Millicom International Cellular S.A. (TIGO) Q1 2019 Earnings Call Transcript

(NASDAQ:TIGO)
Q1 2019 Earnings Call
April 24, 2019 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Michel Morin -- Vice President, Investor Relations

Good morning everyone, and welcome to our Q1 2019 results conference call. Before we begin, I want to make sure you take a look at our Safe Harbor disclosure on Slide 2 of the presentation, which is available on our website. As usual, we will be making some forward-looking statements today, and these involve risks and uncertainties which could have a material impact on our results if these risks materialize. So please take the time to review Slide 2 in detail.

And on Slide 3, we also warn you that we use a lot of financial measures that are not consistent with IFRS, and we define these metrics in here, and as well as in our earnings release you'll find some tables that reconcile these non-IFRS measures to their nearest IFRS equivalent. So with those legal disclaimers out of the way, let me turn the call to Mauricio Ramos, our CEO.

Mauricio Ramos -- Chief Executive Officer

Thanks, Michel. Good afternoon and good evening everyone. As usual, I'm joined on the call today by Tim Pennington, our CFO, whom you all know. Before diving into the results for this quarter, we want to take a few minutes to step back and look at our transformation over the past four years as it gives meaningful context to where we are and where we're going.

So please turn to Slide 5. Some of you will remember this slide. We refer back to it often because it is a good roadmap to what we have been doing. We have made a ton of programs, with a lot still to do to continue building this new Tigo into the future.

A few short years ago, our legacy mobile voice and SMS revenue was under severe pressure. As a result, our revenue was declining with very weak cash flow generation as well. So we needed to accelerate our transition from voice to data by quickly building a 4G network literally from scratch. Mobile voice user penetration was mature, so we have to focus on customer retention, 4G intake and postpaid migrations.

And we had of course a unique opportunity to build a state-of-the-art cable network right underneath our mobile footprint in Latin America. So we set out to build over 1 million homes per year, which we have been doing. As a result of all of this, our business today is very different [Inaudible] cable. It is increasingly subscription-based, it is generating revenue growth that is now approaching mid-single digits.

Our margins are expanding continuously every quarter, and our cash flow is now growing strongly and steadily. And it is now enough to both fund our organic plan and also pay an attractive dividend yield. So we're a much stronger company today with a crystal clear strategic direction that we are delivering on consistently. It has given us the financial flexibility to add an inorganic component to our strategy, and that has kept us very busy over the past six months, as you can see on Slide 6.

On October, we announced the acquisition of Cable Onda, a leading cable operator in [Inaudible] in December. Cable Onda adds more cable and subscription-based revenue to our mix. It gives us exposure to a rapidly growing dollar rise and investment-grade economy. And adding a presence in Panama was important to actually rate growth in our B2B segment and compliment that footprint in Central America.

In January, we completed our listing on the NASDAQ stock market in the U.S. with the goal of making it easier for investors to buy our shares and to enhance our overall liquidity. And in February, we announced the acquisition of Telefonica's operations in [Inaudible] and Nicaragua. With this transaction, we now have fixed mobile convergence capabilities in all of our nine Latin American markets.

As I mentioned earlier, preparing for a fixed mobile convergent future is a key pillar to our strategy. We think this will become increasingly important as a competitive tool into the future. And just as importantly, it helps us move these markets toward a healthier industry structure with only two convergent operators in all of them. And longer term, we expect that convergence will become critical as we begin deploying 5G networks.

This is probably a few years away for us still, but preparations for that  start today. So if you turn to Slide 7, you can better appreciate what we call the Tigo of today. We are now in nine markets in Latin America and in nine markets only. In all of them, we have both fixed and mobile.

In all of them, we have nationwide networks and we have market-leading positions. We're either number one or number two in most segments in these markets. And now we have this strategic geographic focus and the financial strength to keep investing across our footprint to protect and to build upon this market leadership for years to come. And on Slide 8, you can see very clearly how well positioned we are for a convergent to to play a future in these markets and just how much our latest acquisitions helps us complete our capabilities in the region.

This slide just speaks for itself. A bit more on the Tigo we are building and the Tigo of today. Please move to Slide 9. On the left, you can see that with the addition of Panama, our revenue mix is now more than 60% subscription based, more than 40% cable and about a third is denominated in U.S.

dollars and coming from investment-grade countries. This is a meaningful transformation. These numbers will change a bit after we close the Central American acquisitions in the next few months, but you can see on the right hand side of the page what our EBITDA will look pro forma to that transaction. The key message here is that we have structured a very well-balanced portfolio.

Adjusting for our ownership stake in each country, no single country in our portfolio will represent more than 20% of EBITDA to us. The smallest contributor will be El Salvador at about 5% of EBITDA to us. And most importantly, most operations would contribute right about 10% of EBITDA to us. This is a well-diversified portfolio and one that enhances the predictability of our business going forward.

Now let's take a closer look at our fixed business within this new Tigo on Slide 10. There's a lot of information on this page, but you can see on the top left that we have significantly expanded the reach of our cable network of the past four years. You know that our run rate is about 1 million homes built per year. And while we have been building and continue to build networks rapidly, we are filling them even faster.

[Inaudible] on our HFC network continues to accelerate. We added 95,000 new HFC customers just this quarter, which is right in line with the annual run rate of 400,000 new cable home customers that we have accelerated to. And this is now driving consistent double digit organic revenue growth in our home unit, the residential part of our fixed cable business. This is what a subscription business does when it reaches momentum.

Now let's go to Slide 11 to look at our mobile business itself. You know the strategic road map. We have been rapidly deploying 4G mobile networks. We now cover 67% of the population across all markets with those networks, and we're now approaching 11 million 4G customers.

