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Millicom International Cellular SA (NASDAQ:TIGO)
Q2 2020 Earnings Call
Jul 30, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Millicom Q2 2020 results conference call. [Operator instructions] I must advise that this conference is being recorded today, Thursday, 30th of July 2020. And I would now like to hand the conference over to your host today, Michel Morin. Thank you.

Please go ahead.

Michel Morin -- Vice President, Investor Relations

Good morning, everyone, and welcome to our second-quarter results conference call. As usual, we're going to be referencing some slides, which are available on our website. So if you would please turn to Slide 2 for our safe harbor disclosure. As usual, we will make some forward-looking statements, and these involve risks and uncertainties, and these risks could have a material impact on our results.

On Slide 3, we define the non-IFRS metrics that we will be referring to throughout the presentation, and you can find reconciliation tables in the back of our earnings release, as well as on our website. So with those legal disclaimers out of the way, let me turn the call over to our CEO Mauricio Ramos.

Mauricio Ramos -- Chief Executive Officer

Thank you, Michel. Good morning, and good afternoon to everyone, and thanks for joining us today. As you all know, we are living through very difficult and uncharted times. And I hope that you and your loved ones are all staying healthy and safe.

This is the most important message that I have been sharing with all of our Tigo employees, all 24,000 of them, as you can see at the top of Slide 5. And indeed, keeping our employees and our customers safe has been our top priority since day one. Over the last five years, as you know, we have been building a purpose-driven and a client-centric organization, one that is attracting a diverse and a talented workforce over multiple geography. And that is why I'm so very proud today to say that for a third consecutive year, we have been recognized as one of the Great Places to Work in Latin America.

This is our highest ranking ever, and we're now the No. 1 telco on that list. With that, it's quite obvious that this quarter has been the most challenging in our 30-year history, no doubt. The storm hit and it hit hard.

But as you know, we reacted quickly and most importantly, very effectively because we now know that our response is indeed working, and we'll show you why we think it is. As you know, we set out to sustain our market share leadership as part of our goals to face this pandemic, and we have achieved that and a little more than that in some key markets as we are picking up market share in some of those. We also promised to ourselves and to you to remain very focused on the long term, and to keep our course steady through the storm even if our storm sales are up. And we are on track holding that capex and opex this year in order to protect cash flow during the pandemic.

And to wait for demand growth to come back into our markets. And Tim will show you a lot more detail on how we're tracking them. And we have continued to build for the future, as we said we would. Indeed, we have continued to actively invest in our state-of-the-art networks, as you will see in a minute.

We're also executing with focus and discipline on the detailed integration plan that we prepared last year. Our integration in Panama and Nicaragua are on track. And we now expect to exceed our initial synergy expectations despite the effects of the pandemic. We also set out a hard goal to protect our cash flow and reduce our net debt during the pandemic, and we're doing just that.

Our equity free cash flow was up strong in the quarter. Our net debt came down, and our priority remains to accelerate net debt reduction in the second half. And you will hear us confirm today that we are on track to hit our goal of USD 1.4 billion in operating cash flow for this year. And my last message on this slide is that we have seen encouraging signs of improvement in June.

If you will, we have gone through the eye of the storm. Don't get me wrong, the winds are still very strong, and we still have our storm sales up. But we are now, if you like sailing, on the leeward quadrant of the hurricane. We are manning the ship actively.

We have the same destination as we had before, but just with less sale for now and we're still making steady progress. And we remain optimistic as ever about the long term, even if we expect that this will be a very gradual recovery. We have taken all the right measures, and they are indeed working. But we're still dealing with a very severe health crisis.

And the entire region and pretty much all of the world is now in recession, and that's why we will continue to take a prudent approach in managing the business with all hands on deck as we have, if you will. And because of this, and before we go to the specifics of the quarter, I want to give you an update on how COVID is indeed impacting our markets on Slide 6. Many of our countries are still trying to contain the virus and new cases are still growing. And we don't think any peak seem to have been clearly surpassed or reached at least just yet.

We hope, but it's not clear that it has happened yet. And the situation and the handling of the crisis is different in each one of our markets, and we'll speak about the impact it has differentiated in each one of our operations. And Panama, in particular, stands out as facing a very difficult moment. Despite this, more severe lockdowns are being partial and gradually eased, albeit on a slow and cautious rate and some of them may be prolonged.

So whereas we do see increased mobility, and we do see encouraging mobile consumption, we also do expect the populations will remain cautiously off the street for anything other than necessities until the health crisis subsides, and this will remain a drag on economic activity on our business. On the chart on the right, you can see the magnitude of what we've had to deal with in our markets during Q2 as people were either forced to stay at home or chose to stay at home to protect their families. As you will see in a few minutes, this big drop in mobility was the key factor that impacted our performance in Q2, particularly in Bolivia, Panama and Honduras. And it was heightened by our delayed ability to build and collect in Bolivia, in particular, but also in El Salvador.

Now the lockdowns are being eased up gradually, and those are encouraging signs. And we have now also been able to put in place billing and collection mechanisms in our markets, and that has had a positive impact as of June. So we need to remain vigilant, cautiously optimistic, all hands on deck to continue to weather this storm as successfully as we've been able to do in Q2. With that, let me turn it to Tim to go over the financial highlights for the quarter, and I'll come back later for some more [Inaudible].

Tim Pennington -- Group Chief Financial Officer

Thank you, Mauricio. And as Mauricio said, Q2 was a challenging quarter. But certainly toward the end of the quarter, we did see improvements in some of our KPIs, particularly prepaid, which started to show some signs of recovery, and our subscription business stabilized. But B2B will take longer, and we expect it may get worse before it gets better, especially for small business customers.

So let's review the quarter starting on Slide 8. Q2 organic service revenue for the Latam business was down 6.8%. And for the record, reported revenue was down 6.4%, similar to organic revenue impact as other adverse FX movements by the inclusion of M&A. EBITDA was down 8.1%, and that was basically on lower revenue and also due to a bad debt charge, which was roughly double our normal quarterly charge.

We were able to offset some of this with cost reductions. Our EBITDA margin increased by 50 basis points to reach 40%. And importantly, our operating cash flow was $354 million sustained in line with last year, and we generated a very healthy margin of 26%. On Slide 9, this shows how COVID impacted the business along the lines that Mauricio just set out.

