Quarterly Report • May 19, 2021
Quarterly Report
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Organic results:
EQUITY FREE CASH FLOW AFTER LEASE UP 57% YOY IN Q1, TO € 0.3 BN
REVENUES STABLE YOY
DEBT REDUCTION CONTINUES IN LINE WITH THE PLAN OBJECTIVES: -€ 5.6 BN YOY (-€ 5.1 BN ON AN AFTER LEASE BASIS)
AGREEMENT SIGNED WITH DAZN FOR DISTRIBUTION OF THE 'SERIE A' FOOTBALL CHAMPIONSHIP ON TIMVISION
Rome, May 19, 2021
TIM's Board of Directors met today under the chairmanship of Salvatore Rossi and approved the Financial Report at March 31, 2021.
In the first quarter, the new 2021-2023 'Beyond Connectivity' strategic plan was launched which accelerated the development of digital services and strategic agreements in both the consumer and business markets. At the same time the process of stabilizing revenues and operating indicators continued, in addition to cash generation and debt reduction.
Net financial debt as at March 31, 2021 fell by 5,590 million euros YoY, (5,120 million euros on an After Lease basis) to 21,155 million euros, (16,591 million euros on an After Lease basis). Equity free cash flow contributed 469 million euros (307 million euros on an After Lease basis).
Further significant progress was recorded in the implementation of strategic initiatives:
▪ Development of the convergent offer and TIMVISION: TIM and DAZN have entered into a partnership that will bring to TIMVISION dedicated offers for the DAZN service, the only streaming platform that will broadcast all the 'Serie A' matches for the 2021-2024 seasons to an audience of around 5 million households, until now delivered mainly via satellite. This agreement, which will come into effect in July 2021, Is expected to speed up the users' transition to ultrabroadband. At the same time the agreement will strengthen the country's digitization process and support the Serie A Lega Calcio in the fight against piracy, which in the last few days took an important step forward thanks to the extraordinary work of the Polizia Postale and the Public Prosecutor's Office of Catania, resulting in 1.5 million subscriptions to illegal streaming services being blocked.
▪ Fiber network: the agreement for KKR Infrastructure and Fastweb to enter the share capital of FiberCop is complete. The new company, through adoption of the co-investment scheme, will speed up closure of the digital divide with the aim of reaching around 75% of property units in the gray and black areas of the country via FTTH. In accordance with the European Electronic Communications Code, last January 29, TIM presented to AGCom and to the market the fiber coinvestment offer for FiberCop's secondary network of, which is currently in the public consultation phase.
▪ Mobile network: TIM is among the first operators in Europe and the only one in Italy to launch the Open RAN (Open Radio Access Network) deployment program to innovate the mobile access network. This initiative will see the Group implement new solutions on its commercial network to benefit customers and businesses thereby speeding up the deployment of digital services. The initiative is covered by the signing of a Memorandum of Understanding last February with the main European operators to promote Open RAN technology with the aim of speeding up the implementation of new generation mobile networks, in particular 5G, Cloud and Edge Computing. The development of Open RAN solutions, in line with the TIM 2021-2023 'Beyond Connectivity' plan objectives, combines the potential of the cloud and Artificial Intelligence with the evolution of the mobile network, further strengthening the security standards, improving network performances and optimizing costs, in order to provide ever more advanced digital services.
▪ Launch of Noovle, the biggest Cloud project for Italy: the establishment of Noovle S.p.A. was announced last January 25, a new company wholly owned by the TIM Group to serve the market as a center of excellence for Cloud and Edge computing, with the aim of enhancing TIM's offering with innovative public, private and hybrid Cloud services for businesses (from small and mediumsized enterprises to large industries and government bodies), thus boosting Italy's digital transformation.
▪ Launch of the Smart District project with the TIM factories: in line with the 'Beyond Connectivity' plan, the organizational transformation of TIM has started, moving it towards a specialization model for the Group's factories in areas of specific expertise with the aim of consolidating TIM as a reference supplier and quality top partner of integrated solutions for SMEs and large companies. This approach led to the launch of the 'Smart District' program aimed at speeding up the digitization of companies in the over 140 Italian industrial districts (25% of the national production system) where TIM will offer ultrabroadband connectivity combined with innovative services of Noovle (Cloud and Edge computing), Olivetti (IoT), Telsy (Cybersecurity) and Sparkle (international services).
▪ In Brazil: an agreement was signed to develop the fiber network with the industrial partner IHS Fiber Brasil, which will acquire a stake in the newco FiberCo, owner of the secondary fiber network and valued at 2.6 billion reais (enterprise value, corresponding to a multiple of 21x EBITDA). The agreement will speed up the rollout of the fiber network, with the aim of reaching 8.9 million households in the next 4 years and will result in the deconsolidation of the related assets from TIM Brasil which will maintain 49% of the company and decisions concerning the rollout of the network. The transaction, which is subject to the standard authorizations of the relevant Authorities (Anatel and Cade), involves a payment to FiberCo of around 0,6 billion reais (approx. 93 million euros) and to TIM of around 1.0 billion reais (approx. 160 million euros), contributing to financing the acquisition of part of the mobile business of Oi, which is expected to get the green light from the Italian Competition Authority by Q4 2021.
