The Telecom Italia Board of Directors, which met today under the chairmanship of Roberto Colaninno, examined and approved the consolidated and parent company interim financial statements for the first six months of 2000.
In the first half of 2000, the Group achieved results in line with budget expectations and with forecasts communicated to the market at the beginning of the year.
In more detail:
- In the fixed telephony business performance was substantially in line with the objectives set for the year 2000. This partially reflects the contribution of data traffic, turnover for which was up significantly (+17% compared to the first half of 1999). An innovative commercial strategy was launched in the voice sector, with the objective of tackling an increasingly competitive market. The results of this strategy should become apparent in the second half of the year.
- In Mobile telephony, TIM´s results confirm its excellent operating performance, underscoring the company´s status as an international leader in terms of growth (+25% subscribers and +10% revenues compared to the first half of 1999) and margins (Ebitda +14.5% compared to the first half of last year).
- Development of Internet activities has brought a further set of impressive results, with 394% more subscribers for Tin.it, and a 71% increase in the number of pageviews/month compared to the first six months of last year.
- The contribution of international activities to consolidated earnings is up fivefold compared to the first half of 1999 as a proportion of Ebitda, rising from 2% to 10%.
- Plans for divestments and efficiency gains were either implemented or put into action during the first half of the year, in accordance with what was outlined in the budget. The greatest benefits from these actions will be seen in the second half of the year.
Telecom Italia Group:
Group revenues, including amounts due to other telecommunications operators, amounted to 14,217 million euros (27,528 billion lire), up 8.5% compared to first half 1999 figures (13,109 million euros).
Net of interests due to other operators, revenues stood at 12,859 million euros (24,898 billion lire), an increase of 860 million euros (+7.2%) compared to the same period in 1999. Revenue growth was driven by positive mobile telecommunications results and inclusion into the consolidation area of the Nortel Inversora group, the holding company that controls Telecom Argentina. Net of Nortel Inversora figures, revenues totaled at 13,386 million euros (25,918 billion lire), +2.1% compared to the first half of 1999.
Gross operating profit (Ebitda) stood at 6,454 million euros (12,496 billion lire), up 314 million euros (+5.1%) compared to the first half of 1999, and equaled 45.4% (46.8% in the first half of 1999) as a proportion of gross revenues. For the most part the increase may be attributed to inclusion of the Nortel Inversora Group in the area of consolidation, plus sound performance from mobile telephony.
Operating income stood at 3,391 million euros (6,565 billion lire), an increase of 133 million euros (+4.1%) compared to the first half of 1999. This derives principally from consolidation of Nortel Inversora. As a proportion of gross revenues operating income equaled 23.8%, against 24.9% over the same period of 1999.
Consolidated pre-tax income before minority interests was 2,877 million euros (5,571 billion lire), up by 12.3% compared to the first half of 1999. Consolidated income before minority interests was 1,424 million euros (2,758 billion lire), an increase of 16.7% compared to the first half of 1999, at a ratio of 10% of overall turnover (9.3% in the first half of 1999).
Consolidated net profit equaled 979 million euros (1,896 billion lire), an increase of 68 million euros (+7.5%) compared with the same period of 1999. Changes to the area of consolidation have not affected this line item.
Cash flow (profit + depreciation) totaled 4,208 million euros (8,148 billion lire), an increase of 270 million euros (+6.9%) compared to the first half of 1999.
Net financial borrowings at 30 June 2000, not including payment of dividends in the month of July, equaled 9,356 million euros (18,115 billion lire), compared to 8,138 million euros (15,758 billion lire) at 31 December 1999; inclusion of the Nortel Inversora group in the consolidation area (+1,562 million euros) is almost entirely responsible for this growth.
Group employees at 30 June 2000 numbered 128,438, an increase of 5,776 compared to 31 December 1999. The fall may essentially be attributed to inclusion of the Nortel Inversora group (+7,161 employees) in the area of consolidation. Excluding this increase, the number of Group employees actually decreased by 1,385, particularly as a result of lower staff numbers in the Wireline unit (- 4,357 compared to the first half of 1999). The second half of the year will see the effects of a further reduction in staffing numbers, as a consequence of significant divestment of activities (Italtel and Sirti).
Telecom Italia S.p.A. :
Parent company revenues amounted to 8,733 million euros (16,910 billion lire), including 1,543 million euros due to other telecommunications operators, down 6.1% compared with the same period of 1999 (9,304 million euros).
This fall may be attributed to revenues from traffic, which, despite a 23.4% increase in terms of minutes, were down by 13.9%, principally because of decreased revenues from traditional voice traffic (-11%). The major growth in data traffic revenues (+17%) also partially offset this development.
