Millicom International Cellular SA (TIGO) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Millicom Q1, 2012 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 band, and is accessible at www.millicom.com, together with a presentation summarizing the key features of the results.

I would now like to hand the call over to your host today, Mr. Mikael Grahne, President and CEO, and Mr. Francois--Xavier Roger, CFO. Please go ahead, gentlemen.

Thank you, and welcome to you all. As usual, you can find the slides for this call on our website. Please go to slide number 3.

In the first quarter of 2012, we accelerated our investments in our new organization structure, in our networks, and in our product offering, including through pricing initiatives.

In Q1, we recorded underlying local currency revenue growth of 8.4%, up against the very strong quarterly growth that we recorded last year in Q1 at 12.7%. On a like-for-like basis, revenues grew by 9% in Q1, in line with our expectations and ambitions.

Our focus on new categories is delivering solid results. In Q1, we generated 88% of our revenue growth from services and products outside of the communication category, some of which we introduced only recently. This achievement reinforces our long-held belief that innovation is the cornerstone of our future.

Last, but not least, our Voice and SMS business remains resilient, growing by 2% in local currency in Q1. We produced an EBITDA margin of 44.2% for the quarter, down 2.9 percentage points in Q1. Half of the margin erosion versus last year come from our investments in new categories and services, including category building, network investments in 3G, and handset subsidies, all intended to support our growth.

The other half is due to price declines in some of our markets in Africa and in El Salvador, which have not generated the desired level of elasticity.

As in previous year, in 2012 we aim, again, to strike the right balance between profitable growth, cash flow generation, and returns. In order to deliver profitable growth, we have to invest in new product and services, which, initially, will not generate similar margins to the 46% overall margins that we had last year.

Slide 4; in Q1, we invested $172 million or 14.7% of revenues in CapEx. We expect CapEx to increase, but not to exceed 20% of revenues, as we invest in the 3G network and IT and billing platforms. Despite our higher investment in OpEx and CapEx in Q1, operating free cash flow generation in the quarter remained strong at $310 million, including proceeds from tower disposals of $68 million in the quarter.

Slide 5; local currency revenue growth for the quarter was 8.4%, in line with our expectations. Revenue growth, quarter on quarter, tends to be uneven, as you can see on this chart, but the underlying trend is consistent with our ambition.

Slide 6; our focus on cross selling and up-selling more services to our customer is what is driving our top line performance. Looking at the ARPU development by region, you can see that, in Latin America, ARPU was essentially stable year on year. In South America, ARPU has been growing positively for over a year. In Central America, ARPU declined by just under 5% year on year, due to pricing pressure in El Salvador, which led us to return to negative growth in that market.

In Africa, Mobile ARPU was 6.8% lower year on year. ARPU in Africa will continue to decline for some time as we pursue penetration gains both in customers and usage.

Slide 8; the split of revenue by our five categories is set out on this slide. In Q1, we accelerated the implementation of our new organization structure, which will be instrumental in sustaining and/or accelerating growth in our markets. In the first quarter of the year, in excess of 80% of our recurring revenue growth was derived from products and services that were not marketed three years ago, demonstrating the relevance of our innovation and growth strategy.

At the same time, we managed to defend our Communication revenues by growing Voice revenues 1% and SMS revenues 8%. Our fastest growing category was, again, the Information category and, in particular, Mobile Data, which grew by over 50% in this quarter. Information contributed to more than half of the growth in the quarter.

Our recurring revenues in the four categories of Information, Entertainment, Solutions, and MFS together grew by around 29% in the quarter in local currency. And these categories contributed to more than a quarter of our revenues in the first quarter.

Slide 9; as shown on this slide, the investments we have been making in the new categories are delivering solid results. This quarter, we experienced some slowdown in our revenue growth in Communication, yet we managed to grow overall revenues at a high single digit rate, thanks to our strategy to growth through innovation.

88% of our growth came from the four new categories in which we are focusing our investments, namely Information, Entertainment, Solution, and MFS. The absolute revenue contribution outside of Communication has remained consistent at around $70 million quarter on quarter.

Slide 10; we have seen a 4.7 percentage points increase in the contribution of VAS to Group revenues over the past 12 months. In Q1, we generated over 30% of our revenues from non-voice services and more than 35% in Latin America; on track to reach our ambition to deliver half of our recurring revenues from VAS by 2015 in the region.

Slide 11 and 12; once again, this quarter, we managed to grow Mobile Data revenues by over 50% in Latin America. This growth was underpinned by the investments we have made in the category, both in the network and subsidies. As you can see on slide 12, we are accelerating our subsidies further to position ourselves ahead of the expected mass market adaptation of mobile data services.

The gross margin in the Information category is one of the highest of all categories. The shift from data cards to handset over the past 12 months is a healthy transition as it allows us to control traffic and improve ROIC. We are pleased to see a parallel curve between traffic and revenue growth.

Slide 13; on this slide you can see the total 2G and 3G Data revenue increased by 12%, quarter on quarter, to exceed $100 million in Latin America. $60 million of this revenue is derived from handsets, which recorded an 8% quarter-on-quarter increase in ARPU.

Slides 14 and 15; the next two slides provides details of penetration of some of our services in our five categories. In particular, penetration of Tigo Lends You increased by 3.4 points year on year, and we are pleased to share with you that we have lent $120 million worth of airtime through our lending products in the quarter with a bad debt ratio of less than 1.5%.

We have focused on expanding the reach of our new Tigo Care Family products in the first quarter of this year. Under this umbrella, we have three families of services, mHealth, assistance, and insurance. We have rolled out these services in Central America, Colombia, and Ghana. We already generated in excess of $2 million in revenues in Q1 from Tigo Care Services, and look forward to scaling up the revenue contribution from these promising initiatives.

On slide 15, you can see that, in the MFS category, the penetration of Tigo Cash in Tanzania has increased, versus Q4, from 18% to 24% and, in Paraguay, from 14% to 16%.

Our launch of MFS in Rwanda is one of the most promising. After one year, almost 7% of our customers are already enjoying the benefits that this service provides the community.

We will launch MFS in at least three more markets this year. We also plan to extend the range of services available in this category to meet the specific needs of our customers in each market.

