Millicom International Cellular SA (TIGO) 2006 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to today’s Millicom 2006 second quarter results conference call. For your information this conference is being recorded. 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 host of today’s conference, Mr. Marc Beuls, President and CEO and Mr. David Sach, CFO. Please go ahead.

Thank you operator, and welcome to everyone who has joined us today. For this call both David and I will be using slides to run you through the results. It will be helpful to have those slides in front of you. And you can find them all on our website, www.millicom.com. We will both be happy to answer any questions you have at the end. But first, I would like to give you an overview of the results and run you through the performance of each cluster.

So, please turn to slide number two, which summarizes the results for the second quarter. You will see that Millicom has again delivered exceptional underlying growth. Pro forma subscribers were up 62%, revenues were up 54% and EBITDA up by 53%. The pro forma numbers now also exclude Pakcom, our TDMA operation in Pakistan, which we have sold to the Arfeen Group.

But more encouraging, Millicom [inaudible] was able to increase its CapEx for $43m in Q2 last year to $146m in Q2 this year. As you know, CapEx is a major contributor to future growth for us. Millicom is already reaping the benefits of past investment in its networks and distribution, particularly in Latin America. And therefore we are trying to accelerate our CapEx spending wherever possible, especially in Africa and in South Asia.

We believe that the investments that we are currently making in Ghana, Tanzania, Senegal, Congo, Pakistan, Sri Lanka and elsewhere in Africa and Asia will help drive similar if not higher levels of growth, to the currently being seen in Latin America. In 2006, we are likely to exceed $600m of CapEx.

Further more, we are now rolling out the Tigo brand across Africa. Senegal, Ghana, Tanzania, Chad and Sierra Leone have already launched Tigo. Our customer focus businessh interest model, based on affordable, accessible and available services represented by the Tigo brand, will be launched later this year in more countries in Africa and in our South Asian operations.

It is worth spending perhaps a couple of minutes discussing the Tigo brand and the values that this brand has come to represent in Latin America. We will see in the [young and lively] image that the Tigo represents on our website and ourl report. But today, Tigo is associated with more [inaudible]. Firstly, its affordable to our highly competitive offerings, to the distribution networks it’s the most expensive in our markets. as we try to make services accessible to customers added to easy access to buying scratch cards or by our newly, highly adaptable [e-pen] which allows customers to top-up over the air.

Lastly, it’s important that users can pick up a strong signal, so that the service is available as much as possible. Tigo is also seeing an interesting increase in value added services. The star in the class is our Paraguayan operation, which today has 20% of its revenues from value added services, such as text messaging, ring-back tones etc. The potential is there for our other companies to replicate this success. And we will be pushing them to do so.

What is clear that, is that the Tigo approach has been a cornerstone of our success in Latin America and we will now utilize the success of this constant in Africa and Asia. I am sure that you will have noticed the first results in Africa this year.

For those of you who want to witness the success of Tigo in Africa, we are planning an analyst and investor trip to Ghana and Senegal during the week of November 20. When we will be able to show how well these businesses are developing. More information regarding the trip will be given in due course.

Since the year end, we have completed the buy-out of our minority partners in Tanzania, Sierra Leon, Ghana, Senegal and Paraguay. And we now have 100% ownership in all of these operations.

We have also sold our loss making Pakcom operation, and in all of 2006 we will be repaying the mandatory exchangeable notes linked to the Tele2 shares that we hold. These two actions will eliminate the $600m of debt from the balance sheet and eliminate almost $40m of annual interest expense. In addition $60m of annual amortization on the Pakcom liscense will be removed.

Lets move to slide number three. Since Q2 2005, Millicom has grown by over 50% year-on-year in five consecutive quarters. And that’s -- as of today has over 11m subscribers. This indicates that Millicom’s businesses are now well into the accelerated J-curve of emerging market growth. We’ve managed to sustain a higher rate of growth in Latin America, by increased CapEx in the network, while at the same time improving distribution and launching the Tigo brand. In Q2 Central America grew by 77% year-on-year and South America by 62%.

Africa today is the fastest growing region accelerating by 89% in Q2, which gives us confidence that we will be able to capitalize on the growth potential in Africa in the same way that we have across in Latin America. However, in Africa the population under license is far larger and so the long-term potential is even greater.

As we announced earlier this month, Millicom added 1.4m total performance subscribers in the second quarter, bringing the total to 10.9m at the end of June, representing a 62% increase over the second quarter 2005 on a pro forma basis. Attributable cellular subscribers increased by 49% from the second quarter of 2005 to 9.3m at the end of June, or by 61% on a pro forma basis.

Let’s move to pro forma revenue growth on slide number four. Slide number four shows that revenue growth continues to accelerate on the back of strong subscriber growth, a dynamic that you would expect to see. The strong subscriber growth translated in the highest quarterly pro forma revenue ever for Millicom of $356m for Q2, an increase of 54% from the second quarter of 2005.

In Central America, where penetration is higher and networks are more developed, pro forma revenue grew by 71% in Q2. It’s extremely strong, the highest quarterly year-on-year growth was again recorded in Honduras with revenues up by 113%, followed by 93% for Guatemala. Furthermore, revenue is also over 50% in South America -- revenue growth is also over 50% in South America and Africa.

