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Contents Living our values Integrity pg.24 Living our values Excellence pg.28 Living our values Partnership pg.26 Overview 01 Key highlights 02 At a glance 06 History of Helios Towers Strategic Report 08 Chairman’s statement 10 Chief Executive Officer’s statement 14 Chief Financial Officer’s statement 18 Business model 20 Key strengths and investment case 22 An overview of our markets and trends 24 Living our values 30 Operating review 36 Detailed financial review 41 Risk management 42 Risks related to the Group and our business 44 Sustainability Governance Report 46 Board of Directors 50 Executive team 52 Board committees 54 Directors’ report 55 Directors’ responsibilities statement 56 Glossary Financial Statements 58 Independent auditor’s report 60 Consolidated Statement of profit or loss and other comprehensive income 61 Company Statement of profit or loss and other comprehensive income 62 Consolidated Statement of financial position 63 Company Statement of financial position 64 Consolidated Statement of changes in equity 65 Company Statement of changes in equity 66 Consolidated Statement of cash flows 67 Company Statement of cash flows 68 Notes to the Financial Statements 102 Officers and professional advisors www.heliostowersafrica.com 345.0 282.5 Key highlights Financial Revenue US$m 2017 2016 +22% Adjusted EBITDA(1) US$m 2017 2016 +39% Adjusted EBITDA margin(1) % 2017 2016 105.2 +5 percentage points 37% (24.0) Operating loss US$m 2017 2016 –31% Operational Total sites(1) 2017 2016 +1% Total colocations(1) 2017 2016 +7% Tenancy ratio(1) 2017 2016 +3% (1) Please refer to pgs 56–57 146.0 42% (34.9) 6,519 6,477 6,468 6,032 1.99x 1.93x Financial highlights • Revenue increased 22% year-on-year. 80% of revenue from investment grade or near investment grade customers • Adjusted EBITDA up 39% year-on-year with Adjusted EBITDA margin at 42% • Operating loss decreased 31% year-on-year • Cash and cash equivalents of US$120 million at the end of the period (31 December 2016: US$134 million) For further information pgs 36-40 Operational highlights • Tenancy ratio improved to 1.99x from 1.93x • Total sites at 6,519, up 1% year-on-year • Total colocations at 6,468, up 7% year-on-year • Existing customers increasing equipment on sites driving amendment revenues and tenancies Helios Towers | Annual Report 2017 01 Strategic ReportOverviewGovernance ReportFinancial Statements At a glance Our assets We are the market leader, and sole independent player, in three countries: Tanzania, Democratic Republic of Congo (DRC) and Congo Brazzaville (Congo B). We also own a growing portfolio in Ghana, with a particular strength in high-traffic urban areas. Sole independent owner / operator in Tanzania, DRC, and Congo Brazzaville with greater than 49% market share1, and leading operator in Ghana. Focus on driving operational excellence and margin growth. Continue to look at acquisitions that fit strategically and deliver value. Sites 6,519 Tenants 12,987 Tenancy ratio 1.99x (1) By number of marketable towers 02 Helios Towers | Annual Report 2017 Key assets today 1 1 DRC 1.84x Tenancy ratio 1,819 Sites 3,347 Tenants 1 Tanzania 2.12x Tenancy ratio 3,491 Sites 7,392 Tenants Ghana 2.09x Tenancy ratio 825 Sites 1,723 Tenants 1 1 Congo B 1.37x Tenancy ratio 384 Sites 525 Tenants Overview Our customers Our core business is to provide mobile network operators (MNOs) with tower site space, power and related services for their active network equipment. As our markets have little or no fixed line voice or data infrastructure, the services we provide are essential for the development of communities. We promote sharing of infrastructure through colocating multiple MNOs on each tower site. This consolidation of assets not only delivers maximum cost benefits to our customers but also reduces the environmental impact for the local populations we serve. In addition, we construct new assets including ‘build-to-suit’ (BTS) towers, and localised small cell and in-building solutions. These are located in high-potential areas where our customers are looking to expand, due to the continued growth of mobile voice and data communications across our markets. Africa’s Big-Five MNOs Contracted revenues 80% • Airtel • Vodacom • Tigo • Orange • MTN Revenue by customers 2% 80% Africa’s high-growth challengers 18% Africa’s Big-Five MNOs Africa’s high-growth challengers Other operators Contracted revenues 18% • Viettel • Africell Other operators Contracted revenues 2% • Smile • Simbanet • Orioncom • TTCL • Zantel • and 24 others Helios Towers | Annual Report 2017 03 Strategic ReportOverviewGovernance ReportFinancial Statements At a glance What we do Our principal business lies in building, acquiring and operating telecommunications towers that are capable of accommodating and powering the needs of multiple tenants. These tenants are typically large MNOs and other telecommunications providers who in turn provide wireless voice and data services, primarily to end-consumers and businesses. We also offer comprehensive tower-related operational services, including site selection, site preparation, maintenance, security and power management. We provide space on our tower sites under a combination of master lease agreements (MLAs), which provide the commercial terms that govern the provision of tower space, and individual site agreements (ISAs), which act as an appendix to the relevant MLA and include site-specific information. We also enter into ground lease agreements with property owners to host our sites on their land. Our tower site portfolio consists mainly of four-legged, heavy duty ground-based towers, typically ranging in height from 35 to 70 metres. Subject to environmental permits and impact assessments, we may also be able to build higher towers when circumstances require. These include towers in valley locations, or those that are required to deliver a greater range of transmission. Active/passive equipment In diagram 1 (top, next page), the equipment on the tower and the outdoor cabinet are owned and maintained by Tenant A, anchor tenant, while HT owns and maintains the passive infrastructure. This includes the tower’s diesel generator, battery backup system, site monitoring system and, if applicable, hybrid and solar technology. Colocation tenants In diagram 2 (centre, next page), Tenant B is a ‘colocation’ tenant and shares the passive infrastructure (which we provide) with Tenant A, an existing tenant on the tower. Colocations sit at the heart of our business model as they allow us to grow revenue and improve operating margins without significant additional capital expenditure. Existing tenants adding more equipment In diagram 3 (bottom, next page), the additional equipment added by Tenant B attracts further charges, in line with contracted menu pricing. We call this additional income ‘amendment revenue’. Total sites +1% 2017: 6,519 2016: 6,477 Total colocations +7% 2017: 6,468 2016: 6,032 04 Helios Towers | Annual Report 2017 Overview Tenant A equipment Tenant A outdoor cabinet Generator Batteries & rectifier Fence National grid power Solar panels Tenant B outdoor cabinet Tenant B equipment Additional Tenant B equipment Helios Towers | Annual Report 2017 05 Strategic ReportOverviewGovernance ReportFinancial Statements History of Helios Towers Helios Towers was formed in December 2009 with the vision of becoming a major infrastructure player in the burgeoning mobile markets of Africa. We have grown through purchasing tower networks from MNOs and by building our own towers to serve the rapidly ascending growth curve of subscribers and technologies. Our story began in Ghana in 2010, where we pioneered the acquisition of tower infrastructure in Africa, in a transaction with Millicom that gave us an opening fleet of 831 towers. These were rapidly followed in 2011 by a further 1,721 towers acquired in Tanzania and DRC. The next year, 2012, saw us construct our first build-to-suit towers (259 sites, in Tanzania). We entered our fourth country, Congo Brazzaville, in 2015 with the acquisition of 393 sites from Airtel. Over seven years we have made seven acquisitions totalling more than 4,900 towers, constructed over 1,600 towers, and added almost 13,000 tenancies. 7 acquisitions >1,600 BTS towers completed in 7 years adding >4,900 towers delivered and added almost 13,000 tenants 2,974 297 14 (47) 2,710 2,710 259 13 (79) 2,517 4,656 496 1,186 2,974 2,517 1,721 (35) 831 831 831 2010 Closed Ghana transaction (Millicom) 2011 Closed DRC and Tanzania transactions (Millicom) 2012 HT begins construction of BTS in Tanzania 2013 Construction of additional BTS in Tanzania 2014 Closed Tanzania transaction (Vodacom) Existing towers Consolidations Site asset purchases New build (BTS) Total towers 06 Helios Towers | Annual Report 2017 Overview Quality joins quantity Committed investors We are also proud that our cohort of founding investors – HIP, Soros, RIT, Albright and IFC – have not only been with us since day one, but have increased their commitments to the business. Together with resources, they bring deep knowledge and experience of Africa. The shared purpose and vision of management and shareholders positions the business to thrive in Africa’s exciting and under-penetrated mobile markets. 6,519 126 22 (106) 6,477 At its inception, the Group’s strategy was to build up a significant numerical presence of infrastructure assets. With critical mass established, a fresh management team came into post in May 2015, led by our CEO Kash Pandya, with an executive team comprising internal promotions and external specialist hires. The focus now moved to business excellence and integrating assets; while continuing to expand our networks, the imperative of improving quality of service and implementing efficiencies became the strategic priority. By bringing Lean Six Sigma methodologies to bear, the business has made considerable and rapid progress in both quality and efficiency. A ‘One Team One Business’ approach has also brought standardisation and business excellence across the Group. 6,477 239 961 (147) 5,424 5,424 244 535 (11) 4,656 2015 Closed Congo B transaction (Airtel) 2016 Closed DRC transaction (Airtel) 2017 Closed Tanzania transaction (Zantel) Helios Towers | Annual Report 2017 07 Strategic ReportOverviewGovernance ReportFinancial Statements Chairman’s statement A Company of its time I had the great pleasure of being appointed Chairman of Helios Towers on 1 January 2018, just as the 2017 reporting year had come to a close. So the fact I was not yet part of the story you will read in these pages means that I can share with you some objective impressions of the business. I think they illustrate why I feel privileged and excited to take on this important role. Helios Towers is very much a company of its time. In a business climate where consolidation and efficient use of resources have never been so important, HT’s core offering equips mobile network operators to achieve precisely those aims. In turn, our service delivers competitive advantages that feed through to end-consumers, and accelerates the rollout of wireless technology – an urgently needed resource in developing countries. HT’s proposition to network operators also delivers environmental benefits, enabling fewer towers to do more work. This reduces visual impact, lowers emissions and improves reliability of their networks. It is an efficient and innovative business model, and our rate of growth, reputation and impressive market leadership are eloquent tributes to HT’s strategy, technology and quality. I am an engineer and my career has been focused on creating and developing products and services for diverse requirements, including iconic programmes such as Crossrail, HS2, the London Olympics, the ITER nuclear fusion project and the Eurofighter Typhoon. I understand how well-executed infrastructure programmes can add significant economic and social value to nations and societies. This is what we’re delivering at HT, and in territories where there is vast capacity for market growth. HT has the team, the resources and first-mover advantage, and I am looking forward to helping the business realise its full potential in 2018 and beyond. Allan Cook CBE Chairman, Helios Towers Allan Cook, Chairman I am delighted and excited to be appointed as Chairman of Helios Towers, and I look forward to working with the executive team in continuing to deliver the Group’s growth strategy. The strength and vision of the management team positions Helios Towers well for further growth, and I welcome the opportunity to make a significant contribution to the business. 08 Helios Towers | Annual Report 2017 Strategic Report Helios Towers | Annual Report 2017 09 Strategic ReportGovernance ReportFinancial StatementsOverview Chief Executive Officer’s statement Powering the growth of African mobile Helios Towers is an expert enabler; our infrastructure is playing a key role in the rollout of mobile telecommunications in Africa. Mobile network operators and other telecoms services use our network of towers to carry voice and data services to their end-users of consumers and businesses. We operate in under-penetrated markets that are not only profitable now, but have years of growth ahead of them. In three of our four markets – Tanzania, the DRC and Congo Brazzaville – we are the market leader, owning and operating more towers and related passive infrastructure than any competitor. In the fourth, Ghana, we are a leading player with particular strength in the lucrative urban areas. Performance overview Helios Towers traded strongly in the year, delivering robust Revenue growth of 22% to US$345.0 million, Adjusted EBITDA growth of 39% to US$146.0 million, and improvement in our operating loss to US$24.0 million from US$34.9 million in 2016. The Group has delivered good organic growth, driven by new tenancies and improved operational efficiencies, as well as an encouraging contribution from acquisitions. The business remains well positioned in all its key markets: • Tanzania has recorded a solid performance with Revenue growth of 15% to US$141.2 million and Adjusted EBITDA growth of 30% to US$66.8 million • DRC has delivered Revenue growth of 37% to US$140.2 million and Adjusted EBITDA growth of 43% to US$66.5 million • Congo Brazzaville has recorded a Revenue decline of 1% to US$23.4 million and Adjusted EBITDA decline of 11% to US$9.8 million • Ghana has delivered solid organic Revenue growth of 17% to US$40.1 million and Adjusted EBITDA growth of 61% to US$17.8 million Creating confidence through performance In March 2017, we successfully issued a US$600 million bond (please see the Operating Review, page 30). Among other things, this enabled us to invest in further growth opportunities including, in July, the purchase of all unique sites in the mainland tower portfolio of Zanzibar Telecom PLC (Zantel). The transaction marked our seventh purchase in as many years, and reinforced our leading position in Tanzania. Kash Pandya, CEO We can look back on 2017 with a great deal of satisfaction. It was a year when the results of the transformation programme we put in place in late 2015 started to flow through. By focusing on top line and, as importantly, bottom line growth, we saw tangible improvements across every key metric in 2017. Revenue +22% 2017: US$345.0m 2016: US$282.5m 10 Helios Towers | Annual Report 2017 Strategic Report Adjusted EBITDA +39% 2017: US$146.0m 2016: US$105.2m Our core strategic pillars Our six core strategic pillars focus on our goal of exceeding customer expectations. Growing with our customers Building partnerships Business excellence Continuous improvement across the business The Zantel deal followed our largest-ever tower network purchase, agreed with Airtel in the DRC in 2016, and both have brought volumes that enhance our ability to offer the compelling benefits of colocations. We have also made a long-term investment in our platform, upgrading sites both for future growth and to reduce opex. By removing capital intensity in future years, this will free up resources for new growth projects. This quality of infrastructure is matched by the calibre of our customers. Some 80% of our contracted revenues are derived from Africa’s Big-Five MNOs; 18% are from high-growth challenger brands; and 2% comes from a pool of over 20 other operators. Our five largest customers have something in common: they are all investment or near-investment grade MNOs, and have committed to long-term contracts of 10-15 years. So when we talk about top line growth, it is growth built on firm foundations and with minimal counterparty risk. Supply chain optimisation Driving efficiencies across the supply chain Business digitalisation Providing advanced technological solutions Revenue by country 41.0% 11.6% 6.8% Our people Recruitment and development of our employees Our company values Integrity, Partnership, Excellence 40.6% Tanzania DRC Congo B Ghana Helios Towers | Annual Report 2017 11 Strategic ReportGovernance ReportFinancial StatementsOverview Chief Executive Officer’s statement (continued) Our Business Excellence Programme continues to enhance our product performance and positions us to deliver long-term growth and future value for both our shareholders and bondholders. Improvement in downtime +80% against service levels of two years ago 2017: 4.1 minutes per tower per week 2015: 20.1 minutes per tower per week Improving, measurably I am a passionate believer in the value of Lean Six Sigma, the methodology of harnessing the power of teams to drive up performance by systematically removing waste and reducing variation. I encountered it first as a graduate trainee in a major automotive brand, and we have harnessed it to improve efficiency in every part of our business. Indeed, we are also extending it to our wider business ecosystem, actively investing in our maintenance partners to enhance their own ways of working. The most critical component of our offering is the reliable uptime of our towers. Operators look to us to maximise their revenues with a reliable, uninterrupted traffic flow of voice and data, and to protect and enhance their brands. Through integrating Lean Six Sigma processes into our business excellence programmes we have focused on the root causes of service interruption, and put in place pre-emptive processes and upgrades to manage down risks before they can become issues. As a result, in 2017 we achieved an average uptime of 99.96% across our towers, an improvement of 16 minutes per tower per week against service levels of two years ago. With contracts linked to our performance, this delivers not only satisfied customers but significant improvements to our bottom line. Additionally, we have also realised valuable efficiencies in our purchasing, energy, office space, payroll and other cost centres. In turn, these are helping us to offer highly competitive propositions to network operators, and enabling low-cost access to our extensive national networks. Long-term growth in vibrant economies Our four territories are exciting places to be. In terms of the maturity of the mobile sector, these markets are akin to the development of mobile in the UK and US a decade ago. We see at least 10-15 years of solid growth to come. This sector also sits inside vibrant and burgeoning economies; the IMF projects GDP growth across our four markets of 4.9%(1) by 2022, compared with an average of 3.5% across Sub-Saharan Africa (SSA) and just 1.7% for the G7. (1) Weighted average by HT Revenue 12 Helios Towers | Annual Report 2017 Strategic Report Real GDP Growth CAGR (2016-2022E) HT markets 4.9% SSA 3.5% G7 1.7% We are also serving a rapidly growing population, expected to rise by 19% to 206 million people by 2023. A significant majority (71%) are under 30 years old, tech-savvy, mobile- hungry, and who drive data usage with social media and streaming. Our customers will be looking to us to support this growth for years to come with expanded resources, locations and expertise. It is also good to report that we operate in a supportive regulatory environment. Our model of colocation means that an MNO can share our towers at a saving of some 35% compared with building and operating their own. In turn, this means they can offer very competitive tariffs to their customers, and new competitors are being encouraged by low costs and rapid speed to market. Colocation also means more technology concentrated onto fewer masts, better environmental outcomes and lower emissions. Powering forward As we move into 2018, we take forward a business that is robust, lean and focused, and well positioned to continue delivering for our customers, employees, investors and communities. Our agenda remains clear and focused: to deliver more of the same. We will continue to mine the considerable potential for growth, in markets that are not only under-penetrated but that have a rich future of enhanced services and technologies to come. We will deliver further efficiencies that play straight to the bottom line; consider fresh acquisitions, both in our respective countries and in wider emerging markets; and support our customers with a ‘real estate of power’ that is the backbone of their networks. I thank those loyal customers, and our fantastic and resourceful teams out in the field, as we continue on this exciting journey. Kash Pandya Chief Executive Officer Lean Six Sigma Case story #1 Creating a partnership with our partners The opportunity In Tanzania, Helios Towers had worked with maintenance partner Pivotech for six years, but in a traditional instruct- and-execute, customer/supplier way. Operational planning was disjointed and cumbersome, and often resulted in multiple visits to sites for straightforward tasks and deliveries. Also, there was no real platform for Pivotech to feed back ideas based on the wealth of experience they were gaining out in the field. The Six Sigma solution Together, we formed a ‘One Team One Business’ partnership, overhauling the current way of working and injecting lean thinking into every aspect of planning and site maintenance. We moved our Zonal Operation Managers into Pivotech’s offices on a permanent basis, removing barriers to joined-up working, and enabling fast quotations, approvals and same-day analysis of site issues. We also introduced a target of 1SVM – one site visit per month – to reduce the waste, costs and time caused by multiple visits, aided by preventative maintenance and better planning. Helios Towers also invested in selected Pivotech employees to undergo Lean Six Sigma Orange Belt training. Results • Preventative maintenance has led to a major reduction in special call-outs to sites, by around 81% • A significant reduction in site visits, from c.3,500 to 1,000 per month across the network maintained by Pivotech • By working together under the same roof, the joint operational team has been exceptionally effective in working through some 7,000 historic backlog issues, and continue to target further improvements • Road mileage driven for site visits has been reduced by around 250,000 km over 12 months, with direct benefits in terms of time, cost, emissions and exposure to road risk. Helios Towers | Annual Report 2017 13 Strategic ReportGovernance ReportFinancial StatementsOverview Chief Financial Officer’s statement A significant year of top line growth and bottom line efficiencies Group performance In 2017, Revenues grew by 22% from US$282.5 million to US$345.0 million. Adjusted EBITDA increased by 39% to US$146.0 million and Operating loss decreased by 31% to US$24.0 million. Loss before tax decreased by 9% to US$104.2 million. Revenue growth In 2017, we continued to support our customers’ rapid coverage, capacity and technology expansion needs. We saw strong growth from our three primary organic products of colocation, amendment, and build-to-suit, which accounted for over half of our year-on-year revenue growth. The remainder of the growth was from a full year of revenue on the DRC Airtel tower network purchase, which we completed in July 2016 and had fully integrated into our portfolio by the start of 2017. During the year we drove operational leverage on our established platform with the colocation and amendment offerings, benefiting from our previous capital upgrade programme on acquired sites. The investment programme has seen us invest around US$170 million since the Company’s inception in sites we acquired from mobile operators. Adjusted EBITDA margin growth 39.3% 38.4% 31.5 31.7 40.1% 33.3 40.2% 34.6 46.1% 41.2 42.3% 37.0 US$ millions 35.0% 35.0% 20.8 21.2 Q1’16 Q2’16 Q3’16 Q4’16 Q1’17 Q2’17 Q3’17 Q4’17 Looking back over the last two years, we have consistently delivered strong quarter-on-quarter growth in each quarter. Revenues increased by 1% quarter-on-quarter in Q4’17. Adjusted EBITDA grew by 5% in Q1’17, 4% in Q2’17, 7% in Q3’17 and 11% in Q4’17 with an improving Adjusted EBITDA margin profile. This demonstrates the strength of the organic and operational leverage of our business. We see this growth momentum continuing. Tom Greenwood, CFO Helios Towers grew in every quarter of 2017, improving our margin by delivering on the dual fronts of top line growth and operational efficiencies. Following the success of our US$600 million bond in March 2017, we deployed our balance sheet efficiently through the year, both on capital projects and in the buy-out of our last remaining minority holding in Tanzania. In summary, we closed 2017 with growth ahead of plan, and did this with lower- than-planned capital investment, delivering improved return on capital for shareholders. 