IHS Holding Limited (NYSE:IHS) Q2 2023 Earnings Call Transcript

IHS Holding Limited (NYSE:IHS) Q2 2023 Earnings Call Transcript August 15, 2023

IHS Holding Limited misses on earnings expectations. Reported EPS is $-3.73 EPS, expectations were $0.18.

Operator: Thank you for standing by. And welcome to the IHS Holding Limited Second Quarter 2023 Earnings Results. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. I’d now like to welcome Colby Synesael, Executive Vice President of Communications to begin the conference. Colby, over to you.

Colby Synesael: Thank you, Operator. Thanks also to everyone for joining the call today. I am Colby Synesael, the EVP of Communications here at IHS. With me today are Sam Darwish, our Chairman and CEO; and Steve Howden, our CFO. This morning, we published our unaudited financial statements for the three-month and six-month periods ended June 30, 2023 on the Investor Relations section of our website and issued a related earnings release and presentation. These are the consolidated results of IHS Holding Ltd, which is listed on the New York Stock Exchange under the ticker symbol IHS, which comprises the entirety of the group’s operations. Before we discuss the results, I would like to draw your attention to the disclaimers set out at the beginning of the presentation on slide two, which should be read in full, along with the cautionary statement regarding forward-looking statements set out in our earnings release and 6-K filed as well today.

In particular, the information to be discussed may contain forward-looking statements, which, by their nature, involve known and unknown risks, uncertainties and other important factors, some of which are beyond our control that are difficult to predict and other factors which may cause actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking statements including those discussed in the Risk Factors section of our Form 20-F filed with the Securities and Exchange Commission and other filings with the SEC. We will also refer to non-IFRS measures that we view as important in assessing the performance of our business.

Reconciliation of non-IFRS metrics to the nearest IFRS metrics can be found in our earnings presentation, which is available on the Investor Relations section of our website. And with that, I’d like to turn the call over to Sam Darwish, our Chairman and CEO.

Sam Darwish: Thanks, Colby. And welcome everyone to our second quarter 2023 earnings results call. We remain well positioned to take advantage of the strong secular growth trends across our markets, which we expect to continue for years to come. We are reporting another strong quarter of performance across our KPIs, but of course, this is in the context of ongoing macroeconomic change in our largest market in Nigeria. We are encouraged by the recent policy changes implemented in Nigeria that are intended to put the company on a better economic path. In the near-term, however, these changes have caused some anticipated friction, including the significant devaluation of the Naira that occurred in mid-June. As a result, we now assume an average rate of 624 Naira to the USD for the year versus 497 previously.

And subsequently, we are devising our 2023 guidance for revenue, adjusted EBITDA and RLFCF while maintaining our CapEx guidance and our target leverage ratio of 3 times to 4 times. Our expectation for revenue would have otherwise increased by $31 million, had the average ForEx rates previously assumed in our guidance remain unchanged, reflecting the strength we continue to see in our fundamental business. The significant net loss position we report for the quarter also resulted from ForEx as the devaluation drove significant non-cash financing costs. For the quarter, the change in ForEx rates had a $21 million negative impact versus rates previously assumed in guidance, including a $25 million negative impact from the Naira devaluation. Excluding the ForEx impact, results were ahead of our expectations, driven largely by our Nigeria segment, including a pull-forward in revenue a quarter earlier than we had anticipated.

We will see the full impact of the Naira devaluating our third quarter results and the impact of our ForEx resets over Q3 and Q4 of 2023, 93% of our resets are quarterly and 4% are monthly. Separately, our Board has exercise tried to move forward from April 2024 to October 2023, the release of lockup restrictions on the final block of pre-IPO shares that are subject to lockup under the shareholders’ agreement. I will speak more about it in a moment, but this will conclude the lockup period for our pre-IPO investors and will further move us towards achieving a normalized float Additionally, the Board has also authorized up to $50 million stock buyback program. I want to discuss some of our key highlights for the quarter. Starting with Nigeria, as I mentioned earlier, the new administration implemented three significant policy changes over the last few months, macro perspective and one that impacts companies like IHS that imports diesel.

