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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and good afternoon, ladies and gentleman, and welcome to the Millicom Financial Results Conference Call. Today's presentation will be hosted by Chief Executive Officer, Mauricio Ramos; and Tim Pennington, Chief Financial Officer. Following the formal presentation by Millicom's management, an interactive Q&A session will be available.
I would now like to hand the call over to Michel Morin, Millicom's Head of Investor Relations. Please go ahead.
Thanks Vicky, and hello, everyone. Welcome to our first quarter 2018 results conference call. And before we begin, let me draw your attention to the safe harbor disclosure on Slide 2 of the presentation, which is available on our website.
So with that, let me hand the call over to our CEO, Mauricio Ramos for his remarks. Mauricio?
Thank you, Michel. Good day everyone, and welcome to our first quarter call. As always, I'm here today with Tim Pennington, our CFO, whom you all know.
Before we get on with the quarterly results, I want to make sure that you are all aware that yesterday we reported that the U.S. Department of Justice is closing its investigation on Millicom in relation to the matter that we self reported back in October of 2015. Millicom is no longer under DOJ investigation and no fines were imposed on us.
We are obviously pleased to share this outcome with you. During the last quarter call I spoke about key growth being a purposed agent of positive change in all the communities we operate in. We have shown now with our actions what it means to act with the highest levels of transparency towards you and towards our communities and to act in full corporation with authorities.
We have done the right thing, and we have done in the right way as I said 2.5 years ago that we would. And the outcome is extremely positive and the journey has helped us make great progress in building a world-class compliance organization.
I wish to thank all the members of our Board past and current for their support and guidance they have given us in this process, and also our compliance legal and communication teams for their great job they have done to get to this point today.
Now let’s start with the highlights of the quarter on Slide 4. In a single sentence we are very, very pleased with our results. We kicked-off the year with LatAm service revenue growth accelerating to 3.9%. This acceleration is coming directly from our strategic business which now account for 70% of our revenue on our growing 12%.
We had another record quarter in terms of stronger 4G and cable net adds and growth is now positive in everyone of our Latin American countries, a strong quarter all around. Now let’s get on to some details beginning on Slide 5.
This is now where our third consecutive quarter of positive LatAm service revenue growth and Q1 was our strongest growth in more than two years, we are accelerating. The chart on this page speaks for itself. The key point is that this turnaround is the direct result of our strategy. Our capital allocation focus on 4G and cable over the past three years is paying off.
The turnaround is now solid and stable. 70% of our service revenue is now coming from mobile data, cable and B2B. You can see the details on Slide 6.
The chart on the left shows that mobile data is both our fastest growing business and the biggest contributor to our 3.9% revenue growth in the quarter. Mobile data grew 80% in Q1 and it is now large enough to offset the decline in our legacy mobile voice business.
Home grew a strong 8% again and B2B grew 9% during the quarter, so strong all around. As you know we have been investing to accelerate our transition to a data centric revenue model. The right-hand chart shows that our strategic revenue lines mobile data, cable and B2B now represent almost 70% of our total service revenue.
This is not only boosting our growth rate, it is also making our revenue more stable, more recurring and more predictable in nature because a lot of these new revenue is indeed subscription based.
Slide 7 gives you historical perspective on each of these strategic lines of business. You can see that the high growth rates for the strategic businesses are broadly stable. These businesses are getting bigger every quarter and now generate a larger and increasing share of our revenue as I have just said about 70% now, and growing double-digits. And the legacy business is getting smaller and smaller and its rate of decline is moderating. The result is a strong overall 3.9% service revenue growth rate for the quarter.
Let's look at this more closely on Slide 8. The left-hand side shows a growth rate of our LatAm mobile business. This is the mobile business itself both legacy and strategic mobile data on a combined basis. On this basis, mobile grew almost 1% in Q1. Our mobile business itself has returned to growth and this is thanks to mobile data, the 4G network that we build and the price discipline we have kept.
In Guatemala for example, northern growth hit more than 4% in this quarter. This is the result of the strong 4G investments we made in Guatemala in the past few quarters. The chart on the right shows you that mobile data is now generating almost 50% of our total mobile service revenue out from only 25% only three years ago.
Now remember that only 24% of our customers are on 4G today. Therefore we are still in the early days of monetizing mobile data in our markets. Paraguay and Bolivia in particular have been growing strong in the past few quarters and now Guatemala has 15.
As you know the improving growth in our mobile segment is a direct consequence of our investments in 4G of the past few years. You can see this on Slide 9. We have increased the number of 4G based stations by almost 50% a year-over-year and our 4G networks now cover almost 60% of the population in our Latin American markets.
Our 4G technology is now more widely available with 4G user experience is simply superior and as a result we are seeing strong user optic just as we expected. In Q1, we added almost 650,000 4G data users. This is our strongest ever performance for our first quarter.
