Millicom International Cellular SA (TIGO) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Millicom quarter four 2008 results conference call.

(Operator Instructions)

I would now like to hand you over to the hosts of today's conference, Mr. Marc Beuls, President and CEO, and Francois-Xavier Roger, CFO. Please go ahead, gentlemen.

Thank you, operator, and welcome to everyone who has joined us today. You find the slides for this call on our website and before looking at the results in detail, I would like to give you a brief overview. The Group performed well in Q4 with an increase of EBITDA margin to 45%, reaching our target EBITDA margin. For the year to December, we produced sector-leading revenue growth of 30% and our profitability improved over the year with a 219 basis point increase in the second half and a margin for the full year of 43%, which was close to our target for the Group.

The underlying net profit growth for 2008, excluding the one off events over the two years such as the sale of Paktel, the Columbian-deferred taxes, et cetera, was 36% and shows that our underlying earnings are growing strongly. These results were achieved despite the headwind of a strongly appreciating dollar in a number of countries during the second half of the year, which was a reflection of an uncertain economic climate. For instance, from Q3 to Q4, the local currency depreciated against the dollar by 17% in Columbia, by 16% in Paraguay, by 10% in Senegal and Chad, by 8% in Tanzania and by 5% in Ghana.

The impact on our business of the strong dollar against local currencies is said to continue into 2009. We have already taken action in terms of lower CapEx and OpEx to ensure that we are well positioned to meet the potential challenges engendered by the macroeconomic and the stronger margin reported in Q4 as a reflection of those changes.

In Latin America, we have selectively reduced promotions as we have increased our focus on revenue generating customers. This change has led to a stabilization in ARPU in Q4 compared to Q3. And in local currency, ARPU was actually increasing as a combination of a mix with more revenue-generating customers and an increase in VAS and data services fed through into the numbers. Today operators recognize that subscriber growth is cumulatively slower, due to the fact that higher mobile penetration rates in Latin American mean that these markets will now grow at a more moderate pace.

However, in Columbia, having cleaned up the subscriber base in Q3 and Q4 and by making improvements in our distribution network, we expect these actions to help subscribe acquisition in 2009. And over time we expect to benefit from a more favorable regulatory environment. Amnet, our recently acquired fixed broadband business is performing in line with our expectations and the integration process will be completed in Q1 2009 as we introduce best practice to explore potential synergies and there will be a small one off charge in Q1 2009 to account for the costs of these changes.

In Africa and Asia, we continue to see the opportunity to maintain growth while improving margins, especially in Africa where most of our businesses are now achieving the critical mass and scale, which are necessary to improve profitability quarter on quarter. We now have four businesses, with over one million subscribers including DRC.

We continue to believe that we can bring up margins in Africa to the Group average in the mid-40s in the next three years. We are investing significant CapEx in both regions as we see the opportunity to maintain growth and we are prioritizing the implementation of our distribution management system as a way of reducing operating cost by achieving greater efficiency.

At the end of the fourth quarter and after the acquisition of Amnet, Millicom has less than $500 million of short-term debt set against $674 million in cash. And our net debt to EBITDA ratio is one times, putting us in a strong financial position and enabling significant continuing investments. In 2009 we are expected to invest approximately $1 billion of CapEx and we continue to insist that all new investments meet our hurdle rate of return for new investment. We are upstreaming substantial amounts of cash with $181 million upstreamed in Q4 and $543 million for the full year 2008 and we expect to see this positive trend continue into 2009 and beyond.

In 2008, the net cash provided by operating activities increased by 34%, which shows the potential within the business. In 2009, we are moving into a new phase for the Company as we expect to become cash -- free cash flow positive for the full year and to see free cash flow growing in subsequent years. This is the result of the improving operating margin and the decline in CapEx to sales ratio going forward.

Now let me turn to the summary slides for this call. Turning to the financial highlights for the quarter on slide number two, you will see that year-on-year subscriber growth in the fourth quarter was 38% and we ended the year with 32 million customers. Revenue grew by 18% year on year to $907 million and by sector leading 30% for the full year to $3.4 billion. EBITDA increased by 31% to $406 million for the quarter, producing an EBITDA margin of 45%, our target margin. Net profit for the quarter was $66 million after a net charge of $55 million as a result of the reversal of a deferred tax asset recognized at the end of 2007 in Columbia and the classification of Sierra Leone as an asset held for sale, which you will have read about in our statement.

Slide three shows our revenue split by category and the element that stands out is our VAS/SMS, which has been growing by 72% since Q4 2007 and accounted for 15% of total revenues in Q4. Looking at the year as a whole, the increase in VAS was even more impressive at 90% year on year. We're very excited about VAS as it is an important driver of both revenue and margin as it is a highly profitable business for us. We expect to see VAS grow strongly in the coming years.

On slide four, showing the composition of quarterly revenues, you can see how the EBITDA margin has increased to 45% for the fourth quarter, up from a quarterly average of 42% for the first three quarters of the year. The cost of sales at 23% was two percentage points lower than for Q3 and sales and marketing expense was lower at 19% of revenues as we have focused our marketing towards the most loyal and highest generating subscribers in Latin America. In Africa and Asia, we continue to see the opportunity to maintain growth while improving margins as most of our businesses in these regions are achieving the critical mass and scale necessary to improve profitability quarter on quarter.

On slide six, you can see that total subscribers for the quarter increased by 38% year on year. Tanzania, DRC, and Laos all record a subscriber growth in excess of 75%. Chad grew its subscriber base by 67% and Senegal recorded an increase of 66% despite the dispute with the government, which led to a decline in subscriber growth in the latter part of the year. In Latin America, Honduras increased its subscriber base by 45% and Paraguay and Bolivia both recorded increases of 33%.

Revenue for the quarter increased by 18% over the fourth quarter of 2007 as you can see on slide number seven. Top-line growth has slowed due to macroeconomic factors beyond our control. Most notably, the strong dollar in the second half of the year has negatively affected results in a number of markets producing a 3% negative impact overall in Q4 2008 as against Q4 2007.

Looking at the year as a whole, however, revenue growth was 30% with foreign exchange having a 4% positive impact on revenue as most currencies appreciated against the US dollar in the first half of the year. It was only in the second half of the year that we saw substantial devaluations of local currencies against the dollar. EBITDA growth for the group, which is shown on slide number eight was 31% with an impressive 219 basis points increase in the second half of the year. Our margin reflects action taken in the second half of the year on CapEx and OpEx, but the underlying market growth still continues to be good.

