Millicom International Cellular SA (TIGO) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Millicom Q3 2009 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 the presentation summarizing the key features of the results.

I would now like to hand you over to the hosts of today's conference, Mr. Mikael Grahne, 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 can find the slides for this call on our website. Please turn to slide number three.

It has been an encouraging quarter for Millicom, despite the tough operating environment. We have maintained a similar rate of underlying revenue growth as in the first half, with VAS again being a key driver.

The effect of currency movements on reported revenues is now set to reduce. EBITDA margins have continued to improve, particularly in Africa. Cash flow is strong and we are progressing with our Asian divestment program. Although we are still not seeing any signs of improvement in the economic environment, our focus on higher-quality customers, innovation and tight operational control is proving successful.

Slide four. Our year-on-year performance shows a continued combination of underlying top-line growth with improving margins and strong cash flow. Customer numbers were up 20%, revenues increased by 9% in local currency and our EBITDA margin continued to improve, thanks to strong growth in VAS, improving market share and tight cost control. Operating free cash flow reached $140 million, equivalent to 16% of revenues.

Slide five. In terms of sequential growth, some 1.1 million customers were added in the quarter, representing growth of 4% over Q2. Revenues were up by 5%, helped by stabilizing currencies. EBITDA was up by 6%, and we recorded a small increase in the EBITDA margin. CapEx in Q3 at $141 million was 16% lower than in Q2.

Slide six. The rate of customer intake has slowed from Q2, when we recorded 1.7 million net adds. However, revenue growth has continued at similar underlying rate as in the first half. This reflects an increasing focus on higher-quality customers, retention and protecting ARPU.

As markets mature, especially in Central America, we believe there is less to be gained from chasing every last low-ARPU customer and much more value in stimulating our significant installed base to use more services and ultimately spend more.

In local currency, the quarter-on-quarter decline in ARPU was just over 1%, compared to 9% in Q1 of this year. The proportion of our base with very low ARPU has fallen, reflecting our strategy of not investing in retention across the entire customer base.

On the other hand, our high ARPU base is growing strongly, perhaps another sign that our efforts to stimulate spending through VAS and customization are working. Our plan is to maintain a similar level of customer intake as in Q3 going forward, but to work further on ARPU stabilization.

Slide seven. ForEx continued to have an impact on our reported numbers. Revenues were up 9% in local currency for mobile operations and 16% in total, including Amnet and Navega.

Net depreciation of currencies against the dollar eroded nine percentage points of growth from the top line, equivalent to $71 million. We expect the impact of ForEx to be much lower in Q4, given the timing of currency movements last year. At today's rates, the impact of currencies on Q4 would be immaterial.

Slide eight. The most severely affected regions are Africa and South America. The underlying growth in local currency remains strong in Africa, at 21%, and in South America at 13%. There was no local currency revenue growth in Central America, primarily as a result of slower economic growth, with declining remittances from the US, 12% down in Q3 '09 versus Q3 '08.

The new tax on inbound international traffic in Honduras also had a negative effect. Slide nine. Looking at revenues by category, I would again like to highlight VAS, which have grown by 46% in local currency since Q3 '08 and accounted for 19% of recurring mobile revenues in Q3 '09.

Innovation will increasingly be a differentiating factor between mobile operators and we are committed to being leaders in this area. Slide 10. Revenues from SMS traffic continued to track at 10% of service revenues, while other VAS revenues, including non-voice services, data and content are increasing the contribution to the group quarter on quarter. 3G in particular is gaining real traction from a low base and we could see the data card business becoming mass market over time.

CapEx planning for next year will be increasingly weighted towards 3G investments in Latin America. Slide 11. At the end of September 2009, Millicom's total market share on a rated basis stood at 28.7%, up almost a percentage point over the last three months. We are clearly outperforming our competitors in a very tough macroenvironment and should be well placed when economies begin to improve. Our market share growth confirms that our strategy to focus on value addition is paying off.

Slide 12. Churn has been deteriorating over the quarter. This is a result of focusing our retention activity on higher-value customers, as previously mentioned. In addition, we see rising churn as a consequence of the difficult economic conditions endured by many of our lower-end customers.

