Oct 21, 2013
Executives
Justine Dimovic – Head of Investor Relations Hans-Holger Albrecht – President and Chief Executive Officer Marc Zagar – Interim Chief Financial Officer, Executive Vice President, Controlling and Analytics
Analysts
Laurie Fitzjohn-Sykes – Citigroup JP Davids – Barclays Capital Chris Grundberg – UBS Stefan Gauffin – Nordea Barry Zeitoune – Berenberg Bank Sven Sköld - Swedbank Torsten Achtmann – JPMorgan Erik Pers Berglund - Danske Bank
Operator
Good morning and good afternoon, ladies and gentlemen, and welcome to the Millicom Financial Results Conference Call. Today’s call will be hosted by Hans-Holger Albrecht, President and CEO; and Marc Zagar Interim CFO.
Following the formal presentation by Millicom’s management an interactive Q&A session will be available. I would now like to hand the call to Justine Dimovic, Head of Investor Relations.
Please go ahead.
Justine Dimovic
Thank you. And good morning.
Welcome everyone to the Millicom third quarter results presentation. My name is Justine Dimovic and I am the Head of the Investor Relations.
Today’s presentation slides can be found on our website, www.milicom.com. Before we start I would like to remind everybody that the Safe Harbor statements will apply to this presentation and the subsequent Q&A session.
With me today on the call are our President and CEO, Mr. Hans-Holger Albrecht; and our Acting CFO, Mr.
Marc Zagar. I will now hand over to Hans-Holger to give an overview of our Q3 results and operational performance, after which Marc will take you through the financials, and we will conclude with a Q&A session.
Let me now pass over to Hans-Holger.
Hans-Holger Albrecht
Thank you, Justine and hello everybody and thanks for joining to our call today. I hope you had all the time to read the results we have issued earlier this morning.
And as you can see it has been an encouraging quarter for us with revenue accelerating now into double-digit, each of the four pillars of growth strategy have contributed to this as our investments are beginning to show some results. In Mobile we added over 1.5 million customers in three months.
In Africa we have begun to turn things around. As an example of our determination in this continent in DRC you can see we added 250,000 customers in just three months as we returned to the country's troubled Kivu region.
So this was a strong point and a good effort from us for the future. We see as well the strong shift to data continues with another million users added in the quarter.
Now 50% more of our customers are using data than in September last year. This trend has been boosted by the doubling of smartphone sales in just six months as customers demand more from our services.
Many of you I am pretty sure have smartphones which cost normally over $500. Those are of most of our customers nowadays cost under $60 and perform equally well.
So clearly those kind of handsets become attractive to our market as well. Overall I think the pace is fast and in a few weeks time we will be launching free mobile access to a leading social media network in one of our markets as another test case to transform our offering to the kind of digital lifestyle.
And obviously there's much to come. In Cable & Digital we now have the post back up of full line of cable services across Latin America.
I can tell you today that last week we completed an agreement to purchase a Pay TV company in Bolivia, which means that if the merger with UNE in Colombia is also approved Millicom will soon have the opportunity to offer a bundle of digital apps and services in everyone of our Latin American markets. Our TV Entertainment services are also taking shape.
Only last week for example we saw the launch of HeyMusica channel on Tigo TV and even more important on the mobile in Paraguay. And if you want to see how the product looks go to www.HeyMusica.com.
And there's much more to come there too. In the west for example growth was strong again in the third quarter with penetration exceeding 11% of our total mobile customer base, up from 10% at the end of June and just an amazing 8.5% of our customers are already using the service since launch in last December.
And we are planning more launches in the coming months in Africa. Last in our online business organic growth reached 25% quarter-on-quarter and has accelerated while the cost have been contained.
So we now expect lower losses for the full year. We are very proud of Jumia's award as Retailer Launch of the Year which it won earlier this month in Africa.
If you go to slide four you can see the result of the quarter. As mentioned we have seen an ongoing acceleration in revenue growth reaching this quarter 10% on a like-for-like basis.
This is a level of growth we have not seen since Q4, 2011. Our mobile business which still represents the majority of our revenue has again proven solid despite continuing competitive and regulatory pressures growing by 3.3% in local currency, 5.2% on a like-for-like basis.
I think we are particularly pleased to report strong customer recruitment this quarter, both in voice helped a bit by Africa and Columbia in particular and in data everywhere. With the 1 million new mobile data customers in Q3 we have now upgraded 5.7% of our mobile customer base to mobile data services in the first three quarters of the year.
In our Cable & Digital media business our focus this quarter was on bundling and cross-selling. We added 16,000 new fixed broadband customer a record for us with the bulk of the growth coming from Paraguay.
