Helios Towers plc (HTWS) Earnings Call Transcript & Summary

Good morning, everybody. Thank you for making the time to join us to talk about and listen to our carbon reduction road map that we'll articulate for the next few years going forward. The presentation slide, hopefully, you have it in front of you via the links we've provided is titled Delivering Mobile Connectivity and Reducing Carbon. I'm going to move on to Slide 2, where I'm going to introduce the team on today's call. Myself, as you know, I'm going to be transitioning into a Non-Executive role on the Board as Deputy Chair in about 4 or 5 months. Tom Greenwood, who, again, we've announced back in August, will be succeeding me as CEO in April at the AGM and will lead the presentation today. Joining him on the presentation is Manjit Dhillon, you know well, our CFO. But for the first time, I think you'll be hearing from Allan Fairbairn, who is the Director of Technology -- Operations and Technology. And Allan has been with our business now a little over 5 months. In addition to the presenters, we've got Lara Coady, who's the Head of Performance Engineering; Nick Summers, who's the Director of Sustainability and Property; and Sima Varsani, who has helped us -- very much helped us on developing our strategy and making us understand the sustainability agenda and has been with the group now some 18 months. Moving on to Slide 3, the agenda. Well, we're going to give you a 1 slide executive summary on what our objectives are by 2030 and how we also go towards our ambition by 2040. We'll give you an overview of what Helios Towers does and where it does it across the geographies, we operate in. We'll also go into a little bit of detail around the opportunities in Sub-Saharan Africa, but also the challenges, particularly around power reliability and availability of power, which clearly has an impact on carbon output for our sector. And then we'll progress on to our targets and road map for -- sorry, 2030, leading on to how we're going to reduce carbon over that time frame. And then lastly, before Q&A, we'll go on to talking a little bit about our 2040 ambitions. So on that note, let me hand over to Tom, who will lead on from Slide 4.

Thanks very much, Kash. Hi, everyone. Great to speak to you today. It's Tom Greenwood here. As Kash mentioned CEO [indiscernible]. Look, great to talk to everyone today about this topic that we're hugely passionate about as people and as business. And what we'll aim to do through this presentation is talk you through how we think about our carbon reduction strategy and the contribution that we can make as a business to the improvement of CO2 emissions in our market as well as the wider digital inclusion and development elements of our business, which clearly we hold [ very dear ] as well. And I think that in the -- in the lead up to this, what we've aimed to do is find the right balance between the further development that is needed in our market to ensure that everyone in our markets have good access to mobile connectivity, while also reducing carbon emissions in whilst doing that. So look, on Page 4, a quick look at our exact summary and then I'll move on. We're very happy to be announcing that we've set ourselves a medium-term target for 2030 of reducing CO2 emission per tenant by 46%. So quite substantial reduction. How we're going to get there is illustrated here in the middle with these 3 emblems, the combination of colocation growth; our carbon reduction program over the next 4 years, which is specific investments in renewables that we largely already have planned out. And then in the latter part of this decade, from 2027 to 2030, we have our carbon reduction innovation, which is a continuation of our carbon reduction program with some potential additional elements brought in. All in all, again, we're announcing today our Project 100, which reflects a $100 million investment through this decade. So a little over $10 million a year for the remainder of the decade in the carbon reduction and carbon innovation programs, and that's something that we're very excited about. And then, of course, our longer-term ambition is to be net zero by 2040. And based on the continuation of what we're doing internally in terms of our renewable programs plus some external factors coming in from the outside world, there's very much routes to that position by 2040, which of course, we're very, very pleased about. So let me move on to Helios Towers as a glance. So I'm now on Slide 6. I think as everyone knows what we do as a passive telecom infrastructure provider is run the power and facilitate multiple tenants putting their equipment on our site, multiple mobile operators and of course, provide the power on those sites along with the other passive elements. Our key customers are the biggest mobile operators in Africa, some of which you can see along the bottom there. And in terms of our country -- our company footprint at the moment, you can see that on the right-hand side. And the red [indiscernible] markets in which we were operational in 2020. And these form the basis of our report and the numbers in this report today. The green markets, they are the newer markets, which we've announced acquisitions or in the process of closing or have [ those done ] recently. And we will bring in these markets to our report each year as we move forward once we have 12 months of data for each of these markets. So for example, next year, Senegal will be included, which was a deal that we closed earlier this year, and we will have 12 months later when we release the report next year, for example. And finally, the purpose of our business is to drive the growth of communications in Africa and the Middle East, and that is something that we ultimately focus on day in, day out. On Page 7, here's a reminder of our sustainable business strategy in the 3 key pillars, which we've already communicated to you last year. And our sustainable business strategy is really focused around these 3 key pillars: network access and sustainable development; business excellence and efficiency; and empowered people and partnerships. And so clearly, the carbon strategy that we're unveiling today is a key part of that. I'm now going to hand over to Manjit Dhillon to talk on the next few slides on the context of where we operate and what we do. Manjit, over to you.

