Q3 2018 Millicom International Cellular SA Earnings Call
Oct 24, 2018 PM UTC
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MIICF - Millicom International Cellular SA
Q3 2018 Millicom International Cellular SA Earnings Call
Oct 24, 2018 / 12:00PM GMT
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Corporate Participants
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* Mauricio Ramos Borrero
Millicom International Cellular S.A. - CEO
* Michel Morin
Millicom International Cellular S.A. - VP of IR
* Timothy Lincoln Pennington
Millicom International Cellular S.A. - Senior EVP & CFO
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Conference Call Participants
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* Johanna Ahlqvist
SEB, Research Division - Analyst
* Julio Arciniegas
RBC Capital Markets, LLC, Research Division - Analyst
* Kevin Michael Roe
Roe Equity Research, LLC - Senior Analyst of Telecommunications Services, Cable and Satellite & President
* Lena Osterberg
Carnegie Investment Bank AB, Research Division - Head of Research of Sweden, Head of Technology Hardware & Equipment and Financial Analyst
* Matthew Charles Bloxham
Bloomberg Intelligence - Senior Analyst
* Sergey Dluzhevskiy
GAMCO Investors, Inc. - Associate Portfolio Manager
* Stefan Gauffin
DNB Markets, Research Division - Analyst
* William Christian Miller
J.M. Hartwell L.P. - Principal and Portfolio Manager
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Presentation
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Operator [1]
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Good morning, and good afternoon, ladies and gentlemen, and welcome to the Millicom financial results conference call. Today's presentation will be hosted by Chief Executive Officer, Mauricio Ramos, and Tim Pennington, Chief Financial Officer. Following the formal presentation by Millicom's management, an interactive Q&A session will be available.
I would now like to hand the call over to Michel Morin, Millicom's, Head of Investor Relations. Please, go ahead.
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Michel Morin, Millicom International Cellular S.A. - VP of IR [2]
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Thanks, Hanna. Hello, everyone. And welcome to our third quarter 2018 results conference call. And before we begin, as usual, let me draw your attention to the safe harbor disclosure on Slide 2 of the presentation, which is available on our website.
And with that, let me hand the call over to our CEO, Mauricio Ramos, for his prepared remarks. Mauricio?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [3]
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Good day, everyone, and welcome to our third quarter call. As always, I'm here today with Tim Pennington, our CFO. Once again, we have excellent results this quarter.
Key highlights on Slide 4. One, the strong operating momentum that we saw in the first half of the year continued into this third quarter. Two, Colombia had another very, very good quarter. Cable is working there and so is mobile. Three, our home business continues to perform exceptionally well. They continue to grow above 12% in this quarter again. And four, the integration of Cable Onda is actually already underway.
So let's get to the details beginning on Slide 5. We continue to perform very well this quarter. Our Latam service revenue grew 4.7%. We have anticipated a bit of a slowdown in the second half. But as you can see, we delivered another quarter of growth above the top end of our revenue guidance. We are pleased with the results for sure. But what is really important is that this growth is fueled by healthy long-term data-driven businesses, by cable, mobile data and B2B. The stuff that we have been focused on for the last 3 years.
All of our 3 businesses, as you can see on Slide 6, had positive growth yet again in Q3. B2C mobile continue to grow fueled by 4G and mobile data. Home had another exceptional quarter. It is now showing its true anticipated potential with sustained growth of 12% again. And B2B continued to deliver mid-single-digit growth in line with recent trends. All growth engines are now delivering with cable leading the way as we have anticipated it would.
Now let's take a look at some of the KPIs, starting with mobile on Slide 7. On mobile, as you can see on the left, we continue to add about 3 million 4G customers per year. And we now have over 8.6 million. This is however still less than 30% of our total base. So we still have a long way to go here. And as you know, we get a pickup in ARPU when customer upgrade from 3G to 4G.
On the right-hand side of the page, youâll see the results of our focus on postpaid mobile, something that I have been mentioning a few times already in the last few calls. So far this year we have added 135,000 mobile postpaid subscribers, that is 3x better than it was last year and our best year since we can remember. When done correctly, migration from prepaid to postpaid is an important strategic opportunity, one that it is in the early days for us in many of our markets. So stay tuned for more of this. It is consistent with our focus on more and more subscription revenues.
Speaking of which, let's take a look at the home results on Slide 8. The chart simply reflects the strong pent-up demand for broadband and paid TV services in our markets, the opportunity we have talked about so very often and the reason we have been building so much cable. Just in the first 9 months of this year we have added over 300,000 new HFC homes connected as subscribers. That was actually the target for the full year and that is why we upgraded the target to 400,000 new cable subscribers for the full year. And as you can see from the results in Q3, we are well on track for those 400,000 net adds HFC.
The rate in which we add net RGUs is also increasing, but bundling up new and existing customers. This is good old cable tactics. And as you move to the right on this page, you can see that strong customer intake is not diluting Home ARPU. We are actually adding subscribers while we are also growing ARPUs. This is because we have and we use our pricing power but also because we're upgrading speeds and offering new services. So with all that strength and our confidence, we have continued to expand the cable network even faster than we have planned for this year. We are now on track to build 1.2 million homes passed, a higher build than our original target of 1 million additional homes passed for the year. So we will build more homes passed and add more home subscriber than initially targeted for this year. And we will do that without raising our CapEx target, as Tim will discuss in a bit.
We are simply getting better and faster at building these networks and at connecting subscribers. This result simply underscores why our target to build at least 5 million more homes to get to our 15 million target, just makes so much financial sense.