Along these lines, we have now signed agreements with Western Union to offer collection of foreign remittances through mobile customer in most of our markets in Latin America. This service was launched first in Paraguay in mid-March.

Now I would like to hand over to Francois-Xavier, who will take you briefly through the results for each region and the financials.

Thank you, Mikael. Slide 17; in Latin America we sustained high single-digit growth at 9.2% in Q1, 2012, in line with the growth rate achieved over the past 12 months.

All categories grew strongly in Q1, with Mobile Data contributing more than half of the recurring revenue growth again. At the same time, we managed to grow our Communication revenue by 2% year on year. Entertainment and Solution each added close to 1 percentage point of top line growth in the region.

Slide 18; looking more specifically at Central America, you can see that revenues from Mobile and Cable operations were up by 4.7%, year on year, in local currency.

The solid growth in Honduras and Guatemala offset a negative top line performance in El Salvador, where price declines have not yet triggered the desired level of elasticity.

Our EBITDA margin was 50.8% in Q1, declining 3.3 percentage points from the level at Q1, 2011.

We accelerated our network investments in Q1, versus last year, as we see clear growth opportunities for us to develop the Information category further in Central America. Voice pricing pressure in El Salvador contributed somewhat to the margin decline in Central America.

Slide 19; in South America, revenues increased by 14.5% in local currency, with all three markets reporting a strong performance.

Mobile ARPU was up by 3.7% in local currency as a consequence of our ongoing focus on Mobile Data and other VAS products.

The increased subsidies, combined with increased taxation on revenues, resulted in a year-on-year decrease in the EBITDA margin to 40.9%.

Slides 20 and 21; revenues in Africa reached $239 million, essentially flat on a reported basis, but growing 5.4% year on year in local currency.

Performance in our African footprint was mixed, with some operations performing strongly, such as Tanzania and Rwanda, whilst some others reported revenue declines.

We introduced flat tariffs in the second half of 2011 in Ghana, and we reduced cross net prices in Senegal and the DRC with an unsatisfactory level of elasticity to date, resulting in declining Communication revenues. We expect the situation in these markets to remain challenging for some time, until the actions we have taken start yielding results.

Overall, we have lost customers in Q, 2012, but we focus on the quality of our customer intake rather than the absolute number.

We are pleased to report that, in Q1, non-Communication revenues were up 19% in Africa, versus Q4. We are prepared to invest through price reduction and CapEx to accelerate growth in Africa, and to preserve our positions in the region for the long term.

Now let's look in more detail at the financials.

Slide 23; in Q1, 2012, our effective tax rate has reached 30.6%. The first quarter of the year is a time when we seasonally upstream more cash from our operation through dividends and, hence, we recorded seasonally higher tax rates.

We are confident that, going forward, we will manage to retain an effective tax rate of less than 30% of our profit before tax, despite the fact that we see increasing corporate tax rates in several of our markets.

Slide 24; normalized EPS declined by 9% to $1.56, and was negatively impacted by higher depreciation than last year, combined with investments in our new corporate structure and increased taxation.

Slide 25; our free cash flow for the quarter was $244 million, growing 28% year on year, despite a much higher level of CapEx spend this quarter than in Q1 last year, as we try to spread our network investments evenly during the year.

Slide 26; at the end of Q1, our cash position was in excess of $1.1 billion, and our leverage ratio was at 0.6 times net debt to EBITDA.

Slide 27; the average maturity of our gross debt remains stable at three years. 46% of the gross debt is at fixed rate, so we are less exposed to interest rate volatility today. At the same time, we have reduced our total cost of debt.

Slide 28; in line with our achievements over the past two years, in 2012 we again aim to strike the right balance between revenue growth, profitability, cash flow generation, and return on invested capital.

Our Q1 results are consistent with our expectation, and give us confidence to reiterate our guidance for the full year, and to reiterate our medium-term growth ambition.

I know like to hand over to Mikael for his final comments.

Thank you, Francois-Xavier. I would just like to close with a quick summary.

As evidence by the performance reported today, our future growth and successes will depend on our ability to innovate and capture new growth opportunities in categories outside of Communication, while defending our Voice and SMS businesses.

In Q1, we have accelerated the pace of our investments, and we aim to continue to deliver into our shareholders the right balance between profitable growth, cash flow generation and returns. And we look forward to updating you further on the development of our new categories when we present our half year results.

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

(Operator Instructions). Luigi Minerva, HSBC.

I was wondering, with regards to especially Africa, if there's anything you can do in order to see the elasticity kicking off sooner rather than later after the switch to the flat rate tariffs, and if your expectation is still probably for the second half of the year for some positive elasticity to happen?

And secondly, on El Salvador, maybe if you can give us a bit more details about what drove the pricing pressure in that market, and whether we can see any read-across to other markets in the immediate future? Thanks.

Okay, let me start by Africa. We haven't got recognition from our customers on basically the move to the flat rate, so it hasn't generated the elasticity. So as we speak, we are experimenting with various pricing initiatives, with the objective of trying to find the right balance to get the elasticity and growth. So we are in a stage of experimenting at this stage.

In El Salvador, this being a quite intense competition around the double and triple balance and quadruple balance promotions at the point of reload, we tend to go through the cycles. It's been a little bit more intense than usual in Q1.

But similarly, in El Salvador, we are also looking at various pricing options on how to counter that situation and still offer value to our customers, but also drive revenues with better elasticity.

Okay. Thank you.

Thomas Heath, Handelsbanken.

Two questions, if I may? Firstly, a question on handset subsidies, we have them growing now. What sort of long term levels should we look at here, and what does the split between handsets and modems and other devices look like? That's the first question.

The second question on growth in the Communication category, do you see a risk for negative growth in the Communication category and, if so, when could this materialize? Thank you.

Just let me start with a general sort of question around the data card or the handset. We favor investment in the handset, it drives to us a more healthy usage of the data capacity and a better ROIC, so we clearly favor that growth to happen.

In terms of handsets?

In terms of handset subsidies, so we don't consider that this is a one-off event, just something to start the category. We believe that this is something that will be a recurring item, because once you start giving subsidies to customers, you will have to do it in the future.

We don't give subsidy for the full amount of the device; usually it's rather around one-third or slightly more the cost of the device. We don't see that as anything negative, because usually when we convert prepaid customer to a postpaid customer with a data plan, it contributes to increase the ARPU, increase the EBITDA, increase the ROIC, and reduce churn.

