Telecom Italia S.p.a. · MIL:TIT
Telecom Italia — TIM — Investor Day (March 2020)
67 slides from Telecom Italia's investor day presentation, Mar 11, 2020
Slide 1: Capital Market Day 2020
CAPITAL MARKET DAY 2020 11 March 2020
Slide 2: Disclaimer
Disclaimer 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 t
Slide 3: Agenda
Agenda ▪ 2019: Deliver & Delever ▪ 2020-22: Operations TIMe ▪ Sustainability embedded in our plan ▪ TIM Brasil remains a growth engine ▪ New cash generation culture ▪ Guidance and final remarks ▪ Q&A CMD 2020 3
Slide 4: We said it, we delivered it
We said it, we delivered it Strategic initiatives Executing the plan Sale of Equity Free ▪ Completed in 2019 Persidera Cash Flow ▪ 2019 EFCF at € 1.7bn, well above target generation ▪ Merger with Vodafone Towers approved by Mobile European antitrust towers Debt reduction ▪ Half of 3-year target reac
Slide 5: From Deliver & Delever to Operations TIMe
From “Deliver & Delever” to “Operations TIMe” 2020-22 “Deliver & Delever” “Operations TIMe” Organic cash-flow generation and strategic Focus remains on: initiatives allow meaningful deleverage paving ▪ Equity FCF: upgrading guidance today from ~€ 3.5bn cumulated Organic Equity FCF in way for return
Slide 6: Deliver & Delever
2019 Deliver & Delever CMD 2020 6
Slide 7: TIM has overdelivered on 2019 guidance
TIM has overdelivered on 2019 guidance IFRS 9/15 7,774 7,560 Met guidance Group EBITDA Organic, € m o/w Domestic ▪ Group: low-single digit decrease 6,362 6,041 ▪ Domestic: low/mid single digit decrease 1,721 Beat guidance Half of €3.5bn 3-year Equity FCF guidance Group Equity FCF 578 reached in 1 ye
Slide 8: Historical high Equity FCF and first organic Net Debt reduction since 2016
Historical high Equity FCF and first time organic Net Debt reduction since 2016 Historical trend of Equity FCF and Net Debt (1) 2014 15 16 17 18 2019 Highest Equity Group 1,721 FCF generation Equity FCF 728 964 in the last 6 608 578 €m years (206) First time Net Group Debt reduction Net Debt since 2
Slide 9: Transformational initiatives kicked off in 2019
Transformational initiatives on commercial, operating and business model kicked off in 2019 Business model Operating model Commercial conduct Towards an ecosystem of Implementation of the first wave Towards sustainable cash generation industrial & financial partners of transformation benefiting top
Slide 10: TIM took the lead of the move to rationality
In a challenging telco environment, TIM took the lead of the move to rationality Increasing rationality in the market Mobile prices Market MNP Headline tariffs, €/month Million lines 2017 2018 2019 20.0 15.0 -27% 12.0 13.0 10.8 15.3 16.9 12.4 Q3' 18 Q4' 18 Jan' 19 Feb Mar-Dec Prices moved up Market
Slide 11: Best in class content partners for a convergent offer
World’s best in class content partners to build a “must-have” convergent offer content key in increasing customers loyalty From just another platform to the richest Sport Entertainment content provider in Italy in less than 1 year ticket sport Distinctive proposition to enhance convergent offer and
Slide 12: TIM & Disney+: the future together
TIM & Disney+: the future together ▪ Streaming platform with the best content of Disney, Pixar, Marvel, Star Wars and National Geographic (over 1000 films, series and original productions) ▪ Italy launch on March 24th ▪ TIM as exclusive Telco/MVPD for 3 years from launch for bundling; after 12 month
Slide 13: Optimizing invested capital through network sharing & Infra-funds
Optimizing invested capital through network sharing & Infra-funds involvement wip Network sharing Strategic alliance Potential partnership Partnership with Google Cloud TIM-Vodafone Italia in fiber roll-out (Data Center / Cloud NEWCO) TOWERS TIM is offering … enhancing assets value Infra-funds while
Slide 14: In towers: network sharing with Vodafone, 12.4% stake sale
In towers: network sharing with Vodafone, selling process for a 12.4% stake Received clearance on both passive and active sharing on 6th March In talk with Infra funds for a 12.4% stake of New INWIT Tim and Vodafone to maintain FASTER 5G WIDER 5G ENHANCED ROLL-OUT COVERAGE 4G/5G CAPACITY joint contr
