Oct 22, 2014
Executives
Nicolas Didio - Head of IR Hans-Holger Albrecht - President and CEO Tim Pennington - CFO
Analysts
Sergey Dluzhevskiy - Gabelli & Company Thomas Heath - Handelsbanken Erik Pers - Danske Bank Bill Miller - JM Hartwell JP Davids - Barclays Gonzalo Fernandez - Royal Bank of Canada Luigi Minerva - HSBC Andreas Joelsson - SEB Chris Grundberg - UBS Lena Osterberg - Carnegie Rodrigo Villanueva - Bank of America Merrill Lynch
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 Tim Pennington, 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 over to Nicolas Didio, Head of Investor Relations.
Please go ahead.
Nicolas Didio
Thank you and welcome everyone to the Millicom third quarter results presentation. Today’s presentation materials can be found on our website, www.milicom.com.
Before we start I would like to remind everyone that the Safe Harbor statements will apply to this presentation and the subsequent Q&A session. With me today on this call are our President and CEO, Hans-Holger Albrecht and Tim Pennington, our CFO.
I will now hand over to Hans-Holger to give you an overview of our Q3 2014 results and operational performance, after which Tim will take you through the financials, and we will finish with the Q&A session.
Hans-Holger Albrecht
Thanks, Nicolas and good morning and good afternoon to everyone listening into our conference call. At our Capital Markets Day last month you heard us that we confirmed our target of being a company with 9 billion revenues in 2017 and today you can see that we are on track to achieve that ambitious target and our other objective which we mentioned at that occasion as well.
You can see that the new chapter with the UNE has a good start, with the encouraging take up of our new satellite payTV services with 45,000 customers in a few months and we see the continued focus on our efficiency program in order to balance growth and return in a correct manner going forward. In the last three months our revenue grew organically by almost 9% that is actually at the upper end of our own expectations and I think a very strong and impressive performance by the colleague in our operations.
If you include UNE, the company grew by 21% again a very strong uplift towards our own target. The organic growth is based on the strong mobile take up, rising by almost 1.5 million customers and the continuing shift from voice to data.
Today we announced that more than one in four of our customers now use a data, this growth was driven by strong content such as the exclusive FIFA World Cup for example, we showed during the very successful Brazilian World Cup or the launch of Tigo Music as another example now with over 600,000 users with extra mix as one of the fastest growing music services in Latin America. And today we're also announcing two new initiatives, the partnership with Deezer to launch Tigo Music in Africa like we did so successfully in Latin America or as well as the launch of Smartapps to grab the interest of [indiscernible] in Latin America by offering a simple and very easy way to get apps in these markets.
[Indiscernible] probably in the western world, we all believe it's very, very easy. But if you don’t have a credit cards like 80% or 90% of the people in our market its actually quite challenge to get access to those kind of apps.
All these examples and there are many more obviously underpin the continued execution of the digital lifestyle strategy with the idea from outside to bundle those services to our customers in order to increase the ARPU by offering value for money and reduced churn by increasing the thickness with several products instead of just one single product. And so far, if I look back now over the last couple of months and quarters, it seems to be working fine.
And as you know, it’s a key part probably, of our transformation and our strategy going forward. However, I think the one of the biggest transformation in the Company’s history, probably took place on the 14th August in Colombia onwards like we said in [indiscernible] when I was there and we executed the merger of Tigo and UNE.
And as you’re all aware, it is a very transformational deal for the Company. From that day forward, over a third of our revenue was generated from Colombia.
And $1.5, so 20%, will soon come from our cable services. So clearly, the UNE deal has made an impact and it changes the business by fundamental.
And has a higher focus. I have been there several times during the last couple of months, and even the whole Board of Millicom spending a week in Colombia to be close to the situation, and assess the opportunities there.
And the good news is that since we got for the first time the numbers in it seems the early indications for UNE are positive and going in the right direction. So, as we approach our 25th anniversary next year, we can see how fast and how far Millicom has come.
It has seen rapid changes in the past. But for sure, I think, the last 24 months have been one of the busiest ones and one of the most radical ones in terms of changes.
And just to remind everyone why we are doing this. It is simply because of the market dynamics.
Our customers in our markets want the rich choice of digital services that are technology efficient and most important locally relevant. That means that we have to be very flexible, very opportunistic and nimble in each of the markets where we operate.
But we have to focus as well on the local execution because that’s a key USP we have towards other players in those markets. So the local bureau we want to be in each of those places.
And a good example for this is if you look at our innovations when it comes to mobile money. There for example we have launched the first interoperability service in Q3 in Africa, or we authorized a return on mobile balances for the first time globally.
So we have disrupted this kind of markets and business quite drastically like we have done now for example as well again when it comes to the DTH and satellite payTV business by launching Tigo Star in seven countries within the last three months. So, our strategy may have has changed over the last years, but the innovation and the kind of forward leaning approach is a key part for us to succeed.
