IHS Holding Limited Ordinary Shares

Hi everyone and welcome to the IHS Holding Limited results call for the unaudited interim condensed consolidated financial statements for the three month and nine month periods ending September 30th 2021. Please note that today's conference is being recorded. If you would like to ask a question please press star followed by one on your telephone keypad at any time. At this time I'd like to turn the conference over to Matt Sperling at IHS Towers Please go ahead, sir.

Thank you, operator. Thanks also to everyone for joining the call today. I'm Matt Sperling, the IHS VP of Capital Markets. With me today are Sam Darwish, the Chairman and CEO of IHS Towers, Adam Walker, EVP and CFO, and Steve Howden, SVP and Deputy CFO. This morning, we published unaudited financial statements for the three-month and nine-month periods ended September 30, 2021. on the investor relations section of our website and issued a related earnings release and presentation. These are the consolidated results of IHS Holding Limited, which was recently listed on the New York Stock Exchange under the ticker symbol IHS and which comprises the entirety of the group's operations and is the parent company of IHS Netherlands Holdco BV, the issuer of our outstanding bonds. Before we discuss this quarter's results, I'd like to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements and information within the meeting of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and our views of future events. These include statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties, and other important factors, some of which are beyond our control that may cause our actual results, performance, or achievements to be materially different from any future results. Factors discussed in the risk factors section of our final prospectus filed pursuant to Rule 424 with the Securities and Exchange Commission on October 15, 2021 in connection with our initial public offering. and our other filings with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements on this call. We'll also refer to non-IFRS measures that we view as important in assessing the performance of our business. A reconciliation of non-IFRS metrics to the nearest IFRS metric can be found on our earnings presentation, which is available on the investor relations section of our website. And with that, I'd like to turn the call over to Sam Darwish, our chairman and CEO. Thanks, Matt.

Welcome, everyone. Thanks for joining our Q3 2021 earnings result call. This is the first following the listing of IHS on the New York Stock Exchange a month ago. Before discussing some of the highlights of Q3, I would like to address several topics, after which Adam and Steve will take you through the results and the associated presentation. Then we will, of course, open the line for Q&A. So first, I want to thank our 2,000 plus employees actually for their hard work and dedication, which have enabled us to reach this day. When Mo, William, and myself founded IHS 20 years ago to build cell phone towers in Nigeria, just as mobile communications were taking off, we never could have dreamed that one day IHS would become a leading global company listed on the New York Stock Exchange. Second, I want to thank our customers who trust us as partners, regarding the infrastructure that is critical to their businesses and who rely on ISS to deliver 24-7 the performance levels their networks and their customers require. And finally, I want to thank our long-time investors, our bondholders, and of course our new shareholders for believing and sharing in our vision and strategy as we continue working to create the leading emerging markets-focused telecommunications infrastructure provider globally. So slide five of the presentation shows our key highlights before we dig into the detail of our results. Our October IPO marks the beginning of a new chapter at IHS in our 20th year of operations. For those of you who may be new to our story, IHS is the fourth largest independent multinational tower company globally by tower count, with over 30,500 towers across nine countries spread across Africa, Middle East, and Latam. We focus on the global emerging markets of the world and are the market-leading tower core in six out of our nine countries. Africa is where the group started and remains at the core of the group, but we are also excited about the results and opportunities of our newer business segments in Latin America and MENA. We are fundamentally a tower business, but we are looking to provide wider telecommunications infrastructure in certain markets where it makes sense to us and to our customers. Q321 was another positive quarter for us, as Adam and Steve will discuss shortly. Demand for communications continued to grow globally, and our two principal customers in Nigeria recently announced very strong results driven by data uptake. In Q321, we delivered 8.7% consolidated revenue growth in dollar terms, and 11.8% underlying organic growth versus Q320. Furthermore, these growth rates are actually