Welcome everyone. Is this microphone okay? All right, great. Yeah, it's a pleasure to welcome back to our Communicopia + Technology Conference, Sam Darwish. He's the founder, chairman, and CEO of IHS Towers. Sam, thank you so much for being back here with us in San Francisco.
Always a pleasure, Brett. Thank you.
All right. Just for context, and I'm sure that, you know, people here have a little background, but IHS is the largest emerging markets-focused tower operator globally. You have nearly 40,000 towers across 11 markets. What are the key trends across emerging market, wireless markets, that you believe you've positioned IHS for, and for how long do you think these factors can drive the company's growth?
Our markets, we operate, as you rightly said, in 11 markets. I mean, these markets cover roughly 750 million people, and that's the most important part of our key fundamental part of our business model. These people are generally young. I mean, in Africa alone, the average age is under 20, and this is the kind of age we're talking about. The population growth aspect is just massive. I mean, Nigeria alone has been growing at around 2.5%, the population, a year. That's roughly five or six million people a year. But that's the size of Alabama or Colorado. I mean, that's a year.
Yeah.
That's the kind of the growth scale when it comes to population, for example. We have 750 million of those people. Those markets are still in the 4G cycle of growth, so technologically, there is still a lot of room in 4G, eventually 5G, especially as true 5G starts to proliferate, and then the need for true 5G starts to happen. They're growing Fintech services. Our clients are growing at 20%-30% a year. This is the kind of growth we're seeing. So this is what we have positioned ourselves to. In most of our markets, we are the largest.
In some of our markets, we're the only provider or the biggest by far, which kind of like, allows us to kind of like, leverage that position to benefit from this massive growth trends that we see in all over the emerging markets.
All right, and can you discuss some of your key strategic and operational priorities as you position the company for 2024?
So, medium to long-term prospects, again, growth. We continue to focus on double-digit growth at the top line in dollar terms. That's important for us. We've been doing much more than that organically on constant currency basis. This quarter, we report, I think, almost 30% growth. I mean, this is the kind of growth we're seeing in terms of the top line. But that, again, remains a key critical focus for us. Margins, of course, trending towards 60% EBITDA margins. That's also an important function for us.
But at the moment, I think the world is in a weird place whereby kind of like interest rates are at historically high, inflation is in some certain places high, the geopolitical tensions between US and China, the situation in Europe, I mean, a lot of unforeseen that could happen. So I think, what is the say? Revenue is vanity, profit is sanity, and cash is king at the moment. So we have a very strict focus on our balance sheet. Want to make sure that our liquidity stays strong and our balance sheets remain strong. We don't have maturities coming soon. We have roughly $1 billion of liquidity.
Our leverage is at the lower end of our range, the three to five, but again, that remains a very important priority for us at the time.
Let's get into some of your operating segments, and I'm going to start at a somewhat higher level in Nigeria. About 2/3 of your business is still in Nigeria. There's been a lot of change that's happened in that market over the last year, including the election of a new president and some pretty sweeping economic reforms that were brought in as well. How are you thinking about the way these reforms and the new administration, Nigeria, can potentially impact IHS?
Look, these reforms were critically needed, and I would basically sum them up in two, the two main ones. One, they removed the subsidy of petrol at the pump. That was gulping around $10-12 billion from the government a year, basically killing or nullifying the whole windfall of the high oil prices for the government. So that has stopped. Brilliant, great. It means more dollars will come to the government. The other thing that has been collapsed is this multiple exchange rate. They had this weird notion that they can control the Forex. So basically, if you official rate is 400 to the dollar, NAFEX rate is 600 for this application, black market is 800.
All over the place, which prevented people from kind of like bringing investment into the country. That has collapsed. So now we have one rate, which means devaluation has just happened, so there would be some short-term pain for all of us, including the government, including us, you know, as they start to kind of like build up their liquidity position so that they can satisfy this, the Forex requirement. But these are great changes. I mean, this unlocks the country, it opens it up, it removes those structural deformities. And once we're out of this short term, very short term, in my view, volatility, the country is going to emerge way better.
