Helios Towers released its full-year results for the year to 31 December 2020 on Thursday, March 10 and successfully placed a convertible bond the day after. Following a tumultuous year around the globe, TowerXchange highlights the key results from the towerco. Helios Towers posted steady growth, and crowned the year by issuing a convertible bond. TowerXchange also had the opportunity to speak with Kash Pandya, CEO, Tom Greenwood, COO and Manjit Dhillon, CFO to get more colour on what drove the results and what to expect next.
The results in brief
Africa’s third largest towerco reported a growth in tenancies for the year of 1,065 to 15,656 tenancies (versus 14,591 in 2019), with the majority being added in the final quarter of the year. Sites increased by 382 sites year-on-year to 7,356 sites (vs 6,974 sites in 2019), whilst there was an increase of 134 sites quarter-on-quarter (Q3 2020: 7,222). Revenue for the year increased 7% year-on-year to US$414.0mn (versus US$387.8mn in 2019), driven by this continued growth.
Helios Towers has prided itself on its continuous EBITDA growth, a trend which continued in its 2020 results. Adjusted EBITDA for the year increased by 10% year-on-year to US$226.6mn (versus US$205.2mn), driven by tenancy growth and continued improvements in operational efficiency, with adjusted EBITDA margin expanding to 55% (versus 53% in 2019).
Helios Towers continued in its strong relationship with Africa’s big five MNOs (Airtel, Tigo, MTN, Vodacom and Orange). Just as in 2019, 82% of Helios Towers’ long-term contracted revenues were derived from those five MNOs. The tenor of the contracted revenue declined slightly from 7.2 years reported in 2019, to 6.8 years in 2020, as new tenancies add years of contracted revenue slightly more slowly than the clock counts down on the bulk of existing contracts. However, these figures do not reflect likely renewals nor potential new sales and leasebacks.
Operations and capex update
As discussed in our latest interview, Helios Towers saw continued high performance and site uptime. Operational performance continues at very high levels, with power uptime of 99.99% recorded in Q4 2020 for a third consecutive quarter. Growing grid connections and investment in hybrid power systems are helping keep performance high despite the disruption of COVID-19.
Helios Towers is targeting 1,000-1,500 new tenancies per annum, with approximately half of these likely to be new sites. That means maintenance and corporate capex of around US$20-US$25mn and an overall capex budget of US$110mn-US$140mn for its existing markets in 2021 to deliver those new sites and new co-locations.
Helios Towers will publish its first Sustainable Business Report on 15 March 2021 alongside its 2020 Annual Report and TowerXchange is looking forward to seeing how Helios Towers’ sustainability ambitions affect its priorities.
M&A update
In August 2020, Helios Towers signed an agreement with Free Senegal, the Xavier Neil-backed Senegalese MNO and the second largest operator in Senegal, to acquire 1,220 towers, as well as inking a 400 build-to-suit sites commitment over the next 5 years. The acquisition is anticipated to close in H1 2021.
As laid out last year, Helios Towers has recommitted to growing to eight markets and 12,000 sites through M&A. Although the report gives no hint as to where, Helios Towers confirmed that they are actively investigating an aggregated M&A pipeline of over 10,000 towers, including advanced discussions for approximately 5,000 towers in new geographies across Africa and the Middle East region. 2,000 sites in multiple African markets are described as being in ’advanced negotiations’ and the remainder are ’in the advanced stages of a competitive process.’
TowerXchange is aware that Helios Towers is involved in the active M&A process in Oman for Omantel’s towers. Reports have indicated a US$500mn price tag for the roughly 4,000 Omani towers. Also, of potential interest to Helios Towers are the roughly 1,400 towers that Airtel Tanzania has sought to sell. Similarly, TowerXchange is aware of a new towerco licence process in Egypt, to which Helios Towers has been linked. In South Africa, MTN has yet to move forward officially with a sale of its 13,000 towers but Helios Towers would likely be one of the principal bidders once this competition opens. Africa and the Middle East are big places, with approximately a third of a million towers still in MNO hands.
Convertible bonds
On March 11, Helios Towers announced the successful placing and pricing of senior unsecured guaranteed convertible bonds due 2027, convertible into new shares of the Company to a value of US$250mn.
For our readers better equated with the nuts and bolts of engineering, a convertible bond is a way of raising capital that pays fixed-income interest payments, which can also be converted into a pre-agreed quantity of shares in a company. Think of it as a blend of a normal bond but with the option to acquire shares in the underlying company under certain conditions.
The funds raised will be used principally to fund M&A, including the acquisition of the passive infrastructure assets of Free Senegal announced in August 2020. More details on the bonds can be found here.
