(IHS) Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 8 speakers on the call.

Operator

Good day, and welcome to the IHS Holding Limited Earnings Results Call for the 3 month period ended September 30, 2023. Please note that today's conference is being webcast and recorded. At this time, I'd like to turn the conference over to Colby Synesael. Please go ahead, sir.

Speaker 1

Thank you, operator. Thanks also to everyone for joining the call today. I'm Colby Sinusav, EVP of Communications here at IHS. With me today are Sam Darwish, our Chairman and CEO and Steve Houghton, our CFO. This morning, we published our unaudited financial statements for the 3 month 9 month periods ended September 30, 2023, on the Investor Relations section of our website and issued a related earnings release and presentation.

Speaker 1

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 2, which should be read in full along with the cautionary Regarding forward looking statements set out in our earnings release and 6 ks 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 Factors section of our Form 20 F filed with the Securities and Exchange Commission in our other filings with the SEC. We'll also refer to non IFRS measures, including adjusted EBITDA that we view as important to assessing the performance of our business and ALFCF that we view as important in assessing the liquidity of our business.

Speaker 1

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. With that, I'd like to turn the call over to Sam Darwish, our Chairman and CEO. Thanks, Colby, and welcome, everyone, to

Speaker 2

our Q3 2023 earnings results call. We are reporting a solid quarter of performance across our KPIs with revenue and adjusted EBITDA in line or ahead of our expectations, Notwithstanding the recent current devaluation, while CapEx was meaningfully below, as everyone should know from our prior earnings call, these Q3 results Our first full quarter of results post the significant devaluation in the Nigerian currency, the naira. As a reminder, the naira devalued by 59% from 4 72 in mid June to 753 at the end of Q2 and in Q3 Average 7.68 versus 4.31 last year is 78% devaluation that drove a 10.4% reduction Our reported dollar revenue, the forest production mechanisms in our revenue contracts have begun to reset And we will see more evidence of this resetting in our Q4 results. Overall, the business continues to perform well, driven by solid organic growth of 30.6 percent with contributions across each of our segments that reflects robust secular demand and the quality of our contract structures. The reduction in CapEx reflects an increasingly more balanced approach we are taking to growth and cash generation in light of what remains a challenging macroeconomic environment across the world, but particularly in Nigeria, and we now expect to be towards the low end of our CapEx guidance range for the year.

Speaker 2

On a quarter over quarter basis, the Naida represented a negative $139,000,000 impact to revenue, driven by the devaluation that began in mid June. Positively, we expect to see a notable sequential setup in revenue in Q4 as we see the full benefit of our contractual ForEx resets kick in. As a reminder, 53% of our revenue is tied to hard currency, of which reading all USD contracted revenue reset quarterly or sooner and nearly all of our revenue has an annual contractual escalator of which most occurred in January. Given these expectations, we are maintaining our 2023 guidance for revenue, adjusted EBITDA and CapEx. I'd also like to point out that we stopped reporting on LSCF for recurring leverage free cash flow and have replaced it with ALSCF or adjusted levered free cash flow, which better reflects our liquidity position.

Speaker 2

We maintain the same range for ALSTF that we had for our ALSTF, but Steve will outline the slight change definition between these two metrics later on. We expect our heightened focus on cash generation to be even more evident in 2024 as we pursue operational efficiencies through productivity enhancements, cost reductions and slowing of CapEx versus recent years. In addition, we are constantly reviewing our portfolio of markets and assets and will continue to focus our track set allocation on what we believe to be high growth core markets. We believe these initiatives will help enable IHS to sustain healthy double digit organic growth while delivering the meaningful cash generation inherent in our business model. We look forward to sharing our 2024 guidance next quarters.

Speaker 2

Moving to Slide 7, I want to discuss some of our key highlights for the quarter. Starting with Nigeria, As I mentioned earlier, the significant devaluation that began in mid June in addition to access to ForEx remain a challenge. We are, however, encouraged by the appointment of new governor of the CBN in September and more recently reported efforts to clear approximately $1,000,000,000 of the ForEx backlog. These represent positive developments, but there is still much more for the government to do. We are not upstream from Nigeria since the $65,000,000 completed in H 1, 2023, but we will continue to assess opportunities for upstreaming as they arise in the remainder of 2023.

