Helios Towers plc (HTWS) Earnings Call Transcript & Summary

Welcome to today's Helios Towers Full Year Results for 2021 Conference Call. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Kash Pandya to begin. Kash, Please go ahead.

Thanks, Jordan. Good morning, everybody, and thank you for joining Helios Towers Full Year 2021 Results. We, during the course of 2021, have significantly expanded our portfolio and invested in quality growth and returns that we're going to take you through the detail of. Moving on to Slide 2. Joining me today, as always, is Tom Greenwood, who will be taking over from me as CEO in a little over a month's time on the 28th of April. And Manjit Dhillon, our CFO, who's actually now reigned as CFO during the whole of 2021 at his first full year as our Chief Financial Officer. To make a point there regarding our talent development program, Tom and Manjit are great examples of the Board's focus on developing internally talent to reach the highest levels of our organization. We have many other individuals who climbed the ranks into the Executive Management Team and so on. But let me now move on to what we're going to cover today. I will shortly take you through the full year '21 highlights and then hand over to Tom to take us through the business updates and Manjit of course, will go through the financial results. Noting that there's plenty of time at the end for questions and answers, which will be coordinated through our conference coordinator. I will move straight to Slide 5 and take you through the highlights of 2021. It's been a transformational year through our expansion on entering new markets. We've strengthened our balance sheet and achieved and delivered record operational performance in terms of customer service. Taking the first point on this slide, consistent and strong organic growth in terms of tenancy growth. We've delivered 1,262 year-over-year additional tenancy, some 8 percentage adds to our portfolio and hitting the midpoint of our guidance, which was 1,000 to 1,500, and that guidance was consistent for the last few years. You will note that we've increased our guidance for 2021 -- sorry, 2022, which I'll come on to. As I've mentioned, it's been a transformational year for M&A for our business. During the course of '21, we closed 2 acquisitions that we'd announced in the year, adding some 1,700 sites, close to 1,700 sites and a little over 1,800 tenancies. In addition, during 2021, we've also signed deals to enter Oman, Malawi and Gabon, which are well on their way in terms of progressing. And we expect to close these during the course of 2022. We delivered robust financial performance, 8% revenue growth, 6% adjusted EBITDA growth. We've seen a slight deterioration on margin explained by the new volume of towers coming in for Senegal and Madagascar. And as you know, we acquired towers that typically have low levels of tenancies. And then we build tenancies and add margin, add IRR and return on invested capital through additional tenancy growth, which is the model we operate in. And an example, the dilution in our margin is driven by Senegal, which came in at a tenancy of approximately 1 tenant per tower and Madagascar around 1.2 tenant per tower. In addition, we've added some SG&A ahead of the markets coming on stream. And this is quite typical. We'd like to hit the ground running in our markets when we close markets. And we want to make sure our customers see an improvement in the service levels we deliver. And this SG&A allows us to get ahead of the curve. For example, in Malawi, we've got an operational team up and running. And this market should close soon. In Oman, we've got people that were recruited and hired that are working in the organization ready for that market to be closed. So this is the reason for a slight deterioration in our margins. In terms of continuous reduction in our capital costs, well, Manjit and the team have really worked hard in making our borrowing costs more efficient. Now, we're at 5.9% blended debt cost of debt. We, of course, also went through a convertible bond issuance of $300 million during the course of last year and in some local facilities in Senegal. We are now fully funded for our acquisitions that we are pending to close with mainly Oman, Malawi and Gabon. And of course, our organic growth is fully funded through our cash flow lines that we deliver. Outlook, point 5 on this slide. Well, as I've mentioned, we've now upped our guidance to 1,200 to 1,700 tenancies organic and during the course of this year. That's some 8 percentage points, if you take the midpoint of that range. And our contracted revenue stream is just a little under $4 billion, again, demonstrating the strength of our contracts and the revenue we've got ahead of us. Of course, all with the embedded CPI and power escalators that protect us against any volatility and inflation as well as cost of power and cost of oil, diesel, et cetera. Moving on to Slide 6, a little bit of a scorecard, first of all, on our sustainable business strategy. We're delivering value for all our stakeholders. Regarding our customers, we continue to drive improvement. We delivered record power uptime to our customers in the form of 99.99%, and in some markets, even higher than that to our customers in terms of service proposition. Our people, we've continued to develop and strengthen our local organization and localization is part of our business excellence strategy. And we have some 97% of our colleagues from the markets we operate in and we'll continue to invest locally to strengthen our organization as time goes on. Our partners and suppliers, again, we believe in spending money locally, investing in our supplier base and contractor base by not only spending hard dollars with them, but also working hard to invest in their capabilities and training Lean/6 Sigma execution, for example, into our maintenance partners, et cetera, is an ongoing methodology in our organization. We -- our communities where we serve with our infrastructure close to 140 million people. And as we expand our markets and footprint in the existing markets, we are hoping and focusing on bringing more connectivity to more people in the market and expect to grow this 139 million served population to a higher number. And in terms of environment, I'm pleased to say that during 2021, we managed to reduce our carbon impact per tenant per customer on our towers by some 7%, and that's an ongoing strategy. And finally, in terms of last year's scorecard, we did our first CDP scoring assessment and we scored B minus. This was ahead of the expectation that we would like to believe before the process started. So we're encouraged by a validation of our strategy and actions that we're taking to drive the environmental impact that our business has in the communities we operate. 2022, well, our continued commitment to sustainable business strategy and transparency. We're working closely with our customers to engage with them on the carbon reduction program. And to some certain degree, our customers are coming to us for guidance on what we've done and they're stealing shamelessly. Well, we're proud of that from us in terms of what we put forward as a road map for our business. Our sustainable business report, we're about to issue a second report that will be published next week, outlining the progress we're making on sustainability. Regarding our supply chain, we're now launching our assessment program for our suppliers to understand what their sustainable practices are. And more importantly, we will work with our partners in each of our markets to help them go up the learning curve in how they drive the sustainable approach that we are taking. Communities, we're very much engaged in our communities. And as an example, we've launched the rollout of a school for engineers, an internship program across all our markets that help young engineers get qualified that can then be deployed into our business, but also our partners' businesses that help us deliver the service and the rollout of our portfolio in each of our markets. And finally, on this slide, we are committed to our Project 100. And Project 100 in summary is a $100 million over the next 10 years as we approach 2030 in investing in hard dollars to help reduce carbon impact. And we've got initiatives, our plan for this year, that equates to $10 million to drive our target of 46% tenancy carbon reduction per tenant by 2030. And that's our ongoing work that we'll be rolling out over the next 8 to 9 years. So on that note, I would like to hand over to Tom, who's going to talk through our business update.

