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Executives

Justine Dimovic - Head, Investor Relations

Mikael Grahne - President and Chief Executive Officer

François-Xavier Roger - Chief Financial Officer

Analysts

Mark Walker - Goldman Sachs

Laurie Fitzjohn - Citigroup

Erik Pers Berglund - Danske Bank

Stefan Gauffin - Nordea

Thomas Heath - Handelsbanken

Andreas Joelsson - SEB Enskilda

Bill Miller - JM Hartwell

Thomas Heath - Handelsbanken

Sven Sköld - Swedbank

Lena Osterberg - Carnegie

Millicom International Cellular S.A. (OTCPK:MIICF) Special Call August 20, 2012 8:00 AM ET

Justine Dimovic

Good day everyone. My name is Justine Dimovic and it is my pleasure to welcome everyone to today's conference call. The conference call is to discuss the agreement we have reached with Rocket Internet to develop online franchise in Latin America and Africa. This call is scheduled to last no more than an hour and we would like to give everyone as much opportunity as possible to ask questions.

Before we go into Q&A I would like first to handover to our CEO, Mr. Mikael Grahne, for brief comments.

Mikael Grahne

Thank you, Justine. I would like to start by recapping the key points of the agreements we announced in our press release last week. Millicom has signed an agreement with Rocket Internet to develop franchisees in the online sector in Latin America and Africa, and to create a sixth category online. We believe that it is fantastic growth opportunity in the online sector in Latin America and Africa, which can create a lot of value for our shareholders.

Online and ecommerce has been one of the fastest growing sectors in developed markets over the past ten years, enabled by the fact that people gain access to the internet. This sector has now only emerged in Latin America and Africa but internet penetration is growing rapidly. By being early, there is a great opportunity to secure leading positions in this category.

In the same we brought affordable mobile telephony services to emerging market customers, we will bring ecommerce and online services to market where the fast growing middle class is increasingly demanding access to goods and services over the internet.

Upon closing of the deal, we will acquire a 20% stake in each of the two Rocket Internet subsidiaries, Latin American Internet Holding and Africa Internet Holding, for a combined cost of €85 million. This investment is in the form of direct capital increases of new shares by the two holdings. LIH and AIH will use the cash proceeds from the capital increases to develop the eight already operating businesses and the many ventures still to be launched.

Over a four-year period, we have the option to acquire gradually controlling stakes in LIH and AIH through capital increases in the businesses. The total consideration to be paid if we decide to exercise the options to acquires the first 50% stake, will be €340 million including the initial investment of €85 million. The final option to acquire the remaining 50% of the businesses with full management rights is exercisable no later than September 2016 at fair market value.

As we have a clear path to control, we will fully consolidate the businesses. Our commitment to shareholder returns is not affected by the transaction and today we have resumed our share buyback program. We are very excited about this growth opportunity and we would now be happy to take questions, any questions you might have.

Operator, may we have the first question, please?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from Mark Walker of Goldman Sachs. Please go ahead.

Mark Walker - Goldman Sachs

Thanks for the questions, I have two or three please. I just wanted to get an idea firstly of the visibility that you have over the new ventures to be launched in the next three years, particularly in the African Holding Company. And secondly, regarding your expectation to essentially breakeven in 2015. Is it actually possible that you just continue to invest in these types of assets, should the growth profile be attractive enough? And also under what circumstances would you not exercise your options to invest further?

And then finally, can I just ask a bit about the business models that you have actually acquired. I mean they seem largely ecommerce ventures and do the likes of Kanui and Airu, and Tricae , do they actually hold stock or are they online market places you take a commission from suppliers. And also can you tell us a bit more about YepDoc and how is that service [direction], particularly how you monetize that service. Thank you.

Mikael Grahne

Okay. Let me maybe start at the last questions you had there. If Kanui is holding stock we are not -- I mean these are all new, very new businesses. In the early part when you start a ecommerce business, you basically don’t hold stock, you have local suppliers who hold it. Once you learn where the demand is and you have more predictability and you gradually move the stock into your capacity, so that you can manage the consumer interface and the accuracy and security of the deliveries.

So I think overtime, all these businesses will hold their own stock. In terms of visibility, we will be part of a board that will meet at regular interval, and we are -- Rocket Internet’s -- one of the strengths of Rocket Internet is they are very detailed focused. Great operational experience and control. So they have a multitude of KPIs, that we naturally have access to. So that will allow us to have great control and understanding how this business is performing.

François-Xavier Roger

On the exercise of the options, usually we value this businesses according to different measures. One of them is the DCS. So we have long-term plan on these businesses and using it as a benchmark to review for the exercise of options on that, so we will use that base to check after one year and two years, and as well as we in 2016, in September 2016, this plan as a reference to check how we are delivering and performing against the benchmark. So we have the opportunity, with the existing initial 20% stake, we have the opportunity to move up to 35% in September 2013 and then to 50% without the controlling stake in September ’14, and then to take the [whole] in September ’16. So we have some milestones of usually in one year and in two years, and in four years to review how we perform against the initial plan.

Just in term for your information, this businesses have as well, I would say a fairly clear way to measure the way they perform, but usually we will look at revenue growth. We will look at cash flow generation as well. The objective on average is to breakeven in terms of cash on average after 18 months. So we have a good way to measure these businesses on an individual basis, are performing well or not. On the top of benchmarking their development against our acquisition plan.

