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, 2007
Accounting Basis: International Financial Reporting Standards (IFRS)
Overview: Millicom is a global mobile telecommunications operator focused on emerging markets in Central America, South America, Africa, and Asia. As of December 31, 2007, the Group operated in 16 countries with a total subscriber base of 23.4 million (19.9 million attributable). The company exited its Pakistan operations in February 2007, classifying them as discontinued operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 67% to $2.63 billion, driven by a 56% increase in subscribers to 23.4 million and the inclusion of a full year of results from the Colombia acquisition (acquired Oct 2006).
• Profitability: Net profit attributable to equity holders surged 313% to $697 million. This was significantly boosted by a $258 million net gain from the sale of Paktel Limited (Pakistan), which is classified as a discontinued operation. Profit from continuing operations increased 92% to $452 million.
• Subscriber Growth: Total subscribers grew by 56%, with particularly strong growth in Central America (71%) and Africa (66%). Prepaid subscribers accounted for 96% of the total base.
• Capital Expenditure: Capital expenditures increased to $1.06 billion (up from $758 million in 2006) to fund network expansion and the rollout of the "tigo" brand strategy.
• Debt Structure: Total consolidated indebtedness rose to $1.83 billion. However, net debt decreased to $660 million due to strong cash generation and proceeds from the Pakistan divestiture.

Guidance, Outlook, and Risks

Outlook and Strategy: Management expects continued growth driven by the "triple A" strategy (Affordability, Accessibility, Availability) and the rollout of the "tigo" brand. The company anticipates that operations in Colombia and the Democratic Republic of Congo (DRC) will begin generating operating profits in 2008 as subscriber growth offsets initial rollout costs. A special dividend of $2.40 per share was recommended for payment in May 2008.

Key Risks and Contingencies:

• Political and Regulatory Risk: Operations in emerging markets face risks of political instability, civil unrest (e.g., Chad, Sri Lanka), and regulatory changes, including potential nationalization (noted risk in Bolivia) and interconnection rate reductions (e.g., Colombia).
• Currency Risk: Significant exposure to foreign exchange fluctuations as revenues are in local currencies while reporting is in USD. The company generally does not hedge these exposures.
• Competition: Intense price competition and the entry of new operators in various markets could pressure margins.
• Infrastructure: Lack of reliable electricity and road infrastructure in African operations increases costs (e.g., reliance on diesel generators).

Investor Verification Checklist

• Discontinued Operations Impact: Verify the sustainability of earnings by analyzing results excluding the $258 million one-time gain from the Pakistan divestiture.
• Colombia and DRC Performance: Monitor the timeline for these operations to reach profitability, as they currently incur operating losses due to aggressive expansion.
• Debt Maturity and Refinancing: Review the schedule for the $480 million 10% Senior Notes (reclassified as current due to planned redemption in Dec 2008) and the $179 million 4% Convertible Notes (mostly converted to equity in Jan 2008).
• Regulatory Changes: Track regulatory developments in Bolivia regarding potential nationalization or tariff caps, and interconnection rate changes in Colombia.
• Currency Sensitivity: Assess the impact of local currency devaluations against the USD on reported earnings and asset values.