Thank you very much, Kash, and Hi, everyone. Great to be talking to you today. Hope everyone is well. So I'm on the next section, the business update section, starting off on Page 8, and I'll talk you through some of the implementation of our strategy, both organic, inorganic. And then just a reminder of some of the key fundamentals of our markets, which drive our business. So turning to Page 8. And here we show how we're delivering on our portfolio expansion, our organic growth and our diversification and essentially delivering what we said we would when we IPO-ed and that very much continues. So first of all, on the left-hand side here, we see our organic tenancy growth year-on-year. And of course, we've delivered fairly consistently over the past 3 years obviously with a bit of an uptick in 2021 which is good to see. And tenancies have followed fairly strongly in 2022 as well, which you should see when we report our Q1 in the not too distant future. This is obviously all driven through the fundamental drivers in our markets from low levels of penetration and just simply the need for more connectivity, more infrastructure, more densification of the networks. And I'll come on to that a little bit in a few slides time. Next up, when we did our IPO, a key part of our strategy was scale growth and diversification geographically. And as you may remember, we articulated at the time the focus to drive from 5 markets to 8 markets and from 7,000 to 12,000 towers. And of course with the acquisitions that we've announced, plus some fairly strong organic growth, we're well on the way to beating those pending closing the acquisitions. And we will be in 10 markets with close to 14,000 towers in the next few months. Of course, the next question is what comes next? Well, I think as everyone has been invited to our Capital Markets Day on May 5 in London, which is also available for dial-in, we will, at that point, be articulating our new 5-year strategy going forward. And so very excited about that and hope to see many of you there. Moving on to the next slide, Slide 9, which is a quick update on our acquisitions that we've announced. And here we see the 5 markets, Senegal, Madagascar, Malawi, Oman and Gabon. As some of you may have seen a few weeks ago, we decided to put Gabon and Chad which was the fixed market just simply delays and moving forward on the regulatory process there to be agreed with Airtel, but we would put pens down on that. But I'm pleased to say all the other markets are firing on all cylinders and moving very much towards closing. So with Malawi, we anticipate closing that fairly imminently probably in the next 2 weeks. Oman, we're moving towards there well with the regulatory process. We expect to close that before the end of Q2. And Gabon, which is always the one which we expected to take the longest where we expect to close that in the second half of this year. Caligula Madagascar, as you know are now fully part of the business from an operational standpoint, having closed Senegal in Q2 last year, in Madagascar in Q4. And I'm very pleased to say we've got great teams in both markets led by Karim in Senegal and Jerome in Madagascar. And of course, we have great teams that are being built in the other markets as well. Malawi, Oman and Gabon, so very much looking forward to closing those and then becoming fully operational as we move forward. Just a note on here, Ramsey Koola, Managing Director of Oman, [indiscernible] into the business for many years as well as just another example of a internal development program. Ramsey was originally within our group operations team, worked in a number of different markets as well within the operational and IT capacity and then became our Managing Director of Tanzania for a few years and did an excellent job there and has now been promoted to launch Oman and is also now a Regional Director covering Tanzania and Malawi as well. So just another example of our internal development program on which we placed a huge amount of focus on. Moving on to Slide 10. And here, we just wanted to highlight and to show everyone what these acquisitions mean, particularly in the short term because typically, as Kash mentioned earlier, when we're doing these acquisitions of new tower portfolios in new markets, typically, we're buying portfolios with low tenancy ratio. So it could be anywhere from between sort of 1.0, maybe up to 1.3, 1.4 at the top end. Now as a reminder, more established markets are, of course, have a tenancy ratio of well over 2 tenants per tower, which drives margin and return on capital. So when we buy these new networks with a lower tenancy ratio, typically, we're buying networks, which had on day 1, a slightly lower margin and slightly lower ROIC than the rest of our more established network. But of course, we're buying them to then utilize and fully and lease up the towers up to similar levels of our more established portfolios. And I think as you can see from the table on the left-hand side here, we've called out some of the areas which get diluted, which is the tenancy ratio. And you can see the values diluted on day 1 for the new acquisitions. Similarly, the EBITDA margin and the ROIC there. But the good news is and as you can see from the right-hand side chart here we highlighted. The good news is with buying networks, which are underutilized, which we will now begin to lease up with the incremental demand that we see in our markets. And as you can see, looking back to 2016 here in our business, which was after a period of large acquisitions at that time. We took the business from, for example, a margin of 37%, up to 55%. And a lot of that was driven through the increased colocation ratio over that time. So what we see here now, and we're right in the midst of it, is the movement from 5 markets to 10 markets, so growing substantially in scale, diversifying from a geographic perspective and from a customers' perspective. We see a short immediate dilution in tenancy ratio margin and ROIC. But of course, we're then primed for lease-up and growth over the coming years. And of course, the demand that we're seeing in all of our markets is still very much substantial and for the long haul. So moving on now to Slide 11, and this is again a reminder of some of the sorts of unit economic returns that we see on our key product of build-suit. And why this business just produces such long compounding cash flow returns. So on the left-hand side here, you see some illustrative figures for ROIC on an individual site basis. So you can see on a single tenant site, we're getting sort of low double-digit sort of returns. And then as we lease up and put a second and third tenant on this site, of course, the OpEx and the operating cost for the site stayed broadly flat, with only a small increase with the revenue increase is substantially thereby increasing the ROIC of the site quite exponentially. And on the right-hand side here, what you see is the typical cash flows across a 40-year period for one of these towers, depending on how many tenants are on it. And of course, the towers effectively steel and civil works last for a lifetime as long as you look after them, well, which we do. And so the cash flows far exceed the initial investment in the assets. And as you can see there's roughly a 5-year on average payback for building a new site. Moving on now to Slide 12. Again, this is a reminder of some of the key fundamentals driving the organic side of our business and the continued delivery of well over 1,000 tenancies each year. And of course, we've upped our guidance for this year, which Manjit will come on to. But again, our markets are really engines of growth, particularly in the telecom sector. The dynamics of our markets across Africa and Middle East are significantly rising population, significant urbanization, a very young population, which, of course, drives incremental demand for mobile services, particularly data and, of course, large GDP growth going along with all of that. And you combine that with lower mobile penetration. So huge growth in terms of mobile connections forecast, 63 million new mobile connection forecast in over 5 years across our markets, an increase in penetration, of course, which comes with that and then 4G and data growing significantly as well. So all of this drives the need for more mobile antennas, for a more dense network to mobile antennas and a more data networks become prevalent. And of course, as we use more data in the networks, the space between antennas needs to reduce, i.e., the density needs to increase of the network. So all of this drives the need for points of service, which, of course, is how we earn our revenue. So we're very excited about the organic growth potential as we look forward over the next 5 years and beyond. And on the right-hand side here, you can, of course, see some of our key customers and the investments that they are making and that we are supporting them with, which is very, very exciting. So with that, I will hand over to Manjit to take us through the next section.

