Q3 2014 Millicom International Cellular SA Earnings Call
Oct 22, 2014 AM EDT
MIICF - Millicom International Cellular SA
Q3 2014 Millicom International Cellular SA Earnings Call
Oct 22, 2014 / 12:00PM GMT
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Corporate Participants
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* Nicolas Didio
Millicom Interanation Cellular S.A. - Head of IR
* Hans-Holger Albrecht
Millicom Interanation Cellular S.A. - President and CEO
* Tim Pennington
Millicom Interanation Cellular S.A. - CFO
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Conference Call Participants
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* Sergey Dluzhevskiy
Gabelli & Co. - Analyst
* Thomas Heath
Handelsbanken - Analyst
* Erik Pers
Danske Bank - Analyst
* Bill Miller
JM Hartwell - Analyst
* JP Davids
Barclays Capital - Analyst
* Gonzalo Fernandez
Royal Bank of Canada - Analyst
* Luigi Minerva
HSBC - Analyst
* Andreas Joelsson
SEB Enskilda Inc. - Analyst
* Chris Grundberg
UBS - Analyst
* Lena Osterberg
Carnegie Investment Bank - Analyst
* Steven Bechade
Citigroup - Analyst
* Rodrigo Villanueva
BofA Merrill Lynch - Analyst
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Presentation
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Operator [1]
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Good morning and good afternoon, ladies and gentlemen, and welcome to the Millicom financial results conference call. Today's call will be hosted by Hans-Holger Albrecht, President and CEO, and Tim Pennington, CFO. Following the formal presentation by Millicom's management, an interactive Q&A session will be available. I would now like to have the call over to Nicolas Didio, Head of Investor Relations. Please go ahead.
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Nicolas Didio, Millicom Interanation Cellular S.A. - Head of IR [2]
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Thank you. And welcome, everyone, to the Millicom third-quarter results presentation. To this presentation, materials can be found on the website, www.Millicom.com. Before we start, I would like to remind everyone that the Safe Harbor statement applies to this presentation and the subsequent Q&A session.
With me today on this call are our President and CEO, Hans-Holger Albrecht, and Tim Pennington, our CFO. I will now hand over to Hans-Holger to give you an overview of our Q3 2014 results and operational performance, after which Tim will take you through the financials. And we will finish with a Q&A session.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [3]
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Thanks, Nicolas. Good morning and good afternoon to everyone listening in to our conference call.
At our Capital Markets Day last month, you heard us that we confirmed our target of being a Company with EUR9 billion revenues in 2017. And today, you can see that we are on track to achieve that ambitious target and our other objective, which you mentioned at that location as well.
We can see that the new chapter with the UNE had a good start. We see encouraging take-up of our new satellite pay-TV services, with 45,000 customers in a few months, and we see the continued focus on our efficiency program in order to balance growth and returns in a correct manner going forward.
In the last three months, our revenue grew organically by almost 9%. That is actually at the upper end of our own expectations and, I think, a very strong and impressive performance by the colleagues in our operations. If you include UNE, the Company grew by 21%. Again, a very strong uplift towards our own targets.
The organic growth is based on the strong mobile take-up rising by almost 1.5 million customers and the continuing shift from voice to data. Today, we announced that more than one in four of our customers now uses data. This growth was driven by strong content such as the exclusive FIFA World Cup, for example, we showed during the very successful Brazilian World Cup. Or the launch of Tigo Music is another example now with over 600,000 users with -- actually, it ranks as one of the fastest growing music services in Latin America.
And today, we also announced two new initiatives. The partnership with Deezer, who launched Tigo Music in Africa like we did so successfully in Latin America. Or, as well, the launch of smartapps to grab the interest of new data users in Latin America by offering a simple and very easy way to get apps in these markets. Some of you probably in the Western world will all believe it is very, very easy. But if you don't have a credit card, like 80% or 90% of the people in our market, it is actually quite a challenge to get access to those kinds of apps.
All these examples, and there are many more obviously, underpin the continued execution of the digital lifestyle strategy with the idea from our side to bundle those services to our customers in order to increase the ARPU, offering value for money and reduce churn by increasing the stickiness of several products instead of just one single product. And so far, as I look back now in the last couple of months and quarters, it seems to be working fine. And as you know, it's a key part of the -- of our transformation and our strategy going forward.
However, I think one of the biggest transformations in the Company's history probably took place on the 14 August in the Colombia (inaudible) in Medellin when I was there, and we executed the merger of Tigo and UNE. And as you are all aware, it is a very transformational deal for the Company. From that day forward, over a third of our revenue was -- has generated from Colombia. And $1 in $5, so 20%, will soon come from our cable services.
So clearly, the UNE deal has a major impact, and it changes the business quite fundamentally and it has a higher focus. I've been there several times during the last couple of months, and even though the whole Board of Millicom spent nearly a week in Colombia to be close to the situation and assess the opportunities there.
And the good news is since we got for the first time the numbers in, it seems the early indications for UNE are positive and going in the right direction.
So as we approach our twenty-first anniversary next year, we can see how far Millicom has come. It has experienced rapid changes in the past, but for sure I think the last 24 months have been one of the busiest ones and one of the most radical ones in terms of changes.
