Millicom International Cellular SA (TIGO) Q3 2020 Earnings Call Transcript


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Millicom International Cellular SA (NASDAQ:TIGO)
Q3 2020 Earnings Call
Oct 30, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Millicom third-quarter 2020 results conference call. [Operator instructions] As a reminder, this conference call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr.

Michel Morin. Thank you. Sir, please begin.

Michel MorinVice President, Investor Relations

Thank you, Howard, and good morning, everyone. Welcome to our third-quarter 2020 results call. As usual, we’re going to be making some references to some slides, which are available on our website. So to begin, please start on Slide 2 for our safe harbor disclosure.

And as usual, we will be making forward-looking statements, which obviously involve risks and uncertainties and which could have a material impact on our results. And then on Slide 3, we define the non-IFRS metrics that we will be referring to throughout the presentation, and you can find reconciliation tables in the back of our earnings release as well as on our website. So with those disclaimers out of the way, let me turn the call over to our CEO, Mauricio Ramos. Mauricio?

Mauricio RamosChief Executive Officer

Thank you, Michel. Good morning, and good afternoon, everyone. I do hope that you and your loved ones are all staying safe and in good health. As you know, at Millicom, throughout the pandemic, we chose to stay fully committed to our long-term purpose, as you can see on Slide 5.

This purpose is well-known by you and by each one of our 23,000 employees. And it means that throughout this pandemic, we have, one, kept our employees safe, engaged, motivated and productive; and two, we have kept our communities connected precisely because of the commitment from all our employees. Those in the front line and those in the back offices, thank you, if you’re listening to this call. And our service means that we have been up and running without hold 24/7 every day because of this commitment from our employees.

And because of our rapid deployment of our LILAK product, we have kept every single one of our users connected during the pandemic, and we’re proud of this. Because of this, you will see that our paying customers are coming back and the Tigo brand is emerging out of this crisis strengthened and more relevant to our communities. Please turn to Slide 6 for the key points of our call today. One, we had record customer net adds during the quarter, both in mobile and in cable.

Our COVID reaction plan has successfully protected our user base on our market leadership position. Two, this user growth, particularly mobile, helped drive strong revenue and EBITDA growth in Q3 sequentially from Q2. That said, we still have a long way to go to get back to pre-COVID levels, but the trends during Q3 were positively strong. Three, cash flow generation was also strong in the quarter.

As a result, our plan to protect operating cash flow for the year is on track, and we further reduced net debt during the quarter. And four and most importantly, even if we prudently held back some capex during the pandemic, we also continue to invest strategically and for the long term, positioning ourselves well to bounce back rapidly when this crisis ends. Let’s look at some details point by point, starting with Slide 7. In mobile, we added a record 1.7 million users in the quarter.

This is a very strong comeback. And we’re now back to the same mobile user base we had at the end of March when the lockdowns were put in place in our market. Our prepaid business came back particularly strong. Prepaid is indeed the main driver behind our strong revenue growth comeback in Q3.

Simply said, when users left their homes, the first thing they did was turn on their mobile phones. As you know, we chose a different commercial and distribution and service layers on the street, precisely so that we could come back quickly and strong as we’re doing now. We also had solid net adds on postpaid for the quarter with a net gain of about 140,000 customers. But note that we’re still down about 350,000 postpaid users compared to pre-COVID levels.

Many of these postpaid customers actually cautiously moved to prepaid. Thus, we do expect that it will take a few more quarters for us to reactivate the subscribers back up to postpaid. We also had record net adds in our home business this quarter. We added a record 157,000 customers in the quarter.

Our subscriber count is now about 62,000 higher than it was at the end of Q1. In fact, if you look at our HFC customers, we have almost 100,000 more customers today than we did at the end of March. This strong performance is coming, firstly, from strong demand for broadband, which is bringing us new customers; and secondly, from our early decision to offer a lifetime product for minimum for this basis. This product has allowed us to keep our promise to provide connectivity to our community, retain a good relationship and an overall relationship with our customers, avoid very expensive disconnection and reconnection costs during the pandemic and after the pandemic, keep our real churn levels down and protect our cash flows.

This was also the right thing to do for our customers and for our communities in this time of need, and our brand is continuing and will continue to benefit further from this in the long term. Now, please turn to Slide 8. These record net adds produced a 4% uptick in service revenue in Q3 compared to Q2. Again, we are still well below pre-COVID levels in terms of revenue and much improvement is still ahead of us.

But the comeback in Q3 was strong, adding about $50 million of revenue and growing. We have also been keeping a very tight control on costs. As a result, almost all of that incremental revenue is dropping to the EBITDA line, which grew 7% in Q3 compared to Q2. I want to be extra clear.

Much is still uncertain and the news over the last couple of weeks certainly highlight that, but we did see the business begin to come back in Q3. Now, please turn to Slide 9 for a closer look at our organic service revenue growth and what is behind it in this quarter. Message one, on the left-hand side of the page, is that the improvement in this quarter was broad-based. Every one of our markets showed a solid improvement in year-on-year growth in Q3 compared to Q2.

On the right-hand side of the page is the key and second message. This improved performance came entirely from our mobile business. From prepaid, in particular, as already mentioned. Growth in Home remains strongly resilient in Q3, slightly positive and about the same as Q2.

But as you know, in our cable subscription business, revenue follows the user base. So our increased subscriber base in the quarter gives confidence that we will see growth in the home business reaccelerate going forward. B2B, on the other hand, and as we expected, is still challenging with revenue down 8.5%. The weak economies in our markets are taking a toll on many of our SME customers, many have had to shut down either temporarily or permanently.

So no B2B recoveries in the numbers of this quarter. That recovery is still to happen, still to begin, and we expect this recovery will take some time to come through. In short, on this slide, Q3 showed a strong comeback and a resilient business, but not all of our business lines are recuperating just yet, and there’s still a lot of uncertainty for us going forward. And that is precisely why we remain so very focused on cash flow and on reducing leverage, as you can see on Slide 10.

