Cellnex Telecom, S.A. (CLNXF) CEO Tobias Martinez on Q2 2021 Results - Earnings Call Transcript

Cellnex Telecom S.A. (OTCPK:CLNXF) Q2 2021 Earnings Conference Call July 29, 2021 5:00 AM ET

Company Participants

Juan Gaitan - IR

Tobias Martinez - CEO

Jose Manuel Aisa - CFO

Alex Mestre - Deputy CEO

Conference Call Participants

Simon Coles - Barclays

Roshan Ranjit - Deutsche Bank

Ottavio Adorisio - Societe General

Giles Thorne - Jefferies

Nick Delfas - Redburn

Fabio Pavan - Mediobanca

Ben Rickett - New Street Research

Emmet Kelly - Morgan Stanley

Giovanni Montalti - UBS

Georgios Ierodiaconou - Citi

Andrew Lee - Goldman Sachs

Juan Gaitan

Good morning, 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 Q2 2021 results conference call in this busy day.

As always, I'm joined by our CEO, Tobias Martinez; our CFO, Jose Manuel Aisa; and our Deputy CEO, Alex Mestre, who will lead today's session.

Throughout our prepared remarks, we will refer to the results presentation we have shared this morning, and then we will open the line for your questions. Please note that this session today needs to have a maximum duration of 1 hour.

And without further ado, over to you, Tobias.

Tobias Martinez

Thank you, Juan. Good morning, everyone, and thank you so much for your time today. Let me please go straight to the main highlights of the period. Our organic growth generation continues to be strong with new PoPs on existing sites and our build-to-suit program generating 7.5% growth. Please note that the main driver behind this strong growth in the period has been the significant contribution from build to suit with around 1,000 new sites transferred in Q2 2021 and taking into consideration that we are delivering such kind of build to suit in the middle of the pandemia, which is remarkable.

We are also making tangible progress on our efficiency plan in a way consistent with the lease optimization initiatives we have been implementing over the past -- last years. The period also provides a strong financial performance with revenues increasing 47% compared to the last year; our adjusted EBITDA, 53%; and our recurring leverage free cash flow, 47%; with our EBITDA margin expanding 400 basis points to 79%.

As you know, ESG is a cornerstone of our strategy. And as such, we are making a steady progress on the initiatives set out in our new ESG master plan. An example of this is the Sustainalytics recent risk rating, improving 4 points and placing Cellnex among the top 5 companies in the telecom sector.

We are also happy to share the creation of The Cellnex Foundation with the objective to narrow the digital and social divide through projects that will improve the access to connectivity. Our intention is to create a dynamic tool at the service of people, tackling situations of vulnerability while contributing to the improvement of the environment.

Moving to capital structure strategy. In order to fund our growth, we continue keeping all doors open, and we are constantly assessing a wide array of options to maintain our financial flexibility. One example of this pragmatic approach is our inaugural bond in dollars. We have tapped the most liquid market for the first time, issuing our longest ever instrument and at a very competitive cost.

Integration is also crucial for the success of our growth strategy. In this sense, we are very happy with the progress made on our closing processes with even some deals closed earlier than expected and all our integration projects are advancing in line with our initial expectations.

And finally, we are upgrading our guidance mainly reflecting the early closing of the Polkomtel deal, and we are also reiterating our medium-term guidance with all metrics on track.

We go to Slide #3. We are showing here, for illustrative purposes, the expected profile of both adjusted EBITDA and recurring leverage free cash flow during the remaining quarters of 2021. As you can see, these magnitudes will increase every quarter as we generate organic growth, make progress on our build-to-suit programs and efficiencies plan and see the contribution from new deals as they are closed.

Our upgraded guidance implies an expected adjusted EBITDA growth of 65% and a recurring leverage free cash flow growth of close to 60% compared to 2020.

On the following slide, you can see the status of our current integration processes. And the main conclusion is that all of them are going as planned. Compared to the previous quarter, you can see that we have closed T-Infra in The Netherlands, Hutch Italian deal and Polkomtel, while we are actively working on our 2 pending closings, Hivory in France and Hutch U.K.

We have implemented a global governance model with the following characteristics: clearly, distributed responsibilities between group and countries; transversal policies, which can be adapted to the realities of each country; use of global dashboards, which allows the tracking of KPIs; and also supervisory and decision-making roles at all levels.