And just to remind everyone why we are doing this. It is simply because of the market dynamics. Our customers in our markets want the rich choice of digital services that are technology efficient and, most important, locally relevant. That means that we have to be very flexible, very optimistic, and nimble in each of the markets that we operate, but we have to focus as well on the local execution because that's the key [USB] we have towards the other players in those markets. So the local hero we want to be in each of those places.
And a weird example, but this is -- if you look at our innovations when it comes to mobile money, there for example we have launched the first interoperability service in Q3 in Africa, or we offered a return on mobile balances for the first time globally. So we have disrupted this kind of market and business quite drastically, like we have done now, for example, as well again when it comes to the DP agents -- satellite pay-TV business by launching Tigo Star in seven countries within the last three months.
So our strategy may have changed over the last years, but the innovation and the forward-leading approach is a key part for us to succeed. But just to be clear as well on this one, and we put a lot of effort during the Capital Markets Day as well, it goes with a clear commitment itself as well to financial discipline and returns.
In Q3, the margin is stabilized, and our long-term guidance of around 35%, which we once more confirmed at the Capital Markets Day, is definitely on track as we extend our program of efficiencies from top to bottom right across the Company. Overall, I am positive about the outlook for Millicom. It is our Company transformed, and really we have to focus mainly on the execution.
We can see high growth. We can see a bit of a strong business discipline. And crucially, as I said as well, we are a Company which is not only focused on innovation but as well on commercial and financial targets.
If we then move to the numbers and the concrete results of the quarter, if you move to slide number five, you see 8.6% organic growth recorded in the third quarter marks the fourth successive quarter of growth exceeding 8%. I believe in my personal view that there is real momentum here as we continue to grow our core customer base to almost 54 million people and provide them with a greater variety of digital products.
This includes mobile data services, which is one of the areas where the success of our transformation strategy is most apparent. After a quarter where we signed up 1.5 million new mobile users including 750,000 net at in South America and over 500,000 in Africa, now one in four, as I mentioned, of our customer takes a data service. With each of these, as we explained at the Capital Markets Day, the loyalty strengthens and we reduce the ARPU volatility.
And in mobile financial services, the extraordinary growth in users and volumes continues. We now process, just to highlight, on average 1,000 mobile money transactions every minute. It is a product with potential that's only just beginning to be realized, which is why we have been so busy innovating with new partnerships and customer incentives.
Of course, this growth is critical to driving the margin. In this continuing high-investment phase when we are busy building the digital ISO infrastructure, it has declined year on year but increased sequentially to 33.4% in the third quarter.
As you know, we have intensified the action of our efficiencies right across the Company. We continue the rigorous country-by-country, function-by-function program which has already identified important savings in one of our key markets. And remember as well that we have many new initiatives which have been startups which are coming into business now, and we should see better returns in the coming months going forward.
At the Capital Markets Day, we affirmed our target of long-term EBITDA margins of around 35%. But more importantly, as we are going forward, operating cash flow margins of 20%, which Tim will highlight later in his presentation. The success of our business in driving forward profitability revenue -- or profitable revenue growth will be a key factor in achieving these goals.
If you go to slide number 6, you can see the core organic growth needed to achieve this. The high growth Millicom has enjoyed over the past two years is built on the factors we outlined at our Capital Markets Day. Favorable macroeconomic conditions, with GDP levels rising faster than the West, useful in growing populations, and a strong appetite for digital services. These factors are still in place, and each of our business areas is benefiting.
Mobile is up by 5%, with data growth accelerating at 35%, compared to plus-32% in Q2, and clearly offsetting the pressure on voice and SMS. Data usage is growing more than 10% with an average of 714 megabytes per user per month. And more data usage means for us obviously more stickiness, although the churn was down 80 basis points this quarter versus last year.
Cable is up 11%, with residential growing about 15%. Fixed telephony is slightly down and offset by strong growth of broadband and, to a lesser extent, pay TV. And finally, MFS is rising 45%. ARPU in Q3 was down 7% year on year due to the dilutive impact of new customers, but it was up 12% versus the second quarter, and this is an encouraging trend with the revenue per transaction continuing to go up.
If you go to slide number 7, the rise in cable followed the launch earlier this year of Tigo Star -- I mentioned it already at the beginning -- which is now present in six of our Latin American operations, as seen on slide 7, the increased number of homes past. Tigo Star has given an undoubted boost to our pay TV and broadband services. Growth has been boosted by the increased number of RGUs per household and the 20% rise year on year of double- and triple-play customers.
With UNE in Colombia, we have now more than doubled our cable footprint, which has increased by 3 million to over 5 million homes passed. This will be joined by the [tens of thousand] more signing up for the DTH in rural areas in these coming months.
Many of these paid for the satellite pay-TV services using MFS. This creates yet another bond between the customer and the brand and is symptomatic of our joined-up approach to selling a range of digital services to drive our financial targets. Which is a good point to hand over to Tim to run through the financial numbers.
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [4]
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Thank you. I'll take you through these financial highlights, and then we will go into Q&A.
So starting slide 9, a few notes or features in the quarter. Firstly, as Hans-Holger said, the revenue has continued the momentum it has seen all year in local currency. And this quarter we had the strongest growth in US dollar terms as well. I have reported revenue growth of 7.2% in US dollars.
