Organic results:

TOTAL GROUP REVENUES UP 4.3% YoY DURING THE FIRST QUARTER TO € 3.8 BLN, TREND IMPROVING

GROUP ORGANIC EBITDA € 1.5 BLN DURING THE QUARTER, +3.8%YoY, TREND IMPROVING FOR THE SECOND CONSECUTIVE QUARTER

NET FINANCIAL DEBT AFTER LEASE €20.5 BLN

TIM BRASIL’S STRONG GROWTH CONTINUED IN THE QUARTER WITH TOTAL REVENUES AT €1.0 BLN (+19.3%) AND ORGANIC EBITDA AT €0.5 BLN (+21.8%)

26% OF THE INCREMENTAL COST CONTAINMENT TARGET ENVISAGED FOR 2023 REACHED DURING THE QUARTER

TIM’s Board of Directors met today under the chairmanship of Salvatore Rossi and unanimously approved the periodic financial reporting at March 31, 2023.

The first quarter results, during which the stabilization and relaunch of the domestic business continued, as did the acceleration of the development of TIM Brasil, are fully in line with the FY 2023 targets as disclosed to the market last February.

More specifically, compared with the first quarter of 2022, at Group level, total revenues came to 3.8 billion euros (+4.3% YoY) while service revenues came to 3.5 billion euros (+2.8% YoY) thanks to the improvement in the domestic trend and the positive contribution from Brazil. In Italy the premium “Value vs Volume” positioning strategy has been further strengthened with selective price increases for existing fixed and mobile customers. An additional drive on a greater rationality of the domestic market is expected from the final approval by the authorities of the 2023 wholesale tariffs, which envisage a price reduction for fiber access services and an increase in copper ones. In Brazil, integration of the Oi Group’s mobile business was completed, and the organic growth strategy was further pursued on the fixed market.

During the first quarter, the Domestic Business Unit recorded a further improvement on the trend of total revenues, which came to 2.8 billion euros (-0.2% YoY vs -1.6% YoY during the previous quarter), while service revenues were 2.6 billion euros (-2.4% YoY vs -1.5% YoY during the previous quarter), a performance that was weighed down by the elimination of activation contributions for most fixed line offers. TIM Brasil recorded YoY growth of 19.3% in both total revenues and service revenues, which came to 1.0 billion euros.

Group EBITDA showed strong improvement, recording growth of 3.8% YoY, and came in at 1.5 billion euros, confirming the improving trend enjoyed during the previous quarters (+2.7% YoY in the fourth quarter of 2022, -6.5% YoY during the third quarter, -8.5% YoY during the second quarter and -13.3% YoY during the first quarter), thanks to both the gradual stabilization of the Domestic Business Unit (1.0 billion euros, -2.8% YoY vs -4.2% YoY during the fourth quarter of 2022, -16.2% YoY in the third quarter, -16.3% YoY in the second quarter and -18.3% YoY in the first quarter) and the ever stronger positive contribution made by TIM Brasil (0.5 billion euros, +21.8% YoY).

Group After Lease EBITDA came to 1.2 billion euros (+0.5% YoY), of which 0.9 billion euros from the Domestic business unit (-3.5% YoY, showing strong improvement on the previous quarters) and 0.3 billion euros from TIM Brasil (+13.8% YoY).

During the quarter, cost containment actions to increase the level of TIM Domestic’s structural efficiency also continued (‘Transformation Plan’, cumulative target of cash cost reduction of 1.5 billion euros by 2024 versus the inertial trend). At March 31, the reduction of operating costs with respect to the inertial trend was approximately 0.2 billion euros, around 26% of the incremental target set for 2023.

Net financial debt at March 31, 2023 came to 25.8 billion euros, up 0.5 billion euros on December 31, 2022. Net financial debt after lease stood at 20.5 billion euros, up 0.4 billion euros on December 31, 2022.

At March 31, 2023, the liquidity margin came in above 8.0 billion euros and covers the debt maturity dates throughout 2024. In support of its liquidity position, after two years away from the capital market, in January, an unsecured bond worth 0.85 billion euros was placed at fixed rate, offered to institutional investors, and in April it was reopened for 0.4 billion euros, the greatest tap issue in the high yield market since October 2021.

In addition, in May, the European Investment Bank (EIB), assisted with a 60% guarantee by SACE, has confirmed its commitment, flanking TIM in the development of latest generation network infrastructures with a 0.36 billion euro loan dedicated to strengthening 5G coverage in Italy. The loan will allow the TIM Group to have access to a debt instrument at more favorable conditions than those offered by the bank and bond market and confirms the strategic nature of investments in extending 5G coverage on national territory by end 2025, as held by TIM.

The Equity free cash flow after lease of the first quarter 2023 was negative for 0.4 billion euros, mainly due to absorption of the working capital (equity free cash flow was negative for approximately 0.1 billion euros).

Below is an update on the business areas presented on July 7 during the Capital Market Day:

■       TIM Consumer recorded total revenues and service revenues down respectively by 5.1% YoY and 5.6% YoY in the quarter, an improvement on the previous quarters. The “Volume-to-Value” strategy continued, with a progressive repositioning as premium brand: during the first quarter, TIM was found to be the best brand in terms of awareness. TIM was also the only infrastructured operator to have increased its market share of fiber customers in 2022, a leadership position that was then strengthened during the first quarter, reaching approximately 1 million active FTTH customers. Despite the repricing initiatives, during the first quarter, the trend of net adds improved sharply compared with the same quarter of 2022, both in fixed and mobile, where TIM is once again the best Mobile Network Operator in terms of “mobile number portability” (i.e. the flow to other operators).