Speaker 2

I would like to remind our audience that we have operated in Nigeria in particular for over 22 years and over that period we've gone through other outsized devaluations, including most recently in 2016. And each time, our business continued to grow thereafter, and we have confidence we will do so again this time. For example, the naira divided from approximately $1.97 to the dollar to $3.05 in 2016, a devaluation of 55%. Back then, we saw a similar next quarter negative impact to revenue and profitability as we are seeing now, But then we saw revenue and profitability build back over the next few quarters as our ForEx reset and escalation mechanisms kicked in, leading to the Nigeria business delivering revenue growth of 22% in dollar terms the year after 2017, an indication of how resilient our business was to devaluation as contract resets and escalations kicked in. Moving on first to Brazil and then to South Africa.

Speaker 2

In Brazil, we remain focused on our sizable build to suit program. And during the quarter, we built 294 towers in LatAm and remain on target to achieve our goal of 7.50 or more bills for the year. We also refinanced our existing tower co term loans via the issuance of local debentures as we continue our focus on raising more debt in local currency to better align our debt profile with our revenue profile. The Brazilian Central Bank again reduced interest rates by 50 basis points in early November, the 3rd consecutive time over the past few months. Now to South Africa, while we are encouraged by the improvements we have seen in the level of load shedding since last quarter, We continue to evaluate our power managed service business with MTN and others.

Speaker 2

We will update you as appropriate and if necessary. On stock liquidity, on October 16, we freed up another 180,000,000 shares And therefore, all of the shares that have been subject to lockup under our shareholder agreement are now freely tradable. I'll cite certain holders remain subject to Rule 144 requirements. The expiration of the lockup over the past 18 months appears to have had a positive impact on our trading liquidity, which has more than tripled from 122,000 to over 400,000 shares per day on average. During the Q3, we also repurchased nearly 950,000 shares and spent $4,800,000 as part of our up to $50,000,000 share buyback program that expires in August 2025.

Speaker 2

Shifting to our balance sheet, we have over $850,000,000 of available liquidity between cash and undrawn facilities, plus various undrawn facilities at the OpCo level. This reduction by $100,000,000 from last quarter is because we have reduced the undrawn portion of Our 2022 term loan by $100,000,000 to $130,000,000 but extended the availability period of the undrawn balance from October 2023 to April 2024. Additionally, de risking our capital structure remains a focus And we have successfully extended the maturity of our $300,000,000 group revolver from March 2025 to October 2026. With net leverage of 3.2 times, we are still comfortably within our target range of 3 to 4. And please remember that we have no meaningful debt maturities until Q4, 2025.

Speaker 2

We feel good about our balance sheet position, but we continue to monitor the market and evaluate ways to further strengthen our position as we have again recently done. Lastly, regarding shareholder considerations, We continue to engage in constructive dialogue with Vandel and are making progress towards our mutual goals. We also continue to engage with MTN Group to better

Speaker 3

Thanks, Sam, and hello, everyone. Turning to Slide 9. As Sam mentioned, we're pleased to show our Q3 performance was in line or better than expected considering the backdrop the significant currency devaluation in Nigeria, which I'll reference at various points today. As you see here, towers are up almost 1% and tenants up more than 2% in the Q3 'twenty three versus Q3 of 2022, while lease amendments again increased by double digit percentages. On a reported basis, revenue and adjusted EBITDA declined in the quarter consistent with our prior expectation and guidance The full impact of the June devaluation would not be reflected in our results until this Q3.

Speaker 3

Specifically, in Q3, revenue declined by 10.4%, Adjusted EBITDA by 15.5 percent and ALFCF fell by 11.2% in each case on a reported basis and driven largely by the impact of the devaluation more than offsetting the continued strong organic activity across our markets. However, it's worth noting that the period on period comparison is a bit distorted by the presence of some one off revenue and adjusted EBITDA in the Q3 of 2022. And as we noted last quarter, we did see some pull forward of anticipated Q3 2023 revenue into our Q2 results. Our adjusted EBITDA margin decreased by 49.7%. Again, I draw your attention to what Sam said earlier about having seen a similar devaluation in Nigeria in 2016 and the build back of our earnings the following quarters as our contractual protections kicked in.

Speaker 3

You also see total CapEx fell by nearly 40% in the quarter, largely due to lower capital expenditure for Nigeria and the SSA segments, partially offset by an increase in LatAm, all of which I'll discuss shortly. As Sam mentioned, we are taking a sharp look on CapEx for the remainder of this year and into next year, focusing on the projects that we believe promised the highest returns and are the most strategic. Finally, our consolidated net leverage ratio was 3.2x at the end of Q3, essentially flat with last year and a 0.1x increase versus Q2 2023. Again, this is consistent with the expected increase we flagged last quarter due to the devaluation, albeit still within our 3 to 4 times range as we had guided. Turning to our revenue on a consolidated basis, you can see how the devaluation turned a quarter of strong organic growth into a 10.4% reported decline in consolidated revenue for the Q3.