But just to be clear as well on this one and we put a lot of effort during the Capital Markets Day as well. It goes with the clear commitment as well to financial discipline and the returns.
In the Q3, the margin has stabilized and our long term guidance of around 35%, which we once more confirmed at the Capital Markets Day, is definitely on track as we extend our program of efficiencies from top to bottom right across the Company. So overall, I am positive about the outlook for Millicom.
It is now a Company transformed and really we have to focus mainly on the execution. We can see high growth.
We can see a bit of a strong business discipline and [indiscernible] as I said as well we are a Company which is not only focussed on innovation but as well on commercial and the financial targets. If we then move to the numbers and the concrete results of the quarter, if you move to slide number five.
You see 8.6% organic growth recorded in the third quarter, marks the first successive quarter of growth exceeding 8%. I believe, in my personal view, there is a real momentum here as we continue to grow our core customer base to almost 54 million people and provide them with a greater variety of digital products.
This includes mobile data services, which is one of the areas where the success of our transformation strategy is most apparent. After quarter where we signed up 1.5 million new mobile users, including 750,000 net adds in South America and over 500,000 Africa.
Now, one in four, as I mentioned, of our customer takes data services. With each of these excess planned at the Capital Markets Day the loyalty strengthened and we reduced the ARPU volatility.
And in Mobile Financial Services, the extraordinary growth in users and volumes continues. We now process, just to highlight, on average, 1,000 mobile management actions every minute.
It is a product with potential only just beginning to be realized, which is why we have been so busy innovating with new partnerships and the customer incentives. Of course, this quarter is critical to driving the margin.
In this continuing high investment phase when we are busy building the digital life of infrastructure it has declined year-on-year but increased frequently to 33.4% in the third quarter. As you know we have intensified action our efficiencies right across the Company.
We continue the rigorous country by country, function by function program, which has already identified the important savings in one of our key markets. And [you know] as well that we have many new initiatives, which have been start-ups, which coming into business now and which will do better returns in the coming months going forward.
At the Capital Markets Day, we affirmed our target of long term EBITDA margins of around 35% plus more importantly I think going forward operating cash flow margins of 20% which Tim will highlight later in his presentation. The success of our business in driving forward profitability revenue or probably revenue growth will be a key factor in achieving these goals.
If you go to slide number six, you can see the core organic growth to achieve this, the high growth Millicom has been joined in the past two years is based on the fact that we outline at our Capital Markets Day. Payable macroeconomic conditions with GDP levels rising faster than in the west useful in growing populations and a strong appetite for additional services.
These factors are still in place and each of our business areas is benefitting, mobile is up by 5%, with data growth accelerating at 35% compared to plus 32% in Q2 and clearly offsetting the pressure on voice and SMS. Data usage is growing more than 10% with an average of 714 megabit per user per month and more data usage means for us obviously more business, overall the churn was down 80 basis points this quarter versus last year.
Cable is up 11% with residential growing about 15%, Fixed Telephony is slightly down and offset by strong growth of broadband and to a lesser extent the payTV. And finally MFS is rising 45%, ARPU in Q3 was down 7% year-on-year due to the dilutive impact of new customers, but it was up 12% versus the second quarter and this is an encouraging trend with the revenue presentation continuing to go up.
If you go to slide number seven, the rise in cable follows the launch earlier this year of Tigo Star, I mentioned already at the beginning which is now present in six of our Latin American operations and seen on slide seven, the increased numbers of homes passed. Tigo Star has given undoubted boost to our payTV and bottom services.
Growth has been boosted by the increased number of RGUs to household and the 20% rise year-on-year of double and triple play customers. With UNE in Colombia, we have now more than doubled our cable footprint which has increased by 3 million to over 5 million homes passed.
This will be joined by the [indiscernible] up for the DTH in rural areas in the coming months. Many of us pay for the satellite payTV services using MFS.
This trade yet another bond between the customer and the brand and is symptomatic of our joint approach to setting a range of digital service to drive all our financial targets, which is a good point to hand over to Tim to run through the financial numbers.
Tim Pennington
Thank you and I’ll take you through these financial highlights and then we’ll go into Q&A. So starting on Slide 9, financial features in the quarter.
Firstly, Hans-Holger said, the revenues continued the momentum seen in year in local currency on this course we had the strongest growth in U.S. dollar terms as well, a reported revenue growth of 7.2% in U.S.
dollars. Secondly the quarter saw -- the first contribution from UNE and I’ll talk about this a little bit later but we saw an EBITDA margin that was stronger than we had originally expected.