The left-hand side of the slide, you can see that the countries with the greatest restrictions on mobility and that's Bolivia, Honduras and Panama. We also saw the biggest revenue impact. And on the right-hand side, you can see that the greatest impact was in the mobile business and more particularly in prepaid. Now on the positive side, Guatemala, Paraguay and Nicaragua proved more resilient and the home business has continued to post positive revenue growth.

Slide 10, you can see this impact more clearly. Again, left-hand side, those three countries with the strictest lockdown accounted for nearly two-thirds of our revenue decline. The revenue impact for the rest of the business was much less severe. On the right-hand side, you can also see here that May was our most difficult month.

But we did start to see improvements in June as some of these lockdowns eased and the prepaid business started to rebound. And you see the impact on the next slide, Slide 11. Here on the left-hand side of the chart, this shows our mobile subscriber base, and we saw a 1.7 million reduction in the mobile base. But most of this was in prepaid.

And in the breakout box, you can see that our prepaid top-ups has started to improve from the April low. We've still got a way to go to fully recover, but we're seeing positive signs there. Now on the right-hand side, our home customer relationships, the base fell by 95,000, about half of them in HFC. And there's a breakout box here shown.

Most of this occurred in -- or all of it, in fact, occurred in May. And since then, we've managed to get all the countries onto lifeline products, which preserves our customer relationship for nonpaying customers. Note that these customers are not included in our customer base anymore. Now we expect a recovery in subscription of both postpaid and home, but we expect it to be slow.

Our stores are now largely open, but the overall level of commercial activity is still low compared to January and February. OK. So let's look at how this affected each country in Q2 on Slide 12. And once again, it's quite clear from here that Bolivia, Honduras and Panama recorded double-digit revenue impacts.

Perhaps more encouragingly, our two largest markets, Guatemala and Colombia, which represent around about 50% of the LatAm service revenue, were much less impacted and displayed stronger organic revenue trends. On a reported basis, however, do keep in mind that Colombia is carrying the impact of the weaker currency on average during Q2, and this had a noticeable impact on our reported results for this quarter. Now looking at EBITDA on Slide 13. And this shows the organic, that is the like-for-like EBITDA performance by operation.

As Mauricio said, the swift actions on costs, so the revenue impact did flow through to EBITDA. As you can see, Honduras, Panama, Bolivia again, all very significantly affected. But in Bolivia, in particular and also in El Salvador, where we were unable to put lifeline products in until the end of the quarter. We also incurred a fairly significant bad debt charge in both countries as limitations on disconnection played through to the collections.

We saw smaller declines in Guatemala and Paraguay, again, reflecting commercial activity, which has remained largely stable. And in Colombia, we had a 6.9% increase. Now this did reflect a one-off charge in the prior year. But even excluding the benefit of that, we saw positive growth, reflecting good cost control.

As you've seen so far, the health and economic crisis had a big impact on our performance this quarter. And on Slide 14, you can see the financial targets that we presented on our Q1 call, which are aimed at helping us navigate this crisis. And as a reminder, we're aiming to reduce our cost by at least $100 million, to reduce capex by $200 million to $300 million. And both actions combined were aimed at sustaining and maintaining our OCF flat in absolute dollar terms for the year at about $1.4 billion.

And we're also using -- looking to use cash flow generation and asset disposals to reduce our net debt. So let's take a look at the progress against these goals on Slide 15. On the left-hand side, you see that we've already reduced costs by about $66 million in the quarter after adjusting for acquisitions and FX and about $41 million of one-offs from last year. Some of this decline reflects natural reductions related to lower levels of commercial activity, but you can also see a significant reduction in G&A and employee costs during the quarter, in part driven by digital.

On the right-hand side, you can see the capex run rate, which was about 15% or $34 million below the same quarter last year. And this reduction was achieved even though we've added two mobile operations. And as Mauricio will show, we are continuing to invest strategically in our network infrastructure. Now turning to the cash flow on Slide 16.

And you'll recall from Q1 that we took the decision to reorientate the business to preserve liquidity and cash flow in response to this crisis. So despite that significant impact we showed on the top line, we have sustained the operating cash flow run rate for the Latam business right in line with our revised goal for 2020 of keeping it flat at $1.4 billion, and others by moving quickly to manage the cost base and to reduce nonessential investments. And finally, looking at changes in our net debt. The headline here is that we reduced underlying net debt by $82 million since the start of the year.

And in fact, we reduced it by $166 million in Q2, and we've achieved that while spending much more than usual on spectrum. You can see on the slide, the starting point is we generated $170 million of underlying equity free cash flow in the first half. All of this came in Q2, in fact, where we did -- in fact, we did over $200 million in Q2. So this compares to $75 million in Q2 last year.

You can get a sense from that as to how resilient our cash flow can be even during a global pandemic recession. And finally, during the quarter, we disposed of our stake in Jumia, and we sold a portion of our stake in Helios Towers that -- which together generated proceeds of about $90 million and brought our underlying net debt down below $5.8 billion. So our proportional leverage ended the quarter at 3.24 times, including leases; or 3.07 times, excluding leases, which is practically unchanged from where we were at the start of the year. So with that, let me turn back to Mauricio to talk about how we're preparing for the future.

Mauricio Ramos -- Chief Executive Officer

Thank you, Tim. It's important for us to emphasize that Q2 was a tough quarter, and we expect a challenging second half. But we've made it through the eye of the storm, we think, and now we need to continue to focus on the future. To continue with this analogy, our ship is not making water.

We've remained on course and as a result of that, we remain very busy and very focused on building our networks and capabilities for our long term journey, which remains very promising and one that we still have as are guiding north. So let's start with that very important basics on Slide 19. At a time when most of you are listening to this call, you're doing so from home, and you're likely planning to work mostly from home for the next six or 12 months. But the reality in our market is that only about a third of the homes have access to a fixed Internet connection at home.

And many of these connections are at speeds of less than 10 megabits per second. This will need to grow and improve to support remote work, online schooling, video streaming and overall connectivity. This pandemic has made it very clear that having a reliable broadband connection at home and at the office has become a basic necessity everywhere and for everyone. Meeting that growing need is a question for us, making our networks available and for the markets to reach the affordability to buy those services.

