Feb 12, 2013
Executives
Justine Dimovic - Head, Investor Relations Hans-Holger Albrecht - President and CEO François-Xavier Roger – CFO
Analysts
Laurie Fitzjohn – Citi Mark Walker - Goldman Sachs Luigi Minerva – HSBC Barry Zeitoune – Berenberg Bank Chris Grundberg - UBS Kevin Roe - Roe Equity Research Rick (Prentis) Bill Miller – J.M. Hartwell Anders Wennberg (Hans)– Brummer Lena Osterberg – Carnegie
Operator
Good morning and good afternoon ladies and gentlemen. And welcome to the Millicom full-year financial results conference call.
Today's call will be hosted by Hans-Holger Albrecht, President and CEO for Millicom and Francois-Xavier Roger, CFO. Following the formal presentation by Millicom's management, an interactive Q&A session will be available.
I'll now turn the cal over to Justine Dimovic, Head of Investor Relations. Please go ahead.
Justine Dimovic
Thank you, welcome everyone to the Millicom fourth quarter results presentation. My name is Justine Dimovic and I'm the Head of Investor Relations.
I hope you all located the slides for today's presentation on our website, www.millicom.com. Before we start, I would like to remind everybody that the Safe Harbor statements apply to this presentation and the subsequent Q&A session.
With me today on the call are our President and CEO, Mr. Hans-Holger Albrecht and our CFO, Mr.
Francois-Xavier Roger. Without further delay, I will hand over to Hans-Holger who will present our Q4 results and update on our development of business category.
Hans-Holder Albrecht
Thank you, Justine and good morning and good afternoon to everyone and thank you for listening in. Since it is my first conference call for Millicom, I want to take the opportunity to give a short overview of the impressions I have after being CEO now for a bit more than three months, a short description of the kind of challenges we see, and the kind of great opportunities we see as a management team going forward as well.
I think we start with the challenges of the kind of things we have to look close and work on in the next coming months. Obviously, it is a kind of crossroad the company is in right now in terms of moving from an old business to a kind of new business.
And you have seen probably when reading the announcement and the data and the statement that for the first time for example, our revenues on voice has been declining, which is due to price pressure, and the competitive landscape we're in, and the regulatory impact. It's nothing new, but it's a kind of underlying trend.
I think the old management has been hired I think. And we can see as well it is accelerating a bit more relative going forward.
The second challenge over the year is the kind of move the company started very successful. But it's in the middle of it moving from pre-pay to post-pay and from voice to data, which of course recur as high investments, higher subsidies, and as well a kind of different skill set in the company, which then results in investments in people and overhead as well.
I think the third impression as a new CEO, which is more Millicom specific, there's obviously a kind of catch-up effect when it comes to investments in the company and in the markets we are in. Based on opportunities, not based on any other kind of reasons, but just type of effect had a peak in 2012.
And will continue to be strong in 2013. And which is going to come back later again with Francois as well, of course, our guidance when it comes to CapEx, which wills stay up to 20% of revenues.
And last, which comes with the changes in the kind of core business, we invest a lot in new growth opportunities like the online business by our entertainment divisions and all the kind of service functions. So a lot has been done and has been worked on in 2012.
A lot will be done and has to be done in 2013, which is clearly a transition year and for the company. However, if I take a bit more midterm or long-term view as new CEO, I think beyond our challenges, there are strong opportunities in the company outside the traditional voice business, which has been the base for the business in the past days.
And they are more or less four areas we can see where we are going to focus on and we've got to keep the kind of momentum to be a growth company as we have been in the past. The first opportunity is immigration to data and the data opportunities in our markets in Africa and in Latin America.
The second strong opportunities we see is in the underdeveloped and partly untapped cable and home business market, particularly if it comes to Latin America. The success story of MSS Financial Services is a great opportunity.
And is showing strong results already and over the course of the last year. And those three combined with the investments we do in online and rocket and other services should keep the momentum of the company fundamentally as it has been in the past.
We will give a kind of more detailed explanation and overview of what we want to do and how we want to do things and why we want to do things at our capital market's day where invitations have been sent out yesterday. And the second point all comes from a kind of position of a strong balance sheet.
I mean the company's in financially strong shape, which gives us the opportunity and the flexibility to look at deals in consultations and other opportunities in various markets. If for example our ongoing discussions with EPM, a leading utility company in Columbia conclude positively, we will create a leading integrated operator in Columbia.
And we will be able to accelerate our development in cable with offering material opportunities to cross-sell and up-sale innovative and best quality services to our Columbian customers. That's a good explanation for example of how we can use the balance sheet in that for Kanui.
And last by not least from an operational standpoint as an opportunity for sales, there is an opportunity to increase even more the efficiency, which has been started during 2012 and should accelerate in 2013 forthwith on CapEx and forthwith on cost, which allows us then to reinvest the money we save on those kind of things in the new [inaudible] services in order to become a digital leader as we describe it in our new logo. So much of the kind of first impression.
As I said, a more detailed explanation of the future will be given at the capital markets days, so let's move back for a second to the past and start at slide number five where you see the kind of key events. In the fourth quarter as you can see, our revenue growth slowed down to 6.4% in local currency.
That excludes the benefits from our consultation of cablevision in Paraguay. Our most innovative services continue to grow strongly in the fourth quarter by 29% in local currency.
And for the first quarter however, we experienced a decline as I mentioned already in the communication revenue. I think it's the first time in the history of the company driven by regulatory pressure and as I mentioned as well the ongoing competitive pressure on voice prices.
