Please ensure Javascript is enabled for purposes of website accessibility

Millicom International Cellular SA (TIGO) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribing – Oct 29, 2021 at 9:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

TIGO earnings call for the period ending September 30, 2021.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Millicom International Cellular SA (TIGO -1.67%)
Q3 2021 Earnings Call
Oct 28, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


undefined[Commercial break]

10 stocks we like better than Millicom International Cellular SA
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and Millicom International Cellular SA wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2021

Sarah Inmon -- Investor Relations Director

Good morning, and good afternoon, everyone, and welcome to Millicom's third quarter 2021 earnings call. I am Sarah Inmon, investor relations director at Millicom. This event is being recorded. Our speakers today will be our CEO, Mauricio Ramos; and our CFO, Tim Pennington.

Following their prepared remarks, we will have a Q&A session. By now, you should have received a copy of our earnings release, which is available on our website, along with the slides that we'll be referencing during today's presentation. If you please turn to Slide 2, you can see our safe harbor disclosure. We will be making forward-looking statements, which involve risks and uncertainties, and could have a material impact on our results.

We will also be referring to many non-IFRS metrics throughout this presentation. We define these metrics on Slide 3, and you can find reconciliation tables in the back of our earnings release and on our website. With those disclaimers out of the way, let me turn the call over to our CEO, Mauricio.

Mauricio Ramos -- Chief Executive Officer

Thank you, Sarah. Good morning, and good afternoon, everyone. Thank you for joining us today. We had another excellent quarter in Q3.

So let's jump right into it, starting on Slide 5. These are the highlights for the quarter: one, we had double-digit customer growth in Latin America, both in fixed and in mobile. First, we get the customers, and then the revenue follows, as you have heard me say a few times. With this kind of very strong customer growth, we are well on our way toward our target of sustaining mid-single-digit revenue growth.

We grew service revenue by 9% in Q3 in Latin America. Two, we're now growing in every country and in every business unit. Three, and very importantly, we are winning in Colombia. Yes, we are in investment and growth mode in Colombia.

And yes, we are using EBITDA and cash flow to get that growth. But the good news this quarter is that a, we're solidifying our subscriber and revenue growth in mobile; and b, we are clearly picking up market share. Four, we also continued to perform strongly in Guatemala and Panama in the quarter, with that, our three largest countries are all growing. And five, we have successfully resumed shareholder remuneration while continuing to further reduce our leverage in the quarter.

All of this, while we remained as focused as ever on fulfilling our purpose, as you can see on Slide 6. As you saw from the InterVideo, this quarter, we teamed up with the Real Madrid Fundacion to help protect and develop vulnerable children in the region. We will leverage and increase the Fundacion's soccer learning facilities to give children better digital access and digital education there, strengthening our existing programs to combat cyberbullying and to promote more responsible use of the Internet. This Fundacion brings together the two things kids love the most, soccer and the Internet into a single space that will serve as a backdrop to young kids to be more digital and better citizens.

As you may also know, I am now Chair of the U.S.-Colombia Business Council, an important part of the U.S. Chamber of Commerce. A couple of weeks ago, we hosted President Duque in Washington to discuss the success that Colombia has enjoyed in attracting foreign investment. As President Duque has said, Colombia is open for business and back to economic growth.

And we're investing now more confidently than ever in Colombia. And you will see in a minute that we're gaining real momentum there. In Bolivia, we have recently launched our own TV channel, EducaTigo, to provide educational content 24/7 for children, filling a need that came to the forefront last year during the pandemic lockdowns. We see this new channel as a continuation to the work we have been undertaking to give teachers access to digital tools for the classroom, and we're very excited about the possibilities of this idea going forward.

As you can imagine, we're investing where we think we can accelerate growth in our local economies. After discussions with President Cortizo, Panama, we announced our plan to invest $250 million to expand and upgrade our network in critical areas of Panama, to help boost its economy and also to create our Fintech Hub in Panama to bring jobs to the country and also to serve our growing Tigo Money business from there, facilitating payment for individuals and small businesses across our footprint. This is simply to give you a glimpse of how committed we are to our purpose and to help develop our communities. Doing good is good for our business, and more importantly, our business is good itself for our communities.

Lastly, I want to highlight that we will now focus even more on reducing our impact on the environment and on increasing our already strong diversity and inclusion programs. We expect to announce our science-based targets for carbon footprint reduction and our specific DNI targets in early 2022. Now let's look at the operational financial highlights for the quarter, starting on Slide 7. As I said earlier, our customer base is up double digits in all our segments.

Home is up 13% year on year, mobile is up 11%, and postpaid is up almost 20%. This is driving strong revenue growth in all our business lines, as you can see on Slide 8, on the left. Home, our residential cable business continues to lead the way with double-digit growth of 13%. I said this last quarter, we have built an almost $2 billion cable business growing double digits and with a long runway still ahead of it.

