Millicom International Cellular SA (TIGO) 2015 Q1 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to the Millicom financial results conference call. Today's call will be hosted by Mauricio Ramos, Chief Executive Officer, and Tim Pennington, Chief Financial Officer. Following the formal presentation by Millicom's management, an interactive Q&A session will be available. I would now like to hand the call over to Nicolas Didio, Head of Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to the Millicom 2015 first-quarter results presentation. Today's presentation materials can be found on our website, www.millicom.com.

Before we start, I would like to remind everyone that the Safe Harbor statements apply to this presentation and the subsequent Q&A session.

With me today on this 1 hour call are our new CEO, Mauricio Ramos, and Tim Pennington, our CFO. I will now hand over to Tim to give an overview of our Q1 2015 results and operational performance, after which we will take you through the financials, and we will finish with the Q&A session. Tim?

Thank you, Nicolas, and welcome to our Q1 earnings call. I think actually, before I'm going to go through the call, I would like to ask Mauricio just to say a few words.

Thank you, Tim. Good morning to all and thank you for joining us today.

Let me start by thanking Tim on behalf of the Board and all our shareholders, as well as the management team at Millicom, for steering the Company successfully over the past few months. The strength of our first-quarter result is a testament to this leadership and the drive and commitment that our management team across all the countries we operate in has shown over the last few months.

I imagine that many, if not all of you, would like to hear about my take on our strategy going forward. It is, of course, early days for this, management and I as a team, and thus I do not want to go too deeply or with too much detail into that, but I am ready, as is the team, to underscore today four key messages for you.

The first of those four messages is that Millicom is essentially and at its core a growth story. I am more convinced now than I was some weeks ago, when I decided to join Millicom. Our mobile business will continue to be fueled for quite some time, by the way, by smartphone penetration and by the continued adoption of data usage on those smartphones.

Note that only 28% of our subscribers now have a smartphone, up from about 20% a year ago. And more importantly, note that about 80% of new sales are smartphone sales, with increasing levels of data usage. That is a very strong wave of growth to be riding on top of.

And it is also very early days for us on B2B, cable and MFS. B2B represents today less than 10% of our income. Fixed broadband penetration sits at only 25% in the Latin American markets we operate, and yet we now have over 5m home passed in those markets and we continue to grow that footprint aggressively. And, of course, MFS adoption is only just beginning to reach scale in many of our countries.

The second key message that we want to deliver to all of you today is that our job, however, is to convert this topline growth into cash flow growth, something that we're squarely focused going forward. So do expect us to focus on, A, maximizing the monetization path of this growth as we drive up smartphone and data usage, both in fixed and in mobile. Monetizing data is the key to offsetting the decline in voice usage. There is no magic there, but Millicom has, indeed, the market position and the fixed networks to do just this.

Bear in mind that speeds and usage levels across our footprint are still very, very low, and expect us to focus on operational efficiency quite a bit. Note already how our first-quarter results already reflect our focus on this. We indeed are focused on using three levers to do just this.

The first, of course, is to rebase our absolute existent cost base downwards, and Tim and the Group have been doing a tremendous job at just that. The second lever is to drive the Colombia margins north, as the synergies kick in and as we drive the scale that we have in that operation into higher margins for the new revenue. We do operate in a business with scale economics, and driving those scale economics means that our operational leverage should drive our margins up, and that is precisely our third lever, operational leverage.

The third message that we want to deliver to you today is that we will focus going forward on execution, execution and a little bit more execution. There is already a very strong alignment with the entire team on that, and I will give you some color on that in a minute.

What's important, however, is that the stated vision of providing our customers with a digital lifestyle is something that we will not be changing. I guess this is a pretty bold statement, and I do not hesitate to make it. The digital lifestyle is a good vision. It's consumer centric, it speaks well to our communities, and it's something that rallies the organization towards a common goal.

But note that I am referring to it, as we do as a team to it, as a vision, not as a strategy. Our focus will therefore be in the immediate term to fine-tune and execute the operational strategy that will underpin this vision. By that, I mean the nuts and bolts, the network strategy, the product strategy, the consumer strategy, and do expect us to give a little bit of color on that operational strategy during our Q2 session.

And expect us, of course, to be very focused on allocating capital to those areas that show the most growth, and by that I mean the data usage opportunity that arises from our subscribers [enhancing] data.

The fourth message, and the last message that I want to convey to you today, is that we are confirming our 2015 guidance. This is an important message, and Tim will give you more detail on that. Note only that we have spent some time as a group reviewing our 2015 budget, our 2015 forecast and the specifics of these Q1 results, and we feel pretty happy about confirming that guidance today.

I know that many of you will have questions beyond these key four messages. Of course you should, and we will be happy to have those and take those after the call. Be mindful, however, that I have been on the job formally only for a few weeks, even if I started working with the team a few weeks before that.

With these key four messages, I will now hand it over to Tim to walk us through our strong first-quarter results.

Thank you, Mauricio. Let's start on slide 3 of the presentation, and before I go into the numbers, let me highlight a couple of features of the quarter.