So we see that as something positive. Another positive development that we see, obviously, is the fact that the cost of handset is moving down, the level of subsidy will go down.

So will it translate into a reduction of subsidy, going forward, or will we take the opportunity to give more subsidies to customers? It's likely to be the second one, that probably at least in the short term, we will probably give more subsidies to more customers to convert them from prepaid to postpaid.

We are happy to see that the ARPU on data is increasing. From Q4 to Q1, so quarter on quarter, the Data ARPU only on handsets increased by 8%, from $7.3 to $7.9, which is very satisfactory to us.

In terms of the Communication revenue and growth there, we have many tools to apply here. As you know, we've done customer segmentation; we have what we call tag and trigger our customers. So when a certain customer profile runs down their prepaid balance, they automatically get an offer. So we are still quite confident in our ability to defend this category.

We could have an isolated quarter where we could have a negative number. But then it could be followed by a quarter with a positive number, depending on the promotional intensity in this category.

Okay. Thank you very much.

Laurie Fitzjohn, Citi.

One question on Africa. Given that we have seen customer losses this quarter, despite the price reductions during last year, should we expect further price cuts to try and defend share, going forwards? And, in this regard, how much of the lower elasticity you've seen on those price cuts has been due to competitor reactions to those cuts? So maybe just a bit more color around the competitive dynamic and how that leads into elasticity you're seeing. Thank you.

Let's start with the pricing; the cuts were triggered by competitive reaction. It started almost 12 months ago, in that our competitors reduced, equalized, their own and across rates. Basically, the consumer pays the same when they call within the network, and outside the network. And we know, from experience, that the outside calls have very limited elasticity. The [cuts on net] have high elasticity.

For some time, we didn't follow that; we pursued other tariff plans. And, in the end, in the third quarter of 2011, we started to get some feedback from our customers that they didn't see the value in our proposition. So we followed our competitors, equalizing the on and across rate. And, on that one, we haven't got any value recognition at this stage from our consumers.

So there are different models to apply. Not all of these models require further cut in the rates, per se, just rearranging what you charge from what kind of a call being it international, or on-net or across net, and so on. In parallel, of course, we are aggressively developing our value-added services in Africa, copying the success we had in Latin. And in the first quarter of this year, our value-added service revenues were up 19% versus Q4. So that's a very strong performance there.

So we are looking to drive growth with an acceleration of VAS services and products, and finding smarter tariffs that truly give us a value recognition from our consumers, and come with the necessary elasticity to drive growth.

Thank you.

Mark Walker, Goldman Sachs.

If I could just follow up on Africa firstly. Given the price pressure that we've seen recently in the three markets of Ghana, DRC, and Senegal, I'm just wondering if you could comment on the risk that the economics deteriorate in the markets in which you've experienced positive trends to the other four and, in particular, the two bigger ones of Tanzania and Chad.

And then, secondly, it looks like you didn't get any of your buyback away this quarter. I'm just wondering if you could update us on what your plan is for that, and whether or not that impacts how you're thinking about future shareholder remuneration and, in particular, the bonds between buybacks and dividends. Thanks a lot.

I'll start with the macros in the countries we are doing well. As you know, we don't track macros; there is very limited availability on reliable macros. And second, there is very little we can do about it. We're just focusing on offering value to our consumers and driving growth that way. So in Q1, we did fantastically well in Tanzania and Ghana, and acceptably well in Chad. So we don't look at any macro trends when it comes to that.

Regarding the share buyback, indeed we did not do any buying of shares during the first quarter, which is exactly what we did last year. There is nothing specific to read in that. The main reason being the fact that we have two closed periods during the first quarter, because we cannot buy before almost the end of February, and then we enter very quickly into the second blackout period for the end of Q1.

We have indicated that we intend to buy up to $300 million of shares in 2012, as we did last year. The bulk of it will be done in Q2, Q3, Q4. There is a strong likelihood that we will start the program as early as next week.

Regarding shareholder remuneration, no change from what we communicated earlier in the year with the dividend that we announced to be paid in June, the share buyback that I just mentioned. And we confirm our intention to return to shareholders, later in the year, any excess cash we may have.

Thanks very much. If I could just, sorry, come back on the first question about Africa. I was actually referring to the price pressure you've seen, so I was talking about competitive dynamics. So the introduction of flat tariff structures, or cross net price cuts in Ghana, DRC, and Senegal. Can you just comment on the risk of those being led, for example, by Bharti in markets like Tanzania and Chad?

Well, I don't know if you saw Bharti had some statements that came out of the Chairman's visit to the Barcelona conference that took place a month ago, whereby they sort of admitted that they had seen limited elasticity on some of their pricing actions. That's the only thing I comment. We went through a quite intense pricing environment in Tanzania that has somewhat eased. And so that's the only comment I have on that subject.

Okay. Thank you very much.

Jean-Charles Lemardeley, JPMorgan.

Just on the subsidies, presumably concentrated in Latin America, could you just maybe indicate on how this is helping smartphone adoption, penetration growth of smartphones? Maybe also give us an idea of the overall impact when people move to smartphones on Voice, the impact including Voice, SMS, and Data. You provided some interesting indications on the impact in Colombia in the past.

And then, maybe, an indication of what's happening on the smartphone front in Africa as well, would be helpful.

Can I just start there? As in any new service, or any technology, that has a high upfront cash outlay, normally stops the natural development there. So we subsidize in order for people to be able to access these new services. Many people can pay $10, $20 a month for a service, but have more difficulty finding the $400 which is required upfront, and that leads to the subsidy here.

We still have the same trend. People who jump from 2G to 3G have a significant increase in ARPU, primarily driven by Data services. And we haven't seen any decline, per se, on the Voice ARPU from these customers. So it's still a very healthy development.

I can just add, obviously facilitated the entry and the joining of customers in this new category at an early stage of the development of the category, and it paid off. Because, today, in Latin America, we have more than 14% of our customers using Data in Q1. We are absolutely convinced of the fact that all customers who have an ARPU of more than $10 which, in Latin America, is more than one-third of our customer portfolio, will get access to the category.