Our Consumer Mobile business grew 8% in the quarter and our B2B business is back to grow with a 3% uptick in Q3. We continue now to see solid customer growth in B2B, particularly in the small business segment, but some sectors of the economy like travel and hospitality still have not yet recovered. When they do, growth in our B2B business will further strengthen. And as you can see on the right, every country operation grew strongly in the quarter.

On Slide 9, you can see our LatAm service revenue evolution. Three points here. One, this chart is in dollars; two, Q3 was our fifth consecutive quarter of sequential revenue growth; and three, given usual seasonality, we expect the sequential trend to continue positively in Q4, especially given the investments we have been making, consequently on Slide 10. We have told you throughout this year that we would invest more than usual in 2021, between 100 to 200 million more than last year.

Capex to sales will, therefore, end the year at around 18% of sales. This is higher than our historical average of between 16 to 17%. And I know that this level of investment this year has surprised some of you. Two key comments on that.

One, these investments are paying off. We're gaining market share in key countries, our NPS scores are up across the board, and we have strong subscriber and revenue growth in all countries. And two, this capex intensity as a percentage of sales will go down next year, for two reasons. One is simply the strong revenue growth that we are seeing; and two, also because many key investment projects are now winding down.

Indeed over the past two years, we have invested heavily to roll out our 700 megahertz network in Colombia. We are well over two-thirds of the way done with that. By 2021, we will have also largely finished our network modernization program in El Salvador, Panama, Honduras, and Paraguay. And note, lastly, that we have also anticipated an accelerated purchase of key equipment this year to protect the business from possible supply chain disruptions later this year and more importantly, next year.

Let's now take a minute to look at our three largest operations, beginning with Colombia on Slide 11. On the left is a network less than two years ago. On the right is a network today. The pictures tell the story.

For more than a decade since we entered the Colombian market, our profitability in Colombia suffered from a lack of scale in mobile. As you surely know, it is next to impossible to be profitable in mobile with only 17% market share and this is what we had historically in Colombia. That was, one because we has a spectrum disadvantage. For years, the only player in the market with a low-frequency spectrum was TIGO.

We have now fixed that, and we are now the largest holder of 700 megahertz spectrum in Colombia. We were also handicapped because two, we had a network disadvantage. With our low-frequency spectrum, we could not build a competitive network. Today, with spectrum at hand, we now have fixed also for the network disadvantage.

Today, ours is as independently measured the best network in Colombia; and three, because we also had a commercial distribution disadvantage. With our good network coverage, there was no point in scaling up our commercial distribution. But now with tons of spectrum and the best network, we have doubled the size of our commercial and service footprint. We have ramped up our sales and marketing efforts, opened up new stores, added independent dealers, and hired more salespeople.

Why? Because the historical barriers to our growth, those that I just described before, the ones that kept our profitability subdued, no longer exist. No doubt, this is a bold move, but I want our message to be very clear. One, this is the right move. Two, and most importantly, it is working, we are winning, the subscribers, share, and most importantly, revenue.

And three, the fixed part of this investment is behind us. The investment going forward is largely growth-driven. This is what Slide 12 tells you. One on the top left, our mobile's customer base is surging.

We added 0.25 million postpaid subs just in the quarter, that's a new record, and our postpaid base is up 36% year on year. Two, on the top right, our revenue has inflected. We're getting both volume and revenue growth despite lower ARPUs in the market. Now I want to let you know that we monitor the profitability of our growth constantly and consistently.

Our cost per gross addition is down, and so is our early churn. So although ARPUs are lower, we're adding good quality customers. And as a result, we're getting what matters, increased revenue. It is working.

Our Home business continues to grow. We added 32,000 net customers and grew our top line. The copper network is now almost totally upgraded to cable fiber and the copper customer base is now almost totally migrated. As a result, we are now in solid and sustained growth territory in Home in Colombia.

Just like we have done everywhere else, we're building a profitable business in Colombia by investing to gain scale in both mobile and fixed. Now please turn to Slide 13. This is a snapshot of Guatemala. Simply said, it is our largest and most cash-generative market.

Our customer base is growing very rapidly, up 7% in mobile and with 30% growth in home, which is all organic. Service revenue, EBITDA, and OCF all grew throughout the pandemic and continue to show very strong growth in 2021, in what is a good and well-managed two-player market. Now let's take a quick look at Panama on Slide 14. We made roughly a $2 billion investment in Panama two years ago.

Today, Tigo is No. 1 in an investment-grade and dollar economy with an improving industry structure and an economy that is going back to strong growth. We have sustained our market share in fixed, and we have grown our mobile market share to more than 40% with solid customer growth in both segments. With the integration successfully completed, synergies delivered and the TIGO brand now very strong in Panama, revenue and EBITDA are now both growing nicely, and margins are expanding.

