© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and good afternoon, ladies and gentleman, and welcome to the Millicom Financial Results Conference Call. Today's presentation will be hosted by Chief Executive Officer, Mauricio Ramos; and Tim Pennington, Chief Financial Officer. Following the formal presentation by Millicom's management, an interactive Q&A session will be available.
I would now like to hand the call over to Michel Morin, Millicom's Head of Investor Relations. Please go ahead.
Thank you and hello, everyone. Welcome to our second quarter 2018 results conference call. And before we begin, please make sure to review the safe harbor disclosure on Slide number 2 of the presentation, which is available on our website.
Now let me hand the call over to Mauricio Ramos, our CEO for his remarks.
Thank you, Michel and good day everyone, and welcome to our second quarter call. As always, I'm here today with Tim Pennington, our CFO. Once again, we had a very, very strong quarter and let me walk you proudly through the highlights on Slide 4.
LatAm service revenue growth continued to accelerate and hit 5.5%. As you will see in a few minutes, growth was positive in all three business units and mobile growth is back above 2% growth. Home, our residential cable business, performed exceptionally well with growth reaching almost 13%. This is our strongest quarter in more than two years, thanks in large part to an improvement in Colombia. Our margins continued to expand and we are delivering double-digit free cash flow growth year-to-date.
And finally, we are also formally announcing today that we plan to list our common shares in the U.S. next year.
Now let's go over the details beginning on Slide 5. This chart speaks for itself, and as you can see our LatAm service revenue grew 5.5% this quarter. This is our strongest quarter since 2015. And our performance was solid with growth trending higher in most of our largest markets as you can see on Slide 6. Performance was indeed very impressive in Bolivia with growth reaching almost 16%.
Our home business there is doing exceptionally well with revenues up almost 90% and this of course is not happening by chance. It is a direct result of the investment decisions that we took more than two years ago. Since then we have built a 4G network and we have doubled the size of our cable HFC network. And the configuration rate on the homes that we have built is better than we expected and ARPU is holding up as well.
As we have set out to do, we are providing a hit quality broadband and entertainment product to our growing middle class and we are finding that there is indeed significant pent up for our services.
Elsewhere in the region in Paraguay and Guatemala, we continue to generate very strong growth on the back of course on the investments that we have been making there in the past couple of years. And the key positive quarter was Colombia where growth reached 5.8% and we will give you more color on Colombia in a minute.
In Honduras growth is also reemerging. It is still below our goals and a year ago we made the required operational leadership changes to accelerate execution of our strategy and we are already beginning to see some early signs that the changes we made are indeed working. We added a record 182,000 4G users in Q2 and homes connected are growing as well over the last 12 months.
In El Salvador we have been facing operational challenges in our aftermarket environment and we acknowledge that we've got some work to do there, but we have already taken the necessary steps to put us back on track and as you can expect we are confident that our playbook will play there equally as well as it has played out elsewhere. So with this one exception we are seeing solid growth across all of our largest Latin American markets.
That's the view by countries. Now, let's look at our three business lines on Slide 7. In a nutshell, all three main business lines had positive growth in Q2. B2C Mobile continued to improve rapidly, Home had an exceptional quarter and B2B continued to deliver mid single digit growth.
Let's go one by one beginning on Slide 8. In Mobile we've continued to build our 4G network which now covers 60% of the population in our markets. As you know, we have built this network in just the last three years. We added over 400,000 4G users in the quarter and 3.2 million in the last 12 months. We are on track to meet our target of 3 million 4G net adds in 2018 and to end the year with about 10,000 4G users. Immigration to 4G is driving traffic growth, which we are monetizing. Mobile data revenue continues to growth double digits for us now accounts for half of our total mobile service revenue.
Meanwhile revenue from our legacy mobile voice and SMS businesses declined only 8%, that's about half the rate of decline a year ago. And 4G adoption is having an increasingly visible impact on ARPU, which grew 1% in the quarter, the first positive ARPU growth number in many years. All of this is producing better mobile revenue growth of 2% for Latin America and Bolivia grew more than 6% in mobile. Guatemala was up more than 4% and Colombia is back on positive territory as well.
The mobile performance in Bolivia is worth [indiscernible] because this is a country where we are further along in deploying 4G with penetration now reaching 40% of our customer base and we are driving ARPUs up is providing us with revenue growth.
B2B currently represent about 18% of our LatAm service revenue on Slide 9. You have heard me say before that B2B represents a very important long-term growth opportunity for us, both because are underway in this business line and because we are building a large fixed network that allows us to sell a converged B2B offering to large, medium, and small businesses.
B2B revenue does bounce back around a bit from quarter to quarter due to the timing and size of certain larges contracts. But the key point is that we are now generating a healthy underlying mid-to-high single revenue growth rate in B2B. And note that we now have about a quarter of a million SMB customers which generate about 40% of our B2B revenue. This is a stable, recurring and growing revenue base. We continue to deploy our HFC networks we will have a stronger and larger infrastructure to gain share from the incumbent copper networks. Note that to date we have over 110,000 km of fiber deployed.