Mark Walker - Goldman Sachs

Can I just follow-up on the services type business, such as YepDoc and how they work and how you monetize that? Thank you.

Mikael Grahne

Yeah, I mean subscription business basically. You allow people to access doctors and you pay a subscription for this one. This is pretty much similar service we are already offering in some of the Central American markets. So when we really looked at this Rocket Internet we found that we were already basically active in two of the five categories that Rocket is playing into the subscription and payments with mobile financial services.

Operator

Thank you. Our next question comes from Laurie Fitzjohn of Citi. Please go ahead.

Laurie Fitzjohn - Citigroup

A few questions. Firstly, just on the pre-money valuation of the deal at 340 million which is ten times your expected 2012 revenue. I was just wondering if you can give any more detail about [reason] behind this valuation or further details on that metrics would be very useful. Secondly, on the timings, if you are able to tell us when discussions on this deal started and just how it worked it terms of the upcoming changes you see in relation to strategy will be very useful. And then just lastly, in regards to your comment just now on no change to shareholder returns, does this mean we can assume we should still expect a special dividend this autumn.

François-Xavier Roger

Okay. On the valuation, and I said earlier, we use several methodologies. We took, and that we did along with an advisor that has developed a strong expertise in online on ecommerce, namely [Allen & Co.] So we did evaluation according to four methodologies, expected returns, which means basically exit scenario. DCS, in the DCS we took up usually the discounting rate that reflect the fact that most of these businesses that are at an early stage of their development, so for your information to work with them obviously significantly higher than the work of Millicom. The third methodology that we use is prior runs for pre-money valuation of former funding runs.

And then finally, the fourth methodology that we use was private valuation which is what venture capital businesses use, with run rate and revenue multiple and so forth. So we did this valuation mainly using DCS because this is probably the one that has the most value. And this is where we arrive at this pre-money valuation. Regarding the timing and the process, we entered actually in competitive process which means that Rocket underwent a competitive process with us and other parties to take a stake in their business. And then we started a few months ago and participated in that process.

In terms of shareholder return, we have said for this deal as well as Cablevisión Paraguay, that it will not impact our shareholder return for 2012. The acquisition of Cablevisión Paraguay, if it closes this year which is likely to happen, will mean $150 million of cash outflow which we expect to finance through additional debt. And the same will apply for the first tranche of this Rocket deal which is €85 million or close to $100 million.

We always said that we were more comfortable in having a net debt to EBITDA ratio close to one and if we had opportunities to get to that point we will see them. So these two opportunities will not even bring us to the one as net debt to EBITDA ratio but it’s a good opportunity to leverage a little bit more the company, which I understand many investors were quite happy with.

Talking more specifically about the share buyback, we have resumed the share buyback this morning and we again confirm that we intend to commit to -- to stick to our commitment to carry out $300 million share buyback for 2012. And we have ample room to do it. As far as the special dividend is concerned, no change to what we said, which means that if we have excess cash at the end of the year, we will not hesitate to return it to shareholders which is what we did in the last two years. No change to what we disclosed since the beginning of the year or even last year.

Mikael Grahne

In terms of the question on timing vis-à-vis the outgoing CEO, since I am the outgoing CEO, I just want to put the record in place. This deal began long after I had already informed our board of my intention to stand out. There is no correlation in that. I am extremely enthusiastic behind the deal. We believe we are very active in the management team making it happen and on 31st of October, I am still going to continue to be a shareholder in this great company.

Operator

Thank you. Our next question is from Erik Pers Berglund of Danske Bank. Please go ahead.

Erik Pers Berglund - Danske Bank

I have just two areas which, if possible, I would like to understand a little bit more about. First one is the current assets in the businesses you are investing in. Which are sort of the main two or three website in there? What market positions do they have in their respective market niche? And out of the €35 million predicted turnover this year, how much is like delivered by the number one or two sites. And if you could also share with us a little bit about how long history do they have in their markets, how many years etcetera.

The second area which I would like to understand more about is just the 340 million of pre-money evaluation. It seems a bit steep in relation to the early stage of the businesses. You have touched upon this somewhat but one thing I would like to understand is that have you benchmarked against Kinnevik's entry into Rocket Internet and how does that compare for example? Thank you.

Mikael Grahne

Let me start maybe -- so most of these businesses have been started second half 2011, so they are in very early stage. I think it’s fair to say there is very limited competition in Africa. I think in most cases we are absolutely first mover. There are a bit more competition in Latin America, primarily in Brazil, but it’s too early to really talk about market shares. I think we enter into this business under the premise that we firmly believe that we can go in and established leading positions in all the categories and the markets we would compete in. That’s our objective.

François-Xavier Roger

Regarding the pre-money evaluation, as I said earlier, one of the four methodology that we use was the prior rounds, which means that we took into consideration, pre-money valuation of former funding rounds, including Kinnevik. But not only with Kinnevik because there are other minority partners. We took into consideration the fact that the other parties having shares in those businesses are not at the same level as we are because most of them are at operating level which is different from what we took as a stake at the holding level. And on the top of it, I mean we are taking controlling stake which is very different from what the other shareholders did, because we have a (inaudible) to control. So with an intention to control or manage these businesses overtime, which is fundamentally different from what the other guys did, which is to take a minority stake because they are financial investors. We are not financial investors, we are operators in that investment.

