Millicom International Cellular S.A. (TIGO) Q2 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Millicom’s Q2 2010 results conference call. For your information, this conference is being recorded. May I also remind you this call is being audio streamed over the web and is accessible at www.millicom.com together with the presentation summarizing the key features of the results. I would now like to turn the call over to your host today Mr. Mikael Grahne, President and CEO and Mr. François-Xavier Roger, CFO. Please go ahead gentlemen.

Thank you operator and welcome to you all. As usual you can find the slides for this call on our website. Please turn to slide number three. Our second quarter continued the positive trends seen in Q1. Revenues were up 14% with local currency revenue growth of 11% as the main driver. EBITDA margins continued to improve hitting the 47% mark in Q2 with year-on-year gains in all regions. Cash flow was strong with an operating free cash flow margin of 24%. We paid total dividends of $6 per share during the quarter and commenced our 300 million buyback program, which intend to pursue through the rest of the year. After the period end we reached an agreement with our local partner in Honduras which gives us full control there. François-Xavier will cover this in more detail in his presentation. Slide four. Customer numbers were up 19% with the particularly strong performance in Africa. Total revenue growth of 14% reflects good customer growth, increase in stability and local currency ARPU and some currency benefit in South America. EBITDA growth continues to outfit revenue growth as margin improve and as you will see from our statement we are increasing our EBITDA margin guidance for 2010 to around 40% – 47% from previous mid-forties. CapEx of hundred and $129 million was up 14% – was 14% of revenues and continues to run below our expected rates for the full year. This has boosted our operating free cash flow H1 but CapEx will be higher in H2 as planned. Slide five, despite volatility from one quarter to the next driven by promotional activity, SIM registration and normal seasonality our customer intake continues to demonstrate a stable trend on rolling average basis. Q2 benefited from the impact of registration most of them in Africa but we expect registration to create headwinds in H2, however we do not anticipate an impact on revenue trends as this typically affects low ARPU customers Slide six, local currency ARPU declined – decline continued to slow as a result of our focus on higher quality customers and developing of non-voice revenue streams. In South America we achieved a 2% growth in local currency ARPU, the first such performance in any region since we started (inaudible) part of the decline in blended group ARPU continues to be down to regional mix impact with lower ARPU Africa growing strongly and the full year effects of new taxes and interconnect costs. Slide seven. Breaking down revenue growth into its component parts; we maintained our double-digit rate of revenue growth achieved in Q1. This has been driven by market share gains ARPU management and customer growth. We enjoyed a small benefit from our – from currency movement in Q2 although the euro and Tanzania shilling in particular were much weaker towards the end of the quarter. Slide eight. Voice revenue growth picked up in the quarter growing to 7% year-on-year in Q2 from 5% in Q1, VAS growth continued to be strong although the rate of growth was a little slower than in recent quarters. Breaking down VAS in more detail; we grew non-SMS VAS, in other words more sophisticated and differentiated services at 50% in local currency showing our commitment to innovation. SMS continues to be an important driver to (inaudible) highly effective way of introducing customers to a range of new non-voice services. Slide nine. VAS now represents 22% of total voice and VAS revenues delivering a more defendable and higher margin revenue stream that generates greater customer interest and loyalty. Non-SMS services have increased from 8% to 12% over the last 12 months. Slide 10. 3G continues to be a real success story for our Latin American business. 3G revenues already represent nearly 5% of all recurring revenues in Latin America just 18 months after launch. We have 1.3 million customers using 3G services and this base grew 25% in the last quarter alone. In addition, currently only 62% of customers own a 3G handset are actually using them for data services. So there is an immediate opportunity to increase penetration of usage within this base. Slide 11. Our market share overall continued to increase during the quarter even with the inclusion of Rwanda in the calculation for the first time. Excluding Rwanda our average market share exceeded 30% for the first time. Slide 12. Churn in percentage terms continued to show a very stable trend demonstrating that we have a strong and consistent proposition whatever the competitive intensity of different markets. Slide 14. We turn to the regional clusters for a brief look at each (inaudible) growth in Central America continues to be hard to come by with weak economies, highly penetrated voice markets and full-year impact of taxes and interconnect costs. While we made further good progress in Guatemala, we saw our customer bases decline in El Salvador and Honduras. In both markets we are focused on attracting and retaining higher quality customers. Margins improved further reflecting stable gross margin by the more disciplined approach to sales and marketing costs. Although remittances [ph] have begun to recover recently this is also a very low base and there are no signs that this is translating into increased spending. Longer term, we believe that the region can return to growth even the significant opportunity in 3G based on strength of demand for Internet access. Slide 15. In South America revenues increased by 19% in local currency and continued a trend of gentle acceleration over the last few quarters. We also benefited from the strong Colombian peso. Performance was good in all the markets, with ARPU growing, thanks to a strong data growth and sales of voice and data packet. EBITDA for Q2 was up 41% and EBITDA margin gained 3.5 percentage points year-on-year to 42.7% driven mainly by improvement in Colombia. As with Central America CapEx was unusually low due to the timing differences helping to deliver a very strong cash conversion. Slide 16 in Africa customer growth was very strong. As anticipated on the Q1 we saw a recovery in Tanzania and Ghana, we also began to gain traction and Rwanda with over 250,000 net adds there, however additional demand was created by the timing of compulsory registration for new customers and we expect some of these may revert in H2 leading to lower intake. We did not expect this to impact revenues or profitability the slide in the appendix is of the later stages of SIM registration in each of these markets. Revenue growth of 24% in local currency remained strong. EBITDA for Q2 was $81 million, up 31% year-on-year but still a very pleasing performance, we were held back a little by provision for tax and custom duties in chat, excluding Rwanda the margin was 39% and expect to make further progress in margins in the medium term. We generated 45 million in operating free cash flow in Africa boosted by $12 million received and Ghana on the first closing of the tower deal. Slide 17. Amnet continued to grow while given the weak economic environment in Central America. Our focus has been growing home broadband customers and revenues in this segment were up 32% year-on-year during the quarter. The business of this cash generative and should continue to offer an attractive balance on long-term growth opportunities with positive cash flow. Now I would like to hand over to François-Xavier who will talk to you briefly through the financials. François-Xavier Roger: Thank you Mikael. Slide 19. I wanted to start by showing the driver of EBITDA margin improvements over the last 12 months. Overall, the improvements in our margins have been driven by a reduction in our sales and marketing costs as a percentage of revenues. These have been achieved through a combination of scale and efficiency in North America and a more disciplined approach to subsidy on voice services in Central America. In highly penetrated markets, we do not believe in offering handsets subsidies for new voice customers with very low ARPU. The relatively stable cost of sales line combined to the phone trends some showing improvements in gross margins in Africa as our increasing scale mix on more efficiency offset by strong rules in Bolivia and Colombia where we have lower gross margins. Slide 20. Our effective tax rates or the tax rates was over 51% as a result of upstreaming 280 millions to group which attracted some resolving effects. The effective tax rate for the full year is likely to be below 30%. Slide 21. During the quarter strong EBITDA growth translated into very good progress in adjusted earnings per share with a rise of 30%. Growth has slowed reflecting the change to the useful life of our stores from 10 years to 15 years at the beginning of the year and (inaudible). Slide 22. Adjusting for (inaudible) quarterly EPS is continuing to develop well reasoned by the steady improvement in group EBITDA margin. Slide 23. As you know, we paid over $600 million of dividends in Q2 through a combination of a regular annual dividend of $1.40 per share and a special dividend of $4.60 per share. As a result of this payment, our leverage ratio has increased to 0.7 times net debt to EBITDA, we will see further return to shareholders through the balance of the year as we resume all buyback program. Slide 24. Beyond the cash flow generation we are happy to report that we have very nicely improved our cash repatriation as the cash upstreaming in H1 2010 is as high as it would have last year, both as we stopped lending, I mean, downstreaming phones to our operations and as we repatriated much more phones. Slide 25. All our clusters were cash flow positive in Q2. Improving cash generation in South America and Africa means that we are now far less reliant on Central America for cash representing less than 50% of group operating free cash flow in Q2. Slide 26. The free cash flow figure was down on the last quarter, but more than double the figure of equivalent figure of the last year. The main seasonal effect of the usual high tax payments, 110 million in Q2 and the payments of the last year high yield coupon during the year – during the quarter. Slide 27. Turning to our debt maturity we now see the average maturity of our gross debt at just over two and half years. Our funding strategy is based on four elements to extend maturities, to lower the net cost of debt, to secure sufficient liquidity and to push down debt to a operating levels of tax efficiency and to (inaudible) we expect to make progress on these fronts in the coming months. Slide 28. As we announced at the beginning of the month, we are very pleased to have reached an agreement with our local partner in Hondurian mobile operations which gives us full control of the business there. In turn this means that we will fully consolidate Honduras from Q3. This transaction which is a non-cash deal will also result in a major accounting re-evaluation in Q3. We have also reached agreement on the restructuring of Amnet and Navega operations in Honduras so that the ownership of the all three assets is now structured to stand between Millicom and our partner. This will better allow to pursue growth opportunities and possible synergies. Slide 29. Finally, given the strong performance in H1 and the impact of the full company addition of Honduras, we are pleased to be raising our financial guidance for the year. We now expect an EBITDA margin of around 47% up from the mid-40s and an operating free cash flow margin in the high teens up from the mid-teens. The contribution of the consolidation of Honduras in this new guidance is marginal. CapEx is expected to remain at around 700 million I would now like to hand over to Mikael for his final comments.