And to further support our push into the B2B space, we have been building Tier 3 data centers across the region and investing in highly specialized B2B sales and marketing capabilities. Over the last two years alone we have launched new data centers, Tier 3 data centers in Bolivia, Paraguay, and Colombia. And we're also enhancing our data center capability across Central America. This allows us to push deeper into value add solutions such as cloud and security services. Almost 20% of our B2B revenues already come from solutions, a segment that is growing double-digits.
Now let's take a closer look at our Home business on Slide 10. Our residential cable business is now showing its true potential with growth accelerating to almost 13%. This is because we are investing heavily in cable and also the reason why we have been investing heavily in cable. In Q2 we continue to build our cable network at neck breaking speeds. We added a recorded 390,000 HFC cables homes passed during the quarter to the network and we have now added 631,000 homes passed year-to-date to the network. So we're on track once again to beat our target of 1 million net additions to the network for the year.
Note over the past three years we have built over 3.2 million cable HFC homes. I cannot think of anyone else in LatAm deploying as much cable as we are. And the truly exciting news is that we are filling this network with customers at an equally clip. As you can see on the right on this page, take a look at our HFC homes connected. We have added a record 231,000 new homes connected year-to-date.
About 50,000 came from a small cable acquisition in Guatemala and about 180,000 organic net added during the first half. In terms of organic subscriber growth we're well ahead of where we were last year and we are ahead of where were the year before that. This is why we're raising our full year target and now expect to add at least 400,000 new homes connected this year.
I also want to draw your attention to our penetration rates. When we started to build aggressively penetration and down just as you would expect it would. But now our net customer additions are high enough for us to sustain and actually increase a little bit our network penetration rates while we continue to build over a million homes a year. That's not bad at all.
So the build is on track, the net adds are a bit ahead of target and network penetration rates are very positive and most importantly we are doing this while also picking up some ARPU which grew more than 4% in dollar terms and about 2% in constant currency in Q2. We have told you this before, but it is worth repeating that every year we take prices up and we get some more customers to upgrade their service. This creates an umbrella under which we can target new customers at a lower price point so that we can penetrate new segments of the population with sustained ARPU across our entire customer base.
This is cable 101 pricing [ph]. Q2 quite simply demonstrates the potential of our cable business. These net add rates and their sustained ARPU and penetration trends we saw in Q2 are consistent with our long term plans to create an exceptional cable business underneath our mobile business and they underpin our target of getting to 15 million homes passed in the medium term.
Now let's look at how this KPI is translating to revenue growth on Slide 11. As I said a few minutes ago, all three of our business units grew in Q2, but if assume in on our home, our residential cable business, you will see that it accounted for half of the growth this quarter. Let me just spend a second on that. Home is already almost 25% of our service revenue today, but it is already generating 50% of our growth. This is important because home, our residential cable business, is revenue that is subscription base, which means that our growth is becoming more and more sustainable and predictable and happening on an incremental revenue stream with great return on capital and meaningful strategic sense to support both our B2B and our mobile businesses into the future.
Let me take another minute to talk about our home business in Columbia on Slide 12, because the Q2 results mark the inflection point that we have been anticipating in this market. As you know, we have been investing heavily to upgrade our copper network and to migrate our remaining copper customers to HFC. In the past, a large portion of our investment was going towards these average and the copper subscriber attrition or copper cutters as I have called them have been larger than our cable HFC net adds. But now, our investment dollars are increasingly going towards expanding our network.
Take a look at the chart on the left. In dark blue, you see that HFC net adds are accelerating quickly. In light blue, you can see the churn on the copper network as been decreasing, which reflects the fact that we're nearing the end of our upgrade program on the network. The light blue shows the net effect of these two trends. Simply said, we are now in net positive growth territory in terms of total homes connected in Colombia or said even more simply, our subscriber based in home in Columbia is now growing.
On the right hand chart you see his infection point even a bit more clearly. Total homes connected grew 1.5% in Q2. A year ago homes connected were shrinking almost a percent and a couple of years ago they were actually shrinking 4% or 5%. As you can imagine, it is a lot easier to grow revenue when your customer base is growing then when it is shrinking. So we are today in a much stronger position to deliver consistent revenue growth from our home business in Colombia.
All in all, cable is beginning to show its long term potential to take us further along this transformation journey that we started three years ago.
Finally, and before handing up the call to Tim, let's take a look at free cash flow on Slide 13. Two years ago we said that we'd be extremely focused on cash flows and presented to you our target cash flow model. Over the past few years we have significantly reduced our copper costs, we have divested our least profitable operations in Africa, and we have implemented projects here to become more efficient throughout the organization. These savings have been reinvested into our 4G and HFC networks in Latin America and into sales and marketing to drive growth.
We are starting to see these investments pay off in the form of faster growth, improved capital efficiency higher returns on capital and ultimately much healthier free cash flow generation and growth.