The EBITDA margin was at 41.7% with the decline essentially driven by investments for growth. In Q4, we reached some significant operational milestones that illustrates well the success of our innovation strategy, which [inaudible] as well as the new CEO of the company.
So for example in December, we had over 4 million mobile financial services customers. And over 20% of our recurring revenue was in South America came from mobile data amounting to half of our vast revenues in the region.
And lastly, for the full year of 2012, we delivered on all guidance communicated. I will now move to slide number six.
On turning to the key financials, we recorded local currency revenue growth at 6.4% for the quarter. The growth is to former and excludes cablevision in Paraguay.
The market slowed on versus Q3 essentially came from an upward decline of 4.7% in the local currency in the fourth quarter. The upward decline was predominately driven by pricing pressure from our mobile voice business driven by a combination of regulation and competition.
If you exclude this regulatory pressure on revenues in Q4, the gross would have been 7.6% instead of 6.4%. If you turn over to slide number seven, you can see that our focus on new categories continued to deliver solid results.
In Q4, 2012, the value added services accounted for close to 35% of our recurring revenue, up by more than 6 points. While we are pleased to see ongoing strong development of our vast franchise, we know we will have to deliver greater growth in these services to offset growing pressure on our voice business.
That combination, of course, is strengthening of our executive team and our increasing focus on additional services make me confident we are very well equipped to deliver those kind of targets. This may take several quarters to show our results of course.
But we also know that increasing pressure on our voice revenues means we have to adjust our cross structure. That is when it comes to the old and [inaudible] voice business.
If you move to slide number eight, the Q4 highlights, you can see that the cross-management [inaudible] in Q4, we successfully managed to offset the effect of price pressures on our bottom line by improving gross margins mainly in the information and MFS categories. More initiatives will follow as we focus on aligning our cost structure to growth opportunities while retaining our leadership on return on invested capital.
And our acceleration of investments in growth categories including staffing, network, building, and handset subsidies has caused us just to illustrate up to 1.3% points of EBITDA margin and up to 2.2 points if we include the dilution coming from our startup online operations. Now let me give you an update maybe on some of our categories.
I'd like to start by highlighting that this quarter was recorded absolute growth from innovation revenue generated outside the communication category group by 29% year-on-year in the Q4, the fourth quarter. If you go to slide number 11, for the first time this quarter, our communication revenue declined.
As I mentioned before, this was due to a large extent driven by the regulatory pressure that accelerated in South America costing us, to give you a bit more detail, in total certainly in dollar or 1.1 percentage points of growth at the group level. And on top, ongoing pressure on pricing pressure in Africa, which we did not manage to offset by volume growth.
Our information entertainment solution and MFS categories continued to grow strongly. And so did out latest addition, the online business.
As you see on slide 12 to 14, the largest contributor to our vast growth in Q4 was again the information category and in particular, mobile data. We continued to experience a high correlation between revenue and traffic growth in Q4, which supported our decision to invest both in CapEx and subsidies for the television to 3G.
And at the end of December, 2012, over 17% of our customers in Latin America were already data users. When comparing this penetration rate of 17% with the 35% of our customers, we have an ARPU greater than $10 per month.
We are optimistic about the potential for further mobile data growth in Latin America, in particular good quality Smartphones and [inaudible] become increasingly more affordable for everyone. We are going to move to MFS.
Our MFS category continues to perform well and offers attractive potential in the medium to long term. MFS itself contributed 15% of recurring revenue growth in the quarter.
And 1.2% of recurring revenues with three markets having reached a degree of critical mass. Overall, in the markets that have been live more than a quarter, total MFS penetration reached 12%, adding $1.10 in September in 2012.
If you look for example at Tanzania, the penetration of MFS in Tanzania has now exceeded 37% of our customer base. In Paraguay, it's 24% of our customers were using the service in fourth quarter.
And in partnership with Western Union, we have now launched international transfer services for customers in Paraguay, El Salvador, and Guatemala. In Rwanda for example, growth and penetration of MFS services continued strongly in the fourth quarter.
At the end of December, 22% of our customers in Rwanda were active users of MFS. In December, we performed a sub-launch of the Tigo service now as well in [Inaudible].
And in the fourth quarter, one more statistic, MFS ARPU increased quarter-on-quarter to over $1.2. If you go to slide 16, and as you have probably seen from our new logo, our aim is to be the kind of digitalized leader in the markets we operate in.
Although it will be the full course on the fourth common marketable stays to explain in detail, I would like to expand briefly on what we mean by digital rate today. And just to be sure, for us, it's nothing like a revolution coming to Millicom.
It's a very simple evolution of the strategy, which has been outlined by the old management and will continue to be executed and developed by the new management. But anyway, Millicom is and has been a digitalized star company a while.
If you take some of the fourth quarter, around 25% of our revenue came from our digitalized star services, such as access to the internet on the move and at home, MFS services, digital pay TV, online, and other services. On slide 16, we are showing you the broader penetration that we have reached for example in fixed and mobile.
So it is clear that's going to be the focus for us in the future and the kind of frame you're going to see the company in the next coming years. But more details as mentioned at the capital markets day.
Maybe a short update on our possible combination in Columbia, which was announced quite recently as well. Our clear focus there is on bringing our customers obviously as a company the best possible access to the internet wherever they are.
It's our intent the strategy rationale of the recently announced possible combination of Millicom Columbian operations with the telecom business of EPM. You know that EPM is one of the largest utility companies in Columbia and a long and trustful standing partner of Millicom as a co-owner of Tigo of Columbia.
EPM owns Une, which is a leading provider of fixed [inaudible], telephony, and TV in Columbia. And we are pleased to have reached an advanced stage in our discussions with EPM.
