Millicom International Cellular's (MIICF) CEO Mauricio Ramos on Q4 2016 Results - Earnings Call Transcript

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Millicom International Cellular SA (OTCPK:MIICF) Q4 2016 Earnings Conference Call February 8, 2017 8:00 AM ET

Executives

Mauricio Ramos – Chief Executive Officer

Tim Pennington – Chief Financial Officer

Analysts

Julio Arciniegas – RBC

Peter Kurt Nielsen – ABG

Robert Slorach – Handelsbanken

Stefan Gauffin – Nordea

Bill Miller – Hartwell

Stephen Bechade – Citigroup

Johanna Ahlqvist – SEB

Lena Osterberg – Carnegie

Thomas Heath – Danske Markets

Chris Grundberg – UBS

Operator

Welcome to Millicom Fourth Quarter and Full Year 2016 results. As usual, the results will be presented by our Chief Executive, Mauricio Ramos; and CFO, Tim Pennington. Before I hand over to Mauricio, I would like to draw your attention to the Safe Harbor slide, slide 2 in the presentation pack. So, without further ado, I hand over to Mauricio.

Mauricio Ramos

Good day to all, and welcome to our full year 2016 earnings call. As always, Tim and I will host the call. This year, we are publishing our first integrated annual report to bring together into one our corporate responsibility in the annual reports. This integration reflects how we continue to embed responsible business practices into our business processes. This integrated report will be out shortly, so please take a look, when you get a chance. Today, we want to cover three topics, one, we want to brief you on our fourth quarter and annual results. Two, we want to review the progress we have made during 2016 in building the strategic foundation for our future business. And three, we want to give you our outlook for 2017.

So, let’s get to the 2016 results. This was the year in which we stepped up the execution of the strategy that you’re familiar with. We are making outstanding progress in building a strong foundation for future growth. Our net additions of mobile data users for the full year are a record for us.

We added over 5 million smartphone users in the full year. We now have over 25 million smartphone users. Much more importantly, we added an impressive 2.6 million 4G users in that time. That is more than triple the 4G net adds we did in 2015. In the fourth quarter alone, we added 840,000 4G users.

In cable, we have also really ramped up the pace of growth of the network build. In 2016, we build almost 800,000 fiber cable homes across our footprint. Our fixed network now covers 8.1 million homes passed. So we have indeed exceeded the target of 8 million homes we had announced earlier. This is already one of the largest cable footprints in the region and we’re growing it rapidly.

We’re also filling the network faster than we expected. In the year, we added almost 0.5 million HFC RGUs to our subscriber base. In short, the cable and 4G mobile user intake was very strong for the year. And most importantly, it ramped up in the fourth quarter.

It should be no surprise since we have squarely focused our CapEx investment in the areas of key strategic relevance and you know what these are, 4G network rollouts, fiber cable rollouts, and our IT transformation. This focus derives both efficiency and efficacy in our capital spend.

On 4G, we went full speed ahead in 2016 in our network investment. We have now launch 4G networks in all of our Latin American markets. In one year, we more than doubled the number or 4G points of presence from about 1,900 to over 4,200. And this has allowed us to focus the commercial activity on 4G.

With the strong additions that I mentioned during 2016, we now have 3.4 million 4G users in total. With a larger 4G network and more 4G users, we took 4G traffic itself to 30% of all mobile traffic in Latin America up from only 10% a year ago.

Now moving mobile traffic to 4G is financially strategic, it has allowed us to reduce the capital spend on what would have been far less efficient additions of 3G capacity. Remember, the cost of delivering a bit of our 4G network is four to five times less than doing so over a 3G network.

On fiber cable, I have already mentioned impressive increase in our network build. We’re both rebuilding, legacy networks and adding homes to our footprint. We’re doing so at a very fast pace because the opportunity is so large. In the markets, we operate in Latin America there are all put together about 28 million homes. Our network now covers only 8 million homes. So that’s less than 30%. That’s how big the opportunity is.

In 2016 alone, we increased our network size but more than 12%. And now we have a larger state of the art network were ramping up broadband speeds across the footprint. We have increased broadband speeds in just about all of our markets in Latin America. These derives ARPU, differentiation and higher customer satisfaction.

Our third area of strategic CapEx focus has been and will continue to be IT. The customer experience of today, and so much more of the future, will rely not only on those high speed data networks that we’re building, but also on IT. We have been rapidly acquiring our legacy IT systems to a digital stack. All our consumer billing systems or prepaid in Latin America have now been migrated. That’s over 95% of our prepaid users in the region.

In two 2016, we invested heavily as well in ICT infrastructures, like data centers. Not only for our own needs, but also for our B2B clients. We built a Tier 3 data center in Paraguay and have begun construction on two more across the region. This allows us to grow our B2B business and at the same time get efficiencies for our own needs.

The upshot on this slide is simply that we are ahead of target in building our 4G and cable fiber networks and very much into our IT transformation. And of course, this leads into our one key frustration: the decline of our legacy voice business. The growth of our new businesses, mobile data and cable is constrained by the speed at which we can build these high speed networks.

So while very strong today, these high growth in these segments is not quite sufficient yet to offset the decline of our legacy businesses. And this is the first point on this slide on our 2016 financial performance. We indeed have net weak service revenue growth of only 1.2% year-on-year. But our adjusted EBITDA, however, grew 4.3%. This is healthy growth in the face of the revenue headwinds we’ve been facing. And this is because we are reconsidering the cost structure as you know, and as a result of that we’re reaping the benefits of operational leverage in the cash flows.

Our focus on CapEx efficiency and CapEx efficacy as I mentioned is paying off. We’re effectively doing more with less, more 4G network rollouts, less inefficient additions to 3G capacity, more and faster cable fiber builds and a thorough methodic IT transformation all with us CapEx.

And with a significantly streamline procurement process, which I will talk about further in a minute. As a result, our operating cash flow grew 23% in U.S. dollar terms during 2016. We are now delivering $1.1 billion of operating cash flow. We’re quite proud of this by the way and I will come back to it in a few minutes because it is not a small turnaround in cash flow.

Let’s first go a bit deeper into our strategic progress in reconfiguring our revenue mix. You’re all familiar with this slide, but I want to highlight here is the continued progress. As you can see, by now 50% of our service revenue mix is coming from Latam mobile data and cable revenue. This growth is being fueled every day as we continue to build high speed data mobile and fixed networks that support this growth.

So year-on-year, yes, we faced a 15% decline in the legacy business that is the frustrating anchor, that is weighing us down. And we had a very strong 23% growth in our Latam mobile data revenue, and a strong 7.4%t growth in cable. The home residential business alone is growing up almost 10% a year. The B2B business grew only 3.6% in 2016, but this is due to a one of the negative effect of the nonpayment of a big ticket in Guatemala, and delays in contract signings in Colombia.