Traffic revenues were also negatively influenced by the reduction of long-distance and international tariffs implemented from 1 August 1999, and by the application of new interconnection prices for traffic to and from mobile phones imposed by the Telecommunications Authority.
Labor costs (1,546 million euros) were down 3.2% compared to the first half of 1999.
Gross operating profit (Ebitda) stood at 3,773 million euros (7,307 billion lire), a decrease of 389 million euros compared with the same period of 1999 (-9.3%). This was the result of lower revenues that were only partially offset by cost containment. The ratio of Ebitda to earnings stood at 43.2%, against 44.7% over the same period of 1999.
Operating income stood at 1,813 million euros (3,511 billion lire), a reduction of 175 million euros compared to the first half of 1999 (-8.8%). As a ratio of revenues, it equaled 20.8%, against 21.4% for the first half of 1999.
Operations in the first half of 2000 closed with a net income of 698 million euros (1,352 billion lire), down 111 million euros (-13.7%) compared to the same period of 1999. This result was influenced by an increase in write-downs of participations, and by greater extraordinary charges predominantly associated with the company reorganization plan.
Cash flow (profit + depreciation) was 2,595 million euros (5,026 billion lire), compared to 2,908 million euros for the first half of 1999.
Net financial borrowings at 30 June 2000 stood at 6,510 million euros (12,605 billion lire), a reduction of 1,788 million euros compared to 31 December 1999.
Parent company staff numbers were down from 76,113 at the end of 1999 to 74,566 at 30 June 2000, a reduction of 1,547 (-2%). This reduction does not take into account the effects of recent agreements with unions regarding job mobility and redundancy (Cassa Integrazione).
Telecom Italia Mobile:
Group performance in mobile telephony registered strong growth under all reference figures: revenues, number of clients, Ebitda, operating income and net income.
Revenues in the first half of the year amounted to 3,782 million euros (7,324 billion lire), registering an increase of 10.2%. Gross operating profit (Ebitda) attained a level of 1,857 million euros (3,596 billion lire), an increase of some 14.5%. Operating profits stood at 1,421 million euros (2,751 billion lire), up 14.5%. Net income equaled 877 million euros (1,698 billion lire, +20.5%).
The company reported 25% more customers (19.975 million) in Italy compared with the same period of 1999. TIM´s worldwide customer numbers exceed 40 million. The lines per employee ratio is up by 19.8%.
Operations and transactions over the six month period
In the first half of 2000, the Telecom Italia Group completed a number of significant operations that have helped to redefine the Group´s strategic profile.
The most significant of these is the merger between Seat-Pagine Gialle and Tin.it.
The merger process, still underway, is taking place through an increase in Telecom´s participation in Seat, a partial de-merger of parts of Telecom Italia and the successive merger of such assets into Seat. The newly formed company will be the leader in Italy´s Internet access market, will have Italy´s most frequently visited portal and an integrated B2B platform that is unique in Europe. Seat-Tin.it will be the biggest operator on the market for online advertising, in telephone directories and local advertising, and will be able to utilize its distribution network of more than 1,800 agents and 1,200 Buffetti network points of sale.
Tin.it, for its part, has confirmed its rapid subscriber growth rates during the first six months of 2000, with numbers exceeding the 3 million mark (+394% compared to the first half of 1999; +55% compared to the end of last year). In traffic terms, pageviews/month were up by 71%, while dial-up access increased by 129%.
Last year a divestment plan was announced as part of group refocusing on core business. The plan is targeted at selling off participations in companies whose operations are in non-strategic industries. Thus far, a large part of the divestment plan has been realized, with major Italian and international companies featuring in a number of operations.
Specifically:
- 60% of Teleleasing has been sold to the Mediobanca Group for around 29.4 million euros (57 billion lire);
- 51.2% of Meie Assicurazioni and 51% of Meie Vita has been sold to Unipol Assicurazioni for 346 million euros (670 billion lire);
- a deal has been signed (the effects of which will be accounted for in the second half of 2000) for the sale of 80.1% of Italtel to a consortium led by Clayton Dubilier & Rice and Cisco Systems, for 826 million euros (1,600 billion lire).
Furthermore, Telecom Italia has announced its desire to subscribe to the Public Purchase Offer launched for Sirti by a group of companies including Techint, Stella International, 21 Investimenti, Interbanca and 3i. The sale of 49.095% of Sirti under this Offer would raise receipts of 162 million euros (314 billion lire).