And the FX changes, what do you see as the ultimate impact to you? So for example, are you finding it easier to upstream money out of Nigeria as a result of this?
Look, the upstreaming is a different situation, and it continues to be different. I wouldn't say that these structural reforms have done the job in kind of like creating pools of liquidity that is out there. It's not there yet b ut I think if we give it enough time, six months, nine months, maybe up to a year, it will. Now there is more trust in that government. Afreximbank, for example, a Pan-African bank, just gave them $3 billion. They're talking to Gulf States, they're talking to us, they're talking to Europe. Now that people are seeing, okay, these guys, they're doing the right things, the liquidity situation will change. But again, Brett, the most important thing was for them to stop the slide, that subsidy thing, which they've done, and then to collapse the rates.
Now, at least the country is kind of, like, ready for four more.
Sometimes these moments of significant change, they can create a little disruption, right?
Exactly.
There's been meaningful devaluation of the currency. Hopefully, more stability here, but there's been a period of devaluation. Your large carrier customers in Nigeria pay you in Naira, and a significant amount of that rent is essentially reset to be pegged against the dollar.
Yeah.
Effectively, paying you has become more expensive-
Yeah
... in the wake of the devaluation. What has the conversation been like with those carriers? Have they been able to adjust to it, or are they asking for any accommodations or having difficulty paying?
They will do all of it. They will adjust, then they will ask you for more. They will try to increase the tariffs to the customers, which I know they are in conversation with regulators. In some places they can, in some places they have to have regulatory approval. So I know there are conversations happening at that level. But let's not forget, and they're talking to us, they're trying to squeeze us, and they may push us hard even. They will push American Tower, they will push every... I mean, it is the name of the game. But at the end of the day, these guys are growing by 20%-30%. These guys have margins in the 55%, Brett, for MNOs.
I mean, like we hear, what kind of margins do we have with this kind of ARPUs?
Mm-hmm.
These guys operate at 55%. They are very, very healthy operators. They can withstand the short term, even the medium term pressure, if that's what it ends up being due to the inflation that is resulting with all of this. But they're strong, they're solid.
Well, then, let's talk about the health of the underlying wireless market in Nigeria. You know, what's driving leasing activity in Nigeria right now?
It's exactly the initial things that I mentioned. I mean, population is increasing. They're now proliferating 4G. They're in that cycle at the moment. Fintech is massively growing. They only got their licenses 18 months ago, 12 months ago, so basically now they're like full-fledged, pushing those, the Fintech services across. We are also fibering up the towers. Those towers need to be fibered up now for 4G, 5G, Fintech. So that's another driver for growth. But-
How much of that is you versus incumbent telcos?
I would say at the moment, it's 50/50. Just a guesstimate.
That's a little bit different than some of the developed market tower operators. I think you said this in the past. You see value in deploying fiber into your towers.
Yeah
... because it facilitates the upgrade, when they may-
Yeah
... not be able to procure that fiber from anybody else.
Yes.
Okay.
Thank you.
All right. You have slowed the new builds a bit in Nigeria. Why is that?
Look, it was a period of... I-- Remember what I said about our priorities. Cash is king at the moment. Our hurdles for investments have kind of like risen. And because Nigeria was going through this transition, we knew that this devaluation would come, a new political system, new president, this and that, and we've always wanted to diversify from Nigeria. So we thought, You know what? At this stage of time, maybe we slow down a little bit here, and we push harder in Brazil, we push harder in South Africa. It's just where do you allocate your buck?
Let's talk about Brazil. So it's your second largest market. Now, you own over 7,000 towers in Brazil. How would you frame the demand environment? And just for context, there's been some consolidation in that market, always essentially being absorbed by the other three wireless carriers. Some of your big public peers who also operate in Brazil have seen some slowdown in growth because they've seen an elevation in churn as a result of that, of that consolidation. How is your business performing? And I think you're a little more focused on tower development in Brazil than maybe some of the others are. I'm curious as to why.
