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.

Thanks very much, Manjit. So now I'm on page 17, just a quick wrap up. As you've seen, we've had a very strong quarter and strong last 12 months in terms of organic tenancy addition with a majority towards the co-location, which is exactly what we're aiming for here. This has delivered strong EBITDA growth of 27% year over year. all of our revenues underpinned by long-term contracts amounting to 4.8 billion remaining with a 7.3 years average life before any renewals and of course our FY23 guidance as Manjit has talked through is reiterated so with that I'll pass back to Daisy for any Q&A you might have thank you thank you

If you would like to register a question please press star followed by one on your telephone keypad and ensure you are unmuted locally. If you would like to withdraw your question please press star followed by two. So that's star followed by one on your telephone keypad to register a question. Our first question today comes from Fred Brennan from Morgan Stanley. Fred, please go ahead, your line is open.

Morning guys, I had two questions, if I may. Firstly, on the tenancy ads, 1000 tenancy ads of April is obviously very strong, and the implied run rate for H2, again, very strong. You guys have previously guided on a 75% H2, 25% H1 split. What's driving the changes? Anything structurally different? How should we think about that to H2? And secondly, there have been some grumblings in the market about The health of emerging market M&Os and the very strong tendency ads this quarter obviously speaks to the strength of your customer base. Is there anything you're seeing on the ground that we're missing or that you'd like to highlight as well? Thank you.

Hey, Fred. Thanks for the question. Tom here. Yeah, look, tendency ads certainly strong so far this year with over a thousand already, which we're very pleased about. Usually we see stronger tendency ads in the second half of the year that's historically been principally driven so we've seen you know generally quite a lot of activity probably an uptick of activity from our customers all vying for new rollouts and input in sales towards the end of last year. I think you know when it comes when we report our H1s in August we'll provide you know obviously more clarity keeping that and we've got you know we've got quite a good view or visibility of achieving that range and you know we'll see what comes up later in the year as well so it's not necessarily the run rate for the first four months of the year equals the run rate for the remainder of the year but we'll provide a bit more clarity on that in August. Look, we're certainly seeing significant activity as you can see from our numbers. This is not one customer in one market. You know, good cash flow in our major customers and there's appetite for Thank you for the question. Two please, both on or no. The first bit will be just on Tenancy additions in the market if all of them are coming from Vodafone.

and what was the pipeline looking for the new entrant on the business and then secondly on a month still if you had any update regarding the reminder of the initial portfolio acquisition which i think was more focused on on small cell and some other assets if you had any update or any advance in your discussion there thank you yeah hi hi alex

Yeah, look, we're very pleased with our start in Oman. We've been adding, you know, we've been busy already adding co-location tenancies in the first few months. I believe we've added 74 so far, which is, you know, already taking the tenancy ratio from 1.20 to 1.23 just in the first few months, which is great. you know we continue to serve all of the mobile operators in that market obviously as you point out Vodafone is the new market entrant there so it has you know obviously quite a lot of work to do in terms of spreading coverage around sorry the second part of your question I didn't quite catch were you talking about the the first closing of the Oman deal can you just re-clarify that one please

I mean, because initially, if I understood correctly, the Oman deal perimeter was much larger, and that's because you basically only closed the first part of it, which was much focused on ground-based towers and, you know, basically the traditional part of a tower portfolio. But then obviously there was the leftover, which I believe was more, you know, small sale and some adjacent assets, which hadn't been closed in that first bit, but you were still working on that. So if there was like any update on that process, if it's still ongoing or if you know, we'll see in due time. Yeah.

Yeah. Yeah. No, all clear. Yeah.

So yeah, we closed on around two and a half thousand sites.

They were the more traditional ground base or roof top towers and around 200 odds in building solution have been structured as a second closing. because there's a few things we need to work through with the regulator on that so that engagement the regulator is ongoing we don't have any specific update to give on that with us the timing but we are engaged on that at the moment and do hope to still do second closing at some point whether that's this year or next year we're not sure at the moment.

Thank you. Before we take our next question, I'd just like to remind everyone, if you'd like to ask a question, please press star followed by one on your telephone keypad. Our next question is from Gustavo Campos from Jefferies. Gustavo, please go ahead. Your line is open.

Thank you very much. Congratulations on the results. I just have two questions, if I may. First one, what is your minimum cash position for 2023, as well as if you could give any updates on the working capital and the receivable build-up position since last quarter.

Thank you very much. Hi there. Yeah, so look, from a cash flow perspective, we typically like to keep cash anywhere between about 80 to 120 million. cash on balance sheet that's sufficient for holding a good amount that holds CAPE whilst also holding on to a good amount of the local level for working capital purposes whether that be CAPEX etc so they're right slap bang in that with regards to working capital more generally across the group so you would have seen your cash has slightly come down quarter on quarter that's principally driven by CAPEX and a little bit of working capital as well what you do find in the Q1 period is that with some of our biggest customers also having their full year results you do find some payments straddle period ends no bad debt issues just a pure timing piece so we are getting a lot of that come through during April and May so we are seeing a good level of receivables coming through all right thank you thank you

Our next question today comes from Rohit Modi from Citi. Rohit, please go ahead. Your line is open.

