Helios Towers plc (OTCPK:HTWSF) Q2 2022 Earnings Conference Call August 18, 2022 4:30 AM ET
Company Participants
Tom Greenwood – CEO
Manjit Dhillon – CFO
Conference Call Participants
John Karidis – Numis Securities
Jerry Dellis – Jefferies
Alex Roncier – Bank of America
Omar Maher – EFG Hermes
Jonathan Kennedy-Good – J.P. Morgan
Simon Coles – Barclays
Stella Cridge – Barclays
Operator
Hello, everyone, and welcome to the Helios Towers H1 2022 Results. My name is Nadia and I’ll be coordinating the call today. [Operator Instructions]
I will now hand over to your host, Tom Greenwood, CEO of Helios Towers to begin. Tom, please go ahead.
Tom Greenwood
Thank you very much, Nadia, and welcome, everyone. Today, it’s great to speaking to you and thank you very much for your time. I’m on Page 2 in the presentation. As usual, alongside me, we have Manjit Dhillon, our CFO; and Chris Baker-Sams, Head of Strategic Finance and Investor Relations. So the presentation takes the normal format. I’ll take you through some of the key highlights, Manjit will take you through some of the financial detail, and then we’ll open up for Q&A at the end.
So, look, overall very pleased to be presenting you H1 performance highlights here. I think it’s been a really strong start for the year for us, demonstrating both the continued growth and sort of rollout from mobile operators across our markets, combining that with demonstrating the company’s resilience and protection mechanisms embedded within our contracts with some of the uncertain macro environments out there, plus some really good progress on our sustainability strategy.
So, look, I’m on Page 5 now, which just shows the key highlights. As mentioned, number one, very strong tenancy growth, both organic and inorganic. So far this year, we’ve delivered 24% year-on-year site growth, which — of which 9% is organic and 20% year-over-year tenancy growth. In terms of last 12 months organic addition, the year-over-year organic addition is at 1,767, which for 12 month period in our business is fairly strong.
In terms of our financial performance, obviously that is showing similar traits to the tenancy performance. Revenue up 25% year-over-year, 12% organic, EBITDA 19%, 9% organic. Our margin of 51% as very much expected given some of the dilution with the new acquisitions coming on-board and for Q2, it was our first full quarter of Malawi, which we closed right at the end of March. The margin is very much where expected and very strong portfolio. Free cash flow growth of 36% as well, which we’re very pleased with.
In terms of our progress on the M&A, as everyone knows, I think we have Oman and Gabon that we’re still working on. Oman is nearing completion with the license, hopefully coming soon, imminently now and Gabon, we continue to progress. Of course, we are fully funded, more than fully funded for closing this announced deal. And finally our tenancy additions as we guided to at the start of the year, 1,200 to 1,700. We maintain that guidance for now, but I think are confident of it and have a good pipeline such that we may be looking at more directionally from mid to high points there.
Moving on now to Slide 6, here again we see the last year’s progression, obviously tenancies growing 9% year-over-year and up quite significantly from 2020. Our EBITDA again growing 15% year-over-year when you look at the Q2 annualized of $278 million and showing good progress from our FY ‘21 figure of $214 million. And of course portfolio free cash flow driving that upward by 20% when compared to the full year of FY ‘21. So all in all, we’re progressing sort of in line or slightly ahead of expectations and we’re pleased with the progress so far this year.
I now move on to Slide 7. Now, clearly we’re at a time of the world where there’s quite a lot of uncertainty out there and some of the headline figures that everyone’s reading about, particularly, say, in the UK or U.S. from an inflation point of view is looking quite staggering as compared to the last few years, over the last few decades. But what we want to show on this page is really draw out, A, some of these features of our markets, which may be a little bit different, some of the headlines that people are reading in the UK or U.S., but also demonstrate how our business is very robust and protected against certain macro pricing movement out there.
So, look, first of all, on the left hand side, what we’re seeing at the moment and as sort of demonstrated I guess from our H1 tenancy rollout, we are seeing good rollout from our customers. As I mentioned before, we also have a good pipeline in hand for the second half of the year and even going into next year. And subscriber growth across our market really is very strong at 4.4%, which, as demonstrated here by some of our key customers as well, they are clearly investing and we’re supporting all of our customers and that continued rollout to gain even more subscribers going forward. So there is quite a good kind of industry backdrop as you like within most of our key markets.
You then couple that with the general macro GDP and I’d say, across our markets, on average, GDP forecast is 5%. So you compare that with global forecast of 3.2% and actually a number of our markets are growing very strongly and some indeed are actually net beneficiaries of the increase of sort of mineral and commodity and foodstuff prices that we’re seeing. So they are actually getting quite a lot of inflows.
We do have some markets where, such as Ghana and Malawi where we have been seeing a bit more FX volatility and sort of CPI increases. But of course, our business is largely insulated against those through, A, CPI and general sort of power price escalators that we have and, B, our hard currency mix. So again, our business and our contracts is largely hedged against those.
And of course, finally there’s the rising interest rate environment. Well, we have long term debt at fixed rate, so we’re not looking at any refis or anything like that around them. And of course, we’re already fully funded for acquisition. So again we’re in quite a strong position that from a both business operating perspective and a capital balance sheet perspective, again, underpinned by $5.3 billion of contracted revenues from our customers. So, business in fairly strong position, I would say.