Obviously, Mauricio's appointment was of immense importance, but we also continued the momentum we had started in 2014. In February, we capped off a growing relationship with Facebook, and we have now launched our fourth collaboration with Facebook in Guatemala, and we found this to be one of the key services our digital customers want. And more to the point, nearly a third of them convert to paying customers after the free promotion period is finished, accelerating the adoption of data usage in these markets.

We also achieved a significant milestone of full interoperability for mobile payments in Tanzania, and for those of you who've followed us recently, you'll know that this is one of the key conditions we see for the liftoff of this product, so we'll keep a close eye on how that develops.

And finally, we've made music one of the centerpieces of our digital lifestyle. It's what customers want. In Latam, we have now had more than 1m customers use Tigo Music, and so we're delighted to have launched Tigo Music in Africa, first in Ghana and now in Tanzania.

So slide 4, the key themes for Q1, our continuous momentum, progress in Colombia, lower costs and FX. And overall, we saw a strong commercial performance across most of the businesses. In local currency, we were nearly 10% up organic revenue growth and a corresponding 9% organic EBITDA growth, I think which underlines the strategy.

In Colombia, we are moving quickly with the integration. We've also effected a realignment of our corporate center and seen further reductions in the corporate costs.

But all of this has been partially obscured by FX movements. The quarter was framed by considerable strengthening of the US dollar against the emerging market currencies. And in particular the Colombian peso devalued by 25%, and as that business now represents nearly a third of our revenues and a quarter of EBITDA, that has limited some of the headline growth.

Okay. So let me go to the operations. Let's start on slide 6. In the Latam region, we saw revenues of just under $1.5b. That's an 8.6% (sic - see slide 6 "8.4%") like-for-like organic growth, and with EBITDA of $565m and operating cash flows of over $400m.

And it was made up of Central America, where we saw 5.2% organic growth, and we also saw a very welcome return to double-digit growth in Honduras, and in fact we saw growth in all of our Central American businesses. And benefiting from some of the efficiency programs, we also maintained a strong margin at over 46%.

The only operation slightly behind our expectations was Costa Rica, but we're now expecting the acquisition of Telecable to complete during Q2 and so would expect Costa Rico to return to high levels of growth in the second half of the year.

Revenue growth in South America was a little lower than we have seen recently, but it still hit 12%. It's dominated by what happened in Colombia, and I'll address that separately.

But I thought Paraguay had a decent quarter. We talked about the challenges faced by Paraguay in recent calls. Last quarter, we saw 1% organic growth. And we saw pretty good growth in cable and MFS.

I think in Africa we had a better quarter. This was the fifth quarter of double-digit organic revenue growth. And finally, I'll unpick the corporate center costs in a couple of slides.

And so slide 7, before I do any of that, I just want to spend a second -- a few minutes on FX. The chart on the left shows the depreciation against the US dollar for nearly all of our operations compared to the rates a year ago, and as you can see, we've seen very significant devaluation in Ghana, Colombia, Tanzania and the African euro-linked currencies. And the right-hand side of this chart shows the impact during Q1.

Overall, our currency basket that is based on revenue share fell by 5 percentage points in 2014 and has fallen by a further 2 percentage points in Q1.

So turning to slide 8 and Colombia, we saw very good progress on the integration of the two businesses. For example, we've changed the process of installation and repair, reducing average times by up to 16%. In transmission, we saved around about $8m annualized by leveraging our complementary fiber and microwave links. We've notched up savings on content acquisition, optimization of long distance, and of course in our organization.

But these are just part of the synergy savings we're beginning to see. As I said at Q4, we expect around $30m to $35m worth of benefit in 2015. So far, I think we've comfortably got $10m of that under our belt, and so far we've incurred $4.5m of integration costs. We still expect total integration costs for 2015 to be around $50m.

I think in the fixed business, UNE saw another quarter of sequential revenue growth, just under 4% in local currency. Still very early days for us, but I think we've made good progress. We've changed the commercial offer, we've put out new packages and we've increased some prices.

In the mobile market, we're seeing some changes in customer behavior following the ending of term contracts announced by regulators last year, and as a result we have seen a slowdown on mobile service revenue growth as customers have started to trade down on some service packages. But that said, we continue to see very strong data metrics, and in particular our data offer. So we now have a quarter of the market in 4G.

However, perhaps the biggest challenge we faced in Q1 was from currency. The mobile business, we saw strong organic revenue growth of 20.8%, but this was pretty fully offset by FX headwinds. Most of the costs are in pesos, however, so we did see some relief in EBITDA. And the Colombian Group margin was relatively strong at 27.7%, and that's a 1.2 percentage point increase on Q4, and on a recurring margin basis it was at 31.9%.

All right. Let me turn to Africa. Whilst Africa now only represents around 15% of Group revenues and 10% of EBITDA, it is a market we see as potentially being extremely fast growing, and indeed we have seen a steady acceleration in the revenue growth in Africa.

