Helios Towers plc

Hello everyone and welcome to the Helios Towers H1 2022 results. My name is Nadia and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. I will now hand over to your host, Tom Greenwood, CEO of Helios Towers to begin. Tom, please go ahead.

Thank you very much Nadia and welcome everyone today. Great to be speaking to you and thank you very much for your time. I'm on page two in the presentation. As usual, alongside me we have Manjit Dhillon, our CFO, and Chris Baker-Sams, head of strategic finance and investor relations. So the presentation takes a normal format. I'll take you through some of the key highlights. Manjit will take you through some of the financial details and then we'll open up for Q&A at the end. So look overall, very pleased to be presenting you our H1 performance highlights here. I think it's been a really strong start to the year for us, demonstrating both the continued growth and sort of rollout from mobile operators across our market Combining that with demonstrating the company's resilience and protection mechanisms embedded within our contract with some of the uncertain macro environments out there, plus some really good progress on our sustainability strategy. So look, I'm on page five now, which just shows the key highlights. As mentioned, number one, very strong tenancy growth, both organic and inorganic. So far this year, we've delivered 24% year-on-year site growth, of which 9% is organic and 20% year-over-year tenancy growth. In terms of last 12 months, organic additions, so year-over-year organic additions, we're at 1,767, which for a 12-month period in our business is fairly strong. In terms of our financial performance, obviously that is showing similar traits to the tenancy performance. Revenue up 25% year over year, 12% organic. EBITDA up 19%, 9% organic. Our margin of 51% as very much expected given some of the dilution with the new acquisitions coming on board and for Q2 was our first full quarter of Malawi which we closed right at the end of March. The margins very much were expected and very strong portfolio fee cash flow growth of 36% as well which we're very pleased with. In terms of our Progress on the M&A as everyone knows I think we have Oman and Gabon that we're still working on Oman is nearing completion with the license hopefully coming soon imminently now and Gabon we continue to progress of course we're fully funded more than fully funded for closing these announced deals and finally our tenancy additions as we guided to the start of the year 1200 to 1700 we maintain that guidance from now but you know I think are confident of it and have a good good pipeline such that we may be looking at more directionally for mid to high points here moving on now to slide six here again we see the last few years progression obviously tenancies growing 9% year-over-year and up quite significantly from 2020. Our EBITDA again growing 15% year-over-year when you look at the Q2 annualized of 278 million and to show good progress from our FY21 figure of 214 million and of course portfolio free cash flow driving that upwards by 20% when compared to the full year of FY21. So all in all we're progressing sort of in line or slightly ahead of expectations and we're pleased with the progress so far this year. But now move on to slide seven. Clearly we're at a time of the world where there's quite a lot of uncertainty out there and some of the headline figures that everyone's reading about, particularly say in the UK or US from an inflation point of view is looking quite staggering as compared to the last few years or even last few decades. But what we wanted to do on this page is really draw out some of these features of our markets, which may be a little bit different from some of the headlines that people are reading in the UK or US. but also demonstrate how our business is very robust and protected against certain macro pricing movements out there. So look first of all on the left-hand side what we're seeing at the moment and as sort of demonstrated I guess from our H1 tenancy rollout we're seeing good rollout from our customers as I mentioned before we also have a good pipeline in hand for the second half of the year and even going into next year You know, and subscriber growth across our market really is very strong at 4.4%. which you know as demonstrated here by some of our key customers as well they're clearly investing and you know we're supporting all of our customers in their continued rollout to gain even more subscribers going forward so there's quite a good kind of industry backdrop if you like within most of our key markets. You then couple that with the general macro GDP and actually across our markets on average GDP forecast is 5% so you compare that with global forecast of 3.2% and actually you know a number of our markets are growing very strongly and some indeed are actually net beneficiaries of the increase of sort of mineral and commodity and foodstuff prices that we're seeing so they're actually getting