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2000 draft financial statements approved

03/30/2001 - 12:00 PM

Telecom Italia Group:
- Revenues: 28,911 mn euros, +6.7%
- Ebitda: 13,118 mn euros, +7.3%
- Ebit: 6,806 mn euros, +5.8%
- Net income post minorities: 2,028 mn euros, +16.7%
- Pre-goodwill net income: 2,662 mn euros, +32%

- Best Ebitda/revenues ratio (45.4%) and ebitda/debt ratio (1.5 times) among main european tlc operators
- Sharp fixed and mobile tariff cuts (revenue impact: -3.1 bn euro) offset by strong productivity growth

Fixed telephony (Tiws): growth in data and web services for businesses
- Tim: most profitable in its sector
- International activities: continued expansion
- Seat group: strong rise in revenues

Telecom Italia spa:
- Revenues: 17,416 mn euros, -5.9%
- Ebitda: 7,515 mn euros, -5.7% and Ebit: 3,595 mn euros, -1.9% both growing as a percentage of revenues vs 1999
- Net income: 2,559 mn euros, -1.9%
- Ordinary share dividend: 0.312 euros
- Savings share dividend post redenomination in euro: 0.324 euros
- Pay-out unchanged at 90%

The Telecom Italia Board of Directors, chaired by Roberto Colaninno, met today to approve the draft 2000 financial statements to be submitted to the Annual General Shareholders´ Meeting.

The Year 2000 for the Telecom Italia Group
During the year 2000 the Telecom Italia Group achieved significant results, reaching, and in most cases exceeding, all the principal budget objectives which had been set at the beginning of the year.

The main factors which led to the achievement of the abovementioned objectives are:

- effective industrial management focused on fundamentals, rational business development, maintaining a solid balance sheet;
- disciplined management of financial resources;
- profound reorganization of all Group activities and strong focus on the core business;
- notable productivity growth, through increased volumes and the reduction of operating costs, that offset significant price reductions (causing an revenue loss of over 3.1 bn Euros for both fixed and mobile telephony).
Thanks to these factors, Telecom Italia recorded (compared to the main European ex-incumbents):

- the best share performance;
- the highest EBITDA margin (45.4%);
- the lowest Debt/EBITDA ratio (1.5 times).

Summary of 2000 Financial Year Results

Telecom Italia Group
Group revenues, gross of amounts due to other telecoms operators, amounted to 28,911 mn Euros (55,979 bn lire), an increase of 6.7% compared to last year´s 27,104 mn Euros (52,481 bn lire) (+1.7% on a comparable consolidation basis). Net of amounts due to other operators, revenues amounted to 26,120 mn Euros (50,576 bn lire, +5.7%).

The increase in revenues was, in large part, due to the proportional consolidation of the Telecom Argentina Group from January 1, 2000 (through Nortel Inversora), partially offset by the deconsolidation of activities sold off during 2000 (including real estate, Italtel, Sirti, and Teleleasing).

Gross operating profit (EBITDA) rose by 892 mn Euros (1,727 bn lire) compared to 1999 to 13,118 mn Euros (25,400 bn lire), a growth of 7.3% (+1.5% on a comparable consolidation basis) and 2.2% higher than the Group budget.

The EBITDA margin increased still further (45.4% compared to 45.1% in 1999), despite the 25% reduction of fixed-mobile tariffs, due primarily to the change in the basis of consolidation and to the contribution of TIM.

Operating income rose to 6,806 mn Euros (13,179 bn lire), up 373 mn Euros (723 bn lire) compared to 1999 (+5.8%; +1.2% on a comparable consolidation basis), and equal to 23.5% of gross revenues.

Net income before minority interest was 2,948 mn Euros (5,709 bn lire), up 22.4% compared to 1999.

The year 2000 concluded with consolidated net income of 2,028 mn Euros (3,927 bn lire), up 16.7% on the previous year, after minority interest of 920 mn Euros (1,782 bn lire).

Net of goodwill, due to the Group´s acquisitions, consolidated net income amounted to 2,662 mn Euros (5,154 bn lire), up 32% compared to 1999.

Net financial indebtedness at 31 December 2000 stood at 19,029 mn Euros (36,845 bn lire), against 8,138 mn Euros (15,758 bn lire) at the end of 1999, below the planned level of indebtedness announced to the market.

In addition to the impact of the change in the basis of consolidation, indebtedness grew as a result of acquisitions, capital increases, financial investments, dividends and the costs for UMTS licences, totalling approximately 17.7 bn Euros; offsetting these disbursements, among other things, were proceeds from disposals of non-core activities, proceeds from the conversion of TIM´s savings shares, and net cash-flow, that amounted to 10 bn Euros.