In Paraguay we are deploying our integrated strategy of cross-selling fixed broadband and Pay TV to our mobile customers and improving quality with higher speeds and better content. In mobile financial services we continue to achieve growth both in penetration and ARPU.
At the end of Q3 over 11% of our total mobile customer base was using this service and surpassing 14% in the markets where we have launched. Growth of our online business continues to accelerate by 25% quarter-on-quarter as I mentioned before and with revenue of U.S.
$25 million in the quarter. The underlying EBITDA margin for Q3 reached 38.6%, excluding online.
Our margins declined this quarter mostly due to the continued investments for growth such as increased subsidies to meet the demand for data services in Latin America and investments to reinvigorate our brands in Africa. Looking at the year-to-date our underlying EBITDA margin is 39.6% in line with our expectations as we communicated earlier.
And as stated earlier this year we want to be able to seize opportunities to accelerate growth. We are doing this even in the near term, EBIT in the near term it puts pressure on our margins.
As you all know the first building block for the equation is revenue growth which overtime turns later into growth and cash generation, and we are pleased to see that growth is returning particularly in Africa once we start to increase our investments. We keep our guidance for the year of when it comes to EBITDA margins and CapEx.
We have reduced anticipated revenues and losses for our online unit in light of what was spent by the business year-to-date and expected push during the year-end festive season. Now let's move into Q3 performance format in more detail and go to slide no five.
So let's start with having a look on our growth drivers for the quarter, where as mentioned we returned to double digit growth, 10% year-on-year on a like-for-like basis. You will note that our sources of recurring revenue are well balanced between our business units.
In Q3 products and services outside our traditional mobile business generated 67% of recurring revenue growth. Mobile remained resilient this quarter driven by good momentum in Africa as well as solid net additions in Columbia.
Moving to slide six let's look at our traditional voice business versus the new growth areas in digital, mobile, data, cable and online. This quarter we have maintained the contribution of digital at 33% while at the same time adding 1.5 million new mobile customers which off-course will further strengthen the voice business going forward.
if you then jump to slide number eight you can see and starting with the mobile business, growth in the third quarter accelerated to 3.3% in local currency from 2% in the second quarter and 1% in the third quarter. Our revenue growth is all the more satisfying in light of continuous regulatory pressure which effected revenue growth by 1.9 percentage point this quarter.
ARPU overall continued to declined by 2.7% this quarter which with the net adds and regulatory impact of this quarter is not a surprise to us. If you exclude the regulatory impact the dilution of ARPU would have been 0.6%.
And the mobile data penetration continued to grow steadily and by the end of the quarter over 9 million customers accessed data services, representing 18.4% of our total mobile customers. Now on slide nine, and if you look at mobile data in more detail, the close correlation continues between traffic and revenues, which rose again by 28% in the third quarter.
The strong net additions in mobile data were driven partly by an increase in subsidies, 26% year-on-year and on the mix of smartphones moving towards lower cost devices. We have been saying for some time that the arrival of more attractively priced smartphones on markets will further accelerate uptake of the mobile date.
We’re clearly seeing this now in Latin America where smartphone sales have surged from 202,000 units in Q1 to 500,000 units in Q3. This trend is likely to continue as device prices fall, which is pushing down subsidies per device and aiding more customers to get access to mobile data.
Moving on to slide number 10, and Cable and Digital Media business unit, we have seen there is an acceleration in organic growth at 11.5% for the third quarter versus 8.7% in the second quarter. Our focus this quarter was to capitalize on the excellent customer additions of previous quarters through cross-selling of services.
As a result we saw a good upward trend in all of our KPIs adding new pay TV and fixed broadband and telephony customers. At the end of the quarter our fixed broadband customer base amounted to 41% of our pay TV customer base.
Continuing with cable, let me give you maybe a brief update on UNE. When completed the planned transaction will allow us to significantly fast track our ambitions in the cable business.
Many of you would have noted that earlier this month we announced the signing of the final agreement for the combination of Tigo and UNE in Colombia. We are now working hard with UNE to secure the final regulatory approvals to close the transaction.
There is no update other than that work is progressing and closing is expected during the first half of next year. And we of course remain very excited about the deal and the great opportunity this obviously represents to us and the business in Colombia.
If we then move over to the overall financial services on slide number 12, the aim of the MFS team has been to increase penetration of the service, yielding again very positive results this quarter. As you can see, progress is steady against this target with penetration of the service reaching 11% of our mobile customer base at the end of Q3 and around 14% of the customer where this services is available.
At the same time as in previous quarters we were able to increase ARPU, which is a testament to the stickiness of the service once adopted. In Q3, ARPU reached $1.4, an increase of 12.6%.