So obviously, if we can help them to join as early as we can through limited subsidies, that's what we do. And we could see that it's paying off, because the 3G category has been growing for mobile at more than 50% during the quarter. And it has been constantly the same rate over the last couple of quarters.

In Africa, we have very limited subsidies on our smartphones. And typically, the smartphones tends to be similar to the ones we are selling in Latin America.

Okay, so penetration rates of smartphones, is it accelerating right now in LatAm? I don't think there's any data on your presentation on that particular point this quarter.

No, but you can see that the Data users in Latin America increased from 13.5% in Q4, to 14.2% in Q1. So most of it is taking place, obviously, through smartphones. We increased the number of customers on Data from 3.5 million in Q4, to 3.8 million in Q1, which is a 9% increase quarter on quarter. And we are not even talking year on year there.

Okay.

And the driver here is the smartphone.

Two quick questions on Africa just to finish. One in Senegal, the Presidency change, anything to the outlook for a resolution? And then in Ghana, just on this MTN, in the second half 2011, did quite well, and revenue growth accelerated there. So just wondering what's happening to your revenue share, do you think, in that market? And what's the outlook for your revenue share?

I think we had some loss on revenue share in that market. And, at this stage, I don't want to comment on the outlook because, as I said, we are going through different pricing scenarios and service scenarios that will, hopefully, help us to restore growth there.

In terms of Senegal, we are happy that the election process went well, and was the Senegalese had a chance to exercise their democratic right. We are still expecting the arbitration outcome in the next three months or four months.

Thank you.

Lena Osterberg, Carnegie.

Sorry to return to Africa again; I'm curious about what's the current pricing difference between yourself and the other players in DRC and Ghana at the moment?

And the second question, what do you believe are the key criteria for you not being able to regain traction in those two markets, despite cutting prices? And then also, what margin --

Can I stop there? In its simplicity, we have relative similar pricing to our competitors. We are latecomers to this pricing positioning and, hence, we don't get really a recognition for that.

Okay, so what will then change? And what will make you get better momentum?

Well, as I said, investment in value-added services on one hand but, at the same time, we are experimenting with different pricing models and different options of offering value.

Okay. And given the price levels that you're seeing in the market now, which seems to be quite low, because I understand you're at GHC3 for all net calls, currently. Do you believe it can return to 40%, 41% margin for Africa if you get the usage increase?

I don't want to comment on that one, going forward. But we are determined to find the right solutions to accelerate the growth we have in these markets.

Okay. And then also on El Salvador, what was the growth rates in local currencies? And why is just El Salvador so aggressive? Anything in particular in that market? And do you see any risk of these aggressions spilling over to the other Central American markets, given that it's the same competitors?

We had a negative growth rate in some single-digit numbers in El Salvador, primarily triggered by the Voice competition around quadruple and triple offers of free airtime when you load. We have had various level of intensities around that across the market. It just happened to be a little bit more intense in this quarter in El Salvador. But similar to Africa, we are looking at various pricing models and continued investment in VAS to counter this.

Okay. May I also ask you a question on G&A expenses? How should we look at them for the full year? Should we forecast them as a percentage of revenues, because I understand now they will increase value [so higher] invest in new services?

So will they increase with revenues, or should we see them more as a fixed cost so you will get leverage whilst your revenues increase? Or how should we view them forward?

Well, some part of the G&A is a fixed cost, but at this stage, we think that among the smartest investments we can do is invest in people with the right skill set to drive all these new categories, including our factories or networks that have to deliver all this. So we will probably see an increase in the G&A, going forward, throughout the year.

So it will be fairly constant in percent of revenues?

That's very difficult to really forecast. I think we had a step up because, in Latin America, a number of our 3G network moved out from their initial free service periods. So when you have a new network for the initial years, you normally don't pay your maintenance fee and then, when you move out of that guarantee period, you have an ongoing maintenance fee. So there could have been a step up driven by the Latin American 3G networks.

Okay. Thank you.

Cesar Tiron, Morgan Stanley.

I want to go back to Africa again. I would like to understand why it took so long for the price cuts that have been implemented in H2 2011 to result in a significant slowdown of the revenues in those countries, and even negative revenues in some of the countries?

And also would like to understand, how is it possible that you don't have elasticity in those countries, but, at the same time, you basically blame increase in off-net traffic for the lower margins in that clusters, if you could explain that. Thank you very much.

Some basics here. When you do a price decrease on on-net, you normally have great elasticity, because behavior in our industry is that you tend to have four, three to five people you call a lot with, being friends and families. Normally, when you reduce those prices, you get great elasticity, people simply talk more and actually spend more than they originally had, because they recognize the value.

In emerging market, there is typically a higher cost to call across the networks. People know that, so their habit is not one where they have a lot of across-net calls. So when you reduce this cross-net call, you don't really create more calls, you just basically take out revenues and reduce your margins.

We saw our competitors move to this flat rev. We don't think it's smart. There were lots of comments from Bharti and so on, stressing that they don't want to be price leaders. We kept the model we had in place, but in the end, from customer reactions, we had to follow. And perhaps because we were latecomers, we haven't got the recognition that we more or less have similar tariffs to our competitors. So we have to find some other solutions, which we are working on.

But just a follow-up question, if I may? If there is no significant elasticity, how can more traffic move off net?

Not necessarily. Basically, you make less money and less revenues on across-net calls because, let's say some customer do three calls across net per month and now you reduce significantly that tariff, you simply just -- and they still only make the three calls, so just lose revenues.

But when you had a differentiated tariff between on-net and cross-net, there was a perception among consumer that cross-net was expensive and that you should not use it. If you introduce flat tariff, then there is a perception among consumer that you can use indifferently one or the other, so which means that people are talking more cross-net. So you have a bigger share of your total traffic, which is coming from cross-net calls, with a lower margin, so it's putting a lot of -- because you are sharing with another operator.

Okay, I got it. Thank you so much.

Stefan Gauffin, Nordea Bank.

I have a couple of questions. First of all, I didn't find the information on the churn levels this quarter, something that you have provided each quarter, historically, and I wonder why this information is not provided.

Secondly, there will be an interconnect cut in Colombia in April and the information we have seen earlier was that it would be 50% cut over three years. Could you give information on how big the cut will be now in April?

