Helios Towers plc (OTCPK:HTWSF) Q3 2023 Earnings Conference Call November 2, 2023 5:30 AM ET
Company Participants
Tom Greenwood – Chief Executive Officer
Manjit Dhillon – Chief Financial Officer
Conference Call Participants
Emmet Kelly – Morgan Stanley
John Karidis – Numis
Rohit Modi – Citi
David Wright – Bank of America
Stella Cridge – Barclays
Operator
Hi, everyone, and welcome to the Helios Towers Q3 2023 performance and outlook call. Very good to talk to everyone today as always and I hope you and your family, as well. Thanks very much for your time today. So today we’ll be talking through our performance year-to-date. Our FY23 outlook and guidance upgrade and providing some early guidance on our FY24 view.
So first up page 2, we have the usual lineup to you, and me, Tom, Manjit Dhillon, and Chris Baker-Sams who got the business and financial update slides. And then we’ll open to Q&A at the end.
So now looking at Page 5. We are very pleased to report that we’ve delivered very strongly year-to-date. And therefore, we’re upgrading guidance across all our key metrics for FY23. Alternative editions are already above 2100, which was previously the top end of our guidance. So consequently were up increasing that and the large level of communications delivered so far has driven our tenancy ratio up from 1.8 to 1.9 year-to-date and importantly, we’ve seen our future contracted revenue increase 13% quarter-on-quarter and 37% year-over-year. So it’s highest ever level of $5.5 billion underpinning our future cash flows and return of growth.
Financial performance in Q3 was especially strong year-over-year with revenues up 28% EBITD dollar 35%, of which 22% was organic and our margin up 3 percentage points driven by the tenancy ratio increase I mentioned earlier. Also, our last 12 months portfolio free cash flow is up 30% driven by the EBITDA growth and tight control around ground leases, maintenance CapEx and tax.
Our balance sheet continues to strengthen, firstly with deleveraging was a 0.3x reduction this quarter and 0.6x year-to-date. And now it’s 4.5, which we previously guided as our whole year figure meaning we’ve accelerated deleveraging one quarter ahead of the previous guidance on this further reduction expected this quarter Q4.
And we’ve essentially tendered $325 million of our December 25 bonds in September. Therefore, extending a good portion of our debt to another five years. In terms of upgrades to guidance we’re increasing our FY23 forecast across all key metrics. The 10 division guidance, moving up to 15% and that 2200 to 2400 EBITDA moving up 2% to $365 million to $370 million and portfolio free cash flow guidance increasing 9%. All of this thanks to our customers’ trust in our ability to operate effectively and deliver high quality service, our partner network and our people and teams across the group. The former gets the highest standards throughout business excellence strategy.
So now moving to Page 6. And here we see that in FY23, we’re delivering a stellar year for growth overall, and most importantly for organic. Now that our FY21 to ‘22 acquisitive expansion trade is done and we’re focusing fully on organic growth to drive returns, our tenancy ratio has expanded 0.1x. You can see on the middle chart our EBITDA is jumping up 30% this year.
And most importantly, looking at our ROIC, as previously guided following up two years expansion program, we very much see our organic operational delivery bear fruits of the with the ROIC rebounding back up to 12% following the temporary dilutive effect of new acquisitions with low tenancy ratios.
As an example of this, our Oman acquisition, which was closed in December ‘22 was acquired at a tenancy ratio of 1.2x and now is already at 1.31x, less than a year into operation. So this, along with all our other markets are helping to drive our returns up on a Group-wide basis.
Next on Page 7, we thought it be useful to show the evolution over the past year of our future contracted revenue. Our tenancy contracts today excluding any future escalations or auto renewals. This future pipeline is growing 37% in the past year, driven by three key factors. One, the 10-year, renewal of almost 2,500 existing tenancies in the last quarter; two, the 2,700 record new organic tenancies added in the past year; and three, the Oman acquisition’s associated lease back agreement. The $5.5 billion future contracted revenue reflects around 7.8 years average remaining life, which is a very strong base, of which the business will deliver further growth and increase returns.