Erik Pers Berglund - Danske Bank

Can I just have one follow up on the early mover advantage. Which of these different -- I think you have five different categories in your slide showing what types of business models your are investing on. Which one of these sort of has created this first mover advantage in your view?

Mikael Grahne

Yeah, I think it’s too early to comment on that one. I would expect that when we get to -- basically all of them have a chance and I think when we really got to know Rocket Internet visited their operations both in Germany as well as in Brazil, we were really deeply impressed with the detailed operating know how they have. And the ability to track the business is the ability to continuously add new features and deepened understanding. So we think basically all these businesses have a chance to go in and become number one.

Erik Pers Berglund - Danske Bank

Okay. Just the reason I was asking was just that it seems to me that there is a retailer, an electronic retailer has a, let's say a first mover advantage then say a marketplace like EBay which consumer cannot really switch between one market place and another.

Mikael Grahne

Well, maybe on the contrary, I am not taking of anything from the EBay side, is if you look at ecommerce in emerging markets, so it’s not only the fact that you have the convenience of ordering this from your home on the internet, you also have a huge delta in that a online reseller can offer a much bigger assortment of products than a physical retailer. So it’s also the whole assortment that we can bring into there that’s going to make a difference. So I think on the contrary, maybe the ecommerce has a great opportunity to get rapid revenue growth very soon.

Operator

Thank you. We will now move to Stefan Gauffin from Nordea Bank. Please go ahead.

Stefan Gauffin - Nordea

Yes, I have three questions. First of all, you have mid-term target of delivering to 8% to 11% growth. Would you say that this type of investments is necessary to reach this target as compared to continue with the current core operations? The second question relates to the €340 million for two years. Is that your total commitment to this type of investment or could we expect further investments in this field if the opportunity arises. Then thirdly, you have given us the 35 million in revenue for full year 2012 and then €250 million for EBITDA losses over the coming three years.

Could you provide some more information on the financial development, both top line and EBITDA. Should we expect the majority of the EBITDA losses coming in 2013.

François-Xavier Roger

The mid-term target of 8% to 11% which we provided for 2012 and 2013 is something that has been provided before the acquisition of Rocket. So it is totally -- we did not need it at all. And by the way earlier in the year we confirmed in the first two quarters the fact that we confirmed -- it’s not a target by the way it’s an internal ambition of growing from between 8% and 11% which we, by the way, matched totally in Q1 and Q2. So we will have to review that target in light of this acquisition. Obviously this acquisition will increase our revenue growth and dilute the EBITDA margin under net profit to a lesser extent at least initially, because we only have a 20% stake. But anyway, this target, this ambition of 8% to 11% is totally independent from that acquisition. And we don’t need it to get there.

The 340, its total commitment -- it’s not a commitment by the way, we have committed only to 85 million for the time being and then we have an option to increase our stake over the next two years. This is what we discussed. We are not involved in any other discussion at this stage. We keep on monitoring as you know anyway, growth opportunities in the market, because this is about growth. But there is no discussion whatsoever on ecommerce online, so that is what we have discussed neither with Rocket or with any other party at this stage.

Regarding the indication of revenues that we have provided for this year and the losses in EBITDA level for the next three years, this is what we provided for the time being and we said that we will come back to the market early next year at the occasion of full year results. When we provide the guidance for 2013 we will come back with additional information on that business -- on total business of Millicom including some specific information on that new category. I take the opportunity to say that this new category will be reported independently so that you still get the exact same visibility that you have on the existing business. So there is no -- you will have a full visibility on each side of the business.

Another things which is important as well to mention, this investment is not going to distract ourselves from the other categories that we manage today or from our traditional business. We are not in the driving seat of that business for the time being. So our teams are still -- our existing teams are still fully dedicated to developing the business the way that we presented to you in Q1, in Q2 and that we will continue reporting in the future. So it’s not a distraction. We have a passive control, which means that we will gradually take over the management of this company but we will not do it at the beginning. Presently, we are partnering with Rocket with the idea of partnering with companies that are proven and demonstrated results with specific skills in that area that we don’t have and we don’t have the resources to do it today.

Stefan Gauffin - Nordea

Can I just follow up? You said that this will be reported independently, will it be one line, online, or will you report Africa and Latin America separately?

François-Xavier Roger

We still need to review but probably I would say, the two separately. We are still reviewing the level of segmentation that we will do. That’s absolutely certain that we will report this ecommerce and online business separately and that we will report from the geographic point of view, we will see. We will not do it for Central America, South America or Africa but maybe Lat Am and Africa, remains to be seen, we have not decided yet. But you know that we always try to strike the right balance between providing appropriate information to investors and analysts without giving too much commercial information as well. But we will do our best to accommodate as much visibility as you need.

Operator

Thank you. Ladies and gentlemen we will take our next question from Thomas Heath of Handelsbanken. Please go ahead.

Thomas Heath - Handelsbanken

Just a few questions. Firstly, looking back you have very often stressed that you rarely pursue M&A within telecom because you only see in market synergies and few cross-market synergies. Against this backdrop, what synergies do you realistically see between online and your existing business. And if there are no synergies, why should you rather than say Kinnevik owns these assets and is there any limit on how non-core assets you may acquire to achieve growth in the future. So that’s on a strategic basis, and then a few follow up questions I have.

