Earnings Release • May 19, 2021
Earnings Release
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TIM GROUP
A better Company in an improving Country outlook 20 May 2021
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 Q1'21 of the TIM Group are the same as those adopted in the TIM Group Annual Audited Consolidated Financial Statements as of 31 December 2020, to which reference can be made, except for the amendments to the standards issued by IASB and adopted starting from January 1, 2021.
The financial results for Q1'21 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;
* Adjusted Net Financial Debt After Lease, calculated by excluding from the adjusted net financial debt the net liabilities related to the accounting treatment of lease contracts according to IFRS 16;
* 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 Q1 | KPIs | ||
|---|---|---|---|
| ESG | ▪ CSI and NPS keep improving ▪ New "Expansion Contract" signed and active from May ▪ Inaugural sustainability bond |
(1) CSI +1% QoQ, NPS +2 QoQ ~1,300 exits in H1 Lowest coupon ever 1.625% |
|
| Domestic | ▪ FSR and fixed lines stable, UBB net adds strong, distribution of Serie A matches to push growth further ▪ Growth engines (TIM's Factories) on track to deliver on targets ▪ Lowest mobile churn in the last 14 years |
Retail UBB net adds +119% YoY ICT revenues +30% YoY Mobile churn 3.8% in Q1 |
|
| Brazil | ▪ Reshape of revenue profile with customer transition to value ▪ ARPU growth in all segments and NPS improvement ▪ Acceleration of EBITDA growth |
Service revenues +3.3% YoY ARPU +6.6% YoY EBITDA +4.8% YoY |
|
| Cash generation |
€ | ▪ Organic debt reduction ongoing and €1.8bn proceeds from KKR ▪ EFCF solid performance ▪ FY 2021 guidance already neared in Q1 |
Net Debt AL -€ 2.0bn QoQ, -€ 5.1bn YoY EFCF AL € 307m in Q1, +57% YoY Leverage 2.7x EBITDA AL LTM(2) |
4
5
Benefits for TIM: 1) New revenue stream, 2) Stronger UBB demand, 3) Additional push on convergence (TIM Unica)
Italian football market (1) makes TIMVISION "THE" choice
7
(1) Million lines, source AGCOM and internal elaborations on Analysis Mason's estimates (2) Families with mobile broadband only, source Eurostat, 2019 (3) Excluding Sparkle
8
| Recovery | ▪ | Recovery and Resiliency Plan submitted | Italy's GDP growth | ||||||
|---|---|---|---|---|---|---|---|---|---|
| fund | €235.1bn(1) ▪ |
to the EU Commission. Funds increased 10% for digital |
4.4% 4.2% |
4.2% | |||||
| Digitalization | €46.3 → 49.9bn(2) | o/w Recovery & Resiliency | Facility | ||||||
| Green revolution | €69.9bn | Public Administration | € 9.8bn | -8.9% | Plan impact | ||||
| Infrastructure | €31.5bn | Businesses | € 23.9bn | '20 '21 '22 |
'23 | ||||
| Education | €33.8bn | o/w Transition 4.0 € 13.4bn o/w UBB & 5G € 6.7bn Tourism & Culture 4.0 € 6.7bn |
Recovery & Resiliency Plan expected impact | ||||||
| Social | €29.8bn | on Italy's GDP 16pp growth in 2021-'26 (3) | |||||||
| Health | €20.2bn | TIM and its factories best positioned to benefit from funds allocated to telecoms and to Italy's digitalization |
|||||||
| €0.2bn (phase 1) €0.9bn (phase 2) |
Ongoing, >60% still available | TIM most active provider so far: 76%(4) of vouchers volumes | |||||||
| Vouchers | To be launched by the summer | ||||||||
| Schools | €0.4bn | 68% already assigned in public tender | Revenues for TIM expected from Q3 | ||||||
| "Italia a 1 Giga" plan | €1.1bn → €3.9bn | Consultation ongoing for roll out in grey areas |
Funds for grey areas 3.5x higher vs. draft. TIM's fiber at the cabinet ubiquitously in grey areas |
