Investor Presentation • Feb 6, 2017
Investor Presentation
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FY'16 Preliminary Results + 2017-'19 Plan February 6, 2017
Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso
This presentation contains statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this presentation and include 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. Consequently, TIM makes no representation, whether expressed or implied, as to the conformity of the actual results with those projected in the forward looking statements.
Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the date hereof, but forward looking information by its nature involves risks and uncertainties, which are outside our control, and could significantly affect expected results. Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. TIM undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in TIM business or acquisition strategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors should consult the Company's Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission which may identify factors that affect the forward looking statements included herein.
The 2016 preliminary financial results of the TIM Group and the data of the previous years provided for comparison purposes, were drafted in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board and endorsed by the European Union (designated as "IFRS").
The accounting policies and consolidation principles adopted in the preparation of the preliminary financial results for 2016 FY and the 2017-2019 Industrial Plan have been applied on a basis consistent with those adopted in the Annual Consolidated Financial Statements at 31 December 2015, to which reference should be made, except for the new standards and interpretations adopted by the TIM Group starting from 1 January 2016 which had no effects on the 2016 preliminary financial results and the 2017-2019 Industrial Plan.
Therefore, the latter financial information doesn't take into account the new following standards that are not yet in force: IFRS 15 Revenue from Contracts with Customers, IFRS 9 Financial Instruments and IFRS 16 Leases.
In addition, the 2016 preliminary financial results have not been verified by the independent auditors.
Within the Brazil Business Unit, TIM Brasil's Management during 2016 identified that incorrect accounting entries were made in prior years in connection with the recognition of service revenue from the sale of prepaid traffic. Such incorrect accounting entries, resulted in the early recognition of revenues and consequently the underestimation of deferred revenue liabilities for prepaid traffic not yet consumed. The incorrect accounting entries did not have any impact either in terms of net financial position nor on cash and cash equivalents.
In light of the above, the comparative financial information as of 31 December 2015 have been revised, segment information included.
Segment information is consistent with the prior periods under comparison with the exception of the Media Business Unit that, starting from 1 January 2016, as a result of the change in the operational mission of Persidera, is included in the Domestic Business Unit.
Furthermore, the Sofora - Telecom Argentina group, which was disposed of on 8 March 2016, is classified as Discontinued operations.
2
A Transforming Company - Flavio Cattaneo
Turning around TIM Brasil - Stefano De Angelis
Financial Empowerment - Piergiorgio Peluso
Wrap-up - Flavio Cattaneo
Back-up
Opening Remarks - Giuseppe Recchi
Turning around TIM Brasil - Stefano De Angelis
Financial Empowerment - Piergiorgio Peluso
Wrap-up - Flavio Cattaneo
Back-up
* including 1.3 Bln€ Mandatory Convertible Bond