And are now together working on a possible transaction to create what we describe a digital leader in Columbia. Our business at EPM still compasses a very complimentary as you can see evidently on slide number 19.
So it seems to be a very good fit. If you move to slide 20, just a short update on the online business, which is our newest category.
I would like to start by emphasizing that I fully supported a decision made by the management team in August to invest in online. I personally have been [inaudible] of the online business in my previous position as President and CEO of MTG.
Back then, we created – it was a smaller market, but still we created [inaudible], a successful [inaudible] company nowadays in Scandinavia. It was a company with MTG and later spun off to the market and distributed to the shareholders.
So it's not a new territory for me. And I can see the momentums and the kind of interesting opportunities in that kind of field.
One of the fastest growing sectors in the more developed market over the past ten years, which you all know as well, was growth driven by the fact that cheaper gained access to the internet. This access emerged in Latin America and Africa where internet penetration is currently growing very rapid.
E-commerce profession and shoes as we have in Africa is one of the most profitable business of the online sector. By entering as first movers in these segments, we believe we are well paced in Africa to secure a leading position, a pre-requisite I think for profitability and sustainable growth.
In Latin America, the internet holding continued to develop well in Brazil. The most successful concept to date is Kanui.
E-commerce websites selling sport goods followed by TK and e-commerce websites selling food, clothes, and furniture for babies. The strength and growth of these two businesses has triggered the need to invest in new larger warehouse for example in Brazil.
Online food ordering services, another brand Hello Food, which has now been available for several months in Columbia has been launched. And Q4 online taxi ordering services were launched across a number of countries including for example Brazil and Columbia.
And in Africa, Zando and Jumia continued to perform strongly in the fourth quarter. In particular in December, Jumia became the most visited e-commerce website in Morocco.
And two concepts were launched in Africa, a marketplace called Kaymu in Nigeria and the food ordering service called Hello Food across a number of markets including Ghana, for example and Senegal. And overall in 2012, the growth was slightly slower than initially foreseen as some of the services we have launched are delayed for some timing factor, nothing else.
At the same time, EBITDA losses were much slower than expected as well. So overall, the business is performing in line with our expectations.
And we are pleased to see the ramp up and launch of new opportunities and the focus of the management to execute those ones. As I said, we're going to be a bit more in detail as well when it comes to the capital markets day when it comes to the online activities, why we're doing it, what are the kind of synergies we can see with our existing business, and what the financials look like.
Overall as I said, it was for me as well and the same motivation like the old management, a natural logic extension of the vast synergy the company has been executed for a while. That concludes my statements.
And I'm going to hand it over now to my CFO, Francois.
Francois-Xavier Roger - CFO
Thank you very much, Hans-Holger. I propose that you move to slide 22 and 23.
In Q4 we recalled these local currency underlying revenue growth of 6.4%, excluding the external growth resulting from Cablevision in Paraguay. For the full year of 2012, revenue growth reached 8% in local currency excluding Cablevision consolidation.
Restating as well for regulatory impact on reclassification that impacted us in the year 2012. Revenue growth and local currency was 8.5% for the full year.
In Q4, our consolidated EBITDA margin as 41.7%, were 3.8% hedge points lower than Q4 2011. Excluding Online, EBITDA in Q4 reached $535 million dollars, the margin of 42.6%.
Overall for the full year 2012, our consolidated EBITDA margin of 42.9% was down 3.2 percentage points versus 2011, in line with our guidance. The declining EBITDA margin in 2012 was primarily the result of investments in building scale in our most promising business areas outside Voice, such as MFS, Mobile Data, Online [inaudible].
We invested $388 million in CapEx during the year, making a total of $922 million, invested in 2012, equivalent to 19% of revenues, excluding investments made in Spectrum and license rights. Our operating free cash flow for 2012 reach $1 billion, 127 million, or 23% of revenues, which is above our 2012 outlook excluding Spectrum investments.
Now let’s move to slide 24, and look at the performance in each of the three regions starting with Central America. Revenues from Mobile and Cable Operations in Central America reached $481 million in Q4 2012, up 2.4% in local currency.
In Q4, markets continued to be very competitive. Central America reported a 6% year-on-year local currency decline in Mobile ARPU.
Many attributable to ongoing pricing pressure on Voice, in El Salvador, and intensifying competitive pressures in Guatemala. In the Information category, Mobile Data grew at the [inaudible] 29% in local currency year-on-year, driven by strong demands for mobile data in Guatemala and Honduras.
In Fixed Broadband, we are pleased to see continued strong momentum in both Costa Rica and El Salvador. Our EBITDA margin was 50.8% in Q4, declining just half a percentage point from Q4 2011, as we managed to control our cost base to offset pricing pressures, in spite of increasing investment in subsidies.
Slide 25. Revenue in South America in Q4 2012 was $526 million, up 11% in local currency.
Revenue growth was negatively impacted by higher-than-expected interconnection rate cuts in Q4 in both Paraguay and Bolivia, respectively down by 33% and 25%. Underlying growth in Q4 excluding the impact of regulations and reclassification, accelerated further versus Q4 to close to 14% year-on-year.
448,000 new Mobile customers were added during the quarter, of which 23% were post-paid. That [inaudible] impression in South America, now exceeds 20% [inaudible] 20% at the end of 2012, a sizable growth from 14.6% at the end of 2011.
Cablevision Paraguay was first consolidated in Q4 2012. During the quarter it contributed close to $15 million in revenues, and $8.3 million in EBITDA.