In Q1 last year, we grew by nearly 12% in local currency. In Q4 we were growing by just under 13%. This quarter, we grew by 16%. But, again, once again currency took its toll. Our total revenue growth in US dollars was just 1.6%.

And that's a shame, because we saw some good underlying organic growth, particularly in Ghana and DRC, which were growing above 20%. In Rwanda, Senegal and Tanzania, we grew in the high teens. And it's only been in Chad where we faced a tougher macro environment, so we saw some flat growth there.

Also, I think at EBITDA Africa posted $57m, and that was all businesses, with the exception of Chad, delivering year-on-year growth. But we had Chad and Tanzania both held margins above 35%, and we saw some welcome margin improvement in Senegal and Rwanda. And had currencies remained stable in the quarter, this would have represented a 24% uplift on Q1 last year. As it was, we had to make do with an 8% increase, which is still higher than we've seen in previous quarters.

All right. So moving to slide 10, and I just want to highlight the central costs. During the quarter, we undertook a reorganization really aimed at aligning accountability of the center, so we've more closely aligned the central costs with the operations, and we feel this alignment will improve our efficiency, and indeed we've started to see some progress in reducing these costs. For instance, with the closure of our ventures division in Stockholm, we've also trimmed some of the MFS and factory headcount to better align with the business needs.

So over the last three quarters, we have seen our corporate center costs reduce from a run rate of $292m to the current run rate of $236m. That's back to the level we saw in the first quarter of 2014, and this is an area that we will continue to monitor closely.

Okay. So let me look at the financial results for the quarter. On slide 12, we set out the key metrics we set out at the Capital Markets Day, revenue, EBITDA and EBITDA minus CapEx, what we'd call operating cash flow. We've also set out the targets for leverage previously.

So how have we done in Q1? I think we've had a decent quarter. Overall, as I said, organic revenue growth strong, 9.7% before the impacts of FX and the consolidation of UNE. On a reported basis, our Q1 revenue was $1.7b. On an FX-adjusted basis, this is in line with the run rate for our 2015 guidance.

EBITDA for the quarter was a little better than we'd expected. CapEx typically is back ended, so it's a little early to talk about OCF. But our debt ended at just under $4b, within our current leverage range, and again, a little bit better than we had expected.

Okay. Let me talk about the -- okay. We've talked about most of the drivers of revenue in Q1, so Colombia, DRC, Ghana, growing in excess of 20%, Honduras, Bolivia, Rwanda, Senegal and Tanzania all growing double digit, and every country posting positive revenue growth with the exception of Chad.

So, important to note also our service revenue growth. This excludes handsets and other non-recurring revenue. And this held fairly steady, just under the last quarter at 5.6%.

Slide 14, and as I mentioned, we've realigned our structure a little bit to better reflect operations. So here we're looking at two regions, Latam and Africa, and hence the breakdown on the chart. Just we have continued to give the regional granularity that we did previously, but it's just to know that we've realigned some of the business unit data to reflect geographic performances.

First thing to note on this graph is the FX reduced reported revenues by nearly 6% in Q1, and that's a bigger impact than we saw in Q4.

On a product basis, we now have data revenues offsetting the decline in voice and SMS in two markets, that's in Honduras and Bolivia, and Guatemala and El Salvador are getting pretty close. Overall, in Q1, we saw our organic mobile revenues grow by 3.6%, of which data grew by 38%, and as Mauricio said at the start, smartphone penetration now just under 28%.

Cable, good story in the quarter, growing at 18%. Increased -- we've increased our network by more than 120,000 homes in the quarter.

And also MFS, strong trends in Tanzania, which is behind the 43% growth in the year-on-year growth. And also, I think in the first quarter we began to see some decent trends out of El Salvador and Honduras, building up on their rapid subscriber growth in the end of 2014.

So turning to the EBITDA evolution, we saw like-for-like EBITDA 3% higher than Q1 2014, or 8% at constant FX. And with UNE, we recorded quarterly EBITDA of $565m, up 18%.

Strong performance from Guatemala again, where despite some revenue weakness EBITDA was 7.4% higher than last year, and as we count the benefits of smartphone growth and the efficiency activities started last year. Bolivia, we saw a strong EBITDA growth, and that was up 8.7%, again, on strong data.

I just want to flag again Africa, because $57m of EBITDA for Africa, 8% up on last year, 24% in constant FX, and important to note we did not take any restructuring charges in Q1. And I suppose the final point to make is FX knocked $45m off EBITDA for the quarter.

So picking this up a bit further and looking at the margin progression on slide 16, headline EBITDA margin, 33.1%. But if we exclude UNE, it would have been 34.2%, and that's a 20-basis-point progression on Q1 of the prior year. Underlying margin on service revenues at 36.5%, just a little bit better than Q4.

Overall, we saw a bit of a further gross margin dilution from higher handset sales and the dilution from the inclusion of UNE, but as you can see from this chart, it was offset by OpEx -- by lower OpEx as a percentage of sales.