And sorry to come back to the question previously, because I didn't really understand the answer. Can you give some information on how the traffic pattern has changed after the flat tariff structure in Africa somehow percentage-wise, or anything to just understand the margin impact from this?

Okay, let me start at the Africa end. For competitive reasons, I don't want to disclose exact traffic patterns. But just going back to this, if you embark on a strategy where you have exactly the same tariff as your competitors, as more or less we did, it's not automatic that you get that recognition from your customers.

So whatever tariff you put in place, there is not a instant recognition by the customers of what that tariff is. And particularly in Africa, it normally takes a little bit longer to drive through the recognition of your pricing than, for example, in Latin America.

So it's not automatic that we copy our competitors, that we get exactly the same traffic pattern, or exactly a neutral preference between our tariffs and theirs. It's not automatic.

On the churn, we did not disclose the churn, because there was no significant or material change in the change. The only real interesting information about churn is that we see that there is a significant reduction in churn among our customers who are using some of our VAS product, just as an example.

For example, customers using MFS services have a churn which is significantly lower than the normal customers. The same applies to products like Tigo Lends You as well.

Regarding the interconnection cut in Colombia, this has nothing to do with what happened in 2008, when we had a 50% cut, when we were strongly dependent on interconnection at that time.

This time, the share of our traffic that is dependent on interconnection is significantly more limited to start with. And we are talking of 50% decrease on a base which is already 50% of what it was in 2008, and divided by three because it is on three parts.

So as you can see, all of it makes it, I would not say, insignificant, but we don't expect any real pressure from that change.

Okay. Thank you.

Peter Nielsen, Cheuvreux.

Apologies for another question on Africa, but you seem to have been taken slightly aback by recent developments, so I was just interested in what you've just been discussing, and what you're seeing in Africa at the moment in the past quarter. Is it in any way changing your expectations for medium-term growth on that continent, or perhaps the risk associated with that growth, and whether this is likely to change your appetite for further expansion in Africa? Thank you.

I don't think so. We are very committed to Africa. We think we are going through a somewhat disruptive pricing scenario, triggered by Bharti's entry. And as we are learning about the elasticity, I think our competitors do the same.

We already have some markets like Tanzania where we went through this experience, and we got some smarter tariffs that both gave benefit to our consumers and provided growth for the operators. So we are still very confident in our midterm outlook for Africa.

We simply just have to learn now to find different tariff combinations that get the recognition of being great value to our customers and that's what we are in the process, including driving out our value-added services where we tend to be ahead of our competitors. Our intention is to continue to do so.

And I confirm that Q1 is in line with our expectation and that, in light of Q1, we are confirming our guidance for the full year 2012, as well as the expectation that we shared for the medium term.

Okay. Thank you.

Miguel Garcia, Deutsche Bank.

First question is going back to Africa again, but I wanted to see if there is any -- do you see any space for M&A activity, because it looks like some of these markets are more challenging, require some consolidation, and if you are looking into being part of that?

The second question is regarding triple play on 3G. We have seen some markets in Latin America where operators, after developing strong 3G network, are offering broadband plus wireless services, plus a type of fixed solution to complete the triple play offering. Is that something you are considering? Thank you.

Okay, let's start with the M&A opportunities in Africa. Some of the African markets simply have too many operators, and consolidation would absolutely make sense. I think that will happen, but not short term; I think it's more over time.

There is also perhaps some regulatory challenges in putting to together businesses in Africa at the moment, but that's certainly something that will happen, over time. We don't see that many Greenfield opportunities. To us, expansion is more about finding an asset, which would be number two or number one in the market, and something that we could buy and apply our skills and get a return that would exceed country [WACC], over time.

Regarding a triple play or quadruple play, this is something that indeed we are contemplating. This is something that doesn't weight a lot today in our total revenues, but this is something that we look at with a lot of interest in developments in more developed markets.

Especially in Central America, where we can offer, as well, fixed services, be it broadband Internet or fixed telephony, we are interested in developing quadruple play, which we already do. But we expect it to grow in the future.

Likewise, if we could have opportunities to develop similar programs in other regions, even if we don't have fixed infrastructure for the time being, we will do it with [a lot] of interest.

Thank you. So just to clarify on the first question, what I gather is that it will be hard for you to be the acquirer, because you have the first or second position in most of the markets?

No, what I mean is in an existing market, where there are too many operators, and we have strong positions in all the markets we are in, we would naturally be a buyer of an asset to expand our market share. We just don't see that happening in the short term.

And in terms of expanding to other African markets, it's not about Greenfield, it's about buying an asset, which is number one and number two.

Great, thank you.

Ric Prentiss, Raymond James.

Got a couple of questions, none of them about Africa. First question is, you [mentioned] Colombia, your market share there and how it's above what you've seen historically. Can you talk to us a little bit about what you're doing in Colombia to get the market share in the Information or Data segment?

Second, on the handset side, can you talk a little bit about the different operating platforms, android, BlackBerry, and Nokia, Windows, Apple, what you're seeing as far as the device lineups, the cost, and the user interest in those different systems?

Yes, let me start first with the strategy. In Colombia, we are focused on the young urban customers, and very strongly focused on value-added services. And even our packaging around the Data products is also based a lot about a young customer profile.

The most successful product we have on the Data side it's called a Social Plan, primarily in BlackBerry, where you basically have unlimited access to Facebook, email and BlackBerry Messenger, and then on top of that, you buy your voice package. The sum of that added together is around $25 a month as a cost, and that's something that really works well for us.

We also have a quite large sales force of, you could call that, young people, who can be out there in our shops and on the streets, and demonstrate to people how to use data services and how to use smartphones. And we find that's very effective in converting people to use us.

Regarding handsets, the strongest development that we see is really with android, and we see that development with a lot of interest as well. Because in terms of margin, that is quite attractive to us for two reasons.

First of all, these handsets are amongst the most affordable, to start with. And since the software is free, in terms of usage, we don't pay any fee or any service to anybody like we do, for example, with [REMA].

So this is something that we are promoting, but there are different segments as well. We started, not such a long time ago, to market some iPhones as well, even if the market is not that large in our countries, but it starts to sell reasonably well as well.

