Feb 9, 2011
Executives
Mikael Grahne – President and CEO François-Xavier Roger – CFO
Analysts
Michel Morin – Barclays Capital Ric Prentiss – Raymond James James Rivett – Citi David Kestenbaum – Morgan Joseph Sven Skold – Swedbank Soomit Datta – New Street Research Bill Miller – JM Hartwell Investments Jean-Charles Lemardeley – JP Morgan Stefan Gauffin – Nordea Kevin Roe – Roe Equity Thomas Heath – Öhman Lena Osterberg – Carnegie Miguel Garcia – Deutsche Bank Andreas Joelsson – SEB Enskilda
Operator
Good day, ladies and gentlemen, and welcome to the Millicom Q4 2010 results conference call. For your information, this conference is being recorded.
May I also remind you that this call is being audio streamed over the web and is accessible at www.millicom.com together with a presentation summarizing the key features of the results. I would now like to hand your call over to your host today, to Mr.
Mikael Grahne, President and CEO; and François-Xavier Roger, CFO. Please go ahead, gentlemen.
Mikael Grahne
Thank you, operator, and welcome to you all. As usual you can find the slides for this call on our website.
Please go to slide number three. Turning to the quarterly highlights, you can see the execution over our value creation strategy continues to deliver good results.
Revenues were close to $1.1 billion, increasing organically in local currency by 10%. We have sustained double-digit growth over the course of the year with an evolving distribution of growth by region.
There has been a deceleration in Africa towards the end of the year and return to growth in Central America in Q4. Our focus today is on attracting higher value customers, and we have accelerated our commercial investments in 3G data and value-added services in order to sustain double-digit top line growth in the medium term, as we had announced a few months ago.
We now have more than 1.7 million 3G customers using data services and we have seen further ARPU improvement as a result of this focus. Slide four; we see more results from our value creation strategy.
If you look at the year as a whole on slide four. Over half of all our new customers added in Latin America in 2010 are using 3G data services.
We sustained double-digit revenue growth in the quarter and added 2.5% double-digit growth over 2009 on average. We have continued to generate significant amounts of cash, and year-on-year the level of cash repatriation from operation has increased.
In the areas of asset optimization, we have created three joint ventures with other companies in Africa with Helios, which together create more than $400 million of value through cash and equity and expect in future cost savings. We have improved the efficiency of our balance sheet by replacing our corporate bond with cheaper tax efficient debts at operating level.
And finally, we returned close to $1 billion to shareholders in 2010, through a combination of dividends and share buybacks. Slide five; now let’s look at the financial highlights for the quarter in more detail as shown on slide five.
We ended the quarter with 38.6 million customers, up 14% year-on-year. Revenues increased by 10% on both reported and local currency basis to $1.070 billion, and EBITDA for the quarter was $497 million, producing an EBITDA margin of 46.5%.
The slight erosion of the margin is a result of greater investment in 3G and value-added services at [inaudible] on sustaining good top line growth. CapEx for the quarter was $272 million or 25.4% of revenues, bringing total CapEx for the year to $688 million, excluding the capitalization of our leases.
Operating free cash flow at $310 million or 39% of revenues was broadly in line with last year. Slide six; on slide six, you can see how our focus on higher value customers is being reflected in our commercial costs, T&E, and sales and marketing, which are 23.1% of sales in Q4, up by 1.1 percentage points year-on-year, with telecom and equipment cost increasing by 23%, and sales and marketing cost up by 14%.
This strategy of accelerated investments in 3G and services aim to address rising demand for new services and to sustain around double-digit growth in the medium term. Slide seven; now let’s look at the results for the full year on slide seven.
Revenues were $3.9 billion, up 13% year-on-year; and EBITDA was $1.8 billion, up 15%. The margin for the full year was 47%, exactly in line with our guidance.
CapEx for the full year was $688 million; and cash flow generation was strong with over $1 billion of operating free cash generating, giving a margin of 25.9%. Slide eight; on slide eight, we have set out our local currency mobile revenue growth over the last eight quarters.
Year growth in Q4 excluding one-off adjustments were actually 10.4%, but there has been some volatility quarter-on-quarter. The average for the whole of 2010 as a whole at 11.2% is 2.5 percentage points higher than the average for 2009.
We produced double-digit mobile currency growth in every quarter in 2010, which we did not achieve in any quarter in 2009. Slide nine; ARPU erosion continues to improve as you can see on slide nine, as a results of our focus on higher quality customers and on our non-voice revenue stream.
In South America, local currency ARPU was up year-on-year for the third quarter in a row. The ARPU erosion in Central America improved very significantly at minus 2% versus minus 6% a year-ago and minus 20% a year-ago.
Part of the decline in blended Group ARPU continues to be down to regional mix impacted with lower ARPU Africa growing faster. If we exclude the impact of country mix, the decline in ARPU was 3.7%, demonstrated that we are moving closer to stabilization.
We no longer see a full correlation between customer number growth and future revenue growth, especially now that 3G is bringing in a larger number of high ARPU customers into the mix. Mandatory registration also continues to cause volatility in net additions in Africa.
Slide 10; on slide 10, you can see our distribution of customers by ARPU level. We have used Latin America for this analysis, as this is where our focus on higher value customers is most applicable, given that 3G services in Africa are still very limited.
At the end of the fourth quarter, 39.1% of our customers generated an ARPU of more than $10, up 0.8 points year-on-year; and 61.9% of our customers generated an ARPU of less than $10, down 0.8 points year-on-year. We expect a greater proportion of our customers in Latin America to fall into the first category over time as we accelerate investment in 3G and other value added services.