Thank you François-Xavier. We had a good first half and I'm pleased to say that the topline growth has accelerated from 2009. At the same time margins continued to improve, cash generation is good and we have also returned significant funds to the shareholders. We are very pleased to be increasing our guidance highlighting our confidence of sustaining this performance throughout the rest of the year. That concludes my comments and we will now be happy to take your questions. Operator, may we have the first question please?

Thanks much sir. (Operator instructions). Today's first question is coming from David Kestenbaum of Morgan Stanley, sorry Morgan Joseph, please go ahead. David Kestenbaum – Morgan Joseph: Okay thanks. Mikael can you talk about the 3G opportunity, how big do you think it could be as a percentage of your base and what is the delta you are getting in ARPU between a standard consumer and a 3G consumer today.

Yeah, okay. I think first, potential – I think there is a significant growth potential. We are seeing a slight acceleration quarter by quarter on the growth we can achieve and we are basically in the market we are experimenting with a lot of different rate plans trying to stimulate the usage of 3G data card and mobile phone on a prepaid basis so we are very optimistic that a key driver for example for returning to growth in Central America really is one of the increased usage of data services which there are a tremendous strength of demand for. In terms of ARPUs, you know, we have at this stage, you know, we have a significantly higher ARPU. In the beginning you have a much higher, the early adopters have slightly higher ARPU, but as you can see we are already now representing about 5% of recurring revenues in Latin America, so that's a very good start. David Kestenbaum – Morgan Joseph: Okay. All right, now that you have aligned your interest with your partner in Honduras, can you talk about your plans with Amnet, I know it can raise your CapEx, but do you think you're going to raise investment in that property and how aligning your interest affects it?