Slide 15: In fiber: KKR chosen for a dual track approach
In fiber: KKR chosen for a dual track approach towards one single network Partnership with KKR TIM entered an exclusivity period with KKR in response to KKR’s offer to We delivered on our promises acquire a ~40% stake in FiberCop, a Newco owning TIM’s entire secondary network (both fiber and copper)
Slide 16: KKR transaction financials and perimeter
First step overview: KKR transaction financials and perimeter ▪ Compelling valuation, valuing TIM’s NewCo Perimeter secondary network (incl. both fiber and copper) € 7.5bn EV passive only ▪ The transaction represents a first step towards a potential deal with Open Fiber, fiber which would unlock pot
Slide 17: In data centers: partnership with Google
In data centers: partnership with Google to strengthen leadership in cloud A clear vision towards A unique A clear strong leadership strategic partnership implementation roadmap ▪ Italian cloud demand expected to ▪ Signed 5-years (renewable) partnership grow at 21% CAGR in 2020-22, driven agreement
Slide 18: TIM's cloud revenues and EBITDA expected to double by 2024
TIM’s cloud revenues and EBITDA expected to double from 2020 to 2024 Next level commitment on cloud… …for next level impact ▪ ~800 new hires to cover market need and ▪ TIM will create and retain control of a new legal technological requirements entity that will own TIM’s data centers ▪ +6,000 techni
Slide 19: Brasil: partnering with Telefonica for Oi mobile assets
Brasil: partnering with Telefonica for the acquisition of Oi mobile assets ▪ Telefonica and TIM to jointly submit an expression of interest for Oi mobile assets ▪ Interested in Oi’s mobile assets only ▪ Deal will not impact deleveraging at TIM Group level ▪ Synergies will be generated from the first
Slide 20: Operations TIMe
2020-22: Operations TIMe CMD 2020 20
Slide 21: Transforming a challenging context into growth opportunities
TIM aims to transform a challenging context into growth opportunities In a context that remains …TIM is riding all opportunities challenging… ▪ Market revenues on core ▪ Taking additional steps towards market rationality and socially connectivity still under pressure responsible, sustainable cash fl
Slide 22: Making our cash flow sustainable on the path towards a growing dividend
Making our cash flow sustainable on the path towards a growing dividend Organic Equity FCF (1) Net Debt (2) Cumulated Equity FCF Net debt guidance improved guidance upgraded € bn € bn 20.5 After Lease Old guidance 22 IFRS 9/15 2019-’21 ~3.5 Old guidance including INWIT by 2021 <20 After Lease New gu
Slide 23: Back to dividend distribution on ordinary shares
Back to dividend distribution on ordinary shares TIM Board of Directors proposes to AGM dividend reinstatement on ordinary shares (last dividend distributed in 2013 on 2012 2019 results) € 1 cents / ordinary share paid in May 2020 on 2019 results 2019 € 2.75 cents / saving shares (unchanged) 2019 20
Slide 24: Consumer: retain rather than acquire
Consumer: retain rather than acquire, extracting more value from existing CB Key strategic priorities KPIs expected evolution ▪ Convergence as core platform (launched in January) Customer base New offering ▪ 4G-5G FWA launched in rural areas (1.3m virgin market for TIM) fixed mobile focused on new ▪
Slide 25: Convergence as core platform
Convergence as core platform, first step towards adjacent markets Short term actions (2020) Medium-long term actions (2021-2022) ▪ Fixed and Mobile Convergence boost (e.g., TIM ▪ Brand-new ecosystem leveraging new services beyond Unica - unlimited data for all Mobile lines linked convergence and par
Slide 26: Business: end-to-end technology and solution provider
Business: evolution towards end-to-end technology and solution provider Key strategic priorities KPIs evolution ▪ 5G positioning to maintain leadership in connectivity and develop IoT Convergent customer base vertical solutions Unique +34pp one-stop-shop ▪ Convergence as core platform solution for ▪
Slide 27: B2B adjacent markets