Thanks, Tom, and hello, everyone. It's great to be speaking with you about a topic which is and has been a key focus for the group. And we're excited to speak about the targets and how we aim to get there. But before that, it really is important that we set the scene about the markets which we operate in, highlight how transformational mobile technology is, both socially and economically and really add some context to the challenges ahead. So with that in mind, we'll move to Page 9. And here, we see the really positive impact mobile has on Sub-Saharan Africa. The lack of fixed-line infrastructure in Africa has meant that mobile telecommunications has been transformational on the continent over the last decade. And with Africa's fast-growing population, which is predicted to triple by 2100, mobile is critical to the future of that continent. The mobile industry generates significant economic value and contributes to 8% of GDP in Sub-Saharan Africa, significantly higher than the mobile industry's contribution to global GDP at 5%, which is a real testament to both the impact and importance of mobile in Africa. And the figures on the right are from the GSMA, the Mobile Industry Association, and showed that mobile makes a significant contribution to public funding and create significant job opportunities. Moving on to Page 10. And the mobile industry is unique in that there is evidence that it can support all 17 new and sustainable development goals. And on the left, the diagram shows the relative scores against all 17 SDGs, and it is reported that its impact on all goals is increasing every year. And on the right, are the 10 SDGs that we can make the greatest contribution to, and we have the greatest impact on SDG-8, decent work and economic growth and SDG-9, industry innovation and infrastructure. But importantly, we also support SDG-7, affordable and clean energy, as well as SDG-13, climate action, which is very relevant to today's release. And on to the next slide, Page 11. And here, we see how mobile technology drives reduction emissions. The mobile industry's greatest contribution to combating climate change is reducing the emissions of wider industries through smart connected technologies and behavioral change. According to a study by the GSMA, mobile industry -- sorry, mobile communication technologies can avoid 10x the emissions from the mobile industry itself. And that's been worked out by calculating the benefits of being in a connected world and importantly, the potential benefits of the Internet of Things and to enable this level of digitization in Africa and avoid emissions from other sectors, we must expand the reach and proliferation of mobile and consequently, mobile infrastructure. And this brings me on to Page 12, which really details the vast infrastructure gap of Sub-Saharan Africa versus EU and the U.S. The graph on the left shows the number of towers per million people, and the variance really is quite stark with 150 towers per million versus 1,000 to 1,250 towers in the EU and U.S. And there would need to be 1 million more towers across the region to align with the EU and U.S., which is really quite a number. The middle chart shows the mobile penetration gap in Sub-Saharan Africa. With less than half the population at 4% to 6% being mobile subscribers, this shows, on one hand, the level of deployment. From the other, it shows the fantastic opportunity of those present, i.e., to continue to develop infrastructure and coverage so more people can be connected. And the final chart shows the technology mix. And whilst in the EU and U.S., 4G is the leading technology. In our markets, it is still very much 2G and 3G. So it's circa 10 years behind rest of markets, but the utilization and demand for mobile and data is growing quickly. Moving on to Slide 13. Now we've seen that mobile development is still a way off versus rest of markets. And the demands of requirement for mobile infrastructure, I think, is pretty clear to see. However, we all seem to be conscious of the challenge of power in the areas in which we operate. And again, for context, Sub-Saharan Africa, which is home to more than 1 billion people, contributes just 2.4% of global CO2 emissions. When you look at emissions on a per capita basis, it is again pretty clear to see that the areas in which we operate are certainly some way off in emissions versus EU and U.S. And the emissions per capita is disproportionate between the regions. We always need to bear in mind that we are operating in regions where electrification rates are very low. Over half of Africa's population do not have access to electricity. And again, to prevent the perspective, those equivalent to the entire population of the EU. And unfortunately, due to COVID, the number of people without access to electricity increased last year, the first time since 2013. While the chart shows 47% of the population having access to electricity, we need to remember that, that does not mean that the supply of electricity is reliable. And how does that impact our tower footprint? Well, on Page 14, we set up the grid connectivity that we have on our sites in our established 5 markets. Reliable supply of grid electricity is not guaranteed in most of our markets. This map shows the average grid hours in the 5 markets. And as you can see, there is a wide variance from 5 hours per day in DRC to 22 in Ghana. One of our key roles is to maintain reliable power and network service to our M&A partners, even in the most remote locations or challenging conditions. Millions of people in many areas we serve have no power or have a supplier that just runs for a few hours a day. We, therefore, need to have measures in place to plug the gap, and we utilize a number of power generation strategies, including solar, hybrid and generators. Given the challenging operating backdrop in our market, we do rely on generators to guarantee power for our customers' equipment on most of our sites. In some of our markets, such as South Africa, grid electricity is more prevalent. However, is more carbon-intensive with the utilization of coal. Although, hopefully, the new financing deal agreed at COP26 will help to green the grid. However, in other markets such as DRC where the grid is much less carbon intensive due to utilization of 5G power, there is unfortunately an unreliable supply of electricity, which translates to a greater reliance on generators to power our towers. Now as mentioned in previous releases, we do look to limit the utilization of generators as: one, we are constantly looking for sustainable renewable options; but two, fuel is the most expensive power source. So if we can limit its usage, it's better from a return perspective as well. So there's a real alignment of interest when it comes to our carbon footprint and our returns. But ultimately, our efforts to decarbonize will also be very much impacted in future by grid connections and our markets becoming more reliable and greener. I think these slides really do provide some context on the relative position of our market in relation to mobile development, the Board of backdrop of Sub-Saharan Africa CO2 emissions relative to other markets and also the challenge of limited reliable power infrastructure. Importantly, though, despite these challenges and the real need for greater mobile infrastructure in our market, we are keen to do our part, and we will continue to explore how renewable energy can be utilized to power our sites. And with that, I'll hand over to Tom, who will go through our targets and road map.