The EBITDA margin excluding UNE also saw a little bit of improvements on Q2, up 30 basis points to 33.4% and our cash flows also a little bit stronger in the quarter than we might have expected on some working capital inflows. So on Slide 10, if I start by looking at the revenue drivers in the quarter, and has been the case for several quarters now, the drivers being Colombia, we posted year-on-year revenue growth of 27% in Q3 it wasn’t alone though, we saw Bolivia up 12% in local currency and our Africa business also posted a 13% local currency revenue growth.
The UNE contribution of $186 million for the first 47 days -- of last 47 days in Q3 which puts it on a run rate in line with the guidance we gave at the Capital Markets Day. On the next slide and turning to the EBITDA evolution and it's seen here the group EBITDA margin was 32.8% and that was diluted 60 basis points by the inclusion of UNE.
As I said on a comparative basis the margin was 33.4% a little bit higher than Q2 as we saw a slightly better EBITDA margin in Colombia which increased to South America EBITDA margin by 2.4 percentage points. In addition, we also recorded lower essential cost than in Q2.
I don’t expect this to be the trend that we expect Q4 cost to be near the level we saw in Q2 rather than those we've seen in Q3. There is also a slightly weaker performance from Africa EBITDA was $55 million, it was in line with the same portion last year but 13% lower than Q2 and much of this was one-off in nature we incurred a $4 million restructuring charge in respect to the network managed service outsourcing but we announced this at the Capital Markets Day and there were other one of items hopefully a $4.2 million.
Overall, we continue to invest margin and building our business and compared to Q3 last year, we invested 2.4 percentage points in the gross margin; these are largely handset sales as we seek to get smartphones into the hands of our customers just as quickly as we can. And we’ve also invested more in our commercial activities such as advertising.
Slide 12, and on UNE and the maiden contribution is shown on this slide, it’s clearly too early for us to see any synergy benefits so this is pure trading. Revenues are after intergroup eliminations but they do include $4 million of one-off revenue otherwise this is all recurring revenue.
Cost of sales largely up programming cost and excess charges which gave us a gross margin of 68%. OpEx including headcount et cetera was $74 million and which left us with EBITDA of $52 million and a margin of 27.8%.
And so [indiscernible] surprise to us and as I said there was a bit of one-off revenue in that figure. So the underlying margin was close to 25% to 26%.
CapEx for the period was $25 million leaving EBITDA minus CapEx at 14.5%. On the next slide this is in line with the group’s margin which is shown on this slide so our overall gross margin was 13.2%.
CapEx was in line with Q2 basically in line with our guidance for the year and EBITDA minus CapEx was $60 million higher than Q2 although $40 million lower than the same period last year on higher CapEx spend in this quarter. And the CapEx spend was largely on network infrastructure and in mobile as well as we spent about $50 million in LatAm on the fixed infrastructure in the quarter.
Take a quick look at cash flow, the working capital swing left the group’s operating cash flow pretty strong at $305 million [Audio Gap] the working capital movements was due to a rundown in inventory and trade receivables in LatAm in May. Taxes paid were $79 million which puts us on target for about $350 million for the full year and our interest charge was $75 million again relatively typical.
Full year P&L tax interest charge should be around $400 million for this year. Dividend to minorities were relatively low this month and we expect the similar level in Q4.
So [indiscernible] the equity free cash flow which is designed to show as a recurring cash flow available to make the dividend payments of $131 million and stronger than Q2 and the Q3 last year. This excludes large capital transactions; we had a couple of these in the quarter.
Obviously the big one was the completion of UNE which consumed $880 million of cash. In addition, we also had acquired a company in Tanzania which is in 4G spectrum and we completed the funding on the final cost of the LIH option to bring our stake to 35%.
Incidentally we have now restructured our arrangements with [indiscernible] so we have no further obligations to LIH. But we will continue to review investment opportunities on a case by case basis and if we decide to invest those will be based on the merits of each proposal.
So, on slide 15, as a result of the investments and we have some net acquisition basically $24 million plus we consolidated just on the $400 million of UNE debt. Our consolidated net debt is now $4.2 billion and that represents a 1.9 times net debt to EBITDA.
So finally on slide 16 and in summary in this quarter. We have continued to see the continuation of revenue growth that we've seen all year but there has been a less of a currency impact in this quarter.
UNE has made a strong start. We have seen some stabilization in our EBITDA margin but it’s too early for us to call victory on that but it’s a good start all the same.
And cash flow was stronger in the quarter again a little too early to call victory but this is a strongly motivated team here who are focusing on driving profitable growth in this business. So, thank you and with that we’ll take some questions.
Operator
[Operator Instructions] Our first question today comes from Sergey Dluzhevskiy of Gabelli & Company.
Sergey Dluzhevskiy - Gabelli & Company
Good morning and thank you for taking my questions. So first question is for Hans-Holger just a broader question, obviously UNE is an important acquisition that you made and in the short term you’re going to be focused on integration and execution.
But could you share your thoughts on M&A maybe in the medium term as you look at your portfolio what function or geographic guests do you see is going to be focused on combinations of mobile and cable, just any general thoughts on M&A going forward?
