Helios Towers PLC
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Helios Towers PLC
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Welcome to the Helios Towers Q1 2022 Results Call. My name is Ruby, and I will be your moderator for today's call. [Operator Instructions] I'll now hand over to our host, Tom Greenwood, Chief Executive Officer, to begin, Please go ahead.
Thank you very much, Ruby, and welcome, everyone. Great to be talking to you today. I'm Tom Greenwood, the CEO. And with me I have Manjit Dhillon, our CFO; and Chris Baker-Sams, Head of Strategic Finance and Investor Relations.
On Page 3 you see the agenda. And this morning's call is really a run-through of our Q1 release, which came out a little earlier this morning. We'll talk through some highlights, we'll talk through some financials. And then of course there'll be good time for Q&A at the end. But also today we have our Capital Markets Day which is happening later, kicking off at 1 p.m. London time this afternoon. And I know that a lot of you are either attending in person or planning to login virtually. If you still want to register, you're able to click on the link here on the page and register. So I look forward to talking to you all later. And at that we'll be launching our new 5-year sustainable business strategy. And as well as the people that you have on this call, there'll also be some of the wider executive team there for you to meet, some of whom will also be presenting. So really look forward to that later.
So moving on to the Q1 highlights. And now I'm on Page 5 of the presentation. So look, Q1 was a really solid quarter. We've delivered 23% in revenue growth year-on-year, 20% EBITDA growth, EBITDA margin in line at 52%, which of course has been slightly diluted with all the new assets that we've bolt-on which we're all now ready to lease up and start driving those margins and returns. And cash flow as well up 34% year-on-year. Of course, a huge amount of all of this was driven by our tenancy increases.
We added over 1,500 year-over-year, and also closed on our 8th market in Malawi in the quarter. All of this driving site counts up 43% year-over-year and tenancy growth at 29%. And both of those around 9% on an organic basis. So really seeing strong tenancy rollout coming through. And in fact our Q1 tenancy rollout on an organic basis was 359. So one of our strongest ever. And typically quite a quiet quarter for our business due to rollout cycles with our customers. Of course, late last year we told you about this and we mentioned that we were pre-ordering some CapEx so that we could continue the momentum in Q1 without any delays to rollout due to supply chain issues. And of course we're very pleased that we did that because it has enabled us to deliver on a strong quarter.
Other news, we're still continuing our processes of closing Oman and Gabon. So those are moving in the right direction. And aiming to close those in Q2 and H2 respectively. And finally, our guidance is reiterated for the year, which is centered around the organic tenancy additions being 1,200 to 1,700, around 8% at the midpoint. And finally a reminder that all of our revenues and earnings are very well protected against inflation and power price movements through the contractual escalators in all of our contracts.
So in a sort of global environment where we're seeing quite a lot of increases or volatility, in those sorts of measures our business is very well protected against those through our contracts. So feeling very good about a robust earnings stream going into the latter half of the year and of course into future years.
Moving on now to Slide 6, and here we just see some of the main KPIs in chart form. As you can see, tenancy is showing good growth as we move into Q1. We've added about 1,500 since the end of last year, with about 1,100 coming from the Malawi acquisition and 359 organic in our other markets. So making good progress there.
EBITDA, as you can see, as that's up fairly significantly, if you look at the quarter 1 annualized of $274 million, that is already a 14% increase on our FY '21 EBITDA, which was $241 million, you see there in the middle. So of course, what this means is if we did nothing for the rest of the year and did not sell another single tenancy, then our EBITDA would continue on this level. Of course we are going to be selling more tenancies and driving more efficiencies. So we're feeling good about a good base that we've got in Q1 at $274 million, ready to drive that further upward as we move through the year. Finally, here you can see the cash flow metric also has stepped up as would be expected, principally driven through the EBITDA increase.
