IHS Holding Limited (INFO) Q2 2022 Earnings Call Transcript

IHS Holding Limited  (NYSE: INFO) Q2 2022 earnings call dated Aug. 16, 2022

Corporate Participants:

Colby Synesael — Senior Vice President of Communications

Sam Darwish — Chairman and Chief Executive Officer

Steve Howden — Executive Vice President and Chief Financial Officer

Analysts:

Phil Cusick — JP Morgan — Analyst

Greg Williams — Cowen and Company — Analyst

Brett Feldman — Goldman Sachs — Analyst

Jon Atkin — RBC Capital Markets — Analyst

Simon Coles — Barclays — Analyst

Presentation:

Operator

Good day and welcome to the IHS Holding Limited Earnings Results Call for the three-month period ending June 30th, 2022. [Operator Instructions]

At this time, I’d like to turn the conference over to Colby Synesael. Please go ahead, sir.

Colby Synesael — Senior Vice President of Communications

Thank you, Operator. Thanks also to everyone for joining the call today. I’m Colby Synesael, the SVP of Communications here at IHS. With me today are Sam Darwish, the Chairman and CEO of IHS and Steve Howden, CFO. This morning we published our financial statements for the three-month and six-month periods ended June 30, 2022 on the Investor relations section of our website and issued a related earnings release and presentation. These are the consolidated results of IHS Holding Limited, which is listed on the New York Stock Exchange under the ticker symbol IHS, which comprises the entirety of the Group’s operations.

I’d also like to note that this morning we have filed with the SEC an amendment Annual Report on Form 20-F/A, which includes the restatement of the company’s consolidated financial statements and related notes for the year ended December 31st, 2021, which updates the financial statements for an error in the professional business combination accounting for the Company’s November 2021, acquisition of 51% controlling interest in I Systems. The error resulted in an overstatement to goodwill, an understatement to non-controlling interests and an overstatement to other reserves on our balance sheet and an overstatement of exchange differences on translation of foreign operations on our income statement.

Please refer to the explanatory note at the beginning of the Form 20-F/A for further detail. Further, we would like to point out that the restatement has no impact on previously reported revenue, operating profit, loss for the year, adjusted EBITDA, cash from operations or recurring levered free cash flow, nor did this correction effect the Company’s underlying business operation.

Before we discuss the results, I would like to draw your attention to the disclaimer set out at the beginning of the presentation on slide two, which should be read in full along with the cautionary statement regarding forward-looking statements set out in our earnings release and 6-K filed as well today. In particular, the information to be discussed may contain forward-looking statements, which by their nature involve known and unknown risks, uncertainties and other important factors, some of which are beyond our control, that are difficult to predict and other factors which may cause actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking statements, including those discussed in the Risk Factors section for form 20-F/A filed with the Securities and Exchange Commission and other filings with the SEC.

We’ll also refer to non-IFRS measures that we view as important in assessing the performance of our business. Reconciliation of non-IFRS metrics to the nearest IFRS metrics can be found in our earnings presentation, which is available on the Investor Relations section of our website.

And with that, I’d like to turn the call over to Sam Darwish, our Chairman and CEO.

Sam Darwish — Chairman and Chief Executive Officer

Thanks, Colby and welcome everyone to our Second Quarter 2022 Earnings Results Call. While the first quarter despite what continues to be a volatile macro environment across the world, seeing continued double-digit organic revenue growth, excluding one-time items, although the higher cost of diesel impacted adjusted EBITDA, while RLFCF benefited from a favorable withholding tax impact and some timing commitment capex.

Demand continues to back expectation and based on our H1 results and our expectations for the back half of the year, we are raising our 2022 guidance for revenue by $10 million at the midpoint and rehydrating our guidance for adjusted EBITDA, RLFCF and capital expenditures. Steve will take you through the results in greater detail, but before doing so, I’m going to discuss our growth strategy, including our focus on revenue, adjusted EBITDA and RLFCF, provide an overview of IHS following our recent acquisition of the MTN South Africa portfolio and lastly provide a strategic update on other key topics.

On Slide 4, we again show our revenue, adjusted EBITDA and RLFCF results over the past five years, generated organic revenue growth of 18.2%, adjusted EBITDA growth of 15.1% and all RLFCF growth of 14.1%, compounded annually during this time. Given our short existence as a public company, I think it’s important to again highlight our long and established track record of generating attractive risk adjusted growth. We believe this attractive growth in the function of the key element of our strategy, namely the strong demand trends in our market, the inherent benefits of the colocation model, also then to amplify M&A and a broadening focus on other communication and infrastructure solutions, including fiber or with the focus on driving attractive profitability and ultimately ROIC for our shareholders over time.

The chart on slide 5 are similar to those on slide 4, except being focused on the past five quarters as of four to five years. You can see, we delivered double-digit growth for reported revenue, our organic revenue growth of 10% was impacted by the one-time benefits we highlighted last year, but in line with the expectations we communicated last quarter. These one-time benefits to revenue last year, as well as additional one-time benefits to adjusted EBITDA last year also impacted our adjusted EBITDA growth, which would have otherwise also grown double-digit.

While RLFCF was further impacted by the timing of interest payment, following our bond raise late last year.

