Telecom Italia Group: Interim Report on operations to 30 September 2016 approved by Board of Directors

• GROUP REVENUES BACK TO GROWTH: IN THE THIRD QUARTER CONSOLIDATED REVENUES TOTALLED  4.8 BILLION EUROS, +1.4% COMPARED TO THE SAME PERIOD OF 2015, CONFIRMING  THE IMPROVEMENT TREND STARTED IN THE SECOND QUARTER
  (Q1 -12.1%, Q2 -7.7%)
  
  
• GROUP EBITDA IN THE QUARTER WAS 2.2 BILLION EUROS, +8.5%, GROWING FOR THE SECOND CONSECUTIVE QUARTER
  
  
• THE DOMESTIC BUSINESS UNIT ACHIEVED BEST QUARTERLY RESULTS SINCE 2007: REVENUES +1%, EBITDA +7.9%
  
  
• EBITDA IN BRAZIL ALSO IMPROVED AFTER 6 QUARTERS (+0.5% COMPARED TO THE THIRD QUARTER OF 2015 IN HOMOGENEOUS TERMS, AFTER HAVING BEEN NEGATIVE BY 15% IN Q1 AND BY 6.7% IN Q2 VS. THE CORRESPONDING PERIODS OF 2015)
  
  
• PROFITS DUE TO THE PARENT COMPANY FOR THE THIRD QUARTER TOTALLED 477 MILLION EUROS (+42.8% COMPARED TO THE SAME PERIOD OF 2015). IN THE NINE MONTHS TO DATE, PROFITS TOTALLED 1.5 BILLION EUROS (367 MILLION IN THE SAME PERIOD OF 2015)
  
  
• GROUP ADJUSTED NET FINANCIAL DEBT  STOOD AT 26.7 BILLION EUROS, DOWN BY 779 MILLION EUROS SINCE  30 JUNE 2016 THANKS TO SOLID OPERATING CASH GENERATION
  
  
• “LOW SINGLE DIGIT” ORGANIC GROWTH TARGET FOR DOMESTIC EBITDA CONFIRMED
  
  
• RECCHI: THE TURNAROUND IS PROCEEDING QUICKLY, WITH RESULTS AHEAD OF EXPECTATIONS
  
  
• CATTANEO: THE OUTCOME OF OUR WORK CONTINUES TO SHOW,  2016 FIXED AND MOBILE COVERAGE TARGETS ALREADY ACHIEVE

CONSOLIDATED RESULTS FOR THE THIRD QUARTER 2016:

• REVENUES OF 4.8 BILLION EUROS, 66 MILLION EUROS HIGHER THAN IN THE THIRD QUARTER 2015 (+1.4%), CONFIRMING THE IMPROVEMENT TREND STARTED IN THE SECOND QUARTER (Q1 - 12.1%, Q2 -7.7%). DOMESTIC BUSINESS REVENUES TOTALLED 3.8 BILLION EUROS  (+1% COMPARED TO THE SAME PERIOD OF 2015)
  
  
• EBITDA AT 2.2 BILLION EUROS, 8.5% HIGHER THAN IN THE SAME PERIOD OF 2015; DOMESTIC EBITDA TOTALLED 1.8 BILLION EUROS (+7.9% COMPARED TO THE SAME QUARTER OF 2015)
  
  
• EBIT TOTALLED 1.1 BILLION EUROS (+6.2% COMPARED TO THE SAME QUARTER OF 2015)
  
  
• PROFITS DUE TO THE PARENT COMPANY TOTALLED 477 MILLION EUROS (+42.8% COMPARED TO THE SAME QUARTER OF 2015)

CONSOLIDATED RESULTS FOR THE FIRST NINE MONTHS OF 2016:

• CONSOLIDATED REVENUES TOTALLED 13.9 BILLION EUROS (-3.7% IN ORGANIC TERMS COMPARED TO THE FIRST NINE MONTHS OF 2015)
  
  
• EBITDA TOTALLED 5.9 BILLION EUROS, 4.6% HIGHER THAN IN THE FIRST NINE MONTHS OF 2015 (+6.9% IN ORGANIC TERMS)
  
