TIM GROUP
Q1 '20 Results
Accelerating deleverage and transformation
19 May 2020
Disclaimer
This presentation contains statements that constitute forward looking statements regarding the intent, belief or current expectations of future growth in the different business lines and the global business, financial results and other aspects of the activities and situation relating to the TIM Group. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected or implied in the forward looking statements as a result of various factors.
The financial results of the TIM Group are prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and endorsed by the EU (designated as "IFRS").
The accounting policies and consolidation principles adopted in the preparation of the financial results for Q1 '20 of the TIM Group are the same as those adopted in the TIM Group Annual Audited Consolidated Financial Statements as of 31 December 2019, to which reference can be made, except for the amendments to the standards issued by IASB and adopted starting from January 1, 2020. Please note that starting from January 1, 2019, the TIM Group adopted the accounting principle (IFRS 16 - Lease).
The financial results for Q1 '20 of the TIM Group are unaudited.
Alternative Performance Measures
The TIM Group, in addition to the conventional financial performance measures established by IFRS, uses certain alternative performance measures for the purposes of enabling a better understanding of the performance of operations and the financial position of the TIM Group. In particular, such alternative performance measures include: EBITDA, EBIT, Organic change and impact of non-recurring items on revenue, EBITDA and EBIT; EBITDA margin and EBIT margin and net financial debt. Moreover, following the adoption of IFRS 16, the TIM Group uses the following additional alternative performance indicators:
- EBITDA adjusted After Lease("EBITDA-AL"), calculated by adjusting the Organic EBITDA, net of non-recurring items, of the amounts related to the accounting treatment of finance lease contracts according to IFRS 16 (applied starting from 2019);
- Adjusted Net Financial Debt After Lease, calculated by excluding from the adjusted net financial debt the liabilities related to the accounting treatment of finance lease contracts according to IFRS 16 (applied starting from 2019).
Such alternative performance measures are unaudited.
Q1 '20 Results | 2 |
Highlights
"Operations TIMe" plan execution ongoing
What happened in Q1
KPIs
Revamp culture, organization and engagement
Domestic
Brazil
Cash generation and
deleverage
- New Remuneration schemerewarding ESG, Equity FCF, stock price performance
- Employee shareholding planfor higher engagement
- >2k early retirement - art 4in pipeline for 1H 2020
- Smart working extendedGroup-wide for over 40k employees
- Consumer mobile ARPU growing YoYandMNP record low-60%QoQ
- Fixed:on track tohalve line losses in 2020 vs. 2019
- Cost cuttingcontinues withdouble digit reduction YoY
- From volume to value, with service revenues growing 2% YoY, despite COVID
- Cost cutting accelerates, resilientEBITDA growing 8% YoY
- Developing infrastructure reaching 3.5k cities with 4G and 2.5m HH in FTTH
- Net Debt reducedby€ 923m from YE 2019 and€ 1.8bn YoY
- Working capitaloptimization continues (-296m outflow YoY)
- Equity FCF €466min Q1 '20. More disciplined commercial conduct
>2k exits in 1H vs. 1.6k in 1H '19 (2.7k FY '19)
Mobile ARPU -1%YoY
MNP +ve in March,
ZeroConsumer line lossesin April
Service Revenues
+2% YoY
EBITDA
+8% YoY
Net Debt reduced
- 923m QoQ
EqFCF +31% YoY
- 466m in Q1 '20
Q1 '20 Results | 3 |
Highlights
TIM in the emergency: solid operations, the greatest support for the Country
People
All staff safe and well
supported
- Smart working >40kTIM Group employees
- Ad hocprocedures and equipment fortechnicians, commercial, data centers staff
- Increasedwelfare initiatives andflexibility on work time
- Agreement with unionsonholidays &expansion contract leading to savings in Q2
Business Continuity
Fully operational
networks and services, growing rural coverage
- Networksup and running at all times
- Bandwidthincrease
-
7k new cabinetsto provide broadband in more than
1k municipalities serving
~1.2m additional households
Customers
Extra-care for our
customers...
- Unlimited dataon fixed and mobile customers
- Selectedfree services: voice, TIM Vision, ADSL to fiber switch
- Freemobile data on e- learningapplications
- Freeordiscounted B2B services for enterprises
- FreeG-SuiteTIM Edition
Wider Community
... and for our Country
- TIM Data Roomfor Civil Protection,workstations, toll free number
- Donationsby the TIM Foundation and employees
- Many initiatives forschools
- Digital educationinitiatives for all ("Maestri d'Italia")
- Monitoring tools foremergency services
Q1 '20 Results | 4 |
Highlights
Ready to ride the transformational power of emergency
Fixed data traffic | Mobile data traffic | Collaboration apps traffic | Shops | ||||||||
+80% | +30-40% | 11x on average | % closed | ||||||||
44% | 29% | ||||||||||
24% | |||||||||||
March 9, lockdown started | |||||||||||