If you look geographically, penetration increased across the board in all countries. Penetration in Chad is rocketing, reaching 8.5% in only 10 months, making it our most successful launch to date in the Millicom sphere.
Central America is still emerging, reaching 4% overall in Q3. If we then move on to slide 13, the Online business.
And on the Online side, revenue was up 25% quarter-on-quarter. We had many developments in the business as in previous quarters with several new launches, we brought both existing services to new countries and introduced new ones in existing countries.
On the business development side we have been preparing for the end of the year festive season in our key markets of Brazil and Nigeria. We have enhanced our corporation with the LIH and AIH venture and saw further synergies between our offering in both continents such as cross promotion and pre-installed apps.
We have also received recognition for our services with becoming the first African company to win Best Retailer Launch of the Year at the World Retail Awards. That’s about the operations.
I will now hand over to Marc who will provide you with an update on our financial results and update to our guidance when it comes to the online business. So Marc over to you.
Marc Zagar
Thank you, Hans-Holger. So please turn to slide 15 for the financial highlights.
Firstly if we look at the developments in the revenue drivers in the quarter we can say we made very good progress in all business units. Turning to Mobile first of all, as Hans-Holger mentioned, we gained 1.5 million new mobile customers in the quarter, of which 1.1 million came from Africa and 0.4 from South America, a very good acceleration from the first half of the year, taking us now to a now to a number, mobile active customers around 49 million.
In the Cable and Digital Media area we had year-on-year growth of 34% in our homes connected to 850,000 approximately. The MFS active customers ended at 5.5 million a year-on-year growth of 65% taking the MFS penetration over 11% at the end of quarter three and up from 10% in Q2.
The Mobile ARPU continued to show some decline year-on-year albeit at a slower pace than in Q2. The decline was 2.7% versus 4.7% in Q2 and if we exclude the regulatory impact than the ARPU was only down 0.6% year-on-year.
The Cable ARPU was up year-on-year in local currency and despite heavier completion in Costa Rica we still made good gains in customer numbers as I mentioned. MFS showed a double digit growth in the ARPU reaching $1.4 in the quarter and obviously accompanied by a strong growth in the customers active and the penetration.
Revenue numbers showed a growth of $7.6% on a reported basis, and on a local currency and same perimeter basis we had 8.1% growth in the quarter, which if we adjust for the negative impact of regulatory in the quarter would have shown an underlying growth of 10%. EBITDA this quarter of $459 million after online and one-off items.
The EBITDA losses coming from online amounted to $18 million in the quarter. Consolidated EBITDA at 35.6% was 6.7 points below Q3, 2012.
Excluding online and one-off items underlying EBITDA margin in Q3 was 38.6% or 39.6% on a year-to-date basis. We will come back to the EBITDA margin dilution a bit later.
Regarding CapEx we invested $315 million in the quarter three, including $42 million of spectrum in South America. On a year-to-date basis we have spent including spectrum $662 million, representing 17.4% of revenue to-date an equivalent percentage to the situation year-to-date last year.
Turning to slide 16. The regional growth in revenue was once again driven by South America, but we saw this quarter also good revenue and growth from Africa which outperformed Central America in terms of growth.
Online contributed $23 million and the Cablevision business in Paraguay $17 million to revenue growth in the quarter. Foreign currency negative impact amounted to $25 million in the quarter.
Slide 17, we can see that all the four pillars contributed to growth. Mobile was the strongest contributor in the quarter with total revenues reaching $1,047 billion and up $34 million year-on-year.
Cable including Cablevision, contributed a strong $29 million extra revenue in the quarter with total revenues of $114 million. MFS revenue grew by $11 million year-on-year on the back of the steady progress in the penetration and active customers, as mentioned.
And Online revenues increased by 23 million year-on-year. On slide 18, turning to EBITDA development, in this quarter our EBITDA margin including online and one-offs was 35.6%.
Looking deeper into the 6.7 percentage points year-on-year decline in margin year-on-year we want to highlight essentially three elements, which have been driving down the underlying margin; regulatory pressure, pricing pressure and investments for growth. Regulatory and pricing pressure particularly impacted Central America this quarter and reduced the margin by 0.8 point at group level.
Secondly, we had stronger investments in the quarter for future growth and that combined for an erosion of margin by 2.4 percentage points, slightly less than 2.8% in Q2. In Q3 in particular, we continued strong investment in sales and marketing, predominantly to support the growth in Mobile, Data and MFS, including subsidies which grew 26% year-on-year in the quarter and MFS commercial investments to drive penetration.
