Q1 2014 Millicom International Cellular SA Earnings Conference Call

Apr 24, 2014 AM EDT
MIICF - Millicom International Cellular SA
Q1 2014 Millicom International Cellular SA Earnings Conference Call
Apr 24, 2014 / 12:00PM GMT 

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Corporate Participants
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   *  Hans-Holger Albrecht
      Millicom - CEO
   *  Marc Zagar
      Millicom - Deputy CFO
   *  Nicolas Didio
      Millicom - Director Investor Relations

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Conference Call Participants
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   *  Stefan Gauffin
      Nordea - Analyst
   *  Lena Osterberg
      Carnegie - Analyst
   *  Georgios Ierodiaconou
      Citi - Analyst
   *  Erik Pers
      Danske - Analyst
   *  J.P. Davids
      Barclays - Analyst
   *  Bill Miller
      J.M. Hartwell - Principal and Portfolio Manager

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Presentation
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 Nicolas Didio,  Millicom - Director Investor Relations   [1]
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 Thanks. So, welcome everyone to Millicom's First Quarter Results Presentation. My name is Nicolas Didio and I'm the new head of investor relations. Today's presentation materials can be found on our website, www.millicom.com. Before we start, I would like to remind everyone that the safe harbor statement apply to this presentation, and the subsequent q-and-a session.

 With me today on this one hour call, our President and CEO, Mr. Hans-Holger Albrecht and Mr. Marc Zagar, our Deputy CFO. I will now hand over to Hans-Holger to give you another view of our Q1 '14 results, and operational preferments. After which, Marc will take you through the financials, and we will finish with a q-and-a session.

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 Hans-Holger Albrecht,  Millicom - CEO   [2]
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 Thank you, Nicolas, and hello everybody, and thank you for joining us on today's conference call. Marc and I will shortly take you through the highlights of today's results. After which, there will be time for you to ask questions. But, before we come to the presentation, let me first give you an overview of the business.

 I will start in runoff capital, Kigali, where we launched a tech incubator earlier this month. It may not be a big investment, but recognition of our confidence in the digital opportunity and symbolic or determination to find solutions relevant the fast growing market in which we operate.

 After Kigali, I personally crossed the border to go to Goma, for the first time myself, in eastern Kivu region of the Democratic Republic of Congo, which was recently, as you may remember, a war zone. Since we went back there last summer, we have added more than one million customers, at a rate of 80,000 per week.

 I met people from our team who had waded through unbridged rivers to get our networks towers working. Again, it's not a very significant number of all, but another symbol of our resolve to reach new markets wherever they may be, and the kind of spirit you find with the Tigo people.

 More recently, as well, I was traveling to El Salvador, where I saw how our newly launched Tigo Star brand highlight in the fresh, and in my view, a very inspiring way the distinctive content on our TV platform, and broadband services. And, in Colombia, if you go there you can feel the buzz created by Tigo Music, which is now the country's leading music platform. It's this kind of content that gives us the edge, I believe, In the future and helps to drive cable and mobile APRU and to reduce churn.

 Rwanda and DRCR, with Tanzania, three markets highlighted this month by the World Bank as the high growth economies, with GDP growth of over 6% in 2013, with the regional trends expected to continue. And, in Latin America, the World Bank also paints a promising picture. Just two weeks ago it forecast 2014 growth of 4.5 % or above in some of our biggest markets, such as Colombia, Bolivia and Paraguay.

 I think it is this combination of rising economic standards, population growth and highly entrepreneurial attitude that fuels Millicom's rising trajectory that you see confirmed again today in the numbers. And, as Millicom transforms, so we need to support and measure the company's health in non-financial terms to demonstrate to stakeholders our commitment to responsible business. This week, we released our second Corporate Responsibility Report, and I would encourage you to have a look at it later today, or whenever you have time.

 So, we have to lay out our growth plan in all regions, with revenue rising by 8.5% in local currencies. Africa accelerated in the first quarter, with double digit growth for the first time in over two years, with Senegal adding 650,000 new customers in just three months. Our cable and digital media business grew by nearly 13%, with the launch of Tigo Star, the Tigo sports channel, and we are announcing today the new initiatives such as DPH launch in Bolivia. But, as you can see the transformation to digital continues, for instance, in mobile data, smartphone sales were three times what they were in the first quarter 2013.

 Of course, like always in life, when you run a business and a company, it's not all plain sailing. We have, obviously, pressures from foreign exchange movements coming. There's always competitive intensity, which you have to deal with. And, there's always the kind of common threat when it comes to all business from regulation and new taxes.

 Therefore the margins, we are within the guidance on margins as we continue this crucial, but careful, investment phase to grow and diversify into a true digital lifestyle company, and we are just delivering on these promises. And, remember, where the company was coming from, if you have listened to the last quarters, we had the kind of growth issue in the company we had to challenge. We are facing a substantial change in our business model from a high margin voice business to a subsidized data model, and which are going to come back later as well, we had to invest into the growth in the future in order to have a kind of long term sustainable business.

 But, the momentum I think is clear for you to see, and for customers to enjoy whether from today they are watching football from a satellite in La Paz, or enjoying Facebook or (inaudible) for free in Tanzania. These illustrate just how well we know our customers, and how we give them what they want.

 Now, turning into the slides, and starting with slide number four, the first slide is a snapshot of Millicom today, with positions across two continents. We have strong positions in 13 mobile markets, and in the first quarter 2014, we passed the mark of 51 million mobile subscribers. We have five main cable and digital media markets, with over three million homes passed. NFS is growing quickly in 10 markets, with over 7.3 million customers.