Industrial investments - net of goodwill- for the year 2000 amounted to 7.9 bn Euros, an increase of over 3 bn Euros compared to 1999, in particular due to the cost of the UMTS licence in Italy and the growth of international activities.

Group personnel at 31 December 2000 numbered 114,669 (122,662 at 31 December 1999), including 2,144 employees placed in the Government sponsored redundancy programme ("Cassa Integrazione Straordinaria - CIGS"). During the year employee numbers were reduced by 27,550, of which 9,572 permanent reductions (primarily in TIWS) and approximately 17,978 resulting from disposals of non-core activities.

The newly consolidated companies caused an increase of 19,557 employees (of which 7,500 from Telecom Argentina and a like number from the Seat Group).

Activities and results of the Group´s main Business Units
During the year 2000 the Telecom Italia Wireline Services (TIWS) Business Unit was created. TIWS provides voice services - both traditional and innovative, residential and business -, data transmission and Internet services for companies and boasts around 27 million lines and over 115,000 broadband accesses utilising xDSL and optical fibre technologies for retail and wholesale clients.

TIWS reported 2000 gross revenues of 16,227 mn Euros, a limited reduction of -6% compared to 1999 against an average reduction of 29% in retail prices. The latter was partially compensated by the notable revenue growth generated by data transmission, growth in wholesale business and web services (+26%), as well as the defence of voice market share especially in its more lucrative segments.

TIWS´ EBITDA amounted to 7,135 mn Euros (-3.8% compared to 1999), in line with budget forecasts. This result was also achieved due to a significant operating cost containment plan, which led to an overall savings of over 800 mn Euros (-8%), in particular in voice services, and to personnel reductions of approximately 9,000.

In a totally liberalised market with over 140 operators, TIWS succeeded in maintaining a significant share of traffic volumes (89%), the result of an aggressive but selective marketing strategy and an increased focus on the services offered to customers.

Of particular importance has been the success of Teleconomy, an innovative bundled voice and internet service offered on a unitary or flat pricing basis. This offer, which was launched in the second half of 2000, reached over 2.2 million clients in just over six months, thereby increasing customer retention in the more demanding and higher consumption (in terms of telephone traffic) segments.

Regarding industrial investments, in 2000 TIWS invested over 1.5 bn Euros in network infrastructure. Of the latter 670 mn Euro were invested in broadband, realising an ADSL coverage of 120 cities, which will rise to 600 in 2002. For the next three years, TIWS foresees investments of over 7 bn Euros, 5 bn of which are planned to be spent in the development of the network infrastructure.

TIM confirmed its leading position as the world´s most profitable operator in the mobile telecommunications sector. At the end of 2000, the company reported an aggregate 45 million clients in the world through its various participations, over 21.6 million of which were in Italy, and net income on a parent company basis of 1,862 mn Euros (+20.4% with respect to the prior year).

On a consolidated level, TIM reported revenues of 9,418 mn Euros, up 9% compared to 1999, thanks, in part, to the significant contribution of international activities (+24%).

Consolidated EBITDA exceeded 4,447 mn Euros (+14.4%), representing as a proportion of revenues 47.2%, the highest among the main mobile operators worldwide.

In 2000 TIM´s international activities grew still further - becoming central to the Company´s strategic development. Indeed, a large number of important operations were successfully completed: in Spain and Austria (awarding of UMTS licences), Brasil (acquisition of Maxitel), Venezuela (acquisition of Digitel), Turkey and Peru (acquisition of GSM licences).

The expansion of Telecom Italia Group´s international activities (fixed and integrated fixed-mobile companies) continued by focusing and consolidating the Group´s presence in the European, Mediterranean and Latin American areas, and developing in business areas with high growth potential such as data transmission and web services.

In 2000 revenues for companies consolidated by Telecom Italia amounted to 2.453 mn Euros, (+19% compared to 1999, excluding Telecom Argentina), with an EBITDA of 820 million Euros.

The following are the most significant operations carried out in 2000:

- creation of Auna, an integrated telecoms and multimedia group, in Spain;
- acquisition by 9Telecom of Jet Multimedia, an internet and data operator in France, to create an integrated datacom company;
- creation of BBNed, an internet and data operator, in Holland;
- obtainment of a WLL (wireless local loop) licence in Greece;
- acquisition of CRT, through Brasil Telecom, and of 30% of Globo.com in Brasil, the latter will enable multimedia content produced by the Globo Group to be utilised in the Internet offer to fixed and mobile customers.