Let’s look at the pro forma EBITDA growth on slide number five, where you will see that pro forma EBITDA for the three months and at June 30 2006 was $156m. A 53% increase from the second quarter of 2005. Millicom’s pro forma EBITDA margin was 44%.

Of the last couple of quarters, Millicom consolidated EBITDA margin has been impacted by Paktel investing in its new GSM business and by start-up costs which [chart and DRC]. Our first priority today is growing a stock line and taking advantage of the opportunities in its markets while remaining focused on profitability.

Lets now look at the results for each cluster, starting with Central America, which remains our largest cluster in terms of revenue and EBITDA. And on slide six you can see that the total subscribers reached 3.6m, up 77%. Quarter year-on-year pro forma revenue growth in Central America was 71% to $181m for the second quarter of 2006. Pro forma EBITDA for Central America increased by 75% to $94m for the second quarter of 2006 and the EBITDA margin was 52%.

The key driver of this growth has of course been the success of our Tigo brand. And its effects can also be seen in the South America cluster, which you will see on slide number seven. Where you see that the subscriber group has 62% in South America to reach 1.7m at the end of June.

Revenues for Q2 grew by 54%, to $51m [inaudible] Q2 2005. And Bolivia and Paraguay produced revenue increases of 34 and 67% respectively over the same period. EBITDA increased by 62% on the quarterly year-on-year basis to $22m. EBITA margin was 44%.

Turning to slide number eight, you’ll see that in our African clusters, subscriber additions since the end of the second quarter of 2005 were almost 1.3m, including our new operations in Chad and Democratic Republic of Congo, which is the fastest subscriber growth in Millicom. These additions resulted in an 89% increase in subscribers to 2.7m at the end of Q2 2006.

The subscriber growth contributed to a year-on-year increase in quarterly revenues of 52% to $73m and despite the heavy start-up costs of building out the network in Congo, a 23% increase in EBITA to $29m representing an EBITDA margin of 40%.

Looking at slide nine, performance subscribers in South Asia increased by 26% from the first quarter of the year to 1.9m, as a result of our decision to sell Pakcom. Pro forma revenue was $24m for the second quarter, up slightly from Q1, but revenues for Paktel were affected by network interference issues and up 11% from Q2 2005 on a pro forma basis. Pro forma EBITDA was $1m and EBITDA margin was 6%.

[Revenues] in South Asia have been under pressure as a result of the lower sales by Pakcom, following our decision to sell the business and focus solely on Paktel, our GSM operation. The sale was agreed in Q1 and was completed at the end of June 2006.

Paktel is a very competitive market but we are in the process of resolving the network interference issues that affected Paktel. And our plan for Paktel is to continue to increase the quality of the network and focus on revenue-generating subscribers. Our target is for Paktel to relaunch the business later this year on the back of substantially improved network.

In February our operations in Sri Lanka had its license renewed until 2018. The Sri Lankan operation continues to perform well and despite some of the lowest ARPUs in the Group, has produced an EBITDA margin of 51% for the second quarter. Demonstrating that our low cost operating model is a success, even when we’ve penetrated the poorest regions of our markets and ARPUs decline. We are investing heavily in both these South Asian operations, and expect to see the first results of these -- of this investment in Q4 of this year.

Turning to slide 10. Subscribers in South Asia for Cambodia and Laos increased by 35% from the second quarter of 2005 to over 994,000 at the end of June 2006. Revenues for South Asia was $26m for the second quarter, up 22% on a pro forma basis from Q2 2005. And EBITDA was approximately $9m, up 19% on a pro forma basis.

Now I would like to hand over to David to talk you through the financials. So please David.

Thank you Marc. Now that Marc has walked you through the operating results, I would like to focus on the financial performance. Please turn to slide 11, where you will see the key pro forma financial ratios for the second quarter compared to the same period last year. Overall the EBITDA margin has remained constant at 44% but has been impacted by the following factors.

Gross margin has slightly improved due to varying factors, but I will focus on two key reasons. Firstly there has been a change in the geographical mix of gross margin, with the Central American businesses contributing a greater share of total gross margin. On average the Central American businesses have the highest gross margins.

Secondly, as we grow our businesses a greater percentage of the total calls and therefore minutes are on-net calls. Meaning these are the calls between subscribers that are both on our network. We do not pay any interconnect fees for theses calls, so they have a higher gross margin.

Offsetting the higher gross margin are higher sales and marketing costs as a percentage of sales. The higher percentage is across most operations but notably from the increased marketing to promote the new Tigo rollouts throughout Africa and to promote the new network rollout in Pakistan.

On slide 12 you can see the evolution of the EBITDA margins for the past six quarters. The composition of quarterly revenues shows that EBITDA margins continue to be stable in the mid forties, as costs have been kept under control and the individual captions - general administrative costs, sales and marketing and costs of sales - have not increased as a percentage of total revenues.

Please turn to slide 13. In 2005, the average level of CapEx was $88m per quarter. In the first quarter of 2006, CapEx spend was $95m and in the second quarter it rose to $146m. Millicom has been substantially expanding its CapEx program and has invested $241m already in the first half of the year. This investment feeds through into greater subscriber growth. And it is the investments in 2005 that are driving today’s results. Consequently it is today’s substantial investments that will fuel future performance.