If we go to Slide #5, just a quick review of our current footprint and financial targets. When all of our deals are closed and our build-to-suit programs completed, Cellnex will further strengthen its position in Europe as the main independent telecom infrastructure operator, managing a portfolio of around 130,000 sites with presence in 12 markets, and boosting our financial and becoming the industrial partner of choice for our clients.

Finally, a quick reminder of our medium-term guidance, which we are reiterating. It implies an annual growth of well above 20% in our key financial metrics from 2020 and a very well-diversified expected EBITDA in 2025 of between EUR 3.3 billion and EUR 3.5 billion.

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

Jose Manuel Aisa

Thank you, Tobias. Moving to Slide 7 and providing a few more details on the period. Revenues have increased around 50% to EUR 1,061 million in the period. Our recurring levered free cash flow has increased 50% to EUR 394 million. Our total PoPs are almost double if we include the contribution from organic growth and M&A. And if we focus on organic growth only, our PoPs have increased around 7.5% compared last year as a result of the increased colocation and acceleration of our build-to-suit programs.

Please note that our PoPs do not include rent sharing tenancies or IoT tenancies. And also, please note that we maintain the guidance unchanged.

Moving now to Slide 8. The performance of our main metrics on top of the figures just discussed, our adjusted EBITDA has increased 53% compared to last year, and our margin has expanded around 400 basis points. This adjusted EBITDA growth is mainly explained by the contribution from Telecom Infrastructure Services, organic growth, build to suit and recent acquisitions, and by the efficient management of our cost base.

Payment of leases increased with a larger portfolio of sites. Maintenance CapEx is expected to converge towards our guidance, and interest paid reflects the terms of our debt structure.

The following slide explains our recurring levered free cash flow generation in the period, and you can see the contribution to organic growth on our different drivers, colocation and associated services, build to suit, escalators, and efficiencies. These elements combined generated EUR 52 million in the period, a 20% growth compared to last year. And if we also take the contribution from M&A and the rest of cash items below adjusted EBITDA, Cellnex has generated again a strong recurring levered free cash flow growth of 47% compared to last year.

Moving to Slide 10, a quick update on our efficiency plan. Please note that the site management has always played a key role in our operations, and we have a strong track record crystallizing efficiencies out of our portfolios of sites. We have renegotiated close to 1,500 ground leases contracts in the period, generated EUR 7 million of efficiencies this year so far, and we are on track to meet our 2025 target.

Moving to our balance sheet movements compared to last year and mainly explained by our M&A and capital structure activity in the period. The increase in total assets also explains the corresponding increase in equity and liabilities as a result of our last rights issue and the issuance of debt instruments in the period, respectively. And just to remind that we take a prudent purchase price allocation approach in the context of our M&A activities that prioritize the location to fix assets. So the goodwill you can see in our balance sheet does not correspond to any cash out. You will find a thorough explanation in the frequently asked questions section.

Now a quick update of our capital structure and liquidity position. We have around EUR 19 billion of available liquidity, including EUR 11 billion of undrawn credit lines; a strong backlog of contracted revenues at around EUR 110 billion; an average debt maturity of 7 years with a highly competitive associated cost of around 1.5%. The significant refining is expected before 2024. 86% of our debt is fixed. And our corporate debt has no covenant, pledge or guarantees.

And very quickly on our upgraded 2021 financial outlook in Slide 13, which mostly reflects the early closing of the Polkomtel deal. It implies an expected adjusted EBITDA growth of 65% and a recurring levered free cash flow close to 60% compared to 2020.

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

Question-and-Answer Session

Operator

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

Simon Coles

My question, the first's one on the U.K. deal. We've obviously seen the news of the CMA and the deal moving to Phase 2, but I'd love to get your thoughts on what we've seen so far. Some of the objections or concerns seem quite surprising given you are an independent towerco.

And then secondly, just on the pipeline, I'm not seeing any mention in the presentation. I'm sure there's a lot going on. Could you just give us some color and any update on what the mix of the pipeline might be and time line expectations. Is it still 12 months, and you're just waiting for the right deal? That's it.

Juan Gaitan

Thanks so much, Simon. Tobias, do you want to...