Thanks very much, Manjit. So now moving on -- I'm on Slide 16. It just shows the snapshot of our carbon footprint today. So all in all, our mission in 2020 were 241,000 tonnes of CO2. And you can see on here the split between Scope 1, 2 and 3. Scope 1 and 2 being 166,000. Now the one element here to understand regarding Scope 3 is that about 70% of our Scope 3 emissions are linked to the fuel on our site. So the well-to-tank, the transport and distribution, et cetera, which means that we get the best [indiscernible] if we focus on reducing the fuel on our site. Because largely, that will also reduce our Scope 3. So that's very much a big part of our focus. And we'll talk you through that over the next few slides. Now moving on to Slide 17. Here, we show the 2030 target. Taking our intensity target of tenant, down 46% over that time period. And we'll talk you through how we're going to do that shortly. Moving on now to Slide 18. This is a quick reminder of our road map on our journey so far and also what we're going to be doing over the coming years. So for us as a business, renewable energy investments, hybrid, solar, et cetera, grid connectivity, it's not a new thing. We've been doing that for many years. As I said at the start, the renewable energy elements of our business are very key, and we take a lot of time in our business to plan these out and always have done. We are looking for the 2020 to 2030, these 3 key elements to continue to drive our [indiscernible] down, which includes colocation growth, our carbon reduction program and our carbon reduction innovation. And of course, these 2 second points here combined to make our Project 100 and $100 million commitment to carbon reduction investments over this time period, which we will be providing investors with granular reporting going forward. So that's something you will see [indiscernible] in our annual report. And finally, just as a reminder, by 2040, our ambition is to be net zero. As well as looking at an intensity target, which is the main focus for us, as I said, 46% reduction on a per tenant basis. And the reason we're focused on that is because as Manjit set out, there is a huge infrastructure gap in our markets such that [indiscernible] in our markets have similar quality of service, as we've seen else other places around the world. However, we are also focused and looking at our absolute emissions. And on Page 19 here, we wanted to show that. The gray line at the top here indicates where our emissions would go if we can now further investment in carbon reduction over the coming years. And as we see from here, we would anticipate roughly a 57% increase in carbon emissions up to 2030 if we did nothing. The green line shows what we will be aiming to achieve through our carbon reduction program and carbon reduction innovation. This is great for a 46% reduction per tenant. And as you can see here, it ensures that we stay flat on our 2020 baseline and indeed have a decline of -- a declining trend of where we're taking the business from a carbon emission point of view into the next decade, very much going in the right direction. I'm now going to hand over to Allan Fairbairn, our Director of Operations and Technology, take us through the next few slides to look at the technology in a little bit more detail.

