Helios Towers plc

Hello everyone and welcome to the Helios Towers Q1 2023 results call. Thank you for standing by. My name is Daisy and I'll be coordinating your call today. If you would like to register a question, please press star followed by one on your telephone keypad. I would now like to hand the call over to your host, Tom Greenwood, the CEO to begin. So Tom, please go ahead.

Thanks very much, Daisy. so hello everyone and welcome to the Helios Towers Q123 performance and 2023 outlook call and as usual great to have everyone on the call today I hope you and your families are well and thank you very much for your time today first up on page two we've got the usual lineup of me Tom Greenwood the CEO, Manjit Dhillon our CFO and Chris Baker-Sams our head of strategic finance and investor relations so moving swiftly on now to page five for our highlights very pleased to be providing you this update today of quite frankly a strong start to the fy 23 year firstly our business is around 30 larger than we were a year ago with revenue and ebitda growth of 34 and 27 respectively It's largely being driven by site and tenancy growth of 30% and 24% respectively. And secondly, this is the first full quarter with all nine markets fully reflected following closing our Oman deal in December, meaning we moved into 2023 with the full complement of the newer parts of the portfolio. Our key focus for 2023 continues to be driving organic growth and return and this Q1 we started exactly how we wanted to delivering record organic currencies both in Q1 alone and over the last 12 months and this has been driven through sales and rollout activity across multiple markets and multiple customers which is very good to see Our FY23 EBITDA guidance remains consistent with what we communicated in March being in the range of 350 to 365 million representing a midpoint of 26% year-on-year which includes 13% organic growth. Now the inorganic part of this is simply just a full year of the Oman and Malawi deal which we closed last year. This is already in the bag. The organic part is largely driven by our guidance of 1600 to 2100 new organic tenancy additions this year. And we're one third of the way to the midpoint on this with 628 Q1 new tenancies by the end of the first quarter. Our pipeline is strong and we're confident of delivering within our full year guidance by year end. and in fact April has continued strongly with the addition of 400 more tenancies in that month meaning right now we're over a thousand tenancies on a net addition basis by the end of April and finally as a reminder as we move forward we've got a very strong earnings base of 4.8 billion contracted revenue all of which contain CPI and power price escalators which represent a weighted average of 7.3 years remaining, and this is before any renewal, providing us with a very strong earning space for many years to come. So now moving on to page six, we see the strong progression of some of our key metrics over time, following the 628 new dependencies in Q1, of which the majority were co-locations we see our tenancy ratio has increased 0.03x quarter on quarter to 1.84 at the end of Q1 and furthermore our annualized EBITDA and LCM portfolio free cash flow of 339 million and 227 million respectively both showing significant growth from FY22 reported numbers and as you can see are already both approaching the lower end of our full year 2023 guidance. All in all then, very pleased with our operational and financial start to the year. Next up on page seven, I'll give you updates on our sustainability strategy where we continue to be triple A rated by MSCI and striving for best in class practices In March, we released our fully integrated FY22 annual report, which merged our previous sustainability report into the main one, demonstrating how financial performance and sustainable impact are inextricably linked for our business. We've also taken steps forward around double materiality analysis, emissions reporting, social impact as measured by population coverage, and also introduce sustainability measures into our 2023 LTIP KPIs, meaning that all management across the group are financially incentivized in delivering on certain non-financial KPIs for the business, including female representation, population coverage and carbon reduction. We're very pleased to be moving forward in the year with the new LTIP and its KPIs within it. and with that I'll hand over to Manjit now to take us through the financial section and look forward to speaking to you in the Q&A at the end.

