Millicom International Cellular SA (TIGO) 2005 Q4 法說會逐字稿

Okay ladies and gentlemen, and welcome to the Millicom 2005 Fourth Quarter and Full Year Results Conference Call. [OPERATOR INSTRUCTIONS]. May I also remind you that this call is being audio streamed over the web and is accessible at www.millicom.com together with a presentation summarizing the key features of the results. I would now like to hand you over to the hosts of today's conference, Mr. Marc Beuls, President and CEO, and Mr. David Sach, Chief Financial Officer. Please go ahead.

Thank you, Operator, and welcome to everyone who has joined me today to discuss Millicom's results for the fourth quarter and full year 2005. David Sach, our Chief Financial Officer, is with me and he will run through the financials with you in detail in a few moments. You will need -- you will find the slides in front of you when you go to the millicom.com page later on.

We'll both be happy to answer any questions you might have at the end but first I would like to give you an overview of the year and run through the performance of each cluster. Before we look at the results I would like to make a brief comment about the strategic review of the business currently being conducted by Millicom's Board. We announced on January 19 that we received a high number of unsolicited approaches, and the Board felt that it was in the interest of our shareholders to examine these approaches in detail. We will only be making a detailed announcement when the strategic review is complete.

So let's move on to the main topic of today's call, the results for the quarter and the year ended December 31, 2005. The pro forma numbers showed that the fourth quarter of 2005 was one of the strongest quarters ever for Millicom. For those of you who are not yet familiar with Millicom's [format] of pro forma numbers they exclude Vietnam and include the increased ownership in Honduras. These numbers are important as they show the strong underlying growth of Millicom and the future potential for the business.

Revenues increased by 36% compared to the fourth quarter of 2004. Central America was for the first -- for the third quarter in a row the fastest growing region in Millicom with quarterly year-on-year revenue growth of 62% and 18% over the last quarter. Africa continued to improve with 15% sequential growth and 31% growth over the fourth quarter 2004.

Millicom increased its footprint in Africa further in 2005 with the acquisition of Oasis in the Democratic Republic of Congo and with the launch of operations in Chad bringing the population under license in Africa to 146m.

With regard to South East Asia, Millicom has announced that it intends to sell Pakcom and concentrate its investments in Paktel. The sales proceeds -- the sale process is ongoing and the announcement will be made in due course. We expect to complete the sale of Pakcom in the first half of this year.

Well, let's turn to the operating results starting with subscriber growth. You will have noticed that from the results statement that we have moved from reporting proportional subscribers to attributable subscribers, which are calculated as 100% of subscribers, in Millicom subsidiaries' operations and Millicom's percentage ownerships of subscriber in each joint venture operation.

We've done that because the buyout of minority partners has significantly reduced the difference and our subscribers are reported using the same methodology as revenues so that delivers consistency across our performance indicators.

Millicom had a record number of subscriber additions in the fourth quarter, over 1m, or 839,000 on an attributable basis. The total subscribers at the end of December amounted to 8.9m representing a 16% increase over the fourth quarter of 2004 or 52% on a pro forma basis. 94% of total subscribers are pre-paid. Attributable cellular subscribers increased by 30% from the fourth quarter of 2004 to 7.7m or by 52% on a pro forma basis.

Last week we announced that we passed the 9m total subscriber mark in the middle of January. I just looked at the January results and I can tell you that the year 2006 has started extremely well for Millicom. The sustained increase in minutes of use has continued with total cellular minutes for the three months ended December 31, 2005 increasing by 20% from the same quarter of 2004. On a pro forma basis total minutes increased by 53% and pre-paid minutes by 64%.

Let's go to revenue. The strong subscriber growth translated into the highest quarterly revenue ever of $294m for Q4, an increase of 15%, or 36% on a pro forma basis from the fourth quarter of 2004. The highest growth relative to the fourth quarter of 2004 was 108% recorded in Honduras, or 55% on a pro forma basis followed by Guatemala with 82%.

For the full year revenue was $1,083m, up 18% over 2004 or 32% on a pro forma basis. Turning to EBITDA, EBITDA for the three months ended December 31, 2005 was $132.2m, a 5% increase from the fourth quarter of 2004 after the loss of some $30m of EBITDA as a result of the end of the BCC in Vietnam in the second quarter of 2005. But more importantly, underlying EBITDA on a pro forma basis increased by 34%. Millicom's EBITDA margin was 44%. On a yearly basis EBITDA for 2005 was $489.8m, or up 8% from 2004, or 25% on a pro basis and the EBITDA margin was 45%.

Over the last couple of quarters Millicom's consolidated EBITDA margin has been under pressure as a result of the Paktel investing in its new GSM business and the start-up costs for Chad and DRC in Africa. [Total's] priority today is growing its top line and taking advantage of the opportunities in its markets whilst remaining focused on profitability. Therefore in 2006 we expect to see a cap expense of over $500m, again a 50% increase from the previous year.