Let’s take a look a progress on our Latam mobile data business itself. I think we’re getting the strategy just about right here. And we’re actually creating I think very healthy business into the future.

On graph 1 here, mobile data net adds are up 1.7 million in the year. We closed 2016 with 13.7 million data users in the region. On graph 2, LTE users are growing even faster, as I have said already, we added 2.6 million 4G subscribes in the year in Latam. And Q4 was particularly strong. We added 840,000 4G net adds. Now, note that these subscribers are coming in with around $20 of ARPU an average.

And then graph 3, you see the data consumption per subscriber is up 25% over a year ago. Average usage is now a healthy 1.6 gigabits per month for user. I think you get the picture here, more 4G subscribers consuming more data and with a better experience because 30% of the traffic is already on our 4G networks.

The key point is actually on graph 4. We have said again and again and again that price discipline on mobile data is the key to the future. There’s no point adding 4G subscribers otherwise. Our mobile data ARPU grew about 5% in dollar terms this year to $8.30 on average. This is solid mobile data ARPU growth. The number is actually a bit lower in Q4 than it is in Q3. But that’s simply because the denominator in Q4 is much bigger, because we added a ton of data users in Q4.

This is simple math and you’re all very good at math. It is actually good news. In all, in all the punch line here is simply that our Latam mobile data revenue grew a solid 23% during 2016.

So now on to home, where the progress is steady and ramping up, I will go a little faster here, because we have a lot of the key numbers already. The first point is that in 2016, we ramped up the network build. We now have 8.1 million homes passed. This is a net new build of about 500,500 million total new homes added to our footprint.

The second graph shows that in cable fiber, we increased our network by almost 800,000 HFC homes passed. This is both new build, an average of legacy copper network to state of the art HFC networks. We now have a solid 7.2 million homes passed with fiber cable. The third graph shows that we’re solidly connecting those new homes. We increased by 8% our subscriber homes. We now connect 3.1 million homes in the region and over 2 million of those with state of the art HFC network. And lastly, we picked up almost 0.5 million HFC RGUs in the year, not a small number.

Simply said, we’re building the footprint and we’re expanding the user base. The last point I want to make on this slide is that the build in Q4 was particularly strong. We built in that quarter more than 300,000 fiber cable homes which means that our build run rate can now do our desire targeted 1 million homes of fiber cable plant per year.

This is actually quite an impressive number, because we’re doing it over multiple countries. 2016 was also a year of transformation towards more operational excellence with operational leverage. You have seen the financial results trickle into our operating cash flow already. You will recall that we speak both of reconfiguring our revenue mix and reconfiguring our cost structure. And that is why we introduced Heat to you about 6 months ago.

In 2016 Heat started as making us more efficient. Here’s a quick update on the three key areas of progress. One, on procurement and supply chain, we have now implemented 3PL and 4PL models for mobile devices, home installation materials, and set top box distribution across all of our Latin American markets.

This has a streamline our device portfolio, reduced inventory levels given as better financial control on afforded us scale benefits and purchasing. Given the size of our cable business now, we have also implemented a CPI recovery under furbishing program throughout the region. These are all straightforward operational moves, but they’re hugely significant because they bring savings in variable CapEx.

The second update is on IT and infrastructure. This is all about going from a legacy-backing telecom infrastructure to an API-based convergent OTT-light architecture. You have heard me say this before. As I highlighted earlier we have successfully now migrated 26 million of our Latam prepaid users into our new convergent billing platform.

And three, we continue to streamline and move our operating model to our CapEx like structure. We have now successfully implemented network management services in three countries in Latin America, Honduras, El Salvador and Colombia. This program brings both direct and indirect cost savings. And we’re also now implementing shared service centers across the region to leverage our scale.

This is all ground blocking and tackling, but each one of these initiatives delivers significant amounts of dollar savings. The point here is simply that Heat is on track and the Heat is on with this program.

Let’s take a few minutes to go through our Latin American portfolio in a little bit more detail. In Central America, we had in general a troubled 2016. Guatemala was impacted by B2B and declining international long-distant revenue. And El Salvador faced the setbacks of mandated shut downs of mobile sites around urban prisons, to help the government fight with violence.

In all of our Central American markets we actually accelerated our strategy. In Guatemala, mobile data revenue grew a record 35%, and 4G additions were above a 1million. In El Salvador, we successfully launched 4G at the end of the year, and we expect that this will barefoot into next year. And very similarly, Honduras during the fourth quarter we ramped up our 4G push and began seeing the subscriber intake pickup late in the year quite strongly.

In both Bolivia and Paraguay, we had an excellent 2016. In Bolivia, we added over 0.5 million LTE subscribers and we built over 100,000 HFC homes, with strong financial strong metrics, and growth accelerating from top to bottom. In Paraguay, we also launched 4G during the year, and we added almost 300,000 users in about three quarters only.

And financial resulting Paraguay were strong with growth certainly coming back into the system. And lastly, in Colombia we had a challenging year, no doubt. Let’s review Colombia in detail segment by segment, our large B2B segment struggled to close government contracts. 2016 was a year with elections and political changes as you all know, leading to many delays in execution, but the long-term opportunity remains there in our B2B business.

Especially as we build more and more fixed network there, because indeed the SMB segment continues to grow for us at around 10%. Given our long-term focus on the Colombia opportunity, the very, very positive highlight is the ramp up in our HFC build and the growth of our cable business in Colombia.

We added a staggering 456,000 homes passed in HFC during the year. And we added around a 0.25 million HFC RGUs in Colombia over the year. And in November, we took a 15% price increase across that subscriber base and we have seen no meaningful impact on churn at all.

Of course it is the mobile segment that saw strong competitive pressure during 2016. These made monetizing mobile data challenging in Colombia. And it remains challenging, no doubt. But still, we added almost 0.5 million 4G subscribers in Colombia alone. And also more importantly, we saw towards the end of 2016 some improvement in the competitive pressure. Retailing signs here that are important to focus on.

One, the incumbent, withdrew its price discrimination policy across the graphic regions in the country towards the end of the year. And these has actually put some oxygen back in the system. Two, pricing in the postpaid market towards the end of the year seem to show some meaning full signs of recovery, and team was addressed is further. And three, all operators seem to be passing on to consumers the newly and acted value added taxes in telecom services.

So although, we except that there maybe some price elasticity effects on conception as result of these taxes, the important point is that the industry behavior seems to be becoming more rational. Perhaps not out of the woods yet in Colombia, but its certainly feels like we’re out of the thickest part of the forest.

As I have said often, we have a relentless workers on making our portfolio the best positioned to deliver returns. There is one important update on this front, yesterday we announced the sale of our Senegal operation for $129 million. This is a 6.3 times multiple. The transaction of course, is subject to regulatory approval. But more importantly, the transaction is OCF accredited, and further strengthens our journey in Africa.