Turning to slide ten on Central America, you can see that subscribers grew 27% year on year and 2.4 million subscribers were added for the -- over full year. It has to be expected that with the high rates of normal penetration in Central America, that subscriber acquisition rates will be slower, but revenues have performed well as a result of our shift in marketing to emphasis towards the best revenue-generating customers.

Revenues for Q4 were $355 million, up 8% year on year and up 4.5% from Q3 as the impact of the new taxes introduced in Q2 and Q3 has been absorbed. This was a robust performance taking into account slowing in the growth of remittances into Central America from the US during Q4. Inflation was also a significant factor in Central America over the year, but by Q4 had begun to ease after -- again after rising in excess of 20% earlier in the year.

EBITDA was $199 million, up 19% year on year. tiGO's strong number one position and all the benefits that they bring in terms of the economies of scale mean that Central America continues to have an excellent EBITDA margin of 66%, up 2% on the quarter and the cost saving initiatives that we have been introduced in the light of the current trading conditions will allow us to keep the margins in the low to mid-50s.

In October, we announced the acquisition of Amnet, the cable and broadband business which have 534,000 revenue generating units at the end of the year. On slide 11, you can see Amnet's performance in Q4. Revenues were $43 million and EBITDA was $18 million, producing an EBITDA margin of 42%. Amnet has an extensive hybrid fiber coaxial network with 1.2 million homes passed and today some 69% have two-way coaxial cable. CapEx in Q4, excluding installation CapEx was $12 million and we anticipate CapEx for Amnet of approximately 15% of sales in 2009, excluding installation costs.

We are planning to outsource a number of functions to increase operating efficiency and to reduce operating costs, which will result in a one off cost in Q1 2009. The opportunity for Millicom is to use tiGo's marketing skills to sell broadband services to existing cable customers and to provide a fixed element to our broadband offer which will become increasingly important as the market develops and it will enable a high proportion of calling to be kept in the home.

Amnet has number one position in its three main markets, which will give Millicom critical mass in this important market segment which we expect to be a major driver of growth going forward as independent research suggests that fixed broadband is going to be a fast growing segment of the market.

Slide number 12 on South America shows that subscribers increased by 27% and revenues by 9% year on year, impacted by the strong dollar. Currencies in South America have devalued partly as a result of the fallen prices of agricultural commodities in the second half of the year. EBITDA for Q4 was $100 million and EBITDA margin was 39%, up four percentage points from Q3 as a result of improved profitability in Columbia, which produced margins of 17%. Initiatives to reduce costs across the business have also contributed to the margin increase. As the margin in Columbia gradually improves in 2009, held by building scale in our business and we hope a more favorable regulatory environment, we expect the margins for South America as a whole to move up further towards a group average.

The success of VAS in South America has led to a demand in amongst more wealthy customers to use broadband services and tiGo is seeking to satisfy this demand through a combination of the 3G services launched in Q3 in addition to our existing WiMAX businesses and more generally by improving stock levels at the points of sale.

Quarterly highlights for Africa are shown on slide number 13. 611,000 subscribers were added across the region in the fourth quarter, which represents a year-on-year increase in total subscribers of 63%. The slightly lower subscriber growth reflects the more challenging economic conditions across Africa. Revenue growth at 28% was also slower than the one of the previous three quarters due to the effect of the strengthening dollar compared to the local currency. EBITDA for Q4 was $64 million, up 41% year on year and the EBITDA margin was 35% compared to 34% in Q3. We expect to see the EBITDA margin in Africa continue to improve towards the Group average margin target in the mid-40s within the next three years, driven by increasing profitability across all operations, especially Chad and DRC, which today are reaching critical mass and, as a result of the deconsolidation of Sierra Leone, which had a negative margin.

In Q4, we were successful in acquiring a license in Rwanda. We will roll out the network in 2009 and anticipate being ready to launch services before the end of the year. We continue to invest heavily in CapEx and marketing and promotion activities in order to capitalize on the future growth in mobile development across Africa although growth in some of our markets has been held back in the second half by the macroeconomic situation.

Finally, slide 14 shows that Asia continues to be Millicom's second fastest growing region with subscriber growth of 47%, revenue growth of 20% and EBITDA growth of 18%. The EBITDA margin remained constant from Q3 at 37%. We increased CapEx across all three businesses in 2008 to extend and upgrade the network ahead of increasing competition from several new market entrants. Now I would like to hand over to Francois-Xavier Roger, who will talk you briefly through the financials.

Thank you, Marc. Please turn to slide 16 where you can see that CapEx for the fourth quarter was $465 million, up 55% year on year, giving a higher CapEx to sale ratio of 51% for the quarter and bringing the total for the year to $1.4 billion. 2008 has been a peak year for CapEx and, as you know, our project in CapEx for 2009 is $1 billion and we expect that the CapEx to sale ratio will fall going forward.

Millicom is very focused on returns on new investments and we are determined that we shall continue to achieve the targeted internal rate of returns on new investments in excess of 20%. We have started to put more emphasis on cash flow generation while securing growth and we closely monitoring CapEx level in relation to EBITDA levels and growth potential on a country-by-country basis on a Group level.

Slide 17 shows that depreciation was $149 million for Q4 and $570 million for the full year, up 47% from 2007 as a function of higher capital expenditure. But it has stayed fairly constant as a percentage of revenues and we expect this to remain the case going forward. The Group's CapEx plan are constantly monitored in order to align CapEx and depreciation level with revenue and cash generation over time.

On slide 18, you will see that gross debts below $2.2 billion at the end of the fourth quarter, up from $1.8 billion at the end of Q4 2007, mainly as a consequence of the acquisition of Amnet. In Q1, we saw the conversion of $200 million, 4% convertible notes due 2010 as start of an ongoing program to improve balance sheet efficiency by replacing debt at the corporate level with debt in the operating companies to benefit our tax rates.

In Q3, we decided not to [con] the $460 million, 10% 2013 notes. We continue raise debt at the subsidiary level with the objective of pushing down the [evidence] of debt maturities and in Q4 we raised $60 million in Paraguay and $275 million in Tanzania. Millicom net debt at the end of 2008 stands at less than $1.5 billion. At the end of the fourth quarter, Millicom had less than $500 million of short-term debt set against $674 million in cash and our net debt to EBITDA ratio is one times, giving us flexibility.

