- Consolidated earnings: €1,819 million (+57.2% compared with the first nine months of 2009)
- Adjusted net financial position: €32,985 million, down €964 million on 31 december 2009 (€33,949 million)
- Bernabè: “Telecom Italia’s commitment in pursuing its business transformation has delivered an improved revenue trend, primarily thanks to tim brasil. This confirms the strategic importance of latin america where we have recently acquired control of telecom argentina, thus reinforcing the group’s international profile. Meanwhile continuing rigorous cost control, together with sound cash flow generation, confirm that we are in line with our full-year profitability and debt reduction targets”
Revenues: €19,899 million, down 0.5% compared with the first nine months of 2009; organic variation is -4.9%
Ebitda: €8,475 million (-0.6% compared with the first nine months of 2009), net of provision for €240 million posted for headcount reduction plan
Organic ebitda: €8,747 million (-0.8% compared with the first nine months of 2009)
Organic ebitda margin: 44.0% (42.1% in the first nine months of 2009; +1.9 pp)
Ebit: €4,304 million (+0.3% compared with the first nine months of 2009)
Net income: €1,819 million (+57.2% compared with the first nine months of 2009); excluding non-recurring items, net income came to €1,993 million in the first nine months of 2010, up 14.6% compared with the same period of 2009
Adjusted net financial position: €32,985 million, down €964 million on 31 december 2009 (€33,949 million); -€2.1 billion compared with 30 september 2009
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The preliminary results for the first nine months of 2010 will be illustrated to the financial community during a conference call scheduled for 4:30 pm (Italian time). Journalists may listen to the conference call, without asking questions, by calling: +39 06 33168.
A slide presentation with audio streaming will be available at www.telecomitalia.com/9m2010. Those unable to connect live may follow the presentation until 11 November 2010 by calling: +39 06 334843 (access code 311975#).
This press release contains alternative performance indicators not contemplated under IFRS accounting standards (EBITDA; EBIT; Organic Difference in Revenues, EBITDA and EBIT; Net Financial Debt and Adjusted Net Financial Debt). These terms are defined in the Appendix.
The Telecom Italia Group Interim Financial Statements at 30 September 2010 were drafted in accordance with art. 154–ter (Financial Reporting) of Leg. Decree 58/1998 (Unified Finance Law - TUF) and subsequent amendments and supplements and with Consob Communication DEM/8041082 of 30 April 2008 (Quarterly reporting by issuers of listed shares who give Italy as state of origin).
The Interim Financial Statements do not undergo an external audit and were drafted in accordance with the international accounting principles issued by the International Accounting Standards Board and approved by the European Union (“IFRS").
The accounting and consolidation principles adopted in the preparation of the Interim Statements were consistent with those used for the Telecom Italia Group Consolidated Statements at 31 December 2009, with the exception of certain new Principles/Interpretations adopted by the Group from 1 January 2010 and already explained in the 2009 statements. These new Principles/Interpretations have no impact on the Interim Financial Statements at 30 September 2010.
No events or circumstances or variations to key variables occurred that required us to update the impairment test on the value of goodwill carried out for the Interim Consolidated Statements at 30 June 2010.
As a result of errors in previous years – as defined by IAS 8 – in relation to the Telecom Italia Sparkle case and described in detail in the Telecom Italia Group Consolidated Statements at 31 December 2009, restatements have been made to the economic and financial data for the first nine months of 2009 (including Q3) provided for comparison.
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 companies of TIM Brasil Group 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”.
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.
The Telecom Italia Board of Directors, chaired by Gabriele Galateri di Genola, today examined and approved the Interim Financial Statements at 30 September 2010.
Franco Bernabè, CEO of Telecom Italia, said: “The results for the nine months confirm that our strategy to reposition in core markets has been fully accomplished in Brazil, and that it is delivering concrete results in Italy in the fixed line segment, while it will require more time in the mobile one. The ongoing cost control together with rigorous financial management have allowed us to achieve a strongly improving net income of €1,819 million and to confirm our full-year EBITDA and debt reduction targets.
Finally, with the acquisition of control over Telecom Argentina - whose results will be consolidated starting in Q4 2010 - we have added a valuable asset in Latin America, a key area for the Group”.
