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spk00: Thank you for standing by and welcome to the IHS Holding Limited second quarter 2023 earnings results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. I'd now like to welcome Colby Sinasel, Executive Vice President of Communications, to begin the conference. Colby, over to you.
spk07: Thank you, Operator. Thanks also to everyone for joining the call today. I'm Colby Sinasel, the EVP of Communications here at IHS. With me today are Sam Darwish, our Chairman and CEO, and Steve Howden, our CFO. This morning we published our unaudited financial statements for the three-month and six-month periods ended June 30th, 2023 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 is listed on the New York Stock Exchange under the ticker symbol IHS, which comprises the entirety of the group's operations. Before we discuss the results, I would like to draw your attention to the disclaimer set out at the beginning of the presentation on slide two, which should be read in full along with the cautionary statement regarding forward-looking statements set out in our earnings release in 6K filed as well today. In particular, the information to be discussed may contain forward-looking statements which, by their nature, involve known and unknown risks, uncertainties, and other important factors, some of which are beyond our control that are difficult to predict, and other factors which may cause actual results, performance, or achievements, or industry results to be materially different from any future results, performance, or achievements, or industry results expressed or implied by such forward-looking statements, including those discussed in the risk factor section of our Form 20F, filed with the Securities and Exchange Commission, and other filings with the SEC. We'll also refer to non-IFRS measures that we view as important in assessing the performance of our business. Reconciliation of non-IFRS metrics to the nearest IFRS metrics can be found in 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.
spk09: Thanks, Colby. I welcome everyone to our second quarter 2023 earnings results call. We remain well positioned to take advantage of the strong secular growth trends across our markets, which we expect to continue for years to come. We are reporting another strong quarter of performance across our KPIs, but of course, this is in the context of ongoing macroeconomic change in our largest market, Nigeria. We are encouraged by the recent policy changes implemented in Nigeria that are intended to put the country on a better economic path. In the near term, however, these changes have caused some anticipated friction, including the significant devaluation of the Naira that occurred in mid-June. As a result, we now assume an average rate of 624 Naira to the USD for the year versus 497 previously. And subsequently, we are revising our 2023 guidance for revenue-adjusted EBITDA and RLFCF while maintaining our CAPEX guidance and our target leverage ratio of three to four times. Our expectation for revenue would have otherwise increased by $31 million had the average forex rates previously assumed in our guidance remained unchanged. reflecting the strength we continue to see in our fundamental business. The significant net loss position we report for the quarter also resulted from Forex, as the devaluation drove significant non-cash financing costs. For the quarter, the change in Forex rates had a $21 million negative impact versus rates previously assumed in diners, including a $25 million negative impact from the NARA devaluation. Excluding the Forex impact, results were ahead of our expectations, driven largely by our Nigeria segment, including a pull forward in revenue a quarter earlier than we had anticipated. We will see the full impact of the Naira devaluation in our third quarter results and the impact of our Forex resets over Q3 and Q4 of 2023. 93% of our resets are quarterly and 4% are monthly. Separately, our board has exercised its strike to move forward from April 2024 to October 2023, the release of lockup restrictions on the final block of pre-IPO shares that are subject to lockup under the shareholders agreement. I'll speak more about this in a moment, but this will conclude the lockup period for our pre-IPO investors and will further move us towards achieving a normalized float. Additionally, the board has also authorized an up to $50 million dollar stock buyback program. I want to discuss some of our key highlights for the quarter. Starting with Nigeria, as I mentioned earlier, the new administration implemented three significant policy changes over the last few months, including two from a macro perspective and one that impacts companies like IHS that imports diesel. Starting with the macro changes, in mid-June, the Naira was permitted to trade freely in order to convert the multiple forex rates. This was generally expected and positively received by the markets and something we had discussed in previous calls. While it will take time to see the full impact of this change, it improves transparency in the Nigerian forex market and expected to improve liquidity and the ability for companies to access U.S. dollars. Thus, it is a change that we welcome. On a related basis, we did upstream $50 million during the quarter, and we may look to upstream later in the year via the official window or through other structured transactions. Another key change that occurred in late May was the elimination of the retail petrol subsidy, which cost the country billions of dollars annually. Because we purchased diesel and not petrol to power our sites, this change had only had a small impact on the petrol we used to fuel our own vehicles. Nevertheless, we believe this was a significant step forward for the country. Given the dollars the subsidy had required from the government to support, this is now expected to put more dollars back in the federal budget. Lastly, in July, the government initiated a 7.5% value-added tax on imported diesel. Notably, this was not previously