Let's take a minute on Colombia on Slide 9. As you will hear from Tim later, revenue growth in Colombia was solid again in Q3. And our margins there are also trending higher. Much of this improvement is visible in our home business. In Colombia we have build a ton of new cable networks and replaced a ton of old copper networks. We have launched Next Generation TV services. And you might recall that a year ago, we also told you that we were investing in sales and marketing.
Well these are the results. On this slide you can see clearly on the left that our HFC net adds in dark blue are accelerating, and the churn on our legacy copper network in light blue is decelerating. And on the right-hand side of the slide you can see that ARPU is growing. When we upgrade a copper home to HFC, we up-sell digital services on that new network that we previously could not sell. You know that we have been optimistic and bullish and focused on Colombia for a long time. And it should be clear by now that our strategy is working. Colombia is growing. And Tim will show you a little bit more about that translating into the financials.
And we're not done yet. As you can see on Slide 10, we recently launched new mobile postpaid plans in Colombia. The name of the game for us now in mobile in Colombia is simplicity. We used to have a dozen plan that was confusing for our customers and it made life difficult for our salespeople and our customers care agents. So we pulled a page out of T-Mobile's playbook, and we decided to take bold action by offering only 3 plans.
Our customers now know what they are getting. And they feel like they are getting what they are paying for. As a result, our NPS is already trending up strongly. This new offering is indeed pulling in postpaid plans that are bringing in higher satisfaction and, we believe, lower churn and a higher lifetime value over time.
You know this playbook. You have seen it play out elsewhere. New plans are structured in a way that gives our customers more data than before. And we do that in exchange for an ARPU pickup. Having said this, it is still very early days. But so far we like what we're seeing in Colombia on mobile as much as we do on home.
So now let me come back to cable for a minute, big picture and strategically, beginning on Slide 11. There is a lot on this page, but the message should be pretty clear. Our cable business is getting pretty big pretty quickly.
If you look at our HFC business, you can see that homes passed, homes connected and RGUs have all been growing double digit and consistently over the past 3 years. And revenue growth itself in dollars has been accelerating as well. And much more so over the last year when all the momentum we are building has started to translate into revenue. We now have double-digit growth in our home business.
Now please turn to Slide 12. The point here is simply just how big our growing cable business already is. When you include Cable Onda, we already have more than 10 million HFC homes passed and about 4 million homes connected with about 7 million RGUs. And when you look at our cable business as a whole, which is the sum of our residential cable business which we call home, plus the fixed B2B business, plus Cable Onda, then you get a clear picture of the sheer size of our cable business. Our cable business is already a $2.2 billion cables business within Millicom. And I alluded that in this prior slide, it is growing pretty fast.
Now for those of you who like valuation map, like I do, put a cable multiple, any cable multiple you like on that $2.2 billion of cable revenue, then do some of the part valuation of our company and when you do that, you got to believe like I do, that the market will sooner or later just realize the sheer size and growth of our cable business and the long-term value we are creating here quietly.
And that brings me to the next slide, number 13, the cable math or the cable economics. Some of you will have heard me say this before, so apologies for that. But the cable economics for us are really, really good. And we think it makes sense to just go through them again.
We spend about $100 to pass a home. We then spend an incremental $150 to connect a home. And we connect one of every 3 homes that we pass. In some countries we already do much better than that. But we think that 33% is a reasonable network penetration assumption going forward.
So our overall cost to build and connect is pretty cheap by global industry standards. That's because densities are high, the network is almost 100% aerial and labor is relatively cheap in our markets. We then get a $30 ARPU per home per month. And you have seen in our performance in the past 2 years that we do use pricing power even in dollar terms.
So a bit more math. Lock these numbers in and take Latam cable industry averages for churn and for EBITDA margins. The outcome is a pretax return on investment north of 30%. That's a cash-on-cash payback in less than 3 years which is why we have built over 3 million cable homes passed in just the last 3 years.
Now these are what I call standalone cable economics. But Millicom is not a standalone cable provider. Weâre typically the market leader in mobile. So we have a massive market income already in market. We have very large distribution capacities everywhere we operate, and we already have top talent already in place there.
And we also have one of the most recognized brands in all the countries we operate in. This simply means that we have higher than standalone EBITDA margins in our cable business because it's not a standalone cable business. A lot of the G&A is already paid for by the existing mobile business.
And crucially, on top of this, these investments also position us for convergence, for 5G into the future and also already support our B2B opportunity today. All of this is why we're investing with such conviction in cable. And this is why we're so happy that we were able to take advantage of our strong financial position to acquire Cable Onda.
This company, as I hope you realize by now, is a gem. There is no other way to describe it. And Panama is a great country for us to diversify into. It is dollar-based, high growth, high GDP and stable.
As you can see from Slide 14, I was in Panama just a few days after we signed the acquisition. I met with the team, with our partners, with the media and with President Varela there.
Let me share a few key takeaways from that trip. One, what a great operating team to incorporate into our portfolio. There is a ton of advanced cable expertise in the team in Cable Onda. This is a more developed cable market than most we operate in. DOCSIS is further along the way, so are speeds and so are WiFi deployments. We will as a company in Millicom benefit way beyond our synergies from incorporating this talent pool into our cable expertise and by using it elsewhere where we operate with cable.
Two, Millicom has been welcomed in Panama already by the authorities. There will be of course a normal approval process, but weâre already a welcomed new player there. I came away convinced that our regulatory view is well on track. We expect to close still before year-end.
And this is key because this short time frame between signing and closing highly reduces M&A integration risks. That's a delicate and risky time of uncertainty between signing and closing that in this case will be very, very short, minimizing our risk there.