Now for the past few years, we have been building around a million homes per year, and we have seen very strong customer take up. Last year, in 2019, we added more than 400,000 broadband subscribers to our network. And you can see on this slide that we are up about 10% year on year, even after the impact of COVID in Q2. And as the leading and growing provider of broadband in most of our markets, we are ready to capture that growth when we get past this crisis and when the affordability comes back to our market, they begin growth and come back strong.

And that is the long-term opportunity that we remain focused on. We will cover over 60 million homes passed with state-of-the-art network within our horizon. We will grow our broadband subscriber base by another 1 million to 2 million additional subscriber homes in that horizon. And that's what we're focused on.

And on Slide 20, you can see on the left that our immediate priority has been, as Tim was alluding, to one, protect our employees by keeping them safe, engaged and motivated; two, our customer base with safe protocols and sustained connectivity and by holding or growing market share; and three, our financials by sustaining our strong cash flow and reducing net debt. Now with the ship in strong shape now, we have continued and very actively so to build the leading telecom platform in the region for the future. So let's look at this starting on Slide 21 because it's very important. There is a lot of info on this page.

But that is precisely the point. Our clear, defined strategy. Everyone at Millicom knows what it is, you know what it is, it is clear and now more than ever, very fit for the future. The foundation of that strategy is our network infrastructure.

We now have over 17% population coverage on 4G, with solid -- very solid spectrum positions that we've increased over the last six months. And we continue to build fiber cable to lay the foundations for our fixed mobile convergent future, and we continue to invest in the IT infrastructure to make sure we extend our leadership as this adoption accelerates. And you will see in a minute that our investments are already paying off. Underpinning this is a very strong culture, uniquely entrepreneurial and highly committed.

We do watch our pennies and increasingly diverse and inclusive. I view our culture as one of our key competitive advantages. You know that we call it Sangre Tigo, that we're recognized right as the best telco to work for in the region, and you see that we are able to react the way we did in Q2 precisely because of that Sangre Tigo. Now we have been turning our market leadership into consumer-centric market leadership, as we have moved from a transaction-driven business to a subscription-driven business that uses Net Promoter Score to support our decision-making and reward our leaders.

Lastly, this is our Latin American platform focused. We have effectively taken capital in Africa, and we continue to do that even this quarter, and we are really pulling this capital to Latin America to enhance our fixed mobile convergence capabilities and to improve industry structure. And we're doing all of this with a world-class governance framework and are growing to a record of being a force for positive change in the countries we belong to and where we are operating, where this kind of leadership is so badly needed, particularly now. So let's turn to Slide 22 for some specific examples of infrastructure investment we continue to make during the pandemic.

In Colombia, finally, after over 15 years of being, quite frankly, handicapped, we now have low frequency spectrum and we have a very well balanced spectrum position that allows us to optimize and able to improve the customer experience while also lowering our costs. We no longer have our hands tied behind our back, and we are moving rapidly to maximize these new capabilities. About one-fifth of the new network has been built in just the past few months, and it already carries over 10% of our traffic, and 25% of our customers has already been on this new network. Remember, it gives us enhanced indoor coverage as much as it does give us enhanced coverage geographically.

In El Salvador, we have quietly and very quickly increased our capacity after acquiring AWS spectrum at the end of last year. Our 800 new LTE sites are up. We're almost finished with a new build in record time. This is a game changer for us, and we're seeing this pay off in the marketplace.

Congestion is down, traffic is up and customers are happier. In Nicaragua and Panama, where we acquired two mobile networks that were in good shape to manage the current traffic, we bought these assets with the intent to maintain and even expand our market leadership in these countries. So we have been modernizing the networks, adding both capacity and coverage while also improving energy efficiency and lowering our future operating costs. It's been about one year since we made these two acquisitions.

So let me share some of our accomplishments, starting with Nicaragua on Slide 23. We bought the No. 1 mobile operator in a two-player market. And since then, we have solidified our market share leadership in mobile, and we have just completed our rebranding right on the one-year anniversary of the acquisition and in line with our regional plan.

This will help drive cross-selling synergies as we continue to strongly grow our home business there, which now has a larger brand to operate under. And you can see that we continue to expand our home business very rapidly. Meanwhile, our integration is on track, and I want to congratulate the teams involved. Now we still have a lot of work to do to integrate system, but we now expect to exceed our initial synergy expectations.

And the punchline here is simple, talking about capital reallocation. Our new mobile business in Nicaragua has contributed more than $45 million of equity cash flow over the last 12 months. We have achieved this even though GDP fell 4% last year and the last several months have been impacted by the pandemic, and we believe we're still scratching the surface on synergies there. You're all good at math, so I'll let you work out the returns on that.

Now let's look at Panama on Slide 24. As you know, we're now the market leader in telecom in Panama. In our first nine months of ownership of the mobile business, we have solidified our leadership of the mobile market there, and we have probably picked up a tiny bit of market share there. And we have done this while integrating the businesses and without taking our eye off the ball on the Cable side as you can see on the right on this slide.

We have successfully defended our Cable market share very successfully so, and we have continued to grow our customer base, especially in broadband, where we added 7,000 customers in Q2 and 17,000 in the first half of the year. Clearly, we have not counted on a global pandemic and a severe recession, and Panama has been particularly impacted, as you know. But even in these challenging times and considering also the investments we have made to upgrade our networks in Panama, the Panama mobile business contributed more than $40 million to our equity free cash flow since the acquisition. And as you can see, we're just getting started on the synergies, and we know there's a lot more potential in Panama as we continue to ramp up the cross-selling opportunities in our market.

Now please turn to Slide 25 to summarize our expectations for synergies that have changed since we announced this acquisition back in February of 2019. As you can see on the right, we're now more optimistic about the potential to extract cost and capex synergies. Basically, we've been finding synergies in places where we did not expect to find them, particularly procurement. Meanwhile, expectations for revenue synergies are practically unchanged.

