Millicom International Cellular S.A. (TIGO) Q1 2013 Earnings Report, Transcript and Summary

Good morning everyone. My name is Justine Dimovic. I am in-charge of Investor Relations at Millicom. I would like to welcome you all to our 2013 Capital Markets Day. I would like to remind you that the Safe Harbor statement will apply to these presentations and the subsequent Q&A sessions of course. What I would like to remind you as well when we are about logistics that if you need to get access to the WiFi network, you can do so with the codes that are on the booklets that you have on your chairs or appearing now on the screen. That’s it for the logistic (inaudible) I would like to say. Now if we turn to the agenda for today. We will start with a strategic update by our President and CEO, Hans-Holger Albrecht, proving you with the core elements of Millicom growth and how they will fit together. Then we will take some Q&A, short Q&A session. Then we’ll move after to – after a coffee break, we’ll move into a session with Mobile and Cable and Digital Media Updates by Mario Zanotti and Martin Lewerth, our EVP for Operations in Home and Digital Media. Then we are going to pause again for Q&A session, joint Q&A. And after that, we are going to break out for lunch. In the afternoon, Anders Nilsson, our EVP for Commerce and Services will take you through the opportunities in our market in Mobile Financial Services and Online. Then we are going again to pause for Q&A and a coffee break, and finish with the finance update basically providing you with all the numbers behind the plan. So without further delay, I would like to hand over to our President and CEO, Mr. Hans-Holger Albrecht.