B2B adjacent markets: leveraging own factories & strategic partnerships Enterprise Healthy market projections Adjacencies enabler Vertical solutions1 by Market Market Become full Full ICT Professional services 2022 size growth ICT provider provider 2018, € bn ‘18-22 CAGR ICT and IoT solutions for It
Slide 28: Wholesale: UBB and solution provider
Wholesale: UBB and solution provider in regulated and non regulated market Vision Key strategic priorities KPIs evolution ▪ Acceleration of UBB migration: maintain growth of Fiber accesses Leverage full VULA lines above loss of ULL lines VULA + BTS NGA, million accesses potential of TIM's Fast UBB ▪
Slide 29: Addressable cost base to fall 10% by 2022
Addressable cost base to fall 10% by 2022 (-12% on a cash view) Rebase the cost structure through a radical review of the operating model to be more efficient and effective Addressable baseline Main initiatives Opex evolution 2019 ▪ Benefitting from new more disciplined commercial conduct € bn ▪ Boo
Slide 30: Stabilize CAPEX, hike ROI through innovation
Stabilize CAPEX, hike ROI through technological and infrastructural innovation Main transformation initiatives Capex evolution and mix, €bn Run Grow & Transform Grow & Transform Run ▪ Digitization of field force: ▪ ROI driven mobile and fixed access augmented reality app, AI development (4G and 5G,
Slide 31: TIM's key asset: unbeatable combination of networks
TIM’s key asset remains the unbeatable combination of networks Fiber coverage Fiber speed UBB take-up (1) 2019 % of population # households (mln) 77% ~80% ~81 29% ~80% % FTTx 23% ~60% Retail >40% 3.7 +27% ~10.0 ~5.5 YoY Whs 3.3 FY'16 FY'17 FY'18 FY'19 > 50 Mbps > 100 Mbps 2018 2019 FTTH FWA 5G PLAN
Slide 32: An integrated ecosystem for TIM Corporate Innovation
An integrated ecosystem for TIM Corporate Innovation Corporate innovation ecosystem dimensions Main research areas ▪ Interact with BU / Purchasing / HR as coordinator and business developer ▪ Cloud Native for 5G ▪ Enhance WCAP goals: – Strategic cooperation with Venture Capital fund to coordinate bu
Slide 33: Sustainability embedded in our plan
Sustainability embedded in our plan CMD 2020 33
Slide 34: Sustainability remains embedded in our plan
Sustainability remains embedded in our plan Our ambition How we will deliver Planned targets Eco-efficiency +50% ▪ Increasing efficiency and taking advantage of green energy Renewable energy cost reduction increase of weight on +5pp /yr Environment total energy (%) 2025 We want to be green ▪ Develop
Slide 35: ESG short term actions (2020 Domestic)
ESG short term actions (2020 Domestic) Environment Social Governance ▪ Power usage optimization in data centers ▪ Training initiatives through re-skilling ▪ Management engagement also introducing and networks: and up-skilling: plan of training for all TIM MBO & LTI on ESG objectives ▪ Metamorfosis,
Slide 36: TIM Brasil remains a growth engine
TIM Brasil remains a growth engine CMD 2020 36
Slide 37: 2019 Financial and Operational highlights
2019 Financial and Operational highlights Network evolution supported by Net Service Net Service Revenues Mobile ARPU 2 (R$) innovation: 5G trials, massive MIMO, Revenues1,2 Growth2 (%YoY) refarming, MOU with Vivo R$ 16.6 bln 3.2% (+2.4% YoY) 3.0% +5.6% 23.7 2.4% 22.5 Improved network quality TIM Li
Slide 38: Strategic Pillars for 2020-22
Strategic Pillars for 2020-22 Evolution Transformation MOBILE UBB EFFICIENCY BEYOND CORE INFRASTRUCTURE 1 Preparing for the future 2 From Volume to Value 3 Growth Opportunity 4 To the next level, enhancing CEX 5 Monetizing customer base Evolution Evolution Evolution Evolution Transformation → IT: so
Slide 39: Technology and Operations: Transformational agenda
Technology and Operations: Transformational agenda to prepare the future Benefits: IT to the next level in 18-24 months Customers’ Time-to- Big data NBA market Cognitive Integrated view evolution roll-out systems New Application and capabilities Automation of Catalogue processes and architecture rev
Slide 40: Mobile: Move from volume to value
Mobile: Move from volume to value to sustain mobile business growth, leveraging customer experience Residual growth: churn management becomes more important Premium Price Mobile Unique Users1,2 (MM) Postpaid Churn Rate (% p.m.) 139 146 3.5% 3.8% → Eliminate pain points: P2 104 Reduce discount manage