Thanks, Tom. Hi, everyone. It's great to speaking with you today. I'll be going through the financial results. And starting on Slide 14 and where we show our robust financial performance over the last few years since 2019. We've seen continued year-on-year EBITDA growth driven by organic and inorganic tenancy additions, partially offset by some SG&A growth investments, which are required as we double in scale. Portfolio free cash flow on, whilst remains fairly robust, have declined slightly year-on-year for portfolio free cash flow, whilst we've seen increasing EBITDA growth. We had some higher cash taxes we transitioning from loss-making to profit-making in our established markets and increasing expenses related to ground leases and nondiscretionary CapEx due to the increased asset base. But over time, these costs will be leveraged as we lease up the portfolios. As Tom mentioned, given our increasing scale and given the nature of the assets that we buy, i.e., portfolios, towers, which have compelling opportunities for lease-up and compounds and growth, but with no initial tenancy ratios. We'll see some dilution in a few metrics, including return on invested capital. But excluding acquisitions, we're at 13.2%. Again, this has come down slightly from prior year due to the fact that we had higher tax payments as mentioned a moment ago. And with acquisitions were at 11.7%. The integration of the other announced deals, the 3 markets that we expect to close in the course of this year. We should see worth value little bit further in the short term. But again, just to reiterate the point that Tom made, we have a strong track record of entering new markets, growing successfully, organically expanding the portfolio and leasing up and driving strong returns. And this experience and track record if you take into these new markets and the exciting point is that we've expanded the base new platform to which we can deliver accretive sustainable growth into the medium and long term, and we will see ROIC growing in the coming years. Moving on to Slide 15. And as mentioned earlier, we've had one of our best years of tenancy growth, both organically and inorganically. Organically, we added 1,262 tenancies with the bulk of these coming in the second half of the year. And reaching, just above our midpoint of tenancy guidance, inorganically, we added close to 1,900 tenancies through the combination of Senegal and Madagascar. Tenancy ratio has dropped slightly on a group basis due to the lower tenancy ratio towers we've acquired. But on an organic basis, i.e. excluding the new acquisitions, we continue to build our tenancy ratio to 2.15x. And again, that's a testament to the growth potential of our established markets and our ability to reset portfolios in our markets over time. On to Slide 16. And we continue -- and we see continued growth in revenue and EBITDA, 8% revenue growth, 6% EBITDA growth year-on-year. Again, a number of tenancies came in later in the year, so we don't have much in-year revenue impact of these, but we'll see these come through during the course of 2022. EBITDA growth of 6% year-on-year, with growth in the top line being offset somewhat by the investment we've made in our SG&A as we increased our scale and also due to our -- in part due to some of the increased license fees that we've seen come in DRC during 2021 and 3% of revenues, which is broadly aligned with license fee ratios in other markets. Final point, on EBITDA margin, a slight decline, again principally due to the impact of lower margin new market. We'll see this dilute further with the closing of other announced new market deals, but then we'll see this rebound in the short to medium term. Overall, I think our tenancy pipeline is looking strong for 2022, and I'll come onto guidance and outlook in a few slides time. So moving on to Slide 17, you'll see the usual breakdowns provided, which are very consistent from previous updates. We have a robust business model underpinned by long-term contracts with a diverse quality customer base with strong hard currency earnings. 98% of our revenues come from large blue chip made on network operators with a diversified mix with maximum single customer exposure at 26%. We have strong long-term contracts with our customers. And at the end of 2021, we have long-term contracted revenues of $3.9 billion with an average mining life of 7.6 years, and this is up from $2.8 billion at the end of 2020. And this means excluding new rents and rollouts, we already have that revenue contracted in the bag and provides a strong underlying guiding stream for the business. Importantly, given the mix of our established markets and new markets, we have 63% of our revenue in hard currency, being either U.S. dollar or euro types which translates to 65% of our EBITDA being in hard currency. And this provides a fantastic natural FX hedge for the business, which is further complemented by our annual inflation estimates, which we have in our contracts with our customers. Pro forma for the new market, that is due to actually being despite strengthened to 72% of EBITDA in hard currency. And it's this combination of FX protection, long-term contracts or breach up operators, which provide a robust business model to capture the growth, which Tom spoke about earlier. Finally, a thing to mention on this slide, with the new market expansion, we're seeing a more diversified split revenue per market and pro forma for the acquisitions, no single market accounts for more than 30% of revenues. Moving on to Slide 18. I wanted to take a moment to quickly recap the contractual protections we have in all of our customer contracts, particularly as we go into a period where we've seen some elevated levels of inflation of fuel prices, at least on more of a macro level. As a business, we're very well hedged against movements in FX, power prices and inflation. And as discussed on the prior slide, we have net FX protections due to operating in some hard currency markets. But importantly, we also have estimates in our contract, which estimates in relation to base inflation and power prices. For inflation, these are annual escalators, which typically escalate in December and January with the escalation linked to the revenue that we receive, i.e., if we're receiving U.S. dollars, then it's U.S. CPI. If it's local currency, is local currency CPI. We also have power price escalators with a rough split being 50-50 between annual escalator and currency escalator. And these go both up or down, depending on the local power prices. So if there is falling prices, the escalator reduces and if there is an increase in prices, then there is an increase in the escalator. But over time, and we've seen this, this provides a good hedge to the business. I think one thing to flag is that whilst you may have seen some Brent crude volatility, it does actually take time to see this translate from screen to actually what we experienced in the local markets and local prices. And we showed some analysis of this on the graph at the bottom of the page. And typically, we see a lag between -- anywhere between 3 months or even a year to really have an impact locally. And typically, the movements in the market are far more muted without so many peaks and troughs compared