Mar | Apr | May | Mar | Apr | May | Mar | Apr | May | Mar | Apr | May |
Short term impacts
- Lower handsets/modem sales (no major EBITDA impact)
ťLower gross adds for lockdown, higher demand in rural / digital divide areas
•Lower churn
- Lower roaming volumes: positive on outbound (fixed fees), negative on inbound
•Higher demand for ICT services from enterprises
- Higher bad debt expected on SME
Moving on: a more digital Country, a cleaner environment, a better life-style
- Much higher penetration of digital services andICT-transportationsubstitution, reducing CO2 emissions
- Higher ultrabroadband penetration and overall demand for fixed, particularlyICT infrastructure and servicesboth in B2B and B2C
- Active and substantial Government supportfor digital infrastructures and services
A decade's evolution potentially happening in a few months
Q1 '20 Results | 5 |
Highlights
Government response to Covid: € 2.7bn public funding benefiting telco sector
Expected timing
Schools
Public tender Sept '20 subject to EC approval
Assignment by YE
Vouchers
vouchers to be
started from July '20 for
low income families
From September '20 for
the rest post EC
approval
Grey areas
Public tender Sept '20 subject to EC approval
Assignment by YE
* Source: MISE
- Objective:connect 32,213 school buildings across the whole Country in 2020-2023
- Services: connectivity(100-1000 Mbps), maintenance and CRM covered by public grant
- Expected timing: tender in 2020, roll out 2021- 23Contract duration 5 years
- Objective:support families and companies in purchasing or upgrading UBB connectivity
- Voucher value: 500€ low income families, 200€ for other families,500-2,000€ for companies depending on speed (30-1000Mpbs)
- Scope and timing: new lines or speed upscale, 2020
- Objective:deploy infrastructure in selected industrial districts in "grey areas"
- Criteria: cities with higher businesses density
- Expected timing: tender in 2020, roll out2021-23
Budget
- 400m
- 1,146m
- 1,126m
- 2,672m
Funding | Voucher | Implied | |
Category | value | lines | |
€bn | |||
€ | m | ||
Low income | 0.3 | 500 | 0.6 |
families | |||
All families | 0.3 | 200 | 1.6 |
30 Mbps | 0.1 | 500 | 0.2 |
companies | |||
1 Gbps | 0.4 | 2,000 | 0.2 |
companies | |||
Total | 1.1 | 2.6 | |
Q1 '20 Results | 6 |
Highlights
Covid 19 accelerating digital transformation and channels rationalization
Pull channels
scale-up…
…for a powerful combination with TIM's shops
Boostdigital channel
Cleanup andrationalization of push channels (Agencies and Telesales)
Refocus of Stores toCB retention management
New channelsexploration (Business-Consumer synergy; FWA dedicated installers)
TIM's shops a traditional strength
…that (temporarily) turned into a cost in the COVID lock down
+64% | (YoY) | >60% (YoY) | +60% | (YoY) | ||
Digital channels | ||||||
TIM app fixed | AI channels | |||||
penetration on | ||||||
unique users | conversations | |||||
mobile | ||||||
+23% | (YoY) | +29% (YoY) | +100%(YoY) | |||
E-Recharges | E-Commerce | |||||
TIM app mobile | ||||||
(channel share | activations | |||||
unique users | ||||||
16%) | (share 20%) | |||||
Fixed line digital sales | +12 p.p. | |||||
growth | 34% | Digitalization in | ||||
technical support | ||||||
26% | ||||||
% Not Human | ||||||
5% | 8% | 9% | 12% 13%14% | -18%(YoY) | ||
Sept | Oct | Nov | Dec | Jan Feb Mar | Apr | Failures on field |
Sales | Channel share | Trouble tickets | ||||
(m) | ||||||
Q1 '20 Results | 7 |
Highlights
Strategic initiatives/partnerships progress. Boosting ROCE remains the goal
Mobile towers
Fixed line network
Cloud services
and data centers
Develop TIM Brasil
TIM Vision
and content strategy
- Merger with Vodafone Towerseffective on 31 March 2020
- First wave of monetization: INWIT free float increased from 25% to 33% through ABB
- Second wave of monetization: exclusive negotiation with Ardian Consortium (see next slide)
- Exclusivity to KKRin negotiation with Open Fiber (dual track)
- Exclusivity toKKR to acquire c. 40% of TIM's secondary network. Due diligence on track
- Covid-19sanitary emergency showing importance and urgency of a single network in Italy. Growing political support
- Partnership withGoogle up and running
- Launch of TIM / Google / Banca Intesasmart-working platform for SMEs last April
- Carve-outof cloud business NEWCO planned by October (estimated 2024 EBITDA € 0.4bn)
- Promotingconsolidation in Brasil in partnership withTelefonica
- NDAs being signed to select a strategic partner to further expand TIM Live's fibre roll out
- TIM Vision Plus 100k activations in march only (+194% MoM), benefiting from exclusivity with Disney+ launched on 24 March
- ConsolidatingTIM Vision visibility and positionwithin the Italian market
Q1 '20 Results | 8 |
Highlights
INWIT: further monetization; retaining joint control of INWIT with Vodafone
- Clearanceon bothpassive and active sharing on 6 March
- Merger with Vodafone Towerseffective on 31 March
- 4.3% share capital of New Inwit placedon 23 April @ €9.6 per share.Cash-in€ 0.4bn. Vodafone sold an equal # of shares
- TIM and Vodafone'sownerships reduced to 33.2% from 37.5%
- €214m extraordinary dividend cashed in by TIM on 8 April