 And, in online, we are present in 10 markets in Latin America through the LIH venture with Rocket, and 21 markets in Africa through Africa Internet Holding, with Rocket as well. While LIH and AIH have been equity consolidated since the - the first quarter 2014, they continue to represent an important part of our diversified digital strategy. Our emerging markets footprint makes us well positioned to achieve the rapid growth on which we are focused. This quarter, we have seen growth in all regions, with Africa and South America growing double digit and Central America improving versus the fourth quarter.

 IF you move to slide number five, on slide five you will see the four pillars supporting our long-term growth strategy. In mobile, as you know, we are focusing on driving data penetration, and building services to increase loyalty and brand affinity. In cable and digital media, our focus is extending the addressable market and increasing the RGUs per customer through bundling. With MFS, we are focused on increasing the penetration rate of the product, educating the market and adding, over time, new products. Our [focular] growth strategy and story remains the same, despite the deconsolidation of online. On the online side we are currently awaiting final regulatory approval for the MDN deal, which we expect to be completed in the second quarter in 2014. And, we continue to expand across Africa and Latin America with the launch, for instance, of MiTV or MiTV in Colombia, which is an in-house product and a kind of electronical TV guide and second screen.

 Above all, or below all, of course, costs and CapEx optimization is the key issue, and really underpins revenue growth across all of these pillars. Our CapEx is geared to revenue growth and is now decreasing as the forecast from 2013 peak. And, we remain focused on prudent use of cash, and on cost control.

 If you move to slide number six, the transformation to a digital lifestyle company moves ahead, as demonstrated by today's announcement about the launch of our DTH service in Bolivia, and our partnership with Facebook in Tanzania. There will be more announcements to come in the short term, so we continue this journey in the next coming months and weeks.

 This age we believe is a big opportunity for us in Latin America, with so much of the population outside the reach of cable areas. With low levels of media penetration right across the footprint, Tigo Star of our brand can now explore to the potentials for two complementary platforms, cable and satellite.

 If you move to slide number seven, in Q1 revenues grew 8.5% in local currency after 8.2% in Q4, with the new parameter and 3.6% one year ago. I will comment later the performance of the each business unit. The increase in mobile data penetration, which we experienced in 2013, continued in the first quarter with a 20.9% growth across the group, up 5.8 percentage points compared to the first quarter late year.

 NFS has now over 7.3 million customers, and penetration exceeds 18% of all customer base where the service is offered. Our EBITDA margin, before corporate costs was 38.2% in the first quarter. After corporate costs the margin was 34%, down by roughly four percentage points compared to the first quarter in 2013. Let me reiterate once more that we are still in a phase of investing for growth through subsidies, marketing and innovating products, such as those we have announced today. But we continue to maintain, obviously, a rigorous financial discipline, and therefore can confirm our margin guidance. We are optimizing efficiency across our business, with a view to achieving EBITDA growth as well as top line growth after the investment phase.

 If you move to slide number eight, and the table there, you will see a summary of our revenue performances by regions and by business unit. I'm pleased to report that growth is visible across the board, so it's not a one sided - one single story growth story. This is the case for the three regions, and each business unit including online.

 On slide nine, you will get an overview of quarter by quarter growth and by division. Growing nearly 7%, the mobile division generated 77% of the group's recurring revenue growths. Cable and digital media increasing by 13% contributed 15%, and MFS up 49% contributed 8%. The impact from regulation in Q1 was milder than in 2013, costing us .9 points of growth, and including forks impact the growth in Q1 was 4%.

 If you move to slide ten, there we want to highlight some of the last 12 months big achievements. We are now close to the 52 million mobile customer mark at the end of March. Smartphone uptake also continues rapidly with an 87% year on year increase in penetration in LatAm. This trend obviously bodes well for the digital strategy and having more of our customers to access data services via their mobile. Slow progress of the penetration rate of the double play in Central America and Latin America, the volume of double play users is indeed going up, but strong net ads in the single play product lead the rate to be flat for the moment, but we are very confident that we will be able to upgrade customers in the near futures. Volumes, transacted by MFS, continued to growth 39% growth, year on year. Some seasonality in our key markets explain why Q1 is not expanding that much versus Q4.

 If you move to slide number 12, the operational performance for the quarter, you saw mobile grew 6.6% in local currency, and 7.7% on a like for like basis. While we continue to be impacted by regulatory pressure, this is easing. The impact on revenue growth was, as I said, .9 points, a significant reduction from the 1.5 points we saw in Q4, and 3.3 points in Q1 2103. Importantly, mobile information, our data customers grew at 29.8% thanks to strong net ads. Over the same period, subsidies grew 14% in local currency, as we continue to see unmet demand for access to the internet, and return on subsidies within one year. We continue to take advantage of the increasing availability of attractively priced and quality smartphones to facilitate acceleration of mobile internet uptake. Smartphone sales have tripled in the first quarter 2014 compared to the first quarter last year, and entry level sales represent the majority of our sales, same pattern that we saw in the fourth quarter.

 If you move to slide 13, in cable and digital media, we reached the milestone of 3 million homes passed. Revenue grew by close to 13% in the first quarter 2014, year on year in local currency. Our commercial strategy was focused on the launch of Tigo Star, in February, in Paraguay, and Tigo Sports in March. Tigo Star is now also available in El Salvador and in Costa Rica. This is the partially driven RGUs per household to increase by 4% on average, with 3% in Central America and 10% in Latin America.

 Turning to slide number 14, we continue to see an increasing penetration of MFS, now reaching more than 18% of all mobile customer base across the commercial footprint. Our MFS RGU is increased by almost 1.1 million in the first quarter, with strong customer uptake in Africa and Central America. As highlighted of the quarter - a highlight of the quarter was the launch, obviously, of the first international MFS service that features integrated currency conversion in Rwanda and Tanzania. Individuals and business can make simple cross border transaction from the handset without needing to go to a bank or a specialist provider.

