TIM hails Brazil 'cash cow' with Italian NetCo sale pending

In previous years, Telecom Italia (TIM) was not exactly known for its stellar financial performance with debts mounting and customers jumping ship. Yet its CEO Pietro Labriola was optimistic that the company is turning things around during the Q1 2023 earnings call, pointing to improving quarter-over-quarter (QoQ) trends and a stabilization of domestic business.

Revenues, organic revenues, EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA after leases (EBITDAaL) all grew year-over-year (YoY) in Q1. This is, however, thanks to the strong performance of TIM's Brazilian unit, which contrasts with the group's significantly weaker results at home. Reported debt has continued to increase, reaching €25.8 billion ($28.17 billion) in Q1 – or €20.5 billion ($22.38 billion) after leases.

TIM Brazil, which Labriola called a "cash cow" elsewhere during the presentation, has continued to beat growth targets.

Figure 1: (Source: M4OS Photos / Alamy Stock Photo)

While domestic revenues were down 0.2% YoY to €2.8 billion ($3.06 billion), they soared by 19.3% in Brazil to €1 billion ($1.09 billion). That translated into 4.3% growth in total revenues to €3.8 billion ($4.15 billion). EBITDAaL was up 0.5% to €1.2 billion ($1.31 billion), while EBITDA grew 3.8% to €1.5 billion ($1.64 billion), thanks to 21.8% growth in Brazil, which helped compensate for a 2.8% drop in Italy.

TIM Enterprise – the unit housing TIM's more profitable business areas such as cloud, connectivity and IoT – saw its revenues grow 4.4% YoY, as the company seeks to pivot to higher-margin services. TIM seeks to make the unit Italy's largest ICT platform, with Labriola pointing to the April acquisition of cyber-security firm TS-Way a further step in that direction.

Job cuts and NetCo sale on the horizon

Labriola was, meanwhile, confident the company is in the midst of a turnaround in the domestic retail market, with an ongoing "volume-to-value" shift, which will mean higher prices and a higher quality of service. On the higher-prices front, TIM has started with selective price increases affecting 4.3 million fixed lines and 2.1 million mobile lines. Labriola noted this has had "a much lower effect on churn than expected," while improving revenues.

Labriola also pointed to the consultation recently launched by the Italian regulator into linking prices to the consumer price index, which would allow telcos to raise rates in line with inflation without securing an explicit consent. This is likely to take effect from 2024.

The company is also continuing its savings push, with €200 million ($218.35 million) of savings achieved in Q1, and it is on track to fulfil the €1.1 billion ($1.2 billion) savings target set for 2023. Labriola also pointed to a March deal signed with trade unions, which will see 2,000 employees exit voluntarily.

At the same time, TIM is awaiting new and improved bids for its fixed-line business unit NetCo, which could help with the aforementioned debt problem. The telco has deemed the offers received from KKR and a consortium of CDP, Macquarie and Real Assets insufficient, and has set June 9 as the deadline for more favorable bids.

During the Q&A portion of the call, Labriola said he expected these to be final but non-binding offers, and that TIM is hoping for a speedy process in analyzing offers.

Related posts:

— Tereza Krásová, Associate Editor, Light Reading