we are convinced that the deep value in our shares. Since it is cash settled at the end of the contract. There is no impact for the rating agencies. So this was disclosed, and there is no problem with the rating agencies.

[Juan Gaitan Mañoso, executive]

Next question comes from Maurice Patrick from Barclays.

[Maurice Patrick, analyst]

Just a couple from my side. The first one is just the outlook for lease costs for 2023 and 2024, if you can help us navigate the path of kind of increasing inflation in your lease -- base lease costs with more sites, but also the site actions that you're making to reduce that. So some clarity in terms of what we should be thinking for lease costs for 2023 and 2024.

And just -- if I could just link to a quick follow-up on Jacob's question just now around the PoP growth. How strong is your visibility for PoP growth across the various markets you have? I'm sure your clients give you reasonable sort of forward notice. Is it a couple of months? Is it a few quarters? And as such, which do you see other than Portugal as the main drivers for colocation growth in the coming quarters?

[Marco Emilio Patuano, executive]

Thank you. So let me start from the lease cost, and you will pardon me on 2024, it will be a little bit shy because it's going to be a core part of the Capital Market Day. But what I can tell you is that it's so evident that the lease costs are the cost items by far, #1 in our P&L that it will become the center of gravity of our attention in terms of an efficiency program. So our target for this year and even more importantly for the coming years is to be able to counteract the 2 forces that you were mentioning. So the growth of the number of sites and the growth of the inflation. How to do this? Well, there are not so many metrics. One is you see it and you renegotiate. There is another one that you have to be very efficient in terms of the new colocation you have to the new locations. So you have to put aside in a place where it is highly efficient. And the last is that land aggregation, so acquisition of land or cash advance of -- for rooftops becomes highly potent, as you know. The return on this investment is particularly good, especially in Europe where we have very long contracts with our tenant. So the target is to try to stay flattish and/or to have a modest growth well below the growth that is inertially driven by the growth of the number of sites and the number of -- and the amount of inflation.

Growth in terms of PoP and visibility. Look, what we have a good visibility is the demand that we receive from the MNOs. So they give us a list of requests. And then what we have to work is that the mortality rate of this list of requests stays as low as we can. There are a gazillion reason why you have a request and you cannot satisfy the request because in some countries, because of the electromagnetic limits in some countries, because of the agreement you have with the owner of the land, et cetera. So today, what I want to tell you is that we have a bit high mortality rate vis-a-vis the funnel of potential colocation we have. This is particularly true in some countries. So allow me not to elaborate on the single countries. And therefore, this an area of improvement that on which we are working, and it's particularly important going forward.

[Maurice Patrick, analyst]

Great. Just a quick follow-up, sir. When you say flattish on leases, is that -- because you're up EUR 60 million in the first 9 months. Is it flat year-on-year in fourth quarter or -- also the numbers?

[Marco Emilio Patuano, executive]

That's on the 2024 compared to 2023.

[Juan Gaitan Mañoso, executive]

Next question comes from Ottavio Adorisio from Societe Generale.

[Ottavio Adorisio, analyst]

Got a couple on my side. The first is basically on a renewal. Cellnex has been pretty active on buying towers directly from the operators. The main exception was in the U.K. where you bought at TowerCo [ Arkiva ], where most of the contracts were already in place. You have been negotiating the renewal on the country with CTIL, the renewal for next year, and that coincide with the Vodafone Hutch merger. So just wondering if you can update us what has gone with the negotiations, how big is the contract? And if there could be any risk of new PoPs been lost.

Then moving to the second one. It's -- as part of your plan to refinancing, of course, the use of the credit facilities in the short term, but it looks that beyond next year, you are focusing on improving the cash and then using our organic generated cash to refinance the debt. Now the 3 main components, it's what you booked below the recurrent leverage free cash flow line, so the PTS and the expansion CapEx. If you want the expansion CapEx, the moment is the fact that you are not strengthening the towers that you bought from the operators. So -- and that's something that is very likely is going to pick this year because you've done a lot of M&A in the previous year.