 Our vision of MFS has not changed. It represents a huge opportunity, but this is still a very new service, which requires educating the customers, a solid trust in the brand, and a very good network coverage. We have faced in the first quarter headwinds when it comes to transaction volumes and ARPU. Tanzania, our biggest country for MFS, has experienced competitive pressure until February. Since the promotion of our competitor has reduced, the situation is back on track in March and we can see this same trend continues into the second quarter. But this is a reminder that this product is far from mature. It's a new business and you always have to find the right parts to move forward. In the cycle of MFS ecosystem, we are just offering money transfer to date, self top up and [international] remittances, but I believe that there will be a lot of new services to come in the future and we're working on those ones as well.

 Finally, one additional comment on the ARPU. As we build penetration in countries, the volume of transaction is limited and has a dilutive impact on the average ARPU, which would ease over time I guess as well.

 On slide 15, as you know, since January we are no longer consolidating online. It comes after some changes in our agreements in Africa and Latin America. We continue to grow online business with new launches and synergies. The $31 million revenue generated this quarter compares with $27 million in the fourth quarter of 2013, and $11 million in the first quarter 2013. We expect our partnership with MTN to receive regulatory approval, leaving Millicom, Rocket Internet and MTN as equal shareholders of the African Internet Holding. Millicom and MTN together have 220 million mobile customers in Africa, with limited overlap, meaning that the partnership presents a significant growth opportunity for us, and our partners. We have also seen some interesting synergies. For example, customers using Easytaxi in Bolivia can now pay using MFS. We have also launched recently in Colombia, a key market for us as I mentioned, MiTV, which is an in-house project. Other online highlights include double digit growth from Jumia in Africa. We see a record increase in the number of rides completed through Easytaxi and more and more customers using their mobile phones to order from Hellofood.

 So much about the operation. I will now hand over to Marc to run through the quarter financial highlights.

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 Marc Zagar,  Millicom - Deputy CFO   [3]
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 Thank you, Hans-Holger. I'll turn to slide 17. First, let's look at the developments in the revenue drivers and our progress in subscriber acquisition across the three business areas: mobile, cable and digital media, and MFN. We added 1.6 million mobile subscribers in the quarter, taking the total to 51.6 million. Homes passed by our cable business grew to over 3 million in the quarter one, and we gained nearly 1.1 million MFS customers, taking our total to over 7.3 million. These three business division enjoyed strong year on year revenue growth. Mobile delivered 6.6% year on year growth. Cable and digital media 12.8% and MFS 48.6%.

 Turning to slide 18, you can see that we generated total revenues of in excess of $1.4 billion in the quarter, up 8.5% year on year in local currency and 4% on a reported basis in U.S. dollars. We saw less impact from regulatory headwinds than in previous quarters, with like for like organic growth of 9.4%.

 EBITDA was $478 million in the quarter, post-corporate costs, down from $498 million in Q4 2013, with a margin of 34%. As mentioned by Hans-Holger, this EBITDA margin is in line with our guidance, which is around the mid-30s for the full year. The EBITDA is declining by 3.7% in local currency, year on year, and the decline is only 1.1% in local currency if we exclude corporate costs.

 CapEx expenditure was down from Q4, at $163 million, or 11.6% of revenues, but 20% over the last 12 months, excluding spectrum. In Q1 we did not have spectrum CapEx, and our full year guidance of around 19% of revenues, excluding spectrum and licenses, remains unchanged.

 On slide 19, you can see that the revenue growth continues to be driven by South America, delivering $81 million in the quarter. Africa's contribution continues to increase with $26 million in the first quarter. Within the business units, mobile continues to be the biggest revenue earner, contributing $74 million, year on year, in terms of growth. Cable contributed at strong $90 million. MFS contributed $8 million, year on year. We also saw growth of $80 million coming from other revenues, including primarily equipment sales as wells as MDNO and roaming revenues. Foreign currency fluctuations had a significant $65 million negative impact on revenues this quarter, most of that impact deriving from three countries: Colombia, Paraguay and Ghana.

 Turning to slide 20, in Q1 our EBITDA margin, after corporate costs, was 34%, which is 4.3 points lower than it was in Q4 2013 - in Q1 2013. Two different angles to understand the dynamic of the margin development. First of all, we have a regional mixed effect. As you heard from Hans-Holger, our growth in Africa is strong and above Millicom's average in the first quarter. We are growing our customer base in Africa significantly since Q2 - Q3 of last year and this comes somewhat at a cost to the EBITDA margin level. In Q1, the margin in Africa remained however broadly stable compared the second part o f2013, but lower than the first half of 2013, when we were experiencing little or no growth in terms of customers. So, during this period of investment and growth, and consequently, with the high relative growth of Africa and its lower margin year on year, we saw a negative contribution to the overall EBITDA margin of Millicom of 1.5 point coming from Africa.

 Similarly, and still looking at the mix and the -and the drivers coming from high growth areas, in South America we saw exceptional growth of Tigo Colombia and having a relatively low, though strengthening, margin, Colombia also had a dilutive impact on the overall EBITDA in the period. So, looking at it from that first angle, it is very important to highlight that broadly half of the EBITDA margin decline year on year came from these high growth areas.