At the start of the year we had expected to invest over $500m in 2006. But given the current rate of spend and the significant CapEx of over $100m to be incurred in the Congo from the build up of the new network, we expect to invest over $600m for the full year. There was minimal CapEx recorded in the Congo in the first half because it is a turnkey solution with a single vendor and we do not take [idle] to the equipment until the network is activated.

We still expect 2006 to be Millicom’s peak year of investment and after that, we expect to see CapEx fall as a percentage of revenue. Although 2007 will be another year of high absolute CapEX spend.

Turning to the bottom half of the profit and loss, where I believe that it is most relevant to present the first half results verses the prior year. On slide 14 you will see that there have been several factors impacting that income.

Firstly, net income was adversely impacted by higher corporate and stock compensation costs of £12m. Corporate costs in the first half include $5m of one-off costs associated with the strategic review. This review is over, and there should be no further costs in the second half.

Stock compensation costs have risen by $5m following the approval of changes to the incentive plans at the AGM reflecting the accelerated vesting of director’s stock options, the 2005 restricted share awards of the directors and management, and the costs of the new long-term incentive performance scheme for management.

Secondly, net income benefited from lower depreciation of 15m as a result of the end of the Vietnamese BCC. Millicom was required to fund the CapEx spend under BCC and therefore CapEx and the related depreciation were relatively high.

Turning to slide 15. A third factor, benefiting net income are the lower write downs of $38m. As mentioned in previous calls, 2005 included many one-off write-downs that have not been repeated. The $10m gain in the first half of 2006 represents the reversal of the current year losses of Pakcom. Since the deal was not closed until the end of June 2006, we continued to record losses for Pakcom but were able to reverse these losses as a write-back, since the purchase price had been agreed with the purchaser last year.

Referring to slide 16. Other factors benefiting net income, were the gain on sale of Millicom’s U.S. investments of $4m. And the lower negative net impact from the revaluation of the Tele2 shares and related exchangeable debt of roughly $7m. Moving forward, we expect significantly less one-off items.

Slide 17 shows that the blended tax rate for the operating companies continues to fall and is now at 27%. This is primarily due to a change in the mix of profits before tax. A greater percentage of our profits are now in countries with lower tax rates, which reduces the overall effective rate.

More importantly though, our overall Group tax rate has fallen dramatically from 127% to 41%. This is obviously due to the higher profits before tax generated by the operating companies. But it is also due to the actions we are taking to better manage our tax position. As mentioned on previous calls, we are taking steps to increase the management and brand fees that companies pay to corporate, especially now that Tigo has been rolled out in several more countries.

This creates additional tax deductions in the operating companies but it does not create taxable income at corporate because of the corporate costs. As such, our overall Group effective tax rate is lowered. As you can see the net non-deductable costs in corporate are falling as a result of these tax-planning actions.

As our operating companies become even more profitable we will be able to transfer even more income to corporate, but are unlikely to fully offset the corporate costs until 2008 when the 10% bonds can be refinanced with local company debt. By then, all other things being equal, we might be able to get the overall Group tax rate close to or below 30%.

Slide 18 shows that despite a significant step-up investment with $336m invested in the first half, there is still a strong ending cash position at $507m. Millicom’s model of pre-pay services continues to benefit our cash flow position since, unlike most companies, our operating cash flow is in excess of EBITDA, as we get our money paid up front. This dynamic will likely continue for as long as we are able to grow the business. The strong operating cash flows and closing bank balance put us in an extremely strong position to continue investing in the business on an ongoing basis.

Slide 19 shows that the two main areas in investment in the first half were CapEx and acquisitions. The acquisitions are attributable to the buyouts of minority interests. In the first half we have paid for minority stakes in Senegal, Tanzania and Sierra Leone. Buying out minority stakes in business that we control, allows us to acquire established cash flows and we will continue to look for opportunities to make such buyouts.

Thank you. Now I will hand you back to Marc. Marc?

Thank you David. Underlying pro forma revenues for the second quarter grew by 54% to $356m, which is an outstanding performance, undoubtedly so, it was matched by pro forma EBITDA growth of 53% to $156m. Primary drivers of this growth have been 71% increase in revenues in Central America, a 54% increase in South America, a 52% increase in Africa. Pro forma EBITDA margins were 52% in Central America, 44% in South America and currently 54% in Africa, despite the heavy start-up costs and building up the new network in Congo.

In Q1, we started -- we stated that our 2006 CapEx target would exceed $500m for the year. At the half year we have already invested $241m, which does not include over $100m of investment to be made in the bill -- in the building out the new network in Congo during the second half.

We also relaunched Paktel in Pakistan, our most populated market in the second half. We are therefore now, likely to exceed $660m CapEx for the year, which would further enhance our growth prospects.

So in short I would like to say that the outlook for Millicom, now is very strong. This concludes my comments and we will now be happy to take your questions. So operator may I have the first question please?

Thank you sir. [OPERATOR INSTRUCTIONS]. We will pause for just a moment to assemble the queue. And we take our first question from Lena Osterberg from Enskilda. Please go ahead.

Yes hello, I have two questions. First of all, you mentioned that already in this quarter there are significant launch costs associated with Congo. I was wondering if you could specify how much those are and also if you could give an indication of how much they will increase in the following quarters, when you actually start building the network? And then, when you plan to launch, how much will it step up?

