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.

Thank you. And our first question today goes to Emmett Kelly of Morgan Stanley. Emmett, please go ahead. Your line is open.

Yes, thank you very much. Good morning, everyone, and thank you for taking my questions. My first question is on POPs growth just for Helios as a group. Historically, H2 has been stronger than H1. So how should we think about H2 POPs growth for the remainder of this year given the very strong H1 you've already recorded and given the new guidances in place? And my second question is kind of related to the first one. It's on DRC. POPs growth has been particularly strong in the first half. Can you say a few words on what's driving the tenancy growth here and how sustainable these trends are going forward please? Thank you.

Hey Emmet, Tom here. Thanks very much for the questions. Yeah, look, so we've been very pleased with the progress in H1, clearly. I think H2 is also looking strong. We have a strong pipeline. and, you know, to be honest, that pipeline is actually now extending beyond H2 and, you know, we're starting to look at planning tendencies for 2024 as well. So, you know, for now, we've upped our bottom end of our guidance, as you've seen, to 1900 to 2100. When we report our Q3s, we'll give you any further update on that. But, yeah, now focusing on on the guidance range for now but yeah and decent pipeline growth for next year actually as well which is good. And yeah look DRC clearly having a strong period at the moment. I think you know with DRC and you know to be honest a number of our other markets are the same. There's a very good mix of mobile operators in the market with Vodacom, Orange, Airtel and Afracell. There's a fairly level playing field when it comes to market share in that market and the population is about 100 million and about 40 million people still live in areas with zero cell coverage today. and so on. Therefore, there's a lot of coverage demand going into new areas and doing new builds, build to suit, but equally in the big cities in DRC, and I was actually in Kinshasa a few weeks ago, there's a huge demand for data and technology. 5G trials have now started in Kinshasa. I was actually roaming on 5G when I was there a few weeks ago and of course that brings the need for more densification in the cities as well as extra equipment and amendments on existing sites. So all of that really is a you know very Good environment and of course us being the largest tower company in the country with 65% or so of the towers today puts us in a good position to capture a lot of that growth coming.

Super, thanks very much Tom.

Thanks on it.

Thank you. And the next question goes to John Caradis of Numis. John, please go ahead. Your line is open.

Thank you. Good morning, everyone. And warm congratulations to the entire team for this, another set of good results. So, very good results. So, I'm being really picky, so I apologize for this. What's happening with Tanzania in terms of sites and tenancies? on a quarter by quarter basis, they seem to have gone backwards. Can you give us some visibility there, please?

Yeah, sure. Hey, John. Yeah, in terms of this relates to a small operator who we removed from the site. So to be honest, barely any financial impact. If anything, as you've seen from the financial numbers in Tanzania, from a year-over-year perspective, revenue and EBITDA are both up about 20% and quarter-on-quarter, revenue is up 2% and EBITDA is up 3%. is over 300 so yeah so that was effectively just a one-off where we removed a bunch of small operator equipment from sites and so that's reflected in the tenancy numbers virtually zero impact on the financial.

Thanks Tom and then lastly could you update us a little bit on the progress you're making on the uptime metric across the footprint, where you are and where you're headed, please.

Yeah, absolutely. You mean on the power uptime metric?

Yes, sir.

Yeah. Yeah. Yeah, yeah, yeah. Absolutely. Yeah. So look, at the moment, I think we actually state this on page nine. So yeah, we're at 99.98% uptime across the entire portfolio. so that's up 0.01% from last year and you know obviously this is now encompassing all of the new markets and you know it's great to see actually in all four of the new markets for example we've already delivered significant improvements in the power up time across all those new four portfolios since taking them on which obviously is part of the reason mobile operators will outsource to us. So, yeah, so we're making good progress and, you know, I expect that to continue to improve. We've set ourselves a fairly tough task of hitting 100% by 2026 or just shy of 100%, I should say. But, yeah, we're on track for our longer-term goal on that one as well. That's great. Thank you again.

Congrats to all of you. Thank you. Thanks, John. Cheers.

And our next question goes to Giles Thorne of Jefferies. Giles, please go ahead. Your line is open.

Thank you. It was a question for Manjit and picking up on the commentary around reaching the top end of your leverage channel this year and then deleveraging if everything goes to plan by further 0.5 times every year thereafter. So it'll be interesting to get an update on under what conditions exactly, Manjit, you would consider Thank you for the question.

Yeah, so look, I think we still want to be tackling towards the middle end of the range, at least in terms of the leverage, but buybacks at the current share price does actually make a lot of sense. So we're certainly kind of reviewing that option. We think it's highly undervalued. So we will be kind of monitoring that over the short term period. And yes, absolutely. It's our desire to pay a dividend in the short to medium term as well. So as long as we continue to deliver, getting within our desired range, preferably towards the middle of that at least, then we would absolutely start to look at some kind of shareholder disbursement, if not a little bit sooner.

That's great. Thanks.

Thank you. The next question goes to Rohit Modi of Citi. Rohit, please go ahead. Your line is open.

