Telecom Italia: Board of Directors examines and approves Interim Financial Statements at 31 March 2012

• Revenues: €7,392 million, +4.5% compared with q1 2011; +5.3% in organic terms
• EBITDA: €2,963 million, +1.2% compared with q1 2011; +0.5% in organic terms
• EBIT: €1,619 million, +7.6% compared with q1 2011; +5.7% in organic terms
• Net Income: €606 million, +10.4% compared with q1 2011
• Adjusted Net Financial position: €30,312 million, down €310 million from 31 march 2011 (€30,622 million) and by €102 million compared with 31 December 2011 (€30,414 million)

Bernabè: “The marked improvement in domestic revenue trends, despite the difficult macroeconomic climate, together with the positive contribution of the international businesses has enabled the group to close the quarter with revenues of 7.4 billion euro, up 5% on the same period of 2011. In addition, the debt reduction process continues as planned. The cash flow generation forecast over the coming months will enable us to reach our target of around 27.5 billion euro by the end of 2012.”

• Telecom Italia Media: the Telecom Italia board of directors has resolved to begin the process for the disposal of the activities in the media sector

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The preliminary results for the first quarter of 2012 will be illustrated to the financial community during a conference call scheduled for 12 am (Italian time) tomorrow. Journalists may listen to the conference call, without asking questions, by calling: +39 06 33168.

Those unable to connect live may follow the presentation until Thursday 17 May by calling: +39 06 334843 (access code 408039#).

In addition to the conventional financial performance indicators contemplated under IFRS, Telecom Italia Group uses certain alternative performance measures in order to give a clearer picture of the trend of operations and the company's financial position. These are: EBITDA; EBIT; organic difference in revenues, EBITDA and EBIT; accounting and adjusted net financial debt. For further details please see the attachment “Alternative performance measures”.

The Telecom Italia Group Interim Financial Statements at 31 March 2012 were drafted in accordance with art. 154–ter (Financial Reporting) of Leg. Decree 58/1998 (Unified Finance Law - TUF) and subsequent amendments and supplements and with Consob Communication DEM/8041082 of 30 April 2008 (Quarterly reporting by issuers of listed shares who give Italy as state of origin).

The Interim Financial Statements have not undergone an external audit and were drafted in accordance with the international accounting principles issued by the International Accounting Standards Board and approved by the European Union (“IFRS").

The accounting and consolidation principles adopted in the preparation of the Interim Statements were consistent with those used for the Telecom Italia Group Consolidated Statements at 31 December 2011, with the exception of certain new Principles/Interpretations (including the improvements/amendments) adopted by the Group from 1 January 2012 and already explained in the 2011 statements. These new Principles/Interpretations have no impact on the Interim Financial Statements at 31 March 2012.

No events or circumstances or variations to key variables occurred during the first quarter that required us to update the impairment test on the value of goodwill carried out for the Telecom Italia Group Consolidated Financial Statements at 31 December 2011.

The Telecom Italia Board of Directors, chaired by Franco Bernabè, today examined and approved the Group’s Interim Financial Statements at 31 March 2012.

Franco Bernabè commented: “Despite the complex economic context, the domestic market reported significant signs of recovery in revenue trends in the first quarter, sustaining margins of around 50%. The excellent performance of Latin America continues: over the quarter Brazil and Argentina contributed 38% of the Group's turnover and 27% of EBITDA, with a margin of over 40%. These results, together with increasing cash generation, mainly in the second half, allows us to confirm all our targets for year-end 2012.”

The main variations to the Telecom Italia Group consolidation area

Additions to the consolidation area:

•        TIM Fiber – Brazil: On 31 October 2011, acquisition of 100% of Eletropaulo Telecomunicações Ltda and 98.3% of AES Communications Rio de Janeiro S.A., telecommunications infrastructure operators in the states of San Paolo and Rio de Janeiro, now renamed TIM Fiber SP and TIM Fiber RJ respectively.

•        4GH Group - Domestic: On 27 July 2011 the 4G Holding group (retail sales of telephony equipment) entered the consolidation area following the purchase of 71% of the ordinary shares of 4G Holding S.p.A. which in turn holds 100% of 4G Retail S.r.l..

Exits from  the consolidation area:

•        Loquendo – Domestic: On 30 September 2011 Loquendo S.p.A. was sold and consequently excluded from the consolidation perimeter.

Telecom Italia Group

Revenues in Q1 2012 amounted to €7,392 million, up 4.5% from €7,073 million in the first quarter of 2011 (+€319 million). In terms of organic variation, consolidated revenues grew by 5.3% (+€373 million).

