Millicom International Cellular SA (TIGO) 2014 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 & CEO; and Tim Pennington, CFO. Following the formal presentation by Millicom's management, an interactive Q&A session will be available.

I would now like to turn the conference over to Nicolas Didio, Head of Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to the Millicom second quarter results presentation; and to this presentation, materials can be found on our website, www.millicom.com.

Before we start, I'd like to remind everyone that the safe harbor statements apply to this presentation and the subsequent Q&A session.

With me today, and welcome on this one-hour call, our President & CEO, Mr. Hans-Holger Albrecht; and Mr. Tim Pennington, our CFO.

I will now hand over to Hans-Holger to give an overview of our Q2 2014 results and operational performance, after which Tim will take you through the financials; and we will finish with the Q&A session.

Thank you, Nicolas, and good morning and good afternoon from Stockholm, and thank you for joining us today. Joining me here for the first time as well on this call is our new CFO, Tim Pennington, so welcome to him too.

As Nicolas said, we will take you through the highlights of the first six months and our priorities for the rest of the year, and we will then take any questions you may have. But before going through the slides, I would like to provide some highlights from the quarter.

First, I think we are pleased with the continued delivery on our growth plan across all regions. Millicom has had a good first six months. We continue to focus on investments in our growth strategy, and so organic growth of over 9% in the second quarter.

We continue to see strong potential in the markets in which we operate and focus on our transformation plans for the Group. I think our performance in Africa has been particularly pleasing with close to 15% organic growth year on year. Looking ahead, we expect to continue to take market share in Africa.

Equally, South America has also driven the growth across the Group, up 14% year on year. Colombia continues to grow strongly in the quarter thanks to market share gains.

Our shifting focus on mobile data consumption is paying off and we are seeing increased take-up of data and increased penetration of data product.

Our cable and digital media business grew by 16% in the quarter. We have now completed the rollout of our Tigo Star sub-brand in five countries, and we see a strong appetite in those markets for our digital services.

The mobile financial services also took a further stride forward with another 100,000 users. Our commitment to innovation continued with Africa's first ever interoperability agreement between rival operators in Tanzania, and I think this will be a catalyst for millions more people to join the online financial community.

In terms of new services, we launched our first satellite Pay-TV service in Bolivia in April, and this service is now available in most of our markets in Latin America.

On the whole, I think we are seeing the benefits of our strategy coming through, and aim to continue to deliver a digital lifestyle for our customers in our markets.

We also secured the second of the three final regulatory approvals required for the merger with UNE in Colombia. And maybe let me remind you that Colombia is Latin America's fourth largest economy, with a renewed sense of purpose and stability following last month's elections.

So I'm very confident that once we have completed these final few stages, we can get on with the business of integrating the best of Tigo's and UNE's people and operations to create a stunning new challenger for this market.

And [after], we look forward to updating you on this over the coming weeks, and especially obviously at our Capital Markets Day in Miami on September 24.

The pace of change will continue with more product and services launch across our footprint in this and the next quarter. It is a time of investments and transition, during which we are putting resources into creating services and platforms to deliver the digital lifestyle strategy.

The market and customer choices are moving very fast, we can see, and we need to stay ahead of the game. But it is a rigidly controlled investment program which is backed by a fresh and detailed focus on cost optimization across the organization, which Tim and I will highlight later during the presentation.

So let me confirm that with margins within previous sales guidance, we will continue our drive to maintain growth, whilst balancing that we see sharp focus on growing EBITDA and improved margins.

If we then turn to the slides, and starting with slide number 4 looking at our key business drivers, we have performed well on a number of fronts, I think. Group revenues are up 9% in the quarter, better than Q1, which was at 8.5%.

Mobile data penetration has increased significantly, an average of 22.7% across our markets, and an increase of 1.8 percentage points over the last three months. Penetration of MFS was diluted in the quarter by the addition of the new market in Senegal, excluding which it stayed flat at 18%.

And I would like to talk about EBITDA margin which is down 0.9 percentage points from the last quarter at 33.1%. We are still in the investment stage and obviously seeing the results in terms of the rapid revenue growth. A significant part of the EBITDA margin decline comes from the revenue mix, but again, Tim will come back on this later during the presentation.

If we move to slide 5, you can see that we are delivering results across each of the pillars of our long-term growth strategy, which is very important, so it's not just a one single product or one single market event. And I guess you're pretty familiar now with this slide so I won't spend too much time on it.

Maybe just one comment on the online and e-commerce. Our four-pillar growth story remains the same, despite the deconsolidation of online. In Africa, the deal with MTN has been approved finally, and we have now 32% of AIH, the Africa Internet Holding.

There's a big opportunity for us as the market takes off in Africa, and in Latam, AIH and LIH have launched new products in exciting countries and at new markets. So we believe these investments support the strategy of our core business.

And costs and CapEx control are obviously one of the keys to maintaining our margins, and we have a highly disciplined approach to both. Our CapEx is currently geared to the rapid revenue growth which we are achieving.