The key point is that this is clearly the main reason why our mobile revenues are growing again. This revenues are now data-driven. Our mobile business is now a data-driven business. By now, as a result of this transformation, we have now reported six consecutive quarters of positive mobile service revenue growth.

And what is most encouraging to us is that we're demonstrating that it is possible to grow faster than this. Take a loot at Slide 12. This is Guatemala, where most of our business is actually still mobile, right around 80% or so. And this is one of the markets where we started deploying 4G the earliest, and one with a healthy industry structure.

Our services revenue growth in Guatemala has been accelerating, and it is now hitting 7% in Q1. This is simply a great case to show that with good execution and with a healthy market structure, our mobile business can grow at mid-single digit rates. And on Slide 13, you can see the progress that we have been making in turning around operations in Colombia, just like we said we would some [Inaudible] months ago. As many of you know, we have been hard at work in Colombia.

We have invested to expand our HFC network and to upgrade our legacy copper network. We have launched next-generation TV services with our ONEtv product. We have added Amazon to our offering and doubled our broadband speeds, leveraging our better network. With mobile, we have completely revamped our product offering and experience to offer an unlimited experience and focus on postpaid in our market.

And we have recently rebranded to Tigo. Put all of that together and the result is the acceleration that you are seeing in the number of customer relationships that we're adding in our home business and the number of 4G and postpaid net ads on mobile in Colombia. And with that, the acceleration in revenue growth that you are seeing pick up this quarter. The numbers speak for themselves on the chart, but I do want to make a technical note on our Q1 growth in Colombia.

Both home and mobile grew impressively well. But our B2B business in Colombia this quarter was actually negative. That's not our normal. That's a lumpy business, and it was simply because this quarter we did not have the benefit of the large elections government contract that we had a year ago.

Said differently, B2B is by nature a lumpy business. So excluding B2B in Colombia, our Q1 revenue growth would have been over 6%. And EBITDA growth stronger than reported, of course. By the way, we have already attained the electoral B2B contract for later on this year.

And because we continue to work on efficiencies day in and day out, we are seeing the improved top line produce operating leverage and a big improvement in organic EBITDA growth. Moving on to Slide 14, I also want to highlight the turnaround we're seeing in Honduras. It is the very same playbook, so I won't repeat it for you here. But our new team in Honduras has been executing on that playbook, and it is now starting to show results, its service revenue growth reaching 3% in Q1 and EBITDA up more than 4%.

The strategy is clearly working in Guatemala, in Colombia and Honduras and continues to work in Bolivia, which had another spectacular quarter. So I'm confident that it will also work in El Salvador where we're following the same playbook and we just put a new team in place at the beginning of this year. And while we remain focused on our organic strategy, we added Panama to the family in December. As you know, we prepared our 2019 budget alongside the Panama management team and our partners precisely so that we could hit the ground running early in in 2019.

And that is exactly what is happening in Panama. As you can see on Slide 15, Panama had a great Q1, with 4% revenue growth and 8% EBITDA growth. Right on budget and right on our acquisition plan. We're on plan, the integration is progressing without hiccups, and the team is already hard at work preparing for the mobile acquisition, which will solidify our market leadership in Panama.

We have effectively gone from zero to market leaders in Panama in a very short period of time, and it all seems to be working according to plan. Now please turn to Slide 16 for an update on how we have been allocating your capital. You've seen us use this slide a few times now. That is precisely the point.

But we keep on adding tiles to the left to free up non-strategic capital that we most recently have completed the recent acquisition by reaching an agreement to divest our operations in Chad. This is the latest of a series of transactions that have allowed us to accelerate our organic growth plans and to make the two strategic acquisitions in America that we have announced in the last six months. Slide 17 is actually the punch line. It is the show-me-the-money slide.

Everything that we have been doing, allocating capital and transforming our journey, has been aimed at improving our return on capital and generating equity free cash flow growth. The two charts on return on capital increase and equity free cash flow generation speak for themselves on this page. But as you can imagine, we are setting our own bar even higher because we know that we still have room for improvement. Our greatest growth opportunities now come from, one, accelerating our organic growth generation; and two, unlocking the synergies from the recent acquisitions.

These are our two key strategic priorities now, and we know well that strategic focus is the key to good execution. And this is a perfect segue into Slide 18. The message here is very, very simple. We had a very, very solid Q1.

We added 270,000 4G users and 95,000 home net adds. Both numbers are very strong for our first quarter. Postpaid net adds came in again strong at 68,000 for the quarter as we continue our journey to migrate more and more into postpaid. And service revenue growth continued to accelerate to 3.7%.

And if we adjust for the B2B business for the reasons that I mentioned before, our growth revenue growth would have been 4.7% for the quarter, right in line with what we're aiming to do in the long term. And EBITDA growth is now strongly back on the table, as we anticipated, up 4.5% for the quarter. Again, high if you adjust for the B2B effect that I just described earlier on this quarter. With that, let me turn it over to Tim to go with the Q1 performance in more detail.

Tim?

Tim Pennington -- Chief Financial Officer

Thank you, Mauricio. OK, let me take you through the numbers. I'll start with our IFRS presentation, and then I'll bridge to the Latam segment numbers we review on these calls and finally review the Latam financial performance. So starting on Slide 20, this is the group P&L for Q1.

And as a reminder, Guatemala and Honduras are treated as equity associates for this purpose. You can see the contribution to net income marked A on the slide. Note there were two major impacts. The first was the introduction of Cable Onda for the first full quarter, and this impacts most of the line items.

And the second was IFRS16, the new lease accounting standards, which added $16 million to operating profit and $1 million to net income. Finance charges were $56 million higher in the quarter. Now this is largely due to $24 million of one-off charges relating to financing activities and a $16 million impact from IFRS16. And finally, we had gains from associates.

