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Annual Report 2014
Empowering
Societies
Innovation
Moments
1
Millicom Annual Report 2014
About us
About us
Millicom Annual Report 2014
Millicom Annual Report 2014
1
1
Millicom is a leading international
Millicom is a leading international
telecommunications and media
telecommunications and media
company dedicated to emerging
company dedicated to emerging
markets in Latin America and
markets in Latin America and
Africa. We empower a digital
Africa. We empower a digital
lifestyle by offering communication,
lifestyle by offering communication,
information and entertainment
information and entertainment
which connect people to their world.
which connect people to their world.
O
v
e
r
v
i
e
w
S
t
r
a
t
e
g
y
Operating under the Tigo brand in 14
Operating under the Tigo brand in 14
countries, Millicom offers innovative and
countries, Millicom offers innovative and
customer-centric products. Millicom employs
customer-centric products. Millicom employs
23,297 people and provides mobile, cable,
23,297 people and provides mobile, cable,
satellite, broadband and mobile financial
satellite, broadband and mobile financial
services to over 56 million customers in
services to over 56 million customers in
mobile and five million revenue-generating
mobile and five million revenue-generating
units in cable, with 5.6 million HFC
units in cable, with 5.6 million HFC
homes passed.
homes passed.
Financial highlights
(reported figures)
Revenue (US$m)
EBITDA (US$m)
6,386
4,814
4,530
5,159
3,920
2,092
2,065
2,093
1,881
1,853
10
11
12
13
14
10
11
12
13
14
Growth
EBITDA
+23.8%
32.8%
Capex (US$m)
Subscribers (m)
1,294
1,226
1,120
56.3
47.2
50.1
43.0
38.6
848
731
10
11
12
13
14
10
11
12
13
14
Capex to revenue ratio
19.0%
Net mobile additions
6.2m
subscribers
Find out more
www.millicom.com
Contents
Contents
Overview
02 Group at a glance
03
Overview
02 Group at a glance
Our chosen markets
Our chosen markets
03
and strategic pillars
and strategic pillars
12 Chairman’s statement
04 Year in review
12 Chairman’s statement
Strategy
14 CEO statement
Strategy
16 Market overview
14 CEO statement
20 Our business model
16 Market overview
22
20 Our business model
22
Our strategy
Our strategy
Performance
32 Review of operations
– Central America
34 Review of operations
– South America
36 Review of operations
Performance
32 Review of operations
– Central America
34 Review of operations
– South America
36 Review of operations
– Africa
– Africa
38 Risk Management
38 Risk Management
48 Corporate responsibility
48 Corporate responsibility
52 Financial review
52 Financial review
Governance
Governance
56 Corporate Governance
56 Corporate governance
61 Board Committees
61 Board committees
62 Board of Directors
62 Board of Directors
64 Executive Committee
64 Executive Committee
66 Directors’ report
66 Directors’ report
Financial statements
69
70
71
72
74
76
78
71
70
Financial statements
Independent auditors’
69
Independent auditors’
report
report
Consolidated income
Consolidated income
statement
statement
Consolidated statement
Consolidated statement
of comprehensive income
of comprehensive income
Consolidated statement
Consolidated statement
of financial position
of financial position
Consolidated statement
Consolidated statement
of cash flows
of cash flows
Consolidated statement
Consolidated statement
of changes in equity
of changes in equity
Notes to the consolidated
Notes to the consolidated
financial statements
financial statements
72
78
76
74
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OverviewStrategyPerformanceGovernanceFinancials
2
Millicom Annual Report 2014
Group at
a glance
Our products
and services
Where we
operate
Founded in 1990 and headquartered
in Luxembourg with offices in
Stockholm, London and Miami,
Millicom’s subsidiaries operate
exclusively in emerging markets
in Africa and Latin America.
Millicom’s shares are listed on the Nasdaq
OMX exchange in Stockholm and its market
capitalisation was SEK58.34 billion ($7.5 billion)
at the end of 2014.
Mobile
We provide mobile communications services to
over 56 million customers in Bolivia, Colombia,
Paraguay, El Salvador, Guatemala, Honduras,
Chad, DRC, Ghana, Senegal, Rwanda and
Tanzania under the brand name Tigo. In
addition to mobile voice and SMS messaging,
we offer mobile data and locally relevant
content through value added services.
Cable & Digital Media
We offer fixed voice, broadband services
and pay-TV, including premium content,
in cable in Colombia, Bolivia, Paraguay,
Costa Rica, El Salvador, Guatemala,
Honduras and Nicaragua.
Mobile Financial Services
We have more than nine million mobile
financial services customers and we offer
services including money transfer, bill
payments and merchant payments.
Tigo announced as #8 most admired
brand in Africa – above Vodafone and Nike
– according to the Africa Business consumer
survey by TNS in November 2014.
#8
Millicom Annual Report 2014
3
Our chosen
markets
Region
Population (m)
Mobile customers (m)
Revenue ($m)
EBITDA ($m)
Employees
Progressing on our
strategic pillars
Central America
South America
30
15.8
2,460
1,153
4,373
64
15.1
2,926
980
16,467
Africa
190
25.3
1,000
219
2,016
Business units
Mobile
Cable & Digital Media Mobile Financial Services
Strategic pillars
From volume to value
Mobile data growth Capturing the opportunity
Creating a blockbuster
2014 revenue/growth
$4.7bn
+34%
$970m
$113m
PerformanceGovernanceFinancialsOverviewStrategy 4
Millicom Annual Report 2014
Year in review
The Digital
Lifestyle 2014
July
4G launches
in Bolivia
Our second 4G launch followed
Colombia and offers high-speed
mobile internet service up to
100 Mbps.
January
Tigo Sports
in Paraguay
Our premium TV channel Tigo
Sports was launched as the
first-ever dedicated sports
channel in Paraguay.
March
Tigo Star debut
We launched Tigo Star – our
striking new brand to promote
our broadband, cable and pay-TV
offer, highlighting the broader
range of services that form part of
the digital lifestyle. We launched
first in Paraguay and then
in five other markets across
Latin America.
April
Satellite TV
service in Bolivia
Our first “Direct To Home” satellite
pay-TV service launched under
the Tigo Star brand including 75
channels. It reached five markets
by the end of 2014.
June
Cajetan Nagua
celebrated as
Employee of the Year
Our Regional Director in Eastern
DRC was chosen as one of our
‘Millicommanders’ in recognition of
his role leading Tigo back into the
Kivu region after the end of hostilities
there and adding 250,000 customers
there in three months.
November
Tigo Sports
launches in Bolivia
Following its success in Paraguay,
we extended Tigo Sports to
Bolivia, again providing premium
sports content for the first time
in that market.
Brave ©2015 HBO Ole Partners.
All rights reserved. © Disney Pixar.
February
Tigo Money
international
transfer
We introduced mobile money
transfers with integrated currency
conversion as a world first
between Rwanda and Tanzania.
May
World Cup app
We launched our exclusive
app allowing Tigo customers
to enjoy live coverage of the
World Cup on handsets and
via broadband internet.
Millicom Annual Report 2014
5
August
UNE merger
completes
in Colombia
The completion of the landmark
merger makes Tigo-UNE an
integrated telecoms and media
business in Colombia
October
Tigo Music
launches in Ghana
Following the success of the
mobile music streaming service in
Latin America, Tigo Music made
its African debut in Ghana.
September
World’s first
money-back MFS
service begins
in Tanzania
We offered mobile users the
opportunity to automatically earn
a return on their balance direct to
their mobile wallet without the
need for a separate registration.
December
UNICEF and
Millicom team up
for a safer internet
world for children
PerformanceGovernanceFinancialsOverviewStrategy 6
Millicom Annual Report 2014
Year in review
(Continued)
Millicom Annual Report 2014
7
Our customers in Tanzania can use Facebook’s
internet-for-all initiative, called internet.org.
This gives many first-time online users free
access to a number of fun and informative
educational, health, news and social media
services. This will not only drive further internet
penetration but also unlock new opportunities
to users in the fields of education, technology
and commerce.
Edume is available for download to any
mobile phone device providing education
for everyone
Mobile infrastructure delivering
positive change
In 2014 we connected six million more people
to our mobile networks, with many using online
services for the first time, thereby reducing
the digital divide and opening up new
opportunities for users.
Whether using our services for personal or
business reasons, we know that connecting
people provides information, convenience and
pleasure as well as giving a boost to business
and the local economy.
We are also using our infrastructure to offer
services of direct social value. For example,
educational tools via our EduMe courses in
Rwanda. Rich, carefully-structured content
including EduMe English and Edume Business
School is available for download to any mobile
phone device, providing tuition for everyone
without needing fixed line internet or access
to schools and universities.
Empowering
societies
PerformanceGovernanceFinancialsOverviewStrategy 8
Millicom Annual Report 2014
Year in review
(Continued)
Millicom Annual Report 2014
9
Empowering
innovation
719%
Growth in transactions since its launch
in September
2,435%
Growth in the amount transacted since
its launch in September
Clever ideas improving daily life
In Bolivia our new Collection Payment service
was taken up by two large cosmetics companies.
Their sales force is able to pay in receipts through
their Tigo Money wallets, significantly increasing
the efficiency and transparency of their
payments processes.
In another world first, Tigo Cash users in
Rwanda and Tigo Pesa customers in Tanzania
are now able to send each other money in their
respective currencies without having to travel
and queue at a traditional bank or money
agent. Both individuals and businesses can
use funds held in their mobile wallet to access
a range of services in each country. These
include airtime top-ups, payments for water,
electricity, TV, transport, cash withdrawals at
any Tigo agent and transfers to other mobile
money users.
PerformanceGovernanceFinancialsOverviewStrategy 10
Millicom Annual Report 2014
Year in review
(Continued)
Millicom Annual Report 2014
11
Empowering
moments
Digital experiences that delight
We secured rights to the 2014 World Cup
app allowing customers to enjoy coverage on
mobile devices and via broadband internet.
We had exclusive mobile rights for Colombia,
Costa Rica, Honduras, Guatemala, El Salvador
and Paraguay. We also had non-exclusive
broadband internet transmission rights
in these countries. Our dedicated World
Cup app for smartphones and tablets
was downloaded 1.4 million times.
Mobile data customers in Latin America and
Africa can now listen to music wherever and
whenever they want with our partnership
with streaming music service Deezer. We are
promoting a catalogue of more than 35 million
tracks and also sourcing exciting new and local
content. Tigo Music Sessions exclusively
filmed and then released seven tracks by
Latin Grammy award winner Juanes. In Africa
our new venture “Africa Music Rights” with
digital music company Africori will fund,
acquire and manage music rights across
the continent. We plan for 70% of music
streamed to be locally produced.
We sold almost 4.5 million smartphones during
the year, with an impressive 1.6 million units sold
in the last quarter alone. Most of these devices
are Android devices that deliver a very good
user experience but cost only $50 or $60. The
affordability of the devices is one of the drivers
that have allowed us to reach over $920 million
in data revenue, a segment that has grown by
$200 million (over 31% year-on-year). We have
added 5.2 million data users in 2014, surpassing
the 15 million threshold or 27% of our mobile
subscriber base.
PerformanceGovernanceFinancialsOverviewStrategy 12
Millicom Annual Report 2014
Chairman’s
statement
An exciting year of
change for the Group
Millicom Annual Report 2014
13
$2.64
Dividend per share
#1 or 2
Position in 85% of our mobile markets
Dear Shareholders
2014 was a very important year for Millicom,
a year during which we continued to drive
innovation and to improve our financial
performance. During 2014, we achieved a
number of key milestones including renewed
organic growth in both Latin America and
Africa, and the closing of the transformational
Tigo-UNE merger in Colombia. I am particularly
pleased to see that six and a half months
into the merger we are making excellent
progress in the integration of the two
businesses and in the development of a
range of exciting new digital lifestyle services
delivered through both our mobile and fixed
platforms. The Board visited Medellin and
Bogota in September 2014, and we came away
feeling even more confident that our strong
local market position and the capabilities of
our Colombian team have positioned us for
many years of profitable growth.
Millicom aims to be the leading mobile company
in terms of innovation. We aim to deliver new,
exciting, Tigo-branded digital services in every
market in which we operate and to capitalise on
the growth in smartphone penetration. 2014
was a year of innovation across our business
segments. We launched 4G in Bolivia, Honduras,
Chad and Rwanda, offering an enhanced
experience to our data users. During the
summer our World Cup app, that allowed our
customers to follow the excitement of the
biggest event in football, quickly entered the top
five most downloaded apps in all our Latin
American markets. Together with Facebook, we
offered the social network to segments of the
population discovering the advantages of data
for the first time, in local languages, in Paraguay
and Tanzania. On the cable side we launched
Tigo Star, our convergent product offer, while
beyond our installed network we have invested
in a satellite service launched in five of our Latin
American markets with strong initial adoption.
Mobile Financial Services was also a key source
of innovation during the year. We are the first to
offer MFS cross-border transactions, between
Rwanda and Tanzania, and have created the
first national interoperability network with two
of our competitors in the latter. Also in Tanzania,
we led the way with Tigo Wekeza to be the
first on record to distribute returns on the
balances of our customers.
At the same time, Millicom also looks to be at
the forefront with its Corporate Responsibility
efforts. Our focus areas of diversity, child
protection, privacy, responsible supply chain
and environmental protection align well
with general trends in the Millicom markets
and with the business goals of the company.
And more specifically, they are well-placed
to address the opportunities and new
challenges that increasing Internet
penetration and young populations with
a strong appetite for digital services bring.
Our Digital Changemakers Award program,
organised in partnership with Reach for
Change, supports innovations that help drive
social change and that offer solutions to real
life challenges through the use of digital tools.
The Board has proposed an annual dividend
of $2.64 per share, in line with last year’s
dividend. We remain committed to increasing
shareholder remuneration in line with the
growth of our free cash flow generation.
Leadership
The Board and Board Committees are
outlined in the governance section of
this report.
We have started 2015 well positioned to execute
on our long-term strategy of developing digital
lifestyle services across Latin America and Africa.
Our focus is to remain on a strong growth path,
improve our cost structure while maximising
the return of our capital allocation, which will
allow us to reach our leverage target and
improve our cash generation.
I would like to take this opportunity to
thank Allen Sangines-Krause, who served as
a member of the Board from 2008 to 2014,
the latter four years as Chairman of Millicom,
and Hans-Holger Albrecht, who served as CEO
from 2012 to 2014. We are grateful for their
contribution and leadership at Millicom
during these important years of transition.
On behalf of the entire Board, I would like to
thank our partners in Colombia, Guatemala,
Honduras and Rwanda. We really appreciate
your contribution to making Millicom as
effective as any local country leader.
Finally, I would like to thank all of the Tigo people
in Latin America, Miami, Africa and Europe who,
through their continued commitment and
dedication, make Millicom such a successful
and innovative company.
Tomas Eliasson
Chair, Audit Committee
Dame Amelia Fawcett
Chair, Compensation
Committee
Cristina Stenbeck
Chair, Corporate
Responsibility Committee
Governance section
page 56
Cristina Stenbeck
Chairman of the Board
Non-financial highlights are
published in our 2014 CR Report.
PerformanceGovernanceFinancialsOverviewStrategy 14
Millicom Annual Report 2014
Millicom Annual Report 2014
15
Interim CEO’s
statement
Interim CEO’s statement
Market overview
Our business model
Our strategy
Risk management
p.14
p.16
p.20
p.22
p.38
Strength and purpose
in execution
Mobile Financial Services: revolutionary
banking for the unbanked
Increase penetration and breadth of the service
to build the scale required to boost the number
and volume of transactions on services such
as peer-to-peer and merchant payments.
Seek to further develop the mobile financial
services (MFS) sector in our markets by
promoting interoperability.
Our business strategy
Mobile: from volume to value
Focus on building a sophisticated, value-
oriented innovative mobile business. Increase
revenues, loyalty and brand affinity with
a focus on data penetration and bundling
services to drive loyalty and revenue per user.
Cable & Digital Media: to capture
the opportunity
Increase number of homes passed, and
further coverage via satellite, through organic
growth and strategic acquisitions to expand
our footprint where we offer our increasingly
attractive pay-TV portfolio and bundle with
other services.
Millicom outlined its long-term strategy and
ambitious targets to transform the Group
into a digital lifestyle business at our capital
markets day in 2013. Last year the Group
focused on executing that strategy, which
made it a year of transformation and progress.
As detailed in the timeline on pages four and
five, 2014 was a busy year. Our merger with
UNE in Colombia, the largest in our corporate
history, symbolises the digital diversification
strategy. We are now on our way to being the
second largest combined digital operator in
Colombia and continue to see exceptional
growth there.
By combining the two businesses we are also
well on track to achieve our targets for 2017,
adding to an existing high-growth business
with a substantial opportunity to realise the
synergies of combining fixed and mobile service.
We remain the only telecom and digital
company operating exclusively in the high-
growth markets of Latin America and Africa.
Our customers, whether they are in Kinshasa or
Medellín, are just as aspirational as developed
market consumers and now we are able to
offer entry-level smartphones at increasingly
affordable prices, enabling them to participate
in the digital lifestyle. The most digitally aware
consumers, whom we call “digital apprentices”,
are even leapfrogging the digital pathway of
more developed countries and moving straight
to a full digital lifestyle on their mobile devices.
They are enjoying world-class on-the-go music
streaming, World Cup soccer videos and social
media for the first time. They can buy goods
using their mobile device and download
educational packages. In countries where the
vast majority of the population is without bank
accounts, our mobile financial services (MFS),
which allow safe, convenient and transparent
money management, are changing lives and
have the potential to change societies. Today
one in six of our mobile customers now uses
MFS and we are handling transactions worth
more than $2.8 billion per quarter, and it is
growing fast.
We are committed to providing the very
best solutions for consumers to empower their
digital lifestyle. So we are investing an average
of $100 million a month, and working hard to
develop reliable and modern infrastructure.
We want our customers to be delighted by
their Tigo experience. That way they spend
more with us and stay longer.
In 2014 we were pleased to see strong revenue
growth. In local currency, organic revenue grew
9.4% for the year, accelerating throughout the
year giving us strong momentum into 2015.
Group EBITDA was $2,093 million, supported
by a data growth that once again exceeded
our expectation. The phenomenal growth in
smartphone sales saw more digital customers
come onto the networks, which will continue to
drive growth in the future. Yet still less than one
in four of our customers has a smartphone so
we expect 2015 to be another busy year as
more and more customers join the digital world.
The last two years of investment in the business
has meant that revenue growth has diluted our
margins and consumed our cashflow. However,
we are convinced these investments are now
starting to pay off and position us to drive
stronger overall financial performance from
those in the future. Continued organic growth is
key to doing that, but efficiency and investment
optimisation also underline everything we do.
We made big steps last year in improving the
efficiency of our network and in upgrading
our sales and distribution capabilities. We also
invested in our young and dynamic Tigo brand,
which goes from strength to strength in all our
markets. This is something we monitor closely.
In 2014 we launched a number of new
sub-brands as well as additional value-added
services for existing ones to reinforce this idea
of value. Tigo Sports, Tigo Star and Tigo Music
are all highly popular exciting new brands in
the Tigo stable already delivering great returns.
With satellite TV newly available in five of
our Latin American markets we can now reach
areas beyond the range of fixed cable and
urban development.
In this transformational year we refocused
our strategy on our core businesses of
Latin America, where we have some great
businesses with strong market positions and
Africa, where we have incredible potential.
This desire to concentrate on businesses we
directly control led us to sell our 50% share
in Emtel in Mauritius, after a long and
successful relationship.
The work on developing a new entrepreneurial
culture at Millicom can be seen every day
throughout our organisation. So much of
our success we owe to the Tigo people on the
ground delivering day to day. On behalf of
the senior management team I would like to
thank our dynamic and committed workforce
that is at the heart of the transformation of
the business. We look forward to more exciting
times ahead as we focus on long-term value
creation and the continued execution of our
digital lifestyle strategy in this landmark
25th year.
Tim Pennington
Interim CEO
OverviewStrategyPerformanceGovernanceFinancials 16
Millicom Annual Report 2014
Millicom Annual Report 2014
17
Market overview
Interim CEO’s statement
Market overview
Our business model
Our strategy
Risk management
p.14
p.16
p.20
p.22
p.38
Listening to customers
wherever they may be
Responding to what our customers
want is key to our success. We operate
in high-growth developing markets where
consumers want the same digital lifestyle that
their peers in more developed markets already
enjoy. It is no longer a conversation about
megabytes but about what services customers
want. Each of our markets has different
characteristics but there are certain similarities
in their development where insights from one
market may soon be applicable in another.
fixed TV all together, we believe buying
services together is the future. For example
37% of the customers who access our satellite
pay-TV service pay for it using our mobile
financial services. That also impacts our brand
initiatives, as consumers in Latin America, for
example, may be interacting with one brand
over a number of different devices, sometimes
even at the same time. As customers become
more sophisticated, greater segmentation in
our marketing will also be a priority.
Our market drivers
Growth in our services is influenced by the
macroeconomic and demographic conditions
in our markets. Most enjoy above-average
GDP growth rates. We work in markets where
population growth remains high and where
there is a large proportion of young people
interested in our services who demand the
digital lifestyle. The internet itself also drives
digital services. Even with limited online access,
it is still much easier now to know what is
available elsewhere and to aspire to the
same. Our customers are becoming more
sophisticated and demanding a better
and more ubiquitous service.
Market trends
Demand for data is having a significant
impact on industry. Affordable smartphones
are making the mobile internet accessible for
millions who have never before been online.
Consumers no longer need to wait for a fixed
connection to access the digital world. Better
mobile coverage makes everything possible.
Meanwhile, the development of mobile
phone applications to educate, entertain,
communicate and make payments
empowers consumers and societies.
Cable and satellite TV and internet brought
into the home are big growth areas in our Latin
American markets as consumers’ appetite for
accessible entertainment increases. In some
markets this comes before they can access
entertainment on their handsets. In others it is
the other way around. But customers do not
just want more channels from a TV provider.
They want unique premium content and we
are responding to that trend, firstly with the
launch of Tigo Sports. As all these distinct
services converge, so too does consumer desire
to have one provider and seamlessly switch
between devices to enjoy them.
Better networks across mobile and, in more
developed markets, also across fixed networks,
is fuelling the possibilities. Bundling of services
drives revenue and provides a better deal for
the consumer. Whether it is financial services
with mobile, data with TV or voice, data and
As fixed networks expand, so does the
potential for business services to match those
offered to consumers. Cloud services, internet
security, surveillance and business MFS are all
future growth areas for our business.
Regional differences
There are of course significant differences
between individual countries in our regions
and most particularly between our regions.
Higher income levels in Latin America are
reflected in much higher ARPUs and
smartphone penetration than in Africa.
Latin American governments and private
operators have also invested in fixed line
networks which simply do not exist in so
much of Africa.
But the pace of change in Africa is faster than
ever. In Tanzania we sold 35,000 smartphones
in the whole of 2013. In October 2014, in one
month alone, we sold 40,000 there. Africa
will also invest in fibre to deliver the fixed line
services that its businesses require and we
intend to be first in line to help with that.
As we expand mobile coverage, millions
of customers in Africa will be able to make
a mobile call for the first time.
Challenges
We operate in challenging markets. Whilst
there is strong economic growth across our
markets many of our countries face significant
macroeconomic challenges, from currency
devaluation, to high inflation and low incomes.
We seek where we can to mitigate such
challenges but the nature of our markets
does not always make that possible. Local
exchange rate fluctuations can damage
our revenue depending on how our services
are priced.
Competition is fierce in all our markets. For
example, Ghana has six mobile operators and
El Salvador has four. Both markets have stiff
competition, which can lead to price erosion
that in turn can reduce the impact of our
differentiated offering.
40,000
smartphones sold in Tanzania in October
2014, compared with 35,000 sold in all
of 2013
We work in markets
where population growth
is high and where there
is a large proportion
of young people
OverviewStrategyPerformanceGovernanceFinancials 18
Millicom Annual Report 2014
Market overview
(Continued)
Millicom Annual Report 2014
19
Finally, we need to ensure that both our
network and our workforce are of sufficiently
consistent quality to provide what customers
need while competing with other operators.
We need to recruit and develop the best
people to provide the best service and ensure
they can operate in a safe and secure
environment. In addition, our networks need
continued maintenance and investment to
maintain our competitive position. In Chad
and Tanzania, something as simple as a lack of
electricity can impact our operations, as can
the lack of adequate road infrastructure.
We need to ensure that
both our network and
our workforce are of
sufficient consistent
quality to provide
what customers need
Regulation also has the capacity to change
the returns on our business and investments.
During 2014 we saw an increased tendency
to levy ad hoc taxation on telecom and digital
services. Whilst we ensure that the Group
pays all applicable taxes we argue to our host
governments that unplanned and ad hoc
taxes damage investments in the long run.
License renewals are also a source of concern
particularly when there is a state-owned
dominant telecom provider. The role of
state-owned operators and their sphere
of influence can be a real issue for us.
Anti-competition claims from other operators
can be challenging both for our bottom
line and our brand, especially if they
result in unfair legislation.
In some markets we need to consider
political risk and instability though we have
proved we can operate in the most difficult
of circumstances – for example, by returning
quickly to the Kivu region in the DRC. Piracy
can affect our cable business and we need
to be vigilant against corruption in some
of our markets.
Market expansion also brings its own trials.
For example, the access to mobile broadband
via 4G and the higher adoption of smartphones
drives the growth of mobile data but could
lead to a reduction of traditional revenues such
as SMS. Similarly the introduction of number
portability can be both an opportunity and
a threat, depending on our current market
position. Being present in both mobile and
fixed internet, we do not want one to
completely replace the other.
The Amazing Spiderman 2 ©All rights reserved ©2015 HBO Ole Partners. All rights reserved. © 2014 Columbia Pictures Industries, Inc.
and LSC Film Corporation. All Rights Reserved. © 2014 Marvel Entertainment, LLC and its subsidiaries. All Rights Reserved.
Despicable Me 2 © Universal Studios. All Rights Reserved.
OverviewStrategyPerformanceGovernanceFinancials 20
Millicom Annual Report 2014
Millicom Annual Report 2014
21
Our business
model
Interim CEO’s statement
Market overview
Our business model
Our strategy
Risk management
p.14
p.16
p.20
p.22
p.38
Creating value for
all our stakeholders
Creating value for customers
Our customers and their needs are at the
centre of our business, both the value
proposition and the operating model. We
create customer value by providing relevant
digital products with the best service and
customer experience. With our strong trusted
consumer brand, Tigo and innovative and
accessible product offering, we help emerging
and frontier countries in Africa and Latin
America and their populations access the
digital lifestyle.
Creating value for shareholders
We create value for our shareholders
by continuously striving for profitable
growth through our transformation from
telecommunications utility to a digital
lifestyle enabler. We invest early in new
technologies and services that we believe
will become relevant to our customers.
In 2014 we continued to see the benefits
of our investments in mobile broadband,
mobile financial services, cable and
digital media.
Our operating model prioritises good long-
term relationships with our suppliers and
quality throughout the value chain. Our
infrastructure needs to offer breadth of
coverage and be of the highest quality
to support our best-in-class service. Finally,
we aim to have the best people with the
right skills completely focused on the
needs of our customers.
V a l ue proposition
Brand
Trusted
brand
Service
Provide excellent
service and customer
experience
Product offering
Locally relevant,
innovative and
useful products
and content
Sales
High availability
of sales channels
Customer at
the centre of our
business model
Value chain
Long-term supplier
relationships
Organisation
Right people with
right skills
Infrastructure
Wide coverage and
quality of networks
Operating mo d e l
OverviewStrategyPerformanceGovernanceFinancials 22
Millicom Annual Report 2014
Our strategy
Interim CEO’s statement
Market overview
Our business model
Our strategy
Risk management
p.14
p.16
p.20
p.22
p.38
Empowering the
digital lifestyle
Strategic pillar
Progress
Strategy
Progress highlights
Challenges
Mobile
Move from volume
to value
Up 12% to over
56 million customers
56m
Revenue up to
$4.7bn
Latin America
–
Increase in smartphone penetration
to accelerate data penetration
– Develop digital products and services by
focusing on unique, quality entertainment
– Data monetisation and cost reduction by
leveraging bundles and “smart pricing”
– Optimise channel network innovating
–
across trade channels to reach customers
anytime, anywhere
Bundling across business to increase
stickiness and satisfy all our customer’s
digital lifestyle needs including
convergent offers
Africa
–
Focus on higher value consumers,
primarily the digital segment
Transform product, network and sales
capabilities to cater to this segment
– Drive data penetration through strong
–
focus on devices, 3G and 4G rollout and
‘early adoption’ value propositions to
the consumer
Focus on network investment monetisation
and efficiency. Selective investment
underway to expand footprint
–
–
–
–
–
–
–
–
Strong expansion of smartphone base
4G launches continue
Innovation in digital services continues
to increase ARPU and reduce churn
Facebook partnership driving data adoption
and loyalty World Cup app
Tigo #8 most admired brand in Africa,
Africa Business magazine
Tigo Music continues to expand
Tactical bundling offers of TV packages with
free mobile minutes in El Salvador, Honduras
Competition in all markets remains fierce
–
–
Balancing Africa investment with returns
– We need to educate people on why they
need digital services, faster speeds and
more content
–
Regulation and taxation agenda
– We need to maximise efficiency and
investments optimisation without
compromising growth
Millicom Annual Report 2014
23
We focus on three core businesses, our Mobile,
Cable & Digital Media and Mobile Financial
Services. We believe these are the building
blocks that will deliver the global digital
lifestyle to our customers.
KPIs
Mobile data revenue
$923m
Mobile data growth close to
34%
New Mobile data users
5.2m
Cable & Digital
Media
To capture the
opportunity
HFC homes passed
5.6m
Revenue more than
doubles to
$970m
Latin America
– Grow organically and make tactical
–
–
–
acquisitions
Buy old simple networks where available and
upgrade them to international standards
Bring satellite TV to rural areas where no
TV available
Bundle data, TV and mobile to drive revenues
and make it harder for smaller operators to
copy our service
Provide premium content
–
– Maintain top-quality network and
Africa
–
Cable business not yet operational in
Africa because the fixed infrastructure
is still lacking
Selective Fiber To The Home (FTTH)
pilots underway
–
–
– Huge strides made with UNE merger
Launched premium pay-TV channels
–
in Paraguay and Bolivia
Launched own content with
Tigo Sports channel
Satellite TV launched in five countries
Close to half of our customers have
high-speed fixed data products
–
–
increase homes passed in new markets
Mobile Financial
Services (MFS)
Create a blockbuster
Revenue up
47%
Active users up
51%
Medium and late stage markets
–
Expand usage/ARPU and grow user
base by increasing mobile penetration
and customer acquisition and retention
campaigns
– Grow the ecosystem through expansion
of the product suite and offer advanced
financial services products such as
micro-loans and insurance
– Migrate to wallet-based products
to accelerate financial inclusion
Transition and early stage markets
– Market services that can be profitable within
existing regulatory environment
– Grow the MFS user base by increasing
mobile penetration and customer acquisition
campaigns with basic offers such as person to
person payments and international remittances.
– Monetise the customer growth seen
in 2014 focusing on eco system and
transactional growth to increase ARPU
– Drive further regional interoperability
–
in East Africa
Focus on operational models that
work in individual markets
– Many innovative new products launched
–
Payments enabled across borders and
between operators
Smartphone channel launched showing
a 20% increase in usage and building on
our smartphone mobile push
–
– Mobile proposition linked to MFS – rebates
–
–
on usage or top-ups
Two major platform upgrades in Rwanda
and the DRC
Joint venture with Kalixa to develop
payments service provider for both
businesses and consumers
– Need to educate people on why they need
Organic Cable revenue growth
our services and what faster internet speeds
can deliver
Piracy – signal theft by consumers and less
ethical operators
–
– Have to be cost effective in lower ARPU
markets – MFS perceived as a good way for
people in remote areas to pay for our services
– We need to maximise efficiency and
investments optimisation without
compromising growth
– Need to create bundles with mobile service
13.5%
HFC homes connected
2.6m
RGUs per HFC household
1.8
– Need to consistently monitor regulations
and communicate well on new proposals
– We need to find MFS business models that
will work in all our markets within existing
regulatory frameworks
– Network stability impacts MFS more
severely as it erodes money trust.
Revenue up to
$113m
Transactions
volume up
40%
MFS active users
9.5m
OverviewStrategyPerformanceGovernanceFinancials 24
Millicom Annual Report 2014
Our people
At the end of 2014:
23,297
employees
71%
were in South America
19%
were in Central America
9%
were in Africa
99% of our employees
are employed locally.
We are proud of our very
diverse workforce, which
comprises more than
56 nationalities
Our people are technical innovators,
telecommunications experts, dynamic
entrepreneurs and sales people, all working
together across a unique geographical
footprint. They are the backbone of our
business, empowering the transformation to
a digital lifestyle, with focus on the diversity of
our customers and the markets we operate in.
At the end of 2014 we had 23,297 employees,
71% of those in South America, 19% in
Central America and 9% in Africa. Some 99%
of our employees are employed locally.
Our culture
As a Group that values innovation, we strive
to have a dynamic work environment where
employee creativity is highly encouraged and
appreciated. In an ever-changing industry, we
bring together ideas and people from a diverse
set of countries and cultures and continue to
build on the strength of that diversity. Our
Executive Committee consists of nine individuals
representing eight different nationalities.
Our people and our evolving culture are two of
the key pillars in the strategic transformation
from a standard telecommunications company
to a digital lifestyle business. We continue to
build on developing a dynamic and motivated
team that can deliver the transformational
change of turning our vision into reality.
Millicom Annual Report 2014
25
Employee engagement
We are committed to responding to the
needs of our employees and ensuring
we provide a foundation for continued
development and opportunities for personal
growth. Over the past year the Africa Human
Resources Leadership team, in conjunction
with the respective Country Executive teams,
have convened in Tanzania, Senegal, DRC,
Ghana, Rwanda and Chad to facilitate mentoring
and career counselling sessions, as well as to
discuss and explore additional opportunities
for individual career planning, development
and growth. Millicom has a high focus on
Talent Management, and this is an example
of the Group’s commitment to ensuring a
continued strong focus and momentum
on our people development.
Through Millicom University we deliver
management and leadership development
training, online functional development, and
sales training via Tigo Sales Schools. Last year
we trained over 18,000 contractors and agents
through the Tigo Sales School in Latin America
which was established in Guatemala, El
Salvador, Colombia, Paraguay and Bolivia.
Honduras and Costa Rica will follow in 2015.
Going forward, we continue to focus on
developing our middle management leadership
capabilities, further embrace the cultural
diversity of our workforce, and improve aspects
of staff and contractor health and safety (see
following page).
Our highest profile method of recognising
performance is our ‘Millicommander’ event
where we invite 21 of the most outstanding
of our employees to come and share their
experiences and generate new ideas together.
The event culminates in the selection of the
seven top Millicommanders and an overall
Employee of the Year.
More detail on all of these areas
can be found in our Corporate
Responsibility Report or at
www.millicom.com
OverviewStrategyPerformanceGovernanceFinancials 26
Millicom Annual Report 2014
Our people
(Continued)
Millicom Annual Report 2014
27
Valuing diversity
We are proud of our very diverse workforce,
which comprises more than 56 nationalities.
We work hard to promote inclusion in our
workplaces so that all staff can feel at ease
and appreciated.
In 2013 we recognised that we needed to
improve gender diversity and particularly
increase the number of women in senior
roles. Hence, in 2014 we established a global
programme to raise awareness, enhance
our recruitment, learning and development
processes from a diversity perspective, and
review our family related policies. We are
currently undertaking a diversity benchmarking
exercise to provide us with external insights
to support this global programme.
Although we know more needs to be done,
we have already made significant progress,
with women now our most senior staff in
Ghana, DRC and Tanzania.
Creating a safe working environment
We are dedicated to providing a safe
and healthy working environment for our
employees, contractors and business partners.
We work continuously to strengthen our
integrated health and safety management
and self-assessment system, and provide
regular communication and training to
relevant parties.
By the end of 2014, our incident management
tool was in place in all countries where we
operate, allowing local teams to capture
real-time information on any incident. This will
significantly help us manage our country level
risks better, enabling us to analyse trends and
identify key issues.
Head count
23,297
11,451
10,484
2012
2013
2014
Percentage employed locally
98
99
99
Doing business the right way
Millicom operates in highly demanding
markets, each with its specific challenges due
to the social, economic and political landscape.
We face a range of different business cultures,
traditions and risks so it is important to ensure
that our employees, suppliers and other
business partners are clear on our expectations
and what we mean by doing business the right
way. We take a strong stand against illegal
and unethical activities and are committed to
meeting the highest standards of compliance
with applicable legislation, conventions and
policies. As such, our aim is to continue to
create value by being a trusted partner to
our clients, our colleagues and our investors.
In order to protect the company and our
employees, we have a set out a number of
internal policies, such as the Code of Ethics and
other risk-based policies, to guide us. We also
have a global helpline – Millicom Ethics Line
– where both employees and external parties
can raise concerns. We ran a company-wide
communication campaign on the Code of
Ethics and the process for raising concerns
in 2014. We also updated our Supplier Code
of Conduct that we provide to the suppliers
we work with to ensure they apply similar
standards to ours.
2012
2013
2014
Percentage of female employees
33
33
31
2012
2013
2014
More detail on all of these areas
can be found in our Corporate
Responsibility Report
OverviewStrategyPerformanceGovernanceFinancials 28
Millicom Annual Report 2014
Strategy in action
Spotlight
on Colombia
Two great complimentary businesses
Colombia is one of the most attractive
emerging markets for investment in Latin
America. It has strong economic growth, a
stable political environment and 75% of its
population in urban areas. Our merger with
UNE in 2014 enables us to take advantage
of the opportunities in this exciting market.
Separately Tigo and UNE had strong distinct
positions in the market. Together we are #2 in
pay-TV, #1 in fixed telephony, #2 in broadband
internet and #3 in mobile telephony.
Before the merger, our mobile business at
Tigo had grown at more than double the
market rate for the last two years, gaining
market share and a strong position in data.
We were also the largest provider of digital
music, included in 90% of our data plans.
Our exclusive live music sessions, for example
with Latin Grammy award winner Juanes,
had helped firmly establish Tigo as the
mobile music brand.
Coming together makes complete sense
for both businesses and our business in
Colombia is close to becoming the second
largest telecommunications provider in
the country.
An alliance for growth
The merger of the two companies into
Tigo-UNE has created a business offering
a comprehensive range of bundled digital
services to millions of households including
mobile and fixed telephony, mobile and fixed
products. Together they have annual revenue
of over $2 billion and over eight million mobile
and fixed customers.
We will develop our integrated mobile and
cable offer. In mobile we will offer tailored
and segmented services in data and digital,
providing excellent customer experience with
a special focus on Bogotá, Medellín and the
Atlantic Coast. We aim to increase mobile
market share leveraging UNE’s position in fixed
services and increase profitability through
operational excellence. The Colombian
telecoms market has grown 7% per annum
for the last two years and we see potential
to significantly increase consumer spend.
In the cable business we will increase the
number of homes passed and aim to grow
the proportion of homes connected. We plan
to increase our cable penetration outside
Medellín, focusing on Bogotá and other cities.
We will also expand our B2B business offering
segmented products and customers support
for SMEs, large corporates and government.
Empowering choice in Colombia
Our goal now is to successfully integrate
the two businesses, realise synergies and
grow the integrated offer. Together we are
building a strong and exciting telecoms and
media business to empower for the people
of Colombia.
Millicom Annual Report 2014
29
#2
Tigo and UNE had strong distinct
positions in the market. Together we are
en route to being the second player in
the market
7%
Annual growth rate of the Colombian
telecoms market with potential to
significantly increase consumer spend
Our merger with UNE
in 2014 enables us to
take full advantage of
the opportunities in this
exciting market
OverviewStrategyPerformanceGovernanceFinancials 30
Millicom Annual Report 2014
Strategy in action
(Continued)
Spotlight on
TV content
A big part of our strategy is the provision
of content relevant to our customers.
Empowering the digital lifestyle is not
just about providing the products and
infrastructure required, but the premium
content customers are increasingly coming
to expect. In 2013 we announced our goal of
achieving a $2 billion consumer cable business
by 2017. The provision of high-quality content
into customers’ homes is a key driver to
reaching that target.
With the UNE merger last year we now have
residential cable TV services in Costa Rica,
El Salvador, Honduras, Guatemala, Paraguay,
Bolivia and Colombia. We launched satellite
services in five countries in 2014 in just five
months. We are now the seventh largest pay-TV
and broadband operator in Latin America.
Our newly launched Tigo Star brand offers
world-leading content to our 2.6 million
homes connected.
We offer HD channels, pay-per-view and video-
on-demand as well as 3D and a multiroom
service allowing access to channels on multiple
TVs. Last year we also launched Tigo Sports,
our own exclusive sport channel in Paraguay
and Bolivia providing unique content which is
a key driver in digital lifestyle adoption. There
are few local sports channels in our markets
and Tigo Sports is already proving very
popular. It is the most viewed pay-TV channel
in Paraguay. Unlike other providers we can
monetise our content across several platforms:
cable, satellite and mobile. So there are many
ways to access Tigo’s great content.
We have launched DTH in five markets.
Satellite technology allows a quick expansion
of our footprint and expands the reach of out
TV products. We have seen a strong appetite
for the product in the first months reaching
85,000 new homes. Additionally, we have
found that for 37% of our subscribers, MFS is
the ideal channel to pay for their DTH service.
A great example of how our products converge
to deliver a digital lifestyle to our customers.
Millicom Annual Report 2014
31
$2bn
target for B2C cable revenue by 2017
announced in 2013
7th
largest pay-TV and broadband operator
in Latin America
With the UNE merger last
year we now have cable
TV services in Costa Rica,
El Salvador, Honduras,
Guatemala, Paraguay,
Bolivia and Colombia
© 2014 HBO Ole Partners. All rights reserved. © 2012 Disney Enterprises, Inc.