The region turned operating cash flow positive strongly in 2016. This should be no surprise to you because this was a promise we made for 2016. And Africa delivered about $100 million of operating cash flow in 2016. You should also note that we have launched a process to sell our 22% stake in HDA. As I have said before we don’t consider this to be a core asset, and as result we intend to monetize it. And we confirm that we’re exploring strategic options in Ghana, as has been removed. So stay tuned for developments on those fronts.

Now on to the money punch line for 2016, how all of these translated into cash flow. As you know, the model that we have articulated to you is designed to accelerate growth from top to bottom of the cash flow progression. Our operational cash flow, as you know, grew a solid 23% in dollars in the year. And we’ve now generate about a billion $1.1 billion of operating cash flow.

But, more crucially, we have now generated strengthening positive equity free cash flow for the second year in a row. This is no small achievement by the way. In 2014, and I’m sure many of you recall, we actually had negative free cash flow. We have now effectively turned the Company to positive. We have increased cash generation by more than $300 million in the last two years. In 2015, we did so largely by improving working capital that actually works and counts. And in 2016, we have done it largely on the back of operational and procurement efficiency and CapEx efficacy.

I say this to make two points. One, we are in the middle of a long-term transformation of the business, but we are growing cash flow quite strongly while we do that; and two, now our equity free cash flow is solid and more than enough to fully cover our dividend policy. As a consequence, we have recommended to our Board, and our Board will recommend to the AGM, the payment of $2.64 per share dividend, for a total dividend of about $265 million.

All right, time to recap 2016. The key points, one we added a staggering 2.6 million LTE subscribers; two, we are ahead of our target cable build with over 8.1 million homes passed now; three, we have launched 4G LTE networks across all the Latin American markets; four, our operating cash flow grew a solid 23%; five, Millicom is now, for the second year in a row, equity free cash flow positive; and lastly, our recommended dividend of $265 million is 100% covered with our internally generated cash flow. Said differently, we’re delivering strong cash flow growth, while we undertake the long-term two-fold reconfiguration of the business.

So now on to 2017. We’re going to do more and faster of the same. The strategy is working, and you know it well. We build the high-speed networks, both fixed and mobile; we add the subscribers; we hold the line on pricing; and then slowly, but surely, the revenue growth comes back into the system.

So some strategic milestones that we aim to hit in 2017, for you to keep an eye on, one, we aim to add more than 3 million additional LTE subscribers; two, we aim to add more than 1 million cable fiber homes passed and the RGUs on that plant that come with that; and three, we will continue to implement the Heat program. It is a multi-year program; it is working and helping us deliver these cash flows.

I want to take a minute to thank all the teams at Millicom, across the footprint, for their great work in 2016. We are very pleased. And with this, as always, I will pass it on to Tim for a detailed review of the financials, and our 2017 financial guidance. Thank you.

Tim Pennington

Thank you, Mauricio. As said, I will now take you through the numbers. As Mauricio has just outlined, we made substantial progress towards our operational targets in 2016, and we’re picking up the pace in 2017. 2016 was a pretty tough year, but in Q4 we did see some positive signs: cable and data revenues growing strongly, less volatile FX, some signs of stability in the Colombian mobile market, though we still have risks. But, on balance, we expect our service revenue growth to be higher in 2017 than it was in 2016.

This will be our key focus area. Our other key strategic focus area, such as margin expansion, CapEx discipline, cash generation, and capital structure, all made strong progress in 2016. So, first, our headline numbers. Service revenue fell by just under 1% in Q4, driven by the challenging conditions in El Salvador, the non-recognition of contract revenues in Guatemala, and one-off regulatory adjustments in Paraguay.

Adjusted EBITDA grew by 1.4% to $566 million. And, importantly, we continued the margin progression, up by almost 200 basis points, as Africa made great strides to improve its margins. Q4 is usually a pretty big quarter for us on CapEx, and this year was no exception. However, it was still almost $50 million lower than last year as we continued to direct our CapEx to core strategic focus areas.

Net-net, we ended with full-year service revenue growth of 1.2%; EBITDA up 4.3%; operating cash flow up 23%; and our OCF margin at 18.3%. That’s important because it’s closing in on our medium-term target of 20%.

Okay, so let’s just start by looking at the service revenue picture. As Mauricio said, and I said, growth has certainly been challenging in 2016, and continued to be in Q4, for all the reasons Mauricio outlined. I’d just like to make two additional points here; the impact of the Guatemala surveillance contract. We booked revenue in Q4 2015, but not in this quarter. This has cost us 90 basis points growth. In other words, our revenue would have been flat without the impact of this, and mildly up on Q3.

The other obvious point to make is almost half of the remaining decelerations come from Colombia. In addition to all the reasons that we’ve discussed during this in the previous calls, a Q4 we completely stopped the earning 4G business returning spectrums government as was agreed at the time of the merger. This had a small but a notable impact on our growth rates. But we are beginning to see the signs of improvements in Columbia. Q3 was stronger than – sorry, Q4 was stronger than Q3.

So let me look at Latam now in a little bit more detail. Service revenue was 2.3% lower exacerbated by the problems we saw in El Salvador. I know the 10% of our network was off the air to support the Government’s prisons policy. The bright spots of home, which grew by 10% and was especially strong in Guatemala, Honduras and Bolivia, our mobile data was also very strong Bolivia and Guatemala both recording growth rates of over 30%.

EBITDA was down 2.1%, but this did include one-off items, we took a $23 million restructuring charge in Colombia in the quarter and there was a further $7 million in Paraguay to reflect those regulatory changes. If we exclude these impacts, our Q4 growth would have been 3.3%. Notwithstanding our Latam EBITDA margin remains robust, OCF margin strengthened by 200 basis points to 22.4%.

I’ll spend bit more time on Colombia, in this slide shows derive us a service revenue and EBITDA margins. As you can see, the legacy voice and SMS business has declined sharply. As we rapidly transition to data, plus the competitive situation. But towards the end of the year, the postpaid price increased across the market. VAT increases will pass through.

And so we are now going into 2017 in a more confident frame of mind. There are of course challenges, there is a reduction in mobile termination rates and the impacts of the tax reforms will dampen the first few quarters. Fixed line has shown 7.1% service revenue growth. Our home business continued to see very good progress.

We now have 4.6 million homes passed. As Mauricio said, B2B was a little bit slower, but we are expecting more from both of these businesses in 2017. EBITDA was hit by the restructuring charge. In Q4 we implemented a voluntary retirement scheme plus a reduction in middle management. This reduced our overall headcounts in Colombia by 450.

