Strong VAS revenues offset by weak dollar for Millicom

millicomEmerging Markets focussed telecom operator Millicom International (Nasdaq:MICC) has  posted a 12% decrease in net profits of US$143mn in the third quarter of 2009 compared to US$161mn in the same quarter a year ago, the company said in a statement.

Overall revenues were up 7% to US$856mn compared to US$800mn a year ago. However, top line figures have been heavilyimpacted by the dollar exchange rate across all of it’s markets, resulting in a 9% negative translation impact, the company said.

EBITDA has  increased 13% to US$392mn year-on-year, while  margin was 45.8%, up 2.6% compared to Q3 as a result of cost control initiatives and strong growth in higher margin Value Added Services (VAS) revenues. In Central America, Millicom’s Tigo brand returned a margin of 55.2% and in South America the margin increased to 40.7%.

Speaking during a conference call with investors, Millicom‘s CEO Mikael Grahne said the company had seen a lower level of customer intake in Central America, reflecting high voice penetration and an increasing focus on higher value customers and Value Added Services.

For the group, VAS revenue was up an encouraging 46% in the quarter in local currency terms and represented 19% of recurring mobile revenues. Demand for 3G services remains high in Latin America, especially for datacard customers. Paraguay represented the best market overall for VAS, where it brought in 30% of mobile revenues. Grahne said that in the long term, the company is aiming to have VAS represent an average of 25% of revenues across all markets.

In Central America, Honduras grew its customer base 11% year-on-year despite the entry of a third operator Digicel in late 2008. Guatemala grew its customer base by 19% and El Salvador 10%. Net additions were lower in Central America resulting from a combination of high penetration, weaker economic conditions and an increased focus on high quality customers, the company said.

In South America, total customers increased by 17% year on year, with Bolivia surging 47%. In Colombia, the increase was 9% and in Paraguay 12%. Constant currency ARPU in South America was up 2%, while in Central America it fell 5%. This was mainly a result of lower ARPU in Honduras, which was negatively affected by a new regulatory tax on international inbound traffic and continued promotional activity by competitors.

Grahne said that capex for 2010 would be US$700mn, US$50mn of which is held over from 2009. Though not giving a break down, Grahne said that capex in Central and South America would increase in 2010 as the company steps up investment in 3G capacity and coverage.

Millicom’s internet and TV assets that it purchased last year, Amnet and Navega, saw a sequential decline in EBITDA margins to 43% from 45% of revenues in Q2, which Grahne attributed to restructuring changes since the acquisition, but forecast that the margin would rise over time. Millicom also expects capex for Amnet to be lower in the medium term as the company focuses on increasing customer penetration with its existing footprint, rather than extending coverage.

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