Quick look at the full earnings for Q1; no major surprises here. D&A a little bit higher because of the inclusion of UNE. Net finance charge are up, but they include $17m of non-recurring items, and this relates primarily to the redemption of the El Salvador bond which we called in March, following the successful issue of a new 10-year, $500m issue. The other line is largely adverse FX charges and mark-to-mark movements on the put and call options and on swaps that we've got with our partners.

Taxes lower in the quarter, but this is largely timing differences, and we continued to see our tax charge for the year around the $350m, $380m level. Left us with the adjusted EPS for the quarter of $0.26.

Quick look at cash flow. Group operating cash flow, $187m, which was after an adverse working capital movement of $137m. A number of factors at work here.

We saw a $27m buildup in inventory, largely smartphones, especially in Colombia, pre-Easter. We have some prepayments to regulators in Honduras and Bolivia, which added about $40m, plus we had a more general buildup in the receivables book, mainly again in Colombia, where we took more handset purchases onto our books. Indeed, Colombia accounted for over 40% of the working capital swing in the first quarter.

As noted, taxes paid were a little lower in the quarter, as were minority interests, although cash interest a little higher for the reasons that I just mentioned. Left us with equity free cash flow of $34m. After that, we had some small amounts of M&A activity which led to a further $44m outflow.

So on the next slide, slide 19, you can see this left us with fairly small movements on net debt. The biggest movement, actually, was FX, reflecting the natural hedge we have around -- with around a third of our debt in local currency. Our net leverage remains at 1.8 times, or 2.1 times proportionate.

During the quarter, as I mentioned, we called our bond in El Salvador. We issued a new bond to pay for it. No change in the currency mix, but we did pick up 200 basis points in annual service charge savings from that transaction. We also amended the covenants on our Swedish bonds from 2.3 times to 3 times, to conform with the terms of our new bond issue.

So, in conclusion, slide 20, the underlying trends remain strong, but we are factoring facing stronger FX headwinds than we saw in 2014, especially in Colombia, and this will constrain our US dollar reported numbers. We are confirming guidance, but we ask investors to note guidance was based on the FX rates prevailing at the start of the year.

We see the Colombia integration plans are moving extremely well, which we feel puts us in a very good underlying position to deliver our numbers for this year.

So on that, we will now take questions. Thank you.

(Operator Instructions). Steven Bishop, Citi.

Hi. Good morning. I've got three questions, please. The first one is to do with your partnerships with Facebook. My understanding was that under these partnerships, your customers get free -- their usage of data through Facebook doesn't count towards their data usage in that contract, or that they've paid for in prepayment. How does that help you in the long term with monetization of data usage, seeing as Facebook is going to be one of the key drivers of increased data usage in the future?

My second question is on Africa, and clearly most of the increase in EBITDA came from Tanzania. What are the main impacts that caused the increase in Tanzania?

And then finally, on working capital, could you let us know what the regulatory payments consisted of?

And also, in terms of the movement in receivables, you've indicated on page 25 that that's to do with handset financing. Does that mean you've been factoring some receivables before? Thanks.

Thank you, Steven. It's Mauricio. I'll take the first one, and then Tim will take number two and number three. We think of -- and me, with my cable view of the world, if you will, we think of Facebook as a promotion, if you will. It's using a premium service, if you understand me when I use that analogy, as a way to drive penetration of your basic service as a promotion.

So we're using it as a promotion service. We give a couple of months for free, and then after that subscribers will stay on and buy our core service. If you think of it in those terms, our conversion ratio of 33%, a third stay on, is a fantastic conversion ratio for any promotion. That's how we tackle and that's how we view this consistent with our long-term strategy to monetize data.

So it's just two months that's given for free in terms of data usage?

Correct. That's correct.

Okay. Great. Thanks.

And yes, the Tanzania did drive the EBITDA in Africa. Essentially, it's our biggest business. It's almost 50% of the EBITDA of the Africa business. So, small improvements there have a big absolute level, so we were happy with that. What drove that was subscriber adoption and MFS. MFS was particularly strong in the quarter.

That said, I was quite happy with the improvements we made in the other businesses, and we did see some margin improvement. You'll recall me talking in the past about the other businesses. Our target is just to move the margins up. Senegal, Rwanda, DRC, they're all pretty small in absolute terms, but we saw some good progress in all of those businesses in the quarter. So, momentum wise, that was, if you like, as pleasing to us as the absolute growth that we saw out of Tanzania.

In working capital, it has got a little more complicated with Colombia as part of the Group. In receivables first, we saw that with the change in the way the contracts are operated in Colombia, what happens now is customers buy their handsets and then they subscribe to a service package independently. And we are providing some finance to support the customer purchase, and that increased our receivables by just short of $30m there.

That isn't our long-term intention with that. Our long-term intention is that it's financed by a finance company, and we're in discussion over that. But in the first quarter we were financing, as indeed all the players were in the market.