▪ Nasdaq Sustainable Bond Network: in March TIM joined the sustainable finance platform managed by Nasdaq which brings together investors, issuers, investment banks and specialized organizations. By participating in this initiative, TIM confirms its commitment to a more sustainable future, taking another important step along the route embarked on by the company after the publication of the Sustainability Financing Framework and last January's issue of the first, 1 billion euros, Sustainability Bond, with the lowest coupon in TIM's history (1.625%).
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 comparable |
Change % |
|---|---|---|---|
| Organic results (1) | (a) | (b) | |
| TOTAL REVENUES | 3,752 | 3,752 | 0.0 |
| Domestic | 3,101 | 3,121 | (0.6) |
| Brazil | 658 | 639 | 3.0 |
| Other activities, adjustments and eliminations | (7) | (8) | — |
| SERVICE REVENUES | 3,387 | 3,476 | (2.5) |
| Domestic | 2,753 | 2,864 | (3.9) |
| o/w Wireline | 2,138 | 2,149 | (0.5) |
| o/w Mobile | 757 | 853 | (11.3) |
| Brazil | 641 | 620 | 3.3 |
| Other activities, adjustments and eliminations | (7) | (8) | — |
| EBITDA | 1,578 | 1,599 | (1.3) |
| Domestic | 1,276 | 1,310 | (2.6) |
| Brazil | 304 | 290 | 4.8 |
| Other activities, adjustments and eliminations | (2) | (1) | — |
| EBITDA After Lease | 1,383 | 1,406 | (1.7) |
| Domestic | 1,151 | 1,182 | (2.6) |
|---|---|---|---|
| Brazil | 234 | 225 | 3.9 |
| Other activities, adjustments and eliminations | (2) | (1) | — |
| CAPEX | 691 | 545 | 26.8 |
| Domestic | 490 | 408 | 20.1 |
| Brazil | 201 | 137 | 46.5 |
(1) The organic results exclude non-recurring items and the comparable base is calculated net of the foreign currency translation and the change in the scope of consolidation.
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 |
% Change |
|---|---|---|---|
| (a) | (b) | ||
| Equity Free Cash Flow | 469 | 466 | 0.6 |
| Equity Free Cash Flow After Lease | 307 | 195 | 57.4 |
| Net financial debt (2) | 21,155 | 26,745 | (20.9) |
| Net Financial Debt After Lease(2) | 16,591 | 21,711 | (23.6) |
(2) Adjusted net financial debt. The change in the fair value of derivatives and related financial liabilities/assets is adjusted by the booked Net Financial Debt with no monetary effect.
Implementation of the commercial strategy continued, which has been producing starting from Q4 2020, the stabilization of fixed service revenues and greater satisfaction and loyalty in the mobile market. In the first quarter, the main commercial indicators show a further improvement in customer satisfaction and the consequent reduction of the churn rate in both the fixed segment and the mobile segment, the latter at the lowest levels in the last 14 years.
The total number of TIM mobile lines was 30.2 million, up on the previous quarter by 52 thousand lines. In a market that is still competitive in the low end (low-spending customers), the stabilization trend of the customer base continued: in terms of 'mobile number portability' (i.e. the flow to other operators, amounting to -74 thousand lines) for the third consecutive quarter TIM posted the best result among infrastructured operators. At the same time the sector saw the portability flows reduce overall by 18% YoY, demonstration of the cooling of the competitive intensity in the high end of the market (high-spending customers).
In the fixed line segment, the migration of the customer base towards ultrabroadband is accelerating, boosted by an increasingly rich and convergence-oriented portfolio of offering, support for demand through public vouchers and the speed-up of fiber optic coverage, in particular in white areas, which resulted in ultrabroadband coverage for over 92% of Italian households with a landline.
In Q1 2021, 424 thousand new retail and wholesale ultrabroadband lines were activated (retail +119% YoY), reaching 9.1 million units – up 23% YoY.
Group revenues in the quarter stood at 3.8 billion euros, in line with Q1 2020. Revenues from domestic fixed telephony increased by 3% YoY.
Group revenues from services were 3.4 billion euros, with year on year performance (-2.5%) improving compared to the drop recorded in 2020 (-5.6%).
In the Business segment, revenue growth associated with innovative services (ICT, Cloud, IT solutions) accelerated (+30% YoY), also thanks to the positive contribution of the partnership with Google Cloud.
In Domestic Wholesale, fixed service revenues in Q1 2021 increased by 8.7%, benefiting from the continuous migration of customers to ultrabroadband.
In Brazil, service revenues continued to rise (+3.3% YoY), driven by strong commercial performance with a positive effect on the customer base trend and average prices. The efficiencies achieved helped to grow the organic EBITDA by 4.8% YoY (+3.9% on an after lease basis).
The Group's organic EBITDA was 1.6 billion euros (-1.3% YoY) and that of the Domestic Business Unit 1.3 billion euros, -2.6% YoY compared to the previous year. Both results recorded growth net of some discontinuities concerning labor costs, for example application of the expansion contract, already present in Q1 2020 and which in this financial year will start from May.
The cost containment actions led to a further consistent reduction on the previous year (-8.9% YoY on an addressable basis).
After Lease EBITDA was 1.4 billion euros (-1.7% YoY): 1.2 billion euros for the Domestic Business Unit (-2.6% YoY) and 0.2 billion euros for TIM Brasil (+3.9% YoY).
At Group level, investments stood at 0.7 billion euros, in line with the plan and with a rising trend in the quarter (+26.8% YoY) linked to the slowdown attributable to COVID-19 in Q1 2020 and the effort made in 2021 to speed up the growth and transformation processes in Italy (fiber networks, Cloud & Data center, partnership with DAZN) and Brazil.