On Slide 6, you can see that including the 5,691 towers we acquired in South Africa on May 31, IHS owns nearly 40,000 towers across 11 countries, making us the third largest independent multinational tower company by Tower Count in the world. This geographical scale has both further diversified our revenue stream, having initially been found as a Nigerian power company, but also positions us in some of the largest emerging markets in the world by GDP, including Nigeria, Brazil, South Africa.

In fact assuming a full quarter impact from South Africa, our largest market Nigeria now accounts for approximately 66% of total revenue versus 76%, just before we ended LatAm. And that’s despite what continues to be outsized growth in Nigeria. As separately, please note, we now disclose revenue by our top customers in our appendix on Page 22.Turning to slide 7, as I just mentioned, we have now closed the additional acquisition of 5,691 towers from MTN South Africa and are now the largest independent TowerCo in the country. Our South Africa team is led by Sandile Msimango, part of our new office in Johannesburg. I have known Sandile for some time as he previously worked with MTN, where he lead the strategic M&A and disposal across MTN’s entire footprint for the company’s positive infrastructure.

As Africa is more industrialized market, South Africa represents a huge opportunity for IHS. Having established a strong foundation in our other African market, the entry into South Africa is timely. South Africa has a young and growing population of 60 million people who are increasingly data driven. In March, the country’s telecom regulator, ICASA concluded their multiband auction of mobile sector, which had given MNO’s greater scope to invest in their network.

Longer term, we believe this creates the way for 5G, which will require more tower and technological innovation. We are already seeing the first seed of this, the South Africa 5G population coverage having increased from 0.7% in 2020 to 7.5% in 2021. In 2021 MTN, South Africa, became the first MNO to reach over a 1000 5G sites in any company on the African continent. As announced their target to cover at least 25% of South Africa’s relation with 5G by the end of 2022. Indeed by 2026 is estimated at 21% of South Africa sim will be 5G. These trends offer IHS a unique commercial opportunity from the Anchor.

In addition, our provision of Power Managed Services on approximately 13,000 sites for MTM is a key differentiative. This solution was today is largely focused on battery back up and is expected to drive attractive returns in line with our colocation business. Given the elevated levels of load sharing occurring in the country of late, the need for alternative solutions to the grid are increasing and we are working with MTN to help further support for their tower requirements. In due course we also broadened the service to benefit other M&Os, who also face the same challenges resulting from power cost. I also want to acknowledge recent news that MTN and Telekom SA have announced, they have entered into discussions for MTN to acquire Telkom. Subsequently, followed by Rain’s announcement of its interest in merging with Telkom SA. We always to see what ultimately occurred however, we stand ready to support all of our customers and believe the opportunity for IHS in South Africa remains highly attractive.

Turning to Slide 8, starting with M&A, we are happy with our current geographical footprint and as we noted last quarter, our current focus on M&A is in our existing market, with a particular focus on South Africa and Brazil. As we look to leverage our cost structure that are already in place. As part of our M&A strategy, we have been evaluating opportunities across fiber, power and data centers. While we expect power to represent the overwhelming majority of our revenue stream for the foreseeable future, given fiber and data center actually is less mature in our market, we believe our overall value proposition will increase with a broader and more varied solution set.

Regardless of this specific asset though, any transaction we do aims to be accretive to our long-term value and return thresholds only increase as part of capital increases. In addition, while we are willing to increase our leverage further our opportunity, we expect to remain within our three to four target range.

Moving on to upstreaming, we upstreamed $147 million in Nigeria throughout second quarter 2022, given the outside level of upstreaming we have already completed this year as of June 30, we had — as of June 30, we had approximately $67 million in cash in Nigeria, of which $45 million was held in Naira and the remainder USD. It’s important to note though that despite the challenging macro environment, we have strong relationships with our local banking partner, as we do not speculate on site movement and that we would continue to upstream prudently when needed as we have a long track record for doing so.

Shifting to our stock liquidity, as you will recall in May, our Board exercised it’s right to waive the registered offering requirement for the first block of shares subject to lockup arrangement under our shareholders agreement which included upwards of 78 million shares, which would effectively be available to these source and the discussion of their holders subject to the applicable securities law.

We will continue to evaluate options that we believe will enhance the value of the company, while at the same time, we continue to focus on delivering against our publicly stated fundamental objective and establishing a track record investors. Lastly, I’d like to conclude my remarks on page 8, by discussing our planned Project Green announcement this fall. As many of you know, in many of the places we operate, grid connectivity has been unavailable or unreliable and thus in order to provide connectivity, a service that is increasingly being regarded as a human rights across the globe, we and our M&L customers have had to historically rely on diesel generators to power our site.

While we have historically worked to mend our use of diesel with alternative solutions including the use of batteries, solar, with 20% or 28% of our towers in Africa still run only on a generator as of year end 2021, we feel we can do more. Our team and I personally have been busy the last few months analyzing the various opportunities across many of the countries we operate in to reduce our consumption of diesel and our greenhouse emission, by a combination of connecting more sites to the grid will step the few short usable was not an option in many location and adding more battery and solar solution.

At this point we are finalizing our plans, but it’s time to share these with you before we report earnings next quarter. While being cautious as to how much I can discuss now, we expect to start investing in Project Green in the second half of this year which means at this time, we announce Project Green, we expect to be raising our 2022 capex guidance. We expect the return to be attractive and to give you a sense of the opportunity. In Q2 2022, we spent $94 million on diesel, plus last year we spent approximately $69 million on diesel generator maintenance. Combined, this equates to nearly $450 million of annualize spend and represents the opportunity set from which we will extract savings.