  
• EBIT: 2.8 BILLION EUROS, +1.6% IN ORGANIC TERMS COMPARED WITH THE FIRST NINE MONTHS OF 2015
  
  
• PROFITS DUE TO THE PARENT COMPANY TOTALLED 1.5 BILLION EUROS (0.4 BILLION EUROS IN THE FIRST NINE MONTHS OF 2015)
  
  
• ADJUSTED NET FINANCIAL DEBT STOOD AT 26.7 BILLION EUROS, 779 MILLION EUROS LESS THAN AT 30 JUNE 2016 (27.5 BILLION EUROS), THANKS TO SOLID OPERATING CASH GENERATION, AND 0.5 BILLION EUROS LESS THAN THE FIGURE AT THE END OF 2015 (27.3 BILLION EUROS)
  
  
• CAPITAL EXPENDITURE FOR THE PERIOD TOTALLED 3.1 BILLION EUROS; DOMESTIC INVESTMENTS, WORTH 2.4 BILLION EUROS,  WERE FOCUSSED ON THE DEVELOPMENT OF NEW GENERATION INFRASTRUCTURE

The results of the first nine months of 2016 will be illustrated to the financial community during a conference call scheduled for 7 November at 12.00 a.m. (Italian time). Journalists may listen in to the presentation, without asking questions, by calling 0633168. The presentation slides will be available at:www.telecomitalia.com/3Q2016/eng

Those unable to connect live may follow the presentation until 14 November 2016 by calling 06334843 (access code 1018002#).

With reference to the year 2016 Telecom Italia continues – voluntarily – to draft and publish its Interim Reports on Operations for the first and third quarters of the year. The Telecom Italia Group’s Interim Report on Operations to 30 September 2016 also includes the abbreviated consolidated Financial Statements to 30 September 2016 prepared in accordance with IFRS accounting principles issued by IASB and endorsed by the EU and, in particular, with IAS 34 Interim Financial Reporting. The condensed consolidated Financial Statements to 30 September 2016 are not audited.

The accounting policies and consolidation principles adopted in the preparation of the condensed consolidated Financial Statements to 30 September 2016 are consistent with those adopted in the consolidated Financial Statements of  the Telecom Italia Group at 31 December 2015, to which reference can be made, except for the application of the new Principles/Interpretations adopted by the Group starting from 1 January 2016, which, however, had no impact on the Group's Consolidated Financial Statements.

In the Brazil Business Unit, the management has identified an incorrect accounting entry made in previous years regarding the posting of service revenues from the sale of pre-paid traffic. Although this accounting error had no impact in terms of the net financial position or cash and cash equivalents, it meant that the recognition of revenues from traffic prepaid and not yet consumed was posted earlier.  The company therefore revised the comparative data as at 31 December 2015 and for the third quarter of 2015 and the first nine months of 2015, with no significant impact on the economic data compared. Further details are provided in the Annex.

In addition to the conventional financial performance indicators contemplated under IFRS, the Telecom Italia Group uses certain alternative performance indicators in order to give a clearer picture of the trend of operations and the company's financial position. Specifically, the alternative performance indicators refer to: EBITDA; EBIT; organic change in revenues, in EBITDA and EBIT; EBITDA margin and EBIT margin; net financial debt carrying amount and adjusted net financial debt.

Note that the section "Business Outlook for the 2016 financial year", contains forward-looking statements about the Group’s intentions, beliefs and current expectations with regard to its financial results and other aspects of Group's operations and strategies. Readers of this Press Release should not place undue reliance on such forward-looking statements, as final results may differ significantly from those contained in the above-mentioned forecasts owing to a number of factors, the majority of which are beyond the Group’s control.

MAIN VARIATIONS TO THE TELECOM ITALIA GROUP CONSOLIDATION SCOPE

The following changes in consolidation scope occurred in the first nine months of 2016:

• Flash Fiber S.r.l. (Domestic Business Unit): established on 28 July 2016;
  
  
• Sofora - Telecom Argentina Group: classified under Discontinued operations  (discontinued operations/non-current assets held for sale) was sold on 8 March 2016;
  
  
• Revi Immobili S.r.l., Gestione Due S.r.l. and Gestione Immobili S.r.l. (Domestic Business Unit): on 11 January 2016 INWIT S.p.A. acquired 100% of these companies, which therefore entered the consolidation scope of the Group.