Well, I mean aligning interests is basically we can over time also market one brand there is something that we don't want to do over time that of course is to synergies you can do a lot of back-office synergies; from accounting, from call center, and so on. So we believe that we will be in the mid-to long-term in a stronger position to grow that business. David Kestenbaum – Morgan Joseph: Okay and then finally, can you kind of give us a hint of how much stock you have actually bought back on the purchase? François-Xavier Roger: Yes it is indicated in the press release. We have bought about $6 million of shares which is not significant amount of – we just wanted to start and initiate the program in Q2 – more to special dividend in Q2 once you do the bulk of the share buyback program in H2, so we will resume the program, we were on our way – since we announced the share buyback program in close periods. So we expect to initiate the program pretty soon. David Kestenbaum – Morgan Joseph: Okay thanks.

Thanks much Mr. Kestenbaum. Our next question today is coming from Mr. Stephen Mead of Anchor Capital Advisors. Please go ahead. Stephen Mead – Anchor Capital Advisors: Yes, hi. In Honduras in terms of loss of customers in the quarter, do you have sort of fixed on what was occurring and how much was the economy and how much was in the sense – the choice on your part in terms of mix considerations or just what was going on in those two countries?

I think from our part it is really a lot of choice, maybe a very focused on the quality of the subscriber. As you can know as an industry we don't have a common definition of subscriber basically, we treat $1 ARPU customer the same as a $25 ARPU customer. So we are not that focused on the absolute costumer but we really focus on the quality and that is again where the value-added service come in, because by being unique and offering this in the market we attract maybe few but higher ARPU customers and that is really what we want to do. So, we do this by choice. Stephen Mead – Anchor Capital Advisors: Yeah okay. And was there any discussion about sort of what evaluation was implanted by virtue you were doing in Honduras in terms of buying up a percentage that you didn’t own? François-Xavier Roger: We will – by the way we didn’t buy it, we have entered into an agreement with our partners were called under put option that allows us to fully consolidate the asset from 1st of July. It is a non-cash consideration, so we didn't pay anything for that. We will value – evaluate in our Q3 account because I mean, this agreement doesn’t turn into effect from 1st of July. What you need to understand is that you could much see the impact in terms of re-evaluation of taking Colombia, it is probably in the range of $1 billion, but – re-evaluations, apart from re-valuing, this stake in our balance sheets. So you will see the impacting of Q3 account, but we haven’t finalized the full number because we need to do a proper perfect evaluation as well. Stephen Mead – Anchor Capital Advisors: And then just bring me up to date in terms of going forward in terms of the use of free cash flow, their combination of either paying future special dividends versus buying back common and how do you make that kind of decision?

Well, the Board is making the decision of usually looking at different options as we said in the past, I mean, we are permanently looking at the consumptions, be it external growth, which can take the form of either new licensees or acquisition of existing companies, or special dividend as we did during the year as well as we can consider as well to restructure all this. So the Board is making the decision when looking at the appropriate time, so we have just decided to give us in the month of June 500 million special dividend on top of the normal dividend which was close to 160 million and so we are still left with significant amount of cash – because as of now we have $1.2 billion of cash. Stephen Mead – Anchor Capital Advisors: But what is the share buyback, is there an amount on that program or? François-Xavier Roger: We announced a few weeks ago that we will complete the share buyback program by the end of the year – by the end of 2010 for a consideration of $200 million and we have only bought as a I said earlier, only 6 million.

Thanks much Mr. Mead. We will now go to Mr. Ric Prentiss of Raymond James. Please go ahead sir. Ric Prentiss – Raymond James: Thanks. Hi guys.

Hi. Ric Prentiss – Raymond James: Hey, couple of questions for you. Lot of moving parts on the ARPU side, between currencies, the taxes, interconnect rates, value added services, 3G upside. Can kind of talk us through where you think ARPU will go in local currency terms maybe on a region basis because obviously a different penetrations in different, 3G pushes there, but just kind of thinking through the ARPU trends over the next couple of years, what your thoughts are?

As you know, we are not giving guidance on long-term guidance on ARPU but just may be give you a comments there. I mean, we very much believe and our ambition is that by strong focus on value added services, being in Latin America or Africa we can either sort of hold on to or to reduce the decline of the ARPU over time. So really the value added services tend to bring in net additional revenues. So, if we hit the customers with the right services that really – meets their unmet needs then we think we are in a very strong position to drive ARPU. In one of our markets, in South America, we actually had a positive growth on the ARPU in this quarter, at 2% in local currency, which is again the testament how with sort of strong focus on VAS and brand building, you can affect that number. So our ambition would be to try to basically hold on or to reduce the decline by that focus. I don't think we are in a position to give any more specific guidance than that for the future. Ric Prentiss – Raymond James: Sure, I understand. Just wanted to see what the upside was. And as you think of the penetration curves in wireless, the first penetration curve is just to get voice penetration? Then the second is to get the data penetration, as you're talking to –

Yes. Ric Prentiss – Raymond James: What do you think is the drivers to that? Is it handset pricing, is it the data cards? What will drive the adoption of data, do you think?

Absolutely, the connection device. Whatever you have to pay to get connected. We had a very strong increase in our mobile penetration, when the customers could buy a good handset for $25. You almost had an explanation on acceleration, because many people can afford to pay 4 or $5 a month. We believe the same thing is going to happen on the data side. There has to be an inflection point where you can buy a laptop or something like for, I don't know, $150 or something like that. So we will hit that inflection point. We haven't just seen it yet. In our markets in Latin America, you can see that consumers are trying to break that barrier – you know, three friends group together and buy a computer, and they share it, rotate it every second day or something like that. So people are trying to break that barrier. So there's a massive unmet demand, and the key hurdle is really the device cost to get started. Ric Prentiss – Raymond James: Okay, thank you.

