Investor Presentation • Nov 10, 2020
Investor Presentation
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TIM GROUP
Towards stabilization and growth
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 Q3 '20 and 9M '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. The financial results for Q3 '20 and 9M '20 of the TIM Group are unaudited.
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; net financial debt (carrying and adjusted amount) and Equity Free Cash Flow. 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 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 lease contracts according to IFRS 16 (applied starting from 2019).
* Equity Free Cash Flow After Lease, calculated by excluding from the Equity Free Cash Flow the amounts related to lease payments.
Such alternative performance measures are unaudited.
| What happened in Q3 | KPIs | |
|---|---|---|
| Improved CSI, engagement and organization |
▪ Further improvement in mobile CSI and NPS ▪ Early retirement / rejuvenation plan in progress ▪ Strong participation in Engagement survey (+12pp YoY) |
CSI (1) Q2 (2) +1% Q3 on top of +3% 3.4k exits in FY (2.8k in '19) Employee satisfaction score +16pp |
| Domestic KPIs stabilising |
▪ TIM best performer in MNP among big 3; best balance in 2 years ▪ Fix the fixed strategy delivering results ▪ On track to stop losing lines in fixed |
MNP balance -43k Retail UBB net adds +72% YoY YTD line losses halved YoY |
| Brazil back to growth |
▪ ARPU growth in all segments ▪ Best NPS hike since 2017, back to Mobile Top of Mind after 13 years ▪ Strong growth in cash generation continues |
Service revenues +1.3% YoY EBITDA – CAPEX +8.5% YoY |
| EFCF AL >€2.5bn in 7 quarters |
▪ Organic debt reduction ongoing ▪ EFCF strong growth. Guidance confirmed |
Net Debt AL -€ 0.4bn QoQ, -€ 1.2bn YTD EFCF AL € 462m in Q3, +22% YoY |
4
(2) Including CSP cleaning, stopping washing machine effect, Consip renegotiation al lower prices, SME loyalty program and retention campaign
(3) Including Roaming and Visitors revenues
(4) Consensus estimates
6
FiberCop coverage of technical units(2)
Centers
EBITDA € 0.4bn
(1) Source: Boston Consulting Group
| YoY growth rates, IFRS 16 / After Lease |
Group | Domestic | Brasil | ||||
|---|---|---|---|---|---|---|---|
| 2020 | 2021-'22 | 2020 | 2021-'22 | 2020 | 2021-'22 | ||
| Organic Service revenues |
Mid single digit decrease |
Low single digit growth |
Mid to High single digit decrease |
Stable to Low single digit growth |
Mid single digit growth |
||
| Organic EBITDA AL |
Mid single digit decrease |
Low to Mid single digit growth |
Mid to High single digit decrease |
Low single digit growth |
EBITDA-Capex growth confirmed |
EBITDA margin ≥ 40% in '22 |
|
| CAPEX | ~€ 2.7bn in 2020 ~€ 2.9bn in 2021-22 |
||||||
| Eq FCF AL | Cumulated € 4.5 - 5.0 bn To be enhanced through inorganic actions presently not included |
||||||
| Adjusted Net Debt AL |
Excluding proceeds <€ 18bn by 2021, (1) from FiberCop stable in 2022 |
||||||
| Dividend | savings: €2.75 cents per share throughout 2020-2022 | ordinary: floor of € 1 cent per share, aim to distribute 20-25% of yearly Equity FCF subject to deleverage execution |
Organic data (1), IFRS 16, € m
No solidarity in Q3 '20 imply 1.4pp YoY drag and 4.2pp swing in the QoQ dynamic (3 days in Q3 '19 and 13 days in Q2 '20)
Positive regulatory ruling in Q3 '19 weighs 1.8pp
Net of discontinuities Q3 EBITDA YoY performance better than Q2
Q3 Net Debt improvement entirely organic (€110m spent on 5G licence vs. € 18m in '19)
Under IFRS16 debt reduction € 502m QoQ (+15% YoY), EFCF € 688m in Q3 (+12% YoY)
(1) Source: BCG estimate (2) UBB take up calculated on technical HHs covered by UBB (3) Equivalent to 90% of families with a fixed line
(4) CSI (Customer Satisfaction Index), Q3 '20 vs. Q2 '20 and Q2'20 vs Q4 '19, Consumer UBB customers
TIM Domestic
Fixed Service Revenues (FSR) improved YoY performance vs. Q2 and Q1. Further improvement expected for Q4
| ▪ | International Wholesale -1.8% vs. -3.9% in Q2 | Fixed pricing | Broadband ARPU | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| ▪ | Retail improving (-8.2% YoY vs. -12.5% in Q2) for: - lower line losses - Lower ARPU drag in YoY comparison - Improved ICT revenues (+18%) mainly for increased demand of cloud services |
Price benchmark Mass market published €/month 36 30 TIM |
35 30 Op.2 |
30 28 Op.3 |
prices, Oct. vs. Jun. 2020 27 Op.4 |
Price increase 30 Op.5 |
BB ARPU €/month |
-13.9% 25.4 Q2 '20 |
-3.9% YoY 25.3 Q3 '20 |
13 Q3 '20 Results
Stabilization of customer base key for turnaround: impact on MSR from CB reduction improved ~2pp QoQ
Customer Satisfaction Index improved another 1% QoQ
Net Promoter Score well above large operators'
Human net adds improved YoY
Calling customer base
CSI improved
MSR: trend YoY (-13.7%) is explained by:
~6pp drags affecting Q3 are expected ~4pp in Q4 and <1pp in '21
MTR price reduction explains -0.7pp drag
Handsets sales back to growth after the lockdown slowdown
ARPU reducing 1.7% YoY excluding 6.8pp of one offs, of which 4.7pp CSP cleaning and the rest from Roaming and Consip contract at lower prices