quite a lot of inflows We do have some markets though where such as Ghana and Malawi where we have been seeing a bit more FX volatility and sort of CPI increases but of course our business is largely insulated against those through A our CPI and general sort of power price escalators that we have and B our hard currency mix. So again our business and our contract is largely hedged against those. And of course, finally, there's the rising interest rate environment. Well, we have long-term debt at fixed rates, so we're not looking at any refis or anything like that around now. And of course, we're already fully funded for our position. So again, we're in quite a strong position out there from a both business operating perspective and a capital stroke balance sheet perspective, again, underpinned by 5.3 billion of contracted revenues from our customers. So, you know, business in a fairly strong position, I would say. Moving on now to slide eight, look, a quick reminder on the recent acquisition. Journey we've been on the first three Senegal, Madagascar, Malawi obviously now closed. Malawi off to a really good start having closed just at the end of March and really getting off to a good start in Q2 both operationally with power uptime improving. We're building sites now having received our first large build-to-suit order as well as colo order and you'll see that coming through later this year and into next year. As I mentioned earlier, Oman is very much nearing closing. We have extended the long-stop date with Oman Tiles to September 30th, albeit what we have would guide to is the simplicity in all your models and forecasts, just put Oman starting from January 1st. Just given the slightly unknown timing that we've been experiencing there, I think that would be prudent to do so. So that would very much be what we recommend there. And of course Gabon is moving. I would say Gabon, earlier in the year we were moving quite well. I think with the discussions there with the regulator, obviously alongside Airtel, that kind of slowed a little bit the last couple of months. We still very much are working on it but it has slowed down from earlier in the year but we continue to push on with that as well. Moving on to page nine and you know Senegal was the first acquisition in our recent acquisition journey and we recently had our anniversary there so we thought it'd be good just to highlight some of the key features of our first year operation there and you know I would say it's really been a good success Senegal and continues to be so here on the top right you see Kareem who's our Senegal managing director and Phil who's our regional CEO who covers Senegal and supports Kareem and the team there and the team has really done a great job over the past year or so first of all operationally we've improved Power downtime per tower by 96% since starting. When we took over the network, the downtime per tower per week was 5 minutes, 57 seconds. We've reduced that in a year to 14 seconds. And you can see a very nice comment there by the CEO of our main customer. Senancy growth has been good 7% and you know that continues we will be seeing further Build the Suit rollout and Polo rollout through H2 this year in Senegal so that's moving well and then obviously EBITDA growth has been strong at 12%. What I would say though is remember Senegal uses the Central African franc which is Euro pegged so what this EBITDA growth represents The 21 million there you see in Q2 that's euro EBITDA. Now euros depreciated 9% against the dollar since we closed. So actually on a constant currency basis you see that 21 million actually about 23 Thank you for joining us. And indeed next year what we'll present to you at one of these calls will be a roundup of all of our recent acquisitions in the same vein as this. Moving on now to slide 10, I mentioned earlier we're making really good progress on our sustainable business strategy and I'm very pleased to say that we received our first rating from MSCI which actually was triple A which I believe is their top ratings and we were very pleased about that so huge well done there to Seema our head of sustainability along with Manjit and to be honest a huge amount of the team from across the group who contribute to this. and also we've been included in the FTSE for good index you can see there on the bottom left again demonstrating our strong focus on sustainability practices and processes across the group. As you will remember we launched our sustainable business strategy at our capital markets day in May and you know that is generally progressing well through to 2026 On the right hand side here what we've done we've actually just shown you a few of the kind of internal KPIs that we're looking at and these cover everything from sort of network performance to rural So these are the kind of KPIs that we follow internally and we thought it'd be useful to show them here. So look, without further ado, I'll hand over to Manjit to take us through the next section. Over to you, Manjit.

