Telecom Italia S.p.A. (TIIAY) FY 2024 Preliminary Results and Strategic Plan Update Presentation Earnings Call Transcript

2025-02-13 18:59:18 ET

Telecom Italia S.p.A. (TIIAY)

FY 2024 Preliminary Results and Strategic Plan Update Presentation Earnings Call

February 13, 2025 5:00 AM ET

Company Participants

Paolo Lesbo – Head-Investor Relations

Pietro Labriola – Chief Executive Officer

Adrian Calaza – Chief Financial Officer

Andrea Rossini – Head-TIM Consumer

Elio Schiavo – Head-TIM Enterprise

Alberto Griselli – Chief Executive Officer, TIM Brasil

Claudio Ongaro – Chief Strategy and Business Development Officer

Agostino Nuzzolo – General Counsel and Head-Legal Affairs

Conference Call Participants

Fabio Pavan – Mediobanca

David Wright – Bank of America

Domenico Ghilotti – Equita

Mathieu Robilliard – Barclays

Giorgio Tavolini – Intermonte

Luigi Minerva – HSBC

James Ratzer – New Street

Joshua Mills – Exane

Ajay Soni – JPMorgan

Keval Khiroya – Deutsche Bank

Ottavio Adorisio – Bernstein

Presentation

Operator

Ladies and gentlemen, good morning and welcome to TIM 2024 Preliminary Results and Strategic Plan Update Presentation. Paolo Lesbo, Head of Investor Relations, will introduce the event.

Paolo Lesbo

Ladies and gentlemen, good morning. My name is Paolo Lesbo, Head of Investor Relations, and I welcome you to TIM full year 2024 results and strategic plan update presentation. Before starting, I want to point out the safe harbor disclaimer and set out the agenda for today. In Chapter 1, the CEO, Pietro Labriola, will outline the key messages on the results and on the plan. In Chapter 2, Pietro and the CFO, Adrian Calaza, will present 2024 results. In Chapter 3, Pietro and Adrian will be joined by the Head of TIM Consumer, Andrea Rossini; the Head of TIM Enterprise, Elio Schiavo; and the CEO of TIM Brasil, Alberto Griselli, to update the strategic plan for 2025, 2026, and 2027. A live Q&A session will follow.

Let’s start. Pietro, the floor is yours.

Pietro Labriola

Thank you, Paolo, and good morning everyone. 2024 has been a transformational year, marked by the completion of key initiatives. For the third consecutive year, we achieved our full year guidance, something that had never happened in TIM’s recent history. We completed the NetCo disposal in record time, a challenge that many thought was impossible. We executed the Europe’s largest ever liability management, significantly improving our financial structure. We sold our remaining stake in INWIT and accepted the binding offer for disposal of Sparkle, further strengthening our financial flexibility.

We made significant progress on the €1 billion concession fee that will reinforce our cash position. TIM is now a different company. We have restored our strategic and financial flexibility, and we are once again in control of our future. What seemed impossible just three years ago is now a reality.

Slide 4. Having successfully executed the transformation announced in 2022, TIM is now at the turning point, a strong, stable and efficient company. What does this mean in practical terms? In Italy, TIM Consumer and TIM Enterprise are positioning as the leaders in the Telco and ICT revolution, leveraging on their expertise in digital services and cloud solution. In Brazil, TIM has become the most efficient Telco operator in Latin America, with industry leading margins and sustainable growth. But as you several time mentioned, being a normal company also means generating structural free cash flow to support future investments, maintaining a healthy balance sheet with the leverage ratio now aligned with industry best practice, returning value to our shareholders, something that seemed impossible just year ago, but is now within reach. A year ago, this ambition will consider wishful thinking. Today, they are becoming reality, thanks to a stronger business model, a linear cost structure and a clear strategy for the future.