OverviewStrategyPerformanceGovernanceFinancials 32
Millicom Annual Report 2014
Review of operations
Central America
Millicom Annual Report 2014
33
Weight of countries in regional revenue
(%)
5
18
26
51
Guatemala
Honduras
El Salvador
Costa Rica and Nicaragua
Percentage of business mix (%)
9
15
76
Mobile
Cable
MFS and other
Key highlights
Launch of our satellite pay-TV offers
in four countries
In 2014, the region represented 39% of
the Group revenues across five countries,
with Guatemala as main contributor to the
region (51% of revenues). Three countries
(El Salvador, Guatemala and Honduras) in
which we operate have mobile and cable
networks, Costa Rica and Nicaragua operating
only through our cable networks. In 2014, our
Mobile business represented the major part of
our revenues (76% down from 79% in 2013)
with Cable revenues representing 15% (14%
in 2013) and Others, handset sales in the vast
majority, 9% (7% in 2013). The macroeconomic
environment in the region was not uniform
with some challenging conditions in El Salvador
and Honduras whilst Guatemala experienced
good momentum. Despite no new entrants,
competition in Central America remained
strong, especially in El Salvador, as competitors
have continued to push reload multipliers,
aggressively priced packages and
activation benefits.
El Salvador
El Salvador faced a tough year due mainly
to macroeconomic conditions and intense
competition. Revenue was up 1% for the year
helped by strong handset sales (multiplied by
nearly three times); excluding handset sales
revenue declined by 4%. This decline was due
to the competitive pressure on the mobile
market. Mobile revenue reduced by 8% for
the year, with the decline of voice and SMS
(-13%) not offset by the strong growth of data
(+22%). Trends in Cable were more favourable.
We achieved a 7% growth year-on-year,
backed by the launch of Tigo Star brand and
the launch of our DTH service. On MFS, we
continue to see a strong adoption of the
product and revenue grew by 58% for the year.
We closed the year with an EBITDA margin at
37%. Our investments on the year increased
by 39% and have been geared to support
the data growth and expanding our cable
footprint including satellite pay-TV. In 2015,
we will reinforce our affordability to counter
competitive and economic pressures and
prepare to win in the transition to fixed number
portability. We see significant opportunity in the
SME segment which we see as underserved.
Guatemala
Guatemala was our best performing business
in Central America. We were able to deliver 5%
year-on-year growth. Mobile revenue was up
3%, led by mobile data (+41%) more than
offsetting the decline in voice and SMS.
Since the launch of our marketing campaign
“Desfrijolízate” in 2013, the appetite for
smartphones in the country remained unabated
and the adoption rate in 2014 increased by
more than 22 percentage points to 37% with
1.5 million smartphones sold during the year.
On the cable side, we successfully launched
our Tigo Star brand in August after having
consolidated part of the local cable market.
Our cable footprint increased by 155,000 homes
in 2014; we also started offering our satellite
pay-TV service last summer. These efforts
were rewarded with cable revenues up 13%
compared to 2013. Our EBITDA margin declined
by nearly one percentage point to 51% over
the last 12 months. Despite a large corporate
contract triggering significant implementation
costs, we contained the increase of our
investments to 4%, leading to a 6%
improvement of our Operating Cash Flow.
In 2015, Guatemala should continue to be
a solid source of growth in Central America
driven by the launch of our 4G service, the
uptake of our pay-TV satellite service and
the expansion of our cable footprint.
Honduras
In Honduras, revenue declined by 1% in
2014. On Mobile, revenue was down almost
4% versus the prior year resulting from difficult
macroeconomic conditions, strong competition
and some regulatory constraints that limited
temporarily our coverage in certain areas.
Mobile data had a good year, with penetration
up five percentage points to 28% and revenue
growth of over 27%. With a revamped product
offering, a clear focus on data and a strong
commercial push, we have seen net subscriber
additions back in positive territory and a strong
appetite for smartphones. The recent launch
of 4G in the market will also provide a new
customer experience on which we expect
to capitalise in the coming quarters. Cable
continues to perform well (+10% in 2014)
thanks to the launch of Tigo Star and our DTH
offer. Despite some temporary issues in the first
half of the year due to regulatory constraints on
geographical coverage, our MFS business grew
by 39% with the penetration reaching 21%
(8% in 2013). Following our commercial efforts,
our EBITDA margin reduced by three percentage
points in 2014 to 45%. In 2014, we invested
$38 million in extending our mobile license
(including 850MHz and AWS spectrum).
Continued focus on mobile data and
convergent offers will be the biggest
opportunities to capture growth in 2015.
OverviewStrategyPerformanceGovernanceFinancials 34
Millicom Annual Report 2014
Millicom Annual Report 2014
35
Review of operations
(Continued)
South America
In 2014, the region represented 46% of the
Group revenues across three countries, with
Colombia as main contributor to the region
(57% of revenues). Since our merger with
UNE in Colombia in August last year, each
country in the region has now mobile and
cable operations. In 2014, our Mobile
business represented the major part of our
revenues (68% down from 85% in 2013), the
contribution from Cable strongly increased to
represent 21% of the regional revenues (5% in
2013) thanks to the first time consolidation of
UNE in Colombia as well as the solid growth of
our Cable operations in Paraguay and Bolivia.
Colombia is the third largest economy in Latin
America. Towards the end of 2014 the drop in
world oil prices impacted the Colombian peso,
which dropped to its lowest level in more than
five years. The macroeconomic environment
in Bolivia and Paraguay was stable in 2014
compared to 2013.
Bolivia
In Bolivia, 2014 yielded strong results. Revenue
was up by 8% in 2014. Mobile revenue growth
was over 5%, led by strong data growth
(+59%) with data penetration exceeding 50%
at the end of the year. The LTE launch was a
key milestone in Bolivia during 2014 and we
started to offer Tigo Music with weekly offers.
On the Cable side, we acquired the exclusive
local football rights and our Tigo Sports
exclusive channel launched in November has
started contributing to the revenue growth
which reached 73% in 2014. EBITDA margin
for the year was 36%, down 1 percentage
point mostly due to the change in the revenue
mix (handset sales increased by 100%). In
2015, we expect the demand for Tigo Sports to
accelerate. The appetite for smartphones and
mobile data will continue to increase strongly
strengthening the need for synergies between
our different business units.
Weight of countries in regional revenue
(%)
17
26
57
Colombia
Paraguay
Bolivia
Percentage of business mix (%)
11
21
68
Mobile
Cable
MFS and other
Key highlights
Final approval for UNE merger received
and transaction completed
Tigo Music has become the largest
music streaming service in Colombia
Tigo Sports exclusive football rights and the
HDTV offer differentiate us in Paraguay
Colombia
The merger of our mobile operation with
UNE cable business was the key milestone of
Millicom Group in 2014 and will be the key
growth driver in the medium term. Colombia
has become our largest operation in 2014
(26% of Group sales with UNE consolidated
from August), in our most developed market
and with phenomenal results. Mobile revenue
increased by 22% in 2014 with data growing
36% and data penetration topping 31%. Our
product development has been a key enabler
of these results, for example Tigo Music has
become the largest music streaming service
in the country and our recently announced
partnership with Facebook will allow a new
segment of the population access to data for
the first time, a key product that will reinforce
our growth story in coming quarters. Since our
merger with UNE in mid-August, we have
worked on expanding our footprint, upgrading
the network and offering new pay-TV and fixed
broadband products to our customers. The
EBITDA margin for Colombia reached 26%,
up 2 percentage points compared to last year
despite the dilutive impact coming from
handset sales which grew by 92%. The
integration process with UNE is progressing well
and we have recently reaffirmed our synergies
target which should reach at least a net present
value of $600 million. We spent almost 17% of
revenues in investments in 2014 with a specific
focus on LTE coverage and 3G capacity as well
as the expansion of the cable footprint. We will
continue in 2015 our successful strategy on
mobile data and expand the footprint of UNE.
Paraguay
In Paraguay, the revenue growth was
moderate (+2%). Cable performed strongly
(+26%) on the back of Tigo Sports’ launch, the
exclusive football rights and the HDTV launch
we had in Q1. Paraguay continues to be the
best market in Latin America for MFS. We had
positive results in both adoption and ARPU,
and as a result we experienced over 40%
year-on-year growth. Mobile revenues declined
6% for the year following strong competition
and a MTR cut of 47% in November. The
resulting product mix had a dilutive impact on
the margin, which closed down four percentage
points to 48%. Investments made in Paraguay
were close to 16% of revenue and our
operating cash flow improved by 2%. The end
of the year gave encouraging signs for 2015
as some indicators regarding our brand
recognition were recovering and we expect the
adoption of our pay-TV products to continue
driving cable revenues.
OverviewStrategyPerformanceGovernanceFinancials
36
Millicom Annual Report 2014
Review of operations
(Continued)
Africa
Millicom Annual Report 2014
37
We gained over
1.2 million subscribers
in DRC, more than half
a million in Rwanda,
over 300,000 in Senegal
and more than 155,000
in Ghana
Other African markets
We continued to pursue growth throughout
our other African markets. We gained over
1.2 million subscribers in DRC, more than half
a million in Rwanda, over 300,000 in Senegal
and more than 155,000 in Ghana. We
increased our coverage and deployed data
to new areas in all of our markets. The results
were positive in Rwanda and Ghana, where
we saw revenue growth in excess of 20% while
DRC grew at a modest rate and Senegal faced
a small revenue decline. Data had a strong
year, growing over 50% in all four markets, the
biggest one being Ghana. Mobile data reached
26% of our customer base in Rwanda, 23%
in Ghana, 14% in DRC and Senegal. MFS also
had a strong year, particularly in Rwanda
where it more than doubled the revenues,
followed by Ghana.
Given the investment to pursue growth and
high competitive pressure, these markets have
experienced low margins. Capital investment
remains high as a consequence of the strategic
initiatives in place to improve the coverage
and capacity to recapture growth. We expect
the measures put in place in 2014 to help
improve cash generation in 2015.
Weight of countries in regional revenue
(%)
45
18
37
Others
Tanzania
Chad
Percentage of business mix (%)
11
89
Mobile
MFS and other
Key highlights
First full interoperability service in
mobile money in Tanzania
Tigo Wekeza – returns paid on mobile
money accounts – a world first
Cross-border mobile money transfer
service between Rwanda and Tanzania
Partnership with Facebook in East Africa
In 2014, the region represented 16% of the
Group revenues across six countries, with
Tanzania as main contributor to the region
(37% of revenues). In 2014, our Mobile
business represented the vast majority of
our revenues (89% down from 92% in 2013),
the contribution from MFS increased by
two percentage points to 7% with Others,
essentially handset sales, representing the
remainder. GDP growth remained above
global average in nearly all of our African
markets; however, many new regulatory
proposals made the operating environment
challenging. New proposals for taxation of the
telecommunications sector were introduced.
Tanzania
Tanzania closed the year with 8.2 million
subscribers, with 2.2 million mobile additions in
the year. Revenues grew by 8% in 2014, backed
by not only the net additions but a strong growth
in mobile data up 51% and MFS which grew at
40%. On mobile, despite strong competition
in a multi-SIM market, we have been able to
maintain a modest growth in voice and a
stronger performance on SMS. Data has
become more accessible, in part with the
partnership with Facebook where we offer the
Swahili based app to communities that are
just discovering data for the first time. On MFS
we continue to reach important milestones.
After a difficult start to the year when one of
our competitors offered free mobile money
products for some months, our innovation was
a key differentiation in the market. Products
like cross-border/cross-currency money
transfers with Rwanda in Q1, automatic returns
with Wekeza in Q3 and the initial stages of
interoperability encourage us to expect strong
performance in the coming years. As a result
of the product mix, we have had some erosion
of margins with EBITDA at 35% (down two
percentage points year-on-year).
Chad
Chad reported revenue growth of 21%. The
subscriber base grew by 22% during the year.
Voice revenues were up +20% year-on-year
and we see an encouraging increase of data
usage (revenue is up 55%). Voice remains the
main revenue contributor but we see some
encouraging signs in data with the penetration
reaching 8%. We have launched 4G in key
areas in Chad. MFS is still a small business, but
penetration rate increased by 8 percentage
points in one year to 18% and we experienced
triple digit revenue growth. The EBITDA
margin ended up at 36%, down five
percentage points year-on-year essentially
due to some incremental taxes.
OverviewStrategyPerformanceGovernanceFinancials 38
Millicom Annual Report 2014
Millicom Annual Report 2014
39
Risk management
Interim CEO’s statement
Market overview
Our business model
Our strategy
Risk management
p.14
p.16
p.20
p.22
p.38
Balancing risk
with return
Millicom operates in a dynamic industry
characterised by rapid evolution in technologies,
consumer demand, and business opportunities.
Millicom’s markets are highly demanding, each
with their specific challenges due to the social,
economic and political landscape.
Our strategy and direction is significantly
influenced by the objectives and expectations
of our stakeholders, the needs of our customers
and opportunities, both pre-existing and those
we create. Millicom has a pro-active, enterprise-
wide approach to identify, understand, assess,
monitor and balance its numerous risks and
opportunities. We empower our strategic and
operational decision makers to strike the right
balance between risk and profitable top-line
growth, cash flow generation and return on
invested capital, ensuring we both enhance
and protect the business. We carefully assess
our comprehensive risk exposure, taking
into account risks from a macro perspective,
such as developments in the political and
regulatory area, and more direct and tangible
risks, such as safety of our people and security
of confidential brand and customer information.
The risks are manifested in various ways, but
directly or indirectly affect our products, our
revenue, our systems, our people and our clients.
Management of these risks is therefore essential
to the way we do business.
Millicom’s risk function
Millicom has a network of risk officers at
headquarter, regional and each significant
operating country level, led by the Chief
Risk Officer. The risk function is tasked
with identifying, analysing, monitoring and
coordinating Millicom’s approach to balancing
risk with return and reporting to the Executive
Committee. The Audit Committee is
responsible for reviewing the effectiveness
of risk function activities and has oversight
of risk-related activities of the Group,
reporting to the Board of Directors.
Key strategic and operating risks are assessed
from an overall Group perspective as well as
individual country and business units. Risk
action plans that seek to balance risks with
returns are developed, implemented and
modified over time as the underlying risks
evolve. Action steps are implemented both
globally and locally by executives and key
decision makers.
Risks are inherent in business, and Millicom
accepts these risks to the extent that
opportunities for sufficient returns exist and
that systems and controls are in place and
operating effectively to manage risks to an
acceptable level.
Evolution of key risks in 2014
During 2014 we continued the transformation
of Millicom from a mobile services provider
to a digital lifestyle enabling company with
an increasing portfolio of services delivered
through mobile and fixed line businesses. We
significantly expanded the fixed line business
with the acquisition of UNE in Colombia,
regionalisation of many commercial initiatives,
and a reduction in non-core investments, all
during a time of further pressure on margins
and profitability through both competitive and
regulatory forces. These developments have
provided a number of opportunities and
challenges, including an increased need to
adapt and drive innovation, and maximise
distribution of talent and resources.
The table overleaf summarises the business
risks and opportunities we face operating
in our various emerging markets and business
units. We then touch on specific risks focusing
on safety and security, legal and compliance,
and corporate responsibility.
OverviewStrategyPerformanceGovernanceFinancials
40
Millicom Annual Report 2014
Risk management
(Continued)
Millicom Annual Report 2014
41
Potential risk
Evolution of the risk
Where we see opportunities
How we balance risk with return
Potential risk
Evolution of the risk
Where we see opportunities
How we balance risk with return
Shift in consumer demand
The increasing availability
of communication channels
is providing customers with
more choice. Failure to adapt
our products and services to
consumer trends and lifestyle-
enhancing solutions or failure
to be present in the consumer
connectivity value chain may
lead to decline in revenue.
Financial risks
32% of Group debt is
denominated in US dollars
and held at Group level. In
addition 50% of the debt in
the operations is exposed to
US dollar fluctuations as it
is in a currency other than the
operations’ functional currency.
Our revenue-generating activities
are predominantly in currencies
other than US dollars. This creates
an exposure to fluctuations
in exchange rates that may
negatively impact our reported
results and US dollar cash flows.
We are increasingly dependent
on the ability of our operating
entities to upstream cash to
service US dollar borrowings, and
exposed to potential risks related
to macro-economic conditions,
policies and currency controls
in our operations.
Shift in consumer demand and
connectivity channels in many of
our markets is rapidly reshaping the
competitive landscape. Lifestyle-
changing product offerings, such
as mobile financial services, are
becoming critical components of
mobile operators in certain markets
(e.g. Tanzania).
Access to the internet and availability
of affordable handsets remains a key
driver of customer uptake and retention
in LATAM, and a decline in voice
revenue as customers use other means
of communicating (in particular over-
the-top communication products), adds
pressure to traditional business models.
Currency volatility has increased
during the year, in particular because
the Colombian peso has declined by
over 20% against the US dollar during
2014. This fluctuation, together with
the acquisition of UNE during 2014
has significantly increased our
exposure to the Colombian peso.
100% of our debt in Colombia is in
local currency providing a natural
hedge against this heightened
volatility of the peso.
None of the countries in which
we operate have hyperinflationary
economies or immediate threat
of forced currency devaluations.
Nevertheless, in some of the countries
in which we operate, political and
economic stability may deteriorate
rapidly, and result in currency
devaluation or hyperinflation.
In El Salvador and DRC the currency
of operation is the US dollar. In Chad
and Senegal, the local currencies are
pegged to the Euro.
We continue to see opportunities to migrate
many of our customers to bundles of data and
traditional mobile services, and experience
rapid payback on handset subsidies in the
fastest developing data markets.
As customers evolve toward new lifestyle
changing solutions (above and beyond
communication) we are expanding our
presence in cable and digital media businesses
and forging new partnerships (e.g. Facebook
and Deezer) to provide our customers with
new and improved experiences.
We actively engage our customers and potential
customers in consumer feedback experience
programmes and look to roll-out innovations
between our markets.
We provide a mix of tariff and product structures
targeting specific customer segments and promote
the uptake of data and other value added services
in our more developed markets.
We have accelerated our investment in data uptake
based on customer demand and trend and seek to
expand our portfolio of offerings and services, by
introducing new possibilities for consumers to access
content-related products (e.g. the launch of satellite
pay-TV in Latin America in 2014).
We continue to see opportunities to
refinance existing debt and benefit
from the relatively low cost of financing
through global debt markets.
Colombia has a relatively mature financial
market with various financing and hedging
instruments available that could be used to
manage currency fluctuations in the income
statement and cash flow as our balance
sheet is already fully hedged.
We closely monitor economic and political conditions
in the markets in which we operate. Our cash flow
planning process involves careful analysis of the
timing and amounts of cash flows required to service
Group-level debt while balancing cash flow needs of
each of our operations.
Contingency plans are in place to ensure alternate
sources of funds are available if required.
In certain countries we obtain financing through our
local entities reducing our exposure to risk factors.
The diverse geographical spread of the countries
and economies and currencies in which we generate
revenues and cash flows reduces our exposure to
fluctuations in individual countries or currencies.
We maintain a policy of holding excess cash
generated in US dollars and upstreaming cash to
holding companies or cash pooling in US dollars.
We repatriate cash as early as possible and through
different means: royalties, dividends and management
fees, supported by appropriate agreements.
Non-US dollar denominated debt at holding
company level is hedged to US dollars.
Financial risks (continued)
Sources of financing may
not be available, or may not
be available at commercially
acceptable rates in the currencies
in which we generate cash flows.
Furthermore, financial
instruments that hedge against
currency fluctuations may not
be available. This creates an
exposure to exchange rate
fluctuations that may impact
our US dollar reported results
and the US dollar value of
our reported external debt.
We have been able to renew or
replace existing debt on commercially
acceptable terms.
We have successfully raised additional
financing through bonds, increasing
our liquidity and raising our average
debt maturity. Our average external
financial debt maturity at the end of
the year 2014 stood at 5.3 years and
our debt maturing in the short term
was fully covered by our committed
and undrawn Revolving Credit Facility.
In 2014 the acquisition of UNE
increased our Net debt/EBITDA ratio.
This was partially mitigated by the
sale of non-controlling stakes in the
Colombian tower company and the
Mauritian business.
We follow a strategy involving
a mix of debt and equity
financing that creates a degree
of dependence and exposure to
availability of external financing.
If liquidity in the financial
markets in which we have
historically raised debt reduces
we may need to seek financing
or refinancing in different
markets or at higher prices
than in the past.
We have been able to renew or
replace existing debt on commercially
acceptable terms.
In 2014 we have successfully
negotiated a revolving credit facility
that provides an additional source of
finance as and when required. It was
fully undrawn at December 31, 2014
and covers in excess of our debt
maturing in 2015.
We have significant amounts
of cash balances with financial
institutions exposing us to
counterparty risk.
The risk is largely within our control
as we can choose which financial
institutions we use and specific
amounts in each institution.
Low US dollar interest rates continue
to provide opportunities to refinance
or raise additional finance at lower
rates than in previous years and
extend our debt maturity.
Further opportunities exist in refinancing
debt in our local markets.
Operation of successful businesses in
emerging markets and our historic cash flow
have led to a stable credit rating by leading
credit rating agencies Fitch and Moody’s.
Our company is currently rated BB+, stable
by Fitch and Ba1, negative by Moody’s.
This in turn improved over the years our
debt-raising ability and flexibility for
pursuing our strategic objectives.
Sources and currencies of financing and our decision
making is based on a variety of risk and opportunity-
based factors including: interest rates, currencies,
credit, counter parties, tax efficiencies, maturity
and liquidity.
We seek to balance the various financing risks that
we face through a variety of sources of financing and
a target mix of variable and fixed interest rates, local
currency versus US dollar debt and hedges against
fluctuations between financing currencies and the
US dollar and variability of interest rates.
We have significantly diversified our sources of
financing and we are less dependent on bank
financing, which now represent circa 25% of our
total financing while public financing now accounts
for almost 70% of our total financing with longer
maturities. We are currently focusing on diversifying
our sources of funding to reduce reliance on debt
capital markets and optimise our maturity profile
and interest charges. In 2014, we successfully
refinanced our operations in Costa Rica and in
Chad with respectively bank debt syndication and
a loan with a Development Financial Institution.
We seek to balance the various financing risks that we
face through a variety of sources of financing and a
target mix of variable and fixed interest rates, local
currency versus US dollar debt and hedges against
fluctuations between financing currencies and the US
dollar and variability of interest rates. At December
31, 2014, 69% of the Group debt was at fixed rates.
Our financial position and policy of holding
cash with several banks provides us with
greater negotiating power giving us access
to a number of sources of additional
financing if and when required.
We diversify the location of cash among a variety of
banks so that our counterparty risk with individual
banks does not exceed limits which we have set
based on each bank’s credit rating.
OverviewStrategyPerformanceGovernanceFinancials 42
Millicom Annual Report 2014
Risk management
(Continued)
Millicom Annual Report 2014
43
Potential risk
Evolution of the risk
Where we see opportunities
How we balance risk with return
Potential risk
Evolution of the risk
Where we see opportunities
How we balance risk with return
Influence of shareholders and insiders
Certain insiders represent
entities that have a significant
number of Millicom shares,
giving them substantial
influence over management.
The shareholdings in Millicom of
these entities have remained relatively
constant in recent years as has the
proportion of representation on the
Board of Directors.
These entities have similar business interests
as Millicom which can lead to additional
business opportunities and sharing of
knowledge and skills as well as entering
into new businesses.
Opportunities for cost and process efficiencies
exist with fellow subsidiaries including
procurement and supplier relationships.
Our Board of Directors comprises nine members
of whom four are independent Directors. The
three-member Audit Committee of Millicom comprises
two independent Directors and the Chairman.
Business dealings with related parties are performed
on an arm’s-length basis.
Transactions and balances with related parties
(including entities controlled by the largest
shareholder) and non-controlling shareholders
in our local operations are periodically reviewed
and approved by the Audit Committee.
Directors refrain from participating in decisions
and votes where they have conflicts of interest.
Our ability to exercise control
over some of our operations is
dependent on the consent of
shareholders who are not under
our control.
Disagreements or unfavourable
terms in agreements governing
our joint ventures may adversely
affect our operations.
We continue to maintain strong and
productive relationships with our
fellow shareholders.
Local partners have local expertise and
know-how which can lead to opportunities
and efficiencies in operating our businesses.
We are in constant dialogue with our local partners
in Honduras, Guatemala, Colombia, Rwanda and
the Rocket Online businesses.
In early 2014 we signed an agreement
with our local partner in Guatemala,
which strengthens our relationship by
providing us with an option to acquire
the remaining 45% of shares in our
Guatemalan operation at any time
over the next two-year period.
Skills, knowledge and experience from our
local partners reduce the risk of entering new
countries or new businesses and provide us
with opportunities to apply this across our
different countries and operations.
The shareholders’ agreement in Colombia that gives
us management rights, and the option agreements
we have related to Honduras (and since January 1,
2014 in Guatemala), enable us to fully control and
consolidate those businesses.
Regulatory, tax and legal risks
The mobile telephony market
is heavily regulated and taxed.
Regulations in new areas of
business such as Mobile Finance
Services are often less developed
and as a result subject to
rapid change.
The tax and regulatory
environments in many of the
countries in which we operate
are evolving in such a way that
rates and types of tax (including
withholding tax) and related
charges, and tariff limits are
increasing regularly. This may
impact the amount and cost of
repatriation of cash from our
operations and may increase
operating costs and/or reduce
interconnection revenues.
Rules and regulations in the markets
in which we operate continue to
evolve with increasing types and
rates of regulation.
Advanced planning enables us to predict
and plan for potential changes in tariffs and
regulations. Dynamic pricing enables us to
adjust rapidly to the impact of rate changes.
We constantly monitor and review potential changes
in regulations and taxes and have implemented a tax
risk management system to identify and actively
manage these risks.
Margins on traditional mobile
telephony services have continued
to be pressured during 2014 with
rate cuts and regulatory restrictions
imposed in many markets.
In addition, the experience we gain in more
regulated and taxed markets enables us to
transfer knowledge and best practice to less
developed markets and thereby react quickly
to changes.
Diversification of products and services
from the traditionally heavily regulated
communications business reduces
our exposure to fluctuations in rates
and regulations.
Taxes and regulatory changes are
increasingly impacting the amount of
cash available for repatriation relative
to cash generated.
Regulatory pressures often create
opportunities for us to serve our customers
better through continuous innovation,
especially in our products and pricing.
The frequency and type of tax
authority and regulatory audits are
increasing, raising the risk of claims for
payment of additional taxes, or fines.
Cost-cutting opportunities are sought in all aspects of
our business to offset the impact of newly introduced
or expected changes in taxes and regulations.
We are operating our telephony businesses in 12
main countries, significantly spreading our regulatory,
tax and legal risks. Additionally we have diversified
our products/services base with less exposure now to
pure telecom operations that are heavily dependent
on regulations (these are generally less applicable to
Cable and Digital Media, and Value Added Services).
Taxes and regulatory pressures are part of the
constraints we have to deal with in the telecom
industry and we constantly look for cost cutting
and other opportunities to offset them. However,
we pro-actively engage with regulatory and other
relevant authorities to ensure our considerations
are factored in to any potential regulatory change.
We have adopted a tax strategy with a considered
approach to risks and uncertainties, particularly
where legislation is either underdeveloped or
lacking in clarity.
We apply international practice including OECD
guidelines in setting transfer prices.
Regulatory, tax and legal risks (continued)
Demand for high-quality spectrum
continues to outweigh availability and
shortages are expected to continue
as demand for data and non-voice
services increases.
Our position as an established number one
or two operator with contractual rights of
renewal in many of our markets positions
us favourably for both renewals and new
spectrum auctions.
The mobile telephony sector
may be forced to provide access
to its spectrum, which may result
in additional competition, or
may be forced to pay high prices
to get access to spectrum.
Many of the telecommunications
regulatory regimes and legal
systems in the countries in which
we operate are underdeveloped
compared to those in developed
markets. This can lead to
uncertainty and unpredictability
in application of rules and
regulations and reduced levels
of transparency and/or
equitableness regarding
claims or disputes.
Most of the countries in which
we operate, telecommunications
businesses have not historically
had universal service obligations
(USOs). If such obligations were
introduced the profitability of
our operations may be
negatively impacted.
Any failure to comply with
local or international laws
and regulations could result in
liabilities, reputational damage,
sanctions or restrictions in
activities. Any of these events
could have a material adverse
impact on our business.
Demand for LTE spectrum continues
to increase as broadcasters, media
firms and others seek to gain footholds
in wireless markets.
There have been no significant
changes in the risk during 2014.
There have been increasing trends
toward introducing USOs in the mobile
sector in the telecommunications
markets in which we operate including
government enforcement of such
obligations. Spectrum and licenses
in certain countries, most notably
Colombia and Honduras, create certain
coverage and social obligations.
Increasingly high penetration levels in
many of our markets might potentially
reduce the likelihood of introduction
of USOs.
Internal compliance, corporate
responsibility and integrity activities
continued to strengthen during the
year. No significant changes noted
in the inherent aspects of this risk.
Our diversifying product and service portfolio
enables us to provide services that optimise
usage of spectrum and reduce reliance on
certain types of spectrum. We are developing
opportunities in partnering to deliver such
services as TV and Machine to Machine).
Our strong cellular tower footprint in
many countries reduces our reliance
on specific spectrum.
As a global player operating across two
very different geographies, Latin America
and Africa, we believe it is part of our duty
to contribute positively to building an improved
regulatory framework in the markets in which
we operate.
We lead by example in the way we do business
and in positively impacting and influencing
the economic environments in which we do
business. In turn this raises our local and
global brand equity.
Our increasing engagement with key
stakeholders in our markets as a corporate
citizen promoting governance and ethics
strengthens the economic environment
in the countries where we operate.
In certain markets regulators offer or require
investment in coverage expansion as an
alternative to cash payments. This can create
a cost effective opportunity to increase
our subscriber base with limited additional
capital expenditure.
Introduction of USOs may present
opportunities to further fulfill our
social responsibility ambitions.
We actively monitor and execute a strategy to secure
high-quality spectrum as and when it becomes
available based on knowledge of customer needs.
We believe that our present and future success
is very much correlated to our understanding of
our customers. We are used to operating in highly
competitive environments and expect competition
to remain strong.
We are ready to share spectrum with other operators
or competitors if necessary to get access to attractive
spectrum and to reduce costs.
We pro-actively engage with regulators, governments
and other key stakeholders in our operations. We
constantly monitor legal and regulatory developments
in our markets and in many countries provide input into
developing or enhancing existing rules and regulations.
We operate our businesses across multiple countries
and business units subject to various different
regulations. This diversification reduces our exposure
to country-specific issues.
Our policies and procedures are based on a
backbone of integrity and ethical practices which
include promotion of transparency and equity
among our business partners and stakeholders
in each of our markets.
We pro-actively engage with regulators, governments
and other key stakeholders in our operations. We
constantly monitor legal and regulatory developments
in our markets and in many countries provide input into
developing or enhancing existing rules and regulations.
We are actively involved in the countries and
communities in which we do business constantly
seeking ways in which the benefits of the services
that we provide can be cost-effectively provided
to a larger base of consumers.
Our presence and reach in many of
our markets provides us with significant
opportunities to demonstrate our role
as leading corporate citizens.
In offering affordable access to voice, data,
entertainment, mobile financial services,
and related solutions we are also investing
a meaningful share of our local net profits
in corporate social responsibility activities.
Corporate governance and corporate citizenship
are embedded in the Millicom culture. We directly
associate brand equity with our public profile
and see management of our image with customers,
regulators and lawmakers in our markets as being
closely correlated.
We adopt a proactive approach to ensuring
compliance with current law and monitor
developments. Scenario and impact analysis is
performed regularly on potential developments, and
preparatory actions taken in advance of effective
dates of new or amended local laws and regulations.
OverviewStrategyPerformanceGovernanceFinancials 44
Millicom Annual Report 2014
Risk management
(Continued)
Millicom Annual Report 2014
45
Potential risk
Evolution of the risk
Where we see opportunities
How we balance risk with return
Potential risk
Evolution of the risk
Where we see opportunities
How we balance risk with return
Emerging market risks
Many of the countries in which
we operate have a history of
political instability. Any current or
future instability may negatively
affect our ability to conduct
business, revenue and
profitability.
Some of the countries in
which we operate have political
regimes that may not view
foreign business interests
favourably and may attempt
to expropriate all or part
of our local assets or
impose controls.
Many of the countries in which
we operate lack infrastructure or
have infrastructure in relatively
poor condition.
Macro-economic risks
An economic downturn,
a substantial slowdown
in economic growth or
deterioration in consumer
spending could adversely
affect Millicom’s operating
results and financial conditions.
While political change has occurred
with relatively little instability during
2014 in several of our markets, the
political systems in some of our
markets (mainly in Africa) remain
relatively fragile, and potentially
threatened by internal disruption
(for example DRC).
Political instability can have a negative
impact on currency value. As the
majority of our markets generate
revenue in local currencies, this can
have a negative impact on our US
dollar results.
Government expropriation of assets
does occur in some of our markets
(in recent years in the energy sector
in Bolivia), and this threat remains.
However, other than Bolivia the
overall threat has steadily declined
over recent years.
Political uncertainty typically hinders country
growth. Stability drives economic growth and
provides more opportunities for customers to
improve their lives through use of the services
that we provide.
As the services we provide contribute positively
to the societies in which we operate, improving
stability in our markets can lead to an
appreciation of the value of our businesses.
We regularly engage key stakeholders in and monitor
political and economic stability in all our markets.
We have contingency plans in place that enable
us to operate under challenging/constrained business
environments.
Our corporate responsibility initiatives include
demonstration of the significant role we play in
contributing to economic development in the
countries in which we operate.
Local debt which is non-recourse to Millicom reduces
exposure to political risk and currency risk.
A marked increase in social responsibility
programmes and stakeholder engagement
contributes to an improved profile as a good
corporate citizen. We strongly believe that
such actions and activities lead to increased
customer uptake and loyalty (reduced churn).
They also contribute to raising our brand
image and government view of our profile.
We are constantly monitoring and managing our
local profiles, and engaging with key stakeholders,
including government ministries, agencies and
regulatory bodies.
We develop and implement strategies to position
our brand and corporate profile highlighting our
contributions back to the economies, societies and
communities in which we operate. This includes our
profile as an employer of choice, charitable actions
and our fiscal contributions.
We have a balanced approach towards leverage.
We raise debt at local operating level and on
a non-recourse basis, wherever possible and
at commercially acceptable rates.
Network optimisation and operating efficiency
projects are a regular and ongoing part of our
actions to minimise connection issues. We make
use of backup generators at many of our sites
to ensure our services are constantly available.
We are continuously looking for site-sharing
opportunities with other operators and tower
management companies.
Our business continuity plans include assessment
of infrastructure related risks to which we devise
and implement back-up and other contingency
plans including alternate sources of energy.
Our tower sharing and network
maintenance outsourcing
arrangements have reduced (shared)
many of the direct operational risks
connected to operation of cell sites.
Challenges remain in certain countries
where natural and man-made risks
and threats to sites threaten coverage
and quality of services. These include
natural disasters as well as reliability
of energy supply.
Further opportunities exist for sharing of
passive infrastructure or outsourcing to
specialised tower management companies.
Such deals generate value in operating
efficiency and shared risk generally
reduces risk to the relevant parties.
Expansion of cable and digital media
services reduces our reliance on infrastructure
connected to operation of cell sites for
revenue generating activities.
Some of the economies in which we
operate continue to be impacted by
global or local economic slowdown.
The markets in which we operate in
Central America, which are to some
degree dependent on international
remittances, remain particularly
affected. This increases consumer
price sensitivity which typically lowers
margins and increases potential
customer churn.
Despite economic conditions, demand
for the increasingly diversified range of
our services from higher value and target
customers continues to increase, in particular
data, mobile financial services, entertainment
and solutions.
Many of the economies in our markets
continue to outgrow more developed
economies, leading to increased disposable
income and consumer demand for our
products and services.
We are continuously monitoring and refining
affordability of our services.
Operational efficiency management programmes in
place seek to reduce cost and deploy capital expenditures
in business areas offering higher return on investments.
Our business model is focused on cross-selling and
upselling more services to our high-value customers
and therefore should enable us a higher resilience
to economic conditions than the telecom industry
on average.
Dependence on spectrum and licenses
We face substantial competition
in obtaining and renewing
licenses, particular in our
mobile businesses.
We expect a degree of consolidation will
occur in some of our markets and especially
in Africa. This will reduce demand for existing
and future spectrum.
Many of our markets are still to auction or
make available spectrum enabling LTE service
provision. As an established operator in all
of our markets we see strong opportunities
to acquire such spectrum which will enable
us to follow our strategy of providing
consumers with more value added services.
We have successfully renewed and
obtained new licenses in our operations
in recent years (including LTE).
We have successfully obtained licenses
for operation of new businesses (such
as mobile financial services).
Diversification of our businesses reduces
to some extent, our dependence on
one or limited numbers of licenses and
our geographical spread of operations
further reducing our exposure to
individual license renewal risk.
Our UNE acquisition has further
diversified our revenue-generating
activities from mobile towards
cable/fixed line.
Availability or cost may limit
our ability to acquire required
or preferred frequency blocks
of spectrum in some of
our markets.
Governments are opening up
additional blocks of spectrum
as technologies change.
We consider spectrum an attractive and scarce
resource. It is a pre-requisite to operate as a
mobile telecommunication service provider.
Diversification of our businesses
reduces to some extent, our
dependence on one or limited blocks
of frequency and our geographical
spread of operations further reduces
exposure to individual frequency
related risk.
Consolidation and our active approach
to pursuing acquisition opportunities in
some of our markets create opportunities
to obtain spectrum from other operators.
Such acquisitions may be less competitive
and less costly than direct purchase from
governments or regulators.
Spectrum sharing among competing
operators is increasingly common in the
industry and we see opportunities in
this area particularly in lower cost of
acquisition and efficiency in use.
We see significant potential in synergies from
combinations of cable, TV, and broadband
services with our mobile operations in many
of our markets (particularly LATAM and in
Colombia).
Expanding our presence to cover more of the
spaces and places where people “connect” will
enable us to protect and grow our market share
and provide our customers with more and
higher quality services. We also believe that
such positioning will enable us to develop more
partnerships with businesses seeking channels
to provide services to our customer bases such
as Deezer, Facebook and other content and
media businesses.
Entering into new businesses
While acquisition of new businesses
increases risk, we are acquiring
knowledge, skills and experience of
executives and management driving
these businesses or leveraging from
our existing businesses (e.g. cable).
We have invested considerably in
innovation and value added services
in people, process and technology
to balance risks connected with
new businesses.
Our growth strategy is supported
by constant innovation and
acquisition of complementary
businesses within the Digital
Lifestyle sphere.
As we develop our new business
areas such as Mobile Financial
Services, music, social media
access and entertainment, we face
new and differing risks including:
regulatory requirements,
employee skills, reputation risk,
start-up operating losses and
success factors different from
those we are familiar with in the
telecom business.
Acquisition and integration of UNE in Colombia
Failure to adequately integrate
UNE and extract value from
synergies and efficiencies may
impact shareholder value and
cash flow generation in our
Colombian operations.
Our merger with UNE in Colombia
provides a number of challenges and
opportunities. The merger was
completed in 2014 and we are well into
the integration process. Significant
areas have been identified and
synergy and value creation activities
commenced.
Our preparation for license renewals and spectrum
auctions or allocations starts well in advance of
expiry or availability. Our approach focuses on legal
requirements, our historic compliance, as well as
amounts and sources of financing.
We have ongoing dialogue with governments and
regulators responsible for spectrum and licenses. We are
regular participants in industry groups and work with
governments in addressing mutual industry issues.
With penetration levels close to 100% and our
extensive distribution footprint in our Latin American
markets and in the urban areas of our African
markets, we believe that potential new entrants
in our markets have limited opportunities to
jeopardise our established position.
We actively support government programmes that link
social objectives with license acquisitions or renewals.
The timing and cost of our investments in spectrum are
evaluated carefully against potential returns (ROIC). We
consider alternate frequency blocks and the possibility
for jointly bidding for spectrum with other operators.
We evaluate ongoing spectrum needs against current
capacity and quality as well as forecast growth or
transition to new technologies (from cost of capital
expenditures and equipment service and customer
demand perspectives).
Over the years, we have developed extensive experience
in negotiating license renewals and spectrum prices.
We actively support government programmes that
link social objectives with spectrum acquisitions
and renewals.
We seek to make additional acquisitions if
opportunities are available at the right price.
When necessary, we partner with experts in the
business areas we are developing and monitor risks
and returns against targets, refining timing and
direction as necessary.
We have a step-by-step approach to entering into
new business areas and markets; we trial first and
assess the risks and potential rewards before taking
any decision to launch.
We see significant potential in synergies from
combinations of cable, fixed line and broadband
services with our traditional mobile operations
in Colombia, and the merger has significantly
strengthened our presence and reach into
additional geographic areas of Colombia.
We believe that expanding our presence in
Colombia to cover more of the spaces and places
where people “connect” in the future will enable
us to protect our market share and provide our
customers with higher quality and more services
in future.
Our investment strategy is based on careful analysis
and diligence in the pre-acquisition stages. Our
existing knowledge of the Colombian and LATAM
markets provide us with the ability to identify value
creating opportunities from market to market and our
experience in integrating cable operations in other
LATAM markets enables us to apply knowledge and
skills obtained to the Colombian market.
Key members of our management team in Colombia
have been deployed from other Group companies
with cable and fixed line operations to run the
merged business.
OverviewStrategyPerformanceGovernanceFinancials 46
Millicom Annual Report 2014
Risk management
(Continued)
Millicom Annual Report 2014
47
bribery and corruption in all of our business
dealings. Through clear policies, risk awareness
training and monitoring activities we ensure
that all of our employees are aware of the risk
to them as individuals and to the Company
and know how to act if faced with the risk.
Global Compliance and Global Security work
closely to follow up on all concerns raised.
We also work with our suppliers and other
third parties to ensure they have clarity on
our principles and policies in this area. For more
information on the third-party management,
please refer to the corporate responsibility
section of this report.
Corporate responsibility risk
As a company, we acknowledge that
through our business activities and corporate
responsibility initiatives, we have a role
to play in helping to support and protect our
customers and others from certain restrictions
to their rights. We cover two key risks in this
section, but for more information on our own
environmental, social and governance (ESG)
related risks and initiatives, please refer to the
corporate responsibility section of this report
and Millicom Corporate Responsibility
Report 2014.