TELECOM ITALIA GROUP
In the first nine months of 2010 the following companies left the consolidation area:
- HanseNet Telekommunikation GmbH (a German broadband carrier) already posted under Discontinued Operations; the sale took place on 16 February 2010;
- Elettra (included in the Domestic Business Unit – International Wholesale) sold on 30 September 2010.
As of 30 September 2010, following the decision to sell, BBNed Group (included under Other Operations) is considered a disposal under IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations). As a consequence, the assets and liabilities have been reclassified under two specific items in the Balance Sheet at 30 September 2010: “Assets Sold/Assets Held for Sale” and “Liabilities Directly Linked to Assets Sold/Assets Held for Sale”; the sale took place on 5 October 2010.
The main changes during 2009 were as follows:
- the entry on 30 December 2009 of the Brazilian fixed network operator Intelig Telecomunicações Ltda, following the acquisition of 100% by TIM Participações, consolidated within the Brazil Business Unit;
- exclusion of Telecom Media News S.p.A. from the consolidation area from 1 May 2009, following the sale of a 60% stake in the company by Telecom Italia Media S.p.A.
Revenues in the first nine months of 2010 amounted to €19,899 million, down 0.5% from €19,995 million in the first nine months of 2009. In terms of organic variation, the decrease in consolidated revenues was 4.9%.
In detail, the organic variation in revenues is calculated by excluding:
- the effect of changes to the consolidation area (+€190 million, referring to the entry of Intelig Telecomunicações Ltda into the Brazil BU in the first nine months of 2010);
- the effect of exchange rate variations (+ €733 million, resulting mainly from forex gains of the Brazil BU);
- other non organic profits of €6 million over the first nine months of 2009.
Revenues, broken down by business unit, are as follows:
Cash flow from operations came to €3,451 million, down €481 million from the first nine months of 2009, mainly due to the utilization of operating funds set aside in previous years in relation to the Sparkle case. Excluding this effect, cash flow generation for the period (€3,840 million) is substantially in line with the same period of the previous year.
Adjusted net financial position (excluding the purely accounting and non-monetary effects of the valuation at fair value of financial derivatives and related assets/liabilities) is €32,985 million, down €964 million with respect to 31 December 2009 (€33,949 million) and by €2.1 billion with respect to 30 September 2009. This is mainly due to the cash-in from the sale of HanseNet and Elettra, which amply cover the impact of the €418 million settlement of the Telecom Italia Sparkle case in July 2010, as well as the distribution of dividends for a total €1,061 million.
In Q3 2010 adjusted net financial position fell by €594 million from the €33,579 million at 30 June 2010: income tax payments were amply offset by the positive operating free cash flow generated in the quarter.
Accounting net financial position stood at €33,773 million, down by €974 million from 31 December 2009 (€34,747 million) and by €256 million against 30 June 2010 (€34,029 million).
Group headcount stood at 70,054 employees, of whom 59,903 in Italy.
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BUSINESS UNIT 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), Telecom Italia Sparkle business (international wholesale) as well as associated support operations;
- Brazil Business Unit: refers to telecommunications operations in Brazil;
- Media Business Unit: includes TV network-related activities and operations;
- Olivetti Business Unit: focuses on the development and manufacturing of digital printing systems, 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 the first nine months of 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 Shared Service Center 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 September 2010 can be found in the press release issued on 29 October 2010, following the Board Meeting's approval.
DOMESTIC
Domestic revenues amounted to €15,032 million, down 7.4% on the same period of 2009 (€16,234 million) and with an organic variation of -7.5%.
Highlights:
Core Domestic Revenues
Core Domestic revenues amounted to €14,251 million, down 7.6% (€15,416 million in the first nine months of 2009) and with an organic variation of -7.6%.