But if you consider also the impact of the pandemic and the recession, you can see that we're progressing nicely on the revenue front, too. As I said before, it's about cross-selling into mobile in Panama and cross-selling into Cable in Nicaragua. When you bring this forward at present value, this equates to a 10% increase relative to our initial forecast. Not bad in the middle of this crisis.

The last topic I want to discuss, talking about how we're building for the future, is our digital first strategy. When you take a transaction-focused business that we used to be and start to broadly convert it into a subscription-based business, you need to invest in new tools to manage and support the growth of the subscription-based business. While at the same time, driving efficiencies, so you can protect the profitability of the transactional business. These slides tell you where we are in our long-term digital strategy, and it provides you with our strategic framework.

And you can see that we have already built the tools that a customer would need to interact with us exclusively via digital channels throughout the journey as a Tigo digital customer. The next slide shows you how we are doing in this mid-phase of our long-term digital journey. We are making progress in driving adoption of these digital tools. On the left, you can see that we now collect about 35% of our subscription revenue from digital channels.

That's a 30% increase from Q1. And [Audio gap] 7% of total top-ups, and we're using lessons learned during the pandemic to make sure that we continue to build on these programs long after the pandemic has passed. And all of this is important because customers who interact with us using digital tools are more loyal and churn less. They generally have a higher ARPU.

And most importantly, the cost to serve them and acquire them is significantly lower. And all of this is also true about our Tigo Money business, which is one of the largest payment platforms in the region. We have been quietly building our capabilities in this area, and we're beginning to see a growing potential pan out. Last quarter, our customers generated more than 14 million payment transactions in our Tigo Money platform.

That's almost double what we saw in Q1. So we have great momentum here, and we know that we're building a growing and valuable payment business inside of Tigo. And of course, we're actively exploring ways to catapult this growth in order to unlock shareholder value into the future. Now let me wrap up with a recap of the key messages for you today.

First, I don't want to minimize the severity of what we're all going through, not at all. But we had robust business continuity plans, and this gives us the ability to focus on the business by establishing a handful of clear principles to guide our decision-making. And as we've alluded to today, it is working. Second, as Tim and I pointed out, the month of June was better than May and April.

We're hopeful that Q3 and Q4 may be better than Q2. We think it will be a challenging second half. The difference is we're very prepared for that, minimum products, lifeline products and the plan that you're very familiar with. And finally, take a step back for a minute and think about the fact that we are the premier provider of broadband in our markets.

And our services have become now more important than ever. Customers know that, we know that and we've been building the networks to satisfy that demand once affordability comes back. I don't know when, but there will be a time when everyone who has water and electricity will also have broadband Internet in our markets. And Tigo will be there as a premium provider to provide that service.

With that, we're ready for your questions.

Michel Morin -- Vice President, Investor Relations

Bernard, if you can open up for questions, please?

Questions & Answers:


Operator

Sure, sir. [Operator instructions] Your first question come from the line of Johanna Ahlqvist from SEB. Please ask your question.

Johanna Ahlqvist -- SEB Equity Research -- Analyst

Can you hear me?

Michel Morin -- Vice President, Investor Relations

Yeah. I think it's you.

Johanna Ahlqvist -- SEB Equity Research -- Analyst

OK. Does it work now?

Michel Morin -- Vice President, Investor Relations

Yeah, yeah. We can hear you.

Johanna Ahlqvist -- SEB Equity Research -- Analyst

OK. Fantastic. OK. Great.

A few questions from me. The first one relates to -- it seems like sort of the main uncertainty going forward is the B2B business. So I'm just wondering sort of how you plan going forward. Do you expect sort of the B2B to get worse however the mobile sort of consumer business to improve or continue to improve? I read some statement that you stated that July was even slightly better or started better than June.

And is that sort of the trend that you're seeing ahead for this year? And then the second question relates to the bad debt. You've taken some in this quarter. I'm just wondering how you look upon bad debt ahead. Is this sort of the level what we saw in this quarter? Is that what we should expect also for second half? And then last question for you, Tim, on taxes and financial net, what we should expect for the full year and the indication would be great.

Thank you.

Mauricio Ramos -- Chief Executive Officer

Thank you, Johanna, for joining us today and for your questions. Why don't we go backwards? Tim, you deal with bad debt and tax and then I'll talk a little bit about B2B afterwards.

Tim Pennington -- Group Chief Financial Officer

Yeah. Sure. OK. So taxes were a little bit up this quarter.

But if you just look at them over the half, they were more or less in line on a P&L basis. We did do a restructuring in Paraguay, which would give rise to a slightly higher withholding tax this year compared to last year, but it will give us lower withholding tax going forward. So kind of -- we haven't made any real changes to our tax kind of estimates for the full year. Maybe with the withholding tax in Paraguay, we'll add another $10 million to $20 million to that.

So we'll be talking kind of high 200s to kind of early 300s, pretty much in line. On the bad debt, Johanna, the kind of -- it was very concentrated actually. It was very concentrated in Bolivia and El Salvador where we didn't have lifeline products, and we didn't have the ability to disconnect people. We have very large levels of nonpayment.

Now we have seen that rectifying our collection levels now are pretty much in line with where they were pre-COVID, so that is comforting. I think the way that IFRS 9 works will be a little bit of a lag effect. But on an underlying basis, I think Q2 is the worst of it for the bad debt charge that we've had to incur. Mauricio, do you want to do the B2B?

Mauricio Ramos -- Chief Executive Officer

Sure. So great question, Johanna, because indeed this is one of the areas that has received the less visibility from what I've seen. And you're right in the sense that this is B2B. This is one of the reasons why we want to remain cautiously optimistic about the future.

And I'll give you some color as to why we say that. It is one of the reasons that we want to be cautious because we want to see what the impact of the recession and the lockdowns, in particular, has been on the different segments of the B2B. So let's take it by segment to give you a little bit of color. Let's start with the small offices and the small medium enterprises.

Those have suffered the most as we expected from day one. I think in the last call, I said, one of my biggest concerns indeed is what's going to happen to the small businesses and the SOHOs if the lockdowns continue for a long period of time. Directly correlated to the lockdowns because they're not having customers walk into their stores. Now I'm optimistic that when the lockdowns continue to resolve gradually because they're not sustainable in end markets, these small businesses and these small offices will come back to require broadband connectivity.