On slide 19, you can see that our gross total debt is around $2.2 billion with an average maturity of three years. Of the $497 million due in less than one year, $230 million is a debt component of Amnet acquisition and the majority of the remaining $267 million due within one year is in the form of rolling bank overdrafts and short-term maturities of long-term loans. Millicom has a debt -- net debt to EBITDA ratio of one times and is continuing to push debt maturities further out to improve balance sheet efficiencies.

On slide 20, you can see that the quarterly interest expense for Q4 was $50 million, bringing the total for the full year to $149 million, down 22% from 2007. On slide 21, you can see that EPS is down from $6.90 in 2007 to $5.00 in 2008, due to the impact of discontinued operations and deferred tax assets in Columbia. On a recurring basis and, therefore excluding this item in both years, which provides a better idea of the real underlying performance of the EPS in 2008, the EPS has increased by 32% to $5.64 from $4.28 therefore increasing at a higher level than revenues.

Let's move to slide 22. The net cash provided by operating activities was $1.1 billion for the full year. That's 34% from 2007, which shows the potential within the business. Our overall tax position is summarized on slide 23. Excluding the effect on the deferred tax asset in Columbia, the effective tax rate for the full year 2008 is 27%. This is down from 31% in 2007 as a consequence of a favorable country mix and effective tax planning. We expect the effective tax rate for 2009 to remain below 30%.

Please turn to the summary cash flow statements on slide 24. During the first half of 2008, Millicom made a special dividend payment of $260 million. The acquisition of Amnet, which we completed on the first of October, as financed by $230 million of local debt and by $280 million of cash. Our closing cash balance at the end of the year was $674 million. As we have already mentioned, lower CapEx in 2009 will mean that we will be generating free cash flow this year and we expect to see cash flow growing in subsequent years. I would like now to hand over to Marc for his final comments.

Thank you, Francois. In Q4, Millicom continued to take market share across most of its markets. If you look at the slide on page number 33 in the appendices on your screen you can see the evolution market by market. And we have delivered 30% year-on-year revenue growth, which places the Company amongst the leaders in its sector with high or rising EBITDA margins at the top or of our peer group of telecom operators.

While the strong dollar has impacted our top line in the second half of the year, we remain confident in the long-term growth story, which is based on our ability to grow subscribers and revenues as penetration rates rise strongly across our newer markets while consolidating our leading position in our more mature markets by way of our AAA model, value added services and, over time, broadband services.

However, the macroeconomic outlook for 2009 remains uncertain for the markets Millicom is operating in today. The continuous weakness of the currencies in a number of our markets is a strong indicator this uncertainty. We started focusing on reducing CapEx and OpEx from the third quarter of 2008 onwards and we continue to closely monitor our customer base to anticipate any material change in their behavior. We expect CapEx to sales to fall steadily in 2009, coming down to the mid-teens over the next few years, which will mean that Millicom is now moving into a phase as with an improving operating margin and declining CapEx to sales we expect to generate free cash flow in 2009 and beyond. That concludes my comments and we will now be happy to take your questions. So, operator, may I please have the first question?

Thank you, gentlemen. (Operator Instructions) We'll take our first question today from [Anders Zenberg] from RAM. Please go ahead, sir.

Hello, Marc. Congratulations with a very strong margin and --.

Thank you, Anders.

Thank you. I have, however, one question regarding the Honduras changes in the interconnect rate. You say that you are going to lose $26 million of revenues from that, but you're going to compensate by lowering OpEx in the market. Could you give us a little bit more color on how you expect that to develop? What type of OpEx are you taking out and then also what has happened with the competition recently?

What you see here is a reduction of interconnect [votes] of domestic calls and for international calls. And that means that we, as a leader in the market, we will be receiving about $26 million, $27 million less of revenues than we have planned without the change in interconnect. Of course, as interconnect you also add the other side of the equation so that means we're going to have lower costs to deliver our calls into other people's networks and there is going to be a saving there. That means that, from a margin point of view, we don't see a change going forward, but it will be, of course, from a lower base.

From a competitive point of view, we've seen Digicel launching its services and we see that we still take the lion's share of the new subscribers in the market and, anyway, I think it's a little bit too really to really make an assessment of the new competitive environment. From what we see today is that we continue to take the lion's share of the new subscribers.

A follow-up question. Do you plan to pass on the lower interconnect rate to the customers or do you plan like, for example, [constant long] that to keep [off net] prices high and to keep your scale advantage? How do you reason regarding that?

We typically pass on lower interconnect because that is part of our affordability concept. So that's how we hope to see higher usage and no more subscribers over time.

Okay. Thank you.

Thank you, Anders.

Thank you. We'll now take our next question today from David Kestenbaum from Morgan Joseph. Please go ahead, sir.

Okay. Thanks. Marc, how should we think about sub-growth going forward? Is this a level that we're at now that you feel comfortable with, a similar type of level as 2007 or do you think that we could go lower from here? And exactly what has happened on the churn front?

I mean, it's difficult to -- I don't have a crystal ball, so I don't know what's going to happen this year, but I would say Q4 in 2008 was not a good subscriber quarter for reasons like Senegal, who did not perform well, short negative growth as a result of the issue we have with the government there and we saw some clean up in subscriber basis in, for instance, Columbia.

So, I would hope that over time we can get back to normal levels in those countries and maybe some other countries, too. But again, I remain cautious at this point in time because we're still early in the year and so I don't know what 2009 is going to bring. So we will report quarter after quarter as to what the subscriber growth is, but I think Q4 2008 was a very low quarter.

Okay. And then how about in churn? Were you affected much by -- with churn based on the macroeconomic conditions?

No, we have not seen material increase in churn. We have, in a number of countries, at our initiative cleaned up some subscriber basis to make sure that we focus on those who generate revenues. As you know, keeping a subscriber on the network has a cost. You pay to keep it on the high end platform, switch, and then another platforms we use. So we see that the revenues are not there, then we take people off the switch or the platforms. So it's not like people have moved away from Millicom. Most reductions in subscribers was at our initiative.

So you're still at like the 4% level?

We're still at the same level as we were before. Yes.