If you can give us a bit of an idea where we are going to land. I know that you're going to probably talk a lot in doing the CMD, but will be good to have a bit of trends into next year. And the second one on the BTS. We've been hearing so many times on the call about the efforts to optimize a lot of these contracts that they overlap, particularly in France. I guess that you probably know personally, but I believe that management has been engaging clients for quite a while. If you can give us a bit of an update and if the fact that the BTS CapEx this year starts slowing down, at least from what the market was expecting, if that comes from the fact that you delay in some of the CapEx? Or are you basically saving some of the CapEx?

[Juan Gaitan Mañoso, executive]

Can I take maybe the first one?

[Marco Emilio Patuano, executive]

Please.

[Juan Gaitan Mañoso, executive]

On the CTIL contract, Ottavio, the magnitude. So the size of the contract is around EUR 60 million a year, so that would be the size. In terms of the process, what we can say is that we are in the process of talking to both operators. So I guess the philosophy here is that we -- today, there is a contract within [ Arkiva ] and CTIL. So what we are trying to do is maybe to translate that contract into maybe Cellnex's standards in terms of the duration, renewal but also the fact that we will be signing independent contracts with both O2 and Vodafone. So instead of one, it will be a separate contract with them. As of today, we are making progress. If anything changes, we will let you know about that. With the information we have, we are not expecting any impact compared to what we have today.

[Marco Emilio Patuano, executive]

Yes. So let me add one word on top of what you said. In principle, we are not against the possibility that in market consolidation happened. So having a healthy counterparty, which can invest more, which can do the densification of the network is something that long term is good. So what we are discussing with the parties who are involved in those deals is that contracts are contracts, not only when we have to pay our investment contracts every time. And therefore, this is a relatively simple business. If you ask me to renounce something today, you have to give me something with the perfect visibility tomorrow. And it's a relatively easy DCF calculation that everybody can do. So we are negotiating, we are renegotiating. Our objective is not to have impact even in the short term. But what I can tell you is that what I am sure is that not to have impact in terms of value that we have in some contracts.

Expansion CapEx and BTS CapEx. Expansion CapEx have been in the 10% area. Let me say that if we exclude for 1 second, the energy revenues it would have been something between 11% and slightly above 11%. So what we see in the short term, being the short term, the end of '23 and '24 is that this number will not change very significantly. And going forward, as it is important for all the CapEx, it is going to be optimized. What is important is not only how much but answer also where you spend the money. And I think that this is the prioritization of CapEx based on a very strict control on the return on the investment on the capital that you are allocated, so CapEx prioritization is key.

BTS, does it come from optimization or simply from delay. It comes partially from optimization. There are at least 2 countries where it starts to have the first early signal of CapEx optimization. One is France, where we have been able with some anchor client to start showing them that transforming new sites in colocation is possible, and this is happening. Of course, when you transform a new site in a colocation, all the economics have to be revised. And in terms of CapEx, it is significantly more efficient. The same happened in Portugal. We just had one case in Portugal. It's sort of 150 sites that can be managed through a mix of new sites and colocation. So this new phenomenon start happening. If you ask me if in these last part of the 2023 is already material. I would say, no, it's not so material but it's not neither negligible. So we started to have evidence that this model is possible.

[Juan Gaitan Mañoso, executive]

Next question comes from Emmet Kelly from Morgan Stanley.

[Emmet Kelly, analyst]

So yes, I just have a couple of questions. Firstly, just following up on Maurice's question on annual lease costs. Can you maybe just give us a quick update on the U.K. market? I know you've got some revisions to the Electronics code Electronic Communications Code in the U.K. that could trigger a significant lease cost savings so could just say a few words about that, please? And then my second question was on the PoPs growth that we're seeing, so the colocation growth. Can you say a few words about what's driving that PoPs growth? Is it being driven by operators looking to cover gray spots and white spots? Or is it due to 5G densification requirements?

