Millicom International Cellular SA (TIGO) CEO Mauricio Ramos on Q4 2021 Results - Earnings Call Transcript

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Millicom International Cellular SA (NASDAQ:TIGO) Q4 2021 Earnings Conference Call February 11, 2022 8:00 AM ET

Company Participants

Michel Morin - VP, IR

Mauricio Ramos - President, CEO & Executive Director

Timothy Pennington - Senior EVP & CFO

Conference Call Participants

Diego Aragao - Goldman Sachs Group

Stefan Gauffin - DNB Markets

Marcelo Santos - JPMorgan Chase & Co.

Sergey Dluzhevskiy - GAMCO Investors

Soomit Datta - New Street Research

Kevin Roe - Roe Equity Research

Michel Morin

Hello, everyone, and welcome to Millicom's Fourth Quarter 2021 Earnings Call. I'm Michel Morin, Head of Strategy and Investor Relations at Millicom. And this event is being recorded. Our speakers today will be our CEO, Mauricio Ramos; and our CFO, Tim Pennington. And after their prepared remarks, we will have a Q&A session. By now, you should have received a copy of our earnings release, which is available on our website and along with the slides that we will be referencing during today's presentation.

Now please turn to Slide 2 for our safe harbor disclosure. We will be making forward-looking statements, which involve risks and uncertainties and could have a material impact on our results. We will also be referring to many non-IFRS metrics throughout the presentation, and we define these metrics on Slide 3, and you can find reconciliation tables in the back of our earnings release and on our website.

So with those legal disclaimers out of the way, let me turn the call over to Mauricio Ramos, our CEO. Mauricio?

Mauricio Ramos

Thanks, Michel. Good morning and good afternoon, everyone. Thank you for joining us today. We had another excellent quarter in Q4 to what was a strong finish to a solid year in 2021. So let's jump right in with the highlights for the year on Slide 5. First, 2021 was a year of continued strong customer growth across all our business lines and in all our countries, we saw strong demand and robust customer growth throughout the year, and this continued on in Q4. Second, we were able to convert that healthy customer growth into strong revenue and EBITDA growth of 7%, which gives us good momentum as we enter 2022. Third, in a year when we decided to invest to capture that growth, we delivered strong operating cash flow well ahead of our guidance for the year. And fourth and finally, we continue to raise the bar on ESG, which we will discuss later today and at more length at our Investor Day this coming Monday.

Let's look at the details beginning with our home customer growth on Slide 6. We now serve more than 4.1 million cable customers. We added a record 415,000 new customer relationship in 2021, and roughly 700,000 in the last 2 years. This customer growth in our home business over the past 2 years is even more significant when you consider also, and we're seeing better pricing, including charging for installation fees in many countries. Our home ARPU was up 2.5% organically in 2021. That's our strongest ARPU growth in the last 4 years. And in fact, we have raised prices throughout the year in the vast majority of our markets.

Now turning to Mobile on the next slide. We had our strongest performance in years, adding more than 3 million subscribers, including more than 1 million in postpaid, which is right on the back of our strategy to push postpaid in our markets. This is mostly due to our record performance in Colombia, but practically, every country had a solid year in postpaid. So our customer base is up 22%. And finally, we saw steady growth in our B2B customer base throughout 2021, driven primarily by our SME client segment, which grew every quarter and ended the year up 16% year-on-year.

On Slide 9, you can see how we've translated our customer position into strong service revenue and EBITDA growth of 6.7%. And you can see on the right that every country and every business line reported positive growth for the year in 2021 with our home business leading the way with 10.9% growth.

Now let's take a look at our performance in our largest countries, beginning on Slide 10 with Guatemala, which had yet another fantastic year. Guatemala provides a good example of a country where we have consistently invested in our network, in our brand, in our distribution, in our customers and in our team, and the results speak for themselves. Over the past 2 years, we have made strategic spectrum purchases that have allowed us to drive our NPS scores higher and that continue to add customers. In a country where 80% of our revenues come from mobile, we grew service revenue by 7%, and EBITDA by 10%.

And as you can see on the next slide, we closed the year ahead of all the targets we set when we announced the acquisition of our minority partners 45% stake back in November. Take good note of the numbers on this page, both on the left and on the right, because it is not every day that you see a telecom business with an EBITDA margin of more than 50% and an equity free cash flow margin of 30%, a business that we now own 100% of, and that continued to perform very strongly.

Now let's take a look at Colombia on the next slide. As you can see, our customer intake was very strong and very consistent throughout the year, and we had a monster year in postpaid with 800,000 net adds. It used to be that a good year for us in Colombia was something around 100,000 postpaid net adds. We got 800,000 in 2021. And you can see on the bottom left that this customer growth is driving our top line, which is clearly reflective driven by mobile. And that is starting to lift our EBITDA as the incremental revenue is now beginning to offset the higher customer acquisition costs that we have been in currency since Q2 of this year. And that sets us up for a solid 2022 in Colombia.