Starting with the macro changes. In mid-June, the Naira was permitted to trade freely in order to convert multiple ForEx rates. This was generally expected and most related to market and something we had discussed in previous calls. While it will take time to see the full impact of this change, it improves transparency in the Nigerian ForEx market and expected to improve liquidity and the ability for companies to access U.S. dollars. Thus, it is a change that we welcome. On a related basis, we did upstream $50 million during the quarter and we may look to upstream later in the year via the official window or through other structured transactions. Another key change that occurred in late May was the elimination of the retail petrol subsidy, which cost the country billions of dollars annually.

Because we purchase diesel and not petrol to power our site, this change has only had a small impact on the [Audio Gap] we use to fuel our own vehicles. Nevertheless, we believe this was a significant step forward for the country, given the dollar’s the subsidy has required from the government to support, this is now expected to put more dollars back in the federal budget. Lastly, in July, the government initiated a 7.5% value-added tax on imported diesel. Notably, this was not previously factored in our guidance and we estimate it will add approximately $5 million to our costs over the remaining six months of the year. Moving first to Brazil and then to South Africa. In Brazil, macro conditions continue to improve following the smooth governmental transition of power in January.

ForEx rates have strengthened against the U.S. dollar, while the Central Bank has recently elected to cost rate first among large economies. We are focused on our sizable bid-to-suit program and continue to assess a growing number of opportunities. We are excited about Brazil and like the strategic positioning we have earned in the market as a leading Infraco provider with both tower and fiber assets. Now to South Africa, as we stated last quarter and given various dynamics in the market, including an unprecedented level of load shedding that has occurred in the country post-deal flows, we continue to evaluate our opportunities and we will update you as appropriate and if necessary. On stock liquidity, on October 14th, the Block B shares will be unblocked and the registered offering requirement for the Block C shares will end effectively freeing up over 120 million shares.

In addition, the IHS Board has exercised its right to move forward from April 2024 to October 2023, the release of lockup restrictions on the final block of pre-IPO shares that are subject to lockup under the shareholders’ agreement. This means that all three blocks become freely tradable at the same time, thereby concluding the lockup period for our pre-IPO investors. The removal of the lockup will move us further towards achieving a normalized low. Separately, our Board has also authorized an up to $50 million two-year stock buyback program. Recognizing the importance of maintaining a strong balance sheet, we continue to take a disciplined approach to capital deployment, including near-term M&A, while we keep accessing what’s out there.

As of the end of the quarter, we had over $950 million of available liquidity and leverage stood at 3.1 times, while this will increase slightly over the next 12 months as a result of the impact of the Naira devaluation on our adjusted EBITDA, we expect to remain well within our target range of 3 times to 4 times. We continue to have no meaningful debt maturity until quarter four 2025 and we continue to monitor the market and evaluate ways to further strengthen our position as we have done historically. Lastly, I want to comment on statements some of our shareholders have made since last quarter regarding our governance. Our Board is committed to ensuring the integrity of the independence of IHS as a neutral digital infrastructure provider, and to maintaining strong corporate governance, supporting our customers and increasing shareholder value.

We remain engaged with these shareholders, while maintaining an open and constructive dialogue with all of our shareholders. Turning to slide eight. You see that we published our 2022 sustainability report in May, which is our fifth year of doing so. The 2022 sustainability reported our first year reporting under the GRI framework, demonstrating our continued evolution and sustainability reporting, and more so, our long-term strong commitment to the subject here at IHS. Before I turn the call over to Steve, I want to announce that Bryce Fort is leaving the IHS Board. Bryce is dear friend and has been on the Board since 2013. During this time, he has provided invaluable advise and I personally want to thank him for the many contributions he has made to IHS.

Byrce stepping down is in line with our shareholders’ agreement that allows each [Technical Difficulty] designate a Board member as long as they maintain greater than 10% ownership in the company. And with that, I will turn the call over to Steve.

Steve Howden: Thanks, Sam, and hello, everyone. Turning to slide nine, as Sam mentioned, we are pleased with our Q2 performance, particularly against the backdrop of the currency devaluation in Nigeria, which I will reference at various points today. As you see here, towers and tenants are up slightly in Q2 2023 versus Q2 2022, given that the South African acquisition closed in Q2 last year. Lease amendments again increased by double-digit percentages and we again delivered double-digit growth in revenue and adjusted EBITDA for the quarter. Specifically, in Q2, we delivered 17% growth in revenue, 27% growth in adjusted EBITDA and 4% growth in RLFCF, in each case on a reported basis and driven primarily by organic activity across our markets, with some inorganic contribution from South Africa.

