Millicom International Cellular SA (TIGO) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Millicom Quarter Three 2011 conference call. For your information, this conference is being recorded.

May I also remind you that this call is being autostreamed 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.

Thank you, operator, and welcome to you all. As usual, you can find the slides for this call on our website. Please go to slide number three.

In Q3, we recorded underlying local currency revenue growth of 9.1%. We have seen a stabilization of ARPU in Latin America with a loss of some international traffic in Central America being offset by the attractive development of data. In Africa, there has been a further decline in ARPU as we focus on affordability of our products and services.

We are seeing the continued strong development of VAS across the group, and our non-voice services now contribute to over one-third of our recorded revenue. More specifically, in Latin America, half of our growth in recording revenue is coming from mobile data services.

Despite an acceleration of investment in 3G and other services, we produced an EBITDA margin of 46% for the quarter.

Normalized EPS increased by 30% year on year, due to our EBITDA growth in combination with a reduction of our effective tax rate and despite ForEx losses this quarter following the strengthening of the dollar.

We have committed to delivering our previously communicated shareholder returns for the year, but with a more even distribution between dividends and share buybacks. The Board will propose to -- an EGM to be convened in due course, an extraordinary dividend of $3 per share to be paid in December.

This, combined with our ordinary dividend and the ongoing share buyback program which will continue in Q4, would bring total shareholder return for the year close to $1 billion.

Now let's look at the financial highlights for the quarter in more detail as shown on slide four.

Revenues for the quarter was $1.150 billion, up 13% year on year or 9% in local currency. The EBITDA margin was 46%, 1.5 percentage points lower than for the prior year, reflecting greater investment in 3G and services. We ended the quarter with 42.2 million customers, up 13% year on year.

CapEx for the quarter was $217 million or 19% of revenues. Our CapEx in the year through the end of September has been low, due to phasing issues, and we expect it to increase considerably in Q4. We are revising our CapEx guidance somewhat downward, to around $820 million for the full year, due to some delays in the delivery of equipment.

Our operating free cash flow generation in the quarter was strong, at $327 million or close to 34% of revenues.

On slide five, you can see how our focus in higher value customers is being deflected in our subsidy cost, which are almost 18% higher than in Q3 2010 in absolute term as we aim -- as we support data development. As we increase subsidies, the composition of our customer base is evolving with a growing proportion of postpaid customers.

We see this as a positive development as ARPU, revenues and EBITDA all increase in absolute value while [showing] decreases. Sales and marketing costs excluding subsidies were 8% higher year on year, bringing the total investment in data and services to $250 million in the quarter.

On slide six, we have set out our local currency revenue growth by quarters since the beginning of 2009. This chart shows its volatility of revenue growth quarter on quarter due to our commercial activity in various markets at different times of the year.

For example, the third quarter of 2010 produced the highest growth of all quarters last year. For 2011, we are on track to produce revenue growth of around 10% in local currency.

Slide seven illustrates that it is the quality of our customers, rather than their absolute number, that is driving our topline performance. Over the last year, the rate of ARPU erosion has slowed by 3 percentage points as we have been focusing on attracting and retaining higher value customers.

This strategy has enabled us to achieve ARPU stabilization in Latin America and will, over time, slow the rate of ARPU decline in Africa.

Looking at the ARPU development by region on slide eight, you can see that in Central and South America, ARPU was essentially stable year on year with the margin on decline in Central America due to the loss of some international traffic. In Africa, mobile ARPU was 9.7% lower, reflecting decline -- declining revenue in Ghana and Senegal which we will talk a little bit more about in a few moments. ARPU in Africa will continue to decline for some time as we pursue penetration gains and greater traffic volumes and minutes of use through affordability initiatives.

On slide nine, you can see our distribution of customers by ARPU in Latin America, where our focus on higher value customers is most applicable. At the end of the third quarter, 35.5% of our customers generated an ARPU of more than $10, up 1 point year on year. We expect a greater proportion of our customers in Latin America to fall into this category over time as we accelerate investment in 3G and other value-added services.

Looking at the breakdown of our revenues by service on slide 10, you can see that voice revenues increased by 1% for the group as a wholly local currency. The resilience of voice is due to strong branding, sophisticated distribution methods, and our innovative product packages designed for specific customer segments.

The 6% growth reported in SMS combined with 46% growth for non-SMS VAS produced a year-on-year growth of just under 29% in all non-voice services combined. Our value-added services are on track to generate over $1.1 billion of revenues in 2011.

Slide 11. We have seen a 5.1 percentage point increase in the contribution of VAS to group revenues over the past year. Of the 28.4% contribution reported in Q3, over 18 points are coming from non-SMS VAS. In Latin America, the contribution from non-SMS VAS is even higher at almost 22 points.

Today, more than one third of our revenues in the region are generated by VAS. And by 2015, we expect that contribution to reach 50% in Latin America.

In Africa, VAS now represents 11.4% of revenues and in Latin America the non-SMS VAS segment is growing faster, up 1.1 percentage points quarter on quarter to 7.3% of revenues.

The split of revenue by our four categories is set out on slide 12. Communication defined as voice, peer-to-peer estimates and outbound roaming accounted for 77% of recording revenues. Information on data services generated revenues of $131 million in the third quarter and accounted for 12% of recurring revenues.