Lastly, you see on page 9, we published our 2021 sustainability report in May. This was our fourth sustainability report and third in our second communication on progress GOP for our commitment to the United Nations Global Compact initiative. As I have said many times, sustainability is the core to whom we are and to our business. First and foremost, we believe that our business model is inherently sustainable and that we deliver shared infrastructure solutions in emerging market that from all digital connectivity and inclusion and improve the lives of the communities we serve.

This encourages greater access to things like education, healthcare and financial services, while the infrastructure sharing reduces the environmental footprint of the Telecom landscape in our geographies. With Project Green, let us hope that our drive to reduce the role of diesel in our business will further improve the environmental impact of the communications infrastructure that we operate and up on which our MNO customers and their customers depend. Furthermore, the initiatives you see on the slide here are but a few of the many innovative ways in which IHS keeps to make a different tower company.

And with that, I’ll turn the call over Steve.

Steve Howden — Executive Vice President and Chief Financial Officer

Thanks, Sam and hello everyone. Turning to Slide 10, as Sam mentioned, we are pleased with how the business performed in Q2, 2022 and are excited to have entered the South African marketing leadership position. You will note that towers, tenants and lease amendments, as well as consolidated revenue have all increased by double-digit percentages versus Q2 last year, driven by both organic and inorganic activity across the market. Before we dive into the financial performance, I want to remind everyone of the one-time $24 million of revenue in the second quarter of 2021 and the associated one-time $61 million for adjusted EBITDA and RLFCF in that same second quarter 2021. This performance last year, obviously impacted, our ability with performance this quarter in 2022, so we will draw out these different bits over the next number of slides so that you can understand the true performance of the business this quarter.

So, Q2 this year, we delivered 16% growth in consolidated revenue versus last year, quarter last year that included up $24 million of one-time revenue, whereas 2Q 2022 adjusted EBITDA on recurring levered free cash flow appear lower due to those one-time items in Q2 last year, as well as the [Indecipherable]. Our adjusted EBITDA margin was 51.1%. Our lever investment in capex greater than increased by 93% in the second quarter and our consolidated net leverage ratio increased to 3.1 times as we had mentioned last quarter in both instances largely due to South African and Brazilian acquisition in recent quarters.

Turning to our revenue on a consolidated basis, slide 11 shows the components with16.4% reported consolidated revenue growth. Organic revenue growth of 9.9% in Q2 2022 was driven primarily by CPI escalation, lease amendment, power indexation including within other and FX reset, as well as new sites and new colocation. Level of escalations you see reflects that contract protections in the current inflationary environment and together with FX resets offset the negative FX impact by 520 basis points.

In terms of the other category, tower indexation contributed $8 million and the Nigerian fiber business and IHS together another $5 million. This was more than offset by the absence of the $24 million of one-time revenue in Q2 2021 as I just mentioned and the reduction in revenue recognition from a slowdown in payments from our smallest Key Customers in Nigeria. On the right you can see the organic growth rates of each of our segments which I will talk about in the next slide.

Inorganic growth was 8.7% in Q2 2022, primarily reflecting the South African acquisition in the quarter GTS SP5 in Q1 of 2022 and I systems in Q4 last year.

Turning to the segment review on Slide 12, first I’ll walk through the Nigeria business and then highlight the other segments. Nigeria macro environment in Q2 2022 saw increased volatility quarter-on-quarter, the real GDP growth expanding by 3.1%, bringing the full-year 2022 growth rate to 3.4%, while inflation increased to 18.6% this past June, that is 17.8% in June last year. And FX currency rate ended the quarter at 4.25 Naira to dollar, whilst FX reserves marginally decreased $38.9 billion from $39.3 billion at March 31.

Brent crude oil averaged approximately $114 per barrel in Q2, up approximately two-thirds from the same period last year and we have recently begun to see an increased premium by the importation of refined products like diesel in the Nigeria that weakened the historical correlation we’ve seen between global price of oil and local price of diesel. The M&A from the reduction in global supply of refined products as a consequence of the Russia-Ukraine situation.

Telecommunications remains an important part of the Nigeria economy, accounting for around 12.6% of GDP in Q4 last year. We continue to monitor economic conditions in Nigeria closely, particularly in light of the cascading effects of the Russia-Ukraine situation and the upcoming presidential election in Nigeria in February 2023. And of course, we remain in close contact with our key customers of which to have recently published healthy top line results in that business.

Against this backdrop, our Nigerian business once again delivered strong results in the second quarter tracking well on our key metric. Top line growth was driven primarily by CPI escalators, lease amendment, power indexation and FX resets. Our tower count grew by 1.3% increase in this impacting commissioning, total tenant count increased by 4.4% versus prior period and the colocation rate was up at 1.53 times. Lease amendment continues to be a strong driver of growth which is increasing by 44% year-on-year and that customers add additional equipment to our site, particularly for the upgrade.

The improved operational performance is reflected in our Nigeria financial results, Q2 2022 revenue of $321 million, increased 8.3% year-on-year on a reported basis and 10.4% on an organic basis. Remembering the $24 million one-time revenue in the second quarter of last year within the Nigerian segment and therefore holds this growth percentage down.