Tobias Martinez

Well, about CMA in U.K., I can tell you that is everything as expected. I mean we are in Phase 2. We understand perfectly that we have to – want to assess and to work with the CMA. It was planning. And you can see in our last capital increase, in the prospectus, we were expecting around Q2 – the closing around Q2 2022. So nothing, I think, remarkable up today. And – but well, we should expect to overcome, obviously, and to finally close successfully the transaction. But we have to work on it.

And about pipeline, about pipeline, maybe there is no relevant news if I may say. You know that we are always proactively looking for the opportunities or at least our opportunities. And again, consolidation in every country where we are today. I think it’s public information that maybe in Germany will come an opportunity, but believe me, no news as up today. Obviously, we – if there is an opportunity, we will assess seriously. But currently, we do not have additional information in order to be disclosed.

So everything, I think, on track, and so far, so good. And the company remains very active in order to improve our local presence in every country and obviously, ready to go, ready to assess seriously if there is an opportunity in Germany.

Operator

The next question from Roshan Ranjit from Deutsche Bank.

Roshan Ranjit

Two for me, please and maybe just to maybe follow up quickly on Simon's point. I think the CMA said that some of the measures presented, in their view, wasn't a viable solution. And whilst everything is tracking according to your H1 ['20] time frame, it would be really interesting to know what some of those measures you presented were and maybe why the CMA weren't comfortable with those initially.

And secondly, just moving to Italy. Now in your KPI file, you've obviously included now the Hutch Italy deal, which is closed. So it's a bit difficult to see how the organic PoP growth tracked there. Are you seeing any upside in Italy given the delays from Inwit and being able to get some of the Iliad PoPs on there? Are you benefiting there? I know obviously, you have the build to suit and you are the default provider for Iliad. But any upside there? And anything you could say would be good?

And just maybe tied on to that. Tracking with your synergy run rate, you saw a material increase in the organic PoP growth this quarter. Should we think that the synergy run rate is closely aligned to that organic PoP growth given the scope for the combination of build to suits?

Juan Gaitan

Thank you, Roshan. Maybe I will maybe reverse the order in terms of answer, so starting with your last one. Maybe short answer is too early to say. Bear in mind that it is true that we have of course set up quite a strong organic growth this quarter. We think it's just a timing effect. So you know that there is a perimeter of sites to be deployed in our anchor tenants in the context of the different build-to-suite programs. The speed at which we have been able to integrate sites this quarter has been faster than anticipated, but the perimeter is what it is. So after the completion of these build-to-suite programs, we will be able to deploy the sites that we announced at the moment of those transactions.

In terms of the progress that we are making on our efficiencies and synergies programs, we are happy with the progress. The vast majority of these savings are mostly related to ground lease renegotiations rather than synergies or build-to-suit optimization. But as we make progress and have more information, we're happy to provide a more updated picture. But as of today, we are not in a position to change our view.

Now your second question, no, I mean, we are happy with the performance that we are generating with organic growth that we're generating in Italy. We are not seeing any change or any acceleration due to any relationship that Iliad or Inwit might have. So we'll continue executing our plan, and the way we see our organic [generation] in Italy is consistent with the performance that we have posted during previous quarters.

Maybe, Tobias, on the same point.

Tobias Martinez

No, Roshan, just to, I mean, reiterate today, it's very difficult for us to provide additional information because, at the end, it's a perception, so we need to work deeply with CMA. Market assessment is key, as you can imagine, always in a filing in antitrust authorities. And we do expect to provide enough information to the CMA in order to show that maybe no one in this call maybe it's -- no one in this call is having doubts about the role -- the active role of CTIL in the U.K. market.

But again, I think we should work together with the CMA in order to make a new market assessment, which will be key. But I think the facts are clear. This is not just about opinions, so there is a new market structure in U.K. rather than the previous IPO of Vantage in the market.

But again, [indiscernible] to work on it, but let's see at the end. But just to reiterate it again, our strong, strong, strong commitment with U.K. market, with our customers as well, and therefore, for us, U.K. is a masterpiece in our Cellnex European platform.

Operator

The next question comes from Ottavio Adorisio from Societe General.