■       During the first quarter, TIM Enterprise confirmed the growth trend with an increase in total revenues and service revenues respectively by 4.4% YoY and 3.9% YoY. The service revenue mix trend in the first three months was in line with expectations:

■    Connectivity (-5% YoY)

■    Cloud (+16% YoY)

■    IoT (-4% YoY)

■    Security (+17% YoY)

As a whole, ICT services generated 58% of total revenues, in line with 2022.

During the quarter, the mix of revenues was shifted to services offering higher margins, with a consequent improvement in the commercial margin, which, in fact, showed more solid growth than that of revenues.

■     NetCo reported total revenues up by 3.4% YoY (also thanks to the contribution made by the commercial agreement with Open Fiber in the white areas) and a slight downturn to service revenues (-0.9% YoY), with a trend that in any case showed improvement on previous quarters and that is expected to speed up further following the final approval by the Authorities of the regulated wholesale prices for 2023, which will be applied starting from the second quarter. At March 31, 2023, NetCo managed approximately 16 million fixed accesses (of which more than 72% in UBB technologies) with a market share of 79% and FTTx coverage of over 95% of the active lines (approximately 60% with a speed of over 100 Mbps). The technical units covered by FTTH technology numbered 7.8 million, giving a coverage of 33%, up by 7 percentage points on March 31, 2022.

■     Significant growth was also seen by TIM Brasil in the first quarter of total revenues (+19.3% YoY), service revenues (+19.3% YoY) and EBITDA (+21.8% YoY) thanks to a solid organic performance and the contribution made by the Oi assets.

MAIN DOMESTIC OPERATING INDICATORS

During the first quarter, the churn rate in both the mobile and fixed segments was stable on the same period of 2022.

In mobile, the customer base stabilization trend continued: during the first quarter, the reduction in Human lines was 45% lower than in the same period of 2022, while in “mobile number portability” (i.e. the flow to other operators) TIM posted the best result among infrastructured operators with a net balance of -58 thousand lines. At the same time the sector saw the portability flows reduce overall by around 14% YoY, demonstration of the cooling of competition.

In fixed, the reduction in accesses was 31% below the first quarter of 2022, while growth in UBB lines accelerated by 21%. During the first quarter, retail and wholesale Ultrabroadband net adds came to 105 thousand, reaching 10.7 million units with an increase of more than 4% YoY.

The first quarter 2023 results will be presented to the financial community during the webcast and audio conference on May 11, 2023. The event will start at 11.00 a.m. (Italian time). The presentation will be followed by a Q&A session. Reporters can follow the presentation by telephone and via the web, without the option to ask questions, by calling +39 06 33444 and following the instructions for assisted conferences or by connecting to the following link. The presentation slides will be available at link. 

Financial highlights

Organic results ⁽¹⁾

_{⁽¹⁾        The organic results exclude non-recurring items and the comparable base is calculated net of the foreign currency translation and the change in the scope of consolidation.}

_{⁽²⁾        Adjusted Net Financial Debt. The change in the fair value of derivatives and related financial liabilities/assets is adjusted by the booked Net Financial Debt with no monetary effect.}

GROUP ESG PERFORMANCE

During the first quarter of 2023, activities continued seeking to achieve the ESG targets of the Industrial Plan.

ENVIRONMENT

As regards renewable energy, TIM and Enel X have stipulated an agreement for the installation of a photovoltaic plant in the Pisa “La Figuretta” telephone exchange. The plant will be able to generate more than 1.63 GWh per year, the equivalent of the amount of energy needed to power a town of approximately 600 family units. In addition, as the energy is 100% green, it will result in savings of approximately 740 thousand kg CO₂ per year.

SOCIAL

As regards initiatives relating to TIM’s people, starting February 1, the new smart working agreement has taken effect, which envisages closing company offices on Fridays and switching from 2 to 3 days spent working from home. The new agreement will result in annual savings of approximately 35 GWh in respect of the optimized energy management of buildings and the limitation of CO₂ emissions, linked to the lesser consumption of energy and reduced home-work commutes, at the same time also guaranteeing collaboration between colleagues in the office on the other days of the week.

Implementation also continues of the training plan on skills relevant to the ICT segment. Mid-March, the Individual Training Plans were consolidated and the calendars of the days on which training will be delivered, defined. Each employee was also able to define their own individual route, choosing from a catalog of 170 courses.

In terms of inclusion, TIM has been confirmed in the top 20 of the Diversity Brand Index 2023, the only Italian research aiming to measure brands’ capacity to effectively develop a culture hinged on diversity, equity and inclusion. Under the scope of the Diversity Brand Summit, it also received the “Digital” prize for the “TIMVISION Ascolta” project, which allows blind and short-sighted children to be able to enjoy cartoons thanks to audio descriptions.

GOVERNANCE

In March, the new Group Code of Ethics was approved, an essential part of the organizational model and internal control and risk management system. The new code recognizes sustainability as a point of reference for TIM’s long-term strategy and sets, amongst the main ambitions, the energy transition, the development of business in complete respect for the environment and the rights of future generations.

TIM is also one of the 19 Italian companies included by S&P Global in the “Sustainability Yearbook 2023”, with a Top 10% S&P Global ESG Score.