Now let's take a closer look at our home or cable business on Slide 10. The main message from this slide and quite a powerful one is that commercial momentum is accelerating in our cable business as well. Our equity stories predicated on the strong pent-up demand for Pay TV and high-speed fixed broadband in the region. We have therefore been building high-speed data networks at quite frankly net breaking speeds. And now we are ranking up the stops quite strongly.
In Q1 we added a record 91,000 homes connected to our HFC network. These 91,000 cable net adds are three times more than what we did just two years ago in Q1 of 2016. Needless to say, we are well on track to reach our target abating 300,000 net additional connected cable homes for the full year.
And note that we keep bundling on new sales and on existing subscribers. So our revenue generating unit counts are growing even faster than our homes connected and our bundling ratio is therefore increasing. This is simply the tried and tested cable playbook that we're putting in place everywhere.
The cable net adds are strong no doubt, but the most important point is the continued confirmation that there is strong pent-up demand for high-speed data in our markets. In fact, look at our earnings release and you will see that we're adding subscribers while ARPU is going up. We are taking price increases quite consistently in cable now across our markets. And this simply confirms why it makes so much sense to strive as fast as possible towards our goal of passing 15 million homes with our cable network in the region.
Simply said, we are not only building network at record speeds, now we are also connecting subscribers at record speeds. Our cable, B2B and mobile data strategy is now yielding results in all of our Latin American and you can see this on Slide 11.
Not only is growth trending higher in every single country, but growth is now positive in every one of our six largest Latin American markets. Paraguay and Bolivia continue to grow at high single digits and now Guatemala is showing strong acceleration in Q1 driven by mobile data, cable and B2B.
We still have a lot of work to do of course, that is always the case but note that Colombia and Honduras are coming right behind in terms of revenue growth. We are executing there the very same playbook that we are executing everywhere else, and you can see that growth is now positive and improving in both of these countries.
A note on Colombia, note that about a third of the record 4G and cable net adds this quarter came from Columbia. We are clearly investing for growth in Colombia both CapEx and OpEx and strong subscriber at net adds do increase in subscriber acquisition costs in the short-term. Note that, that is also means long-term revenue growth and in Q1 we saw both of those in Colombia, strong net adds and improving revenue growth.
Next, let me recap what we’ve been doing and where we're headed on Slide 12. Penetration of 4G and fixed broadband is still very low in our market. This gives the business opportunity that underpins our equity story. We have strong global market leadership and a powerful brand. Therefore, we are leveraging the unique assets to build high speed data networks as fast as we can.
And now we have demonstrated that we're adding customers at a record rate and revenue growth is positive and now accelerating. We have successfully reconfigured our revenue mix. Only 30% of our revenue mix is now legacy mobile, voice or SMS. And while we’ve been doing this, all this while we have been expanding EBITDA and operating cash flow margins and unlocking over 400 million of free cash flow generation.
We also now have a world-class of [indiscernible]. Our network build rate is first-class and so is our customer intake rate. We have added over 3.7 million 4G users in the last 12 months and 282,000 new cable subscribers in that same period and this quarter has seen an acceleration in the net add rates on both 4G and cable. So, all of this is really working.
And now that growth is back and subscriber additions are accelerating, we are focusing on further transforming our business to improve both our effectiveness and our efficiency. In a series of initiatives underway that are starting to produce positive results in terms of both [NPS course], customer satisfaction and cost reductions. One of the levers we're using to transform how we do business and put customer satisfaction and reduce cost is digitalization.
On Slide 13, you can see some screenshots of our digital platforms for prepaid customers on the left and for our postpaid customers on the right. We haven’t made a lot of noise about these yet largely to keep our stories simple and focus to you but we’ve been very busy on this front and our customers know it. Already 38% of our core prepaid customers use our mobile app Tigo Shop. We are using it for things like checking the balances and to do top-ups.
As you can see in the second chart on left-hand side of the page, the number of digital transaction has been growing rapidly and now reaches more than 25 million per month. Postpaid customers are also engaging with us. About 70% of them already use our digital tools at least once a month and the number of unique monthly active users continues to grow rapidly as you can see in the charts. This is an interestingly high customer engagement level on digital.
It is also strong potential for further cost savings here and the key to do that is improved digital customer experience. Customers are interacting with us via digital platforms do so more often than the rest. They have a stronger satisfaction level, they interact with us more cost effectively, they actually generate more ARPU on [churn left].
They are very happy with the strong focus and their success we are getting on digitizing our business. And do think this is key strategically. Only through digitizing we will make strong inroads into reducing the cost structure of our legacy prepaid business and further transform Millicom.
With that, let me pass it over to Tim to go over the financials.