Secondly, the quarter saw a -- the first contribution from UNE, and I will talk about this a little bit later. But we saw a EBITDA margin that was stronger than we had originally expected.
The EBITDA margin excluding UNE also saw a little bit of improvement on Q2, up 30 basis points to 33.4%. And our cash flow was also a little bit stronger in the quarter than we might have expected on some working capital inflows.
So on slide 10, if I start by looking at the revenue drivers in the quarter. And, as has been the case for several quarters now, the driver has been Colombia, which posted year-on-year revenue growth of 27% in Q3. It wasn't alone, though. We saw Bolivia up 12% in local currency, and our Africa business also posted a 13% local currency revenue growth.
The UNE contribution of $186 million for the first 47 days -- or the last 47 days in Q3, which puts it on a run rate in line with the guidance we gave at the Capital Markets Day.
On the next slide, turning to the EBITDA evolution. You see here the group EBITDA margin was 32.8%, and that was diluted 60 basis points by the inclusion of UNE. As I said, on a comparative basis the margin was 33.4%, a little bit higher than Q2, as we saw slightly better EBITDA margin in Colombia, which increases South America EBITDA margin by 2.4 percentage points.
In addition, we also recorded lower central costs than in Q2. I don't expect this to be the trend, that we expect Q4 costs to be nearer the level we saw in Q2 rather than those we've seen in Q3.
There was also a slightly weaker performance from Africa. EBITDA was $55 million. It was in line with the same quarter last year but 13% lower than Q2. And much of this was one-off in nature. We incurred a $4 million restructuring charge in respect to the network-managed service outsourcing that we announced at the Capital Markets Day, and there were other one-off items totaling a further $4.2 million.
Overall, we continue to invest margin in building our business. And compared to Q3 last year, we have invested 2.4 percentage points in the gross margin. These are largely handset sales as we seek to get smart phones into the hands of our customers just as quickly as we can. We have also invested more in our commercial activities such as advertising.
Slide 12 on UNE, and the maiden contribution is slightly shown on this slide. It is clearly too early for us to see any synergy benefits, so this is pure trading. Revenues are after intergroup eliminations, but they do include $4 million of one-off revenue. Otherwise, this is all recurring revenue. Cost of sales, largely our programming costs and excess charges, which gave us a gross margin of 68%. OpEx including headcount, et cetera, was $74 million, which left us with EBITDA of $52 million and a margin of 27.8%.
As I said, a welcome surprise to us. As I said, there was a bit of one-off revenue in that figure. So the underlying margin was closer to 25% to 26%.
CapEx for the period was $25 million, leaving EBITDA minus CapEx at 14.5%. Our -- okay, on the next slide, this is in line with the group's margin, which is shown on this slide. So our overall group margin was 13.2%. CapEx was in line with Q2, basically in line with our guidance for the year, and EBITDA minus CapEx was $60 million higher than Q2, although $40 million lower than the same period last year on a higher CapEx spend in this quarter. And a CapEx spend was largely on network infrastructure and in mobile as well as we spent about $50 million in Lat Am on the fixed infrastructure in the quarter.
Okay, a quick look at cash flow. The working capital swing, less the group's operating cash flow, pretty strong at $305 million. The working capital movements were due to a rundown in inventory and trade receivables in Lat Am in the main. Taxes paid were $79 million, which puts us on target for about $350 million for the full year. And our interest charge was $75 million, again, relatively typical. Full-year P&L tax interest charge should be around $400 million for this year. Dividends and minorities were relatively light this month, and we expect a similar level in Q4.
So that left the equity-free cash flow, which is designed to show us the recurring cash flow available to meet the dividend payments of $131 million, and stronger than Q2 and Q3 last year. This excludes large capital transactions; we had a couple of these in the quarter. Obviously the big one was the completion of UNE, which consumed $880 million of cash.
In addition, we also added -- acquired a company in Tanzania which is [40 spectrum], and we completed the funding on the final parts of the LAH option to bring our stake to 35%. Incidentally, we have now restructured our arrangements with Rocket, so we have no further obligations to LIH. But we will continue to review investment opportunities on a case-by-case basis and if we decide to invest, those will be based on the merits of each proposal.
So slide 15, as a result of the investments and -- we had some net acquisitions of $824 million, plus we consolidated just under $400 million of UNE debt. Our consolidated net debt is now $4.2 billion, and that represents a 1.9 times net debt to EBITDA.
So finally on slide 16, and in summary in this quarter, we have continued to see the continuation of revenue growth that we've seen all year, but there's been a -- less of a currency impact in this quarter. UNE has made a strong start. We have seen some stabilization in our EBITDA margin, but it's too early for us to call victory on that, but it's a good start all the same. And cash flow was stronger in the quarter. Again, a little too early to call victory, but there's a strongly motivated team here who are focusing on driving profitable growth in this business.
So thank you. And with that, we will take some questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Sergey Dluzhevskiy, Gabelli and Company.
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Sergey Dluzhevskiy, Gabelli & Co. - Analyst [2]
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The first question is for Hans-Holger, just a broader question. Obviously UNE is an important acquisition that you made. And in the short term, you're going to be focused on integration and execution. But could you share your thoughts on M&A maybe in the medium term? As you look at your portfolio, what functional or geographic gaps do you see? Do you think you're going to be focused on combinations of mobile and cable? Just any general thoughts on M&A going forward?
