IHS Holding Ltd Q2 FY2025 Earnings Call

Good day, and welcome to the IHS Holding Limited Second Quarter 2025 Earnings Results Call for the 3-month and 6-month periods ending June 30, 2025. Please note that today's conference is being webcast and recorded. At this time, I'd like to turn the conference over to Robert Berg. Please go ahead, sir.

Thank you, operator. Thanks to everyone for joining the call today. I'm Robert Berg, Head of Investor Relations here at IHS. With me today is Sam Darwish, our Chairman and CEO; and Steve Howden, our CFO. This morning, we filed our unaudited condensed consolidated interim financial statements for the 3-month and 6-month periods ended June 30, 2025, with the SEC, which can also be found on the Investor Relations section of our website and issued a related earnings release, presentation and supplemental deck. These are the consolidated results of IHS Holding Limited, which is listed on the New York Stock Exchange under the ticker symbol IHS, and which comprises the entirety of the group's operations. Before we discuss the results, I would like to draw your attention to the disclaimer set out at the beginning of the presentation on Slide 2, which should be read in full, along with the cautionary statement regarding forward-looking statements set out in our earnings release and 6-K filed as well today. In particular, the information to be discussed may contain forward-looking statements. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other important factors that are difficult to predict and that may be beyond our control, including those discussed in the Risk Factors section of our Form 20-F filed with the Securities and Exchange Commission and our other filings with the SEC. As a result, actual results, performance and achievements or industry results may be materially different from any future results, performance or achievements or industry results expressed or implied by these forward-looking statements. We'll also refer to non-IFRS measures, including adjusted EBITDA that we view as important in assessing the performance of our business ALFCF that we view as important in assessing the liquidity of our business and consolidated net leverage ratio that we view as important in managing the capital resources of our business. A reconciliation of non-IFRS metrics to the nearest IFRS metrics can be found in our earnings presentation, which is available on the Investor Relations section of our website. And with that, I'd like to turn the call over to Sam Darwish, our Chairman and CEO.

Thanks, Rob. Good morning, everyone, and welcome to our second quarter 2025 earnings results call. I'm pleased to share that we've delivered another quarter of strong results ahead of expectations with strong performance across all our key metrics, revenue, adjusted EBITDA and ALFCF. And we've done it while also spending less total CapEx. This evidences that our strategy is working. We're driving organic growth, efficiency and cash flow. And the environment is moving in our favor. We're seeing an improving macroeconomic and foreign exchange backdrop as well as fundamental telecom market performance, especially in Nigeria. With all of that, we are raising our full year 2025 outlook across every single key metric. Steve will take you through the details shortly, but the headline is we're operating better, we're more profitable, and we're strengthening our balance sheet as we had planned. Let me walk you through the quarter's highlights. Revenue came at $433 million, ahead of plan with 11% organic growth driven by colocation, lease amendments, new sites and CPI escalators. Adjusted EBITDA came at $248.5 million with a margin over 57%, stable year-on-year, showing continued financial discipline. ALFCF came at $54 million as expected, reflecting the rephrased interest payments following our November 2024 bond refinancing. And total CapEx came at $46 million, down 14% year-on-year, thanks to more disciplined capital allocation. In Q2, we repaid $154 million of high interest debt. That lowered our weighted average cost of debt for the whole company by 100 basis points, and that's tangible progress towards our debt reduction and free cash flow goals. On net leverage, we ended the quarter at 3.4x, down from 3.9x a year ago, right in the middle of our target range. We expect net leverage to continue to decrease between now and year-end, and that's irrespective of the proceeds from our Rwanda sale signed during the quarter, which we expect to close in the second half and further reduce net leverage. During the quarter, we also refinanced our $300 million group revolving credit facility, which remains undrawn until the third quarter of 2028. Liquidity remains strong, over $830 million even after paying down $154 million of debt. So, looking ahead, our priorities are clear. First, continue prioritizing paying down debt while continuing to grow organically. Second, stay disciplined with capital allocation and as we approach the low end of our leverage range, evaluate the introduction of dividends and/or share buybacks. Third, unlock further efficiencies by bringing more technology and AI into how we work. Fourth, continue assessing growth opportunities with the highest returns given the high level of demand we are seeing from our customers. And finally, further disposal activity remains under consideration, and we are continuing to assess additional value-creative disposal opportunities. We see significant potential across our markets. The ongoing rollout of 5G across our biggest markets, the MNO tariff increases in Nigeria and of course, the stable Naira. We believe all of these set the stage for sustained growth and strong returns. We'll keep focusing on building the business, increasing free cash flow and strengthening the balance sheet with discipline, all with a firm eye on driving shareholder value. And with that, I'll hand it over to Steve.