Now let's look at Panama. You all know the story here. We bought 2 leading businesses and our team did a hard work of combining and integrating them throughout the pandemic. And we have emerged as a clear leader in the Panamanian telecom market with every part of our business growing along with an economy that is now recovering strongly. So as you can see, our 3 largest countries performed very well in 2021, and we have entered 2022 with excellent momentum.

Now let's shift gears a little bit to look at our operating cash. We told you at the very beginning to 2021 that we saw an opportunity to invest more than usual this past year in order to capture some additional growth that we saw in the market. And we did just that. We invest -- we added record numbers of home and postpaid customers, and we sustain mid-single-digit service revenue growth, consistent with the long-term growth ambition that we had outlined before the pandemic. And we've also told you that we would deliver at least $1.4 billion, and we have comped well ahead of that, even as we invested heavily to support our customer acquisition and as near completion in some important mobile network projects that have been going for a while. These investments now position us to sustain our strong momentum into 2022.

Finally, 2021 was a watershed year for ESG agenda, and we continue to raise the bar in this area. We take our role as agents with positive change in the region very, very seriously. And we want to raise the bar even further. So come next Monday, during our Investor Day, we're going to talk a lot more about the commitments we're making for the long term in our ESG agenda for the region.

Now let me turn it over to Tim to provide the financials for the quarter.

Timothy Pennington

Thank you, Mauricio. Let me take you through the Q4 numbers, the balance sheet situation and how we intend to report in 2022. So starting on Slide 16. This is just our usual bridge from the reported IFRS numbers for the quarter to the underlying numbers for LatAm service revenue and EBITDA, which better reflects the way we manage the group. With the consolidation of Guatemala, which took place midway through Q4, this will be the last time we report like this. In future, we will focus our attention on our IFRS results. But for this quarter, we will continue to discuss our performance for the LatAm segment as we've done in the past several quarters.

So let's go to Slide 17. We reported positive year-on-year growth in every quarter of 2021. In Q4, we saw 5.7% organic growth. It was supported by a stable macro, remittances from the U.S. continued to be exceptionally strong and improved vaccination rates, which are now above 50% in several countries. Now as you can see from the slide, performance was driven by the home business up 10% on last year, sustained by record net customer additions, improved penetration, which was up 200 basis points in HFC and stable ARPUs. There was another good performance from our consumer mobile business, maintaining a very healthy 4.2% year-on-year growth, driven by subscriber growth. We're now just under 45 million customers and a more stable ARPU environment.

As a reminder, our consumer mobile business has already returned to pre-COVID levels. So the 4.2% growth we reported in Q4 of this year is against the most challenging comparison of last year. This should give you a better sense of the strong momentum we saw during Q4. Thanks in large part to the additional investments we've made in our mobile networks over the last couple of years. And finally, B2B delivered positive momentum, 3.3% up on a year ago as the majority of our countries saw performance improvements.

Now drilling down further on Slide 18 to service revenue performance by country. Once again, every country performed better in Q4, than they did a year ago. Standout performances were from El Salvador and Panama, whilst Colombia accelerated. El Salvador continues to sustain a very strong performance with all 3 business lines performing well. Whilst in Panama, this was the third consecutive quarter we've grown. Mobile has been particularly strong over the last couple of quarters, and we saw double-digit growth in B2B, which is a very strong sign that our B2B business is beginning to return to precoded leverage.

In Colombia, our consumer mobile business accelerated to almost 13% year-on-year, driven by growth in postpaid mobile. We're now approaching 2.5 million postpaid customers in Colombia. And we're starting to see this drive our ARPU higher. It increased sequentially for a second consecutive quarter. So the strong mobile performance was the main factor driving the overall acceleration to 6.4% in this quarter. Guatemala by standards had a quieter quarter. Q4 last year was exceptionally strong, so this is always going to be a tough act to follow. So if you look at Guatemala for the full year, it's grown by 7.3% overall.

Okay, I want to turn now to EBITDA on Slide 19. LatAm EBITDA of $617 million was down 2.7%, largely on cost impacts. Direct costs were up mostly because of bad debt return to a more normal run rate compared to a year ago. Recall that bad debt charges last year were distorted by the impact of COVID. So our bad debt was $20 million higher this year. With respect to OpEx, ratio showed the very strong customer growth, but this comes at a cost, largely reflected by higher commissions with also costs linked to subscribers like content costs, network costs. In total, this added around $20 million to OpEx compared to last year. We also incurred an additional $8 million of corporate costs to support our Tigo Money investment. Now we see this level increasing to around $10 million per quarter in 2022, which will be largely reflected in corporate costs.

Now looking more closely at EBITDA performance by country on Slide 20. A mixed picture here, as the factors I've just explained on the previous slide had differing impacts at the country level. Starting with Panama, I'm very pleased to report a very strong result, up 19%, revenue driven, but also with strong cost control, especially in the second half of the year. Elsewhere, Guatemala, Bolivia, Honduras and Colombia were affected by the bad debt normalization I referred to earlier, whilst additionally, Colombia was also affected by higher network maintenance costs.