higher when taking into account a positive revenue adjustment in Q320 in connection with amending our contract with MTN last year. So overall, we are pleased regarding our financial position and the significant opportunities ahead of us. In terms of recent key developments, we have progressed a number of initiatives in the quarter and since quarter end. Today, we announced the potential refinance of our 2025 senior notes with a new bond issuance, subject to market conditions, of course. The aim of this transaction is to term out some of our debt and also hopefully reduce overall cost of debt. On the growth side, we will cover the organic growth in more detail with the Q3 results. But on the inorganic growth side, we are progressing on three fronts. Firstly, we continue to progress our Egypt entry as we disclosed during the IPO in October. World continues to explore commercial opportunities for building and potentially acquiring sites with the key carriers in the market. having been the only TowerCo of scale in that country at the moment. Secondly, the anticipated closing of our previously announced TIM fiber transaction in Brazil is now imminent this month, and we look forward to announcing more on that very, very soon, hopefully. That transaction continues our resonance for 5G offering in Brazil and continues developing our customer relationship with TIM in Brazil. On the COVID front, it appears that in our markets, we will all be living with the pandemic for quite some time. While we have experienced no material financing impact from COVID, we remain vigilant regarding its potential impact and, of course, hope that the ongoing vaccine rollout can reach as many people as quickly as possible. Finally, as a leading global emerging market tower core, our focus is not just on financial performance, but also on sustainability, which is at the core of our business. And in Q3, we have continued to advance our sustainability efforts on multiple fronts across our markets. Importantly, in September, we launched the Frontline Worker Initiative, a program through which we will pay for the entirety of a college education at a top school for the qualifying children of those of our employees, frontline worker employees, who have worked so hard during the pandemic to maintain the towers and network performance in such difficult periods. Applications to the program are commencing now, and we are excited for our employees. This program also covers the vendors, by the way, which is roughly a 40,000-people universe. So we are excited for our employees. We are excited for the employees of our vendor who can take advantage of this. Also exciting is that we have continued evolving the analysis of our Scope 1 and Scope 2 greenhouse gas emissions in connection with developing a carbon emission reduction strategy. another topic that is near and dear to me. During Q3, we delivered numerous other initiatives devoted to education, healthcare infrastructure, and combating COVID-19 as we have been doing across our markets. Turning to slide six, given this is our first earnings call as a publicly listed company, we wanted to provide a reminder of who is our chef. There are several key points that I would like you to keep in mind about us. First, we believe we are a unique investment proposition and company. In my view, there is no other TowerCo of this scale and experience that solely targets the emerging markets on a global level and has our growth prospects. We have grown significantly from our starting point 20 years ago, delivering year-on-year strong organic growth. Our emerging market footprint provides us access to secular growth going forward as the markets in which we operate rely on wireless telephony as we saw through the recent COVID period. Our markets, which are still growing from a population perspective, are behind the developed world in terms of wireless technology, with the majority of our markets still rolling out 4G, let alone considering the future of 5G. Nigeria today, for example, is about 40% 3G, 4G penetrated only. In Brazil, we have just seen the 5G spectrum allocation take place earlier in November, and are looking forward to significant carrier rollout over the coming years. These wireless technology trends drive our organic growth prospects as we provide co-location, lease amendments, and new sites for the carriers. Moreover, solutions that we develop in one country, like our rural telephony product, for example, which runs on solar with satellite back wall that we are rolling out in Africa, we believe can be deployed in new markets like Brazil and elsewhere. So we have cross-sell opportunities between markets as well. Secondly, our growth has also come inorganically from 19 transactions we have successfully completed for over 24,000 towers. Our plans to become a global consolidator of emerging towers are, in our view, real and are based on our experience, knowledge, and track record. Our diversification plans are part of an overall growth strategy. as well as a strategy aimed at reducing our group cost of