[Marco Emilio Patuano, executive]

Yes, the U.K. is close to what is normally called the [ cold ] is very material -- it's a very material decrease in the lease cost. Just to give you an idea, as a percentage of the revenues, if you look how much of the lease, how much is the weight of the lease cost in -- as a percentage of the revenues. Let's say that normal countries, say, normal countries where you can apply normal conditions. It's a sort of, let's say, 25%. Countries very expensive, Switzerland, Austria, it can go up to 40%. Well, in the U.K., it goes down to something below 15%. So it's tremendously impactful in terms of the impact of the P&L of the tower company. I hope that these order of magnitude are helpful in your modernization. The PoP growth comes from both, both our 5G densification and white spots. It depends if we are talking about urban or rural. In case of rural, the 5G is normally linked to big programs that can be with the sponsorship of the government or not, like Italy, Spain, they had a huge programs sponsored eventually even with the recovery funds and that have pushed the 5G in rural areas. But normally, the 5G you see in urban areas or in suburban areas and the rural or the semi rural is often white spots.

[Juan Gaitan Mañoso, executive]

Next question comes from Georgios Ierodiaconou from Citi.

[Georgios Ierodiaconou, analyst]

First question is on financial expenses. And thank you for providing the slide with also the outlook for the coming years is very useful on Slide 15. But I just wanted to clarify, I believe, at least from my numbers, 22% for 2023, slightly higher than the soft guidance that was provided in the previous call. I think something around EUR 330 million was the number I was kind of highlighted in the previous call. Curious if you can just give us a bit more precise guidance as to what we should expect for this year. I'm getting something like EUR 380 million with this number, but my math may be wrong.

And also, if you can also comment a bit on taxation, it's a hard line for us to predict. So if you can make some comments both for this year and going forward? And then the second question is just a very quick clarification around the colocation impact you have in Spain this quarter. I think, Marco, you answered the question earlier, but I'm not sure I understood correctly, whether this is the last of this run optimization or whether there could be impact like this in future quarters.

[Juan Gaitan Mañoso, executive]

I can maybe take the first one. It is true, your views that maybe our initial estimate was low. I guess at that time, we were hoping that we could manage this cash item during the year. And also it is true that when we provided a figure, also, we were assuming asset disposals with a cash in 2023, so in order to reduce our debt and therefore to reduce our interest expenses. So I guess that -- there has been some lag between when we have been able to materialize that in the Nordics compared to the previous expectations and that also has impacted our leverage figure. So yes also clarify and also so that everyone has the same information, our most updated figure, and this is a number that I have shared with you this during the morning is EUR 380 million of interest expenses for 2023.

[Marco Emilio Patuano, executive]

Yes. So sorry, you don't need to justify anything, but I think that the fact that the process, and I was there, so the process of the change of the CEO has been even a bit longer that what everybody expected. So the original plans have been reviewed and we've been working since day 1 of the new management team in trying to make up everything quickly. But yes, the most updated is this and water is, in reality, our -- what is really important to us in this chart or is that we wanted to make clear that we are fairly rigid in terms of exposure and volatility of our cost of debt to further increase -- eventual further increase of the previous rate in this moment, it seems that further increase are not perceivable immediately.

But we understood that the prudency is utmost important. And so we wanted to give you a clear visibility that our cost of financing remain stable, then we can work to decrease as soon as we are able to divest more prepaying some variable credit lines that today are linked to Euribor and so ultimately are more expensive than the fixed rate bonds that we issued a time ago. On -- really pardon me. On colocation, I didn't catch your question. So can you repeat me the question for 1 second?

[Georgios Ierodiaconou, analyst]

Yes. It was regarding this run sharing in Spain that impacted colocations in the third quarter, whether that program in your understanding is now done or whether there is any more these colocations may come in the coming quarters as part of the round sharing agreements in place?

