IHS Holding Limited Reports Third Quarter 2023 Financial Results

CONSOLIDATED HIGHLIGHTS – THIRD QUARTER 2023

• Revenue of $467.0 million decreased 10.4% (or increased 30.6% organically) reflecting a $214.5 million year on year foreign exchange (“FX”) headwind largely as a result of the 78.2% devaluation of the Nigerian Naira (“NGN”)
• Adjusted EBITDA of $232.0 million (49.7% Adjusted EBITDA Margin) decreased 15.5%
• Loss for the period was $265.4 million
• Cash from operations was $234.4 million
• Adjusted Levered Free Cash Flow (“ALFCF”) was $79.6 million
• Total Capex was $105.4 million
• Maintaining 2023 guidance for revenue of $2,080-2,110 million, Adjusted EBITDA of $1,130-1,150 million, Capital expenditure (“Total Capex”) of $610-650 million and net leverage ratio target remains 3.0x-4.0x. Introducing ALFCF guidance of $385-405 million and removing Recurring Levered Free Cash Flow (“RLFCF”) guidance of similar amount.

LONDON–(BUSINESS WIRE)–IHS Holding Limited (NYSE: IHS) (“IHS Towers” or the “Company”), one of the largest independent owners, operators, and developers of shared communications infrastructure in the world by tower count, today reported financial results for the third quarter ended September 30, 2023.

Sam Darwish, IHS Towers Chairman and Chief Executive Officer, stated, ”We are reporting a solid quarter of performance across our KPI’s driven by growth across each of our segments that reflects robust secular demand and the quality of our contract structures. The impact of the Naira devaluation since mid-June is of course impacting these Q3 results, but the FX protection mechanisms in our revenue contracts have begun to reset and we will see more evidence of this resetting in our Q4 results. The reduction in capex in the quarter reflects an increasingly more balanced approach we are taking to growth and cash generation in light of what remains a challenging macroeconomic environment across the world but particularly in Nigeria, and we now expect to be towards the low-end of our capex guidance range for the year.

We are encouraged by recent developments in Nigeria to address the ongoing situation and, having operated in the country for over 22 years, including during other significant devaluations, we are confident in the ability of our business there to return to growth as it has done before. We are also pleased to see improvements in macro conditions in Brazil and South Africa, and more broadly, we remain well positioned to benefit from the strong, long-term secular growth trends across our markets. We expect our heightened focus on cash generation to be even more evident in 2024, as we pursue operational efficiencies through productivity enhancements, cost reductions and slowing of capex vs. recent years. In addition, we are constantly reviewing our portfolio of markets and assets and will continue to focus our capital allocation on what we believe to be high-growth, core markets. We believe these initiatives will help enable IHS to sustain healthy double-digit organic growth while delivering the meaningful cash generation inherent in our business model.

We are maintaining our 2023 guidance although incremental FX headwinds now assumed in guidance equate to $11 million downside for the year versus rates previously assumed.

Lastly, regarding shareholder considerations, we continue to engage in constructive dialogue with Wendel and are making progress toward our mutual goals. We also continue to engage with MTN Group to better align on various commercial and governance matters and will provide additional updates at the appropriate time.”

RESULTS FOR THE THIRD QUARTER 2023

The table below sets forth select unaudited financial results for the quarters ended September 30, 2023 and September 30, 2022:

Impact of Nigerian Naira devaluation in mid-June 2023

In mid-June 2023, the Central Bank of Nigeria implemented steps to unify the Nigerian foreign exchange market by replacing the old regime of multiple exchange rate segments into a single Investors and Exporters (“I&E”) window within which foreign exchange transactions would be determined by market forces and which was subsequently renamed NAFEM (Nigeria Autonomous Foreign Exchange Market) in October 2023. The Group uses the USD/NGN rate published by Bloomberg, which is approximately aligned to the I&E (now NAFEM) window rate, for Group reporting purposes.

The NGN fell 59.4% between the period immediately prior to the announcement (June 14, 2023) and the month end rate as at June 30, 2023 and continues to experience volatility, having devalued further by 3.0% as at September 30, 2023. Due to the NGN devaluation, Revenue and Segment Adjusted EBITDA were negatively impacted by $180.5 million and $105.1 million, respectively, in the third quarter 2023.

Due to the timing of the devaluation, the average USD/NGN rate used to consolidate the Group results was NGN 767.7 for the third quarter of 2023 and NGN 579.0 for the nine months ended September 30, 2023, as opposed to the closing rate of NGN 775.6 on September 30, 2023.