And three, because there are no jump-the-gun antitrust issue for us in Panama, our teams are already working together as we speak hand-in-hand with the teams in Panama to build our own jointly developed 2019 budget so as to quick wins on synergies. And this also means that we will be hitting the ground running as from January 1, 2019.
And finally, let's look at Slide 15. You all know that we have been squarely focused on cash flow generation from day 1 when we joined about 3.5 year ago. And we have been so every day as we were turning the business around, both operationally and financially. And while we were building those 4G and cable fiber networks we had our eye on the cash flows.
We know we need a strong cash flow. We know we need a strong balance sheet to keep building these networks that we have been building. And we clearly would have not been able to acquire such an amazing company as Cable Onda had we not had our eye on the ball. Without strong cash flow generation and without a good balance sheet this strategy makes little sense.
So this slide, slide on my section, is simply to say that we got our eye on the ball. Strategy, if good, must led to equity cash flow. And ours has been a turnaround of over $400 million so far. And here is the punch line, it is again up this year 19% year-to-date.
With that let me pass it over to, Tim. Tim?
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Timothy Lincoln Pennington, Millicom International Cellular S.A. - Senior EVP & CFO [4]
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So let me start as usual by setting out the key financial highlights on Slide 17. So picking up from Mauricio. We have significant KPI-led progress which is clearly driving revenue grown. Basically, as we set out in strategy, rapid 4G network build, the migration of mobile subscribers to 4G, the accelerated homes passed, built and the increasing rate of homes connected. And this is driving not just service revenue but also EBITDA.
And this is tough. An increased networking brings increased cost. Increased customer acquisition brings more cost as well. And servicing these customers brings more cost. But our EBITDA is up as well all of our profit metrics. And cash flow also ended in the quarter lot better than last year, leaving us in a better balance sheet position to ensure we're well on track with our 2018 goals.
So let me turn now to the key financial metrics on Slide 18. The group service revenue grew by 4.2% and was driven by Latam. There was a decent performance in Tanzania, but overall Africa was slightly down. Even so, our EBITDA was up 2.6% to $564 million and OCF, which is our EBITDA minus CapEx remained above that 20% target once again.
Please note that the recently announced acquisition of Cable Onda is not included in these numbers. And as Mauricio said, we expect the deal to close by yearend.
So let me take a close look on the group EBITDA on Slide 19. In this quarter the FX impact was modest despite the currency volatility around us. The group EBITDA grew by 2.6% organically. And most of the pickup was from Latam as you can see on slide, $22 million of the pickup. And it's largely from Colombia, Guatemala, Paraguay and Bolivia.
In corporates, we have an adverse movement, which is mainly one-offs including a reorganization charge. Despite this we're still -- we were still able to increase the group EBITDA margin by 70 basis points to 37.7%.
We can dig a little deeper on to the Latam business in the next 3 slides starting on Slide 20. First the headlines. You may recall that we had an exceptional Q2 driven by the one-off B2B revenues in Colombia. In Q3 we were more or less back on the trend line resulting in the underlying Latam service revenue growth of 4.7%.
Now there was a little bit of noise in the Latam revenue numbers as we reclassified some international third party wholesale revenues in Colombia on to a net basis and to IFRS 15. This affected $13 million of revenues in the quarter and $70 million year-to-date.
There was no reclassification in the prior year, which was under the old standard. So the growth rate presented here on a like-for-like basis and it had no impact on EBITDA. And to follow that EBITDA, up 4.2%. And we made good progress on margins of 120 basis points to 38.4% in Latam. Finally, OCF up once again despite $18 million of higher CapEx.
We'll look at the service revenue progress in more detail on Slide 21. You see that our South American operations are all performing well. Bolivia continues to knock it out of the park. Colombia grew by 4.4% supported by the growing home business. And Paraguay, which faced a 21% MTR cut later in the quarter still produce service revenue growth above 5%.
Now had that MTR cut applied to the whole, the underlying growth in Paraguay would have been impacted by around 50 basis points.
Central America, El Salvador faced further challenges as we continue to focus on addressing operational challenges. We've taken steps to lay the foundations to deliver sustainable growth in 2019.
And Guatemala maintained the level of growth achieved in Q2, benefiting from data revenue. And also, as we flagged, Honduras is beginning to show some strength with a 2.6% year-on-year growth on better mobile performance.
And following the recent trends, Colombia, Bolivia and Paraguay all turned in strong EBITDA growth which you see on the last part of Slide 22. Last year in Colombia we took on more cost to drive the home business. We have now been able to realign our cost base. And with revenue growth, EBITDA grew 13.7%, with a margin up 440 basis points. And the bulk of that increase is coming from the underlying performance.
Bolivia remained impressive, double-digits again. And Paraguay up nearly 8% with a 49.4% margin.
With Guatemala a shade under 5% growth, again hugely impressive achievement. And our business have sustained EBITDA margins north of 50%.
We just said El Salvador was impacted, the EBITDA was fully impacted, about half of them relate to one-offs with the rest just following the revenue impact. And finally, in Honduras there was a bit of noise again in these numbers. The normalizing EBITDA was up 3.7%.
So let's look at the costs in more detail on Slide 23. And if I include the impact of IFRS 15, organic operating costs increased by 3.4%.
And our sales and marketing cost declined by 4% [compared to the] call last year, had a spike when we hired around 1,000 salespeople [home].
D&A increased by 9.6%. But almost -- but most of that has actually come from one-offs, including head office reorganization charge. And despite this, our [trailing margin] is up 130 basis points.