Thanks Tom and hello everyone. It's great to be speaking with you all today. I'll be going through the financial results and starting on slide nine. Continuing on from what Tom mentioned earlier we have once again delivered a strong quarter adding 628 tenancies in Q1 and delivering record year-on-year organic tenancy additions of 1,870. On this slide, you'll see we've summarized the main KPIs, which I'll be going through in more detail over the next few slides. But in general, we're seeing continued strong financial and operational performance and good growth across a number of our key metrics. So moving on to slide 10, our site and tenancy growth. From a site perspective, we saw a 30% increase year-on-year reflecting organic growth of 654 sites and 2,519 acquired sites in Oman. Year on year we've added 4,887 tenancies which is a 24% increase from a year ago. Now this growth is through a combination of our acquisition in Oman and the strong organic growth across all of our markets. Importantly we have a robust commercial pipeline and continue to expect strong momentum in Q2 and the remainder of the year. with over 1,000 tenancies now rolled out year-to-date. Our tenancy ratio has dropped slightly on a Greek basis and this is largely driven by a lower tenancy ratio of the acquired site in Oman which has a tenancy ratio of 1.2. On an organic basis, our tenancy ratio increased by 0.05x despite the ongoing site rollout with both our East and West and Central and Southern Africa segments expanding by 0.05x year-on-year. all again reflecting our strong operational delivery in our existing market. On to slide 11, we've seen a 34% revenue growth and 27% EBITDA growth year on year, up 17 and 11% organically respectively. The revenue growth is principally driven by tenancy additions across all markets, in addition to CPI and power escalators, which I'll come on to in more detail on the following slide. Adjusted EBITDA grew by 27% year on year, and in line with our expectations provided at our full year results, we're seeing good acceleration in our organic EBITDA growth, expanding 11% year-on-year. And this is principally due to robust performance in Tanzania within our East and West Africa segments. In our Central and Southern Africa segments, we saw a slight decline from prior year and that really reflects the FX movements in Ghana, which were largely offset by CPI escalated. Our EBITDA margin declined by 2 percentage points year-on-year to 50%. and the margin decrease here was mainly driven by higher power costs we've seen both an increase in our revenues and to our Paris Graces and our OPEX comparatively or comparably and therefore having a margin decline which I'll go on to in more detail now. So moving on to slide 12 here we set out the walkthroughs of our revenue and EBITDA progression year on year for Q1 2023. We've shown this detailed breakdown last year and again now we're showing this to really show how our robust business model works in action. The first four bars of each bridge, organic tenancy growth, power escalation, CPI escalation and FX all combine to make up organic growth and acquisitions being the contributions from new markets. The record organic tenancy growth of 1,870 year on year has driven the 8% growth in revenue and 11% growth in EBITDA. But I want to again take a minute to focus on escalation movements. As a reminder, we have escalators in almost all, well, in every customer contract in all of our markets. For power, roughly 50% of our contracts have quarterly power escalators, 50% annual. These escalate in relation to the local pricing for fuel and electricity. So if the local prices go up, then the escalator goes up. If they go down, then the escalator goes down. For CPI, we have annual CPI escalators, which typically kick in between December and February although we do have one or two that escalate slightly later in the year. Year on year we've seen that on average local fuel prices have increased by about 30% year on year principally driven by DRC and Tanzania which has accordingly increased revenues by 8%. As mentioned in previous announcements we've created a robust business model by design and structured the increasing revenues to effectively offset the increased OPEX due to higher power prices to protect our EBITDA on a dollar basis. On the left hand side you can see the power revenues increased by 10 million and that falls through to flat EBITDA on the right hand side. So from a margin perspective there is some dilution because the EBITDA margin on the power price movement is lower than that of the overall group margin and in this case diluted margin by 3 percentage points. However, in a period of macro volatility where we've seen power price increases we've been able to keep our dollar EBITDA roughly flat. meaning our contracts are escalating effectively and offset the OPEX impact of higher power power movement movements. Moving on to CPI and FX local CPI is currently just north of 10% with our CPI escalators which kicked in during Q1 our revenues are now up 5%. The CPI escalators have effectively offset the FX movements on revenue and on the EBITDA side the escalators have well covered the FX movements as well. So I think once again this is a useful demonstration of the business mechanics and standing back and looking at this from an EBITDA level, you can see here quite clearly the key driver of growth is tenancy addition. So here we present the usual breakdowns, which is very consistent from previous updates. 98% of our revenue coming from the large blue chip M&O's comprising mainly Airtel Africa, Voda, Axion. We have strong long-term contracts with our customers and at the end of Q1 we had long-term contracted revenues of 4.8 billion with an average remaining life of 7.3 years. Thank you for watching. above our medium term target of 3.5 to 4.5 and this is really linked to the closing of the Oman market which closed at the end of December. However we do expect net leverage to be in or around the high end of our target range EBITDA growth. As it stands today we have ample liquidity we have roughly around 460 million of available funds comprising 83 million of cash on balance sheets and about 375 million of undrawn debt facilities. Importantly our debt is largely fixed with the majority of the drawn debt at a fixed rate. All of this is long-tenured debt with the nearest maturity for group debt not until December 2025 and the average remaining life of our drawn debt more than four years. Finally, on to slide 16. We've maintained our full-year 2020 guidance with no change to expectations. Given our robust tenancy growth and pipeline, we're targeting organic tenancy growth between 1,600 to 2,100 for the full year. That implies a growth of about 7% to 9%. regarding adjusted EBITDA in the range of 350 to 365 million reflecting our strong commercial pipeline dependency growth and continued operational improvement portfolio free cash flow is expected to be in the range of 230 to 245 million implying a 66 percent cash conversion at the midpoint as mentioned earlier capex is expected to reduce significantly to a range of 170 to 210 million of which 40 million is expected to be non-discretionary So as you can see we're targeting another record year for 2023 and this simply demonstrates the robustness of our business model through macro volatility as well as the compelling structural growth of our market. We've made a fantastic start to the year and we're really excited about the opportunities ahead and with that I'll pass back to Tom to wrap up.