Child online protection
Just as the internet is a source of information
and education, it can also be used to host and
distribute illegal child sexual abuse content, or
expose children to inappropriate content or
inappropriate conduct. At Millicom we work in
collaboration with UNICEF to actively minimise
the risk of our networks being used for such
exploitation, and to educate parents and
children on online safety.
Data privacy
There is a risk that some national governments
and related authorities request us to restrict
customer access to specific data or
communication tools. Millicom is a founding
member of the Telecommunications Industry
Dialogue on Privacy and Freedom of Expression
where we actively work with our peer companies,
engaging many other stakeholders, to minimise
risks to our customers’ rights in such cases.
In the previous section we have explored the
financial and business-related risks and how
they are managed and in this section we look
in-depth at a wider spectrum of important risk
that can affect the Company, our people and
our customers.
Safety and security
Information Security and Business Continuity
Risk are now being managed as part of a
Company-wide programme, incorporating
Physical and Information Security, Business
Continuity Management (BMC), Health,
Safety, Fraud and Investigation management.
The work on integrated security management,
specifically in the areas of BCM, Information
and Physical Security, has led to a 25%
improvement in the Loss Prevention Rating
awarded to Millicom by insurers in 2014.
Physical safety
In many of the markets where we operate
the level of maturity of infrastructures and
safety measures is sometimes very low, which
can lead to a significant risk of damage to
infrastructure and injuries to people. We
therefore have a programme in place to
protect our staff and any third party accessing
our offices and work sites through our Health,
Safety & Environment Management System,
which all our operations are improving on.
For more details, please refer to the People
section of this report.
Information security
We published the Information Security
Policy in July 2014 and we have designed the
Information Security Standard (ISS) to support
the Policy. The ISS is the core document of the
Information Security Framework and will be
published in February 2015. The ISS is based
on the International Standard for Information
Security Management, ISO 27001, and
establishes minimum security requirements
which every Millicom Business must satisfy.
The Operations are currently in the process
of assessing their compliance status and
documenting implementation plans to reach
compliance. Information Security Training &
Awareness is being delivered to all employees
to reinforce an Information Security
compliance culture in Millicom.
Business continuity and
crisis management
With major incidents occurring, like the
recent Ebola outbreak, the Company further
focused on preparing its Business Continuity
Management (BCM) and Crisis Management
(CM) readiness. Globally led tests were held
with our operations in Senegal and Rwanda,
with a regional recovery test held in Latin
America. “Live” BCM readiness plans were
enacted successfully in all African Operations
in response to the Ebola outbreak, and in
Honduras, El Salvador and Nicaragua in
response to the earthquake in October 2014.
We co-ordinate our response to such events
through our Global Crisis Committee.
Legal & Compliance related risks
There are several Legal & Compliance risks that
could in varying degrees impact the Company,
our people and our business. In this section we
cover three key risks inherent to our local and
global geographic footprint, and to the nature
of our business.
Anti-money laundering
As we continue to roll out mobile financial
services to more markets, we continuously
assess our business delivery models and
transactions to ensure we can prevent, detect
and stop any attempts at using our systems for
illegal transactions such as money laundering
and terrorism financing. The Millicom Board
of Directors approved our new policy on
Anti-Money Laundering, Counter Terrorism
Financing and Know Your Customer. In 2014
we appointed a Global Anti-Money Laundering
Officer who works with our local operations
and global teams to appoint Local Anti-Money
Laundering Officers and to ensure we have the
right tools, processes and resources in place
to effectively manage the risk on an ongoing
basis. We independently operate a framework
with investigation resources to follow up on
any suspected or alleged breaches.
Data privacy and protection
In the telecoms and digital sector we gather
and hold data on our customers to continue
to provide a good quality of service. In order
to safeguard the privacy of the individuals and
protect their data, we follow formal regulation
set out by the relevant mandated authorities.
In addition, we operate a system of self-
regulation through our policy framework on
data privacy and protection. When handling
requests from law enforcement authorities
for customer data and interception of
communications, Millicom applies a Group
level guideline to ensure the appropriate legal
reviews and protection of customer privacy
throughout the process. More information
about risks relating to law enforcement
assistance can be found in the Millicom
Corporate Responsibility Report.
Anti-bribery and anti-corruption
Business customs and traditions vary greatly
across the markets we operate in and so do the
legal frameworks and the enforcement of such
frameworks. We take a clear stand against
OverviewStrategyPerformanceGovernanceFinancials 48
Millicom Annual Report 2014
Corporate
responsibility
Focusing on
what matters
Millicom Annual Report 2014
49
Focusing on what matters
For Millicom, corporate responsibility (CR)
is about delivering long-term value to our
investors, customers, employees and our
wider stakeholders in the countries where we
operate. As we deliver a new digital lifestyle
to our customers, we continue to focus on
managing our own environmental, social and
governance (ESG) related risks. Our corporate
responsibility strategy also supports our
business in identifying opportunities around
ESG issues, such as cost efficiencies through
reducing our environmental footprint or
revenue generation by selling our e-waste
to accredited vendors.
In 2014, we strengthened the governance of
CR, and our tools and policies for managing
CR-related risks and opportunities. Following
extensive engagement with our stakeholders
and building on our existing materiality
assessment, we identified five focus areas that
present the highest ESG risks and opportunities.
Our 2014 Corporate Responsibility Report
explains how these focus areas were selected,
why they are important to our business and
stakeholders, and our achievements relating
to them in more detail. Moving forward, we will
build on this work to understand materiality
also at country level.
Governance of corporate responsibility
Our new global corporate responsibility team
was appointed in 2014, and reports directly
into the Executive Vice President for External
Affairs. Our Chairman, Cristina Stenbeck,
now leads our Board-level Government
Relations and Corporate Responsibility
Committee. During 2014 we launched a
new online CR reporting tool across all our
operations, which helps us improve the quality
of our data. We also issued new or revised
global policies and standards around some
of our key focus areas, such as our Supplier
Code of Conduct and Minimum Employment
Age Policy. Ensuring that all countries aim for
the same standards will help us continuously
identify and manage risk in a structured way.
Strengthening our processes will continue
to be a focus in 2015.
Harnessing mobile infrastructure
to improve quality of life
As well as our five focus areas, using our
products and services to improve people’s
quality of life is a big part of what makes us
a responsible business. In countries with low
smartphone penetration and data availability
our customers can access digital services
through SMS. We enable people at the
“bottom of the pyramid” to access the digital
lifestyle, facilitating their transfer of money
using MFS, accessing healthcare over the
network from remote communities using
Tigo Care, and receiving education through
EduMe. Whenever possible we utilise our
network, innovation and the passion of our
people to empower positive solutions.
Using mobile data to fight against Ebola
Millicom signed an agreement with Flowminder
– a group of public health researchers and
epidemiologists from Harvard University,
University of Southampton and Karolinska
Institute – in 2014 to provide the researchers
with access to analyse historical, anonymised
and encrypted customer data records to
predict the spread of Ebola in West Africa.
The researchers use specifically created
methods to analyse mobile data to understand
mobility patterns among populations. This
information is used to identify areas that
are at increased risk of new outbreaks, and
can inform decision makers on the effects of
interventions such as information campaigns
and travel restrictions. Data can also be used
to more effectively direct prevention efforts.
Resulting maps and analysis will be
disseminated to WHO, UN and government
agencies to improve situational awareness
and inform intervention planning. Flowminder
researchers pioneered the use of mobile
data for infectious disease (Zanzibar malaria
2009) and crisis response (Haiti 2010
earthquake and cholera outbreak). While the
collaboration has been triggered by Ebola,
the method can be applied to support the
fight against any number of diseases.
The collaboration between Millicom and
Flowminder aligns fully to the GSMA privacy
guidelines recently published for mobile
data use for public health purposes.
Facilitating loan payments with Habitat
for Humanity in Honduras
Our mobile financial services, Tigo Money in
Latin America and Tigo Cash in Africa, provide
financial access to millions of previously
unbanked and underserved customers. By
the end of 2014, over 9.5 million people were
using services that range from international
remittances and money transfers, to interest
earning mobile money accounts, micro-credit,
payments and billing. In Honduras, for
example, in partnership with Habitat for
Humanity, we enable unbanked individuals
to save up to 50% in loan collection
costs by repaying debt through Tigo Cash.
Partnerships are in development with
corporations to facilitate electronic payments
by distributors and suppliers, including cocoa
and rice farmers.
More detail on all of these areas
can be found in our Corporate
Responsibility Report
Our five focus areas
Supply chain
We work with thousands of suppliers
around the world, ranging from small
local vendors to large multinationals. Ensuring
that all suppliers adhere to high standards
of ethical behaviour is a priority. Our Supplier
Code of Conduct was updated in 2014,
and is now a mandatory annex in all of our
supplier agreements. The Code covers ethics
and integrity, workers’ rights and protection,
prohibition of child labour and
environmental protection.
Diversity
To deliver our business strategy of
creating successful and innovative
products that appeal to a wide customer
base, it is essential that we employ a diverse
workforce with complementary skills at all
levels. Our workforce reflects the countries
in which we operate in terms of the wide
range of nationalities it includes. In 2014,
we launched a diversity programme focusing
on improving gender balance in senior
management. More information on this
can be found in our section on employees
on page 27.
Child protection
Children benefit from increased
access to information and education
through the internet, but they may be exposed
to inappropriate content and are otherwise
more vulnerable to inappropriate contact or
conduct online. There is also a risk that our
networks may be used to host or distribute
illegal child abuse content. Child online
protection is a priority for us and our
stakeholders. In October 2014, in Paraguay,
we jointly hosted a workshop with UNICEF
and GSMA on Child Online Protection,
the first of its kind in Latin America. At the
end of the year, we announced a three-year
partnership with UNICEF to co-operate even
more broadly on child protection in the
telecommunications sector.
Environment
While our materiality analysis
suggested that environmental
protection is not a significant challenge for us,
we recognise this is an area that can help us
create operational efficiencies, as well as reduce
our environmental impact. Some initiatives we
delivered in 2014 to achieve these objectives
included sharing base station sites with our
competitors and improving our e-waste
management.
Privacy and data protection
Protection of privacy and freedom of
expression of our customers are among
the most important corporate responsibility
concerns for us as a digital lifestyle company.
As is the case for all providers of communications
networks and services, Millicom faces risks
relating to the handling of requests from
government authorities for customer data,
interception of communications and restriction
of content or access to services. We continuously
work to strengthen our processes in this area. We
are a founding member of Telecommunications
Industry Dialogue on Freedom of Expression
and Privacy (ID) and have been actively working
with the industry group to mitigate negative
impact on freedom of expression and privacy
of customers in the telecommunications sector
since 2011. In October 2014, Millicom took over
the Chairmanship of the ID.
OverviewStrategyPerformanceGovernanceFinancials
50
Millicom Annual Report 2014
Corporate
responsibility
(Continued)
Millicom Annual Report 2014
51
250
young girls catered for at the Nima centre
in the Nima-Maamobi community
Digital
Changemakers Award
Digitising the high school curriculum
in Tanzania
Tanzania’s education system faces its share
of challenges. Some 67% of assigned teachers
are missing from public schools. There is current
annual demand for 26,000 science and maths
teachers with an output of only 1,000 teachers
per year.
Faraja Nyalandi is the founder of Shule
Direct and a winner of the Tigo Digital
Changemakers Award. As a trained lawyer
turned social entrepreneur, she believes in
the power of education to help people
achieve their full potential.
Her organisation is addressing gaps in the
Tanzanian educational system by creating
an online curriculum that can be accessed
through mobile phones or via the internet.
Through co-operation with the leading
university for teacher training, interactive
learning content is being designed that gives
an opportunity to children in Tanzania to learn
and realise their full potential. In addition
students can get tutoring and discuss the
content in online forums.
With its Digital Changemakers Award which
ran in eleven of our African and Latin American
markets last year, Millicom identifies innovative,
digitally-driven ideas and solutions to
social challenges.
Helping to get girls excited about
technology in Ghana
Winners from the Tigo Digital Changemakers
Award benefit from an incubation programme
organised in co-operation with our project
partner Reach for Change.
As part of this programme, Tigo Ghana has
extended lifeline support to “Tech needs Girls”,
a social enterprise project that uses technology
to unearth and drive potential among young
women, with the aim of mentoring and
empowering them to lead and innovate.
The project aims to encourage young girls
to pursue various courses in ICT.
“Tech needs Girls” was founded by Regina
Agyare and Rasheeda Yehuza, both software
developers. Their Nima centre now caters for
over 250 young girls in the Nima-Maamobi
community. We believe the objectives of
“Tech needs Girls” fit perfectly with the overall
objective of Millicom’s corporate responsibility
objective to provide “innovative solutions that
use digital and mobile technology to solve
social challenges.”
Millicom identifies
innovative, digitally-
driven ideas and solutions
to social challenges
OverviewStrategyPerformanceGovernanceFinancials
Millicom Annual Report 2014
53
$1.3bn
in capital expenditure
$4.0bn
in net debt
52
Millicom Annual Report 2014
Financial review
A year of transformation
and progress
Revenue per business unit (US$m)
113
560
970
4,743
Mobile
Cable and Digital Media
MFS
Others
56m
mobile customers
Group
In 2014 our mobile customer base rose 12%
to over 56 million.
Group revenues increased by almost 45%
to $6.4 billion after adjusting for the changes
in accounting for Guatemala. This represents
9.4% organic growth. UNE contributed
$504 million to the Group’s revenue following
the merger in August 2014.
In 2014 we experienced significant local
currency declines against the US dollar,
particularly in Colombia and to a lesser extent
in Paraguay and Tanzania, which reduced
revenue by more than $200 million.
With the merger of UNE and significant
adoption of data, our revenue mix moved
further away from pure mobile voice and SMS
revenue. In 2014, Cable and Digital Media
revenue represented 15% of Group Revenue
whilst sales of handsets and other equipment
contributed 9% of the total.
Growth in data revenue continues to be strong
and more than offset the decline in SMS as
customers adopt new forms of communication.
At the end of 2014 over 15 million customers,
representing 27% of our mobile customers,
were using data services. This is an increase of
over seven percentage points and five million
customers since 2013.
Group EBITDA was $2,093 million including a
first time contribution from UNE of $138 million.
Growth and the phenomenal acceleration of
smartphone sales through the year contributed
to the dilution in EBITDA margin to 32.8%.
Depreciation and amortisation
Depreciation and amortisation was
$1,158 million, including $135 million from
UNE. Excluding UNE, the charge was
$237 million higher than last year, mainly
due to investments in spectrum, networks
and IT systems, and the impact of full
consolidation of Guatemala.
Net finance costs
Net finance costs, which include interest
expense and interest income, increased
by 60% for the year to $404 million. The
increase was mainly due to a higher level
of debt, including the $800 million bond in
Guatemala in early 2014, and the full year
impact of financing raised in 2013 including
the $800 million bond to finance the UNE
transaction and the $500 million bond
which was used primarily to refinance the
African operations.
Revaluation of previously held interests
At the beginning of the year, we fully
consolidated our Guatemalan business and
revalued to fair value our 55% previously held
interest, recognising a non-cash non-operating
gain of $2,250 million.
Other non-operating income/expenses, net
Other net non-operating income in 2014
amounted to $211 million, compared to a
net expense of $134 million in 2013. In 2014,
$307 million of non-operating income related
to the change in carrying value of the put options
granted to our local partners in Guatemala and
Honduras, a $46 million increase in value of
the Guatemala call option and offset by foreign
exchange losses of $175 million. In 2013,
$62 million of non-operating expense related
to the change in carrying value of the put
option granted to our partner in Honduras
and net exchange losses were $52 million.
Income (loss) from joint ventures
and associates
Net income from associates and joint ventures
of $55 million was derived from sale and
dilution of investments and our share of the
results of tower companies and Online
ventures. In 2013 we recorded $210 million
mainly representing our share of the result
of Guatemala.
Charge for taxes
Our net tax charge in 2014 increased to
$256 million from $144 million in 2013. During
2013, a non-cash tax credit of $79 million
was recorded from the activation of deferred
tax assets relating to expected utilisation
of tax loss carry-forwards of the Company.
The remaining increase in tax is related to
various local tax rate increases and increased
provision following tax reassessments by
local authorities. Our effective tax rate in 2014
was heavily impacted by the $2,250 million
non-taxable gain recorded on the revaluation
of our previously held interest in Guatemala.
Without this item the effective tax rate
would have been 33%, broadly in line
with 2013.
Net profit for the year
Net profit in 2014 attributable to equity holders
of the Millicom Group was $2,643 million
compared to a net profit of $229 million in
2013. Excluding the one-off $2,250 million gain
on revaluation, net profit attributable to equity
holders was $393 million, an increase from the
prior year of 72%. The change is largely due to
the increase in operating profit from $583 million
to $924 million and to the non-cash movement
in the value of the put and call options of
$353 million offset by foreign exchange losses
of $175 million. Profit before taxes, excluding
the gain from revaluation of the previously
held interest, increased to $786 million in 2014
from $412 million for 2013. The profit from
discontinued operations net of tax for 2014
was $21 million.
Capital expenditure
In 2014 we invested close to $1.2 billion or
19% of our revenue (excluding spectrum and
licences) mainly to increase our mobile network
coverage and capacity, expand the footprint of
our fixed network, to launch our DTH services
and in the expansion of MFS. Additionally, we
spent $88 million on spectrum acquisition and
renewals, mainly in Chad and Honduras.
Cash flows
In 2014, cash provided by operating activities
was $1,458 million, compared to $916 million in
2013. $294 million of the increase is attributable
to the change in accounting of Guatemala and
Mauritius and the remaining increase is mainly
due to higher operating profit.
Net cash used in investing activities was
$276 million in 2014, compared to $1,878 million
in 2013. Property, plant and equipment spend
increased by $496 million and intangible
assets decreased by $216 million in 2014, due
in part to the full consolidation of Guatemala
in 2014. Cash received from sale of Emtel
Mauritius and ATC Colombia amounted to
$175 million. The remaining difference relates to
the $800 million of pledged deposits which were
invested in 2013 and redeemed in 2014 and
subsequently used to pay liabilities of the UNE
Companies, classified as financing activities.
Net cash used by financing activities
was $1,368 million in 2014, compared to
$715 million provided from financing activities
in 2013. In 2014, we distributed $264 million to
shareholders in dividends ($2.64 per ordinary
share), and repaid debt of $1,182 million
while raising funds of $779 million from bond
financing and $569 million from other debt
and financing. $860 million was paid to
settle the above mentioned liabilities of
the UNE companies.
As a result of the cash flow movements
described above, the net cash outflow in
2014 was $215 million. As a consequence,
the Millicom Group had closing cash and cash
equivalents balances of $694 million at the
end of 2014 compared to $909 million at
the end of 2013.
Debt
As of December 31, 2014, the Millicom
Group’s total debt was $4,829 million
compared to $3,927 million at the end of 2013.
The $902 million increase of our total debt is
mainly due to the $860 million payment for
UNE Companies’ liabilities and the subsequent
consolidation of the UNE Companies’ debt.
Our total net debt was $3,997 million as of
December 31, 2014. The outstanding exposure
of the Group’s debt guaranteed by MIC S.A.
was $287 million at the end of the year.
66% of our debt was held at the operating
company level at year end. 50% of our debt
is denominated in local currency. 69% of the
Group’s borrowings are at a fixed rate of
interest or swapped for fixed rates reducing our
exposure to interest rate volatility. At the end
of Q4 2014, 69% of Group gross debt was in
bonds and 23% from bank financing which
allowed us to extend average maturities
from 4.8 to 5.3 years.
Dividends
In 2014, as in 2013, we returned $264 million
to shareholders through dividends. Our dividend
policy is to pay out no less than $2 per share
and at least 30% of adjusted net profit.
We continue to have the ambition to
progressively grow ordinary dividends. However,
our immediate priority will be on reducing Group
leverage towards the middle of our target range
of 1.0-2.0x Net Debt/EBITDA. The Board will
propose to the 2015 AGM the payment of
a stable dividend of $2.64 per share.
OverviewStrategyPerformanceGovernanceFinancials 54
Millicom Annual Report 2014
Financial review
(Continued)
46.6%
EBITDA margin in Central America
33.5%
EBITDA margin in South America
21.9%
EBITDA margin in Africa
Key financials by region
Central America
Revenue increased by 31% ($576 million)
in 2014 to $2,460 million. Revenue growth
amounted to $55 million, mainly attributable to
mobile data, smartphone sales, MFS and cable
and the remaining $521 million of the increase
reflect the full consolidation of Guatemala.
At the year-end we had 15.8 million mobile
customers and almost two million MFS
customers across the region. Our cable and
broadband business in Central America had one
million revenue-generating units, an increase of
approximately 16% year-on-year. Broadband
customer growth continued to be strong.
The EBITDA margin for the region was 46.6%,
up by 1.1 percentage points from the full
consolidation of Guatemala. Proforma in 2013,
the impact would have been broadly flat.
In Central America, we continued to focus on
data penetration by pushing smartphone sales
to record levels in 2014. Capital expenditure
in 2014 amounted to $432 million or 17.6%
of revenue, including $38 million for spectrum
in Honduras.
South America
Revenue increased by 33% in 2014 to
$2,926 million, from $2,192 million. Since
its acquisition in August 2014, the UNE
Companies have contributed $504 million
to 2014 revenue. The remaining growth was
primarily due to a 9.5% increase in our mobile
customer base during the period, strong sales
of smartphones (particularly in Colombia)
and an increase in mobile data revenue, as
the data penetration rate increased by over
11% to 39% during the year.
The number of homes passed in our residential
cable business increased to 3.5 million and
the ratio of revenue-generating units to homes
connected reached 1.8. The MFS penetration
rate reached 20.9%, an increase of two
percentage points in 2014.
In South America our EBITDA margin declined
by three percentage points, mainly due to growth
in handset sales, particularly in Colombia, the
addition in Q3 of UNE’s business and some
margin pressure in Paraguay.
We invested $501 million, or 17.1% of revenue,
in South America during the year.
Africa
Revenue of $1,000 million was stable compared
with 2013, despite the negative impact of
currency movements in several of our markets
(particularly in Tanzania and Ghana), and
the sale of our Mauritius operations in 2014.
However, this was offset by a marked increase
in our mobile customer base, reaching over 25
million at the end of 2014, an increase of over
24% during the year. Our MFS customer base
Millicom Annual Report 2014
55
also expanded significantly with almost 50%
growth, to over six million customers by
December 31, 2014. MFS and mobile ARPU
declined in US dollars in fiscal 2014 due to the
dilutive effect of new customers and exchange
rate changes.
At Group level Mobile revenues were up 5.3%
year-on-year, with voice growing at 2% and
data up almost 34%, partially offset by SMS
down 16%, from a natural cannibalisation of
data products. Data contributed with close
to 20% of the Mobile revenues.
Weight of regions in mobile data revenue
(%)
7
The EBITDA margin was down six percentage
points due to increased commercial efforts in
the region, coupled with the mix effect from
the growth of MFS, and the sales of Mauritius.
On a proforma basis, EBITDA margin would
have declined four percentage points.
Capital expenditure in Africa amounted to
$360 million in 2014, or 36% of revenue, as
we continued our investments in network
coverage, 3G and spectrum and license
renewals (including Chad and Tanzania).
Financial performance by business unit
(revenue growth comparisons made
on a proforma basis)
2014
Mobile
Of which
mobile data
Cable
MFS
Other
Group
4,743
923
970
113
560
Central
America
South
America
Africa
39% 42% 19%
37%
55%
37% 62%
7%
0%
5% 29% 66%
5%
40% 55%
37
55
South America
Central America
Africa
9.5m
Mobile Financial Services customers
We are investing to accelerate growth and
strengthen our position in the longer term.
We value sustainable revenue growth over
net customer additions, and we are focusing
on data and VAS customers from whom, on
average, we generate a higher ARPU than
2G voice only customers. We believe that in
more developed markets this has a stronger
correlation with future growth than
customer numbers.
Cable & Digital Media
Following the UNE merger and other activity,
Cable and Digital Media revenues rose from
$459 million to $970 million for the year. This
represents over 15% of our business, up from
around 8% in 2013. That trend will continue.
Our cable business now passes approximately
5.6 million HFC homes in Latin America, and
we provided services to approximately 5.1
RGUs, up from 1.3 million at the end of 2013.
The launch of satellite pay-TV, with more than
85,000 customers in five countries by end of
2014, boosted TV RGU growth and fixed
broadband internet gained momentum as
penetration in the HFC network increased.
We continue to see positive trends on adoption
of multiple services per household, reaching
1.8 revenue-generating units per household
(HFC) by the end of the year. More than 46%
of our households enjoy high-speed internet
and 38% have access to Digital TV.
Mobile Financial Services
The customer base reached 9.5 million,
up 51% in one year as revenue rose from
$80 million to $113 million. Average ARPU
was slightly down at $1.21 million due to
the dilution from new customers.
The main contributors to the growth were
Tanzania, DRC, Honduras and El Salvador.
Tanzania added over 1.1 million new users,
reflecting the interest-sharing programme that
is driving customer acquisition, transactions,
and awareness in the market.
MFS Revenues increased by $33 million
(+41%) to $113 million in 2014, primarily
driven by Tanzania, Paraguay, Rwanda,
Honduras and Chad.
Central America key financials
Mobile customers (m)
Revenue ($m)
EBITDA ($m)
EBITDA margin %
South America key financials
Mobile customers (m)
Revenue ($m)
EBITDA ($m)
EBITDA margin %
Africa key financials
Mobile customers (m)
Revenue ($m)
EBITDA ($m)
EBITDA margin %
2014
15.8
2,460
1,153
46.6%
2014
15.1
2,926
980
33.5%
2014
25.3
1,000
219
21.9%
2013 % change
15.8
1,884
858
45.5%
0%
31%
34%
1.1ppt
2013 % change
13.8
2,192
805
9.4%
33%
3.7%
36.7% (3.3 ppt)
2013 % change
20.4
1,000
279
24.1%
0%
(22%)
27.9% (6.0 ppt)
Mobile
Our overall total mobile customer base
increased by 12% or 6.2 million subscribers
to 56.3 million at year end. In Africa, total
mobile customers increased by 26.7%
year-on-year to approximately 25.9 million
in 2014. The two best-performing markets in
terms of year-on-year customer growth were
Tanzania and DR Congo, which grew by 36.5%
and 31.5% respectively. In South America,
total mobile customers increased by 9.5%
year-on-year to approximately 15.1 million,
with Bolivia and Colombia showing increases
of 3% and 18.6% (15% excluding UNE),
respectively. In Central America, the customer
base was flat with prepaid customers
accounted for 93%, or 52.3 million, of the total
mobile customers at the end of 2014. Data
users increased by 34% in Central America,
53% in South America and 69% in Africa.
Mobile ARPU growth in local currency was
down 0.6% in Central America, flat in South
America and down 9% in Africa due in part
to the dilution from new subscribers, mobile
termination rate cuts and competitive pressure
in markets like DRC, Senegal and Tanzania.
OverviewStrategyPerformanceGovernanceFinancials Millicom Annual Report 2014
57
56
Millicom Annual Report 2014
Corporate governance
Introduction to
Corporate governance
Governance framework
Millicom International Cellular S.A. is a public
liability company (société anonyme) governed
by the Luxembourg law of August 10, 1915
on Commercial Companies (as amended),
incorporated on June 16, 1992, and registered
with the Luxembourg Trade and Companies’
Register (Registre du Commerce et des
Sociétés de Luxembourg) under number
B 40 630.
is available in English only; shareholder meeting
minutes are signed by the meeting Chairman,
Secretary and Scrutineer in accordance with
Luxembourg law. Luxembourg law and the
Company’s Articles of Association do not
specify the language used at shareholders’
meetings. The Company’s investor base is
international and the Company considers
English to be the best language in which to
communicate with its shareholders.
The Articles of Association of Millicom
define its purpose as follows: “to engage in all
transactions pertaining directly or indirectly
to the acquisition and holding of participating
interests, in any form whatsoever, in any
Luxembourg or foreign business enterprise,
including but not limited to, the administration,
management, control and development of
any such enterprise.”
Millicom’s shares are listed on the NASDAQ
OMX exchange in Stockholm in the form of
Swedish Depository Receipts. Accordingly,
Millicom’s Corporate Governance Framework
is primarily based on Luxembourg and other
EU legislation, the listing requirements of
NASDAQ OMX Stockholm, the Swedish Code
of Corporate Governance and good stock
market practice. Within these frameworks,
the Board of Directors has developed and
continuously evaluates internal guidelines
and procedures, as further described below, to
ensure quality and transparency of corporate
governance practices within Millicom.
Compliance with the Swedish corporate
governance code
Millicom is committed to complying with
best-practice corporate governance on a global
level wherever possible. Millicom applies home
state rules or deviates in relation to the Code
in the following areas: shareholder meetings
are held in Luxembourg in accordance with
Luxembourg law and the Company’s Articles
of Association; shareholder meetings are held
in the English language and meeting material
With regard to share-related incentive
programmes, the Code (Article 9.8) states
that the vesting period or the period from the
commencement of an agreement to the date
for acquisition of shares is to be no less than three
years. The Company’s programme for variable
remuneration related to the deferred restricted
share plan vests with 16.5% after one year,
16.5% after two years, and 67% after three
years. Most of the award vests at the end of year
three, but some also vest at the end of years
one and two. This plan applies to a wide range
of employees, including younger executives and
the Company believes that this vesting schedule
ensures alignment between the interests of the
Company’s shareholders and its employees.
Corporate governance in practice
Allocation and delegation of Board
responsibilities
The Board has a protocol that divides work
between the Board and the President and
Chief Executive Officer (“the CEO”), and there
are also work procedures for each of the Board
committees. Further details on the roles and
activities of the various committees are set
out later in this section.
The main task of the Board committees (Audit,
Compensation and Corporate Responsibility)
is to work on behalf of the Board within their
respective areas of responsibility. From time
to time, the Board delegates authority to an
“ad hoc” committee so that it may resolve a
specific matter on its own without having to
go before the full Board for approval.
Evaluation of performance
The Board carries out a self-assessment of
its performance and the performance of
each individual Board member. The Board
also evaluates the performance of the CEO
each year.
external reporting purposes in conformity with
International Financial Reporting Standards
as adopted by the European Union. Due to
its inherent limitations, internal controls over
financial reporting may not prevent or
detect misstatements.
Management has assessed the effectiveness
of Millicom International Cellular S.A. internal
control over financial reporting as of
December 31, 2014. In making its assessment,
management has utilised the criteria set forth
by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal
Control – Integrated Framework. Management
concluded that based on its assessment,
Millicom International Cellular S.A. internal
control over financial reporting was effective
as of December 31, 2014.
Annual General Meeting and other
general meetings
General meetings of shareholders are
convened after the publication of a convening
notice in the Luxembourg Official Gazette
and in a Luxembourg newspaper. The Board of
Directors sets the formalities to be observed by
each shareholder for admission to the general
meeting in the convening notice, as required
by article 18 of the Articles of Association.
Annual General Meeting (AGM)
An AGM is convened every year in May in the
Grand-Duchy of Luxembourg at the registered
office of the Company, or at another place as
specified in the notice convening the meeting.
The Chairman of the AGM is elected by the
shareholders.
Other general meetings
Other general meetings are convened by
the Board of Directors of the Company if
requested by shareholders representing at
least ten per cent (10%) of the Company’s
issued share capital.
There were no other general meetings
during 2014.
Corporate policy manual
The Board has adopted several corporate
policies on governance including ethics and
conduct, corporate responsibility, human
resources, and accounting policies as well as
and other matters. These policies are collected
in a corporate policy manual. Regional policies
that are more stringent or detailed than those
set out in the corporate policy manual are
adopted as necessary. The Company’s Code of
Ethics is a part of the corporate policy manual.
All Directors, senior executives, management
and employees must sign a statement
acknowledging that they have read, understood
and will comply with the Code of Ethics.
Millicom’s governance position papers, codes
of conduct, Code of Ethics, annual corporate
governance report and terms and conditions for
the Swedish Depositary Receipts are available on
its corporate website www.millicom.com.
Internal control environment
Millicom implemented processes and further
improved the effectiveness and efficiency
of its internal controls, aligned with the
COSO 2 internal control framework. Within
this framework, controls are performed by
operational and functional management,
and regularly reviewed in the framework of
two complementary Group processes: audit of
internal control practices in Millicom entities to
ensure consistency with the principles and rules
defined by the Group; and global review of
internal control systems in the Group based
on materiality of related risks, following
the implementation of a Control and Risk
Self-Assessment strategy. This work is led
by the Internal Audit & Control department,
with reporting to and oversight by the Audit
Committee of the Board.
The management of Millicom is responsible for
establishing and maintaining adequate internal
control over financial reporting. Internal control
over financial reporting is a process designed
to provide reasonable assurance regarding
the reliability of financial reporting and the
preparation of financial statements for
OverviewStrategyPerformanceGovernanceFinancials 58
Millicom Annual Report 2014
Corporate governance
(Continued)
Compensation and nomination – decisions on
annual remuneration of Directors (“tantièmes”)
is reserved by the Articles of Association to the
general meeting of shareholders. Directors are
therefore prevented from voting on their own
compensation. However, Directors may vote
on the number of shares they may be allotted
under any share-based compensation scheme.
The Nomination Committee makes
recommendations for the election of Directors
to the AGM. At the AGM, shareholders may
vote for or against the Directors proposed or
may elect different Directors. The Nomination
Committee reviews and recommends the
Directors’ fees which are approved by the
shareholders at the AGM.
The remuneration of Directors comprises
an annual fee. Director remuneration is
proposed by the Nomination Committee
and approved by the shareholders at the
Annual General Meeting of shareholders as
follows and as adjusted for length of service.
Borrowing powers – Directors generally have
unrestricted borrowing powers on behalf of
and for the benefit of Millicom.
Time and age limit – no age limit exists
for being a Director of Millicom. Directors
could be elected for a maximum period of
six years, but are generally elected annually.
Share ownership requirements – Directors
need not be shareholders in Millicom.
Directors
The Company is administered by a Board of
Directors composed of at least six (6) members.
Members of the Board of Directors need not
be shareholders of the Company.
The Directors and the Chairman of the Board of
Directors are elected by the shareholders’ meeting,
which will determine the number, and period of
service (not exceeding six years). Directors hold
office until their successors are elected.
Restrictions on voting – No contract or other
transaction between the Company and any
other person shall be affected or invalidated by
the fact that any Director, officer or employee
of the Company has a personal interest in, or is a
director, officer or employee of such other person,
except that (x) such contract or transaction shall
be negotiated on an arm’s-length basis on
terms no less favourable to the Company than
could have been obtained from an unrelated
third party and, in the case of a Director, the
Director shall abstain from voting on any matters
that pertain to such contract or transaction at
any meeting of the Board of Directors of the
Company, and (y) any such personal interest
shall be fully disclosed to the Company by the
relevant Director, officer or employee.
In the event that any Director or officer of the
Company may have any personal interest in any
transaction of the Company, the Director shall
make known to the Board such personal interest
and shall not consider or vote on any such
transaction, and such transaction and such
Director’s or officer’s interest therein shall
be reported to the next general meeting
of shareholders.
Director remuneration (i)
Shareholders
Changes in shareholders’ rights
In order to change the rights attached to
the shares of Millicom, a general meeting
of shareholders must be duly convened and
held before a Luxembourg notary, as under
Luxembourg law such change requires an
amendment of the Articles of Association.
A quorum of presence of at least 50% of the
shares present or represented is required at a
meeting held after the first convening notice and
any decision must be taken by a majority of two
thirds of the shares present or represented at the
general meeting. Any change to the obligations
attached to shares may be adopted only with
the unanimous consent of all shareholders.
Limitation on securities ownership
There are no limitations imposed under
Luxembourg law or the Articles of Association
on the rights of non-resident or foreign entities
to own shares of Millicom or to hold or exercise
voting rights on shares of Millicom.
Disclosure of shareholder ownership
As required by the Luxembourg law on
transparency obligations of January 11, 2008
(the “Transparency Law”), any person who
acquires or disposes of shares in Millicom’s
capital must notify Millicom’s Board of Directors
of the proportion of shares held by the relevant
person as a result of the acquisition or disposal,
where that proportion reaches, exceeds or
falls below the thresholds referred to in the
Transparency Law. As per the Transparency Law,
the above also applies to the mere entitlement
to acquire or to dispose of, or to exercise, voting
rights in any of the cases referred to in the
Transparency Law. As per the Articles of
Association, the requirements of the
Transparency Law also apply where the
mentioned proportion reaches, exceeds
or falls below a threshold of 3%.
Mr. Allen Sangines-Krause (until May 2014)
Ms. Cristina Stenbeck (since May 2014)
Mr. Kim Ignatius
Ms. Mia Brunell Livfors
Mr. Paul Donovan
Mr. Omari Issa (until May 2014)
Mr. Tomas Eliasson (since May 2014)
Dame Amelia Fawcett (since May 2014)
Mr. Dominique Lafont (since May 2014)
Mr. Lorenzo Grabau
Mr. Alejandro Santo Domingo
Mr. Ariel Eckstein
Total
(i)
Cash compensation converted from SEK to USD at exchange rates on payment dates for each year, net of 20%
withholding tax. Share based compensation (2014 only) based on the market value of Millicom shares on the
date of the AGM.
(ii) For the period from May 27, 2014 to May 15, 2015.
(iii) For the period from May 28, 2013 to May 27, 2014.
2014
US$
‘000(ii)
2013
US$
‘000(ii)
–
173
–
90
90
–
124
95
105
105
86
90
958
190
–
130
96
110
110
–
–
–
110
90
96
932
Millicom Annual Report 2014
59
Changes in the Articles of Association
Unless otherwise required under Luxembourg
law, an extraordinary general meeting must
be convened to amend any provisions of the
Articles of Association.
Nomination Committee
The Nomination Committee, appointed by
major shareholders in Millicom, is responsible
for preparing proposals for the election
and remuneration of Directors of the Board,
Chairman of the Board and external auditor,
as well as a proposal on the Chairman of the
Annual General Meeting. The Committee’s
charter is based on the requirements of the
Swedish Code of Corporate Governance, as
described further below.
The current Nomination Committee was formed
during October 2014, in consultation with the
larger shareholders of the Company as per
30 September 2014 and in accordance with the
resolution of the 2014 Annual General Meeting.
It is comprised of Cristina Stenbeck on behalf
of Investment AB Kinnevik and serving as
Chairman of the Committee, Tomas Risbecker
on behalf of AMF and AMF Funds and Mathias
Leijon on behalf of Nordea Funds.
While representing a departure from the
Swedish Corporate Governance Code, the other
members of the Nomination Committee have
supported the appointment of Ms. Stenbeck
as its Chairman as being in the Company’s
and its shareholders’ best interests, as a natural
consequence of her leading the Committee’s
work in recent years, and based on her
connection to Millicom’s largest shareholders.
The Nomination Committee was appointed
for a term of office commencing at the time
of the announcement of the interim report for
the period January to September 2014 and
ending when a new Nomination Committee
is formed.
Under the terms of the Nomination
Committee charter, the Committee should
consist of at least three members, with a
majority representing the larger shareholders
of the Company.
Shares and dividends
Equity and dividends
Holders of Millicom common shares are
entitled to receive dividends proportionately
when and if declared by the Company’s Board
of Directors, subject to Luxembourg legal
reserve requirements and the approval of
its shareholders at general meetings.
On February 3, 2015, Millicom announced
that the Board would propose to the AGM
a dividend distribution of $2.64 per share to
be paid out of Millicom’s retained profits at
December 31, 2014.
Freely negotiable shares
Rights attached to the shares – Millicom has
only one class of shares, common shares, and
each share entitles its holder to:
– One vote at the general meeting
of shareholders;
– Dividends out of distributable profits
–
when such distributions are decided; and
Share in any surplus left after the
payment of all the creditors in the event
of liquidation. There is a preferential
subscription right under any share or
rights issue for cash, unless the Board of
Directors restricts the exercise thereof.
Redemption of shares – Millicom’s Articles
of Incorporation provide for the possibility
and set out the terms for the repurchase by
Millicom of its own shares. Any repurchase is
at Millicom’s discretion. The Company may
repurchase its shares of common stock using a
method approved by the Board of Directors of
the Company in accordance with Luxembourg
law and the rules of the stock exchange(s) on
which the Company’s common stock may be
listed from time to time.
Sinking funds – Millicom shares are not subject
to any sinking fund.
Liability for further capital calls – all of the issued
shares in Millicom’s capital are required to be
fully paid up. Accordingly, none of Millicom’s
shareholders are liable for further capital calls.
Principal shareholder restrictions – there
are no provisions in the Articles of Association
that discriminate against any existing or
prospective holder of Millicom’s shares as
a result of such shareholder owning a
substantial number of shares.
OverviewStrategyPerformanceGovernanceFinancials 60
Millicom Annual Report 2014
Corporate governance
(Continued)
Information and communications
The Company communicates with financial
markets based on principles of openness
and equal treatment of shareholders. All
information distributed to shareholders is
published on the Company’s website.
The Company promptly submits all material
press releases to the stock exchanges to which
it has reporting obligations.
Takeovers
With reference to Article 11 of the Luxembourg
Law on Takeover Bids there are no provisions
in the Articles of Association of Millicom that
would have the effect of delaying, deferring
or preventing a change in control of Millicom
and that would operate only with respect to a
merger, acquisition or corporate restructuring
involving Millicom, or any of its subsidiaries.
Luxembourg laws impose the mandatory
disclosure of an important participation in
Millicom and any change in such participation.
Auditor
The external monitoring of the operations
of the Company is entrusted to one or more
auditors who need to be independent from
the Company.
The auditors will be elected by the shareholders’
meeting by a simple majority of the votes
present or represented at such meeting, which
will determine their number, for a period not
exceeding six (6) years.
They will hold office until their successors are
elected. They are re-eligible, but they may be
removed at any time, with or without cause,
by a resolution adopted by a simple majority
of the shareholders present or represented
at a meeting of shareholders.
Ernst & Young S.A., Luxembourg was elected
as the external auditor of Millicom in 2014 for
a term ending on the day of the 2015 AGM.
Equal treatment of shareholders and
transactions with related parties
The table below sets out certain information
known to Millicom as at February 17, 2015,
unless indicated otherwise, with respect to
beneficial ownership of Millicom common
shares, par value $1.50 each, by each person
who beneficially owns more than 5% of
Millicom common stock.