And then on the Entertainment category, I don't think we spent a lot of time on that on the call. You mentioned interest in getting access to music content. I know in the United States Leap Cricket has the move product. Are you looking to develop your own, or you're looking to partner, or what exactly are you signaling there with the music content, and what's the opportunity?

No, we don't want to signal anything in terms of how we would do it, we just wanted to signal that we think there is an opportunity there. Emerging markets are full of young people; music is close to everybody's interest and hearts. So we are looking at various options how to address that. But that's an important area for us, going forward.

And probably not much effect in 2012 financials? Is it really a '13 financial or (multiple speakers).

It will take some time to build that up.

Great. Thanks, guys.

Andreas Joelsson, SEB Enskilda.

Yes, two questions, if I may? First on Latin America; you mentioned that there is a few auctions coming up during 2012. Do you have any idea on how that could affect cash flow?

And secondly, back to Africa. You mentioned that you focus on quality in the subscriber base, and ARPU is down almost 7% in local currency due to the price pressure. Do you expect the decline in ARPU to be less then, going forward, since you focus more on the quality of the subscriber base in Africa?

Let me start with Africa. As I said, we are testing various pricing options. We are accelerating our VAS drives and VAS services, like Mobile Financial Services, but I don't want to give a forward guidance on what will happen there.

On the auction for spectrum, as you probably saw, we excluded these amounts from our guidance in terms of CapEx, due to the lack of visibility on both the countries where it could take place, the timing, and even the amount.

The most advanced auction is in Colombia, where there is currently an intense discussion between existing operators and the regulator on the way to conduct that auction, which are very productive discussion.

There are some signs that something could happen as well in Paraguay, but we have limited visibility, for the time being, both in terms of timing, amounts, availability of spectrum, and so forth.

But obviously, we show significant interest in getting part of this access. If we can share with some of our competitors, we will be more than happy to do it, because we know that this is something that works.

In Europe you have, I think in the US as well, you have a lot of operators who are sharing not only spectrum but networks as well, which makes a lot of sense, and which is totally feasible, from a technical point of view, limiting CapEx, OpEx, and bringing affordability to consumers.

Okay. Thanks a lot.

Soomit Datta, New Street Research.

A question on Paraguay, please. I believe you've as of March, [revised] the on-net and cross-net tariffs in that market. Given your commentary about elasticity on on-net and off-net in Africa, could you maybe give any sense to how you could imagine revenues on the Voice side will play out in Paraguay over the coming months?

And has there been any impact, maybe it's a bit early, but has there been any impact yet on the numbers? Thanks very much.

In Paraguay, the across-net, on-net equalization hasn't happened, so we still have the tariff plans in place that we had. In Paraguay, you have to remember, we have a very strong market position, and we have more than 40% of the revenues in non-Voice sitting in VAS.

We have a strong growing Mobile Financial Service business, which we are unique in the market with. So we think we have a very strong, at this stage, defensive position to manage through any changes in this area.

But as and when you move up your on-net prices in Paraguay, do you think the same will hold there, as you've said in Africa, i.e., you'll essentially see volumes drop to compensate?

Well, you have to remember we have a totally different position here as being the clear market leader, and us then having to be the mover with the advertising capability to signal that's so. It's a different situation.

Okay,. Thanks.

Kevin Roe, Roe Equity Research.

As you experiment with price initiatives in Africa to drive elasticity this quarter, should we expect further margin pressure versus the EBITDA margin you reported in Q1?

And in Rwanda, can you talk a little bit about the slight subscriber drop in the quarter? I know you mentioned there was strong revenue growth, but just curious what activity you took in the quarter ahead of Bharti's entry. And so far in April, has their entry been any more disruptive than you've seen in other markets? Thanks.

On the margin side, we reiterate our guidance for the full year, which is around mid-40%s EBITDA, and we confirm it in light of Q1.

In Rwanda, as we indicated, this is the market, with Tanzania, that is delivering very good results. Bharti did launch operations a couple of days ago, and it's very difficult for us to comment about their performance for the time being.

In Rwanda, we flagged that one of the fact that our MFS business is developing very well with 7% of our customers already using it.

On the first question, I was referring specifically to Africa, if you expect further margin pressure, sequentially, for that region?

We are still looking at various pricing options, so I don't want to comment on that one.

Okay.

Erik Pers, Danske Markets.

Regarding El Salvador, I'm not sure if I understood if you were the leader or the follower in those price declines, and have you seen any of those triple and quadruple airtime offerings continue into April, and what do you think about the outlook there?

And also for those of us who aren't perfectly up to date on that consolidation process, is that still happening or did it hit a definite regulatory hurdle there?

On Tanzania, what's the pricing structure there with regards to off-net and on-net prices, are they widely different? Thank you.

Regarding El Salvador, in El Salvador and even here the market, we never position ourselves as a price fighter. And especially in El Salvador, in Latin America in general wherever we command leading position, usually we always make sure that we work with affordability perception for customers. But I don't think that you will see Millicom triggering any price war anywhere.

You had a question on Tanzania. I will let Mikael answer that question.

And regarding, sorry, the consolidation in Central America; we have noted the fact that Digicel merged with America Mobile in Honduras, and that the merger took place, I think, a couple of days ago. While the merger has not been completed yet, in El Salvador, which is, by the way, one of the reasons why we have always seen more pricing activity in El Salvador, because the competitive environment is quite different from the two other markets in Central America, with much more intense competitive landscape.

In terms of Tanzania, we have a delta between on and across-net price.

Okay. Do you see a risk that you might go through a similar (multiple speakers)?

We went through a cycle like that already.

Okay. Thank you.

Bill Miller, Hartwell.

Could you give us a little bit more color on how the developments at Western Union are taking place, and what do you think the potential is for that? And whether there are barriers to Western Union, or any other structural barriers, to their being a big part of the financial picture for you?

Okay, some background there. We are only live in Paraguay, although we have agreements to start later on in Central America.

In Paraguay, the remittance markets, incoming remittance, is around $900 million. At this stage, we've just gone through sort of a non-advertized stage where we do technical testing, and just ensure that Western Union's and our machine can talk in a reliable matter with each other. So we are a few weeks away from really trying to start commercially to exploit that, but we are quite optimistic about the impact there.

And this is a cooperation that makes a lot of sense, because we don't have any international presence for international remittances, because we are only present in our markets, in our [13] markets, but we have no capability, for example, to get access to international remittances from the US, or from Argentina, for example, or from Spain, as far as Paraguay is concerned.