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [3]
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Yes. As you mentioned, the main focus right now is on UNE because it is a very transformational deal and the biggest deal, actually, in the history we have made. And that takes all the attention. So we don't see, short term, any kind of major M&A activities. If there are in-market consolidation opportunities, we may obviously look if it comes to mobile or cable. But we do it very opportunistic and with the kind of financial discipline want to keep at this stage.
Simply because we feel that basically the current structure we have and the current assets and tools we have in each of the markets is sufficient to deliver the strategy. So don't expect any big M&A. There may be smaller things, but on a smaller scale, and nothing is a must for us in order to deliver these targets.
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Sergey Dluzhevskiy, Gabelli & Co. - Analyst [4]
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Right. Okay. And one question on the Paraguay. The revenues were down 7%, but subscriber momentum has improved. Could you comment a little bit on what you are doing in Paraguay to improve momentum and revenue trends into market?
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [5]
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Yes. We had some issues in Paraguay during the last quarter and the quarter before, which is mainly driven to customer perception, brand tracking, and some behaviors we had in the past. And one of the major issues has been the quality of the network which we had to fix, which we are doing currently, and some clarity on the offers I think when it comes to bonding products. And down to very simple things like customer service and quality of handset and those kind of things.
So we have changed off smaller tools, nothing fundamentally, and start to work. And we see positive momentum when it comes to the business. We see that the net promoter scale is going up again. We see that the brand tracking is improving as well. So we should see a positive impact, and we should be through the worst when it comes to Paraguay.
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Sergey Dluzhevskiy, Gabelli & Co. - Analyst [6]
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Okay, great. Thank you.
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Operator [7]
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Thomas Heath, Handelsbanken.
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Thomas Heath, Handelsbanken - Analyst [8]
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A few questions if I may. Firstly, have you report some nonrecurring items for Africa for the change in outsourcing of the network. Should we expect more of this coming ahead? So one-off excluding UNE, any thoughts there would be helpful. Secondly, license costs. What's -- an update would be great for what we could expect next year. And then thirdly, any comments on Colombia, the trading climate after the regulatory change on handsets. Thank you.
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [9]
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Let me quickly deal with the first question on nonrecurring. In Q4, we expect about a $5 million restructuring charge in respect of the managed service outsourced. But other than that, we shouldn't actually see any in 2015.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [10]
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And when it comes to license, we -- again, the only big license renewal we have for next year is Bolivia, which we start to have a dialogue with the government. It's too early to say any kind of concrete numbers, but we don't have any kind of drastic changes to the situation we have currently. When it comes to spectrum, which is the other part, of course, it's not really the normal course of business, so no change towards next year anticipated as well. So I would see a stable situation on that one.
When it comes to trading climate in Colombia after the newer regulation, it will become subsidized handset. So far it doesn't have a big impact on our position in sales, as you can see in the Q3 figures. There will be a reallocation, we assume, a bit of costs into the sale chain and the marketing cost in that respect. But it hasn't slowed down and gives a positive impact on the EBITDA side going forward probably. So it's a smaller, minor impact so far.
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Thomas Heath, Handelsbanken - Analyst [11]
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That is very helpful. Thanks.
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Operator [12]
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Erik Pers, Danske Bank.
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Erik Pers, Danske Bank - Analyst [13]
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Simple question. CapEx in UNE, could you tell us what you expect going forward there? And I note that the operational free cash flow was positive. Is that something we can generally expect to continue going forward? And also, I don't know if you're willing to share numbers on it, but if not, maybe you could tell us what does UNE need in general terms in terms of CapEx? What types of product do you expect to see there? Thank you.
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [14]
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We gave guidance at the Capital Markets Day for this year's CapEx, which we said would be around about $120 million. They spent $25 million in this quarter, or the stump period of this quarter, and I see no reason to change the guidance for the full year. We're not in a position to give guidance on 2015, but, again, at the Capital Markets Day, we did state our ambition to and have a significant sort of investment and increase in the number of homes passed. So I think you should expect us to be in investment mode in Colombia.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [15]
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Maybe to add to the second question, I think the key point when you look at the UNE or first impression is that the Company is very well managed and very well run and has its own targets, which is positive.
The kind of key leverage we have on the long term is you're going to work on the margin because that's in the higher 20s or 27% normally as we stipulate in Miami as well. Cable margin should be in the mid-30s, at least, but that's one of the big upswings. And this can come through better sales, of course -- better sales efficiency. But as well, for example, the churn. Churn is higher than in other markets we are used to, so there's a big upside when it comes to the churn side as well. In combining those things, I think the CapEx profile will be pretty stable and you see the kind of operation improvement in the coming 12 to 24 months.
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Erik Pers, Danske Bank - Analyst [16]
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All right. Thanks.
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Operator [17]
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Bill Miller, JM Hartwell.
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Bill Miller, JM Hartwell - Analyst [18]
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Can you help us by giving us a further definition of the timeline in Colombia, when you're going to be able to tell us more? And the timeline in the presentation of Miami, but it must be some interim date that would be significant to you. And you might be able to help us with since it is going to be a transformational event.