Ottavio Adorisio

A couple of questions also from my side. The first one is on the organic growth rate. You recorded a mild deceleration on revenues from new colocation-associated revenues, EUR 87 million compared with EUR 9 million in the first quarter. That is against the acceleration of the PoP. Now you also said that the PoP in -- the acceleration comes from the BTS. So I was wondering if you can give us the breakdown with the PoPs on your existing towers and the one from the BTS.

The second question is on a point you made during the presentation, the purchase pricing acquisition. Now my understanding is that the aim is to attribute the price paid to intangible that could be depreciated and provide tax shields while goodwill is not appreciated. So the further question is, is the process completed for all the acquisition you announced or is it ongoing with the auditors. And it's still ongoing in terms of the allocation of the price towards intangible versus goodwill. Could that impact the 2025 guidance that you have for EUR 2 billion to EUR 2.2 billion?

And the third is just for clarification. The CMA recent completion in turn, it's an ongoing process and totally understand that it's difficult for you to comment. But can you just give us a bit of color if that could be repeated in other countries? Or is the U.K. situation makes different because of the presence of 2 large JVs?

Juan Gaitan

Thank you, Ottavio. Very quickly on the first one, out of the 7.5% organic growth that we have generated. This is basically 2 factors. The contribution from build to suit is 4%; and the contribution from pure colocation, it's 3.5%, so consistent with previous quarters.

On the second question, Jose, you want to...

Jose Manuel Aisa

On the PPA, Ottavio, we have never changed the criteria, and you know the criteria is the following. The auditor has 1 year and the management of Cellnex has 1 year to present the amendments to PPAs that are initially recorded in our books. We have always agreed with the auditor, no change in our initial criteria of PPA. And therefore, we do not expect any impact at all in the 2025 outlook.

So I would suggest if -- to go through -- if you can go through Slide 26, for instance, that's helpful and also our semestral accounts, you will see that -- the criteria, which has not changed and no impact in recurring free cash flow at all. So the answer is super simple, no change.

Juan Gaitan

And the third question, that is maybe a difficult answer. I guess that -- but remind that we haven't gone through any European process, European [PMI] process. So all of our antitrust processes are, I think, at local level and there is to that maybe each antitrust regulator defines market in a different way. So I guess that is the situation that we are now facing in the U.K.. It's difficult extrapolate across Europe. Maybe, Alex, you want to...

Alex Mestre

Probably it’s a matter of time on actually realizing that those companies are having commercial activity, which is the case. We find them in the field, but we are going very fast. And this is true and maybe sometimes, regulators need to get their time in order to get a proper share of the market.

Also, it is true that the transaction in the U.K. was not a plain vanilla transaction. There is additional complexity with the EBA and everything to be assessed. And that’s the reason that we believe it’s normal that probably we are on the situation as we have already envisaged since the very beginning.

Operator

The next question comes from Giles Thorne from Jefferies.

Giles Thorne

I think it's probably 2 questions for Alex. The first one is on Spain and the recent spectrum auction and well, it was already signaled that MAS wouldn't participate in the 700 megahertz auction. But I just wanted to get your sense of organic growth going forward in Spain as a result of one of your anchor tenants or your anchor tenants being subscale in some of their spectrum holdings relative to peers.

And then my second question, in a similar fashion, is on Italy and Yoigo has a new owner and has spoken about a very big investment program into the network. I don't know if you've had any early sites or early conversations on how you can help them. Any color there would be useful.

Alex Mestre

Yes. Giles, thank you. In relation to Spain, look, not really we do expect here any potential reduction of the addressable market, to be honest, because MASMOVIL has been always quite pragmatic on the way that they have been approaching both, the access to frequencies and they have potential rent sharing agreements with others. Remember is that if this is translated to a rent sharing agreement, there are also revenues, mechanisms linked to that, that we will be able to capture even though we will not -- or until now, we are not reporting that as PoPs, as was previously mentioned by Jose Manuel.

In relation to the second question, yes, this is quite interesting, specifically, in general, the fixed wireless access in Italy is a very interesting market. We have Yoigo. We have Linkem. We have also Fastweb. All those are quite active on that market, which is very much perceived as a fast-track digital device action that can be done on rural areas to provide with 3.5 gigahertz, another spectrum with broadband connection.

So it is very interesting. Of course, we are having, let's say, close discussions with all those players. And we've been reporting already in the past that, let's say, that it has impact of our, let's say, commercial activity in Italy. And interestingly, we think that, that sort of model of fixed wireless access could be tractioning in other countries potentially.

