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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.
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 a 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?
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 my employees. And because of our rapid deployment of our line of 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 and net adds during the quarter, both in mobile and in cable. Our COVID reducing plan has successfully protected our user base on our market leadership position. Two, this user growth, particularly mobile help 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 contrast. 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 continued 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 which 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 fully 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 the Q3. Simply said when users left their home, the first thing they did was turn on their mobile phones.
As you know, we chose to keep our commercial and distribution of service layers on the streets 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. Of note, there were still down about 250,000 postpaid users compared to pre-COVID level. Many of these postpaid customers actually cautiously moved to prepaid. Thus, we do expect that it would take a few more quarters for us to re-upgrade our subscribers back up to postpaid.
We also had a 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 a 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 lifeline products for minimum to face [indiscernible]. 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 turn level 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. This record made us produce a 4% uptick in service revenue in Q3 compared to Q2. Again, we are still well below pre-COVID levels in terms of growth revenue and metric operation is still ahead of us. But the comeback in Q3 was strong adding about $15 million of revenue and growing 4% sequentially from Q2.
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 on 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 that can message is improved performance came entirely from our mobile business from prepaid in particular, as I already mentioned.
Growth in home remains strongly resilient in Q3 highly positive, and about the same as in the Q2. But as you know, in the cable subscription business revenue follows the user base. So our increase subscriber base in the quarter gives confidence to growth in your home business reaccelerate going forward. B2B on the other hand, and as we expected, it’s still challenging with revenues down 8.5%. We could kind of markets are taking a toll on many of our SME customers, many have had to shutdown either temporarily or permanently.
So no B2B recovery in the numbers of this quarter, that recovery is still to happen, still to begin. And we expect this recovery will take some time come through. In short on this slide, Q3 showed a strong comeback and resume in business, but not all of our business minds are recuperating this year. 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, because 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 CapEx last 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 growth going forward.
Now I would also like to give you some color on our key countries starting with Guatemala in Slide 11. Guatemala continues to perform very well. This is stable, rushing and $2 billion market in which we hold a strong market position. We will continue to invest from my opinion market leadership to sustain the growth. As you know coming to Guatemala did not [indiscernible] some other countries did. That is one of the reasons why the impact on our future numbers was limited. And it’s also line in Q3 service revenue growth has gone back to positive, rather here we continued to invest in both our mobile and our peacemaker 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 in Q2.
Now let’s turn to Slide 12 for a look at Panama, but the macro level Panama is the wealthiest country in Central America and one of the reasons we’re investing so confidentially in Panama. But the total of the pandemic in Panama has been amongst the hardest with its lockdown being one of the most severe and its GDP expected to control all the contract almost 10% this year, again its very challenging back. So 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 this whole. The subscriber count tells 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 this and then a little bit more. In mobile, we have now celebrated the one-year anniversary of our acquisition in August. 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 the economy began to reopen, and we're also thinking of 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 spending we did on. And the function in Panama is our dollar denominated and cash flow is increasingly robust. We have generated $160 of operating [indiscernible] over the past year. Even though we have some integration cost and taking a COVID hit which we have not foreseen. This is most visible in our B2B business in Panama which has been very complicated in the beginning of the pandemic. In the B2B [indiscernible] areas in the group that did not recover in Q3 compared to Q2. So all in all, will be not be aspiring on [indiscernible] in Panama, but very pleased by the underlying performance there, particularly in the B2B segment.
Columbia, let's look at Columbia [indiscernible] we are regaining some good [indiscernible]. On the mobile side we expanded or upgraded our network by more than 1,000, sorry we have put 100 megahertz [indiscernible] this year. Remember that we're now the largest holder of 100 megahertz spectrum in Colombia, which gives us better penetration in the areas where we were previously on in the high frequency spectrum. It is also helping us expand coverage and cost effecting this all into traffic areas into which we have covered.