Thanks, Sam, and hello, everyone. Let's take a look at our second quarter 2025 performance. Our results exceeded expectations, showing positive operating and financial progress, supported by a stable macroeconomic environment in Nigeria. Please note that year-over-year comparisons are influenced by specific events in 2024. Firstly, the Kuwait disposal in December 2024 means there is no MENA contribution in 2025, whereas Kuwait contributed $11 million to revenue and $6 million to adjusted EBITDA in the second quarter of 2024. Secondly, changes in our agreements with MTN South Africa last year led to a one-time reduction of $14.5 million in revenue and cost of sales in the second quarter of last year, with no impact on adjusted EBITDA. Thirdly, the renewed contracts with MTN Nigeria, signed last August, include near-term site churn impacts. Overall, year-over-year, towers increased by about 1.5% and tenants grew by approximately 2%, not accounting for the Kuwait disposal effects, while lease amendments rose nearly 4%. Reported revenue in the second quarter was stable year-on-year, but up 2% when excluding the Kuwait disposal impact. Organic growth exceeded 11%, although this was partially offset by a 9% negative impact from foreign exchange fluctuations, including the Nigerian Naira against the U.S. dollar. The average exchange rate was NGN 1,392 to the dollar in Q2 2024 and NGN 1,581 to the dollar in Q2 2025. Thus, our reported revenue remained flat year-over-year despite these currency challenges. While the Naira did depreciate, it has remained relatively stable this year, generally ranging between 1,530 and 1,550 Naira to the dollar. Our adjusted EBITDA performance was also favorable, increasing 1.5% year-on-year, excluding the Kuwait disposal. The adjusted EBITDA margin has remained stable year-over-year, and our strong adjusted EBITDA performance despite currency depreciation showcases our continued cost control and resilience through contract resets. Meanwhile, ALFCF decreased about 19% compared to Q2 of last year, largely due to different interest rate profiles between quarters in 2025 and 2024 stemming from the November 2024 bond refinancing. Post-refinancing, our bond interest payments are now mostly due in the second and fourth quarters of the year, in contrast to 2024, where they were distributed evenly. Our CapEx investment dropped nearly 14% this quarter, reflecting our focus on enhancing cash generation. Finally, our consolidated net leverage ratio is 3.4x, down 0.5x from the second quarter of last year, and we are well within our target range of 3 to 4x, anticipating being at the lower end of that range by the end of 2025, prior to the anticipated sale of our Rwanda business later this year. Our second quarter 2025 revenue, shown on Slide 9, illustrates that despite a broadly stable reported basis, our business achieved an organic growth of over 11%, aided by strong performance in constant currency terms with a growth rate of about 10%, primarily driven by CPI adjustments, new lease amendments, colocations, and new sites. The growth is indicative of ongoing tenancy expansion in our key markets. This robust revenue growth in constant currency was somewhat impacted by lower revenues in power services due to declining diesel prices over the period, although there was no effect on adjusted EBITDA or cash flow. Slide 10 highlights our consolidated revenue and adjusted EBITDA for the second quarter of 2025, showing an adjusted EBITDA of $248 million and a 57.3% margin, continuing the trend of rising margins we've observed recently. On Slide 11, we report our adjusted levered free cash flow, with ALFCF of $54 million this quarter, down 19% year-over-year, primarily due to increased interest payments. Our ALFCF cash conversion rate stood at 21.7%. Regarding CapEx, we spent $46 million in the second quarter, reflecting a 14% year-on-year decrease, largely from our LatAm segment, as we narrow our focus on capital allocation and bolster cash generation while maintaining a healthy level of new site builds in Brazil. For our Nigerian segment on Slide 12, we generated $260 million in revenue during the second quarter of 2025, adding over 250 new colocations and integrating 700 new lease amendments since March, resulting in strong organic growth of over 10% year-on-year, despite a rough $5 million decline from approximately 450 vacated tenants and 850 lease amendments from MTN Nigeria. The reported organic growth rate was adjusted down by a 14% decline in noncore revenues linked to Naira depreciation. Notably, we've observed a more positive performance in our Nigerian business during this quarter, leading to better-than-expected results. Segment adjusted EBITDA for Nigeria was $171 million, with an adjusted EBITDA margin up 190 basis points to 65.5%, reflecting reduced costs stemming from Naira devaluation and internal cost-saving measures. Macroeconomic indicators in Nigeria remain promising, with a stable Naira and improving USD liquidity, inflation rates dropping, and real GDP showing growth in the first quarter. Interest rates are expected to decline, with some analysts predicting the first cut as early as September. The government is optimistic about lowering inflation to single digits, as evidenced by reduced CPI numbers. Crude oil production has also improved significantly, surpassing OPEC quotas recently. In the Sub-Saharan African segment, we experienced an 18% revenue increase, offset by a 4% decline in adjusted EBITDA year-on-year due to increased costs and previous one-time adjustments related to contract changes with MTN South Africa. In our LatAm segment, we reported growth with towers and tenants up 7.3% and 9.7%, respectively, leading to 6% organic growth year-on-year, despite writing down the remaining Oi revenue. The Brazilian market has seen fluctuating macroeconomic conditions, with the real appreciating against the dollar while the Central Bank raised rates slightly. Though segment adjusted EBITDA increased by 0.5% with improved margins from cost-saving initiatives, we continue to monitor these developments closely. On Slide 14, as of the end of June 2025, we held approximately $3.9 billion in external debt and IFRS 16 lease obligations, slightly down from the previous quarter, with about $2.2 billion in bond financings. We've made strides to strengthen our balance sheet by repaying $154 million in debt, lowering our interest cost, and refinancing certain loans. Notably, we fully repaid an outstanding Nigerian term loan, which had a high-interest rate, aligning with our debt reduction strategy. We've also redeemed debentures in Brazil and replaced our revolving credit facility with a new, undrawn option. At the end of June, our liquid assets totaled $533 million, leading to a consolidated net debt of $3.3 billion and maintaining our net leverage ratio target of 3 to 4x. We anticipate leveraging these financial measures alongside expected proceeds from the Rwanda disposal by the close of 2025. Finally, moving on to our guidance for 2025, in light of our strong second quarter performance and positive outlook, we are raising our full year estimate. We're projecting increased revenues, driven by favorable operating performance and positive FX dynamics, along with improvements in profitability and ALFCF cash conversion due to continuous financial discipline. The new revenue guidance is set at $1.7 billion to $1.73 billion, an increment of $20 million, along with adjustments for adjusted EBITDA and ALFCF. We're guiding total CapEx now at $240 million to $270 million, reflecting a $20 million decrease. We remain steadfast on our target of a consolidated net leverage ratio of 3 to 4x. Importantly, our guidance includes assumptions related to power indexation movements and anticipated reductions due to the upcoming Rwanda disposal. We now expect an organic revenue growth rate of 11% at the midpoint, supported by enhanced constant currency growth assumptions. In summary, foreign exchange rates will factor into our estimations for 2025 as we've modeled a slightly lower annual FX rate assumption, factoring in potential devaluation through December. This marks the conclusion of our formal presentation. Thank you for your attention today, and we welcome any questions.