 Secondly, and turning to the slide, and looking at the waterfalls specifically, where we see the impact of cost by nature, I would highlight the following: first you see the impact of regulation, 0.8 points, 50% of which came from Africa. Within the commercial bucket of 1.6 point, the main impact corresponds within that to 1.1 point, being the impact from increased equipment sales or T&E. This arises from our successful smartphone penetration push in LatAm, and this is a rather healthy indicator that should be correlated to the KPIs Hans-Holger described a few slides earlier, in terms of smartphone penetration growth in the quarter from 20 to 24% for LatAm.

 In the same bucket, I would also highlight that commission had an impact of 0.4 points, driven by the significant customer adds in Africa, which I referred to previously. Regarding the business development bucket, 50% is deriving from higher employee costs, essentially, in Africa, also linked to our strong commercial driver. Finally, corporate costs, which include shared services and the costs of the development of our digital media startup venture, as we said a few months ago are increasing as we build stronger central functions to support our market and new growth areas.

 Turning to slide 21, you can see that normalized net profits reached $61 million in Q1, compared to $136 million in Q1 2013, the main movements are linked to the lower EBITDA following our accelerated investment in growth opportunities, higher DMA due network upgrades and a higher gross debt which increased by $1 billion over the period, creating higher interest charges.

 On slide 22, you see that operating free cash flow reached $108 million in Q1 compared to minus $37 million last year. The two main items driving the improvement were paid CapEx and working capital movements within Q1, which was far less seasonally marked than last year. Free cash flow reached $50 million versus minus $92 million last year.

 On slide 23, looking at our debt position, our gross debt increased by $194 million in Q1 versus the end of Q4 2013. Our net debt position increased by $135 million to $2.6 billion, pointing to a net debt over EBITDA of 1.34 times at the end of March.

 I also remind you that the cash position includes roughly $800 million, which currently sits in escrow pending the closing of the transaction in Colombia. We continue to extend the maturity of our debts to 5.5 years, with the issuance, in particular, of the new corporate bond in Guatemala - the new local bond, I mean in Guatemala, up from 4.8 years last December. We are also optimizing our balance sheets when possible, and the recent partial tender offer of our bond in El Salvador will help reduce the cost of debt.

 Slide 24, we are mindful that our revenues can be negatively impacted by foreign currency movements, and address this through rigorous treasury management. We raised debt in local currency, whenever possible, and use a mix to fix in floating rates to ensure that across our markets we are naturally hedged. At the end of March, 71% of the group gross debt was labeled in U.S. dollar, but the ratio go to 59% if we look at local operations. 82% of our group gross debt was in fixed rate.

 Slide 25, our full year guidance remains unchanged. To recap, we expect mid to high single digit pro forma revenue growth. This is based on the new perimeter announced at the time of the Q4 results, with the full consolidation of Guatemala and equity accounting for Mauritius and online. We are working to achieve growth in the long term and we continue to expect EBITDA margin to stabilize around the mid-30s, after corporate cost, in 2014. No change as well regarding our CapEx target at around 19% of revenues, for the full year, excluding spectrum and licenses.

 So, with that, I hand back to Hans-Holger for his concluding remarks.

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 Hans-Holger Albrecht,  Millicom - CEO   [4]
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 Thank you, Marc. To sum up, the growth pattern experienced in the first quarter is in line with our expectations. The trends we have seen in the first quarter underscore the importance of digital, and validate our strategy to be a rapidly transforming company that helps customers adopt new products and enjoy a digital lifestyle. We have been investing for growth in the long-term and are confident that we now have strong foundations in place from which to exploit new digital opportunities.

 This sums up our presentation of the results, and we're happy now to get your questions, so, operator, could we have the first question, please.



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Questions and Answers
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Operator   [1]
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 Thank you. If any teleconference participant would like to ask a question, please (Operator Instructions). The first question comes from Stefan Gauffin from Nordea. Please go ahead.

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 Stefan Gauffin,  Nordea - Analyst   [2]
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 Yes, hello. I would like to dwell upon the net financial cost in the quarter, which was fairly high. I know there's a cost for the redemption of the bond in El Salvador, but if I look at the increase in net - if I look at the increase in interest expense, it goes from $69 million in Q1 last year to $104 million this year, and excluding the El Salvador, it's $92 million. But if I look at the cash flow statement, the increase is only from $55 million in costs to $58 million in costs. So, what should we expect going forward? Why is it such an increase in net financials and what sort of interest expense should be calculate on for the - for the gross debt?

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 Marc Zagar,  Millicom - Deputy CFO   [3]
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 Yes, when it comes the - the increase in the interest costs, I mean this is primarily driven by the increase in the net debt, which we highlighted. If you are comparing to the cash flow statement, I mean there is not a perfect match there because the coupons on the bonds are not necessarily following the same timing when it comes to cash. When it comes to the, we're not guiding on financial costs going forward, but what we've said before is that we expect our net debt to increase after we close one transaction because, obviously, the impact which we've flagged before of equalizing our contribution in this merger from this level of 1.34 on net debt, we expect to rise toward the top end of our previous net debt limit, which we flagged for a long time of two times, so that obviously will have a continuing negative impact on the financial costs that the business is bearing.

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 Stefan Gauffin,  Nordea - Analyst   [4]
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 But, if you look at your financial costs for the bonds that you have outstanding, what's the average interest rate costs for the group?

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 Marc Zagar,  Millicom - Deputy CFO   [5]
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 For the group we're looking at a cost approximately of 6%.

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 Stefan Gauffin,  Nordea - Analyst   [6]
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 OK, thank you.

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Operator   [7]
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 Thank you. The next question comes from [Sergei Daseftski] from Davalar Company. Please go ahead.