14 Helios Towers | Annual Report 2017 Strategic Report Adjusted EBITDA margin +5 percentage points 2017: 42% 2016: 37% To our customers, we are essentially a location and power company that enables MNOs to provide communications. As such, the biggest single expense we face is the fuel to power our towers. During the year we made good progress in exploring efficiencies to drive down our fuel overhead, through deploying alternative sources of power. In 2017, we deployed 249 sites with new solar-powered technology, rolled out 375 grid connections where there is an available and reliable grid supply, and rolled out hybrid solutions to a further 331 sites. Most of these initiatives were coming online in the second half of the year and the rollouts will continue into 2018. This supports our exceptional customer service focus and differentiates us in the market, as the vast majority of our sites are ready to take additional tenancies immediately with minimal capital investment required. Overall, our top line growth and opex savings have driven a steady increase in our Adjusted EBITDA margin. In Q4’17, this stood at 46% compared with 35% in Q1’16. Liquidity and net debt position Following the issuance of our maiden US$600 million corporate bond, the Group has sufficient liquidity to fund its usual business activities. The Group also has access to a US$60 million RCF facility, which is currently undrawn. At 31 December 2017, the Group’s net debt position was US$595.2 million. Dividend Given the growth and investment opportunities, the Directors recommend that no dividends be paid for the year ended 31 December 2017. Corporate bond issue well received In March 2017, we achieved a milestone in our journey to date by issuing a maiden US$600 million corporate bond. We also received our first credit ratings – a B2 corporate family rating (CFR) by Moody’s Investors Service and a preliminary B long-term corporate credit rating by S&P. The bond’s success was a significant endorsement of the business’ strong fundamentals, track record and leading position in high-growth markets. It allowed us to refinance the debt of all four operating companies into a single, simple capital structure, and provided resources to fund fresh opportunities. The proceeds also enabled us to bring the HT Group into our full control, with the acquisition of Vodacom’s minority shareholding in our Tanzanian business. This productive partnership came about when we acquired Vodacom’s tower network in February 2014, with the transaction paid largely in Helios Towers Tanzania Limited (HTT) shares. Vodacom’s intention was always to monetise their interest at a suitable juncture and this was completed in October 2017. Strategic outlook In September 2017, we announced that the Company and its shareholders were considering strategic options for the business in order to drive its long-term growth. Following the successful bond issue in March 2017, one possibility may be to seek a listing on the London Stock Exchange. As we enter 2018, the position remains under review. Helios Towers | Annual Report 2017 15 Strategic ReportGovernance ReportFinancial StatementsOverview Chief Financial Officer’s statement (continued) Outlook 2018 Our main financial focus remains the same in 2018: margin expansion through continuing to drive the organic growth of our business, adding more colocation, amendment and build-to-suit tenancies while also delivering even deeper levels of efficiencies through further power projects and operational improvements. We will also consider further accretive bolt-on acquisitions, but only those that represent a strong complementary fit and a compelling business case. All revenue streams made increasing contributions in 2017 and we are well positioned to benefit from the increasing needs of MNOs as they roll out further. And there is significant expansion to come in all our markets: only 39% of people across our four markets have a mobile phone today, and less than half of them have a smart phone. With a forecast 47 million new subscribers coming online in the next six years, and 12 times growth in 4G subscriptions expected over the same period, the need for reliable telecoms infrastructure has never been greater. Tom Greenwood Chief Financial Officer Material recent developments Vodacom Buy-out in Tanzania • US$58.5 million option for Vodacom’s shares Tanzania listing Business Excellence Updated colocation KPI • Buy-out completed in October 2017 following Fair Competition Commission (FCC) and Tanzanian Communications Regulatory Authority (TCRA) approval • Recent Tanzanian law for network facilities licenses (incl. HTT) requires 25% listing of shares locally • 1 February 2017, HTT interim prospectus submitted • Undertaking capital reorganisation before submitting revised draft prospectus for approval • Operational improvement programme continues to be rolled out with rationalisation of maintenance partners, digitisation, office space reduction, improvement in towers per headcount • Growing trend of operators increasing the amount of equipment on towers due to technological upgrades which is in excess of the standard space and power allowances • Amendment revenue has become a larger driver of growth for the business and we have updated our KPIs to reflect this 16 Helios Towers | Annual Report 2017 Strategic Report Helios Towers | Annual Report 2017 17 Helios Towers | Annual Report 2017 17 Strategic ReportGovernance ReportFinancial StatementsOverview Business model We own and operate a fleet of 6,519 towers and other passive infrastructure in Africa, and offer a variety of models to suit our customers’ requirements. Our main customers are the Big-Five African MNOs and high-growth challengers. We leverage our expertise to create a platform for growth We own and operate towers and other critical infrastructure Business excellence Our Lean Six Sigma approach is driving operational efficiencies and improving customer service across our business and developing our employees as Orange/ Black belts. Relationships with customers and suppliers We have strong relationships with our diversified and high quality customer base and our suppliers based on trust and aim to use our high value product offering to improve operational performance and develop partnerships. Financial Our financial model of long-term contracted revenues which are structurally hedged against adverse currency movements leads to stable and visible cash flows. Management team We have a solid track record of operating in Africa and an experienced management team with over 100 years’ collective experience in emerging markets tower and power. Colocation Build-to-suit Amendment revenue High value operational offering Long-term, high quality contracts Stable and visible cash flows Expand our offering Underpinned by our values: Integrity, Partnership, Excellence 18 Helios Towers | Annual Report 2017 Strategic Report Colocation: We lease space and provide services on our towers to multiple tenants, allowing us to share maintenance and service costs and reduce our environmental impact. Our current tenancy ratio is 1.99x per tower and we expect this to grow further. Build-to-suit: We also build towers specific to a customer’s requirements. This includes strategic site selection, site acquisition and development, construction and equipment installation. We build sites in the right locations, which are designed to address needs of multiple operators using our in-house proprietary mapping tool. Amendment revenue: As technology evolves, our existing tenants commonly need to buy more space to put additional equipment on our towers. The tenants are charged for additional space and power usage. This is a growing opportunity for the Group. High value operational offering: We operate the towers for our customers, ensuring they have fast access to national networks and limited power downtime. Long-term, high quality contracts: We negotiate long-term contracts with robust, sustainable lease rates. This provides our customers with security and us with long-term visibility on revenues. Stable and visible cash flows: Our cash flows are protected from power and price inflation. and develop a sustainable, long-term business For society We contribute to building sustainable, local economies that enable businesses and individuals to connect and grow. For employees We provide employment and training opportunities for local people, with us and our partners. For the environment We reduce environmental impacts through our strategies of targeted site selection and colocation and our use of cleaner power sources (solar, hybrid, battery). Expand our offering: Leveraging our existing platform to expand into new markets and complementary infrastructure. For shareholders We offer financial returns and significant opportunities for future growth. Underpinned by our values: Integrity, Partnership, Excellence For further information pgs 24–29 Helios Towers | Annual Report 2017 19 Strategic ReportGovernance ReportFinancial StatementsOverview Key strengths and investment case Helios Towers has a strong platform for profitable growth, with leading positions in high-growth markets We are supported by our extensive asset base, a pioneering excellence and innovation programme, deep and long-term client relationships, high barriers to entry and a favourable regulatory environment. 01Market leader in three out of our four countries Helios Towers is the market leader in Tanzania (63% market share(1)), the Democratic Republic of the Congo (63%) and Congo Brazzaville (49%). We are also the sole independent owner/operator in those territories. In our other market, Ghana, we enjoy a strong urban presence, and with it excellent growth prospects driven by higher voice and data usage. By entering our markets early, we created a legacy advantage of owning the most attractive sites in the prime urban areas. We have built on that strength with our skills in reliable power management and tower planning/deployment, setting a high barrier to entry. For further information pg 02 (1) By number of marketable towers 20 Helios Towers | Annual Report 2017 1 Strategic Report 02 Supported by a positive macro environment Impressive GDP growth, rising living standards and a markedly young and mobile population are combining to create strong growth prospects for years to come. In our markets, over 71% of the population is under 30. This key target group is driving our customers’ need to meet the demand for voice and, in particular, data consumed through social media, streaming, mobile banking and the myriad possibilities of the internet. In addition, some 20 million more people are expected to move into cities, where our network is strong. Helios Towers is therefore well positioned to enjoy the resulting growth in under-penetrated markets, and where there is no fixed line alternative. For further information pg 18 03 Good earnings visibility Helios Towers operates long-term contracts with typical durations of 10-15 years. In addition, these contracts are hard-currency pegged (around 60% of our revenues are USD/EUR-linked) with clear escalators to protect against inflation and power price spikes. This visibility is further strengthened by a diverse, high quality customer base with no single customer reliance; 80% of our revenues come from Africa’s Big-Five MNOs and 18% from high-growth challengers. 04 Market-leading excellence and innovation Helios Towers has been a pioneer, bringing Lean Six Sigma practices to the African market and generating measurable and substantial benefits. US$36 million capex savings from 60 to 12 reduction in primary suppliers between 2015 and 2017 8.6 to 5.7 employees per 100 towers 85% reduction in downtime We have also generated significant savings through our innovative use of solar, hybrid and grid connections, with the future upside kept and a payback period of only 2-3 years. In 2017, this also avoided emissions of more than 8,250 tonnes of CO2. 05 Well positioned for future growth Our four markets are projected to see growth of some 47 million new subscribers by 2023. We stand ready to support that growth, building in the right locations to serve the operators’ network expansion plans. But even where MNOs choose not to roll out coverage, we are well positioned to gain instead from amendment revenue as they alter and increase their tenancies. Each market also offers the possibility of bolt-on purchases, both in neighbouring African markets and beyond, as well as the potential for us to leverage our expertise in areas such as small cells, fibre backhaul and data centres. For further information pg 03 Helios Towers | Annual Report 2017 21 Strategic ReportGovernance ReportFinancial StatementsOverview An overview of our markets and trends Africa has clear and compelling drivers that are propelling its mobile market forward The combination of its physical vastness, lack of fixed line infrastructure and a fast- developing economy means that mobile is much more than just a nice-to-have, it’s a critical part of everyday life. This need will become ever more acute: in our markets of Tanzania, DRC, Congo Brazzaville and Ghana alone, the population is projected to grow by some 27 million people in the next five years. That’s a greater increase than Western Europe, the USA, South America or Russia. Equally, it’s the quality of these markets – not just the numbers – that interests us: Driven by youth: In our four operating countries, 71% of the population is under the age of 30. These are the users who adopt new technology, inspire operators to innovate, and drive data usage. Urbanisation: Markets’ populations are increasingly relocating, with over 20 million people projected to move to cities by 2022, driving demand for more connectivity and data. The digital economy: from Twitter and WhatsApp to online banking and Uber, digital mobile increasingly drives and serves how people lead their lives and make economic choices. Mobile-dominated internet access: For most end-users, access to the online world depends on having a mobile. The ‘highest’ penetration of fixed line telecoms in our markets is in Ghana, at 3.2%. 22 Helios Towers | Annual Report 2017 Strategic Report Additional mobile subscribers (2018-2023) +47 million Additional points of service (2018-2023) +12,200 The continuing and growing opportunity for Helios Towers Our four markets have reached a compelling stage in their evolution. Mobile telephony is mature, proven and desirable, and growth is accelerating. Yet these markets are still under-penetrated: DRC stands at just 26% unique subscriber penetration and even our highest market (Ghana, at 66%) has years of subscriber growth to come (G7 countries: 85%). By 2023, it is projected that 47 million more people will become mobile subscribers in our four markets. And that in turn will require a major investment in network rollout, technologies and infrastructure to serve that demand. Based on today’s levels of network traffic and quality of service, telecoms consultancy Hardiman forecasts that our markets will collectively need 12,200 additional points of service by 2023. The regulatory environment is playing to our strengths, encouraging increased tower and infrastructure sharing, as well as offering incentives for coverage rollout to rural and poorer communities. Helios Towers is uniquely placed to serve the growing requirements of MNOs with tailored solutions, whether through colocations, build-to-suit towers, or both. Further opportunities for our business Against this backdrop, it is clear that expansion is firmly on our agenda. But how we approach this depends on market factors, local dynamics, and commercial decisions on newbuilds and/or acquisitions. In our four markets, the MNOs still own around 3,500 towers that they originally built. If they take the view that tower ownership is not their core business, as many have before, there may be acquisition opportunities there. With increasing urbanisation and the projected surge in data usage, we are also gearing up to support 4G and beyond. This includes a current trial of small cell network technology. In the future, there may also be opportunities to apply our core competency of real estate and power to other applications that deliver long-term contracted revenue. For example, we could create and support data centres, providing customers with secure space, power and the climate-controlled conditions that servers require. Or more simply, we could provide power for remote villages and businesses. In short, we could help power Africa’s growth in any number of ways. Mobile penetration by country 66% 53% 42% 26% Tanzania DRC Congo B Ghana Helios Towers | Annual Report 2017 23 Strategic ReportGovernance ReportFinancial StatementsOverview Living our values At HT we have three overarching values – Integrity, Partnership and Excellence. From the clear imperatives of our legal responsibilities, to how we act towards people, inside and outside the business, our values guide and govern how we behave each day. Integrity We subscribe to the tenet that integrity is “doing the right thing when no one is looking”. Our business has been built on integrity, which is our default position in everything we do and say. We act with openness and transparency, always seeking to do the right thing and never compromising our standards for gain or advantage. 24 Helios Towers | Annual Report 2017 Strategic Report Integrity defines us as human beings and how we interact with colleagues, customers, our partner-suppliers and communities. The Group is an equal opportunities employer and we treat all of our people fairly and with respect, whether they are full time, part time or temporary. We recruit, develop and promote employees on merit, regardless of gender, marital status, race, ethnic origin, colour, nationality, disability, religion, sexual orientation or age. Integrity also means complying with every applicable law, and creating an environment where everyone is encouraged to speak up if something isn’t right. We publish our Values, and Codes of Conduct for business and suppliers, for all to see on our website. ppi217 Helios Towers | Annual Report 2017 25 Strategic ReportGovernance ReportFinancial StatementsOverview Living our values Partnership The most fruitful businesses tend to be built on partnerships: where each party respects and benefits from the other. At Helios Towers we therefore invest in partnerships with each of our key stakeholders. Suppliers In many cases, our suppliers become an extension of our own business; in certain cases we share offices and embed our own people, breaking down silos and working in true partnership. We have also streamlined the number of suppliers we use, enabling us to focus better on each, invest in them, and drive up standards to the benefit of us all. 26 Helios Towers | Annual Report 2017 Strategic Report Helios Towers | Annual Report 2017 27 Strategic ReportGovernance ReportFinancial StatementsOverviewOur own people We have an entrepreneurial culture that thrives through our people who feel they are partners in a common purpose. We value talent and seek to create not only jobs, but careers. We invest in our people through training focusing on skill development, and by offering competitive rewards.Occasionally, this includes mobilising suitable candidates within the Group’s companies, helping to retain talent we have developed while offering interesting new assignments in contrasting markets. In 2017, we won two awards from TowerXchange, for our Lean Six Sigma and people development programmes.Customers Unlike many, we enter into contracts of typically 10-15 years’ duration with our customers. So, unlike client/supplier models characterised by ad hoc transactions or projects, we form partnerships for the long haul. In turn, this means constantly anticipating our customers’ needs, not only now but in years ahead, and never ceasing to drive up service levels and efficiencies. We regard customers as business partners; our futures are interdependent and we are proud of the emphatically positive feedback they communicate to us. Living our values Excellence We never forget that we are in the service industry and our constant goal is to be the best that a customer could choose. 19 Black belts 51 Orange belts 28 Helios Towers | Annual Report 2017 28 Helios Towers | Annual Report 2017 Strategic ReportWhen our new management came on-board in 2015, excellence was enshrined as one of our values: it was time to match our ability to acquire and build towers with unrivalled service levels, price points and solution-led thinking for our customers. To accomplish this, we adopted Lean Six Sigma practices, recruiting ‘Black belts’ to bring a fundamental change in our culture through a systematic approach to achieving excellence. We have trained 19 Black belts and 51 Orange belts, located mainly on the ground in our operating companies. We have also provided Six Sigma training to 7 maintenance partners. We have actively partnered with them, sharing their offices, exchanging new concepts and ideas, and moving our own team members into their operations. By making them better businesses, we’re improving our own. The results have been rapid, exceeding even the highest expectations of our customers. In Tanzania, for example, we have reduced average downtime at our towers from 21.9 minutes per tower per week in Q4 2015 to 1.5 minutes per tower per week in Q4 2017. This pursuit of excellence is also driving down both the costs and environmental impacts of the power we generate as well as reducing service visits. Lean Six Sigma Case story #2 Creating a partnership with our partners The opportunity NEWL provides maintenance support for 965 of our sites in Tanzania, and has worked with Helios towers for four years. Site visits were high due to a lack of coordinated activity and to issues not being fully closed out. There were instances of over- resourcing in some areas, as well as a sense of ‘police & culprit’ rather than a joint effort, resulting in a lack of transparency. The Six Sigma solution Working closely with NEWL, we implemented our ‘One Team One Business’ approach, fundamentally shifting the culture to one of a joint enterprise. This was reinforced by moving four HT staff into NEWL’s offices, immediately boosting interaction and decision- making. Our people also attend daily Visual (i.e. face to face) Management meetings, where decisions, commitments and results are given on the spot. We also sponsored Six Sigma training for selected NEWL staff, and introduced 1SVM (one site visit per month), enabled by the close synchronisation of planning and resource from both partners. Results • A major reduction in required site visits from 3.0 per month to 1.2 • Significant attendant savings in time, mileage and opex, particularly in fuel (reduction of fuel used on site visits by 40%) • A 90% reduction in downtime penalties payable to HT, and therefore a significant improvement in rebates due to our end customer • The average downtime of sites maintained by NEWL reduced by 54% • Greater effectiveness of preventative maintenance, audited jointly by HT and NEWL • Safety: closer coordination between our respective SHEQ departments, leading to cleaner, more environmentally compliant sites, with safer working conditions. Helios Towers | Annual Report 2017 29 Strategic ReportGovernance ReportFinancial StatementsOverview Operating review M B W N K T K S K M K G K Y K L K T K P A M P M G L E L L L J L R L P L S L P L J EA C M O D O J A J S J M C Z C T G T G N B N L N J M B M T M S M T M E M P M C BE D A C J B D B D B C A I A J A C A B E AY IY S A O P O M M J A R A F K B IS L P M B S G C P S P B E S E GI H D T R D E C C C G C H K A J E K J K F M P K A E B D M C R B C B P B B B P B M B J B G B R B F B M B J K G K S K P I J I M H D L C L J K Y K B K A K J K K M M M A M J K J M B J B L A T H F G J K C K A F F E G E F T E T M T P P F P T A K A A A T A E M D M H M J M A K E K E N D O M C A B S K J K M K R A S B M K A K A K E B J O M M N O J A J K E M B V M N D D D K S R B N A I I N D N I K E K R O B E G O T H W O E L N D F K D M L K C M S J A A N N C B N J K S M A K J Implementing the Lean Six Sigma approach and building the platform for continuous improvement 30 Helios Towers | Annual Report 2017 O U T G N C G K M K G M E F G B O C R K J F T N I R E C E N B B R G N I C V T M N M T M N K Z M M R P K E E M N M K P M B N F D A M M B L C F K N S S L Q B J M A K R K P M F N S A T P S H A S S L M L P M A M K M A M M M A R J R N R A A A S J S IS F M C M V P A M S M H M H M F S O T D B B F E N F O M K E B A K I H A A A M T M C M E N E K K M T D V Z J K O B G L J M A E J K J M M D P N L D T D C G J K A L E L E M Z M R C F N G T E L L M Y M R S M M B H G M R L A D F P S G WS NS AT AO J M E M E O J O K P M R R S R S R S K M O J M R P M M M S S A C W A S J B J A G D O N J M F I A Z A V N E P H M M K M D V O M H E S Z T C K Q R I M B A C M H B L C G D P K B P F P N P G P M R D R T S H M P M M D H D R D N S R F S G E D A U Y Y WI A N Strategic Report M A M P M N W N B N L N J M M O D O J A J S J M C D B D B C K T K S G L E L L L J L R B M T E B D M K M K G C R B C K Y K L L P L S B P B B B P B M B J B G B R B F K T K P K B K G K S K P I J L P L J L C L J K Y K B K A M S M T M E M P M C M D M H M J M A Z C T G T G T E T M T P P F A I A J A C A R A K A A A T A E B M B J B J B L A T P T O J I M H D H F G J K J K K K C K A M M M A F F E G E F M J K J M N D N I K D M L K C M S BE D EA C A C J B B A B E AY IY S A M B S G O P O M C P S P M J A F K E K E B E S E N D O M GI H D IS L P T R D E K J K F K A J E C C C G C H C A B S M P K A K J K M K R A S B M K A K A K E B J A J K E M B V M O M M N N D D D K S R B N A I I K E K R O B E G O T H W O E L N D F J A A N N C B N J K S M A K J O U T G N C G K G M K M E F G B O C R K J F T N I R E M N M M R K Z F D C E N B B R G N F K I C M B V T V N M T M N P K E E M N M K P M B N A K R K S H A S P M F N S A A M K M T P A R J R Q B J M A M A M B F E N F O M K T M C M E N N S S L L C L D J K O B G L J M A E T D C G J K A L E L S S A C W A A G D O E P H M I A Z A S J B J N J M F Q R I M B A C M P K B P F P N P G P M K M D V O M H E S S L M L P M F M C M V P A M M M A M S M H M H N R A A A S J S IS F S O T D E B A K I H A A G T E L L M M M B M B H H B M R D R T S R D N S E D A U Y Y E K K M T D V Z Y M R S G M R L A J K J M M D P N J M E M F P S G AT AO E M Z M R C F N E O J O K P M R R S Z T C K H M P M K M O J M R S R S R P M M L C G D M D H D R F S G WI A N WS NS D M Out of 370employees, we have: 19Black belts 51Orange belts Helios Towers | Annual Report 2017 31 Strategic ReportGovernance ReportFinancial StatementsOverview Operating review (continued) We are driven by our customers’ needs In 2017, the main focus of the larger MNOs was to rationalise costs. For some, this meant holding back on coverage rollout but, instead, investing in integrating new acquisitions; for example, Orange onboarding its Tigo assets in DRC, and Millicom integrating Zantel in Tanzania. In addition, it was exciting to see operators beginning to invest in 4G, particularly in Tanzania. This led to us gaining increased amendment revenues as we accommodated more technology on our towers. The year showed the robust nature of our model. Even when customers choose to invest in what they have, rather than new geographic expansion, we still benefit and grow. Improvement in downtime 93% Q4’17: 1.5 minutes per tower per week Q4’15: 21.9 minutes per tower per week 32 Helios Towers | Annual Report 2017 Market reports Tanzania Key Highlights (US$ millions) FY17 FY16 Revenue Adjusted EBITDA Operating Profit/(Loss) Total Sites Total Colocations Tenancy Ratio Market characteristics: 141.3 66.8 5.4 3,491 7,392 2.12x 122.3 51.3 (5.3) 3,465 7,163 2.07x • The most competitive telecoms market in Africa • Lowest cost per gigabyte of data • Cost control is key, driving networks to share infrastructure • A market slightly behind in data usage, but ahead in 4G: all MNOs have licences due to regulatory influences • Penetration high in cities but low in rural areas • Strong urbanisation trends • Competition demands that networks need to roll out From a coverage perspective, a key driver of growth in Tanzania has been the national rollout of Viettel, one of this market’s ambitious challenger brands. Among our established MNOs, 2017 was a year of rationalising their cost base and upgrading their networks, which has driven amendment revenue. This positions us well for densification requirements as 4G triggers the need for more sites. By tower count, Tanzania is our largest network with 3,491 towers. It is therefore particularly pleasing that we have been delighting our customers with improvements in uptime. Our quest has been to deliver Lean Six Sigma, which is measured as downtime per tower of just two seconds per week. Our original goal was to deliver this ambitious target within five years, but in June 2017 we had already achieved it in one region. Our focus now is to make this standard business as usual. With downtime standing at 21.9 minutes per tower per week in Q4’15, this demanded a fundamentally new approach to how we maintain our sites. In Q4’17 we achieved an average downtime of 1.5 minutes per tower per week across our portfolio. This leap in reliability is a testament to the culture and relationship we have created with our maintenance partners. We share offices with them, have brought in Six Sigma black belts, and we embed our own people into their operations as coaches. In turn, the dramatic reduction in problem-solving means that we can focus on making every site more profitable, including adopting smarter power solutions. Strategic Report DRC Key Highlights (US$ millions) Revenue Adjusted EBITDA Operating Profit Total Sites Total Colocations Tenancy Ratio Market characteristics: FY17 FY16 140.2 66.5 6.3 1,819 3,347 1.84x 102.2 46.7 2.8 1,832 3,179 1.74x • An under-developed market, but with very strong demand for telecoms • Point of service subscribers at some of the highest levels, driven by data • Usage is driving demand for more towers and densification In 2016, we successfully negotiated a contract with the newly merged Orange and Tigo networks, and in 2017 we worked closely with Orange to consolidate the two networks in a very tight timeframe. This resulted in Orange reducing their previous site network by 300, by