François-Xavier Roger

We have always flagged the opportunity for us to do external acquisition for growth as well, including in areas that are, let's say somewhat at the periphery of our core business. We flagged for two years about that we were looking at external growth opportunities in the area of ecommerce, e-financing and ehealth in the medical field. So this is totally inline with what we had indicated to the market, which doesn’t mean that we can't make any M&A activity either in our traditional core business which is still something that we can do.

Comparing it with Kinnevik, it’s a totally different approach as I said earlier, Kinnevik is a financial investor in this businesses with a minority stake with no passive control, with no management rights. Neither today nor in the future. We are not a financial investor, we have -- it was absolutely critical for us to acquire that growth opportunity with the idea to gain control, but given this is a good way to accelerate our knowledge and expertise of that business partnering with a company that has demonstrated its capacity to roll out very quickly different business model in the online and ecommerce industry, which we don’t have the capacity today. So it’s a good way to do it quicker and more efficiently than we could have done at a reasonable price and limiting the risk because we are doing [fair] investments.

Mikael Grahne

There are a number of touch points between these businesses that I want to basically highlight. I you look at for example, mobile financial services, that’s a clear enable to drive this business forward. And that’s also vice versa. Launching these businesses in our market will also enable us to probably drive the mobile financial services at an accelerated pace. You know we can also do cross-promotion with our customers, offer them incentives on either mobile side or on the online side. And so we think there is over time lots of opportunity we didn’t particularly highlighted at this stage because that’s something we need to learn, but our intent is to launch in two Millicom markets and try to really explore and understand how we can drive these touch points and maybe more synergies going forward.

It’s about really also utilizing our country and area experience and our consumer understanding that has led us to you know, with excitement, embrace this category.

Thomas Heath - Handelsbanken

Thank you, that’s clear. A few other questions, if I may. On this financing, is this all the financing that’s needed in the business plans for these operational companies in the coming years. And also on the slides that you have, you have the minority other investors. Will they be diluted as this money flows into the operating companies or are the percentages on your slide, the ownership shares as they are when the money has flowed down from the holding companies into the operating companies. Thank you.

François-Xavier Roger

We are confident, with all the discussions we had with Rocket that the amount of money that we contributing is sufficient to develop the existing businesses plus the launch plan, which is fairly aggressive over the next four years. So we are confident that this is sufficient and that we should not be diluted. The percentage that are indicated there are [post money] and post capital increase. So this is the economic interest that we will have after the capital injection of the first tranches. Which means after the 50%.

Thomas Heath - Handelsbanken

That’s very clear. And a last question. Given that Rocket has some other ventures in the region, including the (inaudible), what sort of guarantees do you have that you will not be competing with Rocket in the businesses they already have or in similar businesses. Thanks.

François-Xavier Roger

Indeed, I mean we did not take a stake in some companies that Rocket is already marketing in Latin America. As you can see the businesses of each of this venture is quite specific. So it doesn’t mean that marginally there could be for 1% or 2% of this business some overlap but we are confident that the level of overlap between these businesses is very very marginal or insignificant. Plus we have commitment from Rocket that these companies will not compete one against the other.

Operator

Thank you. Our next question comes from Lena Osterberg of Carnegie. Please go ahead.

Lena Osterberg - Carnegie

I was just wondering, given the guidance that you have for revenues for this year, how much have you already achieved? What sort of revenues have been generated so far by the ventures? And also related to a question that was based earlier, when do you expect all of the ventures to reach breakeven and will you still have losses in 2016 or will you be at a breakeven then. And should we expect you to contribute further money as you go or will you just stay with these ventures as they are? And if you look five years out in time, what sort of portion of revenues do you see your old business have versus having your online revenues?

François-Xavier Roger

As you know these businesses are really developing and growing fast, I would say exponentially today, given that most of them are very recent in creation and development as Mikael indicated. Which means that at the end of June we have done less than half of the full year. But the figure that we gave we are confident that it will be rich. As I indicated earlier, these companies on average expect to reach cash breakeven accumulated after 18 months. Some of them will reach it a little bit later, some of them will reach it a little bit later.

This does not mean, don’t conclude from that that at the end of 2013, in 18 months from now, we will have reached the cash breakeven. Because there is a pipeline of new venture that will be launched. So we will look at it individually and review if each and every single project is indeed delivering cash generation that is close to that objective of being breakeven on an accumulated basis after 18 months, or close to it.

Lena Osterberg - Carnegie

Should we expect losses in 2016 as well?

François-Xavier Roger

We have given an indication of $250 million of losses at EBITDA level for the next three years, which means ’13, ’14, ’15. So ’16, most probably not. What I can tell you, to be a little bit more specific, I think that we would be extremely disappointed if we were reaching less than $1 billion of revenues by 2016. And even I know that some of you may have the question, we had the question at the beginning, what would you decide to exercise the call option. Obviously, if we see that we are below that level in terms of trend and if the pass that we see at the end of 2012, ’13, ’14 and so forth, is that we will not deliver more than $1 billion of revenues by 2016, than we may review our -- I mean we may review the cash for exercising these options.