Thank you, Mauricio. Now before I go to the numbers let me start by saying a few words on the economic outlook in our markets.
Starting on Slide 15, we are seeing a relatively stable micro-backdrop. GDP growth across our footprint is expected to be in the 2% to 4% range for this year and looking at it specifically, the economy has been sluggish for some time now but there is room for a little more optimism in 2018 and if I'm looking more closely at the consumer confidence that's marginally rose to its highest levels for more than a year.
Inflation continues to fall and there is an expectation there will be a pickup in economic activity in the second half of this year back to the presidential elections albeit within the economy is likely to remain fragile in 2018.
In terms of currency, most of our currencies have been pretty stable although appreciating again the dollar while the Colombian peso as shown here on the slide and as a result of this we have a circle one percentage point tailwinds from effects in our Q1.
Let me turn now to the key financial metrics for the group on Slide 16. We're reporting our numbers under IFRS 15. The impact is not significant and all the organic growth rates we are reporting are like-for-like that is adjusting for the IFRS 15 impact, as well as usual adjustments for FX and changing perimeter.
So group service revenue was up 3.6%. That compares to growth of 2% in the last quarter and a decline of 1.7% a year ago. EBITDA was up 1.5% and now adjusting for one-off items underlying growth was closer to 4% and likewise underlying margin was about 10 basis points higher than Q1 '17. So overall we saw a strong performance across the group in the quarter.
The group performance is being driven by LatAm, the key financial indicators are on Slide 17. And in particular as Mauricio mentioned, we saw this return to growth in Colombia. It was the best quarter for two years. Bolivia and Paraguay are both maintaining great momentum and Guatemala had an exceptional quarter.
So that left us with service revenue growing at 3.9% and that marks our fifth consecutive quarterly improvements here. And you heard it from Mauricio, it was really supported by just the 1% return to growth of the mobile B2C business driven by data and a slowing of the legacy revenues.
However B2B also maintained the growth rates we saw in 2017 up 7.6% and 8.9% respectively. I’ll come back to LatAm EBITDA in a couple of slides and on the OCF, it's fallen a little bit, but this is mainly on CapEx planning differences.
Let me first turn our attention to the group EBITDA and compare to the same quarter last year EBITDA at $554 million grew by 2.3% of which 1.5% was organic and the remaining 0.8% was a pick up from favorable FX and that very small IFRS 15 impact.
I think it is more instructive for us to look at the underlying EBITDA trends by country on Slide 19. And here you can see that we've really had momentum in pretty much all of them. Honduras and Guatemala both saw very strong EBITDA growth 9.3% and 8.4% respectively. Bolivia would have grown a 5.7% without a 6 million deferred revenue adjustment, and Paraguay by 14% on a like-for-like basis. Colombia saw an 8.5% decline and this was a combination of a very strong comp in Q1 last year, but much of this reflects the increased cost in respect of our commercial activity.
So let's look at the cost in a bit more detail. Slide 20 on the left hand side actually is the operating cost of the quarter and for the first time in many quarters our overall cost increased. Now excluding the IFRS 15 impact the OpEx increased by 6% versus 4.5% on the slide which is 6% excluding IFRS 15.
But if we adjust for FX and we adjust for one offs, our normalized OpEx growth was 3.2%, which is in line with our revenue and is rising pretty much from the increased commercial activity associated with the ramp up in sales Mauricio talked about.
So overall we are confident that the efficiency focus on project peaks, will continue to drive results and in our ability to continue to drive margin. As the right hand side of this slide demonstrates, the trailing 12 months EBITDA margin is at 360 basis points since we started this journey.
Turning to the P&L review on Slide 21. Unlikely of the company is our 2018 account IFRS 15, however the impact is minimal. Service revenue impact was 1.3% and EBITDA by 0.1%.
Also note, on item B the net finance charges were $10 million down resulting from the financing activities. Tax was slightly lower withholding tax which is just a timing difference and MI is a little high on higher profits in Guatemala.
Despite the higher challenge in discontinued operation reflects a technical impact in respect to recycle, the ex-plus is following the disposal of lender.
Turning to Slide 22 now, the cash flow, cash flow remains robust pretty much in line with Q1, 2007 in fact. The working capital has swing as a little higher which we expect is we’re becoming more subscription based. There are some puts and takes in taxes minority dividends and finance charges, but mostly very much in line with last year and as was the equity free cash flow.
That's pretty much in line with the end of Q4 and in Q1 we did have spectrum charges. We had the acquisition of 700 spectrum in Paraguay and renewals in El Salvador. Also the strength of the Colombian peso gave us an FX translation impact, leaving net debt at $4.1 billion. Revenues ended the quarter at 1.87 times on a fully consolidated basis and on a proportionate basis a little over 2 times.