finding the more sustainable solution of colocating their equipment on our towers. The task for us has been to deliver one of the largest integrations seen in Africa, and enable Orange to accelerate significant synergies while maintaining their existing revenues with us. The market has also seen other networks step up to compete with Orange, resulting in more capacity growth on our existing sites as well as the requirement for build-to-suit sites. At the close of the year we also completed a major project to add a communications backbone across the country, opening up new areas for mobile. Separately, we drew on our experience in Tanzania to apply Six Sigma principles to achieving material service improvements. This ongoing programme includes using existing equipment more efficiently, and investing in solar and hybrid technologies to ease our dependence on diesel. Solar sites deployed +249 2017: 299 2016: 50 Lean Six Sigma Case story #3 Reducing site visits, costs and issues The opportunity In Tanzania, our maintenance partners were averaging 24,017 site visits per month, with 10,893 due to corrective maintenance (CM). In total, they were driving 680,145 km each year at a cost of US$115,000. Indeed, their teams were spending more time driving than maintaining. The Six Sigma solution It was clear that our maintenance approach was itself in need of a complete overhaul. Working with our partners, we analysed data on the number of site visits and the cost applied; we assessed the process, identified waste areas and mitigated them; we scrutinised and streamlined the process; and derived the continuous improvement control. In a rapid turnaround programme, we designed a new maintenance methodology (month 1), trialled it (month 2) and rolled it out to every site (month 3). The impact was felt immediately once the trial began, and translated into significant efficiencies once the rollout was complete. Results In the period from December 2016 to September 2017: • Site visits per month per site reduced from an average of 6.8 to just 2.7 • A case study in our northern zone (965 sites) saw distance driven reduced from 150,291 km to 51,231 km, with major cost, environmental and safety risk benefits • Fuel outages per month decreased from 94 outages to 1 • Total distance driven to sites has been reduced, from 647,065 km to 388,995 km • Corrective maintenance tasks – a key indicator of the underlying condition of our sites – decreased from 10,893 to 3,005, with our technicians now spending more time on preventative maintenance and less time on the road Helios Towers | Annual Report 2017 33 Strategic ReportGovernance ReportFinancial StatementsOverview Operating review (continued) Congo Brazzaville Key Highlights (US$ millions) Revenue Adjusted EBITDA Operating Loss Total Sites Total Colocations Tenancy Ratio Market characteristics: FY17 FY16 23.4 9.8 (3.8) 384 525 1.37x 23.6 10.9 (0.4) 394 529 1.34x • High mobile penetration • Our smallest market, but data demand is increasing with 3G launches • Our towers are well located to benefit from increasing densification demand In 2017, our focus was on achieving efficiencies, focusing on both the level and sustainability of our cost base. We also embarked on a programme to upgrade sites received from Airtel, and have seen the impact of new technologies driving increased revenue. Our customers have received quality of service improvements, partly driven by a change in our maintenance partners and a fruitful embedded partnership with new suppliers. Although this is a quieter market, with two main operators and a smaller challenger, we continue to grow through site upgrades and network expansions. Lean Six Sigma Case story #4 Reducing site grid disconnections The opportunity Diesel-fuelled power generation is much more expensive than drawing power from the grid. However, at Helios Towers Ghana, sites had been consuming unnecessary fuel because they were being disconnected from the grid. This was caused by maintenance partners failing to top up prepayment meters and ensuring the grid supply. In turn, this was impacting on the operational expenses for these sites. The Six Sigma solution We analysed the causes for the disconnections, and measured payment times to understand if the process was in control. We then mapped the current state of the process to identify and evaluate waste, and prioritised the actions needed. The project took three months from defining the problem to implementing the improvement. Results In the period from December 2016 to September 2017: • 85,000 generator hours saved annually for 12 sites • US$70,000 saved in fuel costs annually for 12 sites Office space reduction -38% 2017: 400m2 2016: 650m2 34 Helios Towers | Annual Report 2017 Strategic Report Ghana Key Highlights (US$ millions) FY17 FY16 Revenue Adjusted EBITDA Operating Profit Total Sites Total Colocations Tenancy Ratio Market characteristics: 40.1 17.8 9.2 825 1,723 2.09x 34.4 11.1 4.1 786 1,638 2.08x • Our most developed market, with the highest GDP • Good level of disposable income spent on mobile • Higher smartphone penetration, driving demand for data • Relatively high population • Consumption putting pressure on networks – MNOs need to densify, especially in urban areas Our business delivered a pleasing performance in Ghana in 2017, through a combination of our winning build-to-suit contracts, and by continuing to increase our share of colocation business. Amendment revenues also performed well, driven mainly by the increasing momentum of 3G in the country. This positions us well in the near future for 4G. Currently, only one operator – MTN – has had the resources to gain a 4G licence, and the regulator is expecting consolidation of other players to be able to create a competitive 4G market. This augurs well for us, with the possibility of several players looking for infrastructure support as the mobile market matures. 4G also plays to our strength of having the best urban presence in Ghana, which is due in no small part to our process excellence in acquiring sites and gaining building permits. It is in the cities that the data rollout will first happen, and we are in pole position to serve it. GDP growth CAGR (2016-2022E) +6% Lean Six Sigma Case story #5 Improving the quality of solar installations The opportunity The importance of ‘right first time’ operation was highlighted by the solar upgrade programme of our sites in DRC. In the first tranche of 50 quality assurance (QA) checks on new installations, just over half failed their inspection. On average, this added four days to the delivery. With a further roll out of 380 sites, of which 249 were deployed in 2017, this failure rate would incur an estimated US$184,000 to repeat the QA and remobilise resource to sites, as well as a further US$37,000 in lost opex savings. The Six Sigma solution We established the reasons for non-compliance, and identified the customers, suppliers, measures and performance of the current process. We evaluated the process to determine the causes for underperformance, established the countermeasures to address our concerns, and measured performance once implementation was complete. Time was critical here; in order to apply the improvements we identified the next phase of solar installations. Results In the period from December 2016 to September 2017: • The QA pass rate improved from 46% to 93% • For the 380 solar sites to be installed in 2017 and beyond, this equates to a saving of US$160,740 in costs that would have been incurred to remobilise, with an additional US$32,000 opex savings for delivering the sites on time • The team is focused on driving up the 93% pass rate, through their lessons-learned review Helios Towers | Annual Report 2017 35 Strategic ReportGovernance ReportFinancial StatementsOverview Detailed financial review Consolidated Statement of profit or loss For the year ended 31 December 2017 Revenue Cost of sales Gross profit Administrative expenses Loss on disposal of property, plant and equipment Operating loss Investment income Other gains and losses Finance costs Loss before tax Tax expense Loss for the year Key metrics 2017 US$’000 Restated (IFRS 16) 2016 US$’000 344,957 (275,651) 282,507 (235,867) 69,306 46,640 (91,261) (2,018) (77,741) (3,761) (23,973) (34,862) 706 21,797 (102,757) 216 (6,682) (73,268) (104,227) (114,596) (3,207) (1,514) (107,434) (116,110) (US$millions) 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Group Tanzania DRC Congo Brazzaville Ghana Revenue Gross margin(1) Sites at beginning of year Sites at year end Tenancies at beginning of year Tenancies at year end Tenancy ratio at year end Adjusted EBITDA Adjusted EBITDA margin $345.0 $282.5 53.2% 5,424 6,477 55.8% 6,477 6,519 $141.3 $122.3 52.4% 3,428 3,465 55.5% 3,465 3,491 $140.2 55.2% 1,832 1,819 $102.2 54.5% 814 1,832 12,509 10,008 12,987 12,509 1.93x $146.0 $105.2 37.2% 1.99x 42.3% 7,163 7,392 2.12x $66.8 47.3% 6,389 7,163 2.07x $51.3 41.9% 3,179 3,347 1.84x $66.5 47.4% 1,643 3,179 1.74x $46.7 45.7% $23.4 61.2% 394 384 529 525 1.37x $9.8 41.9% $23.6 62.0% 393 394 512 529 1.34x $10.9 46.2% $40.1 55.8% 786 825 1,638 1,723 2.09x $17.8 44.4% $34.4 46.5% 789 786 1,464 1,638 2.08x $11.1 32.3% (1) Gross margin means gross profit add back site and warehouse depreciation divided by revenue. Revenue Revenue increased by 22% to US$345 million in the year ended 31 December, 2017 from US$283 million in the year ended 31 December, 2016. The increase in revenue was largely driven by colocation, amendment, and build-to-suit, which accounted for over half of our year-to-year revenue growth. The remainder of the growth was from a full year of revenue on the DRC Airtel tower network purchase, which we completed in July 2016 and had fully integrated into our portfolio by the start of 2017. Increased revenue in Tanzania was primarily attributable to the increase in overall tenancies from 7,163 to 7,392 as of 31 December, 2016 to 31 December, 2017, a slight increase in number of total sites from 3,465 to 3,491, and an increasing number of colocations. Increased revenue in DRC resulted primarily from additional rent and power charges for equipment from the additional sites acquired from subsidiaries of Airtel in DRC. Revenue improved in Ghana as a result of an increase in total tenancies from 1,638 as of 31 December, 2016 to 1,723 as of 31 December, 2017, and an increased tenancy ratio from 2.08x as of 31 December, 2016 to 2.09x as of 31 December, 2017. Revenue decreased in Congo Brazzaville in the current year, as a result of increased bonus SLA revenues in 2016. 36 Helios Towers | Annual Report 2017 Strategic Report Cost of sales (US$’000s) Power Non-power Site depreciation Total cost of sales Year Ended 31 December, % of Revenue % of Revenue 2017 93,756 58,679 123,216 275,651 2017 27.2% 17.0% 35.7% 79.9% Restated (IFRS 16) 2016 81,802 50,289 103,776 235,867 2016 29.0% 17.8% 36.7% 83.5% The table below shows an analysis of the cost of sales on a country-by-country basis for the years ended 31 December, 2016 and 2017. Tanzania DRC Congo Brazzaville Ghana (US$’000s) Power Non-power Site depreciation Total cost of sales Year Ended 31 December, Year Ended 31 December, Year Ended 31 December, Year Ended 31 December, 2017 2016 2017 2016 2017 2016 2017 2016 35,413 27,415 55,681 33,551 24,628 48,933 42,330 20,459 48,634 118,509 107,112 111,423 30,818 15,702 38,593 85,113 2,722 6,365 11,301 20,388 3,229 5,755 9,936 18,920 13,291 4,440 7,600 25,331 14,204 4,204 6,314 24,722 Cost of sales increased by 17% to US$275.7 million in the year ended 31 December, 2017 from US$235.9 million in the year ended 31 December, 2016. The overall increase in cost of sales was primarily due to the increased costs associated with a larger portfolio of towers, most prominently an increase in power usage and increased cost related to depreciation of our sites, mainly in DRC. Site depreciation increased by 19% as a result of a higher asset base, principally due to the purchase of approximately 967 towers from a subsidiary of Airtel in DRC in July 2016. Power costs comprise diesel and electricity costs. The Group’s costs increased in line with additional site numbers across the Group. The increase in diesel costs primarily consisted of a US$10.6 million increase of consumption in DRC. The increased diesel costs in DRC were attributable to increased consumption largely as a result of the expansion of the site portfolio after the Airtel acquisition in July 2016 and decreased reliance on the electric grid. The decreased diesel costs in Ghana is attributable to better grid availability and greater deployment of power management solutions. Electricity costs remained relatively flat between the years, despite an increase in the number of sites across the Group with a significant portion of the increase in cost attributable to local electricity price increases, mitigated through our power contract escalation provisions. Non-power costs relate to maintenance and security costs, insurance and other costs. Non-power costs increased by 16.7% for the year ended 31 December, 2017 compared to the year ended 31 December, 2016. The increase in non-power costs were primarily a result of increase in the number of sites in DRC, while costs in Ghana remain relatively flat. Administrative expenses (US$’000s) Other administrative costs Depreciation and amortisation Exceptional items Total administrative expense Year Ended 31 December, % of Revenue % of Revenue 2017 47,859 25,621 17,781 91,261 2017 13.9% 7.4% 5.2% 26.5% Restated (IFRS 16) 2016 46,330 25,679 5,732 77,741 2016 16.4% 9.1% 2.0% 27.5% Helios Towers | Annual Report 2017 37 Strategic ReportGovernance ReportFinancial StatementsOverview Detailed financial review (continued) Administrative expenses (continued) Administrative expenses increased by 17.4% to US$91.3 million in the year ended 31 December, 2017 from US$77.7 million in the year ended 31 December, 2016. The primary driver of the increase in administrative expense between the years was in relation to exceptional items, which are discussed further in note 4. Loss on disposal of property, plant and equipment Loss on disposal of property, plant and equipment was US$2.0 million in the year ended 31 December, 2017, compared to US$3.8 million during the year ended 31 December, 2016. Loss on disposal was primarily a result of site upgrades that necessitated the replacement of older parts and equipment in Tanzania. Other gains and losses Other gains and losses recognised in the year ended 31 December, 2017 were US$21.8 million, compared to US$6.7 million in the year ended 31 December, 2016. The primary reason is the gain on embedded derivative valuation of the bond. The other loss during the year ended 31 December, 2016 represented a charge to our income statement as a result of Vodacom Tanzania’s put option to exchange its shares in Helios Towers Tanzania for shares in the Company, which expired in October 2017. Finance costs Finance costs increased to US$102.8 million in the year ended 31 December, 2017 from US$73.3 million in the year ended 31 December, 2016. The table below shows an analysis of finance costs for the year ended 31 December, 2016 and 2017. (US$’000s) Foreign exchange difference Interest costs Interest costs on lease liabilities Deferred loan cost amortisation Finance costs Year Ended 31 December, 2017 3,229 71,608 14,991 12,929 102,757 Restated (IFRS 16) 2016 9,796 44,645 13,812 5,015 73,268 As reflected in the table above, the increase in finance costs between the years was primarily the result of interest for the US$600 million 9.125% bond, accruing from March 2017. This is partially offset with a decrease in foreign exchange difference from US$9.8 million during the year ended 31 December, 2016 to US$3.2 million during the year ended 31 December, 2017. This primarily relates to the Tanzanian shilling, which depreciated against the US dollar by 5% during the year ended 31 December, 2016 while the Tanzanian shilling in 2017 was broadly stable depreciating by 2% during the year ended 31 December, 2017. The decrease in 2017 was also due to the appreciation of the Central African Franc, which is pegged to the Euro. Tax expense Our tax expense was US$3.2 million in the year ended 31 December, 2017 as compared to US$1.5 million in the year ended 31 December, 2016. Our tax expense during each year is primarily due to an additional tax levied against certain entities in Tanzania and DRC as stipulated by law in these jurisdictions and minimal corporation tax payments required where companies are in a tax loss position. Adjusted EBITDA Adjusted EBITDA was US$146 million in the year ended 31 December, 2017 compared to US$105 million in the year ended 31 December, 2016. The increase in Adjusted EBITDA between years is primarily attributable to the changes in revenue, cost of sales, and gross margin between years. 38 Helios Towers | Annual Report 2017 Strategic Report Contracted Revenue The following tables provide our total contracted revenue by country and by key customer under agreements with our customers as of 31 December, 2017 for each of the years from 2018 to 2023, with local currency amounts converted at the applicable spot rate for US dollars on 31 December, 2017 held constant. Our contracted revenue calculation for each year presented assumes: (i) no escalation in fee rates, (ii) no increases in sites or tenancies other than our committed colocations described elsewhere in these financial statements, (iii) our customers do not utilise any cancellation allowances set forth in their MLAs and (iv) our customers do not terminate MLAs early for any reason. The following tables provide the Group’s contracted revenue from 2018 through 2023 on a country-by-country basis and an illustration of our total contracted revenue attributable to our key customers: (US$’000s) Tanzania DRC Congo Brazzaville Ghana Total (US$’000s) Africa’s Big-Five MNOs Other Total Year Ended 31 December, 2018 2019 2020 2021 2022 2023 147,044 140,355 24,373 38,821 149,099 141,546 24,373 39,429 151,387 152,294 23,194 38,966 150,648 151,859 16,954 36,721 149,440 150,004 16,949 27,293 143,673 149,085 16,941 12,784 350,593 354,447 365,841 356,182 343,686 322,483 Percentage of Total Committed Revenues 80% Total Committed Revenues 2,489,628 611,801 3,101,429 Liquidity and Capital Resources We manage our financing structure and cash flow requirements based on our overall strategy and objectives, deploying financial and other resources related to those objectives. We manage liquidity risk by maintaining adequate reserves and banking facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Funding decisions are made based upon a number of internal and external factors, including required amounts and the timing of outflows, the internal and external availability of funds, the costs of financing and other strategic objectives. Our primary sources of liquidity have historically been cash from operations, borrowings under our debt facilities and equity issuances. We have previously sought to finance the costs of developing and expanding our business mainly at the operating level on a country-by-country basis. Helios Towers | Annual Report 2017 39 Strategic ReportGovernance ReportFinancial StatementsOverview Detailed financial review (continued) Consolidated Statements of Cash Flow Data (US$’000s) Cash Flows from Operating Activities Loss for the year before taxation Net cash generated from operating activities Net cash used in investing activities Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents, beginning of year Foreign exchange on translation Cash and cash equivalents, end of year Year Ended 31 December, Restated (IFRS 16) 2016 2017 (104,227) 57,572 (169,615) 97,870 (14,173) 133,737 136 119,700 (114,596) 25,304 (295,847) 316,739 46,196 88,290 (749) 133,737 As at 31 December, 2017 we had US$119.7 million of cash and cash equivalents. Net cash generated from operating activities increased from US$25.3 million during the year ended 31 December, 2016 to US$57.6 million during the year ended 31 December, 2016. The increase in net cash generated from operating activities was primarily driven by an improvement in operating loss, and lower cash outflows as a result of working capital changes, offset by an increase in interest paid between the years. Net cash used in investing activities decreased from US$295.8 million during the year ended 31 December, 2016 to US$169.6 million during the year ended 31 December, 2017. The decrease in net cash used in investing activities between the years was mainly the result of a lower volume of tower portfolio purchase activity as compared to 2016, which are primarily relating to the Group’s portfolio acquisition from Airtel in DRC. Net cash generated by financing activities decreased from US$316.7 million during the year ended 31 December, 2016 to US$97.9 million during the year ended 31 December, 2017. The decrease in net cash generated by financing activities between the years was primarily due to the US$184 million equity raise and increased borrowings under our secured term loan facilities in 2016, subsequently cleared in 2017 in line with the issue of the bond in March 2017. Capital expenditure The following table shows our capital expenditures incurred by category during the years presented: (US$millions) Acquisition Growth Upgrade Maintenance Corporate Total Year Ended 31 December, 2017 18.7 77.8 52.0 19.8 2.4 % of Total Capex 11.0% 45.6% 30.4% 11.6% 1.4% 170.7 100.0% 2016 164.5 56.7 26.8 29.6 3.2 280.8 % of Total Capex 58.6% 20.2% 9.5% 10.6% 1.1% 100.0% Following the announcement of the Zantel acquisition in July 2017, we have completed the acquisition of 101 sites which has driven acquisition capital expenditure during 2017. Prior year acquisition capital expenditure was principally due to the DRC Airtel acquisition. Upgrade capital expenditure has increased in 2017 due to continued investment, tower strengthening and upgrade programme and the continued roll out of colocation tenants. Maintenance capital expenditure has decreased in 2017 however we continue to carry out periodic refurbishments and replace parts and equipments to keep our site in service. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. Indebtedness As of 31 December, 2016 and 31 December, 2017, the Group’s outstanding loans and borrowings, excluding lease liabilities, were US$401.1 million and US$598.4 million, respectively. For more details, see Note 20 in our consolidated financial statements for the year ended 31 December, 2017. Third party loans were refinanced in March 2017, when the bond was issued. Transition to new accounting standards During the year, the Group transitioned to IFRS 15: Revenue from contracts with customers, and IFRS 16: Leases, on a fully retrospective basis. There is no impact in relation to IFRS 15, largely due to service contracts which are already well aligned with the performance obligation separation requirements of IFRS 15. IFRS 16 adoption has led to the restatement of comparative figures previously reported. Further detail is provided in the Accounting Policies and in note 29. 40 Helios Towers | Annual Report 2017 Strategic Report Governance framework Risk management Group Executive Team Board/Audit and Ethics Committee 1st line of defence Own and manages risks and implements/operates business controls Risk appetite 2nd line of defence Oversight of risk and control compliance The Group defines risk appetite as the amount of risk that the business is prepared to take in order to deliver safe, effective working practices as well as maintaining and growing its business. The Group dedicates resources and focus to understanding and ensuring risk is identified, assessed, managed and monitored. Controls and mitigating actions are designed as appropriate to reflect the risk appetite in each instance. Who is responsible • Compliance/oversight functions Who is responsible • Operational staff/management 3rd line of defence Independent assurance Risk Governance Risk management is integral to the Group’s strategy and to the achievement of its long-term goals. The Group’s continued success as an organisation depends on its ability Who is responsible to identify and pursue the opportunities generated by its • Internal Audit business and the markets in which it operates. Activity/controls • Health, Safety & Quality Team • Eniromental regulatory compliance • Contolrs compliance monitoring • Management/Board reporting and review of KPI and financial performance • Corporate policies and central functions oversight Activity/controls The Board has overall responsibility for risk management, • Approved Internal Audit plan compliance and internal controls, and is supported by the • Internal Audit reporting line to Audit Audit and Ethics Committee (the “Committee”). and Ethics Committee • Regular internal Audit updates to Audit The Committee, under delegation from the Board, monitors and Ethics Committee • External Audit planning and reporting to the nature and extent of risk exposure against the Group’s risk Board/Audit and Ethics Committee appetite. The Committee is responsible for identifying, mitigating and managing risk, as well as setting the risk appetite for the business with advice from the Executive Team. Activity/controls • Policies and procedures • Internal controls • Planning, budgeting/forcasting processes • Delegated authorities • Business workflows/IT sytems controls • Personal objectives and incentives Governance framework Board/Audit and Ethics Committee Executive Team 1st line of defence Owns and manages risks and implements/operates business controls 2nd line of defence Oversight of risk and control compliance 3rd line of defence Independent assurance Who is responsible • Operational staff/management Who is responsible • Compliance/functional teams Who is responsible • Internal Audit Activity/controls • Policies and procedures • Internal controls • Planning, budgeting/forcasting processes • Delegation of authority matrix • Business workflows/IT sytems controls • Personal objectives and incentives Activity/controls • SHEQ • Regulatory compliance • Management/Board reporting and review of KPIs and financial performance • Corporate policies and Group functions oversight Activity/controls • Internal Audit Risk Assessment • Approved Internal Audit plan • Internal Audit reporting line to Audit and Ethics Committee Helios Towers | Annual Report 2017 41 Strategic ReportGovernance ReportFinancial StatementsOverview Risks related to the Group and our business Principal business risks Summarised below are the key risks, not in order of significance, identified which could have a material impact on the Group. The principal risk summaries are therefore supported by a more detailed risk management process. Risk Description Impacts Risk Mitigation 1. Major quality failure or breach of contract The Group’s reputation and profitability could be damaged if the Group fails to meet its customers’ quality standards, specifications or delivery schedules. A substantial portion of our revenues are generated from large customers, and the loss of any of these customers would adversely affect the Group. Many of the Group’s customer tower contracts contain liquidated damage provisions, which may require the Group to make unanticipated payments to its customers. 2. Non-compliance risk related to: i) Health and safety ii) Environmental laws iii) Corruption i) Health & Safety – there are health and safely risks related to operating in the relevant jurisdictions that could adversely affect the Group. ii) Environmental laws – the Group could have liability under environmental laws. iii) The Group is exposed to the risk of corruption, sanction law and other similar regulatory breaches. Changes in these laws may require the Group to modify its existing business practices, incur increased costs and subject it to potential liabilities. The Group may face legal penalties, financial loss, loss of materials, and reputation loss if it fails to act in accordance with laws, regulations, business and industry practices. 