Millicom International Cellular S.A. (TIGO) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today’s Millicom Second Quarter 2019 Results Conference Call. At this time, all participants are in listen-only mode. There will be presentation followed by question-and-answer session. [Operator Instructions] I must also advise you, meeting is being recorded today on Friday, the 19th of July 2019.And I would now like to hand the meeting over to your host today, Michel Morin. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to our second quarter results conference call.Before we begin, please turn to the Safe Harbor disclosure slide on slide two, and the presentation is available on our website. We will be making forward-looking statements today. And these statements involve risks and uncertainties, which could have a material impact on our results if these risks materialize. So, please take a look at the slide to review these risks in detail.And then on slide three, you can see that we also use a lot of non-IFRS metrics. These are defined in the presentation, and you can also find reconciliation tables in the back of our earnings release.So, with those disclaimers out of the way, let me turn the call over to Mauricio Ramos, our CEO.

Thanks, Michel, and good afternoon or good morning to everyone on the call today. Thanks for joining. As usual, I'm here with Tim Pennington, our CFO.Let's start on slide five with some of the highlights for the quarter. As you know, our strategy is, first and foremost, centered around driving organic growth. You have heard me say this often before. First, we build the networks, then we add the customers. These are the basic operational KPIs that we track. And as you can see on this slide, we continued to deliver strong, very strong net adds in Q2. In mobile, we added more than 0.5 million 4G customers in the quarter. We're now approaching 12 million customers on our 4G network, but that’s still only about a third of our customer base. So, we have a long way to go on the mobile broadband potential within our own customer base. We also added an additional 60,000 new mobile postpaid subscribers in this quarter. This is now our 7th consecutive quarter of positive net mobile postpaid additions. Indeed, as our users adopt 4G and become more data centric, we are seeing a gradual shift from prepaid to postpaid, as we anticipated, and as we are driving. This has happened, as you know, in other Latin American markets, and it is starting to happen in our markets, as we drive that strategy.On cable, this quarter, we built another quarter of 1 million homes passed to expand our HFC networking. You're probably getting used to this metric by now. But, let me remind you that this is now our sustained build rate. We are building about 1 million homes per year. And we brought in this quarter, a very strong 94,000 cable net adds. We're just about hitting that run rate of about 400,000 cable net adds per year, as you have heard me talk about, 400,000 cable net adds per year; we did 94,000 this quarter.So, roughly speaking, on cable, we're adding about 1 million homes in network per year, and about 400,000 net adds per year to the customer base. These run rates obviously imply in network penetration rate of our cable network of about 40% of the net additions, which is not bad at all. Now, this is obviously rough math, because these are not specific cohorts. But the overall point is still valid and very strong. We are filling our cable network at a very strong pace.So much so that even with our rapid record network build rate, our network penetration is actually increasing and RGUs are growing even faster. As you all know, adding RGUs and subscribers to reach high network penetration rates and lower churn along with disciplines are the keys to driving operating cash flow margins over the medium term.Let's now go to slide six for some of the financial highlights of the quarter in our Latin American segment. Service revenue grew 2% and EBITDA grew 1.5% on an organic basis for the quarter. These growth rates are slightly below our recent growth rates and also below the growth rates we expect to achieve for the full year. So, you will likely wonder why. Part of the reason is that we had a very strong second quarter last year. Indeed, this Q2 is our toughest quarterly comparison of the year. So, we knew going into the year that growth would be slower in Q2.As a result, our full year forecast is indeed very back-end loaded, largely because of the large government contract that helped us in Colombia in the first half of last year. These contracts are pretty common but last year was particularly good, and it was concentrated in the first half and especially in Q2. Now, we do have another large contract coming out this year in Colombia for the municipal elections, but this one will take place only in Q4.I just said that the back-ended nature of a budget and the strong Q2 last year are part of the explanation. In addition to this and quite candidly, El Salvador and Paraguay are taking a bit longer than we had planned, to recover. So, we are indeed investing EBITDA to repair and defend those markets, and thus we had a hope we would do a bit better in service revenue and EBITDA growth, but not by much more, frankly. So, we are a bit short on EBITDA but we are ahead of our own plan on operating cash flow for the first half of the year.OCF grew 6.4% on an organic basis in Q2, which is actually a bit ahead of where we expected to be at this point. This is on the back of continued procurement savings and efficiencies on network across Latin America and also because the cash flow out of Panama is stronger than we had anticipated. And all of this is therefore allowing us to continue to invest heavily in the networks and IT while we grow operating cash flow in an accelerating manner.The combined consequence of this is that we're comfortable confirming our outlook for the full year, as you can see on slide seven. EBITDA growth will likely end up near the low end of the range but operating cash flow will likely end year, close to the very top of the range, in the high single digits on an organic basis. So with that color, we're tracking and confirming guidance for the year. And much more importantly, we like where the business is heading mid-terms towards our guidance of 10% operating capital growth. We'll talk about that a bit in a minute.This is important because we're very focused on our medium term plan, which is anchored around that 10% goal, and which is what our long-term compensation is based on. All of which makes the entire management team highly incentivized to deliver on our plan. And you know by now that I'm personally a strong believer that we are well on our way there, because as was made public a few weeks ago, I recently bought an important chunk of additional Millicom shares in the open market.So, let's talk a bit about our progress towards that long-term strategic goal on slide 9. You already know that most of our markets are experiencing GDP growth in the 2% to 4% range, which is quite healthy, especially compared to many of our neighbors in the region. But, the key highlights on this page are the charts on the bottom. This is data from a macroeconomic analysis, we asked Oxford Economics to update specifically for our markets.Household formation is projected to average about 2%, over the next decade. The number of households and household formation in particular, as you know is a key growth driver for our business. More importantly, the middle class in our markets is projected to grow much faster, with most of our countries averaging about 6% to 7% growth. This continued growth of the middle class is key to the demand [Technical Difficulty] services in our markets. As a matter of fact, it’s what's been underpinning our growth.Now, please take a look at slide 10 to see why we are well-positioned to deliver reliable and affordable broadband to this growing middle class in Latin America. One, we are a clear market leader in a majority of our nine Latin American markets. We have economies of scale, locally and in each market and regionally as well and we are using this scale. Leveraging this scale for centralized procurement and efficiency indeed continues to help us deliver growing cash flow margins. Two, we have built a very strong asset base with a converging network infrastructure, stronger and stronger distribution capabilities, growing customer relationships, a well-recognized brand and now, improving NPS levels. And three, statistically, we now have a well-balanced portfolio of countries to help diversify our risk, nine countries in Latin America, all of good size and scale, all with fixed and mobile, all with improving industry structures and with market-leading positions. And our revenue mix is also increasingly subscription based as we drive cable and mobile postpaid net adds, which continue to grow very, very strong.On slide 11 we highlight that our capital reallocation journey took a few more good steps in the right direction this