Dividend distribution policy confirmed
Revenues and Gross operating result grow in line with expectations
Improved composition of debt, average maturity extended
Group 2002-2004 business plan reorganization underway
First significant disposals completed
Expected 2002 Group operating results in line with 2001
TELECOM ITALIA GROUP
REVENUES: 30,818 MILLION EUROS (+13.4%)
GROSS OPERATING RESULT: 13,619 MILLION EUROS (+11.5%)
GROSS OPERATING RESULT/REVENUES RATIO: 44.2% (45% IN 2000)
OPERATING INCOME: 6,674 MILLION EUROS (+3.6%)
CONSOLIDATED NET RESULT: -2,068 MILLION EUROS AFTER
NON-RECURRING CHARGES OF 4,613 MILLION EUROS
DEBT: 21,942 MILLION EUROS
SHORT-TERM DEBT EXPOSURE REDUCED FROM 69% TO 36%
AVERAGE COST OF DEBT 5.9%
FREE CASH FLOW 5,990 MILLION EUROS IN 2001,
UP FROM 4,450 MILLION EUROS
TELECOM ITALIA SPA
REVENUES: 17,309 MILLION EUROS (-0.9%)
GROSS OPERATING RESULT: 7,571 MILLION EUROS (+0.2%)
OPERATING INCOME: 3,983 MILLION EUROS (+10.8%)
NET INCOME: 151 MILLION EUROS AFTER NON-RECURRING CHARGES TOTALLING 3,760 MILLION EUROS
RECOMMENDED DIVIDEND: 0.3125 EUROS PER ORDINARY SHARE AND 0.3237 EUROS PER SAVINGS SHARE
MATCHING THE PREVIOUS YEAR
At today’s meeting the Telecom Italia Board of Directors, chaired by Marco Tronchetti Provera, approved the financial statements for 2001.
The Telecom Italia Group in 2001
The 2001 financial year closed with improved Revenues, Gross operating revenue and Operating income. Last year a new strategy was implemented, with the focus on core business, particularly the domestic fixed-line and mobile business and international mobile telephony markets. Major decisions were taken regarding the international portfolio, taking into account the changed macro economic conditions.
Key actions undertaken in 2001 include adjustments and write-downs of holdings at Group level and provisions for charges arising from participating interests for a total of 4,613 million euros. As a result of this purely accounting measure, the Group posted a consolidated net loss equal to 2,068 million euros.
After adjustments and write-downs totaling 3,760 million euros, Telecom Italia S.p.A. posted a net profit of 151 million euros.
The recommended dividend, corresponding to 0.3125 euros per ordinary share and to 0.3237 euros per savings share, shall be distributed after drawing on reserves for a total of 2,184 million euros, and will bring about a full tax credit.
In the second half of 2001 Olimpia S.p.A. acquired from Bell SA and from the market, the 27% stake held by Olivetti S.p.A. As a result, new management took over starting in October. After undertaking a wholesale review of the Group’s strategies for growth, management rapidly implemented a process of overall restructuring, which forms an integral part of the 2002-2004 Industrial Plan.
An overhaul of the Group management structure has seen the arrival of a completely new management team, operating in accordance with new Group corporate structures and Senior Management Committees. At the same time the Domestic Wireline, Internet and Media, and Information Technology Business Units have also undergone far-reaching changes.
A Group-wide “professional family” approach has been adopted and strengthened, as have new procedures for the approval and control of investments and acquisitions, with governance responsibilities now centralized. The Group’s corporate structure is being simplified: the target is to significantly reduce the number of Group companies, which at year-end 2001 numbered around 700.
Results have already been achieved in improving the financial position and restructuring Industrial operations, with a strong focus on core business. The majority of the disposals plan announced last September has already been completed following the sell-off of interests in former satellite consortia, acceptance of the Lottomatica public purchase offer, and the disposal of the holding in AUNA.
Agreement has also been reached (subject to approval from the competent authorities) to sell 50% of Telecom Italia´s interest in Stream. Negotiations are at an advanced stage for the sale of the 40% holding in Telemaco.
TELECOM ITALIA GROUP
For 2001 holdings in Nortel Inversora Group (Telecom Argentina), which during the 2000 financial year were consolidated using the proportional method, were consolidated using the shareholders’ equity method.
Further changes to the area of consolidation are:
- Seat Pagine Gialle, Jet Multimedia and Maxitel Groups and the Digitel company have been fully consolidated in the 2001 accounts, inclusive of income data, whereas in the 2000 financial year they were consolidated solely on an equity basis owing to the fact that they were acquired towards the end of the year.