factored in our guidance, and we estimate it will add approximately $5 million to our costs over the remaining six months of the year. Moving first to Brazil and then to South Africa, in Brazil, macro conditions continue to improve following the smooth governmental transition of power in January. Forex rates have strengthened against the U.S. dollar, while the central bank has recently elected to cut rates, a first among large economies. We are focused on our sizeable built-to-suit program and continue to assess a growing number of opportunities. We are excited about Brazil and like the strategic positioning we have earned in the market as a leading infra-co provider with both tower and fiber assets. Now to South Africa, as we stated last quarter and given various dynamics in the market, including an unprecedented level of load shedding that has occurred in the country post deal close, we continue to evaluate our opportunities and we'll update you as appropriate and if necessary. On stock liquidity, on October 14th, the Block D shares will be unblocked and the registered offering requirement for the Block C shares will end, effectively freeing up over 120 million shares. In addition, the IFS Board has exercised its right to move forward from April 2024 to October 2023 the release of lock-up restrictions on the final block of pre-IPO shares that are subject to lock-up under the shareholders' agreements. This means that all three blocks become freely tradable at the same time, thereby concluding the lockup period for our pre-IPO investors. The removal of the lockups will move us further towards achieving a normalized flow. Separately, our board has also authorized an up to $50 million two-year stock buyback program. Recognizing the importance of maintaining a strong balance sheet, we continue to take a disciplined approach to capital deployment, including near-term M&A, while we keep assessing what's out there. As of the end of the quarter, we had over $960 million of available liquidity and leverage stood at 3.1 times. While this will increase slightly over the next 12 months as a result of the impact of the Naira devaluation on our adjusted EBITDA, we expect to remain well within our target range of three to four times. We continue to have no meaningful debt maturity until quarter 425, and we continue to monitor the market and evaluate ways to further strengthen our position as we have done historically. Lastly, I want to comment on statements some of our shareholders have made since last quarter regarding our governance. Our board is committed to ensuring the integrity of the independence of IHS as a neutral digital infrastructure provider. and to maintaining strong corporate governance, supporting our customers, and increasing shareholder value. We remain engaged with these shareholders while maintaining an open and constructive dialogue with all of our shareholders. Turning to slide eight, you'll see that we published our 2022 sustainability report in May, which is our fifth year of doing so. The 2022 sustainability report is our first year reporting under the GRI framework, demonstrating our continued evolution in sustainability reporting and more so our long-term strong commitment to the subject here at IHS. And lastly, before I turn the call over to Steve, I want to announce that Bridesford is leaving the IHS board. Bryce is a dear friend and has been on the board since 2013. During this time, he has provided invaluable advice and I personally want to thank him for the many contributions he has made to IHS. Bryce stepping down is in line with our shareholders agreement that allowed ECP to designate a board member as long as they maintain greater than 10% ownership in the company. And with that, I will turn the call over to Steve.
spk08: Thanks, Simon. Hello, everyone. Turning to slide 9, as Sam mentioned, we are pleased with our Q2 performance, particularly against the backdrop of the currency devaluation in Nigeria, which I'll reference at various points today. As you see here, towers and tenants are up slightly in Q2 23 versus Q2 22, given that the South African acquisition closed in Q2 last year. Lease amendments again increased by double digit percentages, and we again delivered double digit growth in revenue and adjusted EBITDA for the quarter. Specifically, in Q2, we delivered 17% growth in revenue, 27% growth in adjusted EBITDA, and 4% growth in RLFCF, in each case on a reported basis and driven primarily by organic activity across our markets, with some inorganic contribution from South Africa. Our adjusted EBITDA margin improved significantly to 55.6%, a 450 basis point gain on Q2 2022. The results reflect the devaluation of the Nigerian Naira versus the US dollar that occurred in mid-June and thus only partially impacted the quarter, as well as some pull forward of anticipated Q3 revenue into Q2, which I'll discuss shortly. As you also see, total capex grew by 41% in the quarter, largely due to movements in Nigeria and LATAM, whilst we saw an overall decrease in capex in SSA. Finally, our consolidated net leverage ratio was 3.1 times at the end of Q2, a slight decrease versus last year and flat on one Q23. Although as I'll discuss, we do expect our leverage ratio to increase over the next 12 months in light of the devaluation, but remaining within our target three to four times range. Turning to our revenue on a consolidated basis, slide 10 shows the components of our 16.8% reported consolidated revenue growth for the second quarter. Organic revenue growth of 29.7% was driven primarily by CPI escalations, power-related revenue, FX resets and lease amendments, as well as some pull-forward revenue we had anticipated for 3Q but actually occurred in 2Q. This is included in other. Additional revenue growth was driven by new co-location, new sites and fibre deployment as usual. As you can imagine, the full impact of the Naira devaluation towards the end of the quarter is not reflected in the level of escalations and FX resets you see here, nor fully in the negative impact from FX, all of