IHS Holding Ltd
NYSE:IHS
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IHS Holding Ltd
Earnings Call Analysis
Q4-2023 Analysis
IHS Holding Ltd
The company tackles significant currency challenges in Nigeria, with an additional devaluation of the Naira anticipated in 2024. This is expected to increase leverage, however, management anticipates it will stay within their target range of 3x to 4x, maintaining a strong liquidity position. Amidst these headwinds, the business’ equity is seen as undervalued, particularly when considering the booming population and mobile usage growth in Nigeria, and the robust long-term growth prospects in Latin America. The company believes the true value is not reflected in the current valuation and has begun working with advisors, including JPMorgan, to evaluate strategic alternatives to unlock shareholder value.
The company recorded an overall growth in its financial metrics, with revenue increasing by 8%, adjusted EBITDA by 10%, and adjusted levered free cash flow (ALFCF) by 19% year-on-year, despite a quarterly revenue dip of 3.1%. Notably, capital expenditures have been effectively managed, showing a decrease which helped improve the company's ALFCF. The organic growth, a substantial 36.9% for the year, was fueled by currency rate resets, consumer price index (CPI) escalations, and new lease amendments. However, it anticipates inorganic growth to be minimal in 2024.
Despite a 15% devaluation of the Naira in the last quarter, which culminated in a revenue decrease in Q4, the company managed to exhibit robust organic growth, with its Nigeria segment highlighting a substantial 66% increment. The company's adjusted EBITDA margins improved, signaling stronger operational efficiency. For the full year of 2023, the company's revenue surpassed $2.1 billion, bolstered by both organic and inorganic revenue growth, and achieved an adjusted EBITDA of $1.1 billion, which is a near 10% year-over-year increase.
The final quarter of 2023 saw ALFCF grow by 22% against the same quarter last year, thanks to reduced maintenance capital expenditures and operating costs, with its conversion rate rising to 43.1%. Throughout the full year, ALFCF stood at $433 million, marking a 19.2% improvement from the previous year, and evidenced a healthy cash conversion rate of 38.2%.
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Good day, and welcome to the IHS Holding Limited 4Q and Full Year Earnings Results Conference Call. Please note that today's conference is being webcast and recorded. [Operator Instructions]. At this time, I'd like to turn the conference over to Colby Synesael. Please go ahead, sir.
Thank you, operator. Thanks also to everyone for joining the call today. I'm Colby Synesael, EVP of Communications here at IHS. With me today are Sam Darwish, our Chairman and CEO; and Steve Howden, our CFO. This morning, we filed our annual report on Form 20-F for the full year ended December 31, 2023, with the SEC, which can also be found on the Investor Relations section of our website and issued a related earnings release and presentation. These are the consolidated results of IHS Holding Ltd, which is listed on the New York Stock Exchange under the ticker symbol IHS and which comprises the entirety of the group's operations. Before we discuss the results, I would like to draw your attention to the disclaimers set out at the beginning of the presentation on Slide 2, which should be read in full, along with the cautionary statement regarding forward-looking statements set out in our earnings release and 20-F filed as well today. To be discussed may contain forward-looking statements, which, by their nature, involve known and unknown risks and 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 Factors section of our Form 20-F filed today with the Securities and Exchange Commission and our other filings with the SEC. We'll also refer to non-IFRS measures, including adjusted EBITDA that we view as important in assessing the performance of our business in ALFCF that we view as important in assessing the liquidity of our business. A 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, and welcome, everyone, to our fourth quarter and year-end 2023 earnings results call. We're reporting a strong quarter of performance across our key metrics with revenue, adjusted EBITDA and ALSCF in line or ahead of our expectations. Despite the meaningful Nigerian currency devaluation that began in June, while CapEx was meaningfully below expectations. Our results reflect the continued strong secular trends we are seeing across our business, including growth in lease amendments, new tenants, new sites or build-to-suit and targeted fiber rollout. For 2023 as a whole, we are reporting 8% revenue growth, 10% adjusted EBITDA growth, 19% ALFCF growth and an 8% reduction in CapEx. Organic growth was 37%. Group-wide, we added 1,041 colocations and 4,929 lease amendments and we surpassed our expectations for new sites, having built 1,329 new towers, mostly in Brazil with 812 in the country. As we continue to prioritize organically growing our asset base in that market. These strong growth trends should continue in 2024 as evidenced by our recently announced deal with Airtel in Nigeria that extended Airtel contract to 2031 and included a commitment to add 3,950 new tenancies over the next 5 years, much of it front loaded to 2024 and 2025, which takes me to an important point. These strong fundamental trends are occurring against a challenging backdrop. The Naira continues to devalue at levels that sadly are offsetting much of these strong secular trends. From January to December 2023, the Naira