Look, Brazil has been, again, a great market for us. I mean, start with the macro. That country... I mean, if you talk to Brazilians, they're not happy, but if you look at relative terms, I mean, it's one of the most, the best performing countries out there. I mean, their currency has strengthened to the dollar rather than the other way around this year. They're benefiting from the prices of commodities, agriculture. I mean, they are one of the largest producers of agricultural items in the world. Their central bank reacted very quickly, very sharply at the beginning of kind of like the problem, 18 months ago, and kind of like massively increased interest rates, which kind of like held back inflation. Their inflation now is under control.
They're the first central bank of a big country that has started to cut down interest rates, which gives you an idea. This new government likes to spend more money. I mean, it's definitely prone to more spending, but it's also controlled by a strong congress who kind of like holds them back. So in terms of the global macro, it's an amazing place. 200 million people, still in the 4G cycle. All the carriers have now gotten their 5G spectrum. All three of them have now done things on ground to start the 5G program. So that's gonna happen now. Not now, but I think it will happen over the next three to five years.
This proliferation of 5G, proper 5G, true 5G, and moving more from a macro layer, which is where we are at the moment. That is, basically using 5G on the macro layers. Eventually they'll start asking us for more data cells, and we will be ready because, again, you miss the fiber network we have in Brazil. I mean, in Brazil, we're not only a TowerCo player, we're an InfraC o player. We have this complementary proposed proposition to our clients, where we have bought this five point something million homes passed fiber network. Two years ago now, it's 8 million homes, by the way. Two years ago, it had half of its 3 million homes in copper and fiber. Now we have five in copper.
So we have that, plus the fiber, so we'll be ready. The last thing I wanna address here is on the oil situation. Because we are a new kid on the block, by design, we stayed away from oil. So we're not really exposed to oil, except through GTS, which is an acquisition we've done recently. But even that, we're exposed to the wireline side of it, the fixed side of things, with oil, not the wireless. So we're somehow out of that. And I think the market is almost out of that.
On the development side, frame the opportunity you see there. I think you're going to build about, what, 750 towers in Brazil this year. You know, is that a run rate? Do you think that could accelerate?
I'm hoping it is, yes. Look, this is the plan from day one. The plan from day one was, look, there's so much to be built in Brazil, in all sorts of places, whether it is infilled, whether it is rural, whether it is extending coverage, whether it's highways. And only 10% or 15% of the highways are covered, for example. There is a lot, favelas, 30 million people or 40 million people live in those places. There is no coverage. We're starting those programs. There is a lot of tower build that could happen in Brazil, and we are hopeful that this, this could become a, a run rate.
You mentioned the fiber business that you have in Brazil. How has that performed versus your initial expectations?
Amazingly well. Again, as I said, we bought a five-point-something million homes network. We're now at 8 million. Half of it then, 3 million something were fiber, now 5 million of that are fiber, so we're moving the copper into fiber. Our target is 10 million by 2027. We remain on that target. We continue to look. So organically, that growth is happening. I think we grew last quarter by 14 or 15%, so we're happy with where that business is. When you look at the market also, there is an opportunity for consolidation. I mean, you have the three, four guys at the top, which is we are one of them. But you also have tens of smaller ISPs all over the country. Some of them could be strategic.
Again, we don't wanna go and buy the client or the home. That's not our interest. Our interest is just the fiber network that is on the street, basically. And if some opportunities present themselves to us, we may even go there.
Are you finding that there's any wireless demand for the fiber that you've acquired, for small cells, for example, back home?
Not, not yet. Not yet, because, again, we also had to make it work technologically, and we finally were able to, so that's, that is now happening. We can now add a tower to that network and treat it as a home, basically. So it's easy for us to now do that. We needed to make sure those technical interfaces work, and, and they work for us now. True 5G needs to happen, Brett. The apps that require True 5G—sorry, True 5G, in my view, are not there yet. That require the massive amount of data, small cell and this and that. Be it driverless cars or the drones or low latency apps, I don't see that as a need in the next 12-18 months.