Giles Thorne

But no explicit conversations with the new owners at Yoigo?

Alex Mestre

We are maintaining the active talks with the OpCos and shareholders as well. So I would say, in general, in all this arena because since being, as of now, specific for Italy, we want to be very sure that if we endorse actions and commercial activities with them, we are having the proper view in relation to our effort in order to support this type of players. But it’s a very interesting opportunity.

Operator

The next question comes from Nick Delfas from Redburn.

Nick Delfas

Around BTS optimization, could you talk to us a little bit about how many conversations you started to have and over what kind of period we might see some results from that?

Juan Gaitan

Thank you, Nick. Alex, you want to?

Alex Mestre

Yes. I think the question is in relation to build-to-suit optimization.

Juan Gaitan

Yes.

Alex Mestre

Yes. Well, no, we've been proactively -- at the moment that we are having those 2 anchors with agreed build-to-suit programs, we have been already active, and we are starting to have the first results not in order to show that increment on build to suits as the question was referring before. So that increment is not due to those synergies being captured. But we are starting to have, I would say, the first handful cases on which we've been able to demonstrate that what we were envisaging as a potential value creation lever, the build-to-suit optimization, it's actually working.

It's, as you can imagine, a process, which is not immediate because you need to negotiate the radio frequency, design plans with the MNOs in order for them to agree that what was initially envisioned is not going to be the final position of the point of presence. But yes, it will work.

Tobias Martinez

And mainly -- maybe I can add that mainly in Italy and France. Those countries are the more active ones in terms of capturing this such kind of efficiencies.

Nick Delfas

And can I just ask, for one operator who is no longer building a tower and selling it on to you and therefore, they won't be recording some kind of EBITDA benefit, is that a problem for them? Because, obviously, the ability to show revenues from build to suit on the other side or rather EBITDA on the other side is quite valuable. So how do they -- what do they get instead in terms of the structure for the party that's no longer building a site?

Alex Mestre

Well, I think what the beauty of the element is that in those build-to-suit agreement we have, as you know, there are several modes and schemes on which we have agreed build to suit with our anchors. We have levers by which we can do a share – a fair share of the value creation on all of that.

So if there was a potential revenue on our anchor side to be created with this build to suit, we intend to honor that. However, in any case, there is the CapEx savings that will be – will not be required anymore. So – and with all those levers that we have, not all the cases are identical. We are finding the way to have the proper incentive by the MNO to engage in those discussions.

Operator

The next question comes from Fabio Pavan from Mediobanca.

Fabio Pavan

Thank you for taking my 2 questions. The first one is on the European recovery plan. We have heard in recent days some operators is already starting to have some discussion with the countries, government countries on these plans. I was wondering if you already started to have some conversation, if there is something you can share with us.

And the other question is on an update on the discussion. You said in the past you would have had with your existing customers what concern potential inclusion in the agreement of the active equipment.

Juan Gaitan

Thank you, Fabio. I will take maybe the first one. There is no tangible progress on this. As you can imagine, I mean, we are [indiscernible] the different processes. We are doing our homework, coming up with the quite long list of projects that we think might be reasonable for these funds. We are also aware about everything that our clients are saying. We might agree that this could be a very good opportunity, but I guess in terms of a tangible process on how European countries will be setting up the rules of the game, nothing new I would say.

On second question, Alex...

Alex Mestre

Yes, in relation to the augmented tower company, well, as you can imagine, we are tractioning very well discussions with everyone because MNOs are intrigued on what we’ve been doing with Polkomtel and everything. So there are a lot of conceptual discussions being on the table as of now.

Nevertheless, let’s not forget that we have just got the keys of the factory a few days ago. So we are now on the process of also understanding the deep implications on providing this type of services, on understanding if there are some fine tunes that should be done on the value proposition to other players, the different schemes on maybe just doing that on a region, area or getting the full active equipment for one operator.

So we are having that. As we have already mentioned in the past, this is – it’s going to take some time, and we are very prudent on the way that we want to scale up this – the activity.

Operator

The next question comes from [Garrett Hollis] from BNP.