||||||
| "Italia 5G" plan | €2.0bn | Infrastructure mapping in Q2, tender in Q1 '22 | Details yet to be disclosed |
(1) ~27% of Recovery and Resiliency Facility (~€ 52bn out of €191.5bn RRF) is specifically allocated to digital investments. React EU and Complementary fund to further enlarge the bucket
(2) Increase versus draft edition of Recovery and Resiliency plan
(3) Source: Ministry of Economy and Finance, Banca d'Italia (4) Source: Italian Government Parliamentary audition on 13 April 2021
Organic data (1), IFRS 16, € m
Q1 revenues trend improved +2.1pp QoQ (+2.4pp Domestic)
Net Debt AL reduced € 2.0bn QoQ vs. -€ 182m in Q1 '20 (-€ 5.1bn YoY vs. -€ 1.4bn in Q1 '20)
%
Retail ultrabroadband net adds more than double YoY
Structural improvement thanks to "Fix the Fixed" plan plus help from vouchers (>60% of first €200m tranche still available)
CSI +1.7% QoQ in Q1, NPS +2.0 QoQ
Churn benefitting from convergence and increased direct payments (+6.9pp YoY)
Fixed Service Revenues -0.5% YoY (vs. -0.2% in Q4: 0.3pp delta explained by lower weight of ICT in Q1 vs. Q4)
ARPU is set to improve YoY performance in H2 even before considering help from football
Equipment resumed strong growth (+58.5% in Q1 vs. -1.4% in Q4) benefiting from ICT growth, higher UBB net adds and vouchers
Impact on MSR from CB reduction ~ +1pp better QoQ (after ~ +1pp in Q4 and +2pp in Q3)
Churn reduced 0.4pp QoQ and 1.5pp YoY
CSI +0.5% QoQ in Q1, after +3.2% in Q4
NPS improving further QoQ and still well above large operators'
▪ Labour -1% YoY for FTE reduction (-1.9k YoY). Fall would be -9% net of drag from Telecoms sector contract renewal through one-off payments rather than salary increases and drag due to no solidarity in Q1 '21 (vs. 3 days of solidarity in Q1 '20)
Solidarity starts in May for 16 months. No solidarity in H2 2020
Group CAPEX up YoY due to:
Group Operating Working Capital outflow improving €617m YoY
€255m YoY improvement excluding YoY swing in non-recurring items, benefiting from:
€ m; (-) = Cash generated, (+) = Cash absorbed, excluding call-outs
Cost of debt ~3.3%, -0.1p.p. QoQ, -0.1p.p. YoY
(1) € 23,953m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and reverse fair value valuations (€ 480m) and current financial liabilities (€ 333m), the gross debt figure of € 24,766m is reached
20 Q1 '21 RESULTS
TIM Brasil
Reported data, R\$m
(1) Excluding M2M (2) Pro-forma 2020
| FiberCop | ▪ Closing of KKR's purchase of a 37.5% stake last March. €1.8bn cash-in for TIM ▪ Co-investment scheme published and open to all operators ▪ 2021 revenues €1.2-1.3bn, EBITDA c. €0.9bn, debt/EBITDA 3.4x ▪ EBITDA–CAPEX positive from 2025; CAPEX/sales <10% at regime |
|---|---|
| AccessCo | ▪ Enel announced disposal of 40% of OF to Macquarie and 10% to CDP ▪ CDP will end up with 60% of OF and will appoint CEO ▪ Single controlling shareholder simplifies ongoing dialogue |
| Develop TIM Brasil |
▪ Oi's mobile assets integration: ~14.5m customers, ~7.2k mobile sites, ~49 MHz freq. ▪ CADE formal notification in Feb-21, analysis process initiated in Mar-21. Closing by Q4 NEWCO 51% owned by IHS(1) ▪ FiberCo 49% by TIM (with prerogative on roll-out decisions) ▪ FiberCo EV R\$2.6 bn (21x EBITDA). Closing expected in 2H 2021 |
| Data centers carve out |
▪ Carve out of Noovle completed ▪ €0.5bn revenues and €0.2bn EBITDA generated in 2020 ▪ €1bn revenues and €0.4bn EBITDA targeted for 2024 confirmed |
| YoY growth rates, | Group | Domestic | (1) Brazil |
|||