Our adjusted EBITDA margin improved significantly to 55.6%, a 450-basis-point gain on Q2 2022. The results reflect the devaluation of the Nigerian Naira versus the U.S. dollar that occurred in mid-June and has only partially impacted the quarter, as well as some pull-forward of anticipated Q3 revenue into Q2, which I will discuss shortly. As you also see, total CapEx grew by 41% in the quarter, largely due to movements in Nigeria and LatAm, whilst we saw an overall decrease in CapEx in SSA. Finally, our consolidated net leverage ratio was 3.1 times at the end of Q2, a slight decrease versus last year and flat on 1Q 2023. Although as I will discuss, we do expect our leverage ratio to increase over the next 12 months in light of the devaluation but remaining within our target 3 times to 4 times range.

Turning to our revenue on a consolidated basis. Slide 10 shows the components of our 16.8% reported consolidated revenue growth for the second quarter. Organic revenue growth of 29.7% was driven primarily by CPI escalations, power-related revenue, FX resets and lease amendments, as well as some pull-forward revenue we had anticipated for 3Q, but actually occurred in 2Q. This is included in other. Additional revenue growth was driven by new colocation, New Sites and fiber deployment as usual. As you can imagine, the full impact of the Naira devaluation towards the end of the quarter is not reflected in the level of escalations and FX resets you see here, not fully in the negative impact from FX, all of which I will discuss further. The level of power-related revenue continues to reflect the high energy price environment and included a $24 million increase in diesel linked revenue.

I would also again note that we now include the power pass-through revenue we received in South Africa within the power segment, which in Q2 increased $2 million. On the right, you can see the organic growth rates of each of our segments for the quarter, with Nigeria delivering 37% organic growth, including the pull-forward revenue. Inorganic growth for Q2 was 3.9%, reflecting almost entirely the South African acquisition and inorganic growth will drop further in Q3 as we have now passed the anniversary of the South African acquisition. On Slide 11, you can see our consolidated revenue and adjusted EBITDA and adjusted EBITDA margins for Q2 2023. As I discussed on the prior slide, in the second quarter, IHS generated a nearly 17% increase in reported revenue.

EvgeniiAnd/Shutterstock.com

Organic revenue growth was even higher at nearly 30%, again demonstrating the continued strong topline growth trends of the businesses led by Nigeria in particular. However, as a result of the Naira devaluation in mid-June, 2Q 2023 revenue includes a $21 million headwind versus rates previously assumed in guidance, including a $25 million headwind from the Naira since the FX resets on the U.S. dollar-denominated portion of our Nigerian contracts doesn’t kick in until July onwards. In Q2 2023, adjusted EBITDA of $304 million increased 27% versus Q2 2022 and adjusted EBITDA margin was 55.6%, up 450 basis points from the prior year. The year-over-year changes in adjusted EBITDA and margin for the second quarter primarily reflects the increase in revenue we have already discussed and partially offset with year-on-year increases in cost of sales, mainly due to increased maintenance and repair costs on a larger business, as well as increased administrative expenses resulting from employee costs related to the acquisitions.

Power generation cost of sales decreased by $6 million, driven by a $12 million diesel cost decrease primarily from a 13.1% decrease in diesel price and a 5.5% decrease in consumption. All offset by a $6 million increase in electricity costs, including as a result of Project Green and all of these movements coming from Nigeria. As previously highlighted, through Project Green, we continue to prioritize alternative sources of power to reduce our dependency on diesel. On slide 12, we first review our recurring levered free cash flow. We generated RLFCF of $91 million in Q2 2023, a 4% increase versus Q2 2022 due to a combination of factors, including the increased revenue and adjusted EBITDA discussed already and decreases in income taxes paid.