On costs, we're implementing a greater centralization across our business with two hubs, one in London and one in Miami, and we expect to see some positive impact from this centralization in the coming quarters.

And on slide 6, as already mentioned, during this investment phase, we remain focused on increasing market share and penetration in pursuit of revenue growths. And we are seeing this [based off] across our business divisions, Group revenues are up 9% year on year reflecting 5.9% revenue growth in mobile, 16% growth in cable, and 41% in mobile financial services.

We are continuing to exploit the significant business opportunities which exist across our divisions. Our mobile customer base is now over 52 million. We have slight declines of market share in some of our most mature markets, but offset by gains in others where the potential is big, such Colombia and Africa overall.

We increased the mobile data customers by over 1.1 million in the quarter to reach 22.7% of our mobile customer base. More and more, money is being transacted by our mobile financial services; $2.2 billion this quarter, up from just under $1.6 billion in the second quarter last year.

And we are driving up our RGUs by increasing the number of double and triple play customers by 47,000 in the quarter. The launch of DTH services, so far in five countries and more to come in coming months, will extend that opportunity even further.

If we turn to slide 8 and the mobile business. In mobile, which accounts just to remind you for 72% of Group recurring revenue, the evolution of our business reflects the macro trend towards data and away from voice.

Mobile data usage was up 10% in June, 5% for the quarter; and average data consumption per data user was above 700 megabits per month.

Our FIFA World Cup app, which we launched during the World Cup, obviously based on the exclusive mobile rights, got more than 600,000 downloads in few weeks, which we see as a very strong result for these kind of services.

The rapid take-up of mobile data services contributed to revenue growth of 32% in the quarter. We continue to take advantage of attractively priced, highly quality smartphones, to ensure the continuation of this trend.

We have sold more than 1 million smartphones over the last three months compared to [350,000] in Q2 last year, and it was all sold below the $80 price tag; volume has been multiplied by almost 9 times.

Moving to slide 9 and the cable and media business. The usage on cable continues to grow. On our HFC network, both regions are seeing an increase of the take-up rate of our products. Especially we can see it in South America. This is driven by our investments in Pay-TV with Tigo Star and our sports channel called Tigo Sports.

Our cable and digital media footprint continues to grow. Excluding DTH, we now have 3.1 million customers, representing a 28% increase year on year. The addition of the Multivision asset in Bolivia gave us 0.4 million customers, while investments in our HFC enabled us to reach 2.3 million homes passed.

Our size in cable will grow significantly, obviously. after the completion of the UNE merger. We now have obtained two out of the three final regulatory approvals for UNE. And the process has been a bit slower than we anticipated, but the outcome is as we expected, so patience is required.

Talking for a minute about MFS on slide number 10. As you can see there, the penetration of MFS is growing in each country compared to the same period last year, although comparing to Q1, and if we exclude Senegal which just launched the platform, we stayed flat.

The volume of net adds was clearly lower than in Q1 at 114,000. This shows that this business is still at the very beginning of its lifecycle, but what we are implementing will drive, we believe, the long-term growth.

This is particularly the case with the interoperability I mentioned already we have signed in Tanzania. It is too early to see the benefits of this agreement, but we believe it to be the game-changer for the business and that market, and a bit later on for other markets as well.

Despite the increased usage, we are facing some headwinds. In some countries, there is a price competition on mobile financial products on competition in Tanzania and Rwanda, competition on mobile market share in Paraguay; and in addition, the floods in the countries have strongly impacted the local economy in the second quarter.

In other countries, such as El Salvador or Chad, customers are very rapidly adapting to the product, and the volume of transactions which is growing by more than 50%.

So the pattern is different country by country, but generally speaking, we see a confirmation of our long-term strategy when it comes to MFS.

If we move to slide 11 and towards the cost optimization, as mentioned before, we are in a high investment phase of our transformation program now, but we realize that the game is only won if we can deliver profitable growth over time. So we run a pretty tight ship, but I always believe that there is room for improvement obviously on every cost item.

In the second quarter, we saw an increase in our corporate costs. This is an investment in our future. Just to explain a bit more in detail, we have through the corporate costs invested in our technical area we call the factories where we have bought specialist functions back to the center to increase specialist expertise and avoid duplication.

We have seen the benefits from the improvement in our network performance statistic in Africa. We have also built additional team, for example here in Stockholm, which we call our Digital Ventures Group, who are developing new products for us such as the Video On Demand platform for our Latin markets.

And there is the entertainment team based in Miami. Those are the guys, for example, who secured us the exclusive [over] rights to the World Cup, which is driving further revenues in the future. And we are working very closely with the very successful launch of Tigo Music, which makes us, for example, the largest music company in Colombia.

These are just a few examples of the things we are developing. However, as we see our organization evolving, we are looking to the future, and starting today to reshape our businesses to be as efficient in the future as we have been in the past.