We have fixed out mobile data from the category at the bottom of the slide to show that it generated revenues of $95 million in the quarter and grew at 94% in local currency.

Entertainment or access to music and video content generated $84 million in Q3, accounting for 8% of recurring revenues. And solutions including mobile financial services generated $34 million or 3% of recurring revenues.

The information and solutions categories are growing the fastest at 48% and 34% respectively, and combine are contributing more than 15% of recurring revenues. We expect the strong growth to continue as we expand our 3G capacity and coverage further, and as we develop Tigo Cash and other mobile financial services.

On slide 13, you can see the penetration levels of the main VAS product in each of our four categories. As you can see from looking at the delta between the highest and lowest penetration figures, there is still room for further growth through [endless] penetration of all these products and services.

Slide 14. Today, 2G and 3G data revenues combined represent 11.3% of all recording revenues in Latin America. We have revised our definition of a data user as someone who uses more than 250 KB of data in a 30-day period. We think this chance gives a more meaningful representation of our data customer base by excluding very occasional users.

On this basis, data users totaled 3.7 million at the end of the quarter, up 12% quarter on quarter and 1.6 million of this for 3G data users.

Of the $89 million of mobile data revenues generated in Latin America in Q3, slightly more than half comes from usage on handsets, which is a preferable as the data usage on handset producers are better ROIC than data card usage.

On slide 15, you can see how data revenues have grown since the beginning of 2009. There has been an acceleration in the last four quarters as we have increased our commercial investment. And today, 48% of the recurring revenue growth enjoying Latin America comes from data. Even the pent-up demand for affordable data services, we see this as the largest growth opportunity for Millicom in the medium-term.

Our Tigo Cash service was first launched in Paraguay in Q3 2010, and we are steadily gaining traction as you can see on slide 16. By the end of September, the service had reached a penetration level of 19% of our customer base. In Tanzania where Tigo Cash was launched in Q4 2010, penetration has reached almost 13%. Tigo Cash is now present in seven of our operations which collectively contribute over 60% of group revenues.

Slide 17, our market share across all regions was broadly stable in the quarter at 30.4% with increases recorded in Rwanda, El Salvador, Guatemala, Colombia, and Tanzania and slight declines in our other markets. In the short term, we expect continued volatility in market share in Africa driven by our promotional activity.

Like customer intake, market share is becoming a less relevant indicator of performance as we are putting more emphasis on growing our share of higher value customers. We can only measure customer market data due to lack of information on value share which would be a more relevant indicator, given our strategy.

Now I would like to hand over to Francois-Xavier who will talk you briefly through the results for each [class start] and the financials.

Thank you. We turn now to the regional growth cluster starting with Central America on slide 19. We have seen an acceleration of rules in Central America during the quarter with revenues from mobile and cable operations up by 4.9% year on year in local currency.

This performance is due to strong growth in data services, [on recurring this side] the decline in revenue contribution from incoming international traffic, from 16% to 12% over an 18-month period. This international business has a 100% gross margin.

El Salvador produced positive growth for the second quarter in a row and is expected to improve further in Q4. Costa Rica recorded growth of more than 24% in local currency, illustrating the growth potential of our broadband Internet business. We recorded a marginal year-on-year decline in ARPU as local currency revenues from international incoming traffic were lower.

The decline in international traffic coupled with more 3G handset subsidies diluted the EBITDA margin by 4.2 percentage points to 51%. Central America generated $168 million of operating free cash flow, up 36.5% of revenues in the quarter.

Slide 20. In South America, revenues increased by 15.2% in local currency with all three markets reporting a strong performance. Mobile ARPU was up by 0.4% in local currency as a consequence of our ongoing support of mobile data and other VAS.

EBITDA for Q3 was up 13.4% in local currency and EBITDA margin was 42.9%, up slightly year on year. Operating free cash flow generation for South America was $139 million, representing 31.3% of revenues.

Slide 21. Revenues for Africa were $247 million, up 7.8% in local currency year on year and the ARPU for the quarter declined by 10%.

Our growth in the quarter was impacted by negative local currency growth in both Ghana and Senegal. In Ghana, we had maintained a price premium on and preserved our margins in the first half of the year. In the third quarter, however, we said it was necessary to eliminate this price premium in order to maintain our affordability and market position for the longer term as both were starting to be impacted by the introduction of flat tariff and specific promotions by our competitors.

In Senegal, our CapEx levels are constrained by the ongoing litigation of our license with the Senegal government. Our revenues were impacted by certain capacity constraints and by a series of power shortages during the quarter.

Our other African markets performed well, growing on average by 16%. EBITDA for Q3 was $104 million, up 11% year on year, and the EBITDA margin was 42.1%, benefiting from our tower transactions including the transfer of towers to the respective subsidiaries of (inaudible) South Africa in Ghana and Tanzania. CapEx in Africa in the quarter amounted to $76 million or around 31% of revenues and the region generated $116 million of operating free cash flow or 47.2% revenues.

Slide 23. Now let's look in more details at the financials. Our effective tax rate for the quarter was 26% as we benefit from a tax planning initiative and the pushdown of debt from the corporate to the operating level.

