Consolidated earnings: €1,211 million (+26% with respect to H1 2009)
Net cash flow: €370 million (Approx. +€700 million with respect to H1 2009)
Steady and continued recovery of organic service revenues in line with the strategic plan: -3.4% in Q2 2010, -4.1% in Q1 2010, -6.2% in Q4 2009
Bernabè: “Rigorous operational control and an effective financial management enable Telecom Italia Group to close the first half of 2010 with profits up against the same period of last year. The improved revenue mix, stabilisation of Ebitda and reduced debt confirm we are in line with our Plan"
Revenues: €13,223 million, down 0.7% compared with H1 2009; organic variations is -5.1%
EBITDA: €5,733 million (+3.4% compared with H1 2009)
Organic EBITDA: €5,749 million (stable compared with
H1 2009)
Organic EBITDA margin: 43.5% (41.3% in H1 2009; +2.2 pp)
EBIT: €2,881 million (+7.3% compared with H1 2009)
Adjusted net financial position: €33,579 million, down €370 million on 31 December 2009 (€33,949 million) after the distribution of dividends of over €1 billion; -€1,280 million compared with 30 June 2009 (€34,859 million)
Second Quarter 2010 Results
Revenues: 6,810 million, improved compared with Q1 2010; organic variation is -5.3% against Q2 2009
EBITDA: €2,907 million (+3.5% against Q2 2009)
Organic EBITDA: €2,913 million (-0.4% against Q2 2009)
Organic EBITDA margin: 42.8% (+2.1 pp against Q2 2009)
EBIT: €1,473 million (+10.7% against Q2 2009)
Net income: €610 million (+22.2% against Q2 2009)
In July the company paid out €418 million for the Sparkle case, already covered by a provision inthe previous year.
Agreement approved with Argentine partners on Sofora
The preliminary results for the first half of 2010 will be illustrated to the financial community during a conference call scheduled for 4 pm (Italian time). Journalists may listen to the conference call, without asking questions, by calling: +39 06 33168.
In addition to the conventional financial performance indicators contemplated under IFRS, Telecom Italia Group uses certain alternative performance measures in order to give a clearer picture of the trend of operations and the company's financial position. These are: EBITDA; EBIT; organic difference in revenues, EBITDA and EBIT; accounting and adjusted net financial debt. For further details please see the attachment “Alternative performance measures”.
The Telecom Italia Group First Half Financial Report at 30 June 2010 was drafted in accordance with art. 154–ter (Financial Reporting) of Leg. Decree 58/1998 (Unified Finance Law - TUF) and subsequent amendments and supplements and prepared in accordance with the international accounting principles issued by the International Accounting Standards Board and approved by the European Union (IFRS), as well as the provisions of art. 9 of Leg. Decree 38/2005.
The accounting and consolidation principles adopted in the preparation of the Interim Statements at 30 June 2010 were consistent with those used for the Consolidated Annual Statements at 31 December 2009, with the exception of certain new Principles/Interpretations adopted by the Group from 1 January 2010. These new Principles/Interpretations have no impact on the Interim Consolidated Statements at 30 June 2010.
Note that restatements have been made to the economic and financial data for H1 2009 provided for comparison to correct errors from previous years - as defined by IAS 8 (Accounting policies, changes to accounting estimates and errors) – in relation to the Telecom Italia Sparkle case described in detail in the Telecom Italia Group Consolidated Statements at 31 December 2009 (impacts on 1H 2009 are described here attached). Beginning with the Telecom Italia Group Interim Consolidated Statements at 30 June 2010, following a detailed review of the indirect taxes paid by the Group in the various jurisdictions and also in view of the forthcoming adoption by Tim Brasil (a Group company) of IFRS accounting principles, certain taxes paid in Brazil have been moved from the item "Other operating costs" to the items "Revenues" and "Other income". Further small classification changes were also made resulting in a restatement of the comparable periods.
Note that the section "Outlook for the 2010 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 operations and strategies. Readers should not place undue reliance on such forward-looking statements, as final results may differ significantly from those contained in the statements owing to a number of factors, the majority of which are beyond the Group’s control.