So while, locally, we have a very strong distribution reach, which Western Union doesn't have, so this is a type of cooperation that makes a lot of sense. And we are happy to start with Paraguay; as Mikael said, we will extend it to Central America and most likely as well in other markets in Africa.

But like all financial services, I think the expectation will be that it will take months to basically start ramping up scale. People have to learn to trust the system.

Once somebody has a good experience, they tell their friend or their neighbor and you get it that way. So I don't expect any material impact in 2012. I think the real benefit will come 2013, and onwards.

How big a deal could it be? They have a brand name which is unequalled, and (multiple speakers)

It could be a quite big deal, if the remittance market is $900 million in Paraguay, and we are probably the largest company in that country, over time we could take a substantial share of that.

In Central America the annual remittance value is, across the three markets, around $2.8 billion. And again, in these three markets, we have leading market positions, so this could be, long term, a very attractive opportunity.

Great, thanks very much.

Sergey Dluzhevski, Gabelli & Company.

Could you talk a little bit about your cable and fixed broadband strategy over the next two year? Obviously, you have Amnet in Central America, you bought some cable licenses in Paraguay, so how meaningful this business could become for you over the next two years? And do you expect to make more acquisitions of cable or maybe fiber assets in other countries in Latin America?

Looking at the result of our acquisition of Amnet, it's a little bit more than three years ago, which, by the way, we have rebranded in almost all markets now to Tigo, we are very happy with the development. This is a business that grew, on average over the last three years, by close to 15% on the top line, with a margin which is attractive, which is close to the average margin of Millicom. So we are extremely happy.

As I said earlier, this is a good opportunity for us to leverage cross-sell and up-sell products and services, given that we sell triple player or quadruple play services, and share infrastructure as well.

We have confirmed that we will be interested in expanding in the same way and either through Greenfield project, as we are currently doing in Paraguay, or through acquisition in other markets where we don't have a fixed operation, given that we are extremely happy with what we have seen.

There are not so many opportunities; for example in Africa, as of today, there are not so many opportunities, but there could be some probably in South America. So we'll keep looking at it, and if we don't find the right opportunity, we will not hesitate to go Greenfield or Brownfield.

Thanks.

Barry Zeitoune, Berenberg Bank.

A few questions. The first one is looking at your commitment to go for the higher value subscriber, and we did see successful up-selling and cross-selling in South America, but at the same time, we've seen the proportion of customers that have an ARPU of greater than $10 fall from 30% in Q4, to 26% this quarter. Is that mainly concentrated with what's happening in Africa? Or do you think that the strategy of going for the higher value subscribers is starting to run its course in some of your Central American markets?

Second question is on the MTR cuts in Guatemala and Honduras, I was wondering whether you could quantify the impact that's had on Central American revenues and EBITDA.

Third question is on the contribution from Communications, to overall top line growth. Back at your capital markets day, you were talking about a 3 percentage point contribution to a 10% top line growth. Now you're at around half that level this quarter, and I understand it's a volatile number, but do you still stand by that 3 percentage point contribution to top line growth?

And then final question would just be on shareholder returns. I was wondering whether you're tempted to wait until the spectrum auctions in South America, and particularly Colombia, are out of the way, and that you've got clarity on the costs around those auctions, before you commit further shareholder returns. Thank you.

Let me start with the commitment to the higher value customer. That commitment is absolute, and I just want to point out that we are in no way denying the access for lower ARPU customers to our networks. But the real focus is to develop services that make sense and can drive ARPU among the people who can afford a little bit more.

So we might have some volatility on this high ARPU customer number from quarter to quarter, and we might have lost some high ARPU customers in Africa, in this turbulence around the pricing moves.

Regarding the contribution to Communication, indeed versus what we gave as an indication in London during the investor day last year, it is true that, in Q1, the contribution of Communication is lower than what we expected, around 3 points. If you look at Q4 last year, we were close to what we expected. Don't forget as well what we said initially, which is the fact that we had an extremely high growth in the first quarter of 2011, so we are not absolutely convinced that the Q1, 2012 growth is a good proxy of what could happen later in the year.

Regarding the impact of the spectrum auction in Latin America on shareholder return, I don't see really a strong relationship, given that -- I mean we believe that we can finance the auction independently from any shareholder returns. So I don't think that if we buy any spectrum in Latin America it would impact negatively our capacity to return funds to shareholders.

Sorry, just on that, I didn't mean in terms of the overall capacity, but I meant in terms of timing, would you be tempted to wait to have clarity before deciding on an amount for further shareholder returns?

No, not really. As I said, we expect to start the share buyback as early as next week, so I don't think that there will be any connection between the two items.

Sorry, just to clarify once more, I mean in terms of a further buyback beyond what's already been committed.

Well, at this stage, we are making no statements about any further returns.

Okay, thank you. And just the point on MTR cuts in Guatemala and Honduras, can you quantify the impact that's had on revenues and EBITDA?

Remember that, in Guatemala and Honduras, we have very dominant market positions. The bulk of our revenues on the Voice side is on-net, so any interconnect cap on interconnect rates were very low already. There's no material impact off of those.

What put more pressure on our EBITDA margin in Q1 was the new tax introduced in Honduras, because they introduced a security tax, which is 2% of revenues. That had a much higher impact than any MTR cuts in both countries.

Okay, that's great. Thank you very much.

Sven Skold, Swedbank.

Only questions about the financials remain here on my list. I notice that depreciation increased more than revenue in this quarter, and that you actually saw EBIT decline, year on year. I'm wondering what do you think about the depreciation for the remaining part of the year? Will it continue up faster than revenue? That's the first question.

Okay, on the first question, depreciation did increase more. There is a slight technical impact, because last year, in Q1, we extended the depreciation period of some of the assets, and especially the tower that we still have from 10 to 15 years, which means that we took one-off benefits, which contributed partly to the fact that it looks like a significant increase this quarter.

Okay. But for the remain -- this is the normal level, going forward, I assume? It's nearly 17% of revenue.

We gave a guidance, at least for CapEx, that we expected to invest in CapEx with up to 20%, or less than 20% of revenues. And so you can extract from that a trend on depreciation.