Thank you for taking my questions and congratulations on the results. Just two questions from my side. Firstly, looking at the number of African markets facing effects availability, difficulty with effects availability, are you facing any issue in upstreaming any cash to the holding companies? Secondly, on margins, I'm not sure if you can share that, but anything you can share on that. What kind of margins do you make on new tenancies which are non-anchor tenancies?

Thanks Rohit. You're a little bit quiet, but I think I got the gist of the question. With regards to the upstreaming of funds across the group, no real issues there. I mean, in general, what you do find in the earlier part of the year with all the tenants that we're rolling out, typically you are in a period where we are spending a bit more on the opcos. So a little bit less from a kind of a timing perspective, but from an ability to upstream, we're not finding too many issues on that basis. So in general, we're fine on that basis. For margins across the group we haven't given explicit guidance with regard to the year and that the reason really here is due to the escalators that come through but typically what we would see is anywhere between a half a percent to one percent per annum is what we outlined during the capital market day so that's broadly where we kind of expect things to get to but again as I went through on the escalator slide that can be slightly impacted by movements in power prices which may see an increase in revenue offset by your increases in OPEX. So that's the only piece I just flagged up to bear in mind. And with regards to the EBITDA margin of incremental tenancies that aren't your anchor tenancy, typically what we find for co-location tenants is EBITDA margin on those being around 80%. really the aim of the game for any tower company and particularly us is really around adding more tenants to your your new sites and leasing up the portfolio that is really how you drive EBITDA margin but also return on invested capital and that's what we're very very focused on thank you

Our next question is from Stella Cridge from Barclays. Stella, please go ahead. Your line is open.

Hi there. Morning, everybody. Many thanks for all of the updates. I wondered if I could just go back to this question on the cash balance. Of this 83 million that you have at the moment, would you be able to let us know exactly how much of that is sitting at the whole quote at the moment? And also in relation to the previous question about the working capital flows, I mean, do you think that in Q2 or the coming quarters you can replenish this whole coal level cash balance with some free cash flow? That would be great.

Hi, Stella. Yeah, so rough split today on the 83 is about half is at the OpCo level. So typically we try to keep about 40 million there or thereabouts at the OpCo level. Now that the holds co-balance is the one that really kind of goes up and goes down so we'll see that kind of replenish during the course of the year and with regards to comments around Q2 and for the rest of the year in short yes we do expect the cash balance to grow as we continue going during the course of the year.

That's fantastic and many thanks for that. I also wanted to ask on slide 15 when you have the breakdown of the debt in the category of these lease obligations and other and I noticed in the note that you know you're seeing this includes other items and which includes shareholder loans. I just wonder if you could just give us an idea of what those shareholder loans are and what their purpose was etc.

Yeah sure so under the definition of debt as it stands today your shareholder loans that's incorporated within here are shareholder loans that are held by third parties so when we have minority investments we often put in our investment through a combination of equity and shareholder loans

so that element that's attributed to the minority holder is also incorporated in other but the majority here in lease obligations and other is really around the ground leases okay okay that's great additional detail and and maybe just finally you know of course there's still a couple of years um two and a half years ahead of the bond maturity and just you know obviously looking at the markets it's still fairly challenging at the moment you know any kind of and decisions or thoughts you've had from a capital structure point of view in terms of strategy over the last few months that you may be able to share with us?

Yeah absolutely, unsurprisingly like most companies at the moment everyone's kind of monitoring the markets and financing options. I think where we sit today is that all options are on the table effectively so we're monitoring all the different options that are available whether that be a combination of bank debts, trying to go out the bond market etc. I think the The position that we have today and what we've created over the past few years is really diversifying our financing sources and that's really for times like this where we can look to leverage on different areas. We don't have anything to kind of announce at this point, mainly because we've got a very strong financial package so we'll sit on that for the time being and we'll look for opportunities as and when they arrive but we are kind of actively monitoring it at the moment. We keep our prospectus on ice as well effectively So that if markets do open and we think that there's a strategic reason to go, then we're ready to execute. But for now, nothing really more to announce from that perspective. That's great.

Many thanks for all the comments. I appreciate it. Thanks, Lara.

Thank you. This concludes the Q&A session of today's call, so I would now like to hand back to Tom for any closing remarks.

yeah thanks Daisy thanks everyone for dialing in thanks very much for the question if you think of any others you know where we are so please get in contact and we'll be available for you so have a great day and look forward to talking soon either at our Q2s or H1s in early August if not before thank you very much everyone