Helios Towers plc

Hi, everyone, and welcome to the Helios Towers FY23 Global Investor Call. Great to be talking today with everyone, as always, and I hope you're doing well. Thank you very much for your time today. Today, we'll be taking you through our 2023 performance, our 2024 outlook, and covering our capital allocation plan and strategic focus for the next three years. First up, on page two, we've got the usual lineup for you, myself, Tom, Manjit Dhillon and Chris Baker-Sams will cover the business, strategic and financial highlights and then be open for Q&A at the end. One point to mention, I'm very happy to say that Manjit's wife is due imminently to give birth to their second child. So if it happens during the call, Manjit might morph into Chris for the financial section. So now moving to page five, 2023 was a pivotal year for Helios Towers. being our first of the newly enlarged nine market platforms. In summary today, we run 14,000 mission critical digital infrastructure assets across Africa and Middle East, supporting almost 150 million people use mobile services for voice calls, internet, banking, trade, health, AI, social networking, streaming, and everything else being connected to the world enabled. Our number one strategic pillar is customer service excellence and we focus 24-7 on ensuring we can deliver the best possible service to our customers and in turn grow both our and their businesses and accelerate mobile usage across the markets in which we operate. In 2023, we focus on finalising our new market integration with our business excellence processes and people development plans now embedded across the group. We focus on supporting our customers and communities with organic roll-up in all markets for coverage capacity and technology needs and in doing this we focus on driving EBITDA, cash flow, ROIC and the leveraging. Our key focus for the next three years is equity value creation and this is supported by the dynamic of EBITDA and cash flow growth driving enterprise value higher and leverage lower thereby creating equity value growth over that time. I'm pleased to report 2023 finished with similar momentum that we saw through the year. It was a year of record tenancy addition, surpassing the 2400 level above guidance and expanding our tenancy ratio by 0.1x. Revenue EBITDA and portfolio free cash flow all increased by around 30% year on year, all ahead of guidance. Roik notched up two percentage points to 12% and leverage came down by 0.7x. Again, both ahead of guidance. As we move into 2024, we're continuing to focus on organic tenancy rollout for our customers and guiding to between 1600 to 2100 tenancy additions, which was similar initial guidance given last year. Double digit EBITDA growth and continued deleveraging by another half term in the year. Additionally this year we're seeing it as an inflection point for our bottom line free cash flow following a number of years of high growth and acquisition investment switching to neutral free cash flow this year and growing in the years following. Lastly we have future revenues contracted of 5.4 billion dollars equating to 7.8 years before renewals which grew by 700 million from the previous year demonstrating our customer service excellence Strategic Focus and Digital Infrastructure Assets provide the reliability our customers need to deliver to the end users. Now turning to page six. As we look at these charts, we can see the business accelerated in 2023, driven in part by a full year of the Oman acquisition coming through in the numbers. But most importantly, our organic EBITDA growth was at 17%. driven principally by lease up on our underutilized asset base and tight cost control. This fed through into cashflow and was the principal driver for our ROIC increase to 12% following the temporary dilution previously with the new acquisitions. Furthermore, we delivered above initial guidance on all KPIs as indicated by the green boxes on the chart. Looking now to page seven, to see how we execute our business to ensure it's sustainably profitable and delivers impact to our customers and in the wider world. Our people and business excellence strategic pillar is focused on investing in the development of high quality local people in our markets to create long-term sustainable value in the business. We have continued with 96% local staff across our markets in 2023 and accelerated our Lean Six Sigma training program such that over half our workforce now are trained in our processes to drive performance and efficiency in the business. You can see this coming through in our customer service delivery of power at 99.98% and the financial metrics growth we covered on the previous slide. As we look forward, we will continue to invest in our people to drive excellence in everything we do. Now we move to page 10 for an update on our strategy. When we launched our current five year sustainable business strategy in 2022, the world was a different place with low rate environment and significant M&A opportunities to go with it. As we communicated through 2023, our focus was on organic growth and lease up. And so what we're doing here is reconfirming that plan continuing for the short to medium term. Our previous strategic strapline of 22 by 26 reflected an ambition to increase our footprint by 8,000 Towers, with over half coming from new acquisitions. Now, almost halfway through our five years, we have seen a changing environment and have adapted our 2026 ambition accordingly. Therefore, the 22 by 26 now becomes 2.2 by 26, which represents our tenancy ratio ambition by 2026. Tenancy ratio is the main indicator for earnings, cash flow and ROIC growth in our business and reflects a largely organic plan for the next three years. Supported by the strong momentum we see for continued demand for coverage, capacity and technology as 4G and 5G start to proliferate further across our markets. This