Mikael Grahne

Naturally around the, sort of the kind of revenue expectations we would look at consumer data, penetration, brand preferences, cash flows, operating margins. But the key driver there is of course is that you get the revenues. We think the demand is there. We think the combination of Rocket and Millicom will offer a platform to really, in a more accelerated way, build this business then if what we would have done it on our own.

Lena Osterberg - Carnegie

I will ask you two more questions. You have no management rights for the first two years, which given that these operating companies, I believe it seems a bit odd. You said you had board representation but is that on a holding company level or do you have board representation in each of the ventures. Then also, given that Kinnevik owns 25% of the Rocket, don’t you think it’s a bit odd from a corporate governance point of view that you are investing into this?

Mikael Grahne

Let me address the board first. I mean we have spent quite a lot of time with the Rocket people and as I said, what really impressed us is the detailed KPI that they track on a daily and hourly basis which we will have full access point of view to. So I think at the board level we will have a very high visibility on evidence that’s going on. And we have the same objective with Rocket. i.e. to develop a success out of this. So we don’t feel it’s a handicap for the two first years not to have full management right. They have the expertise, we have value added to them. So we think it’s a good combination.

In terms of it, we don’t really see a conflict here. I mean it’s an opportunity for us to accelerate something. It’s not the direct relationship with Kinnevik. We are dealing with Rocket. Kinnevik has not been part to any agreements that has been entered into. All these agreements are between us and Rocket.

François-Xavier Roger

If I may add a few things. You see we don’t have management rights in the short-term but we have obviously protective rights. To give a more specific answer to your question, we don’t have any board representation at operating level but we have a board representation at holding level. But we have a certain number of protective rights including the right to second people in these businesses and so forth. Because the objective is, obviously for us to gradually take over the management of these companies. Regarding the potential conflict of interest, I just want to clarify everything. There is no cash that is paid one way or the other, directly or indirectly to Kinnevik. We did not negotiate with Kinnevik and we are not a partner of Kinnevik in these businesses.

Kinnevik happens to have stakes at operating level in some of these companies and happens to be a minority shareholder with Rocket, which is an independent process. But we did not interact directly with them. Just to clarify, the decision process for this investment, it has been made by the management with independent board members only in order to precisely avoid any conflict of interest.

Lena Osterberg - Carnegie

Can I also ask, you had touched upon 2012 special dividend, what about next year when you run into significant losses and you have a fair cash contribution to make?

François-Xavier Roger

Wells, significant losses, let’s see because anyway for 75% of next year we will have only 20% stake so we are not going to have -- we don’t think that we can talk of huge losses. We will communicate anyway with early next year on shareholder remuneration as we always do. And let's not forget one thing as well, is that the losses will be funded by cash injection. All the money that we are injecting we are not buying share there. We are doing capital increases. So which means that the cash is going to be invested in the company.

Operator

(Operator Instructions) Our next question comes from Andreas Joelsson of SEB. Please go ahead.

Andreas Joelsson - SEB Enskilda

A question on the business that is outside where your current existing business is. How much of the 35 million in revenues are from outside your current market and of the $1 billion that you expect, how much of that do you expect come from countries where you are not present at the moment.

Mikael Grahne

Basically in the 35 million, there is zero businesses that are outside. We looked at these businesses that were already up and running but they had a number of financial investors in them, and we would have ended with such a minority share with no path of control. And that’s not our [ream]. We want to create an operating business that we can fully manage in the future. And the $1 billion estimation we had given for 2016 from the businesses within the structure that we had agreed with Rocket Internet and does not contain the businesses that are outside.

Operator

Thank you. Our next question comes from [George Dent of Walter Scott]. Please go ahead.

Unidentified Analyst

First of all, thanks for the clarification on the corporate government elements which answers one of my questions. The other think I shall ask about is simply the incentives for the Rocket employees. I mean clearly one of the exciting things about being involved with a small tech start up is having some form of [direct] participation. How are they going to be remunerated kind of going forward?

Mikael Grahne

Basically the key management have equity incentives that typically are sort of shares granted over three years. So that’s the set up. Rocket has been very good at targeting and finding talented people with sophisticated experiences from either the McKinsey's or the Bain's, or even some of the banks who are numerically very smart and obviously very competent, but also know how to do man management. So the key people both at the holding company level as well as the operating level have an equity component.

François-Xavier Roger

Which is already included in the percentages that we disclosed in the presentation, which mean that the percentages you have already contemplate the diluted coming from management rights on equity.

Operator

Thank you. Our next question comes from Bill Miller of Hartwell. Please go ahead.

Bill Miller - JM Hartwell

Couple of thoughts. One, as you are accounting for this and fully consolidating it, my understanding is you are fully consolidating the revenue but taking in only your existing -- or the 20% or the 50% or whatever of the losses. Is that who you will account for it?

François-Xavier Roger

Absolutely, yes. Because of IFRS and given that we have a passive control with an option to buy the remaining 50% in September 2016, so we have to fully consolidate these asses from signing, which should take place before the end of the year. Which means that we will consolidate 100% of revenue, 100% of EBITDA, but obviously we will consolidate only 20% of net profit of the company. The difference will go to minority interest. We will consolidate as well 100% of the cash injected in this company. So it will not directly impact on net debt to EBITDA ratio.