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Unidentified Participant   [8]
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 Good morning. Couple of questions. First, on the satellite, on DGA launch in Bolivia, if you could talk a little bit about the launch, about your DTH strategy in general, because I think you mentioned that you're going to be launching DTH in other markets. And, also are you working independently in terms of DTH or are you working with a partner? And, finally, on DTH, who are you leasing satellite capacity from?

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 Hans-Holger Albrecht,  Millicom - CEO   [9]
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 If you talk about the strategy, I think the opportunity for us when it comes to DTH in all markets is that, although we've focused on the cable rollout and cable footprint, there is always a big part of the population which doesn't get cable, hence you can't serve our TV products to them. And DTH is, as you know, is a very cost effective and good way in doing it. But take it from a basis that with the cable business we have in all markets, we have already many of the infrastructures in place you need to know to run a DTH platform, like a play out center, you have a customer service center, you have the kind of technical platforms and supports and so forth. It is another major investment you have to undertake in order to reach those kind of markets, and to get the perfect footprint to cover the whole country.

 The second reason why you have to it from a kind of strategic standpoint is that, as you know, sports rights and contents rights are sold on a country level, and in order to compete in the future for those kind of rights, you have to have a kind of nationwide offering. So, if you just a regional player or a local player in the cable segment, you may face disadvantages towards other DTH players or OTT player in the long-term future.

 When it comes to how we do it, we do it ourselves. As I said, it's not a major investment, but we don't have any partner in the business in itself. Obviously we team up with all different kinds of content suppliers and maybe on sports, maybe on the movie side, it may be on the channels side, but the business operation in itself we do so far on our own. And the satellite provider, I have to come back to it, it's a local one, but I don't have the name right now in my head.

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Unidentified Participant   [10]
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 OK. Are you going to be using the same one in other markets? Or it's going to depend on the market?

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 Hans-Holger Albrecht,  Millicom - CEO   [11]
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 Yes, the [struggle] was to do it as cost effective as possible, hence we were trying to use satellite which covers our regions and our footprint ...

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Unidentified Participant   [12]
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 Right.

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 Hans-Holger Albrecht,  Millicom - CEO   [13]
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 ...in one goal.

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Unidentified Participant   [14]
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 Right. Thank you. And one more question, kind of bigger scale on M&A, global wireless M&A has been picking up base over the last year or 18 months. Obviously your focus is on cable, but if you could talk a little bit about your thoughts or vision on becoming a larger mobile operator, whether focusing on existing markets for potentially it could drive consolidation, or on adjacent markets, for example, in Panama, which obviously lies next to Colombia and close to your cable market in Costa Rica, there is a company called Cable and Wireless, I don't expect you to comment on the specific companies, but this would be an example of an adjacent market. Maybe you could talk a little bit about your thoughts in acquisitions in market and outside of market - adjacent markets in wireless?

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 Hans-Holger Albrecht,  Millicom - CEO   [15]
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 Well, as you know, we are big fans of the combination of cable and mobile in markets, which is one of the kind of the key focuses we have. Hence, where we operate with mobile, we believe is a cable opportunity. We should look at, and vice versa. Right now the main focus is on executing and operating the assets we have, if you're going to get the approval by the end of the second quarter for UNE, we have just concluded one of the biggest transaction the company has ever done, and there's a lot of management time to be devoted, and a lot of financial resources to be devoted to it also. So, that's the main focus and we feel fine with the markets we have grown. So, we see good growth opportunities and good opportunities to build the business forward.

 In market consolidation, we, obviously, would always look at the first choice, in case it would come up, but we can't see any on the horizon right now. And when it comes to outside or countries nearby to our operations, it's not on the agenda as the first goal right now. So, currently, the focus is closing UNE, and integrating that one correctly, and then rollout the kind of tool strategy, mobile, cable in the existing markets we have.

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Unidentified Participant   [16]
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 Thank you.

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 Hans-Holger Albrecht,  Millicom - CEO   [17]
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 Thank you.

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Operator   [18]
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 Thank you. The next question comes from Lena Osterberg from Carnegie. Please go ahead.

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 Lena Osterberg,  Carnegie - Analyst   [19]
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 Yes, (inaudible), can now you hear? So sorry to go back to the interest rate cost question, which was posted before. If I phrase a little bit differently, if you look at it quarter by quarter, you have the same level of gross debt in the fourth quarter and still your interest costs are up. So, I'm just trying to understand what's going on the interest line. Why is it increasing so much? And what is the underlying cost for the debt? Is there something else in this quarter, compared to Q4? And then also your depreciation charges, as you said, are up, and you say that part of this is due to accelerated depreciation. So, I was wondering how long will you be on an accelerated path, and how much is this? What is the underlying run rate? And then also on corporate costs, when you had your capital markets day, you guided that the corporate costs would decline to 2.5% of group revenues by 2017. These current, at least based on my and consensus estimates, imply that the group costs will decline over the next few years. Is that a viable assumption, while you're building up your group functions? Thank you.

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 Marc Zagar,  Millicom - Deputy CFO   [20]
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 Going back to the interest, I mean I can't give you the full detail on everything but the big building blocks, I would say, is you're comparing Q4 and Q1 are the, as you recall in Q4, we issued the bond for the financing of the UNE transaction, that happened mid-quarter, and then in the first quarter we issued the bond in Guatemala, also that happened toward the end of January, right at the end of January. So, the impact and the timing of those mid-quarter is certainly a factor explaining the change in these numbers. It's not as straightforward timing impact. And we can provide you more detail.

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 Lena Osterberg,  Carnegie - Analyst   [21]
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 But, the, sorry, the bond was issued mid-October, not mid-quarter, I think.

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 Marc Zagar,  Millicom - Deputy CFO   [22]
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 That's correct, yes.