A quick look now at the P&L for -- on the Slide 24. D&A, net finance charges and taxes were mostly low in the quarter. D&A benefited from the roll off of amortization and (inaudible) intangibles, the net finance charge (inaudible) early redemption premium and tax was just a tiny bit. Again I want to note that [operating income] was up 17% pretax (inaudible) over 22%. And net income up more than twofold.
Turning now to Slide 25 and the cash flow for the first 9 months. Cash flow from operations have increased by $51 million to almost $900 million with the increase coming mainly from improved working capital and from lower CapEx.
Over the past 2 years we've implemented numerous cost savings under our Project Heat initiative. And these have helped lift margins, contain working capital and minimize CapEx required to grow our business.
So when -- if you look at the P&L, cash tax -- sorry, in contrast to the P&L cash tax has increased by $26 million again on timing differences. Net finance charges at -- declined by $48 million. And the dividends to minorities increased by 34 on an increased dividend paid by Guatemala. And as a result, year-to-date, as Mauricio has made clear, our equity free cash flow has increased by almost 19% to $243 million.
Turning now to our capital structure on Slide 26. At the end of the quarter our net debt $3.8 billion, representing proportional net debt-to-EBITDA of 1.82x. That's quite a meaning reduction from the 1.95x at the end of Q2. And the changes reflect increased cash flow and proceeds from tower sales.
Note that we pay the second part of dividend in Q4, and that will take us to around 2x. And we set that on a pro forma basis. Currently on track, transaction will take us -- take our leverage to around 2.5x.
Finally on Slide 27, the debt profile pro forma for the issue of 2026 bond. We issued an 8-year bond locked into our maturity profile gap in 2026. And this takes our average maturity to 5.6 years.
Let me bring it together now on Slide 28 by looking at our outlook for 2018. In short, we're well on track. Latam operations have generally performed strongly through the first 9 months of 2018. We have raised our target for HFC homes connected last quarter and we're on track. And we never expected to add 1.2 million HFC homes passed from the 1 million previously announced.
We're on track to add 3 million 4G customers. And our postpaid net adds are the strongest since 2015. And as a result of this strong commercial and network expansion activity we continue to expect the Latam service revenue growth to be around 4% and the Latam EBITDA growth in the target range. Our CapEx in Latam is unchanged at approximately $1 billion.
Let me recap, our strategy is working. It's bringing sustained growth. It's driving through strong KPIs to solid financials. And our outlook is on track. And our cash flow is growing. We've made important strategic moves in the quarter to enhance our cable business through the acquisition of Cable Onda. And we're putting ahead to list in the US on NASDAQ exchange. With that, we'll now open for questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) We will now take our first question from Julio Arciniegas from RBC.
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Julio Arciniegas, RBC Capital Markets, LLC, Research Division - Analyst [2]
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So Mauricio, postpaid penetration in Colombia is very low, meek, only has near to 10% of its base in postpaid. However the company launched few weeks ago a new postpaid portfolio which actually I see that is very competitive versus the prepaid product. Can you give us some color on the acceptance of the market to this new portfolio? And do you see an acceleration of prepaid to postpaid migration in this market? And my second question is also regarding Colombia. Broadband speeds in Colombia actually the -- the demand is actually quite lower than the other countries in the region. However, it seems that consumer confidence in Colombia is improving. Are you seeing higher demand in the market for higher bandwidth that at the end is going to have a positive impact in, I don't know, ARPU?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [3]
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Yes, thank you, Julio. I think you read it well with regards to the opportunities in Colombia. and what we're doing is precisely taking advantage of those. On the postpaid question, indeed for a market like Colombia which has a relatively high GDP per capita growing middle class or young population and where demand for mobile data and fixed data is on the rise, indeed there is a tremendous opportunity to drive migration from prepaid to postpaid. And that is exactly what we are doing. That's exactly what this product is all about. It's about driving precisely the move from prepaid to postpaid. And we think we've hit it right on the spot on the way to do it because we are seeing quite a bit of interest and not only from our own prepaid subscriber base but also from different elements of the corporate postpaid base that are seeing a much cleaner, better product. I can't really speak too much as to the take-up on demand on the market because it's just extremely competitive product out there and we like what we're seeing so far on the mobile. We think it just adds to everything that we've been doing in Colombia. And on Colombia, now on to the fixed broadband speed. Again you've seen that consistently bring up speeds everywhere we operate, but also in Colombia. And we do that, and this is good old cable, we do that as we take up -- the advantage of bringing prices up, so it's a combination of higher ARPU in return for higher speed and a better product. And in Colombia we've been doing just that. It's a combination of building the plant, upgrading the networks, decommissioning some of the copper, moving the subscribers from copper to HFC, that gives us the ability to sell higher speeds. Pick up a little bit on ARPU. And we do that while also expanding the network. And indeed Colombia is a market where the need for speed will continue to go forward. These are bandwidth-hungry consumers both on mobile and on fixed. So the combination of postpaid with "unlimited" for mobile and an upgrade in HFC and selling higher speed is the right mix for this market. You know that we've been always bullish on Colombia. We may have even a fall in standard like a little bit of donkey hopping, fighting the unwinnable battle. And I think at this point in time it feels like the winds are turning. We've invested in network building. You've seen us build cable. You've seen us built 4G. We've invested in IT. We brought a lot of talent from elsewhere to put into Colombia to strengthen that fantastic team over there. We've launched Next Generation TV. We're raising speeds. We've added sales teams a year ago. We've added TSRs. We've launched a great mobile product that you're alluding to. And we've been streamlining our operation. So what you see in Colombia is precisely us taking advantage opportunities to drive postpaid and drive higher speed. It is a market that remains underserved in broadband both in fixed and mobile and that's the opportunity that we're taking.