The key uncertainty we now face is the impacts of the tax reforms on consumer behavior. There were changes to corporation tax but we don’t expect them to have any significant impact. So turning to Africa, after several years now a difficult performance, I think I can say that we had a truly exceptional year, service revenue remain robust 9.1% up in the quarter, nearly 10% for the year. Voice continues to grow and in Q4 data revenue was up 28%.

EBITDA almost tripled in the quarter on strong cost management and that left us with an EBITDA margin of 32.4%. And with a more disciplined approach to investments we saw not just OCF positive, but nearly $100 million of operating cash flow. This represented a swing of over $130 million from last year.

Final point I want to make on Africa is that in Tanzania changes legislation last summer have mandated all telecom license holders to list on the Dar es Salaam Stock Exchange. We are committed to comply with this law and we’re currently preparing Tigo Tanzania for a listing.

Okay, so let’s turn our attention to EBITDA. Adjusted EBITDA show progress $566 million as I said, margin of 35.5% up 190 basis points driven mainly by Africa in corporate cost reductions. In Q4 we did take a couple of one-off charges a total $30 million of which $23 million related to the restructuring charge in Colombia.

Most of the balance, there were provisions taken at the center, and these distort the corporate cost figures. Without the provisions, corporate costs would have been in line with the previous quarters. So excluding these items, we saw an 1.4% organic growth in Q4 and 4.3% for the year.

I said in Q2 that we tracked the cost evolution of the group in absolute terms. This slide shows the total cost base for the full year. This is without adjustments for FX or one-off items. So overall, our total cost of fallen by just under $0.5 billion. Some of this reflects changes in the revenue line, some of it is FX, but it’s also reflects the actions we’ve taken in the year.

In particular we’ve reduced our G&A cost by over $160 million. The cost are semi-fixed, so we’re very satisfied with 100 basis point reduction in these cost of 20.4% of revenues. Equally, we note 40 basis points out of the sales and marketing costs, this was largely from lower commissions and handset subsidies as we reacted to the environments that we had in different types of markets. As Mauricio said, we’ll continue to focus very closely on costs in 2017.

Turning to CapEx, we landed $1.31 billion a little below the revised outlook we gave in Q3. We continue to focus on improved capital allocation of return on capital for the group. And this represented 16.5% of revenues down from 19.1% in 2015.

Our investments are very narrowly focused on rolling out 4G and HFC networks plus the IT transformation. You’ll also note, we spent $94 million on spectrum licenses, this was in Paraguay, Colombia Guatemala and Bolivia that represented 1.5% of revenues. And in 2017, all those licenses always remain difficult forecast. We see 4G spectrum auctions in Colombia and Guatemala.

Return on capital for the group was up on 2015 is largely due to the swing in Africa as a result of the improved operating performance plus the disposal we made at the DRC. This left us with 16% ROIC on operations and 13.1% on the group up from 11.7% in 2015. Before going on to the cash flow I just want to quickly address a number of items in the P&L.

Starting with depreciation, labeled A on this chart. There was an $87 million increase, at most of that related to fair value adjustments on the deconsolidation of Honduras and Guatemala and this affected our adjusted EPS figure. Net finance charges were also sharply up $69 million higher, largely accounted for by high levels of local currency debt in Colombia, which has a higher interest rate than our U.S. dollar denominated debt.

And we also incurred one-off cost of $25 million in respect of bonds refinancing activities. Other non-operating expenses, return to more normal levels. The year-on-year movement is huge simply because of the 2015 impact of FX and deconsolidation.

And finally, the associates line, once again saw non-cash movements and this time we wrote down our investment in LIH, that’s Latin America Internet Holdings. And finally minorities reflected the impact of restructuring charges in Colombia on the fair value adjustments in Guatemala and Honduras.

Okay, so let me turn to the cash flow and as you know replace lot of emphasis on improving cash flow and I think we delivered a very strong story here. Familiar structure for you showing cash flow down to equity free cash flow that is free dividend excluding spectrum and M&A. And this is a full year picture. So you can see that EBITDA pre one-off charges of $2.2 billion. Working capital this year was neutral. So it left us with a cash OCF of $1.1 billion.

Cash taxes in line with last year, whilst interest was quite a bit higher from the reasons I’ve just commented upon was dividends were – to minorities were lower, because last year we had a special dividend included in the figure. So overall that left us with an equity free cash flow of $269 million and that represented a full dividend cover.

Turning to net debt, it’s held by just over $100 million, largely as a result of cash flow and slide shows the debt movement from 2015 and, as you can see, dividends, M&A, spectrum. After those, we reduced our level of debt to just under $4.2 billion. And this left us with leverage of 1.93 times on a fully consolidated basis, and 2.15 times on a proportionate basis.

As you see in this year, we continue to actively manage our liquidity position and our debt maturity profile. We redeemed our Swedish bond, we paid down $300 million of other bond debt. So as a result of that, now 35% of our debt’s in local currency. We have an average maturity of 5.4 years, and an average effective interest rate of 6.5%.

This brings us to the end of our presentation. In summary, 2016 was a year of building. We saw some positive signs in the fourth quarter. We are closer to the crossover point between voice and mobile data in many of our markets. Colombia ended the year in a better position than we came into it. And we’re beginning to see revenue growth benefits of the rapid cable build.

We are likely to see a continuation of the momentum we ended the year on. And as we go through the year, we expect to see the benefits of the major investments we made in 4G and in the cable rollout. So our outlook is for organic service revenue growth in the low single-digits, so that will be ahead of our growth rate in 2016.

With EBITDA, we expect to grow in the mid to high single-digits; again, at a higher rate than we saw in 2016. And we’re confident that the measures we’re taking under our Project Heat banner will continue to contain our costs. CapEx will be similar to 2016. So we’re expecting our operating cash flow growth to be around 10%, which we think is a very healthy target for the Group.

With that, we will take questions.

Question-and-Answer Session

Q - Unidentified Analyst

Congrats on the results. I want to get more color on El Salvador. I’m just trying to understand whether what’s your relationship with the government there? Is there a risk of, I don’t know, you get contracts with the government, seeing a Guatemala-type situation, where it’s hard to collect and you had to write-off? I know it’s not a massive operation but, from a cash perspective, could hit the results. I’m just trying to understand what’s your view there. What’s the worst-case scenario?

Mauricio Ramos

Sure. Thanks for the question, because if helps us and allows us to clarify some of the dynamics in there. As you know, El Salvador is a country fighting a very difficult but worthwhile war on gang violence, street violence, and we have a part to play in that. And we’ve been asked to play a part, not just ourselves, but other operators as well, in helping the government control connectivity around prison areas, in urban areas, to prevent continuation of criminal activity and to help fight in that war.