Cash flow from operations for the year was $576m, funding investment of $444m compared to just $187m for 2004. Furthermore Millicom's net debt to EBITDA ratio is below 1 to 1 so easily allowing for significant future investments.

Turning to the cluster results. Starting with Central America, which remains our largest cluster in terms of revenue and EBITDA, attributable subscribers reached 1.9m, up 68%, or on a pro forma basis 57%. Revenue growth grew by 62% from the fourth quarter of 2004 to $142m for the fourth quarter of 2005, or by 51% on a pro forma basis.

Revenue for the full year was $452.6m, up 48%. EBITDA for Central America increased by 68% to $75m for the fourth quarter of 2005 and by 56% on a pro forma basis. On a yearly basis EBITDA for 2005 was $233m, up 50%. EBITDA margin was 53% for the fourth quarter and 51% for the year.

In the fourth quarter we took a group of analysts and investors to visit our Central American businesses to showcase the success of our cheaper brand and our mark-to-market distribution model. So this is clearly demonstrated to our visitors that Millicom can compete successfully with our two largest competitors in the region, and can maintain its market-leading position through its innovative approach and by applying principles from the fast-moving consumer good industry.

Millicom has the number one position in El Salvador and Honduras but number two or three in Guatemala where it's growing its market share. Global penetration in Central America is today on average some 25% and this currently lacks the penetration rates of more developed countries in the region. This shows clearly the continuous upside potential.

Let's move to the South American cluster. Attributable subscribers grew 43% to reach 1.3m at December 31, 2005. Revenue for Q4 grew by 24% to $40m relative to Q4 2004, and Bolivia and Paraguay produced revenue increases of 23% and 25% respectively over the same period.

Revenue for South America for the full year was $141.2m, up 24%. EBITDA increased by 29% on a quarterly year-on-year basis to $16.6m, and by 28% on an annual basis to $57m for the full year. EBITDA margin was 42% for the fourth quarter and 40% for the full year. We introduced state-of-the-art GSM services in December in Bolivia, and we have already seen a positive impact on subscriber revenue growth in the first month of this year.

Today all of Millicom's operations offer GSM services. In our Africa cluster attributable subscriber additions for the year were over 859,000 including our new operations in Chad and the Democratic Republic of Congo. These additions resulted in an 83% increase in attributable subscribers from December 31, 2004 to 1.9m at the end of Q4 2005.

The subscriber growth contributed to a year-on-year increase in quarterly revenue of 31% to $58.1m, and an increase in revenue for the full year of 36% to $204.4m. EBITDA decreased slightly from the fourth quarter of 2004 to $21.4m for the fourth quarter, but the full year recorded a 34% increase over 2004 to $88.2m.

The quarterly year-on-year decline was mainly due to the start-up costs in Chad and the DRC. EBITDA margin for Africa was 37% in the fourth quarter and 43% for the full year.

Attributable subscribers in South Asia increased by 37% from December 31, 2004 to a little under 2m at December 31, 2005. Revenue for South Asia was $28.9m for the fourth quarter and $120.7m for the full year, up 16% and 7% respectively. EBITDA was $7.6m for the fourth quarter, up 56% and $25.1m for the year and the EBITDA margin was 26% for the quarter, and 21% for the year.

General EBITDA margins have been impacted by the upfront sales and marketing costs associated with the GSM launch by Paktel. Revenues in South Asia have been under pressure as a result of the increased competition in Pakistan. Our plan for Paktel, our GSM operation in Pakistan, is to increase the quality of the network and focus on revenue-generating subscribers, a part -- Paktel to break even at the EBITDA level by the end of the year.

GSM subscribers for Paktel at the end of the fourth quarter of 2005 amounted to 871,000 and revenues for Paktel were $13.6m for the fourth quarter. ARPU for Paktel was kept at $5 in spite of the reduction of interconnect tariffs and the price pressure on the local and LDI tariffs.

So turning to South East Asia, subscribers in Cambodia and Laos increased by 31% from the fourth quarter of 2004 to over 850,000 at December 31, 2005. Revenue for South East Asia was $23.9m for the fourth quarter, up 20% on a pro forma basis. Revenue for the full year was $161.5m. EBITDA was $11m for the fourth quarter and $88.7m for the full year. EBITDA margin was 46% and 55% respectively.

Now I would like to hand over to David Sach, our CFO, to talk you through the financials.

Thank you, Marc. Good afternoon and morning to you all. I'm going to take you through a few slides on the key financials. You will find the slides on our website at www.millicom.com. As the slides are more detailed than my comments, it will be helpful to have them in front of you.

Beginning on slide 2 there's a brief summary of the key subscriber numbers and key financial data. The point we want to make here is how strong the pro forma underlying growth has been in 2005, up 52% in terms of subscribers, 36% in terms of revenue, and up 34% in EBITDA.

