IHS Holding Limited Ordinary Shares

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.

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.

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.