This brings us to the end of the presentation. And let me hand back to Mauricio to wrap up.
Thank you, Tim.
As I mentioned at the beginning of the call, we are extremely pleased with our results. Momentum in the business is back. Growth is positive and it is accelerating. Net adds are at record levels. Every country is now growing, and we're hitting our targets for the year. Or said differently, our transformation is now real and stable.
With that we're ready for your questions.
[Operator Instructions] We'll go first to Julio Arciniegas with RBC.
Can you give us some color on how the copper cable upgrade is revolving in Colombia and should we [finalize] with this upgrade this year. And also related to that, are we seeing some better trends regarding the churn-off the copper subscribers in Colombia? Thank you.
I think generally speaking on the copper network, we are down to about 0.5 million copper homes 400 or 500 in Colombia is down from about 900 to 1 million a year ago, give-or-take. That gives you an idea of the size of the network today.
And as you can imagine that's a network that had and still has quite a bit high levels of customer penetration levels simply because of its historical nature and we will continue to reach higher that network throughout the course of the year and into early next year. That's a timeframe and we'll continue to move many of those subscribers into our agency network and so that the legacy into 2019 will be much smaller.
And you're seeing that comes through the subscriber count and the revenue growth in Colombia. The HFC net adds are nothing short of very, very strong in Colombia but they are tempered for a period of time by the copper cutters, if you will.
I think that's important overall in Colombia now taking a question to move there a little bit is that you're seeing an inflection point in Colombia's revenue growth and you can see it is now positive and it is now returning to growth, accelerating even a little bit.
And the more important thing as I always say, is that, if the net adds that you need to watch, that's the telltale into the future and the net adds in Columbia this quarter were about a third, fourth and 4G in cable of our entire net adds across the region.
And if you look closely at our net adds counts in Colombia and you can have access to the disclosure of some of our competitors in the region, you will clearly see that we’re trending increasingly better in our market, not only in terms of subscriber counts, but in terms of revenue growth.
And competition is strong there no doubt but on the mobile market is a lot more stable than it was a year or two ago. We’re beginning see mobile in Colombia return to more positive momentum. We added about 200,000 4G subscribers there and with good ARPU. So we see that in mobile all those harder and monetize data there than it is everywhere else no doubt. The reconfiguration in Colombia is happening.
And on the fixed side, we connected about a third of the homes we connected as I said for the entire region and our HFC build is as strong as ever. We built about 140,000 in this quarter and our B2B business in Colombia is quite strong and that’s just not only the large corporations and the contracts that Tim alluded to but it is growth in a steady part.
And so overall although it remains behind the rest of our countries we see an inflection point and quite positive trends in Colombia.
And we'll go next to Stefan Gauffin with DNB Bank.
Yes, couple of questions. First one relating to Colombia, can you give some more information relating to the B2B contract that you won in Colombia for congressional and presidential elections. How long time will you have those revenues and what are the costs associated with this.
Secondly in El Salvador there is a quite big drop year-over-year in B2C mobile subscribers and you mentioned that you focus on the higher value segment, but you lose 20% of the subscribers in one year. So can you give some more details there if it's competition or what this? Thank you.
Yes, I’ll take a little bit of a Colombia one and then maybe comment partially on El Salvador and pass over to Tim for additional comment. In Colombia B2B contract is effectively a connectivity contract. We are effectively the connecting party for the presidential elections. As a result of that, we incurred in some preparatory and setup cost during Q1 for revenue that effectively is more back ended towards Q2 and Q3.
The first wave of the presidential elections or the first round is in Q2 and immediately following that there will likely be a second round of the presidential elections. So that revenue is back ended. I'm not sure that we're providing specific details on either the costs of the revenue, but that's part of why you still in the Q1 cost is the build up to that.
And as I said earlier, B2B in Colombia has been strengthened going forward not only because of this contract, but also because of the strength of the pickup in SME subscribers for the last 12 months.
And on El Salvador on the B2C counts, there is couple of effects there the [present] effect that we’ve talked about so very often. And then just some cleanup of subscriber counts after we transitioned our IT systems in El Salvador about a year or so ago and the combination of those two give you that reduced subscriber count.
The flip side of that is that you can see that apart to the present effect and the IT hiccup last year is now coming back to very strong revenue growth. Tim, anything I missed there?
I’ll just add two things Mauricio, one is just on that B2B contract and the electrical contract and I think it’s a great contract us to have. And it is lower margin in our average which is one of the reasons why the Colombia margin is a little bit lighter.
And also we did incur quite a lot of setup costs in respect to that sort of last month transmission costs and people costs so that's one of the reasons why our costs were little bit higher this quarter than maybe we seen in previous quarters, but made a very, very contract now.