And this is a two-sided coin here. We don't know today the impact of the economic downturn on those small businesses. It's still to be determined, and that's the cautious part of the equation. The optimistic part of the equation is that every single one of those in order to come back is going to require sustained and enhanced connectivity now more than ever.

So they're going to demand connectivity. Now our approach to those has been twofold. One, we put in -- put in place these lifeline products or [Inaudible] would call them that allows them to remain connected to us so that when they are ready, we'll be able to start rebuilding them. So we're already helping them out.

And we do realize that we will need to be friendly to them and allow them to come back with promotions or ways of easing their comeback, and we're ready to do that. So we're cautious, but we're optimistic on the small office and the home office. Now then come the government part of our business, which, as you know, is large in Panama and large in Colombia, but decreasingly slow on a relative basis. Now I do expect that governments -- and again, there's two sides to this.

I do expect the governments will redirect some of the capital and to handling the health crisis, and that will likely take away from some of the government contracts going forward. But the other side of the coin is that every government has realized how important connectivity is. So I do expect that they will indeed spend more on connectivity for their corporations and their communities, and that will give us an opportunity to sell our connectivity into the governments in the medium and long term. And the last segment is corporates.

And this has been the more resilient part of the business. And I do expect that this has tremendous opportunity for us going forward because it is those corporates that now more than ever realize that they need business continuity plans. They are calling up us to figure out how to put those in place. And indeed, we're in conversations around home connectivity for some of their employees.

So that's the brighter side of the equation. I hope that gives you a ton of color why we're cautiously optimistic on B2B in the long term.

Johanna Ahlqvist -- SEB Equity Research -- Analyst

Fantastic. Thank you.

Operator

Your next question comes from the line of Stefan Gauffin from DNB. Please ask your question.

Stefan Gauffin -- DNB Markets -- Analyst

One -- yes. Can you hear me?

Michel Morin -- Vice President, Investor Relations

We can now.

Stefan Gauffin -- DNB Markets -- Analyst

Yes. OK. So first of all, the $100 million in cost savings, you had $66 million this quarter. How do you expect this to develop in the coming quarters? And then just to confirm, you still have some sort of -- end of Q2, you still had some 250,000 home subscribers and 500,000 mobile subscribers on lifeline services.

How do you expect this to develop in Q3? And then related to that, how much did lifeline services impact revenue in Q2 in home and mobile revenue? If you can quantify that that would be really helpful.

Mauricio Ramos -- Chief Executive Officer

Tim, do you want to take the cost? And I think we'll need to jointly tackle the second question to discuss some big picture and some financials in it, but I'm sure we can manage. So let's start with number one.

Tim Pennington -- Group Chief Financial Officer

Yes. OK. And Stefan, kind of -- just because we put the target out there, it doesn't mean to say we're just going to sort of set up shop when we hit it. I mean a lot of the actions we took in at the start of Q2, the end of Q1 were immediate actions in the business.

And some of them relate -- some were easy to come through like advertising and some of them fell through naturally like commissions and things like that. So we were genuinely pleased by the cost reaction of the business to this. I don't want to reset targets every quarter. I think that we have a good target.

We have a very good focus on costs at the moment. And yes, I think we will continue to be very, very focused on it for the rest of this year, but I don't want to reset expectations on those cost savings. The lifeline, it's kind of hard for us to sort of isolate the impact there. I mean clearly, what happens with a lifeline customer is that they become a nonpaying customer, so they go out of our revenue.

They fall out of our subscriber numbers, but we've maintained a network connection with them because we think a lot of them are basically facing the same challenges as everyone else is about not being able to get out, not being able to work or pay bills. And then a lot of them will come back. In fact, many of them have already bounced back. It was probably about -- 60%, 70% of them have kind of bounced back.

Yes. I'm not sure I want to speculate how many of the remaining ones will bounce back. But our team are very optimistic that a lot of those customers want the product that we supply. And in terms of revenue impact, I think you can -- all you can really do is compare the growth rates we had in mobile and in home kind of last quarter to this quarter.

Home, last quarter, we did about 6% growth, and we did about 2% this quarter. So that probably has a -- it's not all lifeline clearly, but there's a big impact there. And on the mobile side, we were down about 10% this time around. Can't exactly remember where we were last quarter, but a bigger impact for us in mobile has been in home.

Mauricio, do you want to speak to anything else?

Mauricio Ramos -- Chief Executive Officer

No. Let me add a little bit to that. I think that was perfect. And Stefan, that's really an important question, and I think something that we believe we got right.

As I said, in Q1, been through situations like this before, and we very quickly reacted in the marketplace with this lifeline product. And it's been the right call for a number of reasons. Number one, it has allowed us to keep up to our social responsibility in the marketplace. I can, with a straight face, say that we have left no customer unconnected because we put in place this lifeline product.

Now from a business point of view, we've kept the connection on. So that has allowed us to preserve market share and take away at a moment in time, commercial activity that would have been detrimental to facing our social responsibility, but also keeping our target for the year focused on cash flow. It has also allowed us to preserve the relationship with the client, which is very important. Because as you can imagine, as we reconnect these clients, we will save on the reconnection costs.

They won't incur in reinstallation and then a reconnection cost and there won't be a significant subscriber acquisition cost, so this is definitely the smart thing to do. And from an accounting point of view, if you will, and I'm going to address the customer relation part of that because I think Tim addressed the more accounting part of that, it allows us to not have a contention relationship with the client. Because largely, we're not billing them for this. It only took us longer in Bolivia, but everywhere else -- and in El Salvador.

Everywhere else, we were able to put this lifeline product early on. Bolivia and El Salvador came in toward mid-June. But it keeps a healthy relationship with the client because we're not billing there for something that's not being collected and then running our bad debt, and we then have to write-off and renegotiate with them. Our relationship with the client is cleaner.

And that's been demonstrated, and this is why I think we hit it right with the right strategy. This has been demonstrated but why -- Tim was alluding, we're reconnecting, if you will. It's not a real reconnection, but we are regaining about 70% of these customers, give or take, which is right in line with what we normally reconnect in normal times when we disconnect someone. So I have to say kudos to the team for having implemented something that meets all the relevant criteria socially, financially and hopefully also gives our accounting pretty clean for you.