suffered a 98% unfavorable movement. And from January 2024 to date, we have seen a further 75% unfavorable movement. This means a total unfavorable movement of 246% since January '23. Most of this negative movement came as a result of positively viewed government actions of unifying multiple exchange rates, removing the expensive petrol subsidies and trying to contain the [indiscernible] inflation, which hit 28.9% in December 2023. While these actions were generally viewed positively by market observers and us, other supporting measures are required to contain the Naira devaluation. Some of these required changes began to occur recently in Q1 as the Nigerian Monetary Policy Committee hiked the main policy interest rate by 400 basis points and are adding much needed ForEx to the daily market. This has helped stabilize the currency over the past few weeks. Some analysts, including Goldman Sachs, among others, are even predicting a strengthening Naira by end of this year. Market observers expect the monetary policy committee to further increase the main policy interest rate throughout 2024 as they aim to lower inflation and further stabilize the ForEx market. From a 2023 results perspective, the ForEx protection mechanisms in our revenue contracts helps us offset the majority of this pressure in the year and was evident in our Q4 '23 results. However, we expect the additional devaluation that began in January to further impact our results in 2024. While Steve will discuss this further when he discusses guidance to give you some context, our guidance for 2024 assumes an average rate of NGN 1,610, whereas the average rate in 2023 was 638 and that the devaluation in Naira will have a negative $535 million impact on revenue year-on-year even after adjusting for the impact of the ForEx resets. Given the macro environment we're operating in, particularly in Nigeria, which represented 63% of revenue in Q4 '23, we continue to take what we believe is a more balanced approach to growth and cash generation. We also expect the significant reduction in CapEx that started in the second half of 2023 to continue in 2024, along with a continued focus on improving operating efficiencies through productivity enhancements and cost reductions. Excitingly, this also includes an increased focus on innovation, including the deepening usage of AI and how we utilize, maintain and upgrade our towers and it's something I'm very passionate about and personally spearheading. A dedicated team has been working for a while on developing use cases that can help us improve our efficiencies using the massive amounts of data we have due to our extensive operations over decades. Skipping to Slide 7. I want to discuss some of our key highlights. Starting with commercial progress. As of year-end 2023, we had $11 billion of revenue under contract with an average remaining tenant term of 7.5 years. I think it's important to highlight these metrics as they point to the durability we believe inherent in our business model despite what the perception may be. We continue to make progress on the commercial front across the business as we have signed contracts with MTN in Cameron and in Cote d'Ivoire for a further 10 years. In Nigeria, as MTN highlighted on their most recent earnings announcement earlier this month, we continue to engage constructively with them to find ways to alleviate some of the operating pressure they are under, given our key role in running the majority of their network in the country while also maintaining appropriate economic results for ourselves. Also, as previously mentioned, we signed an extended contract with Airtel in Nigeria this past February, taking the turn into the next decade in an agreement that includes a commitment by Airtel Nigeria to add 3,950 new tenancies over the next 5 years and is front-loaded over the next 2. We are very excited about the potential of this mutually beneficial partnership. Shifting to governance progress. In January of this year, we announced a settlement agreement with [indiscernible] in relation to the public dispute, which you are aware of, reflecting a commitment to strong corporate governance and constructive shareholder engagement. The text of the proposed amendments to the Articles of Association will be made available to shareholders before the next AGM. On stock liquidity, more progress here. We have removed all lockups on the IPO shareholders. We also estimate approximately 14% of our shares are now owned by post-IPO shareholders compared to just 5% at the time of the IPO, and almost 300% improvement in float size. This is also evident in our average daily trading volume, which is now 574,000 shares, almost 5x higher than what it was in May 2022. During the quarter, we continued to buy shares under our 2-year buyback program with a total of $10 million worth of shares bought over the past 2 quarters. I'd like now to provide an update on Project Green. For 2023, we spent $103 million of CapEx versus a guidance -- our guidance of $90 million to $100 million and achieved ALFCF savings of approximately $24 million versus guidance of $22 million. Overall, the project remains on target, as you can see by our results. We will provide a more comprehensive update on the impact Project Green and our carbon reduction road map is having when we publish our annual sustainability report, which we expect to be next quarter. Moving on to our balance sheet. We continue to feel comfortable with our liquidity position, but also continue to increase our focus on cash generation and continue to evaluate and execute various ways to do such. As of year-end, we had $724 million of available