Turning to slide 3, as Marc noted previously, we are using attributable subscriber numbers rather than proportional numbers as was done in the past. Again, the reason for this is that the difference between the two measures today is small because of the continuing buyout of minority partners, and also because it brings consistency to our reporting by using attributable numbers for both subscribers and revenues. We hope you find this helpful.

Slide 4 shows how subscriber growth has been accelerating quarter on quarter. Behind this growth is strong GDP growth in the countries where we are operating. But more importantly penetration rates are rising. Millicom helps drive this penetration growth by investing in its networks to make mobile telephony available, by investing in distribution to make mobile telephony more accessible to the population at large. But perhaps most importantly by bringing prices down so that mobile telephony is affordable.

In addition handset prices are falling, which is a major enabler of growth for us. The chart shows how Millicom is benefiting from these factors. Looking forward the absence of fixed-line infrastructure, and the current low mobile penetration rates in our markets makes us confident that strong subscriber growth will continue.

Turning to slide 5 you will see that the rate of growth in revenue has started to accelerate on a pro forma basis. This is due to the strong subscriber growth. Furthermore due to real price elasticity we find that by cutting prices we are able to generate substantially more revenue from new subscribers than we lose in price cuts. Plus, cheaper prices mean existing customers can afford to talk more, and it only takes a few months after a price cut before existing customers are paying the same amount as before the cut. But, of course, they are happy as they are getting many more minutes.

As illustrated on slide 6, another notable dynamic of our business model is the economies of scale that we get from investments in our networks. Once we achieve adequate network coverage in our markets the cost of adding capacity is relatively cheap enabling us to maintain, and hopefully grow our margins in the face of falling prices.

The key point on this slide is to show that the EBITDA margin in 2005 has been rising as other costs fall as a percentage of total revenue. Slide 7 depicting quarterly EBITDA growth is most interesting when viewed in conjunction with slide 8 on CapEx. What we see is that EBITDA growth in 2005 is beginning to increase as Millicom has started to spend more on CapEx. We believe higher spending will facilitate substantial subscriber growth, which will result in significant EBITDA growth through economies of scale.

On slide 8 you can see that CapEx is starting to grow significantly. However, the much higher level of CapEx at the end of 2005 has not yet had time to feed through to the EBITDA numbers but the $170m of CapEx in Q4 gives an indication of the potential for 2006. Remember also that as Marc stated earlier we intend to up our CapEx in 2006, and we will continue to invest in further growth, but we also expect the CapEx sales ratio to reduce year on year from 2006.

Please turn to slide 9. There are three items which have affected profitability in 2005, depreciation, write-downs and interest expense. And in the next three slides I am going to explain how these three items are having only a temporary effect on profitability.

Slide 10 shows that there has been a sizable step up in the level of depreciation from 2004 to 2005. Depreciation has risen from an average of $43m a quarter in 2004 to an average of $55m in 2005, but over this period CapEx did not rise steeply until Q4, 2005.

What happens is that we started accelerating the depreciation of our old analogue and TDMA equipment at the end of 2004 following the extremely successful GSM roll out. While this temporarily increases depreciation, most of our analogue and TDMA equipment will be fully depreciated either in 2006 or 2007 which will cause depreciation levels to fall in subsequent periods.

This will act as a counterbalancing measure to the upward pressure on depreciation from the higher CapEx spending in Q4, 2005 and 2006.

Turning now to the large write-down to 2005 showed on slide 11. Firstly, in Q1 there was a $17m write-down due to the accelerated depreciation on the delayed CapEx spending at the end of the DCC in Vietnam and a $5m write-down of analogue and TDMA equipment in Paktel. The remaining write-downs were mainly in Pakcom.

In Q4 we have been prudent in writing off the Pakcom bank loans in the event we receive no value for this business at all and the purchaser does not take on the debt.

Since these write downs are one-off in nature, they will not reoccur which bodes well for 2006.

Slide 12 shows that the average interest expense in 2004 was $27m per quarter rising to $36m per quarter in 2005. This increase in interest is due to two main factors. One, an increase in debt from the issuance of the 4% convertible bonds in January of 2005. These bonds are now in the money and we will expect that holders will convert the bonds to equity, thus reducing the interest costs going forward. And two, an increase in license payables from the Pakcom license.

This is a non-cash interest expense which will be removed by the sale of Pakcom. As a result of these two factors debts and interest expense will fall in 2006, all other things being equal.

As seen on slide 13, the tax rate for the operations has risen from 24% in 2004 to 36% in 2005. The reasons for this are that Paktel, because of the significant investments in this GSM business, and Chad in the Congo, because they are start-ups, are temporarily incurring losses without any tax benefits. This has raised the overall tax rate of the operations in 2005.

Furthermore, the interest expense incurred at corporate is not tax deductible which substantially impacted the overall Group tax rate in 2005.

We believe the tax rate will reduce substantially in the near-term without us taking any specific tax action because the operations are expected to generate higher profits and therefore become a greater percentage of the profits before tax. This is why the overall tax rate in 2004 was much lower. That said we are nonetheless taking proactive steps to minimize our effective tax rate. We believe we can get the rate below 30% within a few years.