In detail, the organic variation in revenues is calculated by excluding:

• the effect of foreign exchange rate fluctuations of -€51 million regarding the Brazil Business Unit (‑€27 million), the Argentina Business Unit (-€26 million) and other Group companies (+€2 million);
•  the effect of changes to the consolidation area (-€3 million), due to the sale of Loquendo (Domestic Business Unit) on 30 September 2011.

Revenues, broken down by operating unit, are as follows:

EBITDA came to €2,963 million, up €34 million (+1.2%) on the previous year period, with EBITDA margin of 40.1% (41.4% in Q1 2011). In organic terms EBITDA grew by €15 million (+0.5%) on the previous year period, with margin on revenues down by 1.9 pp (40.1% in Q1 2012 compared with 42.0% in Q1 2011). This trend is attributable to the greater weight of revenues in South America, whose margins are lower than Domestic business, as well as increased sales of mobile handsets aimed at a higher penetration of data services.

The following table shows a breakdown of EBITDA and EBITDA margin by business unit:

EBIT amounted to €1,619 million, up €114 million (+7.6%) from Q1 2011, with the EBIT margin standing at 21.9% (21.3% in Q1 2011). The organic EBIT variation was a positive €88 million (+5.7%) with organic EBIT margin unchanged compared with Q1 2011.

Consolidated net income amounted to €606 million, up €57 million (+10.4%) with respect to the first quarter of 2011.

Capex for the first quarter of 2012 amounted to €954 million (up €53 million compared with Q1 2011) broken down as follows:

Capex for the Domestic Business Unit shrank by €74 million, mainly due to the lower requirement in relation to delivery of new systems owing to the slowdown and contraction of fixed-line business.

For the Brazil Business Unit capex rose by €104 million (including a forex effect of €2 million) in relation to investments in network infrastructure for the development of voice and data traffic.

Capex for the Argentina Business Unit grew by €30 million from the same period of last year. Investments were aimed at enlarging the fibre optic infrastructure and access network, developing backhauling for mobile traffic, DWDM technology and reinforcement of the IP backbone to improve transmission capacity and increase access speed provided to customers.

Cash flow from operations amounted to €626 million (€1,076 million in Q1 2011). This figure was affected by seasonal trends in the cash out for payables posted in the last quarter of the previous year, and the payment by the Brazil Business Unit of the telecommunications operations tax on the customer base which is due by the end of March of each year.

Adjusted net financial debt (excluding the purely accounting and non-monetary effects of the valuation at fair value of financial derivatives and related assets/liabilities) at 31 March 2012 is €30,312 million, down €102 million with respect to 31 December 2011 (€30,414 million).

Accounting net financial debt amounts to €30,979 million (€30,819 at 31 December 2011).

At 31 March 2012 Group headcount stood at 84,625 employees (84,154 at 31 December 2011), of whom 56,919 in Italy (56,878 at 31 December 2011).

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Business Unit Results

Figures for Telecom Italia Group included in this press release refer to the following business units:

• Domestic Business Unit: includes domestic fixed-line and mobile-line voice and data services provided to end users (retail) and other carriers (wholesale), Telecom Italia Sparkle Group business (International Wholesale) as well as associated support operations;
• Brazil Business Unit: refers to mobile (Tim Celular) and fixed-line (Intelig, Tim Fiber SP and Tim Fiber RJ) telecommunications operations in Brazil;
• Argentina Business Unit: includes fixed-line (Telecom Argentina) and mobile telecommunications (Telecom Personal in Argentina, and Núcleo in Paraguay);
• Media Business Unit: includes TV network-related activities and operations;
• Olivetti Business Unit: includes activities in IT products and services;
• Other Operations: includes financial firms and other smaller operations not strictly related to Telecom Italia Group's core business.

Figures for Telecom Italia Media at 31 March 2012 will be provided in the press release to be issued  following the Board Meeting's approval.

Domestic

Domestic revenues amounted to €4,486 million (€4,596 million in Q1 2011), down 2.4% in reported and organic terms.

Highlights:

• Core Domestic Revenues

Core Domestic revenues amounted to €4,253 million, down 3.3% (€4,396 million in the first three months of 2011) and with an organic variation of -3.2%.