liquidity, including our undrawn group RCF and the remaining undrawn portion of our group term loan. We continue to actively pursue initiatives to shift more debt into local currency, extend maturities and manage interest expense. This was evident in our recent local currency 116 million equivalent facility in Cote d'Ivoire. The proceeds of this local OpCo loan will refinance U.S. dollar obligations at the holding company level. Also, as previously announced in November, we extended the maturity of our $300 million group RCF to October 2026. Leverage ended the year at 3.4x, and we -- and as we had previously commented, was impacted by the Naira devaluation in June. We expect leverage to further increase in 2024, given the additional Naira devaluation, but expect to remain within our target 3x to 4x and continue to have an adequate liquidity position, which Steve will cover further in his section. And finally, on shareholder return, I would like to make the following statement. Despite the currency headwinds in Nigeria, we believe in the underlying strength of our business and believe our equity is undervalued given Africa's perceived plays in the global markets. For example, Nigeria. When I moved to Nigeria 25 years ago, the country had approximately 120 million people. Today, it has approximately 225 million people added a total population higher than Germany, France or the U.K., and is growing by 2.4% a year. That's 5 million people a year. To put into perspective, that's almost the size of Colorado a year. Nigeria also has a young energetic population with the majority of the population younger than the age of 20 as compared to aging developed markets. Hundreds of millions of people with no land lines, poor roads, poor transport infrastructure, depend on their mobile phone for almost every aspect of their life. It has become an important -- as important as food or water or education. The trend in mobile phone adaptability and usage is irreversible and it's showing through our growth and also through the massive growth in the underlying number of our key customers in Nigeria despite the ForEx headwinds. Macro conditions will tighten and loosen in cycles, but the growth in mobile usage is one way to the sky. And thus, why we believe Nigeria's value is still significantly underestimated, especially in our sector. The value and long-term growth prospects of the Latin America business are also very strong. When we moved to LATAM during the COVID year, we had 0 base. Today, we have almost 8,000 towers and one of the largest fiber networks in Brazil with a business that generated $146 million in EBITDA -- in adjusted EBITDA in 2023, more than 800 new towers and 1.3 million more homes passed in 2023 alone. South Africa is growing. Sub-Saharan Africa is growing. We own and operate 40,000 towers across 11 markets covering approximately 800 million people who need their phones for almost every basic aspect of their life. And IHS sits at the heart of enabling such connectivity as a leader of its domain. It is for these reasons that we believe IHS Towers is underappreciated at our current valuation and then we have -- and that we have to consider ways of unlocking value for our shareholders. So under the guidance of our Board of Directors, we have commenced work with our advisers, including JPMorgan to evaluate strategic alternatives for the business across our portfolio and our capital allocation priorities. This exercise is intended to generate the best value for investors. We will provide an update on this as appropriate, including any potential action. And with that, I will turn the call over to Steve.
Thanks, Sam, and hello, everyone. Turning to Slide 9. As Sam mentioned, we're pleased to show our FY '23 and fourth quarter '22 results were in line or better than expected against a challenging macro backdrop in Nigeria throughout the year. The business has shown its resilience in FY '23, posting good results, but it's clearly not immune to such significant FX headwinds as we've seen in 2023 and continue to see in Nigeria in the early part of 2024. On Slide 9, towers and tenants are up by 1% and 2%, respectively, year-over-year, while lease amendments increased by double-digit percentage. On a reported basis in the quarter, revenue declined and adjusted EBITDA increased modestly, both metrics impacted by the devaluation in the naira in 2023. Specifically, in Q4, revenue declined by 3.1%, but adjusted EBITDA increased by 0.6%, while ALSCF increased 22%. For the full year, our revenue grew by 8%, adjusted EBITDA by 10% and ALFCF by 19%, all on a reported basis. Our level of CapEx investment decreased by 33% in the fourth quarter and 7.5% for the year, largely due to lower capital expenditure for our Nigeria and SSA segments, partially offset by an increase in LATAM, all of which I'll discuss shortly. And finally, our consolidated net leverage ratio increased to 3.4x following the Naira devaluation, albeit still within our target 3x to 4x range. Slide 10 shows the components of our 8.4% reported consolidated revenue growth for the full year 2023. Organic revenue growth of 36.9% for the year was driven primarily by FX resets, CPI escalations and new lease amendments. Power-related revenue, fiber, new colocation and new sites also contributed to our organic growth in 2023. On the right, you can see the organic growth rates of each of our segments for the year with Nigeria delivering 47% organic growth, including a large impact from FX resets. Inorganic growth for FY 2023 was 2.9%, primarily driven by the full year benefit of the MTNSA and GTS SP5 acquisitions and the fifth and sixth stages of