Thank you much, sir. We'll now go to Soomit Datta of New Street Research. Please go ahead. Soomit Datta – New Street Research: Hi, yes. It's Soomit at New Street Research. Just a quick question on data revenue growth. Overall, I think revenue growth is fairly stable, but voice was a little better. Data revenue growth seemed to slow a little, and it seemed to be driven by SMS. I just wondered if you could comment on that at all – yes, sorry.

I don't think, on the SMS itself, there – possibly there are not any particular trends. It could have been that on the voice side, for example, we had more promotional offers. So I don't think quarter to quarter there is anything much to read into that. We still think there is growth in SMS, and in fact, it's a great – it is the key cornerstone to educate the customers, to use data – you know, data services, to later on graduate to more higher valued services, as you can see, which grew at 50% in local currencies. So we don't really see a trend there yet, of reduction of the growth in SMS. Soomit Datta – New Street Research: Okay, and just a quick follow-up, please. On Africa, could you say – you've talked a little bit about the potentially lower subscriber intake in the second half of the year. How should we think about that impacting revenues? Is that likely to be sort of – pretty lower end customers, who you would not have now added to the base, and therefore, not having a meaningful revenue impact? Or will it be a little bit more significant? And then, just finally, on Africa, could you quantify at all, please, the kind of provisions for taxes and custom duties in Chad, if that's meaningful? Thanks very much.

Let me start with the customer registration. In Africa, in some – in many markets, there is a quite long tale of multi-SIM users. And when you have a process that you have to register your number and your phone, typically you only do it on your primary SIM card. So we expect to lose customers in Latin America in Q3, but we don't expect any revenue impact of it, because these are very low ARPU customers who simply just use us for possibly the second or third SIM.

As far as the taxes for Chad, it's a little bit more than Chad. Chad is the main one, but in total, it's close to $5 million in total, which the bulk of it is for Chad, mainly linked to custom duties, including penalties, because custom duties, we can capitalize. The penalties, we can't.

And sorry, I have to – I apparently said Latin America, when I meant Africa, on my discussion on the registration, and low ARPU customers. Just to clarify. Soomit Datta – New Street Research: Okay, that's very helpful. Thank you.

Thank you.

Thank you much, sir. We'll now go to Mr. Sven Sköld of Swedbank. Please go ahead. Sven Sköld – Swedbank: Thank you. A few questions. First, on Honduras. Have you said anything about the price? Because I assume that we should consolidate Honduras completely. On the other hand, that consolidation also leads to a cash outflow at some point in time. Second, can you update us on potential tax regulatory changes in Central America, as you have mentioned that before? Also, for the Group, of course, if there are any changes. And third, can you discuss a little bit about CapEx for the Group for 2011? I know that's next year, but it could be interesting to hear your discussion about that. Thanks.

Okay, so for Honduras, there is no cash exchange in that transaction. What happened is that we have been granted a call option which is unconditional for a period of five years, which allows if we wanted to buy – I mean, the stake of our partner, we could do it at any time, at the pre-agreed price. If, and the (inaudible) that we granted our partner, the put option which is conditional in that case to the change of control – to a potential change of control of Millicom. So once again, there is no cash transaction in that. And what we will do is that we will revalue, in Q3, the entire value of the Hondurian property on our books at market value. Okay? So this is what happens. But it is an accounting revaluation. Regarding the tax question on Central America, we have no indication of any new tax for the time being. The only thing that we keep on recording is the full year impact of the tax it introduced last year, because some of them have been introduced at the beginning of the year, and we are still feeling the negative impact in some quarter. But there is no new tax there. There used to be a decrease in interconnection tax, in both Honduras and El Salvador, and an increase in incoming international calls, but nothing new there.

In terms of 2011 CapEx, we haven't yet started our planning cycle for 2011, because we want to have as much data as possible under our belt. So typically, we do it in October time. But in general, I would say that if we see growth opportunities, primarily around 3G, we could potentially accelerate the CapEx spend, and then we should probably also have higher growth. Sven Sköld – Swedbank: Okay, thanks.

Thank you much, Mr. Skold. We'll now go to Mr. William Miller of J.M. Hartwell. Please go ahead, sir. William Miller – J.M. Hartwell: Thanks very much. Just go with the value-added services for one more second. The Paraguay obviously has gotten a leap ahead of every other country you have. Is there something that distinguishes Paraguay, or could we say at the same time that penetration in other countries, is it a question of services, is it a question of per capita income? What is it that distinguishes Paraguay that might carry over to other countries, or might not carry over to other countries?

Yes, hi, there. There is nothing unique in Paraguay. I mean, it's a landlocked – country. It was the first market that we started with value-added services, so we very early on built a great management competence and customer insight. And it's actually our lead market for new services. So we don't really see any barrier for the other markets to achieve similar levels of value-added services in Paraguay. It's just skilled marketing, great consumer insight, and a tremendously strong management team that's producing it. So we think we can replicate that in our other Latin America markets. William Miller – J.M. Hartwell: And in Paraguay, what is it, now, about 25 or 30%?

In the high 30s. It's in the high 30s. William Miller – J.M. Hartwell: High 30s?

Yes. William Miller – J.M. Hartwell: High 30s. It would be wonderful to duplicate in other places. Second question is on Colombia. Could you tell us where we are in terms of the margins, in terms of customer growth, in terms of introducing VAS there?