Shareholder
Number
of shares
Percentage
Investment AB
Kinnevik
Dodge & Cox
Nordea Funds Oy
Veritas Asset
Management (UK) Ltd 5,223,414
37,835,438
11,007,492
5,725,381
37.5%
10.9%
5.63%
5.13%
Except as otherwise indicated, the holders
listed above (“holders”) have sole voting and
investment power with respect to all shares
beneficially owned by them. The holders have
the same voting rights as all other holders of
Millicom common stock. For purposes of this
table, a person or group of persons is deemed
to have “beneficial ownership” of any shares as
of a given date which such person or group of
persons has the right to acquire within 60 days
after such date. For purposes of computing
the percentage of outstanding shares held by
the holders on a given date, any security which
such holder has the right to acquire within
60 days after such date (including shares
which may be acquired upon exercise of
vested portions of share options) is deemed
to be outstanding, but is not deemed to be
outstanding for the purpose of computing the
percentage ownership of any other person.
The Company conducts transactions with
a number of related parties, including its
principal shareholder, Investment AB Kinnevik
(“Kinnevik”) and its subsidiaries, tower
companies in which it holds a direct or indirect
equity interest in Ghana, DRC, Tanzania and
Colombia, and with businesses owned or
related to the other shareholders of our
operating subsidiaries, notably in Guatemala,
Honduras and Colombia. Transactions
(including loans) with related parties are
conducted at arm’s length (refer to note 32
of the financial statements for details of
transactions with related parties).
Millicom Annual Report 2014
61
Government Relations and
Corporate Responsibility Committee
Members
Attendance
Ms. Stenbeck (Chair)
Ms. Brunell Livfors
Dame Amelia Fawcett
Mr. Paul Donovan
100%
100%
100%
100%
The Committee (formerly Corporate
Responsibility Committee) met once
as a CR Committee and once as a
GRCR Committee.
What have we done during the year
–
Review of the corporate responsibility
strategy and five (5) year plans
Review of Millicom’s first
Corporate Responsibility
reporting process
Review of the government
relations strategy
–
–
Compensation Committee
Members
Attendance
Dame Amelia Fawcett (Chair)
Ms. Brunell Livfors
Mr. Donovan
Mr. Eckstein
100%
100%
100%
100%
In 2014 the Compensation Committee
met three times.
What have we done during the year
–
Recommendation of remuneration of
Senior Executives, including the CEO
Review of succession planning
Review of long-term
incentive programmes
Review of bonus and
performance calculations
Review of remuneration structures
in the Company
–
–
–
–
Outcome
–
Report on executive compensation
and guidelines
Outcome
– Millicom published a CR Report
separate from the 2013
Annual Report in 2014.
Our plan for 2015/2016
–
Implement new corporate
responsibility structure and
government relations strategy
Board committees
Audit Committee
In May 2014 Mr. Tomas Eliasson and
Mr. Dominique Lafont were appointed
as Directors and to the Audit Committee.
At the same time Mr. Paul Donovan and
Mr. Omari Issa stepped down from the
Audit Committee.
Members
Mr. Tomas Eliasson (Chair)
Mr. Dominique Lafont
Mr. Lorenzo Grabau
Attendance
(since
appointment)
100%
100%
100%
The Audit Committee met seven times
during 2014 (including two by phone) and
Millicom’s external auditors participated
in four meetings.
What have we done during the year
–
Review and approval of quarterly
earnings releases
Review and recommendation to
the Board of approval of 2013
Annual Report
–
– Guidance, direction and assessment
of significant financial activities
during the year – financial and tax
structuring and activities
Review and recommendation of
2015 budget
–
– Guidance, direction and assessment
of internal control, internal audit and
risk functions
Review of revenue assurance strategy
Review of internal control
environment and risk matrix
Review of tax strategy
–
–
–
Millicom’s Audit Committee is responsible for
planning and reviewing the financial reporting
process, the preparation of the annual and
quarterly financial reports and accounts and the
involvement of external auditors in that process.
The Audit Committee focuses particularly on
compliance with legal requirements, accounting
standards, independence of external auditors,
audit fees, the internal audit function, the fraud
risk assessment, risk management and ensuring
that an effective system of internal financial
controls is in place. The ultimate responsibility
for reviewing and approving Millicom’s Annual
Report and Accounts remains with the Board.
The Committee comprises three Directors and
convenes at least four times a year.
The Compensation Committee reviews and
makes recommendations to the Board of
Directors regarding the compensation of the
CEO and the other senior managers as well
as management succession planning.
The Board of Directors, based on a proposal by the
Compensation Committee, propose guidelines
for remuneration to Senior Management to be
approved by the shareholders at the Annual
General Meeting.
The objective of the guidelines is to ensure
that Millicom can attract, motivate and retain
executives, within the context of Millicom’s
international talent pool, which primarily consists
of Telecom, Media and FMCG companies.
The Compensation Committee comprises
four members.
Millicom’s Government Relations and
Corporate Responsibility (GR & CR) Committee
has responsibility for overseeing and making
recommendations to the Board regarding the
management of the Company’s activities in
the areas of government relations, corporate
responsibility and charitable donations.
The GRCR Committee convenes at least twice
a year, and comprises four members.
OverviewStrategyPerformanceGovernanceFinancials 1
9
4
62
Millicom Annual Report 2014
Board of Directors
8
6
1. Cristina Stenbeck
Chairman, Non-Executive Director
Ms. Stenbeck was elected a new member of the Board
of Millicom in May 2014 and chairs the Government
Relations and Corporate Responsibility Committee.
Ms. Stenbeck is Executive Chairman of Investment AB
Kinnevik, a leading Swedish entrepreneurial investment
group with investments across mobile telecommunications,
e-commerce, entertainment and financial services.
Ms. Stenbeck began her career with the Kinnevik group in
1997 when she joined the Board of Invik & Co, its financial
services company. She became vice Chairman of
Investment AB Kinnevik in 2003 and Chairman in 2007.
In addition to leading Kinnevik, Ms. Stenbeck is also
Chairman of Zalando SE, the leading European fashion
and accessories e-commerce company.
Ms. Stenbeck also chairs the Nomination Committees of
several of Kinnevik’s investee companies, including Millicom.
Ms. Stenbeck holds a Bachelor of Science from Georgetown
University in Washington DC in the United States.
She does not qualify as independent of the major
shareholders due to her significant ownership of and
affiliation to Kinnevik.
Ms. Stenbeck holds 34,484 Millicom shares and 45,000
Millicom share options.
2. Mia Brunell Livfors
Non-Executive Director
Ms. Mia Brunell Livfors was elected to the Board of Millicom
in May 2007. She is a member of the Compensation
Committee and the Government Relations and Corporate
Responsibility Committee.
From August 2006 until 2014, Ms. Brunell Livfors was
President and Chief Executive Officer of Investment
AB Kinnevik.
Ms. Brunell Livfors joined Kinnevik-owned company
Modern Times Group MTG AB in 1992, and was appointed
Chief Financial Officer in 2001. As Chief Financial Officer,
Ms. Brunell played a central role in MTG’s development.
Currently, Ms. Brunell Livfors is Chairman of Reach for
Change and a member of the board of directors of
Tele2 AB, Qliro Group AB (formerly CDON AB), Modern
Times Group, Transcom Worldwide AB, Stena AB,
Efva Attling Stockholm AB, and BillerudKorsnäs AB.
She is proposed to be elected to the board of Axel
Johnson AB in March 2015.
4. Ariel Eckstein
Non-Executive Director
Mr. Ariel Eckstein was elected to the Board of Millicom in May
2013. He is a member of the Compensation Committee.
She studied Business Administration at Stockholm University.
She does not qualify as independent of major shareholders.
However, she is independent of the Company and its
management according to the Swedish Code of
Corporate Governance.
Ms. Brunell Livfors holds 2,946 Millicom shares.
3. Paul Donovan
Non-Executive Director
Mr. Paul Donovan was elected to the Board of Millicom
in May 2009. He is a member of the Compensation
Committee and the Government Relations and Corporate
Responsibility Committee.
Mr. Donovan is currently Chief Executive Officer of Odeon
and UCI Cinemas, the leading European cinema operator.
He is also Director of Exide Technologies AB – Sweden and
Exide Technologies AS – Norway.
Mr. Eckstein is Managing Director for LinkedIn EMEA, the
social networking website founded in 2002 for those with
professional occupations.
He was appointed in March 2011 to develop, lead and
deliver the Company’s strategy and growth initiatives in
Europe, the Middle East and Africa.
Mr. Eckstein began his career in management consultancy
and as Engagement Manager at Deloitte Consulting LLP.
Mr. Eckstein later became principal of New York City
Investment Fund Manager Inc and is a former Chief
Financial Officer at Clickthings.com
He also became Vice President of Business Expansion for
AOL Inc. Europe, a multinational mass media corporation
that develops, grows and invests in brands and websites.
Mr. Eckstein holds a Bachelor’s degree in International
Relations from Tufts University and an MBA from the
University of Virginia.
Mr. Donovan’s earlier career was spent in the fast-moving
consumer goods industry before transferring to the
technology sector where he worked for Apple and BT Cable
and Wireless.
Mr. Eckstein qualifies as independent of major shareholders
as well as the Company and its management according to
the Swedish Code of Corporate Governance.
Mr. Donavon joined Vodafone in 1999, and from 2004 was
a member of Vodafone’s Executive Committee with
responsibility for the Group’s operations in its subsidiaries in
Eastern Europe, Middle East and Asia Pacific, adding Africa,
the US, India and China in 2006.
He is a former director and Chief Executive Officer of
Eircom, Ireland’s leading telecommunications company,
from 2009 to 2012.
Mr. Donovan holds a Bachelor of Arts in Scandinavian
Studies from University College London and a Master’s
degree in Business Administration from the University
of Bradford.
He qualifies as independent of major shareholders as well
as the Company and its management according to the
Swedish Code of Corporate Governance.
Mr. Donovan holds 1,943 Millicom shares.
Mr. Eckstein holds 587 Millicom shares.
5. Tomas Eliasson
Non-Executive Director
Tomas Eliasson was elected a new member of the Board
of Millicom in May 2014 and chairs the Audit Committee.
Mr. Eliasson has been Chief Financial Officer and Senior
Vice-President of Electrolux, the Swedish household and
professional appliances manufacturer, since 2012.
Mr. Eliasson has previously held various management
positions in Sweden and abroad, at the leading power and
automation technologies company ABB Group, from 1987
to 2002.
Mr. Eliasson was Chief Financial Officer of the tools
manufacturer Seco Tools AB from 2002 to 2006 and
Chief Financial Officer of the intelligent lock and security
solutions company Assa Abloy AB from 2006 to 2012.
Millicom Annual Report 2014
63
2
3
5
7. Lorenzo Grabau
Non-Executive Director
Mr. Lorenzo Grabau was elected to the Board of Millicom
in May 2013 and is a member of the Audit Committee.
Mr. Grabau is the Chief Executive Officer of Investment AB
Kinnevik, a leading Swedish entrepreneurial investment
group with investments across mobile telecommunications,
e-commerce, entertainment and financial services.
Mr. Grabau began his career as an analyst for the
investment bank Merrill Lynch, in the mergers and
acquisitions department, before joining Goldman Sachs
International, where he later became Partner and
Managing Director (1999).
He became Director of Industrial Participations of the
Rivaud Group, before joining the Bolloré Group following
its friendly takeover of the Rivaud Group in 1997.
Mr. Lafont joined the company in 1999 as the Financial
Director for Africa. In 2003, he was appointed the
Managing Director of its Anglophone Africa Unit.
Mr. Lafont holds an MBA from the ESSEC Business School
and a degree in Business Law from the Panthéon-Assas
University in Paris. He is a graduate of the Institut d Études
Politiques de Paris.
He qualifies as independent of major shareholders as well
as the Company and its management according to the
Swedish Code of Corporate Governance.
Previously, Mr. Grabau was a member of the Board of
Directors for SoftKinetic BV (2011 to 2014).
Mr. Lafont holds 587 Millicom shares.
Mr. Grabau is Chairman of Rocket Internet AG, Avito AB
and Global Fashion Holding SA. He is also Vice Chairman of
Zalando SE, the leading European fashion and accessories
e-commerce company, and member of the Board of
Directors of Modern Times Group MTG AB, Tele2 AB
and Qliro Group AB.
Mr. Grabau holds a degree in Economics and Business from
La Sapienza University, Italy.
9. Alejandro Santo Domingo
Non-Executive Director
Mr. Alejandro Santo Domingo was elected to the Board
of Millicom in May 2013.
Mr. Santo Domingo is Managing Director at Quadrant
Capital Advisors Inc., a Venture Capital and Private Equity
investment advisory firm.
Mr. Santo Domingo is also a member of the Board of
Directors of SABMiller Plc, the world’s second largest brewery,
and serves as Vice-Chairman of SABMiller Latin America.
He sits on the boards of several companies controlled by
his family-owned business, the Santo Domingo Group.
Mr. Santo Domingo is Chairman of the Board of the
beverage company Bavaria S.A. in Colombia, and
Chairman of Backus and Johnston in Peru.
He serves as Chairman of the Board of Valorem S.A., which
manages industrial and media assets in Latin America,
and as Director of the Board of Caracol Television S.A.,
Colombia’s leading broadcaster.
Mr. Santo Domingo holds a Bachelor of Arts degree from
Harvard University.
He qualifies as independent of major shareholders as well
as the Company and its management according to the
Swedish Code of Corporate Governance.
Mr. Santo Domingo holds 5,587 Millicom shares.
7
Mr. Eliasson holds a Bachelor of Science in Business
Administration and Economics from the University of Uppsala.
He qualifies as independent of major shareholders as well
as the Company and its management according to the
Swedish Code of Corporate Governance.
Mr. Eliasson currently holds 587 Millicom shares.
6. Dame Amelia Fawcett
Non-Executive Director
Dame Amelia Fawcett was elected a new member
of the Board of Millicom in May 2014 and chairs the
Compensation Committee and is a member of Government
Relations and Corporate Responsibility Committee.
Dame Amelia Fawcett is Deputy Chairman of Investment
AB Kinnevik, a leading Swedish entrepreneurial investment
group with investments across mobile telecommunications,
e-commerce, entertainment and financial services.
Dame Amelia began her career at the US law firm of
Sullivan and Cromwell and then worked for Morgan Stanley
from 1987 to 2007.
She was Chairman between 2007 and 2010 of Pensions
First, a financial services and systems solutions business,
which she helped set up.
Dame Amelia was a Non-Executive Director and then
Chairman of the UK’s Guardian Media Group, between
2007 and 2013.
He does not qualify as independent of major shareholders,
but is independent of the Company and its management
according to the Swedish Code of Corporate Governance.
In addition to her role within Kinnevik, Dame Amelia is
Chairman of the Hedge Fund Standards Board in London,
a Non-Executive Director of the State Street Corporation
in Boston, Massachusetts, where she chairs the Risk and
Capital Committee, and a Non-Executive Director of HM
Treasury in London.
She holds degrees in History from Wellesley and Law from
the University of Virginia.
Dame Amelia does not qualify as independent of the major
shareholders due to her significant affiliation to Kinnevik.
However, she remains independent of the Company and its
management according to the Swedish Stock Exchange.
Dame Amelia holds 587 Millicom shares.
Mr. Grabau holds 3,587 Millicom shares.
8. Dominique Lafont
Non-Executive Director
Dominique Lafont was elected a new member of the
Board of Millicom in May 2014 and is a member of the
Audit Committee.
Mr. Lafont is Chief Executive Officer since 2006 of Bolloré
Africa Logistics, a French company that provides integrated
logistics networks on the African continent and for major
emerging countries that trade with Africa, while also operating
public-private partnerships in the port and rail sectors.
Mr. Lafont began his career at the auditing firm Arthur
Andersen in France and later held senior positions at the
Saga Group and international construction firm Sogea, of
the Vinci Group.
OverviewStrategyPerformanceGovernanceFinancials 64
Millicom Annual Report 2014
Executive Committee
Tim Pennington
Interim CEO and Chief Financial Officer
Tim Pennington joined Millicom in June 2014 as
Chief Financial Officer.
Martin Lewerth
Executive Vice President, Cable and Digital Media
Martin Lewerth was appointed as EVP of Cable and Digital
Media in December 2012.
Previously he was the Chief Financial Officer at Cable
and Wireless Communications, Group Finance Director for
Cable and Wireless plc and, prior to that, CFO of Hutchison
Telecommunications International Ltd, listed in Hong Kong
and New York.
Tim was also Finance Director of Hutchison 3G (UK),
Hutchison Whampoa’s British mobile business.
He also has corporate finance experience, firstly as Director
in the specialised Financing Department at Samuel
Montagu & Co. Limited, and then as Managing Director
of HSBC Investment Bank within its Corporate Finance
and Advisory Department.
He has a Bachelor of Arts (Honours) degree in Economics
and Social Studies from the University of Manchester.
From December 2, 2014 Tim has performed the role of
Interim CEO whilst the Company recruits a permanent
successor to Hans-Holger Albrecht.
Tim Pennington holds 9,620 Millicom shares.
Mario Zanotti
Senior Executive Vice President, Latin America
Mario Zanotti is Senior EVP, Latin America
He joined Millicom in 1992 as General Manager of Telecel
in Paraguay. Following this, he became Managing Director
of Tele2 Italy and CEO of YXK Systems. In 2002, he served
as Head of Central America for Millicom and became Chief
Officer LATAM in 2008. Prior to joining Millicom, he worked
as an electrical engineer at Itaipu Hydroelectric Power
Plant and later as Chief Engineer of the biggest electrical
contractor company in Paraguay. He has a degree in
Electrical Engineering from the Pontifica Universidade
Catolica in Porto Alegre, Brazil and a MBA from INCAE
and the Universidad Catolica de Asuncion, Paraguay.
Mario Zanotti holds 8,120 Millicom shares.
Arthur Bastings
Executive Vice President, Africa
Arthur Bastings was appointed EVP Africa in May 2013
and oversees Mobile Financial Services at executive level.
Previously Arthur was Chief Executive at online games
developer Bigpoint. Prior to this he was Managing Director
of Discovery Communications Europe – the largest pay-TV
channels business in the region. Before that he had senior
roles at Time Warner and Viacom. His early career was in
strategy consulting and brand development.
Arthur Bastings holds no Millicom shares.
Previously, Martin was Executive Vice President Pay TV and
Technology at MTG. Martin joined MTG in 2001 where he
served in various management positions including CTO for
MTG, CEO for the IPTV distribution, Business area manager
for the Pay TV business and manager responsible for the
group’s online strategy and operations. Before joining
MTG, Martin worked for the management consulting firm
Applied Value and the Swedish company SKF Group. Martin
holds a M.Sc. from Chalmers University of Technology
in Sweden.
Martin Lewerth holds 356 Millicom shares.
Heather Morgan
Executive Vice President, Chief Talent Officer
Heather Morgan joined Millicom as an EVP and Chief
Talent Officer on October 1, 2014.
Heather began her Human Resources career at British
American Tobacco where she worked in senior generalist
HR roles and as the Head of Career Management and
Development for the global Corporate and Regulatory
Affairs function.
She has over 20 years of Human Resources experience
which encompasses strategic and operational HR, leadership
development, talent management, organisational change,
employee relations and reward. She is an experienced
executive coach and HR consultant, and most recently
worked as Group HR Director for a global risk
advisory consultancy.
Heather holds a PhD in Organisational Psychology from the
University of London, an MSc in Career Management and
Coaching, and is a Fellow of Britain’s Chartered Institute
of Personnel and Development.
Heather Morgan holds no Millicom shares.
Xavier Rocoplan
Executive Vice President, Technical and Global Chief
Technology Information Officer
Xavier was previously Chief Global Networks Officer, a
position he held from April 2012. He joined Millicom in
2000 as CTO in Vietnam and then became CTO for the
South East Asian cluster (Cambodia, Laos and Vietnam).
In 2004, he was appointed CEO of Paktel in Pakistan, a role
he held until 2007. During this time, he launched Paktel’s
GSM operations and led the process that was concluded
with the disposal of the business in 2007. After Millicom’s
exit from Asia, Xavier was appointed to head the New
Corporate Business development unit where he managed
the Tower Assets Monetization programme which led to
the creation of tower companies in Ghana, Tanzania, DRC
and Colombia. Xavier holds Master’s degrees from Ecole
Nationale Supérieure des Télécommunications de Paris
and from Université Paris IX Dauphine.
Xavier Rocoplan holds 5,000 Millicom shares.
Rachel Samrén
Executive Vice President, External Affairs
Rachel Samrén joined Millicom in July 2014. She is
Executive Vice President External Affairs, managing
the Company’s Government Relations, Corporate
Communications and Corporate Responsibility functions.
Rachel’s focus is on developing and driving Millicom’s
global stakeholder engagement and communication as
well as devising and executing special situation strategies.
Rachel has a background in the risk management
consulting sector and started her career at Citigroup.
She currently serves as Deputy Chairman of the Board
of Directors of Reach for Change. Rachel holds a BSc
in International Relations from the London School of
Economics and Political Science and a MLitt in International
Security Studies from the University of St Andrews.
Rachel Samrén holds no Millicom shares.
Victor Unda
Executive Vice President, Commercial
and Head of Mobile
Victor Unda was appointed Executive Vice President,
Commercial on January 1, 2015. He was previously Senior
Vice President, Commercial and Area Manager for Central
America, Colombia and the US.
Victor first joined Millicom in 2000 as a customer service
manager for Tigo Guatemala. He was later appointed
International Business Director and head of regulatory
affairs (2004 to 2007) before becoming Tigo Guatemala’s
General Manager (GM).
As GM from 2007 to 2011, Victor oversaw the company’s
growth in market share from 37 per cent to 52 per cent.
Victor has more than 15 years of experience in team
building, strategic organisational leadership and
relationship management. Since 2013, as Senior Vice
President, Commercial, he has driven the financial
performance of all global activities in Sales and
Distribution, Product Development, Customer
Operations, Digital and Valued Added Services.
Victor’s academic credentials include a BSc in Industrial
Engineering (North Carolina State University – 1998), an
MBA (University of Notre Dame – 2004), an MA (Harvard
Business School – 2005) and the Advanced Executive
Program (Kellogg School of Management, Northwestern
University – 2010).
Victor Unda holds 1,131 Millicom shares.
Martin Weiss
Executive Vice President, Strategy and
Corporate Development
Martin Weiss joined Millicom on June 1, 2013 as EVP
Strategy and Corporate Development.
Martin Weiss was previously founding Partner at Solon
Management Consulting where he developed extensive
experience advising telecommunications and media
companies internationally including consultancy to Millicom.
He began his business career at McKinsey & Company.
Martin Weiss holds 593 Millicom shares.
Millicom Annual Report 2014
65
Remuneration of the Executive management
The remuneration of senior management of the Company (“Officers”) comprises an annual base salary, an annual bonus, share-based
compensation, social security contributions, pension contributions and other benefits. From 2013 the senior management of the Company is
considered to be the CEO and the Executive Vice Presidents (previously only CEO and CFO). The bonus and share-based compensation plans
(see note 12) are based on actual performance (including individual and Group performance). Share-based compensation is granted once a year
by the Compensation Committee of the Board. The annual base salary and other benefits of the Chief Executive Officer (“CEO”) and the Executive
Vice Presidents (“Executive Team”) is proposed by the Compensation Committee and approved by the Board.
In December 2014 it was announced that Hans-Holger Albrecht would leave the position of CEO by the end of 2014 and that Tim Pennington
would assume the role of interim CEO.
In February 2014 Tim Pennington was appointed as Chief Financial Officer, effective from June 2014.
On August 31, 2013 Marc Zagar was appointed as Interim Chief Financial Officer after the departure of Francois-Xavier Roger. Marc Zagar left
the organisation on October 31, 2014.
On October 31, 2012 the Board appointed Hans-Holger Albrecht, who was a Director of Millicom since May 2010, to succeed Mikael Grahne as
President and CEO.
The remuneration charge for the Officers for the years ended December 31, 2014 and 2013 was as follows:
2014
Base salary
Bonus
Pension
Other benefits
Termination benefits
Total
Share-based compensation (i) (ii)
2013
Base salary
Bonus
Pension
Other benefits
Total
Share-based compensation (i)
(i)
(ii)
Former Chief
Executive
Officer
US$‘000
Executive Team
(8 members at
December 31)
US$‘000
2,344
–
586
752
–
3,682
–
4,582
3,079
499
1,715
1,411
11,286
3,927
Former Chief
Executive
Officer
US$‘000
Executive Team
(9 members at
December 31)
US$‘000
2,252
2,269
723
1,282
6,526
1,705
3,532
1,768
573
747
6,620
3,057
See note 12.
Share awards of 62,437 and 54,684 were granted in 2014 under the 2014 LTIPs to the former CEO, and Executive Team. Share awards of 65,178 and 71,899 were granted in 2013
under the 2013 LTIPs to the former CEO and Executive Team. Share awards of 33,209 and 13,962 were granted in 2012 under the 2012 LTIPs to the CEO in 2012 and former CFO.
The number of shares and unvested share awards beneficially owned by senior management as at December 31, 2014 and 2013 was
as follows:
2014
Shares
Share awards not vested
2013
Shares
Share awards not vested
Former Chief
Executive Officer
Not applicable
Not applicable
Executive
Team
23,689
103,669
Total
23,689
103,669
8,810
65,178
20,174
105,102
28,984
170,280
Notice period
If employment of the executives is terminated by Millicom, a notice period of up to 12 months is applicable, and the CEO is entitled to receive
a termination payment equivalent to 24 months’ basic salary if he complies with certain conditions.
OverviewStrategyPerformanceGovernanceFinancials
66
Millicom Annual Report 2014
Directors’ report
Principal activities
and background
Millicom International Cellular S.A. (the
“Company”), a Luxembourg Société Anonyme,
and its subsidiaries, joint ventures and
associates (the “Group” or “Millicom”) is an
international telecommunications and media
group providing digital lifestyle services in
emerging markets, through mobile and fixed
telephony, cable, broadband and investments
in online businesses in Latin America and Africa.
Millicom operates its mobile businesses in
Central America (El Salvador, Guatemala
and Honduras), in South America (Bolivia,
Colombia and Paraguay) and in Africa (Chad,
the Democratic Republic of Congo (“DRC”),
Ghana, Rwanda, Senegal and Tanzania).
Millicom operates various cable and fixed
line businesses in Latin America (Colombia,
Costa Rica, El Salvador, Guatemala, Honduras,
Nicaragua and Paraguay) and a television
business in Bolivia. Millicom also provides
direct to home satellite service in many of
its Latin American countries.
Millicom has investments in online/e-commerce
businesses in several countries in Latin America
and Africa, and various investments in start-up
businesses in providing e-payments, content
and educational services to its mobile and
cable customers.
The Company’s shares are traded as Swedish
Depositary Receipts on the Stockholm Stock
Exchange under the symbol MIC SDB and over
the counter in the US under the symbol MIICF.
The Company has its registered office at 2,
Rue du Fort Bourbon, L-1249 Luxembourg,
Grand Duchy of Luxembourg and is registered
with the Luxembourg Register of Commerce
under the number RCS B 40 630.
Group performance
The Group delivered organic and acquisition-
based revenue growth in 2014, a year of
transformation and rapid progress in executing
on the digital lifestyle strategy. The acquisition
of UNE in August and full consolidation of
Guatemala significantly added to the Group’s
financial results and position. The total mobile
customer base increased by 12% to over
56 million compared to 50 million at December
31, 2013. Organic revenue growth reached 9.4%
for the year. In 2014, our emphasis was building
on the foundations of our digital lifestyle
strategy and further diversifying revenue-
generating activities. The merger with UNE
was the highlight of 2014 and together with the
expansion of our cable and satellite footprints,
the rapid adoption of data across our markets
and developments in mobile money services our
achievements were numerous during the year.
Total operating profit for the year ended
December 31, 2014 was $924 million from
$583 million for the year ended December 31,
2013 (as restated for Guatemala and Mauritius),
reflecting 100% of Guatemala in 2014 and
lower operating profit margins as a result of the
shift in revenue mix to lower margin products
such as smartphones to encourage customers
to migrate towards data through increased
handset subsidies. During the year we recorded
non-cash income items of $2,250 million related
to revaluation of our previously held interest
in Guatemala and $353 million of gains from
changes in the value of the put and call options
related to Guatemala and Honduras. Without
these items net profit attributable to equity
holders of the Company declined from
$229 million in 2013 to $40 million.
The Group generated operating free cash
flow of $500 million in 2014, equivalent to
7.8% of revenue, compared to $497 million
as reported in 2013 (9.6% of 2013 revenue).
Cash, cash equivalents and low-risk interest
bearing deposits declined to $694 million
compared to $909 million at December 31,
2013. As at December 31, 2014, the Group
had total equity of $3.7 billion compared
to $2.1 billion at December 31, 2013.
The Group’s performance throughout 2014
demonstrates our ability to transform, execute
on new products and services, expand our
physical and digital footprint, and progress well
despite challenging economic conditions and
currency declines in some of our markets.
Millicom Annual Report 2014
67
Agreements to acquire Sur Multimedia
(Paraguay) and the remaining shares in
Tigo Rwanda
On January 20, 2015 Millicom’s Paraguay
operation reached agreement to acquire a 100%
stake in the cable business Sur Multimedia and
on February 10, 2015 Millicom reached agreement
to acquire the remaining 12.5% non-controlling
interest in its Rwandan business. These
acquisitions will be made for cash consideration
of approximately $31 million. The completion
of the Sur Multimedia transaction remains
subject to customary closing conditions being
met including obtained regulatory approvals.
Appointment of Mauricio Ramos as CEO
On March 2, 2015 Millicom appointed
Mauricio Ramos as its new Chief Executive
Officer with effect from April 1, 2015.
Outlook for the Group
In 2015, we will continue to build on the
progress and momentum of 2014.
We expect to increase revenue in 2015 to
between $7.1 billion and $7.5 billion, and to
generate EBITDA of between $2.20 billion
and $2.35 billion. CAPEX is expected to be
in the range of $1.25 billion to $1.35 billion.
Integrating the UNE business and developing
our service offerings and efficiency in the
merged company will remain a priority
in 2015.
We expect trading conditions to remain
challenging in many of our markets in 2015
impacting local currencies and regulatory and
tax environments. We will sharpen our focus
on effective cost management to maintain
the Group’s margins and so preserve and
enhance cash flow.
Significant developments in 2014
In January we announced the signing of a
put and call option agreement with our partner
in Guatemala. While our share ownership
remained unchanged at 55%, the agreement
strengthened our partnership with our local
partner, Miffin Associates Corp, and provided us
with full control over the Guatemalan business.
As a result and under IFRS rules in effect
from 2014 Millicom fully consolidated the
Guatemalan business from January 1, 2014.
On February 3 we announced the successful
issuance of a $800 million ten-year bond to
finance the Guatemalan operation.
On February 11 Tim Pennington was
announced as the Chief Financial Officer of
Millicom to take up the role from June 2014.
On April 16 Millicom received the first of three
regulatory approvals related to the merger of
the Colombia mobile business with UNE EPM
Telecomunicaciones. The second and final
approvals were obtained by August 14, 2014
and merger and integration activities
progressed well by the end of 2014.
In April satellite TV services were launched in
Latin America, and by December 31, 2014 the
customer base had reached 85,000 subscribers.
In June Millicom, together with other mobile
financial services providers, announced Africa’s
first mobile money interoperability agreement.
In July mobile education services were
launched in Africa and Latin America, allowing
customers access to mobile-based language
courses, opening up new opportunities for our
users to develop.
In July we announced the sale of our 50%
stake in our Mauritian business to our local
partner. This was followed soon after with
the sale of our stake in ATC BV, the parent
company of the tower company in Colombia.
The cash generated from sale of these assets
was redirected to our core businesses.
4G services were launched in Bolivia in July,
Millicom’s second operation to launch 4G,
after Colombia in December 2013.
In September and October digital music
initiatives were announced within existing and
new African markets to provide our customers
with access to extensive catalogues of music.
The Millicom Foundation was launched in
October to support digital innovators in
emerging markets.
On December 2 Millicom announced the
intention of Hans-Holger Albrecht to step down
from the position of Chief Executive Officer and
the appointment of Tim Pennington as interim
Chief Executive Officer.
In December and in response to the Ebola crisis
Millicom campaigned and raised funds to assist
in the fight against the Ebola virus in West Africa.
On December 19 Millicom’s subsidiary in Costa
Rica signed an agreement to acquire Telecable
Economio TVE SA.
In 2014 we returned $264 million to shareholders
through dividends and our dividend policy is
no less than $2 per share and at least 30%
of adjusted net profit. We continue to have
the ambition to progressively grow ordinary
dividends, however our immediate priority will be
on reducing Group leverage towards the middle
of our target range of 1.0-2.0x Net Debt/EBITDA.
The Board will propose to the AGM the payment
of a 2014 ordinary dividend of $2.64 per share.
Risk management activities are presented
on pages 38 to 46 of this Annual Report.
Hedging activities are set out in note 31 of
the consolidated financial statements.
Treasury (own) shares
At December 31, 2014 Millicom held
1.8 million treasury shares (2013: 1.9 million)
having acquired 25,790 shares during the
year and issued 165,104 shares.
Subsequent events
Dividend
On February 3, 2015 Millicom announced that
the Board will propose to the Annual General
Meeting of the Shareholders a dividend
distribution of $2.64 per share to be paid
out of Millicom profits for the year ended
December 31, 2014 subject to the Board’s
approval of the 2014 consolidated financial
statements of the Group.
OverviewStrategyPerformanceGovernanceFinancials 68
Millicom Annual Report 2014
Financial statements
Contents
69 Independent auditors’ report
70 Consolidated income statement
71 Consolidated statement
of comprehensive income
72 Consolidated statement
of financial position
74 Consolidated statement
of cash flows
76 Consolidated statement
of changes in equity
78 Notes to the consolidated
financial statements
Millicom Annual Report 2014
69
Independent auditors’ report
To the Shareholders of Millicom International Cellular S.A.
Following our appointment by the General Meeting of the Shareholders dated May 27, 2014, we have audited the accompanying consolidated
financial statements of Millicom International Cellular S.A., which comprise the consolidated statement of financial position as at December 31,
2014, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes
in equity, the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other
explanatory information.
Board of Directors’ responsibility for the consolidated financial statements
The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as adopted by the European Union and for such internal control as the Board of Directors determines
is necessary to enable the preparation and presentation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Responsibility of the “réviseur d’entreprises agréé”
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance
with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the judgement of the “réviseur d’entreprises agréé”, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the “réviseur d’entreprises
agréé” considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of Millicom International Cellular S.A.
as of December 31, 2014, and of its financial performance and its cash flows for the year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union.
Report on other legal and regulatory requirements
The accompanying Directors’ report, which is the responsibility of the Board of Directors, is consistent with the consolidated financial statements.
The accompanying corporate governance statement, which is the responsibility of the Board of Directors, is consistent with the consolidated
financial statements and includes the information required by the law with respect to the corporate governance statement.
ERNST & YOUNG
Société Anonyme
Cabinet de révision agréé
Olivier Lemaire
Luxembourg, March 2, 2015
FinancialsOverviewStrategyPerformanceGovernance 70
Millicom Annual Report 2014
Consolidated income statement
for the year ended December 31, 2014
Consolidated statement of comprehensive income
for the year ended December 31, 2014
Millicom Annual Report 2014
71
Notes
Net profit for the year
Other comprehensive income (loss) (to be reclassified to profit and loss
in subsequent periods):
Exchange differences on translating foreign operations(ii)
Cash flow hedges
Other comprehensive income (loss) (that will not be reclassified to profit
and loss in subsequent periods) net of tax:
Changes in pension obligations
Total comprehensive income for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
(i) Restated for discontinued operations (see note 5) and changes in accounting standards (see note 2.1).
(ii) Exchange differences on translating foreign operations arising from discontinued and disposed operations were not significant.
32
13
The accompanying notes are an integral part of these consolidated financial statements.
2014
US$m
2,801
2013
(restated)(i)
US$m
2012
(restated)(i)
US$m
205
504
(380)
1
1
2,423
2,433
(10)
(73)
7
–
139
182
(43)
(55)
(2)
–
447
469
(22)
Revenue
Cost of sales
Gross profit
Sales and marketing expenses
General and administrative expenses
Other operating expenses
Other operating income
Operating profit
Interest expense
Interest and other financial income
Revaluation of previously held interest
Other non-operating income (expenses), net
Income (loss) from joint ventures and associates, net
Profit before tax from continuing operations
(Charge) credit for taxes
Profit for the year from continuing operations
Profit (loss) for the year from discontinued operations, net of tax
Net profit for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Earnings per share for the year
(US$ per common share)
Basic earnings per share
– from continuing operations attributable to equity holders
– from discontinued operations attributable to equity holders
– for the year attributable to equity holders
Diluted earnings per share
– from continuing operations attributable to equity holders
– from discontinued operations attributable to equity holders
– for the year attributable to equity holders
(i) Restated for discontinued operations (see note 5) and changes in accounting standards (see note 2.1).
The accompanying notes are an integral part of these consolidated financial statements.
Notes
9, 10
10, 11
4
14
5, 7, 8
15
5
16
2014
US$m
6,386
(2,522)
3,864
(1,280)
(1,432)
(236)
8
924
(426)
22
2,250
211
55
3,036
(256)
2,780
21
2,801
2,643
158
26.22
0.21
26.43
26.21
0.21
26.42
2013
(restated)(i)
US$m
2012
(restated)(i)
US$m
4,390
(1,723)
2,667
(938)
(985)
(178)
17
583
(267)
20
—
(134)
210
412
(144)
268
(63)
205
229
(24)
2.93
(0.63)
2.30
2.93
(0.63)
2.30
4,136
(1,539)
2,597
(798)
(858)
(122)
19
838
(206)
12
9
12
207
872
(360)
512
(8)
504
508
(4)
5.10
(0.08)
5.02
5.09
(0.08)
5.01
FinancialsOverviewStrategyPerformanceGovernance 72
Millicom Annual Report 2014
Consolidated statement of financial position
as at December 31, 2014
ASSETS
Non-current assets
Intangible assets, net
Property, plant and equipment, net
Investments in joint ventures
Investments in associates
Pledged deposits
Deferred tax assets
Call option
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade receivables, net
Amounts due from non-controlling interests, associates and joint venture partners
Prepayments and accrued income
Current income tax assets
Supplier advances for capital expenditure
Advances to non-controlling interest
Other current assets
Pledged deposits
Restricted cash
Cash and cash equivalents
Total current assets
Assets held for sale
TOTAL ASSETS
(i) Restated for changes in accounting standards (see note 2.1).
The accompanying notes are an integral part of these consolidated financial statements.
2014
US$m
2013
(restated)(i)
US$m
January 1,
2013
(restated)(i)
US$m
Notes
17
18
7
8
19
15
27
20
31
32
19
21
22
5
5,503
4,631
89
185
2
294
74
113
10,891
152
492
212
283
150
64
88
103
6
128
694
2,372
34
13,297
2,458
2,771
327
122
—
312
—
83
6,073
122
282
67
156
56
51
69
77
817
80
909
2,686
14
8,773
2,331
2,754
320
193
45
259
—
85
5,987
72
288
—
134
37
33
56
122
8
41
1,155
1,946
21
7,954
Millicom Annual Report 2014
73
2014
US$m
2013
(restated)(i)
US$m
January 1,
2013
(restated)(i)
US$m
Notes
23
24
25
6
26
31
32
27
15
26
27
32
27
5
639
(160)
(2,513)
(388)
2,121
2,643
2,342
1,405
3,747
4,467
43
31
259
176
4,976
362
2,260
371
386
4
501
143
545
4,572
2
9,550
13,297
640
(172)
(737)
(185)
2,154
229
1,929
152
2,081
3,504
23
1
150
183
3,861
423
792
424
239
84
369
147
351
2,829
2
6,692
8,773
642
(198)
(737)
(133)
1,942
508
2,024
312
2,336
2,344
4
–
113
176
2,637
643
730
371
232
186
306
157
351
2,976
5
5,618
7,954
EQUITY AND LIABILITIES
EQUITY
Share capital and premium
Treasury shares
Put option reserve
Other reserves
Retained profits
Profit for the year attributable to equity holders
Equity attributable to owners of the Company
Non-controlling interests
TOTAL EQUITY
LIABILITIES
Non-current liabilities
Debt and financing
Derivative financial instruments
Amount due to associates and joint venture partners
Provisions and other non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Debt and financing
Put option liabilities
Payables and accruals for capital expenditure
Other trade payables
Amounts due to non-controlling interests, associates and joint venture partners
Accrued interest and other expenses
Current income tax liabilities
Provisions and other current liabilities
Total current liabilities
Liabilities directly associated with assets held for sale
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
(i) Restated for changes in accounting standards (see note 2.1).
The accompanying notes are an integral part of these consolidated financial statements.