You can see that we bought this year 450,000 customers in Q3. Surely this is related to increased mobility for sure. Our gross ads and VPA scores are higher in the areas where we have already deployed free network, which is a very promising sign. And in home in Colombia we can [indiscernible] our cable network, adding 6,000 home partings during the quarter. This is a bit less than usual, but very consistent with our practical delay in network brought during COVID, so that we can focus on filing the existing network for a better return on capital and more cash during the year.
And that is exactly what we did. We added in Columbia more than 80,000 fiber cable customers this quarter, driving penetration higher, helping us with the cash flow this year [indiscernible] bring capabilities in Columbia. The strong user build in Columbia is a good situation for the last section of the presentation, focusing on home to investment 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 passes. 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 will just show you the positive results for Columbia. 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 Columbia and the rest split between Bolivia, Panama and Guatemala. That's year-to-date 174,000 new fiber cable customer relationships. And positive year-to-date.
Interestingly, we increased 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 in 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 up our home build back up again as broadband demand continues to stay strong. And we will, of course, continue to keep an eye on our network penetration rates.
And in mobile you can Slide 15 that we continue to move forward with the very strategic investments that we have been making to upgrade our mobile networks. We have added over 1,100 points of presence this year, mostly in Columbia. And we have upgraded 4,000 sites in the core countries where we have been deploying new spectrum holdings or modernizing networks. These network obviously expand both coverage, and capacity and improve both user experience and creating efficiency.
In Columbia, as you just saw, this is already providing key to improving our competitive positioning. So investments this year have centered in a more focused cable fiber network rollout and in the mobile network expansion and 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 five million active Tigo Money users in Latin America. That's up about 20% over the past year. And we had only a fraction of our overall mobile user base. Usage is increasing dramatically. The number of financial transactions of Tigo Money has more than doubled over the past year and so have the volumes of the platform is now transacting.
Tigo Money is now transacting well over $2.5 billion annually. Our Tigo Money platform is now molding from being a simple value-add service for our customers to relatively becoming a business in Latin 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 more 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%, new 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 our need, so our Maestrs Conectads program, which means Connected Teachers was initially rolled out in Bolivia, where we trained 140,000 teachers on the 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 are part of this Sangre Tigo culture that you heard me talk about before in the quarter and you'll continue to hear me talk about it in the future.
Now let me turn the call over to Tim to go over the financials for the quarter.
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 $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 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 we’re on track to meet our target for the year.
So on Slide 21, you can see that whilst our service revenue fell by 4.7% in real terms and 3.1% organically, it was greater than the Q2 as we saw improvements in economic activity and in our businesses across most markets, again, as Mauricio has 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're still below pre-COVID levels. Relatively stronger performance in Guatemala 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 on mobile, it was better than it looked.
Last year in Q3, we were still booking Avondale 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're also facing FX headwinds for 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%, and 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 whilst 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 and 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've 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 means that our average maturity is now 6.4 years, the average cost of debt is 5.7%. And you can see from the slide, we really have very little in the way of our refinancings before 2024. We'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 debt. We've reduced our underlying debt by $239 million in the last six months. So our underlying net debt is now at $5.7 billion, giving us proportional leverage of 3.16 times. And when leases are added 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.
Thank you, Tim. Before we take your questions, let me wrap up with recap of the key messages. First, our customer is growing again. In mobile prepaid, we are at pre-COVID levels. Postpaid, we still have some work to do. And at home we’ve continued grow through as despite the company. We expect that today’s user growth will drop 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 start from over, but we are getting back on track and remain positive yet very cautious.
Third, we have made a priority during the pandemic to protect our cash flow and to reduce our net debt, you know that. We’re well on track to do the $1.4 billion of operating cash flow that we guided to worse, 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 there than ever over 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.
[Operator Instructions] Our first question or comment comes from the line from Stefan Gauffin from DNB Bank. Your line is open.
Yes, hello. A couple of questions please. First, included in your target to keep, operating cash flow stable was to cut cost with at least $100 million and to CapEx with $200 million to $300 million. So far we have only cut CapEx with some $75 million yesterday. And with the current improve 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 targets do seem conservative. Secondly, next year you’ll have increased competition in Colombia with one, likely to launch. How are you preparing for this increased competition or you looking more towards converged offerings in that market? Or any other flavor that you can give there would be appreciated. Thank you.