Okay. And then going to Amnet, could you just talk about the growth potential there and do you think you can reenergize growth now that you have taken over and what's the charge -- the amount of the charge and how high can you get margins, obviously, with your outsourcing?

For the charges, we're talking about a couple of million dollars, so it's not a big thing. And what we done so far in Amnet is we've been focusing on getting the business better, getting to know the business better and then start working on plans to kind of run the business the tiGo way, to put it that way. And so we will then, in Q1, kind of implement those changes and the cost that is associated with that is small and there's going to be a relatively short payback for that.

At the same time, we've been looking as to how can we accelerate growth? How can we do the upselling to existing cable subscribers? How can we sell broadband services to existing cable subscribers? How can we use the tiGo marketing and sales techniques we have been using very successfully in Central America over the years? How can we also apply them to Amnet? So that's what we've been looking at and those are the things we will start implementing relatively soon.

Okay. Thanks.

Thanks.

Thank you. We'll now move to our next question today from Sven Skold from Swedbank. Please go ahead.

Yes, hi. It's Sven Skold at Swedbank here.

Hi, Sven.

I was just wondering how you think about Africa because since a number of currencies have fallen lately, I assume that, I mean, the return on investment becomes slightly lower for a while. So how would you balance, I mean, continued investments for the future because, I guess, for example, those who invested in Latin American in 2001, 2002 and 2003 had a very good opportunity when things turn around. So how do you balance, for example, in Tanzania and DRC, between cash flow and investments?

The second question, about Columbia, why do you think that the business can improve from this level and what kind of regulatory changes are you looking at there? And finally, on Senegal, if you could just give us an update on the discussions there with the government. Thanks.

First with Africa, as you know, we are and we will continue to be a company focusing on cash flow generation and on returns on investment. So if we see that, because currency devaluations or the macroeconomic factors that the returns -- or that we get very close to or below the returns we're looking for, we will take decisions in order to focus on those market segments, on those parts of the country, if need be, in order to maintain the returns on our investments. But this is key.

We're not in this business just to cover continents and countries with networks without return. No. We want to see the returns and we want to see the cash flow. And what we have been doing in Africa, as you have seen, in Q4 is that with the lower subscriber growth we have improved -- we improved again the margin by one points. This is in line what we said to the market we were going to do and that's what we'll continue doing even if things were to get even tougher than they are today.

Having said that, in Africa, mobile penetration rates are still extremely low, so in some places we still are just scratching the surface. And by putting more capacity within the existing networks we have nowadays, that should allow us to continue growing in those places with the returns.

Turning to Africa -- sorry, to Columbia, what makes us confident that we can improve the business there, I think we, in 2008, misjudged the regulatory change with the lower interconnect on how the market was going to -- or the other operators were going to respond to that. And as a result of that we took some -- what's called a marketing and sales initiatives that, at a certain point in time, will bring subscribers on board, but those were not necessarily subscribers we were looking for and that's why we did not hesitate to take those off the network in Q3 and Q4.

I think we've learned from our mistakes. We have upgraded management in the country recently. And with people, which you've met yourself when you were in Paraguay in October, will have an in-depth knowledge of our distribution management system being deployed in Columbia -- sorry, yes, in Columbia -- that should allow us to become a better operator going forward.

That's one thing. In terms of the regulatory changes, don't hold your breath on any major improvements overnight. But we were very pleased to see or to hear about the intention from the regulator to look into the interconnect issue and the dominant position of the number one in the market there. I can't anticipate and I don't want to anticipate as to what the outcomes of that initiative is going to be. But clearly it is positive that people start looking into that issue, an issue, as you know, we've been talking about for quite awhile as being an unfair situation in the market and hopefully that is going to be corrected going forward.

In terms of Senegal, there are the two legal roots that are being pursued. We launch arbitration so that is ongoing. The government launched a legal process in the country. Again, there was a hearing this morning and the next one is scheduled in a couple of weeks from now so this is going to go on for a while. At the same time, we are -- we have opened a parallel route to come to a friendly solution and we will report to the market as and when there are going to be some development in any -- in one of the three routes we are currently pursuing.

We're still in control of the business, so nothing has changed there. It didn't do good on -- for the business from a subscriber intake point of view. We think that, as time passes, that that impact is going to be smaller going forward.

Just a follow-up on Africa. I mean, I hope you're still planning to, for example, gain market share in DRC, for example. And hopefully in Tanzania or at least maintain market shares in Tanzania.

Yes, that is part of -- I mean, with all the money we spent in Tanzania last year, we definitely hope that we're going to continue doing that. And you've seen from the numbers we've published, we're now getting closer and closer to the number two in the market and that is in line with what we've been wanting to do all the time. That's one thing, in DRC, we will be focusing a lot on the Kinshasa area, the back Congo where we have nowadays a very strong position with the market share, we think of over 20%. And that's where we also get very good returns. So we will be focusing on that part of the country in order to make sure that, coming back to your first question, make sure that we get -- pan the growth and the cash flow and the returns.

Thanks.

Thank you, Sven.

Thank you. We will now move to our next question today from Adrian Dawes from J.M. Hartwell. Please go ahead.

I can't hear you Bill. Okay, that's better.

Adrian's my mouthpiece and he can do this much better than I can, but he passed me the baton or something. Can you talk about, given the cash generation you have and the fact you're not lowering your standards for returns, can you talk about what kind of opportunities you do see, if everybody else is suffering or there's a general malaise in the world? How are you going to position yourselves and take advantage of this since you do have a balance sheet which is formidable and not many do?

Yes, we have a very good strong balance sheet, no refinancing risk given that our short-term debt is lower than the cash reserves we have. So we're in a very strong position. But our focus is going to be on the organic growth of the business, as we've always done and that has been fueling the growth and the profitability for Millicom. This market, Rwanda, where we expect to launch late in the year, so that's a great opportunity there. But there's so much to be done in Africa and places like Tanzania and Congo, Chad, but also in those countries that have now reached the 40% mobile penetration level like Senegal and Ghana. I think things will go very, very, very fast.

And what we do is we focus on what we're good at and, at times when things are going -- when things are getting tougher, I think people will focus even more on affordable services. So our approach we've been taking for a number of years now, I think, probably works even better in the current environment than it worked a number of years ago. So I think we are very well positioned to take advantage of the opportunities there. But clearly, if the macroeconomic environment were to deteriorate more, we're going to be -- we're going to be hit also as a result of that. So we're not immune to those things, but I think we're well placed to -- with our business model, to continue operating in a somewhat more difficult environment.

