Helios Towers plc

Hi everyone and welcome to the Helios Towers H123 performance and outlook call. Very good to talk to everyone today as always. I hope your families are well and thank you very much for your time today. So first up on page two we've got the usual lineup for you of me, Tom Greenwood, CEO, Manjit, our CFO and Chris Baker-Sams, our Head of Strategic Finance and Investor Relations. I'll run through some highlights, Manjit will take us through the financial and we'll be open for Q&A at the end. So now to page five for our highlights. So today we're reporting a very strong first half of the year and tightening our guidance upwards for the full year. Many of the trends that we reported in Q1 have continued, perhaps even accelerated slightly. We've grown revenues in EBITDA 32% and 28% respectively with organic EBITDA being at 13% up for H1 year over year. We've also delevered by 0.3x in the quarter to 4.8 and we're on track to reach around 4.5x by the year end. So very pleased with the performance of the business so far this year. Our financial performance has been driven principally by our tenancy growth, increasing site count by 30% and total tenancy by 26% year on year. A large contributing factor here being the closing and the integration of our Oman acquisition last December. But very importantly, our organic growth is the best it's ever been. We've added over 2,300 organic tenancies in the past 12 months. which includes around 1400 in the six months year to date and this represents our highest page one volume ever. We're seeing continued strong rollout from multiple customers across multiple markets showing the strength of the diversity of our portfolio both from a country and customer perspective meaning we're not reliant on a single customer or single country for our growth. In addition to a strong H1 we've also got a robust pipeline for H2 meaning that we're tightening upwards our guidance for the full year as shown on the right hand side EBITDA and portfolio free cash flow increasing by 5 million each at the bottom end and tenancies tightened to between 1900 to 2100 up from the previous 1600 bottom end and as always our future revenue base is significant with around five billion dollars of committed revenue corresponding to around seven years worth with all the usual CPI and power price protections embedded and the majority being in hard currency. Now moving on to page six to take a quick look in more detail at some key metrics which are progressing well. our Q2 annualized EBIT dollar and portfolio free cash flow figures of 356 million and 234 million respectively, as you can see, and now both around the lower end of our Titan guidance. So I would view this as a very good place for us to be in Q2, given we've got two more quarters of growth remaining for the full year. Similarly, ROIC at 10.5% is now at the midpoint of our guidance at the midpoint of the year. Moving to page 7, we wanted to highlight here the embedded returns growth of our portfolio assets over time and somewhat dissect some of the noise around ROIC created by a mixture of more established versus new markets. So here we show the ROIC for the opcodes bifurcated between the more established markets and the new markets and the trend over time. On the left, we can see that for our side established market, Tanzania, DRC, Congo, Ghana and South Africa, ROIC started off around 3% and is now up significantly over time to over 15%. And we've added roughly one percentage point per year to the ROIC in these markets. And this, by the way, is still very much growing. Then on the right hand side, You can see we started off mid-single digits on ROIC and are expecting to see similar ROIC growth per year as we've seen for our older, more established markets. And we've had a very strong start in all four of our new markets, as shown on page 8. Through demonstrating our exceptional customer service capability, we've fast become the trusted passive infrastructure partner for all key mobile operators in these markets. This has led us to increasing site counts and tenancy ratios almost across the board which in turn has delivered significant double-digit EBITDA growth for all four new markets as we show on the right hand side. Our teams across the group are focused on continuing our service delivery quality and in turn keep growing our EBITDA and ROIC at a fast pace as we move forward. And now onto page nine, looking at our wider sustainability strategy and KPIs. I'm very pleased to say we continue to be recognized as top ranked by agencies, including MSCI, FTSE for Good and Sustainalytics. MSCI and FTSE for Good recently reaffirming us in these positions. And in fact, this course of Sustainalytics has reduced our risk rating from medium to low, reflecting the progress we've been making in this area. On the right, you can see we're making good progress against all of our non-financial KPIs on which management are financially incentivized and cover areas such as digital inclusion, people development, diversity and carbon reduction. Finally, as an FYI, we're busy incorporating our four new markets into our carbon targets and we'll be looking to release updated targets encompassing all nine markets early next year. At this point, we'll have a year's worth of data for all the new markets, hence this timing. And with that, I'll hand over to Manjit to the financials and look forward to talking to everyone for Q&A at the end. Over to you, Manjit.