The performance of the individual market segments as compared with the same period of 2009 is as follows:
- Consumer: revenues fell by €947 million (-11.4%), of which €760 million (-9.5%) from services and €187 million from product sales. This was mainly attributable to a fall in revenues from voice services, in particular fixed-line telephony (-€298 million) and outgoing mobile calls (-€355 million). In response to not sustainable pricing premium new commercial policies have been introduced since the end of 2009, designed to reposition the offering more competitively, and thanks to which the contraction in the customer base was substantially halted in the last quarter. Although the recovery of costumer base was less important than expected. A further factor was the decline in mobile termination revenues (-€127 million, of which €83 million resulting from the reduction in tariffs) and in Mobile messaging (-€67 million). Meanwhile Internet services have trended positively compared with the first nine months of 2009 thanks to the continued growth of broadband services both fixed-line (+€50 million) and mobile (+€43 million).
- Business: this segment reported a fall in revenues of €166 million (-5.9%), nevertheless demonstrating also in the third quarter a gradual recovery on previous quarters (Q3 2010: -4.3%; Q2:-5.4%; Q1: -8.0%; Q4 2009: -10.2%). The improvement is a result of the positive marketing strategy already 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 Q3 2010 was around 30,000, -24,000 in Q2, -25,000 in Q1; with smaller quarterly declines than in 2009. Broadband accesses grew by approx. 12,000, less than in Q2 2010 (+16,000) and in Q1 2010 (+27,000). In the mobile segment, the net increase in lines came to +40,000.
- Top: total revenues fell by €147 million (-5.5%) compared with the corresponding period of 2009, with a Q3 2010 performance (-4.5%) substantially in line with the previous quarter (-4.8%) and better than Q1 (-7.2%). Revenues from services held firm, in particular in the fixed-line business, partly thanks to the resilience of revenues from ICT 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. Mobile revenues continue to grow (+7.7%), driven by the continual expansion of the customer base and of VAS (+21% ca.), especially Interactive services (+19% ca.).
- National Wholesale: the increase in revenues (+€66 million; +4.5%) was driven by the growth of OLO (Other Licensed Operators) Local Loop Unbundling, Wholesale Line Rental and Bitstream customers.
International Wholesale Revenues
In the first nine months of 2010 the International Wholesale segment (Telecom Italia Sparkle Group) posted revenues of €1,207 million, down €91 million from the same period of 2009 (-7.0%), mainly as a result of the price reduction for voice services (-€87 million).
Besides the breakdown by market segment given above, the following revenue figures are distinguished by technology (fixed-line and mobile).
Fixed-Line Telecommunications Revenues
In the first nine months of 2010 revenues amounted to €10,516 million, down €448 million (-4.1%) from the previous year period. The organic change in revenues was negative by €461 million (-4.2%). At 30 September 2010 retail accesses stood at 15.6 million (-513,000 compared with 31 December 2009). It is worth noting that the reduction in lines with respect to previous quarters has been improved (-263,000 in Q3 2009; -196,000 in Q1 2010; -160,000 in Q2 2010; -157,000 in Q3 2010). The wholesale customer portfolio grew to approx. 6.6 million accesses (+423,000 compared with 31 December 2009). The total BroadBand portfolio at 30 September 2010 amounted to ca. 9 million accesses (+292,000 compared to 31 December 2009), of which over 1.8 million wholesale.
Retail Voice
Revenues for this business came to €4,613 million (-€527 million; -10.3% compared with the first nine months of 2009). All market segments suffered a physiological reduction in the customer base - though steadily slowing - and weaker traffic volumes, both due to the competitive operating environment. In addition, the revenue trend suffers the reduction in regulated fixed-to-mobile termination rates. In particular, the contraction of revenues in the retail segment (-€178 million), was partially offset in the domestic business segment by the strong performance of National Wholesale services (+€73 million in Regulated Intermediate Services such as Local Loop Unbundling and Wholesale Line Rental).
Internet
Revenues amounted to €1,317 million, up €54 million (+4.3%) from the corresponding period of 2009. The total retail broadband portfolio reached 7.2 million accesses on the domestic market, up 186,000 accesses from the end of 2009. Flat-rate customers have reached 86% (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 €1,146 million, down €76 million (-6.2%) from the same period of 2009, reflecting the current negative economic climate as well as the contraction in prices of traditional leased lines and data transmission businesses. In the ICT segment revenues slipped to €28 million (-4.9%) owing to a fall both in product sales (-€20 million), in line with a strategy of focusing on higher margin items, and in services (-€8 million).