which I will discuss further. The level of power-related revenue continues to reflect the high energy price environment and includes a $24 million increase in diesel-linked revenue. I would also again note that we now include the power pass-through revenue we receive in South Africa within the power segment, which in Q2 increased $2 million. On the right, you can see the organic growth rates of each of our segments for the quarter, with Nigeria delivering 37% organic growth, including the pull forward revenue. Inorganic growth for Q2 was 3.9%, reflecting almost entirely the South African acquisition, and inorganic growth will drop further in Q3 as we have now passed the anniversary of the South African acquisition. On slide 11, you can see our consolidated revenue and adjusted EBITDA and adjusted EBITDA margins for Q2 2023. As I discussed on the prior slide, in the second quarter, IHS generated a nearly 17% increase in reported revenue. Organic revenue growth was even higher at nearly 30%, again demonstrating the continued strong top line growth trends of the businesses led by Nigeria in particular. However, as a result of the Naira devaluation in mid-June, 2Q23 revenue includes a $21 million headwind, versus rates previously assumed in guidance, including a $25 million headwind from the Naira, since the FX resets on the US dollar denominated portion of our Nigerian contracts doesn't kick in until July onwards. In Q2 23, adjusted EBITDA of $304 million increased 27% versus Q2 22, and adjusted EBITDA margin was 55.6% up 450 basis points from the prior year. The year over year changes in adjusted EBITDA and margin for the second quarter primarily reflect the increase in revenue we've already discussed and partially offset with year on year increases in cost of sales, mainly due to increased maintenance and repair costs on a larger business, as well as increased administrative expenses resulting from employee costs related to the acquisitions. Power generation cost of sales decreased by $6 million, driven by a $12 million diesel cost decrease, primarily from a 13.1% decrease in diesel price and a 5.5% decrease in consumption, all offset by a $6 million increase in electricity costs, including as a result of Project Green and all of these movements coming from Nigeria. As previously highlighted, through Project Green, we continue to prioritise alternative sources of power to reduce our dependency on diesel. On slide 12, we first review our recurring levered free cash flow. We generated RLFCF of $91 million in Q223, a 4% increase versus Q222 due to a combination of factors, including the increased revenue and adjusted EBITDA discussed already and decreases in income taxes paid. These factors were offset in part by increases in net interest paid, lease payments made mostly due to the South African acquisition, maintenance capex and withholding tax. our RLFCF conversion rate was 30%. Turning to CAPEX, and in Q2 23, CAPEX of $207 million increased 41% year-on-year. This increase was largely due to movements in Nigeria and LATAM. Increased investment in Nigeria in Project Green, maintenance CAPEX and fibre deployment was offset in part by decreases in new site CAPEX there. In LATAM, we saw growth in new site CAPEX and ice systems fibre rollout, whilst we saw an overall decrease in capex in sub-Saharan Africa. Onto the segment review on slide 13, our first walk through our Nigerian business. The Nigerian macro remains complex, as we discussed previously and on our earlier earnings call this year. We are encouraged by the swift actions taken by the new government, including the removal of the fuel subsidy and the liberalisation of the forex regime that resulted in the devaluation of the Naira that took place in mid-June. We remain in close contact with our key customers, two of which have again recently published healthy top line results in their businesses. We also continue to work closely with various regulators, our vendors and our local banking partners to continue to best position IHS. While we are cautiously optimistic, US dollars continue to be difficult to source, although remain available. FX reserves in the country have decreased to $34.1 billion at the end of June 2023 from $35.5 billion at the end of March 2023. And market participants believe that the CBN will need to step in at some point to inject liquidity into the system and clear the backlog of FX transactions. That being said, the price of both oil and ice gas oil have decreased quarter on quarter. If we look at ice gas oil, it was $687 per tonne in Q2 23, down from $819 per tonne in Q1 23. And then moving to real GDP growth, it expanded by 2.3% in Q1 23, with a projected full year 2023 growth rate of 3.2%. Inflation increased to 22.8% this June versus 18.6% in June 2022. So overall, we continue to believe the business remains well positioned for long term success and to endure these near term macroeconomic challenges. To this point, a Nigerian business once again delivered strong results in the second quarter, tracking well on our key metrics. Q2 23 revenue of $365 million increased 13.5% year on year on a reported basis. and 37% on an organic basis, in each case reflecting the devaluation over a small portion of the quarter and the pull forward of revenue discussed. Top line growth was driven primarily by the usual group of escalations, power-related revenue, as well as FX resets and lease amendments. The negative FX impact was $74.5 million, or 23%, due to the Naira devaluation. Our tower count decreased by 2%, and total tenant count increased by 0.4%, each versus Q2 2022, largely reflecting the planned decommissioning previously discussed, which does not impact revenue. Our co-location rate consequently improved to 1.57 times, up from 1.53 times in Q2 2022. Lease amendments continue to be a strong driver of growth, with these increasing by 9.8% quarter on quarter as our customers added additional equipment to our sites, particularly 4G upgrades. Q2 23 segment adjusted EBITDA in Nigeria was $238 million, a 30% increase from a year ago, and segment