Bill Miller - JM Hartwell

Perfect, thanks. Let me go from here. The two months probably businesses that you will try to use will be what, the financial service end it, the MFS, and also the medical. Which market will you introduce them and how soon will you introduce those products as an augment or a complement to your existing efforts in those two areas?

Mikael Grahne

Yeah, I think we will probably do so, maybe within the next six months. The key markets for interest for us is probably Paraguay and Tanzania where we have the highest mobile financial service penetration. So those would lend themselves, probably from a feasibility point of view as to start for introduction.

Bill Miller - JM Hartwell

Mikael, on that....

Mikael Grahne

On the medical side we are already offering similar medical services in Central America. You know access to doctors, a triage service and so on. Which we are going to continue to build on and see how we can combine with what Rocket has to offer.

Bill Miller - JM Hartwell

Do you think....

Mikael Grahne

So as I said -- yeah, go ahead.

Bill Miller - JM Hartwell

Sorry, no, go ahead.

Mikael Grahne

So I think within six months we probably -- six to eight months we could be live in our existing markets, in two existing markets.

Bill Miller - JM Hartwell

How much augmentation of your existing growth in those markets and those two product areas do you think you will get? Will you be able to double them quickly or triple them or what...?

Mikael Grahne

Well, I think since these are markets where we have operating experience, bringing an online business in there should have a very quick take off because we have a strong customer base that we can leverage for that. We have the mobile financial services in place that would facilitate payment on a totally different level. So we think bringing these businesses in markets where we operate should allow these businesses to faster take off. And on top of that I mean we have businesses in place that can offer services on a third party basis from call centers to office space and so on. So these should very fast entries and fast growth in the markets where we are in.

Bill Miller - JM Hartwell

What kind of branding, or a common branding will you use, if any, in those markets with Rocket? Will you be able to utilize the Tigo brand or do you have that sorted out yet?

Mikael Grahne

These businesses will be introduced with their own brand names. At some point of time if we take full control of these businesses, we have an opportunity to assess then if it would make any sense to use the Tigo brand name or some or many of them. But that’s a decision for a later stage.

Bill Miller - JM Hartwell

And if we were talking about, say a normal, well, once you use your $1 billion in 2016, what kind of EBITDA margins would you expect with say a $1 billion of revenue?

François-Xavier Roger

We had indicated in the presentation that we provided that we expected an EBITDA margin between 15% to 25% at maturity.

Bill Miller - JM Hartwell

At maturity. And obviously you don’t think 2016’s maturity?

Mikael Grahne

Some of these businesses could be at maturity. Some of these businesses might still be in a startup stage. Remember, we have a pipeline of businesses to roll out there over the next three years. Some might have gotten into maturity, some might still be in the build-out stage.

Bill Miller - JM Hartwell

François, with the articulated goal of getting to one to one and the level of interest rates around the world right now, would you plan on going, getting beyond one to one or just doing enough long-term financing to get to one to one or how to you...? Can you give us color on exactly how you are going to get there?

François-Xavier Roger

So as I said these two acquisition between Rocket and Cablevisión Paraguay, are good opportunities for us to get closer to one even without reaching it. We had said that we would feel comfortable under normal circumstances to be at one and we had said that we would be ready to go further in case of a significant acquisition. So which is not the case with that deal now. Let's not forget we are talking of €340 million which is close to $400 million of three year period. So it’s not a significant pressure on our cash on balance sheet, which is the reason why by the way we confirm our shareholder remuneration intention for 2012.

The topic which you are covering, which is a further leverage of our balance sheet is a different topic which is independent from this Rocket Internet deal.

Bill Miller - JM Hartwell

Can you give us any color on that or are you going to hold that for a later date?

Mikael Grahne

I think in general we would like to stay below, you know around one or below one, to have the flexibility to react if any opportunities do come up to acquire the right asset. So we don’t really believe that we should at this stage push that beyond that one number.

Bill Miller - JM Hartwell

And if you were talking, François, as you used the word exponential, how long do you think that this company or the Rocket investment will have that exponential growth? And could you quantify it as -- quantify exponential beside just saying, well 2016 will be at a band at least....

François-Xavier Roger

I mean we can go beyond what we said in terms of low end of expectation for 2016. So that much depends on the number of new venture that will be launched. The development of these new ventures. We have a plan, there is a plan we agreed with Rocket with a certain level of assumption of usually going forward overtime even when we will give some further color on the year 2013 in February next year, we will have more visibility. So we will provide more when we will fine tune expectations and guidance of the short to medium term over the next couple of months. But we are -- as Mikael said as an introduction, we are very very positive about the growth opportunity that it represents.

And just now, I can add one comment on to that, which is that as a consequence of what I said earlier which is the fact that we are going to finance these two project with debt. So we are likely to announce some financing. We are looking at different options, private or public that we will finalize before the end of the year and you will hear from me between now and end of the year.

Operator

(Operator Instructions) Our next question comes from Stefan Gauffin of Nordea Bank. Please go ahead.

Stefan Gauffin - Nordea

Just a follow up regarding the -- I know there has been some questions around this, but regarding the 1 billion in 2016, could you say roughly what percentage the ecommerce would account for?

Mikael Grahne

No. At this stage that number is an expectation. We have plans developed by concept but at this stage we are not prepared to give any detail between the five different business models that exist in these world.

Operator

Thank you. We will now move to Mark Walker of Goldman Sachs. Please go ahead.