Slide 14. Now let's look at the [cluster] in more detail. In Central America, customers grew 14% year on year. The slowdown in customer growth during the quarter reflects the ongoing economic problems in these markets, their relative maturity and our strategy of focusing on higher-quality customers and stimulating spending.

That is why we are increasing our focus on VAS, data and broadband services. Revenues for Q3 were $326 million and continued to be heavily affected by lower remittances from the USA. EBITDA margins and cash generation continued to be very strong, reflecting our excellent market positions. We are very pleased to grow market share again in Honduras after a few quarters of decline.

Slide 15. In South America, customers increased by 17% and revenues increased by 13% in local currency, although the strong dollar continued to impact the top line, resulting in just 1% increase in reported revenue numbers. EBITDA for Q3 was up 35% in local currency and EBITDA margin was 41%.

South America, too, is becoming cash generative, with operating free cash flow of $83 million in the quarter.

Slide 16. In Africa, 502,000 customers were added across the region in the third quarter, which represents a year-on-year increase in total customers of 31%. The highest net additions were in Tanzania, Chad and DRC, reflecting our growing strength in these markets and the relatively low penetration.

Revenue growth at 21% in local currency remains strong, given the economic backdrop. EBITDA for Q3 was $75 million, up 48% year on year in local currency. This very strong performance was driven by good top-line growth and a big step up in EBITDA margin, reflecting our increasing critical mass in a number of markets and good cost control. We continue to make significant investment in Africa, with CapEx at 41% of revenues, reflecting our confidence in the market opportunity there.

Finally, we are on track to launch Rwanda, our seventh Africa market, by the end of the year. Slide 17. Revenues for Amnet and Navega were $52 million and EBITDA was $24 million, producing an EBITDA margin of 43%. We saw encouraging sequential revenue growth at Amnet, and broadband continues to be key focus of growth, with revenues up 21% year on year.

CapEx in Q3 fell sharply, as overall CapEx for Amnet this year was heavily weighted towards the first half. Increasingly, we are leasing new capacity rather than installing infrastructure, which does increase operating costs, but reduces CapEx and improves cash flow.

We are now aiming to increase our penetration of homes already passed by our network and to upsell broadband to cable TV customers. Now I would like to hand over to Francois-Xavier, who will talk you briefly through the financials.

Thank you, Mikael. On slide 19, you can see that CapEx for Q3 was $141 million, slightly down from Q2, and less than half of what we spent in Q3 last year. Our lower CapEx spend is not affecting our growth potential, and reflects spare capacity from prior years and lower activity than budgeted for in 2009.

We now expect total CapEx of $700 million this year, with $50 million slipping into 2010 as a result of timing issues. Growth in depreciation is slowing, reflecting the lower level of CapEx in recent quarters. Management of items below the EBITDA line is becoming an increasing focus, as we seek to reflect our EBITDA performance in earning growth going forward.

Turning to our finance cost on slide 21, our effective interest rate fell with the falling rates on the variable portion. We manage our interest rates risk carefully. Over time, we are looking to have around half our debt at fixed rates, compared with only around a third today.

And, as you will see on slide 21, our effective tax rate is around 28% year to date and was 28% in the third quarter. We expect our annual effective tax rate to remain below 30%, although it can vary from quarter to quarter, as it is strongly affected by withholding tax on dividends. As you can see on slide 22, quarterly EPS is beginning to improve as a result of rising EBITDA, a slowdown on CapEx on depreciation, the end of ForEx losses and lower interest rates and debt levels.

Slide 23. Our debt profile did not change over the quarter, but just after closing we completed the refinancing of the Amnet bridge loan. We have contracted a two-year $250 million facility from a syndicate of five banks at a cost below the current average for the group.

We now have some $873 million of cash, plus the proceeds from the Sri Lanka transaction, which closed last Friday, which means that today we have more than $1 billion in cash. On slide 24, we have set out our debt by region and currency. I know this is information that many of you have been asking for. We try to maximize debt in local currency to mitigate the effect of foreign currency movements and to hedge our asset base effectively. We are pleased to report that we now have over 60% of the debt at operational level in local currency.