Wholesale
In the first nine months of 2010 the customer portfolio of Telecom Italia’s National Wholesale division reached 6.6 million accesses for voice services and over 1.8 million accesses for broadband services. Overall, revenues from National Wholesale services were up by €144 million compared to the corresponding period of 2009 (+6.8%). The upward 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 the first nine months of 2010 were €3,136 million (+2.6%).
Mobile Telecommunications Revenues
Revenues from Mobile Telecommunications in the first nine months of 2010 came to €5,822 million, down €674 million (-10.4%) on the first nine months of 2009. Revenues from services fell by 8.2% and revenues from products by 49.9%. At 30 September 2010 Telecom Italia provided around 30.6 million mobile lines, 88,000 more than in Q2 2010, showing an improving trend on a YoY basis, a strongly decreasing churn (the ratio between discontinued clients and the average client base) and active lines growing to 85% of the client base.
Outgoing voice
Revenues amounted to €3,069 million, down €439 million (-12.5%) from the same period of 2009. The new marketing strategy introduced in Q4 2009 intended to make rates more competitive and to stimulate in particular traffic within the TIM client community have not yet produced an upturn in volumes sufficient to compensate for the lower prices.
Incoming voice
Revenues stood at €1,047 million, down €105 million (-9.1%) from the previous year period, mainly due to the lower mobile termination rates.
Value added services (VAS)
Revenues came to €1,536 million, up 2.6% on the previous year period. This growth was mainly due to interactive VAS, which grew 12.5% thanks primarily to revenues from Browsing (+18.9%). VAS revenues account for around 27.2% of total revenues from services.
Handset sales
Revenues amounted to €170 million, down €169 million (-49.9%) 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 €7,210 million, down €493 million (-6.4%) from the corresponding period of 2009. EBITDA margin was 48.0%, up 0.6 percentage points from the previous year period. The contraction in revenues is partly compensated by selective and targeted marketing expenses and strict containment of fixed costs.
- Organic EBITDA came to €7,482 million. The organic change was negative by €279 million (-3.6%), with the EBITDA margin standing at 49.8% of revenues, 2.0 percentage points higher than the same period of 2009.
- EBIT for the Domestic BU amounted to €4,038 million, down €259 million (-6.0%) compared with the corresponding period of 2009, with EBIT margin of 26.9% (26.5% in the first nine months of 2009). The variation in EBIT was mainly due to a reduction in amortisations of €183 million. The organic change in EBIT was negative by €102 million (-2.3% in the previous year period) while EBIT margin came to 28.5% of revenues (27.0% in the first nine months of 2009).
- Capex amounted to €2,153 million, down €258 million from the same period of 2009 mainly due to lower investments on network and service platforms. The capex margin on revenues was 14.3%, in line with the first nine months of 2009 (14.9%).
- The headcount came to 58,317 employees, 1,050 fewer than on 31 December 2009.
BRAZIL
(average real/euro exchange rate 2.34125)
Revenues of Tim Brasil Group in the first nine months of 2010 came to 10,532 million reais, 804 million higher (+8.3%) than the corresponding period of 2009. Organic growth is +3.5%. Revenues from services in the first nine months of 2010 came to 9,945 million reais, up 11.3% from 8,939 million reais in the previous year period (+5.9% in organic terms). Revenues from products fell from 789 million reais in the first nine months of 2009 to 587 million reais in the first nine months of 2010 (-25.6%) due to the development of offers tailored more to the service than to handset subsidies.
ARPU (Average Revenue Per User) stood at 24.1 reais in September 2010 compared with 26.7 reais in September 2009. The total number of lines at 30 September 2010 was 46.9 million, 18.5% higher than on 30 September 2009, representing a 24.5% market share.
EBITDA amounted to 2,999 million reais, up 589 million reais from the first nine months of 2009 (+24.4%); EBITDA margin was 28.5%, up 3.7 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 the first nine months of 2009, the organic change in EBITDA amounted to +465 million reais, with the EBITDA margin standing at 28.5% (compared to 24.9% in the first nine months of 2009).