Thanks, Tom. And hello, everyone. It's great to be speaking with you today. I'll be going through the financial results and starting on slide number 11. Continuing on from what Tom mentioned earlier we have again delivered record organic tenancy additions and strong performance across all key operational and financial metrics. This really puts us in a fantastic position for the second half of 2023 and accordingly we have tightened our guidance upwards and I'll be speaking about that later in the deck. On this slide you'll see that we've summarized the main KPIs which I'll now go through in more detail over the next few slides. So moving on to slide number 12, our site and tenancy growth. From a site perspective, we saw a 30% increase year on year, reflecting organic growth of 657 sites and the 2,519 acquired sites in Oman. Year on year, we've added 5,334 tenancies, which is a 26% increase from a year ago. This growth was through a combination of our acquisition in Oman and also strong organic growth across all our markets. with 2,317 year-on-year organic tenancy ads, which is actually our highest ever year-on-year movement on record. And for the Oman operation, this has really integrated well into the business. And so far, year-to-date, we've added a total of 175 organic tenancies, which is a great start. Our tenancy ratio has dropped slightly on a group basis, and this is largely driven by the lower tenancy ratio of the acquired sites in Oman, which on day one had a tenancy ratio of 1.2, but we've actually already increased that to 1.27 which again is a fantastic start so far. On an organic basis, our tenancy ratio increased by 0.08x despite the ongoing site rollout reflecting our strong co-location delivery in our existing markets. Moving on to slide number 13. We've seen strong, we've seen a 30% revenue growth and 28 EBITDA growth as Tom mentioned year on year, up 20% and 15% organically respectively. The organic growth is principally driven by tenancy additions across all of our markets, increasing our Q2 revenue by 10 percentage points, in addition to CPI and power price escalators, also increasing our Q2 revenue by another 10 percentage points. Adjusting EBITDA grew by 28% year-on-year, and in line with our expectations laid out at the beginning of the year, and we're seeing good acceleration in our EBITDA growth across all three segments. Organic growth, as I mentioned, expanded 15% year-on-year, while inorganic growth contributed the remaining 13%. And again, that's predominantly coming from the Oman market. Our Q2 margin has stayed flat at 15%, at 15%, I should say. On a constant fuel price basis, however, our Q2 adjusted EBITDA would have been 53%, supported by our growth and tenancy ratio expansion. However, due to higher fuel prices, which increased both our revenues through power price escalators and OPEX comparably, Margin has remained, has diluted by three points and remained at 50%. And moving on to slide 14, I'll dig into this impact in a bit more detail. And on this slide, we set out walkthroughs of our revenue and EBITDA progression year on year for Q2 2023. This should now be quite a familiar slide and demonstrates our now proven resilience to FX, CPI and power prices. The first four bars of each bridge, organic tenancy growth, power escalations, CPI escalations and effects all combine to make up organic growth and acquisitions being the contributions from new markets. The record organic growth of 2,317 tenancies year on year has driven the 10% growth in revenue and 13% growth in EBITDA. I'll take a minute now just to drill into the escalation movements. As a quick reminder, we have escalated almost every customer contract in all of our markets. For power, roughly 50% of our contracts have quarterly power escalators, 50% annual escalators, and these escalate in relation to the local prices for fuel and electricity. So if local prices go up, then the escalator goes up, and if the prices go down, then the escalator goes down. For CPI, we have annual CPI escalators, and they typically kick in between December and February, although we do have one or two that escalate slightly later in the year. We continue to see local fuel price increases, and that's principally been driven by DLC, which has accordingly increased revenues by 8%. As mentioned previously, we've created a robust business model by design. We've 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 that the power revenues increased by 11 million in Q2 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 movements is lower than the overall group margin, and in this case, diluted margin by 3 percentage points. However, in a period where we've seen significant power price increases, we've been able to keep our EBITDA roughly flat, meaning that our contracts are escalating effectively and offset the OPEX impact of higher power prices. Quickly to touch on CPI and FX. Local CPI is currently just north of 10%. which has resulted in revenues increasing by roughly around 5%. The CPI escalators have effectively more than offset the FX movements on revenue and on the EBITDA side. So again, the escalators have covered the FX movements very well. I think this bridge shows a useful demonstration of our business mechanics. And again, standing back and looking at this from an EBITDA level, there is little to no impact to FX and power prices. And we're well protected from macro volatility. with a key driver here being growth and tenancy additions both organically and inorganically and operational improvements and both of which are under our control and how we want the business to operate. Moving on to slide 15. You'll see the usual breakdowns again provided which is actually very consistent from previous updates. 