Slide 14 shows that the minority partner's share of future profits will be very small following the end of the DCC in Vietnam and the sale of Pakcom. As we continue with our stated strategy of buying out further minority partners this figure will fall even further.

As noted on slide 15, Millicom's model of pre-paid services is fantastic for our cash flow. Cash from operations is in excess of EBITDA which we refer to as positive cash conversion because we get our money paid up front. This provides a working capital benefit as we grow our business. Another important point to make from this slide is that the bank closing balance of $597m puts us in an extremely strong position since we can use this cash to invest in our existing businesses, buy out more minority partners and fund acquisitions that have compelling rates of return.

Slide 16 shows you where we spend our investment. In addition to the significant increase in CapEx, more money was spent on acquisitions including the Congo and an additional 16.7% in our Honduras company. All of these investments will help drive growth. Thank you, I will now hand back to Marc for his concluding comments.

Thank you David. The outlook for Millicom is excellent. We have just started harvesting the results of substantial and continuing increase in our investments in existing markets resulting in a record pro forma revenue and EBITDA growth in the fourth quarter of 2005. Our experience of Latin America in 2005 has taught us that at this stage increased investments in CapEx leads to strong revenue growth combined with good profitability.

We are continuing investing in Latin America, but have decided to increase substantially our CapEx in Africa and Asia. Although we saw the start of a positive impact in 2005 we expect that the real impact will only be seen in 2006 and 2007 and will be felt for many years thereafter.

As David also mentioned we expect that the CapEx to sales ratio to reduce year-on-year post 2006. Increased CapEx is of course a component with the introduction of the Tigo brand across our markets first in Africa and later in Asia.

Tigo stands for a price leading product customer friendly brands which exploits our tried and tested mass distribution and low-cost model. The combination of Tigo and increased CapEx has allowed us to grow both readily with an EBITDA in Latin America where we were 50% in Q4, 2005.

We hope to be able to deliver strong growth in Africa and Asia using the same ingredients. At last, at least one operation has taken a head start. Tigo and Sharp set a new record for companies with similar population as Millicom by adding over 90,000 subscribers in less than three months in the fourth quarter of 2005.

This concludes my comments and we will now be happy to take your questions. Operator, may I have the first question please?

Thank you sir. [OPERATOR INSTRUCTIONS]. We will take our first question from Lena Osterberg with Enskilda Securities. Please go ahead.

Yes, hello. Just two questions, first of all I would like to get some more clarity on the CapEx split of the CapEx in the fourth quarter, which regions it concerns. And then also I'm wondering, you say that the margins in Africa were lower this quarter due to launch costs in Chad and also Congo. But my understanding was previously that Congo was not due to be launched until at the end -- earliest at the end of Q1, maybe Q2?

Okay, for the CapEx split, we don't give a detailed CapEx split, but clearly in the fourth quarter a lot of money, because of the accelerated growth we saw, was spent in Latin America, especially Central America, that was a big one. Of course we also continued to build out of our networks in Pakistan with Paktel, so that was a big one. And also that we have started on spending money in Africa although the bulk still has to come in Africa in 2006.

In terms of the margin in Africa, indeed the real growth in DRC will only start from the middle of this year, but we have an ongoing operation, very small one, no economies of scale which means that there is no positive EBITDA contribution there and that of course weighted for the first time on the fourth quarter results last year. But of course the start-up of Chad.

Thank you.

We will take our next question from Adrian Dawes with J M Hartwell. Please go ahead.

John Miller actually. Can you go through what your goals for the year are and secondly could you give us a little more color on both Vietnam and Iran?

Well the goals for the year are that we are going to continue this increasing revenue and EBITDA growth and I'm very positive. And as I said on the call we started the year very well with very strong subscriber numbers in January, but also revenues and EBITDA came out very strong.

So it looks like 2006 could be a very strong year for us and that is driven by this increased CapEx. We learned one thing last year with Latin America if you spend the money wisely you can get fantastic top-line growth and also good profitability.

In terms of Vietnam we continue to be in talks with the Government. We are awaiting signals from the Government as to when they will start the privatization process for the telecommunications sector. As some of you know Vietnam did not join the W20 last year as we had hoped that they would have joined it in 2005, so hopefully it's going to happen in 2006 because that will then put pressure on the privatization of the telecommunications industry. But we remain positive about the ongoing negotiations.

In Iran not much has happened. I think the network size and the number of subscribers stayed more or less the same. I think that there was a positive, I would say feeling vis a vis foreign investment in the telecommunications industry which I hope will lead, at a certain point in time, of us exercising our options. I think some progress is being made in the interconnect issue which is an issue that needs to be resolved before we can exercise our option in that country.

Marc, could you be a little more specific because historically you have said you expected to have 50% EBITDA margins continuing except for what was going on in Pakistan. Can you tell us when you might be back there at that level? And secondly given the CapEx growth that you've have had it's very -- it's more difficult to visualize exactly how much revenue per unit of CapEx you get. So do we have a new benchmark for revenue growth now rather than the traditional 20 to 25%?