Slide 11; voice revenues grew by 7% in the quarter for the Group as a whole. And encouragingly, we saw a faster rate of growth in voice in Latin America than in previous quarters, which is an evidence of our branding and distribution focus, are helping to resist voice commoditization.
VAS growth continued to be strong, up by 25%, with non-SMS VAS growing by 45% in local currency. We still value peer-to-peer SMS which grew by 4%, as this is a highly effective way of introducing customers to a new range of non-voice services.
Slide 12; VAS now represents close to a quarter of both the voice and VAS revenues, delivering a robust revenue stream that generates greater customer interest and loyalty. Non-SMS services, our main area of focus, have increased from 10.8% to 14.3% over the last months.
We are now providing our revenue split by category for our two main geographic regions of operation, and details are available in the appendix. VAS now represents close to 30% of both the voice and VAS revenues for Latin America, and the waiting towards non-SMS VAS have increased over the last 12 months as this service is now contributing 17.4%.
VAS now represent over 10% of revenues in Africa and peer SMS and non-SMS VAS are more evenly weighted, contributing 4.9% and 5.1% respectively. But the non-SMS VAS segment is growing faster, up 1.1 percentage points year-on-year.
We believe that VAS averaged 50% and 25% of recording revenues in Latin America and Africa respectively within five years. Slide 13; on slide 13, you can see the penetration levels of the main VAS products in each of our four categories.
SMS is obviously the most important value-added service in the communication category with a penetration of over 75% of the customer base. Ringback tones in the entertainment category are enjoyed by over a quarter of our total customer base.
In the information category, data services in Latin America have a penetration of 23%; and today are most widely used in Colombia which is our highest GDP market. You can see the growth potential of 3G data, which still has a low penetration, but is growing fast.
Lastly, in the solutions category, Tigo Lends You is currently our star product with a result of penetration of close to 40%. Occupancy by the range in the penetration of these services between our highest and lowest markets, there remains considerable potential for these existing value-added services to be rolled out further.
Slide 14; let’s look at 3G a bit more closely. 3G data continues to be a real success story for our Latin American business.
And today, 3G revenues represent 5.3% of all recurring revenues in the region. 3G data users accounted for half of our new customers added in to the Latin America in 2010 and total over 1.7 million at the end of the year, up 15% quarter-on-quarter.
Slide 15; on slide 15, you can see how data revenues have grown over the past eight quarters. Even the pent-up demand for our portable data services, we see this as the largest growth opportunity for Millicom in the next few years.
Our expectations for data growth in Latin America exceed our expectations for voice growth in Africa, which is why we are increasing our investment in this area. Slide 16; our Tigo Lends You service, whereby we lend airtime to customers when they are unable to top-up is a great example on how we are successfully developing solutions to meet our customer specific needs.
We lend on average $0.45 per transaction and we recover the airtime plus as more free for this service the next time the customers’ re-logs with a low default rate of around 1%. The service which has a penetration rate of close to 40% of our pre-paid customer base has to be in reciprocal first within Tigo and the customers, and to strengthen the brand equity, and has a positive impact on both churn and revenues.
Slide 17; this relationship of faster we are building with our customers is true so when it comes to our more sophisticated value-added services in the solutions category, and in particular with Tigo Cash, our in-market money transfer service. We have launched this service in Paraguay, Tanzania and Ghana, and we’ll introduce it in Guatemala and Honduras in Q1, with more markets to follow later in the year.
As our Tigo Cash customers trust us with their money and the recipients of the transfer rely on service to deliver cash to them when they need it, it’s wise enough to ensure there is sufficient liquidity, as well as security in the system, and that there are an enough distribution points equipped to participate. It will, therefore, take some time before we are in a position to launch the service in all of our markets.
These services are also more complex to market, again because there [inaudible] trust and they represent the bulk of a new concept for customers in emerging markets who are not familiar with electronic money. Slide 18; our market share was stable quarter-on-quarter on a weighted basis at 29.8%.
We recorded a gain in South America of 0.7 points and our market share in Central America has stabilized. In Africa, average market share declined by 1 percentage points.
Please note, that we have restated historical market share base for Africa, taking into consideration in DFC or in the KDC region where we operate. Light customer intake market share is becoming a less relevant indicator of performance as we can only measure customer market share and we are putting more emphasis on growing our share on higher value customers.
We will prefer to report market share by revenue, but unfortunately at this stage that is not readily available. Slide 19; on slide 19, you can see the result declined in churn in all regions supported, but partially by the success of our products and service is designed to increase customer loyalty.
Churn is also likely to have been possibly impacted by mandatory registration in some markets since the registration process reduces multiple seats. Please turn to slide 21.
We turn now to our regional [inaudible], starting with Central America on slide 21. Encouragingly revenues in Central America, which have been improving quarter-on-quarter reverted to a positive, both in local currency and on a reported basis in the fourth quarter.
Revenue growth in El Salvador was still affected by the reduction of interconnect rates and increased tax on income international calls, both of which were introduced in December 2009. We also had a deferred revenue adjustment of close to $4 million in El Salvador, which adversely affected revenue and EBITDA for the quarter.
We expect El Salvador to return to positive growth in the next few quarters and all else being equal in the same way that Honduras has now been positive for two quarters in the row. Our strategy of shifting resources from 2G customer retention to 3G customer acquisition is particularly relevant for the matured markets of Central America, which explains why both our customers increased by only 5% year-on-year, while we saw an 18% increase in the new number of 3G data users over Q3.