Speaker 3

Organic revenue growth of 30.6% driven primarily by FX resets, CPI escalations and lease amendments. Power related revenue slightly increased due to increased power pass through in South On the right hand side, you can see the organic growth rates of each of our segments for the quarter with Nigeria delivering 36% organic growth. Inorganic growth for Q3 was less than $1,000,000 primarily due to the 5th and 6th stages of our Kuwait acquisition. On Slide 11, you can see our consolidated revenue, adjusted EBITDA and adjusted EBITDA margins for Q3 'twenty three. As we've discussed, the Nigerian devaluation drove a 10% decrease in reported revenue in the 3rd quarter despite quarterly organic revenue growth of over 30% and again demonstrated the continued strong top line growth trends in the business led by Nigeria in particular.

Speaker 3

In Q3 'twenty three, reported revenue now reflects a full quarter's impact from the Nigeria devaluation and includes $139,000,000 headwind versus rates last quarter, albeit with a 2,000,000 tailwind versus the N775 to the dollar FX rates and $3,000,000 when including all FX assumptions assumed for last quarter in our guidance. While our quarterly FX resets on the U. S. Dollar denominated portion of our Nigeria contracts did kick in on the 1st July as expected. We have previously noted that some of these resets are calculated using the average rate of the prior quarter and therefore wouldn't yet fully make up for the mid devaluation in these 3rd quarter results but will be reflected in our Q4 results.

Speaker 3

Furthermore, the comparison distorted a bit due to the $18,000,000 of one off revenue and adjusted EBITDA in Q3 of 2022. In Q3 'twenty three, adjusted EBITDA of $232,000,000 decreased 15.5 percent and adjusted EBITDA margin was 49.7 percent, down from the prior year. The year over year changes in adjusted EBITDA and margin for the 3rd quarter primarily reflect the decrease in reported revenue I've already discussed and the absence of the one off items alongside an increase in administrative expenses. Power generation cost of sales decreased by almost $24,000,000 driven by a $35,000,000 diesel cost decrease, primarily due to a 38% decrease in the price and a 5% decrease in consumption of diesel in Nigeria. It was offset by an $11,600,000 increase in electricity costs, including as a result of Project Green.

Speaker 3

As previously highlighted through Project Green, we continue to prioritize alternative sources of power to reduce our dependency on diesel. On Slide 12, we first review our adjusted levered free cash flow or ALFCF, which as Sam pointed out replaces the RLFCF metric. The primary differences from RLFCF is that when reconciling from cash from operations, ALFCF only includes the cash costs of business combination transaction costs, Other costs and other income. ALFCF also excludes the reversal of movements in the net loss allowance on trade receivables or bad debts an impairment of inventory. This better reflects the liquidity position in each period.

Speaker 3

In Q3 'twenty three, we generated ALFCF of $80,000,000 an 11% decrease versus Q3 of 2022 due to a combination of factors, including the decreased revenue and adjusted EBITDA we've discussed already and increases in net interest paid and income taxes paid all partially offset by decreases in maintenance CapEx withholding tax and lease payments made. However, as a reminder, the ALFCF growth rate includes the $18,000,000 of 1 off revenue in the Q3 of 2022. Our AFSCF cash conversion rate increased to 34.3% versus the prior year's quarter. Turning to CapEx. In Q3 'twenty three, CapEx of $105,000,000 decreased nearly 40% year on year.

Speaker 3

This decrease was primarily driven by a lower capital expenditure for our Nigeria and SSA segments of $72,000,000 $22,000,000 respectively, partially offset by an increase in capital expenditure of $25,000,000 for our LatAm segment. The decrease in Nigeria was primarily driven by decreases related to maintenance capital expenditure, Project Green and New Sites capital expenditure, while the decrease in the SSA segment is primarily driven by decreases related to new sites capital expenditure and some other capital expenditure we had. The increase in LatAm is primarily driven by increases related to new site CapEx. Our spending for Project Green was $8,300,000 during the Q3 of 2023 and the year to date spend was $83,000,000 while we have spent a total of $187,000,000 since we began the project versus the original $214,000,000 total CapEx forecasted. On the segment review on Slide 13, I'll first walk For our Nigeria business, the Nigeria macro environment remains complex as we discussed on our prior earnings calls this year.

Speaker 3

We are still encouraged by the swift initial actions taken by the new government, although it is clear that more work needs to be done. We remain in close contact with our key customers, 2 of which have again recently published healthy top line results in their businesses, albeit also showing the impacts from the Nigeria devaluation. We also continue to work closely with various regulators, our vendors and our local banking partners to continue to best position our IHS. While we remain cautiously optimistic, U. S.