The revenue growth reflects increased activity through two of our key customers partly offset by approximately $4 million decrease in revenue from a smaller key customer which stems from a decrease in revenue recognition due to a delay in payments. Q2 2022 adjusted EBITDA in Nigeria was $194 million, 24% decrease from a year ago. Adjusted EBITDA margin was 57.2%, reflecting in part an increase in power generation costs of $37 million and the absence of that total $61 million of one-time benefit in Q2 of 2021.

In Q2 this year, adjusted EBITDA in Nigeria was additionally impacted by that reduction in revenue recognition from our smaller key customer in the market, as I just mentioned.

Let me now summarize the results for our segment. Our Sub-Saharan African segment now reflects the inflation of our South African business and consequently towers and tenants increased substantially versus last year. Q2 2022 revenue of $95 million increased by 13%, of which organic revenue grew by 4.6%, primarily through CPI escalated new sites and colocation.

Inorganic revenue contributed $10.7 million, driven by the one-month contribution from the South African acquisition, while the negative FX impact was $3.6 million. Adjusted EBITDAR increased by 15% gain, driven primarily by the increased revenue included from South Africa, offset by increases in maintenance, diesel and security costs. The adjusted EBITDA margin increased 55.8%.

Coming to our Latam segment, towers, tenants, revenue and adjusted EBITDA increased substantially due to meaningful inorganic growth which continued this year with the GTS FT5 acquisition. In Brazil, our second largest market overall with 6,859 towers, macroconditions was somewhat mixed to the FX rate, interest rate and inflation or appreciation. In our Latam segment overall, towers increased by over 50% and tenants by over 70% due to the acquisition.

Q2 of this year revenue basically tripled with organic revenue increasing 28% driven by CPI escalation, new sites and colocation, with inorganic revenue increasing by 164% from the acquisition and there was also a positive 9% FX impact. Adjusted EBITDA also tripled with margin of 72.2%. In MENA, towers grew by 18% and tenants by nearly 19% in the quarter and revenue grew by 24%, including 13.5% organic revenue growth and adjusted EBITDA grew by nearly 35%. In all of these cases, mainly as a result of closing the fourth tranche of the Kuwait acquisition and from new site construction. The adjusted EBITDA margin increased to 47%.

Turning to slide 13, I’ll discuss our KPIs, as of June 30 our tower count stood at 9,052, up by nearly 9,000 sites to over 29% from Q2 2021. This was driven largely by our South African and GTS SP5 acquisition, as well as ongoing new site builds in Nigeria, Latam and SSA. Collectively, these new build programs accounted for most of the 240 towers built during the second quarter, as you can see in the chart on the top right.

In addition, the new sites reported in 1Q and 2Q of this year, we also have a significant number of rural new sites under development in Nigeria that we expect to go live in the second half of 2022. Total tenants grew by 26% year-on-year to 57,381, the colocation rates at 1.47 times down, 0.04 times versus last year. Two things to continue to point out related to our colocation rate, which we define as total number of tenants across the portfolio divided by total number of towers at a given time.

Thirdly, lease amendments which are a significant factor in our Nigeria segment again grew substantially are not included. And secondly, when you are a significant acquirer and builder of towers as we are and you are typically adding to the denominator period-on-period even as we continue to lease up our portfolio. For example, our South African acquisition has 1.2 times colocation rate, which of course is lower at inception than our portfolio average. We continue to see no reason why we can’t get two times operator on our overall portfolio over the long term and our more mature portfolios of towers are at or above that rate. Lease amendments increased by 43% year-on-year, as customers added equipment to the site, particularly, 4G upgrades in Nigeria.

On Slide 14, you can see our consolidated revenue and adjusted EBITDA and adjusted EBITDA margin. In Q2 2022, IHS generated $468 million in reported revenue, 16% increase versus Q2 last year, while organic revenue growth was around 10%, each demonstrating the continued strong top line growth trends of the business led by Nigeria and Latam in particular. Moreover, reported revenue growth was only 24%, inorganic growth nearly 17% after excluding the $24 million of additional non-recurring revenue from Q2 last year. Overall, we continue to grow well in line with our stated objectives to see double-digit revenue growth on an annual basis.

Regarding our adjusted EBITDA and adjusted EBITDA margin in Q2 2022, adjusted EBITDA of $239 million decreased 13% versus the prior year, but increased almost 12% after excluding the nonrecurring items from last year. Adjusted EBITDA margin was 51.1% down from Q2 of last year. The year-over-year changes in adjusted EBITDA excluding the one-time benefit last year primarily reflect the increase in revenue we’ve discussed, partially offset with year-on-year increase in cost of sales, mainly due to higher diesel costs, as well as increased SG&A associated within the public company.

Power generation cost of sales increased by $38 million, primarily in our Nigeria segment as we note higher local cost of diesel in Nigeria, given global reduction refined products. However, these increased costs were partially offset by an $8 million increase from power indexation year-over-year and I’ll speak more about the diesel impact from Nigeria shortly during our guidance section.

We also try to increasingly prioritize alternative source of power solution to reduce the dependency on diesel. And as Sam mentioned, I expect to unveil the details about diesel and powered emission reduction plan, Project Green later this year.