to Brent crude. And if these local prices, which we experienced with regards to reference pricing for contract escalations and also for opportunity fuel. Given the timing of escalators, we may experience a short-term lag between the dates that we have an estimate to kick in and when we actually may experience cost movements. So in terms of rising costs, we may see a temporary negative P&L impact, but there again, in terms of falling costs, you also see the combat. In general, though, despite this lag effect, the structural mechanisms we have in place have been and continue to be a very effective risk mitigation tool. And I think structurally, we are robust and more positioned. But as always, we remain vigilant and proactive in management of potential movement in prices. Moving on to Slide 19 and a look at CapEx. And for 2021, we incurred a total CapEx of $395 million, of which $242 million was in relation to the acquisitions of Senegal and Madagascar with $153 million for the established markets, which was in line with the guidance we gave last year. Looking at 2022, we're guiding between a range of $800 million to $840 million, with the majority of that $650 million being related to Oman, Malawi and Gabon closings with a range of $160 million to $200 million being for our 7 markets which are currently operating today. Of that, between roughly $30 million will be nondiscretionary, i.e., for maintenance and corporate CapEx, and the remainder $130 million to $170 million being discretionary CapEx. Roughly $30 million of that will be for upgrade work we'll be competing on some of the new sites we have recently acquired, $10 million will be linked to Project 100. And as Kash mentioned earlier, this is our commitment to roll out carbon and OpEx-reducing initiatives, and we'll make our first $10 million investment of that this year on items like solar, hybrids and other initiatives. Most of these will come in the second half of the year, so we should start to see some impact of these later in the year next year. And the remainder, $90 million to $130 million is on growth, and that's related to the rollout of tenancies for the year, and I'll come on to a more detailed guidance shortly. We're expecting to roll out organically between 1,200 to 1,700 tenancies for the year, and with 60% will be new sites. And as a reminder, the additional $30 million we incurred in Q4 last year to ensure speedy bailouts of our exciting pipeline this year has already been factored into these numbers. Moving on to Slide 20 and I look at our cash flow. As mentioned earlier, we've seen solid portfolio and free cash flow of $168 million, which declined slightly over the last few years. And if you look at the table, you can really see that this has been driven by the increase in the taxes being paid as we become profitable in our established markets. We see day sales reduced, although still remaining in the broad range of 45 to 55 days, which we've seen being relatively consistent over the past few years or there a slight decline period-on-period, which is great. And really, we've reinvested the cash ways we've generated into portfolio expansion as well as taking on additional capital to support our transformational growth, which actually takes on to Page 21, which shows our summary of financial debt. Our net leverage at the year-end was 3.6x and continues to be at the low end of our target range of 3.5x to 4.5x. We expect this to tick up towards 4.5x as we close the other markets during the course of the year. But really, there's ample headroom is very -- to leverage very much and continued tight control. As it stands today, we currently have circa $900 million of available funds, which is more than sufficient for our announced acquisitions, which are due to close and our organic growth. Most of established markets is actually self-financing. In terms of cost of debt, I'm really proud that we've been able to take the momentum of 2020 and continued to do great work in reducing our cost of debt in 2021 with our various financings. For example with our inaugural convertible bond issuance and we currently have a blended cost of debt of 5.9%, which is 3% less than what it was a couple of years ago when we listed. We sit on a very strong balance sheet, with long-tenured debt with a very limited floating exposure. And I think it's good to say that we're in a great position. But if we do choose to do any financing or refinancing, we'll be doing this for strategic reasons and that possible looking to continue our trend of reducing our cost of debt. And finally, on to Slide 22. And here, I'll outline our guidance. For 2022 as a result of the portfolio and new market expansion in 2021, the group is now targeting organic tenancy additions of 1,200 to 1,700 in 2022, previously used to guide towards 1,000 to 1,500. And this reflects the continued momentum in our established markets and organic growth targeted in our new markets of Madagascar and Senegal. 60% of the tenancy additions are expected to be in new sites. Previously, we had guided to 45% new sites. However, given the network expansion plans of the M&A, we are finding the mix has slightly shifted. But as indicated in the medium-term target in the dotted box, we expect that mix to shift to majority total loads over the coming years. In line with prior periods, we anticipate the majority of our tenancy roll-up to occur in the second half of the year. And as such, the group is targeting 25% of new tenancies in the first half of 2022 with the remainder 75% in the second half. And we expect this kind of cadence of roll-up timing to continue into the medium term. Subject to the closing of the announced acquisitions in Oman and Malawi, the group targets medium-term annual tenancy additions of 1,600 to 2,100. Just to 2022, we anticipate lease rate tenant to increase in the range of 3% to 5% during the year, and that's going to be really driven by our CPI and power price escalator movement in our contracts kicking again, which I spoke about earlier. And in terms of adjusted EBITDA margin, we're targeting between 51% to 53% in 2022 compared to 54% in 2021. And that largely reflects the full year impact of portfolio acquisitions in Senegal and Madagascar. With both having lower tenancy ratios, but being very much primed for growth. And the incremental group SG&A requires for diversification and growth from 5 to 10 markets. In addition, there's a little bit of short-term volatility you may see as a result of global inflation in energy prices and the lag effect, which I mentioned earlier. We've added Malawi and Oman with the run-rate to EBITDA underneath and depending on closings we'll see that pro rata impact on our numbers for 2020. I covered most of the points on the medium-term guidance. But just to recap, we expect 1,600 to 2,100 new tenancies, including the broader portfolio of Oman and Malawi and expect the proportion of new tenancies from site rollouts to reduce to 30% over the period, expect the same tenancy seasonality into the year and we guide to lease rate for tenants increasing by U.S. inflation after this year and expect EBITDA margin enhancement of 1% to 2% per annum going forward as we grow the portfolios and lease up. And with that, I'll pass back to Kash to wrap up.