leads into our capital allocation plan on page seven. Our primary focus continues to be high returning organic growth which already in 2023 has driven a two percentage point increase in ROIC year on year. As we grow our EBITDA and cash flows we're targeting a half turn leverage reduction each year which sees us below 4x by the end of this year and around 3x by 2026. In 2023 we reduced leverage by 0.7x So continue to focus strongly on that as we move forward. Thirdly, as I mentioned earlier, our free cash flow is growing. And in 2024, we see our business move from high growth investment phase to a free cash flow inflection point, which will continue to grow in 2025 and 2026, supporting the potential for investor distributions from 2026 should the consensus at the time be to do so. And lastly, M&A. Whilst not ruling it out entirely for high returning strategic opportunities, it is low priority for us for the foreseeable, preferring instead to focus on high returning organic capital investments during this time. One example of a small acquisition that might come through this year is not a new deal, but actually the second closing of a little over 200 in building sites from the original Oman deal, which was subject to regulatory approval. A small bolt-on deal like this, which increases our market share in a key market and accesses key locations demanded for 5G in a dollarized setting, is the sort of deal we're talking about here. But moving to page 11, I've mentioned free cash flow inflection point a few times in this presentation, and here you can see it laid out. In fact, 2023 was our tenancy ratio and ROIC inflection point. After the past few years of high acquisition investment of purchasing underutilized power portfolios, which inherently dilutes these metrics in the short term, we now see the organic lease up happening and the tenancy ratio up by 0.1x and ROIC up 170 bits in 23 year over year. This is now feeding into the free cash flows and hence we expect continued growth on all these metrics through the next three years, with 2024 being the free cash flow intersection point. As I mentioned at the start, our key focus for the next three years is equity value creation, with now being a pivotal time for the business. With EBITDA and cash flow growth and enterprise value growing, whilst at the same time leverage reducing, creating a clear pathway for equity value creation over the next two to three years. Now tenancy growth is the main driver for our revenue earnings and cash flow growth and so on page 12 we wanted to explain the basic thesis of the embedded demand for tenancies across our footprint and why that will be continuing for many years ahead. The numbers you see here relate to our nine markets and as you can see from the green text at the bottom It is forecast that 32,000 new points of service are required over the next five years, being a 33% increase in today's installed space. A point of service is a set of antenna, so essentially a potential tenancy for us. In terms of why this increase is required from a network point of view, all antenna have a capacity limit. And so the number of phone users in its vicinity, as well as the behavior are the key input factors determining how many points of service are required for a good end user experience. And so to draw your attention to some of the key input stats, population is growing by 44 million or 13% from today, subscriber numbers are growing by 85 million or 24% from today, and data consumption is tripling all of which will drive the need for 32,000 new points of service over the next five years. In terms of how our business is poised to bring in a significant number of these as new tenancies, we look on the right hand side for our installed asset base. In seven of our nine markets with a market leading independent tower company, typically with between 30 to 60% market share, meaning we have the location to offer customers fast co-location rollout and are set up well to roll out new build to suit sites at a fast pace. Secondly, our asset base has significant capacity to attract new tenants with almost half of our current sites with one tenant and our markets all having between two to four major mobile operators meaning there's significant structural market dynamics to increase site utilisation meaningfully over the coming years. As we see on page 13, we have a strong track record of delivering tenancy lease-up across our portfolio. On acquired sites, which amounts around 10,000 in our portfolio, we have seen consistent 0.1x lease-up per annum across the various vintages of our acquisitions. Built-to-suit of which we have done around 4,000, typically have faster lease-up rates because we analyze each location and choose whether to build the site or not. And in fact, we've been getting better at doing this, particularly in the past couple of years with improvements to our geolocation tools and analysis. Our latest vintage is seeing 0.5x lease-up per year, which means it's taking two years to hit two tenants on the site. This compares to the earlier days of the business with a 0.2x lease up per year being five years to reach a two-tenant site. We're continuing to invest in our geolocation technology including utilizing some AI to ensure we are maximizing our hit ratio for achieving multi-tenant site status in the shortest time possible. And finally, on page 14, with a new market now fully embedded, we're very pleased with the performance so far with regards to lease up and ROIC evolution. which is following a similar trajectory as our more established markets. And as we move forward with our customer-centric approach and embedded market demand, we'll be fully focused on continuing to drive tenancy ratio and ROIC up across the entire portfolio to deliver value creation for investors. And with that, I'll pass over to Manjit and look forward to talking with you at the end for Q&A.