The performance of the individual market segments as compared with the same period of 2011 is as follows:

·          Consumer: the Consumer segment saw a slide in revenues compared with the first three months of 2011 of €26 million (-1.2%), although confirming the steady recovery seen in FY 2011 mostly thanks to a stabilisation of the erosion of voice revenues (both Fixed and Mobile), strong growth in Mobile Internet revenues and growth in revenues from handset sales. The contraction is entirely attributable to traditional Voice and Messaging services, largely offset by growth in Mobile Internet (+€27 million, +17.5% compared with Q1 2011) and Fixed Broadband Access (+€5 million, +2.2% compared with the previous year period).

·          Business: revenues for the segment fell by €47 million in Q1 2012 compared with the first quarter of 2011 (-6.1%). The fall was primarily seen in revenues from services (-€32 million) of which -€22 million on Fixed-line, entirely due to erosion of the customer base (-6.3% compared with 2011). In the Mobile segment the reduction (-€11 million) was seen in particular in incoming and roaming traffic due to lower termination rates and average prices, especially for Voice services.

·          Top: the segment reported a drop in revenues in Q1 2012 of €58 million compared with the same period of 2011 (-7.0%). The reduction affected both service revenues (-€35 million, -4.7%), and product sales (-€23 million, -28.0%). In particular the downturn in revenues from services concerned Voice (-€18 million) and Data (-€19 million). This decline was only partially offset by growth in the Mobile segment (+€4 million, +1.4%).

·   National Wholesale: the Wholesale segment in Q1 2012 reported a slight drop in revenues (-€7 million, -1.3%) owing largely to lower traffic revenues. Other revenue trends remained substantially stable.

• International Wholesale Revenues

In Q1 2012 the International Wholesale segment (Telecom Italia Sparkle Group) posted revenues of €347 million, up €30 million (+9.5%, +8.8% in organic terms) compared with the first three months of 2011. This performance was primarily attributable to Voice services (+€31 million, +14.4%) and the IP/Data segment (+€5 million, +7.8%).

Besides the breakdown by market segment, the following revenue figures are distinguished by technology (Fixed and Mobile).

• Fixed-Line Telecommunications Revenues

Revenue trends in the main business areas are as follows:

• Mobile Telecommunications Revenues

Revenue trends in the main business areas are as follows:

EBITDA for the Domestic business unit amounted to €2,193 million, down €43 million (-1.9%) from the corresponding period of 2011. The EBITDA margin was 48.9%, up 0.2 percentage points compared with the first three months of 2011. This result was affected by the contraction in revenues from services (‑€102 million compared with the corresponding period of 2011) only partly recovered thanks to the selective control and containment of costs. Organic EBITDA came to €2,196 million, (-€78 million, -3.4% compared with the same period of 2011), with EBITDA margin at 49% of revenues slightly lower than the same period of 2011 (-0.5 percentage points).

EBIT for the Domestic business unit came to €1,278 million, €56 million higher than Q1 2011, (€1,222 million). This was mainly due to a decrease depreciation and amortisations (-€102 million compared with Q1 2011). The EBIT margin was 28.5%, up 1.9 percentage points from 2011 (26.6%).

Capex amounted to €589 million, down €74 million from the same period of 2011. The capex margin was 13.1% of revenues.

Headcount stood at 55,621, higher by 232 units compared with 31 December 2011 (the variation includes the effects of the acquisition, effective from 1 January 2012, of the Contact Center and the relative 249 resources from the company Advalso belonging to the Olivetti Business Unit).

Brazil

(average real/euro exchange rate 2.31802)

Revenues of Tim Brasil group in Q1 2012 came to 4,468 million reais, 716 million reais higher than Q1 2011 (+19.1%). Revenues from services grew to reach 4,015 million reais, up from 3,463 million reais in Q1 2011 (+15.9%). Revenues from product sales increased by 289 million reais in Q1 2011 to 453 million reais in Q1 2012 (+56.7%). ARPU (Average Revenue Per User) was over 19.1 reais in Q1 2012 compared with 20.8 reais in Q1 2011. The total number of lines at 31 March 2012 was 67.2 million, up 4.9% with respect to 31 December 2011, representing a 26.80% market share.

EBITDA amounted to 1,170 million reais, up 139 million reais from Q1 2011 (+13.5%). Margin growth was sustained by the increase in revenues, mainly in outgoing voice traffic and VAS, partially counterbalanced by the higher variable costs due to business expansion. The EBITDA margin was 26.2% of revenues, down 1.3 percentage points from Q1 2011. This came as a consequence of the strong growth in low-margin sales of smartphones/webphones, +56.7% compared with Q1 2011.