These factors were offset in part by increases in net interest paid — lease payments made mostly due to the South African acquisition, maintenance CapEx and withholding tax. Our RLFCF conversion rate was 30%. Turning to CapEx, and in Q2 2023, CapEx of $207 million increased 41% year-on-year. This increase was largely due to movements in Nigeria and LatAm. Increased investment in Nigeria and Project Green, maintenance CapEx and fiber deployment was offset in part by decreases in the New Site CapEx there. In LatAm, we saw growth in New Site CapEx and I-Systems fiber rollout, whilst we saw an overall decrease in CapEx in Sub-Saharan African. On to the segment review on slide 13, I will first walk through our Nigerian business. The Nigeria macro remains complex as we discussed previously and on our earlier earnings call this year.

We are encouraged by the swift actions taken by the new government, including the removal of the fuel subsidy and the liberalization of the ForEx regime that resulted in the devaluation of the Naira that took place in mid-June. We remain in close contact with our key customers, two of which have again recently published healthy topline results in their businesses. We also continue to work closely with various regulators, our vendors and our local banking partners to continue to best position IHS. While we are cautiously optimistic U.S. dollars continue to be difficult to source, although remains available. FX reserves in the country have decreased to $34.1 billion at the end of June 2023 from $35.5 billion at the end of March 2023 and market participants believe that the CBN will need to step in at some point to inject liquidity into the system and clear the backlog of FX transactions.

That being said, the price of both oil and ICE Gasoil have decreased quarter-on-quarter. If we look at ICE Gasoil, it was $687 per tonne in Q2 2023, down from $819 per tonne in Q1 2023. And then moving to real GDP growth, it expanded by 2.3% in Q1 2023, with a projected full year 2023 growth rate of 3.2%. The inflation increased to 22.8% this June versus 18.6% in June 2022. So, overall, we continue to believe the business remains well positioned for long-term success and to endure these near-term macroeconomic challenges. To this point, our Nigerian business once again delivered strong results in the second quarter, tracking well on our key metrics. Q2 2023 revenue of $365 million increased 13.5% year-on-year on a reported basis and 37% on an organic basis.

In each case, reflecting the devaluation over a small portion of the quarter and the pull-forward of revenue discussed. Topline growth was driven primarily by the usual group of escalations, power-related revenue, as well as effects resets and lease amendments. The negative FX impact was $74.5 million or 23% due to the Naira devaluation. Our tower count decreased by 2% and total tenant count increased by 0.4% each versus Q2 2022, largely reflecting the planned decommissioning previously discussed, which does not impact revenue. Our colocation rate consequently improved to 1.57 times up from 1.53 times in Q2 2022. Lease amendments continued to be a strong driver of growth with these increasing by 9.8% quarter-on-quarter as our customers added additional equipment to our sites, particularly 4G upgrades.

Q3 segment adjusted EBITDA in Nigeria was $238 million, a 30% increase from a year ago and segment adjusted EBITDA margin was up 820 basis points to 65.4%. And let me now briefly summarize the results in our other segments. As our Sub-Saharan African segment includes our South African business since Q2 2022, towers and tenants increased by 1.5% and 2.6%, respectively, versus Q2 last year. Revenue increased by 30%, of which organic revenue grew 15%, driven primarily by escalations, New Sites, colocations and FX resets, whereas inorganic revenue grew 19%, driven by that South African acquisition and FX was a 4.3% headwind. Segment adjusted EBITDA increased by 19%, driven primarily by the increased revenue and partially offset by increases in power generation costs, maintenance, security costs and administrative expenditures.

Segment adjusted EBITDA margin decreased to 51% from 55.8% in Q2 last year and we continue to monitor the macro environment in South Africa, particularly the ongoing power load shedding by the national utility, and as previously discussed, we continue to evaluate our managed services opportunity. In our LatAm segment, towers and tenants grew by 4% and 3.2%, respectively, whereas revenue and segment adjusted EBITDA increased by 13% and 14%, respectively, in all cases versus Q2 last year. In Brazil, our second largest market with 7,139 towers, macro conditions were largely stable as GDP growth decelerated, FX rates marginally strengthened, interest rates held steady in the quarter and inflation decreased. In our LatAm segment, overall, Q2 2023 organic revenue increased 14%, driven primarily by an increase from I-Systems fiber deployment and escalations.