Finally, please note that the limited audit work by our independent auditors on the Telecom Italia Group Consolidated Half-year Financial Statements at 30 June 2010 has not yet been completed.
Those unable to connect live may follow the presentation until Thursday 12 August by calling: +39 06 334843 (access code 300551#).
The Telecom Italia Board of Directors, chaired by Gabriele Galateri di Genola, today examined and approved the Group’s First Half Financial Report at 30 June 2010.
Franco Bernabè, CEO of Telecom Italia, said: “The positive results of H1 2010, showing also an improved revenue mix, confirm the effectiveness of our repositioning strategy in the core markets, Italy and Brazil. The focus on high margin revenues together with efficiency gains and cost controls have enabled us to keep organic EBITDA substantially stable and raise our margin to 43.5%. These measures, together with effective financial management, allowed us to increase net profits by around €252 million to €1.21 billion, up 26% against the first half of 2009.”
“In addition, we continued to improve cash generation fitting the reduction of debt outlined in the Plan. We will go on along this path into the third quarter also thanks to lower cash outlays for taxes by the Parent compared with July 2009, for around €600 million.”
“Finally, the agreement with Argentine partners on Sofora, approved today by the Board of Directors, allows us to resolve all outstanding disputes with our local partners and extend the range of our growth options in Latin America.”
Telecom Italia Group
In the first half of 2010 HanseNet Telekommunikation GmbH (a German broadband carrier), already classified under Discontinued Operations (Non-Current Assets Held for and Discontinued Operations), was excluded from the consolidation area following the sale of the company on 16 February 2010.
As of 30 June 2010, two further companies were classified as Non-Current Assets Held for , following the decision to sell them. These were BBNed group (consolidated under Other Operations) and Elettra (consolidated within the Domestic-International Wholesale business unit). As a result the contribution of the two entities to the consolidated balance sheet has been restated under two special items, “Assets Held for ” and “Liabilities Directly Related to Assets Held for ”.
The main changes during 2009 were as follows:
> on 30 December 2009 Tim Participações acquired 100% of the Brazilian fixed network operator Intelig Telecomunicações Ltda, consolidated from that date under Telecom Italia Group, within the business unit;
> Telecom Media News S.p.A. was excluded from the consolidation perimeter from 1 May 2009, following the sale of a 60% stake in the company by Telecom Italia Media S.p.A.
Revenues in H1 2010 amounted to €13,223 million, down 0.7% from €13,321 million in the first half of 2009 (-€98 million). In terms of organic variation, the decrease in consolidated revenues was by 5.1% (-€715 million).
In detail, the organic variation in revenues is calculated by excluding:
Cash flow from operations stood at €2,152 million, down €92 million from the same period of the last year. In percentage terms cash flow from operations represents 16.3% of revenues compared with 16.8% in H1 2009.
Adjusted net financial debt (excluding the purely accounting and non-monetary effects of the valuation at fair value of financial derivatives and related assets/liabilities) is €33,579 million, down €370 million with respect to 31 December 2009 (€33,949 million) and by €1,280 million with respect to 30 June 2009. This is mainly due to the positive effects of operations and gains from the sale of HanseNet, which amply cover the impact of the preventive seizure of €282 million by the courts as part of the Telecom Italia Sparkle case, as well as the distribution of dividends for a total €1,060 million.
In Q2 2010 adjusted net financial debt increased by €317 million from the €33,262 million at 31 March 2010: the distribution of dividends has absorbed the positive effects of dynamic management.
Accounting net financial debt stood at €34,029 million, down by €718 million from 31 December 2009 (€34,747 million) and by €105 million against 31 March 2010 (€34,134 million).
Group headcount stood at 70,590 employees, of whom 60,455 in Italy.
***
Business Units Results
Figures for Telecom Italia Group included in this press release refer to the following business units:
Domestic Business Unit: includes domestic fixed-line and mobile-line voice and data services provided to end users (retail) and other carriers (wholesale), as well as associated support operations;
Business Unit: refers to telecommunications operations in ;
Media Business Unit: includes TV network-related activities and operations;
Olivetti Business Unit: focuses on the development and manufacturing of digital printing systems and office products and IT services;
Other Operations: includes financial firms and other smaller operations not strictly related to Telecom Italia Group's core business.