Slide 25. The benefits of increased EBITDA on lower CapEx requirements contributed to a positive free cash flow, which we expect to deliver for the whole of 2009 for the first time. In Q3, free cash flow amounted to $108 million, or 12.6% of revenues and progress of our previous quarters has been strong. Free cash flow is not always regular, though. As we pay interest on the high-yield bond in Q2 and Q4 and taxes fall due at different times in different geographies are now heavily impacted by withholding taxes. CapEx payments vary over time, too.

However, we are confident of achieving a sustainable level of operating free cash flow in the mid teens as a percentage of revenues.

Slide 26. Cash flow generation has been improving in all regions. We are very satisfied with the better distribution of our cash flow generation at Central America, which accounted for over 200% of the Group's cash flow generation now accounts for little more than half. We even expect that share to decline to below 50% in 2010 now.

Slide 27. Nine months throughout the year, we are confident of achieving our EBITDA margin targets, maintaining it around the current level for the balance of the year and the cash flow measure introduced last year also looks set to be met. We are reducing slightly our expected CapEx figure, but this reflects a phasing issue into next year, rather than a cutback on planned projects.

We are currently reviewing our 2010 budget and we expect to communicate some guidance for the coming year at the occasion of our full-year 2009 results. At this stage, we don't anticipate any significant change in our performance over the next year in the absence of any change in the economic environment.

Slide 28. As you will have seen, we have progressed our disposal program in Asia with agreements signed for all three categories at multiples above our group average. We closed the Sri Lanka deal soon after signing and anticipate completing the other deal, subject to certain conditions, in the next few months. We can now better forecast management time and financial resources by growing our businesses in Africa and Latin America.

Slide 29. Before handing back to Mikael, I would like to make a few comments on our plans for the use of our growing cash balances, since I know this is one of your main areas of interest.

We have been looking at, and we are still reviewing, various possible targets for external growth in Africa and in Latin America, either through acquisition or new licenses, as we believe in our proven business model. Any external growth opportunity will have to offer both attractive returns and potential leading position over time. Getting the right opportunity is more important than making a big deal. We are aware of the risks of external growth, and such deals take time. We have nothing well advanced at this stage, but we have a few opportunities that we continue to discuss with third parties.

If there is no immediate opportunity, we will either redeem the high-yield bond, which is not tax efficient in Luxembourg, or return funds to shareholders. However, these options need not to be mutually exclusive, and we intend to communicate our plans by February 2010 at the time of our Q4 results.

I would now like to hand over to Mikael for his final comments.

Thank you, Francois-Xavier.

Overall, the Q3 results continue the encouraging trends of the two previous quarters -- good underlying revenue growth, market share gains, improving margins and strong cash flow. We believe this is a good performance, given there is no sign of any economic recovery in our markets.

As you know, next week we are hosting a capital markets day in Miami. Since we are not taking you into one of our markets this year, we intended to bring our markets to you, and the main aims of the day are to introduce you to a wide number of senior managers, give some in-depth reviews of our markets and explain how we have developed some strongly differentiated approaches in key areas, such as distribution and innovation.

That concludes my comments, and we will now be happy to take your questions.

Operator, may we have the first quarter, please?

Thank you, sir.

(Operator Instructions).

We will take our first question today from Michel Morin from Barclays Capital.

Please go ahead.

Yes, good morning, gentlemen.

Good morning.

A question on Colombia, if I may. I was wondering if you are still seeing any effect from the reductions that we've seen in mobile termination rates over the past year?

And then I believe that there was a change in the regulation of the dominant carrier in that country, precluding them from charging differentiated tariffs for on-net traffic. So I was wondering if you had seen any benefit from that at all.

Thank you.

Yes, let me answer that question.

The dominant operators need to change the basic -- the tariff plan will only be valid as of December '06, so as of to date we haven't seen anything. And there's been a small change in the interconnect calculation, but it doesn't have had any material impact on our performance.

As we have said before, we believe progress in Colombia will be done based on our own efforts and any interconnect change hopefully will accelerate those, but they are not the basis for success for us in that market.

Okay, and just to clarify, you said December '06. You mean --

December 6th, '09.

Okay.

The 6th of December, '09.

Okay, that's great.

And then also related to South America, your CapEx has come down significantly and your operating cash flow has increased significantly. How should we think about your capital intensity? I think that you mentioned that you had some CapEx planned, and perhaps CapEx in absolute numbers might increase, but should we expect that it would continue to remain around current levels on a percentage of sales basis?