[Marco Emilio Patuano, executive]

The Spanish case is very interesting because on one hand, you have run sharing agreement. On the other hand, there is a big debate about a possible remedy taker in Spain, which is a company that has a very strong and good relation with us in other countries. So the run sharing is going to have a modest impact going forward. We are in -- we are discussing with the parties that there are some further impact? Yes. Are they extremely significant? No. What we expect is that if there is any decision on a remedy taker, we should consider that the market for the colocation in Spain can reexpand.

[Georgios Ierodiaconou, analyst]

Okay. And maybe one clarification on the first question around financial expenses. And I appreciate what you just mentioned about making some adjustments to your facilities to reduce future interest costs. What structure as interesting is my understanding from the refinancing you've done on the convertible is that, that would have increased our financial expenses because you have an annual Cuban this time around and did not have that in the past. So other savings were extracting from these actions significant as to offset all of this going forward because, obviously, our guidance is very encouraging for the future year. So I just wanted to clarify on that.

[Marco Emilio Patuano, executive]

Well, just to be clear, the new convertible bond has been issued with an interest rate of 2.125. So it's not misaligned in terms of our pricing vis-a-vis the average cost of debt. So I think that, and thank you for introducing the topic of the convertible, this -- the idea -- the underlying idea was to have -- to catch several opportunities at once. So the maturity has been extended. So the 2026 maturity has been moved to 2030. The dilution has been materially decreased from 3.8% to something in the region of 2.3% and with the conversion price, which is significantly higher from 29 to 71 and with a close with an interest rate that remains in the ballpark of what is our cost of debt. So when we gave you the 2.2, this includes the new convertible bond.

[Juan Gaitan Mañoso, executive]

Next question comes from Fernando Cordero from Santander.

[Fernando Cordero, analyst]

The first one is some kind of follow-up on the discussion on how you are going to tackle your maturities 2024 and 2025. In that sense, I just would like to understand if you are targeting a certain volume of disposals that will cover those maturities. Or you are hoping to half the size of the potential disclosures of both the required amount for covering the maturities and particularly linking that also potential capital allocation which then the excess disposals could be allocated [indiscernible] you are already pointing out with the recent equity swap contract that you have announced.

The second question is with the small transaction that you announced this morning, regarding the private networks business. In that sense, they are saying we need to understand the [indiscernible] because it's not a big deal, but you have to understand the strategic rationale of the disposal of your private network.

[Marco Emilio Patuano, executive]

With pleasure. No, the disposals are not pharmaceutically linked to the repayment of the maturities. As we said, we wanted to be prudently in the investment grade soon. Then it will end with the slightly below, slightly above. We would see, we will judge based on the macro dynamics. But it's likely that in excess of resources can be used comparing the return of industrial investment with the return coming from a potential buyback for let me say it from a financial view. It will depend clearly on the price of our share. It will depend on many circumstances, but we will be driven by the value creation and we will not invest just for investing in industrial projects if they don't have so. If the return is not there or if the return to the shareholder value coming from a possible operation on our equity, we will go for that.

[indiscernible] well, what is -- thank you because you perfectly addressed the topic. So what is the strategic rationale because it's clear that EUR 30 million doesn't move the needle. When the company invested in 5G private network, which was some time ago, the 5G private network was considered a sort of golden pot that could materialize soon because it would have driven the -- or it would have satisfied the needs of some large clients. And it would be something material in the coming future. the truth that demonstrated to be different, the business despite the fact that the team is an excellent team never got the scale and it became a sort of something not core and using part of the share of attention of the management team is something that was really not very material.

