MILLICOM INTERNATIONAL CELLULAR SA annual report, Q4 FY2023

Business context and reporting period

Millicom International Cellular S.A. filed its audited Form 20-F on March 12, 2024, covering the fiscal year ended December 31, 2023. This is an annual filing, not a standalone Q4 report; the supplied filing text does not provide separate Q4 financial results. Financial statements are prepared under IFRS as issued by the IASB.

Millicom provides mobile, broadband, pay-TV, business connectivity and mobile financial services across nine Latin American countries under the Tigo brand. It reported 40.7 million mobile customers and 4.4 million fixed-service customer relationships at year-end. Guatemala and Colombia were its largest reported country segments by revenue.

Key financial metrics

Segment EBITDA, a non-IFRS measure, was $2.111 billion, down from $2.228 billion. Reported operating free cash flow was $645 million (2022: $765 million); free cash flow was negative $121 million (2022: positive $77 million); and equity free cash flow was negative $34 million (2022: positive $161 million). The company reported a 3.29x net debt to EBITDA after leases ratio, compared with 2.99x in 2022.

At year-end, total assets were $14.516 billion, total equity $3.445 billion and lease liabilities $1.043 billion. Approximately 80% of borrowings were fixed-rate or swapped to fixed-rate. The weighted average nominal interest rate on reported debt was 6.56%. Management said available cash, borrowing capacity and operating cash flows should cover projected operating and capital requirements for at least 12 months.

Material changes versus the prior comparable period

• Revenue increased 0.7%; organic revenue growth was 1.5% and organic service revenue growth was 2.3%, excluding foreign-exchange and perimeter effects.
• Operating profit fell 9.8%, while higher interest expense and a $202 million increase in tax expense contributed to the move from a small continuing-operations profit to a loss. The tax charge rose to $424 million, primarily due to write-offs of deferred tax assets and VAT credits in Colombia.
• Operating expenses increased 8.1% to $2.043 billion. The company cited $87 million of Project Everest restructuring and severance costs, $19 million related to one-off legal cases, and $33 million of DOJ-related legal costs and VAT. It said expenses were approximately flat year-on-year excluding unusual items.
• Interest and other financial expense rose 15.5% to $712 million, reflecting higher rates on variable-rate debt and costs associated with U.S. dollar purchases in Bolivia.
• Operating cash flow declined, and equity free cash flow moved from positive to negative. Capital expenditure additions were $1.215 billion, including $522 million of licenses and other intangibles.
• Reported 2022 net income included $113 million from discontinued operations; the comparable 2023 contribution was $4 million. The Tanzania disposal was completed in 2022.
• Revenue increased in Panama (10.4%) and Honduras (4.3%) but declined in Guatemala (3.3%), Colombia (1.6%) and Bolivia (1.4%). Guatemala EBITDA fell 5.8%; Bolivia EBITDA fell 7.3%, while Colombia EBITDA rose 4.1%.

Outlook, management commentary, risks and unusual items

Management said Project Everest, a planned combination of mobile networks and spectrum in Colombia, and spectrum actions in Guatemala position Millicom to deliver “robust and sustainable equity free cash flow” going forward. The filing provides no specific numerical revenue, EBITDA or cash-flow guidance. Management described continued price increases, cost efficiencies and investment optimization as responses to inflation, elevated interest rates and competitive pressure.

• Colombia: In October 2023, Millicom and partner EPM each contributed approximately $74 million to recapitalize Tigo-UNE. An unconditional put option allows EPM to sell its 50% stake to Millicom for COP 330 billion by September 30, 2024; the recorded liability was $86 million. A February 2024 agreement with Telefónica to combine some mobile network and spectrum assets was finalized after year-end.
• Legal and regulatory: The DOJ issued subpoenas in 2022 and 2023 concerning Guatemala and other Latin American operations; Millicom said it is cooperating and cannot predict the outcome. In February 2024, a New York court granted Telefónica summary judgment on a breach-of-contract claim relating to the terminated Costa Rica acquisition; damages had not been determined, and Millicom planned to appeal.
• Contingencies: Claims against the company and subsidiaries totaled $328 million at year-end, with $14 million provisioned. Subsidiary tax-risk exposure was estimated at $279 million, with $52 million provisioned; the Group’s share of joint-venture tax exposure was $118 million, with $7 million provisioned. The filing says ultimate legal outcomes cannot be determined with certainty.
• Debt and liquidity: Net debt rose despite a modest decline in gross debt, as cash fell. The accounting net debt/EBITDAaL ratio exceeded 3.0x, although the company said its covenant calculation was below 3.0x; it reported no covenant breaches at year-end. Moody’s downgraded Millicom to ba2 in February 2024, with a stable outlook, citing quantitative metrics below the ba1 range.
• Other post-year-end developments: Colombia announced a voluntary retirement plan, with approximately $17 million of severance costs incurred by the filing date. Millicom also agreed to sell about 1,100 Colombian towers to KKR-managed funds. Management is pursuing a broader transfer and potential monetization of more than 9,000 tower sites.
• Principal ongoing risks: Emerging-market political and economic volatility, currency depreciation and conversion constraints, intense competition, dependence on Guatemala cash generation, spectrum renewals and regulatory obligations, cybersecurity and data privacy, and rising content, labor and financing costs. The filing reports no cybersecurity threat in 2023 that materially affected or was reasonably likely to materially affect the company, while cautioning that incidents may go undetected.

Auditors issued an unqualified opinion on the IFRS financial statements and an unqualified opinion on internal control over financial reporting. Management also concluded that disclosure controls and internal controls were effective as of December 31, 2023.

Most important facts for investors to verify

• Review the full-year IFRS statements and notes for the drivers of the $245 million net loss, particularly Colombia tax-asset write-offs and the unusually high effective tax charge.
• Reconcile cash-flow measures and capital spending, including the negative $34 million equity free cash flow and the company’s stated forward cash-flow expectations.
• Assess debt maturities, interest-rate exposure, covenant definitions, cash availability at subsidiaries and the effects of currency restrictions; distinguish reported net debt from lease-inclusive obligations.
• Track the EPM put-option deadline, Colombia’s network-sharing agreement and whether these actions improve cash generation or create further funding needs.
• Monitor the Telefónica lawsuit, DOJ subpoenas, tax disputes and other claims; final damages and outcomes were not clear in the filing.
• Evaluate whether Project Everest savings and tower monetization offset competitive pressure, restructuring costs and ongoing investment requirements.