Secondly, if you look out 2017 and look at the sources of revenue and EBITDA, could you just break that down generally for us? Because it's going to be so much less telephone Company and so much more of a media, et cetera, Company. And maybe if you could break that down for us, it would give us not only benchmarks to measure you, but also to help us understand why this is going to be a growth Company.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [19]
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Thanks, Bill. I'll take the first question, then Tim can jump in on the second part, and then we can follow up probably later on as well. I think when it comes to the timeline, we just had the keys to the Company a few weeks, so we really getting all the kind of facts and numbers together. As you remember, we were not allowed to access any data because it was a merger process, so we had to restrain from that. And hence, we need a bit of time to get the facts on the table and then based on everything give clearer guidance, which will be probably in the course of the beginning of next year. So that's the best we can do and to do it thoroughly.
However, as I just mentioned before, if you look at the fundamentals of the business and the early indications, the growth will come from Apple increase and new sales. Lower churn, which is the kind of big factor and efficiency in the business due to boost the margin up, and that should be a clear case for us going forward. The good news is, which is more importantly at this stage as well, we have got a very good asset handed over on top. So it's performing well, so the starting point is easier. If Tim wants to give a bit of light on the EBITDA breakup in 2017.
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [20]
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Well, in terms of -- again, on capital market day, we showed you our expectation of revenue by 2017, and we would expect mobile at that stage to be around about 60% of our overall revenues. We would expect cable to be about 30% and MFS/other digital services about 10% at that particular stage. So that's the trajectory we are heading to obviously, and we were actually well on track for that with post-UNE cable being about 25% of our revenues to date. And we have also seen, as you saw again in this quarter, the data accelerating again probably ahead of our expectations so that now, as Hans-Holger said, one in four of our customers are on data and using data services with us.
And we see that translating through to EBITDA. We highlighted at the Capital Markets Day there will be a little bit of gross margin adjustment, but our target is to get back to the 35% EBITDA margin by 2017.
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Bill Miller, JM Hartwell - Analyst [21]
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Yes, that's fine. But the mobile -- how much will be gained at that point? 50%? 70%? It's going to be a serious proportion which will be (multiple speakers).
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [22]
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Yes. You're right, Bill. We estimate it will be about 55% voice and SMS and 45% data by that stage. But our trajectory at the current level, quarter for instance, is ahead of our overall expectations. So we're going to be by 2017 around about 50%, 55% mobile, and then the balance will be coming from data. And that will move -- that could move very, very quickly given the uptake of our data customers.
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Bill Miller, JM Hartwell - Analyst [23]
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Great. Thanks very much.
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Operator [24]
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JP Davids of Barclays.
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JP Davids, Barclays Capital - Analyst [25]
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I have two questions, please. The first question is just on market share which you present in the appendices of your presentations. That has been broadly flat over the last few quarters. Given the amount of margin you're reinvesting in these businesses, is that something that worries you, or do you think that doesn't quite give the full picture in terms of the quality of customer you're attracting here?
The second question is just on a couple of your assets in Africa, being the DRC and Tanzania -- very notable upticks in the net adds for those two operations. Is that directly related to your moving out of the cities into the rural areas? Or is there some other factor driving that? Thank you.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [26]
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Yes, on the first one, you gave the answer by yourself. It is nothing which concerns us because we move from the total number of market share and customers more to focus on the high-value customer, which are the kind of key driver for us going forward. Hence, if you go into the customer segmentation more in detail in the market share and see what kind of customers to get, the picture is better and that's the reason we are not concerned in that one. Plus, the fact that sometimes the definition of market share, particularly in Africa, is different country by country, and it's hard to track it.
So, we rather follow the -- or see the kind of return of the investments we have done on the revenue growth and subsequently, of course, on the return on the investment. So that's to the first question.
The second is yes, we see good subscriber intake in Africa. And it is -- there are correlations, obviously, of the investments we did outside the capitals into the rural area. It is the investment in some of the markets we did when it comes to 3G, and data we have been pushing more aggressively. And it's the combination of -- or it's effect of the interoperability and the kind of efforts we made on the Mobile Financial Service side, which helps, of course, to drive customer -- increase in customer basis.
Plus, which is important for Africa to note is, it is a very young and still growing population, so the kind of addressable base is much lower.
The key point for us will be in Africa to keep this momentum on the growth, but as well to focus on churn because it's a very high churn market. So we see an upside for us going forward on churn in Africa. Hence, we announced today the launch of Tigo Music Box, which we know from Latin America, is a very nice churn preventative tool.
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JP Davids, Barclays Capital - Analyst [27]
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Thank you.
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Operator [28]
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Gonzalo Fernandez of Royal Bank of Canada.
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Gonzalo Fernandez, Royal Bank of Canada - Analyst [29]
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Could we maybe get an update on the upcoming spectrum auctions? I believe there's one in Honduras that might be scheduled for the end of the year. And then, maybe also on the regulatory reviews you're having in Paraguay and maybe other assets. Just maybe more broadly, what are the short-term risks you guys see to the business?
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [30]
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So spectrum auction, there is something coming up, indeed, Honduras, but we just made a big auction, maybe 12 months ago. We feel pretty well served now. So there is no need for us to look more aggressively. Otherwise there is nothing on the horizon, at least from my point of view in terms of larger spectrum auctions in our markets. So nothing which is unusual in that respect. Honduras is the only one I'm aware as well, but the assets -- we are not under pressure there. We feel fine what we have.