On Slide 15, we review our recurring leverage free cash flow, which we report in a manner consistent with our U.S. peers. We generated RLFCF of $88 million in Q2 2022, down versus Q2 2021, primarily due to a combination of factors, including a gain at $61 million of nonrecurring items from Q2 last year that made the prior period higher, also the inclusion of $30 million of interest costs in the quarter this year due to a change in timing of our bond coupon payments post our November 2021 bond refinancing and also a favorable withholding tax impact in Nigeria.

Excluding the nonrecurring items last year and normalizing for the new Q2 2022 interest costs, RLFCF would have increased by approximately 5%. Our RLFCF cash conversion rate was 36.6%, down on the year, but up almost 100 basis points from last quarter. As you think about your models in the second half, given the positive impact from timing of maintenance capex we’ve seen in 2Q 2022, we expect to set up in maintenance capex spend in 3Q 2022. Additionally, there will be higher interest expense in Q2, given new South Africa related financing and bond coupon phasing. That will reduce our RLFCF quarter-over-quarter, but RLFCF in 4Q 2022 should be developed to this second quarter.

Turning to capex in Q2 2022, capex of $147 million increased 93% year-on-year primarily due to increase in Latam, following the I-Systems and SP5 acquisitions. Increased capex in connection with the South Africa acquisition and the license renewal in Cameroon as well as increased capex in Nigeria relating to new site capex.

On Slide 16, we look at our capital structure related items. At June 30, 2022, we had approximately $3.7 billion of external debt and IFRS-16 lease liabilities, up from almost $3.1 billion at the end of March, 2022. This change was driven in large part by increased debt from the $280 million drawdown on our bridge loan in connection with the South African acquisition, as well as the implementation of a local credit facility in South Africa and facilities drawn down in Brazil.

Of the $3.7 billion of debt, $1.94 billion represent upon financing and $332 million of our senior credit facilities at our Nigeria segment. Our undrawn group revolving credit facility remained at $270 million. Cash and cash equivalents increased to $567 million at the end of the quarter in terms of where that cash is held approximately 8% of the total cash was held in Naira in our Nigeria business and most of the remaining cash was held in U.S. dollars.

In terms of upstreaming, while we intend to disclose the amount we upstream on our 4Q earnings call each year, on our first quarter 2022 call, we did disclose that we’ve already sourced an upstream over $100 million in Nigeria and following and including the completion of that upstream, we have now upstreamed a total $147 million from Nigeria as of the end of Q2 2022. This upstream satisfied all USD debt obligations for this year, which is one of the objectives of our upstreaming program that we don’t expect late on the currency in the upstream as and when necessary.

The conversion rate was at a previous to the current FX rate that meaningfully delays the parallel rate. Our consolidated net leverage was approximately $3.2 billion with a consolidated net leverage ratio of 3.1x, which now reflects the closing of the acquisition and the related financing. This is at the low end of our net leverage target range of three times to four times and further demonstrates our strong balance sheet. You’ll note that we’re now highlighting that 77% of our debt is in cost currency with a fixed floating ratio of 63%, 37% respectively.

Our weighted average cost of debt is 7.8% as of 30 June, 2022. Now moving to Slide 17, you can see we are raising our FY ’22 revenue guidance by $10 million at the midpoint of the range and that we are maintaining our guidance for adjusted EBITDA, RLFCF and capex. Step-up in revenue largely reflects upside from the updated FX rates we are now assuming and greater power indexation revenue. As announced, we completed the GTX FS5 acquisition on May 31 and in the abbreviated quarter i.e., one month we did not see any incremental pass-through associated revenue on the 5,691 acquired towers that will come into our revenue and costs in due course. We continue to exclude it from our guidance as we did last quarter.

Speaking to adjusted EBITDA and RLFCF guidance for a moment, we want to acknowledge that the price of diesel in Nigeria is proving more dynamic than initially anticipated as a result of an increased premium being applied to the importation of refined products like diesel into the country. This is widened the effective spread between global oil price and local diesel price in Nigeria, although they remain approximately correlated. Whilst we saw some impact of this in Q2, we cautiously assume this may continue for the rest of this year. With oil currently around $100 per barrel as we sit here in mid-August, we are looking at whether we can lock in our diesel price for the remainder of the year. This will supersede our previous statement that every $5 change in oil should equate to an invested $7 million annualized impact to adjusted EBITDA.

Given all of these dynamics, we feel comfortable with our adjusted EBITDA and RLFCF range, but continue to closely monitor the situation and we’ll update you all at Q3. Regarding new sites, we reduced our target to approximately 1,750 from approximately 2,350 towers. It has a minimal impact on our financials and is due to timing delays resulting in part from the current macro environment. And as noted earlier, we expect the sizable step up in the second half, particularly in Nigeria from rural new sites.

Overall, we believe the business is proving resilient, given the macro hedge headwinds we are facing. Taking all this into account, we believe that revenue in FY ’22 will now range between $1.885 billion and $1.905 billion on a reported basis, which represents 20% increase at the midpoint of the range versus last year and approximately 15% organically. Having just lapped a more difficult year-on-year comparisons in the second quarter of 2022 that drove organic growth to approximately 10%, we now expect organic growth to rebound back into the high teens in the second half.