Moving on now to Slide 8, look, a quick reminder on the recent acquisition journey we’ve been on the first three Senegal, Madagascar, Malawi obviously not closed. Malawi after a really good start having closed just at the end of March and really getting off the good start in Q2, both operationally with tower uptime improving. We are building sites now having received our first large build-to-suit order as well as tailer (ph) order and you’ll see that coming through later this year and into next year.
As I mentioned earlier, Oman is very much nearing closing. We have extended the long stop date with Oman to September 30, albeit what we have — would guide to is the simplicity in all your models and forecasts just put Oman starting from January 1, just given the slightly unknown timing that we’ve been experiencing there. I think that would be prudent to do so. So that was very much what we recommend.
And of course Gabon is moving. I would say, in Gabon, earlier in the year, we were moving quite well. I think with the discussions there with the regulator obviously alongside Airtel. That kind of slowed a little bit in the last couple of months. We still very much are working on it, but it has slowed down from earlier in the year, but we continue to push on with that as well.
Moving on to Page 9 and Senegal was the first acquisition in our recent acquisition journey and we recently had our anniversary there. So we thought it would be good just to highlight some of the key features of our first year operation there. And I would say, it’s really been a good success Senegal and continues to be. So here on the top right you see Karim, who is our Senegal Managing Director, and Phil, who is our regional CEO, who covers Senegal and supports Karim and the team there. And the team have really done a great job over the past year or so.
First of all, operationally, we have improved power downtime per tower by 96%, since starting. When we took over the network, the downtime per tower per week was 5 minutes, 57 seconds. We’ve reduced that in a year to 14 seconds. And you can see a very nice comment there by the CEO of our main customer. Tenancy growth has been good, 7%, and that continues. We will be seeing further build-to-suit rollout and colo (ph) rollouts through H2 this year in Senegal. So that’s moving well. Then obviously EBITDA growth has been strong at 12%.
What I would say, though, Senegal uses the Central African franc, which is euro pegged. So what this EBITDA growth represents the $21 million there you see in Q2, that’s euro EBITDA. Now euro has depreciated 9% against the dollar since we closed, so actually on a constant currency basis, you see that $21 million actually is about 23 plus million which would equate to about a 20% growth. And obviously, the dollar has been very strong recently, but the currency maybe that rebounds and the dollar weakens slightly as we move into next year and the euro becomes a little bit stronger again.
So actually that would be 20% growth on the constant currency basis with the dollar-euro. So really, really great progress there by the team and we’re hoping to replicate this kind of thing in all of the markets that we close. And indeed next year what we will present to you at one of these calls will be round up of all of our recent acquisitions in the same vein as this.
Moving on now to Slide 10, I mentioned earlier, we’re making really good progress on our sustainable business strategy and I’m very pleased to say that we received our first rating from MSCI, which actually was AAA, which I believe is their top ratings that we were very pleased about that. So huge well done there to Sima, our Head of Sustainability along with Manjit and to be honest, a huge amount of the team from across the Group who contribute to this.
Also we’ve been included in the FTSE4Good Index. You can see there on the bottom left, again demonstrating our strong focus on sustainability practices and processes across the Group. As you will remember, we launched our sustainable business strategy at our Capital Markets Day in May and that is generally progressing well through to 2026.
On the right hand side here, what we’ve done is, actually just shown you a few of the kind of internal KPIs that we are looking at and at least have everything from sort of network performance to rural connectivity to female empowerment to investment in people, staff training et cetera., as well as the carbon emission reductions, which we set out to reduce on a per tenant basis by 46% by 2030. So these are the kind of KPIs that we follow internally and we thought it would be useful to show them here.
So, look, without further ado, I’ll hand over to Manjit to take us through the next section. Over to you. Manjit.
Manjit Dhillon
Thanks, Tom. Hello, everyone. It’s great to speak with you all today. I’ll be going through the financial results, I’m starting on Slide 12. Continuing on from what Tom mentioned earlier, we’ve had a strong first half of the year and that really reflects continued organic tenancy growth, complemented by integration of our acquisitions in Madagascar, Senegal and Malawi. On this slide, you’ll see that we’ve summarized the main KPIs, which I’ll be talking through in more detail over the next few slides. But in general, we are seeing good growth across a number of these key metrics.
So jumping into the detail and moving on to Slide 13, our sites and tenancy growth. Again, we’ve seen strong organic and inorganic tenancy growth in Q2. From a site perspective, we saw a 24% increase year-on-year, reflecting organic growth of 9%, which is plus 878 sites and complemented by 1,213 acquired sites across Madagascar and Malawi. From a tenancy perspective, we’ve added 3,459 tenancies, which is a 20% increase from Q2 ‘21. Organically, we added 1,767 tenancies, again a 9% increase year-on-year and inorganically we added 1,692 tenancies, again coming from Madagascar and Malawi.
Our tenancy ratio has dropped slightly on a Group basis and this is due to the lower tenancy ratio of the acquired sites that we brought on-board, which had a combined tenancy ratio of 1.4 times, so diluting the overall tenancy — the overall Group tenancy ratio slightly. Excluding these acquisitions, our tenancy ratio has remained flat year-on-year and that really reflects the strong site growth across our markets, which provides an enlarged base for driving lease-up and therefore, returns going forward.
On to Slide 14. We’ve seen continued growth in revenue and EBITDA with 27% revenue growth and 19% EBITDA growth year-on-year, up organically 14% and 9%, respectively. The revenue growth is principally driven by tenancy additions, in addition to a 3% increase in lease rate per tenant. The lease rate per tenant movement reflects a 4% increase across our established markets and partially offset by our new markets coming in with lower lease rates on average.