The margin was also pushed down by one-off events, totaling $10.8 million in the quarter and mainly corresponding to provisions for potential tax increases in Africa. The one-offs had a negative impact of 0.8 percentage points of margin in the quarter.
Finally, the dilution arising from the online business losses, which amounted to $18 million in the quarter and impacted the margin by 2.2 points, leads us to the final EBITDA margin of 35.6% in Q3. Slide 19, normalized EPS in the quarter.
The normalization in Q3 mainly relates to adjusting for a negative non-cash movement regarding the Honduras put option for $100 million. Apart from the EBITDA development which I commented on already we have a year-on-year impact from higher corporate costs and increased financial costs which are linked to the increase in the net debt amounting to approximately $500 million year-on-year.
On slide 20 we’re showing that the tax rate normalized remains below 30% for the Group. Slide 21, cash generation is an area where we are making some progress quarter-on-quarter and obviously will continue to apply strong focus going forward.
The free cash flow in the Q3 was positive by $81 million. The decline year-on-year is mainly the result of the low EBITDA and also changes in working capital resulting from our data penetration and smartphone strategy and some seasonality effects.
The CapEx levels also remain close to the expected peak. On slide 22 and looking at our net debt, the net debt-to-EBITDA ratio at 1.2 times remained stable versus Q2, 2013.
At September 30, we had $1.1 billion of cash of which approximately $0.6 billion was either in U.S. dollars or euros.
The net debt totaled $2.26 billion, which is more or less stable on the level at the end of Q2, 2013. We have been working in the last year to extend the maturity of our debt with the issuance of new corporate bonds.
And the average maturity at the end of Q3 is 4.1 years versus 2.8 years at the end of Q3, 2012. In October we issued a eight year $800 million bond to fund the UNE transaction.
Slide 23, we are showing a diversified source for our debt but in particular if we look at the development over the last 12 months, the share of financing represented by bonds has increased to 55% from 24%. This has allowed us in particular as I mentioned to increase the maturity of our debt.
On slide 24 some features of the debt management and hedging. 64% at the end of Q3 of the gross debt is denominated in local currency or not subject to foreign exchange exposure.
Secondly on the interest rate front 67% of the gross debt is at fixed rate which obviously reduces our exposure to interest volatility. Slide 25 we can see the geographical split of our debt.
We have increased in the quarter slightly the debt at corporate level to $999 million from $785. The corporate debt includes the debt that we pushed down to Africa for $370 million in the quarter.
Turning to slide 26 and the guidance, which for the most part remains unchanged. We reiterate our guidance for the 2013 group EBITDA margin to be around 40% excluding online.
This guidance excludes one-off items, which are $25 million to-date. Our EBITDA margin year-to-date stood at 39.6% excluding online and one-off items.
The guidance for our CapEx to revenue ratio also remains unchanged. We expect the ratio to peak at around 20% excluding spectrum and license acquisition.
As mentioned year-to-date our CapEx to revenue ratio stood at above 17%. We have amended our previous guidance for online as Hans-Holger mentioned.
Revenue for the online division is now expected to exceed $80 million. The guidance for revenue is amended primarily due to the appreciation of the U.S.
dollar versus certain local currencies in particular the Brazilian Real and also the change in the mix with the proportionally higher share in the portfolio of market place models where revenues are accounted for at the service product commission level rather than on the total value transacted. In light of the cash spent to-date and also the mix between the different models and the expected push in the year-end festive season we are also adjusting downward our guidance for EBITDA losses of the online division.
We now expect losses to be in a range of $70 million to $90 million versus the previous $125 million to $150 million. At the end of Q3, year-to-date revenue in online reached $56 million with EBITDA losses of $38 million.
I will now hand back to Hans-Holger for his concluding remarks.
Hans-Holger Albrecht
Thank you Marc and let me maybe conclude by confirming what I said last time. As you all have seen we are in a very strong investment phase.
And this kind of phase will continue. This is what underpins the transformation of a company into a all round provider of diversified digital services.
It is done prudently with great discipline and clearly within all previous guidance. The important transactions such as in Bolivia and Columbia are so necessary to make the leap from a slow lane voice service to the fast track digital lifestyle service provider.
So with this closing remark we hand over now to the moderator to get the first question for the Q&A session.
Operator
Thank you, sir. (Operator Instructions).
The first question comes from Laurie Fitzjohn from Citigroup. Please proceed with your question.
Laurie Fitzjohn-Sykes – Citigroup Thank you. I have three questions, if I may.
Firstly as the regulatory headwinds reduce in Q4 and Q1 should we expect growth to accelerate further or are there headwinds that we also should be aware of affecting that? And secondly on the negative working capital you said this is due to smartphone but I thought your present handset cost that you just explained how the smartphone subsidies are leading to a negative working capital?