Over six months ago, we implemented our COVID action plan, which you know very well. We set a hard target to keep operating cash flow, EBITDA and minus capex, flat at around $1.4 billion. This slide simply shows you that we are right on track and that we are confident that we will deliver on that goal. We also told you that we would prioritize net debt reduction.

That is the second point on this slide on the right. We have now brought net debt down by $240 million since Q1, and we will sustain this focus going forward. Now, I would also like to give you some color on our key countries, starting with Guatemala on Slide 11. Guatemala continues to perform very well.

It is a stable rational prepaid market in which we hold a strong market position. We also continue to invest to maintain market leadership to sustain the growth. As you know, the government of Guatemala did not lockdown the country as quickly as some other countries did. And that is one of the reasons why the impact on our future numbers was limited, and is also why in Q3 service revenue growth has gone back to positive.

Throughout the year, we have continued to invest in both our Mobile and our fixed network and to drive efficiencies and digital adoption. In Mobile, we added over 300,000 users to our base in the quarter. Our base is now about 200,000 users higher than it was pre-COVID. Demand for residential cable has also continued to grow throughout the pandemic.

We added 36,000 new customers in Q3, twice the number of net adds we added in Q2. Now let’s go to Slide 12 for a look at Panama. At the macro level, Panama is the wealthiest country in Central America and one of the reasons we’re investing so confidently in Panama. But the toll of the pandemic in Panama has been among the hardest with its lockdown being one of the most severe and its GDP expected to control — contract almost 10% this year.

Against this very challenging backdrop, we have continued to execute on our game plan. Integrating the acquisitions, extracting synergies, protecting our market leadership on fixed and expanding on mobile, and we are extremely, extremely pleased with our underlying operating results. The subscriber counts tell the story impressively well. In home, we have continued to see solid and consistent growth in our broadband Internet subscriber base.

We’re solidly holding our market share position and leadership on fixed, and then a little bit more. In mobile, we have now celebrated the one-year anniversary of our acquisition announcement. We have modernized the network, rebranded the business and extended our market leadership. Indeed, our customer base has expanded on mobile by about 5% over the past year, reflecting a strong bounce back in Q3 as we currently began to reopen, and we’re also picking up new customers from cross-selling mobile services to our cable customers.

As you recall, this was precisely the cross-selling opportunity that our acquisition plan identified and was predicated on. And the [inaudible] in Panama is double — dollar-denominated and cash flow is seen to be robust. We have generated $160 million of operating income over the past yea we have incurred some migration costs and taking a COVID hit, which we have not foreseen. This is most visible in our B2B business in Panama, which has been very hard hit at the beginning of the pandemic.

Indeed B2B is the only area in the group that did not recover in Q3 compared to Q2. So all in all, we’re now firing on all cylinders in Panama. We’re very pleased with the underlying performance there, particularly in the B2B segment. Colombia.

Let’s look at Colombia on Slide 13. We are regaining some good discovery momentum in Colombia as well. On the mobile side, we expanded or upgraded our network by more than 1,000 sites of network to the 700-megahertz projector [inaudible] this year. Remember that we’re now the largest holder of 700 megahertz projector in Colombia, which gives us better penetration in the area where we’re previously on in the hybrid spectrum.

And it is also helping expand coverage and [inaudible] we saw in geographic areas in which we have the coverage. You can see that we peaked at about 450,000 mobile customers in Q3. Some of this is related to increased mobility, for sure. But our gross adds and our EPS scores are high in the areas where we have redeployed the network, which is a very promising sign.

In home, in Colombia, we continue to expand our high cable network, adding about 6,000 home passengers in a quarter. This is a bit less than usual, but very consistent with our tactical delay in network throughout during COVID, so that we’ll be focused on filling the existing network for a better return to capital and more cash flow liquidity this year. And that is exactly what we did. We added in Colombia more than 80,000 fiber cable customers this quarter, driving network penetration higher, helping us with cash flow this year, and particularly in [inaudible] help bring capability in Colombia.

This strong user base in Colombia is a [inaudible] in the last section of the presentation, focusing on the long term investment we continue to make beginning on Slide 14. The growth in our fixed broadband business is a key driver of long-term shareholder value creation for our business. Let me say that differently. We are in the business of creating shareholder value by increasingly generating long-term valuable customer relationships.

That’s what cable is all about. Year to date, we have built an additional 300,000 fiber cable home passage that’s here today. This is lower than our typical run rate of about a million per year, simply because during the pandemic, we shifted our focus to filling our existing network, and I’ll just show you the positive results for Colombia. For the whole region, the results are equally positive.

Year to date, we have added about 174,000 new fiber cable customer relationships. About half of those in Colombia, and the rest split between Bolivia, Panama and Guatemala. That’s year to date, 174,000 new fiber cable customer relationships, a net positive year to date. Interestingly, we increased the installation fees during this quarter aiming to minimize churn down the road, avoid bad debt and hopefully drive better industry practice for the long run.

Our focus this year on increased network penetration, which is up significantly year to date, is helping us drive better operating leverage, cash flow and return on capital. Now, going forward, as governments do continue to open up their economies, we will gradually ramp back our home build back up again as broadband demands continues to stay strong. And we will, of course, continue to keep an eye on our network penetration rates. And in mobile, you can see on Slide 15 that we continue to move forward with the very strategic investments we have been making to upgrade our mobile networks.

We have added over 1,100 points of presence this year, mostly in Colombia. And we have upgraded 4,000 sites in the four countries where we have been deploying new spectrum holdings or modernizing networks. This network on base expand both coverage and capacity and improve both user experience and operating efficiencies. In Colombia, as you saw, this is already a key to improving our competitive positioning.

So our investments this year have centered a more focused cable fiber network rollout and in the mobile network expansion of modernization that I just talked about. There are two other areas where we have been focusing significantly. One is Tigo Money and the other one is our digital roadmap. Let’s talk about Tigo Money first on Slide 16.