We have at this stage given no guidance for 2010, because we want to lock in our budgets as late as possible so that we have maximum visibility. I think in general in '09, because the planning for '09 was done in September, based on July '08 data, we entered the year with slightly higher capacity required. So the kind of CapEx numbers you see, primarily in Latin America, is a little bit reflection of that. So we are totally rebuilding the CapEx plan for 2010, based on more tighter capacity.

Sounds good, thanks very much.

Thank you.

Thank you.

We'll now move to our next question today, which comes from Chris King of Stifel Nicolaus.

Please go ahead.

Good morning. Just wanted to ask a quick question about Senegal.

I know that you noted that there was an MVNO that recently came into the market this past quarter. Just was wondering how we should think about your strategic plan in terms of dealing with that MVNO, whether you plan on becoming more aggressive or sticking to your plan of really focusing on the more higher-value subscribers there and whether you are comfortable with a mild subscriber loss over the course of the next several quarters there, as a result.

Yes, I think you have to remember that we are in conflict with the Senegalese government about the license situation in Senegal. So for the moment we are not investing substantial amounts in any CapEx, so our focus clearly in Senegal is the same as in the rest of our markets on the high-value customers. We lost some market share to the new MVNO operator, but this is all lower end, so we are not concerned about that for the long term.

I think in general any new operator in this environment who comes in tends to have very low value offers and attracts quite rapidly a large number of subscribers, but they tend to be of the lower-ARPU nature and there are big questions of the stickiness of that over the long term.

Okay, thank you.

You're welcome.

Thank you.

We'll now move to our next question today, which comes from Stefan Pettersson from Nordea.

Please go ahead.

Yes, hello.

This sort of lines up on the Senegal issue, but this quarter you had very solid EBITDA margin in Africa. It's 37%. And you have stated earlier that you expect improvement in the EBITDA margin over time, but now you made a drastic jump, which could come from a lower subscriber intake.

But, from this level, should we expect continued improvement in the EBITDA margin?

Yes, we will stick to the guidance we gave before in previous time. Our aim is to be up at the Millicom average, which is the mid 40s. You might have some variation quarter from quarter, but the trend should be upwards. Given that we are now starting to hit critical scale, critical mass, in a number of key markets, and also in combination with very tight cost control.

Okay, thank you for that.

Could you also clarify a little bit on what you mean with that margins in Central America should edge downwards over the medium term? What is new in this statement?

In Central America, we have reached such a high level of margin that we believe it's somewhat difficult to sustain that level due to the fact of the combination of competitive pressure to start with and even more probably new taxes and decrease in interconnection rate that are forced by the regulator. With 56% EBITDA margin, where can you go to?

Either we can maintain that level, but we are not sure that we will be in that position, or it may erode slightly over time. But we don't see any threat for the Millicom margin overall, due to the fact that Africa is picking up and we expect that in the short to medium term we can maintain our EBITDA margin overall at current levels.

So the overall margin should be maintained at the 45%?

40s, yes.

Okay, thank you.

With a different mix, obviously.

Yes.

Thank you.

We'll now move to our next question, which comes from Rick Prentiss from Raymond James.

Please go ahead.

Thanks.

I want to focus on the data comments that you put out there. Can you talk a little bit about the data cards, as far as where you see the costs at and how efficiently that can deploy into a mass-market scheme over time?

And, also, when you mentioned that you'd be spending some more 3G capacity, given the success that you've seen with the air cards, what exactly is involved physically when you increase capacity? Is it antennas, is it radios? Just trying to understand what might be involved.

It's basically two things here. The data card cost itself has come down from about $200 a card two years ago to now below $50, so that has of course helped us to put more of these into the marketplace.

I think what we are waiting for on the computer side is some kind of an inflection point, where more customers could access a computer. In the mobile world, when we really drew the penetration is when a good handset came down to $25.

And so we believe that maybe $150 to $200 could reflect a similar point on the broadband side. If the cost of the computer really would come down, a laptop to that $200, we think that would drive increased penetration, because there's a massive pent-up demand.

Second, the investment is the same as you would do from voice, basically, similar radio and antennas and whatever equipment required, no different in that respect.