Last, we almost -- every time that we are bidding for something in 5G private network, we're competing with our anchor tenants. And I say the truth, it's not the best way to have a good relation with our core tenant for a $500,000 contract, you create a massive problem with your -- the relation with your core tenant. The buyer who made as an offer, by the way, we bought for EUR 12 million. So even if it is small, we made a small capital gain, the buyer is -- has a different market strategy from the one we have. And therefore, we ended with a different strategic view. This does not change our view on active, which means that DAS small cell remain a line of business that we consider core and in Poland, we are in the active equipment, and we consider it core.

[Juan Gaitan Mañoso, executive]

Next question comes from Fabio Pavan from Mediobanca.

[Fabio Pavan, analyst]

Yes, Marco. Two questions, if I may. The first one is we have been talking a lot about efficiencies and other options to identify cost cutting. I was wondering if in countries where consolidation in the tower space is not feasible, you may eventually explore some option to cooperate with the other existing players? And the second question is on the European telecom sector in general. We have been hearing from many CEOs that telecom operators are struggling to fund investments needed to digitalize Europe, in the current regulatory framework. So do you believe tower cost may help in some way? And if so, how TowerCo and Cellnex in particular may provide some touch.

[Marco Emilio Patuano, executive]

Well, on the efficiency, we have to -- the efficiency, we have a long history of working on efficiency. So this is a bundle chat story. Yes, you're right. When you cannot do the efficiency by yourself. You need to sit with your neighbor next door and you have to see if you can do something working together. I think that this is something important. We identified some key areas where we will -- where we are working before we mentioned the lease another that I could mention is operational and maintenance. So there are several areas where we can -- we should work in order to find efficiency. But yes, cooperating with existing players is definitely one option, especially in markets where there has been more consolidation. It's easier to cooperate with someone who is another professional large tower player and who shares your same you, your same processes and your same mindset.

On the European telecom sector in the European telecom sector is shrinking and shrinking in terms of cash generation. And this is due to the overcompetition they have that has been stimulated by the regulator, by the European regulator. We can help them -- basically, we can help them in several different ways. One is helping them to find an intelligent way to consolidate their networks. Natural consolidation should be possible without penalizing neutral operators as we are. And these can be feasible. We should lobby together. There are too many countries where the electromagnetic limits are too low. And so we cannot increase the network densification at a very reasonable cost if we work together on the regulation. Some areas can be covered using small cells or DAS, I think, more DAS than small cells. This is very efficient in terms of network densification for the MNOs because they can have a turnkey solution that is CapEx light for them and can give them very good coverage in specific areas with good traffic -- with good traffic print. So we can do many things. And in general, what we are doing is that we are not preventing the telco, the telco operator from searching more efficiency. It's clear. We paid for our portfolio. And so we are not very flexible in giving away our right on what we paid, if we can cooperate on new areas of business, much welcome.

[Juan Gaitan Mañoso, executive]

Next question comes from Luigi Minerva from HSBC.

[Luigi Minerva, analyst]

Yes. It's about the way you see shareholder distribution as part of the equity story. Marco, obviously, you're navigating Cellnex towards a new phase of the equity story. So how important is shareholder distribution if the investment grade rating is in sight by the end of '24? Can you use the February Capital Markets Day already to announce a shareholder distribution and what's your view between dividend and share buyback given where the share price is currently?

[Marco Emilio Patuano, executive]

I'll start from the last given the share price, we already demonstrated that we consider this share price very convenient for taking exposure to the equity. I made personally and the company made and the Board -- and the Board decided with the, let me say, not very big. It's EUR 150 million, but it's an important message in that we pass the [indiscernible] market. To answer more broadly to your question, I think that the first stage of Cellnex has been all about growth. And the growth has been executed brilliantly because it has been executed fast. It has been executed with a mix of existing sites or BTS. Now we are questioning if those are expensive or not. But I think that we have to consider that this commitment are fairly important. When you look at the long-term and the bonding that you have with your clients and with their strategy, the strategy of your clients.