Now let’s look at the numbers that confirm this transformation. Slide 6. Let’s start to review how the performance of the business has changed following the transformation announced in 2022. Here, we compare the key metrics of the new TIM in 2024 with the same metrics of the old TIM in 2023. It’s clear that a stronger business is emerging. At domestic level, we almost double revenue per employee, significantly increase EBITDA after lease per employee, and have CapEx intensity. EBITDA minus CapEx has also increased materially, highlighting stronger cash generation capability. The comparison is based on organic figures. The EBITDA minus CapEx improvement was much more substantial based on reported figures.

At group level, net debt after lease decreased from over €20 billion to €7.3 billion and leverage come down from 3.8x to below 2x. Such improvements were possible because the transformation has produced the benefit we expected. Vertical integration has been overcome. Regulatory burden has been reduced. The balance sheet has been deleveraged. Financial flexibility has been restored. Capital intensity has been reduced. As a consequence, operational results have improved. In a nutshell, today, TIM is an efficient business, leveraging the most distinctive digital and telco infrastructure in Italy and Brazil, with the solid balance sheet, with strategic flexibility to capture market opportunities, and with a strong focus on cash generation, which enables to reinstate shareholder remuneration.

Slide 7. The full year 2024, results confirmed that TIM is now a stronger and more efficient company. Mid-single digit revenue growth at €14.5 billion; double-digit EBITDA after lease growth at €3.7 billion; €2.1 billion CapEx; 14% of revenue, also including growth CapEx, €1.6 billion EBITDA after lease minus CapEx, up 24% year-on-year, €7.3 billion net debt after lease including INWIT disposal. TIM Brasil performance is not a surprise. They reach a cruising speed that keeps strong quarter-after-quarter. What is eye catching is the performance of domestic business, where TIM Consumer has been stabilized and TIM Enterprise continues to grow above market.

So for Italy, we have 1.5% revenue increase at €10.2 billion, €2 billion EBITDA after lease, up 8.5%, CapEx on revenue below 13%, €0.7 billion EBITDA after lease minus CapEx, up 24% year-on-year. Please note that excluding Sparkle domestic EBITDA will grow 11%. Despite the Italian market remains one of the most challenging, I’m not aware of similar growth rates across Europe. I’ve seen three key drivers of our performance. First, our strategy works. Don’t forget that TIM Domestic improved also in 2022 and 2023. Second, the delayering works. We always say that being vertically integrated didn’t give TIM any advantage, but only constraints. Today, the benefits we expected are coming true.

Slide 8. If we look at the operational KPIs, the positive trends of the previous quarter are confirmed. For TIM Consumer, wireline ARPU grew and Mobile ARPU stabilized thanks to the price up that we implemented in the first half of the year. At the same time, churn was stable. We have also recorded a significant increase in service revenue from ICT services provided to small and medium businesses. For TIM Enterprise, total value of contracts signed in the 12-month increased to over €4 billion. This backlog will turn into new revenues in coming years. If we zoom on cloud, the National Strategic Hub confirmed to be a key growth driver, with total value of contracts signed increasing by over 50% to €520 million, while the average duration of new cloud contracts is almost doubling. In terms of mix, ICT accounted for 64% of total service revenue in the 12 months. TIM Brasil reported two days ago, no need to add anything. All KPIs improved and supported an overall performance that was once again very strong.

Slide 9. For the third year in a row, group results were in line with guidance, an unprecedented achievement in the recent and even not so recent history of TIM. At domestic level, revenues and EBITDA after lease were a touch below guidance. This was entirely due to Sparkle, which was weak in the second half because the situation in Israel delayed the completion of a new subsea cable. The related IRU revenues and EBITDA, which we had included in 2024 budget will come in 2025. Domestic CapEx and EBITDA after lease minus CapEx were significantly better than guidance. On the right-hand side, we compare actual result, excluding Sparkle, with the guidance. The picture further improves with all metrics in line and domestic EBITDA above target. Looking ahead, our financial discipline and improved cash generation give us the flexibility to invest in growth while enforcing our commitment to shareholder value....

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