The net result stood at -0.2 billion euros due to the effect of non-recurring items (-0.3 billion euros) and, in particular, the provision for the early retirement and voluntary redundancy of employees expected in the second quarter of this year (around 1,300 people). Net of this effect, net profit stood at 0.1 billion euros (0.1 billion euros in Q1 2020).
Despite the health emergency, TIM has continued its plan for the digitalization of the country. With a view to addressing social distancing requirements, the interruption of in-person services, the block on mobility and the interruption to school and education services, TIM has moved forward with its initiatives to support citizens, companies and institutions. The main actions that were pursued during the first quarter of this year are set out below:
■ In Q1 2021, 1,518 cabinets were implemented taking the total number of municipalities that have benefited from fiber coverage interventions since March 2020 to more than 3,800.
■ E-learning card continues, the offer available to all prepaid TIM mobile telephony customers that allows them to browse the main e-learning platforms, without limits or costs. In all, 189 thousand customers have the e-learning card activated and 27 thousand new activations were recorded from January to March 2021.
■ A national survey was run by Instituto TIM to assess the impact of COVID on teachers' mental health.
Undertakings concerning social, environment and governance (ESG) aspects, included in the 2021-2023 Strategic Plan, represent the Group's solid promise of achieving the objectives of the 2030 Agenda. Moreover, the managerial incentive plans are enriched with objectives linked to gender diversity and pay equality, flanking these with lesser wastage of natural resources, the fight against climate change and engaging TIM's people. Finally, sustainability governance has also been strengthened, with the definition of the Sustainability Committee early April, including the task of monitoring the consistency of TIM's objectives and management with ESG criteria.
During the quarter, TIM has brought its sources of finance into line with the Strategic Plan, successfully placing the Group's very first Sustainability Bond also thanks to the Group's presence in the main sustainability indexes and ratings.
The first quarter 2021 results will be presented to the financial community during the webcast and audio conference on May 20, 2021. The event will start at 1.00 p.m. (Italian time). The presentation will be followed by a Q&A session. Reporters can follow the presentation by telephone and via the web, without the option to ask questions, by calling +39 06 33444 and following the instructions for assisted conferences or by connecting to the following link. The presentation slides will be available at link.
TIM Press Office +39 06 3688 2610 https://www.gruppotim.it/media/eng Twitter: @TIMnewsroom
+39 06 3688 2807 https://www.gruppotim.it/investor\_relations
***
TIM voluntarily writes and publishes periodic financial information referring to the first and third quarter of each year as part of its corporate policy on regular financial and operating performance disclosure addressed to the market and to investors, in line with the best market practices.
The consolidated figures of the TIM Group presented in this periodic financial information at March 31, 2021 have been prepared in compliance with the International Financial Reporting Standards issued by the IASB and endorsed by the EU; such figures are unaudited.
The accounting policies and consolidation principles adopted are consistent with those applied for the TIM Group Consolidated Financial Statements at December 31, 2020, to which reference should be made, except for the changes to the accounting standards issued by the IASB and in force as of January 1, 2021.
TIM Group, in addition to the conventional financial performance measures established by the IFRS, uses certain alternative performance measures in order to present a better understanding of the trend of operations and financial condition. Specifically, these alternative performance measures refer to: EBITDA; EBIT; organic change and impact of non-recurring items on revenues, EBITDA and EBIT; EBITDA margin and EBIT margin; and net financial debt carrying amount and adjusted net financial debt; Equity Free Cash Flow. Following the adoption of IFRS 16, the TIM Group also presents the following additional alternative performance measures:
In line with the ESMA guidance on alternative performance measures (Guidelines ESMA/2015/1415), the meaning and contents of such are explained in the annex and the analytical detail of the amounts of the reclassifications introduced and of the methods for determining indicators is provided.
Lastly, the section entitled "Business Outlook for the year 2021" contains forward-looking statements in relation to the Group's intentions, beliefs or current expectations regarding financial performance and other aspects of the Group's operations and strategies. Readers of this release are reminded not to place undue reliance on forwardlooking statements; in fact, actual results may differ significantly from forecasts owing to risks and uncertainties depending on numerous factors, the majority of which are beyond the scope of the Group's control. Please refer to the chapter "Main risks and uncertainties" and the contents of the Annual Financial Report at December 31, 2020 for more information. It provides a detailed description of the major risks pertaining to the TIM Group business activity which can, even considerably, affect its ability to meet the set goals.
The following were the main corporate transactions implemented during the first quarter of 2021:
The following should also be noted:
■ TIMFin S.p.A.: on January 14, 2021, it was registered with the Register of Financial Intermediaries pursuant to Art. 106 of the CLB.
During the first quarter of 2020, the main change in the scope of consolidation was as follows:
■ Infrastrutture Wireless Italiane S.p.A. (INWIT) (Domestic Business Unit): on March 31, 2020 the merger by incorporation of Vodafone Towers S.r.l. into INWIT S.p.A. was completed. The transaction, which enabled the creation of Italy's leading tower operator, entailed the dilution of the TIM Group's stake in the capital of INWIT from 60% to 37.5%; therefore, as of March 31, 2020, INWIT S.p.A. is accounted for using the equity method. Starting from the Consolidated Financial Statements as at December 31, 2019 and until the completion of the aforementioned merger INWIT S.p.A. was presented as an "Asset held for sale"; therefore, TIM Group consolidated economic data and cash flows for the first quarter of 2020 include data of INWIT S.p.A. for the first quarter of 2020, net of amortization and depreciation for the period, as required by IFRS 5. Also note that during FY 2020, additional stock packets were transferred, corresponding to 7.3% of INWIT share capital. Consequently, at March 31, 2021, TIM Group's investment held in INWIT was 30.2%.