The chart on this page tells the story on its own. Equity free cash flow is up almost 16% in the first half. So there's much to be pleased about in these results. But please make no mistake, we're happy and we're pleased, we're proud, but we're not done. We understand there is still a ton of work for us to do. We have been diligently and consistently taking cost out of the business and Tim will talk more about that and we continue to do so adamantly through constant operational transformation and by digitizing the business.
For now we have chosen to reinvest those cost reductions into sales and marketing and into network expansion in order to capture the meaningful subscriber and revenue growth we are now beginning to see and we're aiming to come out of these revenue reconfigurations with sustainable topline growth and a leaner organization. We know that we're delivering EBITDA growth and operating leverage, but we also know that this is the right decision to create long-term shareholder value.
With that, let me pass it over to Tim to get over the financials.
Thank you, Mauricio. So let me start by setting out the key financial highlights on Slide 15. We have momentum with the network rollout in 49,000 homes connected et cetera and this is filtering through to our financials. We are managing growth in a balanced way. We're investing in sales and marketing spending more on our networks and yet we're doing this whilst managing profitability tightly and it's not just EBITDA, operating profits, pretax profits and net income are all up this quarter and this is flowing through to the cash flow, operating cash flow and equity free cash flow are both meaningfully up on last year. And we have been actively managing the balance sheet. We've been selling underperforming businesses in Africa, taking advantage of cheaper financing, selling house to free up capital, ensures our balance sheet is in good shape.
Let me turn now to the key financial metrics for the group on Slide 16. You've heard all about the revenue growth in LatAm, we've also returned to better growth in income there, this translated into group service revenue 5.3% up and this compares to 3.6% in the last quarter and a 1.4% decline a year ago and this is flowing through to EBITDA which was up 4.6% and through OCF which was up 13.8%.
Now turning to LatAm on Slide 17, in sheer contrast of the volatility elsewhere in the region, the micro was pretty stable, so our currencies have proved resilient and the Colombia presidential elections have no visible impact on our market. Indeed the country's consumer confidence index turned positive in Q2.
And then turning to revenue whilst it is true the growth was flattened by a nonrecurring B2B revenue from Colombia even excluding this growth was 4.6% producing our sixth consecutive quarterly improvement. And EBITDA is following revenue that was up 4.4%, it is a big improvement from Q1, but it is still a little below our expectations principally due to an additional $6 million bad debt charge in [indiscernible]. This dampened our margin progression by around 40 basis points. And finally OCF in the quarter there was in the second quarter was up 7.2%.
Okay, let me take a close look at group EBITDA on slide 18. Compared to the same quarter last year group EBITDA is $551 million, it grew by 5.2%. Of that 4.6% was organic and the balance mostly IFRS 15 impacts. FX had a negligible impact this quarter. As you can see from this slide, the pickup was almost entirely from the LatAm options and in particular return to EBITDA growth in Colombia. We will dig deeper into this on the next slide on Slide 19.
So Colombia is having strongest quarter from many quarters. Our EBITDA grew by nearly 7%. It was flattered by the election contracts, but make no mistake, the momentum is there. No one offs in Bolivia. It grew a very impressive 17.5% in all of that is organic. In Guatemala and Paraguay, both powered ahead in Q2. As Paraguay had a slightly slower revenue growth but we see good operating leverage resulting in over 8% EBITDA growth in Q2.
Now Honduras and El Salvador proved a little weaker. Honduras is lagging some of the other markets, so nice transition to data. So we are investing to improve growth and this is causing a drag on margins. El Salvador is perhaps the only market where we did not make the progress we planned for. The operational challenges so that's always led to some customer reductions and the next were bad debt charge and in fact this accounted for pretty much all of the fall from $38 million in Q2 last year to $32 million in Q2 this year.
Let me look at the costs now in more detail on Slide 20. On the left hand side which are the operating costs for the quarter and this excludes the positive IFRS 15 impact, so OpEx was up 3.3% from the link. The majority of the cost increase came from increased sales and marketing activity which Mauricio has talked about. It has driven strong customer additions. In addition, we saw a G&A increase by 2.4% and about a third of this is due to FX and the rest are costs associated with network expansion.
We feel that the efficiency focus we have will continue to drive margin looking to grow the business without growing the cost base. And as the right hand side of this slide demonstrates the trailing 12 months margin which is a key KPI for us is up 370 basis points since we started this journey.
On Slide 21, will be another few items to flag and firstly net finance changes were $13 million lower, this reflected refinancing activity undertaken last year. Losses from associates dropped but this includes a noncash closing adjustment in respect to Ghana and minority interests were a little higher on profit in Colombia. However, I think the big point of note in this slide is that in addition to EBITDA operating profit is up 30% and pretax profit is up over 100% and there is a big positive swing in net income.