capital. More on that strategy shortly. Third, our business model is very similar to the US Tower 2 model that you may be familiar with. We respect what those companies have achieved and look to replicate many aspects of their model. So we didn't reinvent the wheel here, but because we have executed the model in tough emerging market environments, we have gained a specific skill set that allows us to keep executing it on a global emerging market scale. Finally, we believe that our business model is inherently sustainable and that we deliver shared infrastructure solutions that promote digital connectivity and inclusion. This improves the lives of communities we serve by providing greater access to education, healthcare, and financial and government services, while the infrastructure sharing reduces the environmental footprint of the telecom landscape in our geographies. In the emerging markets, I believe that there is no way you can become of scale unless you operate as a long-term sustainable business. You need to be accretive to the environment as the resources around are very limited. So this is not a tick-the-box exercise for us. It is something that I'm very, very passionate about. The current footprint of IHS shown on slide six highlights that we are on our way to becoming a truly globally diversified power core with assets in Africa, Latam, and MENA. Over the past eight years, we have added 40,000 tenants and lease amendments, built thousands of towers, and acquired over 24,000 towers. Today, we own over 30,000 towers that serve 600 million people, and very soon, thousands of kilometers of fiber in Brazil. Egypt, of course, will add a market of 100 million people, making our market covering roughly 700 million people. So globally, we are now approximately the 11th largest tower in the world by tower count. But if you look closer, we are the fourth largest independent multinational. In Africa, we are the largest by far. On slide number seven, I wanted to highlight our historical growth and summarize our strategy. As you can see, our long-term revenue through 2020 is over 11%, and our results so far in 2021 have improved. We also have the scale with $1.4 billion of revenue and $819 million of adjusted EBITDA in 2020, and $1.6 billion of revenue and $710 million of adjusted EBITDA, $1.16 billion of revenue and $710 million of adjusted EBITDA in the nine months ended September 30th, 2021. And we have reached the scale while maintaining a conservative net leverage ratio within or below our target range of three to four net leverage. In terms of our strategy, we are fundamentally a growth company at the core, combining both organic and inorganic growth. There are two critical elements of this strategy. First, we will continue to grow organically, focusing on leasing up our existing towers and improving margin through lease amendments as our customers add new technologies to support their offerings, among other things. We also plan to continue to enhance our revenue through other services such as fiber, data centers, small cells, DAS, rural. In other words, an silly telecom infrastructure that fits our business model and our return expectations and helps further embed us with the customers by providing solutions they need. In Brazil, for example, we have 30,000 options on locations at the moment, and soon we'll have thousands of kilometers of fiber ready for the 5G rollout as we close the 10 Brazil transactions. which has just commenced with the initial 5G spectrum option. Second, we continue to look to diversify our asset base through new portfolios of towers, whether acquiring them from the carriers, as we have done successfully in the past, or buying existing tower codes, as we have done several times. Telecommunications infrastructure is a huge landscape of opportunity, and we believe that there are very few other companies that are doing this across the globe like we are. And as I said before, our advantage is our 20 years of experience operating in the emerging markets. We know how to identify, execute, integrate, and deliver strong returns from these acquisitions. I mean, we've done 19 transactions in a period of eight years, are closing the 20th shortly, and that's our track record. Our diversification strategy is aimed at growth, but also lowering our group cost of capital. So finally, we believe that there is an attractive opportunity out there for us. Africa is expected to double its population before 2050. LATAM, Middle East, Asia are all fast-growing young markets that need to deliver the broadband pipelines to their citizens. We expect that hundreds of thousands of POPs will need to be built or shared in the future. And we believe that we at IHS sit in this unique place to benefit from these trends the most. IHS at the moment is the only tower of scale solely focused on the emerging markets, and we believe we are very well-placed as anyone else to work in these complex environments. So the sky is the limit for us. And with that, I will turn things over to Adam and Steve to walk you through the results.