Moving on to Slide 7, and again here our sustainable business strategy is very much in full swing and in fact, as I mentioned earlier, later today at our Capital Markets Day we will be launching our new 5-year sustainable business strategy which is centered around our purpose of driving the growth of mobile communication across Africa and Middle East. And of course our mission which is to deliver exceptional customer service through our business excellence platform and create sustainable value for our people, environment, customers, communities and investors.
So look, later on today I, Manjit and some of the other ExCo members will be taking everyone through a presentation which really looks into what we're going to be doing for the next 5 years, where we're focused on, and of course all elements of our business from business excellence to Lean 6 Sigma to our customer service excellence mantra, and of course our sustainability angles of which we cover all of that.
First and foremost, our targets are to drive returns and margin and value over the coming years through our business, through leasing up the new enlarged platform that we have, and we're very confident of doing that. So look forward to speaking to everyone later on this.
Next up, a quick roundup on Page 8 of our acquisition activity. And of course we closed Senegal in Madagascar last year. We've just closed Malawi at the end of Q1 there. That's got off to a very smooth start. We're seeing some good operational performance coming through, as well as good interest for new rollouts in that market. So that's very exciting for us. And then Oman, as I mentioned, and Gabon, we're now in the -- working on the final processes around closing those deals. So Oman Q2 and Gabon H2 as we previously communicated, so look forward to bringing those into the fold as well as we move through this year. And we'll have therefore completed our big expansion from 5 to 10 markets, 7,000 to 14,000 towers, and ready to really go off that in large base with significant embedded lease-up and growth going forward.
I'll now hand over to Manjit to take us through the financial section. Over to you, Manjit.
Thanks, Tom. Hello, everyone. It's great to be speaking with you all today. I'll be going through the financial results. And starting on Slide 10.
Continuing on from what Tom mentioned earlier, we've had a very strong quarter of organic growth driven by organic rollouts and complemented by our new markets, Madagascar, Senegal and Malawi, all of which we've really hit the ground running. And on this slide you'll see we've summarized the main KPIs which I will be talking through in more detail over the next few slides. But in general, we're seeing good growth across a number of these key metrics.
So jumping into the details and moving on to Slide #11, and we see really robust organic and inorganic tenancy growth in Q1. From a site perspective, we saw a 43% increase year-on-year, primarily due to 2,420 sites that were acquired across our new market, but which were also supplemented by strong organic growth of 733 sites.
Year-on-year we've added 4,501 tenancies, which is a 29% increase from where we were in Q1 2021. 1,545 tenancy additions were driven through organic rollout and 2,956 day 1 tenancies in our new markets in Senegal, Madagascar and Malawi. Tenancy ratio in our established markets remain constant at 2.14. And on a group basis, tenancy ratio has dropped slightly by 0.22 to 1.92. And that's really due to the integration of new markets, which have a combined day 1 tenancy ratio of 1.2. We will see the overall group tenancy ratio dilute as we continue to integrate our acquired portfolios, which come with generally lower tenancy ratios on day 1 than the group average.
However, as reiterated previously, this is a great opportunity. We're growing our asset base and the number of sites which we can develop, adding further colocations over the coming years. And we'll see our tenancy ratio and other metrics compound over the coming years as well. But all in all, very pleased with heightened tenancy momentum in Q1. And as Tom mentioned, we managed our supply chain effectively with forward-purchasing of CapEx at the back end of last year, which has meant that we can roll out tenancies efficiently at the start of the year, which you can really see coming through here now.
We've got a good pipeline of opportunities ahead. We're exactly where we want to be and are laser-focused on delivering more built-to-suit and colos during the rest of the year.
On to Slide #12, and looking at our revenues and adjusted EBITDA. We've seen growth of both revenue and EBITDA, up 10% year-on-year on an organic basis and up 23% and 20% respectively when also incorporating the new markets. EBITDA margin is reduced by 2 percentage points, in line with guidance we gave over a month ago. And that again is really driven by the impact of lower margin acquisitions, which have diluted the group margin on day 1, and also due to an investment that we made in our SG&A to ensure that the business is well set up for doubling of size and scale. But again, pleased with these results. We have a well-invested platform delivering strong organic and inorganic tenancy growth which we see, and will continue to see coming through our revenues and EBITDA in the quarters and years to come.
