Power prices put pressure on margins at Helios Towers

The FTSE 250 company said the growth was driven by acquisitions in Senegal, Madagascar and Malawi, and strong organic tenancy growth across the group, in addition to CPI and power price escalations.

Organic revenues, excluding acquisitions, increased 14% year-on-year, while third quarter revenue through 30 September was ahead 4% quarter-on-quarter at $143.4m.

Year-to-date adjusted EBITDA was ahead 18% at $206.8m, driven by tenancy growth of 18%, with the adjusted EBITDA margin narrowing by three percentage points year-on-year to 51%.

The board said the smaller margin reflected the impact of acquired assets with low initial tenancy ratios and higher power costs across the group, most notably in the Democratic Republic of the Congo, resulting in both higher revenues and power operating expenses.

Its adjusted EBITDA was “effectively protected” from power price movements through power and CPI escalators embedded into customer contracts, although the margin could decrease in a period of rising power prices as both power-linked revenues and related operating expenses increased comparably, the directors explained.

Third quarter adjusted EBITDA increased 2% quarter-on-quarter to $70.7m, with the adjusted EBITDA margin falling to 49% from 50%.

Operating profit for the year-to-date was 50% higher year-on-year at $62.9m, due to growth in adjusted EBITDA, partially offset by higher depreciation.

Third quarter operating profit was down 9% quarter-on-quarter at $23.1m, which Helios put down to higher depreciation during the period.

Helios Towers said its year-to-date portfolio free cash flow increased 22% year-on-year to $145.1m, as a result of its adjusted EBITDA growth and the timing of non-discretionary capital expenditure additions.

Its portfolio free cash flow in the third quarter decreased 12% quarter-on-quarter, however, to $44.7m, reflecting the timing of tax and lease liability payments.

Cash generated from operations increased 64% year-on-year to $161.7m for the year-to-date, driven by higher adjusted EBITDA, a decrease in deal costs and a one-off escrow deposit payment in relation to the Oman transaction in 2021 which did not occur in 2022.

For the third quarter, cash generated from operations increased 84% on the quarter to $70.7m, primarily due to an improved working capital position.

The company’s net leverage stood at 4.1x, up from 3.4x a year earlier, primarily due to acquisitions in Madagascar and Malawi.

Following the closure of announced acquisitions, the group said its net leverage was expected to be around the high-end of its medium-term target range.

It added that it had a “strong” balance sheet, with 96% of drawn debt at a fixed rate, no near-term maturities, and full funding for announced transactions.

The board said the business was underpinned by long-term contracted revenues of $4bn at the end of the period, up from $3.7bn at the same time last year, of which 99% was from multinational mobile network operators, with an average remaining life of seven years.

Pro forma for the announced transaction in Oman and potential acquisition in Gabon, the group said it had contracted revenues of $5.1bn.

Looking ahead, Helios Towers said that following the “strong” operational performance and with a “robust” commercial pipeline, it was tightening its 2022 organic tenancy guidance upwards to between 1,400 and 1,700, of which 60% were expected to be sites.

As a result of higher power prices expected in the full year, which increased both power-linked revenues and related operating expenses comparably, the group lowered its adjusted EBITDA margin guidance to between 50% and 51%, from a previous 51% to 53%.

In line with the updated organic tenancy guidance, the group also tightened its 2022 target capital expenditure range to between $830m and $850m, from $810m to $850m.

Year-to-date, Helios said it had deployed capex of $214m, including $63m of acquisition capital primarily related to the acquisition in Malawi.

Excluding acquisitions, the croup said it was expecting capex of $180m to $200m, of which $27m to $32m would be non-discretionary.

The group said it was expecting acquisition capex of around $650m in 2022, reflecting the acquisitions in Oman and Malawi, and deferred acquisition payments in Senegal and Madagascar.

“I am pleased to report another quarter of strong operational and financial performance, which highlights our focus on customer service excellence and the structural growth opportunity across the region, underpinned by a highly visible base of contracted revenues,” said chief executive officer Tom Greenwood.

“Looking ahead, we are pleased to update our organic tenancy guidance for the year, reflecting performance year-to-date and our robust commercial pipeline.

“Coupled with our ongoing transformational platform expansion, which includes our targeted entry into Oman in the fourth quarter, we expect to enter 2023 in a strong position for continued growth.”

At 1047 GMT, shares in Helios Towers were down 4.58% at 112.6p.

Reporting by Josh White for Sharecast.com.