In the case of Amnet, do you see as much or you said that you saw it was materializing and evolving the way you thought it was. But given the value added services in the other countries, how is Amnet going to contribute to that and can you, in fact, take advantage of their position in countries that you are not in to get mobile licenses and create more synergies for yourself?

Two the markets where Amnet is a leading operator, we have mobile businesses. The one where we don't have a mobile business today is Costa Rica and we've indicated in the past that we would like to operate in that country, too. So if and when the process were to start, a mobile license process were to start in that country, we will definitely participate in that -- and given that we have people and infrastructure in the country, I think that is a plus compared to having to start from scratch.

Yes, for Amnet we need to make sure that we continue to do the upselling to existing customers. As you know, we bought this business because of the broadband activity. So we need to make sure that we sell broadband subscriptions to our cable subscribers. And of course, we need to compare our customer basis for the mobile business with those of the broadband business and then do the cross-selling. So there's still a lot to do. Don't forget that we're only a couple of months into that business. The first thing is to basically build it on the basis on the Millicom model. I think we're getting to the end of that exercise and, at the same time, it's accelerating sales by using the same sales and marketing techniques we are using within tiGo Central America.

Do you -- can you comment at all on the bridge loan that you have how easy or hard or how you are coming with the refinancing of that bridge loan?

We're working on it and, I mean, the bridge loan is expiring at the beginning of November so we are working actively on it. And I mean, we can see that, I mean, the markets, the financing markets remain open and active. So we are reasonably optimistic about it while being cautious. But I mean, and we will keep you posted as soon as we have refinanced that debt. We expect --.

And what are the rates like for refinancing these days?

The -- I mean, the spreads have increased very significantly indeed over the last couple of months. But I mean, the interest rates have gone down. I think the [owning] cost is probably going to be fairly close to what we have in terms of interest -- average interest rates for Millicom, maybe a little bit higher.

Great. Thanks very much.

Thank you. We'll now move to our next question today from Lena Osterberg from SEB. Please go ahead.

Yes, hi. Very good numbers, so congratulations.

Thank you.

I was just wondering, also, on debt. You have just recently raised debt in Tanzania and Paraguay. Could you maybe just say were those in local currencies and at what rates were those bonds raised or the bank loan, maybe it was. Also, starting in Laos, you say that the government is considering introducing a spectrum fee. Could you maybe say what effect do you expect on margins from this? And also if you see similar trends in other countries or something we should be aware of. And also if you could maybe could give some -- I know it's a difficult market currently, but if you could give some indication on revenue growth in local currencies for 2009?

Well, let me start with the two last points and then I'll hand over to Francois to talk about the financings. I'm not going to give you any guidance in terms of revenue growth for 2009. I think, given the uncertainties in the market today, I don't think that would be wise to do. We have live the situation as it evolves every day. But we remain optimistic as to what the outlook is for our business in the markets where we are.

In terms of Laos, yes, there's an initial -- or we expect that the government is going to use an additional fee there. Not -- it's not material, but we want to keep you updated on any regulatory changes we know of that could materialize in the next couple of months or quarters. And this is one that could materialize, but it's not -- it's not a material one. I'm not aware, otherwise we would have mentioned that in the release. I'm not aware of any similar fees being introduced in any of the other countries where we are operating today.

As far as the debt is concerned, we are trying to raise debt in local currency wherever we can, which means wherever there is a market for it and wherever it's affordable. As far as -- I mean, in the example that you gave in Tanzania, for example, out of the $275 million that we raised, part of it is in local currency and we raised as much as we could in local currency, even that the depths of the market is not always as strong as we expect.

So in -- all in all we try to do it, but for example, in Paraguay we could not do it so we write the debt in dollar. But I mean, [the opposite] is really to raise as much debt as we can in the countries, to be tax efficient as much as we can in local currency, obviously, to avoid suffering from foreign exchange losses as we did in Q3 and Q4.

Could you maybe say what rates you raised money in?

Well, the rates are market related, obviously.

That was -- in Tanzania was like a mix of several financial instruments we use, export agencies, [organization], local banks and then [we see] on a different ratio, we don't have the rates top of our line, but most of those rates are still fixed, I think, in the third quarter which means that they were coming at lower rates than -- or lower margins, I guess, than we would pay today.

They are not very different from the average rate that we have formerly come overall.

Okay. Can I maybe ask a final question also? You've sort of initiated cost and CapEx cuts to focus on cash generation and you started that in Q3. And you're showing very good progress for that in this quarter. Could we expect further improvements going forward or is this the level we should expect?

We will adjust in relation to what we see happening in the market. If the situation were to really deteriorate in the markets where we are today then clearly we'll have to do more than what we have done today. If however, we were to see that things are stable and maybe improving over time, then I think we would clearly, of course, want to take advantage of the opportunities that still exist in those markets which means that we need to make sure that we continue to make the investments. But all in all, in Q4 we were at the 45% EBITDA margin and that, as you know, has always been our target at EBITDA margin for the whole of Millicom. So we're there and we definitely want to stay at that level going forward. We don't want to go back to the levels we saw in the beginning of 2008 being the low 40s.

Do you see further room for improvement in some regions?

Yes, we see definitely further improvements in Africa. They're still -- we're only 35% EBITDA margin there. So I would hope that every quarter we can add a little bit there. Same in South America with the improvements in the profitability of Columbia. I think that will also improve the profitability of the region as a whole and then that will also be a contributor going forward.

Thank you.

Thank you. We'll now move to our next question today from Rusty Johnson from Harding Loevner. Please go ahead.

Hi. I was hoping you could expand a little bit on the DMS system for distribution in terms of the impact and what you're really trying to replace and how that would have effect, whether it being product or price control or what have you and how that really would affect either, say, the revenue side or on the cost side. But what's going to be the big impact there as you push this DMS platform?

That's a big question so I'll try to answer that in a few sentences. The distribution management system is a system whereby we, on the one side, allow distributors and dealers to make the necessary investments to be professional dealers in the market. But at the same time, we want to make sure that we create a competitive environment. That's one. Secondly, we -- there's a system whereby we monitor very closely the people, the deal expenses in terms of the number of points of sales they have, the stock that is being kept in the point of sale and, needless to say, that the e-pin system we have is a great help to do that. We ordered e-pin, the financials of some of those dealers in order to make sure that we deal with quality people.