Well, a key – in Colombia, a key driver for the growth really has been VAS, which starts to reach significant percentages in terms of growth. I mean, in Colombia, in local currency, we were up 20% in revenues, which is a very strong performance, if you think about that the mobile penetration is almost 90%. And in fact, our competitors have either reported flat or declining revenues. We've been successful in positioning Tigo in Colombia, to sort of – the urban, young and cool brand, and we're going to continue to do that. So a key driver there for both a margin improvement, as well as the revenue growth, has been, really, the value-added services. William Miller – J.M. Hartwell: Just one more second. The situation in Costa Rica, can you give us an update on where that might stand, and if there are any other licenses that are going to be coming up over the next 12 to 18 months anywhere?

The Costa Rica situation is still a little bit fluid. The full license conditions at this stage is not known. There are some talks about offering three licenses, so at this stage, we are just waiting for the final conditions, and then we will put the business plan together, and if it looks attractive, we would participate. If not, then we would not. I think in general, we are very focused on growth in our markets. We think there is tremendous opportunity and lots to do. Any new license or any expansion purely has to be opportunistic, and not strategic, and has to satisfy the criteria that we can within a reasonable period become number one or number two in that market, because in-market scale really drives long-term profitability. William Miller – J.M. Hartwell: And what's the situation currently with VimpelCom and their acquisition of your subsidiary in Asia?

Well, that's something you really have to ask VimpelCom, because basically, from our side, we have satisfied all the conditions in the sales agreement. We are still determined to sell this business, and so it's still an ongoing process. William Miller – J.M. Hartwell: Great. Thank you very much. François-Xavier Roger: Thank you.

Thanks much, Mr. Miller. We'll now go to Mr. James Rivett of Citi. Please go ahead. James Rivett – Citi: Good morning, guys. François-Xavier Roger: Good morning. James Rivett – Citi: Two questions, if I can. The first is on Senegal. Can you give us an update where we are in terms of that whole regulatory government dispute, if anything has changed in the recent past? And the second question is on just Africa, more broadly. We have now seen Bharti's plans for what they intend to do with Zain, is there anything within that that worries you, surprises you, that we should sort of think about? Thank you.

Okay, let me have the Senegal, first. There's no news, really. The arbitration panel in Washington will come up with a ruling towards the end of July that basically would set the jurisdiction for hearing the claim, so we are waiting for that decision. In the meanwhile, the business has continued to grow, albeit at the slower levels, because we are somewhat constrained on our CapEx investments and new initiatives, but it's basically moving forward at a reasonable pace. So we are waiting for this arbitration ruling that should come out sometime – you know, by the end of July. In terms of Bharti's plans, we read all the releases, and so on. The only thing I would like to point out there is if you look at the – basically rate cards on the African rates, they might look to be ten times the – whatever is reported, ten times the Indian levels. But in fact, the effective on-net price per minute is actually significantly lower than the rate card. So probably – I mean, in some Africa markets, we are looking at $0.03 to $0.04 on that pricing, generating about 70 to 90 minutes. We don't believe that Africa, being a high cost market, has the same elasticity and the need to talk as India, where basically with those low, or even lower rates, the customers talk up to 400 minutes. We don't see it happening. I don't believe – we don't believe Bharti can fully replicate that model, because India – unlike India, Africa is a high cost environment, from everything – from employees, to energy, and so on. So we have a very good track record of understanding elasticity. We have, over the last years, let down our effective rates in Africa, and we feel very comfortable that we know how to play that game, and we will be a very strong competitor party. On top of that, as you know, we are very cost effective and efficient, which is a key platform for long-term success in this industry. James Rivett – Citi: Absolutely. Could I just ask a very quick follow-up? I mean, some of the Bharti releases talked about some of the things that you guys are already doing, you know, tower sharing, and outsourcing. Can you give us an update just on two things? First of all, how much did the tower deal that you did in Ghana help margins in Africa in the second quarter? And how close are we to seeing further of these deals happening within that market, or in other countries as well?

Okay. As far as the tower deal in Ghana is concerned, we signed that agreement in Q1, and it takes time. We need to close, and we did the first closing, because there will be several closings, and we expect to close about 80% of the deal, or 85% of the deal, by the end of the year. We have already transferred 270 towers in Q2, out of 792 in total, for which we got a cash consideration of $12 million in Q2. So it didn't, since we closed in the quarter, per Q2, it did not impact materially the EBITDA margin during the quarter. But it will have a positive impact going forward on our EBITDA margin in Ghana. We are currently working on similar deals, both in Africa and Latin America, and we expect to be able to announce other deals before the end of the year. James Rivett – Citi: That's perfect. Thank you.

Thanks much, Mr. Rivett. We'll now to go Mr. Peter Nielsen of Cheuvreux. Please go ahead, sir. Peter Nielsen – Cheuvreux: (inaudible).

Mr. Nielsen, your line is open, sir. Mr. Nielsen has just withdrawn his question. We'll go to Mr. Kevin Roe of Roe Equity Research. Please go ahead. Kevin Roe – Roe Equity Research: Thank you. A couple questions. Now that the Honduras transaction is complete, can you comment on your desire or the potential to roll up minority partners in, for instance, Colombia or Guatemala?

First of all, in both instances, as was the case in Honduras as well, we are very happy to have partners, especially when they are contributing to the business, which is the case in most of the instances, and supporting the development of the business. Can we enter into the same kind of agreement, potentially? Yes. I mean, this is a possibility. I think that if we look at Honduras, the fact that we fully consolidated the asset from –, actually reflects what happens, which is that we are managing the entire business today. So, we will enter into similar transactions. There is a possibility that it happens in the future. But we need to – in any kind of transaction of this venue [ph], you need to reach an agreement with the other party. Kevin Roe – Roe Equity Research: Of course. Switching to Africa, DRC, the net add figure for the quarter, I believe it was the biggest number we've seen in about two years? What drove the acceleration there in sub growth in DRC, and what's your take on that market for the rest of the year?

