TIGO

Business Context and Reporting Period

Company: Millicom International Cellular S.A. (MIC)
Reporting Period: Fiscal year ended December 31, 2003
Business Overview: MIC is a global telecommunications operator focused on emerging markets in Asia, Latin America, and Africa. As of December 31, 2003, the company held interests in 16 cellular systems across 15 countries, serving a combined population under license of approximately 387 million people. The company's strategy centers on being a low-cost provider focused on prepaid services using mass-market distribution methods.

Key Financial Metrics (IFRS)

Note: The 2003 Net Profit includes a significant non-operating gain of $246.8 million from the revaluation of Tele2 AB shares. Excluding this gain and other non-operating items, the company reported an underlying operating loss of approximately $80.1 million for 2003.

Material Changes vs. Prior Period

• Subscriber Growth: Total subscribers increased 42% to 5.69 million (4.03 million on a proportional basis). Prepaid subscribers now represent 87% of the total base.
• Reconsolidation of El Salvador: Following the resolution of a shareholder dispute in September 2003, MIC regained control of Telemovil (El Salvador) and began consolidating it as a 100% owned subsidiary. This contributed $39.1 million in revenue for the year.
• Divestitures: The company divested its operations in Colombia (February 2003), the Philippines (December 2002), and MIC Systems (November 2002) as part of a debt reduction strategy.
• Debt Restructuring: MIC executed a major restructuring in 2003, issuing $550 million in 10% Senior Notes and $310 million in 5% Mandatory Exchangeable Notes. Proceeds were used to redeem the 13.5% Senior Subordinated Notes and 11% Senior Notes, significantly reducing interest burdens.
• Accounting Policy Change: The company changed its accounting policy for available-for-sale securities, recording fair value adjustments in the profit and loss statement rather than equity, which contributed to the reported net profit.

Guidance, Outlook, and Risks

Outlook and Strategy:

• GSM Migration: MIC expects GSM subscribers to exceed 50% of the total base by the end of 2004, with rollouts planned in Latin America and Pakistan.
• Capital Expenditures: The company expects to incur approximately $150 million in capital expenditures over the next 12 months, funded primarily by operating cash flow.
• Expansion: MIC continues to pursue growth in existing markets and has entered into a Build-Operate-Transfer (BOT) agreement for a network in Iran (announced February 2004).

• Vietnam Contract Expiration: The Business Cooperation Contract (BCC) for Mobifone (Vietnam), which accounts for 20% of total revenue and 32% of operating profit, expires on June 30, 2005. Failure to extend the contract would cease revenue generation from this operation.
• License Renewals: Licenses in Pakistan (Pakcom and Paktel) expire in 2005. Renewal fees are estimated to be substantial (up to $214 million combined), and terms are subject to negotiation.
• Debt Covenants: The Bolivian venture (Telecel) is in breach of financial covenants on $28.8 million of debt. While a standstill agreement is in place, there is a risk of acceleration if the matter is not resolved.
• Foreign Exchange: The company is exposed to currency fluctuations in emerging markets. A 2003 exchange loss of $45.6 million was primarily driven by the revaluation of the 5% Mandatory Exchangeable Notes.
• Shareholder Dissolution Risk: Under Luxembourg law, the company faces potential dissolution if losses exceed half of subscribed share capital. Shareholders voted to continue operations in May 2003, but this risk remains if losses persist.

Investor Verification Checklist

• Underlying Profitability: Verify the company's core operating performance by excluding the $246.8 million non-cash gain on Tele2 AB shares from the 2003 net profit.
• Vietnam Extension: Monitor the status of negotiations to extend the Mobifone BCC beyond June 2005, given its critical contribution to revenue.
• Pakistan License Fees: Track the outcome of license renewal negotiations in Pakistan to assess the impact of potential $214 million in renewal fees on future cash flows.
• Bolivia Covenant Compliance: Review the resolution of the covenant breach at Telecel Bolivia to ensure no acceleration of debt occurs.
• Debt Service Coverage: Assess the sustainability of the new debt structure (10% Senior Notes) against operating cash flows, noting the reduction in interest expense from the restructuring.
• U.S. GAAP Reconciliation: Note that under U.S. GAAP, the company reported a net loss of $55.0 million for 2003, contrasting sharply with the IFRS net profit of $178.8 million.