Helios Towers plc

Hi everyone and welcome to the Helios Q3 23 performance and outlook call. Very good to talk to everyone as always and I hope you and your families are well. Thanks very much for your time today. So today we'll be talking you through our performance year to date, our FY23 outlook and guidance upgrade and providing some early guidance on our FY24 view. So first up on page two, we have the usual lineup for you and me, Tom, Manjit Dhillon and Chris Baker-Sams. We've got the business and financial updates slide and then we'll open for Q&A at the end. So now looking at page five, very pleased to report that we've delivered very strongly year to date and therefore we're upgrading guidance across all our key metrics for FY23. Our tenancy additions are already above 2100 which was previously the top end of our guidance so consequently we're increasing that and the large number of co-locations delivered so far has driven our tenancy ratio up from 1.8 to 1.9 year to date and importantly we've seen our future contracted revenue increase 13% Water on Quarter and 37% year-over-year to its highest ever level of $5.5 billion, underpinning our future cash flows and returns growth. Financial performance in Q3 was especially strong year-over-year, with revenues up 28%, EBITDA up 35%, of which 22% was organic, and our margin up three percentage points driven by the tenancy ratio increase I mentioned earlier. Also, our last 12 months portfolio free cash flow is up 30% driven by the EBITDA growth and tight control around ground leases, maintenance caps and tax. Our balance sheet continues to strengthen. Firstly, we've seen leveraging with a 0.3x reduction this quarter and 0.6x year to date and now at 4.5x. which we previously guided as our full year figure meaning we've accelerated deleveraging one quarter ahead of the previous guidance on this further reduction expected this quarter Q4 and we've effectively tendered 325 million of our December 25 bonds in September therefore extending a good portion of our debt for another five years In terms of upgrades to guidance, we're increasing our FY23 forecasts across all key metrics. The tenancy additions guidance moving up 15%, and that 22 to 2400. EBITDA moving up 2%, 365 to 370 million dollars. And portfolio free cash flow guidance increasing 9%. All of this thanks to our customers' trust in our ability to operate effectively. and deliver high quality service. Our partner network and our people and teams across the group performing at the highest standard through our business excellence strategy. So now moving to page six and here we see that in FY23 we're delivering a stellar year for growth overall and most importantly for organic growth. Now that our FY21 to 22 acquisitive expansion trade is done, and we're focusing fully on organic growth to drive returns our tenancy ratio has expanded 0.1x you can see on the middle chart our EBITDA jumping up 30% this year and most importantly looking at our ROIC as previously guided following our two-year expansion program we very much see our organic operational delivery bear fruit with the ROIC rebounding back up to 12% following the temporary diluted effect of new acquisitions with low tenancy ratios. As an example of this, our Oman acquisition, which was closed in December 22, was acquired at a tenancy ratio of 1.2x and now is already at 1.31x, less than a year into operations. So this, along with all our other markets, are helping to drive our returns up on a group-wide basis. Next on page seven, we thought it'd be useful to show the evolution over the past year of our future contracted revenue. Our tenancy contracts today, excluding any future escalations or auto renewals. This future pipeline has grown 37% in the past year, driven by three key factors, one, The 10-year renewal of almost 2,500 existing tenancies in the last quarter Two, the 2,700 record new organic tenancies added in the past year And three, the Oman acquisitions associated leaseback agreement The 5.5 billion future contracted revenue reflects around 7.8 years average remaining life Which is a very strong base of which the business will deliver further growth and increased returns Now onto page 8. We wanted to provide some early guidance on how we see FY24 shaping up and we'll provide more details on this in March at our full year release. But in short, we expect a continuation of the strong organic momentum and returns growth that we're delivering in FY23. In terms of capital allocation, we'll continue to focus on high returning organic growth and deleveraging The tenancy ratio expected to increase 0.05 to 0.1x through next year. Any significant M&A continues not to be our focus for the foreseeable future. Our tenancy growth and cost efficiency focus will deliver double digit EBITDA growth next year. CAPEX will be tightly controlled and we expect leverage to be below 4x by the end of FY24. as well as continued upwards trajectory on our ROIC. So looking forward to updating you each quarter next year as we deliver this. So that's it from me for now. I'll hand over to Manjit and then speak to you at the end for wrap up and Q&A.