And we’re doing so, as an industry, in a coordinated manner, and I emphasize a highly coordinated manner, with the government. I’m sure there are some frictions on how to be done and when to do it. But our relationship with the Government of El Salvador is nothing other than very strong. We’re happy to be able to help, even if it means that we have to lose some traffic on these sites.

Unidentified Analyst

A follow up on that, I’m more concerned with the financial fiscal situation with El Salvador. I’ve seen and read electricity companies not getting paid, subsidies being delayed, just wondering whether there’s any risk from a cash flow perspective.

Tim Pennington

Our B2B business in El Salvador is very modest at this stage, and it represents – Group-wide it represents less than 0.5% of our revenues. And we don’t have significant contracts outstanding there.

Julio Arciniegas

Yes. Okay, Julio Arciniegas from RBC. Congratulations for the result. Could you give me some color about what is really driving the change in the situation in Colombia? You know we’re all in a competitive situation. I have seen, for example, America Movil, that they have been improving their KPIs in the last quarters. So, but at the same time, the methods that are giving you that, basically, pricing tariffs starting to stabilize. So how does…

Mauricio Ramos

Yes, the first thing that comes to mind, Julio, amongst fellow Colombians, both you and I, is a phrase by Garcia Marquez, [indiscernible] there isn’t an illness that can last 100 years. So that’s, I think, part of what’s happening here. The mobile part of the industry has had a rough last 18 months with very aggressive competition and prices coming down. I think there’s been a stabilization in the subscriber counts, and, as a result of that, there is now a fair amount of oxygen being put into the system. I also think, since you’re asking for interpretations, that the tax reform has made the industry think, going forward, on more rationale behavior towards the market. Because otherwise, it would have been aggravation upon aggravation, a very difficult competitive environment and consumer pressure for a fiscal reform.

So as I said, we’re now seeing three important signs. The fiscal reforms, as they apply to the telecom sector, are being passed on by all the operators to their consumers. That does not mean that there won’t be some sort of consumer effect felt. But the important thing is a more rationale behavior, that’s sign number one. As we said, postpaid is working better. There’s price increases there that are healthy. And the dangers and damaging price discrimination practices among geographic regions have now been taken out of the market. As a result of that, it is a better environment, but not one without challenges.

And I think you’re beginning to see that trickle through the results of the operators that play in the market. I won’t state for our competitors, but certainly, as Tim said, we saw an improvement in Q4; and certainly December was better than November, November was better than October. So I don’t want to say victory here, I don’t want to sound overly optimistic, but it does seem like the winds are slightly more favorable.

Julio Arciniegas

Thank you.

Peter Kurt Nielsen

Peter Kurt Nielsen from ABG. Just a question related to Latam, please, and the transition which you talked a lot about, the good reasons from voice to data revenues. Have you made any changes to your pricing on this? Or is there anything you can do to speed up this process in terms of your pricing, bundling, et cetera? Thank you.

Mauricio Ramos

I think that the word I would continue to refer to is price discipline on mobile data. I cannot highlight how important this is, to make this sustainable into the future and have mobile data more than offset the decline in the legacy business. I – we show you some numbers, but we’ve shown you before that we are holding pricing in Latam at around $5 per gig, per month, which is healthy and very sustainable into the future. And I did mention, because we thought it was relevant, that those 4G subscribers are coming in with about $20, on average, on ARPU.

Now, of course, as we expand the base, that doesn’t necessarily hold at those levels, there are not significantly better than an $8 ARPU. So rather than price changes, what we’re doing is we’re holding the line on the pricing. And as I said repeatedly, we are successfully innovating on the way we price. I’ve referred before to an all-you-can-app pricing scheme in El Salvador, and the benefits of having pricing that is time-based and app-based, because it takes away the price elasticity that consumers normally have towards buying mobile data on our prepaid world, while allowing us to have price dynamic tactics that will make better use of the network; and, more importantly, recuperate some of real estate on the phone. The trial in El Salvador was nothing short of fantastic, and we’re rolling out elsewhere soon.

Unidentified Company Representative

We’re just going to take some questions over the phone. Go ahead please, operator.

Operator

Our next question is come from Mr. Robert Slorach from Handelsbanken. Please go ahead, sir. Your line is open.

Robert Slorach

Thanks a lot for taking my question. On Colombia, just checking, did you say 15% increase in November in cable prices across the board? And secondly, I was wondering when the connection rate that forms part could go up. You connected about 700 – 7,000 HFC homes, and looking at around 200,000. Do you expect this ratio to go up over time? Thank you very much.

Tim Pennington

The first one was confirming the price rises in cable; and the second one was about [indiscernible] connections.

Mauricio Ramos

The first one was, Tim is just telling me, to confirm the 15% rate hike on cable; and the answer is yes, we did that November or early December across the base. Now, as I’m sure you realize, we didn’t just slap a 15% increase on a large subscriber base, we provide more value. So we provided higher broadband speeds, we provided some minutes. We did all the retention and enhancements to the product value that you would expect us to do.

Very well prepared. We’ve been doing this in the industry for a number of years. And in Columbia, we have mobile to add to the equation as well. And, as a result of enhancing value, we were very prepared to retain better; and, as a result of that, we’re seeing very little churn. So it’s a product enhancement, not just a price hike. And thank you for allowing me to clarify that. And the second question?

Tim Pennington

The second question was just about the connection rate, which I think is we are growing now at an extremely fast rate. And inevitably, there is going to be a little bit of a lag on the connection rate so you of penetration rate on new build to be as high as the average as a whole. I think we did pretty well. We generally pick up between 15% and 20% connection within the first year. We’re averaging out mid-early 30s generally, so I don’t think we need to comment more on that.

Mauricio Ramos

No, that’s exactly right. There’s two movements there that you have to pay attention to. Number one is we’ve focused on ramping up the run rate of the build. And we’re now at 300,000 per quarter, so we’re comfortable that we can now build at that rate. That took a lot of blocking and tackling. This is getter construction crews; this is training construction crews; this is assigning territory; this is getting to procurement for the key building players. And it’s just a lot of work to ramp up that kind of a build over a number of countries. We’ve nailed that. And you’re rightly focused, I think, on, okay, are we getting the subscribers in, because that’s commercial activity that we’ve got to do right behind after we build. And we are.

As Tim mentioned, 12 months into buildor getting penetration rates of about 15% to 20%, depending on where we are. And those are pretty good, by any industry standard. And that’s a little bit better than we had anticipated in our business plans, but right about where we should be 12 months out. I think lastly, so that the numbers don’t become confusing for you guys into the future, remember that we’re upgrading corporate homes; and, as a result of those, some of the build goes into upgrading homes and some of the build goes into retaining into the future some of those homes. So just make sure you factor that into the math when you see the homes connected. And we’ll try to do it for you, but just keep that in mind. And, obviously, that’s great revenue that we want to hold on to.

Unidentified Company Representative

Can we take another questions off the phone, please?