Thank you, Sam, and good morning, everybody. Turning to slide eight, you can see our towers, tenants, and lease amendments have all increased versus the prior year. As of the September 30th, our tower count is now over 30,500, almost 3,000 more than this time last year, driven largely by our acquisitions in LATAM and the ongoing new site programs there, as well as new site activity in Nigeria. Please note that unlike the U.S., our markets have characteristically day-minimus churn. Total tenants grew 8.3% year-on-year to 46,045. So the co-location rate is 1.51 times. Two things to remember in relation to the co-location rate, which we define as the total number of tenants across our portfolio divided by the total number of towers at a given time. Firstly, lease amendments, which I will cover shortly, are not included. And secondly, when you are a significant acquirer and builder of towers, as we are, then you are typically adding to the denominator period on period. we continue to lease up the more mature parts of our portfolio. Turning to lease amendments, they remain a strong driver of growth, increasing by 57% year-on-year as our customers added equipment to their sites, particularly 3G and 4G upgrades in Nigeria. Turning to slide nine, here you can see our consolidated revenue for both Q3 and the nine-month period to September 30, 2021. In Q3 21, IHS delivered high single-digit reported consolidated revenue growth and double-digit organic revenue growth. Reported revenue of $401 million grew by 8.7% versus last year, and our revenue of $1.16 billion for the nine-month period grew by 12.8% versus the prior year. Q321 organic revenue growth was 11.8%, and nine-month organic revenue growth was 16.8%. in each case versus their respective periods in 2020. We continue to grow strongly on an organic and a reported basis. However, our growth rates in Q3 2021 are higher in reality due to the impact of the MTN amendment we signed in July 2020, adjusting the dollar component of our contracts with them to the prevailing NAPEX rate. The amendment was effective from April 2020, so our reported results for Q3 2020 included a one-time 13.1 million revenue catch-up applicable to Q2 2020. If we strip this out, Q3 2021 reported revenue grew by 12.7% and organic growth by 16% in each case versus Q2 2021. Also for completeness regarding the nine-month 2021 period, as you can see on the slide, we have called out the 24.2 million of revenue recognized in Q2 which, although normal course of business as previously discussed, relates to an agreement reached with a major customer. As we have highlighted previously, this is the reason why Q3 revenue, in reported terms, is flat on Q2. Overall, we continue to grow well in line with our stated objectives of seeking double-digit revenue growth on an annual basis. On slide 10, we further unpack the components of our revenue growth. Here you can see our Q321 organic revenue growth of 11.8% was driven primarily by escalators and lease amendments, as well as new sites and new co-locations. In this reporting period, the FX resets are negative because the comparative period contained the positive impact of the MTN contract amendments. Inorganic growth was 1.8%, and the negative impact from FX was 4.9%. Q321 inorganic growth included the LATAM acquisitions, the acquisition of an additional 162 sites in Rwanda and 67 sites in Kuwait, pursuant to our purchase from Zain last year, all of which have been previously disclosed. And the nine-month comparison detailed in our appendix illustrates our organic revenue growth of 16.8%, inorganic growth of 2.1%, and the negative impact of FX of 6.1%. Now we take a closer look on slide 11 at adjusted EBITDA and adjusted EBITDA margins. In Q321, we generated strong consolidated adjusted EBITDA in margins, although these results were impacted by higher power generation costs, as we anticipated and discussed on our last two earnings calls, as well as incremental costs associated with our transition to public company status. Adjusted EBITDA in Q3 was $220 million, a slight drop versus Q3 2020. And adjusted EBITDA margins were 54.9%. While this quarter's increased revenue flows down to adjusted EBITDA, please recall that Q3 2020's EBITDA included the MTN revenue catch-up, which also flowed directly down to EBITDA. And without which, our Q3 2021's EBITDA would have grown by 1.6%. Power generation cost of sales increased by $22.5 million, primarily in our Nigerian segment due to a high diesel price, as well as year-on-year increase in overall consumption resulting from increased tenant and lease amendment activity. We continue to mitigate the pressure of the increase in oil prices by forward buying where possible, looking at both international and local suppliers, as well as prioritizing alternative sources of power solutions to reduce