Millicom International Cellular SA (TIGO) 2013 Q2 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 Hans-Holger Albrecht, President and CEO; and Francois--Xavier Roger, CFO. 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 Justine Dimovic, Head of Investor Relations. Please go ahead.

Thank you. Welcome, everyone, to the Millicom second quarter results presentation. My name is Justine Dimovic, and I'm the Head of Investor Relations for Millicom. Today, the presentation slides can be found on our website, www.millicom.com; along with an interview of our CEO this quarter.

Before we start, I would like to remind everybody that the Safe Harbor statement applies 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. I will now hand over to Hans-Holger to give you an overview of our Q2 results and operational performance; after which, Francois-Xavier will take you through the financials. And we will finish, as usual, with a Q&A session.

Let me now pass over to Hans-Holger.

Yes, thank you, Justine. And good morning, and good afternoon, to everyone, and thanks for listening in. I hope you all had a chance to read and digest the results we have been publishing earlier today.

Before I come to the presentation, the general presentation, maybe it's time and a good opportunity to give a bit of an overview where I see the Company is heading, and what situation and shape the Company is in.

Even before I joined Millicom, at the end of last year, I had a very good look at the strategy and at the road ahead, and the options ahead of the Company at that time. It became very clear to me, at that stage, that the Company needed a fundamental transformation or face a real prospect, in my point of view, of decline, from which, in my point of view, it's very obvious there is no escape.

We have seen the voice decline and reduction for a while, and we have seen the impact in the business when it comes to margins since the beginning of 2011, and an acceleration when it comes to 2012.

So, in my point of view, and Francois, and the management team as well, the Company had to change, and we all agreed we had to change pretty fast.

So when we announced the new strategy in March, we set the Company on a completely new path when it comes for the business going forward. The idea is to create a new Millicom based not on one crumbling foundation, but instead on four solid pillars for growth that would bring back the Company into growth, and avoid the kind of decline profile we would have had otherwise.

And the issues at that time were pretty clear, and very common to you as well, I think. It is, of course, the migration we have been facing, and we are facing, from voice to date, which is a shift in the kind of business model; how we operate in terms of people we need; skill sets we need; IT infrastructures we need; down to things like even handset subsidies. So, clearly, [there's] a new model completely compared to the old model.

In combination with that, we saw a high need when it comes to efficiency. We kicked off a lot of new projects at the beginning of the year. The two biggest ones, obviously, is the $100 million cost saving program we initiated this year, and communicated to the financial market at the Capital Markets Day.

And the other big swing, obviously, when it comes to cash generation of the Company going forward is the CapEx project, where we have the ambition to reduce CapEx as a percentage of revenue going forward.

We are facing, and have been facing as well, as a result of various actions -- issues in Africa, we had to regain our position when it comes to Africa, as I mentioned earlier. We have been in a period of moderate investment in the past, and in order to protect our position we had to increase investment in infrastructure, brand, and the sales situation.

And all this in combination, as I mentioned earlier, to push the Company in a new direction, to generate new growth pillars; in particular, to name Cable, MFS, and Online. And that's exactly where the Company is in. And particularly this year, obviously, it's a key year when it comes to the transition of our business.

However, if you look at the results, we are very confident as a team when it comes to the long-term parameters. And to be honest, as well we see already in 2013 some first results of what we are doing. The growth is accelerating, if you take the year-to-year or like-to-like comparison, close to 10%.

We are kicking off, and have been kicking off, a lot of new initiatives in order to full -- or to fill the pipeline when it comes to future growth in order to reach our [$9 million] target after five years.

We are working on the CapEx efficiency and still, as I said, to the target of 15% of revenues for CapEx going forward.

And we are very confident that the 35% level in terms of EBITDA, we communicated at the Capital Markets Day, is absolutely in place and intact as well.

And last, but not least, which I think is the most important point for me as an executive and CEO, I think we have increased, clearly, the skill set and the strengths, and the depth of strength, when it comes to the management team in the Company in the last couple of months.

But you all know as well, creating a new Millicom is nothing which can be done overnight, or for sure is nothing that you can do on a quarter-by-quarter basis. It will take some time to build those four pillars. And it is something, as I said, which needs attention and doesn't come like a linear process.

But the most important point, I think, is to remember always is that we have two major advantages compared to other companies doing this kind of transformation.

First, we have the opportunity to transform the Company at a much earlier stage of the market's development compared to the sectors experience in more industrialized countries, like in Europe. There, for example, it took almost 30 years before telecom and quantum players in mature markets began to think about moving into each other business to develop bundled packages and maintain the margins.

And just look at the recent developments, for example, in Germany, where Vodafone is trying to acquire Kabel Deutschland. We are already talking today to UNE in Columbia in trying to build exactly the same kind of model Vodafone is [favoring].

Or if you look at the kind of investments America Movil made recently in Online business, like Shazam, we have been doing this already for a year nearly, and moved much earlier into this new way how the operation model for our industry will be.

And the second big advantage, I think, is that we are doing this in markets where there is still very significant room to growth. As somebody said to me, [Mediene] may not be in Munich, but if you take a long-term view Mediene soon will be like Munich.

In Columbia, for example, which is one of our most important market, is growing very fast, like a 4% annual growth rate; much faster than many other countries you have seen on the OECD.

And if you look at the broader scale, if you look at the most and fastest growing market in the world, also top 10, we operate today in the three of them, of those top 10 fastest growing markets.

So we are very well positioned. And I think we have the right model, and we're in the right places to achieve what we have to do, and that's the reason why we took the hard decision, at an early stage, to invest into this kind of transformation.

We said in March, and I will say it today again, it's not a linear path to doubling our revenues in 2017, but the ingredients we need in order to achieve this are all in place.