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Timothy Lincoln Pennington, Millicom International Cellular S.A. - Senior EVP & CFO [4]
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I think if I could just add. I mean it's interesting to look at -- Julio, I can just add it's interesting when we look at Panama, the business that we're buying there where they do have kind of similar GDP, higher speeds and significantly higher ARPUs and I'm not saying we'll get to those levels of ARPUs, but it's an interesting comparison to make.
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Operator [5]
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We will now move to our next question from Stefan Gauffin from DNB Bank.
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Stefan Gauffin, DNB Markets, Research Division - Analyst [6]
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I have a question on El Salvador where we saw already last quarter that the business was deteriorating in terms of service revenue. And you stated that you are taking action and expected an improving trend coming quarters. We see service revenue continue down this quarter. Can you just explain a little bit more what actions you are taking and why you are confident that you will turn this business around in 2019?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [7]
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Thanks for that call. I'm actually in El Salvador right now. So if you see some improvement, I'll take credit for it. If it doesn't then unfortunately you're going to have to blame it on me and all on me. Listen, I like your question because when I think about this I think of the way I talk to my kids when I get their report card. I have 3 young kids. And I usually tell them, it's got to be all As. And every now and again there's a D there, a D minus. And I think that's what we have in El Salvador, a whole bunch of As and then one D minus. And I'm using American terminology but I'm sure you can figure out that we're not happy with that D minus in our scorecard. It is the one black spot. So yes, we're disappointed. Some of it we can blame on it being macro and the industry. It is all-player industry, mobile in El Salvador, so it (inaudible) little bit more difficult than it is everywhere else. A little bit of it is political. There are gang wars going on. And as you can see, they're making the news these days quite a bit. But we've also been very transparent, some of it are actually self-inflicted wounds and execution issues. We like being very transparent, so we build credibility. And those came about from migration of TS platforms. So what we've been doing is, A, we've been successfully fixing it. And that requires a lot of work to fix them, but I think we've got those nailed. What you're seeing in the result is a little bit of rearview mirror on the effect the past few days have had. So you're not able to see into the future of the correction which basically have to do with stabilizing the subscriber base and letting the bad debt that resulted from it wash away. So you will begin to see those improvements because of that but also because we changed management. And I alluded to that and I'm pretty pumped about the team that we put in place. We put in place a topnotch team here in El Salvador. And I can see that we're slowly but surely recouping some traction with subscribers. You can already see that in our operating matrix. Having said all this, and perhaps with the credibility that we've had in the past of turning every operation around, I urged you not to look at our report card for Q4 but rather look at it as a 2019 recovery because timing the exact moment of this recovery is a little difficult. And with the credibility that we hope we're building, we're pretty bullish that we'll do that in 2019.
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Operator [8]
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We will take our next question from Johanna Ahlqvist from SEB.
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Johanna Ahlqvist, SEB, Research Division - Analyst [9]
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Two questions, if I may. First of all related to corporate cost. You mentioned that they increased a bit year-over-year. What is the sort of how much should we see as a one-off and how should we view corporate costs going forward? And then, second question relates to the cable. So you touched on the subject before, that notes higher fees has a possibility to translate into higher ARPU. But do you foresee that, I guess they there are mixed effects here. But what are sort of the likelihood for a continued. Now your ARPU 1%, 2% in this quarter. What do you foresee going forward? Is this sort of the way forward? Or should we see -- what are the possibilities really for a continued ARPU increase in cable? That's my question.
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [10]
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Yes, so I'll take the cable ARPU one first and then perhaps make a comment or 2 on corporate cost. And I think Tim can certainly help me there. Listen, on cable ARPU, I've done this in every operation. Our cable guys know how this works. When you are sitting on relatively very low broadband penetrations and high speed is the name of the game but in our case paid TV also have some room to maneuver. The name of the game is simply to give for higher ARPUs and to truly aid differentiating tiers. So as you upgrade your plan you start giving higher speed and you start moving the better subscribers, the more bandwidth-hungry subscribers to that higher tier. And that opens up the possibility for you to add new subscribers on your medium and lower tier. And the name of the game here, Johanna, is to basically create space with higher tiers so that you can bring in new customers. And given the situation we're in, in a market where we have very low broadband penetration what we need to do is we need to continue to reach new subscribers, add volume while sustaining the ARPU. So as you look longer term, very, very, very much into the future the name of the game is sustaining ARPU, slightly picking it up but at the same time adding a lot of volume. And the way to do that is with higher speeds and on the paid TV with high definition TV which is not completely launched in our market, meaning there's still a lot of demand for it and of course Next Generation TV products. It's cable 101, it's been going on for decades.
Now on corporate cost, just big picture before I hand it over to Tim. I think on corporate cost you've seen us be very, very diligent. We stopped doing all the stuff that need not be done at the corporate, but we've also been strengthening our corporate. We have a lot more of compliance, we have more a lot of cybersecurity in our corporate and we've been taking advantage of all the savings to beef up some of the things that a corporate cost center needs to do, including driving the business increasingly from an operational and a CapEx point of view so that we get savings in procurement and streamline the operations also from the center. So it's about doing a lot more with less. Tim?