Speaker 3

Dollars continue to be difficult to source with FX reserves in the country having decreased to $33,200,000,000 at the end of 2023 from $34,100,000,000 at the end of June 2023. Market participants continue to believe that CBN will need to step in at some point to inject liquidity into the system and clear the backlog of FX transactions. And there have been published Stories recently regarding potential government actions already underway. Meanwhile, the price of both oil and ice gas oil have increased recently. Looking at ice gas oil, it was $9.11 per tonne in Q3 of 'twenty three, up from $6.87 per tonne in Q2 of 'twenty three.

Speaker 3

Moving to real GDP growth, it expanded by 2.3% in the quarter, but with a now lower projected full year 2023 growth rate of 2.9%. Inflation jumped to 26.7% this September versus 20.8% in September 'twenty 2 with the removal of the petrol subsidy a large factor therein. Overall, however, we continue to believe the business remains well positioned for long term success and to endure the continuing macroeconomic challenges. To this point, our Nigeria business once again delivered strong organic results in the Q3, tracking well on all key metrics. Revenue of $271,000,000 decreased 24% year on year on a reported basis, but increased 36% on an organic basis, in each case reflecting the devaluation over the quarter and the other items we've discussed.

Speaker 3

Organic growth was driven primarily by FX resets, escalations and lease amendments and the negative FX impact was $213,000,000 or 59.9 percent due to the devaluation. Our tower count decreased by 3% and our total tenant count increased by 0.3% each versus the Q3 of 'twenty two, largely reflecting the planned decommissioning discussed earlier this year, which does not impact revenue. Our Continued to be a strong driver of growth with these increasing by 14.3% quarter on quarter as our customers added additional equipment to our sites, particularly 5 gs upgrades. Q3 'twenty three segment adjusted EBITDA in Nigeria was $158,000,000 a nearly 25% decrease from a year ago, And segment adjusted EBITDA margin was down 90 basis points to 58.2 percent in each case largely driven by the Naira devaluation impacting revenue, partially offset by an overall decrease in cost of sales. In our Sub Saharan African segment, towers and tenants increased by 1.6% and 2.7% respectively versus the Q3 'twenty two.

Speaker 3

Revenue increased by 16% of which organic revenue grew 21%, driven primarily by escalations, new sites, co locations and FX resets, while FX was a 4.4% headwind. Segment adjusted EBITDA increased by 4.4%, driven primarily by the increased revenue, partially offset by increases in cost of sales and administrative expenses. Segment adjusted EBITDA margin decreased to 49.7 percent from 5.3% in Q3. We continue to monitor the macro environment in South Africa, particularly the ongoing power load shedding by the National Utility, which appears to have moderated recently and as previously discussed, we'll continue to evaluate our power managed services offerings. In our LatAm segment, towers and tenants grew by 6.6% and 5.2%, respectively, whereas revenue and segment adjusted EBITDA increased by 23% 27%, respectively, in all cases versus Q3 'twenty two.

Speaker 3

In Brazil, our 2nd largest market with 7,300 and towers, macro conditions were largely positive as FX rates held steady and interest rates came down. While inflation did go up Q on Q, we saw it tick back down again in October. In our LatAm segment overall, Q3 2023 organic revenue increased 15% driven primarily by an increase from I Systems fiber deployment and escalations. Segment adjusted EBITDA grew by 27% in the quarter with a segment adjusted EBITDA margin of 73.6%, a 240 basis point increase. In the MENA segment, towers and tenants grew 10.1% and 10.6% respectively in Q3 'twenty three and revenue grew by 13%, including 7.4% organic revenue growth.

Speaker 3

Segment adjusted EBITDA grew by 35% in the quarter with a segment adjusted EBITDA margin of 50.2%, reflecting the increased revenue and the decrease in cost of sales. On to Slide 14, and I'll briefly highlight our KPIs. As of September 30, our tower count was 39,739, up 0.9% from the same period last year, driven primarily by ongoing new sites in LatAm and Sub Saharan African segment. As you can see in the chart on the top right, Collectively, we built over 400 towers during the Q3 of 2023. And as we continue to see the ramp up in build through the quarters of 2023 to achieve the full year target of approximately 12.50 new build sites.