And you know as well, that the beginning is almost the hardest part. So, as I said, 2013 is tougher, moment. Margins will be under pressure, but even there I think we do it in a very controlled and clever way not to suppress margins too much.

So this is what we are in. And that's the reason, I think, if you take the helicopter view on the second quarter, I think the positive news is we are growing and we can see that the investments we are doing into the business are paying off.

Saying that, maybe moving into the presentation as such, if we start with slide number 5 and the overview of the quarter, you can see that in the second quarter of this year we maintained momentum, which I mentioned earlier, with a like-for-like growth of 9.4% year on year.

Our Mobile business grew by 2% in local currency, 5.6% on a like-for-like basis, despite the strong regulatory pressure we have seen in our markets.

We are further encouraged by continued strong recruitment of data users in the second quarter, nearly 800,000, making it the second record-breaking quarter in a row now for us, which is very encouraging, as I said. This enabled us to sustain like-for-like growth in mobile data of 30% in local currencies this quarter.

We have upgraded 3% of our total mobile customer base to data services in the first half of this year.

On top of our resilient core business, we have seen equally positive developments in our new business units. The Cable & Digital Media unit achieved its highest net new RGUs in this quarter, both in residential cable and in broadband.

Mobile Financial Services continued its solid progress, with over 10% of our total customer base now active in financial transactions.

As expected, revenue doubled in our Online business in the second quarter, reaching $20 million, after the seasonally slow first quarter and tight cost control.

The underlying EBITDA margin in Q2 was in line with our expectation at 37.8%. If you would exclude the Online piece, it would be at 39.5%.

Although we were prepared for regulatory challenges in the quarter, the regulatory impact, one-offs, and continued strong competition had a larger than anticipated impact on profitability.

Given the headwinds this quarter, potential incremental regulatory pressure in Africa in the second half, and the opportunities, obviously, I mentioned earlier, we see for investment for growth, we have amended our outlook for the year. And I think Francois will take you through the detail a little bit later in the financial review.

If we then move more into the detail into the operations, and if you go to slide 6, as mentioned, the overall revenue grew by 9.4% this quarter on a like-for-like basis. This is a relatively unique achievement for a company in our industry today.

When we look at the contribution to recurring revenue growth, you will note that we are making excellent progress in diversifying our sources of recurring growth.

In the second quarter, products and services outside our traditional Mobile business, both voice and data generated 65% of our recurring revenue growth; up 17 percentage points from the second quarter in 2012.

If you got to slide 7, if we separate out traditional business of mobile voice and SMS business, you will see a marked acceleration in recurring revenue of the new Digital business this quarter, contributing to 34% in the quarter. This represents $114 million in incremental revenues over the last six quarters.

If you go to the operational performance, and to slide 9, the Mobile business, while we see the new units increasing the contribution to growth and to revenue, the performance of the more traditional Mobile business this quarter demonstrate great resilience in a very demanding environment.

The revenue in the Mobile sector grew 2% in the second quarter, 5.6% on a like-for-like basis year on year, which is a clear improvement over the last quarter.

Q2 confirms a strong appetite for mobile data in our markets with the second consecutive order of record net adds; new data customers surpassing now 1.5 million in the first half of the year.

At the same time, as mentioned before as well, the regulatory pressure was high in the second quarter taking 3.2 points on the revenue growth, and 1.6 points on EBITDA margin, including one-off events.

Under such regulatory pressure, and continued strong competition in certain markets, ARPU declined by 4.7%. If you exclude the regulatory pressure, the ARPU decline would have been much lower, only at 1.4%, compared to the 3.3% in the first quarter of the year.

Unfortunately, and is something we can't control, but we see continuing negative regulatory developments in some of our markets, which, if confirmed, could adversely impact out business going forward. In light of the regulatory uncertainty, we are all the more pleased to see improving resilience to such pressures.

If you move to slide 10, you can see, continuing from the performance of the Mobile business, the strong coloration between traffic and revenue growth in the mobile data continued in the second quarter, which is very important for us. This was also reflected in the high net adds, as mentioned previously, and sustained growth in mobile data revenues of 30% in local currency in the quarter.

We have been feeding the strong appetite for mobile data excess in our market with further subsidies, up 23% this quarter versus 17% in the first quarter. We anticipate the investments will start to bear fruit as early as the second half of this year.

Moving to slide 11, and onto the Cable & Digital Media business unit, here we draw your attention to the solid organic 8.7% growth this quarter, if you are excluding Cablevision.

As already mentioned, the unit also broke new records in RGUs with 54,000 new residential cable customers, of which 25,000 for TV services, and 13,000 in fixed broadband.

Cablevision, which will be included and comparable from Q4 this year, again outperformed with revenue this quarter of $17 million.

In the second quarter, we also applied for a DTH license in Bolivia and Paraguay, which will allow us to broaden our footprint for home services in those two countries.

Moving to slide 12, and to Financial Services, we saw solid growth across the board again this quarter. Penetration of this service surpassed 13% of customers in the countries where we offer services, and is over 10% across our entire customer base today.

We are equally pleased to see MFS ARPU growing to $1.35 this quarter; increasing 12.3% year on year. And this is despite the kind of diluting effect of incoming customers.

We are working in many ways to increase access to Mobile Financial Services for our customers. In the first half of the year, we added more than 4,000 new MFS points of sale across our markets.

In Rwanda, we also launched a new initiative, Tigo Matic, giving our customers a new automated way to cash in and cash out.

And, obviously, Africa remains the MFS stronghold, with Rwanda becoming the second market in terms of penetration this quarter, surpassing 30%.

Chad is looking like a new rising star in the region, experiencing the fastest adaptation of this service to date. But we're also pleased to see that Central America reached now 3% penetration, led by El Salvador at 6%.