In the quarter we already rebranded Cablevision Paraguay to Tigo, as part of our integration plan. Increased subsidies on other investments made to further accelerate growth of our market sharing data contributed to year-on-year decrease in EBITDA margin of 3.2 percentage points to 38.8%.
Now let’s turn to Africa on slide 26. Revenue in Africa grew by 1.9% in local currency in the fourth quarter.
The uncertainty in Senegal regarding our license has [inaudible] position. This has now been resolved.
Excluding Senegal, our revenue growth in Q4 would have been in the mid-single digit range. In Ghana, DRC and Tanzania, markets remain competitive, but we have continued to invest, to hold our strong solid market position.
We are confident that with the right level of investments, current challenges can be overcome. EBITDA margin for the quarter was at 34.9%, down 6 percentage points as price competition on Voice lead to lower levels of profitability for the industry overall.
CapEx in Africa in the quarter was $223 million, including $103 million for spectrum and additional license rights in Senegal. In 2013, we will invest to revamp on this work in Senegal and continue rolling out 3G in Ghana, Tanzania, DRC, and Ghana.
Slide 27 and 28. Normalized EPS decreased by 15% year-on-year to $1.56 in Q4.
For full year 2012, the decline was milder at 12% year-on-year, was $6.47. The EPS decline resulted largely from [inaudible] moves triggering a decline in absolute EBITDA, combined with investment in corporate cost for the starting of categories and higher financial charges as our gross debts increased.
Forecast on cost management and CapEx of optimization is increasing so as to compensate for pressures on the Mobile Voice business. We will share more on recent initiatives at our Capital Market Day in early March.
Slide 29. Our normalized tax rate of 24.3% for the quarter was impacted by increasing our core pressures and taxation for most of our markets.
For the full year 2012, our normalized tax rate was 25.6%. Going forward, we are confident that we will manage to retain an effected tax rate of less than 30% of profit before tax, despite the fact that corporate tax rates are increasing in all of our markets.
Slide 30. Our free cash flow for the quarter was $155 million, reflecting lower operating free cash flow this quarter on an increasing financial charges and corporate cost.
Slide 31. At the end of Q4, our cash position exceeded $1.2 billion, and our Net Debt EBITDA ration was close to 1 time, as we previously expected.
So we still have roles in Paraguay as well as investments in Spectrum and license rights. We reached a level of leverage if we consider as comfortable.
Further increase of our leverage will only become completed should there be opportunities to create very useful external growth activities, such as a possible transaction with EPN in Columbia. Slide 32 and 33.
In Q4 we successfully issued corporate bonds for a total amount of $600 million, both in Paraguay on a corporate level on the Swedish markets. As a consequence, we extended the maturity of our debt to around 3.4 years, and we better diversified our funding sources.
At the end of last year, we had the same proportion of public and banking financing. At the end of Q4, 56% of our growth debt were at fix rates, and 57% in local currency as you can see on slide 34.
Slide 35. Of Millicom total debt of approximately $3 billion, 65% is non-recourse.
We have $1.1 billion of debt in Central America, 9% of which is guaranteed. And in South America 12% of our $1 billion debt is guaranteed.
In Africa, we have $616 million of debt, which is [inaudible] guaranteed. In Q4, we should [inaudible] level benefiting from the attractive condition offered by the Swedish Bond Markets.
The proceed were used to finance the initial cash injection in Rocket Internet holding LIH, and AIH. At the end of Q4 2012, cash of the two Rocket Holding companies still exceeded $100 million.
Slide 36. As you can see, we have been able on all 2012 guidance despite a more pronounced and rapid slowdown of our Voice business, than initially foreseen.
You see [inaudible] ability to adjust quickly to changes in our dynamic industry and markets. Slide 37.
In 2013 we expect the full-year EBITDA Margin, excluding Online to decline less than in 2012, and hence to remain above 40%. 2013 will be for us a peak year when it comes to CapEx, with a CapEx to revenue ration around 20% excluding spectrum.
We are working on several initiatives to optimize CapEx investments and refocus our cost allocation. We’ll share more with you on our mid-term [inaudible] during our Capital Market Day.
Slide 38. I would like now to comment briefly on shareholder remuneration.
For 2013 we reiterated our previously communicated dividend policy. Our (reiterated) dividends will exceed [inaudible] share and 30% of normalized net income.
We are also aiming for a progressive growth of all (reiterated) dividends. With the annual general meeting in May, the [inaudible] will propose a payment of $2.64 per share ordinary dividend on 2012 earnings, i.e.: or 10% increase above 2011.
I would like now to hand over to Hans-Holger for his completing remarks.
Hans-Holger Albrecht – President and CEO
Thank you Francois, and I would like to conclude by maybe stressing a couple of important points, which illustrated why I find my new job so exciting and why I love my job actually. I think the most important point to underline is Millicom’s ambition appears to remain a growth company and at a time when Mobile Voice has reached maturity we have to find new areas of growth.
And we are fortunate because the search for growth has always been a key feature of Millicom’s DNA. So the ambition to move Millicom into kind of digital [inaudible] is something which has a strong foundation already in the company and can be executed.
The other thing I’ll [inaudible] is by achieving the high market shares in Mobile Data as we have on Voice and a leading position on all our markets, we will secure our long-term [inaudible] and enhance our future growth and profitability and with the operation experience we have, which we will [inaudible], it’s a doable task as well. So since Millicom’s first venture into cable services, cable revenues have doubled.
We would accelerate that growth further crossing and [inaudible] to assure we provide our customers the best digital experience. We aim to provide our customers, even the low-income customers in remote areas of our markets with the best internet access as possible.