We wish we had been able to implement it everywhere right off the bat. It took us a little longer in El Salvador and Bolivia. But we think we've got one of the tools that we need going forward. And this is one of the reasons that we keep saying we're cautiously optimistic but because -- although the winds are still strong, we now have better elements to deal with an ongoing situation.

Stefan Gauffin -- DNB Markets -- Analyst

Yes. OK. Thank you for good answers. Thank you.

Operator

Your next one comes from the line of Marcelo Santos from JP Morgan. Please ask your question.

Marcelo Santos -- J.P. Morgan -- Analyst

I have two. The first question would be about potential disposals that you could make to help to further reduce leverage. Maybe would it make sense to dispose data centers? Or do you have tower assets that could be interesting? So some light on that direction will be interesting. And the second question is broadly about Tigo Money.

So I guess we are seeing now the limitation that not having a digital account now -- not having a bank account has on people. Can you discuss a little bit broader how maybe this might turn into an opportunity for Tigo Money, what you are doing in that front? What are your ambitions for that product? Thank you very much.

Mauricio Ramos -- Chief Executive Officer

Sure. On the first one, on the potential disposals, you've seen it, Marcelo. Again, thank you for picking up recent coverage and doing it so diligently, and it's good to have you here asking questions now, good ones by that. You've seen us over the last five years as a management team, the active reallocators of capital from Africa to Latin America from tower positions that we thought were better used that capital in a different manner.

So without -- keeping my hand with any specific mention here, you can expect us to be actively reviewing each one of the topics that you mentioned. Towers, data centers, infrastructure and we continue to actively review our options in Africa. And you've seen us do something just about every quarter. We did HTA and Jumia last quarter.

So without tipping my hand one way or the other, we remain very, very active allocators of capital, and we'll do that. And then we'll do it with an eye on because things are different now, reducing net debt as we've done in the last couple of quarters. Now with regards to Tigo Money, I quite honestly hesitated a little bit on how much we should give it relevance today. Because what we've done is we've worked on it quietly and diligently to build a real meaningful platform.

To give you an idea of what we have here, we have somewhere around 4 million subscribers in Latin America, pretty active subscribers. And they've increased their activity with us significantly in Q2. Governments are now realizing that we have a platform that allows them to distribute money, particularly in Paraguay, what we've totally used in Central America. And that's important because it's helping us do one of the key things for this payment platform to work, which is to put more money into the system.

And now governments are realizing that this is a great platform to put money into the system. Great platform to do so that. And we're also seeing a number of retailers be open to the notion that this can be a platform for us to grow with them and therefore, enhance the number of uses that customers will have when they use Tigo money. So it's slowly growing from a cash in, cash out, peer-to-peer, and it's enhancing the ecosystem.

And that's what you expect -- should expect us to do. I'm not going to sell you here a lot of stuff on how this is going to change overnight, but we are slowly building. First, a peer-to-peer platform with a lot of customer use, our growing customer base and increasing uses for that. We're going to focus on that first.

And then what mobile financial services and fintech can do. There's many layers that can be built upon that, but we're going to walk our talk first and go at it in steady increments.

Marcelo Santos -- J.P. Morgan -- Analyst

Thank you very much.

Operator

Next question comes from the line of Peter Kurt from ABG. Please ask your question.

Peter Kurt -- ABG Sundal Collier -- Analyst

Question related to Colombia, please. Tim touched upon it earlier, particularly on the comments on the year-on-year EBITDA profit. There seems to be some puts and takes in Colombia this year versus last year. And I was just interested if you could give us a better feel for how you see that going forward.

I'm thinking we have lower commercial activity, lower taxes, etc. Could you give us any further clarity on how we should interpret which helped you improve margin in Colombia, which is sort of higher than the savings you've spoken about? And how should we think about Colombia going forward? Thank you.

Mauricio Ramos -- Chief Executive Officer

Tim, perhaps if you take the first part and then I'll jump in toward the end with a longer view on how things have expanded.

Tim Pennington -- Group Chief Financial Officer

Yeah. OK. So yeah, I mean the performance has been good in Colombia, actually, over the last four quarters or so where they've really got the grips now with the cost structure, I think. And OK, there was some noise in there because of prior year adjustments.

But even excluding that, we were -- I think we're about 3% up, excluding the one-offs, which in this environment and compared to everywhere else, business is really a testament to the team on that. I mean, of course, there was some benefits from kind of holidays on tax and things like that. But I think that would be not reflecting the job the team has done to sort of say that it was things like that. I think there is a good fundamental kind of cost structure now emerging into Colombia.

And I think once we get the revenue line going in the direction we want to get it going, it really is going to be the business that we thought it could be.

Mauricio Ramos -- Chief Executive Officer

So adding to that, Peter, we're pleased with the way Colombia is progressing. We actually like the position we are in Colombia today from where we were just six months ago. We've, over the last five years, deployed a ton of fiber cable and successfully so. So that's giving us a substantial fixed fiber cable business to support our mobile business.

We have sold for a handicap that quite frankly held us back the last 15 years. It's not a small thing to have had to operate with low frequency spectrum against the rest of the competitors. And we're now the largest holder of 700 megahertz spectrum in Colombia. And as you've seen it, we're deploying it fast and quick and without hesitation because we know already that it's expanding indoor coverage and it's going to give us enhanced geographic coverage.

Think of our mobile network now into the future as one that will finally, finally, and if we continue this pace quickly, match that of Claro in the country. That's a major difference from where we were before. That's our ambition. We have a network that really allows us to compete head-to-head with Claro.

And we are ramping up our commercial distribution platforms in Colombia because we're ready to now think of ourselves as a true challenger with our kit in the toolbox to do just that.

Peter Kurt -- ABG Sundal Collier -- Analyst

Thank you very much.

Operator

Next question comes from the line of Soomit Datta from New Street Research. Please ask your question.

Soomit Datta -- New Street Research -- Analyst

Hi, guys. Just two or three questions for me, please. First of all, just on leverage. Tim, I just wondered, I think you reported a 3.24 times at the end of H1.