If we then move onto slide 13, Online, as expected, Online performed significantly better in the second quarter, generating revenues of $20 million. This is a tangible acceleration, with strong contributions coming both from Africa and Latin America.

And just to share some highlights with you, Kanui and Tricae, while still scaling up the business, are already leading in the categories in terms of site visits.

Jumia was the 4th most visited website in Nigeria, and launched operations in Ivory Coast in the second quarter.

In addition to expanding existing services, we also launched new business this quarter; in-car and real-estate classified advertising, and bus ticket booking in both of those kind of regions.

Additionally, we continue applying the synergies of the Online business with our existing business, like, for example, by pre-installing apps of EasyTaxi and Hellofood to our devices sold in Columbia.

So, overall, I think Online continues to be a dynamic and promising unit for Millicom, as we hoped for.

This is a fast overview about the operations. I will now hand over to Francois to give you more details about our financial results.

Thank you, Hans-Holger. Please turn to slide 15 for the financial highlights. We start with revenue drivers and progress in our three business units; Mobile, Cable & Digital Media, and Mobile Financial Services.

As mentioned by Hans-Holger, Q2 confirm our strong growth in mobile data customers with 1.5 million data customers added during the first half of the year. Overall, customer numbers increased by 6.5% year on year, reaching more than 47 million by the end of the quarter.

Growth in customer numbers was negatively impacted during Q2 by a cleanup of the customer base in Bolivia and in El Salvador, which was initiated in Q1, and completed in Q2.

There were also some important highlights in customer numbers, including more than 100,000 net adds in Ghana; the largest increase for two years in this country.

ARPU in the Mobile business unit declined by 4.7% in local currency, significantly affected by regulatory changes, but also by continued pricing pressure in some markets. Without the regulatory impact, decline in mobile ARPU would have been 1.4%.

As Hans-Holger mentioned, MFS ARPU experienced a strong growth this quarter, reaching $1.35, which is a 12.3% increase year on year, in spite of a large recruitment of new customers.

Total revenue in Q2 was $1,258 million, or 6.5% reported growth. On a like-for-like basis, revenue grew by 9.4%, representing a slight acceleration compared to the level that we reached in Q1 2013.

Growth, excluding Online, remained at the same level as in 2012, at high single-digit, demonstrating the sustainability of our underlying growth.

Regulatory headwinds in Q2 were stronger than in Q1 with the full quarter effects of changes made in the last quarter. It resulted in a 3.2 percentage point loss of revenue growth, compared with 2.4 percentage points in Q1, and 0.8 percentage points in 2012.

Reported EBITDA for the quarter was $463 million; down 10.5% in local currency.

EBITDA losses for Online amounted to $14 million in the quarter.

Consolidated EBITDA margin, at 36.8%, was 6.6 percentage points lower than Q2 2012. Excluding Online, underlying EBITDA margin in Q2 was 39.5%.

We invested, during the second quarter, $154 million in CapEx, which includes $50 million in spectrum in South America, which is equivalent -- the amount of CapEx that we invested in the quarter is equivalent to 12.2% of revenues.

Please turn to slide 16 for financial performance by region and division. Year on year, South America was again the strongest revenue growth contributor this quarter with growth of 10.4%, while Central America and Africa remained fairly stable.

Our Cable business in Paraguay continued to exceed expectations, contributing $17 million to revenues in Q2 2013.

Foreign currency fluctuations impacted revenues negatively this quarter by $13 million.

Slide 17. All four pillars made a significant contribution to growth, which illustrates well the relatively low risk and well-diversified profile of our growth.

If we look at revenue evolution by division, Mobile remained the strongest contributor with revenues reaching $1,028 million in Q2 2103, and growing 5.6% year on year on a like-for-like basis.

Reported revenue growth at 2%, in spite of the regulatory headwinds this quarter, demonstrates, once again, the resilience of our Mobile business as we are more than compensating pricing and regulatory pressure through new product development.

The Cable & Digital Media division contributed $25 million to revenue growth, including Paraguay. On a pro-forma basis, Cable & Digital Media revenue grew organically by a promising 8.7%.

MFS revenue grew again strongly and steadily this quarter, with revenue growth of $10 million. Our MFS RGUs increased by 534,000 in the second quarter, which is an 81% increase year on year.

Encouragingly, many new markets passed the 3% penetration mark following the high performers Tanzania, Rwanda, and Paraguay. This is the evidence that we have developed a real know-how in this new industry, and that the business model is well suited to the needs of all customers in emerging markets.

The Online division contributed 35% of recurring revenue growth in this quarter, with revenue of $20 million, and EBITDA losses of $14 million.

As expected, Q2 showed a good acceleration of revenue growth, with almost a doubling of revenues versus Q1.

As communicated last quarter, we will strengthen our commitment to Online with a cash injection for 15 percent -- 15 point increase in ownership no later than September 14, 2013.

Let's now move to profitability on slide 18, starting with the EBITDA margin evolution, which is in line with our guidance to date.

The decline in margin is essentially driven by three factors; regulatory pressure, investment for growth, and pricing pressure. As indicated previously, regulatory changes and one-offs impacted the margin by 1.6 percentage points, together with pricing pressure, which contributed a further 0.8 percentage points, particularly in Central America, and in some African markets.

Investment we made in the quarter for growth led together to an erosion of 2.8 percentage point of margin; slightly more than the 2.4 percentage points in Q1.

In Q2, we continued strong investment in sales and marketing, with an increase of $37 million in costs this quarter, predominantly to support growth in mobile data and MFS, mostly through subsidies.

In Q2, we also had a $35 million incremental G&A cost to strengthen categories, enrich skills, and expand network coverage.

Finally, the EBITDA losses of the Online business diluted the EBITDA margin by a further 1.1 percentage points to 36.8%.