First of all on the 50% EBITDA, the 50% EBITDA margin we had at a time when we still had our Vietnam operation which as you know was operating at a 60%-plus EBITDA margin at times. That business is no longer there so we now of course still have a number of businesses that operate at an EBITDA margin over 50%. Principally Central America, the region that is there, Central America -- South America is increasing.

Africa, the bulk of the African countries operate at over 50%, but of course the start-up eats into the existing margin. So I think we're going to take a few years in order to get back there because we expect that the EBITDA margin is going to be depressed as a result of the continued efforts in Pakistan. And also Congo is a big country, it will take us a few years before we will see a big EBITDA contribution there.

The second question, in terms of where is this increased CapEx going to lead to, what kind of revenue numbers are we going to be producing? What I see is that we have been now three quarters in a row, or we have produced three quarters in a row pro forma revenue growth of over 30%, so that 20% you were talking about [Bill], that looks like it’s history. So it looks like 30% is the benchmark now and I think that it's a number, based on what I saw in the first month of this year, I think it's an achievable target.

It sounds terrific, congratulations.

Thank you Bill.

Our next question will come from Andreas Ekstrom with Handelsbanken. Please go ahead.

Thank you. Two short questions. One, Marc, is regarding Pakistan. Can you describe the competitive environment there in the fourth quarter? You stated it has been competitive, but it has been that throughout the year or is that something that has accelerated during Q4?

No, I don’t think there has been a change in the competitive environment in Q4, but it remains a competitive environment. That means subscriber acquisition cost is high, tariffs are very low and churn is very high. So that of course comes at a cost for any company operating in that country. But there's not been a major change from the previous quarters.

Okay. Secondly, when you will roll out the Tigo brand in Africa which has been a big success for you in Central America? What is the synergies in this because I assume that one of the synergies in Central America is that those countries are close to each other and you're going to get some brand recognition between the countries. But you have a quite scattered footprint in Africa.

Yes, but clearly this roaming traffic now which we have in Central America between the three countries we're not going to have in Africa, or to a much lesser extent. I think the synergies between Africa and Latin America in the first place, and then amongst the African market is just, we have developed a very successful concept which we call the Tigo concept.

We're just copying it into Africa and that's why we bring people from Latin America over to Africa to help the people in Africa to implement that in exactly the same way as it was done in Latin America. And that creates activities in terms of the brand and the merchandizing material you need to produce. Especially in Africa, once you have made your photo shots you can use them across Africa.

There are a lot of other materials we can use across Africa, but more importantly now we have one strategy, one concept, we're using the same technology across all of our operations and that of course does create a lot of synergies in terms of procurements of networks, billing systems, [B-pager] systems, IM platforms, all of those things. So there are synergies, definitely.

I think you delivered a 43% EBITDA margin in Africa. Do you think it’s reasonable to believe 50% in a couple of years’ time when Congo etc becomes breakeven or is that unrealistic to believe?

I think if you were to split Congo and Chad out we would be at 50% today because of the big countries performing very strongly. And even Chad, as I said earlier, these guys are setting new records. I can tell you, not only in terms of revenue growth, but also the outlook for producing EBITDA looks very good there.

So our business concept with this pre-paid model allows us to make not only faster, or deliver fast growth from a subscriber point of view, but also have fairly short paybacks for the smaller businesses. And to have very quickly the profitability at EBITDA levels as we will prove again in Chad. DFC will take a little bit more time given the size of the country of course.

Okay, thanks a lot, thanks.

Thanks Andreas.

We will now move to Stephen [Meet] with Anchor Capital Advisors. Please go ahead.

Yes, Marc --.

Hello.

Can you talk a little bit about how the review of the value of the company in relationship to the potential buyout? How that affects the way you look at potential investments and just your whole planning process?

Well, the simple answer is it doesn't. So for us it's business as usual. This increased CapEx that was something that was decided in 2005, so we're just executing on a plan that was decided way before we went into a strategic review. So for us it's business as usual and we think that we will be able to deliver great results in the year 2006 despite the fact that the strategic review is ongoing.

And what would be the timing of when something more definitive would be released?

You need to give us a couple of months. A strategic review, the word here is strategic, you don't do that overnight so you need to give us some time and then we will report to the market when there is news. But we don't want to rush, we want to take our time there.

And just one other question, in Pakistan how would one value Pakcom at this point?

Well we have, as you know, we have truly written off Pakcom in our books. We've now also written off the debt in the books of Pakcom so for us the value for Pakcom is zero. So we are, as we said previously, ready to sell the company for that symbolic dollar.

From Credit Agricole Indosuez Cheuvreux, we will now move to Peter Nielsen. Please go ahead.

Thank you, Peter Nielsen from Cheuvreux, a couple of questions please. Firstly, customer intake has clearly taken a step upwards in Q4 to the 1m mark. Is that a level we should expect going forward?

