TIGO

Business Context and Reporting Period

Company: Millicom International Cellular S.A.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2006
Business Overview: Millicom is a global mobile telecommunications operator focused on emerging markets in Central America, South America, Africa, and Asia. The company operates under the "tigo" brand, utilizing a low-cost, prepaid-focused strategy. As of December 31, 2006, the Group operated in 16 countries (excluding Pakistan, which was divested in early 2007) covering a population of approximately 278 million.

Key Financial Metrics (IFRS)

Note: Financial data presented is based on International Financial Reporting Standards (IFRS) as adopted by the EU. U.S. GAAP figures differ significantly due to consolidation rules for Variable Interest Entities (VIEs).

Material Changes vs. Prior Period

• Subscriber Growth: Total subscribers increased by 99% to 14.9 million (from 7.5 million in 2005). Attributable subscribers grew by 105% to 12.8 million. Growth was driven by the acquisition of Colombia Movil and aggressive expansion in Africa and Central America.
• Revenue Surge: Revenues rose 71% to $1.58 billion. South America revenue grew 127% due to the inclusion of Colombia Movil (acquired Oct 2006) and operational improvements in Paraguay. Central America revenue grew 76%.
• Profitability: Net profit attributable to equity holders surged 1,544% to $169 million, compared to $10 million in 2005. This was driven by higher operating profits and a reduction in losses from discontinued operations.
• Acquisitions: Major acquisition of Colombia Movil S.A. (50% + 1 share) for $124 million in October 2006. Also acquired remaining minority interests in Paraguay, Senegal, Tanzania, and Sierra Leone to achieve 100% ownership.
• Divestitures: Classified Pakistan operations (Paktel and Pakcom) as discontinued operations. Paktel was sold to China Mobile in February 2007. Peru and U.S. operations were also divested in 2006.

Guidance, Outlook, and Risks

Management Commentary & Outlook: Management expects continued growth driven by the "triple A" strategy (Affordability, Accessibility, Availability) and the rollout of the "tigo" brand. The company anticipates that new operations in Colombia and the Democratic Republic of Congo (DRC) will incur operating losses in 2007 due to aggressive rollout costs but expects profitability by 2008. Capital expenditures are expected to remain high to support network expansion.

Key Risks & Contingencies:

• Political & Regulatory Instability: Operations in emerging markets face risks of political instability, civil unrest (e.g., Sri Lanka, DRC), and arbitrary regulatory changes (e.g., license fees in DRC, revenue share increases in Cambodia).
• Competition: Intense price competition in markets like Sri Lanka and Pakistan (prior to exit) pressures margins. New entrants are expected in several markets.
• Currency Fluctuation: Significant exposure to local currency devaluation against the U.S. dollar, which impacts reported earnings and asset values. The company generally does not hedge foreign currency exposure.
• Debt Obligations: Total consolidated indebtedness was $1.49 billion. The company faces covenants limiting additional debt, dividends, and asset sales. Interest expense increased to $124 million.
• Infrastructure Challenges: Lack of reliable electricity in African operations necessitates reliance on expensive diesel generators.

Investor Verification Checklist

• Colombia Integration: Verify the timeline for Colombia Movil to reach profitability and the impact of the $124 million acquisition on future cash flows.
• DRC License Fee: Monitor the status of the $14.75 million license transfer fee dispute with DRC authorities, which could impact the DRC operation's financials.
• Debt Covenants: Review compliance with debt covenants, particularly regarding leverage ratios and restricted payments, given the $1.49 billion debt load.
• Discontinued Operations: Confirm the final financial impact of the Pakistan divestiture (Paktel) and the closure of the Vietnam Business Cooperation Contract.
• IFRS vs. GAAP Reconciliation: Note the significant differences in net profit and balance sheet items between IFRS and U.S. GAAP due to the consolidation of Joint Ventures (VIEs) under U.S. GAAP.