Calnex Solutions plc

Good afternoon, everyone. My name is Juan Gaitán. I'm the next 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. As a reminder, if you wish to ask a question, please press star five on your keyboard. So without further ado, over to you, Marco.

Thank you, Franco. Good afternoon, everyone, and thank you so much for your time today. 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 the leverages. Our business performance, we are once again providing solid numbers, showing that the whole organization is aligned and fully committed to our targets. This nine-month period has been marked by excellent commercial performance and consistent operational execution, with the 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 436 million euro 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 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 Celnex. 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 leveraging 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 allows us to extend maturities, increase its conversion price, and most importantly, reduce 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, Edscom, as a part of the process to devote management bandwidth to core activities only. Our intention to become investment grade by 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 start generating cash flow above our capital commitments, when we become free cash flow positive, we will balance our capital allocation between growth projects subject to strict return criteria and new cash return policy in order to maximize value for our shareholders, which we will discuss at our forthcoming capital market day. Finally, we are 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 organizational model that reflects this new way of working. The managing directors of the main markets will report directly to the CEO. We have created two new roles, the chief strategy officer and the chief operating officer. We 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 are tracked or not. I look forward to working closely with Vincent Coubillier, with Simone Battiferri, in their new roles of CSO and COO, respectively. I also look forward to welcoming Raymond Trias for a new CFO when he will join us in December. Raymond is a 20-year experienced man with a private equity-backed industrial group who will bring a new perspective and a deep understanding on value creation in both financial and operational context. This organizational structure is fit for our next chapter, one 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. But the presence growth linked to new collocation 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, EBDA 16%, and recurring level free cash flow 21%. Please bear in mind that these performance correspond to nine 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. Let's define the free cash flow as a recurring level free cash flow minus expansion capex minus BTS capex plus cash received from remedies. It reached 436 million, around 1.2 billion increase compared to the same period last year, and with 566 million euro only in this quarter, mainly due to the disposal of sites in France for 631 million euro. Free cash flow is expected to stay positive between 100 and 150 million euro 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 leveraging 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, poor revenues remain the same and there is therefore no impact on the rest of our financial objectives, including a VDA and recurring leverage free cash flow, which we reiterate. On free cash flow, we are increasing our guidance, which is now positive, between 100 and 150 million euros 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 leverage. As I mentioned earlier, we're 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 URIBOR. Only 25% of our debt is variable, so any cost increase will be manageable. From 2027 onwards, we will generate significant free cash flow that will provide us with substantial leverage and capacity, something that you can see on slide 14. We have made the unconditional commitment to become investment grade by standard pools, as well as to maintain our investment grade status by fish. We have very high visibility of future cash flows due to the size of contracted revenues for a total of 110 billion euros. 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 deem appropriate for sell next, 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 a attractive valuation. Finally, on slide 16, I would like to highlight the speed at which we are progressing with the leveraging, thanks to the well-executed asset monetization at premium valuation. You can see here the details of our last two 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 make in all the questions. So please, the floor is yours. Thank you so much, Marco.

The first question comes from Andrew Lee at Goldman Sachs. Please go ahead.