Mark Walker - Goldman Sachs

Just a couple of follow up questions, please. Firstly on shareholder returns, you said that you would return excess cash at the end of the year to shareholders and that would then determine any kind of special dividends to be paid. Is that then really a special dividend at Q3? And the secondly on your $1 billion expectation for revenues by 2016. Given that you expect to make losses over the next three years, that implies well over $1 billion of cost but you are only investing €340 million in that time. Can you tell me how the remainder of those costs are then funded? Thank you.

Mikael Grahne

I don’t think you need to look at it that way because these businesses typically, and if you look at the ecommerce side, have very strong cash flow because you tend to pay the suppliers, let's say between whatever you can negotiate, 69 to 90 days. And the consumers pay cash on delivery. So they are extremely -- from a customer point of view very positive. Can you really clarify your question? Have you arrived at that angle?

Mark Walker - Goldman Sachs

Yes. So just like the rest is funded by working capital. So if you have $1 billion of revenue by 2016 but you are not going to make any profit and timing leading up to that. And that’s obviously well over $1 billion of costs. But on your funding the EBITDA losses via your capital injections [but that] only 340 million. I am just trying to reconcile the shortfall.

François-Xavier Roger

But the $250 million of losses, it’s accumulated over three years because you are assuming that we will not be profitable in 2016, we may be profitable in ’16, which has a likelihood that we will be profitable in ’16 is high. And just coming back to your earlier question on shareholder return. As we did, first of all we are not committing to anything at this stage but we said that we will follow the same, as what we did in the last two years, which is to return excess cash to shareholders. The $300 million of share buyback that we confirm that we can do it without any problem between now and the end of the year. We could do more but I think that we never to put any pressure on the stock prices

So obviously if there were any additional shareholder remuneration later in the year, logically, it should come as an exceptional dividend. Because the share buyback we cannot accommodate too much, if there was any. Because once again it depends on certain number of opportunities. But I mean we stick to what we committed in terms of shareholder remuneration since the beginning of the year. But this is subject to as well to usually board approval if there was anything.

Operator

Thank you. Our next question comes from Thomas Heath of Handelsbanken. Please go ahead.

Thomas Heath - Handelsbanken

Thank you. Just a last follow-up question. If you start online businesses in existing markets, Millicom markets like Paraguay and Tanzania, will you launch them through Latin American Holding in that case to use Rocket management? And if so, would you give out shares in such operating companies to local management as is done for the other operating companies. I am trying to figure out if there will come out more minorities in the future. And also about the minorities in the operating companies that exist, do you expect them to stay forever or is there any plan to buy those minorities at operating level off to a fully consolidated company. Thanks.

Mikael Grahne

Yeah, I think if we launched any online businesses in the Millicom markets, we would do that by Rocket Internet who has both the manpower as well as the detailed know how, how to do it today? I just pointed out that in the markets where we are operating probably could get traction quicker, because we have a large customer base that we could market to. We have MFS in place and we have a lot of operating know how in these markets that we can share with Rocket Internet.

And like any startup business, as you know the management then would have an equity stake, a small equity stake as they have on the other Rocket operating businesses.

François-Xavier Roger

Sorry, you had a second question, I missed it.

Thomas Heath - Handelsbanken

Yes.

Mikael Grahne

Could you repeat the question?

Thomas Heath - Handelsbanken

Yeah, on the minority ownership in management in Kinnevik, in the operating companies. Is there any plan to acquire that by Millicom once you acquire all of Rocket? Do you have any plan to then go on to acquire the minorities at operating company level?

François-Xavier Roger

First of all we have no obligation, I mean there is no put option granted to any minority shareholders. We have no obligation or liability whatsoever. I think it would make sense overtime that we acquire minorities but this will take place through separate negotiations between those minorities. If there were conflict of interest obviously it will be handled in the proper way to preserve independence of decision making. But I mean we are not at that stage locally. And anyway we don’t need that as part of our path to control. So we are more talking of raising our economic interest in that case but it doesn’t make a difference as far as control and management rights.

Operator

Thank you. We will take our next question from Sven Sköld of Swedbank. Please go ahead.

Sven Sköld - Swedbank

Thank you. One further question here. Thanks for giving the target at $1 billion U.S. in 2016. However, I am actually a bit surprised that you gave the figure because what it’s based at, or based on? I mean it’s based on success for all these businesses or I mean normally when you start up with these kind of portfolio investments, some of them are successful, some of them have to be shut down even one or two year after startup. So I mean is it based on a success for all businesses or why do you give...?

Mikael Grahne

Okay. Let's put this now in a little bit in a perspective because we are basically more or less bringing proven concepts into the emerging markets. So we know these concepts have worked internationally, be it in the U.S. or Europe or even in other emerging markets. So to us the parallel is a little bit like this, when you came with a mobile phone into the emerging markets. You know it was a proven concept and there was a big pent up demand. So we see the same. So we don’t at this stage assume that these are sort of experimental concept. These are proven concepts, we just need to execute with great consumer understanding and cost effectiveness to be successful in our markets.

We have a long-term plan. Naturally, no long term plan can be exactly correct, but there is enough variation on the revenues and the cost lines for the aggregate to aim for something like $1 billion as an expectation, we said for 2016.