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Timothy Lincoln Pennington, Millicom International Cellular S.A. - Senior EVP & CFO [11]
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Yes, I think there's a couple of technical issues as well, Johanna. If you recall, the Q3 last year we took an $8 million credit into the corporate costs. So actually when you take that into account, plus we took a reorganization charge in respect of some wind down in London and Luxembourg and basically our corporate costs are along the run rate they were last year. And we are pretty comfortable where they are.
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Operator [12]
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The next question is from Kevin Roe from Roe Equity Research.
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Kevin Michael Roe, Roe Equity Research, LLC - Senior Analyst of Telecommunications Services, Cable and Satellite & President [13]
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Mauricio, you raised your HFC homes-passed guidance to 1.2 million from 1 million which is great. You had previously talked about the 1 million being sort of the peak ramp, all you could do, and we're at 1.2 million. What's changed? How have you been able to squeeze out that additional homes passed target? And which market is that delta coming from?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [14]
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Yes, so thank you for the question. It's called -- you know this, it's clustering. When you have such a big build-out, the only way to get better at it is to try to cluster it more. That gives you the ability to go faster in a given area. So back in the days when I was doing single country build-out, the name of the game was trying to (inaudible) first. That's how you get the construction crews to be in a single place and you can go faster. The name of the game for us because this is a multicountry build out is to [plaster] around countries. And we've done a lot in Columbia this year and a lot of Bolivia this year. So as you go to the numbers you'll see that coming through. And we did quite a bit in Honduras last year, and that's where we're bullish on the turnaround there. And a little less in Guatemala. And I'm going to make use of your question to just make a kind of a clean-up point on the math. This 15 million target of homes passed remains 15, and that's, as I've said often, that's kind of what we see in the horizon. So it's more an outlook than it really is a feeling. And that number is actually now about 1 million higher because of Cable Onda. So the Cable Onda acquisition doesn't change the target. So I'm confusing the numbers perhaps when I was trying to clarify them. The number now is 16, 1-6. It's 15 from before and about 1 million from Cable Onda.
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Kevin Michael Roe, Roe Equity Research, LLC - Senior Analyst of Telecommunications Services, Cable and Satellite & President [15]
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Okay. But for this year the incremental HFC homes passed that you'll achieve this year in 2018, that incremental 200,000, that's primarily coming from Colombia and Bolivia?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [16]
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Yes, Bolivia is just on fire. Colombia is working extremely well. And we showed you the numbers. We are now certainly on net positive territory in Colombia as a result of migrating from copper and as a result of just the new territories that we're building in Colombia.
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Kevin Michael Roe, Roe Equity Research, LLC - Senior Analyst of Telecommunications Services, Cable and Satellite & President [17]
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Great. And a follow-up question on the new postpaid plans in Colombia. What is the hope for impact on ARPU? Of course this is going to help you. The expectation is you will gain gross add share. Hopefully it helps churn. But how should we think about ARPU impact as these new price plans go through your base? And maybe a last one for Tim. The NASDAQ listing, is there a timeline you can hope for, a timeline you can share on the NASDAQ listing?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [18]
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So on the first one, and then I'll hand it over to Tim. The metric we look at in Colombia, surely we look at net adds from our base, from outside our base. Prepaid into postpaid migration, net ARPU, et cetera. But the key metric I am looking at daily is net added revenue. And we're shooting for a positive net add revenue as a result of this. We're also looking -- so I hope that's clear to you, we're also hugely focused on NPS pickup. And we've seen a tremendous amount of NPS pickup even after just a single month of operations. And the reason we're so focused on that NPS pickup is because this is a long-term gain of making our prepaid subscriber base move to postpaid so that there is, A, more subscription, higher or longer lifetime value, and for us the ability to have a clean path to convergence. So this is connected to our long term, to our cable build. We want subscribers that are postpaid, that are the subscription so that our traffic conversion is paved as a result of this strategy.
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Timothy Lincoln Pennington, Millicom International Cellular S.A. - Senior EVP & CFO [19]
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Okay. And on the NASDAQ question. Kevin, we -- you know, we have been making really good progress with the SEC in our sort of preliminary filing. And it's a process we don't have total control over, so I don't want to go into when we expect that to finish. But just to say that we've been, you know, kind of really very happy with the progress we've made so far.
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [20]
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Just to say the obvious, it remains a 2019, Kevin, as we said from the beginning.
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Operator [21]
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We now take our next question from Sergey Dluzhevskiy from GAMCO Investors.
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Sergey Dluzhevskiy, GAMCO Investors, Inc. - Associate Portfolio Manager [22]
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Mauricio, you mentioned that Bolivia has been on fire. And obviously we saw strong revenue growth and market momentum this quarter and last quarter. Could you talk a little bit about the drivers and how sustainable these trends are?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [23]
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Yes, this is going to sound like a broken record, Sergey, but it just -- it's the underpinning of the our entire strategy. It is simply pent-up demand for pay TV and pent-up demand for high speed fixed broadband and mobile services. The minute we build a new neighborhood with cable, we are selling it. And the lead proposition therefore is higher speed. The same has been true for wherever we have 4G network (inaudible) in mobile data. Now there is a couple of additional elements in Bolivia which help but they are consistent with what we do everywhere else in our strategy. It's the combination of sales teams both from mobile and fixed and the fact that in Bolivia we've had exclusive sports high definition products. So in Bolivia we've had now for 3 years our Tigo Sports product which is exclusive local software produced with high definition and very high quality, and that's helping us with broadband pent-up demand. It is as simple as that, it's demand for broadband and demand for high definition (inaudible).