The following changes to the consolidation scope occurred during 2015:

• INWIT S.p.A. (Domestic Business Unit): established in January 2015;
  
  
• Alfabook S.r.l. (Domestic Business Unit): on 1 July 2015, Telecom Italia Digital Solutions S.p.A. (now merged in Olivetti S.p.A.) acquired 100% of the capital of the company, which therefore entered the Group’s consolidation scope;
  
  
• TIM Real Estate S.r.l. (Domestic Business Unit): established in November 2015.

Milan, 4 November 2016 – The Board of Directors of Telecom Italia met today, chaired by Giuseppe Recchi, to approve the Interim Report on Operations to 30 September 2016.

Over the course of the third quarter, the initiatives for the turnaround of TIM continued, to guarantee the structural growth of the company in terms of both turnover and EBITDA. In particular, activities continued to recover efficiency, key to ensuring the necessary flexibility for growth, and new “quadruple play” commercial offers were launched that met with good commercial success, confirming the validity of our strategic choices.

As a result, in the third quarter of 2016 the TIM Domestic Business Unit recorded its best result since 2007, with both revenues and reported EBITDA higher than the same period of the previous year (+1% and +7.9% respectively).  In particular, the trend in revenues in each quarter, compared with the same period of the previous year, shows continuous improvement: -2.3% in the first quarter, -1.2% in the second and +1.0% in the third quarter of 2016.

At consolidated level, there was an increase (+1.4%) in revenues in the quarter, to a total of 4.8 billion euros, confirming the trend already evident for Domestic revenues, with the first quarter’s figure 12.1% down on the same period of 2015, a second quarter 7.7% down and a third quarter 1.4% up.

EBITDA grew by 8.5%, while profits attributable to the Parent Company rose 42.8% to 477 million euros.

The investments in fibre for Fixed services enabled coverage of the population to be accelerated sharply: over 785 thousand homes are now reached by FTTH alone, an increase of over 250 thousand in 30 towns and cities in Italy in the third quarter of 2016 (16 more towns than at June 2016). Sales of fibre lines also grew during the quarter, 31% higher than in the same period of 2015.  On the other hand, line losses (fixed lines lost by TIM) fell: after reducing at a steady rate throughout the year, a total of 100 thousand were lost in the third quarter, almost half the 173 thousand lost in the same period of 2015.

The results in the Mobile sector were also significant, with over half (51%) of TIM’s customer base now using LTE technology.

In the period January-September 2016, the Profit due to the Parent Company reached 1.5 billion euros (compared to 367 million euros for the same period of 2015).

Capital expenditure in the first nine months of the year totalled 3.1 billion euros at consolidated level, while in Italy it totalled 2.4 billion, for the most part concentrated on the development of new ultrabroadband technologies.

At the end of September 2016 adjusted net financial debt totalled 26.7 billion euros, 779 million lower than at 30 June 2016.

“TIM’s turnaround is proceeding quickly, and we are achieving excellent results, ahead of expectations, confirming the soundness of the initiatives undertaken. We are investing in our country like no-one else, aware of the role that TIM plays for the economic development of Italy”, emphasised Executive Chairman Giuseppe Recchi.

“The outcome of our work continues to show and therefore one understands how efficiency leads to beneficial effects also on revenues. Efficiency will affect all areas and the whole management is making an effort to provide increasingly better results to all shareholders. In October, 4G mobile network reached over 95% of the population, while 56% of the population had access to fibre, reaching the targets set for the end of 2016 well ahead of schedule in both cases”, added Chief Executive Officer Flavio Cattaneo.

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Performance in the third quarter of 2016

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TELECOM ITALIA GROUP RESULTS

Revenues in the first nine months of 2016 totalled  to 13,939 million euros, 6.3% lower than in the first nine months of 2015 (14,878 million euros). The 939 million euros fall is attributable primarily to the Brazil Business Unit, for 777 million euros, and for 91 million euros to the Domestic Business Unit.