Guatemala was also impacted by lower margins on handsets, which were more expensive due to the global chip shortage. This is the one market where we sell a lot of handsets. In addition, the growth in customers did put pressure on our network costs. In Honduras, we had very strong subscriber growth in the fourth quarter. This contributed to higher sales and marketing costs. It was also affected by higher electricity costs, dampening the EBITDA performance. And then finally, Paraguay, where we saw a decrease driven by higher costs on commercial activity, particularly a new exclusive soccer contract and also in MFS.

Now moving to Slide 21, you can see how our operating cash flow, that's our EBITDA less CapEx compared to the previous year. You can see that we added $129 million to our EBITDA, but as Mauricio has already explained, we decided to invest our EBITDA growth into higher CapEx, largely a catch up on the lower investments in 2020 and to take advantage of the opportunities that Mauricio outlined. And as a result, OCF was 2.6% lower at just over $1.45 billion, but this was still well ahead of the guidance we gave.

Finally, let me close on the leverage situation. The major transaction in the quarter was, of course, the acquisition of the remaining 45% in Guatemala for $2.2 billion. This is the reason net debt is $1.7 billion higher than it was a year ago, closing the year with just over $7 billion in net debt and $8.3 billion if we include leases. You have also seen we've been very active in the debt markets, rebalancing our maturity profile with the consol bond announced on the 28th of January. So we've now largely concluded the refinancing of the bridge loan. This gives us a proportionate net debt to EBITDA of 3.36x at the year-end, which pro forma for the up and coming $750 million rights issue would releverage a fraction over 3x. That's lower than 3.1x we indicated at the time of the deal.

And talking of rights issue. At this point, we would normally give our outlook for the year. But because of the rights issue, we have some legal constraints and can't comment specifically on 2022. What I can share with you is that we are targeting organic OCF growth of around 10% on average over the next 3 years. And we will be giving you more detail about our medium-term plans in the Capital Markets Day on Monday.

So with that, let me pass it back to Mauricio to wrap up.

Mauricio Ramos

Thank you, Tim. Before we take your questions, let me recap the key highlights of the year. We had one of our best years ever in terms of customer into. We added more than 3 million mobile subscribers, 1 million of them on postpaid and 415,000 net additions to our home cable fiber business. Service revenue and EBITDA grew strongly with both up 7% and in a year in which we chose to invest in the business, operating cash flow came in well ahead of our target. And finally, we completed the acquisition of our minority partner in Guatemala in a transaction that was immediately accretive to our cash flow and to our net income and that will make it easier for us and for you to model and value our business, as you will see beginning with our Q1 reporting in April.

With that, we're ready for your questions.

Question-and-Answer Session

A - Michel Morin

Thanks, Mauricio. So we'll now proceed with the Q&A session. If you'd like to ask a question, please e-mail us at investors@millicom.com, and we will add you to the queue. You may also e-mail us your question and we will answer it at live. We'll now go to Diego Aragao from Goldman Sachs. Diego? Just give it 1 second to team up.

Diego Aragao

Yes. So look, my first question is on the leverage. This should be at around 3x EBITDA adjusted for the future right offering, as mentioned by team. So just wondering, if you can comment on your expectation for the leverage, for instance, what will be a sustainable level for your business? And how long it will take for you to get there?

Mauricio Ramos

Diego, that's a great question. And I have the luxury of having 2 CFOs. And so one thing I'm not going to do is take the leverage question today, Diego. Let them figure out who's going to take it. With that, I just want to make sure everybody meet Sheldon to my left. He is a new guy in town. You will see a lot of him on Monday, because they see the ground running, and he can answer just about any question that you can throw at him. So he's only getting Tim's help today, just because he's on apprentice seat for a little while. So you got to figure out, who's going to taking the leverage question.

Timothy Pennington

Okay. I'll start because then Sheldon can sort of disabuse anything that I say in the [indiscernible]. And look -- but no, look, I mean, we've been very focused on leverage. And very pleased that on a pro forma basis, where with just a fraction above 3% at the year-end. And we said that we're going to be below 3% by the end of 2022. And in fact, on Monday streaming [indiscernible] we're going to target 2.5x by 2025. We should be in that ballpark. But Diego, I don't want you to misunderstand. We're still targeting that 2x that leverage target within that is the right operating level for us.

Diego Aragao

Great. I guess maybe the second question and first, nice to meet you. Looking forward to see you in person. So the second question is regarding Colombia, versa performance side that market despite a growing competition, right? So I just want to get your views on the outlook actually for the market, especially because theoretically speaking, I think the competition should continue to be tough in that market considering recent transaction from KKR with Telefonica recent, let's say, comments from America Moto about their expectations for Colombia. So I think it will be good to hear from you about that market in particular.

