Millicom International Cellular SA (TIGO) 2012 Q4 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to the Millicom full year financial results conference call. Today's call will be hosted by Hans-Holger Albrecht, President and CEO for Millicom, and Francois-Xavier Roger, CFO. Following the formal presentation by Millicom's management, an interactive Q&A session will be available.

I will now turn the call over to Justine Dimovic, Head of Investor Relations. Please go ahead.

Thank you. Welcome, everyone, to the Millicom fourth quarter results presentation. My name is Justine Dimovic, and I'm the Head of Investor Relations.

I hope you all located the slides for today's presentation on our website, www.millicom.com. Before we start, I would like to remind everybody that the Safe Harbor statements apply to this presentation, and the subsequent Q&A session.

With me today on the call are our President and CEO, Mr. Hans-Holger Albrecht, and our CFO, Mr. Francois-Xavier Roger. Without further delay, I will hand over to Hans-Holger, who will present our Q4 results, and an update on development of our business category.

Thank you, Justine, and good morning and good afternoon to everyone, and thank you for listening in. Since it is my first conference call for Millicom, I want to take the opportunity to give maybe a short overview of the impressions I have after being CEO now for a bit more than three months, a short description of the kind of challenges we see, and the kind of great opportunities we see as a management team going forward as well.

I think if we start with the challenges, or the kinds of things we have to look close and work on in the next coming months, obviously, there is a kind of crossroad the Company is in right now in terms of moving from an old business to a kind of new business. You have seen probably, when reading the announcement and the datas and the statement that, for the first time, for example, our revenues on Voice have been declining, which is due to a price pressure and the competitive landscape and the regulatory impact. It's nothing new, but it's a kind of underlying trend I think the old management has been highlighting, and we can see as well. It is accelerating, become a reality more going forward.

The second challenge, obviously, is the kind of move the Company has started very successful, but is in the middle of it, of moving from prepaid to postpaid, and from Voice to Data, which of course, requires higher investments, higher subsidies, and as well, a kind of different skill set in the Company, which then results in investment in people and overhead as well.

I think the second impression I, as the new CEO, which is more Millicom-specific, there is obviously a kind of catchup effect when it comes to investment in the Company and in the markets we are in, based on opportunities, not based on any other kind of reasons, but the is catchup effect will have a -- well, had a peak in 2012, and will continue to be strong in 2013. Hence, which are going to come back later again, and Francois, as well, of course, our guidance when it comes to CapEx, which will stay up to 20% of revenues.

And last, which comes simultaneously with the change in the kind of core business, we invest a lot in new growth opportunities like the online business, like our entertainment divisions, and -- or the kind of service functions. So a lot has been done, and has been worked on in 2012. A lot will be done and has to be done in 2013, which is clearly a transition year for the Company.

However, if I take a bit more midterm, a long-term view as new CEO, I think beyond those challenges, there are strong opportunities in the Company outside the traditional Voice business, which has been the base for the business in the past days. And there are more or less four areas we can see, where we were going to focus on, and we've got to keep the kind of momentum to be a growth company as we have been in the past.

The first (inaudible) opportunity is immigration to Data, and the Data opportunities, in our markets in Africa and in Latin America. The second strong opportunity we see is in the underdeveloped and partly untapped Cable and Home Business market, particular, as it comes to Latin America. The success story of MFS -- MFS, Mobile Financial Services, it's a great opportunity, and it's showing strong results already during the course of last year. And those three combined, with the investments we're doing Online in Rocket and other services, should keep the momentum of the Company fundamentally as it has been in the past.

We will give a kind of more detailed explanation and overview of what we want to do and how we want to do things, and where we want to do things, at our Capital Markets Day, where the invitation has been sent out yesterday.

And the second point is, it all comes from the kind of position of a strong balance sheet. I mean, the Company is financially strong shape, which gives us the opportunity and the flexibility to look at deals in consolidations and other opportunities in various markets. If, for example, our ongoing discussions with EPM, a leading utility company in Colombia, conclude positively, we will create a leading integrated operator in Colombia. And we will be able to accelerate our development in Cable, with offering material opportunities to cross-sell and upsell innovation and best quality services to our Colombian customers. That's a good explanation, for example, how you can use the balance sheet in -- for weight.

And last but not least, from an operational standpoint, there is an opportunity as well, there is an opportunity to increase even more the efficiency which has been started during 2012, and should accelerate in 2013. A focus on CapEx, a focus on cost, which allows us, then, to reinvest the money we save on those kind of things in the new (inaudible) services in order to become a digital leader, as we describe it in our new logo.

So much for the kind of first impression. As I said, a more detailed explanation of the future will be given at the Capital Markets Day, so let's move back for a second to the past, and start at the slide number 5, where you see the kind of key events.

In the fourth quarter, as you can see, our revenue growth slowed down to 6.4% in local currency. That excludes the benefits from our consolidation in -- of Cablevision in Paraguay.

Our most innovative services continued to grow strongly in the fourth quarter by 29% in local currency. And for the first quarter, however, we experienced a decline, as I mentioned already, in the Communication revenue. I think it's the first time in the history of the Company, driven by regulatory pressure, and as I mentioned as well, the ongoing competitive pressure on Voice prices. The EBITDA margins was at 41.7%. It was a decline substantially driven by investments for growth.

In Q4, we reached some significant operational milestones that illustrates well the success of our innovation strategy, which I can sense, as the new CEO, is really in the DNA of the Company. So for example, in December, we had more than 4 million Mobile Financial Service customers and over 20% of our recurring revenues in South America came from mobile data, amounting to half of our VAS revenues in the region. And lastly, for the full year of 2012, we delivered on all guidance communicated.

