TELECOM ITALIA GROUP
NET CONSOLIDATED RESULT: 721 M EUROS (+86%); 382 M EUROS (+31%) EXCLUDING GAINS FROM DISPOSALS
FREE CASH FLOW: 1,608 M EUROS (+136%)
FINANCIAL DEBT FURTHER REDUCED BY 1,324 M EUROS COMPARED TO 31 DECEMBER 2001
DEBT MATURITY FURTHER LENGTHENED:
80% IN EXCESS OF 12 MONTHS
At today´s Telecom Italia Board of Directors meeting, chaired by Marco Tronchetti Provera, the Board approved the first quarter 2002 financial statements.
Telecom Italia Group First-quarter 2002 (1)
In the first quarter of 2002 the net consolidated result post minorities was 721 million euros, up 86.8% compared with the first quarter of 2001 (386 million euros).
The result was positively impacted by net gains from disposal of holdings worth 339 million euros (94 million euros in the first quarter of 2001) and a significant reduction in value adjustments on investment assets.
The result before taxes and extraordinary items posted an improvement of almost 10% as it rose from 1,111 million euros to 1,221 million euros.
In the first quarter of 2002 disposals of holdings worth 962 million euros were made:
· disposal of the TIM Group´s 19.6% stake in BDT for 750 million euros, for a net gain of 484 million euros which added 266 million euros to the net consolidated result;
· acceptance of the Public Purchase Offer for Lottomatica by the Information Technology Market Business Unit (Finsiel Group) for 212 million euros, realizing a net gain of 93 million euros and a 73 million euro contribution to the net Group result.
Performance during the first quarter was as follows.
Group revenues amounted to 7,265 million euros, up 1.9% compared with the first quarter of 2001. This increase was the result of good performances by the TIM Group and growth in revenues from the Internet and Information Technology Market units, offsetting a slight fall in revenues from voice traffic (which posted an 8.7% increase in traffic minutes) generated by the Domestic Wireline BU, as price cuts scheduled by the Authority came into effect.
The consolidated gross operating result, equal to 3,274 million euros, remained at the same level as in the first quarter of the preceding year (3,287 million euros), accounting for a 45.1% gross operating result margin over revenues (46.1% in the first quarter of 2001). While domestic (Telecom Italia Domestic Wireline and Tim S.p.A.) Italian margins held firm, international items had a greater weight as margins fell below the average in both fixed line and wireless operations. Further, the Seat Pagine Gialle Group experienced the effects of consolidation of the "La7" TV channel.
Consolidated operating income, equal to 1,731 million euros, was substantially in line with the first quarter of 2001 (+10 million euros), and accounted for a 23.8% margin of revenues (24.1% in the first quarter of 2001). The balance of financial income and charges and participating interests was minus 510 million euros, a 100 million euro improvement compared with the same period during the preceding year, taking into account the benefits of value adjustments regarding investment assets after better results from a number of international holdings, and lower write-downs for goodwill on holdings after the devaluations undertaken in the 2001 accounts.
Consolidated free cash flow amounted to 1,608 million euros, up 927 million euros with respect to the first quarter of 2001, corresponding to 22.1% of revenues.
Headcount at 31 March 2002 was 108,831, down 1,125 compared with year-end 2001.
Investments amounted to 1,227 million euros. In the preceding financial year aggregate investments (4,708 million euros) were affected by non-recurring items worth 3,486 million euros from:
· Capex: GSM Brazil, 980 million euros;
· goodwill: outgoings for acquisition of Entel S.A. (Chile), 737 million euros;
· long-term investments for the mobile license in Turkey, 1,650 million euros; Net Creation, 119 million euros.
Consolidated net financial borrowings were equal to 20,618 million euros, down by 1,324 million euros compared to year-end 2001. Further changes were made to the debt structure in the first quarter of 2002: the proportion of debt due beyond one year increased from the figure of 64% at year-end 2001 to 80% at 31 March 2002, following the Telecom Italia S.p.A. 2,500 million euro bond issue on 1 February 2002, which is part of the Global Note Program.
Telecom Italia S.p.A.
Parent company revenues amounted to 4,190 million euros, after posting a fall equal to 70 million euros compared with the first quarter of 2001 (-1.6%). Higher revenues from subscription fees were offset by reduced average call traffic prices. That fact that the change compared with the first quarter of 2001 was so minimal confirms the leadership Telecom Italia enjoys on the fully liberalized Italian domestic market.
The gross operating result, equal to 1,875 million euros, kept pace with the first quarter of last year (-25 million euros), and generated the same margin on revenues as this period during the preceding year (44.7% against 44.6%).