Crash Phase Started in April and acted as a Game Changer in only 3 quarters
= Crash Phase
Flavio Cattaneo
5
Good set of KPIs and improving trends on core business
| 4Q'16 | KPIs | Service Revenues | Trends | |||
|---|---|---|---|---|---|---|
| Mobile | New Commercial approach is delivering excellent results: • Boosting Service revenue performance: +3.1% YoY • Increasing penetration of LTE and upselling on CB |
up to 13.3€ vs 12.8€ ARPU in 4Q'15 LTE penetration increases to 62% in MBB Customer Base Positive MNP Balance at +26k (vs -44k in 3Q'16) Best-in-class Churn rate, confirmed at 22.8% on FY basis |
+0.6% 1Q'16 |
FY'16 +1.4% +0.7% 2Q'16 |
+1.1% 3Q'16 |
+3.1% 4Q'16 |
| Fixed | Fixed Top Line turns positive: • 4Q'16 Total revenues +1.5% YoY vs -3.9% YoY in 4Q'15, supported by the new flow of enabling device sales • Flat performance in fixed service revenues, notwithstanding the negative effect of retroactive wholesale repricing |
New record-low line losses performance at -83k BB Net Adds +47K 22.3 (vs 4Q'15 BB ARPU up to € 21.2€) Fiber Net Adds +125k in 4Q'16, currently reaching over 1 mln Retail NGN customers Wholesale included, fiber lines now stand at about 1.4 mln |
-4.3% 1Q'16 |
FY'16 -4.1% -4.8% 2Q'16 |
-3.6% 3Q'16 |
-3.6% 4Q'16 |
| Telecom Italia Group Results | – | Preliminary FY'16 + 2017-'19 Plan | 7 |
Flavio Cattaneo
Pervasive Quality across the whole Company to drive Results
Enhancing Network Reliability, Coverage, Speed and Capacity to Provide Superior Customer Experience
* "Fiber Ready" Accesses Included ** Including VoIP lines, excluding Consip impact *** on total fixed CB **** on mobile calling
Growing on Total Revenues and Ebitda, Stabilizing Service Revenues
Flavio Cattaneo
Opex and Capex Optimization
12
Opening Remarks - Giuseppe Recchi
A Transforming Company - Flavio Cattaneo
Financial Empowerment - Piergiorgio Peluso
Wrap-up - Flavio Cattaneo
Back-up
13
After 2016, Turnaround continues
Improve our brand positioning in order to become the preferred option for Postpaid customers and confirming our leadership on prepaid leveraging on the quality of our Network and new offer schemes
Introduction of digital services bundled in the offers through the development of strategic partnerships with OTTs and content players Commercial
Develop a Convergent n-Play offer expanding the existing TIM Live FTTX coverage in Rio and São Paulo, exploiting the 700MHz LTE/WTTx coverage and also establishing partnerships to create 4P convergent offers (e.g. SKY)
Adapt commercial strategy to implement a regional approach exploiting our different market position and redesign go to market
(%)
South and southeast: additional 1,800MHz spectrum availability in 2017 to boost speed and improve customer experience
North, northeast and middle east: beginning of the 700MHz frequency roll out will guarantee more capacity and better coverage
A Better "value for money" positioning
Voice On + Off
*TIM Revenue Share and Mobile Market Revenues consider Revenues from top 5 players, including SMEs
Financial figures compliant with TIM Participações consolidated accounting standards for FY 2016 Results and FY 2017-19 Plan
Telecom Italia Group Results – Preliminary FY'16 + 2017-'19 Plan Stefano De Angelis
Ensuring Delivery and Furthering Efficiency
Financial figures compliant with TIM Participações consolidated accounting standards
for FY 2016 Results and FY 2017-19 Plan
2015 2016 2017e 2018e 2019e
3.8
95% of urban pop.: 4G Coverage Completion
19
Opening Remarks - Giuseppe Recchi
A Transforming Company - Flavio Cattaneo
Turning around TIM Brasil - Stefano De Angelis
Financial Empowerment - Piergiorgio Peluso
Wrap-up - Flavio Cattaneo
Back-up
20