The rent is also lower, due to the fact that two additional operations and the holding companies are now profit-making. The effective tax rate is expected to increase while remaining below 30% as we are not planning to defer tax assets that we have recognized this quarter in Colombia.

Slide 24. We have been able to recognize a deferred tax asset of $231 million in Colombia as the operation is now in a sustainable net profit situation. This is a one-off non-cash item which is expected to be amortized from 2012 to 2015 at which point income taxes will start to be paid.

Slide 25. We are pleased to see a 30% increase in the normalized EPS of Q3 to $1.74. Some month ago, we highlighted our increased forecast on EPS now that we are paying dividends, and we now see the initial results of our capital restructuring. This EPS growth is even more pleasing when taking into consideration the fact that we [deferred from foreign localities] of $29 million following the strengthening of the US dollar against the Colombian peso, the Tanzanian shilling and the Euro lien currencies which affected our dollar-denominated debt.

Slide 26. Our operating free cash flow for the quarter was exceptionally high at $387 million or 34% of revenues boosted by the favorable timing of CapEx payments and tower proceeds in Africa.

Slide 27 shows our free cash flow for the quarter of $328 million or 28.5% of revenues. This level was also exceptionally high, again due to the favorable timing of CapEx payments and tower proceeds in Africa.

Slide 28. We completed the first tower closing in Tanzania at the beginning of the quarter, receiving $45 million in cash for the transfer of 518 sites representing 56% of the total number of towers committed. We also completed further closings in Ghana and by the end of the quarter, for the [third] quarter, we had transferred 92% of the committed towers.

The first closings for DRC and Colombia are expected to occur in Q4 and we expect total cash proceeds for tower (inaudible) in 2001 to be $205 million, of which $65 million has already been cashed in year to date, essentially in Q3. As we have previously stated, the five deals that we have done to date, three in Africa and two in Latin America, we generated net present value in excess of $600 million, estimated on the [conservative this year's business].

We will continue to pursue other opportunities to share passive infrastructure, which could include 3G or 4G networks on Spectrum, enabling us to focus on our core activities.

Slide 29. At the end of Q3, our cash position was a little bit higher than $1 billion and our leverage ratios to that 0.6 times net debt to EBITDA. At the end of the year, our net debt to EBITDA issue is likely to be around 0.7 times.

Slide 30. Turning to our debt maturity, we see the average maturity of our gross debt at three years and two months. 45% of the debt is at fixed rates meaning that we are less exposed to interest [for average maturity to debt] without having increased our total cost of debt.

Slide 31. We are committed to delivering our previously communicated shareholder results for the year of $1 billion, but with a more even distribution between dividends and share buyback. In the year to date we have both $368 million of shares unpaid and our ordinary dividend amounting to $189 million.

The Board is proposing an exceptional dividend of $3 per share to be paid in December 2011, subject to approval at an EGM which will be convened in the coming weeks.

The balance of our shareholder remuneration for the year will be executed in the form of additional share buybacks in Q4 predominantly in Stockholm. In addition, we will also carry out a limited share buyback on the OTC market in the US, up to a maximum of 5,000 shares a day. We expect the share buyback to amount to around $130 million in Q4, bringing our total shareholder remuneration package for the year to close to $1 billion.

Slide 32. We reiterate our EBITDA margin guidance of over 45% for 2011. Our CapEx guidance for the full year is now around $820 million as we have experienced some delays in the delivery of the equipment in recent months.

This figure excludes any potential new spectrum investments in green-field cable assets and the capitalization of leasing costs for towers which is a non-cash item. We are raising our operating free cash flow margin guidance for 2011 from around 20% to close to 25% excluding any payment for spectrum. I would now like to hand over to Mikael for his final comments.

Thank you, Francois-Xavier.

I would just like to close with a quick summary. We have performed in line with our expectations in the third quarter with continued momentum in topline growth and ARPU stabilization in Latin America, driven by strong growth in data and other value-added services.

Our growth in Africa was negatively impacted by Ghana and Senegal which both experienced market-specific challenges during the quarter.

Our other Africa markets performed well, growing on average by 16%. We are on track to achieve topline growth of around 10% in local currency for the full year.

Going forward, we aim to find the right balance between profitable revenue growth, sustainable cash generation, and return on invested capital.

We would now be happy to take your questions. Operator, may we have the first question, please?

(Operator Instructions). Miguel Garcia, Deutsche Bank.

Thank you. Good morning and good afternoon in Europe. CapEx, it looks like it's going to be around 15%, 16%, 17%, 18% of revenues this year. Is this a sustainable level? Do you expect a decline in this percentage going forward? What do you think is a sustainable level in the long-term?

And the second question is regarding your cable strategy. You've been very successful and growing very well in Central America. What are your plans to expand this type of cable operations outside this region? Thank you.

I'll take the first question on CapEx and Francois-Xavier will take the cable question.

We don't expect a decline in the CapEx level for 2012, although at this stage I will point out that we are still in the process of building our 2012 plan.

Regarding the cable operations, so first of all we are very happy with what we have achieved with Amnet in Central America which, by the way, we have rebranded to Tigo in two out of the three countries. We are very happy in terms of return in terms of growth opportunities. This is a business that is growing at about 15% today on the topline with an attractive margin.