adjusted EBITDA margin was up 820 basis points to 65.4%. And let me now briefly summarise the results in our other segments. As our sub-Saharan African segment includes our South African business since Q2 2022, towers and tenants increased by 1.5% and 2.6% respectively versus Q2 last year. Revenue increased by 30%, of which organic revenue grew 15%, driven primarily by escalations, new sites, collocations, and FX resets, whereas inorganic revenue grew 19%, driven by that South African acquisition, and FX was a 4.3% headwind. Segment-adjusted EBITDA increased by 19%, driven primarily by the increased revenue and partially offset by increases in power generation costs, maintenance security costs, and administrative expenses. Segment adjusted EBITDA margin decreased to 51% from 55.8% in Q2 last year. And we continue to monitor the macro environment in South Africa, particularly the ongoing power load shedding by the national utility. And as previously discussed, we continue to evaluate our managed services opportunity. In our LATAM segment, Towson tenants grew by 4% and 3.2% respectively, whereas revenue and segment adjusted EBITDA increased by 13 and 14% respectively. in all cases versus q2 last year in brazil our second largest market with 7139 towers macro conditions were largely stable as gdp growth decelerated fx rates marginally strengthened interest rates held steady in the quarter and inflation decreased in our latam segment overall q223 organic revenue increased 14 percent driven primarily by an increase from ice systems fiber deployment and escalations Segment adjusted EBITDA grew by 14% also in the quarter, with a segment adjusted EBITDA margin of 73.1%. In MENA, towers and tenants each grew by 6.8% in Q2 23 and revenue grew by 11%, including 8.4% organic revenue growth. Segment adjusted EBITDA grew by 29% in the quarter, with a segment adjusted EBITDA margin of 54.5%, reflecting the increased revenue and a decrease in admin expenses. On to slide 14, and I'll briefly highlight our KPIs. As of June 30, our tower count was 39,298, up 0.6% from the same period last year, driven by ongoing new sites in LATAM, SSA and MENA. As you can see in the chart on the top right, collectively, we built nearly 300 towers during the second quarter of 2023. Total tenants grew 1.9%, with the collocation rate at 1.49 times, up slightly versus last year. We continue to point out that lease amendments are a significant factor for us, particularly in our Nigerian segment, given the ongoing 4G upgrades by our customers there and the initial 5G activity we are seeing. While lease amendments increased by almost 12% year on year, they are not included in our collocation rate calculation. We continue to see no reason why we can't get to two times or greater on our overall portfolio over the long term, and our more mature portfolios of towers are at or above that rate. On slide 15, we look at our capital structure and related items. At 30 June 2023, we had approximately $4.06 billion of external debt in IFRS 16 lease liabilities. Of the $4.06 billion of debt, $1.94 billion represent our bond financings and other indebtedness includes $370 million that we drew down last year from the $600 million three year bullet term loan facility at the IHS holding limited level. Additionally, as previously discussed in January 2023, we entered into an up to 165 billion Naira five year term loan facility, the commitments under which we further increase by another 11 and a half billion Naira during the quarter, while also drawing down an additional 15 billion Naira for a total of the 165 billion Naira drawn under this facility as of August 14th, 2023, effectively concluding the capacity of this facility. During the quarter, we also increased capacity under the group RCF to $300 million. and there are currently no amounts drawn or outstanding under either the Group RCF or the Nigerian RCF. As we previously stated, we were very pleased to have completed the Nigeria refinancings, which further de-risked the balance sheet and increased our financial flexibility, particularly in front of the recent Naira devaluation. Cash and cash equivalents decreased to $433 million at June 30. And in terms of where that cash is held, approximately 7% of the total cash was held in Naira at our Nigeria business, as we have been using excess cash to support Project Green and for upstreaming. The majority of the remaining cash was held in US dollars at the group level. Moreover, as we previously highlighted on our May call, we upstreamed an additional 50 million U.S. dollars from Nigeria in Q2 23 on top of the 15 million dollars done in Q1. Consequently, from all these moving elements at the end of Q2 23, a consolidated net debt was approximately three point six billion dollars. and our consolidated net leverage ratio was 3.1 times flat with March and at the low end of our net leverage target range of three to four times, further demonstrating our strong balance sheet. However, I would note that because the devaluation occurred late in the quarter, we do expect leverage to tick up slightly in the second half of 2023 when adjusting for a full quarterly impact of the devaluation, as I'll discuss shortly regarding our guidance. And finally, as it further relates to the devaluation, I wanted to point out that Q2 shows an unusually large net loss of approximately $1.2 billion, which is driven primarily by $1.4 billion in finance costs, the vast majority of which is unrealised FX losses. The components of finance costs include net FX losses from financing, both realised and unrealised, net FX losses on derivative instruments, both realised and unrealised, as well as interest expenses. As is typical each quarter, these costs arise principally due to our bonds, given the embedded options therein, and because of the intercompany shareholder loan structure we have used historically to fund the business. These costs, which are very largely non-cash, can vary significantly and typically increase in the context of a devaluation of the Naira, which is the primary reason why