Helios Towers plc

Hi everyone and welcome to the Helios Sales 2024 earnings call. I hope you and your families are all doing well and thank you very much for your time today. So I'm Tom Greenwood, Group CEO and we're very excited to be here discussing our 2024 results which included record tenancy additions and strong organic top line and bottom line growth. 2024 marks a pivotal point in the Helios Towers evolution where we move into a surplus free cash flow phase of our journey. Our rigorous capital allocation framework is serving us well. First, we invest capex in high return projects to deliver this organic growth. Second, we optimize our balance sheet with the appropriate level of financial leverage And what we saw over 2024 is that Helios Towers now has the scale in our business model where recurring surplus free cash flow will be generated with an improvement of $100 million over the course of the year to report $19 million of free cash flow for the full year. Our capital allocation framework will remain firmly in place, investing and continuing this organic growth, but with rising returns on our capital, The surplus free cash flow will grow, and so we will move our capital allocation framework focus to the third bucket, that of shareholder return. You will hear more on this topic as the year progresses, and I look forward to discussing this more with you, our shareholders, through the course of this year. So moving to page two, we've got the usual lineup for you of me, Tom, Manjit, and Chris. And as we see on page three, we'll cover the business, strategic and financial highlights and then be open for Q&A at the end. Now, first of all, I'd like to say a huge thank you and well done to all of our people, partners and customers across the business whose collective efforts have driven the strong performance in 2024. The business continues to be optimally positioned in closing the digital infrastructure gap across Africa and Middle East, the region growing faster than anywhere else in the world. Our telecom power leasing and power model, which involves hosting multiple mobile operators on individual sites, ensures a robust and predictable cash flow stream, which grows significantly as power utilization increases with the proliferation and densification of mobile networks. Our business model couples with our ability to execute operational excellence has driven 10 years of uninterrupted EBITDA growth at 26% compounded annual growth rate since 2015. There is fundamental and structural growth across the region, with population growth of 3% per year, which means doubling by 2050. Coupled to this, only 50% of the population have a mobile phone today, which compares to 90% in Europe and North America. Subscribers are growing at 5% per year and data consumption is forecast to grow by four times in the next five years, which is double the rate of the rest of the world. Through our laser focused business excellence strategy, we aim to provide the best customer service in the market and deliver global quality standards to ensure we're the digital infrastructure partner of choice for our customers. In doing so, we support the essential connectivity for the 150 million people who are covered by our mission-critical towers, where mobile is often the only available form of communication. As well as voice and messaging, this provides the platform for data applications such as banking, education, health, AI, social media and streaming. Services essential for life in today's world. So in short, our business provides investors with the unique opportunity of world leading infrastructure growth rates and high quality cash flow returns to deliver significant value as we move forward in our next chapter. Now to page five for the highlights. In 2024, I'm pleased to report that we delivered very strong growth and exceeded expectations across all key metrics. It was a particularly standout year because we inflected the bottom line free cash flow generation for the first time following previous years of large platform investment. And we're now really seeing that switch in the business and motoring forward. going up the gears and accelerating performance and recurring surplus cash flow generation. We've made solid progress towards our 2.2 by 2026 tenancy ratio strategic objective, arriving at 2.1 tenants per site by the end of 2024, driven by adding close to 2,500 tenants in the year, most of which were co-locations. and this was our highest year for organic tenancy additions of all time. The largest rollouts were in Tanzania and Oman where respectively 4G and 5G coverage and densification were the key focus and through our customer partnerships and operational capabilities we were able to ensure safe and fast rollout of hundreds of new points of service thereby enabling mobile access and improved quality of service to millions of people across the market. Organic tenancy growth and tenancy ratio increase are the main drivers for our strong financial metrics and in 2024 we delivered 10% revenue growth, 14% EBITDA growth, 1 percentage point ROIC increase, and very importantly a hundred million dollar positive swing in our free cash flow versus the prior year. 2024 was the first year in our history where we delivered surplus free cash flow of 19 million whilst at the same time delivering strong top and bottom line growth. This shows our strategy of increasing asset utilization to drive returns and cash flow is very much delivering. Furthermore, our leverage continues to decrease now to 3.98. Our credit rating has now been re-rated upwards again for the second time within 12 months. We now stand at BB- with S&P. We move forward with a strong balance sheet with fixed interest costs, meaning that growth in operational cash flow off of a fixed cost base drives amplified growth in bottom line free cash flow. And turning our focus now to 2025, we see the momentum of 2024 very much continue in terms of operational business growth, cash flow generation, and leverage reduction. We're guiding to 2,000 to 2,500 tenancy additions, which drives EBITDA growth. And with our capex focusing on high returning tenancies being carefully controlled at similar levels to 2024. All of this drives 2025 bottom line free cash flow surplus are two to three times from 2024 levels and leveraged down half a turn again to three and a half. As we move into this new territory of lower leverage and surplus free cash flow generation, we're very much looking forward to engaging with investors over the coming months on potential shareholder distributions from 2026. Moving now to page six, we can see here that the the consistency of our delivery against guidance across the board we've exceeded guidance on all metrics in 2024 following upgrades and tightening through last year and feel very good about the strengths of our team in delivering this performance and our ability to continue our disciplined growth and delivery in 2025 and beyond the 2025 year for all of us is about The operational metrics driving a steep step up in surplus free cash flow to our guided range of 40 to 60 million and leverage coming down to the mid threes. And our focus and drive for future performance is backed up by our historical performance as we see on page seven. 