Total TIM Group revenues for the first quarter of 2021, amounted to 3,752 million euros, -5.3% compared to the first quarter of 2020 (3,964 million euros); in organic terms, total revenues were stable as compared with the first quarter of 2020.
The breakdown of total revenues for the first quarter of 2021, by operating segment in comparison with the first quarter of 2020 is as follows:
| (million euros) | 1st Quarter 2021 | 1st Quarter 2020 | Changes | ||||
|---|---|---|---|---|---|---|---|
| % weight | % weight | absolute | % | % organic excluding non-recurring |
|||
| Domestic | 3,101 | 82.6 | 3,113 | 78.5 | (12) | (0.4) | (0.6) |
| Brazil | 658 | 17.5 | 859 | 21.7 | (201) | (23.4) | 3.0 |
| Other Operations | — | — | 3 | 0.1 | (3) | ||
| Adjustments and eliminations | (7) | (0.1) | (11) | (0.3) | 4 | ||
| Consolidated Total | 3,752 | 100.0 | 3,964 | 100.0 | (212) | (5.3) | — |
The organic change in the Group's consolidated revenues is calculated by excluding the negative effect of exchange rate changes1 (-224 million euros), the changes in the scope of consolidation (INWIT) (-3 million euros) as well as non-recurring items. In particular, the first quarter of 2020 was affected by adjustments of nonrecurring revenues for -15 million euros, connected with the commercial initiatives of TIM S.p.A. to support customers in dealing with the COVID-19 emergencies.
TIM Group EBITDA for the first quarter of 2021 came to 1,177 million euros (1,735 million euros in the first quarter of 2019, -1.3% in organic terms).
The breakdown of EBITDA and the EBITDA margin broken down by operating segment for the first quarter of 2021 compared with the first quarter of 2020, are as follows:
| (million euros) | 1st Quarter 2021 | 1st Quarter 2020 | Changes | ||||
|---|---|---|---|---|---|---|---|
| % weight | % weight | absolute | % | % organic excluding non-recurring |
|||
| Domestic | 875 | 74.3 | 1,346 | 77.6 | (471) | (35.0) | (2.6) |
| % of Revenues | 28.2 | 43.2 | (15.0) pp | (0.9) pp | |||
| Brazil | 304 | 25.8 | 390 | 22.5 | (86) | (22.1) | 4.8 |
| % of Revenues | 46.3 | 45.5 | 0.8pp | 0.8pp | |||
| Other Operations | (2) | (0.1) | (2) | (0.1) | — | ||
| Adjustments and eliminations | — | — | 1 | — | (1) | ||
| Consolidated Total | 1,177 | 100.0 | 1,735 | 100.0 | (558) | (32.2) | (1.3) |
1The average exchange rates used for the translation into euro (expressed in terms of units of local currency per 1 euro) were 6.59747 for the Brazilian real in the first quarter of 2021 and 4.90557 in the first quarter of 2020; for the US dollar, the average exchange rates used were 1.20520 in the first quarter of 2021 and 1.10298 in the first quarter of 2020. The effect of the change in exchange rates is calculated by applying the foreign currency translation rates used for the current period to the period under comparison.
Organic EBITDA - net of the non-recurring items amounted to 1,578 million euros; the EBITDA margin was 42.1% (1,599 million euros in the first quarter of 2020, with an EBITDA margin of 42.6%).
Q1 2021 EBITDA suffered non-recurring expenses for a total of 401 million euros (34 million euros in Q1 2020, already net of the changes to scope of 5 million euros) mainly relating to employee benefits expenses, also connected with the application of Art. 4 of Italian Law 92 of June 28, 2012, as defined by the Trade Union Agreement signed by the Parent Company TIM S.p.A. and the Trade Union Organizations. Non-recurring expenses also include provisions for disputes, transactions, regulatory sanctions and potential liabilities related to them, as well as expenses connected with agreements and the development of non-recurring projects as well as provisions linked to the management of credits following the worsening of the macroeconomic context as a result of the COVID-19 health emergency.
Non-recurring expenses for the first quarter of 2021 connected with the COVID-19 emergency total 12 million euros (26 million euros during the first quarter of 2020).
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 |
Changes | |
|---|---|---|---|---|
| absolute | % | |||
| EBITDA | 1,177 | 1,735 | (558) | (32.2) |
| Foreign currency financial statements translation effect | (101) | 101 | ||
| Changes in the scope of consolidation | (69) | 69 | ||
| Non-recurring expenses/(income) | 401 | 34 | 367 | |
| ORGANIC EBITDA - excluding non-recurring items | 1,578 | 1,599 | (21) | (1.3) |
| % of Revenues | 42.1 | 42.6 | (0.5) pp |
Organic EBITDA, net of the non-recurring component, is calculated as follows:
TIM Group EBIT for the first quarter of 2021 was 45 million euros (533 million euros in the first quarter of 2020).