And finally, obviously, we will take the time needed to explore the online opportunities brought by the partnership we have signed with the founders of Rocket Internet and to continue growing our MFS business as I mentioned before. Operator, can we have the first question please?
Operator
(Operator instructions). Your first question comes from the line of Laurie Fitzjohn.
Please ask your question.
Laurie Fitzjohn - Citi
Thank you. I have three questions, if I may.
Firstly, on organic growth, we obviously saw quite a slowdown from 8.4 to 5.5. Given that when the [inaudible] when [TR] cuts continue through 2013, should we expect the slow growth to remain for '13 for organic, or are there reasons such as [Latin price cuts] [inaudible] that growth recover?
Secondly, on margins - in the presentation you show a breakdown of the margin drivers in Q4. I was just wondering, could you provide us some more color around '13 for what you expect to be the margin headwinds of the increased subsidies investments or investments in MFS.
Lastly, [inaudible] in any comments around the rising competition in Guatemala, given that previously it seemed to be quite a stable market, [while you have been increasing your share]. Thanks.
Francois-Xavier Roger
I will take the first one, as it comes to the organic growth. No, we do not give details for [inaudible] the profile.
The main driver for the [Dominican] will be [inaudible], where the regulatory can impact too much [inaudible] and then other things, depending on the type of [inaudible] we have. I think we demonstrated in the fourth quarter and we should demonstrate in the course of this year as well, that the new services, VAS services and the data communication information area is delivering growth, and therefore, the underlying continual growth profile should not change, but the we do not give a more detailed forecast at this stage.
[inaudible] we are going to elaborate at the capital market stage. I will hand over to Hans Holger to answer the margins.
Hans-Holger Albrecht
Yes, on the margin question, we are providing a guidance of about 40% for 2013, which includes [inaudible] the investment we need to do to drive growth that you were referring to MFS, so this is included in that figure. There is no plan at this stage to accelerate this further as we may have done in the past.
This is, we need the right flavor of investments, it is the right investment as we need to continue to deliver effective growth as Justin mentioned earlier.
Laurie Fitzjohn - Citi
As it comes to Guatemala?
Hans-Holger Albrecht
As of today, the situation has not changed from the [inaudible]. In the first quarter, it is pretty competitive, but no fundamental change, really.
Laurie Fitzjohn - Citi
Thank you.
Operator
Your next question comes from the line of Mark Walker, from Goldman Sachs. Please ask your question.
Mark Walker - Goldman Sachs
Hi, guys. I have a couple of questions, and then I would like to just follow-up on one of Laurie's questions, there.
Firstly, are you confirming the €250 million of losses, associated with online over the next three years? If so, how do we expect the phasing to pan out over the next few years, or does the comment you made on [Fly 37] imply that there is a risk to the overall number increases?
Secondly, during your presentation, you stressed importance in delivering high returns in invested capital but did not really talk about any release. I was just wondering if you could give us an idea of how returns are trending and how you expect them to increase in the future, especially in light of lower EBITDA margin forecast.
Then, following up on Laurie's question, in your FY '13 margin guidance, we are over 40%, I was just wondering if you could outline how much of the year [inaudible], and how much is due to price pressure. [inaudible] you outline how the gross margin improvements in information and the VAS categories offset the African and [inaudible] pressure.
I was wondering if we can expect these efficiencies to continue, giving your ongoing increasing skill in [inaudible] services. Thank you.
Hans-Holger Albrecht
I am going to start with the online case, and yes, you can confirm the 250 million losses. We have been - previous management has been communicating.
The reason we have this range in the current presentation, is not to [increase our losses], it is an acceleration of the [inaudible]. You can see and take opportunities.
It is very important that when we talk about this kind of business not to think it is losses, which are outside the normal business plan we have, it is a deliberate decision to accelerate things because we see opportunity growing and becoming bigger, so therefore it is something we should be able to control ourselves, and decide on business opportunity and not on whatever different market and [expectants] for example. As it comes to the margins side, the assumption at this stage is [inaudible] can be offset by efficiency and cost savings like it has been more less during the fourth quarter, so the majority of decline in EBITDA is due to investment [inaudible] as we are doing.
The middle question, I am going to hand over to Francois to answer.
François - Xavier Roger
The ROIC, we have in the [inaudible] department, this is a priority for us. The ROIC, as you know is more of a long term to KTI and as we have shared with the market for some time already, given the margin is something - the decline is something that we control, that we are driving, which is really supporting the transition that we do with new categories.
We continue to look very carefully [inaudible], which is in the guidance [inaudible] of 2013, but we have shared regularly as well. We need to look more and more at both EBITDA [inaudible] the capital, because [inaudible] of growth is actually coming from non-CapEx categories, which is the reason why we have said as well that in 2013 there would be the peak of CapEx and when we come back to you during our capital market day on it, so as long as we [inaudible], the CapEx instead of ratio in [inaudible], this is something that will have a [inaudible], which is a clear focus for us.
Mark Walker - Goldman Sachs
Thanks very much.
Operator
Your next question comes from the line of Luigi Minerva from HSBC. Please ask your question.
Luigi Minerva - HSBC
Yes, good morning, everyone. My first question is on Columbia.
I was wondering if you could give us an update on the next steps and also, let me clarify the position with regards to Spectrum, should an agreement be reached. The second question is on your guidance language.
I noticed you dropped the operative because you margin guidance language from 2012 into '13. Should we assume that this piece of guidance is [inaudible], if not more under your monitor?
Thank you.