If we then move to slide number 6, and turning to the key financials, we recorded local currency growth, as I said, of 6.4% for the quarter. The growth is pro forma, and excludes Cablevision in Paraguay. The market slowdown versus Q3 essentially came from an ARPU decline of 4.7% in local currency in the fourth quarter. The ARPU decline was predominately driven by pricing pressure from our Mobile Voice business, driven by a combination of regulation and competition. If you exclude these regulatory pressures on revenues in Q4, the growth would have been 7.6%, instead of 6.4%.

If you flip over to slide number 7, you can see that our focus on new categories continued to deliver solid results. In Q4 2012, the value added services accounted for close to 35% of our recurring revenue, up by more than 6 points. While we are pleased to see ongoing strong development of our VAS franchise, we know we will have to deliver greater growth in these services to offset growing pressure on our Voice business.

And that combination, of course, with strengthening of our executive team, and our increasing focus on additional services, make me confident we are very well equipped to deliver those kind of targets. This may take several quarters to show in our results, of course, but we also know that increasing pressure on our Voice revenues means we have to adjust our cost structure, at least when it comes to the old (inaudible) Voice business.

If we then move to slide number 8, the Q4 highlights, you can see that the cost management is already a reality. In Q4, we successfully managed to offset the effect of price pressures on our bottom line by improving gross margins mainly in the Information and MFS categories. More initiatives will follow, as we focus on aligning our cost structure to growth opportunities, while retaining our leadership on return on invested capital.

And our acceleration of investments in growth categories, including staffing, network building, and handset subsidies have cost us, just to illustrate, up to 1.3 percent points of EBITDA margin, and up to 2.2 points if it includes the dilution coming from our startup online operations.

Now, let me give you an update, maybe, on some of our categories. I'd like to start by highlighting that this quarter was recorded absolute growth from innovation. Revenue generated outside the Communication category grew by 29% year on year in the Q4, the fourth quarter.

If you go to slide number 11, for the first time, this quarter, our Communication revenue declined, as I mentioned before. This was due, to large extent, driven by the regulatory pressure that accelerated in South America, costing us, to give you a bit more detail, in total, $30 million, or 1.1 percentage points of gross at the Group level, and on top, ongoing pricing pressure in Africa, which we did not manage to offset by volume growth. Our Information, Entertainment, Solutions and MFS categories continued to grow strongly, and so did our latest addition, the Online business.

As you see on slides 12 to 14, the largest contributor to our VAS growth in Q4 was, again, the Information category, and in particular, Mobile Data. We continued to experience the high correlation between revenue and traffic growth in Q4, which supported our decision to invest both in CapEx and subsidies for the transition to 3G. And at the end of December 2012, over 17% of our customers in Latin America were already Data users.

When comparing this penetration rate of 17% with the 35% of our customers, we have an ARPU greater than $10 per month. We're optimistic about the potential for further Mobile Data growth in Latin America, as particular, good quality smartphones and tablets become increasingly more affordable for everyone.

If we then move to MFS, our MFS category continues to perform well, and offers attractive potential in the medium to long term. MFS itself contributed 15% of recurring revenue growth in the quarter, and 1.2% of recurring revenues, with three markets having reached a degree of critical mass. Overall, in the markets that have been [live now] for more than a quarter, total MFS penetration reached 12%, adding 1 point since the end of September in 2012.

If you look, for example, at Tanzania, the penetration of MFS in Tanzania has now exceeded 37% of our customer base. In Paraguay, it's 24% of our customers were using this service in fourth quarter. And in partnership with Western Union, we have now launched international money transfer services for customers in Paraguay, El Salvador, and Guatemala.

In Rwanda, for example, growth in penetration of MFS services continued strongly in the fourth quarter. At the end of December, 22% of our customers in Rwanda were active users of MFS.

In December, we performed a soft launch of the Tigo Pesa service, [as we now know as] Chat. And in the fourth quarter, one more statistic, MFS ARPU increased quarter on quarter to over $1.20.

If you go to slide 16, and as you have probably seen from our new logo, our aim is to be the kind of digital lifestyle leader in the markets we operate in. Although it will be the focus on the forthcoming Capital Markets Day to explain in detail, I would like to explain briefly on what we mean by digital (inaudible) today.

And just to be sure, for us, it's nothing like a revolution coming to Millicom. It's a very simple evolution of a strategy which has been outlined by the old management, and will continue to be executed and developed by the new management, because in a way, Millicom is, already, and has been a digital lifestyle company for a while. If you take, for example, the fourth quarter, around 25% of our revenues came from the digital lifestyle services, such as access to the Internet on the move and at home -- MFS services, digital pay TV, online, and other services.

On slide 16, we are showing you the broader penetration that we have reached, for example, in fixed and mobile. So it is clear, that's going to be the focus for us in the future, and the kind of frame we're going to see the Company in the next coming years, but more details as mentioned on -- at the Capital Markets Day.

Maybe a short update on our possible combination in Colombia, which was announced quite recently as well. Our key focus there is on bringing our customers, obviously, as a company, the best possible access to the Internet wherever they are. It underpins the strategy rationale of the recently announced possible combination of Millicom Colombian operations with the telecom businesses of EPM. You know, probably, that EPM is one of the largest utility companies in Colombia, and a long and [trustful standing] partner of Millicom as a co-owner of Tigo Colombia.