FinancialsOverviewStrategyPerformanceGovernance 74
Millicom Annual Report 2014
Consolidated statement of cash flows
for the year ended December 31, 2014
Cash flows from operating activities
Profit before taxes from continuing operations
Profit (loss) for the period from discontinued operations
Profit before tax
Adjustments to reconcile to net cash:
Interest expense
Interest and other financial income
Adjustments for non-cash items:
Depreciation and amortisation
Share of (gain) loss from joint ventures, net
Loss (gain) on disposal and impairment of assets, net
Share-based compensation
Revaluation of previously held interests
(Income) loss from associates, net
Other non-operating (income) expenses, net
Decrease (increase) in trade receivables, prepayments and other current assets
(Increase) in inventories
Increase in trade and other payables
Changes in working capital(ii)
Interest paid
Interest received
Tax paid
Net cash provided by operating activities
Cash flows from (used in) investing activities:
Acquisition of subsidiaries and non-controlling interests, net of cash acquired
Proceeds from disposal of subsidiaries and non-controlling interests
Purchase of intangible assets, including licenses
Proceeds from sale of intangible assets
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
(Increase)/decrease of pledged deposits
Net increase in restricted cash
Loans to associates
Cash (used in) provided by other investing activities, net
Net cash used in investing activities
Notes
5
9,10,17,18
7
9,17,18
12
4
8
5
4
5
17
18
19
21
5
2014
US$m
3,036
21
3,057
426
(22)
1,158
8
15
22
(2,250)
(67)
(235)
59
(2)
–
57
(350)
19
(380)
1,458
46
175
(184)
7
(1,128)
13
800
(48)
(3)
46
(276)
2013
(restated)(i)
US$m
2012
(restated)(i)
US$m
412
(63)
349
267
(20)
786
(219)
29
17
–
9
134
41
(58)
56
39
(214)
16
(277)
916
(3)
(1)
(400)
–
(632)
60
(800)
(39)
(20)
(43)
(1,878)
872
(8)
864
206
(12)
727
(229)
1
22
(9)
22
(12)
173
(9)
190
354
(156)
9
(252)
1,535
(166)
(1)
(166)
2
(704)
115
–
(23)
(31)
(52)
(1,026)
Millicom Annual Report 2014
75
Notes
19,26
19,26
4
26
26
32
28
5
2014
US$m
2013
(restated)(1)
US$m
2012
(restated)(1)
US$m
779
–
–
–
(860)
569
(1,182)
(300)
(264)
(110)
(1,368)
(29)
(215)
909
694
–
800
–
–
–
1,163
(1,110)
(46)
(264)
172
715
1
(246)
1,155
909
–
–
(24)
(190)
–
1,428
(842)
–
(541)
–
(169)
2
342
813
1,155
Cash flows from (used in) financing activities:
Proceeds from the 6.875% Guatemala bond
Proceeds from 6.625% bond
Short-term loans to other non-controlling interests
Purchase of treasury shares
Payment of liabilities from UNE merger
Proceeds from debt and other financing
Repayment of debt and financing
Advances for, and dividend payments to, non-controlling interests
Payment of dividends to equity holders
Cash (used in) provided by other financing activities, net
Net cash (used in) from financing activities
Exchange gains (losses) on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year (restated)
Cash and cash equivalents at the end of the year
(i) Restated for discontinued operations (see note 5) and changes in accounting standards (see note 2.1).
(ii)
The accompanying notes are an integral part of these consolidated financial statements.
Excludes working capital balances acquired through business combinations (note 4) totaling $57 million of inventory, $378 million of trade receivables, prepayments and other
current assets, and $232 million of trade and other payables.
FinancialsOverviewStrategyPerformanceGovernance 76
Millicom Annual Report 2014
Consolidated statement of changes in equity
for the year ended December 31, 2014
Number of
shares
’000
Number of
shares held
by the
Group
’000
Share
capital(i)
US$’000
Share
premium(i)
US$’000
Balance on January 1, 2012 (restated)(x)
Profit for the year
Cash flow hedge reserve movement
Currency translation differences
Total comprehensive income for the year
Dividends(v)
Purchase of treasury shares
Cancellation of treasury shares
Share-based compensation(vi)
Issuance of shares under the LTIPs(vi)
Non-controlling interests in Online businesses(viii)
Dividend to non-controlling shareholders
Change in scope of consolidation(vii)
Balance on December 31, 2012 (restated)(x)
Profit for the year
Cash flow hedge reserve movement
Currency translation differences
Total comprehensive income for the year
Dividends(v)
Purchase of treasury shares
Shares issued via the exercise of stock options
Share-based compensation(vi)
Issuance of shares under the LTIPs(vi)
Change in scope of consolidation(vii)
Change in deferred tax liabilities(ix)
Dividends to non-controlling shareholders
Balance on December 31, 2013 (restated)(x)
Balance on January 1, 2014
Profit for the year
Cash flow hedge reserve movement
Currency translation differences
Changes in pension obligations
Total comprehensive income for the year
Dividends(v)
Purchase of treasury shares
Share-based compensation(vi)
Issuance of shares under the LTIPs(vi)
Dividend to non-controlling shareholders
Change in scope of consolidation(vii)
Deconsolidation of Online businesses(viii)
Put option(iii)
Balance on December 31, 2014
(i)
(ii) Retained profits – includes profit for the year attributable to equity holders, of which $285million (2013: $41 million; 2012: $38 million) are not distributable to equity holders.
(iii) Put option reserve (see note 24).
(iv) Other reserves (see note 25).
(v) Dividends (see note 28).
(vi) Share-based compensation (see note 12).
(vii) Change in scope of consolidation (see note 4).
(viii) Acquisition/disposal of Online businesses (see note 4).
(ix) Change in deferred tax liabilities (see note 15).
(x) Restated for changes in accounting standards (see note 2.1).
104,939
–
–
–
–
–
–
(3,200)
–
–
–
–
–
101,739
–
–
–
–
–
–
–
–
–
–
–
–
101,739
101,739
–
–
–
–
–
–
–
–
–
–
–
–
–
101,739
(3,507)
–
–
–
–
–
(2,106)
3,200
–
237
–
–
–
(2,176)
–
–
–
–
–
(44)
90
–
235
–
–
–
(1,895)
(1,895)
–
–
–
–
–
–
(26)
–
165
–
–
–
–
(1,756)
Share capital and share premium (see note 23).
The accompanying notes are an integral part of these consolidated financial statements.
157,407
–
–
–
–
–
–
(4,800)
–
–
–
–
–
152,607
–
–
–
–
–
–
–
–
–
–
–
–
152,607
152,607
–
–
–
–
–
–
–
–
–
–
–
–
–
152,607
505,120
–
–
–
–
–
–
(15,000)
–
(1,106)
–
–
–
489,014
–
–
–
–
–
–
(343)
–
(1,106)
–
–
–
487,565
487,565
–
–
–
–
–
–
–
–
(760)
–
–
–
–
486,805
Millicom Annual Report 2014
77
Attributable to Equity Holders
Retained
profits(ii)
US$’000
Put option
reserve(iii)
US$’000
Other
reserves(iv)
US$’000
Total equity
holders’
interests
US$’000
Non-
controlling
interests
US$’000
Total equity
US$’000
2,811,130
508,306
–
–
508,306
(541,133)
–
(324,577)
–
(11,926)
–
–
8,658
2,450,458
229,147
–
–
229,147
(263,627)
–
(4,796)
–
(1,104)
1,391
(28,000)
–
2,383,469
2,383,469
2,642,730
–
–
–
2,642,730
(263,978)
–
–
1,011
–
–
–
–
4,763,232
(737,422)
–
–
–
–
–
–
–
–
–
–
–
–
(737,422)
–
–
–
–
–
–
–
–
–
–
–
–
(737,422)
(737,422)
–
–
–
–
–
–
–
–
–
–
–
–
(1,775,078)
(2,512,500)
(103,492)
–
(1,118)
(37,709)
(38,827)
–
–
–
21,929
(12,421)
–
–
–
(132,811)
–
6,857
(53,903)
(47,046)
–
–
(3,027)
16,871
(19,103)
–
–
–
(185,116)
(185,116)
–
1,216
(212,533)
1,414
(209,903)
–
–
22,411
(15,227)
–
–
–
–
(387,835)
2,254,384
508,306
(1,118)
(37,709)
469,479
(541,133)
(189,619)
–
21,929
–
–
–
8,658
2,023,698
229,147
6,857
(53,903)
182,101
(263,627)
(3,702)
–
16,871
–
1,391
(28,000)
–
1,928,732
1,928,732
2,642,730
1,216
(212,533)
1,414
2,432,827
(263,978)
(2,548)
22,411
15
–
–
–
(1,775,078)
2,342,381
191,170
(4,718)
(85)
(17,530)
(22,333)
–
–
–
–
–
160,321
(16,969)
–
312,189
(24,547)
182
(19,068)
(43,433)
–
–
–
–
–
(91,834)
–
(24,872)
152,050
152,050
157,570
–
(167,239)
(9,669)
–
–
–
–
(193,845)
1,461,000
(4,386)
–
1,405,150
2,445,554
503,588
(1,203)
(55,239)
447,146
(541,133)
(189,619)
–
21,929
–
160,321
(16,969)
8,658
2,335,887
204,600
7,039
(72,971)
138,668
(263,627)
(3,702)
–
16,871
–
(90,443)
(28,000)
(24,872)
2,080,782
2,080,782
2,800,300
1,216
(379,772)
1,414
2,423,158
(263,978)
(2,548)
22,411
15
(193,845)
1,461,000
(4,386)
(1,775,078)
3,747,531
Treasury
shares
US$’000
(378,359)
–
–
–
–
–
(189,619)
344,377
–
25,453
–
–
–
(198,148)
–
–
–
–
–
(3,702)
8,166
–
21,313
–
–
–
(172,371)
(172,371)
–
–
–
–
–
–
(2,548)
–
14,991
–
–
–
–
(159,928)
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79
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014
1. Corporate information
Millicom International Cellular S.A. (the “Company”), a Luxembourg Société Anonyme, and its subsidiaries, joint ventures and associates (the
“Group” or “Millicom”) is an international telecommunications and media group providing digital lifestyle services in emerging markets, through
mobile and fixed telephony, cable, broadband and investments in online businesses in Latin America and Africa.
Millicom operates its mobile businesses in Central America (El Salvador, Guatemala and Honduras) in South America (Bolivia, Colombia and
Paraguay), and in Africa (Chad, the Democratic Republic of Congo (“DRC”), Ghana, Rwanda, Senegal and Tanzania).
Millicom operates various cable and fixed line businesses in Latin America (Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua,
and Paraguay), a television business in Bolivia. Millicom also provides direct to home satellite service in many of its Latin American countries.
Millicom has investments in online/e-commerce businesses in several countries in Latin America and Africa, and various investments in start-up
businesses in providing e-payments, content and educational services to its mobile and cable customers.
The Company’s shares are traded as Swedish Depositary Receipts on the Stockholm Stock Exchange under the symbol MIC SDB and over the
counter in the US under the symbol MIICF. The Company has its registered office at 2, Rue du Fort Bourbon, L-1249 Luxembourg, Grand Duchy
of Luxembourg and is registered with the Luxembourg Register of Commerce under the number RCS B 40 630.
On March 2, 2015 the Board of Directors (“Board”) authorised these consolidated financial statements for issuance. The approval will be submitted
for ratification by the shareholders at the Annual General Meeting on May 15, 2015.
2. Summary of consolidation and accounting policies
2.1 Basis of preparation
The consolidated financial statements of the Group (“financial statements”) are presented in US dollars and amounts are rounded to the nearest
million (US$ million) except where otherwise indicated. The financial statements have been prepared on a historical cost basis, except for certain
items including derivative financial instruments, call options and debt financing (measured at fair value), financial instruments that contain
obligations to purchase own equity instruments (measured at the present value of the redemption price), and property, plant and equipment
under finance leases (initially measured at the lower of fair value and present value of the future minimum lease payments).
In accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of
international accounting standards, the financial statements for the year ended December 31, 2014 have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union (“IFRS”).
The preparation of financial statements in conformity with IFRS requires management to use judgment in applying the Group’s accounting
policies. It also requires the use of certain critical accounting estimates and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during
the reporting period. These estimates are based on management’s best knowledge of current events and actions, and actual results may
ultimately differ from these estimates. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in note 3.
New and amended standards adopted by the Group
The following standards have been adopted by the Group for the first time for the financial year beginning on January 1, 2014 which have had
a material impact on the Group:
–
Scope of the reporting entity, a group of standards comprising IFRS 10, ‘Consolidated financial statements’ (which replaces all of the
guidance on control and consolidation in IAS 27, ‘Consolidated and separate financial statements’, and SIC-12, ‘Consolidation – special
purpose entities’), IFRS 11 ‘Joint Arrangements’; IFRS 12, ‘Disclosure of interests in other entities’; and consequential amendments to IAS
28, ‘Investments in associates’.
As a result of adoption of these standards and amendments, other than IFRS 11, there was no significant impact for the Group. IFRS 11 required
Millicom to change its accounting for its joint ventures from January 1, 2014 from proportionate consolidation to equity accounting. Accordingly
Millicom’s joint ventures in 2012 and 2013 (Guatemala and Mauritius) have been shown as equity accounted in the comparative information
presented in these financial statements.
From January 1, 2014 Mauritius has been equity accounted for until July 15, 2014, the date on which Millicom reached agreement to sell Mauritius
and consequently ended its joint control (see note 5).
Millicom obtained control of the Guatemalan operation from January 1, 2014 (see note 4).
The impact of applying IFRS 11 on comparative information presented in these financial statements was as follows:
Income statements
(US$m)
Movement in:
Revenue
Cost of sales
Gross profit
Sales and marketing expenses
General and administrative expenses
Other operating expenses
Other operating income
Operating profit
Interest expense
Interest and other financial income
Other non-operating income (expenses), net
Income (loss) from joint ventures and associates, net
Profit before tax from continuing operations
(Charge) credit for taxes
Profit for the year from continuing operations
Profit for the year from discontinued operations, net of tax
Net profit for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Year ended
December 31,
2013
Year ended
December 31,
2012
(686)
194
(492)
117
114
1
–
(260)
9
(4)
(2)
219
(38)
38
–
–
–
–
–
(665)
176
(489)
116
98
–
–
(275)
14
(2)
1
229
(33)
33
–
–
–
–
–
FinancialsOverviewStrategyPerformanceGovernance 80
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81
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
2. Summary of consolidation and accounting policies (continued)
Statements of financial position
(US$m)
Movement in:
ASSETS
Non-current assets
Intangible assets, net
Property, plant and equipment, net
Investments in joint ventures
Investments in associates
Pledged deposits
Deferred tax assets
Call option
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade receivables, net
Amounts due from non-controlling interests, associates and joint venture partners
Prepayments and accrued income
Current income tax assets
Supplier advances for capital expenditure
Advances to non-controlling interest
Other current assets
Pledged deposits
Restricted cash
Cash and cash equivalents
Total current assets
Assets held for sale
TOTAL ASSETS
At
December 31,
2013
At
December 31,
2012
(85)
(392)
327
–
(1)
(1)
–
–
(152)
(18)
(38)
(98)
(7)
(2)
(12)
–
(13)
–
(2)
(32)
(222)
–
(374)
(88)
(354)
320
–
(1)
(1)
–
(1)
(125)
(21)
(34)
(25)
(6)
(2)
(12)
–
(12)
–
(1)
(19)
(132)
–
(257)
Statements of financial position
(US$m)
Movement in:
EQUITY AND LIABILITIES
EQUITY
Share capital and premium
Treasury shares
Put option reserve
Other reserves
Retained profits
Profit for the year attributable to equity holders
Equity attributable to owners of the Company
Non-controlling interests
TOTAL EQUITY
LIABILITIES
Non-current liabilities
Debt and financing
Derivative financial instruments
Amount due to associates and joint ventures partners
Provisions and other non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Debt and financing
Put option liability
Payables and accruals for capital expenditure
Other trade payables
Amounts due to associates and joint venture partners
Accrued interest and other expenses
Current income tax liabilities
Provisions and other current liabilities
Total current liabilities
Liabilities directly associated with assets held for sale
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
At
December 31,
2013
At
December 31,
2012
–
–
–
–
–
–
–
–
(182)
–
(1)
(11)
(5)
(199)
(48)
–
(29)
(38)
(3)
(24)
(6)
(27)
(175)
–
(374)
(374)
–
–
–
–
–
–
–
–
(222)
–
–
(14)
(4)
(240)
(50)
–
(40)
(27)
167
(35)
(4)
(28)
(17)
–
(257)
(257)
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83
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
2. Summary of consolidation and accounting policies (continued)
Statements of cash flows
(US$m)
Movement in:
Cash flows from operating activities
Profit before taxes from continuing operations
Profit (loss) for the period from discontinued operations
Profit before tax
Adjustments to reconcile to net cash:
Interest expense
Interest and other financial income
Revaluation of previously held interests
Other non-operating (income) expenses, net
Adjustments for non-cash items:
Depreciation and amortisation
(Income) loss from joint ventures, net
Share of (gain) loss from associates, net
Loss (gain) on disposal and impairment of assets, net
Share-based compensation
Decrease (increase) in trade receivables, prepayments and other current assets
Decrease (increase) in inventories
Increase in trade and other payables
Changes in working capital
Interest paid
Interest received
Tax paid
Net cash provided by operating activities
Cash flows from (used in) investing activities:
Acquisition of subsidiaries and non-controlling interests, net of cash acquired
Proceeds from disposal of subsidiaries and non-controlling interests
Purchase of intangible assets, including licenses
Proceeds from sale of intangible assets
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Disposal of pledged deposits, net
(Increase) decrease of pledged deposits
Disposal of time deposits, net
Net increase in restricted cash
Loans to associates
Cash (used in) provided by other investing activities, net
At
December 31,
2013
At
December 31,
2012
(38)
–
(38)
(9)
3
–
1
(89)
(219)
–
–
–
3
(3)
1
1
13
(3)
46
(294)
1
(1)
2
–
126
–
–
–
–
–
–
14
(33)
(33)
(14)
2
1
(84)
(229)
–
(5)
–
275
5
(11)
269
13
(1)
31
(50)
6
(1)
(7)
–
138
–
–
–
–
–
–
(21)
Statements of cash flows
(US$m)
Movement in:
Net cash used in investing activities
Cash flows from (used in) financing activities:
Proceeds from the 6.875% Guatemala bond
Proceeds from 6.625% bond
Short-term loans to other non-controlling interests
Proceeds from issuance of shares
Purchase of treasury shares
Payment of liabilities from the UNE merger
Proceeds from debt and other financing
Repayment of debt and financing
Advances for and dividend payments to non-controlling interests
Payment of dividends to equity holders
Cash (used in) provided by other financing activities, net
Net cash (used in) from financing activities
Exchange gains (losses) on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
At
December 31,
2013
At
December 31,
2012
142
–
–
–
–
–
–
(16)
58
–
–
97
139
–
(13)
(19)
(32)
115
–
–
–
–
–
–
(117)
81
–
–
–
(36)
–
29
(48)
(19)
There was no impact of IFRS 11 on the basic and diluted EPS or internal management reporting and therefore segment information in note 9.
The following standards and amendments to standards have been adopted by the Group for the first time for the financial year beginning on or
after January 1, 2014 but have not had a material impact on the Group:
– Amendment to IAS 32, ‘Financial Instruments: Presentation’, which updates the application guidance in IAS 32, ‘Financial instruments:
Presentation’, to clarify certain requirements for offsetting financial assets and financial liabilities on the statement of financial position.
The Group adopted the amendment on its effective date for the accounting period beginning on January 1, 2014. There was no significant
impact on the Group as a result of adoption.
– Amendment to IAS 36, ‘Impairment of Assets’, which amends certain disclosure requirements regarding disclosure of recoverable amounts
and measurement of fair value less costs to sell when an impairment loss has been recognised or reversed. There was no significant impact
on the Group as a result of adoption.
– Amendment to IAS 39, ‘Financial Instruments: Recognition and Measurement’, which covers novation of hedging instruments to central
–
counterparties. There was no impact on the Group as a result of adoption.
IFRIC 21, ‘Levies’, which provides guidance on when to recognise a liability for a levy imposed by a government, both for levies that are
accounted for in accordance with IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, and those where the timing and
amount of the levy is certain. There was no significant impact on the Group as a result of adoption.
– Amendment to IFRS 13, Fair Value Measurement’, which sets out in a single IFRS a framework for measuring fair value and requires
additional disclosures about fair value measurements. Application of IFRS 13 has not materially impacted the fair value measurements
of the Group.
New standards and interpretations not yet adopted by the Group
The following standards, amendments and interpretations issued are not effective for the financial year beginning January 1, 2014 and have not
been early adopted.
–
–
IFRS 9, ‘Financial Instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities.
IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement
of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value,
and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business
model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities,
the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial
liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the
income statement, unless this creates an accounting mismatch. A final standard on hedging (excluding macro-hedging) has been issued
in November 2013 which aligns hedge accounting more closely with risk management. The Group is yet to assess IFRS 9’s full impact and
intends to adopt IFRS 9 no later than the compulsory adoption date of January 1, 2018 (subject to endorsement by the EU).
IFRS 15, ‘Revenue from Contracts with Customers’, which establishes a five-step model related to revenue from customers. Under IFRS 15
revenue is recognised at amounts that reflect the consideration that an entity expects to be entitled in exchange for transferring products
or services to a customer. The Group is yet to assess IFRS 15’s full impact and intends to adopt IFRS 15 no later than the compulsory
adoption date of January 1, 2017 (subject to endorsement by the EU).
There are no other IFRS’s or IFRIC interpretations that are not yet effective that are expected to have a material impact on the Group.
FinancialsOverviewStrategyPerformanceGovernance 84
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85
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
2. Summary of consolidation and accounting policies (continued)
2.2 Consolidation
The financial statements of the Group comprise the financial statements of the Company and its subsidiaries as at December 31 of each year.
The financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies.
All intra-group balances, transactions, income and expenses, and profits and losses resulting from intra-group transactions are eliminated.
The acquisition method of accounting is used to account for acquisitions where there is a change in control. The cost of an acquisition is measured
at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value on acquisition date,
irrespective of the extent of any non-controlling interest. The excess of cost of acquisition over the fair value of the Group’s share of the identifiable
net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement (see policy note 2.6 on Goodwill). All acquisition related costs are expensed as incurred.
Subsidiaries
Subsidiaries are all entities (including structured entities) which the Group controls. Control is achieved when the Group is exposed to, or has rights
to, variable returns from its investment in the subsidiary, and has the ability to affect those returns through its power over the subsidiary. Generally
control accompanies a shareholding of more than half of the voting rights although certain other factors (including contractual arrangements
with other shareholders, voting and potential voting rights, and the existence of any other special relationships) are considered when assessing
whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The
Group reassesses whether or not it controls a subsidiary if facts and circumstances indicate that there are changes to one or more of the three
elements of control. They are de-consolidated from the date that control ceases.
Non-controlling interests
Transactions with non-controlling interests are accounted for as transactions with equity owners of the Group. Gains or losses on disposals to
non-controlling interests are recorded in equity. For purchases from non-controlling interests, the difference between any consideration paid and
the relevant share acquired of the carrying value of net assets of the subsidiary is also recorded in equity.
Joint operations
Joint operations are all entities whereby its equity holders have joint control of the arrangement and share rights to the assets, and obligations for
the liabilities, relating to the operation of the entity. Joint operations are consolidated in proportion to the Group’s shareholding or rights.
Joint ventures and associates
Joint ventures are all entities over which the Group has joint control of the arrangement and has rights to the net assets of the joint venture.
Joint control exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Millicom determines
the existence of joint control by reference to joint venture agreements, articles of association, structures and voting protocols of the Boards of
Directors of those ventures.
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20%
and 50% of the voting rights.
Joint ventures and associates are accounted for using the equity method of accounting and are initially recognised at cost or carrying value
(see policy note 2.1 Changes in Accounting Policies, for a change in accounting for joint ventures applicable from January 1, 2014). The Group’s
investments in associates and joint ventures includes goodwill (net of any accumulated impairment loss) on acquisition.
The cost of shares acquired in associates from sale and lease back transactions with tower companies are initially measured based on the fair
values of the towers sold. The fair value of the towers sold is derived by using the estimated replacement cost of the towers adjusted by an amount
for wear and tear taking into consideration the average age of the towers.
The Group’s share of post-acquisition profits or losses of joint ventures and associates is recognised in the consolidated income statement, and
its share of post-acquisition movements in reserves is recognised in reserves. Cumulative post-acquisition movements are adjusted against the
carrying amount of the investments. When the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the
associate or joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless the Group has incurred
obligations or made payments on behalf of the associates or joint ventures.
Gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the
associates and joint ventures. Losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Dilution gains
and losses arising in investments in associates and joint ventures are recognised in the income statement.
2.3 Foreign currency translation
Functional and presentation currencies
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment
in which the entity operates (“the functional currency”). The functional currency of each subsidiary, joint venture and associate reflects the
economic substance of the underlying events and circumstances of these entities. The Company is located in Luxembourg and its subsidiaries,
joint ventures and associates are located in various countries and operate in different currencies. The Group’s consolidated financial statements
are presented in US dollars (the “presentation currency”).
Transactions and balances
Transactions denominated in a currency other than the functional currency are translated into the functional currency using exchange rates
prevailing on transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions, and on translation of
monetary assets and liabilities denominated in currencies other than the functional currency at year-end exchange rates, are recognised in the
consolidated income statement, except when deferred in equity as qualifying cash flow hedges.
Translation into presentation currency
The results and financial position of all Group entities (none of which operate in an economy with a hyperinflationary functional currency) with
functional currency other than the US dollar presentation currency are translated into the presentation currency as follows:
i) Assets and liabilities are translated at the closing rate at the date of the statement of financial position;
ii) Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions);
and
iii) All resulting exchange differences are recognised as a separate component of equity (“Currency translation reserve”), in the caption
“Other reserves”.
On consolidation, exchange differences arising from the translation of net investments in foreign operations, and of borrowing and other currency
instruments designated as hedges of such investments, are recorded in equity. When a foreign operation is sold, exchange differences that were
recorded in equity are recognised in the consolidated income statement as part of gain or loss on sale.
Goodwill and fair value adjustments arising on acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
The following table presents currency translation rates for the Group’s most significant operations to the US dollar on December 31, 2014 and
2013 and average rates for the year ended December 31, 2014.
Country
Bolivia
Chad and Senegal
Colombia
Costa Rica
Ghana
Guatemala
Honduras
Luxembourg
Nicaragua
Paraguay
Rwanda
Sweden
Tanzania
United Kingdom
Currency
Boliviano (BOB)
CFA Franc (XAF)
Peso (COP)
Costa Rican Colon (CRC)
Cedi (GHS)
Quetzal (GTQ)
Lempira (HNL)
Euro (EUR)
Cordoba (NIO)
Guarani (PYG)
Rwandan Franc (RWF)
Krona (SEK)
Shilling (TZS)
Pound (GBP)
2014
Average
rate
6.91
497.83
2,010.84
543.53
2.88
7.73
21.06
0.76
25.96
4.484.23
685.90
6.89
1,663.11
0.61
2014
Year-end
rate
6.91
544.28
2,392.46
545.53
3.20
7.60
21.59
0.83
26.60
4,629.00
694.37
7.84
1,725.79
0.64
2013
Year-end
rate
6.91
477.45
1,926.83
507.90
2.16
7.84
20.67
0.73
25.33
4,585.00
676.00
6.42
1,590.00
0.60
The effect of exchange rate changes on cash and cash equivalents held or due in foreign currency is reported in the cash flow statement in order to
reconcile cash and cash equivalents at the beginning and end of the year. Millicom’s functional currency in both El Salvador and DRC is the US dollar.
2.4 Segment reporting
Management determines operating and reportable segments based on the reports that are used by the Chief Operating Decision Maker
(“CODM”) to make strategic and operational decisions from both a business and a geographic perspective. The Group’s risks and rates of return
for its operations are predominantly affected by operating in different geographical regions. The businesses are predominantly organised and
managed according to the selected geographical regions. These regions (Central America, South America, and Africa), represent the basis for
evaluation of past performance and for future allocation of resources.
2.5 Property, plant and equipment
Items of property, plant and equipment are stated at either historical cost, or the lower of fair value and present value of the future minimum
lease payments for assets under finance leases, less accumulated depreciation and accumulated impairment. Historical cost includes expenditure
that is directly attributable to acquisition of items. The carrying amount of replaced parts is derecognised.
Depreciation is calculated using the straight-line method over the shorter of the estimated useful life of the asset and the remaining life of the
license associated with the assets, unless the renewal of the license is contractually possible.
FinancialsOverviewStrategyPerformanceGovernance 86
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87
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
2. Summary of consolidation and accounting policies (continued)
Estimated useful lives are:
Buildings
Networks (including civil works)
Other
40 years or lease period, if shorter
5 to 15 years or lease period, if shorter
2 to 7 years
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the
carrying value may not be recoverable. The assets’ residual value and useful life is reviewed, and adjusted if appropriate, at each statement of
financial position date. An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than
its estimated recoverable amount.
Construction in progress consists of the cost of assets, labour and other direct costs associated with property, plant and equipment being
constructed by the Group, or purchased assets which have yet to be deployed. When the assets become operational, the related costs are
transferred from construction in progress to the appropriate asset category and depreciation commences.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, when it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Ongoing routine repairs
and maintenance are charged to the income statement in the financial period in which they are incurred. Costs of major inspections and
overhauls are added to the carrying value of property, plant and equipment and the carrying amount of previous major inspections and
overhauls is derecognised.
Equipment installed on customer premises which is not sold to customers is capitalised and amortised over the customer contract period.
A liability for the present value of the cost to remove an asset on both owned and leased sites (for example cell towers) and for assets installed on
customer premises, is recognised when a present obligation for the removal exists. The corresponding cost of the obligation is included in the cost
of the asset and depreciated over the useful life of the asset, or lease period if shorter.
Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalised as part of the cost of that asset
when it is probable that such costs will contribute to future economic benefits for the Group and the costs can be measured reliably.
2.6 Intangible assets
Intangible assets acquired separately are initially recognised at cost. The cost of intangible assets acquired in a business combination is measured
at fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and
any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised but
expensed to the income statement in the year in which incurred.
Intangible assets with finite useful lives are amortised over their estimated useful economic lives using the straight-line method and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method
for intangible assets with finite useful lives are reviewed at least at each financial year-end. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the assets are accounted for by changing the amortisation period or method,
as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in
the consolidated income statement in the expense category consistent with the function of the intangible assets.
Goodwill
Goodwill represents the excess of cost of an acquisition over the Group’s share in the fair value of identifiable assets less liabilities and contingent
liabilities of the acquired subsidiary, at the date of the acquisition. If the fair value of identifiable assets, liabilities or contingent liabilities or the
cost of the acquisition can only be determined provisionally, then goodwill is initially accounted for using provisional values. Within 12 months of
the acquisition date any adjustments to the provisional values are recognised. This is done when the fair value of the identifiable assets, liabilities
and contingent liabilities and the cost of the acquisition have been finally determined. Adjustments to provisional fair values are made as if the
adjusted fair values had been recognised from the acquisition date. Goodwill on acquisition of subsidiaries is included in “Intangible assets, net”.
Goodwill on acquisition of joint ventures or associates is included in “Investments in joint ventures and associates”. Following initial recognition,
goodwill is measured at cost less any accumulated impairment losses. Gains or losses on the disposal of an entity include the carrying amount
of goodwill relating to the entity sold.
Goodwill is tested for impairment at least each year and more frequently if events or changes in circumstances indicate that the carrying value
may be impaired. Impairment losses on goodwill are not reversed.
For the purpose of impairment testing, goodwill acquired in a business combination is, from acquisition date, allocated to each of the Group’s
cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether
other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated:
–
–
Represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
Is not larger than an operating segment.
Impairment is determined by assessing the recoverable amount (value in use) and, if appropriate, the fair value less costs to sell of the cash-
generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount and fair value less costs to
sell of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognised for the
lower amount.
Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of,
the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on
disposal. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed and the portion of the cash-
generating unit retained.
Licenses
Licenses are recorded at either historical cost or, if acquired in a business combination, at fair value at the date of acquisition. Cost includes cost
of acquisition and other costs directly related to acquisition and retention of licenses over the license period. These costs may include estimates
related to fulfilment of terms and conditions related to the licenses such as service or coverage obligations, and may include up-front and deferred
payments.
Licenses have a finite useful life and are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is
calculated using the straight-line method to allocate the cost of the licenses over their estimated useful lives.
The terms of licenses, which have been awarded for various periods, are subject to periodic review for, amongst other things, rate setting,
frequency allocation and technical standards. Licenses are initially measured at cost and are amortised from the date the network is available for
use on a straight-line basis over the license period. Licenses held, subject to certain conditions, are usually renewable and generally non-exclusive.
When estimating useful lives of licenses, renewal periods are not usually included.
Trademarks and customer bases
Trademarks and customer bases are recognised as intangible assets only when acquired or gained in a business combination. Their cost represents
fair value at the date of acquisition. Trademarks and customer bases have finite useful lives and are carried at cost less accumulated amortisation.
Amortisation is calculated using the straight-line method to allocate the cost of the trademarks and customer bases over their estimated useful
lives. The estimated useful lives for trademarks and customer bases are based on specific characteristics of the market in which they exist.
Trademarks and customer bases are included in “Intangible assets, net”.
Estimated useful lives are:
Trademarks
Customer bases
1 to 15 years
4 to 9 years
Programming and content rights
Programming and content master rights which are purchased or acquired in business combinations which meet certain criteria are recorded at
cost as intangible assets. The rights must be exclusive, related to specific assets which are sufficiently developed, and probable to bring future
economic benefits and have validity for more than one year. Cost includes consideration paid or payable and other costs directly related to the
acquisition of the rights, and are recognised at the earlier of payment or commencement of the broadcasting period to which the rights relate.
Programming and content rights capitalised as intangible assets have a finite useful life and are carried at cost less accumulated amortisation
and any accumulated impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of the rights over their
estimated useful lives.
Non-exclusive and programming and content rights for periods less than one year are expensed over the period of the rights.
Indefeasible rights of use
Indefeasible rights of use (“IRU”) agreements are mainly composed of purchase and/or sale of specified infrastructure, purchase and/or sale
of lit fibre capacity and exchange of network infrastructure or lit fibre capacity. These arrangements are either accounted for as leases, service
contracts, or partly as leases and partly as service contracts. Determination of the appropriate classification depends on an assessment of the
characteristics of the arrangements.
A network capacity contract is accounted for as a lease if, and when:
–
–
–
–
The purchaser has an exclusive right to the capacity for a specified period and has the ability to resell (or sub-let) the capacity; and
The capacity is physically limited and defined; and
The purchaser bears all costs related to the capacity (directly or not) including costs of operation, administration and maintenance; and
The purchaser bears the risk of obsolescence during the contract term.
If all of these criteria are not met, the IRU is treated as a service contract.
If the arrangement is, or contains a lease, the lease is accounted for as either an operating lease or a financial lease (see policy note Leases 2.21).
A financial lease of an IRU of network infrastructure is accounted for as a tangible asset. A financial lease of an IRU on capacity is accounted for
as an intangible asset.
Estimated useful lives of finance leases of IRUs of capacity are between 12 and 15 years, or shorter if the estimated useful life of the underlying
cable is shorter.
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Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
2. Summary of consolidation and accounting policies (continued)
2.7 Impairment of non-financial assets
At each reporting date the Group assesses whether there is an indication that a non-financial asset may be impaired. If any such indication exists,
or when annual impairment testing for a non-financial asset is required, the Group makes an estimate of the asset’s recoverable amount. The
Group determines the recoverable amount based on the higher of its fair value less cost to sell, and its value in use, for individual assets, unless
the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.
Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable
amount. Where no comparable market information is available, the fair value less cost to sell is determined based on the estimated future cash
flows discounted to their present value using a discount rate that reflects current market conditions for the time value of money and risks specific
to the asset. The foregoing analysis also evaluates the appropriateness of the expected useful lives of the assets. Impairment losses of continuing
operations are recognised in the consolidated income statement in expense categories consistent with the function of the impaired asset.
At each reporting date an assessment is made as to whether there is any indication that previously recognised impairment losses may no longer
exist or may have decreased. If such indication exists, the recoverable amount is estimated. Other than for goodwill, a previously recognised
impairment loss is reversed if there has been a change in the estimate used to determine the asset’s recoverable amount since the last impairment
loss was recognised. If so, the carrying amount of the asset is increased to its recoverable amount. The increased amount cannot exceed the
carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.
Such reversal is recognised in profit or loss. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised
carrying amount, less any residual value, on a systematic basis over its remaining useful life.
2.8 Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are
included in current assets, except for those maturing more than 12 months after the end of the reporting period. These are classified within
non-current assets. Loans and receivables are carried at amortised cost using the effective interest method. Gains and losses are recognised in
the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
2.9 Derecognition of financial assets and liabilities
A financial asset (or a part of a financial asset or part of a group of similar financial assets) is derecognised when:
–
–
Rights to receive cash flows from the asset have expired; or
Rights to receive cash flows from the asset or obligations to pay the received cash flows in full without material delay have been transferred
to a third party under a “pass-through” arrangement; and the Group has either transferred:
a)
b)
Substantially all the risks and rewards of the asset; or
Control of the asset.
When rights to receive cash flows from an asset have been transferred or a pass-through arrangement concluded, an evaluation is made if and
to what extent the risks and rewards of ownership have been retained. When the Group has neither transferred nor retained substantially all of
the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement
in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a
basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the
transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group
could be required to repay.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability
is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the
respective carrying amounts is recognised in the income statement.
2.10 Financial instruments
Financial instruments at fair value through profit or loss
Financial instruments at fair value through profit or loss are financial instruments held for trading. Their fair value is determined by reference
to quoted market prices on the statement of financial position date. Where there is no active market, fair value is determined using valuation
techniques. Such techniques include using recent arm’s-length market transactions, reference to the current market value of a substantially similar
instrument, discounted cash flow analysis and option pricing models. A financial instrument is classified in this category if acquired principally for
the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this
category are classified as current assets.
Financial instruments that contain obligations to purchase own equity instruments
Contracts that contain obligations for the Company to purchase its own equity instruments for cash or other financial assets are initially recorded
as financial liabilities based on the present value of the redemption amounts with a corresponding reserve in equity. Subsequently the carrying
value of the liability is remeasured at the present value of the redemption amount with changes in carrying value recorded in other non-operating
(expenses) income, net. If the contracts expire without delivery, the carrying amounts of the financial liabilities are reclassified to equity.
Financial instruments that contain call options over non-controlling interests
Call option contracts over non-controlling interests that require physical settlement of a fixed number of own shares for a fixed consideration are
classified as equity.
Contracts over non-controlling interests that require gross cash settlement are also classified as equity instruments. Such call options are initially
recognised at fair value and not subsequently remeasured. If a call option is exercised, this initial fair value is included as part of the cost of the
acquisition of the non-controlling interest. If an unexercised call option expires or otherwise lapses, the fair value of the call option remains
within equity.
Call option contracts over non-controlling interests that require net cash settlement or provide a choice of settlement are classified as financial assets.
Contracts over non-controlling interests that require physical settlement of a variable number of own shares for a variable price are classified as
financial assets and changes in the fair value are reported in the income statement. If such a call option is exercised, the fair value of the option at
that date is included as part of the cost of the acquisition of the non-controlling interest. If an unexercised call option expires or otherwise lapses,
its carrying amount is expensed in the income statement.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a
currently enforceable legal right to offset the recognised amounts and an intention to settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.
Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at fair value.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the
nature of the item being hedged. The Group designates certain derivatives as either:
a) Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
b) Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).
For transactions designated and qualifying for hedge accounting, at the inception of the transaction, the Group documents the relationship
between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging
transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the period to maturity of the hedged item is more
than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are
classified as a current asset or liability when the remaining period to maturity of the hedged item is less than 12 months.
The change in fair value of hedging derivatives that are designed and qualify as fair value hedges is recognised in the income statement as
finance costs or income. The change in fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the
hedged item and is also recognised in the income statement as finance costs or income.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income. Gains or loss relating to any ineffective portion is recognised immediately in the income statement within “Other non-
operating (expenses) income, net”. Amounts accumulated in equity are reclassified to the income statement in the periods when the hedged item
affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to
the income statement within “Other non-operating (expenses) income, net”.
2.11 Discontinued operations and non-current assets (or disposal groups) held for sale and related liabilities
Non-current assets (or disposal groups) are classified as assets held for sale and stated at the lower of carrying amount and fair value (less costs
to sell if their carrying amount is expected to be recovered principally through sale, not through continuing use). Liabilities of disposal groups are
classified as “Liabilities directly associated with assets held for sale”.
Discontinued operations are those with identifiable operations and cash flows (for both operating and management purposes) and represent a
major line of business or geographic unit which has been disposed of or is available for sale. Revenue and expenses associated with discontinued
operations are presented in a separate line in the consolidated income statement. Comparative figures in the consolidated income statement
representing the discontinued operations are reclassified to the separate line.
2.12 Inventories
Inventories (which mainly consist of mobile telephone handsets and related accessories) are stated at the lower of cost and net realisable value.
Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business,
less applicable variable selling expenses.
2.13 Trade receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less
provision for impairment. A provision for impairment is recorded when there is objective evidence that the Group will not be able to collect
amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation, and default or delinquency in payments are indicators of impairment. The amount of the provision is the
difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.
The provision is recognised in the consolidated income statement within “Cost of sales”.
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Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
2. Summary of consolidation and accounting policies (continued)
2.14 Deposits
Time deposits
Cash deposits with banks with maturities of more than three months that generally earn interest at market rates are classified as time deposits.
Pledged deposits
Pledged deposits represent contracted cash deposits with banks that are held as security for debts at corporate or operational entity level. Millicom
is unable to access these funds until either the relevant debt is repaid or alternative security is arranged with the lender.
2.15 Restricted cash
Cash held with banks related to mobile financial services which is restricted in use due to local regulations, but typically cycled out of the banking
system within three months, is denoted as restricted cash.
2.16 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original
maturities of three months or less.
2.17 Impairment of financial assets
The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or group of financial
assets is impaired. Impairment losses are recognised in the consolidated income statement.
2.18 Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from
the proceeds.
Where any Group company purchases the Company’s share capital, the consideration paid including any directly attributable incremental costs is
shown under “Treasury shares” and deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or
disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental costs and
the related income tax effects, is included in equity attributable to the Company’s equity holders.
2.19 Borrowings
Borrowings are initially recognised at fair value, net of directly attributable transaction costs. Borrowings are subsequently measured at amortised
cost using the effective interest rate method. Amortised cost is calculated by taking into account any discount or premium on acquisition and
any fees or costs that are an integral part of the effective interest rate. Any difference between the initial amount and the maturity amount is
recognised in the consolidated income statement over the period of the borrowing.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months
from the statement of financial position date.
When sale and leaseback agreements are concluded, the portions of assets that will not be leased back by Millicom are classified as assets held for
sale as completion of their sale is highly probable. Asset retirement obligations related to the towers are classified as liabilities directly associated
with assets held for sale.
On transfer to the tower companies, the portion of the towers leased back are accounted for as operating leases or finance leases according to the
criteria set out above. The portion of towers being leased back represents the dedicated part of each tower on which Millicom’s equipment is
located and was derived from the average technical capacity of the towers. Rights to use the land on which the towers are located are accounted
for as operating leases, and costs of services for the towers are recorded as operating expenses.