The regulatory payments are really just standard payments. They're to pay for license payments and microwave links payments. They just happened to be a little bit concentrated and higher in the first quarter than before. These will just unwind over time, so they're not particularly out of the ordinary.

Great. Thank you very much.

Thank you.

Thomas Heath, Handelsbanken.

Thank you. Thomas Heath here with Handelsbanken. Just two questions, if I may. Firstly, you've mentioned the positive trends in mobile financial services. It's been a rocky road there before, particularly on the pricing side, so if you could give an update on the competitive environment on MFS, that would be really helpful, and also perhaps a few words on how you see potential for MFS in parts of your Latam footprint.

Then, secondly, given the dominance of Tanzania, how should we see Rwanda in adjacency to this market? Is it fully integrated? Will synergies be greater over time, or how should we view that, given that Tanzania is doing so well? Thank you.

Well, I don't think we ever promised you that MFS will be a linear sort of growth. In fact, I recall on my first call saying that I expected MFS to grow in fits and starts. What we saw in the last quarter was relatively good performance out of particularly Paraguay and Tanzania, our established businesses. But we saw some good momentum out of Honduras, El Salvador, where we grew a lot of customers in 2014 but didn't drive a lot of money. We started to see a little bit of monetization coming out of that, so generally sort of happy with it.

The competitive environment continues to be market specific. We face some markets where competitors continue to give away or price very cheaply the core P2P transfers, so those continue. And therefore, I'd expect it to continue to be a little bit of stopping and starting, ups and downs.

Big thing for us in this quarter is the interoperability which we've got in Tanzania, and again, I'm not expecting that to kick off massively straightaway. It will take a little bit of time to build. But it means now that our customers in Tanzania can send money to anyone who has got a cellphone in Tanzania, regardless of network, and we think that that will be a condition for further growth there.

I think, to your second question on Rwanda, Rwanda is a relatively small business for us. I don't know whether the question was getting at can we get cost synergies by using Tanzania, its neighboring country, to support that operation. I think Rwanda actually has got a good market position. It's growing very well.

There are some cost challenges in that business that mean that the margin could improve and should improve. Whether that will involve sharing services, too early for me to say at this stage, but I think Rwanda is certainly heading in the right direction. That said, it's a fairly small part of the overall picture.

That's very helpful. Thank you.

Thank you.

Luigi Minerva, HSBC.

Yes. Good afternoon. The first question is maybe for Mauricio, if I may, and it's about the sort of lessons that he learned in his previous experience and that can be applied to Millicom. So I'm thinking, for example, of a parallel between Chile and Colombia. So in both markets you run a cable and mobile business. What can we learn from Chile that can help Colombia achieving, for example, the margin expansion?

And the second question is going back to Africa. We noticed, for example, on DRC in this quarter a higher focus on ARPU expansion rather than on subscribers. I'm wondering if it's a one-off or if it's like the sign of a trend. Thank you.

So, I'll take the first one, of course, Luigi, and I'll let Tim address the second one, and thank you.

Lots of lessons then can be brought into Millicom. I was, as you may be aware, a strong advocate of convergence between fixed and mobile networks, and Millicom is well on its way to achieving that in its key markets. So our strategy at Millicom will be consistent with what I view is the strategic opportunity, which is to drive customers to a converged platform. We do have the networks and we're doing the infill growth, organic growth and acquisitions that allow us to further complement our mobile networks with underlying, underpinning fixed networks.

At the more financial level, the key lesson that can certainly be implemented here at Millicom is the perfect combination of topline growth with conversion of that growth into cash flow. We have the ability to drive growth, because there is growth embedded in the business, but if we focused on operational leverage going forward, driving more EBITDA out of the additional dollars into our P&L, then we will achieve margin expansion by managing growth in a very, very return oriented way.

The third lesson that I learned from my days over at Liberty is focus on total shareholder return. And during my conversations with the Board prior to joining, and certainly during the negotiation of my own contract with the Board, our conversations revolved around total shareholder return. That was key to me, it was key to the Board, and we drew up my compensation package along those lines.

We're now well into a way of driving the compensation packages for the senior management team, again linked to TSR, and we are well on our way talking to our top management team around the concept of making TSR our key metric and it's now well embedded into our language.

Those are the three key lessons that I think implemented at Millicom will help us drive our equity story quite well.

And going onto DRC, Luigi, yes, I think the negative subscriber growth was a little bit a market phenomenon. That said, we are very pleased with the performance, 27% revenue growth. We haven't seen that. We didn't see it this time last year. We didn't see it for most of last year.

It's been driven by really a better focus of the business. We put two price rises through in the quarter. And we've got a very strong market position in Kinshasa, we've got a decent market position in Bas Congo, and just focusing on that and starting to drive that. So it's a bit of market focus and -- to drive the business I suppose that's driving that.

Okay. Thank you both.

Thank you.

JP Davids, Barclays.

Good afternoon. I've got two questions on Colombia, please. The first one relates to AMX and regulation. There's been a little bit of news flow in that market around AMX not necessarily complying with some of the asymmetric regulation that's been imposed on it. Maybe a little bit more color around that, and I guess is this just a bit of a temporary thing and you expect it to unwind through the course of 2015 or is AMX going to push for this to change and be reversed?

