Latin America Performance Review
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Latin America 46 Regional overview 47 Latin America in figures 48 Colombia 49 Guatemala performance 50 Paraguay 51 Honduras 52 El Salvador 53 Bolivia review 54 Costa Rica Overview Strategy Performance Governance Financials Latin America performance review Regional overview In 2016, Latin America contributed 86% of Millicom’s Group revenue. We are a market leading Telecom provider in Colombia, El Salvador, Honduras, Guatemala, Nicaragua, Costa Rica, Bolivia and Paraguay. Unlocking digital Latin America EBITDA in Latin America declined by -2.2% in In 2016, we had more than 32 million mobile the year, with the EBITDA margin of 38.5% customers of which 11.8 million are slightly higher than in 2015. smartphone data users – 2.2 million more Capital expenditure decreased by 17% in the than at the end of 2015. We have now Our operations are leaner full year to US$867 million, compared to launched 4G in all our Latin American US$1,045 million in 2015, again mainly and more efficient than ever.” markets and our high-ARPU 4G customer reflecting the tighter focus of the investment base grew four-fold during the year, to more program on core growth areas of HFC and than 3.4 million. Our fiber-optic cables pass 4G. Around 47% of this capital expenditure more than 8 million homes. Some 3.7 million was invested in the fixed network and 39% in people subscribe to our MFS services, and the mobile network. with 20 million smartphone subscribers, our smartphone penetration now sits at 62.5%. Operating cash flow in Latin America in the full year grew by 3.3% year-on-year to Growth of mobile data revenue in LatAm was US$1,197 million. driven by the increase in the number of smartphone data users, and in particular by Over the past year, market conditions have the rapid growth of our 4G customer base. remained challenging in several mobile markets, particularly in Colombia, where We saw continuing erosion of our Voice and macro-economic headwinds and continuing SMS revenues in the region, reflecting the competitive pressures accelerated a decline changing patterns of customer usage seen in in revenues. This significantly constrained our mobile markets globally. This constrained growth in the year, but we are holding to our growth of our total service revenue in LatAm principles of differentiation and customer in the year. experience to maintain a competitive Total revenue in LatAm declined by position while maintaining price discipline, -1.8% in 2016 on an organic basis, to driving operational and Capex efficiency US$5,352 million. Service revenue declined gains, and improving cash generation. by -0.2% year-on-year, to US$4,966 million. As a business, we are leaner and more The steeper fall in total revenue was due to efficient than ever. In the past year we have lower handset sales revenue, mainly forged new strategic partnerships with major reflecting the proportion of lower value Digital Lifestyle players, such as Netflix, handsets in the mix, and fewer direct Deezer and Microsoft to give our customers handset sales. an even better service across multiple Delivering on our strategy, mobile data platforms. revenue grew organically by 22.7% to We believe Latin America is on the cusp of a US$1,221 million. Voice and SMS service digital explosion, which will give us revenue fell by 15.2% to US$1,727 million. tremendous new opportunities, and to We have increased investment in 4G maximize these opportunities, we focus on and cable roll-outs and a focused IT four key objectives: we invest in our network; transformation. Total cable service revenue we innovate digital services for our grew by 7.4% year-on-year, with fixed customers; we champion digital inclusion and B2B revenue increasing by 3.6% and cable responsibility; and we transform our business home revenue growing by 9.7% organically and the communities where we operate. in the year. Millicom Annual Report 2016 46 Overview Strategy Performance Governance Financials Latin America performance review – continued Investment Digital inclusion and responsibility Transformation We are building the digital infrastructure, It is not just about digital highways and This immense transformation to a digital home passes, network and data centers vehicles and innovative pricing and payment future in our societies also demands a across all our countries. In our mobile methods. It is also about digitally educating transformation of us, the players, who are markets, we now reach 40% 4G population consumers about the benefits of the internet, here to provide the infrastructure upon which coverage. At the same time we are also as well as supporting knowledge building. digital societies and economies will be built. focused on operational leverage, For instance, we have installed Telecentros or There is no