Slide 41: Ultrabroadband: Industrialization to capture growth
Ultrabroadband: Industrialization to capture growth opportunity with financial discipline Footprint expansion and operational Fixed Net Revenues FTTx Customer Base improvement TIM Live CAGR 19-22: Mln In 2020… → Cherry peaking deployment The lever for fixed business >30% 1.5 +40% +15 → Reduce early
Slide 42: Efficiency: Keep the lead in profitability
Efficiency: Keep the lead in profitability taking efficiency to the next level, while enhancing customer experience E2E transformation to improve cash cost efficiency, leveraging digital, automation, new make vs buy models Process efficiency Digital & Automation Make vs buy Smart CAPEX → Bad Debt (e
Slide 43: Beyond the core: strategic partnerships
Beyond the core: Leverage our assets with strategic partnerships through a unique window of opportunity IoT Mobile Advertising Mobile Financial Services Develop at scale and monetize IoT Penetration over Brazilian Population verticals to explore B2B opportunities. R$ 24.2 bln Brazil’s digital ad mar
Slide 44: TIM Brasil 2020-22 Targets
TIM Brasil 2020-’22 Targets SHORT TERM TARGETS GOALS DRIVERS LONG TERM TARGETS (2020) → Leverage mobile ARPU improve Service Revenues Growth: Service Revenues Growth: Revenue Growth → Expand Residential UBB operations Mid single digit Mid single digit Sustainability → Tap B2B opportunity (YoY) (CAGR
Slide 45: New cash generation culture
New cash generation culture CMD 2020 45
Slide 46: FY 19 Equity FCF 3x vs. FY 18
TIM Group FY ’19 Equity FCF 3x vs. FY ‘18 All figures based on IFRS 9/15 accounting standards and on a comparable basis Organic data (1), € m FY ’18 FY ’19 Q4 ’18 Q4 ’19 16,021 -2.6% 15,608 Service Revenues excluding Sparkle -2.6% YoY in Service 3,987 -3.8% 3,834 FY ‘19: Domestic -4.0%; Brazil +2.4%
Slide 47: Mobile Service Revenues continue to improve YoY performance
TIM Domestic Mobile Service Revenues continue to improve YoY performance Mobile KPIs ▪ Lines: TIM best performer in MNP and on an improving trend (-114k vs -263k in Q3) Churn rate Customer Base ▪ Mobile Service Revenues continue to improve YoY k, Rounded numbers performance despite the reduction of
Slide 48: Domestic Fixed KPIs showing early signs of improvement
TIM Domestic Domestic Fixed KPIs showing early signs of TIM’s “fix the fixed” initiatives Wireline KPIs Migration to UBB continues: ~7m lines reached, +5% QoQ and +27% YoY, thanks to push on fiber conversion, reduced delivery Total Accesses (1) UBB Accesses (2) time (FTTx –5 days YoY) and new FWA of
Slide 49: FSR still affected by Sparkle
TIM Domestic FSR still affected by Sparkle and new sustainable cash generation culture Total Fixed Revenues -4.8% YoY excluding Sparkle’s International Wireline Revenues Wholesale business Organic data, € m Fixed Service Revenues (FSR) affected by: - Sparkle’s strategy revision explaining 4.6pp decl
Slide 50: Cost cutting accelerated in Q4: -12% YoY
TIM Domestic Cost cutting accelerated in Q4: -12% YoY OPEX Cost cutting has continued to accelerate, with OPEX down Organic data, € m Net of € 279m YoY (-12%, vs -9.3% in Q3) and addressable costs -5.4% (-7.4% cash-view) Q4 ’18 Q4 ’19 deferred costs(1) Net of deferred costs, on a cash view, the over
Slide 51: Capex respecting guidance; NWC outflow improved
TIM Group Capex respecting guidance; NWC outflow improved € 550m YoY CAPEX Net Operating Working Capital Organic data, € m FY ’18 FY ’19 3,986 -5.1% 3,784 €m Non Op.WC net Non Op.WC net 868 -6.6% 872 -€ 206m Op.WC recurring non recurring Op.WC recurring non recurring items items items items YoY 3,11
Slide 52: Consumer finance JV with Santander
Consumer finance JV: innovative credit management to optimize cash generation and increase commercial fire power Development and distribution of consumer finance products to purchase Scope TIM’s fixed and mobile devices € 50m Credit management effectiveness and reduced credit risk translating into c
Slide 53: Net Debt: a constant fall throughout the year