Organic EBIT, net of the non-recurring component, amounted to 446 million euros (467 million euros for the first quarter of 2020), with an EBIT margin of 11.9% (12.4% for the first quarter of 2020).
Organic EBIT, net of the non-recurring component, is calculated as follows:
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 |
Changes | |
|---|---|---|---|---|
| absolute | % | |||
| EBIT | 45 | 533 | (488) | (91.6) |
| Foreign currency financial statements translation effect | (27) | 27 | ||
| Changes in the scope of consolidation | (73) | 73 | ||
| Non-recurring expenses/(income) | 401 | 34 | 367 | |
| ORGANIC EBIT - excluding non-recurring items | 446 | 467 | (21) | (4.5) |
Exchange rate fluctuations mainly related to the Brazil Business Unit.
Net profit attributable to Owners of the Parent for the first quarter of 2021, was -216 million euros (+560 million euros in the first quarter of 2020), excluding the impact of non-recurring items, the net profit for the first quarter of 2021 is 94 million euros (145 million euros in the first quarter of 2020).
The personnel of the TIM Group at March 31, 2021 are 52,194 units, of which 42,759 in Italy (52,347 units at December 31, 2020, of which 42,680 in Italy), with a reduction of 153 units compared to December 31, 2020 (in Italy + 79 units). Compared to March 31, 2020 the reduction was 2,775 units.
Capital expenditures for the first quarter of 2021, were 691 million euros (599 million euros in the first quarter of 2020).
Capex is broken down as follows by operating segment:
| (million euros) | 1st Quarter 2021 | % weight | 1st Quarter 2020 | % weight | Change |
|---|---|---|---|---|---|
| Domestic | 490 | 70.9 | 414 | 69.1 | 76 |
| Brazil | 201 | 29.1 | 185 | 30.9 | 16 |
| Other Operations | — | — | — | — | — |
| Adjustments and eliminations | — | — | — | — | — |
| Consolidated Total | 691 | 100.0 | 599 | 100.0 | 92 |
| % of Revenues | 18.4 | 15.1 | 3,3pp |
In particular:
The Group Operating Free cash flow for Q1 2021 is positive for 755 million euros (788 million euros in the first quarter of 2020).
Adjusted net financial debt amounted to 21,155 million euros at March 31, 2021, a decrease of 2,171 million euros compared to December 31, 2020 (23,326 million euros). The reduction was a result of not only the solid operating cash generation, obtained partly thanks to the optimization of working capital, but also of the conclusion of the purchase by KKR Infrastructure of 37.5% of FiberCop from TIM , as announced last August 31, for an equivalent value of 1,758 million euros.
For a better understanding of the information, the table below shows the various ways by which the Net Financial Debt can be shown:
| (million euros) | 3/31/2021 | 12/31/2020 | Changes |
|---|---|---|---|
| (a) | (b) | (a-b) | |
| Net financial debt carrying amount | 21,672 | 23,714 | (2,042) |
| Reversal of fair value measurement of derivatives and related financial liabilities/assets |
(517) | (388) | (129) |
| Adjusted net financial debt | 21,155 | 23,326 | (2,171) |
| Leasing | (4,564) | (4,732) | 168 |
| Adjusted net financial debt - After Lease | 16,591 | 18,594 | (2,003) |
Net financial debt carrying amount amounted to 21,672 million euros at March 31, 2021, a decrease of 2,042 million euros compared to December 31, 2020 (23,714 million euros). Reversal of the fair value measurement of derivatives and related financial liabilities/assets recorded a change of 129 million euros compared to December 31, 2020 substantially following the fall in US dollar interest rates and the relevant revaluation of hedging on US currency bonds. This change is adjusted by the booked Financial Debt with no monetary effect.
Adjusted Net Financial Debt – After Lease (net of the impact of all leases), which is a parameter adopted by main European peers, was equal to 16,591 million euros at March 31, 2021, down by 2,003 million euros compared to December 31, 2020 (18,594 million euros). The reduction is lower than shown in the adjusted net financial debt, as the effects of the exchange rate on the payables due to IFRS 16 of Brazil, are not considered.
The TIM Group's available liquidity margin amounted to 10,356 million euros, equal to the sum of:
This margin is sufficient to cover Group financial liabilities (current and otherwise) falling due over the next 30 months.
It should be noted that sales without recourse of trade receivables to factoring companies completed during the first quarter of 2021 resulted in a positive effect on the adjusted net financial debt at March 31, 2021, amounting to 1,396 million euros (1,970 million euros at December 31, 2020).
Domestic Business Unit revenues amounted to 3,101 million euros, down 12 million euros (-0.4%) compared to Q1 2020. In organic terms, they reduce by 20 million euros (-0.6% on Q1 2020); in particular, revenues for the first quarter of 2020 were affected by non-recurring items for 15 million euros mainly referring to adjustments of revenues connected to TIM S.p.A.'s commercial initiatives to support customers in facing the COVID-19 emergency.
Revenues from stand-alone services come to 2,753 million euros (-108 million euros compared to the first quarter of 2020, -3.8%) and suffer the impact of the competition on the customer base, as well as a reduction in ARPU levels; in organic terms, net of the above-specified non-recurring item, they drop by 111 million euros compared to the first quarter of 2020 (-3.9%).
In detail:
Revenues for Handset and Bundle & Handset, including the change in work in progress, are equal, in organic terms, to 348 million euros for the first quarter of 2021, with an increase of 91 million euros compared to the first quarter 2020, for the most part attributable to the Fixed segment.