So, that being said, we would be quite happy to do the same in other geographies, ideally, in countries where we already present in mobile and in Latin America and Africa. In Africa, they're not so many opportunities. There might be some in South America so we keep on looking at different options.

So you don't have any imminent plans to launch cable in other parts of Latin America?

In Paraguay, actually, we have announced a few months ago that we are starting operations on the green-field basis, which we expect to start probably Q4 in (inaudible).

Great, thanks a lot.

David Kestenbaum, Morgan Joseph.

Thanks. Could you talk about the outlook? I think at the analyst day you guided towards revenue growth of north of 10%. Now you're kind of saying 8% to 11%. So what's changed and specifically has anything changed in Africa?

I think in the capital markets we were very clear that we were looking at the range between 8% to 11% for the upcoming year. So we will expect some variation.

I think I would look at it like this. We are very confident that the growth initiatives in general we have in place in, the segmentation on voice, the data plans for Latin America and perhaps including for Africa as well as services are going to generate strong revenue growth for us because they're being valued for their customers.

In Africa, we had a somewhat mixed quarter because we have two specific situations in Ghana and Senegal that produced negative growth in the sort of mid-single levels. But the rest of Africa was still growing at 16%. So we are still confident that we are pushing the right growth levels going forward.

And then can you just give us your thoughts process on the dividend versus buying the $300 million in the share buyback which one at least in the US would argue is more tax-efficient? Thanks.

So we announced earlier in the year that we intended to reach $1 billion to our shareholders with -- there was more of this amount as [to towards] our share buyback we could -- we have announced $800 million program for the full year. Out of which we have already completed $268 million. We could have gone probably close to the amounts that we had said initially even in Q4, but we thought it was probably more appropriate to have a better balance between dividends and share buyback.

So what we're focusing now is to do and exceptional dividend of $3 per share which means that net we will meet the commitment of the $1 billion of shareholder return with about 50% of [fixed end] dividend both ordinary and exceptional and 50% of share buyback. So we will continue the share buyback program in Q4 for consideration of about $130 million in Q4 that we can start from this project till the end of the year, which means that the total share buyback for the year 2011 will be around $500 million.

And we're not -- because I expect to have some questions, we are not communicating for any shareholder remuneration plans for 2012. We will come back to the market in -- at the occasion of our Q4 results, our full-year results before the middle of February.

Ric Prentiss, Raymond James.

Thanks. A couple of questions if I could. Francois, you mentioned the tower deals, but that also you are looking at possible passive network sharing -- 3G, 4G, or spectrum.

Can you talk a little bit about how that process plays out? How do you find the right partner? And then once you do find the right partner, how do you differentiate your product in the market place after -- if you do share networks and spectrum?

I will comment on that one. It could be market-specific solutions on that one, depending on competitive strength and our strength, and so on. Anyhow in the marketplace, the key differentiation should come from the branding, the distribution, the marketing, the package and the services you offer.

So basically you would have a network company in its simplicity that would be owned by two competitors and which would produce data capacity and voice minutes at set prices for both operators; and then each of them can decide how to market their brands and how to price them. So that's how the model would look like.

Okay, and then in Colombia where you are not number one or number two, you done a good job at grabbing share. Can you update us as far as how share in the data world is going in Colombia? And how do you get the distribution channels and the margins if you are not the market leader there?

Two things there. We have a higher share of data, the data business than we have a voice and that's been part of our strategy. A lot of that really comes from us having about 500 people out there on the streets selling the data services and explaining how they work; and we find it's very important that we demonstrate to customers how to use data services because unless you have any teenagers in home, you can't figure out if you just buy a data phone and go home.

So, it's all about hands on being in the market and demonstrates how to do it, and naturally the margins should increase over time with increased scale.

Great. Thanks, guys.

Stefan Gauffin, Nordea.

Couple of questions, please. First of all, you state in the report that you expect introduction of several new taxes in Honduras next year. Can you give some more light on this issue and what the potential impact might be from these taxes?

The second question relates to the equipment delays. Are these related to one provider? Or is it general for the industry? And what impact did you have from this in the quarter compared to your original plans? Thank you.

Let me start with the equipment. I would rather not do anything appointing on that issue, but there's been some delays from certain equipment makers that impacted. It is difficult to quantify the impact because there's an issue of -- as you recall, we are trying to have the technical capacity or head of the commercial capacity so that we have the time to react.

And because of these delays, the technical capacity dealt at the commercial capacity has shrunk somewhat, but still at acceptable levels. In Honduras, we rather do not want to go into any specifics because there are a lot of discussions and plans put forward by the government, so at this stage it's still a little bit of an open picture how that will turn out. So we will not want to comment any specific on that one.

Okay, can I follow up on Colombia then? There you state that there will be an interconnect cut. I believe it's 50% cut over a three-year period. You state that you will not have the same impacts as you had in 2007, 2008. But can you give some more light on impact on margins?

We don't expect to have a significant decrease in the margin in Colombia. As we often say [barring] a significant introduction of taxes, we have always been able to absorb new taxes through productivity improvements in our business and through growth as well.