These reflect non-cash gains on Jumia. Jumia is a recently IPO'd business. It's IPO'd on the New York Stock Exchange, and we now hold a 6.3% stake there. On Slide 21, we show the bridge from group revenue to Latam service revenue and from group operating profit for Latam EBITDA.

These are the metrics we'll focus on for the rest of the presentation. Starting with the upper graph, the underlying group revenue in Q1 was $1.55 billion. Africa now represents just 8%, and that will fall further once sale of Chad is completed. After excluding the sale of handsets and other non-recurring revenue items, Latam service revenue in Q1 was $1.3 billion.

In the lower chart, the bridge is from group operating profit to Latam EBITDA and it shows the underlying operating profit, including Guatemala and Honduras, of $264 million. There was no meaningful contribution from Africa. And with D&A at $335 million, and that includes $84 million for Panama, the Latam segment EBITDA was $591 million in the quarter. OK, let me turn to the drivers of revenue growth for the Latam segments on Slide 22.

And you can see that the headline service revenue growth was 5.8%, but there were several moving parts in headline numbers. The first time inclusion of Cable Onda had it around $100 million of revenue. That was offset by FX headwinds of around $70 million, principally from Colombia and Guatemala, albeit this largely reflected FX movements in Q4 and not in the current quarter. Adjusting for these, the organic service revenue growth was 3.7%, mostly driven by the cable operations.

Now looking at the contribution to Latam service revenue growth by country on Slide 23. You can see on this slide that we saw strong growth from the majority of our countries. Bolivia and Guatemala both continued to show very strong revenue growth. Panama made a good introduction for the year with growth of 4.3%, and Honduras has maintained the pace we saw in the second half of 2018.

Colombia had a decent quarter in both mobile and home and offset, as Mauricio said, by a weaker B2B segment. And Paraguay was flat as we responded to the more competitive environment, while we also continue to see challenges in El Salvador, which depress the overall organic growth by more than 0.5%. OK, so let's turn our attention to Latam EBITDA, and that's on Slide 24. Overall, Latam EBITDA, as I said, was up at $591 million, including an IFRS16 impact of $42 million.

Adjusting for that and FX, the organic growth, and that includes Panama, was 4.5%, in line with the guidance for the full year. If we look at EBITDA trends by country on Slide 26, those were some really exciting performances here. Momentum in Bolivia remains exceptional. EBITDA, up 21%, and that's wholly organic.

Last time, this time last year, we saw an 8.5% decline in Colombia. It's now delivering an EBITDA performance that we've been working toward for some time now. It was up 10%, and with 31% EBITDA margin. And that excludes the IFRS16 impact.

Guatemala and Panama both delivered single-digit EBITDA growth, and it was offset, to some extent, by El Salvador and Paraguay. And in Paraguay, as we've mentioned, we've seen the increased competitive intensity, which we have responded to with a focus on our sales and marketing activity, which have impacted the margin in this quarter. Turning now to Slide 26, cash flow remains robust. And looking at the Latam operating cash flow, and that is EBITDA minus CAPEX, we delivered $423 million in the first quarter.

That is $66 million up organically on the same quarter last year. $42 million is accounted for by IFRS16. Now overall group cash flow in the first quarter was lower. It was mainly affected by timing differences.

Cash CAPEX was $75 million higher in Q1 than a year ago, and this largely reflects phasing. Our working capital is also $61 million higher, and this is partly due to higher prepayments, which again we expect to unwind through the year. Now Cable Onda introduced about $30 million of cash CAPEX and around $20 million of working capital. This impacted those line items, but it had a broadly neutral effect on the group cash flow in Q1.

Finally, let me look at the capital structure on Slide 28. And a lot of moving parts this quarter. Firstly, we have completed the permanent financing for Cable Onda acquisition, and we are well advanced in the permanent financing for the Telefonica acquisition. We've actually closed in on around $1 billion of permanent financing with a $750 million bond issue and bank loans.

And we've maintained our credit rating at Ba1/BB+. So underlying net debt at the end of Q1 was $5.2 billion and representing leverage of 2.24 times, or 2.6 times on a proportionate basis. And note that in Q1, none of the Telefonica assets had been closed. IFRS16 added $854 million to total debt, and that includes Guatemala and Honduras, and that takes the total net debt, including leases, to $6 billion.

And with that, let me now hand back to Mauricio to wrap up.

Mauricio Ramos -- Chief Executive Officer

Thank you, Tim. Before taking your questions, let me take a moment to recap. We had a solid Q1. Mobile continues to grow with strength in Guatemala, Colombia, Bolivia and Honduras, helping to offset the weaker growth in Paraguay and El Salvador.

And our home segment also continues to perform very strongly with double-digit consistent growth. All of this is fueling both our service revenue and our EBITDA growth, which has come back, all of which are trending in line with our guidance for the full year. We've made good progress in capital location with the disposal of Chad and with our integration of Cable Onda, and we're now fully preparing to close our three acquisitions in Central America in the next few months. We are thrilled to welcome the teams in these countries to the Tigo family.

With these transactions, we're buying leading market positions, adding mobile to fix, creating in-market scale and unlocking significant synergies. And recall also that one of the key strategic outcomes is that this transaction will help to reshape and strengthen the industry landscape in Central America. We expect this will pave the way for a healthy investment environment to help fulfill our purpose of building the digital highways that will connect people and develop our communities in these countries. And with that, we're ready for your questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] And the first question comes from the line of Mathieu Robilliard with Barclays. Please go ahead. Your line is now open.