2024 marks 10 years of US dollar EBITDA growth at an annual compounded rate of 26%. showing our resilience and ability to deliver. And the drivers for this are threefold. One, the structural macroeconomic and mobile telecoms growth in our market, which are growing multiple times faster than the rest of the world when it comes to population, GDP, mobile subscribers, and data. Number two, our long-term cash flow business model, which provides predictability, and I'll come to this on the next page, and three, the strategy and capability of our team to deliver customer service excellence in a structured and methodical way to our leading mobile operator customers, aiming to be the partner of choice for all mobile infrastructure needs. With the growth dynamics set to continue for decades ahead and our team's dedication to customer partnership and operational excellence, We're ready to continually innovate and continue this trend for the next 10 years and beyond. Now on page 8, I'll talk you through our business model. Whilst the operational complexities of running thousands of sites across millions of miles of land, often with poor road and grid infrastructure, can sometimes be highly complex, The high-level unit economics of our business is beautifully simple. We're essentially a real estate and power company for mobile operators and create cash-on-cash returns in excess of our cost of capital through enabling the sharing of infrastructure. We own and operate the passive infrastructure of a site, which means the tower, the power, and the security equipment. We guarantee power-up time at close to 100%. providing maintenance and security services at the site and in this way the mobile operators have outsourced a non-core but essential activity to us which means they can focus on the front end radio and transmission networks and all the intricacies that come with that whilst we keep the site powered up and manage site access so when we buy or build a site it will always have at least one tenant on the anchor tenants from day one. We then increase the utilization of the tower over time through adding co-location tenants. The first tenant, the anchor, provides a cash on cash ROIC of 12% covering our cost of capital. And then with the second and third tenant, the ROIC steps up to 25 and 34% respectively, reflecting the incremental revenue coming through on the relatively fixed cost base. The long-term cash flows and resilience of the business come about through the long-term nature of mobile networks, which is mirrored in our lease contracts. These are typically 10 to 15 years minimum term, include annual CPI and power price escalators, and the majority of our revenue is dollar or euro based. As at the end of FY24, We had $5.1 billion of minimum contracted future lease revenue across all our tenancies equating to an average seven years of lease length remaining and this is before renewals or adding any new tenancies. This provides a very robust future revenue stream base for the coming years supporting our balance sheet and further growth as we add incremental tenancies to drive higher earnings and cash flow generation in the future. And on the subject of adding tenancies, let's move to page nine. And here it shows our consistent track record of successfully adding tenancies at a 7% to 10% rate every year since 2019. This reflects our 24-7 relentless focus on delivering customer service excellence on power uptime, speed of rollout, and overall customer experience to ensure that we work with our customers as partners, understand their needs and requirements early so that we can be operationally ready to deliver for them when they need us. Our focus for 2025 is clear. We aim to deliver between 2,000 to 2,500 new tenancies and we already have a strong pipeline at this point in the year. Now moving to page 10. I wanted to talk about how our tenancy ratio focus and 2.2 by 2026 target is directly driving ROIC and free cash flow returns. In 2021 and 22, we successfully acquired portfolios in four new markets doubling the size of the platform and diversifying our business on a geographic and customer basis whilst also increasing our hard currency earnings mix. We were acquiring tower portfolios from mobile operators which are often inherently underutilized and these four portfolios came with an average tenancy ratio of 1.2. Therefore on a short-term basis This brings about dilution of key metrics like tenancy ratio and ROIC, as well as being free cash flow consumptive with over $1 billion invested. Then, following ownership transfer to Helios Towers, we set about embedding our operational excellence on the assets to drive efficiency, and most importantly, start adding second and third tenancies to the new towers we've just acquired. And we've made strong progress since 2022. with tenancy ratio going from 1.81 to 2.05, ROIC going from 10.3% to 12.9% and free cash flow going from 721 million negative in 2022 to 19 million positive in 2024. So in the space of two years since our last acquisition, ROIC is in excess of our whack and growing and free cash flow has inflected by almost $750 million to become positive in 2024 and the surplus will be stepping up steeply in 2025 and beyond. Which brings me on to page 11 to reiterate again our disciplined capital allocation policy. We continue to prioritize capital efficient and high returning organic growth, principally co-locations and selected new bills This drives our operational EBITDA and cash flow growth, meaning that we continue to deliver at about half a term per year, now being below 4x and heading to 3x in 2026. Having delivered positive surplus-free cash flow in 2024 and expecting for that to step up in 2025 and each year beyond, our cash flow profile and balance sheet will be in the position to support potential investor distributions from 2026. And we will be engaging with all investors on this over the coming months. And finally, M&A continues to be de-prioritized for us, for the foreseeable, as we prioritize organic growth within our existing markets to drive high quality cash flow generation and shareholder returns. And with that, I'll hand over to Manjit for the financials and look forward to talking with you at the Q&A.