In the case of Colombia, we were very exposed to interconnection rights in 2007 when the large decrease happened with the decrease in MTRs. Today, it's a much, much smaller portion of our revenues. So, we're not really exposed.

So we believe that in the case of Colombia, we should be able to absorb this new MTR cut which is, by the way, sales of over three years with the normal course of business on the productivity gains and -- I mean, the scale that we are getting through our significant growth in Colombia.

Thank you.

Sven Skold, Swedbank.

Yes, hello. I have a question on Central America. Francois, you mentioned some figures regarding international traffic in Central America. And I'm wondering, you also mentioned something about its impact on the margin in Central America.

Can you specify that? And I happened to have seen that the gross margin for the total group was down a little bit more than 2% year on year. Is that also impacted by international calls? Or is it some other issues impacting the growth?

(multiple speakers), we used to be very dependent in Central America from international traffic. We have [finally deepened the international traffic] so if you look at the incoming international traffic in Central America, at the end of 2009 it was contributing to 16% of our total revenues. Today, it's 12%.

So there is probably a little bit of room to go down a little bit further. We probably lose some of it to the Skype and other similar services, but we don't believe that you're going to go to zero results. So we believe that the bulk of the issue is behind us.

In spite of this decline because we have lost 4 percentage points of total revenues, in spite of that, you could see that we managed to grow by 5.3% in Central America in the quarter. And we expect that possibly could possibly even increase in Q4 because we expect El Salvador to move a little bit further into positive grounds.

The decline of the margin is partly due to that, because in the international incoming traffic has a 100% gross margin. But this is one factor of putting some pressure on the EBITDA margin in Central America combined with the level of subsidies that we are doing in Central America.

So -- plus the dilution of the margin is also due to the fact that we are investing heavily in new categories and especially on Tigo Cash, which as we said in during the investor day in London, as a dilutive impact on our margin, but we are not especially concerned about this. Because as we explained, there is no CapEx for this new category so we can accept a lower EBITDA margin as long as we have a better return on invested capital.

So you can see already the impact of it globally for Millicom and industry regions as well. There is a little bit of a dilution as I said earlier on whether the data category especially so that we are investing heavily in subsidies, but we believe it is the right way to do it, the right thing to do, especially so that we see that the gross margin on data is better than the gross margin on voice, so which long-term is really positive.

That's very helpful. When we look at the quarter-on-quarter trends, it was still very low in the third quarter. Could you give some hints for the fourth-quarter level or possibly 2012 for the margin in Central America?

I don't think we want to comment on 2012 at this stage. And we reiterated our guidance for around 10% revenue growth for the full year, so you can do the math what would have to happen in Q4 for that to materialize.

Okay, great. Thanks.

Soomit Datta, New Street Research.

Question on South America, please. There's been quite a marked slowdown in the local currency growth rates in the region. I'm sort of guessing that's partly driven by Paraguay where there was, I think it was mentioned in the release, there were some regulations introduced on that versus off net rates.

Could you maybe sort of just confirm that is the case? Or has there been a general slowdown across the region? And on Paraguay specifically, can you provide a bit more detail as to the impact that any slowdown has had and the timing and maybe the prospects of that market over the next couple of quarters? Thanks.

Let me start with Paraguay. There's a new regulation that basically asks the operators to have the same rate on net and across net. And since typically in the emerging markets, you have a relatively low on net and a high across net, there is some kind of equalization that has to take place. We have been given a certain lead time for that implementation, so it's a gradual implementation, but that implementation has slowed down our revenue growth because it basically has pushed up our own net tariffs whilst in Paraguay we have reduced the across net, and typically you have a higher elasticity on -- on net rates movements then you have across net so that has contributed.

And I think in Colombia, we were somewhat slower in Q3 than in Q2, but I don't think there's anything specific to read into that.

No, we would say there is one (technical difficulty) impact which is the fact that having grown by 20% over the last two years for each year, we have a larger base, so even if you continue growing by the same absolute amount, it's -- I mean, the [percent federal] growth is a little lower. But I mean the growth rate remains still very attractive.

Just as a quick follow-up perhaps, in Paraguay, does that mean we've had a full quarter's effect of the regulatory changes? Or has that sort of happened over the course of Q3?

We haven't had a full -- it's happened over the course of Q3 and it will continue to happen in Q4.

Okay, thanks.

Lena Osterberg, Carnegie.

I have a few if I may. First of all, I was wondering, there are several issues both for the regulatory side and on the tax side that have popped up in this quarter. I was wondering, are you still comfortable for your medium-term local currency growth rate of around 8% to 11% going forward if you look into 2012, 2013 knowing these regulatory changes?

And then, second, I was going to ask you also on Paraguay license, if there's any news on that, and then also minorities. I assume it's Colombia that's doing very well and that's the reason that you have such a large negative contribution or money out to minorities in the P&L.

So I was wondering is this the level we should expect going forward and then increasing? Or is there anything in particular that happened in this quarter that made it go up so much?

And then also, just so I understand on the cash transfers in Africa on the towers, did you say that some of that impacted EBITDA in the quarter? In that case, what was it?

Yes, let me start with the results expected [in growth]. So first of all, I would like to point out that the 8% to 11% is our stated ambition. Not the formal guidance of the growth going forward. We are already comfortable in the hopes we have generated by our key growth drivers.