We continue to believe that adjusted EBITDA will range between $1.005 billion and $1.025 billion, while we continue to believe that our RLFCF will range between $310 million to $330 million. Here, the key point remains with the carrying $23 million increased interest costs year-on-year from the bond deal that we did late last year and we are also remaining cautious on the wider interest rate environment around world impacting our interest rates. Also, clearly, diesel price impact dropped straight down to RLFC.

We are also maintaining our capex guidance of $545 million to $585 million, as noted, expect to increase our 2022 capex guidance late this year when we announced Project Green and we look to invest this year to start driving savings in 2023. On Slide 18, we discuss how FX impacts our business. On the top, you can see revenue by reporting currency, whereas on the bottom, we provide the breakout of revenue based on contract split. For those who may be less familiar, recall that while we are paid in local currency in each of the countries we operate in, in certain situations, portions of the contracts are linked to hard currencies such as the U.S. dollar or euro where the amount of customer paid in local currency adjust based on the exchange rate associated with hard currencies.

These structures help protect against FX devaluation, the impact of which is reflected in our FX reset component in our organic revenue breakout. The more information on our FX resets, please see Page 20 in the appendix. Also, please be aware that there is not a hard currency component to our contract structure in South Africa, which should impact the percentages shown on Slide 19 with a full quarter impact next quarter. This now brings us to the end of our for presentation.

But before we open for questions, I want to take a moment to also cover what call we mentioned earlier about the restatement of our financial statements for the 2021 fiscal year and the amendment to our annual report on Form 20-F/A filed this morning. As we said, this is related to an error on the provisional business combination accounting for the company’s November 2021 acquisition of the 51% controlling interests E&I systems. While we’re disappointed that this error occurred the restatement, we’d again like to emphasize that the restatement has no impact on previously reported revenue, operating profit, loss for the year, adjusted EBITDA, cash from operations, recurring levered free cash flow or leverage, nor does this direction affect the company’s underlying business operations. As you will have seen from our 2Q 2022 results this morning, we have also updated the balance sheet position further as planned with no more course purchase price allocation accounting for the same I Systems acquisition, which gets done in the quarter post completion of the deal.

With that, we thank you for your time today and operator, please now open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Phil Cusick from JP Morgan. Please go ahead, Phil.

Phil Cusick — JP Morgan — Analyst

Hi guys, thanks. Steve, I wonder if you can dig more into your comments on the relative price of diesel versus oil? And any update on the refinery in Nigeria? And then, Sam, can you just give us an update on the Nigeria business in general, anything shifting among your customers as currency volatility has been a little tougher. Thank you.

Steve Howden — Executive Vice President and Chief Financial Officer

Hi, Phil. Thanks for the question. So the quick one first on the refinery, no real update what we’ve gone to before. We think it’s late this year, probably more likely post the elections in Nigeria next year coming online that sort of end of February 2023 when those elections are, so I would expect the refinery to come online after that being well. In terms of diesel price, yeah, as you said, we’ve seen a bit of fluctuation around that in the quarter in particular. So we’ve — headline saw oil price move from $101 to $114 Q1 to Q2. We got a bit of a catch-up to do with pass-through revenue as well, which is reflected there and then we’ve seen sort of, call it, $3.5 million to $4 million impact on pure cost running through this quarter. So that’s where we’re saying being more cautious through the second half of the year. And as I said in the prepared remarks, that’s really driving from an increase in cost refined products into Nigeria. So there’s a shortage in refined product globally and so getting into Nigeria as cost a bit more in the quarter.

Sam Darwish — Chairman and Chief Executive Officer

And hi, Phil. in terms of customers, Nigeria remains growing at a quick pace. MTN declared the results just recently. And if see a 50% increase in the revenue year-on-year, certainly it’s being similar by slightly less aggressive data has more headwind because of the diesel and at the end but the trend in Nigeria remains the same, and we expect it to continue in the foreseeable future despite the election and the current political situation.

Phil Cusick — JP Morgan — Analyst

Okay. And if I can one more. What is the potential for upstream cash out of Nigeria look like now. Given you’ve already done a lot of you effectively out of that market until after the election.

Steve Howden — Executive Vice President and Chief Financial Officer

We’re not out of that market, no, but we will continue to assess through the second half of this year whether upstreaming makes sense based on the cost to do it. So as you say, we’ve done a significant amount in when this Q2 of this year. So we’re okay from that perspective. But if at the right price, then we’ll look at it, but we don’t need to.

Phil Cusick — JP Morgan — Analyst

Thank you.

Sam Darwish — Chairman and Chief Executive Officer

Thanks, Phil.

Operator

The next question comes from Greg Williams from Cowen, please go ahead.

Greg Williams — Cowen and Company — Analyst

Great. Thanks for taking my questions. First one is on the M&A landscape. Just wondering what you guys are seeing if multiples are remaining sort of stubbornly high or if they’re softening and maybe the cadence of the deals you’re seeing. Second is just on the tower build guidance. You’ve lowered it in Nigeria and Brazil, and you mentioned timing in general market conditions. Is that out of your hands being permitting and inflation or labor and equipment? Or is that something under your control because of rising cost of capital? Thanks.