In terms of organic change, calculated by excluding the effect of changes in exchange rates and consolidation scope, consolidated revenues were down 3.7% (-529 million euros).

Revenues by operating segment, were as follows:

(*) After the change to Persidera’s mission, the Media Business Unit was incorporated into the Domestic Business Unit (Domestic Core) from 1 January 2016; without this change, Domestic revenues for the first nine months of 2016 would have been 10,982 million euros.

(**) Includes the Olivetti company since 1 January 2016. The data for the comparative period have been changed accordingly.

EBITDA in the first nine months of 2016 totalled 5,878 million euros (5,622 million euros in the first nine months of 2015), 256 million euros (+4.6%) higher than in the first nine months of 2015, with an EBITDA margin of 42.2% (37.8% in the first nine months of 2015, 4.4 percentage points up).

In organic terms there was a 6.9% increase compared to the first nine months of 2015.

EBITDA for the first nine months of 2016 reflected the negative impact of non-recurring charges for a total of 153 million euros (460 million euros in the first nine months of 2015). Without these, the organic change in EBITDA would have been +1.2%, with a margin of 43.3%, 2.1 percentage points higher than in the first nine months of 2015.

Third quarter 2016 EBITDA totalled 2,152 million euros, 169 million euros higher (+8.5%) than the same period last year (1,983 million euros). The margin was 44.4%, up 2.9 percentage points on the third quarter of 2015.

In organic terms, and in the absence of non-recurring charges (62 million euros in the third quarter of 2016 and 61 million euros in the same period of 2015), the increase over the third quarter 2015 figure would have been  +6.6%, with a margin of 45.7%, an improvement over the previous quarters of 2016 (2.1 percentage points higher than the second quarter and 5.5 percentage points higher than the first).

The positive trend in EBITDA, in both absolute terms and in terms of margin on revenues, benefited from the actions implementing the “cost recovery plan” that started in the second quarter of 2016 in the Domestic Business Unit and in the third quarter in the Brazil Business Unit and will continue throughout the life of the Plan. In addition, in the second quarter of 2016, EBITDA benefited from some non-structural events, particularly in relation to labour costs, connected to the reversal of the 66 million euro provision made in the 2015 financial statements, after the conditions for the payment of the performance bonus to employees were not met.

The following table shows a breakdown of EBITDA and EBITDA margin by operating segment:

(*) After the change to the mission of Persidera, the Media Business Unit was incorporated into the Domestic Business Unit (Domestic Core) from 1 January 2016; in the absence of this change, Domestic EBITDA for the first nine months of 2016 would have been 4,967 million euros.

EBIT in the first nine months of 2016 totalled 2,768 million euros(2,806 million euros for the first nine months of 2015), down 38 million euros (-1.4%) compared with the first nine months of 2015, with a margin of 19.9% (18.9% in the first nine months of 2015, 1.0 percentage points up).

Organic EBIT increased by 44 million euros (+1.6%), with a margin of 19.9% (18.8% in the first nine months of 2015).

EBIT in the first nine months of 2016 suffered the negative impact of non-recurring net charges for a total of 144 million euros (161 million euros in the first nine months of 2015 considering the same exchange rate). Without these non-recurring items organic change in EBIT would have been 27 million euros (+0.9%), with a margin of 20.9%, (19.9% in the first nine months of 2015, +1.0 percentage points up).

Profits from discontinued operations/non-current assets held for sale in the first nine months of 2016 totalled 47 million euros (480 million euros in the first nine months of 2015) and refer to the positive contribution made to the consolidated results by the Sofora - Telecom Argentina group for the period 1 January - 8 March (59 million euros), to which were added the effects of the sale that, when the related income taxes are included, had a negative impact of 12 million euros.