quarter. We actually completed the sale of Chad and freed out more capital from Africa and we're pleased with that. And we closed the acquisition of Nicaragua in Q2 within the expected timeframe. We have now owned the business for a couple of months and I will give you more color in a minute. We're also on track to close Panama and Costa Rica in the second half of the year, as planned. Simply said, our capital reallocation journey is on track. We still have a few more assets that as you know, are not strategic. You're familiar with the list. And this will provide us with additional sources of capital in the future. Our track record by now should indicate well that we will continue to execute decently on this journey.And while we're in this topic, we want to give you an update on Cable Onda on slide 12. We have now owned the company for six months. No doubt, we bought a world class cable company. Q2 revenue growth may seem a bit soft at first glance to you, we get that. But the reality that Q2 last year was exceptionally strong on the back of, one, the Soccer World Cup, which Cable Onda had on exclusive basis where Panama was on the cup for the first time ever. Two, strong B2B contracts for the quarter. So, there's no surprise to us there, especially as we did expect the economy to soften, while the new government in Panama takes off office and fiscal spending kicks back in. I was actually in Panama last week, I met with the new President and with his economic team, and we sensed a very pro business approach and very increasingly positive private sector sentiment towards the new government.The most important point, however, is that as you recall, our acquisition case with Cable Onda was not based on synergies. We did not even give you a full synergies acquisition multiple. Now, six months into running the business, we're finding savings and efficiencies in procurement, in network management, in CPE add rates and in programming. In round numbers, this goes down to about a $10 million upside to the operating cash flow guidance that we gave you when we announced the acquisition. So, about 10% more cash flow than we had anticipated. This is obviously a recurring benefit to operating cash flow line, it is in U.S. dollars, and it partly helps explain why we're expecting to track on the higher end of the range for our 2019 Latin American operating cash flow guidance. And with six months of good integration with we’ve been waiting to add mobile to the business later in the year when we close on the Panama part of Telefonica acquisition. This of course is strategic for us. It would make us number one in Panama, makes us fixed mobile convergent and will unlock meaningful cross selling and synergy opportunities.And now, on to a brief update on Nicaragua on slide 13. We closed the acquisition in mid-May. So, it is still very early days for us. But, we close that on track, and there's a few points that are worth mentioning. Number one, no bad surprises, that's always good. Number two, the integration process, although early on, is on track. On day one, we announced a new country General Manager and named the entire leadership team. So, effectively, we've hit the ground running, as you would expect us to do. And three, synergy and operational post closing assessments are underway. We already see some upside to our acquisition case, particularly in procurement savings and in a more efficiency as a spectrum to streamline the overall operational costs. This part we actually did not expect and we're happy to see it happening. And four, on the flip side of that, the economy in Nicaragua is still under a lot of pressure due to the unresolved political crisis. No big surprise, of course for us, but that negative impact on revenue is clear.As you know, we [Technical Difficulty] Nicaragua for the long-term growth opportunity. So, we are now surprised for the short term. We're just keen now to leverage our new mobile leadership in that market to build a leading converged cable and mobile company over the next several years, as was and is the acquisition case.Let's turn now to slide 14 to assess where we are now in the organic part of our long strategic journey. You have seen this slide before and we will continue to update it regular as it tells the story quite clearly and step by step. By now, you know the left part of this. We are building a data centric networks, we are filling those with strong net adds, and revenue growth is back. The next step, and this is the key next step and our focus now is operational leverage and network efficiency to drive operating cash flow growth, as simple as that.For the right side of this slide, you see that we had little or no operating cash flow growth back in 2017. For the last 12 months, however, we are at 6.5 operating cash flow growth. And this first half of the year was a strong 6.9%. And with revenue growth back in the system, cost controls and the network now getting filled, we're driving quickly towards our double-digit organic OCF growth target over the medium term.So, I want to focus now on how the capital we have deployed over the past four years is effectively driving this operating cash flow growth now and into the future. So, please take a quick look at side 17, because this is strategic.We have been actively deploying network, subscriber acquisition and IT CapEx in Latin America over the past four years. I want to make four key points on this slide. One, we have been expanding our 4G network rapidly by adding 2,000 to 3,000 points of presence per year. And as we have been deploying this 4G network, we have used the opportunity to connect our sites to fiber. Our 4G network now covers about 70% of the population. This effectively means that it covers over 90% of the urban population in our markets. The point is that we do not expect to have much more coverage from here on. Said differently, the coverage aspect, the fixed cost part of the network expansion is now done.Two, on the cable side, we’ve been building about 1 million homes per year. This is not going to change much as it is about as fast as we can go. We reached about 11 million homes today and we will get to at least 15 million or 16 million homes passed. So, we will be building cable for a few more years. But, and this is very important but, even as we build, we are sustaining and even growing our cable network penetration rate, which is driving network cost efficiency. And as that cable subscriber and that revenue base continues to strongly grow, the annual cost of this sustained annual network expansion will actually decrease as a percentage of revenue.The third point here is actually and importantly that cable customer additions are now the main driver of our CapEx. Let’s take a close look at the cable customer net additions on this slide. This is the most remarkable metric on this page, for the long term. In three years, we have more than doubled our customer intake and it is still moving higher. In the first half of 2019, we have added about 190,000 HFC customers organically. This is why CPE now represents about a third of our total CapEx in Latin America. This is success-driven and revenue-generating CapEx with quick cash and cash payback, and which again, as a revenue base grows, will lessen as a percentage of revenue.And four and last but importantly, our ability to drive efficient decreases in capital intensity will rely importantly on our plan to absorb mobile traffic on to our expanding cable networks. That is the mobile benefit to why we have been building cable and proactively, very proactively upgrading our customers’ Wi-Fi routers. We, in fact, do very little unloading today. But over time, this unloading capability will help contain our mobile CapEx. This is the cost and efficiency part of fixed mobile convergence, the part that we actually like the most. Convergence at the network level, not at the product level, is in fact a competitive advantage for cost.And finally, and although we don't talk about this too much, we have been deploying capital towards IT transformation significantly. This is slowly but surely helping us become a more agile and a more digital company. Today's IT transformation in our minds is tomorrow's digital cost savings. I realized that there's a ton of information on this page, but the messages I want you to take away from this slide is important to our strategic framework going forward, because we have been indeed positioning ourselves to be where we are now. Our CapEx is increasingly success-driven, it is increasingly revenue-generating, and it is increasingly variable in nature. As a result, as our revenue grows, capital intensity will be sustained in absolute terms, but it will gradually decline as a percentage of revenue. And this is what will help us continue to drive operating cash flow growth and expanding margins into the future. And you're already beginning to see that into Q2, and as a matter of fact, all of the first half of this year.And with that, let me turn it over to Tim to go over our Q1 performance in detail.