Steve Howden — Executive Vice President and Chief Financial Officer

Thanks, Greg. So the last one on the GTS. That’s really a few things. So firstly, customer demand just squeezing into next year; and secondly, supply chain of getting equipment in the right areas. So we expect most of those volumes to catch up through the course of 2023. So really, it’s a timing piece, the reason for the reduction as we go in towards the back end of the year. And then on the M&A landscape multiples, I think we’re — Sam will jump in as well. I think we’re seeing a slight cooling in multiples, but it really depends on case-by-case situation. We’ve completed a number of acquisitions in recent quarters. So a busy kind of integrated now into the business. But I would say, yes, we started to see slight cooling as a buyer potentially, we’d like to see more cooling.

Sam Darwish — Chairman and Chief Executive Officer

Yes. I think we’ve seen some processes being closed due to kind of like higher expectations from the sellers. We’ve done the deal with GTS and Brazil with and again in South Africa, both came at nice multiples, SBA just announced recently with GTS, which was also — which also came a multiple. We don’t see pressure on seller to sell, to be honest. But again, that could be — there could be a lagging aspect. But for sure, we’ve seen some softening in general.

Greg Williams — Cowen and Company — Analyst

Got it. Thank you.

Operator

The next question comes from Brett Feldman from Goldman Sachs. Please go ahead, Brett.

Brett Feldman — Goldman Sachs — Analyst

Thanks. Thanks and sorry to follow up on the diesel question. But if I just think about the original guidance expectation that the average cost of diesel would be about $120 a barrel over the course of the year, that’s about a 20% premium to what diesel is actually going for in the market. So it would seem like you’ve got a 20% buffer to account for this incremental cost of importing refined products. And I’m curious, is that essentially what the premium is now? Or is there actually still some conservatism baked into what you’re implying? And then I know that you don’t have anything for Egypt in your guidance, but I was hoping if you could just give us an update on where you stand with the opportunity to start building out in Egypt. Thank you.

Steve Howden — Executive Vice President and Chief Financial Officer

Brett, as I said there’s some — in terms of the numbers that we’re getting here in Q2, there’s a movement from $100 to $114, is less than $120 per Barrel, but there’s also some, let’s say, volatility in terms of timing of collection of pass-through revenue as well, which is not reflected here. There’s not quite as simple to doing a apples to apples. But you’re right, there is some additional buffer in there in terms of the premium that is costing us to get into the country. And that’s what we said.

As I mentioned before, there’s about $3.5 million to $4 million of real cost pressure coming to this quarter from oil, from diesel. And then in terms of Egypt, no, still outside of the guidance. Still a country which we obviously did a lot of work in talking to the customers, posing different things to them. We’ll bring it to the guide when we feel like there’s something concrete to do so. So still very much a country of interest but not at a stage yet where we’ve got something in source signed in terms of roll-out.

Brett Feldman — Goldman Sachs — Analyst

Thank you.

Operator

The next question comes from Jon Atkin from RBC Capital Markets. Please go ahead, Jon.

Jon Atkin — RBC Capital Markets — Analyst

Thanks. On the build-to-suit topic, I wonder if you could just remind us what your expectations are around multiple tenancy as well as to what degree in general, perhaps on a prospective build-to-suit commitments, do you see competition for these contracts with the MNOs.

Steve Howden — Executive Vice President and Chief Financial Officer

Hi, Jon. So you wont be surprised hear me say, different market by market. I mean, generally speaking, we would expect GTS will newbuild towers to get to 2 times between 5 years and, let’s say, 7 years, depending on the market in which there is. Now that picture can be slightly muddy. For example, the rural rollout that we have in Nigeria, that’s not intended to get to 2. That’s really a 1-plus part of it for the colo as well. So it’s not quite as simple as that. But if we’re just talking traditional macro site, we hope that vintages get to 2x in 5 to 7 years depending on the country in which we operate. And then in terms of dividend for new build sites. Sorry, Jon, go on.

Jon Atkin — RBC Capital Markets — Analyst

No, please go ahead.

Steve Howden — Executive Vice President and Chief Financial Officer

So in terms of competition for new build sites, again, market by market, somewhere like Brazil is reasonably competitive given the amount of telcos that are in the market as we’re all aware, [Technical Issues] it’s less where we still continue to get decent volume of decent market share in countries like Nigeria and across our Sub-South African market. In Middle East, Kuwait is country there, we’re pretty much the only provider of the towerco, so sort of a competitive market.

Jon Atkin — RBC Capital Markets — Analyst

Okay. Two more, first, just on the hybrid solutions and then adding grid connectivity. I know you’re going to talk about that more later. But just in general, anything about the velocity at which you affect those conversions, particularly the on-grid portion but also hybrid, anything different that we’re seeing now compared to previous periods. Maybe give us a little bit of a sense of that.

Sam Darwish — Chairman and Chief Executive Officer

We want to intensify the usage of these products, technology has evolved, the efficiency of solar has evolved, the efficiency of lithium ion kind of cycles it can generate versus costs. All these have evolved, and we basically have revisited our network across the various geographies and we realize there are a lot of pockets where we can design particular products that can improve the efficiency of the usage of diesel, and that is basically at the essence of what we’re trying to do. I mean, we’re trying to reduce our diesel consumption but it is definitely in a renewable rate. That’s as far as geography is, Jon.

Jon Atkin — RBC Capital Markets — Analyst

And then lastly, just any quick update on in building small cells fiber connectivity, some of your non-macro tower solutions.

