Telecom Italia cuts 2021 core profit goal after DAZN deal

MILAN: Telecom Italia (TIM) will miss a goal to stabilise core profit this year due to higher costs linked to a partnership with streaming service DAZN to distribute Italy's top-flight soccer matches.

Like European rivals, TIM is grappling with the fallout from the pandemic which has added to the long-standing challenge of increasing competition in its domestic market.

The partnership with DAZN, which has won domestic rights to screen Italy's Serie A championship, is part of a three-year plan aimed at developing TIM's so-called adjacent businesses, such as cloud, cybersecurity and pay-TV services.

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The accord will lift revenues and core earnings in successive years, TIM said, but core profit in 2021 would suffer also because of delays to a government plan to boost digital take-up through vouchers for households and firms.

"Market conditions remain very challenging," TIM CEO Luigi Gubitosi said in an interview with the Monday supplement of Corriere della Sera daily.

"We had a goal to stabilise domestic revenues in 2021 and we'll meet that. Core profit however will be affected by the soccer partnership kicking off and the delays in the voucher programme," Gubitosi said.

The situation will improve in following years thanks to the partnership with DAZN, European Union funds to support the post-COVID recovery and the transformation TIM is undergoing, Gubitosi said.

TIM said it expected organic earnings before interest, tax, depreciation, amortisation (EBITDA) and lease costs to drop by a low- to mid-single digit this year, versus a previous forecast for stable to low-single digit growth.

"We see this as bad as a profit warning can be, in spite of unchanged FCFE [free cash flow equity] targets and expected acceleration in 2022/23 EBITDA," analysts at Milan's Banca Akros said.

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TIM shares fell 3.32% by 1055 GMT compared with a 2.9% fall in Italy's blue chip index.

The company, which will release first-half results on July 27, now forecasts low- to mid-single digit growth in organic service revenue in 2022-2023, versus a previous forecast for low-single digit growth.

It expects core profit to show mid-single digit growth over the same period, from low- to mid-single digit growth previously.

However, Intesa Sanpaolo analysts flagged uncertainties over the projected recovery in TIM's business from 2022, citing possible antitrust issues over the DAZN deal and the imminent debut of low-cost French rival Iliad in Italy's fixed-line market.