Mauricio Ramos

Yes. So, thank you, Deigo for that. You'll see a lot more on Monday, but we like the decision we're in Colombia for the long term. We got the spectrum. We're the largest holder of 700 gigahertz spectrum, not strategically very relevant. We're putting in to use with a network that today for the second year in a row have been externally evaluated as the best network on just about every category in the country. Now on the back of that, we've increased distribution and service layers through the organization. We've invested heavily in our commercial capacities. And we've also continued to deploy our fiber cable network in Colombia, very successful, which gives us on mobile, the ability to offload, put WiFi to [indiscernible]. So when you look at the strategic picture in Colombia, and yes, it's competitive. And yes, Telefonica has made a partnership with KKR, where we sit strategically is 1 million months better than where we were 2 years ago. It's a very strong position.

Now the thing that has to change, because I've been saying this now for a few quarters, right? The thing that has change is that before, I was saying, listen, it's common. We're going to win. Today, you now have a few several quarters in which the numbers are really coming our way. It's 1 million postpaid net adds almost that we have in Colombia 800,000. Our market share has picked up 200, 300 basis points just this year. And in the context of the mobile market that is indeed competitive and which has seen prices come down, our revenue. The overall competition on price and quantity is actually up. And as we anticipated and are going to know the orders, there would be an inflection point was in Colombia. And I said it's just coming out of what is going to be Q4, Q1 -- there's not capping last time around. You already see it in Q4, clearly picking up revenue, clearly affecting the EBITDA, and because a lot of the network buildup half of that, 2/3 of that is behind us, then OCF is also picking up in Colombia. For the first time ever, we have market share of mobile that's in the [tens to normalcy. That hasn't happened before.

Now we all know that it's going to remain tough. Of course, it's going to remain tough. But I think we're in the best position, because we got the best network. We have the best section, the best team we can converge. We have WiFi and we have very little model market share. And on fixed, we continue to build and we continue to add. So I'm not saying it's going to be a walking apart, but I'm feeling a lot better on Colombia and now the work beginning to deliver out.

Michel Morin

So now we'll go to Stefan Gauffin from DNB. Stefan?

Stefan Gauffin

First, hi, Sheldon, nice to see you. And I would also like to thank Tim for good cooperation over the last few years. So a couple of questions. I think you mentioned that corporate cost increased $8 million year-over-year. I have a bigger increase in my numbers, if I just deduct the country reporting. So are there any costs relating to the Guatemala transaction in there?

Secondly, I'm just thinking about the equity issue, which I think has been putting pressure on the share. And you have been talking about showing value by carving out the infrastructure. And you're also doing the full exit from Africa. So just thinking, would it be possible to look at other ways to finance the transaction?

And then just finally, Honduras and Paraguay, both markets were having negative growth in EBITDA and weaker margin profile. Is there -- should we be concerned around the competition level in any of those markets?

Mauricio Ramos

So will people have Tim begin, and then I'll address a little bit on the Honduras and Paraguay and probably make use of your question to go a little bit picture just to put anything in time, but that's answer the questions for [indiscernible].

Timothy Pennington

Yes. On corporate costs, Stefan, yes, they were higher than the $8 million that I called out. But the big change in the quarter was that we invested $8 million in Tigo Money in the quarter, which wasn't there in the previous quarter. And I also flagged that next year, we expect to invest about $2 million per quarter in that business. So that will be a change for us. Now the doubt you're looking for is really just a normalization of our corporate costs kind of last year was particularly low because, frankly, we set on everything. In 2020, we stopped a lot of things, obviously, compensation levels were lower, and activity levels were low. We didn't sort of -- and we didn't travel for instance, our travel budget was next to open. So a lot of the balance is just in return to a normal run rate.

Stefan Gauffin

But should we look for around $40 million, corporate costs going forward? Or should it be higher for the quarter?

Timothy Pennington

I think our normal run rate would be just a shame under $40 million, and then the MFS impact will be on top of that.

Mauricio Ramos

So on Paraguay and Honduras and then we will picture in return to do that. The simple answer, Stefan, is -- although the EBITDA line looks a little weaker, the reality is that both businesses are actually performing much better in the top line. And we're very happy about that. In Honduras, as you recall from the last quarter, we were not particularly happy that it was a one country that we fail, we weren't delivering as we could. And the reality is that the investments that we have been making in Honduras will become more into increasing coverage and modernizing the network. We're actually beginning to pay off, and that's mobile and cable network, I believe. They're beginning to pay off. And if you look at the intake numbers from Honduras and the quarter pickup in revenue in Honduras seems to be really picking up. So I'm actually quite positive that Honduras is on the main track.

And Paraguay is similar in terms of customer stability and actually positive intake. We're now seeing positive intake both in mobile and significantly in cable. And the pricing environment that is quite stable compared to what it was a couple of years ago. What you see on the EBITDA level line, I'll pass it over to T component is really just our acquisition of the exclusive soccer rights that are a big driver to our company.

Timothy Pennington

And Stefan, I think that covers -- I'll come back on your equity issue point and unless you want anyone to color on Honduras and Paraguay.