Unidentified Analyst

So the first one, a couple of your peers have been talking about seeing inflationary OpEx pressures as they renew their maintenance contracts on sites, and I think this partially relates to some of the Huawei swap-outs. So when it comes to some of your maintenance OpEx and CapEx looking forward, how much do you outsource to the spend? And are you seeing any inflationary pressures?

And then on the second one, just more broadly, the pace of the BTS, you're obviously making good progress. But when you've closed deals recently, you've commented this is back-end loaded, and we've seen such progress coming from these results. I was wondering kind of why and how this is accelerating.

Juan Gaitan

Thank you, [Garrett]. I can maybe try and then start – you can complement, Alex, please. Typically, when we announce a transaction, you know that there is the initial acquisition of an existing portfolio of towers but also we have build to suit. And maybe, at the moment, we have limited information on the actual needs of the client in terms of future densification needs. Then what happens is that at the moment that we’ll start working closely with the client. We’ll find the opportunity to accelerate this deployment.

So it’s just – I guess it’s a combination of the densification needs of our clients. Maybe they need to have the sites ready earlier than we expected but also at the moment of announcing the deal, a prudent approach. So that’s why we have been saying that our initial expectation was back-end loaded completion of these programs. So it’s just mostly timing.

On your first question, short answer is no. I mean we are not seeing any – also bear in mind that, I mean, obviously, we are working in telecom sector. We are following everything that is going on, but also our business model is quite different from that of our clients. And we are not seeing the – basically, we are not seeing what you mentioned.

We have our – not really OpEx but linked to our activity leases. But if anything, that has been the object of a quite important efficiencies program. So I would say that, in general, we are not seeing any inflationary pressure on any of our OpEx or lease items.

Operator

The next question comes from Ben Rickett from New Street Research.

Ben Rickett

I had a question on the Italian emissions restrictions. So you've been growing colocation tenancies very strongly in Italy in recent years. And I was just wondering, has that growth been restricted by the emissions restrictions there?

And then secondly, I know there's been some political noise around whether those restrictions will be lifted. It would be great to understand your expectations for whether they will be lifted this year or in the near future.

Alex Mestre

Yes. We never factorized any regulation change so far. What has been in the past also being posed. And we – when we came into a country, we take what it is, and we want to build based on what it is.

So however, on that point, we have sometimes a mixed, let’s say, feeling because when there is the possibility to raise the colocation – the emissions, the colocation, you may expect, could also go high but also could go higher in rent sharing. Whereas because of rent sharing, as you know, there are additional carriers on the same side, so the emission being radiated is also increasing.

In the event that this is not possible, another site may be required nearby at, let’s say, reasonable distance in order not to affect the radiations around the original site. So this is also generating a new demand for densification as Juan was also mentioning before.

So that’s the element that we do see, and we believe all the MNOs in Italy have been already considering. So all those that we are thinking on doing rent sharing, that may be having an impact. That’s possible. And they may require a physical PoP at a certain distance from the original one in the case of Italy. So the players that we’re thinking of doing so, maybe that could potentially happen to them. So there will be less rent sharing, more physical points of presence. So maybe it’s not that bad.

Operator

The next question comes from Emmet Kelly from Morgan Stanley.

Emmet Kelly

Yes. I have 2 questions, please. The first question relates to build to suit and covering whites and gray spots in Spain. I know that you've partnered with REE to fund the rollout of independently owned MAS in rural parts of Spain. Can you maybe just say a few words about this project and how big it could be? Would it run into the thousands of potential new sites? And maybe just also mention maybe some sensitivities around the project because I know you are competing with the consortium that is made up of your telco customers. So does that pose an issue or not?

And then the second question is I think something that's similar to what I asked last quarter. You've already announced a few contracts to cover railway across Europe, and you've been pretty successful in this area with the rail projects on London Brighton, ProRail in the Netherlands, Spain, et cetera. Can you maybe just say a few words about the outlook for this market, especially with the European recovery fund in play?

Alex Mestre

Yes. Thank you, Emmet. Look, in the first question, well, you mentioned that we are competing with our clients. Well, that’s not really the case. So what we are always willing is to cooperate, to find the best way in order to ensure that what the – this project is actually looking after is best served with the minimum resources and not overspending.