Segment adjusted EBITDA grew by 14% also in the quarter with a segment adjusted EBITDA margin of 73.1%. In MENA, towers and tenants each grew by 6.8% in Q2 2023 and revenue grew by 11%, including 8.4% organic revenue growth. Segment adjusted EBITDA grew by 29% in the quarter with a segment adjusted EBITDA margin of 54.5%, reflecting the increased revenue and a decrease in admin expenses. On to slide 14 and I will briefly highlight our KPIs. As of June 30, our tower count was 39,298 up 0.6% from the same period last year, driven by ongoing New Sites in LatAm, SSA and MENA. As you can see in the chart on the top right, collectively we built nearly 300 towers during the second quarter of 2023. Total tenants grew 1.9% with the colocation rate at 1.49 times, up slightly versus last year.

We continue to point out that lease amendments are a significant factor for us, particularly in our Nigerian segment, given the ongoing 4G upgrades by our customers there and the initial 5G activity we are seeing. While lease amendments increased by almost 12% year-on-year, they are not included in our colocation rate calculation. We continue to see no reason why we can’t get to 2 times or greater on our overall portfolio over the long-term and our more mature portfolios of towers are at or above that rate. On slide 15, we look at our capital structure and related items. At 30 June 2023, we had approximately $4.06 billion of external debt and IFRS 16 lease liabilities. Of the $4.06 billion of debt, $1.94 billion represent our bond financings and other indebtedness increased $370 million that we drew down last year from the $600 million three-year bullet term loan facility at the IHS Holding Limited level.

Additionally, as previously discussed, in January 2023, we entered into an up to NGN165 billion five-year term loan facility, the commitments under which we further increased by another NGN11.5 billion during the quarter, while also drawing down an additional NGN15 billion for a total of the NGN165 billion drawn under this facility as of August 14, 2023, effectively concluding the capacity of this facility. During the quarter, we also increased capacity under the group RCF to $300 million and there are currently no amounts drawn or outstanding under either the group RCF or the Nigerian RCF. As we previously stated, we were very pleased to have completed the Nigeria re-financings, which further derisk the balance sheet and increased our financial flexibility, particularly in front of the recent naira devaluation.

Cash and cash equivalents decreased to $433 million at June 30, and in terms of where that cash is held, approximately 7% of the total cash was held in Naira at our Nigeria business, as we have been using excess cash to support Project Green and for upstreaming. The majority of the remaining cash was held in U.S. dollars at the group level. Moreover, as we previously highlighted on our May call, we upstreamed an additional US$50 million from Nigeria in Q2 2023 on top of the $15 million done in Q1. Consequently, from all these moving elements, at the end of Q2 2023, our consolidated net debt was approximately $3.6 billion and our consolidated net leverage ratio was 3.1 times flat with March and at the low end of our net leverage target range of 3 times to 4 times further demonstrating our strong balance sheet.

However, I would note that because the devaluation occurred late in the quarter, we do expect leverage to tick up slightly in the second half of 2023 when adjusting for a full quarterly impact of the devaluation as I will discuss shortly regarding our guidance. And finally, as it further relates to the devaluation, I wanted to point out that Q2 showed an unusually large net loss of approximately $1.2 billion, which is driven primarily by $1.4 billion in finance costs, the vast majority of which is unrealized FX losses. The components of finance costs include net FX losses from financing, both realized and unrealized, net FX losses on derivative instruments both realized and unrealized, as well as interest expenses. As is typical each quarter, these costs arise principally due to our bonds given the embedded options they are in and because of the intercompany shareholder loan structure we have used historically to fund the business.

These costs, which are very largely non-cash can vary significantly and typically increase in the context of a devaluation of the Naira, which is the primary reason why they increased dramatically in Q2. We have added slide 21 to the appendix to help further explain this dynamic and highlight the large delta this past quarter. Moving to slide 16, and as a result of the Naira devaluation, we are revising 2023 guidance for revenue to $2.08 billion to $2.11 billion, adjusted EBITDA to $1.13 billion to $1.15 billion and RLFCF $385 million to $405 million and maintaining our total CapEx guidance of $610 million to $650 million. As Sam mentioned at the beginning of the year and as highlighted on slide 17, we now assume an FX rate for the Naira of NGN624 million which includes NGN775 to the dollar in Q3 2023 and NGN750 to the dollar in Q4 2023.