Did you ask for the review of the assets in Paraguay specifically or in general?
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Gonzalo Fernandez, Royal Bank of Canada - Analyst [31]
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Well, in Paraguay maybe in more detail and if there's anything similar coming up, just so that we're aware of.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [32]
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No, I think in Paraguay, I think, as I said the main focus was, as we said earlier in the call, the turnaround from the execution side, which with the new management we are very pleased is going in the right direction. So that's the one block.
The second block is in terms of the assets we really focus on all the assets we have, in terms of cable and mobile and content. So this is exactly the kind of play we want to have. And there is no need for us to add more assets, or there is no discussion that we dispose any kind of interest in Paraguay.
There is some discussion when it comes to the regulatory side in Paraguay in terms of interconnection charges, which may come, but it's nothing which we are much concerned of right now. We are in talk with the government and it will probably be normal course like we have seen in the past, so nothing to worry. So Paraguay seems -- it's a market very stable for us. It's just that we had some issues to fix internally, which we have done, and now we move forward.
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Gonzalo Fernandez, Royal Bank of Canada - Analyst [33]
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Okay, thank you.
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Operator [34]
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Luigi Minerva of HSBC.
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Luigi Minerva, HSBC - Analyst [35]
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Two questions, please -- the first one is on Ghana. I just wanted to understand if the price increases have been specific to Tigo or if it's a general market move and whether that is sustainable medium-term.
And secondly, on Colombia and competitive dynamics, if you are seeing any impact on your business from the MVNOs, for example Virgin Mobile, and whether bundling with UNE service is a good answer to their approach. Thank you.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [36]
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Yes. On Ghana it's the whole market which is increasing the prices. So it's a more disciplined market approach and sensible market approach. When it comes to pricing, which we are benefiting on as well and (inaudible) when it comes to data, of course, it's very crucial. You may have seen that we actually have become the second-largest operator when it comes to data in Ghana in the last week. So this is important to us and it shows that the market is acting sensible in that respect.
When it comes to Colombia, the MVNOs, so far no major impact. Virgin or whatever is something we follow but it doesn't -- affected our numbers or our intake. Long-term, obviously, it's a threat you have to -- it's a competition you have to look at. And exactly what you said is, well, we believe we can go all of this price debate to the value-for-money debate by bundling with UNE and bundling data access mobile and data access fixed and then, on top, strong entertainment services and other services. So people feel, even if the price relatively may be lower on MVNOs in the future, they get more value from us by bundling.
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Luigi Minerva, HSBC - Analyst [37]
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Okay, thanks a lot.
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Operator [38]
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Andreas Joelsson, SEB.
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Andreas Joelsson, SEB Enskilda Inc. - Analyst [39]
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Yes, a couple little questions for Tim. Could you give some guidance on tax rate for the full year, first of all? And secondly, on net financial items, is this a run rate that we should expect going forward, or is there any positive items we could expect for other financial items? Or is the $86 million in this quarter -- is that entirely related to the puts option? And thirdly, you gave an UNE guidance at the Capital Markets Day. Is that still valid on sales and EBITDA?
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [40]
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So in reverse order there, the UNE guidance is still valid. We are certainly on the run rates on revenue. We did slightly better in Q3, but I still will hold the guidance we gave, full year, of $120 million. There has been a little bit of currency devaluation there since we gave that, but -- so I'll leave that. In terms of the other nonoperating income, the $86 million that's a credit in our P&L this quarter, it is almost entirely to do with the put options revaluation. Those get marked to market every quarter, plus there's some offsetting FX adjustments in there. But it's all non-cash and probably not want to dwell on too much.
In terms of the tax, this is -- our tax did move around a little bit in the quarter. We had some adjustments to a deferred tax liability and the deferred tax asset. But in overall terms that's -- I think I've given guidance in the past, so we expect it will be, for the full year, around about the [300, 350] level. And I think that continues to hold. Giving effective tax rate is not that easy for us, given the fluctuations of the puts and call option I just talked about. So we have given a bit more help on absolute.
Does that cover the question?
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Andreas Joelsson, SEB Enskilda Inc. - Analyst [41]
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Yes. The net financial items, the operating net financial items -- the run rate you had in Q3 -- is that what we should expect going forward as well?
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [42]
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You are talking about the interest, the net financial expenses --
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Andreas Joelsson, SEB Enskilda Inc. - Analyst [43]
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Yes.
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [44]
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-- With the interest? Yes, yes. Again, I think that's a good proxy for, certainly on a P&L basis. Again, I think we would expect about $400 million from the full year now, which is -- year-to-date we are $300 million. So that's about right, $100 million a quarter.
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Andreas Joelsson, SEB Enskilda Inc. - Analyst [45]
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Perfect, thanks.
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Operator [46]
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Chris Grundberg of UBS.
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Chris Grundberg, UBS - Analyst [47]
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I just had a couple of quick ones -- just a clarification on the Rocket and the LAH developments. Can you say -- are you looking for a further telco partner in the region for that entity? And if so, can you give any update on the discussions there?