And then the second question related to Pakistan, where I guess the margin is a bit of a disappointment. I am just wondering, you had previous set some targets for breakeven for Paktel and also when you expected them to return to Group average margins. What is your current thinking on breakeven for Paktel and for then reaching Group average margins? Thank you.

Okay. So, unfortunately I don’t have a number for you on the ongoing costs in Congo, but as you will understand when you building a network and you have, as in the case with Congo, a very small amount of revenues, that there are significant EBITDA losses there. And so they are there and will be there in the third quarter. And then they will be absorbed by the revenues -- increased revenues we will start seeing from the fourth quarter onwards, because that’s when we expected to launch Tigo in Congo.

So the whole network build out is done under a turnkey project with [Wireway], so we expect that will allow us to switch on in the fourth quarter.

Then of course we will have the marketing startups costs, but we have shown in other markets that we are very careful spending that money and that we get a lot of return for our bucks spent.

In terms of Pakistan, Yes, we have hoped to breakeven from an EBITDA point of view towards the end of this year. I don’t think that that will happen. The network issues, especially in the south and in the Sim province where Karachi is based, which represents about 50% of our market potential were greater then what we anticipated.

We did talk some additional spectrum, 1800 spectrum from the regulator that will allow us to deal with those issues. And we know from the additional spectrum we got in both the north and central regions of Islamabad and Lahore region, that once we fixed those network issues that we see a positive impact on both subscriber intake but also subscriber loyalty, and that of course does get reflected in increases in revenues and stuff like that. That we haven’t seen yet in Karachi but we expect to see that in the fourth quarter. So I would expect that breakeven point will be pushed into 2007.

And we are currently finalizing our re-forecasting and budgets for next year. So we will have a better view in a couple of months when that is going to be.

But I’ve remained optimistic about Pakistan. We have recalibrated our network build-out, we are focusing on the populated areas to make sure that we are providing quality service there and providing a quality service will allow us to get the business subscribers in.

As I said previously, I don’t expect to get to the Millicom average EBITDA margins in Pakistan. So, that statement still stands. Pakistan, given its high license fee, big size of country, low tariffs, low ARPU, will be running at a lower EBITDA margin that the Millicom average.

Just a little bit more on the Congo, its EBITDA losses are a couple of million in the first half, they will step-up though in the second half, as we extend the sales and marketing, ahead of getting in the revenues. But that’s likely to be less than $10m, say.

Okay and so, will that have a major negative impact on the margins in Africa next year as well?

No, I think as I said, we expect the revenues will start coming in in the fourth quarter, so these EBITDA losses which we have now off very, very little revenue, will be absorbed by some higher revenues..

And on top of that there are some other markets in Africa that are still building their EBITDA, like Tanzania also Chad, so they will be increasing their margins. So I think the EBITDA margin in Africa should be at least at a level next year, at the level it is today, maybe even higher.

Okay, thank you.

Thank you our next question is coming from Adrian Dawes from Hartwell Investments. Please go ahead.

Marc, actually its Bill Miller.

Hey Bill

Tell us a little bit about the situation in Vietnam and also the prospects of any further minority purchases as you look out over there, of course for the next 12 months?

Okay, so Vietnam, we -- not much has happened over the last year. And I think we can partly blame that on the fact that there is a new government that has been installed, so that I think it is a difficult lame-duck government situation, which we have seen in other countries.

The government is in place now, we continue to talk to them and the contacts we’ve had over the last month or so, were very positive. They did say that are going to make work of the privatization or equitization as they call it, of the telecoms sector, which I guess is also going to move things at the [Mobiphone VMS] level. As you know, we have-- we consider we have a right of first refusal on that cooperation with VMS. Again, we don’t know what the terms and the conditions are going to be, so that remains a big question mark at this point in time. But we continue to work on it.

Minority interests, we did a lot this year. There are of course more I would like to do, but I am sure that some of our partners will not sell. They are as welcomed of this as we are of the future, of the great future of those businesses. But we will continue talking to those local partners about buying them out. And hopefully we will be able to do more later this year. But there are no guarantees there. But it is part of our plan to increase revenues and to get a better control over the businesses and also to get a better control over the cash flows coming out of the businesses.

Marc, there is also Columbia, [auction or] whatever coming out, can talk a little bit about that?

For Columbia there is no decision taken with the Millicom yet. We are short-listed together with two others by the current shareholders of Columbian Movil or Ola as they are called, their brand name is called. To buy a 50 to one percent ownership in an existing business, the third operator in Columbia. We think Columbia might be a nice addition for us for a number of reasons. First of all, we know Colombia well, we used to operate a business there in one of the regions and at the time we were the number one in the market, and generating a good EBITDA.

Secondly we think with the experience that we have built up in Central American and South America over the last two years, by applying that experience in Columbia, I think we can compete with the two big players in Columbia and gain market share for that business.

So, we have the resources in Latin America to be able to do that. But as I said there is no decision taken with Millicom, we are still looking at the numbers and the plans and then once the decision is taken we will make an offer to the current shareholders of American Movil -- sorry, of Columbian Movil.

Is there a time factor here, what are we looking at, first part of August to have the auction or whatever it is?

I think it’s somewhere in August, but the time schedule there has been a moving target in the past, so we don’t know what the final timing is.

Great, thanks very much.

Thanks Bill.