Profits for the first nine months of 2016 attributable to Parent Company Shareholders totalled 1,495 million euros (367 million euros in the first nine months of 2015) and benefit not only by the improvement in the margins, but also from some items of a purely accounting and valuation nature, which do not generate any financial adjustments, connected principally with the valuation at fair value of the implicit option included in the Mandatory Convertible Bond issued at the end of 2013 with maturity at three years (positive for 611 million euros). In the absence of these impacts, the profits for the first nine months of 2016 attributable to the Parent Company Shareholders would have totalled almost 1,200 million euros, an improvement of approximately 150 million euros compared to the same period of 2015, reconstructed on homogeneous terms.

Group headcount at 30 September 2016 was 62,205, including 52,007 in Italy (65,867 at 31 December 2015, including 52,555 in Italy).

Capital expenditure totalled 3,107 million euros, 126 million euros less than in the first nine months of 2015. In the third quarter, investment was again more selective, identifying the most profitable projects, focussed on innovation and transformation, that did not affect UBB coverage levels and service quality.

The investments by operating segment are as follows:

(*) After the change to the mission of Persidera, the Media Business Unit was incorporated into the Domestic Business Unit (Domestic Core) from 1 January 2016; in the absence of this change, Domestic investments in the first nine months of 2016 would have been 2,394 million euros.

The Domestic Business Unit posted investments for 2,398 million euros, 101 million euros higher than in the first nine months of 2015. This increase was entirely attributable to the acceleration and growth of  investments for the development of innovative networks and platforms for new generation services (+209 million euros), which accounted for 49% of total investments (43% in the same period of 2015).

The investments of the Brazil Business Unit posted a reduction of 221 million euros (including a negative foreign exchange effect of 103 million euros) compared with the figure in the first nine months of 2015; these investments were focused mainly on the evolution of the business infrastructure and the sales support platforms.

Cash flow from Group operations is positive by 1,908 million euros (positive by 1,551 million euros in the first nine months of 2015).

Adjusted net financial debt totalled 26,735 million euros at 30 September 2016, 543 million euros less than at the end of 2015 (27,278 million euros). In the first nine months of 2016, the benefits obtained from completion of the sale of the Sofora - Telecom Argentina group, with the receipt of the sale price and the deconsolidation of the related financial debt, together with the positive trend in operations, covered the requirement deriving from finance management, from the property project and the renegotiation of the leasing agreements, from the payment of dividends and from the effect of some disputes and the payment of regulatory fines. The level of debt was also negatively affected by the change in the exchange rate of the Brazilian real.

Net financial debt carrying amount at 30 September 2016 totalled 27,411 million euros (28,475 million euros at 31 December 2015).

The liquidity margin at 30 September 2016 was 12,767 million euros, equivalent to the sum of "Cash and cash equivalents" and "Securities other than investments" for a total of 5,767 million euros (5,047 million euros at 31 December 2015) and unused committed lines of credit for a total of 7,000 million euros. This margin covers the financial liabilities of the Group falling due for at least the next 24 months.

In the third quarter of 2016, adjusted net financial debt fell by 779 million euros from the 30 June 2016 figure (27,514 million euros), due to the positive trend in operations.

BUSINESS UNIT RESULTS

DOMESTIC

Revenues for the first nine months of 2016 totalled 11,036 million euros, 91 million euros less (-0.8%)  than in the same period of 2015, showing a trend of structural improvement, whereby the result achieved in the third quarter was better than the result for same period of the previous year  (+1.0%, second quarter -1.2% and first quarter -2.3%). Service revenues presented a similar trend to total revenues, with a reduction of 134 million euros compared to the first nine months of 2015 (-1.3%), but with a significant recovery in the third quarter (-0.4%), supported, in particular, by a structural improvement in Mobile revenues, which were positive for the fourth consecutive quarter.

In particular, it should be noted that:

• Revenues from Mobile market services totalled 3,360 million euros, with an increase of 27 million euros compared to the corresponding period of the previous year (+0.8%); the steady growth dynamic observed in the preceding quarters (third quarter +1.1%, second quarter +0.7%, first quarter +0.6%, and fourth quarter 2015, +0.1%), thanks to an improvement in competitive dynamics and the ever increasing expansion of the Mobile Internet and the consequent development of digital services;
  
  
• Fixed market service revenues totalled 7,471 million euros in the first nine months , a contraction of 330 million euros from the figure for the same period in 2015 (-4.2%). This downward trend is wholly correlated with the reduction in revenues from voice services (-420 million euros due to the loss of traditional accesses, although the trend is significantly attenuated, compared to the preceding periods), only partially offset by continued growth in Broadband and Ultra-Broadband customers, which leads growth in innovative services (+106 million euros, +6.1%). The reduction in prices for wholesale services also affects the Fixed business results.