Following the sale in H1 2010 of HanseNet, already classified among Discontinued Operations, the European BroadBand business unit has been removed. The other companies originally included in that business unit have been moved under Other Operations.
From 1.1.2010 the companies and HR Services, previously consolidated under Other Operations, were included in the Domestic BU perimeter. In order to make a proper comparison possible, segment reporting for comparable periods has been restated accordingly.
Figures for Telecom Italia Media at 30 June 2010 can be found in the press release issued on 29 July 2010, following the Board Meeting's approval.
Domestic
Domestic revenues amounted to €10,091 million, down 7.4% on H1 2009 (€10,892 million) and with an organic variation of -7.4%.
Highlights:
Core Domestic Revenues
Core Domestic revenues amounted to €9,563 million, down 7.5% on H1 2009 (€10,337 million) and with an organic variation of -7.5%.
The performance of the individual market segments as compared with the first half of 2009 is as follows:
· Consumer: revenues fell by €603 million (-10.9%), of which €482 million (-9.1%)
in revenues from services and €121 million in revenues from product sales. This was mainly attributable to a fall in revenues from voice services, in particular fixed-line telephony (-€212 million) and outgoing mobile calls (-€230 million), essentially as a result of the new marketing policies introduced in the second half of 2009 designed to reposition the offering more competitively, and partly due to a contraction in the customer base (which, thanks to the early impact of the new marketing policy, is on an upward trend with respect to the previous quarter). A further factor was the decline in mobile termination revenues (-€87 million, of which €56 million resulting from the reduction in tariffs). Other areas of non-traditional business (VAS and Internet), notwithstanding the decline in revenues from messaging (-€40 million) and mobile content (-€13 million), improved with respect to 2009, thanks to continued growth in broadband services in both the fixed-line (+€48 million) and mobile (+€42 million) segments;
· Business: this segment reported a fall in revenues of €127 million (-6.6%), though demonstrating in the second quarter a gradual recovery on previous quarters (Q2 2010: -5.4%; in Q1 2010: -8.0%; in Q4 2009: -10.2%). The improving trend, seen in both the fixed-line and mobile segments, is a result of the positive marketing strategy introduced in the second half of 2009, aimed at more effectively protecting the customer base and the acquisition of higher quality new customers (especially in the mobile segment). In the fixed-line segment, the contraction in voice subscribers in Q2 2010 (-24,000) was smaller than that in the first quarter (-25,000).
Broadband accesses grew by 16,000, less than in Q1 2010 (+27,000) that saw the fastest growth since Q2 2008.
In the mobile segment, the net increase in lines (+105,000) is the highest since the second quarter of 2008.
· Top: total revenues fell by €108 million (-5.9%) compared with the corresponding period of 2009, Q2 recording an improving trend (-4.8%) with respect to Q1 (-7.2%) due to sales growth and substantially stable revenues from fixed-line and mobile services. This result was achieved despite the continued fall in voice and data revenues for the fixed-line segment (largely due to pricing dynamics typical of mature services). Countering this trend is the growth in ICT Services (Revenues from Services +1.3%) and Mobile Revenues (+10.5%), the latter driven by the continual expansion of the customer base and of VAS (+29.5%), especially Interactive services (+32.2%).
· National Wholesale: the increase in revenues (+€55 million, +5.6%) was driven by growth in OLO (Other Licensed Operators) Local Loop Unbundling, Wholesale Line Rental and Bitstream customers.
International Wholesale Revenues
In H1 2010 the International Wholesale segment (Telecom Italia Sparkle Group) posted revenues of €805 million, down €72 million from the same period of 2009 (-8.2%), mainly as a result of weaker voice figures (-€69 million).
Besides the breakdown by market segment given above, the following revenue figures are distinguished by technology (fixed-line/mobile).
Fixed-Line Telecommunications Revenues
In H1 2010 revenues amounted to €7,058 million, down €343 million (-4.6%) from the previous year period. The organic change in revenues was negative by €344 million (-4.6%).