Second question, again on Colombia, maybe just if you could provide me a little bit more color around the dynamic you're seeing between customers trying to buy more expensive handsets and then potentially sacrificing a little bit on the service packages that they are buying. Because I guess ordinarily what we see is when guys upgrade their handsets, they tend to upgrade their packages along with it in terms of usage. Maybe you can just provide a little bit more color around that. Thank you.

So I'll take a first crack at it and Tim will certainly complement what I say.

On the attempt by our competitors to not comply with clearly defined regulatory mandates, quite clearly it's a strategy that will not work in the long term. It is against the desires of the regulator, but it's also -- and this is more importantly and the reason why I say it will not work, it is not consumer centric. It is not focused on the consumer; it is alien to the consumer need. So I don't expect that that will have any traction in the long term, even if in the short term it's a fight that's being put up.

On your second point, indeed, the changes in the regulatory framework that have occurred in Colombia over the last few months are meaningful. The mandated decoupling of the handset contract from the serving contract indeed is driving the very phenomenon that you suggest, which is indeed making it harder for us to sell higher ARPU plans as customers are focusing their purchasing decision on the price of the handset and, if you will, the short-term share of wallet is going towards the handset. That is quite clearly the case.

But as we look at the long-term implication of the regulatory changes that are ongoing in Colombia, because we are the challenger, we actually come out on the net positive side of that. Because as a result of this decoupling of the two contracts, the subsidies are disappearing, slowly vanishing in the marketplace. And that for us, long term, will alleviate that pressure on our balance sheet, and more importantly, because we are the challenger and we are the high growth asset in the country, it's a net strategic positive.

I don't know, Tim, if you want to add some color to that.

I don't think I do, actually. I think that covers it.

Okay. Then we're done.

So is (multiple speakers), JP?

Maybe just a quick follow-up from my side, so just maybe a little bit more boring one then for Tim, just in terms of the accounting at the moment between AMX and yourselves. Presumably, you're building up a little bit of a receivable in terms of mobile termination rates that you expect to receive from them or vice versa. Your interconnect counts I guess will look different in their balance sheet versus your balance sheet.

I can't comment on their balance sheet, but we build up and pay off receivable balances with the parties we interconnect with.

Okay.

Look, I reiterate and agree with Mauricio's view on this. The regulation is very clear and it's consumer centric regulation.

Yes, got it. Thanks, guys.

Thank you.

Nick Brown, Goldman Sachs.

Thanks. Three questions, please. Firstly, may I just clarify? You said in aggregate you want to reduce the absolute level of cost base downwards. Is the OpEx reduction in Q1 a fair reflection of what you think you can continue to do through the rest of this year?

And secondly, are there any parts of the portfolio up for review now? For example, would you still consider selectively exiting some of the African businesses if they're not generating any cash? And given the online business is still loss-making, are you considering allocating more capital here? Thanks.

Thanks, Nick. Look, we've made a feature over the last couple of quarters, and I think Mauricio has really emphasized that in his opening statement, that it's important to get both the topline and the bottom line heading in the right direction.

I think one of the issues that we've been focusing on in this last quarter is the central costs and just how the center operates with the operations, and one of the things we've done is align our shared service new business and regional activities with the profit centers that exist within the regions. And through that, we've started to see some cost saving benefits coming through, and I think you saw that in our central costs which were down 5% quarter on quarter. And I see that as a good start, but not the end of the journey on that one.

In the countries, it's a bit more complicated generally. We've had FX all over the place, but you've been aware that we have started in many of the countries efficiency operations and those take time. There's a lot of programs in place now across the business focused on improving our overall levels of efficiency, whether that is focused on commissions or network operations or headcount or back office.

So there's lots of things. Those will take time to come through, but I think we have the right focus now. And in the first quarter we saw our sales to revenue -- sorry, our OpEx to revenue figures coming down by just over 100 basis points. I think we still feel we've got plenty go at on that and this isn't a one-quarter story. We'd expect to be focused on that going through the year.

Then, just you will hear us speak, and certainly that's the language that we're now certainly aligning with our general managers in the contracts, a lot about operational leverage as part of our desire to grow revenue and grow EBITDA in a consistent manner with cash flow generation. That is the key metric, along with TSR, that we are aligning our language around.

On your Africa question, Nick, just to answer that one, you're on spot in the sense that we are very capital allocation focused and very disciplined in our use of capital. On Africa specifically, it is showing strong revenue and strong EBITDA growth, in the high teens if not more locally, so we are very pleased to see that the business is positively on track with the goal that was set to drive a rich operational cash flow situation by 2016.

We're squarely focused on executing that. That is what we know how to do and what we can control. Having said that, of course, Africa is undergoing some consolidation and some rationalization, and if there were to be a situation that we would deem would improve our current situation, we would of course be negligent not to look at it.

