Telecom Italia to Invest Billions in Turnaround Effort
17 February 2016 - 5:50AM
Dow Jones News
MILAN—Italian telecom giant Telecom Italia SpA will spend
billions over the next three years in new investment aimed at
reversing a decline that saw a sharp fall in profit and revenue
last year and that has made the company vulnerable to a
takeover.
After years of no revenue growth, the firm's management is now
under pressure to deliver results, as its largest shareholder
Vivendi SA pushes for a more effective strategy and speculation
swirls that the Italian group could be a takeover target.
Telecom Italia has struggled to outline a fruitful strategy to
deal with the twin challenges of a protracted economic downturn in
Italy and fierce competition that has sent prices spiraling
downward in its domestic market, which makes up the lion's share of
its business.
The high debt of the company has limited its ability to invest
in the country's infrastructure and new technology for years,
leaving it lagging behind many peers developing broadband services
and content that could lure new customers and help raise prices,
analysts say.
But Telecom Italia announced Tuesday it will sink EUR12 billion
in investments in Italy over the next three year—higher than its
previous target of EUR10 billion planned in its 2015-2017 strategy
plan. It also said it will push harder on new content such as
music, video and gaming.
"We are not increasing [investment]," said Chief Executive Marco
Patuano speaking to analysts on Tuesday. "We are accelerating
it."
Mr. Patuano also said that, while multimedia and content such as
video and music streaming are not "incredible revenue drivers,"
they help retain customers and reduce subscription losses.
According to some analysts, the plan is partially the fruit of
pressure from Vivendi influence. In December, Vivendi—which now
holds a 21% stake in Telecom Italia—won four seats in Telecom
Italia's board after a harsh battle with minority shareholders. It
has repeatedly said that it plans to play an active role in Telecom
Italia's future and that it wants to give the company a better
direction.
Telecom Italia's business plan was for Vivendi "the first step
to see if everyone's rowing in the same direction," says Kepler
Cheuvreux's analyst Javier Borrachero.
But a revival of Telecom Italia will be an uphill battle.
Earlier Tuesday, it said 2015 preliminary Ebitda fell 20% compared
with the previous year, to EUR7 billion, while revenue dropped 8.6%
to EUR19.7 billion.
Net debt rose again last year, reaching EUR27 billion, raising
concerns among analysts about how the company will pay for the
investment plan.
Telecom Italia emphasized that its Italian revenues are now
falling less sharply than before. It also expects Ebitda to
stabilize this year and grow in 2017 and 2018.
But domestic revenues, accounting for over two-thirds of the
total, fell 2.3% last year and Ebitda dropped 20% compared with the
previous year.
"We have made significant improvement in Italy," said Mr.
Patuano on Tuesday. "Investments have started to pay off."
However, the poor results pushed down Telecom Italia's stock,
which has been battered in recent weeks, falling 30% since the end
of last year. On Tuesday, Telecom Italia's stock price closed 6.4%
down in Milan's stock exchange, at EUR0.82.
Nick Kostov contributed to this article
Write to Manuela Mesco at manuela.mesco@wsj.com
(END) Dow Jones Newswires
February 16, 2016 13:35 ET (18:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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