We have been, very quietly, building our mobile unit money user base. We now have about 5 million active Tigo Money users in Latin America. That’s up about 20% over the past year, and yet, only a fraction of our overall mobile user base. Usage is increasing dramatically.

The number of financial transactions with Tigo Money has more than doubled over the past year. And so have the volumes that the platform is now transacting. Tigo Money is now transacting well over $2.5 billion annually. Our Tigo Money platform is now broadly providing a simple value-added service for our customers to gradually becoming a business in America with high potential for us.

And of course, we look forward to updating you on our strategic progress on Tigo Money in Latin America in the coming quarters. And lastly, we have continued to invest and look significantly forward in digital adoption. You can see the progress on Slide 17. Simply said, the pandemic has forced many of our customers to embrace the use of digital tools and channels.

Our digital readiness allowed us to respond accordingly. Just in the six months since the beginning of the pandemic, digital collections are up 50%, e-sales are up more than 80%, and digital prepaid reloads are up 60%. We have also repurposed our corporate responsibility programs to better support our communities digitally during the time of need. Our Maestras Conectadas program, which means connected teachers, was initially rolled out in Bolivia, where we trained 140,000 teachers on use of state-of-the-art online educational tools during the pandemic.

The program was so successful that we have expanded it to Guatemala, Nicaragua and Paraguay, and we’re looking to expand the program to all our operations in 2021. This program is an additional source of pride for many at Tigo who are personally involved with the program. And a part of this Sangre Tigo culture that you have heard me talk about before and you will continue to hear me talk about in the future. Now, let me turn the call over to Tim to over the financials for the quarter.

Tim Lincoln PenningtonChief Financial Officer and Senior Executive Vice President

Thank you, Mauricio. So I’m going to start on Slide 19 with the bridge between our reported numbers and the LatAm segment. From the top of the chart, you can see our reported revenues were just over $1 billion. But when you look at the business holistically, and that’s including Guatemala and Honduras as if fully consolidated, our underlying revenue was just over $1.5 billion.

To get to the underlying LatAm service revenue of $1.3 billion, we exclude Africa, which now is a little over 6% of our revenues, and telephone equipment sales, which are not an important driver of our profitability. So on Slide 20, you can see that LatAm service revenue fell by 3.1% on an organic basis compared to Q3 last year. We’ll look at that in a bit more detail on the next slide. EBITDA was down 5.6% organically.

But again, as Mauricio highlighted, it was up on a sequential basis compared to Q2 on better service revenue and lower bad debt. And our operating cash flow, which is EBITDA minus CapEx, was a little down. But on a year-to-date basis, almost exactly in line with last year and on track to meet our target for the year. So on Slide 21, you can see that while our service revenue fell by 4.7% in real terms and 3.1% organically, it was better than the Q2 as we saw improvement in economic activity and in our businesses across most markets, again, as Mauricio pointed out.

Mainly driven by the improvement in mobile B2C, which declined by 4.3%, and that is considerably better than the 11% drop we saw in Q2. Again, Mauricio explained, this was largely as a result of the prepaid business rebounding, reflecting the easing of lockdowns primarily. Our home business continues to show year-on-year growth, again, broadly in line with what we saw in Q2. And B2B also in line with Q2, down 8.5%, where we’re seeing weakness in the small- and medium-sized enterprise sectors.

On Slide 22, and again, as Mauricio has highlighted, we’ve seen an improvement in all operations compared to last quarter. But we are still down in most operations with the exception of Guatemala, and we are still below pre-COVID levels. And the relatively stronger performance in Guatemala, it was up 3.9% organically, is driven by an improvement in prepaid and the continuing strength of the home business. Colombia, where we were broadly flat organically with a good performance in home, offset by mobile and B2B.

And in mobile, it was better than it looked. Last year in Q3, we were still booking Avantel revenue, prior to that company filing for bankruptcy. This is the last quarter where this will be a factor. So in dollar terms also, we reported revenues of 11.4% down in the quarter.

And again, this is entirely due to FX. We are also facing FX headwinds with Paraguay, where reported service revenue was down 15.2%. Excluding the FX impact and the one-offs we saw in the last year numbers, our service revenue was down just under 2%. This is a significant improvement compared to the last quarters.

So on Slide 23, we’ve got the LatAm EBITDA by country. Again, we have seen sequential improvement with cost-saving measures benefiting most markets. Guatemala continues to lead the way with 3.2% year-on-year growth, while elsewhere, the picture largely reflects the revenue impacts discussed in previous slides. Now I want to turn to the balance sheet on Slide 24.

And you will have seen that we have been very active. Specifically, we have called the Comcel bond in Guatemala. That was our most expensive financing. We will refinance that with a combination of local currency bank loans, existing cash resources and some shareholder loans.

We have also taken advantage of favorable market conditions to issue new bonds maturing in 2031, and this will replace an existing bond that matures in 2025. Now, the impact of these and other measures lead to where our average maturity is now 6.4 years. The average cost of debt is 5.7%. And you can see from the slide that we really have very little in the way of refinancings before 2024.

I’ll finish off on Slide 25, looking at our current debt and leverage position. Again, aligned with our strategy of preserving cash and paying down, we’ve reduced our underlying debt by $239 million in the last six months. So our underlying debt — net debt is now at $5.7 billion, giving us proportional leverage of 3.16 times. And when leases are added to our financial — to our net financial obligations, these are now a shade under $7 billion and the proportional leverage including leases at 3.29 times.

And with that, I’d like to hand back to Mauricio to wrap up.

Mauricio RamosChief Executive Officer

Thank you, Tim. Before we take your questions, let me wrap up with a recap of key messages. First, our customer base is growing again. In mobile prepaid, we are at pre-COVID levels.