Thank you, Tom. And great to talk to you all on this important subject. I joined Helios around 5 months ago, and prior to that, I spent 18 years in the power sector, designing and implementing power projects across Africa and the Middle East. And for the last 5 years, I've been designing and implementing hybrid solutions across various sectors such as mining and manufacturing. So I'll now take you to Slide #21 to talk you through the carbon reduction pathway. And as Tom has already mentioned, our target is to reduce from 11.2 tonnes per CO2 to 6 tonnes of CO2 per tenants over -- before 2030, and this is a net reduction of around 46%. And we're going to achieve this in 3 ways. The first is by focusing on colocation growth. And we believe that focusing on this, we will reduce our emissions per tenant by 16%. On the next 2 pages, you'll see emblems in the center through Project 100. The Project 100, as I mentioned on the call, is our investment of $100 million during this period. And through our carbon reduction program in the center, we believe this will contribute to a further 15% reduction per tenants. And the third way is through our carbon reduction innovation program, and we believe this will also contribute a further 15% reduction per tenants. And I'm going to move on now and talk of each of these in more detail, starting with colocations on Slide 22. So increasing colocations on our pillars is fundamental. And you can see on the chart here by adding an additional tenant from a single-tenant site to a 2-tenant site, we reduced average generated emissions by 41%. And this increases further as we move towards 3 and 4 tenants on each tower. And you can see on the chart when we have 4 tenants on 1 tower, we reduced average emissions by 58%. And by reducing emissions from our towers, we help substantially our customers to reduce the impact [indiscernible] and direct emissions. So I'll move to the next slide to talk with power solutions we deploy on our sites. Now the chart on your bottom left, this represents the opportunity that exists as part of the strategy. Along the X axis is the power demand or number of tenants connected to our towers and in the Y axis is the average grid availability. For a single tenant site, a 1-kilowatt power, we would deploy -- typically deploy a solar and battery hybrid solution, which will be our primary energy source and the generator would only be used as that system failed. But as the number of tenants increases, the power demand also increases, and we would typically connect to the grid in those cases, as has been mentioned by Manjit earlier. The secondary energy source in this phase would be the battery and solar hybrid solution and the generator would act as a third energy source should either of those -- should both of those sources fail. Now as we move towards 4 and 5 tenants, we would typically connect to the grid and the generator would only act as a backup to the grid in most cases. We are often asked [ to find what ] we deploy solar panels on every site that we have. But the answer is that 70% of our sites are located in urban areas and the amount of space required for two-tenant sites and -- two-tenant sites as around the tennis court [ work ] of solar panels, which is not feasible in the majority of our urban locations. So I'll take you to the next slide to discuss a reduction innovation -- a reduction program. So through Project 100, we are aiming to increase the connectivity on our sites to the grid. At present, we have around 30% of our locations that are hybridized, and we're looking to increase that to 70% by 2026. Through focusing on grid connections, we're going to connect to grids as the utility networks in our geographies will expand and roll out, we will look at different ways to connect to those grids. And we're also looking to connect to many grids or other grid sources as they become available. We're also looking to increase the rollout of batteries and solar across our sites, as has been mentioned. I'll move to the next slide, 23, to talk about innovation program. The carbon reduction innovation program as part of Project 100 requires us to engage with key stakeholders within the business and our customers and suppliers to look at ways we can innovate and continue and achieve our emission targets that we've set out. Some examples of this are to deploying a wind technology [indiscernible] towers. We're also looking to potentially look at large-scale solar farms and connect those to the utilities and some of our networks. We're also looking at alternative fuel sources. And we believe that towards the end of this decade, alternative fuel sources will be a viable option in our markets. I'll now hand back to Tom, who's going to take you through our pathway to net zero.