Adjusted EBITDA grew by 19% year-on-year and 9% organically. Again, really driven by organic tenancy growth of 9% and again contributions from our new markets. EBITDA margin declined 3 percentage points year-on-year to 50% for the second quarter, with 1 percentage point being due to increased corporate SG&A investments as part of our ongoing expansion to 10 markets, which we’ve already included as part of our overall guidance for the year.
The remainder of the margin impact is driven by the timing of higher fuel costs, particularly in DRC that can be a lag between the local fuel price increasing when we escalate customer lease rates for those increases. So that’s what we’ve seen a little bit in the quarter, a bit of a higher OpEx base from fuel increases in Q2, but of course, that will normalize as our customer escalations kick in in Q3 and there afterwards.
Moving on to Slide 15, where we highlight how the macro environment has evolved across our markets and demonstrate how our earnings and revenue is well protected from these movements. So starting on the top left of the table with fuel, we can see that on average, local fuel prices are up 31% year-on-year in 2022. We have power price escalators embedded in all of our customer contracts and accordingly seen a 4% increase in our revenues.
Some of the more recent local price increases, again, specifically with DRC occurred shortly after the last contract escalations date. So there’s been a bit of a lag and capture, however, we will see further currency escalations kick in in Q3 and Q4. From a fuel perspective, though, the escalators have worked such that the revenue increase has broadly offset the increase in OpEx, so largely EBITDA neutral from a dollar perspective. Local CPI is up 6% year-on-year in our markets, which is actually lower than what we’ve seen in the US and UK, for example, and that’s principally driven due to market at times near where we’re seeing inflation around the 4% level year-on-year.
Our revenues were up 3% from our CPI escalators, which occur annually and that’s in line with what we would expect, given that just over half of our customer lease rates are tied to CPI. Further currency movements on a revenue blended basis, we’ve seen a depreciation against the dollar of approximately 3%. And as Tom mentioned, that’s principally related to both movements in the euro and also the Ghanaian Cedi. With circa 50% of our revenues either being in euro pegged or in local currency denominated, that impact on our revenue base is just under 2%.
So, here we see the CPI escalators offsetting the FX impact really quite effectively with minus 2% FX impact being offset by 3% CPI increases. So whilst there have been macro movements, the contracts have escalated as expected, which when combined with 9% revenue growth from organic tenancies and 14% from inorganic growth leads to 27% year-on-year revenue growth.
Moving on to Slide 16. Here, you’ll see the usual breakdowns provided which are very consistent from previous updates and again further demonstrate our robust business structure, underpinned by long-term contracts with the diverse quality customer base, with strong hard currency earnings. 98% of our revenue come from large blue chip MNOs, comprising mainly Airtel Africa, MTN, Orange, Tigo/Axian, Voda and Free Senegal.
Our single largest customer exposure is 27% and that’s spread across five different markets. We have strong long-term contracts to our customers and as at the end of H1, we had long-term contracted revenues of $4.2 billion with an average remaining life of 7.2 years. This increases to $5.3 billion pro forma for Oman and Gabon. And what this effectively means is that, excluding any new wins and rollouts, we already have that revenue contracted and that provides a strong underlying earnings stream for the business.
We also have 63% of our revenues in hard currency, being either U.S. dollars or euro pegged. As a reminder, this will increase to 68% pro forma for the announced acquisitions, which is [indiscernible] which from an EBITDA perspective translates to 73% in hard currency, so a fantastic natural FX hedge for the business. And again, this is further complemented by escalators, which we have in all of our customer contracts, which we demonstrated on the previous slide.
Finally, on the slide, with the new market expansion, we’re seeing a more diversified split of revenue per market and pro forma for acquisitions. No single market accounts for more than 32% of revenues.
Moving on to Slide 17 and a look at our cash flow, as mentioned earlier, we’ve seen solid free cash flow of 100 — portfolio free cash flow of $100 million. This is up 36% year-on-year and that’s principally driven by adjusted EBITDA growth in addition to the timing of non-discretionary CapEx. Portfolio free cash flow conversion is 74%. By year-end, with further non-discretionary CapEx outflows expected in H2 in line with our CapEx guidance, we expect this to be a touch lower towards 65% to 70% conversion level by the year end.
With regards to working capital, we’ve seen a GBP53 million working capital outflow. And that just reflects the timing of customer payments, which is lumpy and can struggle period (ph) and that’s typical for our business. And finally, some working capital is also relates to CapEx prepayments as we go into the second half of the year. Importantly, receivable days remains in the range of 45 to 55 days, which you’ve seen is consistent over the past few years.
On to Slide 18 and a look at CapEx. For H1, we incurred total CapEx of $132 million. This equates GBP43 million of acquisition CapEx, principally relates to our entry into Malawi and $89 million of organic CapEx. Our guidance for the full year remains unchanged and that reflects $650 million related to the acquisitions across Oman and Malawi in addition to some deferred consideration for Senegal and Madagascar.
Our organic CapEx guidance remains unchanged at $160 million to $200 million and we’ve incurred $89 million against that in H1. Non-discretionary CapEx remains again unchanged at roughly $30 million for 2022. So far, we’ve spent $9 million in the first half. So the majority should come through in H2.
Moving on to Slide 19, which shows a summary of our financial debt, our net leverage at H1 was 3.9 times and continues to be comfortably within the target range of 3.5 to 4.5. We do expect this to tick up towards the higher end of the range as we close the other markets during the course of the year as we previously discussed. But in general, leverage very much under continued tight control. As it stands today, we currently have $730 million of available funds, which is sufficient for announced acquisitions and our organic growth, which is for our established market to self-financing.