The second question on El Salvador and subscriber reduction it’s a base cleanup Stefan, it's a bit of base cleanup in the first - I think in the first quarter of this year and yes there is a corresponding improvement in our position and you should look at but nothing more than that.
We'll go next to Richard Dineen with UBS.
Just a couple of questions if I may. On Colombia mobile you mentioned that the competition is pretty strong there and there something that America mobile also commented on this quarter. If you maybe just explain a bit more about that dynamic, what’s driving that and if you think it’s likely to be sustained or whether it might subside?
And then just sort of second question a broader question if I may, we’re seeing a few markets in LatAm that are starting fixed wireless broadband services using 4G technology in areas where perhaps the network is less loaded where it makes less sense to roll-out cable. Just wondering whether that may start to figure in your thinking or if it's just really the sort of broadband side is purely a fixed prospect for you guys that would be super interesting. Thank you very much.
Listen on Colombia I think the comments are competition remains strong there in the mobile marketplace and the dynamics there which are well known to everybody is that we have a very strong player in that marketplace and a couple of smaller players that are fighting for space.
That combination makes for a difficult competitive environment. Those are the dynamics there. The key point is that it is a lot more stable today than it was one to two years ago when the mobile revenue for the entire country was decreasing almost 15% on our business.
If you look at our results you see that things are stable now, flattish to stable and if you look at the public result of our competitors despite competition you see a lot more stability. Going forward long-term it's hard to imagine that the smaller players will have a lot of air going into the future, but your guess on that one is as good as mine.
I think what matters going forward in Colombia is that you have only a couple of large players that are investing heavily in fixed and mobile and angling themselves for a convergent play down the road.
And that network superiority, that combination of fixed and mobile and the ability to provide the next generation mobile and cable services will make a difference. If you can bundle your mobile with a top-notch state-of-the-art fixed network that provides next generation and high broadband services to the household, you’re going to come out on the winning side and that’s the long-term outlook that I see for Colombia and while we’re being so bullish on investing there for the long-term.
And the second part of the question, you know fixed broadband I can imagine that that may make some sense for mobile only players that do not have the unique opportunity that we have to build cable at great making speeds that we’re building it 1 million to 1.5 million homes. And are seeing the pickup in cable that we're seeing.
I’m a cable guy, the company is becoming a cable company building a cable footprint underneath our mobile. It hard for me to imagine that there is a superior technology to offer broadband to the household than cable, even though we have the superior 4G networks in just about all of our markets.
So wherever we can get to a household with cable in an economic way, that what's we’re going to do because that's consistent with our long-term strategy. It's not just about the economics of cable it’s about the amount of spectrum that you can create for yourself, the amount of speed and bandwidth that you can offer but also the fact that you can put through a next generation Pay TV product and converge all that with your mobile business, fixed broadband does not offer you that level of strength but on just cable.
Thank you so much for this comments Mauricio, and the team thanks a lot. That’s helpful.
Thanks Richard.
Rich I would just want to add one quick thing on the Colombia and market conditions, I think the economy is not insignificant in overall, and as we've seen in all of our other markets, fairly solid GDP growth. But it remains as I said in my introduction little bit sluggish in Colombia which tends to make kind of people fight a little bit more for us in that type of market now.
I think generally consensus we use the opportunity for the economy to start to improve towards the second half after the elections, it doesn't guarantee that we will change the competitive environment but it's - hopefully things will get a bit better later in the year.
We don’t want to sound overly positive, but Columbia has done an inflection point for us in revenue growth that's quite clear. It is now positive on growth. It's accelerating, it's being net add and 4G and cable, and we're gaining a little bit of share and you can see that on the public reports.
And we've launched in Colombia and this is part of what's happening there, a very strong next generation TV product with our raised feeds and continue to build HFC. So that's all the positive mix that makes us be bullish towards the future.
And we will go next to Johanna Ahlqvist with [AEV]
First of all you have a fantastic growth in the number of well connected households in LatAm and I'm just wondering on the ARPU side because the ARPU only grew like half a percentage point in the quarter. How you foresee ARPU growth in the cable business going forward?
And then secondly if you can comment anything on a potential U.S. listing if you see the advantages of doing that or not? Thank you.
Indeed we’re very, very pleased with the fact that we're not only now building network, but we're connecting cable subscribers. And as you see on our – disclosure ARPU picked up yet again a little bit on cable and that's because we are taking price increases in a fairly regular manner across the table.
We did a little bit of that in Colombia earlier this year. We did a little bit in Paraguay call it 2% to 3% in Bolivia about the same about 4% and Honduras a little bit more. And that's what's driving that APRU up. It is actually quite significant that you can have these meaningful fantastic pickup in net adds and also at the same time be driving ARPUs up.