- Entel Chile Group and the TIM Celular Centro Sul, TIM Sao Paulo and TIM Rio Norte companies have been included in the area of consolidation from 2001.
- Sirti and Italtel Groups left the area of consolidation after disposal in late 2000. These companies were wholly consolidated for the first 9 months of the 2000 financial statements.
Group revenues amounted to 30,818 million euros, after registering 13.4% growth compared with 2000 (+2.7% under equivalent consolidation terms – solely taking into account companies present in both financial years). After deduction of interests owing to other telecommunications companies, revenues amounted to 27,104 million euros, up by 2,649 million euros (+10.8%) compared with 2000. Revenues benefitted from the good performance of mobile telephony services, and from changes to the area of consolidation.
Gross operating result, at 13,619 million euros, increased by 1,400 million euros (+11.5% compared with 2000, +6.6% under equivalent consolidation terms) and amounted to 44.2% of revenues (45% in 2000). Growth in total Gross operating result may predominantly be ascribed to the good performance of the TIM Group (+313 million euros) and to the inclusion of the SEAT Pagine Gialle (+444 million euros) and ENTEL Chile (+374 million euros) Groups.
Amortizations rose from 5,209 to 6,275 million euros, of which amortizations for goodwill increased by 854 million euros, from 168 to 1,022 million euros as a result of acquisitions.
Operating income amounted to 6,674 million euros, an improvement of 234 million euros (+3.6% compared with 2000). Growth in operating income may be attributed to alterations in the consolidation perimeter and to more efficient management of operations, which offset higher write-downs for goodwill.
The Group posted a consolidated net loss of 2,068 million euros after non-recurring charges of 4,613 million euros (3,036 million euros inclusive of the 1,577 million euros reduction in fiscal charges) which did not apply during the previous financial year. A net profit of 2,028 million euros was posted in 2000, inclusive of 184 million euros in extraordinary income and charges.
The net result for 2001 was particularly penalized by the following factors:
Adjustments to the value of: International Operations BU (2,136 million euros); Mobile Services BU international holdings (547 million euros); Internet and Media Business Unit operations (416 million euros); Satellite Services BU (291 million euros);
Write-downs of investments in Argentina as a result of the changes in the economic situation, amounting to 406 million euros;
Costs incurred in disposal of Stream S.p.A. amounting to 248 million euros;
Provisions for the put/call options on Seat PG S.p.A. shares amounting to 569 million euros;
In addition to the above charges, income performance was also held back by net financial charges corresponding to 1,584 million euros (+974 million euros compared with 2000). This was brought about as a result of higher debt, adjustments of the value of investment activities amounting to 1,341 million euros (compared with 1,145 million euros for 2000), and 640 million euros in reduced gains from disposals.
Investments totalled 11,257 million euros, against 19,484 million euros in 2000. Of this figure, 6,990 million euros went on capital expenditure, 3,093 million euros on financial investments, and 1,174 million euros on goodwill.
Free cash flow posted an increase exceeding 34%, up from the 2000 figure of 4,453 million euros to 5,990 million euros.
Net debt, corresponding to 21,942 million euros, was up by 4,709 million euros on year-end 2000, essentially as a result of investments in international mobile and fixed-line telecommunications interests, and as a result of distribution of dividends. Debt structure improved in 2001: the proportion of debt reaching maturity after more than one year is up from 31% to 64%; the average cost of debt was pegged at 5.9%.
Group headcount at year-end 2001 was 109,956, an increase of 2,785 compared with 2000, resulting from changes to the area of consolidation.
TELECOM ITALIA SPA
The company financial statements required by Italian civil law of parent company Telecom Italia S.p.A. closed with a net profit of 151 million euros, after non-recurring charges corresponding to 3,760 million euros (2,498 million euros inclusive of 1,262 million euros in lower fiscal charges). The recommended dividend, which is the same as last year’s, corresponds to 0.3125 euros per ordinary share and 0.3237 euros per savings share. Dividends shall be paid out following withdrawal of the sum of 2,184 million euros from reserves.
Telecom Italia SpA revenues of 17,309 million euros at the end of 2001 kept pace with the 2000 financial year figure of 17,463 million euros.
Gross operating result grew by 0.2% to 7,571 million euros, and accounted for 43.7% of revenues (43.3% in 2000).
Operating income corresponded to 3,983 million euros, a 10.8% increase compared with 2000. As a proportion of revenues, operating income accounted for 23%, against 20.6% in 2000.