One thing to mention as well, which Tom spoke about earlier, is that we partnered with Rakiza in Oman, a great local infrastructure investor with significant local experience and expertise. They are investing 30% pro rata in the local business, which not only derisks the investment for us, but assists with our leverage. So a great overall development and we look forward to working with and partnering with Rakiza over the coming years.
Another good development to mention, last month we wrote to Fitch for our first ratings and received a rating of B+ with a stable outlook. This rating, which is our highest across the rating agencies, reflects our recent diversification to new markets, our leading market positions and long-term earnings and cash flow visibility. And we are now rated by all three rating agencies.
Finally, a quick comment on balance sheet. We sit on a very strong balance sheet with long tenure debt as Tom mentioned, with the nearest maturity for [indiscernible] that’s not until the end of 2025. Our drawn debt to the rated average remaining life of four years, we have very limited floating exposure for 96% of drawn debt being fixed, again giving us good protection against a rising interest rate environment. Overall, we’re in a great position to say that if we do choose to do any financings or refinancings, we’ll be doing this for strategic reasons and where possible, continuing our trend of reducing the cost of debt.
And finally, onto Slide 20. Again, as Tom mentioned, our guidance remains unchanged and the Group continues to target organic tenancy additions of 1,200 to 1,700 in 2022. We have exceeded our seasonality guidance for H1 with 675 organic tenancies delivered year-to-date. From a financial perspective, we’re trucking in line or ahead of guidance with lease rate per tenant at 3% and EBITDA margins at 51%. So, all in all, we are progressing well against our targets and remain very focused on continued delivery for the years ahead.
And with that, I’ll pass back to Tom to wrap up.
Tom Greenwood
Thank you very much, Manjit. Just on 21, a quick wrap up here. The number one, we’ve got a really strong start for 2022 with H1 operational and financial performance very much robust and moving in the right direction. I think, we’re demonstrating the resilience of our business and the robustness of contracts in the midst of some moving macro elements here. And of course, we’re seeing good progression with our tenancy rollout and investment from our customers. And last but not least, guidance is being reiterated.
So with that, I will hand back to Nadia and we’ll take some questions. Thank you.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question today comes from John Karidis of Numis. John, please go ahead. Your line is open.
John Karidis
Thank you. Good morning, everyone. If I may, I’d like to ask three questions, one at a time. So firstly, aside from Airtel and Vodafone, you gave us some quotes at the beginning. Have you had any meaningful signals from customers of any plans for them to delay tenancy orders to Helios, because, for example, of macro uncertainty? So apart from — so setting aside what Airtel and Vodafone said, please.
Tom Greenwood
Hey, John. Tom here. Thanks for the question. The short answer is no. I can’t actually think of any customer who has said that to us and we are for sure in conversations with basically most of our other major customers about new rollout at the moment. Indeed, we have some orders in hand, which you’ll see coming through in the second half and others that we’re trying to win at the moment. So, no, we haven’t seen any sort of specifics hold that from them as of now.
John Karidis
Thank you for that, Tom. The next one, have you experienced any meaningful change, positive or negative, in your supply chain versus previous periods?
Tom Greenwood
Thanks again, John. Look, the supply chain continues to be different to what it was two, two and a half years ago pre-COVID. And what that means is that typically shipping times are longer and shipping is more expensive, albeit it’s sort of relatively small dollars in terms of what we invest in CapEx. So you don’t really see that sort of in our numbers as such, but it is more expensive for a container on a ship. So, no, we haven’t seen any real changes up or down in the past few months, John, since the last update.
But we’re continuing to really plan ahead six to nine months at the moment, whereas before it was more like three months or maybe six months maximum. So things have extended by about three months. So we’ve already put out a lot of our orders for 2023, for example, already. We did that in June and July whereas three years ago, we would have probably been doing that in September and October. So that’s the main change.
John Karidis
Awesome. Thanks, Tom. And then lastly, the closing of your tower acquisition in Oman could be as much as a sort of year late. If that is possible for you, have you at least been able to build some sort of shadow order book with the likes of Vodafone, for example?
Tom Greenwood
Yeah. The short answer is yes. And we always try and do that in any market to sort of get off to a good start on closing. So we’ll have a sales price that’s going on pretty much from when we first get on the ground and start opening an office and creating a team there. So, yeah, Oman is no different in that sense. And we are seeing traction from Vodafone there in Oman even prior to closing. Yeah.
John Karidis
That’s great. Thanks. Well done to the Helios team for another good set of results. Thank you.
Tom Greenwood
Thanks, John. Appreciate it.
Operator
Thank you. And our next question comes from Jerry Dellis of Jefferies. Jerry, please go ahead. Your line is open.
Jerry Dellis
Yes. Good morning. Thank you for taking my questions. Two questions, please. When we think about your full year guidance on tenancy at the 1,200 to 1,700, I suppose that implies quite a wide range of outcomes for the second half, 60% of full year tenancy adds guided to come from new sites. I think you probably have quite good visibility then on that sort of element of the guidance. So how should we think about the reasons why the full-year guidance range on tenancy adds remains so wide? Where is the sort of uncertainty in way you might land within that wide range in the second half?
And then secondly, related to the sort of Oman situation, we obviously read about other parcels of mobile network operator towers that might be available or becoming available within your footprint. So at what stage do you think that there is a sort of an opportunity cost tied up in Oman, which doesn’t enable you to move for alternative acquisitions that might be sort of easier to complete and for how — at what stage you decide to maybe strikeout in another direction? Thank you.