With [excellent] advisors, we have started the review of our levels of efficiency. The results have been encouraging. So far, there are 27 OpEx efficiency opportunities identified in Guatemala from network maintenance costs to our commercial strategy.

This program is about positioning us for the future. It's not about short-term margin boost, but I am confident this will help us to return to EBITDA growth in line with revenue growth as well.

However, just to be very clear as well, as we always mentioned from the very beginning, this year is the year where we had to demonstrate that the Company can grow again, which we have been doing the efficiency gain; and the margin improvement is something which has a bigger impact for us during 2015.

So overall, as I said, it's nothing out of our own assumptions and forecasts.

Before I now hand over then to my new CFO, Tim, for the financial review, I would like to invite you to come to our Capital Markets Day in Miami on September 24. 18 months will have passed then since the last Capital Markets Day in London, and we aim to demonstrate that we can achieve our long-term targets, and that we can grow our revenue line as well as our EBITDA line.

In particular there, we will discuss obviously in more details our growth prospects for Colombia, our cost saving initiative that I just mentioned, and how our digital lifecycle strategy is increasing growth prospects of our mobile and cable business. So you're all welcome to this event in Miami in the fall.

With this, I hand over now to Tim for the financial review.

Thank you, and I'll take you through the financials. And then Hans-Holger will summarize, and we'll go to Q&A.

So let me start slide 14 by echoing Hans-Holger in saying that it's been a pretty decent quarter. We're seeing increased penetration of smartphones, increased penetration of data products. Cable's growing strongly; our other digital services, such as the World Cup promotion and drawing customers to the network. But also, as Hans-Holger noted, it is having an impact on our margins.

So we had revenues accelerating 9% organically, 6.6% on a reported basis, taking our revenues to the quarter to $1.45 billion. And that partially reflects very strong revenue growth in Colombia, Africa, and the cable and media business.

EBITDA ended the quarter up to $479 million, again in line with Q1; and there's a margin of 33.1% in the quarter, and 33.5% year to date. It's little bit light on our internal forecast, but that's partially reflecting the higher volume of gross additions we've seen in Colombia and the increase in business development.

Incidentally, we're focusing on EBITDA after corporate costs, and unless I state otherwise, please assume that we're talking about EBITDA. It's the Group EBITDA after all of the operating costs of the business.

We're on track on our investments. CapEx is rolling out; came in at $367 million on a balance sheet basis. That includes $80 million for license renewals in Chad and Honduras.

And finally, adjusted earnings per share was 27%. Now adjusted earnings per share is a figure we'll use going forward. It's basically taking basic EPS and adjusting it for non-cash, non-operating items like the change in the value of the put option, and currency movements including derivatives. There's a reconciliation to this at the back of the press release, but these adjustments reduced our EPS in this quarter by $1.59 per share.

Let me look at the revenue picture now in a bit more detail. We saw some exceptional levels of revenue growth in Colombia driven by volume, driven by high data and entertainment revenues; but there was also pretty impressive revenue growth in Guatemala, Bolivia, Rwanda and also Chad.

The chart on the slide shows we had 14% revenue growth in our South America region. Colombia drove 26% growth there; Bolivia saw 10% revenue growth. Africa again posted a strong quarter. As said, Chad, Ghana, Rwanda all seeing double-digit revenue growth there, and that drove a 14.6% organic growth for the region as a whole.

And as with the last quarter, we also saw some significant currency headwinds. They're coming out of Ghana, Paraguay, Colombia and Costa Rica, and this reduced our revenues by $37 million. So the US dollar revenue growth was 6.6%. But that's still a 2.6 percentage point increase on our Q1 US dollar growth.

The lower chart again confirms most of the growth is coming out of mobile, but as Hans-Holger said, we're pretty pleased with the double-digit growth of the cable business in Q2.

Now in terms of EBITDA contribution, we're seeing good progress in South America. It was 5% up on Q2 last year, again driven by Colombia, which is 20% higher.

Central America showed solid progress overall. Guatemala continues to show excellent EBITDA reflecting bulk revenue growth and cost management, as did our business in Costa Rica.

More challenging environments we're seeing in Honduras where, amongst other things, we've got certain restrictions on cellsites, which led to slightly weaker revenues in the quarter.

Now in Africa, we saw some sequential EBITDA growth, up 12.9% on Q1. And whilst this is still down in absolute terms on last year, it's because of that continued investment in expanding our networks to improve our market positions across the entire African business.

Central costs in the quarter increased to $72 million, that's up from $59 million in Q1, largely due to higher levels of activity on new business development, as well as some reclassification of costs.

When it comes to corporate costs, I think we need to distinguish between those costs that are truly head office costs and those that are related to activity in respect of the regional businesses and which frankly could be booked either centrally or locally.

So I turn to the margins now. As I said earlier, a little bit light on where we were in Q1, just under 1 percentage point lower. Of that, 0.8 percentage points reflected an increase in the cost allocation to the center. And just picking up that earlier point, roughly one-third of that was from increases in head office costs. The other two-thirds has come from new business development plus some reclassifications. And these are costs in respect of the business that Hans-Holger touched on in his earlier presentation.