the Kuwait acquisition. Inorganic growth will be immaterial in 2024, given we are now beyond the 12-month anniversary of the most meaningful recent acquisitions we did in South Africa and Brazil in 2022. Turning to our consolidated continued devaluation turned the quarter strong organic growth into a 3.1% decline. The Naira devalued 15% in Q4 from $712 Naira to the dollar at the end of the fourth quarter. Yet organic revenue growth of 48.4% was driven primarily by FX resets that reflects a full quarter reset impact after the original June devaluation, CPI escalations and new lease amendments. Fiber power-related revenue, new colocation and new sites also contributed to the organic growth in the quarter. The right side again shows the organic growth rates of each of our segments where our Nigeria segment grew approximately 66%, including a large impact from FX resets. On Slide 12, you can see our consolidated revenue, adjusted EBITDA and adjusted EBITDA margins for the fourth quarter '23 and the full year '23. In fourth quarter '23, IHS generated $510 million in reported revenue, a 3.1% decline versus the prior year, while the Naira devaluation drove the decline, organic revenue growth of 48% reflects the contribution from our FX resets and CPI escalators as well as the strong secular growth trends of the business. Fourth quarter '23 reported revenue included a $25 million FX headwind versus FX rates of last quarter and a $16 million headwind when including all FX assumptions that were assumed in our guidance. For full year 2023, we delivered over $2.1 billion of revenue, an 8% increase, while organic revenue increased by almost 37%. Aggregate inorganic revenue was $57 million, equating to 2.9%, again, reflecting the acquisitions previously discussed. Nonrecurring items also made up $48 million this year compared to $18 million the year before and partially distort the comparisons. Regarding adjusted EBITDA and adjusted EBITDA margins in Q4 '23, adjusted EBITDA of $274 million increased by approximately 1% versus fourth quarter '22. And adjusted EBITDA margin was 53.8%, up 200 basis points from the prior year. For the full year, adjusted EBITDA was $1.1 billion, a 9.9% increase versus the prior year, and adjusted EBITDA margin was 53.3%, up 70 basis points from full year 2022. The year-on-year changes in adjusted EBITDA and adjusted EBITDA margin primarily reflects the increase in revenue we've already discussed, whilst the cost base was positively impacted by reducing power costs, but negatively impacted by FX-related impacts. As previously highlighted through Project Green, we continue to prioritize alternative sources of power to reduce our dependency on diesel. On Slide 13, we first review our adjusted levered free cash flow or ALFCF. In Q4 '23, we generated ALFCF of $118 million, a 22% increase versus Q4 '22, primarily due to a reduction in maintenance CapEx, lease and rent payments made and withholding tax, partially offset by the increase in net interest paid. ALFCF cash conversion rate increased to 43.1% versus 35.6% in the prior year's quarter. For the full year, we generated ALFCF of $433 million, a 19.2% increase versus FY '22, and our ALFCF conversion rate was 38.2%, up from 35.2% in FY '22. Onetime items in each year impacted that comparison. However, the year-on-year increase in ALFCF is primarily due to underlying business growth we've already discussed as well as a reduction in maintenance CapEx. Turning to CapEx. In Q4 '23, total CapEx was $131 million, which decreased 33% year-on-year and full year 2023 CapEx of $586 million decreased 7.5% year-on-year. The decrease in full year '23 was primarily due to a lower CapEx spend in Nigeria related to new site CapEx and SSA related to refurbishment, but that was offset by higher CapEx in LATAM related to new site builds. In the latter part of the year, we started to pull back our capital allocation for growth CapEx in certain markets like Nigeria, which was one of the reasons our FY '23 total CapEx of $586 million was lower than our $610 million to $650 million CapEx guidance, more of this when we come to the FY '24 guidance shortly. Slide 14 looks at our returns and capital allocation. In FY '23, we continue to focus on driving returns and delivered a return on invested capital of 14.6% versus 9.9% in the prior year. Our improved 2023 ROIC reflects, amongst other things, growth in cash flow, the first full year contribution from the MTN South Africa and GTS SP5 acquisitions completed in 2022. The first year in numerous years when we have not deployed capital on M&A transactions and of course, the impact of the Naira devaluation.Interms of capital allocation, you can see that a significant portion of our spend in FY '23 or $352 million was related to discretionary CapEx that excluded new sites, followed by maintenance or nondiscretionary CapEx and new site CapEx, where we are a leading builder of new sites in Brazil, but we also allocated $10 million towards our share repurchase program that was authorized in August 2023. The $352 million discretionary CapEx, excluding new sites, was largely spent on fiber rollout, Project Green, augmentation for colocation and lease amendments and other cost-saving initiatives. Turning to the segment review on Slide 15, first walk through our Nigeria business. When the new President was sworn in last May, we saw swift action to unify multiple exchange rates and then the petrol subsidy. The Nigerian macro environment, however, remains complex. And while we're still encouraged by the actions taken by the new government, the additional steps taken in January have had a meaningfully negative