3. Economic and political instability A slowdown in the growth of, or a reduction in demand for, wireless communication services could adversely affect the demand for communication sites and tower space and could have a material adverse effect on the Group’s financial condition and results of operations. There are risks related to political instability, religious ethnicity and regional tensions in each of the relevant jurisdictions. 4. Significant exchange rate movements Fluctuations or devaluations in local currencies in the markets in which the Group operates could materially and adversely affect the Group’s business, financial condition and results of operations and that of the financial position of its customers. Reputational • Strong project and operational delivery team Financial • Project scope is clearly defined at the outset and all project plans are baselined to deliver the agreed scope of work • Contract & dispute management processes in place • Customer retention plans in place • Good customer relationships • Long-term contracts with minimal termination rights Compliance • Enhanced Compliance Programme launched; training Financial Reputational has been provided on the new programme requirements • Creation of policies and procedures which incorporate regular monitoring, incident reporting and report of breaches • Code of Business Conduct • Third Party Code of Conduct • Bribery and anti corruption policy and procedures are in place Operational • Market analysis and business intelligence Financial • Market share growth strategy • Close monitoring of any potential risks that may affect operations • Contingency plans in place in the event of any emergencies Financial • USD and EUR pegged contracts • ”Natural” hedge of local currencies (revenue vs opex) • Monthly review of exchange rate differences 42 Helios Towers | Annual Report 2017 Strategic Report Risk Description Impacts Risk Mitigation 5. Non-compliance with license requirements The Group may not always operate with the required approvals and licenses for some of its tower sites, particularly where it is unclear whether a certain license or permit is required or where there is a significant lead time required for processing the application, and therefore may be subject to reprimands, warnings and fines, for non-compliance with the relevant licensing and approval requirements. 6. Loss of key personnel The Group’s business depends on key senior management and highly skilled and technical employees, and the departure of any such personnel, or the failure to recruit and retain additional personnel, could adversely affect the Group’s business, financial condition, results of operation and prospects. 7. Technology risk New technologies designed to enhance the efficiency of wireless networks and potential active sharing of the wireless spectrum could reduce the need for tower based wireless services and could make the Group’s tower leasing business less desirable to or necessary for tenants and result in decreasing revenue. Examples of such new technologies that may reduce the demand for tower-based antenna space might include spectrally efficient technologies which could potentially relieve some network capacity problems, or complementary voice over internet protocol access technologies that could be used to offload a portion of subscriber traffic away from the traditional tower-based networks, which would reduce the need for telecommunications operators to add more tower-based antenna equipment at certain tower sites. 8. Failure to remain competitive Competition in the telecommunications tower industry may create pricing pressures that materially and adversely affect the Group. Operational • Compliance registers maintained with any potential non-conformities identified by relevant government authority with a timetable for rectification • Active participation in industry groups in place • Active and ongoing engagement with relevant regulatory authorities to ensure awareness of and potential changes to requirements in advance People • Competitive and performance related remuneration plans • Talent and succession planning processes exist for key roles • Staff development/support plans Strategic • Strategic long term planning • Business intelligence • Exploring alternatives e.g. solar power technologies • Continuously improving product offering to enable adaptation to new wireless technologies • Applying for new licenses to provision active infrastructure services in certain markets Financial • Close KPI monitoring and benchmarking against competitors and total cost of ownership (TCO) for MNOs to run towers • Fair pricing structure • Constant review of competitors’ activities • Strong tendering team to ensure high win/retention rate • Continuous capex investment ensures that the Group has sufficient capacity Helios Towers | Annual Report 2017 43 Strategic ReportGovernance ReportFinancial StatementsOverview Sustainability At the heart of Helios Towers’ strategy is a determination to build a genuinely sustainable business across all its facets. This means a business with a model sufficiently robust to grow with the needs of its customers; that treads as lightly as possible in its environments; and that meets its commitments to people, whether through being an excellent employer or acting as a sensitive neighbour in its various communities. 44 Helios Towers | Annual Report 2017 Our proposition Our proposition to customers is itself rooted in sustainability, through the efficient use of resources. By enabling tenants to share our towers, we are concentrating multiple technologies and operations onto a single piece of infrastructure. In turn, this will typically require only one power supply (and therefore lower emissions), and single rather than duplicated maintenance journeys to our tower locations, saving thousands of road miles a year. For some tenants, consolidating their infrastructure in this way often means that their own towers can be taken down and recycled. For our host landscapes, a single tower also means a lesser visual impact. Our people Our business employs 370 people directly, but also supports over 10,000 contractor employees who are engaged in the maintenance and security of our tower network. In the belief that operational decisions are better taken on the ground, 2017 saw a deliberate move to give our local teams greater autonomy and the tools, through training, to problem- solve and make decisions. Our rollout of the Lean Six Sigma programme; leadership development training; project management upskilling; and extending our training to maintenance partners, are all designed to equip our local operating companies to perform as never before. In the process, this is creating sustainable local businesses with a fulfilling career environment that inspires constant improvement. Modern Slavery Act 2015 With regards to the Modern Slavery Act 2015, our policy and statement of compliance is published on our website. Strategic Report The year also saw an embedding programme of the HR initiatives launched in 2016, including expanded role grading, salary banding and performance management. This is building a firm foundation on which to take the current and future workforce forward. Safety No practical or commercial consideration is ever allowed to override the imperative that every employee and contractor should be safe. We aim to be a zero-harm company, and regard every incident as avoidable. Our principal safety risks are road traffic accidents, working with electricity, working at height, and the manual handling of heavy equipment. None of our employees are permitted to work in any of these areas without dedicated training, and refresher training is regularly held. As well as measuring, and learning from, lagging indicators such as lost time incidents (LTIs) and injuries needing treatment, we place a heavy emphasis on leading indicators. We encourage everyone to be our eyes and ears wherever they’re working for us, and to report any near-miss incidents, without blame or criticism, so that we can learn from them and prevent them in the future. We include both our employees and contractors in safety reporting, to give a true reflection of safety in our business. The environment Helios Towers is essentially a power/real estate company and, like any industrial power provider, our business causes emissions that contribute to climate change. Principally, these come from diesel consumption to power our generators. We have made it a priority to find technical solutions and innovations that will minimise our impact in this area. In 2017 we continued to roll out a programme to see where technologies can improve on diesel-only power. In 2017, we have installed solar powered technology in 249 sites; made 375 connections to power grids where available; and created more than 331 hybrid (off-grid) solutions. In 2017, these major environmental investments saved more than 8,250 tonnes of CO2 emissions as well as delivering more than US$3.3 million in fuel cost savings. In addition, bringing Lean Six Sigma practices to maintenance partners will reduce the frequency of service visits to our sites and, in tandem, cut road miles driven. This delivers both environmental and safety gains. Helios Towers | Annual Report 2017 45 Strategic ReportGovernance ReportFinancial StatementsOverview Board of Directors The Company’s Board of Directors (the ‘Board of Directors’) consists of 13 members. Each Director is elected for the term, if any, fixed by the shareholder who appointed such Director or until his earlier death, resignation, disqualification or removal. The shareholders shall have the right to remove any of their respective Directors appointed pursuant to our shareholders’ agreement, with or without cause, by written notice to the Company. The duties and authority of each member of the Board of Directors are regulated by our Articles of Association and shareholders’ agreement. The Board of Directors is currently comprised of the following directors: Name Allan Cook Kash Pandya David Karol Wassong Waldemar Rafal Szlezak Age 68 55 47 40 Temitope Olugbeminiyi Lawani 47 Richard Byrne Simon Hilliard Poole Vishma Dharshini Boyjonauth Simon David Pitcher Anja Blumert Xavier Charles Rocoplan Colin Curvey Nelson Oliveira 60 51 38 45 40 43 46 55 Position Non-Executive Director and Chairman Director & Chief Executive Officer Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director The business address of each of the members of the Board of Directors is Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius. The Board of Directors has strategic control and decision- making authority over the business of the HT Group. Allan Cook has been a director and chairman of the Company since January 2018. Allan was a Non-Executive Director and chairman of WS Atkins from September 2009 until 3 July 2017 when Atkins was acquired by SNC-Lavalin. He is a chartered engineer with more than 40 years international experience in the automotive, aerospace and defence industries. He was Chief Executive of Cobham PLC until the end of December 2009. Prior to this he held senior roles at GEC-Marconi, BAE Systems and Hughes Aircraft. He was Deputy Chairman Of Marshall of Cambridge (Holdings) Limited until 31 December 2015 and is a member of the operating executive board of J F Lehman & Company. Allan is Industry co-chair of the Defence Growth Partnership (DGP). Until August 2016 he was the lead Non-Executive Member of the Department for Business, Innovation and Skills (BIS.) He was Chairman of the UK Trade & Investment’s Advanced Engineering Sector Advisory Board until October 2013, and chairman of FINMECCANICA UK Ltd and chairman of Selex ES until the end of December 2014. Until 31 March 2017 he was also chairman of SEMTA – the Sector Skills Council for Science, Engineering and Manufacturing Technologies. He is past President of the Aerospace and Defence Industries Association of Europe (ASD) and past president of the Society of British Aerospace and Defence Companies (SBAC). He is a Fellow of the Royal Academy of Engineering where he was Vice President and served as a trustee for the Academy until September 2017. He also chairs the Academy’s employer-focused Diversity Leadership Group. Allan became a Fellow of the China 48 Group Club in December 2015. He was awarded a CBE in the Queen’s New Year’s Honours list in 2008, and received an honorary Doctorate in Science from Cranfield University in 2016. Kash Pandya has been a Director of the Company since August 2015. Kash arrived as Chief Executive Officer of Helios Towers following eight years with Aggreko plc, where he sat on the Board, running the European Business for three years. He was also Managing Director of Aggreko International for five years, overseeing a doubling of their international business. He began his career with an engineering apprenticeship, and went on to complete a Bachelor’s degree in Technology Engineering and a Master’s in Manufacturing. In 1989, he started at Jaguar before moving to roles within General Electric, Caradon and then APW, where he led all operations outside the United States. In 2004, he became the CEO of Johnston Group, leaving the business on its sale to Ennstone plc. 46 Helios Towers | Annual Report 2017 Governance Report David Karol Wassong has been a Director of the Company since January 2010. Mr. Wassong is a Managing Director and Co-Head of Strategic Investments Group at Soros Fund Management LLC. Mr. Wassong joined Soros Fund in 1998. He has been a Partner at TowerBrook Capital Partners LP since June 1998, focusing on the media, entertainment and telecommunications industries. From July 1997 to June 1998, Mr. Wassong served as Vice President of Lauder Gaspar Ventures. He was also an Associate of Lauder Gaspar Ventures, LLC. and Wertheim Schroder & Co. Inc., where he participated on teams that invested in the telecommunications industry. From 1992 to 1995, Mr. Wassong worked in investment banking with Wertheim Schroder in the Media and Entertainment Group. Mr. Wassong earned his BA from the University of Pennsylvania and an MBA from the Wharton School of Business at the University of Pennsylvania. Waldemar Rafal Szlezak has been a Director of the Company since January 2010. Mr. Szlezak has been a Principal at Soros Fund Management LLC since August 2006 and also serves as Senior Managing Director in the Strategic Investments Group. He served at Soros Private Equity Investors and prior to that, he served in the Mergers & Acquisition Investment Banking group at Credit Suisse. Mr. Szlezak also served as an Associate at TowerBrook Capital Partners L.P. Mr. Szlezak earned his BS Industrial Engineering and Operations Research from Columbia University and his BA in Mathematics from Knox College in Galesburg, Illinois. Temitope Olugbeminiyi Lawani has been a Director of the Company since February 2010. Mr. Lawani, a Nigerian national, is a co-founder and Managing Partner of Helios Investment Partners and has more than 20 years of principal investment experience. Prior to forming Helios, Mr. Lawani was a Principal in the San Francisco and London offices of TPG Capital, a global private equity firm. At TPG, Mr. Lawani had a lead role in the execution of over $10 billion in closed venture capital and leveraged buy-out investments, including the acquisitions of Burger King Corp., Debenhams plc, J. Crew Group and Scottish & Newcastle Retail. Mr. Lawani began his career as a Mergers & Acquisitions and Corporate Development Analyst at the Walt Disney Company. Mr. Lawani received a BS in Chemical Engineering from the Massachusetts Institute of Technology, a Juris Doctorate (cum laude) from Harvard Law School and an MBA from Harvard Business School. He is fluent in Yoruba, a West African language. Richard Byrne has been a Director of the Company since December 2010. Mr. Byrne co-founded TowerCo in 2004. He has served as President and Chief Executive Officer and has been a member of the Board of Directors from its beginning. Prior to that, he served as President of the Tower Division of SpectraSite Communications, which grew from 125 towers to more than 8,000 during his tenure. Mr. Byrne served as National Director of Business Development at Nextel Communications Inc. and was responsible for bringing the industry’s first major portfolio of wireless carrier towers to market. Mr. Byrne started his wireless career performing site acquisitions for AT&T Wireless (then McCaw Cellular) in the New York Mass Transit Authority system. Simon Hilliard Poole has been a Director of the Company since February 2012. From 2009 to 2011, Mr. Poole acted as Group CFO for Intela Global Ltd where his responsibilities included managing investor relations and the development of group strategy. Prior to this, Mr. Poole held various roles at Celtel including as Interim Group Financial Controller of Celtel International, Chief Financial Officer of Celtel DRC and Finance Director of Celtel Burkina Faso. Mr. Poole holds a BSc in Geography from Exeter University and is a qualified Chartered Accountant. Vishma Dharshini Boyjonauth has been a Director of the Company since August 2013. Ms. Boyjonauth joined Intercontinental Trust Limited in 2004 and she is currently a Manager in the Corporate Services Department. She leads a team in the Corporate Services Department and oversees operations including the incorporation of companies, advising on company structures, regulatory matters and the corporate administration of companies for both domestic and global business companies in Mauritius. Ms. Boyjonauth graduated from the University of Mauritius with a BSc (Hons) in Economics. Simon David Pitcher has been a Director of the Company since December 2013. Mr. Pitcher is responsible for Private Investments at J. Rothschild Capital Management Limited (“JRCM”). JRCM is the principal subsidiary of RIT Capital Partners plc. Previously, Mr. Pitcher was a Director at Standard Bank Private Equity, a Director at Blackwood Capital Partners in Sydney and an Investment Director at Hermes Private Equity. He qualified as a Chartered Accountant with PricewaterhouseCoopers. Anja Blumert has been a Director of the Company since October 2015. Ms. Blumert has been head of M&A at Millicom International Cellular SA (‘Millicom’) since 2013. From 2009 to 2013, Ms. Blumert was an Independent Strategy and M&A Consultant at Montagu Partners. Prior to this, she was an Investment Professional at Warburg Pincus International covering the Central and Eastern Europe region across all sectors and Western Europe for the TMT sector where she was responsible for the assessment of investment opportunities in private and public companies. Ms. Blumert holds a degree in Finance and Marketing and a master’s degree in Business Studies from Humboldt University of Berlin. Helios Towers | Annual Report 2017 47 Strategic ReportGovernance ReportFinancial StatementsOverview Board of Directors (continued) Nelson Oliveira has been a Director of the Company since May 2016. Mr. Oliveira has been Managing Director, General Counsel and Chief Compliance Officer at Albright Capital Management LLC (‘Albright’) since March 2007. During this time, he has been responsible for legal and regulatory aspects of Albright’s operations as a registered investment adviser with broad emerging markets mandates, including legal structuring and risk management of all private investment transactions and all regulatory aspects of fundraising. Prior to this, Mr. Oliveira was Deputy General Counsel at Darby Overseas, Ltd. (a subsidiary of Franklin Resources, Inc.) from March 2002 until March 2007 where he was responsible for overseeing and advising on legal aspects of mezzanine debt and quasi-equity investment transactions in Latin America, Asia and Eastern Europe. Mr. Oliveira holds a Juris Doctorate (cum laude) from Boston College Law School. Xavier Charles Rocoplan has been a Director of the Company since October 2015. Mr. Rocoplan has been the Chief Technology and Information Officer (‘CTO’) at Millicom since December 2012 and has been its Executive Vice President of Technical since April 2012. In 2002, Mr. Rocoplan was CTO for Vietnam and then became CTO for the South East Asian cluster (Cambodia, Laos and Vietnam). In 2004 he was appointed the CEO of Paktel in Pakistan, a position he held until 2007. During this time, he launched Paktel’s GSM operations and led the process that concluded with the disposal of the business in 2007. After Millicom’s exit from Asia, Mr. Rocoplan was appointed to head the New Corporate Business development unit where he managed the Tower Assets Monetisation programme which led to the creation of tower companies in Ghana, Tanzania, DRC and Colombia. In 2012, he was made Chief Global Networks Officer before being appointed Millicom’s CTO. Mr. Rocoplan holds master’s degrees from Ecole Nationale Supérieure des Télécommunications de Paris and from Université Paris IX Dauphine. Colin Curvey has been a Director of the Company since May 2016. Mr. Curvey has been Co-Head of the IFC African, Latin American and Caribbean Fund since 2015 and served as its Principal since March 2011. Mr. Curvey is employed at IFC Asset Management Company, LLC. (‘AMC’). Mr. Curvey joined AMC in March 2011. He served as an Equity Research Analyst at BTG Pactual Chile S.A. Corredores de Bolsa. He was a Partner at Duke Street, having initially joined in August 1999 and focused on investments in the consumer, food, insurance and financial services sectors. Prior to this, Mr. Curvey served as an Equity Research Analyst at Celfin Capital (now part of BTG Pactual), where he was ranked as one of Chile’s leading electric utility analysts. Prior to that, Mr. Curvey worked at Morgan Stanley as a Financial Analyst and an Investment Banker in their Investment Banking Division. Mr. Curvey speaks English and Spanish and holds an MBA from Harvard Business School and a BA in Economics from Duke University. 48 Helios Towers | Annual Report 2017 Governance Report Helios Towers | Annual Report 2017 49 Strategic ReportGovernance ReportFinancial StatementsOverview Executive team +100 years’ experience in emerging markets towers and power We have assembled a world-class management team to ensure that Helios Towers is, and remains, a formidable and customer-centric organisation. The team combines market-leading, Six Sigma-accredited operational expertise with African telecom network rollout capabilities and global tower management experience. Indeed, collectively, we offer more than 100 years’ experience of towers and power in emerging markets. The team also retains unrivalled relationships with key local constituencies and major wireless operators across the continent. Kash Pandya Chief Executive Officer Joined 2015 Kash arrived as Chief Executive Officer of Helios Towers following eight years with Aggreko plc, where he sat on the Board, running the European Business for three years. He was also Managing Director of Aggreko International for five years, overseeing a doubling of their international business. He began his career with an engineering apprenticeship, and went on to complete a Bachelor’s degree in Technology Engineering and a Master’s in Manufacturing. In 1989, he started at Jaguar before moving to roles within General Electric, Caradon and then APW, where he led all operations outside the United States. In 2004, he became the CEO of Johnston Group, leaving the business on its sale to Ennstone plc. Tom Greenwood Chief Financial Officer Joined 2010 Alex Leigh Chief Commercial Officer Joined 2012 Tom was appointed Chief Financial Officer in September 2015, having previously been Helios Towers’ Group Finance Director. Throughout his time with HT he has been instrumental in managing and raising debt and equity for the Group, as well as being a key member of the team for all acquisitions and country set-ups. He is responsible for all finance and IT activities across the Group, and has led the set-up of all financial systems, operations and HT’s shared service centre. He joined Helios Towers from PwC, where he was part of the TMT Transaction Services team, focusing on M&A and re-financings, mainly in the telecoms sector. Tom is a Chartered Accountant of the ICAEW (ACA). Alex was appointed to the executive team of Helios Towers in October 2015, and is responsible for commercial, business development and sales activity. Prior to joining the executive team, he served as Business Development Director covering M&A, equity raises and business development. Alex has negotiated many of HT’s major customer agreements and has been a key team member in the capital raising activities of the Group. Before joining HT, Alex worked at both UBS and Rothschild, primarily advising TMT companies in an M&A capacity. He has been involved in over 20 M&A transactions and eight leveraged finance deals, and has provided strategic advice to large TMT companies across Europe. Colin Gaston Director of Operations & Technology Joined 2015 Colin joined HT as Director of Operations and Technology. Previously, he held several senior positions at Aggreko from 2000 to 2013, including Operations Director for the International Business, Regional Director for West and Central Africa, and Head of Logistics. He then worked as an independent consultant in Dubai for two years before joining Helios Towers. Colin also has 20 years of international experience in senior management roles with Schlumberger, and is an accredited Lean Six Sigma Black Belt. 50 Helios Towers | Annual Report 2017 Governance Report Roy Cursley Director of Operational PMO Joined 2015 Nick Summers Director of Corporate Services Joined 2010 Philippe Loridon CEO Helios Towers Tanzania Joined 2010 Roy joined HT as Director of Operational Programme Management Office and is responsible for the Group’s Project Delivery and Supply Chain activity. Prior to HT, Roy was Head of Projects, Planning & Continuous Improvement at Aggreko International. He was responsible for the execution of temporary power projects internationally, primarily in emerging markets. He has a wealth of experience in both South Africa and the East Africa region, and is an accredited Lean Six Sigma Black Belt. Nick has been HT’s Director of Corporate Services since October 2015. He joined Helios Towers following nine years with Vodafone, both in the United Kingdom and internationally. His final role at Vodafone was National Head of RAN Deployment for Vodafone Ghana (previously the state-owned Ghana Telecom). Within HT, Nick is responsible for the Group’s human resources; Group health, safety, environmental and quality management; and Group ethics and compliance. He also provides oversight on corporate social responsibility activities. Philippe Loridon has been a Director of HTT since January 2015 and joined HTT from Helios Towers DRC, where he had been Chief Executive Officer since December 2011. He previously served as Chief Executive Officer at Equateur Telecom Congo, where he re-launched ETC in the Republic of Congo. Prior to this, Philippe accumulated 20 years’ experience in the telecoms industry with MNOs based in San Marino, Israel and Papua New Guinea. This included 13 years at Hutchison Whampoa, fulfilling senior roles in sales, marketing and business development before first becoming CEO of Hutchison Sri Lanka in 1998, and then Head of Hutchison Telecommunications’ Latin American operations between 2000 and 2002. Helen Ebert Chief Legal Officer Joined 2018 Helen brings a wealth of experience to the role of Chief Legal Officer at Helios Towers. She was previously General Counsel at Exterion Media (formerly CBS outdoor) and held senior roles at World Fuel Services; and the Vista Group. She also has extensive experience of working for international law firms in London and Singapore, including Freshfields Bruckhaus Deringer, Slaughter and May, and Linklaters. Helen has significant international M&A, general commercial and compliance