Millicom International Cellular S.A. — FY2019 Form 20-F
Reporting period: Year ended December 31, 2019; filed February 28, 2020. This is an annual report, not a standalone Q4 report. Financial statements are prepared under IFRS as issued by the IASB and amounts below are in U.S. dollars unless stated otherwise.
Business context
Millicom provides mobile, cable, broadband, pay-TV, mobile financial and business services across Latin America and Africa, principally under the Tigo brand. It reported 37.1 million mobile customers and 3.6 million fixed-service customer relationships at year-end. Guatemala and Honduras are equity-accounted joint ventures, although included as if consolidated in certain management segment measures.
Key financial metrics
| Metric (US$ millions, except per-share data and percentages) | FY2019 | FY2018 |
|---|---|---|
| Revenue | 4,336 | 3,946 |
| Gross profit / gross margin | 3,135 / 72.3% | 2,829 / 71.7% |
| Operating profit / operating margin | 575 / 13.3% | 640 / 16.2% |
| Profit (loss) from continuing operations | 97 | 7 |
| Net profit (loss) | 154 | (26) |
| Net profit (loss) attributable to Millicom owners | 149 | (10) |
| Basic earnings (loss) per share | $1.48 | $(0.10) |
| Net cash from operating activities | 801 | 792 |
| Operating free cash flow (non-IFRS) | 425 | 383 |
| Free cash flow (non-IFRS) | (45) | 85 |
| Cash and cash equivalents at year-end | 1,164 | 528 |
| Debt excluding lease liabilities | 5,972 | 4,580 |
| Lease liabilities | 1,063 | Not separately presented |
| Net financial obligations, including leases | 5,870 | 4,051 |
Current assets were $2,641 million and current liabilities $2,406 million at year-end. Restricted cash was $155 million and is not freely available for general use. FY2019 cash used in investing activities was $1,502 million; cash provided by financing activities was $1,355 million. Capital additions were $921 million. The board-approved dividend paid during 2019 was $2.64 per share.
Changes versus the prior comparable period
- Revenue rose 9.9%, primarily from a full year of Cable Onda and the 2019 Nicaragua and Panama mobile acquisitions. Latin America segment revenue increased 8.7%; Africa revenue declined 4.2% amid lower interconnection rates and competition.
- Reported revenue growth exceeded underlying growth: Latin America revenue organic growth was 2.8%, versus 8.7% reported. Service revenue organic growth was 2.2%.
- Operating profit fell 10.1%, despite higher revenue, as depreciation and amortization increased and other operating income shifted to a net expense. Operating margin contracted from 16.2% to 13.3%.
- Net income improved to $154 million from a $26 million loss. This included $57 million profit from discontinued operations and substantial non-operating gains, including a $312 million net gain related to the Helios Towers investment; the Jumia investment generated a $38 million fair-value loss.
- Operating cash flow was broadly stable, while free cash flow turned negative. Acquisitions, capital spending and higher net finance charges weighed on cash generation.
- IFRS 16 was adopted in 2019 without restating prior periods. It increased reported depreciation and interest, reduced operating lease expense, and raised EBITDA and lease liabilities; consequently, comparisons with 2018 are not fully comparable.
Outlook, risks and unusual items
- Management stated that available cash, borrowing capacity and operating cash flows should meet projected operating and capital expenditure needs for at least the next 12 months. No specific FY2020 revenue or earnings guidance is provided in the supplied filing text.
- Management’s strategy centers on expanding 4G and HFC broadband coverage, monetizing mobile data, growing B2B and digital services, and improving customer experience. The filing cites competition, pricing pressure, regulation, emerging-market conditions, currency movements, spectrum access, cyber and data-security threats, and technology investment as material risks.
- Debt and lease commitments are significant: contractual obligations totaled $9,588 million, including future interest and capital commitments. Net financial obligations to EBITDA were 3.84x on the filing’s stated basis; management notes that covenant calculations use a different, proportionate basis. No financial covenant breaches were reported at year-end. Ratings were below investment grade: Moody’s Ba1 negative and Fitch BB+ stable.
- Tax exposures for subsidiaries were estimated at $300 million, with $50 million provided; joint-venture tax exposure was $49 million, with $4 million provided. Litigation exposure for subsidiaries was $204 million, with $30 million provided. Management said the ultimate outcome of disclosed litigation was not expected to materially affect the group, but the Guatemala CICIG-related investigation’s status and potential impact were unclear and no provision was recorded.
- Other notable items include the $77 million gain on disposal of Chad (included in discontinued operations), the 2019 issuance of $750 million of 6.25% senior notes and Cable Onda’s $600 million of 4.5% notes, and the large non-cash Helios Towers valuation gain. The 2019 Colombia 700 MHz spectrum award carried a stated notional consideration of approximately $736 million, partly satisfied through coverage obligations and with cash payments extending over time.
- After year-end, the board proposed a $1.00-per-share dividend and a share repurchase program targeting at least $500 million over three years, subject to shareholder authorization. The filing also says the Costa Rica acquisition was expected to close in the first half of 2020.
Most important facts for investors to verify
- Confirm the audited net profit figure: the filing’s business overview contains an apparent “net loss of $154 million” statement, which conflicts with the audited financial statements reporting net profit of $154 million and $149 million attributable to Millicom owners.
- Assess recurring earnings and cash generation excluding acquisitions, IFRS 16 effects, discontinued operations and fair-value/disposal gains; reconcile the filing’s non-IFRS cash-flow and EBITDA measures to IFRS results.
- Review debt maturities, interest costs, covenants, lease obligations, acquisition funding and the ability to upstream cash, including reliance on Guatemala and Honduras joint-venture dividends.
- Track the final purchase accounting and integration of Nicaragua and Panama, completion of the Costa Rica acquisition, and the status and cost of Colombia spectrum obligations.
- Monitor the unresolved tax and legal exposures, Guatemala investigation developments, Tanzania’s mandated 25% public offering, and management’s integration of acquired businesses. Management and the auditor concluded internal financial controls were effective, but excluded the newly acquired Nicaragua and Panama businesses from the year-end controls assessment.