Helios Towers plc

Thank you, Candice.

Hi everyone and welcome to the Helios Towers Q1 2024 global investor call. I hope everyone's doing well. Thank you very much as always for your time today and we're looking forward to providing you with our first quarter trading update of 2024. So on page two we've got the usual lineup of me, Tom, Manjit and Chris. We'll cover the usual business, strategic and financial highlights and then look forward to the Q&A at the end. So moving to page five, this quarter one effectively marked 15 months since we closed our last large acquisition of Oman in December 22. And we've been laser focused on organic growth, asset utilization and operational efficiency to drive value creation since then. We continue to see significant demand for our services and infrastructure as mobile telephony usage accelerates across our markets. in terms of subscriber numbers, usage behavior, and incremental technology demand. Voice and data demand is growing as people use mobile more and more for everything from phone calls to banking, health, education, social media, payments, AI, and streaming. As the leading digital infrastructure platform across our market, we focus 24-7 on our customer service excellence strategic pillar to ensure our customers are getting what they need from us and we're surpassing their expectations. As part of this, we have an open, transparent learning culture and are always keen to hear feedback on how we can improve further. I'm very pleased to report a strong start to 2024, continuing where we left off in 2023. We've had our busiest Q1 for new tenancy additions in company history and year on year, our tenancy ratio is up 0.11x to 1.95 tenants per site, which brings good momentum towards our 2026 target of 2.2 tenants per site. Financial performance continues to be strong with double digit year on year growth, organic revenue growth of 14%, largely driven by tenancy additions, flowing through to 21% growth on EBITDA and portfolio free cash flow, showing a strong operational leverage of our platform. With our organic focus strategy being of lower capex intensity, we also see a strong increase in the returns year-on-year of a three percentage point increase to 13%. Driving ROIC higher and increasing its surplus above our cost of capital is a key focus for us in creating real long-term investor value. Our strategy continues to be focused on ROIC enhancing investment opportunities driving up enterprise value and cash flows, reducing leverage, thereby accelerating equity value creation. We were also pleased to receive upgrades from Moody, an S&P in the quarter, which clearly demonstrates the increased strength of our business in terms of diversification, performance and cash flow generation. And lastly, on this page, we reiterate our guidance for FY24, which as well as strong tenancy and EBITDA growth, also focuses on leverage of below 4x and cash flow neutrality, this being our inflection year. At this point, we feel very much on plan to achieve these targets and will continue to provide you with updates on progress through the year in the normal way. Now turning to page 6, where you can see this in graphical format. with Q1 tendencies of 761 being a strong start in achieving our 1600 to 2100 guidance range. Additionally, EBITDA and portfolio free cash flows Q1 annualized or last 12 months figures are both in the lower end of our range for the full year. Our focus now is to continue driving the growth and efficiencies of these metrics further up through the year. And now on to page seven, where we take a closer look at the ROIC and tenancy evolution through our recent scale expansion and show the trajectory to further equity value creation. As a reminder of our journey over the past few years, in 2020, we were a five market business with 7,000 sites with a strategy to geographically expand. In 2021 and 22, we completed four large acquisitions which doubled the business to 14,000 sites in nine markets. Here we were acquiring underutilized power portfolios from mobile operators, which inherently come with low tenancy ratio and ROIC on day one, but with embedded demand in the markets to drive up utilization in the following years. This consequently diluted our group tenancy ratio and ROIC KPIs in the short term and meant negative free cash flow with around $1 billion invested in the acquisitions. And from the start of 2023, We've been focused very much on high returning organic growth, leasing up our sites and driving ROIC upwards. In 2023, we increased tenancy ratio from 1.81 to 1.91 and ROIC from 10.3 to 12%. And you can see in Q1, 24, we're continuing the upward trend of these metrics and we focus on doing more of this as we move forward. And of course, At the same time, being free cash flow neutral this year and stepping up this bottom line free cash flow thereafter. And as a reminder of our capital allocation policy, as we communicated in March, first priority is high returning organic investment. Second, being leverage reduction to below four this year and around three by 2026. Third is investor distribution and fourth is accretive M&A. Just as a reminder, as signposted earlier in the year, we might have a small second closing of around 220 in-building sites from our Oman acquisition, which remains subject to regulatory approval, on which progress is being made, but timing remains unclear for now. Now moving to page 8, we further highlight the dynamics of ROIC in early and later stages of portfolio evolution, and see our new markets on the right, ticking upwards on tenancy ratio and ROIC in a similar trend to the markets in which we've been operating for much longer. All our markets are contributing to our upwards return trend, and we aim to deliver 100 bps or more on average per year for the next three years, creating a material surplus between ROIC and WAC, and in turn creating sustainable value for investors. Finally, on page nine, We reiterate our commitment to sustainability and the fact that our business and the way we manage it inherently drives digital inclusion, carbon efficiency, female empowerment amongst others all underpinned by our core services ensuring reliable infrastructure and power provisioning to maximize quality of the mobile network for end users. We continue to retain our AAA MSCI rating and the others which you can see on the top right and continue to progress on our strategic initiatives to drive our business and its environment and communities to a better place and a better quality of life. And with that, I'll hand over to Manjit and look forward to talking to everyone at the end for Q&A.