Our first question for today comes from Richard Choe of JPMorgan.

I wanted to ask about the new lease amendments. It was a lot stronger this quarter than it was last quarter, and colocation remains strong. So, can you just give a sense on what is driving it and what it should look like for the rest of the year?

Richard, it's Steve. Yes, so colocations were pretty similar to last quarter, 467 new colocations in the quarter, which was pretty much in line with Q1, and we see a continuation of that through the rest of the year. Lease amendments to your question, I would say pretty normal activity in this quarter. It was a bit lower last quarter actually in Q1. So that's probably skewed the comparison a little bit. But where it's coming from, Nigeria and Brazil, primarily, and we expect to see that continue through the back end of this year. We're seeing good leasing activity in Nigeria, Brazil, even in other parts of the Sub-Saharan African market as well. So, as we sit here today in August, we're on for a pretty strong year at this point in time.

And while you lowered CapEx guidance, you're still implying a pretty big ramp in the second half from what has been spent so far this year. Can you kind of walk through like where the ramp is coming from and what are the chances that might even come under guidance even though you already reduced it?

Yes. We've said for a quarter or so now that the CapEx guide is H2 loaded, and that's based on when our rollout projects will come to fruition. A lot of it is in Brazil. There's a little bit of it sat around Sub-Saharan Africa as well. So, we're pretty confident in terms of the new lower guidance range. Obviously, a little bit of that CapEx is impacted by foreign exchange moderating as well. But we're pretty comfortable with that now; it should be good for the rest of the year. But obviously, we'll update people again if anything has changed by the Q3 results.

Our next question comes from Jim Schneider of Goldman Sachs.

I was wondering if you could just help us think about the impact of a few moving pieces on your organic growth heading into 2026 as we think about the modeling on the forward. Your organic growth guidance is now 11%. Maybe talk about how you're expecting the impact of CPI and FX resets to trend as we head into next year. And if I sort of back away those things, it seems like your underlying organic growth is about 6.5%. What are some other factors that could be some positive offsets to that, whether it be in terms of lease amendments, colocations or otherwise?