Now on Page 8. We wanted to provide some early guidance on how we see FY24 is shaping up and we’ll provide more details on this in March at our full year release. But in short, we expect a continuation of the strong organic momentum and return to growth that we’re delivering an FY23. In terms of capital allocation we will continue to focus on high returning organic growth and delivering, with tenancy ratio expected to increase 0.05 to 0.1 X through next year.
Any significant M&A continues, not to be our focus for the foreseeable future. Our tenancy growth and cost efficiency focus will deliver double-digit EBITDA growth next year, CapEx will be tightly controlled. And we expect leverage to be below 4x by the end of FY24, as well as continued upward trajectory on our ROIC. So, looking forward to updating you each quarter next year as we deliver this.
So that’s it from me. So now, I’ll hand over to Manjit and then speak to you at the end. We will wrap up and Q&A.
Manjit Dhillon
Thanks, Tom. Hello, everyone. It’s great to be speaking with you today. I’ll be going through the financial results and starting on Slide number 10.
Continuing on from What Tom mentioned earlier, we had again delivered record organic tenancy additions and strong performance across all key operational and financial metrics and additionally continue to attractively manage our balance sheet. We are on track to deliver one of our best ever year’s organic growth and accordingly, we’ve increased our full year guidance which I will speak about later in the deck.
On this slide, as usual, you will see we summarize the main KPIs which I will go through in more detail now over the next two slides. So, moving on to Slide number 11 sites and tenancy growth. From a site perspective, we saw a 29% increase year-on-year reflecting organic growth of 633 sites and 2,519 acquired sites to name on.
Year-on-year, we’ve added 5,711 tenancies, which is a 27% increase from a year ago. This growth was through a combination of record organic tenancy growth, and our acquisition in Oman. It delivered 2694 year-on-year organic tenancy adds and 3017 tenancies through the acquisition in Oman. Because of tenancy ratio our tenancy ratio dropped slightly on a Group basis and this was driven by the lower tenancy ratio at these sites in Oman, which had a day one tenancy ratio of 1.2.
However, we’ve already increased that tenancy ratio in Oman by an 0.1x, which is actually ahead of the plan. And we’re very pleased with the performance and this shows how well Oman has integrated into our business. On a Group level, organic tenancy ratio also expanded by an 0.1x on strong organic lease ups and again that will support large and expansion of returns.
So moving on to slide number 12, we’ve seen a 28% revenue growth and 35% EBITDA growth year-on-year and importantly, from an organic perspective, that 18% plus on revenues and 22% plus on EBITDA. We’ve seen strong revenue and EBITDA growth in all three of our reporting segments.
Our Q3 EBITDA margin has increased by three percentage points to 52% and that’s driven by lease up. And on a constant pure price basis Q3 adjusted EBITDA margin would have been even higher at 53%.
So moving on Slide 13 and here, similar to prior results, I’ll dig into the drivers of revenue and EBITDA growth in a bit more detail. The first four bars of each bridge organic tenancy growth, power escalations, CPI escalations and FX, all combined to make up organic growth and acquisitions being the contribution from the Oman market.
The organic tenancy growth of 2,694 tenants year-on-year has driven an 11% growth in revenues and 18% growth in EBITDA, but focusing on the escalation movements, and again, similar to previous presentations, the contractual escalators are all performing as expected.
As a reminder, we have escalated every customer contract in all markets, the power roughly 50% of our contracts escalate quarterly and 50% annually. And these escalates in relation to the local pricing for power say for fuel and electricity. So if the local prices go up, then the escalations go up. And if the prices go down, then the escalations go down.
The CPI, we have annual CPI escalators and they typically kick in between December and February. Our power price escalators increased revenue by $7 million, and that falls through to about $2 million on EBITDA driving roughly around three percentage point EBITDA contribution as you can see, on the right hand side. The positive EBITDA contribution is partly attributable to the rollouts of about 1,100 power solutions year-to-date, as part of our Project 100 commitments alongside other historical power investments.
This again, demonstrates that our business model is effectively offset any increase in OpEx due to higher power prices to protect our EBITDA on a dollar basis while we continue to save fuel costs through our investment in power initiatives.
Moving on on to CPI and FX, local CPI is currently below 10% with the majority of our CPI escalators having already ticked in early in the year and that contributed 5% to revenue year-on-year. The CPI is escalators are effectively offset the FX movements on revenues and on the EBITDA side the escalators have covered the FX movements very well, which you can actually see in the dotted box on the right hand side.