Thanks, Tom. Hello, everyone. Great to speak with you all again. And starting on slide 11, I'll be going through the financial results Following on from what Tom spoke to earlier, we remain focused and committed to driving organic growth and lease up on our existing portfolio, which in turn drives capital efficient returns for the group. And the key one, we continue the momentum from last year and have seen strong operational and financial performance. On this slide, as usual, you see we've summarized our performance and the main KPIs, which I will go through in more detail over the next few slides. Moving on to slide 12, our site and tenancy growth. From a site perspective we saw organic growth of 4% increase year on year equating to an incremental 482 sites. We are very selective in our approach to new site rollouts and we are confident in our ability to lease these sites up over the coming years which is evident in our strong lease up rates on new build portfolios which we presented in previous results presentations. From a tenancy perspective we had near record organic tenancy additions of 2,566 tenancies year on year, a 10% increase resulting in a 0.1x expansion in our tenancy ratio to close to 2x, tracking well in line with our 2.2 tenancy ratio target by 2026. We're also particularly pleased to see tenancy ratio expansion driven by both our existing and new markets, in particular Oman DRC in Tanzania. And on to slide 13, a focus on our revenue in EBITDA. We've seen 14% revenue growth and 21% EBITDA growth year on year, and we've seen revenue growth and EBITDA growth in all three of our reporting segments predominantly driven by tenancy growth which I've just spoken about with Central and Southern Africa and Middle East and North Africa both delivering more than 30% EBITDA growth year on year. Our EBITDA margin increased by three percentage points to 53% and again that's been predominantly driven by co-location lease up and operational improvements. Moving on to slide 14. The usual analysis showing the key drivers of revenue and EBITDA growth in a bit more detail. As with previous results presentations, the key driver of growth has been tenancy additions, with the escalators effectively working to offset macro movements to protect our EBITDA on a dollar basis. Now this is clearly shown on both charts. If you look at the left-hand bar of both bridges, tenancy growth drives 13% growth in revenue year-on-year out of 14% overall revenue growth. and 20% growth out of 21% total EBITDA growth year on year. As a tower company this is exactly what we want to have the growth driven by tenancies which comes down to identifying attractive markets entering them through buy and build opportunities and then proactively selling and rolling out and operationally performing for our customers. This is exactly what we do and what we focus on. The escalators are present in all of our customer contracts in one form or another For example, for power, roughly 50% of our contracts have quarterly power escalators and 50% have annual escalators. And these, as a reminder, escalate in relation to the local pricing for fuel and electricity. So if 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 revenues by $3 million, and despite the power price increases in some of our markets, This falls through to flat EBITDA, again demonstrating that our business model has effectively offset any increased OPEX due to higher power prices to protect our EBITDA on a dollar basis. Whilst we also continue to explore areas to save on fuel costs through our investments in power initiatives and reducing reliance on fuel where possible. And just to focus on CPI and FX, local CPI is over 5% at the moment with the majority of our CPI escalators having kicked in earlier in the year and contributes a 4% increase in revenue year on year. The CPI escalators, as you can see in the dotted box, have effectively offset the FX movements on EBITDA. So standing back, there's little impact to FX or power prices, and we continue to be well protected from macro volatility. Again, with a key driver being the great and tenancy additions, both organically and previously inorganically, and operational improvements. Again, all of which are within our control and how we want the business to operate. Moving on to slide 15. CapEx has and continues to be tightly controlled. and focus on opportunities that drive return on invested capital including co-locations, opex efficiency projects and highly selected build pursuits and this is in line with the capital allocation strategy we set out earlier in the year at our full year results. Looking at what we've incurred in the first quarter of 2024 we incurred total capex of 45 million which is mainly made up of growth capex reflecting the strong tenancy growth we've seen so far. and in terms of guidance there is no change to our 2024 expectation. The capex range for 2024 will be between 150 to 190 million which consists of 105 to 145 million of discretionary capex and 45 million of non-discretionary capex. Moving on to slide 16 and looking at our leverage and debt. Our net leverage at the end of Q1 has decreased by 0.7x to 4.4 year on year but remaining the same quarter on quarter. Typically we do see that Q1 leverage stays consistent from Q4. We saw that last year for example where it stayed at 5.1x and this is principally due to seasonal cash outflows in Q1. However we have a clear pathway to deliver the business at about 0.5x per annum on the basis of organic EBITDA growth and keeping gross debt broadly flat and we continue to target below 4x net leverage in 2024. As previously mentioned We have approximately $380 million of undrawn debt facilities and together with $90 million of cash on balance sheets this means we have $470 million of available funds. About 50% of our cash on balance sheet is held at group with the remainder spread amongst the opcos for capex and working capital purposes. Our debt remains largely fixed with more than 80% of drawn debt at fixed rates and we have three years of weighted average life remaining on our drawn debts. Over the course of it, we were very pleased to see Moody's and S&P upgraded our credit ratings to B-plus equivalent. We're particularly pleased that our strong financial track record, market diversification, our focus on organic growth towards deleveraging and cash flow generation have been recognised by the rating agencies. With regards to the outstanding bonds, we continue to monitor our options and will aim to adjust the notes during the course of the year and remain prepared to move quickly should market conditions are contractive. and finally moving on to slide 17 we reiterate our guidance for 2024 we continue to expect 1600 to 2100 organic tenancies in the year and we made a great start to this so far on adjusted EBITDA we expect to be in the range of 405 to 420 million and portfolio cash flow to be in the range of 275 to 290 million dollars due to a favorable mix of co-locations versus sites We expect to deliver lower capex in the range of 150 to 190 million. Combined, we expect these metrics to support reducing our net leverage to below 4x and to support neutral free cash flow for the first time in the company's history. And as Tom mentioned, this does exclude the impact of a small second potential closing in Oman, although timing is uncertain on that closing. But all in all, we've had a very strong start to the year and we're tracking well towards our full year guidance. And with that, I'll pass back to Tom to wrap up.