And could you maybe give us if there is one on, a, maybe where you would be more comfortable on what the kind of target might be? And what sort of run rate we could think about for that leverage going forward, I'd appreciate it. There's more uncertainty than normal, but anything you could add there would be helpful, please. And then secondly, I guess more of a strategic question just on the residential cable business. Typically around the world, and I think you kind of mentioned this as well, but at the moment significant demand for kind of home broadband.

It feels a little bit like you're picking more toward wireless at the moment in terms of investment rather than Cable. I appreciate there's an affordability issue there. But at the same time, it could be argued you should really sort of put the foot down on the accelerator, pass as many homes as you could now, given the very good returns and the low cost involved with that. So -- and another way of [Inaudible] is just sort of wonder why are some kind of in your universe kind of adding residential broadband subscribers, some of them are losing quite a lot.

I'm just sort of interested if you could try and pull all of it together, that might be a bit longer [Inaudible]. And then I did [Inaudible] on Colombia. I just wondered here, are you seeing anything on the brand from one [Inaudible]. And also, is there any prospect that will impact the wholesale revenues in the near term and bolstering the wireless revenues for you?

Tim Pennington -- Group Chief Financial Officer

Thanks, Soomit. Let me quickly deal with the leverage question and then pass on to Mauricio. We've been --

Mauricio Ramos -- Chief Executive Officer

Are you sure you don't want to go the other way around, Tim?

Tim Pennington -- Group Chief Financial Officer

You want to do the leverage question?

Mauricio Ramos -- Chief Executive Officer

All right. Go on. Sorry.

Tim Pennington -- Group Chief Financial Officer

All right. Yes. But I'll say it on a public line. Yes.

Leverage, we finished the quarter at 3.24. I mean that is on an IFRS 16 basis on a kind of maybe like cash base 3.07. And when we set out our target of 2 times, it was on that cash basis. So we're still kind of north of where that is, but I think you've seen that we've made some good sort of inroads into our debt this quarter, and we're very, very focused on it.

So no real change in the targets. Soomit, I'd ask you to just be aware that we set our targets out on a pre-IFRS 16 basis, so that's about a 20-basis-point delta between the two. And we're relatively comfortable where we are at the present time.

Mauricio Ramos -- Chief Executive Officer

Yeah. So on the residential cable, Soomit, and thank you for that question because it allows us to clarify something that indeed could have been potentially misunderstood, quite frankly. Big picture, totally completely great believers in residential broadband and the power of strong, robust fixed networks, not as a business case in and of itself. And then you've seen the results in the U.S., they speak for themselves.

But also because, in our particular case, they underpin our mobile business. So absolutely completely fully, fully committed to residential cable as a strategic part of our story. And you've seen us do that adamantly in the past, and we'll continue to do that into the future. Now the reason you see us and correctly so you perceive that this particular moment in time, we're more focused on the mobile networks is simply a matter of the things that we have to do right now.

And that's because we bought the spectrum in Colombia and we bought the spectrum in El Salvador, and they're game changers in both markets. I mean you may have not picked this up, but El Salvador is on the upswing. We're having the first moment of positive gains in mobile in El Salvador, and that's on the back of deploying the AWS spectrum quite quickly. And I've already talked about Colombia.

So just because we bought the spectrum, we can't just leave that capital there. If you buy the spectrum, you got to build the networks. And the same is true with the modernization in Nicaragua and Panama. Those are networks that if we modernize, we're going to reap the benefits of the synergies and the efficiencies or better modernize networks that have paybacks because they're more efficient in terms of energy and in terms of helping us drive our business plan.

So that's the stuff we need to focus on today because we bought the assets in the case of Nicaragua and Panama, and we bought the spectrum in the case of Colombia and El Salvador. So now is the time to go in and put the money in there. Now with regards to Cable, we've slowed down this year, but it's a parenthesis while the market remains uncertain and people indeed are figuring out their -- how to spend their money. But we will continue to build this year quite significantly.

It doesn't come down to zero, and we have a ton of homes that we built in the past that we can focus on filling. And the minute we see that demand come back in an effective manner, then we'll jump right in back on growth without hesitation. We'll still build quite a bit this year. Now I want to take the opportunity to give you a little bit more comfort on how we're managing this.

We see a lot of actual demand for broadband. But until such a time that we can make sure that we're not just incurring bad debt by taking on that demand, we've taken the opportunity to put installation costs all throughout our markets. And we are hopeful that this will help us have more disciplined capital allocation as an industry into the future. And as a result of that, when affordability comes back and effective demand comes back, we may have a healthier residential cable structure in our markets.

Wish us luck on that one.

Soomit Datta -- New Street Research -- Analyst

Yup. Thank you.

Operator

Next one comes from the line of Lena Osterberg from Carnegie. Please ask your question.

Lena Osterberg -- Carnegie Investment Bank AB -- Analyst

Yeah. Hi. Thanks for taking my question. I have three of them, actually.

If you were to estimate, roughly how much of the ARPU decline that you're seeing now do you think is temporary and related to mobility restrictions? And how much do you think is related to lower affordability and therefore, could stock -- stay a bit going forward as well, even after the restrictions are lifted? And then I was also interested in exactly sort of how does your lifeline products work. How long can customers stay on this type of product? And how do you sort of -- do they contact you when they want to get back on to the normal plan or do you contact them? How does that work when they sort of sign back up again? And then sorry to come back to this again about the cost reductions, but maybe to ask second question in a bit of a different manner. So you had $66 million of savings in the quarter. But what was the run rate that you ended the quarter with and entered Q3 with? Thank you.

Mauricio Ramos -- Chief Executive Officer

All right. Tim, I hope you got your calculator out because there's a lot of math involved there.

Lena Osterberg -- Carnegie Investment Bank AB -- Analyst

I always have it ready.

Mauricio Ramos -- Chief Executive Officer

I know, Lena. [Inaudible] on product afterwards.

Tim Pennington -- Group Chief Financial Officer

I think the answer to your question predominantly, Lena, is FX. I don't think it's affordability at this stage. I mean it's a very complicated question because, for instance, on the prepaid side, what we have seen is fewer top-ups, but they're actually topping up more, but not really enough to compensate from what we had on a prior basis that's affected that. I think on the home side, I think that's mainly FX.