they increased dramatically in Q2. We've added slide 21 to the appendix to help further explain this dynamic and highlight the large delta this past quarter. Moving to slide 16, and as a result of the Naira devaluation, we're revising 2023 guidance for revenue to $2.08 to $2.11 billion, adjusted EBITDA to $1.13 to $1.15 billion, and RLFCF to $385 to $405 million, and maintaining our total capex guidance of $610 to $650 million. As Sam mentioned at the beginning for the year and as highlighted on slide 17, we now assume an FX rate for the Naira of 624, which includes 775 Naira to the dollar in Q3 23 and 750 Naira to the dollar in Q4 23. Our expectation for revenue would have otherwise increased by $31 million had the average FX rates previously assumed in our guidance remained unchanged, reflecting the strength we continue to see in our fundamental business. Guidance also continues to include approximately $25 million in power pass through revenue in South Africa, of which we have recognised $4 million through the first half of the year. I do want to again caution that timing of such moves is difficult to predict and could be delayed relative to what we've assumed, although this would have no impact on adjusted EBITDA or RLFCF. Guidance also continues to exclude any revenue from Egypt, although we continue to evaluate opportunities in the market that we believe could align with our financial and strategic objectives. For the year, we continue to expect to build approximately 1,200 towers, which is slightly more than the amount we built in 2022. This includes a notable drop in Nigeria as we pull back on new site builds as we shift more of our focus to Project Green, but also includes a tripling of tower builds in Brazil that we back-lend loaded in 2023. On slide 17, on the top, you can see revenue by reporting currency for Q2 23, whereas on the bottom, we provide the breakout of revenue based on contract split. right side shows the average annual fx rate assumptions used now in our 2023 guidance and has been updated since last quarter this equates to 141 million dollar downside for the year versus rates assumed last quarter of which over 100 percent is as a result of the devaluation of the naira this now brings us to the end of our formal presentation we thank you for your time today and operator please now open the line for questions
spk13: Thank you. And as a reminder to those on the phones, press star one to raise your hand. We will now pause briefly while we register questions in the Q&A roster. Your first question comes from the line of Jonathan Atkin from RBC Capital Markets. Your line is open.
spk06: Good morning. This is Bora on for John. So I guess the first question is one of your largest customers recently noted that while they're optimistic about the medium and long term, expect policy reforms to pressure film customers and hence carriers in the shorter term. Can you just update us on the leasing activity that you've been seeing and the tone of customer conversations you've had about future activity? Then I have a follow-up.
spk08: So firstly, we haven't seen any form of slowdown in carrier leasing activity at this point in time. In fact, in Q2, we posted um more pretty strong numbers in terms of uh close to 300 about 278 build to suit across the business um but probably more relevant to your question was about 1100 lease amendments um and another 270 odd collocations in the quarter as well so we we haven't seen anything we're not hearing anything from our customers customers are still talking to us about uh technology trends and looking to the longer term around 5g rollout etc so At this point in time, no reason to think that. If you look at the results of particularly our African carriers, people like MTN Nigeria, Airthin Nigeria, et cetera, you'll see that they continue to post really strong growth numbers as they drive data and fintech through their business as well. They both just posted 23% to 25% revenue growth and EBITDA margins increasing. So at this point in time, we feel pretty good about the rest of the year and into next year.
spk06: Just for a follow-up, Dengote Refinery was reportedly going to start operations before the end of July. Can you provide an update as to if that's occurred and any sort of early indications of any impact on the supply of domestic diesel? And somewhat related to that, the 7.5% VAT on imported diesel. Can you provide some guidance on how we should be thinking about sizing the financial impact of that go forward?
spk08: So a couple of things in there. So first on the Dangote refinery, so we haven't seen anything come through in terms of production yet. So that's really a wait and watch. Although the facility was officially opened back in May, it wasn't expected to immediately start pumping. So we're just waiting to see when that occurs. And then in terms of what else has been going on, you will see in our disclosure material, once you've had a chance to look through, we do comment on things including the VAT rise. So that's the new 7.5% on imported diesel. And given Nigeria doesn't have a straight input output VAT system, that is an absolute cost for us. It's about $4 to $5 million, about $5 million approximately for us in the second half of the year. So that's the type of impact that we're seeing, and that's obviously implicit within our revised guidance that we've put out to you all.
spk06: And we should be thinking about that as sort of a general run rate for a half year, if we take?
spk04: Yes. Okay. Thank you. Sorry, Laura. Did you not hear me? Sorry. Yes, I said yes.
spk13: Your next question comes from the line of Phil Cusick from JP Morgan. Your line is open.
spk11: I guess. Thanks. Sam, we've been talking about potentially a buyback for quite a long time, and we've talked about the math between the liquidity in the stock and any accretion on the buyback. How did that math go in for the $50 million authorized today, and was that any kind of compromise with Wendell and MTN, and then talk maybe about the relationship with those two companies. Thanks.