Thanks very much, Manjit. Yeah, so just really to wrap up on page 18. Yeah, very pleased with the start of the year with very strong tenancy additions in Q1. That's obviously fed through to the financial metrics with a 21% increase EBITDA and 3% increase in ROIC. Thank you very much for listening and I think we're now open for some Q&A.

Thank you, Tom. If you'd like to register a question, please press star followed by one on your telephone keypad, ensuring you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing star followed by two. We'll just pause here briefly to compile a Q&A roster. So the first question comes from John Kurdish of Deutsche Numis. Your line is now open. Please go ahead.

Thank you. Good morning, everyone. Congratulations to the team for another good quarter. Can you talk about tenancy growth in the quarter so far and prospects over the short term, perhaps touching on a few notable markets and what's happening there on the ground? Thank you.

Hey, John. Tom here. Thanks for the question. Yeah, look, Tennessee growth continues a strong momentum already in Q2. So, you know, we feel confident of achieving the full year guidance. We're, you know, we're already above a thousand yesterday. Thank you very much for joining us. A market with a lot of demand both for standard tenancies but also 5G here is really being rolled out strongly which brings with it significant amendment revenue. So yeah, I think we've got good cause to be quite excited really about the tenancy pipeline and the rollout that's going on at the moment.

Thanks, Tom. Good luck with the temperature in Oman just now.

Yeah, it's getting hotter. Thanks, Tom.