Now, if you move to Slide 13 you will see the usual breakdowns provided, which are broadly consistent from previous quarterly updates. We have strong currency hedge business, which is underpinned by long-term contracts with blue chip mobile network operators. 99% of our revenue come from international MNOs comprising mainly Airtel, MTN, Orange, Tigo and Voda, and Free Senegal who we purchased the Senegalese portfolio from.
We have strong long-term contracts with our customers. And as at our Q1 '22 we have long-term contracted revenues of $4.2 billion dollars with an average remaining life of 7.4 years, which increases to $5.3 billion pro forma for Oman and Gabon which are due to close during the course of this year. And this means excluding new wins and roll out, we already have that revenue contracted and in the bag, providing a strong underlying earnings stream to the business. We also have 64% of our revenues in hard currency, being either U.S. dollar or euro pegged. And as reminder, this will increase to 68% pro forma for the announced acquisitions, which translates to 72% when looking at it from an EBITDA perspective being in hard currency. This provides a strong natural FX hedge for the business, which is further complemented by our annual inflation escalators which you have in all of our contracts with our customers.
Moving on to Slide 14, and we look at CapEx. In year-to-date, we've deployed $73 million, but the majority of that $40 million relates to acquisition CapEx, principally the Malawi acquisition. Our CapEx guidance though remains unchanged at $160 million to $200 million, excluding any CapEx we'll spend on new acquisitions. And we've incurred $33 million against that. We've also guided to $650 million for the full year for new acquisitions. And we've incurred $40 million of that, again principally related to Malawi. And as such, we have $610 million to deploy on acquisitions relating to Oman and Gabon.
We have forward-purchased $30 million CapEx in Q4 for organic rollout of tenancies in Q1. Again, managing supply chain effectively has meant that we've hit the ground running this year. We continue to actively monitor and manage our supply chain so that we can efficiently roll out for our customers something which we always look out and continue to do going forward.
Moving on to Slide 15, and here we show a summary of our financial debt. And as of Q1, our net leverage is 3.7x and continues to be within our range of 3.5 to 4.5. We have strong liquidity with $830 million in available funds made up of $483 million of cash on balance sheet and $345 million of unutilized debt facilities across the group. We are fully funded for our near-term organic and inorganic expansion plans with long tenured debt. We're in a great position where there is no immediate need to raise any additional capital. However, as always, we remain agile and ready should strategic opportunities arise [indiscernible] we sit here with a very strong balance sheet.
Finally, on Slide 16, we're tracking in line with our FY '22 guidance. We've had 359 organic tenancy growth in the quarter. And as Tom mentioned, we typically see Q1 and Q2 as being our slower periods for rollout given the budget cycles of MNOs. So we're tracking well against the budget guidance we've given. Lease rate per tenancy while supported is 2% when looking at the 7 markets, excluding Malawi. Our escalations do come over the course of Q1, so in January, February and March. If we take our March position, our lease rate per tenancy is actually in line with guidance. And finally, adjusted EBITDA margin is in the middle of guidance at 52%.
So all in all, progressing well against our targets, and remain very focused on continued delivery for the year ahead. And with that, I'll pass back to Tom to wrap up.
Thanks very much, Manjit. So I'm on Slide 17 for a quick wrap up. But just to remind you, we've had seasonally strong tenancy additions in Q1 with 359 tenancies come through, and of course strong financial performance, in line with expectations. Revenue 23%, EBITDA 20% on an overall basis. We closed our Malawi deal, which means we're now in 8 markets and over 10,000 towers, and we're progressing well on the final 2, Oman and Gabon. We've reiterated our 2022 guidance. And of course, later on today we'll be launching a refreshed 5-year sustainable business strategy and look forward to seeing as many of you there as possible.
So with that, I'll hand back to Ruby, who can coordinate the Q&A.
[Operator Instructions] Our first question is from John Karidis of Numis.