Mathieu Robilliard -- Barclays -- Analyst

Good morning all. First question please, looking at the midterm targets that you communicated a few months ago. I was wondering what were some of the underlying assumptions there. When we look at the revenues, mid-single digit and you're not far from it, do you expect basically when you give this guidance that all markets will be doing fine? Or does it allow for one or two countries to divert from positive trends? And likewise, on EBITDA, what brings the range of EBITDA from mid to high-single digit growth? What are the kind of assumptions that are behind that? And then second, looking to the quarter and specifically Paraguay, so obviously you flagged already in the previous quarter that the competitive environment have deteriorated.

And I was wondering what exactly was going on. I mean, is it one of the smaller players, maybe AMEX that is becoming more aggressive? Is it a question of scale for some of the smaller players and they really want to become leader, which could suggest it could last for a little while? Or is it something else that is going on? Thank you.

Mauricio Ramos -- Chief Executive Officer

Sure. So there's a lot there, Mathieu, but thank you because you're hitting on some really important points here. On the way we'll look at our business and our long-term guidance, I think this Q1 is a perfect example of indeed the fact that we do incorporate that not all markets we'll be hitting in all cylinders all the time. And Q1 is a perfect reflection of that.

We've got some really great performance from some of our larger markets, and we got Paraguay that requires us to focus to defend our market share. But the combination of that yields a quarter in which we're right on line with our guidance for the year and right on line with our midterm projections. And effectively, the strength that we now have in our overall business and in some of our key markets allows us then to continue to defend Paraguay and continue to improve El Salvador. So that's the benefit, if you will, of a good and well-balanced portfolio.

And for our midterm and the way we project, we do try to allow ourselves some leeway in some markets. And that's precisely why on this quarter we're right on bang for the guidance. Now on the EBITDA part, effectively we've now reached that sort of mid-single revenue growth target. If you adjust for the B2B lumpiness that I described this Q1, we're at 4.7%.

Either 3.7% or 4.7%, whichever which one you want to take is within our guidance for the year. But more importantly, into the longer term, obviously when we've got revenue growth back in the system, we can put in operational leverage and continued efficiencies into the business. So going forward, it's a combination of operational leverage, which you began to see this quarter, with EBITDA growth higher than revenue growth and a continuation of our long-term efficiency projects that you're beginning to show to see results in Guatemala and Colombia. That's where you have significant EBITDA growth in both of those markets.

And into the longer term of course, we expect that both operational leverage and continued focus on efficiency will yield higher EBITDA growth and revenue growth. That's the beauty of a nationwide network in scale, size and operational leverage. With regards to Paraguay, and I think this is new point for us to bring to all of you and to your attention, I've already made the point that we can weather the situation in Paraguay, both from a revenue growth point of view, from an EBITDA growth point of view and from a cash flow point of view. We have the strength today to do that.

So let's first talk a little bit about what the situation is in Paraguay and what has changed. I think the beginning of this is that the merger in Argentina caused one of the competitors in Paraguay, because they have an operation in there, to elevate their market ambitions in that market. And once you have one player that changes the status quo, then the market gets disrupted for a period of time. And it started out initially with prepaid, and it's now become a little bigger, just as we expected.

So we do have market disruption, competitive market disruption in Paraguay. Now we've reacted to that as you would expect we would. And I'll be very clear on what our strategic approach to this situation is. Tim alluded to it.

We are reacting to it by defending and protecting our market position for the long term. So we've invested in sales and marketing on top of the significant investments that we had made on the network earlier when we envisioned that this situation would come our way. And I want to be very clear on this, and hopefully we've highlighted it to you ahead of time and we'll be as clear on this as we have on everything else, this is a storm that we will weather out by doing exactly what you would expect us to do, which is to defend our market position. You can see that this quarter our revenue is flat, but our EBITDA is actually down.

That's what Tim meant by saying we're investing in sales and marketing to defend our market position. So we're effectively tapping into OPEX to do that because we believe that once the storm subsides, and it will subside, we will come out of it exactly with the same market position that we have today and that we have had for decades, by the way. And the reason I'm so certain this is the right strategy is because one, we have an unrivaled mobile network in Paraguay. You will recall that we are quite a large chunk of 700 megahertz spectrum back in early 2018 and that we started investing on that well ahead of time to strengthen our 4G network and our position, envisioning that some of this could come our way.

Two, we have acquired, upgraded or built new HFC network to create a state-of-the-art nationwide cable fiber network in Paraguay that quite frankly is unrivaled. And the overbuild that we're seeing in Paraguay is limited to only a few neighborhoods. And if you look through our numbers, and I think we put this in our disclosure, our cable business continues to grow extremely well in Paraguay, giving us the ability to defend mobile market share. And three, remember that in Paraguay we have key differentiating competitive elements.

We've got exclusive soccer rights, got large sales and distribution networks and pretty high customer service satisfaction levels. And lastly, this storm catches us at a moment of cash flow strength, both in Paraguay and at the group level. So said differently, we've got the networks, we got the distribution, we got the content, we got the service levels and we got the cash flow to see this storm through. So we will defend our market share like we have in that market for decades.

I don't know whether it will take one quarter, two quarters or a full year, but I do know what the outcome will be.

Mathieu Robilliard -- Barclays -- Analyst

Thank you very much.

Operator

And your next question comes from the line of Soomit Datta at New Street Research. Please go ahead. Your line is now open.

Soomit Datta -- New Street Research -- Analyst

Hi there. Yes, couple of questions please. One, you talked a little bit about the lumpiness of B2B revenues in Colombia. Are you able to say whether in principle this should be a growth business or not? Or is it at least stable so we can kind of think about the year ahead? And then secondly, just slightly kind of conceptual, you mentioned that though 5G, have you got any -- you said you're thinking about it and you'll be ready for it.