Sam Darwish — Chairman and Chief Executive Officer

We remain one of the biggest SaaS players in Brazil across our markets. We remain committed to small cells. But I haven’t seen a substantial uptick in the line of the usage of small cells in our market, but we are ready. I mean, we feel that it will take some time, given that 5G has just been optioned in Brazil, 5G spectrum has just been awarded in South Africa. It hasn’t happened in Nigeria on a scale yet, on a larger scale. We haven’t seen a lot of 5G deployments happening just yet. And we see at the beginning, probably be some kind of overlay layer using macro towers before they move into more small cells and building coverage but that would happen at some point, and we are ready, given that our fiber to the home network that we have acquired in Brazil covering 70,000 kilometers of fiber sales. We’re building aggressively in Nigeria, we have a land bank in Brazil that we have acquired when we acquired Skysites two years ago. So we are ready, but we haven’t seen an uptick in the usage of small cells as of now.

I think, Jon, we’re still — you’ve heard me talk about 5G rollouts for and I think our base case is still that it’s starting to happen in pockets across the different markets, but real commercial rollout, we would expect probably end of next year 2024 and I think we’re changing that fee right now it seems to be the…

Steve Howden — Executive Vice President and Chief Financial Officer

So some of our customers in Africa, Jon, are beginning to talk more about a faster deployment, but nothing is reflected in our guidance, until they take concrete steps and make concrete moves, we will stay prudent around that one.

Jon Atkin — RBC Capital Markets — Analyst

Thank you very much.

Steve Howden — Executive Vice President and Chief Financial Officer

Thanks, Jon.

Operator

[Operator Instructions] Our next question comes from Simon Coles from Barclays. Please go ahead, Simon.

Simon Coles — Barclays — Analyst

Hi guys, thanks for taking the questions, just dive in a little bit on South Africa, there’s obviously lots of potential scenarios that are being talked about in the press. Could you just remind us sort of the protections you have in your contracts, so any potential consolidation risk? And then if we think about the growth outlook for South Africa, do these conversations between the operators maybe push back some of the colocation growth that you were hoping for, given they’re in discussions about various other things and that’s mainly going to be a lot of ahead for that? And then maybe it’s too early, but I’ll try on Project Green, how should we think about the scope of this project? Is it targeting across the whole group? Or will you probably start going market-by-market, so maybe starting with some of the smaller markets before maybe moving on to the larger ones like Nigeria? Thank you.

Sam Darwish — Chairman and Chief Executive Officer

Thanks, Simon. Look, starting with South Africa, we have a liquid protection in our contracts, I mean I’m not going to go into the details of that at the moment, but we do have I think with protection. Having said that, with all prevy and with kind of like we’ve highlighted the fact that Telkom and MTN have already announced the discussions around the potential merger, rain kind of like raised their hand and said, what about us, we are a potential candidate, there are also public processes with some of these MNOs tanks as their towers, which we are involved in at the moment.

Look, we will monitor the situation and see how it evolves, but to be honest, I do see opportunities and things like that happening. There are synergies, there are opportunities that could improve margin, that would also generate growth with consolidation of this nature. So I would only look at the last half, half empty year, there are other positive prospects that could come out of this.

Steve Howden — Executive Vice President and Chief Financial Officer

I mean I would also add some generally speaking, bigger healthier customers are right? So whichever combination you look at MTN or Telkom, Rain or versus quote, you all tend to play out positively in the future as well, especially as we get the 5G coming in South Africa. So we’re pretty helpful.

Sam Darwish — Chairman and Chief Executive Officer

I think the important dynamic also in South Africa, Simon, before I move on, it should be kept under close watch is the load shedding situation The situation was outcome sadly, it doesn’t seem to be improving, which means the MNO, the carriers will need to kind of pay special attention, special focus for that. Given our expertise, our very deep expertise in managing power in Nigeria and d’Ivoire Cote and Cameroon and in various Sub-Saharan Africa, we feel we are at the foremost of finding solutions that problem in South Africa.

We and MTN have a deep already to cover roughly 13,000 sites, we hope to extend that over time. Other carriers, we hope to also extend recovery or the protection again at even further or deeper level if that happened, hopefully not. So a lot of opportunities in South Africa that fiber to the home is also an opportunity for us, of course the fiber to the tower is the key angle. But again, South Africa remains underpenetrated when it comes to covering home.

So massive opportunity that could be considered over time for an [Indecipherable]. So the opportunities are fast, not only around towers, but there could be also other aspects at Power as a Service and for fiber or other things. Now in terms of the Green Project, the focus is largely on Nigeria at the beginning. I mean we have 11 countries across our portfolio, 760 million people covered, of course, the Latam situation, Brazil, Colombia, Peru, it is not a critical as the African situation. Kuwait, not as critical and even within the African geographies, you’ll find that Nigeria is the most critical given its size and given it’s dependent on diesel. 95% of our towers in Nigeria, Simon, do not have connection, I mean, that’s the size of the problem, in a country with 250 million people. I mean that’s the problem, that’s the opportunity for us.

Simon Coles — Barclays — Analyst

Great. Thanks, guys.

Colby Synesael — Senior Vice President of Communications

Operator, there is no more additional self side questions in the queue. I think we’ll conclude the call here. We thank you everyone for joining and this does conclude our call.

Sam Darwish — Chairman and Chief Executive Officer

Thank you.

Steve Howden — Executive Vice President and Chief Financial Officer

Thank you, all.

Operator

[Operator Closing Comments]