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It’s a short blanket and the debt problem on Telecom’s shoulders doesn’t allow for shortcuts. The one that analysts hadn’t really thought about, so much so as to trigger the avalanche of sales on the stock exchange that sank the share price by almost 24% on Thursday, was put in black and white with the crudeness of the figures in the addendum to the presentation of the plan that Tim prepared over the weekend and released at dawn today, Monday 11 March.
In the current setup, Tim continues to burn cash and debt continues to increase. If the transfer of the network to Netco takes place by the summer, in any case the current financial year will see the after-lease net debt increase to 7.5 billion compared to the 6.1 billion of the pro-forma without network in 2023.
One of the two slides, added to the Capital market day presentation on March 7, provides the connecting data. Financial charges are estimated for 2024 at 1.1 billion, of which 20% relating to Tim Brasil and 65% charged to the first half of the year. Costs of separation from the network and possible price adjustments could impact another 400 million, as would the absorption of ordinary working capital, while the absorption of extraordinary working capital could reach 700 million, to which add 200 million in cash tax expenditure and 200 million for minorities by Tim Brasil. In all it is 3 billion offset by 1.6 billion of Ebitda after lease expected in 2024, net of investment spending, with net debt which would therefore go from 6.1 to 7.5 billion with leverage (net debt after lease/Ebitda) around 2 times.
No cash generation in 2025
Cash generation is not yet expected in 2025, which should instead rise to 0.5 billion in 2026. However, the Tim press release explains, cash flow levels could rise to 0.4 billion in 2025 and 0.8 billion in 2026, if “normalized”. «The cash flow normalization factors – we read in the note – are connected to extraordinary cash outflows at the working capital level mainly related to the effective liquidation of personnel subject to early retirement incentive initiatives already activated and to the normalization of costs of the debt due to the impact of the expected improvement on the rating which will allow the company to implement, eventually, a more efficient management of the liquidity margin and the reduction of the charges related to extraordinary items”.
It should be underlined that the projections provided by Tim do not take into account the earnouts, additional payments relating to the transfer of the network to KKR, mainly connected to the creation of the “single network” with Open Fiber, and the possible transfer of Sparkle. For the submarine cable company that ensures international connections, negotiations are still underway with the Treasury, which has offered a 100% valuation in terms of enterprise value (equity plus debt) of up to 750 million. However, Tim could maintain a minority share, continuing to express the management of the company, with possible additional rewards on the price upon reaching/exceeding the objectives set out in the industrial plan.