The continued devaluation of the NGN in the third quarter of 2023 also resulted in an impact on finance, specifically related to unrealized foreign exchange losses of $76.8 million in our Nigeria segment. This is due to the USD denominated historical shareholder loans from Group entities to Nigeria and the USD denominated third party debt (such as the 2026, 2027 and 2028 Notes). As the functional currency of the Nigeria businesses is NGN, these USD balances have been revalued in NGN using the rate as of quarter-end resulting in an increase in unrealized loss on foreign exchange.

Results for the three months ended September 30, 2023 versus 2022

During the third quarter of 2023, revenue was $467.0 million compared to $521.3 million for the third quarter of 2022, a decrease of $54.3 million, or 10.4%. Organic growth was $159.7 million, or 30.6% driven primarily by foreign exchange resets, escalations and Lease Amendments. Revenue for the third quarter of 2022 included a one-off amount of $18.0 million. Aggregate inorganic revenue growth was $0.5 million, or 0.1%, for the third quarter of 2023, which primarily related to the fifth and sixth stages of the Kuwait Acquisition. The increase in organic growth was more than offset by the non-core impact of negative movements in foreign exchange rates of $214.5 million, or 41.2% of which $213.0 million was primarily due to the devaluation of the NGN.

Adjusted EBITDA was $232.0 million for the third quarter of 2023, compared to $274.4 million for the third quarter of 2022. Adjusted EBITDA margin for the third quarter of 2023 was 49.7% (third quarter of 2022: 52.6%). The decrease in Adjusted EBITDA primarily reflects the decrease in revenue due to negative movements in foreign exchange rates discussed above, alongside an increase in administrative expenses resulting from an increase in employee cost and professional fees and an increase in unrealized foreign exchange losses within cost of sales, partially offset by an overall decrease in cost of sales resulting from a decrease in power generation costs, maintenance costs and security costs.

Loss for the period was $265.4 million for the third quarter of 2023, compared to a loss of $36.6 million for the third quarter of 2022. The increase in loss for the period reflects the decrease in revenue discussed above and an increase in net finance costs, specifically related to the unrealized foreign exchange losses on financing the Group’s operations. This is coupled with an increase in cost of sales due to an increase in unrealized foreign exchange losses and an increase in net impairment of property, plant and equipment and prepaid land rent costs primarily driven by power equipment assets in our SSA segment being classified as assets held for sale and remeasured at fair value less costs to sell, alongside an increase in administrative expenses associated with staff costs and professional fees.

Cash from operations and ALFCF for the third quarter of 2023 were $234.4 million and $79.6 million, respectively, compared to $294.2 million and $89.7 million, respectively, for the third quarter of 2022. The decrease in cash from operations primarily reflects the aggregate impact of the decrease in revenue and increase in administrative expenses, partially offset by a decrease in cost of sales as discussed above. The decrease in ALFCF is primarily due to lower cash from operations explained above and an increase in net interest paid and income taxes paid. This is partially offset by decreases in maintenance capital expenditure, withholding tax and lease and rent payments made.

Segment results

Revenue and Segment Adjusted EBITDA:

Revenue and Segment Adjusted EBITDA, our key profitability measures used to assess the performance of our reportable segments, were as follows:

Nigeria

Revenue for our Nigeria segment decreased by $84.0 million, or 23.6%, to $271.4 million for the third quarter of 2023, compared to $355.4 million for the third quarter of 2022. Revenue increased organically by $129.1 million, or 36.3%, driven primarily by an increase in foreign exchange resets, escalations and Lease Amendments. Revenue for the third quarter of 2022 included one-off organic revenue of $18.0 million. The decrease in revenue was primarily driven by the non-core impact of negative movements in the Naira to U.S. dollar foreign exchange rate of $213.0 million, or 59.9%. Year-on-year, within our Nigeria segment, Tenants increased by 66, including 367 from New Sites and 622 from Colocation, partially offset by 923 Churned (which includes, from the first quarter of 2023, 727 towers occupied by our smallest Key Customer on which we were not recognizing revenue), while Lease Amendments increased by 4,170.

Segment Adjusted EBITDA for our Nigeria segment was $158.0 million for the third quarter of 2023, compared to $210.0 million for the third quarter of 2022, a decrease of $52.0 million, or 24.8%. The decrease in Segment Adjusted EBITDA primarily reflects the decrease in revenue driven by negative movements in foreign exchange discussed above coupled with unrealized foreign exchange losses of $15.8 million within other cost of sales. This is partially offset by an overall decrease in cost of sales of $32.1 million, primarily resulting from lower overall consumption and pricing of diesel of $38.2 million, alongside a decrease in maintenance cost and security cost of $5.1 million and $2.8 million, respectively.