Speaker 3

Total tenants grew 2.3% with the co location rate at 1 point for 9 times, up slightly versus last year. We continue to point out that lease amendments are a significant factor for us, particularly in the Nigerian segment given the historic 4 gs and now increasing 5 gs activity we are seeing. These elements increased by almost 17% year on year. On Slide 15, we look at our capital structure and related items. At September 30, 2023, we had $4,140,000,000 of external debt and IFRS 16 lease liabilities.

Speaker 3

Of the $4,140,000,000 of debt, $1,940,000,000 represents our bond financings and other indebtedness increased $370,000,000 that we drew down in 2022 from the $600,000,000 3 year bullet term loan at the IHS Holding Limited level. However, in October, we reduced the available undrawn commitments, as Sam mentioned, under this term loan by $100,000,000 now down to $130,000,000 and $270,000,000 to $300,000,000 in the quarter. And in November, we extended the maturity of this facility from March 2025 to October 2026. There are currently no amounts outstanding under either the group RCF or the local currency RCF we have in Nigeria. Additionally, during the quarter, in Brazil, we issued debentures for BRL1.2 billion, approximately $238,000,000 that amortized semi annually until maturity in August 2031.

Speaker 3

The proceeds of the issuance of the debentures were used to repay in full the existing principal debt of BRL714 million, which is approximately $142,000,000 as well as for general corporate purposes. This Brazilian local currency refinancing extended the maturity of the outstanding debt and reduced the interest rate versus the prior debt. Cash and cash equivalents was essentially flat at $425,000,000 at September 30. And in terms of where that cash is held, Approximately 15% of the total cash was held in naira at our Nigeria business. Consequently, from all these moving elements At the end of Q3 'twenty three, our consolidated net debt was approximately $3,700,000,000 and our consolidated net leverage ratio was 3.2x, up 0.1x from June and still at the low end of our net leverage target range of 3 to 4x, further demonstrating our strong balance sheet.

Speaker 3

However, similar to what we said last quarter, I would note that in the light of the Nigeria devaluation, we do expect leverage tick up slightly more into the first half of twenty twenty four. Moving to Slide 16, we are maintaining our guidance for revenue, adjusted EBITDA and CapEx. However, we are replacing our LFCF guidance with ALFCF. Although we have retained guidance in absolute terms, we have reduced our expectations for the naira for the 4th quarter to NAR775 to the dollar from the previous NAR750 to the dollar. As a result, We now expect to be at the low end of the range for adjusted EBITDA.

Speaker 3

We also expect to be at the low end of the range for CapEx, but this is more a reflection of proactive decisions we are making to and that will continue into 2024. Our ALFCF guidance is the same range we previously had for RLFCF. However, it includes an approximate $8,000,000,000 benefit in terms of the difference in calculation, which offsets the otherwise FX Headwind we expect to see in adjusted EBITDA. As a reminder, we expect to see a step up in revenue in Q4 'twenty three as we see the full benefit of our FX resets tied to the Nigerian devaluation that began in mid June. Guidance also continues to include approximately I do want to again caution that timing of such moves is difficult to predict and could be delayed, although we do not anticipate that this would impact adjusted EBITDA or ALFCF.

Speaker 3

For the year, we now expect to build approximately 12.50 towers. This includes an additional 50 towers in Nigeria versus our previous guidance. And on Slide 17, on the top, you can see revenue by reporting currency for Q3 'twenty three, whereas on the bottom, we provide the breakout of revenue based on contract split. The right side shows the average annual FX rate assumptions used in our 2023 guidance and has been updated since last quarter. This equates to $11,000,000 downside for the year versus rates assumed last quarter.

Speaker 3

And that now brings us Thank you.

Operator

We will now pause briefly while we register questions in the Q and A roster. Your first question comes from the line of Greg Williams from TD Cowen. Your line is open.

Speaker 4

Great. Thanks for taking my questions. My questions are really around the migration of MTN over to American Tower sounds like it's becoming a reality. And just wondering if you're preparing for this migration and what the impacts would be in the past?

Speaker 5

I think You noted it's $45,000,000 a quarter, but back then the niro was at $508,000,000 and with the deval. Just hoping for an update on the exposure, the impact And how it ramps out in sunsets in 2025 beyond? And the second question is just how practical is it

Speaker 4

to move 2,500 towers In a short timeframe and the risk is how much further can MTN go as you think about your contracts with the Ivory Coast and Rwanda and Zambia and if there's

Speaker 2

Thanks for the question. Many questions. Maybe let me try to dissect them into like maybe 2 or 3 categories. I'll start by talking about probably the materiality to the business going forward. I mean, look, even if they successfully Move these tenancies, which is very questionable, we'll talk about in a second, it is still not material to the business.