Interview with Kash Pandya, CEO, Tom Greenwood, COO and Manjit Dhillon, CFO:
TowerXchange: I’ll keep the pleasantries brief and dive right in. Grid connections appear to be materially impacting your cost of sales and cutting your power costs, are we at a point where improvements in grid connections can lessen your reliance on hybrid power systems at your sites?
Kash Pandya, CEO, Helios Towers:
No, in fact, grid connections are expanding our utilisation of hybrid energy and batteries. The grid is good and improving in both Tanzania and Ghana, where we are getting 20-22 hours a day of power. Because you can draw power from the grid for long periods each day, with only short periods reliant on back-up, you can increase the use of battery backups whilst reducing the use of diesel.
Tanzania is extending its grid to more towns and villages which is very exciting because we always use grid energy whenever we can get it as it is always the cheapest option.
Across all our sites we reported a 99.98% power uptime for the whole of 2020, but in fact, we hit 99.99% for Q2, Q3 and Q4, and in January and February this year our downtime was below one minute.
TowerXchange: Helios Towers is targeting 1,000-1,500 organic tenancies per annum, are rural programmes like those pushed in Tanzania delivering a substantial number of new tenancies yet?
Kash Pandya, CEO, Helios Towers:
The Universal Communications Service Access Fund (UCSAF) strategy in Tanzania is great and great for towercos, but it is only driving 100-200 additional sites per year. This is significant but it isn’t driving our new tenancy growth.
Our plan for 1000-1500 new tenancies is driven by the macro trends we have often highlighted. In 4 out of 6, they are the only independent player and the countries we are operating in have growing economies and populations. We delivered over 1,000 new tenancies last year and we expect that to continue.
TowerXchange: You are targeting US$110m’US$140m of capex for existing markets in 2021, US$20m’US$25m is non-discretionary capex ’ can you give a breakdown of that capex?
Manjit Dhillon, CFO, Helios Towers:
We will be spending US$20-25mn on maintenance and corporate opex. That equates to about US$3.5k per tower and those costs will increase proportionally as we add new towers organically and inorganically.
The rest of our capex is accounted for via our growth ambitions and co-locations. We plan to add 1,000-1,500 tenancies with around 50% of these being new sites.
A new site costs around US$100-150k per site to construct, and a co-location costs us US$10k to deliver.
TowerXchange: You have highlighted ’Information technology failure and cyber-attacks’ as a Business principal risk ’ what new steps, are you concerned more about attacks on your offices and administrative systems, or on your towers? Which sorts of attacks do you think Helios Towers is vulnerable to?
Tom Greenwood, COO, Helios Towers:
This has always been seen as a risk from an operational point of view, but we felt it was reasonable to elevate it to its own risk because of the increased prevalence of cyber risks globally.
In terms of our business, because we are B2B we are inherently less risky than a B2C business or an e-commerce business where sales take place online. Nevertheless, it’s a risk for any business and we have got very good controls to protect against it.
TowerXchange: How do Helios Towers view the newer towercos with experienced management and capital being established in Africa?
Tom Greenwood, COO, Helios Towers:
The establishment of Eastcastle and Paradigm shows that there continues to be an increase in towers within Africa, which is a good sentiment for our business.
We are very ready and willing to compete where necessary. We already have experience competing with other towercos within our markets and for sale and leasebacks. In fact, some of the people behind these companies are the very same people we competed with previously.
We really do relish the competition because it makes the whole industry better. It also ensures that consumers receive the best services.
TowerXchange: How is preparation to close your deal in Senegal going? What else can you tell us about your M&A pipeline?
Tom Greenwood, COO, Helios Towers:
Our entry to Senegal is going well. We are now fully set up there and we expect to close that deal in the next few weeks. We are waiting for one or two more conditions to be ticked off, but that is looking good.
We are now ramping up for some build to suit in the market, which is good. Because we are the first independent towerco there, we are finding interest from the other mobile operators.
As mentioned in our release, there are several other opportunities we are looking at because many mobile operators are thinking of divesting their towers or are in the process of doing it right now.
We hope and expect to convert some of the deal we are discussing soon. We want announceable deals which are in line with our stated strategy of moving from five to eight markets and from 7,000-12,000 towers by 2025. Senegal is a good step, and we may exceed those targets before 2025.
We have seen the press releases in South Africa, about MTN’s plans to divest its towers there. We already have a good organic business there and one of the reasons we entered was to be ready for the time that tower sales would be happening. It is only natural that MNOs will eventually look to monetise their towers.