Thank you, Mauricio.So, let me dive straight and look at the Latam service revenue on slide 17. So, outlook, our Latam service revenue was up 6.1%, FX had an impact, whilst the change in perimeter and now with the inclusion of Cable Onda in Panama and Telefonica Nicaragua assets that is $135 million, of which Panama was $99 million.Netting all that out, as Mauricio said, the organic, which is the like-for-like revenue growth was 2%. Mobile continued to grow in Q2, were up at 0.7% with good momentum in postpaid. Home continued to grow well at 7.7%, whilst B2B fell by 0.3% on that tougher comp. If we strip out the Colombia election contract, B2B grew by 2%. Let me break that down on the next slide, slide 18.If I start with Colombia, KPIs remained strong. We added 34,000 HFC homes, our RGUs were up 15%. However, the organic growth was lower, and this is mainly due to that tougher comp that Mauricio talked about. The election contract added about 300 basis points to last year's organic growth.In Bolivia, a decent growth of 5%, lower than we've seen recently. But home is growing around 45%, which is great. Mobile prepaid had a slower quarter with more competition, and this has led us to move quickly to protect market share, and this is largely succeeded, but with the consequence that we have lower ARPUs. Paraguay and El Salvador saw a little improvement in the operating environments, both largely due to prepaid market issues. And Paraguay also benefited from a one-off flattering the growth in the quarter. At Panama, we did okay, tough comp, World Cup, large B2B projects. But overall, as Mauricio said, we're very happy with Panama's revenue in Q2. And finally, Honduras maintained its steady uptick; and Guatemala had another very strong quarter.If I turn now to side 21 look at the Latam EBITDA. As you can see, a reconciliation between the Latam segment presentation and the IFRS presentation in the appendix of the slide deck and in our earnings release. So, the Latam EBITDA of $584 million was up 13.8%. Now, this largely reflects the introduction of Panama and Nicaragua, and IFRS 16 impacts, partially offset by FX. Our margin increased to 40% with underlying organic growth of 1.5%. Let me take that up on the next slide on the slide 20.So, slide 20, you can see the excellent performance from Guatemala and Honduras, once again. Bolivia also delivered north of 5% EBITDA growth, slower than Q1, as we felt the impact of more competition in the prepaid sector, but our home and postpaid businesses continued to perform very well.Despite the slower top line in Panama, we are very confident on EBITDA and cash flow. We’re finding savings opportunities in places we didn't expect to find them, and the margin is stronger. And in Colombia, whilst growth damped a bit in the second quarter, partly because of that tougher comp and partly because of one-off charges related to an arbitration ruling reaching up 3.8 percentage points of growth in Q2.Finally, we talked about the challenges in Paraguay and El Salvador on several of our calls. In both markets, we now have a very clear idea of those challenges. They are very localized to the prepaid segment, and we took more sales and marketing costs to drive greater sales in both of those markets.So, as Mauricio highlighted, Latam OCF was strong in Q2, increasing to $360 million, up 18.5%, and this is on slide 21. There was a big impact from IFRS 16 and from the new businesses, again, partially offset by FX. But even excluding these impacts, organic growth was 6.4% or 6.9% in the first half. And that was driven by Guatemala, Honduras, Panama and Colombia. Broadly, we saw a stronger EBITDA in Guatemala and Honduras, we saw lower CapEx in Panama on those efficiency savings, we also saw the more cautious approach to investments in El Salvador, and we saw general improvements in Colombia. [Ph]Okay. If you let me now turn to the group numbers, which are one slide 22. And if you recall, we treat Guatemala and Honduras as associates in the group P&L. And in Q2, our share of profits was up by 70%, reflecting a very strong performance from both of those businesses. Things to note, the D&A charge is higher on the inclusion of Nicaragua and Panama, and to compound this, the IFRS 16 has had a big impact across a lot of number -- a lot of line items. There’s fulsome disclosure in our earnings release. So, I won’t go into that now.Finally, there were several gains booked on noncash fair value adjustments in the quarter. But, I just want to flag the operating profit as it sort of highlights a couple of one-offs that we took, which were outside the Latam segment and that's on slide 23.So, you can see that on slide 23 the group operating profit fell 35%, but this is very largely one-off items. In Africa, we took a $21 million charge for a fine in Tanzania. The operating environment in Tanzania is getting more hostile. In fact, this is as difficult as we’ve seen it. Now, we have filed the draft prospectus to IPO the business, in line with the legal requirements. But in light of the present market conditions, our banks are advising us that the valuation is likely to be below our own expectations.I think, you're also aware we’ve had a period of fairly forensic corporate activity, the purchases and sales, U.S. listing, the [indiscernible] transactions. These have actually generated material costs for the group. This quarter alone, we've incurred $16 million of additional costs. And for the full-year, we expect the additional cost to amount to around about $50 million. Now, the majority of those will relate to the acquisition and integration of the Telefonica assets.So, let me end on our net debt which is on slide 24. The net debt before finance leases increased by $452 million, largely reflecting the M&A. Leverage ended the quarter at 2.43 times on a fully consolidated basis and 2.88 times on proportional basis. And finally, the closing on the Telefonica, Panama and Costa Rica transactions will add approximately $1 billion to our debt in the second half of the year, and we plan to fund that with debt.So, on that, let me pass back to Mauricio to wrap up.

