2016 has been a year of progress in realising these challenges.

When it was floated in 2015, Cellnex identified four key strategic challenges on which the company aimed to focus, in an attempt to respond to the aim of sustained growth (diversification and internationalisation) and sustainable growth (capability to manage and integrate this growth) to ensure the competitiveness and attractiveness of the project in both the medium and the long term.

2016 has been a year of progress in realising these challenges. The key milestones include:

1) Transform the company

a. management processes

• Rolling out the “Apollo” programme with its 4 main dimensions: (1) “adaptation” to a new environment that requires a review of the structure, functions, governance and adaptation of the teams’ capabilities; (2) “focus” to ensure day-to-day management and sustained and recurring value creation, and to systematise criteria for the incubation and maturation of new business lines and the integration of new markets; “facilitating” and enabling the company with processes and information systems that are well adapted to a more complex and multi-management environment; and “maximising” value creation, optimising performance with an efficiency plan that will be rolled out until 2020. These four dimensions are developed in turn through 21 different initiatives ranging from strategy to people and the organisational model, processes, systems, operations and commercial activity.
• 2016 saw the implementation of the “talent management” model, christened “the Hub” and aligned with business strategy. A competency and leadership model based on each co-worker’s contribution to achieving results has been defined on the basis of the corporate Vision and Mission. This methodology provides indicators of talent and indicators of improvement and development since it minimises the subjectivity of personal assessment to compare progress made between the periods analysed.

Cellnex has added almost 1,800 new sites to its portfolio in the wake of the growth operations materialised during the year in Italy

b. corporate governance

• Start of the process for selecting and appointing a new independent director whose ratification, which is put to the Shareholders’ Meeting for financial year 2016, reinforces our compliance with Corporate Governance recommendations by increasing the number of independents to five out of ten, which are thus a majority in the Board, since they join the four proprietary directors and the Executive director. Likewise the company is also progressing in complying with the recommendations on gender diversity in Governance bodies.
• Creation of the Ethics and Compliance Committee from the existing Ethics and Crime Prevention Committee.
• Updating and adapting the Internal Code of Conduct to the new requirements arising from the new Market Abuse Regulation.
• Amending the Bylaws to facilitate the attendance of shareholders at meetings, reducing the number of shares required for attendance from 1,000 to 100. The company is thus responding to the objective of improving transparency and facilitating access of small shareholders to its governing and oversight bodies.
• During 2016 Cellnex also formalised (1) the Communication and contact with shareholders policy; (2) the Board remuneration policy; and the Corporate Responsibility Plan (2016-2020) accompanied by the Corporate Responsibility Policy.

c. Cellnex culture

• Cellnex’s Culture flows from its mission, vision and values and is implemented through internal communication and training programmes and development programmes for company teams applied continually throughout the year and involving all the areas and functions of the organisation in a cross-cutting way.2) Mantener el impulso hacia la internacionalización.

The acquisition of Italian company CommsCom not only strengthens Cellnex’s competitive position with regard to the networks densification projects by Rolling out 4G and 5G.

2) Maintaining the momentum towards internationalisation

• Cellnex has added almost 1,800 new sites to its portfolio in the wake of the growth operations materialised during the year in Italy (CommsCon); Netherlands (Protelindo and Shere Group); United Kingdom (Shere Group); and France (Bouygues Telecom). These agreements reinforce the concept of a European platform allowing the company to establish partnership agreements with customers that, like Cellnex, operate in these various markets and countries.
• 2016 was the first full year with the portfolio of GALATA assets fully integrated into the Cellnex portfolio. Both from the point of view of key performance indicators and from that of integration of Cellnex’s operations processes and systems, the results are fully in line with expectations, and are an improvement on the forecasts made at the time of acquisition (March 2015).

3) Combining growth and consolidation

• Agreements with companies like Sigfox (IoT networks), Eurona or Linkem (in Italy) for wireless broadband mobile access in difficult to access sites, contribute to improving the occupancy ratios of the infrastructures rolled out. Adding to location services contracted with key network access operators.
• The acquisition of Italian company CommsCom not only strengthens Cellnex’s competitive position in Italy but, by incorporating their teams’ know-how in rolling out DAS and small cells network, it gives the Cellnex group a clear competitive edge with regard to the networks densification projects by rolling out 4G and 5G (from 2020) and improves the coverage and actual capacity of service in public high-traffic areas.

4) Meeting expectations: maintaining investor confidence

• Revenue growth in the overall business lines, improving market expectations (+15%)
• Solid EBITDA growth (+23%)
• Leveraged recurring free cash flow for the financial year grew 29%: € 1.08 per share compared with € 0.65 per share at the close of 2014.
• The debt structure remains strong and protected from market fluctuations: 86% at a fixed rate, an average cost of 2.1%, and average maturity at 7 years.

The higher rate of co-location achieved by independent operators reduces the need to build more towers, speeds up rollout, reduces implementation costs and cuts life-cycle costs for the network operator.

Future prospects. The great opportunity of the Digital Single Market

Telecommunications are and will be an essential asset for the economy, employment and innovation in Europe. That is why the European Commission is working on a “Strategy for a European Digital Single Market”(http://europa.eu/rapid/press-release_IP-15-4919_en.htm) based on the following main objectives.