Slide 19. Normalized EPS was down 21% to $1.35 per share. These developments are linked to the decline in reported EBITDA as a result of investment in new categories, increased network amortization, higher gross debt, and foreign currency losses.

As shown on slide 20, our normalized tax rate in Q2 was 26.8%; well below our 30% target.

Accrued taxes decreased by $23 million year on year to $61 million.

Slide 21. Free cash flow for Q2 was positive by $6 million. Year on year, free cash flow was negatively impacted by declining reported EBITDA, as well as investments in the form of CapEx and [central] costs, combined with higher net interest and taxes paid.

Slide 22. Net debt-to-EBITDA increased slightly to 1.2 times at the end of the quarter. At the end of Q2, Millicom had over $1 billion of cash on hand, and net debt of $2.3 billion.

Slide 23. Looking at debt management more closely, 64% of the Group gross debt, excluding financial leases, is denominated in local currency, therefore, limiting our local foreign exchange exposure.

Dollar-denominated debt is used in countries where long-term debt in local currency is either too expensive, or not available. At the end of Q2 2013, two-thirds of our gross debt was at fixed interest rates, reducing our exposure to interest rate volatility.

Slide 24. Our total guaranteed debt is 36% of our total debt at the end of Q2 2013. 8% of the approximately $1 billion of debt in Central America is guaranteed, compared to 4% of a similar amount of debt in South America. In Africa, 79% of our $249 million of debt is guaranteed.

Moving to slide 25, at the end of Q2 54% of the total Group gross debts of $3.1 billion was in bonds, and 33% from bank financing. Public debt is now our largest source of funding, providing us a better balance of funding sources, improving liquidity, and extending maturities.

Slide 26. We have extended our debt maturity further during the quarter by successfully issuing a seven-year bond at corporate level in May to refinance our African debt for the long term at attractive rates. The bond was issued with a 4.75% coupon. Debt raised with this issuance has been converted into local currency, and has been pushed down to some of our operations in Africa.

Slide 27. Finally, we turn to the outlook, which has been amended slightly. The adjustment reflect persistent regulatory pressure and investment in our core business margins experienced during this first half of the year, offset partially by tight cost control at our Online division, and anticipated savings for the Group overall going forward.

In our amended guidance, we expect 2013 Group EBITDA margin to be around 40%, excluding Online. This revision of our guidance is essentially resulting from regulatory pressure, which can only be partially compensated by cost efficiencies.

The CapEx-to-revenue ratio guidance remains unchanged, peaking at around 20%, excluding spectrum acquisition.

In 2013, we expect the Online division to generate revenue close to $100 million, and EBITDA losses to be in the range of $125 million to $150 million. This reflects a slightly better outlook for the Online business.

This guidance excludes one-off item, which are $14 million to date.

We have identified, as part of our announced annualized $100 million OpEx saving program, some $20 million savings to be generated in the second half of 2013 already; they are included in this revised outlook.

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

Thank you, Francois. As we close this first half of the year, we have many reasons to remain confident on the progress of our transformation.

Our voice business remains resilient, despite the strong regulatory pressures we have seen in our market. But even more important, I think the new business increased the contribution to recurring revenue growth. They grow organically, and they further strengthen the underlying long-term growth drivers, like ARPU, customer numbers, and RGUs as well.

So, overall, I think we remain, as a management team, very confident that the investments we have made in this first half-year will pay off in the future; and the building of the four pillars approach we have presented to the market will result in growth going forward as well. So nothing has changed since the Capital Markets Day for us.

As I mentioned at the beginning, just to reiterate, we are changing as a Company. We are changing fast. But it was not a question of choice; we had to do it in order to have a long-term and sustainable business.

So I would like to thank you for listening in, and now looking forward for the answers, and we're going to give you the questions [there].

(Operator Instructions). Laurie Fitzjohn, Citi.

Three questions, if I may. Firstly, on EBITDA, given that in H1 you were a bit below 40%, at 39.5%, what specific factors should see this increase into H2? For example, lapping the (inaudible) increases?

Second, on the UNE transaction, can you give us an update on timing? Any sense of when you think the deal will sign? And then subsequently, how long would regulatory approval take? I heard some local press articles saying around six months.

And then lastly, on Online, just looking for a bit more detail on the reason for lower EBITDA losses. Is this because the operations are fundamentally turning out to be more profitable early on than you thought? Or is it more due to the decision to invest less early on, and, therefore, the impact on your -- the planned total investment you guided to at the beginning? Thanks.

If I take maybe the first -- or the second and the third question, and then I hand over for the EBITDA question to Francois.

When it comes to UNE, I think we are in very good talks, and we are very confident that we're going to close this deal pretty soon. There has been a slight delay, of course, compared to the original plan, but nothing which is material. So we are confident to come back to you in short time.

Once we have signed the agreement then the regulatory approval will take probably towards the end of the year, beginning of next year to be seen in detail what's -- what kind of request we have. So that's the kind of time frame we are looking for.

If it comes to the Online side, and you look at the reduced losses, or losses profile, then it was anticipated. It doesn't mean, obviously, that we are going to reach earlier profitability; it only means that we adjust spending towards the kind of competition level we find in the various markets, and the kind of speed of growth we want to see.

So it's a continuing optimization of how much money you invest in subscriber acquisition, and new customers versus the kind of cash spend you want to go forward. So it's really more tactical. It doesn't change the underlying fundamental business we have.

And saying that as well, to be forward, to capture more questions in the future on this one, this business is just eight months old so of course it's not always 100% easy to make a forecast on the spot. The more experience we have and the bigger the business is, of course, the more accurate we can give exactly the forecast.

If it comes to EBITDA side, Francois, you want to answer?

Yes. Indeed, we are confident that we will do better in terms of margin in H2 because we are slightly -- we are at the lower end of the revised guidance for the full year.