Thanks, Tom. Hello, everyone. It's great to speak with you today. I'll be going through the financial highlights. So moving on to slide 16. Continuing on from what Tom mentioned earlier, we're delighted with our performance in 2023, delivering record organic tenancy additions and strong performance across all key operational and financial metrics, while proactively also strengthening our financial position in debt package. I think 2023 really demonstrates our playbook in action. identifying and adding attractive portfolio to our business which is what we did during 2020 to 2022 and effectively coiling the spring the 2023 being focused on driving value creation on the enlarged platform and I'm delighted with our outperformance which has largely been due to faster co-location growth on this slide as usual you'll see 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 17 our sites and tenancy growth From a site perspective, we saw a 4% increase year on year, reflecting organic growth of 544 sites. And from a tenancy perspective, we added record organic tenancy additions of 2,433 tenancies, which is a 10% increase year on year and resulted in a 0.1% expansion in our tenancy ratio. We're particularly pleased with increased tenancy ratios in both Oman and Malawi by 0.1x in their first full year as part of Helios Towers, tracking to plan and shows how well both have integrated into our business. and onto slide 18. We've seen 29% revenue growth and 31% EBITDA growth year on year. And importantly, we've seen strong organic growth year on year, 17% on both revenue and EBITDA. And we've seen strong revenue and EBITDA growth in all three of our reporting segments and ended the year at the top of our updated guidance rate which we gave at Q3 at $370 million. Our EBITDA margin increased by one percentage points to 51%, again, driven by co-location steps. and excluding the impact of higher fuel prices, which increases both our power linked revenues and power expenses comparably, adjusted EBITDA margin would have been even higher at 53%. And I'll talk through that impact now on the next slide. On this slide, similar to prior results, I'll dig into the drivers of revenue and 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 Malawi and Oman. The organic tenancy growth we had during the year, year on year, has driven 29% growth in revenue and 31% growth in EBITDA. But focusing on the escalation movements, similar to previous presentations, the contractor escalators are performing as expected. As a quick reminder, we have escalators in almost all customer contracts. For power, roughly 50% of our contracts have costly power escalators and 50% have annual power escalators. These escalate in relation to the local pricing 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 escalators increase revenue by 31 million, and that falls through to 3 million EBITDA, driving the 1% EBITDA contribution as you can see on the right-hand side. The positive EBITDA contribution is also partly attributable to all of our investments we've made as a part of our Project 100 initiative, which improves power efficiency in 2023. This again demonstrates 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 and reducing our reliance on fuel where possible. Moving on to CPI and FX, local CPI is under 10%, with the majority of our CPI escalators having already kicked in earlier this year which has now contributed 4% year on year when we look at 2023. The CPI escalators have effectively offset the FX movements on revenue and on the EBITDA side the escalators have well covered the FX movements which you can see in the dotted box. We have seen a slight gain this year in the dotted box however there are some years where you make a slight gain and some years where you make a slight loss and it really comes down to the timing of FX movements versus the CPI escalators. and if we dial the clock back to this time last year we're about minus three million on that dotted box so over a two-year period we are net flat which is a good place to be. The reason why we continue to show this analysis and will continue to show this analysis is because we think it's a really 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 prices and we're well protected from macro volatility. with the key driver of growth being tenancy additions, both organically and inorganically, plus operational improvements, all of which are within our control and how we want to operate the business. And onto slide 20, focusing on our drivers of free cash flow. Our strong adjusted EBITDA performance and improved cash conversion supported 33% growth in portfolio cash flow year on year, and we exceeded our updated guidance provided at Q3 by approximately 5 million at the midpoint. Our levered portfolio free cash flow has increased by