IHS Holding Limited (NYSE: IHS), the parent company of IHS Towers, an emerging markets tower company focused on Africa and Latin America, today announced its Q4 and full-year 2021 earnings and provided updates on its outlook for 2022, tower portfolio, and the impact of oil prices on its business.

Financial Performance in Q4 2021 – IHS Holding

In Q4 2021, IHS Holding reported revenue of $415.6m, a 12.1% increase year-over-year, and adjusted EBITDA of $216.6m, a 0.9% increase year-over-year. Therefore, the company’s adjusted EBITDA margin was 52.1% in Q4 2021, a 5.8% decline year-over-year.

Similar to Q3 2021, degradation in IHS Holding’s adjusted EBITDA margin was driven in-part by higher power generation costs (i.e., oil/diesel), with the company continuing to expect this negative impact in 2022.

Additionally, in Q4 2021, IHS Holding generated recurring levered free cash flow (RLFCF) of $87.9m, a 40% decline year-over-year. IHS notes that the decline in RLFCF was influenced largely by the timing of maintenance capital expenditures incurred in Q4 2020, as well as higher lease payments in Q4 2021, resulting from tower assets acquired during 2021.

Full-Year 2021 and Outlook for 2022 – IHS Holding

Full-Year 2021

For full-year 2021, IHS Holding reported total revenue of $1.58bn, a 12.6% increase year-over-year, and adjusted EBITDA of $926m, a 13.1% increase year-over-year. Therefore, IHS Holding’s adjusted EBITDA margin was 58.6% in full-year 2021, a ~25 bps improvement year-over-year.

Outlook for 2022

For full-year 2022, IHS Holding provides an outlook for revenue of $1.795bn to $1.815bn. Additionally, the company forecasts adjusted EBITDA of $960m to $980m, implying a 53.7% adjusted EBITDA margin. Finally, the mid-point of IHS Holding’s 2022 outlook infers a year-over-year increase of 14% and 4.7% in revenue and adjusted EBITDA, respectively.

In terms of capital expenditures, IHS Holding expects to spend between $500m to $540m for 2022. This spend includes an allowance for the company to construct a total of ~2.35k build-to-suit (BTS) sites, which are distributed geographically as follows:

  • Nigeria: ~1.25k sites
  • Brazil: ~700 sites
  • Sub-Saharan Africa: ~270 sites
  • Middle East/North Africa (MENA): ~110 sites

Operational Performance in Q4 2021 – IHS Holding

IHS Holding’s total portfolio comprised 31.0k owned and managed tower sites as of Q4 2021. Specifically, these sites have a tenancy ratio of 1.50x, equating to 46.4k tenants with equipment on the company’s towers.

As shown below, pro forma for pending acquisitions, IHS will operate 38.9k tower sites in 11 total countries.

IHS Holding – Tower Portfolio Map – Pro Forma
IHS Holding Total Tower Portfolio Pro Forma Map Q4 2021

IHS’ sites will span 7 countries in Africa, 3 countries in Latin America, and 1 country in the Middle East. Overall, the company’s top five markets by tower count include Nigeria (16.9k sites), Brazil (6.7k sites), South Africa (5.7k sites), Côte d’Ivoire (2.7k sites), and Cameroon (2.2k sites).

Key Market – Nigeria

Nigeria is IHS Holding’s largest and most important market, representing ~54% of towers, 72% of revenue, and 85% of EBITDA. Still, IHS is pursuing a diversification strategy – therefore, pro forma for acquisitions, ~43% of the company’s towers will reside in Nigeria.

Notably, Nigeria presents certain challenges for the company including economic oil dependency, foreign currency risk (Nigerian Naira), and customer concerns (wireless carrier 9mobile).

Portfolio Growth

Over the past 12 months, IHS Holding added 3.2k towers to its portfolio, while securing 3.55k net tenancy additions. Of the total towers added to IHS’ portfolio, the company, constructed 1.35k sites, including 597 towers in Nigeria and 600 in Latin America.

Also, IHS has meaningful pending acquisitions in both South Africa and Brazil which will expand the company’s portfolio further:

  • South Africa: in November 2021, IHS agreed to acquire 5.7k towers in South Africa from MTN
  • Brazil: in January 2022, IHS agreed to acquire 2.1k towers in Brazil from Grupo TorreSur, which has financial backing from private equity firm Providence Equity Partners

Oil Impact on IHS Holding’s Business

IHS Holding’s core business provides shared telecommunications infrastructure services to wireless carriers, including power management, to ensure uninterrupted operation of customers’ transmission equipment. Power management services are a critical function of IHS because grid power is either non-existent or unreliable in most of the company’s countries of operation in Africa, particularly Nigeria.

As of December 31, 2021, IHS’ sites in Africa sourced power through the following systems:

  • Hybrid (Diesel Generators + Solar and/or Battery): 42%
  • Diesel Generators: 28%
  • Grid Connectivity and Back-Up Generators: 24%
  • Grid Connectivity or Solar Power: 7%

In 2021, the cost of diesel was a key component of IHS’ cost of sales, equating to 14% of total revenue. At the same time, 5% of the company’s revenue was linked to the cost of diesel through power indexation clauses during 2021.

From a sensitivity perspective, IHS states that a $5 move in the price of crude oil would have a $7m impact on the company’s EBITDA. Furthermore, the company indicates that “nearly all” of this variability would derive from its operations in Nigeria.

Oil Prices and Assumptions

In Q1 2022, IHS’ average input cost to-date for oil per barrel is $99. Further, for 2022, the company’s guidance assumes its average input cost for oil per barrel is $115, including $99 for Q1 2022 and $120 for Q2 2022 through Q4 2022. As a reference point, the closing price for oil per barrel as of March 11, 2022, was $118.

Adam Simmons is the Founder & CEO of Dgtl Infra. He started his career with an S&P 500-listed big box retailer, in an operations management role. Adam's entrepreneurial "itch" led him to start a 5G-driven company, focused on innovative retail solutions using augmented reality and shoppable videos, which was eventually sold to an advertising and consulting group. After, realizing the potential of 5G, Adam shifted his efforts towards investing in the "building blocks" of 5G - known as digital infrastructure, completing a number of strategic investments, buying cellular towers, data centers and fiber networks.

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