2.22 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, if it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of
the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement
is recognised as a separate asset but only when the reimbursement is virtually certain.
The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money
is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, risks specific to the liability. Where discounting
is used, increases in the provision due to the passage of time are recognised as interest expenses.
2.23 Trade payables
Trade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method where the
effect of the passage of time is material.
2.24 Revenue recognition
Revenue comprises the fair value of consideration received or receivable for the sale of goods and services, net of value added tax, rebates and
discounts and after eliminating intra-group sales.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.
The following specific recognition criteria must also be met before revenue is recognised.
Recurring revenue consist of monthly subscription fees, airtime usage fees, interconnection fees, roaming fees, revenue from online product and
service sales, mobile finance service commissions and fees from other telecommunications services such as data services, short message services and
other value added services. Recurring revenues are recognised on an accrual basis, i.e. as the related services are rendered. Unbilled revenue for airtime
usage and subscription fees resulting from services provided from the billing cycle date to the end of each month are estimated and recorded.
Subscription products and services are deferred and amortised over the estimated life of the customer relationship. Related costs are also deferred,
to the extent of the revenues deferred, and amortised over the estimated life of the customer relationship. The estimated life of the customer
relationship is calculated based on historical disconnection percentage for the same type of customer.
2.20 Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it
incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee
contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the
guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation
at the reporting date and the amount recognised less cumulative amortisation.
Where customers purchase a specified amount of airtime or other credit in advance, revenue is recognised as the credit is used. Unused credit is
carried in the statement of financial position as deferred revenue within “Other current liabilities”.
Revenue from content services such as video messaging, ringtones, games etc., are recognised net of payments to the providers under certain
conditions including if the providers are responsible for the music and other content and determining the price paid by the customer. For such
services the Group is considered to be acting in substance as an agent. Other revenue is recognised gross.
2.21 Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and involves an assessment
of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether or not the arrangement conveys
a right to use the asset.
Finance leases
Finance leases, which transfer substantially all risks and benefits incidental to ownership of the leased item to the lessee, are capitalised at the
inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of
the liability. Finance charges are charged directly against income. Where a finance lease results from a sale and leaseback transaction, any excess
of sales proceeds over the carrying amount of the assets is deferred and amortised over the lease term.
Capitalised leased assets are depreciated over the shorter of the estimated useful lives of the assets, or the lease term if there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term.
Operating leases
Operating leases are all other leases that are not finance leases. Operating lease payments are recognised as expenses in the consolidated income
statement on a straight-line basis over the lease term.
Tower sale and leaseback transactions
The sale and leaseback of towers and related site operating leases and service contracts are accounted for in accordance with the underlying
characteristics of the assets, and the terms and conditions of the lease agreements.
Revenue from the sale of handsets and accessories are recognised when the significant risks and rewards of ownership of handsets and
accessories have been passed to the buyer.
Revenue arrangements with multiple service deliverables (“Bundled Offers”) such as various services sold together, are divided into separate units
of accounting if the deliverables in the arrangement meet certain criteria. The arrangement consideration is then allocated among the separate
units of accounting based on their relative fair values or on the residual method. Revenue is then recognised separately for each unit of accounting.
Revenue from the sale of online and e-commerce services is recognised as and when the service is provided or on delivery of products to
customers, less provision for product returns, based on the amounts expected to be received from customers.
Revenue from sale of capacity is recognised when the capacity has been delivered to the customers, based on the amounts expected to be
received from customers.
Revenue from lease of tower space is recognised over the period of the underlying lease contracts. Finance leases revenue is apportioned between
lease of tower space and interest income and is recognised as other operating income.
Revenue from provision of mobile financial services is recognised once the primary service has been provided to the customer.
2.25 Cost of sales
The primary cost of sales incurred by the Group in relation to the provision of services relate to interconnection costs, roaming costs, rental of
leased lines and tower infrastructure, costs of handsets and other accessories sold, royalties, commissions, and cost of goods sold. Cost of sales
is recorded on an accrual basis.
Cost of sales also includes depreciation and any impairment of network equipment and trade receivables.
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Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
2. Summary of consolidation and accounting policies (continued)
2.26 Customer acquisition costs
Specific customer acquisition costs, including dealer commissions and handset subsidies, are charged to sales and marketing when the customer
is activated.
Deferred income tax assets and liabilities are measured at the tax rate expected to apply in the year when the assets are realised or liabilities
settled, based on tax rates and tax laws that have been enacted or substantively enacted at the statement of financial position date. Income
tax relating to items recognised directly in equity is recognised in equity and not in the consolidated income statement. Deferred tax assets and
deferred tax liabilities are offset where legally enforceable set-off rights exist and the deferred taxes relate to the same taxable entity and the
same taxation authority.
2.27 Employee benefits
Pension and other similar employee related obligations
Pension and other similar employee related obligations can result from either defined contribution plans or defined benefit plans.
Withholding tax
Withholding tax on royalties is classified under “Charge/(credit) for taxes”.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. No further payment
obligations exist once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are due.
Prepaid contributions are recognised as assets to the extent that a cash refund or a reduction in future payments is available.
Defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or
more factors such as age, years of service and compensation. The liability recognised in the statement of financial position in respect of the
defined benefit pension plan is the present value of the defined benefit obligation at the statement of financial position date less the fair value
of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is
calculated annually by independent actuaries. The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using an appropriate discount rate based on maturities of the related pension liability.
Re-measurement of net defined benefit liabilities are recognised in other comprehensive income and not reclassified to the income statement in
subsequent years.
Past service costs are recognised in the income statement on the earlier of the date of the plan amendment or curtailment, and the date that the
Group recognises related restructuring costs.
Net interest is calculated by applying the discount rate to the net defined benefit asset/liability.
Share based compensation
Share awards are granted to management and key employees.
The cost of equity-settled transactions is based on the fair value (market value) of the shares on grant date. The cost is recognised, together with
a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which
the relevant employee becomes fully entitled to the award (the vesting date). The cumulative expense recognised for equity-settled transactions
at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the
number of equity instruments that will ultimately vest.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which
are treated as vested irrespective of whether or not the market conditions are satisfied, provided that all other performance conditions are
satisfied. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified.
In addition, an expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is
otherwise beneficial to the employee as measured at the date of modification.
2.28 Taxation
Current tax
Current tax assets and liabilities for current and prior periods are measured at the amount expected to be recovered from or paid to the taxation
authorities. The tax rate and tax laws used to compute the amount are those enacted or substantively enacted by the statement of financial
position date.
Deferred tax
Deferred income tax is provided using the liability method and calculated from temporary differences at the statement of financial position date
between the tax base of assets and liabilities and their carrying amount for financial reporting purposes. Deferred tax liabilities are recognised for
all taxable temporary differences, except where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects neither accounting, nor taxable, profit or loss.
Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax credits and unused tax losses,
to the extent that it is probable that taxable profit will be available against which the deductible temporary difference and the carry-forward of
unused tax credits and unused tax losses can be utilised, except where the deferred tax assets relate to deductible temporary differences from
initial recognition of an asset or liability in a transaction that is not a business combination, and, at the time of the transaction, affects neither
accounting, nor taxable, profit or loss.
The carrying amount of deferred income tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to utilise the deferred income tax asset. Unrecognised deferred income tax assets
are reassessed at each statement of financial position date and are recognised to the extent it is probable that future taxable profit will enable the
deferred tax asset to be recovered.
3. Significant accounting judgments and estimates
Judgments
Management judgment is applied in application of IFRS accounting policies and accounting treatment in preparation of these financial
statements. In particular a significant level of judgment is applied regarding the following items:
– Contingent liabilities – the determination of whether or not a provision should be recorded for any potential liabilities (see note 31).
–
Leases – determination of whether the substance of leases meets the IFRS criteria for recognition as finance or operating leases or services
contracts, or elements of each (see notes 18 and 31).
– Control – determination of whether Millicom, through voting rights and potential voting rights attached to shares held, or by way of
shareholders agreements or other factors, has the ability to direct the relevant activities of the subsidiaries it consolidates, or jointly direct
the relevant activities of its joint ventures (see notes 4, 6 and 7).
– Discontinued operations and assets held for sale – classification and presentation (see note 5).
– Deferred tax assets – likely timing and level of future taxable profits together with future tax planning strategies (see note 15).
– Acquisitions – allocation of excess of purchase price between newly identified assets and goodwill, measurement of property, plant and
–
equipment and intangible assets and assessment of useful lives (see note 4).
Financial instruments that contain obligations to purchase own equity instruments – determination of the likelihood of change of control
events occurring in assessing the fair value of these instruments (see notes 27 and 34).
– Defined benefit plans – key assumptions related to life expectancies, salary increases and leaving rates (see note 13).
Estimates
Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. Due to inherent uncertainties in this evaluation process, actual results may differ from original
estimates. Estimates are subject to change as new information becomes available and may significantly affect future operating results. Significant
estimates have been applied in respect of the following items:
– Accounting for property, plant and equipment, and intangible assets in determining fair values at acquisition dates, particularly for sale
and leaseback transactions, and assets acquired in business combinations (see note 4).
Estimation of useful lives of property, plant and equipment and intangible assets (see policy note 2.5).
Estimation of provisions, in particular provisions for asset retirement obligations, legal and tax risks (see note 27).
Revenue recognition (see note 9).
Impairment testing (see note 17).
Estimates for defined benefit plans (see note 13).
–
–
–
–
–
– Accounting for share-based compensation (see note 12).
Fair value of financial assets and liabilities (see note 34).
–
4. Acquisitions of subsidiaries, joint ventures and non-controlling interests
Put and Call Agreement related to Guatemalan operations
Effective January 1, 2014 Millicom’s local partner in Guatemala, Miffin Associates Corp (“Miffin”) granted Millicom, for a minimum term of two
years, an unconditional call option for its 45% stake in the Guatemalan operations (“Comcel”). The call option allows Millicom, unconditionally
at any time during the two-year period from January 1, 2014 to exercise its right to acquire the 45% stake (and voting rights) of Miffin at a price
which Millicom believes represents the strategic value of Comcel. Previously Millicom was dependent on the consent of Miffin for strategic
decisions related to Comcel, as the shareholders agreement required a vote of 80% of shares to authorise and approve significant financial
and operating policies of Comcel.
In return, Millicom granted Miffin a put option for the same duration, exercisable in the event Millicom sells its 55% interest in Comcel or
undergoes a change of control, and consideration of $15 million. A change of control event may occur at Millicom level which is beyond the control
of Millicom. Such an event would trigger the ability of our local partner to exercise his put option at his discretion. Therefore, the put option is
a financial liability and Millicom recorded a current liability for the present value of the redemption price of the put option of $1,775 million at
January 1, 2014 (see note 27) against a corresponding put option reserve in equity (see note 24). Millicom’s call option is a financial instrument
measured at fair value of $74 million at December 31, 2014.
As a consequence, and in accordance with IFRS 10 ‘Consolidated Financial Statements’ effective January 1, 2014, Millicom fully consolidated
Comcel from January 1, 2014. Previously, the results of the Guatemalan operations were proportionately consolidated (see note 2.1 for changes
in accounting standards).
Millicom revalued to fair value its 55% interest in Comcel, and recognised a gain of $2,250 million under other non-operating (expenses) income,
net. The goodwill is not deductible for tax purposes.
FinancialsOverviewStrategyPerformanceGovernance 94
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Millicom Annual Report 2014
95
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
4. Acquisitions of subsidiaries, joint ventures and non-controlling interests (continued)
The fair value of Comcel was determined based on a discounted cash flow calculation. The assets and liabilities recognized as a result of the
revaluation were as follows:
The assets and liabilities recognised as a result of the acquisition were as follows:
Intangible assets (excluding goodwill), net
Property, plant and equipment, net
Other non-current assets
Current assets (excluding cash)
Cash and cash equivalents
Total assets
Non-current financial liabilities
Other long-term liabilities
Current liabilities
Total liabilities
Fair value of assets and liabilities, net
Fair value of non-controlling interests (45%)
Fair value of Millicom’s 55% interest
Fair value of Millicom’s call option
Goodwill arising on change of control
Historical carrying value of Millicom’s 55% interest in Comcel
Revaluation of previously held interest
Fair value
100%
US$m
Historical
value of 55%
interest
US$m
84
349
4
184
30
651
187
2
160
349
1,401
653
7
332
54
2,447
324
22
290
636
1,811
815
996
28
1,528
(302)
2,250
Merger of Colombia Móvil and UNE
On October 1, 2013 Millicom signed an agreement with Empresas Públicas de Medellín E.S.P. (“EPM”), the largest public service company in
Colombia, whereby, subject to regulatory approval and closing conditions, the parties will combine and merge their mutual interests in Millicom’s
Colombian operations (“Colombia Móvil”), with UNE EPM Telecomunicaciones S.A. (“UNE”). UNE is the second largest fixed telephony/broadband/
subscription TV provider in Colombia. The statutory merger will create a business offering a comprehensive range of bundled digital services
including mobile and fixed telephony, mobile and fixed broadband and pay-TV and offer products and services in complementary geographic areas.
By August 14, 2014 all approvals had been obtained, and steps precedent to Millicom obtaining operational control had been completed.
Through statutory merger of Millicom Spain Cable S.L. (a fully owned subsidiary of Millicom) and UNE, (i) $860 million in cash held by Millicom
Spain Cable S.L. ($800 million of which was previously held as pledged deposits) and Millicom’s controlling interest into Colombia Móvil were
absorbed by UNE and (ii) Millicom obtained a 50% -1 stake in UNE. By virtue of the statutory merger from August 14, 2014 Millicom owns a
50% -1 share interest in UNE and has operational control of the merged entity through a majority of voting shares.
Prior to the closing of the transaction, UNE purchased 25% of Colombia Móvil from a third party for $243 million, which was disbursed after
August 14, 2014. Accordingly, prior to completion of the transaction UNE owned a 50% -1 share of Colombia Móvil (as it already owned 25%
prior to October 1, 2013) and after, 100% of Colombia Movil. Consequently, before and after the transaction, Millicom retained control over
Colombia Móvil.
Subsequently, UNE paid dividends to EPM for a total of $617 million, which were declared by UNE before the merger.
For the preliminary purchase accounting, the fair value of UNE was determined based on transaction and relative values. The non-controlling
interest has been measured based on the proportionate share of the fair value of the net assets of UNE. Colombia Móvil remained controlled
by Millicom before and after the transaction and therefore there was no requirement to re-measure Millicom’s investment in Colombia Móvil.
The purchase accounting was updated as additional information became available regarding fair values of acquired assets and liabilities, but
remains provisional at December 31, 2014. Items in which further information is expected include the impact of the regulatory requirement to
return spectrum, and the impact of the tangible and intangible assets related to the spectrum.
The preliminary goodwill, which comprises the fair value of the assembled work force and expected synergies from the merger, is not expected
to be tax deductible.
UNE Group
Fair value 100%
US$m
297
1,417
74
347
123
22
2,280
413
608
1,021
1,259
646
613
247
Intangible assets (excluding goodwill), net
Property, plant and equipment, net
Other non-current assets
Current assets (excluding cash)
Cash and cash equivalents
Assets held for sale (see note 5)
Total assets
Non-current liabilities
Current financial liabilities
Total liabilities
Fair value of assets and liabilities acquired, net(i)
Fair value of non-controlling interest(ii)
Millicom interest in fair value
Goodwill(iii)
(i)
After deducting from equity the $617 million of dividends declared prior to the merger and including the additional 25% ownership acquired by UNE in Colombia Móvil for
$243 million from a third party prior to the merger.
(ii) Non-controlling interest in one of UNE’s subsidiaries was 60%.
(iii) $860 consideration less Millicom’s $613 million interest in the fair value of the net assets acquired.
The fair value of the trade receivables amounted to $177 million.
From the date of acquisition to December 31, 2014, UNE contributed $504 million of revenue and loss of $16 million to profit before tax from
continuing operations of the Group. If UNE had been acquired on January 1, 2014 incremental revenue for the year would have been $1,369
million and incremental loss for that period of $18 million.
Acquisition-related costs included in the income statement under general and administration services were approximately $1 million.
Online businesses
On December 31, 2012 Millicom held 20% interests in MKC Brilliant Services GmbH (“Latin America Internet Holding” or “LIH”) and Africa Internet
Holding (“AIH”) and unconditional options to acquire the remaining shares in three steps. On this date both AIH and LIH were consolidated as
subsidiaries.
By December 31, 2014, as a result of the transactions described below, Millicom held 33% in AIH and accounted for it as a joint venture, and 35%
in LIH and accounted for it as an investment in an associate.
Africa Internet Holding GmbH (AIH)
AIH has a number of operating subsidiaries which are owned by Africa e-Commerce Holding (“AEH”). AEH is owned by a number of shareholders
with rights that initially prevented AIH from controlling AEH. Millicom’s initial investment in AEH was therefore an investment in an associate from
Millicom’s acquisition date of September 1, 2012.
On March 27, 2013 Millicom exercised its first call option increasing its ownership in AIH from 20% to 35%. As the consideration for this option
was not provided in 2013 Millicom was no longer entitled to participate in the returns of AIH related to this incremental 15% in 2013. Accordingly,
Millicom’s ownership in AIH reverted to 20% and remained at 20% at December 31, 2013.
On April 1, 2013 as a result of an agreement with a minority shareholder, AIH gained control of AEH which was consolidated by AIH and Millicom
from that date.
On December 13, 2013 Millicom, Rocket and Mobile Telephone Networks Holdings (Pty) Limited (“MTN”) signed an agreement whereby MTN will
invest in the AIH Group such that, following anti-trust and other requisite clearances and closing conditions, each of the three parties will own a
33.33% interest in AIH and together will have joint control over AIH. Under this agreement Millicom’s three options to acquire a controlling interest
in AIH ended and Millicom deconsolidated AIH by the end of 2013 and accounted for AIH as an investment in an associate.
By June 25, 2014 the requisite clearances had been obtained and Millicom’s stake increased from 20% to 33% and Millicom accounted for AIH
as a joint venture from that date. MTN’s 33.3% stake will be acquired by cash investment in new shares at a price equivalent to 20% more than
the investment made by Millicom.
Millicom will pay Euro 35 million for its additional stake of which Euro 10 million had been paid by December 31, 2014. Millicom may invest a
further Euro 70 million under the agreement.
FinancialsOverviewStrategyPerformanceGovernance 96
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Millicom Annual Report 2014
97
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
4. Acquisitions of subsidiaries, joint ventures and non-controlling interests (continued)
MKC Brilliant Services GmbH (LIH)
On March 27, 2013 Millicom exercised its first call option increasing its ownership in LIH from 20% to 35%. In December 2013 consideration for
exercise of the first LIH option of Euro 50 million ($68.5 million) was agreed to be provided at the earlier of when the cash balances of LIH fall below
Euro 15 million or September 2014. As the consideration was not provided in 2013 Millicom was no longer entitled to participate in the returns of
LIH related to this incremental 15% in 2013. Accordingly, Millicom’s ownership in LIH reverted to and remained at 20% at December 31, 2013.
On January 20, 2014 Millicom amended its investment agreement with Rocket regarding its share purchase options for LIH. The amendment
restricted Millicom’s ability to exercise its Third Option to acquire the final 50% of LIH to no earlier than one year after exercising its Second Option
to raise its stake from 35% to 50%. Accordingly, from January 20, 2014 Millicom no longer had the ability to exercise its options to acquire a
controlling stake in LIH, and deconsolidated the LIH Group. As a consequence, its investment is accounted for as an investment in an associate
at fair value of $70 million at that date, and a $15 million gain from discontinued operations was recognised as a result of the loss of control.
In February 2014 Millicom exercised its first option raising its stake from 20% to 35% with the purchase price of Euro 50 million paid during the
year. On September 17, 2014 Millicom amended its investment and shareholder agreements related to LIH whereby its option to increase its
shareholding from 35% to 50%, and its call option to acquire the remaining 50% of LIH have been cancelled.
Telecable Costa Rica
On December 19, 2014 Millicom signed an agreement to acquire 100% of the shares of Telecable Economico TVE S.A., a cable operator in Costa
Rica, and related intellectual property, for cash consideration of $82.9 million. The acquisition is subject to customary closing conditions (including
regulatory approval), and is expected to close during 2015.
Other minor acquisitions
During 2014 Millicom made other smaller acquisitions in Rwanda, the UK and Guatemala for total consideration of $19 million. During 2013
Millicom made other smaller acquisitions of cable and television businesses in Guatemala and Bolivia for total consideration of $19 million. During
2012 Millicom increased its ownership in Navega El Salvador from 55% to 100% and completed other minor acquisitions for consideration of
$16 million.
Cash inflows from investing activities
Cash inflows and outflows from the acquisition of subsidiaries and investments in joint ventures and associates during the year ended December
31, 2014 were as follows:
Net cash acquired from full consolidated of Guatemala
Net cash acquired from acquisition of UNE
Increase in shareholdings (investments) in Online businesses
Other acquisitions (net of cash acquired)
Total
US$m
39
123
(79)
(37)
46
5. Disposal of investments, discontinued operations and assets held for sale
Disposal of investments in joint ventures and associates
Sale of ATC BV and Mauritius (Emtel Ltd)
During the year Millicom’s stake in ATC BV was diluted from 40% to 18.2% and in July 2014 Millicom sold its 18.2% stake to American Tower.
On July 15, 2014 Millicom reached agreement to sell its 50% investment in Emtel Ltd (its Mauritius joint venture) to its partner in Mauritius.
This transaction was completed in November 2014. Prior to sale the carrying values of the investments were as follows:
Emtel Ltd
ATC BV
Total
%
Ownership
Investment
US$m
50%
18.2%
29
73
102
As a result of these dilutions and disposals Millicom received $175 million in cash and recorded a gain on sale of $73 million under “Income (loss)
from joint ventures and associates, net”.
Reduction in shareholding in Helios Towers Tanzania
During the year Millicom reduced its shareholding in its associate, Helios Towers Tanzania, from 40% to 24.15% realising a gain on dilution of $6 million.
Discontinued operations
Deconsolidation of AIH and LIH
As described in note 4, during 2013 as a result of the investment agreement with MTN, Millicom deconsolidated AIH (previously reported in the
Africa segment), and from January 21, 2014 as a result of an amendment to the shareholders’ agreement, Millicom deconsolidated LIH (previously
reported in the South America segment).
Consequently, and in accordance with IFRS, the results of the online businesses were classified as discontinued operations.
The results of discontinued operations for the year ended December 31, 2014 are presented below:
Revenues
Operating expenses
Operating losses
Loss from associate (AEH)
Gain on deconsolidation
Profit (loss) after tax from discontinued operations
Cash flows of discontinued operations for the year ended December 31, 2014 are presented below:
Cash used in operating activities, net
Cash used in investing activities, net
Cash provided by financing activities, net
2014
US$m
4
(6)
(2)
–
23
21
2014
US$m
(2)
–
–
2013
US$m
83
(144)
(61)
(2)
–
(63)
2013
US$m
(61)
–
20
2012
US$m
13
(22)
(9)
1
–
8
2012
US$m
(9)
–
109
There was no cash provided to the Group by discontinued operations for the year ended December 31, 2014.
Assets held for sale
Towers
Between 2009 and 2011 Millicom signed various sale and leaseback agreements with tower companies in Africa and South America whereby
Millicom agreed the sale of tower assets and to lease back a dedicated portion of each tower to locate its network equipment in exchange for
cash and investments in the tower companies (see note 18). The portions of the assets that will be transferred and that will not be leased back
by Millicom are classified as assets held for sale as completion of their sale is highly probable.
At December 31, 2014, towers sold but yet to be transferred to tower companies (assets held for sale) of $12 million related to operations in DRC,
Colombia, Ghana and Tanzania (December 31, 2013: $14 million).
Asset retirement obligations related to the towers of $2 million (December 31, 2013: $2 million) are classified as liabilities directly associated with
assets held for sale.
Assets held for sale
Liabilities directly associated with assets held for sale
Net assets directly associated with assets held for sale
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
14
(2)
12
21
(5)
16
2014
US$m
12
(2)
10
4G Spectrum (UNE)
In accordance with the merger approval (see note 4) spectrum to be returned to the Colombian government with carrying value of $22 million at
the date of the merger, has been reclassified to assets held for sale.
FinancialsOverviewStrategyPerformanceGovernance 98
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99
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
6. Subsidiaries
At December 31, 2014 Millicom consolidated the following significant subsidiaries:
Name of the company
Central America
Telemovil El Salvador S.A
Cable El Salvador S.A. de C.V.
Navega.com SA, Succursal El Salvador
Comunicaciones Celulares S.A.(i)
Navega.com S.A.(i)
Telefonica Celular S.A.(i)
Navega S.A. de CV(i)
Cable Costa Rica S.A.
South America
Telefonica Celular de Bolivia S.A.
Telefonica Celular del Paraguay S.A.
Colombia Movil S.A. E.S.P.(ii)
UNE EPM Telecomunicaciones S.A.(ii)
Africa
Millicom Ghana Company Limited
Sentel GSM S.A.
MIC Tanzania Limited
Oasis S.A.
Millicom Tchad S.A.
Millicom Rwanda Limited
Unallocated
Country
El Salvador
El Salvador
El Salvador
Guatemala
Guatemala
Honduras
Honduras
Costa Rica
Bolivia
Paraguay
Colombia
Colombia
Ghana
Senegal
Tanzania
Democratic Republic of Congo
Chad
Rwanda
Holding on December 31, 2014
% of ownership interest
Holding on December 31, 2013
% of ownership interest
100.0
100.0
100.0
55.0
55.0
66.7
66.7
100.0
100.0
100.0
100.0
55.0
55.0
66.7
66.7
100.0
100.0
100.0
50% – 1 share
50% – 1 share
100.0
100.0
50% + 1 share
0.0
100.0
100.0
100.0
100.0
100.0
87.5
100.0
100.0
100.0
100.0
100.0
87.5
Millicom International Operations S.A.
Millicom International Operations B.V.
MIC Latin America B.V.
Millicom Africa B.V.
Millicom Holding B.V.
Millicom Ireland Limited
Fully consolidated as Millicom has, through its call options (see note 27), the power to affect the variable returns due to shareholder agreements including the process and
substance of setting key operating and financial policies.
Luxembourg
Netherlands
Netherlands
Netherlands
Netherlands
Ireland
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
(i)
The summarised financial information for material non-controlling interests in the above subsidiaries is provided below. This information is based
on amounts before inter-company eliminations.
As Guatemala subsidiaries comprise several entities, financial information has been disclosed only in respect of Guatemala – Comunicaciones
Celulares S.A. (“Comcel”) which is the main subsidiary having significant non-controlling interest.
Guatemala – Comunicaciones Celulares S.A. (Comcel) (from January 1, 2014)
2014
US$m
2013 (restated)
US$m
2012 (restated)
US$m
Revenue
Total operating expenses
Operating profit
Net profit for the year of Comcel
Non-controlling interest in net profit of Comcel (45%)
Non-controlling interest in net profit of Comcel
Non-controlling interest in net profit for other subsidiaries and consolidation adjustments
Total non-controlling interest in net profit for Comcel
Dividends and advances paid to non-controlling interests
Total Assets (excluding goodwill)
Total Liabilities
Net Assets of Comcel
Non-controlling interest in net assets of Comcel (45%)
Non-controlling interests arising from the consolidation of Comcel (note 4)
Dividends declared to non-controlling interests
Non-controlling interest for other subsidiaries and consolidation adjustments
Total non-controlling interest for Guatemala subsidiaries
Net cash from operating activities
Net cash from (used in) investing activities
Net cash from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
959
(259)
432
323
145
145
12
157
287
1,467
1,002
465
209
815
(153)
(66)
805
481
(883)
430
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As Honduras subsidiaries comprise several entities, financial information has been disclosed only in respect of Honduras – Telefónica Celular S.A.
which is the main subsidiary having significant non-controlling interests.
(ii) Fully consolidated as Millicom has the majority of voting shares to direct the relevant activities.
Application of IFRS 10, ‘Consolidated Financial Statements’, requires judgment, which in the case of our businesses in Guatemala, Honduras, and
Colombia has been applied through considering the legal form and substance of arrangements with our local partners, including such items as the
ability and economic interest of our local partners to block or exert more than significant influence over our operations in these countries as well as
substance of potential voting rights.
At December 31, 2014 the significant non-controlling interests in the subsidiaries were as follows:
Honduras – Telefónica Celular S.A. (Celtel)
Revenue
Total operating expenses
Operating profit
Net profit for the year
Non-controlling interest in net profit of Telefónica Cellular S.A. (33.3%)
Balance sheet
Guatemala subsidiaries (from January 1, 2014 – see note 4)
Honduras subsidiaries
Colombia Móvil
Colombia – UNE (from August 14, 2014 – see note 4)
Others
Total
Profit (loss) allocated to material non-controlling interests
Guatemala subsidiaries (from January 1, 2014 – see note 4)
Honduras subsidiaries
Colombia Móvil
Colombia – UNE (from August 14, 2014 – see note 4)
Others
Total
2014
US$m
805
123
22
480
(25)
1,405
2014
US$m
157
23
2
(14)
(10)
158
2013
(restated)
US$m
January 1, 2013
(restated)
US$m
–
134
29
–
(11)
152
–
143
26
–
143
312
2013
(restated)
US$m
January 1, 2013
(restated)
US$m
–
34
2
–
(60)
(24)
–
38
(30)
–
(12)
(4)
Non-controlling interest in net profit of Telefónica Cellular S.A.
Non-controlling interest in net profit for other subsidiaries and consolidation adjustments
Total non-controlling interest in net profit of Celtel
Dividends and advances paid to non-controlling interests
Total Assets (excluding goodwill)
Total Liabilities
Net Assets of Telefonica Cellular S.A.
Non-controlling interest in net assets of Telefónica Cellular S.A. (33.3%)
Non-controlling interest for other subsidiaries and consolidation adjustments
Total non-controlling interest for Honduras subsidiaries
Net cash from operating activities
Net cash from (used in) investing activities
Net cash from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
2014
US$m
2013 (restated)
US$m
2012 (restated)
US$m
583
(176)
162
49
16
16
7
23
18
976
571
405
135
(12)
123
113
(143)
22
(8)
612
(172)
186
68
23
23
11
34
25
928
503
425
142
(8)
134
166
(95)
(86)
(15)
661
(177)
224
83
28
28
10
38
17
955
511
444
148
(5)
143
231
(126)
(95)
10
FinancialsOverviewStrategyPerformanceGovernance 100
Millicom Annual Report 2014
Millicom Annual Report 2014
101
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
6. Subsidiaries (continued)
Colombia Móvil
Revenue
Total operating expenses
Operating profit
Net profit (loss) for the year
Non-controlling interest in net profit (loss) (50%)
Total Assets (excluding goodwill)
Total Liabilities
Net Assets
Non-controlling interest in net assets (50%)
Net cash from operating activities
Net cash from (used in) investing activities
Net cash from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Colombia – UNE subsidiaries (from August 14, 2014)
Revenue
Total operating expenses
Operating loss
Net loss for the period since acquisition
Non-controlling interest in net loss
Total Assets (excluding goodwill)
Total Liabilities
Net Assets
Non-controlling interest in net assets
Non-controlling interest for consolidation adjustments
Total non-controlling interests
Net cash from operating activities
Net cash from (used in) investing activities
Net cash from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
2014
US$m
1,173
(473)
157
4
2
1,047
1,002
45
22
172
(192)
25
5
2014
US$m
511
(198)
(3)
(28)
(14)
1,934
855
1,079
539
(59)
480
106
101
(52)
155
2013
(restated)
US$m
2012
(restated)
US$m
969
(456)
102
4
2
1,140
1,082
58
29
146
(225)
95
16
849
(378)
87
(60)
(30)
1,036
984
52
26
232
(133)
(135)
(36)
2013
(restated)
US$m
2012
(restated)
US$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7. Interests in joint ventures
At December 31, 2014 Millicom equity accounted for the following significant joint venture.
Name of the company
Country
Holding on
December 31, 2014
% of ownership interest
Holding on
December 31, 2013
% of ownership interest
Notes
Africa
AIH
Germany and several African countries
33.3%
20% Associate at December
31, 2013, joint venture
from June 25, 2014
(see note 4)
As a consequence of adoption of IFRS 11 on January 1, 2014, accounting for joint ventures changed from proportionate consolidation to equity
accounting. As a result the financial information for Millicom’s businesses in Guatemala and Mauritius, which were joint ventures in 2013 and 2012
have been equity accounted for those periods in these financial statements (see note 2.1 for more details). Shareholdings of these businesses at
December 31, 2014 are shown below (together with prior period comparatives).
Name of the company
Country
Central America
Comunicaciones
Celulares S.A.
Guatemala
Navega.com S.A. Guatemala
Africa
Emtel Limited
Mauritius
Holding on
December 31, 2014
% of ownership interest
Holding on
December 31, 2013
% of ownership interest
Notes
55%
55%
—
55% Fully consolidated from
January 1, 2014
(see note 4)
55% Fully consolidated from
January 1, 2014
(see note 4)
50%
Sold on July 15, 2014
(see note 5)
The carrying value of investments in Millicom’s joint ventures at December 31, 2014 together with restated comparatives for December 31, 2013
and December 31, 2012 were as follows:
Guatemala
Mauritius
AIH
Total
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
302
25
–
327
297
23
–
320
2014
US$m
–
–
89
89
At December 31, 2014 the Group has not incurred obligations or made payments on behalf of AIH, and has an obligation to provide an additional
Euro 25 million in funding to AIH in accordance with the shareholders’ agreement.
The revenue and operating expenses of the joint ventures together with the restated share of results were as follows:
Revenue
Total operating expenses
Operating profit (loss)
Net profit (loss) for the year/period of joint control
Millicom’s share of results from joint ventures
2014
US$m
90
(129)
(39)
(42)
(8)
2013
(restated)
US$m
2012
(restated)
US$m
1,253
(775)
478
401
219
1,213
(713)
500
415
229
FinancialsOverviewStrategyPerformanceGovernance 102
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Millicom Annual Report 2014
103
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
7. Interests in joint ventures (continued)
Total assets and liabilities of the joint venture at December 31, 2014 were as follows:
Total current assets
Total non-current assets
Total Assets
Total current liabilities
Total non-current liabilities
Total Liabilities
Net Assets
Millicom’s carrying value of its share in joint ventures
8. Investments in associates
At December 31, 2014 Millicom equity accounted for the following investments in associates:
Helios Towers Tanzania, DRC and Ghana
ATC Colombia BV (until sold on July 15, 2014 – see note 5)
Latin America Internet Holding (from January 21 – see note 4)
2014
US$m
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
82
7
89
39
1
40
49
89
406
880
1,286
321
364
685
601
327
549
817
1,366
342
438
780
586
320
2014
% ownership
24%-40%
–
35%
2013
(restated)
% ownership
January 1,
2013
(restated)
% ownership
40%
40%
20%
40%
40%
20%
The initial cost of the investment stakes in Helios Tower companies in Tanzania, DRC and Ghana were measured at Millicom’s interest in the
fair value of the tower sites sold to the tower companies (see note 5), after elimination of intercompany gains on sale.
The following tables contain the summarised financial information for the investments held in associates at the years ended December 31, 2014
and 2013:
Revenue
Total operating expenses
Operating profit (loss)
Net profit (loss) for the year
Millicom’s share of results from associates
Total current assets
Total non-current assets
Total Assets
Total current liabilities
Total non-current liabilities
Total Liabilities
Net Assets
Millicom’s carrying value of its share in associates
2014
US$m
320
(343)
(23)
(143)
(34)
2013
(restated)
US$m
2012
(restated)
US$m
163
(65)
98
(11)
(9)
105
(79)
26
(54)
(22)
2014
US$m
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
198
448
646
126
332
458
188
185
141
683
824
148
379
527
297
122
119
493
612
139
176
315
297
193
9. Segment information
The Group has businesses in three regions: Central America, South America and Africa. As described in note 2.1 IFRS 11 had no impact on internal
management reporting and therefore segment information for the 2013 and 2012 comparative periods has not been restated for Guatemala and
Mauritius as equity accounted joint ventures.
Revenue, operating profit (loss) and other segment information for the years ended December 31, 2014, 2013 and 2012 is as follows:
December 31,
2014 (US$m)
Central
America
South
America
Africa
Un-
allocated
items
Total
continuing
operations
Dis-
continued
operations
Inter-
company
elimination
5
257
446
450
1,158
–
(260)
2,926
529
2,460
687
6,386
924
1,000
(32)
Revenue
Operating profit (loss)
Add back:
Depreciation and amortisation
Loss (gain) of disposal and
4
impairment
–
Loss (gain) from joint venture
–
Share-based compensation
–
Other non-cash items
Adjusted operating profit(i)
979
(501)
Capital expenditure
–
Changes in working capital
(108)
Other movements
Operating free cash flow(ii)
370
Total Assets(iii)
4,511
2,779
Total Liabilities
(i) Adjusted operating profit is used by the management to monitor the segmental performance and for capital management (see note 33).
(ii) Operating free cash flow by segment includes vendor financing of capital equipment as a cash transaction.
(iii) Segment assets include goodwill and other intangible assets.
15
8
22
(12)
2,115
(1,294)
57
(378)
500
14,930
11,296
16
–
–
–
1,153
(432)
65
(188)
598
7,284
2,366
(2)
8
–
(12)
219
(360)
107
2
(32)
1,638
2,034
(3)
–
22
–
(236)
(1)
(115)
(84)
(436)
1,497
4,117
4
(3)
–
–
–
–
–
(3)
–
–
–
–
–
–
–
–
–
–
Total
6,390
921
1,158
15
8
22
(12)
2,112
(1,294)
–
–
(1,633)
(1,746)
13,297
9,550
December 31,
2013 (US$m)
Central
America
South
America
Africa
Un-
allocated
items
Total
continuing
operations
Dis-
continued
operations
Inter-
company
elimination
Total
Restated
amount(iv) Restated
–
–
–
–
3
1
51
29
(7)
–
–
261
875
302
(16)
309
83
(61)
–
(183)
2,192
510
5,076
842
1,884
548
1,000
(33)
Revenue
Operating profit (loss)
Add back:
Depreciation and
amortisation
Loss (gain) of disposal
and impairment
Share-based
compensation
Adjusted operating
profit(i)
Capital expenditure
Changes in working
capital
Other movements
Operating free
cash flow(ii)
Total Assets(iii)
Total Liabilities
(i) Adjusted operating profit is used by the management to monitor the segmental performance and for capital management (see note 33).
(ii) Operating free cash flow by segment includes vendor financing of capital equipment as a cash transaction.
(iii) Segment assets include goodwill and other intangible assets.
(iv) Impact of restatement of Guatemala and Mauritius (see policy note 2.1) and reclassification of Online to discontinued operations (see note 5).
379
11,021
8,870
(253)
3,044
2,932
438
3,442
1,640
97
1,959
2,257
97
2,576
2,041
1,763
(1,226)
(1,967)
(1,834)
805
(588)
858
(284)
279
(333)
24
(160)
(179)
(21)
38
(196)
(90)
(30)
3
(56)
(61)
–
101
50
93
30
–
–
17
17
–
–
–
–
–
5,159
781
875
29
17
1,702
(1,226)
9,147
7,066
(769)
(198)
4,390
583
(89)
786
–
–
29
17
(287)
116
1,415
(1,110)
(374)
(374)
8,773
6,692
FinancialsOverviewStrategyPerformanceGovernance 104
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Millicom Annual Report 2014
105
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
9. Segment information (continued)
December 31,
2012 (US$m)
Central
America
South
America
Africa
Un-
allocated
items
Total
continuing
operations
Dis-
continued
operations
Inter-
company
elimination
Total
Restated
amount(iv) Restated
10. Analysis of operating profit
The Group’s operating income and expenses from continuing operations by nature of expense is as follows:
–
–
–
–
4
3
1
(1)
–
–
811
257
233
320
13
(9)
974
122
–
(148)
1,926
500
1,901
639
4,801
1,113
Revenue
Operating profit (loss)
Add back:
Depreciation and
amortisation
Loss (gain) of disposal
and impairment
Share-based
compensation
Adjusted operating
profit(i)
Capital expenditure
Changes in working capital
Other movements
Operating free
cash flow(ii)
Total Assets(iii)
Total Liabilities
(i) Adjusted operating profit is used by the management to monitor the segmental performance and for capital management (see note 33).
(ii) Operating free cash flow by segment includes vendor financing of capital equipment as a cash transaction.
(iii) Segment assets include goodwill and other intangible assets.
(iv) Impact of restatement of Guatemala and Mauritius (see policy note 2.1) and reclassification of Online to discontinued operations (see note 5).
1,952
(1,120)
84
(48)
958
(296)
42
(176)
359
(430)
46
110
757
(373)
–
15
(122)
(21)
(7)
3
(147)
1,068
1,253
402
2,486
1,898
85
1,891
2,073
868
9,015
6,920
528
3,570
1,696
(1,081)
(1,060)
277
15
(9)
–
–
–
22
22
6
–
–
–
–
–
–
4,814
1,104
811
6
22
1,943
(1,120)
8,211
5,875
Revenue from continuing operations by business unit for the years ended December 31, 2014, 2013 and 2012:
Mobile
Cable & Digital Media
Mobile Financial Services
Telephones and equipment and other
Total before restatement
Restatement
Restated total
Revenue from continuing operations for the years ended December 31, 2014, 2013 and 2012 by country:
Guatemala
Colombia
Paraguay
Honduras
UNE
Bolivia
El Salvador
Tanzania
Chad
Ghana
Costa Rica
Other
Total before restatement
Restatement
Restated total
2014
US$m
4,743
970
113
560
6,386
–
6,386
2014
US$m
1,242
1,167
767
629
504
488
443
368
180
146
138
314
6,386
–
6,386
(678)
(266)
4,136
838
(84)
727
(5)
–
1
22
(355)
124
1,588
(996)
(257)
(257)
7,954
5,618
2013
US$m
4,233
435
79
329
5,076
(686)
4,390
2013
US$m
641
969
784
656
–
438
443
351
149
169
139
337
5,076
(686)
4,390
2012
US$m
4,148
354
40
259
4,801
(665)
4,136
2012
US$m
621
849
649
705
–
429
443
345
121
162
126
351
4,801
(665)
4,136
Revenue
Cost of services rendered and goods sold
Depreciation and amortisation (notes 9, 17 and 18)
Dealer commissions
Employee-related costs (note 11)
Sites and network maintenance
Advertising and promotion (including phone subsidies)
External services
Operating lease expense (note 31)
Gain (loss) on disposal and impairment of assets, net (notes 17, 18)
Other income
Other expenses
Operating profit
2014
US$m
6,386
(1,694)
(1,158)
(525)
(607)
(336)
(403)
(301)
(180)
(15)
8
(251)
924
2013
(restated)
US$m
2012
(restated)
US$m
4,390
(1,113)
(786)
(384)
(422)
(205)
(335)
(205)
(111)
(29)
17
(234)
583
4,136
(1,006)
(727)
(369)
(339)
(186)
(266)
(156)
(93)
(1)
19
(174)
838
The following table summarises the aggregate amounts paid to Millicom’s auditors for the years ended December 31, 2014, 2013 and 2012.