EPM owns Une, which is a leading provider of fixed broadband, telephony, and TV in Colombia, and we are pleased we have reached an advanced stage in our discussions with EPM, and are now together working on a possible transaction to create what we describe, the digital leader in Colombia. Our business and EPM's telecom assets are very complementary, as you can see, evidently, on slide number 19, so it seems to be a very good fit.

If you move to slide 20, just a short update on the Online business, which is our newest category. I would like to start by emphasizing that I fully support the decision made by the management team in August to invest in Online. I personally have been a pioneer of the online business in my previous position as President and CEO of MTG. Back then, we created -- it was in smaller markets, but still, we created CDON, a successful ecommerce company nowadays in Scandinavia. It was the company within MTG, and they just spun off to the market and distributed to the shareholders. So, it's not a new territory for me, and I can see the momentum and the kind of interesting opportunities in that kind of field.

Online (inaudible) is one of the fastest growing sectors in the more developed markets over the past ten years, which you all know as well, with growth driven by the fact that people gained access to the Internet. This sector is emergent in Latin America and Africa, where Internet penetration is currently growing very rapid. Ecommerce for fashion and shoes (inaudible) over in Africa is one of the most profitable business of the Online sector.

By entering as first movers in these segments, we believe we are well placed in Africa to secure a leading position, a pre-requisite, I think, for profitability and sustainable growth. And in Latin America, the Internet holdings continue to develop well in Brazil. The most successful concept to date is (inaudible), the ecommerce website selling sport goods, followed by [GK], an ecommerce website selling food, clothes and furniture for babies. The strength in growth in these two businesses has triggered the need to invest in new, larger warehouse, for example, in Brazil.

Online food offering services under the brand Hello Food, which has now been available for several months in Colombia have been launched. In Q4, online taxi ordering services were launched across a number of countries, including, for example, Brazil and Colombia. And then Africa, [Salandu] and Jumia continued to perform strongly in the first quarter. In particular, in December, Jumia became the most visited website in Morocco.

And two new concepts were launched in Africa, a marketplace called Kaymu in Nigeria, and the food offering service called Hello Food across a number of markets, including Ghana, for example, and Senegal.

And overall, in 2012, the growth was slightly slower than initially foreseen, as some of the services we have launched were delayed. It was a timing factor, nothing else. At the same time, EBITDA losses were much lower than expected as well.

So overall, the business is performing in line with our expectations, and we are pleased to see the ramp-up in launch as our new opportunities and focus of the management to execute those ones.

As I said, we're going to be a bit more in detail as well when it comes to the Capital Markets Day, when it comes to the Online activities -- why are we doing it, what are the kind of synergies we can see with our existing business, and what the financials look like. But overall, as I said, it was, for me as well, and the same motivation like the old management, a natural logic extension of the VAS strategy the Company has been executing for a while.

That concludes my statements, and I'm going to hand over now to my CFO, Francois.

Thank you very much, Hans-Holger. I propose that we move to slide 22 and 23.

In Q4, we recorded local currency underlying revenue growth of 6.4%, excluding the external growth resulting from Cablevision in Paraguay. For the full year 2012, revenue growth reached 8% in local currency, excluding Cablevision consolidation.

Restating as well for regulatory impacts on reclassification that impacted us in the year 2012, revenue growth in local currency was 8.5% for the full year. In Q4, our consolidated EBITDA margin, at 41.7%, was 3.8 percentage points lower than Q4 2011. Excluding Online, EBITDA in Q4 reached $535 million, a margin of 42.6%. Overall, for the full year 2012, our consolidated EBITDA margin of 42.9% was down 3.2 percentage points versus 2011, in line with our guidance.

The decline in EBITDA margin in 2012 was primarily the result of investments in building scale in our most promising business that we have outside of Voice, such as MFS, Mobile Data, Online, etc. We invested $388 million in CapEx during the year, making a total of $922 million invested in 2012, equivalent to 19% of revenues, excluding investments made in spectrum and license rights. Our operating free cash flow for 2012 reached $1.127 billion, or 23% of revenues, which is above our 2012 outlook, excluding spectrum investments.

Now let's move to slide 24, and look at the performance in each of the three regions, starting with Central America.

Revenues from Mobile and Cable operations in Central America reached $481 million in Q4 2012, up 2.4% in local currency. In Q4, markets continued to be very competitive. Central America reported a 6% year on year local currency decline in Mobile ARPU, mainly attributable to ongoing pricing pressure on Voice in El Salvador, and intensifying competitive pressures in Guatemala.

In the Information category, Mobile Data grew at a healthy 29% in local currency year on year, driven by strong demands for Mobile Data in Guatemala and Honduras. In Fixed Broadband, we are pleased to see continued strong momentum in both Costa Rica and El Salvador.

Our EBITDA margin was 50.8% in Q4, declining just half a percentage point from Q4 2011, as we managed to control our cost base to offset pricing pressures in spite of increased investments in subsidies.

Slide 25. Revenue in South America in Q4 2012 was $526 million, up 11% in local currency. Revenue growth was negatively impacted by higher than expected interconnection rate cuts in Q4, in both Paraguay and Bolivia, respectively down by 33% and 25%.

Underlying growth in Q4, excluding the impact of regulation and classification, accelerated further versus Q4 to close to 14% year on year. 448,000 new Mobile customers were added during the quarter, of which 23% were postpaid. That penetration in South America now exceeds 20% -- now exceeded 20% at the end of 2012, a sizable growth from 14.6% at the end of 2011.