So at the operating level, we saw some ups and downs. Colombia [phone] subsidies were up nearly 20% in Q1 as we accelerated the rate of post-paid acquisition in the face of changes in regulation. That is removing the enforceability of term contracts.

So we saw over 1 million gross additions in the second quarter, and that has had an impact on our EBITDA margins which was 1.9 percentage points lower in Q2 compared to Q1. But we'd expect some level of reversal of that in the second half of this year.

Elsewhere, there was some margin attrition in Bolivia and El Salvador, again reflecting high subsidies. In Paraguay, we saw some slightly more difficult operating environments. But elsewhere, we saw some good -- well, some decent margin improvement in Guatemala and in most of the African business.

So if I just take a look at the margin bridge on the slide which compares Q2 last year to Q2 this year, you can see that higher handset sales in Q2 compared to last year, reflecting our push in smartphones. That's reflected in the cost of sales growth. The investments in growth through the commercial and the business development diluted our margin by a further 1.3%, and the corporate costs diluted the margin by 1.8%. But as I said, a lot of this is business development and some reclassification.

Moving to slide 18, I just want to spend a few minutes going below EBITDA, just walking you down the P&L. D&A at $254 million reasonably good benchmark for our run rate for the rest of the year. The net financial charges of $89 million; again, it's a reasonably pure version of our quarterly charge. No significant one-offs this quarter, so again, should be reasonably good proxy for the full year.

The movement on non-operating items largely reflects the mark-to-market movement on the put and call options we have in respect of Guatemala and Honduras.

Moving further down for associates, this now is just contributions from online and the remaining Tower investments. In the quarter, we did book $29 million credit benefiting as it did from a one-off dilution gain from the Towers transaction in Colombia. Now this isn't the disposal we announced today; this was an earlier transaction. So if you were to strip out the one-offs from that line item, we would have booked a $13 million loss.

Taxes are fairly consistent with the run rate in this quarter, and that left us, as I said earlier, with reported EPS of $1.86 and adjusted EPS of 27%.

So I just want to touch briefly on cash flow now. We're trialing a new format to try and explain what's going on in our cash flow. EBITDA you should recognize. CapEx was $367 million in the quarter. But adjusting for the non-cash element, which is largely the Chad license which was booked but not funded in the quarter, the cash CapEx, which is shown here in the table, was $321 million. We expect to meet our guidance of 19% on our CapEx overall for the year.

The working capital really just reflects a partial unwind of the working capital movement in Q1. Tax payments $115 million; slight catch-up in cash terms from the P&L charge. [This left us] with an operating free cash flow which is our after-tax OCF in line with Q1, and a little bit above Q2 of last year.

Interest at $90 million in line with P&L; dividends to minorities, $56 million; which left us with a negative equity free cash flow of $40 million. And again, reasonably consistent in the second quarter from history.

So just now turning to how that translated to our balance sheet. The net debt reconciliation; you've seen up on the slide we entered the quarter with net debt of $2.6 billion. In this quarter, we've paid our dividend, plus there have been some one-off items, a bit of M&A and small items and FX movements. So our net debt has increased by $425 million to just over $3 billion.

As you heard Hans-Holger say, we are expecting the UNE merger to close shortly, and this will increase our debt to around $4.3 billion to $4.4 billion giving us pro forma leverage of about 2 times.

That is at the outer edge of our leverage target range, and just from my initial assessments, I think 1 times to 2 times consolidated net debt to EBITDA for the Group is about right, which means that we'll be focusing on actions to delever the balance sheet over the next few quarters back to the middle of the range.

You can see today that we've started that process. We've announced the disposal of our stake in our business in Mauritius, and the Colombia Towers investment that we had. That realizes round about $175 million, and we'll reduce that leverage by 0.1 times. And therefore, restating our pro forma leverage as at the end of June, we'd be at 1.48 times instead of the 1.57 times reported.

On that, I'll come back to Hans-Holger for our Q&A.

Thanks, Tim, and maybe just to briefly to summarize.

Overall, second quarter was a good quarter, confirming our choices we took strategically and operationally. The growth potential in our markets remained strong, especially in Colombia and Africa. And you can see as well, our digital lifestyle strategy is starting to work, and obviously a key factor to achieve a kind of long-term profitable growth for the Company going forward.

Looking ahead, we reiterate our guidance for the remainder of 2014 and remain optimistic about the future growth opportunity for the Group.

And just to highlight one more time, remember where we have been coming from. This Company is undergoing substantial transformation from a pure voice cash and carry business model to a very complex data digital lifestyle and multi-product level. So overall, I think, it has been quite a journey, but we've seen the first positive signs continue in this year.

Thank you for listening, and Tim and I will now be happy to take your questions.

(Operator Instructions). Nick Brown, Goldman Sachs.