François - Xavier Roger
Let me start with approaching for cash flow guidance. No, the fact that we do not give a guidance for approaching [inaudible] has nothing to do with the importance that we can put on the [inaudible].
What we try to do is to align our guidance to market practice, which is more to talk about EBITDA as well as CapEx. After that, what makes a difference with what we had before in terms of operating [inaudible] is a text line.
You may have seen, by the way, that we have successfully reduced our EBITDA [inaudible] last year, so this is a key priority that we have, but we realize as well that the rest of the components, which were the working capital movements is something that was actually recently complicated to control. To understand [inaudible] to share with market, because it is now being driven by the payables and receivables so forth, so we saw that it makes more sense at the end to focus on EBITDA and the CapEx.
The reason why I am saying that we are disclosing [inaudible], one which is corporate cost, which is [inaudible], we disclose that into transparency and we keep on doing it. The [document] on the operating for cash flow, it remains exactly the same.
Luigi Minerva - HSBC
Thanks.
François - Xavier Roger
Regarding the spectrum in Columbia, you need to consider that the two topics, the [inaudible] that we are working upon with the ETM on the spectrum on two different topics that are running [inaudible]. So, there is no direct conflict with it.
Should there be the possibility for us or for our partners to be there for the spectrum, we would have to do it, regardless the announcement regarding the possible alliance we made with another partner.
Luigi Minerva - HSBC
Okay. Thank you.
Operator
Your next question comes from the line of Barry Zeitoune. Please ask your question.
Barry Zeitoune - Berenberg Bank
Hi. Good afternoon.
Barry Zeitoune from Berenberg. I just got three quick questions.
Last quarter, you mentioned that in South America we might see some weakened margins going in to Q4, as you expected Columbian Margins to stay below 25%, given that you have actually delivered a stronger margin in Q4 in South America, can you tell us what is happening with the Columbian margins, specifically - has that stayed below 25%, or would you say that was too conservative an estimate looking back? Then, also, can you give us some kind of indication whether you expect further margin dilution beyond 2013?
Should the mix impacting 2013 also continue to impact in 2014 and beyond? Then, the final question, it is quite telling that at the moment, all of your acquisitions seem to be mainly fixed line businesses or even online businesses rather than mobile businesses, which historically has been your call.
Do you see less of an opportunity in mobile today, and do you see it as more of a precious business in long term?
Hans-Holger Albrecht
If I may start with the first one. Columbia, we cannot give a more detailed other than what is out there, so I have to decline an answer on that one.
As it comes to the margin development beyond to [inaudible], again, this the idea for the capital markets day to show you the mid-term and long term kind of projections we are doing, but keep in mind what François said earlier, that the mix is changed by definition of the business we are in the future, so the kind of picture of the combination of how the margins are coming together are different, but more detail at the capital markets day. Then, the last point as it comes to the opportunity, the acquisition on the MMA side, it is of course uncertain - MMA is always an optimistic approach as well, [inaudible].
The second part, of course, is we prefer always in market [consultation] and new market opportunities, which for example [inaudible]. Thirdly, yes, we are strong believers in the combination of fixed and mobile.
We can see a lot of synergies in terms of cross marketing, computational networks, triple play, quadruple play and those kinds of things, and so the combination of fixed and mobile is something we are putting a focus on. It seems it works in those markets.
We have been [inaudible] a cable operator and a mobile operator and therefore we are going to look for other opportunities in those pockets as well, which will be one of the key growth pillars for the company represented together [inaudible].
Barry Zeitoune - Berenberg Bank
Can I just ask a quick follow-up? Have you actually looked at any other mobile opportunities outside of [inaudible]?
Have you looked at any mobile in other South American or Central American markets.
Hans-Holger Albrecht
We screen, obviously, all those kind of opportunities but we never talk about them too much because either the price goes up or something goes wrong.
Barry Zeitoune – Berenberg Bank
Okay. Thank you very much.
Operator
Your next question comes from the line of Chris Grundberg from UBS. Please ask your question.
Chris Grundberg - UBS
Thanks very much. Just a couple of quick ones.
I wonder if you could give a little bit more color on these investments. First of all, I understand that obviously you’re expecting losses to increase as you point out due to the high revenue profile, but I wondered if you can give a bit more color or detail on how you actually go about making those investments and how quickly you can switch them on and off.
I suppose what I wonder is, you know, are these investments that you can scale back if a specific business is not doing as well as you expected or how should we think about that? And then as a second one, just a follow up from the earlier question, my apologies if I misunderstood the response, but on the Columbian-proposed transaction, I’ve seen some commentary that under the proposed consolidation, the new entity would not actually qualify for the new spectrum process.
Can you just explain that? Just give any color there at all?
Thanks.
Francois-Xavier Roger
If I start to give a little light on the online business, the kind of model we look at in order to measure if you’re on the right track and if you’re going to be successful has kind of three components. The first one is we only invest in business models which have kind of a proven track record in other markets.
So we’re not going to kind of a new venture kind of model where new ideas and new business models are tested for the first time. It’s proven, it has been successful in other places and it’s more execution issue than an innovation issue.
The second point, which is [inaudible] to be successful in this kind of business is to be the number one in the market, in the segment. So the whole ambition is what will it take to be the number one and what kind of investments you have to do.
And the third part, which is the kind of internet kind of situation, the number one takes us substantially higher on the market share than the number two. And therefore, what kind of speed and time you have to put behind an investment in order to take key additions to the number two in those kinds of projects.
And along those three lines, you want to look at the kind of business on how you invest. If you see a business doesn’t perform in one of those areas, you can scale back.