And here's the punchline. Panama is now our third largest operation with a run rate of about $300 million in dollar EBITDA and about $200 million in dollar operating cash flow. We are well on our way toward earning a very attractive return on the capital that we invested there. Thanks to all of you who supported us in creating Tigo Panama.

Now let me turn it over to Tim to go over the financials.

Tim Pennington -- Chief Financial Officer

Thank you, Mauricio. I'm going to start on Slide 16 with a bridge between our reported numbers and the LatAm segment. From the top chart, you can see reported revenues were just under 1.1 billion. But when you look at the business holistically, and that's including Guatemala and Honduras as they're fully consolidated, underlying revenues were just over $1.6 billion.

Now to get to underlying LatAm service revenue, we exclude Africa, which was a little over 5% of our revenues today, and telephone equipment sales, which is the most important driver of profitability. On Slide 17, you can see that our LatAm service revenue grew by 8.2% in real terms and 8.5% organically, and remains strong across all segments and all markets. Now, this is the fifth sequential quarter of growth and represents some of the best-sustained performance we've seen since we started this transformation of Millicom into a leading LatAm operator. Economic activities continued to recover in our markets, remittances from the U.S., Central America sustained double-digit growth.

Vaccination rates improved significantly in most countries and currencies in our markets were generally stable, both during the quarter and over the past year. This provided the basis for a strong performance in our consumer mobile business up 7.5%, while Home maintained double-digit growth, and we also showed positive growth in the B2B segment. On Slide '18, all our LatAm operations delivered positive service revenue growth. And once again, El Salvador registered the fastest growth of 18%, driven by mobile and stemming from network investments.

Panama also had double-digit mobile growth, again on network investments, and importantly, the return to growth in our B2B business. This resulted in 9.5% overall growth. Now you've heard about Colombia and Guatemala's strong performance that was up 6% and 9.2%, respectively, again, both on home and mobile growth. On Slide 19, you can see the EBITDA for our LatAm segment.

At $622 million, this was up 7.1%. The margin was stable at just over 40% and this was despite incurring higher sales and marketing costs associated with the mobile customer intake. Turning to Slide 20. We have the LatAm EBITDA by country.

Also with Colombia, we saw a 5.6% decline in EBITDA year on year. I think we've explained this. But to repeat, this is due to a significant increase in selling and marketing expenses. This is what has driven the very strong mobile customer intake during the quarter and has resulted in improved market share.

Otherwise, growth was positive in all countries. El Salvador had its fourth consecutive quarter of growth, driven by a strong top line, and both Guatemala and Panama delivered double-digit EBITDA growth again, and we saw positive growth from all other operations. On Slide 21, we show the operating cash flow, and this is our underlying EBITDA less capex to the group, including Africa. Year to date, as of the end of September, our OCF is just below $1.25 billion, and we are now expecting to be above the $1.4 billion that we've been guided to since the beginning of the year.

Now turning to our leverage position on Slide 22. We have reduced underlying net debt by $300 million this year to just over USD5 billion and that gives a proportionate leverage of 2.67 times. When leases are added, our net financial obligations are around $6.2 billion and a proportionate leverage of 2.81 times. As you know, we've made reducing leverage a key priority of the business.

We aim to bring leverage down toward two times. And on Slide 23, you can see that we've brought our leverage down every quarter since it's peaked at the height of the pandemic. Overall, we brought leverage down by nearly 50 basis points over the course of the year, and we've been able to restart our share buyback program. And on the right-hand side of the slide, you can see that we've repurchased around 0.8% of our share capital as at the end of the quarter.

And today, we're just over 1%. As a reminder, we've got authorizations to repurchase up to $100 million until the AGM in May, and we expect to invest $50 million during this calendar year and the remaining $50 million in the first four months of 2022. So with that, I will hand it back to Mauricio.

Mauricio Ramos -- Chief Executive Officer

Thank you, Tim. Before we take your questions, let me take a few minutes to refresh everyone on our simple value creation model. It starts with a very clear sense of purpose to make sure that all key stakeholders see value in what we do. The first building block is our network-centric organic growth strategy.

Demand for connectivity is large in our markets. Our ambition is to turn that demand into service revenue growth in the mid-single digits, drive margin expansion as we have, and grow our OCF by about 10% every year. With the investments we have made over the past year, this is now well within short-term reach. The entire organization is working toward delivering on that very same ambition in 2022.

The second building block is our capital allocation strategy. This starts with a healthy balance sheet and our clear focus on the Latin American region. We're coming out of this harsh pandemic with more organic growth and lower leverage, and we're not able to return capital to shareholders every year. And three, we're now building new ventures that create value beyond our core connectivity business.