We’ve also recorded a significant slowdown in the rate of local currency ARPU decline for the region as a whole, driven by significant commercial investment in 3G and services. This increased commercial investment and margins were lower quarter-on-quarter at 51.8%.
Central America generated a $179 million of operating free cash flow or 46.2% of revenues in Q4. Slide 22; in South America, revenues increased by 90% in local currency, and by 22% on a reported basis with a strong Colombian Peso once again providing the tailwind.
All the markets reported a strong performance with ARPU up 11% year-on-year and growing for the third quarter in a row, demonstrating the success of customer segmentation and our smart pricing of data and voice services. EBITDA for Q4 was up 22% in the local currency and EBITDA margin gained 0.9 percentage points year-on-year to reach 43.9%, once again driven mainly by increase in scale in Bolivia and Colombia, where our product mix is proving very successful.
Operating free cash flow generation for South America at 69 million was lower due to seasonality of payments. Slide 23; revenues for Africa were $239 million, up 12% in local currency year-on-year.
Increased pricing pressure in Africa has caused a slowdown in revenue growth and the steeper decline in ARPU in the fourth quarter. We have adjusted some tariffs in Africa, mostly a cross-net through headline price reductions or promotional activity, and we will monitor closely whether elasticity will follow in the coming months.
In Senegal, the revenue was down 2% year-on-year in local currency, following the introduction of new taxes on incoming international calls and an increase in exercise tax in August. EBITDA for Q4 was a $100 million, up 20% year-on-year in local currency and EBITDA margin was 41.7%.
We are likely to save a revenue growth over margin improvements in Africa in 2011. Traffic in Africa, in the quarter amounted to $78 million or around 32% of revenues.
Africa generated $72 million of operating cash flow or 30.3% of revenues in Q4. Slide 24; our combined cable business continued to grow well, reporting local currency revenue growth of 7% and EBITDA growth of 6%.
As in our mobile business, we are concentrating on the higher value customer, who in the case of broadband Internet customers rather than a cable TV customers. And we saw an encouraging 5% increase in the average revenue per RGU or customers during the year as a result.
Our agency continued to increase the take up of services by our customers by marketing bundled services and multiple offers are gaining scale as our cable and mobile businesses are increasingly integrated. From Q1 2011, we therefore, will be reporting the results of all the cable operations as an integrated business line in the results of Central America.
Now, I would like to handover to François-Xavier, who will take you briefly through the financials.
François-Xavier Roger
Thank you, Mikael. Slide 26; our effective tax rate for the quarter was 23.1% as the traditionally lower cash repatriation in the second half of the year means less withholding tax.
The tax rate for the full year was at 28% versus 27.4% in 2009, the marginal increase being the consequence of increased cash upstreaming year-on-year, and therefore higher withholding taxes. Slide 27; adjusted EPS for Q4 was at $1.59, up 4% year-on-year.
Net finance costs have been impacted by booking of some of the remaining cost associated with the redemption of the high-yield bond as well as some cost associated with the enter of the bond issue. Slide 28; the adjusted EPS for the full year, excluding the gain resulting from the reevaluation of Honduras was at $5.61, up 15%, illustrating our stronger focus on finance cost, depreciation and management of taxes.
The change in the non-controlling interest line is due to lower losses in Colombia which became EBIT positive in Q4. Slide 29; our operating free cash for the quarter was strong again at the same level as last year.
The key deliverable is a total amount of operating free cash flow for the year which crossed the $1 billion mark. We generate less cash flow in 2011 as we will spend more on CapEx.
Slide 30 shows our free cash flow for the quarter of $221 million or 20.7% of revenues. Slide 31; our cash upstreaming continues to improve with $819 million repatriating in 2010, representing an increase of 77% of the total amount for 2009.
We are happy to report that we have been able to upstream more cash than we actually generated in our operation, therefore increasing our local debt on reducing our country exposure. Slide 32; we redeemed our 2013 notes on the first of December, 2010, for a total consideration of $490 million.
This comprised $460 million for the principal, $23 million for the interest, and almost $8 million as a penalty for early redemption. This will be accretive to EPS in 2011.
Today, Millicom’s entailed debts will be at the operating level which improves our tax efficiency and mitigates our country risk. Recently Moody’s has upgraded our credit rating to BA1, now one notch below investment grade.
Slide 33; by the end of the year we had completed our $300 million share buyback program as planned. In 2010, we acquired other 3.2 million shares at an average cost of $92.21, representing 3% of the total equity.
The consolation of these shares will be proposed at this year’s AGM. Slide 34; the Board will propose to the AGM a regular dividend of $1.80 per share for 2010 payable in June, subject to the approval of the final 2010 accounts.
This represent to 29% year-on-year increase in the dividend in absolute terms. The increase in the dividend reflects Millicom continued focus on shareholder returns.
We also intend to review the share buyback program in 2011 and the Board has authorized the acquisition of up to $300 million of shares, before the next AGM in May. The strong and sustainable cash flow generation of the company leaves appropriate room for external growth opportunities that could arise in the future.
While we see limited value in acquiring other mobile asset at double-digit EBITDA multiples, we are interested in the potential to acquire skills and knowledge that complement [inaudible]. Our focus is on stretching our brand and extending our range of services in our existing markets.