Thank you, Stefan. Great questions, which we had a couple of hours to address them both. Let’s start with the first one, I think join the team and I can do a good job of that. I’ll start out to do, generically what’s happening. We’re managing the business to that $1.4 billion on literally a weekly basis. And then when we see that we have room to put a little bit more CapEx into the business, while still delivering the $1.4 billion, we go ahead and do it. Particularly, if we see the broadband demand is happening quite strongly as we see, it’s happening. So we actually have in our hands what I call, a good kind of problem, which is we can put a little bit more point CapEx into the business this year, try to position ourselves better for when pandemic is over and still deliver it once before.
That’s what we’ve been doing. And we’ve been able to do that, because we’ve been so strict on the cost cuts significantly. And because, and this is the most important plan or part of our plan stays and the way we designed a public plan, we decided with the knowledge that we had a company and we asked one way or the other pretty quickly. Here we can slow down pretty quickly. We can wrap up pretty quickly, which means we can keep our pulse on what’s happening in the markets. And that’s exactly what we’re doing. We’re cutting back on costs significantly, but we remained the ability to ramp up gradually, if we need to. And as a result of that, we were pretty confident. We’re going to get that one from four and be able to invest into the business anything else over that. With that, I’ll hand it over to Tim for more details.
I would only add one quick one. I mean, our costs – I think, as Mauricio said, our costs are running a lot lower than we had anticipated at the time. They’re probably down at just over $170 million in the last six months. Some of that is activity related, some of it is ethics. But a lot of it is also management. And as Mauricio said, 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 billion of operating cash flow. Back to you Mauricio.
Yes. Perfect. So on the second step, and I think you’ve seen as over the course of these year, really put foreclose on our ability to drive better business in Columbia. And that’s really the overall answer to your question. I’ll go into a 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 is actually much more than a 1000. It's closer to 1,200, as we speak today. The number of additional sites which give us few more coverage, even those 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 Columbia, also increased our commercial distribution network significantly. So in Columbia, because now we have more points of presence and that's does not mean network, but it also means commercial.
Now so we're really focused on the opportunity. And this is a key point I'm going to make to your assessment. But for the first time, in many, many years, because we bought 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 Columbia, 15% market share. Year-to-date, 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 in distribution, which effectively means we can now play as a challenger with all the tools, fixed line and mobile and you're right. Convergence is a really important part of this deal. We'll 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 is – 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 Columbia, which by the way, we remained the corporate market as it has been for the last 10 or 15 years, because one is effectively replacing the position that I've until had. So we fixed mobile convergence, with an investment that we're putting it to the network and the mindset that we can be a challenger with only 15% of mobile market share. We actually feel like in Columbia, we have the tools that we never had in the past.
Okay. Thanks very much for reassuring.
We’re focused.
Thank you. Our next question or comment comes from the line of Marcelo Santos from JPMorgan. Your line is open.
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. The second question is about the lifeline clients. Do you still have a large base on lifeline and then excluding – or is it most concentrated in El Salvador? Do we have potential to see this come back in the following quarters besides El Salvador? Thank you.
Yes. So on Bolivia, we were happy to see, Marcelo, the business, not only stabilizing in Q3 but also come back strongly to growth. And I think, we have strong on the mobile and very strong eyes on hold. No doubt, very strong quarter in Bolivia. A lot of that was the result of the strong comeback from the difficulties we have putting into place, the lifeline 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 on our cellular that you need 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've had political uncertainty in Bolivia, and then we have the pandemic in Bolivia, the elections last week helping provide a clear path towards certainty in Bolivia. There was a clear winner and urge around with a clear mandate from the population and as a result of that, the social unrest and the political instability 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. Yes, go on.
Yes, I just want to make one technical points. And I think when it comes into your lifeline products because we introduced lifeline very late in Bolivia. It meant we took a very high back there charging Q2. So a lot of the impact was lower bad debt charges. We've moved to normalize bad debt levels in Bolivia and in fact, in most countries. So I review the outlier as the Q2 EBITDA rather than where we are today.