- €42m ordinary dividend to be cashed in on 20 May
- Distribution policy going forward: >80% of net income
€ bn, after lease view | > 2 | |
1.4 | Additional | 1.5 |
monetization | ||
April '20 ABB | 0.4 | |
1 | 2 |
TIM is entering exclusive negotiations with Ardian Consortium (1)
for the sale of a minority stake in TIM's Tower HoldCo
- Ardian Consortium has been reserved a period ofexclusivityto acquire a significant minority stakeof TIM Tower HoldCo, fully controlled by TIM, which will own TIM's co-controlling stake in Inwit. The exclusivity follows the submission of a binding offerby Ardian Consortium
- TIM, together with Vodafone, will continue to exercise, through the investment vehicle,joint control with Vodafone over Inwit
- The transaction is subject to the finalisation of relevant documentation and customary approvals, which are expected to happen by the Summer
Consortium | ||||
Full Majority | Significant | |||
control | Minority stake |
TIM TOWER
Extraordinary dividend | Debt deconsolidation | Stake disposal | ||
HOLD CO
FREE FLOAT
Total TIM Group debt reduction from INWIT
expected to exceed €2bn vs. €1.4bn original plan
Joint control
(1) Investor consortium lead by Ardian and participated by Canson Capital Partners | Q1 '20 Results | |
9 | ||
Highlights
Google partnership "up and running". Newco data centers carve out by October
TIM-Google Cloud partnership roadmap
- Partnership agreement with Googlesigned last February
- Go-to-marketactivities and roadshow:
- Started engaging key top clients
- Defined specific incentive scheme for salesforce
- First quarter results in line with targets
- Training plan: ~5,000 resources in 2020
- Evolution ofData Centers infrastructureto host Google Region: works already started in Milan area
- Competence centerby Q3
TIM-GoogleCloud-Intesa Sanpaolo
- In April, TIM and Google Cloud signed apartnership with Intesa Sanpaoloaimed at launching an agile working tools package to support business continuity during Covid-19
- The offer combines TIM's connectivity services, Google
Cloud productivity and collaboration apps and a laptop rental service offered by Intesa Sanpaolo Forvalue
Carve-outof Cloud and data center | Revenues 2024 | EBITDA 2024 |
business by October 2020 | € 1bn | € 0.4bn |
Q1 '20 Results | 10 |
Highlights
TIM Brasil developing both organic and inorganic initiatives as well
Inorganic opportunities
Promoting consolidation in Brasil in partnership with Telefonica
- Due-diligenceon Oi's mobile assets underway
- Deal will be accretive from year one and will not impact deleveraging at Group level
Strategic partners invited to enter TIM live's equity
- NDAs being signedto select a strategic partner to further expand TIM Live's fiber roll out
- TIM Live intends to expand its FTTx coverage both in terms of HH (from 5.6m now) and in terms of cities (from 27 now)
New sources of revenues…
New partnership with
- Firsttelco-bank partnership to develop joint financial service solutions in Brazil
- Offer to be launched by YE
Google Cloud agreement
- Big Data virtualization to bring disruptive efficiency and enable new commercial opportunities
…and smarter CAPEX to boost ROCE
Network sharing agreement with vivo
- Regulatoryapprovalin April. Antitrust technical approval obtained and final stage expected in June
- Sharing of 2G network in 50 cities as initial effort
Q1 '20 Results | 11 |
Highlights
TIM Vision now the richest content platform in Italy: early benefits from exclusivity with Disney
KPIs increasing in March
(% volume increase vs Feb '20)
- +52%viewing hours
- +20%active users
- +81%purchases from videostore
Customer base evolution | ||||
+21% | ||||
YoY | 1.85m | |||
1.75 | ||||
1.66 | ||||
1.53 | 1.59 | |||
- +64%buyers
- Disney+booming on new and existing customers
Q1 '19 | Q2 '19 | Q3 '19 | Q4 '19 | Q1 '20 |
Sport 1 | Entertainment 1 | TIMVISION Box | ||
All major Italian and European soccer and other sports through
Now TV Ticket Sport,Dazn,
Eurosport Player
▪ | Disney+ | ▪ | YouTube |
▪ | Netflix | ▪ | YouTube Kids |
▪ | Prime Video | ▪ | SKY channels |
▪ | Chili | ▪ | Mediaset channels |
& catch-up TV |
- Android TV Box to offer the widest range of tv, entertainment and gaming services,smart-home ready
- New interface for an improved user experience and an integrated content presentation (May 2020)
(1) Contents included in the TIMVision proprietary offer or third parties streaming services included in TIMVISION commercial offers and/or available on the TIMVision box | Q1 '20 Results | |
12 | ||
Highlights
Fix the fixed: on track to halve Consumer line losses in 2020 vs. 2019
Lines losses in | Increase |
Q2 '20 expected | |
to improve QoQ | customer |
base
Target to halve
Consumer
line losses in
2020 and
Extend
footprint
and CB
Increase
UBB
penetration on footprint
Rural Areas ("White Areas")
+1.2m
(new addressable market)
7,000 new cabinets in March/May
Smart Working
New normal post COVID
Higher adoption of collaboration tools
generate B2B/B2C opportunities
Fixed Wireless Access1
1.3m
(new addressable market)
Push on the offer launched in Q4
Upgrading for a more 'digital' life
Switch from ADSL to FTTx
E-learning, Online Gaming, etc.