Slide 35; at the end of Q4, our leverage ratio stood at 0.6 times net debt to EBITDA. Our balance sheet restructuring has created more cost efficient leverage.
Slide 36; turning to our debt maturity, we now see the average maturity of our overall debt at 3.3 years. Our funding strategy is based on four elements; to extend maturities, to lower the debt of cost, to secure sufficient liquidity, and to push down debt to operating level for tax efficiency and to mitigate country risk.
We have achieved all of this objective during the year through our capital restructuring initiative with both the early redemption of the corporate bond and with the raising of additional cheaper debt at operating level. We now have more than 40% of our total debt at fixed rates, reducing our exposure to volatility in interest rates.
Slide 37; during the year we formed three tower companies with Helios in Ghana, Tanzania and DRC, and we now have almost 2,500 or two-third of all towers in Africa committed to the outsource. The value created from these deal exceeds $400 million through a combination of more than $180 million of cash received or to be received for the sale towers, the 40% stake that we have in each of our company, as well as expected future cost saving and no further CapEx of towers in these three countries.
In 2011, we expect that this transaction will bring an additional point of EBITDA in Africa which could be reinvested in sales and marketing. The reduction in book CapEx will be limited in our 2011 accounts as IFRS requires the capitalization of this.
We will incur less depreciation but more finance cost as a consequence of this transactions. Slide 38; in 2011 as in 2010, we aim to achieve the right balance between top line growth, profitability and cash flow generation.
We expect the EBITDA margin for the Group to be in the mid-40s, we expect CapEx to be above $800 million, excluding any potential new spectrum or investment in Greenfield assets, as well as excluding capitalization of leasing cost for towers, which is a noncash item. And we expect operating free cash flow to be in the mid teens as a percentage of revenues.
I would now like to handover to Mikael, for his final comments.
Mikael Grahne
Thank you, François-Xavier. I would just like to close with a quick summary.
We are pleased with how we have executed our value creation strategy and with the results that it has delivered. While the profile or while the growth has evolved in the year, we have produced 11.2% local currency growth in 2010, driven by our focus on innovation and on attracting higher value customers.
Our progress towards ARPU stabilization is in evident, but this is the right approach. We aim to maintain top line growth of around 10% in the medium term as we continue to invest in value-added services which we see as the most important growth driver for Millicom going forward.
We will now be happy to take your questions. Operator, may we have the first question, please?
Operator
Thank you. (Operator Instructions).
We will take our first question today from Michel Morin from Barclays Capital. Please go ahead.
Michel Morin – Barclays Capital
Yes, good morning. Thank you for taking the question.
Two questions, actually, if I may. Firstly, when thinking about the outlook for 2011, one of the themes that has been increasingly on investors minds these days is the recent inflation that we are seeing in some countries, especially in terms of some of the food products.
And, given that you do sell to some of the lower end segments of the population, I was wondering if you could share with us any anecdotes that you might be seeing in some of your countries where perhaps this is something that you are looking at, or perhaps you are seeing some impact from inflation impacting disposal income and spending at the margin. And, secondly in your guidance, you do mention that the CapEx excludes spectrum and Greenfield cable.
And I was wondering if you could talk about what their plans might be? I think I’ve seen some headlines about the Greenfield cable in Paraguay, for example.
Thank you.
Mikael Grahne
Okay, let’s start with the food inflation. In many of our countries where we operate, actually produce quite a lot of food, so they tend to be self sustained in that respect.
Year-to-date we haven’t really seen any major impact, neither is there any really reliable data in this market to sort of show that that progression. So year-to-date we haven’t seen an impact of this.
In addition, our focus on the value-added services means that we are appealing maybe to the slightly higher end of the low-end income level and that could also offer some off of a protection if the food inflation actually will accelerate.
François-Xavier Roger
In the guidance, we did not include the spectrum, the reason being that we have no visibility today on exactly what it could be. We know that there is a certain likelihood that there could be some spectrum available, we are not exactly sure at this stage where and what could be the consideration to be faced, so we prefer to exclude these, but we don’t expect that it would be a very significant.
As far as the cable assets are concerned, we have obtained some licenses for some regions in Paraguay, and we may start with a Greenfield project in Paraguay on cable, which will be a good complement of what we have in mobile in that country. Given that it is a Greenfield operation, the cost will be limited.
We are talking of a small number and we could acquire well maybe on the more practical basis some smaller cable operators as well in Central America, but once again we don’t expect this amount to be significant.
Michel Morin – Barclays Capital
Great, thank you very much.
Mikael Grahne
Welcome.
Operator
Our next question comes from Ric Prentiss from Raymond James. Please go ahead.
Ric Prentiss – Raymond James
Hi guys.
Mikael Grahne
Hi.
Ric Prentiss – Raymond James
Couple of questions; first, I was very intrigued on one of your slides you mentioned that the growth of data in Latin America could exceed the growth of voice in Africa. Can you talk a little bit about that?
Is that on the revenue line? Is that on the EBITDA line?
And over what timeframe are you thinking?
Mikael Grahne
Yes, I think what we meant on the revenue line – so we think that the absolute growth we can generate in Latin America in absolute dollars should be higher than the higher growth we will generate in voice in Africa going forward.
Ric Prentiss – Raymond James
Okay. And then, as far as on the EBITDA line, obviously Latin America, you’re managing the process of converting from 2G retention to 3G ads.
Mikael Grahne
Yes.