The Nautilus project was also started in 2000 to create high capacity transmission networks for Internet, with the construction of two "rings": Mediterranean Nautilus and Latin America Nautilus.

During 2000, the restructuring plan for Telecom Italia Group international participations was also completed, permitting a simplification of the international holding structure. As a consequence of the operation, all mobile international activities were attributed to TIM, whereas all fixed and integrated fixed-mobile activities were attributed to Telecom Italia.

With the creation of Seat-Tin.it, one of the most important industrial and financial transactions in 2000 was completed. The operation created a European leader in the new economy and media sectors. The new industrial group combines a presence in traditional sectors (directories, direct marketing, and office products) with internet-related activities (Tin.it, Virgilio and Pagine Gialle On Line and Web services) and the world of the media (Tmc).

During the year 2000 the Seat Group doubled the number of Internet subscribers, reaching 4 mn (compared to approximately 2 mn at year-end 1999); traffic volumes (residential and business) grew by 97%, while page views of Virgilio equalled 1.7 bn (0.5 bn in 1999).

The Seat Group (whose results are not included in Telecom Italia´s consolidated income statement) recorded revenues last year amounting to 1,333 mn Euros, up 35.3% compared to 1999 thanks to the development of its activities and the completion of several important acquisitions. EBITDA totalled 408 mn Euros, a growth of 3.9% with respect to 1999; the Group reported a net consolidated loss after minorities of 0.8 mn Euros.

Parent company Telecom Italia S.p.A.
The parent company recorded revenues of 17,416 mn Euros (33,723 bn lire), gross of amounts owing to other domestic and international telecommunications operators (equal to 3,150 mn Euros, or 6,099 bn lire), down 5.9% compared to the 1999 figure of 18,518 mn Euros (35,856 bn lire).

This decline (-1.1 bn Euros, or -2,133 bn lire) is mainly due to a reduction in revenues from traffic, which fell by 13.9%, despite a 27.3% increase in overall minutes of traffic. In fact, the average yield from traffic fell by 35.8%, from 0.057 Euro (111 lire) to 0.036 Euro (71 lire) per minute, for an overall amount of 2,582 mn Euros (5,000 bn lire). This was also due to price cuts for long-distance and international calls and to the implementation of the new interconnection pricing list.

The gross operating profit (EBITDA) amounted to 7,515 mn Euros (14,552 bn lire), down 457 mm Euros (882 bn lire, -5.7%) on the previous year, owing to lower revenues, offset partially by lower operating costs. EBITDA margin was 43.2%, up slightly from 1999 (43%).

Operating income, equal to 3,595 mn Euros (6,961 bn lire), showed a slight reduction (-1.9%), although as a percentage of revenues it increased compared to the previous year (from 19.8% in 1999 to 20.6% in 2000).

Net financial indebtedness at the end of 2000 amounted to 16,839 mn Euros (32,604 bn lire), up 8,541 mm Euros (16,536 bn lire) compared to the end of 1999.

Parent company personnel at 31 December 2000 numbered 66,541 employees, (including 2,144 placed in the Government sponsored redundancy programme - CIGS), against 76,113 at 31 December 1999, down by 9,572 (-12.6%).

In particular, the parent company Telecom Italia posted a net income of 2,559 mn Euros (4,954 bn lire), basically in line with last year (-1.9%) and significantly higher than budget objectives.

On the basis of this performance, it will be proposed to the Annual General Shareholders´ Meeting to distribute a dividend of 0.312 Euros (605 lire) per Telecom Italia ordinary share (compared to the 1999 dividend of 0.311 Euros or 603 lire).

The dividend per saving share will be equal to 0.324 Euro (lire 627) as a result of the premium foreseen by the Corporate By-law and the cancellation of the savings shares held by the Company and the consequential increase in nominal value of the saving shares upon the redenomination into Euros of the share capital, which is to be voted upon in the Extraordinary Shareholders´ Meeting (First call on next April 18, Second call May 3). In 1999 dividend the dividend per saving share equalled 0.322 Euros or 623 lire.

The pay-out will therefore be equal to 90% of the parent company´s 2000 net income, in line with the prior fiscal year.

The Board, finally, reserved the right to call at a later time the Annual General Shareholders´ Meeting to approve the draft financial statements for 2000 and the distribution of net income. In any event the payment of the dividend has been as of today fixed for June: the clipping of the dividend coupon will occur on June 18, 2001, with the payment of the dividend on June 21, 2001.