Millicom International Cellular S.A. (MICC)

Q2 2010 Earnings Call Transcript

July 20, 2010 9:00 am ET


Mikael Grahne – President and CEO

François-Xavier Roger – CFO


David Kestenbaum – Morgan Joseph

Stephen Mead – Anchor Capital Advisors

Ric Prentiss – Raymond James

Soomit Datta – New Street Research

Sven Sköld – Swedbank

James Rivett – Citi

William Miller – J.M. Hartwell

Peter Nielsen – Cheuvreux

Jean-Charles Lemardeley – JPMorgan

Sean Gardiner – Morgan Stanley

Stefan Gauffin – Nordea Bank

Lena Osterberg – Carnegie Investment Bank

Andreas Joelsson – SEB Enskilda

Jan Dworsky – Handelsbanken Capital Markets

Kevin Roe – Roe Equity Research



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 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.

Mikael Grahne

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.

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