Thanks, Manjit. I'm on Slide 23, and look this is the last slide before we go to Q&A. So as you've heard, key takeaways driving sustainable value for our stakeholders. We've significantly invested during the course of last year and will do so during the course of this year to build a broader, stronger platform across 10 markets with 14,000-plus sites once we've completed the announced acquisitions that we will close during the course of '22. Strong growth opportunities support high-quality growth and returns. And we will accelerate this growth during the course of 2022. And we will be making continuous progress against our sustainable business strategy, which we'll report on during the course of this year, during our quarterly and half year announcements. On that note, I'm going to hand over to our conference coordinator Jordan to help with the Q&A. Jordan, over to you.

[Operator Instructions] The first question comes from John Karidis of Numis.

Can you say a little bit more, please, to help me reconcile, on the one hand, the guidance you've given for the phasing of the tenancy growth during 2022, and on the other hand, the fact that Tom just said that tenancy growth in the first quarter is likely to be pretty good? And also that 3 months ago, you said that you were forward purchasing CapEx because you were expecting a strong start to 2022. That's my first question. And then my second and of 2 is, could you please remind me of the incremental investments you've made in SG&A and how that sort of changed since you first mentioned that you'll be spending more and the phasing of that?

Hi, John, why don't I take on here? I'll take the first one and Manjit, if you take the second one. Yes. So John, so the -- I mean, the guidance we've given is 25-75 as you know for this year. If you look at last year, it was actually more skewed. So last year, it was 13% in H1 and 87% in H2. So we are guiding towards a stronger rate to H1 already. The other element is the number of tenancies we're guiding to and also actually increased so 1,200 to 1,700. So in terms of an absolute number, opportunities for H1 that obviously means a higher number than what it would have been a year ago when we were at 1,500. So the preordering of CapEx is something that actually is very key for our business and actually a lot of businesses around the world at the moment just simply because supply chains have increased in lead time in general. And this has been the same for the last 18 months to 2 years, quite frankly. And so much as things that used to take, say, 3 months from order to delivery into our warehouse in market now takes 5 months maybe even 6 months in some circumstances. So you do have to order CapEx earlier. And we -- and that's what we do in general now. But specifically for last year, when we were ordering some additional CapEx, and this was predominantly we were referring to some CapEx or some tenancies roll-outs law suites, et cetera, in Q1. That is very much the case. So whereas in, say, Q1 last year and even the year before, I think we rolled out something like 70 tenancies, maybe 80 tenancies in the quarter. You'll see several hundred comes through in this Q1. So there has been a, I guess, a good change in the volume quantum, and you'll see that come through. And just generally on supply chain, we'll be continuing to be proactive and the kind of cadence that we have now for our supply chain is toward being more like 5 or 6 months in advance rather than 3 months, which was the case before COVID. And I think that that sentiment very much continues given some of the other challenges going on globally today as well. Obviously COVID is maybe slightly gone off of people's mind that there are other things which means that we need to stay ahead of the game, which is absolutely what we're doing. Manjit, do you want to just cover the second part?

Yes. So on SG&A, so we've announced those probably. So in 2020, following the acquisition of Senegal, we then gave guidance of more of guiding $2 million. Now at that point, we only had Senegal announced and we're in competitive processes on the others. Then in the middle of last year, we upped that to incremental $5 million. Again, that's due to the fact that we had such substantial growth that's coming through. And for this year, which will be the final piece of really the investments that's coming through. We'll get and state up to the level that we need for all of the new markets coming on board. There has been incremental $6 million. And that's really driven by the full year impact of actually having some of the investments in last year and a little bit of incremental investment coming through in H1. So that's a fully baked cost now and that will mean that we are secure going forward and for 2023, excluding any new market expansion, that cost really increased by U.S. inflation.

And if I may say to Kash, huge congratulations for everything you've achieved at Helios and the very best of luck going forward.

Thank you very much, John. I appreciate the kind words. Thank you.

Our next question comes from Alex Vengranovich with Bank of America.

The first one, I would just like to come back on CapEx because it feels it's a little bit of a step up in '20 versus '21. And if I remember correctly, in '21, we already had some front-loading of CapEx. And I know nondiscretionary is increasing a bit this year. I know we've got like a bigger growth. But I'm just trying to figure out if you could maybe give us a little bit more color on the different buckets? How much is it going to be from EBITDA, how much is it going to be from new installation? Or how much is it really related to those energy supply installation? And maybe a larger question actually that was my follow-up was new strategy regarding diversification of power supply. And I know you've mentioned in your introductory remarks about some investment and/or started investment into solar and things like that. And we've seen, for instance, in Europe, some of the operators and Valco investing in many wind turbines. How are you thinking about diversification of energy supply? What's really the split today that driving, is it 90%, 100% on diesel generators or is there a 20%, 30% on the grid? And what are you really thinking moving forward in terms of target split in energy supply chain diversification, which is obviously I will probably call given the volatility and prices both those.

Yes. Thanks very much for the great questions. Manjit, why don't you take the first one on CapEx, and then I'll take the second one on the power.

Yes, absolutely. So on the CapEx point, I mean, really, this is a consequence of 2 things: one, the increased number of tenancies we've got year-on-year. So if you're comparing versus 2021, we're now guiding to more tenancies than what we had during that course of that year, but also the split being different. So now that we're moving from what was previously guided as being about 45% of the new tenancies being new sites to 60%, the impact of that is really north of about 250 sites, if you look at the midpoint of where that guidance is coming out. So that has a material impact in terms of looking at it period-on-period. And that's really one of the key drivers that we have here. Also included within what is mid-term this discretionary CapEx is also some of the upgrade CapEx we'll be doing on the new portfolios that we purchased as well. So if you strip out some of the upgrade items, which is about $30 million, then you're kind of looking broadly consistent period-on-period, then you're kind of getting broadly back to the numbers that we've had year-over-year. I think those are the kind of main movements. Tom, on the other one?

