TIM growth still driven by Brazil after networks sale

The Italian incumbent reported numbers for ServCo, the business left behind after the sale of NetCo to KKR and various partners, which closed a month ago. The figures are noteworthy not for what they contain – there are no major surprises in there – but because they represent the start of a new era for TIM.

That said, they cover the six months to the end of June, before the deal completed, and therefore you could argue that the next set will be the most telling. But equally in the first half of the year TIM was highly focused on positioning its ServCo business for future growth, so the figures are relevant.

Overall, TIM is pretty pleased with ServCo's performance in the first half. It highlighted a 3.5% increase in turnover to €7.1 billion, driven by service revenue growth. Earnings were up by 9.4% to €2.1 billion, while EBITDAaL came in at €1.8 billion, up by 13% on the same period in 2023. All figures are given on a like-for-like basis, incidentally.

Much of the growth came from Brazil, which accounts for around a third of revenues and earnings. TIM Brasil added €2.3 billion to the telco's top line, an increase of 7.8%, while EBITDAaL rocketed 17.8% to €0.8 billion. The business has been on a significant growth trajectory for the past couple of years on the back of strength at its mobile business, TIM said. Indeed, the operator increased its mobile customer base by over three quarters of a million over the 12 months to the end of June to 62 million and increased ARPU by 8.2% in local currency terms to 30.8 reais (just over €5).

But it's the domestic business that everyone is keeping a close eye on, post NetCo sale. And that's doing OK too.

Revenues in Italy grew by 1.6% to €4.9 billion and EBITDAaL by 8.8% to €1 billion. The domestic performance was driven by growth at TIM Enterprise, which is about half as big as the Consumer business, but increasing its contribution to the pot. TIM Enterprise saw revenues grow by almost 5% year-on-year to over €1.5 billion, while Consumer stayed flat at a shade under €3 billion.

Sparkle's input was €493 million, virtually flat on the year-ago period. We're still waiting for some closure on that sale process, TIM having asked the Italian government to better the undisclosed bid it tabled in February.

Debt is a key issue for TIM when it comes to the reshaping of its business and the operator was keen to share that ServCo's net financial debt after lease reduced to €8.1 billion as a result of the NetCo sale. That reduction is a little misleading though, given that we're not talking like-for-like here, but rather the sale of highly leveraged assets.

At group level – without pulling out NetCo, that is – TIM's adjusted net financial debt after lease grew by €0.1 billion between Q1 and Q2 to reach €21.5 billion at the end of June. It's not a huge increase; TIM describes the figure as "substantially stable." But it's worth noting.

The biggest test will come at year-end, when TIM expects ServCo debt to be around €7.5 billion. The telco's share price took a big hit back in March when it disclosed that debt would rise from the ServCo pro forma figure of €6.1 billion last year, so it really needs to stick to that €7.5 billion target at the very least.

It says the €8.1 billion figure is in line with forecasts though. And it confirmed its full-year guidance. So overall, it's a case of so far, so good.