• Better access for consumers and businesses to online goods and services across Europe
• Creating the right conditions and a level playing field for advanced digital networks and innovative services
• Maximising the growth potential of the Digital Economy

In the Commission’s view, a fast and reliable fixed and mobile internet connection is increasingly important for education, health care, industry and transport, as well as for Europe’s economy and competitiveness.

Framed within this strategy and in order to offer more and better internet connectivity for all citizens and businesses by 2025, the Commission proposes three strategic connectivity objectives for 2025:

• 1 Gigabit access (Gigabit Society) in schools, universities, research centres, transport hubs, hospitals, administrations and enterprises etc.
• 100 Mbps access for all European households, rural or urban, which can be upgraded to Gbps.
• 5G coverage for all urban areas, major roads and railways. As an intermediate target, in 2020, 5G available in at least one of the major cities in each EU Member State.

These objectives were presented by President Juncker during his State of the Union speech in September 2016: “We need to be connected. Our economy needs it. People need it. And we have to invest in this connectivity now”.

The speech was also accompanied by an ambitious review of EU telecoms rules, with new initiatives to respond to Europeans’ growing connectivity needs and to boost European competitiveness. These aim to encourage investment in high-capacity networks and accelerate access to public wifi for Europeans.

In this strategic framework, the concept of sharing networks operated by infrastructure operators appears as a “catalyst” or an “accelerator” of this rollout and the associated investments since it lowers entry barriers in retail supply and fosters competition for end-user level services. It is also an efficiency tool that reduces the overall costs of operators in a context in which competition itself involves ever-smaller commercial margins.

Within this framework, it is worth noting that mobile operators in Europe are driving a process of outsourcing their infrastructure, as a result of by three main factors:

• Optimising OPEX
• Monetising assets
• Strategic refocusing

The higher rate of co-location achieved by independent operators reduces the need to build more towers, speeds up rollout, reduces implementation costs and cuts life-cycle costs for the network operator.

In terms of Smart/IoT network services, we are expecting a sea change that will lead to new networks for security and emergency services, operation and maintenance, and the Internet of Things.

The infrastructure operator model has also shown that independent operators can cut operating costs because they achieve better management of passive infrastructures.

The role that an infrastructure operator such as Cellnex can play in a scenario designed to facilitate the emergence of the Digital Single Market amounts to its capability - on account of its independence and neutrality in relation to the operators offering services to end-users - to offer solutions to streamline and simplify the telecommunications infrastructure map by increasing connectivity for citizens. This can help to make these operators more efficient, make better use of the networks and speed up time to market in rolling out new generation infrastructures and networks that facilitate public access to new services and solutions that are worthy of an advanced digital society and economy.

Three main fronts

Cellnex will act as a facilitator within the DSM (Digital Single Market) on three main fronts- mobile broadband infrastructures, broadcasting, and Smart networks services / IoT.

As concerns Telecom Infrastructure Services, the short-term goal is to be facilitators for the rollout of Heterogeneous networks, or HetNets. This new paradigm is based on interoperability between technologies and infrastructures to provide ubiquitous coverage able to meet the connectivity needs of any service. The result is the creation of a heterogeneous network comprising large “traditional antennas” but also involving new, smaller ones with greater density, for example integrated into urban fixtures. In this connection, Cellnex’s fundamental long-term objective involves positioning in 5G and the opportunities for managing new networks posed by this technology.

In the audiovisual sector, both radio services and DTT, the strategic challenge is to find the right fit between traditional and experiential broadcasting. The possibilities offered by new networks can have a significant impact on this front and open up a wide range of possibilities for development. In the long term, these possibilities will enable user interaction, synchronisation of various devices, among many other applications.

In addition, in Brussels there is talk of the need to define an industrial strategy for the European audiovisual, cultural and creative sector that would ensure the sustainability of the model in Europe, a model that generates 6.8% of GDP and 6.5% of employment in the Union and is the guarantor of pluralism, freedom of expression and social cohesion. In this regard, the forthcoming publication of the final text of the Decision by Parliament and the Council on the UHF band, which includes the explicit guarantee of access to the DTT spectrum at least until 2030, represents a clear signal to the sector, providing it with long-term security to enable the players to continue to invest and to innovate.

In terms of Smart/IoT network services, we are expecting a sea change that will lead to new networks for security and emergency services, operation and maintenance, and the Internet of Things.

In fact, the third pillar of the DSM aims to maximise the growth of the digital economy - which requires rolling out smart infrastructures: Small Cells, wifi access points, security and emergency services, infrastructure for connected cars, etc. Within that environment, an infrastructure operator can facilitate, streamline and accelerate roll-out by efficiently connecting objects and people.

Given the significant growth of data services and the importance of improving the European public’s access to high-speed broadband, Cellnex can play a vital role in cutting the costs of network deployment and improving access to high-speed broadband across Europe.

This model has the following benefits for the economy:

• Lower costs for network operators;
• Improved connectivity to the digital world for citizens.
• Streamlining the rolling out of infrastructures, reducing environmental impact and optimising resource management.

GRI: G4-DMA, G4-2, G4-14, G4-45, G4-46, G4-47, G4-SO3