Hans-Holger Albrecht
Yes, as you mentioned and the main focus right now is on UNE because it is a very transformation deal and the biggest election in history we’ve made and that takes all the attention. So, we don’t see short-term any kind of major M&A activities as there are in market consolidation opportunities we may obviously look if it comes to mobile or cable.
But we do it very opportunistic and we take on a financial visiting we want to keep at this stage, simply because we feel that basically the current structure we have and the current FS and tools we have in each of the markets is sufficient to deliver the strategy. So, don’t expect any bigger M&A, there may be smaller things but on a smaller scale and nothing is a must for us in order to deliver the target.
Sergey Dluzhevskiy - Gabelli & Company
Okay. And one question on Paraguay revenues, were down 7%, but subscriber meant almost has improved, could you comment a little bit on what you are doing in Paraguay to improve momentum and revenue trends into market?
Hans-Holger Albrecht
Yes, we had some issues in Paraguay during the last quarter and the quarter before which is mainly driven to customer perception brand tracking and some behaviors we had in the past and one of the major issues has been the quality of the network which we have to fix the schedule currently and some clarity on the offers I think when it comes to bundling products and bound to very simple things like customer service and the quality of handset and those kind of things. So, we have changed a lot of smaller tools nothing fundamentally and start to work and we see further momentum when it comes to the business, we see that the net promoter score is going up again, we’ve seen that the bend tracking is improving as well so we should see a positive impact and we should see through the worse when it comes to Paraguay.
Operator
Our next question comes from Thomas Heath of Handelsbanken.
Thomas Heath - Handelsbanken
Thank you. Thomas Heath, there a few questions if I may.
Firstly, you reported some non-recurring items for Africa for the change in outsourcing of the network, should we expect more of this coming ahead, so one of excluding UNE and any thoughts there will be helpful. Secondly, license cost, update would be great for what we could expect next year.
And then thirdly, any comments on Colombia the trading climate after the regulatory change on handsets. Thank you.
Tim Pennington
Let me quickly deal with the question on non-recurring, I mean in Q4 we expect about a $5 million restructuring charge in respect of the managed service outsource, but other than that [indiscernible] 2015.
Hans-Holger Albrecht
And when it comes to license, I mean again the only big license renewal we have for next year is Bolivia which we started to have a dialogue with the government. It's too early to say any kind of concrete numbers, but we don’t expect any kind of drastic changes to the situation we have currently.
And when it comes to spectrum what you see other part of curse is normal course of business. So, no change towards next year anticipated as well.
So, I would see stable situation on that one. When it comes to the trading climate in Colombia after the new regulation becomes subsidized handset, so far it didn’t have a big impact on our position in sales as you can see in the Q3 figures, there will be a kind of reallocation we assume a bit of cost into the sales chain and as the marketing cost in the respect, but [indiscernible] hasn’t slowed down and give a positive impact on the EBITDA side report going forward probably, so smaller minor impact so far.
Operator
Our next question today comes from Erik Pers with Danske Bank.
Erik Pers - Danske Bank
CapEx in UNE, could you tell us what you expect going forward there and I know that the operational free cash flow was positive, that's something we can generally expect to continue going forward and also I don’t know if you are willing to share numbers on it, but if not, maybe you could tell us what does UNE need in general terms of CapEx, what types of projects you expect to see there? Thank you.
Tim Pennington
We gave guidance at the Capital Markets Day for this year’s CapEx, which we said would be round about 120 million, they spent 25 million in this quarter compared to this quarter and [indiscernible] changed the guidance to the full year, we're not in a position to give guidance on 2015, but again at the Capital Markets Day we did state our ambition to and how they significant sort of investment and increase in the number of homes passed. So, I think you should expect us to be an investment load in UNE and in Colombia.
Hans-Holger Albrecht
And maybe to answer to the second question I think the key point when you look at the UNE, our first impression is that the company is very well managed and very well run and is on targets which is positive to kind of key leverage we have on the long-term is you are going to work on the margin because that’s in the 20% to 27% normally as we stipulate in [indiscernible] as well, cable margin should in the mid-30 at least. So that’s one of the big upswing.
And this then comes through a better sales of course, better sales efficiency but as well for capital churn, churn is higher than in other markets we are used too. So there is a big upside when it comes to the churn side as well.
And combined those things I think the CapEx profile will be pretty stable and you see the kind of operation improvement in the coming 12 to 24 months.
Operator
Our next question comes from Bill Miller of JM Hartwell.
Bill Miller - JM Hartwell
Can you help us by giving us a further definition of the timeline in Colombia when are you going to be able to tell us more you have the timeline in the presentation of Miami [indiscernible] transformational event. Secondly, if you look at 2017 and much of the sources of revenue and EBITDA could you just break that down generally for us because it’s going to be so much less telethon company and so much more of a media et cetera company?