If you look at something like mobile data up 94% in Latin America in the quarter, 48% (technical difficulty). If you look at solutions growing at 34%, and even voice at 2%. So we think we have all the growth components in place and we are supported and with the right activities and we continue to make headway on these. So we are very comfortable that we have the right growth prospects in place.

We haven't done our plan for 2012 yet. We are in the budgeting session. We'll come with guidance for 2012 at the point of time we release our Q4. And that's where we stand.

On Paraguay, there is no specific news on the [right] terms which is an automatic renewal every five years, so there is no (technical difficulty). Regarding the --

Sorry, that is typically renewed this year, right?

That is automatically renewed so there is no specific issue in Paraguay for the license.

But do you know how much you will have to pay for that?

(technical difficulty) formula which is contemplated in the license agreement which is linked to future CapEx, so no.

Okay.

And regarding the tower transactions in Africa, we have indeed an improvement of EBITDA in Africa of a Q3 link to the tower build, which is around 2 to 3 points of EBITDA margin.

Okay.

Mathieu Robilliard, Exane.

Good afternoon. Two questions. First, with regards to Africa where you pointed to specific factors claiming a slowdown in growth, Senegal power outages that actually exacerbate the capacity constraints and price cuts in Ghana.

My question is, when we look into the next two quarters, with regards to Senegal, are we going to see independently of -- for the power outage or not continuing constraint on revenue growth, is that becoming more and more of a problem as I imagine traffic growth? And with regards to Ghana and more generally to the region, do you feel that your prices are where they should be? Or should we expect further cuts, either in Ghana or in other markets, and maybe because of recent competitive activity?

And second, with regards to your operating free cash flow guidance, you have increased the guidance from 20% to 25%. Since you haven't changed your revenue in the EBITDA guidance, I would assume the improvement has come from things below the EBITDA. One of them is CapEx. You highlighted that.

But the others have to be either tax or working capital. And I was wondering where does it come from? Essentially, is it packed or working capital or both? And if it's working capital, is that something that is a one-off and that reverts in 2012 for some reason? Or it is a structural improvement? Thank you.

Okay, let me first start with Ghana and general pricing. We're not publicly commenting on any pricing actions we are planning to take or not. I would like to empathize that we are tracking the affordability perception among our customers, and that's really how we adjust when and if a pricing adjustment has to be done.

In terms of Senegal, we are investing somewhat more in power generation in our sites, given the lack of commercial power in Senegal for the moment. That will, however, take probably three to six months to put in place so I would -- we would expect continued, somewhat, subdued growth levels from Senegal in the next two quarters.

Regarding the operating free cash flow, so indeed we raised the guidance from around 20% to close to 25%. This is driven by a number of factors, the first of reasons is driven by the increase of EBITDA but you're right that it comes as well from below the [dice and tag] being one of them. Our effective tax rate which was around 29% has actually decreased by about 3 to 4 points over the last quarter, which is a consequence of a certain number of actions we have taken such as capital restructuring, pushing down the debt operating level. We took a certain number of tax reinitiative, transfer pricing and so forth.

So the -- plus we got as well some cash from October deals, meaning, the third quarter we almost got close to $60 million of cash inflow coming from our tower that's in Africa, and we expect to have about $140 million coming in Q4 again from tower monetization, both in Africa and in Latin America.

There -- that reflects the fact that in Q3, the cash flow was exceptionally high because we had the positive input from working capital because we have not paid a lot of CapEx. We expect to pay substantially more CapEx in Q4. So it's still difficult for us to say exactly if this will be a negative impact in 2012 because it depends on the timing of CapEx delivery and CapEx [spare amounts] but what we are sure of is that the level that we have in terms of operating free cash flow today is abnormally high, I would say. In Q3, the level of 25% or close to 25% that we have for 2011 is really on the high side as well. Probably I would say it's because of the tower, for example, deal that we have.

I would say later on, we will come back to 2012 next year, but a level around 20% is probably a better proxy. But once again, we will come with guidance for 2012 in February 2012.

Thank you. Just a point of clarification.

So, one of the reasons why the guidance was increased if I understand correctly is because in -- previously you were not including some of the proceeds from the tower deal in Africa and you are now including it. Is that correct?

That's part of it plus the signing of CapEx amounts. But that is indeed one of the items. Because we expect to get more than $200 million of cash flow as a consequence of our dividend in 2011. There will be some in 2012, too.

Thank you very much.

Andreas Joelsson, SEB.

Good afternoon. It's Andreas Joelsson from SEB Enskilda. How much of, do you know from the tower deals that you have already made will be sort of affecting cash flow in 2012? If it's $205 million in 2011, how much is in 2012? And then also, is there any news on the dispute with the government in Senegal? Thanks.

To start with, there will be some cash. I can't give you the exact value because it depends when we can do the closing. We do closing in different timing. It depends a lot on the capacity that we have to transfer the tower to the new tower operator. So I can't give you an amount.

I don't think it will be $200 million again. It will be a lower level, but there will be -- it will certainly be north of $100 million but maybe not up to $200 million, but I don't know the exact timing. Some of it may fall potentially to 2013, a smaller portion.