Here, we have, let’s say, the Spanish government that has yet to, let’s say, release the public tender proposals. And maybe the public tender will already face the situation on different ways that we may have initially envisaged with REE or the MNOs themselves have initially envisaged or even the vendors because the sources for the funding could be devoted to passive, to passive plus active or both of them or just one of them.

So what we know is, on this standby mode, proposals, as expression of interest, have been already presented to the Spanish government. I think the Spanish government has a very clear idea on what can be done or not, and that will be translated in a tender process. So hopefully, we’ll be in a position to have a really cooperating project around that, and that’s what we really expect to happen.

Then on the second question in relation to transportation lines. Look, we believe that this has life on its own even without recovery funds because it’s a real demand. And we have started, let’s say, working around that. As you know, even the sad situation of the pandemic actually happened. Independently from the recovery fund, we expect to be in a position to, let’s say, provide good news in the future around that in other areas where we are, let’s say, commercially pushing for developing this type of services.

With the recovery funds, yes, it is true. You are well aware that there are also expressions of interest in relation to that. And we feel the public administration is very sensitive to the topic as well. So yes, we remain inclined to think that this is going to be an interesting path for growth for Cellnex.

Operator

The next question comes from Giovanni Montalti from UBS.

Giovanni Montalti

You were mentioning that, I mean, in a market for SWA, particularly developed and you think there may be similar opportunities in other European markets. Is there any other markets you would flag in particular?

And also, why do you think the Italian market has moved so much ahead of, let's say, European average in terms of SWA? Is this linked with, I don't know, the quality of the fixed coverage in certain areas or competitive dynamics? Or I mean anything you could share with us, that would be helpful.

Alex Mestre

Look, where else this could be deployed and maybe just referring to public information, so we've been hearing some initiatives in the U.K. in relation to that. So that will be, let's say, an area where we would potentially benefit because we are having presence in the U.K. And in a few other countries, also, let's say, there is this push for this fix -- especially with 5G at 3.5 gigahertz and with new frequencies like 26 and -- band that may be coming in the future.

So the reason why this is happening in Italy, well, that's a very interesting question. I think there is probably an entrepreneurial origin in all of that, in order to cover, let's say, areas where the fixed broadband was initially not yet arriving and that has been endorsed by strong investors, all those entrepreneurs around this type of activities. And we believe that if you look at the investors behind of those initiatives, those are international players that will also help potentially to spread the type of services beyond Italy and those early initiatives in other countries.

Giovanni Montalti

If I may have a very quick follow-up. Unfortunately, I missed part of the call, so I may go back to something you have already discussed. Apologies for that. But we've seen a big acceleration on your organic growth in terms of PoPs, however you are reiterating the guidance where you're not, let's say, improving the guidance. Is this just because you want to keep some marginal, let's say, flexibility? So there could be room, let's say, to maybe improve it later on? Or I mean shall we expect this improvement in terms of organic growth to continue in the coming quarters? So how should we think about it? Again, apologies if you've already discussed this.

Juan Gaitan

Not a problem, Giovanni. No, this is – what we have highlighted is that this is just a timing effect in Q2 only. We have seen around 1% of new sites being integrated coming from our build-to-suit programs. So that is also putting upwards pressure on our organic growth.

Also, as we have been mentioning before, out of this 7.5% around 3.5% is coming from pure colocation, so [indiscernible] and the additional 4%, which is linked to these 1% new sites is coming from build to suit.

So again, it’s just an acceleration in the quarter of the build-to-suit efforts. But again, I mean, we are not changing the total scope for these reasons of the build-to-suit programs and then difficult to anticipate future performance. In any case, that’s why we want to stick to our medium-term guidance because in terms colocation generation are in terms of the total scope of the build-to-suit programs that we have on the table. Nothing is really changing.

Operator

The next question comes from Georgios Ierodiaconou from Citi.

Georgios Ierodiaconou

I actually have 2 follow-ups. The first one is just a follow-up on the question Giovanni asked around the build-to-suit programs. I appreciate you haven't upgraded the mid-term guidance. Perhaps you want to confirm expansion of the build-to-suit programs before you do that. But perhaps if I can ask the question a bit differently, is the phasing of the build-to-suit programs different from what you are expecting? Is it more front-end loaded? Or are you seeing any perhaps indications that there may need to be more rollout plans from some of your clients and what you expected 6 or 12 months ago?