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 Lena Osterberg,  Carnegie - Analyst   [23]
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 So, you've pretty much had it in for the full quarter now?

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 Marc Zagar,  Millicom - Deputy CFO   [24]
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 Yes, yes.

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 Lena Osterberg,  Carnegie - Analyst   [25]
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 So, that's why I'm - you have pretty much the same gross debt for both quarters, but still your net interest costs go up quite significantly. So, just trying to understand what's going on and what we should expect forward. As it makes a big difference on the EPS line.

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 Marc Zagar,  Millicom - Deputy CFO   [26]
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 Sure, I think one item we flagged before was the cost we booked regarding the Salvador redemption. In which we bought back part of the Salvador bond we booked some $12 million in cost in the first quarter.

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 Lena Osterberg,  Carnegie - Analyst   [27]
------------------------------
 Yes, but also adjusting for that, it's a very big step up.

------------------------------
 Marc Zagar,  Millicom - Deputy CFO   [28]
------------------------------
 Yes, OK. Well, listen we can follow up that offline if you want to, provide you more ...

------------------------------
 Lena Osterberg,  Carnegie - Analyst   [29]
------------------------------
 OK, thank you. Thank you.

------------------------------
 Marc Zagar,  Millicom - Deputy CFO   [30]
------------------------------
 OK. Your second point was?

------------------------------
 Lena Osterberg,  Carnegie - Analyst   [31]
------------------------------
 On the depreciation.

------------------------------
 Marc Zagar,  Millicom - Deputy CFO   [32]
------------------------------
 Depreciation. Yes, we're not providing any guidance on depreciation at this point.

------------------------------
 Lena Osterberg,  Carnegie - Analyst   [33]
------------------------------
 But is there in the - you wrote there is an accelerated part of depreciation in the quarter. What is that related to? And roughly how much is it?

------------------------------
 Marc Zagar,  Millicom - Deputy CFO   [34]
------------------------------
 It was roughly in the region of $20 million.

------------------------------
 Lena Osterberg,  Carnegie - Analyst   [35]
------------------------------
 And is that sort of a one off? Or should we expect that into the rest of the year as well?

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 Marc Zagar,  Millicom - Deputy CFO   [36]
------------------------------
 Again, we're not really giving any guidance on depreciation.

------------------------------
 Lena Osterberg,  Carnegie - Analyst   [37]
------------------------------
 OK.

------------------------------
 Marc Zagar,  Millicom - Deputy CFO   [38]
------------------------------
 And when it comes to the corporate costs, the, I mean if you're referring to the capital markets guidance, you should remember that these percentages we gave as a guideline were based on the revenues including UNE. So, these will obviously have a diluted impact on the corporate cost level. We do not expect the costs to go down in absolute terms, rather to stabilize.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [39]
------------------------------
 Let me maybe add one point to the corporate costs we've got in. It's important to understand. This is all based in part of the kind of change we have in the business model. So, a lot of new functions we had to create on the corporate side, which we didn't need in the past, like when it comes to handset sourcing, handset subsidies, churn management and so forth and so forth. So, this is one of the kind of key drivers you have, but as Marc said it will stabilize in terms of absolute costs and since revenue growth up a percentage of part of revenue it should come down.

 And the second point, which is important as well to know is that many of the new development functions we have, like, for example, our digital media business, is counted in the corporate costs as well. So, it's a blended number where you have traditional corporate costs, like legal or finance or whatever, and you have business development costs which are a bit higher. It should be more moderate going forward as well.

------------------------------
 Lena Osterberg,  Carnegie - Analyst   [40]
------------------------------
 OK.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [41]
------------------------------
 I'm not too concerned about that part.

------------------------------
 Lena Osterberg,  Carnegie - Analyst   [42]
------------------------------
 OK, thank you. Can I ask one final question, because with your guidance, you were sort of indicating that your margins will come up slightly over the rest of the year? Could you maybe say something about what's going to drive that margin uplift, and how you will do that without sacrificing revenue growth?

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [43]
------------------------------
 No, just to be clear, we said our margins will be around the 35 level, and that we feel absolutely confident. So, we don't change in these terms in terms of guidance, and we don't say anything in terms of what kind of margin we can expect for the coming quarters. The full year guidance stands exactly has it has been before.

------------------------------
 Lena Osterberg,  Carnegie - Analyst   [44]
------------------------------
 OK, thank you.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [45]
------------------------------
 Thank you.

------------------------------
Operator   [46]
------------------------------
 Thank you. The next question comes from Georgios Ierodiaconou from Citi. Please go ahead.

------------------------------
 Georgios Ierodiaconou,  Citi - Analyst   [47]
------------------------------
 Yes, hello. I've got two questions, please. The first one on MFS, you've got a multi-year guidance to reach $600 million to $1 billion of revenues, and what I wanted to understand is based on some of the information you disclosed in slide 14, it looks like the ARPU you are getting out of Tanzania, which is one of your most advanced market, is perhaps a bit more churlish than you expected. Do you still room for the growth to pick up, so you manage to reach your targets in the medium-term? And then, secondly, on revenue growth, I think you gave us a lot of information around the EBITDA development, the marching development over the year, I was wondering whether you can give us some clarity around how to think about the revenue performance? Your guidance, obviously, is arranged from meet to high single digit growth. You are at the higher end of this range at this point. But, as the comps get tougher, what kind of exit rate do you expect for the year? And what kind of rate do you think is satisfying for you in the medium-term? Thank you.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [48]
------------------------------
 When it comes to MFS, I think the better question because indeed the guidance we had at the capital markets day was revenue between $600 million and $1 billion. We highlighted at that time as well that it's a complicated business, so obviously there will be changes or there will be adjustment in the kind of bigger model, but the underlying trend and the underlying number we have been giving out haven't changed, and we are still confident at this stage that we're going to get there.