Postpaid, we still have some work to do. And in home, we’ve continued to grow through and despite the pandemic. We expect that today’s user growth will drive tomorrow’s revenue growth, and that’s the key moment in our Q3 numbers. Second, revenue and EBITDA improved in Q3 compared to Q2.

We still have a way to go before we get to positive year-on-year growth. And we know this pandemic is far from over, but we are getting back on track and we remain positive, yet very cautious. Third, we have made a priority during the pandemic to protect our cash flow and to reduce the net debt. You know that.

We’re well on track to deliver the $1.4 billion of operating cash flow that we guided toward, and we continue to reduce net debt in the quarter. And fourth, we continue investing. We’re doing so in the areas that are aligned with our long-term strategy and in ways that position us to bounce back strong, better than ever after the pandemic passes. And you can already see that starting to happen in our Q3 results, and we’re all doing these things with a clear sense of purpose.

And with that, we’re ready for your questions.

Questions & Answers:

Operator

[Operator instructions] Our first question or comment comes from the line of Stefan Gauffin from DNB Bank. Your line is open.

Stefan GauffinDNB Bank — Analyst

Yes, hello. A couple of questions, please. First, included in your target to keep operating cash flow stable was to cut costs with at least 100 million and to cut capex with 200 to 300 million. So far, you have only cut capex with 75 million year to date.

And with the current improved development, are you still aiming to cut capex to this extent or have you changed that target? If you cut capex to that extent, the operating cash flow target do seem conservative? Secondly, next year, you have increased competition in Colombia with one likely to launch. How are you preparing for this increased competition? Are you looking more toward converged offerings in that market? Or any other flavor that you can give there would be appreciated.

Mauricio RamosChief Executive Officer

Thank you, Stefan. Great questions. I wish we had a couple of hours to address them both. Let’s start with the first one.

I think jointly, Tim and I, can do a good job of that. I’ll start off generically what’s happening. We’re managing the business to that 1.4 on literally a weekly basis. And when we see that we have room to put a little bit more capex into the business while still delivering 1.4, we go ahead and do it, particularly if we see that broadband demand is happening quite strongly as we see it happening.

So we’re actually have in our hands what I call a good kind of problem, which is we can put a little bit more in capex into the business this year, try to position ourselves better for when the pandemic is over and still deliver the 1.4, that’s what we’ve been doing. And we’ve been able to do that because we’ve been so strict on cost cuts significantly. And because this is the most important plan — or part of our plan, Stefan, the way we decide our COVID plan, we decided with the knowledge that we as a company, and we act one way or the other as pretty quickly, i.e., we can slow down pretty quickly, we can ramp up pretty quickly, which means we can keep a pause on what’s happening in the markets. And that’s exactly what we’re doing.

We’re cutting back on costs significantly, but we remain the ability to ramp up gradually if we need to. And as a result of that, we’re pretty confident we’re going to get that 1.4 and be able to invest into the business anything that’s over that. With that, I’ll hand it over to Tim for more details, if you have any?

Tim Lincoln PenningtonChief Financial Officer and Senior Executive Vice President

Yes. I would only add one quick one. Our cost — I think, as Mauricio has said, our costs are running a lot lower than we had anticipated at the time. They’re probably down just over $170 million in the last six months.

Some of that is activity-related, some of it is FX. But a lot of it is also management. And as Mauricio said, if we can find excess savings on the cost side, then clearly, we want to invest and continue to invest in the business, provided we can deliver that 1.4 of operating cash flow. Back to you, Mauricio.

Mauricio RamosChief Executive Officer

Yes. Perfect. So on the second, Stefan, I think you’ve seen us for the course of this year, really put focus on our ability to drive a better business in Colombia. And that’s really the overall answer to your question.

I’ll go into detail in a minute. But over the last — all throughout the pandemic, we’ve been building the 700 megahertz network. We just showed you the numbers. As of today, it’s actually much more than 1,000.

It’s closer to 1,200 as we speak today, the number of additional sites, which give us indoor coverage, it gives us expanded geographical preference, and it gives us a better user experience, which is already significant. Just last week we were labeled the best-performing 4G network in Colombia by Tutela. And this has been made public in Colombia, also increased our commercial distribution network significantly. So in Colombia, because now we have more points of presence and that does not mean network, but it also means commercial.

So we’re really focused on the opportunity, and this is the key point I want to make to you, Stefan, that for the first time, in many, many years, because we popped this spectrum and we’re putting it to use with the network investment and the commercial distribution investment behind it, we can play the true role of a challenger in this marketplace with the tools to succeed. We only have 15% market share on mobile in Colombia. 15% market share. Yet today, we have a very, very strong fixed base and it’s growing.

We have a brand that works. And we’re investing in the network and the distribution, which effectively means we can now play as a challenger with all the tools, fixed and mobile, and you’re right, convergence is a really important part of this deal. And we also have the frequency and the spectrum to play with and all the tools with only 15% mobile market share, which effectively means, in our minds, we’re ready now to be a challenger in mobile. Now the last thing I would make to you — the last point I would make to you is, yes, we’re preparing for the opportunity to be a challenger in the new competitive environment in Colombia, which, by the way, remains a core player market as it has been for the last 10 or 15 years because one is effectively replacing the position that Avantel had.

So with fixed mobile convergence, with the investment we are putting into the network and a mindset that we can be a challenger with only 15% mobile market share, we actually feel like in Colombia, we have the tools that we never had in the past.

Stefan GauffinDNB Bank — Analyst

OK. Thank you. That was reassuring.

Mauricio RamosChief Executive Officer

Absolutely. We’re focused.

Operator

Thank you. Our next question or comment comes from the line of Marcelo Santos from JP Morgan. Your line is open.

Marcelo SantosJ.P. Morgan — Analyst

Hi. Good morning, Thanks for taking my question. the first question is about the sequential improvement in Bolivian EBITDA, which was pretty strong. I just wonder if you could comment a bit on that.