Consip contract renegotiated at higher prices. Benefit starting in 2021
(1) Net of deferred costs, on a cash view, the reduction reaches € 58m (-3.0% vs. -12.6% in Q2). Net of deferred costs, total OPEX amounts to € 1,888m in Q3 '20 and € 1,946m in Q3 '19. On a cash view, YoY changes differ in CoGS (+60%), Commercial (-21%), Industrial (-3%), G&A (-14%) and Labour (-9%) (2) Net of capitalized costs
(3) Includes other costs/provision and other income
Slight CAPEX increase due to expansion of addressable footprint in Italy (>3k new cabinets opened in white areas in Q3, 10k YTD), partly offset by further efficiencies
Brazilian tax benefits and FX more than offsetting domestic negative one offs(1)(€264m)
€305m YoY improvement excluding YoY swing in non recurring items
€ m; (-) = Cash generated, (+) = Cash absorbed, excluding call-outs
(1) Includes Inwit deconsolidation and monetization (2) Cash taxes and other includes license payments
Liquidity margin - After Lease view Cost of debt ~3.4%, flat QoQ, -0.2p.p. YoY
(1) € 23,954m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and reverse fair value valuations (€ 513m) and current financial liabilities (€ 1,102m), the gross debt figure of € 25,569m is reached
19 Q3 '20 Results
TIM Brasil
Reported data, R\$m
TIM implemented new work organization and restructured offices accordingly
Acceleration of public funding
| Vouchers | Funding - € bn |
Voucher value - € |
|---|---|---|
| Low income families |
~0.3 | 500 |
| Other clusters families |
~0.3 | 200 |
| 30 Mbps companies |
~0.1 | 500 |
| 1 Gbps companies |
~0.4 | 2,000 |
| Total | 1.1 |
Massive resources will directly and indirectly benefit the telco sector and TIM, thanks to its central role in improving Italy's sustainable growth
Actions
| Carbon neutral by 2030 |
|||||
|---|---|---|---|---|---|
| Data center transformation 3.2k physical servers decommissioned (25%) |
Network optimization 1k mobile sites modernized |
Eco-efficiency | +50% | ||
| E | Increased renewable energy on track for achieving +5pp target |
Sparkle: first data center provider certified in Greece for renewable energy |
Indirect emissions Renewable energy increase of weight on total energy (%) |
-70% +5pp /yr |
2025 |
| Successful engagement survey Score +16pp vs 2019 on 76% participation (vs 64%) |
Smart Working / Smart Building >40k employees in Smart Working |
Employees engagement | +14 p.p. | ||
| S 1,849 job rotations (~4% of domestic employees) |
Churn Millennials contained (<2%) | Reskilled people Churn of young employees |
2,000 <15% |
2022 | |
| G | New venture capital fund created by Tim Ventures with United Ventures, investing € 20m by YE |
New VC fund size IoT and Security services |
€ 50m | 2022 | |
| Launched «TIM Green» Line of reconditioned devices |
ICT business revenues increased +18% YoY in Q3 |
revenues Green smartphone |
+20% > 15% |
2024 | |
| On track on all targets |
FiberCop value to grow over time thanks to switch in the mix from copper towards fiber
| NewCo targets reconfirmed |
Revenues 2024 | 2020-24 sales | EBITDA 2024 |
|---|---|---|---|
| (Consolidated line by line in TIM domestic) | € 1bn |
CAGR c. 20% | € 0.4bn |
On track for revenues & EBITDA stabilization in 2021
Expect Q4 better than Q3
Financial and ESG guidance reiterated
Government and Next Generation EU Funds increase confidence in the telco sector's perspectives
Strategic initiatives on track
Reported data, € m, Rounded numbers
* Including cost of all leases
(1) € 28,703m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and reverse fair value valuations (€ 514m) and current financial liabilities (€ 1,102m), the gross debt figure of € 30,319m is reached
35 Q3 '20 Results
| NFP adjusted |
Fair value |
NFP accounting |
|
|---|---|---|---|
| GROSS DEBT | |||
| Bonds | 19,653 | 311 | 19,964 |
| Banks & EIB | 5,450 | - | 5,450 |
| Derivatives | 192 | 1,659 | 1,851 |
| Op. leases and long rent | 4,750 | - | 4,750 |
| Other | 274 | - | 274 |
| TOTAL | 30,319 | 1,970 | 32,289 |
| FINANCIAL ASSETS | |||
| Liquidity position | 3,908 | - | 3,908 |
| Other (1) | 942 | 1,807 | 2,749 |
| TOTAL | 4,850 | 1,807 | 6,657 |
| NET FINANCIAL DEBT | 25,469 | 163 | 25,632 |
* Refers to positive MTM derivatives (accrued interests and exchange rate) for € 801m, financial receivables for lease for € 76m and other credits for € 65m
Average m/l term maturity: 6.8 years (bond 7.1 years only)
Fixed rate portion on medium-long term debt ~70%
Around 26% of outstanding bonds (nominal amount) denominated in USD and GBP and fully hedged
ESG Guidance
| 2020-'22 | 2025 | |||
|---|---|---|---|---|
| CO2 eq. emissions reduction vs 2019 | -30% | -70% | Carbon neutral 2030 |
|
| Environment | Eco-efficiency | +50% | ||
| Renewable energy +5pp / year % increase of weight on total energy Employees engagement +14p.p.(1) |
||||
| Social | ||||
| Reskilled people | 2,000 | |||
| Refurbished smartphones | increase | >15%(2) | ||
| Governance | KPI Supply Chain | Reinforce ESG KPIs in supply chain Increase eco-materials |
(+39) 06 3688 1 // (+39) 02 8595 1
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