Thank you, Tim.Before taking your questions, let me take a moment just to recap our Q2 big picture. One, we are confirming our guidance for the year. While EBITDA is trending towards the low end of the range, operating cash flow is actually trending towards the top end of the guidance range. Two, the Panama acquisition is delivering and we now see 10% upside to our initial operating cash flow guidance. Three, the Nicaragua integration, although early on, is on track. Four, we finalized the sale of Chad, and we're on track to close the Panama and Costa Rica acquisitions in the second half of the year, as planned. And we of course have detailed integration plans for the remaining acquisitions. So, no hiccups on the acquisitions at all so far, which in summary means that our long-term organic and inorganic journeys are well on their long-term designed tracks.And on that, we're ready for your questions.

Thank you. Ladies and gentlemen, we're now beginning question-and-answer session. [Operator Instructions] And your first question is from the line of Stefan Gauffin of DNB. Please go ahead.

Yes. Hello. I have a couple of questions. First, on Colombia, you have a new government contract coming up in Q4? Can you give some more information on the magnitude of this contract? And also, how much was the lost contract impact in Q3 in 2018? Secondly, in El Salvador, service revenue remained under pressure, now because of the tougher market environment, but EBITDA also took hit from increased market spending. But, we did not see a big impact in terms of subscriber numbers from this spending. How should we think about that going forward? Thank you.

So, Stefan, thank you and thanks for the contract questions. I'm actually very pleased, on the last few calls we've been able to now have very specific country and operational calls on Latin America. On Colombia, on the new contract, government, we can tell you that is for the management of the IT and the connectivity for the municipal elections. So, that's going to be Q4. We would rather not give details, simply for confidentiality reasons, as you can imagine are part of the contract itself. And on the contract last year, I'm sure we can give you some detail on it. But, there was some of it also in Q3. Anything, Michel followed Tim that you want to add on that on Colombia?

I mean, I think, the only thing to add to that is that the government contracts last year, it was a bigger one than what we will expect to see this year, but this year will be concentrated in Q4.