And perhaps you could just quickly give some thoughts on where you think you might see spectrum coming first and what your approach to the new technology will be? Thank you.

Mauricio Ramos -- Chief Executive Officer

Sure. So listen. On B2B, I think we've said before that normalizing for the lumpiness of B2B, we envision it to be a mid-single grower. And if you back out the last couple of years, you'll get to about that once you sort of normalize for the lumpiness of it.

This Q1 indeed had that election contract in Colombia that I mentioned. And just to highlight the lumpiness of it, we already won the contract for the midterm elections in Colombia later this year. So there'll be positive lumpiness sometime later on this year. Our Panama results for Q1, which are pretty good on revenue growth, were also quite dampened by lower B2B in Panama this year simply because we've got elections coming up and things do tend to quiet down when you've got elections coming up in a country.

So this is just a business that would have some lumpiness but has significant growth, mid-single digit growth potential into the future that we said in the past. With regards to 5G, as I said early on, ours is to prepare for 5G and keep a very close ear to the ground on to deployments and commercial developments in more developed countries. So our views on 5G will evolve as we start to play out in other markets. It's very early days for us, but we like to plan ahead.

So the key thing that we're doing are investing a ton in fiber. As you know, 5G is largely a fiber technology. For 5G to work, you need to have those RF antennas pretty close to the consumer. And in order to do that effectively, you need a ton of fiber.

And that's what we're doing. We're deploying over a million homes passed with a lot of capillarity in every single one of our markets. With regards to spectrum, we are tactically buying some of the 5G spectrum that may be the one that gets standardized or deployed or auctioned in our markets. But 5G auctions in our markets are not even in the radar screen.

We're still on 4G auctions, whether it's 700 or AWS, pending in some of our markets. So we don't expect any 5G spectrum auctions to come our way in the foreseeable future. That's the long and short.

Soomit Datta -- New Street Research -- Analyst

Very clear. Thank you.

Operator

Your next question comes from the line of Kevin Roe at Roe Equity Research. Please go ahead. Your line is now open.

Kevin Roe -- Roe Equity Research -- Analyst

Thank you. Could you give us an update, since you announced in late February, your Costa Rica, Panama, Nicaragua transaction with Telefonica? I'm sure you and your teams spent more time in those markets. Maybe talk about the integration plans. I think you mentioned earlier you expect this to close in the next few months.

Is there a long pole in the tent down closing? And just your views in general on how those transactions will impact the industry structure of the markets.

Mauricio Ramos -- Chief Executive Officer

Yes. So in terms of timing, first I think we had said that this would be a second-half panorama for us. We think we may get one of those actually closed during the second quarter. And then maybe one in Q3 and one in Q4.

So with a small adjustment, we are within that timeframe, and that's good because, just like we saw in Panama, having very short timeframes between signing and closing, reduces the M&A risk and allow us to get control of the assets quicker and start doing our thing quicker. In terms of preparation for the integration, you can imagine that we've hired advisors. We've got the teams allocated specifically to it. We're going through now the in-depth preparation in order as the transactions may come in place likely in a staggered manner.

So we feel we're quite prepared for that. We haven't, just like in Panama, we have had no hiccups in Panama and we're now running the business for a full quarter. With regards to the Telefonica acquisition, so far we haven't come across any hiccups, so we remain just as positive as we did when we announced the acquisition, that these are good assets that we will be able to incorporate. And indeed, as I said at the time, that the long-term strategic outcome of this is of course that industry structures will become healthier in most of our markets.

Guatemala will go from three to two, and El Salvador will go from four to three. And the rest of their markets will have fixed mobile, and there'll be a natural tendency for these ones convergence kicks in to move to two-player markets or three mobile and two fixed mobile providers, which is a healthier industry. And this is important because it effectively does two things. One, it provides for a healthier mobile structure.

Two, it unlocks pending spectrum auctions in most of these markets because once you have a healthier investment environment, players are likelier to have a business, a better business case and therefore more proactively work with governments to unlock that spectrum that is healthy for the industry. And then lastly, as a third point, once you basically have fixed on mobile convergence, naturally those markets tend to converge to a two-player market. So that's what we see happening in Central America.

Kevin Roe -- Roe Equity Research -- Analyst

That's helpful. And just a quick follow up on M&A. One of your smaller mobile competitors in Panama and El Salvador has said those two markets are non-strategic. How do you see future mobile consolidation occurring if it does occur?

Mauricio Ramos -- Chief Executive Officer

I mean, I think from a big picture point of view, it is healthier for the investment climate in these countries to have smaller number of players that have a better business case and, as a result, invest more in the development of the industry these countries require. And I mean, basically the digital highways and the networks that need to be built for the development. So I think that's beginning to become the case, and most regulators are realizing that a smaller number of players that can invest more is a better outcome for their digital economies. So I see that as something that will continue to happen in these markets.

Now I don't know whether they will happen tomorrow, the day after or exactly when, but I quite clearly see that trend. And obviously, that was a significant part of the strategic rationale for our acquisition of the Telefonica assets.

Kevin Roe -- Roe Equity Research -- Analyst

Very good. Thank you.

Tim Pennington -- Chief Financial Officer

But I mean, to be clear, Kevin, I mean, we are very focused on Telefonica. I mean, we're focused on the delivery and integration of Telefonica. And that's really where our sole focus will be over the next few periods.

Mauricio Ramos -- Chief Executive Officer

I didn't mean to suggest, Kevin, with my long-term view that we're going to do more M&A. Like our plate is full. I was very clear on my script. We've got two strategic priorities.