require higher bandwidth
stabilize by 2022
ARPU
Growth
Increase share of wallet on current CB
Contents | Convergence & Adjacent Markets | |||||
TV | Fisso | TIM | ||||
Security | ||||||
TIM | ||||||
Unica | ||||||
Smart | TIM | |||||
Mobile | Nest | |||||
Home | tag | |||||
Mini | ||||||
(1) Target 1m FWA active lines by 2022, 20% of fixed CB by 2020 | Q1 '20 Results | |
13 | ||
Financial Update
Q1 '20 Results | 14 |
TIM Group
Organic debt reduction in line with previous quarters despite seasonality
Organic data (1), € m | Q1 '19 | Q1 '20 | ||||||
Service | 3,962 | -6.6% | 3,702 | |||||
820 | +1.6% | 834 | ||||||
Revenues | ||||||||
3,152 | -8.8% | 2,876 | ||||||
1,917 | -7.5% | 1,774 | |||||||
EBITDA | 361 | +8.1% | 390 | ||||||
1,558 | |||||||||
-11.1% | 1,385 | ||||||||
Margin | 44.1% | 44.6% | |||||||
All figures based on IFRS 16
Q1 '20 showing strong improvement in cash generation:
- Equity FCFat € 466m, +31% YoY or+€ 247m YoY (+64% YoY) net of FX impact (+€ 79m)and one offs related to Sky settlement and regulatory fines(-€216m)
- Net Debtat € 26.7bn, reduced € 923m from FY '19, or € 378m excluding FX impact (+€ 300m), one-offs(-€ 216m) and Inwit deconsolidation (+€ 461m)
- Net Debt ALat € 21.7bn, reduced € 182m from FY '19, or €352m (+103% YoY) excluding FX impact (-€ 4m), one-offs(-€ 216m) and Inwit deconsolidation (+€ 49m)
+31% |
EQUITY FREE
Q1 '19Q1 '20
Equity | ||
FCF | 356 | 466 |
Q1 '19 | After Lease | 28,583 | ||
23,143 | ||||
NET DEBT(2) | FY '19 | 21,893 | 27,668 | -923 |
Q1 '20 | 21,711 | 26,745 | ||
Lease liabilities |
Domestic Brazil
CASH-FLOW
+247
IFRS 16
+196
After
Lease
EFCF | FX & | EFCF EFCF | FX & | EFCF |
one-offs | adj. | one-offs | adj. | |
(3) |
(1) Excluding exchange rate fluctuations & non recurring items | Q1 '20 Results | |
(2) Adjusted Net Debt | 15 | |
- One offs € 216m include Sky settlement and regulatory fines provisioned for in 2019
TIM Group
€2.3bn debt reduction achieved in 15 months (€1.6bn organic). A total of €3.8bn including additional INWIT monetization; €5.6bn adding KKR
Group Net Debt After Lease | Adjusted, €bn |
Historical trend
IFRS 9/15
Inwit | Second wave |
dividend | Inwit |
& ABB | monetisation |
KKR |
2014 | 15 | 16 | 17 | 18 | 19 | Q1 '20 | Q1 '20 | Post |
Pro-forma | potential |
transactions
€0.7bn debt reduction in Q2 thanks to first wave of INWIT monetization
implies
€2.3bn debt reduction achieved in c. 15 months
Additional inorganic deleverage likely to reach €3.3bn before considering TIM
Finance benefit…
…on top of organic Equity FCF
Q1 '20 Results | 16 |
TIM Domestic
Mobile Service Revenues benefit from improved ARPU performance YoY
- MSR continue on an improving path: underlying YoY performance
-2.3% vs. -5.9% in Q4 once cleaned of Content Service Providers (CSP) revenues discontinuity (2.6p.p. drag YoY in Q1 vs 1.4p.p. in
Q4). MTR price reduction explains half of the underlying fall (1.1p.p.Mobile Revenuesdrag YoY in Q1 in line with 1.0p.p. in Q4)
Organic data, € m
- ARPU YoY performance better than Q4even before cleaning from
the CSP revenues drag (-0.3 €/month). Underlying ARPU trend | 1,122 | |||||||
positive YoY | ||||||||
-11.7% | ||||||||
206 | 990 | |||||||
▪Lower sales of handsets due to the lockdown (63% of YoY delta | Equipment | |||||||
120 | ||||||||
related to COVID 19) in addition to tail of new focus on margins | ||||||||
Service | ||||||||
TIM ARPU | 916 | -4.9% | -2.3% | |||||
870 | ||||||||
(human) | Underlying MSR | |||||||
-5.0% | -4.4% | -1.3% | 832 | Retail | 762 | (-5.9% in Q4) | ||
-8.5% | -7.7% | YoY | ||||||
-8.5% | ||||||||
€ / line / month | 12.7ex.CSP | 12.6ex.CSP | ||||||
-2.3% YoY | +1.6%YoY | |||||||
12.4 | 12.5 | 12.9 | 12.4 | 12.3 | 84 | Wholesale & | 109 | |
Other | ||||||||
Q1 '19 | Q2 | Q3 | Q4 | Q1 '20 | Q1 '19 | Q1 '20 | ||
(1) Source: intra operator database | Q1 '20 Results | |
17 | ||
TIM Domestic
Mobile benefiting from flight to quality: TIM MNP balance positive in March
- MNPbalance more than halved once again in Q1 (-47k vs -114k in
Q4 '19), with TIM still best performer among established MNOs - Net adds(-373k vs -359k Q4) and human lines have been initially impacted by lockdown (-38% MoM in March), with improving trends in April and May
COVID impact ~200k lines, related to lower gross adds in March - Churnimproved vs Q4 '19 (5.3% vs 5.5% Q4) despite lockdown impact on second SIMs. Further improvement in April and May
- Kena contribution almosthalved QoQ, as most point of sales are in hopping malls closed during the lockdown
Churn rate | Customer Base | |||||||
k, Rounded numbers | ||||||||
5.2% | 5.4%5.5%5.3% | 30,895 | -373 | 30,522 | ||||
Not | ||||||||
4.3% | 9,892 | 10,098 | ||||||
Human | ||||||||
21,003 | +206 | |||||||
Human | 20,424 | |||||||
-579 | ||||||||
Q1 | Q2 | Q3 | Q4 | Q1 | Q2 E | Q4 '19 | Q1 '20 | |
'19 | '20 | c. 200k lower gross adds in March | ||||||
due to COVID 19 |
Market Mobile Number Portability | MNP - Operators balance | Lines x 1,000 | |||||||||
-16% | -5% | 1% | Positive in | ||||||||
-36% | YoY | ||||||||||
-42% | TIM | March | |||||||||
3.3 | 3.6 | 3.0 | |||||||||
2.9 | |||||||||||
2.6 | -47 | ||||||||||
Market | -118 | -166 | -114 | ||||||||
volumes | -260 | ||||||||||
Million lines | |||||||||||
Q1 '19 | Q2 | Q3 | Q4 | Q1 '20 | Q1 '19 | Q2 '19 | Q3 '19 | Q4 '19 | Q1 '20 | ||
(1) Source: intra operator database | Op.1 | Op.2 | Op.3 | ||||||||
Q1 '20 Results | 18 | ||||||||||
TIM Domestic
Domestic Fixed: zero consumer line losses in April, not far from zero with B2B
Wireline KPIs
Total Accesses (1) | UBB Accesses (2) | ||||||||||||
Lines x 1,000 | Lines x 1,000 | ||||||||||||
17,217 -233 | 16,984 | ||||||||||||
Retail | Wholesale +ve | ||||||||||||
9,166 | 8,981 | in April | |||||||||||
-185 | +359 | 7,338 | |||||||||||
(+16k net adds), | 6,979 | ||||||||||||
Wholesale | May in line with | 3,670 | +119 | 3,789 | |||||||||
8,051 | 8,003 | April | |||||||||||
-48 | 3,309 | +240 | 3,549 | ||||||||||
Q4 '19 | Q1 '20 | Q4 '19 | Q1 '20 | ||||||||||
Retail line losses | Accesses churn | |
(monthly average) | ||
1.9%2.0% | 1.6% 1.6% | |
1.5% |
Q1 | Q2 Q3 Q4 Q1 | Apr | May | |||
'19 | '20 | E | E | Q1 | Q2 Q3 Q4 Q1 | Apr May |
'19 | '20 | E E |
Migration to UBB continues: ~7.3m lines reached, +5% QoQ and +22% YoY, thanks to push on fiber conversion and FWA offer
Early benefits from "fix the fixed" initiatives. More in Q2: exclusive Disney offer launched on 24 March and ~7k new cabinets in rural areas opened in March/May (+1.2m HH served).