Just got a couple of questions, please. Firstly, in which region or countries do you see the most cost-cutting opportunities? And when do you think you'll be in a position to outline to us some kind of restructuring plan?

And secondly, following the sale of Mauritius and Towers in Columbia, should we expect any further potential disposals to delever more?

I think it's a combination -- let me take the first question when it comes to the cost optimization.

It depends, of course, on the size of the business and the kind of market position we have. If you go to the marketplaces where we have more mature markets and have a very strong market share, there's probably a bigger potential than those markets which are still in investment phase and need to change the business model. So it's some regions in Central America and some regions in South America as well.

And the whole approach is we do, as I said, to see what kind of efficiency we have. Another big efficiency gain we're going to look more detail into as well is the factory, the technical side, which will have an impact on operation costs, but as well going forward should deliver us the targets which we have set when it comes to the CapEx to revenue ratio. So it's those kind of elements we are working on.

And just to remind you again, because it's an important point, it's -- this Company has to add new kind of service functions than it had in the past. So the history in terms of margin of the Company is always a good benchmark, but the business model we are running today, driven by data, obviously, is substantially different.

When it comes to the sales of Mauritius and our Tower deals, as Tim said, it's basically a focus for us on the balance sheet and we want to make sure that we stay close to the kind of target we have when it comes to net debt, to leverage or a sales situation. So 1.5 times is the kind of level we want to achieve.

And non-core assets, or assets which we don't see fit into our strategy, we're always going to review. So there may be a few other ones, but nothing in the core business we are running currently.

I think our assets have to earn their place on the bench, and to the extent we can't do anything strategically with them and they're not helping our return on capital, then we'll find ways of monetizing. And the passage into structured assets were a good case in point on that; hence now I think that was a good deal.

Okay. Thank you.

Thank you.

Bill Miller, JM Hartwell.

As you look out over the next six months, is Colombia the most obvious transformational event for you? And can you take -- and would you give us now your margins on your existing Colombian operations and the growth rate? And can you apply any of those techniques or ability to increase margin to Colombia? And is that the most transformational aspect over the next 6 to 12 months?

Obviously, Colombia is a transformational deal and, well, the most important piece for us in the next coming 6 to 12 months. And that's the reason why we make it a focus point on our Capital Markets Day in Miami to run more in detail through the business model.

Obviously, we can't speak -- because the merger is not complete, we can't speak about UNE and its business in any detail at this stage, but we believe in UNE itself, in the cable business, there is upsell potential in terms of margins which are now in the range, in the mid-range, of the 20% margin, around 25% margin.

And equally, our mobile business in Colombia is in the mid-20 EBITDA margin range as well on the back of very strong growth and very heavy investments in data. But going forward, it should be margin opportunities on the upside as well.

And if we combine both businesses successfully, you have a double effect. So if you get Colombia right, it will have a big impact on the Company going forward.

And can you talk for half a second about where you are with Facebook and what's going on there, and how you plan to capitalize on that alliance?

Interestingly, the results have been pretty different between Latin America and Africa, whereas in Paraguay, it has been not so much an upselling tool so far, but rather be a kind of loyalty tool and brand enhancement tool. In Africa, we can see it has worked much better in terms of upselling people to new data plans going forward.

It was a kind of test for us and we are very pleased. I think the key feature which is very successful that we have been able for the first time ever as an operator to integrate our sales function, upgrading function, into the Facebook mobile page so it's a kind of seamless experience for the people to use it, which clearly is a model we can use probably in other places as well.

So we are happy. We are fine. We see it as a good test case. And we'll continue to lever with similar kind of projects in the future.

Great. Thanks very much.

Thanks, Bill.

Barry Zeitoune, Berenberg.

I've just got two questions, actually. The first is for Tim, and I was hoping you can give a bit more color on how you expect the effective tax rate to evolve over time, and also the cash taxes. It's been quite volatile in recent years, and any guidance you can give us on the kind of rate we can expect going forward would be very useful.

And the second question is on Colombia. I know that you pushed very hard in the quarter ahead of a change in regulation that was going to impact the way in which you are able to subsidize handsets. I'm assuming that that change has now taken effect. How is it changing the way that you're marketing your product in Colombia given the restrictions on handset subsidies? And how is it impacting the market dynamics as well?

Thank you.

On tax, I think clearly, we're a complex Group operating off many jurisdictions. I think the guidance I would give you on tax is that the charge that we incurred in Q2 is pretty close to our expected run rate for the full year.

In terms of effective tax rate, that is going to be hugely influenced by the non-operating, non-cash items; for instance, the put and call revaluation, which we have to do each quarter.

So I need to look at how best to give guidance on tax, whether we -- it's through an effective tax rate or whether it's through another model. But I think just to where we are at the present time, using the current quarter's P&L charge is not a bad proxy of where we'll probably get to for the full year.