And the second question is about the lifeline clients. Do you still have a large base on lifeline? I mean, excluding — or is it most concentrated in El Salvador? Do we have potential to see this coming back in the following quarters besides El Salvador?

Mauricio RamosChief Executive Officer

Yes. So on Bolivia, we were happy to see in, Marcelo, the business not only stabilize in Q3, but also come back strongly to growth. And I think we had strong net adds on mobile and very strong net adds on home mobile, very strong quarter in Bolivia. A lot of that was a result of the strong comeback from the difficulties we have put it in place the pipeline product in Bolivia during Q2, and we were able to put that in place at the end of Q2.

So Q3 show a strong comeback. But we’re also beginning to see, and this is important. We’re also going to see Bolivia stabilize much more than it has for the last 18 to 24 months. And this is, I think, the key point on Bolivia going forward.

We had political uncertainty in Bolivia and then we have the pandemic in Bolivia. The elections last week are helping provide a clear path toward certainty in Bolivia. There was a clear winner in the third round with a clear mandate from the population. And as a result of that, the social unrest and the political stability in Bolivia seems to be coming back.

And the head of the new government, the new President, as you know, is a former economy minister and a central banker. So I think his position is helping provide stability on economic terms as well. And I think that’s exactly what Bolivia needed, quite honestly. So we’re hopeful that there’s going to be renewed stability in Bolivia.

Now on the lifeline customers, which I think is a good point. Yeah — go on.

Tim Lincoln PenningtonChief Financial Officer and Senior Executive Vice President

Yes. I was only going to make one technical point, and I think it comes into your lifeline products. Because we introduced lifeline very late in Bolivia, it meant we took a very high bad debt charge in Q2. So a lot of the impact was lower bad debt charges.

We’ve moved to normalized bad debt levels in Bolivia and, in fact, in most countries. So I view the outlier as the Q2 EBITDA rather than where we are today.

Mauricio RamosChief Executive Officer

Yes. Thank you, Tim. That’s very, very helpful. So I’ll make two or three points, Marcelo, on the lifeline customers.

I think the first two are generic, if you will. This has turned out to be a very good tool for us, not only through the pandemic but a tool that we think has merit going forward. And we will continue to use it going forward for the exact same reasons that it was helpful during the pandemic, which I already alluded to, I’m not going to repeat them. It is a helpful tool for us to keep going forward, And you can imagine why.

It has started paving a way for us to manage retention and churn and the relationship with the customer in a most cost-effective and cash flow-accretive way for us. If you recall, we don’t count any of these subscribers, this lifeline of minimum subscribers in the subscriber count that we report to you. So there are a pool that sits outside our subscriber counts. We also don’t book any revenue from the lifeline subscribers.

So we’ve really also kept our financials relatively clean. But that effectively means, Marcelo, that you can think of this as a dormant pool. That we keep at lower levels, of course, now during the pandemic, but that we’re using to bring back subscribers. And you’ve seen during Q3, and we brought back a ton of those, but most importantly, we’ve added a ton of new customers to the base because we’re at higher levels than we were before.

As a result of that, this is a good tool, and most importantly, something that we continue to use going forward. I hope that helps you a lot.

Marcelo SantosJ.P. Morgan — Analyst

Thanks. That’s very helpful. Thank you very much for the answers.

Operator

Thank you. Our next question or comment comes from the line of Peter Nielsen from ABG. Your line is open.

Peter NielsenABG Sundal Collier — Analyst

Thank you very much. Yes, just two quick ones. Firstly, you have on previous calls sort of flagged the sort of post-COVID challenges, which your markets will face. You’re now seeing, as you said, you see a good recovery in Q3.

So just could you give us any qualitative indications on how you see the coming quarters? Will the sequential improvement in service revenue trend continue? Do you perhaps a bit more optimistic of stabilization for next year? Or are you still sort of equally cautious as you have been in previous quarters? And then just a quick one for Tim. Tim, your interesting comments about investing anything above the 1.4 billion. I guess we should interpret that that you will come in at the 1.4 billion operating free cash flow this year and not above as you will continue to invest in capex. Is that correctly understood? Thank you.

Mauricio RamosChief Executive Officer

Yes. We’ll get to those. Tim, you can start working on the 1.4. On the first one, on the COVID one, there’s actually two pieces, Peter, and they’re a really, really good question.

One is, what is the outlook for COVID in our market, and as a result of that, what is our outlook more generally? And they’re somewhat distinct but very interrelated. So what happened during Q3 of this year is that our economies began to slowly open up, and that caused increased mobility across our countries. The lockdowns have been gradually been eased. I should say that they have been eased, but they have not totally disappeared.

And mobility is not yet at 100% of what it was before the pre-COVID levels. We estimate, depending on any given country, that it’s somewhere between 60 and 80% of what it was. So there’s still some COVID recuperation still to happen in our markets despite the strong prepaid results that you saw during Q3. Now, with regards to the virus in our markets, it’s still spreading.

Largely stable in most of our markets. As of today, and we usually look at this, obviously, on a daily basis, we’re not seeing any second wave coming back into our markets. It does not mean that it’s not possible, but we’re not seeing a resurgence or coming of a second wave in the numbers, at least yet. Now more importantly, going forward, and this is important to our assessment on how to assess the outlook going forward.

The key element for us is that the recipe of a lockdown in our market, which was used very, very severely and for a lengthy period of time, we’ve made this point over and over, it’s a recipe that going forward, I’ll say this, our view is that they won’t have political support or fiscal maneuvering room being cemented in such a harsh or severe manner going forward. We don’t expect, even if there’s a second wave, and we don’t see it at this point, but we don’t know. We certainly don’t know. We don’t expect that the lockdowns can be put in place or will be put in place in such a hard manner as the way before.

And I think the recipe in our countries will now err on the side of keeping the economies open and the recipes will have a lot more of economic predominance than anything else. Now, having said that, what we have learned during this pandemic is that things can change very quickly and in a very uncertain manner. And I’ll tell you this because I think it’s important for everybody to understand. Our Q3 was better than our Q2 in every country.