And then the thirdly I mean MFS revenue is growing very strongly but I think you previously said you expected a $100 million revenue for this year. And you stated $56 million making it a bit of a stretch.
I am just wondering what will be the net effect of that on the MFS revenue? Thanks.
Hans-Holger Albrecht
If I may be take the first question and the third question and Marc can answer the second question. And I mean as you know when it comes to regulatory impacts and taxes it's a bit of a guessing.
We don’t anticipate going to the fourth quarter next year that we have such big impact like we had this year, particularly at the beginning of the year. And so we’ll kind of more normal kind of pressure like we had before.
And remember it's about the kind of impact we have when it comes to regulatory pressure it's coming down the more we have the kind of reduction in those kind of charges. So overall I think the regulatory situation should be more fine but again you can never 100% prophesy obviously what’s happening there.
When it comes to MFS I don’t think we have changed any kind of guidance, we have never been very specific when it comes to regulatory target for this year. I think we see the kind of key driver for us are on the product side which is the kind of penetration level that we have in the markets we have been operating for a while and we see the kind of acceleration particularly when it comes to markets like Chad and Tanzania and Rwanda.
So I think everything when it comes to MFS that is inline. We can see that Western Africa takes a bit more time than Eastern Africa and we have also not overseen Senegal during the fourth quarter which would then accelerate growth as well.
And in Latin America the picture is bit different where you can see good traction when it comes to Paraguay, the other markets still have to pick up. So in terms of guide and forecast when it comes to the MFS revenue it is major difference.
Marc Zagar
I think the second question was about the handsets? Laurie Fitzjohn-Sykes – Citigroup Yes, that's right.
Marc Zagar
Yeah so hi, Marc here. Yes, you are right the subsidies and therefore the impact of the handset is booked through OpEx.
When we referred to the working capital impact of this we were talking about the build-up of inventories because obviously as we significantly increase our, continuously increase our data penetration and mobile data users over time we need to build inventories in particular in preparation for the end of the year. So that was one of the key drivers that we mentioned.
Laurie Fitzjohn-Sykes – Citigroup
Okay, thank you.
Hans-Holger Albrecht
Thank you.
Operator
Thank you. The next question comes from JP Davids from Barclays.
Please proceed with your question.
JP Davids – Barclays Capital
Hi, good afternoon everyone. Firstly on South America, a much stronger performance there.
Specifically can you touch on how things are progressing in Columbia and whether you starting to repeat some of the subsidies that you’ve been pushing into that market? And then the second question is on Africa.
You clearly got a more positive turn on this division. And is that really more around the longer term prospects for Africa?
Or is it that within the next 12 to 18 months you can see these assets return to inflation type growth? Thank you.
Hans-Holger Albrecht
When it comes to South America, yes it's a kind of fast moving segment in the Group and Columbia has been a big part of it. I think we see the same momentum more or less like we had in the previous quarters whereas the data pick-up has been very strong.
And it has been of course supported by the campaigns we have been doing in terms of bundling with other services like music for example, the Tigo music service is very strong. And one of the other key drivers obviously has been the push of lower cost handsets into the market which then fuels the growth as well.
Thus we have been seeing the kind of [re-resurgence] when it comes to prepaid data sales in Colombia and Latin America which had been positive and so this kinds of plays as well. So overall I think it's the continuous performance we have accelerated a bit by as I said headset and the marketing push which we believe fundamentally should continue since the Tigo brand is very strong.
And once the UNE transaction would be approved hopefully than we can even accelerate those kinds of double sales like cable and mobile stronger. So I think it's nothing extraordinary it's just you see the fruits of all the kind of changes in investment we did in the last couple of quarters.
When it comes to Africa I think the African performance indicates one fundamental point which we have been saying before. That is called potential and once you start to invest in Africa we see kind of correlation between investments and growth.
So the statement we have made earlier that, earlier this year that it’s not only a market issue it’s as well the kind of execution, operational issue or investment or level of investments you do is proven to be correct and hence growth is accelerating. To what extent we never give a kind of forecast but it should be a growth story.
We always can reiterate the kind of three dynamics we have when it comes to Africa that the overall penetration of our phones is around 50%. Over 40% of the population is younger than 18 years in the markets we operate in.
And therefore the growth compared with the macro growth as well should be very positive going forward. So we are positive when it comes to Africa, it's good results but we still have a long way to go as well because there are longer term issues we have to fix like brand and other items.
But it confirms that we have a positive outlook when it comes to Africa as such.