Our Tigo Money venture is already the largest fintech in our markets. We're investing more in it now than we have done in the past to accelerate its growth potential and capture the large fintech opportunity in our markets because, indeed, no one is doing mobile money payments like we can in our markets, and this makes it a unique fintech opportunity for us. And our growing tower, fiber, and data center infrastructure also carries important strategic optionality for us to create value. It includes more than 9,000 towers of those in tier three data centers at approximately 170,000 kilometers of fiber.

We now have projects underway to carve out both of these valuable assets from our core business and to manage them separately. This, in turn, will give us optionality to bring in partners for either venture to monetize or further grow both of them. I hope our model is crystal clear in what it means for value creation. Before I finish, please allow me to thank and recognize our amazing team, everyone, individually and collectively, because it is our vibrant culture, our unique Sangre Tigo, which gets the job done every day and the right way for all our stakeholders.

We're now ready for your questions.

Sarah Inmon -- Investor Relations Director

Thank you, Mauricio and Tim, for your remarks. [Operator instructions] Our first question today will come from Soomit Datta at New Street Research. Soomit?

Soomit Datta -- New Street Advisors -- Analyst

Hi. Sorry, guys. My technical skills were not very good. Thanks very much for the call.

A quick first question, please, on inflation and energy costs, if that's OK. So we're seeing inflation rising across the region, presumably, in some countries, across the footprint more than others. But it doesn't seem to be evident in the Q3. But I wonder as you look into 2022, do you see any kind of risks? Are there any particular markets where you would want to highlight that as an issue?

Mauricio Ramos -- Chief Executive Officer

Sure. I'll start a little bit, and I'll hand it over to Tim because he's been doing quite a bit of good work on that. As you can imagine, Soomit, we've just gone through our budget process, so we've had light conversations on that. Indeed, it doesn't come through the results today, that's because we're not hearing from the teams and our review significant at this moment concerns on inflation, it just doesn't really come up at this point.

I mean if you look at the official projections by international monetary fund and others, it doesn't seem to be something that weighs heavily in the horizon. Having said that, we've been doing quite a bit of work ourselves internally to prepare for an inflationary environment, particularly when it comes to pressures that affect worldwide supply chains. And by that, I mean, at the group level, we've been buying as much as we possibly can in terms of equipment and that's part of why you see us bulking up, if you will, in capex. Somebody said internally, we started buying our Christmas campaign gifts back in February, and I think that turned out to be a really good decision because, as you know, there are shortages around the world and chips and handsets and a lot of equipment.

So I think we've prepared ourselves quite a bit for that. At the group level, as I said, we're not seeing a lot at the local level, but at the group level, we've been doing the things that you would expect us to do to better prepare for that environment. And that is making use of our scale to mitigate any cost pressures. So I already talked about loading up ahead of time, which we've been doing.

We've also been optimizing overall rebate logistics as anticipation so that we have more equipment available simply from a circular timing point of view. And we're pushing back on our vendors and optimizing specs in addition to adding alternative vendors as well as to prepare the business for indeed some pressure at the group level. Tim, any more insights?

Tim Pennington -- Chief Financial Officer

No. I think you've covered it pretty well. I concur, I mean, we're not really seeing a lot of inflationary pressures at the moment. That said, Soomit, I think we're very aware of it and clearly, Latin America is not immune to the global inflationary pressures out there.

We're certainly seeing a few central banks pushing rates up and Colombia, in particular, moved its rates up. But kind of the main areas we will be impacting will be on people, on our employment costs. And we're not seeing that coming through just at this point. You mentioned fuel but bear in mind, although, obviously, network is a key part of our business, it only really represents about 5% or 6% of our overall opex as a percentage of the revenues and the fuel component of that is a subset of that as well.

So kind of we're aware of it. But it's -- as you say, it's not very inevitable but at the moment.

Mauricio Ramos -- Chief Executive Officer

And in some countries, Soomit, like Colombia, we just took a price increase. So we do have the ability to protect ourselves in revenue -- on the subscription part of our business for sure.

Soomit Datta -- New Street Advisors -- Analyst

Great. That's clear. Thank you. Can I have a quick follow-up, please? This might be one for Tim.

But just on the -- on Guatemala, performance is very good, but on the dividend, you've signaled that you're looking to pay down gross debt. Is that -- I was a bit surprised by that and I wondered, is that likely to be an ongoing policy in that market? Thanks.

Tim Pennington -- Chief Financial Officer

No. When we redeem the $800 million bond in Guatemala, we used a combination of existing resources and new borrowings and also some loans from shareholders. And we've just finished paying off all of those loans, particularly the sold ones. I think the last payment was actually October.

So in -- we have diverted the cash flow to paying down the loans, and we will resume the dividend flow from November, actually. So, it's just really the way we chose to allocate the capital.