Speaker 2

We have around 60,000 tenants across 40,000 sites of the group and these 2,500 tenants in Nigeria Bevy represents 4% of the total towers, maybe 7%, 8% of our group revenue. And the majority All the other renewals with MTN in Nigeria are coming up in 2029 and beyond the average tenure of our contracts over 7 years out with many beyond 2,030. So we feel good about that part. And given our organic growth rate, which has been more than 20% in Nigeria over the past 3 years, we believe that we can make up for the impact of these towers through our various commercial relationships. Now also I think it's important to note that the market situation across all our markets, Greg, is that they are underserved.

Speaker 2

It's an important point because, for example, we have more than twice the SIM cards per tower in Nigeria than in mature markets like the United States. Thousands of villages remain without even cell phone coverage. This calls for more towers to be built even before we deal with issues like requirements for 5 gs, the increasing subscriber demand for capacity, the quality of service, expanding coverage. So we firmly believe that capital and resources will continue to flow to growth and not to swapping towers from one operator to another. So that's in terms of Materiality.

Speaker 2

Now in terms of other renewals in other markets, look outside Nigeria, Many of our I mean, in Nigeria, in particular, I need to highlight that we are the largest by far. I mean, remember, our closest competitor, we have 16,000 towers. Our closest competitor has 8,000 that's half of our size. Outside Nigeria, many of our other markets even lack a credible Yes, alternative. It may take time and engage in negotiations, but we feel good about our prospects given the alternatives or actually lack of thereof So that's on this matter.

Speaker 2

Now in terms of the 3rd matter, do we think that transition or that relocation is Practical or pragmatic. Look, maybe let me start by addressing it From a different perspective, moving business from 1 tower operator to another globally is very rare. And we have as a sector one of the lowest customer churn for good reasons. So to better put this into perspective, Maybe let's look at the United States and the situation many of you guys are familiar with during the 20 sixteen-twenty 19 period When AT and T engaged in a very public dispute with the tower court, with public declarations to move towers and legal action threats and this and that Over a 2.5 year period and after 2.5 year period, if you look at the SEC filings, they only moved 5,600 out of the 65,000 towers from one operator to another under 1%. Now this is the United States With its relatively advanced infrastructure and this is AT and T and barely 5, 600 towers were moved in a period of 2.5 years.

Speaker 2

Now look at Nigeria by contract. Unlike the United States, 95% of all towers in Nigeria don't have even a connectivity to the grid A neat power system complex to run, complex to build and of course producing to the environment. Unlike the United States also, there is a limited Looking manufacturing and almost all of the materials, Greg, need to be built for to build the towers and power systems will need to be imported into the company. Then unlike the United States, there are significant security, logistical concerns of transporting and building the tower, causing delays, Causing additional costs, causing unnecessary headache, then you add the multiple levels of environmental and regulatory permits, Very complicated permitting framework in Nigeria, by the way. Then after all this, the process of relocating and optimizing the rating network itself That covers the millions of customers that are being served using these towers and they have to do it after they build this tower.

Speaker 2

Now remember, again, we are the largest tower provider in Nigeria with 16,000 towers, as I said, and the next nearest competitor has 8000. This means that if you are moving towers, you need to likely build a substantial portfolio of the new towers. I can't just simply Collocate on existing tower locations that you have. So in a nutshell, Greg, the resourceful AT and T ended up relocating 5,600 sites over a 2.5 year period in the United States, while this relocation project that is being suggested Suggest moving 2,500 in almost a year in Nigeria. I mean, what do you think?

Speaker 2

Look, This is why we are comfortable about where we are. But again, we have to be respectful. We have to be mindful Of our client relationships, we continue to engage. It's important to support our customers in every way possible. We are a service driven company.

Speaker 2

We understand that and believe that and we'll continue to think this way.

Speaker 1

Great. Thank you for the color, Sam.

Operator

Your next question comes from the line of Phil Cusick from JPMorgan. Your line is open.

Speaker 6

Hi, guys. Thank you. Can you quantify the expected revenue pickup in Nigeria for the contract resets over the next couple of quarters? Understand that it takes a little while on some of the contracts. And what of those are happen quarterly versus an annual, maybe a January 1 reset?

Speaker 6

And then second, you mentioned the improved discussions with Wendell. Can you give us any more update on that relationship? And it seems like you just covered everything you could say on the MTN side. Thanks.