And maybe if you could break that down for us and give us not only benchmarks to measure you but also to help us understand why this is going to be a growth company?
Hans-Holger
Thanks. I will take the first question and Tim can jump in on the second part and then we can pull up probably later on as well.
I think when it comes to the timeline we just have a key for the company in a few weeks so we're really getting all the kind of facts and numbers together. If you remember we were not allowed to exit any data because it was a merger process so we had to restrain from that.
And hence we need a bit of time to get the fact from the table and then based on everything give a clear guidance which will be probably in the course the beginning of next year, so that’s the best we can do and to do it thoroughly. However, as I just mentioned before if you look at the kind of fundamentals of the business and the kind of early indications, the growth will come from ARPU increase and new sales, and lower churn, which is a kind of big factor and efficiency in the business to boost the margin up.
And that should be a key take to us going forward. The good news is which is more importantly at this stage as well is that we get a very good asset handed over, on top so it’s performing well.
So the starting point is easier. If Tim wants to give a bit of light on the EBITDA breakup in 2017.
Tim Pennington
Well, in terms of -- I mean again on Capital Markets Day we showed you our expectation of revenue and by 2017 and we’d expect mobile at that stage to be round about 60% of our overall revenues. We would expect cable to be about 30% and MFS full cover digital services about 10% at that particularly stage.
So that’s the sort of trajectory we’re heading to obviously and we think we're actually well on track for that with posting now cable being about 25% of our revs today. And we’ve also seen as you saw again in this quarter the data accelerating again probably ahead of our expectations.
So that now as Hans-Holger said, one in four of our customers are on data and using data services with us. And we see that sort of translating through to EBITDA.
We sort of highlighted in the Capital Markets Day there will be a little bit of gross margin adjustment. But our target is to get back to 35% EBITDA margin by 2017.
Bill Miller - JM Hartwell
That’s fine, but the mobile, how much will be data at that point, 50%, 70% [indiscernible]…
Tim Pennington
You’re right Bill I mean we estimate it will be about 55% voice and SMS and 45% data by that stage. But our trajectory at the current level this quarter for instance is ahead of our overall expectation.
So we’re going to be sort of by 2017 round about 50%-55% mobile and then the balance will be coming from data. And that will move -- that could move very, very quickly given the uptake of our data customers.
Operator
Our next question comes from JP Davids with Barclays.
JP Davids - Barclays
Good afternoon. I have two questions please; the first question is just on market share which you present in the appendices of your presentations.
That’s been broadly flat over the last few quarters. Given the amount of your margin you’re reinvesting in these businesses is that something that worries you or do you think that that doesn’t quite give the full picture in terms of the quality of customer you’re attracting here?
And the second question is just on couple of your assets in Africa being the DRC in Tanzania very notable upticks in the net ads for those two operations. Is that directly related to your moving out of the cities into the rural areas?
Or is there some other factor driving that? Thank you.
Hans-Holger
Yes, on the first one, I mean, you gave the answer by yourself it is nothing which concerns us because we move from the total number of market share and customers now to focus on the high value customer which are the kind of key driver for us going forward. Hence if you go into the kind of customer presentation on detail on the market share and you look at what kind of customers you get the picture is better and that’s the reason we are not concerned in that one.
Plus effect that sometimes the definition of market-share probably in Africa is different country-by-country and it's hard to track it. So, we rather follow the or see the kind of return of the investment we have done on the revenue growth and subsequently a pause on the return on the investment.
So that's sort of first question. The second question is yes, we see goods have some take in Africa and it is their correlation of the investments we did outside the capitals into the rural area, it is the investment in sales and market we did when it comes to 3G and the data we have been pushing more aggressively and it's the combination of -- or it effect of the kind of interoperability and the kind of efforts we made on the mobile financial service side which helps of course to drive customer increase and customer basis.
Plus which is important for Africa to know it is a very young and still growing population so the kind of addressable date is much lower. The key point for us will be in Africa region where to keep this momentum on the growth, but as well to focus on churn, because it's a very high churn market so we’ve seen upside for us going forward on churn in Africa.
Hence, we announced the label launch or Tigo Music [indiscernible] which we know from Latin America is a very nice churn preventive tool.
Operator
Our next question today comes from Gonzalo Fernandez of Royal Bank of Canada.
Gonzalo Fernandez - Royal Bank of Canada
Hi. Could we maybe get an update on the upcoming spectrum options, I believe there is one in Honduras might be scheduled for the end of the year.
And then maybe also on the regular use you are having in Paraguay and maybe other assets, just may be more broadly, what are the short-term risk you guys see for the business?