Tom Greenwood
Yeah. Thanks, Jerry. So, look, on the tenancy guidance, look, we’re aware that the 1,200 to 1,700 is fairly wide. I think we’re feeling fairly confident about, as I said earlier, I think some directionally mid to upper half of that range is I think sort of where we’re tending to which is obviously good. I mean, at this point of the year, there’s basically a couple of things which can drive that sort of up or down.
One is the timing of rollout, so particularly when you’re doing a lot of build-to-suits, your reliance on huge amount of external parties to actually get the build-to-suit up and running and therefore recognized. Principally, your reliance on a bunch of external agencies, they need to provide permits such as environmental agency, local municipalities or building permits and more often than not, the civil aviation authority.
So those three agencies all operate at different pace there. Sometimes, they are quick, sometimes they are slow. And it kind of provides variability often as well they are processing sites in batches. If we’re doing a whole bunch of site at one time, for example, the civil aviation authority in a given market may be processing 50 or 100 sites at the same time. If they process it quickly, great. If they don’t, then that probably means they are going into next year. So it can be a bit binary from that perspective, which is why at this point of the year we’re still a little bit cautious about things like that.
And the other factor obviously is the sales prices itself, but there’s a number of opportunities which we’re in fairly advanced stages on. We’re feeling quite good about them, but they haven’t signed on the dotted line yet. So again, that brings a bit of variability into it as well. But all in all, we’re feeling quite good about the progress, certainly so far this year in H1. And the pipeline that we’ve got for H2, we’re feeling reasonably good about.
The second question on Oman, basically when would we walk away, we’re not in that head space, to be honest, at least not at the moment. Whilst things have moved slowly there, they are moving. We’re just sort of coming out of the summer break where lot of things slow down or sort of shutdown for a month or two. But we are — we do understand that our license is kind of imminently to be signed. So we’re waiting eagerly for that.
And then once that has come through, then we will be in the kind of the closing straight proper as it where, which effectively is getting on the legal things ticked off and money drawn from our partner Rakiza prior to closing. So we are confident of closing Oman. We’re not looking at sort of dropping it at all in any way.
And I’m confident that we’ll close that reasonably soon. I think there are opportunities out there in terms of other tower deals. They come up, obviously, generally quite regularly, again where we always assess them. But we’re very happy with what we’ve signed and announced and we’re just super-focused on closing them and moving forward.
Jerry Dellis
Thank you very much. That’s very clear. Could I just ask a follow-up on a different question, please?
Tom Greenwood
Sure.
Jerry Dellis
You mentioned again planning ahead with inventory levels six to nine months. Are you confident that current inventory levels are sort of enough? Could there be a scenario in which you might decide you have to sort of re-stock levels at — further in order to sort of be very comfortable that you can sort of deliver on build-to-suit objectives?
Tom Greenwood
Yeah. We are comfortable with current inventory levels, I would say. We’re actually quite well stocked in some of our key markets where we — well, either believe or know that we’ve got rollout coming soon. So I think we’re quite happy at the moment. As always, there can be peaks and troughs on this from time to time there.
We’re looking at a few potentially very large rollouts which are more next year’s business, to be honest, rather than this year. So that may mean that we need to increase inventory levels a bit for a short-term period, in which case we would do that. But, yeah, nothing kind of out of the ordinary, to be honest, Jerry. We’re just keeping things roughly at this level with this sort of natural peaks and troughs that occur as it utilizes and uses inventory built in.
Jerry Dellis
That’s great. Thank you very much for that.
Tom Greenwood
Thanks.
Operator
Thank you. Our next question comes from Alex Roncier of Bank of America. Alex, please go ahead. Your line is open.
Alex Roncier
Hi, everyone, thanks for taking the question. I will have actually three. Most of them actually following up on some of the earlier questions. The first one is just on KPIs and we’re seeing traction in in H1. Just wondering if it just — you highlighted to some points, but is it faster build, is it just faster permits from regulatory agency or is it just higher demand from MNOs? And largely, obviously you’ve talked a little bit about no change in guidance confidence in mid to high range, but we do believe that MNO budget are kind of set in Q3, Q4, every year. So do you think implicitly the kind of front-loaded BTS program this year?
And secondly, just on Oman. And I think for you, this is kind of more of a blueprint and test for Middle East. Are you already discussing with new partners there and will the partnership actually with Rakiza help beyond Oman or is it just mostly locally focused? And then lastly, it’s maybe a bit more holistic, but obviously given the volatility we’re seeing on energy markets, looking backwards or even forward, anything you think you should have done or could have done better and differently in terms of matching energy cost and your contract rates and escalators? Thank you.
Tom Greenwood
Yeah. Thank you. Thank you very much, Alex. Great questions. So let me take them in order. So, yeah, look, in terms of the KPIs, I guess the question is sort of why there is higher tenancy rollout this H1. Is it quicker or is it just more orders. Yeah. Look, I think it largely is more orders in hand at the start of the year. So, quite a lot of these tenancies sort of rolled out in H1 where obviously negotiated or ordered towards the end of last year or very early this year. And I think that’s just a factor of MNO demand and their need to both expand their networks and also upgrade there or increase their density.
General volumes through networks have obviously increased in the past couple of years, particularly on the data side and so that really drives the need for more tenancies or more antenna which means tenancy for us. So, yeah, I think it’s just simply more volume rather than any specific that seem rollout. And I think it’s probably worth making the point that often particularly Q1 and to some extent H1 for us can actually usually be quite quiet, because MNOs typically get their budget done in Q1 or Q2.