We will expect to do better in H2 for two reasons. First of all, we expect to harvest the results of the investment that we did in H1, both in CapEx and in OpEx; in CapEx because we invested somewhat in coverage in some countries. We invested in countries like Senegal, for example, to upgrade our network, and we expect to get the result of this investment in H2.

It's also valid for commercial investment subsidies. You may have seen that our subsidies have increased, even at a higher level in Q2 than in Q1. In Q1, I think we invested -- we increased them by 17% year on year; it was 23% in Q2. And obviously this will rise revenues and margin in the second half of the year.

The other factor that explained the fact that we expect to be better off in margin in H2 is the fact that we will, as well, get the first results of the savings program that we have embarked upon at the beginning of the year. We are targeting, as you know, a $100 million annualized savings, and we expect to get already close to $20 million in H2, which we didn't get anything in H1. So that will help us, going forward.

Right, thank you.

Mark Walker, Goldman Sachs.

Thanks for the questions. I've got three, please. The first is on the Mobile Financial Services ARPU trends. I just wondered if you could help us to understand the growing ARPU trends in the South American and African businesses versus the declining trends in Central America; whether those trends in the three regions are sustainable, or if we expect a positive inflexion in Central America.

Secondly, in Online, I wonder if you could just help us understand how you're circumnavigating the under-developed postal and transport network in some of the key markets in those businesses.

And thirdly, if I could just follow up on Laurie's point about the margin guidance for the full year of now around 40%. Given what you've just said is the two reasons for increases in the margin in the second half, it seems to imply that the potential reins around that 40% is actually very tight. I was wondering if you could then confirm that.

In addition, does the slightly lower margin guidance for the full year imply that your expectations for revenue growth for the full year are higher than they were before? I appreciate you don't have guidance on that point, but just if you could give us a sense about internally, how that has evolved? Thanks a lot.

For the margins, so, once again, I obviously reiterate the revised guidance that we have just given. And, once again, we are confident that we will make it in the second part of the year, which is around 40%.

We keep, obviously, a little bit of flexibility by giving around 40% if we need to invest a little bit further, especially in subsidies, which we always did. But we reiterate the guidance obviously, revised guidance.

Regarding the MFS upward trend, as you can see, we kept on increasing the MFS ARPU quarter after quarter on a regular basis, which is extremely positive.

You remember that even in our medium-term ambition we said that the $600 million to $1 billion that we will reach in five years in MFS was partially linked to an increase of the ARPU trending towards $2. So we can see that really we are moving in the right direction.

The increase of the ARPU is essentially linked to two factors. First of all, an increased usage, because people are using it not only to transfer money but to pay as well; as well as an increase recruitment of customers.

In South America, we are -- we have a decline in Central America, but it's largely linked to the fact that we are recruiting a lot of net ads.

So we are still at a very earliest stage of development in Central America. We are pleased to see that penetration is going to more attractive levels; on average, above 3%, and even 6 in El Salvador.

When we are at an early stage of development, we are favoring penetration of revenues at the initial stage, and after that we will develop usage. So we are not especially worried about the slight dilution in the ARPU in Central America.

When it comes to the third question, I think it was about how we handle the kind of logistic and shipment of our eCommerce products on the Online side.

To be honest, and as you indicated, there is no kind of postal service in most of the markets we operate. So the truth is that we build our kind of shipping process ourselves in-house, and we deliver the goods ourselves, depending via car, via bus, or even some cases where people just walk to the customer and hand over the products, which we believe is a big advantage for the future because, obviously, if you have a kind of distribution network for eCommerce in the markets you operate in you create -- beyond the Online business you create a certain kind of value.

We're testing as well, just to illustrate the kind of corporations, we're testing in some market as well more and more shipping to our retailers and dealers, where then people pick it up. So they have combinations in other markets where we work with the [Keygo] organization [to them made] together. But, fundamentally, we build our own distribution network on the Online side.

Great, thank you. Thank you very much.

Stefan Gauffin, Nordea Bank.

I have a couple of questions. First of all, relating to net debt-to-EBITDA, and also the UNE transaction, the net debt-to-EBITDA was slightly higher than at least I expected this quarter, partly due to the lower EBITDA. And you have communicated that you will still be able to maintain net debt-to-EBITDA below 1.5 post UNE transaction; does this still -- is this still correct?

Secondly, there's a big jump in mobile data subscribers, and especially so for Africa, which is up 22% quarter on quarter. What is behind this acceleration? And is this expected to be maintained? Thank you.

Okay, regarding the net debt-to-EBITDA, we indeed communicated that we expected post UNE transaction the net debt-to-EBITDA to be below 1.5. At the time we communicated that we were at 1, so which mean that we pass on the message through that, that we expected the impact of that transaction to have an impact of about 0.5 times.

I confirm that, so which mean that this transaction with UNE will have an impact which will be less than 0.5 times in terms of net debt-to-EBITDA. If we are at 1.2 when we signed that deal then we will be below 1.7 actually, but the impact will be exactly the same as what we communicated before.

And when it comes to the data side and the pickup in Africa, it's, of course, the underlying trend that we convert more and more voice customers to data.

The drivers behind it obviously are the most advanced markets, particularly Tanzania and Ghana. And it's a kind of combination of the market, a bit more favorable as well the kind of push we're doing in those kind of places in terms of revamping the distribution network; the marketing campaigns we have been running; and the commission structure we have implemented for other retailers.

So this is all part of this, we call it the, attack process to regain our position in Africa. And as an underlying trend, obviously it should continue. In terms of quarter by quarter there may swings, depending how aggressive we push certain kind of products when it comes to data. But long term, there you're going to see the same shift from voice to data in those markets.

Okay, thank you.

Chris Grundberg, UBS.