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Sergey Dluzhevskiy, GAMCO Investors, Inc. - Associate Portfolio Manager [24]
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And my second question is on your strategy in markets where you don't have a wireless business. So obviously right now it's just Costa Rica but soon you will have Panama maybe at a high level. You could talk a little bit about your strategies there. And potential for wireless offerings in that -- in those markets when that makes sense from your perspective.
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [25]
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Yes, so this -- I often say that I am perhaps a little uncomfortable being in a country when you are a mobile operator and you have no path to having a strong fiber-based HFC plant underneath you, because it leaves you unprotected into the future. But I'm very comfortable with the reverse situation which is sitting on a nationwide cable plan that gives you optionality on mobile. And that's why we're so comfortable with our position, both in Costa Rica but most importantly in Panama which is much bigger. And the situation there is simply a nationwide state-of-the-art HFC plant with a significant market position and great high speed. So you're basically in the driver seat there in terms of when and how and what are the economics of your moving to mobile. It's a matter of time of course and it's a matter of picking the right time and the right economics to do it. And it may be that the right economics is to do it with network economics or it may be that the right economics is basically to do it with an MVNO till you build a strong subscriber base. We're in the driver's seat. And you know there is 4 players in Panama. And it's also a matter of public record that the regulator is happy with the move from 4 to 3, been approved in legislation. So there is a meaningful opportunity there to do that. It's just a matter of being in the driver's seat. It's early days for us. But as bullish as we are about the speed at which we're incorporating in Panama, we also want to be conscious of the fact that we've got to learn a lot more about that business when we hit the ground running in January of next year. That's what I can tell you about our move into mobile in those markets. I think I said (foreign language) when we had the call on Cable Onda. I go back to that song now.
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Operator [26]
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We will now take our next question from Lena Osterberg from Carnegie.
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Lena Osterberg, Carnegie Investment Bank AB, Research Division - Head of Research of Sweden, Head of Technology Hardware & Equipment and Financial Analyst [27]
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I was wondering if you could maybe comment anything on if you've seen any change in macro environment recently. Some of your [current] is weakened but I think most of your countries are still holding up well. And then, I'm sorry to come back to Africa, I know it's a small portion of your business. But do you have anything to say on the timing of the IPO in Tanzania?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [28]
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So I'll comment a little bit and I'll hand it over to you, Tim. On macro, I think you are generally right. We are in markets that have been very stable from a political point of view and also from a NASDAQ, from market point of view, relatively higher GDP growth than some of the bigger markets like Argentina and Brazil, certainly more stable FX than those markets like Brazil and certainly Argentina and even Mexico to some regard have been pretty stable on FX. Anything, Tim, before we go on to Africa that you want to comment on macro?
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Timothy Lincoln Pennington, Millicom International Cellular S.A. - Senior EVP & CFO [29]
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No, that's great. I mean, I think if -- (inaudible) I think kind of in contrast to what's been happening around those. Our FX rates have been relatively stable, with a little bit of sell-off towards the end of the quarter for us but essentially with strengthening oil prices that's where Colombia's currency remains relatively strong. So and I think the point with bringing Panama into the group, the amount of dollar, payout dollarized and kind of revenues and EBITDA within our group is increasing so we're less and less exposed, I would say, to FX.
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [30]
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And always remember the remittances into Central America, Lena, which are pretty meaningful.
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Lena Osterberg, Carnegie Investment Bank AB, Research Division - Head of Research of Sweden, Head of Technology Hardware & Equipment and Financial Analyst [31]
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But nothing, no change in consumer sentiment or consumer demand that you've seen in any of your market?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [32]
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Well, I think that the big one, which is I think it's a matter of very public record is that consumer sentiment in Colombia in the last quarter or 2 quarters has stopped going down and has begun to recuperate and become slightly in the upward trend (inaudible). And on the Africa IPO, Lena, I think the key point is that we work very closely with the Tanzania government to comply with the laws and to work with them on the timing and the way to do our IPO, very compliant and very much working with the Tanzanian authorities as we do everywhere. Tim, you're much closer to this process perhaps.
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Timothy Lincoln Pennington, Millicom International Cellular S.A. - Senior EVP & CFO [33]
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Yes. I think we expect that we hit the timing and we're working on it. It will be by the end of the first half of 2019.
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Operator [34]
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We will now take our next question from Bill Miller from Hartwell.
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William Christian Miller, J.M. Hartwell L.P. - Principal and Portfolio Manager [35]
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I'm curious about the 3-year outlook. You've got a great new cable acquisition. Cable is growing faster than you expected. What do you think your growth rates -- we can put in EBITDA terms, you can put it in revenue terms whatever, what do you think your growth rates will be say 3 years from now, 3 or 2, that's okay (inaudible).
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [36]
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Yes. It's a great set of question, but I think if I answer it specifically I may end up in trouble with the FCC, and that's the last thing I want because we've, as Tim said, we're -- we've got a pretty good dialogue with the FCC which is keeping our listing right on track. But I'll tell you this, I'm particularly happy about the last 2 quarters when our home business has begun to show its true potential. We've been building cable. We've been adding Next Generation TV. We've been rating fees. We've been working on the ARPU. We've been adding subscribers. And we're at a point where we're gaining momentum. When I look to that home revenue growing double digit and our mobile business driven by mobile data having been up for a number of quarters and possibly territory, I become very excited about our future because I begin to see what we dreamed Millicom would be 3 years ago, a high-growth company that has basically started to hit on all cylinders, whether it's B2B, even mobile. And certainly cable is right where I thought it would be. We're already a pretty meaningful cable operator. We show those numbers. We've got $2.2 billion of cable revenue. And that cable business is growing extremely, extremely well. So I fell like our vision is beginning to show. And going forward, it's going to be a lot more of that, because we continue to build, we continue to add subscribers, we continue to raise speeds, we continue to manage ARPU quite well and we continue to reallocate capital from Africa into organic growth in Latin America. Quite frankly, I couldn't be more bullish about our outlook.