The second phase is, if you want, it's not a disruption, but it's a movement from growth to yield. So I think that in the nature of every tower operator there is, at a certain point, the tower operator starts generating abundant cash. It brings the capital structure in the zone, in the comfort zone, that will be the one depending on the macro evidence. But at a certain point, it becomes a return to shareholder story. Are we going to say something at Capital Mark Day? Yes, in terms of what we consider appropriate and if you ask me if we will already take very commitment, we are discussing internally. So I cannot anticipate it to you because we have not made the decision yet. We have to discuss with the Board. So it's that we have still some ones in front of us which will be also important to see where the market is going. The macro is much more volatile than what means to expect. But for sure, there will be some return to shareholders going forward becomes an important metric.

Dividends or share buyback. For sure, there will be a dividend policy. A dividend policy gives a predictable base to the investors, especially to the long investors. And this is important, this is important for every tower company. We cannot be different from the rest of the sector. And every time that the share buyback will create value. The Board will be very open-minded as demonstrated right now. at the current price, it's a no-brainer. At the current price, if we were investment grade, it would have been a very easy decision. Unfortunately, in this moment, we have to be disciplined. We promised to the market, we promised to the investment rating agencies. And so we stay on our promise.

[Juan Gaitan Mañoso, executive]

Next question comes from Roshan Ranjit of Deutsche Bank.

[Roshan Ranjit, analyst]

I've got 2 pieces, I'll be very quick. Just on the lease-up growth. That was a bit slower this quarter as you highlighted. But if I look at the organic growth by stripping out the Build-to-Suit the -- that growth is quite high, I think it is the highest this year in the quarter. So could you just give us an indication of what's happened differently around pricing and the pricing of those new co-located pops, please? And secondly, Marco, just going back to some comments you made around the BTS and you said that there is scope for some synergies and savings there. You've previously given a -- or Cellnex previously given a Build-to-Suit CapEx envelope of around EUR 4.5 billion to EUR 5 billion out in 2030. Is this good to revise that number with the synergies that you are alluding to?

[Marco Emilio Patuano, executive]

What is interesting. There is something interesting when our industry reports on colocation because it really depends how you count the pops. There are if you take, for example, a PoP of Internet of Things, the price is EUR 200 per year. And if you count it one, of course, you can grow the number of ports as much as you want. We count the PoPs only in terms of PoPs revenue per PoP is in line with our average revenue per PoP. So in our case, making the markets relatively simple because you take the number of PoP and you multiply it by the average revenue per port. It's not the case all across the industry. Some other tower player, believe me, I'm not making any negative comment and just saying that metrics are not always the same.

[Juan Gaitan Mañoso, executive]

Just one quick comment, Roshan. And maybe we can discuss your numbers offline. But in any case, in terms of pricing, we haven't really identified a change in trends. Remind that in terms of organic growth generation, we are providing the grade very similar to those of H1. So in this case, for the 9 months, it's been 9.5% of organic growth, where maybe the moving blocks are also very similar to H1. So around 3% inflation/escalator, 4% Build-to-Suit and 2.5% co-location. So trends very similar to H1. But again, we can discuss your numbers offline. And on Build-to-Suit?

[Marco Emilio Patuano, executive]

Yes. On Build-to-Suit, we are making the number on the back of the envelope for the time being, people that market the of the program, which is still another EUR 5 billion down the road. We are not moving particularly. But as you can easily imagine, a relatively small efficiency, let's say, 5%, 6% and with big numbers. So we are making -- we have to understand how palatable is this new way that we are offering to our clients. I was with Windtree in Italy, and they were very excited about the possibility of increasing the number of BTS that they can transform in co-location in case we get more electromagnetic space. So for the time being, I would suggest you to keep you more than at ease, but believe me that as soon as we have good news, we will be loud and clear in making you know.

[Juan Gaitan Mañoso, executive]

And with this signal, we have reached the end of the session. So we just want to appreciate your interest and your time, and thank you. Thank you so much. Have a nice weekend. Bye-bye.