For example, if you’re too early in the cycle timing wise, you cut back on marketing costs or other kinds of sales costs. If you see the model is not working because you’re just too late, you move on.
And that’s the important part when we give [inaudible] to a particular market. The range, in terms of losses is purely depending on we put more money in businesses we see doing much better than expected and therefore we want to accelerate things.
It’s not only about the business arm, which has nothing for sale.
Hans-Holger Albrecht
Regarding the spectrum in Columbia, just to clarify, given the timing of our transaction with EPM and the signing of Spectrum Motion, we will be independent. That being said, we combine business as we said, we can always reach on Spectrum if required by the regulator, which is too early to say.
Chris Grundberg - UBS
That’s really helpful. Thanks.
Hans-Holger Albrecht
Thank you.
Operator
Your next question comes from the line of Kevin Roe from Roe Equity Research. Please ask your question.
Kevin Roe - Roe Equity Research
Thank you. Two questions on Rocket.
What is your expectation for CapEx for that business for ’13? And on the EPM transaction, obviously they have significant fixed-line exposure.
What do you think that does to your pro forma growth rate in Columbia? Should we assume that it declines when you layer on that business and how quickly is that segment eroding?
Francois-Xavier Roger
As it comes to the first point, the Rocket business itself is not very CapEx intensive. So 2013, it’s minor so therefore it doesn’t add the kind of big endpoint – impact, so nothing to worry about.
If it comes to the Columbian side, did you mean the eroding of the fixed business or the [inaudible] business?
Kevin Roe - Roe Equity Research
When you consolidate on a pro forma basis, their fixed lined business. I’m just curious what that does to your pro forma revenue growth relative to a standalone mobile business today?
Hans-Holger Albrecht
It should not change too much without being too specific at this time. It should not change too much because the fixed broadband cable business still has a growth potential going forward, plus in Columbia, we have a pretty strong growth profile when it comes to data because of the successful rollout of data so far.
So that is not a concern and it should not change as we think.
Kevin Roe - Roe Equity Research
Great. Thank you.
Hans-Holger Albrecht
Thank you.
Operator
Your next question comes from the line of Rick (Prentis). Please ask your question.
Rick (Prentis)
Thanks. My question is on 4G LTE.
When do you expect 4G LTE in your regions? Is it short term, a couple years, medium term, long term?
And maybe specifically, Spectrum device prices, when they’ll be low enough to make it attractive and service adoption really take off?
Francois-Xavier Roger
If it comes to Latin America – let’s put it this way, Latin American will come earlier than Africa. Africa is still far out and we are not even reaching these kinds of places.
In Latin America, it’s the mid-term. Some have started already, like Columbia, other ones will follow so it’s more kind of mid-term timeframe we expect LTE to come.
The biggest hurdle for us is handsets and cost of handsets and therefore it will be driven by the market opportunities.
Hans-Holger Albrecht
In the meantime, we grab as much from Spectrum as we can. There is an option from Spectrum, which is currently happening in Columbia, for example, then obviously we [inaudible] as early as we can trying to get additional Spectrum on board.
And the third thing, the transition from 3G to 4G is not very capital intensive like an LTE.
Rick (Prentis)
Very good. Thank you.
Hans-Holger Albrecht
Thank you.
Operator
Your next question comes from the line of Bill Miller. Please ask your question.
Bill Miller – J.M. Hartwell
Good afternoon. The ideas that you’ve expressed in the past about consolidation in Africa in the second, third or fourth players in any given market, does the perspective bond offering or existing bond offering actually help you with this or are you still thinking you can make this kind of acquisition and expand, not by building a Greenfield, but by taking on a second tier player and adding your management to that, that you could make it more profitable, et cetera?
Francois-Xavier Roger
Of the African, also, we were on the verge of planting an African bond to finance the five corporations in Africa. We actually – we did not cancel the bonds, we just postponed it by a few weeks due to the fact that we didn’t want to issue that bond in the middle of Price and Citi’s announcements, which was the [inaudible] or combination of our operations in Columbia with EPM Corporations.
So we are just postponing it. It makes sense for us to [inaudible] in Africa rather than renting money in small bits and pieces in each and every single – individual country, which is what we were thinking of doing, so we’ll see when we work again on that one.
Given the metrics of our cable businesses in Africa is a little bit lower than what we have seen in America in terms of P&L and balance sheet, we saw that it was appropriate to provide between the [inaudible] to provide the corporate guarantee. But let’s see exactly when we can go back on work again on this initiative.
Hans-Holger Albrecht
And the other point that you mentioned, it doesn’t [inaudible] us to do any kinds of things we want to do, it’s nothing which is going to have an impact on your strategy going forward.
Bill Miller – J.M. Hartwell
Great. Thanks.
Operator
Your next question comes from the line of Anders Wennberg. Please ask your question.
Anders Wennberg (Hans)– Brummer
Hello. This is Hans from Brummer.
I have a high-flank question. We’ve been following this company for many years and you’ve always had great organic growth.
Looking at the quarter, you’re posting about 5.5% organic growth excluding acquisitions and I know there was some regulatory things going against you but there’s always some regulatory things happening in this business. I think this is the lowest I’ve seen since you listed on Stock Exchange.
Is this the kid of growth rate we’re going to see going forward or can we actually expect the fairly quick reacceleration or is it the online accesses in 2014 we’re going to see that reacceleration? If you could elaborate a little bit more on that.
I know you’ve had your long-term organic growth targets before. Thanks.
Hans-Holger Albrecht
Well, I think the, again, just the subject on the capital market state, the point is said, if you look at the kind of growth profile going forward, then you’re going to get more details in favor for the long-term outlook in a couple of weeks. But the point becomes that the decline on the [inaudible] by growth in the other categories.