I think the carriers now will spend more money and time on basically building the macro, the 5G on the macro, as an initial step, and kind of, like, sell that as they complete their 4G rollout. At some point in time, as the 5G becomes really—the True 5G becomes really a need, that's when we start seeing this massive deployment in Small Cells.
Got it. Is this a one-off in Brazil, or do you think this is a model you might be able to replicate in some of your other markets?
Look, my experience is that there aren't models that you can replicate, like, to the letter. There will be some variations, especially in the... How is your entry point? It's more or less, how do you enter the game. But at the end of the day, converging tower, fiber to the tower, and some element of edge computing on those towers. Because what are you trying to do? I mean, you own the piece of land that is closest to the eyeballs on a mobile phone.
So you wanna leverage that somehow to the maximum possible. I mean, and how do you leverage? Whether it's a connection to it or whether it's some computing on it, whether it is shorter, smaller space using... It's just that aspect of it that converges in any country. Now, where do you start? Do you start by fiber?
Do you start by tower? We are open. Do you start by a large business school program? Do you start by an acquisition? I think it could happen in different ways, but yes, we are definitely in for it if it happens this way.
In October 2022, you announced Project Green, and the desire here is to reduce your dependence on diesel, so you can generate more of your own power in a green way at the tower location. I want to jump into it, but just remind us, how do you generally power your towers in Nigeria in particular, and Africa broadly, where you're doing this project?
Of the 40,000 towers we have, I would say a good chunk are like steel and grass, especially the ones in Brazil, Middle East, even some in Africa. Nigeria in particular is the hardcore one because 95% of the sites or more do not have even a grid connection.
Mm.
That's how bad the situation of electricity in Nigeria is. So effectively, you have to have your own power system, which means batteries, backup, critical, which means solars, some element of diesel. Diesel is critical. How do you, how do you fill it? And then you have to build a logistical network around it, because then you have to supply the diesel, you have to maintain that network. Theft is rampant. People, they steal diesel because it's kind of like cash in those places. They steal generators, they steal. You need to build a security network around it that includes people, and then, more importantly, includes technology. You have to have sensors, cameras everywhere. These are connected to our NOC in Lagos, which has more than 200 people, kind of like at any time, monitoring every aspect of the network.
It's a system that is proprietary, that we worked with an Israeli company for almost three years to develop it. Because no one on Earth has that kind of challenge, you know, to that level of 95% of towers in a country do not have even a power connection. So it's a very complex problem, but this is what we are good at. This is not what we want to do anymore, because we want to be a simple leaser of a landlord, basically, of digital infrastructure. But because of that massive experience and the legacy and how we came, and that experience is available in the company, we now use it to optimize. So in Nigeria, for example, Project Green was one of those.
I mean, the engineers looked at the network and realized: Look, Sam, we can save ourselves $70-80 million a year. We can make it- we can get to our GHG emissions, you know, sooner, maybe get to 50% of our target within two years, you know, our long-term target within two years. So it made a lot of sense, and the return on the invested capital would be in the 30%+ IRR. It made a lot of sense for us, and we know how to do it, so we did it. In South Africa, for example, a country where a major shift has happened since we took over that portfolio. When we bought MTN's portfolio, load shedding or the power outage problem in that country were minimal.
But overnight, that country moved to outages of 10, 12 hours a day.
Mm.
That's severe. Now it's back to something more sane, two, three hours a day, but it's not that they have found a solution. They're throwing a lot of diesel at the problem. So that problem is kind of brewing in that country. What do we do? A total retrofit of those networks is now needed. Who's going to do that CapEx?
Where are you in Project Green? Is it, is it-
Back to Project Green. Project Green is going well. For this year, I think we already have $25 million of savings-
Mm.
In the business. I think next year we're going to have a bigger amount, and then by 2025, we should have the full amount expected of roughly $80 million on all FCS savings.
Yeah. Since then, the cost of diesel has been pretty volatile, and there's now a 7.5% VAT put on imported diesel.
Not confirmed 100%, but yes.