We already said that. Driven mostly by prepaid. Prepaid came back strongly, but postpaid and B2B are still to recover, and how strongly and when they recover is a function of the macro recovery. It’s a function of how bad the damage was and a function of how long the health crisis stays on even if there are no further lockdowns in their countries.

And although every month this past quarter, actually the last six months, has been a bit better than the previous month, it has been very gradual. And therefore, we remain very cautious going forward. We do have a more positive outlook for 2021 than we do for 2020, we surely do. But we also had a very cautious approach to things going forward because the key word here is the balance between the short-term and the long-term.

And if anything we’ve learned now during this crisis, you’ve seen as we’re investing for the long term. We know that broadband is a product that’s in high demand, it’s got a long runway, and we see it short term, and we really see it long term. But we also need to manage the shorter term, and we’re doing that very, very cautiously because the keyword here is uncertainty, Peter. And that uncertainly comes from, one, the mobility could come back.

Two, the macro will certainly have our way on our performance, whether it’s the damage been done to the economy or the fiscal constraints that our governments are going to have. And three is B2B when will it come down — comeback is a function of when the economics will recover, and we don’t know that just yet. So what we have learned is that being as a business, as a leadership group, really good at navigating that uncertainty is the key to this. And I think what we have learned and what we have demonstrated is that our COVID plan, still ongoing, has great governance.

And we have shown and we think the key to this is to have a great ability to react to the short term, quickly on the way down and quickly on the way out. And I think that’s the key to our success while we continue to invest in the long term. That is as much color as I can give you. And with all of that, I think you’ll find that our [inaudible] to the $1.4 billion, that things that I can give you is clearly consistent with that.

Tim Lincoln PenningtonChief Financial Officer and Senior Executive Vice President

We kind of needed a new north star when COVID hit. We realized we needed to protect cash flow and reduce debt, manage leverage. And that’s where we’ve decided we would maintain the cash flow for the same as last year. That was an important target for us.

It remains the important target for us, Peter. Now kind of I said on my earlier answer, I think we’ve probably done better on costs than we had originally thought we could do for a variety of reasons. And on the capex side, we continue to have NPV-positive projects we have paused or we have suspended. And to the extent we can generate more cash flow.

We will want to execute on those NPV positive projects, particularly if we can see viability in 2021 to receive returns. It’s — we remain cautious, as Mauricio said, but to the extent we can see opportunities that will deliver returns for us. And we can still deliver that $1.4 billion, we will do that.

Peter NielsenABG Sundal Collier — Analyst

That’s helpful. Thank you, both. Thank you, Mauricio. Thank you, Tim.

Operator

Thank you. Our next question or comment comes from the line of Fredrik Lithell from Danske Bank. Your line is open.

Fredrik LithellDeutsche Bank — Analyst

Thank you. Hello, gentlemen. Happy to see you returning back with your performance. Always good.

I had a few questions, if I may. You had a few slides on digitalization. And could you sort of elaborate a little bit more on that? Because I think this is one of the interesting parts, that even though it’s dreadful with the pandemic, it probably spurs innovation at the same time. So I’m interested to hear a little bit more behind the scenes sort of what is happening? What you see? What is unexpected on the digitalization terrain for you in your countries? Another technology question is fixed wireless access.

Is that something you consider as an alternative or one of the tools in the toolbox to pass even more homes even quicker on the fixed side sort of? Will be interesting to hear that kind of discussion. Thank you very much.

Mauricio RamosChief Executive Officer

Yes, great question. Thank you, Fredrik. So on digital, I think there’s two bits to my answer to that. One is, we were ready with our digital plan and very focused.

I think we have shown it to you a couple of years ago when I presented the first slides on how we were going to go about our digital-first platform and how we were going to focus on the commercial activities. And because we were ready and we had a centralized group that was driving support for the operations, we were able to capitalize on the needs immediately. And we’ve already shown you the numbers. So we didn’t start from scratch in the pandemic lending, rather we turned the wheels faster to capitalize on it, and the numbers show that.

And most importantly, I think, is the fact that the pandemic did give us confidence to go out and do it. I’ll give you one example that one of the distribution teams came up to me during the pandemic. As I said before, we have always been a little bit concerned to put money into any given digital channel that we already had up and running because we felt like we would be taking away money from a non-digital channel that was proven and demonstrated to work. The reality is in during the pandemic, that non-digital channel simply did not exist.

So we never — we didn’t have a conundrum anymore. It wasn’t a trade off. We just put the money into digital, and we saw it work. So that’s what happened.

We had the opportunity, the need to go digital. As a result of that, we saw that happening. And we’ll continue to drive the current focus of our digital strategy, which is very commercially driven. So what you’ve seen us think of as digital is effectively the distribution channels and the service layer channels.

That’s what our current thinking about digital is, and this has been our thinking for the last two years, and we are very happy that we have put a focus on this at this point in time, because that’s the first wave that really matters. Now going forward, our digital, I’m not sure exactly when we’re going to put it in place, is going to have layers of data analytics and artificial intelligence to put the network to be more efficient and to put a relationship with the customers on a digital platform that can use data analytics and artificial intelligence. It is a matter of the 80-20, when we are comfortable that we’ve completely maximized the commercial focus of our digital challenge today. The reason we think we were really wise is because we choose what to focus on.

And our focus is being on digital as a commercial and service tool. Our next stage is going to be how to use digital for data analytics and how to use artificial intelligence to make us from the digital platform. And that’s highly related, of course, as you can imagine, with the use of our digital platform as a platform for new services. Fixed wireless access, we do use it sporadically from the test certain markets [inaudible] whether there is penetration for fixed products there that we may eventually want to roll our fiber cable to, particularly in Panama.