Okay, and then in Africa you mentioned that you'd be interested in still growing that business in the medium and long term. Just wondering how you look at that and make the decision on when to push the gas as far as spending more money in Africa?

Well, we take the same approach in Africa as we take in all Millicom markets. I.e., we don't from a planning point of view build any expectation of an improved economic environment, for example, in the budget we are putting together for 2010.

So we basically have to therefore make plans on which we can get the right returns in this environment and continue to drive the market share, as we've done in the quarters in 2009. So continue with the same strategy as we have for the moment.

Okay, very good. Thank you.

Thank you.

We now move to our next question, which comes from Sven Skold from Swedbank.

Please go ahead.

Okay, thank you.

I was just wondering, having seen the subscriber intake figures for the whole Group in the quarter, I would actually have assumed that margins should be slightly higher for the Group as a whole. My model might not be correct, of course, but I would have assumed a more than $400 million in EBITDA in the quarter.

And my question is, is this because of the higher churn that you mentioned? Is it a higher acquisition cost because you go for high-value customers, or can you describe the general trends in the Group?

Yes, I think it's also a combination of what we call gross new, the amount of gross units sold to the market. So short term we will have -- because of our focus on the higher end we will have basically more initial churn, but long-term also the gross new is going to go down for us, which will reduce our sales and marketing cost, which by the way is quite low for our prepaid customers.

Okay, but you -- okay, thank you.

Thank you.

We now move to our next question today, which comes from Jan Dworsky of Handelsbanken.

Please go ahead.

Thank you.

I just want to check your comments in relation to 2010 and no improvement in economies, where you say that you expect the environment to remain the same or the Group to remain the same in next year. Is that implying that you expect to see the same kind of organic growth that you are seeing next year.

Yes, similar performance trends. We are looking at similar performance trends.

Then also I had a question in relation specifically to Senegal, the fact that subscribers shrank, or you have fewer subscribers ending September compared to in June.

Did that have -- for the African group, did that have a positive or a negative impact on margins in Africa, Senegal?

That basically was a result of a significant churn that in itself did not have any impact on the margins, just basically customers disappearing. So no margin impact on that.

Then you said that you expect the customer intake to remain at the one point --

Yes, at this level, because of our focus on the higher quality, as you can see from -- even if you look at our ARPUs in local currencies, we were down only slightly less than -- slightly more than 1% between Q2 and Q3, when in Q1 we were down 9% in local currencies versus Q4.

And in Q2 I think we were 2.4%. So there's clear signs that our focus on the higher-value customers driven by our higher value-added service strategy is working, and we intend to continue on that trend.

Also, detail on Rwanda. Should we assume that there will be any customers this year, or is the customer intake in Rwanda going to start next year?

No, there should be some customers coming in this side of the year.

Okay, thank you.

Thank you.

Thank you.

We now move to our next question, which comes from Kevin Roe from Roe Equity Research.

Please go ahead.

Thank you, a couple questions.

Shifting to Central America, in El Salvador you posted a slight subscriber decline. How much do you attribute to the economy, versus the competition, and should we expect a resumption of growth in this quarter?

I won't comment on this quarter, but also in El Salvador we tightened up a little bit the subsidies we give to new subscribers, which also led to a lesser subscriber intake.

So basically what we are doing is progressively tightening up basically the subsidies that we give in order to, again, put the focus on the higher-end customers.

Did the market overall grow in the quarter?

No, I think there was a slight decline for the market overall in the quarter.

For subscribers?

Yes.

Okay. And on Senegal, you mentioned you haven't -- again, you mentioned that you haven't been spending on CapEx in that market until you know what's going on with the license and update there on the license and arbitration sort of calendar would be helpful.

Also, have you -- since the license dispute in Senegal, have you reduced your marketing spend in Senegal also?

I think we had -- I think it's been broadly intact, because our objective is to maintain our market position in this environment, and still be able to basically communicate with our customers. We have slowed down on the -- we had a quite aggressive CapEx plan that naturally we haven't implemented in this environment, and we are trying to shift.

When we run into capacity bottlenecks, we still are short term able to manage by pricing. So basically, the price up that area and then you reduce pricing somewhere where you have more capacity. So we think we can keep it going for some time on that principle.