And part of the reason we're doing that is because there's pent up demands. We have the ability to do it. We have the pricing power to do it. Subscription cable allows you to do that, but also because we want to create room and need those early subscribers so that we can continue to further penetrate the lower excellence of the penetration gained in the region. This is a table one-of-one we’ve being doing it for 20 years and we need to create that space for the new subscribers.
So we foresee that we can continue to sustain and bring APRU up a little bit while, we continue to generate penetration level for our cable business as we continue to add subscribers. And on the U.S. listing we have indeed been getting tons of questions from analysts and investors on the matter. The matter of fact we've reached out to many of our shareholders to understand their thoughts and it’s quite clear from our interactions that this is something that all the U.S. is extremely positive for our story.
The benefits I think are clear in our minds. It would provide a company and investors with enhanced liquidity it would give us access to a larger pools of investors which I think is also very positive. In a sense to the U.S. investors our U.S listing would actually give them at least to a dividend in dollars which I think would be a positive. And we begin to see that a possible U.S. listing would give us larger research coverage, all of these with little to no downside other than some additional cost which I think is good for the business.
So we started engaging with external lawyers, accountants and bar carriers. We've got teams working on it all. We've also hired consultants to help us get ready for Sarbanes-Oxley compliance. We've had early discussions with both the New York Stock Exchange and the NASDAQ to better understand timing and cost. So we see this as something that has tons and tons of benefits. We're working on it, but as with everything else that we do, I expect this to be very diligent about it before we make a final move on it. So just stay very tuned and be patient on it.
And we’ll go next to Lena Osterberg with Carnegie.
I was wondering a little bit if you could say something about the revenue growth progression throughout the year because you're running into tougher comps in the second half if you expect that with the strong stronger net adds that you see now that you still be able to keep growth rates up. And then maybe my second question will be on the Ghana merger it will be really interesting to see, if you could share some thoughts on how that's going? And how you’re dealing with the synergy implementation?
I'm going to give Tim couple of minutes to prepare on the Ghana question since he does sit on the Board. On revenue growth, indeed as you can imagine we are for this quarter on the top end of our guidance for the year. We are quite frankly a little bit ahead of our plan our internal plan which is good and houses very happy as you can see. But part of the reason indeed our guidance for the full year is 2 to 4 is precisely because the second half does bring tougher comps.
The combination of two things us being a little ahead of our plan, but also knowing that we got
tougher comps in the second half of the year leads us to still be you know had a little bit conservative on not changing our guidance beyond what it is, simply because it's early on. It's a great start but it's only the first quarter. I hope that helps you a little bit. And of course this is one of those tricks you learn in life in a subscription based business.
If you want to make your full year numbers you better add the subscribers in the first quarter and a ton of those subscription subscribers for us because they’re 4G and the cable about 70% of our 4G net adds are actually postpaid net adds.
So as a result of that this quarter has given us the ability to rank up the subscribers in the first quarter. That's an old trick that we're happy to be able to put in place this year. And it does give us a little bit of comfort for the rest of the year. And now on to Ghana?
And Ghana is going very well we've had a very fast sales on that, the headcount reorganization is done some of the key contracts are being reorganized. So yes, it's going very well. Yeah at the end of the day, it’s a joint venture reporting to us via the JV line so, it isn't really going to move the needle very much for the group as a whole, but so far so good.
But I expect you talked about potentially exiting that business, so it will be interesting to see if you can lift profitability that would give you more money out?
That indeed is a plan you know kind of take the advantage of the synergies for enhanced return. That is very much the plan.
Right, I think perhaps the only comment I would make on that is, extracting the synergies does take a little bit of time.
We'll go next Soomit Datta of New Street Research.
Just one question please, just kind of longer term question really on cable as you move the firms past from sort of 10/11 million through to 15. Are you seeing any of the economics of the business model changing, in terms of either ability to penetrate that, that home's past number or in terms of the ARPU you can drive or even in terms of cost of connecting customers?
I just wondered if there's anything changing either positively or negatively? And just specifically as a follow on. As we move into an OTT world how you talked about Colombia I think, but Pay TV is that something that customers are still keen to have conceptually? Thank you.
Listen the first question on the economics and our outlook for our cable rollout and our cable play. Everything is planning out as I hoped it would. Perhaps there's more pent up demand in certain pockets than I imagined there would be and that's a positive development to look at Bolivia for example. You'll realize that we can build fast enough there and we're adding tons of subscribers. But if you look at our numbers, we're adding subscribers not just network really consistently across all of our markets.
What we are seeing is that the economics are exactly as we imagined there would be meaning its about $100 to pass a home you are aware of those numbers. We are connecting slightly better than we anticipated we would. We've publicly said, in the first year we're penetrating about 15% to 20% of the homes we are on track. And we've given you guidance for 300,000 new cable connected homes this year. We did 91 this first quarter. So we are on track or slightly ahead of track for the full year.
