IHS Holding Limited (IHS) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents a positive outlook: strong revenue growth in key segments, successful debt reduction, and improved financial metrics. The Q&A reveals confidence in leasing activities and strategic asset sales to enhance shareholder value. Although CapEx guidance was lowered, it was due to timing, not performance issues. The market cap suggests a moderate reaction, leading to a positive stock price movement prediction (2% to 8%) over the next two weeks.

Key Financial Performance

Revenue $433 million, ahead of plan with 11% organic growth driven by colocation, lease amendments, new sites, and CPI escalators. Year-over-year, revenue was broadly stable but up 2% when adjusting for the impact of the Kuwait disposal. Organic growth was partially offset by a 9% impact from foreign exchange rates, including the Nigerian Naira depreciation.

Adjusted EBITDA $248.5 million with a margin over 57%, stable year-on-year. The robust performance was due to continued cost control and resilience of the financial model through contract resets.

Adjusted Levered Free Cash Flow (ALFCF) $54 million, a 19% decrease year-over-year. The decrease was primarily due to higher interest payments following the November 2024 bond refinancing.

Total CapEx $46 million, down 14% year-on-year. The reduction was attributed to more disciplined capital allocation.

Net Leverage Ratio 3.4x, down from 3.9x a year ago. The improvement was due to debt repayment and financial discipline.

Nigeria Segment Revenue $260 million in Q2 2025. Organic growth was over 10% year-on-year, driven by new colocations and lease amendments, despite a $5 million reduction in revenue from vacated tenants and lease amendments related to MTN Nigeria site churn. The growth was offset by a 14% reduction in non-core revenues due to Naira depreciation.

Sub-Saharan Africa Segment Revenue Increased 18% year-on-year, driven by new tenants and colocations. Adjusted EBITDA decreased 4% year-on-year due to higher power generation and tower maintenance costs.

LatAm Segment Revenue Organic growth of 6% year-on-year, driven by 7.3% growth in towers and 9.7% growth in tenants. Adjusted EBITDA increased by 0.5%, and the margin improved by 260 basis points due to cost-saving initiatives.

Debt Repayment $154 million of high-interest debt repaid in Q2 2025, lowering the weighted average cost of debt by 100 basis points to 8.3%.

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Operating 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 the November 2024 bond refinancing.

Nigeria Market: Revenue in Nigeria was $260 million in Q2 2025, with over 250 new colocations and 700 new lease amendments. Organic growth exceeded 10% year-on-year despite a $5 million reduction in revenue from site churn.

Sub-Saharan Africa: Revenue increased 18%, driven by new tenants and colocations, though adjusted EBITDA decreased 4% year-on-year due to higher power generation and maintenance costs.

LatAm Segment: Towers and tenants grew by 7.3% and 9.7%, respectively, with 6% organic growth year-on-year. Adjusted EBITDA increased by 0.5%, reflecting cost-saving initiatives.

Debt Repayment: Repaid $154 million of high-interest debt, reducing the weighted average cost of debt by 100 basis points.

CapEx Reduction: Total CapEx came at $46 million, down 14% year-on-year, due to disciplined capital allocation.

Net Leverage: Ended the quarter at 3.4x, down from 3.9x a year ago, within the target range of 3-4x.

Rwanda Sale: Signed during the quarter and expected to close in the second half of 2025, further reducing net leverage.

Technology and AI Integration: Plans to unlock further efficiencies by incorporating more technology and AI into operations.

Dividend and Share Buybacks: Evaluating the introduction of dividends and/or share buybacks as leverage approaches the low end of the target range.

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Risk or Challenges

Foreign Exchange (FX) Volatility: The Nigerian Naira has depreciated year-over-year, impacting revenue and financial performance. Although it has stabilized recently, FX volatility remains a risk, especially given the reliance on the Nigerian market.