|---|---|---|---|---|---|---|
| IFRS 16 / After Lease | 2021 | 2022-23 | 2021 | 2022-23 | 2021 | 2022-23 |
| Organic Service revenues |
Stable to Low single digit growth |
Low single digit growth |
Stable | Stable to Low single digit growth |
Mid single digit growth |
Mid single digit growth High single digit growth (CAGR '20-'23) with Oi |
| Organic EBITDA AL |
Stable to Low single digit growth |
Low to Mid single digit growth |
Stable | Low single digit growth |
Mid single digit growth |
Mid single digit growth Double digit growth (CAGR '20-'23) with Oi |
| CAPEX | ~€ 2.9 bn per year |
~R\$ 13.0 bn ~R\$ 13.5 bn with Oi |
||||
| Eq FCF AL | Net of ~€0.7bn Cumulated ~€ 4.0 bn tax realignment cost |
|||||
| Adjusted Net Debt AL |
2.6x ~€ 16.5 bn (3) Net Debt AL / EBITDA AL Oi (2) excluding by 2023 |
|||||
| Dividend | ordinary: floor of € 1 cent per share, aim to distribute 20-25% of yearly Equity FCF subject to deleverage execution savings: €2.75 cents per share throughout 2021-23 |
(1) Guidance based on IFRS 16 for EBITDA in Brazil (2) Including anticipation of 2100 MHz spectrum prepayment (~€0.3bn) and excluding Oi's mobile acquisition (3) Based on Organic EBITDA AL; 2.7x based on Reported EBITDA AL P/L figures @ average exchange-rate actual 5,9 REAIS/EUR
| Eco-efficiency | +50% | |
|---|---|---|
| Renewable energy on total energy (%) | +5pp/yr | 2025 |
| Indirect emissions(2) | -70% | |
| Carbon Neutrality(3) | 2030 | |
| Employees engagement |
+19pp | |
| Hours of training for reskilling and upskilling |
6.4m hrs |
|
| Churn of young employees |
<15% | 2023 |
| New VC fund size | € 60m | |
| IoT and Security service revenues (CAGR) | +20% | |
| Green Smartphone | >15% | 2024 |
(1) "Beyond Connectivity" plan targets were upgraded vs. previous plan, baseline 2019. Domestic, except for indirect emissions and carbon neutrality (Group) (2) Scope 2, TIM Group (3) TIM Group
| Realignment of the tax value |
▪ Decree-Law 104/2020 allows for realignment of intangible asset tax value to the book value ▪ 3% substitute tax to be paid on the amount redeemed ▪ Future income taxes will benefit from intangible asset tax amortization |
|---|---|
| TIM SpA intangible assets redeemed |
▪ Overall tax benefit: € 5.9bn (28.5% of tax basis) net of substitute tax ▪ Benefit will occur over 18 years |
| Substitute tax (3%): € 0.7bn | ▪ To be paid in 3 annual instalments (€ 0.2bn per year), from June 2021 |
Reported data, € m, Rounded numbers
* Including cost of all leases
(1) € 28,600m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and reverse fair value valuations (€ 509m) and current financial liabilities (€ 333m), the gross debt figure of € 29,442m is reached
33 Q1 '21 RESULTS
| NFP adjusted |
Fair value |
NFP accounting |
|
|---|---|---|---|
| GROSS DEBT | |||
| Bonds | 20,078 | 267 | 20,345 |
| Banks & EIB | 4,146 | - | 4,146 |
| Derivatives | 197 | 1,451 | 1,648 |
| Op. leases and long rent | 4,676 | - | 4,676 |
| Other | 345 | - | 345 |
| TOTAL | 29,442 | 1,718 | 31,160 |
| FINANCIAL ASSETS | |||
| Liquidity position | 5,356 | - | 5,356 |
| Other (1) | 2,931 | 1,201 | 4,132 |
| TOTAL | 8,287 | 1,201 | 9,488 |
| NET FINANCIAL DEBT | 21,155 | 517 | 21,672 |
Average m/l term maturity: 7.0 years (bond 6.8 years only)
Fixed rate portion on medium-long term debt ~72%
Around 26% of outstanding bonds (nominal amount) denominated in USD and GBP and fully hedged
FiberCop value to grow over time thanks to switch in the mix from copper towards fiber
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