I think we were simply faster and smarter in organizing around the customer registration, compared to our competitors. So we really got off the block faster, and that really meant that we had a process in place. We had places where people could go for the registration, and that allowed us to get ahead in the market. Subsequently, the competitors have copied our setup, so we believe possibly going forward, we will not have as strong subscriber growth as we had in this quarter. Kevin Roe – Roe Equity Research: Thank you.

In general, we are possibly, in the DRC, we have a great setup, we are focusing on the – Congo territory, where the fact we arrived number one, it's the economic heart of DRC. And so, we will continue to work there on marketing, distribution and new services. Kevin Roe – Roe Equity Research: Great. Thank you.

Thanks much, Mr. Roe. We'll now go to Mr. Jean-Charles Lemardeley of JPMorgan. Please go ahead, sir. Jean-Charles Lemardeley – JPMorgan: Yes, hello. Just to go back on Africa for a minute. There's a few markets where it looks like you haven't – there's been a bit of, maybe, a stagnation, in terms of local currency revenues in the first half of the year. I think – you know, Senegal, we know the difficulty there, but a bit of a slowdown in Chad in second quarter, Mauritius is going down. And then Ghana, if I'm not mistaken, you had a provision in the first quarter that simulated sequential growth in the second quarter again. Can you go maybe over those African markets one by one, to describe what the trends are? And then, on the issue of infrastructure sharing, just – I guess, one of the – how much – or is there – how much can be done by Bharti – you say, well, how much of a bottleneck Bharti will face in the lack of available backbone infrastructure to share in these markets? Or do you see progress on that front as well, as on the tower sharing side? And then, maybe, if you can talk about what you're doing to bring down the barriers in terms of handset prices? We've seen other operators brand their own cheap smartphones and feature phones. Is that something that you're looking at doing as well?

Okay, well, let me start with the infrastructure question. Invest, yes. Basically, as Millicom, we basically have an interest to outsource or share our passive infrastructure. That would be tower, and also some fiber properties. We have an agreement in Tanzania to share a fiber network, national fiber network, with some of our competitors, so that will be a typical fiber transaction. You probably could see more of them in the future. In terms of – sort of commenting market by market in Africa, I would just say that we have a growth focus, a growth quarter by quarter, where it's a little bit based on our promotional activities and competitive response. I think we, in general, we see growth in all our markets. In Chad, we had some significant pricing moves, the full elasticity of which hasn't yet really come through, so we hope to see that happening more in the Q3 and Q4. Jean-Charles Lemardeley – JPMorgan: What about Ghana? What's happening in Ghana?

Well, it's basically a competitive situation, as we had. I think we've been quite good that I think we have taken the lion's share of the new subscribers in the market for some time, and we feel we are doing well there. I mean, we see ourselves being able to continue to grow in that market. Jean-Charles Lemardeley – JPMorgan: There was no one-off expense this quarter, right? Or, one-off charge against revenues, as was the case in the first quarter?

In Q1, we had some in India now, but there was nothing, no, in Q2. Talking about Senegal, one of the reasons why we have a low growth in Senegal is that we lost the bulk of the entire international business that we had. It doesn't really matter to us, simply speaking, because it was a zero margin business, so the fact that we are growing, I think at 4%, in local currency during the quarter, is not good proxy for the actual growth. But excluding this international traffic that we lost, I mean, our growth is low double digits. Jean-Charles Lemardeley – JPMorgan: Okay. And on the handsets, maybe on –

Yes, I think in general, handset pricing have been falling. We have not yet been active in branding of handsets. There is an ample supply of handsets in the market, so at this stage of the evolution, that seems to be working for us. Jean-Charles Lemardeley – JPMorgan: We see from your competitors, if I'm not mistaken, start to provide those branded feature phones – you know, to have Blackberry-like phones manufactured in Korea, I think for the MTN case. Is that something you're looking at in the next 12 months or so?

Well, if it would be appropriate, anything that would drive the business, yes, we would do that. Jean-Charles Lemardeley – JPMorgan: Okay, can you give us maybe a quick update on financial services, and progress on the platforms there?

Yes, we have basically a test market going on in Paraguay. I think it's a little bit early days, so at this stage, we are not prepared to share that data. But we open up the opportunity to transfer funds in the market to a number of our customer office points, and we're going to then month by month expand that. So that's a good start, and basically, we hope to be up and running with this in-market transfer services, in three or four markets more in the second half of this year. But it's too early to really talk about the result at this stage. Just a quick reminder there, in the early days, and the mid days, it's more of a question probably of creating loyalty and reduce churn, which of course has a tremendous saving built in there, and long-term drive significant revenues from this business. Jean-Charles Lemardeley – JPMorgan: Okay. Thank you very much.

Thank you.

Thanks much, sir. We'll now go to Mr. Sean Gardiner of Morgan Stanley. Please go ahead, sir. Sean Gardiner – Morgan Stanley: Yes, thanks. I'll just follow on from Jean-Charles' question. This 5% growth in Ghana, in revenues year on year, what do you need to do to reaccelerate that growth rate? That's the first question. Because you say you're doing well on subscribers, but not getting the revenue growth. And then secondly, on Tanzania, if you could just talk about where you are on usage at the moment by subscriber, and maybe if you can help us understand in a bit more detail some of the price cuts you've put through in the last year.

