Millicom's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Call Start: 08:00

Call End: 09:11

Millicom International Cellular SA (MIICF.PK)

Q4 2011 Earnings Call

February 8, 2012 8:00 AM ET

Executives

Mikael Grahne – President and CEO

François-Xavier Roger – Chief Financial Officer

Analysts

Mark Walker – Goldman Sachs

Cesar Tiron – Morgan Stanley

Stefan Gauffin – Nordea

Mauricio Fernandes – Merrill Lynch

Miguel Garcia – Deutsche Bank

Lena Osterberg – Carnegie

Erik Pers – Danske

Soomit Datta – New Street Research

Thomas Heath – Handelsbanken

Andreas Joelsson – SEB Enskilda

Kevin Roe – Roe Equity Research

Barry Zeitoune – Berenberg Bank

Jean-Charles Lemardeley – JP Morgan

Bill Miller – Hartwell

Presentation

Operator

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Good day, ladies and gentlemen. And welcome to the Millicom Q4 2011 Conference Call. For your information, this call is being recorded. May I also remind you that 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 hand you over to the hosts of today’s conference, Mr. Mikael Grahne, President and CEO; and François-Xavier Roger, CFO. Please go ahead.

Mikael Grahne

Thank you and welcome to you all. As usual, you can find the slides for this call on our website. Please go to slide number three. In Q4, we recorded underlying local currency revenue growth of 10.1%. Our focus remains on high value customers and in Q4, 80% of our revenues were generated by 30% of our customers who have an ARPU about $10.

We have seen a stabilization of ARPU in Latin America in local currency and in Africa, there has been a slowdown in the rate of ARPU erosion despite our continuous focus on affordability. Overall, the year-on-year decline in ARPU was close to half the decline in Q4 last year.

We are seeing continuous strong development of VAS across the group. Most specifically, in Latin America, our non-voice service contribute over one-third of our recurring revenue and half of our growth in recurring revenue is coming from mobile data services.

We produced an EBITDA margin of 45.5% for the quarter and a high level of profitability in a period of the year when we traditionally invest more in commercial activity. In Q4, we returned $436 million to shareholders in the form of dividends and share buyback.

Slide four. For the full year 2011, we recorded local currency revenue growth of 10.5%. We ended the year with an EBITDA margin of $46.1 in line with our guidance and reflecting our investments in innovative services.

In 2011 and for the second year in a row, we returned close to $1 billion to shareholders, half in dividends and the other half through our share buyback program, and we ended the year with a net debt to EBITDA of 0.8 times.

The Board will propose to the AGM in May a dividend of $2.40 per share to be paid to shareholders in June. This represents an increase of 33% over the 2010 dividend. In addition, a share buyback program of up to $300 million has been approved for 2012.

In line with our strategy of finding the right balance between growth and returns, in 2011, our ROIC increased to 28% from an already high level of 26% in 2010.

Slide five. Now, let’s look at the financial highlights for the fourth quarter in more detail. Revenues for the quarter were $1.18 billion, up 10.1% year-on-year. The EBITDA margin was $45.5, 1 percentage point lower than for the prior year eroded by the revenue mix in our products and markets.

In Q4, we invested $396 million or 33.6% of revenues in CapEx bringing the total for the year broadly in line with our guidance. Despite our high investment in OpEx and CapEx in Q4, operating free cash flow generation in the quarter remained strong at $300 million, including proceeds from the tower disposal of close to $100 million in Q4.

Slide six. Our commercial investment in data and services in the fourth quarter amounted to $258 million, up around 5% over Q4 2010. Subsidies were up 6.1%, less than in previous quarters for three reasons.

Firstly, our detailed analysis of ROIC per device that we shared with you at our Capital Markets Day enabled us in Q4 to be more efficient and selective in our subsidies. Secondly, the decrease in smartphone prices reduced the total amount we spent for phone on subsidies in Q4. And thirdly, we were active in the fourth quarter in market in prepaid data bundles with lower commercial costs to grow the addressable market for data services.

Overall, in 2011, our sales and marketing costs increased by around 12%. We expect to increase our commercial investment further in 2012 in order to grow the penetration of 3D services. We expect the information category to be our largest growth driver again in 2012.

Slide seven. I have already highlighted our full year revenue growth of 10.5% and our EBITDA margin of $46.1, reflecting investments in 3D services. I would also like to add here that despite of our 20% increase in CapEx year-on-year, our cash flow generation in 2011 was the highest ever at over $1.2 billion even excluding the contribution from tower disposals.

Slide eight. For 2011, overall, we produced an average growth of 10.5%, only 0.8 point lower than in 2010, despite the most challenging economic environment. For 2012 and 2013, our ambition is to grow our revenues by 8% to 11% in local currency. As you can see on this slide, we have experienced some volatility and revenue growth quarter-on-quarter, and we expect quarterly growth to be somewhat uneven in 2012.

Slide nine. Our focus on the quality of our customers rather than on their absolute number is what is driving our topline performance. Looking at the ARPU development by region, you can see that in Latin America ARPU was essentially stable year-on-year, in South America, ARPU has been growing positively for over a year. In Central America, a high level of low ARPU net addition in the festive season was responsible for the decline seen in Q4 ARPU.

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