Stefan Gauffin

Could you give information on how much the soccer rights were? Or is that...

Timothy Pennington

Any dreams that...

Stefan Gauffin

No.

Timothy Pennington

I mean that is [indiscernible]

Mauricio Ramos

We come extremely valuable. That's the answer. Extremely valuable.

Timothy Pennington

The big domestic sense is that one.

Stefan Gauffin

Yes.

Timothy Pennington

Look, on the equity issue, and I do take your point. We are all grateful for shareholders varied with us with the rights issue. But we felt -- the right thing to do with the Guatemala acquisition was to effectively utilize the leverage impact, and that means there I'm asking Sheldon's support for equity there. But of course, we have other options in Albuquerque you mentioned Africa, you mentioned Infra. But the problem with all of those is that they are uncertain in timing for us. And frankly, we did want to know as fast as we could to get our leverage back to the levels that we were pre the transaction. And the only real way to do that was through the rights issue, notwithstanding that we have to wait through dancing things like that. So kind of put a marker on those other things, because those are things that will accelerate the deleveraging and we haven't really taken into account of because we're not always call the timing impact on them. So kind of for us, those are benefits on top, which will help us with our leverage targets and hopefully accelerate on leverage targets. But I caution that they're not within possible extension after they're not immediate things. They're probably once 2 years on.

Mauricio Ramos

So let me perhaps use that question because every time we talk about kind of structure, equity, et cetera. So it's good to really bake in the big picture into what's happening. And you'll hear a lot more about these on Monday. But -- and we've done the call today, separate from the call on Monday on purpose. So today, we can basically say this is the last part of the first term. And on Monday, we're going to show you how we're feeling about the business for its second term, if you will, of the game. And that's important.

So when you look at big picture, what we've done and what we're going to do. We think the business is in terms of the way we reshuffle the portfolio extremely clean. This is what we set out to do when we joined 7 years ago. We're not of Africa. By the way, we're going to be finishing up in Tanzania in a matter of [indiscernible] right? We're big into these strategic locations that we wanted to be in Central America, Guatemala, Panama, we've done the M&A that we wanted to do. And as a result of that, what we have is a portfolio that is highly concentrated on dollar economies or dollar lean economies. Let's show you on Monday. We estimate about 80%. Our operating cash flow is actually dollar lean for actual dollars. And we've made it big better on Tigo, that's paying on, got cable business that's $2 billion in revenue, growing 10%. And our business today is 40% cable, 60% subscription, 80% OCF in the case. This is what we said to do.

And as we see here today, not only that cable bed really fulfilling each fronts. We put a lot of money to modernize our networks, whether it's a sound of [indiscernible] whether as you can outline [indiscernible], whether it's Guatemala or the box new spectrum, and it's working. All business lines, all countries are growing. And by the way, before we get the B2B questions, which we're going to get, B2B, which is the last one is beginning to show its comeback. So the business is growing all lines, all countries, and I'm not going to kill the contract for Monday. We can smell the money. And that's what we're saying operating cash flow growth target for the next three years on average is 10%. And on Monday, we're going to give you more of what the second half is going to look. But we're very happy where we are, because on top of this, which basically means we got cash flow coming our way in the second half of the date. We play the first half to get to where we are. The second half is about slowing the goals of cash flow. And we've also used the first half of our game to build this infra asset and to build this intake asset, which now gives us the opportunity to play with them to unlock shareholder value, which is even in debt. Those assets are valued. And we're looking for ways to show that giving value and capture that opportunity for growth in value for our investor base.

So all of that hopefully gives you an idea, why? We still have things to do, like finish up the game in Colombia. We're doing great, but it gets over. We do have to get leverage down for sure, right? And the rents offering with the support of our shareholders and we believe the cash that what we're going to show will demonstrate that they should help us bring the leverage down. It's going to set us up for a phenomenal second half. I'm going to stop short of that because I'm going to get the large call in me, and telling me you've given a little bit too much.

Michel Morin

All right. Next, we'll go to Marcelo Santos at JPMorgan. Marcelo?

Marcelo Santos

I have two questions. One is on your target to pass 1 million homes, I think, on the next year. Could you discuss a little bit more to breakdown between how much of that would be fiber and how much of that would be cable and where are you concentrating the fiber investments?

And the second one is on Guatemala. It was a little bit softer this quarter. You gave some ideas on the presentation why it was. But if you could discuss a little bit deeper and how to think about this going forward?

Mauricio Ramos

So let me perhaps kind of set the record straight. We take the fourth quarter amount against the fourth quarter of the prior year was really strong. It's just the fourth quarter of the prior year was phenomenally good. So the comp is really a difficult one. So you don't want to do the soft prices in the current quarter, but now we do the current quarter capacity. And Guatemala is still very, very strong.