The reason we continue to show this analysis is because it is really a useful demonstration of the business mechanics and again standing back and to reiterate the message, looking at this on an EBITDA level, there was little to no impact to FX and Power price movements, we’re well protected from macro volatility and here, you can see the key drivers of our growth, really being driven by tenancy growth, both organically and inorganically and operational improvements, all of which are within our control and how we want to operate the business.
Moving on then to Slide 14. Again, you’ll see the usual breakdown which is very consistent from previous updates, the 98% of our revenues come from blue chip on network operators, comprising Airtel Africa, Vodafone, Orange alongside other large M&As, such as the Mantel, and Accent. It’s best highlighting that our largest customers are spread across a few different markets again showing how diversified our business is.
As Tom mentioned earlier, we have strong long-term contracts with our customers and at the end of Q3, we had long-term contracted revenues of $5.5 billion, the highest ever on record for us with an average mining life of just shy of eight years up 37% from $4 billion a year ago. This means, again excluding any new rentals rollouts. We already have that revenue contracted and in the bag and that provides a strong underlying future revenue stream for the business.
We also have 64% of our revenues in hot currency being the US dollars or Europe pounds and that falls through to 71% when looking at it from an adjusted EBITDA perspective. This provides a fantastic natural FX hedge for the business and that’s all complemented by the escalators I spoke about in the previous slides.
Finally just to mention this slide with the new market expansion successfully completed ago last few years, we’re seeing a more diversified set of revenues with the Middle East and North Africa segments now representing about 8% of our revenues year-to-date. As a market leader in seven of our nine markets, we are in very unique positions to capture all the robust structural growth across all of our markets.
Moving on to Slide 15 and a look on CapEx. On the left hand side of the table, you’ll see that key three year-to-date being total CapEx of $149 million which is mainly made up of growth CapEx reflecting our strong organic tenancy builds and roll outs during the course of the year. Our discretionary CapEx continues to be tightly controlled and focused on high returning investments, for example, co-locations and OpEx efficiency projects. So far, the $149 million we’ve spent from CapEx roughly trends aligned with what we expect for the full year CapEx guidance.
And then actually in terms of CapEx guidance, the CapEx range we’re now guiding to for 2023 is being upsized to $150 million to $180 million on discretionary CapEx, up from $140 million to $170 million. And that really accounts to the fact that we’re increasing our organic tenancy guide by about 300. Non-discretionary CapEx, by the way remains unchanged at $40 million.
Moving on now to Slide 16 and just to walk through our debt liability management exercise we carried out in September. As a summary we raised up to $720 million of facilities including a $600 million term and up to $120 million RCF facility. We’ve drawn $400 million for term loan to turn the $325 million of our high year bonds. And really repay at $65 million that we’ve drawn on our old group term loan and a small portion to cover fees.
This is how the neutral impacts on our growth and net leverage. And as you can see on the charts on the right hand side, with the new term loan due in 2028, we’ve effectively pushed out our weighted average maturity of debts by one year to circa four years. The cost of debt only marginally increased from 6.7% to 7.1%, which is a fantastic result, I think in a rising rate environment.
I think this really reflects the increased scale and diversification of our company over the last few years, doubling our platform from five to nine markets, expanding our footprint from Africa to the Middle East, while also securing our hot currency earnings and continually demonstrating our resilient and robust business model.
The transaction will continue to have around $400 million of undrawn debt facilities and we’ll continue to monitor our options around opportunistically managing our debt profile.
Let’s sum up and we are really delighted with this transaction as this further strengthens our balance sheet.
Onto slide number 17 our net leverage at Q3 2023 had decreased by an 0.66x to 4.5x pro forma. And that’s now within our target range one quarter ahead of what we previously guided. We’ve always had a clear path to delever the business for the 0.5x per annum on an organic EBITDA growth basis. And we are committed to continuing to deliver that.
And as Tom mentioned, looking forward to next year, we will target to reduce our net leverage again by another half a turn to below 4x.