Thanks, Tom. Hello, everyone. It is great to speak with you all today. I'll be going through the financial results and starting on slide 12. Continuing on from what Tom mentioned earlier, we've had a strong first half of the year, and that really reflects continued organic tenancy growth, complemented by integration of our acquisitions in Madagascar, Senegal and Malawi. On this slide, you'll see that we've summarized the main KPIs, which I'll be talking through in more detail over the next few slides. But in general, we're seeing good growth across a number of these key metrics. So jumping into the detail and moving on to slide 13, our site and tenancy growth. Again, we've seen strong organic and inorganic tenancy growth in Q2. From a site perspective, we saw a 24% increase year on year. reflecting organic growth of 9% which is plus 878 sites and complemented by 1,213 acquired sites across Madagascar and Malawi. From a tenancy perspective we've added 3,459 tenancies which is a 20% increase from Q2 2021. Organically we added 1,767 tenancies again a 9% increase year-on-year and inorganically we added 1,692 tenancies again coming from Madagascar and Malawi. Our tenancy ratio has dropped slightly on a group basis and this is due to the lower tenancy ratio of the acquired sites that we've bought on board which had a combined tenancy ratio of 1.4x so diluting the overall tenancy the overall group tenancy ratio slightly. Excluding these acquisitions our tenancy ratio has remained flat year on year and that really reflects the strong site growth across our market which provides an enlarged base for driving lease up and therefore returns going forward. On to slide 14, we've seen continued growth in revenue in EBITDA with 27% revenue growth and 19% EBITDA growth year on year up organically 14% and 9% respectively. The revenue growth is principally driven by tenancy additions in addition to a 3% increase in lease rate for tenants. The lease rate per tenant movement reflects a 4% increase across our established markets and partially offset by our new markets coming in with lower lease rates on average. Adjusted EBITDA grew by 19% year-on-year, 9% organically, again really driven by organic tenancy growth of 9% and again contributions from our new markets. EBITDA margin declined 3 percentage points year-on-year to 50% for the second quarter with one percentage point being due to increased corporate SG&A investments as part of our ongoing expansion to 10 markets which we've already included as part of our overall guidance for the year. The remainder of the margin impact is driven by the timing of higher fuel costs, particularly in DRC. There can be a lag between the local fuel price increasing when we escalate customer lease rates for those increases and so that's what we've seen a little bit in the quarter a bit of a higher opex base from fuel increases in q2 but of course that will normalize as our customer escalations kick in in q3 and there afterwards moving on to slide 15 excuse me where we highlight how the macro environment has evolved across our market and demonstrate how our earnings and revenue is well protected from these movements so starting on the top left of the table with fuel We can see that on average local fuel prices are up 31% year-on-year in 2022. We have power price escalators embedded in all of our customer contracts and accordingly seen a 4% increase in our revenues. Some of the more recent local price increases, again specifically with DRC, occurred shortly after the last contract escalation date, so there's been a bit of a lag in catch-up, however we'll see further quality escalations kick in in Q3 and Q4. From a fuel perspective though, the escalators have worked such that the revenue increase has broadly offset the increase in OPEX, so largely EBITDA neutral from a dollar perspective. Local CPI is up 6% year-on-year in our markets, which is actually lower than what we've seen in the US and UK for example, and that's principally driven due to markets at Tanzania where we're seeing inflation around the 4% level year-on-year. Our revenues are up 3% from our CPI escalators, which occur annually and that's in line with what we would expect given that just over half of our customer lease rates are tied to CPI. Further currency movements on a revenue blended basis, we've seen a depreciation against the dollar of approximately 3% and as Tom mentioned that's principally related to both movements in the Euro and also the Ghanaian Sedi. With circa 50% of our revenues either being in Euro pegs or in local currency denominators, That impact on our revenue base is just under 2%. So here we see the CPI escalators offsetting the FX impact really quite effectively with minus 2% FX impact being offset by 3% CPI increases. So whilst there have been macro movements, the contracts have escalated as expected, which when combined with 9% revenue growth from organic tenancies and 14% from inorganic growth leads to 27% year-on-year revenue growth. Moving on to slide 16. Here you'll see the usual breakdowns provided which are very consistent from previous updates and again further demonstrate our robust business structure underpinned by long-term contracts with a diverse quality customer base with strong hard currency earnings. 