And then the other question is just a clarification on one of your answers earlier to Nick's question around the efficiency programs. I just want to clarify, when you do approach your partners and agree to more efficiently roll out their networks, am I right in assuming you will still buy 2 separate sites through the build-to-suit program, but you will coordinate their efforts so they are based on the same physical site? Is that the way to think about those? So they're still [2] BTSs, but then you get the efficiency for the colocation.

Juan Gaitan

Thank you, Georgios. I will maybe start with the first one. Nothing, with the information we have today and also maybe looking at the rest of the year, 2021, maybe it is to that the progress is a bit more front loaded compared to the information we had when we provided the medium-term guidance. So this is something -- this is maybe an effect that we are anticipating for 2021 only.

Other than that, let me reiterate that we are not changing the total amount of sites to be deployed. So this is just a timing effect. And of course, I mean, we haven't reached any binding agreement to go beyond what we have announced to the market. If over the course of the conversation that we are having with our clients we identified that there is an additional opportunity, of course, we will provide that information. But as of today, the scope of what we have on the table, the scope of our build-to-suit programs is still the same. It is simply that, in the coming quarters, maybe you see an activity a bit more front loaded than initially expected. Alex?

Alex Mestre

Yes. And on the build to suit, I think on our 2020 results presentation on the annexes, Page 29, there was 1 slide trying to illustrate the different synergies because not only is the build to suit against the build to suit that may actually be safe here. It's a build to suit against a legacy site that we may be having from a -- on the portfolio or could be between 2 legacy sites.

So in the case of build to suit, which, if I understand correctly, this is what you were asking for, we do not build the 2 sites and then we do movement of the 1 of the 2 sites. We avoid building one of the sites. So this means there are 2 types of savings: first of all, the ground lease of 1 of the sites; and secondly, the CapEx for building 1 of the sites. And this is the way we approach this build to suit against build-to-suit synergies. I don't know if that helps.

Operator

Next question comes from Andrew Lee from Goldman Sachs.

Andrew Lee

I had 2 questions. One was a follow-up from the last 2 questions, just on the underlying organic growth. I get that build to suit was responsible for a large chunk of the uplift, but if we strip out build-to-suit, the underlying organic growth ex build to suit actually improved a bit, too. Just wondered if you can make any comments on that and the co-tenancy growth and demand you're seeing. I know that 5G CapEx peak run rate is still a while away, but if you're seeing any kind of change in behavior from operators, that would be great.

And then the second question is just on fiber to the tower. No contracts signed since the week 1 at start of 2019. I think you mentioned a few months ago that there was a chance to maybe sign a new contract or 2 similar to that in the coming quarters. Just wondered any progress on that and how we should be thinking about it.

Juan Gaitan

On your first question, the answer is no, we are not seeing any change in underlying trends. The 7.5% growth is due to a timing effect. We have been integrating build-to-suit sites at a faster speed compared -- at least compared to Q1 2021. But in terms of pure colocation, new tenants on existing sites, we'll continue to provide a consistent performance. 3.5% this quarter, this compares to 3.2% in Q1, so quite consistent. And this is the sort of speed that we are also expecting for the following quarters based on the information that we are pursuing from our clients.

Alex Mestre

Yes. In relation to the fiber to the tower, what we perceive, which is happening now in the market, is that the real need for the fiber came when 5G is massively in usage, which does not mean that you power up one 5G site. What we are realizing is that many of the MNOs are still using radio frequency links to power up one 5G, and the fiber maybe envisaged in the future because the traffic being generated by this 5G is very small because the number of handsets yet being available. So there are very few handsets yet in the market. So therefore, the traffic that this 5G has to be handled, it’s small enough to reduce the backhauling to the tower that was already existing before powering up one 5G.

What is clear is that, at the end, the fiber will be required because the bandwidth, when you have all the frequencies per site, will require another means of backhauling every site beyond the radio frequency link, which is what today is being used. So the market is there, but what now is being put as priority by the MNOs is just powering up 5G because it’s also part of their regulatory obligations, and the backhauling will come later on.

Operator

Thank you very much. There are no further questions. Ladies and gentlemen, thank you for joining. We have reached the end of the conference.

Juan Gaitan

Thank you so much. Take care. Bye-bye.