SSA

Revenue for our SSA segment increased by $18.7 million, or 16.3%, to $133.5 million for the third quarter of 2023, compared to $114.8 million for the third quarter of 2022. Revenue increased organically by $23.7 million, or 20.7%, driven primarily by escalations, New Sites and Colocation and foreign exchange resets. The increase in revenue was partially offset by the non-core impact of negative movements in foreign exchange rates of $5.1 million, or 4.4%. Year-on-year, within our SSA segment, Tenants increased by 571, including 243 from New Sites and 342 from Colocation, partially offset by 14 Churned, while Lease Amendments increased by 837.

Segment Adjusted EBITDA for our SSA segment was $66.3 million for the third quarter of 2023, compared to $63.5 million for the third quarter of 2022, an increase of $2.8 million, or 4.4%. The increase in Segment Adjusted EBITDA primarily reflects the increase in revenue discussed above, partially offset by an increase in cost of sales and administrative expenses. Cost of sales increases resulted from higher power generation and maintenance costs of $12.9 million and $0.6 million, respectively, due to the increase in asset base, while administrative expenses increased by $1.5 million, primarily from staff costs and professional fees.

Latam

Revenue for our Latam segment increased by $9.8 million, or 23.2%, to $51.9 million for the third quarter of 2023, compared to $42.1 million for the third quarter of 2022. Revenue increased organically by $6.2 million, or 14.8%, driven primarily by an increase in growth from fiber and escalations. The increase in revenue was also driven by the non-core impact of positive movements in foreign exchange rates of $3.5 million, or 8.4%. Year-on-year, within our Latam segment, Tenants increased by 504, including 579 from New Sites and 190 from Colocation, partially offset by 269 Churned, while Lease Amendments increased by 78.

Segment Adjusted EBITDA for our Latam segment was $38.2 million for the third quarter of 2023, compared to $30.0 million for the third quarter of 2022, an increase of $8.2 million, or 27.2%. The increase in Segment Adjusted EBITDA primarily reflects the increase in revenue discussed above and a decrease in cost of sales of $1.5 million, of which $1.6 million is other costs. The increase in revenue and decrease in cost of sales is partially offset by an increase in administrative expenses of $3.1 million, of which $2.1 million is staff costs and $0.6 million is professional fees.

MENA

Revenue for our MENA segment increased by $1.2 million, or 13.3%, to $10.3 million for the third quarter of 2023, compared to $9.1 million for the third quarter of 2022. Revenue increased organically by $0.7 million, or 7.4% driven primarily by New Sites and escalations, and grew inorganically in the period by $0.5 million, or 5.6%. Year-on-year, within our MENA segment, Tenants increased by 162, including 58 from New Sites, and 109 from the closing of the sixth stage of the Kuwait Acquisition.

Segment Adjusted EBITDA for our MENA segment was $5.2 million for the third quarter of 2023, compared to $3.8 million for the third quarter of 2022, an increase of $1.3 million, or 34.7%. The increase in Segment Adjusted EBITDA primarily reflects the increase in revenue discussed above and a decrease in cost of sales of $0.1 million.

INVESTING ACTIVITIES

During the third quarter of 2023, capital expenditure (“Total Capex”) was $105.4 million, compared to $174.1 million for the third quarter of 2022. The decrease is primarily driven by lower capital expenditure for our Nigeria and SSA segments of $71.9 million and $21.7 million, respectively, partially offset by an increase in capital expenditure of $25.0 million for our Latam segment. The decrease in Nigeria was primarily driven by decreases of $30.4 million related to maintenance capital expenditure, $20.0 million related to Project Green and $13.4 million from New Site capital expenditure, $4.7 million of other capital expenditure and $4.1 million for purchase of land for new or existing sites, partially offset by an increase of $2.4 million in fiber capital expenditure. The decrease in SSA is primarily driven by decreases of $12.8 million related to refurbishment capital expenditure, $4.3 million from New Sites capital expenditure and $3.2 million in other capital expenditure. The increase in Latam is primarily driven by increases of $20.4 million related to New Sites capital expenditure, $2.7 million related to corporate capital expenditure and $1.7 million related to augmentation capital expenditure, partially offset by an increase of $1.9 million related to fiber capital expenditure. Our spending for Project Green was $8.3 million during the third quarter of 2023 and total spend since we began the project to September 30, 2023 was $187.1 million.

FINANCING ACTIVITIES AND LIQUIDITY

Below is a summary of key facilities we have entered into, repaid or amended during the third quarter of 2023. Approximate U.S. dollar equivalent values for non-USD denominated facilities stated below are translated from the currency of the debt at the relevant exchange rates on September 30, 2023.

IHS Holding (2020) Revolving Credit Facility

In July 2023, the available commitments were increased to $300.0 million pursuant to the facility increase clause contained within the IHS Holding RCF.

Nigeria (2023) Revolving Credit Facility

As of November 13, 2023, there are no amounts drawn and outstanding under the Nigeria 2023 RCF.

