Calnex Solutions plc

Good afternoon, everyone. My name is Juan Gaitán, CELNx Director of Investor Relations, and I would like to thank you all for joining us today for our Q2 2023 Results Conference call. In this occasion, I'm joined by our CEO, Marco Patuano, and our CFO, José Manuel Aiza, who will lead today's session. We will now share the main highlights of the period, how we are progressing on the targets of the next chapter of our equity story, and then we will open the line for your questions. As a reminder, if you wish to ask a question, please press star five in your keyboard. And without further ado, over to you, Marco.

Thank you. Thank you, Juan. And good afternoon, everyone. Thank you so much for being with us today. As you know, this is my first earning call as a CEO of Celnex. I'm very happy to be with you today. In reality, I may be told of this industry, so I know many of you. So thank you. Thank you for having me back. I look forward to interact with you, meeting you, building the usual strong relation, doing what I believe it's going to be a very exciting journey here in CELNEX. So let me start by reiterating the strategic priorities that CELNEX made very clear in stating its next chapter, which are not going to change under my mandate because of the board unconditional commitment to them. But even more importantly, because I truly believe that this is the path we must follow in the current environment in order to continue to create value. Just as a reminder, we are confirming all our short and medium term financial targets. We will aim our efforts at reducing our debt with the intention to become investment grade by Standard & Poor's by the end of 2024 at the latest. We will continue focusing on the maximization of cash flow through organic growth and efficiencies, and we will carry on with the ongoing assessment of strategic options for our portfolio of assets in order to crystallize the value and secure the path to investment grade. The moment we will reach this status and we will start generating cash flow above our CapEx commitments, when we become free cash flow positive, to be clear, We will balance the allocation of the capital between organic growth projects subject to the usual strict return criteria and a new distribution policy in order to maximize the value for our shareholders. So let's now focus on the business performance of this quarter. We are once again providing solid numbers showing that the whole organization is aligned and fully committed to the execution of our strategy. First of all, the period has been marked by an excellent commercial performance, consistent operational execution, POPs increasing 7.1% compared to the last year, revenues excluding pass-through increasing 17%, adjusted BDA and recurring levered free cash flow at 16% growth, while free cash flow reaching minus 130 million, which is more than 600 million increase. And it is expected to break even by the end of this year. In half one, we have also closed the first tranche of site remedies in France. And on the second tranche, we are progressing well and we are on track. We are also announcing two new organic growth projects with ANCO clients in France. First one is with SFR. And it consists in an investment of around $275 million. over a period of six years for the construction of a new site and, much more importantly, for the co-location of new POPs on existing sites. The organic growth to be created in this context will generate more anchor tenant revenues. The second project consists of an extension of our fibre-to-the-tower agreement with Bouygues Telecom. The project scope has been increased with an additional €275 million investment over six years for incremental EBITDA upon the completion of the works. We are therefore strengthening our relationship with our outdoor clients in France and meeting our clients' increased connectivity needs at a very attractive valuation without impacting our delivering targets due to this target profile of these investments. Finally, we are also announcing our intention to organize a capital market day in early 2024 In this occasion, we will provide you an update on our industrial proposition. And I mean, we will see how do we see the co-location going forward, the prospects for more BTS, the tower adhesion asset opportunity, and what else we can do from the lease management perspective. We will do a deep focus on value drivers, the different building blocks of our organic growth and how they contribute to our financial performance. We will set up a new efficiency plan after the deep dive analysis that we are undertaking, and there will be an updated financial outlook. Last, an update of our financial strategy, balance sheet management, capital allocation priorities and criteria, shareholder remuneration policy that I'm sure you're all interested in. Now, Jose Manuel Laiza, our CFO, will provide you more details on the period. So, Jose Manuel, the floor is yours. Thank you very much, Marco.

Since you already have the full presentation, I will just provide a few additional remarks on the period, our capital allocation priorities and our financial strategy. The quarter has seen again an excellent commercial performance. with Organo POPs growing at 7.1% compared to the same period last year. This is mainly due to the progress made on our B2C programs in France, Poland, the UK, and Italy, with 3% growth attributable to ETS, and the POP generated mainly in Portugal and Italy, with the rest of our markets also showing a steady performance. BOP growth linked to new co-locations has reached a very strong 4.1% this period. Excluding the impact from pass-throughs, revenues have increased 17% compared to the same period last year. EBITDA 16% and recurrent layer free cash flow 16%. Please bear in mind that this performance corresponds to H1, and when looking at Q2 only, our EBITDA has grown faster than our revenues compared to Q2 last year. In this context, just a quick comment on the deep dive analysis that CERNES is currently undertaking of its cost structure, and the conclusions we will present in our upcoming Capital Market Day. Now moving towards Frequent Flow, defined as Recurrent Level Frequent Flow minus Expansion CAPEX minus Virtual Surge CAPEX plus Cash Recipient Remedies. It has reached minus 130 million euros, more than 600 million euros increase compared to the same period last year. This is an important improvement and it is expected to break to get paid even by the end of this year. Going forward, our free cash flow generation will further accelerate as we reach the end of our B2C programs. And this will underpin our rapid delivering and will give us the financial flexibility to continue growing organically with our clients and to establish an attractive shareholder remuneration policy. In terms of balancing management, CERNES is constantly monitoring market conditions and assessing the benefits of different debt instruments in order to achieve an optimal capital structure and choose the most appropriate option to tackle near-term refinancing needs. As such, we are actively working to push debt maturities forward, considering a number of options which we hope we can present to you very soon. As Marco has already mentioned, we have made the unconditional commitment to maintain adjusted leverage consistently below 7 times VTA with the objective to become investment-grade by S&P, as well as to maintain our investment-grade status by Fitch. This commitment and its subsequent delivery should allow Zelnets to access a deeper debt market at compelling terms, while we are assessing strategic options for our portfolio of assets to continue crystallizing value and secure this deleveraging process. And with this, we remain now at your disposal to answer any questions. Thank you, Marco. Thank you, José Manuel. This question comes from Andrew Lee from Goldman Sachs. Please, Andrew, go ahead.