And in Colombia, we have used fixed wireless access to determine whether they can optimize our broadband product, sufficiently so, so there’s economics for a fiber cable roll out.

Fredrik LithellDeutsche Bank — Analyst

All right. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Johanna Ahlqvist from Skandinaviska Enskilda. Your line is open.

Johanna AhlqvistSkandinaviska Enskilda — Analyst

Yes. Hello. Thank you. Two questions, if I may.

The first one relates to — you touched a bit upon sort of what you expect going forward in terms of macro consequences and so forth. I’m just wondering if you can elaborate a bit on what countries do you expect to see sort of the toughest macro difficulties in the aftermath of the pandemic? So if we assume there will be no more lockdowns, where do you see the greatest risk in a sense? And then if you have seen or expect any tax consequences in any of the countries that you are present? And then a quick one to Tim as well on bad debt, if you can give us a number on how much the bad debt was in this quarter?

Mauricio RamosChief Executive Officer

Yes. So I’ll start with number two, then move on to number one and hand it over to Tim because he can weigh in on the macro as much as I can. On the tax consequences, we’ve debated this, Johanna, internally quite a bit. As you know, in every country around the world, the reaction to the pandemic has taken a big toll on fiscal accounts.

So on the one hand, you would think, well, the governments are going to be even more tax constrained. And as a result of that, they may look for some of the bigger companies to be more burdened. But on the other hand, every country, particularly in our economies has realized how important digital connectivity is to their citizens. And as a result of that, we have a counterbalancing argument — that we have a counterbalancing argument that basically says, be careful with taxing this sector, particularly now in pandemic and going forward, if you really want this to be the driver of your digital economy going forward.

So it’s uncertain where exactly that’s going to land and how effective we’re going to be in saying, if you care for this sector, be careful with what you do with it. On the macro side, I think the key word is uncertainty and to be cautious. Central America has been very resilient in terms of its FX and in terms of their remittances. Their remittances went down in April and started to come back in May.

And year-to-date, just about every country in Central America have seen renewed growth in remittances, which has certainly held up those economies. And the reason I hesitate a little bit here is because one of the things to be learned about our economies is how much the informal sector really weighs and how resilient these economies are at the normal level. And that’s why it so important for us to have such a good pulse on what’s happening on the ground. So we do worry, and this is the reason we’re cautious.

And we are very, very involved in, if you will, by the Q3 results and by how resilient our subscribers have turned out to be and the great demand that we see. Going forward, we do worry. And we need to be cautious. And with that, I’ll hand it over to Tim to expand on that, if he can.

Tim, you have the last question.

Tim Lincoln PenningtonChief Financial Officer and Senior Executive Vice President

Yes. I’ll just make a quick comment on tax. Actually, we had a very low tax charge in Q3. I realize this wasn’t your question, but just to explain and expand.

And to some extent, that is lower withholding tax. But I expect to see a kind of normalization in Q4. So the overall tax charge for the year is going to end up somewhere between $200 million and $250 million on an underlying basis. I realize that wasn’t your question, Johanna, but I just wanted to get that in so everyone understands.

And on the bad debt, I mean, I don’t want to give the exact numbers. But roughly speaking, in Q2, our bad debt charge was twice the normal level. And in Q3, it was a third of the normal level. So what was happening there was some write-back of charges we took in Q2 and a normalization of the level.

And frankly, I’m expecting Q3 to be more or less back at a normal level of charge.

Mauricio RamosChief Executive Officer

And in terms of countries, Johanna, I think the one mentioned I already made, two or four weeks ago, the level of uncertainty around Bolivia concerned at all. I think today, we have less uncertainty than we did politically two to four weeks ago. So I think that’s the one thing I would call out in terms of any specific country.

Johanna AhlqvistSkandinaviska Enskilda — Analyst

Thank you very much.

Operator

Thank you. Our next question or comment comes from the line of Soomit Datta from New Street Research. Your line is open.

Soomit DattaNew Street Research — Analyst

Questions, please. One, just on Tigo Money, I think you’ve got a slide in the slide deck this time. I can’t recall whether you have before recently or not. But it seems like there’s a little bit of focus on that.

Could you give some thoughts on where you see that business going over the next year or two? And I say that in reference to some initiatives we’ve seen in the region, particularly in Brazil, with the wireless companies beginning to push into this direction and beginning to move, also not just looking at payments, but also moving into credit. So I wondered just whether you had any perspectives on a kind of one to two-year view on that? And then secondly, please, just one on the balance sheet for Tim. Apologies, I dropped off the call, I’m not sure if I missed this. But just on Guatemala, if I understand it, the local debt is being paid off there.

And then there is — there’s a lower dividend payment coming out of Guatemala this quarter, and if they’re all so far this year? It that there seems to be a kind of attempt to kind of delever that particular operation, but it’s already got relatively low leverage. So have I understood all of that correctly? And maybe you could give a bit of prospectus perspective on what’s happening at that?

Mauricio RamosChief Executive Officer

Yes. So Tim has a master’s degree on Guatemala financing. So he’ll take that for sure. [inauddible].

Tigo Money. You’re right. I wouldn’t say it’s a little bit of focus. I would say, it’s a lot of focus that we’re putting into Tigo money.

We have, for the last two to three years, put a lot of focus on it. We’ve just been doing it in a kind of quiet and forceful, yet focused way. Just to give you an idea of what that business is today, it’s small for Millicom. It could do, on a yearly basis and a quarter, difficult to analyze given COVID, but it could do somewhere around 40 to $50 million on a yearly basis today.

So it’s small for us, but it certainly is large in terms of revenue compared to many of these LatAm fintechs that you’re referring to. So it’s small within us, but big in comparison. Importantly, it’s profitable for us. Big part of all the synergies of participating within the larger group and the mobile subscriber base that we already have.