Just a quick one on the Online business. I'm just curious in terms of your guidance there. I think, if I'm right in remembering, when you last commented on that you did say that if you were to see higher losses, and hitting the higher end of your loss guidance, that would in fact be a sign of greater confidence and of great attraction in those businesses.

So I'm just trying to square that with the comment now that actually you're expecting lower losses and the fact that you're still pleased with that; whether there's anything in there; whether you've found that these [sprung] at lower OpEx levels than you had initially anticipated; or just if you could maybe give me some color, or correct me if I've misremembered that.

And then secondly, just on some press commentary around the Dominican Republic and the Orange asset there, I don't know if you can give any color on whether you'd be interested, or whether you've had a look at that. Thanks.

When it comes to the Online side, again, just to repeat, we are 8 or 9 months now into the business. And we really, as I said, have a very fast-moving target and, therefore, we can only work with certain kind of ranges, maybe give guidance in terms of what the revenue will be and what the kind of losses [profile] will be.

At the same time, and we take it very seriously from our side as well, we want to make sure that the money we're giving to these kind of ventures are spent wisely. So we're not going to buy at any cost customers and growth, and rather see it as a optimization quarter by quarter, even month by month, what is the landscape looking like; what is the competition doing; what kind of special offers you have to do in order to drive things forward. Hence, therefore, you're going to see things in terms of cash flow and in terms of growth.

The key point, which I'm always reiterating as well, when you look at the Online business are two factors. Obviously, is the [costs] coming in, which is be the case if you look at the revenue growth; and do you take a market position which is normally the number one or number two in the segment you are covering in the market, which we're doing as well; and then it's fine tuning.

So, to be very clear, there is no change in the outlook. We take it as a long-term growth on a short-term view. And this is purely optimization quarter by quarter how we allocate the cash, and how aggressively we're going to expand the business, going forward.

And to give you confidence as well, of course, the more we get -- as IO said, we got into this business, and that is by next year when you have year-on-year comparison the more stable of course, those kind of forecasts going to be for you.

If it comes to the Orange rumor and the kind of Dom Rep, we have a philosophy not to talk about any kind of deals, so I can't answer you this question, unfortunately.

No problem. Thanks very much.

JP Davids, Barclays.

Two questions from me, please. The first one; you've had a few changes at a Board level, and you've also had a change in African leadership. Could you comment on the impact these will have on executing your strategy, or the benefits you see in executing your strategy from these changes?

The second question is on the Cable & Digital Media business. As slide 11 shows, your homes connected as a percentage of homes past is obviously falling as you pass a lot more homes. Should we expect a bit of a step up in your intensity in that area to drive more customer acquisition? Thank you.

Yes, this is always a very thin ice for a CEO to talk about a Board and the Board composition, so I have to be a bit careful what I'm saying here now. But I think the -- the only think to add really, the remuneration committee -- not the remuneration, the committee who put the Board together and the shareholders.

But it reflects a bit the kind of process and the kind of strategy I outlined earlier, that we have to diversify the business from what it has been in the past into something new. And we need different kind of skillset in the Board as well when it comes to those kind of new features. That can be regional skill set, or more operational strategic skill set for the kind of business we are entering. And I assume that is the kind of -- and that's the main reason why some of the Board positions have been changed.

And the only thing I can safely as the CEO, of course, is that for me, as a CEO, I have a very strong Board now; and for every problem I have, I have a sparring partner in the Board and can go to and discuss those kind of things.

When it comes to the management in Africa, yes, we change that one as well. Actually, we start to build a management team there, where we recruited a very senior manager from -- which Arthur Bastings.

The main goal for us there is really to get a strong management skill set into this region again, with a diversified range of experience. Obviously, there is a certain experience which we have to bring in when it comes to the telecom and distribution side.

But equally important I think for Africa, it is about the branding, which we have some issues to fix; and it is about the migration out of the Mobile business into new business, like MFS, which is one of the key drivers of the Online side.

So we are committed to build this kind of African team dedicated to push our business forward, and we're going to have probably some other recruits in order to strengthen the team there as well; and all reflected by the ambition that if you have ambitious plans you need dedicated, strong executives for each of those regions.

Does that answer your question?

Yes thanks. And just on the Cable & Digital Media question, should we expect a step up in intensity to drive more homes connected? Thank you.

Yes, on a long term, absolutely you should expect that. Of course, that's the all ambition. It's an own ecosystem, however, how you do it.

You need the kind of infrastructure in place; obviously, you need the kind of right product range in place when it comes to the entertainment product and the Internet product; and you need the right marketing campaign and price campaign. And all those elements, when you have them together, then you can get to kind of [partner] push. So it's not a question if; it's more a question when we have all those elements in place and start to move forward.

Thank you.

Barry Zeitoune, Berenberg.

I've just got a couple of questions, please. The first is you've talked about, and we've heard recent news about, potential new taxes in Ghana and Rwanda. I was just wondering whether you've baked those into your updated guidance of around 40%; and whether you would still be taking those into account in the guidance that you gave for 2014, where you mentioned around, I think it was around, about 35% margin guidance post-corporate costs.

And then my second question's on subsidies. Historically, you've been talking about subsidy growth slowing, and we've seen quite a step up this quarter. How do you expect subsidies to grow from here? Do you think the growth should slow from this point, or could we see a step up further? Thank you.

Regarding the taxes, we have mentioned, indeed, that some governments have raised, or shared publicly, some intention to introduce new taxes. We didn't give any details because these plans are not final locally.

So we thought that it was our duty to share whatever we knew with the market, but we don't know exactly what it will -- in which shape and form it will end up. So, as a consequence, we did not build it in our revised guidance of 2013, because we don't know exactly what it will be at the end.

You know that if it is reasonable, we can certainly absorb these new taxes with other initiatives, be it cost avoidance, or any type of other initiative. If it is more significant, okay, we'll have to see.