The next question comes from Graham Hunt of Jefferies. Your line is now open. Please go ahead.

Yeah, thanks very much for the questions. Just two from me, please. First one, I'd just love to hear what you're seeing on the ground from your competitors. Thank you very much.

Yeah, thanks very much Graham. So maybe I'll take the first one on competitors and Manjit, you can take the FX one. Yeah, look, I mean, you know, the competitive landscape across the region is really as follows. You know, there's a couple of large scale competitors that probably everyone on the call will have heard of who we've competed against. Thank you for joining us. which is our smallest market and we overlap with American Tire also in Ghana which is one of our smaller markets as well or both of those markets are growing well at the moment and you know in other markets really in seven of our nine markets excluding Ghana and South Africa in seven of our nine markets we are The leading largest tower company and in some cases actually the only independent tower company. And we typically have between 30 to 60% of the tower market share across those seven markets, which puts us in a good position for having a large sheet of towers to sell co-location on. and obviously build confidence and trust in all of our customers in those markets. So we look to really always compete on operational performance. So our number one pillar in our current strategy is customer service excellence, which we focus on day in, day out. and this means a multitude of things to our customers but two of the main items are power uptime and speed of new rollout and we aim to be market leader on those and aim to give our customers the best in class service and that very much helps in Thank you very much. But we're very confident of winning our fair share of it, as can be seen in our numbers. And we're very confident of continuing to do that as we move forward. Manjit, do you want to take the FX?

Yeah, sure, I'll pick up FX. So just as a broader backdrop, so just a reminder, we do operate in a number of hard currency markets. So DRC is dollarized. Omanis dollar pegged, Senegal and Congo be a euro pegged. So the ability of getting your hands on FX there is clearly the minimalist or minimal. In markets where you have more of a prevalent local currency and you refer to Tanzania, you do sometimes find seasonal inflows and outflows of FX. But taking Tanzania as a specific example, we do normally see more dollars come into the market following the cashew harvest. But outside of that, Thank you very much for joining us. Thank you.

As a reminder, if you'd like to ask a question, please press Start followed by 1 on your telephone keypad. The next question comes from the line of David Wright of Bank of America. Your line is now open. Please go ahead.

Hello, guys, and thanks for the question. I apologize. I've had some terrible reception here if I've missed any of this. But just on your credit rating upgrade, do you see that feeding through to your debt? Refinance. Have the agencies sort of specified exactly where they'd prefer your leverage to stay and does that change at all any of your ability to allocate capital? Thank you.

Yeah, I could pick this one up. Hi, David. So in terms of how it impacts the debt, the rating is a great validation of the company. I think there's probably been a little bit of a decoupling of the rating, at least at the previous rating level, versus where we saw the bonds trading. So certainly the move is positive from a validation perspective. From a pricing perspective, we'll have to see. From our perspective, we would hope to see some pricing tightening. So that would be hopefully a positive thing that we do see. In terms of leverage, we do see that they want to see, well, firstly, cash flow generation, which is one of the things that we've been guiding towards. as well as a reduction in leverage and we can kind of set those out in the next presentation but we're broadly in line with that where we are today so it'll effectively be keeping in line with where we are now. And in terms of the refi we are continuing to monitor our options and see what is out there but nothing to announce on that so far.

Okay thank you so much.

Thank you.

The next question comes from the line of Emmett Kelly of Morgan Stanley. Your line is now open, please go ahead.

Yes, good morning everybody and thank you for taking my questions. Just two questions please. Firstly, Manjit, during the presentation I just remember you said you were very selective still on new site rollout and building new sites. I'm just wondering as your leverage comes down into the kind of high threes by the end of the year and you probably become more open to building sites, have you noted and should we expect significant pent-up demand there from your clients to build these new sites? So as you maybe turn the corner there, could there be a lot of pent-up demand? And the second question is for Tom. Tom, you mentioned you're in Oman at the moment. Obviously, this was your first acquisition in the Middle East. It's been a great success. Could you say a few words about how you see the Towers market in the broader Middle East and whether we can expect many opportunities to emerge potentially in the future? Thank you.