As previously mentioned, we’ve got a good amount of undrawn debt facility of $400 million. And that together with the $151 million of cash on balance sheet, means we have roughly around $550 million of available funds to the group. Importantly, our debt remains largely fixed with 80% of itbBeing on a fixed rate basis, and this is all along 10 years. And again, with the average remaining life quite longer four years.
Moving on then to Slide 18, and as Tom mentioned earlier in the call, again, we made great progress on our 2023 goals. And as a consequence, we’ve increased our full year guidance again, Given our robust tenancy growth and our strong commercial pipeline to the end of the year and also what’s growing next year as well, we’ve increased our organic tenancy guidance range.
We are now targeting growth between 2200 to 2,400 tenancy compared to 1900 to 2100 previously, implying a year-on-year growth rate of around 9% to 10%. For adjusted EBITDA, the increased range is now $365 million to $370 million with the midpoint as an increase of our 30% year-on-year, reflecting again, all the strong tenancy growth and operational improvements that we’ve been at putting through the course of the year.
And accordingly portfolio free cash has also increased and now expected to be in a range of $260 million to $265 million and that represents rough cash conversion of about 70% this year. Due to the higher expectations on growth in tenancy growth, we’ve updated, our CapEx range as we just spoke about earlier. But as you can see, we’re on track to deliver one of our best ever years of organic growth in 2023.
And again, this just simply demonstrates the proved and robustness of our business model through macro volatility, our focus on business excellence, as well as the really compelling structural growth of all of our markets. And with that, I’ll pass back to Tom to wrap up.
Tom Greenwood
Thanks very much, Manjit. So on Page 19 now and look, clearly, we’re in a time of significant momentum in the business and we’re really pleased with the performance at the moment and the outlook. And so, look FY23 is set to be one of our best years ever for organic growth and total growth. So that matters as well and of course we’ve upped and increased full year guidance across all the major metrics.
Our new market, very pleasingly continue to demonstrate lease up and we’ve given the example here at Oman marks and supporting the EBITDA and ROIC growth. Net leverage has accelerated. It’s reduction and is now fully within its target range one quarter earlier than previous guidance and we’ve increased average debt maturity with marginal increase in cost of debt with the tender of the bonds we mentioned earlier.
And as I mentioned before, continued momentum expected into next year. We al ready focused on organic growth with a lease up of the 0.05x to 0.01x. Next year, double-digit EBITDA growth and net leverage to be below 4x. So that will – I’ll hand back to Ellen and we’ll open for Q&A. Thank you.
Question-And-Answer Session
Operator
[Operator Instructions]
Thank you. [Operator Instructions] Our first question today comes from Emmett Kelly from Morgan Stanley. Emmett, your line is now open. Please go ahead.
Emmet Kelly
Yes, and good morning, everybody and thank you for taking my questions. I’ve just got two questions please. My first question is on the increase in contracted revenues. So, Tom, you highlighted that they’re up by $0.6 billion at quarter-on-quarter due to a client extending their contract by 10 years. Can you just talk a little bit more about that contract extension?
Tom, is it really due to that contract is reaching an end? And we’re approaching an end? And can you talk a little bit about the terms maybe on which the contract was extended, as well? Is there any change to the headline tariffs?
And then my second question is on, power costs, obviously, power prices across the globe have been very, very volatile over the last two years. As spot power prices are clearly down quite loss over the last and six months. And on slide 13, you show that power is a 5% boost I think or a $7 billion boost to revenues year-on-year in Q3. How should we be thinking about power over the coming quarters? And as we go in to 2024 please? Thank you.
Tom Greenwood
Thanks, very much, Emmet. So maybe I’ll take the first one and Manjit can take the power cost one. Yeah, so look, I mean, in regards to tenancy contract extension and I guess it’s, sort of business as usual for a tower company with its customers to do this. I mean, all of the contracts have automatic renewals in. But it’s quite normal for the industry for a couple of years or so before the end of the term.
Remember these contracts are 10 to 15 years long usually for the two parties to engage and, discuss whether an auto renewal is relevant, in which case it has results for them identical terms or whether in the past 10 years or so, there’s, certain things that will change for both sides that lead to it being a benefit to how a renewal. But, it’s sort of business as usual from one point. And with this one that turns that we are largely unchanged, to be honest a few sort of tweaks around the edges really, as well as future rollout commitments that we secured in this, as well. And that’s really it. So no change to sort of quality of revenue or anything like that.