EBIT amounted to 778 million reais, an improvement of 536 million on the first nine months of 2009. This result can be ascribed to the higher contribution of EBITDA compared with the same period of 2009 (2,212 million reais in the first nine months of 2010, 2,156 million reais in the first nine months of 2009), in part reduced by an increase in amortisations of 56 million reais. Compared to the same period of 2009, the organic change in EBIT amounted to +503 million reais, with the EBIT margin standing at 7.4% (compared to 2.7% in the first nine months of 2009).
Capex amounted to 1,736 million reais, an increase of 206 million with respect to the first nine months of 2009, mainly due to higher spending on the network and IT platforms.
The headcount came to 9,445 employees.
OLIVETTI
Revenues in the first nine months of 2010 were €259 million, up €40 million compared with the first nine months of 2009. The growth is seen in all distribution channels, also thanks to the 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 €24 million, €6 million lower than in the first nine months of 2009. This is attributable on the one hand to marketing activities needed to support the company's growth, and on the other to the fact that the new offerings, while significant in volume terms, deliver lower EBITDA margin than traditional products whose cost structure has remained unchanged and sales are falling.
EBIT was a negative €27 million, €5 million lower than in the first nine months of 2009.
Capex amounted to €4 million, up €1 million from the same period of 2009.
Headcount came to 1,107 employees (1,018 in Italy and 89 overseas).
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OUTLOOK FOR THE 2010 FINANCIAL YEAR
As regards Telecom Italia Group's outlook for the ongoing financial year, based on the first nine months results, the following targets for the full year 2010 are confirmed:
- Organic EBITDA broadly stable compared with previous year;
- Capex of around €4.3 billion;
- Adjusted net financial position of around €32 billion by year-end 2010.
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EVENTS SUBSEQUENT TO 30 SEPTEMBER 2010
- Bond repayment
On 1 October 2010 the bond issued by Telecom Italia Capital S.A., with a semi-annual coupon of 4,875%, reached maturity and was repaid for a total USD 700 million.
- BBNed Sale
On 5 October 2010, after receiving authorization from the Dutch Antitrust Authority, Telecom Italia completed the sale of its entire stake in BBNed to Tele2 AB in line with its intention to reposition itself in its core markets.
- Telecom Argentina
On 13 October 2010, having received the necessary government authorizations, the company completed the transfer of Werthein Group's 8% stake in Sofora Telecomunicaciones S.A. (“Sofora”) - the holding company that controls Telecom Argentina - to Telecom Italia International, as foreseen by the agreements signed between the Group and Werthein on 5 August 2010.
The Argentine antitrust authorities and telecoms regulator have approved the deal, which allowed Telecom Italia to increase its stake in Sofora to 58% and thus obtain control of Telecom Argentina.
The agreements signed on 5 August also included a settlement of the ongoing legal proceedings with Telecom Italia’s partner Werthein, as well as a new shareholders' agreement regarding the governance of Telecom Argentina giving Telecom Italia management control of the Group, including the right to appoint the majority of corporate officers and top management. Werthein retains certain rights to protect its investment as well as the right to verify fulfilment of obligations regarding Telecom Argentina through a specially appointed independent compliance committee.
Under IAS/IFRS accounting principles (IFRS 3 revised), the operation will have a one-off positive effect on the bottom line of Telecom Italia Group's separate consolidated income statement for Q4 2010 of around €280 million, after recalculating the fair market value of the previous stake in Sofora at the acquisition date. The transaction will not have an impact on the accounts of Telecom Italia S.p.A..
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CORPORATE GOVERNANCE TOPICS
The Telecom Italia Board of Directors has also approved a procedure to guarantee fair and open dealings with related parties, pursuant to Consob regulation 17221/2010. The new procedure – which received the favourable opinion of the Internal Control and Corporate Governance Committee, meeting with only its independent members (Paolo Baratta – Chairman, Ronald Berger and Jean Paul Fitoussi), joined on this occasion by Director Luigi Zingales - will replace, with effect from 1 January 2011, the current code of conduct regarding transactions with related parties adopted by Telecom Italia as a self regulatory measure in 2006.
The document will be published shortly on the company web site www.telecomitalia.it, Corporate Governance section.
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The Manager designate for the preparation of corporate accounting 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.