But at the same time, we also have a group of sales people, freelancers that kind of roam through the market and they create a kind of a competitive environment with the points of sale of the dealer. So that's what we do. As a result of that, we control the pricing of our products. We control the quality of the outlets. We control the merchandising. We control a lot of things. In other words, we control how tiGo is being perceived as a brand in the market. So that's what we are achieving.

And for instance, by being able to monitor the stock of minutes, points of sale, keep -- we can avoid a situation whereby people would call on a shop for minutes and the shopkeeper would say, "Look, I'm out of minutes." That we don't want to have because we know that each time we go to a McDonald's, for instance, you know you can have a hamburger. So every time you would do to a tiGo point of sale, you should be able to buy minutes. So this case, better sales, but also gives a lower cost and a more controlled environment going forward.

Okay. Thanks. One final is, going back to that question regarding balance sheet strength, that you may be slowing at the CapEx, I mean, more discrete, but can you make any comment about your competitors in those -- in other markets, particularly, say, Africa, Asia, whether other guys may be cutting CapEx and are reducing their aggressiveness in the market? So relative, do you think you stand stronger?

I think we -- definitely in Latin America, I think, we're more or less all doing the same. But judging from the results of some of our competitors, it looks like we're doing it better. And I think I would like to make a comment that we are not slashing CapEx that would destroy the growth outlooks in the markets where we are. We are reducing CapEx in Latin America. Why? Because of the high mobile penetration levels we have today because of the big push we did for 3G in the year 2008. So there's no need to spend the same amount of money today in Latin America than we used to do because we now invest much more in capacity and less in coverage.

In Africa -- and that's why the bulk of our CapEx is -- continue being in Africa and Asia. There we still need to do more coverage and we, of course, need to still build more capacity given the higher growth we're experiencing. So we will continue to take advantages of the opportunities in the market provided we get the returns over time in those investments. And that might make us a little bit different from some of our competitors who might be less return driven than we are. But I think, at the end of the day, it's the most profitable, I think, operator that will be successful.

Okay. Thank you.

Thank you.

Thank you. We'll now move to our next question today from Kevin Roe from Roe Equity Research. Please go ahead, sir.

Thank you. Very nice quarter, Marc.

Thank you, Kevin.

Going back to Senegal, a couple questions. You mentioned three potential paths, two legal and one friendly. Just to drill a little deeper into the two legal paths, what is counsel telling you about how long this could take, this arbitration, et cetera? You had the hearing. You've got another one coming up. Could this last through 2009 theoretically? What's your expectation there?

Well, arbitrations, by definition, the way they are run, take time because the parties need to agree on the arbitrators. They need to get together and then study the case. So that is a process that will take time. How much? I don't want to speculate because we don't control that process ourselves 100%. It is jointly controlled by the two parties and the arbitrators at the end of the day.

I think the legal process can go faster there because there's one court, although depending on what the outcome is people might appeal or not. So therefore, we've always said that we favor and negotiate a solution. That has always been our position. And we've taken some initiatives to get into that negotiated solution and, yes, there's not much more I want to say about that at this point in time. But we will definitely report to you if and when we see some developments in that process.

And also on Senegal, a second question. You mentioned that this may be having an impact or have attributed to the slowdown in growth in Senegal. Is it solely that or has Orange also seen a material slowdown in growth?

Well, Senegal is definitely a country that, I think, has been hit by the recession because it's a country that imports quite a lot of foodstuff, for instance, and with the local currency which is linked to the euro, losing out against the dollar. I think life probably has become somewhat more expensive for the one or the other. And of course, when this case started between us and the government, there was quite some publicity in the local press which, by definition, worries the one or the other, customer or dealer, and so we had to do some handholding there. But I think we now have a stable situation. We are in control of the operation and we expect that we will be able to stay in control of the operation until we have either a legal or a friendly negotiated solution.

And lastly, Marc, can you give us any comment on January subscriber trends? Did they show any deterioration versus Q4 or any change versus Q4 numbers?

Well, let's put it that way. If it had been a material change from what we have seen or we saw in Q4, I would tell you. So I think the world is not coming to a standstill. A mobile phone is a tool, is a social tool, is a work tool. People continue to use that tool. New people will want to have one, so -- and that's what we see in the market today.

Great. Thanks, Marc.

Thanks, Kevin.

Thank you. We now move to our next question today from Peter Nielsen from Cheuvreux. Please go ahead, sir.

Thanks a lot. Peter Kurt Nielsen from Cheuvreux. A couple of question, please. Firstly, on the ARPU side, you've -- previously you've been very open that you do expect ARPU on the line to, even adjusted for currencies, to continue to come down. Looking at Latin America here, you are talking about stable ARPUs between Q3 and Q4. How would you sort of -- I appreciate you had low visibility. How would you expect ARPU sort of in local currency to develop in the Latin American markets. Do you still expect declines here?

And my second question would be -- and I'm sorry to return to the CapEx issue, but obviously, and again I appreciate your low visibility, for us is the best leading indicator of your CapEx, is that -- will that be subscriber intake in coming quarters. And my last question would just be the Amnet EBITDA that you report, I believe, is excluding installation costs. Would you indicate how much that is of -- how much would that shave off the margin if you were to include installation costs at Amnet? Thank you.

Okay. In terms of the ARPU, you know that we suffer from quite a big ARPU decline in Latin America in 2008, especially in the first three quarters of 2008. I think it was driven by a very aggressive approach we took at that point in time. We had start taking from, probably, the beginning to the middle of 2007, which was focused on gaining market share. Because gaining market share allows us to improve the profitability. Now we have market shares and you can see them in our presentation that are very strong market shares. And that we think that especially in El Salvador and in Guatemala, those are sustainable market shares.

So in Honduras with the new competition, clearly we're going to lose some market share, but we're going to continue taking the lion's share of the subscribers. So that means that we can be a little bit less aggressive in terms of subscriber intake and that means that you don't get this many subscribers in that shop around here today, tomorrow somewhere else, and don't generate that much ARPU at the end of the day. So we have better subscriber -- better quality of subscriber base or revenue generating subscribers. Having said that, you know my view. Long-term ARPUs have to come down in the markets where we are because we still want to increase mobile penetrations. But clearly, the reduction of, I think, it was close to 20% that the tweak was of 2008, I don't expect us to see -- we're going to see some erosion, but a lot slower.