Okay. I guess the point would be, it seems like the return may end up actually being even greater-
I agree.
than you would have guessed, just based on the inflated cost. Okay.
Yes.
I will look forward to continued updates on Project Green. I want to talk a little bit about your balance sheet and capital allocation. You know, leverage is just above three turns. It's actually at the low end of your range. Rates have already moved considerably higher. How are you thinking about the leverage profile of the company, and have you adjusted that at all based on the macro environment?
No, we're still happy with the three to four target. We still would like to keep it kind of like on the lower side of the range, unless something happens that kind of, like, pushes us a little bit up. I think we need to now be mindful that the devaluation may push us into the 3.5, I think, within maybe the next six-nine months. But we should recover shortly after, as CPIs and fixation start to kick in.
You're basically referring to your CPI-based escalators and the FX resets-
Yes.
which ultimately are supposed to balance out.
Exactly. Exactly, but they take longer. I mean, there is a lag normally. But generally, we're happy. We don't... I mean, the first maturity we have is end of 2025. I mean, it's not too far, but it's the smaller one, and it's kind of like there. And then we have... So we're kind of, like, pretty comfortable on where things are at the moment. We have roughly 900-something, close to $1 billion of liquidity between cash and facilities and this and that. So we're, we're not under any sort of pressure, and then we've taken a decision among ourselves that, "Look, this is the time to be prudent. So, so hold back now, unless something really makes sense, and it's cheap, let's just keep the cash." So that's what we're doing.
What do you hope to get back to? In other words, how would you like to be allocating capital if we were in a more stable environment, where you had more confidence in what the macro is going to be?
I think once the Fed starts lowering interest rates, I think that's a huge signal, and the whole world would get to, like, find some relief that at least now we can see that there is an end to this tunnel. And then, hopefully, people expect, you know, things to start improving. I mean, if they start cutting interest rates, that's even better. I want to also see some improvements, some of these structural changes that happen in Nigeria to start bearing some fruits. I mean, those are the two biggest trends, to be honest, to watch. I mean, if those things start to kind of, like, mellow down or start showing positive progress, we can revise our strategy.
Right. Some of your largest shareholders released letters expressing desire to see some governance reforms at the board level. And they've stated these reforms may be necessary in their view to drive improved performance in the stock. Can you give us any update on this issue? You know, and to what extent are you evaluating some of the reforms that have been proposed in these letters?
... I think it's important, Brett, to—I mean, people use big, big, big things and kind of like titles and this and that, but once you start getting into the weeds of things, you realize it's a totally different story. For us, I think the most important point is that we have to listen to shareholders, and we have to engage with shareholders, and we have to hear their points of view. We have problems, especially manifesting themselves in the low share price, and I think we all have some kind of analysis of what the reasons are. I'm not going to go there just now. So we understand. We're open to ideas, I mean, because we are all aligned, shareholders and us, that the value of the company is more, we believe that, and how do we get ourselves there?
So that we're aligned. We were aligned there. Now, we have two also fundamentals that we cannot shake on, is our independence in the sense we are an independent tower co. We have a client who is a shareholder, so we need to make sure that that independence is managed properly. That's a very critical thing for us. We're also, we also—we are also cognizant of the fact that public companies are run by their board, and we have a very independent board. At the moment, eight out of nine members are independent, so everyone is independent except me, basically, at the board. I have people like the Governor Jeb Bush, who leads our governance committee. I have Ursula Burns, who sits on the audit and these kind of committees.
I mean, our board is not made of wallflowers, and that's how you want to make sure you ensure you're independent. So for me, those are the two most critical things. And then when you start going into the depth of what these guys are asking for, you realize, yes, okay, we can trend there. I mean, some of the proposals they have shared in the market, I'm not—this is not me saying. I mean, I don't want to. I want to keep out of this public dispute. But they're saying, and some of those things that they've suggested, lowering the threshold on how do you introduce a matter to a board or... I mean, these are things that we've agreed together with these guys eighteen months ago when we listed.