Turning now to slide 22 and this is the cash flow for the first half of the year. Cash flow from operations was up 5.3% that is higher EBITDA and lower cash used in the CapEx and working capital. Some timing benefits here, but I'm really happy to see that we are finding a way to expand our network at record speeds as homes connected grow our subscription-based revenue streams all within very tight cash management.
If we look further down and look at the fixed charges whilst taxes were $28 million higher which is marginally timing differences and some more debt settlements it was fully offset by the fall in the net financing charges and that left us with equity free cash flow of 15.7% to $149 million in H1 2018.
Turning now to the capital structure on Slide 23, net debt reached is the quarter by $90 million that is thanks to the strong cash generation plus sale [indiscernible] sales. Leverage ended the quarter at 1.8 times on a fully consolidated basis and 1.95 times on proportional basis. The balance sheet is in good shape. Nearly three quarters of the debt sits on local balance sheets. More than 40% is in local currency. 70% of our interest [indiscernible] which is important in a rising interest rate environment and 60% of our debt is not due for over five years.
So finally from me, on Slide 24 we are tracking well against 2018 outlook. We have exceeded the HFC homes connected targets for two quarters now and so we're upgrading our target from 300,000 to 400,000. In mobile we'll add 3 million new 4G subscribers this year and these two metrics are what is driving the highest service revenue growth. So we expect LatAm service revenue growth to be at the top end of our 2% to 4% range whilst EBITDA continues to track nicely.
With that, let me turn it back to Mauricio.
Thank you, Tim. And before we take your questions, let me summarize the key highlight of the quarter. In brief, our strategy is working. We're pleased and we continue to drive strong operational momentum across all lines of business. 4G is clearly driving better mobile trends and home now generates half of our growth demonstrating its true long-term potential. Growth is accelerating with strong performance across most markets and across all business lines.
We had a really solid first half and our outlook for the year as Tim has indicated as improved. Margins and free cash flow continue to trend higher and our balance sheet is solid. We've been able to accomplish all of these while nurturing our entrepreneurial corporate culture and taking care of our people. One of the most rewarding aspects of being CEO of this beautiful company is to see how proud our team is to work here. I am pleased to report that once again for the second year in a row our team operations ranked amount the top 25 multinational companies to work for in Latin America in the 2018 great place to work survey.
And finally, as you saw in our earnings release, we're announcing that our Board has approved our plans to list our shares in the U.S. next year. We will of course maintain our existing listing in Sweden.
And we're now ready for your questions.
Thank you. [Operator Instructions] We’ll now take our first question from Allan Nichols from Morningstar. Please go ahead.
Thank you. Yes, I was wondering about more cable consolidation opportunities, you made the acquisition of Cable DX Guatemala, how many other opportunities like that exist? Thank you.
So, Cable DX is a small tuck-in acquisition that we've undertaken in Guatemala. It added about 50,000 cable subscribers as I alluded to and about $1 million of revenue give or take for the quarter. Of those, you may have seen that we did one in Paraguay about 12 months ago and we've done a couple of other smaller across the region. Just like any cable operation that I've known pretty much throughout the world there are a number of these small cable tuck-ins that a cable operator a nationwide network starts bringing into the fold on a continuous basis.
Some of them are big enough that we may highlight them a little bit, others are just small and happen almost every now and again. You may have seen that there's a couple of them going on in Costa Rica. The point I'm making here is just about every cable network that I'm aware of has been built this way and for us given that we have this pretty big and meaningful, probably the largest build program in the region, some of these become a build versus buy acquisition for us, a build versus buy decision. We will either build a network or we will buy the existing operator [ph]. So in a sense they help us get to our build target by expediting their market entry by buying rather than building and that's the rational of this specific cable tuck-ins.
Great, thank you.
We will now take our next question from Julio Arciniegas from RBC Capital. Please go ahead.
Hi Mauricio, Tim. Congratulations for the results. So my first question is related to Colombia. In Colombia we see that the growth is being driven by fixed services. Is this performance in fixed driven by higher speed uptick or is it just that the broader market is growing independently of the technology?
And my second question is regarding FTTH strategy, has the company evaluated deploying FTTH instead of cable and we’re seeing some cable players in the regions that basically they are starting to do the new deployment with FTTH?
And finally relating with the target of 4G target for the year, the company has 1 million 4G net adds in the first half is targeting 3 million, how the company is going to accelerate the the 4G uptick in the second half of the year? Thank you.
Yes, Thank you Julio, those are great questions. On Colombia in general and then the fixed growth there I've already made the key points on our home business there. Before I answer specifically on the fixed growth and where that is coming from, very mind that in Colombia our business is pretty balanced; about a third B2B, a third home, and about a third is the cable residential business, sorry the mobile business, it's about a third. The key point about our growth in Colombia is not only that it's a balanced portfolio, but all three lines of businesses are back on growth and that's really key to what's happening in Colombia.
Albeit, mobile is a little bit more moderate in its growth, but both B2B and home are growing quite healthily. Particularly with regards to home and the growth behind home it's actually both, it's both volume and ARPU driven and that's the nice combination that you want to have in a subscription cable business.