The performance of the individual market segments of the Domestic Business Unit compared to the first quarter of 2020 was as follows:
Revenues for Handsets and Bundles & Handsets in the Consumer segment amounted to 213 million euros, +61 million euros compared to the first quarter of 2020 (+39.6%), concentrated on the mobile sector following the change in the product sales strategy, focused on protecting margins. The restrictions on circulation during the 2020 lock-down period due to the COVID-19 health emergency also had an impact on YoY performance.
Domestic Business Unit EBITDA for Q1 2021 totaled 875 million euros (-471 million euros compared to the first quarter of 2020, -35.0%), with a margin of 28.2% (-15.0 percentage points compared to the same period of 2020).
Organic EBITDA, net of the non-recurring component, amounted to 1,276 million euros (-34 million euros compared to the first quarter of 2020, -2.6%). In particular, EBITDA for Q1 2021 reflected a total impact of -401 million euros referring to non-recurring items, of which -12 million euros related to the COVID-19 emergency in Italy. Moreover, non-recurring expenses include charges connected with corporate reorganization/restructuring processes, provisions for disputes, regulatory sanctions and potential liabilities and expenses connected with agreements and the development of non-recurring projects.
Organic EBITDA, net of the non-recurring component, is calculated as follows:
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 |
Changes | |
|---|---|---|---|---|
| absolute | % | |||
| EBITDA | 875 | 1,346 | (471) | (35.0) |
| Foreign currency financial statements translation effect | — | (1) | 1 | |
| Changes in the scope of consolidation | — | (69) | 69 | |
| Non-recurring expenses (Income) | 401 | 34 | 367 | |
| ORGANIC EBITDA - excluding non-recurring items | 1,276 | 1,310 | (34) | (2.6) |
Domestic Business Unit EBIT for Q1 2021 totaled -43 million euros (-473 million euros compared to the first quarter of 2020), with a margin of -1.4% (-15.2 percentage points compared to the first quarter of 2020).
Organic EBIT, net of the non-recurring component, amounted to 358 million euros (-33 million euros compared to the first quarter of 2020, -8.4%), with a margin of 11.5% (12.5% for the first quarter of 2020). Organic EBIT, net of the non-recurring component, is calculated as follows:
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 |
Changes | |
|---|---|---|---|---|
| absolute | % | |||
| EBIT | (43) | 430 | (473) | — |
| Changes in the scope of consolidation | — | (73) | 73 | |
| Non-recurring expenses (Income) | 401 | 34 | 367 | |
| ORGANIC EBIT - excluding non-recurring items | 358 | 391 | (33) | (8.4) |
The headcount amounted to 43,004 employees, an increase of 79 compared to December 31, 2020 (42,925).
Revenues for the first quarter of 2021 of the Brazil Business Unit (TIM Brasil group) amounted to 4,340 million reais (4,215 million reais on the first quarter of 2020, +3,0%), speeding up on the levels recorded from the third quarter of 2020.
The acceleration has been driven by service revenues (4,228 million reais vs 4,091 million reais for the first quarter of 2020, +3.3%) with mobile telephony service revenues at +2.8% on the first quarter of 2020. This performance is mainly related to the continuous recovery of the pre-paid and post-paid segments. Revenues from fixed telephony services have grown by 12.4% on the first quarter of 2020, determined above all by the growth rate of TIM Live.
Revenues from product sales totaled 112 million reais (124 million reais for the first quarter of 2020). The trend reflects the impact of the March 2021 store closures in many Brazilian cities due to the second wave of COVID-19. The sales policy is still focused more on value than on increasing sales volumes.
The mobile ARPU for Q1 2020 was 25.5 reais, up from the figure recorded in Q1 2020 (23.9 reais) thanks to general repositioning in the post-paid segment and new commercial initiatives intended to promote the use of data and average expenditure per customer.
Total mobile lines in place at March 31, 2021 amounted to 51.7 million, +0.3 million compared to December 31, 2020 (51.4 million). This variation was mainly driven by the postpaid segment (+0.4 million), partially offset by the performance in the prepaid segment (-0.1 million), in part due to the consolidation underway in the market
for second SIM cards. Post-paid customers represented 42.9% of the customer base as of March 31, 2021, 0.5 percentage points higher than at December 2020 (42.4%).
The TIM Live BroadBand business recorded net positive growth on March 31, 2020 in the customer base of 78 thousand users (+13.3%). In addition, the customer base continues to be concentrated on high speed connections, with more than 50% exceeding 100Mbps.
Q1 2021 EBITDA came to 2,008 million reais (1,916 million reais in Q1 2020, +4,8%) and the margin on revenues is equal to 46.3% (45.5% in Q1 2020).
The increase of EBITDA is due to the increase in revenue and cost control efficiency.
EBIT for the first quarter of 2021 amounted to 592 million reais (515 million reais for the first quarter of 2020, +15.0%).
In the first quarter of 2021, the spot exchange rate used for the translation into euro of the Brazilian real (expressed in terms of units of local currency per 1 euro) went from 6.3768 at December 31, 2020 to 6.68008 at March 31, 2021. This led, among other things, to the 27 million euro fall in the value of goodwill attributed to the Brazil Cash Generating Unit, expressed in euros.
Personnel totaled 9,177 units posting a reduction of 232 units compared to December 31, 2020 (9,409 units).