Revenues from product sales, including changes to works in progress, totalled 690 million euros in the first nine months of 2016, an improvement compared to the first nine months of 2015 (+43 million euros), of note in particular is the appreciable growth in revenue from sales of smartphones (+48 million euros, entirely attributable to the sale of 4G network enabled LTE devices), which supports the development of digital services (internet connectivity and entertainment services).

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The Domestic Business Unit operates separately in two different reference environments, and an analysis of these revenues is provided below:

Core Domestic Revenues

Revenues totalled 10,239 million euros a fall of 1.5% (10,390 million euros in the first nine months of 2015).

The performance of the individual market segments compared with the first nine months of 2015 is as follows:

• Consumer: the revenues of the Consumer segment in the first nine months of 2016 totalled 5,404 million euros, 31 million euros (+0.6%) higher than the same period in 2015; this confirmed the recovery trend already underway in 2015, thanks to the structural improvement in Mobile revenues, as an effect of retention of our market share and the stabilisation of ARPU levels.

In particular, the following should be noted:

• Mobile revenues totalled 2,710 million euros, with a dynamic of constant and significant growth, compared to the first nine months of 2015 (+112 million euros, +4.3%). Service revenues increased by 75 million euros (+3.2% compared to the same period of 2015), again confirming in the third quarter a positive result in terms of trends and of comparison with the previous year,  which may be attributed to an improvement in the competitive dynamics, with progressive stabilisation of market share and the constant growth of mobile internet and digital services to support ARPU levels;
• Fixed revenues totalled 2,660 million euros, a reduction of 143 million euros compared to the first nine months of 2015 (-5.1%). This contraction in turnover continued and accentuated the slowdown trend of previous quarters (third quarter -3.2%, second quarter -6.0%, first quarter -6.0%). This recovery may be attributed to lower losses of voice-only lines, accompanied by development of Broadband customers and the growing penetration of Fibre offers.
  
  
  
• Business: the revenues of the Business segment totalled 3,299 million euros, 234 million euros lower than in the first nine months of 2015 (-6.6%), 159 million euros (-5.0%) of which in the service component and 74 million euros (-21.3%) in the product component.

Regarding the service revenues:

• Mobile service revenues fell by 51 million euros (-6.0% than the same period last year) with the trend showing appreciable recovery in the third quarter of 2016 (-1.4% in the third quarter, -7.6% in the second quarter and -9.4% in the first quarter) . In particular, the contraction in traditional mobile services continued (-15.7% of the voice and messaging component, compared to the first nine months of 2015), caused by the trend for customers to reposition on bundles with a lower overall ARPU, and the migration of Government customers to the new Consip offer (the unit prices of which have been lowered), and still only marginally recovered, thanks to the positive performance of the new digital services (+3.4% compared to 2015);
• Fixed service revenues fell by 109 million euros (-4.6% compared to the first nine months of 2015), despite constant growth in ICT services (+2.2%), particularly Cloud services. In fact, the segment continues to be affected by the slow recovery in the broader economy, the fall in the prices of traditional voice and data services, and the technological shift towards VoIP systems.
  
  
  
• Wholesale: the Wholesale segment posted revenues of 1,370 million euros for the first nine months of 2016, higher than the corresponding period of 2015 (+3 million euros, +0.2%), despite the reduction in regulated prices which had a negative impact of 50 million euros on revenues, more than offset by the contribution of some infrastructure capacity sale deals.

International Wholesale – Telecom Italia Sparkle Group Revenues

The revenues of Telecom Italia Sparkle Group - International Wholesale for the first nine months of 2016 totalled 1,003 million euros, significantly higher than in the first nine months of 2015 (+32 million euros, +3.3%). This result is due to growth in revenues for Voice services (+27 million euros, 3.9%) and growth in revenues from IP/Data services including Cloud and Data Center services (+5 million euros, +2.1%). The other lines of business remained substantially stable.