Audit fees
Audit related fees
Tax fees
Other fees
Total
11. Employee-related costs
Wages and salaries
Social security
Share-based compensation (see note 12)
Pension costs (see note 13)
Other employee-related costs
Total
2014
US$m
2013
(restated)
US$m
2012
(restated)
US$m
5.1
0.2
0.4
0.6
6.3
2014
US$m
(438)
(56)
(22)
(1)
(90)
(607)
5.0
–
0.2
0.1
5.3
4.4
–
0.2
0.8
5.4
2013
(restated)
US$m
2012
(restated)
US$m
(295)
(41)
(17)
–
(69)
(422)
(227)
(28)
(22)
–
(62)
(339)
The average number of permanent employees during the years ended December 31, 2014, 2013 and 2012 was as follows:
Continuing operations(i)
Discontinued operations
Total average number of permanent employees
(i) Excluding UNE which had 11,400 permanent employees at December 31, 2014.
(ii)
Including Guatemala which had 1,750 permanent employees at December 31, 2013.
2014(ii)
2013
(restated)
2012
(restated)
11,491
2,815
14,306
8,968
1,376
10,344
7,509
544
8,053
FinancialsOverviewStrategyPerformanceGovernance 106
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Millicom Annual Report 2014
107
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
12. Share-based compensation
Share-based compensation comprises share options and long-term incentive plans.
Share options
Until May 30, 2006, share options were granted to Directors, Senior Executives, Officers and selected employees. The exercise price of the granted
options was equal to or higher than the market price of the shares on the date of grant. The options were conditional on the employee or Director
completing one to five years of service (the vesting period) and were exercisable starting from one year to five years from the grant date.
Options granted prior to 2005 have an indefinite life and those granted in 2005 a 20-year life. Shares issued when share options are exercised
have the same rights as common shares.
The following table summarizes information about share options outstanding and exercisable at December 31, 2014. The market price of the
Company’s shares as at December 31, 2014 was SEK 582.50 (2013: SEK 640.50), approximately $74.30 (2013: $99.71).
Share options outstanding at the end of the year have the following expiry dates, exercise prices and terms:
Date issued
May 2004
May 2005
Total
Weighted average exercise price
Number of options outstanding and
exercisable as at December 31, 2014
Exercise price
US$ per share
20,000
25,000
45,000
25.05
20.56
22.55
The following table summarises the movement in the Company’s share options for the years presented:
Terms
Exercisable immediately.
Options have an indefinite life.
Exercisable immediately.
Options have a 20-year life.
Outstanding at beginning of year
Expired/forfeited
Exercised
Outstanding and exercisable at end of year
2014
2013
2012
Average
exercise
price in US$
per share
22.55
–
–
22.55
Average
exercise
price in US$
per share
29.34
–
–
22.55
Average
exercise
price in US$
per share
29.34
–
–
29.34
Number of
options
134,996
–
(89,996)
45,000
Number of
options
45,000
–
–
45,000
Number of
options
134,996
–
–
134,996
Long-term incentive plans
The Company provides management and certain employees with share incentive schemes, the terms and conditions of which are linked to a
number of performance criteria.
Two schemes are provided, the first, a deferred share awards plan whereby shares are granted based on past performance over a three-year future
period, with vesting occurring on each January 1, over the following three-year period from the award date at 16.5% at the end of each of the first
two years and 67% at the end of the third year.
The second scheme is a future performance scheme whereby shares are granted based on future performance criteria over a three-year period
with vesting occurring on the January 1, after a three-year period.
Shares issued in 2014 under each of the schemes are provided below:
Shares issued in 2014
Shares issued in 2013
Total estimated charge
over the vesting period
($ millions)
Performance
Plan 2013
Deferred Plan
2013
Performance
Plan 2012
Deferred Plan
2012
Performance
Plan 2011
Deferred Plan
2011
Performance
Plan 2010
Deferred Plan
2010
–
–
31,315
–
–
7,453
19,175
26,669
48,566
20,303
43,752
46,061
–
66,542
–
89,650
21
19
18
16
The total estimated charge of the vesting period for the 2014 plans is $26 million.
Vesting criteria for each of performance plans are as follows:
2010
Shares granted under the performance plan vested on January 1, 2013 and were 50% subject to a market condition that was based on the Total
Shareholder Return (TSR) of Millicom compared to the TSR of a peer group of companies during the three-year period of the plan, and 50%
subject to a performance condition, based on EPS. A fair value per share subject to the market condition was determined and applied to the total
potential number of performance shares, and expensed over the vesting period.
2011
Shares granted under the performance plan vest at the end of the three-year period ending January 1, 2014, subject to performance conditions,
50% based on Return on Capital Investment (ROIC) and 50% based on EPS. Prior to September 2011, the vesting conditions were 50% based on
EPS and 50% on a market condition that was based on the ranking of the TSR of Millicom compared to the FTSE Global Telecoms Index adjusted
to add three peer companies (“Adjusted Global Telecoms Index”). As this index was discontinued during 2011, the Compensation Committee
approved the replacement of this condition with the ROIC condition.
2012 – 2014
Shares granted under the performance plans vest at the end of each three-year period ending January 1, subject to performance conditions, 50%
based on Return on Capital Investment (ROIC) and 50% based on EPS.
Vesting criteria for each of the deferred share awards plans are as follows:
2010 – 2014
Shares are granted based on past performance and vest 16.5% on the first January 1 anniversary of the plan, 16.5% on the second January 1
anniversary of the plan and 67% on the third and final January 1 of each plan.
The number of share awards expected to vest under the long-term incentive plans are as follows:
Performance
shares 2014
Deferred
share
awards 2014
Performance
shares 2013
Deferred
share awards
2013
Performance
shares 2012
Deferred
share awards
2012
Plan share awards
Share awards granted(i)
Revision for actual forfeitures
Revision in respect of performance conditions
Shares issued
Share awards expected to vest
(i) Additional shares granted include new joiners and consideration for the impact of special dividends paid in 2012.
164,015
–
(15,378)
–
–
148,637
219,767
–
(22,207)
–
–
197,560
173,586
13,453
(24,112)
–
–
162,927
Total share-based compensation expense
Total share-based compensation for years ended December 31, 2014, 2013 and 2012 was as follows:
2010 LTIPs
2011 LTIPs
2012 LTIPs
2013 LTIPs
2014 LTIPs
Total share-based compensation expense
208,979
4,165
(22,699)
–
(31,315)
159,130
105,284
3,763
(49,409)
–
(7,453)
52,185
161,798
5,995
(37,404)
–
(45,844)
84,545
2014
US$m
2013
(restated)
US$m
2012
(restated)
US$m
–
–
4
7
11
22
–
2
5
10
–
17
5
7
10
–
–
22
FinancialsOverviewStrategyPerformanceGovernance 108
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Millicom Annual Report 2014
109
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
13. Employment obligations
The Group’s Colombian subsidiary UNE, acquired in 2014, has a number of employee defined benefit plans. The level of benefits provided under
the plans depends on collective employment agreements and Colombian labour regulations. There are no defined assets related to the plans,
and UNE make payments to settle obligations under the plans out of available cash balances.
Pension plans
The pension plans apply to employees who meet certain criteria (including years of service, age and participation in collective agreements).
Long-service plans
Long-service plans apply to employees with more than five years of service whereby additional bonuses are paid to employees that reach each
incremental length of service milestone (from five to 40 years).
Termination plans
The termination plans apply to employees that joined UNE prior to December 30, 1996. The level of payments depends on the number of years
in which the employee has worked before retirement or termination of their contract with UNE.
The carrying value of the liabilities related to the benefit plans were as follows:
Pensions
Long-service
Termination
Others
Total liability
Net benefit expense in 2014 (from the date of acquisition in August) was as follows:
Current service cost
Interest cost on benefit obligation
Net benefit expense
Changes in the value of the defined benefit obligation:
Defined benefit obligations at August 14, 2014
Interest cost
Current service cost
Benefits paid
Foreign exchange (gain)/loss
Change in actuarial assumptions:
Demographics
Financial
Experience
Change in actuarial assumptions in other comprehensive income
Defined benefit obligation at December 31, 2014
The principal assumptions in determining the plan obligations are as follows:
Discount rate (all obligations)
Future salary increases (termination and long-service plans)
Life expectancy for pensioners (pension plans):
Male (from the age of 55 years)
Female (from the age of 50 years)
2014
US$m
38
6
7
2
53
2014
US$m
–
1
1
2014
US$m
66
1
–
(2)
(13)
–
–
1
1
53
2014
%
6.6
3.5
Years
27
36
Sensitivity analysis, based on a method that extrapolates the impact on the obligations as a result of reasonable changes in key assumptions
occurring at the end of the reporting period:
Assumptions
Life expectancy of male pensioners
Life expectancy of female pensioners
Increase by 1 year
US$m
Decrease by 1 year
US$m
Increase by 1 year
US$m
Decrease by 1 year
US$m
Impact on defined benefit obligations
0.6
(0.5)
0.6
(0.5)
Assumptions
Discount rate
Salary increases
Increase by 1%
US$m
Decrease by 1%
US$m
Increase by 1%
US$m
Decrease by 1%
US$m
Impact on total benefit obligations
(4)
5
1
(1)
The following payments are expected in the plans in future years:
Within the next 12 months
Between two and five years
Between five and ten years
Beyond ten years
Total expected payments
The average duration of the defined benefit obligation at December 31, 2014 is eight years.
14. Other non-operating (expenses) income, net
Change in carrying value of put options (see note 27)
Change in carrying value of call option (see note 27)
Change in fair value of derivatives
Other exchange (losses), net
Other non-operating expenses
Other non-operating (expenses) income, net
2014
US$m
4
17
22
61
104
2014
US$m
2013
(restated)
US$m
2012
(restated)
US$m
307
46
21
(175)
12
211
(62)
–
(19)
(52)
(1)
(134)
15
–
(6)
1
2
12
15. Taxes
Taxes mainly comprise income taxes of subsidiaries. As a Luxembourg commercial company, the Company is subject to all taxes applicable to a
Luxembourg Société Anonyme.
The effective tax rate on continuing operations is 8% (2013: 35% (restated)). Currently, Millicom operations are in jurisdictions with income tax
rates of 10% to 40% levied on either revenue or profit before income tax (2013: 6% to 40%).
Reconciliation between the weighted average statutory tax rate and the effective average tax rate is as follows:
Weighted average statutory tax rate(i)
Recognition of previously unrecorded tax losses
Unrecognised current year tax losses(ii)
Non-taxable income and non-deductible expenses, net
Taxes based on revenue
Income taxes at other than statutory tax rates
Withholding taxes on transfers between operating and holding entities
Write-back of tax provision
Effect on change in tax rate
Tax on joint ventures (restatement for Guatemala and Mauritius)
Effective tax rate
(i)
2014
%
2013
(restated)
%
2012
(restated)
%
27
–
3
(25)
(1)
1
3
–
–
–
8
27
(19)
10
6
–
4
22
3
–
(18)
35
25
–
2
6
–
3
8
3
4
(10)
41
The weighted average statutory tax rate has been determined by dividing the aggregate statutory tax charge of each subsidiary and joint venture, which was obtained by
applying the statutory tax rate to the profit or loss before tax.
Unrecognised current year tax losses mainly consist of tax losses in the Group’s operations in DRC, Ghana, Rwanda, Senegal, UNE (2013: DRC and Rwanda; 2012: DRC, Rwanda
and Tanzania).
(ii)
FinancialsOverviewStrategyPerformanceGovernance
110
Millicom Annual Report 2014
Millicom Annual Report 2014
111
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
15. Taxes (continued)
The credit (charge) for income taxes from continuing operations is shown in the following table and recognises that revenue and expense items
may affect the financial statements and tax returns in different periods (temporary differences):
Current income tax credit (charge)
Net deferred income tax benefit (expense)
Credit/(charge) for taxes
(A) Profit After Tax
(1) Current Income Tax
(2) Deferred Income Tax
(B) Total Income Tax (1)+(2)
(C) Profit Before Tax = (A)+(B)
(3) Effective tax rate (B)/(C)
(4) Weighted average tax rate
(D) Theoretical Income Tax (C)*(4)
Difference to explain = (B)-(D)
Non-taxable and deductible items
Items taxed with another tax rate
Withholding tax
Adjustments from prior years
Tax based on revenues and other taxes
Deferred tax liabilities on unremitted earnings
Unrecognised tax losses
Impact of changes in tax rates on deferred tax assets
Recognition of previously unrecognised deferred tax assets
Tax on joint ventures (included above profit before tax)
Total
2014
US$m
(292)
36
(256)
2014
US$m
2,780
(292)
36
(256)
3,036
8%
27%
(822)
566
761
(24)
(79)
–
34
(1)
(106)
–
(19)
–
566
2013
(restated)
US$m
2012
(restated)
US$m
(235)
91
(144)
(293)
(67)
(360)
2013
(restated)
US$m
2012
(restated)
US$m
268
(235)
91
(144)
412
35%
27%
(111)
(33)
(23)
(17)
(93)
(14)
–
–
(43)
–
79
78
(33)
512
(294)
(66)
(360)
872
41%
25%
(214)
(146)
(53)
(23)
(72)
(24)
–
–
(16)
(39)
–
81
(146)
The tax effects of significant items of the Group’s deferred income tax assets and liabilities as at December 31, 2014 and 2013 are as follows:
Provision for doubtful debtors
Temporary differences between book and tax basis of intangible assets
and property, plant and equipment
Deferred tax liabilities recognised from acquisitions, net
Deferred tax assets/credits from recognition of carry-forward losses
Deferred tax liabilities recognised on unremitted earnings
Other temporary and translation differences
Deferred tax benefit (expense)
Deferred tax assets (liabilities), net
Reflected in the statements of financial position as:
Deferred tax assets
Deferred tax liabilities
Consolidated
balance sheets
Consolidated
income statements
2014
US$m
13
(39)
(94)
153
(23)
108
2013
(restated)
US$m
2014
US$m
2013
(restated)
US$m
2012
(restated)
US$m
16
(53)
(74)
198
(28)
70
(3)
14
15
(45)
5
50
36
2
(1)
22
64
–
4
91
5
(61)
19
(48)
–
19
(66)
118
129
294
(176)
312
(183)
Deferred income tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Total unrecognised tax loss carry-forwards relating to continuing operations amounted to $505 million as at December 31, 2014 (2013: $390 million,
2012: $267 million) of which $203 million expire within one to five years (2013: $171 million, 2012: $236 million) and $302 million which have no expiry
(2013: $219 million, 2012: $31 million).
At December 31, 2014, Millicom had $23 million of withholding tax payables on undistributed earnings of Millicom operating subsidiaries
and deferred tax assets of $153 million (2013: $198 million) representing credits from recognition of carry forward tax losses.
Income tax expenses include withholding tax on royalties for an amount of $43 million (2013: $35 million).
16. Earnings per share
Basic earnings per share are calculated by dividing net profit for the year attributable to equity holders of the Company by the weighted average
number of ordinary shares outstanding during the year.
Diluted earnings per share are calculated by dividing the net profit for the year attributable to equity holders of the Company by the weighted
average number of ordinary shares outstanding during the year plus the weighted average number of dilutive potential shares.
Net profit and share data used in the basic and diluted earnings per share computations are as follows:
Basic
Net profit attributable to equity holders from continuing operations
Net profit attributable to equity holders from discontinued operations
Net profit attributable to equity holders to determine the basic earnings per share
Diluted
Net profit attributable to equity holders from continuing operations
Net profit attributable to equity holders from continuing operations used to determine the diluted
earnings per share
Net profit attributable to equity holders from discontinued operations
Net profit attributable to equity holders to determine the diluted earnings per share
Weighted average number of ordinary shares (excluding treasury shares) for basic earnings per share
Effect of dilution:
Potential incremental shares as a result of share options
Weighted average number of ordinary shares (excluding treasury shares) adjusted for the effect
of dilution
2014
US$m
2,622
21
2,643
2,622
2,622
21
2,643
2013
(restated)
US$m
2012
(restated)
US$m
292
(63)
229
292
292
(63)
229
516
(8)
508
516
516
(8)
508
2014
‘000
2013
(restated)
‘000
2012
(restated)
‘000
99,983
99,801
101,332
34
54
93
100,017
99,855
101,425
To calculate earnings per share amounts for discontinued operations, the weighted average number of shares for both basic and diluted amounts
is as per the table above.
17. Intangible assets
Movements in intangible assets in 2014 were as follows:
Goodwill
US$m
Licenses
US$m
Customer
lists
US$m
Capacity
contracts
US$m
Broadcast
and other
rights
US$m
Other(ii)
US$m
37
125
184
250
480
1,382
Opening balance, net (restated)
Change in the composition of the Group
(see note 4)(iii)
Additions (see note 9)
Amortisation charge(i)
Impairment
Transfers
Exchange rate movements
Closing balance, net
As at December 31, 2014
Cost or valuation
Accumulated amortisation and impairment
Net
(i) The amortisation charge for Licenses and Other is recorded under the caption “General and administrative expenses”.
(ii) The caption “Other” includes intangible assets identified in business combinations (including trademarks – see note 4).
(iii) The change in the composition of the Group corresponded to the acquisition of Guatemala and UNE in 2014 (see note 4) and other minor investments in 2013.
1,864
–
–
–
–
(180)
3,066
835
90
(44)
(7)
63
(139)
982
348
–
(97)
–
(1)
(16)
484
388
88
(77)
(1)
(48)
(56)
774
87
22
(15)
(6)
(14)
(32)
167
–
–
(6)
–
–
(1)
30
1,058
(284)
774
1,354
(372)
982
3,066
–
3,066
882
(398)
484
248
(81)
167
42
(12)
30
Total
US$m
2,458
3,522
200
(239)
(14)
–
(424)
5,503
6,650
(1,147)
5,503
FinancialsOverviewStrategyPerformanceGovernance
112
Millicom Annual Report 2014
Millicom Annual Report 2014
113
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
17. Intangible assets (continued)
Movements in intangible assets in 2013 (restated) were as follows:
The recoverable amounts have been determined for the cash-generating units based on the following discount rates for the years ended
December 31, 2014 and 2013. The results of the testing would be materially similar if a pre-tax discount rate had been used.
Total
US$m
2,331
1
402
(153)
(37)
(19)
(67)
2,458
3,252
(794)
2,458
Bolivia
Chad
Colombia (Colombia Móvil)
Costa Rica
DRC
El Salvador
Ghana
Guatemala
Honduras
Paraguay
Rwanda
Senegal
Tanzania
Discount rate after tax
2014
11.0%
12.6%
9.5%
10.1%
13.1%
11.5%
13.7%
10.8%
12.0%
10.5%
11.7%
11.5%
11.4%
2013
10.6%
14.8%
9.4%
10.5%
15.0%
11.0%
14.2%
10.9%
12.6%
10.5%
13.6%
13.6%
13.5%
The allocation of goodwill to cash-generating units, net of exchange rate movements and after impairment, is shown below:
Millicom’s operations in:
Guatemala (see note 4)
Honduras
El Salvador
Costa Rica
Paraguay
Colombia – Colombia Movil
Colombia – UNE (see note 4)
DRC
Other
Total goodwill
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
–
855
194
139
68
52
–
11
63
1,382
–
883
194
137
76
57
–
11
110
1,468
2014
US$m
1,571
817
194
129
65
42
200
11
37
3,066
Goodwill
US$m
Licenses
US$m
Customer
lists
US$m
Capacity
contracts
US$m
Broadcast
and other
rights
US$m
Other(ii)
US$m
34
99
314
314
102
1,468
Opening balance, net (restated)
Change in the composition of the Group
(see note 4)(iii)
Additions (see note 9)
Amortisation charge(i)
Impairment
Transfers
Exchange rate movements
Closing balance, net
As at December 31, 2013 (restated)
Cost or valuation
Accumulated amortisation and impairment
Net (restated)
(i) The amortisation charge for Licenses and Other is recorded under the caption “General and administrative expenses”.
(ii) The caption “Other” includes intangible assets identified in business combinations (including trademarks – see note 4).
(iii) The change in the composition of the Group corresponded to the acquisition of Guatemala and UNE in 2014 (see note 4) and other minor investments in 2013.
(12)
–
–
(36)
–
(38)
1,382
4
279
(30)
(1)
(160)
(7)
184
–
94
(51)
–
130
(7)
480
9
–
(58)
–
(6)
(9)
250
–
21
(9)
–
17
(6)
125
–
8
(5)
–
–
–
37
1,382
–
1,382
484
(234)
250
469
(285)
184
729
(249)
480
146
(21)
125
42
(5)
37
The following table provides details of cash used for intangible asset additions:
Additions
Change in suppliers’ advances
Change in capex accruals and payables
Cash used from continuing operations for intangible asset additions
2014
US$m
200
–
(16)
184
2013
(restated)
US$m
2012
(restated)
US$m
402
–
(2)
400
249
1
(84)
166
Impairment test of goodwill
As at December 31, 2014, management tested goodwill for impairment by assessing the recoverable amount (value in use) against the carrying
amount for each cash-generating unit (“CGU”).
The value in use of a CGU or group of CGUs is determined based on discounted cash flows. The cash flow projections used (adjusted operating
profit margins, income tax, working capital, capital expenditure and license renewal cost) are extracted from financial budgets approved by
management and the Board covering a period of five years or more. The planning horizon reflects industry practice in the countries where the
Group operates and stage of development or redevelopment of the business in those countries. Cash flows beyond this period are extrapolated
using a perpetual growth rate of 2.0%-2.5% (2013: 2.5%-3.0%).
No impairment losses were recorded on goodwill for the years ended December 31, 2014 and 2012. An impairment of $36 million relating to
goodwill for Senegal was recorded in 2013.
Sensitivity analysis was performed on key assumptions within the impairment tests. The sensitivity analysis determined that sufficient margin
exists from realistic changes to the assumptions that would not impact the overall results of the testing. For DRC the estimated recoverable
amount exceeded the carrying value by 15%. Indicators of sensitivity were identified in respect of the DRC cash-generating unit and sensitivity
testing was performed resulting in the following findings:
– A long-term growth rate decrease of 2.2 ppt (percentage points), from 2.5% to 0.3%, would result in a value in use equal to the carrying
amount. An additional 1.0 ppt decrease, from 0.3% to -0.2%, would lead to a value in use lower than the carrying amount by $16 million.
– A discount rate increase of 1.15 ppt, from 13.1% to 14.25%, would result in a value in use equal to the carrying amount. An additional 1.0
ppt increase, from 14.25% to 15.25%, would lead to a value in use lower than the carrying amount by $15.6 million.
– A 10 ppt decrease of the operating profit before depreciation and amortisation would result in a value in use equal to the carrying amount.
An additional 1% decrease would lead to a value in use lower than the carrying amount by $2.3 million.
FinancialsOverviewStrategyPerformanceGovernance 114
Millicom Annual Report 2014
Millicom Annual Report 2014
115
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
18. Property, plant and equipment
Movements in tangible assets in 2014 were as follows:
Opening balance, net
Change in the composition of the Group (note 4)(ii)
Additions (including sale and leaseback)
Impairments and net disposals
Depreciation charge(iii)
Asset retirement obligations
Transfers
Transfer from assets held for sale (see note 5)
Exchange rate movements
Closing balance at December 31, 2014
Cost or valuation
Accumulated depreciation
Net
Movements in tangible assets in 2013 (restated) were as follows:
Network
equipment
US$m
Land and
buildings
US$m
Construction
in progress
US$m
Other(i)
US$m
2,151
1,629
127
(17)
(811)
26
929
(1)
(376)
3,657
7,779
(4,122)
3,657
74
129
7
(1)
(9)
–
13
–
(28)
185
222
(37)
185
374
163
929
(4)
–
–
(926)
–
(46)
490
490
–
490
172
271
31
(8)
(99)
–
(16)
–
(52)
299
673
(374)
299
Network
equipment
US$m
Land and
buildings
US$m
Construction
in progress
US$m
Other(i)
US$m
Opening balance, net
Change in the composition of the Group (note 4)(ii)
Additions (including sale and leaseback)
Impairments and net disposals
Depreciation charge(iii)
Transfers
Transfer from assets held for sale (see note 5)
Exchange rate movements
Closing balance at December 31, 2013 (restated)
Cost or valuation
Accumulated depreciation
Net (restated)
(i)
(ii) The change in the composition of the Group corresponded to the acquisition of Guatemala and UNE in 2014 and other minor investments in 2013.
(iii)
2,257
–
4
(30)
(572)
564
5
(77)
2,151
5,010
(2,859)
2,151
282
–
679
(7)
–
(571)
–
(9)
374
374
–
374
63
–
1
–
(4)
16
–
(2)
74
97
(23)
74
“Other” mainly includes office equipment and motor vehicles.
152
6
24
(2)
(57)
52
–
(3)
172
417
(245)
172
Total
US$m
2,771
2,192
1,094
(30)
(919)
26
–
(1)
(502)
4,631
9,164
(4,533)
4,631
Total
US$m
2,754
6
708
(39)
(633)
61
5
(91)
2,771
5,898
(3,127)
2,771
The depreciation charge for network equipment is recorded under the caption “Cost of sales” and the depreciation charge for Land and Buildings and Other is recorded under
“General and administrative expenses”.
The net carrying amount of network equipment under finance leases at December 31, 2014, mainly comprising towers from sale and leaseback
transactions with tower companies, was $226 million (2013: $231 million).
Borrowing costs capitalised for the years ended December 31, 2014 and 2013 were not significant.
The following table provides details of cash used for the purchase of property, plant and equipment:
Additions
Change in suppliers advances
Change in capex accruals and payables
Vendor financing and finance leases (see note 30)
Cash used from continuing operations for purchase of property, plant and equipment
2014
US$m
1,094
(14)
48
–
1,128
2013
(restated)
US$m
2012
(restated)
US$m
708
17
(50)
(43)
632
747
(4)
(29)
(10)
704
19. Pledged deposits
At December 31, 2014, non-current pledged deposits amounted to $2 million mainly related to security over financing of Millicom’s operation in
Guatemala (2013: nil (see note 26)).
At December 31, 2014, current pledged deposits amounted to $6 million. At December 31, 2013, short-term pledge deposits amounted to
$817 million and mainly comprised the proceeds of Millicom’s $800 million bond related to the UNE merger described in note 4. The proceeds
from the bond (see note 26) were held in low risk interest-bearing deposits until the merger process was complete.
20. Trade receivables, net
Gross trade receivables
Less: provisions for impairment of receivables
Trade receivables, net
2013
(restated)
US$m
January 1
2013
(restated)
US$m
394
(112)
282
392
(104)
288
2014
US$m
735
(243)
492
Nominal value less impairment is assumed to approximate the fair value of trade receivables (see note 34).
As at December 31, 2014 and 2013, the ageing analysis of trade receivables is as follows:
Neither
past due nor
impaired
US$m
Past due (net of impairment)
<30 days
US$m
30-90 days
US$m
>90 days
US$m
Total
US$m
2014
Telecom operators
Own customers
Others
Total
2013 (restated)
Telecom operators
Own customers
Others
Total
January 1, 2013 (restated)
21. Restricted cash
Mobile financial services
Others
Restricted cash
63
186
78
327
62
69
49
180
180
19
55
16
90
19
20
17
56
53
Mobile financial services cash is restricted based on local regulations in each relevant country.
22. Cash and cash equivalents
Cash and cash equivalents are comprised as follows:
Cash and cash equivalents in US dollars
Cash and cash equivalents in other currencies
Total cash and cash equivalents
21
27
12
60
24
12
10
46
55
4
–
11
15
–
–
–
–
–
107
268
117
492
105
101
76
282
288
2014
US$m
121
7
128
2013
(restated)
US$m
2012
(restated)
US$m
77
3
80
41
–
41
2014
US$m
278
416
694
2013
(restated)
US$m
2012
(restated)
US$m
441
468
909
622
533
1,155
Cash balances are diversified among leading international banks and in domestic banks within the countries where we operate.
FinancialsOverviewStrategyPerformanceGovernance 116
Millicom Annual Report 2014
Millicom Annual Report 2014
117
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
23. Share capital
Share capital and share premium
The authorised registered share capital of the Company is 133,333,200 shares (2013: 133,333,200). As at December 31, 2014, the total subscribed
and fully paid-in share capital and premium was $639 million (2013: $640 million) consisting of 101,739,217 (2013: 101,739,217) registered
common shares with par value of $1.50 (2013: $1.50) each.
24. Put option reserves
On July 1, 2010, in exchange for an unconditional five-year call option, the Company granted to its local partner in our operation in Honduras a
five-year conditional put option over his 33.3% shareholding (see note 27). A put option reserve in the amount of $737 million was recognised
representing the present value of the redemption price of the put option at that date.
Effective January 1, 2014, in exchange for an unconditional two-year call option, the Company granted to its local partner in our operation
in Guatemala a two-year conditional put option over its 45% shareholding (see note 4 and note 27). A put option reserve in the amount of
$1,775 million was recognised representing the present value of the redemption price of the put option at that date.
25. Other reserves
As at December 31, 2012 (restated)
Share-based compensation
Issuance of shares – 2010, 2011, and 2012 LTIPs
Shares issued via the exercise of share options
Cash flow hedge reserve movement
Currency translation movement
As at December 31, 2013 (restated)
Share-based compensation
Issuance of shares – 2011, 2012, and 2013 LTIPs
Change in pension obligations
Cash flow hedge reserve movement
Currency translation movement
As at December 31, 2014
Equity-
settled
transaction
reserve
US$’000
Hedge
reserve
US$’000
Currency
translation
reserve
US$’000
Pension
obligation
reserve
US$’000
42,197
16,871
(19,103)
(3,027)
–
–
36,938
22,411
(15,227)
–
–
–
44,122
(5,833)
–
–
–
6,857
–
1,024
–
–
–
1,216
–
2,240
(185,534)
–
–
–
–
(53,903)
(239,437)
–
–
–
–
(212,533)
(451,970)
–
–
–
–
–
–
–
1,414
1,414
Legal
reserve
US$’000
16,359
–
–
–
–
–
16,359
–
–
–
–
–
16,359
Total
US$’000
(132,811)
16,871
(19,103)
(3,027)
6,857
(53,903)
(185,116)
22,411
(15,227)
1,414
1,216
(212,533)
(387,835)
Legal reserve
If the Company reports an annual net profit on a non-consolidated basis, Luxembourg law requires appropriation of an amount equal to at least
5% of the annual net profit to a legal reserve until such reserve equals 10% of the issued share capital. This reserve is not available for dividend
distribution.
No appropriation was required in 2013 or 2014 as the 10% minimum level was reached in 2011 and maintained each subsequent year.
Equity-settled transaction reserve
The cost of share options and LTIPs is recognised as an increase in the equity-settled transaction reserve over the period in which the performance
and/or service conditions are rendered. When the options are exercised their cost is transferred from the equity-settled transaction reserve to share
premium. When shares under the different LTIPs vest and are issued the corresponding reserve is transferred to share capital and share premium.
Hedge reserve
The effective portions of changes in value of cash flow hedges of fluctuations in interest rates are recorded in the hedge reserve (see note 33).
Currency translation reserve
In the financial statements, the relevant captions in the statements of financial position of subsidiaries without US dollar functional currencies, are
translated to US dollars using the closing exchange rate. Income statements or income statement captions (included those of joint ventures and
associates) are translated to US dollars at the average exchange rates during the year. The currency translation reserve includes foreign exchange
gains and losses arising from these translations.
26. Debt and financing
Debt and financing due after more than one year:
Bond financing(i)
Bank financing(ii)
Finance leases(iii)
Non-controlling shareholders
Vendor financing
Total non-current debt and financing
Less: portion payable within one year
Total debt and financing due after more than one year
Debt and financing due within one year:
Bond financing(i)
Bank financing(ii)
Finance leases(iii)
Vendor financing
Total current debt and financing
Portion of non-current debt payable within one year
Total debt and financing due within one year
Debt and financing by location:
MIC S.A
Chad
DRC
Ghana
Rwanda
Senegal
Tanzania
Bolivia
Cable Central America
Colombia
El Salvador
Guatemala
Honduras
Paraguay
Total debt and financing
Of which:
Due after more than one year
Due within one year
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
2,502
907
263
–
–
3,672
(168)
3,504
1,228
1,000
200
243
40
2,711
(367)
2,344
2014
US$m
3,253
1,105
262
–
–
4,620
(153)
4,467
2014
US$m
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
74
125
10
–
209
153
362
2014
US$m
1,539
71
35
50
129
–
105
163
113
848
308
781
348
339
4,829
4,467
362
–
239
16
–
255
168
423
–
234
32
10
276
367
643
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
1,797
37
26
24
164
–
109
180
77
444
443
–
267
359
3,927
3,504
423
304
98
124
76
146
138
183
198
93
547
440
–
261
379
2,987
2,344
643
FinancialsOverviewStrategyPerformanceGovernance
118
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Millicom Annual Report 2014
119
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
26. Debt and financing (continued)
(i) Bond financing
As at December 31, 2014 the Company had the following bond financing:
Country
Description
SEK Senior Unsecured Floating Rate Notes(1) Luxembourg
SEK Senior Unsecured Fixed Rate Notes(1)
Luxembourg
$500 million 4.75% Senior Notes(2)
Luxembourg
$800 million 6.625% Senior Notes(3)
Luxembourg
$800 million 6.875% Senior Notes(4)
Guatemala
BOB 1.36 billion Notes(5)
Bolivia
8% Senior Notes(6)
El Salvador
6.75% Senior Notes(7)
Paraguay
UNE Bonds(8)
Colombia
Total bond financing
(i)
STIBOR – Swedish Interbank Offered Rate
Maturity
Currency
2017
2017
2020
2021
2024
2020
2017
2022
2015/2013
SEK
SEK
USD
USD
USD
BOB
USD
USD
COP
Interest rate
STIBOR +3.5%(i)
5.125%
4.75%
6.625%
6.875%
4.75%
8.25%
6.75%
7.33%-8.76%
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
273
37
491
791
–
175
441
294
–
2,502
268
36
–
–
–
191
440
293
–
1,228
2014
US$m
226
30
492
791
781
156
304
294
253
3,327
(1) SEK Senior Unsecured Notes
On October 30, 2012 Millicom issued Senior Unsecured Floating Rate Notes of Swedish Kronor (“SEK”) 1.75 billion and Senior Unsecured Fixed
Rate Notes of SEK 0.25 billion. The floating rate notes were issued for 100% of the principal amount and the fixed rate notes for 99.699% of
the principal amount and both are repayable in five years. At the same time Millicom entered into various cross-currency interest swap contracts
whereby Millicom will sell SEK and receive USD to hedge against exchange and interest rate fluctuations (see note 33). The early redemption
options are embedded derivatives which have been valued and determined to be closely related to the underlying notes.
MIC S.A. may redeem the SEK Bonds in full at any time prior to the final maturity date, at 100% of the nominal amount plus accrued and unpaid
interest plus the applicable premium or, if the redemption is financed at least 80%, by way of another issuance of debt instruments, any time from
and including the date falling 60 business days prior to the final maturity date, at 100% of the nominal amount plus accrued and unpaid interest.
The applicable premium represents the net present value of all interest due until maturity of the notes.
(2) $500 million 4.75% Senior Notes
On May 22, 2013 Millicom issued a $500 million fixed interest rate bond to refinance most of the external debt outstanding at the time in its
African operations. Withheld costs of issuance of $10 million and paid costs of $9 million are amortised over the seven-year life of the notes
(effective interest rate of 5.29%).
(3) USD $800 million 6.625% Senior Notes
On October 16, 2013 Millicom issued an $800 million bond. The funds were used to finance the Colombian Merger (see note 4) and released from
the escrow account (see note 18) prior to completion of the merger on August 14, 2014 (effective interest rate of 7.17%).
(4) USD $800 million 6.875% Senior Notes
In January 2014, Intertrust SPV (Cayman) Limited, acting as trustee of the Comcel Trust, a trust established and consolidated by Comcel for
the purposes of the transaction, issued a bond to refinance existing local and MIC S.A. corporate debt. The bond was issued at 98.233% of
the principal and has an effective interest rate of 7.168%. The bond is guaranteed by Comcel and listed on the Luxembourg Stock Exchange.
Simultaneously with, and using the proceeds from, the bond, Comcel entered into an $800 million senior unsecured loan with Credit Suisse AG,
Cayman Islands Branch. The proceeds of the bond were used by Intertrust SPV to purchase a 100% participation interest in the loan pursuant
to a credit and guarantee.
The loan agreements between Intertrust, Credit Suisse and Comcel remove any risk to Credit Suisse connected to the loans, and as such the
Group have derecognised both its asset and liability towards Credit Suisse from the date of the agreement.
(5) BOB 1.36 billion Notes
In May 2012, Telecel Bolivia issued BOB 1.36 billion of notes repayable in instalments until April 2, 2020. Distribution and other transaction fees of
BOB 5 million reduced the total proceeds from issuance to BOB 1.32 billion ($191 million). The bond has a 4.75% per annum coupon with interest
payable semi-annually in arrears in May and November. The effective interest rate is 4.79%. As of December 31, 2014, approximately $156 million
was outstanding under this bond.
(6) El Salvador 8% Senior Notes
On September 23, 2010, Telemóvil Finance Co. Ltd, issued $450 million aggregate principal amount 8% Senior Notes due on October 1, 2017.
The 8% Senior Notes have an 8% per annum coupon with an 8.25% yield and are payable semi-annually in arrears on April 1 and October 1.
The effective interest rate is 8.76%.
The proceeds were loaned to a bank which then financed Telemovil El Salvador until December 2014 when the payable and receivable from the
bank were settled. The 8% Senior Notes are general unsecured obligations of Telemóvil Finance Co. Ltd and rank equal in right of payment with
all future unsecured and unsubordinated obligations of Millicom. The 8% Senior Notes are guaranteed by Telemóvil El Salvador S.A., Millicom’s
operating subsidiary in El Salvador.
On April 15, 2014 $139 million of the $450 million bonds issued were repurchased in a tender offer to bond holders, for $150 million which included
a premium of $9.5 million over the face value of the bonds. $2.5 million of related unamortised costs were expensed during 2014.
(7) Paraguay 6.75% Senior Notes
On December 7, 2012, Telefónica Celular del Paraguay S.A., Millicom’s fully owned subsidiary in Paraguay, issued $300 million of notes at 100%
of the aggregate principal amount. Distribution and other transaction fees of $7 million reduced the total proceeds from issuance to $293 million.
The 6.75% Senior Notes have a 6.75% per annum coupon with interest payable semi-annually in arrears on June 13 and December 13.
The effective interest rate is 7.12%.
The 6.75% Senior Notes are general unsecured obligations of Telefónica Celular del Paraguay S.A. and rank equal in right of payment with
all future unsecured and unsubordinated obligations of Telefónica Celular del Paraguay S.A. The 6.75% Senior Notes are unguaranteed.
(8) UNE bonds
In May 2011, UNE issued a COP 300 billion (approximately $126 million) five and 12-year bond consisting of two equal tranches. Interest rates
are variable and depend on the tranche. Tranche A bears variable interest, based on CPI, in Colombian peso and paid in Colombian peso.
Tranche B bears variable interest, based on Fixed Term Deposits, in Colombian peso and paid in Colombian peso. UNE applied the proceeds
to finance its investment plan. Tranche A will mature in October 2016 and Tranche B will mature in October 2023.
In March 2010, UNE issued a COP 300 billion (approximately $126 million) five to ten-year bond consisting of two tranches. Interest rates are
either fixed or variable depending on the tranche. Tranche A bears variable interest, based on CPI, in Colombian peso and paid in Colombian
peso. Tranche B bears variable interest, based on Fixed Term Deposits, in Colombian peso and paid in Colombian peso. UNE applied the proceeds
to finance its investment plan. Tranche A will mature in March 2015 and Tranche B will mature in March 2020.
FinancialsOverviewStrategyPerformanceGovernance 120
Millicom Annual Report 2014
Millicom Annual Report 2014
121
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
26. Debt and financing (continued)
(ii) Bank financing
At December 31, 2014, bank financings were as follows:
Description
Country
Maturity
Currency
Interest rate
Other long-term loans
USD variable rate loans
USD fixed rate loans
HNL variable rate loans
COP variable rate loans
Syndicated loan
Club Deal five-year facility
Short-term loans
Short-term loans
Short-term loans
Short-term loans
Short-term loans
Short-term loans
Short-term loans
Other short-term loans
Total bank financing
(ii)
IBR – Colombia Interbank Rate.
Costa Rica
Honduras
Honduras
Honduras
Colombia (UNE)
Colombia
Colombia
Colombia
Colombia
Rwanda
Luxembourg
DRC
Senegal
Tanzania
Various
2021
2015/2022
2015/2021
2015/2022
2015/2023
2020
2013
2013
2013
2019
2014
2013
2013
2013
USD
USD
USD
HNL
COP
COP
COP
COP
USD
USD
USD
USD
USD
USD
4% variable
1.7% – 6.00% variable
3.96% – 6.45%
9.00% – 16% variable
5.70% – 8.80% variable
IBR + 7.10%(i)
DTF + 4.50%
various
various
2.65% variable
1.69% variable
various
1% – 3.8%
4.04% – 5.59%
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
78
37
109
121
–
340
–
–
–
158
199
–
–
–
104
1,146
93
35
127
99
–
–
34
130
40
99
–
93
138
103
243
1,234
2014
US$m
114
126
77
131
229
274
–
–
–
119
–
–
–
–
160
1,230
At December 31, 2014 MIC S.A. was guaranteeing loans and other indebtedness from subsidiaries for a total consideration of $287 million,
namely in Chad, DRC, Rwanda, Honduras and Ghana.