At 30 June 2010 retail accesses stood at 15.7 million (-356,000 compared to 31 December 2009). The wholesale customer portfolio grew to approx. 6.5 million accesses (+297,000 compared with 31 December 2009).
The total BroadBand portfolio at 30 June 2010 amounted to 9.0 million accesses (+217,000 compared to 31 December 2009, of which over 7.1 million retail and 1.8 million wholesale accesses).
Retail Voice
Revenues for this business came to €3,123 million (-379 million; -10.8% on H1 2009). All market segments suffered a physiological reduction in the customer base - though steadily improving - and weaker traffic volumes due to the very competitive operating environment. This is in addition to the reduction in regulated fixed-to-mobile termination rates.
Internet
Revenues amounted to €888 million, up €47 million from the corresponding period of 2009 (+5.6%). The total retail broadband portfolio exceeded 7.1 million accesses on the domestic market, up 134,000 accesses from the end of 2009. Flat-rate customers have reached 85% (83% at end of 2009) partly thanks to the introduction of the new “Internet senza limiti” and “Tutto senza limiti” offers aimed at the consumer market.
Business Data
Revenues from the Business Data segment came to €759 million, down €67 million (-8.1%) from the same period of 2009, reflecting the current negative economic climate as well as the contraction in prices of traditional leased line and data transmission businesses. In the ICT segment revenues slipped to €18 million (-4.8%) owing to a fall in product sales (-€20 million), in line with a strategy of focusing on higher margin items, while the services component continues to grow (+€2 million; +0.8%).
Wholesale
In H1 2010 the customer portfolio of Telecom Italia’s National Wholesale division consisted of roughly 6.5 million accesses for voice services and 1.8 million accesses for broadband services.
Overall, revenues from National Wholesale services were up by €94 million compared to the corresponding period of 2009 (+6.6%). The upwards trend in revenues in this sector is ascribable to growth in the alternative operator customer base, which is served by a variety of access types. Total Wholesale sector revenues for H1 2010 were €2,093 million.
Mobile Telecommunications Revenues
Revenues from Mobile Telecommunications in the first half of 2010 came to €3,908 million, down €404 million (-9.4%) on H1 2009. Revenues from services fell by 7.3% and revenues from products by 45.8%.
At 30 June 2010 Telecom Italia provided around 30.5 million mobile lines, an increase of 152,000 lines from Q1 2010. The decrease from 31 December 2009 can be ascribed to a more selective policy that places special focus on high value-added customers.
Outgoing voice
Revenues amounted to €2,048 million, down €292 million (-12.5%) from the same period of 2009, mainly due to the new policy introduced in Q4 2009 intended to make rates more competitive and to stimulate in particular traffic within the TIM client community.
Incoming voice
Revenues stood at €715 million, down €61 million (-7.9%) from the previous year, mainly due to the lower mobile termination rates.
Value added services (VAS)
Revenues came to €1,022 million, up 5.5% on the previous year period. This growth was mainly due to interactive VAS, which grew 18.6% thanks primarily to revenues from browsing (+28.9%). VAS revenues account for around 27.0% of total revenues from services.
Handset sales
Revenues amounted to €123 million, down €104 million (-45.8%) from the same period of 2009. Rationalization of the product portfolio continues with a greater focus on quality and on profitability (smartphones and Internet keys).
- EBITDA for the Domestic business unit amounted to €4,920 million, down €118 (-2.3%) million from the corresponding period of 2009. EBITDA margin was 48.8%, up 2.5 percentage points from the previous year period. The contraction in revenues is partly compensated by selective control of marketing expenses and strict containment of fixed costs.
- EBITDA in organic terms came to €4,936 million. The organic change was negative by €150 million (-2.9%), with the EBITDA margin standing at 48.9% of revenues, 2.2 percentage points higher than the same period of 2009.
- EBIT for the Domestic BU amounted to €2,758 million, €47 million higher (+1.7%) than the corresponding period of 2009, with EBIT margin of 27.3% (24.9% in H1 2009). The variation in EBIT, besides the factors given for EBITDA, was mainly due to a reduction in amortisations of €119 million. The organic change in EBIT was negative by €34 million (-1.2%) while EBIT margin came to 27.5% of revenues (25.8% in H1 2009).