Soomit Datta -- New Street Advisors -- Analyst

OK. Thank you so much.

Sarah Inmon -- Investor Relations Director

Thank you, Soomit. Our next question will come from Marcelo Santos at J.P. Morgan.

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

Hi, guys. Thanks for taking my question. I wanted to ask about two operations that went a little bit softer, especially on the EBITDA side, Honduras and Paraguay. If you could -- is this more of you trying to boost up commercial efforts like you do in Colombia? Or is this more a competitive reason? Could you please throw some light on those markets? Thank you.

Mauricio Ramos -- Chief Executive Officer

Let me take those. So, I think they are similar but different animals, Marcelo. I think on Honduras, what you are seeing is perhaps, while we -- the situation we had in El Salvador from three or four years ago. It's a business that we're not happy with the performance we're getting, that's for sure in Honduras but we're also taking all the corrective measures like we did in El Salvador some years ago.

And by that, I mean, we're modernizing the network. I've made a reference to that on the prepared remarks. And we're pretty positive that that in combination with the fact that this is a two-player market in which we have significant scale would allow us to correct for the shortcomings in performance that we see in Honduras today. Pretty positive that once we make these investments, as I said, that we've been doing on modernizing the network, Honduras will become a strong performer for us.

Paraguay is a little bit different because I think Paraguay is further ahead in the change conversion cycle if you will. We have made some significant investments in Paraguay. We have tons of scale and as you heard we said a number of times, all the toys in Paraguay. And what we're beginning to see now in Paraguay is competition becoming quite more rational.

So it's more stable today. Still a difficult environment from a competitive point of view, but certainly much more stable than it has been in the past. And if you look at the subscriber numbers in Paraguay, you can see that the business and in the market, there is a lot more stable. I would even adventure to say that it's stabilizing significantly.

And you see that our mobile market share is now stable, even slightly up because we're picking up subscribers in Paraguay. We picked up 120,000 this quarter, they're up 7% and home is also becoming a little stronger. So service revenue in Paraguay is modestly up, and I think we're stabilizing significantly in Paraguay. And obviously, you see at the EBITDA level that we've paid for the soccer rights, and that's why EBITDA looks a little bit weaker than it would normally look.

But that's very good because it helps us very much stabilize that business.

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

Perfect. Thank you very much.

Sarah Inmon -- Investor Relations Director

Thank you, Marcelo. Our next question will come from Diego Aragao from Goldman Sachs.

Diego Aragao -- Goldman Sachs -- Analyst

Thank you. Good to see you all. So, the first question is related to the competitive landscape in Colombia, especially mobile, it seems that people and some of the other players are still, I'd say, performing well despite a new entrant into the market. So I'm just wondering if you can comment about your strategy and expectations in there? And the second question is related to the shortage of semiconductors that it's clearly, let's say, global supply.

I guess, are we seeing any potential impact for your capex plan as we approach 2022? And also, maybe just a third question here, sorry, any initial thoughts on the proposed transaction between Liberty and America Movil, Panama. I would like to hear your thoughts on this. So thank you.

Mauricio Ramos -- Chief Executive Officer

Sure. [Inaudible] here, Diego. So on Colombia, as you saw in the prepared remarks, given everything that's going on in the country, we think our performance and our Q2 was quite strong, but I think Q3 in Colombia is outstanding in terms of demonstrating that our strategy is working. As I said on the call, we set out to buy spectrum.

We set out to build a network. We set out to increase the commercial distribution. And the last year of the fall needed to be particularly that we do get the subscribers and we get the revenue. And that's happening, as you can see on the numbers that we showed Diego, we're at 18% on the mobile subscriber base, postpaid in particularly, has had two record quarters, and this one was better than the last quarter with almost 150,000 net adds and about 110,000 prepaid net adds.

So we're very happy with the way Colombia is performing. As you can gather from the prepared remarks, the issue we historically had in Colombia is that with such limited market share, we couldn't possibly be profitable. So our strategy is to find some scale, and everything that is happening in the market is allowing us to gain that scale. You've heard me say that it's a volume game, which will allow us to pick up a little bit of market share, and that's exactly what's happening.

But what I added, and I think the numbers quite significantly show is that we come out ahead on the revenue proposition despite lower ARPUs in the market. So we're very pleased with the way Colombia is working for us, it's exactly what the strategy was supposed to do. And if you add to that the fact that home, again, the strategy that we laid out five years ago is also performing, it's increasingly certain what we're doing in Colombia. We reconverted a ton of copper, as you know, we're largely done with that, now the customer net adds are strong, and they're bringing revenue in Colombia.

Home sales revenue growth in Colombia is double digits. And if you look at what we're doing in Colombia today, we have both mobile and home working. We're the best network in the country. Our NPS results are significantly moving up.