But net, since the beginning of the year, we didn't lose any market share in Senegal. And it's important to understand as well that over the last two months, we saw the market that shrunk by about 8% over the months of August and September.

What we have in general across the market is that we see lower-end customers disappearing, so there is a trend of people at the lower end not being able to any more afford the mobile services, and they disappear. Or, if it's multi-SIM users at the lower end, they basically only stay with one operator. So that gives a quite -- has a quite big impact on the churn.

That's helpful. And on the license negotiations with the government in general, an update would be great.

Progress is slow, don't expect a quick resolution. Latest update is that the arbitration court in Washington asked the local court in Senegal to cease progressing the local case there and the Senegalese court basically agreed to that, so they say they will postpone pursuing any local court issues until December, so that's the latest news.

And when's the next arbitration hearing in the US, then?

I think it's in the next two months.

Great. That's helpful. Thanks, guys.

Thank you.

Thank you.

We now move to our next question today, which comes from Peter Nielsen from Cheuvreux.

Please go ahead.

Thank you, just one question related to M&A, please.

It would seem to me that throughout this year, margins at Amnet have been somewhat below what they were at the time of purchase, or at least what they were indicated to be at the time of purchase. Is that correct, and why is that?

That is correct.

Firstly, we had a restructuring charge that had an impact on the margin in Q1 and some of it in Q2, and then we have also reinvested a little bit more in sales and marketing efforts and customer service efforts, so in order to drive more revenue growth. We think over time we will be able to improve those margins.

Lately, what we have done as well, and especially in Q3, is instead of investing in CapEx in order to improve the operating free cash flow, we have favored the leasing of the network rather than the investment for a new and extended network, which puts a little bit of pressure on the EBITDA margin, but which is reducing CapEx and improving operating free cash flow as a consequence.

Okay, thank you.

Thank you.

We now move to our next question, which comes from Bill Miller at JM Hartwell.

Please go ahead.

Hello?

Please go ahead, Mr. Miller.

We'll now move to our next question, which comes from Andreas Joelsson from SEB Enskilda.

Please go ahead.

Two questions, if I may.

First, given the strategy of aiming for loyal and high revenue generating subscribers, plus growth in VAS and the 3G revenues, do you believe in local currencies that we have reached a trough on the ARPU?

Well, you can clearly see that we have improved or arrested the decline to at one point 4% in the last quarter, versus Q2. Our ambition would be -- and this is not a guidance -- but our ambition would be to stop that decline and over time build on the ARPU by the new services and the shift in customer mix. That's what we are working for.

Perfect. Thanks.

And then just on your comment on the multi-SIM card, was that only valid for Senegal, or is that valid for the Group?

That's valid for the Group. In most countries you have a penetration between I would say 15% to 30% of the lower end might be multi-SIM users.

Okay, thanks a lot.

You're welcome.

Thank you.

We'll now move to our next question, which comes from Bill Miller from JM Hartwell.

Please go ahead.

A couple three questions, actually.

Could you give us some idea of how deep a penetration you could achieve with VAS? Could this become 30% or 50% or more of your total revenues?

And, secondly, can you talk a little bit -- when you're talking about 2010, you talked about continuation of the current environment and growth rates, et cetera, et cetera. But are you counting in there any impact from Rwanda?

You have an attempt to getting a license in Costa Rica. Could you update us on that? And would that be included in your calculations, either of those two be included in your calculation of those, some upside to the equations?

Finally, you talk and you say you wouldn't comment on it, but at least you could define it for us when you say return to shareholders some of the excess capital. I noticed you've said historically you'd be at a one to one. You're now at a 0.9 to one before you even achieve the results or get the cash from the sales of the other entities from Southeast Asia. So if you could update us on that, that would be very helpful.

Thank you.

Okay, thank you for that, Bill. I will address the two first questions, and Francois-Xavier will address the last one.

Value-added service is the best-performing market we have is in Paraguay, which basically by skilled marketing and great consumer insight we are running at about 30% of the VAS as a percent of recurring revenues. Our mid-term target for the Group as a whole is to get to 25%. We think long term we should be able to in most markets -- at least in Latin America to be in similar 30% levels as we have in Paraguay.