Cablevision Paraguay was first consolidated in Q4 2012. During the quarter, it contributed close to $15 million in revenues, and $8.3 million in EBITDA. In the quarter, we already rebranded Cablevision Paraguay to Tigo, as part of our integration plan.

Increased subsidies on other investments made to further accelerate growth of our market share in data contributed to a year on year decrease in EBITDA margin of 3.2 percentage points, to 38.8%.

Now let's turn to Africa, on slide 26. Revenue in Africa grew by 1.9% in local currency in the fourth quarter. The uncertainty in Senegal regarding our license has, (inaudible), affected our market position. This has now been resolved. Excluding Senegal, our revenue growth in Q4 would have been in the mid-single digit range.

In Ghana, DRC and Tanzania, markets remained competitive, but we have continued to invest to hold a strong, solid market position. We are confident that with the right level of investments, current challenges can be overcome.

EBITDA margin for the quarter was at 34.9%, down 6 percentage points as price competition on Voice lead to lower levels of profitability for the industry overall. CapEx in Africa in the quarter was $223 million, including $103 million for spectrum and additional license rights in Senegal.

In 2013, we will invest to revamp our network in Senegal, and continue rolling out 3G in Ghana, Tanzania, DRC and Rwanda.

Slide 27 and 28. Normalized EPS decreased by 15% year on year to $1.56 in Q4. For full year 2012, the decline was milder, at 12% year on year, $6.47. The EPS decline resulted largely from unfavorable foreign exchange moves, triggering a decline in absolute EBITDA, combined with investments in corporate costs for the staffing of our categories, and higher financial charges as our gross debt increased.

Forecast on cost management on CapEx optimization is increasing, so as to compensate for pressures on the Mobile Voice business. We will share more on recent initiatives at our Capital Markets Day in early March.

Slide 29. Our normalized tax rate of 24.3% for the quarter was impacted by increasing upward pressures in taxation for most of our markets. For the full year 2012, our normalized tax rate was 25.6%. Going forward, we are confident that we will manage to retain an effective tax rate of less than 30% of profit before tax, despite the fact that corporate tax rates are increasing in a number of our markets.

Slide 30. Our free cash flow for the quarter was (technical difficulty) million, reflecting lower operating free cash flow this quarter, and an increase in financial charges and corporate costs.

Slide 31. At the end of Q4, our cash position exceeded $1.2 billion, and our net debt to EBITDA ratio was close to 1 time, as we previously expected. Through external growth in Paraguay, as well as investments in spectrum and license rights, we reached a level of leverage that we consider as comfortable. Further increase of our leverage will only be contemplated should there be opportunities to create values through external growth activities, such as a possible transaction with EPM in Colombia.

Slide 32 and 33. In Q4, we successfully issued corporate bonds for a total amount of $600 million, both in Paraguay on a corporate level, and the Swedish markets. As a consequence, we extended the maturity of our debt to around 3.4 years, and we better diversified our funding sources. At the end of last year, we had the same proportion of public and banking financing. At the end of Q4, 56% of our gross debt was at fixed rates, and 57% in local currency, as you can see on slide 34.

Slide 35. Of Millicom total debt of approximately $3 billion, 65% is non-recourse. We have $1.1 billion of debt in Central America, 9% of which is guaranteed, and in South America, 12% of our $1 billion debt is guaranteed. In Africa, we have $616 million of debt, which is almost fully guaranteed.

In Q4, we issued that at corporate level, benefiting from the attractive conditions offered by the Swedish bond markets. The proceeds were used to finance the initial cash injection in Rocket Internet Holding, NIH and AIH. At the end of Q4 2012, cash of the two Rocket holding companies still exceeded $100 million.

Slide 36. As you can see, we have delivered on all 2012 guidance, despite a more pronounced and rapid slowdown of our Voice business than initially foreseen. This is a clear evidence of our ability to address quickly to changes in our dynamic industry and markets.

Slide 37. In 2013, we expect the full year EBITDA margin, excluding Online, to decline less than in 2012, and hence, to remain above 40%. 2013 will be for us a peak year when it comes to CapEx, with a CapEx to revenue ratio around 20%, excluding spectrum. We are working on several initiatives to optimize CapEx investments, and refocus cost allocation. We'll share more with you on our midterm ambition and strategic evolution during our Capital Markets Day.

Slide 38. I would like now to comment briefly on shareholder remuneration. For 2013, we reiterate our previously communicated dividend policy. Ordinary dividends will exceed $2.00 per share, and 30% of normalized net income. We are also aiming for a progressive growth of our ordinary dividends. To the Annual General Meeting in May, the Board will propose a payment of $2.64 per share ordinary dividend on 2012 earnings, i.e., a 10% increase over 2011.

I would like now to hand over to Hans-Holger for his concluding remarks.

Thank you, Francois, and I would like to conclude by maybe stressing a couple of important points, which illustrate as well why I find my new job so exciting, and why I love my job, actually. I think the most important point to underline is Millicom's ambition is to remain a growth company, and at a time when Mobile Voice has maturity, we have to find, obviously, new areas of growth.

And we are fortunate, because this search for growth has always been a key feature of Millicom's DNA. So the ambition to move Millicom into a kind a digital lifestyle leader, it's something which has a strong foundation already in the Company, and can be executed.

The other thing, of course, is that by achieving the high market shares of the Mobile Data, as we have on Voice, and a leading position in all our markets, we will secure our long-term (inaudible), and hence, our future growth and profitability. And with (inaudible) operational experience we have with the Tigo people, it's a doable task as well.