In terms of Senegal, there will be a final hearing in November in front of the arbitration panel, which works under the auspices of the WTO. And a decision is expected in the subsequent three- to six-month period.

Thanks.

Kevin Roe, Roe Equity Research.

Thank you. In Central America, the regulator in El Salvador has, I think, officially stated 20 megahertz must be returned for the Digicel deal to close.

Is that your understanding? Do you think you'll have access to that spectrum? Or is this for a new entrant to potentially bid on?

Really have no visibility on that one. I would expect that they're not going to hand it to us.

Yes. Okay. Have you seen a change in the competitive landscape during this uncertain approval process in El Salvador and Honduras, specifically from Digicel?

Not really.

Okay. In Rwanda, any change in the competitive landscape ahead of Airtel's launch?

No. We expect Airtel to be in a position probably to launch in about Q4 or early Q1, so we are just focused on the strategies we are pursuing in offering affordable rates and focusing on driving our tower [cash] as well as generating data revenues.

And lastly in Ghana, do you expect -- with these pricing changes do you expect to return to sub growth in the fourth quarter?

Difficult to comment on that one. Some of the pricing changes were across net and we know from experience that across net changes take somewhat longer to penetrate into a change in consumer behavior.

Very good. Thank you.

Thomas Heath, Handelsbanken Capital Markets.

Thank you and a few questions if I may. Firstly on Paraguay, you mentioned the revenue impact of harmonizing on net and off net traffic in Paris. I was curious if you have any view on turn levels and margins also from that change.

Secondly, on Senegal, you've previously driven not to CapEx very much in Senegal with the uncertainty there is, with a bit more CapEx on power solutions. Is there any change in your sort of willingness to CapEx in Senegal? Thanks.

Let me start with the Senegal question. I think the unexpected element here was the increase in electrical power in the country.

So basically, we had a good CapEx plan that would have worked if they wouldn't have the significant power outages that we see today. So the white card was the increased outage which meant that we would have had to invest more in power generation with generators and batteries in the -- on the sites.

In Paraguay, if you basically reduce your across net rate since there is an interconnect rate, that might lead to a lower gross margin. But that could be on the other hand, compensated with higher rates on net. So at this stage is very difficult to truly balance how that would play out.

Just one recision of -- on Senegal, we keep investing but we limit our CapEx to the cash flow that we generate locally which caps to a certain extent the amount of CapEx that we can do, and which, obviously, put the cap on the capacity that we have available in the markets.

Okay. Thank you very much. A follow-up of the last question if possible on external growth opportunities. There's been some buzz around [Marley] and there's also been some buzz around [Vimpo Comesteleselglobe] asssets in sub-Saharan Africa. Just wondering what your view is on these. Thanks.

I don't comment on any specific countries, but just a reminder, we only believe in being number one or number two in the markets we compete in which we are now in 12 out of the 13 markets where we are present. So, any opportunity to expand to new markets would have to be where we can see that, either we can buy into those positions or if we start at number three, we can see ourselves how we get to number one or number two position.

Okay, thanks.

Luigi Minerva, HSBC.

Good afternoon. One question is on Ghana. So, I was wondering what sort of response are you putting in place the new pricing introduced by your competition and whether we should expect any version of trends in next quarter or in the next two quarters. And secondly, on Central America, you made comments at the Capital Markets Day that you were seeing some elements of decoupling from the US economy, for example.

I was wondering whether you have now more evidence in that direction or whether we should be a bit more concerned? Thank you.

I'll start with Ghana and Francois will follow up on Central America. In Ghana, it was more us reacting to a competitive price position that we hadn't react for the first six months of the year. It's basically us reacting to a pricing strategy executed by two of our four competitors in the market.

In Central America, we have no clear evidence of a real slowdown of Central American economies. We have no clear reasons either of the dramatic decrease of remittance for the time being. We're monitoring the situation closely every month.

We need to take the data with caution though, because there is a lot of volatility from one month to the other in terms of remittancies for each of the three countries. So we are rather looking at trends, but there is no evidence of any clear slowdown at this stage.

Okay. Thank you. So on Ghana, just to follow up, then we are -- for the next quarter or for the next two quarters, we should not expect any difference?

Well, you can never -- we don't know how our competitors react. That's out of our control, but as I said earlier to a question that part of the changes we made were reducing our cross rates. And when you do that, the elasticity takes months and months to materialize. So we don't expect an immediate reversal on our performance in Ghana in the next few quarters.

Okay. Thank you very much.

Bill Miller, from J.M. Hartwell.

Good evening. A couple of questions.

One, if you had the opportunity to buy more than $130 million worth of stock in the fourth quarter, given the volume and other constraints that you are operating under, would you go ahead and buy the stock? Or are you just saying no more than $130 million and cut it off there? That's the first question.

The second question is do you see any lessening in the churn or is there any way of measuring the lessening in the churn? Because as you stated before, the value-added services are going to create more customer loyalty. And I am wondering if you are seeing tangible evidence of that.

Third question is, do you you have -- because you are number one in your markets and you are rolling out these value-added services, are you seeing chances to buy out your minority partners or seeing any other possibilities of making deals, which are now better deals than you would have made because you are the market leader and because you have these value-added services, which would have to be the envy of everybody else?