Net financial borrowings amounted to 16,913 million euros, a figure that was substantially unchanged compared with the preceding year (16,839 million euros). This reflected a balance between requirements for financial investments and the distribution of dividends as covered by the disposal of satellite consortia, the effects of securitization and money supply from operations. The composition of debt was also modified through the issue of four Telecom Italia bonds for a total of 8,250 million euros; this has made it possible to consolidate a significant proportion of short-term debt, and considerably lengthen average debt maturity.
In 2002 the Group expects to record an operating result that matches or betters its 2001 result. The Group continues to pursue its commitment to reducing net financial borrowings through prudent management of investments, costs, and continuation of the disposal plan.
EVENTS OCCURRING AFTER 31/12/ 2001
The planned disposal of operations not strategic to the Group commenced in late 2001 with the sale of interests in former satellite consortia (generating proceeds of 450 million euros), acceptance of the public purchase offer for Lottomatica (generating proceeds corresponding to 211 million euros, or 390 million euros taking into account the stake held by Olivetti), and the deal struck with Endesa, Union Fenosa and Santander Central Hispano for the sale of the 26.9% stake in Auna (1.85 billion euros, subject to authorization by the Spanish regulatory authorities). This process has continued in early 2002 with the following transactions:
- Disposal of TIM’s 19.6% stake in BDT, the company that controls Bouygues Telecom, for an overall counter-value equal to 750 million euros.
- An agreement, subject to approval by the competent Italian authorities, with News Corporation and Vivendi Universal/Canal+ for the sale of 50% of Telecom Italia’s holding in Stream for US$ 42 million (47 million euros). On agreement of the sale, Telecom Italia made a commitment to write off accounts receivable from Stream worth US$ 80 million. The economic repercussions of this transaction have already been entered under the extraordinary reserves item.
- In addition, as part of a wide-ranging initiative to realize value from real estate operations, negotiations are underway for the sell off of the 40% interest in Telemaco.
Bond issue 2002-2022 reserved for subscription by Telecom Italia Group personnel
On 1 January 2002, pursuant to the 27 July 2001 resolution by the Board of Directors, the “Telecom Italia 2002 –2022” variable rate bond was offered exclusively for subscription by currently serving or retired Telecom Italia Group employees up to an overall maximum of 1 billion euros. As at 22 March bonds had been underwritten for a total of around 160 million euros by 10,029 Group employees.
Under the “Global Note Program”, the first issue of bonds for the year was completed in February for a total of 2.5 billion euros and issued in two tranches of 1.25 billion euros, maturing respectively on 1 February 2007 and 1 February 2012. The total value for the “Global Note Program” for the refinancing of the Group’s debt has recently been extended from 10 to 12 billion US dollars.
Buy-back of Telecom Italia shares
Subsequent to authorization of the resolution passed by the Shareholders´ Meeting in ordinary session on 7 November 2001, in March the company began buying back its own shares on the market, in respect of the terms and conditions laid down by current legislation and by the shareholder authorization. Until now a total of 2,225,000 Telecom Italia savings shares have been bought back at an average price of approximately 6.06 euros per share, for an overall investment of approximately 13.5 million euros.
The Board of Directors has called an ordinary Shareholders’ Meeting date to approve the financial statements for 7 and 8 May 2002, in first and second call respectively. The Board has also established the date for coupon detachment as 20 May 2002; dividend payout beginning on 23 May 2002.
The Board of Directors has furthermore granted its approval to start up of the executive phase of the plan announced last December to integrate Group real estate operations and of corporate entities providing real estate services in order to realize greater value from these assets. The approved executive project will be executed through the transfer of the assets in question to a newly formed company, after a process of reorganization to facilitate these changes. The assets in question will subsequently be grouped together as part of a closed-end real estate fund.
BUSINESS UNIT RESULTS BREAKDOWN
Domestic Wireline (DW), Telecom Italia’s fixed-line services network business unit, closed 2001 with Gross operating result up 4.9% at 7,788 million euros. Operating margins improved over the year: the Gross operating result/Revenues ratio rose to 45% (+2.6%), making DW Europe’s number one major carrier and bearing out the unit’s significant market leadership.
DW’s gross revenues amounted to 17,291 million euros in 2001. The slight decrease compared with 2000 (-1.3%) is principally the result of lower revenues from traditional voice services (-5.5%) compared with 2000. The Teleconomy offer, however, achieved significant commercial success: at year-end 2001 almost 4.1 million subscribers had signed up (+98,5%). Revenues continued to grow from data offerings and business Web services (+9.4%) and from wholesale services to other carriers and domestic(+11.2%) and international (11.3%) Internet Service Providers
The company has supplied 390,000 (+239%) broadband accesses, of which 143,000 were to the wholesale (+76%) and 247,000 to the retail (+626%) markets.