impact on the Naira, which obviously is not showing in these results today, but you will see it in our 2024 guidance. We remain in close contact with our key customers, regulators, our vendors and our local banking partners to continue to best position IHS. FX reserves decreased to $32.9 billion in Nigeria at the end of 2023 from $37.1 billion in 2022. More recently, the Nigerian Monetary Policy Committee raised interest rates by 400 basis points to 22.75% and move designed to curb inflationary and FX pressures. Meanwhile, the price of both oil and ICE Gasoil have decreased recently. Looking at ICE Gasoil it was $792 per tonne in Q4 of '23, and that's down from $911 per tonne in Q3 of '23. Moving to real GDP growth, it expanded by 3.5% in the quarter, bringing the full year 2023 growth rate to 2.7%. Inflation jumped to 28.9% this past December versus 21.3% in December 2022, bringing the full year '23 average CPI rate to 24.7%. For IHS, Q4 '23 revenue in Nigeria of $321 million decreased 10% year-on-year on a reported basis, reflecting the devaluation in the quarter that increased 66% organically. Organic growth was driven primarily by FX resets and escalations. The negative FX impact was $267 million or 75.3% due to the devaluation. Our tower and tenant count decreased 3.5% and 0.8%, respectively, versus Q4 '22, which continue to reflect the planned decommissioning that occurred in Q1 2023 with no impact on revenue. Our colocation rate consequently improved to 1.59x, up from 1.54x in Q4 '22, and lease amendments continue to be a strong driver of growth, increasing 12.5% year-on-year as our customers added additional equipment to our sites, particularly 5G upgrades. Q4 '23 segment adjusted EBITDA in Nigeria was $200 million, a 3% decrease from a year ago, while segment adjusted EBITDA margin was up 430 basis points to 62.3%, primarily reflecting a reduction in cost of sales, mostly coming from diesel savings. In our Sub-Saharan African segment, Towers and tenants increased by 1.5% and 2.6%, respectively, versus Q4 '22, and revenue increased by 5.6%, of which organic revenue grew 12%, driven primarily by escalations on FX resets. Segment adjusted EBITDA decreased by 6.3%, which primarily reflects an increase in cost of sales, partially offset by the increase in revenue. Segment adjusted EBITDA margin decreased to 50.3% from 56.6% in Q4 2022 as a result of higher power generation costs, permit fees and diesel costs. We continue to monitor the macro environment in South Africa, particularly the ongoing power load shedding by the national utility, which did moderate versus the previous quarter. We also continue to evaluate our power managed service offerings. In our LATAM segment, Towers and tenants grew by 9.3% and 6.6%, respectively, versus Q4 '22. Revenue increased by 24%, of which organic revenue growth was 17%, driven primarily by an increase in fiber escalations and those new sites. Segment adjusted EBITDA increased by 31%, leading to a 75.6% segment adjusted EBITDA margin, a 400 basis point increase versus Q4 of 2022. In Brazil, our second largest market with 7,663 towers, macro conditions were largely positive as FX rates marginally strengthened, interest rates came down and inflation stayed relatively flat. In MENA, towers and tenants grew by 9.2% and 9.7%, respectively, while revenue increased by 13%, including 6% organic revenue growth, that driven primarily by new sites and escalations. Segment adjusted EBITDA grew by nearly 80%, mainly as a result of the revenue growth and a decrease in cost of sales. The Q4 '23 segment adjusted EBITDA margin increased to 73.5%. On to Slide 16, and I'll briefly highlight our KPIs. As of December 31, our tower count was 40,075 up 1.1% from the end of 2022, driven primarily by ongoing new sites in LATAM and some in Nigeria. As you can see in the chart on the top right, collectively, we built more than 1,300 towers during the year, exceeding our guidance of approximately 1,250. Total tenants grew 2% with a co-location rate of 1.49x, up slightly versus last year, and lease amendments continue to be a significant factor of our growth, particularly in our Nigerian segment, given the historic 4G and now increasing 5G activity we are seeing. Lease amendments increased by almost 16% year-on-year. Moving on to Slide 17. We look at our debt profile and related items. At December 31, 2023, we had approximately $4.1 billion of external debt and IFRS 16 lease liabilities. Of the $4.1 billion of debt, $1.94 billion represent our bond financings and other indebtedness includes $370 million. That has been drawn down from the $500 million 3-year bullet term loan at IHS Holding Limited level. We've undertaken various balance sheet initiatives to extend maturities, manage interest rate expense, swap dollar obligations into local currency where possible and add flexibility to our capital structure. As mentioned, in October, we reduced the available undrawn commitments under the term loan by $100 million to $130 million and extended the availability period of this undrawn balance to April 2024. We've reduced the available undrawn commitments by another $70 million earlier this month in March as a result of pushing this USD exposure down into the Cote d'Ivoire market with $116 million equivalent term loan that matures in December 2028. In November, we extended the group RCF maturity from March '25 to October 2026, which continues to have a $300 million capacity and is undrawn. Most recently, we've signed a $270 million bilateral loan to refinance essentially all of our letters of credit in Nigeria. This will extend the maturity of these obligations, reduce the interest