And talking about the fiber question, Marcelo, because it allows us, and we'll talk about this a lot on Monday as well, so I don't want to get ahead of myself, but we've been working for a long time and planning and preparing the network for a moment in which fiber transition would be the perfect sweet spot for us. And the procurement team has now been able to find a cost of construction for fiber that is about 30% cheaper for us than building HFC. 30% cheaper because we now set up the procurement teams. And in the past, we do put in a lot of fiber into the network. So going forward, it is both very cost efficient for us to drop additional bits of fiber in the areas where the HFC gets to the node with a ton of fiber and we got a lot of popularity. And going forward, we're going to build cheaper and we're going to build with fiber. The message I'm giving you is we've been working on this for a long time and we're [indiscernible]. In 2022, the majority -- over half of it will be fiber, but after that year it will effectively be all fiber. So you can mentally think that all new [indiscernible] for us from here on will be fiber. I've done it again I'm telling Monday.

Michel Morin

Thanks, Marcelo. So next we'll go to Sergey at Gabelli.

Sergey Dluzhevskiy

Tim, congratulations on your retirement. It has been a pleasure working with you over the years and Sheldon, congratulations on joining Tigo and good to see you. My first question is on Colombia. Mauricio, you obviously outlined your competitive position in the market, how you feel good about your position and the assets in the market? Obviously, you're taking share and sales and marketing activities have pressured margins in the short-term. Maybe it's a question both for you and Tim and Sheldon, if you continue on your share-taking activity, at what point do you see more meaningful transformation of the margin profile and what are some of the things that could drive longer-term margin improvement in Colombia? And how do you think about kind of more mature margin profile in that market a few years down the road.

Mauricio Ramos

So let me just give it a crack strategically and then Tim can bring me down to reality. So in the short-term, we're already seeing the inflection, I already said that, because we've invested so much on the network and building the distribution and the service layers of the organization. So we're now inflecting in terms of margins, but long-term strategically, certainly, as you very well know, this is a unique opportunity with market disruption where some of the assets are strong strategic decision like the one we built to correct the big problem we have historically had in Colombia, which is asset scale. Once you reach decent scale on mobile, then long-term margins prolong. That's what the [indiscernible] this year and that's why we have to go through this period of prices rupture and low ARPUs and all other things to get ourselves to a position where we have sufficient scale to have good margins for the long run like everywhere else we do.

Sergey Dluzhevskiy

Great. And my second question is a follow-up on the previous question on the fiber build. As you look to deploy fiber to the home, what types of markets would be prioritizing in 2022? And maybe you could share what percentage of your homes or what percentage of your footprint you already have passed this fiber?

Mauricio Ramos

Yes, so perhaps the better way to answer it is I think the key point is that we've been planning for this. The network has been prepared to be fiber ready. So going forward, fiber, it's all fiber and by the way, you'll hear on Monday that it's [indiscernible] that we're planning to build and our existing network has a ton of fiber already in it, a ton of fiber. Just to give you an idea, I know that you [indiscernible] extremely, extremely well. When you do, you have about 180,000 kilometers of fiber and probably [indiscernible] do the number of passings per kilometer of fiber, we stack up really [indiscernible] right? Because our fiber goes really deep into the network, our nodes are on average 500, but in many key locations, there are 100 or 200 homes. So there's a ton of fiber already there. So we can be very surgical and we will be very surgical in taking our fiber deeper to the home. And I'm about to tell you the whole thing, but I should leave something for Monday because otherwise no one is going to show up on Monday. So we're going to be very targeted and very surgical in the way we do it so that we protect ARPUs and we protect the relationship with the customers and most importantly, we do everything as we've been planning for years within -- I think we gave the $1 billion number for CapEx, right? Within $1 billion.

Timothy Pennington

I think the key point here is this is evolution for us. I mean, for many operators, it's a major traumatic moment, but for us, this really is just a continuation of what we've doing.

Mauricio Ramos

Our network -- we've built it over the last five years. So it would have been really [indiscernible].

Sergey Dluzhevskiy

Great. And my last question is on capital allocation. If I think pro forma for rights offering after the rights offering is done, how do you guys think about capital allocation and what is the right balance for you in terms of deleveraging, which is obviously one of your top priorities and repurchasing shares given that the stock is trading under 5x EBITDA?

Timothy Pennington

And Sergey, I mean a lot more of this on Monday. I mean we're extremely conscious of the capital allocation question. We think we've got a very good story. We set out our story on what we want to do on leverage and we'll give you more sort of visibility and color on balance on Monday. I mean clearly, buybacks are our principal source of share remuneration, but I think it's better to give you the whole context of what we think we can see on a three-year view and give you a sense of where we're going to allocate the capital.

Mauricio Ramos

By the way, we will put out a press release early Monday with the key messages so that you guys can read that and listen to us for a couple of hours and then have a really robust one hour of questions because we're going to layout the game plan for next three years and then the second half.

Michel Morin

Thanks, Sergey. So now we'll go to Soomit Datta at New Street Research.