One is we're going to continue to deliver organic growth. We're accelerating, and we're happy with where we're accelerating. And two, we're going to integrate these businesses. And that's what we're focused on.

So thank you, Tim, for helping me clarify that. There is no other strategic priority other than those two.

Kevin Roe -- Roe Equity Research -- Analyst

That's very clear. Thank you both.

Operator

Your next question comes from the line of Bill Miller at Hartwell. Please go ahead. Your line is now open.

Bill Miller -- Hartwell -- Analyst

Good morning or good evening. Tell me, if we had to look at the chart that you started out with where you've come from in the last four years and where you are now, tell us what it's going to look like in three years.

Mauricio Ramos -- Chief Executive Officer

So it's all going to be data-driven. Entirely data-driven. We're going to look a lot more like a fully subscription business as we do more postpaid, more cable. And we are deployed further into convergence.

So it will look a lot more like a subscription business. There will be an increased focused on our part on B2B, which we alluded to earlier, largely focusing on the small offices and the small and medium enterprises, but also deploying a lot of our B2B large multinational capabilities out of Panama and Colombia into the rest of our markets. You will therefore see a more stable portfolio and one with the growth prospects that we have highlighted in our medium-term guidance. And increasingly, you'll see us from a financial point of view because of that, deliver and continue to generate, growing equity free cash flow.

It's effectively the medium-term outlook and the business plan that we presented earlier this year. With the increased benefit of the Telefonica acquisitions giving us a better market structure, as we were discussing earlier, and helping us unlock synergies and pursue our B2B growth in Central America, which was of course not part of the early January long-term plan that we presented to you.

Bill Miller -- Hartwell -- Analyst

Great, thanks.

Operator

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

Johanna Ahlqvist -- SEB -- Analyst

Thank you. Just a few questions, if I may. First of all, back to Paraguay, I'm just wondering, is it only mobile where you see this serious competition? Or is it also impacting fixed? And then a question related to El Salvador. I'm just wondering, I know the management changes you made so forth, but has the sort of competitive climate or the market environment changed in any way since Q4, since the trends are continuing to look a bit poor currently.

And then lastly, if I may, Jumia. You own the 6% stake. When and if are you expected to divest this stake and/or, I mean, I guess it's not the strategic decision for you. Thank you.

Mauricio Ramos -- Chief Executive Officer

Yes, so I'll take the first two and then Tim probably has a very clear model in his calcular mind as to Jumia. On Paraguay, our home business continues to perform extremely well. We're growing really, really well on home in Paraguay. We have a great network there.

We've been making acquisitions and deploying cable. We've launched next-generation TV services. We've got exclusive soccer content. So that business continues to perform extremely well.

We are seeing some fiber overbuild in certain neighborhoods that of course we are defending for. And as a result of that, we have a very strong home business that is helping us weather the storm on the mobile business. So that's with Paraguay, and I think I've been very clear on the Paraguay approach that we're taking. With regards to El Salvador--

Tim Pennington -- Chief Financial Officer

Mauricio, sorry. Mauricio, I just wonder if I could make one additional comment on Paraguay. Because I mean, I think it's fair that Paraguay didn't sort of meet our high standards for this quarter, but it is still a business and I think you articulated really well in the first question with great strength. And it still knocked out a 48% EBITDA margin in Q1 on flat revenues despite the intensity of what we saw.

So I think it remains an extremely strong business for the group.

Mauricio Ramos -- Chief Executive Officer

So as I said earlier, we're going to weather their storm, and the outcome is going to be sustained market share. And the timing of how long that will take? We don't know. But we've got the strength to weather it out. With regards to El Salvador, we did indeed put a revamped management team late last year.

We're very excited about what we're seeing from them. And the playbook that has worked everywhere else will work in El Salvador. Again, we're not exactly sure how long did the turnaround will take, Honduras is now working, but it took us a little while, and I'm sure for a number of quarters you heard us say it's going to work and you were wondering when exactly it was going to work. With El Salvador, we got to give the management team some time to put the playbook in place.

It's harder in El Salvador because there were some IT issues that caused a little bit of the problem on top of the macro and political situation that you're very well aware of, Johanna. But we've done all the things that we need to do. We've cleaned up the subscriber base. We've fixed the IT systems, we've written off the bad debt.

And as a result of that, we remain very positive on El Salvador turning around. And we only see a better industry structure coming out of the recent M&A activities there in the medium term. So if you're patient on El Salvador, the playbook there will work as it has worked everywhere else.

Tim Pennington -- Chief Financial Officer

Yes, on Jumia, essentially we are in a sort of bankers post-IPO lockup period. And once that has expired, we'll consider what opportunities we have with that particular stake.

Mauricio Ramos -- Chief Executive Officer

Which is not a small amount of money, by the way.

Johanna Ahlqvist -- SEB -- Analyst

That's why I'm asking. Thank you.

Operator

And your next question comes from the line of Maura Shaughnessy at MFS. Please go ahead, your line is open.

Maura Shaughnessy -- MFS -- Analyst

Yes. Good morning. Just a couple of questions. One, in terms of the Telefonica acquisition, can you talk about your need for equity to help finance that deal? Second question is, any sense of the timing of the Chad sale closure? And third question, if you look out '20, '21, '22 and potentially the company can become or already is, but even more so of kind of a very strong free cash flow story, you've guided over time to a 15% capital intensity and yet most expectations aren't near those levels.

And given the incremental purchase of mobile, with the capital intensity that that entails vis-à-vis the Panamanian cable asset obviously with the higher capital intensity, so how should we think about that over the next couple of years just in terms of how that capital intensity may change over time? Thanks.

Mauricio Ramos -- Chief Executive Officer

Yes. Thank you, Maura. So on Telefonica, no. We don't envision and we never predicated the acquisition on the need for equity.