Speaker 3

I'll say the first part. And so as you rightly see some of the contracts in Nigeria are resetting different points. And the vast, vast majority over 93% of the contracts are resetting quarterly, but some of them reset with a spot FX rate at the beginning of the quarter and some take an average of the preceding quarter. So the ones that we've seen reset in Q3 Well, the ones that reset the spot on 1 July, and then we'll see another step up when those that take the average The last quarter will reset again on the 1st October, taking into account a full quarter of devalued naira rate. We haven't sort of quantified it, but obviously being the last quarter of the year, given we post 9 months results through so far and you know what our guidance is, And you can pretty much see what

Speaker 1

the step up is. If I

Speaker 3

give you an example on the flow through into EBITDA, we when you look at the results we posted so far Through the 9 months and look at the full year, the range is at $11.30 to $11.50 Even if we use the bottom of that range, you're looking at an EBITDA just mathematically of $259,000,000 So that's $232,000,000 we've just posted in this quarter. So that gives you an idea Just mathematically straight to my guidance of the sort of step up that we'll expect to see next quarter.

Speaker 2

On the second question, Phil, regarding our shareholders, in particular, the 3 IPO shareholders, look, we continue to talk. It's very important to talk, to engage, to communicate. To note also that we are sticklers when it comes to the standards of our governance, And we are always keen on ideas to improve the standards of governance and equally important, we're also Any idea that could help the value creation, value restoration, etcetera, etcetera. So this is a good part of why we decided by the way to list our company in the United States under the watchful eye of the United States Securities and Exchange Commission. It's a very high bar lots of companies or global companies avoid because they don't want to be held accountable to such high standards, not us.

Speaker 2

Now having said that, our Board of Directors also that is made of industry bellwethers has also fiduciary duties to protect and safeguard the interest Our minority investors and our various clients, that's something we are steadfast about. So again, But I do acknowledge and it's important to keep talking and in the dialogue and finding solutions with our pre IPO shareholders And hopefully, the reason will raise over time. But having said that also, Phil, and in an environment where the rising and already high interest rates A problem for everyone, including public equities, including our peers, including our markets, we have to remain focused on our business and the running Of the business itself, I mean, we believe we have a very resilient business. We believe it's strong. We intend to keep strengthening the business and keep growing it, but the resilient businesses also demand alert stewards, Alert and focused, Stuart.

Speaker 2

And we see our job as primarily running the business to the benefit of all shareholders, and we intend to Keep most of our focus there.

Operator

Okay.

Speaker 2

Thank you. Thanks,

Operator

And your next question comes from the line of Brett Feldman from Goldman Sachs. Your line is open. Thanks.

Speaker 7

A couple of questions. So you made the comments about a portfolio review and it sounded like you were discussing it within the context So being more focused on where you would deploy capital. So it's a big capital projects. But I'm curious whether the portfolio review is Broader and maybe looks into whether there are assets you could sell or monetize, whether it's markets or just unique pieces of the portfolio. I saw you had some assets held for sale in In your sub Saharan African markets and I wasn't entirely sure what the context on that was.

Speaker 7

And then regardless of the answer, one way or the other, you Have more excess capital either because you were spending less on capital projects or perhaps generating capital from selling assets. How would you go ahead and prioritize that additional capital? Would it mostly go towards further strengthening the balance sheet or could that be something that could fund the buyback program, which still has a lot of capacity under it? Thank you.

Speaker 2

Thanks, Brett. Look, Brett, I think the important part is, again, our main focus at the moment, the business, The balance sheet making sure basically that we remain as resilient as we've always been. Now having said that, again, we've always said we are Extremely mindful of where the share situation is. And this company constantly reviews Every option that is out there. I mean, there is no storm that we want to leave unturned basically to try and get ourselves into a better place in terms of exposing to the world showing how undervalued we believe our share is.

Speaker 2

And in addition, of course, maintaining and analyze Keep moving along the lines of strengthening cash flow generation in our balance sheet. So I can't go into details unless Things kind of like get decided and announced, but all options are on the table, to be honest. And in terms of The extra cash that we will we hope to kind of like shore up and achieve, Again, all options are open. We are constantly reviewing. Remember, we are a growth company at Core.

Speaker 2

So we'll always Review and look at potential growth opportunities, but every other option, including potential buybacks, The other things are on the table.

Speaker 3

Right. I'll just add, it's Deepa. I'll just add, I mean, keep in mind, we think about just One bucket of that question, which is the CapEx that we spend each year and whilst we're not getting into guidance for 2024 at this point in time, Just remember that in the last couple of years, we'll have spent in excess of $600,000,000 per year on a variety of projects, growth oriented, towers, Fiber, Project Green and some of those things will have a different flavor next year. Project Green as we know was a heavy spend in 20222023 and will be a much lighter spend in 2024 purely because of the program that we've announced publicly. And likewise, with towers and fiber, we're really thinking about the About the trade off of growth versus cash generation and cash preservation within the business such that We're making the right decisions and again, as I'm saying, trying to generate maximum value for shelves.