TIM Group, in addition to the conventional financial performance measures established by the IFRS, uses certain alternative performance measures in order to present a better understanding of the trend of operations and financial condition. In particular, following the adoption of IFRS 16, the TIM Group presents the following additional alternative performance measures:
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 |
Changes | |
|---|---|---|---|---|
| absolute | % | |||
| ORGANIC EBITDA - excluding non-recurring items | 1,578 | 1,599 | (21) | (1.3) |
| Lease payments | (195) | (193) | (2) | (1.2) |
| EBITDA adjusted After Lease (EBITDA-AL) | 1,383 | 1,406 | (23) | (1.7) |
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 |
Changes | |
|---|---|---|---|---|
| absolute | % | |||
| ORGANIC EBITDA excluding non-recurring items | 1,276 | 1,310 | (34) | (2.6) |
| Lease payments | (125) | (128) | 3 | 2.3 |
| EBITDA adjusted After Lease (EBITDA-AL) | 1,151 | 1,182 | (31) | (2.6) |
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 |
Changes | |
|---|---|---|---|---|
| absolute | % | |||
| ORGANIC EBITDA excluding non-recurring items | 304 | 290 | 14 | 4.8 |
| Lease payments | (70) | (65) | (5) | (8.2) |
| EBITDA adjusted After Lease (EBITDA-AL) | 234 | 225 | 9 | 3.9 |
| (million euros) | 3/31/2021 | 12/31/2020 | Change |
|---|---|---|---|
| Adjusted net financial debt | 21,155 | 23,326 | (2,171) |
| Leasing | (4,564) | (4,732) | 168 |
| Adjusted net financial debt - After Lease | 16,591 | 18,594 | (2,003) |
| (million euros) | 1st Quarter 2021 |
1st Quarter 2020 | Change |
|---|---|---|---|
| Equity Free Cash Flow | 469 | 466 | 3 |
| Leasing | (162) | (271) | 109 |
| Equity Free Cash Flow After Lease | 307 | 195 | 112 |
The guidance announced with the approval of the TIM 'Beyond Connectivity' 2021-2023 Strategic Plan is unchanged.
(see the press release issued on April 1, 2021)
The Revolving Credit Facility (RCF) was renewed in May until 2026 for the sum of € 4 bn, an amount in line with the group's current gross debt reduction. TIM has introduced sustainability targets on the new credit line making it the largest ESG Facility in the Telco sector.
(see the press release issued on May 14, 2021)
On May 17, 2021, TIM signed an agreement for the 2021-2022 expansion contract with the trade unions, at the Ministry of Labor. The agreement includes the following qualifying aspects: 650 permanent hires at TIM (330 in 2021 and 320 in 2022), plus a further 100 caring operators hired in the Group company TeleContact; training project focused on reskilling and paths to acquire new role-related skills.
As for the reduction in working hours, the agreement includes two distinct percentages relating to the organizational area of reference (-3.5% applied to 10,525 people; -12.1% applied to 24,194 people). The application period is 16 months (May 2021 – August 2022).
In April 2021, the Company entered into two loan agreements with Banks BNP and Bank of Nova Scotia, in the total amount of 1.1 billion reais, payable by April 2024.
On May 5, 2021, TIM S.A. informed its shareholders and the market in general that, at a meeting of the Company's Board of Directors held on that date, an agreement ("Agreement") was approved between TIM S.A. and IHS Fiber Brasil - Cessao de Infraestruturas Ltda. ("IHS"), in order to acquire an equity stake in FiberCo Soluções de Infraestrutura Ltda. ("FiberCo"), a vehicle established by the Company for the segregation of network assets and the provision of infrastructure services.
IHS is a large and diversified telecommunications infrastructure provider focused on emerging markets and operating in 9 countries in Africa, Middle East and Latin America. Besides owning more than 28 thousand towers, it also seeks expansion of the value chain in infrastructure services.
In the Agreement, TIM will sell 51% of FiberCo's share capital to IHS, and the remaining 49% will remain under the Company's control. The relationship between the shareholders will be governed by a shareholders' agreement to be entered into upon closing of the transaction.
FiberCo's initial asset base will consist of TIM's secondary network infrastructure contribution covering approximately 6.4 million households, of which 3.5 million are FTTH and 3.5 million FTTC. In addition, other assets, contracts and employees will be transferred to FiberCo, all exclusively related to its activities. These transfers will only take place after the Agreement is approved by the competent authorities.
In this context, the Enterprise Value of FiberCo was established at 2.6 billion reais. The transaction includes a primary component (609,000,000.00 reais) going to FiberCo's cash and secondary component (1,027,590,000 reais) to be paid to TIM.
FiberCo's mission is to deploy, operate and maintain last-mile infrastructure for broadband access to be offered in the wholesale market. Nevertheless, the terms of the agreement define TIM as anchor customer, having the prerogative of a 6 (six) months exclusivity period after the entrance in new areas.
This transaction is expected to support the Company's plan to accelerate the provision of fiber connectivity services to B2C and B2B customers. Accordingly, FiberCo's business plan is to reach 8.9 million FTTH households within 4 years. FiberCo will also participate in other infrastructure projects, such as FTTSite, together with TIM.