So, final question, just on online, we've got an obligation to put a final EUR5m into the Africa Internet holding, but beyond that, Nick, we've got no obligations for capital injection into either AIH or LIH.

Can I just follow up on the Africa point? So given those opportunities you're saying with the market undergoing consolidation, would you look at expanding your presence in any of those markets, or is it just about scaling back? Thanks.

It would be about basically being very, very focused on participating in that consolidation in a manner that is the most accretive to our shareholders. That's what we would be focused on exclusively. It is not a matter of size. It is a matter of accretion to our shareholder base.

Great. Thanks.

Stefan Gauffin, Nordea Bank.

Yes. Hello. I have a couple of questions. The first one relates to Colombia. There, you take a step up on the EBITDA margin if you exclude UNE, so I believe you report 30% EBITDA margin as compared to 27% EBITDA margin in Q4. What is driving this margin improvement? And is this an effect of the decoupling of the handsets, and should we expect this to be a temporary effect or something that you can build on going forward?

Secondly, with the reorganization of central activities, does this mean that some of the earlier central costs are being pushed out to the regions, or is it more that accounting wise that the regional offices are responsible for those kind of costs? And should we expect this to come down further in 2015? Thank you.

Thanks, Stefan. On Colombia, the mobile business, we did see some margin improvement. Actually, our first-quarter EBITDA margin for the mobile business was 28.1%. That was 330 basis points better than the same quarter in Q1 2014. And we had a recurring revenue rate of 35.7%. So it's been what I've been saying for a while now, that we've got good underlying recurring margin; it's been distorted by the handset sales that we've got there.

The decoupling I don't think has affected it too much. Funnily enough, the handset sales have been extremely strong and whereas we might have expected those to slow down a bit, they didn't, so they were pretty strong. So that's good.

The final thing I'd say, Stefan, on this is this will get increasingly difficult to give you this sort of breakdown. As the synergies start coming through, they are, if you like, synergies for the Group as a whole rather than the UNE business or the Tigo business. So we are focused, if you like. The prize for us is to take that Group Colombia margin of 27.7% and see that move up, and happily in this quarter it was up 120 basis points. Lots of different reasons for that, but it is driving in the right direction.

And I think we were giving, hopefully, a lot of confidence that we see the integration and the synergies beginning to come through, albeit the caution is it's still early days there and there's still a lot moving and it's a big business. But net/net, at the end of Q1 we're pretty comfortable with that.

On the second question on the central costs, we haven't pushed any costs down. What we've done is basically said we've looked at every cost that sits in the center and said you either add value to the Africa business, either you reduce costs or you increase revenues, or you add value to the Latam business. If you don't add value to either, then you basically work in finance or you shouldn't be in the Group; you're not adding anything to the Group. And we're putting pressure and responsibility for managing those costs to the heads of Africa and the heads of Latam.

And as a result of that, you've seen we've started to do a few things. Up in Stockholm, for instance, we've closed out our digital ventures activities, which has reduced a sizeable headcount, actually, and you'll see that going forward.

Now, the thing I've just cautioned, we haven't reflected this allocation in the costs or the margins in Africa or Latam. We haven't done that because we don't have comparatives for you. So whilst we're looking at this internally in this way, we continue to report externally in exactly the same way we did last quarter and last year. But we will maintain this focus on the costs, and as a key metric we will continue to look at the absolute reduction quarter on quarter of our central costs.

You can think of it as an exercise on capital allocation discipline. In order for us to do that, we need to have clarity on what the cost associated with a given P&L is, and we need these metrics in order to allocate our capital obviously to the areas with the highest growth and the highest return.

Then maybe a further question. In both Q3 and Q4, you have taken restructuring charges in Africa, and this quarter no restructuring charges. Should we expect you to continue to take restructuring charges in Africa to continue to boost the margins, or are you more looking to drive that in other ways?

Well, just to clarify for people on the call, we took restructuring charges in Q3 and Q4 because we'd undertaken an outsourcing of our network operations which took place over those two quarters, and that involved the transfer of our network operation staff to third party providers. That activity finished at the end of Q4, so we've got no activity like that in Q1.

I'm not ruling out that we wouldn't do similar types of outsourcing activities in the future, which could give rise to restructuring charges, but at this point in time we don't have any on the horizon. We don't expect to see any. But I can't rule it out totally because we continue to look at the best, most optimal way of operating our businesses, not just in Africa, actually, but also in Latin America as well.

Okay. Thank you.

Thanks, Stefan.

Lena Osterberg, Carnegie.

Yes. Thank you. So I was wondering a little bit about this outsourcing to Ericsson that you conducted in Africa. Did you see full benefit from that in this quarter?

The next question I have is I'm wondering a little bit about your debt strategy and the bond strategy. Historically, you strived for a while to push down debt locally, to get a better tax shield and ForEx hedge, and now you seem to take more of the debt up to corporate level again. So I was wondering a little bit if you could say why it is you decided to do this.