Second, a comment about 2010. As we said, we are still building the plan. We are not anticipating any economic improvement in our planning and what our aspiration at this stage would be to basically hit a similar kind of performance growth numbers in 2010 as we have basically encountered in 2009, excluding any new markets or excluding Rwanda.

As far as the return to shareholders, so indeed with $1 billion of cash today we have excess cash, because we believe that in order to secure our liquidity we don't need more than $500 million of cash.

Regarding the net debt to EBITDA ratio, we have been for some time at a ratio of one. We are now below at 0.9, and indeed we are going to go below 0.9 once we will get the proceeds from Cambodia and Laos, plus the cash flow generation.

To be very clear, we don't have any objective and we didn't set any objective internally to be below one, so we are quite comfortable with one.

We don't want to be above two, either, so the net debt to EBITDA ratio isn't an objective in itself. What we have to decide first is what do we do with the cash proceeds. Then, first, to put things in order we are looking at the opportunities in terms of external growth, which is a process which takes some time. That we are currently carrying out.

If we don't find any opportunity, as I said earlier, then we will look at returning the cash to shareholders either in the form of dividends or share buybacks, and the decision will be shared with everybody by February 2010 at the occasion of our 2009 full year results.

One follow-up on the VAS situation. Are you seeing any competition from any of your other competitors in the markets where you currently have VAS? What has their response been to your offers?

Sorry, Bill, could you repeat that question? I didn't get it fully.

I'm sorry. I wonder whether you can give me some idea, or give all of us some idea of what the competitive response to VAS has been in the markets where you currently offer it?

So far, we haven't seen any massive response to that, but we know everything we do can easily get copied over time, so our challenge is to just keep on staying ahead. And, in fact, we are basically creating two innovation teams, one based in Africa and one based in Latin America, really to ensure that we stay ahead in the whole VAS arena or any other growth opportunities that this industry could offer.

Do you think you're going to be able to have a similar result in Africa over time, or more immediately? Can you get to a market penetration of even 10% or 15%, given the economic dynamics there?

I think it's going to be slower over time in Africa? It's going to take a longer time to do that. It will be linked to the return on good economic times for that to accelerate.

There is a lot to be done in voice in the meantime.

Right, okay, and margin improvement coming from voice.

Right.

Thanks very much.

Thank you.

Thank you.

(Operator Instructions).

We'll now move to our next question today, which comes from David Kestenbaum from Morgan Joseph.

Please go ahead.

Thank you.

Can you give us a little update on Ghana? I see the performance is getting a little better, nowhere near it once was, but just can you talk about the competitive dynamics there?

Yes. We are doing relatively okay as you can see there in the earnings release. In local currency, we are holding onto our ARPU. We are losing subscribers at the bottom end. That's okay, because, again, same strategy is to focus on the high end.

I think there has been a strong investment, still continued strong investment by Vodafone in trying to increase their market position, as well as from Zain, so it's a highly competitive market. The cedi basically had deteriorated rapidly. At one stage it was down 60% versus a year ago.

In the last month, there is some stabilization on the cedi to the dollar exchange that hopefully can provide a little bit stabilization to the market over time. But, with that, of course we have also now a stronger inflationary environment that we as an industry have to learn how to operate in. So highly competitive and no sign yet of an economic turnaround.

Okay, and then could you just give us a little bit of color. When you say that you focus on the higher-value customer, is that all related to promotion dollars that you're spending, or are there other things that you're doing?

No, we primarily get that from our focus on value-added services, typically are things that heavy users aspire to. So, basically, what we have to do is to continue to invent programs and basically services that people who use the mobile phone a lot appreciate. So it's basically by service delivery that we get this advantage.

Okay, so on the 3G service side, you're offering functionality that your competitors aren't at this point?

Relatively similar offerings. I think we are probably working the market better. We spend a lot of time educating our people. We tend to have sort of in our customer service offices some young kids with ponytails who can sort of help the young customers to get familiar with how to sue the services. So I think it's also how you work the market where we work.

All right, thanks.

Thanks.

Thank you.

Our next question comes from Alexander Vassiouk from Morgan Stanley.

Please go ahead.

Yes, hi.

Just first of all in African margins, can you just elaborate on what particular country in Africa is driving margin improvements? Or is it the trend across the board?