Thank you, our next question is coming from [Romeo Royers] from [Jeffries]. Please go ahead.

Hello Marc, good afternoon.

Hello Romeo.

How are you? Quick questions, first on the strategic review -- I am surprised nobody’s asked any questions yet. Can you give us a sense of what went wrong there? It seems like the press release indicated that the one party that you had been negotiating with just couldn’t get to the finish line, at least that what was indicated in the press release. You weren’t confident that they were going to get to the finish line.

Can you give us a -- I don’t know if there is anything else that you can say on that -- beyond that, but if you can give us some cover of that that would be very helpful.

And then secondly with respect to Pakistan, the operation that you sold there, did you sell it for basically the liabilities, Marc?

Okay, let me first answer the second part on Pakistan. We sold the business debt free, so we paid off the debts to the banks and so then sold the business for a dollar.

What about the license obligations Marc, those travel.

Obligations have been taken over by the new owners so we didn’t pay anything of the license obligations. So the company was sold with the license obligations and that’s why we no longer going to have this write-down of the license plus this interest costs on the license going forward.

Okay.

So that’s a big saving in -- we are now going forward.

In terms of the interest rate, strategic review, I think you answered the question by asking it. We felt or the Board felt that the party, that they had selected to go into some exclusive negotiations wasn’t going to be able to come forward with an offer that could lead to the sale of the business. And they felt that the best was then given the very strong performance of Millicom, as we’ve seen again today, that the best way forward for the Company was on a standalone basis.

Okay, thank you.

Thank you Romeo.

Thank you, our next question is coming from Anders Svenberg from RAM. Please go ahead.

Hello, congratulations to a good quarter. I wonder if you can help us a little bit further on the [sect 1] Pakcom disappears, both on the depreciations and interest rates.

And also the [sect 1] on the Tele2 convertible disappears in August on interest rates, going forward from Q4, something like that?

I think it is a very good question, because those events are going to have a profound impact on the balance sheet and the P&L, and David will explain you that more in detail.

Sure, between the two of them the exchangeable -- mandatory exchangeable debt and the Pakcom license, there is $40m of interest between the two of them, and $600m of debt that is going to disappear from our balance sheet.

Obviously the Pakcom, those liabilities have already disappeared on the June 30 balance sheet. We will get another $350m off in August. So, they are huge steps forward for us in terms of reducing the interest. And also we get the amortization, as Marc mentioned on the Pakcom license, so we no longer have to amortize that asset. So, there’s additional savings there of almost $16m a year. So --

Sorry, 60m per year?

$16m, so in total $40m of interest savings and $16m of amortization, that’s $56m of net income benefit. And as you know Pakcom was a loss-making operation so a little bit there on the EBITDA as well. So it's going to help our net income considerably.

I would like to point out to those who are not so familiar with the mandatory changeable Tele2 bond is that this will not have a cash impact on Millicom, we will just hand over our -- the Tele2 shares which we own today. We will hand those over to the bond holders. So it is not going to be any cash impact against us paying down that $350m of debt.

If I can follow on a question on Latin America if I may, or specially Central America. You've had a fantastic customer intake and customer intake is actually accelerating. Do you see any signs at all of that maturing or is this level of the total Latin America 650-700,000 net debts, is that what we should assume going forward or was there a special effect resulting in the very, very strong customer intake this quarter?

[Inaudible] there were no one-offs in this quarter. Central America and also now look at South America really continues to surprise us in a positive way and the one thing we keep seeing coming out of Central and South America are increases or demands for high CapEx spend in order to deal with that growth.

I think what we're seeing there is a combination of, of course being first of all the CapEx we spend and the Tigo model. But more and more also the fact that when it moved into the rural areas which has allowed us to go at the completely new markets, as we said on the call, for instance in Paraguay value-added services, 20% of their revenue comes out of value-added services. And on average in Millicom that is a lot lower so that is something we will be pushing this year and next year which should give a continued upside pressure on the revenues in the whole Latin American reason.

So -- but I think the focus we have on the customer, on the triple A, I think that is what is making the difference in Latin America, introduction of things like e-pen, low denomination costs focusing on airtime rather than on handset sales. I think that is what is driving the growth in Central and South America.

So you would expect that to continue for at least the next few quarters?

I'm not saying that we're going to grow in Honduras again at 113% next quarter because the base becomes bigger and bigger. But I remain very confident about the outlook for Central America and also for South America.

Okay, thanks.

[Inaudible] A question for David on the tax rate that is coming down nicely now. When do you think that we can reach the 30 or 35% level on the taxes? Is that something that we could see already in 2007 for the full year do you think?

Sorry, could you ask the question again because there was a background noise in the beginning?

Okay, it was a question for David regarding the tax rate. When do you think that we can see a tax rate of around 30-35%? Is 2007 too soon or should we expect that already next year?

I would hope to be able to get into the mid to low 30s next year depending upon how much money we can move from the operating companies into corporate. As you saw on that tax slide, the tax rate of the operating companies is nice, 27%. Yes, if I can keep that blended rate up. I think that will tough to keep it as low as 27%. But if that stays at or around 30% [inaudible]

Operator, can you hear us?

[Inaudible]. Mr Exon, your line is extremely bad. Is it better now?

Yes I hope so. I'll try to fix it.

Okay sir. Thank you.