JP Davids – Barclays Capital
Okay. And just a quick follow-up on the investment related to Africa so do you this continuing to weigh on margins into 2014 or do you think you are at a sustainable level of investment currently?
Thank you.
Hans-Holger Albrecht
We are at a sustainable level of investments currently. The basic question in the five-year ride we have basic question of how fast you want to accelerate those investments.
And that has to be more tactical driven than time driven on how our side which we are looking to now in the budget process. But on the fundamentals we are at the right level it's more you want to accelerate or not accelerate that we have to decide ourselves.
JP Davids – Barclays Capital
Thank you.
Operator
Thank you. The next question comes from Chris Grundberg from UBS.
Please proceed with your question.
Chris Grundberg – UBS
Thanks very much. I just had a couple of quick ones actually.
First was you can just confirm the longer term guidance on the online business hasn’t changed just in terms of three year picture? And then secondly also on online in terms of the business mix, you obviously described that the classified segment has come through stronger.
I just wondered if you could give a bit of color around that shift in the portfolio or indications was that something you were expecting or aiming for, I just wondered what’s actually changed that to whether it’s deliberate or not? Thanks.
Hans-Holger Albrecht
Yeah we can confirm the guidance we have been giving on the online side. There is no change in respect of that.
And let me may be just draw the picture a bit wider so to get a kind of on the same, this is a business we haven't been operating more than eight months now or nine months at the latest, so it’s pretty young business, we are not through the first cycle hence forecasts are always changing slightly off course and you have to adjust the guidance to you as well. The underlying trends and you look to the kind of three KPI in terms of customer acquisition, tracking all this kind of element is positive and because the overall picture hasn’t changed.
And the other good news is that we keep a very disciplined correlation between growth in terms of revenues and cash flow. While that’s changed a bit indeed, this is one of the things this is what happens with young business it’s a kind of revenue mix we have seen during the third quarter and may be going forward we’ll see as well whereas classified is picking up and become one of the kind of revenue drivers.
But even more important as well as is on the e-commerce side we’re shifting a bit more away from pure e-commerce to a kind of combination of e-commerce and marketplace. So it’s a kind of very successful model we have seen in China with Alibaba, we’re trying to implement in our market as well, which of course will mean you have lower revenues on items you sell when it comes to marketplace but you have obviously much better margins when it comes to those kind of businesses.
So the mixture of those kind of elements is changing gradually sometimes forecast, it doesn’t change the kind of underlying business model and it’s nothing that's concern for us really.
Chris Grundberg – UBS
If I could just, I have a follow-up on that.
Hans-Holger Albrecht
Sure.
Chris Grundberg – UBS
Then implicitly if your medium term guidance hasn’t changed but your revenue models have maybe altered fractionally in terms of the sort of portfolio shift, does that actually imply more confidence on these classified business if you’re looking at the same revenues, you are saying these are inherently lower revenue businesses?
Hans-Holger Albrecht
No, I mean it’s just we are too early to make a kind of clear breakup exactly where you are going. I think the biggest concern we have been always hearing from the market which is right is what is the kind of cash burn, what is the kind of risk you’re facing?
And in that respect I would say the correlation is not -- hasn't changed. Where the revenues are coming in detail is to be seen I think after couple of months as well.
And secondly when do you have the kind of peak of the investment, that maybe doesn't count as well as now, because it looks like the cash need is not as high as it has been so far. So those are things which are kind of moving target, but if you take it on a three to five year horizon, as we have always mentioned, it hasn’t changed.
Chris Grundberg – UBS
That’s helpful. Thank you very much.
Hans-Holger Albrecht
Thank you.
Operator
Thank you. The next question comes from Stefan Gauffin from Nordea Bank.
Please proceed with your question.
Stefan Gauffin – Nordea
Yes, hello. I was also looking into this online classified business but that was just response to.
I will follow up on data subscriber development. You have been pushing for data subscriber intake in Latin America, but this quarter the data subscriber intake was primarily coming from Africa.
Do you see that, that kind of intake could be ongoing or is this a little bit too early for data growth in Africa? Thank you.
Hans-Holger Albrecht
We hope of course it’s going to be ongoing. I mean it’s actually underlying you will have a kind of intake of data subscribers when it comes to Africa.
To what extent you can push it, what extent you open your regions and to what extent you can get a kind of pipeline for customers up and running is a bit too early to say. But structurally obviously just to remind you, data will grow in Africa as well over time, absolutely.
Stefan Gauffin – Nordea
Okay. Thank you.
Hans-Holger Albrecht
Thank you.
Operator
Thank you. The next question comes from Barry Zeitoune from Berenberg.
Please proceed with your question.
Barry Zeitoune – Berenberg Bank
Hi. I’ve just got a few questions.