Ric Prentiss – Raymond James
The cost of sales of marketing was up – I think you noted north of $20 million year-over-year on sales and marketing. Where do you think if revenue growth is in the double digit or about 10% range in the medium term, where is EBITDA growth given the kind of the shifting towards 3G?
Mikael Grahne
Well, we have seen now very clearly and it’s in our guidance that we expect EBITDA margin for 2011 to be in the mid-40s for the whole year of 2007 – 2010, we were 47. So the trend of investment as you saw in Q4 we expect to continue to do that, to just try to accelerate the growth of 3G services which there is a great pent-up demand for.
Moving into 2011, you will see continued investment in trying to drive that quicker acceleration on 3G services, hence leading to a – on a mid-40s EBITDA margin.
François-Xavier Roger
The good news is that, gross margin we have on 3G is actually better than the gross margin we have on voice.
Ric Prentiss – Raymond James
That’s great. Speaking of 3G, where are handset prices right now?
We’ve heard T-Mobile in the USA saying they hope to see even some 3.5G handset prices get down to the sub $100 level to the consumer in the United States. Where are prices right now for data cards and smartphones in 3G in your markets?
Mikael Grahne
I think data cards are around the mid-30s and the full feature phone around $150 million – $550 per phone.
Ric Prentiss – Raymond James
Okay, in good signs. Okay, great, thanks guys.
Mikael Grahne
Welcome.
Operator
We’ll take our next question from James Rivett from Citi. Please go ahead.
James Rivett – Citi
Good morning, guys.
Mikael Grahne
Good morning.
James Rivett – Citi
My question is just on Africa. I’m just wondering, you said that you put through a series of products cuts in the first quarter of this year, do you feel that that is enough compared to where the composition is?
And are you seeing any signs of that elasticity coming through years, because it doesn’t look like your competitors are?
Mikael Grahne
For the moment, we think it’s enough. Our experience on elasticity in Africa and most of our markets is that there is a very strong elasticity on that price cuts.
There is less elasticity on our cross-net. Many of the price decreases that happened in Africa over Q4 were related to cross-net price decreases, a number of them which we followed.
So we simply have to see over time how these elasticity develop. But for the moment, we feel we have a competitive pricing position in our Africa markets.
James Rivett – Citi
Perfect, thank you.
Operator
We’ll take our next question from David Kestenbaum from Morgan Joseph. Please go ahead.
David Kestenbaum – Morgan Joseph
Okay, thanks a lot. Can you talk about your 3G plans in Africa?
You know, obviously it’s a big emphasis in Central America, but can you elaborate on that?
Mikael Grahne
Yes, I mean we do see lots of growth opportunity for non-3G VAS and voice in Africa, so we are rolling out some small scale – I would call tests in Dar Es Salaam and Accra sometime in – towards the middle of this year, simply to get started. But short-term we don’t expect a lot of 3G growth from Africa.
David Kestenbaum – Morgan Joseph
Okay. And it appears on the regulatory front in Colombia, has there been any new developments?
Mikael Grahne
Not anything active that I’m aware of, at this stage.
David Kestenbaum – Morgan Joseph
Okay, thanks.
Operator
We’ll take our next question from Sven Skold from Swedbank. Please go ahead.
Sven Skold – Swedbank
Thank you. I, actually I have a follow-up on a previous question and it’s about the model for data.
If you add one subscriber from mobile to Internet, how is the model changing? Is that diluted and how is – more than improved – or improving compared to voice client?
And second, how are margins compared to your voice, you mentioned that partially. And second, if you add on a smartphone subscriber, how does the model change?
I think I have a good view on this in the western world, but how is it in, for example, Central America?
Mikael Grahne
We haven’t provided a break down, we just have the total Latin America, but they’re quite typical. As you can see there on the data card, we should get about $14 monthly ARPU.
And on the handset on data alone we get about a $4 ARPU. On the way we measure a 3G user is any data usage in a month.
And we don’t separately measure the voice revenues, because sometimes you have handover issues between 3G and 2G, so it’s more difficult to follow. But typically the people who take on a 3G phone tend to be more heavy users.
So as you can see from the South American ARPU growth, we actually in the last three quarters have added ARPU quarter-on-quarter, so we seem to be able to attract to higher-end user who actually will spend more.
Sven Skold – Swedbank
Okay. And the margins, you mentioned something that it’s –
Mikael Grahne
Margin on non-VAS [ph] are higher than voice.
Sven Skold – Swedbank
Okay.
François-Xavier Roger
Gross margins are – since we invest heavily on these products, if you see the EBITDA margin for the time being, that might smaller due to the higher marketing investment that we are doing currently.
Sven Skold – Swedbank
Okay. And just a second question, anything new on Senegal?
Mikael Grahne
No. There is, I think, the next hearing is scheduled for December ’11.
Sven Skold – Swedbank
Okay, thank you.
Operator
We’ll take our next question from Soomit Datta from New Street Research. Please go ahead.
Soomit Datta – New Street Research
Hi, yes. Can I ask a follow-up question on Africa please, just so I can understand the pricing dynamics there.
Have you being reducing your on-net prices to reflect the sort of cross-net price reductions? So do you think the discount of your net prices to off-net rate has kind of broadly state the same?
Would do you think that discount has narrowed over the last three or four months? And then, secondly, just a quick question on the corporate costs in the P&L, which were again quite high in Q4.
I think there was a one-off in the numbers in Q3 for the long-term incentive plan. Were there any one-offs in the corporate costs in Q4, please?
Thanks.
Mikael Grahne
The pricing situation market-by-market is very different competitively driven. I don’t have up-to-date information, if the delta between the on-net and cross changed.