Soomit Datta

Hi guys, welcome Sheldon and Tim, thanks very much for your help over the years. I hope you enjoy your retirement. Sadly, mine is some time away. A few questions, please. On fintech, so you're spending kind of $50 million or so which is a non-trivial amount of money. I guess we'll hear more on Monday about the details, but in theory, when might we see some of the revenue benefits beginning to come through? Would that be this year or maybe next year? Any steer would be great. Maybe if you answer that and I'll get to the next couple. Thanks.

Mauricio Ramos

I'm trying to figure out how not to make sure you guys won't dial up on Monday if I start answering follow-up questions now. But let me start perhaps with laying how why we're so focused on this. We're convinced that we have unlocked hidden value, both in our fintech assets and in infra assets. I'm not going to talk about our depressed valuation levels, but I'm working very hard to show the world as is the rest of the team that we created a [indiscernible] telco, but in reality, we are a genuine company with a fintech -- one of the largest fintechs in the region and an infra business that is also one of the largest in the region.

So our current business [indiscernible] businesses in the region, and Tigo Money is already one of the largest fintechs in the region already today because we've been building it for the last few years. So the opportunity that we see is huge because we have the ability to do two things at the same time that no other fintech can do. One, we can be digital in fintech in the already bank percentage of the population, but we can also be fintech in the landbank and service part of the populations. We can actually tackle the entire ecosystem. Why? Because in all these markets, just about everyone has a mobile phone and our key financial relationship and likelier than not, given our market share, they are our subscribers. And more importantly, Tigo Money, not Tigo business, Tigo Money already has 18,000 cash-in cash-outs.

So we can provide these services to [indiscernible] part of the population. And no one is in our markets, [indiscernible] can be an exception, really doing fintech payments to the begin with. It's a blue ocean opportunity. There's no Apple Pay, there's no Google Pay. There's none of those guys doing it with a trusted bank, with the distribution and networks already and 5 million users that are already doing a little bit of it. So we view [indiscernible] a baby. It's ready to show it to the world and we're quite clear on this. This will not be a baby that will sit at home by the time he or she is 50 years old. That's not the way we're going to go. We're going to find the suitable fintech investor that can provide a business with capital to grow, the incentive schemes and what we want to do is capture the economic upside of that. It's not core to us and if we capture that, we're going to be giving our investors a lot of the value that we've been creating.

Timothy Pennington

Soomit, just I think, I know you know the numbers for this one, [indiscernible]. The $50 million that you talked about, I mean we spent about $8 million in the fourth quarter. We spent about $2 million in the rest of the year. So around about $10 million was spent in 2021. We expect to increase the run rate here to about $10 million in the quarter, so $40 million in 2022. So those are the numbers. Now kind of -- it will be a little bit sort of -- it depends on whether we ramp up fast enough but those are essentially it.

Soomit Datta

Okay. That's great. Thanks. Secondly, just on fiber, if we could go back to that, please. Just on cost of home passed and connected, is there a sort of update you can give to that perhaps under fiber versus HFC? Are those numbers different? I think the last time you gave them publicly, it was around $100 per home passed, maybe a fraction lower, maybe $150 per home connected. Just wondered if those numbers have come down. And again, what sort of penetration do you think you need to hit to get the kind of IRRs you're looking for?

Mauricio Ramos

So the two sides to that question. The cost to build is indeed just a tad below $100, it's actually been coming down over the years. So just a tad below $100 just on some average and we're estimating that the cost to build a brief of new fiber, as I said, is 100% lower. So call it 60 or so 70 or so and by the way, the cost for us to draw fiber when we have existing is obviously just a function of that, it's a timing function of that. So that's the first part of your question. The second part of the question, you've seen us over the last year or two really focused on balancing the act between new build and network penetration and this phenomenon last year, we peaked our penetration plans on our network significantly.

So almost 200 basis points of penetration. Now going forward, we're going to be building more and trying to penetrate but the long-term the target that we have is north of around mid-30s. We're a tad more bullish than we were before. I used to say 30 to 35. Now I'm saying I'm pretty confident it's going to be 35, north of 35. We're seeing the older nodes really feel out the penetration. We'll show you, again, we'll show you on Monday the Bolivian example and we see the penetration for Bolivia. They started in the 10s, 15s, [indiscernible]. So we're a little bit more optimistic with the history now that we can get to 30s, high-30s, which as you know drives economics, right?

Soomit Datta

Yes, okay. That's great. I look forward to hear more on that. And then just final question, just a detailed one. We're just trying to kind of build up the equity free cash flow profile for 2022. Can you give any steer on cash taxes or cash interest at all for the year coming or would you rather share that on Monday?

Timothy Pennington

I think we'll cover a lot of this on Monday, Soomit. I mean if you can hold back till then and we can put it in a lot more sensible in context as Sheldon will take you through them.

Michel Morin

Thanks, Soomit. So next, we're going to go to Kevin Roe at Roe Equity Research. Kevin, the floor is yours.