MIC SA – Revolving Credit Facility
In June 2014, MIC S.A. entered into a $500 million revolving credit facility with a consortium of banks, including each Initial Purchaser, of which
$200 million (Facility A) is for a two-year term and $300 million (Facility B) is for a three-year term. Subject to the terms of the revolving credit
facility, the maturity date of all or a portion of the amounts outstanding under Facility A may be extended for one year and under Facility B may
be extended for either one or two years. Amounts drawn under the revolving credit facility may be used for general corporate and working capital
purposes of the Millicom Group, including financing acquisitions, licenses, capital expenditure, and payment of dividends to the extent permitted
under the revolving credit facility agreement. Interest on amounts drawn under the revolving credit facility is payable at LIBOR or EURIBOR, as
applicable, plus an initial margin of 1.3% (for Facility A) or 1.4% (for Facility B), provided that the margin may be reduced or increased if the net
leverage ratio of MIC S.A. in respect of the most recently completed financial year is within a specified range. As of December 31, 2014, the facility
was fully committed and undrawn.
Right of set-off and de-recognition
In addition to the facilities described above, in 2013 two of Millicom’s subsidiaries had agreements with banks whereby the banks provided loans
amounting to Euro 176 million to Millicom’s subsidiaries with a maturity date in 2020. Simultaneously, Millicom deposited the same amount with
the banks and entered into a total return swaps. The total return swaps remove any risk of the banks connected to the loans, and as such Millicom
has derecognised both its deposit asset and the loan liabilities from the date of the total return swap.
(iii) Finance leases
At December 31, 2014, finance leases were as follows:
Description
Finance lease of towers
Finance lease of towers
Finance lease of towers
Finance lease of towers
Other finance leases
Total finance leases
Country
Tanzania
Colombia Movil
DRC
Ghana
Various
Maturity
2023
2023
2016/2023
2023/2025
2014
US$m
2013
US$m
2012
US$m
105
79
35
20
33
272
109
85
26
24
35
279
80
68
24
21
39
232
Guarantees
Millicom has issued guarantees to secure certain obligations of some of its operations under financing agreements. Outstanding amounts under
the guarantees and the guarantee periods as of December 31, 2014 and 2013 are shown below. Amounts covered by bank guarantees are
recorded in the consolidated statements of financial position under the caption “Other debt and financing” and amounts covered by supplier
guarantees are recorded under the caption “Trade payables” or “Other debt and financing” depending on the underlying terms and conditions.
Terms
Bank and other financing guarantees(i)
As at December 31, 2014
As at December 31, 2013 (restated)
Outstanding
exposure
US$m
Maximum
exposure
US$m
Outstanding
exposure
US$m
Maximum
exposure
US$m
0–1 year
1–3 years
3–5 years
More than 5 years
Total
(i) The guarantee ensures payment by the guarantor of outstanding amounts of the underlying loans in the case of non-payment by the obligor.
111
50
70
56
287
150
50
70
55
325
34
50
186
–
270
112
50
255
–
417
Pledged assets
The Group’s share of total debt and financing secured by either pledged assets, pledged deposits issued to cover letters of credit, or guarantees
issued by the Company as at December 31, 2014 is $1,409 million (2013: $764 million). Assets pledged by the Group over this debt and financing
at the same date amounted to $8 million (2013: $817 million).
Net debt
The following table provides details of net debt change for the years 2014, 2013 and 2012:
Total debt and financing
Less: Cash and deposits(i)
Net debt at the end of the year
Add (less): Derivative financial instruments related to debt(ii)
Net debt including derivatives related to debt
(i)
Comprising cash and cash equivalents of $694 million (2013: $909 million, 2012: $1,155 million), restricted cash of $128 million (2013: $80 million, 2012: $41 million),
current pledged deposits of $6 million ( 2013: $17 million, 2012: $8 million, short-term escrow investments of nil (2013: $800 million, 2012: nil)) and long-term pledged deposits
of $2 million (2013: nil, 2012: $45 million), and time deposits related to bank borrowings of $2 million (2013: nil, 2012: $15 million) classified in other non-current assets.
(ii) Carrying value of foreign currency hedges on SEK denominated notes.
Covenants
Millicom’s financing facilities are subject to a number of covenants including debt service coverage ratios, debt to earnings ratios, debt to
equity and cash levels. In addition, certain of its financings contain restrictions on sale of businesses or significant assets within the businesses.
At December 31, 2014 there were no breaches in covenants.
2014
US$m
4,829
(832)
3,997
43
4,040
2013
(restated)
US$m
3,927
(1,806)
2,121
(10)
2,111
January 1,
2013
(restated)
US$m
2,987
(1,264)
1,723
(6)
1,717
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Millicom Annual Report 2014
123
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
27. Other non-current and current provisions and liabilities
Provisions and other non-current liabilities are comprised as follows:
Non-current legal provisions (note 31)
Long-term portion of asset retirement obligations
Long-term portion of deferred income on tower deals
Long-term employment obligations (note 13)
Other
Total
Provisions and other current liabilities are comprised as follows:
Put options
Deferred revenue
Customer deposits
Current legal provisions (note 31)
Other tax payables
Current provisions
Customer and distributor cash balances (Tigo cash)
Other
Total
2014
US$m
16
100
30
69
44
259
2014
US$m
2,260
190
13
6
83
2
115
136
2,805
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
14
51
41
1
43
150
6
49
51
–
7
113
2013
(restated)
US$m
January 1,
2013
(restated)
US$m
792
142
13
5
75
8
71
37
1,143
730
132
22
2
68
14
44
69
1,081
Put options related to Celtel and Comcel
Effective July 1, 2010 (Honduras) and January 1, 2014 (Guatemala), Millicom reached agreements with its local partners whereby the local
partners granted Millicom an unconditional call option for a duration of five years (Honduras) and two years (Guatemala) for their stakes in Celtel
(Honduras) and Comcel (Guatemala) (see note 4 and note 24). At the same time, and as consideration for the call options, Millicom granted put
options for the same duration to its local partners. The put options become exercisable on a change of control of Millicom International Cellular
S.A., or Millicom’s subsidiaries that hold the shares in Comcel and Celtel (except if the change of control is in favour of Investment AB Kinnevik,
the current largest shareholder of Millicom, or management of Millicom).
The put options are a financial liability as defined in IAS 32 and recorded as current liabilities.
For Celtel the liability is measured at the present value of the redemption price of the put option which amounted to $573 million at December 31,
2014 (2013: $792 million).
The redemption price of the put option is based on a multiple of the EBITDA of Celtel. The multiple is based on a change of control transaction
multiple of Millicom. Management estimated the change of control transaction multiple of Millicom from a trading multiple of Millicom adding
a control premium (based upon comparable transactions from the industry).
For Comcel the liability is measured at the present value of the redemption price of the put option which amounted to $1,687 million at
December 31, 2014.
The redemption price of the put option is based on a multiple of the EBITDA of Comcel. The multiple is based on a change of control transaction
multiple of Millicom. Management estimate the change of control transaction multiple of Millicom from a trading multiple of Millicom and add a
control premium (based upon comparable transactions).
Call options related to Celtel and Comcel
For Celtel, the call option price is a fixed multiple of the EBITDA of Celtel in the year the option is exercised. As the fixed multiple exceeded the fair
value multiples (based on comparable transactions and including a control premium) at December 31, 2014 and 2013, and Millicom determined
the fair value of the call option to be immaterial at both December 31, 2014 and 2013.
For Comcel, the call option price is a fixed multiple of the EBITDA of Comcel, with a gold price index in the event that the gold price increases by
more than 40%. Millicom’s call option is a financial instrument measured at fair value of $74 million at December 31, 2014. Income from the
increase in value of the investment of $46 million during the year was recorded under “Other non-operating (expenses) income, net”.
28. Dividends
On May 27, 2014 a dividend distribution of $2.64 per share from Millicom’s retained profits as at December 31, 2013 was approved by the
shareholders at the Annual General Meeting and distributed in June 2014.
On May 28, 2013 a dividend distribution of $2.64 per share from Millicom’s retained profits as at December 31, 2012 was approved by the
shareholders at the Annual General Meeting and distributed in June 2013.
The ability of the Company to make dividend payments is subject to, among other things, the terms of indebtedness, legal restrictions and the
ability to repatriate funds from Millicom’s various operations. As at December 31, 2014, $285 million (December 31, 2013: $41 million) of Millicom’s
retained profits represent statutory reserves and are unable to be distributed to owners of the Company.
29. Directors’ and Officers’ remuneration
Directors
The remuneration of the members of the Board of Directors of the Company comprises an annual fee and shares. Director remuneration is
proposed by the Nominations Committee and approved by the shareholders at the Annual General Meeting of Shareholders (the “AGM”).
In May 2014 Cristina Stenbeck was appointed Chairperson of the Board, and Tomas Eliasson, Amelia Fawcett and Dominique Lafont were
appointed as Directors. At the same time Allen Sangines-Krause stepped down as Chairman of the Board, as did Donna Cordner, Omari Issa,
Kim Ignatius and Dionisio Romero Paoletti as Directors. Cristina Stenbeck is also the Chairperson of the Board of Directors of Kinnevik (note 32),
the principal shareholder of the Company.
The remuneration charge (net of 20% withholding tax) for the Board for the years ended December 31, 2014, 2013 and 2012 was as follows:
2014
2013
2012
Chairperson
US$’000
Other members
of the Board
US$’000
172
190
210
786
742
787
Total
US$’000
958
932
997
The number of shares and share options beneficially owned by the Directors as at December 31, 2014 and 2013 was as follows:
2014
Shares
2013
Shares
Chairperson
Former
Chairperson
Other members
of the Board
Total
35,658
n/a
16,411
52,069
n/a
2,318
12,825
15,143
Officers
The remuneration of senior management of the Company (“Officers”) comprises an annual base salary, an annual bonus, share-based
compensation, social security contributions, pension contributions and other benefits. From 2013 the senior management of the Company is
considered to be the CEO and the Executive Vice Presidents (previously CEO and CFO). The bonus and share-based compensation plans (see note
12) are based on actual performance (including individual and Group performance). Share-based compensation is granted once a year by the
Compensation Committee of the Board. The annual base salary and other benefits of the Chief Executive Officer (“CEO”) and the Executive
Vice Presidents (“Executive Team”) is proposed by the Compensation Committee and approved by the Board.
In December 2014 it was announced that Hans-Holger Albrecht would leave the position of CEO by end of 2014 and that Tim Pennington
would assume the role of interim CEO. Final compensation for Hans-Holger Albrecht is currently being reviewed.
In February 2014 Tim Pennington was appointed as Chief Financial Officer, effective from June 2014.
On August 31, 2013 Marc Zagar was appointed as Interim Chief Financial Officer after the departure of Francois-Xavier Roger.
On October 31, 2012 the Board appointed Hans-Holger Albrecht, who was a Director of Millicom since May 2010, to succeed Mikael Grahne as
President and CEO.
FinancialsOverviewStrategyPerformanceGovernance
124
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Millicom Annual Report 2014
125
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
29. Directors’ and Officers’ remuneration (continued)
The remuneration charge for the Executive Team for the years ended December 31, 2014, 2013 and 2012 was as follows:
30. Non-cash investing and financing activities
The following table gives details of non-cash investing and financing activities for continuing operations for the years ended December 31, 2014,
2013 and 2012.
2014
Base salary
Bonus
Pension
Other benefits
Termination benefits
Total
Share-based compensation(i)(ii)
2013
Base salary
Bonus
Pension
Other benefits
Total
Share-based compensation(i)(ii)
2012
Base salary
Bonus
Pension
Other benefits
Total
Share-based compensation(i)(ii)
(i)
(ii)
Former
Chief Executive
Officer
US$’000
Executive Team
(8 members at
December 31)
US$’000
2,344
–
586
752
–
3,682
–
4,582
3,079
499
1,715
1,411
11,286
3,927
Former
Chief Executive
Officer
US$’000
Executive Team
(9 members at
December 31)
US$’000
2,252
2,269
723
1,282
6,526
1,705
3,532
1,768
573
747
6,620
3,057
Investing activities
Acquisition of property, plant and equipment (see note 18)
Asset retirement obligations (see note 18)
Change in scope of consolidation (LIH – see note 4)
Change in scope of consolidation (AIH – see note 4)
Financing activities
Vendor financing and finance leases (see note 18)
Share-based compensation (see note 12)
2014
US$m
2013
(restated)
US$m
2012
(restated)
US$m
(60)
(26)
(70)
–
–
22
(43)
–
–
(92)
(43)
16
(10)
(6)
–
–
10
21
31. Commitments and contingencies
Operational environment
Millicom operates in Latin American and African markets characterised by evolving and at times fluctuating regulatory, political, technological and
economic environments. These characteristics result in uncertainties that may affect future operations, the ability to conduct business, transact
foreign exchange, repatriate funds and repay debt, all of which may impact agreements with third parties.
In the normal course of business, Millicom faces uncertainties regarding taxation, interconnect rates, license renewal and tariff arrangements,
which can have a significant impact on the profitability and economic viability of its operations.
Litigation
The Company and its operations are contingently liable with respect to lawsuits and other matters that arise in the normal course of business.
As of December 31, 2014, the total amount of claims and litigation risks against Millicom and its operations was $359 million (December 31,
2013: $667 million).
Former Chief
Executive Officer
Chief Executive
Officer in 2012
Chief Financial
Officer in 2012
As at December 31, 2014, $22 million (December 31, 2013: $19 million) has been provided for litigation risks in the consolidated statement of
financial position. While it is not possible to ascertain the ultimate legal and financial liability with respect to these claims, the ultimate outcome
of these contingencies is not anticipated to have a material effect on the Group’s financial position and operations.
633
–
134
44
811
–
1,265
1,554
379
187
3,385
3,431
662
719
108
59
1,548
1,533
Specific risks included in the amounts above:
Ghana
A lawsuit filed against our subsidiary in Ghana (Millicom Ghana) by E-Talk Limited (E-Talk) in November 2011, alleging that Millicom Ghana
terminated a July 2006 contract with insufficient notice. The total value of the claim is approximately $30 million, including various general
damages, loss of expected revenues and punitive damages. Management considers this claim as opportunistic and without foundation, in so far
as it was filed more than four years after the events on which the plaintiff bases its claim. A provision of less than $1 million has been made for
legal costs related to this claim.
Arbitration
At December 31, 2014 Millicom has various other claims, mainly related to licenses subject to arbitration processes.
See note 12.
Share awards of 62,437 and 54,684 were granted in 2014 under the 2014 LTIPs to the former CEO and Executive Team. Share awards of 65,178 and 71,899 were granted in
2013 under the 2013 LTIPs to the former CEO and Executive Team. Share awards of 33,209 and 13,962 were granted in 2012 under the 2012 LTIPs to the CEO in 2012 and
former CFO.
The number of shares and unvested share awards beneficially owned by senior management as at December 31, 2014 and 2013 was as follows:
Specific risks excluded from the amounts above:
2014
Shares
Share awards not vested
2013
Shares
Share awards not vested
Former Chief
Executive Officer
Executive
Team
Not applicable
Not applicable
8,810
65,178
23,689
103,669
20,174
105,102
Total
23,689
103,669
28,984
170,280
Notice period
If the employment of Millicom’s senior executives is terminated, severance of up to 12 months’ salary is potentially payable, and the CEO is
entitled to receive a termination payment equivalent to 24 months’ basic salary if he complies with certain conditions.
Colombia
A claim filed with the Civil Chamber of Bogota in Colombia against all mobile operators in Colombia, including our subsidiary in Colombia,
by a group of approximately 20 individuals of approximately $753 million. The claimants allege damages and losses suffered from third parties
through illegal use of cellular phones in extortion attempts against the claimants.
The case has been inactive, with the exception of a mandatory settlement conference held among the parties under the court’s supervision, which
did not result in a settlement agreement. This claim is considered by management to be entirely spurious and without foundation or substance.
As a result, no provision has been made for this claim.
Taxation
The Group faces regular tax investigations in the countries where it operates. As of December 31, 2014, the Group estimates potential tax claims
of $339 million of which a tax provision of $63 million has been recorded (2013: $169 million of which provisions of $64 million were recorded).
While it is impossible to quantify the ultimate financial liability with respect to these assessments, the ultimate outcome of these contingent tax
risks is not anticipated to have a material effect on the Group’s financial position and operations.
FinancialsOverviewStrategyPerformanceGovernance 126
Millicom Annual Report 2014
Millicom Annual Report 2014
127
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
31. Commitments and contingencies (continued)
Lease commitments
Operating leases:
The Group has the following annual lease commitments as of December 31, 2014 and 2013.
Operating lease commitments
Within one year
Between one to five years
After five years
Total
2014
US$m
135
421
199
755
2013
(restated)
US$m
78
237
143
458
Operating leases mainly comprise land and buildings (including those related to towers sold and leased back). The operating lease terms and
conditions reflect normal market conditions. Total operating lease expense from continuing operations was $180 million in 2014 (2013: $111
million, 2012: $93 million – see note 10).
Finance leases:
The Group’s future minimum payments on finance leases were $467 million at December 31, 2014 (2013: $521 million) and mainly comprised
lease of tower space in Ghana, Tanzania, DRC and Colombia under 12-year leases (see note 18) and tower sharing in other countries. Other
financial leases are not material and mainly consist of lease agreements relating to vehicles.
The Group had the following finance lease commitments at December 31, 2014 and 2013.
Finance lease commitments
Within one year
Between one to five years
After five years
Total
2014
US$m
50
200
217
467
2013
(restated)
US$m
61
223
237
521
The corresponding finance lease liabilities at December 31, 2014 were $272 million (2013: $279 million).
Capital commitments
At December 31, 2014 the Company and its subsidiaries had fixed commitments to purchase network equipment, land and buildings, other fixed
assets and intangible assets of $336 million of which $308 million are due within one year (December 31, 2013: $282 million of which $275 million
are due within one year).
Millicom has a remaining commitment of Euro 25 million to AIH as part of the shareholder investment agreement with Rocket and MTN (see note 4).
Currency and interest rate swap contracts
Millicom enters into currency and interest rate swap contracts to manage its exposure to fluctuations in interest rates and currency fluctuations in
accordance with its risk management policies. Details of these arrangements are provided below.
Interest rate and currency swaps on SEK denominated debt
In October 2012, Millicom issued senior unsecured floating rate notes of Swedish Kronor (‘SEK’) 1.75 billion and senior unsecured fixed rate notes
of SEK 0.25 billion (see note 26). At the same time Millicom entered into various cross currency interest swap contracts whereby Millicom sells SEK
and receives USD to hedge against exchange rate fluctuations for the notional amount of SEK 2 billion and interest payments on this principal.
Millicom also hedged against interest rate fluctuations on the floating rate notes of SEK 1.75 billion, receiving variable interest at STIBOR +3.5%
and paying a fixed rate of 5.125%.
The currency portion of the swap has been accounted for as a fair value hedge and $56 million of losses were recorded through the income
statement for the year ended December 31, 2014 (2013: losses of $6 million). For the interest portion, as the timing and amounts of the cash flows
under the swap agreements match the cash flows under the bonds, the swaps are highly effective. Cash flow hedge accounting has been applied
and changes in the fair value of the swaps are recorded in other comprehensive income. At December 31, 2014 the fair value of the swap amounts
to a liability of $44 million (2013: an asset of $13 million).
At December 31, 2014 the cash flow hedge reserve on these hedges amounted to $2 million (December 31, 2013: $4 million).
Interest rate and currency swaps on Euro denominated debt
In June 2013 Millicom entered into interest rate and currency swaps whereby Millicom will sell Euros and receive USD to hedge against exchange
rate fluctuations on a seven-year Euro 134 million principal and related interest financing of its operation in Senegal.
In July 2013 Millicom entered into interest rate and currency swaps whereby Millicom will sell Euros and receive USD to hedge against exchange
rate fluctuations on a seven-year Euro 41.5 million principal and related interest financing of its operation in Chad.
These financings are connected to the downstreaming of a portion of Millicom’s 4.75% bond (see note 26). These hedges are considered
ineffective, with fluctuations in the value of the hedges recorded through profit and loss. $21 million of income was recorded from the
fluctuations in 2014.
Currency swap contract (Colombian pesos)
Colombia Móvil S.A.’s foreign currency swap contract to sell Colombian pesos for $43 million matured in July 2013. Gains under the contract
amounted to $2 million for 2013 until maturity.
Dividends
The ability of the Company to make dividend payments is subject to, among other things, the terms of indebtedness, legal restrictions and the
ability to repatriate funds from Millicom’s various operations. As at December 31, 2014, $285 million (December 31, 2013: $140 million) of
Millicom’s retained profits represent statutory reserves and are unable to be distributed to owners of the Company.
32. Related party transactions
The Company conducts transactions with certain related parties on normal commercial terms and conditions. Included are:
–
–
Investment AB Kinnevik (“Kinnevik”) and subsidiaries, the Company’s principal shareholder;
Tower companies in Ghana, DRC, Tanzania and Colombia (until July 2014) in which the Company holds a direct or indirect equity
interest (see note 8);
– Controlled entities of our non-controlling interest in Colombia (EPM) since the merger on August 14, 2014 (see note 4); and
– Controlled entities of our joint venture partner in Guatemala (Miffin Associates Corp).
Kinnevik
The Company’s principal shareholder is Kinnevik. Kinnevik is a Swedish holding company with interests in the telecommunications, media, publishing,
paper and financial services industries. As of December 31, 2014, Kinnevik owned approximately 38% of Millicom (2013: 38%). During 2014 and
2013, Kinnevik did not purchase any Millicom shares. There are no significant loans made by Millicom to or for the benefit of these related parties.
During 2014 and 2013 the Company purchased services from Kinnevik subsidiaries including fraud detection, procurement and professional services.
Helios Towers and American Towers (ATC)
Under the sale and leaseback agreements with Helios Tower Africa entities (see notes 6 and 17), the Group acquired a 40% equity investment in the
associate company Helios Towers Ghana in 2010, and in the associate companies Helios Towers DRC, Helios Towers Tanzania and ATC B.V. in 2011
(“Tower companies”). Millicom sold its tower assets and leased back a portion of space on the towers in each of these countries and contracted for
related operation and management services. The Group has future lease commitments in respect of the Tower Companies (see note 31).
In October 2011, Millicom’s operating subsidiary in DRC provided Helios Towers DRC with a financing facility for a maximum of $38 million (principal
of $30 million). Amounts under the facility are guaranteed by Helios Towers Africa, the parent company of Helios Towers DRC, as well as by pledge
of its shares in Helios Towers DRC. The principal and interest payable were repaid by Helios DRC in March, 2014.
In 2013 Millicom provided Helios Towers Tanzania with a $12 million unsecured loan bearing interest at 15% per annum and repayable by the end
of 2019. During 2014 Millicom’s interest in Helios Towers Tanzania was diluted from 40% to 24.15%, and as compensation for the dilution Millicom
received additional loans from Helios Towers Tanzania of $6 million.
From 2012 until disposal in July 2014, the Group provided its associate company, ATC BV, with various US dollar denominated loans bearing a fixed
rate interest at 8.3% per annum. The loans were converted to equity in 2014 prior to the Group selling its investment in ATC BV (see note 5).
UNE EPM Telecomunicaciones S.A.
The Group’s mobile operation in Colombia leased portions of its tower assets (owned or leased) under finance leases to UNE EPM
Telecomunicaciones S.A. (‘UNE’), until August 2014, and since that date UNE has been a subsidiary of the Group (see note 4).
Miffin Associates Corp
The Group purchases and sells products and services from Miffin Associates Corp (a 45% shareholder in Comcel, Millicom’s Guatemala operation)
and its controlled entities (“Miffin”). Transactions with Miffin represent recurring commercial operations such as purchase of handsets and sale of
airtime. Transactions with such parties are made at arm’s length.
The following transactions were conducted with related parties:
Expenses
Purchases of goods and services (Kinnevik)
Purchases of goods and services (Miffin)
Purchases of goods and services (non-controlling interest in Colombia Movil)
Lease of towers and related services (Helios and ATC*)
Lease of towers and related services (UNE*)
Total
*
Until acquisition/disposal date.
2014
US$m
2013
(restated)
US$m
2012
(restated)
US$m
3
155
1
102
13
274
10
134
13
78
17
252
8
95
–
107
11
221
FinancialsOverviewStrategyPerformanceGovernance
128
Millicom Annual Report 2014
Millicom Annual Report 2014
129
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
32. Related party transactions (continued)
Income
Sale of goods and services (non-controlling interest in Colombia*)
Sale of goods and services (Miffin)
Gain on sale of towers (Helios and ATC*)
Lease of towers and related services (UNE*)
Interest income (Helios Towers DRC and Tanzania loans, ATC Colombia* loans)
Total
*
Until acquisition/disposal date.
As at December 31, 2014 the Company had the following balances with related parties:
Liabilities
Debt and financing:
Finance lease payables to tower companies
Amounts due to non-controlling interests, associates and joint venture partners
Payables to Miffin
Others
Payable to AIH for 13.33% increase (note 4)
Other accounts payable
Total
Assets
Other non-current assets
Loan to Helios Towers Tanzania
Others
Advances to non-controlling interests
Advances to Miffin
Advances to Centrotel
Others
Loan to Helios Towers DRC
Loan to ATC Colombia BV
Other accounts receivable
Total
2014
US$m
2013
(restated)
US$m
2012
(restated)
US$m
8
213
42
22
7
292
8
206
10
31
7
262
–
220
16
10
2
248
2014
US$m
2013
(restated)
US$m
127
10
31
16
184
18
6
212
88
–
–
25
349
239
84
1
–
324
13
–
–
69
35
32
16
165
33. Financial risk management
Terms, conditions and risk management policies
Exposure to interest rate, foreign currency, non-repatriation, liquidity, capital management and credit risks arise in the normal course of Millicom’s
business. The Group analyses each of these risks individually as well as on an interconnected basis and defines and implements strategies to
manage the economic impact on the Group’s performance in line with its financial risk management policy. Millicom’s risk management strategies
may include the use of derivatives. Millicom’s policy prohibits the use of such derivatives in the context of speculative trading.
Interest rate risk
Interest rate risk generally arises on borrowings. Borrowings issued at floating rates expose the Group to cash flow interest rate risk. Borrowings
issued at fixed rates expose the Group to fair value interest rate risk. The Group’s exposure to risk of changes in market interest rates relates to both
of the above. To manage the risk, the Group’s policy is to maintain a combination of fixed and floating rate debt with target for the debt to be
equally distributed between fixed and variable rates. The Group actively monitors borrowings against target and applies a dynamic interest rate
hedging approach. The target mix between fixed and floating rate debt is reviewed periodically. The purpose of Millicom’s policy is to achieve
an optimal balance between cost of funding and volatility of financial results, while taking into account market conditions as well as our overall
business strategy. At December 31, 2014, approximately 69% of the Group’s borrowings are at a fixed rate of interest or for which variable rates
have been swapped for fixed rates with interest rate swaps (2013: 75%).
Interest rate swaps
At December 31, 2014 the Group had a floating to fixed interest rate swap in Luxembourg for a nominal amount of Swedish Kronor 1.75 billion
entered into in 2012 with maturity in 2017 to hedge against floating rates of interest on debt (see note 31).
As the timing and amount of the cash flows under this swap agreement match the cash flows of the underlying debt instrument, the swap was
assessed as highly effective, thus qualifying for cash flow hedge accounting. Accordingly, the effective portion of the changes of the swap value
are recorded in other comprehensive income.
The following swaps were terminated during the year as the corresponding loan facilities to which the swaps related were repaid:
–
–
In Honduras for a nominal amount of $30 million entered into in 2010 with original maturity in 2015.
In Costa Rica for a nominal amount of $105 million entered into in 2010 with original maturity in 2017.
The table below summarises, as at December 31, 2014, the Group’s fixed rate debt and floating rate debt (including hedging activities):
Fixed rate
Weighted average nominal interest rate
Floating rate
Weighted average nominal interest rate
Total
Weighted average nominal interest rate
Amounts due within
1 year
1-2 years
2-3 years
3-4 years
4-5 years
>5 years
Total
(in millions of US dollars, except percentages
79
6.73%
283
5.89%
362
6.07%
53
6.82%
271
7.30%
324
7.22%
344
8.50%
205
6.92%
549
7.91%
294
5.11%
187
7.60%
481
6.07%
42
7.95%
181
7.14%
223
7.29%
2,531
7.21%
359
8.25%
2,890
7.51%
3,343
7.15%
1,486
7.23%
4,829
7.15%
The table below summarises, as at December 31, 2013, our fixed rate debt and floating rate debt:
(restated)
Fixed rate
Weighted average nominal interest rate
Floating rate
Weighted average nominal interest rate
Total
Weighted average nominal interest rate
Amounts due within
1 year
1-2 years
2-3 years
3-4 years
4-5 years
>5 years
Total
(in millions of US dollars, except percentages
134
7.98%
289
3.09%
423
4.64%
89
6.36%
72
6.65%
161
6.49%
82
6.38%
97
7.09%
179
6.76%
826
7.13%
145
5.93%
971
6.95%
37
8.27%
133
6.77%
170
7.10%
1,776
7.42%
247
8.35%
2,023
8.08%
2,944
6.88%
983
5.98%
3,927
6.75%
A one hundred basis point fall or rise in market interest rates for all currencies in which the Group had borrowings at December 31, 2014, would
increase or reduce profit before tax from continuing operations for the year by approximately $15 million (2013: $10 million).
Foreign currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures where the Group operates.
Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.
Millicom seeks to reduce its foreign currency exposure through a policy of matching, as far as possible, assets and liabilities denominated in foreign
currencies, or entering into agreements that limit the risk of exposure to currency fluctuations against the US dollar. In some cases, Millicom may
also borrow in US dollars where it is either commercially more advantageous for joint ventures and subsidiaries to incur debt obligations in US
dollars or where US dollar denominated borrowing is the only funding source available to a joint venture or subsidiary. In these circumstances,
Millicom accepts the remaining currency risk associated with financing its joint ventures and subsidiaries, principally because of the relatively high
cost of forward cover, when available, in the currencies in which the Group operates.
Foreign currency swaps
At December 31, 2014 the Group had the following foreign currency swap contracts (see note 31):
–
–
–
In Luxembourg for a nominal amount of Swedish Kronor (‘SEK’) 2 billion from October 2012, receiving US dollars to hedge against
exchange rate fluctuations for the notional amount of SEK 2 billion and interest payments on this principal.
In Luxembourg for a nominal amount of Euro 134 million from June 2013, receiving US dollars to hedge against exchange rate fluctuations
on a seven-year Euro 134 million principal and related interest financing of its operation in Senegal.
In Luxembourg for nominal amount of Euro 41.5 million from July 2013, receiving US dollars to hedge against exchange rate fluctuations
on a seven-year Euro 41.5 million principal and related interest financing of its operation in Chad.
FinancialsOverviewStrategyPerformanceGovernance
130
Millicom Annual Report 2014
Millicom Annual Report 2014
131
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
33. Financial risk management (continued)
The following table summarises debt denominated in US$ and other currencies at December 31, 2014 and 2013 (excluding hedging activities).
The tables below summarise the maturity profile of the Group’s net financial liabilities at December 31, 2014 and 2013.
Total US$
Colombia
Chad
Tanzania
Honduras
Bolivia
Ghana
Other
Total non-US$ currencies
Total
2014
US$m
3,480
848
55
105
145
162
20
14
1,349
4,829
2013
(restated)
US$m
3,023
444
25
109
121
177
23
5
904
3,927
At December 31, 2014, if the US dollar had weakened/strengthened by 10% against the other functional currencies of our operations and all
other variables held constant, then profit before tax from continuing operations would have increased/decreased by $50 million and $61 million
respectively (2013: $30 million and $36 million respectively). This increase/decrease in profit before tax would have mainly been as a result of the
conversion of the results of our operations with functional currencies other than the US dollar.
Non-repatriation risk
Most of the operating subsidiaries receive a substantial amount of revenue in the currency of the countries in which they operate. The Group
derives substantially all its revenue through funds generated by local operations and, therefore, Millicom is dependent on the ability of its
subsidiaries and joint venture operations to transfer funds to the Company.
Although foreign exchange controls exist in some of the countries in which Millicom Group companies operate, none of these countries currently
significantly restrict the ability of these operations to pay interest, dividends, technical service fees, royalties or repay loans by exporting cash,
instruments of credit or securities in foreign currencies. However, existing foreign exchange controls may be strengthened in countries where
the Group operates, or foreign exchange controls may be introduced in countries where the Group operates that do not currently impose such
restrictions. If such events were to occur, the Company’s ability to receive funds from the operations could be subsequently restricted, which would
impact the Company’s ability to make payments on its interest and loans and/or pay dividends to its shareholders.
In addition, in some countries, it may be difficult to convert large amounts of local currency into foreign currency because of limited foreign
exchange markets. The practical effects of this are time delays in accumulating significant amounts of foreign currency and exchange risk, which
could have an adverse effect on the Group’s results of operations.
Credit and counterparty risk
Financial instruments that potentially subject the Group to credit risk are primarily cash and cash equivalents, pledged deposits, letters of credit,
trade receivables, amounts due from joint venture partners, supplier advances and other current assets and derivatives. Counterparties to
agreements relating to the Group’s cash and cash equivalents, pledged deposits and letters of credit are significant financial institutions with
investment grade ratings. Management does not believe there are significant risks of non-performance by these counterparties and have
diversified its banking partners. Allocation of deposits across banks are managed such that the Group’s counterparty risk with a given bank stays
within limits which have been set based on each bank’s credit rating.
A large portion of turnover comprises prepaid airtime. For postpaid customers, the Group follows risk control procedures to assess the credit quality
of the customer, taking into account its financial position, past experience and other factors.
Accounts receivable also comprise balances due from other telecom operators. Credit risk of other telecom operators is limited due to the
regulatory nature of the telecom industry, in which licenses are normally only issued to creditworthy companies. The Group maintains a provision
for impairment of trade receivables based upon expected collectability.
As the Group has a large number of internationally dispersed customers, there is no significant concentration of credit risk with respect to trade receivables.
Liquidity risk
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group has
incurred significant indebtedness but also has significant cash balances. Millicom evaluates its ability to meet its obligations on an ongoing basis
using a recurring liquidity planning tool. This tool considers the operating net cash flows generated from its operations and the future cash needs
for borrowing, interest payments, dividend payments and capital and operating expenditures required in maintaining and developing its operating
businesses.
The Group manages its liquidity risk through use of bank overdrafts, bank loans, bonds, vendor financing, Export Credit Agencies and
Development Finance Institutions (“DFI”) loans, and finance leases. Millicom believes that there is sufficient liquidity available in the markets to
meet ongoing liquidity needs. Additionally, Millicom is able to arrange offshore funding through the use of Export Credit Agency guarantees and
DFIs (IFC and FMO), who have been established specifically to finance development in the Group’s markets. Millicom has diversified its financing
with commercial banks representing about 23% of its gross financing (2013: 26%), bonds 69% (2013: 64%), Development Finance Institutions
2% (2013: 3%) and finance leases 6% (2013: 7%).
Year ended 31 December 2014
Total borrowings (see note 26)
Cash and cash equivalents
Restricted cash
Pledged deposit (relating to bank borrowings)
Time deposits
Derivative financial instruments (SEK currency swap)
Net cash (debt) including derivatives related to debt
Future interest commitments(i)
Trade payables (excluding accruals)
Put options
Other financial liabilities (including accruals)
Call option
Trade receivables
Other financial assets
Net financial liability
Less than
1 year
US$m
1 to 5 years
US$m
>5 years
US$m
(362)
694
128
6
2
–
468
(335)
(481)
(2,260)
(1,326)
–
492
378
(3,064)
(1,577)
–
–
2
–
(43)
(1,618)
(1,055)
–
–
–
74
–
113
(2,486)
(2,890)
–
–
–
–
–
(2,890)
(106)
–
–
–
–
–
–
(2,996)
Year ended 31 December 2013 (restated)
Less than
1 year
US$m
1 to 5 years
US$m
>5 years
US$m
Total borrowings (see note 26)
Cash and cash equivalents
Restricted cash
Short-term escrow investments
Pledged deposit (relating to bank borrowings)
Derivative financial instruments (SEK currency swap)
Net cash (debt) including derivatives related to debt
Other derivative financial instruments
Future interest commitments(i)
Trade payables (excluding accruals)
Put option
Other financial liabilities (including accruals)
Trade receivables
Other financial assets
Net financial liability
(i)
Includes unamortised difference between carrying amount and nominal amount of debts.
(423)
909
80
800
17
—
1,383
—
(264)
(335)
(792)
(1,132)
282
178
(680)
(1,481)
—
—
—
—
10
(1,471)
1
(845)
—
—
—
—
83
(2,232)
(2,023)
—
—
—
—
—
(2,023)
(21)
(76)
—
—
—
—
—
(2,120)
Total
US$m
(4,829)
694
128
8
2
(43)
(4,040)
(1,496)
(481)
(2,260)
(1,326)
74
492
491
(8,546)
Total
US$m
(3,927)
909
80
800
17
10
(2,111)
(20)
(1,185)
(335)
(792)
(1,132)
282
261
(5,032)
Capital management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and solid capital ratios in order to
support its business and maximise shareholder value.
The Group manages its capital structure with reference to economic conditions and imposed restrictions such as debt covenants and local
regulations. To maintain or adjust its capital structure, the Group may make dividend payments to shareholders, return capital to shareholders
through share repurchases or issue new shares. At December 31, 2014 Millicom is rated at one notch below investment grade by the independent
rating agencies Moody’s (Ba1 negative) and Fitch (BB+ stable). The Group primarily monitors capital using net debt to adjusted operating profit as
well as a set of other indicators.
FinancialsOverviewStrategyPerformanceGovernance
132
Millicom Annual Report 2014
Millicom Annual Report 2014
133
Notes to the consolidated financial statements
as at and for the year ended December 31, 2014 (Continued)
33. Financial risk management (continued)
Net debt (see note 26)
Adjusted operating profit (see note 9)
Net debt to adjusted operating profit ratio
2014
US$m
3,997
2,112
Ratio
1.9
2013
(restated)
US$m
2,121
1,414
Ratio
1.5
The Group reviews its gearing ratio (net debt divided by total capital plus net debt) periodically. Net debt includes interest bearing loans and
borrowings, less cash and cash equivalents (included restricted cash) and pledged and time deposits related to bank borrowings. Capital represents
equity attributable to the equity holders of the parent.
Net debt (see note 26)
Equity
Net debt and equity
Gearing ratio
2014
US$m
3,997
3,747
7,744
52%
2013
(restated)
US$m
2,121
2,081
4,202
50%
34. Financial instruments
The fair value of Millicom’s financial instruments are shown at amounts at which the instruments could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. The fair value of all financial assets and all financial liabilities except debt and
financing approximate their carrying value largely due to the short-term maturities of these instruments. The fair values of all debt and financing
have been estimated by the Group based on discounted future cash flows at market interest rates.
The following table shows the carrying and fair values of financial instruments as at December 31, 2014 and 2013:
Carrying value
Fair value
FINANCIAL ASSETS
Pledged deposits (see note 19)
Other non-current assets
Trade receivables, net
Amounts due from non-controlling interests, associates and JV partners
Prepayments and accrued income
Advances to non-controlling interest
Call option
Other current assets
Restricted cash
Cash and cash equivalents
Total
Current
Non-current
FINANCIAL LIABILITIES
Debt and financing (see note 26)
Trade payables
Payables and accruals for capital expenditure
Derivative financial instruments
Put options
Amounts due to non-controlling interests and JV partners
Accrued interest and other expenses
Other liabilities
Total
Current
Non-current
2014
US$m
2
113
492
212
283
88
74
109
128
694
2,195
2,006
189
4,829
386
371
43
2,260
4
501
339
8,733
4,148
4,585
2013
(restated)
US$m
–
83
282
67
156
69
–
894
80
909
2,540
2,457
83
3,927
239
424
23
792
84
369
165
6,023
2,452
3,571
2014
US$m
2
113
492
212
283
88
74
109
128
694
2,195
2,006
189
3,652
386
371
43
–
4
501
339
5,296
1,888
3,408
2013
(restated)
US$m
–
83
282
67
156
69
–
894
80
909
2,540
2,457
83
2,962
239
424
23
–
84
369
165
4,266
1,660
2,606
Fair value measurement hierarchy
Effective January 1, 2009, Millicom adopted the amendment to IFRS 7 for financial instruments that are measured in the Statement of Financial
Position at fair value, which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
–
–
–
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices).
Level 3 – Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
Derivative financial instruments are measured with reference to level 2, except for the call option in Honduras and in Guatemala (see note 27)
which are measured with reference to level 3. The change in fair value of the Guatemala call option of $46 million is recorded under non-operating
(expenses) income, net. The fair value of the call option has been determined by using an option pricing model (Monte Carlo simulation using the
Longstaff Schwartz algorithm). The Honduras and Guatemala put option liabilities are carried at the present value of the redemption amount and
is therefore excluded from the fair value hierarchy. No other financial instruments are measured at fair value.
35. Subsequent events
Dividend
On February 3, 2015 Millicom announced that the Board will propose to the Annual General Meeting of the Shareholders a dividend distribution of
$2.64 per share to be paid out of Millicom profits for the year ended December 31, 2014 subject to the Board’s approval of the 2014 consolidated
financial statements of the Group.
Agreements to acquire Sur Multimedia (Paraguay) and the remaining shares in Tigo Rwanda
On January 20, 2015 Millicom’s Paraguay operation reached agreement to acquire a 100% stake in the cable business Sur Multimedia and
on February 10, 2015 Millicom reached agreement to acquire the remaining 12.5% non-controlling interest in its Rwandan business. These
acquisitions will be made for cash consideration of approximately $31 million. The completion of the Sur Multimedia transaction remains
subject to customary closing conditions being met including obtained regulatory approvals.
Appointment of Mauricio Ramos as CEO
On March 2, 2015 Millicom appointed Mauricio Ramos as its new Chief Executive Officer with effect from April 1, 2015.
Designed and produced by Gather
www.gather.london
The paper used in this Report is
derived from sustainable sources
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