Yes. Thanks, Manjit. And yes, look, I mean, look, power strategy is absolutely key for us as a tower company operating across Africa and to some extent, Middle East, we are also a power company. And we provide all of our customers with very reliable power on each and every site, which means that to the extent the grid does not work 24/7, which it mostly does not, or to the extent the grid is not prevalent in the location of some of our sales, which again is true. In some cases, we need to find other ways of providing power to our customers because that's what they look for us to do and that's what we're contractually required to do. So if you look at our portfolio today, we get -- in every 24 hours, we got about 16 hours blended average of grid power, which means that there's 8 hours a day roughly that we need to find other ways of delivering power. We do that today, roughly half of that, so 4 or so hours we've gone from battery solutions or solar solutions and the other 4 is from generated. And as we generated area that we've got the most focus on is under reducing. We published our carbon emission strategy a few months ago in November. And in that, we -- one of our key targets was to -- through to 2030, reduce our carbon emission intensity per tenant by 46%. And as Kash mentioned on one of the earlier pages, we're very pleased actually that the first year reporting of that, we've shown a 7% reduction. So we're actually very much on plan to hit that 46% by the end of this decade and hopefully exceed it. And in doing that, some of the things that you mentioned the solar, mini wind turbines, they're very much in our thinking. Obviously, we do already use solar today. We, to date, have not used mini wind turbines, although I have actually been seeing some very interesting new products coming to the market along those lines. And we will be looking at those more as well as other forms of sort of energy, new energy generation. And there's a huge amount of exciting stuff going on in that space right now, both from battery development point of view, but also things like cells and wind turbines, as you mentioned. So we are continually assessing. And we continue looking at what is new on the market. We have a very clear plan of what we're doing over for the next few years in terms of connecting more sites to the grid that don't currently have a grid connection plus rolling out more hybrid battery technology, and particularly focusing on the lithium batteries at the moment and also some solar where it makes sense. And we have dedicated internal teams both at group level and in each operating company, which focuses on this. They focus on optimizing the energy setup of every single one of our sites depending on the number of tenants we have in the site, depending on the kilowatt load of that site, depending on the proximity to the nearest grid line and depending on the hours of sunlight and the quality of the sunlight, for example, because in some places are good for solar and some places are not so good. So there's a whole host of factors that feed into our internal algorithms that our energy teams run. And this is very much what we did day in and day out. So in terms of forward-looking, we will be reporting almost as we said in November, when we launch our carbon strategy. We'll be reporting on this going forward. And of course, we've set very clear targets on this around the 46% reduction. So yes, look, watch this space for us reporting on that going forward, and we'll be using all of those forms of technology, I'm sure to deliver that.

Okay and maybe a very interesting. And maybe the one follow-up, if I may, on those topics. Because obviously, all these new technology also require, I would assume a little bit more maintenance because -- I mean you had maintenance before with diesel generators and some of the on-site batteries, et cetera. But if you've got solar panels in the middle of the desert like you need to clean them up quite surprising or relatively frequently. So is there also like a strategy going alongside the energy power supply strategy to perhaps starting having more of a discussion with operators regarding active equipment maintenance and maybe you're bringing that within the fold of the power curve as we're seeing now may be evolving in I suppose the more developed market MSA agreements?

Yes. No, it's a great point. And -- absolutely, so the first part of your question, you mentioned around some maintenance required. Absolutely, I mean, solar panels require maintenance, they require cleaning. And obviously, they got a lot of dust on them in certain locations, for example. So we have site maintenance across all of our sites. And that involves field engineers going to each site at some point, either maybe once a month or in some cases, once a quarter where we can reduce it to that. Our long-term target is to get down to once every 6 months across our entire portfolio, but that's something we're sort of pushing for that, that will take time. So yes, there was a maintenance plan really for every -- from new technology. It should not increase the amount of visits we need to do to the site. So for example, on the solar, it will just simply be -- or it is simply part of the normal maintenance to the site each month or each quarter to clean those panels. So we shouldn't see any increase of sort of manpower costs on that in terms of maintenance, which has been then similar for hybrid batteries and such like. In fact, you can't reduce amount because typically, it's a generator that requires the most in PLC-type maintenance. So if you can reduce the number of the generators running that you're probably going to be able to reduce the amount of time you have to go and visit that site, which is good. You make a very interesting point on the active visits to the sites. And of course, on all of these sites, active maintenance engineers are visiting to do their maintenance and the active equipment. We have on the small occasions in our history also folded in active maintenance into the passive maintenance. But typically, to date the preference of our mobile operator customers have typically been to split it. Partly that's because active maintenance is always a key part of the operating from the equipment vendors. And it's sometimes it's too complicated to disentangle that. But one thing that we are looking for in the future potentially, and you alluded to it, is the possibility of after the Power-co owning part of the active equipment on the site, which is perhaps the natural extension of today owning the power and the power owning the base station and perhaps some antennas as well is perhaps the natural evolution of that. And of course, that is happening in some markets around the world already. There's a number of regulatory complications on that in most of our markets in so much as our regulators are quite clear on which companies are allowed to own and operate active equipment and which companies or not. And so there are some regulatory hurdles to jump over in terms of us provisioning that. But it is certainly something on the topic of conversation with some of our customers and something that we are definitely looking at from an internal perspective. So yes, watch this space for that as well. And it could be something that comes in over the next few years for us.

Our next question comes from Jeremy Dellis of Jefferies.

I've got 2 questions, please. The first one is just building on some of the points you made about power price sensitivity on Slide 18. So the question is, would you be able to specify for us, please, what power price assumption is implicit in your 2022 guidance? And then also help us understand how higher prices play through margins as we progress through 2022? Obviously, I'm mindful of the sort of potential sort of timing differentials between the higher cost sitting and the contractual escalators balancing up? And my second question has to do with your build to suit guidance. Obviously, now guiding 60% of growth will be built to suit. So the questions here, please are does that higher build to suit activity relates to any specific markets? Or is it fairly broadly based? And then as we look forward, you talked about build to suit's mix declining towards sort of 50%. But I wondered if you could sort of help us understand to perhaps a slightly higher level of granularity. What is the sort of appropriate build to suit proportion to be modeling 2 to 3 years out on the enlarged group perimeter?