IHS Brasil – Cessão de Infraestruturas S.A. Debentures

IHS Brasil – Cessão de Infraestruturas S.A. issued debentures for BRL 1,200.0 million (approximately $238.4 million), in September 2023 (as amended and/or restated from time to time, the “IHS Brasil Debentures”). The IHS Brasil Debentures amortize semi-annually until maturity in August 2031.

The IHS Brasil Debentures contain customary information and financial covenants, including but not limited to the maintenance of specified net debt to EBITDA and interest cover ratios. They also contain customary negative covenants and restrictions including, but not limited to, dividends and other payments to shareholders, intercompany loans and capital reductions.

The IHS Brasil Debentures are secured by a pledge over all shares owned by Centennial Towers Brasil Cooperatief U.A. and IHS Netherlands BR B.V. in IHS Brasil – Cessão de Infraestruturas S.A. and a pledge over the bank account where the companies’ receivables are deposited.

The IHS Brasil Debentures have an interest rate of CDI plus 3.10% (assuming a 252-day calculation basis) and will terminate in August 2031.

The proceeds from the issuance of the IHS Brasil Debentures were applied towards, inter alia, refinancing certain indebtedness of IHS Brasil – Cessão de Infraestruturas S.A. (including the IHS Brasil Facilities and the GTS Facility, as set out below) and general corporate and working capital purposes.

IHS Brasil – Cessão de Infraestruturas S.A. Facilities

In September 2023, we prepaid the full remaining principal amount of the IHS Brasil Facilities and the GTS Facility of BRL 713.6 million (approximately $141.8 million) (plus accrued interest) using the proceeds received following the issuance of the IHS Brasil Debentures.

FINANCING ACTIVITIES AND LIQUIDITY AFTER REPORTING PERIOD

Below is a summary of key facilities we have entered into, repaid or amended after the third quarter of 2023.

IHS Holding (2022) Bullet Term Loan Facility

In October 2023, the available commitments under the IHS Holding 2022 Term Loan were voluntarily reduced by $100.0 million and the availability period on the remaining balance of $130.0 million in available commitments was extended to April 2024 from October 2023.

As of November 13, 2023, $370.0 million of the IHS Holding 2022 Term Loan was drawn. The undrawn portion of $130.0 million can be applied toward general corporate purposes.

IHS South Africa Overdraft

IHS SA entered into a ZAR 350.0 million (approximately $18.5 million) overdraft facility agreement in October 2023 (the “IHS SA Overdraft”). The IHS SA Overdraft is governed by South African law and funds borrowed under the facility will be applied towards general corporate purposes. The IHS SA Overdraft will terminate in October 2024.

As of November 13, 2023, ZAR 117.9 million (approximately $6.2 million) has been drawn down under this facility.

IHS Holding (2020) Revolving Credit Facility

In November 2023, the IHS Holding RCF was further amended and restated to, among other things, extend the termination date to October 30, 2026.

SHARE BUYBACK PROGRAM

In August 2023, the Company’s board of directors (the “Board”) authorized a stock repurchase program for up to $50.0 million of the Company’s ordinary shares, effective as of August 15, 2023 through August 15, 2025, subject to market conditions, contractual restrictions, regulatory requirements and other factors.

During the third quarter of 2023, the Company repurchased 948,101 shares, at an average price of $5.04 per share, for $4.8 million under its stock repurchase program. Shares repurchased were cancelled.

Full Year 2023 Outlook Guidance

The following full year 2023 guidance is based on a number of assumptions that management believes to be reasonable and reflects the Company’s expectations as of November 14, 2023. Actual results may differ materially from these estimates as a result of various factors, and the Company refers you to the cautionary language regarding “forward-looking” statements included in this press release when considering this information. The Company’s outlook reflects 1) $48.1 million of non-recurring revenue as adjusted for withholding tax in first quarter of 2023 from our smallest Key Customer in Nigeria for services previously provided but for which revenue had not been recognized, and 2) approximately $25.0 million of power pass through revenue in South Africa ($13.0 million through third quarter 2023). Guidance does not include revenue from the Egypt operations.

The Company’s outlook is based on the following assumptions:

• Organic revenue Y/Y growth of approximately 34% (31% when excluding the $48.1 million non-recurring revenue in first quarter 2023)
• Average foreign currency exchange rates to 1.00 U.S. Dollar for January 1, 2023 through December 31, 2023 for key currencies: (a) 628.0 Nigerian Naira; (b) 5.01 Brazilian Real (c) 0.93 Euros (d) 18.51 South African Rand
• Project Green capex $90.0-100.0 million
• Build-to-suit of circa 1,250 sites of which ~200 sites in Nigeria and ~750 sites in Brazil
• Net leverage ratio target of 3.0x-4.0x

Contacts

[email protected]

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