Thank you, Justine, and good morning, welcome everyone to the Capital Markets Day of Millicom. For me it’s not the first Capital Markets Day obviously but, it is the first for Millicom. It’s a very important one for us ultimately because we’re going to try to demonstrate and will demonstrate today where do we see the company heading, and what’s the kind of the targets we have set for the next coming years and what kind of ambitions we have as an management team in the future. But maybe it’s a good start because I am new, I am new to the company, I am new to a few of you, a lot of you, some people and obviously but to most people I am new. To give you a bit of background about myself or more about what’s my motivation, why did I join Millicom, what’s the kind of things which drives me really on the daily work? And I think there are three main things which was for me motivation to join the company. I think the first one is Millicom in itself is a very exciting opportunity coming from the outside and being now for a couple of months in there. You really don’t see many companies like Millicom. It’s interesting because it’s a kind of trend shift in the industry, things are changing fast and rapidly. We can see the migration to new kind of forms like from voice to data. We see the integration of new services like music services, we have internet services and support and so forth, so it is a very trendsetting industry, it’s a very changing industry which is always fun of course for a CEO to manage. I think the second point which is very strong as well is that we are in very dynamic markets. We are in emerging markets or whatever you want to call them. Africa and Latin America are strong and have a strong growth portfolio and opportunities going forward. So the markets in itself are very exciting and interesting as well. And last but not least which is always dream of course coming from a European company to a company in Latin America and Africa mainly. You see so many opportunities ahead of you, you can manage. Normally in Western Europe, it’s hard to find opportunities. Here you have to be the opposite, you have to be disciplined, what do you do and what you don’t do, and where do you allocate time and money to get the returns. So that’s the first motivation, very exciting and great of a company. Secondly, of course it’s a challenging opportunities now. I mean clearly it is only to operational and management attention which is the (inaudible) as well obviously. They have challenges short-term as you have seen for example in the fourth quarter results, and we’re going to talk about some of them during the day as well. So this is one thing, the other one is that we change the model from a simple voice model to a much more complex data integrated fixed mobile internet and services model which always is interesting. And last but not least on the operational side of new CEO [ph] again quite exciting. It demands the kind of new closer in the company. It demands a kind of new way how we do business and it demands kind of long-term vision and adequate, ever seeing in that respect is quite exciting. Well by the way, exactly the same when I took over my last company MTG 10 years ago. And then there is a third point because when you have challenges and you have opportunities we need the foundation to do the business and you need to do it right, so you need two things mainly or three things. First, you need to Board to be very supportive and you need the shareholder in the large shareholder particularly as well to be very supportive to allow us to chase those opportunities, to invest in those kind of business and to built a kind of long-term and sustainable business, because it takes sometimes strong motivation or strong passion as well from the Board for example to take decisions and sometimes it takes investments to us before you see the kind of returns you have. The second thing is the foundation which is very strong as well, that Millicom has a uniquely I am always saying. It’s a very entrepreneurial company. If you go out to the countries and see the people there, it’s very strong, so the combination of the culture, the attitude and the DNA is very strong. So those three things really been the kind of motivation every day and will give me in the future that it is a very exciting opportunity and exciting job. However when we started, when I joined the company, we said, okay let's take a minute to pause, that’s where we stand – look where we stand, what are the kind of those things and challenges we have at hand. We knew there are three things coming up for us as a company and I guess as an industry. The first thing is the facts and the assumptions we had in the past are changing, the world is changing in the respect. We knew exactly as well that the way ahead of us will change, so we have to change the kind of root we have been setting. And if you don’t change the root, there may be a problem for us or for any other company or for the industry. And just as a teaser something like what would happen to us or the companies in this sector. [Video Presentation] Can you play the next movie? Because that should not have this effect [ph]. [Video Presentation] Okay. I’m going to show you at the end, because it’s a funny movie, but you can find out. This is the one we see with the ship where you can find it in the mean time. But let me run through the presentation, I will show you the teaser later. That is what you have seen as a company in the past. If you look at Millicom, it has been a very strong growth company. We had a kind of coverage of 47 million mobile customers in the past. We have been normally in positions which have been number one or two in 12 out of 13 markets. We had rolled out cable in five countries. We are a company very cash generative and normally we had best-in-class margin when it comes to our core business. However, as you have seen I think the trend is changing a bit. We have seen three fundamental changes if you look at the business in Millicom. If you look at the industry as such which is going to drive I think the kind of performance going forward. First thing is the kind of change in the voice business we had which is the majority of our business in the past. You have seen the kind of slowdown in voice growth throughout 2012. We have seen decline of the voice growth in Q4. So there is an acceleration of the mobile out of the voice business which has been the big one going to data and other business. Second of course is changing the way we do the business. We have to enter new things like handset subsidies. We have to be focused more on postpaid customers, and as I mentioned here, we have to be focused on data customers as well. So the model is changing there. And thirdly obviously the consumer demands, different kind of services new apps, new services and features like music and those kind of elements. And that is pretty carried from the outside or partly from the outside as a new CEO, this is the kind of trend you see, this trend is in effect, I don’t think it’s a major breaking news to anyone. So for us as a management team, as a new management team there was more the kind of sweet core questions what do we do with it, how do we grow the mobile business in the future, where can we find new areas of growth in terms of the business we are in, and how do we change the way we do the business in terms of people, in terms of cost and in terms of processes. Those are the three fundamental questions we had at the beginning when we tried to do find our strategy. That’s the trend. The good news however is as I mentioned at the beginning of it as well as when you look at my motivations. We are in markets which are very attractive still. So if you look at those data out of our own markets and this is more public data, it’s not our own assumptions only. You can see that we believe mobile broadband subscribers will go up nearly 100% in the next three years. You can see the MFS will go most likely over 300% in the next years. You can see relatively subscribers growing at least 45% over the next three years and we are supported by strong market in terms of GDP growth and population growth particularly in Africa for example which can be a key driver. So the trends are changing in the industry obviously the markets we are in – the market dynamics are very supportive. But I think the most important feature for us and the most important challenge for us as well is that the customer behavior is changing or the consumer demands are changing quite radical in the future. You can see from the old business we had, it was just a very simply model. We sold phones, smaller phones to people, feature phones using voice, SMS that was this prepaid in most cases. So not a kind of very complicated model. Today obviously the consumer demand is more, particularly in the more developed market but even in the markets in Africa for example, we can see that the demand is higher. They want to have not only mobile and voice access and data access, they want to have different kind of handsets, they want to have fixed and mobile. They want to have content services, commerce services and whatever you can imagine you can do. So the demand and the kind of anticipation of the consumer is changing our markets quite rapidly as well. (inaudible) because clearly when a telecom company wants to do a bit more, I had to do more in this respect, but at the same time in every kind of risk, there is an opportunity as well because there is three things if you do it right which will change and transform the business going forward as well. A, if you do more of those things it increases strictness of our customers, so you’re going to have a better performance when it comes to churn. B, if