Thanks, Jeremy. I'll pick up some of these. So in terms of the contracts and what we're going through on Slide 18, there's and ended cost across all of the markets when it comes to power prices. And we don't kind of provide that. But effectively, we're looking at what the prices are right now, with a small, I'd say, conservative assumption for how that will move over the intervening period. And that's why there's a little bit of impact when it comes to EBITDA margins, so that we've kind of baked into our overall guidance. But I think the fundamental point here is that with regards to power prices and our escalations, half of the contracts are stayed annually, half of them contracts are stayed quarterly. So with the annual escalation, some of those broadly kick in around February. So if there is an intervening increase up until that point, you will see a better margin dilution from the fact that we're not able to pass that on to the customer up until the following February. Now that's slightly counteracted by the fact that the other half are quarterly, where you will get kind of your catch-ups coming through. Now all things being equal, over a medium-term period, we're actually slightly over-hedged on power. So if there is increasing power prices, we actually get a little bit of margin on that. And that's principally because of our colocation ratio. So we actually get a bit of a multiplier. It's relatively immaterial. But in the grand scheme of things, we came a little bit of an increase there. And that's why on Slide 18, you can see that if there's a 10% price movement, you'll actually get a positive EBITDA impact on that arrow, which is plus 2.3%, if you were to get both prices happening at the same time. So really what we're seeing and what we expect to see during the course of the year is that if there are price movements, you will get a decline on the P&L from your annual escalators. We expect we counteracted by your quarterly, and that's what we're effectively baking in, in our numbers at the moment. With regards to your other question on build to suits and the split, effectively assume that these will be pro rata versus the operations which we have at the moment. So engineer and DRC really being taking the lion's share of a lot of the build to suits, but also having a good rollout in Senegal and Madagascar and our other established markets as well. And that's very similar to what we've seen historically during the course of this year or so I should say 2021 there. Typically, used to find about 40% each of our rollouts happening in Tanzania and DRC and then the rest of the market is picking up the balance. And I think that's something that we'll see again during the course of this year. And sorry I missed the last part of your question?

I think during your discussion you mentioned that the build to suit proportion should decline back to the 50% or below 50%. But I just wondered whether we should be modeling going back towards 40% on a 3-year view or whether we can sort of get a little bit more detail on that?

Yes. So what we actually see in our medium-term guidance, which is towards the back end of the presentation on Page 22, is that actually that will reduce on a straight-line basis to actually 30% over a 3-year to 5-year time horizon. So we really expect the majority of the new tenancies, all things being equal to actually be more skewed towards colocations. Now, on a year-on-year basis, you can find peaks and troughs like refining in 2022 and actually 2021 where we've had a bit of an elevated level of new sites. But over the long -- the medium to long term, you'll actually find that the majority will be colocations. So the model is reducing down to 30%.

And then just to return very quickly on the PowerPoint, the power price point. So I mean long story short would be that there's no particular reason why we should be expecting power prices to cause some sort of temporary margin squeeze in the first quarter?

Not in the first quarter, but you should potentially see it coming through the back -- in the back end of the year.

Our next question comes from Simon Coles of Barclays.

Just a follow-up on the power price one. So I guess you don't want to give too much color, but just to understand from our side, are you basically assuming that the prices don't really change from here for the rest of the year, and that's the impact that you're baking into the guidance? Because I guess we might expect some potentially wild moves in the price of fuel given everything that's going on globally. So if the price did go from sort of $120 down back to like $70, it would be good to understand sort of how much of that is baked into the guidance and how much isn't? And then, sorry, just the second one is just on sort of M&A. You've obviously had a very successful 2021 with a lot of transactions and there's a couple more to close this year, but we've seen Chad is now not going to happen. I guess if you just could just give us an update on sort of M&A plans going forward? Should we expect '22 to be another -- well, an integration year and then '23 is when potentially you might start looking at other opportunities again as the balance sheet de-levers?

I'll take the power point and then Tom can take the M&A one. So on power, no, we are assuming an increase in power prices. We've made a relatively conservative exemptions and the reason why we're doing that. If we were to see power prices remain stable during the course of the year, then you're going to see too much of an impact on the margin. But assuming that there is some volatility that's going through, then we would expect a short lag effect in our P&L. And that's why we're expecting a bit of a negative movement in terms of EBITDA margin. But again, this is more relative in terms of our modeling. But I think as we look at the EBITDA margins, more generally, the guidance that we've given, just to kind of be very clear about this, the majority of that is really driven by the fact that we've got full year impact of the new acquisitions coming through of Madagascar and Senegal, which are diluted to the EBITDA margin. Adding on top of that the SG&A investments that we're making to increase the platform. And those are really the key moves with a little bit of additional buffer that's put in for some of this lag affect that's coming through. Tom, on the M&A?

Yes. Thanks, Manjit. Thanks for your question. Yes. So look, on the M&A, the focus this year is really on integration as you mentioned. We're really looking to close, obviously, the remaining 3 deals, Malawi, Oman and Gabon and really get those integrated as well as finalizing the full integration of the new deals that we closed last year, Senegal and Madagascar, which are very much on track on that perspective. And of course focusing on the organic growth of our existing business in all of our markets including the new ones, so that's really the focus of ours right now for this year. In terms of other M&A or future M&A, there are deals that we're monitoring. There are potential opportunities that we're monitoring. There's -- but I'd say that most of them are for the next year's business or beyond. So we will be very much focused this year on organic growth and integration and really driving the existing business forward. And we'll obviously take stock and look at any new opportunities but where they're ahead. But right now, we're looking at M&A more for new M&A, so more for sort of next year's business and beyond.

[Operator Instructions] Our next question comes from Abhilash Mohapatra of Berenberg.

I've got 2 please. Firstly, just on colocation growth. And I'm sort of thinking more specifically about standard colocation growth. Here, I guess if we've seen in 2021 that with the exception of DRC, the growth was actually lower this year than it was in 2020 in most of your other markets like Tanzania, Congo and Ghana. So in the context of your guidance as well where you are saying that you expect nearly 60% of the tenancy growth to come from new sites, just wanted to get a sort of -- get some color on how you see the prospects for actually leasing up your sites and driving standard colocation tenancies up in the sort of near to medium term. And then secondly, just maybe somewhat related to that on Slide 10, where you show the return on invested capital for your business and you show that pro forma for acquisitions, it's on 9%, where that's been obviously sort of a much more impressive figure in the past. Do you expect to be able to drive that number back to the sort of 13%, 14% mark? And if yes, over what kind of time horizon would you expect that to come through?