Congratulations to you and the team for a strong start for this year. Can you talk about how the second quarter looks so far, please?
Yes, absolutely. John, yes, look, second quarter is again tracking to plan. We have a, I would say a strong pipeline of orders in hand or orders coming through shortly, which puts us in a fairly confident position, I would say, not just for the second quarter, but for the full year. So yes, all-in-all, happy with progress so far year-to-date.
And do you think tenancy growth in the quarter might be comparable to what you've seen in the first quarter? Maybe you can describe this a little bit for us, please, Tom.
Yes. Look, I won't give an exact number because tenancies can come in, in fits and bursts slightly. I think we're just reiterating our previous guidance of the 25 and 75 mix for the year. And when we report our H1 in August, if there is an update to give at that point for the full year, we'll certainly give you one then. But yes, no, look, so far so good, tracking well, good orders in hand, and we're happy with progress so far.
Our next question is from Jerry Dellis of Jefferies.
Maybe a follow-up to John's question. Obviously the 359 organic tenancies that you've reported in Q1 seem to put you in a very strong position to overachieve against the sort of the expectation that you set yourself for the first half. [indiscernible] tenancies come in, in fits and starts. Is there sort of a build-to-suit program that might make you sort of incrementally more cautious on momentum in Q2? Or should we [ really look at either ] Q2 is looking pretty strong and you're essentially sort of holding off just in case some [Audio Gap] makes a slightly unexpected [ decision ].
And my second question has to do with cash conversion, which was pretty strong, 72% conversion, I think, from EBITDA into portfolio [Audio Gap] where obviously a number of assets have only just sort of come on board. So how do we think about the sort of the historical sort of gush of 65% to 70% cash conversion going forward, please?
Yes. I'll take those. So I think with regard to tenancies, I'd probably go for the latter part of what you mentioned there. So we are progressing well. As you rightly say, the majority of our tenancies for the course of this year are built-to-suit. So that can be a little bit slippage sometimes quarter-on-quarter as is expected sometimes. But in general, I think just to reiterate what Tom has said, we are keeping our guidance exactly where it is right now. We're in a good position. And as we get to August and announce the results, we'll have to reanalyze the guidance at that time.
But as it stands right now, I think we're sitting here in a very good and healthy position in terms of our pipeline. With regards to portfolio free cash flow, yes, I think we have had good conversion at 72%. There are a few items there which are also related principally to timing. So I think we will see a bit of a ramp up in terms of maintenance and corporate CapEx coming through, which may slightly reduce a bit of that. And we've had, I'd say, a little bit of lighter tax payments during the first quarter. Now whilst we look at portfolio free cash flow on a last 12 months perspective, there will be a little bit of a rise up in that in Q2. But in general, I'd say our portfolio free cash flow will be around the 70% mark, is where we expect it to be during the second half.
Our next question is from Alex Roncier of Bank of America.
I was just wanting to come back to some of the more country-specific performance. And we've seen South Africa being quite strong. And so I'm just wondering if you had some comments regarding the evolution of the market there, given some M&A in the country. But then equally more broadly, I mean, you've had a really good start in Senegal following your acquisition. Could we expect some kind of a similar head start in Oman, Gabon or even Malawi, as you acquire the portfolio and already grow your cost base to address those markets? And then, perhaps that's a question for the CMD. And in this case, I'll ask that later today. But given the strong performance in Q1 on the back of the CapEx from closing you've done last year, do you expect or do you think it will be adequate to do something perhaps similar for this year?
Yes. Thanks, Alex. Thanks for the questions. So I guess, look, taking the first one, look, SA, as you point out, we've had a strong quarter there with adding fairly significant for that market a number of sites and tenancies. Again, this is -- I think this is going back to the point that tenancies do come in fits and bursts. This is a lumpy business. And therefore, there can just be quarters which see a peak. Equally, there can be a quiet quarter, and there's nothing really to get either too excited or too worried about. It's really just for us, how we think about it as we think about worst things going in the median-term.