On El Salvador, perhaps best if we talk a little bit about the situation in El Salvador and where things are tracking to, just to give you a holistic view of what's going on there. I would position our views towards El Salvador as cautiously optimistic, both cautiously and optimistic on both fronts. And, we are seeing the postpaid part of the business growing quite well. You may not start to see it just yet but the postpaid part of the business and by that I mean, both home and mobile to beginning to see net adds, both cable net adds which are now flattening, so we're no longer negative on that front, and increasingly good signs of mobile postpaid net adds, which you don't necessarily see, but we had what we do. And we're seeing churn bit better and ARPU stable on the entire postpaid part of the portfolio, both home and mobile.Prepaid indeed is still very competitive. Claro is indeed investing in the networks and in commercial activity, no doubt about that. But, we do see our mobile prepaid core net add, so, the most important part of our base, beginning to stabilize and significantly so for the last two or three months, and that's significant. And the reason for that is because we're pretty certain that we have corrected the affordability gap that existed in the marketplace. And we've done that by adding basically data allowances, which indeed have turned ARPU down a little bit, but are allowing us to stabilize the market share. And this is where cautiously optimistic comes into place. We do think that you will begin to see the investments we've made on EBITDA, start demonstrating that the subscriber base is stabilizing on the prepaid part of the business. But, we already know that the postpaid part of the business has stabilized. Now that’s, if you will, the short-term aspect to El Salvador.On a longer term note, the things that keep us focused and again, optimistic on these are, one, we think what we've done in terms of solving for the affordability gap and solving for the operational issues, see as returning slowly to be more optimistic. But number two, the market will go from four to three sometime in the next few months and we're supportive of that. And as a result of that and as part of that, we are also supportive and see that more AWS spectrum will be released in the short to medium term in the market, which will help the industry as a whole.So, with all of that, you can see why we're cautiously optimistic. And if Honduras is a good indicator of our track record, I think El Salvador is on its track to be mended. Hope that gives you the full perspective, Stefan.

Yes. Thank you.

Thank you. Your next question is from the line of Mathieu Robilliard of Barclays. Please go ahead.

Yes. Good afternoon, good morning. I had three questions, please. First, the top down, if you look at the guidance for the EBITDA of this year where you've indicated we should be targeting the low-end. I mean, if you look at it on an aggregated basis, is it the result of slightly lower revenue growth than you were expecting at the beginning of the year, is it a result of slightly higher costs for different reasons, for instance, maybe because you're investing in digitalization? If you could give a little bit of color on that that would be helpful. Then, I had a question on capital intensity, and Mauricio, in your prepared remarks you did highlight quite a few times capital intensity would decline over time. Yet at the same time, and maybe I'm missing something, when I look at the slides you guys are showing for the long-term CapEx to sales, it seems it’s pretty stable as a percentage. Maybe I’m missing something and you could clarify. And then, lastly in Paraguay, I think, you guys have flagged in the past that you’re focused on protecting the market share. And I was wondering, if you could give us a bit of color as to how you think you're doing versus competition over the last quarter or two? Thank you.

Okay. So, let me start with one question to you, Mathieu. And thanks for signing in. Are you sure you have no more questions?

I could have a lot more.

I'm sorry. Now, I'm regretting I asked you that. So, listen, on the top down guidance, and I won’t repeat what I've already said, because you guys are all pretty smart. There's a little bit of both, but it's -- I mean, revenue and EBITDA, but it is more weighted towards EBITDA than it is to revenue. And if you were to be inside the tent, you would see that we're now tracking anywhere near far off from our own revenue budget, tracking pretty close to it. But, I think, I used the words using EBITDA or investing EBITDA to defend our strategic positions. So, it's largely that. Not exclusively that, but it's weighted more towards that. And that comes on effectively, digital, as you well point out, but also commercial activity, to defend our strategic positioning. In markets like El Salvador and in Paraguay, we've increased the capillarity of our commercial network. And I'll talk to that when I talk about Paraguay. That's number one. In markets, where we’ve seen competition pick up, and we needed to defend and reinvesting, retention. And of course, that has an impact in retention sales activity, which is also more EBITDA than it is really revenue. And in those markets and particularly we’ve picked up just advertising, both above the line and below the line. And that's more EBITDA than it really is revenue. So, that gives you that color, I think.And, I’ll move on to the Paraguay question, which I think is a perfect sort of segue into this, and how are we feeling about Paraguay.The way we think about Paraguay, -- the way I think about Paraguay is it's a tale of two businesses, if I may paraphrase a British author. On home, we are seeing more competition, we talked about that just from some network deals. And that competition is subduing ARPU growth, but not having meaningful impact on ARPU. But we don't see that we're conceding any market share. And we actually see that we're not really losing any traction on our growth. If you look at the Paraguay net add gain rate is very strong, 7% year-on-year, and we continue to add users every month. And our churn is pretty stable. That's because we’ve been adding more capacity to the nodes, with cleaning up nodes, we've been retaining service desks, putting service desks in place. And as a result, we're really conceding no gains and continue to grow both net adds, and if you look at the Paraguay home business, we still have significant and very positive revenue growth.Now, mobile in prepaid in particular is much more difficult. But, I do see some early signs and good signs actually that our strategic reaction is going to work. So, when you think about what we're doing, in terms of reaction, you can strategically think of it as being twofold. One, we have worked hard painfully and have great cost to close the affordability gap, which means that we've had to match data allowances and prepaid, that is costly on ARPU as you can imagine, but it solves the product offer gap. And that immediately has an impact that you can measure if you're making progress, because you do see the reloads starting to pick up and we are seeing those starting to pick up. And you do see your need to NPS on the prepaid product starting to pick up and we do see that now for the two months. So, we believe that that part of the strategic response is working. And we've also revamped our distribution network, adding capillarity and control on that prepaid sales and distributions network. That's the part that I was referring to as adding cost as a group in other countries, but particularly in Paraguay.And as a result of those two pillars of our strategic defense, we are beginning to see that defending our market share is beginning to work. Our goal is to grow the intake of subscribers at the gross level and to stabilize the market share. And I'm personally pretty confident that we're going to standardize our market share, because we're beginning to see the gross sales pick up. Now, this will mean that we will have to continue to invest in EBITDA and you will see that. And it will mean that we although feel confident that we will get it right and we will stabilize it. It just means that the worst is behind us but we don't quite know when the sun will shine again. And that's the timing element of this, which is very hard for us to predict. That's the full Paraguay picture in a nutshell.