 This is based on a very simple assumption. A. we have penetrated MFS to a very high level of customer usage in just two or three markets so far, so there's much more room for us to go in other markets. And as the penetration goes in the other markets, obviously, as well, we're not just depending on Tanzania for example or El Salvador. So, the more we roll out the MFS model, which has been launched you know, in all countries, I think the model, the growth should accelerate.

 And the second point is as well is that we are still working very strongly on the , we call it the financial ecosystem, so right now we're mainly using it for very simple services, our MFS services ,but in the future you will move into other business areas like merchant payment, utility payment, insurances and so forth and so forth. I think connected with this is the question of the ARPU, and, yes, there has been competitive pressure in Tanzania in particular which is our biggest market when it comes to the first quarter, where one of our competitors was giving MFS more or less for free. That has stopped now, and we see a kind of return of the markets immediately. I think it's unlikely that we will see those kind of competitive behaviors again, because it destroys the business model and ARPU driver for the industry, but, like always, there's also things we can't control and in short-term can always create certain kind of pressure, but shouldn't change the long-term fundamentals when it comes to MFS.

 When it comes to the revenue growth for, I think it was for this year, how we see it, as we said, I think we have laid out the foundation for growth for the rest of the year. We don't have to change our guidance as we had indicated earlier. We have seen strong performance, good performance in most of the countries, but there is still room for us to keep this kind of momentum because not all of the countries have performed equally. Some had the regulatory pressures, some had pricing pressures which we believe will ease. So, therefore, the kind of guidance we have for the full year is intact, and we don't have any concerns we wouldn't achieve those kind of high single digit revenue gross figures.

------------------------------
 Georgios Ierodiaconou,  Citi - Analyst   [49]
------------------------------
 Thanks.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [50]
------------------------------
 Thank you.

------------------------------
Operator   [51]
------------------------------
 Thank you. The next question comes from Erik Pers from Danske. Please go ahead.

------------------------------
 Erik Pers,  Danske - Analyst   [52]
------------------------------
 Thank you. My first question is just about your acquisition in Bolivia. How much revenue from Multivision was recognized in the quarter, please? Secondly, customers in Senegal came in massively in the quarter. What did the introductory offer look like? How much did these customers pay to be counted in as active customers in the quarter? And then, thirdly, so you want just to come back to Lena's question earlier, about corporate costs. Just to clarify: you are still committed to the 2.5% target, as corporate costs versus revenue? Thank you.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [53]
------------------------------
 OK, if I start with the Bolivian piece, it was very small. So, we don't' have the figure here right now. It's not a kind of major driver when it comes to Bolivia. It look to Marc. You want to?

------------------------------
 Marc Zagar,  Millicom - Deputy CFO   [54]
------------------------------
 It was $4 million.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [55]
------------------------------
 $4 million. So it was very small, and didn't have a major impact. When it comes to Senegal, the offer, we had a very strong customer intake, that's true. It was a combination of a good price packages we had to build and a strong marketing campaign. It's not the kind of model, in terms of final offer, we're going to run for the future, but the situation in Senegal was a bit a different for us from a competitive landscape, because we had been facing three substantial issues, which we had to come over due to the, as you remember, maybe the license dispute we had with the government for many years. So, A. we had a brand drag, when it comes to Tigo in Senegal. And so we had to win to back the confidence and the support of the customers.

 We had a major issue when it comes to network reliability and network quality, which were driving the customers out. And, we had not an attractive pricing offer when it comes to the end consumer. And all this we tried to tackle with an integrated campaign, to go on all these three elements, and to bring customers back to see and test Tigo, and get the kind of confidence back in the service and the brand. And that has resulted in a very strong subscriber intake. There's not 100% correlation, with the subscriber intake and the revenue growth, but we believe after we build our position as a good carrier, that should come eventually as well.

 And when it comes to the corporate costs, at this stage we confirm our guidance. There's no major change. Obviously, again, those things can sometimes move in terms of what kind of initiatives you put on the corporate side and what kind of functions you have. But, it's nothing which we see is different from what we have announced earlier. We will have more priority as well, because it's a bigger question of definition of corporate costs as well. We give you more credit probably during the capital markets day we intend to have in the fall, in a nice location. And then you will get the details of about this one as well, but for the time being, it's the number we stick on.

------------------------------
 Erik Pers,  Danske - Analyst   [56]
------------------------------
 OK, thank you.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [57]
------------------------------
 Thank you.

------------------------------
Operator   [58]
------------------------------
 Thank you. The next question comes from J.P.Davids from Barclays. Please go ahead.

------------------------------
 J.P. Davids,  Barclays - Analyst   [59]
------------------------------
 Yes, good afternoon, guys. Two questions, please. Firstly, given the rapid proliferation of smartphones that you highlighted, are you comfortable that you've developed a pricing model, an adequate pricing model, for bundled services? And maybe you can provide some color on the recovery period for this margin investment that you flag. The second question is just a quick one on Paraguay, just give us any update there is on regulation there. I thought it was a risk of asymmetric mobile termination rates being introduced in that market? Thank you.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [60]
------------------------------
 Yes, when it comes to the smartphone bundle and the smartphone subsidies and smartphone offering, obviously the whole intention is for us to bundle into data packages and added, like in the case of Colombia, which works very well with additional digital services such as Tigo Music, for example. The philosophy is that the return to be maximum and not only, of course, in the life cycle of a customer, but maximum 12 months, so it's a controllable investment you're doing. And, more importantly, I think we have been becoming better and better in penetrating and pushing low cost entrance brand into the market, such as Huawei phones, or tech phones or those ones which come at $50 or even less nowadays into consideration.