Thanks, Tom. Hello, everyone. It's great to be speaking with you today. I'll be going through the financial results and starting on slide number 10. 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 and additionally continue to proactively manage our balance sheet. We are on track to deliver one of our best ever years of organic growth and accordingly we've increased our full year guidance which I will speak about later in the deck. On this slide, as usual, you'll see we've summarized the main KPIs, which I'll go through in more detail now over the next few slides. So moving on to slide number 11, site and tenancy growth. From a site perspective, we saw a 29% increase year on year, reflecting organic growth of 633 sites and 2,519 acquired sites in Oman. Year on year, we've added 5,711 tenancies, which is a 27% increase from a year ago. This growth was through a combination of record organic tenancy growth and our acquisition in Oman. We've delivered 2,694 year-on-year organic tenancy ads and 3,017 tenancies through the acquisition in Oman. In terms of tenancy ratio, our tenancy ratio dropped slightly on a group basis and this was driven by the lower tenancy ratio of the sites in Oman which had a day one tenancy ratio of 1.2. However, we've already increased that tenancy ratio in Oman by 0.1x which is actually ahead of plan and we're very pleased with the performance and this shows how well Oman has integrated into our business. On a group level organic tenancy ratio also expanded by 0.1x on strong lease on strong organic lease ups and again that will support margin expansion and returns. So moving on to slide number 12 we've seen a 28% revenue growth and 35% EBITDA growth year on year and importantly from an organic perspective that's 18% plus on revenues and 22% plus on EBITDA. We've seen strong revenue and EBITDA growth in all three of our reporting segments. Our Q3 EBITDA margin has increased by three percentage points to 52% and that's driven by lease up and on a constant fuel price basis Q3 adjusted EBITDA margin would have been even higher at 53%. So moving on to slide 13, and here, similar to prior results, I'll dig into the drivers of revenue in EBITDA growth in a bit more detail. The first four bars of each bridge, organic tenancy growth, power escalations, CPI escalations, and FX, all combine to make up organic growth, and acquisitions being the contribution from the Oman market. The organic tenancy growth of 2,694 tenants year on year has driven an 11% growth in revenues and 18% growth in EBITDA, But focusing on the escalation movements, and again, similar to previous presentations, the contractual escalators are all performing as expected. As a reminder, we have escalated in almost every customer contract in all markets. For power, roughly 50% of our contracts escalate quarterly and 50% annually. And these escalate in relation to the local pricing for power, so for fuel and electricity. So if the local prices go up, then the escalators go up, and if the prices go down, then the escalators go down. For CPI we have annual CPI escalators and they typically kick in between December and February. Our power price escalators increase revenue by 7 million and that falls through to about 2 million on EBITDA driving a roughly around 3 percentage point EBITDA contribution as you can see on the right hand side. The positive EBITDA contribution is partly attributable to the rollout of about 1,100 power solutions year to date as part of our project 100 commitment alongside other historical power investments. This again demonstrates that our business model has effectively offset any increase in OPEX due to higher power prices to protect our EBITDA on a dollar basis while we continue to save fuel costs through our investment in power initiatives. Moving on to CPI and FX, local CPI is currently below 10% with the majority of our CPI escalators having already kicked in earlier in the year and that contributed 5% to revenue year on year. The CPI escalators have effectively offset the FX movements on revenues and on the EBITDA side the escalators have covered the FX movements very well which you can actually see in the dotted box on the right hand side. The reason we continue to show you this analysis is because it is really a useful demonstration of the business mechanics and again standing back and to reiterate the message looking at this from an EBITDA level there is little to no impact to FX and power price movements. We're well protected from macro volatility and here you can see the key drivers of our growth really being driven by tenancy growth both organically and inorganically and operational improvements all of which are within our control and how we want to operate the business. Moving on then to slide 14 again you'll see the usual breakdowns which is very consistent from previous updates that 98% of our revenues come from blue chip mobile network operators comprising Airtel Africa, Vodacom, Orange alongside other large M&Os such as Omantel and Axion. It's worth highlighting that our largest customers are spread across a few differing markets, again showing how diversified our business is. As Tom mentioned earlier, we have strong long-term contracts with our customers, and at the end of Q3, we had long-term contracted revenues of $5.5 billion, the highest ever on record for us, with an average meaning life of just shy of eight years, up 37% from $4 billion a year ago. This means, again excluding any new wins or rollouts, we already have that revenue contracted and in the bag, and that provides a strong underlying future earning stream for the business. We also have 64% of our revenues in hard currency being either US dollars or Euro pegs and that falls through to 71% when looking at it from an adjusted EBITDA perspective. This provides a fantastic natural FX hedge for the business and that's all complemented by the escalators I spoke about in the previous slide. Finally, just to mention this slide, with the new market expansion successfully completed over the last few