Yes. Thanks, Abhilash, this is Tom here, I'll take this one. So yes, look, I mean, on the colocation growth, you mentioned that we're guiding to a higher percentage of the build to suit this year of 60%. Yes. No, look, I mean it's very much driven really by the strategies of some of our key customers and what they're looking at in terms of their own marketing strategies and customer acquisition strategies. And interestingly, what we're seeing right now, to some extent, what we saw a bit of last year as well in some markets was a real sort of renewed push for new coverage in areas which previously had either little cell coverage or no self-coverage in some cases. And we're seeing that continue into this year, which is why we've guided to 60% build to suits this year. We have quite a few orders on hand right now, which are building new sites in new locations. And I think this is just a natural cycle. Some years, mobile operators will focus on upgrading and densifying and maybe operating technologies on their existing sites and creating more infill, creating more capacity in areas which they currently cover. And other years, they might look at new subscriber acquisition in areas which previously have little or no coverage and we're in that space now, which is great, to be honest, both on a sustainability perspective and building up more sites in rural location, providing connectivity to communities which previously did not have connectivity or did not have much connectivity. And we're very, very truthfully to be doing that. But as you alluded to, of course, a build to suit create more capacity for future colocation. And for every single build-to-suit that we build, we always do a very deep assessment of the geo-marketing of that location, checking the liability for future lease up and the future demand. So we'll look at things like local population density, local amenities. And all of that will feed into our proprietary algorithms in our geo-marketing tool to predict how many and how quickly we'll get more colocations on these sites. So yes, absolutely, we expect to drive more colocation in the future from these new build-to-suit sites. As we do from our acquisitions, of course, we're acquiring sites, which typically have a tenancy ratio close to one kind of so it's the same concept to find more scale on day 1 to then really drive the lease-up going forward, which, of course, is the #1 driver for margin growth and for ROIC. And so just finishing off that on the -- you mentioned on the page, the Slide 10 and the ROIC being diluted from 13 to 9, which is just simply the natural thing that happens when you buy an underutilized network with a low tenancy ratio. The answer is yes, absolutely, we will be driving forward the lease-up, driving forward the growth and also some operational efficiencies over time to really get that right back up to the levels that we've been seeing. And I think the chart on the right actually shows that very well, I think, because prior to 2016, we've seen on a large acquisition initiative and sort of have established a new platform. You can see then that the margins were pretty low. In fact way lower than they are today even with the dilution. Over the last few years, we've driven that up significantly based on just simply having a much larger platform to sell to our customers and to drive operational improvements. And we're now absolutely trying to ready to do that newly in large portfolio that we now have. So yes, I think that you can expect all of that to be happening in the next few years.

Our next question comes from Nikita Meherally of Emirates NBD.

Thank you for the presentation and I apologize my questions have already been asked before. Could you please elaborate on the acquisition plan beyond 2022? And I think since you are close to achieving the 2025 target pretty soon, would you be looking at new markets? Or would you wait to improve tenancy ratio and maximize the return on the acquired assets? And in case you look at new markets or further acquisitions, how do you think about funding given the higher costs now? My second question is regarding cash. So what sort of cash level are you generally comfortable with and how much would you like to maintain? And lastly, if you could give some color on leverage and what are the medium-term targets here?

Thanks very much, Nikita. Yes. Look, why don't I take the first couple there on the acquisition plan and then Manjit, if you take the ones on the funding and the cash leverage levels. Yes. So look, in terms of acquisitions beyond 2022, look, 2022 is really us focusing on integrating the previously announced acquisitions and focusing on maturing forward with our organic growth, organic performance and overall business excellence strategy across the group and making sure that's embedded in all of our markets, including the new ones. So that's really a big focus for this year. As I mentioned briefly, earlier, we obviously continue to monitor the market for acquisitions. We have a business development team, which is always monitoring. And there are some very interesting opportunities out there. But I think that given the timing of these deals and sort of gestation period of them, it's very much on the next year's business and beyond. And we'll just continue to monitor the market as we always do. So really we are, as you mentioned, we are focused on listing assets, maximizing those returns, getting the lease up going on those assets really driving the performance and getting the operations going in some of the new markets. And that's our big focus right now. And over the next few years, I'm sure there will be acquisition opportunities that arise, and we'll look at them in a normal way. We certainly see that value and further geographic diversification and scale growth over time. And we think that that opportunity is certainly there in the regions in which we operate, being Africa and Middle East. So we'll continue to look at that in the future. And Manjit, just on the funding cash levels and leverage, do you want to say a few words on that?

Yes, absolutely. So in terms of our leverage levels, we've always communicated that we like to operate broadly within a range of 3.5 to 4.5x net leverage. As of the 3.6x now pro forma for the acquisitions will be towards the top end of that leverage range. But as Tom said, we don't see potentially any acquisitions really coming through during the course of the year that's probably going to be for next year and beyond. By which point, and the breach of this business model is that it de-levers very, very quickly. So we should have the debt capacity that we require, should we need it for future acquisitions. But effectively, the way we always think about acquisitions or for as always, if possible, cash on balance sheet, debt capacity and then other forms of financing thereafter. So that's the way that we'll look at it when the time arises. But one thing in potential over the course of the year, we should get to diversify our sources of funding. So we've got more our convertible bonds, which we really like to mention. And we've also got high-yield bonds, which we have for a long period of time. And we've also got in-market debt financings as well. So the combination of all 3 of those really acts quite well and provides us some diversification in terms of how we look for funding as we go forward. And in terms of the cash level, we like to keep broadly in the region of around $100 million to $150 million on the balance sheet. So a majority of that will be broadly held at the group. And we keep a small balance on the local OpCos and we always do [indiscernible] sharing of funds to our group facility. So we keep enough in the OpCos for working capital and CapEx purposes, but the vast majority of our funding is always held up short.

We have no further questions on the phone line. So I'll hand back to Kash.

Thanks, Jordan. Well, look, thank you very much, everybody, for joining our call. And we look forward to talking to you during our Q1 numbers presentation in May. Thank you. Bye-bye.

This concludes today's call. Thank you for joining. You may now disconnect your lines.