Thanks for the opportunity. Some of them are already answered, so a couple of follow-ups actually. Firstly, in Tanzania, when you talk about, you know, you have to let go one of the operators from your network. is this the part of your already part of baked into your guidance earlier when you announced the guidance you know early in the year or this is kind of a one-off so you know your tenancy growth in the first half is actually much higher than what you were expecting in the first you know at the start of the year. Secondly on return on capital employed you mentioned 10.5 percent ROIC if possible can you give any color and what is the ROIC on your matured markets like Tanzania and DRC and what is your RIC in the new markets like Oman and Madagascar, that would be really helpful. And thirdly, on the leverage side and also the shareholder remuneration, just want to understand now the priority will be M&A or shareholder remuneration going forward. Is there a change in the view there? Thank you.

Hey Rohit, yeah no thanks very much for the question, so yeah first one the answer is yes, yeah so that's sort of within the guidance and you know obviously the net tenancy ads so far this year of around 1400 obviously reflect that already so that's all there and accounted for. Regarding the the ROIC, yeah so if you look at page seven in our presentation. The chart on the left reflects the established markets that Tanzania, DRC, Congo, Bigana and South Africa. Tanzania and DRC are by far the largest out of those five markets. So the 15.5% ROIC that you see there for H1 is largely reflected of Tanzania and DRC. And then on the right hand side, you see the blended I think that gives a good sense of kind of where we're starting from and, you know, as we move forward and have co-locations and tenancies. They should be picking up as well. On page 8, we show the EBITDA CAGR so far of the four new markets, all of which are very strong. So Senegal, 14% CAGR, Madagascar, 16% CAGR, Malawi, probably a little bit of an outlier as it's 38% CAGR, and then Oman at 15% CAGR. and that's, you know, I would say very strong start in all four and that will obviously start to be reflected in the ROIC as we move forward. And then, sorry, your third question. Sorry, can you just repeat that, please?

Sorry, third question. Priority will be leverage or shareholder return. As you mentioned, you're also considering shareholder return in some time. I'm just trying to understand what you will consider, like M&A versus shoulder return.

Yeah, absolutely. Well, look, as Manjit mentioned previously, you know, as we move forward on this trend, clearly, you know, reasonably soon there starts to be surplus cash in the business. Now, it will always come down to decision at the time, but but for sure getting to be a dividend payer and or doing a share buyback is clearly where the business is heading and we'll continue to monitor that as we move forward both looking at external opportunities as well and weighing that up but certainly becoming a Our next question goes to Stella Cridge of Barclays. Stella, please go ahead, your line is open.

Hi there. Morning, everyone. Many thanks for the update as well. I just wanted to follow up on those prior questions regarding the intentions to look at shareholder returns. I'm just wondering when you're looking at the bond market or borrowing rates at the moment, how will you balance, say, accumulating some cash ahead of the maturity in 2025 versus the other potential options that you mentioned just there? That would be great. Thanks.

Thanks, Stella. Manjit, do you want to take that one?

Yeah, absolutely. Hi, Stella. I hope you're well. We'll have to look at the balance at the time. I mean, clearly, it's all dependent on what rate we can get for a potential refinancing of the bond. So as we get closer to that decision point, we'll have to review it at that time. But all things being equal, we are now getting into a point where we'll have an inflection point where we're really starting to generate good capital. and we'll be able to in our opinion be able to do both potential pay downs but also look at actually distributing capital to shareholders so we should be able to do a bit of both in short but again it all comes down to the decision point of time it also comes down to what opportunities are available for the company in terms of organic and M&A growth as well so we have to look at it on a case-by-case basis but from what we can see today we think there'll be the potential to do both deleveraging and also and some former shareholder disbursement in the short-term income tax.

That's great. Many thanks for those comments. I mean, in terms of the work that you've perhaps done since the last quarter, do you get a sense at the moment that there might be potentially more attractive options in the loan market at, say, either potential whole-co level or versus the bond market? Just wondered where that's kind of heading in terms of cost of funding as well.

Yeah, it's a good question. So we continue to engage with both bond investors, convertible investors, and also the loan market. And I think that there are certainly opportunities in all three of those, actually. The loan market certainly does offer a few opportunities that we are exploring at the moment. So yes, in short, there does seem to be some potential opportunities in that space. But again, we do also Thank you very much. and which is expanding. We have a well-known bonds universe and now convertible universe. So it means that we've got a few different strands that we can pull out.

That's great. Many thanks for those extra comments as well. Thank you.

Thank you. Our next question goes to Lino Schaus of P2 Asset Management. Lino, please go ahead. Your line is open.

Hey, thank you very much for the question. Mine is just a quick follow-up from the last one. on funding. Do you have kind of a sense on the timeline when you would kind of look at taking care of the bonds in terms of refinancing? Thank you.

Yeah, I'll pick this one up. So the bond is due in December 25. We'd want to, at the latest, likely deal with that before it becomes current, so end of next year. But realistically, we're kind of actively monitoring it at the moment now. So any time between, I guess, effectively December Now, end of year, early next year, all the way up until the end of next year. So I think we've still got a good period of time before we feel as though we have to do something. So this is more around us being strategic, pre-monitoring at the moment.

Perfect. Thank you.

Thank you.

Thank you. We have no further questions. And I'll hand back to Tom for any closing comments.

That's great. Well, look, thank you very much, everyone, for your time today. Thanks very much for the questions. And as always, please feel free to contact us for any follow-ups. We're always available. So thanks, everyone. And we'll be talking to you at our Q3 and potentially seeing you on our roadshows in the next couple of weeks as well. So look forward to that. Take care, everyone, and stay well. Thank you.