- Zero consumer line losses in April,not far from zero including business
- Strong growth in fiber net adds despite lockdown:+119k fiber net adds vs. +105k in Q4 although gross activations were affected by the lockdown while churn was still reflecting December/January/February disconnections. BB net adds continued to grow as well
- Wholesale fiber lines still above ULL losses: +240k VULA net adds vs.
+233k in Q4 '19 (12k more than ULL losses). Total wholesale lines down 48k attributable to a slowdown on gross activations (WLR and bitstream), due to lockdown. Net balance turned positive in April and May - Market discipline: competitors not levelling down prices in Q1. Some price increase here and there by competitors
- Churn rate at 4.8% in Q1, down 0.9pp YoY and 0.2pp QoQthanks to lower disconnections across all typology (bad debt, switch of operator, cancelation). Further strong improvement in Q2
- ARPUgrowth affected bystopping the washing machine effect, in addition to no price increases and lower revenues from activation fees
(1) On TIM infrastructure, retail VoIP excluded | Q1 '20 Results | |
(2) FTTx and Fixed Wireless Accesses (FWA) | 19 | |
TIM Domestic
FSR still affected by Sparkle and new, sustainable cash generation culture
Total Fixed Revenuesdown 9.7% YoY, with Equipment affected by the lockdown (-3.5% vs +18% in Q4 '19)
Fixed Service Revenues (FSR) affected by:
- Sparkle's strategy revision explaining 1.0 p.p. decline YoY (no impact on margins)
- Shift to equipment accounting for another 0.4 p.p. (different offer structure in consumer - modem now paid - and B2B - ICT related sales)
- reduced washing machine effect (lower activation fees) with cash flow strongly benefiting (lower commissions and provisioning)
Customer Satisfaction Index (CSI)1
Wireline | Mobile | ||||||||||||
+3.1% | +3.4% | ||||||||||||
Consumer | |||||||||||||
Q4 '19 May '20 YTD | Q4 '19 May '20 YTD | ||||||||||||
+4.0% | +0.5% | ||||||||||||
Business | |||||||||||||
Q4 '19 May '20 YTD | Q4 '19 May '20 YTD |
Wireline Revenues
▪Retailaffected by the decision not to level up prices, which |
benefitted KPIs and strongly benefited CSI, and by softer revenues in |
the SME segment |
Organic data € m
2,535 | -9.7% |
141 | |
2,394 | Service |
-10.1% | |
2,289 | |
136 | Equipment |
2,153 | |
-3.5% | |
▪National Wholesaleup 0.6% benefiting from VULA growth above | |
ULL decline | |
▪ | Sparkle's International Wholesale revenues down 8.8%, following |
strategy revision (no impact on margins) | |
▪ | Customer Satisfaction Index improving on all segments |
1,630 | Retail | 1,420 | |||
-12.9% | |||||
497 | National Wholesale | 500 | |||
+0.6% | |||||
239 | Intern. Wholesale | 218 | |||
-8.8% | |||||
Q1 '19 | Q1 '20 |
(1) Preliminary results up to May YtD'20. CSI is an established methodology based on ACSI (American Customer Satisfaction Index) developed by University of Michigan's School of Business
Q1 '20 Results | 20 |
TIM Domestic
Cost reduction continuing: -11% YoY on cash view
OPEX reduction continued in Q1: -10.2% YoY with addressable costs down 5.6%, in line with 5.4% in Q4 (- 7.6% cash-view, in line with -7.4%)
Net of deferred costs, on a cash view, the overall
reduction reaches € 233m (-11.1% YoY)
- Interconnection: still benefiting from new strategy for Sparkle and lower regulated prices
- Equipment:strong fall both related to lower handset revenues (Covid-19 lockdown) and better equipment margins
- CoGS: increase mainly related to IT revenue growth
- Commercial: benefiting from reduced "washing machine effect", stopped CSP services, better bad debt management, alongside further efficiencies in customer care and commissioning
- Industrial: decrease in network cost (mainly delivery and assurance) and energy cost due to lower prices and consumption
- G&A: reduction in civil building
- Labour: benefiting from FTE reduction (~2.2k YoY)
OPEX
Organic data, € m | Net of | |||||||||||
Q1 '19 | Q1 '20 | deferred costs(1) | ||||||||||
OPEX | 1,941 | -10.2% | ||||||||||
273 | (-197) | 1,743 | -11.1% | -233 | ||||||||
Interconnection | -8% | |||||||||||
319 | 252 | -8% | -21 | |||||||||
Equipment | -40% | 192 | -40% | -126 | ||||||||
97 | ||||||||||||
CoGS | +21% | 117 | +22% | +22 | ||||||||
Commercial | 391 | -8% | 359 | -12% | -50 | |||||||
Industrial | 187 | -7% | 174 | -7% | -19 | |||||||
100 | -6% | 94 | ||||||||||
G&A | ||||||||||||
-7% | -12 | |||||||||||
Labour (2) | 553 | -4% | 531 | -5% | -29 | |||||||
Other (3) | 20 | 23 | +3 | |||||||||
- Net of deferred costs, total OPEX amounts to € 1,877m in Q1 '20 and € 2,111m in Q1 '19
(2) | Net of capitalized costs | Q1 '20 Results | 21 |