- Capex amounted to €1,487 million, down €117 million from the same period of 2009 mainly due to lower investments on network and service platforms. The capex margin was 14.7%, in line with H1 2009.
- The headcount came to 58,899 employees, 468 fewer than on 31 December 2009.
Brazil
(average real/euro exchange rate 2.38434)
Revenues of Tim Brasil Group in H1 2010 came to 6,855 million reais, 436 million higher (+6.8%) than H1 2009. The organic growth in revenues is +2.1% (compared to 6,711 million reais in H1 2009 with the same perimeter due to the entry of Intelig Telecomunicações Ltda). Revenues from services in the first half of 2010 came to 6,526 million reais, up 11.1% from 5,874 million reais in the previous year period. Revenues from products fell from 545 million reais in H1 2009 to 329 million reais in H1 2010 (-39.6%).
ARPU (Average Revenue Per User) stood at 24.3 reais in June 2010 compared with 26.8 reais in June 2009. The total number of lines at 30 June 2010 was 44.4 million, 17.4% higher than on 30 June 2009, representing a 24.0% market share.
EBITDA amounted to 1,961 million reais, up 420 million reais from H1 2009 (+27.3%); EBITDA margin was 28.6%, up 4.6 percentage points from the previous year period. This result was achieved thanks to increased revenues, expansion of higher margin “on net” traffic, and in general continual efficiency gains in cost areas not directly correlated to business growth. Compared to H1 2009, the organic change in EBITDA amounted to +312 million reais, with the EBITDA margin standing at 28.6% (24.6% in H1 2009).
EBIT amounted to 393 million reais, an improvement of 286 million on H1 2009. This result can be ascribed to the higher contribution of EBITDA compared with the first half of 2009, in part offset by an increase in amortisations of 134 million reais (1,563 million reais in H1 2010, 1,429 million reais in H1 2009). Compared to the same period of 2009, the organic change in EBIT was positive by 240 million reais, with EBIT margin standing at 5.7% (2.3% in H1 2009).
Capex amounted to 1,210 million reais, an increase of 367 million with respect to H1 2009, mainly due to higher spending on the network and IT platforms.
The headcount came to 9,415 employees, 368 fewer than on 31 December 2009.
Olivetti
Revenues in H1 2010 were €176 million, up €23 million compared with H1 2009. In terms of total Commercial Channel revenues the increase appears even more significant (+€25 million, up 18% on the previous year period), thanks in part to the first positive effects of the renewed offering following the company's strategic repositioning in the IT market. A particularly important contribution came from sales of new product lines (Data Cards, NetBooks and NoteBooks) through the Olivetti and Telecom Italia channels.
EBITDA was a negative €16 million, €4 million lower than in H1 2009. This is attributable on the one hand to essential investments to support the company's growth, and on the other to the fact that the new offerings during the start-up phase, while significant in volume terms, nonetheless earn lower margins than traditional products, whose sales are in decline.
EBIT was a negative €18 million, €3 million lower than in H1 2009.
Capex amounted to €3 million, down €1 million from the same period of 2009.
Headcount came to 1,105 employees, (1,014 in Italy and 91 overseas).
***
Outlook for the 2010 financial year
As regards Telecom Italia Group's outlook for the ongoing financial year, the goals linked to the main economic indicators, as described in the 2010-2012 Industrial Plan, foresee the following outcomes for the whole 2010:
- Organic Revenues (equivalent exchange rate and consolidation perimeter) down by between 2% and 3% compared with the previous year;
- Organic EBITDA essentially stable compared with previous year;
- Capex of around €4.3 billion;
- Adjusted net financial debt of around €32 billion by year-end 2010.
***
Events subsequent to 30 June 2010
- Employee Stock Ownership Plan
On 29 July 2010 Telecom Italia issued 27,056,139 ordinary shares (representing 0.20% of the class of capital and 87% of the maximum 31,000,000 ordinary shares, approved by the Board of Directors on 6 May 2010 with powers granted by the Shareholders’ Meeting on 29 April 2010).