Operating income, equal to 1,097 million euros, posted 2.7% growth (+29 million euros) compared with the first quarter of 2001, for a 26.2% margin on revenues, compared with 25.1% last year. The improvement may fundamentally be attributed to more efficient investment management, notwithstanding higher allocations made to cover bad debt.
Net income amounted to 280 million euros, a fall of 98 million euros on the first quarter of 2001. This may be ascribed predominantly to a worsening balance of financial income and charges and participating interests (-159 million euros), which absorbed the growth in operating profit (+29 million euros). Of particular influence on the result were:
· higher charges from value adjustments of investment assets (127 million euros) essentially due to: the devaluation of the interest in Nortel Inversora with regard to the holdings belonging to STET International Netherlands (37 million euros) and Telecom Italia (19 million euros); and an additional devaluation of Telecom Argentina bond securities held by Softe and Sogerim (33 million euros); along with SIN’s coverage of losses accrued by 9Telecom Reseau (54 million euros);
· increased net financial charges (47 million euros);
· a worse balance of extraordinary income and charges (-55 million euros);
· lower taxes on income (- 87 million euros).
Headcount at 31 March 2002 was 59,879, down 1,202 compared with year-end 2001, principally as a result of employees leaving and conclusion of redundancies pursuant to law no. 223/1991. Figures were also reduced after the disposal of the “Gestione Autoparco” company branch.
Investments reached a total of 521 million euros. Last year’s aggregate investments of 1,447 million euros were affected by non-recurring financial investments of 970 million euros, owing to the SIN capital increase for acquisition of Entel Chile.
Net financial borrowings amounted to 16,651 million euros, a decrease of 262 million compared with year-end 2001. This was principally the result of cash flows from operations during the year, which were sufficient to fully cover investment requirements. Debt composition changed in February with the issue of the Telecom Italia bond as part of the “Global Note Program”.
Domestic Wireline
Telecom Italia Domestic Wireline, the Telecom Italia fixed-line network services business unit, closed the first quarter of 2002 with a gross operating result of 1,943 million euros, which was substantially in line with the first quarter of 2001, and improved operating margins as the gross operating result/revenues margin reached 46.6% (+0.6 percentage points). This level once again makes DW number one among Europe’s principal carriers, and confirms its market leadership.
Operating income reached 1,200 million euros (+4.4%).
In the first three months of 2002 DW’s gross revenues amounted to 4,172 million euros, having recorded a very slight decrease (-1%) on the same period in 2001. Revenues performance saw a slight decrease in earnings from traditional voice services (-4.7% compared with the same quarter in 2001), which was partially offset by significant growth in revenues from wholesale services targeted at other domestic and international carriers and Internet Service Providers (+13.6%), in addition to growth in revenues from data and web offerings to business (+2.2%).
In the first three months of 2002 DW reasserted its leadership in the domestic traditional voice services market.
Headcount amounted to 56,903 at the end of March 2002, compared with 57,831 at year-end 2001.
Domestic Wireline invested in excess of 430 million euros in capital expenditure during the first quarter of 2002, targeted principally at broadband network development and innovative services.
TIM Group
In the first quarter of 2002 the TIM Group posted revenues of 2,498 million euros, up by 4.3% compared with the first quarter of last year. The gross operating result amounted to 1,221 million euros, up by 3.7% compared with the first quarter of 2001. Operating income, which rose by 1.8% compared with the first quarter of 2001, was equal to 831 million euros. The TIM’s net consolidated income post minorities was 918 million euros, a 519 million euro improvement over the same period last year. This increase was principally generated by extraordinary operations, notably income from disposal of the interest held in BDT (484 million euros), and improvements to financial resulting from associate companies IS TIM and Mobilkom Austria. At the end of the 1st quarter, headcount totalled 17,124, an increase of 403 with respect to year-end 2001. Most of the increase came in the South American region.
Seat Pagine Gialle Group
In the first quarter of 2002 the Seat Pagine Gialle Group recorded revenues of 333 million euros. The 14% increase compared with the first quarter of 2001 was principally the result of extension of the area of consolidation. On equivalent consolidation terms growth amounted to 1%. The gross operating result posted an increase on the same period in 2001, notwithstanding the seasonal impact associated with publication of the Yellow Pages and telephone directories, which reduces the meaningfulness of first quarter figures. On equivalent terms the gross operating result jumped by 90%, principally owing to improved profitability in the Directories unit and a positive gross operating result from Internet operations.
Operating income was a 69 million euros loss, a fall compared with the first quarter of last year. This was partially the result of higher write-offs for goodwill regarding companies consolidated after 31 March 2001, along with higher allocations to provisions for doubtful receivables. On equivalent terms an improvement of 10% was registered, principally as a result of reduced losses from Internet and Directory Assistance operations.