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The EBITDA of the Domestic Business Unit in the first nine months of 2016 totalled 4,995 million euros, 470 million euros more than the same period of 2015 (+10.4%), with a margin of 45.3% (+4.6 percentage points compared with the same period of 2015). This result was affected by the negative impact of non-recurring charges totalling 139 million euros, of which:

• 114 million euros for labour costs (43 million euros in the first nine months of 2015),
  
  
• 25 million euros for charges consequent on disputes and fines of a regulatory nature, and related liabilities, charges connected to disputes with former employees and amounts owed to customers and suppliers (397 million euros in the first nine months of 2015).

Without these charges, the organic change in EBITDA would have been +3.3%, with a margin of 46.5%, 1.8 percentage points up on the first nine months of 2015, confirming the positive change in trend that started in the second quarter of 2016 (third quarter +7.8%, second quarter +6.9%, first quarter -5.2%).

EBIT in the first nine months of 2016 was 2,575 million euros (2,090 million euros in the corresponding period of 2015), an increase of 485 million euros (+23.2%), with a margin of 23.3% (+4.5 percentage points compared to the same period of 2015). The trend in EBIT reflects, primarily, the positive trend in EBITDA indicated above, and the 32 million euro reduction in amortisation and depreciation.

EBIT for the first nine months of 2016 suffered from the negative impact of non-recurring charges for a total of 139 million euros (446 million euros in the first nine months of 2015) Without these, the organic change in EBIT would have been +7.0%, with a margin of 24.6%.

The headcount, at 52,140, decreased by 504 from the number at 31 December 2015, despite the incorporation of the Media Business Unit, in the absence of which the decrease would have been 567 employees.

BRAZIL (average real/euro exchange rate 3.96106)

The revenues of the Tim Brasil group in the first nine months of 2016 totalled 11,574 million reais, down by 1,453 million reais (-11.2%) compared to the same period of the previous year.

Revenues from services totalled 10,878 million reais, 640 million reais less than the 11,518 million reais recorded in the first nine months of 2015 (-5.6%).

Revenues from product sales stood at 696 million reais (1,509 million reais in the first nine months of 2015; -53.9%), reflecting a sales policy less focussed on the sale of handsets, as well as the impact of the Brazilian economic crisis on family spending decisions.

Revenues for the third quarter of 2016 totalled 3,900 million reais, down 5.2% compared to the same period of the previous year.

Mobile ARPU in the first nine months of 2016 was  17.6 reais, compared to 16.4 reais in the same period of the previous year (+7.3%).

The total number of lines at 30 September 2016 was 63.2 million, a reduction of 3 million (-4.5%) on the figure at 31 December 2015; market share at the end of August 2016 was 25.2% (25.7% at 31 December 2015).

EBITDA of 3,566 million reais was 336 million reais lower than the first nine months of 2015 (-8.6%). However, it should be noted that the fall in EBITDA from the previous year’s figure was considerably attenuated in the last quarter (-1.2%), because of the start of cost-cutting operations which partially offset the reduction in revenues in the period in question. The costs of acquiring goods and services were noticeably lower in all sectors than in the first nine months of 2015, a fall of 1,025 million reais (-14.6%); however, labour costs increased (+3%), mainly due to salary adjustments to inflation and the presence of non-recurring charges in the form of early retirement costs totalling 56 million reais.

The EBITDA margin was 30.8%, up 0.8 percentage points on the first nine months of 2015.

EBITDA for the third quarter of 2016 was 1,270 million reais, 15 million reais lower than in the third quarter of 2015; the EBITDA margin for the third quarter of 2016 was 32.6%, 1.4 percentage points higher than in the same period of the preceding year  (31.2%). Excluding non-recurring costs, the change in EBITDA compared to the same period of 2015 was +0.5%.