it takes the consumer more holistic which we do in the future, you can have a higher share of his wallet. And three, which is a major difference I am going to come back in a second to this one, to the Western European markets for example. Three, in our markets we believe we’re going to be the provider of the payment solutions for most of those kind of services. So it is changing. It’s a management issue, but it’s a lot of opportunities to improve the business as well. And all of this what we have in the future will be hold together by two things, the customer as I mentioned and the second thing even more important obviously the brand. For us, the brand becomes more and more kind of central point. We have a very strong brand. Of course CEOs always believe they have the best brand in the world but we have a strong brand in our markets. So we are pretty strong we believe, but even there as I said we have to migrate for taking evolution when it comes to Tigo brand compared to the past. I think you can read yourself I think that the key function and the key message we want to communicate is that we go from a pure telecom brand as I demonstrated earlier to a digitalized brand, putting the kind of customer centric approach and giving them all kind of services they need in a very efficient and very helpful and a very effective way. And what I like with this kind of brand position we have developed with the teams and the GMs and our company, it has two aspects. There is a digital aspect, which is the technology part we are, which is our core business. When it’s a lifestyle aspect as well which puts it more customer centric than it has been in the past. And the good news or the good news but the good point is this is not a new CEO bringing completely new kind of idea of what we are doing. What we are doing here really is just a simple evolution, it’s not a revolution, it’s an evolution, what has been in the company and has been done by previous management and the people in the field. So it’s nothing which is new, that’s the kind of key point it’s just that we position it clearer and better than in the past, because if you look the Tigo – when I look at Tigo when I travel to all the countries and talk to the people, there have been two key things I think what Tigo stands for and then Millicom stands for. So the Tigo stands for beyond the pure telecom business. Tigo has been always in the telecom sector in most of our markets has been always an enabler for people. So with the telecom situation, with the mobile phones and all the kind of services we’re offering, we have enabled people to do something with that [ph] and do different, so it’s completely – well it’s different than you have it for example in Western European markets, so the enabler position is something which is different and then the second point is as an industry and Tigo as well in our markets in particular, we have been always transforming society. So we have been given them first access to voice and we have been given excess to data, then we give them access to banking. So it’s a DNA in the company which is not purely based around technology or the kind of mobile business. So that’s the brand and that is what we see as a kind of challenges. What does it mean in real life when it comes to the strategy? First of all, the guy is going to talk about the whole day how we do it. So it’s not just we show out a figure, we’re going to be very precise, this is the way per unit per pillar we have in terms of growth. How are we going to deliver the growth? The second point is (inaudible) is of course is not linear like always in business you have to do the investments first so it’s a different curves in different cycles throughout the year, which is important as well. And particular in 2013, obviously we are in the transition period. We have to do the investments. We have to re-sched some of the business. We have to invest in the new activities and therefore 2013 in particular will be different year than the following years. But as I said the idea is to run you through how we do it, what we do and what – how we achieve those kind of results and targets we have and you’re going to see – and you can just read yourself, at the end of the day, is it aggressive, it is conservative or is it realistic, as I said we feel comfortable, because on top we can't do more as well which is not in the plan except for the UNE transaction I mentioned. So we’re going to still look at M&A opportunities in our markets. The prime goal is consolidation when it comes to mobile. We’re going to look for opportunities of course on the fixed side, but more on the smaller scale side, so that is something we’re going to look at. And then we have of course more size of positions when it comes to the cable business and the digital business but they are not very strong. We’re going to keep and transform we talk about at the end of the day we’re going to keep the strict financial discipline in terms of return targets and how we approach those kind of things. But M&A activity we would do comes on top of the $9 billion target we have been giving out. We look at footprint expansion as was said you’re going to look for mobile activities, but there is not much left to be fair as well. We’re going to look for the digital opportunities and we look for the clear opportunities. We haven't put in any figure as well when it comes to the online part, just to give you the kind of safetyness and confidence we are not building all of a sudden our strategy and our targets on the explosion of our rapid business. We are very optimistic when it comes to the business. We’re going to talk about this endings [ph] as well, but just to be on the safe side, we won't say we’re going to have an e-commerce business which is going to deliver $3 billion business 85% of our growth, we took it completely out. And then again you can make adjustment call at the end of the day. If you believe in it, if you see the opportunity or if you think it’s more risky and don’t want to put any targets at this stage. And last but not least there are more smaller things we’re going to do as well in terms of new additional initiatives like the setting screen like alternative solution and so forth but again we kept them or we kept it very simple when it comes to the targets and the business we are running. That is about the strategy. I think the other point which is important for me or which is normally the most important point for me when I look at companies and business and performances, you can have the best strategy and you can have the best advising numbers. At the end of the day all will burst onto execution. So execution is a kind of key point and therefore we work this is kind of pyramid asset management team today and going forward. So we have to develop a strategy, now we adjusted the organization in terms of people, in terms of skill set in terms of the headquarter. We’re changing or we are developing, we’re training our people to be ready as far as in terms of a kind of new challenges we have in terms of its skill set, in terms of expertise. We have to bring new people in as well, which you have seen for example quietly when it comes to the top management team. But it was a necessity. And last but not least which is the most important point for me always when you want to run a successful business you have to find a very strong culture in the company. And the Millicom and Tigo is or has and had been and will be always company with a very strong DNA. I can only invite you, as I said to visit some of our markets, go at seven o’clock in the morning to sales meeting and with all the sales people. It is quite impressive. I’ve never seen something like that in the past. So the people and the culture is a kind of foundation we have. And that hasn’t changed, it should give us confidence, a new confidence that we’re going to execute well on the strategy we had been lying out. Just to assure you as well as I said how we change the top management team and why we change it, it’s new challenges we are facing. In the old days it was enough to have a very small room. Now which is kind of complexity and the new business, we have a larger management group. Most of them going to talk today, some of them are going to talk today, some of them won't because we don’t enough time. But it demonstrates two things, they are very experienced. They have been long in this industry and we have a very clear focus, who is doing what in order to execute, so we put top people on the most important projects instead of having too small and too few people. And the other thing which is just to illustrate as well as on the top management team, we just got back our Employee Satisfaction Research from Towers Watson, where you can see that Millicom or the Millicom people outperform all peer groups when it comes to employee satisfaction and even most of the kind of top companies in the world. So on the people side, on the management side I think we are – we have a strong foundation, a strong basis to push up our business. So that concludes my introduction. Just to repeat, we are changing as an industry. We have to change as a company. We have laid all the kind of new strategy which is a bit more balanced, which is a kind of five pillar approach. We had to do it. And maybe the movie is now ready, if you wouldn’t have done this, it may have happened to the company. [Video Presentation] It doesn’t mean it was a Millicom ship, but anyhow. We are ready now for questions if you want to do so. I would however say let's focus on broader questions because most of the detailed questions you’re going to get probably during the day and then we have a long Q&A session at the end. Laurie Fitzjohn – Citigroup: Thank you.