experience in EMEA, Asia-Pacific, USA, Russia and Egypt. She is qualified as a solicitor in England and Wales and has a law degree from Cambridge University. Léon-Paul Manya Okitanyenda CEO, Helios Towers DRC Joined 2011 Léon-Paul Manya Okitanyenda has been Chief Executive Officer of Helios Towers DRC since January 2015, having previously been Network Operations Director since February 2011. He has over 15 years of experience in the telecommunications industry. Prior to joining the Company, Léon-Paul worked as a Contract Execution Manager at Ericsson; Country Field Manager for MER Telecom; Operations Manager for Venture; and as Logistics Manager at Plessey. He is from DRC and holds a Master’s degree in Economics and Mathematics. Jeffrey Schumacher CEO Helios Towers Ghana & Helios Towers Congo Brazzaville Joined 2011 Jeffrey Schumacher has been CEO of Helios Towers Ghana since September 2015, and Helios Towers Congo Brazzaville since October 2016. He has held various senior positions during the set-up, launch and growth phases at subsidiaries in Tanzania, DRC and Chad, where he was Managing Director. Prior to HT, Jeffrey was an investment professional at Soros Fund Management LLC where he had been actively involved with the Company since its formation in 2009. He holds a BS in Mechanical Engineering (magna cum laude) from Northwestern University in the United States. Helios Towers | Annual Report 2017 51 Strategic ReportGovernance ReportFinancial StatementsOverview Board committees Corporate governance Our corporate governance framework provides for checks and balances while allowing our management flexibility for prompt decision-making in the ordinary course of business. The Directors have implemented a corporate governance framework that they consider appropriate for the size and current ownership structure of the Group. • • • to annually review and approve annual base salaries for employees of each member of the Group; to make recommendations with respect to incentive compensation plans; and to make regular reports to the Board of Directors on the status of outstanding compensation issues. Audit and Ethics Committee The Audit and Ethics Committee is appointed by the Board of Directors and consists of a minimum of three members. The current members of the Audit and Ethics Committee are Simon Poole, Nelson Oliveira, Simon David Pitcher and Mohsin Sohani. The chairman of the Audit and Ethics Committee is appointed by the Board of Directors for a period of one year. The Audit and Ethics Committee meets on a quarterly basis and holds a meeting with the external auditors at least once a year without the presence of any executive member. The role of the Audit and Ethics Committee is to: (i) be responsible to the Board of Directors for the oversight of financial accounting and reporting, internal controls, risk assessment and management, and ethics and compliance, including the integrity of the Group’s procurement process; (ii) be directly responsible for the appointment, compensation and oversight of the independent auditor, including the resolution of any disagreements with management; and (iii) endeavour to work with management and the independent auditor in a spirit of mutual respect and cooperation. Some of the specific duties of the Audit and Ethics Committee include the following: • • • to oversee systems, processes, internal controls and procedures, and compliance with the ethical standards adopted by the Group; to oversee the independent auditor’s qualifications, independence and performance; and to assess compliance with the Group’s procurement policy. Compensation Committee The members of the Compensation Committee are appointed by, and act at the discretion of, the Board of Directors. The Compensation Committee consists of a minimum of three members. The current members of the Compensation Committee are Waldemar Rafal Szlezak, Nelson Oliveira and Richard Byrne. The Compensation Committee meets on a quarterly basis. The Compensation Committee is responsible for approving key performance indicators for our business and evaluating senior executives’ compensation plans, policies and programmes. Some of the specific duties of the Compensation Committee include the following: Budget Committee The members of the Budget Committee are appointed by, and act at the discretion of, the Board of Directors. The Budget Committee consists of a minimum of three members. The current members of the Budget Committee are Simon Poole, Waldemar Rafal Szlezak and Kash Pandya. The Budget Committee meets on a quarterly basis. Some of the specific duties of the Budget Committee include the following: • • to work with the Group management teams on the annual Internal Budget Review and stress test detailed assumptions, projections and expectations to ensure that management’s expectations are reasonable and achievable; and to report to the Board of Directors on the process and recommend approval of the annual Budget, highlighting key risks and opportunities considered. Strategy and Investment Committee The members of the Strategy and Investment Committee are appointed by, and act at the discretion of, the Board of Directors. The Strategy and Investment Committee consists of a minimum of three members. The current members of the Strategy and Investment Committee are Simon Poole, Waldemar Rafal Szlezak, Colin Curvey, Xavier Charles Rocoplan, Richard Byrne and Kash Pandya. The Strategy and Investment Committee meets on a quarterly basis. Some of the specific duties of the Strategy and Investment Committee include the following: • • • • to provide guidance, input and suggestions to the Board of Directors and to management with respect to the Group’s strategy for the medium and long term; to advise and make recommendations to the Board of Directors and management about the development, adoption and modification of the Group’s business plan; to advise and make recommendations to the Board of Directors and management about acquisitions, joint ventures, mergers and strategic alliances; and to review the Group’s progress with respect to the implementation of its strategy, discuss and, where appropriate, make recommendations to management on the Group’s vision as well as share with management the Board of Directors’ expectations for the strategic planning process. Conflicts of Interest Except as disclosed in these financial statements, there are no potential conflicts of interest between any duties of the members of the Group’s administrative, management or supervisory bodies to the Group and their private interests and/or other duties. 52 Helios Towers | Annual Report 2017 Governance Report Principal shareholders The following table sets forth certain information, as of 31 December, 2017, with respect to the ownership of the Company’s shares by each person who, according to the Company’s Shareholders Register, owned more than 5% of the Company’s shares: Shareholders Millicom Holding, B.V. Quantum Strategic Partners, Ltd. Lath Holdings, Ltd ACM Africa Holdings, LP RIT Capital Partners Plc IFC African Latin American Caribbean Fund, LP Percentage directly held 22.83% 21.80% 16.40% 11.60% 7.18% 6.11% The remaining 14.08% of the Company is owned by minority shareholders, none of which owns more than 5% of the Company’s shares. Our leading shareholders are financial investors which invested in the Company in 2009, except for Millicom, which invested in the HT Group in 2010 (through a direct investment into Ghana, Tanzania, and DRC subsidiaries of the HT Group). In 2015, Millicom flipped up its investment in the HT Group, so that its investment was through a direct shareholding in the Company (with no direct shareholding in a subsidiary of the Company). Helios Towers | Annual Report 2017 53 Strategic ReportGovernance ReportFinancial StatementsOverview Directors’ report The Directors present their report and audited financial statements for the year ended 31 December 2017. Principal activity and review The principal activity of the Group during the year was the building and maintaining of telecommunications towers to provide space on those towers to wireless telecommunications service and associated service providers in Africa. Dividends During the financial year ended 31 December 2017, the Directors did not recommend the payment of a dividend (2016: US$ nil). The Directors, who are members of the Board at the time of approving the Directors’ report and Operating and Financial Review are listed on page 46. Auditor So far as each Director is aware, there is no relevant information of which the Group’s external auditors is unaware. Each Director has taken all steps that ought to have been taken as a Director in order to be aware of any relevant audit information and to establish that Deloitte are aware of that information. Deloitte has indicated its willingness to continue in office and will be reappointed at the next Annual Meeting. Approved by the Board on 11 February 2018. Kashyap Pushpkant Pandya The Company was incorporated in the Republic of Mauritius on 9 December 2009 as a Category 2 – Global Business Licence Company. Director appointments and resignations During the year, there were appointments and resignations of Directors as follows: Allan E Cook (Appointed 16 October 2017); Charles Campbell Green III (Resigned 22 September 2017). Results and future prospects A detailed review of the results, and future prospects is included in the Operating and Financial Review. Going concern The Directors have considered whether there are any material uncertainties that cast significant doubt on the Group’s ability to continue as a going concern. In order to mitigate the operating, commercial, legal, economic and financial risks to which the Group is exposed, the Directors have put in place a number of controls, reviews and procedures designed to address these risks. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is able to generate positive cash flows from its operations and meet its liabilities as they fall due. Additionally in March 2017 the Group successfully completed its initial public bond offering raising US$600 million which matures in 2022 to refinance the Group’s loan facilities and fund further development of its operations. Therefore, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they adopt the going concern basis of accounting in preparing the annual financial statements. 54 Helios Towers | Annual Report 2017 Governance Report Directors’ responsibilities statement The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRSs). International Accounting Standard (“IAS”) 1 requires that financial statements present fairly for each financial period the Group and Company’s financial position, financial performance and cash flows. This requires faithful representation of the effect of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out on the International Accounting Standards Board’s ‘Framework for the Preparation and Presentation of Financial Statements’. The Directors are also responsible for maintaining an effective system of internal control and risk management. In virtually all situations, a fair presentation will be achieved by complying with all applicable IFRSs. In preparing these financial statements, the Directors are also required to: • • select suitable accounting policies and then apply them consistently; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • make judgements and accounting estimates that are reasonable and prudent; • • provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Company’s financial position and financial performance; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with IFRS. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Helios Towers | Annual Report 2017 55 Strategic ReportGovernance ReportFinancial StatementsOverview Glossary We have prepared the annual report using a number of conventions, which you should consider when reading information contained herein as follows: All references to “we”, “us”, “our”, “HT Group”, our “Group” and the “Group” are references to Helios Towers Africa, Ltd (the “Company”) and its subsidiaries taken as a whole. “3G” means the third generation cellular telecommunications networks that allow simultaneous use of voice and data services, and provide high-speed data access using a range of technologies. “4G” or “4G LTE” means the fourth generation cellular telecommunications networks that allow simultaneous use of voice and data services, and provide high-speed data access using a range of technologies (these speeds exceed those available for 3G). “Adjusted EBITDA” as loss for the period, adjusted for loss for the period from discontinued operations, additional tax, income tax, finance costs, other gains and losses, investment income, share-based payment charges, loss on disposal of property, plant and equipment, amortisation and impairment of intangible assets, depreciation and impairment of property, plant and equipment, deal costs relating to unsuccessful tower acquisition transactions or successful tower acquisition transactions that cannot be capitalised, and exceptional items. Exceptional items are material items that are considered exceptional in nature by management by virtue of their size and/or incidence. “Adjusted EBITDA margin” as Adjusted EBITDA divided by revenue. “Airtel” means Bharti Airtel International. “anchor tenant” means the primary customer occupying each tower. “average remaining life” of certain agreements means the average of the periods through the expiration of the term under all such agreements. “colocation tenant” means each additional tenant on a tower in addition to the primary anchor tenant. “Company” means Helios Towers Africa, Ltd. “Congo Brazzaville” means the Republic of Congo, Congo Brazzaville or Congo. “contracted revenue” means revenue contracted under our site agreements under all total tenancies, assuming no escalation of maintenance fees and no renewal upon the expiration of the current term. “DRC” means Democratic Republic of Congo. “EUR” or “€” means the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to Article 123 of the treaty establishing the European Community, as amended. “G7 countries” means each of the United States, Canada, France, Germany, Italy, Japan and the United Kingdom. “Ghana” means the Republic of Ghana. “gross debt” as our total borrowings (non-current loans and current loans) excluding unamortised loan issue costs. “Gross margin” means gross profit, add back site and warehouse depreciation, divided by revenue. “GSM” means Global System for Mobile Communication, a standard for digital mobile communications. “Guarantors” means the Company, HT Holdings, Ltd., HT Congo Brazzaville Holdco Limited, Helios Towers DRC S.A.R.L., Helios Towers Tanzania Limited, Helios Towers Congo Brazzaville SASU, HT DRC Infraco S.A.R.L., HTT Infraco Limited, Towers NL Coöperatief U.A., McTam International 1 B.V., Helios Towers Ghana Limited, HTG Managed Services Limited and McRory Investment B.V. “Helios Towers DRC” means Helios Towers DRC S.A.R.L. “Helios Towers Ghana” means Helios Towers Ghana Limited. “Helios Towers Tanzania” means Helios Towers Tanzania Limited. “build-to-suit” means sites constructed by our Group on order by an MNO. “HT Congo Brazzaville” means HT Congo Brazzaville Holdco Limited. “CAGR” means compound annual growth rate. “IBS” means in-building cellular enhancement. “capital expenditures” the additions of property, plant and equipment. “CODM” Chief Operating Decision Maker. “IFRS” means International Financial Reporting Standards. “ISA” means individual site agreement. 56 Helios Towers | Annual Report 2017 Governance Report “LTE” means Long-Term Evolution, designed to increase the capacity and speed of mobile telephone networks according to the standard developed by the 3GPP consortium, frequently referred to as “4G” or “4th generation”. Some of the key assumptions of the system are: (i) data transmission at speeds faster than 3G; (ii) ready for new service types; (iii) architecture simplified in comparison to 3G; and (iv) provisions for open interfaces. “maintenance capital expenditures” as capital expenditures for periodic refurbishments and replacement of parts and equipment to keep existing sites in service. “maintained sites” refers to sites that are maintained by the Company on behalf of a telecommunications operator but which are not marketed by the Company to other telecommunications operators for colocation (and in respect of which the Company has no right to market). “managed sites” refers to sites that the Company currently manages but does not own due to either: (i) certain conditions for transfer under the relevant acquisition documentation, ground lease and/or law not yet being satisfied; or (ii) the site being subject to an agreement with the relevant MNO under which the MNO retains ownership and outsources management and marketing to the Company. “Mauritius” means the Republic of Mauritius. “Millicom” means Millicom International Cellular SA. “mobile penetration” means the measure of the amount of active mobile phone subscriptions compared to the total market for active mobile phones. “MLA” means master lease agreement. “MNO” means mobile network operator. “MTN” means MTN Group Ltd. “near investment grade” means one notch below investment grade. “site agreement” means the MLA and ISA executed by us with our customers, which act as an appendix to the relevant MLA and includes certain site-specific information (for example, location and any grandfathered equipment). “SLA” means service-level agreement. “Tanzania” means the United Republic of Tanzania. “telecommunications operator” means a company licensed by the government to provide voice and data communications services in the countries in which we operate. “tenancy” means a space leased for installation of a base transmission site and associated antennas. “tenancy ratio” means the total number of tenancies divided by the total number of our towers as of a given date and represents the average number of tenants per site within a portfolio. “Tigo” refers to one or more subsidiaries of Millicom that operate under the commercial brand “Tigo”. “total colocations” means total colocation tenants. “total sites” means total live towers, IBS sites or sites with customer equipment installed on third-party infrastructure that are owned and/or managed by the Company with each reported site having at least one active customer tenancy as of a given date. “total tenancies” means the individual tower occupancies by each customer as of a given date. “tower sites” means ground-based towers and rooftop towers and installations constructed and owned by us on real property (including a rooftop) that is generally owned or leased by us. “U.S. dollars” or “$” refers to the lawful currency of the United States of America. “United States” or “U.S.” means the United States of America. “net debt” means gross debt less cash and cash equivalents. “Vodacom” means Vodacom Group Limited. “Orange” means Orange S.A. “Vodacom Tanzania” means Vodacom Tanzania Ltd. “SHEQ” means Safety, Health, Environment and Quality. “Zantel” means Zanzibar Telecom PLC. “site acquisition” means a combination of MLAs, which provide the commercial terms governing the provision of tower space, and individual ISA, which act as an appendix to the relevant MLA, and include site-specific terms for each site. Helios Towers | Annual Report 2017 57 Strategic ReportGovernance ReportFinancial StatementsOverview Independent auditor’s report to the shareholders of Helios Towers Africa, Ltd Report on the audit of the consolidated and separate financial statements Opinion We have audited the consolidated and separate financial statements of Helios Towers Africa, Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 60 to 100, which comprise the consolidated and separate statement of financial position as at 31 December 2017, and the consolidated and separate statement of profit or loss and other comprehensive income, consolidated and separate statement of changes in equity and consolidated and separate statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the financial position of the Group and the Company as at 31 December 2017, and of their consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group and the Company in accordance with the ethical requirements of the International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other information The directors are responsible for the other information. The other information comprises of the Overview, Strategic Report and Governance Report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express any form of assurance or conclusion thereon. In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of directors for the consolidated and separate financial statements The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and they are also responsible for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and or the Company or to cease operations, or have no realistic alternative but to do so. The directors are responsible for overseeing the Group’s and the Company’s financial reporting process. 58 Helios Towers | Annual Report 2017 Financial Statements Auditor’s responsibilities for the audit of the consolidated and separate financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control. – – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and or the Company to cease to continue as a going concern. – Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. – Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Deloitte Chartered Accountants 11 February 2018 L. Yeung Sik Yuen, ACA Licensed by FRC Helios Towers | Annual Report 2017 59 Strategic ReportGovernance ReportFinancial StatementsOverview Consolidated Statement of profit or loss and other comprehensive income For the year ended 31 December 2017 Revenue Cost of sales Gross profit Administrative expenses Loss on disposal of property, plant and equipment Operating loss Investment income Other gains and losses Finance costs Loss before tax Tax expenses Loss after tax for the year Other comprehensive loss: Items that may be reclassified subsequently to profit and loss: Exchange differences on translation of foreign operations Total comprehensive loss for the year Loss attributable to: Owners of the Company Non-controlling interest Loss for the year Total comprehensive loss attributable to: Owners of the Company Non-controlling interest Total comprehensive loss for the year Notes 2017 US$’000 Restated (IFRS 16) 2016 US$’000 3 344,957 (275,651) 282,507 (235,867) 69,306 46,640 (91,261) (2,018) (77,741) (3,761) (23,973) (34,862) 706 21,797 (102,757) 216 (6,682) (73,268) (104,227) (114,596) (3,207) (1,514) (107,434) (116,110) 5 8 24 9 10 (1,384) (3,603) (108,818) (119,713) (92,817) (14,617) (97,740) (18,370) (107,434) (116,110) (94,984) (13,834) (101,457) (18,256) (108,818) (119,713) 60 Helios Towers | Annual Report 2017 The notes on pages 68 to 100 form part of these financial statements. Financial Statements Company Statement of profit or loss and other comprehensive income For the year ended 31 December 2017 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating loss Investment income Finance costs Loss before tax Tax expenses Loss after tax and total comprehensive loss for the year Notes 2017 US$’000 2016 US$’000 – – – 683 – 683 (40,131) (35,293) (40,131) 132 (677) (34,610) – (1,485) (40,676) (36,095) – – (40,676) (36,095) 5 8 9 10 The notes on pages 68 to 100 form part of these financial statements. Helios Towers | Annual Report 2017 61 Strategic ReportGovernance ReportFinancial StatementsOverview Consolidated Statement of financial position As at 31 December 2017 Non-current assets Intangible assets Property, plant and equipment Right-of-use assets Investments Derivative financial assets Current assets Inventories Trade and other receivables Prepayments Cash and cash equivalents Total assets Equity Issued capital and reserves Share capital Share premium Stated capital Other reserves Minority interest buy-out reserve Translation reserve Accumulated losses Equity attributable to owners Non-controlling interest Total equity Current liabilities Trade and other payables Loans Short-term lease liabilities Minority interest buy-out liability Non-current liabilities Long-term lease liabilities Loans Total liabilities Total equity and liabilities Notes 2017 US$’000 11 12a 12b 13 25 14 15 16 17 17,961 705,700 115,302 132 23,917 863,012 9,538 108,491 23,403 119,700 261,132 Restated (IFRS 16) 2016 US$’000 35,556 655,140 112,725 132 1,393 804,946 19,503 126,929 20,466 133,737 300,635 1,124,144 1,105,581 18 909,154 186,951 909,134 186,795 1,096,105 1,095,929 (11,693) (54,429) (77,486) (544,355) (12,778) – (79,653) (741,757) 261,917 – 261,917 147,324 17,254 20,452 – 185,030 96,097 581,100 677,197 862,227 407,966 (36,322) 371,644 163,857 60,516 20,934 57,886 303,193 90,111 340,633 430,744 733,937 1,124,144 1,105,581 19 20 21 24 21 20 Approved and authorised for issue by the Board on 11 February 2018 and signed on its behalf by Kashyap Pushpkant Pandya Simon David Pitcher The notes on pages 68 to 100 form part of these financial statements. 62 Helios Towers | Annual Report 2017 Financial Statements Company Statement of financial position As at 31 December 2017 Non-current assets Intangible assets Investments Current assets Trade and other receivables Prepayments Cash and cash equivalents Total assets Equity Issued capital and reserves Share capital Share premium Stated capital Other reserves Accumulated losses Total equity Current liabilities Trade and other payables Total liabilities Total equity and liabilities Notes 2017 US$’000 2016 US$’000 11 13 15 16 17 176 430,677 430,853 482,802 221 18,314 501,337 932,190 13,244 430,677 443,921 434,540 5,690 87,553 527,783 971,704 18 909,154 186,951 909,134 186,795 1,096,105 1,095,929 (9,835) (124,213) (9,835) (164,889) 921,381 961,881 19 10,809 10,809 9,823 9,823 932,190 971,704 Approved and authorised for issue by the Board on 11 February 2018 and signed on its behalf by Kashyap Pushpkant Pandya Simon David Pitcher The notes on pages 68 to 100 form part of these financial statements. Helios Towers | Annual Report 2017 63 Strategic ReportGovernance ReportFinancial StatementsOverview Consolidated Statement of changes in equity For the year ended 31 December 2017 Share capital US$’000 Share premium US$’000 Stated capital US$’000 Other reserves US$’000 Minority interest buy–out reserves US$’000 Translation reserve US$’000 Accumulated losses US$’000 Attributable to the owners of the parent US$’000 Non– controlling interest (NCI) US$’000 Total equity US$’000 750,394 131,239 881,633 (11,283) (54,063) (77,102) (437,283) 301,902 (18,906) 282,996 – – – – – 3,333 (9,332) (5,999) 500 (5,499) 750,394 158,740 – – – 131,239 55,556 – – – 881,633 214,296 – – – (11,283) – – (410) – (54,063) – – – (366) (73,769) – – – – (446,615) – – – – 295,903 214,296 – (410) (366) (18,406) – 340 – – 277,497 214,296 340 (410) (366) – – – – – – – – – – – – – – – – (97,740) (97,740) (18,370) (116,110) (3,717) – (3,717) 114 (3,603) (3,717) (97,740) (101,457) (18,256) (119,713) 909,134 186,795 1,095,929 (11,693) (54,429) (77,486) (544,355) 407,966 (36,322) 371,644 20 – – – – – – – 156 – 176 – – (1,085) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (2,167) (92,817) – 176 (1,085) (92,817) (2,167) – – 176 (1,085) (14,617) 783 (107,434) (1,384) (2,167) – (92,817) (36,658) (94,984) (36,658) (13,834) 50,156 (108,818) 13,498 909,154 186,951 1,096,105 (12,778) – (79,653) (741,757) 261,917 – 54,429 – – (13,498) (54,429) (13,498) – – – – (13,498) – 261,917 Balance at 1 January 2016 (as previously reported) Effect of transition to IFRS16: Leases Balance at 1 January 2016 restated (IFRS16) Issue of share capital Capital from NCI Share issue costs Minority buy-out reserves Loss for the year Other comprehensive loss Total comprehensive loss for the year Balance at 31 December 2016 Issue of share capital Share issue costs Loss for the year Other comprehensive loss Total comprehensive loss for the year Acquisition of NCI Premium on acquisition of NCI Minority buy-out reserves Balance at 31 December 2017 Other reserves relate to the costs incurred in issuing equity. These costs include registration and other regulatory fees, amounts paid to legal, accounting and other professional advisors. Minority interest buy-out reserves are fair value adjustments which arise when options are granted to Vodacom to exchange shares in Helios Towers Tanzania Limited for shares in Helios Towers Africa, Ltd. The option expired in October 2017 when the Vodacom shares were acquired by Helios Towers Holding Limited. See note 24. Translation reserve relates to the translation of the financial statements of overseas subsidiaries in to the consolidated financial statements. 