Regarding the impact on our 2014 guidance, we have always integrated in medium-term planning the fact that new taxes will be introduced. And for that, the quantum is what could make the difference. But as of now, I would say that there is no reason to challenge, or to review, the guidance that we provided for 2014 as of an EBITDA margin at 35%.

Regarding the subsidies, we have indicated, indeed, in the past that we expected that over time they could slow down. One of the factor could be -- was actually the fact that the cost of handsets would go down, which is a fact; we start now seeing good quality smartphones at less than $60.

And we are obviously promoting these devices because they give an opportunity for more customers to get access to the data category, even without subsidy; or, indeed, the opportunity as well to extend subsidies to more customers. This is actually what we do.

We have always had a fairly opportunistic view on subsidies. If we see that there is a good response in the market, and that the payback and the return that we get is good, we do not hesitate to accelerate subsidies, which is somewhat what we have done in Q2, and what we have done even in the last couple of quarters.

If we see that, I don't know, in some markets, for example, we start reaching not a saturation but a level where the return or the response from new customers is less attractive then we slow it down.

So we'd say the difficult -- there is probably a time when it will slow down as a rate. We used to have a rate of subsidies which was twice as high as our revenues; today, it's even a little bit more. But we want to keep some flexibility to adjust, whenever necessary.

All right. Can I just ask a follow up? Are you seeing competition drive increased subsidies in any of your markets?

I would not say that. We don't do it as a reaction to competition. We do it as a way to grow our business, as a way to increase loyalty, reduce churn, increase the ARPU, increase our customer base, and we don't especially do it because the competition does it. We obviously look at competitive forces. We believe that whatever we offer is in line with what the competition does, or better.

Perfect, thank you.

Anders Wennberg, Brummer.

I guess most questions have already been asked, but I wonder a little bit about this interconnect cut. We've had quite a few interconnect cuts coming up the last nine months from El Savador, Honduras, Tanzania, etc. What do we know about cuts for the second half?

Just looking at the list here, it feels like it could actually be peak year-over-year effect of this in Q2, and that maybe this could be less effect in the second half.

Yes, but it's always difficult to forecast because we never know what can happen tomorrow. That being said, it is true that we might reach a certain peak, because we have the full quarter impact in Q2 of whatever had been introduced as cuts in Q4 last year, and in Q1 as well, and especially the 70% cut in Tanzania that happened at the end of Q1, so we got the full impact.

The impact in Q4 will be lower because as a comp we will have a more favorable base, because interconnection cuts have been introduced in both Paraguay and Bolivia at the beginning of Q4 last year, so it's going to help us a little bit.

It's important as well to remind everybody that we are less and less dependent on interconnection rates. They used to contribute to a significant part of our total revenues; today it's around 6% of our total revenues, so we are far less dependent. And they are not at a really high level, with the exception of maybe one or two countries, where there is probably room for further decreases.

But let's say they are not that really abnormal or extremely high level, and we are less dependent on it. Why? Because, first of all, they have already come down significantly; and second, because we have developed strong franchises with data, with music, with online, with MFS aside. So we are less dependent on the traditional telecom business, and less dependent on ICX as well.

So we could potentially see the voice decline, slow a little bit and stabilize in the second half, is that the conclusion?

We had provided an indication in our medium-term planning, that we expected voice to decline on a yearly basis between 3% and 5% per annum. We confirm that, and we are pretty much in line with that trend. It may be a little bit more in some years and a little bit more -- a little bit less in others, but we believe that it is still a reasonable assumption.

Okay, thanks.

Peter Nielsen, Cheuvreux.

Just one question left. Firstly, on the free cash flow, I presume that CapEx will come up somewhat in the second half of the year. Would it be fair to say that we are looking at a negative free cash flow for the full year? And -- yes, I'll just -- I'll leave it there. Thank you.

We don't provide any guidance on free cash flow. We -- but we had a strong cash CapEx amount in H1, which meant that we paid a lot of CapEx, because we paid in excess of $500 million of CapEx in H1. I'm not saying that we won't pay any CapEx in H2 obviously, but we expect to pay less than that in H2.

Okay. So part of H2 CapEx will be pushed into 2014, is that correct?

Whatever -- yes, well also it's dependent on deliveries by manufacturers, and so forth. But traditionally we have quite a lot of CapEx in Q4, which means that this is one part that we pay in the following year, so it should happen again this year.

Okay, thank you.

Lena Osterberg, Carnegie.

I was wondering if you could provide a little bit more detail on the Online revenues. I know you've highlighted it several times that it's a very young business, but if you could say a little bit about the split between Latin America and Africa in terms of revenue generation.

And then also, I was wondering, you mentioned in your release that there were several new measures which will be implemented in Africa by the governments there. What type of measures? Are they new taxes, or are they interconnect cuts that you expect second half of the year? And also, maybe what impact they would have?

When it comes to the revenue split between Latin America and Africa, obviously, Latin America is a bigger part. Africa, by definition, is a smaller size when it comes to the breakup.

Long term, obviously, we believe Africa can be more interesting because we have much less competition there, and much more higher demand when it comes to those kind of products from the population.

In terms of the revenue growth, as I said, we indicated and we gave the kind of guidance for the year. That's the best we can do out of our knowledge today, and there's nothing more we can really add.

Francois, you want to take the second one?

It's difficult to comment on, as I said earlier, the possible introduction of new taxes or new regulatory framework for H2 because it's still under discussion.

There are discussions in some countries between the regulator and the industry, and I think it's -- by the way, it's very good that there are these kinds of discussions. Let me just give you an example.

In one of the countries there is a plan to introduce a minimum tax per customer, per month, regardless of conception, which, okay, we respect the right of regulators to introduce that, but it would be quite negative -- very negative actually, for really the low-end customers. And many of these guys really need their phone because it's a basic communication tool for them.