In terms of the CapEx, is CapEx a good indicator of subscriber -- sorry, subscriber intake a good indictor for CapEx? Yes, but there's more that just subscribers. It's the usage per subscribers and, as we said, ARPU in the local currency increased in Latin America. So it's also in the usage as the usage of value added services, that is important. And that you don't, of course, necessarily see through the number of subscribers. Yes, it is an indicator, but it definitely is not the only indicator, the sort of indicator for CapEx.

And as far as Amnet, I mean, we have communicated earlier that we capitalize installation costs to following the three industry practice in terms of accounting norms, which accounts for an improvement of the EBITDA by a little bit more than three percentage points. Again, so I mean, what I'm not used to doing in the past.

That's perfect. Thank you very much.

Yes.

Thank you. We'll now move to our next question today from [Louis DeParma] from Thomas Weisel Partners. Please go ahead.

Good morning. Can you please comment on the potential market opportunity in Costa Rica and the fact that the majority of the subscribers there are postpaid and how that could impact ARPUs in the region? Thank you very much.

Yes. No, I can only talk from a theoretical point of view because I don't know any of the hard numbers, say, in Costa Rica other than the ones you mentioned. You have the majority of subscribers is postpaid so [it depends on] the month in that market and mobile penetration is, at best, half of the mobile penetration in some of the surrounding countries, including the ones where we are. So I would think that, going into that market with a prepaid service as we've done in other markets is going to be very much of interest and is probably going to kick start the market and we're probably going to see higher growth rates. So that's one of the reasons why we are interested in Costa Rica. But yes, no guarantees that we will get there.

And has the government ruling bodies given you any indication on what the timeline will be for when the spectrum will be auctioned?

I think sometime 2009. I'm not aware of a fixed date, but I think everybody expects something to happen in 2009.

Okay. Great. Thank you very much.

Thank you.

Thank you. We now move to our next question today from Walter Piecyk from Pali Capital. Please go ahead.

Thanks. I may have missed this on the call before, but have you an indication in your markets, which markets are seeing continued growth in minutes of use and which are seeing declines?

No, we have not given any indications, but I would really be surprised to see a lot of markets where we have -- where we've seen a decline in minutes of use. One that comes through my mind is probably Sri Lanka, I think, where we might have seen fewer minutes of use, but because of the conflict that is ongoing at that point in time, the government is sucking quite a lot of market -- sorry, money out of the market. So -- but no, I'm not really aware of any -- of our major markets where we've seen a decline in minutes of use.

And for Latin America, as I said before, we see higher ARPUs in local currency, so that's an indication that usage is still very strong. What we did earlier in 2008 was, of course, the impact of the taxation on the incoming international calls in El Salvador and Honduras which, of course, had a negative impact on the minutes of use. But only for the incoming international calls, not for the domestic calls.

Okay. And then on capital spending, I think some operator throughout the world have looked at capital spending as a percent of service revenue, level of probably 10%. It sounds like they might go south of 10%. I think on your prepared comments you had mentioned mid-teens. Is there an opportunity to take those capital levels further or is there something structurally different, given the lower ARPU of some of your markets?

We, in our plans, depending on the size of the network, depending on our market position, we can probably also get to the teens levels. Just as we're not there yet, so we'll have to work through with some of those levels and then we'll see where we can get to. But according to the plans we have, the long-term plans we have, yes, the 10% level --.

I don't mean get to the teens level. I was asking if you can get to 10%.

Yes, that's the -- about 10%, like I said. That's something achievable probably in some market. But we'll have to find out the hard way ourselves. We're not there yet. But I can't think of any structural issues in our markets and Latin America because that's where we expect to reach those levels first. I can't think of any structural things because the size is there, the market position is there in most of the markets.

Okay. And then just my final question. You present on your income statement your cost of service combined with your cost of phone sales. I'm just curious if you stripped out the cost of phone sales and you looked at your gross margin, again, the -- just stripping out the handset sales altogether and the cost of handset sales, your network expense as a percent of your service revenue, is that gross margin declining or increasing in 2008?

We try to stay out of the handset business. So the handset sales in our overall revenue numbers of a ridiculously low number. So what you see there is primarily service revenue -- are primarily service revenues.

So you did see a 200 basis point or whatever it was -- I don't have the number in front of me -- increase.

Yes.

So why was that? I mean, your cost of service actually declined then in the fourth quarter.

Oh, the reason for that was that we were selected and the promotions we were running. So there's a lower sales and marketing cost and there's some lower costs we ...

But that wouldn't be in cost of service, right? Cost of service is just the -- you're allocating something differently. That would be more of an SG&A expense as opposed to cost of service.

But in terms of the cost of service being -- it's difficult to talk about cost of service because there are so many components that go into cost of service like interconnect changes and interconnect transmission costs. There are so many components that do influence the cost sale of a company. So one would really have to drill down country by country to figure out as to where the changes are.

Okay. So there wasn't one specific -- there wasn't one specific change that stands out.

There was not one specific change.

It was a combination.

There was not one specific change, but as you know, we did see some changes in interconnect earlier in the year 2008 and it can be that also had an impact on the margin we saw in Q4. But there was not one specific, one off or so or one specific issue in one country that made this possible.

Okay. Thank you very much.

Thank you.

Thank you. We'll now move to our next question today from Alexander Vassiouk from Morgan Stanley. Please go ahead.

Oh, yes. Hi.

Alexander.

Just on Central America, my first question is how comfortable do you feel with the margin levels of -- in the mid-50s going forward?

I stick with my statement, the same that I've been making over the last year or two and that is that I don't see any reason why we could not continue operating at margins in that part of the world and between the low to mid-50s. So I don't see any changes in the market today that would change that.

Okay. And then also, in terms of ARPU, there -- do you believe you have now reached an [inflection] point where you ARPU has stabilized and should remain relatively stable going forward, in Central America, particularly?

It's going to be a lot more stable than it has been over the last 12 to 18 months. But is this a point from where it is going to up? I personally don't think so. You know my view and ARPU is an emerging market. If you want to continue driving mobile penetration, you will have to go into new market segments and the subscribers there come with lower ARPUs. But at the same time, you just launched 3G services in the latter part of the year. It's kind of too early because we have only like two to three months of experience on the table today, so we need a little bit more time to see exactly what that has been contributing to the value added services revenues and maybe caused kind of an upward trend in the ARPUs.