Yes, I – just commenting on the price cuts, first. Of course, we believe that pricing management is a real competitive edge, and anything from understanding elasticity and so on. So we are not very inclined to share this in a public forum with our competitors that could have access to. But it's fair to say that we've been successful in sort of step by step, reducing the effective rate that customers pay by various initiatives, like sort of, all you can eat in half an hour, unlimited call on-nets, and so on. So there's a lot of, sort of technical initiatives, that are put in place to drive down that affordability. Sean Gardiner – Morgan Stanley: And whereabouts is usage in Tanzania at the moment, versus where it was a year ago? How much has it gone up?

We don't disclose the minutes of use, because there's a lot of volatility around that. But we – basically, what our aim is, in all our markets, is to drive the on-net minutes, because you have a significant – those minutes come with 100% gross margin, compared to an across-net minute, where you probably, normally have an impact on net cost. So we spend a lot of effort in stimulating on-net usage, which typically then leads to higher minutes. Sean Gardiner – Morgan Stanley: And then, on the question on Ghana, to get this growth rate up again, how much do you think is because of the market growing slower, versus you losing revenue share?

I think in Ghana, we just have to do what we do in all the other markets. I don't think there is anything specific.

But we have gained market share, at least subscriber market share, in Q2. We are taking a larger share of the net adds than our competitors. Sean Gardiner – Morgan Stanley: But the revenue share, I suppose, is more important. Do you think you've gained revenue share as well, or do you think that you've lost some revenue share?

Well, we have to see what our competitors report, if they would break that out. But we have a very strong number two position. We have either held or gained subscriber market shares, so we have to see when the – when our competitors report, if they break out Ghana, how we contrast against their performance. Sean Gardiner – Morgan Stanley: And maybe just on your EBITDA margin guidance. How much of this 200 or so basis point increase relates to the Honduras consolidation?

Hardly anything. I mean, it's less than 10% of the total. Sean Gardiner – Morgan Stanley: Less than 10% of the increase –

– 20 basis points out of, I think – 20 basis points out of the 200. So the bulk of it is due to the business performance, both in H1, and what we expect to deliver in H2. Sean Gardiner – Morgan Stanley: Okay. Thank you very much. Thanks.

Thanks much, sir. We'll now go to Mr. Stefan Gauffin of Nordea Bank. Please go ahead. Stefan Gauffin – Nordea Bank: Yes, hello. Stefan Gauffin at Nordea. First, if you can explain something that I don't fully understand, and that's regarding the subscriber intake in Africa, where you mention in the report that intake in Africa was positively affected by that customers in Africa signed up before the mandatory registration in Ghana and Tanzania started. First, isn't all customers required to register? And secondly, can you somehow quantify the magnitude of this effect?

Yes, there is, because we are not in full control of every retail point that would sign up a customer, so maybe some of the deal has basically just signed up a customer, rather than asking them to register. So we think there was an increase in customer registration because of that. Naturally, these people will be cut off once we put in place all the mandatory regulatory – mandatory disciplines that we have been asked to do. So we had a slight increase of customer uptake on points which we can't control. Stefan Gauffin – Nordea Bank: Okay. Secondly, also looking at subscriber intake now in Central America, which was rather weak, with negative subscriber intake in El Salvador and Honduras, obviously, a low subscriber intake also boosts the EBITDA margin. Given your focus on the high ARPU customers, and your raised EBITDA margin guidance, should we expect continued low subscriber intake in Central America?

Yes, I believe so. As I said, we are focused on the high value customers, so all of the numbers might not be many compared to the full customer base. We are making very good progress on 3G. Mobile customer and 3G data card customer – that's where our focus is. So we are not that interested in going for the nth subscriber there out in the market. Focus on value-added services to attract – A, to maintain the people we have by up [ph] their ARPU, and attract the best customers from our competitors. Stefan Gauffin – Nordea Bank: Okay, thank you.

You're welcome.

Thanks much, sir. We'll now go to Lena Osterberg of Carnegie. Please go ahead. Lena Osterberg – Carnegie Investment Bank: Yes, good afternoon. I was wondering, how do you prepare for Bharti's launch? Are there any sort of – how do you tie up your customers and make them stay? Should we expect any adjustment to your rate plans ahead of that? And also, sales and marketing expense. Should we expect that to go up, or are you comfortable that the current levels which you have will suffice? And then, also, I was wondering, Honduras – you will do a revaluation, as I understand it, now, in Q3, on your balance sheet. And I assume in five years' time, when the option – the put option agreement expires, you would then take it out again? Just to clarify how that would work. And then also, you mentioned something, that you – my understanding was that you're close to maybe signing something on them, to facilitate – to push down debt on a local level. Maybe if you could say something more about that, and also, about the rates you're seeing currently.

Okay, let me start with the Bharti question. I don't think we want to disclose how we want to respond to the Bharti's entry into the marketplace. Sufficient to say, of course, it's about satisfying the customer needs, and thoroughly understand what motivates our customers, what services they appreciate. We think we have a lead on that one, because the same business they inherited wasn't in the same evolution stage as ours. And you know, as I said, we are very good at understanding elasticity. We know what it takes to build capacity, so we feel very comfortable that we can actually continue to grow our positions in Latin America and in Africa – Lena Osterberg – Carnegie Investment Bank: Do you believe that your sales and marketing expense will go up, due to this?

I think it's too early to comment on that. It's not always how much money you spend, it's how you spend it. Lena Osterberg – Carnegie Investment Bank: Okay.