The shares were offered to employees from 28 June to 9 July 2010 and the offer was taken up by more than 9,000 employees (around 16% of those eligible). The offering price for the shares was €0.84, corresponding to a 10% discount on the arithmatic average of closing prices for Telecom Italia ordinary shares on the Italian Stock Exchange MTA from 25 May 2010 to 25 June 2010.
Following this operation, the total quantity of ordinary Telecom Italia shares issued is 13,407,963,078, and the share capital of Telecom Italia stands at €10,688,746,056.45.
- Long Term Management Incentive Plan
Again on 29 July 2010 the Long Term Incentive Plan 2010-2015 was launched, approved by the Shareholders' Meeting of 29 April 2010, and reserved for certain executives not already beneficiaries of other long term incentives plans.
The 2010-2015 LTI Plan foresees the award of a cash bonus based on the three-year performance of the company (2010-2012) measured against predetermined metrics. The beneficiaries have the option of investing 50% of the bonus received in newly issued ordinary shares at a strike price based on the prevailing market stock price. The maximum reserved capital increase will be €4,377,300. Recipients who hold their shares for two years, providing they remain employees of Telecom Italia or any other Group company, will receive in 2015 a portion of earnings, under art. 2349 C.C., in the form of one newly issued share for each share held.
- BBNed Group
On 16 July 2010 Telecom Italia Group announced that it has reached an agreement with Tele2 for the sale of BBNed. The decision to sell is in line with Telecom Italia Group's intention to reposition itself in its core markets and will have no substantial impact on the Group's consolidated accounts.
The agreed sale price reflects an enterprise value of around €50 million.Completion of the deal is subject to approval by the anti-trust authorities in the Netherlands.
- Telecom Italia Sparkle – update on the alleged VAT fraud
On 7 July 2010, the Lazio Regional Office of the Agenzia delle Entrate (Revenue Agency), based on the findings of inquiries by the Guardia di Finanza, served Telecom Italia Sparkle with notice of assessment ("avviso di accertamento") regarding the non-deductibility of VAT for a total of around €298 million, plus interest and penalties. On 19 July 2010 payment was made of €418 million to the Revenue Agency. Following a thorough assessment, and with the advice of expert opinion, Telecom Italia Group decided it was advisable to proceed with payment of reduced penalties (at 25% as opposed to 100% of the penalties) and the full amount of VAT allegedly unrecoverable plus interest. You are reminded that, with a view to a possible pre-litigation settlement of the presumed amount, the company had already set aside a specific provision in the balance sheet for FY 2009. The company is currently examining possible courses of action to recover this amount. In the meantime Telecom Italia Sparkle has applied for an annulment of the seizure of €298 million (representing the VAT credit related to the years of the allegedly illicit activities) ordered by the Rome DPP in February 2010, and is also working to recover a bank guarantee for around €123 million issued in favour of the tax authorities.
- Union Agreement
The agreement signed yesterday with the Trade Union Organisations provides for economic efficiencies as outlined in the Strategic Plan (delta efficiency 2009 – 2012 of €400 million).The agreement, which foresees mainly structural interventions such as voluntary mobility, will allow us to achieve and increase labour cost benefits over the Plan’s time-span.
An estimated net provision for approximately €240 million will made during the year. This allowance will have no impact on market guidance.
- Argentina
The Board of Directors also examined all the options for the valorisation of the Argentine asset which have emerged over recent months, including the eventual disposal of the shareholding. Following this analysis, the Board has opted for an agreement with W de Argentina Inversiones SL Group, local partner holder of 50% of Sofora Telecomunicaciones SA, which will enable to reinforce the existing partnership and end all disputes between the partners. The agreement reached reinforces the key principles of the partnership and Telecom Italia's role in Argentina. The agreement also makes a number of changes to the partnership’s governance which Telecom Italia believes may make a positive contribution to the resolution of the issues already raised by the Argentine authorities. The renewed collaboration with W Group will enable Telecom Italia Group to explore all the various options for its future presence in the country.
The Manager designate for the preparation of accounting and corporate documents, Andrea Mangoni, hereby declares, pursuant to paragraph 2, Art.154-bis of Italy’s Financial Law, that the accounting information contained herein corresponds to the company’s documentation, accounting books and records.