If you can just please state your name and company? Laurie Fitzjohn – Citigroup: Thank you. It’s Laurie Fitzjohn from Citigroup. First is just on the progression kind of growth. Given the importance of the MFS and your $9 billion target, should we assume that the organic progression is back-end loaded towards ’17 as MFS becomes a bigger portion of the group? Secondly, just on M&A and I realized you have said to folks is mobile cable, but can you talk about the likelihood of further M&A within the online space, and how significant this might be given a key concern is for the significant deals in this space? And then just very shortly just to confirm the targets rule, it’s clearly online the $9 billion, the 35% (inaudible) that’s excluding online? Thanks.

Yes. If you come to the first point, again we’re going to give the kind of EBITDA target per unit during the day. It’s not going to be linear, it’s of course on the MFS side you’re going to see faster growth, because we’re going to roll overall [ph] kind of business nowadays, on the cable side it depends on the M&A activities we do in the kind of Greenfield opportunities we are launching. So it’s not going to be always linear, it’s going to be growing more towards the end of this year as well but it doesn’t mean as I said everything comes – and something (inaudible) that’s what the industry like, like it is in the first round of budgets because normally from GMs in the world. So it is not linear, but it’s not back-loaded either in that respect. And then have a look at the presentation during the day. If it comes to the M&A side, as I said the philosophy is we’re going to look for consolidation opportunities, particularly for the mobile side and markets we are in. We don’t seem to be plan at this stage any kind of Greenfield or new market opportunities. We’re going to look for cable assets in the markets, we have mobile obviously we assume the potential and outside the markets where we don’t have mobile. If again opportunistic it makes sense. And when it comes to the internet space, I think we are pretty well covered right now with our working investment. There is no need for any other investments. We’re going to have smaller sized investments like we do in the SMS service for example in Africa and those kind of things, but they are very small and they may sometimes be over $10 million and those kind of elements. So it’s not that we‘re going to buy or have a kind of plan to buy huge internet companies at this stage. If it comes to the target, that would be very clear as well, the $9 billion target is without any online internet activities. Still doesn’t mean we don’t believe it in, but you’re going to see it later during the day. Cesar Tiron – Morgan Stanley: Hi, it’s Cesar Tiron from Morgan Stanley. I have two questions please. The first one is related to the $9 billion revenue target for 2017. Does it include the cable acquisition and any other M&A excluding the online? That’s first and second, are you going to give any guidance on the margins? Thank you.