Second question, I'd like to return to the CapEx guidance for '06 or rather beyond '06. Should we -- I appreciate you just raised your guidance, so there may be some fluctuations here, but should we expect the CapEx to remain at the $500m level post '06 or either direction, upwards or downwards, any indication would be appreciated.

And thirdly, I appreciated David's comments on the ARPU trends we are seeing from new customers. Is it possible to be a bit more specific and run through the individual regions, what you've actually seen in terms of ARPU developments in Q4? Thank you.

So starting with the subscriber intake, subscriber intake was very high and you know the fourth quarter had some seasonality because of the year-end promotions, especially in Latin America. But what we saw in January was very, very strong subscriber intake. So I would expect that that 1m level of new subscribers, we're going to be able to deliver on that one going forward and probably even higher than that.

The CapEx, beyond 2006, clearly 2006 as far as we know today based on the operations we own today it's going to be the highest ever it would in Millicom. As I've said on the call we expect that the CapEx to sales ratio will start coming down from the year 2007. We are making, in 2006, major investments in countries like Pakistan, Congo. So two major countries from a population point of view. We think that those investments in the year 2007 and later will come down and that will improve the sales to -- or CapEx to sales ratio.

Having said that we clearly are in a phase now where we see great opportunities in emerging markets. So if I were to increase that CapEx number in 2007 from 2006 I would be a very happy man.

The ARPUs, David, do you want to answer that one?

Sure, as you mentioned, ARPUs for existing customers we have obviously good news there. As I mentioned the price elasticity tends to keep those ARPUs constant or slightly growing. And then obviously as we grow our businesses and we get further into the population and we bring our new customers that can tend to bring the ARPUs down a little. But overall the ARPUs are holding quite well for us.

That's very helpful thank you.

You're welcome.

We will now take our next question from Willem Kajek with Kepler Equities. Please go ahead.

Yes, hello good afternoon. Marc, good -- congratulations by the way with the top line and EBITDA but to be fair less so on the real, real bottom line. I've got several questions. First, on this strategic etc plan, Morgan Stanley, what to do. What’s so far been there, because we've been in Central America last year? What is so far the attitude of the management of the individual subsidiaries because what I recognize is they were extremely loyal and extremely proud to work for Millicom etc so how are they reacting on this? This is my first question by the way.

They're still very loyal and they are extremely happy with the performance of the business and I personally congratulate them on the performances of the businesses in the year 2005.

So we haven't seen any change in attitudes as a result of this strategic review. We don't know what the outcome of the strategic review is going to be so we therefore just continue to run the business as before and surprise the market with even better results the following time or the next time we report to the market.

So no change, business as usual there.

Okay, then some financial questions. You earlier indicated to another question that basically you've written down Pakcom to zero. Is that now true, because you've got still $250m on the left side, assets for sale for $250m so I'm for myself wondering, doesn't it assume that basically you can hand back the license for free and so that you're also not supposed to pay future license payments? So that's one question.

Secondly, because we've seen a lot of write-downs, how many write-downs are still to come in the non-GSM networks, the exact size?

And then lastly, in the strategic review, is Iran -- because of now all the focus on Iran, is that an issue or [had to] consider a complete sale to one particular party?

And then my last question is what's -- because you are dumping a lot of money into Congo, Chad is very successful. What exactly is the new launch date of the Tigo brand in Congo, is that going to be May, June?

Okay, that's a long list of questions so starting with Pakcom so -- yes, so why don't you start with that David, yes.

Yes, Will, well obviously Pakcom has a license active there and a corresponding license payable because that payable is payable over time. While Pakistan is obviously a very competitive environment we still believe those license has value so certainly we could either do something with that license or either it gets handed back, so --.

But is it true that Millicom has communicated you've received already several bids for more than the token payment, the $1 plus taking on the debt, is that true?

We don't comment on that.

Okay.

So we will communicate with the market once we have the deal.

Okay and then the future write-downs?

Okay, in --.

Maximum?

Pardon?

The maximum, future, if possible. What's still may have to be done?

In terms of non-GSM assets, as I mentioned previously we've accelerated the depreciation. Most of those will be written of either in 2006 or 2007, that the depreciation will end. So obviously we've done that so we don't have to take any further write-downs on that equipment so I am not expecting any write-downs. It would just --.

So that’s done.

Yes, absolutely.

Okay, thanks.

You do depreciation.

Okay, and then on the strategic review Willem, the Iran issue -- Iran is not an issue for us. Iran is part of an asset we have and so that is fully included in the strategic review.

In terms of the launch of Tigo in Congo we're looking at the middle of this year.

Okay, great, Marc, David, success.

Good, thanks, bye.

We will now move to Kevin Rowe with Rowe Equity Research. Please go ahead.

Thanks, nice quarter gentlemen.

Thank you Kevin.

On Pakistan, given recent trends, you mentioned a US$5 ARPU, where do you hope that ARPU or expect it to stabilize?