I heard your answer David. It's -- that's fine. And I have a question for Marc. I remember in the beginning of the year you said that we should expect around 1m net additions subscribers per quarter. Now it's about 1.4. Is a level of 1.5 the new target that we should look at? What do you think?

Like I said, there's still a lot of good news to come in terms of subscribers and then following also revenues and that is the launch of Congo in the fourth quarter, the relaunch of Pakistan in the fourth quarter. Also I think Sri Lanka is a market that still has to deliver a lot. Tanzania I think is in that category too. So we expect that we're going to be adding more than [inaudible].

Okay, thank you.

Thank you. Our next question is coming from Peter Nielsen from Cheuvreux. Please go ahead.

Thank you. Two questions at this [stage] please. Firstly, you [inaudible] at the last conference call that the adjusted growth rate in revenues and EBITDA of 50% plus was something you would be targeting for the full year. Is that still your expectations for both revenues and EBITDA?

And secondly, is it possible to [elaborate] a bit on how you view the -- you've explained about the ending of the strategic review. How do you see the prospects of any of your alternative bidders, which apparently you've negotiated with previously, coming back and this process being reinitiated? If you could comment on that, that would be much appreciated. Thank you.

I think, and I'm talking pro forma here of course --

Yes, sure.

I think pro forma revenue growth for the full year is a possibility. I think from the EBITDA we might see some erosion towards the end of the year of the launch of Congo and the relaunch of Pakistan. So that's probably going to cost us some money. But no I remain very bullish about the outlook for 2006 and also for 2007. So that 50% is clearly on a pro forma basis.

In terms of the strategic review, I think the headline of the press release read termination of the strategic review and that says it all. So, we are focusing on the business and that's what we will be doing going forward.

Thank you.

Thank you.

Thank you. Our next question is coming from Kevin Roe from Roe Equity Research. Please go ahead.

Thanks. Good morning gentlemen.

Hi Kevin.

Hi. Nice quarter. My first question is on your cash position which over 400m is significant. I know you want dry powder in case Colombia happens and/or Vietnam. If they don't happen, what would be your preference for uses of cash? Share repurchase, dividend, could you give us a sense of that?

My preference for using cash if none of those events would take place is buyout minority shareholders. That would be my first use of cash. And combined with accelerating growth in some of our markets, so that would definitely be another priority. And then we'll see if we get into this, as they call unlikely event, having too much cash. I think maybe we might want to pay down some debt, maybe do something else with it. But given the 50% growth we're experiencing at this point in time, I must say it's not really very high on our agenda. I think we just want to further fuel growth. That is what keeps us busy and that's what we're thinking about right now.

Got it. On CapEx, with the wind-down of Congo and Paktel happening later this year, that accelerated CapEx. What kind of order of magnitude drop should we expect in '07 either in absolute dollars or as a percent of sales? Could it be -- you mentioned 100m plus being spent on Congo in the second half. If that goes away could we see a 100m plus drop in CapEx year over year?

Yes but as David said, CapEx next year is still going to be high. It's not going to be as high as -- in absolute terms as it was this year. Although again there I repeat my classic comment I hope I'm going to be wrong. Because if we are wrong it means that the growth is again accelerating from what we saw -- what we're currently seeing. But as a percentage of revenue, I don't have a percentage here. As a percentage of revenue CapEx of course is going to drop dramatically and will go to a run rate of the low teens in the next year or two when we will have billed out this rule expansion. And going forward just a matter of adding additional capacity in an existing network. And we also know that the new technologies, as and when they are being introduced, they always come at a lower cost than the old technology. So that also should allow us to get some savings going forward.

And lastly Marc, on EBITDA you mentioned continued strong expectations, net 50% type range pro forma for the rest of '06. Given your significant CapEx spend this year, I assume 50% is not sustainable in '07 versus '06, but what kind of drop in pro forma EBITDA growth should we expect next year versus '06? Should it be expected to drop by half or less than half versus this year?

I think going forward once we have absorbed the costs in Paktel and in Congo, I think EBITDA will grow slightly more than the revenues going forward. Because I think we see the economies of scale in a number of the smaller businesses and we see the launch of the value-added services that command good margins. So that should allow us to start growing EBITDA again a little bit faster than revenues.

But in the -- for the next two quarters I think there will be some erosion on the EBITDA margin as a result of the launch or the relaunch of those businesses. But I think with all the things we have been doing I think something that has been very consistent in the Millicom story over the last couple of quarters, over the last couple of years even, is our EBITDA margin. With the relaunch of Tigo in Latin America, with the launch of new businesses like [inaudible], the costs we have in Pakcom -- sorry in Pakistan today, we still manage to keep our EBITDA margin in the mid-40s. So I think that's where we'd like to keep it going forward.

[Inaudible] too Kevin, as we look forward, Latin America cannot continue to grow at these levels obviously as the base gets bigger. Africa we're very, very hopeful can sustain its levels if not grow, and South Asia we're hoping can grow a lot faster. And that will obviously -- not only there is a revenue mix there, there will be a big EBITDA mix. So it's tough to get it exactly right. But as Marc says, we're very hopeful that the economies of scale in this business can help us grow those EBITDA margins.

So assuming '07 margin expansion versus '06, could absolute EBITDA grow in let's say the 30% range?

Yes. I think that's a realistic number which we'll work very hard to outperform.