And then, Manjit , do you want to take the power cost one?
Manjit Dhillon
Yeah, sure. Yes, so, look, on power and similar to what we’ve been presented today with previous quarters, I think from a cost perspective what we typically see is that the escalators work in a way in which means that from an EBITDA side the costs are effectively mitigated. So you don’t make a margin on the costs and the escalators to make up of the Group. And that’s what we want. We want to make sure that we’re just effectively hedge for not making any margins on that. And so, what we’re seeing this quarter is actually the investments that we’ve been making as part of the Project 100 actually minimize the volume of power that needs lives. And so, that’s where you start to make some of the upside. And so, whilst we see prices can be the go up or stabilize in the markets that will still be something which will effectively be hedged to all of our contractual makeup. But now it’s kind of putting more money into this Project 100. We should to see year-on-year, a few more savings come through on that on that basis. So, in future releases, we’d hope to show kind of similar or kind of maybe more – EBITDA improvements from our customers and how they start to come through and start to operating better, you’ll see more and more savings come up year-on-year.
Emmet Kelly
Super. Thank you very much, both.
Tom Greenwood
Thanks.
Operator
Thank you, Emmet. Our next question today comes from John Karidis from Numis. John, your line is now open. Please go ahead.
John Karidis
Thank you. Good morning. Thanks for taking the questions. And so, first of all, can you give some color about what’s happening in the DRC? It seems to be sort of on fire in the last three quarters rather than in the past and just sort of color about is there competition increasing – a bigger focus in population that usage. What are your customers telling you there?
And related to this, Ghana went sort of backwards in the third quarter. Is that just a blip or is there a sort of trend that we should be aware of? And then, secondly with regards to Emmet’s question, about fuel costs, I hear what you said, Manjit, specifically, what I am trying to figure out how this driver will affect the year-on-year change in your lease rates for the fourth quarter this year and how you think this might effect it for 2024?
And then thirdly, I think at your adjusted guidance for, sorry, your guidance, your upgraded guidance for adjusted EBITDA and full year free cash flow sort of suggests that tax will be significantly less – 4% or 5% of revenue at this year. I’d love to understand if well, if that’s right why? And what does it mean about the sort of tax rates and inverted commerce for 2024 and 2025, please?
Tom Greenwood
Yeah, Hi, John. Tom here. What did I say that the DRC one and then I’ll hand over to Manjit. So, yeah, look, DRC is one of our one of our larger markets and, it’s a market with a lots of favorable dynamics for operating in the telecom sector. There’s, first of all it’s a country of a hundred million or more people. It’s a huge country with some very large cities such as Kinshasa which has a population of 15 million people and it’s also a country with the vast areas of gaps in coverage.
So I think it’s something like 40 out of 100 million people in the country actually don’t live in an area with mobile phone coverage today. And so you’ve got, you’ve got dynamics and DRC whereby you can shelter another large city, 4G is very much being rolled out and densification is happening and there’s actually 5G trials going on right now in Kinshasa amongst the big mobile operators. So that’ll be starting soon and then at the same time, you’ve got, big, big new coverage requirements in new areas where thousands or hundreds of thousands of people live, which obviously leads to more of the built-to suit products being required. And, as the, the largest and the most experienced tower company operating in the country we’ve been operating there since 2011, you know, I believe also a very high quality of service in a challenging market. Now the infrastructure is weak in DRC which makes the day-to-day operations more difficult regarding infrastructure of towers.
And so, I think we have a compelling offering to all the mobile operators there. And certainly we’re doing business with all and helping all to support their networks and you’re seeing that in the numbers come through. So it’s really the focus on operational excellence and being able to navigate the challenges and lack of infrastructure there. And the DRC now doing a fantastic job.
Manjit, did you want to take other ones?
Manjit Dhillon
Yeah, sure.
John Karidis
Sorry. Tom, I wonder if you can say anything just to hit the – hit that on the heads a little bit. Nothing on towards there with a negative adds in the third quarter.
Tom Greenwood
Sorry, John the lines broke up. Sorry.
John Karidis
Forgive me, I think the trends in what your adds for towers and tenancies in Ghana specifically, seem to have gone sort of backwards. Is there anything on toward going there – going on there?