And maybe I can add to the question when it comes to Colombia, which is correct. We have been very -- more aggressive during the second quarter ahead of the changes when it comes to the regulatory side in terms of contract durations and probably the stop of handset subsidies.

Going forward obviously then they will, or can have in theory, an impact on the margins; equally also on the growth of the overall market. So there will -- there is a potential that there will be lower growth in the market, but as well then of course a better margin for us in the business.

However, we believe at this stage that most competition will reinvest a chunk of the money they're going to save in terms of subsidies in other pieces of the value chain. One is obviously advertising and promotion. Some is in the sales and marketing channel, and some maybe in the direct sales force.

So it's not that the model will change completely, but as of today, we can anticipate a bit less growth and slightly improvement on the margin.

Saying that, we are close to be the number 2 in this market on the data side, but of course, we have to observe the market dynamics and what competition is doing. So we may have to adjust a bit during the third quarter.

Thank you. Just on the tax point, should we expect cash taxes and P&L taxes to be relatively close to one another, or is there going to be some divergence?

They should be close to one another. Obviously, there will be timing differences through this period, but I think they will be give or take close to each other.

Okay, perfect. Thank you.

Georgios Ierodiaconou, Citi.

My first question is a follow-up on the earlier question on Colombia. You mentioned that some of the handset savings will be reinvested in other purposes. Do you expect to see potentially any pricing pressure or any competition focusing more on price instead? And when you talk about a slowdown, do you think it will be a wider slowdown of the market, or will there be a slowdown in the market share gains which you have achieved over the last couple of years?

My second question is on Paraguay and whether there's been any update with regards to any potential [asymmetric] regulation, or something I believe you mentioned in the past; and whether the market share declines that we've seen in the last couple of quarters may ease the pressure for there to be any asymmetric regulation imposed on you.

And then a final question, which is more of a clarification. When I look at Central American revenue growth, a lot of that is coming out of other revenues which were up around $17 million versus the same quarter last year, or roughly 50% up on that base. Can you give us an idea of what is driving this growth and whether it's a recurring item that we should assume continues in the coming quarters?

Thank you.

Let me take the first two questions, and then Tim can answer the third question.

Coming back to Colombia, we don't believe at this stage that the new regulation will have an impact on pricing and will initiate a price war. As I said, there will be rather diversion of investments into sales, marketing, distribution and other kinds of sales activities. So it's not a pricing issue; it's more that resources will be reallocated, but maybe on a bit lower scale than previously.

This will have an impact as we mentioned maybe on the total market growth; not on our own market share growth. So on the total market growth which [obviously] can reflect us, but it's not a Millicom specific problem that we would slow down our growth going forward.

So just be very clear, it's maybe the market which doesn't grow as fast, but not us.

When it comes to Paraguay, the asymmetric regulation is not an issue at this stage. There is discussions going on, but there is nothing which is concrete or an issue. So we don't have any new insight which changes picture. So right now it's business as usual.

Obviously, there has been the discussion about the kind of position Tigo has in that market. But just be very clear as well, it's not about the position we have. It's if we would use or misuse the position we would have; then it would create a legal issue, which we're obviously are not doing. And, yes, of course, the slight decline may help in the market share, but it's not a big issue in that respect either.

So we are in constant talk with the regulator and with the government, and as I said, are working on this front. For us, the key issue in Paraguay really is more at this stage to make sure our brand revamps and our own network coverage, which -- or network quality which has been a big issue in the last 12 months -- is becoming better as well. So business as usual in Paraguay for the time being.

And, Tim, you want to take the last one?

Yes. Predominantly, the revenue that's under other in Central America relates to handsets. And clearly, that growth reflects the pushing of smartphones, the increase in data penetration that we've got there.

Clearly, Central America is probably our most penetrated market where we've got our largest market position, so you'd expect us to be pushing hard on maintaining that through the delivery of smartphones to customers.

Thank you.

Erik Pers, Danske Bank.

On the Group margin, I understand it came a bit under pressure this quarter from the subsidies in Columbia. Is those probably coming down? Is that what you see will take the margin up in this second half to meet your full-year guidance? Or are there also other factors that contribute to this?

And then secondly, I have a question regarding the dividends to minorities which you now disclose for the recent period. Are these what would see representative or what we should see going forward? Can you clarify the dividend policy and what we should expect when it comes to dividends to minorities?

Thank you.

Let me take those. I think Columbia is one aspect of it. Clearly, it's a big part of our business and we pushed it very hard in Q2 to build our market share. We can see that easing off in Q3 and Q4. But that said, if we see the opportunity to continue to press hard to gain market share and gain subscribers, then we definitely will do.

We haven't changed our margin guidance because there's quite a lot moving in the Group in the second half. But I think we've said that this is our year of investment and if we see the opportunity to invest, to achieve our goals, then frankly we're going to do that in the second half.

But that said, there are lots of initiatives going round in the Group that we're looking at. Hans-Holger mentioned the optimization projects that we've got in hand. So I think we're in a relatively good position for the future.