Hans-Holger Albrecht
So, spectrum option I mean that is something coming out in Honduras, but we just made a big option nearly 12 months ago, we feel pretty well so far. And also there is only for us to look more rapidly otherwise there is nothing on the horizon at least from my point of view in terms of larger spectrum options in our markets, so nothing which is unusual in that respect.
[Indiscernible] where it goes, but as we said, we are not under pressure there, we feel fine what we have. Did you ask for the review of the assets in Paraguay, specifically or in general?
Gonzalo Fernandez - Royal Bank of Canada
Well in Paraguay maybe in more detail and if there is anything similar coming up just that we are aware of?
Hans-Holger Albrecht
No, I think in Paraguay, the [indiscernible] cost, as we said earlier in the call the turnaround from the execution [indiscernible] new management we are pleased is going in the right direction so that’s one block. The second block is in terms of the assets we really focus on all the assets we have in terms of cable and mobile and content.
So this is exactly the kind of play we want to have and there is no need for us to add more assets or there is no discussion that we dispose any kind of address in Paraguay. There is some discussion when it comes to the regulatory side in Paraguay in terms of the interconnection charges which you may count but it's nothing which we are much concerned of right now we’re in talk with the government and it will be probably normal course of business like we have seen in the past, so nothing to worry.
Paraguay I think there is a market very stable for us it's just that we have some issues with it internally which we have done and now we maybe move forward.
Operator
Our next question today comes from Luigi Minerva or HSBC.
Luigi Minerva - HSBC
Yes, good afternoon, two questions please. The first one is on Ghana and I just wanted to understand this, the price increases have been specific to Tigo or if it's a general market move and whether that is a sustainable medium term?
And secondly on Colombia in competitive dynamics, if you’re seeing an impact on your business from the MVNOs for example Virgin Mobile and whether bundling with UNE service is a good answer to their approach? Thank you.
Hans-Holger Albrecht
Yes, on Ghana it's a whole market which is greeting the prices, so it’s a more disciplined market approach and sensible market approach when it comes to pricing which we are benefitting on as well and so when it comes to data for is very crucial, you may have seen that, we actually have become the second largest operator when it comes to data in Ghana in the last week. So, this is important for us and this shows us the market is acting sensible in that respect.
When it comes to Colombia the MVNOs so far we know major impact Virgin or whatever is something we follow, but doesn’t have affected our numbers or our intake. Long-term obviously it's a threat, you have -- it's a competition you have to look at and exactly what you said is what we believe we can go out of supply the base to the value for money to make a bundling with UNE and the bundling data access mobile, data access fix and then on strong entertainment services and other services.
So people feel even if the price relatively maybe lower on the MVNOs in the future they get more value from us by bundling.
Operator
The next question comes from Andreas Joelsson of SEB.
Andreas Joelsson - SEB
Yes, a couple of little questions for Tim, could you give some guidance on tax rate for the full year first of all and secondly on net financial items, is this a run rate that we should expect going forward or if there are sort of any positive items we could expect for other financial items or is it the 86 million in this quarter is that entirely related to the [indiscernible] options? And thirdly you gave an UNE guidance at the Capital Markets Day is that still valid and on based on EBITDA?
Tim Pennington
So in reversal to the UNE guidance, it's still valid and that we're [indiscernible] on revenue and we did slightly better in the Q3 but I still will hold the guidance we gave for the full year of $120, and there has been a little bit of currency devaluation there and since we gave that but so I'll leave that. In terms of the other non-operating income of 86 million that’s credit in our P&L this quarter.
It is almost entirely due with the put options revaluation those get mark to market every quarter and plus there is some offsetting FX adjustments in there. But it’s all non-cash and probably not want to dwell on too much.
In terms of the tax yes I mean this is -- our tax did move around a little bit in the quarter we had some adjustments to deferred tax liability and the deferred tax assets. But in overall terms I think that’s -- I think I've given you guidance in the past so we expect it will be for the full year around about the 300-350 level and I think that continues to hold.
Giving effective tax rate is not that easy for us given the fluctuations of the puts and call option I’ve just talked about. So we’ve given a bit more help on the absolute.
Does that cover the questions?
Andreas Joelsson - SEB
Yes, the net financial items, the sort of operating net financial items, is that the run rate you have in Q3, is that what we should expect going forward as well?
Tim Pennington
You're talking about the interest, the net financial expenses with the interest, yes I think again I think that’s a good proxy for certainly on a P&L basis and again I think we’d expect about 400 million for the full year now which is sort of kind of year-to-date with 300 so that’s about right, 100 a quarter.
Operator
Our next question comes from Chris Grundberg of UBS.
Chris Grundberg - UBS
Thanks. I just had a couple of quick ones, and just a clarification on the work in the LIH developments.
Can you say are you looking for a further take a partner in the region for that entity and if so can you give any update on discussions there? Then secondly just specifically on the DRC any extra color on the expanded coverage and the push into to the key region, I see that’s a common trade.