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William Christian Miller, J.M. Hartwell L.P. - Principal and Portfolio Manager [37]
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Is all of this sustainable at a high rate when you say we're going to become a growth company? Growth companies grow high single or low double digits. Is that feasible given the outlook for cable? And how big will cable be say 3 years from now? What percentage will that represent of your total revenues or EBITDA?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [38]
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Yes, look, so when we look at that 4% to 5% service revenue growth that we're kind of hitting this day what I like about it now was that unlike what our growth was 3, 4 years ago this one is healthy. And I use the word healthy. It is data-driven. It is driven by, if you will, the businesses of the future. And the legacy part of the business has been left behind. So it's now fixed and mobile data. It is good B2B. It's almost a 70% subscription-driven. So it is a high, stable service revenue growth. And I'll take the opportunity to say something that I guess must be said which is now that we -- it was only about a year ago that we didn't really have series revenue growth. So now we're at stable growth rate which is now giving us the opportunity to focus on operating leverage, which is another important part of our story going forward. It is starting to turn that revenue growth into EBITDA growth which I think is something that we can afford to and should be focused on right now.
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Operator [39]
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We now move to our next question from Matthew Bloxham from Bloomberg Intelligence.
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Matthew Charles Bloxham, Bloomberg Intelligence - Senior Analyst [40]
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I think most of what I had has been asked already. But I guess just to follow up on inorganic growth. Obviously Panama is pretty big. I think you've alluded in the past, there is a number of different options you have been looking at in the Latam footprint. Do you still have, still in acquisitions the kind of on your list of things you'd like to do? And is there any further move kind of contingent on getting some cash in either from Africa or just organic deleveraging?
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [41]
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Yes. Great question, Matthew. And thank you for that. I think in a sense despite the great opportunity that I'm happy we're able to finally [hop into] with Cable Onda. It actually doesn't change one single bit what our strategic plan is. And let me explain what I mean by that because I think that one thing you can count on us is to be consistent and transparent and hopefully credible. We're extremely IRR driven in everything we do. And we've said very clearly from the very beginning that we are all about reallocating capital from the low IRR nonstrategic areas like Africa to high IRR, high-strategic areas like Latin America. And effectively what we've been doing over the last 3 years is just about that. We've been allocating capitals to high-speed data networks which are high IRR. We just -- we just went through massive cable, and that has been basically organic reallocation of capital into our bank. Cable Onda is nothing but the same. It just happens to be inorganically, that it's reallocating capital from the free cash flow that we've been able to free up and from the transactions that we've done in Africa. That gave us a strong balance sheet into a high IRR country that helps to diversify in Latin America like Panama. So it's the same strategy, simply adding a layer of inorganic element to it. And that's the point, Matthew. That's our big picture focus, very clear. Move away from low IRR, no strategic focus like Africa into high IRR strategic focus in Latin America where the opportunity to drive revenues out of pent-up broadband, low penetration is very, very clear. And whether we do it organically or whether we do it inorganically like we did with Cable Onda, we'll have a single common denominator and that is the opportunity of sales mix to be a high IRR for us, otherwise we will be complacent with the strategy. Now we need to continue doing that same level of prudent management of our cash flow and our leverage as we have in the past. And nothing has changed in that. We've been very consistent where we want our leverage ratios to be, right around 2x. And we've said that we will temporarily move higher to around 2.5 where we see it today on great opportunities like Panama (inaudible). And so despite Cable Onda or precisely because of Cable Onda I think what you see is a pretty meaningful and pretty consistent capital allocation leverage story from us. And while there was a little bit of Africa in your question, perhaps indeed I'll take the opportunity to answer the question there. We've been pretty active on Africa. And I think we solved quite a lot the issues there. We've done a few transactions. And as Tim alluded, we've got meaningful free cash flow coming out, out of Africa. But our plan remains the same, it's about reallocating capital. And when you look at where we are in Africa, I think the way I look at it is, it's we're no longer in the qualifying rounds of the World Cup soccer in terms of our exit processes there. It's more now like right in the middle of the World Cup itself and we're moving into the quarterfinals, I mean use an analogy there. And I think we got pretty much all the A teams in there. And so we're, I think, gaining traction there as well. So stay tuned there for updates on that.
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Operator [42]
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Thank you. Unfortunately that is all the time we have available for questions. I would now like to hand the call back to Mr. Ramos for any closing remarks. Please go ahead, sir.
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Mauricio Ramos Borrero, Millicom International Cellular S.A. - CEO [43]
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Thank you, everyone, for joining us today. I'm going to sound like a broken record, but one that I like playing, we're very pleased. Our service revenue growth 4.7% for the quarter and 4.5% year-to-date is pretty healthy. All countries are positive. And we're working on El Salvador, and that's pretty positive as well. Also line of businesses are growing with [mobile cost] now consistently and homes certainly taking high stride. Colombia is growing well both in mobile and on cable. We finally I think got that one right. Our home growth is solid, it's double-digit. Our cable business is already pretty big just like we wanted it to be and it's growing quite healthily. And we continue to focus on our growing the equity free cash flow. So thank you for your support. And we look forward to talking with you towards the yearend.
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Operator [44]
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Thank you, sir. Ladies and gentlemen, this concludes Millicom's financial results conference call. Thank you for your participation. You may now disconnect.
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