But we’ve done a series of pricing actions depending on the competitive situation and the consumer appeal we can do with this pricing. So I don’t have the data on that one.
François-Xavier Roger
The corporate cost in Q4 has been highly impacted by the LTIP, the long-term incentive plans for executive and management, because we know usually at the end of the year if we are going to meet the KPIs.
Soomit Datta – New Street Research
Would you – is that sort of a kind of a number which you can sort of say is unlikely to be repeated going forward?
François-Xavier Roger
Well, it depends if we manage to meet the objectives and it depends on the objective for each of the year. Usually, I mean that is difficult to say, because we have to meet the KPIs for the year.
Soomit Datta – New Street Research
Okay, thanks.
Operator
We’ll take our next question from Bill Miller from JM Hartwell Investments. Please go ahead.
Bill Miller – JM Hartwell Investments
Good morning.
Mikael Grahne
Good morning.
Bill Miller – JM Hartwell Investments
I am curious about whether there are additional value-added services you can discuss. And secondly, since Colombia is your highest per capita country, can you – have you not introduced any of the money services there?
And can you give us some color on how that money service rollout is progressing out? If it’s doing well, you wouldn’t be reducing.
Beyond your expectations, there are criteria that you still have to meet in order to implement it in other countries or just give us more color on that as well as particularly on the possibility of Colombia. Secondly, historically you’ve said that you need the $500 million of working capital sort to speak cash in the balance sheet, has that been a revised under the new [inaudible] reform where you have a target for your debt equity?
Mikael Grahne
Okay, let me start with the Colombia. We have not launched the Tigo Cash product yet in Colombia.
The Tigo Lends You is also a quite recent introduction in Colombia, so we are still under penetrated there. So basically we have all the value-added services except Tigo cash in the market.
But Tigo Lends You which we think has a great potential is still underpenetrated. We think that gap will close quite quickly.
François-Xavier Roger
Of the net debt-to-equity ratio, we finished the year 2010 at the ratio of 0.6. We have said constantly that we were targeting to 1 – a net debt to EBITDA ratio of 1 where we would be comfortable and that we would not like to exceed 2, so which seems to imply that we maybe underleveraged.
But that 0.6 is not so away from 1 either. And we can’t anyway we are – as you know we have decided to [inaudible] to start again the share buyback program which should address part of the leverage.
Bill Miller – JM Hartwell Investments
Great. Thanks very much.
Mikael Grahne
Thank you.
Operator
We’ll take our next question from Jean-Charles Lemardeley from JP Morgan. Please go ahead.
Jean-Charles Lemardeley – JP Morgan
Yes, just three questions. First, on Central America, do you think – it looks like Guatemala is weaker than the fourth quarter.
So if look at local currency revenues, and seems to be down 2%, and it was up in the third quarter. And also in general, just if you could comment on your value share in Central America versus AMX, since they reported quite strong numbers for fourth quarter, and it looks that you might be losing some value share in that market, although [inaudible]?
Second question would be how much cash you expect to get from those tower deals in 2011? How much you got in 2010?
And then, finally, on those skills and knowledge that are relevant to you and you think you maybe acquiring, could you elaborate a little bit on that?
Mikael Grahne
We don’t have an accurate reading on our value share in Central America, but we believe on average it is somewhat higher than our customer market share, given that we have a higher proportion of value-added services in our customer mix in comparison to our competitors.
François-Xavier Roger
Regarding the cash for the towers, we got last year close to $50 million of cash essentially in Ghana from the deal, so we expect the rest of it – we’re talking of $180 million in total, so the rest of which would come between the second half of 2011 and beginning of 2012 depending on the time that it will take to close the deal, because there are several phases in the closing; so later part of 2011 and early 2012. The skills and knowledge that you were referring to are very much into the different types of services that we are entering into.
For example, since we are entering more into banking services, we need more expertise there than which means maybe recruit people who know that industry. We are talking of insurance, for example, we are testing some insurance products in Africa.
We have no experience whatsoever in underwriting, which we mean that we may partner with outside parties who know that industry.
Jean-Charles Lemardeley – JP Morgan
Okay, thank you. Just going back to Guatemala, the market went into do the reverse in the fourth quarter if I’m not mistaken.
Mikael Grahne
Can you repeat that?
Jean-Charles Lemardeley – JP Morgan
It looks like Guatemala was weaker in the fourth quarter than the third. Is there anything happening there or is it –
Mikael Grahne
Well, I don’t think there is anything to read into that. I don’t think there is anything to read into that.
Jean-Charles Lemardeley – JP Morgan
So you would expect positive – you expect positive growth in 2011 in Guatemala.
Mikael Grahne
Yes, we would expect positive growth in Guatemala in 2011.
Jean-Charles Lemardeley – JP Morgan
What about Africa, because you’re mentioning investing or privatizing revenue group of a margin in 2011? Is that 12% local currency is still very decent, but it’s a quite a step down from what you were posting per quarter.
Would you think you’ll be able to go back up?
Mikael Grahne
Well, as we’ve said, it’s very difficult on this cross-net that is decreases to fully understand the long-term elasticity of that. And the many price decreases is that we put through were sort of end of October and mid-December and whatever, so we’re in quite early stage on that.
So that’s something simply that we have to learn. I think we are confident on sort of our mid-term objectives still to develop as a Group as a whole to grow double-digit revenue growth and that’s what we feel that we are capable of.