The growth profile won’t change fundamentally, we can see that today as well. The [inaudible] swings and it kind of appears that you have different kinds of levels, but the underlying growth story is still intact and so it’s not a one single shot growth story in the future that we put all the eggs in the basket when it comes to online.
That’s the growth story. The good thing, I think, was looking at the new kid in the block when it comes to Millicom.
The growth story with Millicom is that you have sort of pillows of growth, which you can work on the data, the cable, the MFS and the other services and then if you want to you can take on a [inaudible]. But it doesn’t – the [inaudible] growth is not a make-or-break case for Millicom.
So fundamentally what we’re going to present at the Capital Market’s Day is still – it’s going to be growth company and the growth profile won’t change fundamentally.
Anders Wennberg (Hans)– Brummer
The second question, if I may, on cash flow. I understand the licenses is not included in the 20% CapEx to save the number.
If I try to do the calculations, I get cash flow that is more or less the same size of the dividend for this year. Is that kind of the right way to think about it and what kind of implications for potential for buybacks or extra dividends should we think about?
Hans-Holger Albrecht
We have not made any communication this year for any share buyback or additional dividend. Regarding the Spectrum, we do not include that in our guidance because we don’t have always the right level of visibility on the Spectrum option so we give the guidance on what we can control, CapEx, that’s the classical CapEx, it’s securing our growth and [inaudible].
Anders Wennberg (Hans)– Brummer
Can you help us in any way quantify how big this licenses could be this year? Is it 100 million or 200 million?
Hans-Holger Albrecht
No, as far as licenses is concerned, there is nothing planned this year. The next [inaudible] in terms of licenses is in Chad in 2014 where we are – where we see [inaudible] but our main competitors licenses have been renewed not such a long time ago so it’s probably a reasonable benchmark to start with.
But this year in 2013, there is no plan renewal of licenses. Spectrum could be [inaudible] also.
Anders Wennberg (Hans)– Brummer
Okay, thanks.
Justine Dimovic
Operator, can we take the last question, please?
Operator
Of course. Your final question comes from Lena Osterberg from Carnegie.
Please ask your question.
Lena Osterberg – Carnegie
Yes, hello. I was wondering also in line with the question from Hans, if you could say anything more about what you expect from this tribune in terms of the licensing and additional costs, plus how much you expect to pay for the Spectrum in Columbia.
If you could give any more detail, I mean, are we talking another 50 or another 100 million? It makes quite a big difference.
And also, you’re saying that this year will be your peak CapEx year, so I was just wondering how much should we expect the CapEx to decrease year over year in 2014? And then also [inaudible] has announced be MTR cuts.
Do you expect that this will go through and what will we expect as an effect of this? Do you see any other regulatory changes coming up near term?
Hans-Holger Albrecht
For the Columbian case, there is a Arbitration Court looking at the final variation and as of now, we assume that there will not be any additional consideration to the site, but it’s up to the arbitration court to decide. On the CapEx going forward, what we can concern now and what we have said for some time already is that the CapEx ratio will decline from 2014 [inaudible] even for one year of it.
We probably say, well, yeah, but who needs more [inaudible] in the capital market there. [Inaudible], will happen.
I think it’s going to be key from April 1 and there will be additional regulatory items, there might be some, you know, last year we did another [inaudible] with what happened with Columbia and Paraguay and we [inaudible] at the end of the year. Usually regulators do not always pre-warn the operators of what can happen.
As of now, we are not aware of any additional risk exposure but that doesn’t mean that it will not happen.
Lena Osterberg – Carnegie
Can you maybe quantify the effect in [inaudible]?
Hans-Holger Albrecht
We are working on it for the time being. I can’t give you [inaudible].
Lena Osterberg – Carnegie
And I was going to ask you, on CapEx, because you have these accelerated IT investments that you expect will complete this year, so assuming that you don’t have those next year, how much will your CapEx go down?
Hans-Holger Albrecht
We have said maybe more than two years ago that we [inaudible] 100 million IT program of a three year; 2011, ’12, and ’13 and we just checked, we are perfectly in line with what they’re communicating to the market. The total amount of IT that we plan to spend this year is in line with what we have said, which is around $150 million.
I’m not sure it was [inaudible] and the year before you made the difference.
Lena Osterberg – Carnegie
So can we assume that CapEx will decline by this amount year over year?
Hans-Holger Albrecht
No, that’s not what I said, but there will be still a little bit of it. It will not be zero in the following years but that will be less, for sure, from IT but the decline that we expect to see from 2014 is not only coming from IT.
This is one part of it. You need to [inaudible] that we are doing the initial investments in 3G in Africa this year as well because we just got a new license in [inaudible].
So that’s part of the initial CapEx and [inaudible] that we are doing today in Africa [inaudible] in 2008, we did it for the six countries in the initial investment in 2008 for a total consideration of the [inaudible] of 17 million at this stage. So Africa, part of it is coming in 2013 and there will be obviously less of it part from CapEx [inaudible] usually on 3G next year.
Lena Osterberg – Carnegie
Okay. Thank you.
Hans-Holger Albrecht
If we have no further questions, I would like to thank you all for your participation today in the call and we look forward to the, often-mentioned today, Capital Market’s Day on the 6th to follow up on all this kind of discussions. If there’s any kind of questions in between, obviously, Justine and once in a while myself are happy to be available.
Thanks, and good bye for today.
Operator
That does conclude our conference for today. You may now disconnect.
Thank you.