So the penetration levels are what we expected to be getting. The APRU levels we just talked about a little bit earlier they’re coming up, we're being very disciplined on price increases, so that we build room for the new waves. And longer term we see nothing to have changed our optimism about building a cable franchise underneath our strong mobile businesses that 15 million target which is nothing other than a target remains very strong we continue to move towards it with network building and cable subscriber penetration.
And I perhaps only wish to remind you that even when we get to that 50 million that will still be only just about short of 50% of all the households in the markets we operate and compare that build out ratio. I'm still against total number of households in a country against countries in Latin America that have 75%/80% percent ratios like Chile and Puerto Rico or the U.S. where it’s closer to 90%. So there is no reason for us not to see anything, but a continued strong opportunity to build a careful franchise underneath our mobile footprint.
And on the second part of the equation – we the second part of your question on OTT it's different because Pay TV and fixed broadband penetration levels are much lower in Latin America, than they are in the U.S. 20% to 40% depending on what market your pick of our footprint. And as a result of that, people are still paying and wanting to add Pay TV as part of the bundle number one.
And number two OTT is actually a meaningful proposition for you as a cable operator or us as cable operator to sell broadband. We actually bundled Netflix with a high speed data broadband to create a more enhancing need for our subscribers to take up broadband. So it's a different ballgame from the zero sum game that you see in developed markets where broadband penetration and Pay TV penetrations are 90%, that's a key difference for us in the OTT environment.
Very quick follow up, if possible. So but just to your point on the structural attractiveness of cable and it does sound very compelling, aside from Colombia or any other operators kind of following your lead any local operators trying to build the scale quickly, any competitive threats to think about?
It's a different economic model for the incumbent Telco because they have incumbent economics you know that. And in most situations other than Colombia, it's really the legacy Telco that we're building cable against. And as a result of that there are incumbent economics that they must face.
There are small one way Pay TV only operators in most of our markets, many of them are even pirating content. But once you roll out a high speed data network with the ability to offer broadband and you bundle a little bit of mobile into their Pay TV mix, slowly that mom and pop population starts disappearing.
And of course there could be other smaller builders of cable in our market, but we do have the ability to have a mobile play that we can bundle our services with. And we do have all the SG&A pay for. So we have much better economics and finally we don't seen – if any at all attempting our cable build.
And we’ll go next to Bill Miller with Heart Well.
Well guys just looking at your really, really positive free cash flow generation and now you're continuing sales in Africa et cetera. What you can do with the first use of Africa and your free cash flow how you’re going to deploy that where is it going to go and how can use it to if anything accelerate your growth either through more rapid build out which seems unlikely or acquisitions or stock buybacks or just let us know what you plan to do please?
I think we’ve indeed created for ourselves a good problem if you will. We've generated equity free cash flow north of 100 now which is high enough to pay for our dividend policy. And we have now revenue growth and customer growth in the system.
So going forward thinking about capital allocation, we'll go beyond just our organic thinking and we are indeed going to have to start thinking at a bit about external deployment of capital and that I mean just beyond our organic needs.
As you can imagine the range of options in our minds include possible M&A and when I use the word possible M&A I should highlight possible because our focus on capital returns has been phenomenal so far. Hope we build a bit of track record there and sufficient outlets so that would be equally disciplined going forward.
We have a number of opportunities available to us in terms of minorities that we operate but we don’t consolidate. There are some in market opportunities for us which would have in market synergies. And there are pockets of adjacent opportunities that are right down geographically where we are and right down operationally alliance businesses.
So there are opportunities for us to deploy capital in a smart way beyond just organic and as you very well point out, we’re pretty bullish on our story. You've heard me say that often it is all turning out to be true. We come from basically an opportunity to deploying a network against that opportunity we’re adding their subscribers right behind their network to bring in back the revenue in a more stable manner right after we started backing up the subscribers.
And now we’re moving on to EBITDA and operational leverage, so we think we’re in the early days of being bullish about our own story and about our own equity. So everything makes me to believe that is also an opportunity for us.
Now having said all of this, there's an old saying in Latin America which basically says make sure you bring the horses to the stable before you actually settle them out and we still got to go and get those horses Bill in terms of some of the divestitures. Hope that gives you a pretty good idea of where our mindset is in terms of capital structure.
You also added much more stable business in terms of both currency and cable operations and everything else so that that should give you the courage to do some of these things now when you have already got the fire power?
I think we've shown that we’re disciplined in capital allocation and you can expect us to be pretty smart and disciplined going forward.
We'll go next to Sergey Dluzhevskiy with Gabelli & Company.
