Telecom Italia Q1 2017 EBITDA surges 16.2% YOY

  • GROUP TURNOVER CONTINUES TO GROW: IN THE FIRST QUARTER, CONSOLIDATED REVENUES TOTALLED 4.8 BILLION EUROS, +8.5%, COMPARED TO THE SAME PERIOD OF 2016. BEST CONSOLIDATED RESULT SINCE 201
  • GROUP EBITDA FOR THE QUARTER WAS 2 BILLION EUROS, (+16.2% COMPARED TO THE SAME QUARTER OF 2016
  • THE DOMESTIC BUSINESS UNIT CONTINUES TO GROW: TURNOVER +2.8%; EBITDA +11
  • TURNOVER FROM DOMESTIC SERVICES ALREADY STABLE, ON A NORMALISED BASI
  • CATTANEO: “I EXPECT REVENUES FROM DOMESTIC SERVICES TO RETURN TO GROWTH IN THE NEXT QUARTER.
  • ACCELERATING ON ULTRABROADBAND, RENEWING OUR COMMERCIAL STRATEGY AND MANAGING COSTS WITH DISCIPLINE, WE HAVE, WITHIN A YEAR, RETURNED ALL THE PRINCIPAL PARAMETERS TO GROWTH, IN BOTH ITALY AND BRAZIL.
  • IN BRAZIL, THE RECOVERY TREND IS POSITIVE, WITH GROWTH IN BOTH TURNOVER (+2.5%) AND IN EBITDA (+12.6%) AFTER 13 QUARTERS OF DECLIN
  • THE ADJUSTED NET FINANCIAL DEBT OF THE GROUP TOTALLED 25,235 MILLION EUROS, 1.9 BILLION EURO LESS THAN THE TOTAL AT THE END OF THE FIRST QUARTER OF 2016; NET OF THE EFFECTS OF THE CONVERTIBLE BOND, THE REDUCTION WAS 604 MILLION EURO
  • THANKS TO GREATER SELECTIVITY, AND A MORE EFFICIENT ALLOCATION OF RESOURCES, CAPEX TOTALLED 831 MILLION EUROS. WITH THESE INVESTMENTS, THE GROUP ACHIEVED CURRENT UBB POPULATION COVERAGE OF AROUND 65% IN THE FIXED SECTOR AND 97% IN THE MOBILE SECT
  • RECCHI: “THIS IS THE END OF A THREE YEAR PERIOD OF WORK BY THE BOARD, IN WHICH WE STARTED A MAJOR TRANSFORMATION OF THE COMPANY, AND THE RESULTS ARE SHOWING WE WERE RIGHT."

The results of the first quarter of 2017 confirm the validity of the transformation actions started by the management, which have brought significant recovery on the domestic market and in Brazil.

At Group level, TIM closes the first three months of the year with a further improvement on the already positive previous months; it should be noted, in particular, that revenues totalled 4.82 billion euros, an 8.5 percentage point increase on the figure for the first quarter of 2016, and EBITDA totalled 2 billion euros, a 15.6 percentage point increase over the last 12 months, in organic terms, excluding the effect of non-recurring charges.

The Domestic business unit registered EBITDA of 1.62 billion euros (+11% compared to Q1 2016). In organic terms, and excluding the effect of non-recurring charges, the progressive growth over the last 12 months is 12.8 percentage points, supported by better than expected revenues (+5.1 pp compared to Q1 2016) and efficiencies. Note, too, a further increase in the positive trend shown in the previous quarters in both the Fixed segment - where there was a new recovery in line losses and a progressive increase in UBB customers (+230 thousand during the quarter) - and in the Mobile segment, with growth in terms of service revenues (+2.2% compared to Q1 2016) and of customers, with LTE customers accounting for 68% of the total number of mobile internet users (62% at the end of 2016).

In Brazil, the quarter saw a return to growth in both total revenues (+2.5%, 18 percentage points higher in the last 12 months) and service revenues (+3.5%, compared to the -0.7% registered in Q4 2016 and the -4.3% of FY 2016).