If you look at the portability in Colombia, we're clearly the winner. And if you look at where we come out in the price versus quantity game, we come out with increases in service revenue. So overall, very, very pleased. We're basically net winners in a competitive landscape.

On the second question, 2022, I think the first thing I'll add, and Tim has been looking at our budget in a lot more detail, so I'll hand it over to him. But I'll tell you this, in this business, we've already acquired a ton of our 2022 capex, right? If we hadn't done that, we wouldn't be good at this business. So that's -- we not only loaded up in the fourth quarter of 2021, and that's partly why we keep saying that we're going to load up in capex this year. But we're already putting the orders for 2022, so we can start affecting all that 2022 capex already.

And then maybe, Tim, you can add a little bit to that before going to the Panama matter. Just a viewpoint.

Tim Pennington -- Chief Financial Officer

Yeah. With the chip shortage has been kind of facing us for a while. We've been forward buying. The big issue for us, Diego is set-top boxes, that's probably the area where there's been most acute shortages.

Handsets are a bit more fungible, a bit easier to fix. With network equipment, we have long lead times on that. So it's been the -- we saw the weak -- the risk area was in the set-top boxes. We put a lot of forward purchases in on that.

I haven't got the exact details, but we have probably committed at least half of our capex for next year already in terms of contracts, purchase orders, etc. So we've -- that's how we're trying to mitigate the risk here.

Mauricio Ramos -- Chief Executive Officer

Great. And then lastly, on the Panama matter, it was part of our investment business when we went into Panama. If you recall, two years ago, that that mobile market had four players, a couple of them with size and a couple of them with limitations on scale, would eventually rationalize down. And what you're seeing is precisely that, but it's been rationalized to three players from four.

So that was part of our investment thesis and as a result of that, we think it's just a sensible thing for the country to do. And with that in mind, it's just a further element of what was our investment thesis.

Diego Aragao -- Goldman Sachs -- Analyst

Very helpful. Mauricio and team, thank you very much.

Tim Pennington -- Chief Financial Officer

You bet.

Sarah Inmon -- Investor Relations Director

I'm going to read a question for Stefan Gauffin at DNB, who's having some technical issues. His question is, if we are being cautious on our OCF guidance at 1.4 billion, we are saying that we are targeting 18% capex to sales in 2021, and that would put our Q4 capex levels higher than what we had in 2020. Even if he puts these capex estimates into his estimates, he's coming to an OCF guidance a little bit closer to 1.5 billion.

Mauricio Ramos -- Chief Executive Officer

All right. I'm going to give it a shot, and then Tim's just going to kind of validate, correct, adjust the numbers. So let me give you the big picture here. All right, let's just be clear, we are on track to be surpassing the 1.4, OK, that's fair.

But everybody needs to understand that this year, we are going to spend more capex than we historically have to the tune of 100 to $200 million. And we've already had in this call, conversations around why that is important. But just to reemphasize that, we are finishing out the Colombia network where we missed network modernization programs, we talked about Honduras and talked about Paraguay and those are all coming to completion this year. So this year, for sure, we're going to be a little higher than normal to the tune of 100 to $200 million.

And as a result of that, that capex to sales ratio is going to be around 18%. Now, these projects are not with us into next year and we've already bought a lot of the capex or secured a lot of the capex for next year. And so we're pretty comfortable knowing that next year, our capex to sales ratio will come down to that 16 to 17% ratio that we've been talking about. And I think that the most key and important point here is to understand that.

And I want to use the moment to go perhaps a little bit big picture on this conversation rather than spinning my head around the Q4 numbers. I think what's behind all of this is that the business model that we set out to put in place is coming to fruition pretty much right now. Let me explain what I mean by that. We set out a model, a ambition, if you will, to achieve top-line growth.

We're pretty close to that. If you do the math against our 2019 numbers, you realize that our service revenue growth this quarter was around 5%, which is at a mid-single-digit level that our model predicates. If you look at our margins, we have said some years ago that we would seek margin expansion to get to EBITDA margins of around 40% and operating cash flow margins up north of 20%. We've reached that.

We're there in terms of our EBITDA margins at around 40% and the margin expansion of the operating cash flow level, we're at margins and profitability that are in the 20 to 25%. So the last shooter here and this is why the capex conversation is so important, and the fact that it is coming down next year for the reasons that we've discussed now quite significantly. Last shoe fall here is simply that that target of operating cash flow growth of 10%, it's no longer something that sits out there in the horizon. It's around the corner on the prepared remarks.

I thought I was very clear in saying that we're looking at it for the short term, and that's all part of the equation here. So I want that focus to be clear that we're getting to our target model very quickly into 2022. And Tim can correct now my Q4.