 So, it's a goal to educate the customers, to take low cost phones, penetrate the market and push those (inaudible) very aggressively, bundle the services in order to increase loyalty and reduce churn. And have a return, which as I said, maximum-wise should be 12 months. And, just to come back, because people always ask about covering costs, this is, for example, a completely new division we have on the corporate side, which is focusing entirely on exactly what smartphone your source, how you package them together, and what kind of sales channel because those are big, important cost driver as well, you're going to use in order to get the returns correctly.

 When it comes to Paraguay, there is - right now there it's quiet. There's nothing to expect there. There's been some discussion that we don't have any kind of indication of how it should another regulatory impact would come from that market at this stage.

------------------------------
 J.P. Davids,  Barclays - Analyst   [61]
------------------------------
 OK, thank you.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [62]
------------------------------
 Thank you.

------------------------------
Operator   [63]
------------------------------
 Thank you. The final question comes from Bill Miller from J.M. Hartwell. Please go ahead.

------------------------------
 Bill Miller,  J.M. Hartwell - Principal and Portfolio Manager   [64]
------------------------------
 Good evening. Can you give us a little color on your operations in Colombia? How your profit margins are improving or not improving? And where your - how fast your operation is growing? Secondly, can you give us any benchmarks as we look out, not just this year, but towards the '17 date that you've given us as being important to you? Can you tell us what '15, '16, and '17 will do for growth? When you expect the bulge in growth to take place so that we can measure not on a quarterly basis, but on a yearly basis your progress?

------------------------------
 Marc Zagar,  Millicom - Deputy CFO   [65]
------------------------------
 Hi, Bill. Regarding your first question or Colombia, I think as we highlighted before, we've seen a very and continuing performance when it comes to revenue growth in Q1 again. And I'm referring to local currency, really driven by the inroads they're making when it comes smartphone penetration, and market share. So, that's been very positive.

 Obviously, as you know, also in Colombia on a year on year basis, the currency was much weaker, so from the U.S dollar contribution perspective, that shaved off quite a lot of that growth in U.S. dollar contribution sense. The margin in Colombia is at the lower end of our margins because, obviously, Colombia is the country in LatAm where we've got the lowest market share, but obviously where we are also growing and developing that market share significantly. However, from this low level, and despite the significant inroads we're making in terms of revenue growth, we are seeing some strengthening of the margin, which is a very positive factor.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [66]
------------------------------
 Hi, Bill. And maybe...

------------------------------
 Bill Miller,  J.M. Hartwell - Principal and Portfolio Manager   [67]
------------------------------
 Hi Hans.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [68]
------------------------------
 ...I answered the question when it comes to - Good to talk to you - answer the question when it comes to the road of 2017, and as you know, we don't give a kind of year by year, or quarter by quarter, when it comes to 2017. And since on an operational side, maybe always issues, you have to adjust, but the kind of big picture is intact. And just to highlight, maybe, how we see the kind of key trends coming together, in order to be there by 2017, the growth as we can see in the figures is coming back, it's actually accelerating quarter by quarter, and it shows that once we do the right investment and we do the right (inaudible) on the customer, and the brand and the network, we can hold market position, and we're coming back and move forward.

 We see as well that's it's not a one sided growth any more, just mobile. It's equally balanced between voice, data, it's cable, it's digital media and other places, and it's across all operations, not just in Latin America, for example, as it has been in the past. And the second point, of course, which will drive the growth even further is the merger, once it's approved and executed between UNE and Tigo in Colombia. We're not growing for growth only. We're going to for probable growth and we want to focus on returns as well, and therefore the elements you have in terms of the growth strategy, CapEx, we said should come down after the peak towards 15% in 2017. We see it kind of start to decline of the percentage figure already.

 So, again, I think we are on the right track. We have done a lot of operational points which will support this in terms of procurement, in terms of one network solution and so forth and so forth and so forth. So, I think the indications are in the right direction as well. And, on the EBITDA side as well, as you can see, we confirm our guidance for this year, and we see upwards potential in some of the markets.

 Marc mentioned, for example, that one of our bigger markets like Colombia has lower margins than average, but over time, of course, realizing synergies with the cable and taking a stronger market position, it should be an upside there as well. So, I think the indicators are going to the right direction. I'm pretty confident the 2017 figures are fine. And the road, sometimes you turn left, sometimes you turn right, but the fundamental direction is in place.

------------------------------
 Bill Miller,  J.M. Hartwell - Principal and Portfolio Manager   [69]
------------------------------
 Thank you very much for all your efforts. I'm delighted to hear all that. I really appreciate it.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [70]
------------------------------
 Thanks, Bill. Talk to you soon.

------------------------------
 Bill Miller,  J.M. Hartwell - Principal and Portfolio Manager   [71]
------------------------------
 I hope so.

------------------------------
Operator   [72]
------------------------------
 Thank you. This is all we have time for, so I'd now like to hand the call back to Hans-Holger Albrecht. Please go ahead.

------------------------------
 Hans-Holger Albrecht,  Millicom - CEO   [73]
------------------------------
 Yes, thank you everyone for listening in and for all these questions. As usual, if there are any kind of follow up questions, don't hesitate to contact me, Marc or our team. Otherwise, let's stay in touch and at latest talk to you again at our second quarter announcement. Thanks, and bye for now.

------------------------------
Operator   [74]
------------------------------
 Thank you. This concludes Millicom's Financial Results Conference Call. Thank you for your participation. You may now disconnect.




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