Third, since Millicom's first venture into Cable services, Cable revenues have doubled. We will accelerate that growth further, cross-selling and upselling to ensure we provide our customers the best digital experience. We aim to provide our customers, even the low income customers in remote areas of our markets, with the best Internet access possible over time.

And finally, obviously, we will take the time needed to explore the Online opportunities brought by the partnership we have signed with the founders of Rocket Internet, and the continued growing of our MFS business, as I mentioned before.

Well, this is just a cliffhanger. As I said, more we are going to share with you at our Capital Markets Day, which we have been mentioning now for several times, so I don't have to do it again. And operator, can we have the first question please?

Your first question comes from the line of Laurie Fitzjohn. Please ask your question.

Great, thank you. I have three questions, if I may. Firstly, on organic growth, I mean, we saw quite a slowdown, from 8.4% to 5.5%. Given that we can expect the headwinds from MTR costs to continue through 2013, should we expect this lower growth to remain for 2013 for organic, or are there reasons such as lapping price cuts and to expect growth to recover?

Secondly, on margins, in the presentation, you showed a useful breakdown of the margin drivers for Q4. I was just wondering, could you provide us some more color around 2013 for what you expect to be the margin headwinds, the increased subsidy investment, or investments in MFS?

And then just lastly, I'm very interested in any comments around the rising competition in Guatemala, given that previously, this has been quite a stable market, where you've been increasing your share. Thanks.

If I may take the first one, as it comes to the organic growth. As you know, we don't give a -- kind of the details (inaudible) about the kind of growth profile. I think the main driver, or the main combination, maybe, what's going to be the kind of future (inaudible) comes to Voice, where the regulatory side, we can't impact too much, obviously, and then the other things are depending on the (inaudible) level we have.

I think we have demonstrated in the fourth quarter, and we should demonstrate during the quarter this year as well, that the new services, the VAS services and the Data Communication, Information area is delivering growth. And therefore, the underlying fundamental growth profile shouldn't change. But we don't give a kind of more detailed forecast at this stage.

How this, then, comes together on a kind of midterm perspective, as I said, we're going to elaborate at the Capital Markets Day. I will hand over the Francois to answer the margin.

Yes. On the margin question, so we are providing a guidance of above 40% for 2013, which includes, obviously, the investment that we need to do to drive growth, and we are referring to MFS. So this is included in that figure. There is no plan at this stage to accelerate it further, as we may have done in the past. So this is, we believe, the right level of investment, is contemplated the right level of investment we need to continue to deliver attractive growth, as Hans-Holger mentioned earlier.

And as it comes to Guatemala, I mean, the -- as of today, obviously, the situation has not changed fundamentally to what it has been in the fourth quarter. It is pretty competitive, but no fundamental change, really.

Great, thank you.

Your next question comes from the line of Mark Walker from Goldman Sachs. Please ask your question.

Hi, guys. I have a couple of questions, and then we'd like to just follow up on one of Laurie's questions there. And firstly, are you confirming the EUR250 million of losses associated with Online over the next three years? And if so, how do we expect the phasing to pan out over the next few years? Or, does the comment you made on slide 37 imply that actually there's a risk to the overall number increases?

And secondly, during your presentation, you stressed the importance of delivering high returns on invested capital, and didn't really talk about (inaudible). I'm just wondering if you could give us an idea of how returns are trending, and how you expect them to increase in the future, especially in light of lower EBIT margin forecasts.

And following up on Laurie's question, in your FY'13 margin guidance for over 40%, I just wonder if you could outline how much of the year on year decline is due to the mix effect, and how much is due to price pressure. And on slide 8, you outline how the gross margin improvement in Information and the VAS categories offsets the Africa and LATAM pressure. I was wondering if we can expect these efficiencies to continue, given your ongoing increasing scale in Value Added Services. Thank you.

If I may start with the Online piece, and yes, we can confirm the kind of EUR250 million losses we have been -- previous management has been communicating. The reason why we have this range in the kind of presentation is, well, it's not a kind of increase of losses. It's a kind of acceleration of the kind of revenue growth you can see and take an opportunity.

So it's very important that we -- when you talk about this kind of business, not to see its losses, which are outside the kind of normal plan, or business plan we had. It's a deliberate decision to accelerate things, because you see the opportunity growing and becoming bigger, and therefore, it's something which we can control ourselves, and decide on business opportunity, and not on whatever. Different markets than expected, for example.

If it comes to the margin side, the -- our assumption at this stage is relatively kind of decline that we have in Voice, can be offset by efficiency and cost savings, like it has been more or less done during the fourth quarter. So the majority of the decline in EBITDA is due to the investments in new growth areas that we are doing.

And the middle question, I'm going to hand over to Francois to answer.

For the ROIC, I mean, we have indicated in the past that this is a priority for us. The ROIC, as you know, is more of a medium to long term KPI. As we have shared with the market for some time already, the EBITDA margin is something -- decline is something that we control, that we are driving, which is really supporting that transition that we do with new categories.

We continue to look very carefully, obviously, at EBITDA, and by the way, this is the guidance that we give again for 2013 that we have shared regularly as well, the fact that we need to look more and more at both EBIT and return on invested capital, because a large part of our revenue growth is actually coming from non-CapEx intensive categories, which is the reason why we have said as well that in 2013, this will be the figure for CapEx, and we will come back to you during our Capital Markets Day on it.