expense by approximately 300 basis points and released approximately $115 million equivalent of cash collateral previously held against these letters of credit. As you can imagine, we are pleased to have completed these initiatives, which further derisks the balance sheet and increased our financial flexibility. Cash and cash equivalents decreased to $294 million at December 31. And in terms of where that cash is held, approximately 12% was held in Naira at our Nigeria business. And moreover, in 2023, we upstreamed a total of $65 million from Nigeria alone at an average rate of approximately $699 Naira to the dollar versus $207 million at a rate of approximately Naira 550 million in 2022 despite the USD shortages in the second half of '23.More positively, we've seen an increase in daily FX turnover or USD availability since government actions taken in January 2024, but we do caution it remains to be determined if such an increase will be sustained. Consequently, from all these moving elements, at the end of the fourth quarter, '23, our consolidated net debt was approximately $3.8 billion, and we had a consolidated net leverage ratio of 3.4x, up 0.2x year-on-year. In light of the continued Nigeria devaluation, we do expect leverage to increase over the coming quarters. However, our debt metrics are expected to remain within our target 3x to 4x net leverage ratio. Now moving to Slide 18, and we're introducing 2024 guidance that includes revenue in the range of $1.7 billion to $1.73 billion, adjusted EBITDA in the range of $935 million to $955 million. ALFCF in the range of $285 million to $305 million and total CapEx in the range of $330 million to $370 million. A few points I'd like to make here. #1, revenue guidance includes an approximate $177 million reduction compared to 2023 as a result of an expected change in our accounting methodology on power pass-through revenue in South Africa, which will likely be accounted for as net revenue going forward rather than gross revenue and gross power cost. This, however, will have no impact on adjusted EBITDA or ALFCF, as historically, we've recognized an equal amount of power costs and power revenue. #2, I'll speak more about FX rates in a moment, but excluding the change in how we recognize that power pass-through in South Africa, the expected year-on-year reduction in financials is entirely the result of the Naira devaluation and as Sam mentioned, is expected to be a $535 million year-on-year headwind to revenue after adjusting for the impact of FX resets. And lastly, you may have seen in our disclosures, we have signed an agreement to sell our Peru business to SBA, while immaterial given the small size of the business of 61 towers, our guidance assumes that this transaction closes at the end of Q2 2024. You'll also see that CapEx is expected to come down significantly year-on-year as we increase our focus on cash generation while still upholding the goal to maintain double-digit organic revenue growth, which includes 49% in 2024. This does include a remaining small portion for Project Green of approximately $10 million. Then for the year, we expect to build approximately 850 towers, including approximately 600 in Brazil. Then turning the page on Slide 19. On the left, you can see revenue by reporting currency for Q4 in the year, whereas on the right-hand side, we provide the breakout of revenue based on contract split. The bottom of the slide shows the annual average FX rate assumptions used in our 2024 guidance. And for the year, we're assuming in guidance 1,610 Naira to the dollar, which includes 1,315 in Q1 of 2024 based on actual through February and 1,815 on average in Q4 of 2024. And then finally, on Slide 20, we provide the estimated full year financial impact of theoretical 10% devaluation in the Naira would have on our financials. While our 2024 guidance already assumes an average annual 1,610 Naira to the dollar for the full year, with the naira rate getting to 1,850 by December 2024. Here, we've shown the impact of a 10% devaluation beyond what we've assumed in the guidance. The figures in the middle of the page, including the approximate $40 million to $45 million and $20 million to $25 million impact to revenue and adjusted EBITDA, respectively, provide a sense of what the 12-month run rate impact would be using our 2024 expectations. However, as you'll see on the right-hand side, the illustration in the middle of the page excludes an incremental approximate $15 million impact that could impact the quarter, the devaluation actually occurs, assuming the devaluation was to occur at the beginning of the quarter. This represents the maximum lag that could occur between the devaluation and when most of our FX resets would start to kick in the next quarter. And as a reminder, the vast majority of our resets are quarterly. This now brings us to the end of our formal presentation. And we thank you for your time today. And operator, please now open the line for questions.
[Operator Instructions]. Our first question comes from the line of Michael Elias from TD Cowen.
A few, if I may. To start off, relating to the valuation of the strategic alternatives, I'm curious, can you give us a sense for the intended scope of these alternatives? And specifically, what I mean by that is the intention to consider the sale of the entire business or just perhaps parts of the business? And second, what makes now the right time to explore these alternatives? And would you be exploring these alternatives if it were not for the devaluation that we saw in the Naira. I have a follow-up question after that, but any color on these alternatives would be great.