The volume growth is driven by just a momentum, the amount of HFC build that we've been doing over the last few years there and the fact that we’ve reached net add momentum because of the investments that we’ve made in sales and marketing, but secondly because the copper addition is less and less and less, the copper attrition I should say, and that’s largely because we are - rebuild the network, maintenance is better, product is better and bundling and cross-selling is working really well.
In the meantime, the ARPU element of the equation has also been kicking in. This year we took early on about a 3% very moderate price increase across the customer base. We have been increasing speeds in Colombia as we build and upgrade the network to our HFC network. And as you’ve seen we’ve also launched next generation TV [indiscernible] platform in Colombia. So it’s really a combination of volume, ARPU and a lot of operational focus that’s driving the fixed growth in Colombia.
And needless to say, it is only working because there is an opportunity in Colombia to drive broadband and payTV penetration in a market that is still only 40% to 50% penetrated. So we’re hitting nicely operationally against the market opportunity and against capital that we deployed to build our networks there.
And the second question, listen what kind of tell you the FTTH versus cable technology is a question that we re-evaluate literally just about every quarter, and this is something that every cable operator in the U.S., across the globe and all technology providers are re-evaluating. We still come out as of today, we’re thinking that HFC architecture is the best and most cost efficient architecture for us to continue deploying because it’s modular and because it’s cost effective for us.
Key point, it is not that we evaluate this on a quarterly basis and that the economics really worked for us on HFC as opposed to fiber today. The key point is that even in more developed markets where HFC technology continues to be deployed, 1 gigahertz deep fiber DOCSIS 3.1 and which are at much higher speeds, cable continues to be very resilient and the choice of many cable operators. In our market, we’re still at repeat [ph] low broadband speeds and pretty low network utilization. As a result, cable for us has a long, long runway in terms of the technology of choice and the most cost efficient one.
And lastly on the 4G point, I’ll hand it over to Tim.
Yes look, I mean 4G is back ended always, I mean yes we did many in the first half. When you look at our Q4 last year, we did few about 1.3-ish million net additions in 4G. So it will be back ended it was last year we’re pretty confident of the 3 million target is going to be okay.
And I just want to add on one point on the cable side. I mean one of the good things that the businesses have actually almost consistently is very good sales in the home business. We may say it is a very high consistent level of sales. Where we’ve been struggling is in terms of churns being higher and that is entirely within our gift, our management may think as we are getting kind of improving the processes there, that is why we’re seeing this more sustainable net adds on the home side which is why we’re convinced we have passed the inflation point and we’ve got some of them into the future.
Okay, thank you. Thank you very much for the answers.
Thank you. We will now take our next question from Kevin Roe from Roe Equity Research. Please go ahead.
Thank you. Mauricio, you mentioned in your comments the new Colombian Government, can you update us on your relationship with the government and expectations for the telecom regulatory reform that could benefit Millicom?
Yes, I think that the first comment is Kevin, and it's a very good question. It’s very early days for us to really know what socket position maybe taken by the government in any of the key specific points. But on top of that what I can tell you is, that what we’re seeing is and from own point of view is that having gotten through this election, a lot of the uncertainty about the future of Colombia has indeed been eliminated not just in our mind but in the minds of many others.
This new government and everything they have been saying in terms of sending out the right messages, the big picture of that really is sending all the right messages and providing with a lot of investment confidence on our end and from what we hear many others.
And Tim alluded to renewed consumer confidence in the market which is the telling sign, it is visible across the industry and I think you will begin to see it also through our P&L. There is a number of meaningful key items regulatorily in Colombia. There is obviously the pending review of dominance by the larger player in the market, there is a pending auction of the 700 megahertz that we deem has something that we strongly support.
We do need to correct to a handicap that we have historically and that we’ve alluded to before, we are the only operator that historically has had no low frequency spectrum and this is a tremendous opportunity for that handicap and that disadvantage that we have historically had to be corrected. And I think if those two things a more competitive environment in the sense of a more balanced player environment and correcting for handicap provides us with pretty optimistic view that things could get better on the regulatory front in Colombia.
That’s helpful, thank you and one followup on El Salvador, you mentioned that you’ve already taken the necessary steps to help stabilize and turnaround that business, can you give us a sense of what steps were taken and what we should think about the ramp of stabilization and recovery and any update on potential for end market consolidation in El Salvador will be helpful? Thanks Mauricio.
Yes, so backwards because it's easier, no updates on potential market consolidation in El Salvador, there is just no update there. And just in El Salvador the reason we feel quite confident that we can affect the turnaround like we’ve done everywhere else is because, yes some macro and country turmoil, no doubt about that and some meaningful regulatory headwinds in the past that we discussed in this call, but that being said we actually don’t want to make any excuses about this.