So as long as -- if we reduce the EBITDA margin but if we reduce the CapEx to sales ratio in parallel, this is something that will have a positive impact medium to long term on the return on invested capital, which is a clear focus for us.

Thank you very much.

Your next question comes from the line of Luigi Minerva from HSBC. Please ask your question.

Yes, good morning, everyone. The first question is on Colombia. I was wondering if you can give us an update on the next steps, and also maybe clarify the position with regards to spectrum, should an agreement be reached.

And the second question is on your guidance language. I notice you dropped the operating free cash flow margin guidance language from 2012 into 2013. Shall we assume that this guidance, this piece of guidance, is the more important -- is not more [under] your monitor? Thank you.

Maybe I start with the operating free cash flow guidance. Actually, no, the fact that we don't give a guidance for operating free cash flow has nothing to do with the importance that we can put on the cash flow generation. On the contrary, actually.

What we try to do is align our guidance to market practice, which is more to talk about EBITDA as well as CapEx. After that, what makes a difference with what we had before in terms of operating free cash flow is a tax line. You may have seen, by the way, that we have successfully reduced our effective tax rate last year, so this is a key priority that we have. But we realize as well that the last component, which was the working capital movements, is something that was actually a little bit complicated to control, for -- to understand, maybe, or to share with market, because this is largely driven by your payables and receivables and so forth. So, we saw that it is -- it makes more sense at the end to focus on EBITDA and the CapEx.

There is one thing that we are disclosing in an increasing way as well, which is corporate costs, which is the last item. We disclosed that in full transparency, and we will keep on doing it. But our commitment on the operating free cash flow, it remains exactly the same.

Okay, thanks.

Regarding the spectrum in Colombia, the -- you need to consider that the two topics -- I mean, the consolidation that we are working up on with -- jointly with EPM on the spectrum are two different topics that are running parallel. So there is no direct conflict with it. Should there be the possibility for us, or for our partners to bid for the spectrum, we will have to do it regardless of the announcement that we made regarding the possible alliance with one of our partners.

Okay, thank you.

Your next question comes from the line of Barry Zeitoune. Please ask your question.

Hi, good afternoon. It's Barry Zeitoune from Berenberg. I've just got three quick questions. Last quarter, you mentioned in South America, we might see some weaker margins going into Q4, as you expected Colombian margins to stay below 25%, at or below 25%. Can you -- given that you've actually delivered a stronger margin in Q4 in South America, can you tell us what's happening with the Colombian margin specifically? Has that stayed below 25%, or would you say that was too conservative an estimate, looking back?

And then, also, can you give us some kind of indication whether you expect further margin dilution beyond 2013? I mean, should the mix impact in 2013 also continue to impact in 2014 and beyond?

And then, as a final question, it's quite telling that at the moment all of your acquisitions seem to be mainly fixed line businesses, or even online businesses, rather than mobile businesses, which historically has been your core. Do you see less of an opportunity in mobile today? And do you see it as more of a pressured business in the longer term?

If I maybe start with the first one, on Colombia, we can't give a kind of more detailed -- (inaudible) what is [out there], so I have to decline an answer on that one.

If it comes to the margin development beyond 2013, again, this is the idea for the Capital Markets Day, to show you the midterm and long term kind of projections we are doing. But, well, keep in mind what Francois said earlier, that the kind of mix is changed by the definition of the business we (inaudible) in the future, so, the kind of picture, or the kind of combination of how the margins are getting together are different, but more detail at the Capital Markets Day.

And then the last point, if it comes to the opportunity and the acquisitions we have done on the M&A side, it is, of course, to a certain degree, M&A is always a kind of opportunistic approach as well. When the assets are there, you have to [rep] them.

The second point, of course, is we prefer always in-market consolidation than new market opportunities, which for example, the latest ones have been. And certainly, yes, we are strong believers in the combination of fixed and mobile. We can see a lot of synergies in terms of cross-selling, cross-marketing, cross-optimization of networks, triple play, quadruple play, and those kind of elements, so the kind of combination of fixed and mobile is something we have been putting a focus on. It seems it works in those markets where we have been for longer a cable operator and a mobile operator, and therefore, we're going to look for other opportunities in those markets as well, which will be one of the kind of key growth pillars for the Company we present at the Capital Markets day.

Can I -- can I just ask a quick follow up? Have you actually looked at any other mobile opportunities outside of fixed? I mean, have you looked at any mobile opportunities in other South American or Central American markets?

We screen, obviously, all those kind of opportunities, but we never talk about them too much, because -- and then, either price go up, or something goes wrong.

Okay. Okay, thank you very much.

Thanks.

Your next question comes from the line of Chris Grundberg from UBS. Please ask your question.

Thanks very much. Just got a couple of quick ones. I wonder if you'd give a bit more color on the Online investments (inaudible) understand that obviously, you're expecting losses to increase, as you point out, due to the higher revenue profile. But I wondered if you can give a bit more color or detail around how you actually go about making those investments, and where you -- how quickly you can switch them on and off. I suppose, what I wonder is, are these investments that you can scale back if a specific business is not doing as well as you expected, or how should we think about that?

And then as a second one, just as a follow up from the earlier question, and apologies if I misunderstood the response. But on the Colombian proposed transaction there, I've seen some commentary that under the proposed consolidation, a new entity would not actually qualify for the new spectrum process. Can you just explain that, or just give any color there at all? Thanks.