Given that we will be focusing on the revenue generating customers I would hope that we can keep that ARPU around the $5 mark. At this point in time I think the network we have in Pakistan I think doesn't really allow us to take full upside of the traffic that is in the market. So I think once we will have improved that part of the equation then I think we will be able to increase our subscriber intake with an ARPU of round about $5.

Okay, and turning to CapEx, the 50% increase that you're guiding, 50%-plus increase for '06 versus '05. Obviously that’s not an apples-to-apples comparison because of Congo. And in my understanding Congo could be north of 100m. Could you give us a sense of what sort of apples-to-apples CapEx increase could be or maybe give us a sense of what stand-alone Congo CapEx would be?

What I've said is that Congo -- what I said previously is that Congo will be around $150m over the next -- over this year and next year and that it will be kind of front-loaded so you should view it as about $100m of CapEx that will be spent in Congo this year.

So that would still mean there is going to be a substantial increase in the CapEx for 2006 compared to last year.

Right, and does your CapEx, '06 estimate, that does not include license fees, correct? Is that around $50m?

License fees, but there is no new licenses coming in there so the license fees are primarily the one in Pakistan which comes at a cost of $50m a year, yes, for the two. So if we sell one of them that cost would go down by 50% of course.

So when you run through the calculation for equity free cash flow generation it looks like given these numbers that you will be in a cash burn situation in '06 versus your cash generating position in '05 is that --?

That's correct, but that’s what the market has been asking for. They've been asking me to spend some of the cash that has been sitting on my bank account in order to improve the return on that cash.

Right, very good. Thanks guys.

Thank you Kevin.

You're welcome.

[OPERATOR INSTRUCTIONS]. We will now move to our next question from Betty Chan with Credit Suisse. Please go ahead.

Yes, hello. Can you give us any update on the strategic review process? Have you signed any confidentiality agreement and is there a deadline for final bids?

I'll have to disappoint you Betty, I won't be able to give you any more color on that process than what I've just said. You need to give us some time to go through that process, it's a very important process for the Company. That means that we will take some time to do that and as soon as we have come to some conclusions we will report back to the market.

Okay, thank you.

Thank you.

Our next question comes from Adrian Dawes with J M Hartwell. Please go ahead.

Marc, if you were looking at some of the minority interest that you may have to buy, could you give us some idea of what you think the multiples now are for emerging market EBITDA, let’s say, and whether because these are minority interests you could get them for a lot less and let the -- what kind of activity you're generating obviously did something very interesting in Africa. Are there other places that this could be done and could you give us an idea of what the emerging markets multiples would be versus perhaps what you might have to pay?

As you know [Bill] we have traditionally been able to buy minority shareholdings below -- the multiples in the market, because the minority shareholders, as I've said, have minority holdings, so they come at a discount. And they suffer from liquidity issues having said that we are still looking at some more buyouts. We still have a number of joint ventures and also subsidiaries with minority shareholders so I hope that I will be able to deliver a few more in the weeks to come.

Great, that sounds terrific. So is there still a tremendous price gap in terms of EBITDA, is one selling at -- is the public market 10 and the private market 2 or even less, or can you give us an idea of that or --?

If you don't mind [Bill], I'll pass on that one. So --.

I'm sorry to hear you say that.

Yes, but as you know the concept is that we are always looking at lower multiples than what is listed in the market. That has been our concept for the last couple of years.

The other question Marc is, if you look -- historically you've been able to turn 25 to 35% on your CapEx. Is that still a goal you have or is that achievable or is it because of the start-up nature of some of the operations you have now, is that less realistic?

You will clearly have some that -- this, you know, when we have major start-ups that will depress the returns a little bit. But within the year or two years we will be back up to the 20, 25% returns on the investment across Millicom. So that is a target for us and we will stick to that because we're not only interested in high growth but we're also interested in high profitability.

Thanks very much.

Our next question comes from Ama [Narami] from Lazard. Please go ahead.

Congratulations to you for a great performance in the last quarter. I have two questions. Number one is what is the scope of this strategic review and I’m not just referring to the progress, but to the scope of this strategic review? And the second question is on the cash available in MIC in the whole Company. From the way this operating company is, are there any restrictions for up streaming of cash from operating companies into whole Company, either by lenders or by the regulators.

The scope of the strategic as you know, the strategic review started when we had unsolicited approaches from a number of players from across the world. Which made the Board of Directors decide, given their fiduciary responsibility vis a vis the shareholders to hire Morgan Stanley to do – or to advise them on this strategic review. So this concerns the entire company and so that is the scope of the review.

In terms of the cash there are no restrictions on us up streaming cash from our operating companies. We have been doing this now for years in a row. The numbers keep on getting better and better and that is the best proof that there are no restrictions in the market where we are currently operating, to upstream cash when there are cash surpluses in those businesses.

The regulators, first of all, have no say into that because the regulators are Telecom regulators, are not financial regulators. And we typically, when we make the investments, make sure that all these investments are properly registered so when the time comes to repatriate the funds we can do so.