Tom Greenwood
All right. So, you got it. Yes. Sorry. And so we’ve had some legacy managed sites in Ghana from an acquisition we did many, many years ago, which we passed back to the mobile operator. Today we’re I think it was low or almost zero. But so it’s basically one off here this quarter with sort of minimal impact. I think overall we’ve seen strong roll out from the big mobile operators with something like 10% year-over-year growth in tenancies in the country. So, yeah, so what you’re seeing is a kind of one off small blip this quarter. But the underlying is actually growing well with the big operators there.
Manjit Dhillon
Just about, as well, not only is it 10% growth in terms of tenancies from a tenancy ratio perspective, yea- on-year. It’s one of our fastest growing about an 0.2x across the Group. So you’re adding all the co-los in that market I think also just as another case, and point we garner is one of our kind of OpEx innovation hubs at the moment.
And we’re utilizing that as an OpCo to look at how we do clean power technologies and really look at power as a general service in that market. So, I think we’ll see some other kind of improvements going on in that market in due course as well. But from a year-on-year basis, probably in a fantastic year for Ghana. And then just picking up a couple of your other points. So just on fuel, just so as we look forward to the following year, we’ll give more detailed guidance in terms of where we expect it to be for 2024 in March following our full year results. But in short, what we expect is seeing at the moment to these in terms of power costs is that they are stabilizing and makes the market. So, we do expect potentially that some lease rate movements to happen on a quarterly basis will start to kind of potentially taper, but we continue to monitor how power costs maybe they can move in period-on-period. So, on that basis we’ll be making that kind of more stabilizing.
And then from a OpEx savings perspective, and we’ll give guidance to the full year, but we hope to see some more coming through from Project 100. Generally, we spend around $10 million per annum on $Project 100. Then we look to get a return that is at least our cost of capital if not a bit more. So you’ll start to see some of that coming through during the course of next year, as well.
With regards to the question on guidance, particularly around portfolio free cash flow. So just on the EBITDA growth that is very much a function of the increased tenancy. So you will start one of the key pieces are for portfolio free cash flow that’s driven by the EBITDA growth and then just a bit less tax that’s partially driven by the fact that in some of the markets, there’s been a slight amendment in some of the tax laws. So that you can get a little bit more of a shield from your shareholder loans. So that’s only had a bit of a benefit during the course of this year.
Again, they haven’t changed the modeling in terms of what we’ve guided as a general kind of a stretch forward number in terms of increasing turnaround 4% to 5% of revenues over the medium term. So I’d hold that steady until we give updated guidance next year.
John Karidis
Thank you both very much and congratulations to the whole team.
Tom Greenwood
Thanks, John.
Manjit Dhillon
Thanks, John.
Operator
Thank you, John. Our next question today comes from be from Rohit Modi from Citi. Rohit, your line is now open. Please go ahead.
Rohit Modi
Hi. Thank you for taking the question. Am I audible? I am sorry.
Tom Greenwood
Yeah.
Manjit Dhillon
We can hear very well.
Rohit Modi
Great. Thank you for taking my question and congratulations on great set of results. Most of them has been answered. Just a couple. Firstly, just to follow up on Ghana, you mentioned returning some of the towers to one of the one of the operator. Just trying to understand was there a sale of tower and you generated some cash flow? Or how that worked? And do you have similar kind of contract with other tower telcos where you might have – might return the tower at some point of time? Or do you have that kind of deal?
And in terms of your mid-term, guidance, you have annual tenancy additions of 1600 to 2100. Now, there is that increase in tenancy guidance this year? Just trying to understand should we take this as a floor? Is that a change in your mid-term guidance or it remains the same what you already guided last year? And yeah, that’s it from my side.
Manjit Dhillon
Great, I’ll take these ones. So, yeah. And on the Garner point look, it’s only a small handful of towers and these are effectively managed towers rather than owned towers. We do have a basically across the business a small number of managed sites. And so we didn’t own them though from the original deal that we did back in 2010 and we effected just given those back. So we no longer manage those. So that we didn’t generate any capital, it wasn’t for sale. It was just about 15 tower sites. So that was what it was. So I’d say relatively de minimis in the grand scheme of things.