Operator

We will now take our next question from Stefan Gauffin. Please go ahead, your line is open.

Stefan Gauffin

Yes, hello. Two questions from me, please. First of all, on Project Heat, where you earlier talked about $200 million to OpEx, CapEx, and working capital savings, can you say anything of what you’ve realized of this in 2016 in money terms; and secondly, what can we expect for 2017? And then also, on El Salvador, you have had the issue with the security and the close down of the mobile network for a while now, still the problem seems to have escalated in Q4. Why has this happened? And should we expect this level, going forward?

Mauricio Ramos

Let’s start with the second one on El Salvador, which I think it’s obviously a judgment call that you’re asking us to make on what the situation is in El Salvador. I think we’ve done, as an industry, a very strong move of support towards the government and the fight in El Salvador. It is not a small amount of sites that we have shut down; it is not a small amount of traffic that we have shut down. It has, as we have told the government, impacted traffic beyond that of the traffic in the prisons, because that’s the nature of a mobile network, and the population has felt that.

But I think the hit has already been taken. That traffic has been shut off. I don’t imagine why there would be further shutdowns of the networks at all. We have done it in a number of prisons around El Salvador. So we feel like this is an effect that is in the rear-view mirror, rather than a continuing long-term problem. It’s already taken. The traffic is already off. With regards to Heat, we’ve given you an overview of the project. But this is a multi-year project. We feel like 2016 was a great year in taking down a lot of the important savings.

It is, for P&L, refurbishing. Off the top of my head, refurbishing and for P&L are the larger numbers in what we’ve been able to achieve in 2016. But moving capacity from 3G to 4G is probably the largest ticket that we’ve been able to put through into our efficacy program. And we articulated to you that a couple of trimesters ago saying it was all about 4G and why it was all about 4G. We’ve now delivered on moving the traffic, and also on having the savings trickle down. I’m a little shy of articulating how much of it was in 2016 and how much of it was in 2017, because I know Tim is just going to kick me underneath the table. And he just did.

Tim Pennington

No, we’re making good progress in this. This is about bringing, primarily, it’s about transforming our business to make us more efficient into the future. And we expect cost savings and we highlighted we expect about $200 million cost savings to come out of a three-year program. Within 2016, we’ve made good progress. We’ve probably picked up round about one-quarter of the benefit of that, round about $50 million of benefit into the first year.

I’m not going to make an estimate on to the next year because we, if anything, we’re probably running somewhat faster than we originally expected. But these are complicated matters. We’ve transformed our billing system, converting billing system; that has taken a whole year to do, and it’s not an easy project. We have many other projects like that. They could go well, they could take longer, so I don’t think we want to forecast too much here what’s going to happen in 2017.

Unidentified Company Representative

We will take one more of the phone and then we’ll come back into the room.

Operator

Our next question comes from Mr. Bill Miller with Hartwell. Please go ahead, sir. Your line is open.

Bill Miller

Okay, in talking – can you here me, David. Okay, in talking about the three to five year plan historically, has anything changed? And as you look at the horizon, you said there were 28 million cable homes that could be passed. Can you expand even from there? Or is that the limit? Or what do you have to do to make it even bigger and better?

Mauricio Ramos

It’s a great question. If you take that $28 million number and you apply the billed percentage that a developed economy has over the number of homes that percentage is 90%, 80%, somewhere in the U.S.; and about 90% in Western Europe. If you use the more advanced Latin America countries in terms of broadband, like Chile and Puerto Rico, it’s around 75%, give or take.

So 30% is a long way to go to get to 75%. Even in the program that we’ve articulated of a target of 12 million homes, we’d still get to only 40%. Now I get the fact that these are economies with lower GDPs per capita, but 40% is still pretty low. The reason we haven’t beyond 12 million as a medium-term target is not because the opportunity is not there, is not because we’re capital constrained, we’re throwing all the possible capital that we can to 4G network rollouts, IT transformation, and the cable bill; it is simply that there are construction crew constraints and permit constraints that do not allow us to build any faster than 1 million homes a year, because it’s in multiple jurisdictions. It’s over five jurisdictions that we’re doing this program over.

Now if we can better at it Bill, if we can train more technicians, if we can get more permits, if the machinery can be further rolled up, and it’s pretty darn good today, then we’ll ramp it up. This is us going at pretty high capacity here.

Bill Miller

Great. Thanks very much.

Stephen Bechade

Hi, it’s Stephen Bechade from Citigroup. I’ve got quite a few questions; I’ll try and stick to just three, to leave some time for other people. The first one is, clearly, there seems to be a focus, with your recent transactions, of scaling back in Africa, and your free cash flow tends to come from Latin America. Would you be willing to give guidance indicators for the Latam unit, please, on the same way you give Group guidance, so service revenue, EBITDA, and CapEx, even if it’s very vague?

My second question would be on just delving a bit more into the Colombian strategy. I think if I look through your KPIs, you’re losing homes connected on a net basis in Colombia, despite expanding the network, which I think is rare for a cable company. And I think it’s also rare for a challenger mobile operator to be losing market share, which I think is also a fair prognosis of where you are in Colombian mobile. So maybe you could help to explain how you intend to turn those two factors round in Colombia in due course.

And then, the third one, I’ll try and keep it fairly simple, do you have an equity free cash flow impact of Africa? I’m sure it’s something that you have looked at as a management team what – I know you’ve turned the operating free cash flow positive, but on an equity free cash flow basis what’s the Africa impact?

Tim Pennington

I’ll deal with the last one, quickly. We are still equity free cash flow negative in Africa, after finance lease charges and some small amounts of taxes. And that is clearly in our objective to turn this equity free cash flow positive this year; that is one of the key aspects of this. And actually, one of the parties contributing to that was Senegal, which was one of the reasons why we’ve taken the step to sell Senegal. They’ve doing extremely well, but ultimately we were trying to invest more than we felt was reasonable to get us to the position we wanted to get to.

Mauricio Ramos

So to add to that, I think Tim has given you a pretty strong message. Just as we said Africa was going to be operating cash flow breakeven in 2016, we’re now strongly saying we’re going to make it equity free cash flow breakeven in 2017. And we think we have the track record to show that we can get that done. Not a small achievement, and will allow us to be even more strategic around anything we do in Africa. This has been the strategy from day one, and we’ve articulated it as such. With regards to more…

Tim Pennington

Let me just deal with the first question, because I can deal with it quickly I think, because the answer is, no, we won’t give specific guidance on Latam. But what I would say was that for 2016 a lot of the movements were coming out of getting Africa right, getting our corporate costs right, managing our CapEx. I think we did those pretty well, and I can say so myself. Going into 2017, to achieve the guidance we’ve just put out everyone’s got to contribute, everyone’s got to fire on the whole side of it. So that guidance effectively applies to Latam, just as much as it does apply to Africa, or wherever. And you can probably read through it’s what we need to do in Latam as a consequence of that.