Yes. I think when it comes to the acquisition, it includes the UNE transaction, the $9 billion target and you’re going to see it in the cable presentation. Beyond that there is nothing in there. So as I mentioned it will be – it will be on top. And Martin will talk about the status of UNE transaction and what kind of profile and opportunities we’re going to see in there. When it comes to the margins, Francois will talk about this one as well. We’re going to see – he will explain more in detail as if you are going to see a mix of the margin profile because we have lower EBITDA margin business going forward. But he will describe exactly how the mix will look like in the next coming years and what kind of margins we can anticipate, as a company, because as I said of the mix of the margin profile we have in the future, we believe it’s more interesting probably to look at free cash flow or CapEx or EBITDA margin minus CapEx for example as a type because the business will be more cash generative at the end of the day, even with all margins. But we’re going to come back to this at the end of the day or during the day.

Yes, thank you. Sven Sköld – Swedbank: Yes, hello Sven Sköld from Swedbank. Does it include success of mobile financial services in every market you’re in or is it – made you assume only success in a few markets inventories?

It requires success – sorry, success is a broad word obviously, but it requires success of the mobile financial services in all the markets. And if you’re going to be successful as much as you have been successful on the mobile side. In the end we’re going to show it to you today then you’re going to reach a target which is close to $1 billion target which we set out. If you have a little bit of swing or some markets are less attractive, you have EBITDA of whatever, smaller growth profile like $750 million for example, but still we took a kind of the lower end into the kind of $9 billion calculation. But in detail, again we’re going to show the MFS what we’re going to do there in the markets. But the key point is we – as I said, we anticipate we’re going to have the same market share model as like we have on the mobile side which is realistic in that respect and therefore it’s not completely undoable. And if you look at the successful market, very successful markets like Tanzania for example, Paraguay nowadays as well, you can see that the model and the way we do it works pretty well as well. So mobile financial services and do you then look and listen to Anders Nilsson and the COO of our Mobile Financial Services, George Oyen [ph] is somewhere in the room as well. You can talk during the break to him. It’s an execution game. It’s not a strategy game. If the model is there, the format is there, it’s an execution game. Lena Osterberg – Carnegie: Lena Osterberg, Carnegie. Just to clarify on the revenue target. That includes online, the $9 billion or is that excluding online?

No, to be very clear once and forever again. Lena Osterberg – Carnegie: Yes.

There is no – in the $9 billion target there is no online. So we wanted to be very clear and we’re going to show it again when we do the bridge you’re going to see it throughout the day. But we didn’t want to give the kind of story to you as investors and the financial market that we build our gross portfolio [ph] all of a sudden on the e-commerce business. Lena Osterberg – Carnegie: I also ask you the decision you made yesterday to exercise the option early, why did you decide to do it now rather than wait till September which would give you some more time to see where you’re going?

When you’re going to see Anders presentation, you will see how successful the venture of the business we have in Africa and Latin America during in the early months. And in the internet business – and he will do it more elegant probably than I do, but he will explain the internet business, the two driving force if at all you want to be successful. You have to be a proved model and you have to be the number one. If you are a proved model and you are the number one in the market, you have a substantial higher market and a better return on your investments. What we've seen with our investments so far after few months is they are proven models and they have the opportunities they are number ones in those markets. So what we decided is that accelerate the rollout, and do more and faster than we anticipated because now we know exactly how it works. We know what the customer wants and we know it’s going to be successful in those markets. And use the timeframe because it’s a time game as well, use the timeframe to do it faster. It doesn’t mean that we change our financial forecast or the kind of frame we give to the market originally. It’s still the same frame, it’s only a timing issue and more important as well, it’s not to give the money right away its more that we want to get clarity and continuity to the management team to execute on the plans. So the overall picture hasn’t changed. We are not storing more money in business which is new or we are not storing more money in business which is not performing. We are very focused on those activities which are working well to roll them out and to grab the opportunity which is huge. And if you bear with us a few hours then you see the details on that one.

If I may say, if the question can be about the strategy because we are going to deep dive into most of the topics later on today. So if you would like to ask any further question on the strategy and the pillars of the business.

There was queue [ph].

Okay.

No more? Folks thank you then I introduce Mr.

Now we are going to have a short break.

The coffee break, okay. Thank you.