digital society or digital future reconfiguring our cost base to make our digital training centers in Paraguay targeted without us operators. For all this, we must not operations more efficient. at future internet users. The project saw the forget that unlocking The Digital Lifestyle™ in Innovation deployment of 170 shipping containers, fully Latin America requires a consolidated effort Driving digital adoption requires an equipped with IT services and internet, to from all sectors; from the government and innovative approach. In El Salvador, for rural schools across the country. This has regulatory bodies to the private sector, digital example, we have launched the “All you can reached thousands of teachers and pupils, industry and society itself. App”. This is a totally new way of allowing who will form a new generation of digitally- mobile data consumption in a prepaid savvy users. environment. We know that our customers As an industry, we need to do more of this. don’t really “buy” or “value” megabytes or And do more to ensure responsible digital “bits”, so we have simply given them behavior through child online protection unlimited use of the App or Apps of their efforts. And do more on transparency in data choice, for a limited time and a fixed price. information – so that consumers increasingly This is both an innovative approach and trust our industry as the highway towards a innovative pricing. digital economy. Innovation helps drive digital demand by enhancing our consumers’ access to digital destinations. Latin America in figures KPI (’000) FY 2016 FY 2015 YOY change %1 Mobile customers 32,004 32,585 (1.8) Of which mobile data customers 13,719 12,038 14.0 Of which 4G customers 3,432 856 300.9 Total homes passed 8,119 7,632 6.4 HFC homes passed 7,152 6,375 12.2 Cable – HFC RGU 3,694 3,244 13.9 Financial FY 2016 FY 2015 YOY change %1 Mobile ARPU (US$) 8.3 9.2 (6.0) Mobile data ARPU (US$) 8.2 7.9 8.8 Residential cable ARPU (US$) 26.9 27.2 6.7 Total revenue (US$m) 5,352 5,740 (1.8) Service revenue (US$m) 4,966 5,237 (0.2) Of which Mobile data service revenue (US$m) 1,221 1,035 22.7 Of which cable service revenue (US$m) 1,572 1,578 7.4 EBITDA (US$m) 2,063 2,204 (2.2) EBITDA margin (%) 38.5 38.4 0.2pt OCF2 (US$m) 1,197 1,158 3.3 1 YOY change % represents organic growth. See Alternative Performance Measures (“APMs”) page 197. 2 Capex excludes spectrum and license costs. Millicom Annual Report 2016 47 Overview Strategy Performance Governance Financials Latin America performance review – continued In our largest market, Colombia, the Cable revenue also increased, as we Colombia economy has been sluggish in 2016, continued the roll-out of our network. whilst competition has intensified in the Customer connections included a substantial mobile market. Despite this, TigoUne has number of existing copper customers made solid progress. migrating to HFC as their homes were passed, as well as gaining new customers. We continued with our strong competitive position and strengthened our operational The growth in the number of double and efficiencies despite these more difficult triple-play customers continued, a market conditions. Our mobile data momentum fuelled by our partnership with Cable revenue increased leadership allowed us to partially offset the Netflix, offering content to customers on drop in mobile legacy service revenues and triple-play plans. as we maintained the the aggressive price competition in the Our B2B services support many of the pre-paid mobile market. roll-out of our network.” multinationals that use Colombia as their More than one-third of our customers in hub for the region. Colombia are now mobile data users thanks As a significant employer in the country, we to growing smartphone penetration, work with the Colombian government on a combined with innovative and effective range of digital and corporate responsibility mobile data offers. We have also seen strong initiatives, including digital inclusion and growth in our 4G customers and our network smart city projects. now covers more than half the entire population (47 million). FY 2016 FY 2015 YOY change %1 Mobile customers (’000) 7,764 8,926 (13.0) Total revenue (US$m) 1,717 1,982 (3.2) Service revenue (US$m) 1,580 1,776 (0.5) EBITDA (US$m) 461 545 (5.2) EBITDA margin (%) 26.9 27.5 (0.6pt) 1 YOY change % represents organic growth. See Alternative Performance Measures (“APMs”) page 197. Supplier capacity building To promote responsible business practice more widely and to protect our reputation, we demand that our suppliers apply the same high ethical standards in their operations as we do. Following initial assessments of responsible business management of strategic suppliers in Colombia with EcoVadis, TigoUne engaged in 2016 with two suppliers to develop detailed improvement plans to address some concerns raised in the assessment.