And then it’s growing very rapidly before COVID, and COVID has only accelerated adoption and usage. Today, it is almost exclusively a payment model, with some very small exceptions in Paraguay where we do lending, but is just lending for our own subscribers f or the mobile users. So we were lending credit for the mobile users. But it’s a way for us to start learning a little bit more about that model going forward.

And typically to what we do, we want to really learn how to walk very, very strongly on the payment before we go broader into financial services, which, of course, is a medium to long-term ambition, if this works out the way it’s beginning to pan out on the big trunk. There you have Tigo Money summarized in one minute.

Tim Lincoln PenningtonChief Financial Officer and Senior Executive Vice President

And just on the Guatemala balance sheet, I mean, simply, what happened there was we have an 800 million U.S. bonds, 144a bond. It was our most expensive financing. It was at 6.875%.

And we just issued at 4.5%. So you can see that we’re leaving a lot of money on the table. We had considered refinancing that in the bond market. But actually, Guatemala has been so cash generative, and we found that there were some local currency financing available at kind of reasonably attractive prices that — and given that is our strategy to match currency where we can.

We decided that we would simply refinance that using a combination of cash resources in Guatemala, local currency financing, and then there was a small element of shareholder loan as well just to do that. So as a consequence of that, obviously, they’ve been preserving cash over the last couple of quarters. So the cash and dividend that you see in the cash flow is lower. But no kind of — from our perspective, as we’re looking to reduce leverage across the group, whether we do it in Guatemala or we do it somewhere else, it’s relatively neutral for us.

So that’s really what’s been happening there, Soomit.

Operator

Thank you. We have time for one more question. Our final question or comment comes from the line of Mathieu Robilliard from Barclays.

Mathieu RobilliardBarclays — Analyst

Good morning and thank you. [inaudible]

Mauricio RamosChief Executive Officer

Sorry, Mathieu, I cannot hear you.

Mathieu RobilliardBarclays — Analyst

Can you hear me now?

Mauricio RamosChief Executive Officer

Yes. Much better.

Mathieu RobilliardBarclays — Analyst

Sorry. I had a quick question on M&A. So you stepped out of the deal at the beginning of the year. I guess, the price that had been negotiated didn’t reflect the new reality.

But I just wanted to have your view on to whether at this stage, you still believe M&A is not the right focus because you — there’s a lot of uncertainty, you’re managing your net debt? Or conceptually, if there are interesting deals out there, that is something that you would consider? The second one, kind of linked, but not necessarily, is we saw in El Salvador that two of your peers stepped out of a deal because the regulator was imposing very tough remedies. And I was just wondering if this kind of approach that we see in El Salvador, is something that we should now expect a bit more in your countries where you operate in actually not being very receptive to consolidation and going, unfortunately, more the European way than the U.S. way? Or is that an unfair generalization? And then very lastly, if I can. Any comments on competitive environments in Paraguay?

Mauricio RamosChief Executive Officer

Sure. So some of these are fairly quick to respond. It’s important but quick. So on the M&A, the simple, straightforward, very rapid question is M&A is not a focus of ours today.

We are focused on weathering the crisis successfully, as we seem to be doing. We don’t think the crisis is over by any stretch of imagination. So we think we need to continue to be focused on that. Focused on delivering the operating cash flow, the synergies and integration using our debt.

So that’s squarely our focus today. On whether El Salvador presents [inaudible] for the region toward a harsher view on consolidation, I don’t think so at all, Mathieu. I think it’s an isolated specific contradiction. The reason I think that is we did quite a bit of M&A and others throughout the region in Central America for the last couple of years, and all of those went quite well.

Quite successfully. And in some markets, we created better industry structures, like we did in Panama and like we did in Guatemala. And as a result of that, I don’t think there’s a trend here. If anything, I’m actually a believer of the opposite going forward long term, which is the more governments realize that they do need strong digital highways and they do need investment because this is an important part of the economies.

The more they’re going to realize they need strong industry structures. Two to three player industry structures, not four to five industry structure players. I think that weight is just too obvious for responsible governments not to recognize. The El Salvador matter is an isolated manner.

That’s my view. And unfortunately, I wrote down number three, but I didn’t exactly write it down. So I don’t know what it was. Maybe you can bail me out here?

Mathieu RobilliardBarclays — Analyst

Competition in Paraguay?

Mauricio RamosChief Executive Officer

All right. Competition in Paraguay. I mean, we’re — generally speaking, we’re seeing competition in Paraguay in 2020 to be a little bit more rational than it was in 2019. And you can imagine that I hesitated a little bit to say this without want to jump in.

And the reason I think that’s the case. I think it has a lot less to do with COVID other than some Argentina contagion to some of their competitors. I think it largely has to do with the fact that we defended our market share. And although that was painful for a period of years — for a period of months or a couple of years into the marketplace, it certainly should have send a very strong message that we are going to defend the marketplace going forward, and we expect this market to be rationally.

So I attribute our lesson, very aggressive competition in Paraguay to that more than anything else.

Mathieu RobilliardBarclays — Analyst

Great. Thank you very much. Very helpful.

Operator

Thank you. I’d like to turn the conference back over to management for any closing remarks.

Mauricio RamosChief Executive Officer

Well, I just want to thank you all for participating on the call today. We’re coming back. We’re on a good track. And as you know, we need to balance that.

We need to balance the short-term with our long-term investment and our cautiousness levels going forward. We do thank you for participating today and paying attention to everything we do. And we look forward to being on the call with you next quarter.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Michel MorinVice President, Investor Relations

Mauricio RamosChief Executive Officer

Tim Lincoln PenningtonChief Financial Officer and Senior Executive Vice President

Stefan GauffinDNB Bank — Analyst

Marcelo SantosJ.P. Morgan — Analyst

Peter NielsenABG Sundal Collier — Analyst

Fredrik LithellDeutsche Bank — Analyst

Johanna AhlqvistSkandinaviska Enskilda — Analyst

Soomit DattaNew Street Research — Analyst

Mathieu RobilliardBarclays — Analyst

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