Thanks very much, Allan. So I'm now on Slide 27. And just a quick look at our key activities in 2022. I think a lot of these will be familiar to you, and we're looking at all of these. So these include CDP, TCFD, et cetera, but also the very new SBTi net-zero standard. We will be reviewing that over the coming months and into next year as well. So look out for these from us next year. And then just moving on to Slide 28. And here, as we mentioned earlier, our ambition by 2040, it could be net zero. And here, we showed a high level some of the elements that will help drive us there. And this will be a continuation of our carbon reduction and carbon innovation program. And also, hopefully, more external factors as well coming in, including the further proliferation of national grids in our markets, the further decarbonization of national grids. All of this with supportive policy and financing availability from external parties we've seen at COP26, It's a very encouraging announcements for South Africa. For example, South Africa is quite well known to have a largely coal-generated grid. And they're obviously now looking to make that a lot greener as we move forward. We also anticipate further improvements in battery technology and solar technology to increase their efficiency and therefore, reduce their relative costs. And all of this, we believe will help drive our business to net zero by 2040. So I'll just quickly hand back to Kash, who will say a few [indiscernible] into Q&A. Kash, over to you.

Thanks, Tom, Manjit, Allan. Well, look, hopefully, you've got a good appreciation of how we are planning to tackle this very important challenge for the world and particularly for our markets regarding driving carbon down for our industry. I'd like to hand over to [indiscernible] now and we'll take Q&A. Hopefully, you've got lots of questions for us to answer. [indiscernible],over to you.

We have the first question on the phone line today from Tammy Lloyd of Ninety One.

Thank you for an interesting and detailed presentation. Can you just -- you have put lots of figures in the slide pack. But can you just remind us how much of your power is diesel right now? And where it's going to go to under your new plan? And then if you can just elaborate a little more on the difference in costs between diesel and solar and how that could potentially impact your margins?

It's Tom here. Thanks very much for your questions. So yes, look, I mean, at the moment, we get just a bit over half the day. So it's 14 hours or so of grid across the -- in any given 24-hour period. This is across the 5 markets. The numbers turned slightly up with the addition of Senegal recently that has a better grid than some of our other markets. And the remaining time is roughly, probably half [ an hour ] through the utilization of hybrids, et cetera, and then the diesel generations -- generators. So that's roughly where we are today. I think it's just over half of that balance being used for diesel today. So roughly 6 hours or so in any 24-hour period. And we'll be looking to reduce that by over half as we move forward to this decade. And then I think, Tammy, your second part of the question was around the cost of some of the renewable technology and how that might improve. Was that it?

Are you expecting a margin impact from increasing solar?

The margin as an EBITDA margin, sorry, yes, well over to Manjit for that one.

Yes. Thanks, Tom. Yes, is the short answer because effectively, as you roll out solar and hybrids to the point that Tom made that we've now got 14 hours of our day principally kind of powering the site through our generators that will limit those number of hours. So we'll start to reduce that number. So you will see a bit of an uptick in the EBITDA margin. We're not giving guidance for the time being and exactly what that impact will be. It depends on the relative returns of the different assets that we're looking at. But typically, when we are thinking about making any kind of investment into our move away from generators, we are looking for a return that is greater than our cost of capital. So we do still have the same restrictions in terms of how we like to deploy capital so that we are getting the best return as well. So we typically see around that as well. And just as a reference point, roughly, our cost of capital is in the region of about 10% to 11%. So I think that's going to [ both ] the kind of returns we'll be getting at the minimum.

As we have had no further questions registered, I would like to hand it back to Kash to close.

Thank you [indiscernible]. Well, look, thank you very much, everybody, for making the time. We are going to be reaching out to all our investors who wish to have a call with us as a follow-on call on a one-to-one basis. And we hope to engage over time with all our investors, and we will keep you, of course, updated on our progress on a regular basis on what we've talked about in terms of our carbon reduction strategy over the coming year, but also coming years. And again, thank you for making the time and talk soon. Bye-bye.