| Organic* | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1Q'16 vs 1Q'15 | 2Q'16 vs 2Q'15 | 3Q'16 vs 3Q'15 | 4Q'16 vs 4Q'15 | ||||||||||||
| Total Opex | 2,021 | 2,020 | -1 | 2,115 | 2,251 | 2,221 | -30 | ||||||||
| 1,960 | -155 | 2,020 | 1,922 | -98 | |||||||||||
| Volume Driven | 699 | 736 | +37 | 781 | 809 | +28 | 804 | 781 | -23 | 977 | 1,029 | +52 | |||
| Opex net of Volume Driven |
1,322 | 1,284 | -38 | 1,334 | 1,151 | -183 | 1,216 | 1,141 | -75 | 1,274 | 1,192 | -82 | |||
| Labour Costs |
734 | 691 | 736 | 626 | 626 | 615 | 681 | 681 | |||||||
| Process Driven & other |
346 | 327 | 330 | 287 | 318 | 286 | 283 | 237 | |||||||
| Market Driven | 242 | 266 | 268 | 238 | 272 | 240 | 310 | 274 | |||||||
| 1Q'15 | 1Q'16 | 2Q'15 | 2Q'16 | 3Q'15 | 3Q'16 | 4Q'15 | 4Q'16 | ||||||||
| ΔYoY by destination | ΔYoY by destination | ΔYoY by destination | ΔYoY by destination | ||||||||||||
| Labour | Costs | -43 | -5.8% | Labour | Costs | -110 | -15.0% | Labour Costs |
-1.8% -11 |
Labour Cost |
flat | - | |||
| Process | Driven | -19 | -5.5% | Process | Driven | -42 | -13.0% | Process | Driven | -10.1% -32 |
Process Driven |
-46 | -16.3% | ||
| Market Driven | +24 | +9.8% | Market Driven | -30 | -11.2% | Market Driven | -11.7% -32 |
Market Driven | -36 | -11.7% | |||||
| o/w Comm. Levers | ** | ~flat -1 |
o/w Comm.Levers** | -5 | ~flat | ||||||||||
| o/w Billing & Bad Debt |
o/w Billing & Bad -15 |
Debt | -20 | ||||||||||||
| o/w Expo Spons. | -16 | o/w Expo Spons. & re-branding |
-11 |
*Organic: before non-recurring items and excluding exchange rate fluctuations ** Commercial levers include Sales, Caring & Advertising
€mln, Reported, % YoY
Piergiorgio Peluso
| Run rate, €bln |
2015 | 2016 | YoY | Efficiency '18-'15 May'16 |
D Efficiency '19-'15 Feb'17 |
New Efficiency '19-'15 Target |
||
|---|---|---|---|---|---|---|---|---|
| Total Opex | 8.41 | 8.12 | -0.28 | -0.8 | +0.4 | -0.4 | ||
| Volume Driven | 3.26 | 3.36 | +0.09 | -0.05 | +0.5 | |||
| Opex net of Volume Driven |
5.15 | 4.77 | -0.38 | -0.8 | -0.1 | -0.9 | ||
| Process Driven |
1.28 | 1.14 | -0.14 | -0.32 | -0.2 | |||
| Market Driven | 1.09 | 1.02 | -0.07 | -0.23 | ||||
| Labour Costs |
2.78 | 2.61 | -0.16 | -0.2 | +0.1 | |||
| Total Capex | 3.90 | 3.71 | -0.19 | -0.8 | -0.2 | -1.0 | ||
| Traditional | 1.99 | 1.65 | -0.35 | -0.5 | -0.2 | |||
| NGN | 1.70 | 1.92 | +0.22 | -0.15 | ||||
| Real Estate | 0.20 | 0.14 | -0.06 | -0.15 | ||||
| Total Cash Costs | 12.31 | 11.83 | -0.48 | -1.6 | -0.3 | -1.9 |
Cash Flow Generation Driven by Operations Combined with a Sustainable Dividend Policy
Opening Remarks - Giuseppe Recchi
A Transforming Company - Flavio Cattaneo
Turning around TIM Brasil - Stefano De Angelis
Financial Empowerment - Piergiorgio Peluso
Back-up
Outlook
Opening Remarks - Giuseppe Recchi
A Transforming Company - Flavio Cattaneo
Turning around TIM Brasil - Stefano De Angelis
Financial Empowerment - Piergiorgio Peluso
Wrap-up - Flavio Cattaneo
EBITDA* : € 163.6 mln
Capex: € 4.9 bln
Inwit
Brazil
Full speed on convergence and innovation, including contents digital services and all devices (I.o.T)
Fixed
New CRM System to reinforce cross & upselling, enriching offer
Exclusive portfolio to differentiate offer
Total Quality, exclusive Contents and Features to grow Fixed and Mobile Top Line, underpin UBB Take-Up and Maximize Household Spending
Market Share Protection
Focus on Convergence
Value Protection
Build a distinctive positioning vs. global OTT into IaaS and PaaS:
Further invest in ultra broadband and ICT infrastructure (i.e. datacenter)
Extend leadership to ICT environment:
An Efficiency Program based on three synergic layers, aimed at enhancing Cash Flow generation through the reduction of Total Cost of Ownership, while supporting Commercial Approach leveraging on improved flexibility and time to market