EBIT totalled 832 million reais,   1,782 million reais less than in the first nine months of 2015. This result reflects the lower contribution made by EBITDA, the effect of greater depreciation and amortisation (+312 million reais) and less benefit from the sale of the telecommunications towers, which in 2015 had generated a capital gain of 1,184 million reais, compared to a capital gain of 37 million reais in the first nine months of 2016.

The headcount stood at 9,941 employees (13,042 at 31 December 2015).

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EVENTS SUBSEQUENT TO 30 SEPTEMBER 2016

The period for the calculation of the ratio applicable for the conversion into TIM shares of the “€ 1,300,000,000 6.125% guaranteed subordinated mandatory convertible bonds due 2016” issued by Telecom Italia Finance S.A. started on 13 October. The calculation period will end on 9 November, while the deadline for investors to submit formal requests for conversion is 10 November. After this date, any TIM shares for bonds for which conversion requests have not been submitted within the period of time and according to the methods prescribed will be settled, as set out in the Terms and Conditions of the bonds.

OUTLOOK FOR THE 2016 FINANCIAL YEAR

As forecast in the Business Plan, and achieved in the first nine months of the year, we expected a progressive improvement in operating performance in the Domestic perimeter in 2016, which has supported the expected progressive reduction of the debt, also partly thanks to the conversion of the Mandatory Convertible Bond (contractually set for November 2016 in the amount of 1.3 billion euros).

The dynamics of commercial and business development, accompanied by the strengthening and acceleration of the efficiency and cost cutting programme - without reducing the push on the levers that underpin commercial and infrastructure development -  are the foundation for a further improvement in operating performance, with the aim of achieving low single-digit organic growth in EBITDA within 2016.

In Italy, Telecom Italia continues its transformation and transition from traditional Telco to Digital Telco as enabler of the country's digital life: a business model based on the development of innovative infrastructure and an excellent quality of customer service, increasingly aimed at disseminating premium services and digital content, with a distinct positioning in the market:

• In the Domestic Mobile segment, in a competitive context where there has been a progressive cooling of the pricing lever, greater attention paid to quality and strong, continuous growth in data consumption, Telecom Italia will be focussing on the increasingly greater adoption of 4G by its customers, fostered by the growing penetration of smartphones and the development of bundle offers with distinctive and converging digital content. This will enable the Company to strengthen its leadership in the market, through customer loyalty and higher ARPU levels.

• In the Domestic Fixed segment, Telecom Italia expects to reduce the decline in the number of customers as from 2016, thanks to the acceleration in the dissemination of fibre, convergence and the strengthening of the positioning of services with digital content (Video, Music, Gaming and Publishing). Telecom Italia will also continue to work with Italian enterprises in their digital transformation process, with its ICT and Cloud services, taking a differentiated approach depending on customer base characteristics, aiming at achieving a distinctive positioning in the vertical markets supposed to be of greatest interest.

In the still uncertain macroeconomic, political and market context, TIM Brasil has set itself the objective of defending and increasing its market share on revenues and improving its profitability (EBITDA margin), thanks to a major investment plan (in particular in 4G, where TIM is already leader today), and to a renewed commercial and competitive positioning and great attention to efficiency and cost cutting, as a structural element needed to give balance and financial sustainability to the Plan.

The whole of the Brazilian telecommunications segment (and prepaid Mobile in particular) is highly exposed to this difficult macroeconomic scenario and has suffered a decline in the overall value of the market, also as a result of its substantial maturity and saturation. In this context, Oi, the fourth largest telecommunications group in Brazil, filed for bankruptcy in June, entering into controlled administration, with still uncertain repercussions on competition and impacts on the market.

The evolution of the Brazilian market shows and confirms a trend of strong and consistent growth in data usage, even greater than that recorded in other major countries. This phenomenon goes hand-in-hand with a simultaneous reduction in voice traffic and messaging, driven by the aim of optimising and reducing customer spending, since customers opt to use services offered by the OTTs as an alternative to traditional methods of using services.

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The Manager in charge of preparing the corporate accounting documents, Piergiorgio Peluso, hereby declares, pursuant to subsection 2, Art.154 bis of Italy’s Consolidated Law on Finance, that the accounting information contained herein corresponds to the company’s documentation, accounting books and records.

Milan, 4 November 2016