TIM Group Net Debt: a constant fall throughout the year € m; (-) = Cash generated, (+) = Cash absorbed, excluding call-outs EBITDA 4,065 EBITDA 1,943 CAPEX (1,481) CAPEX (795) EBITDA 1,481 ΔWC & Others (1,094) ΔWC & Others (390) CAPEX (1,508) Operating FCF 1,490 Operating FCF 758 ΔWC & Others 875 Op
Slide 54: Liquidity margin - After Lease view
TIM Group Liquidity margin - After Lease view Cost of debt ~3.6%, flat QoQ, -0.4p.p. YoY Cash & cash Undrawn portions of Bonds Loans equivalent committed bank lines Liquidity Margin Debt Maturities (1) 10.7 25.4 Cost of debt ~3.6%, -0.4 p.p. YoY Coverage ratio* from 1.5x FY 2018 to 2.3x FY 2019 10.2
Slide 55: After Lease view shows slightly better trends YoY
TIM Group After Lease view shows slightly better trends YoY EBITDA After Lease Net Debt After Lease € m, organic € m, reported (-2.8%) -1,431 (-2.2%) -1.6% in Q4 (-1,429) 7,774 (397) -1.0% in Q4 25,270 (1,948) 1,946 23,839 7,377 7,216 344 7,560 23,322 21,893 Group FY ’18 Lease FY ’18 FY ‘19 Lease FY
Slide 56: 2020: Moving to IFRS 16 after lease
TIM Group 2020: Moving to IFRS 16 after lease, excluding Persidera and INWIT REPORTED Pro-forma Baseline - excluding changes in consolidation area 2019 baseline 2019 baseline FY 2019, €m IFRS 9/15 IFRS 16 After Lease Δ Persidera Δ Inwit After Lease IFRS 16 Domestic 14,081 14,078 14,078 -68 -9 14,001
Slide 57: Guidance and final remarks
Guidance and final remarks CMD 2020 57
Slide 58: Equity FCF guidance upgrade
Equity FCF guidance upgrade despite finishing in ‘20 sales/EBITDA restructuring INWIT deconsolidated (proceeds not yet embodied) Group Domestic Brasil YoY growth rates, IFRS 16 / After Lease 2020 2021-’22 2020 2021-’22 2020 2021-’22 Organic Low single digit Low single digit Low to Mid single Stable
Slide 59: ESG Guidance (Group)
ESG Guidance (Group) 2020-’22 2025 Carbon neutral CO2 eq. emissions reduction vs 2019 -30% -70% 2030 Environment Eco-efficiency +50% Renewable energy +5pp / year % increase of weight on total energy Employees engagement +14p.p.(1) Social Reskilled people 2,000 Refurbished smartphones increase >15%(2
Slide 60: TIM for all its stakeholders
TIM for all its stakeholders ▪ TIM is working for the Country: today for the emergency, long term for its modernization ▪ We overdelivered our financial guidance in 2019 and we’ll do our best to continue to do so ▪ Equity FCF has been and will continue to be our primary metric ▪ On dividend we are c
Slide 61: Q&A
Q&A CMD 2020 61
Slide 62: Annex
Annex CMD 2020 62
Slide 63: Net Income
TIM Group Net Income Reported data, € m, Rounded numbers FY ‘19 EBITDA Non EBITDA Depreciation & EBIT Net Interest & Taxes Net Income Minorities Net Income Organic recurring Reported Amortization Net Income/ ante Reported items & Other Equity/ Disc. Minorities Operations FY ‘18 7,774 (371) 7,403 (6,
Slide 64: Liquidity margin - IFRS 9/15 view
TIM Group Liquidity margin - IFRS 9/15 view Cost of debt ~3.9%, -0.1 p.p. QoQ, -0.5 p.p. YoY * Without IFRS 16 Cash & cash Undrawn portions of Bonds Loans Leases equivalent committed bank lines Liquidity Margin Debt Maturities 11.9 27.3 (1) 10.2 3.6 0.4 21.2 3.3 1.2 3.2 0.2 9.0 2.4 0.1 4.4 0.6 4.0 3
Slide 65: IFRS 16 - TIM Group main results
IFRS 16 – TIM Group main results Reported data, € m Revenues Service Revenues EBITDA Δ Δ Δ FY’ 19 FY’ 19 FY’ 19 FY’ 19 FY’ 19 FY’ 19 IFRS IFRS IFRS IFRS 9-15 IFRS 16 IFRS 9-15 IFRS 16 IFRS 9-15 IFRS 16 16 16 16 TIM Group 17,977 (3) 17,974 16,306 (2) 16,304 7,489 662 8,151 Domestic 14,081 (3) 14,078
Slide 66: Liquidity margin - IFRS 16 view
TIM Group Liquidity margin - IFRS 16 view Cost of debt ~4.1%, -0.1 p.p. QoQ * Including cost of all leases Cash & cash Undrawn portions of Finance Bonds Loans equivalent committed bank lines Leases Liquidity Margin Debt Maturities 13.3 30.6 10.2 0.4 21.2 3.9 2.6 3.3 3.5 0.2 4.8 2.4 0.4 9.0 0.6 3.1 0
Slide 67: For further questions please contact the IR Team
For further questions please contact the IR Team Investor Relations Contact Details Phone Contact details for all E-mail IR representatives: +39 06 3688 1 [email protected] www.telecomitalia.com/ircontacts +39 02 8595 1 TIM IR Webpage TIM Twitter Slideshare www.telecomitalia.com/in