98% of our revenues come from Blue Chip mobile network operators comprising mainly Airtel Africa, Vodacom and Orange alongside other M&Os such as Axon and Omantel. It's worth highlighting that our largest customers are spread across a few markets, showing how diversified our business is. We have strong long-term contracts with our customers and at the end of the year, we have long-term contracted revenues of $4.9 billion with an average remaining life of 7.1 years. That's up 17% from $4.2 billion a year ago. Again, this means excluding new wins and rollouts, we already have that revenue contracted and in the bag and provides a strong underlying earning stream to the business. We also have 64% of our revenues in hard currency being either US dollar or euro pegs and 71% when looking at it from an adjusted EBITDA perspective. Again, providing a fantastic natural FX hedge for the business and this is further complemented by the escalators which I've just spoken about. Finally on this slide, with the new market expansion in the last couple of years, we're seeing a more diversified split of revenues with the Middle East and North Africa segment now representing 8% of our H1 revenues. Moving on to slide 16 and taking a look at our cash flow. As mentioned earlier, we've seen portfolio free cash flow of 125 million, up 24% year on year. And as you can see, the cash generated is almost covering both our interest expense and all of our discretionary capex, meaning that the group is bridging closer towards being adjusted free cash flow neutral slash positive. With regards to working capital, as expected and communicated at the Q1 results, We've seen an improvement in working capital with receivables days decreasing from 57 to 49 days. Receivables can be lumpy and timing of payments can straddle period ends. So whilst we always aim to reduce receivables days, the days can move period on period due to this. However, generally they've remained within a relatively tight range and movements are due mainly to timing rather than any bad debt issues. And as always, we have disciplined cash flow management and capital allocation is top of mind. which brings us to slide 17 which shows a summary of our capex. On the left hand side of the table in H1 2023 we incurred total capex of $93 million which is mainly made up of growth capex reflecting again our strong organic tendency growth in the first half of the year. 93 million roughly trends in line with where we expect to be at the full year i.e. driven mainly by tendency rollouts. In terms of 2023 guidance, the capex range given the great organic tenancy rollout we've had so far this year and the organic tenancy rollout we expect for the rest of the year, we've increased the low end of our previously announced guidance by 10 million, increasing from 130 million to 140 million, with the top end of the range remaining unchanged. Additionally, worth pointing out that non-discretionary capex has remained unchanged at 40 million. So as you can see now in our CAPEX guidance, now that we've gone through our key phase of expansion and acquisition integration, for the rest of 2023 we'll be focusing on organic growth, leasing up our expanded portfolio and keeping CAPEX tightly controlled as always. Moving on to slide 18, and our net leverage at the end of H1 2023 has decreased by 0.3x to 4.8x. Whilst this is still above our median term target range of 3.5 to 4.5, this is driven by the closing of the amount transaction, as I've mentioned previously. We do expect net leverage to be in or around the high end of our target range by the end of the year, so near enough 4.5x by the end of the year. We have a clear pathway to deliver the business at about 0.5x per annum on an organic EBITDA grade perspective, and we're on track to deliver that. As it's starting today, we have ample liquidity and have 420 million of available funds, comprising cash on balance sheet and undrawn debt facilities. Importantly, our debt is largely fixed with 80% of drawn debt at fixed rates, which is long 10 years with average remaining life of around four years. We're pleased to say that we're in a comfortable position with ample time remaining on our facilities. But again, as previously mentioned, we do actively monitor our options and opportunities. And should we look to press ahead with anything, it will be for strategic reasons, which is a great place to be in. Onto slide 19, looking at guidance. As Tom mentioned earlier on the call, we've made great progress on our 2023 goals and, accordingly, we've tightened our full-year guidance upwards. Given our robust tenancy growth and strong commercial pipeline for the remainder of the year, we've adjusted upwards the low end of the organic tenancy guided range. So we're now targeting between 1,900 to 2,100 compared to 1,600 to 2,100 prior guidance, implying year-on-year growth of about 8% to 9%. For adjusted EBITDA, the low end of the previous range has been tightened by 5 million, with the updated range being 355 million to 365 million. And accordingly, portfolio free cash flow has also been tightened upwards by 5 million, again, moving to 235 to 245 million. And this is really due to the great expectations on tenancy growth. And as a consequence, the legislation through CAPEX is also edging up slightly on the low end. But again, non-discretionary CAPEX remaining the same. In general, it's been a fantastic first half of the year with various key metrics hitting records and we're very, very excited about the opportunities ahead and this looks to be another record year for Helios Towers. And with that, I'll pass back to Tom to wrap up.

Thanks very much, Manjit. So just on page 20 now for the key takeaways. I think pretty clear messages today, to be honest. We're executing on our 2023 goals. acquisitions integrated, organic growth accelerating, EBITDA growth significant and net leverage stepping down, business model obviously robust with our hard currency mix, contractual protections and attractive customer and market dynamics with our strong positions and in our market and of course FY23 guidance being part of that. So with that, we'll pause. I'll hand back to Nadia and we'll do some Q&A. Thank you, everyone.