This is largely self inflicted pain and just bad operational execution. We know we dropped the ball there and the mistakes that we made there are mistakes that are operationally possible to correct and we’ve had our squad of executives over there reviewing the steps to correct. They need largely to do with operational blocking and tackling and we've not only put our correction plan in place, we've also as of last week have a new management team in place in El Salvador.
And as you know with new leadership and a good plan in place, the playbook that we have executed elsewhere we’re confident will play out in El Salvador just like it has before.
Understood, thank you.
We will now take our next question from Lena Osterberg from Carnegie. Please go ahead.
Good afternoon. I will ask [indiscernible] no questions from our side there. A little bit on Tanzania just on the process, on the lever process what's going on? And then also on the [indiscernible] Ghana maybe a little bit on how margins [indiscernible]? And then also on Colombia, just if you could give us a roughly what your EBITDA impact was in Q1 and Q2 from the government election contract that we know that this cannot continue into Q3 and Q4 and how much is of a contribution that was?
All right. So I’ll perhaps start with Colombia and then I’ll hand it over to Tim to talk a little bit about Tanzania and also complement on Colombia. Before we - I think we gave you the very specific impact of the B2B contract, government contract for the elections on revenue, we don’t go all the way down through EBITDA, it was just simply in our disclosure that we provide.
But perhaps the way to give you confidence is that, yes it was meaningful in Q1 and Q2, this B2B contract and yes that specific contract will not be there in Q3 or Q4, but we do have a meaningful and growing B2B operation in Colombia and obtaining these kind of contracts although they may not happen every quarter is part of what we do, and there are other similar contracts in the future in Colombia. They may not be of this size, but it's part of what we do.
And just on the first question in terms of their legal case – net update on that its working its way through the legal system. We believe it’s moving and [indiscernible] system that will get results. And then on Ghana, the integration actually is going very well. There's been a lot of activity there, principally in merging the two businesses together, getting the single distribution platforms and [indiscernible] platform single, network platform, it would be too early to give any more detail on this one, but it is moving very quickly for us.
And while we are in Africa as it indeed it’s a topic that hasn’t come up for a long time for all the good right reasons. Africa is very nicely equity free cash flow positive as you've seen and we have promised for a long time and you can remain assured that we remain very active strategically there. We know that we can redeploy that capital when the moment is right.
Okay, thank you.
We will take our next question from Johanna Ahlqvist from SEB. Please go ahead.
Yes, thank you. Let me see what questions have not been taken. Yes, if you can comment on El Salvador to start with on should we expect more of bad debt in El Salvador or is it more sort of a top line issue in this transition that you're going through? And also if you can comment anything if we should expect, do you see that they are more sort of power leases to be made except for the ones you already signed? Thank you.
I think in terms of Salvador, we as much have just explained we are turning the business around. I can’t rule out any more bad debts, but it’s a combinational of issues. That said, it's relatively small, whilst the impact was not impactful relatively to our business and we're very confident that this business will get back on track.
I think the way to, I mean the template is Honduras Johanna. I think where you will see that we've implemented all the required changes and although it's behind the other markets, it's coming along online with the same level of trend that you've seen everywhere. My expectation is that that's what you'll see in El Salvador it's just coming right behind.
And then on the towers I mean we've done the towers in Paraguay, Colombia and El Salvador and we can’t do a tower deal every quarter, so we're busy sort of working our way through those deals. There is a little bit of disclosure if you dig into the financial statements, the study full statements I’m guessing four or five.
Perfect, thank you and just one more if I may, I know a previous question was related to that you see some competitors building sort of fiber instead of HFC and you still regard sort of HFC as the best and most cost efficient way to sort of approach those markets. But do you foresee a case where competition go for sort of fiber that you sort of end up being in a less favorable position in that case or how is this sort of the competitors acting in those markets right on that jump? Thank you.
Sorry, I have to be very honest with you, the amount of fiber that we see deployed in our market is the minimums.
However it’s throughput is about 10X per second this movement.
So the fiber in our market is almost, I almost hesitate to say Johanna negligible. Now there is some fiber deployments limited that typically go to the business part areas and they tend to cater to the larger costumers. We do a lot of those ourselves. I'm referring to cable architecture to the residential and to the small offices and home offices and given where broadband speeds are in our markets average is 10 at best case.
Cable technology can compete against fiber anyway all the way up to 1 or 2 Gigahertz’s, so we're so far behind in the need for fiber to the residential areas in our markets, that for the time being and as far as I can see the return on capital, the efficiency of our spend is much better served by us deploying a very modular, very cost effective technology like HFC. Mind you we're deploying 1 Gigahertz two-way ready, DOCSIS 3.0 [ph] all ready with state-of-the-art Wi-Fi routers to their home in our markets. This is the same technology and the same CPE that's being deployed in the U.S.
And as this question has come up a couple of times, I mean I don't want you to think that we've got religion on this thing. We have basically deployed the right technology at the right time based on the financial terms around there.
Yes.
Thank you very much.
We will take our next question from [indiscernible] from Barclays. Please go ahead.