Our expectation for revenue would have otherwise increased by $31 million, had the average FX rate previously assumed in our guidance remained unchanged, reflecting the strength we continue to see in our fundamental business. Guidance also continues to include approximately $25 million in power pass-through revenue in South Africa, of which we have recognized $4 million through the first half of the year. I do want to again caution the timing of such move is difficult to predict and could be delayed relative to what we have assumed, although this would have no impact on adjusted EBITDA or RLFCF. Guidance also continues to exclude any revenue from Egypt, although we continue to evaluate opportunities in the market that we believe could align with our financial and strategic objectives.

For the year, we continue to expect to build approximately 1,200 towers, which is slightly more than the amount we built in 2022. This includes a notable drop in Nigeria as we pull back on New Site builds as we shift more of our focus to Project Green, but also includes a tripling of tower builds in Brazil that we back end loaded in 2023. On slide 17, on the top, you can see revenue by reporting currency for Q2 2023, whereas on the bottom we provide the breakout of revenue based on contract split. The right side shows the average annual FX rate assumptions used now in our 2023 guidance and has been updated since last quarter. This equates to $141 million downside for the year versus rates assumed last quarter, of which over 100% is as a result of the devaluation of the Naira.

This now brings us to the end of our formal presentation. We thank you for your time today, and Operator, please now open the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Jonathan Atkin from RBC Capital Markets. Your line is open.

Bora Lee: Good morning. This is Bora on for Jon. So I guess first question is, one of your largest customers recently noted that while they are optimistic about the medium- and long-term, expect policy reforms to pressure from customers and hence carriers in the shorter term. Can you just update us on the leasing activity that you have been seeing and the tone of customer conversations you have had about future activity? And then I have a follow-up.

Steve Howden: Hi, Bora. So, firstly, we haven’t seen any form of slowdown in carrier leasing activity at this point in time. In fact, in Q2, we posted more pretty strong numbers in terms of close to 300, up 278 build-to-suit across the business. But probably more relevant to your question was about 1,100 lease amendments and another 270 odd colocations in the quarter as well. So we haven’t seen anything. We are not hearing anything from our customers, customers are still talking to us about technology trends and looking to the longer term around 5G rollout, et cetera. So at this point in time, no reason to think that. And if you look at the results of particularly African carriers, people like MTN Nigeria, Airtel Nigeria, et cetera, you will see that they continue to post really strong growth numbers as they drive data and fintech through their business as well.

They both posted 23% to 25% revenue growth and EBITDA margin is increasing. So, at this point in time, we feel pretty good about the rest of the year and into next year.

Bora Lee: Okay. Great. And then just for a follow-up, the Dangote refinery was reportedly going to start operations before the end of July. Can you provide an update as to if that’s occurred and any sort of early indications of an impact on the supply of domestic diesel and just somewhat related to that, the 7.5% VAT on imported diesel? Can you provide some guidance on how we should be thinking about sizing the financial impact of that going forward?

Steve Howden: Yeah. So a couple of things in there. So, firstly, on the Dangote refinery. So we haven’t seen anything come through in terms of production yet. So that’s really a wait and watch. Although the facility was officially opened back in May. It wasn’t expected to immediately start pumping. So we are just waiting to see when that occurs. And then in terms of what else has been going on, you will see in our disclosure material once you have had a chance to look through, we do comment on things including the VAT rise. So that’s the new 7.5% on imported diesel and given Nigeria doesn’t have a straight input-output VAT system and that is an absolute cost for us. It’s about $4 million to $5 million, about $5 million approximately for us in the second half of the year. So that’s the type of impact that we are seeing and that’s obviously implicit within our revised guidance that we have put out to you all.

Bora Lee: We should be thinking about that as sort of a general run rate for a half year, give or take?

Steve Howden: Yeah.

Bora Lee: Okay. Thank you.

Sam Darwish: Sorry, Bora. Do you know, sorry? Yeah. I said yes.

Operator: Your next question comes from the line of Phil Cusick from JPMorgan. Your line is open.

Phil Cusick: Hi, guys. Thanks. Sam, we have been talking about potentially a buyback for quite a long time and we have talked about the math between the liquidity and the stock and any accretion on the buyback. How did that math go in for the $50 million authorized today and was that any kind of compromise with Wendel and MTN and then talk maybe about the relationship with those two companies? Thanks.

Sam Darwish: Thanks, Phil. Maybe I will start with the buybacks — Steve you can start with the buyback and I can talk about the second aspect.