spk05: Maybe I'll start with the buyback. Steve can start with the buyback, and I can talk about the second aspect.
spk08: So, Phil, you're absolutely right in terms of the two items that you're coming on. We've obviously been thinking through a buyback for a little while. As most people know, we've commented on that before. We have also been thinking through for a long time how to try and promote liquidity into the IHS free float, which is obviously of paramount importance to us as well. So those are kind of the two key variables in a few of our actions that we've taken this quarter. So firstly, announcing the buyback, but secondly, unblocking the rest of the pre-IPO shareholder lockup arrangements, which will come forward to mid-October this year. So that will remove all the restrictions from the pre-IPO shareholders to be able to trade freely. We wanted to do that, obviously encourage and finalize the encouragement of that free float so that that gets done. And then in terms of the share buyback, look, we continue to want to drive value into the IHS stock. And although this is a kind of more limited in size and it's a 24-month program, so 50 million over 24 months, it's incremental. But we do think it's the right thing to be doing in terms of allocating that capital to something that we feel is important given the continued undervalue of the IHS stock. It's a combination of factors, but yes, very focused on driving up liquidity in the free flow and then an incremental and we think positive buyback given the undervalue of the stock.
spk04: Thanks, Steve.
spk10: And on the second part, Phil, yeah, shareholders, notably the ones you've mentioned, have made statements in public I prefer not to comment on such, but having said that, we have a duty to engage, to listen, to consult, to analyze, and where we think good ideas are worth implementing. Okay.
spk11: Maybe if I can, one more.
spk04: Any update on backlog of payments from smaller customers in Nigeria? No, nothing. Nothing to report there.
spk13: Your next question comes from the line of Greg Williams from TD Cohen. Your line is open.
spk02: Great. Thanks for taking my questions. Just to follow up on the buyback, can you help us with the cadence? Would it be a little more upfront to help us wage the influx of shares in October, or would it be smoothed out over the 2025 time period? You locked in diesel until September with forward contracts.
spk05: Is there an appetite to lock that again or float from here? Thanks. Sure. Sorry. Hey, Greg.
spk08: So on the cadence of the buyback, look, we're going to monitor the market and see how things unfold. So what we've put out there right now, 50 million up to 50 million over 24 months. Obviously, we might not use all of that. Depends a little bit on market conditions. And as you said, things like the unlock coming in October, where historically we've seen a bit of volatility. So we'll monitor the market and update people as and when appropriate. And then on the second part of your question, locking diesel, that's something that we continue to look to do. No real update for you on that in terms of where we are, other than we're priced through into the beginning of Q4 now, and we continue to look at the best way to procure diesel. As you guys all know, we're obviously been investing significantly in Project Green to try and reduce the consumption of diesel as well. And that project remains on track. So that's a positive as well. But in terms of procurement, yeah, we keep monitoring the prices and look at how far forward to lock in. Keep assessing that pretty regularly.
spk04: Thank you. Your next question comes from the line of Eric Lepchao from Wells Fargo.
spk13: Your line is open.
spk12: Great. Thanks for taking the questions. Could you talk about the Build the Zoo program a little bit? It sounds like perhaps you're deprioritizing some of the builds in Nigeria. I'm just wondering if that has come from higher hurdle rates and the more material increases in cost of capital you've seen in that market.
spk05: Hi, Eric.
spk08: Simple answer is yes. To the points you raised, at the beginning of the year, to be honest, we said to people that You know, Nigeria, whilst has a phenomenal amount of growth left in it, as it comes to allocating capital by ourselves, we wanted to allocate capital into Project Green, which was a key initiative, a key project for us, which comes with the benefits of reducing greenhouse gas emissions and reducing our scope to emissions over time, but also happens to have a very good financial return profile as well. Remember, we'd been saying that it would be a 30% IRR project. So yes, we diverted capital from Nigeria BTS into Project Green. So the BTS in Nigeria will be lower this year for sure. But where we are spending capital and growing the business from a TowerCamp point of view is in Brazil, where we continue to forecast approximately 750 new build sites this year. That program is ramping nicely. It It ramped at the end of Q1 and then really has been ramping up through Q2 and onwards. So that remains on track. And, you know, that's a part of the business where we want to continue adding to the tower count through building.
spk12: Okay, great. Thanks. And then just one more question. You talked earlier about evaluating some other balance sheet initiatives. So maybe you could give us some color on what you're looking at, whether that's You know, raising additional Naira denominated debt, pushing out maturities beyond 2025, kind of what are you evaluating currently?