We initially financed it with a typical acquisition bridge loan that we've been in the process of converting into a long-term debt. And Tim has made some significant improvements on that, and I'll let him address that in a minute. But the outcome has been that we have taken advantage of the good credit markets to actually put in place longer-term financing that had interest rates that were lower than we had envisioned in the acquisition plan, further allowing us to be more convinced that we don't need any equity issuance to finance for Telefonica. A couple of other things have happened that coupled with the way we see the business delevering allows us to believe that this should be a debt finance.

One is Jumia turned out to indeed be a successful IPO sooner than we had anticipated and with a better outcome that we had anticipated. And we've already alluded to that. And when we did the Telefonica, we hadn't yet announced Chad, which, as you know, has a nice purchase price on it and is something that, going on to your second question, we're working harder to close as soon as possible. And as soon as possible could be very, very soon or it could take a little longer simply because this is Africa and the political situation in Chad, as I'm sure you know, Maura, is very delicate.

So we don't really control the timing. But like everywhere else in our prior transactions in Africa, we'll get to the finish line hopefully sooner rather than later. So I think we've said effectively sometime this year. Maybe much sooner than that.

And with regards to free cash flow, I mean, indeed that is the show me the money kind of slide, and we've put out early on what our cash flow model is. We are right on track for delivering that cash flow model. In our medium-term guidance, we do indeed talk about that 50% capital intensity, which we believe is right on track for a business that will be growing the way we're growing. We've done a ton of 4G in the markets that we own prior to the Telefonica acquisition.

As I said earlier, we're almost at 70% coverage. And going forward, it becomes more capacity-driven than coverage-driven on 4G. And as a result of that, it is subscriber or success-driven. So the mobile intensity will come down going forward compared to what we had in the last three years.

And as I said earlier, we are already making the most expensive part of the 5G investments, which is the fiber that we're deploying on the ground. Now the Telefonica acquisitions themselves, and I think we highlighted this on the Telefonica call, they come with significant spectrum. And they also come with very significant 4G coverage, particularly in Panama and also in Nicaragua. And as a result of that, we don't envision that they will be capital intensive for us because they already have a pretty meaningful 4G network.

Telefonica strategy, if I could summarize it, was they went long on spectrum and very long on 4G, but very short on fiber deployments. And that's why it made them a very good compliment for us because we were actually very, very long on fiber deployments in all of those markets. I hope that's a full answer.

Maura Shaughnessy -- MFS -- Analyst

Yes. Awesome. Thank you.

Operator

Your next question comes from the line of Lena Osterberg at Carnegie. Please go ahead, your line is now open.

Lena Osterberg -- Carnegie Investment Bank -- Analyst

Yes. No question on Africa yet, so I think I have one here. Could you say something maybe on what's going on the IPO in Tanzania? And if you look at the size of your business compared to Vodafone, which is already IPO'd, Do you expect to get similar proceeds for your business? How much could we, in that case, expect? And then also, the government contract in Colombia. Was it just for this quarter, or is it also for Q2? I think it's for Q2 that you'll have the headwind as well, right? Just to remind us.

Mauricio Ramos -- Chief Executive Officer

Yes, Michel, I may need a little help because I do think you're right. I do think it travels a little bit into Q2.

Lena Osterberg -- Carnegie Investment Bank -- Analyst

OK.

Tim Pennington -- Chief Financial Officer

Yes, that will be a little bit of Q2 impact, Mauricio. Roughly the same impact that we had in Q1.

Mauricio Ramos -- Chief Executive Officer

Right. And again, these are good margin contracts. And obviously, the adjustments that we mentally make to get a feel for our long-term adjusted or normalized growth also have an impact on EBITDA growth rates, which I'm not going to speculate about. On Tanzania, on the IPO, I said on the last call that completing the IPO is a priority for the government.

It's actually mandated by law and one that we're working very actively with them who to execute on. We have a very respectful and a very good working relationship with the authorities there, so we're focused on completing that as a next step. The amount that will come out of the IPO obviously are very consistent, we hope, with the prior IPO. That's the only prior experience there is.

And as a result of that, as a result, the only data point that we have in what otherwise is a fairly liquid market. So it's hard for us to have any other data points in that one. Anything, Tim? Do you want to highlight on the IPO in Tanzania?

Tim Pennington -- Chief Financial Officer

Well, yes. I mean, I would add that it is complicated in Tanzania. I certainly wouldn't be penciling any proceeds into your models just at this point in time. There are several steps that we need to take to prepare the business for IPO in terms of some internal restructuring, some internal plumbing that we need to do for that.

And then once that has been completed, we'll then decide on the sort of the nature of the IPO. A little bit of work to do yet.

Mauricio Ramos -- Chief Executive Officer

Yes. I think that the government has made it abundantly clear that they like to see the IPO completed. And as a result of that, that's what our current focus is on.

Lena Osterberg -- Carnegie Investment Bank -- Analyst

But previously you said that you expected it sometime mid year. Is that still the timing?

Tim Pennington -- Chief Financial Officer

Yes, yes. Still our timing.

Lena Osterberg -- Carnegie Investment Bank -- Analyst

OK. Thank you.

Operator

Your next question comes from the line of Rodrigo Villanueva at Merrill Lynch. Please go ahead, your line is now open.

Rodrigo Villanueva -- Bank of America Merrill Lynch -- Analyst

Yes. Thank you. Good morning, Mauricio, Tim, Michel. Most of my questions have been answered, but I would like to ask regarding your stake in Ghana.

If it's possible to dispose that 50% stake as well anytime soon?