64 Helios Towers | Annual Report 2017 Financial StatementsThe notes on pages 68 to 100 form part of these financial statements. Company Statement of changes in equity For the year ended 31 December 2017 Balance at 1 January 2016 Issue of share capital Other reserves issued Loss and total comprehensive loss for the year Balance at 31 December 2016 Issue of share capital Loss and total comprehensive loss for the year Share capital US$’000 Share premium US$’000 Stated capital US$’000 Other reserves US$’000 Accumulated losses US$’000 Total equity US$’000 750,394 158,740 – 131,239 55,556 – 881,633 214,296 – (9,770) – (65) (88,118) – – 783,745 214,296 (65) – – – – (36,095) (36,095) 909,134 20 186,795 1,095,929 176 156 (9,835) – (124,213) – 961,881 176 – – – – (40,676) (40,676) Balance at 31 December 2017 909,154 186,951 1,096,105 (9,835) (164,889) 921,381 Other reserves relates to the costs incurred in issuing equity. These costs include registration and other regulatory fees, amounts paid to legal, accounting and other professional advisors. Helios Towers | Annual Report 2017 65 Strategic ReportGovernance ReportFinancial StatementsOverviewThe notes on pages 68 to 100 form part of these financial statements. Consolidated Statement of cash flows For the year ended 31 December 2017 Cash flows from operating activities Loss for the year before taxation Adjustments for: Other gains and losses Finance costs Investment income Depreciation and amortisation Loss on disposal of property, plant and equipment Movement in working capital: (Increase)/decrease in inventories Decrease/(increase) in trade and other receivables Decrease/(increase) in prepayments (Decrease)/increase in trade and other payables Cash generated from operations Interest paid Tax paid Net cash generated from operating activities Cash flows from investing activities Payments to acquire property, plant and equipment Payments to acquire intangible assets Proceeds on disposal on assets Interest received Net cash used in investing activities Cash flows from financing activities Gross proceeds from issue of equity share capital Equity issuance costs Payments for buy-back of shares Borrowing drawdowns Loan financing costs Borrowing repayments Repayment of lease liabilities Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Foreign exchange on translation movement Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 66 Helios Towers | Annual Report 2017 Notes 2017 US$’000 Restated (IFRS 16) 2016 US$’000 24 9 8 11, 12 (104,227) (114,596) (21,797) 102,757 (706) 148,926 2,018 (2,548) 7,632 5,968 (27,567) 110,456 (51,633) (1,251) 6,682 73,268 (216) 129,455 3,761 387 (46,534) (5,422) 20,780 67,565 (41,626) (635) 57,572 25,304 (166,711) (3,857) 249 704 (273,766) (22,411) 114 216 (169,615) (295,847) 163 – (58,556) 600,000 (24,079) (407,983) (11,675) 184,297 (410) – 173,612 (8,922) (23,485) (8,353) 97,870 316,739 (14,173) 46,196 136 133,737 119,700 (749) 88,290 133,737 Financial StatementsThe notes on pages 68 to 100 form part of these financial statements. Company Statement of cash flows For the year ended 31 December 2017 Cash flows from operating activities Loss for the year before taxation Adjustments for: Finance costs Investment income Amortisation Movement in working capital: Decrease/(increase) in trade and other receivables Decrease/(increase) in prepayments (Increase)/decrease in trade and other payables Net cash used in operating activities Cash flows from investing activities Payment to acquire intangible asset Net cash used in investing activities Cash flows from financing activities Gross proceeds from issue of equity share capital Equity issuance costs Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Notes 2017 US$’000 2016 US$’000 (40,676) (36,095) 9 8 11 677 (132) 13,210 1,485 – 16,982 1,552 3,490 (47,345) (129,301) (5,451) 5,480 (69,224) (146,900) (178) (178) 163 – 163 (69,239) 87,553 18,314 (12) (12) 184,297 (65) 184,232 37,320 50,233 87,553 Helios Towers | Annual Report 2017 67 Strategic ReportGovernance ReportFinancial StatementsOverviewThe notes on pages 68 to 100 form part of these financial statements. Notes to the Financial Statements For the year ended 31 December 2017 1. Statement of compliance and presentation of financial statements Helios Towers Africa, Ltd (the “Company”) is a limited company incorporated and domiciled in the Republic of Mauritius. The Company and entities controlled by the Company (its subsidiaries, together the “Group”) are disclosed in note 13. The Group and the Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). The Company holds a Category 2 Global Business Licence issued by the Financial Services Commission (“FSC”). The principal accounting policies adopted by the Group and the Company are set out in note 2. 2. Accounting Policies Basis of preparation The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments that are measured at fair value at the end of each reporting period. The financial statements are presented in United States Dollars (US$). Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group and the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated and separate financial statements is determined on such a basis, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: – – – Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved when the Company: – – – has the power over the investee; is exposed, or has rights, to variable return from its involvement with the investee; and has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation. 68 Helios Towers | Annual Report 2017 Financial Statements 2. Accounting Policies (continued) Basis of consolidation (continued) Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non- controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company. Going concern The Group’s business activities, together with factors likely to affect its future development, performance and position are considered by the Directors on an annual basis. In addition, notes 20 and 25 include details of the Group’s treasury activities, long-term funding arrangements, financial instruments and financial risk management activities. The Group has sufficient financial resources which, together with internally generated cash flows, will continue to provide sufficient sources of liquidity to fund its current operations, including its contractual and commercial commitments as set out in note 20. The Directors assess forecast and make financing and liquidity reviews on a regular basis. The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Changes in accounting policies The Group has early adopted IFRS 15: Revenue from Contracts with Customers and IFRS 16: Leases under the fully retrospective approach which has resulted in changes in accounting policies. The adoption of IFRS 15 has had no impact on the consolidated and separate financial statements other than with respect to disclosures. This is principally because the service contracts were already well aligned with the performance obligation separation requirements of IFRS 15. As such no restatement of balances previously presented are required in respect of this standard. The adoption of IFRS 16 has resulted in restatement of balances previously presented, the impact of which is explained below. Revenue recognition In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers (as amended in April 2016) in advance of its effective date. IFRS 15 introduces a 5-step approach to revenue recognition. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Details of these new requirements as well as their impact on the Group’s consolidated financial statements are described below. The Group has applied IFRS 15 in accordance with the fully retrospective transitional approach without using the practical expedients for completed contracts in IFRS 15.C5(a), and (b), or for modified contracts in IFRS 15.C5(c) or using the expedient in IFRS 15.C3(d) allowing both non-disclosure of the amount of the transaction price allocated to the remaining performance obligations, and an explanation of when it expects to recognise that amount as revenue for all reporting periods presented before the date of initial application. Helios Towers | Annual Report 2017 69 Strategic ReportGovernance ReportFinancial StatementsOverview 2. Accounting Policies (continued) Revenue recognition (continued) IFRS 15 uses the terms ‘contract asset’ and ‘contract liability’ to describe what might more commonly be known as ‘accrued income’ and ‘deferred income’, however the Standard does not prohibit an entity from using alternative descriptions in the statement of financial position. The Group has not adopted the terminology used in IFRS 15 to describe such balances. The Group’s accounting policies for its revenue stream are disclosed in detail below. Apart from providing more extensive disclosures on the Group’s revenue transactions, the application of IFRS 15 has not had a significant impact on the financial position and financial performance of the Group. The Group recognises revenue from the rendering of tower services provided by utilisation of the Group’s tower infrastructure pursuant to written contracts with its customers. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, VAT and other sales-related taxes. Revenue is reduced for estimated and agreed liquidated damages resulting from failure to meet the agreed service performance levels set out in the contract. The Group provides tower and related services for the utilisation of its tower infrastructure to mobile and other telecommunication operators. Revenue includes fees for the provision of tower infrastructure, power escalations and tower service contracts. These services are recognised as the performance obligation is satisfied over time. Customers are usually billed in advance creating a contract liability which is then recognised as the performance obligation is met over a straight-line basis. Revenue related to power escalations is recognised when the escalation is calculated in accordance with the contractual terms. Though multiple performance obligations arises as a result of the provision of these services, the Group considers it reasonable to combine the provision of these tower services into a single performance obligation as this does not impact the ultimate pattern of revenue recognition as they are all recognised over time. Lessee accounting Under previous accounting standard IAS 17: Leases, the Group was required to classify its leases as either finance leases or operating leases and account for those two types of leases differently. The Group holds leases primarily on land, buildings and motor vehicles used in the ordinary course of business. Based on the accounting policy applied the Group recognizes a right-of-use asset and a lease liability at the commencement date of the contract for all leases conveying the right to control the use of an identified asset for a period of time. The commencement date is the date on which a lessor makes an underlying asset available for use by a lessee. The right-of-use assets are initially measured at cost, which comprises: – – – the amount of the initial measurement of the lease liability; any lease payments made at or before the commencement date, less any lease incentives received; and, any initial direct costs incurred by the lessee. After the commencement date the right-of-use assets are measured at cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any re-measurement of the lease liability. The Group depreciates the right-of-use asset from the commencement date to the end of the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. These include: – – fixed payments, less any lease incentives receivable; and variable lease payments that depend on a fixed rate, as at the commencement date. Variable lease payments not included in the initial measurement of the lease liability are recognised in the consolidated statement of profit or loss as they arise. 70 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 2. Accounting Policies (continued) Lessee accounting (continued) The lease payments are discounted using the incremental borrowing rate at the commencement of the lease contract or modification. Generally it is not possible to determine the interest rate implicit in the land and building leases. The incremental borrowing rate is estimated taking account of the economic environment of the lease, the currency of the lease and the lease term. The lease term determined by the Group comprises: – – – non-cancellable period of lease contracts, periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the Group is reasonably certain not to exercise that option. After the commencement date the Group measures the lease liability by: – – – increasing the carrying amount to reflect interest on the lease liability; reducing the carrying amount to reflect lease payments made; and re-measuring the carrying amount to reflect any reassessment or lease modifications. Interest expense Interest expense is recognised as interest accrues, using the effective interest method, to the net carrying amount of the financial liability. The effective interest method is a method of calculating the amortised cost of a financial asset/financial liability and of allocating interest income/interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts/payments through the expected life of the financial assets/financial liabilities, or, where appropriate, a shorter period. Retirement benefit costs Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Helios Towers | Annual Report 2017 71 Strategic ReportGovernance ReportFinancial StatementsOverview 2. Accounting Policies (continued) Deferred tax (continued) Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the reporting date. Deferred tax is charged or credited in the profit or loss, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current tax and deferred tax for the year Current and deferred tax are recognised in the statement of profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Foreign currency exchange The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in United States Dollars (US$), which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in a separate component of equity (attributed to non-controlling interests as appropriate). On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation of which the retained interest become a financial assets), all of the exchange differences accumulated in a separate component of equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss. In addition, in relation to a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non- controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or joint arrangements that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. 72 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 2. Accounting Policies (continued) Property, plant and equipment Items of property, plant and equipment are stated at cost of acquisition or production cost less accumulated depreciation and impairment losses, if any. Assets in the course of construction for production, supply or administrative purposes, are carried at cost, less any recognised impairment loss. Cost includes material and labour and professional fees in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other assets, commences when the assets are ready for their intended use. Freehold land is not depreciated. Right-of-use assets Site Assets – Towers Site Assets – Generators Site Assets – Plant & Machinery Fixtures and Fittings IT Equipment Motor Vehicles Leasehold Improvement Up to 60 years Up to 15 years 8 years 3–5 years 3 years 3 years 5 years 5–10 years Directly attributable costs of acquiring tower assets are capitalised together with the towers acquired and depreciated over a period of up to 15 years in line with the assets. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from continued use of the asset. Any gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit and loss. Intangible assets Contract acquired related intangible assets are amortised on a straight-line basis over the life of the contract. Other intangible assets are amortised on a straight-line basis over their estimated lives of 3–10 years. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. Impairment of tangible and intangible assets At each reporting date, the Directors review the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Directors estimate the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Helios Towers | Annual Report 2017 73 Strategic ReportGovernance ReportFinancial StatementsOverview 2. Accounting Policies (continued) Investments Investments are included in the financial statements initially at cost. Cost comprises all the costs associated with the acquisition of the investment including the fair value of the consideration for the investment instruments, any local taxes and costs associated with investigation and negotiating the acquisition. At the end of each financial reporting year, the Directors review the investment instruments to determine the recoverable amount. If the recoverable amount is considered to be less than cost, an impairment provision is recognised. Costs incurred in the investigation of prospective investments are expensed in the year in which they are incurred. Should prospective investments become subsidiaries, the directly attributable costs of investment are capitalised as part of the cost of the investment. Inventory Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Trade and other receivables Trade receivables are recognised by the Group and the Company carried at original invoice amount less an allowance for any uncollectible or impaired amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when they are deemed to be non-collectable. Other receivables are recognised at fair value. Subsequent measurement is at amortised cost using the effective interest method, less any impairment. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits. Short-term deposits are defined as deposits with an initial maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purposes of the statement of cash flows. Derivative financial instruments Short-term debtors and creditors are treated as financial assets or liabilities. The Group does not trade in financial instruments. The Group enters into derivative financial instruments to manage its exposure to interest rate risk, using interest rate swaps. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value through profit or loss. Embedded derivatives are disclosed separately in the statement of financial position. Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. 74 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 2. Accounting Policies (continued) Derecognition of financial liabilities The Group and the Company derecognise financial liabilities when, and only when, the Group’s and the Company’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. Related parties For the purpose of these financial statements, parties are considered to be related to the Group if they have the ability, directly or indirectly to control the Group or exercise significant influence over the Group in making financial or operating decisions, or vice-versa, or where the Group is subject to common control or common significant influence. Related parties may be individuals or other entities. Non-controlling interest Non-controlling interest (NCI) is the portion of equity ownership in subsidiaries not attributable to Helios Towers Africa, Ltd. Up to October 2017, Helios Towers Africa, Ltd held a 75.9% controlling interest in Helios Towers Tanzania Ltd, a company incorporated in the Republic of Tanzania, and consolidated the subsidiaries’ financial results. In October 2017, the option to acquire the NCI expired. See note 24. Deferred income Deferred income is recognised when payments are received from customers in advance of services being provided. The Group policy is to bill customer’s in advance, thus creating deferred income. The deferred income is included as a current liability within trade and other payables. New accounting pronouncement The Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretations Committee (“IFRIC”) of the IASB that are relevant to its operations and effective for accounting periods covered by the financial statements. IFRS 15; Revenue from contracts with customers, and IFRS 16: Leases have been adopted early on a fully retrospective basis covering the whole of the historical financial information period. The adoption of IFRS 16 has had a material effect on the amounts reported. The impact is analysed in note 29. IFRS 15 has not had an impact on the consolidated and separate financial statements. New and revised IFRSs in issue but not yet effective At the date of authorisation of the historical financial information, the Group have not applied the following new and revised IFRSs that have been issued but are not yet effective: IFRS 9 Financial Instruments (effective 1 January 2018) The Group plans to adopt IFRS 9: Financial Instruments on the required effective date. So far the Group has performed a high-level assessment of the impact of all three aspects of IFRS 9; classification and measurement, impairment, hedge accounting. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analysis or additional reasonable and supportable information which might be available to the Group in the future. Overall, the Group expects no material impact on its statement of financial position or equity. Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, which are described above, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future period. Critical judgements in applying the group’s accounting policies The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors, have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in financial statements. Helios Towers | Annual Report 2017 75 Strategic ReportGovernance ReportFinancial StatementsOverview 2. Accounting Policies (continued) Revenue recognition Revenue is recognised as service revenue in accordance with IFRS 15: Revenue from contracts with customers. In arriving at this assessment the Directors concluded that there is not an embedded lease because its contracts permit it, subject to certain conditions, to relocate customer’s equipment on its towers in order to accommodate other tenants and therefore the contract does not provide the customer with the right to a specific location on the tower. Business combinations From time to time, the Group acquires a portfolio of towers, comprising the tower infrastructure and other associated assets. The Directors assess each acquisition on the basis of its purchase agreement and the substance of the transaction to determine if it is considered to be a business combination in accordance with IFRS 3. To date, such portfolio acquisitions do not meet the definition of a business under IFRS 3 since they do not represent integrated sets of activities and assets that are capable of being conducted and managed independently, and consequently have been accounted for as an asset acquisition under IAS 16. Accordingly, no goodwill is recognised and the costs incurred are capitalised as part of the costs of acquisition of the towers. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Fair value of derivative financial instruments Derivative financial instruments are held at fair value through profit and loss. In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group engages a third party qualified valuer to perform the valuation. Management works closely with the qualified external valuer to establish the appropriate valuation techniques and inputs to the model. Information about the valuation techniques and inputs used in determining the fair value of the derivative financial instrument is disclosed in note 25. Providing for doubtful debts The Group provides services to business customers on credit terms. Certain debts may not be recovered due to default of our customers. Estimates, based upon historical experience are used in determining the level of debt that we do not expect to be collected. 76 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 3. Segmental reporting The following segmental information is presented in a consistent format with management information considered by the CEO of each operating segment, and the CEO and CFO of the Group, who are considered to be the chief operating decision makers (CODM). Operating segments are determined based on geographical location. All operating segments have the same business of operating and maintaining telecoms towers and renting space on such towers. Accounting policies are applied consistently for all operating segments. The segment operating result used by CODM is Adjusted EBITDA, which is defined in note 4. 