(3) | Includes other costs/provision and other income | ||
TIM Group
Capex under control; NWC outflow improved € 296m YoY
CAPEX
Net Operating Working Capital
Organic data, € m
586 +2.2% 599
133 +39.1%185
453 -8.6%414
+€ 52m YoYdue to different phasing per quarter vs. 2019
-€39m YoYthanks to Operation's processes optimization
Q1 '19 | Q1 '20 | |||||
€ m | Non | Op.WC net | Non | Op.WC net | ||
Op.WC | recurring | non recurring | Op.WC recurring | non recurring | ||
items | items | items | items |
Q1 '19 | Q1 '20 | Domestic | Brazil | ||
Group recurring NWC improving €296m YoY
- Domestic improving € 141m YoY in Q1thanks to better suppliers terms and lower trade receivables more than offsetting higher inventories caused byCovid-19lockdown andone-offpayments related to 2019 provisions for Sky settlement and regulatory fines(-€216m)
- TIM Brasil improving € 145m YoY in Q1mainly due to positive FX (+€ 128m) and better cash cost management, partially offset by higher Fistel payment vs. last year(-€28m)
Group
+296
Domestic
+141
TIM Brasil
+145
Q1 '20 Results | 22 |
TIM Group
Net Debt reduction building blocks: -€923m QoQ
- m;(-) = Cash generated, (+) = Cash absorbed, excluding call-outs
EBITDA | 1,735 | |||||||||
CAPEX | (599) | Of which: | ||||||||
ΔWC & Others | (348) | |||||||||
Inwit deconsolidation | 461 | |||||||||
Operating FCF | 788 | Cash taxes | (26) | |||||||
Excluding non-recurring items, FX and Inwit deconsolidation the reduction would be € 378m (vs €209m in 1Q 2019)
-923
FY '19 | Operating | Financial | Cash Taxes | Dividends | Q1 '20 | Lease | Q1 '20 | ||
Net Debt | FCF | Expenses | & Other Impacts | & Change | Net Debt | impact | Net Debt | ||
in Equity | After Lease | ||||||||
FY '18 | Q1 '19 | ||||||||
+3,313 | |||||||||
25,270 | (690) | 346 | 3,632* | 25 | 25,583 | (5,440) | 23,143 | ||
Delta YoY | (98) | (51) | 4,102 | 15 | (1,838) | 406* | (1,431) | ||
* o/w 3,553 FTA IFRS 16 | * o/w 461 Inwit | ||||||||
Q1 '20 Results | 23 | ||||||||
TIM Group
Liquidity margin - After Lease view
Cost of debt ~3.4%, -0.4p.p. YoY, ~0.2p.p. QoQ
Cost of debt ~3.4%
Cash & cash | Undrawn portions of | Bonds | Loans | ||
equivalent | committed bank lines | ||||
Liquidity Margin | Debt Maturities | ||||||||||||||||||||||||||||||||||||
8.3 | (1) | ||||||||||||||||||||||||||||||||||||
24.9 | |||||||||||||||||||||||||||||||||||||
8.3 | |||||||||||||||||||||||||||||||||||||
2.6 | |||||||||||||||||||||||||||||||||||||
3.5 | |||||||||||||||||||||||||||||||||||||
2.0 | |||||||||||||||||||||||||||||||||||||
20.5 | |||||||||||||||||||||||||||||||||||||
9.1 | 3.1 | 3.4 | |||||||||||||||||||||||||||||||||||
0.2 | |||||||||||||||||||||||||||||||||||||
4.3 | 2.4 | ||||||||||||||||||||||||||||||||||||
Covered until 2022 | |||||||||||||||||||||||||||||||||||||
4.1 | 0.6 | ||||||||||||||||||||||||||||||||||||
2.1 | 3.1 | ||||||||||||||||||||||||||||||||||||
1.2 | |||||||||||||||||||||||||||||||||||||
5.0 | 1.0 | 0.6 | |||||||||||||||||||||||||||||||||||
4.4 | |||||||||||||||||||||||||||||||||||||
0.7 | 1.6 | ||||||||||||||||||||||||||||||||||||
0.3 | |||||||||||||||||||||||||||||||||||||
FY | FY 2021 | FY 2022 | FY 2023 | FY 2024 | FY 2025 Beyond 2025 | Total M/L | |||||||||||||||||||||||||||||||
2020 | |||||||||||||||||||||||||||||||||||||
Term Debt | |||||||||||||||||||||||||||||||||||||
(1) € 24,881m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and reverse fair value valuations (€ 624m) and current | Q1 '20 Results | |
financial liabilities (€ 1,476m), the gross debt figure of € 26,981m is reached | 24 | |
TIM Brasil
TIM Brasil solid execution despite s-t headwinds, with an eye on the future
Reported data, R$m
Q1 '19 | Q1 '20 | |||||||||||
Service | 4,025 | +1.6% | 4,091 | |||||||||
226 | +10.3% | 249 | ||||||||||
Revenues | 3,799 | +1.1% | 3,842 | |||||||||
1,772 | +8.1% | 1,916 | |||||
EBITDA | |||||||
Margin 42.3% | 45.5% | ||||||
Solid execution despite covid-19 impact, with ongoing transition from volume to value, disruptive efficiency and cost discipline, new source of revenue and inorganic opportunities
- Service revenues1.6% YoY increase thanks to both Mobile and Fixed
- MSR+1.1% YoY thanks to improving postpaid (+3.7% YoY excluding interconnection), whilst prepaid was hit by lower # of rechargers mainly due to covid-19 social distancing measures (-4.5% YoY)
- FSR+ 10.3% YoY driven by TIM Live (ARPU +6.1% YoY, CB +20% YoY)
- EBITDA+8.1% YoY thanks to resilient topline and further efficiencies driven by digital transformation (OPEX -5.0% YoY). EBITDA margin at 45.5%, up 3.2 p.p. YoY
- Solid network development: 9 new cities covered by FTTx, totaling 27 cities(1)