In Honduras, we entered into a five year put and call option, so the intention is to renew it, where it's something that can be renewed, and it's my opinion, highly likely to happen. If, as you said, it did not happen, it will not crystallize any depreciation of the asset, due to the fact that this transaction that we just entered into is a triggering event in order to revalue the Hondurian asset in our books to market value. But if we don't renew the call and put option, then it's not going to be a triggering event to reduce the value, because the value – the market value of the asset will remain the same. Regarding the debt pushdown, it's a permanent effort that we're carrying out, trying to push down debt as much as we can. By the way, you may have seen that, for example, in the quarter, our gross debt has increased by close to $200 million, which means that we are continuously doing it. We are working on some of the options, and we will certainly come back to you with additional projects to push down the debt in Q3 and Q4. But it's a permanent effort, as I said. Lena Osterberg – Carnegie Investment Bank: Just to ask you, on that put call option again, so what you – you're revaluing it to market value, the 50% stake they actually own?

No, it's not a 50% asset. It's a 33% stake, and we revalue the entire value of the property. Lena Osterberg – Carnegie Investment Bank: Okay, but if you take on the whole property's market value, and you don't renew the option, then you would have to reduce it, no?

No. No, we don't have – according to IFRS rules, we don't need to revalue it down, if we terminate the put and call option. That's according to IFRS rules. Just – there is one question I didn't answer to you, regarding the interest rate for the new financing? Lena Osterberg – Carnegie Investment Bank: Yes?

It depends very much from one type of financing to the other, for example, if we go to bank financing today, it depends, if you provide the guarantee – I mean, the Millicom holding company down to (inaudible), it depends if it is a financing coming from a direct financial institution, which is usually subsidized to financing for the structure in emerging countries. Let's say that we can say that for a normal bank financing with a guarantee, we can get financing around, I would say, 8%, but it depends as well on the maturity, so it depends on a certain number of factors. Lena Osterberg – Carnegie Investment Bank: So, but if you get financing locally at 8%, would it not make sense for you to redeem the high yield bond?

That's something that we are considering. This could happen. This is a possibility. We have been saying that for some time, and this is something that the Board will review in due time. Lena Osterberg – Carnegie Investment Bank: Okay. Thank you very much.

Thank you.

We'll now go to Mr. Andreas Joelsson of SEB Enskilda. Please go ahead. Andreas Joelsson – SEB Enskilda: Good afternoon. Just one question. You mentioned earlier that you tried to catch onto finding external growth, and just wondered if there are a lot of alternatives out there for potential acquisitions, and if you can comment something about valuation on potential objects, how that has changed lately. Thank you.

Yes, as I said, our main focus is to grow in the markets where we are in. We think we have lots of opportunities there, and barely started with the new innovation and new services. Any acquisition, we are looking at a purely opportunistic – has to be number one or number two position within a reasonable timeframe, and in terms of returns, we are looking at the return on investment capital that would exceed our – back. Andreas Joelsson – SEB Enskilda: Thanks.

Welcome.

Thanks much, sir. We'll now go to Mr. Jan Dworsky of Handelsbanken. Please go ahead. Jan Dworsky – Handelsbanken Capital Markets: Thank you. Just a clarification question on Ghana, the tower sharing. The $12 million – is that including an operating free cash flow, and how much?

It is $12 million out of the $45 million cash flow operating level that we generated in Q2, so out of the $45 million, $12 million is coming from this deal for the tower in Ghana. Jan Dworsky – Handelsbanken Capital Markets: And assuming that it fully closes by year-end, how much will be the cash?

When we – we did $272 million out of $692 million, so you can do the calculation, although not all of them are valued at exactly the same price. But it should be fairly similar in terms of cost –. Jan Dworsky – Handelsbanken Capital Markets: Okay, thank you.

So there will be, obviously, more cash coming. Jan Dworsky – Handelsbanken Capital Markets: Okay, thank you.

Thanks much, Mr. Dworsky. And I have a follow-up question from Mr. Peter Nielsen of Cheuvreux. Please go ahead, sir. Peter Nielsen – Cheuvreux: Thanks. Yes, this time, just one question. Could you tell me, why is depreciation going down on a sequential basis at this time in your progress? Thank you.

The main reason why depreciation is going down is the fact that we extended the depreciation – the life of towers from 10 to 15 years in order to align with industry practice. We were at 10 years, while the entire industry was at 15 years, so we decided to align our depreciation period for towers to that of the industry. That was the main factor. The fact that we are spending somewhat – a little bit less in CapEx than we used to is certainly contributing to it, as well. But the main factor is the extension of the depreciation life, the deprecation period, for towers. Peter Nielsen – Cheuvreux: Thank you.

Thank you, Mr. Nielsen. We have another follow-up question from Mr. Soomit Datta of New Street Research. Please go ahead. Soomit Datta – New Street Research: Hi. Could I just go back to a comment you were making on pricing in Africa, just earlier on the call? I think you were saying, average pricing is closer to $0.03 to $0.04 per minute, and because you are presumably offering very cheap on that pricing. I'm guessing that sort of level must be below the interconnect rates in almost all the countries in Africa. I just wondered whether there was any regulatory problems on the horizon, given your pricing below interconnect, and it's almost like the opposite situation to that which you were in Colombia, where the – yes, sorry, Colombia, where the regulators stepped in and stopped AMX's pricing. So I just wondered if you could foresee a similar situation in Africa.

Yes, the pricing I referred to was the on-net, effective on-net pricing. And I also referred only to certain markets. This is not valid for all Latin America markets at this point of time. But it's basically the on-net tariff, effective on-net tariff, and some markets are at that level. Soomit Datta – New Street Research: And there are no regulators looking to – sort of prevent you pricing on that very aggressively, particularly in light of Bharti's entrance?

Not so far. I think most regulators would welcome that, rather than work against that. Soomit Datta – New Street Research: Okay, thanks.

You're welcome.

Thank you much, sir. As we have no further questions, I'd like to turn the conference back over to the organizers for any additional or closing remarks.