over fivefold to almost $100 million. Alongside EBITDA growth, this was driven year on year by improvements in working capital, largely receivables, and leveraging our growth on our largely fixed interest cost base. We continue to invest in highly selective discretionary capex, totaling $168 million. As a reminder, this investment is only undertaken should we identify opportunities that boost cash flow returns. and our Capital Allocation Committee made up of myself, Tom and other ExCo colleagues frequently evaluates the best opportunities for capital efficient growth. As we go into 2024, we see continued growth in the portfolio and again we expect this growth to be leveraged on a broadly fixed cost base to drive free cash flow. You can now see in the call-out box that we've been in an investment mode over the last few years but there has been an inflection and we expect to see that to continue with free cash flow being neutral this year and growing there afterwards. With that in mind, moving on to slide 21 and a focus on capex. This continues to be tightly controlled and focus on opportunities again that drive ROIC, including co-location, OPEX fishing projects and highly selective built suits. And this again is in line with the capital allocation strategy that Tom outlined earlier. Looking at what we incurred in 2023, we incurred total capex of $203 million, which is mainly made up of growth capex reflecting record organic tenancy additions during the year. This is down from 395 million in 2021 and 765 million in 2022. In terms of guidance where we expect to be for 2024 for capex, we're guiding between a range of 150 million to 190 million dollars which consists of 105 to 145 million of discretionary capex and about 45 million of non-discretionary capex. The discretionary capex is lower than what we guided to in our previous medium term guidance and this is really due to the higher amount of co-locations compared to sites being targeted, again reflecting our updated strategic vision of achieving 2.2 tenancy ratio by 2026. And on to slide 22. Our net leverage at the end of FY23 has decreased by 0.7x during the year to now 4.4x, now within our target range, which is one quarter actually earlier than we previously guided. We've always had a clear path to deliver the business at about 0.5x per annum on organic EBITDA growth and we're committed to continue to deliver that. Looking forward to this year, we target to reduce our net leverage by another half a turn to below 4x by the end of the year. As I mentioned previously, we have approximately 400 million of undrawn debt facilities together with circa 100 million cash on balance sheet, meaning we have close to half a billion of available funds. About 50% of the cash on balance sheet is held at group with the remainder spread amongst the opcos for capex and working capital purposes. and we saw during the course of 2023 one of our best ever years of cash up streaming which is mainly done through shareholder loan interest payments. Our debt remains largely fixed with more than 80% of debts drawn being at fixed rates and importantly all of this is non-tenure debt with the average remaining life being around four years. So all in all we're in a great position with our capital profile. And finally moving on to slide 23 our guidance for 2024. We expect to deliver between 1,600 to 2,100 organic tenancies in the year. This is aligned with our prior medium term guidance, although we do expect a higher mix of co-locations compared to sites. For adjusted EBITDA, we expect to be in the range of 405 to 420 million and portfolio free cash flow to be in the range of 275 to 290 million. Due to the favorable mix of co-locations versus sites, we expect to deliver lower capex in the range of 150 to 190 million that I mentioned earlier. Combined, we expect these metrics to support reducing our net leverage to below 4x and to support mutual free cash flow for the first time in the company's history, excluding the impact of a potential small closing in Oman that Tom mentioned earlier. All in all, I think 2023 was a fantastic year where we were able to demonstrate how we are capturing the opportunities from our expanded portfolio, and we expect more of the same capital efficient growth in 2024. And with that, I'll pass back to Tom to wrap up.

Thanks very much, Manjit. So key takeaways, I guess, FY23, we had a strong year of organic growth and exceeded expectations across multiple metrics. We're really excited about 2024 and the offerings that we can provide our customers through this time. and then looking slightly further out to 2026, we have a clear pathway to 2.2x tenancy ratio and a highly focused capital allocation policy to support ROIC enhancement and value enhancement. So I'll hand back to Seb now and we'll go into Q&A.