Yes, okay.

We may have, as well, a slight impact because, as you probably noticed in the last two years, we were very back loaded in the year with the CapEx, because we had a very, very strong portion of our CapEx in Q3, and even more in Q4.

We have [managed] to better spread the CapEx evenly during the year, which means that we may have a little bit more growth in the depreciation in the earlier part of the year, in H1, at least this year.

Okay, I understand. But could it be so that EBIT actually is declining this year?

You are saying that EBITDA declined. EBITDA didn't decline in absolute value; EBITDA increased in absolute value. So we don't give any guidance in absolute value, but we gave a guidance of around mid 40%s that we reiterated for EBITDA this year.

Yes, but EBIT, could it be declining this year?

We don't give any guidance on EBIT.

No. Second question, if I may? I never seem to get the minority correct on the individual quarters. Can you give us a hint on where the minority adjustment should be normalized in this quarter? The major differences between the historical quarter, so --?

You had some differences in the past, why? Because we have been making losses for a long time in Colombia, which was the main item in minority interests in our P&L. But now we have another one, which is Honduras.

So first, we move from losses to profits in Colombia, which means that we will move from positive minority interest now into a negative one. And then came Honduras on the top of it. I think that now it should be much more predictable than it used to be for that reason; it should be much more stable.

At this level, or this level that you showed in Q1, is that reflecting the normal level? There have been so many extraordinary items, historically.

You will have a negative figure anyway, but I can't give you any guidance on that specific line. What I can tell you is that it will certainly stabilize, because it is the outcome of two main items which are much more stable than they were in the past.

Okay, great. Thanks.

[Frederick Lizl, Handelsbanken].

Could you give us some help here to explain, if you talk about Central America and South America, the EBITDA margin drop we have seen, various magnitudes between the two regions. You have pricing pressure and you have some taxes, and you try to mitigate this, and you have initiatives to drive investments and so on. When do you see that EBITDA margins will resurface again, come back up, or stabilize at these levels? How should we look at that? Thanks.

Well, first of all, you have different momentums in the margin. The Central American margin is impacted by common factors with South America, which is the investment that we are doing in the new categories, the investment that we are doing both in terms of staffing the new categories, as well as the dilution that may come from the fact that some of these new categories will have a lower EBITDA margin, but a better ROIC, which is really the case for the Solution and [Information and] MFS categories. And that will not stop; it's going to continue. So we need to focus more and more on return on invested capital.

We have, in both cases, as well Central and South America, we have invested in our network, and especially on 3G, which is putting a little bit of pressure on the EBITDA margin, as well as we have invested on subsidies, as we said earlier.

There is one specificity that explains the larger decrease in Central America, which is El Salvador pricing, which I would say, roughly speaking, makes a difference between the two regions.

But don't expect that the margin is going to increase because, as we have always said over the last two years, the fact that we invest in new categories will dilute the margin, because any new category will not deliver 46% EBITDA margin in the early stage of its development.

We believe that we are doing the right thing, because when we see that 88% of our growth in Q1 is coming from these new categories, and even if you look at 80% of our growth in Q1 is coming from products and services that we did not market at all three years ago. But, obviously, it brings some kind of dilution on the EBITDA margin, but we focus more and more on the return on the invested capital.

Okay. Thank you very much.

(Operator Instructions). Lena Osterberg, Carnegie.

I just wanted a specification on your EBITDA margin guidance for the full year, which is mid-45%. Do you believe that this quarter, at 44%, is at the guidance level? So do you see a wider range, or is it 45% that is your guidance?

So we confirm on guidance, which is around mid-40%s. Okay, I agree with you that the range can be depending on the way you look at the range.

We will look at it during the year, because we have opportunities to invest in order to sustain the growth and to accelerate the growth in some categories, and especially with the Information and MFS category.

So while we see that we have these fantastic opportunities in our market, which are really contributing to our growth, we may decide to accelerate or slow down development investment in these opportunities, which may push the margin a little up and down, which is the reason why we keep this around mid-40%s guidance for the time being.

If we can during the year, we will fine tune it but, for the time being, we want to keep a little bit of flexibility to increase or slow down the amount of investment.

But in your opinion, you are at the guidance level for Q1?

As we said earlier, with this quarter is absolutely in line with what we expected for Q1, both on the top line as well as on the margin. And it is fully in line, as well, with the guidance that we gave, which is the reason why we reiterated that guidance.

So that implies that your full-year guidance could be as low as 44%.

We didn't say that, but we said that we wanted to keep some flexibility in order to adjust the margin to the growth opportunities.

Okay. Thank you.

Bill Miller, Hartwell.

Francois, Mikael, are you at all tempted to stretch the fixed portion of your debt beyond the current 46%, or whatever it is, given the level of interest rates around the world?

And secondly, how do you expect to ever get back to 1 to 1 unless you do go out and borrow more money or accelerate the stock buyback, which would get you up there as well? Or is that no longer a target?

Okay. Regarding the fixed rate part of the debt, we used to have, I think, a little bit more than a year ago, maybe 18 months ago, we were at 80% of our debt at a variable rate, which was quite good actually, because we benefited from a very low cost of financing.

Given that there is some kind of risk of an accelerated return to inflation, and we see it in some of our markets by the way, we decided to fix a larger portion of our debt. So now we are at about 50/50, which is the objective that we set for ourselves. I'm quite happy, because we managed to do that while even pursuing further the decrease of the average cost of the debt.

Do we want to go even further? For the time being, no. But this is something that we review on a regular basis, which is something that we review. If we want to increase it further, we will certainly share it with you.

Sorry, I didn't get your question on the share buyback.

No, net debt to EBITDA.

No, sorry, the net debt to EBITDA of 1 times, yes indeed, we always said that we would feel more comfortable at a level of around 1 times than the current level where we are at 0.7 times.

If we find the opportunity to do it either through M&A, or we could do it through additional return to shareholders, this is something that could be done. To be at 0.7 times or 1 times doesn't make a very big difference, but we confirm the fact that we would feel better around 1 times.

Great, thanks.

That concludes the question and answer session. I will now hand back to you, gentlemen, for any concluding remarks.

Thank you, operator. I would like to thank you for joining the call today, and we look forward to seeing you soon. Thank you very much.

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