TIM talks up Italy turnaround and says KKR deal on track

TIM has presented a decent-looking set of second-quarter financials, due in part to a solid performance in its home market, where everything is “progressing as planned” with regard to the sale of its network assets.

The Italian incumbent has struggled domestically for a number of years, but – as it predicted earlier this year – it is now turning things around. In the three months to the end of June the Italian business returned to growth for the first time in five years, the telco declared, posting a 0.6% year-on-year increase in revenue to €2.9 billion and a 0.5% uptick in EBITDA after leases to €1.1 billion.

The growth rates are not huge, but they are there.

The market remains challenging though. Domestic service revenues dipped by almost a percentage point, dragged down by the mobile segment, which contracted by 4.2% to €719 million. TIM attributes the decline mainly to a reduction in mobile customers; human, not IoT, that is. As of the end of June its mobile customer base stood at 18.27 million, down by 169,000 since the start of the year and by 351,000 over 12 months. Interestingly, ARPU also fell, although TIM didn’t comment on that. Human ARPU was at €11.1 per month, compared with €11.4 a year earlier.

“On the domestic side, transformation activities, focus on costs and and revision of business models continue in light of the challenging industrial and financial environment,” TIM said.

There are many strands to TIM’s ongoing transformation, but the one the whole industry has eyes on is its plan to spin out and sell off its network assets. After months of back and forth with its two bidders – KKR and a consortium of CDP Equity and Macquarie – TIM opted to hold talks with KKR with a view to brokering a deal by the end of next month.

Officially, it hasn’t much to say on the matter at present, other than to reassure us that all is well.

“The delayering plan for the sale of NetCo is progressing as planned: after the decision made by TIM’s Board of Directors last June 22 to start exclusive negotiations with KKR, necessary activities to receive a conclusive binding offer by September 30 are ongoing,” it said.

But reports in the Italian press suggest the companies might actually be ahead of schedule in the process.

KKR could make a binding offer by the end of August, having already sent out a letter to a dozen banks to put together a €10.5 billion loan to help fund the transaction, Il Sole 24 Ore reported this week.

However, it notes that there are still question marks over the possible involvement of CDP in any deal, and the prospect of some of NetCo remaining in public hands. Indeed, in a separate report the Italian financial daily quoted TIM chief executive Pietro Labriola as saying that while the telco is currently negotiating solely with KKR, it has had expressions of interest from several institutional players, and hinted that CDP/Macquarie could still be involved.

“If the deal with KKR goes through, there is nothing to stop them holding talks between themselves afterwards,” Labriola said.

TIM has made made much of the fact that while the NetCo deal is its preferred course of action, it has other options with regard to the future of its business. Its Q2 numbers lend credence to that statement.

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