And also, if you could say a little bit about the covenants on this bond in Sweden that you renegotiated from 2.3 times to 3.0 times, why did you need to go as high as the 3.0? Is it calculated in a different way than we're used to seeing it, or do you foresee to do any M&A?

Okay. First one, on the outsourcing to Ericsson, we've outsourced network operations to both Ericsson and Huawei in Africa. It's early days, but I think we're quite happy with what we've seen in the initial period of this. We'd expect to improve both the operational efficiency of the business, i.e. give a better service, and also save money, and certainly the start has been encouraging for us. But I would say, Lena, it is pretty early days to call a success or to raise a flag on that one.

I think, on tax and debt, I don't think you should view what we did in the first quarter as anything more than tactical. We basically substituted dollar debt for dollar debt, except we paid 6% of it at the center compared to 8% down in El Salvador. There is no significant tax impact of that.

And we continue to have about a third of our debt in local currency, and I forget exactly, but the majority -- it's probably less than two-thirds now, but the majority of our debt remains down in the operations. So there is no real change in that, if you like. It's just a bit of tactical housekeeping that we undertook.

And the Swedish bond, again, it was the same type of thing. We've been trying over the course of the last six months to try and conform all of our covenants to the same sort of package, so we don't have different outlying covenants. Across the Group, we've got a lot of different covenants. The Swedish bond was out of line with our corporate covenant levels, so we asked investors there just to realign it with the covenants that we've got in the new bond, for instance.

But why would you pay extra to do that, if you don't have plans to go above the current level?

Well, it was a very minor fee that we paid for it, and it just conforms the whole covenant package and takes away any concerns we might have. I'll take it offline with you, Lena, because the problem with the Swedish bond was that there was a whole load of technical issues relating to that to do with the way the bond was calculated vis-a-vis the bonds that we've got with the US investors. So we wanted to just conform that and reapply the same headroom that we've got, so we've got the same headroom across the Group.

Okay. All right. Just to clarify, the corporate costs that you said, you're currently at a run rate of $237m and you expect to see them decline quarter over quarter going forward?

Well, that's what we're very focused on doing. I'm not making any promises on numbers, but I think you've seen over the last three quarters we've focused hard on bringing it down, with some success, and we're certainly going to be focusing hard in the future quarters to continue to bring it down.

Thank you.

Thanks.

Bill Miller, JM Hartwell.

Tim, Mauricio, a good quarter. Thank you very much. I'm curious whether you're finding in Colombia, now that you've had a lot more time to work down there, that things are going better or worse than you expected. And when can we see the margins in Colombia for both UNE and your own original operations get to the 35% or 36% level, EBITDA margins?

Well, thank you, Bill. Interestingly enough, as many of you know, I was born in Colombia and so I have a lot of affinity and understanding of that market. Not only that but Esteban, our GM down there, and I know each other from our prior telecom and cable life, so we have a long, good history together.

So even before I started formally, I talked to Esteban and he invited me down. I spent a very good week down there in Colombia in Medellin and Bogota, meeting with the team, with our partners, with our regulators, and of course with external parties down there. And I did that to have a full understanding of our business there, and I came away from that very, very reassured not only of our market position, the strength of our management team, but our growth prospects going forward.

The regulatory environment is a net positive to us. The relationship with our partners is very, very good, and we will continue to work towards that end. The management team, although it's early days, is coming together quite well. The synergy plan is certainly on track and does have upside, for sure. And the industry dynamics are positive to us. We are the challenger in a market that has growth, and we have the ability to continue growing our fixed network down there to support our growing mobile business. So, overall, a very strong positive momentum there long term, even with the hiccups that may occur in the short term.

With that strategic viewpoint, the question around margins for Colombia is one that you should expect us to manage very, very well in the long term. It is a balancing act, as I think you suggest, Bill, because we have a fair amount of growth and we can invest in that growth, but at the same time we have today a margin level that is subpar to our other operations and subpar to what it should be in the long term.

So we have to drive a balancing act between capturing that growth, investing in that growth and driving margins up. And that is the balancing act that we discussed with the management team that we need to maximize, not squarely focused on margin growth at the expense of losing volume for the future that would drive revenue, but not focused entirely on revenue and not driving that margin up.

And the way to make those two things come together is operational leverage. The key message to Esteban and the team is we want you to focus on operational leverage, so that every new dollar that you bring in from this growth comes in at a very high margin. That will drive the margins up even beyond the synergy level that is already embedded in the business plan.

So those are the two levers that we're using in Colombia to drive margins up, the synergies and operational leverage on the new revenue.

Thanks. That's very helpful. Appreciate it.

This will conclude the Q&A session. I would like to hand the call back to Mauricio Ramos. Please go ahead.

Well, thank you very much for joining us today. We've gone a little bit over time and we apologize for that, but we're happy to have had a chance to chat with you. We look forward, Tim, the rest of the management team and I, to meet all of you in person and continue our dialogue on Q2. Thank you very much.

This concludes Millicom's financial results conference call. Thank you for your participation. You may now disconnect.