IHS Holding Ltd. Q4 FY2023 earnings call

• 2023 Performance: 8% revenue growth, 10% adjusted EBITDA growth, 19% ALFCF growth, 8% reduction in CapEx. Organic growth was 37%. Added 1,041 colocations and 4,929 lease amendments, built 1,329 new towers mostly in Brazil.
• Commercial Progress: As of year-end 2023, $11 billion of revenue under contract with average remaining tenant term of 7.5 years. Signed extended contract with Airtel in Nigeria, commitment to add 3,950 new tenancies over 5 years. Signed contracts with MTN in Cameroon and Cote d'Ivoire for 10 years.
• Governance Progress: Announced settlement agreement with Wendel in January, proposed amendments to articles of association to be made available before next AGM.
• Stock Liquidity: Removed all lockups on pre-IPO shareholders, approximately 14% of shares owned by post-IPO shareholders, average daily trading volume 574,000 shares. Bought $10 million worth of shares under two-year buyback program.
• Project Green: 2023 spent $103 million of CapEx vs guidance of $90 million - $100 million, achieved ALFCF savings of approx. $24 million vs guidance of $22 million. On target, to be updated in annual sustainability report.
• Balance Sheet: Comfortable liquidity position, $724 million available liquidity. Actively pursuing initiatives to shift debt into local currency, extend maturities, manage interest expense. Leverage ended 2023 at 3.4 times, expected to increase in 2024 but remain within target 3 - 4 times.
• Strategic Alternatives: Commenced work with advisors including J.P. Morgan to evaluate strategic alternatives for the business across portfolio and capital allocation priorities.

Nigeria: In Q4 2023, revenue in Nigeria was $321 million, down 10% year-on-year on a reported basis, with organic growth of 66% driven by FX resets and escalations. Segment adjusted EBITDA was $200 million, down 3% year-on-year, but margin was up to 62.3%. For full-year 2023, Nigeria contributed a significant portion of revenue. Sub-Saharan Africa: Q4 2023 revenue increased 5.6%, organic growth 12% driven by escalations and FX resets, but segment adjusted EBITDA decreased 6.3% due to higher costs. LatAm: Towers and tenants grew 9.3% and 6.6% respectively in Q4 2023, revenue increased 24%, organic growth 17% driven by fiber, escalations, and new sites. Segment adjusted EBITDA increased 31%, margin 75.6%. MENA: Towers and tenants grew 9.2% and 9.7% in Q4 2023, revenue increased 13%, organic growth 6% driven by new sites and escalations. Segment adjusted EBITDA grew nearly 80%, margin 73.5%. Revenue contribution: Nigeria represented 63% of revenue in Q4 2023.

• 2024 guidance: Revenue range $1.7 billion - $1.73 billion, adjusted EBITDA range $935 million - $955 million, ALFCF range $285 million - $305 million, total CapEx range $330 million - $370 million.
• Revenue guidance includes approx. $17 million reduction due to change in accounting methodology on power pass-through revenue in South Africa. Excluding this, year-on-year reduction due to naira devaluation is expected to be a $535 million headwind to revenue after adjusting for FX resets.
• Assume average NGN 1,610 to the dollar in 2024. Expect to build approximately 850 towers in 2024, including approx. 600 in Brazil. Sale of Peru business assumed to close at end of Q2 2024.

• Naira continued devaluation: 98% unfavorable movement from January to December 2023, further 75% unfavorable movement from January 2024 to date, total 246% since January 2023. Impacting 2024 results.
• Nigerian macroenvironment complexity: High inflation, 28.9% in December 2023; real GDP growth and FX reserve fluctuations.
• Liquidity volatility: 2023下半年美元短缺, 2024年虽有改善但需持续观察。
• MTN related contract uncertainties: Potential impact of MTN equipment move agreements on business.

Q: To start off, relating to the evaluation 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, 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.

A: We believe the business is undervalued. The strategic evaluation is largely because we feel the frustration 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 manner, 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're doing that work at the moment together with our advisors, J.P. Morgan included, and we will communicate as and when appropriate.

Q: With the volatility that we've seen in the naira, how would you describe the ability and means to upstream cash in 2024?

A: You're right. Volatility is a good word to describe it. 2023 was challenging, no doubt, in terms of sourcing of dollars and therefore upstreaming, although we did we did get $65 million out earlier in the year in 2023. I think from a 2024 perspective that we have seen more liquidity in the markets – January, February and March to date. So that is certainly the positive. I would say that's off the back of the number of moves by the Nigerian government, central bank, monetary policy, et cetera, around the currency devaluation, but also interest rate increases. So 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 couple of, let's call them, false dawns in the last nine or ten months in terms of reforms. So we're again sitting at a point where we hope there's a positive outlook, certainly in terms of US dollar liquidity, but let's see. We want to see more dollar liquidity and then we'll be upstreaming.

Q: 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?

A: I think one thing to note, 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, and so it continues to grow nicely. Revenue for the full year was over $100 million. So, that business is becoming a really significant component of our overall mix. And given the opposite direction, if you like, of Nigeria, given the devaluation, it becomes an increasing percentage of IHS by the fact that it's growing and Nigeria is developing and therefore getting a little bit smaller. So we have about a set target on it right now. The focus with LatAm is to grow it 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 where we can.

Q: 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.

A: Yeah. Both are going to help the 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 an element of disclosure on it buried in the 20-F. The fiber business grew at 30% last year from a renewable perspective and the towers just a little bit less than that, but still growing strong.

Q: 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.

A: 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, permits, regulation is all an uphill battle. 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, MTN is a partner of ours. We've been in partnership for more than two decades. Discussions are always ongoing.

Q: I was wondering if I could ask about the status of the other contracts at MTN which you have coming up. So I note the update on Ivory Coast. I see you've got Zambia 2, Rwanda 2 and then the small amount of towers 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 MTN Nigeria during the recent release saying, they were looking at changes to existing tower releases. What kind of changes would you be open to from the IHS side?

A: Look, we don't comment on ongoing discussions. MTN and us, in particular, as I've alluded earlier, we've been partners for two decades. We are engaged on multiple fronts at any given point in time. We do like to announce things that happened that are basically dusted and cleared. And that's why we've announced basically Cote d'Ivoire and Cameroon. 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 clients numbers in Nigeria that they're under pressure. This massive negative movement of the currency, which is roughly 250% negative in almost 14 months, is definitely taking its toll on them. 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. This is not our first rodeo. We've seen this before. We've stood up before and we've supported them. And at this stage of time, that's what we're going to continue to do. That's what I can say.

Q: If I can maybe also [indiscernible] on the liquidity/debt side, could you just comment in terms of the cash balance at the moment, how much is at the holdco versus the opcos?

A: We haven't disclosed that. But it hasn't moved materially in the last quarter. So just under $300 million of cash around the group and there's a comfortable balance sitting offshore.