Mauricio Ramos

Stephen as you can see, we’ve got a great CFO here; he just stopped me short of spilling the beans there on more granular guidance. That’s good, that’s fantastic. And listen, on Columbia, this is – you mentioned two or three things in there that are important to address. The first one, the homes connected, this is the copper-cutter effect, and this is why we need to reconvert those homes into cable network as soon as possible. And there’s a lot of focus on that. So these are not cord-cutters, these are I call them copper-cutters, simply because those are networks that we acquired that have subscribers on them that do not have the HFC networks. And we’re ramping up, building those, and retaining those, and cross-selling into those, so there’s that effect there, for sure. And that’s why we give you this ability on HFC versus the entire plan so you can follow through our effort, indeed, in cross-selling and retaining those subscriber base.

I think the mobile piece of the equation is, obviously, more concerning, because we think we’ve got the cable piece of the equation nailed in Columbia with the load share, and the price rises, and the HFC pick-up in subscribers. It doesn’t mean that we can’t do more, but I think the mobile is one where we need to be a lot more focused. And then, you mentioned, indeed, some subscriber losses, a lot of that is cleanup. So let’s make sure we understand that: about 500,000 is just a cleanup of low-paying subscribers. I think very early on this year – sorry, early on last year I alluded to the need to focus on the 4G subscribers, not on the low-paying prepaid subscribers that give us less than $1 in ARPU, because that would be the wrong focus.

And as I said earlier, in Columbia we picked up a tonne of 4G subscribers in the year. And that’s our focus. Now, I’ll be very honest with you, even in Columbia, in the midst of this challenging aggressive pricing we made a conscious decision to hold our line on pricing, as much as we possibly could, even if that meant our volumes were going to go lower. It is very strange indeed that we, as the challenger, are the ones holding our line on pricing. But I’ve got to tell you, I think it’s paying off. If the market starts recuperating, as we expect it will, then that strategy will have paid off and it would have been the right thing. If we give up on price discipline, we’ve got nothing for the future, nothing.

Unidentified Company Representative

We’ll go back to the phones for another question, or several questions from the phone. Go ahead, please, operator.

Operator

Our next question comes from Johanna Ahlqvist from SEB. Please go ahead. Your line is open.

Johanna Ahlqvist

Yes, two questions, if I may. First of all, back to Columbia and the implications from the tax, so do I interpret you right, that you don’t expect any sort of EBITDA impact from the new tax in 2017? And my second question relates to the service revenue outlook for 2017, where you expect to have a higher growth than in 2016, so if you can give a split of what you are thinking here in terms of Latin America. And do you expect to see any difference in Central America and South America on this matter? Thank you.

Tim Pennington

Well, let me just quickly deal with the tax. What I said was we don’t expect any impact from corporation tax. So our corporation tax, there’s going to be a few pluses and a few minuses, it’s quite complicated; but net-net, there shouldn’t be any difference. The impact on EBITDA is uncertain to us; it will be a consequence of consumer behavior, impacts of the VAT increase. And if they are passed through and customers absorb them then there won’t be any impact; if they don’t, there could be an impact. That remains uncertain. But I think we’ve shown we’re adept at trying to manage that. And if, as Mauricio has just been talking about, we start to see price stability in this market then that should be within the bounds of what we expect. And the service revenue?

Mauricio Ramos

Well, and I think we’ve given you a fairly clear guidance on service revenue, and actually this year we’ve gone a little bit more in providing guidance; we’ve provided a little bit of operational guidance, and we’ve guided towards an OCF target. So we hope that, as a package, is pretty comprehensive to you. We really shouldn’t be more granular than that, and I hope you guys all understand that.

Johanna Ahlqvist

Thank you.

Unidentified Company Representative

Next question please operator.

Operator

Our next question comes from Lena Osterberg from Carnegie. Please go ahead. Your line is open.

Lena Osterberg

Yes, I have a few questions. First of all, I was wondering a little bit if you could tell us how much of revenues are MTRs in Columbia? So roughly how much do you expect that it will impact revenues with the new MTR cuts? And also, if you previously – did you benefit significantly from these asymmetric rates? And do you expect that there will be an adverse impact if you go to symmetric rates? Also, I was wondering if you could say how much cash you up-streamed in 2016. And then also, on D&A charges, if you could give some indication for 2017. They came up now when you did the new PPA for Guatemala and Honduras, if you could give some run rate into 2017, please?

Tim Pennington

Let me have a go at these. In terms of the MTR’s, I haven’t got the figure off the top of my head; and I’m not sure I’d give you it, even if I had. We did benefit from the asymmetric impact, and that did give us an impact of EBITDA, but it’s been a diminishing impact. This has gone on now for three years, I think, the asymmetric – in fact, longer than three years. But for the last three years we’ve seen a diminishing impact. As you saw on the slide, the reduction in our voice and SMS traffic. And as we transition across the data the EBITDA impact of the asymmetric, I think, is diminishing, not to the point of extinguishing them, but I don’t think they are significant. I think they are in the mid, mid/high single-digit millions today.

And the same on MTR’s. When we’re looking at growth rates to 1 decimal point, it may have an impact on us. But in dollar terms, these are likely no longer big dollars to – they’re big dollar impacts on us. When I look at the cash up-streaming, we upstream around about $450 million this year for more forms of cash up-streaming; that is enough to pay the bills, as it were, so we’re happy with that. And in terms of D&A, we – what you saw in the P&L is sort of broadly the ongoing level. There was a fair-value adjustment, and this is sort of very complicated simply because of the IFRS requirements for us on Honduras and Guatemala.

But without boring you on those details, it gave rise to a fair-value exercise, which gave rise to a change in our balance sheet intangibles, which gave rise to a depreciation charge, which goes through it. It’s non-cash, but it’s big, it’s about $80 million, I think, and so it’s important just to flag that. Touch wood, that won’t happen again, and there won’t be any other fair-value exercises that affect our depreciation in 2017. I pray that’s the case. But I think that is the right number is to use whatever we’ve got for – in the P&L this year as a good proxy, going forward. Is that okay, Lena?

Lena Osterberg

Sorry, I couldn’t hear you properly on that DNA.

Tim Pennington

The level we have in the P&L this year is a good proxy, going forward.

Lena Osterberg

Okay.

Tim Pennington

I’ll take this in a little bit more detail, up in Stockholm, when we meet.

Unidentified Company Representative

I think we’ve got time for two more questions from the phone.

Operator

Our next question comes from Thomas Heath from Danske Markets. Please go ahead.