Yes. Thank you, Tim. That's very, very helpful. So I'll make two or three points on my sell on the lifetime customers. I think the first two are just as generic, if you will. This is 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 just starts paving a way for us, to manage retention and churn and the relationship with the customer in a most cost effective and customer accretive way for us. If you recall, we don’t count any of the subscribers, for minimal subscribers in the subscriber counts that we report to you. Today I would call, that six out of five questions private accounts, we also don’t book any revenue from the live last subscribers.
So we’ve also kept our financials relatively clean. What that effectively means mans Marcelo that you can think of these as a dormant call that we keep at the lower levels of course now than during the pandemic, but then we’re using to bring back subscribers. And you’ve seen during Q3, 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.
Very helpful. Thank you very much for the answers.
Thank you. Our next question or comment comes from the line of Peter Nielsen from ABG. Your line is open.
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 would face. You’re now seeing, as you said, we saw a good recovery in Q3. So could you give us any quantitative indications on how you see the coming quarters? Will the sequential improvement in service revenue trends continue? Do you perhaps a bit more optimistic or stabilization for next year? Or I used to 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.
Yes. We’ll get to those. Tim, you can start working on the $1.4 billion.
On the first one on the COVID one, there’s actually two pieces Peter, they’re really, really good question. One is, what is outlook for COVID, 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 cost increase mobility across our countries. But 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% to 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 the surgeons 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 do I set the outlook going forward? The key element for us is that the recipe of a lockdown in a 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 – 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 way, but we won’t see it at this point, but we don’t know. We surely don’t know. We don’t expect that the lockdowns can be put in place or will be put in place in such a harsh manner as a way before. And I think the recipe in our countries will now – on the side of keeping the economies open and the recipes will have a lot more of economic predominant 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 truly public 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 lockdown in their countries. And every month this past quarter, actually the last six months has been a bit better than the previous month, it has been pretty gradual and therefore we remain very cautious going forward. We do have a more positive outlook for 2021 than we do for 2020. But we surely do.
But we also have 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 that during this crisis. You’ve seen as we’re investing for the long-term. We know that broadband is that product that’s in high demand has got a long runway and we see a short-term that we really see a long-term. But we also need to manage the shorter term. And we’re doing that very, very cautiously, because the key word here is uncertainty, Peter, and that that uncertain comes from blind mobility could come back to the macro will certainly have a way on our performance, whether it is predominant down to the economy or the fiscal constraints that our governments are going to have.
And three is B2B, when would it come down, come back this is a function of when the economy 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 where we have learned, and what we have demonstrated is that our COVID plan still ongoing has great governance and we have shown and then 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 up. And I think that’s the key to our success probably continue to invest in the long-term? That is as much color as I can give you and with all of that that keep, you’ll find that our entree for the 1.4 to things like I can give you is completely consistent with that.
Yeah. That’s great. Sorry.
We, kind of, we need as a new North Star when COVID hit, we realized, we needed to protect cash flow reduce steps, manage leverage, and that’s where we 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 MPV positive projects that we have paused or we have suspended. And to the extent we can generate more cash flow. We will want to execute on those MPV positive projects, particularly, if we can see viability in 2021 to just big 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 we w will do that.
That’s helpful. Thank you both. Thank you, Mauricio. Thank you, Tim.
You bet. Thank you.
Thank you. Our next question or comment comes from the line of Fredrik Lithell from Danske Bank. Your line is open.
Thank you. Hello gentlemen. Happy to see you returning back with your performance always good. I had a few questions if I may. Let that 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 train for you and your countries?
Another technology question is fixed wireless access is that something you’d consider as an alternative or one of the tools in the tool box 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.