Okay, of the share buyback, so our commitment is to give $1 billion for a shareholder for the full year 2011 taking into consideration the plan to have an exceptional dividend of $3.00.

Then we -- it means that by deferring the share buyback for Q4 would be well written, so $[3 million]. Not more, not less I would say.

In terms of minority acquisition, then it is no plan to make any acquisition of our minorities. The main minority partner that we have are in Guatemala, in Honduras, and in Colombia. We are very happy with the relationship that we have with them and with our respective contributions so there is no plan as we speak to making the acquisition of their stake.

In terms of churn, yes, we are seeing an improvement in churn wherever a customer is a heavier user or value-added services being it Tigo Cash or other solution products or other data products, so to ask the total churn is not an important number. It's basically churn by higher ARPU segment that we're focused on and these are details that we, at this stage, not disclosing to the market.

A quick reminder also on our customer base composition, 30% of our customers have an ARPU less than $1 and contribute less than 1% to our revenues, so if we lose hypothetically half of this customer that would be a monthly churn but that would only impact the revenues by 5%. So yes there are clear evidence that when you provide value to customer it's churn plus typical selling.

Mark Walker, Goldman Sachs.

I just had a follow-up question on Central America, please. You mentioned that as well as the decline in international voice traffic in Central America, the year-on-year lower EBITDA was also because of higher data in the mix and higher marketing promotion of 3G services, including handset subsidies. Yet, the local currency ARPU growth fell again and actually started to decline this quarter.

I was just wondering if you could give us some color on when we could expect the higher investment to translate into better ARPU trends there. Thank you.

The ARPU has actually been increasing over the last two quarters in Central America. It was basically flat in Q3, mainly pulled down by the loss of international profit which we don't see, as I indicated earlier, as something that is going to wait as much in the future. For our objective is to maintain or increase the ARPU in Central America, as well as in South America as we have been successful in delivering over the last couple of quarters.

In Africa, it would be a different story. We believe that developing impression levels are receivable for the further decline in ARPU in order to increase both MOUs and penetration. But we are reasonably confident that with the development of value-added services in Latin America, we should be able to maintain or increase the ARPU.

Thanks. So can I just ask then if you would say that the drag from international traffic was bigger this quarter than in Q2?

Yes. It has been, yes.

That's great. Thanks very much.

(Operator Instructions). Barry Zeitoune, Berenberg.

I've got three questions, the first question on revenue growth. The 8% to 11% ambition, I was just curious as to how you expect that to phase over the next two years given the Colombian MTR cut and some other MTR cuts in some of the other regions. Would you expect that to start off higher closer to 11% and say down to 8% at an exit rate for the end of 2013?

And then also thinking about that number, at the Capital Markets Day when you mentioned the 3 percentage point contribution from communications, now obviously in Q3, we've just seen 2 percentage points of contributions, 2% growth in revenues from communications. Do you still think that 3 percentage point contribution from communication is achievable? Or given the Colombian MTR cuts, would you take that estimate down?

And then I've got a question on EBITDA which I can ask after, if that suits.

Regarding -- the ambition in terms of growth that we have for the next two years, what we shared with you in London of (technical difficulty) remains and actually even what we see in terms of trend for Q3 is perfectly in line with that so no change there.

The 3% in terms of growth in communication, okay, was a little bit lower in Q3 for some specific events as I just said because of international traffic decrease in Central America, as well as the issue that we are facing in Ghana and Senegal. But if we look at the medium term, we are confirming what we said in London.

So just to be clear, the Colombian MTR cuts doesn't impact that number in any way?

No, as I said earlier, we see that as a fairly minor event in the total of Millicom. So we think we can really handle without any significant impact from Millicom in total.

Okay, and if I can just follow up with a question on margins, current margin ambition of mid-40s longer term. The consensus for next year is about 46%.

Now, when I look at different regions in the release, you mention you're expecting African margins to decline going forward. And at the same time, the reasons for margin decline in Central America seem structural and then you've got things like the 2% revenue share that you're going to have in Bolivia.

So would you see that 46% -- I mean, 46% makes sense in terms of mid-40s, but it seems ambitious when I take those individual region-by-region issues into account.

We're not providing any guidance for 2012 at this moment because we are still working on our budget for next year. What we have said of the growth in the mid-40s remains, and we're confident about that. There is a trend towards some dilution of the margin which is linked to the structure of the business because the new business [signs] that we are developing especially mobile financial services are diluted by net share.

But as we explained in the Capital Market Day (inaudible), we are not especially concerned by it because we can accept dilution in with the category of the EBITDA margin due to the fact that there is no CapEx attached with this category. So this is the reason why we are focusing more and more on returning to capital. We believe that ROIC is better in the case of our retail and [top performers] for the future than EBITDA. It doesn't mean that we are totally forgetting or abandoning EBITDA for the time being.

But we believe that the development of new categories where there is less CapEx require more focus on the return on it to invested capital.

Excellent. Thank you very much.

As there are no more questions in the queue, that will conclude today's question-and-answer session. I would now like to turn the call back over to Mr. Mikael Grahne for any additional or closing remarks.

I would just like to thank you for joining the call today and we look forward to seeing you soon. Thank you.

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