Demand more. Millicom International Cellular S.A. Annual Report 2012 Contents Millicom Annual Report 2012 Home Overview Overview 01 Introduction to Millicom Review of 02 Group highlights Operations Corporate 04 Demand more governance Financial 05 Our vision statements Other 06 How we are organized information 11 Our chosen markets Print All 12 Chairman’s statement This section 14 Chief Executive Officer’s statement This page 16 Our strategy 17 Our business model Review of operations 18 Operating review – Central America 22 Operating review – South America 26 Operating review – Africa 30 Financial review 36 Corporate responsibility 39 Risk management Corporate governance 51 Corporate governance 53 Board of Directors 56 Board of Directors – Board Committees 57 Executive Committee 60 Director’s Report Financial statements 63 Independent Auditors’ report 64 Consolidated income statements 65 Consolidated statements of comprehensive income 65 Consolidated statements of financial position 67 Consolidated statements of cash flows 68 Consolidated statements of changes in equity 70 Notes to the consolidated financial statements Other information 118 Contact details 01 Introduction to Millicom Millicom Annual Report 2012 Home Overview Millicom is a leading Review of Operations Corporate governance telecoms operator Financial statements dedicated to emerging markets Other information Print Millicom offers digital lifestyle products and services in Central America, South America and Africa, mainly All under our Tigo brand, derived from the Spanish word ‘contigo’ meaning ‘with you’. We help tens of millions This section of people stay connected on the go through their mobile devices and from home through cable. This page Millicom’s origins can be traced back to the early days of the cellular industry. In 1979, Industriförvaltnings AB Kinnevik acquired a small mobile telephone company in Sweden, that later became Comviq GSM, and subsequently Tele2. Also in 1979, a company called ‘Millicom Incorporated’ was formed to pursue cellular telephone opportunities in America. In 1990, the two companies contributed their respective international cellular interests to form Millicom International Cellular (Millicom). Thereafter, Millicom continued to seek cellular licenses in markets where rapid economic development and limited telephony infrastructure created significant demand for mobile services. Its strategy of being a cost efficient provider, focused on prepaid services using mass market distribution methods enabled it to obtain high growth while delivering attractive operating profitability. As mobile penetration and competition in emerging markets increased, Millicom continuously innovated, developing Value-Added Services to extend its consumer offering beyond basic communication services. In 2008, it acquired the leading provider of broadband and cable TV services in Central America (‘Amnet’) and in 2012 extended its home offering to Paraguay with the acquisition of Cablevision Paraguay. Today, Millicom offers products and services from mobile voice to pay TV, fixed and mobile internet access, mobile health and mobile financial services in 16 emerging markets across Latin America and Africa. In 2012, together with proven experts in the online world, the Group invested to develop a franchise in e-commerce and other online products and services in Latin America and Africa. In 2013 the Group will accelerate to realize its vision of transforming into a leading telecommunication and media company, dedicated to emerging markets in Latin America and Africa, with the ambition to offer our customers the very best digital lifestyle. Digital lifestyle means we provide our customers with the entertainment and communication products they need, irrespective of where or how they chose to access them, as well as access to e-commerce. 02 Group highlights Millicom Annual Report 2012 Home Overview Financial and Operational highlights 2012 Review of Operations Corporate governance Revenue US$m Revenue growth % Financial +6.3% growth statements US$4,814m US$bn Other information 5.0 2012 4,814 +6.3% +15.5% 2011 4,530 4.0 +16.2% Print +7.1% 2010 3,920 3.0 +29.7% All 2009 3,373 2.0 This section 2008 3,151 1.0 This page 0 2008 2009 2010 2011 2012 EBITDA US$m US$2,065m 42.9% EBITDA margin 2012 2,065 2012 42.9% 2011 2,087 2011 46.1% 2010 1,841 2010 47.0% 2009 1,545 2009 45.8% 2008 1,366 2008 43.4% Capex US$m US$1,120m 23.3% Capex to revenues ratio 2012 1,120 2012 23.3% 2011 848 2011 18.7% 2010 731 2010 18.6% 2009 737 2009 21.9% 2008 1,277 2008 40.5% 03 Group highlights continued Millicom Annual Report 2012 Home Overview Financial and Operational highlights 2012 continued Review of Local currency revenue growth of 8.0% to $4,814 million Operations $4,814m (8.7% excluding regulatory impact) (2011: $4,350m) Corporate governance Financial EBITDA of $2,065 million and EBITDA margin of 42.9% statements $2,065m (43.2% excluding Online) (2011: $2,087m) Other information Capex of $1,120 million $1,120m Print (23.3% of revenue, 19.1% excluding spectrum and licenses) (2011: $848m) All This section Operating Free Cash Flow of $1,127 million This page $1,127m (23.4% of revenue) excluding spectrum and licenses (2011: $1,218m) Mobile Data penetration reached over 17% in Latin America and over 13% for the Group 17% Mobile Financial Services active subscribers’ exceeded 4 million in the last quarter of the year 4m First investment in Online through partnership with Rocket Internet €85m Share price performance 200 150 150 100 50 0 2009 2010 2011 2012 MSCI Emerging Markets Millicom MSCI Europe Telecom Services 04 DemandHeading more Millicom Annual Report 2012 Home Overview Review of Our ethos is to continually Operations Corporate governance Financial statements ‘Demand more’. Other information Print All This section Millicom sets the pace when it comes to This page providing digital lifestyle services to many of the world’s emerging markets. It is a pace driven by our vision to see opportunities that others do not; a determination to get there first, and an appreciation that only constant innovation and consolidation will keep you on top. It is fuelled by an ethos of ‘Demand more’. The markets we are creating are themselves demanding more of us and we must respond. We demand more to ensure we delight our customers at every turn. We demand more to create a culture within Millicom which is truly energizing. We demand more to create greater and greater shareholder value. We demand more to strengthen our position as digital lifestyle leaders. Demanding more maintains our relentless pace. It helps us to constantly challenge the norm, turn heads and confound expectations. It helps us reach for the stars. It keeps us grounded. It makes us Millicom. 05 Our vision Millicom Annual Report 2012 Home Overview Review of Operations Corporate governance Financial statements Other information Print All This section This page Telecommunications and media are changing and so is Millicom. We are transforming Tigo from a telecommunications operator to a digital lifestyle brand by becoming an integral part of our customers’ everyday lives. We will continue to see opportunities where others do not and realize potential through determination and continuous innovation. We are and will remain an entrepreneurial company with an agile culture focusing on our customers’ needs. 06 How we are organized Millicom Annual Report 2012 Home Overview Our organization is focused on Review of Operations Corporate governance four core areas Financial statements of innovation and growth Other information Print All This section This page Mobile Cable Millicom offers mobile services Millicom is one of the leading in 13 markets in Central fixed broadband and pay TV America, South America and service providers in its Latin Africa under the Tigo brand. American markets. Read more Read more Mobile Financial Commerce and Services Services By the end of 2012 Millicom In 2012, Millicom invested in two offered Mobile Financial Services subsidiaries of Rocket Internet (MFS) in most of its mobile (a German private company markets in Latin America and specializing in online services) – Africa, where the vast majority Latin America Internet Holdings of the populations have no other (LIH) and Africa Internet access to banking services. Holdings (AIH). Read more Read more 07 How we are organized continued Millicom Annual Report 2012 Home Overview Review of Operations Corporate governance Financial Mobile statements Other What we provide information Print Millicom offers mobile services in 13 markets All in Central America, South America and Africa This section under the Tigo brand. These services consist This page of traditional voice and SMS products and increasingly of mobile data and other value added services (VAS). At December 31, 2012 we owned 3G licenses in all our markets, except Back Chad, and our mobile customer base was over To our four core areas 47 million across our three regions. Tigo is a leading provider of mobile services in 90% of our markets, either number one or number two in market share based on subscriber numbers. 08 How we are organized continued Millicom Annual Report 2012 Home Overview Review of Operations Corporate governance Financial Cable statements Other What we provide information Print Millicom is one of the leading fixed broadband All and pay TV service providers in its Latin This section American markets. We offer different bundles This page of services to our customers, combining fixed internet and voice with cable TV. After entering the cable business in 2008, we have grown our business both organically and through bolt-on Back acquisitions, notably in Guatemala. In 2012, To our four core areas we acquired Cablevision in Paraguay, the leading pay TV and fixed broadband operator in Asunción. We are able to extract significant synergies in our combined mobile and cable businesses, for example by cross-selling and bundling services and leveraging our strong brand.