Thomas Heath

A few questions, if I may. Firstly, on Colombia, you mentioned the staff reductions of 450; just to wonder a little bit what the margin impact will be of that in isolation, if we’ll get to see the positive impact already from Q1. Secondly, on the Tanzania listing process, is it still the case that only Tanzanians will be able to buy shares and that we’re looking at a confiscation of 25% of the assets?

And then thirdly, more on upselling to data and 4G. If we look both in Central America and South America, you have a rapid increase in mobile data penetration, I think, 4 percentage points higher data penetration in the base in Q4, more or less both in South America and Central America, which is a fast incremental charge; you’ve been adding about 1 percentage point to date, the penetration, quarter, historically. Can we expect this to rapid level, but with a, perhaps, fast erosion of voice ARPU? Or how should we look at this? It seems that data ARPU is turning south in Central America, but still growing in South America. Some questions.

Mauricio Ramos

Sure, so let’s start from the last, backwards. The answer is its right down the strategy; it is as simple as 4G, HFC, and IT transformation with a lot of focus on the consumer. And we’ve articulated a clear message: that we intend to add another 3 million 4G subscribers in 2017. So that’s the pickup in the net adds of 4G, so no slowdown in the pace, actually, a ramp up in the pace. And the reason we feel comfortable with that is because we’re further allocating capital into more 4G points of sites, and that’s what drives that traffic.

We continue to focus commercially on it and, as a result of that, we expect to pick up the pace. It’s actually a fairly bullish statement for us to be telling you that we’re going to be close to 7 million 4G subscribers at the end of this year, as we come out of the year. Now, $20 ARPU on 4G subscribers in Latin America is pretty healthy. I don’t think I would risk my credibility in saying to you that as we further penetrate we’re just going to hold it at that level. There is obviously some price elasticity on the demand, and we expect that, that ARPU will start coming down. But remember, average ARPU is $1, so we got room. And that has always been the articulated strategy: we’ve got room, as we monetize data, if we hold the line in price, to end up somewhere between $8 and $20. That is as simple as I can say the strategy is.

So that’s on 4G. On the Tanzania IPO, indeed, the legislation, unclear as it is, does still speak of Tanzanians only and a 20%. I’ve got to tell you, we’re going to comply with all legislation, as we always do, in Tanzania, everywhere else. But I also have to tell you, its early days in that process. As heated as it is, as detailed as it is, as prepared as we are, it is still early days in what the process will ultimately end up looking like, both in terms of the process and how it plays out, and also in terms of the final outcome, are still to be determined, and there are still ongoing discussions around that. We do our best to keep you posted as we get more clarity, and as things develop, but that’s basically the clarity that there is today in this very early stage.

And I’ll pass it on to Tim to complement that, and move on to the first question.

Tim Pennington

Yes, I’ve nothing to add on Tanzania. In the first question, we – our headcount reduced by 450. The majority of those were early retirements; they generally are long-serving members of our Company. The payback on that is just under two years, is a $20 million cost, so the impact to us will be about $10 million of EBITDA, which is 50/60 basis points. But given that there is a lot of moving parts in Tanzania than Colombia.

Thomas Heath

That’s very helpful. Thanks.

Unidentified Company Representative

Next one will have to be the last question, operator, please.

Operator

Our next question comes from Chris Grundberg from UBS. Please go ahead. Your line is open.

Chris Grundberg

Thanks, guys. I just have a very brief one, and then a nice easy one to finish on. The brief one is just around the Ghana sale. I wonder if you can just add any commentary there in terms of time horizon. Appreciate it’s a sensitive topic, but just, I guess, in terms of any vague commentary you can give on what we should be thinking about. And then the last, the easy final one, just wondering, as you sit where you do, looking across the Group now, where do you see your highest priority markets for incremental investment? What do you see as the best return opportunities in terms of cash flow growth on a three or five-year view across the Group? Thanks.

Mauricio Ramos

Great question. Listen on Ghana, I think the right way to characterize this is simply that, as we do with our entire portfolio, and you’ve heard me say this, a number of times, we always look at what our strategic options are. And if there is one that is better that we can do on our own then we take that option. And in Ghana, in particular, the industry structure is very fragmented, so there is opportunity there for the industry structure to get better. Having said that, I don’t want to say anything better, simply because, as with everything else we do, when the cooks are in the kitchen you better not disturb them; you just let them go on with the recipe and hope that the meal is served appropriately, hot and at the right time.

And on the question of better returns, all of our markets in Latin America are relatively similar. In all of those markets, we have the ability to build a state-of-the-art fixed network underneath our mobile network. That’s true even in a market in which we are not the premier leading provider of mobile services, like Colombia, where we are challenger. There, the opportunity is identical. Therefore, the opportunity, as a whole, lies in driving returns across all these markets by quickly building that network that will allow us to become a leading fixed mobile convergent player.

Over a period of a long-term horizon, you’d be shocked at how similar the returns are across our markets, simply because the state of development is compensated on one segment versus the other. Now, I think the only other point I would make, which should be fairly obvious as we look across returns on our portfolio, it is not just return but size of the opportunity. And quite evidently, the opportunities are bigger where the markets are bigger, and that’s why Colombia plays such an important part in our portfolio. Tim, do you want to add anything?

Tim Pennington

No, I don’t actually. I think that covers it.

Mauricio Ramos

Hope that helps you a little bit in our thinking.

Chris Grundberg

That’s great. Thanks.

Mauricio Ramos

Well, listen, guys, I appreciate the time you’ve taken, and all the questions. I want to leave you, hopefully, with a view that almost two years into the process now we have a strategy that we trust has been clearly articulated to you all. We know that it is clear and fully supported by our Board. I cannot emphasize how cohesive the Board and the management team is. The strategy has been downloaded methodically and very thoroughly to all of our teams. They’re actually listening to this call. And I thank them for being so aligned with us.

Number two: the team is really in place now, in their second year of our tenure, and we’re becoming an outstanding high-performance team. The execution of the strategy is on track. The networks are being built; you see results, are being built faster than we have anticipated to you. The subscriber intake is strong. 4G and HFC RGUs are coming in strongly. We are holding the line on pricing in mobile data, and we are taking gains wherever they’re available to us on fixed.

And, as a result, the revenue reconfiguration is happening, as we speak. We are 50% already into the high-growth areas. And we can continue to streamline our costs. We’re relentless on working on all fronts. And two years into this, with the pickup in cash flow that we’ve shown, I think we’re showing our ability to deliver cash flow as we reconfigure the revenue line and the cost business. So we’re pretty optimistic that this is working. No strategic change and no strategic process will bear fruit overnight. But we’re quite clear that the signs are there that this is, indeed, working; and, as a result of that, in 2017 we’re going to do more, and faster, of the same thing. It’s working. Thank you, guys.

Operator

This concludes Millicom’s financial results presentation. Thank you for your participation. You may now disconnect.

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