Kevin Roe

Tim Pennington. Wow, what a run both figuratively and literally, Tim, it's been a great pleasure working with you over the past decades. So starting with Hutchison to Cable & Wireless to Millicom. So it's been, again, a great pleasure working with you, and I wish you the best in the next chapter of your life. And Sheldon, I look forward to working with you again. So coming full circle.

Timothy Pennington

Kevin, for everyone on the call, this is probably the only person who's got the hat trick of my calling cards, Hutchison, Cable & Wireless and Millicom, so well done on that Kevin.

Kevin Roe

Yes, I'm an analyst stalker. I do have a couple of questions. This one might be more appropriate for Monday, but I'll throw it out there anyway. CapEx intensity, how should we think about that over the next few years? And within CapEx intensity, if you could comment very high level on fixed broadband versus wireless. Second question for you. One of your competitors this week highlighted continued handset shortages at the medium and low-end of the handset range. What's been your experience and what's your outlook there?

Mauricio Ramos

The first one is pretty easy. It's $1 billion per year, around $1 billion per year all in. And the second one is -- there's been concern and there's been a lot of work done to make sure that there's no disruption on handset availability and there's been bits and pieces here and there in some markets but we haven't had and working hard not to have any significant disruption at all.

Timothy Pennington

I would say though there's a little bit of -- one of the earlier questions was just on Guatemala, we sell a lot of handsets in Guatemala. So all our markets, Guatemala, probably was the one that saw some impact, particularly on higher end and it was mostly due to the chip shortage than anything else, but generally across the rest of the businesses number one, we don't sell that many handsets actually and two, they're generally at low-end. So we've not seen too much profit. Again, famous last words so far in digital.

Kevin Roe

Got it. And just a quick follow-up, Mauricio -- the $1 billion CapEx number. Within that number over the coming years, do you see the mix between broadband and fixed changing materially? Broadband and wireless, I'm sorry.

Mauricio Ramos

No, so a lot of it goes into subscriber-related CapEx, right, and largely the large increases in home intake of subscribers, call it a third goes into that bucket, and that's a big chunk, but that's good. That's just growth CapEx. And then you have just a little south of $100 million to build new homes per year kind of thing at the numbers that we're talking, that is sort of the build that we may recommend. The remaining goes basically into mobile coverage, mobile capacity and obviously, IT and other expenditures. That's roughly -- I mean it has been consistently so now for a few years. It doesn't dramatically change since we basically realigned the business to do these things.

Michel Morin

Thanks, Kevin. And just to be clear, that $1 billion, Kevin, is on the new basis as we will be reporting next year. So it's our IFRS basis, which includes Guatemala, but excludes Honduras and also excludes Africa, which is in the process of being disposed of. So there's some tables in the back of our earnings release that should help you rebase to how we're going to be reporting in the future. Next up, just the last question now. This one came by e-mail from Andres Coello at Scotia. I think, Tim, this is one for you. In the press release, in the earnings release, we said that we've received regulatory approval in Tanzania for the sale of Tanzania. So the question is if you can provide additional color on any remaining approvals that are still required?

Timothy Pennington

Yes, thanks, Andreas, for that. So we've received approval from the telecom regulator, which clearly is the big one. We've got a fair trade commission approvals received, which should be a meeting next week on that. And the Bank of Tanzania given the size of the mobile money business in Tanzania, both of these, we expect to be standard in the buyers in that business in terms of the currently. So we don't think there will be any significant impacts from that, but kind of we've learned through our costs that things in Tanzania and Africa generally can take a bit longer than you might like and might hope, but generally, we're now very sort of confident on the final lap of this particular chapter.

Michel Morin

Great, Tim. We actually did get a couple of more questions through the chat. So let me just relay those as well. The first was on competition in Colombia. What are we seeing in terms of pricing? And then the second one, maybe slightly and still sticking with the Colombia part, but what do we think is the long-term potential for broadband penetration. I think that was more of a Columbia question specifically, but maybe we can discuss the region in general.

Mauricio Ramos

Sure, so I think we've already addressed the Colombia competitive environment and what our strategic and competitive positioning there is. I don't think there's much that we can add. We'll have Max Selo our GM from Colombia presenting on Monday. So there'll be a lot more color on the fact that we are making significant progress in Colombia there and I want to leave a little bit for Monday because I think we've let a lot of goods out of the bag, but you'll see on Monday that we're pretty convinced that there's a tremendous broadband opportunity, fixed broadband opportunity still ahead of us.

As you saw, we completed this first term and our cable fiber business is just hitting on all cylinders, we're getting the penetrations, we're getting the growth, we're sustaining the ARPU, the criticals are working extremely well for us and we've got a nice easy path into the future. So we're actively hanging on broadband commonly. And with that, knowing that it's in the hour and people probably have other calls to go, so thank you for joining us today. The business is in the best shape operationally it's ever been. It's just hitting all cylinders and as I said earlier, we're about to show you guys the money because it's just coming and that will allow us to be more proactive in delevering and in returning capital to shareholders. So we look forward at our second term and explain you the nuts and bolts on Monday. Thank you.

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