Very good. And again, congrats on the quarter.

Thank you.

Thank you. Our next question is coming from [inaudible] from Nordea. Please go ahead.

Thank you very much. Just a follow-up there on the strategic review. I just wonder are you committed to or would you consider to withdraw from Pakistan given it's fiercely competitive. As a point, as a follow-up to the strategic review are you considering to restructure the Group, any thinking in that way?

And secondly, what about the -- your view on Iran currently? Thank you.

On the first question we're not the kind of guys who run away from challenges. So we take the bull by the horn and just try to make it work. And that's what we will be doing in Pakistan. And as I said, there is an increase in revenue from Q2 compared to Q1 of this year. So things are going up.

In terms of Iran, not much has happened since the last call. And the key issue there for us is this Interconnect agreement. If no reasonable Interconnect agreement can be reached between RIC and TCI the incumbent, I don't see how we would be making money or be able to get a return on our investment if and when we were to exercise that option. So that's something we're currently looking at, but we haven't seen a lot of developments over the last couple of months so at this point of time as things stand now I would not exercise my option.

If I may follow up on Iran, what kind of [inaudible] do your current involvement -- you have the management contract there so -- are there any figures that you can share with us?

Our involvement is that we have a number of people on the ground that manage the business on a day-to-day business together with RIC. And the revenue that we make out of that is negligible as a percentage of revenue under the management contract. So that doesn't really cover our costs at this point in time. So it's a very negligible thing and the overall picture from Millicom at this point in time. It would become more substantial if and when we were to exercise our option -- our equity option to increase -- to get ownership in that vehicle. But as I said, the economics, especially as a result of the absence of a reasonable interconnect agreement, are such that we would not exercise our option today.

Thank you very much.

Thank you.

Thank you. Our next question is coming from Sven Skold from Swedbank. Please go ahead.

Thank you. I would like to get back to the CapEx and depreciation discussion. Of the investments you make this year how long is the time for depreciation?

And second, I guess that you said before that some networks, old networks will go out and that the depreciation for that reason will go down. So can you give us a hint or guidance regarding the depreciation, excluding the special allowance that you described before?

Yes. First of all I don't think we're going to have special events going forward but David can answer things in more detail for you.

Yes, the network equipment is spread over seven years in terms of its useful life to depreciation. And you're right, there's the old analog TV main networks and we've accelerated the depreciation as mentioned on previous calls. That will mostly go away now in 2006. There's a little bit in 2007 but not that much. And you're right, that will have a tendency to bring down the depreciation levels but as we've said on other calls, obviously the high CapEx that we've spent to the end of 2005 and certainly is accelerating this year is obviously going to drive the depreciation numbers up. So there's a balancing act there between the natural move down. And you saw, as I mentioned on the call, obviously Vietnam had high depreciation. So that's obviously all added the numbers. But comparative to 2005 that had a big impact as well. So you need to take all that into account in your model.

But of the investments made this year and next year the average depreciation time is around seven years?

Approximately. Most of it's on network equipment.

Okay, thanks.

You're welcome.

Thank you. Our next question is coming from Nick Kershaw from Investec. Please go ahead.

Hi, good afternoon gentlemen. Just a quick couple of questions on your African operations. Firstly, you did mention that Ghana had been one of the star performers within Africa. Can you maybe mention what has happened to EBITDA margins within Ghana year on year? And also maybe if you can comment on what your ARPU is on Ghana?

And then the other question was just in Tanzania the net subscriber adds for the second quarter was particularly strong and I'm wondering if you could maybe just comment on what had driven that sharp pick-up in net adds in Tanzania.

Okay. In terms of Ghana, the reason why Ghana is performing very strongly is that it is similar to what we saw in the Latin Americas. It's a combination of the increased CapEx we've been doing in that market. The launch of the Tigo brand a few months ago substantially build out of the network into the rural areas pro forma improved the capacity, the quality of our network. And that is what has been driving subscriber and revenue growth in Ghana.

And as I've always said, once you get better networks you get better clients, you get more revenues. And so we would expect in Africa as a whole to see higher ARPUs or slightly higher ARPUs as a result of these investments.

In terms of Tanzania, the reason why subscribers increased substantially in the quarter is to do with promotions they run including what I would call an off-peak promotion, where people could make calls if they subscribed to a certain number of minutes or dollars per month. They could make some free calls in the middle of the night. So that has been driving subscribers. So we expect that those subscribers will start generating also more revenues so this is a way for us to get new customers on the network with an attractive promotion. Given that we don't do any subsidies, handset subsidy and stuff like that, the acquisition cost for those subscribers is very small. And we think that with a better network which is there now and we will continue to build out, that we will be able to retain those customers.

Are you able to give us an indication of what sort of current EBITDA margins are in Ghana and what your current ARPUs are there?

No we have not disclosed those EBITDA margins. But I've said historically that Ghana and Senegal I think are the ones that are operating, together with Mauritius, I think that was the dud one in Africa -- that were countries that were operating in EBITDA margins of over 50%.

Okay, great. Thank you very much.

Thank you.

Thank you. Our next question is coming from Louis Sakes from Chesapeake Partners. Please go ahead.

Yes I was wondering if I heard you correctly because there was a bad noise on the phone. When you gave the 30% target, is that for year over year EBITDA growth that you would be very happy with that?