At consolidated level, taken as a whole these operations - including the possible sale of holdings in Sirti under the auspices of the Public Offer mentioned above - would have the following effects:
- Capital gains (net of taxes) of around 465 million euros (900 billion lire)
- reduction in overall borrowing by more than 1,600 million euros (3,100 billion lire)
- reduction in staff numbers of around 17,000.
Agreement was reached with unions in March regarding the company Development and Reorganization Plan. This was later amended with operational agreements in late July. The agreement defines a range of instruments for reducing parent company staff numbers by about 13,000, including job mobility as per law no. 223/91, training for redeployment of redundant staff (Cassa Integrazione), intercompany mobility, solidarity contracts, and flexi-time working (part time and job sharing).
As regards fixed telephony and corporate Internet services, Telecom Italia Wireline Services has launched a number of initiatives targeted at offering a complete and ever more competitive range of products and services, including Teleconomy No Stop and Teleconomy 24 for consumer voice telephony and Full Business Company for business markets.
Furthermore, adhering to guidelines laid down by the Italian Communications Regulatory Authority, Telecom Italia has announced new pricing for network interconnection, carrier preselection and number portability. The company has also provided a reference scheme for the unbundling of the local loop. These measures will help to create one of Europe´s most liberalized markets, making Italy the country that has gone furthest to implement EC competitive market recommendations.
International activities
In the first half of the current year, Telecom Italia has further consolidated and strengthened its expansion into international markets. This has been achieved by continuing to focus on fixed telephony, data transmission, mobile telephony and Internet operations, while bringing together principal operations in Europe, Latin America and the Mediterranean area.
The most significant operations undertaken are
- Rationalization of Spanish participations, together with our local partners Endesa and Union Fenosa, by setting up the Auna holding company - of which Telecom Italia will hold a 37.5% stake once the operation is complete - to concentrate the holdings in fixed telephony, mobile telephony, Internet and cable television companies. Amena, the mobile operator owned by Auna, won one of Spain´s 4 UMTS licenses;
- in Turkey, as part of a consortium with Is Bankasi, Telecom Italia won the third GSM mobile license;
- acquisition of 30% of Globo.com, Globo Organizaçoes Group Internet arm and Brazil´s industry leader;
- also in Brazil, in July Brasil Telecom took up 31.5% of Compagnia Riongrandense de Telecomunicações (CRT). As a result of this operation, this Telecom Italia participation has become one of the country´s principal fixed telephony operators;
- in Peru, the Group won the third GSM-standard mobile telephony license, which also includes an option to offer basic and long-distance telephony services
- foundation of Mediterranean Nautilus, 51%-owned by Telecom Italia. As part of this same project, in late August Latin American Nautilus was set up, a company 70%-owned by Telecom Italia. These two firms will be building two high-capacity ring networks respectively in the Mediterranean area and Latin America, to supply telecommunications companies with international transmission capacity, city-to-city Internet connectivity, Web housing and hosting services.
Significant events occurring after 30 June
In July the Boards of Telecom Italia, TIM and Stet International adopted a plan to restructure the Group´s international activities.
Once the operation has been completed, pursuant to approval by the respective shareholders, Telecom Italia will own 100% of Stet International Netherlands (SIN), and TIM will hold 100% of Stet Mobile Holding (SMH). The plan contains provisions to divide Stet International between Telecom Italia and TIM, and the transfer of Telecom´s participation in SMH to TIM, in exchange for a reserved capital increase, after which Telecom´s participation in TIM will go up by 1.97%. This operation will allow Telecom Italia and TIM to focus better on their respective core businesses of fixed and mobile telephony.
At the same time, the TIM Board of Directors adopted a plan for a voluntary conversion of savings shares into an equal number of ordinary shares, to which Telecom Italia has already announced its intention to adhere. This move is designed to simplify the shareholding structure, and to make it possible to collect financial resources that will give TIM greater operational flexibility, particularly in view of participation in the auction for UMTS licenses and associated investments.
With regard to the merger of Seat and Tin.it, in late July the Regulatory Authority gave its conditional authorization to the merger. The Telecom Italia Extraordinary Shareholders´ Meeting met in August to approve the partial divestment in favor of Seat; at the same time, shareholders rulings to merge Seat and Tin.it were adopted definitively.
Telecom Italia Information Technology, the company founded to take on all Group IT operations, was set up in July. Company turnover will exceed 2.2 billion euros (4,300 billion lire), and the firm will employ more than 12,000 people. Strategic objectives for Telecom Italia Information Technology are: development of a portfolio of Web services, and provision of competitive IT services (application development, system integration, call centers).