98% of our revenue come from large blue chip MNOs comprising mainly Airtel Africa, MTN, Orange, Tigo, Axiom, Voda and Free Senegal. Our single largest customer exposure is 27% and that's spread across five different markets. We have strong long-term contracts with our customers and as at the end of H1 we had long-term contracted revenues of 4.2 billion dollars with an average remaining life of 7.2 years. This increases to 5.3 billion pro forma for Oman and Gabon and what this effectively means is that excluding any new wins and rollouts we already have that revenue contracted and that provides a strong underlying earning stream to the business. We also have 63% of our revenues in hard currency, being either US dollars or Euro pegged. As a reminder, this will increase to 68% pro forma for the announced acquisitions, which is due to close, which from an EBITDA perspective translates to 73% in hard currency. So a fantastic natural FX hedge for the business. And again, this is further complemented by escalators, which we have in all of our customer contracts, which we demonstrated on the previous slide. Finally on the slide with the new market expansion we're seeing a more diversified split of revenue per market and pro forma for acquisitions no single market accounts for more than 32 percent of revenues. Moving on to slide 17 and a look at our cash flow as mentioned earlier we've seen solid free cash flow of 100 portfolio free cash flow of 100 million this is up 36 percent year-on-year and that's principally driven by adjusted EBITDA growth in addition to the timing of non-discretionary capex. Portfolio free cash flow conversion was 74%. By year end, with further non discretionary capex outflows expected in H2, in line with our capex guidance, we expect this to be a touch lower towards 65 to 70% conversion level by the year end. With regards to working capital, we've seen a 53 million working capital outflow. And that just reflects the timing of customer payments, which is lumpy and can straddle period ends. And that's typical for our business. and finally some working capital is also raised to capex prepayments as we go into the second half of the year. Importantly receivable days remains in the range of 45 to 55 days which you've seen is consistent over the past few years. On to slide 18 and a look at capex. For H1 we incurred total capex of 132 million. This includes 43 million of acquisition capex principally related to our entry into Malawi and 89 million of organic capex. Our guidance for the full year remains unchanged and that reflects 650 million related to the acquisitions across Oman and Malawi in addition to some deferred considerations for Senegal and Madagascar. Our organic capex guidance remains unchanged at 160 to 200 million and we've incurred 89 million against that in H1. Non-discretionary capex remains again unchanged at roughly 30 million for 2022. So far we spent 9 million in the first half so the majority should come through in H2. Moving on to slide 19 which shows a summary of our financial debt our net leverage at H1 was 3.9x and continues to be comfortably within the target range of 3.5 to 4.5 we do expect this to tick up towards the higher end of the range as we close the other markets during the course of the year as we previously discussed but in general leverage very much under continued tight control as it stands today we have currently have 730 million of available funds which is sufficient for our announced acquisitions and our organic growth which for our established markets is self-financing. One thing to mention as well which Tom spoke about earlier is that we partnered with Rikiza in Oman, a great local infrastructure investor with significant local experience and expertise. They're investing 30% pro rata in the local business which not only de-risks the investment for us but assists with our leverage. So a great overall development and we look forward to working with and partnering with Rikiza over the coming years. Another good development to mention Last month we worked with Fitch for our first rating and received a rating of B plus for the stable outlook. This rating, which is our highest across the rating agencies, reflects our recent diversification to new markets, our leading market positions and long term earnings and cash flow visibility. And we are now rated by all three rating agencies. Finally, a quick comment on balance sheet. We sit on a very strong balance sheet with long term debt, as Tom mentioned, with the nearest maturity for drawn group debt not until the end of 2025. Our drawn debt has awaited average remaining life of four years. We have very limited floating exposure for 96% of drawn debt being fixed, again, giving us good protection against the rising interest rate environments. Overall, we're in a great position to say that if we do choose to do any financings or refinancings, we'll be doing this for strategic reasons and, where possible, continuing our trend to reducing the cost of debt. And finally, onto slide 20. Again, as Tom mentioned, our guidance remains unchanged and the group continues to target organic tenancy additions of 1,200 to 1,700 in 2022. We have exceeded our seasonality guidance for H1 with 675 organic tenancies delivered year to date. From a financial perspective, we're tracking inline or ahead with guidance with lease rate for tenants at 3% and EBITDA margins at 51%. So all in all, we're progressing well against our targets and remain very focused on continued delivery for the years ahead. and with that I'll pass back to Tom to wrap up.