If I put it -- start to give a little of light on the Online business, the kind of model we look at in order to measure if we are on the right track, and if it's going to be successful, has kind of three components. First one is, we only invest in business models which have kind of a proven track record in other markets. So we are not going to kind of a new venture kind of model, where new ideas and new business models are tested for the first time. It's proven, it has success in other places, and it more on execution issues than any kind of innovation issue.

The second point, which is the criteria to be successful in this kind of business is to be the number one in the market in your segment. So the whole ambition is, what does it take to be the number one, and what kind of investments you have to do. And the third point, which is a kind of Internet imminent kind of situation, the number one takes a substantially higher market share than the number two, and therefore, what kind of speed and time you have to put behind an investment in order to take a clear distance to the number two in those kind of markets.

And along those three lines, you're going to look at the kind of business, how you invest. If you see a business doesn't perform in one of those areas, you can scale back. For example, if you're too early in the cycle, timing-wise, you cut back on marketing costs, or other kind of sales costs. If you see the model is not working because you're too late, you simply close it and move on.

And that's an important point, and we'll give more flavor at the Capital Markets Day, but just to be very clear on this one, the range in terms of losses is purely depending on -- we put more money in business which we see are doing much better than we expected, and therefore, we want to accelerate things. It's not only that a business line which has not been fulfilled.

Regarding the spectrum in Colombia, just to clarify, given the timing of our transaction with EPM and the timing of spectrum auction, we will bid independently. That being said, if we combine business (inaudible), we can always return spectrum if required by the regulator, which is too early to say.

That's really helpful. Thanks.

Thank you.

Your next question comes from the line of Kevin Roe, from Roe Equity Research. Please ask your question.

Thank you. Two questions. On Rocket, what is your expectation for CapEx for that business for 2013? And on the EPM transaction, obviously, they have significant fixed line exposure. What do you think that does to your pro forma growth rate in Colombia? Should we assume that it declines when you layer on that business, and how quickly is that segment eroding?

If it comes to the first point, the Rocket business itself is not very CapEx intensive, so 2013, it's minor. So therefore, it doesn't have a kind of big impact. So nothing to worry about.

If it comes to the Colombian side, did you mean the rolling of the fixed business, or the mobile business?

Yes, when you consolidate on a pro forma basis there, their fixed line business, I'm just curious what that does to your pro forma revenue growth relative to a standalone mobile business today.

It should not change too much (inaudible) this time. It should not change too much, because the fixed broadband capability in itself has a growth potential, obviously, going forward, plus in Colombia, we have a pretty strong growth profile when it comes to data, because of the successful rollout of data for us. So that is not a concern, should not change fundamentally, to be honest, we think.

Right. Thank you.

Thank you.

Your next question comes from the line of Ric Prentiss. Please ask your question.

My question is on 4G LTE. When do you expect 4G LTE in your regions? Is it short-term, a couple of years, medium term, long term? And maybe specifically spectrum, device prices, when they'll be low enough to make it attractive and service adoption really take off?

If it comes to Latin America -- or, let's put it this way. Latin America will obviously come earlier than Africa. Africa is still far out, and some -- as you know, we are not in these regions or other kind of places.

In Latin America, it's a midterm issue. Some markets have started already, like Colombia. Other ones will follow, so it's more kind of midterm timeframe we expect LTE to come.

The biggest hurdle for us is handsets and cost of handsets, and therefore, it will be driven by the market opportunities as well.

And in the meantime, we grab as much spectrum as we can. If there is an auction for spectrum, which is currently happening in Colombia, for example, then obviously, we participate as early as we can, trying to get additional spectrum (inaudible).

And the third thing (overlapping conversations; inaudible), the transition from a 3G to a 4G is not very CapEx intensive, like in other places.

Very good, thank you.

Thank you.

Your next question comes from the line of Bill Miller. Please ask your question.

Good afternoon. The idea that you've expressed in the past about consolidation in Africa, and the second, third or fourth players in any given market. Does the prospective bond offering or the existing bond offering in Africa help you with this, or are you still thinking you can make this kind of acquisition and expand, not by building greenfield, but by taking on a second, third or fourth player and bringing your management to that, and indeed, to make it more profitable, etc.?

So the African bond, so we were on the verge of launching a pan-African bond in order to finance the (inaudible) operation in Africa. We actually -- we did not cancel on the bond, we just postponed it by a few weeks, due to the fact that we didn't want to issue that bond in the middle of price sensitive announcements, which was the possible recombination of our operations in Colombia with EPM's operations. So, we are just postponing it.

It makes sense for us to raise money at the central level in Africa, rather than raising money in small bits and pieces in each and every individual country, which is what we were thinking of doing, so we'll see when we work again on that one. For us, given the maturity level of our businesses in Africa is a little bit lower than what we have in Latin America, in terms of P&L and balance sheet, we saw that it was appropriate to provide -- it would be appropriate to provide the corporate guarantee.

So, but -- let's see exactly when we can go back and work again on this initiative.

And just (inaudible) other point, Bill, you mentioned, it doesn't hinder us to do any kind of things we want to do. It's nothing which has a kind of impact on our strategy going forward.

Thanks.

Your next question comes from the line of Anders Wennberg. Please ask your question.

Ah, hello, this is Anders Wennberg from Brummer. Maybe a high flying question, but we've been following this company for many years, and you've always had great organic growth. Looking at the quarter, you're posting about 5.5% organic growth, excluding acquisitions, and I know there were some regulatory things going against you, but there's always some regulatory things happening in this business.