The successful data transmission and business Internet services market strategy resulted in 107,000 Broadband accesses in xDSL and fibre optic technology sold during the year to 31 December 2001 (+269%). The highest growth rate in the broadband access market was registered in the mass market and SOHO segment: the total of 140,000 connections was up by 2700% on the preceding year-end.
At year-end 2001 the company supplied 27,353,353 fixed-line network connections, up by 0.7% on 31 December 2000.
The slight fall in revenues was more than offset by a significant reduction in costs, which were down by 5.8% on a year earlier as a result of rationalization drives implemented during 2001, and as a result of ongoing network efficiency gains. At the same time the business unit posted further gains in efficiency and productivity through prudent control of acquisitions and investments, while at the same time enhancing distribution channels, customer care and customer service.
In a completely liberalized market where more than 180 carriers operate, DW has succeeded in maintaining a significant market share of call traffic (local: 78%, domestic long distance: 73%, fixed/mobile: 72%, international long distance: 68%).
DW capital expenditure in 2001 amounted to 2.8 billion euros, of which the largest portion was spent on broadband infrastructure and innovative services.
Over the next three years Domestic Wireline plans to invest approximately 6.7 billion euros (2002-2004), the majority of which is earmarked for innovative services.
With 23.95 million lines (+10.9%) and call traffic of almost 34 billion minutes (+13.6%), TIM SpA confirmed its position as Italy´s number one mobile telephony company in 2001.
Significant across-the-board growth was registered in all main operational areas: revenues, Gross operating result, profitability and net income. In consequence, the Board of Directors will recommend that the Shareholders´ Meeting, distributes total dividends (gross of legally required withholding tax) up from 1,661 million euros for 2000 to 2,008 million euros for 2001 (the dividend for each ordinary share increases from the 2000 rate of 0.1937 euros to 0.2342 euros; savings share dividends rise from 0.2057 euros to 0.2462 euros). The total dividend payout shall in part to be financed from extraordinary reserves.
TIM Group revenues amounted to 10,250 million euros, up by 8.8% compared with 2000 (9,418 million euros). Gross operating result, corresponding to 4,760 million euros, rose by 7% compared to the same period in 2000 (4,447 million euros). Operating income amounted to 3,136 million euros, up 5% compared with 2000 (2,988 million euros) despite greater depreciation of premises and equipment.
The TIM Group supplied around 50.7 million mobile lines, corresponding to a 24% increase over the figure for a year earlier.
TIM S.p.A. revenues grew by 5.4% (8,357 million euros against 7,929 million euros in 2000) while revenues from services, corresponding to 7,895 million euros, rose by 7.9%. In particular, revenues from Value Added Services (VAS) reached 532 million euros, a 56% improvement compared with 2000.
Gross operating result reached 4,225 million euros, a growth of 9.9% compared with the previous year (3,845 million euros) as a result of greater operating efficiency. Gross operating result accounted for 50.6% of overall revenues (48.5% during the 2000 financial year).
Operating income (3,231 million euros) grew by 12.9% compared with 2000. Net income for the year of 1,907 million euros registered 2.4% growth compared with 2000 (1,862 million euros) despite higher direct taxes than the previous year.
In 2001 adjustments were made to the value of the international portfolio, as a precaution against changed macroeconomic conditions.
INTERNET & MEDIA
The Seat Pagine Gialle Group registered revenue growth in 2001 following changes to the consolidation area, improved profitability and implementation of a new mission centred upon creation of a multiplatform media group spanning the Internet, telephone, directories and television.
In 2001 the Seat Pagine Gialle Group posted total revenues corresponding to 1,957 million euros (+2.6% under equivalent consolidation terms). This result is particularly impressive considering the slowdown in the European economy, which was particularly marked in advertising, a sector in which the Seat PG Group generates the majority of its turnover.
Gross operating result reached 444 million euros, against 361 million euros during the preceding year (+23% under equivalent consolidation terms). This growth may be attributed to rationalization of costs and enhanced profitability from telephone publishing.
Operating income amounted to 31 million euros, compared with a 1 million euro loss in the proforma 2000 accounts. To facilitate equivalent comparisons, the figure for 2000 is inclusive of the results of companies consolidated starting in 2001.
The post-minorities net result for 2001 was a 313 million euro loss, after adjustments of the value of investment assets and net extraordinary charges totalling 378 million euros.