Jean-Charles Lemardeley – JP Morgan
Thank you.
Mikael Grahne
Welcome.
Operator
We’ll take our next question from Stefan Gauffin from Nordea. Please go ahead.
Stefan Gauffin – Nordea
Yes, hello. Couple of questions, please.
The first one relates again to the balance sheet with continued expected strong cash flow generation, you will most likely be in a similar financial position at the end of 2011 in terms from net debt to EBITDA. Could you say anything about – if we could expect further share buybacks during the year or if you intent to comeback with a similar arrangement for next year or going forward, sort of looking at the combination of the dividend and the share buybacks.
Secondly, you still lose some subscribers in Senegal, and it seems to be that you have some capacity constraints. And you are not willing to push more money into that market.
The hearing in Senegal seems to be first in December 2011. And do you expect that you will continue to suffer in this market and do you believe there is a risk for both market share and brand being hurt?
Mikael Grahne
Let me start with the Senegal question first. We are continuously investing in capacity upgrades, so our objective in Senegal is to keep the customer base and the brand equity intact.
So that’s our aim. So we think we will be able to drive a sustainable business going forward which required smaller scale capacity investment.
We are forgoing some business growth opportunities though by not spending perhaps the CapEx that the market potential would want.
François-Xavier Roger
Looking about the balance sheet, you saw that in 2010, we did not hesitate to do returns to shareholder because we returned close to $1 billion to our shareholders [inaudible]. We have just taken a position for the time being regarding part of H1, not even H1 fully, we have decided to raise the dividend as you saw by 29%, so which is a consideration of close to 200 million to start with.
Then we have announced that we have intention to resume the share buyback till the end of May with the possible acquisition of shares up to 300 million, so you can see that it’s already fairly strong move I would say even for H1. After that, we are now communicating for to – there are other ways to use the cash, be it external roles, share buybacks, in capital restructuring, whatever.
But for the time being, we are taking care of H1.
Stefan Gauffin – Nordea
Okay, yes, just a clarification on Sven’s question regarding data and ARPU. In the report, you say that in South America, 10% of subscribers have 3G and they represent 4% on revenue.
Is this only sort of the data portion?
Mikael Grahne
Yes, it only relates to the data portion. We are not measuring their voice revenues.
Stefan Gauffin – Nordea
Okay, thank you.
Operator
We’ll take our next question from Kevin Roe from Roe Equity. Please go ahead.
Kevin Roe – Roe Equity
Thank you. Hi gentlemen.
Mikael Grahne
Hi.
Kevin Roe – Roe Equity
Couple Africa questions. On the Bharti Airtel call last week, the company said that their tariffs in Africa were now competitive, and that going forward they’d be a follower in tariffs.
What are you seeing from them in the new year here in terms of any tariff changes? And secondly on Africa, you’ve spoken in the past about a desire for in-market consolidation.
Vodacom is looking at a possible sale of their DRC business. I think there is still anticipation for Ghana in market consolidation.
Could you update us there?
Mikael Grahne
Okay. As I said before, I believe at some point of time we will see in-market consolidation in some African markets.
There are too many operators. In our industry, normally the number one, two and three can get out of cash return, if you are fourth or fifth it becomes more difficult.
That’s something that probably will take place over the place. In terms of Airtel’s pricing, we have not seen any move lately.
I believe they went through a big series of adjustments as November from through December, and I think since then it’s been relatively static. But we have seen signs that they basically – if an industry operates or moves, they will move too.
Kevin Roe – Roe Equity
François, when can the new share repurchase begin?
François-Xavier Roger
Technically we can start next week.
Kevin Roe – Roe Equity
Next week.
François-Xavier Roger
We have the authorization to do it, which doesn’t mean that we’re going to start from next week, but let’s say we can technically start next week. And the authorization that we got from the Board is valid till the next AGM which is at the end of May.
Kevin Roe – Roe Equity
And lastly on guidance; a lot of questions on 2011 margin guidance, and it’s interesting the mid 40% range guidance is the exact same guidance that you gave one year ago, when you reported fourth quarter 2009 results. And, of course, we all know you posted 47% margin for 2010.
Mikael Grahne
Yes, we will. I think we know from now the experience of driving that 3G growth that we will increase our market investment, so we will not see a repeat of the 47% margin and most likely.
Kevin Roe – Roe Equity
Okay, thank you.
Mikael Grahne
Thank you.
Operator
Our next question comes from Thomas Heath from Öhman. Please go ahead.
Thomas Heath – Öhman
Hello, thank you. Few questions, if I may.
First on your language on acquiring complementary skills to grow value-added services, I’m just wondering if you could elaborate on your thinking there a little bit, given that value-added services are relatively easy to cope [ph], doesn’t make sense to sort of develop these in-house or are you really targeting sort of very small sort of consultant type of businesses? That’s my first one.
And my second one was just a follow-up on incentives to your management. A few years back you changed your incentive structure to focus more in cash flow and I was wondering how that looks today?
Thank you.
Mikael Grahne
Okay. Let me comment on both.
Basically we don’t talk about complement skills for competitive reasons, I don’t want to go too deep in this. But you have read, for example, Telefonica has done a joint venture with MasterCard just as an example.
Maybe if you look at health services, there are some kind of a competency. We would either recruit in or do some kind of a partnership –
François-Xavier Roger
Media for example. And regarding the incentive –
Mikael Grahne
Yes, on the incentive and the management incentive, 25% is revenue driven; 25% EBITDA; and 25% operating free cash flow; and the final 25% is a personal targets which tend to be marketed at individual base.