Thomas Francis Greenwood, Manjit Singh Dhillon, Lara Coady, Fritz Dzeklo, Colard Nkole Tshiyoyo Our focus and our capital allocation strategy is quality over quantity. So really looking at trying to find those right build-to-suits where we think there's a high likelihood of success in terms of lease-up. That's where you start to get really the benefits of the Tarako model, both from a financial perspective but also a sustainability perspective. So we'll continue to do that. In terms of pent-up demand, potentially there very well could be, but actually that pent-up demand will most likely have increased and further MNOs looking at the same sites. So we would hope that that pent-up demand also actually is quite compelling in terms of rollout. But we're not necessarily saying no to lots and lots of demands. We're just trying to, I guess for want of a better word, show where potentially better locations might be or more suitable for us to be able to roll out. But we do try and partner with the MNOs where possible. Our job is to build sites and to lease those up. So we do try and make sure we don't leave anything or too much on the table. And Tom for the second part.

Thanks for the question. We've been operating here now almost a year and a half and we've been really, really pleased actually with the business operations and the team and the take-up of new tenancies. We're super busy here right now. I think from a regional perspective You know, there's been some interesting developments over the past couple of years. We've seen the likes of Tawal come out and fully establish themselves as an independent tower company. And they've been looking for expansion, obviously not just in the Middle East, indeed in Europe as we've seen. And we've seen the Aridu Zain Transaction which was announced which covers five markets in the region which I believe is ongoing in terms of closing and sort of establishing that business. So from our perspective our strategy is first and foremost to You know, maximise value on the tower portfolio which we have acquired and that's very much in full swing at the moment. That means driving organic lease up amendments and identifying attractive build-to-suit opportunities to Manjit's point. And then, you know, we will continue to monitor both Oman and the wider region as we move forward for other opportunities. We're very much focused on the organic growth here for now and the significant demand and capturing as much of that as possible. So that's in line with our stated capital allocation policy. That's very much our priority here. Super, thanks very much both. Thanks Emma.

The next question comes from the line of Rohit Modi of CIBI. Your line is now open. Please go ahead.

Hi. Thank you for the opportunity. Most of the questions have been answered. Just a couple of follow-ups. Firstly, on the competition side, the markets where you do have, for example, Talco, maybe Tanzania, Are you facing any kind of pricing issue when you are re-contracting any of the sites? Secondly, on your credit rating, can you confirm, apart from your bond maturing next year, are there any other debt that you could take an opportunity and refinance based on your credit rating and get to lower interest rates? Lastly, just confirming on the Oman rest of the sites, I think the long-stop date was around May 2024. Is there an extension there?

Thank you. Thanks, Rohit. I'll take the second question, which I think was on the debt. So just on that point, in terms of the bonds coming up for renewal next year and potentially looking to refi anything else, we did do a good partial tender last year where we basically partially tendered some of our bonds for term loan with some of our relationship banks. That was done at a very competitive rate and you saw that through the fact that the actual blended cost of debt barely moved. so when we do look to try and refinance the bonds we'll keep an eye in terms of that to see is the pricing something where it means actually you may want to loop in other forms of capital in there so do you want to refinance some of the term loan or any of the local debt options but base case for the moment is just going to be a straight conversion is the general sense of things at the moment. Tom I'm not sure if you want to take the other ones otherwise I can answer those.

Tom's line is disconnected. We're just reconnecting him now.

Okay. So I think, Rohit, just remind me of your first question. Was this just on the competition in Tanzania? And I think the third one was Oman. So on Tanzania, we do have a competitor now with Airtel having sold their towers to the SBA joint venture. Look, what does that mean? We still hold a very majority position in Tanzania. and we do see good amounts of volume coming through. We're still getting a good proportion of that. I mean, you've seen that through our numbers this year as well. What it does mean is that you've just got to sharpen your pencils and make sure that you're being as efficient in your proposition as possible to the MNOs. But we do that everywhere that we operate. So I wouldn't call out anything in that market that's any different to what we do in others. And with regards to Oman, we're working on contract extensions and moving that forward. But I think nothing to really mention on that for the time being.

As there are no additional questions waiting at this time I'd like to hand the conference back over to Tom Greenwood for closing remarks.

Thank you very much Candice and thank you everyone for dialling in. Great questions as always and very much look forward to Thank you for joining. You may now disconnect your lines.