INFORMATION TECHNOLOGY SERVICES
The Information Technology Services business unit, which is responsible for Telecom Italia Group IT operations and is domestic Italian market leader, pursued its objective of repositioning itself towards higher value added products. In accordance with its new strategic orientation, the business unit was restructured in early 2002 and split into two new business units: one for Group captive operations and one for market-oriented operations (Finsiel).
IT Services BU revenues in 2001 amounted to 2,033 million euros, against 2,138 million euros during the preceding year (-4.9%). Company performance was affected by new outsourcing contracts entered into in 2001 by Telesoft and Netsiel with the Domestic Wireline BU, following completion of the spin-off of Telecom Italia information functions. These contracts, which have been devised to achieve maximum efficiencies by implementing competitive considerations on a market conditions basis, resulted in a significant reduction of revenues in sectors dedicated to operations of this nature.
Profitability increased progressively through 2001: Gross operating result, reached 332 million euros against 329 million euros in 2000 (+0.9%), and Operating income amounted to 162 million euros against 134 million euros for the previous year (+20.9%).
The accounts for 2001 closed with significantly improved results by Groups/companies operating within the IT Services business unit:
Finsiel Group: revenues 1,209 million euros, +3.6%; Gross operating result corresponding to 168 million euros, +5.7%; operating income 124 million euros, +15.9%.
Telesoft Group: revenues 525 million euros, +16.7%; Gross operating result 42 million euros, +24%: operating income 25 million euros.
Netsiel: revenues 359 million euros; Gross operating result 119 million euros; operating income 14 million euros.
For International Operations 2001 was characterized by an extension of international presence and by optimization of the portfolio of operations oriented towards focusing Group presence in Europe and in Latin America.
Notably, further stakes were acquired in March in the Entel Chile Group, taking the Telecom Italia interest to 54.76%. Early in the year the shareholding structure of Auna was revised, leaving the Telecom Italia Group with a stake of 26.89% (in December 2001 this interest was disposed of). In April Jet Multimedia acquired 100% of Victoire Multimedia from the LVMH Group. During the first quarter of 2001, 30% of Mediterranean Nautilus S.A. was sold to Fishman Group company FTT Investment.
Compared to the preceding year, the area of consolidation was extended to include the Entel Chile and Jet Multimedia Groups (which were consolidated in 2000 purely on an equity basis). Over the same period subsidiary company Nortel Inversora, the holding company that controls Telecom Argentina, exited the area of consolidation, and at year-end 2001 was consolidated under the shareholders´ equity method.
Revenues from International Operations in 2001 reached 1,879 million euros, +272% compared with the previous year (505 million euros). Gross operating result reached 347 million euros, compared with a negative figure of 3 million euros for the previous financial year. Operating income posted a loss corresponding to 268 million euros (-135 million euros in 2000). The difference compared to 2000 was substantially the result of greater write-downs for goodwill, and increased adjustment allocations regarding the Entel Chile and Jet Multimedia Groups.
A breakdown of income data for the Group’s principal holdings follows:
- Entel Chile Group registered revenues in 2001 of 1,251 million euros (+35.8% compared with 2000), Gross operating result corresponding to 374 million euros (+28.5%) and Operating income of 128 million euros (+12.5%).
- Brasil Telecom Group turned in very impressive figures for 2001, with revenues of 3,074 million euros (+36.6% compared with 2000 (1) ) Gross operating result of 1,633 million euros (+29%). Operating income reached 571 million euros, a 38% rise compared with 2000.
- 9Telecom Group registered revenues of 277 million euros, up 188.5% compared with the preceding year. Gross operating result and Operating income was negative, respectively 129 (+14.6%) and 296 million (-69%) euros (2000). The number of voice (+86.7%) and Internet customers was up sharply (+153.3%).
- Telekom Austria closed the year with revenues of 3,943 million euros, up slightly on the preceding year. Gross operating result was up at 1,488 million euros (+36.9% compared with 2000) and Operating income improved to 326 million euros.
- Telekom Serbia at year-end registered revenues of 438 million euros, up 20% compared with 2000. Gross operating result was 161 million euros (+3.8%) and Operating income amounted to 49 million euros, a 24% drop.
Milan, 26 March 2002
(1) Comparison of Brasil Telecom figures for 2000 and 2001 is not on an equivalent terms basis, as during the course of 2000 acquisition was made of the CRT carrier, which was consolidated solely for the final 5 months of the year. On equivalent terms with pro-forma data for the 2000 financial years, revenues rose by 17.2%.