Jim, we're a bit early to provide guidance for 2026, but I can share some insights. Let's start with 2025, as it will give you a good indication of our expectations for next year. As I mentioned in response to Richard's question, we anticipate ongoing strength in colocations and lease amendments. In Nigeria, we expect higher colocation numbers compared to last year, and similarly in Brazil, we foresee increased colocation numbers as well. We're also looking for more lease amendments in Brazil than last year, which makes us optimistic about the latter part of this year and into next year. Nigeria and Brazil are currently significant indicators for us, and we observe a favorable carrier environment in both regions. Earlier this year, Nigeria saw tariff increases for carriers, leading to positive results, although they are facing pressure regarding service quality, which suggests potential infrastructure opportunities for us. We're continuing our rollout with Airtel in Nigeria, which is progressing well. In Brazil, the pipeline remains active with new site builds, colocations, and lease amendments. Approximately 500 basis points of our growth this year are derived from Brazil, and we may exceed that due to our pipeline. We are looking at continued opportunities there, especially with the carrier consolidation down to three after the Oi cleanups. Regarding CPI and foreign exchange resets, we expect them to be more moderate next year, which should enhance the benefits from colocations and lease amendments. The discussions around build-to-suit projects will be part of our capital allocation strategy that we will delve into later this year.

That's helpful. And then as a follow-up, regarding capital allocation, you mentioned considering additional asset sales. However, you are already at the low end of your leverage range, even with the Rwanda sale. I'm trying to understand the reasoning behind pursuing more asset sales. Would it be based purely on price opportunities, or are you contemplating actions to deconsolidate some of your smaller-scale operations while potentially acquiring others to achieve greater scale where it's already significant?

I'll start on that one, Jim, and Sam can chip in as well. I think specifically as it relates to the disposals that we've done and what we're still considering looking at. So, we said originally, we would sell $500 million to $1 billion worth of assets. We've also spoken about wanting to get the balance sheet down to around 3x leverage and that sort of territory. So, we are still thinking through whether to do some more disposals. We're looking at a few bits and pieces. But really, it comes down to value. If we think it's going to drive shareholder value, then we will absolutely do that. And what would we do with that capital? Again, it's a capital allocation discussion. We're really thinking through in the second half of this year what we do in terms of potential direct shareholder remuneration. So, more on that potentially later in the year. But again, if it's going to generate good value versus where we're trading, then we'll keep looking at it. Sam, do you want to add anything else?

Jim, the short answer is that we are not ruling out further asset sales. Ultimately, our strategic plan focuses on finding ways to return capital or value to shareholders. We believe that at some point, given our current multiples, if we receive offers for assets that enhance value, then we should consider it. However, we must remember that we are a growth company and want to continue growing, so we also need to protect that aspect. The short answer is yes, as we look for ways to return capital, whether through dividends or buybacks, we will continue to approach our target comfort zone on net leverage.

Our next question comes from Michael Rollins of Citi.

A couple of questions to follow up. So first, on the guide for 2025. So, you referenced that the constant currency organic growth is now better in the guide for '25 than it was previously. Can you give a little bit more detail of how that specifically evolved within the guidance and where the relative strength is coming from? And then the second question is just a follow-up on the capital allocation discussion. As you've contemplated what the right leverage is for the business, can you discuss the factors that got you comfortable that 3x or roughly that 3x net debt-to-EBITDA level is the right place to then get to that fork in the road where you're going to decide what to do with capital allocation from there and whether you contemplated sustaining higher or significantly lower leverage as part of those considerations?

