12/08/2008


Tim Brasil will be the key for Telecom Itália's growth in the period between 2009 and 2011

*by Eduardo Tude and José Luis de Souza

 

 

Telecom Itália's approved in the first week of December/08 its business plan for the period from 2009 to 2011.

 

The main objective of the plan, which sets Italy and Brazil as key markets for the operator, is improving Telecom Itália's revenues and margins in order to decrease its net debt (35.8 billion Euros in Sep/08).

 

The Italian market will be the cash generator for the group, presenting EBITDA margin superior than 40%. The Brazilian market will be responsible for the revenue growth, with average taxes of 8% against 0.2% in Italy.

 

 

Plan 2009 -2011
Telecom Italia
Italy
Brazil
Average Growth of Net Revenue (CAGR*) 2008-2011
>2%
0.2%
~8%
EBITDA Margin (2011)
39%
46%
27.5%
CAPEX/revenue (2011)
13.5%
13.5%
13.5%

 

 

*CAGR: Compound Annual Growth Rate is the annual average growth tax in a specified period of time.

 

This plan, iactually, excludes the possibility of selling TIM Brasil (more details).

In the first 9 months of 2008, Tim Brasil answered for Telecom Italia's 17.7% of revenue and 9.8% of EBITDA. The established targets for the company in period from 2009 to 2011 are:

 

 

Tim Brasil
2008 E
2009
Plan
Net Revenue
>7%
R$ ~15.3 bi
CAGR 2008-2011
~8%
EBITDA
23-23.5%
% of revenue
R$ ~3,6 bi
~27.5%
% of revenue 2011
CAPEX
R$ ~3.7 bi
R$ ~2.8 bi
~13.5%
% of revenue 2011

 

These targets were established in R$ for results counted according to the accounting rules IAS/IFRS (European), which presents values superior to the ones gotten using the accounting rules adopted in Brazil.

 

The following table presents these goals considering the Brazilian accounting rules.

 

 

Tim Brasil
2008 E
2009
Plan
Net Revenue
>7%
R$ ~14.4 bi
CAGR 2008-2011
~8%
EBITDA
22-22.5%
% of revenue
R$ ~3.3 bi
~27%
% of revenue 2011
CAPEX
R$ ~3.3 bi
R$ ~2.3 bi
~12%
% of revenue 2011

 

The following presents comments about these goals.

 

 

Revenue

 

The figure below presents the projection for Tim Brasil's net revenue with the targets stablished in the plan, considering the accounting standards adopted in Europe (IFRS) and in Brazil.

 

 

 

 

Tim Brasil's revenue gotten using the IFRS reached an average, in the last 7 quarters, 6.8% bigger than the one gotten by the Brazilian accounting rules.

 

Tim' target for revenue growth is aggressive. The average of 8% projected for the period 2008-2011 is bigger than the 7% projected for 2008, which forecasts a good result for 4Q08.

 

 

 

 

To reach this growth, Tim Brasil establishes as target for 2011 a cellular market share of about 24% with focus in high-value client, the defense of its position as second in revenue share ranking and the recovery of leadership in brand awareness.

 

The company also establishes the following measures:

  • Grow as fixed telephony operator, reaching 3 million clients in 2011.
  • Improve quality of service
  • Recover leadership in innovation
  • Focus on client, investing in CRM to selective attendance.

 

EBITDA

 

Tim aspects an EBITDA margin evolution from 23% in 2008 to 27.5% in 2011 (IFRS).

 

 

 

 

Note that in this case there are also differences according to the adopted accounting standard. Tim Brasil's EBITDA gotten while using IFRS was in average, in the last 7 quarters, 13% bigger than the one gotten through the Brazilian accounting rules. Tim Brasil's EBITDA in 2007 was 24.2% through IFRS and 23.1% with the Brazilian standard accounting.

 

To reach these targets, Tim Brasil set objectives to improve its financial indexes, such as the default, from 6% in 2008 to 4% in 2011, and commercial, management, employees and general costs in relation to service revenue.

 

The company also wants to reduce structure costs, like the ones related to its transport network for long distance. The options in this case would be the partnerships, built its own net or purchase. Tim Brasil's interest in acquiring Intelig has being reported in press.

 

CAPEX

 

There are also differences between both accounting rules for investments (Capex), as presented in the following image.

 

 

 

 

In 2Q08 are included R$ 1,240 from 3G licenses acquisition.

 

In its plan, Telecom Italia estimates a Capex of R$ 3.3 billion in 2008 (R$ 2.1 billion without 3G licenses), R$ 2.3 billion in 2009 and about R$ 2.0 billion (12% of the revenue) in 2011, according to Brazilian accounting rules.

 

The plan sets, as a measure, an "ambitious" plan for the implementation of 3G net focusing in cities with high population concentration.

 

You could ask:

  • Will Tim Brasil overcome the target for revenue growth set by the plan for the period from 2009 to 2011?
  • Can the established EBITDA Margin of 27.5% be considered as a trend for cellular segment? Can this margin standard be reached before 2011?
  • Will the investment (CAPEX) planned by Tim, with the investments from its competitors, increase the competition in 3G transforming it in a solution for broadband universalization?
  • Can we wait for 2009 a strong cellular growth as the one registered in 2008? Will broadband be a big factor?

Commentaries

 

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