François-Xavier Roger

Just to be clear, this is not a target. We said that we would be disappointed if we were not reaching more than $1 billion of revenues by 2016. This is to give you an indication of the way we see the growth of the business and not to leave you totally in the dark. As Mikael said, this figure is largely extracted and derived from planning that we did off hand with Rocket, reviewed by the investment bank that advised us on this deal. And looking at the development of these businesses obviously internationally, as Mikael just said.

Operator

Thank you. We will now take a follow up question from Lena Osterberg of Carnegie.

Lena Osterberg - Carnegie

Yes, just to return to the question just now, what sort of success rate are you assuming for this venture? It sounded just now that you assumed that all of them would succeed. And then also to set the $1 billion sales target into perspective, MercadoLibre, which is hugely successful, after seven years of operations has sales of $50 million which is what you are assuming for this year for a handful of ventures which have started. And then also what losses should we assume for the fourth quarter this year. You have said the revenues but what should we assume for EBITDA losses and also in this company that you are currently acquiring which are existing, in which of those does Kinnevik own a minority?

François-Xavier Roger

The losses for 2012 at EBITDA level will be minimal because we first we need to close. So we have not closed yet. So the impact will be minimal in 2012. Referring to these businesses, you know as in our portfolio of countries today, some are more successful than other. So obviously we are taking a global view, taking into consideration that some of them may work better than others, but we believe that the plan we have is reasonable.

We reflected that in the work and as I indicated earlier, the work that we retained for this year is significantly higher than the work of Millicom, which reflects the degree of risk of entering into new businesses at an early stage of development. The fact that there is more than -- it’s not one single country or it’s not one single business, it’s a set of different businesses in different markets in Africa and in Latin America which mitigates somewhat the risk of failing and which secures the likelihood of a significant success.

Lena Osterberg - Carnegie

But you are assuming a hundred percent success ratio that all of this venture will be successful?

Mikael Grahne

No, we are not. We are not. We are not securing 100%. There is a whole sort of spend on performance, a revenue range, that we can hit. So we just safely added altogether. Our expectation is to be able to generate that $1 billion by 2016.

François-Xavier Roger

The fact that we took a work which is significantly higher than the work of Millicom reflects precisely the fact that we don’t expect all of these businesses to succeed.

Lena Osterberg - Carnegie

Which work we are using?

François-Xavier Roger

The work that is significantly higher than Millicom work.

Lena Osterberg - Carnegie

You should, I mean nothing is in place at the moment, right? Really.

François-Xavier Roger

No, some of them are already operating the business.

Mikael Grahne

But again it’s about bringing proven concepts. So it’s a little bit the same as when we went with the mobile phone to emerging markets with limited penetration. We knew the demand was there and you’ve got the tremendous traction if you could find the right value points, the right distribution points, the right quality and the right services to meet that. So from a success point of view, we know we can generate -- there is a demand. We know from our own categories, like mobile financial services, when you come with a product that really matches the consumer need, you have a great take off.

Lena Osterberg - Carnegie

Okay. My final question. Which of these companies does Kinnevik own minority directly?

François-Xavier Roger

Kinnevik owns minority stakes in most of Latin American companies and indirectly in most African companies as well.

Lena Osterberg - Carnegie

Via Rocket?

François-Xavier Roger

Minority shares. No, no, not via Rocket, directly at operating level. Directly or indirectly but not through Rocket.

Lena Osterberg - Carnegie

Okay. So in Africa it also directly and indirectly, excluding Rocket.

François-Xavier Roger

Yes.

Lena Osterberg - Carnegie

Can you say on average how much Kinnevik owns in these assets?

Justine Dimovic

Lena, this is Justine. We are not going to answer questions on behalf of Kinnevik, so if you have some questions you would like to ask then it is better to contact them. So we cannot answer any (inaudible) on their behalf. Sorry.

Operator

Yes, ladies and gentlemen, our last question today comes from Bill Miller of Hartwell. Please go ahead.

Bill Miller - JM Hartwell

Just one final. Mikael, many thanks for all you have done for Millicom. That’s really impressive with the last several years you have been the CEO, we really appreciate it. But now that the baton is being passed to a new fellow, could you give us a little color on his background and not why he is going to become the CEO necessarily but whether he has confidence in all these businesses like this, as well as in the traditional Millicom businesses?

Mikael Grahne

Yeah, thank you, Bill, for your kind comments. Just a slight reminder, when I became a CEO, you were a little bit skeptical of my abilities to run the business.

Bill Miller - JM Hartwell

No, not a little bit, not a little bit, very skeptical.

Mikael Grahne

You were really skeptical, so I am absolutely certain that Hans-Holger will surprise you with his performance in a similar fashion and even better than I had done. You know Hans-Holger is an experienced CEO. He is used to emerging markets and mature. He actually had more online experience than I have because MTG, the company he is still the CEO of, developed an online concept for the Nordic suite and in some Nordic markets called [Cedion], that a year ago was basically spun-off from MTG as a separate listed company. So he comes already with ready experience in this field and he is a very strong supporter and happy to grab this challenge and run with it. So I think he is going to be a great CEO.

Bill Miller - JM Hartwell

Well, thank you again for everything.

Justine Dimovic

Thank you, very much everyone. I think there are no further questions, so if you have any follow-up please don’t hesitate to contact the Investor Relations team. Thank you very much again.

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