Mike. So, on your first question on the guidance, where are some of those organic elements coming from, so i.e., outside of FX. Really, that's around, from a revenue standpoint, leasing activity, particularly in Nigeria, a little bit in Brazil, but also a little bit in Sub-Saharan Africa. So, we're seeing positive leasing activity coming through revenue performance in those places. We're also seeing more benefit come through in EBITDA because of a variety of cost-saving initiatives that we've had running. So, this is now away from organic growth rates, which are on revenue, but into the wider guidance. We're seeing a variety of cost benefits coming through. Those will be recurring going forward. There's nothing one-off in there. That's a recurring benefit that we're going to see through the back end of this year and into next year. And then as we go even further down the cash flow statement, if you like, into ALFCF, on top of those revenue upsides, on top of those cost-saving upsides, we're also seeing particularly interest upsides in terms of some of the things that we've been doing on the balance sheet, i.e., paying down debt, particularly paying down high interest debt. We're also generating more cash, which means we can generate more interest income. And so, all of that is adding to the overall picture of the guidance. That's why you're seeing EBITDA go up by more than revenue and ALFCF going up by more than EBITDA. So hopefully, that explains a little bit about that. And just to make sure we're clear, I said it earlier in the prepared remarks, but the guidance raise would have been higher, but we're also backing out the contribution from Rwanda for the balance of the year. So just to make sure that everybody is clear on that. And then why 3x there or thereabouts the right level? Look, I think as we've spent a lot of time assessing our capital structure in the last 18 months post significant Naira devaluation in particular, 3x there or thereabouts is a level that we feel pretty comfortable operating in. The business can certainly go up to somewhere like 4x if we were in kind of an acquisition mode. But we're not there at this point in time. That's not what we're doing. And so, running the business steady state, we feel like 3x is a pretty good leverage level, risk-adjusted for the markets in which we operate. We all know TowerCos can sustain more leverage than that. But for our markets, 3x feels the right level, not too much, not too little to be ineffective use of capital. What I would say is within that 3x leverage mix, we want to make sure that we are paying the most optimized level of interest expense on that. And that's part of what we're doing at the moment. As we all know, we've been looking at a lot of things on the balance sheet maturities, currency mix, interest rates as well as the absolute amount and therefore, leverage. So, lots of different things going into that. 3x feels pretty comfortable for this business in the formation we're in now.

Our next question comes from Gustavo Campos of Jefferies.

Congratulations on the results. I have two quick questions. First, do you have a total debt target for the end of the year? Second, I see that your EBITDA contribution is approximately 65% from Nigeria and 35% from other regions. How do you anticipate this EBITDA mix to evolve from a geographic standpoint in the medium term? Any high-level insights on that would be appreciated.

Sure. There is no specific debt target. The goal is to achieve a net leverage at the lower end of our current 3 to 4x range, aiming for 3x by year-end. The contribution to EBITDA will largely depend on any additional disposals, including those related to Nigeria. Historically, we aimed for Nigeria to represent less than 50% of our business contribution. This was established before our recent strategic initiatives over the past 18 months. Currently, we do not have a defined target but are focused on executing profitability, cash flow, and balance sheet management to enhance share price value. We will reassess these factors as we move into the end of the year.

Our next question comes from David Lopez of New Street Research.

A couple of quick ones on Nigeria and one on the interest cost. So, in Nigeria, Nine Mobile has reached a roaming agreement with MTN. I was wondering if there is any impact to IHS. I believe it's not going to be big, but yes, is there any impact? And is that included in guidance? Just double checking. And still on Nigeria, could you comment about the upstreaming you have done in H1? And then the last one on interest cost, just a follow-up. So, you've continued to repay the expensive debt this quarter, as you have mentioned. I was wondering if you are targeting more expensive debt and what is the outlook for finance cost for this year and next year, please?

Okay. Hopefully, I got all those down. You might have to remind me the last one on interest costs, right? So on mobile, yes, you're right, they've reached a roaming agreement. The benefit to us is immaterial, very material. Everything is included in guidance. So there won't be any negative impact on that going forward. Upstreaming, yes, we've continued to upstream from Nigeria. We've continued at pace. We've now done $158 million through the half year. We've done more since the end of Q2. So that market continues to be freely available and accessible in the quantities that we need, which is good news. And then interest rates, the strategy. So the debt that we repaid, we paid $154 million of net debt, if you like. And the reason we say net debt is because we repaid $273 million equivalent of Brazilian debt with $200 million of new debt and $73 million of cash. So, net $73 million repayment of Brazilian debt and roughly $80 million equivalent of Nigerian debt repayment. Those were our two most expensive facilities in the group. They were both local currency, and we have repaid that. That is the reason why our blended average cost of debt has dropped from 9.3% to 8.3% with that activity. What are we focusing on now? We're now focusing on particularly U.S. dollar debt and whether that's either repaying it through excess cash or potentially refinancing elements of it. And we're also looking at some of the local currency markets where we can access cheaper local currency debt to potentially refinance some of the dollar debt, which is held at the top. So that's the next phase of the balance sheet activity. That's all in line with what we've been saying for the last 18 months, going step by step by step. So that's all on track as we thought it was going to be. I don't want to give you forecast interest rates for the balance of this year and next year because we're obviously looking to optimize where we can and take advantage of best possible interest rates, but I don't know what those will be yet.

Thank you. That brings us to the end of the IHS Holding Limited Second Quarter 2025 Earnings Results Call. Should you have any more questions, please contact the Investor Relations team via the email address, investorrelations@ihstowers.com. The management team, thank you for your participation today, and wish you a good day.