And to some extent, if our margins rise significantly in the second half, that isn't necessarily a great thing because that's probably slowed down some of the growth that we're able to pick up in the second half.

On the second question, the dividends to minorities, we've got a full payout ratio policy on our businesses. Our principal minorities sit in Guatemala and in Honduras and Columbia. And to the extent there is cash in those businesses that is available to be distributed, then we distribute them. To the extent that cash is needed for investment in the business, then we leave it in the business to be invested.

So I can't give you a percentage growth rate on minorities. I think what we're showing you this quarter is probably a good proxy going forward. But clearly, it will change with the profitability of the underlying operations.

As a quick follow-up to that, has Columbia been distributing dividends to shareholders, the Columbian mobile business, over the recent period?

No. We're in an investment phase in Columbia. So we're reinvesting everything that we're making there back into the business.

That's clear. Thanks.

JP Davids, Barclays.

Two questions, please, the first one on Africa. To what extent do you believe that the investment you've made in this region has resulted in sustainable market share gains? And what level of margin do you think is needed going forward to defend and attract further top-line momentum?

The second question may be more for Tim on the costs. You talked a little bit about corporate costs in your presentation. Can you provide a little bit more color about if there has been some costs shifted from the OpCos to the head office, the quantum of those costs; and also, a little bit of an outlook for the corporate costs line through the rest of 2014.

Thank you.

Yes. If you look at the -- if we take the African question, if you look at the performance in Africa with close to 15% growth, I think it's a very strong performance in terms of this market there. We've taken market shares we believe virtually in all markets, which is a positive sign. So the investment we have done in the network, in the brand and in the skill set, are starting to pay off.

Just to remind you, when we started 18 months ago, we were declining in terms of revenues and the margin was declining at the same time, so it shows that we can still turn the business around. The brand is intact and the customers are coming back.

Africa as a whole will be -- is an investment case; it's a [turnaround] case. But the idea we have was Africa is to gets its self funding, i.e., we're trying to come out of the investment phase pretty fast.

And next year, I think we should be in terms of cash performance and cash flow performance should be a significant improvement, which doesn't mean that we scale back on our investments when it comes to network or transformation to 3G in some of the countries, or even LTE. It's more that a lot of investments in infrastructure have been done. We have the skill set buildup we needed in this market and we should see a continuous return of the investments we did in the last 1.5 years.

So I think you will see the peak this year and then it will be much more balanced outlook going forward. The growth profile should remain the same. The [human] penetration in Africa is still -- the mobile phone is still pretty low, maybe just between 60%. The transformation from 2G to 3G is in full swing. And there are many other opportunities like mobile banking, like mobile entertainment, which we just started to initiate in those markets. So in terms of growth I think it should be much better going forward as well.

And last but not least, what we can see as well is that the competitive pressure has eased and has become a little bit more structured in terms of how everyone is handling the market in terms of pricing and so forth and so forth. So it's a different picture than a year ago.

Tim, do you want to take the other part?

Yes. Just on corporate costs. Coming into the business, just taking a look at what sat under the umbrella of corporate costs, a lot of this is activities undertaken on behalf of the business, which frankly could quite easily sit in the businesses or sit in the center.

And I'm not sure that the allocation is of that -- it doesn't help too much. To say that we're spending too much on corporate costs but our EBITDA margin in the regions is doing well misses the point a bit.

So I'm keen that we focus on the Group EBITDA margin, and where the costs actually land isn't a big driver of decision making or discussion. It's more about have we got the most out of this business in terms of the margin that we're able to generate from it.

So I think coming back to your specific questions, JP, where do I see it in the next couple of quarters, I think the $72 million we booked in this quarter I think probably I'd expect to see it round about that level in Q2 and Q3, provided we don't change the way we account for it. But I think that is probably a decent level to look at for now, given the visibility that I've currently got on it.

Very clear. Thanks to both of you.

Lena Osterberg, Carnegie.

Sorry to come back to the corporate costs line. Just trying to understand if any of the EBITDA improvement seen in Africa is related to reclassification of corporate costs being moved from Africa to the corporate level.

And then also I'm wondering why you decided to exit Mauritius. So what was the strategic rationale? And how should we then view other markets in Africa? What are your core criteria for keeping assets or divesting them?

And then finally also on dividends, you clearly now state that you will take your leverage down. You've said that before once you consolidate UNE. But will you still expect to pay progressive dividends or is the primary focus to take the leverage down?

If I take the Mauritius question and the dividend question, then Tim can answer very shortly the first question. Or I can do it as well, to be honest. There is no (laughter) reallocation of costs on Africa to the headquarters. So no [trend for] --

What is actually driving the increase then? I'm just trying to understand why is it going up so much. Because last quarter, you said that the level we've seen was the normal run rate. So why is it going up?