Speaker 7

Thank you.

Speaker 3

Your next question comes from

Operator

the line of Michael Rollins from Citi. Your line is open.

Speaker 4

Thanks and good morning. Two questions if I could. The first is you mentioned and referenced that you have low churn in the business. I was just curious if you could articulate what those churn rates look like for the company as well as for any of the key geographic regions? And then secondly, just taking a step back, just curious if you can remind us Where you have common ground with MTN and Wendell and where there are differences in perspective and if any of those Differences have evolved, changed over the last few months.

Speaker 4

We're just trying to appreciate kind of the background to the situation? Thank you.

Speaker 3

Mike, so the first one on churn. As you know, we don't include that in our revenue growth bridge. I'm not saying fact that principally because it's quite small, something that we've been discussing with you and others for a while. In the quarter that's gone, it was 70. So across the base of 60,000 tenants, actually, under 70.

Speaker 3

In prior quarters, sometimes it's 100, sometimes 150, sometimes it's next to 0. So the churn rates over a blended period of time are the sort of 1%, maybe even sub-1%. And then when you look at also who those tenants are, that churn tends to be on what we call the non key customers. We define key customers in our disclosure material as the top tier of customers who represent north of 92%, 93% of our revenue base. Actually, the majority of the churn that we do see, albeit small, comes out of the non key customers.

Speaker 2

On the second Question, Mike. And again, I've spoken about that few minutes ago. Look, Our shareholders, in particular, our 3 IPO shareholders, Bandel and MTN, have been vocal about their governance requirements, which on this side we perceive more as efforts to change the balance of influence between them and us and the post IPO shareholders. And given that one of them in particular is a client is actually a large client. This adds a substantial complexity to the situation.

Speaker 2

So their demands, their requirements are clear. It's a complex discussion and we will report, Mike, Okay. As in when appropriate.

Speaker 4

If I could just follow-up with one more. In the past and even on this call, you referenced different actions that the company is trying to take to improve shareholder value. Is there a higher level set of Goals or principles that you want to bring into the company to continue You'll create forward progress on that gold improved shareholder value. Is there anything that you've been able to simplify or Determine as the best course if you do 1, 2, 3 things that this can have the best results for shareholders.

Speaker 3

Mike, I'll maybe have a go at that. I mean, we've spoken on this call and previously around Resolving the matters with MCN and Venmo on the shareholder side. We're very cognizant of that. And we've also been a bit more forthcoming on this call around How we're going to look at CapEx and the organic side of capital deployment. And so you're starting to see some themes We'll continue to adding to over time in recognition of where we are as a business within our markets, also within the globe, within the world in terms of Yes, the macroeconomic situation that everybody is facing.

Speaker 3

So those are just a couple of the initial elements of thinking that you're starting to see in here more of. And we're looking forward to pushing those couple of initiatives forward. And then as we continue progressing, as Sam said a few moments ago, As a company, as a Board, we're constantly thinking, no one's happy with how the company is valued today. And we're constantly thinking about ways that we can look to improve on that. And we'll communicate on those as and when they become announceable.

Speaker 2

I mean, Mike, But don't forget, we have issues we're dealing with. We have the global macro situation, which is not conducive. We have a concentration in Nigeria, which we're trying to kind of like solve for or diversify up. We have relatively Some elevated client concentration, which also needs to be addressed. We have in addition to all of these, we have a daily trading Which I'm happy to say that has improved, has as I said earlier, our daily trading volumes have Tripled, almost tripled over the past period.

Speaker 2

So moving in the right direction, but there are multiple issues that we need to deal with. And we are trying to deal with Each of it in a different way. In terms of the trading, for example, we have recently removed all lockups on all shareholders. We announced a potential buyback now, albeit we just exercised a small part of it. But again, we need to be mindful of how do we allocate Our capital so there are initiatives to address basically the various levels of why do we see the share price is undervalued.

Speaker 2

And we may come back with other things on different on some of these other different challenges. But again, Rome was not built in a day, and we need to be thoughtful and careful, especially navigating these challenging global and shareholder situation. Thank you. Thanks, Mike.

Operator

That brings us to the end of the IHS Holding Limited 3rd quarter 2023 earnings results call. Should you have any questions, please contact the Investor Relations team via the e mail address investorrelationsihstowers.com. The management team thank you for your participation today and wish you a good day.

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Earnings Conference Call
(IHS) Q3 2023
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