Yes. Great question. Thank you, Fredrik. So in digital, I think there’s two bits to my answer to that. One is, we’re 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 slide on how we were going to go about our digital first platform and how we were going to focused 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 condemning rather we would turn the wheels faster to capitalize on it. And the numbers show that and most importantly, I think is just 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 team came up to me during a pandemic, and I said before, it would 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 into pandemic that non digital channel simply did not exist. So we never – we didn’t have a conundrum anymore. It wasn’t a trader. We just put the money into digital and we saw it work. So that’s what happened. We were – we had the opportunity, the need to go digital those are assaulted that we saw that happening. focus of our digital strategy, which is very commercially driven. So what you've seen is, think of as digital is effectively the distribution channels and the service layer channels, that's what the current trying to thinking about digital is. And this has been our thinking for the last two years, and we are very happy that we have put the focus on this at this point in time, because that's the first wave that really matters.
Moving forward, our digital I'm not sure exactly when we're going to put it in place. It's going to have layers of data analytics and artificial intelligence to put the network to be more efficient and to put our relationship with the customers on a digital platform that can use data analytics, artificial intelligence. It is a matter of the 80/20. When we are comfortable that we completely maximized the commercial focus of our digital strategy today. The reason we think were pretty wise is because we choose what to focus on and our focus is being on digital, a commercial and service tool.
Our next phase is going to be, how do you use digital for data analytics and the use of artificial intelligence to make us from a digital platform. And that's highly related, of course, as you can imagine with the use of our digital platform as a platform premium services. Fixed wireless access, we do use it sporadically, and to test certain markets, whether that used to be in fraction. So fixed products there that we may eventually want to roll out fiber cable too, particularly in Panama and Colombia, we have used fixed wireless access to determine whether there's enough demand for our broadband product sufficiently so that there's economics for fiber cable rollout.
Alright. Thank you.
Thank you. Our next question or comment comes from the line of Johanna Ahlqvist from Scandinavia Enskilda. Your line is open.
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 lockdown; 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're 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? Thank you.
Yes. So I'll start in with number two, then move on to number one and hand it over to Tim, because he can weigh on the macro as much as I can. On the tax consequences, we've debated this internally quite a bit. As you know, in every country around the world, the reaction's different than pandemic has taken a big toll on fiscal accounts. So on the one hand you would think, well then governments are going to be more tax constrained and as a result of that they may look for some of the bigger companies to be more burdened.
On the other hand, every country particularly, our economies has realized how important digital connectivity is to their citizens. And as a result to that, they have a counter balancing argument, and we have a contract balancing argument that basically says, be careful with taxing this sector, particularly now in a 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're care for this sector, be careful with what you're doing with it.
On the macro side, I think, the key word behind that is uncertain and the place has been cautious. Central America has been very resilient in terms of its FX and in terms of the remittances. The remittances went down in April and started to come back in May and year-to-date just about every country in Central America has seen renewed growth in remittances, which has certainly held up those economies. And the reason – the reason I hesitate a little bit here is because one of the things to learn about our economy is how much the informal sector really weighs and how resilient these economies are at the informal level. And that's why it's 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, and take on the last question.
Yes. I just make a quick comment on tax. Actually, we had a very low tax charge in Q3 and realized this wasn't your question, but just to explain it. Now to some extent that is lower with holding tax, but I expect to see a kind of normalization in Q4. So favorable tax charge for the year is going to end up somewhere between $200 million and $250 million on an underlying basis, realize that wasn't the question, Johanna, but I just wanted to get that in. So I don't understand.
And on the bad debt, I mean, I don't want to give 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.
I mean, in terms of countries, Johanna, I think the one mentioned already made it, two or four weeks ago, the level of uncertainty around Bolivia concerned at all. I think today we have this less certainty that we did politically, two or four weeks ago. So I think that's the one thing I wouldn't call out in terms of any specific country.
Thank you very much.
Thank you. Our next question or comment comes from the line of Soomit Datta from New Street Research. Your line is open.
Questions please, just on Tigo Money, I think you 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 then 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 there. And then secondly, please, just one on the balance sheet for Tim, apologies that I dropped off the call. I'm not sure if I missed this. But just on Guatemala, and if I understand the local debt is being paid off that and then there's a lower dividend payment coming out of Guatemala this quarter. Is that – so far this year, you said that there seems to be a kind of attempt to kind of and delever that particular operation, but it's already got relatively low leverage. So if I understood all of that correctly and maybe you could give a bit of perspective on what's happening of that asset. Thank you.