And then that leads to orders being placed and then more rollout in the second half of the year for us. This year has been slightly different on the upside for us, so that has just been good. And I think it’s just down to share volume of demand basically. Yeah. In Oman, there are other tower portfolios in that market. There are other tower portfolios obviously around the Middle East, which may well be on for sale at some point. We’ll always look at key portfolios that come up for sale in both our countries and also our — the regions in which we operate. So that could be potential there for expanding our network either in Oman or across the region at some point.
We do know that these sales tend to take quite a long time as we always experience. So in terms of our strategy and what we’re focused on right now, as we articulated previously at the Capital Markets Day, the focus for this year 2022 and going into next year is very much focusing on closing the deals we’ve signed and announced, integrating them into our business, getting our business excellence processes going across all of these markets and driving the organic growth, with a view of potentially more acquisitions in slightly more medium-term horizon.
Of course, what that means is that work needs to start now from a business development point of view, because the gestation period on these deals typically is one to two years. So it’s good that there are opportunities out there. Of course, we’ll always look at them. Sometimes we’ll like them, sometimes we won’t and we will walk away. Very happy to do that. And we will kind of assess each opportunity one by one. And just your last point there on Rakiza, yeah, for sure, Rakiza, our partnership we have there with Rakiza, I think is a great partnership. We’re very pleased with Rakiza as our partner in Oman and look forward to very long and fruitful relationship with them in the country.
Just on final point, energy volatility, anything we could or should have done better. I mean, I think what we’ve done well I think is our customer contracts I think very well hedged, both on the energy point of view, but also from a currency point of view. But I guess here we are speaking specifically about energy. So we have energy passthroughs basically in all of our major contracts across the Group, which does mean that we’re pretty well insulated, whether prices are going up or down. Obviously, at the moment, they’re going up.
Now, it’s not 100% perfect. There is obviously a short-time lag there, with some of our contracts being quarterly and some being annually, so it’s not an absolute perfect hedge. But it’s fairly good, I would say. I think what we’re really focusing on now and have been focused on past years very much or even more so now is reducing reliance on fuel in general. And we’ve articulated that through our carbon reduction strategy and today we have some form of renewable technology, either hybrid batteries or solar on about 30% of our size, if you exclude the very recent acquisition.
And as we articulated last November, in our carbon investor presentation, we’re aiming to take that up to about 75% of our entire portfolio over the coming years. And that will really help to even reduce further our exposure to diesel pricing as well as obviously reducing carbon, which is the key aim of it. So, yeah, I think that’s our real big focus going forward.
Alex Roncier
All right. That’s very clear. Thank you very much.
Tom Greenwood
Thanks, Alex.
Operator
Thank you. And the next question comes from Omar Maher of EFG Hermes. Omar, please go ahead. Your line is open.
Omar Maher
Thank you. Good morning, gentlemen, and thanks a lot for the presentation and the insights. Just two questions from my side. One is on Congo B. So I guess if I look at the last nine months, the pace of expansion in site additions has been faster than what we’ve seen in many years in that market. And at the same time, we’re not seeing any meaningful pick up in number of tenancies essentially. So if I look at the tenancy ratio, it’s been largely sort of like sliding softly little bit down.
And I wanted to understand that what is — if you could provide some highlights and explain what’s happening in that market like you’re obviously probably seeing some future demand coming and that’s why I’m guessing you’re expanding the number of sites. But at the same time, what is delaying this pick-up in the tenancy in that market? And then my second question is on Ghana actually. With the recent news that we saw on potential acquisition of Vodafone Ghana, how does that change things for you?
Tom Greenwood
Yeah. Thank you very much, Omar and thanks for the questions. So, look, taking the first one, Congo B, yeah, look, we’ve seen some good site growth there and this has been through build-to-suit orders, which to be honest we haven’t seen much of in the previous five years or six years. It has been great to be getting both build-to-suit orders in. The thing about build-to-suits is, typically, they will be a one tenant right from day one and then over time, we aim to put colocation tenants on them.
We usually expect the build-to-suits when we underwrite it to get as second tenant on between three years to five years. That’s roughly the sort of normal or the sweet spot. Obviously, we try and push harder on that from a sales perspective and try and get them on within six months or one year or even from day one in some cases. But the norm is three years to five years when we underwrite the build-to-suit.
So that’s why initially you see, when the site growth is happening, you see that grow, but the tenancy ratio will get diluted a little bit because unless you’re adding colocation as well at the same time, inherently the sort of fraction that calculates tenancy ratio will drive a slightly lower ratio initially, but a larger asset base. And then over time, as you put more colos on, that tenancy ratio should grow. So we’re very much on plan in Congo B, as I said three years to five years is the norm. And you should see that tenancy ratio grow on these new build-to-suits over that time scale going forward.
In Ghana Vodafone, yeah, we’ve seen the announcement. Obviously, we continue to work with Vodafone as we do with all of our customers in Ghana. And from a contract perspective, there is no change essentially when a new owner comes in in any of our contracts. So we just continue with that contract going forward. We’re monitoring that situation and we’ll be working with the new owners as and when or if and when that deal closes. And for now, it’s very much business as usual.
Omar Maher
Thank you, Tom. And just around Ghana, if I may, just a quick follow-up on that. We’ve seen the average lease rate sliding — it has been going down for a while in Ghana. So is it an issue of competition or is there something else that is like pressuring the lease rates that we’re not aware of?