First of all on the DRC expansion, can you give us some color in terms of the how much EBITDA that cost you this quarter, how much EBITDA you expect it to cost you in coming quarters and where do you see further expansion opportunities in the coming quarters or years ahead within DRC? And my second question is on subsidies.
I was just wondering whether you can give us some color on where you expect subsidies to peak. Is there kind of a number or guidance number you could give us of where you would expect that number to peak going forward?
And then my third question is just on cost cutting, it was something that you talked about last quarter, you’ve been quite quiet on it this quarter. Are we likely to see some benefit of cost cutting coming through in Q4, and is there any benefit that is evidenced in Q3?
And then my last question is just really on voice revenue trends. It looked to be a lot better this quarter than it had in recent quarters.
You gave obviously quite a negative picture you have of the market there as a minus 3% to minus 5% CAGR going into 2017. Do you think that you can better that minus 3% to minus 5%, are you getting more positive than you did in the past.
Thank you.
Hans-Holger Albrecht
Okay. If I start with the first one which was the DRC expansion, I don’t think we’re going to breakup individual -- on individual country levels what the impact will be on EBITDA but obviously it will cost.
At the same time, the good thing is in and you have seen particularly when you kind of reach an expansion you see the impact on the revenue side immediately as well and you see the pickup in terms of customer. And therefore we do -- we treat DRC like we would treat any other African country that we should have the kind of balanced expansion investments into new regions and new customer intake going forward.
DRC as you all know is probably the most interesting and the most challenging market it can be in the Africa simply because of the size of the market. So there you are going to see for a long time the opportunities to invest and you will see the growth at the same time.
And that is the kind of game we want to capture. But we don’t break it down into individual markets.
I think the second question was about subsidies and the kind of level we have been integrated peak or is it going to change going forward? It’s depends a bit on the consumer obviously, it's not fully in our control and what kind of competitive level you have in each market and what kind of subsidies you have to give.
Long-term as I say we believe in the positive trend that handset prices in our markets are coming down to bill prices below $60 now even which will change fundamentally, I think the way we can treat handsets, combined with the impact that most of our markets, strong or brands are not as important when it comes to handset as it did for example in the Western World. So structurally I think we should benefit from those kinds of changes and therefore subsidies should be controllable going forward.
But on the short-term as I said it depends a bit on the market environment you are in. That leads me then to the third point which is the important point, the cost situation we have in Millicom which is always a challenge and it has been a bit complicated.
We said at the Capital Markets day that we have initiated a cost saving program to get $100 million out of cost. We’re going to see for this year roughly $20 million already of this $100 million being executed.
At the same time you have to remember as well that we invest in new things in the new business areas may be on the cable side, maybe on the music side, may be on the service we are launching. So it’s not always that easy to extract it out and therefore it’s [major loss], by the kind of underlying cost saving initiatives are there and we’re executing on them as we discussed.
And we keep as well, which is even more important I think from a cash generation point of view we keep the guidance that CapEx should come down to 15% of revenues in the coming years. So the focus hasn’t changed, it's just something we have to look at.
Let me be clear as well on this one as well that obviously it’s quarter-by-quarter exercise, and again if we see kind of opportunities to invest like we have done during the third quarter we invest into the growth. And then the last question is if I remember the voice revenue trends, which is correct at the Capital Markets Day we guided for a compound annual decline of 3% to 5%.
Fundamentally even this quarter was better, I would not change it. I think that’s the underlying business model we operate in.
So the picture hasn’t changed and that would be, I would remain cautious on that front.
Barry Zeitoune – Berenberg Bank
Can I just ask a quick follow up on CapEx because if I remember right, I think last quarter you mentioned the way you expected that CapEx now to trend to 15%. You said that you have the revenue growth in absolute terms the CapEx would probably be stay reasonably flat.
Do you still feel that, that's probably the way in which you’ll get 15%?
Hans-Holger Albrecht
Yes basically the idea there is that revenues are going up and the kind of absolute amount you spent stays the same. And secondly we still believe there is lot of efficiency which we are pulling in right now into the system particularly when it comes to network design, procurement and network rollout.
And so if you remember I told that we have a peak of initiatives during this year when it comes to billing systems and CRM systems, those kind of things. So long term I think the 15% target we have is fine in absolute terms it should be pretty similar amount.
Barry Zeitoune – Berenberg Bank
Okay. Thank you.
Hans-Holger Albrecht
Thank you.
Justine Dimovic
And I please ask everyone to limit to one question and one follow-up as we are running out of time. Thank you.
Operator
Thank you. The next question comes from Sven Sköld from Swedbank.
Please proceed with your question.