Okay, thank you.

Thank you.

Our next question will come from Walter Piecyk with Paly Research. Please go ahead.

Thanks, just two very simple questions on the quarter. When you talked about on a pro forma basis, usage, basically being minutes of use being up around the same amount as the subscribers. Is that the case across all of your markets or are some markets contributing more than others as far as the overall average usage on a per-customer basis?

And then I just noticed you don't give a churn rate in your reported numbers. Can you give a sense of kind of how your churn rate has changed over the past year one way or another? Thanks.

Our churn rate hasn't changed given that this is small, it's still the same and of course there are regions that are -- have higher ARPUs and regions that have lower ARPUs. That has to do with GDP per capita, that has to do with tariffs, some countries have higher minutes of use others have lower. But what is important is that of course the growth has been coming from a number of regions within Millicom, Latin America, especially Central America, has really with the highest growth, Africa was very strong. And we hope that with the initial investments we are making in South Asia for instance that's -- we're going to also see higher revenue growth in that part of the world going forward together with the sustainable growth in Latin America and Africa.

So -- but there are differences between the different markets and I don't think it's the appropriate time now to really take you through all of the different churn levels and stuff like that in this --.

I didn't ask for specifics, I asked more generally and the reason I ask is because the American mobiles markets it seems like they're seeing a contraction in the average minutes of use. So it was a little surprising to see your average usage -- excuse me, your overall usage matching your subscriber growth which shows that you're really sustaining -- in your prepared comments you talked about the fact that as you were cutting rates you were seeing some usage being stimulated.

That's just atypical from what we're seeing in Latin America so I'm just trying to understand is that because there is usage growth on an average customer basis in other parts of the world where you offer service? Again I'm not asking specifics I'm just saying generally?

Yes, but coming back to Latin America we said in previous calls that we saw ARPUs going up in Central America as a result of the network builds and the Tigo concepts. So clearly our business concept is a very successful one which allows us to combine high or increases in mobile penetration and subscriber growth combined with very good minutes of use and good ARPUs.

And that brings me to the overall question is that -- the overall issue is that our businesses is smaller, the business model as David explained is based on lowering the cost of the service to customers, make sure that the services are accessible and that they are available and the availability -- the availability is key, that we continue to grow our network.

And the combination of those three factors, the three A's if you want, leads to ARPUs that are stable in an environment where tariffs continue to come down means that the minutes of use are higher so that there is elasticity in the market, price elasticity in the markets where we are.

On top of that, let’s not forget that in the markets where we are [6/5] penetration is almost absent. So that people if they want to go into the telecommunications industry market, they will have to go mobile. So they will have to start using one of our networks.

All these things combined means that there is minutes growth and subscriber growth that is more or less in line, that's the beauty of our business model which might be different from the business model some of our competitors are using. Our business model is a business model based on minutes of use, others have more business models that are based on phone subsidies, post dates, plans and stuff like that. We think that those are old-fashioned plans and that people should really focus on the recurring part of the business and that is selling minutes.

So you don't subsidize your phones at all in any of your markets?

For post-paid subscribers we will do that, but that is as you've heard before that is 6% of our overall customer base today. But our pre-paid model does not provide for phone subsidies, we are selling minutes. And we are selling minutes to hundreds of thousands of points of sales across the world.

Are you selling SIM cards directly to the customers or do you actually sell phones that are basically just -- at a zero subsidy?

We're selling SIM card to dealers, hundreds of thousands of dealers and they then sell the SIM cards as part of -- together with the phone to the customer.

So you're going to pay a subsidy or excuse me, you're going to pay a commission on the SIM card that a dealer activates, right?

Of course, we need to create an incentive for a dealer to sell your product, yes. So we --.

And then that, and then theoretically that dealer is just using that commission to subsidize the handset to the end user?

Could be, could not be, depends on the market.

Okay, thank you.

Okay, thank you.

[OPERATOR INSTRUCTIONS].

Do you have any more questions, Operator?

Gentlemen, as there are no further questions I would like to turn the conference back over to you for any additional remarks.

Thank you Operator. Once again I would like to thank everybody for participating in today's call. I would like to remind you that we are holding a morning presentation for analysts and investors on Monday, February 20 in Stockholm. David and I will be joined by Mikael Grahne, our Chief Operating Officer, and Mario [Zenotti] and Ian Williams who are respectively cluster managers for Central America and Africa, at that event.

If you would like to attend please contact [Tara Nickels] at Shared Value on +44-207-321-5010 for the details.

If there are any further issues you would wish to discuss I would be happy to deal with those on a one-to-one basis. If you wish to contact us directly or alternatively you can call Shared Value at +44-207-321-5010. Thank you very much and have a good day. Goodbye.

Ladies and gentlemen, this will conclude today's Millicom's 2005 Fourth Quarter and Full Year Results Conference Call. Thank you for your participation, you may now disconnect.