Tom Greenwood
Yeah. In Ghana, specifically, Ghana is one of our markets with probably the most exposure to the local currency, which is the Ghanaian Cedi and that has obviously dropped off against the dollar recently. So when you — we report in dollars, so when you’re looking at the average revenue per tenancies with Ghana, you’re seeing it in our report in dollars.
And obviously because the Cedi has depreciated, you’re seeing a lower figure. But there hasn’t been any change to the underlying sort of lease rates there and we will be seeing power price escalators kick-in in Ghana through the rest of this year and we’ll be seeing CPI escalators kick in there in Q1. And obviously, CPI is running quite high. So you will see a bit of an uptick there in Q1 when they kick-in in a few months’ time.
Omar Maher
Great. Thanks a lot.
Tom Greenwood
Great. Thanks, Omar.
Operator
Thank you. Our next question comes from Jonathan Kennedy-Good of JPMorgan. Jonathan, please go ahead. Your line is open.
Jonathan Kennedy-Good
Hi, good morning, Tom, Manjit and Chris. Thanks for the opportunity to ask questions. Just a couple of quick ones from me. On the level of CPI inflation that you are observing in the countries, obviously a little bit lower than what I thought it would be versus developed markets. Is that rolling over and do you think the inflation levels have peaked or given currency devaluation in some of these markets, do you think that could rise still?
Any thoughts there would be helpful. And then in terms of the tenancy seasonality, obviously, you mentioned pretty strong in the first half. Are there any obvious kind of drivers of that in the key markets? I’m talking more from an organic perspective, DRC, Tanzania and whether there are certain operators that are driving this?
And then finally just on cash flow repatriation to your holdco, is there any — are there any issues in certain jurisdictions? I think Ghana maybe somewhat dislocated at the moment. So it would be interesting to know if you’re experiencing any issues there. And that’s it from me.
Tom Greenwood
Yeah. Thanks, Jonathan, for the questions. So, look, let me take them in order. So the level of CPI inflation, yeah, as you’ve seen, it’s a blended average across our markets. It’s about 6%. Clearly, that’s lower than headline you are seeing elsewhere, UK, US, et cetera, in the world. We do have quite a wide range without those. So Tanzania is 4%. I think DRC is 6%. Obviously DRC is dollarized and they are our two largest markets. So the biggest sort of impact on this — on the average.
And then at the other end of the spectrum, you’ve got Ghana and Malawi, which are sort of well into the 20s in terms of inflation. Now those two markets typically run double-digit inflation anyways. So they’ve gone up from low to mid double digits to sort of 20s. Of course, those two markets are pretty small for us, particularly Malawi, which is very small from an overall Group percentage perspective. So there is not much impact on us from that.
The question is, has it peaked. I guess, that’s the million-dollar question for a macroeconomic expert. Way above my pay grade, but, look, I would suspect that there’s probably still a bit more to come. Sometimes you see a bit of a ripple effect when inflation happens in the US and Europe and then it may be ripples up elsewhere. So let’s keep monitoring that. We’re not sort of overly concerned about that.
We do have the CPI escalators in our contracts. So to the extent that we do see a little bit more come through, same time in DRC, which obviously have fairly low inflation at the moment and we’ll absorb that through our escalators. But let’s see, I think both of those markets to some extent are in fairly strong position here with the commodity and food prices around the world going up because they source a lot of those. So I think they may be on a slightly different track to countries like the UK which is obviously in a slightly different place. So let’s see.
Tenancy seasonality, nice question. Any obvious drivers of that. Look, I think we’re actually seeing — there’s no single one customer that’s driving that, to be honest. I think we are seeing good competitive tension between the mobile operators in our key markets, particularly Tanzania and DRC, both markets with extremely low mobile penetration today that both got four major mobile operators with no one of them over I think 35% or 40% being the max and sort of number one market share in both markets.
Very evenly spread market share, which is a very healthy environment for mobile operators and clearly a good environment for tower companies to operate in. And we are the beneficiaries of that healthy competition between the mobile operators. So, yeah, no obvious sort of one single customer driving that. I’d say we’re seeing reasonably good demand across the board or across most of the board. And then the final one on cash flow repatriation, Manjit, do you want to take that one?
Manjit Dhillon
Yeah, absolutely. So, we still hold around 80% of all of our cash at the Group level. So we are still having — we’ve always had the ability to upstream cash. The only potential things which do happen from time to time is just the availability of dollars in the market, but we’ve experienced this throughout our time in operation. So when there is good availability at good rates, you kind of do a bit of over conversion, when it’s not, you kind of hold for a period of time, but in general, there is nothing to really mention in terms of our ability to upstream. We’re still doing it on a monthly basis.
And you mentioned Ghana, I mean, look, in that market, we do actually receive about 20%, 25% of our revenues are linked to U.S. dollars and received in U.S. dollars. So we can always move that around the business as well. But in general, it’s still the vast majority held up at Group, which is consistent with how we’ve operated since inception.
Jonathan Kennedy-Good
Great. Thank you. That’s very helpful.
Manjit Dhillon
Thanks.
Tom Greenwood
Thanks, Jonathan.
Operator
Thank you. [Operator Instructions] And our next question comes from Simon Coles of Barclays. Simon, please go ahead. Your line is open.