Then secondly, just specifically on the DRC, any extra color on the expanded coverage and the push into the Kivu region? Actually, there's some commentary. Just any extra color there would be helpful.
And then lastly I think you pointed out in the presentation that you are getting at least an uptake of pay-TV customers paying with MFS. Can you be specific? Can you say how many customers now are using MFS as a payment mechanism and where that could get to? Thanks.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [48]
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Yes. If we start with the first one first, the LAH, the idea of course is to run the company forward and the business forward as it has been, and they are doing very well in terms of their financial targets. We have to take it case-by-case, really, and opportunistic. If there's more cash needed, we don't needed at this time. But if there's more cash needed in the future, how do we do it? And if we bring in partners on the individual business or if we bring it on the holding level. And in some cases, as Tim mentioned earlier, if there are good opportunities on the individual basis we may even put in some money.
I think -- and so the business is self funding at this stage and then the rest we will see when it's coming. Just to highlight, as well, for us, the reason why we take a different approach is that we have enough opportunities to grow our core business at this stage, so we don't see the need or the reason to allocate capital in this one. The returns are closer to our core business in mobile and cable and the other things we're doing.
If it comes to the push into the DRC regions and Kivu in particular, a large part of the subscriber intake in DRC is based on the expansion to the region, so the pickup is very strong and should continue there. And therefore, the step was right. And we can see it as well when it comes to the volume of money transfer, for example, from the Kivu region to the capital, on MFS it's a big push in that respect. So, we can see that the regionalization strategy is working when it comes to DRC. However, keep in mind it's a huge country so there are much more regions we haven't covered there. It's a step by step and a slower approach to cover the whole country.
If it comes to the pay-TV side, I don't have the exact figure. But I know that a large number of the DTH customers are using -- a large number of them DTH customers who are Tigo customers are using MFS as a payment system, which was a surprise for us as well. But it shows the strength you have in terms of high bundling across various products. But having MFS as the payment infrastructure -- if you want to have the exact figure I will have to contact you after this call. But it's just an early indication how we combine the various assets we have in the Company and use intercompany synergies.
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Chris Grundberg, UBS - Analyst [49]
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That's helpful, thank you.
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Operator [50]
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Lena Osterberg of Carnegie.
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Lena Osterberg, Carnegie Investment Bank - Analyst [51]
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I was just going to ask you a little bit on, first of all, on Africa, the margin. If you adjust for the restructuring charge you are back down at the 23% level, where you were last quarter. So I'm just wondering is it the marketing spend that varies between the quarters? And what should we expect into the fourth quarter and next year?
Also, if you could say something about if you have any opportunity to refinance UNE's debt, the existing debt that they have? And also if you could shed some light on the integration cost, how you expect that they will come of the next few years, how much next year, and how much the following years.
Then I have a question -- wondering a little bit about the MFS customers. How do you measure an active and inactive customer? What sort of churn measures are there? What causes customers to leave?
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [52]
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If I start with the margins -- because it was a long question -- with the margins in Africa, it is indeed, of course, marketing costs and sales costs you have and campaigns you are running which are giving the swings. And then it depends a bit on the markets you are in and the momentum. So, for example, Senegal would have been a bit more aggressive during the quarter than would have been other places. And those are the kind of variances you have.
When it comes to next year, we don't give any guidance into next year. But we should see that the investments we have done should result, of course, in returns as well in Africa. So the margins should improve in the coming quarters and towards next year as well. To what extent we are going to communicate closer to next year.
But this is very important. Africa is really a kind of place of investment right now. It's grabbing market share. It's grabbing new customers and it's grabbing the kind of transformation into new service like MFS and music now and those kinds of things. So it is the place with strong growth. But obviously, it comes with certain kind of investment as well.
That's about the margins. I'll take maybe the MFS customer and then Tim can talk about UNE integration costs and the other question. So MFS -- normally, if a customer doesn't have any transaction within the timeframe of three months, I think -- there may be some slight variances between the countries -- then we tell -- it's a nonactive customer and we take them out. The reason they are churning -- and again, this is not very sophisticated because it's a lot of prepaid and we don't have all the datas always on hand is normally that people simply switch accounts or have no money to send or don't you see the kind of usage. Many customers however -- and this is blurring the picture, but -- so many customers have even double SIMs, so they have -- and they have two bank accounts, one with us, one with competition or even three times so they can send money easy around the economic network.
So churn is not the biggest focus right now. The biggest focus really is more the kind of volume and getting the customer base up in [that field].
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [53]
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Just on a technical basis, we used the same churn definition we use for mobile customers, namely 60-day access. So if they have performed a revenue-generating event in the last 60 days, they are still active on our numbers.
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Lena Osterberg, Carnegie Investment Bank - Analyst [54]
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Okay.
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [55]
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And in terms of UNE integration costs, we haven't changed from the Capital Markets Day. We said $105 million phasing roughly 50-50 into 2015, 2016. Again, we haven't fully fleshed that out at this stage. But I think that's a decent rule of thumb.
And which is the question we have an answered? The UNE debt?
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Lena Osterberg, Carnegie Investment Bank - Analyst [56]
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Yes, if there is an opportunity to refinance that, also maybe if you could say what rates they are at versus your rates and if you think that you will refinance that debt and if that would bring lower interest cost.