I’d just also add. I mean, our Paraguay sales and marketing costs are actually 10% higher this year than they were a year ago. And the other point I would make, Mathieu, on just on EBITDA, kind of we stopped calling out one-off kind of charges impacts on EBITDA, but the arbitration fine that we incurred in Colombia, that’s $4 [ph] million. That's about 80 basis points of group EBITDA growth. So, kind of -- and there's a lot of moving parts in our business. So, we stopped looking at it in that way. But that just gives you some sense as to why we're not too worried about the EBITDA growth. It was a tougher comp quarter with little bit more cost and a few one-offs, and the underlying businesses is performing pretty well. I think, Mathieu had a question on capital intensity as well.

Yes. So, we understood your question, Mathieu, and correct us if we got you wrong to mean, not obviously forward-looking CapEx to sales ratio because we haven't provided those, but much more the fact that over the last few years, call it, since my tenure, they've actually been picking up. And if that's the case, perhaps I wasn't very clear, yes, I do agree. We've been investing heavily on the mobile network, on the cable network. But my point is that precisely because we're investing heavily, we've now reached a point where the mobile part of the investment is, at least from the coverage part, behind us and going forward is success-driven and is variable-driven. And as we now see revenue growing, both on mobile and on cable, as a percentage of revenue, it will start to decrease, even though we will continue to invest on an absolute terms, pretty much where we've been investing. So, I hope, I got your question correctly.

You did. My question wasn't well-phrased. But you got the right answer. Thank you very much.

Your next question is from the line of Johanna Ahlqvist of SEB. Please go ahead.

Two questions, if I may. The first one relates to Bolivia. And you mentioned there is sense change in competition there. I'm just wondering if you can elaborate a bit what's happening in Bolivia. And secondly, briefly question to you, Tim, related to the fact you say that, you expect 50 million one-off items for the full year. Have you taken $16 of those in this quarter, or how should we reflect for the full year?

Let me quickly deal with that one. And Johanna, we did take 16 in this year. Remember, this is all outside of the Latam business; it’s just taken the head office business. We took 4 in the first quarter. So, we’ve probably done 20 in the first half. And we expect roundabout another 30 in the second half.

Now, on Bolivia, if the Bolivia guys are listening to this, we hate you for not growing double-digit, only 5% and 8.5% on EBITDA. So, that's my way of saying thank you but not completely because you used to be growing much more than that. So, the point is, of course, Bolivia is slowing down a little bit this quarter, both in revenue and EBITDA. But it certainly continues to grow very well at 5% service revenue and 8.5% EBITDA. And it's important to say, Johanna, that at the macro level at the big picture, long-term macro level, there's nothing in the industry structure, not on the macroeconomics of a country that we see as driving this. The macro level, the country is still growing consistently. And the middle class and household formation are rock solid. But the country is going through an electoral period. And that may or may not be the reason why there is increased competition on prepaid. And this is prepaid basically. And that has significantly caused the slowdown.The reason it has happened a little quicker in Bolivia, maybe because it is driven by the elections, we don't know for a fact, but also because we reacted very, very quickly, given that we think we have the commercial ability to do so and because this may be short-lived. So, the cable and the home segment continued to grow extremely well in Bolivia, and I mean extremely well. You should note that we've reached 1 million homes passed in Bolivia just this past quarter. I remember when I first joined, it was 150,000, give or take. And Q2 on home, we added 42,000 net adds in Bolivia, this is our second strongest quarter. We now have seen a number somewhere between 450 to 500 customers on the cable network, which is almost a 45% to 50% network penetration, which makes cable network penetration in Bolivia extremely efficient. This is almost U.S. levels type of cable penetration. So, cable’s rock solid.On prepaid, what we have done is we reacted very, very quickly. And kudos to the team there who are putting in place something that we could approve as a reaction very, very quickly. It's prepaid and it's mobile. So, we reacted forcibly by doing what you would expect us to do. We put out new packages with more data allowance, that's obviously taken impact on ARPU and slowing growth, but it's protecting market share. And we think we've stabilized that. We will wait and see, if we have indeed, because we reacted quickly by adding more data. And we've actually, by the way, we’ve reproved CapEx upgrade for Bolivia, both on home and an EBITDA investment to defend the market share position, because we think Bolivia can, and I’m again, cautiously optimistic, we think it can recuperate much quicker than you would normally think.

Thank you. [Operator Instructions] And we also have a question from Sergey Dluzhevskiy from GAMCO Investors. Please go ahead.