International Operations
International Operations BU revenues for the first quarter of 2002 amounted to 478 million euros, a 35 million euro increase (+7.9%) compared with the first quarter of 2001. This was principally the result of higher revenues from the Entel Chile and 9Telecom Groups.
Gross operating results, equal to 96 million euros, were more or less unchanged compared with the first quarter of the preceding year (97 million euros).
Operating income registered a significant improvement (45%) compared with the first quarter of 2001 (a loss of 40 million euros), to end at a loss of 22 million euros. This result was achieved through lower write-downs for goodwill on subsidiaries after the devaluations of 31 December 2001.
Capital expenditure, at 80 million euros, was on a downward trend compared with the first quarter of 2001 (122 million euros), registering a contraction of 34.4%.
Information Technology
In the first quarter of 2002 the Information Technology BU, which manages Telecom Italia Group IT operations and is domestic leader in Italy, continued to reorganize and reposition. The unit’s new strategy is based upon twin areas of operation:
· Information Technology Market (Finsiel Group) is responsible for IT operations oriented towards the external market. Specifically, to central and local government organizations implementing decentralization and e-government initiatives, along with companies, banks and enterprises competing on global markets. In the first quarter of 2002 revenues amounted to 270 million euros, after growth of 9.8% compared with the first quarter of 2001. Business Unit profitability, measured in terms of gross and net operating results, remained at similar levels to 2001
· Information Technology Group is the business unit that supplies technology innovation and IT operations services to Telecom Italia Group companies. In the first quarter of 2002 the Telecom Italia Board of Directors adopted a plan to restructure Group IT operations by uniting under IT Telecom the interests held by Telecom Italia and Finsiel in the companies of Netsiel, Telesoft, Sodalia, Saritel and Netikos. The Information Technology Group unit also oversees Telecom Italia Lab. Revenues amounted to 196 million euros (209 million euros in the first quarter of 2001).
Satellite Services
In the first quarter of 2002 the Satellite Services business unit posted revenues of 65 million euros, in line with the figures recorded in the first quarter of the preceding year. Turnover during the period was characterized by reduced operations in the aerospace industry, though this was countered by an increase in telecommunications services provision. Gross operating margin, investments and headcount totals remained more or less unchanged.
Real Estate and General Services
The Real Estate and General Services unit administers and creates value from Group property assets. It also plans and realizes construction and refurbishment ventures.
The unit is responsible for Telecom Italia S.p.A. in-house space and property belonging to three subsidiaries – Emsa, Telimm and Immsi – and associate companies Imser and Telemaco Immobiliare.
At 204 million euros, revenues were down on the first quarter of 2001 (-9.3%) as the internal costing system was realigned to reflect improved market conditions. In the meantime, the unit pursued its policy of rationalizing space occupied by Telecom Italia companies.
The downwards trend of operating costs partially compensated for lower revenues, as costs fell from 194 million euros in the first quarter of 2001 to 188 million euros during the same period in 2002 (-3.1%).
The gross operating result amounted to 16 million euros, compared with 31 million euros for the first quarter of 2001 (-48.4%).
Events occurring after 31 March 2002
As part of the buyback operation authorized by the 7 November 2001 Ordinary Shareholders´ Meeting, notification is hereby given at 7 May 2002 acquisition was made of 1,000,000 ordinary shares at an average price of 8.81 euros per share, for an aggregate investment of 8.8 million euros and 6,250,000 savings shares at an average price of 6.13 euros per share, for an overall countervalue of 38.3 million euros.
The company’s reference prices for 2002 were published in April, providing technical and economic conditions for network use for both switched carriage (interconnection) and unbundling of the local loop, in application of Italian Communications Regulatory Authority resolution no. 4/02/CIR issued in March.
In April Telecom Italia paid around 60 million euros to acquire 86% of the registered stock of EPIClink, of which 30.3% was acquired from Edisontel, 25.3% from Pirelli, 20% from IntesaBci, 8% from E_voluzione and 2.4% from Camozzi Holding. The transaction is subject to Anti-trust Authority approval.
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The Group confirms the earnings forecasts it made in the 2002-2004 Business Plan. Expectations for the current financial year are that operating income growth at least matches last year´s figures. The company also confirms its commitment to reduce net financial borrowings through prudent management of investments and costs, and continuation of the disposals plan.
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The Board of Directors appointed Mr Riccardo Ruggiero as General Manager of Telecom Italia S.p.A, in charge of the Domestic Wireline Business Unit activities.