31 December 2017 Revenue Gross margin Adjusted EBITDA Adjusted EBITDA margin Financing costs Interest costs Foreign exchange differences 31 December 2016 Revenue Gross margin Adjusted EBITDA Adjusted EBITDA margin Financing costs Interest costs Foreign exchange differences Ghana US$’000 40,144 56% 17,821 44% Tanzania US$’000 141,230 56% 66,839 47% DRC US$’000 140,156 55% 66,530 47% Congo Brazaville US$’000 23,427 61% 9,783 42% Total operating companies US$’000 344,957 56% 160,973 47% Corporate US$’000 – – (15,011) – Group total US$’000 344,957 56% 145,962 42% (4,528) (4,470) (65,324) (7,732) (51,053) 9 (10,760) 6,117 (131,665) (6,076) 32,137 2,847 (99,528) (3,229) (8,998) (73,056) (51,044) (4,643) (137,741) 34,984 (102,757) Ghana US$’000 34,393 46% 11,072 32% Tanzania US$’000 122,301 52% 51,308 42% DRC US$’000 102,171 54% 46,671 46% Congo Brazaville US$’000 23,642 62% 10,944 46% Total operating companies US$’000 282,507 53% 119,995 42% Corporate US$’000 – – (14,834) – Group total US$’000 282,507 53% 105,161 37% (2,374) (3,029) (69,052) (2,676) (21,534) (1,177) (5,305) (1,522) (98,265) (8,404) 34,793 (1,392) (63,472) (9,796) (5,403) (71,728) (22,711) (6,827) (106,669) 33,401 (73,268) Capital Additions, Depreciation and Amortisation Ghana Tanzania Congo Brazzaville Democratic Republic of Congo Total Operating Company Corporate Total Right-of-use assets Ghana Tanzania Congo Brazzaville Democratic Republic of Congo Total Year ended 31 December 2017 Year ended 31 December 2016 Capital Additions US$’000 13,228 66,273 10,209 80,887 Depreciation and Amortisation US$’000 7,955 51,592 11,651 53,294 Capital Additions US$’000 6,905 63,043 8,343 224,942 Depreciation and Amortisation US$’000 6,503 44,947 10,238 40,109 170,597 124,492 303,233 101,797 142 13,210 30,000 16,997 170,739 137,702 333,233 118,794 Year ended 31 December 2017 Year ended 31 December 2016 Capital Additions US$’000 532 7,611 466 5,212 Depreciation US$’000 712 6,466 792 3,254 13,821 11,224 Capital Additions US$’000 2,373 7,980 853 15,284 26,490 Depreciation US$’000 723 6,450 904 2,584 10,661 Helios Towers | Annual Report 2017 77 Strategic ReportGovernance ReportFinancial StatementsOverview 4. Adjusted EBITDA The segment operating result used by the chief operating decision makers is Adjusted EBITDA. Management define Adjusted EBITDA as loss for the year, adjusted for loss for the year from discontinued operations, additional tax, income tax, finance costs, other gains and losses, investment income, share-based payment charges, loss on disposal of property, plant and equipment, amortisation and impairment of intangible assets, depreciation and impairment of property, plant and equipment, deal costs relating to unsuccessful tower acquisition transactions or successful tower acquisition transactions that cannot be capitalised and exceptional items. Exceptional items are items that are considered exceptional in nature by management by virtue of their size and/or incidence. Adjusted EBITDA is reconciled to loss before tax as follows: The Group Adjusted EBITDA Adjustments applied to give Adjusted EBITDA Exceptional items: Restructuring costs(i) Tanzanian IPO(ii) Exceptional project costs(iii) Deal costs for aborted acquisitions(iv) Loss on disposal of assets Other gains and losses (note 24) Recharged depreciation(v) Depreciation of property, plant and equipment Amortisation of intangibles Investment income Finance cost Loss before tax 2017 US$’000 Restated (IFRS 16) 2016 US$’000 145,962 105,161 (3,215) (1,481) (9,780) (3,306) (2,018) 21,797 (1,209) (127,148) (21,778) 706 (102,757) (4,318) – – (1,414) (3,761) (6,682) (1,075) (107,390) (22,065) 216 (73,268) (104,227) (114,596) (i) Restructuring costs reflect specific actions taken by management to improve the Group’s future profitability and mainly comprise the costs of an operational excellence programme where management worked to optimise operational headcount to gain efficiencies and adopt robust internal compliance best practices, and have therefore incurred certain severance and office closure costs in 2017. Management consider such costs to be exceptional as they are not representative of the trading performance of the Group’s operations. (ii) Advisory and other costs relating to the Group’s preparation for the IPO of HTT Infraco, the Group’s primary operating subsidiary in Tanzania. (iii) Exceptional project costs are in relation to the exploration of strategic options for the Group including, but not limited to, a potential London Stock Exchange (LSE) listing. (iv) Deal costs relate to unsuccessful tower acquisition transactions or successful tower acquisition transactions that cannot be capitalised. These mainly comprise professional fees and travel costs incurred while investigating potential tower acquisitions. Such costs are expensed when the potential tower acquisition does not proceed. Management have excluded such costs from Adjusted EBITDA on the basis that they are not representative of the trading performance of the Group’s operations. (v) The Group incurs cost charged to it through a service contract from Helios Towers Africa LLP. Management consider that the depreciation element of the charge should be removed from adjusted EBITDA as it is depreciation in nature. 78 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 5. Operating loss Operating loss is stated after charging the following: Cost of inventory expensed Auditor’s remuneration: – Audit and audit related services – Non-audit fees Depreciation and amortisation Cost associated with aborted investments Staff costs Group Company 2017 US$’000 62,634 1,783 1,847 148,926 3,306 13,852 Restated (IFRS 16) 2016 US$’000 52,556 735 540 129,455 1,414 14,576 2017 US$’000 2016 US$’000 – – 90 – 13,210 – 900 35 – 16,982 2,181 1,048 Amortisation of intangible assets is presented in administrative expenses in the statement of profit or loss. 2016 has been restated with respect to the fully retrospective transition to IFRS 16 during the year ended 31 December 2017, meaning that operating leases are no longer recognised. Audit and audit related services include non-recurring fees of US$1.2 million in respect of exceptional project costs (see note 4). 6. Staff costs Staff costs consist of the following components: Wages and salaries Social security costs Group Company 2017 US$’000 13,586 266 13,852 2016 US$’000 14,327 249 14,576 2017 US$’000 900 – 900 2016 US$’000 1,016 32 1,048 The average monthly number of employees during the year was made up as follows: Operations Legal and regulatory Administration Finance Sales and marketing 7. Directors’ remuneration Remuneration Group 2017 146 32 26 76 66 346 2016 219 34 26 91 63 433 Company 2017 2016 1 – 2 2 – 5 2 – 1 1 – 4 Group Company 2017 US$’000 2,950 2016 US$’000 2,072 2017 US$’000 2,950 2016 US$’000 2,072 The above remuneration information relates to Directors in Helios Towers Africa, Ltd who were recharged to the Group and the Company by Helios Towers Africa LLP, a related company. None of the Directors received a contribution to a pension scheme in the current or prior year. The Group has set up a share-based payment plan in the current year. The plan has been set up to incentivise key management personnel to achieve the long-term growth and performance objectives of the Group. Payments are dependent on a successful transaction of the share capital of Helios Towers Africa, Ltd in the future. At the current time, management do not consider this probable and therefore no share-based payment charge has been recognised. Helios Towers | Annual Report 2017 79 Strategic ReportGovernance ReportFinancial StatementsOverview 8. Investment income Other interest receivable 9. Finance costs Foreign exchange differences Interest costs Interest costs on lease liabilities Deferred loan cost amortisation 10. Tax expense Additional taxes Group Company 2017 US$’000 706 2016 US$’000 216 2017 US$’000 132 2016 US$’000 – Group Company 2017 US$’000 3,229 71,608 14,991 12,929 102,757 Restated (IFRS 16) 2016 US$’000 9,796 44,645 13,812 5,015 73,268 2017 US$’000 2016 US$’000 (62) 739 – – 677 1,387 98 – – 1,485 Group Company 2017 US$’000 3,207 2016 US$’000 1,514 2017 US$’000 2016 US$’000 – – Though entities in Congo B, Tanzania and DRC have continued to be loss making, minimum tax has been levied based on revenue as stipulated by law in these jurisdictions. The Company was a Category 2 – Global Business License Company (C2-GBLC) during the current and preceding financial periods. C2-GBLC is not subject to any income tax in Mauritius. The applicable tax rates for the Company’s subsidiaries range from 20% to 40%. 80 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 11. Intangible assets The Group Cost At 1 January 2016 Additions during the year Effects of foreign currency exchange differences At 31 December 2016 Additions during the year Effects of foreign currency exchange differences At 31 December 2017 Amortisation At 1 January 2016 Charge for year Effects of foreign currency exchange differences At 31 December 2016 Charge for year Effects of foreign currency exchange differences At 31 December 2017 Net book value At 31 December 2017 At 31 December 2016 At 1 January 2016 Right of first refusal US$’000 Non-compete agreement US$’000 15,000 20,000 – 35,000 – – – 30,000 – 30,000 – – Computer software and licence US$’000 9,214 2,411 (222) 11,403 3,857 (95) Total US$’000 24,214 52,411 (222) 76,403 3,857 (95) 35,000 30,000 15,165 80,165 (15,000) (2,500) – – (16,894) – (4,016) (2,671) 234 (19,016) (22,065) 234 (17,500) (16,894) (6,453) (40,847) (5,000) – (13,106) – (3,672) 421 (21,778) 421 (22,500) (30,000) (9,704) (62,204) 12,500 17,500 – – 13,106 – 5,461 4,950 5,198 17,961 35,556 5,198 In 2016, alongside the purchase of 967 towers from Airtel group (see note 12), a right of first refusal “ROFR” agreement was signed with Airtel Group in the DRC giving the Group the right of first refusal over build-to-suit towers that Airtel group wish to commission. A payment of US$20 million was made for this right and is amortised on a straight line basis over its exercisable period ending on 1 May 2020. As part of the same transaction, the Group and the Company entered into a non-compete Agreement with Airtel group under which the Group and the Company was granted the right that Airtel will not compete with the Group in DRC and/or Congo Brazzaville. The Group and the Company issued shares with a fair value of US$30 million to Airtel group for this right commencing on the date of the agreement (5 May 2016) and terminating 12 consecutive months after first closing (7 July 2016). The issuance of these share was a non-cash transaction. Helios Towers | Annual Report 2017 81 Strategic ReportGovernance ReportFinancial StatementsOverview Non-compete agreement US$’000 Computer software and license US$’000 Total US$’000 1,098 30,033 31,131 142 31,273 1,098 33 1,131 142 1,273 (905) (88) (993) (104) (905) (16,982) (17,887) (13,210) (1,097) (31,097) 176 138 193 176 13,244 193 – 30,000 30,000 – 30,000 – (16,894) (16,894) (13,106) (30,000) – 13,106 – 11. Intangible assets (continued) The Company Cost At 1 January 2016 Additions during the year At 31 December 2016 Additions during the year At 31 December 2017 Amortisation At 1 January 2016 Charge for year At 31 December 2016 Charge for year At 31 December 2017 Net book value At 31 December 2017 At 31 December 2016 At 1 January 2016 82 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 12a. Property, plant and equipment The Group Cost At 1 January 2016 Additions Disposals Effects of foreign currency exchange differences At 31 December 2016 Additions Disposals Reclassifications Effects of foreign currency exchange differences At 31 December 2017 Depreciation At 1 January 2016 Charge for the year Disposals Effects of foreign currency exchange differences At 31 December 2016 Charge for the year Disposals Effects of foreign currency exchange differences At 31 December 2017 Net book value At 31 December 2017 At 31 December 2016 At 1 January 2016 IT equipment US$’000 Fixtures and fittings US$’000 Motor vehicles US$’000 Site assets US$’000 Land US$’000 Leasehold improve- ments US$’000 Total US$’000 2,027 1,888 (9) (24) 3,882 2,102 (13) – 37 6,008 (1,117) (699) 2 (98) (1,912) (1,168) 13 (147) (3,214) 2,794 1,970 910 719 272 (156) 3,451 1,410 – 655,919 272,175 (5,368) (18) (120) (11,178) 4,741 683 (654) – 911,548 163,751 (1,754) 754 (68) (3,616) 4,702 1,070,683 (2,103) (714) – (177,778) (94,947) 2,690 92 2,846 (2,725) (719) 561 (267,189) (113,663) 816 80 4,133 (2,803) (375,903) 817 120 – – 15 952 (431) (176) 111 16 (480) (206) – (11) (697) 255 337 288 1,399 4,409 – – 5,808 – – (754) 211 5,265 – – – – – – – – – 895 668 (665) 664,410 280,822 (6,198) (7) (11,347) 891 226 – – 927,687 166,882 (2,421) – (2) (3,423) 1,115 1,088,725 (333) (193) 282 (181,762) (96,729) 3,085 3 2,859 (241) (168) – (272,547) (115,924) 1,390 1 4,056 (408) (383,025) 1,899 2,016 1,348 694,780 644,359 478,141 5,265 5,808 1,399 707 650 562 705,700 655,140 482,648 At 31 December 2017, the Group had US$111.3 million (2016: US$36.1 million) of expenditure recognised in the carrying amount of items of site assets that were in the course of construction. On completion of the construction, they form part of the additions of site assets in the year. In July 2016, the Group acquired 967 towers and associated assets from Airtel group for US$165 million. This has been accounted for as an assets acquisition in accordance with IAS 16. Helios Towers | Annual Report 2017 83 Strategic ReportGovernance ReportFinancial StatementsOverview 12b. Right-of-use assets Cost At 1 January 2016 Additions Effects of foreign currency exchange differences At 31 December 2016 Additions Effects of foreign currency exchange differences At 31 December 2017 Depreciation At 1 January 2016 Charge for the year Effects of foreign currency exchange differences At 31 December 2016 Charge for the year Effects of foreign currency exchange differences At 31 December 2017 Net book value At 31 December 2017 At 31 December 2016 At 1 January 2016 Land US$’000 Buildings US$’000 Motor vehicles US$’000 Total US$’000 104,528 22,886 (468) 126,946 12,408 (218) 139,136 (12,915) (7,466) 80 (20,301) (8,080) 149 (28,232) 110,904 106,645 91,613 7,897 3,604 (69) 11,432 1,413 27 12,872 (3,189) (2,749) 19 (5,919) (2,698) 22 (8,595) 4,277 5,513 4,708 1,243 – – 1,243 – – 1,243 (230) (446) – (676) (446) – 113,668 26,490 (537) 139,621 13,821 (191) 153,251 (16,334) (10,661) 99 (26,896) (11,224) 171 (1,122) (37,949) 121 567 115,302 112,725 1,013 97,334 13. Investments The Group The Group’s investment of US$132,000 (2016: US$132,000) relates to an interest in Helios Towers Africa LLP. The Group holds 91% of the voting rights of Helios Towers Africa LLP. The Directors do not consider that the Group has control over the operation of Helios Towers Africa LLP as it is a limited liability partnership and has no access to returns from the investment. Therefore the investment has been accounted for as investment at cost. The Company Cost At 1 January and 31 December 2017 US$’000 2016 US$’000 430,677 430,677 84 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 13. Investments (continued) The subsidiary companies are as follows: Name of subsidiaries Country of incorporation Direct % Indirect % Direct % Indirect % Effective shareholding 2017 Effective shareholding 2016 Helios Towers Ghana Limited HTG Managed Services Limited HTA Group, Ltd HTA Holdings Ltd Helios Towers DRC S.A.R.L. HT DRC Infraco S.A.R.L. Helios Towers Tanzania Limited HTT Infraco Limited HT Congo Brazzaville Holdco Limited HT Congo SARLU HT Gabon Holdco Limited (Dormant) HT Chad Mauritius Holdco Limited HT Chad SARLU (Dormant) Towers NL Coöperatief U.A. HTA (UK) Partner Ltd HTA Equity GP Ltd McRory Investment B.V. McTam International 1 B.V. Ghana Ghana Mauritius Mauritius Democratic Republic of Congo Democratic Republic of Congo Tanzania Tanzania Mauritius Congo Brazaville Mauritius Mauritius Chad The Netherlands England & Wales Cayman Islands The Netherlands The Netherlands 60% – – 100% – – – – – – – – – – 100% 100% – – 40% 100% 100% – 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – – 100% 100% 60% – – 100% – – – – – – – – – – 100% 100% – – 40% 100% 100% – 100% 100% 76.3% 76.3% 100% 100% 100% 100% 100% 100% – – 100% 100% All subsidiaries were incorporated in prior years. Helios Towers Africa, Ltd or its subsidiaries have subscribed to the majority of the shares as shown above. The consideration paid for these shares on incorporation was minimal. The Directors are of the opinion that the investments in subsidiaries are fairly stated and no impairment is required. The registered office address of all subsidiaries is included in Appendix 1. During the current and prior years, further contributions were made to Helios Towers Tanzania Limited (HTT) for the acquisition of tower assets. In October 2017, the remaining 24.1% in HTT was acquired. See note 24. Helios Towers Ghana Limited, HTA Holdings Ltd, Helios Towers DRC S.A.R.L., Helios Towers Tanzania Limited, HT Congo Brazzaville Holdco Limited, HT Chad Mauritius Holdco Limited, Towers NL Cooperatief U.A., McRory Investment B.V., McTam International 1 B.V. and HTA (UK) Partner Ltd are intermediate holding companies. HTA Equity GP, Ltd acts as a general partner. The principal activities of HTG Managed Services Limited, HT DRC Infraco S.A.R.L., HTT Infraco Limited, and HT Congo SARLU are the building and maintenance of telecommunications towers to provide space on those towers to wireless telecommunication service providers in Africa. HT Chad SARLU and HT Gabon Holdco Limited have ceased trading during the prior years. 14. Inventories Inventories Group 2017 US$’000 2016 US$’000 9,538 19,503 Inventories are primarily made up of fuel stocks and raw materials. The decrease in the inventory balance is due to the timing of transfer from site equipment to site assets as a result of ongoing projects in the latter part of the year. The impact of inventories recognised as an expense during the year in respect of continuing operations was US$62.6 million (2016: US$52.6 million). There is no material difference between the carrying value of inventories and their net realisable value. Helios Towers | Annual Report 2017 85 Strategic ReportGovernance ReportFinancial StatementsOverview 15. Trade and other receivables Trade receivables Allowance for doubtful debts Trade receivable from related parties Trade receivable from non-controlling interest Other receivables from related parties Other receivables VAT & Withholding tax receivable Group Company 2017 US$’000 72,996 (4,725) 68,271 9,436 – 77,707 – 23,027 7,757 2016 US$’000 57,586 (1,289) 56,297 17,769 26,015 100,081 – 15,404 11,444 108,491 126,929 2017 US$’000 2016 US$’000 – – – – – – – – – – – 482,783 19 – 482,802 – 433,594 946 – 434,540 Trade receivables (as per the ageing analysis) represents the amounts which the Group does not consider as impaired as at reporting date as there has not been a significant change in credit quality and the amounts are still considered as recoverable. Allowance for impairment losses are recognised on a case-by-case basis for each trade receivable. As at reporting date, the allowance for impairment losses are not significant to the Group and will not affect the recoverability of the trade receivables amounts (as per the ageing analysis). Interest can be charged on past due debtors. The normal credit period of services is 30 days. Other receivables mainly comprise of accrued income, and sundry receivables. Of the trade receivables balance at 31 December 2017, 67% (31 December 2016: 66%) is due from four of the Group’s largest customers. The Group does not hold any collateral or other credit enhancements over these balances nor does it have a legal right of offset against any amounts owed by the Group to the counterparty. The average trade receivables collection period is 44 days (31 December 2016: 47 days). Debtor days are calculated as trade receivables and receivables from related parties and the non-controlling interest, less allowance for doubtful debts, less amounts invoiced but not yet due (2017: US$42.5 million, 2016: US$42.1 million), relative to average monthly revenue for the last quarter (2017: US$88.4 million, 2016: US$82.5 million). Ageing analysis of trade receivables not impaired: Not yet due 1–30 days 30–60 days 60–90 days 90+ days Group 2017 US$’000 35,248 10,940 14,230 7,680 9,609 77,707 2016 US$’000 58,027 11,426 7,654 8,982 13,992 100,081 In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value. Terms and conditions attached to receivable balances due by related parties and by the non-controlling interest are disclosed in note 23. 86 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 16. Prepayments Prepayments Prepayments are primarily comprised of advance payments to suppliers. 17. Cash and cash equivalents Bank balances Short-term deposits 18. Share capital Authorised, issued and fully paid Ordinary share capital class A of US$1 Ordinary share capital class C of US$100 Ordinary share capital class D of US$1 Ordinary share capital class G of US$1 Ordinary share capital class H of US$100 Ordinary share capital class Z of US$100 Group Company 2017 US$’000 Restated (IFRS 16) 2016 US$’000 23,403 20,466 2017 US$’000 221 2016 US$’000 5,690 Group Company 2017 US$’000 49,519 70,181 2016 US$’000 133,737 – 119,700 133,737 2017 US$’000 18,314 – 18,314 2016 US$’000 87,553 – 87,553 Group and Company 2017 Number of shares 390,410,138 100 100 518,714,176 100 100 US$’000 390,410 10 – 518,714 10 10 2016 Number of shares 390,410,138 100 100 518,714,176 – – US$’000 390,410 10 – 518,714 – – 909,124,714 909,154 909,124,514 909,134 The Class A Shares and Class G Shares rank equally with each other and senior to the Class C, Class D, Class H, and Class Z shares as to redemption proceeds and any other form of distribution or return of capital. Class A and G Shares have voting rights whilst the others have no voting rights. Class H and Class Z also have dividend rights. 19. Trade and other payables Trade payables Amounts payable to related parties Payable to non-controlling interest Deferred income Deferred consideration Other payables and accruals VAT & Witholding tax payable Group Company 2017 US$’000 11,612 1,617 – 40,482 12,946 69,214 11,453 Restated (IFRS 16) 2016 US$’000 15,691 922 1,349 60,386 13,453 72,056 – 2017 US$’000 2016 US$’000 – 2,082 – – – 8,727 – – 702 – – – 9,121 – 9,823 147,324 163,857 10,809 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 24 days (2016: 39 days). Payable days are calculated as trade payables and payables to related parties and the non-controlling interest, divided by cost of sales plus administration expenses less staff costs and depreciation. No interest is charged on trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. Amounts payable to related parties are unsecured, interest free and repayable on demand. Helios Towers | Annual Report 2017 87 Strategic ReportGovernance ReportFinancial StatementsOverview 19. Trade and other payables (continued) Deferred consideration relates to consideration that is payable in the future for the purchase of certain tower assets in DRC and Congo B following the Airtel deal if certain conditions are met to enable transfer of ownership of the assets to Helios Towers Africa, Ltd. Other payables and accruals consist of general operational accruals, accrued capital items, and goods received but not yet invoiced. Trade and other payables are classified as financial liabilities and measured at amortised cost. These are initially recognised at fair value and subsequently at amortised cost. These are expected to be settled within a year. The Directors consider the carrying amount of trade payables approximates to their fair value. 20. Loans US$ 600 million 9.125% senior notes 2022 US$ 77 million (LIBOR + 6.00%) TZS 57.363 billion (TIBOR + 5.00%) US$ 60 million (LIBOR + 6.00%) TZS 9.625 billion (TIBOR + 5.00%) TZS 22.727 billion (TIBOR + 5.00%) US$ 23.8 million (LIBOR + 5.00%) US$ 15.0 million (LIBOR + 5.00%) US$ 40.0 million (LIBOR + 5.00%) US$ 15.0 million (LIBOR + 5.00%) US$ 70.0 million (LIBOR + 5.00%) US$ 5.0 million (LIBOR + 5.00%) US$ 8.146 million (LIBOR + 5.00%) US$ 10.0 million (LIBOR + 5.00%) XAF 5.222 billion (LIBOR + 5.00%) Shareholder loans HTT Infraco Limited HTG Managed Services Limited HT DRC Infraco S.A.R.L Total borrowings Current Non-current 31 December 2017 US$’000 31 December 2016 US$’000 598,354 – – – – – – – – – – – – – – – 74,977 25,582 58,423 4,292 10,136 23,038 14,520 38,720 14,520 67,760 4,840 7,189 8,825 7,423 598,354 360,245 – – – – 32,850 2,414 5,640 40,904 598,354 401,149 17,254 581,100 60,516 340,633 598,354 401,149 On 8 March 2017, HTA Group Limited, a wholly-owned subsidiary of HTA Ltd, issued US$600 million of 9.125% bonds due 2022 which are listed on the Irish Stock Exchange. Interest is payable semi-annually beginning on 8 September 2017. The bonds are guaranteed on a senior basis by the Company, and certain of the HTA Ltd subsidiaries. The proceeds of the issuance were used, among other things, to refinance existing indebtedness of the Company’s subsidiaries (HTT Infraco Limited, HT DRC Infraco S.A.R.L and HT Congo Brazzaville Holding Limited). Loans are classified as financial liabilities and measured at amortised cost. The shareholder loans in 2016 carried an interest rate ranging from 5% to 15%. The current portion of borrrowings relates to accrued interest which is payable in March 2018. 88 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 21. Lease liabilities Short-term lease liabilities Land Buildings Motor vehicles Long-term lease liabilities Land Buildings Motor vehicles 2017 US$’000 2016 US$’000 18,828 1,524 100 20,452 18,244 2,189 501 20,934 2017 US$’000 2016 US$’000 94,088 2,009 – 96,097 87,644 2,403 64 90,111 The below undiscounted cash flows do not include escalations based on CPI or other indexes which change over time. Renewal options are considered on a case by case basis with judgements around the lease term being based on management’s contractual rights and their current intentions. The total cash paid on leases in the year was US$25.8 million (2016: US$21.1 million). The profile of the outstanding undiscounted contractual payments fall due as follows: The Group 31 December 2017 31 December 2016 Within 1 year US$’000 2–5 years US$’000 5+ years US$’000 Total US$’000 20,452 72,120 443,261 535,833 20,934 69,042 405,993 495,969 See note 29 for analysis of the impact of IFRS 16: Leases transition during the year. 22. Uncompleted performance obligations The table below represent uncompleted performance obligations at the end of the reporting period. This is total revenue which is contractually due to the Group, subject to the performance of the obligation of the Group related to these revenues. Total contracted revenue 2017 US$’000 2016 US$’000 3,101,429 2,897,598 Helios Towers | Annual Report 2017 89 Strategic ReportGovernance ReportFinancial StatementsOverview 22. Uncompleted performance obligations (continued) Contracted Revenue The following table provides our total contracted revenue by country under agreements with our customers as of 31 December, 2017 for each of the six years from 2018 to 2023, with local currency amounts converted at the applicable spot rate for U.S. dollars on 31 December, 2017 held constant. Our contracted revenue calculation for each year presented assumes: (i) no escalation in fee rates, (ii) no increases in sites or tenancies other than our committed colocations described elsewhere in these financial statements, (iii) our customers do not utilise any cancellation allowances set forth in their MLAs and (iv) our customers do not terminate MLAs early for any reason. The following tables provide the Company’s contracted revenue from 2018 through 2023 on a country-by-country basis and an illustration of our total contracted revenue: (US$’000s) Tanzania DRC Congo Brazzaville Ghana Total Year Ended 31 December, 2018 2019 2020 2021 2022 2023 147,044 140,355 24,373 38,821 149,099 141,546 24,373 39,429 151,387 152,294 23,194 38,966 150,648 151,859 16,954 36,721 149,440 150,004 16,949 27,293 143,673 149,085 16,941 12,784 350,593 354,447 365,841 356,182 343,686 322,483 23. Related party transactions The Group Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the year, the Group companies entered into the following commercial transactions with related parties: Millicom Holding B.V. and subsidiaries Vodacom Group Limited and subsidiaries* Millicom Holding B.V. and subsidiaries Vodacom Group Limited and subsidiaries* Helios Towers Africa LLP 2017 2016 Income from towers US$’000 Purchase of goods US$’000 Income from towers US$’000 60,182 72,167 5,194 2,588 60,243 71,919 Purchase of goods US$’000 516 9,701 2017 2016 Amount owed by US$’000 Amount owed to US$’000 Amount owed by US$’000 Amount owed to US$’000 7,366 2,070 – 228 – 1,389 14,145 26,015 3,604 3,334 34,201 – * Until October 2017, Vodacom Tanzania Ltd was the non-controlling interest holder in Helios Towers Tanzania Ltd. Millicom Holding B.V is a shareholder of Helios Towers Africa, Ltd. During the year, the Group received advisory services from Helios Towers Africa LLP, an entity in which the Group has no economic benefits for which fees of US$17.0 million (2016: US$16.7 million) were incurred. At the year end, there was a payable of US$1.4 million (2016: receivable of US$3.6 million) from Helios Towers Africa LLP. Amounts outstanding to related parties carry an interest charge ranging from 0% to 15%. Total compensation of key management for 2017 amounted to US$3.0 million (2016: US$2.1 million) which was recharged by Helios Tower Africa LLP. 90 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 23. Related party transactions (continued) The Company Amounts receivable from related parties Amounts payable to related parties 2017 US$’000 2016 US$’000 482,783 2,082 433,594 702 Other transactions with related parties in the year includes technical and management fee charges for services provided to the subsidiary companies. Compensation of key management personnel are disclosed in note 7. Intercontinental Trust Limited is considered as a related party to the Company as it provided company secretary services. Name of related party Relationship 2017 Transactions during the year US$’000 2016 Transactions during the year US$’000 2017 Balance due at year end US$’000 2016 Balance due at year end US$’000 Type of transaction Intercontinental Trust Limited Company secretary Fees 40 46 – – 24. Other gains and losses The Group Other gains and losses Fair value movement of derivative financial instruments Fair value movement of minority interest The movement in the minority interest buy-out liability is set out below: Minority interest buy-out liability Balance at start of the year Options granted in the year Fair value movement in the year Options exercised in the year 2017 US$’000 2016 US$’000 (21,797) – (21,797) – 6,682 6,682 2017 US$’000 2016 US$’000 57,886 574 58,460 – 58,460 (58,460) – 50,839 365 51,204 6,682 57,886 – 57,886 Vodacom Tanzania Ltd, previously a minority interest holder in Helios Towers Tanzania Ltd (‘HTT’), had a right to exchange its shares in HTT from 19 February 2014 to 31 December 2017 for shares in the Group. The exercise price is based on the fair market value of HTT shares at the time the option is exercised, either by independent valuation, or if the Group is being sold through an Initial Public Offering at the value agreed with the buyer, and then exchanged for shares accordingly in Helios Towers Africa, Ltd. The option expired in October 2017 after acquisition of minority shares by HTA Holding, Ltd. The put option granted to Vodacom Tanzania Ltd results in an obligation for the Group to purchase through a share exchange the minority interest in the future and therefore represents a contract that contains an obligation for the Group to purchase its own equity instruments. The Group is required to recognise a financial liability for the present value of the redemption amount. At 31 December 2017, the Group recognised an aggregate financial liability of US$nil (2016: US$57.9 million) being the present value of the contractual obligation which is deemed to be the market value of the minority interest at that date. The movement in 2016 of US$6.7 million represents the fair value increase in this liability. In February 2017, Vodacom Tanzania Ltd, HTA Holdings, Ltd and Helios Towers Tanzania Ltd entered into an agreement pursuant to which HTA Holdings, Ltd acquired a portion of the shareholder loans advanced by Vodacom Tanzania Ltd for US$30 million in cash. Under the same agreement, HTA Holdings, Ltd received an option up to and including March 31, 2018 to acquire Vodacom Tanzania Ltd shares in Helios Towers Tanzania Ltd for approximately US$58.5 million in cash and the remaining outstanding shareholder loans and accrued interest thereon advanced by Vodacom Tanzania Ltd for US$2.7 million in cash. The acquisition of such shares and the outstanding loan amounts was completed in October 2017 after customary closing conditions, including, among other things, relevant government approvals. Helios Towers | Annual Report 2017 91 Strategic ReportGovernance ReportFinancial StatementsOverview 25. Financial instruments Financial instruments held by the Group at fair value had the following effect on profit and loss: Derivative financial assets Change in fair value of derivative financials instruments Minority interest buy-out liability Other gains and losses 2017 US$’000 2016 US$’000 (21,797) (1,293) – 6,682 Fair value measurements The information set out below provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: – – – Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. For all other assets and liabilities the carrying value is approximately equal to the fair value. The information set out below provides information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used). For those financial instruments held at valuation, the Group has categorised them into a three level fair value hierarchy based on the priority of the inputs to the valuation technique in accordance with IFRS 13. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety. The fair values of the Group’s outstanding interest rate swaps have been estimated by calculating the present value of future cash flows, using appropriate market discount rates, representing Level 2 fair value measurements as defined by IFRS 13. Minority interest buy-out liability was grouped as Level 3 fair value measurement until its acquisition in October 2017. There are no financial instruments which have been categorised as Level 1. There were no transfers between the levels in the year. Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes borrowings disclosed in note 20, cash and cash equivalents and equity attributable to equity holders of the parent, comprising of issued capital, reserves and retained earnings as disclosed in the statement of changes in equity. Gearing ratio The Group keeps its capital structure under review. The gearing ratio at the year end is as follows: Debt (net of issue costs) Cash and cash equivalents Net debt Equity attributable to the owners Debt is defined as long and short-term borrowings, as detailed in note 20. 92 Helios Towers | Annual Report 2017 2017 US$’000 Restated (IFRS 16) 2016 US$’000 714,903 (119,700) 512,194 (133,737) 595,203 261,917 227.2% 378,457 407,966 92.8% Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 25. Financial instruments (continued) Equity includes all capital and reserves of the Group attributable to equity holders of the parent. Externally imposed capital requirements The Group is not subject to externally imposed capital requirements. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. Categories of financial instruments Financial assets Loans and receivables: Cash and cash equivalents Trade and other receivables Fair value through profit or loss: Derivative financial assets Financial liabilities Amortised cost: Trade and other payables Finance lease liabilities Loans At fair value: Minority interest buy-out liability Group Company 2017 US$’000 2016 US$’000 2017 US$’000 2016 US$’000 119,700 100,734 133,737 115,485 18,314 482,802 87,553 434,540 23,917 1,393 – – 244,351 250,615 501,116 522,093 95.389 116,549 598,354 103,471 111,045 401,149 10,809 - – 9,823 - – – 57,866 – – 810,292 673,531 10,809 9,823 At 31 December 2017, the Group had US$Nil (2016: US$5.3 million) of cash pledged as collateral for financial liabilities. Financial risk management objectives and policies The Group’s finance function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group seeks to minimise the effects of these risks by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments. Compliance with policies and exposure limits is reviewed by the Board of Directors regularly. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Key financial risks and exposures are monitored through a monthly report to the Board of Directors, together with an annual Board review of corporate treasury matters. The Group and the Company have exposure to sterling (GBP) fluctuations, however this is not considered material. Financial risk The principal financial risks to which the Group is exposed through its activities are risks of changes in foreign currency exchange rates and interest rates. The Group enters into interest rate swaps to manage its exposure to the interest rate risk. Helios Towers | Annual Report 2017 93 Strategic ReportGovernance ReportFinancial StatementsOverview 25. Financial instruments (continued) Foreign currency risk management The Group undertakes transactions denominated in foreign currencies; consequently exposures to exchange rate fluctuations arise. The Group’s main currency exposures were to the Ghanaian Cedi (GHS), Tanzanian Shilling (TZS) and Central African Franc (XAF) through its main operating subsidiaries. During the year ended 31 December 2017, the Group did not enter into any foreign currency hedging contracts, as management considered foreign exchange risk to be at an acceptable level due to the natural hedge existing in the Group as a result of having both USD, TZS, GHS and XAF denominated revenues and costs, and minimal foreign denominated third party debt levels within the business. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Liabilities Assets New Ghana Cedi Tanzanian Shilling Central African Franc 2017 US$’000 16,204 176,874 14,314 207,392 2016 US$’000 13,915 55,220 11,867 81,002 2017 US$’000 22,540 71,887 20,598 115,025 2016 US$’000 18,565 41,464 7,693 67,722 Foreign currency sensitivity analysis The following table details the Group’s sensitivity to a 10% increase and decrease in US Dollar against GHS, XAF and TZS. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and other equity where US Dollar weakens 10% against the GHS, XAF or TZS. For a 10% strengthening of US Dollar against the GHS, XAF or TZS, there would be a comparable impact on the profit and other equity, and the balances below would be negative. Central African Franc impact New Ghana Cedi impact Tanzania Shillings impact Impact on profit or loss (628) 417 (634) (465) 10,499 2017 US$’000 2016 US$’000 2017 US$’000 2016 US$’000 2017 US$’000 2016 US$’000 1,376 This is mainly attributable to the exposure outstanding on GHS, XAF and TZS receivables and payables in the Group at the reporting date. In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk for the Group or the Company as the year end exposure does not reflect the exposure during the year. Interest rate swap contracts Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at the reporting date and the credit risk inherent in the contract, and is disclosed below. There were no interest rate swap contracts outstanding as at the reporting date: Outstanding contracts USD IRS Two to five years Average contract fixed rate Amortising notional value Fair value 2017 % 2016 % 2017 US$’000 2016 US$’000 2017 US$’000 2016 US$’000 – 1.61 – 195,500 – (1,393) 94 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 25. Financial instruments (continued) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group uses publicly available financial information and other information provided by the counterparty (where appropriate) to rate its major customers. As of 31 December 2017, the Group has a concentration risk with regards to four of its largest customers and its related parties and the Company has a concentration risk with regards to the receivable balances with related parties. The Group’s exposure and the credit ratings of its counterparties and related parties are continuously monitored and the aggregate value of credit risk within the business is spread amongst a number of approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by management. The carrying amount of the financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s and the Company’s exposure to credit risk. Liquidity risk management The Group has long-term debt financing through Senior Loan notes of US$600 million due for repayment in March 2022. The Group has a revolving credit facility of US$60 million for funding working capital requirements. As at December 2017 the facility was undrawn and is available until March 2021. The Group has remained compliant during the year to 31 December 2017 with all the covenants contained in the Senior Credit facility. Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by maintaining adequate reserves and banking facilities and continuously monitoring forecast and actual cash flows including consideration of appropriate sensitivities. Non-derivative financial liabilities The following tables detail the Group’s and the Company’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes principal cash flows. The Group 31 December 2017 Non-interest bearing Fixed interest rate instruments 31 December 2016 Non-interest bearing Variable interest rate instruments Fixed interest rate instruments The Company 31 December 2017 Non-interest bearing 31 December 2016 Non-interest bearing Within 1 year US$’000 147,324 – 147,324 163,857 32,962 32,852 229,671 1–2 years US$’000 2–5 years US$’000 5+ years US$’000 Total US$’000 – – – – – – – 598,354 147,324 598,354 598,354 745,678 – 60,324 – 60,324 – 235,526 – 235,526 – 44,600 8,052 52,652 163,857 373,412 40,904 578,173 Within 1 year US$’000 Total US$’000 10,797 10,797 9,823 9,823 The interest profile of the Group’s variable interest bearing financial liabilities has been disclosed under note 20. Helios Towers | Annual Report 2017 95 Strategic ReportGovernance ReportFinancial StatementsOverview 25. Financial instruments (continued) Non-derivative financial liabilities (continued) The Group and the Company manage liquidity risk by maintaining adequate reserves and banking facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Non-derivative financial assets The following table details the Group’s and the Company’s expected maturity for other non-derivative financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets except where the Group and the Company anticipates that the cash flow will occur in a different period. The Group 31 December 2017 Non-interest bearing Variable interest rate instruments Fixed interest rate instruments 31 December 2016 Non-interest bearing Variable interest rate instruments Fixed interest rate instruments The Company 31 December 2017 Non-interest bearing 31 December 2016 Non-interest bearing Within 1 year US$’000 220,434 - - 220,434 250,667 – – 250,667 1–2 years US$’000 2–5 years US$’000 5+ years US$’000 Total US$’000 – – – – – – – – – – – – – – – – – – – – – – – – 220,434 – – 220,434 250,667 – – 250,667 Within 1 year US$’000 Total US$’000 499,034 499,034 522,093 522,093 Derivative financial instruments (assets)/liabilities: The following table details the Group’s liquidity analysis for its derivative financial instruments based on contractual maturities. The table has been drawn up based on the undiscounted net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date. The derivatives represent the fair value of the put and call options embedded within the terms of the notes. The call options give the Group the right to redeem the bond instruments at a date prior to the maturity date (8 March 2022), in certain circumstances and at a premium over the initial notional amount. The put option provides the holders with the right (and the Group with an obligation) to settle the notes before their redemption date in the event of a change in control (as defined in the terms of the notes, which also includes a major asset sale), and at a premium over the initial notional amount. The options are fair valued using an option pricing model that is commonly used by market participants to value such options and makes the maximum use of market inputs, relying as little as possible on the entity’s specific inputs and making reference to the fair value of similar instruments in the market. Thus, it is considered a level 2 financial instrument in the fair value hierarchy of IFRS 13. 96 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 25. Financial instruments (continued) The key assumptions in determining the fair value are, the initial fair value of the bond (assumed to be priced at 100% on issue date), the credit spread (derived using Bloomberg analytics at issuance and based on credit market data thereafter), the yield curve and the probabilities of a change in control (0% assumed) and a major asset sale (0% assumed). The probabilities relating to change of control and major asset sale represent a reasonable expectation of those events occuring that would be held by a market participant. The Group 31 December 2017 Net settled: Embedded derivatives 31 December 2016 Net settled: Interest rate swaps Gross settled: Minority interest buy-out Within 1 year US$’000 – – – 57,886 57,886 1–2 years US$’000 2–5 years US$’000 5+ years US$’000 Total US$’000 – – – – – (23,917) (23,917) (1,393) – (1,393) – – – – – (23,917) (23,917) (1,393) 57,886 56,493 Interest rate risk management The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts, Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied. The Group’s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section. The Company is not significantly exposed to foreign currency fluctuations as most of its financial assets and financial liabilities are denominated in its functional currency. The Company is not exposed to interest rate variations as its financial assets and financial liabilities are non-interest bearing. 26. Contingencies In the year ended 31 December 2015, the Democratic Republic of Congo’s National Tax Services issued an assessment against the Group for the financial years ended 31 December 2014 and 31 December 2015 of approximately US$3.4 million including interest and penalties. Also, in the year ended 31 December 2016, the Ghana Revenue Authority issued an assessment against the Company for the financial years ended 31 December 2010 to 31 December 2012 of approximately US$4.9 million for unpaid direct and indirect taxes. The Directors have appealed against these assessments and together with their advisors are in discussion with the tax authorities to bring the matters to conclusions based on the facts. The Directors, having taken advice as appropriate, believe that there is no merit to these assessments and accordingly will defend their position vigorously and do not believe there will be a material impact to the Group. The Group did not make a provision in respect of these matters for the year ended 31 December 2017 or 31 December 2016. Helios Towers | Annual Report 2017 97 Strategic ReportGovernance ReportFinancial StatementsOverview 27. Net debt External debt Lease liabilities Derivative financial instruments Net cash and cash equivalents Net debt The movement in net debt is as follows: 2017 Net cash and cash equivalents External debt Lease liabilities Derivative financial instruments Net debt 2016 Net cash and cash equivalents External debt Lease liabilities Net debt 2017 US$’000 2016 US$’000 (596,418) (116,549) (1,936) 119,700 (401,149) (111,045) – 133,737 (595,203) (378,457) At 1 January 2017 US$’000 Cash flows US$’000 Other(1) US$’000 At 31 December 2017 US$’000 133,737 (14,173) 136 119,700 (401,149) (111,045) – (167,938) 11,675 – (27,331) (17,179) (1,936) (596,418) (116,549) (1,936) (512,194) (156,263) (46,446) (714,903) (378,457) (170,436) (46,310) (595,203) At 1 January 2016 US$’000 Cash flows US$’000 Other US$’000 At 31 December 2016 US$’000 88,290 46,196 (749) 133,737 (253,716) (93,947) (141,205) 8,353 (6,228) (25,451) (401,149) (111,045) (347,663) (132,852) (31,679) (512,194) (259,373) (86,656) (32,428) (378,457) (1) Other includes foreign exchange, interest and other non-cash movements. External debt is the total debt owed to commercial banks and institutional investors. 28. Subsequent events There are no material subsequent events to note. 98 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 29. Transition summary – IFRS 16 The tables below show the amount of adjustments for each financial statement line item affected by the application of IFRS 16 for the current and prior year. There is no impact on the Company’s financial statements. Statement of profit or loss US$’000s Revenue Cost of sales(1) Gross profit Administrative expenses(2) Loss on disposal of property, plant and equipment Operating loss Investment income Other gains and losses Finance costs(3) Loss before tax Tax expenses Loss after tax Loss for the year Other comprehensive loss: Items that may be reclassified subsequently to profit and loss: Exchange differences on translation of foreign operations Total comprehensive loss for the year Loss attributable to: Owners of the Company Non-controlling interest Loss for the year Total comprehensive loss attributable to: Owners of the Company Non-controlling interest Total comprehensive loss for the year As reported 31 December 2016 282,507 (245,434) 37,073 (78,257) (3,761) (44,945) 216 (6,682) (60,027) Change 2016 – 9,567 9,567 516 – 10,083 – – (13,241) Restated 31 December 2016 282,507 (235,867) 46,640 (77,741) (3,761) (34,862) 216 (6,682) (73,268) (111,438) (1,514) (3,158) – (114,596) (1,514) (112,952) (3,158) (116,110) (112,952) (3,158) (116,110) (2,496) (1,107) (3,603) (115,448) (4,265) (119,713) (95,082) (17,870) (2,658) (500) (97,740) (18,370) (112,952) (3,158) (116,110) (97,692) (17,756) (3,765) (500) (101,457) (18,256) (115,448) (4,265) (119,713) (1) Net effect of the reversal of leases previously expensed as operating leases, offset by a right-of-use asset depreciation charge for land. (2) Net effect of the reversal of leases previously expensed as operating leases, offset by a right-of-use asset depreciation charge for buildings and motor vehicles. (3) Interest charges and FX impact in relation to long-term lease liabilities. Helios Towers | Annual Report 2017 99 Strategic ReportGovernance ReportFinancial StatementsOverview 29. Transition summary – IFRS 16 (continued) Statement of Financial Position US$’000s Intangible assets Property, plant and equipment Right-of-use assets(1) Investments in subsidiaries Derivatives financial assets Inventories Trade and other receivables Prepayments(2) Cash and bank balances Total assets Share capital Share premium Stated capital Other reserves Minority interest buy-out reserve Translation reserve(3) Accumulated losses Equity attributable to owners Non-controlling interest Total equity Trade and other payables(4) Loans – short-term Loans – long-term Minority interest buy-out liability Short-term lease liabilities(5) Long-term lease liabilities(5) Derivatives financial liabilities Total liabilities Total equity and liabilities 1 January 2016 5,198 482,648 – 96 – 487,942 14,974 84,344 16,198 88,290 691,748 750,394 131,239 881,633 (11,283) (54,063) (77,102) (437,283) 301,902 (18,906) 282,996 102,864 34,359 219,357 50,839 – – 1,333 408,752 691,748 Change at 1 January 2016 Restated 1 January 2016 As reported 31 December 2016 Change 2016 Restated 31 December 2016 – – 97,334 - – 97,334 – – (12,544) – 5,198 482,648 97,334 96 – 585,276 14,974 84,344 3,654 88,290 35,556 655,140 - 132 1,393 692,221 19,503 126,929 34,752 133,737 – – 112,725 - – 112,725 – – (14,286) – 35,556 655,140 112,725 132 1,393 804,946 19,503 126,929 20,466 133,737 84,790 776,538 1,007,142 98,439 1,105,581 – – 750,394 131,239 909,134 186,795 – – 909,134 186,795 – – – 3,333 (9,332) (5,999) 500 (5,499) (3,658) – – – 18,642 75,305 – 90,289 84,790 881,633 1,095,929 (11,693) (11,283) (54,429) (54,063) (79,712) (73,769) (532,366) (446,615) 297,903 (18,406) 417,729 (36,322) 277,497 99,206 34,359 219,357 50,839 18,642 75,305 1,333 381,407 166,700 60,516 340,633 57,886 – – – – 1,095,929 (11,693) – (54,429) – (77,486) 2,226 (544,355) (11,989) (9,763) – (9,763) (2,843) – – – 20,934 90,111 – 407,966 (36,322) 371,644 163,857 60,516 340,633 57,886 20,934 90,111 – 499,041 625,735 108,202 733,937 776,538 1,007,142 98,439 1,105,581 (1) Right-of-use assets for the lease of land, buildings, and motor vehicles. (2) Reversal of prepayment of land and building leases, previously accounted for as operating leases. (3) Cumulative FX impact of non US$ denominated leases. (4) Reversal of accruals for lease liabilities previously accounted for as operating leases. (5) Long-term lease liabilities for land, buildings, and motor vehicles at the end of each reporting period. 100 Helios Towers | Annual Report 2017 Financial StatementsNotes to the Financial Statements (continued)For the year ended 31 December 2017 Appendix 1 Name of subsidiaries Registered office address Helios Towers Africa, Ltd Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius HTA Holdings, Ltd HTA Group, Ltd Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius HTA (UK) Partner Ltd 5 Merchant Square, 10th Floor, London, W2 1AS HT Congo Brazzaville Holdco Limited Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius Helios Towers Congo Brazzaville SASU 100 ter Avenue Maréchal Lyautey Centre - Ville Brazzaville République du Congo Helios Towers DRC SARL 1st Floor, Tower LE 130, 130B, Avenue Kwango, Kinshasa, Gombe, DRC HT DRC Infraco SARL 1st Floor, Tower LE 130, 130B, Avenue Kwango, Kinshasa, Gombe, DRC Helios Towers Tanzania Limited Ground Floor, Peninsula House, Plot No. 251 Toure Drive, P.O. Box 105297, Oysterbay, Dar Es Salaam, Tanzania HTT Infraco Limited Ground Floor, Peninsula House, Plot No. 251 Toure Drive, P.O. Box 105297, Oysterbay, Dar Es Salaam, Tanzania HT Chad SARLU Quartier Chagoua, Avenue du 10 Octobre, BP 6572, N’djamena- CHAD Helios Chad Holdoco Limited Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius HTA Equity GP Ltd Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius HT Gabon Holdco Limited Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius Helios Towers Ghana Limited No.31, Akosombo Road, Airport Residential Area, Private Mail Bag CT 409, Cantonments, Accra-Ghana HTG Managed Services Limited No.31, Akosombo Road, Airport Residential Area, Private Mail Bag CT 409, Cantonments, Accra-Ghana Towers NL Cooperatief U.A. Prins Bernhardplein 200, 1097JB Amsterdam McTam International 1 B.V. Oslo 1, 2993LD Barendrecht McRory Investment B.V. Oslo 1, 2993LD Barendrecht Helios Towers | Annual Report 2017 101 Strategic ReportGovernance ReportFinancial StatementsOverview Officers and professional advisors Directors Allan E Cook (appointed 1 January 2018) Anja Blumert Charles Campbell Green III (resigned 22 September 2017) Colin Curvey David Karol Wassong Kashyap Pushpkant Pandya Nelson Oliveira Richard Byrne Simon David Pitcher Simon Hillard Poole Temitope Olugbeminiyi Lawani Vishma Dharshini Boyjonauth Waldemar Rafal Szlezak Xavier Charles Rocoplan Registered office Level 3 Alexander House 35 Cybercity Ebene Mauritius Company secretary Intercontinental Trust Limited Level 3 Alexander House 35 Cybercity Ebene Mauritius Banker Barclays Bank Plc International Banking Division Barclays House 68-68A Cybercity Ebene Mauritius Auditor Deloitte 7th Floor, Standard Chartered Tower 19-21, Bank Street Cybercity Ebene 72201 Mauritius This Annual Report and Accounts does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any company shares or other securities. This Annual Report and Accounts contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of the company. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. 102 Helios Towers | Annual Report 2017 Helios Towers | Annual Report 2017 103 Strategic ReportGovernance ReportFinancial StatementsOverview 104 Helios Towers | Annual Report 2017 H e l i o s T o w e r s 2 0 1 7 A n n u a l R e p o r t O U T G N C G K M K G M E F G B O C R K J F T N I R E C E N B B R G N I C V T M N M T M N K Z M M R P K E E M N M K P M B N F D A M M B L C F K N S S L Q B J M A K R K P M F N S A T P S H A S S L M L P M A M K M A M M M A R J R N R A A A S J S IS F M C M V P A M S M H M H M F S O T D B B F E N F O M K E B A K I H A A A M T M C M E N E K K M T D V Z J K O B G L J M A E J K J M M D P N L D T D C G J K A L E L E M Z M R C F N G T E L L M Y M R S M M B H G M R L A D F P S G WS NS AT AO J M E M E O J O K P M R R S R S R S K M O J M R P M M M S S A C W A S J B J A G D O N J M F I A Z A V N E P H M M K M D V O M H E S Z T C K Q R I M B A C M H B L C G D P K B P F P N P G P M R D R T S H M P M M D H D R D N S R F S G E D A U Y Y WI A N M B W N K T K S K M K G K Y K L K T K P A M P M G L E L L L J L R L P L S L P L J EA C M O D O J A J S J M C Z C T G T G N B N L N J M B M T M S M T M E M P M C BE D A C J B D B D B C A I A J A C A B E AY IY S A O P O M M J A R A F K B IS L P M B S G C P S P B E S E GI H D T R D E C C C G C H K A J E K J K F M P K A E B D M C R B C B P B B B P B M B J B G B R B F B M B J K G K S K P I J I M H D L C L J K Y K B K A K J K K T E T M T P P F P T A K A A A T A E M D M H M J M A K E K E N D O M C A B S K J K M K R A S B M K A K A K E B J O M M N O J A J K E M B V M N D D D K S R B N A I I N D N I K E K R O B E G O T H W O E L N D F K D M L K C M S J A A N N C B N J K S M A K J M M M A M J K J M H F G J K C K A F F E G E F Registered office address Level 3 Alexander House 35 Cybercity Ebene Mauritius T: +44 (0) 207 871 3670 F: +44 (0) 207 235 6542 Registered Company Number 092064 B J B L A T www.heliostowersafrica.com
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