Hello. Thank you for taking my questions. My first question is in relation to Nicaragua. You provided a brief update obviously just recently closed on the transaction. Maybe if you could elaborate a little bit what you plan to be focusing more in this market in the second half of the year, maybe over the next 12 months? And at the high level, what would be the strategy in Nicaragua?

So, Nicaragua is -- it's a working business. So, our strategy to the Nicaragua acquisition has been, do not rock the boat. I’m being as honest and transparent as I can possible be. It's a business that's growing well. And it's a good industry structure, and is a mobile business that we like, first of all. And as I said earlier, nothing in the couple of months that we've been there leads us to believe that there is something that we hadn't anticipated. So, there’s been no hiccups in there, including the softness in the economy, but we're in it for the long-term, as I said. And the second part of the strategy is also what I alluded to, which is this mobile significant market share position allows us a strong blanket, if you will, under which we can penetrate, what was a growing cable investment that we were deploying in Nicaragua. So, what mobile does for us in Nicaragua is it in forces, reinforces, makes more viable our cable rollout plan in Nicaragua. And with that, this will continue to be a solid two-player your market. That's the strategy, twofold in a nutshell.

Great. And my second question is on the inorganic side. So, you obviously have sizable minority investors in Colombia, Guatemala, Honduras. And based on your previous comments, you have an interest in acquiring this minority interest at the right price, as this has been a longstanding position for the Company. So, if you think could talk a little bit, what you thing would put you closer to consummating a transaction with at least one of those minority holders. And in general, how should we also think about dynamics, results, minority interests over medium term?

I think, we have talked about that as a priority M&A because that's an easiest M&A for us to do. But, we've also said that those, that parties don't want to sell, then we will target elsewhere, and that's exactly what we've done. We’ve spent buying the Telefonica assets. And I think that has been a major sort of move for the group, and our focus really for the future will be on integrating the Telefonica assets. I don't think, Mauricio, I’m looking at you now, but don’t feel any need to do those...

Yes. I think, I mean, I was actually just going to say that. I think, the key message is for you Sergey and for everybody is, of course, it takes two to salsa. And since we don't operating in Argentina, I have to say, two to salsa, not two to tango. But the more important message is, we're in no hurry here. It's just a conversation that will be held at the right time. And for us, we are actually in no hurry, because we got our hands pretty full with organic growth, as we've seen, and integrating the inorganic growth that we put into the business. So, we'll take our time and will join the dancing room when there's two of us in the dancing room with no hurry whatsoever.

And one quick question on Panama. So, you talked about obviously the progress that you've made over the first six months. Now that you're looking to close on the mobile acquisition in the market, if you could talk a little bit about what you’ve learned about this market. Obviously, you knew about this market and had knowledge of the market before but now operating for six months, maybe if you could share with you learned about the market that could help you around the combined operation, when you acquire mobile Telefonica assets and better position you going forward?

Yes. So, a number of components. Listen, what we've learned about Panama specifically, this is a well-run country, even much more than I imagined. And it really is well-run. And I came back from my meeting with the President and the private sector last week, reinforcing my view is that this new government will engage proactively with the private sector that they will indeed reactivate fiscal spending. You saw the bond that they put in place; I think it was early this week, which was a well-placed bond. So, very, very reinforced that the macro and the political stability of that country is well-earned. And I also believe that -- although this was not our doing, it was something that we saw as upside, and on the mobile marketplace, Panama will grow from 4 to 3. I think, there's an over arching consent that that would be good for the country. Just when and how is a different matter. So, that would be good. And as we prepare for mobile there, in Panama, we do see the benefits of A, business that is doing well, Panama, by management mobile Telefonica has been a good business. And we do see the upside of cross-selling to that mobile base with a strong cable base, and, of course, the upside of synergies. And that's also part of what we see in Costa Rica, although our asset in Costa Rica is not as large as our asset in Panama, but, it does have the same level of synergies and cross-selling opportunity. And in that sense, if I may, Costa Rica is right between Nicaragua and Panama from a strategic point of view, meaning that in Nicaragua, mobile gives us the ability to strengthen our cable rollout. In Panama, it is our cable that allows us to strengthen our mobile position, and Costa Rica is in between strategically. I hope that makes sense, Sergey.

Yes, definitely. Thank you.

Your next question is from the line of Peter Nielsen of ABG. Please go ahead.

Thank you. Two questions, please. First one related to Colombia and the consumer market. Do you think you have scope and flexibility to perhaps address the issue of stagnating ARPU in the cable home business? And could you talk a bit about the mobile market? Have you seen any increased pricing pressures in the market, or is it basically business as usual on the B2C side? And then just a question related to second half and full-year outlook? Obviously, we expect to get back to growth rates more in line with the full-year guidance. In terms of facing, would you say we should anticipate, based on earlier comments this call, that we should expect perhaps [indiscernible] growth in Q4 versus Q3, so a step up in Q4? Thank you.