Whether I would be very happy with that, I don't know. That's something I would be happy with and as I said we will try to outperform that next year. So I think higher would even be better.

Okay. And secondly just as an additional post mortem on the process for strategic alternatives that ended, you indicated that your preference is not to give money back to shareholders because you're investing in the business and you added the caveat that if one of the alternatives does not come to fruition is it a likely event in your mind that perhaps one of the alternatives could be resurrected if one of the parties decides that they're more prepared to act in a more expeditious manner?

Let me first say that it's not our policy not to return money to shareholders. So I would disagree with that statement.

Not as a policy but you did -- I didn't mean it harshly like that, but more that you indicated that other priorities would prevail.

That's right. With a 50% growth I think we should invest the money in the business. I think that's -- for the best returns. And as I said before, the strategic review is over, it's terminated, so I don't want to start speculating what might or what might not happen. It's over. We are focusing on the business and we are going to be showing you, at least for those who are interested to come out in November to Africa, Senegal and Ghana, how well we are doing with Tigo in Africa on the back [of all] the CapEx we're doing there.

So that's what we will be focusing on and that's what we would like to show you to see how well things are going forward. They're going for us right now similar to what we did in November of last year in Central America which again I think give a much better understanding of Millicom's business model and how Millicom is going to be making money going forward.

Thank you.

Money for shareholders going forward.

Okay. Thank you.

Thank you.

Thank you. We have now follow-up questions from Adrian Dawes from Hartwell Investments. Please go ahead.

Marc, David, if you look at the CapEx and try and measure the either the growth you can achieve by spending that amount of money, the return on equity you can achieve or how many subscribers you expect to get, could you give us some idea of what the equation is i.e. for every $600m we expect to have the following return on equity growth re subscribers?

If you had given me a couple of hours' notice with that question, Bill, I might have been able to give you some numbers. But, as you know, when we make CapEx we're looking at very short paybacks, on average around two years for existing businesses. So we expect that with the $600m we will be spend this year and also a somewhat smaller amount next year, that add is going to have a very, very short payback given that it's being invested in existing markets. And that should get -- should give us a very, very good return. But I don't have a number for you right now. Apologies for that.

I love the idea that you not only have a short payback but it was a short answer. Thank you very much.

Thank you. We have a follow-up question from [Anders Svenberg] from [Inaudible]. Please go ahead.

First a short follow-up on the question from [inaudible], how much was the depreciation of the old networks that will disappear from next year?

That was -- yes next year but those are still -- those that will disappear next year will be party depreciated next year. So this is linked to the economic life of those networks --

Okay, when you talked about the old TV [inaudible] networks --

Sorry the what?

The old TV [inaudible] networks with an accelerated depreciation. How much is that just to --?

I don't know. I don't have that number for you but there are no special -- there were no special depreciation in the second quarter and maybe there's going to be later on. But that depends on the view we'll take on the economic life of those networks. And the reality is that these networks tend to live longer than we anticipate. So at this point in time I don't see any need to do any accelerated depreciation.

Okay, thanks.

Other than the ones we did in the first quarter and last year when we did. But at this point in time that should be sufficient to reflect the economic life of the networks.

Okay, I thought I heard from the discussions with [inaudible] and you that you had some old networks which was currently being depreciated quicker and that will disappear next year.

We took that decision last year already and for some countries we did accelerate the depreciation. But at this point in time there is no need to do any further depreciation. But that is already reflected in the numbers today.

Okay.

What we did is at the middle of next year we started accelerating so there was an initial impact obviously of incremental depreciation at the end of last year. That starts obviously coming into this year but that's -- what the exact incremental analysis -- it's tough to calculate because some of that would have naturally gone off the books and would be accelerated. So there's an increment piece this year. I don't have the calculation in front of me. We haven't -- I haven't done that. As to what it would have been if I didn't depreciate -- accelerate the depreciation in the middle of last year, I don't know what that number is Anders, I'm sorry.

Okay. Secondly, on the strategic review, you asked for [inaudible] of course for the entire company but also for the different regions and different costs. Was there any particular region, Africa and other regions with a significantly bigger interest from buyers than other regions? Could you comment anything about that? Were you surprised about where [inaudible]?

The only thing I can say Anders is what I've said even before the strategic review started. And that is that Millicom would not benefit from being split up, that means selling off regions or selling off major assets or splitting the company. Because we are today from a market cap point of view amongst the smaller players in the market becoming even smaller I think would make us fall off the radar screen of some investors. So I think that would not be a good thing. So our focus is to run all of this as good as we can. And we've proven over the years now that we can create a tremendous amount of synergies, not only from a procurement point of view, but from a value-added service point of view, from a product point of view, from a branding point of view. And that's what we will continue to do to prove that we can create those synergies despite the fact that those businesses might be ten thousands of miles away from each other. So that's what we will be focusing on. So I don't want to start speculating on anything that might or might not have happened during the strategic review. Okay?

Okay, thanks.

Thank you.

[OPERATOR INSTRUCTIONS]. It appears there are no further questions at this time gentlemen. I would like to turn the call back over to you for the additional or closing remarks.

Thank you operator and once again I would like to thank you all for participating in today's conference call. If you have any further issues you wish to discuss we will 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 on +442073215010. Thank you very much and have a great day. Goodbye.