Yes, good afternoon. Thank you. I have two questions please, first with regards to B2B where have you highlighted you've delivered good growth. I was wondering if you could tell us a little bit if this is a market that is generally growing in the region or is it you're taking market share and typically who are your main competitors? I don’t know if it makes sense to that or no, I'm a global doofus, I may be focused on the main geographies, but albeit color on that segment would be great?
And then second on Colombia, as you highlighted mobile is also doing better and that’s despite what you mentioned. And I wanted to understand a little bit what was behind that better performance really on an absolute basis, but also it's been relative to some of your peers and how sustainable that was? Thank you.
Yes, listen on B2B, B2B is both a business segment that as a whole is growing and also while we think we are underweight here and how large our mobile footprint is in every market and how much cable footprint we're building in every market, so it's a combination of both market growth and the fact that we're building networks and have a meaningful mobile presence.
Within B2B all segments are growing. Corporations are growing, multinationals are growing and in particularly the SMB business is growing. And as you may recall from our my remarks, SMB is about 40% of our business and it is growing quite significantly because middle and home businesses are growing in these markets, but also because we're building a ton of network that also although is meant to be for residential purposes, passes small businesses and small home offices that we can cater to as part of our B2B offering.
And the second part of the last part of this element is that given our large B2B presence in Colombia and the fact that Central America caters to Colombia as a destination market for a lot of them with the Latinos where uniquely positioned to provide an offering for those multi Latinos as they demanded B2B services throughout a footprint that is very close to our footprint. And the large business segment that is really growing is the Solutions segment and that's where we've been deploying data centers and solution based technology so that we can grow into more value added solution services like cloud security, that's the long and short of the B2B answer.
And listen on Colombia, I think the better way to answer that question is to perhaps about a little bit of context, historical context here and you may have Matteo [ph] hear me talk about before. If you go back two years ago, the mobile industry as a whole in Colombia was decreasing double digits almost 15% couple of years ago. It was just an unsustainable demonic and was enhanced or further made difficult because of the devaluation back a couple of years ago.
About a year ago, it started to stabilize as market players became a little bit more rational and started realizing that the 4G upside opportunity was not being monetized by any one because of this low prices on mobile data. And if you fast forward to today whereas it still remains pretty competitive and growth is not stellar at least there is some growth. So you see a trend here of a mobile sector in Colombia that is slowly recomposing itself and slowly beginning to grow.
And you can see because you can pull information from our competitors some of whom have already reported, that growth is back on mobile and you can do your own analysis and you'll pretty soon see that we’re stacking up pretty well, we’re holding our own on all segments in Colombia.
Thank you. You’re even doing better than your peers which is great.
If that's not from me you can do the math and thank you for saying that. That’s not for me to brag about.
Thank you.
We will take our next questions from Soomit Datta from New Street Research. Please go ahead.
Hi, a couple of questions please. On Colombia, away from the immediate operational, there has been some speculation about financial problems that EPM and some speculation you might be able to fine the minorities there. Can you give a little update as to how you see that situation please?
And then secondly on Paraguay, I guess it’s not new that there is competition in the market, but could you maybe give a little bit more color as to how that competition is playing out and is there any sign that maybe it is coming to an end, which of the player is being aggressive, any sort of slightly deep level of commentary would be super helpful. Thank you.
Sure. So listen with regards to [indiscernible] I simply won’t comment out of respect and quite frankly lack of understanding and they’re also a publicly traded company, so I’m sure they will provide the required disclosures. What I can tell you though, is that we see no operational hiccups. Our relationship with them obviously we manage the business, we control and consolidate the business and we drive the business.
But more importantly, we hold a very strong, very close and very constructive partner relationship with them. So it hasn’t and we don’t expect that it would affect the business. As you know, we have internally generated cash flow in Colombia to certainly fund our investment needs going forward. So that’s – it’s pretty much their own situation and not our own.
And with regards to Paraguay, there is increased competition in Paraguay, there has been increased competition in Paraguay for a while and we don’t expect that it would subside for any particular reason. It will continue to be as strong as it has been.
What we have been doing in the meantime is we have been strengthening our position. We attained spectrum at the beginning of this year and we went out and very quickly built a network there, no CapEx spared there, so that we’re ready and we’ve been doing the same on cable. We’ve been building cable in Paraguay left and right, so that we strengthen our position. And more importantly than anything else Soomit we’re getting better and better at being close to our residential customers in Paraguay. Our NPS numbers are going up in Paraguay and I’m a strong believer that the closer you are to the customers, the better you provide good customer service and a more convergent you offer is the better you’re going to withstand any other competition.
So we’re putting money into the network, we’re getting closer to the customer and we’re not letting that go. There is also increased competition into B2B space in Paraguay, but it is a growing market in Paraguay and that’s one of the places where we deploy a state-of-the-art Tier 3 data center. First off is cloud in the marketplace just to help us continue to support our B2B client. I guess all I’m saying is there will continue to be competition, but that’s part of what we do.