(+93% YoY). New cluster launched: Betim and Contagem
Mobile | TIM Live | Consistent Margin | ||||||||||
ARPU +4.8% YoY | Revenues +29% YoY | EBITDA margin (Pro-forma)(3) | ||||||||||
to 23.9 R$/month | ||||||||||||
CB +20% YoY to 584k | 30.2% 32.0% 35.5% | 36.5% | 37.6% | |||||||||
PrepaidARPU +4.6% YoY | ||||||||||||
ARPU +6.1% YoY to 84.5 R$ | ||||||||||||
PostpaidARPU +4.3% YoY(2) | ||||||||||||
Q1'16 | Q1'17 | Q1'18 | Q1'19 | Q1'20 | ||||||||
- April 2020 figures, excluding overlapping areas
- Excluding M2M
- Pro-formaexcludes the effects of the adoption of IFRS 9, 15 and 16
Robust Infrastructure
Leader in 4G coverage
3.5k cities, +6% YoY
Solid NGN expansion
>5.6m HH (FTTH+FTTC)
User Exp. Centric
Lowest latency
Greatest 4G availability
Up to 4x speed required for videocall app usage
Beyond the core
First telco-bank
partnership to develop
joint solutions
Q1 '20 Results | 25 |
TIM Group
After Lease view
EBITDA After Lease | Net Debt After Lease |
Group
€ m, organic | (-7.5%) | € m, reported | Excluding non-recurring items, FX and Inwit deconsolidation |
(-8.5%) | debt reduction in Q1 would be € 352m (vs €173m in 1Q 2019) |
1,917 | (234) | 1,683 | 1,541 | 233 | 1,774 | (182) | (923) | |||
27,668 | (5,775) | 21,893 | 21,711 | 5,034 | 26,745 | |||||
Q1 '19 | Lease |
EBITDA | impact |
- m, organic
Q1 '19 | Q1 '20 |
EBITDA | EBITDA |
AL | AL |
Lease impact
Q1 '20 | ||||||
EBITDA | Net Debt | IFRS 16 | Net Debt AL | Net Debt AL | IFRS 16 | Net Debt |
FY '19 | & IAS17 | FY '19 | Q1 '20 | & IAS17 | Q1 '20 |
Equity Free Cash Flow After Lease
(-11.1%) | Excluding non-recurring items and FX EFCF AL in Q1 would | |||||||||||
(-11.6%) | € m, reported | |||||||||||
be €442m (vs €246m in Q1 '19) | ||||||||||||
1,558 | 110 | |||||||||||
(157) | 1,401 | 1,239 | 146 | 1,385 | ||||||||
Domestic | (13) | 466 | ||||||||||
356 | (148) | 208 | 195 | 271 | ||||||||
Q1 '19 | Lease | Q1 '19 | Q1 '20 | Lease | Q1 '20 | EFCF | IFRS 16 | EFCF AL | EFCF AL | IFRS 16 | EFCF | |
EBITDA | impact | EBITDA- | EBITDA- | impact | EBITDA | Q1 '19 | & IAS17 | Q1 '19 | Q1 '20 | & IAS17 | Q1 '20 | |
AL | AL | |||||||||||
Q1 '20 Results | 26 | |||||||||||
Final remarks and guidance
We are living an unprecedented periodof health emergency worldwide resulting in high uncertainty and signs of economic recession. Telcos are resilient but not immune. TIM has taken actions to react, including a plan to contain costs and increase investment efficiency
For 2020 we aim to offset revenue or EBITDA shortfall due to COVID 19 with incremental
OPEX/CAPEX efficiencies
Hence we expect to be able to preserve 2020 EBITDA - CAPEX guidanceas well as maintain2021-22guidanceand 2020-22cumulated Equity FCF
2021 deleverage guidance(<€20bn) improvesthanks to the INWIT ABB and the Ardian Consortium transaction
Q1 '20 Results | 27 |
Q&A
Q1 '20 Results | 28 |
Annex
Q1 '20 Results | 29 |
TIM Group
Net Income
Reported data, € m, Rounded numbers
Net Income | ||||||||||
post minorities | ||||||||||
Inwit gain following the merger 441m | ||||||||||
+395m YoY | ||||||||||
Q1 '20
EBITDA | Non | EBITDA | Depreciation & | EBIT | Net Interest & | Taxes | Net Income | Minorities | Net Income | |
Organic | recurring | Reported | Amortization | Net Income/ | ante | Reported | ||||
items | & Other | Equity/ Disc. | Minorities | |||||||
Operations | ||||||||||
Q1 '19 | 1,917 | 29 | 1,946 | (1,263) | 683 | (387) | (109) | 187 | (22) | 165 |
(143) | (68) | (211) | 61 | (150) | 528 | 25 | 404 | (9) | 395 | |
Q1 '20 Results | 30 |
TIM Group
Liquidity margin - IFRS 16 view
Cost of debt ~3.9%*, -0.5p.p. YoY, ~0.2p.p. QoQ
Cost of debt ~3.9%
* Including cost of all leases | Undrawn portions of | Finance | |||||||||||||||||||||||||||||||||||||||||||||||
Cash & cash | Bonds | Loans | |||||||||||||||||||||||||||||||||||||||||||||||
equivalent | committed bank lines | Leases | |||||||||||||||||||||||||||||||||||||||||||||||
Liquidity Margin | Debt Maturities | ||||||||||||||||||||||||||||||||||||||||||||||||
10.4 | 29.9 (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
8.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
3.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
2.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
20.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
4.0 | 2.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
0.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
3.6 | 3.4 | 0.4 | |||||||||||||||||||||||||||||||||||||||||||||||
0.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
2.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
9.1 | 4.8 | 0.4 | |||||||||||||||||||||||||||||||||||||||||||||||