Thanks Tom and hello everyone, great to be speaking with you all today and starting on slide number 13 I'll be going through the financial results. As Tom has outlined 2024 was a year of continued delivery across multiple metrics and free cash flow inflection as is shown in the chart from this page. On the far left hand chart, you'll see we've delivered another year of strong tenancy growth, beating our upsized guidance and improving lease up by 0.1x. And this has really been the key driver of our EBITDA growth of 51 million year on year. And it is the combination of capital efficient growth through co-location lease up and also leveraging operational improvements, which has driven our return on invested capital by 1% to 13%. and we're expecting similar progression in 2025, expecting to reach 14%. Importantly, we saw an inflection in our free cash flow. We had guided to neutral and ended 2024 with positive 19 million, which is a hundred million increase year on year. And you can really see the swing over the last few years on the far right hand chart, where following key investments to expand to new high growth markets, we have and will continue to leverage the expanded portfolio to drive capital efficient organic growth in line with our capital allocation strategy which Tom just went through. Excitingly we see the cash compounding returns come through and we expect to see 2025 ending at circa 40 to 60 million dollars of free cash flow. I think this page really sums up the key successes of 2024 but also sets out that this is just the springboards for 2025. and now to jump into some of the detail and moving on to page 14 our site and tenancy growth from a site perspective we saw our sites growing by two percent representing an incremental 228 sites year on year we are very selective in our approach to new site rollouts ensuring the sites have clear lease up potential and try to partner with M&A's to identify and build in the most attractive locations from a tenancy perspective we had record organic tenancy additions of 2,481 tenancies year-on-year, a 9% increase, and that was really driven by our three largest markets of Oman, Tanzania, and DRC. And we're pleased to see that our tenancy ratio continues to track well to our 2.2 tenancy ratio target by 2026, following a 0.14 tenancy ratio expansion year-on-year ending at 2.05. Moving on to slide 15, our revenue growth. We've seen revenue growth of 10% year-on-year with growth in revenues across all three of our geographic regions. We have a strong hard currency profile with 68% of our revenues being in hard currency which translates to 71% of our adjusted EBITDA being in hard currency. Four of our markets are innately hard currency including DRC, Senegal, Oman and Congo Brazzaville being either dollarized or paged to the euro. meaning that the revenues our customers receive are hard currency which is also what they pay us in our remaining markets we also have a portion of revenues linked to hard currency adding further to the overall mix our earnings are then further protected by contractual protections including power and cpi escalators the cpi escalators typically escalating in q1 and power escalators escalating either quarterly or annually depending on the contract 98% of our revenue comes from the large blue chip mobile network operators with no single customer accounting for more than 26% of our revenue as you can see in the second pie chart and finally we sign into long-term agreements with our M&A partners with initial terms of 10 to 15 years and are largely non-cancelable today our contracted revenue of 5.1 billion dollars has an average remaining initial life of 6.9 years in other words We have secured a minimum revenue stream of 5.1 billion dollars without pursuing any new business and this provides a strong underlying earning stream that we can complement the further growth driven by tenancy rollout. All the dynamics mentioned in the bullet really do demonstrate the robust earning stream we have and moving on to slide number 16 we show how these dynamics work in action. And here we present 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. And this is shown clearly on the two bridges presented here, with Power, CPI and FX broadly offsetting one another. to ensure growth is driven predominantly by tenancy additions and operational leverage. 