Debt Levels and Interest Costs: The company has high external debt of $3.9 billion, with significant interest costs. While steps have been taken to reduce high-interest debt, the leverage ratio remains a concern, and interest rate fluctuations could impact financial stability.

Macroeconomic Conditions in Key Markets: Economic uncertainties in Nigeria, including inflation and interest rate policies, could affect operations. While inflation has shown signs of improvement, it remains high, and interest rate cuts are uncertain.

Supply Chain and Operational Costs: Higher power generation and tower maintenance costs in Sub-Saharan Africa have impacted adjusted EBITDA. Additionally, lower diesel prices have reduced power indexation revenue, though this does not affect EBITDA or cash flow.

Disposal of Assets: The planned disposal of the Rwanda business introduces uncertainty regarding future revenue and EBITDA contributions. The company has also indicated further disposal activities, which could impact long-term growth.

Customer Contract Risks: Renewed and extended contracts with MTN Nigeria have led to site churn and reduced revenue from vacated tenants and lease amendments. This could continue to impact organic growth.

Geopolitical and Regulatory Risks: Operating in multiple regions, including Nigeria and Brazil, exposes the company to geopolitical and regulatory risks that could affect operations and financial performance.

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Guidance & Outlook

Revenue Expectations: The company has raised its full-year 2025 revenue guidance to a range of $1.7 billion to $1.73 billion, reflecting a $20 million uplift from previous guidance. This increase is driven by stronger operating performance and positive FX movements.

Adjusted EBITDA Projections: The adjusted EBITDA guidance has been increased to a range of $985 million to $1.005 billion, representing a $25 million uplift. This reflects improved profitability and financial discipline.

Adjusted Levered Free Cash Flow (ALFCF): The ALFCF guidance has been raised to a range of $390 million to $410 million, a $40 million increase from prior guidance, driven by enhanced cash conversion and financial discipline.

Capital Expenditures: Total CapEx guidance has been reduced to a range of $240 million to $270 million, reflecting a $20 million reduction due to disciplined capital allocation.

Net Leverage Ratio: The company expects to achieve a consolidated net leverage ratio at the low end of its target range of 3x to 4x by the end of 2025, supported by the anticipated proceeds from the Rwanda business disposal.

Market Trends and Growth Opportunities: The company anticipates significant growth potential driven by the ongoing rollout of 5G, MNO tariff increases in Nigeria, and a stable Naira. These factors are expected to support sustained growth and strong returns.

Rwanda Business Disposal: The disposal of the Rwanda business is expected to close in the second half of 2025, contributing to further debt reduction and improved financial metrics.

Organic Growth: The company expects an organic growth rate of 11% at the midpoint of its guidance, driven by better operating and financial performance.

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Shareholder Return Plan

Evaluation of dividends: As we approach the low end of our leverage range, evaluate the introduction of dividends.

Evaluation of share buybacks: As we approach the low end of our leverage range, evaluate the introduction of share buybacks.

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Key Q&A

Q:What is driving the stronger lease amendments this quarter compared to last quarter, and what should it look like for the rest of the year?

A:Lease amendments were stronger this quarter due to normal activity levels, with Nigeria and Brazil being the primary contributors. Colocations were similar to last quarter, with 467 new colocations. The company expects continued strong leasing activity in Nigeria, Brazil, and other parts of Sub-Saharan Africa for the rest of the year.

Q:Why was CapEx guidance lowered, and what is driving the ramp in the second half of the year?

A:CapEx guidance was lowered due to the timing of rollout projects, primarily in Brazil and some in Sub-Saharan Africa. The company is confident in the new lower guidance range and attributes some of the reduction to FX moderation. Updates will be provided in Q3 results if there are changes.

Q:What are the factors impacting organic growth heading into 2026, and what offsets are expected?

A:Organic growth guidance is now 11%, with underlying growth at about 6.5%. Continued strength in colocations and lease amendments, particularly in Nigeria and Brazil, are expected to drive growth. CPI and FX resets are expected to moderate next year, and there is potential for additional benefits from colocations, lease amendments, and BTS.