spk08: We're no different to a lot of companies around the world right now. We continue to monitor very closely our maturity profiles. um we have a fair bit of time before you know any meaningful maturities but that doesn't mean that we don't kind of look around and see what's available uh strategizes to whether we can uh achieve some of our capital structure objectives which include terming out maturities but also include can we take advantage of a cheaper local currency debt where possible uh things like that so It's a moving target and something that we actually are always assessing. You'll have seen over the last few quarters, we've done a few incremental bits and pieces, whether that's at the holding level or in Nigeria or elsewhere. And we keep that under constant review. So we'll keep people updated as and when anything happens, but continuing to monitor all of that and take advantage of things where we can.
spk04: Great. Thank you. The next question comes from the line of Michael Rollins from Citi. Your line is open.
spk05: Thanks and good morning. I just want to go back to the question about questions about corporate strategy, capital allocation. Can you share just where maybe some of the tension has come from, you know, from major shareholders and at the board? Is it a question of whether or not being public company, markets you serve, and currency impacts of that, and the low float is kind of raising the question of whether being public is the right solution for the company, or is it other more maybe tactical decisions or ideas that are the source of the tension?
spk04: Hi Michael, this is Sam.
spk10: I can't comment on intentions, on things we can't see or feel. Again, look, it's important for us to reiterate that this company is open, it's flexible. We understand we have a float problem. We understand our share price is undervalued. We believe that fundamentally. I think our shareholders do also believe that. I think we mostly agree on the fact that we need to find solutions and hopefully kind of like trend the market or trend our value in the right direction as and when appropriate. We are open to ideas. We are open to ideas. We're open to suggestions. And we continue to analyze, evaluate, and see whatever works to move us into that direction.
spk05: And are there, as you've thought about these issues for some time,
spk02: Are there examples or case studies that you've found of other companies that have might have dealt with some of the same or similar types of issues and maybe the timing and the mechanisms they use to resolve it to improve value proposition for shareholders?
spk08: Mike, I think there's lots of case studies about different elements of what all companies face. I think we've got a number of things which we believe can be improved over time to help drive shareholder value. But I would stress these things don't happen overnight. So we look around and try to learn the best of everything out there, including our own ideas, right? And, you know, first and foremost, keep delivering on the operations of the business and execute on the business itself. And then add on top, what else can we do to try and unlock value? You know, we've spoken on this call and over the last 12, 18 months around the free float. That's obviously critical in our minds. Again, we've tried to address some actions by announcing, you know, bring forward the unlock. which isn't going to solve everything, but, you know, is in our gift to try and promote, you know, additional trading and additional free float to come into the market. But ultimately, not in our hands, right? It's up to shareholders. So, you know, we will keep looking around at what others have done in the past. We'll keep adding our own ideas. It's a big focus of ours, a big focus of ours right now. So we will keep working hard.
spk04: And Mike, with us,
spk10: Sorry, Michael. Just to add, we continue our diversification. I mean, Nigeria is a fast-growing market, and we love the growth profile, but we do understand that we are somehow concentrated in that market, and we continue to try and diversify ourselves there. And the final thing I wanted to note here, and I don't want to be defensive in any way or form, but since going public in late 2021, the capital markets have changed meaningfully as a result of among other factors, the rising interest rate environment, the elevated inflation, the Russia-Ukraine war, the higher energy costs, etc. And of course, we at ITS have had also to overcome changes in Nigeria, including the recent devaluation of its currency. Despite all of this, our stock is up 28% year-to-date as a few days ago, and has meaningfully outperformed all our peers, as well as MTN Group and Airtel Africa, all of whom wish very well. And even over the last two months, basically, as most of our peer companies and customers have traded down, ISS has performed broadly in line with them, despite having to absorb the impact of the narrative evaluation, reduction in sell-side estimates. And again, we've outperformed nearly all of our peers and customers year-to-date. So we feel good about the proposition we feel good that the steps we are implementing are are hopefully going to trend us into the right direction but uh rome wasn't built in a day especially with the with the massive headwinds we face from the local macro and from some of our markets thanks and just on on the business on the organic performance um is there anything that we should be mindful of just in terms of any uh
spk05: churn events over the coming 12 to 18 months that you have visibility in?
spk08: Mike, nothing that would be unusual, nothing significant that we're aware of at this point in time. I think it goes without saying that the shape of our quarters will be impacted by the devaluation in Nigeria. So just to remind you all, and you'll see this in the materials that we've published today, although the devaluation in Nigeria happened in the middle of June, so only two weeks impact in the quarter that we've just reported, hence not hugely visible in the numbers that we report from a KPI perspective, obviously balance sheet and financing costs, yes, but revenue, EBITDA, RLFCF, et cetera, not impacted. You'll see the fuller impact of that come through in Q3, and obviously resets from contracts starting to happen in Q3, in Q4, and then escalations coming through typically in Q1, as we've told people in the past. So just bear in mind that shape of earnings to come, obviously all embedded within the guidance that we have updated today.
spk04: Thank you. The next question comes from the line.
spk13: Greg Feldman from Goldman Sachs. Your line is open.