EBIT amounted to 546 million reais, an improvement of 128 million on Q1 2011. This is explained by the higher contribution of EBITDA, partially offset by increased depreciation and amortisations of 8 million reais (621 million reais in Q1 2012 compared with 613 million reais in the same period of 2011).

Headcount stood at 10,737 employees (10,539 at 31 December 2011).

Argentina

(average peso/euro exchange rate 5.68751)

Q1 2012 revenues came to 5,126 million pesos, an increase of 992 million pesos (+24.0%) compared with first quarter 2011 (4,134 million pesos) thanks to growth of the Broadband and Mobile client base, as well as ARPU. The principal source of revenues for the Argentina Business Unit was mobile telephony which contributed 72% of consolidated revenues and grew by 28% compared with Q1 2011.

The number of fixed lines at 31 March 2012 remained practically unchanged against the end of 2011 (at around 4.1 million lines). Despite the freezing of tariffs imposed by the Economic Emergency Law of January 2002, ARBU (Average Revenue Billed per User) grew by 7.3% compared with Q1 2011 as a result of sales of packages including minutes of traffic and value added services.

Telecom Argentina's overall Broadband client portfolio at 31 March 2012 numbered 1,566,000 accesses, 16,000 more than December 2011 with growth of 1.0%. In Q1 2012 the growth in Internet access lines was accompanied by an increase in prices resulting in a higher ARPU.

The Personal client base in Argentina grew by 354,000 from the end of 2011 to reach a total 18.5 million lines at 31 March 2012, 32% of which with post-paid contracts. Meanwhile, thanks to the acquisition of high value customers and our leadership in Smartphones, ARPU grew by around 16% to top 54.9 pesos (47.4 pesos in Q1 2011). Much of this growth is attributable to value added services (including SMS and Mobile Internet), which together represented around 52% of mobile telephony revenues in Q1 2012.

In Paraguay the Núcleo client base grew by 2.5% from 31 December 2011 to reach 2,203,000 lines at 31 March 2012, 17% of which with post-paid contracts.

EBITDA reached 1,644 million pesos, an improvement of 234 million pesos (+16.6%). The EBITDA margin was 32.1%, 2.0 percentage points less than in Q1 2011, mainly due to the higher incidence of purchases of services and materials and of labour costs.

The headcount stood at 16,591 employees (16,350 at 31 December 2011).

Olivetti

Revenues in Q1 2012 were €59 million, down €19 million compared with the same period of 2011. However, total revenues at a constant perimeter - calculated excluding the business of the Advalso S.p.A. Contact Center sold at the beginning of the year to Telecontact Center S.p.A. (Domestic BU) - fell by €13 million, with an organic variation of -18.1%. Excluding the revenues from agreements with the parent Telecom Italia S.p.A. on the use of brands and patents, the decline comes to €8 million (-11.9%).

EBITDA was a negative €14 million, unchanged on Q1 2011. Changes to the consolidation area had no significant impact on EBITDA. The lower margins linked to the fall in sales is more than compensated for by the €2 million reduction in costs (lower fixed costs and lower labour costs).

EBIT was a negative €15 million, unchanged compared to Q1 2011.

Headcount stood at 811 employees, down 264 from 1,075 at 31 December 2011 (the variation includes the effects of the sale, with effect from 1 January 2012, of the Contact Center and its 249 resources to the Domestic Business Unit).

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Events subsequent to 31 March 2012

No significant events subsequent to 31 March 2012 to emphasise.

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Outlook for the 2012 financial year

As regards Telecom Italia Group's outlook for the ongoing financial year, the targets linked to the main economic and financial indicators, as described in the 2012-2014 Industrial Plan, foresee the following outcomes for the whole of 2012:

• Revenues and EBITDA essentially unchanged from 2011;
• Adjusted net financial position at around €27.5 billion.

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Telecom Italia Media

The Telecom Italia Board of Directors has decided to begin the process for the disposal of the activities in the media sector, in relation to the refocusing of the Group on the core activities as outlined in the 2012-2014 Business Plan.

Such disposal will contribute to reach the targets of debt reduction already announced.  

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The Manager designate for the preparation of accounting and corporate documents, Andrea Mangoni, hereby declares, pursuant to paragraph 2, Art.154-bis of Italy’s Financial Law, that the accounting information contained herein corresponds to the company’s documentation, accounting books and records.

Download the attachments to the press release (file.pdf 190 Kb)
 

Milan, 9 May 2012