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [57]
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And we will be doing some fairly sizable refinancing of the UNE/Tigo business in Colombia. And part of the first stage there will be to refinance an intercompany loan that Millicom has got down there.
The UNE debt -- I can't recall exactly what rate it is. I didn't recall it being massively out of the money. But we are really just looking at the capital structure down there. There will probably be some work we can do and give you a bit more visibility, I think, on Q4.
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Lena Osterberg, Carnegie Investment Bank - Analyst [58]
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Okay, thank you.
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Operator [59]
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Stephen Bechade of Citi.
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Steven Bechade, Citigroup - Analyst [60]
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I got a couple of questions, if that's okay. The first one is on the UNE margins, which seem to have increased from around 23% to around 26% now. Maybe you could give us a bit of light as to how you've got there.
Secondly, it's probably a bit early to talk about when a trough in Honduras might be coming. But maybe you can tell us what are the key causes of the negatives in Honduras and when you think you might return to grace there?
Then also Paraguay regulation -- I think most people are aware that the MTRs are under review for changes in 2015. Maybe you could give us a bit of light as to what you expect and whether you've given any investment commitments and the progress you've made on getting a satellite TV license there.
And then the last question is just on the $9 billion -- rates for the $9 billion revenue guidance for 2017. Will that be in 2017 foreign-exchange [key]?
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [61]
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Starting with the UNE margin, I think we've changed our view on it particularly. Bear in mind we gave guidance for the Capital Markets Day after we had about six weeks of the business in our hands. I think it's performing well. We are pleasantly surprised by it. There was probably a couple of percentage points in there that was due to the -- perhaps a one-off revenue line. But no, I think it's performing quite nicely and we are very happy with it, thank you.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [62]
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So maybe -- I'll just add it on because I think the question was as well, what any kind of a special effect during this quarter and the additive -- now, the margin is -- simply underlying margin performance is strong in UNE at this stage.
When it comes to Honduras in the competitive landscape, as far as we understand that was your question, I don't think there is any kind of major change. It's the kind of battle we had in the past with Claro and the other players. But it's more about the market environment, the GDP situation, and the regulatory environment which is the concern so far. That has been affecting us in the last 12 to 16 months. The operation actually is doing pretty good and can hold up the performance in terms of market share. And of course, we are rolling out cable there as well so we should see the impact of the bundling offers going forward in Honduras.
It is a tough environment. But the business is doing, in this tough environment, satisfactory.
When it comes to the -- to Paraguay and the regulatory changes, there is a discussion indeed, as we mentioned earlier as well, and we expect an MTR cut to be announced in the coming weeks. The cut we focus is around 40%. But we don't see -- and this is the most important point for us -- we don't see a regime of asymmetric MTR being implemented. So it should be manageable and normal course of business, so nothing which is of concern to us. And as we sit as well earlier during the call, we are in a dialogue with the government there as well.
When it comes to the $9 billion revenue target by 2017, obviously we are not the experts when it comes to currency forecasting and how currency will move. But the normal kind of currency movement affects us. In this extraordinary movements on a larger scale in several countries like we have seen, for example, recently in Ghana, then of course we would have an issue. But until then I think we don't see the risk to hit -- or the target will be missed because of the normal currency movements.
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Operator [63]
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Rodrigo Villanueva from Merrill Lynch.
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Rodrigo Villanueva, BofA Merrill Lynch - Analyst [64]
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Two questions, please -- my first question is related to corporate cost, which declined by 14% quarter on quarter to $57 million. Is this the new run rate we should forecast going forward?
And secondly, Tim talked about a one-off at UNE. Could you please share with us the amounts? Thank you.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [65]
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If I take the first one, unless Tim wants to stop me, I think the corporate costs -- I would be careful to look quarter by quarter or quarter on quarter. I would rather look on a rolling basis where you can see that the kind of cost increase we had are stable. It is something which we will stabilize going forward as well. And just to get this point one more time over, which is important to us -- in the corporate costs we have a lot of the in-development costs and new business we have been launching in the last couple of -- 24 months embedded as well. So it's not just that it's just non-value destructive or non-value creating cost, it's value-creating costs as well in those elements.
So, depending on how much new business activity we do, which we said is going to slow down a bit because we have all the kind of things in place, the cost will stabilize as well. But don't see a quarter on quarter and don't take this quarter as a run rate going forward.
The one-offs in UNE I hand over to Tim.
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Tim Pennington, Millicom Interanation Cellular S.A. - CFO [66]
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It was only a small revenue one-off. Again, it wasn't significant, $4 million out of $186 million.
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Rodrigo Villanueva, BofA Merrill Lynch - Analyst [67]
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Understood. Thank you very much.
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Operator [68]
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Due to time constraints, I would now like to hand the call back to the speakers for any additional or closing remarks.
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Hans-Holger Albrecht, Millicom Interanation Cellular S.A. - President and CEO [69]
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So thank you, everyone, for listening in, in this conference call and all the questions which have been asked. As usual, if there are more questions don't hesitate to follow up with me, Tim or Nicolas over the next coming days. And otherwise we hope to see you again for our conference call on the fourth-quarter results, which will be in 2015. Until then, all the best and stay tuned.
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Operator [70]
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That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
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