We've had some -- and we certainly will see some benefit into the next couple of quarters of installation fees that we're charging in markets that will actually give us a little bit of a boost. Having said that, we're clearly not putting any price rises through at the present time. And I think and without prejudging the rest of the year, I think it could be tough to look at price rises this year, which will give us an automatic attrition in ARPUs as we get more people coming in on to the entry level. So there'll be some impact from that.

So I do think it's a mismatch of stuff. I'm not sure you can draw any real conclusions from ARPU. I think I made the run rate on costs. A lot of the cost adjustments we made were immediate.

I mean there were -- the ERC bit was adjusting variable compensation, for example. The sales and marketing was adjusting advertising, adjusting kind of low levels of activity, adjusting commissions. So kind of this -- I think we're able to -- we put our foot on the brake on nonessential spend pretty quickly. So I don't think it's one of these linear things.

This sort of takes time to build up, and you'll see a similar growth next year. As I said to Stefan, we've said $100 million. I mean we're not going to just stop at that. But I don't want to be committing to increase it.

I think we've done a good job so far. And we've got to balance that with seeing where we make investments, where we see pockets of demand sort of shining through for kind of growth in the revenue line. So I think [Inaudible] Mauricio.

Mauricio Ramos -- Chief Executive Officer

Yeah. On the lifeline product [Inaudible] product, Lena, very good that we can provide you a little bit of visibility on this. Think of this as temporary and very smart dynamic tiering or alternatively, as we're providing a freemium that then we can sell subscribers into. You can think of it that way.

And the reason I mentioned it like this is because we've created an important gap between the normal product and the lifeline product. And creating that gap allows us then to have a very good success rate in bringing back those customers to the normal ongoing product from that lifeline product, while at the same time, we continue to keep them connected. And with that in mind, then the second part of your question is for how long will this stay on? The reality is this will be dynamic because in some markets, we put it ourselves. In some markets, we have negotiated it with the government.

And it will be dynamic as the pandemic evolves. The important thing is it's in place, and we're having a really good success rate in bringing people back up to their normal products. Again, think of it as dynamic temporary tiering or a freemium that we upsell. And the last -- the third part of your question, I think you know the answer to, we do it very proactively, very, very proactively.

And one of the smart things about this is we've kept the connection to do this. The boxes are in the household and the subscribers have are mobile, the postpaid service. So we have a dialogue with them. And one that, as I said, is not terminated by bad debt.

It doesn't require a renegotiation and as a result of that, we're having the success rates that we've mentioned before.

Lena Osterberg -- Carnegie Investment Bank AB -- Analyst

OK. Thank you very much.

Operator

Thank you. Your last question comes from the line of Bill Miller from My Capital. Please ask your question.

Unknown speaker

Good morning, gentlemen. My question has really been answered more than ever, but I hope everybody on your staff in the local currencies -- countries has remained healthy. And have you had a lot of problems with the health of your workers in those countries?

Mauricio Ramos -- Chief Executive Officer

Thank you, Bill. That is a fantastic question. We did the right thing. And I'm proud to say, we set out very early on, we tell everyone in our Tigo team that this was a moment in which we had to give our very best.

We had to both protect ourselves, but we had to protect ourselves so that we could keep our customers connected. And giving that sense of purpose to the teams that have to go out on the streets to maintain service and to keep connections going and to make sure that people had connectivity throughout the pandemic was coupled with all the right, say, protocols, all the PP&E. But the most important thing is it had a sense of purpose to our teams. And meanwhile, those that we could keep safer at home because they did not have to go out and keep connectivity, we were able to make for them available the opportunity to work remotely.

And as a result of that, we have a team that is more purpose-driven than ever that has reacted so very positively to this, and it's more engaged than ever. We have not had significant amounts of cases that differ from what the rest of the population is facing in our countries. We have had cases, Bill. They are in line with what our countries are seeing.

We are providing all the support and all the protection we can to all of those. And we continue to remain, and I say this without hesitation, an agent of positive change. All our stores carry out the best protocols. All our teams have all the protective equipment, and we are being there the best we possibly can to do both things, protect our employees, protect our customers and continue to provide service.

And the last point I'll make is kudos to the team for listening to the calls. Our service has been up and running 24/7 every single day without a glitch. So Bill, I'm going to take the opportunity to thank everyone on the Tigo team who's listening to them because they deserve a big, big thank you. All right.

With that, I just want to wrap up and thank all of you for joining us today. I think you get the key messages we're holding and hopefully, picking up a little bit of market share. Our integration is on track and the synergies are slightly up despite the economic downturn. We are being successful in protecting operating cash flow.

We're sticking to that $1.4 million number that we've given you, and we're directing the business to make sure we hit that number. We remain very disciplined in our capital allocation. You've seen that quite clearly and focused on reducing net debt. And there's a change in our focus there that I think is consistent with the time we're living.

And despite that, we continue to build for the future. And thank you for your questions, Soomit and others because we're building network where we bought spectrum and we're modernizing networks where we bought assets, and that's what we need to do. And we're building our digital capability because we believe that broadband residential and mobile is the name of the game going forward. And so we're building this more robust, higher speed, more reliable networks and that remain the core strategies.

And then we aim to couple, and I hope you've seen this, this state-of-the-art robust networks with a pretty strong digital strategy. So if we have the networks, we have the commercial distribution, we have the spectrum and we have the digital platforms, then we're going to be right on the sweet spot of digital adoption and broadband adoption in our markets. It is as simple as that. And thank you for listening in.

Operator

[Operator signoff]

Duration: 71 minutes

Call participants:

Michel Morin -- Vice President, Investor Relations

Mauricio Ramos -- Chief Executive Officer

Tim Pennington -- Group Chief Financial Officer

Johanna Ahlqvist -- SEB Equity Research -- Analyst

Stefan Gauffin -- DNB Markets -- Analyst

Marcelo Santos -- J.P. Morgan -- Analyst

Peter Kurt -- ABG Sundal Collier -- Analyst

Soomit Datta -- New Street Research -- Analyst

Lena Osterberg -- Carnegie Investment Bank AB -- Analyst

Unknown speaker

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