COSTS OPTIMIZATION LEAN ORGANIZATION PROCESSES RE-ENGINEERING AND TRANSFORMATION Processes & Procedures "Safari": mapping of business core processes to be concluded by 2017, involving ~400 core processes out of 700 internal ones; updating/definition of 1300 procedural documents, and updating/elimination of 190k operating documents Current processes optimization and re-engineering: a new transformation program has been started to quickly address and fix processes inefficiencies optimizing current procedures. The plan is rolling and includes over 150 actions, with significant benefits in terms of churn reduction, revenues increase, cost saving and customer satisfaction improvement Simplification of organizational structure and Rightsizing Reconversion of personnel via Job Center to increase internalization: more than 4k people involved Further Revenue support Structural cash costs efficiency: cash cost reduction Run Rate '19vs'15 of 1.9 Bln€ Sharp reduction of Opex not directly generating business Start of decommissioning program with initial benefits on TCO Vendor Consolidation
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• Keeping control of Inwit and exploting synergies with TIM roll out plans, instead of asset's sale
• TI Sparkle in a re-launch phase; exploit synergies with Business division on Multi-National Clients
• Olivetti can have a new life, focusing on partnerships to launch cutting edge devices and ICT Digital Solutions
Organic*, €mln, % YoY
* Before non-recurring items and excluding exchange rate fluctuations
Telecom Italia Group Results – Preliminary FY'16 + 2017-'19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso
€mln, % YoY
YE'15 9M'16
YE'16
YE'14 YE'15
26,651 +627 27,278
costs despite higher Investments on Innovative Services in Brazil
Group Capex reduction due to different
More investment in Italy mainly driven by UBB Network roll-out &
The FY'16 Net Cash Flow at the Group level was 2,159 million euro due to the strong OpFCF generation ( 2,856 mln euro) and the benefit coming from the conversion of Mandatory Convertible Bond occurred in November '16 (1,300 mln euro)
3Q'15 3Q'16
Total +16.0% +20.7% +23.8% +20.5% +16.3% +11.4% +15.0%
Telecom Italia Group Results – Preliminary FY'16 + 2017-'19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso
€/month
€mln
(1) € 30,510 mln is the nominal amount of outstanding medium-long term debt. By adding IAS adjustments (€ 1,464 mln) and current financial liabilities (€ 598 mln), the gross debt figure of € 32,572 mln is reached.
(2) Committed Bank lines are undrawn
Average m/l term maturity: 8.02 years (bond only 8.44 years)
Around 40% of outstanding bonds (nominal amount) denominated in USD and GBP and is fully hedged
Cost of debt: ~5.1 %
N.B. The figures are net of the adjustment due to the fair value measurement of derivatives and related financial liabilities/assets, as follows:
the impact on Gross Financial Debt is equal to 1.951 €/mln (of which 308 €/mln on bonds)
the impact on Financial Assets is equal to 1.115 €/mln.
Therefore, the Net Financial Indebtedness is adjusted by 836 €/mln.
N.B. The difference between total financial assets (€ 7.455 mln) and C&CE and marketable securities (€ 5.483 mln) is equal to € 1.972 mln and refers to positive MTM derivatives (accrued interests and exchange rate) for € 1.635 mln, financial receivables for lease for € 160 mln, deposits beyond 3 months for € 100 mln and other credits for € 77 mln.
Today 4G Coverage
43
First Mover Coverage accelerators More Fibre More Spees 5G
€mln
Focus on Improving the Efficiency and the Customer Experience:
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