Just any extra color there would be helpful? And then lastly I think you pointed out in the presentation that you are getting a descent uptake of payTV customers paying with MFS.
Can you be specific, can you say how many customers now are using MFS as a payment mechanism and where that could get to? Thanks.
Hans-Holger
Yes, if we start with the first one first the LIH. The real cost is to run the company forward and the business forward as it has been and they’re doing very well in terms of their financial targets.
We have to take it case by case really and opportunistic if there is more cash needed, we don’t need it at this time but if we have more cash needed in the future how do we do it and if we bring in partners on the individual business or we have to bring it on the holding level. And in some cases as Tim mentioned earlier if they had good opportunities on the individual basis we may even put in some money.
I think for the business itself funding at this stage and then the rest we see when it’s coming. Just to highlight it for us the reason why we take a different approach is that we have enough opportunities to grow our core business at this stage so we don’t see the need or the reason to allocate capital in this one the returns are closer to our core business in mobile and cable and the other things we are doing.
If it comes to the push in to the key regions, and cable in particular, a large part of the subscriber intake in DRC is based on the expansion to the regions, so the pickup is very strong and should continue there and therefore the step was right and we can see it as well when it comes to the volume of money transfer for some of them to keep the region to the capital on that it’s a big push in that respect. So, we can see that the kind of regionalization strategy is working when it comes to DRC.
However keep in mind it’s a huge country so there are much more regions we haven’t covered so it’s a step by step and slow approach to cover the whole country. If it comes to the payTV side, I don’t have the exact figure but I noted a large number of the DTH customers who are key customers are using MFS as a payment system which was a surprise for us as well but it shows kind of strengths you have in terms of high bundling of costs various products but the heading MFS as a payment infrastructure.
If you want to have the exact figure I would have to contact you after this call. But it’s just an early indication how we combine the various assets we have in the company and use in the company synergies.
Operator
We’ll just take our next question now from Lena Osterberg of Carnegie.
Lena Osterberg - Carnegie
Thank you. I was just going to ask you a little bit on first of all on asset as a margin.
If you adjust for the restructuring charge you sort of back down at the 23% level where as you are out last quarter, so I am just wondering is it the marketing spend that varies between the quarters and what should we sort of expect there into the fourth quarter and next year? Also if you could say something about, if you have any opportunity to refinance UNE’s debt as existing debt that they have?
And also if you could shed some light on the integration costs, how you expect that they will come over the next few years, how much next year and how much the following years? Then I had a question wondering a little bit about the MFS customers, how do you measure an active and inactive customer, what sort of trend measures are there and what causes customers to leave?
Hans-Holger Albrecht
First of with the margins, we got a little more questions, the margins in Africa it is in the of course marketing cost and sales cost you have and campaigns are running which are giving this link and then it depends a bit on the markets you are in and the kind of momentum. So for [indiscernible] we have been a bit more aggressive during the quarter than we were in other places.
And those are the kind of variances you have. When it comes to next year obviously we don’t give any guidance into next year, but we should see that the investments we have done should result of course in returns as well in Africa so the margins should improve in the coming quarters and towards next year as well to what extent we’re going to communicate closer to next year.
But this is what, this is very important, Africa is kind of plate of investments right now, it's spreading, market-share is spreading new customers and its grabbing the kind of transformation into new service like MFS and Music Now and those kind of things. So it is a place with strong growth but obviously it comes with a certain kind of investment as well.
That’s about the margins, I'll take maybe the MFS customer and Tim can talk about UNE integration cost and the other question, we normally, if a customer doesn’t have any transition within his timeframe about three months I think, there may be some slide variances between the country, then we sell as a non-active customer and we take them out. The reason they are churning and again this is not very sophisticated because it’s a lot prepaid and we don’t have all the data always on hand, is now where the people should be switch account or have no mind to stand or don’t you see the kind of usage.
Many customers have and this is blurring the picture, that so many customers having double SIMs, so they have two bank accounts one with that one with competition three times, so they can send money easily around the kind of network, so churn is not the biggest focus right now and the biggest focus really is more the kind of volume and getting the customer based up in industrial.
Tim Pennington
And just on a technical basis we use the same churn definition we use for mobile, customers name may 60 day asset, so the base performed a revenue generating event in the last 60 days that's still active on our numbers. And in terms of early integration cost, we haven’t changed from the Capital Markets Day, we said a $105 million facing and given roughly 50-50 in 2015, 2016.
And again we haven’t sort of fully fleshed it out at this stage, but I think that’s rule of thumb. And which was the question we haven’t answered?
On the UNE debt?
Lena Osterberg - Carnegie
Yes, if there is an opportunity to refinance that also maybe you should say what rates they are at versus your rates and if you think that you will refinance that debt and if that would bring low interest cost?
Tim Pennington
We will be doing some fairly sizable refinancing of the unity business in Colombia. I am positive the first stage there will be to refinance [indiscernible] got down the.