Listen, there may be sort of an FX confusion. In Colombia, home ARPU has been growing in local currency and quite consistently so. So, there may be just an FX translation in there. And on mobile, whereas maybe two years ago there was a lot of pressure on the mobile market, I think now, mobile from a pricing point of view and from a competitive point of view is significantly stabilized. If you were to -- and I may need a little help here from Tim and Michel, but if you were to take out all the one-offs and all the noise from the B2B contracts and the fine, and the loss of MVNO, which is not strategic, if you were to just take all of that out, you will see that mobile in Colombia, for us, for now, a number of quarters is a mid single grower, give or take.Now, with that, I want to take the opportunity to address your second question, which I think is spot on, and probably a little bit of what's from a granular point of view everybody in the room has been driving to which is, are we going to make it back on the second half with a small little bit of a difference that we have in the first half? And the answer is yes, with a color that I gave in my prepared remarks. As you know, our budget and indeed the way we plan for the year is back ended. And as a matter of fact, you should know that it’s more fourth quarter back ended than it is third quarter back ended. And our Q2 this year -- and as a matter of fact, the first half, generally had very tough comps. That was true because of the Columbia B2B contracts. But we've also highlighted the Panama B2B contracts, and the effects of the World Cup which are visible in Panama, but has some effect elsewhere as well. We've already talked about why in the second half, we expect B2B in Colombia to be a little bit better, given the contract that we have in Q4, but also because Panama we expect that B2B activity will again regain growth from the back of renewed fiscal spending once the new government kicks in, and because we also see the private sector in Panama getting more and more comfortable, but also because we see improvements in Bolivia. As I mentioned, Bolivia is rock solid, and we think it will improve in the second half. We've already talked about why we think Paraguay may help in the second half or certainly whereas I said, we don't know exactly when the sun's going to shine. We do think the worst of determent is -- of the storm hinges behind us and the same is true for El Salvador. So, we think that collectively, our actions to defend market share will start to pay off. And as a result of that, our second half will be putting us back on track.We're also counting on Honduras and Guatemala to continue to stay on track and deliver the growth that they've been delivering. We haven't talked about Honduras, but it's rock solid. I mean, Honduras is a fantastic turnaround story. Couple of years ago here we were talking about how to turn Honduras around, and now we're in mid-single-digit territory for revenue growth and almost double-digit for EBITDA growth.And Colombia continues to perform well. If you look at what Colombia is, Colombia today -- it's got the quarterly bumps, but Columbia is all about steady execution today, it’s about margin expansion which we're driving into the mid-30s. It's no longer a turnaround, mobile doesn't grow story.And if you put all of these into the blender, and you do realize that yes, we're investing in EBITDA to preserve our strategic position, and that's why we said low end of the range for the year. But we are reaching network efficiencies on the network and procurement savings and Panama is kicking in and Nicaragua to a little bit of a lesser extent are also yielding OCF growth upside, and that's what we think OCF will be on the top end of the range.Now, Tim did some really good math for me, saying okay, how much do we need to get in order to hit EBITDA guidance? And the reality is the second half doesn’t need to be better than it was year. Last year, we did 51.3% of our EBITDA in the second half. This year, we only need to do 51.8%. So, for my mathematical point of view, if you don't like my big picture story, and from a mathematical point of view, it’s perfectly doable. And if you don't like either my big picture story or my math, perhaps the reason you see me fairly relaxed about this is because I had to convince my wife not too many weeks ago to invest an additional $2.5 million of our personal money into this. And believe me, there's no question you guys can put in front of me that’s any tougher than the one she put in front of me.

Tough investment committee.

And I believe that.

And the numbers Mauricio just quoted there are adjusted for kind of Panama, IFRS 16 et cetera. And I think the other thing too that the Colombia ARPUs, I mean in local currency terms, were up about 1%. So, I think the numbers you’re looking at or maybe calculated are currency affected as Mauricio said?

And you’re going to have to have a little bit of how do the Hollywood guys call it, suspension of disbelief or something. It’s going to be Q4 ended, Q4 loaded.

Thank you. That’s a great answer. And I do accept your big picture story. Thank you.

And your final question today is from the line of Rodrigo Villanueva of Merrill Lynch. Please go ahead.

My question is related to free cash flow to equity. So far this year, it has been lagging what you achieved last year while over the last few years it has been consistently improving. So, my question is, what is behind this? And would you expect free cash flow to equity to accelerate in the second half of the year? Thank you.

Yes. I think, this one is relatively easy to deal with. And essentially, the answer is one-offs and debt. Kind of we've incurred the debt, and in order to buy the Telefonica assets and Cable Onda assets before we got the cash flows and like coming through on it. And I pointed out, there were quite a lot of one-offs coming through, not necessarily in Latam, but do affect the free cash flowI guess. So, I think that largely covers all of it, Rodrigo.

Rodrigo, that's actually a really good question. And thank you for putting it in front, because we assume that you guys have all figured it out. But, on the back of the Telefonica acquisitions, given the debt that we put on and the integration costs, Tim was very clear to me before we did the acquisitions that we were going to have basically a year in which those would require us to invest into the long-term. So, I'm very happy that this is the input in front of everybody, because it should be pretty clear.

All right. Well, thank you, everybody. I think, we're on the end of the hour. So, thank you for joining. I think we've covered just about all the big pictures and just about all the operations. I think, we've touched on just about every single one of our nine assets and on what's going to happen we think for the rest of the year, and more importantly what's going to happen long-term. So, thank you for joining. Thank you for your continued interest and your very, very, very valued questions. And we look forward to meeting with you in person and our Q3. Thank you.

That concludes the presentation today. Thank you for participating. You may disconnect.