Q:What is the rationale for considering additional asset sales despite being at the low end of the leverage range?

A:The company is considering additional asset sales to drive shareholder value. Decisions will be based on value and may involve returning capital to shareholders through dividends or buybacks. The company aims to balance growth with shareholder returns.

Q:How has the constant currency organic growth guidance for 2025 evolved, and where is the relative strength coming from?

A:The guidance for 2025 has improved due to positive leasing activity in Nigeria, Brazil, and Sub-Saharan Africa, as well as cost-saving initiatives and interest cost reductions. These factors have led to higher EBITDA and ALFCF growth compared to revenue growth.

Q:What is the target leverage level, and why is 3x net debt-to-EBITDA considered appropriate?

A:The target leverage level is around 3x net debt-to-EBITDA, which is considered appropriate for the markets in which the company operates. This level balances risk and capital efficiency, allowing for potential acquisitions while maintaining financial stability.

Q:Does the company have a total debt target for the end of the year, and how is the geographic EBITDA mix expected to change?

A:The company does not have a specific total debt target but aims for a net leverage of 3x. The geographic EBITDA mix may change depending on disposals, with a historical goal of reducing Nigeria's contribution to below 50%. The focus remains on profitability and shareholder value.

Q:What is the impact of Nine Mobile's roaming agreement with MTN on IHS, and what is the status of upstreaming from Nigeria?

A:The impact of Nine Mobile's roaming agreement with MTN on IHS is immaterial and included in guidance. Upstreaming from Nigeria continues at pace, with $158 million upstreamed in H1 and more since the end of Q2.

Q:What is the outlook for interest costs, and what steps are being taken to optimize the balance sheet?

A:Interest costs have decreased due to the repayment of high-interest local currency debt in Brazil and Nigeria. The company is now focusing on optimizing U.S. dollar debt and exploring cheaper local currency debt options. The blended average cost of debt has dropped from 9.3% to 8.3%.

Q:Review of Unclear Management Responses

A:Management avoided providing specific forecasts for interest rates for the balance of the year and next year, citing ongoing optimization efforts. Additionally, they did not provide a specific target for geographic EBITDA mix changes or a total debt target for the end of the year, focusing instead on broader strategic goals.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

IHS Transcript

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The earnings call reveals strong revenue growth, particularly in Nigeria and Latin America, and increased EBITDA projections. Guidance has been raised across key financial metrics, indicating confidence in future performance. The Q&A section highlights strategic investments in Brazil and a disciplined capital allocation approach, including potential shareholder returns. Despite some uncertainties in CapEx plans and specific financial strategies, the overall sentiment is positive, supported by growth prospects in 5G and market expansion. Given the company's small market cap, the stock is likely to react positively, with a predicted increase of 2% to 8%.

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IHS Holding Limited (NYSE:IHS) Q1 2025 Earnings Call Transcript

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The earnings call presents a mixed picture. While there is strong organic growth and improved EBITDA margins, the EPS miss and macroeconomic challenges, especially in Nigeria, raise concerns. The strategic disposals and solid liquidity position are positive, but the lack of specific guidance on shareholder returns and potential risks from economic uncertainties balance these out. Given the company's small market cap, these mixed signals are likely to result in a neutral stock price movement, with minor fluctuations expected.

IHS Holding Limited (IHS) Q1 2025 Earnings Call Transcript

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The earnings call presents a generally positive outlook with strong financial performance, optimistic guidance, and strategic asset sales. The company reported significant revenue and EBITDA growth, reduced CapEx, and improved leverage ratios. The Rwanda disposal and strong liquidity position further reinforce financial health. Despite some regulatory and economic risks, the Q&A session did not reveal significant concerns. With a market cap of $1.1 billion, the stock is likely to react positively to these developments, especially with the strategic focus on asset sales and potential shareholder returns.

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