It's a couple of things, but one of them is the reverse. It's costs that we've taken on, in a sense, to help drive our business in Africa. And probably, the biggest example is the people we've hired into our factory team, into our technical team, who are working on improving the network performance in Africa. And frankly, that is a hygiene factor for us, because we can't achieve our goals unless we've got networks that do the job. And I think it's probably not been a huge secret that we've had to quite a lot of work on our network performance in order to drive the strategy.

So in some ways, it's been a reverse of the issue rather than reclassifying costs out of Africa.

So it is actually -- but it is costs from Africa going up to corporate costs then?

No, I think that's oversimplifying it. Our technical team is looking at options across the whole of our business. Our business development teams developing the World Cup, or the video on demand apps are on behalf of all of our businesses.

So I don't think it'll help you by trying to sub-allocate that corporate costs line into one part of the world or another part of the world because it's not just fungible in that way.

I'm just trying to understand the [bizarre] improvement in Africa. Will it continue to climb the second half of the year, or --? That's what I'm trying to understand by knowing where the costs are going.

Okay. Well, the improvement in Africa reflects the growth in the revenue for Africa. We had a strong quarter. We've seen momentum there. We're off a pretty low base in Africa anyway. I'm not sure we're satisfied with where we are at the present time but we're heading in the right direction for it.

It isn't -- for the avoidance of doubt, it isn't that we've taken a whole load of costs of Africa and just stuck them in the center to make Africa look better. That isn't our game plan. That's not something we'd do.

Well, let me add one point I think which [in a sense] a lot of this is comparable to the first quarter in terms of operational improvement as well. And you can talk about markets like Senegal, for example, or Ghana, where we had much more efficiency. So it's apple-to-apple comparison and the margin improvement is done by the business and not by the reallocation of costs.

Okay, perfect. That's what I wanted to know. Good.

The second one, if I may, come to Mauritius. We see ourselves as a company operating business and not holding business. So the situation in Mauritius was a bit the opposite. We had a 50% stake but we didn't have any kind of management influence or Board influence. We didn't have our brand.

And if you can operate and manage a transformation, which is needed in that market as well, from a pure mobile play to an integrated digital lifestyle company, then it's a financial holding which we then have better resources to allocate cash and management time to. And that's the reason why we decided to exit.

And as a company in terms of this kind of portfolio review, we want to focus on the operations we have. We want to focus on those businesses to transform them, as I mentioned. And if we can do this, we stay in the market. And we want to only be engaged in the core activities of the business.

Hence, if there are more optimizations potential when it comes to Tower deals or infrastructure allocation, we would look at those ones in the coming months.

But Mauritius, as I say, was a very different case and it was standing out a bit for us. And that's the reason why we exited it.

And then I think the last point in terms of dividend; there is no reason to change any kind of -- our dividend policy and dividend outlook. The Company is very strong and the Company is very healthy in terms of the business. And anyhow, there's nothing to discuss in the middle of the year after we just paid our dividend. It's something for the Board, I guess, in the beginning of next year.

Okay. Thank you.

Andreas Joelsson, SEB.

A question on mobile. You have a very strong growth in cable and MFS, of course, but what kind of trends do you see in mobile in terms of competition, subscriber intake and ARPU levels? We have seen a deteriorating voice ARPU going forward. Do you see an end to that basically, given less regulatory effects, or how should we see this?

I think we have to face with reality, and we said this as well I think at the Capital Markets Day a few months ago that the voice ARPU is structurally under decline and will decline over the next coming years. The question is how do we manage the decline so it's not going to come too fast. But actually, gradually of course, we will all move over to data.

And that's a key challenge we had as a company 18 months ago that our core business, which was standing for 90%, which was a very simple mobile cash and carry, more or less disappears in the next coming years. And we had to invent a completely new model which is data, with a lot of complexity and new services. Hence the need, as we discussed at length today as well, the need to invest and the need of [incidental] costs.

Equally on the data side, we see a very positive uptake. We see good pricing structure. We see that data consumption is in line with data revenues more or less. So we charge data correctly. We can see very positive signs when we bundle also. This is like Tigo Music in Colombia.

When it comes to ARPU and churn, we see positive impacts on ARPU and churn on data when we bundle with financial services; for example, in El Salvador. So the new business we're entering is positive, it's a good momentum, and we don't have too many concerns at this stage.

And again, one of the key things we want to demonstrate at the Capital Markets Day to you is to show that if you do the transformation to date and if you do the investments we have been doing in the team and financial services and other services, it has a positive impact long term on churn and a positive impact on ARPU.

So the future business model looks good. The old business model, we just have to manage the decline and the migration correctly.

Perfect. Thank you.

More you'll get at the Capital Markets Day in Miami.

As we have no further time available for questions, I would like the call back to Hans-Holger Albrecht. Please go ahead.

Yes. Thank you very much all of you for listening in. If there are any more questions, please do not hesitate to call Tim, myself or Nicolas. Otherwise, we hope we'll see you all at the Capital Markets Day in Miami, or latest for the Q3 results in the fall.

Thanks and goodbye.

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