Now, we have to be mindful that we are responsible to the broader shareholder base, including the minorities. The SEC and the regulators require you to think of the minority person more than you think of the majority person, because that guy, you have to assume he's sophisticated, he has his analysis, this and that. So we have to be mindful that we are responsible to all of the, these guys. Eventually, as the company becomes more distributed, we will strive ourselves to get there into that league, for sure, right? But until we get ourselves, into that, distributed place, is this the reason why the share price has been held back? I don't think so.
Well, so you make a good point. It's been almost two years that you've been a public company, and it's been a very volatile two years for the economy and the world, really. What gives you confidence being a public company is the right structure for IHS, and, you know, what could cause the board to maybe seek a buyer or potentially go private?
We've never said any option is excluded because I have to kind of like differentiate from the company and its shareholders. I mean, shareholders, some of them want out, some of them want to sell. I mean, I understand some of them have been with us for eight, nine, 10 years. So that's... Now, if you look at the company itself, I mean, this is the right move for us. Listing on the deepest stock exchange on Earth, sitting next to your peers, being covered by people like you, Brett, who understand the tower industry, who probably are among the, I want to say, midwife. You're one of them, the people who kind of like created this industry now. We're covered by you, and this is the place to be.
I mean, it gives us access to quality funding, quality instruments, this and that. Now, if anything else presents itself at the shareholder level, somebody comes and says, "Okay, I'm throwing $3 billion on here. Let's talk." The board has the fiduciary duty to talk and explore, but in the absence of that, this is the best available path to create liquidity for our shareholders.
Well, you've done a few things to try to address the stock. The liquidity in the stock has been an issue. You've taken some measures to open that up in terms of the way you're allowing locked up shares to kind of come to market, and you've outlined that on call, so we don't have to rehash that. But more interestingly, you authorized a buyback program recently. What led to that decision? Is there any update you can give on the extent to which you're actually using it?
Look, the buyback is something that we've been asked to do multiple times. A lot of investors also talk to us about this. I think the market kind of like ask us about it. We've been against it because our biggest problem, preventing the share price from going at the moment, we believe is the limited daily trading. That's float size. And a buyback program kind of like somehow takes away from that rather than helps that. So that's why we have been very hesitant on putting a buyback program, despite the fact that fundamentally, what is a buyback? A buyback is a decision by the company to use its cash to buy its own stock because it thinks there is so much value there in that stock.
And we do think there is so much value in that stock at $7 or $8 because it's just so cheap. We believe it's so cheap, right? But again, it is that because the daily trading is low. Now, we have made a lot of moves there. So last year, we used to trade 120,000 on average per day, the 90-day trading ADTV. Now, it's 320 or 330, so almost kind of like tripled that number. So we are making moves there, but unless we get to a place where it's like 1 million, half a million, I mean, I don't want to be throwing numbers. I already did, sorry.
But unless we get to a place where it's like people can come in and go out efficiently, it's gonna be always a problem for that. So that's an important angle that we need to be mindful of. Hopefully, a buyback can provide to the market that we're also working there. We believe in our own stock. It's a strong signal, but-
What about dividends? US tower operators all pay dividends or REITs. They sort of have to, but.
I mean, these guys have been listed for what, 15 years, 20 years. They have a stable base. At some point, we will. Is it today? I'm not sure that's a decision that the board is willing to do now, but at some point, we'll probably evaluate it.
All right, last question. So let's assume that a year from now, the macro is continuing to stabilize, maybe rates are hopefully trending in the right direction. That would theoretically be opening up some opportunities for your business as well. What do you hope we're talking about? You know, whether it's operationally or strategically, that's gonna be, you know, front and center for you.
Growing Brazil, for sure. Growing Latin in general, rebalancing our Nigeria weight in the overall portfolio, making sure our balance sheet remains strong, and kind of like, buying on the cheap, like finding a couple of opportunities that are good, strong, solid, decent, you know, and then sellers are willing to transact.
I look forward to having that conversation.
Thank you.
Sam, thanks for being here.
Thank you so much.