Mauricio Ramos -- Chief Executive Officer

I think the writing's on the wall, Rodrigo. You've seen the last four years. So we sold DRC, we've sold Rwanda, we've sold Senegal, we've sold Chad. And as we said when we announced Ghana, we put in an agreement that is structured for an eventual sale of the asset.

So I think the direction of travel is, quite frankly, unequivocal. Now the timing obviously will maneuver around trying to maximize our positioning there, but the direction of travel is unequivocal.

Rodrigo Villanueva -- Bank of America Merrill Lynch -- Analyst

Understood. Thank you very much, Mauricio.

Operator

And your next question comes from the line of Chelsea Colon at Aegon. Please go ahead, your line is now open.

Chelsea Colon -- Aegon Asset Management -- Analyst

Hi, and thank you for the call. I just had one clarification and related question. When you talk about 4.5% organic EBITDA growth, are you including Panama only in 1Q '19? And if so, it seems that organic EBITDA growth is actually down about 4% year over year when you exclude the Panama. So I'm just wondering, what explains that? Is it mostly the B2B in El Salvador, or is there something else?

Tim Pennington -- Chief Financial Officer

Let me pick that one up, Chelsea. I mean, just to be absolutely clear, Panama, we have adjusted the prior year to include Panama's prior-year performance in. So this is a like-for-like organic growth rate that we're quoting here.

Chelsea Colon -- Aegon Asset Management -- Analyst

OK, great. Thank you for the clarification, I appreciate it.

Tim Pennington -- Chief Financial Officer

Yes, it's completely like for like. We have made that prior-year adjustments so that we've got a like-for-like growth.

Mauricio Ramos -- Chief Executive Officer

And then just to further clarify then, the B2B effect in Colombia, and to a smaller degree in Panama in Q1 that we were referring to earlier, would make that growth rate higher. But we're obviously not giving you that number because it's very difficult for us to precisely calculate it.

Chelsea Colon -- Aegon Asset Management -- Analyst

Understood. Thanks.

Operator

The last question comes from the line of [Unknown speaker] at VTB Capital. Please go ahead, your line is open.

Unknown speaker

OK. I have several questions. First will be can you please tell more about any acquisitions that you're planning for this year? I think you mentioned that you were planning some. How much you will be paid if not confidential, if this information is not confidential? What will be sources of funding? Would be operational, cash flow or some proceeds from sale of assets or borrowed funds? And in which countries are you planning acquisitions? I again say that if this information is not confidential.

Then second question is--

Tim Pennington -- Chief Financial Officer

Yes, I just want to clarify. I don't know where you got this from, but we're not planning acquisitions. We made it clear that we made--

Unknown speaker

Absolutely, no acquisitions.

Tim Pennington -- Chief Financial Officer

We made significant acquisitions, and our focus now is on the integration of Telefonica assets into the group and that opportunity, that significant opportunity and the synergies that will come out of there. So I'm not sure we can answer any part of your question actually.

Unknown speaker

OK, I see. Then are you planning to decrease your net debt to EBITDA ratio? Or are you planning to hold it at the current level?

Tim Pennington -- Chief Financial Officer

I mean, we indicated when we did the Telefonica deal that the net leverage will go up to about three times. We said that our long-term goal is to have leverage around about two times. This is on a proportionate basis for us and pre-IFRS16. And that remains the case.

And we see a medium-term deleveraging plan through organic cash generation and EBITDA growth.

Unknown speaker

Thank you. What are benefits and reasons for sale of towers and then leasing them back?

Tim Pennington -- Chief Financial Officer

Again, we view towers as passive infrastructure. We have made tower sales historically where we're seeing good financial benefits from doing so. We get the benefit of getting local currency financing onto our balance sheet that is long term and actually low rate. So where we see those opportunities, we've taken them in the past, and we will take them in the future.

Unknown speaker

OK, I see. Thank you.

Tim Pennington -- Chief Financial Officer

Thank you.

Operator

There are no further questions.

Mauricio Ramos -- Chief Executive Officer

Perfect. So with that, and that's kind of a good segue for me to just basically say we had a great Q1, it's right on track with what we're building into the future for Tigo, right in track for our yearly guidance and right in track for our medium-term guidance based on everything that we've discussed. And as I said earlier, and that last question allows us to ratify that. There will be no more M&A because our strategic priorities are: one, tapping on the significant organic growth that we have ahead of us, especially now that we're seeing its acceleration and demonstrating it on a quarterly basis; and two, focusing on the integration of the acquisitions that we've made over the last six months.

We've efficiency bought about 50% of our market cap, and there's a ton of synergies and a ton of strategic rationale for those, so we want to make sure that we focused on A, organic growth; and B, tapping into the potential of those acquisitions. And we'll now continue to delever out of those acquisitions as a result of the EBITDA growth that we're seeing come in into the business and as a result of some of the disposition of the non-core assets that you've seen us continue to act upon. So effectively, we are just basically on plan. And thank you for joining us today.

I look forward to talking to you next quarter.

Duration: 64 minutes

Call Participants:

Michel Morin -- Vice President, Investor Relations

Mauricio Ramos -- Chief Executive Officer

Tim Pennington -- Chief Financial Officer

Mathieu Robilliard -- Barclays -- Analyst

Soomit Datta -- New Street Research -- Analyst

Kevin Roe -- Roe Equity Research -- Analyst

Bill Miller -- Hartwell -- Analyst

Johanna Ahlqvist -- SEB -- Analyst

Maura Shaughnessy -- MFS -- Analyst

Lena Osterberg -- Carnegie Investment Bank -- Analyst

Rodrigo Villanueva -- Bank of America Merrill Lynch -- Analyst

Chelsea Colon -- Aegon Asset Management -- Analyst

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