This is Sam. We believe the business is undervalued. It's not a direct reflection of where the Naira is. The business, as you've seen, is reporting solid numbers, and it's been reporting solid numbers quarter after quarter. Of course, the Naira devaluation situation will have an impact. But again, it is within manageable remit. The strategic evaluation is largely because we feel the translation of shareholders. We believe that markets have not given IHS the necessary credit when it comes to our value and where our valuation should be. So it is our duty in addition to running the business well in a good and solid matter. It is our duty to leave no stone unturned basically to try and unlock value for shareholders. Now in terms of details, unfortunately, I won't be able to go into details. We've commented that we're doing that work at the moment, together with our advisers, JPMorgan included, and we would communicate as and when appropriate.
Great. Just as a follow-up question. With the volatility that we have seen in the Naira, how would you describe the ability and need to upstream cash in 2024?
Michael, it's Steve. So you're right, volatility is a good word to describe it. 2023 was challenging, no down in terms of sourcing U.S. dollars and therefore upstreaming, although we did get $65 million out early year in 2023. I think from a 2024 perspective, that we have seen more liquidity in the market, January, February and March to date. So that is certainly the positive. I would say that's off the back of a number of moves by the Nigerian government, Central Bank monitary policy, et cetera, around the currency devaluation, but also interest rate increases. So that -- that's the positive. But obviously, we have to caution that we want to see it continue for a period of time. We've seen this probably -- let's call them full stores in the last 9 or 10 months in terms of reforms. So we're again sitting at a point where we have this positive outlook, certainly in terms of liquidity but let's see. We want to see more dollar liquidity, and then we'll be upstreamed.
Our next question comes from the line of Yong Choe from JPMorgan.
I wanted to ask about the Latin America business. Where should we expect that percentage of revenue to go to by the end of this year? And maybe longer term, given the growth you're seeing there, how big of a business could that get?
Rich, it's Steve. So good question. I think one thing to know, obviously, in terms of the overall contribution mix is that LATAM as a segment has been growing at sort of between 15% and 17% year-on-year. So it continues to grow nicely. Revenue for the full year was over $7 million. So that is becoming a really significant component of our overall mix. And given the opposite direction, if you like, of Nigeria in the devaluation, and it becomes an increasing percentage of IHS by the fact that it's growing in Nigeria is developing that will get a little bit smaller. So we have a more set target on it right now. The focus with LATAM is to grow organically for the short term. But obviously, that's a key element of our value makeup and it's a business we want to continue growing organically okay.
Great. And I guess a little bit more color on the mix between the tower growth and the fiber growth. It seems like both are growing at a pretty healthy pace.
Yes, [indiscernible] help pace. So we don't actually split out the financials in too much detail on the fiber business. But as you probably know from our prior discussions, there is a disclosure on it, buried in the 20, the fiber business grew at 20% last year from an overall perspective in the towers, just a little bit less than that, but still growing strongly.
Our next question comes from the line of Eric Luebchow from Wells Fargo.
Great. I wanted to touch on the MTN agreement to move 2,500 sites. I know it's tied up in the courts right now, but kind of any update on your base case and how many sites you think could eventually get moved to your competitor in that market?
This is Sam. Look, we've been public about our view here, and we remain consistent. I think it's a very, very, very tall order to be able to move equipment covering 20 million users or so on 2,500 towers that most of which do not exist in a country like Nigeria, where power, infrastructure, permit, regovation, is all an uphill battle. I mean, that conversation we've had in October. Today, we are in February or March actually with another maybe 8, 9, 10 months left before the expiry, and no significant work has occurred on the towers, largely because of some of the things you just mentioned. So that remains a very, very tall order for us. But again, I mean, MTN is a partner of ours. We we've been in partnership for more than 2 decades. Discussions are always ongoing.
Okay. I appreciate that. And just one follow-up. -Your guide this year kind of implies 55% EBITDA margin, a nice uptick versus last year. So anything you could walk us through in terms of areas you're seeing cost efficiencies between lower diesel costs, Project Green and then kind of the longer-term path to get to 60% EBITDA margins. How you see that transforming over the next few years?
So a few things on the cost side, so yes, you're right, the guide implies this EBTDA margin. So a couple of percentage points higher than where we finished 2023. What's driving that, a lot that's driving that is around some of the cost action that we've been taking, and that's in a variety of different areas. As you know Project Green, which has been driving down diesel consumption and therefore overall cost within Nigeria, in particular, bits in peace in other markets as well but mainly in Nigeria. And then part of it is a reaction to where the macro is globally, where the macro is in our key markets like Nigeria, we've been relooking at our cost structure and where we can be more efficient, where we can operate the business in more sensible intelligent ways for less cost. So there's a lot of focus from us right now as a strategy for 2024 around cash generation. You see that embedded in our lower CapEx guide, significantly lower CapEx side for 2024 versus even the couple of prior years of CapEx spend, and it's also evident in the margins in terms of where we're looking to drive efficiency that or cost base.