What was the 3- to 5-year trajectory and are we roughly on track for that. And of course within that time period, there's going to be some quarters which do have a peak and others which are quiet. That's just the nature of a kind of heavy infrastructure business and a reasonably long sales cycle, which our business has. But look, we're very pleased to see South Africa stepping up. And the team there have done a great job in doing that.
Equally, Senegal, new market as of almost a year ago now actually, and we're very pleased to go into that market as the only independent telco. We've been seeing some good rollout there. There's certainly more to come in that market as we move through this year. We've got some good build-to-suits and colos coming through. And again, I think it just goes to the point that the markets that we choose to enter have these sorts of dynamics, fundamentally relatively low levels of mobile penetration, big infrastructure gaps and kind of pent-up demand, if you like, from mobile operators, particularly when there was never previously an independent tower company there, the mobile operators were having to choose to spend their own CapEx to build the passive infrastructure. And with us going in suddenly, they've got this route of doing it without them spending the passive infrastructure so they can focus on their front-end technology.
And I think we're seeing that in Senegal. And yes, look, the other markets, Oman, Gabon, Malawi, again similar dynamics, will be the first -- or at least the first independent telco of scale in all of those 3 markets. And we're already having good conversations about rollout in them. So yes, look, I think we'll stick with our guidance that we previously gave for these deals around tenancy rollout, which was -- or tenancy ratio increase, which was 0.05 to 0.1x per year roughly. And we hope that we very much deliver on that.
Certainly the dynamics of all the markets should mean that we can over the next few years. And yes, look, finally, on the additional CapEx for last year, look, obviously very happy that we did take that decision and brought in CapEx early. That really helped us to drive momentum through Q1. Again, we'll keep monitoring it. I think in the CapEx guidance we've given this year, that does allow us for some sort of buffer, if you like, for rolling into Q1 next year if we have a lot of orders again at sort of the end of this year, but we'll monitor that as we go. The one dynamic at the moment, well, as you know, I think every company around the world is experiencing it, lead times for ordering has certainly gone up in the last 2 years as before COVID. So something that used to take 3 months to come to market, now it maybe takes 6 months. So the CapEx planning cycle has extended, and we've adapted to that. That's one of the reasons we did the early order last year. But we'll just stay nimble and see how it goes.
Our next question is from Jonathan Kennedy-Good of JPMorgan.
I noticed a slide in your deck, #21, which talks about PoS growth over the next 4, 5 years. Presumably, that's an independent study, I think, but what did catch my eye there was the forecast on DRC for 12% CAGR growth there. Just wanted to get your sense of what would be the risk do you think to that number? It seems to surprise me on the upside. And given you in that market as the only independent telco would be interesting to get your take. South Africa seemed pretty low. Just wondering whether you believe you can take more market share in South Africa. We've still got 4 operators in ASA. Your colo is immediately quite high. It would appear to me that ROIC would be potentially higher or amongst the top in the portfolio in South Africa. So just wondering how you plan to accelerate even further in South Africa, if that's the case.
Jonathan, good to talk to you this morning. So yes, look, first of all, these are independent numbers, so. And these numbers are a market research. This is one of the inputs that we use internally to do our own planning, do our own assessments of where we want to invest and deploy capital and do our own forecast and budgeting, et cetera. So yes, these are independent numbers. The DRC one you pull out, yes, look, I mean, DRC is a fundamentally very attractive market in our view, from a mobile standpoint, and therefore mobile telecoms infrastructure standpoint. It's coming from one of the lowest bases in terms of mobile penetration across the continent.
So mobile penetration on the unique subscriber basis. And DRC is somewhere in the 30% range, which therefore means that there is just significant runway and growth ahead for many years. So that in part drives the high CAGR growth. And in DRC, we are seeing a lot of rollout from our mobile operator customers there. There's 4 large mobile operators operating there. And there's about 50 million people in DRC that today do not live in an area of mobile cell coverage. So about half the population don't even have mobile coverage where they live, which is actually way behind all of our other markets. So that's the reason for the high growth there. And Manjit, why don't you take the next part?