“With this quarterly report, we end a three year period of work by the Board of Directors, during which, we are certain, we started a major transformation of the company, and the results are proving us right”, commented Executive Chairman Giuseppe Recchi.

“The acceleration on the new generation networks in Italy and Brazil enables the transformation of the business”, stated Chief Executive Officer Flavio Cattaneo. “We have restored the plus signs to all parameters in both markets. On the domestic market, the increase in fibre and 4G customers is accompanied, net of normalisations, by stabilisation of service revenues already in this quarter, and I expect that revenues from domestic services will grow again in the next quarter".

 

TIM GROUP RESULTS

Revenues in the first quarter of 2017 totalled 4,819 million euros, 8.5% higher than in the first three months of 2016 (4,440 million euros). The 379 million euro rise is attributable primarily to the Brazil Business Unit, for 284 million euros, and for 99 million euros to the Domestic Business Unit.

In terms of organic change, calculated by excluding the effect of changes in exchange rates and consolidation scope, consolidated revenues were up 2.6% (+121 million euros).

EBITDA in the first quarter of 2017 totalled 1,990 million euros (1,712 million euros in Q1 2016), 278 million euros (+16.2%) higher than in the first quarter of 2016, with a margin of 41.3% (38.6% in Q1 2016, 2.7 percentage points up).

In organic terms there was an 11.4% increase compared to the first quarter.

EBITDA for the first quarter of 2017 reflected the negative impact of non-recurring charges for a total of 24 million euros (77 million euros in Q1 2016, at the same exchange rate). Without these, the organic change in EBITDA would have been +8.1%, with a margin of 41.8%, 2.1 percentage points higher than in the first quarter of 2016.

The positive change in EBITDA, in both absolute terms and in terms of percentage profitability on revenues, confirms the benefits obtained from the actions of the “cost recovery plan” launched in the second quarter of 2016 by the Domestic Business Unit, and in the third quarter of 2016 by the Brazil Business Unit  which, at the same exchange rates, sustain and amplify the effects of the increase in revenues mentioned above.

EBIT in the first quarter of 2017 totalled 865 million euros (704 million euros in Q1 2016), 161 million euros (+22.9%) higher than in the first quarter of 2016, with a margin of 17.9% (15.9% in Q1 2016, +2.0 percentage points).

Organic EBIT increased by 146 million euros (+20.3%), with a margin of 17.9% (15.3% in the first three months of 2016).

EBIT in the first quarter of 2017 reflected the negative impact of non-recurring net charges for a total of 24 million euros (76 million euros in Q1 2016  at the same exchange rate). Without these non-recurring items, organic change in EBIT would have been an increase of 94 million euros (+11.8%), with a margin of 18.4%, a rise of 1.5 percentage points.

Profits for the first quarter of 2017 attributable to the Parent Company Shareholders was 200 million euros (433 million euros in Q1 2016) with net non-recurring charges of 115 million euros. In comparable terms, i.e. excluding non-recurring items as well as, in the first quarter of 2016, the positive impact of the fair value valuation of the implicit option included in the mandatory convertible bond and, in the first quarter of 2017, an increase in non-operating risk fund provision for disputes with the tax authorities, the profits attributable to the shareholders of the Parent Company in the first quarter of 2017 was over 50 million euros higher than in the same period of last year.

Group headcount at 31 March 2017 was 60,930, including 51,006 in Italy (61,229 at 31 December 2016, including 51,125 in Italy).

Capital expenditure totalled 831 million euros, 113 million euros less than in the first  three months of 2016, and confirm the selective approach used, identifying more profitable projects, dedicated to innovation/transformation, with, at the same time, a push on UBB coverage levels and quality of service.

The Domestic Business Unit saw investments totalling 631 million euros,147 million euros less than in the first quarter of 2016; the reduction, even in the presence of acceleration in innovative investment on network development and new generation services (+24 million euros) was achieved thanks to careful assessment and selection of other types of investment.