Covered until 2022 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||||||||
4.1 | 2.7 | 3.1 | 0.5 | 4.4 | |||||||||||||||||||||||||||||||||||||||||||||
1.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
0.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
1.4 | 0.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
5,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
5.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
1.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
0.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
0.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
0.4 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||||||||
FY 2020 | FY 2021 | FY 2022 | FY 2023 | FY 2024 | FY 2025 | Beyond 2025 | Total M/L Term | ||||||||||||||||||||||||||||||||||||||||||
Debt | |||||||||||||||||||||||||||||||||||||||||||||||||
(1) € 29,907m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and reverse fair value valuations (€ 656m) and current | Q1 '20 Results | ||||||||||||||||||||||||||||||||||||||||||||||||
financial liabilities (€ 1,476m), the gross debt figure of € 32,040m is reached | 31 | ||||||||||||||||||||||||||||||||||||||||||||||||
TIM Group
Well diversified and hedged debt
NFP | Fair value | NFP | ||
adjusted | accounting | |||
- Refers to positive MTM derivatives (accrued interests and exchange rate) for € 1,054m, financial receivables for lease for € 94m and other credits for € 58m
Gross Debt
Derivatives
5%
Banks & EIB
17%
Op. leases | Bonds | |
62% | ||
and long rent | ||
15% | Other | |
1% |
Maturities and Risk Management
Average m/l term maturity: 8.2 years (bond 7.4 years only)
Fixed rate portionon medium-long term debt
approximately 71%
Around27% of outstanding bonds (nominal amount)
denominated inUSD and GBP and fully hedged
Q1 '20 Results | 32 |
FromCapital Market Day 2020
In fiber: KKR chosen for a dual track approach towards one single network
We delivered on our promises
-
TIM selected KKR Infrastructure
("KKR") as financial partner - Dual track approach:
- Integration with Open Fiber
-
Minority investment of KKRin
TIM's secondary network
- Government support for a single network
- Preparatory works similarin both cases
Partnership with KKR
TIM entered an exclusivity period with KKR in response to KKR's offer to acquire a ~40%stake in FiberCop, a Newco owning TIM's entire secondary network (both fiber and copper)
FiberCop will:
- Manage TIM's secondary copper network,which is going to progressively switch to fiber (and partially to FWA) over time
- Develop fiber secondary network in Black & Grey areas
- Continue to provide copper access in areas not reached by FTTH
- Act as a wholesale operatorprovidingcopper and fiber access passive services to TIM and other OLOs
- Act as integrator of Open Fiber at the right conditions
Development of theinfrastructure will remain under TIM's control
▪Network deployment in ~1,600 cities (in Black and Grey areas)
▪Target coverage c. 13.5m HH1by 2026(i.e. >55% of total HHs1in Italy)
(1) Technical households, TIM definition (24.3m in Italy) | Q1 '20 Results | |
33 | ||
FromCapital Market Day 2020
First step overview: KKR transaction financials and perimeter
- Compelling valuation, valuing TIM's secondary network (incl. both fiber and copper) € 7.5bn EV
- The transaction represents a first step towards a potential deal with Open Fiber, which would unlock potential synergies
Enterprise value | Stake acquired | |||
€ 7.5bn | ~40% | |||
Equity Value | Cash-in for TIM | |||
~€ 4.2bn | ~€ 1.8bn |
NewCo Perimeter
passive only | ||||||||||||
fiber | ||||||||||||
Backbone | fiber | Central | fiber | Cabinet | Home | |||||||
Office | copper | |||||||||||
Home | ||||||||||||
100% owned by TIM | ~40% KKR |
Envisaged transaction perimeter includes all of TIM's network infrastructure from
the cabinet to the home, both fiber and copper (ducts, copper and fiber secondary network, sockets, etc. with cabinet excluded)
The company will be a wholesale operator providing copper and fiber access passive onlyservices to TIM and other OLOs
Q1 '20 Results | 34 |
For further questions please contact the IR Team
Investor Relations Contact Details
Phone | TIM Group Website | ||||
+39 06 3688 1 | |||||
Investor_relations@telecomitalia.it | www.telecomitalia.com | ||||
+39 02 8595 1 | |||||
TIM Twitter | TIM |
Slideshare | |
www.twitter.com/TIMNewsroomwww.slideshare.net/telecomitaliacorporate
Q1 '20 Results | 35 |
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Telecom Italia S.p.A. published this content on 19 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 May 2020 07:18:13 UTC