This transaction has always been seen by the company from an industrial perspective, seeking the evolution and growth of its broadband business. However, the positive financial and economic impacts cannot be left aside. It is expected that the deal will enable the Company to deconsolidate a relevant part of its CAPEX, causing a positive effect on its cash flow. In parallel, TIM expects to use the proceeds of this transaction to help meeting its investment obligations, such as the acquisition of Oi Mobile's assets.
This transaction is subject to the fulfillment of certain conditions precedent, including, among others, the contribution of assets described above and the obtaining of authorizations from the competent authorities, such as the Agência Nacional de Telecomunicações - ANATEL and the Conselho Administrativo de Defesa Econômica - CADE.
Risk governance is a strategic tool for value creation.
The TIM Group has adopted a Risk Management model that is constantly evolving, aligned with international regulations and standards, to allow the identification, assessment and management of risks in a uniform way within Group companies, highlighting potential synergies between the actors involved in the assessment of the internal control and risk management system.
The Risk Management process is designed to identify potential events that may affect the business, to manage risk within acceptable limits and to provide reasonable assurance regarding the achievement of corporate objectives.
The Risk Management Model adopted by the TIM Group
The business outlook for 2021 could be affected by risks and uncertainties caused by a multitude of factors, the majority of which are beyond the Group's control.
In this context we highlight the health emergency due to the spread of COVID-19. In addition, non-exhaustively, the following additional factors are mentioned: a change in market context, entry of new potential competitors in the fixed-line and mobile sphere, the initiation of procedures by Authorities and consequent delays in the implementation of new strategies, any constraints connected to the exercise of the Golden Power by the Government with effects – currently not foreseeable – in terms of strategic choices and progress of the already announced three-year objectives which may entail, for some, different timing than that initially scheduled or relative achievement with new and more articulated paths.
The continued health emergency for the spread of COVID-19 and the restrictive orders issued by national and foreign authorities, coupled with the worsening of the global macroeconomic scenario and the risk of deterioration of the credit profile of certain customer segments, could lead to slowdowns in business activities, deriving from the limitation of certain types of technical and commercial interventions, difficulties encountered by customers and discontinuity in the supply chain, with negative impacts on the overall results of the Group.
Also in consideration of the public service provided, the management of this emergency requires all possible actions to be taken relating to the operational continuity of business processes with the aim of ensuring the functionality of the services provided and the protection of employees' health.
The TIM Group's economic and financial situation depends on the influence of numerous macroeconomic factors such as economic growth, consumer confidence, interest rates and exchange rates in the markets where it operates.
The last quarter of 2020 recorded a decline in the GDP of 1.9% (-6.6% on the fourth quarter of 2019) caused by the negative contribution of the demand of families and export demand. At present, uncertainties surrounding
the vaccination campaign and the third wave in progress with the consequent restrictions, albeit with different levels of intensity in the different regions, are slowing the return to normality.
In general, in 2020 the Italian economy suffered more than other Eurozone countries in respect of the COVID-19 emergency (Italy's GDP estimate is -9.1% vs 2019; EMU GDP estimate is -7% vs 2019). The global context continues to be dominated by the difficulties and uncertainties deriving from the evolution of the pandemic and the timing of vaccination campaigns, which affect growth forecasts for the next few years. For 2021, forecasts see growth of the GDP of around 4.5% (Prometeia 4.8%, IMF April outlook 4.2%) with a recovery only expected starting from the second quarter of 2021, as the vaccines are progressively rolled out and expansive monetary and tax policies maintained. If there are no delays in the implementation of the Next Generation EU program, this should stimulate investments starting 2021. The pandemic has brought about a major decline in both production and family consumptions.
Consumption has contracted significantly, especially in the services sector, as a result of the measures adopted to limit contagion and a greater caution by consumers in spending during the pandemic. The Italian government's measures to limit the contagion and support household incomes will have a positive impact on demand, and have also led to a severe increase in public debt, which came to 157% of the GDP in 2020, up 21 p.p. on 2019. Forecasts expect to see a slight reduction in the debt/GDP by 2023 of around 6 p.p. In 2021 too, public accounts will be impacted by major budget allocations (approximately 100 billion euros) destined to fight the recession effects of the crisis. Various measures have already been launched, including the Support Decree for a total of 32 billion euros, dedicated above all to businesses.
In Brazil, after three years of modest growth, the 4.1% decline of the GDP in 2020 was influenced significantly by the COVID-19 pandemic emergency and the restrictions imposed to limit its spread, the lock-downs and social distancing measures that have brought about a general commercial and economic contraction, particularly if compared with the 1.1% growth seen in 2019.
After a devastating first half of 2020, when the pandemic led to the closure of commercial activities, major restrictions in travel and a considerable outflow of capital, which had already begun in 2019, the scenario in the second half of the year changed and the third quarter recorded strong GDP growth. 2020 has not recovered the level of activities at end 2019, but the impact was less than initially expected.
Recently, following the adoption of strict measures restricting travel and calling for social distancing, in a bid to reduce the transmission of COVID-19, the gradual relaxation of restrictions and return to economic activities, coupled with the financial support offered by the government have helped assure a slight recovery in the second half of 2020. It is not yet possible, however, to predict if the Brazilian economy and the results of TIM Brasil will return to pre-crisis levels.
The Executive responsible for preparing the corporate financial reports, Giovanni Ronca, hereby declares, pursuant to subsection 2, Art. 154 bis of Italy's Consolidated Law on Finance, that the accounting information contained herein corresponds to the company's documentation, accounting books and records.
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