The investments of the Brazil Business Unit increased by 34 million euros (including a positive foreign exchange effect of 46 million euros) compared with the first quarter of 2016; these investments were focused mainly on the evolution of the infrastructure.

Cash flow from Group operations is positive by 361 million euros (25 million euros in Q1 2016).

Adjusted net financial debt totalled 25,235 million euros at 31 March 2017, an increase of 116 million euros from the total at 31 December 2016 (25,119 million euros) and reflects the payment of 257 million euros by the Brazil Business Unit to the consortium that is undertaking the clean-up of the 700 MHz spectrum, the use rights of which were acquired by the Business Unit in 2014. Without this expenditure, adjusted net financial debt would have shown an improvement of 141 million euros, as an effect of the positive trend in operations, positive for 618 million euros, which would have more than offset the needs of financial operations.

Since 31 March 2016, adjusted Net Financial Debt has fallen by 1.9 billion euros; excluding the beneficial effect of the conversion of the Mandatory Convertible Bond, the reduction is 604 million euros.

The net financial debt carrying amount at 31 March 2017 totalled 25,923 million euros, 32 million euros less than at 31 December 2016 (25,955 million euros).

Liquidity margin available to the TIM Group at 31 March 2017 was 12,530 million euros, equivalent to the sum of "Cash and cash equivalents" and "Securities other than investments" for a total of 5,530 million euros (5,483 million euros at 31 December 2016) and unused committed lines of credit for a total of 7,000 million euros. This margin covers the financial liabilities of the Group falling due for at least the next 24 months.

 

OUTLOOK FOR THE 2017 FINANCIAL YEAR

As envisaged in the 2017-2019 Plan, TIM will continue its transformation process. This is characterised by strong financial discipline to support development, aimed at both creating more room for core investment (Fibre and mobile UltraBroadband), eliminating non-productive cash costs, and at maximising the return on investments. The aim is to ensure structural growth in turnover and EBITA and to affirm TIM as the reference point of the market in terms of technological leadership, network quality and Fixed and Mobile service excellence. The distinguishing elements of this approach are innovation, convergence, exclusive content and being close to our Customers.

In the Domestic Fixed segment, TIM expects to further reduce the fall in customer numbers - with line losses zeroed by the end of 2018 - thanks to the acceleration in the availability and adoption of fibre. TIM NGN will cover around 95% of Italian homes in 2018, and 99% in 2019. The commercial strategy will also play a key role, aimed at retaining and developing customers through, for example, the supply of devices and home appliances connected to the domestic network – the Internet of Things – which can be paid for directly in the phone bill.

In the Domestic Mobile segment, in a competitive context that will be increasingly polarised and segmented, TIM will leverage the capillary nature of its 4G network (which it is expected will cover more than 99% of the population in 2019) and on the availability of converging services and quality content - particularly in the high-end market, which is characterised by ever increasing data consumption. The second “no-frills” brand, Kena, (launched in April) will enable the company to compete in the more price-sensitive segments.

Operations will be characterised by maximum selectivity in investment selection, and by actions to recover efficiency through structural cost optimisation programmes. At the same time, the transformation and simplification of the organisation and processes - combined with commercial developments and the expected growth in turnover - will guarantee low single digit growth in EBITDA for the Group, and will generate the cash needed to reduce the ratio of adjusted net financial debt to reported EBITDA, which is expected to be below 2.7 in 2018.

In Brazil the Plan is to continue with the relaunch of TIM Brasil, repositioning the subsidiary based on the quality of its offer and its network, to compete successfully in the post-paid segment while also returning to solid profitability. In particular, there will be a  further boost to the creation of UBB mobile infrastructure – by the end of the Plan, 95% of the population will have access to 4G with coverage in approximately 3,600 towns  - and to the development of convergent offers thanks in part to agreements with the main producers of premium content.

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