It's in general some trend across the board, but we had a quite strong improvement in DRC. As you may recall, we dismantled many radio base stations in the east where the economic activity primarily collapsed with the mining industry there, and have now been focused in really strengthening our position is what we call the KBC area, which is Kinshasa Brazzaville, Congo, where we are building market share.

And by doing that we basically have increased our scale in that market area, that drives down costs, and we also have savings on fuel cost in the east, as well as transmission cost from the east. So DRC has been a key contributor to that margin growth.

Okay, but have there been any businesses where you've seen some meaningful deterioration in the market, or they're all stable?

They're overall all stable. Overall stable or improving.

Okay, good, and also I was wondering about the margins in Colombia, if you can give us any update? Because historically you mentioned in your press releases where you're running in terms of profitability, so maybe you can just give us a broad idea whether direction is improving or stable or deteriorating?

In Q3, there was a marginal improvement, but as we said in the previous conference call, we are for the moment trying to invest a little more in sales and marketing to see if we can accelerate the revenue growth.

So our expectation for the Q4 margin that it's either a similar level or slightly down. We're going to try to see if we can accelerate revenue growth, but slightly short-term more investment in sales and marketing.

The main driver for the improvement of the EBITDA margin in Colombia will come from the revenue growth and market share growth, but we have been stabilizing the margin in Colombia for probably more than six months now at a level which is north of 20%.

Okay, thank you very much.

Thank you.

Thank you.

Our next question today comes from Soomit Datta from New Street Research.

Please go ahead.

Yes, hi there. Just a couple of things, please.

In Honduras, can you tell me what exactly the tax cut was? I think you've sort of quantified the revenue impact, but I was just wondering what exactly that tax, or the tax change -- I think it's increased tax, rather, what that tax change was. That's the first thing.

And then, secondly, in Central America, to the best of your knowledge, are there any new taxes sort of pending, or are there any prospective changes to the termination rate regimes which you're aware of in the next 12 months, say?

Okay, the comment on the Honduras, it's $0.03 per incoming minute, and the tax was applied as of July 27. We believe it took probably about $1 million of monthly revenues away, that's all of the impact.

Second, there are no active dialogues for the moment, except in El Salvador there is a possibility of an interconnect change. But at this stage we don't know exactly what it could be and what the impact of that would be to our business.

Okay, do you know when that might be of interest, please?

Possibly in the next few months, or then as of January 1st.

But overall there's nothing major on the horizon.

But that's no guarantee that a tax couldn't come, but there are no active discussions.

Okay, thank you.

Thank you.

(Operator Instructions).

We'll now take a follow-up question from Jan Dworsky from Handelsbanken.

Please go ahead.

Yes, I just want to come back to the performance in Congo, where you saw close to 50% sequential growth from Q2 to Q3 revenue wise. Was that just a function of this moving the base stations and attracting a more sort of high-ARPU -- attracting more higher-ARPU customers?

Yes. There is much more -- relatively, there are much more economic wealth in the Kinshasa but Congo territory than in the east, so moving the same radio equipment into the Kinshasa territory automatically gave us an uplift on the revenues, as well as an improvement on the margins, as I outlined before.

Okay, thank you.

You're welcome.

Thank you.

Our next follow-up question comes from Stefan Pettersson from Nordea.

Please go ahead.

Yes, it relates to you said that there is a potential interconnect change in El Salvador. Could you state how your traffic is in El Salvador? In Colombia, we saw a major impact in the EBITDA margin due to that you had more incoming than outgoing calls.

Yes, it's El Salvador, because we are market leaders, the vast majority of our calls are on net. But the current interconnect rate is very high in El Salvador. I think it's approximate $0.18, and given the high value of that any sort of change will have some impact, could have some impact on our revenues.

But it shouldn't have a direct impact on the EBITDA margin?

Not directly. Today, when somebody makes a call out from our network, we have an $0.18 cost and somebody makes a call in we have an $0.18 gain, so there should not perhaps be an EBITDA impact, but possibly a revenue impact.

Okay, thank you.

You're welcome.

Thank you.

As we have no further questions, I'd now like to turn the call back over to our host today, Mr. Mikael Grahne, for any additional or closing remarks.

Thank you, operator.

I would just like to thank you for joining the call today, and we look forward to seeing many of you in Miami.

Thank you, and goodbye.

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