Simon Coles
Hi, guys. Thanks for taking the question. Sorry, back on tenancies. If we take a step back, last year was probably a little bit lighter than we would have hoped. So — and then you obviously spent a bit of extra CapEx to drive tenancies this year. If we were to, say, remove those tenancies, will we say that you’re actually just running in the middle of the range, because you’re saying that you’re sort of hoping that you’re going to end towards the mid to the upper end. And then if we think to next year, I think you said you’ve got some big rollout contracts being discussed. Does that make you confident that you’re sort of potentially upper end of your medium-term guidance, at least in 2023. Understand if you can’t comment too much on that, but just wondering how that’s going.
Then secondly thank you for slide, I think, it’s 15, that’s super helpful. Is there any big difference between markets and I am mainly thinking about DRC on whether the escalators are quarterly or annually. Is it still 50-50 in DRC, just because the revenue per tenant there looks a little bit mixed whereas, say, Tanzania has been growing quite nicely. But I realize there are lots of moving parts in there. And then, sorry, if I can just ask one last final on M&A. Are you seeing multiples from private sellers come down at all given what we’re seeing with interest rates globally? Thank you.
Tom Greenwood
Hey, Simon. Thank you very much for those questions. Let me take them in order. So tenancies last year being light, yeah, I think H1 last year was a little bit light, but H2 was extremely busy. And I think last year we ended up with one of our highest ever years for organic tenancies by the end of the year, albeit absolutely H1 was in line. I think we did about 170 tenancies in H1 last year, but — and did well above 1,000 or rounded 1,100, I think.
Look, I think the progress so far this year has clearly been good. I think that we are in a position of having reasonably good amount of either orders in hand or conversations ongoing for new rollout, which could come into this year or could go into these sort of next year’s business depending on when the conversations finalize and when the rollout starts. So I feel quite good about the number of conversations that we’re having with multiple different mobile operators. So it’s not like we’re just reliant on one mobile operator, for example. We are obviously very, very diversified on that front. So I think this year could be another strong year for tenancies.
As I mentioned, the floor in terms of our guidance 1,200 to 1,700, we could very well directionally be going towards middle or upper of that range, which would of course mean that that would be I think our highest rollout ever in a year, certainly higher than last year and the year before. So that’s good directionally, I guess. In terms of the CapEx, the CapEx really follows the currencies, particularly when it comes to build-to-suit, because the build-to-suits require CapEx. So that essentially kind of goes hand-in-hand with the tenancies.
Slide 15, I think your question was about DRC escalations and, yeah, most of them in DRC are quarterly. And on M&A, what are we seeing on the multiples, I mean, look, I guess, sellers may well have a preconceived idea of what they want or what they expect from a valuation point of view. That may well be based on multiples of tower values that was paid a year or two or three years ago. Who knows and we may have a different view for that. And that’s fine. And I guess it depends on how many other buyers there are out there who have the same or different views.
And at the end of the day, some deals may trade or may not trade. Sellers may think, we’ll just wait a bit. Inflation is running at 10% on the US dollar, so maybe it’s not the best time to sell at the moment or maybe they are seeing the opposite. We think, well, we’ll look through that and buyers will look through that on the assumption that it comes down at some point. And still be confident of getting a deal. So we take each one on a case-by-case basis.
As I said, this year, to some extent next year, is all about the integration and the consolidation of the deals we’ve announced and really starting to get the best out of them within the Helios sales group. And we’ll look at any new M&A opportunities that come through and we may align with the seller on expectations that we may not. And if we don’t, and that’s fine, we’ll happily walk away and if we do, great. But of course, these sales do have fairly long gestation periods. So, again, that aligns quite well with our focus right now on integration and consolidating what we’ve got.
Simon Coles
Okay. Thank you.
Tom Greenwood
Thank you.
Operator
Thank you. And our final question comes from Stella Cridge of Barclays. Stella, please go ahead. Your line is open.
Stella Cridge
Hi, there. Good morning, everyone. Many thanks for all the update so far. And I wondered if you could give us an update on the plan funding for the remaining acquisitions. So, for example, what you would consider the main sources to be and what kind of minimum cash balance you’d like to keep? Obviously given that we’ve had a bit of volatility in global markets and that would be great. Thanks.
Manjit Dhillon
Yeah. Sure. I’ll pick this one up. So really for the remaining acquisition, which is Oman in the short-term, about $575 million, we’ve clearly got cash from balance sheet, which will be utilized against that. Now we have Rakiza as a 30% investor. They will be investing pro rata for that. We are also investigating potentially a more smaller local line in Oman. What we’re finding at the moment is actually some really quite attractive pricing, particularly in Oman for local debt. So we may do a small portion of that.
And if we do that, that would actually — if all goes well, actually continue to reduce our overall cost of debt from a Group basis. So I think a combination of the three, cash from balance sheet, Rakiza coming in, potentially a small line for the Group level, we have undrawn debt facilities of about $217 million at Group level and maybe also a little bit of local debt in Oman as well. All of those will be the main source of funding for Oman. And for Gabon, it’s smaller acquisitions. So again that will be funded via through cash on balance sheet or the Group facility.
Stella Cridge
Okay. That’s it from me. Many thanks, Manjit.
Manjit Dhillon
Thank you.
Operator
Thank you. We currently have no further questions, so I hand the call back over to Tom for any closing remarks.
Tom Greenwood
Thank you very much, Nadia. And thank you, everyone, for dialing in today. Thanks, everyone, for the questions, as usual. If there’s anything you want to follow-up on, you know where we are. Please feel free to contact me, Manjit, Chris anytime. Very happy to talk to you again. And I look forward to seeing you all soon. Have a great day. Take care.
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