Thomas Heath – Öhman
Thank you. Just a follow-up then, it sounds more like it’s joint ventures and partnerships in value-added services rather than acquisitions.
Is that –
Mikael Grahne
It could be any form of that. Could be any form of that.
Thomas Heath – Öhman
Okay, thank you.
Operator
We’ll take our next question from Lena Osterberg from Carnegie. Please go ahead.
Lena Osterberg – Carnegie
Yes, I was wondering a little bit on – I saw the numbers on data and 3G handset penetration in Latin America, I was wondering could you maybe share with us what is your penetration level if you compare it to your peers. Do you have any insight to, for instance, where América Móvil is in 3G handset penetration in Latin America?
Also, I was wondering what sort of subsidies are you looking at for data cards and smartphones now that you push for 3G and what payback times you expect for those subsidies?
Mikael Grahne
Yes, we don’t have – let me take the first one, François will take the other part. We don’t really have a data on that.
I think since all of us are selling Blackberry products in the markets where we compete, we have some data from Blackberry that indicates that, on average we are highly competitive on 3G penetration compared to our competitors.
Lena Osterberg – Carnegie
Can I maybe then ask a follow-up question? Looking at América Móvil's numbers for Central America, I know they’re not comparable on a country-for-country basis, but they actually posted a quite strong and data growth in the quarter, whereas you at 1% growth.
So what is the main difference between them and you if it’s not the handset penetration?
Mikael Grahne
I think it’s a country mix and product mix. And if you just look at the data growth per se in Central America, which we didn’t break out specifically, that’s been [inaudible].
François-Xavier Roger
Regarding the subsidies, we have never been really heavily involved in the subsidy business, but we do it on a selective basis, which is one of the reason why we have enjoyed the high margin in the first, so we don’t intend to enter very heavily in subsidies except to create where the initial takeoff in new service such as data it makes sense, especially when the price of handsets is often high. The type of payback that we get with this kind of promotional non-commercial investment is usually below one year, which are very attractive.
Lena Osterberg – Carnegie
Are these postpaid subscriptions and how long do you tie-up the customers for in that case?
François-Xavier Roger
It’s usually postpaid of area under one year or two years maximum. And on the top of it, when we do subsidy we usually don’t do the subsidy for 100% of the cost of the handset, we do a partial subsidy.
For example, if there is a handset of one more $50, we make a subsidy for only $50.
Lena Osterberg – Carnegie
Okay, thank you.
Operator
We’ll take our next question from Miguel Garcia from Deutsche Bank. Please go ahead.
Miguel Garcia – Deutsche Bank
Thank you. I wanted to get an idea or more color on the nature of the non-SMS value-added services you are saying.
Is it a big chunk of this data services coming from wireless broadband data card type of services or the most important percentage comes from those in-house type of services you generated like Tigo Lend and Tigo cash?
Mikael Grahne
The biggest revenue component and the strongest growth in Latin America is data. But we showed you here two other big products that are growing strongly, and that’s basically ring back tones, where we have a 26% penetration among of our customer base.
But the highest is 40, the lowest in 8 [ph], so we still think there is a lot of room to drive that. And then, Tigo Lends You which is our latest product, there we have about 39% penetration.
Split between highest at 5 and lowest at 7 or 2, so again there is lot of opportunity for growth.
Miguel Garcia – Deutsche Bank
And the reason I was asking this is, because I want to make a relation between the type of service you sell with the handset you’re selling. Could you say that the product you are developing like Tigo Lends and Tigo Cash, are they – I mean are they base of the handsets you have out there most of them, three quarters of them, can they carry?
Mikael Grahne
Basically, these are services that work on any modern handset, so you don’t have to a 3G handset for that.
Miguel Garcia – Deutsche Bank
Thanks. Okay, exactly, that was the point.
Thanks a lot.
Operator
We’ll take our next question from Andreas Joelsson from SEB Enskilda. Please go ahead.
Andreas Joelsson – SEB Enskilda
First question on Latin America and value-added services also. Do you think that an increase in disposable income is needed to get further growth invest without sort of affecting or deteriorate voice or do you need a bigger share of wallet so to say?
And, secondly on the minorities, I noticed that there is negative factor from the profit that you make in Colombia, is that sort something that we should expect going forward as well?
Mikael Grahne
I’ll start with the share of the wallet. Naturally, an increased GDP is a help to drive any increased business.
But we believe that the data business is a separate distinct expenditure for our customer. So – and it doesn’t deteriorate from the voice, because that voice need is there.
So what we see happening is that people have to make different choices, maybe if they are young they buy less jeans or you know Coca-Cola, whatever else, so we really see the people are prepared to open up a separate wallet for the data service.
François-Xavier Roger
Regarding Colombia, we are fully consolidating Colombia, which means that in the past, when we were making [inaudible] we had a positive number in the demand [ph] interest. Now that we are turning positive in EBIT which happened in Q4, and we believe that it will be the case in the future.
Then, as a consequence, the minority interest now becomes negative.
Andreas Joelsson – SEB Enskilda
Thank you.
Operator
There are no further questions in the queue. I’d like to turn the call back over to your host today for any additional or closing remarks.
Mikael Grahne
Thank you. I would just like to thank you all for joining the call today, and we will look forward to seeing you soon.
Thank you very much.
Operator
That will conclude today’s conference call. Thank you for your participation, ladies and gentlemen.
You may now disconnect.