Profit statements

TIM issues third profit warning in one year amid board battle

  • TIM cuts its baseline profit forecast for 2021 domestic businesses
  • Vivendi plans to request board reshuffle – sources
  • The group will hold a board of directors on Friday on the KKR offer

MILAN, Dec. 16 (Reuters) – Telecom Italia (TIM) (TLIT.MI) has issued its third profit warning in a year amid a board battle that could see its main investor Vivendi (VIV .PA) to request a reshuffle of the board of directors.

TIM, which also has to decide how to react to a buyout approach from US fund KKR, said on Wednesday evening it had cut the 2021 profit forecast for its domestic operations due to weaker fixed-line income than expected from its partnership with DAZN to filter Italian football.

Vivendi holds former CEO Luigi Gubitosi responsible for the group’s poor financial performance and may request a board overhaul to oust him, four sources told Reuters on Wednesday. Read more

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The board will meet on Friday to discuss KKR’s (KKR.N) proposal of 33 billion euros ($ 37.29 billion). If Gubitosi does not resign as a director at the meeting, Vivendi could request that an extraordinary general meeting be called to appoint a new board of directors, two sources said.

A review of the board of directors could also be triggered by the resignation of a majority of directors.

Il Sole 24 Ore has indicated that the board meeting may delay consideration of KKR’s approach, considering it instead in the coming months.

“Such a scenario slightly reduces the likelihood of an offer, testing KKR’s patience,” Banca Akros analyst Andrea De Vita said in a note.

TIM shares were down 1.2% on Thursday at 10:40 a.m. GMT.

TIM share performance against the Italian blue chip index

The group now expects a “small decrease” in organic profit before interest, taxes, depreciation and amortization after leases (EBITDA-AL) in 2021 for its domestic activity. In October, he predicted a “sharp single-digit drop” for the company.

“This new guidance implies a very negative fourth quarter (for profits from domestic activities) compared to the 9.8% drop recorded over the nine months, leading to a potential drop of more than 20% over one year”, De Vita said.

Earlier this year, TIM struck a billion euros deal with sports streaming service DAZN in an attempt to boost its broadband and pay-TV services. Read more

TIM is now looking to lower the cost of the deal after the deal to distribute the best matches in the Italian football league generated less revenue than expected. Read more

Any non-recurring provision will be determined in light of the ongoing negotiation of the DAZN deal and will be recognized in 2021, TIM said in a statement.

TIM, Europe’s sixth-largest telecommunications group, said it expects the group’s organic EBITDA-AL for 2021 to exceed € 5.4 billion thanks to the growth of its business unit in Brazil, which confirmed at an “average single-digit” rate.

EBITDA-AL was 6.3 billion euros in 2020, according to TIM’s annual report, and the group had previously reported an “mid-single-digit” decline for that year.

Jefferies brokerage said the consensus for 2021 organic EBITDA-AL was € 5.8 billion at the group level.

After a payment of 435 million euros for the licenses, the adjusted consolidated net financial debt of the company is expected to be approximately 17.6 billion euros.

($ 1 = 0.8849 euros)

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Additional reporting by Shivani Tanna, Vishal Vivek in Bengaluru Editing by Subhranshu Sahu, Mark Potter, Kirsten Donovan

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