Tim Pennington -- Chief Financial Officer

No. In fact, I wasn't going to correct anything. I was going to give you a little bit more specifics, I guess, in yes, if we look at the components here, we talked about a high level of capex and I know the market generally doesn't believe us, but we will probably spend about $450 million in capex in the fourth quarter. Now, this isn't the -- all of a sudden, we're spending that amount.

This is to do with projects we started in the first and second quarter where we effectively get to acceptance and therefore, the bookings, that's why the number is higher. If I look at the other part of the components, the -- I see no big sort of red flags on the LatAm EBITDA side. I think we've talked about that performing well. If I've got one area of caution that I'm a little bit more concerned about, that will be on the Africa EBITDA number from the fourth quarter.

Now I realize we haven't talked about it too much, it's subject to a sale and purchase agreement, but it is still part of our numbers, and it's still part of the OCF number. And there has been a significant impact on the MFS business because of a levy that was imposed by the government, which has had an impact. So kind of at the margin, Stefan, that will have an impact, I think. But overall, as we said, we're now very confident that the number is above 1.4 billion, whether we meet in the middle as the way you are, I'm not too sure but certainly, we remain very sort of optimistic about the LatAm performance.

Mauricio Ramos -- Chief Executive Officer

I'm going to over [Foreign language]. I'm going to rein over web pavement here. This year's investment higher than normal is what gets us to achieve the ambition in our financial cash flow model and is how we get to that service revenue growth, mid-single digits that we're already almost achieving this quarter into next year. And it's how we get to margin expansion, and more importantly, how we get to that operating cash flow target of about 10%.

Tim Pennington -- Chief Financial Officer

The good thing about Stefan's technical difficulty he can't come back to us and ask for a follow-up.

Sarah Inmon -- Investor Relations Director

Well, thank you, both. I'm going to verbally ask another question for Bill Miller. He is wondering if you could expand on the fintech and money transfer business and how soon we could expect this to be an independent entity?

Mauricio Ramos -- Chief Executive Officer

So I take -- I look at our TIGO business a little bit like they have what we -- back in the days when we talked about cable, and we said we're going to build a cable business and this is pretty much where we are today. We built a $2 billion cable business with phenomenal margins, phenomenal service revenue growth, and a lot of runway into next year. Tigo Money is today what cable was three to four years ago when we put it out as a toddler that we would build into a young and independent individual. So what we have today with Tigo Money, as you know, is already a pretty sizable fintech, 5 million users, $50 million of revenue with launch in five countries.

So it's not small, but it hasn't received all the attention of something that's already a pretty scaled-up fintech could. And that's exactly what we're aiming to do. Because we feel that we're barely scratching the surface of the fintech opportunity that's available in our countries today. Because the reality is no one really is doing mobile financial payments in our markets and certainly not taking care of this fintech opportunity.

So what we aim to do is, first, become the preferred digital mobile platform in all of our markets, so that we feel that gap in financial payments, digital mobile payments in our markets. And for that, this year, we'll be launching pure codes for closer markets and reaching out to thousands of merchants so that we become that preferred digital mobile platform. That's point number one. Point number two of the strategy is to expand geographically.

We've only launched in five countries, not in the others but in some of the countries where we launched, we can relaunch more forcibly. And then, of course, the third layer of the strategy would be to expand into the other fintech opportunities with lending and insurance. So that's the overall picture of what we're trying to do with Tigo Money. And the opportunity is available to us because we have such significant presence in the markets we operate with agents that cash in and cash out our existing prepaid business.

And as a result of that, we can build a fintech that's tethered to the real economy via the cash machines, if you will, that we have, the little ATMs that we have everywhere. So that's a division for you, Bill. Now what we're doing today is we've been investing heavily in building out the team, setting up the strategy, pumping up the capabilities that we have, both on the IT level and others. And by the way, that's also part of some of the investment that you are seeing in Q4, much more than it was ever before because we're investing in Tigo Money.

And in parallel to that, what we're doing is we're carving out that business so that we have the optionality to potentially bring in a partner that would help us develop that business. As I've said before, I'm very enthusiastic, and I believe we have tremendous opportunity to create another value driver for us here.

Sarah Inmon -- Investor Relations Director

Thank you, Bill, for your question. Our next question is from Stefan Billing at Kepler, and this is our last question, I believe.

Stefan Billing -- Kepler Cheuvreux SA -- Analyst

Thank you. Hi, everyone. A couple of questions from my side. First of all, the nitty-gritty one.

El Salvador, if we look at the cost base, it seems to be still a bit elevated. I think you had some accruals or something like that in Q2. Anything you want to comment on that?