And I am sorry, just on your second question. Sorry, can you just might remind me that that one again?
Rohit Modi
Yeah. Sorry. In terms of your ability –
Manjit Dhillon
Sorry. We will give updated guidance in March, I’d again, just keep the guidance where it currently stands in terms of what it currently got models. I wouldn’t increase it and utilize what we’re doing this year is a runrate, but keep that as it stands we’ll give some updated guidance in March. And again, so we hope to upsize you in the course of next year should things go up.
Rohit Modi
Thank you. Sorry just one more I forgot to ask about and your view around M&A and I know you spoke about this earlier previous quarters now that you’re back to your leverage range and you expecting it to go further down. Does your focus changed from pirating towards organic growth to M&A again? Or are you still in 2024, you are still focusing on organic growth and you don’t see anything on the M&A front?
Tom Greenwood
Hi, Rohit. Tom, here. Yeah very much focused on organic growth and deleveraging. So, we’re not focused on M&A right now and for all the foreseeable future.
Rohit Modi
Thanks, Tom. Thanks, Manjit.
Tom Greenwood
Thanks.
Operator
Thank you. Our next question today comes from David Wright from Bank of America. David, your line is now open. Please proceed with your question.
David Wright
Yeah, thank you very much. And a question, to be honest Tom, it’s, it’s almost just a direct response to your previous answer, which is you are focused on organic growth and deleveraging. And I say this with the greatest of respectable, but why so closed right now to further M&A you guys have clearly got a very good grasp of acquisitions.
You are clearly very efficient to bringing, onboarding grids and building. And you’ve proven that these – your acquisitions can generate returns and can add to organic growth. Now you’ve obviously just brought in a leverage number that is ahead of expectations. And there is no reason especially with the contracted revenues, not to expect that momentum to remain very, very strong through the next year.
So I’m just boring why so closed to future M&A, further M&A, I should say, given that it has gone so well and your deleverage is clearly ahead of plan? And maybe if you could just throw into your answer, at which point, do you even start to think about your own shares as an attractive target? Thank you.
Tom Greenwood
Yeah. No, thanks. Thanks. Very, very good question or challenge. Yeah, look, I think, where we sit today, that with the global markets as they are and rates where they are and power quote valuations where they are the telco M&A generally comes and fits in cetainly, it has for the last 13 years across Africa and Middle East, which is really since the first M&A deal happened. And at the moment, there’s really not too much M&A out there.
Obviously, we keep up here in the streets and any deals that are happening or might be happening, obviously come across our desk. But I think that, sellers at the moment unless they absolutely have to would probably wait a bit I think. And that’s reflecting the relatively low volume of deals happening at a moment. And I think for us as a business we’ve gone through two years of huge M&A, doubled the business, closed our loss field last December in Oman moved into this year in the kind of new look, Helios Towers with the mind markets in Middle East as well as Africa.
And this year, as the year for us get down, get the business processes up and running the new markets start to lease up the new assets which we required a low very low tenancy ratios, start to drive the returns up again. All of that is obviously happening. And as we said, leverage is coming down faster than previously guided.
So, all that’s great. But, my sense of it is, we see that type of story continuing both from an external market perspective in terms of potential supply of high quality M&A. We’ve, I think we probably see that continue into next year and from our own perspective, we’re very focused on increasing cash flow generation coming to the inflection point on being cash consumptive and moving to cash – bottom-line cash generation. The consequences of deleveraging that comes with that. I think that our stated guided range for leverage is 3.5 to 4.5. We just got to the top end of that, that will come down further obviously over the next few quarters. I think that for me, buyback point of view, I think that would need to be a set at the time. I think we want to see ourselves get to below 4x on the leverage, which is, where we’ve guided to be by the end of next year. And then to the extent, we have surplus cash on the balance sheet, at that point, then, we’ll have decisions to make whether we utilize that for accelerating it more organic growth which, if this momentum continue certainly could be a potential use for it. I think it’s great to fill in the same place. Arguably, we might choose to accelerate deleveraging even more through repaying some debt. So, without the way that up at the time, versus some kind of shareholders disbursements obviously as well. And so they’ve all those options on the table. The order I just mentioned is sort of our capital allocation priority order at the moment quite a lot of that is rates driven. And so, we’ll need to see how the capital markets rates move over the coming quarters. And that could be a dynamic list of things change externally. So I hope that answers your question.