My first question is about content and distribution. So obviously you have a strong cable business and a strong wireless business. We are seeing a few examples globally of combining distribution with content whether its Comcast whether its [Rogers], whether AT&T trying to buy Time Warner. What are your thoughts on combining content and distribution in your markets and under what set of circumstances or under what scenario it make sense for Millicom or if it [loans and why not]?
It’s very old cable debate and obviously there are accounts to this content and distribution whether there should be under the same house or not. Our philosophy in this is that the content that we believe we should be in the business of owning, is that content that makes at a local level is from different in terms of adding subscribers to the cable business.
And that content in our region in Latin America at the local level is called local software. So for all of our content we take the view that there is no depreciation vis-à-vis our competitors on cable meaning we buy the same content from the all the U.S. houses.
We have the same access to European soccer and European content and American content but when it comes to local soccer content in many of our countries and this should be clear as part of our strategy we have effectively created the Pay TV exclusive soccer content.
So in country like Paraguay and Bolivia and increasingly in some others in Central America we have struck exclusive deals with either the soccer leagues or the soccer club to create a premium Pay TV product that we own exclusive rights 360 cable and mobile for a period of time.
That’s not true in Colombia. In Colombia the content is available to all the Pay TV operators. It’s exclusive to the Pay TV environment and Paraguay, Bolivia and increasingly in Central America we are creating that premium exclusive soccer product for us. That’s what we believe makes difference to our cable business. Everything else no point in having differentiation we take a priority approach.
Great. And…
But differently don’t expect us to go on buy in our content company.
And in terms of I guess different question in terms of regulatory environment in your markets as you look at your regulatory agenda for 2018 whether sounds the main issues and developments that could be particular important to the company over the next 12 months or so?
I think by far I mean we are in the markets that we are but once you take the time to understand these markets you realize that A) they’re a lot more stable micro economically than most people believe they are. Two, they are a lot more stable politically than most people believe they are quite strongly and three regulators are a lot more rational and organized that most people believe and I can say this haven’t been in our three years into Millicom we’ve been able to renew licenses there and our spectrum position and are relations with regulators is pretty stable.
There's been markets in which the regulators have created havoc and that was actually our largest market Colombia presumably the more stable but that was some three years ago and I think the regulator as you have seen has started to come back and try to correct the mistakes that were made few days ago when the service contract was decoupled from the handset subsidiary and the regulator is now beginning to suggest that new legislation should be presented that basically allows the consumers to have the option to have the operators provide a subsidy or not.
So the pendulum is switching back to rationality. So I think overall we see a somewhat stable environment every now and again things happened like the one I just described in Colombia or the present situation we have in El Salvador but we have a pretty balance portfolio and that’s an important thing, there is no immediate correlation. And lastly I think obviously you must be aware of this. We got presidential elections coming up in Colombia.
I’m not going to comment on those but you can have your own view I think market generally very positive about developments in that market. We had elections in Paraguay just last weekend, they went smoothly and overall the region is having a turnover of presidents in the next 12 months which so far except for hiccup in Honduras that eventually got sorted out, it's been pretty smooth.
And we'll take our last question from Peter Nielsen with ABG.
If you’ve covered all the important issues but one on mobile ARPU fees. You've shown very strong growth in 4G subscribers you previously shown us the ARPU uplift from a 4G subscriber and coming on. It still seems to not to be really visible in the overall ARPU, the trends are slighting improving but they’re still not positive. You probably turned the corner of returning to mobile growth. When do you think and could you talk a bit about what it will take for us to start to see positive ARPU growth as well? Thank you.
Peter I think a quick answer on this one I mean, there is a lot of moving parts in the ARPU number - it's basically our revenue by subscriber. So it’s influenced of the margin by cleanups at the base that deferred revenue adjustment we made this year has an impact on it and so on so forth. I think we take much comfort from the underlying ARPU calculations that we see where we continue to see 4G customers giving us more than 3G customers in terms of our overall ARPU.
And also the service revenue growth I mean big, big positive for us this quarter was the mobile service revenue coming back to sort of just under 1% growth. So I think as the margin you’ll continue to see always in our ARPU numbers but I think as long as we see mobile business is positive and I think we should take some comfort from that.
Okay. Thank you.
I think I would point - Peter I probably I would just point to the fact that this quarter mobile turned positive to just about 1% and that’s probably a better indication of how things are going on in the mobile business.
Unfortunately, that is all the time we have available for questions. I would now like to hand the call back to Mr. Ramos for any closing remarks. Please go ahead.
Thank you all for joining today and for your great questions. We're happy to have you here and we look forward to our next call in about three-months. Looking ahead for good results. Thank you.
This concludes Millicom's financial results conference call. Thank you for your participation. You may now disconnect.