So Tim has a master's degree on Guatemala financing, so he'll take that for sure, if you're laughing at me, Soomit. And 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 in a kind of quiet and fortunately yet focused way.
Just to give you an idea of what that business is today, it's small for me to come. It's – who would do on a yearly basis and of course, it's difficult to analyze given COVID, but it could do somewhere around $40 million to $50 million, on a yearly basis today. So it's more 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 more within us, but big in comparison. Importantly it's profitable for us because of all the senior leaders are 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 various small exceptions in Paraguay, where we do lending, but it's just mainly for our own subscribers or their mobile users. So we're lending credit for all our users but it's a way for us to start learning a little bit more about that model going forward.
And typically 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 either a medium to long-term ambition. If this works out the way it's beginning to pan out on the payment front. There you have, Tigo Money, summarize in one minute.
And just on the Guatemala balance sheet, I mean something was happened there, we have an $800 million U.S. bond, 144A bond, and it was our most expensive financing. It was at 6.8%, 7.5%. And we just issued at 4.5% so we 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 is being so cash generative and we found that there was some local currency financing available at, kind of reasonably attractive prices 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 standalone as well, just to do that. So as a consequence of that, obviously they'd been preserving cash over the last couple of quarters. So the cash and dividends that you see in the – the cash flow is lower, but no one, kind of from our perspective, as we're looking to reduce leverage across the group, and whether we do it in Guatemala, we do it somewhere else. It's relatively mutual to us, so that's really what's been happening there, Soomit.
Thank you. We have time for one more question. I found a question or comment comes from the line of Mathieu Robilliard from Barclays. Your line is open.
Good morning and thank you. Obviously, it’s a part of the…
Sorry, I can't hear you.
Can you hear me now?
Yes, much better.
Sorry, I had a quick question on M&A. So you stepped up – stepped out of a deal at the beginning of the year, I guess, because the price you 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 lots of uncertainty, you imagine that or conceptually, if there are interesting deals out there, and 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 the deal because the regulator was imposing very tough remedies. And I was just wondering, this kind of approach that we've seen in El Salvador, is it something that we should not expect a bit more in the out countries where you operate as, actually not being very receptive to consolidation and going unfortunately more to the European way than the U.S. way, is not an unfair generalization? And then very lastly if I can, any comments on competitive environment in Paraguay? Thank you.
Sure. So some of these are fairly quick to respond or its important but quick. So on the M&A that the simple, straightforward, very rapid question is M&A is not a focus of ours today. We are focused on weathering the crisis successfully or seem to be doing, we have to think the crisis is over by any stretch of the imagination. So we think we need to continue to be focused on that – focused on delivering the operating cash flow growth, the synergies and the integration. And on using net debt so that's squarely our focus today. On whether El Salvador present things for the region towards a harsher view on consolidation, I don't think so at all, Mathieu, I think it's an isolated, specific country decision.
The reason I think that is, we did quite a bit of M&A and others did throughout region in Central America over the last couple of years. And on 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 their 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 way is just too obvious for responsible governments, not to recognize. I'll talk about a matter, I think it's an isolated matter. 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 the three was, maybe think and bail me out here.
Competition in Paraguay?
All right, competition, Tim?
I mean, generally speaking, we've seen competition in Paraguay in 2023 a little bit more rational than it was in 2019. And then you can imagine that I hesitate a little bit to say this because I don't want to jump to it. 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 into some of their competitors. I think it largely has to do with the fact that, we defended on the 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 sent a very strong message that we're going to defend our marketplace going forward. And we expect this market to be rationally. And then so I have treated or listened very aggressive competition in Paraguay, more than anything else.
Great. Thank you very much. Very helpful.
Thank you. I'd like to turn the conference back over to management for any closing remarks.
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 and we need to balance the short-term with a long-term investment on 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.