David Wright
It does, yes, I appreciate your thinking around that. Thanks again, guys.
Tom Greenwood
Thanks, David.
Operator
Thank you. Our next question today comes from Stella Cridge from Barclays. Stella, your line is now open. Please go ahead.
Stella Cridge
Hi there. And many thanks for the call, and all the comments so far including the last ones on the where debt ranks and the priorities. And to visit, maybe just one, look I wanted to ask so and you obviously took a portion of the bond that’s due, would it be your kind of ideal base case that’s the remainder? And would be refinanced in the dollar bond market? And you are kind of waiting for a market opportunity? Just wondering where you can keep fit on that?
Manjit Dhillon
Yeah, I can take that one. We do like the bond instrument. So we will be kind of keeping ourselves ready to potentially go back to the market, should the opportunity arise. But I think at the moment, we feel very comfortable about the balance sheet and our debt profile. The debt maturity of our high yield bond isn’t yet due for another two years since December ‘25. We’ve now got the bond in a place where it’s certainly a lot lower than what it was previously coming chanted down by a missed a third. And we also have three term loans of about 200 million undrawn or which we could potentially use those to refinance should we ever need that.
So, I think at least we said there in a position where the balance sheet is strong, and we’ll just wait and see and try and tap the market opportunistically and over that moment occurs. But I think for now for we are in a good position.
Stella Cridge
That’s great, many thanks for that.
Tom Greenwood
Thank you.
Operator
Thank you. We have another question today from John Karidis from Numis. John, your line is now open. Please go ahead.
John Karidis
Thank you for allowing this. I just wanted to talk about just one issue, please, and that’s a sort of competition for our goals. So, it would be useful to just get a picture of what proportion of your state actually, is this competition from other tower cos? And also touch on – thinking your lease rates it used to be that you you’d say that the lease rates were significantly below the total cost of ownership for a mobile operator. And is there any update on that, any number is there’s anything like that, please?
Tom Greenwood
Hey, John. Yeah, thanks for the questions. Yes, so I mean, in terms of competition, there’s other tower companies operating in most of our markets. There’s just a couple where they on – yet. So, we fully expect that to the other tower operators where we operate and but in several of our nine markets we’re quite far the largest and number one in the market. And we think that scale within the market matters, I mean, you’ve got more tower, more tower spots to sell locations. So, that that’s our strategy to be large in the markets we operate in. And from a competition perspective to be better in an operational sense than the competition and deliver customer service excellence. And there’s a number of different types of services which rich reflect that. The two most important services that we and other tower companies offer, which we spend all our time focusing on and hopefully excelling in our power upside. Where I do believe we are best in class to that and roll up the both of you built a suit site. And also obviously of color locations for which we also deliver very, very strongly on. So that’s how we think about it. And we do expect competition, but we focus our business. Excellent to deliver that to our customers. And yet on the lease rate level. Yeah, there’s not really much change there, to be honest. I don’t really haven’t had that. And in the slides of perhaps a few quarters. I think we’re still around 30% lower than the total cost of ownership. And that’s the way we like it, we like to operate in a way, which is efficient, which aims to maximize the number of tenants sharing a tower. And therefore, making our profitability through multiple tenants so volume basically, rather than having whacking great lease rates to, to create our profitability. Because, they can come under more pressure. So that’s our strategy. And yeah, very much is similar to what you’ve seen in the past at the moment.
John Karidis
Thanks, Tom.
Tom Greenwood
Thanks, John.
Operator
Our last question today comes from [Indiscernible] Your line is now open. Please go ahead with your question.
Unidentified Analyst
Hi, so my questions have been answered. Thank you.
Operator
Okay, no problem. In that case, we will hand back to Tom for any closing remarks.
Tom Greenwood
Great. Thanks, Ellen. Well, thank you everyone for dialing in today. Very good to speak with you as always. And I thank you to everyone asking the questions and we really appreciate it. So, we look forward to engaging with you over the coming weeks. And look forward to providing our full year update, which will be in March in a few months time. So, see you then and take care. Thank you.
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