years, we're seeing a more diversified split of revenues with the Middle East and North Africa segments now representing about 8% of our revenues year-to-date. As a market leader in seven of our nine markets, we are very uniquely positioned to capture all the robust structural growth across all of our markets. Moving on to slide 15 and a look on capex. On the left-hand side of the table, you'll see that Q3 year-to-date, we incurred total capex of 149 million, which is mainly made up of growth capex reflecting our strong organic tendency builds and rollout during the course of the year. Our discretionary capex continues to be tightly controlled and focused on high returning investments, for example, co-locations and opex efficiency projects. So, so far, the 149 million we've spent on capex roughly trends in line with what we'd expect for the full year capex guidance. And then actually in terms of guidance, The capex range we're now guiding to for 2023 is being upsized to 150 to 180 million on discretionary capex up from 140 to 170 million and that really accounts for the fact that we're increasing our organic tenancy guide by about 300. Non-discretionary capex by the way remains unchanged at 40 million. Moving on now to slide 16 and just to walk through our debt liability management exercise we carried out in September. As a summary we raised up to 720 million of facilities including a 600 million term loan and up to 120 million RCF facility. We've drawn 400 million of the term loan to tender 325 million of our high yield bonds and fully repay 65 million that we've drawn on our old group term loan and a small portion to cover fees. This has had a neutral impact on our gross and net leverage and as you can see on the chart on the right hand side with the new term loan due in 2028 We've effectively pushed out our weighted average maturity of debts by one year to circa four years. The cost of debt has only marginally increased from 6.7% to 7.1%, which is a fantastic result, I think, in a rising rate environment. I think this really reflects the increased scale and diversification of our company over the last few years, doubling our platform from five to nine markets, expanding our footprint from Africa to the Middle East, whilst also growing our hard currency earnings and continually demonstrating our resilience and robust business model. Following the transaction, we'll continue to have around 400 million of undrawn debt facilities and we'll continue to monitor our options around opportunistically managing our debt profile. But to sum up, we are really delighted with this transaction as this further strengthens our balance sheet. On to slide number 17. Our net leverage at Q3 2023 has decreased by 0.6x to 4.5x pro forma and that's now within our target range, one quarter ahead of what we previously guided. We've always had a clear path to deliver the business at about 0.5x per annum on an organic EBITDA grade basis, and we're committed to continue to deliver that. And as Tom mentioned, looking forward to next year, we'll target to reduce our net leverage again by another half a turn to below 4x. As previously mentioned, we've got a good amount of undrawn debt facilities at 400 million, and that together with the 151 million of cash on balance sheet means we have roughly around 550 million of available funds to the group. Importantly our debt remains largely fixed with 80% of it being on a fixed rate basis and this is all long tenured and again with the average remaining life quite long at four years. Moving on then to slide 18 and as Tom mentioned earlier on the call again we've made great progress on our 2023 goals and as a consequence we've increased our four-year guidance again. Given our robust tenancy growth and our strong commercial pipeline to the end of the year and also what's growing next year as well we've increased our organic tenancy guidance range We're now targeting growth between 2,200 to 2,400 tenancies compared to 1,900 to 2,100 previously, implying a year-on-year growth rate of around 9% to 10%. For adjusted EBITDA, the increase range is now 365 to 370 million, with the midpoint at an increase of about 30% year-on-year, reflecting again all the strong tenancy growth and operational improvements that we've been putting through during the course of the year. and accordingly portfolio free cash has also increased and now expected to be in a range of 260 to 265 million and that represents rough cash conversion about 70% this year. Due to the higher expectations on growth and tenancy growth we've updated our CapEx range which I spoke about earlier. But as you can see we're on track to deliver one of our best ever years of organic growth in 2023 and again this just simply demonstrates the proven robustness of our business model through macro volatility Our focus on business excellence, as well as the really compelling structural growth of all of our markets. And with that, I'll pass back to Tom to wrap up.

Thanks very much, Manjit. So on page 19 now. And look, clearly, we're in a time of significant momentum in the business and We're really pleased with the performance at the moment and the outlook. So look, FY23 is said to be one of our best years ever for organic growth and total growth for that matter as well. And of course, we've upped and increased full year guidance across all the major metrics. Our new markets very pleasingly continue to demonstrate lease up. We've given the example here of Oman. and supporting EBITDA and ROIC growth. Net leverage has accelerated its reduction and is now within its target range one quarter earlier than previous guidance. And we've increased average debt maturity with marginal increase in cost of debt with the tender of the bonds we mentioned earlier. And as I mentioned before, continued momentum expected into next year and we're really focused on organic growth with lease up of 0.05 to 0.1x next year, double digit EBITDA growth and net leverage below 4x. So with that, I'll hand back to Ellen and we'll open for Q&A. Thank you.