And Eric, this is why also kind of like artificial intelligence and the proliferation of artificial intelligence is critical to whatever we're doing at the moment on ground. For years, we've been operating this infrastructure, which has a lot of challenges in terms of logistics, diesel delivery, feed maintenance, given the complex nature of where we operate. Now suddenly, all this data, because of this elevated level of compute, we find ourselves available to us through the LLM and what the big guys have created. Suddenly, we have now this massive tool available to us with a lot of data that we've accumulated over the decades, and we are now in the middle of kind of like redefining how we operate using that massive compute availability. And part of what you're seeing here is because of that. And you're going to see more of that over the next few months.
Our next question comes from the line of Stella Cridge from Barclays.
A significant one. Many thanks for all the updates. I was wondering if I could ask about the status of the other contracts with MTN, which you have coming up. So I note the update on Ivory Cost, I see you've got Zambia, Rwanda and then the small amount of tours at the end of this year. I just wondered if there was any update on the status there? And in terms of a related question, you also referenced the comments from M&A during June, we recently saying they were looking at changes to existing or leases. I mean what kind of changes would you be open to from the IHS side... That would be great.
Look, we don't comment on ongoing discussions. MTN and us in particular, as I alluded earlier, we've been partners for 2 decades we are engaged on multiple fronts at any given point in time. We do like to announce things that are kind of like -- that happened that are basically dusted and cleared and that's why we've announced basically Cote d'Ivoire and Cameron. At the moment, to be honest, the only thing I would say is that everyone has seen from MTN's most recent announcement from our client numbers in Nigeria that they're under pressure. I mean, this negative movement of the currency, which is roughly 250% negative in almost 14 months is definitely taking a toll on them. I mean these guys are mostly local currency revenue generating companies. And at the moment, we feel our job and our duty is just to stand by them and find ways to help elevate the pressure. I mean, this is not our first rodeo. We've seen this before. We stood up before and we've supported them. And at this stage of time, that's what we're going to continue to do. I mean that's what I can say.
And then Sam, just a quick follow-up. I mean, obviously, I appreciate your questions in relation to MTN. And hopefully, the updates are positive in terms of getting an CIB can indicate what behind us is done more upcoming on some of the other smaller ones as well. But also just to kind of reiterate the Airtel announcement that we put out in January in Nigeria, which was covering 3,900 tenancies over a 5-year period, of which 2,500 a colocation. So whilst, obviously, there's correctly a lot of focus on MTN, and that's the case within IHS as well, but we're also making sure we continue progressing and moving forward in a material way with other key customers as well.
That's great. I mean, if I can maybe also add something on the liquidity stock debt side. Could you just comment on in terms of the cash balance at the moment, how much is it in the [indiscernible] versus OpCos? This $15 million release of cash collateral, is this included in the cash balance at the end of 2023? And then finally, this Ivory Coast refinancing structure debt. What was actually the benefit at the HoldCo in terms of the settlement of intercompany loans, for instance.
Sure. So Stella on the bilateral that was only a few days ago to now, the approximate $150 million cash collateral is not included in the December 31 cash balance. So that is additional cash, additional liquidity. And as we said, that will reduce interest on that -- those specific obligation by about [indiscernible] so it's saving interest. It's bring up cash and its leverage positive. So that was the reason of doing that. On the Côte d'Ivoire, so that was certainly in the -- I know you and I have spoken about before and spoken with many others about as well with we have U.S. dollar obligations at the top. Can we utilize our local markets in particular currency markets to try and rotate some of that dollar obligation down back into the country at low currency levels. So that was just one example of that $116 million equivalent, which has been shifted down into CIB. So what we've done is we've raised that money in Côte d'Ivoire. There was a tiny start of existing debt in Côte d'Ivoire has been refinanced and then we're in the process of upstreaming that capital up to the HoldCo where we will extinguish some store obligations. Again, that was signed just before the end of the year, but the upstreaming the -- drawdown the upstreaming was done hasn't been completed yet, but it's in the process being completed, and that is not in the year-end cash numbers. So that's another upside to the business. And then in that example, we were able to get extremely comparative, if not slightly cheaper interest rates in the local market versus U.S. dollar obligations. So again, managing maturities and managing currency, the balance sheet, but also making sure we take care of interest rate expense as well.
[Indiscernible].
Sorry, we emphasize that. It hasn't moved materially in the last quarter. So [indiscernible] $300 million of cash on the group and there's a profitable balance sitting offshore.
Thank you. That brings us to the end of the IHS Holding Limited 4Q and Full Year Earnings Results Conference Call. Should you have any questions, please contact the Investor Relations team via the email address investorrelations@ihstowers.com. The management team thank you for your participation today and wish you a good day.