the overall dependency on diesel. At current prices, though, we anticipate a further headwind to margins in Q4, as previously highlighted. And we're also starting to experience the impact of higher commodity prices in our supply base. In terms of the nine-month comparison, we generated adjusted EBITDA of $710 million in the nine-month period ended September 2021, a 17% increase versus the comparative 2020 period. Adjusted EBITDA margin increased to 61%, from 58.5% last year. Again, we point out that this period includes a $61 million impact in Q2 21, relating to the 24 million revenue I just talked about, and the 36.5 million bad debt reserve release, which we also discussed last quarter. And finally from me on slide 12, we review our recurring levered free cash flow, RLFCF, a metric we use to measure our business and which we report in a manner consistent with our U.S. peers. In this respect, we generated cash flows of $74 million in Q321, and in line with the prior period when removing the Q320 revenue catch-up. Moreover, cash growth was 6.8% when removing the Q320 revenue catch-up, and our cash conversion rate, which we define as the cash flow divided by the consolidated adjusted EBITDA, was 33.5%. in a quarter in which we paid our bond coupons, which impacts the overall conversion rate. The nine-month period provides a longer-term perspective. Cash flows were 318 million, an increase of 40% versus the comparative period. And again, you can see the impact from the Q2 21 items we've just discussed. And with that, let me now turn things over to Steve, who will talk you through the rest of the presentation.

Thank you, Adam, and hello, everyone. Turning to slide 13. versus last year. This was primarily due to increased augmentation in new site CapEx in Nigeria in connection with lease amendments delivered for customers and also for our rural solution, respectively, as well as, of course, the increased new site CapEx in LATAM as we roll out there. These increases were offset in part by decreased maintenance CapEx in Nigeria, which will be caught up in future periods. CapEx was $252 million for the nine-month period ending September 30, 2021. versus last year in light of the same drivers just mentioned we closely monitor all discretionary capex balancing the needs of our customers with our returns focused investment philosophy and while we're pleased with the solid growth we have and continue to deliver through collocation and lease amendments which as we know is less capital intensive than new site driven growth we're nevertheless happy to see our customers embarking upon more robust build Similar to companies around the world, we are starting to see a slowdown in the supply chain as we head into the end of the year and into 2022, which we are trying to mitigate by ordering equipment earlier. In some cases, one to three months earlier than previous. Turning to the segmental review on slide 14, we look at the Nigerian business first. Let me start with a quick commentary on the macro backdrop. The macroeconomic environment in Q3 2021 continues to slowly improve, with GDP currently expecting same period last year. The NAPEX currency rate ended the quarter at $413 to the dollar, whilst FX reserves have continued to increase to $36.5 billion at the end of September, up from $33 billion at the end of Q2 this year, and actually are over $40 billion as we sit here today. Brent crude oil price stood at approximately $78 per barrel at the quarter end, up over 50% from the year end, which should have a beneficial impact for the Nigerian economy. And telecommunication remains an important part of the Nigerian economy, accounting for around 14% of GDP in Q2 2021. According to the Nigerian Communications Commission, or the NCC, the total number of mobile subscribers in Nigeria as of the end of September was 191 million, and the number of data subscribers was 140 million. 3G and 4G penetration as defined by the NCC was approximately 40% in September, And our key customers, MTN Nigeria and Airtel Nigeria, both posted strong results in Q3, particularly driven by data demand from subscribers. Against this backdrop, our business once again delivered strong results, tracking well on our key metrics. Top line growth continues to be driven by new sites, co-location, and new lease amendments. Our power count at the end of the quarter was marginally higher than the comparative period last year. as the increase from new sites in Q3 this year, in parting connection with delivering our new rural solution for a major customer, was slightly offset by Plan D commissioning, as well as some of the de minimis churn that Adam mentioned. Our total tenant count increased by 2.2%, and our co-location rate is up at 1.52 times. Moreover, lease amendments continue to be a strong driver of growth, with these increasing by 2%.