Okay understood, thanks.
We will now take our next question from Ernesto González from Morgan Stanley. Please go ahead.
Hello. Thank you for taking my question. On the release you mentioned that you’re looking for further cost savings, could you please quantify what they would be the size and timing and also the margin expansion opportunity? Thank you.
Let me start, I mean kind of we have been undergoing a program of transformation, IT transformation which has driven margin improvement. I mean I said in my sort of speech the goal for us is to maintain the growth in our revenue base whilst holding our cost down.
Now we are investing in sales and market activities, so that in the quarter and those grew by 4% just over 4% and our G&A grew because our network grew. But those could have grown a lot faster had we not been identifying cost savings in other parts of the business. This is a never ending constant focus of ours. We are changing the way we do the business and that will drive margins. I’m not sure we want to go into kind of speculating over margin expansion or what kind of when these things will come true.
But rest assured the margin expansion is core to the way we look at the business and manage the business and we’re managing balanced portfolios like investing in some places, seeing margin growth in other places.
And I think your question is really good Ernesto in the sense that it allows us to say that I think what I said in my remarks which is we are so focused on margin expansion, and I think our team and the team have a track record that is impeccable. In the last three or so years, we have taken our EBITDA margins up almost 400 basis points and operating cash flow margins are up some 600 basis points.
If you look at our Latin American operating cash flow margin is actually north of that 20% target that I had said three years ago. And then this has been accomplished while we basically turnaround the revenue profile of the company and drive according free cash flow. The point I’m making is that we remain super extra focused on this.
There are just as you would imagine ongoing closely managed, centrally cost reduction, and efficiency programs across the entire operations. And the reason, we remain so focused on this is because as I said earlier, we’re very, very cognizant of the fact that we want to come out of these revenue reconfigurations with a very lean organization, so that at the end of this process there is both sustainable top line growth and a digitized lean organization.
The shorter term balance is the one I alluded to before, which is four times being despite of all the cost cutting we don’t want to sacrifice long-term top line growth in order to attain short term EBITDA growth. And that is why we always balance this discussion saying we’re very focused on cost, but we understand that we’re delivering EBITDA a little bit back ended. We need to make sure that our top line remains captured in all its opportunity.
Thank you.
We will now take our next question from Peter Nielsen from ABG. Please go ahead.
Thank you, yes, my question was actually just answered basically in terms of the EBITDA growth relative or lagging service revenue growth. I think you were indicating that we should expect the same in the second half and I guess it is too early for you to tell us now whether that is something that would continue into the next year?
Maybe let me answer it this way just to perhaps help building this answer which I know it is weighing in everyone’s analysis. We’re extremely pleased with the direction we’ve taken. Our strategy is working and all the pieces are coming together. These results are very good, but we want you to know that we’re not done, we’re not being complacent about this and that we understand that we need to deliver this EBITDA growth. We are now in an incredibly positive situation to be which is we have the ability to build a great 2019 and beyond, that's a really good place to be.
Net adds are strong, ARPUs holding steady and you have heard me say this before and this is the answer I think to your question, in this business today’s net adds are tomorrows revenue growth. You've seen that already happen in our business and today’s revenue growth is tomorrows EBITDA growth. We just need to be really smart at managing and maximizing that EBITDA growth and that comes by being very, very careful not to sacrifice that long term revenue growth opportunity that we. That’s the long and short, that's the balancing act here.
Very good. Thank you
Operator, last question please.
We will now take our final question from Javier [indiscernible] from J.P. Morgan. Please go ahead.
Thank you. My question is more related to cable and data streaming in the second quarter. I wanted to know if there was any impact from the World Cup. I know that in some of the countries you were streaming the World Cup in the app, so I just wanted to know if there's any effect as a result of that?
Javier, that's a fantastic question. The answer is yes.
The World Cup is technically in the third quarter space.
Fair enough, but I’m not sure I can answer the third question. The effect is brand recognition. The effect is closer to the customer, the effect is as stickiness of our digital product, association of our brand with entertainment, with payTV, with broadband, with digital offering, and we have some fantastic results in terms of views, in terms of downloads, in terms of connections to our mobile app and in terms of just affinity with the brand.
So I guess in the third quarter we should expect even more acceleration I guess from what you might say data streaming and…?
I mean it is fair to say the World Cup will, because the people want to see it, but there's a variety of different access points across our market and it's a good promotional exercise for us, but I think we would view it as basically an opportunity to get the brand out and get the product out.
Yes, it doesn't trickle through in any specific, it just trickles through in lower churn, more net adds, better perception of the brand. It doesn't trickle into any specific KPI per se. So it trickles into net adds, lower churn and better brand perception and higher NPS, so it's more of a longer term effect.
Yes, we don’t see…
Okay, thank you.
Thank you.
Well, thank you everybody. We're very pleased with the results and we just want to thank you for all of you today and your questions.
This concludes Millicom Financial Results Conference call. Thank you for your participation. You may now disconnect.