I think this is the lowest we've seen since you listed on the Stockholm Stock Exchange. Is this the kind of growth rate we're going to see going forward, or can we actually expect a fairly quick reacceleration, or is it when Online actually starts delivering in 2014 we're going to see the reacceleration? If you could elaborate a little bit more on that. I know you've had your long-term organic growth targets before. Thanks.

Well, I think the -- again, this is the subject of the Capital Markets Day. The point is that if you look at the kind of growth profile going forward, and then you're going to get more details and flavor for the long-term outlook in a couple of weeks. But the point, of course, that the decline on the Voice side will be offset by growth in the other categories.

The growth profile won't change fundamentally, that we can say today as well. There will, of course, be swings, and there will be kind of periods where you have different kind of levels, but the underlying growth story is still intact.

And the third point, which you're going to experience, well, it's not a one, single short growth story in the future that we put all the eggs in the basket when it comes to Online (inaudible). That's the growth story. The good thing, I think with looking at -- still the new kid on the block when it comes to Millicom. The good thing with Millicom is that you have several pillars of growth which you can work on, the data, the cable, the fixed business, the MFS and other service. And then, if you want, you can take on (inaudible), but it doesn't -- the Online growth is not a make it or break it case for Millicom.

So fundamentally, what we're going to present at the Capital Markets Day is still -- it's going to be a growth company, and the growth profile won't change fundamentally.

And a second question, if I may, on cash flow, I understand the license is not included in the 20% CapEx to sales number. If I try to do the calculations, I get cash flow that is more or less the same size as the dividend for this year. Is that kind of right way to think about it? And what kind of implications for potential further buybacks or extra dividends should we think about?

We have not made any communication this year for initial buyback or additional dividend. Regarding the spectrum, this -- we do not include that in our guidance, because we don't have always the right level of visibility on the spectrum auction. Also, we prefer to give a guidance on what we can control. Actually, the CapEx, the classical CapEx that is securing our growth and technology developments --

Can you help us in any way quantify how big these licenses could be this year? Is it $100 million, or $200 million?

No. As far as licenses is concerned, there is nothing planned this year. The next renewal, in terms of licenses, is in Chad in 2014, where we are -- we will see what happens, but our main competitor's license has been renewed not such a long time ago, so it's probably a reasonable benchmark to start with. But this year, in 2013, there is no planned renewal of licenses. Spectrum could be available also.

Okay, thanks.

Operator, can we take the last question, please?

Of course. Your final question comes from Lena Osterberg from Carnegie. Please ask your question.

Yes, hello. I was wondering also, in line with the question from Anders, if you could say anything more about what you expect from this tribunal in terms of the license renewal in additional costs, plus how much you expect to pay for the spectrum in Colombia? If you could give any more detail on that -- are we talking another $50 million or another $100 million? It makes quite a big difference.

And also, you're saying that this year will be your peak CapEx year, so I was wondering, how much should we expect the CapEx could decrease year over year in 2014? And then also, Tanzania has announced a big MTR cut. Do you expect this will go through, and what will we expect as an effect of this? And do you see any other regulatory changes coming up near term?

For the Colombian case, there is an arbitration court looking at the final valuation. As of now, we assume that there will not be any additional consideration to be paid, but it's up to the arbitration court to decide.

On the CapEx, going forward, what we can confirm now, and we have said for some time already, the CapEx to sales ratio will decline from 2014 onwards, and will decline even not for one year, but for probably several years. But we will give more color in the Capital Markets Day.

In Tanzania, the MTR cut will happen. I think it's going to be implemented, I think, from April 1. And will there be additional regulatory add-ons? There might be some. Last year, we didn't have a lot, except what happened with Colombia and Paraguay -- with Bolivia and Paraguay at the end of the year. Usually regulators do not always pre-warn the operators of what can happen. As of now, we are not aware of any additional risk or exposure, but it doesn't mean that it will not happen.

All right. Can you maybe quantify the effect in Tanzania?

We are working on it for the time being. I cannot give you a figure at this stage.

So, can I ask you then, on CapEx, because you have these accelerated IT investments that you expect will complete this year, so assuming that you don't have those next year, how much will your CapEx go down?

We have said -- a little bit more than two years ago that we were embarking in the $200 million IT program over three years, 2011, 2012, and 2013. And we just checked yesterday, but we are perfectly in line with what we have communicated with the market. The total amount of IT that we plan to spend this year is in line with what we have said, which is around $150 million. And last year it was around $130 million. And the year before, you make the difference.

But can we assume that CapEx will decline at least by this amount year over year?

No, that's not what I said, but there will be still a little bit. It will not be zero in the following years, but there will be less, for sure, from IT. But the decline that we expect to see from 2014 onwards is not only coming from IT. This is one part of it. You need to appreciate as well the fact that we are doing the initial investment in 3G in Africa this year as well, because we just got a new license in DRC as well as in Senegal. So that's part of the initial CapEx. This is kind of a one-off that we are doing today in Africa, that we did, for example, in Latin America in 2008. We did it for the six countries in -- the initial investment in 2008, for a total consideration of about $170 million at that stage.

So Africa, part of it is coming in 2013, and there will be obviously less of it, apart from capacity (inaudible) 3G next year.

Okay, thank you.

Welcome.

Good. If we have no further questions, I would like to thank you all for your participation today in the call, and we look forward to the often-mentioned today Capital Markets Day on the 6th, to follow up on these kind of discussions. If there are any kind of questions in between, obviously, Justine, Francois, myself are happy to be available.

Thanks, and goodbye for today.

That does conclude our conference for today. Thank you for participating. You may disconnect.