So I think in another quarter, the first quarter data in front of us in April, I might be able to give you a little better guidance as to where we think value added services, 3G, additional revenues and ARPUs are going to go in Central America.

All right. Thank you very much.

Thank you.

Thank you. We'll now move to our next question from [Stefan Petersen] from Nordea. Please go ahead.

Yes, hello. Most of my questions have been answered. I just have a few ones here. The first one relates to subscriber acquisition costs. You have earlier stated that to be around $1.25, if that's still the case. Secondly, you have mentioned a couple of times that you have made clean up of subscriber base in Columbia in both the third and the fourth quarter. Can you give us the magnitude of the amount of subscribers here have closed down?

In terms of the acquisition costs, the subscriber acquisition cost, there has not been a change from the subscriber acquisition cost we used to have in the previous quarter, so it's still at or below $25 per subscriber, for prepaid subscribers. There's not been any change there.

In terms of the subscriber numbers we took off in Columbia, I don't have a number there, but it was an important number because we have been selling SIM cards to people, prepaid SIM cards to people that we considered late on were not loyal customers and that's why we disconnected them from the network. So those -- that was one of the mistakes we made in the third or fourth quarter in Columbia. We've corrected that and that's why we are positive about the outlook in terms of subscribers and also margin in Columbia going forward.

Okay. Looking at -- looking at the Columbia margin, you stated it to improve gradually. Looking at one year ago you were quite substantially higher. How long time could we see before you're back at the margin you reported inQ3, Q4 last year?

So you're talking about the low-20s, I think, low to mid-20s, I think we were at the third quarter of 2007. I would hope that we're going to be there by the end of this year 2009.

Okay. Thank you.

Thank you.

Thank you. We will now move to our next question from Christopher King from Stifel Nicolaus. Please go ahead.

Hi. Thanks for taking my call. This is actually [Josh James] filling in for Chris.

Hi, Josh.

Most of the questions -- hi. Most of the questions I have had have already been answered, so I just wanted to see if you guys could give us an idea of what percentage of your operating expenses during the quarter were exposed to currency fluctuations?

Operating expenses to currency.

I would say a very fairly high number. I mean, we should exclude, first of all, I mean, the operating -- even the operating expenses at the headquarter level are mainly in euro, so they are exposed to foreign exchange deviations. And the currencies which are -- the operating expenses which are not exposed to currency fluctuations are in the dollars where we operate in dollar terms, which is mainly in El Salvador, in Sri Lanka, Cambodia and, to a lesser extent, to a certain extent in DRC as well. So which is a smaller portion, I would say that probably a good 80%, probably for the expenses is probably linked -- is probably subject to currency depreciation [in our operation].

All right. All right. Thank you.

Thank you. We now move to our next question today from Jan Dworsky from Handelsbanken.

Yes, hello. Most of my questions have been answered. Also, I came in late to the call, so I apologize if you already addressed this. But it's also your EBITDA margin. I think you were quoted earlier in the day saying that the churn of 45%, that you think that's reasonable for the full year 2009. I just wanted to have you confirm that.

Yes, that's what we hope we can achieve in 2009. We hope that the fourth quarter was not a lucky one, so we've made some changes and that should make that EBITDA margin sustainable.

Okay. Thank you.

Thank you.

Thank you. We'll now take our final follow-up question today from Adrian Dawes from J.M. Hartwell. Please go ahead.

Marc, it's Adrian.

Hey, Adrian.

Just returning to the Columbian marketplace, you've indicated, obviously, the environments gradually beginning to improve. The interconnect issue, whilst not immediately resolved, looks as though that's an '09 event. Can you flesh out a little bit how we should think about growth in the Columbian market, given [8%] market share and just a little further color on the margin progression as we look at it over the next couple of years?

First of all, Adrian, I didn't say that the interconnect issue was going to get resolved in 2009. I think that's a conclusion you came to. We said that the government took some initiatives and, yes, they have the intention to do something, but we don't know when that is going to happen. And if it happens, what the impact is going to be on our business. So let's be cautious there.

What I want to achieve in Columbia is that we get back to the situation we were in, in 2007 and still in the beginning of 2008 and that is that we become the fastest -- again, the fastest growing mobile operator in the country. And therefore, we are focusing on the postpaid market segment and that has been done relative successful. We also need to focus a lot more on prepaids, which means that we need to focus a lot more on the distribution management systems. We get that distribution improved and that's where we've called in the help from our [Guine] colleagues who are, I think, [the bosses] in putting those things together.

And at the same time, of course, we need to make sure that we do market segmentations because we clearly can't be everything to everybody, so we need to kind of know -- pick certain market segments we want to go for and really go for those then in a very aggressive way. So that's what we want to do in Columbia and that should get us higher subscriber intake and improved margins going forward.

Just a final follow-up, in terms of the proportion of revenues in Columbia that come from value added services, how do they compare to, let's say, Paraguay?

I think they're about one-third of -- I think around 10%. Paraguay is around 30%. Central America, I think, is approaching somewhere between 15% and 20%. So Columbia is still relative low. Historically, there was a reason for that and that was that there was an issue with the SMS interconnect, which could only resolve, I think, late in 2008. So again, there are some improvements that are happening, but still a lot of things need to happen in order to really get to level playing field in that country.

How many distribution points do you believe you need in Columbia to be competitive?

You'll have to forgive me, Adrian. I don't know the number, but quite a lot given the size of the country and given the size of the population. But it's not so much only the number of points of sale. It's also the quality of the points of sale, which is key. Because, like I said earlier in the call, you don't want people to show up at a point of sale and being told that the salesman has run out of minutes, tiGo minutes. So we want to make sure that there are tiGo minutes whenever somebody calls on a point of sale.

Great. Thank you and, again, congratulations on a great quarter and a great year.

Thank you, Adrian.

That will conclude today's question-and-answer session. I'd now like to turn the call back over to our hosts for any additional or closing remarks.

Thank you, operator. So I just would like to thank you all for joining us on the call today and we look forward to seeing some of you on our upcoming road shows in the U.S. and Europe. So thank you again and have a good day. Good-bye.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.