I can't recall exactly what rate it is, I don't recall it being massive [indiscernible] money, but we are really just looking at the capital structure down there and there probably will be some work we can do and give you a bit more visibility on account of Q4.
Operator
Our next question comes from (Steven Bichard) [ph] of [indiscernible].
Unidentified Analyst
Hi. I have got a couple of questions if that’s okay.
The first one is on the UNE margins, where it seems to have increased from around 23% to around 26%. Now maybe you could give us a bit of light as to how you got there?
And secondly is probably a bit early to talk about when a trust in Honduras might be coming, but maybe you could tell us what are the key causes of negatives in Honduras and when you think you might return to growth there? Then also Paraguay regulation I think Paraguay there, the MCI under review have changes in 2015 maybe give us a bit of light as to what you expect and whether you’ve given any investment commitments and the progress you’ve made on getting a satellite TV license there?
And then the last question is just on the 9 billion, greater than 9 billion revenue guidance for 2017, will that be in 2017 foreign exchange fee?
Tim Pennington
Starting with the unit margin I don’t think we changed our view on that particularly. I mean, bear in mind, we gave guidance at the Capital Markets Day after although we had about six weeks of the business in our hand.
And I think it’s performing well. We are pleasantly surprised by it; it was probably a couple of percentage points.
And in there, that was due to the because of one off revenue line. But no, I mean, I think it’s performing quite nicely and we’re very happy with it.
Thank you.
Hans-Holger Albrecht
So, just to add on, because I think the question was any kind of special effect during this quarter and the answer is no. The margin is going to be the underlying margin performance is strong in UNE at this stage.
When it comes to [indiscernible] and the competitive length give us [indiscernible] was the question, I don’t that it has got a major change and any kind of level we have in the past with [indiscernible] and the other players but it’s more about the market environment the GDP situation and the regulatory environment which is a concern so far. They has been affecting us in the last 12 to 16 months the operation actually is doing pretty good and can hold up the performance in terms of market share.
And of course we’re rolling out cable there as well so we should see the impact of the bundling of us going forward in [indiscernible]. It is a tough environment but the business is doing in this tough environment satisfactory.
When it comes to the product line and the regulatory changes there is a discussion indeed and as we mentioned earlier as well and we expect an MTR cut to be announced in the coming weeks. The cut we forecasted is around 40% but we don’t see and this is the most important point for us we don’t see a regime of [indiscernible] MTR being implemented so it should be manageable and the normal course of business and I think which [indiscernible] concerns us and as we said as well earlier during the call we are in a dialog with the government there as well.
When it comes to the [indiscernible] revenue target by 2017, obviously we are not the experts when it comes to currency forecasting and how currency will move. But I mean the kind of normal kind of currency movement effect industry extraordinary movement on a larger [indiscernible] in several countries like we’ve seen for example recently in Ghana then of course we wouldn’t have an issue but until then I think we don’t see the risk or the targetable units because of the normal currency movements.
Operator
And we will now take our last question for today from Rodrigo Villanueva from Merrill Lynch.
Rodrigo Villanueva - Bank of America Merrill Lynch
Good afternoon, two questions please. My first question is related to corporate costs which declined by 14% quarter on quarter to $57 million.
Is it the new run rate we should forecast going forward? And secondly, Tim talked about a one off at UNE.
Could you please share with us the amount? Thank you.
Hans-Holger Albrecht
If I take the first one, and if Tim wants to stop me, I think the corporate cost, I would be careful to look quarter by quarter or quarter on quarter I would rather look on a rolling basis where you can see that the kind of cost increase we had are stable. It is something which will stabilize going forward as well.
And just to get this point one more time in order which is important for us, in the corporate cost we have a lot of in development cost in new business we have been launching in the last couple of 24 months embedded as well. So, it’s not that it’s just non-value disruptive or non-value creating cost its value creating cost as well in those elements.
So, depending on how much new business activity we do which we say is going to slow down a bit because we have all the kind of things in place, the cost will stabilize as well but don’t see it quarter on quarter and don’t take this quarter as the run rate going forward. The one-offs in UNE I hand over to Tim.
Tim Pennington
Yes, it’s only a small revenue one off I mean again it was not significant $4 million out of $186 million.
Operator
Due to time constraint, so I would now like to hand the call back to the speakers for any additional or closing remarks.
Hans-Holger Albrecht
So thank you everyone for listening-in in this conference call and all the questions which have been asked. As usual, if there are more questions don’t hesitate to follow up with me, Tim or Nicolas over the next coming days.
And otherwise, we all hope to see you again for our conference call on the fourth quarter results, which will be in 2015. Until then, all the best and stay tuned.
Operator
That will conclude today’s conference call. Thank you for your participation.
Ladies and gentlemen, you may now disconnect.