Mauricio Ramos -- Chief Executive Officer

El Salvador is just an incredible comeback story for us. It is hopefully the template to what we need to do and as I said earlier, it's become our highest growth business, phenomenal NPS, all on the back of changing the network, getting spectrum, putting a phenomenal team in place. And if you look at the Q3 numbers, they keep getting better with net adds that are up 13%, if I recall correctly. And on EBITDA, that's not only double-digit but in the 20%.

So going forward, we're going to keep El Salvador, putting the same recipe and plays on and on because it really is working.

Tim Pennington -- Chief Financial Officer

I think the elevated, to be honest though, I'm not really too worried about the opex in El Salvador at the moment because the area that it's mainly coming through is dealer commissions and dealer commissions are associated with gross additions. So they basically are to support the growth in the customer base. So I think that's the major reason why it's slightly elevated. But for me, this is a good opex.

Stefan Billing -- Kepler Cheuvreux SA -- Analyst

All right. Thank you. Next is on Colombia, I was just curious on two things there. The Bogota region, are you now gaining good traction on the mobile side, thanks to the low band spectrum, or is that yet to come? And also, if there's any news on the potential cable reseller opportunity in Bogota that you can share.

Mauricio Ramos -- Chief Executive Officer

Yeah. So the answer to the first part is the pickup in -- the strong pickup in subscribers largely participate in Colombia is broad-based reasonably because we now have network that covers the entire country. And yes, we are able to better service Bogota now because we have a low-frequency network available in Bogota, so we are picking up subscribers in Bogota and it's more broad-based across the country than it used to be. So yes, we have corrected for a technical handicap or network handicap that we had in Bogota.

But the net adds are coming from the entire country because we've also increased distribution. So that's the answer to the first part of the question. The answer to the second part of the question is, if you're referring to the deal between Ufinet and ETB to create a fiber call that would give access to third parties in Bogota. That has run into some legal problems in Colombia.

I don't know whether they will be sorted out or not. But that also leaves today with the ability to itself, resell the fiber to third parties. So that would be the fallback position. And what it means for us is that whether it's a joint venture or not, sometime next year, we would be in a position to buy, to resell, or resold fiber services from either the joint venture or from commit away directly.

Stefan Billing -- Kepler Cheuvreux SA -- Analyst

Sound good. Thank you very much.

Sarah Inmon -- Investor Relations Director

Thank you, Stefan, for your question. We have another question from Anders Wennberg. He is asking if Mercado Libre is active in payments in countries like Paraguay, Bolivia, and Colombia? How do we compare to them in terms of mobile payments? Could MercadoPago be a potential buyer of the mobile payments in South America?

Mauricio Ramos -- Chief Executive Officer

So listen, Colombia, of course, is a little bit different. Colombia is a bigger market and one in which indeed Mercado is. So the opportunity for us for Tigo Money exists in all of our countries, the one that has the most competition today is particularly Colombia. Everywhere else, it's pretty much a blue ocean for us to conquer the digital payment space because we have unique capacities and others don't really have.

We already know the mobile payment business because we've been in it for a while. We're increasing the technology, increasing the distribution, increasing the teams, increasing our platforms, and obviously our product proposition. But in all the countries outside of Colombia, it really is a blue ocean for us to build that digital payments business. No one's doing it, neither other mobile operators, not any fintech.

And as I said earlier, we have a unique advantage which is the fact that we have a large Tigo Money distribution platform. And it's not small. It's about 20,000 points in the markets that I just described where we launched Tigo Money in which Tigo Money could be cashed in or cashed out. That basically connects our fintech to the real economy and it's an advantage that nobody really has.

And we may need to make significant use of that. And on the last little bit, it's just -- this is such a young, tiny baby. So we're not yet thinking about who's going to marry it or take it away from us. That may happen once when you sort of put him or her through primary school and high school.

Sarah Inmon -- Investor Relations Director

Thank you, Anders, for the question. That was our last question. So Mauricio, if you'd like to make some final remarks, I'll leave the floor to you.

Mauricio Ramos -- Chief Executive Officer

Thank you, Sarah. I think I'm really going to [Foreign language] rein over web payment. We're getting to the model that we wanted to create with service revenue growth, margin expansion, and operating cash flow growth is now very, very much around the corner. And I'm thankful to all of you who believed in the story, and I'm thankful to the team who's putting it together.

And I'm pretty pleased that we're building a model that does have -- that are putting cash flow growth ahead of us. So thank you for just waiting for us to deliver on it as we are.

Duration: 54 minutes

Call participants:

Sarah Inmon -- Investor Relations Director

Mauricio Ramos -- Chief Executive Officer

Tim Pennington -- Chief Financial Officer

Soomit Datta -- New Street Advisors -- Analyst

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

Diego Aragao -- Goldman Sachs -- Analyst

Stefan Billing -- Kepler Cheuvreux SA -- Analyst

More TIGO analysis

All earnings call transcripts

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.