10% revenue growth from organic tenancy additions drove 10% revenue growth year-on-year. 15% EBITDA growth from tenancy additions drove 14% EBITDA growth year-on-year. In short, the key driver of growth is through tenancy additions and operational leverage from LeaseApp and we demonstrate again that the business structure continues to be robust and resilient and operating as designed. and onto slide number 17. Here we present correlation between our adjusted dollar EBITDA growth and tenancy additions over the past 10 years. Despite movements in some FX rates and Brent Cruz as shown in the dotted lines, our business model has continually delivered consistent US dollar EBITDA growth over that time and demonstrates an extremely high correlation to tenancy growth with an R squared of 0.96, which is almost perfectly correlated. Again this demonstrates that our business has been effectively set up to grow with tenancy additions which as you saw in Tom's section has been remarkably consistent since IPO and importantly through structural growth dynamics is expected to continue to grow over the long term and therefore drive further dollar growth. Now moving on to slide 18 and a look at our capex. CAPEX is tightly controlled and focused on capital efficient opportunities that drive return on invested capital expansion and for the full year we incurred total CAPEX of 169 million dollars which is primarily made up of 93 million of gross CAPEX reflecting the record tenancy growth we've seen this year and 42 million of non-discretionary CAPEX. This was slightly below our guidance largely reflecting the fact that we had a higher number of co-location additions. and looking out to FY25 we're guiding to 150 to 180 million of full year capex of which 50 million is non-discretionary. On to slide number 19. Looking at our leverage and debt, our net leverage at the end of Q4 decreased by 0.4x year on year to just under four at 3.98 to two decimal places and in line with guidance. We have approximately $255 million of undrawn facilities at both group and opco levels and together with $160 million cash and balance sheet means we have over $400 million of available funds. As a reminder 92% of our debt continues to be at fixed rate following our successful bond refinance earlier in 2024 and we have no near-term maturities until 2027. Finally, we were delighted to receive our second credit rating upgrade by S&P within a year to be awarded a BB- in February 2025, which reflects the combination of the business performance, but also the improved sovereign credit ratings of our markets, with Tanzania in particular receiving a positive update. On to slide 20. We set out a bridge here showing the drivers of our free cash flow. Our strong adjusted EBITDA performance supported portfolio free cash flow growth of 11% year on year. Our recurring levered free cash flow, the bar that says RLFCF, is a metric that reflects the capital available to management to deploy on discretionary capex, debt pay downs, and or shareholder distributions. And this increased by 59% to 148 million, demonstrating the leverage on our largely fixed cost finance costs and improving working capital. Importantly we have now inflected our free cash flow to positive 19 million as mentioned earlier and that reflects an improvement of 100 million dollars year on year and with continued execution of our capital allocation strategy again targeting capital efficient organic growth investments we expect to see further free cash flow growth in 2025 and beyond which takes us to slide 21 where we provide guidance for 2025. As we continue to see progress in our 2.2 strategy We target between 2,000 to 2,500 tenancies for the year. For adjusted EBITDA, we target between $460 to $470 million, meaning we are estimating double-digit growth at the midpoints for 2025. CAPEX, we target $150 to $180 million, of which $100 to $130 million is discretionary and $50 million is non-discretionary. Free cash flow, we expect to be between $40 and $60 million, more than doubling from 2024 levels. and finally we expect to end 2025 at roughly 3.5 net leverage all in all we're really pleased with the delivery in 2024 and the two milestones of inflecting free cash flow and our 10th year of adjusted EBITDA growth reflecting the efforts of our fantastic colleagues and I'm really very excited about the prospects for 2025 and beyond so with that I'll pass back to Tom to wrap up

Thank you very much, Manjit. I'm on page 22 now. For the takeaways, I think the business has really hit a good rhythm and we've got great momentum coming into 2025. We're getting closer to our strategic targets of 2.2 tenants per tower. making really good progress on that the operational and cash flow related items are all growing significantly as we've outlined and we've got a solid solid pipeline of further tendencies to come in 2025 as we talked about a big focus on free cash flow expansion this year doubling or tripling from and the bottom line surplus free cash flow that we delivered in 2024 and we'll be engaging with investors over the coming months for potential shareholder distributions from 2026. So lots to be excited about and we're very much looking forward to it. So I'll hand back to Drew now to take the Q&A. Thanks everyone.