(Bloomberg) -- Telecom Italia SpA said its adjusted earnings rose and reaffirmed guidance to cut debt after the phone carrier’s sold off its fixed-line network.
Net debt after leases was €8.1 billion ($8.7 billion) following the network sale, and the company reiterated its debt outlook at about €7.5 billion for the end of the year, Telecom Italia said in a statement late Wednesday. Without the network sale, Telecom Italia’s net debt would’ve risen to about €21.5 billion, a slight increase from the first quarter.
Following months of negotiations, the carrier completed the landmark sale on July 1 to US private equity firm KKR & Co. in a deal that valued the grid at as much as €22 billion, including about €3 billion in earn-outs. By selling its most valuable asset, Telecom Italia was able to slash its debt pile and streamline the company to compete in one of the world’s most competitive markets for phone carriers.
Earnings growth in the second quarter was backed by rising demand for enterprise services performance at the company’s Brazilian unit. Organic earnings before interest, taxes, depreciation and amortization rose 7.4% to about €1.1 billion in the period from a year earlier, the company said. The quarterly figures no longer include revenue from the network, the carrier said.
Group revenue for the quarter rose about 4% to €3.6 billion, driven by enterprise sales including cloud and cybersecurity services. Sales from the consumer market, fiercely competitive in Italy, remained stable.
As a one-time state monopoly, Telecom Italia has long been hamstrung by a complex mix of high labor costs and expanding investments to keep its network infrastructure up to date. Still, the roots of the company’s troubles lie with Italy’s domestic telecommunications environment.
Subscriptions for full fiber landline services in Italy, which usually include unlimited internet, can cost as little as €20 to €25 per month. That’s about a quarter of what most US consumers pay.
“Telecom Italia’s sale of its domestic fixed-grid NetCo resolves its high leverage problem, but leaves the domestic operation without the competitive advantage of owning a broadband network, which may heighten risks amid tough retail competition,” Bloomberg Intelligence analyst Erhan Gurses said in a note.
The shares gained 2.2% to 23 cents at 10:37 a.m. in Milan, the biggest intraday gain in about three weeks. The stock has declined about 21% this year.
(Updates with additional details about the network sale and debt impact throughout)
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