So, we are in discussion. Not ourself only, but as an industry we are in discussion with the regulator to make sure that they understand before making such a decision what will be the impact, and that maybe there are other ways to introduce different taxes.

So difficult to really comment on what will be the final outcome, when it will come, if it comes, and what kind of shape and form, so we have to wait.

Okay. Thank you.

Andreas Joelsson, SEB.

Just a clarification on Online. I know we have spoken a lot about it, but the long-term guidance that you gave when you entered into the Online business of aggregated losses around $300 million for the next three years, '13 to '15, is that still valid?

Yes, on the Online guidance nothing has changed from what we announced and presented at the Capital Markets Day; absolutely intact.

Perfect, very clear.

Thank you.

Cesar Tiron, Morgan Stanley.

Two questions from my side, please. First, on the guidance, can you please tell us what has changed over the past three/four months since your Capital Markets Day? So you had to cut the guidance on the core business, and why do you think you think you have better visibility now?

And also on this, a follow-up question on those Online losses. So, basically, if you're cutting the Online losses for 2013 but maintaining your guidance for the next three years, doesn't it mean that you're delaying basically the expenses into next year?

And then just a question on regulation. You mentioned the negative impact of regulation in a couple of countries, but can you also please talk about the positive regularity changes you have in Colombia and how those impact you, and give any sense of your local currency revenue growth and margins in Colombia? Thank you very much.

Okay, if I can -- if we start maybe with the -- I take the Online, and maybe as your first one.

Again, it doesn't mean that we're going to postpone losses into next year, or holding back investments when they come. It's more about, which I said several times earlier, it's about when you're going to deploy the capital and accelerate the customer acquisition. And this has -- again, the factor of the market conditions, the competitive landscape, and as well as how well do you have the model to push things forward.

If it comes to the regulatory side in Colombia, Francois, you want to take that one?

Yes. Well, it's true that in Columbia the regulator has introduced a asymmetric tariffs, which, given our position, is beneficial to us. It has been introduced, by the way, in Q1.

First of all, the impact of asymmetric tariff is probably, usually lower than what many people expect. And anyway, we decided to reinvest it in the business, and especially in subsidies.

We are doing very well, as you know, in Columbia, both on the mobile side, where we increased our market share significantly; and we have a market share in data which is actually twice as high as the market share that we have on mobile. So we decided to reinvest whatever we got as a benefit of the asymmetric tariff.

Regarding the guidance, what has changed, well, first of all, the revision of the guidance is not something that's material, but it's a revision anyway. And what has changed is really the impact of the regulatory headwind, which is slightly stronger than what we expected. And some of it has been introduced after we communicated to the market.

And we picked up, as well, that the impact was actually stronger. Just to name one, the decrease of the interconnection rates in Tanzania by 70 persons is actually strong. We knew it when we talked to the market, but we saw that the impact was actually stronger than what we expected.

In Honduras, some of the regulatory headwind that we are suffering from today was not known when we communicated to the markets.

So, fundamentally, on the base business itself, there is not really any significant change; maybe a marginal increase in the commercial investment that we do in order to support the growth, especially on EBITDA, but nothing really significant.

And on Colombia, can you please share? I think you mentioned some revenue growth in the opening remarks, can share some revenue growth and margin dynamics?

We don't communicate on Colombia specifically.

Okay.

Bill Miller, JM Hartwell.

(technical difficulty) one, in Colombia, (technical difficulty).

Do apologize, Bill, we can't hear you.

When you mentioned that the UNE deal in Colombia was pretty close, short time, could you give us a little bit more definition? Some people think that the Second World War followed closely by the First.

Well, Bill, I hope we're not going to be in that kind of scenario. So, for me, --

That was supposed to be a small joke, Hans-Holger, sorry.

But it's being as impatient as you can be as a management, you obviously want to do it very fast. So if we say in the near term, it should be pretty near.

Okay. And secondly, for benchmarks as we go through, I noticed that MFS, which is going to be one of your big drivers to reach your goals in 2017, that you added 4,000 on a base of 31,000, which is about, let's say, just for the argument of it, 12%, maybe 16%, growth.

How should we look at these four pillars and measure how close you are to getting near to the 2017 goals? Should we look at the new additions in MFS? Or tell us, if you can, what is going on each one of these that we should look at and follow closely to get us towards the 2017 goals?

Actually, when we communicated our expectations for -- with the five-year horizon for MFS, we gave two KPIs. One of them is penetration; that we said we expected to about 50% by 2017. As you can see, we are already at 10% in total today, and it's growing quite fast.

And actually, even if you look at the penetration rates of MFS among our mobile base it's actually more than [13%] in the countries where we marketed. So we are really moving in the right direction there.

And the second KPI that we provided as well is that we expected to be -- to have an ARPU of more than $10 in 2017. And we are communicating each quarter as well on that one because, as I said, earlier it's growing each -- on every single quarter, and we are currently at $1.35.

So we are really moving in the right direction as far as these two KPIs are concerned.

Okay, great. Really glad to hear it . And the final question is when you talk about handsets of under $60, what percentage of your total CapEx are handsets?

Zero, because we don't capitalize them. We write them off, and we expense them upfront, so we are on the safe side there.

Okay, great, thanks.

Thanks, Bill.

Thank you. I would now like to hand the call back to Hans-Holger Albrecht. Please go ahead.

Yes, thank you, everyone, for listening in and asking all those questions. And as there are no further questions, once again, I hope you have got a good overview about the performance in the second quarter. If there are any follow-up questions, myself, Francois, Justine are obviously here to answer questions in the future.

In the meantime, we continue to work on our plan, as indicated. And thanks for today, and talk to you soon.

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