Yes. And I think just for South Africa, if we look at how that progression has gone, historically it's always been actually from independent forecast, at least, relatively low single digits for point of service growth. I think it's been partially impacted by the fact that I think cell c is kind of slightly rolling off a bit as well. So that's impacting a bit in terms of where it's expecting to go. But notwithstanding that, I think it's still got -- it's coming from a higher base [indiscernible] lower percentage, so a vast number of potential requirements from point of service. And I think we've got -- as we've demonstrated over the last few quarters, we've been rolling out very, very well. And importantly, leasing up very, very quickly. We've got a 1.7 tenancy ratio, which we've had for a number of quarters now, which shows that not only are we building, but when we're building we're building in the right places and getting leased up very quickly.
And just perhaps one follow-up on South Africa. I mean, the average tower cost in South Africa, is it still fairly materially cheaper than -- from a CapEx perspective than rest of Africa?
I think it's broadly around the lower end of the range. So it kind of typically is around 100,000, maybe a little bit north of that. But in the grand scheme of things, still within the range of what we normally say, anywhere between, yes, for a normal tower across the group, 100,000 to 150,000 and probably towards that lower price point.
[Operator Instructions] Our next question is from Josefina Duran of Morgan Stanley.
I do have 2 questions. The first one is related to the EBITDA margin. I know this was very well flagged and you explained that it's related to expenses from the acquisitions that you're doing. But if you could give me a little bit more color on this higher SG&A that you're seeing? And do you expect this to be like one-off or recurring? And my second question is, if you can remind me your cash policy. I mean, if you usually try to repatriate cash offshore, if you have any issues sourcing dollars or repatriating cash from the countries in which you operate? Or do you usually have it at the operating level to fund like investments and expenses that you have locally?
Yes. Thank you for those questions. So just picking up on the SG&A part. So this is kind of structural SG&A that we've invested because we are expanding in size and scale. So it's in the region around $13 million from where we were a couple of years ago, pre-doing these 5 market deals. But importantly, that SG&A is leverageable. And I'll be coming on to this during the course of the Capital Markets Day presentation as well. But actually, once this has all been -- once you've closed all the deals, the SG&A as a percentage or as a per site percentage is actually in the same region of where we were back in 2019 when we were broadly a private company.
So when we do invest, we invest but then it's subsequently leveraged by the group. And as we lease up the sites as well, you'll see further leveraging of that SG&A base going forward. And what have we invested in? Well, we've invested in a regionalized structure so we can actually have the capacity to hit the ground running on day 1 in the new markets. It also gives us the opportunity to also look at potential new markets as well. And we've also increased -- we've seen some increase in professional fees and just general infrastructure like IT infrastructure across the group as well. So all of those have been invested.
But as I say, it will be leveraged by the end of the year. In terms of cash policy. So typically our cash policy has remained very identical, well, for the last 5 to 10 years actually. So we typically keep about anywhere between 80% to 90% of our cash offshore -- sorry, onshore is kept up in London, Mauritius is where we keep the majority of our cash. We keep a very small float in the market, and that's typically sufficient enough for its working capital and CapEx requirements. And we do monthly upstreaming of U.S. dollars from each of our markets to the U.K. and Mauritius. And that's happened every single month since I've been at the company before. So no issues on that perspective. From a debt perspective, we typically keep our net leverage around 3.5 to 4.5, as I mentioned earlier. And we're currently sitting at about 3.7. So towards the bottom end of that range, but with capacity for the new acquisitions, which is due to close as well. That was very clear.
We have no further questions, so I'll hand back to our host for closing remarks.
Well, thank you very much, everyone, for the call today and the questions coming in. And look, we hope to see as many of you, if possible, later on either physically or indeed online. So yes, I look forward to talking later at the Capital Markets Day and talking you through our new 5-year sustainable business strategy. Take care. Thank you.
Thank you.
This concludes today's call. Thank you for joining. You may now disconnect your lines.