spk03: Thanks, guys. Two, I guess, sort of modeling-oriented and a bigger picture question. So then just first, of the $31 million improvement to your outlook this year, unrelated to the currency movements, how much of that was captured in the second quarter and how much of it is going to flow through in the second half? The second one is, On Project Green, you sort of reiterated the savings you expect by the end of the project. Is that updated for the avoidance of the VAT, or could that be incremental, or am I just thinking about that wrong? And then the higher-level question is, it gets back to capital allocation. You know, you're operating closer to the low end of your leverage range right now. I know that it will drift up a little bit, but you're in a pretty good liquidity position. It doesn't seem like the conditions are supportive of M&A right now for a range of reasons. And as much as you'd like to buy back a lot of your stock, you've noted you want to be mindful of the float. And so the big picture question is, in light of all of that, how are you likely going to prioritize excess capital over the next year or so? Is this mostly about just building liquidity and paying down debt? Or do you think that there's other opportunities right now to do things that could be even more freedom?
spk05: Okay, Brett, I'll just scribble down a few things.
spk08: You might have to remind me of the first one. I'll take the VAT one first, so in relation to Project Green. So that won't impact the rollout of Project Green. That VAT is on diesel import, so not related to the actual project bringing new equipment, deploying new equipment. But would you save more money now? Yeah, exactly. I was just going to say where you could see some potential positive impact, all else being equal, is that a saving from diesel on a unit basis would now be 7.5% higher. So, yes, we could see some potential benefit from that, all else being equal.
spk05: On the capital allocation point, sorry, Brett, do you want to jump in?
spk08: What was your first question again? Can you just remind me?
spk03: Sorry. I was going to remind you, the $31 million improvement to the outlook, how much of that was in the quarter versus in the second half?
spk08: Yeah, so majority of it was in the first half of the year, probably about two thirds of it was in the first half of the year, third of it coming in the second half of the year.
spk04: And then on capital allocation, Sam, do you want to jump in?
spk10: Yeah, sure. Look, Brett, Our priority at the moment is our balance sheet. We need to make sure that, and while we are comfortable at the moment, we need to make sure that we keep it tight, especially with the headwinds that we're facing from, again, global macro, and in particular the Nigeria devaluation situation. But we also feel somehow okay about our leverage zone, even with an impending devaluation, if it stays within reason. And we continue to assess and evaluate opportunities out there. If we feel there are great deals that make strategic sense to us and could provide enhanced value to our shareholders, we will probably consider. But again, the priority at the moment is our balance sheet.
spk04: Thank you. Our next question comes from the line of Stella Cridge from Barclays.
spk13: Your line is open.
spk01: Hi there, afternoon everyone. Many thanks for all the updates. There was two things that I wanted to ask about. The first is, could you just let us know what power contracts will be maturing in the near term? And given that some of the customers seem sensitive around the devaluation, the dollar component, what do you think might be similar or different in future power contracts as you go through those negotiations? That was the first one. And the second one, I know you were previously asked about capital structure and optimisation, but I wanted to ask in a slightly different way, more in terms of, do you see any funding needs in the next, you know, three to six months, either at the opco levels or at the whole coal level? Obviously, just noting that you did do some small borrowing in, say, South Africa, increased the whole coal, etc. in the last few months. That would be the second one. Thanks.
spk08: Sure, hi Stella, Steve. I'll go in reverse order. So funding needs. We've got small incremental things that we're doing, as I sort of alluded to on a prior question that was asked. We've got small incremental things we're doing at Opco. So LATAM, for example, we're looking at things and we may look to do other things in relation to the wider capital structure. But those are, you know, we'll see how we go on those bits and pieces. So that's on the capital structure. We'll obviously announce things as and when things get done. And from a maturity perspective, so we've got some smaller contracts across sub-Saharan Africa in the next 18 months. And then we've got one in Nigeria at the very end of 2024. Yeah, 31st December, 1st January 2025, in terms of the key contracts that are coming up for renewal. Otherwise, everything out is longer term. In terms of future tower contracts, that's very difficult to comment on. Everybody has wish lists. Customers have wish lists. We have wish lists. Keep in mind, we also have a blend of different contracts across our particular African portfolio where some include power, some don't. Some have higher dollarization. Some have lower dollarization. So there's a whole raft of things. Some have lease amendments captured within them. Some don't. So there's a whole raft of different items that typically both sides want to optimize. And the reality is, given the growth nature of our markets and given, you know, significant rollouts that continue in those markets, there usually ends up being some form of win-win within those negotiations. But, you know, we can't crystal ball gaze at this point in time.
spk04: Superb and flexible.
spk13: That brings us to the end of the IHS Holding Limited second quarter 2023 earnings results call. Should you have any questions, please contact the investor relations team via the email address, investorrelations at ihstowers.com. Management team, thank you for your participation today and wish you a good day. Thank you.
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