Sven Sköld - Swedbank
Thank you. I’ll stick to one question then and I would like to focus on Online.
You lowered the guidance for EBITDA losses for this year but you still as I understand keep the U.S.$340 million in operating losses for the three year period, is that correct? So losses should increase next year or 2013, is that right?
Hans-Holger Albrecht
Yes. As of the knowledge we have today we keep it exactly as it is, so there is no change in that.
Sven Sköld - Swedbank
Okay, great. And a follow up question then.
Can you give us the Colombia margin, please?
Hans-Holger Albrecht
The Colombia what, excuse me?
Sven Sköld - Swedbank
The margin in Colombia.
Justine Dimovic
We think very similar to what we’ve had in the past quarters.
Sven Sköld - Swedbank
Around 75%, 76% is that….?
Marc Zagar
Yes, exactly.
Sven Sköld - Swedbank
Right, thanks.
Marc Zagar
Thank you.
Operator
Thank you. The next question comes from Torsten Achtmann from JPMorgan.
Please proceed with your question.
Torsten Achtmann – JPMorgan
Good afternoon. You are pushing the growth button now for few quarters and so far you're taking lots of new customers.
Are you seeing any reactions from competitors in the markets where you take share and if not why do you think that is so, seems [to be a case of] sitting there and you are taking all the growth out of the market? Thank you.
Hans-Holger Albrecht
Yes it depends of course which market you are talking and where you are. I think if you make it very simplistic in order to save a bit of time I think in Africa it's more that we are coming back to keeping market share, to taking little bit market share but it's not a major shift.
It's more that we participate in the kind of overall growth in those markets, if we can trust figures from the places here. So I don’t think that’s a key issue and therefore we haven’t seen any kind of major reaction from competition on that sense.
Actually it seemed to become a bit less competitive or less fierce competition when it comes to Africa for the time being. And in Latin America the picture depends a bit where you are but in Columbia, yes but if you now recall that we have a regulatory support right now so it's a bit doubtful[ph] and Paraguay for their overall market which is positive so no major changes there at this stage.
In Central America we feel the competition is stronger so there you can see it's a tough environment for us.
Torsten Achtmann – JPMorgan
Okay and any indication if that is increasing or is it getting soft enough as broad as we can speak now?
Hans-Holger Albrecht
If you take it for the full group I think it stays as it is. I mean there is no major changes they are individual markets but perform from a group level I don’t think there is any major changes.
Torsten Achtmann – JPMorgan
Great, thank you.
Operator
Thank you. The next question comes from Erik Pers from Danske Market.
Erik Pers Berglund - Danske Bank
I have a question regarding cable business in Central America. You have acquired impressive growth in the number of households passed.
And then I was wondering -- I mean first of all how much of this year's CapEx is associated with that growth in households past in Central America? And also if there is a little bit of a lag then I suppose in connecting these households, the number of households connected isn't growing as fast.
Can you help us understand the timing here, will these new households be connected in the near future or how does it work?
Hans-Holger Albrecht
Yes, as it comes to the CapEx on the cables then we don’t break it individually what the roll out is costing but it's then -- it's not (inaudible), it's not huge but you remember that in those markets in contrary to [them of course now] we do the cable pole to pole so we don’t dig the cable into it, so it's not that high. What you have seen now is the exactly the home passed have increased and now we have to turn those houses into customers which is simply the kind to sales effort we have to do.
So that’s the kind of task for the next couple of quarters to convert passed homes into customers homes.
Erik Pers Berglund - Danske Bank
Okay and then that’s going to take you think a few quarters before you can get converted, yes?
Hans-Holger Albrecht
Yes, it will take a few quarters or couple of quarters, depends on again it depends on the markets, it's always tough to talk so general but it depend on the market and the competitive landscape you are into. In some markets it will come faster in very competitive markets you may have to work a little bit hard.
Erik Pers Berglund - Danske Bank
All right, thanks.
Hans-Holger Albrecht
Thank you.
Operator
Thank you. The next question comes from Sergey Dluzhevskiy from Gabelli and Company.
Please proceed with your question. Thank you Sergey, please go ahead with your question.
Hans-Holger Albrecht
I think he found the answer.
Operator
I do apologize there is no response from his line. The next question, which is the final question which comes from Bill Miller from Hartwell.
Please proceed with your question. I do apologize, he has [de-polled] from the question.
Go ahead please.
Justine Dimovic
Okay so thank you I think we will stop here. If there are some more outstanding questions and some technical issues please do contact investor relations after the call.
Thank you everyone.
Operator
This concludes Millicom’s financial results conference call. Thank you for your participation.
You may now disconnect.